Lloyd's Maritime and Commercial Law Quarterly
THE HYPOTHETICAL NEGOTIATION MEASURE: AN UNTENABLE FICTION?
Peter Devonshire *
Substantive pecuniary awards may be granted for wrongful interference with property rights where such actions have not caused any compensable loss. On ordinary principles these awards do not conform to a compensatory measure of damages. In these circumstances quantum is usually determined by reference to a hypothetical bargain the parties might have struck at the date of breach for release of the claimant’s rights. The hypothetical bargain attempts to replicate the outcome of good faith negotiations. This model is usually at odds with the facts and produces awards that are unduly conservative. This ignores commercial realities that should operate in the claimant’s favour. Insufficient weight is attached to the claimant’s bargaining position and there is a tendency to marginalise the value of the claimant’s negative right to enjoin unlawful interference. Moreover, damages in lieu of an injunction do not adequately reflect the fact that the award is effectively a proxy for the compulsory acquisition of proprietary rights.
1. Introduction
This paper considers recent developments regarding wrongful interference with property interests where the claimant does not sustain, or cannot establish, a compensable loss.1 On traditional reasoning the injured party can only recover nominal damages. However, courts have devised means for granting more substantive pecuniary awards. Such cases can engender creative judicial responses, prompted in part by a reluctance to allow these wrongs to be without effective redress.2 Attention will be directed to the nature of the awards and their relationship to traditional compensatory principles.
The unauthorised interference with property rights is of course an expansive topic. This paper addresses interference with the enjoyment of real property, focusing particularly on cases of trespass, nuisance and breach of covenant. Awards in this area normally reflect an amount that the defendant would have been willing to pay for release of the claimant’s rights. This is usually determined by analogy to a hypothetical bargain that the parties might have struck at the date of breach.3 It will be argued that this model is founded on
* Faculty of Law, University of Auckland. A version of this article was presented to the Restitution Section of the Society of Legal Scholars at the Annual Conference, Cambridge, September 2011. I am grateful to Professor Peter Watts and Professor Peter Jaffey for their helpful comments on a previous draft.
1. For consistency, the term “claimant” will denote the party whose rights have been infringed and the term “defendant” will denote the party that has infringed those rights.
2. See, eg, Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, 812; Lane v O’Brien Homes Ltd [2004] EWHC 303 (QB), [11].
3. See post, Part 4, regarding the relevant date of assessment.
LLOYD’S MARITIME AND COMMERCIAL LAW QUARTERLY
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