England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE PETER SMITH)
HC/0000030

		Royal Courts of Justice Strand, London, WC2A 2LL
		2nd April 2007

Lord Justice Chadwick :

1. This is an appeal from an order made on 16 February 2006 by Mr Justice Peter Smith on a preliminary issue in proceedings brought by WWF – World Wide Fund for Nature (formerly World Wildlife Fund) and World Wildlife Fund Inc (hereafter, together or individually - save where it is necessary to distinguish between them – "the Fund") against World Wrestling Federation Entertainment Inc (now known as "World Wrestling Entertainment Inc" and, hereafter, "the Federation").

The background

2. The underlying dispute between the parties arises from the use by the Federation of the initials WWF in connection with its activities as promoter and organiser of live wrestling events. Those initials had long been associated with the work of the Fund. The Fund is, of course, a well-known charity, active throughout the world in the field of environmental protection and conservation.
3. On 20 January 1994 the parties entered into an agreement ("the 1994 agreement") which was intended to compromise extensive litigation (comprising some 54 sets of proceedings in relation to trade mark and unfair competition disputes in 21 jurisdictions) and to regulate use of the WWF initials for the future. The agreement did not seek to reserve to the Fund an exclusive right to use the initials. But, as the judge explained at paragraph [19] of his judgment, [2006] EWHC 184 (Ch), clause 2.1 of the agreement contained substantial restrictions on the use that could be made by the Federation:

"[19] By that clause the Federation undertook forthwith to cease and thereafter to refrain from using or causing to be used the Initials whether in printed or written or other visual form in any country of the world in or for the purpose or in connection with its business. It also agreed immediately to cease and thereafter refrain from using or causing to be used the Initials orally in any language in any country of the world in or for the purpose or in connection with the promotional sale or in any other connection with any goods whatsoever; to cease and thereafter to refrain from the encouragement directly or indirectly of support including donations or otherwise for charitable or similar purposes: and to cease and thereafter to refrain from the promotion or sale of or in any other connection with services other than those permitted."

The permitted use of the initials was in respect of the Federation's logo, occasional use during sports events, use in printed material approved for production or distribution prior to 15 November 1993 (but not distributed after 31 March 1994), and use in visual presentations published or recorded prior to 15 November 1993. The 1994 agreement applied to the United States of America in relation to printed, written, visual or other uses; but not as to the oral use of the initials in relation to goods.

4. These proceedings were commenced on 17 April 2000. The Fund claimed an injunction to enforce the terms of the 1994 agreement and damages to be assessed. The Federation admitted that it was in breach of terms of the 1994 agreement (subject to some dispute as to the scope of the restrictions imposed by the agreement); but asserted that those terms were void, either at common law as unreasonable restraint of trade or by virtue of the provisions of article 81 (formerly article 85) of the EC Treaty.
5. By application notice dated 30 January 2001, the Fund sought summary judgment. That application came before Mr Justice Jacob in July 2001 and was successful. By paragraph 1 of the order which he made on 1 October 2001, Mr Justice Jacob restrained the Federation from using the initials WWF save in accordance with the agreement. By paragraph 3 of his order he directed an inquiry "whether the Claimants have sustained any and if so what damages by reason of the Defendant's breaches of the Agreement and the Letter Agreement referred to therein . . .". In that context "the Agreement" is the 1994 agreement; and "the Letter Agreement" means an agreement made between the Federation and World Wildlife Fund Inc and recorded in a letter dated 12 September 1989. The judgment handed down by Mr Justice Jacob (to which I shall need to refer in more detail later in this judgment) is reported at [2002] FSR 32, 504. The principal terms of the 1994 agreement are set out at paragraph [12] of that judgment (ibid, 512-515).
6. The order of 1 October 2001 was upheld by this Court on appeal ([2002] EWCA Civ 196; [2002] FSR 33, 530). Permission to appeal from the order of this Court was refused by the House of Lords on 10 June 2002.
7. In the course of the hearing before Mr Justice Jacob the Fund had sought permission to add a claim for: "An order that the Defendant account to the Claimants for all profits that it has made by using the initials WWF otherwise than as permitted by the terms of the Agreement". In support of the claim for an account of profits the Fund sought to amend its particulars of claim so as to add a new paragraph in these terms:

"11. Further the claimants seek an order that the defendant account to the claimants for all profits that the defendant has made by its use of the initials WWF in breach of the Agreement. The claimants contend that an account of profits is an available remedy for breach of contract in the circumstances of the present case. The circumstances are:

11.1 the defendant has done the very acts that it expressly agreed that it would not do;

11.2 the defendant's breach of the Agreement have been deliberate, widespread and repeated;

11.3 an account of profits is an available remedy for trade mark infringement and should therefore as a matter of principle be available for breach of a trade mark delimitation agreement;

11.4 the purport of the defendant's defence (for example at paragraph 23 of the Defence and Counterclaim) is that the defendant intended or considered it likely that when it signed the Agreement it would disregard its obligations under the Agreement;

11.5 the difficulty of obtaining full compensatory damages not only for the claimants but also for the National Affiliates who operate worldwide;

11.6 the inadequacy of protecting the claimants from past breaches by way of injunction."

Mr Justice Jacob refused the application to amend. There was no appeal from that part of his order.

The damages claim

8. On 29 October 2004 the Fund served a pleading described as "Claim for Damages". After reciting the procedural history, the claim was set out (in summary) at paragraph 6:

"6 The claim for damages falls under two main heads:

(a) Firstly, the Claimants seek damages based on what the Defendant would reasonably have had to pay as 'quid pro quo', in effect a licence fee, for the Claimants to relax their rights under the Agreement;

(b) Secondly, the Claimants seek special damages in respect of professional fees and other expenses incurred as a result of the defendant's breaches of the Agreement (not being fees and expenses incurred in the present proceedings). . . . ."

Paragraphs 7 and 8 set out the Fund's case as to the "Legal basis for claiming a reasonable payment". It was said that the Federation had agreed (under article 2 of the 1994 agreement) to very substantial restrictions on its use of the initials WWF; and that, from at least February 1997, the Federation had ignored those restrictions and had "used the initials WWF in respect of its activities on a worldwide basis". Accordingly the Fund was entitled to "a reasonable payment from the Defendant in respect of its use of the initials WWF in breach of the Agreement". The Fund indicated that it would rely on the decisions in Wrotham Park Estate Company Limited v Parkside Homes Limited [1974] 1 WLR 798, Attorney General v Blake [2000] 4 All ER 385 and Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323.

9. On 23 March 2005 Mr Justice Patten gave the Fund permission to amend paragraph 8 of the claim for damages. The permitted amendment (which was made on 25 March 2005) introduced four additional paragraphs (or sub-paragraphs):

"8a The Claimants' primary contention is that the principles contained in these judgments [Wrotham Park, Blake and Experience Hendrix] establish that where a covenantor breaches a restrictive covenant, the covenantee is entitled to claim as damages a reasonable payment in respect of the hypothetical release of the covenant.

8b Alternatively the Claimants contend that they are entitled to such a payment in circumstances where the Defendant deliberately breached the Agreement and where the Claimants have an interest in preventing the Defendant's use of the initials and/or an interest in preventing the Defendant making a profit from the use of the initials.

8c As to the deliberate nature of the breach, the Defendant at least from January 1997 intentionally disregarded the restrictions contained in the Agreement relating to the use of the initials. As pleaded in paragraph 7 above the Defendant ignored the restrictions and used the initials on a worldwide basis. It will rely on the Judgment of Mr Justice Jacob . . . and the Judgment of the Court of Appeal . . .

8d As to the interest in preventing the Defendant using the initials and/or profiting from using them the Claimants will claim an interest in (a) preventing the Defendant from doing the very thing that it had contracted not to and (b) preventing the Defendant from diluting and damaging the Claimants' reputation and brand represented by the initials WWF. It will rely on the Judgment of Mr Justice Jacob (in particular paragraphs 34-42) and the Judgment of the Court of Appeal (in particular paragraphs 50-59)."

It can be seen that the allegations made by amendment in March 2005 are similar (in material respects) to those in the proposed new paragraph 11 to the particulars of claim; in respect of which permission to amend had been refused in October 2001.

10. Paragraph 1 of Mr Justice Patten's order directed a preliminary issue:

"In the inquiry as to damages ordered by Jacob J on 1^st October 2001 are the Claimants entitled to claim damages in the form of a reasonable payment as a quid pro quo for the Claimants relaxing their rights under the Agreement as alleged in paragraphs 6-8 of the amended Claim For Damages?"

It was that issue that came before Mr Justice Peter Smith for trial in January 2006.

The order of 16 February 2006

11. The outcome of the trial before Mr Justice Peter Smith cannot be regarded as satisfactory: for the reasons which the judge, himself, explained at paragraphs [7] to [10] of his judgment. After pointing out (at paragraph [5]) that the amendment to paragraph 8 of the claim for damages (on the basis of which the preliminary issue fell to be decided) had not been opposed "on the basis that it was without prejudice to any arguments the Federation might raise on this Inquiry which could have been made in opposition to the Application for Amendment" and (at paragraph [6]) that, in addition, "the Inquiry [s.q. "issue"] has not been limited to the question posed by Patten J but has extended to an examination of possible defences that might be used to eliminate or reduce the amount of damages which would otherwise be payable", the judge said this:

"[7]. Preliminary issues have to be considered very carefully. Too often they are 'treacherous shortcuts' and ought to be confined to cases where the facts are complicated and the legal issue short and easily decided with cases outside this guiding principle being exceptional see Tilling v Whiteman [1980] AC 1 per Lord Scarman (page 25) and Lord Wilberforce (page 18) respectively.

[8] That warning is well demonstrated in my view by the present case. First, the preliminary issue was not confined to the identified preliminary issue in the order of Patten J. Second, evidence was led by both parties but both parties in an exchange of correspondence believed they had an understanding which would shorten the preliminary issue and led both sides not to seek to cross examine the other. This led to a difficulty which only really appeared on day 3 of the Preliminary Issue.

[9] The Federation by its evidence (of Mr Kaufman in his sixth witness statement and Ms McMahon in her second witness statement) adduced evidence on behalf of the Federation to show the following:-

1 That the Federation had never deliberately broken the agreement.

2 That its profits were derived from their efforts and have nothing to do with acting in breach of the Agreement.

3 That the Fund had adduced no evidence to show any dilution of its reputation by being directly or indirectly associated with the Federation.

4 That the Fund ought to be barred from bringing the present claim because of its delay.

[10] None of these matters of evidence was expressly challenged by the Fund. Nevertheless its case is that it disputes all of these matters. Faced with this I as a trial judge of the Preliminary Issue was faced with a conflict of testimony which neither side sought to resolve by cross examination (which is the traditional way of enabling the court to determine conflicts of testimony). I did not see how I could do that unless the hearing was substantially lengthened and the parties presented their witnesses for cross examination so that I could then evaluate the evidence. That would have meant in my view that the Preliminary Issue would have virtually become the trial to a substantial extent. I therefore indicated at the third day that I would not resolve any factual matters which were in dispute and all of the above were in dispute."

At paragraphs [178] and [179] – under the heading "Answers to the Preliminary Issue" – the judge said this:

"[178] The Preliminary Issue question cannot in my view be answered at this stage. I can and do determine that the Fund are entitled to seek in the inquiry damages in the form of a reasonable payment as a quid pro quo on the basis of their claim as presently formulated.

