The starting point for contractual damages is that they are compensatory in nature, and aim to place the successful claimant in the position he would have been in, had the contract been performed.  To this end, a requirement of contractual damages is that the claimant prove his loss, such that damages can be quantified on that basis.

However, contractual damage may not always be easily proven, or in certain circumstances, the claimant may not even have suffered a quantifiable loss.  The common law may therefore only order nominal damages in such circumstances, even though it may be manifestly unjust to do so.  To address this lacuna, the Chancery Division in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1972] 1 WLR 798 (“Wrotham Park”) devised what is now known as Wrotham Park damages.

What are Wrotham Park damages?

Wrotham Park damages have been recently defined as “damages [assessed] on the basis of what a willing buyer (the contract breaker) and a willing seller (the party claiming the damages) would agree on as the consideration in a hypothetical negotiation for the release of the relevant contractual obligation.” (per Lord Walker in Pell Frischmann v Bow Valley Ltd [2011] 1 WLR 2370 (“Pell Frischmann”) at [49]; Ramesh J in JES International Holdings v Yang Shushan [2016] 3 SLR 193 (“JES”) at [211]).

In Wrotham Park, an earlier estate owner of the plaintiff conveyed a piece of land in the Wrotham estate to one Blake, with a covenant “not to develop… land for building purposes except in strict accordance with a lay-out plan to be first submitted to and approved in writing by the vendor or the surveyors, such plan to indicate thereon the road sewers and drains to be constructed.”.  This covenant was duly registered.

The defendant, Parkside Homes, subsequently acquired the land from Blake and began erecting houses for sale to prospective purchasers – and even obtained deposits for the purchase of these houses, without submitting lay-out plans to the plaintiff.  This was in breach of the covenant. The prospective purchasers bought the houses with notice of the covenant.  Wrotham Park thereafter issued a writ and statement of claim against Parkside Homes, seeking a final injunction to restrain them from building on the allotment site.  They however did not seek interlocutory relief.

Notwithstanding the writ, Parkside Homes continued building the houses.  The houses were eventually completed and the purchasers moved in – and so Wrotham Park amended the writ to include the purchasers as defendants.

At the hearing, the Court found that there was a breach of the covenant, but declined to order an injunction to tear down the buildings.  The Court held that this would involve an “unpardonable waste of much needed houses.”.  Nonetheless, the Court was minded to grant damages in lieu of a mandatory injunction.

Parkside Homes argued the damages are nominal, because the value of the Estate (as Wrotham Park conceded) had not been diminished as a result of the building on the allotment site.  However, the Court felt that this outcome would be unfair to Wrotham Park, who had undeniably suffered a breach of the covenant.

Brightman J therefore held that:

The basic rule in contract is to measure damages by that sum of money which will put the plaintiff in the same position as he would have been in if the contract had not been broken.  From that basis, the defendants argue that the damages are nil or purely nominal, because the value of Wrotham Park is not diminished by one farthing in consequence of the construction of a road and the erection of 14 houses on the allotment site.  If, therefore, the defendants submit, I refuse an injunction I ought to award no damages in lieu.  … Had the offending development been the erection of an advertisement hoarding in defiance of protest and writ, I apprehend (assuming my conclusions on other points to be correct) that the court would not have hesitated to grant a mandatory injunction for its removal.  If, for social and economic reasons, the court does not see fit in the exercise of its discretion, to order demolition of 14 houses, is it just that the plaintiffs should receive no compensation and that the defendants should be left in undisturbed possession of the fruits of their wrongdoing?  Common sense would seem to demand a negative answer to this question.

The general rule would be to measure damages by reference to that sum which would place the plaintiffs in the same position as if the covenant had not been broken.  Parkside could have avoided breaking the covenant in two ways.  First would be to not develop the allotted site, the second would be to seek a relaxation of the covenant.

On the facts of this particular case the plaintiffs, rightly conscious of their obligations towards existing residents would clearly not have granted any relaxation, but for present purposes I must assume that it could have been induced to do so.  In my judgment a just substitute for a mandatory injunction would be such a sum of money as might reasonably have demanded by the plaintiffs from Parkside as quid pro quo for relaxing the covenant.

In assuming the position of the parties, “[b]oth parties are to be to assumed to act reasonably,” and “[t]he fact that one or both parties would in practice have refused to make a deal is therefore to be ignored” (Pell Frischmann at [49]).

How are Wrotham Park damages assessed?

