Restitutionary Damages

Overview I

Restitutionary damages seek to undo unjust enrichment. They seek to recoup benefits which have accrued to a wrongdoer, which exceeds the loss to the person who has been wronged.

Compensation for breach of contract may comprise or include a restitutionary element. In other cases, restitutionary remedies are granted in circumstances where is no contract, or where there was a contract, but it has been negated or terminated. In some cases, the person who has been wronged may have suffered little or no financial loss at all.

There are two principal types of restitution.  In one type, the claimant seeks to recover the benefits which he has conferred on a  third party and which would be unjust for the third party to retain.  In the other type, the benefit does not derive from the claimant, but from elsewhere, without necessarily causing loss to the claimant.

The general principle of damages is that they should compensate for the claimant’s loss.  Some courts have taken the view that restitutionary damages should not be classified as damages at all.

Overview II

Equity allows for an account of the defendant’s profits to be taken for the benefit of the claimant, where there has been a breach of the claimant’s proprietary rights. It seeks to recoup benefits which have been unjustly received by the defendant, for the benefit of the claimant.

Elements of restitution have long been allowed in a claim for damages for breach of contract,  where expenditure is wasted in situations where the contract is not profitable,  so there is no financial loss. The wasted expenditure is a proper head of damages.

Restitutionary damages may arise in circumstances where equity would not grant an account of profit. Restitutionary damages need not equate to an account of profits.  Both may be claimed, but there may be double recovery for the same loss.

Use of Property

Traditionally a claim for use of land other than as lessee (by a trespasser or overholding tenant)  was described as mesne rates.  In modern cases in England and Wales, mesne rates have be described as a species of restitution.

It is a general principle, that where a person uses another’ s property without consent or payment, in circumstances where it is unjust for him to do so,, there may be a claim in restitution, Commonly, the amount assessed is that which would e available for the amount required to obtain permission. The defendant may have suffered or loss or marginal loss only.  It might be said only, that he has lost an opportunity to bargain.

In many instances, the benefit to the defendant for wrongful occupation and use of land exceeds the loss to the plaintiff

Wrongful Use of Assets

Restitutionary damages may be awarded for wrongful uses use of another’s goods, notwithstanding that the claimant would not have used them and does not suffer any or significant financial loss.  If the person who wrongfully uses goods then goes further and sells them, the true owner is entitled to the price even if it is above market value, this goes beyond compensation and is restitutionary in nature.

The principle is also applicable to other types of assets including shares, intellectual property goodwill and other intangible assets.

Restitution may be allowed for infringement of personal quasi-proprietary rights. If a person makes a profit from a highly defamatory book, in excess of the amount due for libel, it might be argued that the person so defamed should be entitled to the profits of the book.  Similarly, where a person has taken advantage and used another’s goodwill or reputation, restitutionary recovery may be available.

Profiting from Breach I

In a case where a person profited from breach of a  covenant which had restricted  the use of land, the court  may  require payment by way of restitution of the amount which might reasonably have been demanded for releasing the covenant.  In a famous case, a former intelligence agent, who disclosed official secrets in a book,  was obliged to account for the profits made from his breach of confidence, so that he did not thereby benefit from his wrongdoing

Similarly,  in cases involving deliberate breaches of intellectual property rights by which the wrongdoer has benefited, the courts have required the persons who has wrongfully benefitted from the deliberate breach, to account for the benefits or profits gained  from the breach.

Where the defendant has profited from breaching an agreement, he may be required to disgorge his profits.  The courts have permitted restitutionary damages in the case of incomplete performance, where the defendant has saved himself money, without causing a quantifiable monetary loss to the claimant.

Where a person does not perform his contract,  in order to take advantage of a more profitable contract, restitution may be allowed in some cases.  However, the mere fact that a person’s breach of contract with the claimant has enabled him to enter a more profitable contract with another is not sufficient, for restitutionary damages. Commercial contracts may be  broken because a more profitable opportunity has arisen.

It is argued that an account of profits is not appropriate where both parties are dealing in a marketable commodity, for which a substitute might be found.  In the ordinary course, the damages which the claimant suffers should equal to the profit which the wrongdoer makes. Under this approach, the fact that under ordinary principles of damages,  the wrongdoer makes a greater profit, is not of itself sufficient to justify restitutionary damages.

Profiting from the Breach II

A deliberate interference with proprietary rights appears to be a widely accepted touchstone for restitutionary damages.  By charactersing the right as a property right of the claimant, then that entitlement and its fruits can be said to belong to the claimant.

The effect of an injunction may be to deny the defendant future benefits and may in some circumstances benefit the claimant to the same degree.

Where however the defendant’s breach has been deliberate and cynical; it is argued that  restitutionary damages may be appropriate. Deliberation and cynicism on the part of the  defendant may be relevant to the assessment of whether the enrichment is unjust.

Against this, it is argued that the defendant’s moral culpability should not be a consideration in commercial matters. It is not usually a consideration in contract matters, and is argued not to justify a departure from the normal basis on which damages are awarded.

Equitable Account of Profits

Although restitutionary damages differ in nature to an account of profits, the measure may be similar in some cases.  This may be so where the defendant takes and converts the claimants property and sells it. However, profits are not the usual measure of restitutionary damages.

An account of profits is most commonly given where  the defendant has wrongfully used the claimant’s property.  In some cases, this may be the market rent which may be more than the basis of the profit.  But in other cases, the benefit to the wrongdoer is the expense saved of not having to rent or hire the property.  In these cases, the award is measured in those term.

Where the interference with the property rights, typically in the context of real property has made the defendant actual profits, a percentage of the profits have been awarded to the wronged claimant whose covenant etc.  has been breached.