In April 2018, the Supreme Court significantly narrowed the scope of so-called ‘Wrotham Park’ damages (also known as ‘licence fee’ or ‘negotiating’ damages). Such damages, which are calculated on the basis of the hypothetical sum which the parties might have agreed upon to release the defendant from a contractual obligation, have been awarded, in lieu of an injunction, as an alternative to traditional compensatory damages.

Wrotham Park Estate v Parkside Homes concerned the breach of a restrictive covenant not to build on land without the owner’s consent. When this obligation was breached, the court ordered that damages should be awarded equating to the amount that the parties would have agreed upon to release the obliged party from the restrictive covenant to not build on the land without the owner’s consent. The principle behind this measure of damages was subsequently expanded through case law to cover breaches of other kinds of restrictive covenants such as non-compete and confidentiality agreements. The rationale for such a measure of damages was the fact that it is often difficult for a claimant to identify or quantify the financial loss it has suffered as a result of the defendant’s breach of an obligation not to compete with the claimant’s business. Applying the traditional compensatory damages test was viewed by many as unsatisfactory in such cases.

Oct-Dec 2018 issue

Kirkland & Ellis International LLP