Damages For Breach of Contract

Oxford Journal of Legal Studies, Vol. 28, No. 1 (2008), pp. 7398 doi:10.
1093/ojls/gqm023 Published Advance Access January 17, 2008
Damages for Breach of Contract: Compensation, Restitution and Vindication

DAVID PEARCE AND ROGER HALSON*
Downloaded from http://ojls.oxfordjournals.org/ by guest on February 29, 2012
AbstractIn this article we examine the role which vindication plays in contract damages. Vindication describes the making good of a right by the award of an adequate remedy. We argue that, while the primary purpose of compensation is to provide an indemnity for loss, an award of compensatory damages will nevertheless generally vindicate the right to performance of the contract. We go on to consider a distinct measure of damages, vindicatory damages. These, we argue, are neither compensatory nor restitutionary, neither loss-based nor gain-based: they are a rights-based remedy. We then identify various situations in which the courts may be seen to have awarded what are, in substance, vindicatory damages. We conclude by considering the benefits which may follow from recognition of the availability of vindicatory damages as a contract remedy.
1. Introduction
The function of the law is to enable rights to be vindicated and to provide remedies when duties have been breached.1 Vindication describes the making good of the claimants legal right by the grant of an adequate remedy. Unless an infringed right is met with an adequate remedy, the right is a hollow one, stripped of all practical force and devoid of all content.2 As society becomes more rights-focused and English law more rights-based,3 the vindicatory function is set to become increasingly relevant. The broad purpose of this article is to explore the extent to which the English courts pursue a vindicatory function when awarding damages for breach of contract. We begin by
* Lecturer and Professor of Law, respectively, at the University of Leeds. Email: D.Pearce@leeds.ac.uk. We would like to thank Professor Andrew Burrows, Horton Rogers and our two anonymous referees for their helpful comments and suggestions on an earlier draft of this article. The usual disclaimer applies. 1 Chester v Afshar [2004] UKHL 41, [2005] 1 AC 134 at [87] (Lord Hope of Craighead). 2 Ibid. 3 The obvious example is the Human Rights Act 1998. The Author 2008. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org
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distinguishing the primary right to performance from the secondary right to compensation, and then show that nominal damages are an ineffective means of vindicating the performance right. We go on to argue, however, that while an award of substantial damages for breach of contract represents the enforcement of the defendants duty to compensate, the remedy nevertheless provides an effective means of making good the claimants performance right. This is because of the way in which the courts measure loss. The second argument we put forward is that, in certain situations, the vindicatory impulse exerts a more radical influence on the availability of contractual remedies. In these cases, the courts conclude that the application of orthodox compensatory principles would yield an inadequate response to the defendants breach of contract. In order to ensure that the claimants right to performance is made good, the court awards substantial damages4 notwithstanding that on conventional principles the claimant can only claim nominal damages. An important characteristic of these awards is that, while exceptional, they are nevertheless intended to be compensatory.5 Our third argument is that in some situations, a remedial response to a breach of contract may take the form of an award of vindicatory, as distinct from compensatory,6 damages. Vindicatory damages are neither loss-based nor gain-based: they are a rights-based remedy. As such, vindicatory damages are not measured by the claimants loss or the defendants gain. Instead they comprise a fair and reasonable or, in some cases, conventional sum which is intended to provide a measure of recognition7 of the violation of the claimants performance right. Vindicatory damages are a gapfilling remedy. In most cases, the claimants performance right will be made good by an award of compensatory damages or by specific relief. It is only where these orthodox remedies would constitute an inadequate curial response to a breach of contract that vindicatory damages will become relevant. In our conclusion we argue that a broader recognition of vindicatory damages may ensure fairer outcomes for both claimants and defendants. As well as providing a just remedy in suitable cases, vindicatory damages offer a further benefit, as at present the concept of loss in English contract law is at risk of being overstretched. Extending the availability of vindicatory damages to contractual actions would provide a more accurate explanation of the remedy awarded in certain cases and would help to preserve the coherence of the conventional remedies of compensation and restitution.
Or an account of profits: see Attorney-General v Blake [2001] 1 AC 268, below. Some argue that these awards are restitutionary on the ground that they are gain-based, while others maintain that gain-based awards remain compensatory. Our concern here is not so much to distinguish compensatory from restitutionary damages, it is more to distinguish rights-based damages from both loss-based and gain-based damages. 6 Or restitutionary: see n 5 above. 7 See Rees v Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2004] 1 AC 309 at [8] (Lord Bingham of Cornhill).
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2. Compensation and Vindication

A. The Right to Performance
To understand the vindicatory function in contract, it is important to recognize that each party to a bilateral, or synallagmatic, contract acquires a legal right to the performance of the contract8 and, at the same time, assumes a legally recognized and enforceable obligation to perform it.9 For the purpose of contract is performance.10 Pacta sunt servanda. Liability in contract may be contrasted with that imposed in the tort of negligence. The obligation in negligence is an obligation to compensate the claimant against loss which was a reasonably foreseeable consequence of [the defendants] carelessness.11 Liability in negligence is founded not on the act but on the consequences of the act.12 There is no free standing obligation or duty of care.13 Liability in contract, by contrast, is founded on the act of agreement.14 The most obvious means of vindicating the claimants right to performance of the contract is to order the defendant to perform. Where the relevant obligation is to convey an interest in land, refrain from doing something, or pay a sum of money, the English courts will generally vindicate the claimants corresponding right by specific performance, prohibitory injunction, or judgment for the fixed sum. But specific relief, particularly in the form of specific performance or mandatory injunction, nevertheless remains the exception rather than the rule in contract. While the vindicatory function may be becoming increasingly evident, the decision of the House of Lords in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd15 suggests a reluctance to expand the availability of specific relief in contract generally. In English law the presumption remains that any breach of contract will result in an obligation on the defaulting party to pay damages.16
B. The Demise of Nominal Damages

It might be thought that in nominal damages the court already has at its disposal a tailor-made remedy for vindicating the performance right
Alley v Deschamps (1806) 13 Ves Jun 25 at 2728 (Lord Erskine). In Re T & N Ltd [2006] 1 WLR 1728 at [26] (David Richards J). George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284 at 304 (Oliver LJ). Friedmann describes the claimants interest in performance as constituting the very core of contract law: D. Friedmann The Performance Interest in Contract Damages (1995) 111 LQR 628654 at 654. 11 In Re T & N Ltd [2006] 1 WLR 1728 at [25] (David Richards J). 12 Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd (The Wagon Mound) [1961] AC 388 at 425 (Viscount Simonds). 13 In Re T & N Ltd [2006] 1 WLR 1728 at [25] (David Richards J). 14 This distinction has been acted upon by the House of Lords in the context of an award of interest on damages (Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627) and, more recently, with regard to the date of accrual of a cause of action for limitation purposes (Law Society v Sephton & Co [2006] UKHL 22, [2006] 2 AC 543). 15 [1998] AC 1. 16 George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284 at 304 (Oliver LJ).
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in contract.17 For nominal damages are not intended to compensate for anything at all but are awarded simply to mark the fact that there has been a breach of contract.18 But it soon becomes apparent that nominal damages offer little hope of making good the claimants performance right. First, nominal damages have limited relevance in contractual claims in practice.19 While nominal damages may be used as a means of establishing a legal right, they will generally be so used in the context of proprietary, and not personal, rights.20 In any event, the availability of the declaration has rendered this aspect of nominal damages increasingly redundant.21 Furthermore, there are signs that the main purpose22 of nominal damages, that of acting as a peg on which to hang costs, has been undermined by the courts reluctance to adopt in mechanical fashion the principle that costs follow the event where that event is no more than the award of nominal damages. In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd23 Devlin J, having noted the general rule that a successful claimant will recover his costs from the defendant, nevertheless ordered the claimant to pay the defendants costs: I do not think that a plaintiff who recovers nominal damages ought necessarily to be regarded in the ordinary sense of the word as a successful plaintiff.24 Nominal damages may be seen to lack a vindicatory element in another way. An award of a pound or two25 is unlikely in itself to provide adequate satisfaction for the fact that a wrong has been committed.26 An award of nominal damages differs little, if at all, from an award of derisory, or contemptuous, damages. Derisory damages serve to indicate that, while the
17 Thus Lord Scott, speaking extra-judicially, describes the purpose of nominal damages as vindicatory: Lord Scott of Foscote, Damages [2007] LMCLQ 465473, 469. 18 Mappouras v Waldrons [2002] EWCA Civ 842 at [15] (Kay LJ). 19 See, e.g. Treitel where nominal damages merit treatment of less than half-a-dozen lines in the main text: E. Peel, Treitel on the Law of Contract (London: Sweet & Maxwell, 12th edn, 2007) at para 20-002. Chitty discusses nominal damages in a single paragraph: H. Beale (gen ed), Chitty on Contracts (London: Sweet & Maxwell, 29th edn, 2004) at para 26-008. 20 H. McGregor, McGregor on Damages (London: Sweet & Maxwell, 17th edn, 2003) at para 10-009. 21 Thus, Burrows who, having noted the function of the declaration, concludes that nominal damages are superfluous and could happily be abolished: A. Burrows, Remedies for Torts and Breach of Contract (Oxford: Oxford University Press, 3rd edn, 2004) at 589. 22 See McGregor, above n 20 at para 10-009. 23 [1951] 1 All ER 873. 24 Ibid at 874 (Devlin J). See also Mappouras v Waldrons [2002] EWCA Civ 842, Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden and Johnson [2002] EWCA Civ 879 and Clarke v Buckle Mellows [2005] EWCA Civ 1611. 25 There seems to be little consistency in the amount of an award of nominal damages: awards of 1, 2, 5, 10 and 15 can all be found in the cases. In Liverpool City Council v Irwin [1977] AC 239 at 264 and 270, the House of Lords reduced the nominal damages awarded by the County Court judge from 10 to 5. In the Court of Appeal, Roskill LJ had thought that the proper figure was 2 ([1976] QB 319 at 333). In Radford v De Froberville [1977] 1 WLR 1262 at 1268 Oliver J assumed nominal damages to be the decimal equivalent of 40 shillings. This figure may have its origins in the practice of the royal courts in the thirteenth century to exclude claims for less than that amount: see J. H. Baker, An Introduction to English Legal History (London: Butterworths, 4th edn, 2002) at 22. 26 In Attorney-General v Blake [2001] 1 AC 268 at 283, Lord Nicholls of Birkenhead commented that if the claimants in Wrotham Park had only been awarded nominal damages, justice would manifestly not have been done.
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claimants right has been infringed, the court has a very low opinion of the claim, or takes the view that the claimant deserved, at any rate morally, what the defendant did to him.27 In theory, then, nominal and derisory damages serve different purposes. In practice, it can be hard to distinguish between the two. For example, in Grobbelaar v News Group Newspapers Ltd,28 the House of Lords unanimously substituted an award of 1 damages in place of the jurys award of 85,000. This was explicitly labelled an award of nominal damages,29 yet there can be little doubt as to their Lordships views as to the merits of the case. Lord Bingham said it would be an affront to justice . . . to award substantial damages to a man shown to have acted in such flagrant breach of his legal and moral obligations.30 Both Lord Steyn and Lord Millett described the award as derisory.31 Far from fulfilling a vindicatory function, nominal damages today may indicate a lack of any substantive merit in the claimants case. A plaintiff who recovers only nominal damages has in reality lost and in reality the defendant has established a complete defence.32 Such an approach calls into question the continuing presence of nominal damages in the courts remedial armoury, a fact explicitly envisaged in Ibekwe v TGWU.33 In that case, Peter Gibson LJ thought it might be well within the courts discretion under the Civil Procedure Rules to stop a case where it became clear that the claimant would only recover nominal damages.34 The court had to avoid incurring unnecessary costs and taking up a disproportionate amount of its own time.35
C. The Different Functions of Compensatory Damages

