Wrotham Park damages are based on the notional sum that a defendant would have paid to a claimant, before breaching a contract, in order to negotiate a release of its obligations and historically has been used as a useful remedy in circumstances in which it has been difficult for the claimant to evidence financial loss.  Morris-Garner and another v One Step (Support) Ltd [2018] UKSC 20 is the new leading case on these kind of damages in which the Supreme Court attempted to clarify the availability of what it termed “negotiating damages” when considering whether to award such damages for breaches of non-compete and non-solicitation covenants in contracts for the sale of a business. 

In Morris-Garner the company at the centre of the dispute provided support for young people leaving care.  After a breakdown in relationships of those involved with the company the defendants sold their shares.  As part of that transaction the defendants agreed to be bound for three years by confidentiality, non-compete and non-solicitation covenants.  The defendants incorporated a new company and in breach of these covenants the new company traded in competition with One Stop.  The claimant issued proceedings against the defendants for breach of the restrictive covenants claiming either an account of profits or negotiating damages.

At first instance the judge found that the defendants had breached their restrictive covenants and accepted that it would be difficult for the claimant to identify its financial loss.  It was therefore considered just to give the claimant the option to elect for negotiating damages.  The Court of Appeal upheld the decision holding that this kind of damages was not restricted to cases where the claimant had suffered no "identifiable financial loss", that the case need not be "exceptional" and the decision to award damages on this basis was "the just response".  The Defendants appealed to the Supreme Court.

The Supreme Court overturned the decision and held that negotiating damages were not available to the Claimant but instead the Claimant was entitled only to its actual financial loss.  The court made clear that in cases for breach of non-compete or non-solicitation clauses the claimant must prove loss in the conventional way for its claim to succeed.   

The Supreme Court said negotiating damages would however continue to be available in cases for an invasion of property rights which primarily arises in tort claims for trespass, conversion, patent infringement and other breaches of tangible and intellectual property rights.  However, in other cases, the proposed test to determine whether negotiating damages may be appropriate was whether the breach results in the loss of a valuable asset which was created or protected by the term that was breached.  In such circumstances the claimant can recover the economic value of that right as if it was an asset even in the absence of any pecuniary loss.  Whilst this includes breaches of joint ventures, where the defendant uses confidential information to its advantage, or breach of agreements not to make use of copyright, it does not include non-compete or non-solicitation clauses.

Looking forward, Claimants will have to seek to establish the financial 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 and can no longer be claimed in the alternative in cases involving breach of restrictive covenants unrelated to property.