Gorne v Scales & Ors

Damages for wrongful misuse of confidential information must reflect the claimant’s loss, not an account of the defendant’s profits, where damages rather than an account is claimed. Where the information was an asset of a dissolved partnership, the relevant loss may be the claimant’s share of its fair open-market value at the date of misappropriation. The valuation must address what a willing buyer would have paid on the information then available, allowing for uncertainty, the asset’s useful life and contributions from other sources. The majority held that using the later profits of a new business as a valuation foundation, and valuing the information as part of that business as a going concern, did not provide a sound basis here.

The claimant and the first two defendants were equal partners in Seeds Direct. Following its dissolution, the defendants removed and used a customer card index containing confidential business information in a new partnership, TGS Seeds. Liability had been established at trial, and an inquiry into damages was ordered.

The Master awarded the claimant £152,341, plus interest, by valuing the index through the trading results of Seeds Direct and TGS. The defendants appealed, principally contending that the valuation should reflect the price obtainable for the index on the open market in May 1993, rather than the profits subsequently earned by TGS. The central issues were the proper measure of loss and whether the Master had adopted a legally sound valuation method.

1. Appeal allowed. The majority, comprising Ward LJ and Moore-Bick LJ, set aside the Master’s judgment and directed a fresh inquiry as to damages before a judge of the Chancery Division.
2. The majority held that the claimant had elected damages, not an account of profits. The inquiry therefore concerned the value of the confidential information to Seeds Direct when it was removed, rather than the profits TGS later made from using it. The appropriate measure was the market value on a sale between a willing seller and a willing buyer, applying the approach in Seager v Copydex (No. 2).
3. The valuation had to be based on the circumstances and information available at the relevant date. A purchaser would have assessed the information’s profit-earning potential, existing knowledge, capacity to exploit it, risk of competition and limited commercial life, with an allowance for uncertainty. The majority considered Mr Land’s valuation unsound because it treated TGS as a continuation of Seeds Direct and used TGS’s actual later trading results as a foundation for valuing the asset.
4. Ward LJ also considered that the Master had failed to focus clearly on the distinction between damages and an account of profits and had given inadequate reasons for preferring Mr Land’s method. Moore-Bick LJ held that the error was one of legal principle, so the appellate court could intervene despite the usual restraint concerning factual findings.
5. Arden LJ dissented. She accepted the same general measure of damage but considered that later profits could be the best available evidence of projected profits, consistently with the valuation principle in Bwllfa and Phillips v Brewin Dolphin Bell Lawrie. She would have dismissed the appeal, although she agreed that the majority’s conclusion required the judgment to be set aside and a new inquiry ordered.

• Court of Appeal (Civil Division): appeal from the damages inquiry before Master Bragge in the Chancery Division. By majority, the appeal was allowed, the judgment set aside and a fresh inquiry ordered.
• High Court of Justice, Chancery Division: following the liability judgment delivered in November 2002, Master Bragge’s inquiry judgment of 1 April 2005 awarded £152,341 damages plus £106,638.70 interest.