So what links a notorious English defector to the Soviet Union, a famous American rock guitarist, an 18th century chimney sweep, a damaged lightship in the Mersey, an unlawfully borrowed horse and an unused chair? No, not the latest Peter Ackroyd novel, but rather the decision last month by the Supreme Court in Morris-Garner v One Step (Support) Ltd [2018] UKSC 20; [2018] PLSCS 77, writes Guy Fetherstonhaugh QC.
The facts giving rise to the decision (breach of a contract restricting a competing business) are of only passing relevance to property law and practice. But the court’s fundamental review of the law of damages in cases not only of breach of contract but also of torts, including infringement of property rights, is of vital interest to those engaged in property disputes.
Negotiating damages
Much of the focus of the court’s attention was on the approach to damages carried out by Brightman J in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1973] 229 EG 617. In that case, a developer, Parkside, erected housing in breach of a restrictive covenant given to the Wrotham Park Estate. The estate owner brought proceedings seeking a mandatory injunction for the demolition of the housing. The judge held that although Parkside had clearly acted in breach of the covenant, it would not be just to order demolition of the houses; that damages should be awarded in lieu of the injunctions sought; and that the proper measure of damages was a sum which the estate owner might reasonably have required in return for relaxing the covenant, which he decided would have been 5% of Parkside’s profits.
Such damages – damages in lieu of an injunction – have since been referred to in the property industry as “Wrotham Park” damages, although the amounts subsequently awarded have tended to be more generous, of the order of 30% of the development profit.
The decision in One Step was concerned with the impropriety of applying the Wrotham Park approach in a case of damages for breach of contract, save as an evidential technique for estimating the claimant’s loss. The decision also illuminates the propriety of that approach in cases involving interference with property rights.
One step back
Before moving forwards, it is worth adverting to the other recent foray by the Supreme Court in the field of interference with property rights: Lawrence v Coventry (t/a RDC Promotions) [2014] UKSC 13; [2014] 1 EGLR 147.
Lawrence was concerned with the tort of nuisance caused by noise from a motor racing track. The judgments are for the most part concerned with the test for the grant of an injunction restraining such torts, but they also deal with the measure of damages in lieu of such an injunction.
Lord Neuberger noted, first, that such damages “are conventionally based on the reduction in the value of the claimant’s property as a result of the continuation of the nuisance”, reflecting the traditional role of damages in tort, rather than damages in lieu of an injunction. However, he went on to venture the view that such damages might also include the loss of the claimant’s ability to enforce her rights, which may often be assessed by reference to the benefit to the defendant of not suffering an injunction.
This view is an orthodox one, supported by a number of property cases of high authority, where it has long been usual for damages in lieu of an injunction to be measured by the amount that the innocent party could reasonably have expected to receive for the release of their property right.
Lawrence led to some uncertainty in the property world, given the tentativeness with which Lord Neuberger’s view was advanced. But a degree of confidence in the old ways will now be appropriate following One Step, provided that a number of observations of the Supreme Court are heeded.
Two steps forward
First, the cases on the subject of damages in lieu (which we are now to call “negotiating damages” rather than Wrotham Park damages) do not purport to lay down a general rule as to how such damages should be quantified, regardless of the circumstances. It is for the court to judge what method of quantification, in the particular circumstances of the case before it, will give an equivalent for what is lost by the refusal of the injunction.
Secondly, in such a case, the claimant has in substance been deprived of a valuable asset, and his loss can therefore be measured by determining the economic value of the asset in question. The defendant has taken something for nothing, for which the claimant was entitled to require payment. The aim of the exercise may therefore be said to involve the estimation of the deprived value, to which the hypothetical release fee may be relevant.
Thirdly, the assessment of the hypothetical release fee is itself a difficult and uncertain exercise. The premise of the hypothetical negotiation – that a reasonable person in the claimant’s position would have been willing to release the defendant from the obligation in return for a fee – breaks down in a situation where any reasonable person in the claimant’s position would have been unwilling to grant a release. The result of the exercise may be an appearance of precision, but it is artificial; and, despite the apparent precision of the figures and calculations deployed typically (and necessarily) on each side, it necessarily involves a question of impression.
Fourthly, such damages can (only) be awarded in substitution for specific performance or an injunction, where the court had jurisdiction to entertain an application for such relief at the time when the proceedings were commenced. Such damages are a monetary substitute for what is lost by the withholding of such relief.
Fifthly, and conversely, in cases of infringement of a property right, where an injunction is not available, for example because the covenant was not specifically enforceable or the claimant’s delay had made it impossible, the hypothetical release value should not contribute to the value of the land, because there was none. In that case, damages could not be awarded on that basis.
Guy Fetherstonhaugh QC, barrister, Falcon Chambers
