Damages for breach of contract

Damages For Breach Of Contract

The principal (but not the only) remedy in English law for breach of contract is an award of damages. This blog focuses on the law of damages for breach of contract where damages are awarded by a court to compensate for the injured party’s loss. This blog does not cover “liquidated damages”, which are defined by the parties under the terms of the contract as specific amounts payable in the event of a party’s default.

Damages for breach of contract: the general rule for compensation

In English law, the purpose of an award of damages for breach of contract is to compensate the injured party for loss, rather than to punish the wrongdoer. The general rule is that damages should (so far as a monetary award can do it) place the claimant in the same position as if the contract had been performed (Robinson v Harman (1848) 1 Ex 850).

Damages for breach of contract are, therefore, essentially compensatory, measuring the loss caused by the breach. To put it another way, the damages enquiry involves comparing the position the claimant is in fact in, following the breach, and the position the claimant would have been in but for the breach. Accordingly, the awards are often called "expectation damages", because they seek to put the claimant in the position it expected. The net loss is calculated by quantifying all the harms caused by the breach and then deducting or crediting all the benefits caused by the breach.

Damages for monetary loss

The majority of damages for breach of contract award compensation for financial loss. This takes many forms, including costs or liability the claimant has incurred to a third party (but would not have incurred but for the breach), and profits the claimant has foregone (that is, would have earned but for the breach).

Difference in value or cost of cure

In many cases, even though the defendant has breached the contract, the claimant can pay for a third party to cure or reinstate so as to put the claimant in as good a position as if the defendant had performed. For example, the claimant might pay for repairs to rectify a breach of warranty of quality by a seller of goods, or a partial non-performance by a builder. Where already incurred by the time of trial, such a cost will be recoverable from the defendant providing it was not so unreasonable as to be a failure to mitigate and/or a break in the chain of causation. Where the cost of cure has not been incurred at the date of trial, it will only be recoverable where incurring the cost would be "reasonable" in all the circumstances. This is because a claimant will always have a choice not to cure the problem caused by the breach. A claimant may instead, either simply live with the consequences, or use the market to offload unwanted or defective property and replace it with better property.

The presumption of breaking even and "reliance loss"

In seeking to prove loss, the claimant benefits from a rebuttable presumption that but for the breach the claimant’s venture would have broken even. This means that if the claimant has already incurred costs but not yet had a chance to complete the venture, it is presumed that the breach which halts the venture caused the claimant to lose revenue equal in value to the expenditure already incurred.

This is important in cases where it is impractical for the claimant to prove the profits it would have made from a venture. For example, in Anglia Television v Reed [1972] 1 QB 60, a TV company entered into a contract with an actor to take part in a film, the actor broke the contract and the film could not be made. In that case the claimant was unable to say what the profit would have been had the actor performed the contract, but because of the presumption of breaking even, the claimant was able to recover the wasted expenditure it had incurred.

Damages for breach of contract: Lost management time

A particularly well-established application of the presumption of breaking even is the award of damages for lost management time. If, as a result of the defendant’s breach, the claimant’s staff are diverted from their usual tasks in order to investigate the breach or deal with the consequences of the breach, the claimant can recover its net cost of the staff (that is, their wages). This is not because that cost was itself caused by the breach. (Unless the staff were employed specifically to deal with the breach, their cost would have been incurred even but for the breach.) Rather, it is presumed that the claimant would have earned revenue from the staff at least equal to their cost to the claimant if they had not been diverted from revenue-producing activity but for the breach. In Azzurri Communications Ltd v International Telecommunications Equipment Ltd [2013] EWPCC 17 Birss J observed that: "if the breach can be said to have caused diversion of staff to an extent substantial enough to lead to a significant disruption of the business then it is reasonable to draw the inference of a loss of revenue equal to the cost of employing the staff."

Damages for breach of contract: Loss of profit

A claimant may prove that had the defendant’s breach not occurred, it would have earned greater revenue than its expenditure (that is, done better than broken even, and so has lost profits). Whenever a claimant is successful in a lost profits claim, it is because it proves exactly this. Alternatively, a defendant may prove that a claimant would not have broken even, or indeed that the claimant has suffered no loss because its venture or bargain was a bad one and the claimant would have made a loss but for the breach. For example, in Ampurius Nu Homes Holdings Ltd v Telford Homes (Creekside) Ltd [2012] EWHC 1820 (Ch), the defendant construction company avoided paying substantial damages by showing that the claimant would have suffered a loss from the development if it had gone ahead.

Damages for non-financial loss

The majority of damages for breach of contract provide compensation for financial loss or property damage. Recovery of damages for such losses is restricted by the ordinary rules of remoteness and causation. Non-pecuniary and non-property damage loss falling short of personal injury have traditionally been thought to be subject to a general bar to recovery to which narrow exceptions apply.

This traditional approach was applied by the House of Lords in the surveyor's negligence case of Farley v Skinner [2001] UKHL 49. In that case, the claimant specifically asked the surveyor whether the property he was intending to buy was affected by aircraft noise and the surveyor carelessly reported that it was not. Because "a major or important object of the contract was to give pleasure, relaxation or peace of mind", damages for non-pecuniary loss (of £10,000) were recoverable.

