Wrotham Park and the scope of the “hypothetical negotiation” measure of damages

Perhaps
the most obvious instance of the sophistication of English commercial law is
the range of remedies it has, depending on the precise nature of and tailored
to each cause of action. The most common remedy is, of course, compensation for
loss, which attempts to place the claimant in the position in which he would
have been had the term (in the case of contract) not been breached; an award of
restitution for unjust enrichment is also well-known, with the difference that
this “disgorges” the defendant’s gain, as opposed to compensate the
claimant’s loss. The English courts have also made an award of restitution (ie
stripping the defendant’s gains) for wrongs.
An
award that does not easily fit these categories is what is known as the Wrotham Park award of damages. The
remedy was devised to deal with a problem that, if not well-known, is by no
means uncommon: a defendant breaches a right a claimant has and derives
substantial profit, without, however, causing any financial loss to the
claimant. An action for compensation for breach of contract would ordinarily
only lead to nominal damages; an action for restitution for unjust enrichment
would ordinarily fail because the enrichment, if any, would not be “at the
expense” of the claimant. In those cases, which most often arise in relation to
trespass of rights in land, the English courts have held that the claimant is
entitled to the price a reasonable
man would have paid him for authorising what
the defendant in fact did. This means, effectively, that the court awards the
claimant what he would have received in the “hypothetical negotiation” between
the parties before the trespass began. In this negotiation, it is not open to
the defendant to plead that he would not have entered into the agreement (for
the object is to ascertain the value of the right he breached), but it is open to the defendant to show that he had a “trump
card” – ie, an alternative means of doing what he did, which would naturally
reduce the amount he would have paid the claimant for obtaining permission.  
As
the name suggests, this award acquires its name from the well-known decision of
Brightman J. in Wrotham Park Estate Co
Ltd v Parkside Homes Ltd
[1974] 1 WLR 798. In that case, the claimant was
the beneficiary of a covenant in respect of certain land that prohibited any
buyer from undertaking any development work without its permission. This
covenant was for the benefit of the adjoining estate owned by the claimant
and it was not disputed that it ran with the land. Parkside Homes, a developer,
began to construct homes on the land despite a warning from Wrotham Park that
it was the beneficiary of the covenant. Wrotham Park brought proceedings for an
injunction, but did not seek interlocutory relief because it did not wish to
give a cross-undertaking in damages. The suit was finally decided in its
favour, Brightman J. holding that what Parkside did constituted a breach of
covenant. Since, as Brightman J. held, a mandatory injunction would have been
inappropriate because it would have led to the demolition of a number of homes,
it was necessary to consider what damages could be awarded in substitution of
the injunction. Brightman J. referred to a number of cases in which such an
award had been made, of Watson, Laidlow
& Co. Ltd. v Pott, Cassels and Williamson
(1914) 31 RPC 104, is
especially instructive. In that case, a patentee brought a suit for
infringement in respect of territory in which it was shown that he could not have
effectively competed. To the argument that the patentee could therefore not
have an award of damages, Lord Shaw said this:
…wherever
an abstraction or invasion of property has occurred, then, unless such
abstraction or invasion were to be sanctioned by law, the law ought to yield a
recompense under the category or principle, as I say, either of price or of hire. If A, being a liveryman, keeps his
horse standing idle in the stable, and B, against his wish or without his
knowledge, rides or drives it out, it is no answer to A for B to say: ‘Against
what loss do you want to be restored? I restore the horse. There is no loss.
The horse is none the worse; it is the better for the exercise.’ I confess to
your Lordships that this seems to me to be precisely in principle the kind of
question and retort which underlay the argument of the learned counsel for the
appellants about the Java trade.… in such
cases it appears to me that the correct and full measure is only reached by
adding that a patentee is also entitled, on the principle of price or hire, to
a royalty
for the unauthorised sale or use of every one of the infringing
machines in a market which the infringer, if left to himself, might not have
reached

