Morris-Garner v One Step (Support) Ltd [2018] UKSC 20

Facts

• The dispute involved non-compete and non-solicitation covenants breached by Ms. Morris-Garner after she sold her interest in a company providing support services to children leaving care.
• One Step (Support) Ltd, the claimant, sought negotiating damages on the basis that the breach rendered conventional financial loss difficult to quantify.
• The non-compete and non-solicitation agreements were central to the claim, as their breach allegedly protected legitimate business interests akin to goodwill.

Issues

1. Whether negotiating damages are an appropriate remedy for breach of contract in circumstances where the breach involves covenants protecting legitimate business interests.
2. Whether such damages can be awarded where the claimant's actual financial loss is difficult to quantify.
3. Whether non-proprietary rights, such as restrictive covenants, may be treated analogously to intellectual property rights for the purposes of assessing damages.
4. What is the proper conceptual distinction between negotiating damages and user damages, and the continued utility of the term “Wrotham Park damages.”

Decision

• The Supreme Court held that negotiating damages are exceptional and not generally available for all breaches of contract.
• It found that such damages are appropriate primarily where the breach affects a proprietary or analogous right or where quantifying loss is unusually difficult.
• The Court determined that the non-compete and non-solicitation covenants in question, while not strictly proprietary, were sufficiently analogous to intellectual property rights to justify a negotiation-based approach.
• The Court clarified that the rationale for negotiating damages is not founded solely on the defendant’s gain but also on the claimant’s hypothetical willingness to release the obligation.
• It distinguished negotiating damages from user damages and discouraged further use of the term “Wrotham Park damages.”

Legal Principles

• Negotiating damages are generally only available where a breach invades a proprietary right or an analogous interest, and where it is difficult to value the claimant's loss using orthodox methods.
• Non-proprietary restrictive covenants may, in certain limited circumstances, be treated as analogous to intellectual property rights if they protect a business interest akin to goodwill.
• Negotiating damages reflect the hypothetical fee that could have been agreed upon for release from the restriction, rather than compensating for the defendant’s gain or unauthorized use.
• The distinction between negotiating damages and user damages is fundamental, the latter relating strictly to unauthorized use of property.
• The term "Wrotham Park damages" is a misnomer; the appropriate terminology is "negotiating damages."
• Claimants must demonstrate difficulty in quantifying loss to justify an award of negotiating damages for breach of contract.

Conclusion

The Supreme Court in Morris-Garner v One Step (Support) Ltd established that negotiating damages are an exceptional remedy, primarily available where a breach infringes proprietary or analogous rights and actual loss is not readily quantifiable, thereby clarifying the remedy's limited scope and precise application in contract law.