Contractual damages – Wrotham Park is now little more than historical interest

by Graham Cunningham, Barrister and Mediator

April 2018

The Supreme Court has recently reviewed the question of damages for breach of contract arising under the principles of Wrotham Park Estate Co. Ltd. v Parkside Homes Ltd. 1974 1 WLR 798 and consigned the latter to the status of historical interest.

In Morris-Garnor & Anor v One Step (Support) Ltd. 2018 UKSC 20, the Appellants sold to the Respondent a business. This business provided support to young people leaving care. A legal agreement was drawn up and this provided for non-compete and non-solicit covenants which the Appellants infringed. At trial, the judge decided that (i) it would be difficult for the Respondent to identify the financial loss that it had suffered (ii) damages could be awarded under the Wrotham Park principles for such amount as would notionally have been agreed between the parties, acting reasonably, as the price for releasing the Appellants from their obligations; a “hypothetical release fee”. Alternatively, compensatory damages were available. The Appellants appealed against this decision.

The Supreme Court rejected the approach of both the trial judge and the Court of Appeal. In effect, what they held was:

  1. The term “Wrotham Park damages” should no longer be used; “negotiating damages” was the appropriate expression to be used (Lord Reed para 3);
  2. Common law damages for breach of contract were intended as compensation for the failure to perform an obligation;
  3. Such damages were normally based on the difference between performance and non-performance;
  4. Where economic loss was suffered it should be measured or estimated as accurately as possible and the Law understood and tolerated where it was not possible to be precise;
  5. “Negotiating damages” could be awarded for breach of contract, where the loss suffered was measured by reference to the economic value of the right that had been breached, and where the defendant had taken something for nothing where the claimant was entitled to require payment;
  6. Common law damages could NOT be awarded merely for depriving the defendant of profits arising from the breach other than in exceptional cases (and the court cited the Spycatcher case (Attorney General v Blake 2001 1AC 268) as an example of this);
  7. Common law damages for breach of contract were not a matter of discretion (the first instance judge had decided that the Respondent could elect how he wanted to claim damages). They were a legal right and legal principle decided whether they should be awarded or refused;
  8. If there was evidence of a “hypothetical release fee”, as a proposed measure of damages, such evidence could be led. It was not a measure of loss in itself and was a matter for the judge to decide its relevance and weight (see para 100).

Jurit would be happy to advise you where the question of how to quantify the loss suffered is a major feature in the case (http://www.jurit.com/about-us/contact-jurit/).

 

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