You have just got to have faith
Date: June 1st 2018
Laura Alliss of DJM solicitors has won a long-running and high value case relating to the breach of an express contractual obligation to act in good faith.
The case, Health & Case Management Limited v The Physiotherapy Network Limited  EWHC 869 (QB) concerned the Claimant (“HCML”) a company who referred patients in need of physiotherapy and the Defendant (“TPN”) a company which had a nationwide network of physiotherapy clinics.
The parties had been working together for a number of years until HCML set up its own rival network (Innotrex) and ceased referring patients to TPN. Shortly before the decline in referrals, HCML had requested data from TPN in the form of an updated list of the clinics on its network, their addresses and contact details and the number of referrals to each clinic. HCML had dishonestly informed TPN at the time of the request that the information was required to compile a geographical pricing model at the request of its main referrer of work.
TPN believed HCML had used its database of clinics to set up Innotrex and intimated a claim against HCML. HCML issued proceedings for a declaration that it had not acted in breach of contract or in breach of confidence however TPN counterclaimed on the following basis;
- HCML had acted in breach of contract by breaching the obligation to act in good faith when using TPN’s data to set up a rival network;
- HCML had acted in breach of confidence by using data provided to it during the course of the business relationship to set up Innotrex;
- HCML had acted in breach of contract by failing to refer “circa 700” referrals per month;
- HCML had acted in breach of contract and had been passing off TPN’s method of monitoring the progress of treatment, called the FCA score.
During the course of the proceedings, HCML consistently denied using TPN’s data in setting up Innotrex however during the trial an ex-employee of HCML confirmed that TPN’s data was used and permission was granted for TPN to amend its claim to include a further head of claim relating to the infringement of TPN’s database rights.
Following a four day trial, the Judge found that HCML had not acted in breach of confidence as the terms of the confidentiality clause prevented HCML from passing TPN’s confidential data to a third party, but did not restrict the use which HCML could make of TPN’s confidential data. The Judge also held that HCML had not acted in breach of contract by failing to make “circa 700” referrals per month.
Notwithstanding the absence of a contractual obligation to make referrals, the Judge held that there was an expectation that HCML would do so and that HCML had breached the express good faith clause when it set up a rival business, used TPN’s database to assist with the setting up of the rival business (which had been obtained under the pretence of a dishonest reason), actively diverted referrals away from TPN, mislead TPN as to the target market of Innotrex and did not tell the truth about using TPN’s database when confronted.
The Judge determined that HCML’s conduct was “opportunistic, underhand and exploitative” and was also an infringement of TPN’s database rights.
This case highlights the importance of carefully and clearly setting out the agreed terms of a contract, specifically in relation to confidentiality clauses and whether they should restrict the use by the receiving party in addition to the standard confidentiality clauses which prevent the receiving party transfer the information to a third party.
The case is useful to illustrate the types of behaviour which the court determines to be a breach of the obligation to act in good faith and shows the wide-reaching nature of the obligation.
As a point of law, the Judge held that it was appropriate to have regard to a prior concluded agreement (i.e. a pilot agreement) when determining the materiality of the deleted words in interpreting the later agreement.