England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		16/02/2006

Peter Smith J :

INTRODUCTION

1. This is a hearing of a preliminary issue directed by an order by Patten J on 23^rd March 2005 as to the basis of the assessment of damages as a result of the order of Jacob J made on 1^st October 2001 when (inter alia) he ordered (paragraph 3) that "there be 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 such inquiry to be referred to a Master who shall assess any such damages and the interest (if any) payable thereon (or adjourn such assessment to the judge, as he thinks fit)…"
2. The Agreement is an agreement ("the Agreement") dated 20^th January 1994 between WWF-World Wide Fund for Nature (formerly World Wildlife Fund) (a Swiss foundation) ("the Fund") and Titan Sports Inc ("Titan") known at the time as World Wrestling Federation Entertainment Inc ("the Federation").

THE PRELIMINARY ISSUE

3. The preliminary issue to be decided is:-

"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 right under the Agreement as alleged in paragraphs 6-8 of the amended Claim for Damages?"

4. By the same order Patten J granted the Claimants permission to amend the Claim for Damages by adding new clauses 8(a-d) setting out the basis for the claim for a reasonable payment.
5. That amendment was subsequent to correspondence between the parties before the hearing and I accept that the amendment was not opposed on the basis 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.
6. In addition the Inquiry 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.
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.
11. I did indicate however that if any of the matters was not sustainable for other reasons (by law or as a result of earlier determinations) I would determine them. Equally if I determined that the Fund ought to have challenged the Federation's evidence (especially in relation to profits and the attribution of the same) I would consider whether or not I would accede to an application by the Fund for an adjournment of the inquiry to consider that further.

FACTUAL BACKGROUND LEADING TO THE DISPUTE

12. The Fund is a well known charity concerned with a broad range of environmental conservation. The name and initials "WWF" were extremely well known worldwide and had enormous recognition. It was founded in 1961 as the World Wildlife Fund. To enhance its image and to raise money it engaged in a number of merchandising activities through gifts, catalogues and licensing. All the goods were consistent it is alleged with the Fund's "image". I should say in that context the Federation disputes that drawing to my attention the fact that the Fund for example is willing to allow its panda logo and the Initials to be associated with the sale of alcohol, Coca Cola and various other matters which "might tarnish" the Fund reputation. These are summarised in paragraphs 73-75 in Mr Kaufman's sixth witness statement.
13. None of these matters is for determination before me for the reasons already given in this judgment.
14. The Federation was originally known as Titan Sports Inc and was an American company which was the successor in business to the World Wrestling Federation. That organisation used the initials WWF in about 1979 and until the late 1980s, its activities were broadly confined to the United States. Its core business was organisation and promotion of live wrestling entertainment events. By the 1990s it was engaged in the sale of magazines, videos and associated merchandising.
15. As part of its business operation the Federation has since at least 1983 adopted and was using a logo being a stylised version of the letters WWF and the use of this logo in connection with title World Wrestling Federation educated a large section of the interested public that it was WWF. It was also using the initials WWF orally and in other ways which involved ordinary type script. By the late 1980s its use had spread to Europe (probably with the expansion of satellite television).
16. The Fund did not object initially to any of this use but when the Federation made a US trade mark application for the initials WWF it objected. The objection was resolved by a Letter of Agreement of 12^th September 1989 which placed a minor restriction on the Federation's use of the Initials.
17. Conflict on an international scale began to emerge. The Federation began applying for trade marks outside the United States. In some cases national trade mark offices raised objections based on the Fund's earlier rights; in other countries the Fund opposed or took preliminary steps to oppose. In most cases it was the Fund which was objecting to registrations but in some cases it was the Federation opposing the Fund's application. Proceedings were being threatened by 1993 in a number of countries and the Fund eventually took action and obtained an interim ex parte injunction against the distributor of the Defendant's magazine in Switzerland entitled "WWF-MAGAZIN". Settlement negotiations ensued and they led ultimately to the Agreement.

TERMS OF THE AGREEMENT

18. It is important to emphasise that the Agreement did not preserve for the Fund an exclusive right to use the initials "WWF" ("the Initials"). It did however contain substantial restrictions under clause 2.1.
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. Those permitted were the Federation's logo and any other item permitted under 2.1(6). That latter provision permitted occasional use of the Initials but only in the English language during sports events whether pre recorded or live, the use in printed material which were finally approved for production or distribution prior to 15^th November 1993 but not distributed after 31^st March 1994, and the visual use of the Initials by the Federation in visual presentations published or recorded prior to 15^th November 1993. Finally article 5 provided that the Agreement should not apply to the United States of America as to the oral use of the Initials in relation to goods but it should apply to the United States of America in relation to printed, written, visual or other uses of the Initials.

BREACHES

20. Numerous breaches are identified in paragraph 9 of the original Particulars of Claim. These breaches involve two main categories. First there was a use of what was called the "Scratch" logo which was a different form of logo from that which was authorised. Second there was extensive use of the Initials on the internet. The internet was in a fledgling state at the time of the Agreement.
21. The Federation's stance was that these actions were not breaches of the Agreement. However as the litigation proceeded that stance became indefensible as regards the internet use (see page 541 of the judgment in the Court of Appeal [2002] EWCA Civ 196 [2000] FSR33 referring to the concession of Mr Hobbs QC who then appeared for the Federation).
22. Although it is fairly clear that the Fund became aware of breaches from (at the latest) February 1997 by virtue of the internet usage no complaint was made about the Federation's activities until 1999. No explanation was given at the earlier hearing (nor one now) of such delay. Ultimately correspondence commenced on 2^nd March 1999. The proceedings were then issued on 23^rd December 1999 but were only served on 17^th April 2000.
23. In the Particulars of Claim there is no identification of any special damage whatsoever and an assessment is merely sought. There was no express claim to a share of profits or royalty or reasonable payment.
24. Thereafter the Fund issued two applications. First, by notice dated 24^th January 2001 it sought permission to amend its Particulars of Claim to include a new remedy described in the covering letter as "restitutionary damages" following the decision of the House of Lords in AG v Blake [2001] AC 268.
25. The second application notice dated 30^th January 2001 sought summary judgment for the Fund on its claim.
26. The Federation resisted judgment on a number of bases, (inter alia) on the basis that the Agreement was an unreasonable restraint of trade and was therefore unenforceable.
27. Both applications were heard by Jacob J on 18^th and 19^th July 2001. He delivered a judgment ([2002] FSR32).
28. Although the Fund's solicitor's covering letter might have referred to a claim for resitutionary damages the application sought was an amendment to claim an account of profits. It was said to be on the basis that the Federation had used the Initials in breach of the Agreement and the Fund contended that an account of profits was an available remedy for breach of contract in circumstance of the present case and identified six reasons why an account was appropriate.
29. Jacob J refused the Fund's application. It in turn never challenged that decision. Accordingly the Fund sought and failed to obtain a claim for account.
30. Jacob J's reasoning is significant for the present case the Federation says. At paragraph 61-63 he said as follows:-

"The Fund's application to amend by adding a claim for an account of profits

60 The Fund wishes to amend its Particulars of Claim 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.
The justification for this order is in a proposed new paragraph which reads:

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.

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 M.R. [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 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 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 of time) 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".

SUMMARY JUDGMENT APPLICATION

31. He acceded to the Fund's application for summary judgment on the basis of the existing Particulars of Claim. In so doing he rejected a number of contentions. First he rejected the well known non defence of "Micawberism" bearing in mind in particular the mass of evidence both factual and expert already put in by the Federation.
32. Second he rejected an argument that the Agreement was in common law restraint of trade. In this context he decided that the Fund had a legitimate interest in enforcing the contractual negative covenant. This is because he thought (page 35) "the Fund was entitled to be concerned by any possible association between it and the Federation. At the time the Federation clearly had a very insalubrious image (serious criminal charges and press allegations) but even more generally than that I can well see how the Fund would not want any possibility of association, conscious or subconscious. Many would find the Federation's activities meretricious. Some would say its glorification of violence is somewhat unsavoury…..".
33. By way of counter I should say that there is no credible suggestion that the Federation has ever been motivated out of a desire to benefit from being associated with the Fund. Equally (and this is significant given the evidence brought forward by Mr Kaufman as set out above) I would be very surprised indeed if persons associated with the Fund would think the Federation was associated with it and would doubt whether persons who dealt with the Federation would be the type of people who would be interested in the activities of the Fund. I am not making a decision to that effect however for the reasons already given in this judgment.
34. Ultimately the reason why Jacob J granted the injunction was in my view plainly based upon the well known principle in Doherty v Alman [1878] 3 APP.CAS 719 at page 720 that it is a well settled practice where there has been breach of a negative covenant the courts generally have no discretion but to grant the injunction. Thus at paragraph 53 he said "but I do not propose to examine the legal problem further. This is not a case where there is minor infraction of a minor obligation; the obligation lies at the heart of the Agreement. The Federation has had the benefit of the Agreement. Equity looking to the Federation's conscience will hold it to the bargain it made. There is no case for withholding an injunction here". Pacta sunt servanda.
35. He also granted judgment for damages to be assessed in the form referred to earlier 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.
37. As I have said the Fund did not appeal Jacob J's judgment but the Federation did.
38. In my view the judgment of the Court of Appeal properly read is once again showing that where there is a negative covenant parties can generally expect the Agreement to be enforced by injunction. They upheld the findings of Jacob J that the Federation ignored the contract and their observations were that "a deliberate decision seems to have been made to develop an internet business, based on a "WWF" brand" (page 541). As already recorded the Federation did not argue that the website establishment was "other than a clear breach of the Agreement". In the case of the Scratch logo there was an argument based on the construction of the Agreement that there was no breach but that was rejected.
39. The commencement of the injunction was suspended until 5 months after in the events which happened, the time of refusal of a petition to the House of Lords, and came into effect in November 2002. The damages case covers the period therefore between 1997 and November 2002. Thereafter the injunction operates. The Federation incurred significant expenditure after the injunction was granted in November 2002, said to be approximately $1,500,000 in re-branding to disentangle itself completely from the dispute. That figure is not accepted by the Fund.

THQ LITIGATION

40. Subsequently in 2002 the Fund came into conflict with one of the Federation's licensees THQ/JAKKS ("THQ") which manufactures video games using the Federation's characters and themes. Having been informed of the effect of the injunction ordered by Jacob J THQ ceased to use the Initials and the Scratch logo in its new games. However it was unable to eliminate the logo within the game play itself since it was embedded in the programming. It applied to the court to seek an assurance by way of declaration that it would not be bound by the order against the Federation and it would not therefore be acting in contempt of court by continuing to sell the games. Alternatively if and so far as it was bound by the order it sought a stay in respect of its activities. It also sought confirmation from the Fund at the same time that no action would be taken against it in this regard. None was forthcoming. The Fund opposed the application contending that THQ was bound by the order. Jacob J held that THQ was bound by the order and that no stay should be granted ([2002] EWHC 2580 (Ch)). On appeal the Court of Appeal overturned the Judge and unanimously held that THQ was not bound by the order and by majority of 2 to 1 that even if it were a stay would be appropriate ([2003] EWCA Civ 401).
41. The Federation was not a party to the original application before Jacob J but it was by permission of the Court of Appeal allowed to participate before the Court of Appeal. The hearing before the Court of Appeal took place on 27th March 2003 i.e. after the period for which damages are claimed in this action. That in my view is significant as regards the statement of Mr Morcom QC.
42. There was considerable argument before Jacob J as to the meaning of the order (addressed to THQ's position). In the course of argument it was noted that the inquiry was a standard form inquiry and that the Fund had sat about for an awfully long time. The judge noted that the damage claim by the Fund was in effect a passing off type of claim for damages. The question of reasonable royalty was raised by Jacob J in the context of damages that THQ would suffer if it were bound by the injunction versus the compensation the Fund might receive if it were not and there was an observation that the judge noted that huge profits made by THQ were not from the use of the Scratch logo but on the actual games.
43. Nevertheless he refused the declarations and order sought by THQ and in his judgment determined that the damage the Fund would suffer would be as "dilution of the exclusivity of WWF and tarnishment by association".
44. THQ appealed and the Federation was given permission to be represented at the appeal.
45. Mr Morcom QC acting for the Fund on that appeal was specifically asked by Lord Justice Peter Gibson whether or not there was a claim based on a Wrotham Park as is presently claimed before me. He confirmed to Lord Justice Peter Gibson that the damages would be on two principal heads namely the amount spent in policing the trade mark and "a very large aspect is the damage to our exclusivity and dilution of our rights".
46. THQ's appeal was allowed and in so doing various other parts of the judgment noted the lack of financial loss suffered by the Fund. Lord Justice Peter Gibson expressly recording that the Fund had stated that no consideration had been given to seeking compensation on the basis used in the Wrotham Park case. Further both he and Mr Justice Blackburne noted the lack of any connection between the use of the logo and profits made out of the sales of the games under the licence agreement.
47. Now of course this was a judgment as between the Fund and THQ but it has significance because matters that were stated there clearly had an impact on the Federation. Further the Federation was represented and made representations at the hearing.
48. It is important to appreciate why the Federation was there at the hearing. That appears from the judgment of Peter Gibson LJ ([2004] FSR10 at page 181), namely that it might be exposed to contempt of court proceedings by virtue of THQ's sales and second because Jacob J had severely criticised the Federation's evidence and the Federation wished to correct those criticisms. As Peter Gibson LJ went on to point out the view of the Court of Appeal was Jacob J had no basis for the strong views he expressed on the conduct of the Federation and had no basis for it. They also suspected that that poor view may well have affected his approach to the application made by THQ. Further in the judgment (page 184 paragraph 71) Peter Gibson LJ analysed the nature of the losses alleged by the Fund. He noted the Fund did not seek an account of profits as against the Federation and "I add for completeness that Mr Morcom has told us that no consideration has been given by the Fund 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.

