Employer claims £15m for breach of confidentiality, but High Court awards only nominal damages

13 March, 2017
by: Cripps Pemberton Greenish

In Marathon Asset Management LLP and another v Seddon and another [2017] EWHC 300 (Comm), the High Court  found two fConfidentialormer employees liable for breach of their duties of confidence after confidential files were copied and saved onto one of their USB drives before they left the business. However, the ex-employer’s claim for £15m in damages was rejected, and the ex-employees were instead ordered to pay a nominal sum of only £2.  

The former employer was an investment management business (Marathon).  For months leading up to his departure, one of the employees (Mr Bridgeman) copied a large volume of confidential files onto USB drives. He wanted to have access to these files, which contained documents relating to Marathon’s clients, funds and business operations, because he believed that they would enable him to “hit the ground running” in setting up a competing investment management business.  In actual fact, very few of these files were subsequently accessed and there was no evidence that he derived any material benefit from them.    

Another employee (Mr Seddon) saved a small number of files onto a shared drive, enabling Mr Bridgeman to copy those as well. These documents were never subsequently accessed.  

Mr Bridgeman admitted that by copying the files, he had breached his duty of fidelity and good faith to Marathon, and accepted that he had breached some of the restrictions in his employment contract.

There were therefore two main issues for the Court to consider:

  1. Whether Mr Seddon was liable for copying the files; and
  2. What, if any, damages should be payable?

Was Mr Seddon liable for copying the files?

Mr Seddon was found liable for breach of his duty of fidelity and breach of contract for placing files on the shared drive, because he did so with the intention that Mr Bridgeman would copy them.

However, Marathon sought to hold him liable for the files that Mr Bridgeman had copied. It advanced a number of arguments, which were ultimately unsuccessful. One of them was that Mr Seddon was liable for breach of a contractual duty to report Mr Bridgeman’s conduct. There was no express term in his contract requiring him to do so. The question was whether there was an implied duty as part of his duty of fidelity and good faith. It was found that this would depend on the circumstances, and in these circumstances the argument was rejected.  

What, if any, damages should be payable?

Marathon didn’t allege that either Mr Bridgeman or Mr Seddon had made any financial gain from their breaches, nor did it allege that Marathon had suffered any loss.

Instead, it argued that the ex-employees should pay the value of what they took, or what they would have had to pay Marathon for it to have agreed to release them from their duties of confidence in the first place. Marathon claimed that that figure would have been £15m.  Its arguments were rejected.

Many of the documents that had been copied contained information which could have been obtained from other sources, but not without time and expense. Leggatt J commented that he would have been able to assess damages by estimating the costs that would have been incurred in obtaining that information from other sources, but Marathon had failed to advance that argument.

Comment

Although the case focused on a number of complex legal arguments, the following practical advice can be taken from it:

  1. If you want to oblige employees to report the misconduct of their peers, it is advisable to insert an express clause into their contracts. g. an express duty to protect the interests of the business.
  2. If you are considering issuing proceedings against a former employee in breach of their obligations, make sure that you focus on the financial realities of the situation to assess whether or not it is worthwhile. You should consider whether you have suffered a financial loss or whether the wrongdoers have benefited from an illegitimate financial gain.