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UK City litigation

Confidentiality of business information

The Court of Appeal (Murray v Yorkshire Fund Managers Limited) recently considered the question of to whom rights of confidence in business information belong.

P was part of a team establishing a business plan and compiling information for a management buy-out. He and the other team members were co-owners of the information with equal rights over it. The information was subsequently communicated by the team to potential investors (D), who, with the consent of the members of the team other than P, used the information for their own benefit and sought to exclude P from the team. P brought a successful action against D for breach of confidence.

D appealed. Lord Justice Nourse ruled that the members of the team had got together to acquire the target's assets through the medium of a new company. But, although there might have been some agreement (eg, on the sums to be invested), there could not have been a binding agreement that all the team's members would continue to participate. Each member was entitled to withdraw. The other members were free to decide amongst themselves to go ahead without P, either on their own or with others. The confidential information initially belonged to all the members of the team, but if one of their number were excluded from the project, he could not prevent the others from using the information as they pleased. Once the relationship was dissolved, the information ceased to be P's property. D therefore succeeded in the appeal.

Following this decision, all parties to a management buy-out need to be aware of the relationship between the team members, and issues arising out of the information created and used during the process.


Freezing assets

In United Mizrahi Bank Limited v Doherty, it was held that a proviso in a mareva injunction permitting a defendant to use frozen assets to meet legal expenses prevented this being a breach of the order and a contempt of court. The judge could not say, however, that if the plaintiff could prove the money spent on legal fees belonged to him or her, a claim of constructive trust could be raised against the defendant's solicitors for knowing receipt of the money (the plaintiff could recover it from them).

This case raises serious issues. Those subject to a mareva injunction, while not in breach of the order or in contempt of court by paying legal fees, may find it difficult to obtain legal representation when the case against them is strong and their solicitors feel the risk of a constructive trust claim being brought against them. The mareva injunction may in effect prevent a defendant obtaining legal advice.


Costs of complying with a subpoena

Banks and other financial institutions are often served with subpoenas for documents they hold, such as account statements. Complying with a subpoena can be time-consuming and expensive.

The recent case of JH Shannon v Country Casuals established that a party served with a subpoena can not only recover conduct money, (a small sum for attending at trial and producing the documents), but also:

  • the costs of complying with the subpoena; and
  • where reasonable the cost of taking legal advice on its scope.

The Shannon subpoena asked for all documents within its possession, custody or power relating to an individual's employment. The recipient conducted an extensive search and took legal advice on the scope of the subpoena. They applied to have the subpoena set aside and sought the costs of complying with it (including legal costs). Justice Garland set aside the subpoena, on the grounds that it was too widely drawn, and held that the issuer of the subpoena must pay the costs incurred by the recipients (including their legal costs' which had been reasonably incurred).

Parties issuing subpoenas therefore risk having to pay the recipient's costs. When a subpoena is imprecisely drawn, the court is likely (at the recipient's request) to set it aside and/or order the issuer to pay the recipient's costs of complying with it (including the cost of taking legal advice). Where, however, a subpoena is properly drawn and precisely identifies the documents sought, the recipient must almost certainly be satisfied with conduct money.


Claiming compound interest

In HIT Finance Ltd v Cohen Arnold, the High Court allowed P to recover damages for financial loss on a transaction as a result of an accountant's negligence, including simple interest on the damages, but refused to allow recovery of the compound interest P was obliged to pay.

P was a vehicle for short-term secured lending by two parent companies. The defendant accountant (D) gave a statement of net worth regarding the individual guaranteeing P's loan to a special purpose vehicle. The statement of net worth had been exaggerated.

D acknowledged that the net worth statement had been prepared with information provided by the guarantor without verification, but claimed it had been accurate at the time. The judge held that D must have known for what purpose the statement was required and that P was likely to use it to decide whether or not to enter into the loan. Thus, D had voluntarily assumed a responsibility towards P giving rue to a duty of care, which bound D either to verify its information to P or make plain it was unwilling or unable to do so.

The judge also found that on the evidence P had paid one of its parent companies interest compounded on a quarterly basis, but that this represented a private arrangement which should not serve to increase D's liability for interest.

Neil Mirchandani
Lovell White Durrant
London

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