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What did the court decide in CF Partners (UK) LLP v Barclays Bank Plc and can liability arise without a written confidentiality agreement?
CF Partners (UK) LLP v Barclays Bank Plc  EWHC 3049 (Ch),  All ER (D) 179 (Sep)
The claimant (CFP) had approached the first defendant bank (Barclays), through a company (IVC) intending to obtain financial assistance to pursue a valuable project (Project Arctic Fox). CFP brought a claim for misuse of confidentiality and exclusivity agreements against Barclays and the second defendant company (Tricorona) in respect of the project. The Chancery Division ruled that Barclays and Tricorona had breached obligations of confidentiality by misusing confidential information for the purpose of establishing a strategic partnership between them, but had not breached the exclusivity agreements. Accordingly, CFP was entitled to compensation of €10m.
CFP argued that it had introduced Project Arctic Fox to Barclays, subject to a duty of confidence and subject also to a contractual obligation of exclusivity. It argued that Barclays had then used that information, not to facilitate Project Arctic Fox, but to assist it to develop a strategic partnership with Tricorona, which had resulted in the acquisition of Tricorona by Barclays for its own account.
A confidentiality agreement had been made between IVC and Barclays, which imposed exclusivity obligations. However, it was common ground that those provisions could not be invoked by CFP nor relied on by Barclays. The issue was whether an equitable duty arose. The contractual arrangements did colour the issue—Barclays should be predisposed to accept that information falling within the scope of the definition of confidential information falls to be treated as confidential. The scope and content of equitable obligations are informed, but neither exclusively nor conclusively defined, by a contract, even in the case of a contract between exactly the same parties.
The following points were made regarding Barclays' handling of the information:
Essentially the confidential information was the revelation to Barclays of an overlooked or unidentified acquisition target which had been undervalued.
The fact that Tricorona might be an available acquisition target was not, of itself, confidential information—a target may well be pursued, and the work done in the pursuit may be undertaken, in secret, but the identification of the target is not thereby, or necessarily, confidential.
Hildyard J found that the individual pieces of information had the necessary quality of confidentiality, although did not have great value individually (para ):
Hildyard J decided that the litmus test both of the confidentiality of the information and its value was whether it changed Barclays' perception of Tricorona's portfolio.
CFP's work and its presentations did bring a new perspective and was a catalyst for Barclays becoming more receptive. Before the expiry of the agreed period of confidentiality, Barclays had been educated, by the information confidentially presented to it, to an understanding of the embedded value which caused it quickly to cultivate a strategic relationship with Tricorona with a view to its realisation (para ).
Misuse must be demonstrated. It is not enough to show that the recipient has been influenced by the confidential information. A change of outlook is not sufficient—acting upon it must be shown. It is proof of misuse which constitutes the breach.
However, subconscious use may constitute misuse, it was not necessary for CFP to show what influence individual pieces of information had on Barclays, nor that specific pieces of information suggested and resulted in some particular form of approach or activity.
Misuse may be inferred from the fact that a defendant, having obtained confidential information, is influenced by it (while it retains the quality of confidentiality) in determining and then embarking on a course of conduct otherwise than for the purposes for which it was provided.
Once (a) the continuing confidentiality of the relevant information, (b) its provision to Barclays, (c) its relevance in whole or part to an assessment by Barclays of a transaction or a counterparty, (d) the likelihood of it or some part of it having influenced the approach of Barclays in its dealings in that transaction or with that counterparty within the period or currency of confidentiality, and (e) dealings likely to have been so influenced are demonstrated, use is likely to be inferred and breach established.
The court ruled:
In exercising its discretion, the court will identify the appropriate remedy for the circumstances of the wrongdoing to make the remedy fit the tort (see Walsh v Shanahan  EWCA Civ 675,  All ER (D) 180 (Jun)).
Usually the court will only compensate the claimant for his loss rather than strip the defendant of his profit. But that may still (indeed usually will) reserve some benefit to the defendant—the benefit may exceed the wrong done to the claimant. In some circumstances that may be offensive, and fail to recognise the true extent of the claimant's interest in performance of the obligation in question (again, whether contractual or equitable) while rewarding the defendant for his indifference or a self-interested and calculated breach (para ).
Here, the value of what Barclays took from CFP should be determined by reference to what Lord Denning described in Seager v Copydex (No 2) 2 All ER 718 as the value as between a willing seller and a willing buyer, a process which has been elaborated in the decision of Brightman J in Wrotham Park Estate v Parkside Homes  2 All ER 321, and further explained in Blake  4 All ER 385, Experience Hendrix LLC v PPX Enterprises  EWCA Civ 323, Pell Frischmann Engineering v Bow Valley Iran  UKPC 45,Vercoe  All ER (D) 79 (Jun) and Force India  EWCA Civ 780 (para ).
Under the Wrotham Park approach, the objective is to establish what sum of money might, in a hypothetical negotiation between them, reasonably have been demanded by the claimant from the defendant in return for the release of the relevant contractual obligation, or, as Sales J put it in Vercoe at , the fair price for release or relaxation of the relevant negative condition (para ).
The purpose of the hypothetical negotiation is to fix what consideration might reasonably have been demanded by CFP from Barclays in return for permitting the use (past and future) of the confidential information for some other purpose than the evaluation and implementation of Project Arctic Fox.
Hildyard J concluded that these negotiations would in very broad terms have resulted in an ultimately agreed figure of €10m.
This case acts as a stark warning that even if a written confidentiality agreement is not entered into, parties may still owe an equitable duty of confidentiality. When this is breached, the consequences can be costly (here, running into tens of millions of Euros) and practitioners should remind their clients about the risks of misusing confidential information.
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Practice Note: Key elements of confidentiality agreements (Subscriber access only)
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First published on LexisPSL Restructuring and Insolvency
Kathy Stones, solicitor in the Lexis®PSL Restructuring & Insolvency team.
0330 161 1234