The principal aim of an award of compensatory damages is, of course, to compensate the claimant for loss suffered,36 but the objective has never been to provide a precise indemnity. This indicates that compensation is not the sole function of damages in contract. So, for example, the rules on remoteness and mitigation may result in a claimant recovering less in damages than the amount of loss suffered. On the other hand, an award of damages may exceed this amount. Thus the factory-owner in Harbutts Plasticine Ltd v Wayne Tank and Pump Co Ltd37 was awarded damages sufficient to enable him to build a new factory
W. V. H. Rogers, Winfield & Jolowicz on Tort (London: Sweet & Maxwell, 17th edn, 2006) at para 226. [2002] UKHL 40, [2002] 1 WLR 3024. Ibid at [27] (Lord Bingham), [61] (Lord Hobhouse of Woodborough) and [87] (Lord Scott). 30 Ibid at [24]. 31 Ibid at [36] and [69], respectively. 32 Hyde Park Residence Ltd v Yelland [1999] RPC 655 at [36][37]. 33 [2001] EWCA Civ 432. 34 Ibid at [26]. 35 Ibid. 36 Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 at 580 (Lord Millett). See generally E. McKendrick Breach of Contract and the Meaning of Loss [1999] Current Legal Problems 37. 37 [1970] 1 QB 447.
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superior to that destroyed by the defendants breach. In yet other cases the damages awarded may bear no relation to the actual loss suffered. In Cory v Thames Ironworks and Shipbuilding Co Ltd38 the claimant recovered damages for profits lost by not being able to use the subject matter of the contract, a boom derrick, as a coal store. However, the claimant had never intended to use the derrick in that way: his intended use gave rise to much higher losses, but losses which were too remote to be recoverable.39 Where a contract contains a liquidated damages clause, it is perhaps inevitable, given the limited foresight of contractors, that the stipulated sum will either under-compensate or over-compensate the innocent party.40 There are also instances where the courts desire to vindicate the performance right means that general damages are awarded for pecuniary loss.41 A further limit upon the recovery of full compensation may be seen to arise from the decision in South Australia Asset Management Corp v York Montague Ltd.42 There, surveyors employed by mortgagees had negligently overvalued commercial property to the extent that when, following the mortgagors default, the security was realized, the proceeds of sale were insufficient to discharge the outstanding debt. The House of Lords held that the negligent surveyors were not automatically liable for the entire shortfall. Rather, they were only liable in respect of the extent to which they had overvalued the premises; in so far as the mortgagees losses exceeded this initial security shortfall the losses were irrecoverable. The SAAMCO principle, that a defendant is not liable in damages in respect of losses of a kind that fall outside the scope of his duty of care,43 has subsequently been applied widely to contractual and tortious duties of care owed by valuers and other professionals.44 That compensation serves other ends is, in fact, widely accepted. Lord Wilberforce asked of a man bringing an action for damages in tort:
Is he suing for compensation, for injury to his feelings, to teach his opponent a lesson, to vindicate his rights, or the strength of the law, or for a mixture of these things? . . . The fact is that the plaintiff sues for damages, inviting the court to take all the facts into consideration, and, if he wins, he may ascribe his victory to all or any of the ingredients.45
(1868) LR 3 QB 181. Ibid at 18992. For an example of under-compensation, see, eg, Diestal v Stevenson [1906] 2 KB 345. 41 See, e.g. Aerial Advertising Co v Batchelors Peas Ltd (Manchester) [1938] 2 All ER 788. 42 [1997] AC 191. 43 Aneco Reinsurance Underwriting Ltd (in liquidation) v Johnson and Higgins Ltd [2001] UKHL 51, [2002] 1 Lloyds Rep 157 at [10] (Lord Lloyd of Berwick). 44 See, e.g. HOK Sport Ltd v Aintree Racecourse Co Ltd [2002] EWHC 3094 (TCC), [2003] Lloyds Rep PN 148. Cf Aneco Reinsurance Underwriting Ltd (in liquidation) v Johnson and Higgins Ltd [2001] UKHL 51, [2002] 1 Lloyds Rep 157. 45 Cassell & Co Ltd v Broome [1972] AC 1027 at 1115.
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Compensatory damages, it is suggested, serve various secondary functions such as punishment, deterrence and appeasement.46 Of more immediate relevance is their capacity to fulfil a vindicatory role. Such a role is well established in the context of libel damages. As well as compensating the claimant for his pecuniary and non-pecuniary losses, libel damages must be sufficient to vindicate the claimants reputation.47 As Windeyer J observed:
It seems to me that, properly speaking, a man defamed does not get compensation for his damaged reputation. He gets damages because he was injured in his reputation, that is simply because he was publicly defamed. For this reason, compensation by damages operates in two ways as a vindication of the plaintiff to the public and as consolation to him for a wrong done.48
There is no reason in principle why compensatory damages in contract should not likewise fulfil a vindicatory purpose.
D. The Vindicatory Function of Compensatory Damages