SUBSEQUENT ACTIONS OF THE FUND

49. The Fund had previously of course obtained judgment for damages to be assessed on 1^st October 2001. It took no immediate steps to enforce that inquiry initially stating that there was no point whilst the Federation was pursuing its appeal process. That seems to me to lack credibility as there was never any challenge to the claim for damages for breach of the agreement (that appears from the concessions of Mr Hobbs in the Court of Appeal referred to above). In any event all avenues of appeal were exhausted on 10^th June 2002 when the Federation's petition to the House of Lords was rejected. As I have set out above in March 2003 the Fund was not asserting that it had a Wrotham basis for damages. It claimed for the first time in its claim for damages served on 29^th October 2004 damages based upon the Wrotham Park principle which it had apparently disclaimed in the THQ application (see above). In its original Particulars of Claim dated 17^th April 2002 there is no plea that the Fund suffered any loss or that any of the alleged breaches by the Federation had caused any loss. The only mention of damages is in the prayer for relief which simply says "damages to be assessed together with the interest thereon". No items or types or forms of loss are pleaded and there was no claim to a share of profit or royalty or reasonable payment. The draft amendment in the bundle before me (1/10) is the one which Jacob J refused permission to amend. The account for profits claim is in the draft at paragraph 11. There is clearly no claim expressly made out for reasonable royalty. An account appears to be the legal basis stated for the first time for claiming a reasonable payment.
50. In the pleadings in the inquiry as to damages which have given rise to this Preliminary Issue trial the present legal basis for a reasonable payment by way of damages is alleged for the first time. Patten J subsequently gave permission to amend in respect of paragraph 8a through to 8d. Paragraphs 7 and 8 as I understand it were in the initial claim for damages but not in the original Particulars of Claim that led to the judgment of Jacob J of 1^st October 2001.
51. The current basis for a claim is now to be found in paragraphs 8 through to 8d which provide as follows:-

"8 The Claimants rely in this respect on the following:

(a) Wrotham Park estate Company Limited v Parkside Homes Limited [1974] 1 WLR 798

(b) Attorney General v Blake [2000] 4 All ER 385

(c) Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323

8a The Claimant's primary contention is that the principles contained in these judgments establish that where a covenator 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 (in particular paragraph 13) and the judgment of the Court of Appeal (in particular paragraph 71).

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)".

52. The Fund now contends (the Federation say in the light of the fact that there is no evidence showing a dilution and no credible basis for showing a loss) that it can seek damages on the present basis based on the Wrotham Park case and later authorities for "a reasonable payment from [the Federation] in respect of its use of the initials WWF in breach of the settlement agreement".

QUANTUM

53. The Fund's claim for damages appears somewhat opaquely in paragraphs 12 – 13 of the Amended Claim for damages. It is based on a "quid pro quo" "appropriate royalty rate" or "reasonable payment" which the Federation would have had to pay to the Fund for notionally relaxing their rights under the Agreement and granting a notional licence to it.
54. The notional rate is 12% of the Federation's gross selling price from sales of goods, gross receipts from live wrestling events held outside the USA and from broadcasting events for reception outside the USA of wrestling entertainment events wherever staged and 12% of the Federation's gross receipts from the promotion by it for the sale of goods and services by third parties by means of advertising or sponsorship, displayed or broadcast or otherwise publicised by it being written use of the Initials in the USA in relation to goods and written and/oral use of the Initials outside the USA in relation to goods or services.
55. Finally not to be outdone it claims in addition 25% of the Federation's gross royalty income from the sales of goods by its licensees.
56. There are a number of observations to be made on the way in which the Fund makes its claim. First, it provides no elucidation as to how the percentages are justified. It is true in paragraph 13 it lists no less than 25 factors. However there is no linkage in the pleading between the factors and the percentage; it is a long list of matters which I suspect were given widely different levels of contemplation. Second, the claim is for the Federation's gross receipts i.e. it admits of no reduction in respect of the profits. Third it does not in any way limit the claim to profits made as a result of the breach of contract; it claims a percentage of all of the Federation's profits whatsoever wheresoever. Fourth it will be seen that whilst some of the factors represent an alleged dilution of the Fund's reputation (item e) (k) and (l) there is no attempt to identify such prospects in actual diminution terms.
57. Finally the quantum does not address the potentially important issue that the Fund did not have exclusive right and that the Federation did have certain rights (the value of which is debated between the parties) to use the Initials under the Agreement.
58. There is no attempt to quantify the claim in monetary terms. The Federation estimated that the claim was between $100,000,000 to $150,000,000. Mr Brealey QC disputed that and said (day 4 page 49 line 15) that the Fund estimated the claim at about $80,000,000 based on $16,000,000 per year over 5 years. There has of course been no disclosure by the Federation and the Fund has been relying on statutory accounts. Conversely the Fund has not provided any material to justify the way it arrives at its claim. For example it is apparently based on the normal rate obtained for licences from other parties which range between 5 and 25% and on one occasion beyond that. How those percentages are correlated for the purposes of arriving at the figure of the claim is a complete mystery.
59. It is quite clear that the Fund will have a lot to do to present the claim if it is allowed to proceed.
60. The major argument concerns the effect of three cases:-

(a) Wrotham Park

(b) AG v Blake

(c) Experience Hendrix LLC v PPX Enterprise Inc [2003] EWCA Civ 323

PRELIMINARY SKIRMISHES OF THE FEDERATION

61. Apart from the substantive issue of principle as to how damages can be claimed on this basis the Federation raised three further matters.
62. First it contended that the Fund was precluded from bringing any claim because of its delay first in intimating a claim before action and second in prosecuting the inquiry as to damages. It also contended that the Fund was precluded because the parties argued the case in the Court of Appeal in THQ on the basis that there was no claim as presently sought.
63. Second the Federation contended that the form of judgment in general form precluded a claim under the present head (bearing in mind in particular the form of the original Particulars of Claim) and that the present claim could not be formulated without permission to amend and the permission should be refused.
64. Third the Federation contended that by virtue of statements by Mr Morcom on the Fund's behalf in the Court of Appeal in the THQ action the Fund was precluded too from bringing a claim on the present basis.
65. A key factor in this analysis in my view is that fact that the Federation does not allege any prejudice sustained that is irretrievable. I approach its stance in that light.

DELAY ON THE PART OF THE FUND

66. In paragraphs 20 – 21 of the Federation's skeleton it is suggested that the unexplained delay (see Jacob J paragraph 40 and the Court of Appeal THQ's application paragraph 57) in effect lead to a submission that it is an abuse for the Fund to be able to present its claim on the present basis.
67. The difficulty facing this argument by the Federation is the fact that those arguments equally were open to it in respect of the injunction. There is a fleeting reference to the unexplained delay by Jacob J in his judgment at paragraph 14. The professed reluctance of the Fund to commence proceedings because of its charitable status is I accept unlikely given its aggressive response to THQ's position. There has been further delay since which is equally unexplained.
68. No prejudice has been identified by the Federation.
69. Equally the Fund argues that having failed to argue that point on the injunction issue it is not now open to the Federation upon the principles of Henderson v Henderson [1843] 3 HARE 100 namely that (especially in the context of interim applications) in the absence of special circumstances parties should bring their whole case before the court so that all aspects of it may be decided (subject to appeal) once and for all (see Woodhouse v Consignia [2002] 2 All ER 737 C.A.
70. Intriguingly this is a point which the Federation wishes to take against the Fund.
71. I do not accept that the Federation is precluded from bringing arguments on the inquiry as to damages which would not have been relevant to the previous interim application. By that I mean that the issue before Jacob J and the Court of Appeal (following the rejection of the Fund's claim for an account) was the substantive remedy of an injunction. It is only in the context of the granting or refusing of that remedy in my view that matters ought not to be capable of re litigation.
72. Delay is a factor which can be taken into account in whether or not to grant an injunction. In Shaw v Applegate [1977] 1 WLR 970 the Court of Appeal drew a distinction between the nature of the remedy claimed and the impact of any acquiescence. Thus Goff LJ said at page 979:-

"for my part I think it is easier to establish a case of acquiescence where the right is equitable only…."

At page 980 he contrasted that with a claim for damages and expressed the view that for a claim for damages to be barred by acquiescence the test was whether "in the circumstances it has become unconscionable for the Plaintiff to rely upon his legal right" Shaw LJ concurred. Buckley LJ also distinguished between the nature of the remedies (page 978).

73. This decision received some consideration by later Court of Appeal Gafford v Graham [1997] 77 P & CR 73. Nourse LJ (page 80) said this:-

"It appears that the judge's reference to a legal assignment was brought about by the citation to him in argument of the decision of this court in Shaw v. Applegate [1977] 1 WLR 970, where, at p979H, Goff LJ, relying on the judgment of Farwell J. in Osborne v. Bradley [1903] 2 Ch 446, 451, expressed the view that it is easier to establish a case of acquiesence where the right is equitable only. Shaw v. Applegate was a case where it was the original covenantor who was alleged to have been in breach, so that the right of the covenantee by assignment was indeed a legal right. Here Judge Simpson was evidently impressed by the express assignment to the plaintiff of the benefit of Mrs Mackie's covenant with Mr and Mrs Conwell. That certainly gave the plaintiff a legal right as against Mrs Mackie. But he cannot now enforce the restrictions against her. He seeks to do so against one of her successors in title to the covenant land. His right against the defendant, being enforceable only because the burden of the covenant runs with the covenant land in equity, is equitable only. Accordingly, the judge was wrong to place weight on the assignment of the benefit of the covenant to the plaintiff. For myself, I doubt whether a distinction ought any longer to be made between a legal and equitable right when considering a defence of acquiesence in a case of this kind. In Shaw v. Applegate, at p 978D, Buckley LJ said:

"The real test, I think, must be whether upon the facts of the particular case the situation has become such that it would be dishonest or unconscionable for the plaintiff, or the person having the rights sought to be enforced, to continue to seek to enforce it."

At p 780C, Goff LJ agreed that the test was whether, in the circumstances, it had become unconscionable for the plaintiff to rely on his legal right. If that is the correct test for a legal right, it could hardly be suggested, unconscionability being the soul of equity, that there should be some lower test for an equitable right. Moreover, in his admired judgment in Taylors Fashions Ltd. v. Liverpool Victoria Trustees Co Ltd. [1982] QB 133 (a case of common mistake as to the registrability of an option to renew a lease) Oliver J, after an extensive review of the earlier authorities on equitable estoppel, acquiesence and the like concluded, at p 155C:

"The enquiry which I have to make therefore, as it seems to me, is simply whether, in all the circumstances of this case, it was unconscionable for the defendants to seek to take advantage of the mistake which, at the material time, everybody shared . . ."

