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Pseudo-Restitutionary Damages: Some Thoughts on the Dual Theory of Restitution for Wrongs

Published online by Cambridge University Press:  20 July 2015

Francesco Giglio
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Restitution for civil wrongs, also known as restitutionary damages, is a legal response through which the defendant’s wrongful gain is awarded to the claimant. James Edelman has recently advocated two different restitutionary responses for wrongs. One response, termed ‘restitutionary damages’, would aim to compel the wrongdoer to give back to the victim a wrongful gain, whereas the other response, ‘disgorgement damages’, would oblige the wrongdoer to give up a wrongful gain for the benefit of the claimant.

In the first case, the claimant would obtain what should have never left his assets. In the second case, the claimant would be the beneficiary of a judicial decision according to which a wrongful gain should not be kept by the wrongdoer. In this essay, I seek to demonstrate that this taxonomy cannot be accepted. I argue that Edelman’s ‘disgorgement damages’ are the only true example of restitution for wrongs, whereas his ’restitutionary damages’ are simply compensatory damages which are quantified in a particular fashion. Edelman’s ‘restitutionary damages’ might appear to deprive the defendant of his gain, and thus to achieve a restitutionary goal. Yet they nullify the victim’s loss and therefore have a compensatory nature. They are ‘pseudo-restitutionary damages’. In opposition to the dual theory, I submit a model of restitutionary damages based upon a single response which is coherent with the tenets of corrective justice. Given that it deals mainly with Edelman’s ‘restitutionary damages’, this article is not so much about restitution for wrongs but rather about compensation, which is what Edelman’s ‘restitutionary damages’ really concerns. The theory which I propose, based upon a single restitutionary response for wrongs, solves the taxonomic incoherence of Edelman’s dual theory. It also reflects the law as we find it, being supportable by reference to the available judicial authorities.

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Research Article
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Canadian Journal of Law & Jurisprudence , Volume 22 , Issue 1 , January 2009 , pp. 49 - 78
Copyright
Copyright © Canadian Journal of Law and Jurisprudence 2009

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References

I am grateful to Kit Barker, Dennis Klimchuk, Mitchell McInnes, John Murphy, Stephen Waddams, Christian Witting, and an anonymous referee for comments on earlier drafts of this paper.

1. A-G v. Blake [2001] AC 268 (HL).Google ScholarPubMed

2. See Giglio, F., The Foundations of Restitution for Wrongs (Oxford: Hart, 2007).Google Scholar

3. Edelman, J., Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (Oxford: Hart, 2002).Google Scholar

4. This is universally recognised both by Edelman’s supporters and by his critics. Ex multis, Wright, D., ‘Book Reviews: Gain-Based Damages’ (2003) 19 J. Contract L. 101 Google Scholar; McInnes, M., ‘Book Review: Gain-Based Damages’ (2004) 39 Can. Bus. L.J. 146 Google Scholar; Rotherham, C., ‘The Conceptual Structure of Restitution for Wrongs’ (2007) 66(1) Cambridge L.J. 172.CrossRefGoogle Scholar

5. Giglio, Foundations, supra note 2.

6. Note that I do not claim that this was the only historical reason, but simply an influential reason.

7. See Giglio, F., ‘Gain-Related Recovery’ (2008) 28 Oxford J. Legal Stud. 501 at 516-17.CrossRefGoogle Scholar

8. Giglio, F., ‘Restitution for Wrongs: A Structural Analysis’ (2007) 20 Can. J. L. & Juris 1 at 6-8.Google Scholar

9. See, recently, Lord Mance’s dissenting speech in Sempra Metals Ltd. v. HM Commissioners of Inland Revenue [2007] UKHL 34 at para. 230.Google Scholar His Lordship seeks to steer clear of any ‘analytical controversy.’

10. WWF v. WWF [2007] EWCA Civ 286.Google ScholarPubMed However, see Lord Mance in Sempra (ibid.)—but note his own caveat. Lord Nicholls‘s qualification of user principle cases as ‘restitution for wrongdoing’ does not seem to be used technically—to oppose unjust enrichment to tort—probably to avoid to take sides in the doctrinal dispute, ibid. para. 116. On the user principle, see text after infra note 119.

11. See the Sempra case, supra note 9.

12. For an in-depth analysis of restitutionary damages, see Giglio, supra note 8.

13. Wright, supra note 4, objects to Edelman that he does not take the so-called discretionary remedialism into due consideration.

