On 18 April 2018, the Supreme Court gave an important judgment in Morris-Garner & anor v One Step (Support) Ltd, a case which concerned the assessment of damages for breach of a restrictive covenant in a commercial agreement. The decision is relevant to property law and other areas of practice, particularly where there is scope for disagreement about how the amount being claimed should be calculated.
Restrictive covenants are often used in land transactions, both freehold and leasehold. As a consequence of a case known as Wrotham Park (1974), it has frequently been the case that, when restrictive covenants have been broken, a claimant's starting point for a damages claim has been to seek the sum he might have got had there been a negotiation to release the covenants. Morris-Garner suggests that should not be the norm, but, equally, does not exclude such an approach. What matters, however, is that the judge should measure the financial loss that the claimant has actually incurred. In Morris-Garner itself, the Supreme Court sent the case back to the trial judge to do just that.
Some passages of the main judgment are of interest when considering other property disputes, for example when there has been a trespass or a failure to perform a contractual term.
Ordinarily a claimant would seek an order (injunction) that the trespass cease, or the contract be performed. But, the court has the power to award damages instead of granting an injunction (when it might do that is also an interesting question, but outside the scope of this note.) Damages can be awarded in substitution for specific performance or an injunction. Such damages are a monetary substitute for what is lost by the withholding of such relief.
One possible method of quantifying damages in this situation is on the basis of the economic value of the right which the court has declined to enforce, and which it has consequently rendered worthless. Such a valuation can be arrived at by reference to the amount which the claimant might reasonably have demanded as a quid pro quo for the relaxation of the obligation in question. The rationale is that, since the withholding of specific relief has the same practical effect as requiring the claimant to permit the infringement of his rights, his loss can be measured by reference to the economic value of such permission. But Lord Reed was careful to note that in these situations too, that is not, however, the only approach to assessing damages. It is for the court to judge what method of quantification, in the circumstances of the case before it, will give a fair equivalent for what is lost by the refusal of the injunction.
A practical decision of the Supreme Court was to renounce the use of the term 'Wrotham Park damages'; it prefers the expression 'negotiating damages'. That alone is helpful, making the concept more accessible to a wider group of people rather than just lawyers.
The full judgment can be found on the Supreme Court website.