Thus here the enquiry must be whether, in all the circumstances, it would be unconscionable for the plaintiff to continue to seek to enforce the rights which he undoubtedly had in 1986 to complain of the conversion of the bungalow and the extension to the barn. On the facts found or referred to by the judge, I am unable to answer that question except in the affirmative. The plaintiff knew what his rights were".

Pill LJ and Thorpe LJ agreed.

74. I am not sure how with respect to the Court of Appeal in Gafford they were able to depart from the binding decision of Shaw v Applegate. I will say no more about that because I do not think it has any impact on the present case.
75. If the lower threshold test for the injunction (as set out in Shaw) is applicable and the Federation have failed to establish that the delay meant that the injunctive relief should be barred it is difficult to see how delay can bar the common law right of damages with its higher threshold requirement "unconscionable conduct". There is as I have said no evidence of any other factor beyond merely the delay which will render it unconscionable to bring the claim by reason of delay see Nelson v Rye [1996] 1 WLR 1378 for example.
76. I therefore conclude that delay cannot be relied upon by the Federation as an absolute bar to the claim as presently sought to be made by the Fund. Equally however I reject the Fund's submission that the Federation is precluded from raising this argument at all. It seems to me that it is open to the Federation to argue that in some way when the damages come to be assessed those damages might be capable of being reduced by reason of the Fund's conduct. I remind myself that no disclosure had taken place at the hearing before Jacob J and the Court of Appeal. Of course Jacob J rejected this argument on the "Micawberism" basis, as did the Court of Appeal. However as that appertained to the injunction I do not see that that precludes the Federation from seeking to argue from material it will obtain on disclosure that the Fund's conduct may preclude the whole or any part of its present claim at the inquiry stage. Equally it is open to the Fund to counter that if it finds evidence on disclosure which it can utilise against the Federation.

FORM OF JUDGMENT

77. The Federation submits (quite extensively) that the entire action proceeded over the course of almost 4 years solely upon the Fund's contention that it has suffered "injurious association" by its connection with the Federation. This in my view is correct see Jacob J's judgments both in this action and the THQ action and the statement by Mr Morcom QC referred to above. It is submitted that the Particulars of Claim claiming merely damages failed to allege any special damage and entitles the Fund only to general damages and not specific damages, it being contended that the present claim is one of special damage.
78. The categorisation of whether or not a particular head of damage is general or special is not necessarily an easy task see generally McGregor "On Damages" paragraph 43-007 et seq.
79. I would have sympathy with this submission if the hearing before Jacob J was the full trial or if the hearing before me was the full trial. However the Fund had applied for summary judgment. The relief it was seeking before Jacob J was (1) an injunction (2) interlocutory judgment for damages for breach of contract. It pleaded no special damage in the Particulars of Claim because in my view it was not required so to do at that stage. If a breach of contract was established it would be entitled to an interlocutory judgment to represent a claim for a £1 at the very least. All it needed to establish at the hearing before Jacob J was a breach to entitle it to the judgment which it obtained. There was no assessment at the trial before Jacob J of the basis of the claim for damages. That was at large. The position is neatly contrasted with where there is a claim for tort see for example Rankine v Garton Sons and Co Ltd [1979] 2 All ER 1185 C.A. There a judgment could not be obtained in a tortious claim unless the damage was established.
80. The judgment that was entered in this case was the standard form judgment where there was a split trial i.e. a trial as to liability and a subsequent trial as to quantum. The trial as to quantum has not yet taken place. I fully accept that the matters referred to by the Fund will have to be pleaded and alleged in a way so that the Federation knows the nature of its case, that is the case against the Federation in respect of damages. That is not for the present; it is for the subsequent assessment. That is what the pleadings as to damages are for. The pleadings in the present case are in my view not adequate for the reasons I have already indicated.
81. Nevertheless 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.

THE STATEMENTS IN THE COURT OF APPEAL IN THQ

82. I accept the Federation's submissions that Mr Morcom QC at the time he made the statements in the Court of Appeal (and thus the Fund) did not at that time contemplate a claim for damages in the way in which (in the main) the Fund currently presents its case.
83. However I accept Mr Brealey QC's submission that at the moment the Fund is claiming a mixture of damages based on tarnishment to its reputation and or "guilt" by association and a claim based on the Federation's profits (that appears from paragraph 13 referred to above of its Amended Particulars of Claim in damages). The extent to which the Fund relied upon those two disparate claims for damages is entirely opaque at the moment. Nevertheless that is enough to show that Mr Morcom's stance at that stage is partly vindicated.
84. Even if however I am wrong in that, I can see no basis for objecting to the present claim by reasons solely of Mr Morcom's concession.
85. A concession made in the course of interlocutory proceedings can be withdrawn unless the circumstances give rise to an estoppel: see H Clark (Doncaster) Ltd v Wilkinson [1965] Ch 694 C.A.
86. There is no conceivable prejudice in the present case so far as I can discern. The concession (if it can be properly described as that) was made after the period for which any damages is claimed. It cannot be said therefore (for example) that the Federation continued its operation on the basis that a claim such as the present can not be formulated. No other material has been put forward by the Federation to suggest any estoppel or other basis for preventing the Fund from seeking to bring a claim for damages for breach of contract upon the basis it now does.
87. The Fund has undoubtedly changed its tack quite significantly. That might cause the Federation disappointment and anguish but that is not a basis for not allowing the Fund to bring its case if it can do so in accordance with this basis. Otherwise simply to deny it that right would be a denial of justice to the Fund which might cause it an unfair loss within the proceedings.
88. If I am wrong in this I would have unhesitatingly allowed the Fund permission to amend if this was necessary because I can conceive of no basis for refusing the amendment if required at this stage of the inquiry as to damages. The normal practice with respect to amendment would be applicable as far as I can see, namely that the purpose of the amendments are to allow all parties to be able to fully and fairly present their cases so that the true dispute between the parties can be determined. I can see no factor which could be deployed by the Federation as a justification for refusing the Fund permission to amend if required.
89. This is of course to be contrasted with the position of an account. A claim for an account had already been refused by Jacob J and that aspect of the judgment was never appealed. There was nothing in the original Particulars of Claim which showed that an account was being sought by the Fund; hence the need for an application to amend.

THE MAIN ARGUMENT

90. I 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 in the form of a reasonable payment as a quid pro quo for it relaxing its rights under the Agreement as alleged in paragraphs 6-8 in the amended claim for damages.
91. This involved a citation of a significant number of authorities and academic treatises and reference to a Law Commission report.
92. The parties agreed, as I have said earlier that the starting point was an examination of three authorities:-

1. Wrotham Park Estate Company v Parkside Homes [1974] 1 WLR 798

2. Attorney General v Blake [2001] 1 AC 268

3. Experience Hendrix LLC v PPX Enterprise Inc [2003] FSR 853

THE FUND'S SUBMISSIONS

93. The Fund's submissions in writing were commendably brief although it is fair to say they were somewhat stretched in the course of legal argument. Its case is that where there is a breach of contract the innocent party is entitled to claim as damages a reasonable payment in respect of the hypothetical release of the breach of contract. Alternatively it contends that they are entitled to such a payment in the circumstances where a defendant deliberately breached the Agreement and where it would have an interest in preventing the Defendants' wrongful use of the Initials and/or an interest in preventing it making a profit from the use of the Initials.
94. In respect of the latter there is a subsidiary argument again whereby the Fund contends it is not open to the Federation in the light of the judgments of Jacob J and the Court of Appeal (paragraphs 13 and 71 respectively) to deny it acted deliberately in breach of the covenant. I will deal with the question of the relevance (if any) of a "deliberate" breach separately in this judgment.
95. The Fund's case is that in effect AG v Blake made the principles established in the "shining beacon" of Wrotham Park generally applicable in favour of any claimant for damages for breach of contract.
96. The Fund's case is that the method of assessment is by the court determining a hypothetical sale (hypothetical because it is generally imposed in circumstances where the "seller" would never have sold) where a reasonable price for the notional sale can be determined. The Fund submits that the inquiry should determine what ordinarily would have been a reasonable price at the date of breach of contract. In essence the Fund's claim is that the House of Lords in Blake brought a remedy of a "new model" into the world and that decision and the subsequent decision should be the guiding principle. Accordingly none of the various arguments put up by the Federation by reference to earlier cases and principles has any application to this new remedy.
97. I propose in the next part of my judgment to deal with these authorities.

WROTHAM PARK

98. The facts bear no relation to the present case. The Defendants built properties commercially and sold them in breach of a covenant. It sold various of the completed houses on to third parties with indemnities in respect of the covenant. The Plaintiff was concerned to enforce the covenant in the estate and sought a mandatory injunction for the demolition of the buildings. It did not seek an interlocutory injunction. The judge refused to grant the mandatory injunction his reasoning being that it would be an "an unpardonable waste of much needed homes to direct that they now be pulled down and I have never had a moments doubt during the hearing of this case that such an order ought to be refused" (page 811). However he was concerned to ensure (having found that the Plaintiffs had not suffered any damage of a financial nature) that the action did not "spell out a charter entitling others to despoil adjacent areas in breach of valid restrictions imposed by the conveyances".
99. He rejected an argument that he could not grant damages in lieu of an injunction because the Defendants had parted with the plots. He decided to award damages that removed from the Defendants the fruits of their wrongdoing. His analysis is relatively brief as follows:-

" 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".

Later in the judgment he explained how he arrived at the appropriate award as follows:-

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 resident, 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. The plaintiffs submitted that that sum should be a substantial proportion of the development value of the land. This is currently put at no less than £10,000 per plot, i.e. £140,000 on the assumption that the plots are undeveloped. Mr. Parker gave evidence that a half or a third of the development value was commonly demanded by a landowner whose property stood in the way of a development. I do not agree with that approach to damages in this type of case. I bear in mind the following factors:

(1) The lay-out covenant is not an asset which the estate owner ever contemplated he would have either the opportunity or the desire to turn to account. It has no commercial or even nuisance value. For it cannot be turned to account except to the detriment of the existing residents who are people the estate owner professes to protect.

(2) The breach of covenant which has actually taken place is over a very small area and the impact of this particular breach on the Wrotham Park Estate is insignificant. The validity of the covenant over the rest of area 14 is unaffected.

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. For it is to be borne in mind that the plaintiffs were aware, before the auction look place, that the land was being offered for sale as freehold building land for 13 houses, and they knew that they were not going to consent to any such development. They could have informed the Potters Bar Urban District Council of their attitude in advance of the auction, or could have given the like information to Parkside prior to completion of the contract for sale. In either event it seems highly unlikely that Parkside would have parted with its £90,000, at any rate unconditionally. I think that damages must be assessed in such a case on a basis which is fair and, 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. I think that this amount should be treated as apportioned between the 14 respective owners or joint owners of the plots and Parkside (as the owner of the road) in 1/15th shares, so that the damages awarded will be £166 odd in each case. In fact, I apprehend that by virtue of the arrangement between Parkside and the insurance office the entirety of the £2,500 will ultimately be recoverable from Parkside, so that the apportionment does not have any real significance. I will also grant a declaration in appropriate terms after I have heard submissions from counsel as to such terms."

