In CF Partners (UK) LLP –v- Barclays & Ors [2014] EWHC 3049 (Ch), the High Court (Hildyard J) awarded the Claimant 10 million Euros as ‘Wrotham Park’ damages for breach of an equitable obligation of confidence. So far as the writer is aware, this is the largest award of its kind to date, and is indicative of the increasing judicial willingness to assess damages by reference to the release or licence fee that would have been agreed in a hypothetical negotiation; see my earlier post on the One Step case. The CF Partners case gives some interesting guidance on the nature and basis of assessment, as well as on breach of confidence as a cause of action more generally.
The Facts
The facts are complicated (and addressed in the judgement in some 200 pages). In the summary that follows, the facts are simplified for the purposes of analysing the Judge’s most interesting legal conclusions.
In 2008, the Claimant (“CFP”) approached Barclays (“the Bank”) for a loan to finance its bid to acquire a target company with a large portfolio of carbon credits in a various hydro power projects (“T”). CFP had identified T as being undervalued in the stock market. In support of its loan application, CFP provided the Bank with a spreadsheet containing technical information about T and proposed routes to realising its intrinsic value (“the Spreadsheet”).
CFP’s negotiations with T fell through, and in 2010 the Bank acquired T, selling it on for a substantial profit in 2012. Amongst other things, CFP alleged that the Bank had used the Spreadsheet in deciding to target and/or in its acquisition of T, in breach of an equitable obligation of confidence. It was common ground that there was no fiduciary relationship between CFP and the Bank, but CFP claimed an account of profits, alternatively damages assessed on the ‘Wrotham Park’ basis.
Liability
The Court found that the Bank had acted in breach of its equitable obligations of confidence to CFP.
First, did the Spreadsheet contain confidential information at all? Whilst the Spreadsheet was compiled from information that was publically available, “the production of the final spreadsheet involved skill in the assessment of variables in respect of a difficult asset class in a new and developing market. It was time consuming and laborious, and was needed in order to present the relevant information (whatever its derivation) in technically robust and reliable, digestible and logical form for the purposes of assessment by financial institutions and potential purchasers” (para 936). The Judge thought that a useful litmus test of the confidentiality of the material in question was that it had caused the Bank to change its mind, suggesting that there was something of special insight and value provided to it (para 960). This reasoning will be familiar to commercial employment lawyers; employee competition cases have frequently acknowledged the confidentiality of key client listings and databases, the individual components of which may be available from public sources but where the confidence lies in the compilation and codification of the data and its utility in identifying market opportunities.
Secondly, had CFP proved that the Bank had misused the Spreadsheet? The Judge said that misuse had to be demonstrated and it was not enough to show that the recipient was influenced by the information; equally, a change of outlook was not sufficient; acting upon it had to be shown (para 982). However, “subconscious use may constitute misuse … misuse may be inferred from the fact that a defendant, having obtained the confidential information, is influenced by it (whilst it retains the quality of confidentiality) in determining and then embarking on a course of conduct otherwise than for the purpose for which it was provided” (paras 983 & 984). Confidential information may so saturate a person’s mind that it becomes virtually impossible to say of any given action that he was or was not influence by it (para 993). CFP’s presentation to the Bank had opened its eyes to T’s materially greater potential than the Bank had previously appreciated (para 1011), and was ultimately still causative when the Bank came to acquire T.
Thirdly, was CFP to be denied any relief on the basis of the Bank’s ‘unclean hands’ defence? It was common ground that this defence couldn’t apply to a common law cause of action, but could the fact that the spreadsheet itself included material that CFP had used/deployed in breach of an obligation to confidence to T provide a complete answer to the claim based on breach of the equitable obligation of confidence? The Judge said no. On the facts, the information the confidentiality of which CFP sought to vindicate was of very considerably greater scope and quality than the information it misused. The clean hands doctrine “is reserved for those exceptional cases where those seeking to invoke it have put themselves beyond the pale by reason of serious immoral and deliberate misconduct such that the overall result of equitable intervention would not be an exercise but a denial of equity” (para 1133).
An account?