[179] However they have not established an entitlement to such a claim; that should be determined at the inquiry in accordance with the principles I have set out above and the court hearing the inquiry determining that it ought to exercise its discretion to grant such relief.

12. The judge's conclusion is reflected in the order which he made on 16 February 2006. Paragraphs 1 and 2 are in these terms:

"1. The Claimants are entitled in point of law to seek damages in the form of a reasonable payment as a quid pro quo for the Claimants relaxing their rights under the Agreement as alleged in paragraphs 6-8 of the amended Claim For Damages.

2. The question whether the Claimants are entitled in point of fact to claim or recover damages in the form of a reasonable payment as a quid pro quo for the Claimants relaxing their rights under the Agreement as alleged in paragraphs 6-8 of the Amended Claim For Damages remains to be determined in the Inquiry as to Damages."

13. The point – and the only point - that is determined by the judge's order, as it seems to me, is that in appropriate circumstances a claimant may be entitled to damages on what is commonly called a Wrotham Park basis in respect of conduct (in breach of a restrictive covenant) which has been brought to an end by the grant of an injunction. What the order does not determine is whether the Fund is entitled to have damages assessed on a Wrotham Park basis in the present case. But that, of course, was the real question to which the parties wanted an answer when they proceeded to the trial of a preliminary issue.
14. By paragraph [5] of his order the judge granted the Federation permission to appeal "in respect of the substantive issues of law identified in paragraphs 90 and following" of his judgment. At paragraph [90] the judge had explained that he would "now go on to consider the main argument that was deployed before me namely whether or not in law the Fund can bring a claim for damages [on the Wrotham Park basis]". He then analysed at length the judgments in the three authorities to which I have already referred - Wrotham Park, Attorney General v Blake (both in this Court and in the House of Lords) and Experience Hendrix. He examined academic commentary on Blake. He referred to other authorities: in particular to the judgments in this Court in Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361, Jaggard v Sawyer [1995] 1 WLR 269 and Gafford v Graham & anor [1999] 77 P&CR 73. His conclusions are set out in a section - "Principles applicable to assessment of damages under Wrotham principle".
15. That section comprises paragraphs [173] to [177]. At paragraph [173] the judge indicated "with some hesitation" his view as to the "way in which the court should approach the assessment of damages [on the Wrotham Park] basis. At paragraph [174] he set out six principles which he thought applicable:

"1. The primary basis of assessment is in my view that identified by [Mr Mann QC] in the Amex case [Amec Development v Jury's Hotel [2001] 1 EGLR 81] at page 83 namely 'is to consider the sum that would have been arrived at in negotiations between the parties had each been making reasonable use of their respective bargaining positions without holding out for unreasonable amounts'. [the judge's emphasis]

2. The outcome of that hypothetical negotiation, must be determined by reference to the parties' actual knowledge at the time that negotiations would have taken place. This would normally be on the date of the breach.

3. The fact that the innocent party would never have agreed to any such sale or relaxation is irrelevant.

4 The conduct of the wrongdoer is also irrelevant as to the breach of contract.

5 The decision to award damages under this head is discretionary according to the circumstances of the case but the decision should be taken when damages would be an inadequate remedy and without an award under this basis the innocent party would obtain no just recompense for the breach by the wrongdoer in doing what he agreed not to do.

6 The decision whether or not to award damages on this basis can take into account factors such as delay in intimating the claim and prosecuting the action, if appropriate. Those factors also could be taken into account at a later stage in quantifying the claim. Thus it may be possible to argue that where a wrongdoer was led to believe that no claim would be forthcoming on this head and acted to its detriment in reliance upon that that may bar the claim completely. Equally part of a claim may be disallowed by reason of delay if the delay caused prejudice: see the Shaw v Applegate[[1977] 1 WLR 970] and Gafford cases referred to above."

He went on to say that the assessment of damages in accordance with those principles involved a number of possibilities, which he described:

"7 As one is assessing the amount by reference to hypothetical negotiations, each party is entitled as part of that exercise to adduce evidence that it would have deployed in such hypothetical negotiations. Those can include (but this is not exhaustive as it is fact based):-

7.1 Evidence that it (in this case the Fund) had a reputation which it would have tarnished or diminished by association with the Federation and what would consequentially be a reasonable payment for compensating it for that tarnishment.

7.2 Evidence from the Federation to show that they would have persuaded the Fund by reference to material available to it at the time that its profits would be to some degree attributable to its efforts as opposed to the use of the Initials and that that should be taken into account in assessing the price.

7.3 Evidence from the Federation would be able to show that their costings and assumptions would have involved them in expenditure in incurring the profits that they have made (irrespective of the breach of contract)."

16. At paragraphs [175] to [177] the judge gave this further guidance:

"[175] The damages that can be awarded are to reflect the case. It is possible that the damages could reflect a diminishment or tarnishment of the Claimant's reputation and a reasonable price representing that, or a reasonable sum for the relaxation of the covenant or a negotiation of a reasonable sum that the parties would have agreed as being payable for the breach of the covenant by reference to the subsequent profits in percentage terms (or a combination of all three).

[176] In considering all of those the court can take into account the factors relating to the potential for earning profits without committing a breach of contract and the cost of making such profits.

[177] The overriding principle is that the damages are compensatory and not to be punitive. That should reflect the nature of the negotiations that take place hypothetically. Ordinarily where a claim is based on subsequent profits the Claimant must show there was a reasonable prospect of connection between the breach of contract and the subsequent profits."

The Appellant's Notice

17. As I have said, the judge granted permission to appeal in respect of the substantive issues of law identified in his judgment. It is, I think, pertinent to have in mind that an appeal to this Court is an appeal from "any judgment or order" of the High Court – section 16(1) of the Supreme Court Act 1981. In granting permission to appeal in the terms that he did, the judge must, I think, have had in mind that the appeal would be limited to the question (raised by way of challenge to paragraph 1 of the order of 16 February 2006) whether he was correct, in law, to hold that, in appropriate circumstances, a claimant may be entitled to damages on what is commonly called a Wrotham Park basis in respect of conduct (in breach of a restrictive covenant) which has been brought to an end by the grant of an injunction.
18. An appellant's notice was filed on behalf of the Federation on 16 March 2006. At section 5 of that notice the Federation indicated that it sought to appeal from paragraphs 1 and 2 of the order of 16 February 2006 – that is to say, from the two declarations which I have set out earlier in this judgment – and from the order (at paragraph 9) that the costs of the preliminary issue be costs in the inquiry. In place of those two declarations the Federation invites this Court (by section 9 of the appellant's notice) to declare that, in the inquiry as to damages ordered by Mr Justice Jacob on 1 October 2001, the Fund is not entitled to claim damages in the form of a reasonable payment as a quid pro quo for the relaxation of rights as alleged in paragraphs 6 to 8 of the amended Claim for Damages. And the Federation seeks an order that the Fund pay the costs of the preliminary issue.
19. The grounds of appeal (annexed to the appellant's notice) are set out in thirteen paragraphs; but, in substance, they fall under four heads. First, it is said (paragraphs 1 to 7) that an award of damages on the Wrotham Park basis is not a remedy of general application: it is only available as a remedy for breach of contract in exceptional (alternatively, unusual) circumstances – set out in paragraph 2 of the grounds. Second, it is said (paragraph 11 and part of paragraph 12) that the judge ought to have found that, on the law as properly understood, the Fund's pleaded case did not support a claim to an award of damages on the Wrotham Park basis. Third, it is said (paragraphs 8 to 10) that the judge ought to have found, on the basis of the unchallenged evidence before him, that the Fund had not proved the facts which it needed to establish in order to claim damages on the Wrotham Park basis. Fourth, it is said (part of paragraph 12 and paragraph 13) that the judge was wrong to allow the inquiry to proceed on the basis of the approach which he identified at paragraph [174] to [177] of his judgment: on the basis of that approach (which is the subject of challenge by the Federation) the judge should have decided, as a matter of discretion and in the interests of proportionality that there should be no award of damages on the Wrotham Park basis in the present case. If and so far as necessary – that is to say, to the extent that the third of those grounds (paragraphs 8 to 10) was not within the limited permission to appeal granted by the judge at paragraph 5 of his order but fell within that part of the judgment (paragraphs [61] to [89]) in respect of which permission to appeal had been refused by the judge - the Federation sought permission to appeal from this Court. I have little doubt that the Federation does require permission to advance the third of those grounds of appeal. I think that permission is required, also, in respect of the fourth of those grounds.

The further grounds of appeal

20. At the hearing of the appeal in this Court the Federation made an application for permission to appeal on further grounds. Those further grounds are set out in an application notice dated 7 December 2006 and an amended notice dated 8 December 2006. It is, I think, convenient to set out paragraphs 4 and 5 of that amended notice:

"4. [The Federation's] primary contention is that the Fund's disentitlement to claim the remedy it now seeks has already been determined against it.

a. The Fund was refused permission to amend its claim to include a claim for a gains-based award, referred to as an account of profits in its draft amended pleading, and it did not appeal that decision.

b. The matters relied upon at the time in support of the Fund's purported entitlement to such relief were similar or identical to those relied upon in support of its purported entitlement to the relief now sought, as set forth in paragraphs 8b to 8d of its Amended Claim for Damages.

c. No new factual matters have arisen since the Fund applied to amend its claim, and none are relied upon by the Fund.

d. The remedy now sought by the Fund is the same as, or a juridically highly similar remedy to, the relief previously sought.

e. In the premises, the Fund's disentitlement to claim such gain-based relief is a matter which has been finally determined by a court of competent jurisdiction, between the same parties, and accordingly the Fund is not now entitled to raise the matter again, since it is res judicata.

5. Alternatively, the Fund is estopped from claiming the relief it now seeks and/or it would be an abuse of process to allow it to claim such relief now.

a. The Fund's original claim as pleaded in its Particulars of Claim sought only 'damages'. Such claim did not include a claim for relief on the basis now sought, alternatively it did not expressly include such a claim.

b. When the Fund applied to amend its claim to include an account of profits, it could and should have also applied at the same time to amend its claim to include the relief now sought, alternatively it could and should have made plain that it was already seeking, as 'damages' within the scope of its existing claim, relief on the basis now sought.

c. The Fund was aware of the Wrotham Park case now relied upon, and the availability of the relief it now seeks in certain circumstances.

d. In the premises, it is to be inferred that the Fund deliberately elected not to claim such relief at that time.

e. That this was a deliberate decision is supported by the fact that the Fund strongly implied to the Court of Appeal in the THQ application that it was not claiming the relief now sought.

f. By virtue of its failure to do so when it could and should have done, the Fund is estopped from claiming the relief now sought.

g. Alternatively, having regard to the public interest in the finality of litigation, and [the Federation's] interest in not being vexed in the same matter twice, it would be an abuse of process to allow the Fund to claim the relief it now seeks at this late stage in the proceedings, when it could and should have done so previously as aforesaid.

h. [The Federation] relies upon the principle in Henderson v Henderson [1843] 3 Hare 100 in support of the foregoing."