100. That judgment shows the width of factors which he took into account and the particularity of those factors which led him to conclude that the proper level of award was moderate in the circumstances in that decision.
101. That decision was followed in a number of subsequent cases: see Bracewell v Appleby [1975] Ch 408, Tito v Waddell (no2) [1977] 1 Ch 106 at page 335, Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361, Jaggard v Sawyer [1995] 1 WLR 269 and Gafford v Graham & Anr [1999] 77 P & CR 73. All of these cases involve real property. In all of them (save the Surrey County Council and Gafford cases) the courts addressed the need to compensate a claimant in a way which afforded it recompense for an infringement of its property rights when refusing nevertheless to grant an injunction to protect those rights.
102. In Surrey County Council the Plaintiffs claim to damages for breach of covenant was based on Wrotham Park. There is criticism of the Wrotham Park decision (see Dillon LJ at page 1366) based on the fact that authorities referred to in the subsequent House of Lords decision of Johnson v Agnew [1980] AC 367 were not cited to the judge in Wrotham. Had they been so cited the judge would have realised, it was said, that the basis for damages in lieu of an injunction and damages for breach of contract at common law was the same. Further analysis of Wrotham was dismissed because the case was under Lord Cairns' Act whereas the claim in Surrey County Council was common law. The claim for Wrotham type damages failed because an injunction was never a possibility. Therefore "on basic principles that damages were awarded to compensate loss the damages must be merely nominal".
103. Steyn LJ agreed. He started what has subsequently become an interesting academic debate as to the legal basis for the damages under the Wrotham case. He expressed the view that the award was a restitutionary claim designed not to compensate the Plaintiff for a loss but to deprive the Defendant of a benefit he gained by the breach of contract. He suggested that the Plaintiff's argument that the Wrotham Park case can be justified on the basis of loss of bargaining opportunity is a fiction it not being to compensate the Plaintiffs for financial injury but to deprive the Defendants of an unjustly acquired gain. Rose LJ delivered a concurring judgment. The Surrey County Council case, as he affirmed, was a case against an original covenanter as opposed to a successor who bought with notice.
104. Wrotham and Surrey County Council were next considered in Jaggard. The Court of Appeal dismissed the Plaintiff's appeal against a refusal of the judge at first instance to grant an injunction restraining the Defendants from trespassing by driving along a private roadway over which they had no access rights. The judge at first instance awarded damages under Lord Cairns' Act in the sum of £694.44 being a one ninth share of the total sum of £6,250 which would have been valued as the price the Defendants might reasonably have been required to pay the residents of the Cul de Sac for release from the covenant and for right of way.
105. The appeal was dismissed. In dismissing the appeal the court made observations on Wrotham and Surrey County Council cases. At page 281 Sir Thomas Bingham MR said this:-

"Steyn L.J. agreed. He reviewed the familiar bases of compensatory damages in contract, based on loss of bargain and costs incurred: see p. 1369B. He then referred to a third principle protecting the innocent party's restitutionary interest, observing, at p. 1369F, that the Wrotham Park case was "only defensible on the basis of the third or restitutionary principle." The plaintiffs' argument that Wrotham Park could be justified on the basis of a loss of bargaining opportunity was in his view a fiction: see p. 1369: "

"The object of the award in the Wrotham Park case was not to compensate the plaintiffs for financial injury, but to deprive the defendants of an unjustly acquired gain."

Steyn L.J. was unwilling to extend the range of restitutionary remedies as the court had been invited to do: see p. 1370H.

Rose L.J. agreed with both the preceding judgments but gave a brief judgment of his own distinguishing the Wrotham Park case on the ground that damages had there been sought in equity whereas the only claim for damages in the instant case was at common law: see p. 1371C, G.

The court's approach to restitutionary damages in this case has provoked some regretful comment (see Professor Birks, "Profits of Breach of Contract" (1993) 109 L.Q.R. 518), and it may be, as suggested (see p. 520) that these judgments will not be the last word on that subject. But the court plainly treated the case as one not falling under the principles derived from Lord Cairns's Act. I cannot, however, accept that Brightman J.'s assessment of damages in the Wrotham Park case 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 the Wrotham Park case by Sir Robert Megarry V.-C. in Tito v. Waddell (No. 2) [1977] Ch. 106, 335, when he said:

"Brightman J. resolved the difficult question of the appropriate quantum of damages by holding that the plaintiffs should recover 5 per cent. of the defendants' expected profit from their venture. In Bracewell v. Appleby, Graham J. applied the same principle where the right in question was not a consent under a restrictive covenant, but an easement of way. I find great difficulty in seeing how these cases help Mr. Macdonald. 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."

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".

106. It would be seen that there is a collision of intellectual analysis between Lord Bingham and Lord Steyn as to the jurisprudential basis for the claim in Wrotham. However it is important to appreciate that neither of them denied any such remedy; it is in the analysis of the basis of the remedy that the disagreement lies.
107. Similarly Millett LJ made observations:-

"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 W.L.R. 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] A.C. 367. It is, therefore, necessary to examine those cases further. "

In Surrey County Council v. Bredero Homes Ltd. [1993] 1 WLR 1361 the plaintiffs claimed damages from the original covenantor, a developer, for breach of a restrictive covenant against building more than 72 houses, and sought to measure the damages by reference to the additional profit which the defendant had made by building the extra houses. Their claim to substantial damages failed. The case is not authority on the proper measure of damages under Lords Cairns's Act, since (as Dillon L.J. made clear, at p. 1367C) the plaintiffs' claim was for damages at common law and not under the Act. Unfortunately, he did not make it clear why this was so. He said, at p. 1364:

"The plaintiffs therefore seek damages. They have never sought an interim injunction to restrain the defendant from developing the land otherwise than in accordance with the first planning permission. They never sought an injunction at the trial requiring the defendant to pull down the completed houses. They recognised that there was never any practical possibility of such an injunction being granted."

If this is to be understood as meaning that the plaintiffs were confined to their remedy at law because they had not included a claim to an injunction in the writ, or because there never was any practical possibility, whether at the date of the writ or at the date of the trial, of obtaining an injunction, then I cannot agree with it. But examination of the facts stated in the headnote 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's 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.

Unfortunately, however, Dillon L.J. cast doubt on the correctness of the measure of damages which had been adopted by Brightman J. in Wrotham Park Estate Co. Ltd. v. Parkside Homes Ltd. [1974] 1 W.L.R. 798 a case which was decided under Lord Cairns's Act. He said [1993] 1 WLR 1361, 1366:

"The difficulty about the decision in the Wrotham Park case is that in Johnson v. Agnew [1980] A.C. 367, 400G, Lord Wilberforce, after citing certain decisions on the scope and basis of Lord Cairns's Act which were not cited to Brightman J., stated in the clearest terms that on the balance of those authorities and on principle he found in the Act no warrant for the court awarding damages differently from common law damages."

Johnson v. Agnew concerned a contract for the sale of land. The vendor obtained a decree of specific performance with which the purchaser failed to comply. The vendor's mortgagees then sold the land. The vendor was compelled to return to the court and ask it to dissolve the decree and award her damages instead. At first instance she was refused damages, but in this court she was awarded damages under Lord Cairns's Act by reference to the value of the land at the date when specific performance became impossible. An appeal by the purchaser to the House of Lords failed. Before the House of Lords neither party argued that the measure of damages under Lord Cairns's Act differed from the measure of damages at common law: see [1980] A.C. 367, 379B-C, 387A, F. The vendor placed no reliance on the wording of section 2 of the Act which provided that damages might be assessed "in such manner as the court shall direct" which, as Lord Wilberforce explained, referred only to procedure. Where the parties differed was whether the damages, whether at common law or under the Act, had invariably to be measured by reference to the value of the land ascertained at the date of the breach of contract.

In the course of his speech Lord Wilberforce referred, at p. 400E-F, to the view expressed by Megarry J. in Wroth v. Tyler [1974] Ch. 30 that the words "in substitution for specific performance" allowed the court to assess damages under the Act as on the date when specific performance could have been ordered, that is to say as at the date of the judgment of the court, and said that if that was intended to establish a different basis from that applicable at common law then he could not agree with it.

This statement must not be taken out of context. Earlier in his speech Lord Wilberforce had clearly recognised that damages could be awarded under Lord Cairns's Act where there was no cause of action at law, and he cannot have been insensible to the fact that, when the court awards damages in substitution for an injunction, it seeks to compensate the plaintiff for loss arising from future wrongs, that is to say, loss for which the common law does not provide a remedy. Neither Wroth v. Tyler nor Johnson v. Agnew[1980] A.C. 367 was a case of this kind. In each of those cases the plaintiff claimed damages for loss occasioned by a single, once and for all, past breach of contract on the part of the defendant. In neither case was the breach a continuing one capable of generating further losses. In my view Lord Wilberforce's statement that the measure of damages is the same whether damages are recoverable at common law or under the Act must be taken to be limited to the case where they are recoverable in respect of the same cause of action. It cannot sensibly have any application where the claim at common law is in respect of a past trespass or breach of covenant and that under the Act is in respect of future trespasses or continuing breaches of covenant.

Accordingly I am of opinion that the judge was not precluded by the decision of the House of Lords in Johnson v. Agnew from adopting the measure of damages which he did. It is, however, necessary to notice the observations of Steyn L.J. 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.[1974] 1 W.L.R. 798 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.

Both the Wrotham Park and Bredero Homes cases (unlike the present) were concerned with a single past breach of covenant, so that the measure of damages at common law and under the Act was the same. Prima facie the measure of damages in either case 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 the Wrotham Park case, but in practice only in the circumstances in which they could also be awarded under the Act".

108. It would be seen from that extract that Millett LJ was of the view that there was no basis for Dillon LJ's criticism of the Wrotham decision. He did not accept that the award of damages was restitutionary, as opposed to compensatory, as Brightman J had assessed the damages in Wrotham by reference to what the Plaintiff had lost not by reference to what the Defendants had gained. This was on the basis that he did not strip profits away but instead used the profits as a measure for calculating what reasonable price the Plaintiff might have obtained for giving its consent. Finally he expressed the view that damages could be awarded at common law in accordance with the approach adopted in Wrotham but in practice only in the circumstances in which they could also be awarded under the Act.
109. In the final series of Court Appeal decisions (Gafford) the Court of Appeal once again considered this basis of damages. At page 86 Nourse LJ said this:-

"Quantum of damage"

Since the judge did not consider the quantum of damages in respect of the indoor riding school and the current business, either side could have asked for that question to be remitted to him. It was because they were both content that we should decide it ourselves that we gave counsel leave to put in further written submissions. 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] 1 WLR 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, so as to permit the construction of the indoor riding school and the carrying on of an indoor and outdoor riding school business".

110. Once again the court did not reject an award for damages upon the Wrotham basis, but did reject Lord Steyn's jurisprudential analysis of the reason for such an award.
111. Thus far Lord Steyn is a voice crying in the wilderness on this interesting jurisprudential point.

BLAKE IN THE COURT OF APPEAL

112. The Blake case factually involved the claim by the Crown to strip from the Defendant profits he made for publishing a history of his activities as a spy for Russia and betrayer of this country. The Court of Appeal reversed the decision of Scott VC on the public law issues and granted an injunction restraining the Defendant from receiving any payment or other benefit from the exploitation of his book or any information obtained as a member of the SIS. In so doing they raised the question of "restitutionary" damages because the Crown had not sought an injunction to prevent the publication and now could not establish any loss and would thereby entitled to nothing other than nominal damages. This was raised by the Court of Appeal Lord Woolf MR his judgment said this:-

"In the course of the initial hearing we invited submissions on a second issue which had not previously been considered. The second issue is whether, in the particular circumstances of the present case, the Crown might have a private law claim to restitutionary damages for breach of contract. After giving further consideration to the matter, the Attorney-General decided that the Crown did not desire to advance such a claim in this court, while wishing to keep the point open for a higher court.

There is, however, no possibility that this case will reach a higher court. The Crown is unlikely to seek to appeal this case in view of our decision on the public law claim. The defendant has taken no part in the proceedings; and an amicus curiae has no standing to appeal. Since the subject is of some importance and we are not convinced that it would not have been open to this court to allow a claim for restitutionary damages for breach of contract in the particular circumstances of the present case, we will express our own views on the subject, even though they are obiter and, being without benefit of argument, necessarily tentative.

