You haven’t bought my silence: confidentiality not a condition of settlement.

Abigail Holmes

In Duchy Farm v Steel the High Court upheld a County Court decision that a confidentiality clause in a settlement agreement was not a condition of the agreement, and a breach of confidentiality by Steel therefore did not absolve Duchy Farm of the obligation to pay settlement monies.

Duchy Farm and Steel settled an employment dispute in accordance with a statutory conciliation regime under the Employment Tribunals Act 1996. The “COT3” settlement agreement included a standard confidentiality clause requiring both parties to treat the fact and terms of the settlement as “strictly” confidential. Duchy Farm agreed to pay the settlement in weekly instalments, but stopped making payments after a few weeks as Steel was alleged to have disclosed the settlement to a third party. Steel issued proceedings for execution (under the 1996 Act) of Duchy Farm’s payment obligation, which Duchy Farm defended by seeking a declaration that the outstanding instalments were not recoverable because of Steel’s breach of the confidentiality clause.

The County Court found that Steel had breached the confidentiality clause but that this was not a breach of a condition which would free Duchy Farm from its obligation to make payments. Instead, it was a non-repudiatory breach of an intermediate term.

On appeal, the High Court agreed. The COT3 did not specify that the confidentiality clause was a condition and the use of the word “strictly” did not elevate the term to a condition. As drafted, the key obligations in the COT3 were: for Steel to forgo his employment claims; and, for Duchy Farm to pay the settlement sum – confidentiality was ancillary to that. Further, since the breach did not, and was unlikely to, result in any significant commercial harm and damages would have been adequate remedy if Duchy Farm had suffered a loss, the breach was not repudiatory.

Where confidentiality is of particular concern to a party, this case highlights the importance of clear drafting to ensure it is expressed as a condition of settlement or, failing that, that the consequences of a breach of confidentiality are agreed upfront.