‘Wrotham Park’ damages not for breach of contract

Almost a year ago, in May 2017, we looked at the Court of Appeal judgement in Morris-Garner v One Stop (Support) and anticipated a future Supreme Court judgement.  This was given on 18th April ([2018] UKSC 20), having been heard last October.  Lord Reed gave judgement, with whom the majority of the court agreed.  The Supreme Court found the trial judge and the Court of Appeal had adopted the wrong approach in enabling Wrotham Park damages to be applied to a breach of contract and has remitted the case to the judge at first instance to measure the financial loss suffered by the claimant.

In breach of a restrictive covenant in a buy-out agreement, the defendants in the case set up a business in competition with the company in which they had previously had shares.  Despite having threatened seeking an injunction, the claimant delayed considerably in bringing its proceedings and, at the end of the day, merely sought damages for breach of contract.  The Supreme Court has held that if an injunction is denied, Wrotham Park damages may be awarded in lieu of an injunction.  However, if seeking damages for breach of a contact, the claimant must prove loss and the loss must be calcualted.

Damages in lieu of an injunction are awarded under Lord Cairns’  Act.  Lord Reed held “One possible method of quantifying damages under this head is on the basis of the economic value of the right which the court has declined to enforce, and which it has consequently rendered worthless.  Such a valuation can be arrived at by reference to the amount which the claimant might reasonably have demanded as a quid pro quo for the relaxation of the obligation in question.  The rationale is that, since the withholding of specific relief has the same practical effect as requiring the claimant to permit the infringement of his rights, his loss can be measured by reference to the economic value of such permission.”  He then continued “That is not, however, the only approach to assessing damages under Lord Cairns’ Act.  It is for the court to judge what method of quantification, in the circumstances of the case before it, will give a fair equivalent for what is lost by the refusal of the injunction.”

So, the claimant must make a choice on breach of contract – either act quickly and seek an injunction or delay and risk refusal of an injunction (leading to damages in lieu) or seek calculated damages.

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