Wrongful gain vs. wrongful loss: Protecting confidential information

Singapore's Court of Appeal recently dealt with a case involving confidential information and trade secrets in the context of employment.

The case stemmed from a dispute between a specialised pharmacy company and its former part-time employee who later established a competing business.

This decision provides valuable insights for HR professionals and employers on safeguarding sensitive business information.

It clarifies key legal principles around confidentiality and offers guidance on how companies can pursue claims when confidential data is compromised.

Wrongful gain vs. wrongful loss

The court discussed the differences between two key legal concepts: the "wrongful gain" interest and the "wrongful loss" interest in confidentiality cases.

The wrongful gain interest focuses on preventing unauthorised use of confidential information for profit. In contrast, the wrongful loss interest aims to protect against the mere diminishment of confidentiality, even without proven misuse.

The case originated when the employer, a company specialising in compounding medical and pharmaceutical products, alleged that its former part-time employee had committed a breach of confidence by copying, exploiting, and disclosing confidential information and trade secrets. The former employee had subsequently incorporated a competing compounding business.

The judges emphasised that these interests are distinct and mutually exclusive for any given set of confidential information. This distinction has important implications for how confidentiality claims are structured and pursued.

Pleading requirements and burden of proof

The court provided guidance on how confidentiality claims should be pleaded going forward. Importantly, plaintiffs are allowed to claim both wrongful gain and wrongful loss, but only for separate sets of information - not for the same documents.

The case had initially been settled through a consent judgment, where the former employee admitted to unauthorised access and use of confidential information. However, the subsequent legal proceedings focused on determining the extent of damages and the proper approach to assessing them.

The judges also clarified that plaintiffs can plead wrongful gain as a primary claim and wrongful loss as an alternative. However, the reverse is not permitted. This approach aims to prevent abuse of process while still allowing flexibility in confidentiality cases.

Implications for employers

This ruling offers several key takeaways for organisations seeking to protect their confidential information:

1. Companies should clearly identify and categorise their confidential information, distinguishing between data that has been misused versus data that was improperly accessed but not proven to be misused.
2. When pursuing legal action, claims should be carefully structured to align with either the wrongful gain or wrongful loss framework for each set of information.
3. Employers should review their confidentiality policies and agreements to ensure they adequately cover both wrongful gain and wrongful loss scenarios.
4. HR professionals should be aware of these distinctions when investigating potential confidentiality breaches by current or former employees.

The court's decision also highlighted the importance of considering the specific nature of confidential information in each case.

For instance, the judges noted that in some previous cases, courts had found that not all information an employee was obliged to keep confidential during employment would necessarily be protectable as confidential information after the employment ended.

In concluding their decision, the judges emphasised several important points:

"The upshot of our conclusions on the Narrow and Broad Issues is that in a claim for breach of confidence involving multiple sets of documents or information, the plaintiff is entitled to vindicate both his wrongful gain and wrongful loss interests only if he is claiming wrongful gain for one set of documents or information and wrongful loss in respect of another."

This quote underscores the need for precise categorisation of confidential information in legal claims.

The court also stressed the importance of clear pleadings:

"[C]ounsel should take care to plead with specificity, whether they are proceeding on the basis of the 'wrongful loss' or 'wrongful gain' interest in situations where the claim involves many documents each containing different confidential information."

This guidance highlights the need for careful preparation of legal claims involving confidentiality breaches.

Finally, the judges noted:

"Following our decision, it is for the respondents in this case to establish each head of claim under the wrongful gain interest and we make no finding as to what the respondents are permitted to claim under their consent judgment for damages for wrongful gain."

This statement emphasises that the burden remains on the plaintiff to prove their claims, even after this clarification of the legal principles involved.