(E) THE RELATIONSHIP BETWEEN DAMAGES FOR BREACH OF CONTRACT AND RESTITUTION TO REVERSE UNJUST ENRICHMENT

Where the claimant has paid money in advance to the defendant in respect of a contract which the defendant then breaches, the claimant has two remedial options. First, the claimant might sue the defendant for breach of contract and recover damages. These damages will usually be compensatory, although it is possible for a disgorgement remedy to be awarded to deprive the defendant of any gain made as a result of breaching the contract.^[1] The award of such a gain-based remedy has nothing, however, to do with the reversal of the defendant’s unjust enrichment, since the restitutionary claim is founded on the wrong of the breach of contract.^[2] Alternatively, the claimant might seek to recover the advance payment by virtue of the failure of basis. Such a claim would be founded on the reversal of the defendant’s unjust enrichment.

In Baltic Shipping v Dillon^[3] the High Court of Australia held that the award of compensatory damages for breach of contract and restitutionary remedies to reverse the defendant’s unjust enrichment are incompatible, so that they can only be awarded as alternatives. In principle this must be correct. The usual function of compensatory damages for breach of contract is to fulfil the claimant’s expectations by placing the claimant in the position which he or she would have occupied had the contract not been breached. The function of restitutionary remedies, on the other hand, is to return the claimant to the position which he or she occupied before the contract was breached by restoring to the claimant any gain made by the defendant at the claimant’s expense. If the claimant was awarded expectation damages to carry him or her forward it would generally be absurd and contradictory also to award the claimant a restitutionary remedy to take the claimant back to the position before the benefit was transferred. In part this is because if, by awarding compensatory damages, the claimant is deemed to be placed in the position which he or she would have occupied had the contract not been breached, it will not be possible to show that the basis for the enrichment has failed, since the claimant will be considered to have received what he or she expected to receive under the contract.

Similarly, if the claimant has recovered the benefit which he or she had transferred to the defendant under the contract in a restitutionary claim, the basis for the claimant requiring the defendant to perform the contract will have been removed, since that performance will have been conditional on receipt of the benefit from the claimant.^[4] If the defendant is not required to perform his or her side of the bargain, there is no ground for holding the defendant liable for breach of contract.

But this incompatibility between awarding damages for breach and restitution for failure of basis is not as clear-cut as the High Court of Australia suggest. Rather than saying that compensatory damages and restitutionary remedies are incompatible, it is preferable to assert that both types of remedy may be awarded in the same action so long as there is no double recovery.^[5] If the claimant is awarded a restitutionary remedy it should still be possible in principle to award him or a compensatory remedy as well, but in assessing the loss suffered by the claimant it is vital to take into account the effect of the restitutionary remedy which has been awarded.^[6] So, for example, if the claimant is able to recover the value of any benefit transferred under the contract to the defendant by virtue of failure of basis, it should still be possible for the claimant to claim damages to compensate for a distinct loss, such as personal injury.^[7]

In most cases, however, the claimant will wish either to claim compensatory damages or restitution and will not be seeking to recover both. The decision as to which remedy to pursue will depend on which remedy is more lucrative, by reference to whether or not the defendant’s gain is greater than the claimant’s loss arising from the breach of contract,^[8] which will be determined by the operation of rules on remoteness, mitigation of loss and the type of loss which is recoverable under the law of damages. Further, a claim for restitution might trigger a proprietary restitutionary claim, at least if the defendant knew that there had been a failure of basis for his or her receipt of the enrichment.^[9]

• [1] 33 See Chapter 18.
• [2] 34 (1993) 176 CLR 344. See also Walstab v Spottiswode (1846) 15 M and W 501, 514; 153 ER 952, 953
• [3] (Pollock CB).
• [4] Baltic Shipping Co v Dillon (1993) 176 CLR 344, 359 (Mason CJ).
• [5] See K Barker, ‘Restitution of Passenger Fare’ [1993] LMCLQ 291. Compensatory damages and restitutionary remedies may both be awarded where the claim is grounded on the wrong of breach of contract if thereis no double recovery. See p 438, below.
• [6] See Giedo van der Garde BNV v Force India Formula One Team Ltd [2010] EWHC 2373 (QB), [291](Stadlen J). In DO Ferguson and Associates v Sohl (1992) 62 Build LR 92 the claimant was awarded bothrestitution on the ground of total failure of basis and nominal damages of ?1 for breach of contract.
• [7] This had been recognized by Lord Denning MR in Heywood v Wellers (a firm) [1976] QB 446, 458. Seealso Millar’s Machinery Co Ltd v David Way and Son (1935) 40 Com Cas 204.
• [8] See p 326, below. 40 Re Farepak Food and Gifts Ltd [2006] EWHC 3272. See p 600, below.
• [9] 41 Gribbon v Lutton [2001] EWCA Civ 1956, [2002] QB 902, [60] (Robert Walker LJ).