The general rule is that damages for breach of contract are compensatory not restitutionary, that is to say, they are measured by the loss to the plaintiff and not by the gain to the defendant. It is unnecessary to cite authority for this proposition, since it is beyond dispute. It is accepted to be the general position by the Law Commission in its Consultation Paper No. 132, "Aggravated, Exemplary and Restitutionary Damages" (1993), p. 159, para. 7.7. Its elevation into a fundamental principle which admits of no exceptions, however, has been disputed, attributed to inertia and has attracted widespread (though not universal) academic criticism: see, for example, Daniel Friedmann, "Restitution of Benefits Obtained Through the Appropriation of Property or the Commission of a Wrong" (1980) 80 Col.L.R. 504, 513 et seq.; Gareth Jones, "The Recovery of Benefits Gained from a Breach of Contract" (1983) 99 L.Q.R. 443; Peter Birks, "Profits of Breach of Contract" (1993) 109 L.Q.R. 518; Beatson, The Use and Abuse of Unjust Enrichment (1991), pp. 15-17; Maddaugh and McCamus, The Law of Restitution (1990), pp. 432-438: per contra I. M. Jackman, "Restitution for Wrongs" [1989] C.L.J. 302, 318-321; Andrew Burrows, "No Restitutionary Damages for Breach of Contract: Surrey County Council v. Bredero Homes" [1993] L.M.C.L.Q. 453; Burrows, Remedies for Torts and Breach of Contract, 2nd ed. (1994), pp. 307-314; Burrows, The Law of Restitution (1993), pp. 397-403. Even its proponents recognise that some flexibility is desirable, Jackman (for example) suggesting that the moral calibre of the defendant's conduct might justify an award of restitutionary damages for a cynical breach of contract.

Judicial opinion is also divided. The exclusively compensatory basis of damages for breach of contract does not lack judicial critics, and there are signs that the traditional view that the rule admits of no exceptions may not long survive. In Hospital Products Ltd. v. United States Surgical Corporation (1984) 156 CLR 41, Deane J. indicated that he regarded the question as deserving of reconsideration; and in Jaggard v. Sawyer [1995] 1 WLR 269, 281 Sir Thomas Bingham M.R. expressed the view that the judgments in Surrey County Council v. Bredero Homes Ltd. [1993] 1 WLR 1361 (in which the court refused to countenance the possibility of awarding restitutionary damages for breach of contract) might "not be the last word on the subject."

In reality the doctrine is already subject to exceptions, for the gain (or saving of expense) made by the defendant is sometimes used as the measure of the plaintiff's loss. Wrotham Park Estate Co. Ltd. v. Parkside Homes Ltd. [1974] 1 W.L.R. 798 and the cases which followed it are examples of this. In such cases the measure of damages is the same, whether they are calculated by reference to the loss sustained by the plaintiff or to the saving of expense by the defendant, with the result that their classification as compensatory or restitutionary has been controversial. Those who insist that they are restitutionary, but reject any further departure from the general rule, justify them by reference to the proprietary nature of a claim to enforce restrictive covenants annexed to land. This is hardly convincing, seeing that the measure of damages cannot depend on whether the proceedings are between the original parties to the contract or their successors in title.

If the court is unable to award restitutionary damages for breach of contract, then the law of contract is seriously defective. It means that in many situations the plaintiff is deprived of any effective remedy for breach of contract, because of a failure to attach a value to the plaintiff's legitimate interest in having the contract duly performed: see Professor Coote, "Contract Damages, Ruxley, and the Performance Interest" [1997] C.L.J. 537. In our opinion, the time has come to accept Professor Jones's view, expressed as long ago as 1983 in "The Recovery of Benefits Gained from a Breach of Contract," 99 L.Q.R. 443, 452, that the law is now sufficiently mature to recognise a restitutionary claim for profits made from a breach of contract in appropriate circumstances. The difficult question is not whether restitutionary damages should ever be available for breach of contract, but in what circumstances they should be made available. In Surrey County Council v. Bredero Homes Ltd. [1993] 1 WLR 1361 Steyn L.J. gave persuasive reasons why such circumstances should remain exceptional.

We do not think that the basis on which damages are awarded should depend on the defendant's moral culpability alone. The fact that his breach of contract is deliberate and cynical is not by itself a good ground for departing from the normal basis on which damages are awarded. It is not only that the line cannot easily be drawn in practice; it is rather that the defendant's motives will normally be irrelevant. To adapt an observation of Lord Keith of Kinkel made in a different context in Attorney-General v. Guardian Newspapers Ltd. (No. 2) [1990] 1 AC 109, 261, a natural desire to deprive a deliberate wrongdoer of profit is not a valid ground for departing from the normal measure of damages for breach of contract. The mere fact that the defendant's breach of his contract with the plaintiff has enabled him to enter into a more profitable contract with someone else should also not be sufficient: Teacher v. Calder [1899] AC 451 is sound law. Nor should it suffice that, by entering into the later and more profitable contract, the defendant has put it out of his power to perform his contract with the plaintiff: the distinction between the two cases is not one of substance. But we think that there are at least two situations in which justice requires the award of restitutionary damages where compensatory damages would be inadequate.

In this part of his judgment Lord Woolf stated the general proposition that damages for breach of contract are compensatory not restitutionary but they were measured by the loss to the Plaintiff, not the gain by the Defendant. He went on to observe as can be seen that the inability of the court to award restitutionary damages makes the law of contract seriously defective and he clearly found comfort in the observations of Steyn LJ, but identified that recovery under this basis would be "exceptional" (page 457 F).

113. The next paragraph is difficult in my opinion. The word "alone" seems to suggest that it is possible to award damages in some cases taking into account the Defendant's moral culpability and the fact that the breach is deliberate and cynical (although observing that is not enough) and that the line cannot be easily drawn in practice; to draw on the Defendant's motives will normally be irrelevant.
114. It seems to me the danger in looking at the Defendant's motives is to bring in an element of punishing a Defendant for breach of contract. A breach of contract either occurs or it does not. The extent to which the contract breaker acted in breach seems to me to be irrelevant. If it is desired to award damages to reflect the court's disapproval of a contract breaker's behaviour then in my view there is a remedy, namely exemplary punitive damages, but as the law stands now that is not available for a breach of contract: see Addis v Gramaphone & Co [1909] AC 488. I cannot believe that the Court of Appeal can have contemplated the removal of this limitation by way of a side wind when considering to award compensation to a Plaintiff under this basis.
115. Lord Woolf gave a second example which is more pertinent to the present case at page 458:-

"The second case is where the defendant has obtained his profit by doing the very thing which he contracted not to do. In his article "Restitutionary Damages for Breach of Contract: Snepp and the Fusion of Law and Equity" [1987] L.M.C.L.Q. 421, 434 Professor Birks observed: "If you promise not to pursue a particular profit-making activity and then do pursue it, nothing is more apt than that you should make restitution of your profits."

This covers the present case exactly. The defendant's breach of contract in submitting the book for publication did not merely provide him with an opportunity for profit; nor did his contract with the publishers merely put it out of his power to perform his contractual obligations to the Crown. The connection between the breach and the profit is far more direct. He promised not to disclose official information and he did so for profit. He earned the profits by doing the very thing which he had promised not to do.

The two cases have this in common: that in both the profits in question are occasioned directly by the breach, which does not merely provide the defendant with the opportunity to make them; and in both compensatory damages are an inadequate remedy if regard is paid to the objects which the plaintiff sought to achieve by the contract. They do not precisely coincide with the provisional conclusion of the Law Commission in the consultation paper referred to above. However, the present case falls squarely within the two conditions they identify for the existence of such a claim: see pp. 170-171, para. 7.20. There was "deliberate wrongdoing" which could have been restrained by injunction. In addition, the gains which would be made by the defendant are "attributable to the interest infringed," in the sense that they are referable to the disclosure of official information the defendant contracted not to disclose".

116. As I have observed Millett LJ also sat in the Court of Appeal and the judgment of Lord Woolf was a judgment of all 3 judges.
117. I have reviewed the Court of Appeal judgment because part of the observations of Lord Woolf MR set out above are relied upon by Mr Carr QC in the course of his submissions.
118. In the House of Lords the Crown pursued the claim in private law hinted at in the Court of Appeal. In the House of Lords their Lordships by a majority decided that in an exceptional case where the normal remedies of damages, specific performance, or an injunction are inadequate for breach of contract the court could if justice demanded it grant the discretionary remedy of requiring the Defendant to account for benefits received from breach of contract. On the facts of the case they concluded that Blake ought to account. There is of course no question of an account in this case because such a remedy was sought and refused by Jacob J.
119. It is important to appreciate that damages under the Wrotham principle are not the same as an account. The judgments in the House of Lords must be read in the light of their primary decision that Blake was liable to account exceptionally. There is a close affinity in my view between damages under the Wrotham principle and an account. That closeness becomes marked when a Claimant seeks damages under the Wrotham principle by reference to the Defendant's profits especially when as in the present case the Fund seeks a percentage of all profits whether derived from the use of the Initials (and thus in breach of contract) or whether as a result of the Federation's separate and independent efforts to make profit.
120. One can see this blurring by considering the following. In the Wrotham case the judge rejected the argument based upon the development value of the land but instead awarded it as a percentage of the profits. In so doing he makes inferentially allowances for the expenditure that the wrongdoer commits in making the profits.
121. An accounting party can sometimes obtain a reduction of the principle that there should be an account of the profits gross by obtaining a deduction for his own efforts in making the profits. The extent to which allowance can be made for the effort of the wrongdoer is a matter of controversy: see my decision Crown Dilmun v Sutton [2004] 1 BCLC 468 at paragraphs 211- 213. Another example is to be derived from the law of partnership. A partner on a dissolution maybe required to account for profits he has made using the partnership assets after dissolution: see for example Sandhu v Gill [2006] 2 WLR 8. In requiring such a partner to account he is often entitled to "just allowances" i.e. recompense for his efforts in generating the profits.
122. On that analysis the difference in some cases between a claim for damages on the Wrotham principle and account of profits can be very fine.
123. With those observations in mind I turn to the House of Lords decision in Blake.
124. The starting point is to be found in the judgment of Lord Nicholls of Birkenhead starting at page 277-279:-

"Prompted by an invitation from your Lordships, the Attorney General advanced an argument that restitutionary principles ought to operate to enable the Crown to recover from Blake his profits arising from his breach of contract. It will be convenient to consider this private law claim first.

This is a subject on which there is a surprising dearth of judicial decision. By way of contrast, over the last 20 years there has been no lack of academic writing. This includes valuable comment on the Court of Appeal dicta in the present case: by Janet O'Sullivan, "Reflections on the Role of Restitutionary Damages to protect contractual expectations" (to be published), and Catherine Mitchell, "Remedial Inadequacy in Contract and the Role of Restitutionary Damages" (1999) 15 JCL 133. Most writers have favoured the view that in some circumstances the innocent party to a breach of contract should be able to compel the defendant to disgorge the profits he obtained from his breach of contract. However, there is a noticeable absence of any consensus on what are the circumstances in which this remedy should be available. Professor Burrows has described this as a devilishly difficult topic: see "No Restitutionary Damages for Breach of Contract" [1993] LMCLQ 453. The broad proposition that a wrongdoer should not be allowed to profit from his wrong has an obvious attraction. The corollary is that the person wronged may recover the amount of this profit when he has suffered no financially measurable loss. As Glidewell LJ observed in Halifax Building Society v Thomas [1996] Ch 217, 229, the corollary is not so obviously persuasive. In these choppy waters the common law and equity steered different courses. The effects of this are still being felt.

Interference with rights of property

So I turn to established, basic principles. I shall first set the scene by noting how the court approaches the question of financial recompense for interference with rights of property. As with breaches of contract, so with tort, the general principle regarding assessment of damages is that they are compensatory for loss or injury. 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 AppCas 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 [1896] 2 Ch 538, and the "wayleave" cases such as Martin v Porter (1839) 5 M & W 351 and Jegon v Vivian (1871) LR 6 ChApp 742. A more recent example was the non-removal of a floating dock, in Penarth Dock Engineering Co Ltd v Pounds [1963] 1 Lloyd's Rep 359.

The same principle is applied to the wrongful detention of goods. An instance is the much cited decision of the Court of Appeal in Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246, concerning portable switchboards. But the principle has a distinguished ancestry. The Earl of Halsbury LC famously asked in The Mediana [1900] AC 113, 117, that if a person took away a chair from his room and kept it for 12 months, could anybody say you had a right to diminish the damages by showing that I did not usually sit in that chair, or that there were plenty of other chairs in the room? To the same effect was Lord Shaw's telling example in Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104, 119. It bears repetition:

"If A, being a liveryman, keeps his horse standing idle in the stable, and B, against his wish or without his knowledge, rides or drives it out, it is no answer to A for B to say: 'Against what loss do you want to be restored? I restore the horse. There is no loss. The horse is none the worse; it is the better for the exercise.'"