Professional negligence provides a range of examples in which an object of the contract was non-financial. Farley v Skinner is one example in the surveyor context. Solicitors’ negligence cases include that of a solicitor who failed to obtain a non-molestation order, another who failed to protect a mother’s custody of her children and one who mis-handled ancillary relief proceedings.

In contrast, damages for non-pecuniary loss will rarely be awarded in commercial cases. There will be no award where the object of the contract was "simply carrying on a commercial activity with a view to profit" (Hayes v Dodd [1990] 2 All ER 815, Staughton LJ). Similarly, "contract-breaking is treated as an incident of commercial life which players in the game are expected to meet with mental fortitude" (Johnson v Gore Wood & Co [2000] UKHL 65, Lord Bingham).

Personal injury and physical inconvenience

Where the non-pecuniary damage amounts to personal injury (whether physical or psychiatric), such damage is recoverable subject to the ordinary rules of damages. Such cases arise often in such varied contexts as employment, landlord and tenant, defective goods, or defective services (holidays, etc.). Moreover, damages are frequently awarded without reference to any special test in cases of physical inconvenience caused by defective construction, landlord failure to repair, and surveyor negligence, as well as services cases such as those of defective holidays.

Quantifying loss

Generally, there are no rigid rules for the quantification of damages for breach of contract. In the end the assessment of damages is a question of fact. However, there are various principles which delimit the damages that will be awarded. The quantification of damages in litigation is often complicated and requires specialist advice from forensic accountants.

Burden of proof

It is for the claimant to prove its loss. Where the claimant's proof of loss has been made more difficult by the defendant's wrong, there is authority for a rebuttable presumption in favour of the claimant that gives it the benefit of any relevant doubt (see Browning v Brachers [2005] EWCA Civ 753).

Factual causation

At the heart of the damages measure, which seeks to put the claimant in the position it would have been in but for the breach, is the question of factual causation, also known as the "but for" test. In other words, it is necessary to prove both the position the claimant is actually in post-breach, and the hypothetical position the claimant would have been in ‘but for’ the breach, and to compare the two. That is the measure of loss for breach of contract. A claimant cannot, therefore, look to recover losses that it would have sustained in any event (see Tiuta International Ltd (in liquidation) v De Villiers Surveyors Ltd [2017] UKSC 77).

Restrictions on recovery of damages

Not all losses that in fact flow from a breach of contract are recoverable. Just because a loss was in fact caused by the breach (that is, would not have occurred but for the breach) does not mean that the law holds the defendant responsible for it. The rules on mitigation, legal causation, remoteness and contributory negligence may restrict, and in some cases prevent, a damages award.

Damages for breach of contract: Legal causation

The first major principle at play here is that of legal causation. This principle (which is materially the same in contract and tort) holds that, even though some losses were factually caused by the breach (that is, but for the breach they would not have occurred), they are nevertheless treated legally as not having been caused by the breach. The essence of the rather fluid principle of legal causation is that it is not fair to hold the defendant responsible for these particular consequences of its breach. The courts adopt a common sense approach to what intervening acts or events "break the chain of causation" between the breach and the harm. As Lord Bingham explained in Corr v IBC Vehicles Ltd [2008] UKHL 13:

“The rationale of the principle that a novus actus interveniens [Latin for new intervening act] breaks the chain of causation is fairness. It is not fair to hold a [defendant] liable, however gross his breach of duty may be, for damage caused to the claimant not by the [defendant]'s breach of duty but by some independent, supervening cause for which the [defendant] is not responsible.”

Although separate from the principle of remoteness, the foreseeability of an intervening act or event, and whether it was something that the defendant’s duty aimed to protect against, will both be factors that point against a finding that the chain of causation was broken.

Damages for breach of contract: Mitigation

The essence of the principle is that if the claimant unreasonably fails to act to mitigate (avoid or reduce) its loss, or unreasonably acts so as to increase its loss, the law treats those actions as having broken the chain of causation and measures damages as if the claimant had instead acted reasonably. The claimant is said to have a "duty to mitigate" (although this is not a duty enforceable by anyone, rather it is a recognition that if the claimant fails to do so its damages recovery will be affected by that failure). (BPE Solicitors v Hughes-Holland [2017] UKSC 21).

The clearest application of this principle is in the sale of goods context. Thus where a defendant seller fails to deliver goods for which a market substitute is available, the claimant cannot simply claim against the defendant all the losses which result (for example, its lost profit on a sub-sale, or lost profit from the use to which it would have put the goods). This is the case even if it does suffer those losses, because the claimant should have acted reasonably to mitigate its losses by purchasing a replacement on the market.

Remoteness of damage

Remoteness of damage refers to a further important principle by which the law determines which consequences caused (in a factual/but for sense) by the defendant’s breach are within the scope of the defendant’s responsibility and should be brought into account. The traditional test of remoteness, which is in essence a test of foreseeability, is set out in Hadley v Baxendale [1854] EWHC Exch J70.