Readers
will notice that this award requires the court to construct a “hypothetical
negotiation” between the parties, and for that purpose, a difficult question
that had arisen was the scope of the “trump card” rule. The “trump card” rule
reflects common sense – the amount a defendant with no alternative but to
trespass would pay is higher than the amount a defendant with several other
means of achieving his object would pay. But is it open to a defendant to say
that he could have achieved the same object without
infringing the claimant’s right, and therefore that only nominal damages
can be awarded? At first instance, Judge Seymour recently said yes. Reversing,
the Court of Appeal has explained the scope of the rule, in London Borough of
Enfield v Outdoor Plus Limited
.
This
case is of particular interest because of the somewhat peculiar facts at play.
Simplifying it for the purpose of analysis, Outdoor entered into an agreement
with a Mr Shah to erect an advertising hoarding on his premises. Inadvertently,
the concrete support for the hoarding (though not the hoarding itself) was
erected on adjoining land which belonged to the London Borough of Enfield, the
claimant. This went on for more than ten years and Outdoor made significant
profit by entering into agreements with third parties to display
advertisements. Once this was discovered, the Borough brought an action for an
award of the reasonable licence fee Outdoor
would have had to pay the Borough had the use of its land for erecting the support
for the hoarding been authorised. At first instance, Judge Seymour accepted the
defendant’s case that it would have paid nothing because it could have erected the support on Mr Shah’s land.
At first sight, this seems analogous (and perhaps is) to the reasoning of
Patten J. in Sinclair v Gavaghan [2007]
EWHC 2256, and a straightforward application of the trump card. But what the
defendant was really saying was that it
would not have trespassed
– which it is not open to it to say. Henderson
J., with whom Mummery and Tomlinson, JJ., concurred, says this:
I fully accept that any ability
on the part of a trespasser to achieve the object of the trespass by
alternative means is a factor which must be taken into account in the
hypothetical negotiation. The alternative
must, however, be one which is consistent with the trespass and which can
co-exist with it.  An alternative cannot
be taken into account if it would eliminate the trespass itself
,
because that would again negate the very basis of the exercise. In Sinclair
v Gavaghan
there was no conceptual difficulty about taking into account the
alternative means of access to the Yellow Land which were available to the
defendants, because they were true alternatives to the more convenient route
through the Red Triangle, and the defendants could therefore pray them in aid
when notionally negotiating a fee for use of the Red Triangle access.  By contrast, what the defendants wish to do
in the present case is to rely on the possibility of placing the hoarding
entirely within No. 67, not as an alternative to the admitted trespass, but as
a means of eliminating it.  Such a
procedure cannot be legitimate, because it would subvert the basis of the
negotiation
.
In
short, the alternative is relevant to the question of valuation, but is not a tool
by which the defendant can argue (in effect) that it would have chosen not to
trespass – the object of the exercise is not to determine if the defendant
would have trespassed (for it did), but the reasonable value it would have had to
pay the claimant had it chosen to do what it did, with prior authorisation.

About the author

V. Niranjan

3 comments

  • Wouldnt any such "alternative present"/trump card argument, by definition, ELIMINATE the breach? So is there a real difference between 'alternative' and 'elimination' ? The point that this can't justify nominal damages is of course well taken, for else the judicial exercise would be self-defeating.

  • Very interesting Niranjan, thanks for sharing.

    A similar nature of analysis has perhaps also been undertaken in the context of PE attribution in tax cases i.e. when you determine the value that has been contributed to an offshore entity by activities onshore, do you measure it as being relative to the cost or impact actually suffered by the onshore entity or do you adopt a hazy "other standard" that ties in to the "value" derived by the offshore entity. Both are valid methods, though of course, the criteria you employ for choice of one against the other would differ depending on whether you're looking at a contract or tax context. I wonder if someone's done a law and economics analysis of this.

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