Indeed the practice of the courts demonstrates that an award of compensation for breach of contract does serve this very purpose. Contractual damages are generally awarded so as to protect the claimants expectation interest, to give him the benefit of the bargain: the claimant is, so far as money can do it, to be placed in the same situation with respect to damages as if the contract had been performed.49 The primacy of this measure of damages for breach of contract is reflected by its description as the contract measure.50 This may be contrasted with the objective in tort, where the court awards damages so as to put the claimant in the same position as he would have been in if he had not sustained the wrong.51 Contractual damages vindicate the performance right: they put the claimant in the same position as if the defendant had performed
46 See the dissenting judgment of Thomas J in Daniels v Thompson [1998] 3 NZLR 22. In The Gleaner Co Ltd v Abrahams [2003] UKPC 55, [2004] 1 AC 628 at [41] Lord Hoffmann noted that ever since Rookes v Barnard [1964] AC 1129 it has been recognised that compensatory damages may also have a punitive, deterrent or exemplary function. In Merest v Harvey (1814) 5 Taunt 442 at 444, Heath J thought that an award of exemplary damages goes to prevent the practice of duelling. 47 See The Gleaner Co Ltd v Abrahams [2003] UKPC 55, [2004] 1 AC 628 at [55] (Lord Hoffmann). Vindication of the claimants reputation does not always call for an award of damages: a reasoned judgment may suffice: see Rackham v Sandy [2005] EWHC 482 (QB) at [124] (Gray J). 48 Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118 at 150. 49 Robinson v Harman (1848) 1 Exch 850 at 855 (Parke B). Thus Street comments: the law is not content to indemnify the plaintiff for losses suffered; it gives him what he would have had if the defendant had not wrongfully broken his contract: H. Street, Principles of the Law of Damages (London: Sweet & Maxwell, 1962) at 240. 50 Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627 at 1634 (Lord Nicholls). In Wertheim v Chicoutimi Pulp Co [1911] AC 301 at 307 this measure was described by Lord Atkinson as the ruling principle of contract damages. 51 Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 39 (Lord Blackburn).
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his promise. Fuller and Perdue famously described damages based on the expectation interest as a queer kind of compensation.52 For, they argued,
the loss which the plaintiff suffers (deprivation of the expectancy) is not a datum of nature but the reflection of a normative order. It appears as a loss only by reference to an unstated ought. Consequently, when the law gauges damages by the value of the promised performance it is not merely measuring a quantum, but is seeking an end, however vaguely conceived this end may be.53
The end that the law seeks is the fulfilment of promises:54 damages based on the expectation interest seek to vindicate the claimants performance right. This vindicatory element shaping the duty to compensate is evident not just in the laws recognition and enforcement of the expectation interest itself, but also in the way the expectation interest is measured. Where the defendants performance of the contract is defective but the claimant is not entitled to, or does not, reject that performance, there are two principal methods of assessing the claimants damages.55 The first is the difference in value between the performance for which the claimant contracted and the performance received. The second is the cost of curing the defective performance, so that the claimant may obtain the performance for which he contracted. Where the claimants interest in performance is financial, the difference in value measure will generally be adopted by the court. Where his interest lies in performance of the quality, type or standard promised by the defendant,56 the court is more likely to adopt the cost of cure measure. The cost of cure measure is widely seen as more consistent with enforcement of the performance right,57 and the courts reliance on the difference in value measure has been said to demonstrate a less than whole-hearted commitment to the protection of the performance interest.58 McKendrick argues that there is more to the law of contract than the protection of financial interests and that damages
should no longer be tied to putting the claimant into the financial position which he would have been in had the contract been performed, but instead should aim to give the claimant an appropriate substitute for the performance to which she was entitled.59
L. Fuller and W. Perdue The Reliance Interest in Contract Damages (1936) 46 Yale LJ 5296 at 53. Ibid. In Farley v Skinner [2001] UKHL 49, [2002] 2 AC 732 at [25], Lord Steyn described contract laws central purpose as promoting the observance of contractual promises. 55 E. McKendrick, Contract Law: Text, Cases, and Materials (Oxford: Oxford University Press, 2nd edn, 2005) at 1017. 56 Ibid at 1050. 57 See, e.g. B. Coote Contract Damages, Ruxley, and the Performance Interest (1997) 56 CLJ 537570; Friedmann, above n 10; E. McKendrick The Common Law at Work: the Saga of Alfred McAlpine Construction Ltd v Panatown Ltd (2003) 3 OUCLJ 145180; and C. Webb Performance and Compensation: An Analysis of Contract Damages and Contractual Obligation (2006) 26 OJLS 4171. 58 McKendrick, above n 55 at 1017. 59 McKendrick, above n 57 at 168 and 172.
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Nevertheless, it is important to emphasize that contract damages do generally serve a vindicatory role. Often, the claimants interest in performance will be financial, so difference in value damages will be adequate to make good his performance right.60 In other cases, difference in value may be the only means of measuring damages as it may not be possible or practical for the defective performance to be remedied.61 Furthermore, it is clear that the court will not always apply the difference in value measure where the claimants interest in performance may be seen as financial. Take, as an example, Radford v De Froberville62 where the claimant sought damages for the defendants failure to build a wall along the boundary dividing their respective properties. The claimants property was let to tenants and Oliver J accepted that the claimant was realistically, merely a landlord with an investment property.63 While this would point to difference in value as being the appropriate measure of loss, Oliver J preferred cost of cure, invoking the general principle that pacta sunt servanda.64 The claimant had a contractual right to have the work done and wanted the wall built.65 Where a claimant contracts for something and the defendant fails in breach of contract to supply that thing, Oliver J did not see why, in principle, [the claimant] should not be compensated by being provided with the cost of supplying it through someone else or in a different way.66 Radford demonstrates that, when awarding compensation, the court is doing more than simply making good a loss. Where awarding the difference in value will make good the performance right, that measure will be adopted. But where that right will only be satisfied by getting the very thing contracted for, the court will award cost of cure damages.67
3. The Reach of the Vindicatory Impulse

