(iii) Gain-Based Remedies for Breach of Confidence

Gain-based remedies for breach of confidence typically take two forms, namely an account of profits and negotiation damages, which are preferably characterized as having compensatory and restitutionary components.^[1] But, whilst gain-based remedies are common for this type of action, they are not the only remedies which are available. Sometimes compensatory damages may be awarded,²⁴⁹ as may an injunction to stop a confidential relationship from being abused or damages in lieu of the grant of an injunction.²⁵⁰

(1) Account of Profits

Where the defendant has made a profit from the breach of confidence he or she may be liable to account for this profit to the claimant. Such a remedy is more likely to be available where the defendant has knowingly breached the confidence. This is illustrated by Peter Pan Manufacturing Corporation v Corsets Silhouette Ltd,²⁵¹ where the defendant had manufactured and sold bras knowingly using confidential information which it had obtained from the claimant. The defendant was held liable to account to the claimant for the profits which it had made as a result of breaking the confidence.

Where the defendant is liable for breach of fiduciary duty it is not necessary to show that but for the breach of duty the defendant would not have made a profit.²⁵² Since the action for breach of confidence does not depend on maintaining the highest standards of loyalty, the but for test of causation should be adopted.

(2) Negotiation Damages

An alternative remedy, where the defendant has inadvertently breached the duty of confidence, is for the claimant to be awarded damages assessed by reference to a notional reasonable price to buy the defendant’s release from the obligation of confidence,²⁵³ known as ‘negotiation damages’.²⁵⁴ Whilst this method for assessing damages is preferably treated as hybrid, embodying both compensatory and restitutionary elements,²⁵⁵ in the context of breach of confidence the remedy is typically characterized as compensatory.²⁵⁶ The award of this remedy is illustrated by Seager v Copydex Ltd²⁵⁷ where the defendant inadvertently used confidential information in manufacturing a carpet-grip. The basis for assessing the damages was held to depend on the nature of the information which was confidential.²⁵⁸ If the information which the defendant had used was of a type which could be provided by any competent consultant, it was held that damages should be assessed by reference to the fee which the defendant saved by not employing such a consultant. Such damages can easily be characterized as gain-based since they are assessed by reference to the defendant’s benefit, namely what he or she had saved in not paying a consultant. Alternatively, if the information can be characterized as special in that it could not have been obtained by employing a consultant, the damages should be assessed by reference to the market price for the information. To determine the market price it is necessary to consider what a willing purchaser would have paid a willing seller for the information.²⁵⁹ This too could be characterized as having a gain-based component, since the defendant will have benefited from not having to pay the market value for the information.

(3) Choice of Remedy

The claimant cannot elect between the negotiation measure of damages or an account of profits as a matter of right,²⁶⁰ in contrast to a claim for breach of fiduciary duty for which the principal does have a right to claim an account of profits. Rather, the choice of the ^{[2] [3] [4] [5] [6] [7] [8] [9] [10] [11]}

appropriate remedy for breach of confidence is a matter for judicial discretion.²⁶¹ In Vercoe v Rutland Fund Managers Ltd²⁶² Sales J sought to identify a principled approach to the award of pecuniary remedies for breach of confidence. He said:

the test is whether the claimant’s interest in performance of the obligation in question (whether regarded as an equitable obligation or a contractual obligation) makes it just and equitable that the defendant should retain no benefit from his breach of that obligation... The law will control the choice between these remedies, having regard to the need to strike a fair balance between the interests of the parties at the remedial stage, rather than leaving it to the discretion of the claimant.

Sales J acknowledged that, even in those cases where the breach involves the use of confidential information which is closely akin to a patent, as in Seager v Copydex, it does not necessarily follow that an account of profits will be awarded. Key factors to take into account in determining the remedy include:

• (1) Where the confidential information does not resemble classic intellectual property rights then it is much more likely that the claim will be treated as one simply involving a personal obligation, as in contract or tort, such that orthodox compensatory remedies are more likely, encompassing the negotiation measure.
• (2) The fact that the breach of confidence arises in the commercial context militates against the award of an account of profits, because a degree of self-seeking and ruthless behaviour is accepted in that context.²⁶³
• (3) Where the confidential information is transmitted in breach of a confidential relationship which can be characterized as being similar to a fiduciary relationship, an account of profits is more likely. ⁴ This is because the self-seeking behaviour of a fiduciary should be restrained by virtue of the obligations of trust and loyalty, such that abusive behaviour should be deterred.

On the particular facts of the Vercoe case it was held that the award of an account of profits was not appropriate. This was because there was no fiduciary or similar relationship between the parties; the relationship between the parties was contractual as regards the development of a business opportunity; the confidential information was not akin to intellectual property; and the negative covenant not to use confidential information was broadly equivalent to the restrictive covenant in the Wrotham Park case,²⁶⁵ where the negotiation measure was awarded. Consequently, in Vercoe the remedy for breach of confidence was the award of a sum which would have reasonably been negotiated to enable the defendant to exploit the information.

An additional consideration when determining which pecuniary remedy should be awarded arises from the equitable nature of the action for breach of confidence, which is founded on the defendant’s unconscionable conduct. It appears that the more unconscionable the defendant’s conduct, the more likely that account of profits rather than negotiation damages will be awarded. Consequently, if the defendant deliberately or recklessly breached the duty of confidence, this subjective unconscionability should be a significant factor in justifying the award of the typically more extensive remedy of an

Walsh v Shanahan [2013] EWCA Civ 411, [63] (Rimer LJ).

