England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		14th March 2017

Mr Justice Leggatt:

1. This judgment gives the reasons for my decisions, made after considering written submissions from the parties, on issues consequential to the judgment handed down on 22 February 2017.

Costs

2. In that judgment ("the main judgment") I found that the first and third defendants, Mr Seddon and Mr Bridgeman, were liable for unlawfully copying and retaining when they left Marathon's employment documents containing confidential information about Marathon's business – a claim which has been referred to as "the misuse claim". But I also found that Marathon had not shown that the defendants' actions had caused Marathon any loss or the defendants any gain, with the result that Marathon is entitled only to nominal damages.
3. In a commercial case such as this a judgment for only nominal damages is a defeat. The position was trenchantly put by Jacob J in Hyde Park Residence Ltd v Yelland [1999] RPC 655 at 670, when he said:

"It seems to me that the whole question of nominal damages is at the end of this century far too legalistic. A plaintiff who recovers only nominal damages has in reality lost and in reality the defendant has established a complete defence."

This is not a case where it can be said that money was not the object and that the claim was brought in order to establish or protect some legal right. Marathon's sole purpose in pursuing a claim for misuse of confidential information after the files containing the information had been handed back was to seek to recover substantial damages. That attempt failed. I also agree with counsel for Mr Seddon that, if Marathon had pursued the claim seeking only nominal damages, the claim could properly have been struck out as an abuse of process on the ground that dealing with it would be a waste of court time and resources.

4. I therefore approach the question of costs on the footing that the defendants are the successful parties. Although the general rule set out in CPR 44.2(2)(a) requires Marathon to pay the defendants' costs in this event, I nevertheless need to consider whether there are circumstances which justify a different order. I will consider the position of each defendant separately.

Mr Bridgeman

5. In the case of Mr Bridgeman, it is necessary to remember that the claim arose from his wrongdoing in copying onto USB drives and taking with him when he left Marathon's employment in December 2012 thousands of confidential documents in breach of duties owed to Marathon under his contract of employment and under the general law. Furthermore, when asked by Marathon's solicitors at the end of February 2013 to confirm that he had not taken or removed or retained any confidential documentation, his response was to lie and falsely assert that he had not done so.^[1] Only after receiving draft particulars of claim in June 2013 did Mr Bridgeman admit that he had taken documents and arrange to return them. Although most of the files were delivered up on 8 July 2013, the file containing Mr Bridgeman's email account was not delivered up until September 2013, after this action was begun.^[2] In these circumstances I think it right to hold Mr Bridgeman responsible for the costs incurred by Marathon in carrying out the investigations which led to the misuse claim and in initiating that claim.
6. The position changed, in my view, once Mr Bridgeman had returned all the files which he had taken and had also admitted liability for breach of contract – which he did on 24 January 2014. From then on, the dispute was all about the quantum of damages.
7. Marathon has argued that, even after Mr Bridgeman had returned the files and admitted liability, it had a legitimate interest in investigating what use had been made of its confidential information. The point is made on Marathon's behalf that the extent of such use was not within Marathon's knowledge and could only be discovered by means of an extensive and expensive forensic inquiry which continued throughout the course of these proceedings. I do not accept, however, that this justifies departing from the general rule about liability for costs. A party which pursues a claim for damages for misuse of confidential information without evidence of any significant misuse but in the expectation that such evidence will or may be uncovered through the litigation process takes the risk that such evidence will not be uncovered because it does not in fact exist. In the result, the forensic inquiry in this case established that Mr Bridgeman's claim that he had made very little use of the documents he took was substantially true.^[3] In any case, I do not think that Marathon can reasonably seek to justify its pursuit of the misuse claim on the basis that such an inquiry was necessary when, as recorded in the main judgment,^[4] Marathon consistently maintained throughout the proceedings that the extent of any actual use of information by the defendants was irrelevant to its claim.
8. In these circumstances I consider that the just order to make is that Mr Bridgeman should pay Marathon's costs of the misuse claim incurred prior to 24 January 2014 but that Mr Bridgeman's costs of defending the claim after that date should be paid by Marathon.
9. I have reached that conclusion without bringing into account the fact that on 3 February 2016 Mr Bridgeman made an offer under CPR Part 36 jointly with Mr Seddon to settle the misuse claim by paying Marathon a sum of £1.5m.^[5] The date on which the relevant period for acceptance of the offer expired was 24 February 2016. In circumstances where Marathon has failed to obtain a judgment more advantageous than the offer, CPR 36.17(3) requires the court, unless it considers it unjust to do so, to order that the defendants are entitled to costs from the date on which the relevant period expired together with interest on those costs. It follows from the conclusions I have already reached that I do not consider it unjust to make such an order. As regards the period from 25 February 2016 onwards, therefore, there is an added reason to make the order for costs that I think it right to make in any event.