21. It is said that those contentions were raised and argued before Mr Justice Peter Smith, but were not addressed by the judge in his judgment. That, I think, is less than fair to the judge. He did address those matters – in the context in which they were raised before him – at paragraph [36] and at paragraphs [77] to [89]. At paragraph [36] he referred to the position as it was before Mr Justice Jacob in October 2001 and to the later hearing before this Court in the THQ application (to which I refer later in this judgment):

"[36] It is plain in my view that at that time the Fund had no intention of seeking to claim damages based upon the principle that they now wish to rely upon. The amendment sought was not to raise this method of claiming damages and in a later hearing in a separate action to which I shall make reference below it is clear that counsel then representing the Fund (Mr Christopher Morcom QC) indicated that no such claim was being contemplated. "

At paragraph [81] the judge said this:

"[81] . . . I reject the Federation's submission that it is not open to the Fund to raise on the inquiry as to damages for breach of contract the present claim because it has not raised it before it served its claim as to damages. It is not in my view a case of a party failing to litigate all claims in one go. The Fund has issued one set of proceedings and in those proceedings it claims an injunction (which it obtained summarily) and damages (in respect to which it obtained a judgment to be assessed). The two are entirely different but it is not an abuse within the principle of Henderson for it to proceed to raise a contractual based measure of damages claim in the way in which it does. "

And, at paragraph [89], the judge noted that the claim for an account had already been refused by Mr Justice Jacob; but he indicated that that, in his view, would have been no bar to permission for an amendment to raise the claim for an assessment of damages on the Wrotham Park basis, had permission been necessary: which, in the light of the Claim for Damages and the amendments to that pleading permitted by Mr Justice Patten, it was not.

22. If the Federation is correct in the contentions which it seeks to raise by the amended application notice of 8 December 2006, then the answer to the preliminary issue which was before Mr Justice Peter Smith must be "No"; and the claim made under paragraph 6(a) in the Claim for Damages – that is to say, the claim to an award of damages on the Wrotham Park basis – must be struck out. It would become unnecessary to address the issues raised by the grounds of appeal annexed to the appellant's notice. In those circumstances it seems to me that the appropriate course is to address those contentions (and the preliminary question whether the Federation should be permitted to raise them on this appeal) in advance of the issues raised by the grounds annexed to the appellant's notice.

Paragraph 4 of the amended application notice

23. The Federation is plainly correct in the contentions advanced under sub-paragraphs (b) and (c) of paragraph 4 of the amended application notice of 8 December 2006. In particular, the allegations which the Fund sought to make by paragraphs 11.1 ("the defendant has done the very acts that it expressly agreed that it would not do") and 11.2 ("the defendant's breach of the Agreement have been deliberate, widespread and repeated") of the amendment for which it sought Mr Justice Jacob's permission in 2001 are repeated (in almost the identical terms) at, respectively, paragraphs 8b and 8d of the amended Claim for Damages. The Federation is also plainly correct to allege, under sub-paragraph (a) of paragraph 4 of the amended application notice, that "The Fund was refused permission to amend its claim to include a claim for . . . an account of profits in its draft amended pleading, and it did not appeal that decision". The issue, in the context of paragraph 4 of the amended application notice, is whether, as alleged in sub-paragraph (d), the remedy now sought by the Fund (an award of damages on the Wrotham Park basis) is "the same as, or a juridically highly similar remedy to, the relief [an account of profits] previously sought" so as to lead to the conclusion (for which the Federation contends in sub-paragraph (e)) that, an amendment to claim an account of profits having been refused by Mr Justice Jacob in 2001, the matter "has been finally determined by a court of competent jurisdiction, between the same parties, and accordingly the Fund is not now entitled to raise the matter again, since it is res judicata."
24. The premise on which the contentions in paragraph 4 of the amended application notice are based is that an award of damages on the Wrotham Park basis is not an award of compensatory damages: it is properly to be characterised as a gains-based award. Put shortly, it is said (paragraph 1 of the notice) that, by characterising the claim for damages in the inquiry as "compensatory", the Fund seeks to avoid the effect of Mr Justice Jacob's refusal to allow an amendment of the claim (when before him) so as to include a claim for an account of profits. The Federation contends (paragraph 2 of the notice) that, on a proper analysis of the judgments in the House of Lords in Attorney General v Blake [2001] AC 268, the remedy which the Fund seeks in the inquiry is a gains-based award, not compensatory in nature; and (paragraph 3 of the notice) that, by reason of Mr Justice Jacob's order refusing permission to amend (and the Fund's decision not to appeal from that order), the Fund is precluded from seeking a gains-based remedy. It is necessary, therefore, to examine the juridical basis underlying an award of damages on the Wrotham Park basis.

The juridical basis for the claim under paragraph 6(a) of the Claim to Damages

25. As I have said the Fund's primary contention is that the principles contained in the judgments in the Wrotham Park case, Attorney General v Blake and Experience Hendrix establish that where a covenantor breaches a restrictive covenant, the covenantee is entitled to claim as damages a reasonable payment in respect of the hypothetical release of the covenant.
26. As Mr Justice Peter Smith pointed out (at paragraph [98] of his judgment) the facts in the Wrotham Park case are far removed from those in the present case. The defendants, Parkside Homes Ltd, had built houses on land formerly part of the Wrotham Park estate in breach of a covenant not to develop the land for building purposes save in accordance with plans approved by the estate owner. It had sold on the completed houses to residential occupiers, with the benefit of indemnities. The plaintiff, having the benefit of the covenant, sought to enforce it in the interests of other parts of the estate: in particular, it sought a mandatory injunction requiring the demolition of the houses. Mr Justice Brightman refused an injunction; on the grounds that it would be "an unpardonable waste of much needed homes to direct that they now be pulled down". Nevertheless, having found that there had been a breach of covenant but that the plaintiff, itself, had suffered no damage of a financial nature, he was concerned lest refusal to award damages should "spell out a charter entitling others to despoil adjacent areas in breach of valid restrictions imposed by the conveyances".
27. Mr Justice Brightman said this ([1974] 1 WLR 798, 812F-H):

"I turn to the consideration of the quantum of damages. I was asked by the parties to assess the damages myself, should the question arise, rather than to direct an inquiry. The basic rule in contract is to measure damages by that sum of money which will put the plaintiff in the same position as he would have been in if the contract had not been broken. From that basis, the defendants argue that the damages are nil or purely nominal, because the value of the Wrotham Park Estate as the plaintiffs concede is not diminished by one farthing in consequence of the construction of a road and the erection of 14 houses on the allotment site. If, therefore, the defendants submit, I refuse an injunction I ought to award no damages in lieu. That would seem, on the face of it, a result of questionable fairness on the facts of this case. Had the offending development been the erection of an advertisement hoarding in defiance of protest and writ, I apprehend (assuming my conclusions on other points to be correct) that the court would not have hesitated to grant a mandatory injunction for its removal. If, for social and economic reasons, the court does not see fit in the exercise of its discretion, to order demolition of the 14 houses, is it just that the plaintiffs should receive no compensation and that the defendants should be left in undisturbed possession of the fruits of their wrongdoing? Common sense would seem to demand a negative answer to this question".

And he went on (ibid, 815B-D):

"In the present case I am faced with the problem what damages ought to be awarded to the plaintiffs in the place of mandatory injunctions which would have restored the plaintiffs' rights. If the plaintiffs are merely given a nominal sum, or no sum, in substitution for injunctions, it seems to me that justice will manifestly not have been done.

As I have said, the general rule would be to measure damages by reference to that sum which would place the plaintiffs in the same position as if the covenant had not been broken. Parkside and the individual purchasers could have avoided breaking the covenant in two ways. One course would have been not to develop the allotment site. The other course would have been for Parkside to have sought from the plaintiffs a relaxation of the covenant. On the facts of this particular case the plaintiffs, rightly conscious of their obligations towards existing residents, would clearly not have granted any relaxation, but for present purposes I must assume that it could have been induced to do so. In my judgment a just substitute for a mandatory injunction would be such a sum of money as might reasonably have been demanded by the plaintiffs from Parkside as a quid pro quo for relaxing the covenant.. . . "

28. It is clear that Mr Justice Brightman approached the question "what damages ought to be awarded to the [covenantee]" on the basis that an award of damages – in the circumstances before him – was "in the place of mandatory injunctions which would have restored the [covenantee's] rights". The award of a sum equal to that "as might reasonably have been demanded by the [covenantee] . . . as a quid pro quo for relaxing the covenant" was "a just substitute for a mandatory injunction". Jurisdiction to award damages in substitution for an injunction had been conferred by section 2 of the Chancery Amendment Act 1858 (Lord Cairns's Act); as was subsequently explained by Sir Thomas Bingham, Master of the Rolls, and by Lord Justice Millett in Jaggard v Sawyer [1995] 1 WLR 269, 276D-277A, 284A-F, and by Lord Nicholls of Birkenhead in Attorney General v Blake [2001] 1 AC 268, 281b-h.
29. It is, I think, reasonably clear, also, that, in the Wrotham Park case, Mr Justice Brightman took the view that he was making an award of compensatory damages. The plaintiff's loss was to be seen as that sum which it might reasonably have demanded as the quid pro quo for relaxing the covenant. The question, then, was what sum would it have been reasonable for the covenantee to demand: it being assumed (I think) that, if the demand were reasonable, the developer would have been willing to meet it. Mr Justice Brightman's answer to that question was that the covenantee would demand and the developer would pay the sum which (with hindsight) the court judged to be a fair price in the circumstances. He said this (ibid, 815G-816B):

"I think that in a case such as the present a landowner faced with a request from a developer which, it must be assumed, he feels reluctantly obliged to grant, would have first asked the developer what profit he expected to make from his operations. With the benefit of foresight the developer would, in the present case, have said about £50,000 for that is the profit which Parkside concedes it made from the development. I think that the landowner would then reasonably have required a certain percentage of that anticipated profit as a price for the relaxation of the covenant, assuming, as I must, that he feels obliged to relax it. In assessing what would be a fair percentage I think that the court ought, on the particular facts of this case, to act with great moderation. . . . [In] all the circumstances, in my judgment a sum equal to five per cent of Parkside's anticipated profit is the most that is fair. I accordingly award the sum of £2,500 in substitution for mandatory injunctions."

It can be seen that Mr Justice Brightman felt able to equate anticipated profit with actual profit. That appears from the sentence: "With the benefit of foresight the developer would, in the present case, have said about £50,000 for that is the profit which Parkside concedes it made from the development". So, in the result, the sum awarded was a percentage of actual profit. In that sense the award was "gains-based": that is to say, based on the actual gain to the developer as a result of his breach. But there is little or no support in the reasoning for the view that Mr Justice Brightman saw himself as making a gains-based award.

30. The Wrotham Park case was decided in October 1973. The approach in that case was followed, a few months later, by Mr Justice Graham in Bracewell and another v Appleby [1975] 1 Ch 408. In that case the plaintiffs, who were entitled to a right of way over a private road, established that the defendant was not entitled to a like right (in common with them) to a new house which he had built; but, in the circumstances that to restrain the defendant from using the road would render the new house uninhabitable, were denied an injunction. Mr Justice Graham took the view that he should grant damages in lieu of an injunction, under (Lord Cairns's Act). He said this (ibid, 419H-420C):

". . . I think that for the purposes of estimating damages [the plaintiffs] and the other servient owners in Hill Road, albeit reluctant, must be treated as being willing to accept a fair price for the right of way in question and must not be treated as if they were in the extremely powerful bargaining position which an interlocutory injunction would have given them if it had been obtained before the defendant started operations and incurred expense. Such is to my mind the penalty of standing by until the house is built.

