Chicken Nuggets: Rereading Faccenda Chicken

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Chicken Nuggets Re-reading Faccenda Chicken

• Lionel Bently

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Overview

• Faccenda Chicken v. Fowler 1987 1 Ch 117
• Critiques of Faccenda
• Re-reading the decision
• Consequences of the re-interpretation

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Faccenda Chicken v Fowler The Facts

• Fowler employee at chicken factory. Proposed
  scheme for delivering fresh chickens to
  customers. The scheme became a success.
• Fowler accused of theft and resigned. Set up
  competing business, taking/attracting some of
  FCs customers.
• Fowlers contract contained no restraint of trade
  or confidentiality clause. Could Faccenda prevent
  him from carrying on his business in this way?

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Faccenda ChickenThe Decision

• CA held Fowler not liable
• Implied obligation on post employee only extends
  to trade secrets (or their equivalent)
• In deciding whether a trade secret look at nature
  of employment, nature of information, whether
  employer impressed on the employee the secrecy of
  the information and its separability from general
  skill, experience and knowledge
• Details of customers, routes and prices were not
  trade secrets

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Leading case but problems.

• Identifying trade secrets
• Inconsistency between employees and others (e.g.
  independent contractors)
• The problem of restrictive covenants
• The issue of sales
• The effect of repudiatory breach by the
  ex-employer on the implied obligation
• Compatability with TRIPs, Art 39

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Identifying Trade Secrets

• What is difference between trade secret and
  confidential information? Is some information
  more confidential than other?
• Lancashire Fires v Lyons 1996 F.S.R. 628
  (distinctionmay often on the facts be very hard
  to draw)
• CMS Dolphin Ltd v Simonet 2001 B.C.L.C. 704
  (para.109) (the distinction is sometimes
  difficult to apply in practice)

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Identifying Trade Secrets

• The four Faccenda factors nature of
  information/separability bear on nature and
  content of information
• But how does the nature of employment and the
  behaviour of the employer relate to nature of
  information?

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Compatability with TRIPs, Art 39

• undisclosed information
• (a) is secret in the sense that it is not, as a
  body or in the precise configuration and assembly
  of its components, generally known among or
  readily accessible to persons within the circles
  that normally deal with the kind of information
  in question
• (b) has commercial value because it is secret
• (c) has been subject to reasonable steps under
  the circumstances, by persons lawfully in control
  of the information, to keep it secret."

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Diversity amongst employees

• Mark Freedland, The Personal Employment Contract
  (2003) (emphasising false unity of concept of
  employee and false duality of distinction
  between employees and independent contractors)
• It might be rather strange to describe sensitive
  information of some employers as trade secrets
  e.g. MoD or personal assistant.

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Inconsistency Between Employees and Others

• Allison Coleman, The Legal Protection of Trade
  Secrets (1992) 61-2 (employee cases exception
  to norm, obligation on independent contractors
  reverts more to the norm.)
• But note Take v BSM Marketing 2006 EWHC 1085

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Re-reading Faccenda

• Most see as case concerning type of information
  protected
• But what if think of it as concerned with
  existence of an obligation?
• Thesis Faccenda identifies circumstances in
  which person who has not agreed to keep
  confidential will have obligation imposed on him
  or her
• It is only if the information is a trade secret
  or equally confidential that a person should come
  under an obligation

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Faccenda and basic principles of confidence

• Assumptions about the law of confidence
• Coco v Clark (i) quality of confidence (ii)
  obligation (iii) detriment
• A tendency to treat question of form and
  substance of information as distinct from
  question of obligation
• Trade secret requirement in Faccenda seen as
  limitation on (i) quality of confidence
• Recent rise of cases where information is
  obviously confidential and gives rise to an
  obligation AG v Guardian (No. 2)

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Faccenda and Obligation

• The assumption that a duty of good faith
• Hull, for example, cites Lamb v. Evans 1893 1
  Ch 218, Robb v. Green 1895 2 Q.B. 315, Faccenda
• But do they support?

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But does the duty of fidelity survive
termination?

• Hawkins J. in Robb v. Green 1895 describes
  termination as (the dividing line between owing
  his master a duty and owing him none)
• Widely recognised that ex-employee can compete
• Del Casale v Artedomus 2007 NSWCA per Campbell
  JA there is room to doubt that prior authority
  provides strong support for the duty of good
  faith continuing to operate after the termination
  of the employment contract.

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So where does the obligation on former employees
derive from?

• Certainly there are many cases recognising an
  implied obligation post-employment (some
  equitable, some implied contract)
• But this imposition of an obligation needs to be
  justified

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Imposition of an Obligation

• Coco v Clark (1969) Megarry J reasonable
  person standing in the shoes of the recipient
  would understand on reasonable grounds that the
  information was being given in confidence.
• A.G. v Guardian (No. 2) (1988) per Lord Goff.
  Principle extends beyond recipients to those
  who come across obviously confidential
  information
• HL in Campbell and Douglas (2007) treat Lord
  Goffs obiter dictum as a breakthrough in the
  development

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So when should an obligation be imposed on an
ex-employee?

• General reluctance to impose obligations when no
  express agreement
• Obviously confidential nature of information,
  how treated, whether signalled to be
  confidential, whether separable from
  information a person is entitled to use
• i.e. not merely subjective
• Richard Arnold, Circumstances Importing an
  Obligation of Confidence (2003) LQR 193

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Advantages with this Re-reading

• No radical effect on resultsbut
• Removes confusion over two standards of
  confidentiality. Threshold is information that
  has the necessary quality of confidence
• Makes sense of two of the four factors nature of
  employment, and whether employer impressed
  confidentiality of information on the employee
• Consistent with Neill LJs observation that
  neither sales/price information could reasonably
  be regarded as plainly secret or sensitive.

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Implications employees and independent
contractors

• Employees not a special category
• Removes discontinuity with independent
  contractors

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Implications TRIPs

• Protect undisclosed information (not just a
  more limited category of trade secret)
• But only give natural and legal persons "the
  possibility of preventing information from being
  disclosed to, acquired by, or used by others
  without their consent in a manner contrary to
  honest commercial practices."
• Only contrary to honest commercial practices
  where breach obligation

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Dangers with Re-reading (1)

• Broadening of Ex-employees obligations? The
  objection based on Ixora Trading Inc v. Jones
  1990 FSR 251.
• But, still subject to doctrine of restraint of
  trade. There would be no violation of duty if
  ex-employee were using skill, knowledge and
  experience

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Dangers with Re-reading (2)

• Fails to add clarity.
• Clarification just introduces new question when
  is information obviously confidential?
• Agreed, we have a long way to go before we fully
  understand the answer but at least it will
  provide some consistency. And some cases will be
  dismissible on basis that not obviously
  confidential without having to aske question
  about skill, knowledge, experience.