26 September, 2018
Contractual damages are generally awarded to compensate the plaintiff for losses arising out of the defendant's breach of contract. However, Wrotham Parkdamages – named after the eponymous English decision of Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798 – are unique in that they may be awarded even where the defendant's breach of contract has caused no pecuniary loss to the plaintiff. This head of damage is premised on the hypothetical "sum of money as might reasonably have been demanded by the plaintiffs from [the defendant] as a quid pro quo for relaxing [a] covenant".[1]
The question as to whether Wrotham Park damages has a place in Singapore law was finally answered by the Court of Appeal (the "Court") in Turf Club Auto Emporium Pte Ltd and Ors v Yeo Boong Hua and Ors and another appeal [2018] SGCA 44 ("Turf Club (No 2)"). In what is considered to be a landmark decision, the Court accepted Wrotham Park damages as a head of damages for breach of contract under Singapore law, and laid down the legal test for such damages to be awarded in Singapore.
Facts
The SAA Group and the Respondents were parties to a joint venture, pursuant to which two companies were incorporated (the "JV Companies"). The two parties fell into dispute. Subsequently, a settlement was reached and a Consent Order was filed in court. However, some members of the SAA Group (the Appellants) appropriated a lease for the SAA Group without granting sub-tenancies to the JV Companies. Such conduct upset the status quo of the JV Companies and amounted to repudiatory breaches of various terms of the Consent Order. The Court directed parties to submit on the remedies to be awarded, and the Respondents accordingly submitted that they were entitled to, inter alia, Wrotham Park damages.
Legal test
The Court recognised that the Wrotham Park doctrine "essentially operates to fill the remedial lacuna which arises whenever the traditional measure of loss gives rise to an 'unjust' outcome",[2] and is an "instinctive reaction" that a wrongdoer ought not to gain an advantage without paying a price.[3]
The Court stated that Wrotham Park damages may be awarded where:
- Orthodox compensatory damages (i.e., expectation or reliance loss) and specific relief are unavailable or, in the case of such compensatory damages, practically impossible to quantify (the "First Requirement");[4]
- There has been a breach of a negative covenant (the "Second Requirement"). This was a general rule and not an "absolute or inviolable condition", because it is "theoretically possible to include positive obligations within the scope of Wrotham Park damages" – but such a case would be "truly exceptional";[5] and
- It is not irrational or totally unrealistic to expect the parties to bargain for the release of the relevant covenant, even on a hypothetical basis (the "Third Requirement"). Put another way, it must be possible for the court to construct a hypothetical bargain between the parties in a rational and sensible manner. An example of irrationality was where the release of the covenant would be illegal.[6] The fact that the parties would have been unwilling to enter into a deal is irrelevant.[7]
The Court also clarified that Wrotham Park damages were available as a remedy for non-proprietary breaches of contract, notwithstanding early English cases to the contrary.[8] It was also made clear that the plaintiff need not establish a "legitimate interest" in preventing the defendant from making a profit from his wrongdoing.[9] Furthermore, the Court highlighted that the underlying rationale of the award was not to punish the wrongdoer or strip him of his profits, but instead to compensate the plaintiff for the plaintiff's loss of "performance interest".[10]
Application of law to the facts
The Court declined to award Wrotham Park damages because the First and Third Requirements were not satisfied. The First Requirement was not satisfied because the financial loss suffered by the Respondents, while difficult to quantify, could still be assessed. The Third Requirement was not satisfied because the hypothetical release of the SAA Group's obligation not to, inter alia, upset the status quo of the JV Companies would have defeated the very purpose of the Consent Order. Instead, the Court awarded the Respondents orthodox compensatory damages by reference to their expectation loss.
Concluding remarks
The acceptance of Wrotham Park damages adds an arrow to the quiver of remedies which Singapore courts may now award for breaches of contract, and this decision shows the lengths to which the Court is willing to go to protect contractual rights.
Where a contract has been breached but no pecuniary loss has been suffered by the innocent party, the crucial role of Wrotham Park damages in addressing this remedial lacuna cannot be understated, and its acceptance into Singapore law is welcomed.
For further information, please contact:act:
Boey Swee Siang, Partner, Bird & Bird
sweesiang.boey@twobirds.com
[1] Wrotham Park at 815.
[2] Turf Club (No 2) at [164].
[3] Turf Club (No 2) at [173] and [242].
[4] Turf Club (No 2) at [222] and [225].
[5] Turf Club (No 2) at [229].
[6] Turf Club (No 2) at [232].
[7] Turf Club (No 2) at [236].
[8] Turf Club (No 2) at [239].
[9] Turf Club (No 2) at [240].
[10] Turf Club (No 2) at [196] and [205].
