Exposure on damages and costs for not keeping prospects of success under review
Two recent judgments, one on liability and quantum and the other on costs, provide stark reminders to claimants about continually evaluating their claim. The High Court has considered whether two ex-employees of an asset management company had breached their duties of confidence and, if so, the amount of damages that should be awarded for those breaches. Further, in light of the level of damages awarded the position on payment of the parties' costs incurred dealing with the case has also been carefully examined.
The purpose of an award of damages for breach of contract is to compensate the injured party for loss, rather than to punish the wrongdoer. Case law has, however, developed the principle so that a 'hypothetical bargain' position has been established where damages may be available on the basis that the claimant can recover such a sum as the defendant would have paid had the defendant, before breaching the contract, negotiated a release of its obligations by the claimant. In respect of costs, the usual award is that the successful party has its reasonable and proportionate legal costs paid by its opponent, subject to offers of settlement made between the parties.
In the recent case of Marathon Asset Management LLP v Seddon and Bridgeman  EWHC 300 (Comm) the High Court awarded a nominal sum of just £2 compensation to the claimant when it found in the investment management company's favour that former employees who had copied and retained files acted in breach of their employment contracts even though damages of £15 million had been claimed.
Ex-employees of Marathon set up a competing fund management business and Marathon pursued a claim against Mr Seddon and Mr Bridgeman for copying and retaining confidential documents before their departure. Mr Bridgeman admitted that his actions in copying the documents amounted to a breach of duty of fidelity and breach of the terms of the employment contract. Mr Seddon had shared files containing information about Marathon's business with Mr Bridgeman, which Mr Bridgeman later downloaded. The information copied was extremely sensitive and potentially very valuable. However, Mr Bridgeman returned the documents when proceedings were threatened against him and it appeared that no, or very limited, use had been made of the material.
The claim by Marathon was therefore not brought on the basis that the defendants' misuse of confidential information had caused it to suffer any loss or resulted in the defendants making any financial gain which Marathon could recover. Instead, Marathon submitted that it did not know for certain what use had been made of the information or benefit that had been gained by the defendants and therefore the assessment of damages should be based on the value of the information at the date of the breach.
The Court, although finding that Mr Bridgeman and Mr Seddon were liable for breaches of duty of confidence owed to Marathon, rejected the claim for substantial damages put forward by Marathon. The Court considered the defendants would have agreed to pay Marathon only a nominal sum to copy and retain the confidential information but not use it. Damages in the amount of £1 each against Mr Bridgeman and Mr Seddon were therefore awarded.
Although Marathon obtained judgment in its favour, in reality it lost the case against its ex-employees for substantial damages. A further blow for Marathon in this case is that it was required to pay a substantial contribution towards the legal costs of Mr Bridgeman and Mr Seddon in defending the claim.
Marathon's reasonable and proportionate legal costs were payable by the defendants up to when Mr Bridgeman admitted liability and returned the documents, however, Marathon had to pay the defendants costs from that date onwards. The amount of costs recoverable by the defendants was also impacted by the effective use of Part 36 of the Civil Procedure Rules. During the course of the proceedings the defendants had made a Part 36 offer to settle the claim by paying Marathon £1.5 million. The judge considered that Marathon's decision to continue with the claim after receiving this offer was a "game-changer". As a result of the implications of the provisions of Part 36, Marathon had to pay the reasonably incurred costs between the date of the return of the documents and the expiry of relevant period for the acceptance of the Part 36 offer, but thereafter all of the costs paid by the defendants were recoverable from Marathon.
It is rare for a company which is alleging misuse of confidential information not to be able to show significant damages caused to it by the actions of the defendant or that the defendants had benefitted financially for which the company is entitled to an account of profits. However, in the Marathon case neither of these approaches would have achieved a worthwhile remedy for the company. Accordingly, although this case offers little deterrent to employees against copying and retaining confidential information, it is unusual for an assessment of damages to be claimed on the basis it was here. In order to avoid a similar result, employers should take thorough steps to obtain evidence to prove misuse of the confidential information and identify the consequences of this to justify a significant award of damages; they should not rely on discovering evidence of actual misuse during the course of proceedings. Prospects of success should also be kept under constant review, allegations should be withdrawn if they become implausible and offers of settlement should be carefully considered.