#10446 - 7. Non Compensatory Money Awards - Aspects Of Obligations

Non-Compensatory Money Awards: Gain-Based Damages

Introduction

1. Basics

• Essence –

  • The essence of this sort of award is to deprive a wrong-doer of the profits of his wrongdoing.

  • However they are more complicated and controversial than it at first appears.

2. The Awards

• Nature of the Awards

  • Measured by the monetary value of the benefit received by the defendant, or –

  • Awarded as a response to a civil wrong committed against the claimant.

    • Note that gain-based damages are different from the characteristic remedy for a civil wrong (i.e. compensatory damages), the hook for a restitutionary reward is the wrong, not an autonomous basis such as a mistaken payment.

  • The diversity of remedial forms are a product of unsystematic, historical development influenced by both common law, equity and statute.

  • Different types of award of differing measures reflect different ways of understanding wrongs.

• Diversity of Measures

  • There are a wide range of possible measures that exist for a single wrong -

    • (i) Larger, punitive measures

    • (ii) Gross proceeds

    • (iii) Net profits

    • (iv) Reasonable user fee/license fee

• Diversity of Justification

  • Different awards are justified in different ways

  • There are doubts about the legitimacy of these awards, judges take different views on how far it is appropriate to give claimants a windfall benefit, going beyond redistributive justice.

• Alternative Characterisations

  • Some remedies may look gain based but actually be susceptible to other explanations – may actually be an award for autonomous unjust enrichment.

    • E.g. stealing a car and selling it – law requires paying over of profit – is this is unjust enrichment or gain based remedies for a wrong?

  • Some gain based awards are re-characterized as compensatory damages rather than gain based remedies.

• Spectrum of Extra-Compensatory Awards

Punitive exemplary damages Profit stripping License fee and similar damages.

Exemplary Damages (Category 2)

1. Two Categories

• Key Authority - Rookes v Barnard 1964

  • Lord Devlin established that there are two categories of case in which exemplary damages are awarded.

  • The second category - “the second [comprises cases] in which the defendant’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the plaintiff”.

  • This award is characterised by a defendant who has had “cynical disregard” for the claimant’s rights.

2. Basics

• Basics

  • Conduct must be sufficiently outrageous to justify punishment.

  • Exemplary damages aim at deterrence as well as punishment.

  • They can be awarded even where no profits have been made, or even if there have been profits made, the quantum may exceed this amount therefore not technically a gain-based award.

• Necessary?

  • Law Commission are of the opinion that this category of damages have largely been overtaken by common law developments.

Profit-Stripping Awards

1. Basics

• Basics

• Profit-stripping awards = “disgorgement”

• In essence, the defendant must give up profits made, regardless of whether they represent gains from the claimant, or whether the claimant has suffered loss or not. But this is controversial because it looks like a windfall to the plaintiff – therefore need for a cogent reason to justify them.

• The dominant mechanism is equity’s account of profits.

2. Rationale

• Rationale

  • Prima facie appears to most obviously be justified by wrongdoers not be allowed to profit from their own wrongdoing.

  • Edelman has a thesis that disgorgement remedies have a deterrent function, whereas compensatory damages alone are inadequate to deter wrongdoing. He identified two categories.

    • (i) Cynical profit seeking – where a wrong is committed deliberately or recklessly to gain

    • (ii) Fiduciary wrongdoing – inadvertent, without conscious wrongdoing.

  • Burrows argues that this looks more proscriptive than prescriptive.

2. Availability

• Types of Wrongdoing

  • We see variations in the level of fault required, for certain forms of wrongdoing, it is the almost automatic response, and there is little discretion exercised in denying it. Other types of wrongdoing where disgorgement is more tightly defined and courts exercise more discretion to limit their damages.

    • (1) Breach of fiduciary duty

      • Profiting from fiduciary position

      • Stripping profits is the primary response

      • No defence that he acted in good faith

      • Prophylactic or preventative measure – creation of a disincentive for fiduciaries.

        • Authority – Boardman v Phipps 1967

        • Authority – Muraj v Al-Saraj 2005

    • (2) Dishonest participation in breach of fiduciary duty

      • Clear deterrence rationale.

