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On the disgorgement issue, Hanoch and Jamie misunderstand the basis of the uncompensability argument for disgorgement in contract. It is quite true that disgorgement is not a "surrogate for compensation" or a "solution for undercompensation", and that it is designed to remove the profits of wrongdoing. My argument, in slightly fuller form, goes as follows:

1. Ordinarily a contracting party does not have a duty to perform the contract. He is free not to perform, although he is responsible for any loss incurred by the other party as a result of his non-performance.

2. If the contracting party finds himself in a position such that, if he does not perform, the other party will incur uncompensable loss, he does become subject to a duty to perform. Then he acts wrongfully if he does not perform, and should be subject to disgorgement. In some contracts, like a fiduciary contracts, the nature of the contract is such that there is always a duty to perform. In other contracts the duty can arise out of particular circumstances which make actual performance crucial to avoid uncompensable loss.

3. Thus disgorgement should be subject to the uncompensability test, but this is because it is designed to remove the profits of wrongdoing, and to deter, and not because it serves to make up a shortfall in compensation or anything along those lines.

Hanoch also argues, if I understand him correctly, that disgorgement is inefficient because of the high transaction costs involved in measuring profit and causation, and that contracting parties would never agree to it. (Hanoch refers to "probable intent", but I would understand this as a form of hypothetical contracting.) This may well be right. In fact, what contracting parties would surely agree to, if it were open to them to do so, is that if circumstances arose in which contracting party A would suffer uncompensable loss as a result of contracting party B's failure to perform, B should be subject to a stiff penalty if he chooses not to perform. Such a clause may not be enforceable if actually agreed, but in the US I understand that there is good authority that punitive damages would be awarded and in England, where it is open to the court to award disgorgement but not punitive damages, Hanoch's argument clearly would not have any weight against disgorgement.

Lastly, the cases that I am aware of where disgorgement has been granted or where it has generally been thought appropriate, or where in the US punitive damages have been awarded, are all actually consistent with the suggested test. I would be interested in any counter-examples.

Peter.

Prof Peter Jaffey
Law Department
Brunel University
Uxbridge
Middx UB8 3PH

Tel: 01895 274000
Web: http://www.brunel.ac.uk/depts/law/index.htm