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This article originally appeared in Bristows' Monthly IT e-newsletter, 'The Cookie Jar'.

A recent decision of the Privy Council considered the circumstances in which an innocent party is entitled to claim compensation above and beyond financial loss actually suffered as a result of a contractual breach of confidence.

The normal rule for measuring damages is that the courts will seek to award a sum of money such that the innocent party is put in the position he would have been had the contract been properly performed.  However, the courts have recognised that damages assessed purely by reference to financial loss will not always be an adequate remedy.  In awarding, what are commonly referred to as, "Wrotham Park damages", the courts will instead focus upon the benefit gained by the party that has committed the breach.

The case in question, Pell Frischmann v Bow Valley, involved confidentiality agreements entered into by a number of parties who proposed to establish a joint venture.  The purpose of the joint venture arrangements was to contract with the National Iranian Oil Company (NIOC) for the development of an Iranian oilfield.

Following protracted negotiations, talks between NIOC and the joint venture parties collapsed, largely due to a failure by one of the joint venture parties to satisfy certain pre-conditions imposed by NIOC.  In clear breach of obligations contained in the confidentiality agreements, the two other joint venture parties made a direct approach to NIOC and subsequently entered into an agreement with NIOC using materials that were within their possession as a result of the initial joint venture arrangements.

In reaching its decision, the Privy Council made clear that "Wrotham Park damages" are intended to provide compensation for the court's decision not to grant equitable relief in the form of an order for specific performance or an injunction.  Damages awarded on this basis are therefore of a "quasi-equitable nature" and are intended to represent such sum of money as might reasonably have been demanded by the innocent party for permitting the other party to undertake the course of action that resulted in a breach.  Having considered a hypothetical negotiation between a willing buyer (the contract breaker) and a willing seller (the party claiming damages) in which the subject matter was the release of the relevant confidentiality restrictions, the Privy Council determined that, in the present circumstances, $2,500,000 was an appropriate level of compensation to be awarded to the innocent party.

On the facts of the current case, it is questionable whether a conventional approach to calculating damages would have resulted in the innocent party receiving any material amount of compensation.  This decision of the Privy Council provides a timely reminder that - provided well drafted confidentiality restrictions are in place - even where there is no demonstrable loss, an innocent party may yet be able to claim significant compensation following a breach of confidence.