#6737 - Attorney General V. Blake - Restitution of Unjust Enrichment BCL

Attorney General v. Blake

Facts

The defendant was a former member of the Secret Intelligence Service ("SIS") who in 1944 signed an undertaking not to divulge any official information gained as a result of his employment. Between 1951 and 1960 he disclosed valuable secret information to the Soviet Union. In 1961 he was convicted of spying and sentenced to 42 years' imprisonment, but in 1966 he escaped and went to live in Moscow, where he remained. In 1989 he wrote an autobiography, substantial parts of which were based on information he had acquired in the course of his duties as an SIS officer. By section 1(1) of the Official Secrets Act 1989 it was an offence for a person who had been a member of the intelligence services without lawful authority to disclose any information relating to intelligence which was in his possession by virtue of his position as a member of those services. The defendant entered into a publishing contract with a publisher under which he was to receive an advance of 50,000, a further 50,000 on delivery of the final manuscript and 50,000 on publication.

After he had already received some 60,000 from the publisher, the Attorney General brought a private law action against the defendant claiming damages for breach of fiduciary duty and payment of all moneys received and to be received by him from the publisher, on the ground that the defendant owed the Crown a fiduciary duty not to use his position as a former member of the SIS or make use of secret or confidential information received during his service so as to generate a profit for himself.

The trial judge had found that Blake owed no fiduciary duty to the Crown since the content that was published in his book no longer remained confidential. Pursuant to this, Attorney general sought to amend the claim and in appeal breach of contract was argued – this was based on the undertaking given by Blake in 1991 that he would not divulge any information he received in his capacity as an intelligence officer.

Holding

The law is now sufficiently mature to recognise a restitutionary claim for profits made from a breach of contract in appropriate situations. These include cases of "skimped" performance, and cases where the defendant obtained his profit by doing "the very thing" he contracted not to do. The present case fell into the latter category: Blake earned his profit by doing the very thing he had promised not to do.

Most writers have favoured the view that in some circumstances the innocent party to a breach of contract should be able to compel the defendant to disgorge the profits he obtained from his breach of contract.

No Identity between the Plaintiff’s Loss and Defendant’s Gain

As with breaches of contract, so with tort, the general principle regarding assessment of damages is that they are compensatory for loss or injury. The general rule is that, in the oft quoted words of Lord Blackburn, the measure of damages is to be, as far as possible, that amount of money which will put the injured party in the same position he would have been in had he not sustained the wrong: Livingstone v Rawyards Coal Co (1880) 5 AppCas 25 , 39. 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. The same principle is applied where the wrong consists of use of another's land for depositing waste, or by using a path across the land or using passages in an underground mine. In this type of case the damages recoverable will be, in short, the price a reasonable person would pay for the right of user.

However that may be, these awards cannot be regarded as conforming to the strictly compensatory measure of damage for the injured person's loss unless loss is given a strained and artificial meaning. The reality is that the injured person's rights were invaded but, in financial terms, he suffered no loss. Nevertheless the common law has found a means to award him a sensibly calculated amount of money. Such awards are probably best regarded as an exception to the general rule…. Courts of equity went further than the common law courts. In some cases equity required the wrongdoer to yield up all his gains. In respect of certain wrongs which originally or ordinarily were the subject of proceedings in the Court of Chancery, the standard remedies were injunction and, incidental thereto, an account of profit.

Claim for Profits

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. 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.

These cases illustrate that circumstances do arise when the just response to a breach of contract is that the wrongdoer should not be permitted to retain any profit from the breach. In these cases the courts have reached the desired result by straining existing concepts.

My conclusion is that there seems to be no reason, in principle, why the court must in all circumstances rule out an account of profits as a remedy for breach of contract. I prefer to avoid the unhappy expression "restitutionary damages". Remedies are the law's response to a wrong (or, more precisely, to a cause of action). When, exceptionally, a just response to a breach of contract so requires, the court should be able to grant the discretionary remedy of requiring a defendant to account to the plaintiff for the benefits he has received from his breach of contract.

The state of the authorities encourages me to reach this conclusion, rather than the reverse. The law recognises that damages are not always a sufficient remedy for breach of contract. This is the foundation of the court's jurisdiction to grant the remedies of specific performance and injunction. Even when awarding damages, the law does not adhere slavishly to the concept of compensation for financially measurable loss. When the circumstances require, damages are measured by reference to the benefit obtained by the wrongdoer.

With the established authorities going thus far, I consider it would be only a modest step for the law to recognise openly that, exceptionally, an account of profits may be the most appropriate remedy for breach of contract. It is not as though this step would contradict some recognised principle applied consistently throughout the law to the grant or withholding of the remedy of an account of profits. No such principle is discernible.

An account of profits will be appropriate only in exceptional circumstances. Normally the remedies of damages, specific performance and injunction, coupled with the characterisation of some contractual obligations as fiduciary, will provide an adequate response to a breach of contract. It will be only in exceptional cases, where those remedies are inadequate, that any question of accounting for profits will arise. No fixed rules can be prescribed… A useful general guide, although not exhaustive, is whether the plaintiff had a legitimate interest in preventing the defendant's profit-making activity and, hence, in depriving...