Non-executive directors' duty of confidence
Can a company require a non-executive director to return all documents containing confidential information, when he ceases to be a director? This question was recently addressed by the High Court when Sir Paul Judge sought to resist such a demand made by Eurasian Natural Resources Corporation Ltd (ENRC).
Sir Paul was a non-executive director of ENRC, which was at the time listed on the London Stock Exchange, from 2007 to 2013. He was not invited to stand for re-election at the 2013 annual general meeting, because the company suspected that he had leaked confidential information to the press. ENRC wanted him to return all documents, whether hard copy or electronic, containing any of ENRC's confidential information which had been provided to him in the course of his appointment for the purpose of performing his duties as a director.
ENRC issued court proceedings alleging that, despite there being no express obligation in Sir Paul's engagement letter requiring him to return confidential documents to the company, it was an implied term of his contract that he would do so on demand or within a reasonable time after termination of his directorship.
The court rejected this claim. It was not the obvious intention of the parties, and no evidence had been presented suggesting that it was the norm for director appointments. It would be difficult for a director to comply with such a requirement, especially if he held multiple directorships and particularly where company documents are sent to a number of email addresses, some personal to the director and others maintained by other companies with which the director is associated.
As there was no express requirement in his engagement letter requiring delivery up, and no such requirement would be implied, ENRC were not able to claim any breach of contract by Sir Paul in not returning confidential documents.
The court also rejected a claim that Sir Paul was subject to a wider duty of confidence, which included a requirement to return confidential documents, as a result of his fiduciary obligations as a director.
ENRC had also applied to the court for an injunction to prevent any future breach by Sir Paul of his duty of confidentiality. The court noted that it would be able to make an order for delivery up of confidential documents as part of such an injunction, if it was satisfied that there was a real or arguable risk of disclosure of ENRC's confidential information by Sir Paul.
Sir Paul had applied to have this application struck out on the grounds that there was no risk that he would breach his duty of confidence in the future, whatever was claimed to have happened in the past. However, the court refused to strike out the application, concluding that evidence of what had happened previously was relevant to the risk of future breach and should be considered at a full trial.
The case highlights the concerns around confidential information, both for directors and the companies appointing them. Companies would be well advised to consider including in their engagement letters express rights to require the return of confidential information on the termination of a director's appointment. This would put the director on notice and encourage the director to keep the company's confidential information separate. It would also put the company in a stronger position when dealing with an outgoing director and, although a court order for specific performance of the contractual obligation would be in the court's discretion rather than an automatic remedy, it would be another remedy to pursue in the event of a dispute.
From the director's point of view, the case highlights the difficulties directors may have in complying with an obligation to return confidential documents, including the need to carry out wide-ranging searches through hard copy and electronic sources going back over the whole term of their appointment and, in the case of electronic sources, in a number of different email addresses. Any requirement to delete information held electronically can be particularly problematic, especially if the relevant server or device is not under the director's control. Directors also need to consider the possibility that they may require copies of the documents for their own purposes in the future, for example, if they may become involved in future legal or regulatory proceedings relating to their role as a director of the company.