The Conceptual Structure of Restitution

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THE CONCEPTUAL STRUCTURE OFRESTITUTION FOR WRONGS

CRAIG ROTHERHAM *

I. I NTRODUCTION

AT times claimants whose rights have been violated are awarded relief measured, not by reference to their own loss, but according to thebenefit gained by the defendant. In equity, such relief has long beenreadily and openly provided by requiring the defendant to account tothe claimant for profits made as the result of a wrong. At commonlaw, in contrast, benefit-based relief has tended to be seen asexceptional. 1 In the law of tort it has been made available in a ratherad hoc fashion pursuant to diverse, often obscure, doctrines andgenerally by way of requiring the defendant to pay a sum reflecting thevalue of what would have been a reasonable fee for the relaxation of the right infringed. As jurists and judges turned to notions of unjust

enrichment to understand this apparent chaos, it became common totreat the different approaches favoured in equity and at common lawas essentially concerned with the same objective. According to thisunderstanding, the different doctrinal foundations developed atcommon law and in equity are a product of history rather than areflection of distinct substantive principles. 2 However, this view hasbeen strongly challenged in recent years according to a radicalreinterpretation of the conceptual structure of the law of restitutionfor wrongs.

While some of its themes are echoed in the work of othercommentators, 3 the new understanding of this field has been mostelaborately articulated by James Edelman. 4 In his analysis, the twoforms of gain-based relief awards of what would represent a

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* Professor of Law, University of Nottingham. I would like to thank Hanoch Dagan and AndrewSimester for their comments on an earlier draft of this article.

1 See, for example, Stoke-on-Trent City Council v. W & J Wass Ltd [1988] 3 All E.R. 394, 397, perNourse L.J.; Halifax Building Society v. Thomas [1996] Ch. 217, 2278, per Peter Gibson L.J.

2 This understanding is apparent in, for example, AG v. Blake [2001] A.C. 268, 278, per LordNicholls. See also Andrew Burrows, The Law of Restitution 2nd edn. (London 2002), ch. 14.

3 See, for example, Peter Jaffey, The Nature and Scope of Restitution (Oxford 2000); SarahWorthington, Reconsidering Disgorgement for Wrongs (1999) 62 M.L.R. 218.

4 James Edelman, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (Oxford2002) (hereinafter Gain-Based Damages).

Cambridge Law Journal, 66(1) , March 2007, pp. 172199Printed in Great Britain


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reasonable sum for the relaxation of the right infringed 5 and accountsof profits reflect underlying claims that are fundamentally differentin nature. Central to Edelmans account is the premise, first advancedin an influential article by Jack Beatson, 6 that cases in which thedefendant infringes the claimants rights need not be explained interms of making the wrongdoer account for any resulting benefit.Instead, according to Edelman, these cases can be analysed asparadigmatic examples of restitution, whereby the relief issuedfunctions to reverse a benefit obtained from the claimant. 7 Thisreinterpretation has important practical implications in light of thereceived wisdom that the right to the reversal of an unmerited transferdoes not depend upon proof of fault. 8 This suggests that, rather than

being viewed as an exceptional remedy, a claim for a reasonable fee forthe relaxation of the right infringed will always be available where thedefendant has gained a benefit as a result of interfering with theclaimants rights. According to Edelman, such relief can be contrastedwith the remedy of an account of profits, which provides for thedisgorgement of profits obtained in circumstances in which theenrichment in question cannot be said to have been acquired fromthe claimant. In his view, this latter form of relief is, with the solitaryexception of breaches of fiduciary duty, available only in response to

cynical wrongs.This article challenges this reinterpretation of the law of unjustenrichment by wrongs. It argues that the conceptual analysis at theheart of this new account is fundamentally misconceived. Relief givento reflect what would have been a reasonable fee for the relaxation of the right breached provides for the disgorgement of a benefit made bythe defendant and not the reversal of enrichment obtained from theclaimant. The new account elides an important analytical distinctionbetween subtractive transfers or takings and non-appropriativeinterferences with rights. Moreover, it is far from clear that it would benormatively desirable for our law to adopt the principle that allinterferences with a claimants rights should give rise to an action forrestitution. The notion that restitution should invariably be availableon this basis overlooks the reality that legal rights protect verydifferent resources and relationships and that these rights do notnecessarily merit the same level of protection. The effect of the new

5 I avoid the common tendency to characterise these as claims for use value as the terminologyis rather poorly suited to the description of the remedies granted in intellectual propertyinfringements and provides an even less apt description for relief given following a breach of a

restrictive covenant or easement or in the context of a nuisance.6 Jack Beatson, The Nature of Waiver of Tort, in The Use and Abuse of Unjust Enrichment(Oxford 1991), 232.

7 Edelman, Gain-Based Damages , 7.8 See, for example, Banque Financie`re de La Cite v. Parc (Battersea) Ltd. [1999] 1 A.C. 221, 227,

per Lord Steyn.

C.L.J. Restitution for Wrongs 173


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analysis of restitution for wrongs is to demand identical treatment forcases that are in reality different in important respects and should betreated as such.

II. T HE A NALYTICAL N ATURE OF CLAIMS FOR A R EASONABLE SUM FORTHE R ELAXATION OF THE R IGHT INFRINGED

1. From Compensation to Restitution for Wrongs

Our courts have long been reluctant to recognise openly a right torecover relief measured according to the benefit enjoyed by thedefendant rather than the loss suffered by the claimant. Indeed, evenin recent years, the Court of Appeal has suggested that, as a generalrule, in an action in tort where no loss has been suffered nosubstantial damages of any kind can be recovered. 9 Equally, the viewwas long taken that profits could not be recovered in an action forbreach of contract; 10 and, even following the relaxation of thatposition, the view is taken that such relief is available only inexceptional circumstances. 11

In reality, enrichment-based relief has long been available forcertain torts. Such recovery was often provided by allowing claimantsresort to actions that were once misleadingly characterised as quasi-contractual by a process that was equally unhelpfully described interms of waiving the relevant tort. 12 Moreover, benefit-based relief has also long been permitted directly in some tort actions. Such relief isgranted in cases of trespass to land involving the wrongful use 13 orwrongful occupation of the claimants realty, 14 and in awardingdamages in lieu of an injunction in respect of breaches of servitudes. 15

Benefit-based relief has equally been made available in response tointerferences with personal property. 16

The nature of the relief awarded in response to such torts was often

further confused by a tendency to characterise it as compensatory onthe basis that the claimant suffered harm in losing an opportunity to

9 Stoke-on-Trent City Council v. W & J Wass Ltd [1988] 3 All E.R. 394, 401, per Nourse L.J. For amore recent view that there is no general principle demanding restitution in the case of anywrong, see also Halifax Building Society v. Thomas [1996] Ch. 217, 227, per Peter Gibson L.J.(doubting that such recovery was available in the case of deceit).

10 See, for example, Surrey County Council v. Bredero Homes Ltd [1993] 1 W.L.R. 1361.11 AG v. Blake [2001] A.C. 268, 285, per Lord Nicholls.12 Lamine v. Dorell (1701) 2 Ld. Raym. 1216.13 See, for example, Phillips v. Homfray (1871) L.R. 6 Ch. App. 770; Whitwham v. Westminster

Brymbo Coal and Coke Co [1896] 2 Ch. 538.14 See, for example, Elliott v. Boynton [1924] 1 Ch. 236; Penarth Dock Engineering Co Ltd v. Pounds

[1963] 1 Lloyds Rep. 359; Swordheath Properties Ltd v. Tabet [1979] 1 W.L.R. 285; Ministry of Defence v. Ashman [1993] 2 E.G.L.R. 102.15 See, for example, Wrotham Park Estate Co Ltd v. Parkside Homes Ltd [1974] 1 W.L.R. 798;

Carr-Saunders v. Dick McNeil Associates Ltd [1986] 1 W.L.R. 922; Jaggard v. Sawyers [1995] 1W.L.R. 269.