Thus far, the role of the vindicatory function has been secondary to the primary compensatory objective. Yet in some exceptional cases the vindicatory function is more prominent and has a more radical effect. The desire to award damages which make good the claimants performance right may justify a
60 For example, where the claimant intends to dispose of the subject-matter of the contract to a sub-buyer at a profit, damages assessed by the difference in value measure should generally vindicate the claimants performance right. In fact, such damages might give the claimant a windfall gain: see Slater v Hoyle & Smith Ltd [1920] 2 KB 11. Cf Bence Graphics International Ltd v Fasson UK Ltd [1988] QB 87 at 102 where Auld LJ thought that the time had come for Slaters case to be reconsidered. See also the discussion in Transfield Shipping Inc v Mercator Shipping Inc, The Achilleas [2006] EWHC 3030 (Comm), [2007] 1 Lloyds Rep 19 at [82][89] (Christopher Clarke J). 61 See A. I. Ogus, The Law of Damages (London, Butterworths, 1973) at 336. 62 [1977] 1 WLR 1262. 63 Ibid at 1285. 64 Ibid at 1270. 65 Ibid at 1285. 66 Ibid at 1270. This was, however, subject to the proviso, of course, that he is seeking compensation for a genuine loss and not merely using a technical breach to secure an uncovenanted profit (ibid). 67 Unless cost of cure damages would be unreasonable or oppressive: see Ruxley Electronics and Construction Ltd v Forsyth [1996] 1 AC 344, below.
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departure from conventional compensatory principles. Take the extension of the Dunlop v Lambert68 principle to building contracts. Dunlop has been described as probably the only true exception to the general rule of English law that in an action for breach of contract a claimant may only recover substantial damages for loss which he himself has suffered.69 The rule in Dunlop, as interpreted by Lord Diplock in The Albazero,70 allows a consignor of goods to recover from the carrier in full in respect of loss or damage to the goods in transit even though he has parted with all property in the goods before they are lost or damaged and thus suffers no loss.71 In St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd, this principle was applied so as to allow a developer to recover substantial damages, representing repair costs, for breach of a building contract, in circumstances where the developer had, before the breach of contract occurred, transferred its interest in the land being developed to a third party.72 The approach in St Martins, and in the subsequent case of Darlington Borough Council v Wiltshier Northern Ltd,73 represents a significant extension of the Dunlop principle, an extension which demonstrates the increasing willingness of the courts to assert the laws vindicatory function. In the carriage of goods scenario, from which the Dunlop principle arises, it is the loss to the proprietary or possessory interest that is compensated, not some other or different economic loss.74 The essence of the Dunlop principle is compensation for the diminution in value of an asset. It involves the enforcement of the claimants contractual rights so as to compensate a third party for a diminution in the value of the third partys assets brought about by the defendants wrong. The object, therefore, of the Dunlop principle is the vindication of the third partys property rights.75 In contrast, in St Martins, the damages did not relate to loss to the proprietary or possessory interest, that is, to any diminution in the value of the third partys assets. The damages related to the expectation interest created by the contract. They represented compensation for the failure to enhance the value of certain assets in the manner bargained for by the claimant. The damages in St Martins cannot be said to represent the
68 (1839) 6 Cl & F 600. This case itself provides evidence of the vindicatory function in contract: the claimant recovers substantial damages for a loss which he had not suffered. 69 Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 at 582 (Lord Millett). 70 [1977] AC 774 at 847. 71 Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 at 582 (Lord Millett). The consignor must account to the consignee for the damages recovered (ibid). 72 [1994] 1 AC 85 (heard with Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd). 73 [1995] 1 WLR 68. 74 Obestain Inc v National Mineral Development Corporation Ltd, The Sanix Ace [1987] 1 Lloyds Rep 465 at 469 (Hobhouse J). 75 That the complaint in a contract of carriage case where goods are delivered in a damaged condition or are delivered late, relates to the underlying property interest in the cargo is demonstrated by the fact that freight remains payable: no right to an abatement arises. See Colonial Bank v European Grain and Shipping Ltd, The Dominique [1989] AC 1056 and Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 111112 (Lord Browne-Wilkinson).
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vindication of the third partys property rights. The essence of the St Martins principle is the non-enhancement of the value of an asset: that is an economic interest protected by the law of contract, not a proprietary interest protected by the law of tort. St Martins involves the enforcement by the claimant of his contractual rights against the defendant so as to compensate, indirectly, a third party for the non-enhancement of the value of the third partys assets brought about by the defendants breach of contract.76 In St Martins, the court is vindicating contractual rights.77 In the St Martins and Darlington cases, the claimant was in effect able to recover substantial damages in respect of loss suffered by a third party. The broad ground adopted by Lord Griffiths in the former case78 and the approach of the minority in Alfred McAlpine Construction Ltd v Panatown Ltd79 treat the loss as being that of the claimant, rather than of the third party. One consequence of this distinction is that the claimant would be entitled to substantial damages, even though the third party itself has a direct cause of action. But in practice this broader approach may not differ greatly. In St Martins, Lord Griffiths clearly envisaged a situation where the claimant himself had already incurred the cost of repairs to the third partys property.80 In Panatown, Lord Goff of Chieveley thought that any damages recovered by the claimant from the defendant would no doubt be applied directly or indirectly to making good the defects in the building.81 In the same case, Lord Millett thought that the claimant would hold the damages on trust to be applied at the direction of the group company which had provided the finance for the construction work.82 The most striking example of the development of the vindicatory function in contract is the decision of the majority of the House of Lords in AttorneyGeneral v Blake83 to award an account of profits as a remedy for Blakes breach of contract.
In the same way as a plaintiffs interest in performance of a contract may render it just and equitable for the court to make an order of specific performance or grant
76 Thus in a building contract, a right to an abatement of the price will arise whether or not the claimant has retained ownership of the development: see Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd [1974] AC 689. The breach involves a failure to provide the very goods or services which the defendant had contracted to supply: Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 111112 (Lord BrowneWilkinson). 77 In Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, a bare majority of the House of Lords held that the St Martins principle did not apply to the situation where the third party had its own cause of action against the defendant. It followed that the claimant was not entitled to substantial damages for the defendants breach of contract. 78 [1994] 1 AC 85 at 968. 79 [2001] 1 AC 518. 80 [1994] 1 AC 85 at 96. 81 [2001] 1 AC 518 at 560. 82 Ibid at 5923. 83 [2001] 1 AC 268.
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an injunction, so the plaintiffs interest in performance may make it just and equitable that the defendant should retain no benefit from his breach of contract.84
Here the Crown could demonstrate a legitimate interest in preventing Blakes profit-making activity and depriving him of his profit.85 Blake was an exceptional case because of the gravity of the breach itself. The content of the remedial duty, that Blake account for all his profits, was dictated by the value which the Crown attached to the non-violation of its right to performance of the confidentiality clause, rather than by reference to the consequences of the violation of that right. As such it is an outstanding example of the impact of the vindicatory function.86
4. Vindicatory Damages
A. Infringement of Constitutional Rights
Having sought to establish the vindicatory role of compensatory damages, we now turn to our second argument: that a distinct measure of damages is being developed by the courts. Exceptionally, a court may award damages which are best viewed as neither compensatory nor restitutionary, neither loss-based nor gain-based. Such damages, vindicatory damages, are rights-based damages.87 Vindicatory damages have to date only been explicitly recognized in the field of constitutional rights.88 The Privy Council has acknowledged that, where a constitutional right has been violated, an award of compensatory damages may not suffice as the fact that the infringed right is a constitutional right adds an extra dimension.89 In such a case, damages may be
Ibid at 285 (Lord Nicholls). Ibid. Albeit one that resulted in an account of profits rather than damages. 87 See Dunlea v Attorney-General [2000] 3 NZLR 136 at [68] where Thomas J speaks of damages under the New Zealand Bill of Rights Act necessitating a rights-centred approach. 88 See Attorney-General of Trinidad and Tobago v Ramanoop [2005] UKPC 15, [2006] 1 AC 328 and Merson v Cartwright [2005] UKPC 38, [2006] 3 LRC 264. The recognition by the English courts of vindicatory damages would raise an interesting issue as to their compatibility with damages under the Human Rights Act 1998. The refusal by the House of Lords in R (on the application of Greenfield) v Secretary of State for the Home Department [2005] UKHL 14, [2005] 1 WLR 673 to award damages for violation of Article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms may indicate that awards under the Human Rights Act might be less common and less generous than awards of vindicatory damages. See also A v Head Teacher and Governors of Lord Grey School [2006] UKHL 14, [2006] 2 AC 363 at [83] (Baroness Hale of Richmond) and the comments of Lord Millett in Cullen v Chief Constable of the RUC [2003] UKHL 39, [2004] 2 All ER 237 at [82]:
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The practice of the European Court is therefore inconsistent with an award of either modest or nominal damages in a case where neither pecuniary nor non-pecuniary damage is established. It follows that such an award cannot be justified by a supposed need to deter the authorities of the state or to vindicate a convention right.
89
Attorney-General of Trinidad and Tobago v Ramanoop [2005] UKPC 15, [2006] 1 AC 328 at [19].
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compensatory but should always be vindicatory.90 For, as Thomas J observed in Daniels v Thompson:
Compensation recognises the value attaching to the plaintiffs interest or right which is infringed, but it does not place a value on the fact the interest or right ought not to have been infringed at all.91
In Merson v Cartwright the trial judge, Sawyer J, had awarded the claimant $100,000 as damages for infringement of her constitutional rights on top of general damages of $180,000 for assault, battery, false imprisonment and malicious prosecution. The Privy Council upheld the award of the constitutional damages. The purpose of these damages is to vindicate the right of the complainant, whether a citizen or a visitor, to carry on his or her life in the Bahamas free from unjustified executive interference, mistreatment or oppression.92 In the earlier case of Attorney-General of Trinidad and Tobago v Ramanoop,93 the Privy Council likewise upheld an award of vindicatory damages made by the Court of Appeal of Trinidad and Tobago in respect of appalling misbehaviour by a police officer towards the claimant. In reaching its conclusion in Ramanoop, the Privy Council derived particular assistance94 from the dissenting judgment of Thomas J in Dunlea v Attorney-General.95 In Dunlea, Thomas J concluded that damages under the New Zealand Bill of Rights Act 1990 should not be calculated on the same basis as ordinary tortious damages. In reaching that view, Thomas J drew a distinction between loss-centred damages and damages which are rights-centred. Generally damages awarded in tort are loss-centred: the court, Thomas J said, awards a figure to compensate the claimant for physical damage and mental distress. But damages under the Bill of Rights Act necessitate a rights-centred approach based on an understanding of the importance of vindicating the right now vested in the plaintiff as a citizen.96 As such, damages under the Act should include an amount representing the value to the claimant of the non-violation of the right.97 Vindicatory damages reflect the intrinsic value of the infringed right to the claimant.98 In Ramanoop, Lord Nicholls stated that two aims, among others, of vindicatory damages are to reflect the sense of public outrage . . . and deter
Merson v Cartwright [2005] UKPC 38, [2006] 3 LRC 264 at [18]. [1998] 3 NZLR 22 at 70. [2005] UKPC 38, [2006] 3 LRC 264 at [18]. 93 [2005] UKPC 15, [2006] 1 AC 328. 94 Ibid at [16]. 95 [2000] 3 NZLR 136. 96 Ibid at [68]. 97 Ibid at [70]. Thomas J saw vindicatory damages as compensatory (see ibid at [66] and [67]). The better view, it is respectfully suggested, is that vindicatory damages should be treated as distinct from an award of compensation: see below. 98 Ibid at [60].
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further breaches.99 As such, Lord Nicholls conceded that an award of vindicatory damages is likely in most cases to cover much the same ground in financial terms as would an award by way of punishment in the strict sense of retribution.100 But punishment in this sense, he continued, is not the object of vindicatory damages and the expressions punitive and exemplary are better avoided in this context.101 This view was echoed by Lord Scott in Merson.102 The overlap between vindicatory and punitive damages is evident in the context of tort law where infringement of what may be termed constitutional rights is one of the two common law categories where punitive damages are available.103 Vindicatory damages may arguably offer a more palatable means of achieving at least some of the aims of punitive damages and the recognition of vindicatory damages may raise the prospect of the elimination from English civil law of this anomalous remedy.104
B. Vindicatory Damages Outside Constitutional Law