This test operates as follows:

  • A loss will only be recoverable if it was "in the contemplation of the parties", that is, foreseeable.
  • The loss must be foreseeable not merely as being possible, but as being "not unlikely", which is a more demanding test than in tort (Koufos v C Czarnikow Ltd (The Heron II) [1967] UKHL 4).
  • The loss must be foreseeable at the date of contracting, not the date of breach (Hadley v Baxendale, Jackson and another v Royal Bank of Scotland [2005] UKHL 3, Lord Hope at para 36).
  • It is not the precise circumstances that occur that must be foreseeable, but the type or kind of loss (H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1977] EWCA Civ 13).
  • The knowledge that is taken into account when assessing what is in the contemplation of the parties comes under two limbs: First, is the knowledge of what happens "in the ordinary course of things", which is imputed to the parties whether or not they knew it. Second, there is actual knowledge of special circumstances outside the ordinary course of things and that was communicated to the defendant or otherwise known by the parties.

Contributory negligence (but only in cases of breach of duty of care)

A defendant may seek to argue that the loss suffered by the claimant is partly due to the fault of the claimant. The Law Reform (Contributory Negligence) Act 1945 provides for apportionment of loss where a claimant has suffered loss "as the result partly of his own fault and partly of the fault of any other person" (section 1). "Fault" is defined as "negligence or other act or omission that gives rise to liability in tort or would, apart from this Act, give rise to the defence of contributory negligence" (section 4).

Here to help

Bringing or defending a breach of contract claim can be stressful, time consuming and complex. Unless it is a low value claim it is worth getting solicitors involved as early as possible. If you have any questions about damages for breach of contract or about contract law more generally or if you need help with resolving a dispute please contact Neil Williamson.

Restraint of Trade

Restraint of Trade – Quantum Advisory Ltd

In Quantum Advisory Ltd v Quantum Actuarial LLP [2020] EWHC 1072 (Comm), the High Court considered whether the restraint of trade doctrine applied in a services agreement entered into in connection with a restructuring and joint venture. The court decided that it did not.

What is a restraint of trade clause?

The purpose of a restraint of trade clause is to restrict the freedom of a business or individual to pursue their trade with the effect of limiting competition.

The case Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 serves as an illustrative example.

Thorsten Nordenfelt, a manufacturer specialising in armaments, had sold his business to Hiram Stevens Maxim for £200,000. They had agreed that Nordenfelt ‘would not make guns or ammunition anywhere in the world, and would not compete with Maxim in any way for a period of 25 years'.

The House of Lords held that the restraint was reasonable in the interests of the parties. They placed emphasis on the £200,000 that Thomas Nordenfeldt had received as full value for his sale.

The restraint of trade doctrine

The restraint of trade doctrine exists to protect a party to a contract that is subject to a restraint of trade clause i.e. the party who has been restrained in their trade by the contract. Therefore, when the doctrine applies, the restraint of trade clause in question will be invalid. The doctrine states that a restraint of trade clause will be invalid unless it is:

  1. Designed to protect a legitimate business interest.
  2. No wider than reasonably necessary to protect that interest.
  3. Not contrary to the public interest.

How does the restraint of trade doctrine apply?

There is a line between contracts in restraint of trade, within the meaning of the doctrine, and ordinary contracts that merely regulate the commercial dealings of the parties. The courts will consider, first, if the contract in question is in restraint of trade and, secondly, whether in all the circumstances sufficient grounds exist for excluding the contract from the application of the doctrine. The recent case of Quantum Advisory Ltd v Quantum Actuarial LLP [2020] EWHC 1072 (Comm) allowed a judge to explore both of these questions in depth.

Quantum Advisory Ltd v Quantum Actuarial LLP [2020] EWHC 1072 (Comm)


In 2004, a company called Quantum (Old Quad) entered into a joint venture with Robert Davies (RD) and others. A new company (RDS) was set up to carry on a similar business with different clients. The single largest shareholder and the MD of Old Quad was Martin Coombes (MC). The principal shareholders in RDS were Old Quad and RD. It was intended that after an initial three-year period there would be a merger of the businesses of Old Quad and RDS into a single entity.

By 2007 however, the interests and ambitions of those involved had begun to diverge. In particular, while MC wanted to diversify, the other directors and shareholders wanted to focus on developing the existing business. For this and other reasons, a restructuring of the businesses became necessary. One problem this presented was that MC's shareholding in Old Quad was such as to make it unaffordable for the other parties to buy him out. It was also felt that, regardless of affordability, it would be very difficult to fix a price for any buy-out.

The restructuring

A way of getting round these problems was devised, by which:

  • The businesses of Old Quad and RPS would be carried on by a new entity (the LLP).
  • A company wholly-owned by MC (New Quad) would buy the entire issued share capital of Old Quad and RPS. The businesses and assets of those companies would be transferred to New Quad subject to outstanding liabilities.

