A brief summary of the principles, recent developments and practical tips relating to "Negotiating damages", formerly known as "Wrotham Park damages".
- Damages in contract are intended to place the claimant in the same position as he would have been in if the contract had been performed.
- In very limited circumstances, damages in contract can in the alternative be assessed on what was previously called the Wrotham Park basis, now “negotiating damages”, ie the hypothetical fee the defendant would have paid the claimant for the right to breach the contractual restriction.
- “Negotiating damages” can only be awarded for breach of contract where the breach results in the loss of a valuable asset created or protected by the right infringed on the basis that the defendant has taken something for nothing, for which the claimant was entitled to require payment.
- “Negotiating damages” are not otherwise an alternative remedy to the usual compensatory basis.
- In Morris-Garner v One Step (Support) Limited, the Supreme Court reviewed the scope of “Wrotham Park” damages.
- Previously Wrotham Park damages could be awarded where a claimant found it difficult to quantify its actual financial loss which could instead be valued by reference to the hypothetical fee the claimant would have charged the defendant to carry out the otherwise infringing act.
- In Morris-Garner, the defendant had competed with the claimant in breach of restrictive covenants. Damages assessed on the Wrotham Park basis, now “negotiating damages”, were some £2m more than damages assessed on the usual compensatory basis.
- The Supreme Court held that damages could only be awarded on the conventional compensatory basis, ie the actual financial loss caused to the claimant by the defendant competing in breach of the restrictive covenants. The claimant was not entitled to claim “negotiating damages” in the alternative.
- In contract cases, “negotiating damages” will only be available in limited circumstances, ie breach of intellectual property agreements, confidentiality agreements or breaches of restrictive covenants over land.
What this means
- In most cases of breach of contract, “negotiating damages” will no longer be an alternative remedy to losses calculated on the usual compensatory basis.
- The onus will be on the claimant to prove its financial loss and if it cannot do so, no damages will be awarded.
- As in Morris-Garnier, no “negotiating damages” will be awarded where the defendant has breached non-compete restrictive covenants.