Morris-Garner v One Step (Support) Ltd [2018] UKSC 20

KEY POINTS

• Negotiating damages can be applicable only in cases of breach of contract wherein the claimant's loss can be appropriately measured by the economic value of the breached right, treated as an asset.

• The concept of imaginary negotiation is used as a method to determine the value of the breached right.

• This approach is applicable when the breach of contract leads to the loss of a valuable asset that was created or protected by the infringed right, such as a breach of a restrictive covenant or an intellectual property agreement.

FACTS

• Appellant Morris-Garner established a business supporting young people leaving care. A few years later, she sold a 50% interest in the business to Mr and Mrs Costelloe. The respondent company, One Step (Support) Ltd ("One Step"), was created as the vehicle for this transaction.

• Relations between Morris-Garner and the Costelloes began to deteriorate. Thereafter, Mrs Costelloe served a "deadlock notice" under the shareholders' agreement.

• The notice required Morris-Garner to either buy Mrs Costelloe's shares or sell her own for a specified price. Morris-Garner chose to sell her shares in One Step to the Costelloes for £3.15m. Both appellants agreed to restrictive covenants for three years which prohibited them from competing with One Step or soliciting its clients.

• Without the Costelloes' knowledge, the appellants established a new company called Positive Living which started operating and became a competitor to One Step. Sometime later, the appellants sold their shares in Positive Living for £12.8m.

• The claimant company filed a lawsuit against the appellants for breaching the restrictive covenants. It was ruled that the appellants had indeed breached the restrictive covenants.

• The judge determined that One Step was entitled to damages, either on a Wrotham Park basis or ordinary compensatory damages. When the Court of Appeal upheld the trial judge's decision, they appealed to the Supreme Court specifically regarding the question of damages.

COMMENTARY

• The case provides important guidance on the availability and calculation of negotiating damages, also known as Wrotham Park damages, in English contract law.

Lord Reed

• Delivering the leading judgement, emphasised that negotiating damages should only be awarded when it is not possible to measure the claimant's loss in the conventional way, such as by assessing their financial position after the breach.

• The court stressed that the key question is whether it would be just and equitable to award such damages in the particular case.