There has been a growing trend in recent years for the Courts to award damages flowing from a breach of contract by reference to a hypothetical bargain struck between the parties - these damages are known as 'negotiating damages'.
In awarding negotiating damages, the Courts have focussed on the benefit obtained by the wrongdoer resulting from the breach rather than the losses actually suffered by the wronged party and asked the question: What sum would the party in breach have paid to the other party in order to release itself from the obligation in question?
Based upon artificial circumstances, the process of assessing the proper value of 'negotiating damages' has become an increasingly difficult and elaborate process, leading to such damages being re-named by some as 'jackpot damages'.
The Supreme Court recently considered for the first time the legal basis of 'negotiating damages' in the case of Morris-Garner v One Step (Support) Limited. It concluded that the Courts' practice of awarding such damages has become too widespread and, in many cases, there is no reason why the damages cannot be assessed by reference to well established principles of the wronged party proving losses allegedly suffered, even if the measurement of these losses is likely to be a very difficult exercise.
Whilst therefore we should expect the Courts' recent trend to be quickly reversed, the Supreme Court did confirm that an exception should apply for restrictive covenants over land (e.g. prohibiting certain types of development). Those who breach restrictive covenants should still expect to pay 'negotiating damages' on the basis that the breach results in the loss of a valuable asset protected by covenant and the loss should be measured by determining the economic value of the asset.