Marathon case may raise snickers among employees
by Nick Humphreys & Alex Brooks
The High Court has recently issued a judgment in Marathon Asset Management LLP & Anor v Seddon & Ors , in which employees who were found to have unlawfully removed confidential documents were only ordered to pay nominal damages of £2.
Two former employees of Marathon Asset Management (“Marathon”), James Seddon and Luke Bridgeman (the “Former Employees”), were accused of and, in this case found to have, unlawfully removed approximately 40,000 documents from Marathon when they both resigned to set up a competing business. Despite this clearly being in breach of their contracts of employment and in breach of their implied duties of confidence, fidelity and faithful service, the Court found that no loss or damage was caused by the Former Employees as, on the facts, they had made limited use of the confidential information taken. On this basis, only nominal damages of £2 were awarded to Marathon, which had valued the breach at £15 million (this being the price that Marathon asserted could reasonably have been charged to the Former Employees for releasing them from their confidentiality obligations).
It was not thought to be reasonable nor appropriate to award damages for a hypothetical bargain (i.e. what they could have charged the Former Employees for releasing them from their obligations), as the Court felt that the information would never have been sold at any price to a competitor, so it would be unreasonable to assess damages on the basis of a ‘hypothetical negotiation between a willing seller and a willing buyer to license the use of the information’. Furthermore, the judge opined that there is no legitimate interest of the employer in the performance of the contractual duty other than to avoid loss; it is not there to prevent the employee from making a financial gain. Consequently, when assessing damages, the High Court focussed on its finding that the misappropriation of the confidential information did not in fact cause Marathon to suffer any loss, nor did it produce any financial gain for the Former Employees. Accordingly, damages could not be justified, since there was no proof that a financial loss had actually been sustained by Marathon.
This judgment will not be welcomed by employers for whom departing employees copying and retaining files is a common risk, as it does nothing to deter the behaviour. Further, it reiterates in stark, financial terms, that the onus is firmly on the employer to prove a loss emanating from the specific breach. This is something that can be tricky and costly to do, as it will likely call for the involvement of experts prior to bringing a claim before the Courts.
The Marathon judgment also highlights an important difference from the position in relation to physical goods, under which a person who takes property belonging to another, with the intention of using it, must pay the reasonable price of hire (Watson, Laidlaw & Co. ). The Judge in Marathon stated that this approach should not be taken in relation to the misappropriation of confidential information as the employer is not deprived of anything (where the employer also retains copies of the information in question); this may be a difficult pill for employers to swallow, but it further demonstrates how crucial it is to have evidence of the financial loss of the former employer and/or the financial gains of the former employee.
The alternative options for employers, where bringing a claim for damages may be inappropriate or risky, are expensive and can be unpredictable: they will principally include applying to the Court for an injunction requiring delivery-up of the confidential information and prohibiting its use by former employees; or reporting breaches to the Information Commissioners Office. Whilst the latter course of action had often previously been viewed by employers with disdain due to its lack of teeth, it may now be a more attractive tactic as changes to the Data Protection Regime provide that criminal charges may now be brought against individuals who misappropriate data that contains personal data, such as client lists.
In light of the Marathon judgment, and the ICO’s changes to the Data Protection Regime, it is readily apparent that protecting data is a fundamental issue for employers. Failure to do so may be extremely costly (and damaging to public confidence in the employer), so stringent planning and staff training is advised.