The terms of the restructuring were documented by way of an agreement dated 1 November 2007 entered into between Old Quad and the LLP (Services Agreement). Among other things, the Services Agreement:

  • Contained covenants on the LLP's part (clause 2.2) to not during the course of the Services Agreement or for a period of 12 months after its expiration or termination directly or indirectly:
    • solicit or entice away (or attempt to solicit or entice away) any Client in connection with any Services;
    • obtain instructions for any Services from any of the Clients or undertake any Services for any of the Clients; or
    • undertake any Services in relation to either the Pipeline Business or any work introduced by any of the Introducers during the Extended Period, without first having referred such matters to Old Quad, other than pursuant to the provisions of the agreement.
  • Contained acknowledgments to the effect that:
    • The provisions of clause 2.2 were no more extensive than was reasonable to protect the interests of Old Quad.
    • Each of the restrictions in clause 2.2 was a separate obligation considered reasonable by the parties (each of them having taken, if required, separate legal advice) in all the circumstances as necessary to protect the legitimate interests of the other party (clause 2.6).

Business affairs prior to litigation

New Quad and the LLP conducted their affairs according to the Services Agreement without any real difficulty for a number of years. Increasingly, however, the LLP became dissatisfied with the terms of the Services Agreement. The LLP sought to contend that the restraints in the covenants in clause 2.2 amounted to an unreasonable restraint of trade. Specifically, it complained about the duration of the restraints in circumstances in which the LLP had very limited ability to extricate itself from the Services Agreement before expiration. The LLP did not otherwise complain about the duration of the Services Agreement or the nature of the covenants themselves.

That led to New Quad commencing proceedings, seeking a declaration that the Services Agreement was binding on the parties and an injunction to restrain the LLP from acting in breach.


The judge concluded that:

  • The doctrine of restraint of trade did not apply to the restraints and therefore the restraint of trade clauses were legally enforceable.
  • If the doctrine of restraint of trade had applied to the restraints, he would have found that they satisfied the requirement of reasonableness.

Did the restraint of trade doctrine apply to the restraints?

In concluding that the doctrine did not apply to the restraints, the judge was at pains to stress that the Services Agreement needed to be considered on its own terms and in its own circumstances. It was a bespoke agreement, fashioned to address the competing needs and interests of a group of professional people. In his opinion the following considerations weighed against the application of the doctrine:

  • The fact that the LLP had been brought into existence for the purpose of the restructuring that was effected via the Services Agreement. It had no prior being or business and no other rationale. While it was true to say that its trade was restrained by the Services Agreement, this argument lacked the kind of traction normally found in restraint of trade cases. In a sense, the Services Agreement was the essential condition of the LLP's ability to carry on business at all. It was not a restraint of trade but a means of providing the opportunity to trade.
  • In this light, to attempt to place the covenants in clause 2.2 of the Services Agreement within the scope of the restraint of trade doctrine showed up a degree of incoherence. The judge pointed out that:
    • To view the restraints as potentially justifiable if of shorter duration (a view which counsel for the LLP had at one point expressed) was to divorce them from the wider agreement and so mistake their nature. Their purpose, as MC had phrased it in a witness statement, "was to recognise the legacy/LLP client ownership boundaries".
    • It had originally been proposed that the term of the Services Agreement be ten years. However, the members of the LLP had expressed concern that, if the agreement ended after ten years, the LLP's sustainability would be threatened by the loss of a major part of its business and income so soon after trading had commenced. When MC proposed extending the term of the agreement to 99 years, the LLP agreed.

Would the restraints have been regarded as reasonable?

The following factors were among those that led the judge to conclude that, had the doctrine of restraint of trade applied to the restraints, he would have found that they satisfied the requirement of reasonableness:

  • The fact that the Services Agreement and the restraints were a matter of free agreement between experienced, intelligent, articulate and highly competent business people who were able to look after their own interests and who had expressly agreed that the restraints were reasonable as being necessary to protect the parties' interests.
  • The LLP had not persuaded the judge that the restraints were unreasonable on account of any consideration of public policy.

The judge dismissed the argument based on alleged:

  • Inequality of bargaining power between the parties (and indeed the alleged lack of any formalised negotiation process at all) because this was not supported by the facts. While it was true that the LLP had not received independent legal advice in connection with the Services Agreement, the judge did not regard this as indicating that the parties' free agreement ought to be viewed with particular caution when considering reasonableness. There was no obligation to seek independent legal advice, under clause 2.6 of the Services Agreement or otherwise.

Context is essential

Clearly this is a decision that turned on the facts. Since most reported restraint of trade cases in the corporate arena arise in relation to private M&A it presents a rare opportunity to see how the courts construe the restraint of trade doctrine in a different context. The decision is a reminder that not all restrictive covenants are subject to the restraint of trade doctrine and the specific business context is crucial to such a ruling.

If you have any questions about restraint of trade clauses or about contract law more generally please contact Neil Williamson.

Towergate Financial Commercial Law Firm London

Towergate Financial - Interpretation of Contractual Limitation Period

In Towergate Financial (Group) Ltd & Others v Hopkinson & Others [2020] EWHC 984 (Comm)the High Court considered the correct interpretation of a contractual time limit for notifying indemnity claims under an Share Purchase Agreement (SPA).

Clear words needed for limiting rights

Contractual limitations periods for notifying warranty or indemnity claims under an SPA are a form of exclusion clause. Clear words are required under English law to exclude or limit rights or remedies which arise by operation of law, including the obligation to give effect to a contractual warranty. The Court of Appeal affirmed this principle for commercial as well as other contracts in Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ 128.