16 Strand Electric & Engineering Co Ltd v. Brisfords Entertainments Ltd [1952] 2 Q.B. 246.

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bargain. 17 In many cases, the assertion that the damages awardedreflect the claimants loss is at best speculative, while in some casesit is demonstrably false. 18 Ultimately, the finding of loss on thisbasis depends on evidential inferences that the courts will not permitto be rebutted. 19 In recognition of this, the lost bargain analysishas increasingly come to be discredited as a fiction that disguises thereality that the relief in question is designed to strip the defendantof an enrichment that was unjustly gained at the claimantsexpense. 20

2. The New Analysis Challenged: The Benefits of Proprietary Wrongs asAppropriations from the Owners Dominium

In an influential article, Jack Beatson argued that relief that requiresdefendants to account for benefits made from their wrongfulinterference with property could be characterised as involving thereversal of an enrichment subtracted from the claimant. He reasonedthat,

in all cases of use of property there is a subtraction andtherefore potentially an independent restitutionary claim. What issubtracted is the plaintiffs right to exclusive enjoyment of theproperty. It is a subtraction of his dominium. 21

James Edelman similarly argues that, in many cases traditionallycharacterised as involving enrichment by wrongs, the defendant is infact being made to account for something acquired from the claimant.He draws a distinction between two classes of restitutionary claims. Inhis view, relief provided in the form of an account of profits (althoughhe prefers the term disgorgement damages), operate[s] to disgorgeprofits which have accrued to a defendant from a wrong. Edelmancontrasts this form of relief with what he terms restitutionarydamages, which he characterises not as reversing unjust enrichmentby subtraction (as orthodox restitution terminology would have it)but, instead, as revers[ing] wrongful transfers of value from a

17 Strand Electric & Engineering Co Ltd v. Brisfords Entertainments Ltd [1952] 2 Q.B. 246. R.Sharpe and S. Waddams, Damages for Lost Opportunity to Bargain (1982) 2 O.J.L.S. 290.

18 Edelman, Gain-Based Damages , 99102; Graham Virgo, Principles of the Law of Restitution , 2nd

ed., (Oxford 2006), 439440.19 Thus, in Strand Electric & Engineering Co Ltd v. Brisfords Entertainments Ltd [1952] 2 Q.B. 246,

257, Romer L.J. argued that: It does not lie in the mouth of such a defendant to suggest that theowner might not have found a hirer; for in using the property he showed that he wanted it andhe cannot complain if it is assumed against him that he himself would have preferred to become

the hirer rather than not have had the use of it, all.20 Strand Electric & Engineering Co Ltd v. Brisfords Entertainments Ltd [1952] 2 Q.B. 246, 255, perLord Denning M.R. (detinue); Ministry of Defence v. Ashman [1993] 2 E.G.L.R. 102, perHoffman L.J. (trespass); Surrey County Council v. Bredero Homes Ltd [1993] 1 W.L.R. 1361,1369, per Steyn L.J. (breach of contractual covenant).

21 Beatson, above note 6, 232.



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claimant to a defendant. 22 According to his account, cases in whichthe defendant is required to pay what would have been a reasonablefee for the relaxation of the right infringed fall within this lattercategory. Edelmans analysis differs from accounts of enrichment bysubtraction in that, while the benefit in question is transferred fromthe claimant to the defendant, the claimant does not necessarily suffera loss equivalent to the defendants gain. 23

According to Edelmans account, claims for a sum reflecting areasonable fee for the relaxation of a right infringed by the defendantdo not come within the same category as other claims for the value of a benefit obtained from a wrong. Instead, the former cases fall withinthe same broader legal class as mistaken transfers and other casestraditionally characterised as involving unjust enrichment bysubtraction. Thanks to this recharacterisation, the relief in questionno longer seems exceptional; instead, it appears to be bothconventional and to be available as of right. In reconceptualisingrelief that has long been regarded as involving the disgorgement of a wrongfully obtained benefit as the reversal of an enrichmenttransferred from the claimant, this new analysis represents nothing lessthan an attempt to redraw fundamentally the taxonomy of the law of restitution. For this reason, this reinterpretation demands close

examination. The following sections focus on a series of conceptualerrors that throw doubt on the validity of the new analysis.

3. Cases in which there is No Possibility of a Subtraction or Transfer from the Claimant

Even if we accept the premise that an owners rights are so absolutethat the defendants obtaining a benefit as a result of breaching theclaimants rights may be characterised as being at odds with theclaimants dominium, it does not necessarily follow that the defendantcan be said to have appropriated anything from the claimant. Clearlysomething is taken from the claimant in cases in which the defendantdispossesses the claimant of land or personal property. 24 This is nottrue, however, of those cases where that which is protected is not atangible resource.

(a) Breaches of restrictive covenants

The characterisation of the issue in terms of a transfer is particularlytenuous in those cases where the right breached is in the nature of a

22 Edelman, Gain-Based Damages , 1.23 Ibid ., 667.24 Although it does not follow that the relief subsequently awarded amounts to a reversal of value

obtained from the claimant (see below notes 4147).



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restrictive covenant. 25 Consider, for example, Wrotham Park Estate CoLtd v. Parkside Homes Ltd ,26 where the defendant developed its land inbreach of a restrictive covenant that benefited the claimants land. Thecourt declined to award a mandatory injunction that would haverequired the destruction of the development and, instead, limited theclaimant to the award of a sum equivalent to a fee that the claimantmight have reasonably demanded for the relaxation of the covenant inquestion. It is difficult to see that, in the process of the owner of theservient tenements making more extensive use of its own propertythan it was permitted, it could be said that anything was transferredfrom the owner of the dominant tenement. The defendant obtained afactual benefit that the claimant could never have had for itself: allthat the covenant entitled the claimant to do was to deny the benefit inquestion to the defendant. To characterise such cases as involving asubtraction or transfer is to elide an important analytical distinctionbetween takings and non-appropriative interferences with proprietaryrights.

A further difficulty with analysing breaches of restrictive covenantsin terms of a wrongful transfer lies in the practice of awarding theclaimant a reasonable fee for the relaxation of the right in question.In cases involving restrictive covenants, it could often be argued that

the claimant would have been able to extract a fee from the defendanthad the defendant not breached the right in question. However, it isquite probable that the claimant could have extracted a fee that couldbe characterised as extortionate. Typically, the owner of the dominanttenement is the beneficiary of a bilateral monopoly. There is no realmarket to which we can have reference: the relaxation of the claimantsright offers the defendants only opportunity to develop his or herproperty in the way that he or she seeks. As a result, what thedefendant has deprived the claimant is an opportunity to exploit this

monopoly: an opportunity to rent-seek and to demand a fee that bearsno resemblance to the value that the claimant would otherwise attachto the right in question. Thus, the limitation of relief to a reasonablefee appears to deny claimants the full extent of the benefit of whichthey have been deprived.

(b) Restitutionary relief for breaches of intellectual property rights

Breaches of intellectual property rights typically involve the defen-dants making a profit by breaching the claimants exclusive right to

exploit the resource in question. However, it can hardly be argued thatanything is transferred from the claimant to the defendant in the

25 See above note 15.26 [1974] 1 W.L.R. 798.



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process. The resources protected by intellectual property are typicallypublic goods. 27 As such they are inexhaustible: that is to say that theutilisation by one person of the resource does not impair othersmaking use of it. Take, for example, breaches of copyright. Prior toany infringement, the protected resource, the expression of an idea,was already in the public domain and available to the defendant. Itwas, however, subject to restrictions on its use. Thus, a consumer whohas purchased a recording of a copyrighted song is entitled to exploit itfor his or her own use but other uses of the work, such as reproductionor public transmission, may be forbidden. Similarly a library user maybe allowed to read copyrighted material and even reproduce it, in sofar as this respects norms of fair use. A breach of such prohibitions

does not result in the defendants obtaining anything from theclaimant; rather, it involves an infringement of the claimantsmonopoly. As a result, it is difficult to see that relief given in theform of a reasonable fee for the infringing use of the claimantsintellectual property can usefully be described as involving the reversalof a wrongful transfer.

