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"Good faith" clause rehabilitates failing breach of confidence claim Health and Case Management Ltd v Physiotherapy Network Ltd [2018] EWCH 869 (QB)

26 June 2018. Published by Louise Morgan, Senior Associate and Paul Joseph, Partner

This case provides an interesting example of a "good faith" clause providing protection for misuse of data in a situation where a confidential information clause failed to sufficiently protect against misuse of information.

Background

The Court was required to interpret various clauses in a services contract entered into by Health and Case Management Ltd (HCML) and Physiotherapy Network Ltd (TPN), under which HCML referred patients to TPN (a nationwide network of physiotherapy practitioners) in return for payment of fees (the Referral Contract).

After the conclusion of the Referral Contract, and over a period of several years, HCML started building its own network of physiotherapy clinics that acted in competition with TPN clinics.  Unaware that HCML were building this competing network of clinics, TPN provided information about its own network to HCML on request, ostensibly for HCML to create a geographic pricing model of the network.  However, when referrals from TPN tailed off, TPN claimed that the information provided from its database had been used, in breach of the Referral Contract, to recruit clinics from the TPN network to the HCML network.

HMCL asked the court for a declaration that it had not acted in breach of contract or of confidence. In response TPN claimed that HMCL had breached obligations in the contract including (i) breach of an obligation to provide a minimum number of referrals; (ii) contractual breach of confidence; (iii) breach of its stated obligation to act in good faith; (iv) infringement of database right; and (v) passing off (this last of which failed entirely for lack of evidence of deception or confusion).

Obligation to provide minimum number of referrals

The agreement provided for HCML to provide in the region of 700 referrals a month to PNL, however, this clause ("HCML anticipates making circa 700 referrals per month to TPN") was deemed too uncertain to bind the parties.  In particular the use of "anticipates" and "circa" was found to inject uncertainty into the clause, and rendered it non-binding on the parties. 

In interpreting this clause the court also considered a prior "pilot" project that the parties had entered into and which included a similar clause with the addition of the words "but there are no guaranteed minimum volumes".  The court noted that care must be taken when attributing significance to the deletion of a previously included phase in a newer contract, and in this case it was found that no there was no material significance to the deletion of that phase – the meaning of the clause was unchanged, and it did not need to import an obligation on HCML to provide a designated number of referrals in order to give business efficacy to the contract.

Although HCML's claims in relation to this clause failed, its inclusion was found to give weight to the good faith provisions of the contract (discussed below).

Infringement of database right

The creation and maintenance of the TPN database was considered sufficient, qualitatively and/or quantitatively, to represent a substantial investment and to create a database right under Directive 96/9 article 7(1).  HCML were found to have extracted a substantial part of the valuable data from TPN's database by virtue of their request for data; their request having been made under false pretences - i.e. to create a geographical pricing model.  It was found that had HCML given the true reason for requesting the data (to assist their intention to set up a competing network), TPN would not have handed it over.  A breach of TPN's database right was upheld.

Breach of confidence

The confidential information clause of the contract was drafted so that although it restricted the disclosure of confidential information, it failed to restrict the use of that information.  TPN's claim was that HCML had misused their confidential information (rather than disclosed it to third parties), and so their claim failed – the use of the confidential information did not fall within the confines of the clause.

Breach of obligation of good faith

HCML had an express contractual obligation of good faith towards TPN, which had been breached by HCML giving a dishonest reason for its request for data from TPN's database.  It had used the information obtained in an underhand way to divert referrals away from TPN and into its own newly established network of clinics.  There was no defence to a duty of good faith to say that the information used was publicly available.

Mr Justice Nicklin found that "…HCML has failed to act in good faith towards TPN".  He also stated that the inclusion of the clause indicating an intended number of referrals meant that while "…there was no contractual obligation to make referral,…there was an expectation by both parties that HCML would do so; that was the shared commercial objective", thus lending further importance to the good faith clause.

Conclusion

This case is an interesting example of the application of a "Good faith" clause, and demonstrates where such a clause can "rescue" a claim where other grounds fail.  In this case the deficiencies in the drafting of the confidentiality clause meant that the "Good faith" clause provided a successful claim for misuse of the TPN data where the confidentiality claim failed. 

The Court also offered useful guidance on the interpretation of "Good faith" clauses with reference to established case law, namely that the obligation might include: (i) acting honestly; (ii) adhering to the spirit of an agreement; (iii) observing reasonable commercial standards of fair dealing; (iv) being faithful to a common purpose; and (v) acting consistently with the parties' justified expectations.