Every employee owes a duty of good faith or fidelity to his employer which requires that he does not use or disclose any confidential information gained in the course of his employment without the employer's consent. The company’s confidential information is important as it allows the company to compete with its competitors. If the said confidential information is exposed to a third party, it will weaken the company’s competing powers against its competitors and subsequently cause huge loss to the company.1 It has to be noted that the duty of confidentiality extends even after the employment contract ends.2

The courts have held that what makes the information confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process. Hence, when the recipient of the information makes use of the information, he avoids from doing the work and saves himself the time and trouble of having to do the work notwithstanding the fact that he is capable of doing it.3

An employee's obligation of confidence applies to his employer's trade secrets4 such as manufacturing processes, secret formula, cost prices, quoted prices, specific needs and requirements of the customers and suppliers, status of all on-going negotiations with the customers, and price list.5

However, it has to be borne in mind that not all information will be classified as confidential. A former employee is not prevented from using the skill and knowledge in his trade of profession which he has acquired in the course of his employment.6 On termination of employment, only information that qualifies as a trade secret or its equivalent would be protected.

Elements to Prove Breach of Duty of Confidentiality

Duty of confidentiality can be traced back to the case of Coco v AN Clark (Engineers) Ltd [1969] RPC 41 wherein the court held that that there are three elements essential to a cause of action for breach of confidence namely:-

1. that the information was of a confidential nature;
2. that it was communicated in circumstances importing an obligation of confidence; and
3. that there was an unauthorised use of the information.

In deciding whether or not there is a breach of confidentiality committed by an employee, our courts have applied the principle formulated in the abovementioned case. The High Court in the case of Rotta Research Laboratorium SPA & Anor v Ho Tack Sien & Ors (Chai Yuet Ying, third party) [2015] 4 MLJevi 222, applied the three elements cited above in deciding that the Defendants had breached their duty of confidentiality as all three elements in the case of Coco v AN Clark (Engineers) Ltd were fulfilled.

In this case, the court found that the Plaintiff’s information was of a confidential nature as the information includes detailed pharmaceutical data of a type of drug called Viartril-S and its manufacturing process. The Defendants too had access to the Plaintiff’s database of its distribution network, lists of customers and marketing information concerning the sale of Viartril-S. The confidential information was communicated in circumstances importing an obligation of confidence as the Second Plaintiff trusted the Defendants and made available their trade secrets to the Defendants so that they could perform their job as an employee and consultant of the Second Plaintiff respectively.

The court found that the Defendants within a year after becoming involved with the registration of Viartril-S manufactured a similar type of drug, Artril 250. The Defendants then had successfully registered the product with unusual speed which indicated that the Defendants must have put into use the confidential information obtained in the course of their employment with the Second Plaintiff into the manufacturing of Artril 250 to their benefit.

Remedies

In the event that an employee or a former employee breaches his duty of confidentiality, the employer concerned may seek legal recourse by claiming for damages and/or seeking for injunction. Generally, for cases involving breach of duty of confidentiality, damages will not be an adequate remedy as it is difficult to quantify the loss suffered by the employer. To be able to claim for damages, the employer has to furnish evidence to show that the employer's trade secrets have been utilised by the employee to the detriment of the employer.7

It is sufficient for the employer to prove that there is a likelihood of damage such as proving that the goodwill of a business or its reputation is injured.

On the other hand, if the employer could demonstrate that there exists a real risk of future injury, the employer would be granted a permanent injunction.8 When seeking for an injunction, the employers have to first properly identify the confidential information or else it may be difficult to enforce the said injunction.9

In view of the above, the duty of good faith or fidelity may be expressly or impliedly provided in the employment contract which not only requires the employee to observe his duty of confidentiality during the course of his employment but also requires the employee to refrain from disclosing the confidential information even after his employment ends. As such, an employee has to be cautious so as to not use, divulge and/or disclose to whomsoever, any confidential information and/or trade secrets obtained during the course of their employment with the former employer after the employment had ceased.

Authors: Melinda Marie DÁngelus and Vanessa Iskandar Ng

Footnotes

1. Publicis (M) Sdn Bhd Dan Satu Lagi Lwnadele Wee Kay Ren Dan Satu Lagi [2007] 2 MLJ 395.
2. Schmidt Scientific Sdn Bhd v Ong Han Suan [1997] 5 MLJ 632.
3. Saltman Engineering Co Ltd & Ors v Campbell Engineering Co Ltd [1963] 3 All Er 413 At P 415 (Ca); Schmidt Scientific Sdn Bhd v Ong Han Suan [1997] 5 MLJ 632.
4. Dato' Vijay Kumar Natarajan v Choy Kok Mun [2010] 7 MLJ 215.
5. Schmidt Scientific Sdn Bhd V Ong Han Suan [1997] 5 MLJ 632.
6. Vsl Prestressing (Australia) Pty Ltd V Dj Mulholland [1971] 2 MLJ 89.
7. Worldwide Rota Dies Sdn Bhd v Ronald Ong Cheow Joon [2010] 8 MLJ 297.
8. Ibid.
9. Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289; China Road & Bridge Corporation v Dcx Technologies Sdn Bhd [2014] MLJU 406.