(c) Restitutionary relief for breaches of contract

Edelman argues that breaches of contract can equally be analysed interms of his account of restitutionary damages. 28 The difficulties inconceptualising breaches of restrictive contractual terms in this wayare similar to those that arise in relation to restrictive covenants of land. It is difficult to see how, merely by profiting from an act that wasprecluded by contract, the defendant can be said to acquire anythingfrom the claimant.

Edelman illustrates his analysis by reference to British Motor TradeAssociation v. Gilbert .29 In that case, the defendant purchased a carfrom the claimant in the context of a heavily regulated market in

private cars in Britain shortly after the Second World War. The carwas sold to the defendant at the low price specified by the regulatoryscheme and the agreement included a covenant that effectively dictatedthat, should the defendant wish to sell the car within two years, theclaimant had a right of first refusal at the original price minus a sumreflecting reasonable wear and tear. The defendant breached thecovenant by selling the car to a third party after only a month withoutoffering it first to the claimant. While the claimant was obviously freeto sue for breach of contract, it is difficult to see that it would have

been able to establish loss. Nonetheless, Danckwerts J. held that the27 D. Ciolino, Reconsidering Restitution in Copyright (1999) 48 Emory L.J. 1, 42.28 Edelman, Gain-Based Damages , 172188.29 [1951] 2 All E.R. 641. See M. McCamus, Disgorgement for Breach of Contract: A Comparative

Perspective (2003) 36 Loy. L. A. L. Rev. 943



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claimant was entitled to claim the difference between the list price of the car and the value that the car would have realised in an openmarket, had one existed. 30 Dankwerts J. calculated the hypotheticalmarket price at 100 less than the sum for which the car was actuallysold, with the result that the defendant was allowed to retain a smallprofit from the transaction.

Edelman concludes that this focus on the notional market value,rather than the price actually realised in the prohibited sale, indicatesthat Danckwerts J. was awarding restitutionary damages on the basisthat the the defendant had appropriated or transferred the claimantscontractual right to buy back the car. 31 This is difficult to accept. Thedefendant breached its contractual duties and in the process preventedthe claimant from directly enforcing its right of repurchase; but in noway can the defendant be said to have acquired that right. After all,the claimant was relying on that very right in suing the defendant forbreach of contract. Nor did the claimant have the value of the right atissue transferred from it. After all, the claimant would not haverealised the profit in question itself if the contract had been observed.There was no legal private car market, and, had the claimant exercisedits option to purchase it would have merely resold the car pursuant tothe regulatory scheme at an artificially low price. Thus, the essence of

the claimants complaint was that it had its regime for suppressing carprices undermined, and the court was prepared to grant a remedy thatwould punish and deter such breaches of the scheme. It might beasked why the sum awarded did not reflect the defendants actualprofit. The relief was calculated according to the estimated value in ahypothetical market simply because Danckwerts J. was operatingwithin the confines of Sale of Goods Act 1893, which he recognisedapplied rather awkwardly to the facts. 32 That legislation, like thatwhich has replaced it, was designed to calculate loss rather than

gain.33

Indeed, it remains unclear to what extent restitution can beopenly granted under these provisions. Thus, Edelmans portrayalof Dankwerts J.s treatment of the case as restitutionary appearsmisconceived.

Edelman argues that, where a contract is breached, a benefit istransferred from the claimant to the defendant. This leads him toreason that, in respect of any breach of contract, the claimant shouldbe entitled to a restitutionary claim for what would have been areasonable fee for the relaxation of the right infringed, regardless of

30 Ibid. , 645.31 Edelman, Gain-Based Damages , 175.32 [1951] 2 All E.R. 641, 6445.33 Dankwerts J. was applying s.51 of the 1893 Act, which is replicated in s.53 of the Sale of Goods

Act 1979.



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whether the breach was intentional or even whether the defendantultimately made any profit from it. 34 Thankfully, this is not the state of the law. The stipulation by Lord Nicholls in AG v. Blake 35 that theclaimant must have a legitimate interest in depriving the defendant of any profit made from a breach of contract suggests that restitutionaryrelief is relatively exceptional and is not viewed as simply involving thereversal of wrongful transfers.

Edelman struggles to square the judicial approach to theavailability of restitutionary relief in contract cases with the premisesof his analysis of restitution for wrongs generally. He states that AG v.Blake reflects the view that restitutionary damages can only be justified in reversing the transfer of valuable contractual rights when

those rights are legitimate. 36 However, it is difficult to accept that theHouse of Lords said any such thing. It is hard to see how any legallyenforceable contractual right can be characterised as anything otherthan legitimate. The question is whether there is something aboutthe parties relationship or the nature of the breach that indicates thatthe aggrieved party has a legitimate interest in claiming profits madeby the party in breach. The approach taken in AG v. Blake recognisesthat some rights, while perfectly legitimate, are simply not regarded assufficiently compelling to justify the higher level of protection in

question. There are broader lessons to be learned from this approach:for, it is equally possible that a similar approach might be taken inrelation to property rights.

(d) An analysis that proves too much

One problem with the analysis that interferences with rights amount tosubtractions from the right holders dominium is that it proves toomuch: it is true whether or not the defendant really obtains a benefitfrom the wrong in question. 37 As a result, the analysis could equally be

employed to recharacterise all wrongs resulting in loss as cases of unjust enrichment. 38 Thus, we could argue that negligently causingproperty damage also represents a taking because it amounts to asubtraction from the owners dominium. We could similarly reasonthat every nuisance involves a taking of neighbouring owners rights toquiet enjoyment of their land. Such an analysis would miss the rather

34 Edelman, Gain-Based Damages , 172.35 [2001] A.C. 268, 285.36 Edelman, Gain-Based Damages , 173.37 See J. Gordley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment (Oxford

2006), 455.38 Indeed, there are those who make such a claim: Richard Posner, The Concept of CorrectiveJustice (1981) 10 Journal of Legal Studies 187, 198; Matthew Kramer, Of Aristotle and IceCreams: Jules Colemans Theory of Corrective Justice, in Brian Bix (ed.), Analyzing Law: NewEssays in Legal Theory (Oxford 1998), 163, 170;. Cf . Jules Coleman, Corrective Justice andWrongful Gain (1982) 11 Journal of Legal Studies 421.



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obvious point that the mere fact that an owners rights are breacheddoes not mean that the defendant has obtained a benefit in the process.

The nature of this error becomes apparent when one considersErnest Weinribs analysis of this area. 39 Like Beatson and Edelman,Weinrib regards the right to recover benefits derived from thewrongful interference with property as logically entailed by theclaimants proprietary rights. 40 Nonetheless, he does not assume thatthis indicates that there is necessarily a subtraction from the claimantwhen the defendant wrongfully exploits the claimants property.Rather than treating this form of relief as involving the reversal of thetransfer made from the claimant, Weinrib regards it as involving thedisgorgement of a gain made by the defendant in circumstances in

which the claimant may have been deprived of nothing. Thus, whilesharing Edelmans view that benefit-based relief should be readilyavailable, Weinrib does not succumb to the analytical error of treatingall interferences as takings.

4. Cases in which the Defendant Acquires Possession of the ClaimantsProperty: Difficulties in the Notion That Value is Transferred

A second analytical error in the recent reinterpretation of restitutionfor wrongs lies in commentators characterisations of the nature of thebenefit that the defendant is said to acquire from the claimant. Whatcan we say that defendants gain in those cases where they occupy ortake possession of claimants property? Beatson oddly suggests that adefendant acquires the claimants right of exclusive enjoyment. 41 Thiscannot be correct. The claimant continues to have this right, for this isprecisely what permits the claimant to sue. Edelman offers an accountthat is at first sight more promising. In his view, what the defendantacquires from the claimant is value. Yet, on closer inspection, thischaracterisation of the matter gives rise to a host of problems.

