In Pell Frischmann Engineering Limited v (1) Bow Valley (2) P T Bakrie, the Privy Council has given guidance on how ‘Wrotham Park’ damages should be assessed.

Background

Section 50 of the Senior Courts Act 1981 provides that where the High Court or Court of Appeal refuses to grant an injunction or specific performance it may award damages in lieu.

In Wrotham Park Estate Company Limited v Parkside Homes Limited, the High Court ruled on the measure of damages awarded under s50 in the case of a breach of contract. Damages for breach of contract are usually compensatory, to put the party injured by the breach into the same position he would have been in had the contract been performed. The level of damages is usually assessed by reference to the actual losses suffered by that party. In the Wrotham Park case, the High Court held that this principle did not apply to Wrotham Park damages. These would be assessed by reference to the benefit obtained by the contract breaker from the breach of contract and could, therefore, exceed the actual loss suffered by the injured party.  

In Pell, the Privy Council has given some further guidance on how Wrotham Park damages should be assessed.

Facts

This case concerned a contract with the National Iranian Oil Company (NIOC to develop an oilfield. From July 1995 to October 1996, Pell invested time and money in establishing good relations with NIOC and qualifying to bid for the oilfield project. Bow had experience in drilling oilfields and Bakrie was able to provide financial backing for the project. Pell, Bow and Bakrie agreed to work towards a joint venture in developing the oilfield. Bow and Bakrie each entered into a confidentiality agreement with Pell. Clause 6 of each agreement provided:  

“[Bow/Bakrie] undertakes not to approach NIOC directly on this project without the express written consent of Pell”

Pell was selected by NIOC to take the project forward. Subsequently, Pell’s relationship with NICO deteriorated. In particular, it was unable to provide the $5m bank guarantee that NIOC required. Bow and Bakrie made various offers to buy out Pell’s interest in the project but Pell refused to sell. Bow and Bakrie entered into negotiations with NIOC direct. In July 1997 NIOC awarded the oilfield project contract to Bow and Bakrie. The project ultimately turned out to be less profitable than Bow and Bakrie had originally hoped.

In 2004, Pell commenced proceedings against Bow and Bakrie in the Royal Court of Jersey alleging breach of confidence. On appeal, the Court of Appeal held that Bow and Bakrie had breached the express terms of the confidentiality agreement and an equitable obligation of confidence owed to Pell. The breach of confidence had already occurred so it was too late for the court to grant an injunction or order specific performance. The court awarded ‘Wrotham Park’ damages in lieu and assessed these at £500,000. Pell appealed to the Privy Council on quantum.

Decision

The Privy Council agreed with Pell that the figure of £500,000 was too low. In reaching this conclusion it set out some general principles concerning the award of Wrotham Park damages, which were:

  • Wrotham Park damages have an ‘equitable quality’.
  • To assess Wrotham Park damages, the court should ask ‘what sum would the contract breaker have been willing to pay to the injured party to be released from the obligation that it breached?’ The amount arrived at could exceed the actual loss suffered by the injured party from the breach.
  • That sum should be assessed as at the date of breach. Events occurring after the date of breach which might affect what the contract breaker would pay to be released from its obligation should be ignored unless there is “good reason” to take it into account.
  • Wrotham Park damages will be available even where a claimant has not actually claimed an injunction or specific performance or, if it had been claimed, the court would never have made such an order.

In assessing the damages payable in this case, the Privy Council took into account the fact that Pell’s right to veto Bow and Bakrie’s direct negotiations with NIOC using clause 6 had significant commercial value and it was this that Bow and Bakrie had to buy out. It took the sums of money that Bow and Bakrie had offered to Pell during the negotiations to buy out its interest in the project as a guideline but reduced these to reflect the fact that Pell had delayed for seven years in bringing the legal proceedings. It refused to reduce the damages further to reflect the fact that the oilfield project was less profitable than Bow and Bakrie had anticipated as this was an event that had occurred after the date of breach. Taking all of these factors into account, the Privy Council awarded Wrotham Park damages of $2,500,000 for which Bow and Bakrie were jointly and severally liable.

Comment

Although the actual outcome in this case was confined to the facts the decision is interesting as a reminder of the availability of Wrotham Park damages in breach of contract cases and a concise statement of the Wrotham Park principles, including how these damages will actually be assessed.

Further reading

Click here for a copy of the judgment