On the evidence here the probable figure of notional profit which the defendant has made, being the difference between the overall cost of the new house and its present-day value seems to be somewhere between £4,000 and £6,000 and I think it is fair to take £5,000 as about as accurate a figure as one can get. The circumstances here are very different from those in the Wrotham Park case and I think that the proper approach is to endeavour to arrive at a fair figure which, on the assumption made, the parties would have arrived at as one which the plaintiffs would accept as compensating them for loss of amenity and increased user [of the private road], and which at the same time, whilst making the blue land a viable building plot, would not be so high as to deter the defendant from building at all. . . . I think he would have been prepared to pay what is relatively to his notional profit quite a large sum for the right of way in question and to achieve the building of his new home. This was a time of rising property values and I think he would have been prepared to pay £2,000 to get his right of way and if he had made such an offer, I think the other five owners in Hill Road ought also to have been prepared to accept it.. . . "

There is nothing there, as it seems to me, to support the view that Mr Justice Graham thought that he was making a gains-based award.

31. Nor is there support for the view that an award of damages on the Wrotham Park basis is other than compensatory in the judgment of Sir Robert Megarry, Vice-Chancellor, in Tito and others v Waddell and others (No 2), Tito and others v Attorney General [1977] Ch 106. After referring to the decisions in the Wrotham Park case and Bracewell v Appleby, the Vice-Chancellor said this (ibid, 335E-G):

"I find great difficulty in seeing how these cases help [the plaintiffs]. If the plaintiff has the right to prevent some act being done without his consent, and the defendant does the act without seeking that consent, the plaintiff has suffered a loss in that the defendant has taken without paying for it something for which the plaintiff could have required payment, namely, the right to do the act. The court therefore makes the defendant pay what he ought to have paid the plaintiff, for that is what the plaintiff has lost. The basis of computation is not, it will be observed, in any way directly related to wasted expenditure or other loss that the defendant is escaping by reason of an injunction being refused: it is the loss that the plaintiff has suffered by the defendant not having observed the obligation to obtain the plaintiff's consent. Where the obligation is contractual, that loss is the loss caused to the plaintiff by the breach of contract."

32. Mr Justice Brightman did not refer, in terms, to the jurisdiction under Lord Cairns's Act. Nevertheless, in Surrey County Council and another v Bredero Homes Ltd [1993] 1 WLR 1361, the Wrotham Park case was distinguished, in this Court, on the basis that Mr Justice Brightman had, indeed, made the award of damages which he did under that jurisdiction. In Bredero Homes the plaintiff council had sought damages for the breach by the defendant, a developer, of a covenant (imposed by the council at the time of the sale of the relevant land to the developer) restricting the number of houses that could be built on the land transferred. The council did not seek an injunction. As Lord Justice Dillon put it ([1993] 1 WLR 1361, 1364B): "They recognised that there was never any practical possibility of such an injunction being granted". Lord Justice Dillon, with whom both the other members of the Court agreed, said this (ibid, 1367A-C, 1368G-H):

"As I read his judgment Mr. Justice Brightman was not seeking to analyse the scope or basis of the court's jurisdiction under Lord Cairns' Act. He merely concluded that, as Parliament had expressly empowered the Court to grant damages in lieu of an injunction, Parliament must have intended that in every case the Court must be able to award such damages as would achieve a fair result between the parties and would not be limited to awarding nominal damages only. He sought to apply that conclusion. That involves a conclusion by the judge that Lord Cairns' Act effected a substantive change in the law of damages and was not a merely procedural statute as Johnson -v- Agnew ([1980] AC 367) has held. It is unnecessary to refer further in this judgment to the Wrotham Park case since that was under Lord Cairns' Act and stands or falls by that; whereas, the present case is not, and makes no pretence of being, under that Act"

. . .

"As I see it, therefore, there never was in the present case, even before the writ was issued, any possibility of the Court granting an injunction to restrain the defendant from implementing the later planning permission. The plaintiffs' only possible claim from the outset was for damages only, damages at common law. The plaintiffs have suffered no damage. Therefore on basic principles, as damages are awarded to compensate loss, the damages must be merely nominal."

33. As I have said, in Surrey County Council v Bredero Homes Ltd [1993] EWCA Civ 7; [1993] 1 WLR 1361, this Court took the view that, in circumstances where there was no claim to an injunction, it was not open to the council to seek damages under Lord Cairns's Act. The Wrotham Park case was distinguished on that basis. Nevertheless, powerful support for the view that an award of Wrotham Park damages is not based on compensatory principles is found in the judgment of Lord Justice Steyn. He said this (ibid, 1369B-1370A):

"An award of compensation for breach of contract serves to protect three separate interests. The starting principle is that the aggrieved party ought to be compensated for loss of his positive or expectation interests. In other words, the object is to put the aggrieved party in the same financial position as if the contract had been fully performed. But the law also protects the negative interest of the aggrieved party. If the aggrieved party is unable to establish the value of a loss of bargain he may seek compensation in respect of his reliance losses. The object of such an award is to compensate the aggrieved party for expenses incurred and losses suffered in reliance on the contract. These two complementary principles share one feature. Both are pure compensatory principles. If the aggrieved party has suffered no loss he is not entitled to be compensated by invoking these principles. The application of these principles to the present case would result in an award of nominal damages only.

There is, however, a third principle which protects the aggrieved party's restitutionary interest. The object of such an award is not to compensate the plaintiff for a loss, but to deprive the defendant of the benefit he gained by the breach of contract. The classic illustration is a claim for the return of goods sold and delivered where the buyer has repudiated his obligation to pay the price. It is not traditional to describe a claim for restitution following a breach of contract as damages. What matters is that a coherent law of obligations must inevitably extend its protection to cover certain restitutionary interests. How far that protection should extend is the essence of the problem before us. In my view Wrotham Park v Parkside Homes [1974] 1 W.L.R. is only defensible on the basis of the third or restitutionary principle: see MacGregor on Damages, 15th Edition (1988), paragraph 18, and Professor P.B.H. Birks, "Civil Wrongs: A New World", Butterworth Lectures, (1990-1991), pp 55, 71.

The plaintiffs' argument that Wrotham Park can be justified on the basis of a loss of bargaining opportunity is a fiction. The object of the award in Wrotham Park was not to compensate the plaintiffs for financial injury, but to deprive the defendants of an unjustly acquired gain. Whilst it must be acknowledged that Wrotham Park represented a new development, it seems to me that it is based on a principled legal theory, justice and sound policy. . . . The Wrotham Park case is analogous to cases where a defendant has made use of the aggrieved party's property and thereby saved expense: see Penarth Dock Engineering Co. Ltd. v Pounds [1963] 1 Lloyd's Rep 359. I readily accept that the word 'property' in this context must be interpreted in a wide sense. I would also not suggest that there is no scope for further development in this branch of the law."

Lord Justice Rose agreed with that analysis (ibid, 1371C).

34. The Bredero Homes case was decided in April 1993. A few months earlier, His Honour Judge Jack QC, sitting in the Weymouth County Court ([1993] 1 EGLR 197) in Jaggard v Sawyer, had refused the plaintiff injunctions, on facts which were almost indistinguishable from those in Bracewell v Appleby. He had awarded damages in lieu of injunctions in the sum of £694.44: that being the plaintiff's proportionate (one ninth) share of the sum (£6,250) which, as he held, the defendants might reasonably have paid for a right of way and release of the covenant. The plaintiff appealed, contending that the judge was wrong, in refusing injunctions, to make an order which (in effect) required her to license a continued invasion of her property rights. The appeal came before this Court (Sir Thomas Bingham, Master of the Rolls, Lord Justice Kennedy and Lord Justice Millett) in June 1994 and was dismissed ([1994] EWCA Civ 1; [1995] 1 WLR 269).
35. There was no cross appeal before this Court in Jaggard v Sawyer. Nevertheless, the Court took the opportunity to comment, with approval, on the basis on which damages had been awarded in the Wrotham Park case – and, by inference, to approve Bracewell v Appleby – and to express disagreement (or at the least, doubt) as to the reasoning in Bredero Homes. Sir Thomas Bingham, Master of the Rolls, said this ([1995] 1 WLR 269, 281H-282E):

". . . I cannot, however, accept that Brightman J's assessment of damages in Wrotham Park was based on other than compensatory principles. The defendants had committed a breach of covenant, the effects of which continued. The judge was not willing to order the defendants to undo the continuing effects of that breach. He had therefore to assess the damages necessary to compensate the plaintiffs for this continuing invasion of their right. He paid attention to the profits earned by the defendants, as it seems to me, not in order to strip the defendants of their unjust gains, but because of the obvious relationship between the profits earned by the defendants and the sum which the defendants would reasonably have been willing to pay to secure release from the covenant. I am reassured to find that this is the view taken of Wrotham Park by Megarry V-C in Tito v Waddell (No 2) [1977] Ch 106 at p335D . . . [citing the passage which I have set out earlier in this judgment] . . . I can see no reason why a judge should not assess damages on the Wrotham Park basis when he declines to prevent commission of a future wrong."

And, he added (ibid, 283G):

"The only argument pressed on damages was that the only damages properly awardable on compensatory principles would have been nominal and that therefore an injunction should have been granted. As already indicated, I think that the Wrotham Park approach was appropriate even on pure compensatory principles and the judge followed it correctly. "

36. Lord Justice Kennedy agreed with Sir Thomas Bingham, Master of the Rolls. Lord Justice Millett delivered a judgment of his own. He addressed, in terms, the question "on what basis should damages be assessed" in a case where the court had accepted an invitation "to exercise its statutory jurisdiction to award damages instead of granting an injunction to restrain a threatened or continuing trespass or breach of restrictive covenant" (ibid, 283H-284A); although, strictly, that question was not raised by the appeal before the Court. He did so for the reason which he gave in the course of his judgment (ibid, 289D-F):

"Having decided to refuse an injunction and to award the plaintiff damages instead, the judge had to consider the measure of damages. He based them on her share of the amount which, in his opinion, the plaintiff and the other residents of Ashleigh Avenue could reasonably have demanded as the price of waiving their rights. In this he applied the measure of damages which had been adopted by Brightman J in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, a case which has frequently been followed. It would not be necessary to consider this matter further but for the fact that in the recent case in this court of Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361 doubts were expressed as to the basis on which this measure of damages could be justified and whether it was consistent with the reasoning of Lord Wilberforce in Johnson v Agnew [1980] AC 367. It is, therefore, necessary to examine those cases further."

After an analysis of the reasoning in Johnson v Agnew – a decision on Lord Cairns's Act - Lord Justice Millett reached the conclusion (ibid, 291B-C) that the trial judge (and/or, perhaps, Mr Justice Brightman) had not been precluded by that reasoning from adopting the measure of damage which he did. He went on (ibid, 291C-E) to say this:

" . . . It is, however, necessary to notice the observations of Steyn LJ in Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361, 1369:

'In my view Wrotham Park Estate Co Ltd v Parkside Homes Ltd …is only defensible on the basis of the third or restitutionary principle … The plaintiffs' argument that the Wrotham Park case can be justified on the basis of a loss of bargaining opportunity is a fiction.'

I find these remarks puzzling. It is plain from his judgment in the Wrotham Park case that Brightman J's approach was compensatory, not restitutionary. He sought to measure the damages by reference to what the plaintiff had lost, not by reference to what the defendant had gained. He did not award the plaintiff the profit which the defendant had made by the breach, but the amount which he judged the plaintiff might have obtained as the price of giving its consent. The amount of the profit which the defendant expected to make was a relevant factor in that assessment, but that was all."

He concluded (ibid, 292D):

"In my view, there is no reason why compensatory damages for future trespasses and continuing breaches of covenant should not reflect the value of the rights which she has lost, or why such damages should not be measured by the amount which she could reasonably have expected to receive for their release."