Edelman notes that it might be objected that there is only a transferfrom the claimant in the metaphysical sense that the defendant hasutilised the valuable opportunity inherent in the claimants asset. 42

His analysis certainly is metaphysical. What is less clear is whethersuch a mode of conceptualisation serves any useful purpose. If there isa good account to be given in support of Edelmans vision of the law,it should be possible to present it in a more prosaic fashion. In legaldiscourse, legal concepts presented in metaphysical form are liable to

39 Ernest Weinrib, Restitutionary Damages as Corrective Justice [2000] 1 Theoretical Inquiries in

Law 1.40 Ibid. , 7.41 Above, text accompanying note 21.42 Edelman, Gain-Based Damages , 67. It may of course be objected the liability does not depend on

the utilisation of the benefit in question. The defendant may not exploit the property in questionbut still be liable for its use value.



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disguise analytical errors. 43 On closer inspection, it is difficult to acceptthe notion that relief in this context is dependent either upon atransfer from the claimant to the defendant or upon the acquisitionof value by the defendant.

It is difficult to understand the concept of a transfer from theclaimant to the defendant if the defendant apparently receivessomething different from that initially enjoyed by the claimant. If the value in question was transferred from the claimant to thedefendant, does it not follow that the claimant has suffered a loss thatwould give rise to a claim for compensation? If this were so, thisanalysis would appear to be a variation of the discredited lost bargainaccount. 44 However, Edelmans account of restitutionary damagesis founded on the premise that, while value is transferred from theclaimant in these cases, the claimant has not necessarily suffered anyloss. 45 This is curious. If the claimant would not have realised the valuein question, it is difficult to see that an enrichment could be said tohave been transferred from the claimant to the defendant.

In cases where the defendant makes use of the claimants property,there may well be a subtraction from the claimants dominium.However, what the defendant obtains in the process is simplypossession and use of that property. The artificiality of describing

the matter in terms of the transfer of value is apparent in Edelmansanalysis of the Californian case of Beck v. Northern Natural Gas Co .46

The defendant in that case committed a trespass by storing gasunderneath the claimants property. Edelman characterises this asinvolving a transfer of the value of the use of the property. 47 It isdifficult to see why this would be a helpful analysis of the facts. Thedefendant occupied land belonging to the claimant and in the processmight be said to have saved an expense in not paying for a licence touse the claimants land in this way. However, this benefit was not

acquired from the claimant but rather from the claimants asset. As aresult, it cannot be said that the value shifted directly between theclaimant and the defendant. Nor, could it necessarily be said that thebenefit in question was indirectly taken from the claimant: for, thiswould only be true if the claimant would have realised the use value of the property himself (either by exploiting the property for his ownbenefit or by extracting a rent for it). If this was not the case (and there

43 As Cardozo J. put it in Berkey v. Third Avenue Railway Co 155 NE 58, 61 (NY, 1926):Metaphors in law are to be narrowly watched, for starting out as devices to liberate thought,

they end often by enslaving it. See also Craig Rotherham, Proprietary Remedies in Context(Oxford 2002), 4248.44 See above notes 1720 and accompanying text.45 Edelman, Gain-Based Damages , 67.46 170 F 3d 1018 (10th Cir CA, 1999).47 Edelman, Gain-Based Damages , 70.



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was no suggestion that it was), it is difficult to see how any expensesaved by the defendant could be said to have been transferred from theclaimant. Of course, the question remains as to whether the defendantshould have been required to account to the claimant for the use valueof the subterranean storage area. However, this question is onlyobscured by analysing the matter in terms of the use value of the landbeing transferred from the claimant.

5. Explaining Claims to Proceeds and Profits

(a) The derivation of value from a claimants property

One problem with Edelmans metaphysical account of this area isthat it does not furnish a convincing explanation as to when it can besaid that a defendant has appropriated value from a claimant andwhen it cannot. There are at least three ways in which a defendantmight be said to derive value as a result of breaching the claimantsrights. First, a defendant might be negatively enriched by saving theexpense that would be incurred in paying a reasonable fee for therelaxation of the right infringed. Secondly, a defendant might, withoutauthorisation, sell an asset belonging to the claimant, thereby realisingits exchange value. Thirdly, a defendant might exploit an assetbelonging to the claimant in a way that generates revenue. There arereal difficulties with characterising any of these three situations asinvolving a transfer of value from the claimant to the defendant. Wehave already considered the difficulties posed by Edelmans treatmentof the first class of cases as involving a transfer of value from theclaimant to the defendant given that what the defendant acquires fromthe claimant is at most possession and use of the asset in questionrather than value. 48 In the second and third situations, in contrast,the defendant clearly does obtain value. However, given that thebenefits in question are gained from third parties, it is difficult to seehow these could be said to have been transferred from the claimant.How then does Edelman analyse these modes of gaining a benefit froma claimants assets?

(b) Analysing claims to the proceeds derived from the sale of aclaimants property

Consider first Edelmans treatment of the recovery of the proceeds of adefendants unauthorised sale of a claimants property. The moststraightforward example of such a claim is found where, in lieu of bringing a claim for conversion, a claimant elects to bring an action

48 See above notes 4147 and accompanying text.



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for money had and received to recover the proceeds of the sale. 49

Relying on Birks suggestion that the earning opportunities inherentin an asset are all attributed to the owner of that asset, 50 Edelmananalyses such cases as involving the reversal of a benefit obtained fromthe claimant. Edelmans reasoning relies on the premise that theproceeds of sale represent the traceable exchange-product of the assetsold. Moreover, he concludes that the ability to trace these assetsprovides an indication that they are not too remote to be treated asvalue wrongfully transferred from the claimant. 51 There are, however,significant difficulties with both the premise and the conclusion that hedraws from it.

One objection is essentially historical in nature. The reality is that

the courts do not utilise the language of tracing in this context. 52 Thisis hardly surprising, given that tracing was an invention of the courtsof Chancery and the action for money had and received was employedin this context prior to the suggestion that tracing could be utilised toallow for common law actions to be brought. 53 Instead, the formalexplanation for relief in an action for money had and receivedfollowing a wrongful sale was traditionally provided in terms of the claimants decision to waive the tort and to treat the sale as if itwere authorised and done for his or her benefit. 54 Now that this

characterisation of the matter is rightly dismissed as fictional,55

thebest explanation for this form of relief is that it operates to require thedefendant to disgorge any profits made from the wrongful sale. 56

Edelmans analysis of the proceeds of unauthorised sales faces amore fundamental conceptual objection. Even if we put aside the factthat the courts do no analyse actions for money had and received interms of tracing, it is far from clear that Edelmans account could bemore successfully applied to situations that are actually approached bythe courts using that language. The reality is that it is difficult to squarecases conceptualised in terms of tracing with Edelmans analysis oneither a formal or a substantive level. Formally, tracing provides thatclaimants whose assets are exchanged without their authorisation may

49 See, for example, Lamine v. Dorell (1701) 2 Ld. Raym. 1216.50 Edelman, Gain-Based Damages , 68, citing Peter Birks, Unjust Enrichment and Wrongful

Enrichment (2001) 79 Texas Law Rev. 17.51 Edelman, Gain-Based Damages , 1067. For a similar analysis, see Jaffey, above note 3, 370.52 A fact noted by Andrew Burrows, above note 2, 465.53 This suggestion developed out of the recognition by a common law court of rights arising as a

result of tracing in Taylor v. Plumer (1815) M. & S. 562. This was taken to mark the developmentof the extension of common law rights through tracing. However, in recent years, this view hasbeen revealed to be based on a misunderstanding: see S. Khurshid and P. Matthews, Tracing

Confusion (1979) 95 L.Q.R. 78; Lionel Smith, Tracing in Taylor v Plumer: Equity in the Courtof Kings Bench [1995] L.M.C.L.Q. 240; Jones & Sons (Trustee) v. Jones [1997] Ch. 159, 169, per Millett L.J.