• 262 [2010] EWHC 424 (Ch), [339].
• 263 See also Experience Hendrix LLC v PPXEnterprises Inc [2003] EWCA Civ 323, [2003] 1 All ER (Comm) 830. See p 478, above.
• 264 Vercoe v Rutland Fund Managers Ltd [2010] EWHC 424 (Ch), [344].
• 265 Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798. See p 471, above.

account of profits. That is why the award of an account of profits could be justified in Peter Pan Manufacturing Corp v Corsets Silhouette Ltd.²⁶⁶ If, however, the defendant inadvertently breached the duty of confidence, the negotiation measure is more appropriate. That is why an account of profits could not be justified in Seager v Copydex.²

(4) Proprietary Remedies Following the Recognition of a Constructive Trust In principle, where the defendant makes a profit by misusing confidential information, that profit should not be held on constructive trust for the claimant, because there is no reason why the claimant should be considered to have an equitable proprietary interest in the profits. Confidential information is not property,²⁶⁸ so the defendant has not made a profit by interfering with the claimant’s property.

Various cases have concluded that the profits arising from breach of confidence cannot be held on constructive trust.²⁶⁹ But others have recognized that profits or property obtained as a result of the breach might be held on constructive trust.²⁷⁰ In LAC Minerals Ltd v International Corona Resources Ltd²⁷¹ the Supreme Court of Canada held that a constructive trust would be imposed as a remedy for a breach of confidence, so that the claimant had a proprietary interest in the defendant’s profits. But the imposition of a constructive trust in such circumstances is explicable simply by the fact that this was a Canadian decision, where the remedial constructive trust is recognized. In England, the constructive trust is considered to be a substantive institution rather than a remedy, so that it will only be invoked where the claimant has an equitable proprietary interest in property held by the defendant by operation of law in recognized circumstances, and obtaining profits from breaching the equitable duty of confidence does not fall within any of these recognized categories.²⁷² Even following the decision of the Supreme Court in FHR European Ventures LLP v Cedar Capital Partners LLC²⁷³ there is no reason to conclude that profits made from breach of confidence should be held on constructive trust for the claimant, save if the obligation to respect confidence is regarded as equivalent to the obligation of loyalty expected of a fiduciary. But the fact that breach of the duty of confidence does not involve breach of any fiduciary duty is vital here. The principles and policies relating to the imposition of a constructive trust on property held by a fiduciary, grounded on loyalty, do not obviously arise in the context of breach of the duty of confidence, even though the defendant may have breached the duty deliberately. This follows from the fact that the duty of confidence is not dependent on there being a relationship of trust and confidence between the claimant and the defendant. ^{[12] [13] [14] [15] [16] [17] [18] [19]}

• [1] 250 Attorney-General v Guardian Newspapers Ltd (No 2) [1990] AC 109, 286 (Lord Goff).
• [2] [1964] 1 WLR 96. 252 See p 504, above.
• [3] 253 Vercoe v Rutland Fund Management Ltd [2010] EWHC 424 (Ch), [292] (Sales J).
• [4] 254 Primary Group (UK) Ltd v Royal Bank of Scotland pic [2014] EWHC Ch 1082. See also Force India
• [5] Formula One Team Ltd v 1 Malaysia Racing Team Sdn Bhd [2012] EWHC 616 (Ch), [383] (Arnold J). See
• [6] generally p 429, above. 255 See p 431, above.
• [7] See Force India Formula One Team Ltd v 1 Malaysia Racing Team Sdn Bhd [2012] EWHC 616 (Ch),[381] (Arnold J); CF Partners (UK) LLP v Barclays Bank pic and another [2014] EWHC 3049 (Ch), [1203],(Hildyard J). See W Day, ‘An Application of Wrotham Park Damages' (2015) 131 LQR 218.
• [8] (No 1) [1967] 1 WLR 923; (No 2) [1969] 1 WLR 809.
• [9] Seager v Copydex Ltd (No 1) [1967] 1 WLR 923, 932 (Lord Denning MR).
• [10] Seager v Copydex Ltd (No 2) [1969] 1 WLR 809, 813 (Salmon and Winn LJJ).
• [11] Attorney-General v Blake [2001] 1 AC 268, 279 (Lord Nicholls); Vercoe v Rutland Fund ManagementLtd [2010] EWHC 424 (Ch), [334] (Sales J).
• [12] [1964] 1 WLR96.
• [13] [1967] 1 WLR 923. 931 (Lord Denning MR), 935-6 (Salmon LJ), 939 (Winn LJ). See also VestergaardFrandsen A/S v Bestnet Europe Ltd [2013] UKSC 31, [2013] 1 WLR 1556, [24] (Lord Neuberger).
• [14] Boardman v Phipps [1967] 2 AC 46,127 (Lord Upjohn); OBG Ltd v Allen [2007] UKHL 21, [2008] AC 1,[275] (Lord Walker).
• [15] Ocular Sciences v Aspects Vision [1997] RPC 289; Satnam Investments Ltd v Dunlop Heywood and CoLtd [1999] 3 All ER 652.
• [16] Attorney-General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109; United Pan-Europe Communications NV v Deutsche Bank AG [2000] 2 BCLC 461, [43] (Morritt LJ).
• [17] (1989) 61 DLR (4th) 14.
• [18] HW Tang, ‘Confidence and the Constructive Trust’ (2003) LS 135; P Stanley, The Law of Confidentiality:A Restatement (Oxford: Hart Publishing, 2008), 152; M Conaglen, ‘Thinking about Proprietary Remedies forBreach of Confidence’ [2008] IPQ 82. Cf D Sheehan, ‘Information, Tracing Remedies and the RemedialConstructive Trust’ [2005] 13 RLR 82.
• [19] [2014] UKSC 45, [2015] AC 250. See p 512, above.