In August 2008, the claimants (Towergate Financial and others) purchased a financial services firm from the first six of the defendants on terms agreed within an SPA. By one term in particular, those defendants gave the claimants an indemnity against any losses consequent upon claims or complaints against the business arising from mis-sold financial products.

In 2014, the FCA instituted formal section 166 of the Financial Services and Markets Act 2000 reviews to investigate its concerns in relation to enhanced transfer value (ETV) schemes and unregulated collective investment schemes (UCIS) upon which the firm had advised prior to the SPA. As a result of these reviews, Towergate Financial and others were required to make redress payments to customers and estimated their potential liability in the tens of millions. In July 2015, the claimants served on the relevant defendants a notice of their intention to rely on the said indemnity, as was required by the SPA.


The question for the court, to be determined by way of preliminary issue, was whether or not that notice complied with a condition precedent contained within the notice clause in the SPA. In particular, were the claimants bound by a requirement that notice should be served “as soon as possible” upon learning of any “matter or thing” that might give rise to liability?

The case had already been through the High Court and Court of Appeal on the question of whether or not it had been necessary for the notice to specify the details and circumstances, and an estimate in good faith of the value of the potential indemnity claim, in accordance with the notice clause. Those two courts had determined that there was no such requirement on the wording of the clause: the claimants need only give bare notification of the “matter or thing” (in this case, the section 166 reviews).

The clause

The notice clause was as follows:

6.7 The Purchaser shall not make any Claims against the Warrantors nor shall the Warrantors have any liability in respect of any matter or thing unless notice in writing of the relevant matter or thing (specifying the details and circumstances giving rise to the Claim or Claims and an estimate in good faith of the total amount of such Claim or Claims) is given to all the Warrantors as soon as possible and in any event prior to:

6.7.1 the seventh anniversary of the date of this Agreement in the case of any Claim solely in relation to the Taxation Covenant;

6.7.2 the date two years from the Completion Date in the case of any other Claim; and

6.7.3 in relation to a claim under the indemnity in clause 5.9 on or before the seventh anniversary of the date of this Agreement.

Towergate Financial argument

The claimants relied upon the proposition that a condition precedent must be clear and unambiguous if it is to be enforceable, citing Zurich v Maccaferri and Impact Funding v AIG. In this respect, they pointed to a number of problems with the clause:

  • Those parties to the SPA giving the indemnities were not the same as those giving warranties. It follows that the reference to giving notice to “all” the warrantors was illogical for an indemnity claim. Therefore, how could the words “as soon as possible”, which followed that reference, apply to indemnity claims?
  • The words “prior to” at the end of the main clause conflicted with “on or before” in the sub clause, making a “nonsense” of the meaning. This was another pointer that “as soon as possible” could not apply to indemnity claims.
  • The words “as soon as possible” were surplusage and commercially unnecessary, the real limit being seven years (in reliance on AIG Europe v Faraday).
  • The words “as soon as possible” were fundamentally unclear in this context. What was the trigger to start time running? Once it did, how long did it permit?

Towergate Financial Judgment

Mrs Justice Cockerill DBE, in a carefully reasoned and detailed judgment, took a robust approach to Towergate Financial’s objections. She accepted that the clause had its “imperfections” but had “no difficulty in concluding” that there was an enforceable condition precedent requiring notice to be given as soon as possible. She stated, at paragraph 72:

“… while the… clause is not perfect, it is – in real terms – perfectly clear. There are a few issues with it, but they are ones that any sensible reader can resolve without difficulty. It is not ambiguous.”

There was nothing difficult about the concept of the words “as soon as possible”, and the previous High Court and Court of Appeal judges had had no problem identifying the trigger point as any matter or thing that “may give rise to liability”. That was a common concept in insurance contracts and could be understood by taking a practical view. The judge thereby made the point that even if a clause is imperfect, if it has only one sensible meaning then, no matter its flaws, it is tolerably clear.

Having therefore determined that “as soon as possible” meant “as soon as possible” and imposed a condition precedent upon the claimants, the judge had no trouble finding that, as a matter of fact, notice was plainly late, coming 17 months after inception of the section 166 reviews. As a consequence, Towergate Financial’s claim under the indemnity failed.

Buyers beware

This decision emphasises the importance of the provisions that regulate when notice of claims must be given, and the considerable scope for disputes if there is any ambiguity in the drafting of those provisions. The case also highlights the potential pitfalls, particularly for a buyer, associated with notice of claims provisions that take effect as a condition precedent to liability and which operate by reference to a trigger that is subjective, or otherwise open to interpretation, such as a requirement to provide notice "as soon as possible". In the interests of certainty, and to preserve the usual commercial rationale of a limitation of this type, buyers would be well advised to avoid a limitation of liability that is drafted in such terms.

If you have any questions on limitation periods or on any of the points above for our contract lawyers or our dispute resolution lawyers please contact us.

Wm Morrison Supermarkets plc

Data Breach Claims – Wm Morrison Supermarkets plc

In Wm Morrison Supermarkets plc v Various Claimants [2020] UKSC 12, the Supreme Court has overturned judgments of the High Court and Court of Appeal and decided that a supermarket was not vicariously liable for unauthorised breaches of the Data Protection Act 1998 committed by an employee.