Mr Seddon

10. I have found that Mr Seddon was in breach of duties owed to Marathon in copying 33 files to a shared drive on 29 August 2012 with the intention that Mr Bridgeman should save the files on a USB drive for potential use after they left Marathon. However, I rejected Marathon's case that Mr Seddon is liable for the copying or removal of other files by Mr Bridgeman. I also found that Mr Seddon never used or had in his personal possession any of the 33 files or any other files which Mr Bridgeman saved to USB drives and retained on leaving Marathon.^[6] In these circumstances I do not think it right to hold Mr Seddon responsible along with Mr Bridgeman for Marathon's costs of investigating the removal of confidential files and securing their delivery up.
11. Nevertheless, unlike Mr Bridgeman, who admitted liability at an early stage, Mr Seddon never made any admission of liability and denied throughout the proceedings that he had participated in the copying and removal of any confidential files. As a result, a substantial amount of evidence and time at the trial was taken up in dealing with a factual dispute about Mr Seddon's knowledge and actions on 29 August 2012. I identified this issue in the main judgment as one of the two main issues contested at the trial.^[7] I have decided the issue in Marathon's favour and found that Mr Seddon's evidence about the relevant events was false.^[8]
12. In these circumstances, in exercising the court's discretion under CPR 44.2(2), I would in principle have thought it right not merely to disallow Mr Seddon's costs of unreasonably contesting the issue of his liability for copying the 33 files but to order him to pay Marathon's costs of that issue. Implementing such an issue-based order would, however, cause considerable complication and cost. Not only would it potentially require a detailed assessment to be undertaken of Marathon's costs of the misuse claim which would otherwise be unnecessary, but it would require a close analysis to disaggregate the costs referable to this issue from the other costs incurred by Marathon and by Mr Seddon in contesting the misuse claim. In my view, it is practicable and far preferable to avoid these difficulties by instead reducing Mr Seddon's entitlement to costs by a proportion which reflects my broad assessment as the trial judge of the significance of this issue and the costs likely to be attributable to it. Applying this approach, I consider that Mr Seddon should be entitled to recover only 50% of his costs of defending the misuse claim (from 16 July 2013 when the action was begun).
13. As in the case of Mr Bridgeman, however, I am approaching the question of costs in two stages and have not yet taken into account the defendants' Part 36 offer to settle the misuse claim. It is clear that, in considering whether it is unjust to make an order of the kind referred to in CPR 36.17(3), the court's discretion is much more circumscribed than the court's broad discretion to depart from the general rule under CPR 44.2: see Lilleyman v Lilleyman (No 2) [2012] 1 WLR 2801, para 16. I accept that, although the particular circumstances to which the court's attention is directed by CPR 36.17(5) relate to the making of the offer rather than the general conduct of the proceedings, the court is still able to take a broader view in an appropriate case: ibid; and see also Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch), para 13(c). Nonetheless, as Briggs J observed in the latter case at para 13(d):

"[t]he burden on a claimant who has failed to beat the defendant's Part 36 offer to show injustice is a formidable obstacle to the obtaining of a different costs order. If that were not so, then the salutary purpose of Part 36 in promoting compromise and the avoidance of unnecessary expenditure of costs and court time, would be undermined."