Lord Shaw prefaced this observation with a statement of general principle:

"wherever an abstraction or invasion of property has occurred, then, unless such abstraction or invasion were to be sanctioned by law, the law ought to yield a recompense under the category or principle ... either of price or of hire."

That was a patent infringement case. The House of Lords held that damages should be assessed on the footing of a royalty for every infringing article.

This principle is established and not controversial. More difficult is the alignment of this measure of damages within the basic compensatory measure. Recently there has been a move towards applying the label of restitution to awards of this character: see, for instance, Ministry of Defence v Ashman [1993] 2 EGLR 102, 105 and Ministry of Defence v Thompson [1993] 2 EGLR 107. However that may be, these awards cannot be regarded as conforming to the strictly compensatory measure of damage for the injured person's loss unless loss is given a strained and artificial meaning. The reality is that the injured person's rights were invaded but, in financial terms, he suffered no loss. Nevertheless the common law has found a means to award him a sensibly calculated amount of money. Such awards are probably best regarded as an exception to the general rule.

Courts of equity went further than the common law courts. In some cases equity required the wrongdoer to yield up all his gains. In respect of certain wrongs which originally or ordinarily were the subject of proceedings in the Court of Chancery, the standard remedies were injunction and, incidental thereto, an account of profits. These wrongs included passing off, infringement of trade marks, copyrights and patents, and breach of confidence. Some of these subjects are now embodied in statutory codes. An injunction restrained the continuance of the wrong, and the wrongdoer was required to account for the profits or benefits he had obtained from breaches or infringements which had already occurred. The court always had a discretion regarding the grant of the remedy of an account of profits, and this remains the position. Further, the circumstances in which an account of profits is available under the statutes vary. For instance, an account of profits may not be ordered against a defendant in a patent infringement action who proves that at the date of the infringement he was not aware, and had no reasonable grounds for supposing, that the patent existed: Patents Act 1977, section 62(1)".

125. Further he went on to analyse damages that had been awarded under Lord Cairns' Act at page 281 as follows:-

"Damages under Lord Cairns's Act

I must also mention the jurisdiction to award damages under section 2 of the Chancery Amendment Act 1858 (21 & 22 Vict c 27), commonly known as Lord Cairns's Act. This Act has been repealed but the jurisdiction remains. Section 2 empowered the Court of Chancery at its discretion, in all cases where it had jurisdiction to entertain an application for an injunction or specific performance, to award damages in addition to or in substitution for an injunction or specific performance. Thus section 2 enabled the Court of Chancery, sitting at Lincoln's Inn, to award damages when declining to grant equitable relief rather than, as had been the practice since Lord Eldon's decision in Todd v Gee (1810) 17 Ves 273, sending suitors across London to the common law courts at Westminster Hall.

Lord Cairns's Act had a further effect. The common law courts' jurisdiction to award damages was confined to loss or injury flowing from a cause of action which had accrued before the writ was issued. Thus in the case of a continuing wrong, such as maintaining overhanging eaves and gutters, damages were limited to the loss suffered up to the commencement of the action: see Battishill v Reed (1856) 18 CB 696. Lord Cairns's Act liberated the courts from this fetter. In future, if the court declined to grant an injunction, which had the effect in practice of sanctioning the indefinite continuance of a wrong, the court could assess damages to include losses likely to follow from the anticipated future continuance of the wrong as well as losses already suffered. 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] AC 851, 859, per Viscount Finlay. 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] AC 367, 400, per Lord Wilberforce. Thus, in the same way as damages at common law for violations of a property right may by 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. But this analysis takes the matter now under discussion no further forward. A property right has value to the extent only that the court will enforce it or award damages for its infringement. The question under discussion is whether the court will award substantial damages for an infringement when no financial loss flows from the infringement and, moreover, in a suitable case will assess the damages by reference to the defendant's profit obtained from the infringement. The cases mentioned above show that the courts habitually do that very thing."

126. Finally in this context he went on to consider the remedies available for breach of contract at page 282 as follows:-

"Breach of contract

Against this background I turn to consider the remedies available for breaches of contract. The basic remedy is an award of damages. In the much quoted words of Baron Parke, the rule of the common law is that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same position as if the contract had been performed: Robinson v Harman (1848) 1 Exch 850, 855. Leaving aside the anomalous exception of punitive damages, damages are compensatory. That is axiomatic. It is equally well established that an award of damages, assessed by reference to financial loss, is not always "adequate" as a remedy for a breach of contract. The law recognises that a party to a contract may have an interest in performance which is not readily measurable in terms of money. On breach the innocent party suffers a loss. He fails to obtain the benefit promised by the other party to the contract. To him the loss may be as important as financially measurable loss, or more so. An award of damages, assessed by reference to financial loss, will not recompense him properly. For him a financially assessed measure of damages is inadequate.

The classic example of this type of case, as every law student knows, is a contract for the sale of land. The buyer of a house may be attracted by features which have little or no impact on the value of the house. An award of damages, based on strictly financial criteria, would fail to recompense a disappointed buyer for this head of loss. The primary response of the law to this type of case is to ensure, if possible, that the contract is performed in accordance with its terms. The court may make orders compelling the party who has committed a breach of contract, or is threatening to do so, to carry out his contractual obligations. To this end the court has wide powers to grant injunctive relief. The court will, for instance, readily make orders for the specific performance of contracts for the sale of land, and sometimes it will do so in respect of contracts for the sale of goods. In Beswick v Beswick [1968] AC 58 the court made an order for the specific performance of a contract to make payments of money to a third party. The law recognised that the innocent party to the breach of contract had a legitimate interest in having the contract performed even though he himself would suffer no financial loss from its breach. Likewise, the court will compel the observance of negative obligations by granting injunctions. This may include 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.

All this is trite law. 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. For instance, confidential information may be published in breach of a non-disclosure agreement before the innocent party has time to apply to the court for urgent relief. Then the breach is irreversible. Further, these specific remedies are discretionary. Contractual obligations vary infinitely. So do the circumstances in which breaches occur, and the circumstances in which remedies are sought. 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 WLR 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 5% 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. Property rights are superior to contractual rights in that, unlike contractual rights, property rights may survive against an indefinite class of persons. However, it is not easy to see why, as between the parties to a contract, a violation of a party's contractual rights should attract a lesser degree of remedy than a violation of his property rights. As Lionel D Smith has pointed out in his article "Disgorgement of the profits of Breach of Contract: Property, Contract and 'Efficient Breach'" (1995) 24 Can BLJ 121, it is not clear why it should be any more permissible to expropriate personal rights than it is permissible to expropriate property rights.

I turn to the decision of the Court of Appeal in Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361. A local authority had sold surplus land to a developer and obtained a covenant that the developer would develop the land in accordance with an existing planning permission. The sole purpose of the local authority in imposing the covenant was to enable it to share in the planning gain if, as happened, planning permission was subsequently granted for the erection of a larger number of houses. The purpose was that the developer would have to apply and pay for a relaxation of the covenant if it wanted to build more houses. In breach of covenant the developer completed the development in accordance with the later planning permission, and the local authority brought a claim for damages. The erection of the larger number of houses had not caused any financial loss to the local authority. The judge awarded nominal damages of £2, and the Court of Appeal dismissed the local authority's appeal.

This is a difficult decision. It has attracted criticism from academic commentators and also in judgments of Sir Thomas Bingham MR and Millett LJ in Jaggard v Sawyer [1995] 1 WLR 269. I need not pursue the detailed criticisms. In the Bredero case Dillon LJ himself noted, at p 1364, that had the covenant been worded differently, there could have been provision for payment of an increased price if a further planning permission were forthcoming. That would have been enforceable. But, according to the Bredero decision, a covenant not to erect any further houses without permission, intended to achieve the same result, may be breached with impunity. That would be a sorry reflection on the law. Suffice to say, in so far as the Bredero decision is inconsistent with the approach adopted in the Wrotham Park case, the latter approach is to be preferred.

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. 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. The researches of counsel have been unable to discover any case where the court has made such an order on a claim for breach of contract. In Tito v Waddell (No 2) [1977] Ch 106, 332, a decision which has proved controversial, Sir Robert Megarry V-C said that, as a matter of fundamental principle, the question of damages was "not one of making the defendant disgorge" his gains, in that case what he had saved by committing the wrong, but "one of compensating the plaintiff". In Occidental Worldwide Investment Corporation v Skibs A/S Avanti [1976] 1 Lloyd's Rep 293, 337. ……………… 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"

127. Now as I said earlier in this judgment it is important to appreciate the context in which the observations on the Wrotham line of authorities were made. They are made in the context of what is called an exceptional remedy required as a just response to the breach of contract. The remedy in question is an account.
128. Nevertheless the observations about the Wrotham case and the authorities do show the willingness of the House of Lords to afford an innocent party a remedy where otherwise that person would have suffered a wrong but receive no satisfaction from the courts by way of recompense for the wrong it has suffered.
129. This is important. It is part of the bargain between the State and its citizens (and has been so for many centuries) that the State provides a court system to which its citizens can have access to judges to enable disputes between them to be resolved in a forum that ensures all parties have an opportunity fully to present their cases and an independent person pronounces on that dispute and decides the case. Part of this is of course the necessity of providing affordable access to the courts and a regime which enables parties to have access to judges as opposed to non judicial officials. However the final part of this analysis is that the courts must provide remedies for wrongs that are inflicted that give a genuine relief as opposed to something akin to a Pyrrhic result.
130. The courts have always been alert to this as Lord Nicholls has pointed out and the dynamism of the courts in various areas is well known. Take for example the law of trusts in relation to domestic properties. The extent to which the court gives a remedy to what is perceived to be a wrong has in that area for example been dynamic and challenging. Like all of these developing areas it has not been without controversy: see Hargrave v Newton [1971] 1 WLR 1611 (wife finds part of proceeds of Great Train Robbery and obtains reward leading to her having an interest in the matrimonial home), Cowcher v Cowcher [1972] 1 WLR 425 and Kowalczuk v Kowalczuk [1973] 1 WLR 931 at page 933.
131. The development of the law is a dynamic response to the changing requirements of society in its quest for obtaining just recompense for a wrong inflicted. Sometimes that might involve overturning long established principles echoing different times and different requirements see for example the House of Lords in Sudbrook v Eggleton [1983] AC 444. In this context Mr Carr QC's submissions that the Fund's arguments involved an overturning of 200 years or more of established principles as regards loss for breach of contract may, if the circumstances justify it meet the fate identified by Lord Russell at page 487 E. If the requirements of justice require that then so be it. Longevity of principle should not be used as a justification for refusing a just result in a case.
132. Part of the difficulties in my judgment arises from the refusal of lawyers to shed the differences between law and equity which were intended to be eliminated by the Judicature Act 1873. What a court should be concerned with is providing effective and balanced remedies to solve disputes and less with concepts that used to be called equitable relief or common law relief. I adopt what Lord Diplock said in United Scientific v Burnley Council [1978] AC 904 at page 924.
133. Reverting to the House of Lords decision in Blake Lord Goff of Chieveley and Lord Browne-Wilkinson concurred with the judgment of Lore Nicholls. Lord Hobhouse dissented on the restitutionary damages claim but did so briefly: see page 296 and 298. It is nevertheless clear he is firmly of the view that payments awarded under the Wrotham principle are compensatory and not restitutionary.
134. The remaining judgment is that of Lord Steyn. He said the following at page 291:-

"In the Court of Appeal in Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361 I discussed some of the difficulties inherent in creating a general remedy for the recovery of restitutionary damages for breach of contract. On that occasion I remarked that it is not traditional to describe a claim for restitution following a breach of contract as damages. The terminology is however less important than the substance: under consideration are claims for the disgorgement of profits against a contract breaker. There has been a substantial academic debate on the merits of the actual decision in the Bredero case. Since this issue has not been directly debated in the present case I propose to express no view on it. But it is right to acknowledge that the academic comment has been critical of the decision in the Bredero case I would, however, respectfully offer a comment on the valuable academic debate. On the one hand, there is no or virtually no support for a general action for disgorgement of profits made by a contract breaker by reason of his breach. On the other hand, there is significantly absent from the post- Bredero academic comment a reasoned statement of the particular circumstances when such a remedy should be available. That is not surprising because it is a notoriously a difficult subject. But the Court of Appeal has been bold. It is said that the remedy should be available in two situations, viz (1) in cases of "skimped" performance (where the "gain" would take the form of expense saved) and (2) "where the defendant has obtained his profit by doing the very thing which he contracted not to do". The second would cover the present case. But it potentially has wide application. Sir Guenter Treitel QC in The Law of Contract, 10th ed (1999), pp 868-869, has questioned the soundness of the observations of the Court of Appeal: see also the valuable comment by Janet O'Sullivan, "Reflections on the role of restitutionary damages to protect contractual expectations" (to be published) and Hanoch Dagan, "Restitutionary Damages for Breach of Contract: An Exercise in Private Law Theory" [2000] 1 Theoretical Inquiries in Law 115. I am not at present willing to endorse the broad observations of the Court of Appeal. Exceptions to the general principle that there is no remedy for disgorgement of profits against a contract breaker are best hammered out on the anvil of concrete cases.

