Restitution
front page

What's new?

Archive front page

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2007

2006

2008

2009

A few thoughts on the measures of the awards in the Esso case in response to the questions posed by Professor Burrows.

THE ACCOUNT OF PROFITS/ DISGORGEMENT DAMAGES

First, the account of profits. No doubt the V-C had in his mind the injunction of Lord Nicholls and a number of cases before Blake as well as after Blake which have emphasised that an account of profits is not to be measured by saved expense or 'skimped performance'. This is made far clearer in the Celanese case [1999] RPC where the judgment of Laddie J focuses in great detail and trawls through many of the cases where the measure of the account of profits is in issue. In this case, and the IP cases which have recently followed it, the 'saved expense' approach to the account of profits is rejected. Laddie J gives a number of reasons for this. A practical example is a variant of Seager v Copydex. The saved expense might be the cost of employing a consultant to develop the design. But the profit made from the wrongful design might be enormous and far greater. The account of profits focuses on the profit made subject to an allowance. Much can be said comparing these two approaches and I refer to this in much more detail elsewhere.

Niad's failure to 'pass on' any of the price support to its customers was skimped performance. The difference between price charged and "recommended price" (which was skimped) did not mean that any actual profit was made as a result of the breach at all, merely that an expense was saved.

The second possible measure raised by Professor Burrows is a measure based on the benefit being the additional "price support" paid by Esso. But this is not profit made as a result of the BREACH of contract. This was a right which accrued well before the breach. However, this value might be relevant (and particularly in the US) as an indicia of the value transferred from the breach where that value has not been prescribed in money terms in the contract (in this case it has: see below).

Thus, the account of profits cannot be measured by the fact that Niad paid less for its petrol or by the amount of any skimped performance. It must be measured by the actual profit. In this case Niad realised this and argued that there was NO actual profit: they pointed to the fact that profitability had declined as a result of Pricewatch. In other words, the Pricewatch agreement resulted in LESS profit and hence the agreement was loss making. However, the V-C suggested a broad view of the agreement. By viewing Pricewatch as fundamental to supply of petrol itself he seemed to be viewing the breach of contract as the selling of the petrol itself. So the small margin of profit that was made from the sale of petrol was the profit from the breach of contract.

RESTITUTIONARY DAMAGES

Apart from the reference to this remedy as one for "unjust enrichment", I agree with the V-C's approach to measurement in this instance as well. Restitutionary damages, unlike the account of profits, are measured by value transferred. Perhaps what caused the confused reference to unjust enrichment is that the measure of 'value transferred' is identical to 'enrichment at the expense of' in unjust enrichment; thus the correspondence of restitutionary damages for the breach of contract to an equivalent measure of restitution in unjust enrichment seems to have lead the Vice Chancellor to conflate the two concepts.

The relevant value (or, more properly, contractual rights) was the right that Esso had for its petrol to be sold at recommended prices. The amount by which Niad sold under those prices represents value transferred.

Jamie Edelman