James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…View Profile View all
The High Court has recently had to consider a case brought against two former employees by an investment management business. The claimant alleged that two ex-employees had breached their duties of confidence owed to it by copying confidential files and the retention of confidential information. One of the defendants admitted that over a period of several months before he left the claimant’s employment he copied substantial numbers of files containing confidential information onto USB drives which he then kept until he was forced to give them back to the claimant. The other defendant shared files containing information about the claimant’s business which was subsequently downloaded by the other defendant. The court had to consider what level of damages the defendants should pay if they were guilty of breaching their duties of confidence in dealing with the claimant’s confidential information.
The claimant did not assert that the confidential information had been used by the defendants but instead asked the court to award damages based on the estimated price which it could reasonably have charged the defendants for releasing them from their obligations. The Judge categorised this as “licence fee damages” in that he considered that the basic idea was that the damages claimed would represent a fee that would reasonably have been agreed between the parties to licence the defendants’ wrongful activity.
The claimant said that the confidential information that had been taken by the defendants might have allowed them to “hit the ground running”. The reality was that had not happened. They took several months to get their new business off the ground and before any use was made of the confidential information, they had to give it back.
The law implies into an employment contract an undertaking by the employee to carry out the employment with fidelity and good faith and that includes an obligation to use information which is confidential to the employer solely for the purpose of the employment relationship. The Judge found that both the defendants were in breach of their duties of confidence which they owed to the claimant.
The claimant sought £15 million which it said was the minimum price which it would have required the defendants to pay to release them from their obligations in respect of the files which were copied and removed.
The Judge concluded that only if the claimant could show that the defendants had actually made use of the files might it have been possible to demonstrate that they obtained a significant benefit from its confidential information. As it was, there had been virtually no use made of the information. No alternative case having been put forward by the claimant, the Judge dismissed its arguments that it should recover £15 million and instead awarded it nominal damages of £1 against each defendant. The Judge said the claimant had “missed the jackpot”.
In addition to licence fee damages the Court had considered whether the claimant was entitled to an account of profits from the defendants but like the licence fee damages argument, an account of profits would involve measuring the benefit gained by the defendants from their wrong rather than a loss by the claimant. No benefit had been obtained by the defendants. There is authority for the proposition that the remedy should match the wrong and in this case the damages sought by the claimant did not match the wrong perpetrated by the defendants.
This case highlights the importance of focusing a claim for damages on the actualities of the situation rather than on a hypothetical basis and confirms the court’s role is not to punish defendants but to consider loss suffered or gains wrongly made.
For more information please contact James Staton, Partner, Litigation