Can developers take comfort from latest case on damages?

25 April, 2018

The recent Supreme Court decision in the case of Morris-Garner v One Step (Support) Ltd [2018] UKSC 20 sheds some light on how the courts might deal with damages going forward.  This is important for anyone who is interested in how much compensation could be payable if someone trespasses on land, breaches a restrictive covenant or interferes with a right of way or right to light.

The court helpfully summarised the different ways in which compensation should be assessed in these cases as follows:

  • Damages calculated by reference to the value of the use wrongfully made (sometimes termed “user damages”) are readily awarded at common law for the invasion of rights.  The rationale of such awards is that the person who makes wrongful use of property, where its use is commercially valuable, prevents the owner from exercising a valuable right to control its use, and should therefore compensate him for the loss of the value of the exercise of that right.  He takes something for nothing, for which the owner was entitled to require payment.
  • Damages can also be awarded as a substitute to awarding an injunction.  Such damages are a monetary substitute for what is lost by the court withholding the injunction.  One possible method of quantifying damages under this head is by reference to the amount which the claimant might reasonably have demanded as a quid pro quo for the relaxation of the obligation in question.  The rationale is that, since the withholding of the injunction has the same practical effect as requiring the claimant to permit the infringement of his rights, his loss can be measured by reference to the economic value of such permission.  That is not, however, the only approach to assessing damages under this head.  It is for the court to judge what method of quantification will give a fair equivalent for what is lost by the refusal of the injunction.
  • Negotiating damages can be awarded where the loss suffered by the claimant is appropriately measured by reference to the economic value of the right which has been breached.  The rationale is that the claimant has in substance been deprived of a valuable asset, and his loss can therefore be measured by determining the economic value of the right in question, considered as an asset.  The defendant has taken something for nothing, for which the claimant was entitled to require payment.
  • Damages should not be awarded merely for the purpose of depriving the defendant of profits made as a result of the breach, other than in exceptional circumstances.

 

At first blush, this does not appear to signal a major change in approach but there is a message that the court will be less inclined to assess damages by reference to a percentage of a developer’s profit that is gained as a result of the breach.  The court may be more interested in assessing what the claimant has lost which may or may not take into account the hypothetical bargain (negotiating damages) that may have been struck between two willing parties in the shoes of the claimant and defendant.  It is possible that this case will signal a more realistic approach for the assessment of damages in cases where a developer breaches a covenant or interferes with a right to light where such action does nothing to diminish (and often enhances) the value of the neighbouring property.  Developers take heart!