14. Blake, supra note 1.

15. Strand Electric & Engineering Co. v. Brisford Entertainments [1952] 2 QB 246 (CA).Google Scholar

16. ‘It is curious that there is no authority on the point’; ibid. at 250 (Somervell L. J.).

17. Ibid. at 255 (Denning L. J.). Presumably on the authority of these words, Rotherham, supra note 4 at 174, n. 16, concludes that this is a case of restitution for wrongs. Yet, it does not seem that this passage justifies such inference.

18. The user principle requires the defendant to pay damages for having wrongfully violated the claimant’s right to ownership. As Lindley L. J. said in Whitwham v. Westminster Brymbo Coal and Coke [1896] 2 Ch 538 (CA) 542Google Scholar, “if one person has without leave of another been using that other’s land for his own purposes, he ought to pay for such user.” On the user principle, see text for infra note 122.

19. Jaggard v. Sawyer [1995] 1 WLR 269 (CA).Google Scholar

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21. Jaggard, supra note 19 at 281-82.

22. Ibid. at 291.

23. Blake, supra note1.

24. Ibid. at 285.

25. See Edelman, supra note 3 at 154.

26. Blake, supra note 1 at 285.

27. Esso Petroleum Co. Ltd. v. Niad Ltd. [2001] EWHC 458.Google ScholarPubMed

28. Ibid. at para. 64 (Sir Andrew Morritt, V-C).

29. Ibid.

30. Tettenborn, Cf. A., et al. The Law of Damages (London: Lexis-Nexis, 2003) at paras. 1.23 and 1.24.Google Scholar

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32. In fact, as Edelman, J., ‘’Gain-Based Damages and Compensation’ in Burrows, A. & Rodger, Lord, Mapping the Law (Oxford: Oxford University Press, 2006)141 at 144, 147CrossRefGoogle Scholar, observes, the Law Lords in Livingstone accepted that damages can be non-compensatory.

33. Cassell & Co. Ltd. v. Broome [1972] AC 1027 (HL) at 1070 (Lord Hailsham).Google ScholarPubMed

34. McGregor on Damages, 16th ed., (London: Sweet & Maxwell, 1997) at para. 1.

35. Blake, supra note 1.

36. McGregor on Damages, 17th ed. (London: Sweet & Maxwell, 2003) at para. 1-001.

37. Tettenborn, supra note 30 at para. 1.01.

38. This ‘event-based classification’ was first formulated by Birks, Peter. The final exposition of the classification can be read in Birks, P, Unjust Enrichment, 2nd ed. (Oxford: Oxford University Press, 2005) at 21–28.CrossRefGoogle Scholar

39. Sharpe, R.J. & Waddams, S.M., ‘Damages for Lost Opportunity to Bargain’ (1982) Oxford J. Legal Stud. 290.CrossRefGoogle Scholar

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41. Lane v. O’Brien Homes [2004] EWHC 303 at para. 22.Google ScholarPubMed

42. Wrotham Park, supra note 20.

43. Surrey CC v. Bredero Homes Ltd. [1993] 1 WLR 1361 (CA) at 1369 (L. J., Steyn).Google Scholar

44. Edelman, supra note 3 at 99.

45. E.g., Birks, P., ‘Profits of Breach of Contract’ (1993) 109 L. Q. Rev. 518 Google Scholar; Burrows, A., The Law of Restitution, 2nd ed. (London: Butterworths, 2002) at 482–83.Google Scholar

46. Lane v. O’Brien, supra note 41.

47. Burrows, supra note 45 at 483.

48. OBG Ltd. v. Allan [2007] UKHL 21 at para. 229 (Nicholls, Lord).Google Scholar I would add that the recognition of the fictional nature of the particular tort discussed in OBG v. Allan confirms the existence of fictions in English law. See Hoffmann, Lord, para. 104 Google Scholar; Lord Walker, para. 271; and Lord Brown, para. 321.

49. This impression seems to find confirmation in several passages of Lord Nicholls’s speech.

50. Mclnnes, M., ‘Gain, Loss and the User Principle,’ [2006] 16 Restitution L. Rev. 76 at 81.Google Scholar

51. Ibid. at 85 [italics in original].

52. This point is partly questioned by Edelman on the basis of a definition of restitutionary damages which will be discussed and rejected later on.

53. Cf. supra note 21.

54. Blake, supra note 1 at 279.

55. McInnes, supra note 50 at 86.

56. Rotherham, supra note 4 at 175. Yet, Rotherham does not expressly take a position on Mclnnes’s violated right theory, which provides support to the compensatory reading of the award while offering a perspective different from the theory of Sharpe and Waddams.

