English High Court finds former JV partners misused trade secrets but directors avoid personal liability

The High Court's recent decision in Illiquidx v Altana has highlighted the robust protection given to confidential information under English law in a dispute between former joint venture (JV) partners.

The ruling also serves a reminder as to when a director may be found personally liable for the acts of a company.

Illiquidx background

Illiquidx claimed that it had presented a package of confidential information as a business opportunity to Altana and Brevent, for the purposes of a JV to set up a fund to trade in distressed Venezuelan debt.

The parties entered into a JV agreement and a non-disclosure agreement (NDA) in summer 2019, but ultimately the JV came to an end in November 2019 without a fund being launched.

Shortly after the breakdown of the JV, Altana went on to launch its own fund which focused on the same business opportunity. The judgment highlighted that directors of Altana and Brevent had been privately discussing whether they could "go alone" while the JV was in full swing, and by November 2019 the director of Altana had decided that this would result in "twice the pie".

Illiquidx pursued claims for breach of the NDA, breach of confidence, unlawful use of trade secrets and copyright infringement against its former JV partners Altana and Brevent. Illiquidx also claimed that directors of Altana and Brevent were personally liable for the acts of those companies.

Confidential information

It was accepted by the defendants that certain information shared by Illiquidx was "confidential information" for the purposes of the NDA, including the business opportunity idea of setting up a sanctions compliant fund to exploit Venezuelan debt.

The key issue in dispute was whether the confidential information had entered the public domain. If it had, then the defendants would have been permitted to make disclosures of the information.

The NDA did not define the public domain. The defendants argued that public domain should be construed narrowly. In particular, they submitted that confidential information had entered the public domain if it had been shared with any third party that was not subject to a duty to treat it in confidence.  Mr Justice Rajah rejected this argument and held that "public domain" should have the usual meaning under the law of confidentiality.

The judge reviewed the various disclosures made by Illiquidx, including the disclosure of a presentation and fact sheet to around 200 potential investors. He noted that the documents were marked "confidential" and concluded that they remained relatively secret because they were not circulated more widely or made available to potential competitors.

Mr Justice Rajah also found that the confidential information had clearly been misused by Altana and Brevent, as they had appropriated the business opportunity to themselves and continued to exploit it after the end of the JV.

Trade Secrets (Enforcement, etc.) Regulations 2018

Given that Altana and Brevent had acted in breach of the NDA, they were also found to have acted in breach of confidence and to have made unlawful use of a trade secret, contrary to the Trade Secrets (Enforcement, etc.) Regulations 2018. 

Importantly, the defendants had tried to argue that Illiquidx had not taken reasonable steps to keep the information secret – a key requirement for protection under the regulations.

In particular, the defendants highlighted that Illiquidx had not required NDAs from each of the 200 potential investors before sharing the confidential information.

However, Mr Justice Rajah considered Illiquidx's evidence that this would be impractical and that the disclosure of the information without an NDA was necessary to generate interest in the fund. The judge noted his earlier finding that the information was not generally accessible and remained relatively secret, before concluding that reasonable steps were taken to keep it confidential.

Copyright infringement

Illiquidx also claimed that it owned copyright, which subsisted in a 25-page PowerPoint presentation as a whole (rather than individual slides). Mr Justice Rajah held that the defendants had not copied a substantial part of the presentation in their marketing materials.

Personal liability of directors

The law concerning personal liability of directors for acts of companies was recently clarified by the Supreme Court in Lifestyle Equities v Ahmed.

In Illiquidx, Mr Justice Rajah found that neither of the individual directors knew that they were using information that was confidential and protected under the terms of the NDA. Therefore, the directors were not acting wilfully and knowingly in relation to the wrongdoing and they were not personally liable.

Osborne Clarke comment

At first glance, the judgment in Illiquidx is perhaps surprising. A disclosure of confidential information to around 200 investors without an NDA is certainly a risk, but it was one that the judge found to be "necessary" in the circumstances.

This decision highlights the need to:

• Carefully consider the scope of NDAs, including the definition of confidential information and the meaning of public domain.
• Identify, organise and take reasonable steps to protect confidential information. Illiquidx struggled throughout the proceedings to identify which of its confidential information had been misused.
• Following the end of a JV, consider which confidential information has been disclosed and, where appropriate, ask for it to be deleted or returned.
• Detail exactly what was known by individual directors in relation to the wrongdoing of a company. This claim was issued before the decision in Lifestyle Equities. Following that decision it is clear that knowledge by directors must be separately pleaded and proven.