Our website is set to allow the use of cookies. For more information and to change settings click here. If you are happy with cookies please click "Continue" or simply continue browsing. Continue.

Employment Law

Legal guidance - compliance - software

14 MAR 2012

Assessing loss for breach of confidence; some recent guidance on lost chance and Wrotham Park Claims

By Simon Devonshire QC

In Jones -v- Ricoh UK Limited [2012] EWHC 348 (Ch), the High Court has recently delivered a judgment that contains important guidance for employment lawyers in breach of confidence cases, on 3 key questions: (i) the nature of the interest the claimant must establish in confidential information before he can maintain a claim for breach of confidence; (ii) the availability of lost chance damages; and (iii) that availability of Wrotham Park damages.

Background to the litigation

Simplifying the facts somewhat, the claimant ("C") entered into a confidentiality agreement with the defendant ("D") under which D agreed to keep confidential and not to use or disclose any information supplied to it by C with a view to the conclusion of a possible agency agreement between them.   By that agreement, D also accepted a non-compete obligation, pursuant to which any one of its employees still in receipt or possession of C's confidential information were not to contact any other ‘relevant person' (including prospective mutual clients).    D in fact won a tender for business from a ‘relevant person' which C alleged involved breaches of the non-compete and confidentiality obligations.   C sought to compute damages on the hypothesis that had D not breached those obligations, it would not have bid on its own but would successfully have bid together with C.

In a judgment handed down in July 2010 ([2010] EWHC 1743 (Ch)) Roth J struck out the claim for breach of the non-compete restriction on the basis that it contravened European competition law.   In doing so, he reiterated the important point that "once EU completion law applies and either strikes down or permits the restriction involved, the court is not permitted to reach a different result ... under the domestic law of restraint of trade" (para 49).   

As a result, when the case went to full trial, it preceded only on the basis of the allegations of breach of confidence.    As to remedies, Roth J had concluded that a claim for an account was unsustainable in the absence of a fiduciary relationship (paras 88 & 89) but allowed an amendment to add a claim for Wrotham Park damages, which D "very properly did not seek to suggest that [C] cannot claim" (para 89).  

Breach of confidence

At trial, the judge rejected the claim that the confidentiality obligations had in fact been broken.  However, an issue arose as to the necessary nature of C's interest in that information before he could claim protection over it.    C argued that to qualify for protection, C had to be entitled to the information  as principal, not as agent for a third party.   The Court accepted C's contrary submission - the notion of title to confidential information is a red-herring; a duty of confidence is about the protection of the imparting of information in particular circumstances that give rise to a duty not to use or disclose it; "the appropriate inquiry should be directed to considering whether [C] had demonstrated that [it] had made a sufficient contribution to the creation of the relevant confidential information, in the furtherance of its own commercial interests, to justify the imposition of a duty ..." (para 40); it was not about showing some ‘property' in that information.

Lost Chance Damages

C's damages hypothesis depended on assertions as to what a third party would have done but for D's alleged breaches.   Did C have to establish its case as to the third party's reaction on the balance of probabilities or could damages be assessed by reference to the lost chance principle?  The Judge cited Chitty on Contracts (2008) 30th Ed at para 26-044 for the proposition that "where the claimant claims that, in the absence of the breach of contract by the defendant, a third party would have acted in a particular way, so as to benefit the claimant, he need not prove the hypothetical action on the balance of probabilities.   Provided that the claimant can prove that in the absence of the breach there was a ‘real' or ‘substantial' (not a speculative chance) of the third party's action, the court must assess the chance of that action resulting (usually a percentage) and then discount the claimant's damages for his loss by reference to that percentage ".   He would have applied this approach to the assessment of loss for the alleged breach of the confidentiality agreement - the principle in Laverack -v- Woods has "no application where the assessment of damages for the loss of a chance is dependent upon the hypothetical actions of a third party, rather than the contract breaker" (paras 86 & 87).   On the facts, however, the claimant could show no more than a speculative chance that the third party would have conferred the benefit contended but for the defendant's alleged breach (para 95).

This is potentially very helpful to employment lawyers - e.g in breach of PTRC cases.   But what degree of probability qualifies as a real and substantial (as opposed to a speculative) chance?   This was not addressed in terms addressed in Ricoh, and there are dicta to the effect that it is unhelpful to seek to express a threshold degree of probability in percentage terms.  However, some guidance can be mined from earlier cases.    In IDC v Cooley [1972] 1 WLR 442, the Judge concluded that the Defendant's wrongful diversion of a gas board contract had only deprived the Claimant of a 10% chance of winning that contract, but appeared to accept that that chance was sufficiently real and substantial to support a damages claim.  In Sanders v Parry [1967] 1 WLR 753, the Court assessed damages at 25% of one year's net profits from a client's estimated fees, after the client had been unlawfully poached by a departing employee.    A similar percentage approach was applied by Bell J. (painting with a fairly broad brush) in SBJ v Mandy [2000] IRLR 233 at paras 81-83.

Wrotham Park Damages

Whilst the judge found that (on the facts) a hypothetical negotiation would have yielded no (or at most a nominal) licence release fee, he did not suggest that this sort of case was per se inappropriate for such a Wrotham Park assessment of loss.   On the contrary, he regarded it as "now well established that in an appropriate case damages for breach of contract may be measured by the benefit gained by the contract breaker from the breach ... the court may award damages to the claimant to represent  the price he could reasonably have extracted for requiring a licence payment in return for permitting the defendant to do what he has done" (para 97).   As already observed, this view as to the potential availability of such relief appears to have been accepted by Roth J at an earlier stage of the same litigation , and is worth contrasting with the more restrictive and dismissive approach taken by Jack J in BGC -v- Rees (covered in an earlier post).    However, the Court did observe that the consideration of the hypothetical negotiation had to be "founded upon the underlying realities of the situation against which it falls to be undertaken" (para 108) and would only be appropriate where it was manifestly unjust to leave the claimant with no award (para 109).   On the facts, the negotiation would have yielded no fee.    This is clearly an area to watch.

Law of Termination of Employment, The

Authoritative analysis of the rules governing termination of employment provides coverage of the...

More Info from £110.00
Jordan Publishing Employment Law

Jordan Publishing Employment Law

"exceptional value for money in today's challenging legal environment" John Mitton, PG Legal

Available in Employment Law Online
Subscribe to our newsletters