Pell Frischmann Engineering Limited v Bow Valley Iran Limited and others (Jersey)

Negotiating damages may compensate a non-proprietary breach of contract where the court has jurisdiction to grant equitable relief. The claimant need not have sought an injunction or had a realistic prospect of obtaining one. The award reflects the reasonable price which willing and reasonable parties would have agreed for releasing the obligation.

Damages are normally valued at the date of breach, and later events are ordinarily irrelevant. Departure is permissible for good reason because the remedy is quasi-equitable. Contemporaneous negotiations may remain relevant evidence even after the claimant loses the positive commercial opportunity underlying them. A surviving negative right or veto must still be valued properly. Delay in commencing proceedings may justify moderation but is not necessarily fatal.

Pell Frischmann Engineering Limited v Bow Valley Iran Limited and others (Jersey) [2009] UKPC 45 arose from an unsuccessful proposed joint venture to develop an Iranian offshore oilfield. The respondents entered confidentiality agreements requiring exclusivity, confidentiality and an undertaking not to approach the National Iranian Oil Company without consent. After the appellant became unacceptable to that company, two respondents obtained the project themselves.

The Royal Court of Jersey rejected claims in conspiracy, deceit and inducing breach of contract but awarded £500,000 for breach of confidence. The Jersey Court of Appeal found breaches of the express confidentiality agreements as well, while retaining £500,000 as negotiating damages. The appellant challenged the amount and sought to revive its tort claims.

The principal questions were how the hypothetical release price should be assessed, what weight should be given to the appellant's lost exclusivity, previous negotiations and delay, and whether parallel contractual breaches established unlawful means conspiracy or procurement.

1. Disposition. The appeal was allowed to the extent that the award for breach of contract was increased from £500,000 to US$2,500,000. Simple interest remained payable at the rate and from the date directed by the Royal Court. All respondents were jointly and severally liable. The challenge concerning conspiracy and procurement failed.
2. Damages under section 2 of the Chancery Amendment Act 1858 compensate for the court's decision to withhold specific performance or an injunction where it has jurisdiction to entertain such relief. Following Attorney-General v Blake [2001] 1 AC 268, the jurisdiction extends to non-proprietary breaches of contract. An injunction need not actually have been claimed or realistically available.
3. The hypothetical negotiation is between a willing buyer and a willing seller. Its subject is the release of the relevant contractual obligation, and both parties are assumed to act reasonably. Their actual unwillingness to agree must therefore be disregarded. This approach derived from Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, Jaggard v Sawyer [1995] 1 WLR 269 and Lunn Poly Ltd v Liverpool & Lancashire Properties Ltd (2006) 25 EG 210.
4. Negotiating damages are normally valued at the date of breach. Post-valuation events are ordinarily irrelevant, although the quasi-equitable nature of the remedy permits departure for good reason. Here the parties' contemporaneous buy-out negotiations remained relevant evidence of their expectations about profitability and the amount the respondents were prepared to pay. The project's disappointing eventual profit did not provide a better guide.
5. The appellant had lost both exclusivity and any assignable commercial interest by the valuation date. Nevertheless, its contractual rights still prevented the respondents from proceeding directly and using confidential information. Those negative rights constituted a commercially significant veto. A reasonable seller would not demand a counterproductive price, but reasonable buyers would recognise that the veto had to be purchased at a proper value. The Court of Appeal erred by substantially discounting that value and by treating the cost of producing the information as its starting point.
6. The appellant's extraordinary delay in commencing proceedings removed any prospect of injunctive relief but did not preclude negotiating damages. It had complained promptly when the breaches occurred, and the respondents' documents showed awareness of possible liability. The later delay was instead a reason to moderate an award of this quasi-equitable character.
7. The unlawful means conspiracy case could not be revived by describing two autonomous parties' respective decisions to breach their own agreements as each procuring the other's breach. Further obstacles, stated obiter, included the absence of an intention to cause loss, the need to prove actual loss and the prohibition against duplicating contractual damages.

1. Privy Council: In Pell Frischmann Engineering Limited v Bow Valley Iran Limited and others (Jersey) [2009] UKPC 45, the Board allowed the appeal in part. It substituted US$2,500,000 for the £500,000 damages award and rejected the attempt to revive the tort claims.
2. Court of Appeal of Jersey: On 3 September 2008, the court held that the respondents had breached the express confidentiality agreements as well as an equitable obligation of confidence. It retained the £500,000 award as negotiating damages, rejected the conspiracy, deceit and inducing-breach claims, and dismissed the cross-appeal concerning interest.
3. Royal Court of Jersey: On 31 May 2007, the court rejected the dishonest-conspiracy and contractual claims but found liability for breach of confidence. It awarded £500,000, for which the defendants were jointly and severally liable.