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CAUSATION AND REMOTENESS

Regardless of the nature of the gain-based remedy which is sought following the commission of a wrong, the claimant must show that the receipt of a benefit by the defendant was caused by the commission of the wrong.

(A) THE GENERAL PRINCIPLE OF CAUSATION

In CMS Dolphin Ltd v Simonet[1] Lawrence Collins J recognized that there must be ‘some reasonable connection’ between the wrong and the benefit which was obtained as a result of it. Traditionally, the test of causation which has been used in respect of restitutionary claims founded on wrongdoing is the ‘but for’ test. Consequently, the defendant will only be liable to make restitution where the claimant can show that the defendant would not have obtained the particular benefit but for the commission of the wrong.[2] This test of causation will be established by showing that the relevant wrong was the principal cause of the benefit being obtained, but it need not be the sole cause. Further, it appears that the burden of proving causation is placed on the claimant, although there are certainly exceptions to this where, for policy reasons, the burden is placed on the defendant.[3]

How easy it is to satisfy the ‘but for’ test of causation will depend on the nature of the restitutionary claim. Where the claimant seeks literal restitution of the benefit which the claimant argues the defendant obtained from the claimant as a result of wrongdoing, causation will be easily established since, but for the commission of the wrong, the benefit would not have been obtained. Where, however, the benefit was obtained from a third party, and so the claimant seeks disgorgement, it will be more difficult to establish that the receipt of the benefit was caused by the commission of the wrong. This is illustrated by My Kinda Town Ltd v Soil,[4] where the defendant had committed the tort of passing off by using as a name for a restaurant a name which was similar to that used by the claimant. It was held that the defendant was liable to account for the profits it had made from customers who had confused the defendant’s restaurant with those of the claimant. This was simply because, but for the commission of the tort, these profits would not have been obtained. Clearly in cases such as this it will be particularly difficult to determine which benefits obtained by the defendant are attributable to the commission of the wrong.

Where the defendant is alleged to have profited from breach of fiduciary duty the test of causation is interpreted much more liberally. In Murad v Al-Saraj[5] it was held that, where the defendant was alleged to have profited from breach of fiduciary duty, the court was not concerned with what would have happened but for the breach but only whether the profits fell within the scope of the fiduciary duty. Consequently, a defendant fiduciary will be liable to account to the claimant for profits made from the breach of fiduciary duty even if the profit would have been made had the defendant not committed the wrong. So here the test of causation is not one of ‘but for’ cause, but simply one of contributory cause. This more liberal approach to causation for breach of fiduciary duty is due to the need to deter defendants from the temptation of abusing a relationship of trust and confidence.[6] Where, however, the defendant is liable for dishonestly assisting a breach of fiduciary duty,[7] a defendant who has profited from the assistance will be liable to account for those profits which were causally connected to the assistance, but here the test of causation is not ‘but for’, but rather whether the assistance was a real and effective cause of the profits being made.[8] Arguably, this distinct test of causation is justified because the defendant accessory is not a fiduciary, so a test of direct causation is required, but because the defendant must have acted dishonestly to be liable, the strict ‘but for’ test is inappropriate. This is similar to the law of mistake, where the test of causation for a spontaneous mistake is that of ‘but for’ causation, whereas the test of causation where the mistake was induced by fraud is simply that the mistake was an operative cause of the claimant transferring a benefit to the defendant.[9] [10]

  • [1] [2001] 2 BCLC 704, [97].
  • [2] See Farnsworth, ‘Your Loss or My Gain?’, 1343. See also Murad v Al-Saraj [2005] EWCA Civ 959,[2005] WTLR 1573, [62] (Arden LJ).
  • [3] See, for example, breach of fiduciary duty. See below.
  • [4] [1982] FSR 147, reversed as to liability in the Court of Appeal: [1983] RPC 407.
  • [5] [2005] EWCA Civ 959, [2005] WTLR 1573.
  • [6] See p 423, above. 128 See p 521, below.
  • [7] 129 Novoship (UK) Ltd v Mikhaylyuk [2014] EWCA Civ 908, [2015] 2 WLR 526. See p 524, below.
  • [8] 130 See p 187, above.
  • [9] 131 See Attorney-General v Guardian Newspapers (No 2) [1990] 1 AC 109, 266 (Lord Brightman).
  • [10] 132 See p 426, above.
 
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