Morris-Garner and Another (Appellants) –V- One Step (Support) Ltd (Respondent)

Background

Wrotham Park damages (also known as “hypothetical bargain” damages) are available under the principle from Wrotham Park Estate Ltd v Parkside Homes Ltd [1974] 1 WLR 798. The principle behind the award is that the claimant can recover such a sum as the defendant would have paid it had the defendant, before breaching the contract, negotiated a release of its obligations by the claimant.

In Wrotham Park, the court awarded damages to the claimant estate owner where the first defendant (a developer) had breached a restrictive covenant which benefited the estate. On the facts of the case, the judge considered it appropriate to award damages in lieu of a mandatory injunction. The amount to be paid was such sum as the claimant might reasonably have demanded as a quid pro quo for relaxing the covenant which the first defendant had breached.

Facts

As part of a share sale transaction, the defendants agreed to be bound for three years by confidentiality, non-compete and non-solicitation covenants in favour of the claimant. However, the new company set up by the defendants operated in competition with the claimant. Consequently, the claimant brought proceedings against the defendants for alleged breaches of the restrictive covenants.

The claimant sought either an account of profits or Wrotham Park damages.

First instance decision

Phillips J considered it just to give the claimant the option to elect for Wrotham Park damages (as it later did). The defendants appealed.

Court of Appeal decision

The Court of Appeal upheld Phillips J’s decision. It held, among other things, that Wrotham Park damages were not restricted to cases where the claimant has suffered no “identifiable financial loss”. Nor must the case be “exceptional”. The test was whether an award on the Wrotham Park basis would be “the just response”.

Issues before the Supreme Court

The defendants appealed to the Supreme Court. The issues for determination were:

• Where a party is in breach of contract, in what (if any) circumstances is the other party to the contract entitled to seek Wrotham Park damages?
• Whether the Court of Appeal had been correct to uphold the trial judge’s finding that such damages were available in this case.

Decision

The Supreme Court overturned the decision of the Court of Appeal and held that “negotiating damages” (Wrotham Park damages) were not available to the claimant. The Supreme Court was set the task of clarifying the law of negotiating damages. In this case the Supreme Court sought to scotch this view. In the majority judgment, in some sensible comments, the court made clear that negotiating damages are not discretionary, and not a way of side-stepping the primary approach in contract claims of proving the pecuniary and non-pecuniary loss suffered by the claimant. Accordingly, negotiating damages would not normally be available, for example, for breaches of non-compete clauses or non-solicitation clauses as in the present case, in which cases the claimant must prove loss of the conventional kind or fail in its claim.

Unfortunately, the Supreme Court was much less clear as to when such damages would be available and why. It therefore remains far from easy for lawyers to advise their clients, although at least there is a clear focus on property-protecting obligations for this remedy for breach of contract.