While Wrotham Park damages are to be quantified on the “basis of what a willing buyer (the contract breaker) and a willing seller (the party claiming the damages) would agree on as the consideration in a hypothetical negotiation for the release of the relevant contractual obligation.” (per Lord Walker in Pell Frischmann v Bow Valley Ltd [2011] 1 WLR 2370 (“Pell Frischmann”) at [49]; Ramesh J in JES International Holdings v Yang Shushan [2016] 3 SLR 193 (“JES”) at [211]), another issue arises as to how the courts should deal with events subsequent to this hypothetical negotiation.  As Lord Walker explained in Pell Frischmann (at [49]):

Another issue is how far the court is entitled, in its assessment of Wrotham Park damages, to take account of events occurring after the time at which the hypothetical negotiation takes place (and in particular, to take account of how profitable the outcome has been for the contract-breaker).

As rightly noted, it is this latter consideration that “sometimes tends to get confused with the wider issue of whether the court is awarding compensatory or restitutionary damages” as it would appear that the damages are ‘buying off’ the plaintiff for the breach of contract it has suffered.

In this regard, Lord Walker adopted the views of Lord Neuberger in Lunn Poly [2006] 2 EGLR 29, where it was held that (at [27]):

It is obviously unwise to try and lay down any firm general guidance as to the circumstances in which, and the degree to which, it is possible to take into account facts and events that have taken place after the date of the hypothetical negotiations, when deciding the figure at which those negotiations would arrive.  Quite apart from anything else, it is almost inevitable that each case will turn on its own particular facts. …

it should not, in my opinion, be treated as being generally applicable to events after the date of breach where the court decides to award damages in lieu on a negotiating basis as at the date of breach.  After all, once the court has decided on a particular valuation date for assessing negotiating damages, consistency, fairness, and principle can be said to suggest that a judge should be careful before agreeing that a factor that existed at that date should be ignored, or that a factor that occurred after that date should be taken into account, as affecting the negotiating stance of the parties when deciding the figure at which they would arrive.”

This is a helpful limiting factor to the otherwise entirely hypothetical exercise a court would have to engage in.  Thus, Lord Neuberger set out his suggested analytical framework (at [29]):

In my view, the proper analysis is as follows.  Given that negotiating damages under the Act are meant to be compensatory, and are normally to be assessed or valued at the date of breach, principle and consistency indicate that post-valuation events are normally irrelevant.  However, given the quasi-equitable nature of such damages, the judge may, where there are good reasons, direct a departure from the norm, either by selecting a different valuation date or by directing that a specific post-valuation-date event be taken into account.”

Wrotham Park damages have also been considered in the subsequent English cases of Pell Frischmann and One Step (Support) v Morris-Garner (“One Step”).  In One Step, the English Court of Appeal evaluated not just the decision in Wrotham Park, but subsequent decisions on the award of damages for account of profits from breach of contract – such as A-G v Blake [2001] 1 AC 268 and Devenish Nutrition Ltd v Sanofi-Aventis SA [2009] Ch 390 – before observing that “whilst the form of such an award is that it is the price of release from the covenants, the substance is akin to an account of profits, being a proportion of the capital value derived from those profits” (at [128]).

In closing, the Court noted that Wrotham Park damages should be compared to damages assessed in the ordinary manner (at [133]):

In considering whether damages are an adequate remedy the primary focus must be on whether damages, assessed in the ordinary way, will be an adequate remedy.  The fact that, in a case such as the present, where no injunction was sought, a Wrotham Park award was made, should not be a ground for refusing relief that would otherwise be granted.”

Singapore position

An alternative analysis based on commercial considerations was proposed by Ramesh J in JES, where he held (at [212]):

The court must consider how the parties would have behaved in such a negotiation.  The Court must examine the likely parameters which the parties would have set for the negotiation.  Such parameters are to be objectively assessed based on ordinary commercial considerations relevant to each party, having regard to the position each one was placed in.  The court should not award damages on the basis of a hypothetical bargain out of bound with the parties’ realistic expectations and commercial acceptability.”

In JES, the relevant contractual breach was a transfer of shares in violation of a moratorium.  The plaintiff had entered into a share swap agreement with the defendant, pursuant to which certain shares were to be transferred in two tranches.  For the first tranche, the plaintiff borrowed 120 million of its own shares from its holding company to transfer to the defendant, in exchange for the defendant transferring 20% of the shares in a separate company, Scibois.  The defendant had also undertook to observe a 12-month moratorium against a further transfer of any shares in JES that he had received from the plaintiff.  However, in breach of this moratorium, the defendant transferred 60 million JES shares to its lender as collateral.

