Contract Law

Remedies for Breach Cases

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

Key Points

• Negotiating damages are only available where the contractual right that was breached can be properly viewed as an asset
• Negotiating damages are compensatory and not restitutionary in nature
• Non-compete and non-solicitation covenants are not 'assets' and thus their breach cannot be compensated by negotiating damages

Facts

• The Morris-Garners, who were former shareholders (Ds) of One Step (Support) Limited (C), entered into restrictive covenants not to compete with C and not to solicit its clients (these covenants are known as ‘non-compete’ and ‘non-solicitation’ covenants)
• However, in breach of the covenants, Ds started a similar business that competed with C, that led to loss of profits for C
• C sued for breach of the restrictive covenants and were awarded damages amounting the hypothetical fee it would have reasonably accepted to release Ds from the covenants (known as ‘negotiating damages’)
• The trial judge awarded such damages on the basis that financial loss was difficult to quantify
• The Court of Appeal upheld that award on the basis that such damages are available whenever it would be just to award them in the circumstances, such as when loss is difficult to quantify and when the breach is deliberate