Financial remedies for unlawful competition where financial losses are hard to prove
The principle that damages are to compensate a party who has suffered loss as a result of the unlawful action of another is well understood.
However, in practice, quantifying damages can be extremely difficult. For recruitment companies, it is often a challenge to identify what, if any, financial loss they have suffered when a former employee breaches their restrictive covenants or obligations of confidence. A claim for an account of the profits made by the errant employee (and/or their new employer) is one alternative remedy, but the courts will only award this in exceptional circumstances.
In two recent cases, the High Court has endorsed a third option: an order that the defendant pays a “release fee” from the restrictions. This measure of damages is also known as “Wrotham Park damages” (after the 1974 case of Wrotham Park Estate Co Ltd v Parkside Homes Ltd). In July, the Judge in a case involving breach of a non-compete restrictions (One Step (Support) Ltd v Morris-Garner) granted damages to the employer for the amount which would notionally have been agreed between the parties, acting reasonably, had they agreed a release of the former employee from her restrictions.
In another recent case, this time for breach of confidence (CF Partners (UK) LLP v Barclays Bank Plc), the court set out the following principles for the calculation of “release fee” damages:
- Consider what sum would have been agreed in negotiations between the parties, had each been making reasonable use of their respective bargaining positions, bearing in mind the information available to the parties and the commercial context at the time that the notional negotiation would have taken place.
- The fact that one or both parties would not in practice have agreed to make a deal is irrelevant.
- As a general rule, the assessment is to be made as at the date of the breach.
- The court may look at the eventual outcome, and consider whether or not that is a useful guide to what the parties would have thought at the time of their hypothetical bargain.
- The court can take into account other relevant factors, in particular any delay on the part of the employer in asserting its rights.
This latter case is the most detailed analysis to date of how to calculate this type of damages. Although there remains insufficient case law to be confident of precisely how and when these damages will be calculated (and so this should always be pleaded alongside other financial remedies), this tool is a useful development in the armoury of recruitment companies looking to prosecute cases of unlawful completion, particularly where they might otherwise struggle to establish financial losses.