Measure of damages – Restrictive covenant – Respondents seeking injunction to restrain future breaches and damages for past breaches – Court granting injunction and ordering inquiry as to damages – Court refusing application to add claim for account of profits – Court holding respondents possibly entitled to damages for hypothetical relaxation of covenant during breach – Whether respondent entitled to claim such damages – Whether claim constituting abuse of process – Appeal allowed
The respondents were well-known charities in the field of environmental protection and conservation. A dispute arose with the appellant regarding its use of the initials WWF in connection with its activities of promoting and organising wrestling events.
In 1994, the parties entered into an agreement, which was intended to resolve extensive litigation, whereby substantial restrictions were placed on the appellant’s use of those initials. In 2001, Jacob J gave summary judgment for the respondents in an action for breach of that agreement. He granted an injunction to restrain future breach and ordered an inquiry as to damages for past breaches. However, the judge refused permission to add a claim for an account of profits resulting from those breaches.
In 2005, Patten J allowed the respondents to amend their claim to seek damages in the form of a reasonable payment for the hypothetical release of the covenant during the period in which the appellant had been in breach. He also ordered the trial of a preliminary issue as to whether the respondent was entitled to advance such a claim in the inquiry regarding damages.
On the preliminary issue, Peter Smith J held that the respondents were entitled, in point of law, to seek damages for breach of covenant, in the form of a reasonable payment as a quid pro quo for hypothetically relaxing their rights under an agreement between the parties.
The appellant appealed, contending, inter alia, that the respondents were seeking an award that was the same as, or similar to, the account of profits already refused; alternatively, the claim was an abuse of process.
Held: The appeal was allowed.
Where a covenantee applied for an injunction and damages against a covenantor that had acted in breach of a restrictive covenant, the court might award damages in respect of past breaches as well as granting an injunction to restrain further breaches, even though the covenantee was unable to establish actual financial loss. The award would be in a sum that the court considered reasonable for the covenantor to pay and the covenantee to accept for the hypothetical release of the covenant.
Such damages had to be assessed upon the basis that the hypothetical release would have taken effect from a date immediately before the covenantor was first in breach, for a period ending on the date upon which the injunction to restrain future breaches took effect. As a matter of common law, where a covenantor had acted in breach of a restrictive covenant the court might award damages on the basis of a reasonable payment for the hypothetical release of a restrictive covenant, notwithstanding that there was and could be no claim for an injunction. Such an award did not depend upon the covenantee establishing that, absent a release, the covenant could have been enforced by an injunction: Wrotham Park Estate Co Ltd v Parkside Homes Ltd (1973) 229 EG 617 considered.
The Wrotham Park basis for damages sought by the respondents was juridically similar to the account of profits remedy. It was an abuse of process for the respondents now to pursue a claim for such damages after inviting Jacob J to decide whether to order an account of profits on the basis that there would be no claim for such damages in the proceedings. The respondents’ actions were inconsistent with the underlying interest that there should be finality in litigation and that a party should not be vexed twice in the same matter. They also ran counter to the need for economy and efficiency in the conduct of litigation, in the interest of the parties and of the public as a whole. The appellant had been entitled to proceed on the basis that since Wrotham Park damages had not been sought in 2001, such a claim was not being pursued in these proceedings: Johnson v Gore Wood & Co (No 1) [2002] 2 AC 1 applied.
Christopher Carr QC and Guy Hollingworth (instructed by Kirkpatrick & Lockhart Nicholson Graham LLP) appeared for the appellant; Mark Brealey QC and Sarah Lee (instructed by Edwin Coe LLP) appeared for the respondents.
Eileen O’Grady, barrister
