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Dear all,

I certainly agree with Peter that the claim in Hendrix was not one of disgorgement damages. But I do not think that the decision supports the thesis in his stimulating monograph, The Nature and Scope of Restitution, that a "use claim" (restitutionary damages) does not arise from a wrong (here the breach of contract) but is based on an imputed contract between the parties. It seems to me that the Court of Appeal, having rejected the disgorgement damages award (account of profits) for the breach of contract, was quite clearly awarding restitutionary damages (the use claim) for the breach of contract.

In relation to the rationale for each, I don't think it is possible to support disgorgement damages as a type of surrogate for compensation. When a court focuses exclusively upon stripping the profits of a defendant the only possible rationale I can see is to deter the defendant, and others, from commission of that wrong. Undoubtedly there will be difficulties in determining how that profit should be measured (for instance, to what extent should allowances for skill and effort be given as expenses incurred, should opportunity costs should be allowed as expenses) but this should not distract from the deterrent focus of this award. Courts have long emphasised that the award of an account of profits (disgorgement damages) for a breach of fiduciary duty is based upon deterrence. Other profit-stripping or disgorgement damages awards should be no different.

I also agree that the use-value claim is restitutionary. And where it is given for a wrong, perhaps it should be called "restitutionary damages" (to differentiate it from restitution for unjust enrichment). The basis and rationale for this claim depends upon the cause of action which gives rise to it. Where courts say that these restitutionary awards are given for a wrong (in this case, the breach of contract) I think they should be taken at their word. There is no necessary reason why we should say that what the judges really meant was that the claim was one for an imputed contract or that it should be re-interpreted as a claim in unjust enrichment. The rationale in such cases is simply that there was a wrongful transfer. If it is possible to reverse transfers for other reasons then it must be possible to reverse a transfer where it is recognised that it has been wrongfully made. For a superb explanation of the corrective justice basis of reversal of transfers (although focussing on unjust enrichment) see Lionel Smith's discussion of Weinrib's "The Idea of Private Law" in (2001) Texas Law Rev 2115.

Jamie

From: Peter Jaffey
To: ENRICHMENT@LISTS.MCGILL.CA
Subject: [RDG:] Hendrix
Date: Wed, 26 Mar 2003 14:26:59 +0000

I agree that the Blake full profit measure should be exceptional. As I have suggested before I think it should be available only where the claimant will suffer significant uncompensable harm if the defendant does not perform the contract. This accounts for disclosure of information cases including government secrets and also generally negative obligations, because here generally the claimant cannot get substitute performance from someone else. It also accounts for fiduciary cases, but I would not say that the availability of the full profit measure is dependent on the contract's being "close to fiduciary", because there are cases where this test is satisfied that are clearly not fiduciary because there is no discretion involved.

I also agree that the full profit measure should be kept quite distinct from the "reasonable payment" measure. The two are based on quite different principles. A few years ago I used the expressions "disgorgement damages" and "restitutionary damages" to distinguish between them. Disgorgement is based on the principle that a wrongdoer should not profit from a wrong, so the question in contract is when it is really wrongful not to perform a contract, and I think this is where uncompensable harm will result. In the original trespass cases and the IP cases the basis of the "restitutionary damages" claim seems to me to be simply the right of an owner to the "use-value" of the property, by virtue of which he can exact a reasonable payment for use. But this cannot be applied straightforwardly to contract. Possibly it would apply where the very purpose of a contractual restriction was to enable a fee to be subsequently exacted in return for waiving the restriction, giving the claimant a right to some part of the value of the restricted activity. This is the case in some but not all restrictive covenant cases and possibly it could be relevant in Hendrix.

Peter.