37. Although the reasoning in Surrey County Council v Bredero Homes Ltd was criticised in this Court in Jaggard v Sawyer, the Court did not find it necessary to hold that the decision in the earlier case was wrong; even if it had been open to the Court to do so. Indeed, Lord Justice Millett offered an explanation why the decision was correct. He pointed out ([1995] 1 WLR 269, 290A-B) that:

". . .examination of the facts stated in the headnote [[1993] 1 WLR 1361]reveals that the defendant had disposed of all the houses on the estate before the plaintiffs commenced proceedings, and that the purchasers were not joined as parties. Any claim to damages under Lord Cairns' Act must have failed; at the date of the writ the court could not have ordered the defendant to pull down the houses, since this was no longer something which was within its power to do."

He went on, (ibid, 292A-C):

". . . The plaintiffs did not bring the proceedings until after the defendant had sold the houses and was no longer susceptible to an injunction. The plaintiffs had thereby deprived themselves of any bargaining position. Unable to obtain an injunction, they were equally unable to invoke the jurisdiction to award damages under Lord Cairns' Act. No longer exposed to the risk of an injunction, and having successfully disposed of the houses, the defendant had no reason to pay anything for the release of the covenant. Unless they were able to recover damages in accordance with restitutionary principles, neither at common law nor in equity could the plaintiffs recover more than nominal damages."

38. As I have said, there is little or no support in his own reasoning, in the Wrotham Park case, for the view that Mr Justice Brightman saw himself as making a gains-based award. But this Court, in Jaggard v Sawyer, had no doubt that he had not done so: he had assessed damages on compensatory principles – per Sir Thomas Bingham, Master of the Rolls, (with whom Lord Justice Kennedy agreed – ibid, 281H) and Lord Justice Millett (ibid) at 291D. Further, this Court held, in Jaggard v Sawyer (ibid, 282E, 283G, 283H and 292D) that Mr Justice Brightman's approach had been correct. Set against that powerful endorsement of the proposition that Wrotham Park damages are essentially compensatory was the no less powerful view of Lord Justice Steyn in Bredero Homes (a view with which Lord Justice Rose expressed his agreement and for which support was found in the academic writings to which Lord Justice Steyn referred) that the award of damages in the Wrotham Park case was "only defensible on the basis of the third or restitutionary principle"; that "the plaintiffs' argument that Wrotham Park can be justified on the basis of a loss of bargaining opportunity is a fiction"; and that "the object of the award in Wrotham Park was not to compensate the plaintiffs for financial injury, but to deprive the defendants of an unjustly acquired gain".
39. Nevertheless, it can, I think, be said that, by the time that judgments were delivered in Gafford v Graham, [1998] EWCA Civ 666; (1998) 77 P&CR 73, the view that Wrotham Park damages were essentially compensatory had prevailed in this Court. Lord Justice Nourse (with whom Lord Justice Pill and Lord Justice Thorpe agreed) said this (77 P&CR, 73, 86):

"A welcome consequence of Jaggard v. Sawyer is that it has firmly established the Wrotham Park basis of assessing damages as the basis appropriate to cases such as this. There have been some differences of opinion as to the correct analysis of that decision, the difficulty being, as the plaintiffs there conceded, that the defendants' breaches of covenant had caused no diminution in the value of the land to which the benefit of the covenant was annexed; see [1974] 1 WLR at p 182F-G. No doubt it was for that reason that in Surrey County Council v. Bredero Homes Ltd [1993] 1WLR 1361, 1369, Steyn LJ expressed the view that the Wrotham Park damages were defensible only on the basis that they were restitutionary in nature. However, that view was rejected in Jaggard v. Sawyer by both Sir Thomas Bingham MR and Millett LJ who, agreeing with Megarry VC in Tito v. Waddell (No. 2) [1977] Ch 106, 335, thought that Brightman J's approach had been compensatory, in that the damages awarded were intended to compensate the plaintiffs for not having obtained the price they would have been able to obtain for giving their consent, had they been asked to give it.

The compensatory analysis, if accompanied by a recognition that it was not a diminution in value of the dominant tenement that was compensated, is perfectly acceptable. Equally, in a case where there has been such a diminution, there seems to be no reason why it should not be taken into account in assessing the sum which might reasonably have been demanded as a quid pro quo for relaxing the covenant. Whatever the correct analysis may be, Jaggard v. Sawyer, as both sides agree, is clear authority for the adoption of the Wrotham Park basis of assessing damages in this case. I therefore proceed to assess them by reference to the sum which the plaintiff might reasonably have demanded as a quid pro quo for relaxing the restrictions in perpetuity . . ."

40. It is, I think, important to keep in mind that the Wrotham Park case, Bracewell v Appleby, Jaggard v Sawyer and Gafford v Graham were each cases in which the primary claim had been for an injunction. Bracewell v Appleby and Jaggard v Sawyer were cases in which the relief sought was to protect a property right. In the Wrotham Park case and in Gafford v Graham the underlying right lay in contract only. In each of those cases the court refused the injunction and awarded damages in lieu. Lord Justice Millett explained in Jaggard v Sawyer (ibid, 291F-H), that the context in which damages were awarded in those cases provided the basis for the measure of those damages:

". . . Prima facie the measure of damages . . . for breach of a covenant not to build a house on neighbouring land is the diminution in the value of the plaintiff's land occasioned by the breach. One element in the value of the plaintiff's land immediately before the breach is attributable to his ability to obtain an injunction to prevent the building. Clearly a defendant who wished to build would pay for the release of the covenant, but only so long as the court could still protect it by the grant of an injunction. The proviso is important. It is the ability to claim an injunction which gives the benefit of the covenant much of its value. If the plaintiff delays proceedings until it is no longer possible for him to obtain an injunction, he destroys his own bargaining position and devalues his right. The unavailability of the remedy of injunction at one and the same time deprives the court of jurisdiction to award damages under the Act and removes the basis for awarding substantial damages at common law. For this reason, I take the view that damages can be awarded at common law in accordance with the approach adopted in Wrotham Park, but in practice only in the circumstances in which they could also be awarded under [Lord Cairns's Act]. "

41. Whatever the position may have been thought to be before the decision of the House of Lords in Attorney General v Blake [2001] 1 AC 268, it must now be accepted that, in so far as this Court decided, in the Bredero Homes case, that damages on the Wrotham Park basis were not available at common law, the decision can no longer be regarded as authoritative.
42. In the course of his speech in Attorney General v Blake, Lord Nicholls made an apparent distinction between cases in which damages on the Wrotham Park basis were awarded in lieu of a mandatory injunction requiring the removal of a building or buildings (of which the Wrotham Park case itself was an example) and cases where damages were awarded in lieu of an injunction to restrain a continuing trespass (of which Bracewell v Appleby and Jaggard v Sawyer were examples). In a section headed "Damages under Lord Cairns's Act", he addressed the power of the court, under that Act, to award damages in respect of losses likely to follow from the anticipated future continuance of the wrong. He said this (ibid, 281d-g):

"The power to give damages in lieu of an injunction imported the power to give an equivalent for what was lost by the refusal of an injunction: see Leeds Industrial Co-operative Society Ltd. v. Slack [1924] A.C. 851, 859, per Viscount Finlay L.C. It is important to note, however, that although the Act had the effect of enabling the court in this regard to award damages in respect of the future as well as the past, the Act did not alter the measure to be employed in assessing damages: see Johnson v. Agnew [1980] A.C. 367, 400, per Lord Wilberforce. Thus, in the same way as damages at common law for violations of a property right may be measured by reference to the benefits wrongfully obtained by a defendant, so under Lord Cairns' Act damages may include damages measured by reference to the benefits likely to be obtained in future by the defendant. This approach has been adopted on many occasions. Recent examples are Bracewell v. Appleby [1975] Ch. 408 and Jaggard v. Sawyer [1995] 1 WLR 269, both cases concerned with access to a newly-built house over another's land.

The measure of damages awarded in this type of case is often analysed as damages for loss of a bargaining opportunity or, which comes to the same, the price payable for the compulsory acquisition of a right. This analysis is correct. The court's refusal to grant an injunction means that in practice the defendant is thereby permitted to perpetuate the wrongful state of affairs he has brought about. . . ."

43. Lord Nicholls referred to the other type of case (refusal of a mandatory injunction to remedy a past, non-continuing, breach) in the next section of his judgment, headed "Breach of contract". After describing the circumstances in which the court would give specific remedies – including, in particular, "a mandatory order to undo an existing breach, as where the court orders the defendant to pull down building works carried out in breach of covenant" - he said this (ibid, 282g-283b):

". . . In practice, these specific remedies go a long way towards providing suitable protection for innocent parties who will suffer loss from breaches of contract which are not adequately remediable by an award of damages. But these remedies are not always available. . . . Further, these specific remedies are discretionary. . . . The court may, for instance, decline to grant specific relief on the ground that this would be oppressive.

An instance of this nature occurred in Wrotham Park Estate Co. Ltd. v. Parkside Homes Ltd. [1974] 1 W.L.R. 798. For social and economic reasons the court refused to make a mandatory order for the demolition of houses built on land burdened with a restrictive covenant. Instead, Brightman J. made an award of damages under the jurisdiction which originated with Lord Cairns's Act. The existence of the new houses did not diminish the value of the benefited land by one farthing. The judge considered that if the plaintiffs were given a nominal sum, or no sum, justice would manifestly not have been done. He assessed the damages at five per cent of the developer's anticipated profit, this being the amount of money which could reasonably have been demanded for a relaxation of the covenant.

 In reaching his conclusion the judge applied by analogy the cases mentioned above concerning the assessment of damages when a defendant has invaded another's property rights but without diminishing the value of the property. I consider he was right to do so. . . ."

44. In that context "the cases mentioned above concerning the assessment of damages when a defendant has invaded another's property rights but without diminishing the value of the property" were those grouped under an earlier section of Lord Nicholls' speech headed "Interference with rights of property" (ibid, 278d-280f). It is, I think, sufficient to cite a short passage in that section (at 278d-g):

" . . . The general rule is that, in the oft quoted words of Lord Blackburn, the measure of damages is to be, as far as possible, that amount of money which will put the injured party in the same position he would have been in had he not sustained the wrong: Livingstone v. Rawyards Coal Co. (1880) 5 App. Cas. 25, 39. Damages are measured by the plaintiff's loss, not the defendant's gain. But the common law, pragmatic as ever, has long recognised that there are many commonplace situations where a strict application of this principle would not do justice between the parties. Then compensation for the wrong done to the plaintiff is measured by a different yardstick. A trespasser who enters another's land may cause the landowner no financial loss. In such a case damages are measured by the benefit received by the trespasser, namely, by his use of the land.

The same principle is applied where the wrong consists of use of another's land for depositing waste, or by using a path across the land or using passages in an underground mine. In this type of case the damages recoverable will be, in short, the price a reasonable person would pay for the right of user: see Whitwham v. Westminster Brymbo Coal and Coke Co. [1892] 2 Ch. 538, and the 'wayleave' cases such as Martin v. Porter (1839) 5 M. and W. 351 and Jegon v. Vivian (1871) L.R. 6 Ch. App. 742. A more recent example was the non-removal of a floating dock, in Penarth Dock Engineering Co. Ltd. v. Pounds [1963] 1 L1oyd's Rep. 359."