As Ramanoop and Merson represent the only instances of a court awarding vindicatory damages, it must be asked whether such damages may be awarded for the infringement of rights other than constitutional rights. The obvious argument against their wider availability would appear to be that constitutional rights are uniquely important rights: it is the constitutional nature of the right which adds an extra dimension to the claim.105 But to so confine vindicatory damages would be a mistake. First, all legal rights are important: that is why they are legal rights and not mere social norms or conventions. The fact that the right which has been violated is a constitutional right may, depending on the circumstances, call for a larger award of vindicatory damages than that justified in an action between two private parties. But the fact that the infringed right was not explicitly constitutional ought not, of itself, to preclude an award of vindicatory damages. Second, distinguishing constitutional from other legal
99 [2005] UKPC 15, [2006] 1 AC 328 at [19]. Speaking extra-judicially, Lord Scott expressed the view that a deterrent element in an award of vindicatory damages should be limited to an amount calculated to deter the wrongdoer from further infringements of the victims rights. An award intended to act as a general deterrent for the benefit of the wider public would, Lord Scott said, tend to blur the distinction between public and private law. See Lord Scott, above n 17 at 471. 100 [2005] UKPC 15, [2006] 1 AC 328 at [19]. 101 Ibid. 102 The purpose of a vindicatory award is not a punitive purpose. It is not to teach the executive not to misbehave. [2005] UKPC 38, [2006] 3 LRC 264 at [18]. Cf. the Shorter Oxford English Dictionary (5th edn, 2003) which gives punitive as one meaning of vindicatory. 103 See Rookes v Barnard [1964] AC 1129 at 12201231. Note that Lord Devlin thought that in the two categories he outlined, exemplary damages could serve a useful purpose in vindicating the strength of the law: ibid at 1226. 104 See Cassell & Co Ltd v Broome [1972] AC 1027 at 1091 (Lord Reid). See also Lord Scotts speech in Kuddus v Chief Constable of Leicestershire [2001] UKHL 29, [2002] 2 AC 122. 105 See Attorney-General of Trinidad and Tobago v Ramanoop [2005] UKPC 15, [2006] 1 AC 328 at [19] (Lord Nicholls).
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rights is not straightforward. Thus Lord Rodger of Earlsferry, speaking in the context of identifying those torts which are actionable per se, said:
The term constitutional right works well enough, alongside equivalent terms, in the field of statutory interpretation. But, even if it were otherwise suitable, it is not sufficiently precise to define a class of rights whose abuse should give rise to a right of action in tort without proof of damage.106
Third, English law has in any event historically relied upon the law of torts to vindicate constitutional rights,107 the flagship of the fleet in this context being the tort of trespass.108 Indeed, the courts continue today to use private law as the primary means of vindicating some fundamental rights.109 It should be recognized that vindicatory damages may be less prevalent in the contractual context because breach of contract, unlike infringement of constitutional rights, is an incident of commercial life.110 In practice, as discussed above, the performance right will generally be vindicated by compensatory damages. Vindicatory damages will be an exceptional, gap-filling remedy for breach of contract claims. As will be shown below, vindicatory damages are likely to be relevant in contract where the breach causes no loss within the conventional meaning of loss,111 where an award of compensatory damages would be oppressive as regards the defendant,112 and where an award of compensatory damages will not be an adequate remedy because all or part of the loss caused by the breach is not loss for which the defendant is liable to the claimant.113 Entick v Carrington114 and Ashby v White115 may be seen as early examples of vindicatory damages being awarded in tort. A more recent instance, and one unrelated to constitutional rights, is provided by the decision of the majority of the House of Lords in Rees v Darlington Memorial Hospital NHS Trust.116 The claimant, who was severely visually impaired, wished to be sterilised as she felt that she would not be able to cope with bringing up a child. Her sterilization
Watkins v Secretary of State for the Home Department [2006] UKHL 17, [2006] 2 AC 395 at [62]. See, e.g. in the context of claims against the Crown, Davidson v Scottish Ministers [2005] UKHL 74, 2006 SCLR 249 at [73] (Lord Rodger):
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By concentrating on judicial review, lawyers and judges today may tend to forget the historical importance of the law of tort or delict as a way of vindicating the subjects rights and freedoms.
108 T. Weir, A Casebook on Tort (London: Sweet & Maxwell, 10th edn, 2004) at 18. Entick v Carrington (1765) 2 Wils KB 275 is probably the leading example. 109 See, e.g. the way the courts have developed the equitable wrong of breach of confidence as a means of protecting privacy following the enactment of the Human Rights Act 1998. 110 Contract-breaking is treated as an incident of commercial life which players in the game are expected to meet with mental fortitude: Johnson v Gore Wood & Co [2002] 2 AC 1 at 49 (Lord Cooke of Thorndon). 111 See, e.g. Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, below. 112 See, e.g. Ruxley Electronics and Construction Ltd v Forsyth [1996] 1 AC 344, below. 113 See, e.g. Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468, below. 114 (1765) 2 Wils KB 275. 115 (1703) 2 Ld Raym 938. 116 [2003] UKHL 52, [2004] 1 AC 309.
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was performed negligently by the hospital operated by the defendants. The claimant subsequently gave birth to a healthy son. A bare majority of a seven-member panel of the House of Lords held that the defendant was not liable to pay for the additional cost of bringing up the child brought about by the claimants disability. However, the majority also held that compensation in respect of the stress, trauma and cost associated with the pregnancy and birth, which was recoverable, would, on its own, not give adequate recognition to the reality that the claimant had lost the opportunity to live her life in the way that she wished and planned.117 Accordingly, the claimant was awarded an additional, conventional sum of 15,000. The damages awarded in Rees are, it is suggested, rights-based, or vindicatory, in nature.118 Such an analysis is consistent with the approach of Lord Bingham who said that the award was not intended to be compensatory, and was neither nominal nor derisory; rather, it would afford some measure of recognition of the wrong done.119 What, in substance, amount to vindicatory damages may be found elsewhere in private law. One example is an award of damages based on the so-called user-principle.120 The nature of user damages has proved controversial. Some see them as loss-based and compensatory,121 others as gain-based and restitutionary.122 In Attorney-General v Blake, Lord Nicholls appears to have adopted a middle course, the damages being gain-based and compensatory.123 The better approach, it is respectfully suggested, is to view these damages as rightsbased. It is worth noting that these claims arise from the defendants infringement of the claimants property rights: by wrongfully occupying or using the claimants land or chattels, the defendant has interfered with the claimants right to possession. The wrong is the violation itself. The defendant owes a duty not to interfere, not merely to compensate for loss caused. That user
Ibid at [8] (Lord Bingham). According to Weir, the award may be viewed as a token of the courts perception that the parents rights . . . have been infringed. He finds a precedent for the conventional award in Rees in Benham v Gambling [1941] AC 157 where the House of Lords awarded damages of 200 for loss of expectation of life, and identifies this as the predecessor of bereavement damages under the Fatal Accidents Act 1976. Weir thinks it perfectly idle to view bereavement damages as compensation for grief. See Weir, above n 108 at 17 and 124. 119 [2003] UKHL 52, [2004] 1 AC 309 at [8] (Lord Bingham). Nolan concedes that a rights-vindication analysis of the award is consistent with aspects of the reasoning of Lord Bingham and Lord Millett. Nolans view, however, is that such an analysis represents a fundamental challenge to negligence principles as the law of negligence will unduly restrict peoples freedom of action if the requirement of harm is relaxed. The rightsvindication analysis poses a challenge which, he says, must be rebuffed: D. Nolan New Forms of Damage in Negligence (2007) 70 MLR 5988 at 79. 120 The source of the description was attributed to Nicholls LJ (in Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 WLR 1406) by Lord Lloyd in Inverugie Investments Ltd v Hackett [1995] 1 WLR 713 at 718. In the context of trespass to land, the claims are for mesne profits: see, e.g. McGregor, above n 20 at para 34-039. 121 See, e.g. Whitwham v Westminster Brymbo Coal and Coke Co [1896] 2 Ch 538 at 541 (Lindley LJ), 542 (Lopes LJ), and 543 (Rigby LJ) and Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246 at 252 (Somervell LJ) and 256 (Romer LJ). 122 See, e.g. Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246 at 255256 (Denning LJ), Penarth Dock Engineering Co Ltd v Pounds [1963] 1 Lloyds Rep 359 at 362 (Lord Denning MR) and Ministry of Defence v Ashman (1993) 66 P & CR 195 at 200 (Kennedy LJ) and 201 (Hoffmann LJ). 123 [2001] 1 AC 268 at 278. As no financial loss has been suffered the award represents compensation . . . measured by a different yardstick, that yardstick apparently being gain rather than loss (see ibid).
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damages are not loss-based is supported by a comparison of the approaches adopted by Pilcher J and the Court of Appeal in Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd.124 Pilcher J followed the approach of the House of Lords in The SS Valeria,125 where the claimants vessel had been damaged in a collision. In that case, Lord Buckmaster said the damages were to be measured by what the vessel would have earned during the period of its incapacity due to the accident. That amount, he continued, could only be ascertained by considering what the vessel had actually earned under similar conditions.126 Applying this in the Strand case, Pilcher J deducted from the total weekly hire for the period of wrongful detention of the claimants property sums to reflect the likelihood that the claimants would have been unable to hire out the switchboards for the whole of the relevant period and the likelihood that, had the defendants returned the switchboards in a timely fashion, some may have been damaged and so have been incapable of being hired out. In effect, he awarded damages representing the actual loss likely to have been suffered by the claimants. The Court of Appeal rejected this approach: the claimants were entitled to the full market rate of hire for the entire period of detention without any deductions.127 But, as Lord Nicholls appreciated in Blake, damages not based on actual loss cannot sensibly be described as loss-based unless loss is given a strained and artificial meaning.128 On this analysis, Pilcher Js award was lossbased, while the Court of Appeals award was rights-based. Similarly, the approach adopted by Megaw LJ in Swordheath Properties Ltd v Tabet,129 was rightsbased. Megaw LJ thought it clear as a matter of principle and of authority that the claimant there was entitled to substantial damages without adducing evidence of loss.130 But once the court dispenses with the requirement of proof of loss, it becomes hard to classify the award as loss-based. Some other principle would seem to be at work. Indeed, McGregor describes the awards in these cases as moving away from damages.131 If user damages are not compensatory, might they be viewed as restitutionary? It is helpful at the outset to identify two uses of the term restitutionary. The first describes a remedy which requires the defendant to restore to the claimant what belongs to the claimant. Restitution, in this sense, effects the reversal of a subtraction by the defendant from the claimants property.132 Lord Hobhouse adopted this meaning in his dissenting speech