57. WWF v. WWF, supra note 10.

58. Ibid. at para. 59 (Chadwick L. J.).

59. See text to infra notes 105-06.

60. See supra note 21. See also McInnes’s analysis, supra note 50 at 81, of Lord Nicholls’s speech in Blake.

61. Edelman, supra note 3 at 66.

62. Ibid. at 72.

63. Ibid. at 65.

64. Ibid. at 83.

65. Ibid. at 70.

66. In this context, ‘enrichment’ and ‘benefit’ have the same value. Yet I have used different terms to avoid confusion between the language of restitution for unjust enrichment and restitution for wrongs respectively.

67. Waddams, S., Dimensions of Private Law (Cambridge: Cambridge University Press, 2003) at 119 CrossRefGoogle Scholar, seems to agree with this point when he states that ‘[f]rom the point of view of the loss of opportunity to bargain, the concept of proprietary interest … is significant.’

68. See Lord Scott in Sempra, supra note 9 at para. 133: ‘A confusion between compensatory claims and restitutionary claims seems to me apparent in this case.’

69. The role of the juristic ground of the transfer is disputed in English law. The House of Lords has recently rejected it as a valid criterion to establish a legal link between enriched and impoverished in an unjust enrichment claim, see Deutsche Morgan Grenfell Group v. HM Commissioners of Inland Revenue [2006] UKHL 49.Google Scholar But this rejection does not affect the fact that a claim in unjust enrichment will not be successful when the defendant can oppose to the claimant a legal ground to keep the wealth.

70. Tettenborn, supra note 30 at para. 2.79, discussing the user damages, remarks that ‘[n]ormally the law of damages is not concerned with claims of this sort, leaving them to be dealt with … within the rubric of unjust enrichment.’ It should be noted that he extends this statement to comprise breach of contract as in the Blake case. But this extension does not seem correct for reasons which will become apparent at a later stage.

71. See the next section for more details.

72. Giglio, F., ‘A Systematic Approach to “Unjust” and “Unjustified” Enrichment’ (2003) 23 Oxford J. Legal Stud. 455.CrossRefGoogle Scholar

73. Both common law and civil law systems have a quite developed concept of property rights. ‘Property-like’ rights are a vaguer notion. They are not property rights, but share with property rights some characteristics which explain why they tend to be regarded as akin to property rights. German law, for instance, considers the position of the tenant as a constitutionally guaranteed form of ownership, cf. 89 BVerfGE 1. English law has equity. Given that ‘property right’ is a civil law concept, strictly speaking equitable interests cannot be property rights. Yet, there are examples of equitable interests similar to property rights in English law. Furthermore, there are rights which, in certain circumstances, are treated as if they were property rights. See Weinrib, E., ‘Restitutionary Damages as Corrective Justice’ (2000) 1 Theoretical Inquires in Law 1 at 31-36.Google Scholar

74. Weinrib, ibid.. See also Weinrib, E. ‘Punishment and Disgorgement as Contract Remedies’ (2003) 78 Chi.-Kent L.R. 55, esp. 61.Google Scholar

75. Weinrib, supra note 73 at 11.

76. Ibid. at 37.

77. Smith J, Peter, commenting on the ‘ Wrotham Park damages,’ said at first instance in WWF v. WWF, [2006] EWHC 184 (Ch) para. 137 Google Scholar: ‘It appears to be an exceptional discretionary remedy when the more traditional bases for compensating an innocent person for breach of contract would provide no or an illusory result.’

78. Weinrib, supra note 73 at 6 n. 6.

79. McGregor, supra note 36 at para. 12-008.

80. Blake, supra note 1 at 279.

81. Burrows, supra note 45 at 482-83. Virgo, G., The Principles of the Law of Restitution, 2nd ed. (Oxford: Oxford University Press, 2006) at 439–40 CrossRefGoogle Scholar, adopts a softer tone than in the first edition of his textbook.

82. Strand Electric, supra note 15.

83. The analysis conducted by McGregor is a good example of this misunderstanding. Recently, Rotherham, supra note 4 at 174, has accepted the restitutionary construction. See also Lord Nicholls’s words in Blake, supra note 1 at 283.His Lordship considered the Wrotham Park case as a ‘solitary beacon’ in the series of decisions which have dealt with the violation of proprietary or proprietary-like interests generally classifying the award as compensatory.

84. Edelman, supra note 32 at 153.

85. McInnes, supra note 50 at 84. The author uses this term in the context of the user principle. But it might as well apply to any situation involving a violation of a property right.

