(ii) Principles Underpinning the Decision of the Majority in the House of Lords

The approach of the House of Lords to the award of restitutionary remedies was summarized by Lord Nicholls as follows:

My conclusion is that there seems to be no reason, in principle, why the court must in all circumstances rule out an account of profits as a remedy for breach of contract... When, exceptionally, a just response to a breach of contract so requires, the court should be able to grant the discretionary remedy of requiring a defendant to account to the plaintiff for the benefits he has received from his breach of contract. In the same way as a plaintiff’s interest in performance of a contract may render it just and equitable for the court to make an order for specific performance or grant an injunction, so the plaintiff’s interest in performance may make it just and equitable that the defendant should retain no benefit from his breach of contract.^[1]

It was held that the facts of the Blake case were exceptional and justified the award of the remedy of an account of profits. The majority identified a variety of principles which are relevant when identifying whether an account of profits is an appropriate remedy for breach of contract.

(1) The award of an account of profits in respect of a breach of contract is an exceptional remedy.^[2] It follows that the normal remedy for breach of contract is the award of compensatory damages.
(2) No fixed rules can be prescribed as to when an account ofprofits should be awarded. Rather, the court must have regard to all the circumstances of the case, including the subject matter of the contract, the purpose of the contractual provision which had been breached, the circumstances in which the breach occurred, the consequences of the breach and the circumstances in which the relief is being sought.^[3]
(3) A gain-based remedy will only be awarded following a breach of contract where other remedies are inadequate. So, for example, if a compensatory remedy or a specific remedy to enforce performance of the contract are adequate, these will trump the award of an account of profits. Whether the award of compensatory damages is inadequate should be considered in the light of what the claimant wanted the contract to achieve. If the claimant has a particular interest in the performance of the contract, which is not readily measurable in money if the contract is not performed, it is appropriate that the claimant’s remedy is assessed by reference to what the defendant had gained by failing to perform it. Although the determination of whether compensatory damages are adequate is a matter of some uncertainty,^[4] the recognition of this principle is significant since it ensures that the award of gain-based remedies does not undermine the fundamental principle that the usual remedy for breach of contract should be damages which seek to compensate the claimant for loss suffered. Compensatory damages will be considered to be inadequate when, for example, the contract relates to unique goods which may be impossible to value. In Blake, compensatory damages were not adequate because the release of information about the Secret Intelligence Service had no market value. Clearly, where the claimant has suffered no financial loss and specific remedies are unavailable, a restitutionary remedy is a possibility.⁴³

(4) A key consideration is whether the claimant has a legitimate interest in preventing the defendant’s profit-making activities and so in depriving the defendant of his or her profit.⁴⁴ The Crown was held to have such an interest in preventing a former member of the intelligence services from profiting from breaches of an undertaking not to divulge any official information gained as a result of his employment. Blake was therefore not entitled to receive the royalties which had been received by his publishers from the publication of the autobiography. Further, the Crown had a continuing interest in deterring other servants of the State from disclosing information in breach of contract.
(5) The approach of the Court of Appeal was rejected. First, the fact that the defendant skimped on the promised performance was not considered to be relevant, primarily because this would involve the defendant saving money rather than obtaining a positive benefit and so an account of profits would not be available. Where the defendant has provided cheaper and inferior goods or services the appropriate remedy is to refund the difference in price as compensatory damages for the breach of contract.⁴⁵ This occurs by virtue of the so-called performance interest for which compensatory damages will be awarded where it is reasonable⁴⁶ for the claimant to insist on performance of the contract or the claimant has a legitimate interest in performance.⁴⁷ In such a case the compensatory award provides the claimant with an adequate substitute for the skimped performance. Secondly, the test that the defendant had done what he or she had promised not to do was considered to be defined too widely because it embraced all express negative obligations,⁴⁸ and, if such a principle was recognized, it would follow that gain-based remedies would be potentially available in a wide variety of circumstances.
(6) Further, the House of Lords confirmed that the following factors were not sufficient in their own right to justify the award of a gain-based remedy for breach of contract: the breach was cynical and deliberate; the breach enabled the defendant to enter into a more profitable contract elsewhere; and, by entering into a new and more profitable contract, the defendant put it out of his or her power to perform the contract with the claimant.⁴⁹
(7) The award of an account of profits was justified on the facts because the defendant had deliberately and repeatedly breached his contract in publishing his autobiography, the contractual obligations owed by the spy were considered to be closely akin to those of a fiduciary,⁵⁰ and because he had compromised national security and had committed a serious criminal offence.⁵¹ A full account of profits was considered to be a just response to the breach.⁵²

claimant had passed its loss on to a third party and so compensatory damages were unavailable since there was no loss to be compensated.

44 Attorney-General v Blake [2001] 1 AC 268, 285.
45 Ibid, 285 (Lord Nicholls), 291 (Lord Steyn).
46 Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344, 372 (Lord Lloyd).
47 Alfred McAlpine Construction Ltd v Panatown [2001] 1 AC 518, 592 (Lord Millett).
48 Attorney-General v Blake [2001] 1 AC 268, 286 (Lord Nicholls), 291 (Lord Steyn).
49 Ibid, 286 (Lord Nicholls), 291 (Lord Steyn).
50 Ibid, 287 (Lord Nicholls), 292 (Lord Steyn). In CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704, [142], Lawrence Collins J held that breach of a director’s contractual duty of fidelity would have justified a gain-based remedy, because he was willing to characterize the contractual obligation as fiduciary.
51 Attorney-General v Blake [2001] 1 AC 268, 292 (Lord Steyn). ⁵² Ibid.

[1] Attorney-General v Blake [2001] 1 AC 268, 284. 2 Ibid, 285.
[2] 41 Ibid. 4 See p 440, above.
[3] 43 Although compare with Devenish Nutrition Ltd v Sanofi-Aventis SA (France) [2008] EWCA Civ 1086,
[4] [2009] Ch 390, p 448, above, where compensatory damages were held to be an adequate remedy even where the