UK Supreme Court grants leave to appeal on the issue of Wrotham Park damages

Fountain Court Chambers in London has reported that the UK Supreme Court has granted permission to appeal in a case raising an important issue on the law of damages for breach of contract.

For about two centuries, the basic principle under English common law has been that compensatory damages for breach of contract are awarded to place the injured party in the position he would have been in had the contract been performed. The injured party must prove to what extent performance would have left him better off.

This principle has been the basis on which damages have often been refused, injunctions typically granted, and many cases never brought at all.

In One Step v Morris-Garner [2016] EWCA Civ 180 (the subject of the pending appeal) the claimant had acquired a business from its previous owners. They set up and then sold another business which the court found was in breach of restrictive covenants in the sale. The actual financial loss caused by the breach of covenant was unclear. The claimant sought so-called Wrotham Park damages.

Wrotham Park damages are based, not on proof of financial loss, but on a hypothetical release fee: what the contract-breaker would reasonably have negotiated with the other party as the price of being released from his obligation.

The availability of Wrotham Park damages in England and Wales, and in common law jurisdictions such as Bermuda, Jersey, and other British Overseas Territories has been recently confirmed by the Privy Council in its 2009 decision (on appeal from Jersey) in the case of Pell Frischmann Engineering Ltd v Bow Valley Oron Ltd [2011] 1 WLR 2370.

The English Court of Appeal has recently held that it is in the general discretion of the court whether to permit this kind of damages claim at trial.

Since such an award is not affected by proof of any loss suffered, its quantum, in any particular case, is open to considerable debate. In One Step, for example, the business was sold for £3m but the Wrotham Park damages claim was for £6m.

The Supreme Court (composed of a panel of Lord Mance, Lord Sumption and Lord Hodge) has now given permission to appeal. A hearing is anticipated in the first half of 2017.

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