In the hearing before the House Mr Ross Cranston, the Solicitor General, in a thoughtful and careful speech argued for a recognition of an action for disgorgement of profits against a contract breaker where four conditions are fulfilled. (1) There has been a breach of a negative stipulation. (2) The contract breaker has obtained the profit by doing the very thing which he promised not to do. (3) The innocent party (in this case the Crown as represented by the Attorney General) has a special interest over and above the hope of a benefit to be assessed in monetary terms. (4) Specific performance or an injunction is an ineffective or virtually ineffective remedy for the breach. The Solicitor General persuaded me that in the case of Blake each of these conditions is satisfied. But since I recognise that it would be wrong to create a remedy simply to cover this case, it is right that I should explain the specific considerations which lead me to conclude that it is right on a principled basis to develop the law in a way which covers this case and other cases sharing materially similar features".

135. It seems to me that Lord Steyn is to some certain extent still in the wilderness but he might not now be necessarily crying loudly.
136. I do however take on board his perceptive observation that "exceptions to the general principle that there is no remedy for disgorgement of property against a contract breaker are best hammered out on the anvil of concrete cases".
137. What I derive from the judgments is that the Wrotham remedy is of general application in appropriate cases for any breach of contract. It is also compensation based and not resitutionary based. It appears to be an exceptional discretionary remedy when the more traditional bases for compensating an innocent person for breach of contract would provide no or an illusory result. It is not therefore a basis for damages that can be claimed as of right but is a remedy designed to fill what would otherwise be a gap and lead to an innocent person having a justified belief that the laws had failed him in dealing properly with a breach of contract i.e. in colloquial words the wrongdoer had "got away with it".
138. Other than those generalised impressions I derive no assistance from the Blake case as to the circumstances in which such a claim could be sustained. Now that is not strictly before me on the wording of the Preliminary Question in any event but both parties accepted that the arguments that they deployed necessarily involved such an analysis and urged me to offer any guidance that I felt appropriate.
139. The other point that I would observe is that it seems to me that the House of Lords was for the first time contemplating that this remedy would be available generally. It is clear that the type of remedy afforded by the Wrotham decision can be found to have been derived from other areas. Thus a license by way of damages is to be found in the law of copyright and patent law and in the case of claims involving the use of chattels on the return of the chattel with no apparent damage to it. Whilst these areas might have inspired the concept of Wrotham Park type damages it is in my view dangerous to attempt to limit this principle by reference to analogous but necessarily different principles. The House of Lords in my view were intending deliberately to extend this principle generally and in the words of Lord Steyn to allow it to be developed on a case by case fact based approach.
140. In the arguments before me both sides (the Federation more than the Fund) attempted to draw on cases outwith the strand of authority identified above as a justification of cutting down their opponent's arguments. Two examples suffice. The Fund argued that it was not open to the Federation as a defence to a claim for Wrotham Park damages to show that they could have made their profits anyway. In this context the Fund relied on (for example) the patents case in Meters Ltd v Metropolitan Gas Meters Ltd [1911] 28 RPC 157 and General Tire & Rubber Co Ltd v Firestone Tire [1976] RPC 197 and Catnic Components Ltd v Hill & Smith Ltd [1983] FSR 512.
141. The Federation by way of contrast argued that the claim for Wrotham type damages had to satisfy like all other claims for damages the "but for test". In other words the Federation contended that there had to be shown that the profits which were seeking to be attacked had to be demonstrated to be derived from the actual breach of contract. It thus needed to be established like any other claim for damages for breach of contract.
142. I will deal with these arguments further but it is for present purposes only necessary to indicate that I am of the opinion that one should be wary about importing as I have said, principles derived from other areas of the law.
143. It is also important, as I have said to approach the observations in Blake itself and to see whether the observations which are made in respect of an account of profits claim are applicable to a claim for damages under the Wrotham principle. Thus for example at page 286 made observations about the Court of Appeal judgment of Lord Woolf. He said this:-

"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."

It is to be noted that Lord Nicholls expressed agreement that none of those facts would by itself be a good reason for ordering an account.

ACADEMIC OPINION ON THE BLAKE CASE

144. This remedy had attracted (as appears from various extracts of the judgment above) significant academic discussion. All of these strands were brought together in the Law Commission Report (No. 247, Aggravated, Exemplary and Restitution Damages and in particular pages 28-52). This report pre- dated the Blake decision. Accordingly, parts of the analysis of the law have to be treated in my view with caution, see, for example, the analysis in paragraph 1.36 and the suggestion that references to what parties themselves have agreed are fictional (the observations of Steyn LJ in Surrey County Council). Equally the conclusion at paragraph 1.37 that the award of damages for breach of contract has not a traditional existence must be revisited in the light of the Blake decision. Equally their provisional view at paragraph 1.46 would now require a cutting down of the law in view of the Blake and the Hendrix decisions but the arguments that they raise do show the difficulties of assessing the damages under the Wrotham principle. However the obstacles put forward in paragraph 1.47 are in my view not sufficient to conclude that no claim can be made under the Wrotham principle; they merely indicate that it is likely to be a far from easy task.
145. Finally, they refer to four further issues (page 45) relating to claims to restitution for wrongs. First, in paragraph 1.51 they came to the conclusion that it was necessary to identify all the gains that the Defendant has made by the wrong. This, they said, was a factual causation inquiry which essentially requires the application of a "but for" test. If however in that inquiry it was determined that a Defendant could have lawfully made the profits if it had paid for the property, or the use of the property from which those profits had been derived, then the solution is to measure the restitution on the basis of the expense saved by the Defendant in not paying for the property or the use of the property (paragraph 1.60). In paragraph 1.61 they made it clear that in some cases the factual causation inquiry is extremely difficult and might ultimately lead to the conclusion that none of the alleged wrongfully acquired properties was attributable to the wrong. Finally (paragraph 1.62), they stated that the court still had a discretion to award a part rather than the whole of the gains on the basis that this might be regarded as being analogous to the legal causation or remoteness restriction in the realm of compensation for factually caused loss. They identify the allowance given in equity for skill and effort expended "at least where the wrong has not been committed dishonestly" (see Crown Dilmun above).
146. There is considerable discussion of Blake in Goff & Jones "The Law of Restitution" 6^th edition (2002) paragraphs 20-024 to 20-034a and the supplement). However save in respect of paragraph 20-024 the discussion of Blake is confined to the decision to order an account. In paragraph 20-024 the view is expressed that Lord Nichols in Blake interpreted Wrotham as not being a case confined to the recoupment of financial loss. I do not, with respect to the authors, think that is necessarily what he said. In the next sentence (page 283) he said "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". That seems to me four square to be analysing the claim by basing the Claimant's loss on the hypothetical loss of bargain he has sustained. It is artificial in this sense. The hypothetical bargain is to take place in the light of two artificial factors. First it regularly takes place when the seller would never actually have agreed to it. Thus the notional sale is imposed on an unwilling seller. Equally it is not open to the notional buyer to refuse to agree the bargain. This is of course a "bargain" retrospectively imposed upon him. Analogies are always dangerous but a good analogy in my view is the exercise that regularly takes place in the area of rent review where on the rent review date a notional lease is used as the basis for determining the rent. In those cases it is not possible to argue that no lease will take place or a lease would only take place in favour of the lessee who would thus be able to dictate the terms. Much the same seems to be the case here in my view. The House of Lords in Blake has created (albeit obiter) a new concept of damages to apply when the traditional method of damages affords no adequate remedy to the innocent party. This concept in my view is the negotiation at arm's length of a notional transaction whereby the price that could have been obtained for a relaxation of the rights that were infringed can take place.
147. This is the essence of the Fund's claim. It asserts that those negotiations can involve a number of possibilities. The most common one is a price to be negotiated for doing that which otherwise the contract would not permit to be done. This is usually ascertained by reference to what has been done in breach of the obligation. In some cases that can involve looking at the profits at least from a point of starting the exercise. Alternatively it can be looked at as an expense that the wrongdoer has avoided see Seagar v Copydex (no2) [1969] 1 WLR 829 where the Court of Appeal awarded damages rather than account because the use of the Plaintiff's confidential information as a matter of factual causation was a relatively minor contribution to the profits.
148. I found Professor Burrows book "Remedies for Torts Breach of Contract" (3^rd edition) the most helpful in the analysis of this area. It has the advantage of analysing the position pre and post Blake. It also has the advantage that Professor Burrows was the Commissioner in charge of the Law Commission Report referred to above. In chapter 17 at page 373 he states that "a Defendant may either acquire a positive benefit, which in general terms can be described as a profit, or it may merely be negatively benefited, by saving expense that he would have otherwise incurred. But whichever sort of benefit that is in question, it is a precondition of restitution-(as analogously for compensation- that the tort or breach of contract was a factual cause of the benefit: if the Defendant would have made that profit or saved that expense irrespective of the wrong (applying a "but for" test) there is here no justification for a restitutionary remedy".
149. That is a fundamental platform to the Federation's case.
150. He goes on further to observe that:-

"since profits commonly result from various causes, of which the wrong may be just one, the courts may prefer to award merely a fair proportion of the profits gained by the wrong, rather than all of those profits. This may be regarded as analogous to the desire to limit compensatory damages for loss, on grounds such as remoteness or intervening cause. The sort of factors that one would expect would influence the courts in deciding to award merely a fair proportion of the profits, and if so, what would amount to a fair proportion, are the skill and effort the Defendant has expanded to make the profits, the blameworthiness of the wrong and, perhaps, the maintenance of some sense of proportion between the benefit acquired and the Claimant's loss or lack of it".

