Negotiating Damages after One Step: Employment Team Move and Misuse of Confidential Information Cases

In claims for ordinary contractual damages for loss of profits, it is usually factually difficult and costly to prove how employees and clients would have behaved had it not been for contractual breaches by errant employees. There is also the further difficulty of employees being able to claim that substantial parts of prima facie confidential information are accessible from legitimate sources, negating or significantly reducing the recoverable monetary loss.⁶

As a consequence, first, loss of chance damages on the Allied Maples Group Ltd v Simmons & Simmons⁷ basis are often the only realistic option in the present context.⁸ This doctrine also exists in Scots law. It is aimed at situations in which proof of loss or damage on the civil balance of probabilities standard is not possible or feasible. In this context, the dependence on loss of chance damages stems from pecuniary losses typically depending on the behaviour of multiple actors as well as wider market factors. In short, there are problems of counter-factuality and futurity.⁹ It is thus hard to prove that a given loss would have been suffered but for the errant employee's breach. This is notwithstanding the more generous application of the civil standard of proof when dealing with future events, affirmed in Parabola Investments Ltd v Browallia Cal Ltd.¹⁰ Loss of chance damages in English law are subject to two main restrictive features: the requirement (1) to prove future conduct by parties on the balance of probabilities, with only third party conduct attracting a lower standard of proof;¹¹ and (2) for any such chance to be “real and substantial”, usually set at an absolute minimum of 10 per cent.¹²

Secondly, as to cost, wide-ranging factual and expert evidence is often necessary. That cost can be wholly disproportionate to the possible quantum – a modest percentage of lost profits. Marathon v Seddon illustrates this point vividly. Marathon established liability against senior asset managers who attempted to set up a rival asset management firm for international clients serviced by Marathon's Global team. Extensive contractual breaches in relation to confidential information were proved.¹³ However, Marathon could not establish substantial competitive use of sensitive business files and the rival venture met with limited success.¹⁴ Difficulties with realistic valuations of the unlawfully removed information plagued the judge.¹⁵ Ultimately, Leggatt J granted a mere £2 in nominal damages,¹⁶ strongly doubting whether Wrotham Park damages were a suitable remedy at all.¹⁷ Marathon incurred very substantial costs in pursuing the claim and had to bear 50% of part of the defendants' costs.¹⁸ Such costs exposure can serve as a huge disincentive for the pursuit of litigation with the object of business protection.

Thirdly, a common difficulty in misuse of confidential information cases, specifically, is that errant employees can argue that information copied, removed or otherwise misappropriated contrary to their express or implied contractual (or equitable) obligations could have been obtained through legitimate sources. The confidential information may be an amalgam of, or derivable from, publicly accessible sources. If such a (partial) defence is made out, the recoverable monetary loss to the employer can be negated or significantly reduced. Crowson Fabrics Ltd v Rider and UK Dry Risers Ltd v Maher are illustrative.¹⁹

Lastly, direct claims against the rival employer for the economic torts of unlawful means conspiracy, conspiracy to injure or inducing breach of contract are usually even more difficult to establish. A helpful summary of the legal hurdles is found in OBG Ltd v Allan.²⁰

It might be thought that these difficulties can be overcome by framing claims in equity. The main alternative causes of action in English law are breach of confidence and breach of fiduciary duty.²¹ These would offer certain remedial benefits. First, there is the more flexible approach to causation and remoteness for equitable compensation (as opposed to common law damages), especially in relation to breach of fiduciary duty.²² Secondly, gain-based remedies (specifically an account of profits) are the default remedy for breach of fiduciary duty,²³ unlike for contractual claims where Attorney General v Blake sets an exceptionality threshold.²⁴ In breach of confidence claims, an account of profits is also available,²⁵ though the English courts²⁶ normally require some degree of conscious dishonesty, or wilful or reckless breach.²⁷ Thirdly, in some cases, forfeiture of remuneration is available against a fiduciary.²⁸ That said, such equitable claims face a number of hurdles in the employment context.

First, the English courts are reluctant to impose fiduciary duties on employees who are not also statutory directors or partners.²⁹ It is usually insufficient to be an important or senior company employee.³⁰ Absent significant managerial, financial and/or reporting responsibilities, only more limited contractual duties of fidelity apply.³¹ In essence, this means an employee is only required to be faithful to their contractual employment relationship by not positively acting to jeopardise the employer's interests.³² An employee fiduciary is under more demanding duties, including the duty to act in the best interests of the principal, which...