(iv) Subsequent Developments

Despite the revolutionary significance of the decision of the House of Lords in Blake in recognizing the award of gain-based remedies for breach of contract, the policies and principles underpinning the award of these remedies was unclear. Subsequent judicial developments have sought to put some flesh on the bare bones of Blake. As will be seen, the effect of these authorities over time has been to restrict significantly the award of a full account of the defendant’s profits made from breach of contract, such that it will only be in cases with such exceptional facts as Blake itself that an account of profits will be awarded. Much of the focus has been on the award of Wrotham Park damages or the hypothetical bargain measure, which have now coalesced into the single measure of negotiation damages, which may involve the award of a partial account of the defendant’s profits, although the actual sum awarded may be influenced by other considerations, particularly the claimant’s loss.

One of the first cases to consider the application of Blake was Esso Petroleum Co Ltd v Niad Ltd.55 This was a commercial case which arose from a pricing agreement, called ‘Pricewatch’, which was made by Esso with dealers who sold their petrol. The effect of the agreement was that dealers agreed regularly to report to Esso the price of petrol sold by local competitors and to abide by the prices set daily by Esso, which were intended to match the competition. The dealers received financial support from Esso in recompense. On four occasions this agreement was deliberately breached by Niad, which charged higher prices than had been agreed but still received the financial support from Esso. Esso sought an account of the profits which had been made by Niad in breach of the Pricewatch agreement. This remedy was awarded for a variety of reasons which the trial judge considered were sufficient to treat the case as exceptional, following Blake. These reasons included that the defendant’s breach of contract was deliberate and repeated; compensatory damages was not an adequate remedy, because it was not possible to ascertain Esso’s loss arising from lost sales following breach; the obligation to abide by the prices set by Esso was considered to be fundamental to the agreement; Niad’s conduct had undermined the scheme and the company’s advertising campaign relating to it; and Esso had a legitimate interest in preventing Niad from profiting from the breach of contract.

In no other case has a full account of profits been awarded for breach of contract. So, for example, in The Sine Nomine,56 which involved a commercial arbitration, the owners of a ship had wrongfully withdrawn the vessel from charter after the market had risen, which had made the contract less profitable. It was accepted that no account of profits was available. This was surely right because compensatory damages were an adequate remedy in the circumstances. Similarly, in WWF World Wide Fund for Nature v World Wrestling Federation Entertainment Inc57 no account of profits was awarded where the World Wrestling Federation had used the initials WWF in breach of an agreement, since the breach was not considered to be exceptional within the Blake principle. In One Step (Support) Ltd v Morris-Garner58 an account of profits was not awarded for breach of a non-competition and non-solicitation covenant, even though the breach was deliberate since the defendants had planned to compete even before the covenant was made, because the breaches were characterized as being relatively straightforward and unremarkable, and so did not satisfy the Blake test of being exceptional.

Other cases since Blake have adopted a restitutionary analysis of the remedy available for breach of contract, but without requiring the defendant to make a full disgorgement of profits. One of the most significant cases is Experience Hendrix LLC v PPX Enterprises Inc,59 where the Court of Appeal awarded a remedy for breach of contract which was explicitly characterized as restitutionary. The defendant had repeatedly breached a settlement agreement made in 1973 relating to the use of master recordings made by Jimi Hendrix without paying royalties. A gain-based remedy was justified in principle because there was no evidence of financial loss suffered by the claimant as a result of the breach,60 so compensatory damages were inadequate and, since the claim related to past profits, the remedies of specific performance and injunction were inapplicable. Further, as in Blake, the defendant did what it had promised not to do; it had deliberately and flagrantly61 breached the contract and the claimant was considered to have a legitimate interest in preventing the defendant from profiting from the breach.62 The court did not, however, order the defendant to account for all the profits which derived from the breach, since the case was not considered to be exceptional within the Blake formula. This was because the dispute did not concern a sensitive subject such as national security, the defendant was not in a fiduciary or quasi-fiduciary relationship with the claimant63 and the breaches [1] [2] [3] [4] [5] [6] [7] [8]

occurred in a commercial context. The remedy which was awarded was a reasonable sum assessed with reference to what the claimant would reasonably have demanded for the defendant’s use of the recordings in breach of the agreement, by analogy with the approach adopted in Wrotham Park. The court was, however, unable to reach a final conclusion on the evidence before it as to what the appropriate sum should be.

Experience Hendrix is also significant for another reason, because the court recognized that the award of gain-based remedies for breach of contract is not tied specifically to the assessment of damages in lieu of an injunction.[9] So this measure will be available even if the claimant has not applied for an injunction or could not do so. To use an example suggested by Mance LJ, if the defendant has used land for a concert in breach of a restrictive covenant when the claimant was out of the country, the fact that the claimant had not been able to apply for an injunction to stop the infringement of the property right should not prevent the claimant from obtaining a gain-based remedy assessed by reference to what the defendant would have had to pay to the claimant to agree to waive the covenant.

The remedy awarded in Experience Hendrix appears to be a halfway house between the award of no gain-based remedy and a full account of the profits made from the breach, since the remedy was to be assessed with reference to the defendant’s profits made from the breach of contract without requiring the defendant to disgorge all those profits. Some commentators have suggested that there is now a sliding-scale of remedies available for breach of contract ranging from a full account of profits through to the negotiation measure, which can deprive the defendant of some of the profits made, and on to a full compensatory award.[10] Analysing negotiation damages as a hybrid rem- edy,[11] which has compensatory and restitutionary components, might support this sliding-scale approach, since such damages straddle both the restitutionary and the compensatory function. But this sliding-scale characterization is still misleading, because it ignores the fact that gain-based remedies, in the context of breach of contract at least, are subsidiary to compensatory remedies. This has been recognized in all the cases on the award of gain-based remedies for breach of contract, which emphasize that they should only be available if compensatory damages are inadequate. The availability of compensatory remedies needs to be considered first and then the hybrid and pure restitutionary remedies can be considered, with account of profits only being available in particularly exceptional circumstances.