On the facts, Ramesh J declined to award Wrotham Park damages (at [214]):

Examining the circumstances at that time, it would seem to me that realistically speaking, no commercially acceptable agreement could hypothetically have been reached.  I do not see how the Plaintiff, even hypothetically, would have agreed to release the Defendant from the Moratorium. It must be remembered that the hypothetical negotiations would be for the Moratorium to be lifted to enable the Defendant to perform the Collateral Security Agreement.  If the Plaintiff allowed that to happen it would have put the entire transaction into jeopardy.  Further, from a purely risk perspective, to do so would effectively have put the Plaintiff at serious risk of not having the Collateral Shares returned by the Defendant.”

With respect, Ramesh J’s reasoning for declining to order Wrotham Park damages appears to be inconsistent with the very basis for which Wrotham Park damages are assessed.  The court is in fact required to undertake a quantification even if parties would never have agreed to releasing the covenant in the first place.  The fact that they cannot hypothetically agree should not be a justification for not ordering Wrotham Park damages (see paragraph 10 above).  A more elegant explanation is perhaps that, given the unlikelihood of parties “hypothetically” reaching a commercially acceptable agreement, the quantum for such release for the release of the moratorium would be zero.  There is however no further judicial clarification from Singapore in respect of assessment of Wrotham Park damages thus far.

Wrotham Park was most recently considered by the Court of Appeal in PH Hydraulics and Engineering Pte Ltd v Airtrust (Hong Kong) Ltd and another appeal [2017] SGCA 26 (“PH Hydraulics”), where the central issue was whether there is any role for “the concept of punishment in the common law of contract, … [and] whether or not the law in Singapore should recognise the availability of punitive damages purely for breach of contract” (at [1]-[2]).  In PH Hydraulics, the issue before the court was whether an award of punitive damages in a purely contractual context would be appropriate.

Wrotham Park damages arose in the context of the “remedial options” available to the court that have “punitive or deterrent effects” (at [79]).  The Court of Appeal noted that such options “serve also to protect the plaintiff’s interest in contractual performance and remain primarily compensatory in purpose, even if they may incidentally have a punitive or deterrent effect” (at [79]).  Citing amicus curiae Prof Lee Pey Woan, the Court of Appeal explained Wrotham Park damages and set out the three legal requirements for awarding damages for contractual breach in this manner (at [80]):

Such damages are quantified not by reference to a plaintiff’s pecuniary loss (which may be nominal or difficult to quantify) but by reference to the sum of money which the plaintiff could have reasonably demanded in return for permitting the defendant to breach a restrictive covenant or other legal restriction.  The legal requirements for the award of such damages – the defendant’s deliberate breach of contract for its own reward, the plaintiff’s difficulty in establishing financial loss, and the plaintiff’s interest in preventing the defendant’s profiting from another breach of contract… – suggest that it has the effect of deterring deliberate breaches of contract.

The Court of Appeal closed by noting that Wrotham Park damages are ultimately largely accepted to be compensatory in nature, notwithstanding their earlier statement that one consideration in awarding such damages is to prevent the defendant’s profiting off a subsequent breach.  It is not clear if the Court of Appeal’s intention is to restrict the application of Wrotham Park to only the situation where all three elements stated are satisfied and that there is no possibility of an extended application of the Wrotham Park damages.  In any event, the remarks made in PH Hydraulics are strictly obiter and it does not appear that full arguments on Wrotham Park had been canvassed before the Court of Appeal then.

Conclusion

Given the Singapore courts’ recent discussions of Wrotham Park damages – in particular, the Court of Appeal’s discussions in PH Hydraulics, ACES System Development Pte Ltd v Yenty Lily (trading as Access International Services) [2013] 4 SLR 1317 – an exploration of this unique ground of damages is timely.  Indeed, the Court of Appeal themselves in Turf Club Auto Emporium Pte Ltd and others v Yeo Boong Hua and others and another appeal and other matters [2017] SGCA 21 themselves asked that parties address them on “the scope for the imposition of damages on the basis set out in [Wrotham Park]” (at [175(b)]).  Thus, while case law in Singapore is still sparse and the Court of Appeal comments have generally been obiter, it is hoped that there will be further clarification in the near future.