County Council of Surrey v Bredero Homes Ltd [1993] EWCA Civ 7 (07 April 1993)

A developer breached a restrictive covenant by building more houses than permitted by the contract. The landowner suffered no financial loss. The Court of Appeal awarded only nominal damages, holding that damages for breach of contract are compensatory, not restitutionary.

Facts

The plaintiffs, Surrey County Council and another council, sold two plots of land to the defendant developers, Bredero Homes Ltd. The sale incorporated restrictive covenants in the deeds. One covenant stipulated that the defendants would not develop a plot (the ‘red land’) with more than 72 houses. The defendants subsequently obtained a new planning permission and built 77 houses on the red land and an extra house on another plot, in clear breach of the covenant. The Councils, as the covenantees, suffered no diminution in the value of any retained land or any other quantifiable financial loss as a result of the breach. They sued Bredero Homes, seeking substantial damages for the breach, arguing that they should be entitled to a share of the extra profit the developer made from the breach.

Issues

The primary legal issue was the correct measure of damages for a breach of contract where the innocent party has suffered no identifiable financial loss. The key questions for the court were:

• Can a plaintiff recover substantial damages for a breach of contract in the absence of any financial loss?
• Should damages be measured by the gain made by the contract-breaker (restitutionary damages) rather than the loss suffered by the innocent party (compensatory damages)?
• Could the plaintiffs claim damages equivalent to the sum they might reasonably have charged to grant a release from the covenant, following the principle in Wrotham Park Estate Co Ltd v Parkside Homes Ltd?

Judgment

The Court of Appeal unanimously dismissed the appeal, affirming the trial judge’s decision to award only nominal damages of £2. The court held that the fundamental principle for assessing damages for breach of contract is to compensate the plaintiff for their loss, not to disgorge the defendant’s profits.

Dillon L.J.

Dillon L.J. emphasised the compensatory nature of damages in contract law, stating that the objective is to place the innocent party in the position they would have been in had the contract been performed. He stated:

Generally the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed. But the common law does not award damages for breach of contract in order to punish the contract-breaker, or to confiscate gains he has made from his breach of contract…

He distinguished the case from Wrotham Park, noting that in that case damages were awarded in lieu of an injunction, a remedy not available to the Councils here as they had no retained land that benefited from the covenant and thus could not have sought an injunction to stop the development.

Steyn L.J.

Steyn L.J. provided a more extensive analysis of the principles of damages. He robustly defended the compensatory principle and rejected the plaintiffs’ argument for restitutionary damages. He argued that allowing a claim for the profits made by the defendant would be a radical departure from established legal principles for a straightforward breach of contract. He stated:

The case before us is a plain and straightforward case of a breach of contract. The Defendants have not on any view received any property of the Plaintiffs. They have simply failed to carry out their bargain.

Steyn L.J. also considered the Wrotham Park decision an anomaly, or a ‘solitary bastion’, which should not be extended. He powerfully concluded:

To award the plaintiffs a substantial compensation for a breach of contract when they have suffered no loss would be to stretch the contractual concept of compensation to a point where it is no longer recognisable.

Rose L.J.

Rose L.J. concurred with both judgments, agreeing that there was no legal basis for awarding substantial damages in the absence of proven loss and that the case was factually distinct from Wrotham Park.

Implications

The decision in Surrey CC v Bredero Homes is a significant authority that strongly reinforces the orthodox compensatory principle of damages in English contract law. It establishes that, as a general rule, damages are awarded to compensate for loss, and a plaintiff cannot recover the profits a defendant makes from a breach of contract. The case substantially limited the scope of so-called ‘negotiating damages’ established in Wrotham Park, suggesting that such an award is an exception, possibly limited to cases involving property rights where an injunction was a potential remedy. The decision underscores the fact that if a party wishes to ensure a contract-breaker does not profit from a breach, they should include a specific liquidated damages clause in the contract, as reliance on common law damages may result in only a nominal award if no financial loss can be demonstrated. While the House of Lords later allowed for an account of profits in the ‘exceptional’ case of Attorney-General v Blake, Bredero Homes remains the guiding precedent for ordinary commercial contracts.

Verdict: The appeal was dismissed. The plaintiffs were entitled to only nominal damages of £2 for the breach of covenant.

Source: County Council of Surrey & Anor v Bredero Homes Ltd [1993] EWCA Civ 7 (07 April 1993)