You have to pay even if the other party gives the game away
Court rules in Duchy Farm Kennels Ltd -v- Graham William Steels  that even when one party in a contract breaches confidentiality clauses, the other party must continue to uphold all of their obligations.
The background to this case lies in employment law.
Graham William Steels launched employment tribunal claims against his former employer, Duchy Farm Kennels Ltd (DFK). A settlement agreement was reached between the parties: DFK agreed to pay to Mr Steels 47 weekly instalments of £330, amounting to £15,500 in return for him dropping the claims. The agreement also included a confidentiality clause stating that the existence and terms of the agreement had to be kept completely private.
After DFK made around eight payments, it stopped all future payments when it transpired that Mr Steels had breached the confidentiality clause by revealing the settlement terms to a former colleague.
DFK insisted that the sums under the agreement were no longer recoverable due to this breach and when Mr Steels brought DFK to court to enforce the agreement, DFK defended the proceedings on this basis.
The county court, which first heard the case, found that Mr Steels had indeed breached the confidentiality clause in the settlement agreement. Nonetheless, it rejected DFK's defence on the basis that the confidentiality clause was not a condition of the contract.
Where a contractual term is a condition of a contract, this means that it is vital and goes to the root of the contract. Where you breach a contractual condition, the other party can often terminate the contract and claim damages.
This outcome was supported in the High Court on appeal. The confidentiality clause was held to be an intermediate term of the contract.
Where a contractual term is an intermediate term of a contract, this means that the effect of a breach of that term needs to be considered before deciding on a remedy. Intermediate terms rarely go to the root of a contract.
Here, the judge ruled that confidentiality was not the root of this agreement. The root of this agreement (ie its conditions) lay simply in the fact that Mr Steels was to abandon his claims in return for a settlement sum of £15,500.
Therefore, it was ruled that Mr Steel's breach of the confidentiality clauses did not entitle DFK to stop paying the settlement monies. Had DFK wanted to cement those confidentiality clause as conditions, it would have had to explicitly say so in the settlement agreement.
While this issue was examined in, and future courts may decide to limit it to, an employment/settlement context, its principles are certainly applicable to general contracts.
Where you would like certain terms in an agreement to be conditions of the same (where it may not be obvious to your contracting party), this should be expressly stated in the agreement itself. For example, had Mr Steels been made aware that DFK wished for confidentiality to be at the heart of their agreement, it is unlikely that he would have breached (or so you would like to believe).
How can this case help you?
Taking confidentiality as an example (but this is applicable to theoretically every term in any agreement where you wish to underline its importance)
- Explicitly state that confidentiality is a condition of the contract; this will usually mean that if it is breached, the other party is entitled to terminate the contract; or
- At least expressly state the consequences of a breach in the contract or run the risk of there being no consequences on breach.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.