Exceptional Circumstances and Exceptional Remedies

Irwin Mitchell has recently been involved in a case (Devenish) that may ultimately lead to an increase in the types of remedy available to claimants bringing a claim in tort, to include an account of profits or restitutionary award in a wider range of circumstances.  Such a remedy is based on the gain the wrongdoer has made from the wrong, stripping away the profits he has made from the breach, whereas the usual remedy for a tort is damages to compensate the claimant for the loss he has suffered as a result of the wrong.

The claim was for breach of statutory duty under Article 81 of the EC Treaty. The European Commission had found that the defendants had been operating a number of cartels with other manufacturers of vitamins in breach of Article 81 and had imposed fines which at the time were the highest the Commission had ever imposed. The claimants® case was that they had purchased vitamins at an artificially high price illegally set by the defendants.  In case it might be found that they had suffered no loss on the basis that they had passed the artificially higher price down to their sub-buyers the claimants claimed an account of the illegitimate surplus profit made by the defendants and an order for its payment to them. The defendants sought the determination as a preliminary issue of the question whether the claimants could claim such relief for breach of statutory duty.

The claimants relied on the House of Lords® reasoning in Attorney General v Blake, which established that a restitutionary award for an account of profits was available for breach of contract, in exceptional circumstances. The circumstances in that case were indeed exceptional. The claim was for payment of all royalties owing to George Blake, the notorious spy, by the publishers of his autobiography which used information gained from his employment in the Intelligence Service in breach of his contract with the Service. The claim was successful though by the time of publication the information was no longer confidential so no measurable loss was suffered as a result of the disclosure.

Blake had shown that an account of profits had always been available where equitable rights had been infringed, e.g. for breach of confidence and in cases of interference with property rights where a strict application of the compensatory principle would not do justice between the parties, e.g. where a trespasser causes the landowner no financial loss and damages are measured by his benefit, his use of the land, or where a defendant may be required to account to a claimant for the profit he has made from using his goods or intellectual property right without permission.

Blake also referred to Wrotham Park® damages which in effect award part of the profit made by the breach.  This is often couched as a hypothetical compensatory basis that represents the price which could have been charged for releasing the defendant from the obligation breached e.g. where damages awarded in lieu of an injunction for building in breach of a restrictive covenant were assessed on the basis of what the claimant might reasonably have demanded as the price for a release from the covenant.  The claimant has lost the opportunity to bargain for that release. This approach has been applied in a number of breach of contract cases since.

The Court of Appeal in Devenish considered that the reasoning and conclusion in Blake that an account of profits could be ordered for a breach of contract that did not depend on whether a property right had been infringed suggested that an account of profits could also be ordered for non-proprietary torts, and that the question was whether damages alone would be a sufficient remedy.  The majority however found themselves bound by another Court of Appeal decision, not referred to in Blake and therefore not overruled by it, which had held that damages assessed on a purely compensatory basis are the only damages available for torts other than proprietary torts.  Further development of the law of remedies must therefore await a decision of the House of Lords.

Another issue of principle in this interesting case is whether the absence of a restitutionary remedy is consistent with the principle of effectiveness under Community law. The Court of Appeal has said that purely compensatory damages are sufficient for the purposes of safeguarding the rights of private persons under Article 81.

Leave to appeal to the House of Lords is being sought.