54 Lamine v. Dorrell (1705) 2 Ld. Raym. 1216, 1217, per Holt C.J.55 United Australia Ltd v. Barclays Bank Ltd [1941] A.C. 1.56 An analysis favoured by Lord Nicholls in AG v. Blake [2001] A.C. 268, 278.



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choose to assert title to the product of such exchanges instead of asserting it in respect of the original assets. According to themetaphysical language of tracing, the exchange product is treated as if it were a claimants original asset. 57 Thus, formally, the law treats thematter as if it involved the vindication of an existing property rightrather than the restitution of transferred value. 58

Even if we were to ignore the language of tracing and focus onthe substance of the matter, it is difficult to contend that a benefitreceived by the defendant in exchange for an asset owned by theclaimant can be said to represent value transferred from theclaimant. For one thing, given that the defendant received it froma third party, it is odd to suggest that the exchange product of theclaimants asset was transferred from the claimant. Moreover, it isimplausible to claim that the exchange product was realised simply asthe result of the assets sold because the value of the former mayexceed that of the latter. 59 Such an increase in value may be a resultof the defendants skill as a salesperson, the purchasers gullibility orfluctuations in the value of the exchange product. In any case, suchincreases in value cannot helpfully be characterised as benefitstransferred from the claimant. The fact that claimants may realise awindfall in this way has nothing to do with the reversal of

enrichment by subtraction and everything to do with the disgorge-ment of the proceeds of wrongs. 60

(c) Claims to profits

Ultimately, Edelmans account is undermined by his failure to applyconsistently the premise that claims to proceeds are cases of unjustenrichment by subtraction because all earning opportunities in anasset should be attributed to the owner. If the ability to claim proceedsfrom an unauthorised sale could be explained on these grounds, theclaimant should equally be able to require the defendant to accountfor any profits made from the use of the claimants asset on the samebasis. Instead, Edelman treats claims to profits made from the use of the claimants assets as claims for the disgorgement of a benefitobtained from third parties that are available only where thedefendant has acted cynically. 61

57 Craig Rotherham, above note 43, 98100.58 Foskett v. McKeown [2001] A.C. 102; Graham Virgo, Vindicating Vindication: Foskett v

McKeown Reviewed in A. Hudson (ed.), New Perspectives on Property Law, Obligations and

Restitution (London 2004), 203.59 Rotherham, above note 43, 1045; Daniel Friedmann, Restitution for Wrongs: The Measure of Recovery (2001) 79 Texas Law Review 1879, 190417.

60 Mitchell McInnes, Book Review [2004] Can. Bus. Law. Jnl. 146, 157; Craig Rotherham,Tracing Misconceptions in Foskett v McKeown (2003) 11 R.L.R. 57.

61 Edelman, Gain-Based Damages , 39.



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6. Recharacterising Enrichment by Wrongs as Corrective Justice

The accounts offered by Beatson and Edelman suggest that what have

been generally regarded as instances of enrichment by wrongs caseswhere the claimant is awarded a sum representing what would havebeen reasonable fee for the relaxation of the right breached could bebetter understood as examples of what has been conventionallycharacterised as enrichment by subtraction. One potential advantageof this recharacterisation is that it would allow these cases to be moreeasily presented as instances of corrective justice than would otherwisebe the case. According to Aristotles influential account, corrective justice serves to maintain or restore an equilibrium in the distribution

of resources. This may be contrasted with distributive justice, whichprovides for an allocation of resources according to some criterion of moral desert. Drawing on Aristotles account, Lon Fuller and WilliamPurdue argued that claims for restitution by subtraction represent theparadigm case of corrective justice. 62 In their view, such claims areparticularly compelling because, not only has the claimant suffered aloss, but the defendant has made a gain in the process. As a result, thedeparture from the initial allocation of resources is more pronouncedin such cases than it is where the claim is based on loss alone.Moreover, relief appears less harsh on the defendant, because, ratherthan having to bear the loss initially suffered by the claimant, thedefendant is being made to account for an benefit subtracted from theclaimant and, in so doing, to restore the status quo .63 In contrast,claims for restitution by wrongs effectively seek to shift a windfallfrom the defendant to the claimant. Because such claims do not resultin the restoration of any pre-existing equilibrium, they are typicallyseen as inherently more difficult to characterise as corrective justiceand, hence, to justify. 64

Beatson argues that relief granted in respect of benefits obtained asa result of breaching the claimants property rights can be categorisedas instances of restitution by subtraction as conventionally under-stood. 65 Edelman, in contrast, as we have seen, challenges orthodoxunderstandings of autonomous unjust enrichment claims by rechar-acterising them as reversing transfers of value that can be describedas being acquired from the claimant even though not necessarily

62 See, for example, Lon L Fuller and William Purdue, The Reliance Interest in ContractDamages (1936) 46 Yale L.J. 52, 56.

63 See Aristotle, Ethics (London 1976) 1 5.52, 1132b. On the other hand, it is difficult to see that the

matter can be entirely insulated from concerns of distributive justice, as the baseline of entitlements that the law seeks to maintain cannot be established without makingcertain distributional choices. See H. Dagan, The Law and Ethics of Restitution (Cambridge2004), ch. 7.

64 McInnes, above note 60, 155.65 See above note 21 and accompanying text.



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reflecting any loss suffered by the claimant. 66 Noting that cases of restitution by subtraction have been linked with Fuller and Purdueselaboration of Aristotles account of corrective justice, Edelman arguesthat his own analysis of autonomous unjust enrichment claims could beequally well accommodated within this framework. In his view, thereshould not be any difference where the defendant appropriates value inthe form of a subtraction of non-monetary benefits from the claimantsdominium .67 This is difficult to accept. Fuller and Purdue reasoned thatrestitutionary actions provide particularly compelling claims for relief because, if A not only causes B to lose one unit but appropriates thatunit to himself, the resulting discrepancy between A and B [comparedwith the status quo before the transfer in question] is not one unit buttwo. 68 The Aristotelian account, or at least Fuller and Purdues readingof it, requires a correspondence of gain and loss. Edelman claims thatrestitutionary damages serve the dual purpose of aiming to restoreboth the claimant and the defendant to their respective positions beforethe wrong occurred, 69 however, it is difficult to see that this is so.After all, requiring defendants to pay what would have represented areasonable fee for the relaxation of the right infringed in circumstancesin which claimants would have never exploited their position to realisesuch a profit leaves such claimants in a better position than they were in

before the wrong. Consequently, it would take a rather more complexaccount of corrective justice to embrace such cases. 70

7. The Analytical Nature of Restitution for Wrongs

This article has made the case against reinterpreting the basis of relief that requires defendants to pay a sum reflecting what would have been

66 See above note 45 and accompanying text.67 Edelman, Gain-Based Damages , 81 (italics in the original).68

Fuller and Perdue, above note 62, 56, cited by Edelman, Gain-Based Damages , 80. J. Dawson,Unjust Enrichment: A Comparative Analysis (Boston 1951), 7.69 Edelman, Gain Based Damages , 82.70 Such an account is offered by Ernest Weinrib, above note 39. According to Weinrib, corrective

justice is concerned with repairing normative rather than factual losses and gains. Thus, wherethe defendant has harmed the claimant, although the defendant may have made no factual gain,the provision of compensation serves to reverse a normative gain made by the defendant as aresult of the breach. Similarly, where the defendant has profited in the course of breaching theclaimants rights, although the claimant may have suffered no factual loss, requiring restitutionserves to repair a normative loss suffered by the claimant. Weinribs account has been receivedenthusiastically by a number of restitution scholars: see, for example, Lionel Smith, Restitution:The Heart of Corrective Justice (2001) 79 Texas Law Review 2115; Kit Barker, Understandingthe Unjust Principle in Private Law: A Study of the Concept and its Reasons, in Jason W.Neyers, Mitchell McInnes and Stephen G. A. Patel (eds.), Understanding Unjust Enrichment

(Oxford 2004), 79. However, it has attracted criticism in equal measure: see, for example, JamesGordley, above note 37, ch. 22; Dagan, above note 63, ch. 7; Mitchell McInnes, UnjustEnrichment: A Reply to Prof Weinrib (2001) 9 R.L.R. 29; Dennis Klimchuk, UnjustEnrichment and Corrective Justice in Neyers et al (eds.), op. cit. , 111, 131. More generally, JulesColeman has cogently argued that the annulment of wrongful gains does not fall within theambit of corrective justice. See Coleman, Risks and Wrongs (Cambridge 1992), 369.



