In the recent case of Morris-Garner and another v One Step (Support) Limited, the Court of Appeal upheld a Wrotham Park damages award in a claim for breach of confidentiality, non-compete and non-solicitation which has gone some way to clarify the principles governing the award of such damages.
Wrotham Park damages originated in a property case (Wrotham Park Estate Co Limited v Parkside Homes Limited), in which the court awarded damages to an Estate owner when the Defendant breached a covenant which benefited the Estate. In theory, such damages are not limited to property cases but contract claims more generally; in an employment law context, damages could therefore be sought in breach of restrictive covenant claims.
Proving loss that flows from a breach of restrictive covenants can be extremely difficult and what Wrotham Park damages seek to do is act as a "hypothetical negotiation" between the parties. Sometimes referred to as "negotiating damages", the principle behind the award is that the Claimant can recover such sum as the Defendant would have paid, had the Defendant negotiated a release of its obligations, rather than breaching them.
In this case, Ms Morris-Garner was a major shareholder of One Step, a Company providing supported living services to vulnerable people. As part of the deal in which she sold her shares in the business, she agreed not to compete with One Step or solicit any of its key clients for a period of 3 years.
Ms Morris-Garner subsequently pursued a new venture in a business called Positive Living. One Step claimed that Positive Living had been one of its competitors for some time and that Ms Morris-Garner had also solicited numerous key clients. One Step's argument was that it would be extremely difficult to quantify and prove its loss and so sought either:
- an account of Positive Living's profits; or
- damages based on the Wrotham Park basis.
At first instance, the court found in favour of One Step. The claim for an account of profits was dismissed as it was held that the circumstances were not "exceptional" enough to justify this. Wrotham Park damages were awarded instead. Ms Morris-Garner appealed the decision.
The Court of Appeal dismissed the appeal. It ruled that such damages are not restricted to cases where the Claimant has suffered "no identifiable financial loss", nor does the case have to be "exceptional". The correct test is whether an award on the Wrotham Park basis would be "the just response".
The circumstances in which Wrotham Park damages may be awarded:
- the Defendant's deliberate breach of its contractual obligations for its own reward;
- the Claimant's difficulty in establishing financial loss from that breach; and
- the Claimant's legitimate interest in preventing the Defendant's profit-making activity in breach of contract.
Although the decision has somewhat clarified the principles governing Wrotham Park damages, each case will continue to depend on its individual facts. This decision does not prevent the need for Claimants to prove "conventional" loss where possible. However, it does appear to open this area up somewhat and offenders now face an increased risk, if found in breach of their obligations.