14. In the present case the defendants' offer to pay Marathon a sum of £1.5m – plus its costs of the misuse claim, had the offer been accepted – was in my view a game-changer which cast Marathon's subsequent pursuit of the claim in a very different light. The context in which the offer was made was that Marathon had no evidence to suggest that Mr Seddon and Mr Bridgeman had derived any financial gain from misusing its confidential files let alone caused Marathon to suffer any loss. Indeed, it was clear from the facts mentioned at paragraphs 105-107 of the main judgment that any financial gain which the defendants could possibly have made from their conduct was on any view modest and of a different order of magnitude from the amount of the Part 36 offer. In these circumstances Marathon's decision not to accept the offer of £1.5m and instead to pursue a claim for what I described in the main judgment as "jackpot" damages makes it fair, in my opinion, to treat Marathon as litigating thereafter entirely at its own risk and potential cost. In particular, I do not consider it unjust to order Marathon to pay the costs incurred by all parties from 25 February 2016 in resolving the factual dispute about whether Mr Seddon had assisted Mr Bridgeman in copying 33 files which were never afterwards accessed or used. The offer made by the defendants should have rendered that dispute entirely academic. The policy underlying Part 36 requires that the cost consequences should be visited on parties in Marathon's position who, instead of taking a realistic attitude, open their mouths too wide.
15. Accordingly, in relation to Mr Seddon the order which I think it just to make is that Marathon should pay 50% of Mr Seddon's costs of defending the misuse claim from the date when the action was begun until 24 February 2016 and the whole of his costs of doing so thereafter.

Interest on costs

16. As mentioned, CPR 36.3(3)(b) expressly provides that the defendant is entitled to interest on costs incurred on or after the date when the relevant period expires. The defendants have submitted that an appropriate rate of interest to apply to such costs is 4% above base rate. They rely on the fact that this rate was awarded in two previous cases: McPhilemy v Times Newspapers Ltd (No 2) [2002] 1 WLR 934 and KR v Bryn Alyn Community (Holdings) Ltd [2003] EWCA Civ 383. However, interest in those cases was awarded under CPR 36.17(4)(c), which is concerned with the consequences of a claimant's Part 36 offer and provides for the award of interest on costs "at a rate not exceeding 10% above base rate". CPR 36.17(3)(b) contains no similar provision for interest to be awarded at an enhanced rate and I see no justification in these circumstances for awarding more than an ordinary commercial rate of interest.
17. As noted in the Commercial Court Guide (at J14.1), there is no longer any presumption that base rate plus 1% is the appropriate measure of a commercial rate of interest. The reason for this is the greater divergence in recent years between the ordinary cost of borrowing and the Bank of England base rate, which is currently at a historic low of 0.25%. In my view, in the absence of evidence supporting any different rate, an appropriate measure of a commercial rate of interest in current conditions is 2% above the Bank of England base rate.
18. When Part 36 was originally introduced as part of the Civil Procedure Rules, the provision for a defendant to receive interest on costs where a claimant fails to obtain a judgment more advantageous than the defendant's Part 36 offer was no doubt intended to confer a benefit on the defendant – albeit not one as substantial as the benefit to a claimant of interest under CPR 36.17(4)(c) – and thereby promote the policy of encouraging settlement. As the law stood, the court could not otherwise have awarded interest on costs for any period prior to the date of the costs order: see Hunt v RM Douglas (Roofing) Ltd [1990] 1 AC 398. However, the Civil Procedure Rules, through what is now r.44.2(6)(g), also gave the court a general power to order interest to be paid on costs "from or until a certain date, including a date before judgment". This power is now routinely exercised when an order for costs is made following a trial so as to award interest at a commercial rate from when the costs were incurred until the date when interest becomes payable under the Judgments Act. Given this practice, CPR 36.17(3)(b) is effectively otiose.
19. Pursuant to CPR 44.2(6)(g), Marathon has sought an order for interest on the costs awarded to it to be calculated from the date when Marathon incurred those costs by paying them to its solicitors. It is appropriate to make such an order, and to make equivalent orders in relation to the costs awarded to the defendants. In each case the interest should run at the rate already identified of 2% above base rate.
20. I also accept Marathon's submission that the court should exercise its power under CPR 40.8(1) to order that interest under the Judgments Act should not start to run immediately but should run from a later date which gives all parties the opportunity to make a realistic assessment of the amount of their net liability, if any, to pay costs. In accordance with the approach that I outlined in Involnert Management Inc v Aprilgrange Ltd [2015] EWHC 2834 (Comm), [2015] 5 Costs LR 813, I will accordingly order that interest on costs should continue to run at the commercial rate identified in paragraph 17 above until a date three months after the orders for costs are made, and at the rate prescribed by section 17 of the Judgments Act 1838 thereafter.