86. Edelman, supra note 32 at 154.

87. Ibid. at 157.

88. Rotherham, supra note 4 at 177.

89. The way-leave cases will be considered later on. See infra note 122 and text thereof.

90. My Kinda Town Ltd. v. Soll and another [1982] 8 FSR 147.Google ScholarPubMed

91. Ibid. at 148. In the words of Lord Oliver in Reckitt & Colman Products Ltd. v. Borden Inc. [1990] 0 WLR 491 (HL) 499Google Scholar, ‘[t]he law of passing off can be summarised in one short general proposition—no man may pass off his goods as those of another.’

92. Burrows, supra note 45 at 384.

93. McInnes, ‘Account of Profits for Common Law Wrongs’ in Degeling, S. & Edelman, J., Equity In Commercial Law (Sydney, AU: Thomson, 2005) at 405.Google Scholar

94. My Kinda Town, supra note 90 at 149 (Slade J).

95. Contrast Law Commission: Aggravated, Exemplary and Restitutionary Damages, Law Com 247, (1997) I para. 1.10.Google Scholar

96. E.g., Rickless v. United Artists Corp. [1988] QB 40 (CA)Google ScholarPubMed; Hodgens v. Beckingham [2003] EWCA Civ 143 (CA).Google ScholarPubMed

97. E.g., Virgo, supra note 81 at 436; Burrows, supra note 45 at 466. McGregor, supra note 34 at para. 12-006, is more cautious, observing that an account of profits would not overlap completely with restitution for wrongs. In the judiciary, Lord Nicholls in Blake, supra note 1 at 284, expressed himself in favour of a qualification of an account of profits as having a restitutionary function; but the case touched upon the issue of breach of contract, not intellectual property.

98. Colbeam Palmer Ltd. v. Stock Affiliates Pty Ltd. (1968) 122 CLR 25.Google Scholar

99. Ibid. at 36.

100. E.g., WWF v. WWF, supra note 10.

101. Law Commission, supra note 95 at III, para. 1.82 (rec. 14).

102. Blake, supra note 1 at 284.

103. E.g., Aysha Mohammed Murad and Layla Mohammed Murad v. Hashim Ibrahim Khalil Al-Saraj and Westwood Business Inc. [2004] EWHC 1235.Google ScholarPubMed The re-examination by the Court of Appeal in [2005] EWCA Civ 959 did not affect this point.

104. McInnes, supra note 93 at 407-08.

105. WWF v. WWF, supra note 10 at para. 59.

106. This emerges from the immediately preceding words by Chadwick L. J., who directly refers to Lord Nicholls’s speech.

107. Experience Hendrix v. PPXEnterprise Plc [2003] EWCA Civ 323 (CA).Google ScholarPubMed

108. Ibid. at para. 16.

109. Ibid. at para. 39.

110. Ibid. at para. 26.

111. Ibid. at para. 45.

112. Watterson, S., ‘An Account of Profits or Damages? The History of Orthodoxy’ in (2004) 24 Oxford J. Legal Stud. 471.CrossRefGoogle Scholar

113. Ibid. at 473.

114. Ibid.

115. Ibid. at 486.

116. Law Commission, supra note 95 at III para. 1.69: ‘a combination of compensation and restitution might be justified as a punitive measure.’

117. Severn Trent Water Ltd. v. Barnes (CA) [2004] EWCA 570.Google Scholar

118. Ibid. at para. 5 (Potter L. J.).

119. Ibid. at para. 15.

120. Stoke City Council v. Wass [1988] 1 WLR 1406 (CA) at 1416 (L. J., Nicholls).Google Scholar

121. Severn Trent Water, supra note 117 at 42 (Potter L. J.).

122. Whitwham, supra note 18 at 541-42 (Lindley L.J.).

123. Another issue arising from this case is whether the different heads of compensatory damages were truly as compatible as the court stated. But this matter is irrelevant to my analysis. See McInnes, supra note 50 at 90-91.

124. Severn Trent Water, supra note 117 at 41 (Potter L.J.).

125. Watterson, supra note 112 at 471.

126. Neilson v. Betts (1871) LR 5 HL 1.Google ScholarPubMed

127. Watterson, supra note 112 at 472.

128. Ibid.

129. Ibid. at 475.

130. United Australia v. Barclays Bank [1941] AC 1 (HL).Google ScholarPubMed

131. Ibid. at 29.

132. The availability of such remedies is undisputed since (1895) RGZ 35 63 (Ariston case).

133. BGH NJW (1980) 2522.

134. Esso v. Niad, supra note 27.

135. Edelman, supra note 3 at 233-41.