[1952] 2 QB 246. [1922] 2 AC 242. Ibid at 2478. 127 [1952] 2 QB 246 at 252 (Somervell LJ), 255 (Denning LJ), and 257 (Romer LJ). 128 See Attorney-General v Blake [2001] 1 AC 268 at 279 (Lord Nicholls). 129 [1979] 1 WLR 285. 130 Ibid at 288. 131 See McGregor, above n 20 at para 34-045. 132 Thus the Shorter Oxford English Dictionary (5th edn, 2003) gives as the primary meaning of restitution: The action or an act of restoring or giving back something to its proper owner.
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in Blake, saying that restitution is analogous to property: it concerns wealth or advantage which ought to be returned or transferred by the defendant to the plaintiff.133 The essence of restitutionary relief, according to Lord Hobhouse, is the performance by the defendant of his obligations: the claimant recovers what he is actually entitled to not some monetary substitute for it.134 Damages, on the other hand, are a substitute for performance.135 Lord Hobhouse thought that the remedy in Blake could not properly be described as restitutionary. In this respect Blake can usefully be contrasted with Reading v Attorney-General.136 Like Blake, Reading made financial gains from his wrongdoing. But the remedy in Reading may properly be characterized as restitutionary since, due to Readings position as a fiduciary, the monetary gains he made could be treated as belonging to the Crown. But Blake was not a fiduciary and the Crown had no interest in the money due from Jonathan Cape. In none of the user cases can the damages be properly described as restitutionary in this sense: in each case the remedy was substitutionary and the claimant had no pre-existing entitlement to the sum awarded. The second meaning of restitution is broader and refers simply to a gainbased remedy or to the disgorgement of a gain.137 But damages based on the user principle are not restitutionary in this sense either: for they are not measured by the gain made by the defendant. This is evident from Inverugie Investments Ltd v Hackett.138 Lord Lloyd, delivering the judgment of the Privy Council, applied the user principle and concluded that the claimant was entitled to recover a reasonable rent whether or not he had suffered any actual loss.139 Likewise, the defendant was liable to pay a reasonable rent even though he may not have derived any actual benefit.140 In the same way that it is difficult to regard as loss-based those awards not based on actual loss, so too with supposedly gain-based damages which are awarded irrespective of any gain. Lord Lloyd thought that an award based on the user principle need not be characterized as exclusively compensatory, or exclusively restitutionary; it combines elements of both.141 In other words, arguably, user damages seek neither to compensate the claimant for the consequences of the wrong nor deprive the defendant of the fruits of that wrong. Their aim is to vindicate
[2001] 1 AC 268 at 296. Ibid 297 (emphasis in the original). Ibid (emphasis in the original). 136 [1951] AC 507. 137 See, e.g. G. Virgo, The Principles of the Law of Restitution (Oxford: Oxford University Press, 2nd edn, 2006) at 3: The law of restitution is concerned with the award of a generic group of remedies which . . . have one common function, namely to deprive the defendant of a gain rather than to compensate the plaintiff for loss suffered. 138 [1995] 1 WLR 713. 139 Ibid at 718 (emphasis in the original). 140 Ibid (emphasis in the original). 141 Ibid. Lord Lloyd himself seems to have viewed the damages as compensatory: see ibid at 717.
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the claimants right to possession: the damages represent the intrinsic value of this right, rather than the amount of any loss or gain arising out of its infringement. The defendant has violated the claimants right to exclusive possession and he must pay for the privilege.
C. Vindicatory Damages for Breach of Contract (i) Compulsory acquisition of a right and loss of a bargaining opportunity
User damages seek to make good the claimants right to possession of his property. More recently the same principle has been applied to personal rights and, in particular, contractual rights.
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 partys contractual rights should attract a lesser degree of remedy than a violation of his property rights . . . it is not clear why it should be any more permissible to expropriate personal rights than it is permissible to expropriate property rights.142
The leading case remains Wrotham Park Estate Co Ltd v Parkside Homes Ltd.143 The defendant put up houses on the Wrotham Park Estate in breach of a covenant against development. Brightman J refused to grant a mandatory injunction and went on to consider what damages, if any, ought to be awarded to the claimant. The claimant had conceded that the value of the Estate had not been reduced at all by the development. But Brightman J rejected the defendants argument that the claimant was only entitled to nominal damages and awarded the sum which the claimant might reasonably have demanded as a quid pro quo for relaxing the covenant.144 As with damages based on the user principle, disagreement dogs the proper characterization of the award in Wrotham Park. The judicial consensus appears to favour a compensatory analysis.145
142 Attorney-General v Blake [2001] 1 AC 268 at 283 (Lord Nicholls). See also the comments of Laws LJ in Manchester Airport plc v Dutton [2000] 1 QB 133 at 149. 143 [1974] 1 WLR 798. For more recent examples see: World Wide Fund for Nature v World Wrestling Federation Entertainment Inc [2006] EWHC 184 (Ch) (reversed on other grounds at [2007] EWCA Civ 286); Horsford v Bird [2006] UKPC 3, [2006] 1 EGLR 75; Severn Trent Water Ltd v Barnes [2004] EWCA Civ 570, [2004] 2 EGLR 95; Lane v OBrien Homes [2004] EWHC 303 (QB); Amec Developments Ltd v Jurys Hotel Management (UK) Ltd (2000) 82 P & CR 286. 144 [1974] 1 WLR 798 at 815. As to amount, Brightman J thought that the damages had to be calculated on a fair basis, and he assessed this as a sum equal to 5% of the developers anticipated profits (ibid at 816). 145 See, e.g. Tito v Waddell (No 2) [1977] Ch 106 at 335 (Megarry V-C); Jaggard v Sawyer [1995] 1 WLR 269 at 281 (Bingham MR) and 291 (Millett LJ); and World Wide Fund for Nature v World Wrestling Federation Entertainment Inc [2006] EWHC 184 (Ch) at [137] (Peter Smith J); [2007] EWCA Civ 286 at [29] (Chadwick LJ). In Attorney-General v Blake [2001] 1 AC 268 at 282, Lord Nicholls appears to have viewed the damages in Wrotham Park as gain-based compensation, on the basis that it is axiomatic that damages for breach of contract are compensatory. See also Lord Scott, above n 17. But, cf, Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361 at 1369 (Steyn LJ).
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Academics seem, on the whole, to prefer a restitutionary interpretation.146 We suggest that the award in Wrotham Park is better viewed as an award of vindicatory damages. The claimant there was worse off not because its enjoyment of the Estate was adversely affected but because the defendant had acted in flagrant disregard of the covenant and the court, for wider policy reasons,147 refused to restore the benefit of the covenant by means of a mandatory injunction. The damages were thus awarded as a matter of fairness148 so as to ensure a just149 outcome; they were not intended to act as an indemnity for loss. In any event, it is respectfully suggested that a compensatory analysis of Wrotham Park is misconceived. The difficulty with characterizing the award as compensatory arises, not because the loss cannot be expressed in financial terms, but because there was no loss at all. The breach did not cause any diminution in the value of the Estate,150 nor was there any loss of amenity. Did the claimant nevertheless lose the release fee it could have secured from the defendant for relaxing the covenant? Brightman J characterized the award in this way.151 It was, however, accepted that the claimant would never have agreed to relax the covenant.152 The position of the claimant in Wrotham Park is thus analogous to that of the claimant in Ford v White & Co.153 There, the claimant bought property which he intended to develop. His solicitor failed, in breach of contract, to bring to his attention a covenant against development. The evidence showed that the property would have been worth an additional 1,250 had it not been for the covenant. The court held that the claimant could not recover this sum as damages as it did not represent his loss of bargain: the award would not have had the effect of putting the claimant in the position he would have been in had the contract been performed. For, if the solicitor had performed the contract, the claimant would not have proceeded with the purchase. In the same way, had the contract in Wrotham Park been performed, that is, had the defendant sought a release from the covenant before developing, no release would have been forthcoming, and the claimant would not have received a release fee. It follows that it was not open to the court to award damages on the basis of a loss of an
146 See, e.g. P. Birks Restitutionary Damages for Breach of Contract: Snepp and the Fusion of Law and Equity [1987] LMCLQ 421442 at 428; A. Burrows, The Law of Restitution (London: Butterworths, 2nd edn, 2002) at 483; J. Edelman, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (Oxford: Hart, 2002) at 179; McGregor, above n 20 at para 12-023; and Virgo, above n 137 at 482. Other writers are more equivocal: Tettenborn describes Wrotham Park as adopting partly restitutionary reasoning (A. Tettenborn, The Law of Restitution in England and Ireland (London: Cavendish, 3rd edn, 2002) at 249 (emphasis added)). Similarly, Smith concludes that Wrotham Park seems to mix compensatory and restitutionary aims (S.A. Smith, Atiyahs Introduction to the Law of Contract (Oxford: Oxford University Press, 6th edn, 2005) at 413). 147 Brightman J thought that to order the demolition of the newly-constructed houses would constitute an unpardonable waste of much needed houses: [1974] 1 WLR 798 at 811. 148 Ibid at 812. 149 Ibid at 815. 150 Ibid at 812. 151 Ibid at 815. 152 [T]he plaintiffs, rightly conscious of their obligations towards existing residents, would clearly not have granted any relaxation. (Ibid). 153 [1964] 1 WLR 885.
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opportunity to bargain as it was clear that the claimant would not have availed himself of that opportunity. Nor, it is respectfully suggested, should the damages in Wrotham Park be viewed as restitutionary. First, they did not restore to the claimant something to which the claimant had a pre-existing entitlement. A restitutionary remedy in this sense would have been a mandatory injunction. Second, if the remedy is gain-based, it is difficult to understand why the claimant should only receive 5 per cent of the defendants anticipated profit. Such a modest figure indicates that the award was intended more as recognition of the breach of covenant than as a means of depriving the defendant of his gain.154
(ii) Deprivation of a benefit