Permission to appeal

21. Marathon has applied for permission to appeal. In the submissions made in support of that application, Marathon has (realistically) not suggested that any of the findings of fact made in the main judgment are capable of challenge. Those findings include the following:

i) No confidential information was used to target Marathon's clients or former clients;^[9]

ii) The vast majority of the files copied by Mr Bridgeman (including the 33 files which Mr Seddon assisted in copying) were never subsequently accessed;^[10]

iii) Mr Bridgeman did not copy any files from the USB drives on which he had stored them to any undisclosed computer or other device;^[11]

iv) Mr Seddon never used or had in his personal possession any of the files copied by Mr Bridgeman and obtained no benefit at all from his own or Mr Bridgeman's wrongdoing;^[12]

v) Mr Bridgeman made only very limited use of a few of the files which he copied and any benefit that he obtained from such use was extremely modest;^[13]

vi) In any case, Marathon repeatedly made it clear that it did not advance any case based on any use actually made of any of the files copied by Mr Bridgeman;^[14]

22. In the light of those findings, I cannot see any reasonable basis for arguing that it is unjust that Marathon was awarded only nominal damages in this case.
23. Although the arguments advanced by Marathon in support of its claim for substantial damages ranged widely and encompassed some significant points of law, that claim foundered on one fundamental point: that the remedy sought by Marathon did not match the wrong relied upon. The critical reasoning in this regard is at paragraphs 253-262 of the main judgment (see also paragraphs 154-166). Unless Marathon is able to identify an arguable error in this reasoning, an appeal has no prospect of success.
24. In support of its application Marathon has submitted that, if the reasoning in the main judgment were correct, it would never be right to quantify damages for the invasion of a property right (including making copies of documents containing confidential information) by assessing a price or hire for the invasion of the right regardless of any use actually made of the property. This does not in itself identify an arguable error in the reasoning. Perhaps more importantly, it does not engage with the explanation which is given at paragraphs 158-159 and 271-273 of the main judgment of when and why it is sometimes right to quantify damages on such a basis and how on the facts the present case differs from such cases.
25. Marathon has also suggested that damages should be awarded on the basis, not of actual, but intended, misuse of information. However, save for one dictum which is discussed at paragraphs 276-279 of the main judgment, Marathon has not cited any authority, nor advanced any reason of principle, to support the suggestion that damages may be awarded in contract or tort for intended as opposed to actual wrongdoing.
26. In the circumstances I am not able to accept that an appeal has a real prospect of success. There is no other compelling reason why an appeal should be heard. I therefore refuse permission to appeal.

Note 1    See the main judgment, para 86.    [Back]

Note 2    See the main judgment, paras 87-88.    [Back]

Note 3    See the main judgment, paras 106-110.    [Back]

Note 4    See paras 4, 243, 282.    [Back]

Note 5    I do not regard any of the settlement offers or attempts to settle the claim made before that date as relevant for present purposes, because they did not relate solely to the misuse claim and Marathon achieved a more advantageous outcome than any of the previous offers when it accepted an offer also made on 3 February 2016 to settle the “common design claim” for a sum of £1.5m: see the main judgment at paras 37-38.    [Back]

Note 6    See the main judgment, paras 82, 133.    [Back]

Note 7    See the main judgment, para 3.    [Back]

Note 8    See the main judgment, para 71.    [Back]

Note 9    See the main judgment, paras 105-106.    [Back]

Note 10    See the main judgment, para 107.    [Back]

Note 11    See the main judgment, para 103.    [Back]

Note 12    See the main judgment, paras 106, 133, 243.    [Back]

Note 13    See the main judgment, paras 110, 243.    [Back]

Note 14    See the main judgment, paras 243, 282.    [Back]