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a reasonable fee for the relaxation of a right infringed. The remedyshould continue to be understood as falling within that part of the lawof restitution that has traditionally been understood in terms of accounting for benefits derived from wrongs without the need forproof of any subtraction from the claimants estate. For the reasonsindicated, it is analytically untenable to treat the benefit in question asone that was transferred from the claimant.

Much has been made of the distinction between two approaches todetermining relief for restitution for wrongs: the award of a reasonablesum for the relaxation of the right in question and the account of profits. The suggestion is sometimes made that two such differentremedies must reflect entirely different substantive rights. This issomewhat overstated. Both are measures of relief for enrichment bywrongs. 71 Where the right breached has a market value, a choice has tobe made between the remedies. The market value for the relaxation of the right in question represents the immediate benefit made from thebreach and reflects an objective or abstract measure. In contrast,profits subsequently made from exploiting the claimants property areless directly connected to the breach and, as the defendants actualgain, represent a more subjective measure. 72 Often an account of profits would result in a higher recovery. However, the courts are only

likely to be prepared to disregard the additional problems of causationand remoteness that arise in this context and to favour thedistributional consequences of giving the claimant a larger windfallif the legal relationship that has been infringed is regarded as especiallyimportant 73 and/or the defendants conduct is thought of as particu-larly reprehensible. 74

III. Q UESTIONING THE IMPLICATIONS OF THE N EW ANALYSIS : SHOULDR ESTITUTIONARY DAMAGES INVARIABLY BE AVAILABLE FOR

BREACHES OF R IGHTS ?

1. The Diversity of Remedies for Infringement of a Claimants Rights

The recent reinterpretation offered of the law of restitution for wrongsis not merely a matter of academic interest. By treating all relief whereby the defendant is required to pay what would represent areasonable sum for the relaxation of the right breached as involving

71 George Palmer, Law of Restitution (Boston 1978), vol. I, 1 2.12; Kit Barker, Riddles, Remediesand Restitution: Quantifying Gain in Unjust Enrichment Law [2001] C.L.P. 255, 275.

72

See Friedmann, above note 59, 1801.73 I. M. Jackman, Restitution for Wrongs [1989] C.L.J. 302; and H. Dagan, Unjust Enrichment:A Study of Private Law and Public Values (Cambridge 1997).

74 Restatement of Restitution (St Paul, Minnesota 1937) 11 151155, 157, 20205; DouglasLaycock, The Scope and Significance of Restitution (1989) 67 Texas Law Rev. 1277, 1289;Friedmann, above note 59, 1888.



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the reversal of involuntary transfers, Beatson and Edelmansreinterpretation suggests that restitutionary relief should invariablybe available in these cases. After all, if these cases are paradigmaticinstances of the reversal of wrongful transfers of value, receivedwisdom is that defendants should be strictly liable to account for thevalue of the enrichment in question, subject only to relevant defences. 75

Where, in contrast, such claims are analysed simply in terms of requiring the defendant to account for a wrongfully obtained benefit,the view might be taken that the determination as to whether theremedy should be available ought to depend on a complex balancingof a number of considerations relating to the nature and importance of the interest infringed and quality of the defendants conduct. 76 Thus,

the danger of the new analysis is that, by wrongly classifying thesecases, it is liable to encourage us to give relief where it is not merited.

The new analysis assumes that all interests are equally importantand should be protected in the same way and discourages anydistinctions being made on the basis of the nature of different rightsand the circumstances of their breach. This is unfortunate. The legalrelations and resources protected as property, for example, differwidely in nature. It does not necessarily make sense to protect, forexample, a right to possession of land, a restrictive covenant, and

intellectual property rights in precisely the same way. Similarly, itwould be odd to assume that different contractual rights should all beprotected in the same fashion. 77 The remedies made available inrespect of breaches of different rights vary greatly in accordance withthe social significance attached to particular legal relationships, thecontexts in which these relationships arise, and the quality of thebreach in question. The question of the availability of benefit-basedrelief is simply one aspect of this understandable variance in treatment.

2. The Relevance of Fault

It is far from clear that our legal system does or should favour liabilityfor benefits made from breaches of rights in circumstances where thedefendant is blameless. 78 On one view, the urge to require restitution

75 For a recent expression of this view, see Banque Financie`re de La Cite v. Parc (Battersea) Ltd .[1999] 1 A.C. 221, 227, per Lord Steyn. See P. Birks, The Role of Fault in the Law of UnjustEnrichment, in William Swadling and Gareth Jones (eds.), The Search for Principle (Oxford1999), 235. On the other hand, those who favour the view that liability for unjust enrichmentshould be strict may well envisage fault playing a considerable role at the level of quantificationof enrichment: see, for example, M. McInnes, Enrichments and Reasons for Restitution:Protecting Freedom of Choice (2002) McGill L.J. 419.

76

See Dagan, above note 73.77 A view borne out by Lord Nicholls analysis in AG v. Blake [2001] A.C. 268. See above note 35and accompanying text.

78 Peter Birks, in a wide-ranging study of restitution for wrongs in English law, concluded thatrestitution would seldom be justified in cases for wrongs where the defendants conduct is notreprehensible: see Birks, Civil Wrongs: a New World (Butterworths Lectures 199091), 97. While



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for wrongs is driven not primarily by a concern for the position of theclaimant, whose case does not depend on the proof of any loss.Instead, it is motivated by a desire to punish defendants for theirbehaviour and/or to deter others from engaging in similar conduct. 79

What is difficult to determine is the degree of fault that should berequired for restitutionary liability and how the defendants enrich-ment should be quantified.

It is relatively easy to justify punishing cynical wrongdoers byrequiring them to disgorge the benefit received as a result of a breach,and such relief will serve to discourage others from acting in this way.We might be especially eager to provide a remedy of this natureagainst defendants who knowingly infringe and, therefore, are likelyto calculate the potential consequences of their actions. Such a remedyis liable to go some way to ensuring that, when weighed againstthe potential profits and the chances of being caught, consciouswrongdoers are discouraged from engaging in the conduct inquestion. 80 In addition, regardless of the defendants conduct, we aremore likely to be prepared to tolerate the distributional consequencesof providing restitution for wrongs (i.e. the windfall that results for theclaimant) if we think that the legal relationship in question demandsthe protection that would come from such a remedy.

The case for punishing those who have been careless, rather thancynical, is less clear-cut. 81 Given that the claimant has not necessarilysuffered any loss, it is not immediately obvious what degree of blameshould be attached to the defendants actions. Again, the judgementsas to whether restitution is thought appropriate and, if so, in whatmeasure are liable to depend on the importance attached to the legalrelationship in question. Perhaps in most contexts, the combination of the defendants fault and a desire to deter future breaches is likely tolead us to require defendants to account for the market value of the

benefit gained as a direct result of the breach by paying what wouldhave represented a reasonable sum for the relaxation of the rights inquestion. On the other hand, we are likely to regard a liability toaccount for actual profits that the defendant was enabled to make as aconsequence of the breach as imposing too harsh a punishment on acareless wrongdoer. In all likelihood, we would favour that remedyonly if institutional considerations demanded such an especially highdegree of deterrence.

