#6645 - Attorney General V. Blake - Commercial Remedies BCL

Attorney General v. Blake

Facts

My Lords, George Blake is a notorious, self-confessed traitor. He was employed as a member of the security and intelligence services for 17 years, from 1944 to 1961. In 1951 he became an agent for the Soviet Union. He was sentenced to 42 years' imprisonment. This sentence reflected the extreme gravity of the harm brought about by his betrayal of secret information. In 1966 Blake escaped from Wormwood Scrubs prison and fled to Berlin and then to Moscow. He is still there, a fugitive from justice. In 1989 he wrote his autobiography. On 4 May 1989 Blake entered into a publishing contract with Jonathan Cape Ltd. He granted Jonathan Cape an exclusive right to publish the book in this country in return for royalties.

Blake had not sought any prior authorisation from the Crown to disclose any of the information in the book relating to the Secret Intelligence Service. Jonathan Cape has, apparently, already paid Blake about 60,000 under the publishing agreement. In practice that money is irrecoverable. A further substantial amount, in the region of 90,000, remains payable. These proceedings concern this unpaid money.

On 24 May 1991 the Attorney General commenced an action against Blake, with a view to ensuring he should not enjoy any further financial fruits from his treachery. The writ and statement of claim sought relief on a variety of grounds.

On 16 August 1944 Blake signed an Official Secrets Act declaration. This declaration included an undertaking:

“...I undertake not to divulge any official information gained by me as a result of my employment, either in the press or in book form. I also understand that these provisions apply not only during the period of service but also after employment has ceased.”

This undertaking was contractually binding. Had Blake not signed it he would not have been employed. By submitting his manuscript for publication without first obtaining clearance Blake committed a breach of this undertaking. The Court of Appeal suggested that the Crown might have a private law claim to "restitutionary damages for breach of contract", and invited submissions on this issue.

Holding

Lord Nicholls

Departure from the loss principle – Property Cases

As with breaches of contract, so with tort, the general principle regarding assessment of damages is that they are compensatory for loss or injury. Damages are measured by the plaintiff's loss, not the defendant's gain. But the common law, pragmatic as ever, has long recognised that there are many commonplace situations where a strict application of this principle would not do justice between the parties. Then compensation for the wrong done to the plaintiff is measured by a different yardstick. A trespasser who enters another's land may cause the landowner no financial loss. In such a case damages are measured by the benefit received by the trespasser, namely, by his use of the land.

In this type of case the damages recoverable will be, in short, the price a reasonable person would pay for the right of user. The same principle is applied to the wrongful detention of goods. An instance is the much cited decision of the Court of Appeal in Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246, concerning portable switchboards. The Mediana [1900] AC 113, 117, that if a person took away a chair from his room and kept it for 12 months, could anybody say you had a right to diminish the damages by showing that I did not usually sit in that chair, or that there were plenty of other chairs in the room? To the same effect was Lord Shaw's telling example in Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104, 119. It bears repetition:

“If A, being a liveryman, keeps his horse standing idle in the stable, and B, against his wish or without his knowledge, rides or drives it out, it is no answer to A for B to say: 'Against what loss do you want to be restored? I restore the horse. There is no loss. The horse is none the worse; it is the better for the exercise.”

Equity – Breach of Fiduciary Duty and Breach of Trust

Whether this justification for ordering an account of profits holds good factually in every case must be doubtful. Be that as it may, in these types of case equity considered that the appropriate response to the violation of the plaintiff's right was that the defendant should surrender all his gains, and that he should do so irrespective of whether the violation had caused the plaintiff any financially measurable loss. Gains were to be disgorged even though they could not be shown to correspond with any disadvantage suffered by the other party.

Considered as a matter of principle, it is difficult to see why equity required the wrongdoer to account for all his profits in these cases, whereas the common law's response was to require a wrongdoer merely to pay a reasonable fee for use of another's land or goods. In all these cases rights of property were infringed. This difference in remedial response appears to have arisen simply as an accident of history.

I should refer briefly to breach of trust and breach of fiduciary duty. Equity reinforces the duty of fidelity owed by a trustee or fiduciary by requiring him to account for any profits he derives from his office or position. This ensures that trustees and fiduciaries are financially disinterested in carrying out their duties. They may not put themselves in a position where their duty and interest conflict. To this end they must not make any unauthorised profit. If they do, they are accountable. Whether the beneficiaries or persons to whom the fiduciary duty is owed suffered any loss by the impugned transaction is altogether irrelevant.

Breach of Contract – Other Cases – Wrotham Park

An instance of this nature occurred in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798. For social and economic reasons the court refused to make a mandatory order for the demolition of houses built on land burdened with a restrictive covenant. Instead, Brightman J made an award of damages under the jurisdiction which originated with Lord Cairns's Act. The existence of the new houses did not diminish the value of the benefited land by one farthing. The judge considered that if the plaintiffs were given a nominal sum, or no sum, justice would manifestly not have been done. He assessed the damages at 5% of the developer's anticipated profit, this being the amount of money which could reasonably have been demanded for a relaxation of the covenant.

In reaching his conclusion the judge applied by analogy the cases mentioned above concerning the assessment of damages when a defendant has invaded another's property rights but without diminishing the value of the property. I consider he was right to do so. Property rights are superior to contractual rights in that, unlike contractual rights, property rights may survive against an indefinite class of persons. However, it is not easy to see why, as between the parties to a contract, a violation of a party's contractual rights should attract a lesser degree of remedy than a violation of his property rights. As Lionel D Smith has pointed out in his article "Disgorgement of the profits of Breach of Contract: Property, Contract and 'Efficient Breach'" (1995) 24 Can BLJ 121, it is not clear why it should be any more permissible to expropriate personal rights than it is permissible to expropriate property rights.

Disapproval of Surrey County Council: I turn to the decision of the Court of Appeal in Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361. A local authority had sold surplus land to a developer and obtained a covenant that the developer would develop the land in accordance with an existing planning permission. The sole purpose of the local authority in imposing the covenant was to enable it to share in the planning gain if, as happened, planning permission was subsequently granted for the erection of a larger number of houses. The purpose was that the developer would have to apply and pay for a relaxation of the covenant if it wanted to build more houses. In breach of covenant the developer completed the development in accordance with the later planning permission, and the local authority brought a claim for damages. The erection of the larger number of houses had not caused any financial loss to the local authority. The judge awarded nominal damages of 2, and the Court of Appeal dismissed the local authority's appeal.

But, according to the Bredero decision, a covenant not to erect any further houses without permission, intended to achieve the same result, may be breached with impunity. That would be a sorry reflection on the law. Suffice to say, in so far as the Bredero decision is inconsistent with the approach adopted in the Wrotham Park case, the latter approach is to be preferred.

The Wrotham Park case, therefore, still shines, rather as a solitary beacon, showing that in contract as well as tort damages are not always narrowly confined to recoupment of financial loss. In a suitable case damages for breach of contract may be measured by the benefit gained by the wrongdoer from the breach. The defendant must make a reasonable payment in respect of the benefit he has gained.

Account of Profits for Breach of Contract?

In the present case the Crown seeks to go further. The claim is for all the profits of Blake’s book which the publisher has not yet paid him. This raises the question whether an account of profits can ever be given as a remedy for breach of contract. The...