151. In section 3 of the chapter he goes on to discuss the specifics of "restitution for breach of contract". After a review of the position pre Blake he then reviews the principles in the light of "the fascinating and controversial decision in [Blake]". He reviews two post- Blake decisions. The first of those which was not cited to me is Esso Petroleum Co Ltd v Niad [2001] All ER (d) 324. In that case Niad owned a petrol station and entered into a price agreement with Esso which supplied it with petrol. The purpose of that arrangement was to provide a support at a particular price to enable petrol to be sold at a lower price (to counter the activities of supermarkets primarily). Niad charged higher prices to its customer than had been agreed. This meant that Niad was given price support by Esso to which he was not entitled namely that it paid less to Esso for its petrol than it would have done had Esso known that Niad was overcharging customers. Sir Andrew Morrit VC applying Blake and held that Esso was entitled to an account of profits aimed at stripping away the gains that Niad had made from breaking the contract. He concluded that compensatory damages were inadequate because it was almost impossible for Esso to establish that sales had been lost as a result of the breach by Niad. The breach undermined the whole price watch scheme and Esso had a legitimate interest in preventing Niad from profiting from its breach. Alternatively Morritt VC said that Esso was entitled to a "restitutionary" remedy for the amount of price support that in breach of contract it had obtained from Esso (he described that as the most appropriate remedy).
152. Professor Burrows (page 405) correctly observes the distinction between account of profits and the "so called" restitutionary remedies is a difficult one to draw on these facts. I agree with that analysis but I also adopt his observation that the case is important because it shows Blake being applied to a commercial contract far from the peculiar facts itself.
153. He also makes observations on the Hendrix case. I will revert to these in my next analysis of the Hendrix case.
154. Having reviewed these decisions his conclusions are as follows:-

"In conclusion, it is tentatively suggested, in the light of Blake and subsequent cases, that an account of profits or restitutionary damages are an appropriate remedy for a breach of contract where two factors are present. First, the breach of contract must be cynical, deliberately calculated to make gains. It is this that triggers the courts' wish to deter the breach by stripping the gains. The breach was cynical in Blake, Esso v Niad Petroleum and Experience Hendrix LLC v PPX Enterprises Inc. The same can be said, although restitution was refused, of the earlier cases of Tito v Waddell and Surrey County Council v Bredero Homes. But, as Lord Nicholls stressed, this is not a sufficient condition. This is because there are many cynical breaches (for example, where a party to a commercial contract of sale breaks it in order to enter into a more lucrative contract with someone else) that the law does not wish to deter. The second factor that must also be present, therefore is that normal compensatory damages are "inadequate" in the sense that difficulties of assessment, or bars to the recovery of certain types of damages, mean that compensatory damages will not put the Claimant into as good a position as if the contract had been performed. In other words, compensatory damages will not properly protect the claimant's contractual expectations. In cases like Surrey County Council v Bredero Homes and Tito v Waddell and Blake the claimants had non-financial expectations which would not be protected by compensatory damages; their interests were in protecting the environment or in protecting national security. And in Esso v Niad and Experience Hendrix, while the claimants entered into the contract for financial reasons, the assessment of damages compensating their financial losses would be highly problematic and prone to error. Having decided that restitution is to be awarded, the courts then have a discretion (although clear principles should, in time develop) as to the quantum of that restitution. They may strip all the defendant's gains made by the breach of contract or merely a proportion. Relevant factors in exercising that discretion will be the degree of skill and time the defendant has expended in securing he profit and also the degree of moral blameworthiness attached to the particular cynical breach. The mechanisms open to the court to exercise this discretion on quantum are either the making of an allowance for skill and effort in the context of a claim for an account of profits; or the fixing of a reasonable sum (that the parties would supposedly have agreed to in a "hypothetical bargain") in respect of restitutionary damages".

155. I will revert to this summary in the light of consideration of the Hendrix case and a later decision of Mr Mann QC (as he then was) in Amec Development v Jury's Hotel [2001] 1 EGLR 81.
156. In passing I should observe that this text provides support for the Fund's third basis for claiming Wrotham Park damages which is unconnected with either a profit made or an expense avoided namely its legitimate desire to protect its good name from dilution or contamination by association with the Federation. That in my view is a legitimate expectation arguably that the Fund had when it entered in to the Agreement.

THE HENDRIX CASE

157. This case concerned a contract between the late Jimi Hendrix and the Defendant which was the subject matter of litigation first between the Defendant and subsequently against his estate following his death. The litigation was compromised during the course of the action. Under the terms of the settlement the Defendant was entitled to fulfil any existing licenses in respect to which it had granted over recordings subject to payment of royalties to the Claimant, but it agreed not to grant any further licence or contract without the consent of the estate of Jimi Hendrix. It also agreed to deliver up to the estate for destruction all master recordings on which Jimi Hendrix had performed in any capacity whatsoever. In breach of the settlement agreement the Defendant granted further licenses in 1995 and 1999.
158. The Claimants sued the Defendant for these and other breaches of the agreement and conceded it had no evidence to be able to show or quantify any financial loss as a result of the breaches but contended that it was entitled to claim for (1) damages consisting of such sums that could reasonably have been demanded by the Claimant for relaxing the prohibition against the grant of further licenses or alternatively (2) the entire profit attributable to the Defendant's exploitation of the prohibited material. At first instance injunctions were granted restraining further releases but the claims for damages and account were dismissed.
159. On appeal the Defendant argued that the Blake decision extended the remedies available for breach of contract and the court was able to fashion a remedy in restitution to meet the justice of the case. It argued that the remedy of an account of profits awarded in Blake was confined to cases of an exceptional nature and did not apply to the present case. It also argued that any order for payment of damages or account of profits was precluded by the grant of the injunction because the remedy in damages was in lieu of the grant of an injunction.
160. The Court of Appeal allowed the appeal in the sense that it determined that the granting of the injunction did not preclude a claim for damages for losses sustained for the period before the injunction operated (like the present case) and that those damages should be assessed upon the Wrotham principle. Nevertheless the Court of Appeal rejected their claim based on an account of the entirety of the profits of the Defendant.
161. The leading judgment was delivered by Mance LJ as he then was. The key guiding part of the judgment in my view is paragraph 16 where he said this:-

"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. The original Nibelungen produced a powerful image of restitution. The appellant invites us to fashion a modern and more deliberate equivalent on Jimi Hendrix's legacy"

162. I gratefully adopt this paragraph. It seems to me plain that the House of Lords in Blake was intending to create a remedy of a new model. At this early stage of the development of this progeny it is important in my view not to seek to put fetters on its development derived from other areas of law and principles. The key guiding principle in my view is to provide a remedy for a breach of contract which affords in the circumstances of any given case an effective compensation to the Claimant for the breach of contract but without that award acting in a way which leads a Defendant to believe that it is being punished for its wrongdoing.
163. As part of the analysis of the Blake decision he observed this when considering the dissenting judgment of Lord Hobhouse:-

"As to his 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, such as Lord Shaw's horse that is the better for being ridden) 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. 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. The law frequently introduces objective measures (e.g. the available market rules in sale of goods) or limitations (e.g. remoteness). The former may increase or limit a claimant's ability to recover loss actually suffered. Another situation where damages do not necessarily depend upon precisely what would have occurred but for the wrong is where there has been a conversion: cf Kuwait Airways Corpn v. Iraqi Airways Co. [2002] UKHL 19; 2 AC 883, especially at paras. 82-83. 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. In such a context it is natural to pay regard to any profit made by the wrongdoer (although a wrongdoer surely cannot always rely on avoiding having to make reasonable recompense by showing that despite his wrong he failed, perhaps simply due to his own incompetence, to make any profit). 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. "

Turning to consider what can amount to exceptional circumstances, Lord Nicholls said in Blake (at p.285G-H) that:

No fixed rules can be prescribed. The courts will have regard to all the circumstances, including the subject matter of the contract, the purpose of the contractual provision that has been breached, the circumstances in which the breach occurred, the consequences of the breach and the circumstances in which relief is being sought. 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."

164. This part of the judgment in my view demonstrates the flexibility of the court as to the calculation of the damages under the Wrotham principle when applied to the particular facts of the case. Thus it seems to me that it admits of a possible claim even though there is no financial loss caused by the breach (i.e. because the covenantees in Wrotham would not have consented). Equally it shows an instinctive approach to the damages that the wrongdoer ought not to gain an advantage for free and should make some reasonable recompense. However he observed that whilst it was natural to pay regard to any profit made by the wrongdoer, a wrongdoer cannot always rely on avoiding having to make reasonable recompense by showing that despite his wrong he failed perhaps due to incompetence to make any profit. In such cases the court can order a payment over a percentage of any profit or in some cases taking the cost which the wrongdoer would have had to incur to obtain (if feasible) the equivalent benefit from another source.
165. His conclusions at paragraphs 43-44 were as follows:-

"It would in these circumstances be anomalous and unjust, if PPX could, by simply breaching the agreement, avoid paying royalties or any sum, when they have to pay royalties in respect of Schedule A masters and they would have expected that, even if consent to the extension or renewal of existing licences of non-Schedule A masters was forthcoming at all, it would only be on terms as to payment of further royalties. As it is, this case is concerned with fresh licences of non-Schedule A masters to different licensees, so that the incongruity of allowing PPX free user to its own profit is yet more obvious. "

However, I do not regard this case as exceptional to the point where the Court should order a full account of all profits which have been or may be made by PPX by its breaches. I have already drawn attention to significant features of Blake which have no counterpart in this case: cf paragraph 37 above. Here, the breaches, though deliberate, took place in a commercial context. PPX, though knowingly and deliberately breaching its contract, acted as it did in the course of a business, to which it no doubt gave some expenditure of time and effort and probably the use of connections and some skill (although how much is evidently in issue, and is not a matter on which we can at this stage reach any view). An account of profits would involve a detailed assessment of such matters, which, as is very clear from Blake, should not lightly be ordered".

166. Peter Gibson LJ's judgment does not provide any assistance as to guideline principles save perhaps in his conclusions in paragraph 58.
167. Hooper J concurred with both judgments.

INTENTIONAL OR CYNICAL BREACH

168. There are observations (as appears from the judgments in the Court of Appeal in Blake and in the House of Lords and Hendrix p875) that a deliberate breach is a factor that can be borne in mind when deciding whether to grant a Wrotham Park type remedy for breach of contract.
169. I have difficulty with that as a matter of fundamental principle. First as the Blake case establishes the award of damages under this principle is compensatory not restitutionary. It is in this context a remedy for breach of contract. Before Blake an account was traditionally not considered to be available for a breach of contract because it was punishment rather than compensation see "Goff and Jones" paragraph 20-029 referring to the observations (obiter) of Lord Hoffman in Co-Operative Insurance Society v Argyll (Holdings) Ltd [1998] AC 1.
170. It seems to me whilst the decision in Blake may have changed that in relation to an account it cannot have intended to have changed the principle that damages for breach of contract are compensation not punishment. Nor as I have said earlier in this judgment, can it have been the case that the House of Lords in Blake intended without discussion to reverse the Addis case in respect of contractual damages.
171. In this context the significance of Jacob J and the Court of Appeal's observations as to the intentional nature of the Federation's breach of the Agreement are also in my view irrelevant in the process of an award of damages under the Wrotham basis. They may well have been relevant for the purposes of deciding whether or not to grant an injunction. Thus in a different case, whilst we have seen from the Wrotham Park case itself a refusal of a mandatory injunction to demolish buildings because it would be an unpardonable waste of the buildings, the courts have in the case of deliberate breaches of rights granted mandatory injunctions to demolish buildings where the building work was done after commencement of the action or notice given: see Pugh v Howells [1984] 48 P&CR 298.
172. Reverting to Professor Burrows' book I therefore respectfully disagree with his first proposition as regards damages payable under the Wrotham principle. Otherwise it seems to me that his text is a good summary as to how the courts could approach a claim for damages under the Wrotham principle.

PRINCIPLES APPLICABLE TO ASSESSMENT OF DAMAGES UNDER WROTHAM PRINCIPLE

173. I approach this with some hesitation but it seems to me that it might be of advantage to the parties of this action and generally to indicate what in my view is the way in which the court should approach the assessment of damages under this basis.
174. I set them out in numerical order as follows:-

1. The primary basis of assessment is in my view that identified by Mr Mann in the Amex case at page 83 l 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".

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 and Gafford cases referred to above.

The assessment of those damages involves a number of possibilities:-

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).

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.

ANSWERS TO THE PRELIMINARY ISSUE

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.
180. I have already set out in my view the guidelines for determining whether to grant such an award and if so the basis of such an award.
181. I have however made observations critical of the way in which the Fund currently pleads its case. At the moment it is impossible for the Federation to understand the basis upon which the Fund makes its claim to a share of the gross profits. It is essential that its thought processes are set out in an intelligible form and I will hear the parties on what order I should make in the light of that observation.
182. I will also hear the parties on what directions if any ought to be made in respect of the inquiry. In this context disclosure of both parties' documents is likely to be extensive. Thus the Fund will have to provide disclosure of its internal thought processes in prosecuting the claim, its approach to the granting of licenses and its approach to any possible tarnishment or diminishment of its name by association. The Federation will also have to provide extensive disclosure as to how its profits were achieved if it is going to raise any kind of argument seeking to suggest it had a good negotiating prospect as regards suggesting that profits would be made entirely or extensively from its own efforts rather than use of the Initials.
183. I thank all the parties for their extremely helpful contributions both written and oral.