Setting up a rival business whilst misusing another party's data constitutes breach of express good faith clause

In the case of Health & Care Management Ltd v The Physiotherapy Network Ltd [2018] EWHC 869 (QB) (19 April 2018), the High Court has underlined the benefit of a well drafted “good faith” clause and the ability for such a clause to make up for any drafting deficiencies within the body of the contract. In this case, the Court had to consider the relationship between an express good faith clause and a confidentiality clause which only restricted disclosure in the context of a referral agreement. The referral agreement provided that Health & Care Management Ltd (“HCML”) "anticipates making circa. 700 referrals per month to TPN [The Physiotherapy Network Ltd]" and that it "shall act in good faith to TPN at all times".

The Court found that HCML had breached the good faith clause as it had set up a rival business combined with obtaining and covertly using TPN's database which consisted of details concerning clinics, its leading professionals, number of referrals made and pricing structures. It was found that HCML actively diverted referrals away from TPN. Moreover, HCML misled TPN about the rival business' target market and failed to tell the truth about the misuse of TPN's database when confronted.

The Court found that it was likely that the misuse of TPN's database to set up a rival business would constitute a breach of the good faith clause. TPN unsuccessfully argued however that HCML's use of TPN's database to set up the rival business was a breach of the confidentiality clause, as the clause was only restricted to the disclosure of confidential information and did not restrict its use.  Ultimately, TPN's confidentiality argument and claim in passing off failed. The Court, however, considered that TPN's database was protected under the Database Directive (96/9/EC) and HCML had infringed TPN's rights in it by extracting a substantial part of it on several occasions.

For advice relating to this case, you can contact Torion Bowles on 023 8071 7455 or email torionbowles@warnergoodman.co.uk.