COSTS AFTER NOMINAL DAMAGES AND PART 36 OFFERS: THE CLAIMANTS WHO TURNED DOWN £1.5 MILLION AND GOT £2.00 INSTEAD

We looked at the decision of Mr Justice Leggatt in Marathon Asset Management LLP -v- Seddon [2017] EWHC 300 (Comm) in an earlier post.   The judge held that the defendants were in breach but that the claimants had suffered no loss. Consequently nominal damages of £2  were ordered. In a decision at [2017] EWHC 479  (Comm) the judge considers the costs consequences.

“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.”

KEY POINTS

• When a claimant is awarded nominal damages the defendant should be regarded as the winning party for the purposes of costs liability.
• In this case there were factors which justified the defendants paying some of the claimants costs of the initial investigation and allowing one claimant only 50% of his costs for a period.
• The situation changed outright for the period after the defendants had made a Part 36 offer. The offer (of £1.5 million) was far more than the claimants recovered (£2) and there was no reason why the claimants should not pay all the defendants costs for the relevant period after the expiry of the offer.

THE NORMAL RULE WHEN NOMINAL DAMAGES ARE AWARDED

The judge held that the award of nominal damages meant that the defendants were the winning party.

“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.

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.”

THE POSITION OF EACH DEFENDANT

In awarding some costs to the claimant the judge was therefore making a different order.  However the amount the claimants were awarded were only for the initial period of investigation.

Mr Bridgeman

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

THE POSITION OF THE OTHER DEFENDANT

Mr Seddon

1. 1. 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.

   2. 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]

   3. 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).

   4. 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.”

1. 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.

2. 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.