(D) DOES RESTITUTION FOR WRONGS PROPERLY FORM PART OF THE LAW OF RESTITUTION?
Regardless of whether restitution for wrongs is considered to be based on the principle of unjust enrichment or the fact that the defendant has committed a wrong, it is clear that the claimant can obtain remedies which are assessed by reference to the benefit obtained by the defendant as a result of the commission of the wrong. But should these remedies necessarily be characterized as restitutionary? Sometimes where a gain-based remedy is awarded to the claimant, the benefit which was obtained by the defendant did not derive from the claimant, so how can the benefit be restored to the claimant? It is more accurate to say that, rather than the defendant being liable to restore a benefit to the claimant, he or she must disgorge the value of the benefit to the claimant.[1] It follows that there is a distinction between those gain-based remedies which are literally restitutionary and those which involve disgorgement. The former category of remedy is relevant where the defendant’s gain is subtracted from the claimant as a result of the commission of a wrong. The award of such remedies can be justified by reference to the corrective justice principle,[2] by the defendant giving back to the claimant what the claimant had lost as a result of the commission of the wrong. This clearly falls within the law of restitution. Disgorgement remedies operate where the defendant is required to give up a gain made from the commission of the wrong, even though that gain was not obtained directly from the claimant. The award of such remedies might be justified by reference to the principle of distributive justice.20 Despite the difference in justification for their award, turning on the difference between giving back and giving up, both categories of remedy are gain-based since they focus on depriving the defendant of a gain made as a result of committing the wrong. Consequently, it is perfectly legitimate to treat disgorgement remedies as falling within the law of restitution broadly defined, since they are assessed by reference to the value of the benefit which was obtained by the defendant from the commission of the wrong, rather than by reference to the loss suffered by the claimant.
Even if it is accepted that all gain-based remedies can be characterized as restitutionary, it might still be appropriate to distinguish clearly between claims which are founded on restoring to the claimant what he or she has lost as a result of the commission of the wrong and claims which require the defendant to disgorge what has been obtained from another party as a result of the wrong, for different policies may underpin each type of claim. This is the basic thesis of Edelman in his book on the award of gain-based remedies for the commission of wrongs.21 He asserts that the award of gain-based remedies which seek to restore to the claimant what he or she has lost are easier to justify than disgorgement remedies, which should only be awarded where the defendant has acted cynically, although he does not make clear what ‘cynically’ means for these purposes. As will be seen in Chapter 18, the basic dichotomy suggested by Edelman appears to have been adopted when awarding gain-based remedies for breach of contract.
Great care must be taken when using the word ‘restitution’ in the context of wrongs since it can sometimes have a compensatory meaning. This is illustrated by the decision of the House of Lords in Target Holdings Ltd v Redferns (a firm), where Lord Browne-Wilkinson23 described the remedy of ordering the reconstitution of a trust as ‘restitution’.24 Whilst this may be accurate in a descriptive sense, since reconstituting a trust involves restoring it to its state before the trust property was misappropriated, the use of ‘restitution’ is unfortunate in this context since reconstitution of a trust is a compensatory remedy, involving assessment by reference to what the trust lost rather than what the defendant gained.25 Similarly, in Swindle v Harri- son26 the Court of Appeal described the remedy of equitable compensation for breach of fiduciary duty as ‘restitutionary’. Such a description is incorrect because equitable compensation is assessed by reference to the claimant’s loss rather than the defendant’s gain.27
There is an unfortunate tendency for the courts to use the language of ‘compensation’ to include gain-based remedies. For example, in FHR European Ventures Ltd v Cedar Capital Partners LLC ,28 in the context of a claim relating to a bribe received by a fiduciary, the Supreme Court described the personal remedy available as ‘equitable compensation’,29 which is assessed as a sum equal to the value of the bribe. But, since the bribe will have been received from a third party, it is inappropriate to describe the remedy which is assessed by reference to the value of the bribe as compensatory, even with the prefix ‘equitable’. It is a disgorgement remedy which operates to deprive the defendant of the gain rather than to compensate the claimant for loss suffered.
- [1] See FA Farnsworth, ‘Your Loss or My Gain? The Dilemma of the Disgorgement Principle in Breach ofContract’ (1985) 94 Yale LJ 1339,1342; LD Smith, ‘The Province of the Law of Restitution’ (1992) 71 CBR 672,696; J Edelman, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (Oxford: Hart Publishing, 2002), 72.
- [2] See p 5, above. 20 See p 6, above.