Wm Morrison Supermarkets plc v Various Claimants - the facts

In 2013, Mr Skelton, who was then employed by Wm Morrison Supermarkets plc (Morrisons) as an internal IT auditor, was provided with a verbal warning for minor misconduct. Subsequently, he developed an irrational grudge against his employer. After being asked by Morrisons to provide payroll data for the entire workforce to external auditors, Mr Skelton copied the data onto a USB stick. He took the USB stick home and posted the data on the internet, using another employee's details in an attempt to conceal his actions. He also sent this data to three national newspapers, purporting to be a concerned member of the public.

The newspapers did not publish the data, but one newspaper alerted Morrisons, who immediately took steps to remove the data from the internet, contact the police and begin an internal investigation. Morrisons spent £2.26 million dealing with the aftermath of the disclosure, a large proportion of which was spent on security measures for its employees. Mr Skelton was arrested and ultimately convicted of criminal offences under the Computer Misuse Act 1990 and section 55 of the DPA 1998, which was in force at the time.

The claimants in this case were 9,263 of Morrisons' employees or former employees. They claimed damages from Morrisons in the High Court for misuse of private information and breach of confidence, and for breach of its statutory duty under section 4(4) of the DPA 1998. The claimants alleged that Morrisons was either primarily liable under those heads of claim or vicariously liable for Mr Skelton's wrongful conduct.

Data Protection Act 1998

This case was decided under the Data Protection Act 1998 (DPA 1998) which was applicable at the time. The DPA 1998 implemented the Data Protection Directive (95/46/EEC) and imposed broad obligations on those who collect personal data (data controllers), as well as conferring broad rights on individuals about whom data is collected (data subjects). Section 4(4) of the DPA 1998 provided that a data controller must comply with eight data protection principles in relation to all personal data with respect to which they are a controller.

Under section 13(1), any breach of the DPA 1998 which caused damage entitled the victim to compensation for that damage. Section 13(2) provided as follows:

"An individual who suffers distress by reason of any contravention by a data controller of any of the requirements of this Act is entitled to compensation from the data controller for that distress if the individual also suffers damage by reason of the contravention."

Under section 13(3), it was a defence to any proceedings under section 13 for a person, or in this case Morrisons, to prove that they had taken such care as was reasonably required in all the circumstances to comply with the relevant requirement.

Vicarious liability

It was also crucial to consider whether Morrisons could be vicariously liable for their employee’s action in this instance. Employers will be liable for torts committed by an employee under the doctrine of vicarious liability where there is a sufficient connection between the employment and the wrongdoing. There is a two-stage test:

  • Is there a relationship between the primary wrongdoer and the person alleged to be liable which is capable of giving rise to vicarious liability?
  • Is the connection between the employment and the wrongful act or omission so close that it would be just and reasonable to impose liability?

In Lister v Hesley Hall Ltd [2001] UKHL 22, the House of Lords characterised the second stage as a "sufficient connection" test. The question was whether the torts were "so closely connected with [the] employment that it would be fair and just to hold the employers vicariously liable".

In Mohamud v Wm Morrison Supermarkets plc [2016] UKSC 11 (Mohamud), the Supreme Court held that the supermarket was vicariously liable for an employee's unprovoked violent assault on a customer. It found that there was a sufficiently close connection between the assault and the employee's job of attending to customers, such that the employer should be held vicariously liable

Wm Morrison Supermarkets plc - Decision

Morrisons was not vicariously liable for Mr Skelton's actions. It found that the Court of Appeal had misunderstood the principles governing vicarious liability in the following respects:

  • The disclosure of the data on the internet did not form part of Mr Skelton's functions or field of activities. This was not an act which he was authorised to do.
  • Although there was a close temporal link and an unbroken chain of causation linking the provision of the data to Mr Skelton for the purpose of transmitting it to the auditors and his disclosing it on the internet, a temporal or causal connection did not in itself satisfy the close connection test.
  • The reason why Mr Skelton acted wrongfully was not irrelevant. Whether he was acting on his employer's business or for purely personal reasons was highly material.

The mere fact that Mr Skelton's employment gave him the opportunity to commit the wrongful act was not sufficient to warrant the imposition of vicarious liability. It was clear that Mr Skelton was not engaged in furthering his employer's business when he committed the wrongdoing. On the contrary, he was pursuing a personal vendetta. His wrongful conduct was not so closely connected with acts which he was authorised to do that it could fairly and properly be regarded as done by him while acting in the ordinary course of his employment.


This decision will provide welcome confirmation for employers that they will not always be liable for data breaches committed by rogue employees. It similarly provides helpful clarification for practitioners on the way in which the judgment in Mohamud should be applied in future cases concerning vicarious liability.

The facts in this case were extreme. It seems that Morrisons were wholly unaware of the grudge held by Mr Skelton. Mr Skelton also took extraordinary actions to cover up what he had done and even to frame another employee.

Unanswered questions

Had Morrisons been found vicariously liable for Mr Skelton’s actions, the employees who made the claims would have had to prove that they suffered ‘distress, anxiety, upset and damage’ by the mishandling of their personal information. A supreme court ruling on the issue would have provided a helpful benchmark to those wanting to understand more about how our courts quantify compensation for data breaches.