In Blake, Lord Nicholls thought that damages for the loss of a bargaining opportunity and the price payable for the compulsory acquisition of a right amounted to the same thing.155 On this basis, the award in Wrotham Park represented the reasonable value of the claimants right to prevent development on the defendants land, the benefit of which the defendant had in effect compulsorily acquired. The same principle may be identified in what, at first sight, appears to be a different kind of case. In Ruxley Electronics and Construction Ltd v Forsyth156 the House of Lords held that Mr Forsyth was not entitled to damages representing the cost of curing the defendants breach of contract and re-instated the judges award of 2,500 for loss of amenity. Lord Mustill rejected the argument that diminution in value and cost of cure were the only measures of loss, for the law must cater for those occasions where the value of the promise to the promisee exceeds the financial enhancement of his position which full performance will secure.157 This excess, the so-called consumer surplus, represents a personal, subjective and non-monetary gain.158 The law, Lord Mustill said, should recognize this gain
154 That the damages in Wrotham Park are neither loss-based nor gain-based gains further support from their analysis by Nourse LJ in Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 WLR 1406 at 1414. While describing the result in Wrotham Park as entirely appropriate, Nourse LJ viewed the decision as being something akin to an award of exemplary damages for breach of contract. While, as has been noted above, it is important to distinguish vindicatory damages from punitive, or exemplary, damages, Nourse LJs approach is arguably more consistent with a vindicatory analysis than a compensatory or restitutionary one. 155 [2001] 1 AC 268 at 282. It is respectfully suggested that this may not be the case. Damages for loss of a bargaining opportunity depend upon there being a bargaining opportunity in the first place. As Megarry V-C pointed out in Tito v Waddell (No 2) [1977] Ch 106 at 335, the bargaining opportunity arises from the defendant being faced with either an injunction restraining breach or liability for substantial damages for breach. On this basis the claimant in Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361 had no bargaining opportunity to lose. Dillon LJ said that there had never been any possibility of an injunction being granted to restrain the breach of covenant; nor did the breach cause any diminution in value of any adjoining property owned or occupied by the claimant (ibid at 1364). Yet Lord Nicholls appears to have thought that there ought to have been an award of substantial damages in the Surrey case (see [2001] 1 AC 268 at 283). 156 [1996] AC 344. 157 Ibid at 360. 158 Ibid at 360361. For the idea of consumer surplus, see D. Harris, A. Ogus and J. Philips Contract Remedies and the Consumer Surplus (1979) 95 LQR 581610. Cf. Webb who cautions that the vindication of the performance interest and the proper recognition of the consumer surplus are distinct issues, the latter going to the compensation interest. See Webb, above n 57 at 55.
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and compensate the promisee if the misperformance takes it away.159 Lord Mustills account, however, is problematic in its reference to a subjective gain by the claimant. Diminution in value and cost of cure, the general measures of normal loss,160 incorporate an important safeguard so far as the defendant is concerned. His liability under the contract as regards normal loss is limited by the objective standard provided by market value. Diminution in value and cost of cure provide an equitable balance between the competing interests of claimant and defendant: they provide a reliable means of placing the claimant in the same position as if the contract had been performed, while ensuring that the defendants duty to compensate is not rendered unduly onerous by the claimants subjective expectations. Given that normal loss is that loss which every claimant in a like situation will suffer,161 it is logical to use an objective means of measurement, namely, the market. Subjective loss is recoverable in contract as well as tort, but it is recoverable as consequential loss.162 The defendant is protected from too onerous a liability for such loss by the relevant remoteness rule. In any event, the concepts of normal and consequential loss as conventionally measured are capable of recognizing the intangible, non-pecuniary benefit which the consumer surplus represents. This is shown by the ruined holiday case of Jarvis v Swans Tours Ltd.163 The judges award of 31.72 seems to have been based on the lack of facilities actually available to Mr Jarvis.164 The Court of Appeal increased the award to 125 on the basis that Mr Jarvis was entitled to damages for the lack of those facilities, and for his loss of enjoyment.165 Loss of enjoyment in the context of a contract for a holiday corresponds to loss of profit in the context of an ordinary commercial contract, and loss of profit will generally comprise consequential loss. The Court of Appeal in effect awarded damages for normal and consequential loss. Returning to the Ruxley case, it seems clear that Mr Forsyth suffered no loss of amenity as conventionally measured.166 The evidence indicated that the reasonable man would have attached equal value to, and derived equal enjoyment from, a pool of the contractual depth and the pool as built. As Lord Scott observed in Farley v Skinner, the builders breach of contract in Ruxley did not cause any consequential loss consisting of vexation, anxiety or other species of mental distress.167
159 160
[1996] AC 344 at 361. Employing McGregors distinction between normal and consequential loss: see McGregor, above n 20 at para 1-036. 161 Ibid. 162 McGregor describes consequential losses as losses which are special to the circumstances of the claimant; they will include lost profits: ibid. 163 [1973] 1 QB 233. 164 Ibid at 237. 165 Ibid at 238 (emphasis added). 166 See Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 at 588 (Lord Millett). 167 [2001] UKHL 49, [2002] 2 AC 732 at [80].
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Loss of amenity is not the sole ground of the decision in Ruxley. Having expressed agreement with the trial judges award of damages for loss of amenity, Lord Lloyd observed that such an approach would not be available in most cases.168 His Lordship gave the example of the construction of a new house with minor defects, where there was no difference in value and the cost of cure would be prohibitive.
Is there any reason why the court should not award by way of damages for breach of contract some modest sum, not based on difference in value, but solely to compensate the buyer for his disappointed expectations? Is the law of damages so inflexible . . . that it cannot find some middle ground in such a case?169
Lord Lloyds approach was adopted by Lord Scott in Farley v Skinner.170 According to Lord Scott, Ruxley establishes that where the defendant fails in breach of contract to supply something which, if supplied, would have been of value to the claimant, the claimant should be compensated in damages to the extent of that value if there is no other way of compensating him.171 The Ruxley principle
should be used to provide damages for deprivation of a contractual benefit where it is apparent that the injured party has been deprived of something of value but the ordinary means of measuring the recoverable damages are inapplicable.172
The deprivation of a benefit approach differs from the account of vindicatory damages put forward here in that Lord Lloyd and Lord Scott view the damages as compensatory. But a compensatory approach, it is respectfully suggested, creates difficulties. The loss caused by the breach in Ruxley did not extend to the need to re-instate;173 nor was there any difference in the value between the pool contracted for and the pool as built; nor was there any loss of amenity. To insist that the award nevertheless remains compensatory strains the orthodox meaning of loss. It is better to accept that, on conventional principles, the breach in Ruxley caused no loss. Nevertheless, to have left Mr Forsyth emptyhanded would have meant that his right to demand a pool of a certain depth lacked any substance. The damages in Ruxley seek to give content to that right: they are thus rights-based not loss-based. There can be no question here of treating the damages as restitutionary or gain-based: there was no evidence that Ruxley derived any benefit from the skimped performance.
[1996] AC 344 at 374. Ibid. McKendrick points out that the claimant has more than an expectation of performance: he has a right to it. See McKendrick, above n 57 at 170. 170 [2001] UKHL 49, [2002] 2 AC 732. 171 Ibid at [79]. 172 Ibid at [86]. In Farley itself, Lord Scott thought it open to the court to adopt a [Ruxley] approach and place a value on the contractual benefit of which Mr Farley has been deprived (ibid at [107]). 173 [1996] AC 344 at 357 (Lord Jauncey of Tullichettle).
