Snatching defeat from the jaws of victory; an object lesson in how to get litigation wrong

When considering whether to embark on litigation two of the fundamental elements of the claim which need to be identified are, what is the breach and what is or are the available remedies? While at first glance identifying these elements may appear to be a relatively simple task the recent case of Marathon Asset Management LLP v Seddon is a sober warning of the potential consequences when this assessment is proved wrong.

The Claimant claimed substantial damages against the Defendants, being former employees who had copied and retained confidential information before leaving to set up a rival business. Crucially, the Defendants had made either no or limited use of the confidential information and had not made any financial gain.

The Claimant was successful in establishing that the Defendants were liable, having breached their employment contracts, the implied duty of fidelity owed to their employer and a duty of confidence owed to the Claimant under general law. Notwithstanding this, a fundamental flaw in the Claimant’s case was that it was unable to establish a link between the breach (and so the liability of the Defendants) and the remedy which it was seeking. As a result although the Claimant sought substantial damages of £15 million it received only nominal damages of £2.

Added to this the Claimant was also faced with having to pay both its own costs and a significant proportion of the Defendants’ costs, as a consequence of having refused to accept a settlement offer of £1.5 million.

What went wrong?

Significant obstacles to the Claimant’s claim were that it had not suffered financial loss as a result of the breach and that the Defendants had not, or could not be proven to have, made any financial gain by the misuse of the Claimant’s confidential information.

The Claimant and its advisors sought to get around these obstacles by justifying a claim for substantial damages in three ways:

  1. The conversion or detention of goods gives rise to a claim for damages representing the value of the information taken (i.e. if you take something the law requires you to pay for it). The Judge was unconvinced. The confidential information (or electronic data) had not been ‘taken’, rather it had been copied.  The Claimant had not been deprived of the use of the information and the act of copying had not had any financial impact on either party.
  2. The Claimant had been exposed to the risk of loss and the Defendant acquired the opportunity for a financial gain. Again, the Judge was unconvinced, and commented that “[t]he law does not compensate people for being exposed to a risk of injury.”
  3. The Claimant argued that this was a case of uncertainty. It said that where confidential files are copied it is extremely difficult if not impossible to identify what subsequent use has been made of the information and so what loss has been suffered by the Claimant and what gain has been obtained by the Defendant. The Claimant reasoned that in these circumstances the just solution would be to require the Defendant to pay a sum representing the value of the information. The Judge found that while there are legal principles which may have assisted the Claimant such assistance would only go so far in overcoming the evidential difficulties (of which there were many). The court could not “conjure facts out of the air”.

The Claimant’s alternative position was that a remedy should be granted by reference to what is known as the “user principle”. Under this principle as the Defendant has had the use of property for its or their own purpose (in this case wrongfully obtained intellectual property) the Claimant is entitled to seek damages which represent the value of such use to the Defendant.

“Licence fee damages” are considered an appropriate remedy to apply to the user principle. Such damages are determined by quantifying a reasonable fee for releasing a defendant from an obligation of which it would otherwise be in breach. This involves considering the likely outcome of a hypothetical negotiation between the Claimant and the Defendant.

The reason that the Claimant in this case was unsuccessful was that it asked the court to determine the fee it would have hypothetically charged the Defendants for copying and retaining the confidential information. As the Defendants did not actually go on to use the confidential information the Claimant did not (presumably because it considered that it could not) ask the court to extend the hypothetical negotiation to assess the fee which would have been charged for the use of the information. Essentially, the Judge determined that the Claimant had failed to match the claimed remedy of substantial damages to the wrong.

Comment

Prospective Claimants, often justifiably, may consider themselves to have been grievously wronged by a prospective Defendant. It is vital that such wrongs are correctly distinguished and matched to an available legal remedy and obtaining advice should involve a pragmatic, commercial and realistic assessment of the dispute.

This is also a cautionary tale of the consequences of not accepting a Part 36 settlement offer.

Shooting for the moon in the hope that you will land among the stars is not the best advice if you have neither the engine power nor a parachute.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.