Moving forward

Employers should take away from the judgment that although this case was decided under the previous data protection regime, the DPA 1998 and the GDPR are based on broadly similar principles. Therefore the GDPR and Data Protection Act 2018 (DPA 2018) will not be a barrier to vicarious liability actions in data privacy proceedings commenced under the current regime.

Additionally, the GDPR makes compliance far more onerous for controllers and risks exposure to the huge revenue-based fines and data subject compensation claims for breaches of the GDPR and DPA 2018. This includes failing to safeguard data to statutory standards and neglect to have governance in place to curb the malicious acts of rogue employees.

The success of Morrisons in bringing to an end the threat under this case of being subject to a group action for compensation follows Google LLC being granted freedom to appeal against the Court of Appeal's order in Lloyd v Google LLC [2019] EWCA Civ 1599 and is another significant development in the progress of representative class actions in the UK legal system.

If you have any questions on data protection law or on any of the issues raised in this article please get in touch with one of our data protection lawyers.

Commercial law firm London EM Law

Terminating a Contract - Tread Carefully

Terminating a contract may be the way forward especially when the other party has blatantly failed to meet its obligations. But don’t fall into the trap of thinking that terminating a contract is straightforward. Giving the correct notice and reasons for terminating a contract is a process to be carefully navigated if the adversely affected party wants to claim all possible compensation.

Examples of improper approaches to terminating a contract can be dramatic. In the case of Phones 4u Ltd v EE Ltd [2018], EE denied themselves a £200 million claim because of a badly drafted termination notice. Given the potential consequences it is generally assumed that an aggrieved party will take legal advice before going ahead with termination.

Most importantly you must act. Even a repudiation, meaning the most serious breach of contract, does not automatically end a contract. Termination rights can also be lost by delay. By the time an aggrieved party decides to assert itself it may be too late.

Things to be most wary of when terminating a contract

Terminating a contract without the right to do so

  • By terminating a contract you are refusing to perform any duties which may arise after termination.
  • If not justified by a contractual or common law right this refusal to perform is usually itself a repudiation.
  • The other party could accept the repudiation, terminate the contract and sue for damages.

Giving the wrong grounds for termination

This is what happened in the Phones 4u.  In that instance EE terminated its contract with Phones 4u on the basis of its rights to terminate for the other party’s insolvency. EE did not explicitly state in its termination notice that Phones 4u were in breach of contract. Even though EE had reserved its rights in the termination notice the judge nevertheless ruled that EE’s £200 million claim against Phones 4u for breach of contract could not now be pursued.

Not following the contractual termination procedure

  • The basic rule is that a party serving a notice to exercise a right must comply strictly with the contract.
  • Failing to comply may render a termination invalid even if the requirement is meaningless or pointless.
  • In the case Zayo Group Internaitonal Ltd v Ainger and other [2017] the court ruled that a requirement to leave the termination notice at a party’s old address was still valid. Because the notice wasn’t left at the old address on time the claim failed.
  • Serving an ineffective notice of termination could amount to a repudiatory breach as it communicates an intention to stop performing and may be accompanied by such action.

You can't take it back

It is also important to note that you cannot take back a termination notice:

  • Serving a termination notice communicates a party’s decision to exercise its termination right, which is not compatible with keeping the contract alive.
  • In two employment cases, the employee who gave a clear unequivocal notice to resign was then unable to withdraw that notice after an hour in the case of Riordan v War Office [1959] and a day in Southern v Frank Charlesly & Co [1981].

Terminating a Contract - Common Law Rights

Aside from express or implied termination clauses it is also important to consider common law rights when contemplating grounds for termination. The common law gives every contracting party the right to terminate on repudiation. A repudiation comes in different forms:

  • Breach of a condition.
  • Repudiatory breach of an intermediate term (or innominate term).
  • Renunciation, defined as, a party’s outright refusal to perform all or substantially all its obligations under a contract.
  • Impossibility, if a party makes it impossible to perform the contract.

Understanding repudiatory breaches of intermediate terms is key when assessing your possible right to terminate a contract. Generally speaking, a breach of an intermediate term is repudiatory if it deprives the aggrieved party of substantially all the benefit of the contract. This deprivation must also coincide with the time that the aggrieved party chose to terminate.

Final word

Terminating a contract must be done carefully if the aggrieved party wants to retrieve as much compensation as possible. As we say above the consequences of not doing so can be severe. Please get in touch with Neil Williamson or Joanna McKenzie if you need any help.


EM Law force majeure

Force Majeure – Not Easy To Rely On

In a recent case (Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018] EWHC 1640 (Comm)) the High Court ruled that although a force majeure event had arisen, that event was not the sole reason for Tullow’s failure to perform. As such Tullow could not rely on the force majeure clause to avoid liability for its failure to perform.


Tullow had interests in two offshore petroleum licences off the coast of Ghana granted by the Government of Ghana. Tullow hired a large and expensive drilling rig from Seadrill to extract the oil – operating costs for the rig were USD 600,000 per day.

The contract between Tullow and Seadrill contained a force majeure clause that specifically included a “drilling moratorium imposed by the government” as an example of a force majeure event.