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A further situation where compensatory damages may not be an adequate remedy occurs where all or part of the benefit of performance is to be conferred on a third party. As St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd174 and Darlington Borough Council v Wiltshier Northern Ltd175 demonstrate, it may be possible to vindicate the claimants performance right by allowing him to recover, and then account for, what is viewed as the third partys loss. Where this occurs, the court is awarding compensatory damages for tangible losses such as repair costs. These are not vindicatory damages in the sense in which we use the term here. Nor, it seems, would the damages which the minority would have awarded in Alfred McAlpine Construction Ltd v Panatown Ltd176 have been vindicatory. Lord Millett made clear that the claimant would be recovering for defective or incomplete work or delay in completing it.177 These are conventional damages which compensate for a loss: they are not rights-based.178 An alternative to recovery by the claimant on behalf of a third party is for the claimant to recover vindicatory damages. Take, as an example, Jackson v Horizon Holidays Ltd,179 another ruined holiday case, this time involving a family holiday costing 1,200. The trial judges award of 1,100 was upheld by the Court of Appeal. Lord Denning MR thought that the difference in value between the holiday contracted for and the holiday received was about 600. The Master of the Rolls, with whom Orr LJ agreed, held that the balance of the damages awarded represented the disappointment experienced by the whole family and that Mr Jackson could recover for this.180 James LJ appears to have upheld the judges award on the basis that it comprised simply the difference in value between the holiday paid for and received.181 Given that the holiday cost 1,200, and given Lord Denning MRs view that the family had had about half its value, this approach seems questionable.182 A better basis for the decision in Jackson, it is suggested, is that part of the award comprised vindicatory damages. Mr Jackson could recover compensatory damages for the difference in value and for his own disappointment. The balance of the 1,100 award would comprise
[1994] 1 AC 85. [1995] 1 WLR 68. [2001] 1 AC 518. 177 Ibid at 591. 178 Thus Lord Millett comments: Even though the plaintiff recovers for his own loss, this obviously reflects the loss sustained by the third party (ibid at 595). 179 [1975] 1 WLR 1468. 180 The House of Lords in Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 agreed with the outcome in Jackson but disapproved of Lord Denning MRs reasoning on this point: see ibid at 283284 (Lord Wilberforce), 293294 (Lord Russell of Killowen), and 297 (Lord Keith of Kinkel). 181 [1975] 1 WLR 1468 at 1474. 182 Nevertheless James LJs approach was approved by Lord Wilberforce in Woodar v Wimpey: see [1980] 1 WLR 277 at 283. Lord Russell said (ibid at 293) that he would have adopted the same approach, on the basis that the claimant paid for a high class family holiday; he did not get it, and therefore he was entitled to substantial damages for the failure to supply him with one.
175 176 174
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a fair and reasonable sum giving content to Mr Jacksons performance right. The overall award would then be part loss-based and part rights-based.183
5. Concluding Remarks
Speaking extra-judicially, Lord Scott recently lamented the incoherence of the current law of damages.184 In the context of contractual damages, any incoherence would seem to arise from those cases where substantial damages are awarded but where the claimant has not suffered any loss within the conventional meaning of the term. While some maintain that such awards comprise restitutionary damages, it has been argued that such an explanation is unsatisfactory. Restitution is better confined to a remedy whereby the defendant is ordered to restore to the claimant property or value belonging to the claimant, that is, where the defendants gain corresponds to the claimants loss. While Reading v Attorney-General provides an example of a restitutionary remedy, awards of mesne profits and user damages fall outside the ambit of restitution. Even if restitution is used in a looser sense, to refer to a gain-based remedy, restitutionary awards ought logically to equate to the gain actually realized by the defendant. Just as actual loss forms the basis of compensatory damages, so too should actual gain form the basis of gain-based damages. As has been shown, awards of mesne profits and user damages are not based on any actual gain. The alternative explanation offered for these cases, that the remedy is compensatory, involves straining the conventional meaning of loss. The better approach, it has been argued, is to extend the availability of vindicatory damages to these cases. Awards of vindicatory damages seek to make good the claimants performance right, and give substance to the principle that a claimant has a legally enforceable right to the performance of the contract. Vindicatory damages enable the courts to grant an adequate remedy. Our approach draws some support from Webbs examination of contractual rights.185 Webb distinguishes between the performance and compensation interests and argues that it is only the compensatory interest that should properly be regarded as being concerned with the issue of loss.186 Where the court makes a monetary award to give effect to the claimants performance interest, the notion of loss is superfluous.187 Webbs analysis is relevant because he advocates a measure of damages which is not based on loss
183 Where applicable, the Contracts (Rights of Third Parties) Act 1999 allows, in effect, for the vindication of the performance right by an award of damages to the third party himself. 184 Damages and Incoherence, University of Liverpool Law School Annual Public Law Lecture, 23 February 2007. See also Lord Scott, above n 17. 185 Webb, above n 57. 186 Webb, above n 57 at 53. 187 Webb, above n 57 at 54. Webb goes on to argue for the wider availability of cost of cure damages as these give greater effect to the claimants right to receive performance. That, of course, is not our argument here.
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and which seeks to make good the claimants right to performance of the contract. Vindication should be recognized as an important principle driving development of the law, and vindicatory damages as a significant means of giving effect to that principle. But the importance of vindicatory damages lies not just in ensuring a just outcome for a claimant where no other remedy is available. Vindicatory damages may be also used to ensure that the remedy awarded to a claimant does not impose undue liability on the defendant. Chester v Afshar188 is a case where an award of vindicatory damages would have been preferable to an award of compensation for that very reason. In Chester, the defendant, a neurosurgeon, had advised the claimant to undergo surgery on her spine but negligently failed to warn the claimant of a small risk that the surgery, even if performed with due care and skill, might lead to her developing a particular adverse condition. The claimant underwent the surgery, which was performed by the defendant with due care and skill, but later developed the condition. She sued the defendant in negligence. The judge found that if the claimant had been warned by the defendant of the risk of developing the condition, she would not have had the surgery on that particular day but would have sought further advice elsewhere. The judge made no finding that the claimant, if duly warned, would not have undergone surgery at a later date. The risk of developing the condition would have been the same whenever the surgery took place. The House of Lords unanimously held that on conventional principles the claim failed: the defendants breach had not been the effective cause of the injury, nor had it increased the risk of the injury.189 But the majority clearly believed that the claimant ought to have had a remedy, and they held that the defendant was liable in damages: the defendant had been under a duty to warn of the risk of injury and the injury resulted from the risk. While an outright refusal of damages would have failed to vindicate the right to be warned,190 the imposition of liability to compensate for loss arising from the outcome of the surgery was unduly onerous.191 The better solution would have been to have awarded vindicatory damages, a fair and reasonable sum to recognize the wrong. This would have better reflected the reality of the situation: that the heart of the claim was that the defendant had infringed the claimants right to be warned of the risks of the proposed operation but the infringement had not brought about the loss of which complaint was made.
[2004] UKHL 41, [2005] 1 AC 134. Ibid at [8] (Lord Bingham), [22] (Lord Steyn), [32] (Lord Hoffmann), [84] (Lord Hope) and [90] (Lord Walker of Gestingthorpe). 190 As the claim arose in negligence, it would seem that the remedy of nominal damages would not have been available: in any event, this would not have vindicated the right to be warned. 191 This assumes that the damages were to be assessed in the ordinary way: the verdict at trial was as to liability only.
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Oxford Journal of Legal Studies, Vol. 28, No. 1 (2008), pp. 7398 doi:10.

1093/ojls/gqm023 Published Advance Access January 17, 2008

Damages for Breach of Contract: Compensation, Restitution and Vindication

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Damages for Breach of Contract

2. Compensation and Vindication

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B. The Demise of Nominal Damages

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C. The Different Functions of Compensatory Damages

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D. The Vindicatory Function of Compensatory Damages

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3. The Reach of the Vindicatory Impulse

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B. Vindicatory Damages Outside Constitutional Law

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Damages for Breach of Contract

(ii) Deprivation of a benefit

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96 (iii) Third party loss

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