• Chasing Damages: The Risk of Putting All Your Eggs in One Basket
  • April 12, 2017 | Authors: Stephen Ross; Lesley Timms
  • Law Firm: Withers LLP - London Office
  • A leading London asset management firm, Marathon Asset Management (C), sued our client, Mr Luke Bridgeman (D3) for £15 million of damages in respect of his copying and taking away some of Marathon's documents after he left the firm for a competitor. In a judgment which amounts to a treatise on the law of damages, Mr Justice Leggatt rejected the (only) basis on which C claimed substantial damages, instead ordering D3 to pay nominal damages of £1.

    The documents in question included some off-the-shelf documents, but also C's client lists and prospects. It was established by experts during trial that, of all the documents taken, only 52 were actually accessed or used subsequently.

    C's damages of £15 million was based on the claim that this is the fee it would have agreed to licence D3's wrongdoing.

    D3 admitted that his actions in copying the documents with the intention of using or keeping them for his own purposes amounted to a breach of the duty of fidelity that he owed to C (his contractual obligation of confidence was unenforceable as it was so widely drawn). The Court's principal task at trial was, therefore, to determine whether C was entitled to any financial remedy and if so, on what basis and how much.

    The parties' positions

    C contended that the appropriate measure of damages is the measure to be assessed on the 'Wrotham Park' basis, i.e. the amount of money which would reasonably have been agreed in a hypothetical negotiation between a willing seller in C's position and a willing buyer in D3's position to release him from his duties to C. This was despite C's position that, in reality, it would not have been willing to agree any such fee.

    According to C, it did not matter what use was actually made of any of the files or that it had suffered no loss. D3 had unlawfully taken its confidential information and must pay for the value of what he took. Accordingly, C never advanced any case based on D3's actual (and very limited) use of the documents.

    D3 argued that Wrotham Park damages should not be available in this case. Instead, the appropriate remedy was an injunction or delivery up. Furthermore, given the very limited use and benefit derived from of the documents, it would not be just to make such an award which would represent a windfall for C. Alternatively any such damages should be modest to reflect the limited use and benefit.

    The Judgment - guidance for damages claims

    The case was heard over a period of just under three weeks. The judgment, which extends to 143 pages and 283 paragraphs, provides a comprehensive review of the existing case law on what damages are available in certain situations and how those damages should be assessed. It is a must-read for any employment, intellectual property or commercial lawyer.

    Overall, the Judge found that there was a vast gulf between the extent of the use which C said could potentially have been made of the files removed by D3 - on which its claim for damages was based - and the very limited use which was in fact made of them. In these circumstances, there was no justification for awarding damages to C for a loss which it was known C did not suffer and use of information which D3 did not make. The purpose of damages for civil wrongs is not deterrence or punishment and anything more than nominal damages would go against that principle. Accordingly, there was no principled reason why D3 should be ordered to pay any substantial damages.

    The Judge did consider whether he should assess damages based on the value and use of the documents and information that D3 took but concluded that he should not - C had expressly disavowed a claim for damages on this basis, opting instead for 'jackpot damages'. It was not now open to the Court to engage in an exercise which it was not requested to engage in and which had not been put to D3 at trial.

    A framework for licence fee damages

    The Judge sought to establish a coherent framework in his judgment to explain the basis on which the Court has in the past and should in the future awarded licence fee damages (where damages are measured by estimating the sum of money which the defendant would reasonably have had to pay to do lawfully what was done unlawfully) or an account of profits (where the court inquiries into what profits the defendants have actually made as a result of its wrongful act).

    In his view, the first question to ask in order to determine the correct remedy is:
    • whether there was an alternative means by which the defendant, acting lawfully, could have obtained the benefit gained by its unlawful act or an equivalent benefit. That benefit should be valued on the basis of the market price of the benefit or the cost of reproducing it, if it could be recreated.
    • If, however, there is no equivalent market, or the equivalent benefit could not have been obtained elsewhere, it would then be appropriate to look at whether the defendants' activity is one which it was reasonable to expect that the claimant would licence in return for payment of a reasonable fee. In assessing that figure, the Court could, for example, look at figures postulated by the parties' in previous negotiations (as it did in Pell Frischmann).
    • If, however, there is no market value, the defendant could not have obtained an equivalent benefit elsewhere and the defendant could not reasonably have expected to purchase a licence from the claimant for its activity (because the claimant would never have granted such a licence, and it said in this case and in the Blake case), the Judge's view was that it makes no sense to value the benefit by postulating a hypothetical negotiation between a willing seller and a willing buyer as such a negotiation would be wholly fictional in every sense.
    Accordingly, the Judge concluded that in situations of this kind, the appropriate method of valuation would be to assess the amount of profit made by the wrongdoer which is fairly attributable to its wrongful use of the claimant's property. This can be achieved either as an account of profits or a percentage of profits as licence fee damages.

    Conclusion

    It was on this basis that the court stated that, in respect of the 'priceless' documents that D3 took, the just approach would have been to value the benefit by estimating the profits actually derived from their wrongful use which was, unfortunately for C, an approach they had expressly and deliberately disavowed. However, even if they had advanced a case on use actually made of the documents, any benefit would have been extremely modest and only have served to highlight the enormous mismatch between any gain made by D3 and the amount of money for which C were seeking judgment.

    Ultimately, the Judge was unwilling in this case to engage in the fictitious exercise of speculating on what might have happened in circumstances when it knew exactly what had happened. In this case, D3's use of the documents was extremely limited and C had suffered no loss. The remedy sought by C did not match the wrong committed, as reflected in the nominal damages awarded.