Marathon Asset Management LLP v Seddon & Ors [2017] EWHC 479 (Comm)
Earlier in the year you may have seen reference to the case Marathon Asset Management LLP v Seddon in the news recently. It is not often that civil dispute cases make the headlines, especially these days when newsmakers are faced with the seemingly endless outrages of the Trump administration, but this case caught the media’s attention.
The claimants, an investment management business, sought damages in the High Court for £15 million. Their case failed, and instead, they were awarded £2; no that’s not a typo, £2, plus the judge landed them with a hefty costs order hence compelling them to pay their opponents legal bill, after they failed to agree to a Part 36 settlement of £1.5 million.
This case illustrates the real risk that civil litigants can face on two fronts; a) gambling on ‘jackpot’ damages and b) choosing to go to court rather than accept a reasonable Part 36 offer.
The facts of the case
This case related to a dispute between the three founders of an investment management business, which led to one of them leaving and setting up a competing business, along with several other employees. Prior to leaving theclaimant’s organisation, the two defendants copied confidential material onto a USB stick. The information contained on the USB stick would have provided a perfect client target list for the defendant’s new venture.
Marathon valued the information on the USB stick at £15 million and sought damages equal to this sum.
The court’s decision
The court heard that both defendants had not made any financial gain from the copied data, in fact, they had barely accessed the files since downloading them. But Marathon argued that damages should not be based on actual use of the material, but the price of an unrestricted licence for the information on the day the material was copied.
Expert evidence valued the fee between £2.5 million and £39.4 million.
Marathon also argued damages should be awarded on its exposure to the risk of loss and the defendant’s opportunity to make a lot of money by using the information contained in the USB stick.
The Honourable Mr. Justice Leggatt rejected both of Marathon’s arguments. He stated that there was a “vast gulf” between the potential use made of the information and the amount the material was used.
‘It is axiomatic that the general object of an award of damages for a civil wrong is to compensate the claimant for injury caused by the defendant’s wrongful act,’ said the judge. ‘It follows on the face of it that no injury has been sustained for which Marathon is entitled to be compensated in damages.
‘In circumstances where the misuse of confidential information by the defendants has neither caused Marathon to suffer any financial loss nor resulted in the defendants makes any financial gain, it is hard to see how Marathon could be entitled to any remedy other than an award of nominal damages.’
Regarding the claim that damages should be awarded to compensate Marathon’s exposure to risk, according to a report in the Law Society Gazette, Justice Leggatt made the analogy that a motorist driving at high speed may be putting lives and safety at risk, but the people in danger cannot claim for damages.
‘The law does not compensate people for being exposed to a risk of injury,’ he added.
The issue of costs
Prior to the case going to trial, the defendants made an offer to settle the case for £1.5 million using a Part 36 offer.
Part 36 of the Civil Procedure rules sets out a prescribed regime for parties to a dispute to settle a case early and details the costs consequences if an offer to settle is is refused. In essence, making a part 36 offer, is the best tactical way to put pressure on your opponent, making them think twice about the risks involved in taking the case to trial. It is also a good way to protect a party on costs. Such offers once received, must always be carefully thought through before a decision is made to “gamble” with the offer that has been placed on the table.
If a Part 36 offer is refused and then beaten at trial, there is a presumption that the losing party will pay the other side’s costs. Normally a party has 21 days to decide whether to accept or reject such an offer. In addition, the judgment in Broadhurst v Tan;Smith v Taylor [2016] EWCA Civ 94, confirmed that in such a case, indemnity costs may be payable rather than just fixed costs.
To discharge the burden of paying the other sides costs after failing to beat a Part 36 offer to settle, litigants must show that the awarding of such costs would be unjust.
Justice Leggatt did not consider it unjust to order Part 36 costs against Marathon because at the time the settlement offer of £1.5 million was made, neither defendant has derived any financial benefit from misusing the confidential information contained on the USB stick files, let alone caused Marathon any loss. Therefore, by rejecting the Part 36 offer, Marathon was litigating at entirely its own risk. The court ordered Marathon to pay 50 % of the first defendant’s (Mr. Seddon) costs up to the date that the Part 36 offer expired and then the entirety of his costs thereafter.
What this case means for those considering litigation
In rejecting Marathon’s attempt to base damages on the court assuming a more widespread misuse of the confidential information than actually occurred, this judgment makes it clear that the court does not consider ‘jackpot’ damages appropriate. Instead, the court will start by assessing the wrongful act that has taken place and then works out a suitable remedy based on the actual loss suffered by the claimant.
Secondly, the case emphasises that the rejection of a Part 36 offer, especially in a case where there is a wide variance in the quantifying of damages, is a very risky move and one that clients and their legal counsel should make with supreme caution. By facing trial, a party is always gambling on the possibility that a Judge may or may not accept their arguments. If the offer is beaten at trial, as was so dramatically in the case for Marathon, the financial impact can be extremely painful.
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