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Restrictive Covenants: Negotiating Damages

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Are negotiating damages (formerly known as Wrotham Parkdamages) available for breach of a restrictive covenant?

Yes, in limited circumstances (and not in this case), held the Supreme Court in Morris-Garner and another v One Step (Support) Ltd..

One Step entered into an agreement with the Defendants containing non-compete and non-solicitation covenants valid for 3 years following the sale of the Defendants' shares. The Defendants breached these covenants and One Step suffered loss that was difficult to quantify and likely to be the cumulative result of multiple breaches of a number of obligations. The Court of Appeal granted One Step the option of recovering negotiating damages or ordinary compensatory damages.

Negotiating damages are not incompatible with the compensatory purpose of an award of damages for breach of contract (designed to place the Claimant in the position it would have been in had the contract been performed). They can be awarded for breach of contract where "the loss suffered by the claimant is appropriately measured by reference to the economic value of the right which has been breached, considered as an asset", i.e. where the Defendant has taken something for nothing.

The Claimant in this case did not suffer the loss of a valuable asset, the substance of its case was that it suffered financial loss in the form of lost profits and goodwill. The Claimant's loss could be quantified in a conventional manner.

Thanks to Caroline Field of Fox and Partners for preparing this case summary.