Breach of Covenant: Whether a claimant is entitled to ‘Wrotham Park’ damages, based on a hypothetical loss of fees (One Step (Support) Ltd v Morris-Garner – 2018)

In this long-running case, the Supreme Court considered the question of whether a claimant could claim for damages based on a hypothetical loss of fees, also known as ‘Wrotham Park’ damages.

The background

In One Step (Support) Ltd v Morris-Garner [2018], proceedings were commenced for breaches of restrictive covenants comprised in a shareholders’ agreement. At trial, the Court found in favour of the claimant in that there had been breaches, and concluded that the claimant was entitled to damages assessed on a ‘Wrotham Park basis’.

‘Wrotham Park’ damages refer to the case of Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974]. This is the sum that a claimant could hypothetically have received in return for releasing the defendant from the covenants it failed to perform; a calculation of fees which could have been paid. The Court of Appeal dismissed the appeal, and a further appeal was then brought in the Supreme Court.

The decision

The Supreme Court allowed the appeal, concluding that the approach taken by the earlier Courts was wrong and that the loss could be quantified in a conventional manner. The claimant argued that it suffered financial losses by way of lost profits and goodwill, which is a common type of loss. The covenant breached did not protect a valuable asset which was then lost.

The Supreme Court remitted the case to the High Court to allow the judge to measure the financial loss actually incurred by the claimant. The judge could consider evidence relating to a hypothetical release fee and determine its relevance and weight, but the fee is not a measure of loss in this case.

Advice and action for landlords

Although a case turning on a technical point of law, this case does impact on businesses entering into common forms of shareholders’ agreements and other contracts containing restrictive covenants, including leases.

Hypothetical fees and losses may be considered by a judge in assessing damages and given appropriate relevance and weight, but in this case the losses incurred were capable of being quantified more conventionally and the fee was not a measure of loss in itself.