After the contract had been entered into, the Government of Ghana and the Government of Cote d’Ivoire entered into arbitration to resolve an offshore boundary dispute. This led to the arbitration tribunal making a Provisional Measures Order ("PMO") pursuant to which the tribunal ordered that "Ghana shall take all necessary steps to ensure that no new drilling either by Ghana or under its control takes place in the disputed area. As a result of this order, the Government of Ghana imposed a moratorium on drilling in one of the concessions. Tullow was also prevented from drilling in its other concession because the Government of Ghana refused to approve its project plan for that area.

Tullow terminated its contract with Seadrill relying on the force majeure clause.

Seadrill claimed that Tullow terminated the contract for convenience deciding that the contract had become too expensive. Due to the collapse in oil prices by the time that Tullow terminated the contract similar rigs were being hired out for around USD 200,000 per day.


The High Court found that the drilling moratorium was a force majeure event while the Government of Ghana’s failure to approve the project plan for the other concession was not. Citing the Court of Appeal's decision in Intertradex v Lesieur [1978] 2 Lloyd's Reports 509, which establishes the proposition that a force majeure event must be the sole cause of the failure to perform an obligation, Teare J concluded that there was no sole cause here.

Tullow was ordered to make payment to Seadrill of approximately USD 254 million.


As a clause often found at the back of a contract, it is easy to forget how important the force majeure clause can be. Careful consideration needs to be given as to how it is drafted. If a party wants to be able to vary or terminate a contract if adverse economic conditions arise then specific provisions should be built in to address this – a standard force majeure clause would probably not be sufficient.

Terminating a contract on grounds of force majeure is not straightforward. The relevant force majeure event must actually cause the failure to perform and must be the sole cause.

Remember that emails you send can end up in court. In this case the court was presented with an email from a director of Tullow who had written to a colleague asking whether "with a bit of manipulation" it was possible to use the PMO "to call FM” (force majeure) on either the West Leo or Drillmax." (West Leo was the name of Seadrill’s rig.) That email certainly can’t have helped Tullow’s cause.

If you have any questions around force majeure or you need support with drafting force majeure clauses contact Neil Williamson.

EM Law Fluor v Shanghai Zhenhua Photo By Matt Artz

Fluor v Shanghai Zhenhua Heavy Industries Ltd [2018] EWHC 1 – a reminder of the importance of getting Settlement Agreements right

Fluor v Shanghai Zhenhua Heavy Industries Ltd [2018] EWHC 1 is a recent case heard in the High Court to determine the damages that a supplier (Shanghai Zhenhua Heavy Industries Ltd (SZHI) should be liable to a contractor (Fluor) for. The case is a reminder of the importance of getting a settlement agreement right.


Fluor contracted with Greater Gabbard Offshore Winds Ltd (GGOW) to build the foundations and infrastructure for a 140 turbine wind farm in the North Sea off the Suffolk coast.

SZHI contracted with Fluor to make the turbine foundations.

When the integrity of the first few batches of SZHI’s steel piles was tested by Fluor, the tests revealed extensive cracking in the welding on the piles. Fluor issued certificates of non conformance in respect of the steel piles and transition pieces delivered with them following which an extensive progamme of testing and repair began. Litigation ensued which resulted (in 2016) in SZHI being found liable for breach of contract with Fluor.

On 11 January 2018 Sir Antony Edwards-Stuart (sitting as a High Court Judge) gave judgment on the amount of damages that SZHI should pay Fluor.

The Judgment

The judgment is complex. One of the issues that was considered was the correct approach to delay analysis with the court concluding that some form of retrospective analysis was required in this instance.

The main point that we want to flag up from this case is the judge’s comments on and approach to the settlement agreement that Fluor entered into with GGOW (as prime contractor, Fluor was responsible to GGOW for the faults in the foundations supplied by SZHI). The judge had to consider the extent to which the settlement agreement limited the damages that Fluor could recover from SZHI.

Paragraphs 465 and 466 of the judgment are set out below:

“465.   It is settled law that, in principle, C can recover from a contract breaker, B, sums that it has paid to A in settlement of a claim made by A against C in respect of loss cause by B’s breach of its contract with C.

466.   However, C’s settlement with A must be an objectively reasonable settlement and, if it is, that sum represents the measure of C’s damages in respect of B’s breach of contract (assuming there were no other heads of loss). Even if C can show that its settlement with A was at an undervalue, the settlement sum still represents a ceiling on the amount that it can recover from B.”

So, to put it another way, if your customer sues you for losses caused by your subcontractor then the amount that you agree to pay your customer under the settlement agreement that you make with him is the amount that the subcontractor must pay you provided that the settlement agreement is objectively reasonable.

If the settlement agreement is not objectively reasonable (perhaps because you agreed to pay your customer more than you should have done) then you may not be able to recover that amount from your subcontractor.

As ever, care and attention is needed when dealing with claims and settlement of claims.

In Fluor v Shanghai Zhenhua Heavy Industries Ltd the judge concluded that the settlement agreement between Fluor and GGOW was objectively reasonable.

For any questions you have concerning this case or if you are facing a breach of contract dispute please contact us.