UK: Supreme Court rules that negotiating damages will not be available for breach of employment covenants in most cases

Negotiating damages (or 'Wrotham Park' damages) are damages for such amount as would notionally have been agreed between the parties, acting reasonably, as the price for releasing one party from its contractual obligations. The Supreme Court in Morris-Garner v One Step (Support) Ltd has overturned a Court of Appeal judgment and ruled that negotiating damages will not be available for breach of restrictive covenants in most employment cases, notwithstanding that loss may be difficult to quantify.

Negotiating damages awards will now be limited to circumstances where the claimant had lost a valuable asset created or protected by the right which was infringed;  examples could be a breach of covenants over land, or confidentiality agreements, or IP agreements.  In other circumstances, damages for breach of contract should be measured in the ordinary way by reference to the difference between the claimant’s actual position and the position he would have been in had the contract been performed.

Evidence of a hypothetical release fee might be relevant to the assessment of damages for breach of restrictive covenants (eg where parties were negotiating the release of an obligation prior to its breach, the parties' valuation on the release fee might be relevant to quantification of the losses claimed to have resulted from the breach), but such a fee is not itself the measure of the claimant’s loss in a case of the present kind.

See our Litigation blog post for further details.