45.  Lord Nicholls described the decision of the Court of Appeal in Surrey County Council v. Bredero Homes Ltd as (ibid, 283f) "a difficult decision" which (as he said) had attracted criticism from academic commentators as well as in the judgments of Sir Thomas Bingham, Master of the Rolls, and Lord Justice Millett in Jaggard v. Sawyer. He took the view that it was not necessary for him to pursue the detailed criticisms. It was sufficient to say that, in so far as the Bredero decision was inconsistent with the approach adopted in the Wrotham Park case, the latter approach was to be preferred. He went on to say this (ibid, 283h-284a):

"The Wrotham Park case, therefore, still shines, rather as a solitary beacon, showing that in contract as well as tort damages are not always narrowly confined to recoupment of financial loss. In a suitable case damages for breach of contract may be measured by the benefit gained by the wrongdoer from the breach. The defendant must make a reasonable payment in respect of the benefit he has gained."

46. The question which was before the House of Lords in Attorney General v Blake (so far as material in the present context) was not whether Mr Blake, a former member of the Secret Intelligence Service, could be required to make a reasonable payment for the benefit which he had gained in breach of his undertaking not to divulge official information gained as a result of his employment. The concept of a notional bargain between the Crown (as employer) and a double agent - under which the Crown was to be taken as having agreed (for a suitable sum) to release the agent from an undertaking not to publish official secrets – was, perhaps, too bizarre to contemplate. The question before the House was whether the defendant (and his publisher) could be required to account for advances and royalties which were payable to him under the publishing contract. As Lord Nicholls put it (ibid, 284b) in a passage immediately following that which I have just cited:

" In the present case the Crown seeks to go further. The claim is for all the profits of Blake's book which the publisher has not yet paid him. This raises the question whether an account of profits can ever be given as a remedy for breach of contract."

To that question the House of Lords (Lord Hobhouse of Woodborough dissenting) gave an affirmative answer.

47. The view that Wrotham Park damages are essentially compensatory was endorsed by the House of Lords in Attorney General v Blake. That appears most clearly, I think, in a passage in the speech of Lord Hobhouse of Woodborough ([2001] 1 AC 268, 298f-g):

" . . . Where the plaintiff has failed to obtain or failed to apply for an injunction, he has to be content with a remedy in damages. What has happened in such cases is that there has either actually or in effect been a compulsory purchase of the plaintiff's right of refusal. . . . What the plaintiff has lost is the sum which he could have exacted from the defendant as the price of his consent to the development. This is an example of compensatory damages. They are damages for breach. They do not involve any concept of restitution and so to describe them is an error. The error comes about because of the assumption that the only loss which the plaintiff can have suffered is a reduction in the value of the dominant tenement. It is for this reason that I agree with my noble and learned friend Lord Nicholls that the decision in Wrotham Park Estate Co. Ltd. v Parkside Homes Ltd. [1974] 1 WLR 798 is to be preferred to that in Surrey C.C. v Bredero Homes Ltd. [1993] 1 WLR 1361: see also Jaggard v Sawyer [1995] 1 WLR 269. . . ."

Indeed, Lord Hobhouse's dissent was founded on his view that there was a real distinction between compensatory damages as awarded on the Wrotham Park basis and an account of profits; and that there was no proper basis for extending the latter remedy, which (as he thought) was based on proprietary principles, to cases in which underlying proprietary rights were absent. The passage which I have just cited is followed by observations which make this clear (ibid, 298h-299c):

"I would however add that the order proposed by your Lordships does not reflect this principle; it goes further. It does not award to the Crown damages for breach of contract assessed by reference to what would be the reasonable price to pay for permission to publish. It awards the Crown damages which equal the whole amount owed by Jonathan Cape to Blake. That is a remedy based on proprietary principles when the necessary proprietary rights are absent.

The principle of compensation is both intellectually sound as the remedy for breach and provides the just answer. The examples discussed in my noble and learned friend's speech do not on the correct analysis disclose the supposed need to extend the boundaries of remedies for breach of contract.. . ."

Lord Hobhouse accepted that breach of the defendant's undertaking (if the undertaking were to be regarded as still enforceable at the date of the breach) "would have supported compensatory damages on the 'compulsory purchase' basis".

48. I have examined the speeches of Lord Nicholls and Lord Hobhouse in Attorney General v Blake – and the earlier decisions in the Wrotham Park case and in this Court - in deference to the full and careful arguments which were advanced before us. But the question whether, on a claim by a covenantee for damages against a covenantor who has acted in breach of a restrictive covenant, the court may, in an appropriate case, award an amount assessed as the sum which the court considers it would have been reasonable for the covenantor to pay and the covenantee to accept for the hypothetical release of the covenant immediately before the breach seems to me be determined by the judgments of this Court in Experience Hendrix.
49. The claim in that case was in respect of the grant of licences by the defendant in respect of recordings of musical performances by the late Jimi Hendrix. It was said that the licences had been granted in breach of a settlement agreement made between the singer's estate and the defendant in 1973. The claimant was assignee from the estate of the benefit of that agreement. It sought (and obtained) injunctions to restrain further releases of the recordings. The claimant conceded that it could not show financial loss as a result of the past breaches; but claimed, by an amendment for which permission was obtained at the trial, (i) damages, to be measured by the sums that could reasonably have been demanded for relaxing the prohibitions against the grant of the licences, or in the alternative (ii) an account of the defendant's entire profit attributable to the defendant's exploitation of the prohibited material. The issue in this Court was summarised by Lord Justice Mance at paragraph [15] of his judgment ([2003] FSR 46, 861:

"[15] This appeal raises as a matter of principle whether the Court can and should order the recovery of any damages or an account of profits in circumstances where the appellant has not proved that it has suffered any financial loss."

He went on

"[16] The inspiration for the appellant's amendment of its case was the House of Lords decision in Attorney General v. Blake [2001] 1 AC 268. This marks a new start in this area of law. The exposition by counsel before us of prior authority threw light on considerations which may still be relevant to its future development. But, as I see the decision in Blake, it freed us from some constraints that prior authority in this court (particularly Surrey County Council v. Bredero Homes Ltd. [1993] 1 WLR 1361 and some of the reasoning in Jaggard v. Sawyer [1995] 1 WLR 269) would have imposed. To apply Lord Steyn's words, Blake leaves future courts with the task of 'hammering out on the anvil of decided cases' when and how far remedies such as the appellant now seeks should be available."

50. Experience Hendrix was a case – as is the present case – in which an injunction restraining future breaches of the contractual restriction had been granted. At paragraph [34] of his judgment Lord Justice Mance addressed the argument, advanced on behalf of the defendant, that any order for the payment of damages (and, a fortiori, an account of profits) must be precluded by the fact that an injunction had been granted. He said this (ibid, 867):

"[34] . . . The argument is that the award in Wrotham Park was only possible because the Court was refusing an injunction, in which connection it was entitled under Lord Cairns's Act to assess damages to compensate the plaintiffs for the continuing invasion of their right in the future. That, it is submitted, is not an order that a common law court could or would have made. Common law courts could only grant relief for losses crystallised prior to the issue of a writ. We were referred to the statements on these points in Bredero and in Jaggard. The decision in Blake in my view avoids the need to consider Mr Englehart's submissions on these points at length. The remedies for breach of contract have a flexibility which they fail to recognise. Since Blake I see no reason why, if the beneficiary of a restrictive covenant is unaware of its infringement in time to obtain an injunction immediately, but is able to obtain an injunction for the future after the defendant by the infringement has obtained some benefit, the appellant should be precluded from obtaining an injunction and, if justice requires, a reasonable sum to compensate for the past infringement, even though he may not be able to show any financial loss to himself. If compensation on this basis is available in respect of the permanent deprivation of a right because the law does not consider that injunctive relief is appropriate, there seems no justification for refusing it in respect of a temporary deprivation arising because the infringement has been committed too quickly for the law to be able to intervene. In either case, though for different reasons, the compensation awarded would be in substitution for an injunction."

51. Lord Justice Peter Gibson took a similar view. He said this at paragraph [56] of his judgment (ibid, 874):

"[56] It is apparent from Lord Nicholls' speech that he regarded the decision of Brightman J. in Wrotham Park Estate Ltd. v Parkside Homes Ltd. [1974] 1 WLR 798 as a crucial stepping stone in his reasoning as to why the absence of financially measurable loss flowing from a breach of contract was not necessarily fatal to a claimant's claim for compensation. . . . True it is that in that case, unlike the present case, no injunction was awarded; it was by the time of the hearing before Brightman J. too late to restrain future breaches, because the houses, the building of which breached the restrictive covenant, had already been built. Brightman J. awarded damages under the jurisdiction originating with Lord Cairns's Act in lieu of an injunction. But that Act specifically permitted the award of damages in addition to or in substitution for an injunction or specific performance (see now s. 50 Supreme Court Act 1981) and the fact that an injunction was awarded by Buckley J. to restrain future breaches does not detract from the availability of damages as a remedy for past breaches. Although the Wrotham Park case related to an infringement of a property right, there having been a breach of a restrictive covenant imposed for the benefit of an estate, it is noticeable that Lord Nicholls did not treat the significance of the case as so limited. He discussed the case in the section of his judgment (commencing at p. 282) dealing with breach of contract. It is apparent that he regarded the case as a guiding authority on compensation for breach of a contractual obligation. . . .".

The other member of the Court, Lord Justice Hooper, agreed with both judgments.

52. In the course of his judgment in Experience Hendrix Lord Justice Mance observed at paragraphs [25] and [26] (ibid, 865) that:

"[25] . . . As to [Lord Hobhouse's] analysis of the damages awarded in Wrotham Park as compensatory, that designation does not avoid the fact that the damages awarded there (and in other cases, . . .) cannot be related or limited to any actual financial loss caused by the breach. In Wrotham Park the estate owners would never have agreed to any relaxation on any terms of the restrictive covenant.

[26] Whether the adoption of a standard measure of damages represents a departure from a compensatory approach depends upon what one understands by compensation and whether the term is only apt in circumstances where an injured party's financial position, viewed subjectively, is being precisely restored. . . . In a case such as Wrotham Park the law gives effect to the instinctive reaction that, whether or not the appellant would have been better off if the wrong had not been committed, the wrongdoer ought not to gain an advantage for free, and should make some reasonable recompense."