79 Palmer, Law of Restitution , vol. 1 1 2.11, 141.80 Peter Huber, Mistaken Transfers and Profitable Infringement on Property Rights: An

Economic Analysis (1988) 49 Louisiana Law Review 71, 107.

Birks is perhaps correct in asserting the importance of moral quality of the defendants conduct,

the suggestion that the defendants actions must be reprehensible probably sets the thresholdtoo high. Mere carelessness will very often be sufficient.

81 Huber, ibid .



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In contrast, it is more difficult to justify the imposition of restitutionary liability in the absence of any fault. Consider, forexample, the tort of conversion. In Strand Electric & Engineering CoLtd v. Brisfords Entertainments Ltd ,82 the defendant, the owner of atheatre, had allowed a would-be purchaser to take possession of thebuilding prior to the completion of a proposed sale. During itsoccupation of the premises, the would-be purchaser hired portableswitchboards from the claimant. After the sale fell through and thedefendant retook possession of the premises, the defendant knowinglyretained those switchboards despite repeated demands for their returnfrom the claimant. It was held that the defendant was liable to paywhat would have represented a reasonable fee for hiring such a chattelfor the period in question. While the result is uncontroversial, wemight ask whether the law should respond in the same way to aninnocent converter. Consider, for example, a defendant who wasunaware of the claimants rights and had used the chattel in questionafter receiving it from a third party guilty of an earlier conversion. If the chattel has not been harmed by the use and the claimant is unableto establish that he or she would have made profitable use of thechattel during the period in which the defendant retained it, it is farfrom clear that the defendant should be liable to account for the rental

value of the asset.First, it is difficult to argue for such relief on the basis of utilitarian

considerations that focus on the consequences of protecting theinstitution of property. After all, where defendants were not at fault intheir failure to be aware of the claimants interest, any effect indeterring breaches of the type in question is likely to be achieved onlyat the expense of inefficient precaution. Secondly, it is difficult to justify such relief on the basis of moral desert. If the claimant hassuffered no loss, it is difficult to see why blameless defendants should

be made to account for the market value of the benefit in question. It istrue that the enrichment at issue (the saving of a reasonable fee for theuse of the property in question) could be characterised as anundeserved windfall. Yet, it is not clear that the claimant has amoral entitlement to this benefit. In the absence of any evidence thatthe claimant would have earned the sum in question from his or heruse of the property, to require the defendant to account for theenrichment would equally leave the claimant with an unmeritedwindfall. In the absence of any compelling moral claim, there seems to

be little reason for legal intervention: the enrichment should be left tolie where it falls. Where, while legally guilty of wrong, a defendant hasacted without fault, it is difficult to see either why the defendants

82 [1952] 2 Q.B. 246.



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enrichment should be characterised as unjust or what the justification could be for disappointing the expectations of a blamelessdefendant who has acted on the understanding that no charge wouldbe due for the benefit in question.

Intellectual property law provides an indication of the importanceof fault in this context. Legislation providing for the protection of copyright and design indicates that infringers who were unaware andhad no reason to know of the claimants rights are not liable fordamages. 83 It would be very surprising if this were not taken to excludethe recovery of restitutionary relief reflecting a reasonable fee for therelaxation of the rights in question. 84 While dishonesty was once aprecondition for liability, 85 the requisite degree of knowledge wasrelaxed in the middle of last century to include constructive knowl-edge. 86 The requirement to establish that the defendant had no reasonto believe that an infringement was taking place means that it isdifficult to escape liability for primary breaches. On the other hand, itwill be more difficult to establish liability in cases of secondaryinfringement involving those who deal with material after an initialbreach of the claimants copyright or design. In such cases, defendantsare liable only if they knew or had reason to believe that they weredealing with an infringing article. 87 The tendency to require fault for

breaches of these rights, which contrasts with the apparent preferencefor strict liability for breaches of many other property rights, is nodoubt motivated by the realisation that, given that intellectualproperty cannot be delimited by fences or kept under lock and key,inadvertent breaches are unavoidable.

We should not be surprised that a stricter approach is taken to thewrong of passing off, which protects property in a businesss goodwill.The wrong is committed by creating a danger of confusion in themind of the public between the defendants business and that of the

claimants.88

Even if a defendant might argue that he or she wasunaware of that danger, given the public profile of the claimantsbusiness image, it is a risk to which a reasonable person should havebeen alive. 89 It is equally understandable that a policy of strict liability

83 Introduced in the Copyright Act 1956, s.17(2) and now found in the Copyright, Designs andPatents Act 1988, s.97(1). See Edelman, Gain-Based Damages , 231. Similarly, the United StatesCopyright Act 1976 provides that recovery of profits may be denied in cases of innocentinfringement. See 15 USC 1 405(b). See Dagan, above note 73, 85.

84 Edelman, Gain-Based Damages , 232.85 See Kevin Garnett, Jonathon Rayner Jones and Gillian Davies (eds.), Copinger & Skone James

on Copyright 14th edn. (London 1999), 4814.86

Copyright Act 1956, ss 5(2) and (3) and 10 (2) and (3). For a discussion, see LA Gear Inc v. Hi-Tech Sports Plc [1992] F.S.R. 121.87 Copyright, Designs and Patents Act 1988, ss.22 and 23.88 Reckitt & Colman Ltd v. Borden Inc [1990] 1 R.P.C. 341.89 William Landes and Richard Posner, The Economic Structure of Intellectual Property Law

(Harvard 2003), 86.



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is taken in cases of breach of trademarks, 90 where a register providesthe opportunity to check that a proposed mark is not infringing onealready registered. 91

3. Distinctions in the Social Importance of Different Rights

There is a school of thought which suggests that the vindication of theclaimants rights logically demands that restitutionary relief calculatedin terms of what would have been a reasonable fee for the relaxation of the right violated should be automatically available following abreach. 92 We should be suspicious of this reasoning, as it presumes thevery matter at issue: the extent of protection afforded to property.Property rights that have developed in diverse contexts are oftenprotected in quite different ways. There is no reason to assume thatthe courts willingness to grant relief based on the fair market value of the right infringed should be the same regardless of the nature of theproperty right being protected.

Even if we were to make benefit-based relief available for thebreaches of some proprietary interests regardless of fault, we might notextend this protection to all property rights. In his study of the law of restitution for wrongs, Hanoch Dagan reasons that the availability of restitution and particularly the quantum of relief provided will dependin part on, first, the social ethos that characterises a particular cultureand, secondly, the social significance attached to specific resources andlegal relationships. 93 In his view, the level of deterrence thoughtnecessary, and even whether the defendants actions are regarded asreprehensible, will be determined to a large degree by the socialsignificance attached to the rights in question. Of particularimportance, in Dagans view, is the extent to which the resource inquestion is thought to be integral to the owners identity rather thanbeing valued simply for its exchange value. 94 On this view, the more

important the rights in question, the lower the level of fault that islikely to be required to give rise to benefit-based relief and the higherthe quantum of any benefit-based relief awarded is liable to be.

90 The law relating to breach of trade marks has its origins in the tort of deceit and earlier casessuggested that damages would be available only where the claimant could show fraud: see SingerManufacturing Company v. Loog (1882) 8 App. Cas. 15; AG Spalding & Bros v. AG Gamage Ltd (1915) 32 R.P.C. 273; Draper v. Trist (1939) 56 R.P.C. 429, 442, per Goddard L.J. However, themodern view is that knowledge is not a requirement for liability: see Gillette v. Edenwest [1994]R.P.C. 279. See Edelman, Gain-Based Damages , 220223.

