The Supreme Court has granted permission to appeal in a case raising a fundamental issue on the law of damages for breach of contract, as well as a point of practical significance for most business sale agreements and for many senior executives…

For two centuries the basic principle has been that damages are awarded to place the injured party in the position he would have been in had the contract been performed. The injured party must prove to what extent performance would have left him better off. This principle has been the basis on which damages have often been refused, injunctions typically granted, and many cases never brought at all. In One Step v Morris-Garner [2016] EWCA Civ 108, the Court of Appeal sanctioned a potentially significant departure from it. The claimant had acquired a business from its previous owners. They set up and then sold another business which the court found was in breach of restrictive covenants in the sale. The actual loss caused by the breach of covenant was unclear. The claimant sought so-called Wrotham Park damages. These are based, not on proof of financial loss, but on a hypothetical release fee: what the contract-breaker would reasonably have negotiated with the other party as the price of being released from his obligation. Previously these had been available only in very restricted circumstances. But the Court of Appeal, upholding the trial judge, held that it was in the general discretion of the court whether to permit this kind of damages claim.

Since such an award is not affected by proof of any loss suffered, its quantum is open to considerable debate. In One Step the business was sold for £3m but the Wrotham Park claim was for £6m. In principle such damages, if widely available, could be claimed widely and change the dynamics of many contract disputes.

Now the Supreme Court (Lord Mance, Lord Sumption and Lord Hodge) have given permission to appeal. A hearing is anticipated in the first half of 2017.

Charles Béar QC, leading Stephen Knafler QC and Giles Robertson, appears for the appellants.