The case arose from the sale of a business by the appellants to the respondents. Various restrictive covenants were established and the appellants subsequently created a new company which began competing with the respondent. At trial, the appellants were found to have breached the covenants. Damages were to be assessed on a Wrotham Park basis i.e. measured as the amount that would have been reasonably agreed between the parties for release from the contractual obligations.

The Supreme Court was asked to assess the circumstances in which damages for a breach of contract may be assessed by reference to the Wrotham Park test. The Court held that damages for breach of contract are underpinned by the objective of compensating the claimant for the sustained loss arising from non-performance of a contract. Such ‘negotiating damages’ should only be awarded for a contractual breach where the loss is most appropriately measured by reference to the economic value of the right which has been breached. In the present case such circumstances did not exist and the appeal was allowed.

Practical Lessons

The practical upshot of the decision is that the Supreme Court has narrowed the scope and circumstances in which Wrotham Park damages may be awarded. The type of restrictive covenant that featured in this case is extremely common in commercial contracts and often takes the form of a ‘non-disclosure agreement’. Claims involving breaches of such covenants are often brought without the alleged loss being clearly quantifiable. 

Claimants will now be required to focus even more on identifying and quantifying actual loss. If claimants cannot establish an economic loss resulting from a breach, the inference will be that they have not suffered any loss and cannot be awarded more than nominal damages.
https://www.supremecourt.uk/cases/docs/uksc-2016-0086-judgment.pdf