Wrotham Park damages (named after Wrotham Park Estate Co v Parkside Homes) are often known as “hypothetical bargain” or “negotiating” damages. Instead of quantifying how much the aggrieved party has lost, or how much the wrongdoer has gained, Wrotham Park damages try to quantify the sum which might reasonably have been negotiated between the parties as a quid pro quo for giving permission to the wrongdoer to act contrary to his or her contractual obligations. They tend to be relied on in cases involving breaches of restrictive covenants, whether in contracts of employment, partnership agreements, contracts of sale, or commercial contracts more generally.
Wrotham Park damages are controversial for two reasons. First, there is vexed (and, it might be said, rather dull) debate about whether they can properly be called compensatory or “gains-based” damages.
Of more practical importance is the fact that the law has been unclear on the circumstances when Wrotham Park damages may be claimed.
The law has now been clarified, to an extent, by the decision of the Court of Appeal in One Step (Support) Ltd v Morris-Garner. Longmore LJ approved the “3 important features which justified a Wrotham Park award unless there is some countervailing feature which should prevent such an award” set out by Peter Gibson LJ in Experience Hendrix LLC v PPX Enterprises Inc at paragraph 151:
“i) there was a deliberate breach by the defendant of its contractual obligations for its own reward;
ii) the claimant would have difficulty in establishing financial loss therefrom; and
iii) the claimant has a legitimate interest in preventing the defendant’s profit-making activity in breach of contract”.
(There is a “fourth factor” which Longmore LJ considers applies to “cases of sales of a business”: “the result of the defendant’s breach of contract has been that it is doubtful that interim relief could be obtained.”)
To these principles the Court of Appeal in One Step added the following important gloss:
- First, the correct test is whether Wrotham Park damages would be “the just response”; that is, the “remedy…required to avoid injustice in the particular case”, and which is “quintessentially, a matter for the judge to decide”.
- Second, and contrary to some of the earlier authorities, there is no ‘exceptionality’ requirement.
- Third, and again, contrary to dicta in other cases, it is not necessary that it be “impossible” to identify financial loss. Rather, Wrotham Park damages may be awarded where it is “difficult” to establish “ordinary” compensatory damages.
One Step brings a measure of clarity to an area of the law of damages where the authorities have not spoken with one voice, although a good dose of discretion is left to the judge (as the judgments make clear).
However, the decision is likely to raise eyebrows among litigators who are used to seeing Wrotham Park damages as a highly exceptional remedy, only available where any other solution would cause manifest injustice. The decision takes a fundamentally liberal approach to Wrotham Park damages, which will encourage litigants to claim them where once they might have been seen as a long shot.
A further potential consequence is that defendants to injunctive applications may now try to argue that since Wrotham Park damages are more widely available, damages would be an adequate remedy instead of injunctive relief.