Potential financial losses and gains from theft of confidential information did not justify award of 'jackpot damages', rules UK judge

Out-Law News | 27 Feb 2017 | 2:33 pm | 3 min. read

Businesses that have confidential information stolen from them but do not suffer a financial loss as a result of that theft will generally not be eligible for damages if those that have taken the information unlawfully have not made any financial gain by doing so, a judge at the High Court in London has said.

Andrew Herring, expert in dispute resolution at Pinsent Masons, the law firm behind Out-Law.com, said the High Court's ruling should serve as a reminder to businesses involved in litigation to "regularly re-assess their cases objectively and keep an open mind, even in cases where liability appears to be weighted heavily in their favour".

Mr Justice Leggatt ruled that an investment management business was entitled to a nominal £1 in damages from each of two former employees who had copied confidential information belonging to the business before leaving to set up a new company. Only a few of the files that were unlawfully copied were actually used, according to the ruling.

Marathon Asset Management and Marathon Asset Management (Services) had argued that they were eligible for damages of approximately £15 million as a result of the copying of their confidential files by James Seddon and Luke Bridgeman.

Marathon firstly claimed substantial damages were justified on the basis that the law requires you to pay for things you take. It then argued that damages should be based on the fact it had been exposed to a risk of loss and Seddon and Bridgeman had an opportunity for financial gain as a result of their actions. Marathon further argued that damages should be awarded on the basis of the value of the information taken given the difficulty in identifying exactly how confidential information has been misused after it has been copied.

However, Mr Justice Leggatt dismissed those claims for "jackpot damages" after rejecting the basis on which Marathon had argued that damages should be awarded. The judge said arguments for damages to be based on hypothetical losses or gains were not justified in law.

Mr Justice Leggatt said: "If a man drives at high speed the wrong way round a roundabout putting the lives and safety of other people at risk, but by good fortune avoids an accident, he may be prosecuted and punished for dangerous driving; but the people whose safety he endangered cannot claim damages for having been exposed to a risk of injury. If the law were to recognise any such principle of compensation for exposure to risk, it is difficult to see where it would ever end."

"Equally, acquiring an opportunity to make a financial gain does not justify a remedy, if the opportunity is not in fact taken. Just as the law does not provide compensation for injuries which might have been but were not in fact suffered, courts do not order the surrender of hypothetical benefits which might have been but were not in fact gained," he said.

The judge said that there may be some cases in which it "would be appropriate to value the benefit of unlawfully obtaining access to information by reference to a market rate which does not depend upon the extent of actual use". However, he said the circumstances of the Marathon case did not justify damages being calculated in this way.

"I cannot see a justification for awarding damages to Marathon for loss which it is known that Marathon did not suffer and use of information which the defendants did not make," Mr Justice Leggatt said. "The only purpose which such an award of damages or other financial remedy could serve in this case, as it seems to me, would be to punish [Seddon and Bridgeman] for their wrongdoing or aim to deter others from engaging in such conduct. But save in very limited circumstances, which do not apply here, punishment and deterrence are not purposes for which damages for civil wrongs can be awarded in English law."

Herring of Pinsent Masons described the case outcome as "a pyrrhic victory for Marathon". He said the outcome may spur further satellite litigation concerning the recovery of legal costs.

"In reaching this conclusion, the judge clarified that in the absence of any proof of financial loss on the part of the claimant or proof of financial gain on the part of the defendants, the court will not award damages for a civil wrong purely to punish and act as a deterrent," Herring said.

Earlier this year, employment law expert Jonathan Coley of Pinsent Masons said it is surprisingly common for employees to email copies of customer databases or confidential information, such as product development details and business plans, to their personal accounts or new employers when leaving an organisation. He said, however, that there are steps businesses can follow to help prevent such cases, and action they can take to achieve redress if incidents do occur.