(E) INADEQUACY OF COMPENSATORY DAMAGES

In Attorney-General v Blake¹⁵⁶ the House of Lords recognized that, where the normal remedies for breach of contract (namely compensatory damages, specific performance and injunctions) are inadequate, the court could, if justice demanded, grant a gain-based award of an account of profits. This derives from a general principle that gain-based remedies will not be granted if compensatory damages are deemed to provide an adequate remedy. The principle of inadequacy of compensatory damages was relied on by the Court of Appeal in Devenish Nutrition Ltd v Sanofi-Aventis SA (France),¹⁵⁷ to deny an account of profits as a remedy for the tort of breach of statutory duty because, amongst other reasons,¹⁵⁸ compensatory damages remained an adequate remedy. In that case the claimant had purchased vitamins from the defendant at an unlawfully inflated price. The claimant had sold the vitamins to third parties at a profit, the effect of which was that the claimant had passed on its loss to the third parties. Consequently, the claimant could not have recovered compensatory damages from the defendant. The Court of Appeal held that the claimant could not recover a gain-based remedy either, because compensatory damages remained an adequate remedy. It was recognized that, where the claimant had suffered no loss, compensatory damages might be inadequate,^[1] but this would not necessarily be the case where the loss had been passed on because, allowing the claimant to obtain a gain-based remedy in such circumstances, would result in a windfall which was considered to be unacceptable because the law should not transfer monetary gains from one underserving recipient to another.^[2] But this confuses two separate issues, namely whether it is appropriate to restrict the claimant to a compensatory award and whether a gain-based remedy should be denied because the claimant had passed the loss on. It would have been preferable to recognize that, where the loss has been passed on, compensatory damages are not an adequate remedy, but a gain-based remedy might be denied for a distinct reason, namely that the loss has been passed on. Passing on of loss is not a defence to a claim grounded on unjust enrichment,^[3] so it is difficult to see why it should be relevant in the context of a claim grounded on wrongdoing where the defendant has benefited from the commission of the wrong.

The requirement of inadequacy of compensatory damages is not recognized where account of profits is regarded as the normal remedy in Equity, for example for breach of fiduciary duty,^[4] whereas the requirement exists for the award of other equitable remedies such as injunctions and specific performance.^[5] That is presumably because the effect of injunctions and specific performance was to enforce Common Law rights, whereas the relevant right involving breach of fiduciary duty arose from within Equity and did not involve any extra-jurisdictional enforcement. This explains the true function of the inadequacy of compensatory damages principle, namely that such a remedy, where available in principle, should have priority over any other remedy, which are consequently only available exceptionally. But, if compensatory damages are inadequate, it is appropriate to award other remedies, including gain-based remedies. It follows that the decision in Devenish is suspect because compensatory damages were plainly inadequate, since the claimant had suffered no loss, rendering the award of a gain-based remedy appropriate. That compensatory damages should be considered to be an inadequate remedy when the claimant had suffered no significant loss, such that only nominal damages would otherwise be awarded, is consistent with the approach adopted when determining whether specific performance should be ordered.^[6] It is also consistent with the approach of the House of Lords in Attorney-General v Blake where a gain-based remedy for breach of contract was justified precisely because the claimant had suffered no loss as a result of the breach.^[7]

• [1] Devenish Nutrition Ltd v Sanofi-Aventis SA (France) [2008] EWCA Civ 1086, [2009] Ch 390, [105](Arden LJ).
• [2] Ibid, [157] (Tuckey LJ). 161 See p 118, above. 162 See p 488, below.
• [3] 163 See, for example, American Cyanamid Co vEthicon Ltd (No 1) [1975] AC 396, 408 (Lord Diplock); Co
• [4] operative Insurance Society v Argyll Stores (Holdings) Ltd [1998] AC 1,11 (Lord Hoffmann).
• [5] 164 Beswick v Beswick [1968] AC 58. See also R Austen-Baker, ‘Difficulties with Damages as a Ground for
• [6] Specific Performance’ (1999) KCLJ 1.
• [7] See p 475, below.