53. In the light of the judgments in the Experience Hendrix case it must now be regarded as settled in this Court that, on a claim by a covenantee for an injunction and damages against a covenantor who has acted in breach of a restrictive covenant, the court may, in addition to granting an injunction to restrain further breaches, award damages in respect of past breaches notwithstanding that the covenantee cannot establish actual financial loss. In such a case the damages in respect of past breaches may be in an amount assessed as the sum which the court considers it would have been reasonable for the covenantor to pay and the covenantee to accept for the hypothetical release of the covenant. In such a case it seems to me that principle requires that the sum be assessed on the basis (i) that the hypothetical release would have taken effect from a date immediately before the covenantor was first in breach and (ii) that the hypothetical release should be for a period ending with the date on which the injunction to restrain future breaches takes effect. I can see no reason why the hypothetical release should be assumed to extend into a period when (by reason of the injunction) the covenantor can no longer be said to be taking any benefit under it.
54. I should add, for completeness, that (if it were necessary to decide the point) I would hold that, in a case where a covenantor has acted in breach of a restrictive covenant, the court may award damages on the Wrotham Park basis, notwithstanding that there is no claim for an injunction – and notwithstanding that there could be no claim for an injunction. In my view, the analysis in the speech of Lord Nicholls in Attorney General v Blake compels that conclusion. The power to award damages on a Wrotham Park basis does not depend on Lord Cairns's Act: it exists at common law. Further, as it seems to me, the power to award damages on the basis of what it would have been reasonable for the covenantor to pay for a hypothetical release does not depend on the covenantee establishing (as a factual premise) that, absent a release, the covenant could have been enforced by injunction. That, I think, is what Lord Justice Mance had in mind when he said, at paragraph [16] of his judgment in Experience Hendrix (ibid, 861), that the decision in Attorney General v Blake had freed this Court from constraints imposed by the reasoning in Bredero Homes and "some of the reasoning in Jaggard v Sawyer". But it is not necessary to decide that point on this appeal. As I have said, this is a case in which – as in Experience Hendrix – the claimant was in a position to, and did, seek an injunction to restrain further breaches. In this case the claimant could rely on the jurisdiction conferred by Lord Cairns's Act – as Lord Justice Peter Gibson explained (ibid, 874).
55. In Experience Hendrix this Court rejected the claimant's invitation to order an account of profits; it ordered that the defendant pay "a reasonable sum for its use of material in breach of the settlement agreement" – (ibid, [45] and [58]; 871 and 875). It indicated that the defendant should pay to the claimant "by way of damages, a proportion of each of the advances received to date and (subject to deduction of such proportion) an appropriate royalty rate on retail selling prices". But that formula, as it seems to me, was informed by the view (ibid, [45]; 870) that the circumstances led inexorably to the conclusion that – had there been any negotiated release from the restrictions imposed by the settlement agreement – it would have been "on terms requiring payment of a royalty". The formula reflected the Court's view as to the basis upon which the hypothetical bargain between the parties, acting reasonably, would have been made.
56. I am not persuaded that, on a true analysis, the outcome in the Experience Hendrix case provides support for the proposition that an award of damages on the Wrotham Park basis is to be characterised as a gains-based remedy. I think that it is clear from the speeches in the House of Lords in Attorney General v Blake that it is not. The rationale which underlies the outcome in Experience Hendrix is, I think, helpfully summarised in the final sentences of paragraph [26] in the judgment of Lord Justice Mance (which follow the passage which I have just cited).

[26] . . . In such a context [where the instinctive reaction is that, whether or not the claimant would have been better off if the wrong had not been committed, the wrongdoer should make some reasonable recompense] it is natural to pay regard to any profit made by the wrongdoer . . . The law can in such cases act either by ordering payment over of a percentage of any profit or, in some cases, by taking the cost which the wrongdoer would have had to incur to obtain (if feasible) equivalent benefit from another source."

In Experience Hendrix there were compelling reasons why the appropriate order was for payment over of a percentage of turnover (by way of royalty); but that outcome does not lead to the conclusion that this Court saw the remedy as other than compensatory in nature.

57. It follows that I would hold that the premise on which the contentions in paragraph 4 of the amended application notice are based - that an award of damages on the Wrotham Park basis is not an award of compensatory damages, but is properly to be characterised as a gains-based award – is not made out.
58. Having said that, I should add that the real question, as it seems to me, is not whether an award of damages on the Wrotham Park basis is to be characterised as a gain-based award, but whether (as the law stands following the decision of the House of Lords in Attorney General v Blake) an order for an account of profits, in a case where the claim is based on breach of contract rather than on infringement of proprietary rights, is to be characterised as an award of compensatory damages. That, of course, is an inversion of the argument in the present appeal. But support for that view is, I think, found in the observations of Lord Nicholls in Attorney General v Blake (with which, with the exception of Lord Hobhouse, the other members of the House of Lords agreed) when drawing together his analysis under the section of his speech headed "Breach of contract". He said this (ibid, 284g-285e):

"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. I prefer to avoid the unhappy expression 'restitutionary damages'. Remedies are the law's response to a wrong (or, more precisely, to a cause of action). 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.

The state of the authorities encourages me to reach this conclusion, rather than the reverse. The law recognises that damages are not always a sufficient remedy for breach of contract. This is the foundation of the court's jurisdiction to grant the remedies of specific performance and injunction. Even when awarding damages, the law does not adhere slavishly to the concept of compensation for financially measurable loss. When the circumstances require, damages are measured by reference to the benefit obtained by the wrongdoer. . . . . With the established authorities going thus far, I consider it would be only a modest step for the law to recognise openly that, exceptionally, an account of profits may be the most appropriate remedy for breach of contract. . . ."

59. When the court makes an award of damages on the Wrotham Park basis it does so because it is satisfied that that is a just response to circumstances in which the compensation which is the claimant's due cannot be measured (or cannot be measured solely) by reference to identifiable financial loss. Lord Nicholls' analysis in Attorney General v Blake demonstrates that there are exceptional cases in which the just response to circumstances in which the compensation which is the claimant's due cannot be measured by reference to identifiable financial loss is an order which deprives the wrongdoer of all the fruits of his wrong. The circumstances in which an award of damages on the Wrotham Park basis may be an appropriate response, and those in which the appropriate response is an account of profits, may differ in degree. But the underlying feature, in both cases, is that the court recognises the need to compensate the claimant in circumstances where he cannot demonstrate identifiable financial loss. To label an award of damages on the Wrotham Park basis as a "compensatory" remedy and an order for an account of profits as a "gains-based" remedy does not assist an understanding of the principles on which the court acts. The two remedies should, I think, each be seen as a flexible response to the need to compensate the claimant for the wrong which has been done to him.
60. It follows therefore that, although I would reject the premise on which the contentions in paragraph 4 of the amended application notice are based - that an award of damages on the Wrotham Park basis is not an award of compensatory damages, but it is properly to be characterised as a gains-based award – I would accept that, on a true analysis, the allegation in sub-paragraph (d) - that the remedy now sought by the Fund (an award of damages on the Wrotham Park basis) is "a juridically highly similar remedy to, the relief [an account of profits] previously sought" – is well-founded. Whether that should lead to the conclusion (for which the Federation contends in sub-paragraph (e)) - that, an amendment to claim an account of profits having been refused by Mr Justice Jacob in 2001, the matter "has been finally determined by a court of competent jurisdiction, between the same parties, and accordingly the Fund is not now entitled to raise the matter again, since it is res judicata." - is a question to which I shall return.

Paragraph 5 of the amended notice of application

61. I have already explained the basis upon which the Fund sought permission to amend, before Mr Justice Jacob in 2001, so as to claim an account of profits. It seems to me that the Federation is entitled to make the allegations which it does in sub-paragraphs (a), (b) and (c) of paragraph 5 of the amended application notice. The Fund's claim, as originally advanced, did not include a claim (in express terms) to damages on the Wrotham Park basis. When the Fund applied for permission to amend to include a claim for an account of profits it could (and, I think, should) have made it clear (if that were its intention) that it was already seeking – as damages within its existing claim – an assessment on the Wrotham Park basis. And - given that the application that the Fund was making was founded on the decision of the House of Lords in Attorney General v Blake (as appears from the judgment of Mr Justice Jacob, [2002] FSR 32, 529) – it cannot be said that the Fund was not aware of the Wrotham Park case which (as Lord Justice Peter Gibson was to point out in Experience Hendrix) was regarded by Lord Nicholls as "a crucial stepping stone in his reasoning as to why the absence of financially measurable loss flowing from a breach of contract was not necessarily fatal to a claimant's claim for compensation".
62. In sub-paragraph (d) of paragraph 5 of the amended notice of application the Federation alleges that the Fund deliberately elected not to seek damages on the Wrotham Park basis at the time that it made it application to amend in 2001. The Federation seeks to support that allegation by reference to what was said to this Court, on behalf of the Fund, at the hearing of the THQ application – sub-paragraph (e) of paragraph 5. In that context it is pertinent to have in mind the view expressed by Mr Justice Peter Smith at paragraph [36] of his judgment. I have set out that paragraph earlier in this judgment; but, for convenience, I will do so again:

"[36] It is plain in my view that at [the time of the application before Mr Justice Jacob] the Fund had no intention of seeking to claim damages based upon the principle that they now wish to rely upon. The amendment sought was not to raise this method of claiming damages and in a later hearing in a separate action to which I shall make reference below it is clear that counsel then representing the Fund (Mr Christopher Morcom QC) indicated that no such claim was being contemplated. "

The "later hearing" to which the judge referred there was the hearing in this Court of an appeal from an order made by Mr Justice Jacob in 2002 on an application by one of the Federation's licensees, THQ/JAKKS Pacific LLC ("THQ"). It is to that hearing that reference is made at sub-paragraph (e) of paragraph 5 of the amended application notice.

The THQ application

63. THQ manufactured video games using the Federation's characters and themes. It sought a declaration that it would not be bound by the order made against the Federation by Mr Justice Jacob in these proceedings on 1 October 2001; and so would not be acting in contempt of court if it continued to sell games from the game play of which it was unable to eliminate the embedded WWF scratch logo. Mr Justice Jacob held ([2002] EWHC 2580 (Ch)) that THQ was bound by the order. His decision on that point was reversed by this Court ([2003] EWCA Civ 401).
64. The Federation had not been party to THQ's application before Mr Justice Jacob. We were taken to passages in the transcript of the hearing on the first day (25 November 2002) which, it is said, suggest that Mr Justice Jacob – in the course of an interchange with counsel for THQ (Mr Thorley QC) - did not take the view that a claim for damages on the Wrotham Park basis was precluded by his order of 1 October 2001:

"Mr Justice Jacob: You have said they can claim against the Federation for damages, and they have got an enquiry to damages going on what basis would the damages be assessed? Actual damage caused to [the Fund], it is a pretty tricky thing to measure. Reasonable royalty?

. . .

Mr Justice Jacob: Well, if it was an intellectual property right you would know where you - - it would be a reasonable royalty or actual damage.

Mr Thorley: Or actual lost sales or reasonable royalty.

Mr Justice Jacob: I do not know how contract law would deal with it. On a normal basis . . .

Mr Thorley: That is right. Again, if I have to say this off the top of my head right, you endeavour to compensate for loss.

Mr Justice Jacob: Yes, but you see we do not in intellectual property because we invent this head of [reasonable] royalty. The question is whether it would apply to a contract as well?

Mr Thorley: Maybe your Lordship will be faced with that in due course."

At the date of that hearing, of course, the analysis of Lord Nicholls' speech in Attorney General v Blake which was later to appear in the judgments in this Court in Experience Hendrix could not have been before Mr Justice Jacob. He may not, then, have appreciated the juridical link between the basis on which an account of profits is available as a remedy for breach of contract, and the basis upon which an award of Wrotham Park damages is made. His observations on 25 November 2002 tend to confirm that the need to consider the question whether to order an account of profits in conjunction with the question whether an award of Wrotham Park damages would, more aptly, meet the circumstances of the particular case had not been raised before him in 2001.

65. The Federation was permitted to take part – and did take part – on the hearing of the appeal in this Court. In the course of that hearing counsel then appearing for the Fund (Mr Morcom QC) was asked by Lord Justice Peter Gibson whether the Fund was seeking a restitutionary remedy in the proceedings against the Federation. Counsel confirmed (as was the case) that the Fund was not seeking to appeal from Mr Justice Jacob's decision (in October 2001) not to permit amendment so as to claim an account of profits. He confirmed, also, that the Fund was aware of the Wrotham Park basis for an award of damages. He was then asked to confirm that "on the enquiry you are not going to be asking for anything other than loss measured by the measurable loss as such." Counsel answered in these terms:

"Mr Morcom QC: Two principal heads, I can say, will be not only the very considerable amount, and one is well into six figures, that we have had to spend in policing trademark applications around the world made in breach of the original agreement; but a very large aspect is the damage to our exclusivity, the dilution of our rights. I just pick those out as two main points. There may be some lesser heads."

