The Supreme Court has clarified the circumstances in which "negotiation damages", formerly known as "Wrotham Park" damages, will be available.
The Supreme Court has in Morris-Garner v One Step (Support) Ltd narrowed down the circumstances in which damages for tort and breach of contract can be assessed by reference to the sum that the Claimant could hypothetically have received in return for releasing the Defendant from the obligation which he failed to perform.
“Wrotham Park” renamed
Damages assessed on this basis have commonly been described as Wrotham Park damages (now to be called negotiating damages” and have previously been ordered as an alternative remedy where the Claimant has difficulty in establishing financial loss on the conventional compensatory basis. Thus in the Wrotham Park case, the Plaintiff had suffered no actual financial loss when the Defendant breached a restrictive covenant as to the number of houses it could build on land purchased from the Plaintiff. The Plaintiff was instead awarded the hypothetical fee it might have charged to release the Defendant from the covenant.
In the Morris-Garner case, which involved breach of non-compete covenants, the hypothetical licence fee was £2m higher than damages assessed on the conventional basis by reference to the sales lost by the Claimant by reason of the Defendant’s competition in breach of covenant.
The Supreme Court decided that “negotiating damages” should be confined to limited circumstances, principally where there has been an invasion of the Claimant’s property rights but also including analogous breaches of intellectual property agreements and confidentiality agreements. In such cases, the Claimant cannot establish monetary loss on the conventional basis so damages are assessed at the amount which the Claimant might reasonably have demanded as a quid pro quo for the relaxation of the obligation in question.
Outside of these circumstances, damages should be assessed on the usual compensatory basis as accurately and reliably as the nature of the case permits, but acknowledging this can sometimes be a difficult exercise.
So in this case, the court would be required to quantify as best as it could the financial losses caused by the Defendant’s unlawful competition in breach of covenant rather than by reference to a perhaps higher and more easily estimated hypothetical licence fee for the release of that covenant.
Limiting “Negotiation damages”
As to the future, Claimants will have to establish as best they can the monetary losses suffered in cases outside those identified by the Supreme Court. Wrotham Park or “negotiating damages” will only be available where the rights infringed come within the limited classes identified by the Supreme Court, principally breaches of proprietary rights. “Negotiating damages” can no longer be claimed in the alternative in cases involving breach of restrictive covenants unrelated to property.
Whether this will make a substantial difference going forwards is open to debate. It is not clear that any of the previous cases considered by the Supreme Court would have been decided differently in the light of that judgment. However, the principles have been clarified.
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