In fact, the remedy recognized in Experience Hendrix is better treated as a distinct form of remedy for a breach of contract, which relies on the user principle as recognized in Wrotham Park Estate Co Ltd v Parkside Homes Ltd,67 and has become negotiation damages.68 It follows that, where compensatory damages and specific performance are inadequate remedies for a breach of contract, there are two remedies which are available: account of profits and negotiation damages, the former of which ensures disgorgement of profit and the latter being a hybrid remedy, with compensatory and restitutionary components.69 But, however the remedies are analysed, the most important practical question concerns when one remedy rather than the other will be available. In a very significant judgment in Vercoe v Rutland Fund Management Ltd,70 Sales J identified a number of principles to determine when the remedy of account of profits should be available. The key aim concerns the identification of the just response to the particular wrong, so that the remedy awarded is not disproportionate to the wrong done to the claimant. This is to be determined by assessing whether the claimant’s objective interest in performance of the relevant obligation makes it just and equitable that the defendant should retain no benefit from the breach. Where the claimant has a particularly strong interest in full performance, he or she should be entitled to choose between compensatory or negotiation damages and account of profits. The claimant might have a particularly strong interest in full performance of the contract where, for example, the breach of contract involves infringement of property rights, including intellectual property rights, or where it would not be reasonable to expect the contractual right to be released for a reasonable fee, such as the right to have state secrets maintained, as in Blake, or where the contractual right arises under a fiduciary relationship.71 If the claimant does not have a strong interest in performance, as will be the case in a more commercial context, account of profits should not be available and the claimant should be confined to the negotiation measure; such a claimant will not be able to elect for an account of profits.

Particular guidance has been provided for the assessment of the negotiation measure as a remedy for breach of contract.72 The aim is to determine a reasonable sum which would have been agreed by the parties for the claimant to waive his or her contractual right. It is to be assumed that both parties would have acted reasonably in these negotiations, and it is important for the court to have regard to the commercial context and the information which was known by the parties at the time of the negotiation.73 It may be appropriate to have regard to the defendant’s anticipated profits arising from the breach of contract,74 if this would have reasonably been taken into account by the parties in conducting their negotiations. The negotiation measure has been considered to be more appropriate than an account of profits where the breach of contract involves interference with property rights in respect of property which is regularly bought and sold in a market.75 Crucially, it has been recognized that the negotiation measure is available even though the breach of contract does not involve interference with property rights.76

  • [1] [2002] 1 Lloyd’s Rep 805. See also University of Nottingham v Fishel [2001] RPV 367.
  • [2] [2002] FSR 32. The Court of Appeal dismissed an appeal but without needing to consider the application
  • [3] of the Blake principle. In subsequent proceedings before the Court of Appeal the claimant was held to beunable to seek negotiation damages because it had already unsuccessfully sought an account of profits and bothremedies were compensatory and so juridically similar: [2007] EWCA Civ 286, [2008] 1 WLR 445, [59](Chadwick LJ). Whilst negotiation damages can be analysed as having a compensatory component, it is anonsense to describe an account of profits as compensatory; they are categorically a disgorgement remedy. Seep 424, above. 58 [2014] EWHC 2213 (qB).
  • [4] [2003] EWCA Civ 323, [2003] 1 All ER (Comm) 830. See ID Campbell and OP Wylie, ‘Ain’t No Telling(Which Circumstances are Exceptional)’ (2003) CLJ 605.
  • [5] Experience Hendrix LLC v PPXEnterprises Inc [2003] EWCA Civ 323, [2003] 1 All ER (Comm) 830, 845
  • [6] (Mance LJ). 61 Ibid, 848 (Peter Gibson LJ).
  • [7] For these reasons Barnett considers that full disgorgement of profits should have been awarded:K Barnett, ‘Deterrence and Disgorging Profits for Breach of Contract’ [2009] RLR 79, 90.
  • [8] Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323, [2003] 1 All ER (Comm) 830, 848(Peter Gibson LJ).
  • [9] Ibid, 842 (Mance LJ), 848 (Peter Gibson LJ). See also World Wide Fund for Nature v World WrestlingFederation Inc [2007] EWCA Civ 286, [2008] 1 WLR445, [54] (Chadwick LJ); Giedo van der Garde BV v ForceIndia Formula One Team Ltd [2010] EWHC 2373 (QB), [528] (Stadlen J).
  • [10] See the report of Lord Nicholls’ comments, ‘Breach of Contract, Restitution for Wrongs and Punishment:Review of Discussion’ in AS Burrows and E Peel (eds), Commercial Remedies: Current Issues and Problems(Oxford: Oxford University Press, 2003), 129. See also AS Burrows, Remedies for Torts and Breach of Contract(3rd edn, Oxford University Press, 2004), 401-4; M Graham, ‘Restitutionary Damages: The Anvil Struck’(2004) 120 LQR 26.
  • [11] See p 431, above. 67 [1974] 1 WLR 798 . 68 See p 429, above.
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