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Wrotham Park damages for breach of contract

In Wrotham Park, the claimant was awarded damages following the defendant’s breach of a restrictive covenant by building a housing development.

The claimant had suffered no loss in a traditional sense. However, damages were awarded on the basis of the hypothetical sum the claimant could have charged to release the covenants, calculated as a share of the defendant’s profits.

The basis upon which Wrotham Park damages might be awarded generally in the law of contract is a developing area.  

In Karen Morris-Garner and Andrea Morris-Garner v One Step (Support) Limited [2016] EWCA Civ 180, the C.A. has arguably expanded the circumstances in which such damages can be awarded.

The case concerned the sale of a business with non-compete, non-solicitation and confidentiality clauses which the Defendant had breached for significant gain.

Philips J rejected an outright account of profits as the appropriate remedy: the case was not sufficiently “exceptional”. He allowed the Claimant, however, to elect Wrotham Park damages.

Founding themselves on dicta in earlier cases, the Defendants appealed contending such an award is only available where: (a) there is no identifiable loss as opposed simply to difficulties in computing/ascertaining loss; (b) an award is necessary to avoid “manifest injustice”; and (c) where there are exceptional circumstances. 

The C.A. disagreed. As regards (a): the absence of any identifiable loss was not a pre-requisite. As to (b), the test was simply whether Wrotham Park damages were “a just response”. That was “quintisentially a matter for the [first instance] judge to decide”. Of particular importance was the fact that it would have been very difficult to ascertain the conventional loss, in particular as regards damage to goodwill.  As regards (c), the test was not whether the facts were exceptional but, rather, what justice required. In any event, Clarke LJ considered the facts in One Step were somewhat exceptional.

More generally, Longmore LJ approved the 3 tier test set out by Peter Gibson LJ in Experience Hendrix [2003] EWCA Civ 323 for a Wrotham award, namely: (1) deliberate breach of contract for reward; (2) difficulty in establishing financial loss; and (3) that the Claimant had a legitimate interest in preventing the defendant’s profit making arising from the breach. To this, Longmore LJ added (though not as a pre-requisite) whether the Defendant’s activity had made it doubtful interim injunctive relief could have been obtained.    

The decision should not be taken as carte blanch to claim Wrotham damages, or ignore the need to prove “conventional” loss if possible: the Court emphasised the unusual features of the case, such as the absence of any challenge to the efficacy of the restrictions and the furtive nature of the breaches, and expressed concerns about such damages becoming the norm rather than exception. However, the decision does appear to open this area up somewhat and it will be interesting to chart future developments.   

Richard Hayes / 6th May 2016


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