Singapore court modifies the Coco test for breach of confidence

The three-part test for breach of confidence set out in the English case of "Coco v AN Clark (Engineers) Ltd" [1969] RPC 41 is well known to common-law practitioners. Kat friend Shawn Poon reports on a recent judgment in Singapore that applies a modified approach.

In the decision of I-Admin (Singapore) Pte Ltd v Hong Ying Ting and others, the Singapore Court of Appeal introduced a new modified approach to breach of confidence claims. The appellant is in the business of payroll administrative data processing services and human resource information systems, and brought the claim against former employees and related parties (the respondents) for copyright infringement and breach of confidence.

From the execution of an Anton Piller Order, the respondents were found to be in possession (before the execution) of certain materials of the appellant, including the appellant’s source codes, databases, operational documents, client materials, pricing information and other business strategy materials, and implementation templates. The respondents circulated these materials among themselves in emails. The respondents also possessed personal data taken from clients of the appellant.

Prior to this decision, based on the Coco decision, it was well established that three elements must be satisfied to show a breach of confidence, namely:

(a) the information must possess the quality of confidentiality;

(b) the information must have been imparted in circumstances importing an obligation of confidence; and

(c) there must have been some unauthorized use of that information to the detriment of the party from whom the information originated.

The trial judge found that the respondents owed the appellant obligations of confidence under limbs (a) and (b) of Coco, but that, under limb (c), that there was no “use” of its confidential information in the relevant sense, i.e. that the use resulted in the creation of the respondent’s materials. As such, the claim was dismissed.

On appeal, the appellant submitted that the respondents’ mere possession of, and acts of referring to its confidential materials, should be sufficient to found the claim. To address the appellant’s claim, the Court of Appeal examined whether the current law was adequate to protect the various interests sought to be protected by this cause of action.

From a review of the history of the law of confidence, the Court identified two interests to be protected. They are: (a) the plaintiff’s interest in preventing wrongful gain or profit from its confidential information (“wrongful gain interest”), as seen from limb (c) of Coco, and (b) the plaintiff’s interest to avoid wrongful loss (“wrongful loss interest”), which is “suffered so long as a defendant’s conscience has been impacted in the breach of the obligation of confidentiality”.

The Court focused on the matter of conscience. Reference was made to various cases, including Morison v Moat (1861) 68 ER 492, where Turner VC held that “the Court fastens the obligation on the conscience of the party, and enforces it against him”, and Smith Kline & French Laboratories v Secretary, Department of Community Services and Health (1990) 17 IPR 545, where Gummow J stated that “an obligation of conscience is to respect the confidence, not merely to refrain from causing detriment to the plaintiff”.

The Court thus reasoned that the word “conscience” places upon defendants a duty not to deal with confidential information in a manner that adversely affects their conscience.

While Coco expressly protected the wrongful gain interest, the Court held that the current law did not adequately safeguard the legitimate objective of protecting the wrongful loss interest. It reasoned that technological advances magnify the vulnerability of this interest because it has become significantly easier to access, copy and disseminate vast amounts of confidential information, often without the owner’s knowledge.

The Court thus formulated a modified approach to be taken:

(a) The Court would first need to consider: (i) whether the information in question possesses the necessary quality of confidentiality; and

(ii) it was “imparted in circumstances importing an obligation of confidence”. In the alternative, such obligation will also be found “where confidential information has been accessed or acquired without a plaintiff’s knowledge or consent”.

(b) Upon the satisfaction of these prerequisites, an action for breach of confidence is presumed.

(c) The burden then shifts to the defendant to “prove that its conscience was unaffected”. Examples provided where the presumption might be rebutted include where the defendant came across the information by accident, was unaware of its confidential nature, or believed there to be a strong public interest in disclosure.

Applying this approach, the Court found that the appellant’s materials were confidential and that the respondents were under an obligation to preserve their confidentiality. On that basis, the respondents had breached the obligation by acquiring, circulating and referencing the appellant’s materials without permission.

Comments

This modified approach should be welcome to owners of confidential information as they no longer need to show how their confidential information was “used”, since the burden has shifted to the defendant to show that its conscience was not impacted. It will be helpful for future cases to provide further guidance as to what this entails.

Moreover, the modified approach is welcome since it focuses the inquiry on the ultimate question, viz whether the defendant’s acts are unconscionable in light of his knowledge of the confidentiality of the information. A defendant should not be allowed to act unconscionably, even if there was no evidence of any use or detriment to the plaintiff.

Still, it is not clear from the judgment whether the plaintiff has to first show a prima facie case that the defendant’s conscience has been impacted, before the burden shifts to the defendant to rebut that presumption. This author believes that the plaintiff should be required to do so. Otherwise, once an obligation of confidence is present, the defendant is in effect automatically presumed to be liable unless proven otherwise.