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Morris-Garner & Anor v. One Step (Support) Ltd
Smart Summary
Factual and Procedural Background
The Respondent purchased a support-services business from the first Appellant. As part of the sale, both Appellants covenanted (for three years) not to compete with, solicit clients from, or disclose confidential information belonging to the Respondent. Shortly afterwards the Appellants formed “Company A” and began competing in The City. The covenants expired in December 2009; Company A was sold for £12.8 m the following year.
In 2012 the Respondent sued for breach of the non-compete, non-solicit and confidentiality covenants, alleging conspiracy and inducement of breach. At a split trial Judge Phillips held that the covenants had been breached and that confidential information had been misused, but declined injunctive relief or an account of profits. He declared that the Respondent could elect either (a) ordinary compensatory damages or (b) “Wrotham Park damages” (a hypothetical release fee). The Respondent elected the latter; quantum was not assessed.
The Court of Appeal (Christopher Clarke LJ, King LJ, Longmore LJ) dismissed the Appellants’ appeal, endorsing the award of negotiating damages on the basis that it was the “just response”.
The Appellants obtained permission to appeal to the Supreme Court, which heard the matter on 11–12 October 2017 and handed down judgment on 18 April 2018.
Legal Issues Presented
- In what circumstances can a claimant for breach of contract recover “negotiating damages” (i.e. damages based on the notional price for releasing the defendant from performance)?
- Was the Court of Appeal correct to uphold such an award on the facts of this case?
Arguments of the Parties
Appellants’ Arguments
- Negotiating damages are exceptional and available only where the claimant’s right resembles property or is specifically enforceable; ordinary loss-based damages were the correct measure here.
- The Respondent could, with evidence, quantify lost profits and goodwill; difficulty of proof is not a legal basis for an alternative remedy.
- The Court of Appeal wrongly treated deliberateness of breach and difficulty of quantification as triggers for a discretionary remedy.
Respondent’s Arguments
- The secrecy surrounding Company A’s activities made it “practically impossible” to quantify loss with any confidence.
- Precedent shows that where precise loss cannot be proven, a release-fee approach is “the just response”.
- The covenants conferred a valuable, bargained-for right to be free of competition; that right was effectively appropriated by the breaches.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|
| Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798 | Hypothetical release-fee damages where injunction refused | Considered but distinguished; reasoning treated as historically opaque and limited to equitable substitution for injunctions |
| Attorney-General v Blake [2001] 1 AC 268 | Account of profits as exceptional contractual remedy; discussion of release-fee cases | Court clarifies that Blake did not create a broad discretionary power to award negotiating damages |
| Pell Frischmann Ltd v Bow Valley Iran Ltd [2011] 1 WLR 2370 | List of “illuminating” negotiating-damages cases; terminology “negotiating damages” | Principles (4) & (5) partially qualified; court emphasises need for loss of a valuable asset |
| Lunn Poly Ltd v Liverpool & Lancashire Properties Ltd [2006] EWCA Civ 430 | Date for assessing hypothetical fee and flexibility of approach | Approved but confined; valuation normally as at breach, subject to equitable considerations |
| Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 | Compensatory principle in tort (“place the claimant as if no wrong”) | Quoted as general foundation for compensatory damages |
| Whitwham v Westminster Brymbo Coal & Coke Co [1896] 2 Ch 538 | User damages for wrongful use of land | Analogy drawn to show loss can be value of use, not merely pecuniary diminution |
| The Mediana [1900] AC 113 | User-rent despite no actual pecuniary loss | Supports concept that wrongful use deprives owner of valuable choice |
| Watson, Laidlaw & Co Ltd v Pott 1914 SC (HL) 18 | Lord Shaw’s “price or hire” principle for invasions of property | Adopted as historical root of user damages |
| Meters Ltd v Metropolitan Gas Meters Ltd (1911) 28 RPC 157 | Royalty measure for patent infringement even where no licensing practice | Cited to show hypothetical fee can evidence pecuniary loss |
| Stoke-on-Trent CC v W & J Wass Ltd [1988] 1 WLR 1406 | Formulation of the “user principle” | Endorsed as correct explanation of property-user damages |
| Robinson v Harman (1848) 1 Exch 850 | Expectation measure in contract damages | Reaffirmed as “fundamental principle” |
| Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 | Primary vs secondary obligations in contract | Supports analysis that damages substitute for performance |
| Jarvis v Swan Tours Ltd [1973] QB 233 | Damages recoverable for non-pecuniary disappointment | Illustrates that damages are not confined to economic loss |
| Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344 | Reasonable monetary value for subjective loss | Contrasted with negotiating damages; shows established routes for non-financial loss |
| Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323 | Release-fee award where loss hard to prove | Analysed; court clarifies limits and misinterpretations of its ratio |
| Bracewell v Appleby [1975] Ch 408 | Damages in lieu of injunction for trespass/right-of-way | Used as example of Lord Cairns’ Act damages |
| Jaggard v Sawyer [1995] 1 WLR 269 | Account of principles for damages in substitution for injunction | Extensively quoted; court agrees with compensatory analysis |
| General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819 | Royalty as measure when patent licences usual/unusual | Supports use of hypothetical royalty for pecuniary loss, not gain-based remedy |
| Bunge SA v Nidera NV [2015] UKSC 43 | Distinction between value of contract and value of goods | Cited to show difference between asset value and expectation loss |
| Sanders v Parry [1967] 1 WLR 753 | Loss-of-chance approach to diverted business | Illustrates conventional methods for quantifying business losses |
Court's Reasoning and Analysis
Judge Reed (for the majority) undertook a comprehensive survey of damages principles:
- Compensatory baseline: contractual damages aim to place the claimant in the position performance would have achieved (Robinson v Harman).
- User damages lineage: cases such as Whitwham and Watson, Laidlaw allow a “price-for-use” award where wrongful use of property deprives the owner of a valuable right.
- Lord Cairns’ Act context: damages in substitution for an injunction are a monetary replacement for specific relief, available only where an injunction could have been sought.
- Misreading of authorities: later courts blurred the lines, treating negotiating damages and accounts of profit as points on a discretionary spectrum (Experience Hendrix etc.). That is incompatible with orthodox compensatory principles.
- When negotiating damages fit: only where the breach destroys or appropriates a valuable asset (e.g., land covenants, IP, confidential information). Difficulty of proof, deliberateness of breach or desire to strip profits are not independent gateways.
- Application to this case: the Respondent’s loss is commercial (lost profits/goodwill) and can be quantified, albeit imperfectly. The covenants did not create a distinct asset whose value can be priced; therefore a release-fee measure is inappropriate.
Judge Sumption (concurring) agreed in outcome but emphasised that hypothetical-fee evidence may still be an evidential tool for valuing pecuniary loss where conventional evidence is scant.
Judge Carnwath (concurring) cautioned against collapsing established categories and noted parallels with statutory compensation regimes.
Holding and Implications
HELD: Appeal ALLOWED. The declaration granting the Respondent the right to elect negotiating damages is set aside. The matter is remitted for a quantum hearing confined to assessment of the Respondent’s actual financial loss. Evidence of a hypothetical release fee is admissible only insofar as it assists that conventional inquiry.
Implications: The Supreme Court re-draws the boundary of negotiating damages, confining them to breaches that appropriate or destroy a valuable proprietary-type asset or where damages are awarded in lieu of an injunction. Difficulty of proving loss, deliberateness of breach, or judicial notions of “just response” are no longer sufficient. The decision restores doctrinal clarity, limits discretionary expansion of gain-based awards, and realigns English law with orthodox compensatory principles.
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