The Assessment of Gain‐Based Damages for Breach of Contract

Date01 July 2008
Published date01 July 2008
The Assessment of Gain-Based Damages
for Breach of Contract
Ralph Cunnington
This article argues that there are twodi ¡erentmeasures of gain-based damages for breach of con-
tract: theWrotham Park measure and the Blake measure. The former is asse ssed by reference to the
objective value of the bene¢t received by the defendant and the latter byreference to the defen-
dant’s subjective gain.In ass essingWr o t ha m Pa r k damages the courts apply a ¢xed formula, deter-
mining the price that a reasonable person in the position of the claimant might have demanded
from the defendant at the time of breach for relaxing its rights under the contract. The Blake
measure is di¡erent; it requires the defendant to disgorge the actual net pro¢t received from the
breach. Unlike theWr o t ha m Pa r k measure,it deal s only withpositive and not negative gains. It is
also limited by the doctrine of causation so thato nlythose gai ns that are ‘directlyoccasioned’ by
the breach are recoverable.
The general rule is that damages for breach of contract are compensatory. The
award seeks to place the aggrieved party ‘in the same situation with respect
to damages as if the contract had been performed’.
That rule is, however, subject
to a number of exceptions, including the recent recognition of gain-based
damages for breach of contract.
The academic literature is replete with debate
about thelegitimacy, scope and availabilityof such awards.
It is not my intention
Lecturer in Law, Universityof Birmingham; Senior Fellow,University of Melbourne.I would like to
thank the British Academyfor their ¢nancial support of this research. Thanks are also due to Djakhon-
gir Saidov,Tanya Corrigan, the anonymous MLRreferees and all those who commented on an earlier
version of this article at the ‘Exploring Contract Law’symposium held at the University of Western
Ontario on10^11January 2008.Other papers from that symposiumare bei ngpublis hed inJ. Neyers,S.
Pitel and R. Bronaugh,ExploringContract Law (Oxford: Hart Publishing,2009).
1Robinson vHarman(1848) 1 Exch 850, 855 (Parke B).
2 In England and Wales, se e: Att Gen vBlake [2001] AC 268; Esso Petroleum CompanyLtd vNiad Ltd
[2001] EWHC Ch 4 58; Experience HendrixvPPX Enterprises [2003] EWCACiv 323; [2003] EMLR
25.In Canada, see: See Bank of America(Canada) vMutualTrustCo [200 2] SCR 601 at [25] (Major J);
Amartek Inc vCanadian Commercial Corp (2003) 229 DLR (4th) 419, 467 (O’Driscoll J) (but on
appeal it was held that therewas no collateral contract: (2005) 5 BLR(4th) 199);MontrealTrustCo
vWillistonWildcatters Corp (2004) 243 DLR(4th) 317,122 (Vancise JA).
3 See for example: J. Edelman, Gain-Based Damages (Oxford: Hart Publishing, 2002); E.Weinrib,
‘Punishment and Disgorgement as ContractRemedies’ (2003) 78Chicago Kent Law Review 55; P.
Ja¡ey,‘Disgorgementand ‘‘licence fee damages’’i ncontract’ (2004) 20 JCL 57;M. McInnes,‘Gain,
Loss and the User Principle’(2006) 14 RLR76, 78^79;C. Rotherham,‘TheCo nceptualStructure
of Restitution for Wrongs’ (2007) 66 CLJ 172; F. Giglio,The Foundations of Restitution for Wrongs
(Oxford:Hart Publishing, 2007); A.Burrows,‘Are‘‘Damageson theWrothamParkBasis’’Compen-
satory, Restitutionary, or Neither?’in D. Saidov and R. Cunnington, Contract Damages: Domestic
and International Perspectives (Oxford: Hart Publishing, 2008); S.Waddams,‘Gains Derived from
Breach of Contract: Historical and ConceptualPerspectives’i n Saidovand Cunni ngton,op cit.
r2008 The Author.Journal Compilation r2008 The Modern Law Review Limited.
Published by BlackwellPublishing, 9600 Garsington Road,Oxford OX4 2DQ,UK and 350 Main Street, Malden, MA 02148, USA
(2008) 71(4) 559^586
to pursue those issues further here.
Instead I wish to focuson an issue of consider-
able practical importance for litigants ^ the assessment of gain-based awards. It is
mybelief that this issue has been muchneglected, bothi nthe academic literature,
and in the courts. My speci¢c focus will be on the assessment of gain-based
damages for breach of contract but the analysis will inevitably draw upon case
law from tort and equity as well.
The article is divided into three parts. In the ¢rst part, the division between
Wr o t h a m P a r k damages and Blake damages (an account of pro¢ts) is analysed.That
division is shown to be extremely important because the methods for assessing
each award necessarily depend upon the awards juridical basis. The second part
deals with the methods of assessment. I consider what factors ought to be taken
into account when assessing gain-based damages and ask when that assessment
ought to take place. The ¢nal part deals with the methods of limiting damages
and asks whether the rules of mitigation, causation and foreseeability have any
role to play in this context.
In Att Gen vBlake,
Lord Nicholls insisted thatthe decision inWr o t h a m Pa r k vPark -
side Homes
was foundational to the case for gain-based damages in contract
actions. He referred to the decision as a‘solitarybeacon, showing that in contract
as well as tort damages are not narrowly con¢ned to recoupment of ¢nancial
The l ink between the damages awarded in Wr o t h a m Pa r k a nd those sought
in Blake was thus clearly drawn. But Lord Nicholls was equally clear that the
awards di¡ered in some important respects.‘The Crown seeks to go further’,
suggested, by claiming a full account of the defendant’s pro¢ts.
This distinctionbetweenWr o t h a m Pa r k damages and Blake damages (an a ccount
of pro¢ts) was explained and developed in later cases. In EssovNiad,MorrittVC
distinguished between two alternative gain-based remedies: an account ofpro¢ts
and a separate ‘restitutionary remedy based on unjust enrichment.
Two years
later, in Experience Hendrix vPPX, the Court of Appeal refused to order a full
accounting of the defendant’s pro¢ts and instead ordered the defendant to pay
damages measured on the Wr o t h a m Pa r k basis.
The distinction took on even
4 I haveconsidered some of the issues els ewhere, see: R. Cunnington,‘The Measure and Availabil-
ity of Gain-Based Damages for Breach of Contract’ in Saidov and Cunnington (2008), ibid;R.
Cunnington,‘Rock, Restitutionand Disgorgement’ [2004] Journal of Obligationsand Remedies 46.
5 Notable exceptions include: G. Virgo, ‘Restitutionary Remedies for Wrongs: Causation and
Remoteness’ in C. Rickett, JustifyingPrivate Law Remedies (Oxford: Hart Publishing, 2008);E. A.
Farnsworth,‘Your Loss or My Gain? The Dilemma of the Disgorgement Principle in Breach of
Contract’ (1985) 94 Yale LJ 1339; D. Friedmann,‘Restitution forWrongs:The Measure of Recov-
ery’ (2001) 79 Texas Law Review 1879.
6 n 2 above.
7 [1974] 1WLR 798.
8 n 2 above, 283.
9ibid, 284.
10 n 2 above at [57]^[58]. MorrittV-C’s claim that the separate‘restitutionary remedy’was based on
unjust enrichment is highly suspect and has not been followed.
11 n 2 above at [43]^[45].
The Assessment of Gai n-Based Damagesfor Breach of Contract
560 r2008 The Author. Journal Compilation r2008 The Modern LawReview Limited.
(200 8) 71(4) 559^5 86

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