Confidential Information

How far does an Obligation of Confidence overlap with Fiduciary Duty?

1 Dec 1999

Updated 23 Dec 2005

The fiduciary and confidential obligations of a financial institution to a party who introduces a property development proposition to it have been considered in two separate actions from opposite ends of the earth. In Arklow Investments Ltd. and Another v Maclean and Others [1999] UKPC 51 the Privy Council dismissed an appeal from the Court of Appeal of New Zealand which found that a merchant bank owed no fiduciary duty to a customer that it had offered to assist and that it had not misused any confidential information. A few weeks later Evans-Lombe J dismissed an appeal from the Master's decision in SMC Investments Plc v Singer and Friedlander Properties Plc (unreported, 4 February, 2000) to strike out a developer's particulars of claim which alleged breach of contract and breach of confidence and gave summary judgment to the defendant financial institution. Those cases demarcate the boundary between confidential and fiduciary obligations which had begun to blur as a result of the judgment of the Supreme Court of Canada in LAC Minerals Ltd. v International Corona Resources Ltd. 61 DLR (4) 14 (1989) (CANLII). Both make it clear that a confidential obligation does not connote a fiduciary duty precluding the confidante from later placing himself in a position where his duty and interest clash.

The Facts

While negotiating the purchase of an island of 4,300 hectares situated off the eastern coast of North Island which they hoped to develop for logging, residential and recreational use, the appellants in Arklow approached a merchant bank for assistance in raising the purchase price. The bank offered some proposals which the appellants rejected. The bank looked for other parties who might be interested in the development and eventually put together a consortium which purchased the island. The appellants brought proceedings for breach of fiduciary duty and breach of confidence. They succeeded at first instance but the Court of Appeal reversed the trial judge by 2 to 1, albeit that one of the majority believed that there had been minor breaches of duty.

The Decision

Applying Millett LJ's observation in Bristol and West Building Society v Mathew [1998] Ch 1, 18 that

"a fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence"

and mindful of Finn's aphorism that a fiduciary

"is not subject to fiduciary obligations because he is a fiduciary"

but becomes a fiduciary because he is subject to those obligations, the Privy Council could find no evidence that an obligation of trust and confidence arose from the dealings between the appellants and the bank. As for breach of confidence, much of the information that the appellants claimed to be confidential such as the price of the island and the feasibility of the development was in the public domain. Even if confidential information was divulged to the bankers there was no evidence that they had misused it. The purchasers of the island had done their own research long before the appellants had approached the bank and had made no use of the appellants' research.

Comparison with SMC
In SMC the parties had collaborated in a series of developments in Essex that C had introduced to D. In its particulars of claim C had alleged that

(1) there was an overall agreement between C and D that required D to confine its operations in respect of opportunities that C had introduced to it to financing those opportunities and not dealing with third parties in respect of those opportunities to the detriment of C;
(2) D owed C an obligation of confidence in respect of those introductions;
(3) Alternatively, there was a free-standing obligation of confidence between D and C; and
(4) There was an implied partnership between the parties.

C claimed that it had proposed the development of Hackney Stadium to D and that had breached those obligations by financing a third party to develop that site. Evans-Lombe J could deduce no overall agreement between the parties from the correspondence. Nor could he find a partnership or anything else that might give rise to an obligation of loyalty. He was prepared to accept for the purpose of the litigation that D might have owed an obligation of confidence to C but if it did there was no evidence that D had breached that duty. In particular, D had not approached the third party and had made no use of information that it had received from C. It followed that no cause of action lay at the suit of C against D.