19 September, 2018
The UK courts have, over time, come to recognise a "non-traditional" form of awarding damages in cases where the claimant has suffered no loss as a result of a breach of contract. Known eponymously as Wrotham Park damages or "negotiating" damages, they are awarded based on a reasonable sum that would have been demanded by the claimant as quid pro quo for releasing the party in breach from the obligation to perform a covenant in a contract.
In Turf Club Auto Emporium Pte Ltd and others v Yeo Boong Hua and another appeal [2018] SGCA 44, the Singapore Court of Appeal (CA) accepted for the first time the availability of Wrotham Park damages in Singapore law.
Background
The case concerned a dispute between two groups of parties who entered into a joint venture in 2001 to develop a large plot of land. The first group (SAA Group) included the appellants and a company known as Singapore Agro Agricultural Pte Ltd (SAA). The second group comprised the respondents.
Pursuant to the joint venture, two joint venture companies (JV Companies) were incorporated with the parties holding shares in each company. SAA obtained a head lease over the land from the Singapore Land Authority and granted corresponding sub-tenancies to the JV Companies, which in turn granted sub-sub-tenancies to ultimate tenants.
While the land was being developed, the two groups fell into dispute and litigation ensued. This litigation resulted in the two groups entering into a settlement by way of an order of court by consent (Consent Order). The purpose of the Consent Order was to bring about an end to the joint venture by providing for a bidding exercise pursuant to which the higher bidder would purchase the shares of the lower bidder. External auditors were appointed to supervise the bidding exercise and to value the shares of the JV Companies.
Before the valuation of shares in the JV Companies was completed, SAA renewed the head lease for a further three years but did not grant corresponding sub-tenancies to the JV Companies. Neither the respondents nor the external auditors were informed of this development. As a result, the valuation of the JV Companies did not take into account the newly-renewed head lease and the earning capacities of the JV Companies in the period after the expiry of the original head lease.
The CA found that the SAA Group was in breach of, amongst others, an obligation in the Consent Order to preserve the status quo until the conclusion of the bidding exercise. It was accepted by all parties that would be difficult to assess the pecuniary loss suffered by the respondents as a result of the SAA Group's breaches. Consequently, parties focused on the issue of what remedies should follow from the breaches and, in particular, whether there was scope for an award of Wrotham Park damages.
Holding
The CA held that Wrotham Park damages are available under Singapore law, but declined to award them on the facts of the case.
Wrotham Park damages are compensatory in nature
At the outset, the CA determined that Wrotham Park damages are compensatory (as opposed to restitutionary) in nature in that they are aimed at compensating the claimant for the loss of his performance interest due to the breach of contract.
Legal requirements for an award of Wrotham Park damages
Three legal requirements need to be satisfied before a court can award Wrotham Park damages:
- Orthodox damages (i.e., damages measured by reference to the expectation or reliance loss) and specific relief in the form of an injunction or specific performance are unavailable;
- The breach of contract in question concerns the breach of a negative covenant (i.e., an obligation not to commit an act);
- It must not be irrational or totally unrealistic to expect the parties to bargain for the release of the relevant (negative) covenant, even if only on a hypothetical basis.
On the facts of the case, the respondents were unable to satisfy the first and third requirements. Quantification of the respondents' loss, although difficult, was not impossible. The CA also found it irrational and totally unrealistic to imagine a hypothetical scenario where the parties would enter into a bargain for the release of the obligation to refrain from upsetting the status quo as that would defeat the entire purpose of the Consent Order.
Method of assessment
Wrotham Park damages are to be measured by such a sum of money as might reasonably have been demanded by the claimant as a "licence fee" for excusing performance of the negative covenant. The actual gain obtained by the party in breach by breaching the negative covenant does not itself form the basis of the award of Wrotham Park damages, but is a relevant consideration in a court's consideration of the appropriate amount of damages to be awarded. As a matter of principle, it is possible for Wrotham Parkdamages to be awarded even if the party in breach did not actually receive any gain.
Comment
Prior to this, Wrotham Park damages have been referred to, but never awarded, by the Singapore courts. Given that Wrotham Park damages have come to be established as a part of English common law, the CA's definitive acceptance of it as part of Singapore law is a welcome clarification on the issue. The careful and comprehensive analysis by the CA also provides useful guidance on how to approach the issue.
However, commercial parties should be wary of being relying too heavily on the availability of Wrotham Park damages in Singapore. The legal requirements imposed by the CA are strict and specifically targeted at preventing the widespread award of such damages. In particular, commercial parties would be well-advised to remember that Wrotham Park damages will only be awarded if it is impossible to assess the loss suffered by the claimant as a result of the breach. Mere difficulty in showing loss will not suffice, even if such difficulty may be significant.
For further information, please contact:
Dawn Tan, Partner, Ashurst
Dawn.Tan@ashurst-adtlaw.com
