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SHOULD GAIN-BASED REMEDIES GENERALLY BE AVAILABLE FOR BREACH OF CONTRACT?

Whilst the principles underpinning the award of gain-based remedies are gradually emerging, it is still necessary to consider as a matter of policy whether this limited approach to the award of such remedies for breach of contract is satisfactory or whether such remedies should be available more generally or at all. Indeed, in Australia gain-based remedies for breach of contract have been rejected.[1] Should they be rejected in England as well?

(A) HOW WRONGFUL IS A BREACH OF CONTRACT?

To determine whether gain-based remedies should generally be available for breach of contract in English law, it is necessary to reconsider some of the basic principles which relate to the award of gain-based remedies for wrongdoing. The key principle which justifies the award of such remedies for wrongs is that the wrongdoer should not be allowed to benefit from the wrong.[2] What needs to be considered is whether the nature of breach of contract is such that any defendant who benefits from the breach should not be allowed to retain that benefit. Although breach of contract cannot be considered to be of the same magnitude of wrongfulness as committing a tort or crime or even a breach of fiduciary duty, the fact that it is wrongful has been recognized for the purposes of economic duress.[3] In many cases, however, a breach of contract is only technically wrongful and sometimes a breach of contract may even be economically efficient and so can be considered to be justified, so long as the claimant is adequately compensated for any loss suffered.[4] A breach of contract will be efficient where, for example, a vendor contracted to sell goods to the claimant but sold them instead to a third party who valued them more than the claimant and so was prepared to pay more for them. In such circumstances it would appear that the breach of contract should not be deterred by awarding gain-based remedies to deprive the defendant of any benefit obtained from the breach, since the breach can serve a useful economic function.

The problem with this argument concerns the identification of those cases where a breach of contract can be considered to be economically efficient, since in the vast majority of cases the costs which arise from the breach will exceed any benefits derived it.[5] This includes costs arising from contracts which the claimant may have made with other parties and which the claimant is forced to repudiate or renegotiate as a result of the defendant’s breach.[6]

  • [1] Hospitality Group Pty Ltd v Australian Rugby Football Union Ltd [2001] FCA 1040.
  • [2] See p 421, above.
  • [3] See p 207, above. See also Ahmed Angullia bin Hadjee Mohamed Sallah Angullia v Estate and TrustAgencies (1927) Ltd [1938] AC 624, 640 (Lord Romer).
  • [4] See R Posner, Economic Analysis of Law (7th edn, Boston, MA: Little Brown & Co, 2007); D Campbelland D Harris, ‘In Defence of Breach: A Critique of Restitution and the Performance Interest’ (2002) LS 208.For criticism of the theory of efficient breach see D Friedmann, ‘The Efficient Breach Fallacy’ (1989) 18 JLS 1;LD Smith, ‘Disgorgement of the Profits of Breach of Contract: Property, Contract and “Efficient Breach”’(1992) 24 Canadian Business Law Journal 121; and R O’Dair, ‘Restitutionary Damages for Breach of Contractandthe TheoryofEfficientBreach: Some Reflections’ (1993) 46(2) CLP 113;P Jaffey, ‘Efficiency, Disgorgementand Reliance in Contract: A Comment on Campbell and Harris’ (2002) LS 570; K Barnett, Accountingfor Profitfor Breach of Contract (Oxford: Hart Publishing, 2012), 115.
  • [5] See Friedmann, ‘The Efficient Breach Fallacy’, 7. 84 Ibid, 13.
  • [6] 85 Restatement Third:Restitution and Unjust Enrichment (ALI, 2011), para 39, comment c.
 
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