At paragraph [71] of his judgment ([2003] EWCA Civ 401) Lord Justice Peter Gibson noted that the Fund did not seek an account of profits as against the Federation; and went on to say this:

"[71] I add for completeness that Mr Morcom has told us that no consideration had been given by the Fund to seeking compensation on the basis used in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, a basis approved by the House of Lords in AG v Blake [2001] 1 AC 268."

It may be that, in making the observations which he did, Lord Justice Peter Gibson had in mind the arguments which had been addressed to the Court in the Experience Hendrix case ([2003] EWCA Civ 323); and in which he had delivered judgment a week earlier.

66. By the time the matter was before the Court of Appeal in the THQ application the Fund was plainly aware that the court had power to award damages on the Wrotham Park basis. The Fund has not suggested that it was not aware, at the time when it made its application to Mr Justice Jacob in 2001, that damages could be awarded on that basis; and, as I have said, it seems to me impossible to avoid the conclusion that the Fund was so aware. The judge's finding, at paragraph [36] of his judgment, that the Fund had no intention of seeking damages on that basis at the time when it made its application to Mr Justice Jacob in 2001 has not been challenged.
67. This Court was told, on the appeal in the THQ application to which the Federation was party, that no consideration had been given by the Fund to seeking damages on that basis. But, again, it seems to me impossible to avoid the conclusion that, at the time when it made its application before Mr Justice Jacob in 2001, the Fund must have decided not to make a claim for damages on the Wrotham Park basis. It is impossible to think that the question whether or not to make such a claim (in the alternative to a claim for an account of profits) had simply not been considered in the context of a decision to make the claim for an account of profits. And, if the question had been considered – but no decision reached – the Fund could not properly have put the application for an account of profits to Mr Justice Jacob on the basis that it did: that an account of profits was the appropriate remedy having regard to (i) the difficulty of obtaining full compensatory damages (paragraph 11.5 of the proposed amendment) and (ii) the inadequacy of an injunction as a remedy for past breaches (paragraph 11.6 of the proposed amendment). It is clear from the speeches in Attorney General v Blake that damages on the Wrotham Park basis are awarded to meet just those points. If the Fund, having considered the question, had decided to leave open the option of making a claim to damages on the Wrotham Park basis until after its application for an account of profits had been determined, it could not properly choose not to disclose that to Mr Justice Jacob. The fact that that option was being kept open was, plainly, a matter of which that judge needed to be aware if he were to make an informed decision on the application for the more extensive (and unusual) remedy by way of an account of profits.

Is it now open to the Fund to pursue a claim for damages to be assessed on the Wrotham Park basis?

68. In my view, an appeal from the order of 16 February 2006 cannot succeed on the ground advanced in paragraph 4 of the amended notice of application. It is necessary to have in mind the basis on which Mr Justice Jacob refused the application to amend made to him in 2001. After setting out the amendments sought, he addressed the application at paragraphs [61] to [63] of his judgment ([2002] FSR 32, 504, 528-9):

"[61] I say nothing about how, if such an account were ordered, it could work other than to ask, rhetorically, how it could be shown that the Federation had made profits from the use of the initials as distinct from its actual commercial activities and the use of its full name. Fortunately I do not have to try to answer that question – I simply have to decide whether it should be answered.

[62] It used to be thought that the equitable remedy of account of profits was not available for breach of contract. But the House of Lords has held otherwise in Attorney-General v Blake [2001] AC 268. In that case a spy had to account for the profits he made from his memoirs. However the majority speeches in the House make it clear that the remedy is very exceptional. Thus Lord Nicholls (with whom Lords Goff, Browne-Wilkinson and Steyn agreed) having held that, 'exceptionally, an account of profits may be the most appropriate remedy for breach of contract' went on to consider when it might be available. He said:

A useful general guide, although not exhaustive, is whether the plaintiff had a legitimate interest in preventing the defendant's profit making activity, and hence in depriving him of his profit.

Lord Nicholls then went on to consider situations where it would not be available. One of these is a negative covenant. He said:

The second suggested category was where the defendant has obtained his profit by doing the very thing he contracted not to do. This category is defined too widely to assist. The category is apt to embrace all express negative obligations. But something more is required than mere breach of such an obligation before an account of profits will be the appropriate remedy.

And three further categories were ruled out as individual factors:

Lord Woolf MR [1998] Ch 439, 457, 458, also suggested three facts which should not be a sufficient ground for departing from the normal basis on which damages are awarded: the fact that the breach was cynical and deliberate; the fact that the breach enabled the defendant to enter into a more profitable contract elsewhere; and the fact that by entering into a new and more profitable contract the defendant put it out of his power to perform his contract with the plaintiff. I agree that none of these facts would be, by itself, a good reason for ordering an account of profits.

[63] When I look at what are ruled out by Lord Nicholls, and compare it with the list of factors in the proposed pleading I can see nothing which makes this case one of the exceptional character called for by the decision in Blake. All one really has here is a negative covenant. The fact that it relates to the use of initials and so is a bit 'trademarkish' or 'IPish' does not mean the common law should provide what Parliament provides by statute for an infringement of a registered mark or intellectual property right. It would indeed be odd if breach of an ordinary full restraint of trade clause (e.g. not to work in a defined area at a defined job for a defined period) did not attract an account, whereas breach of a lesser restraint (not to use a mark in a trade otherwise permitted) did. I conclude that the proposed amendment should not be allowed."

69. It is said, at sub-paragraph (e) of paragraph 4 of the amended notice of application, that – in refusing permission to amend so as to raise a claim for an account of profits - Mr Justice Jacob determined, in a lis between the same parties, the question whether the Fund was entitled to claim "gains-based" relief; and that "accordingly the Fund is not now entitled to raise the matter again, since it is res judicata". I have already explained why I do not think that an award of damages on the Wrotham Park basis can properly be characterised as "gains-based" relief; even if (which I doubt) that is the proper characterisation, in this context, of an order for an account of profits. But it is not for that reason alone that the proposition in sub-paragraph (e) of paragraph 4 cannot be sustained. Mr Justice Jacob decided that this was not one of those exceptional cases in which an order for an account of profits would be an appropriate remedy for breach of a contractual restriction. He did not decide whether this was a case in which the claimant's inability to quantify identifiable financial loss justified an award of Wrotham Park damages. That question was not before him. There is no estoppel per rem judicatam in either of the senses (cause of action estoppel and issue estoppel) described by Lord Justice Diplock in Thoday v Thoday [1964] P 181, 197-8.
70. I turn, therefore, to the ground advanced in paragraph 5 of the amended application notice: that, in the events which have happened, it would be an abuse of process if the Fund were now allowed to claim an award of damages on the Wrotham Park basis.
71. As Lord Bingham of Cornhill pointed out in Johnson v Gore Wood & Co (a firm) [2000] UKHL 65; [2002] 2 AC 1, 23B-D, this form of abuse has in recent years been taken to be that described by Sir James Wigram, Vice-Chancellor, in Henderson v. Henderson (1843) 3 Hare 100 at 114:

"In trying this question I believe I state the rule of the Court correctly when I say that, where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."

72. After referring to some of the many cases in which the principle has been discussed - including the judgment of his own in Barrow v Bankside Agency Ltd [1996] 1 WLR 257, 260, 263, in which he had observed:

"It [the rule in Henderson v Henderson] is a rule of public policy based on the desirability, in the general interest as well as that of the parties themselves, that litigation should not drag on for ever and that a defendant should not be oppressed by successive suits when one would do. That is the abuse at which the rule is directed."

and the judgments of Lord Justice May in Manson v Vooght [1999] BPIR 376, 387-8 and of Lord Justice Auld in Bradford and Bingley Building Society v Seddon [1999] 1 WLR 1482, 1490-1491, 1492-1493 - Lord Bingham said this (ibid, 31A-F):

". . . Henderson v. Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice."

73. For the reasons which I have explained, I am satisfied that the question whether it would be an abuse of process – within the principle as explained by Lord Bingham - for the Fund now to pursue a claim for Wrotham Park damages must be approached on the basis that the application for an account of profits was put before Mr Justice Jacob on the basis that a claim for Wrotham Park damages would not be pursued. As I have said, it is impossible to think that the question whether or not to make such a claim had not been considered. If the Fund, having considered the question, had decided to keep open the option of making a claim to damages on the Wrotham Park basis, it would have been bound to tell the judge that that was its position. It did not do so.
74. In those circumstances the answer to the "crucial question" posed by Lord Bingham in the passage which I have just cited is that the Fund is seeking to abuse the process of the court by seeking to raise, in October 2004 (and, by amendment, in March 2005) a claim for Wrotham Park damages which it could have raised in October 2001 and which (but for the fact that it had decided, then, not to pursue that claim) it should have raised in October 2001. The abuse, as it seems to me, lies in seeking now to pursue a claim for Wrotham Park damages in these proceedings after inviting Mr Justice Jacob to decide the issue which was before him in October 2001 (whether to order an account of profits) on the basis that there would be no claim for Wrotham Park damages in the proceedings. The course which the Fund has adopted is inconsistent with the underlying interest that there should be finality in litigation and that a party should not be vexed twice in the same matter: it is inconsistent with the need for economy and efficiency in the conduct of litigation, in the interests of the parties and of the public as a whole. The Federation was entitled to proceed on the basis that, a claim to an award of Wrotham Park damages not having been sought in 2001, such a claim was not being pursued in these proceedings. The flaw in the judge's reasoning, as it seems to me, lies in his failure to appreciate that the claim to Wrotham Park damages (if it were to be raised at all) should have been raised before Mr Justice Jacob in conjunction with the claim to an account of profits.
75. For that reason I am satisfied that the Federation is entitled to succeed on the ground advanced in paragraph 5 of the amended application notice. I would grant permission to amend, grant permission to appeal on that ground and allow the appeal.

The other grounds of appeal

76. Given the conclusion that I have reached on the ground advanced in paragraph 5 of the amended application notice, it is unnecessary to consider the other grounds of appeal. But I should add, for completeness, that – as will be apparent from my analysis of the basis upon which the court is able to make an award of Wrotham Park damages – I am not persuaded that (absent abuse of process) there is any substance in the criticism that the judge was wrong to make the declaration that he did in paragraph 1 of his order of 16 February 2006. Further, as it seems to me, it was open to the judge to take the view that, on the state of the evidence before him, he could not decide whether, in this case, an award of damages on that basis would or would not be the appropriate remedy. In particular, I would reject the contention that the Fund's claim was bound to fail on the pleadings; or that the fact (if it were to be established) that the Federation's decision to act in breach of its obligations under the 1994 agreement gave rise (in the events which happened) to no benefits to it in the conduct of its business thereafter was necessarily fatal to the claim. The relevant inquiry would have been as to what it would have been reasonable for the Federation to pay, in 1997, for a release from (or temporary suspension of) its obligations under the 1994 agreement. It is, I think, impossible to conclude – in the absence of a finding (which the judge did not feel able to make) as to what it was that led the Federation to decide to act in breach of those obligations - that there would not have been a price worth paying for a release (or, at the least, for a temporary suspension). But, given the conclusion that I have reached on abuse of process, I do not need to decide these points.

Lord Justice Maurice Kay:

77. I agree.

Lord Justice Wilson:

78. I also agree.