Once you prove a contract breach by the other party, you can always ask for damages, but how much will you get? In the High Court a £15 million contract claim has recently been reduced to a mere £2!
Generally, under English contract law damages must be based on the loss (so-called “reliance” or “expectation” damages) resulting from breach or a contract not being duly performed. Furthermore, English contract law now allows the innocent party in certain situations to recover any profit a breaching party has demonstrably made from the breach (“restitution damages”).
But, does a party have any right to damages for potential financial or other losses? In other words, can a theoretical loss of income be claimed even if there is no actual loss or damage and the breaching party has made no profit or financial gain from the breach? The recent High Cout case of Marathon Asset Management LLP v Seddon (EWHC 300 (Comm)) dealt with this issue.
The basic facts of the Marathon case are this: Mr Seddon was a former employee of the claimant company. Together with the other defendant, Mr Bridgmann, he accessed and copied large quantities of confidential data from the claimant. This was in breach of a confidentiality agreement (or “NDA”, non-disclosure agreement). However, there was no evidence that the information taken was used to any appreciable extent or passed on to any third party by the defendants and the defendants apparently made no financial gain from the information.
At the same time, no evidence of actual loss was presented by the claimant company to the court. However, Marathon did ask the court to assess damages by considering the price Marathon could have theoretically charged for releasing this information. This was quantified as £15 million of “potential loss”.
The court rejected that method of assessing damages. Mr Justice Leggatt ruled that the claimant company 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.
Mr Justice Leggatt further stated: “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 … 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 [the defendants] 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.”
This is a clear assertion of the traditional principles of English contract law: damages are assessed to compensate for demonstrable actual or expected loss arising from a breach and cannot be asserted as a “jackpot claim” for some theoretical loss. In addition, damages for breach certainly cannot be assessed only so as to punish or deter a party in relation to past or future conduct.
Punishment is the job of criminal law or (in exceptional cases in English law) for exemplary damages (so-called “punitive damages” in U.S. jurisdictions) under the law of torts.