        • Authority – Royal Brunei Airlines v Tan 1995

    • (3) Intellectual property wrongs

      • Long history of awarding account of profits for such infringements – this predates most statutes governing this area of law.

      • Common law courts, before these statutes, would recognize that the infringement was a wrong and would award damages, but courts of equity supplemented this by making available injunctive relief as well as remedying past infringements by making account of profit.

      • Account of profit appears to be available widely, pretty much at the claimant’s election – barely discretionary in practice. True of infringements of patents, copyrights, trademarks, passing off etc.

      • Edelman’s theory – under Edelman’s theory, they should only be awarded as deterrent. But it seems more confusing than this.

      • In relation to patent-infringement – there is a defence of innocent infringement.

      • Likewise in passing off and trademarks – prepared to limit account of profits where there is good faith. But different in copyright – exempts D from liability for damages for innocent infringement, but account of profits can still be awarded

      • Edelman would say this is an unjustified exception.

      • See statutory schemes –

        • Patents Act 1977 ss.61(1)(d), (62)(1)

        • Copyright, Designs and Patents Act 1988, s 96(2), 97(1)

        • Trade Marks Act 1994, s 14(2)

        • Community Trade Mark Regulations 2006

    • (4) Breach of confidence or misuse of confidential information

      • Disgorgement is sometimes imposed by contract, other times imposed independently of contract.

        • Authority - Attorney-General v Guardian Newspapers (No 2) 1990 (Spycatcher litigation).

      • In the past it used to be assumed that the account of profit and damages were available as of right – by election.

      • Edelman criticises this – profit-stripping should be restricted to cynical breach, but in inadvertent cases, only damages should be awarded

      • But recent cases suggest that it messier than this.

        • Authority - Vercoe v Rutland Fund Management 2010 (followed by Jones v Ricoh UK Ltd 2010) –

          • Established at High Court level that it is wrong to assume that profit-stripping was available as of right even in a case of conscious wrongdoing – breaches of confidence are very different in nature in different circumstances. This was merely a contractual commercial confidentiality issue, such a case was not likely to warrant account of profits.

          • There are a range of different cases, different ways to respond to each.

        • Authority – Walsh v Shanahan 2013 –

          • More flexible approach adopted.

      • (5) Common law property wrongs

        • Edelman would say that in any cases where wrong is committed cynically, there is a need for deterrence therefore need for profit stripping. But far from clear that the case law maps onto this – not the case that every tort that is committed with a view to gain is awarded profit-stripping remedy.

        • Authority – Re Simms 1934 –

          • A bankrupt builder had been unable to fulfil obligations therefore abandoned his outstanding contracts. An invalidly appointed receiver took them over and completed and earned monies under them which would not otherwise have been received.

          • Such an award was denied here – note that this was an innocent action.

        • Wrongful interference for land looks similar to chattels – selling of land, very likely to recover proceeds of sale of the land – by old action for money had and received.

        • But if we have a lesser type of interference, e.g. temporary period of wrongful occupation generating a profit – position looks different – e.g. erection of advertising on someone’s land, or infringing right to light.

        • Seems to suggest as a general matter then a reasonable sum to do what he did appear to be awarded, but no clear authority of account of profits for such cases. Not categorically ruled out but obvious that this will be exceptional.

      • (6) Other common law wrongs

        • Position looks even murkier – no real authority for making these awards for the economic torts.

        • Different authorities on cases of fraud – maybe considered surprising, as one may think that this is the exact case it is likely to be awarded but this is not reflected in the case law.

        • Authority – Halifax Building Society v Thomas 1996 –

        • Presumed obiter that it was not available.

• General Principles & Patterns

  • Spectrum from cases where disgorgement is a primary response and readily available (fiduciary related wrongdoing), further down where it is available by elected (conversion of land or chattels – whether innocent or not), then liability for IP (net profits – conscious wrongdoing required), then beyond this, court start placing more limitations on availability, even conscious wrongdoing cases may not attract it even if the wrong is conscious – other hurdles may be placed about other remedies being inadequate, exceptional circumstances etc.

  • Trend is to fall down to license fee measure. Then to the other end of the spectrum where it is not awarded.

3. Quantification

• Settled Principle

  • Key...