The Judge rejected CFP’s claim form an account. In the absence of a fiduciary relationship, the usual remedy for a breach of an obligation of confidence (even one arising in equity) was damages, and an account would only be ordered in exceptional circumstances of the type identified by the House of Lords in AG –v- Blake. The “usual or default approach where there is no fiduciary relationship … is to restrict the claimant to a claim in damages” (para 1180). This is a statement of the orthodoxy. However, the Judge did observe that this did not “preclude an assessment of damages which is juridically similar to a gain based remedy, as is in part at least the Wrotham Park ‘negotiating damages’ approach” (para 1181). It is here where the judgement is at its most interesting.
Negotiating Damages
Basing himself on Seager –v- Copydex (No. 2) [1969] 1 WLR 809, the Judge started from the premise that the basic approach to any assessment of damages for breach of confidence (whether the obligation was contractual or equitable) was to assess the value the information that the defendant took (para 1182). If the information was trivial and readily available elsewhere, its value might be charged at the price a consultant would have charged to obtain it. If it was very special indeed, it might be valued on the basis of a capitalised royalty. If it fell somewhere in the middle (“involving something unusual such as could not be obtained by just going to a consultant”) a Wrotham Park approach would be justified (valuing the information “at the price a willing buyer would pay a willing seller”) (para 1184). The Judge thought that this was just such a case (paras 1194-1195).
Thus the Court had to ask – what consideration could CFP reasonably have demanded from the Bank as the quid pro quo for permitting the use of its confidential information (para 1198). This was a very artificial exercise, especially given the huge differences between the parties as to what would have been their negotiating position, which made it hard to envision any reasonable discussion between them (paras 1199-1200). In carrying out the exercise: the fact that the parties would not in practice have agreed a deal is irrelevant; the notional negotiation is deemed to have taken place in the commercial context as it existed at the date of breach; but if there had been nothing like an actual negotiation between the parties, the court could look at the eventual outcome and consider whether that provides a useful guide as to what the parties might have thought at the time of their negotiation (para 1204). Whilst the assessment is an objective one “the hypothetical negotiation may be informed by evidence as to what factors and negotiating arguments the parties say (subjectively) they would have advanced” (para 1205). But “it is for the court to decide what the shape and result of the hypothetical negotiation …. would have been” (para 1209). Whilst expert evidence may assists in identifying metrics for measuring the risks and potentialities idenitified during the hypothetical negotiation “the resolution is not for expert opinion but overall judicial assessment” (para 1210).
The assessment is not conducted solely by reference to the information actually found to have been misused, especially where the information concerned is a composite idea or (say) a dictionary – if you misappropriate a dictionary, you pay for the whole dictionary, not just for the few words you have looked up in it (paras 1212-1214). Moreover, it is not only past misuse which has to be franked, but (once misuse is established) the price payable for the release of the other party’s rights (para 1215). The assessment may be informed by the type of compensation that would have been sought and agreed by the (hypothetical) seller and purchaser – e.g cash, equity stake, brokerage payment or some blend thereof (para 1216). The Court inevitably has to paint with a broad brush; para 1295. In fixing on a figure of 10 million Euros, the Court took account of the fees that the Bank had proposed to charge CFP had it participated in its acquisition of T as a debt provider and M&A adviser. This was a contemporaneous indication that the transaction had a value that could withstand such a cost and still make the prize attractive; para 1299.
Conclusion
The assessment in any given case is likely to be highly fact sensitive. CFP had argued that the Wrotham Park assessment should yield no less than 45 million Euros. In one sense, therefore, the award fell below CFP’s expectations. But by the same token, it had not lost anything by the Bank’s actions. It did not claim it could have purchased T or sold the Spreadsheet information elsewhere but for the Bank’s actions. In reality, the Bank was forced to disgorge part of its gain. For its part, the Bank said that (at tops) any reasonable negotiation would have yielded less than a million. It seems likely that the case will be appealed, so watch this space. In the meantime, the case is further evidence that judges are becoming increasingly sympathetic to the use of negotiating damages to assess loss in commercial disputes. ‘Wrotham Park’ is on the march.
Tags: Wrotham Park