An update on “Wrotham Park damages”

Published: 1/5/2018

This article provides a summary of the recent Supreme Court judgment in Morris-Gardner v One Step (Support) Ltd in relation to Wrotham Park damages.

Introduction

In a blog post on 4 July 2017, we examined the characteristics of so-called “Wrotham Park damages” and the then-prevailing Court of Appeal authority in Morris-Garner v One Step (Support) Ltd that “Wrotham Park damages” could be awarded in a relatively wide range of circumstances where the court considered it to be a “just response”. It was noted that the Supreme Court had granted permission to appeal that decision.  

The hearing took place in October 2017 and the judgment was handed down on 18 April 2018 ([2018] UKSC 20). The Supreme Court overturned the decision of the Court of Appeal and confirmed that “Wrotham Park damages” may only be awarded for breach of contract in narrow circumstances and that in other scenarios, the conventional principles of compensatory damages for loss suffered as a result of a breach of contract must be followed and applied.

Judgment of the Supreme Court

The leading judgment was given by Lord Reed who started by rejecting the description of “Wrotham Park damages”, preferring to refer to the niche category of damages as “negotiating damages” (a term actually introduced in the 2006 case of Lunn Poly Ltd v Liverpool and Lancashire Properties Ltd [2006] EWCA Civ 430). He then proceeded to set out a helpful summary of the principles applying to the categories of damages that could be awarded by the court at common law prior to the 1974 case of Wrotham Park, which included:

  1. “user damages” in tort for the invasion of rights to tangible property (for example, where a trespasser has made valuable use of someone else’s land, without causing any diminution in its value, the landowner has been held to be entitled to damages measured as what a reasonable person would have paid for the right of the user) and the award of damages on a similar basis for infringements of intellectual property rights (paragraphs 25-30 of the judgment);
  2. common law damages for breach of contract (which are intended to place the claimant in the same position as he would have been had the contract been performed) (paragraphs 31-40); and
  3. the jurisdiction to award damages under Lord Cairns’ Act (the award of damages to the injured party either in addition to, or in substitution for, an equitable remedy such as an injunction or specific performance) (paragraphs 41-47).

“Wrotham Park damages” constituted a new category of damages because there had been no financial loss suffered and no compensation in the form of damages could therefore be awarded on the conventional basis. Further, no injunction had been sought meaning that damages could not be awarded in lieu of an injunction.  He made a number of observations in respect of how the concept had developed since 1974:

  • For the first 25 years following Wrotham Park, the cases where the category of negotiating damages were calculated and awarded by the court were cases where damages were awarded in lieu of an injunction (to provide the claimants with an appropriate monetary substitute for an injunction in the circumstances of the particular case).
  • Then came the 2001 case of Attorney General v Blake, but this was an exceptional case and represented the high-water mark for the award of negotiating damages, being essentially the equivalent to an account of profits. 
  • In respect of more recent authorities, examples of negotiating damages being appropriately awarded included those where:
  1. damages were awarded in lieu of an injunction for interference with property rights;
  2. damages could be awarded for breach of contract in substitution for an injunction (e.g. where there was a breach of a right to participate in a business opportunity); and
  3. where there has been a breach of a confidentiality agreement and where it was understood that the breach of contract meant that the claimants lost a valuable opportunity to exercise their right to control the use of information.
  • Negotiating damages for breach of contract may be awarded at common law in limited certain circumstances. It is helpful to consider those circumstances as being situations in which the loss for which compensation is due is the economic value of the right which has been breached or infringed, treated as a commercially valuable asset, of which the claimant has been effectively deprived. In such cases, the imaginary negotiation is simply a tool for arriving at the economic value which should be compensated.

However, there have been other cases (such as the present case) where the courts have mistakenly awarded negotiating damages instead of compensatory damages on the conventional basis. The Supreme Court therefore held that where a defendant has committed a breach of contract which has caused the claimant identifiable loss (such as lost profits) and which can be measured by conventional means, then there is no discretion to deviate from those conventional principles of calculating damages and instead awarding negotiating damages (being non-compensatory in nature). This remained the case even if it would be difficult to quantify and/or some elements may be inherently incapable of precise measurement, provided that the loss is a familiar type of loss which can be calculated in the conventional manner.

Although the quantification of economic loss is often relatively straightforward, there are cases where its precise measurement is inherently impossible. However, in those circumstances, the courts simply have to select a method of measuring the loss which is the most apt in the circumstances to ensure that the claimant is compensated for the loss which it has sustained, it having been said that the assessment of damages in such circumstances often involves “the exercise of a sound imagination and the practice of the broad axe”. 

However, the ability of a court to award negotiating damages is not one of discretion and they should certainly not be awarded simply because to do so would represent a “just response”.

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