The High Court recently deliberated on the case of Duchy Farm Kennels Limited v Steels [2020] EWHC 1208 (QB) on the issue of breaches of confidentiality clauses contained in a settlement agreement.
Breaching Confidentiality Clauses In A Settlement Agreement
In the case of Duchy Farm Kennels Limited v Steels (2020), Duchy Farms, a manufacturer of dog kennels, had settled an employment tribunal claim for unfair dismissal issued by Mr Steels, by way of a COT3 settlement agreement, with payment of the settlement monies to be made via instalments. The COT3 contained a standard confidentiality clause that is usually found in a settlement agreement, that Mr Steels must not disclose either the existence of or the terms of the COT3 to any third parties. The confidentiality clause read: "The parties will treat the fact of and the terms of this Agreement as strictly confidential and the parties will not disclose them to any other person or entity, save as set out in this clause or as may be required by law or to any regulatory authority or to professional advisers subject to them maintaining the same level of confidentiality." However, after arguing that Mr Steels had breached the said confidentiality clause, on account of having both disclosed the existence of the settlement agreement, and the settlement amount, to a Mr Mulliner, another former employee of Duchy Farms, Duchy Farms stopped paying the instalments. They asserted that as they felt that Mr Steels was in breach of the confidentiality provisions contained in the settlement agreement, that breach released them from any further obligations to make payments under the settlement agreement.
Mr Steel sought to enforce payment of the amount outstanding in the County Court, with Duchy Farms arguing in their defence and seeking a declaration that they were no longer under an obligation to pay any further monies under the terms of the settlement agreement, due to the alleged breaches of the confidentiality provisions. Judge Wall found as a matter of fact that there had been a breach of the confidentiality clause by the Claimant, and the case then hinged on whether such a confidentiality clause constituted an intermediate term or a condition in a settlement agreement. Judge wall ruled that the clause was an intermediate term, as opposed to a condition, and the breach did not constitute a repudiatory breach of the settlement agreement, as it did not amount to a fundamental breach that undermined the main elements that represented the core of the agreement. Confidentiality was not of critical concern to either party, as neither was high profile, and neither was at any risk of suffering any kind of harm through its breach. Accordingly, the Judge held that Duchy Farms remained under an obligation to pay the remaining settlement monies.
High Court Appeal
Duchy Farms appealed to the High Court. However, Mr Justice Cavanagh upheld the decision of the County Court. As in the County Court, the decision hinged upon whether such a confidentiality clause constituted an intermediate term or a condition in a settlement agreement. Mr Justice Cavanagh held that it was an intermediate term and that there had been no repudiatory breach, and that Duchy Farms remained under an obligation to pay the remainder of the settlement monies.
Nevertheless, Mr Justice Cavanagh pointed out that had the parties to the settlement agreement felt that confidentiality was a sufficiently important element of the settlement agreement, then they could have written it in to the settlement agreement that the clause would be treated as a condition, and that breach of the clause would constitute a repudiatory breach, thereby releasing the other party from its obligations under the agreement. However, that had not happened in this case, indicating that the parties did not regard confidentiality as important or fundamental to the agreement at the time that it was concluded
Implications
The key lesson from this judgment is that parties to a settlement agreements should ensure that it is made clear in the agreement that the confidentiality clauses are to be regarded as conditions, and that breach of those clauses will constitute a repudiatory breach that automatically entitles the other party to be released from any further obligations under the agreement. It should also be made clear that should the former employee breach the confidentiality provisions, then they will be placed under an automatic obligation to repay any settlement monies already paid under the agreement by the former employer.
