The High Court has awarded only nominal damages in a recent case which Alix Beese discusses.

The High Court has awarded only nominal damages of £2 against two individuals who copied and retained their former employer’s confidential information. Despite being in clear breach of their employment contracts, they made limited use of the confidential information (which the former employer valued at £15 million) and therefore did not cause loss or damage.

Background

Alongside an implied duty of confidentiality during the employment relationship, most employment contracts will contain an express duty on the employee not to misuse the employer’s confidential information or disclose it to any third party without the employer’s consent. Where an employee is in breach of those obligations, the employer can potentially obtain an injunction to restrain any further breach (or prevent an individual or their new employer from gaining an unfair competitive advantage). Alternatively, the employer can seek damages to compensate them for any losses caused by the misuse of confidential information.

In Marathon Asset Management LLP v Seddon, Marathon Asset Management (“Marathon”) alleged that two former employees, Mr Seddon and Mr Bridgeman, had copied a substantial amount of confidential information with the intention of assisting a competing fund management business.

Mr Bridgeman admitted that, over a period of several months before he left Marathon’s employment, he had copied and retained confidential files on USB drives. In doing so, he was in breach of his duty of fidelity and his contract of employment.

Before his departure, Mr Seddon had also saved confidential files onto a shared drive, which Mr Bridgeman subsequently downloaded to a USB drive. It was Marathon’s case (denied by Mr Seddon) that Mr Seddon copied documents to a shared drive on Marathon’s server to enable Mr Bridgeman to save the documents onto a USB drive, to be taken away and used in a competing business. Marathon also alleged that Mr Seddon knew Mr Bridgeman had already copied other documents for the same purpose.

However, none of the files which Mr Seddon shared were used after they both left Marathon’s employment. Mr Bridgeman made some use of a few of the files he had copied, but Marathon did not allege that this caused any financial loss.

Marathon argued that Mr Seddon and Mr Bridgeman were required to pay for the value of the confidential information taken, which they estimated at £15 million. This sum was considered to represent the price that Marathon could reasonably have charged Mr Seddon and Mr Bridgeman for releasing them from their confidentiality obligations. Marathon also sought to hold Mr Seddon liable for Mr Bridgeman’s conduct in copying and retaining the files.

There were two main issues in dispute:

  1. Whether Mr Seddon was liable for copying some of the files; and
  2. What, if any, damages were payable by Mr Bridgeman and, if he was also liable, Mr Seddon.

High Court decision

The High Court found that:

  1. Mr Seddon had copied files onto a shared drive with the intention that Mr Bridgeman would save them so that they would be available to him after he had left Marathon’s employment.
  2. Mr Bridgeman’s actions in copying, retaining and accessing confidential documents amounted to a breach of a duty of confidence as well as a breach of contract and Mr Seddon was in breach of the same duties for copying documents to a shared drive.
  3. The misuse of confidential information did not, however, cause Marathon to suffer any loss or result in Mr Seddon or Mr Bridgeman making any financial gain. There was no justification for awarding Marathon damages for loss it did not suffer and in circumstances where the information had not been used.
  4. If Mr Seddon and Mr Bridgeman had actually made any use of the files, it might have been possible to demonstrate that they obtained a significant benefit from Marathon’s confidential information. However, none of the files which Mr Seddon shared with Mr Bridgeman were used after their employment.
  5. Further, Marathon did not allege that Mr Bridgeman’s use of other files had caused any financial loss. Had it done so, the Court could have attempted to value the actual use of the information, taking account of the time, trouble and expense which Mr Bridgeman had saved himself. Instead, the court awarded only nominal damages against Mr Seddon and Mr Bridgeman in the sum of £1 each.

Comment

It is possible for a court to award “hypothetical bargain” damages (where a claimant can recover such a sum as the defendant would have paid had the defendant negotiated a release of its obligations). However, this case highlights the importance of focusing a claim for damages on the realities of the circumstances, rather than potential outcomes. It also demonstrates that, even in cases of clear wrongdoing, the court’s role in assessing damages for theft or misuse of confidential information is not to punish the wrongdoer, but to recognise loss suffered.

This case unfortunately does little to reassure employers that they will be able to seek damages in similar circumstances where there is limited or no use of confidential information taken by their former employees.

However, an injunction may still be available to restrain any further breach or to cancel out any headstart a competitor might gain from the confidential information it has received (commonly known as “springboard relief”).

Further, a tougher line has recently been taken by the Information Commissioner’s Office in the data protection context. A decision by the ICO to impose criminal sanctions is an interesting development for employers seeking strong action against employees who take confidential information, particularly if it contains personal data and/or client lists.