91 Landes and Posner, above note 89, 86.92 See, for example, Kuwait Airways Corp v. Iraqi Airways Co (No 4 and 5) [2002] 2 A.C. 883, 1093,

per Lord Nicholls. See also Weinrib, above note 39, and Jaffey, above note 3, 136; DavidHowarth, in S. Hedley and M. Halliwell, The Law of Restitution (London 2002), 250; DanielFriedmann; Restitution of Benefits Obtained Through the Appropriation of Property or theCommission of a Wrong (1980) 80 Columbia Law Rev. 504; Virgo, above note 18, 475476.

93 Dagan, above note 73.94 Ibid. , 4144.



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It is in light of this that we can appreciate the judicial attitude toremedies available following a breach of contract something that mayhave important lessons for the availability of benefit-based relief moregenerally. Edelman suggests that, consistently with his analysis of restitution for other wrongs, we can analyse breaches of contract interms of the reversal of value wrongly transferred from the claimant tothe defendant. 95 This would tend to suggest that benefit-based relief should be automatically available for breaches of contract. Such a viewmight also draw support from observations of Lord Nicholls in AG v.Blake , where, in the context of discussing the availability of relief in theform of the fair market value of the right breached, he stated:

Property rights are superior to contractual rights in that, unlikecontractual rights, property rights may survive against an infiniteclass of persons. However, it is not easy to see why, as between theparties to a contract, a violation of a partys contractual rightsshould attract a lesser degree of remedy than a violation of hisproperty rights. 96

Yet it is difficult to reconcile Lord Nicholls observations with thesubstantial, if somewhat vague, restrictions he placed on theavailability of the account of profits following a breach of contract.His Lordship indicated that such relief should be available only wherethe claimant has a legitimate interest in preventing the defendantsprofit-making activity and, hence, in depriving him of his profit. 97

This precondition highlights that it is not enough that the defendanthas profited from a breach of contract: certain forms of relief will bemade available only with respect to rights of special importance.

There is something to be said for making a distinction betweenproperty rights and other rights. After all, most property rights arecreated in a contractual setting and our law has the choice of treatingparticular types of relationships either as giving rise to purelycontractual rights (i.e. as enforceable only between the parties to theagreement) or investing them with proprietary status. The decision togive certain relationships, such as restrictive covenants or rights of limited use granted in favour of neighbours (i.e. easements), pro-prietary status reflects a judgement made by our legal system thatthese relationships deserve special protection. It might be reasonedthat a decision to make benefit-based relief automatically available inrespect of breaches of proprietary rights could equally be justified inorder to reflect and reinforce this special protection. However, this

might go too far. Just as benefit-based relief might sometimes be95 Edelman, Gain-Based Damages , 172182. See above notes 2836 and accompanying text.96 [2001] 1 A.C. 268, 283.97 Ibid. , 285.



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justified for breaches of contractual rights, its denial might equally be justified with respect to some breaches of proprietary rights. While wemight more readily award such relief for breaches of property rights,we might ask whether it can necessarily be justified for breaches of allproperty rights without regard to their social significance or thequality of the defendants behaviour.

The view that not all property rights deserve the same level of protection throws some light on the controversial case of Stoke-on-Trent CC v. Wass .98 The defendant operated a market in breach of ageographical monopoly enjoyed by markets licensed by the claimantcouncil. The defendants actions amounted to a nuisance as a result of an irrebuttable evidential presumption that running a market inbreach of that monopoly caused the claimant loss. 99 As a result, theclaimant was entitled to an injunction. However, in making an inquiryas to damages, the trial court found that, in fact, the defendantsbreach of the claimants monopoly caused no harm to the marketslicensed by the claimant. While the claimant asked for relief to bedetermined in the light of the profits generated by the defendantsmarket, the Court of Appeal limited it to nominal damages of 2.Nourse L.J. concluded that, in the absence of proof of loss, a claimantwould seldom be permitted to recover a sum linked to the defendants

gain. 100Many aspects of Nourse L.J.s analysis are rather unconvincing

and restitution scholars treat the decision with considerable suspi-cion. 101 It is, however, possible to understand part of the Court of Appeals reluctance to award restitutionary relief in this case. It is farfrom clear that the proprietary right in question an incorporealhereditament in the form of the monopoly to operate a market reallymerits the high level of protection that it would receive pursuant toEdelmans analysis of the matter. Given that its interest was purely

commercial in nature, it is easy to have some sympathy for NourseL.J.s instinct that the claimant should not have been able to claimrestitution. Ultimately, the reason why the outcome of the case isobjectionable is that the conduct of the defendant, in persistentlybreaching the restriction in question, suggests that a benefit-basedremedy might have been appropriate to punish the defendant and todeter such behaviour in the future. On the other hand, if we imagine asituation where the defendant had breached such a right unknowinglyand without causing the claimant any loss, it would be bizarre to

98 [1988] 1 W.L.R. 1406.99 See Sevenoaks District Council v. Pattullo & Vinson Ltd [1984] Ch. 211.

100 [1988] 1 W.L.R. 1406, 1414.101 See, for example, Edelman, Gain-Based Damages ,135; Burrows, above note 2, 475; Howarth,

above note 92, 255.



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suggest that benefit-based recovery should be available. Yet, this isprecisely what Edelmans analysis would suggest.

4. Striking a Balance in the Enforcement of Rights that Restrict Othersin their Use of their Property

Property rights are often conceived of as providing a zone of personalfreedom from the intrusion of the state or of other individuals. 102 Thissuggests an atomistic picture of individuals protected in theirenjoyment of their assets by the right to exclude others. However,not all proprietary rights are like an owners right to exclusivepossession, serving merely to exclude others from the ownersproperty. Some proprietary rights have the effect of placing restric-tions on what owners may do with their property. This is true of servitudes, which amount to an interest in property owned by another.It is also true of the right to quiet enjoyment of land that is one of theindividual entitlements that make up the totality of a landownersinterest. The right to quiet enjoyment is enforced by the law of nuisance, a tort that inevitably places limits on what neighbours cando with their property. In enforcing such rights, the courts need to becareful to strike a balance in weighing the competing interests of therespective parties.

Consider cases involving breaches of a restrictive covenant. Abenefit-focused remedy is certainly appropriate in cases where, byrefusing to award an injunction, the court effectively expropriates theowners of dominant tenements of their rights (here an analogy withthe law of eminent domain is inescapable). 103 On the other hand, it isless obvious that such relief would invariably be appropriate in asituation where the defendant had acted in good faith and the court isprepared to issue an injunction to prevent future breaches or where thedefendant has ceased the activity in question altogether. It is

important to recognise that the legitimate interest of a claimant inrestricting a defendants use and enjoyment of the defendants ownproperty is limited. It would be somewhat odd to invoke Beatson andEdelmans analysis to suggest that owners of dominant tenements areentitled to restitutionary relief by virtue of their dominium in respectof a restriction limiting a neighbours use of the neighbours own land.

The mere fact that the courts have chosen to make restrictivecovenants enforceable against third parties does not mean thatrestitution should automatically be available for breaches of theseinterests. The fact that an injunction is available to prevent someone102 For a discussion, see J. Singer, No Right to Exclude: Public Accommodations and Private

Property (1996) 90 North Western Law Review 1283, 1453.103 See, for example, Wrotham Park Estate Co Ltd v. Parkside Homes Ltd [1974] 1 W.L.R. 798;

Jaggard v. Sawyers [1995] 1 W.L.R. 269.



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who has made an innocent mistake in breaching such a covenantcontinuing a particular activity does not indicate that he or she shouldalso be liable to disgorge any profits earned from that activity. Thus,imagine a defendant who runs a profitable fair on her property,not realising it is in breach of a restrictive covenant that benefits aneighbouring property. We might assume that the defendant was notin the position to have run the fair elsewhere without paying a fee forhiring the necessary land, thereby suggesting that the defendant wasincontrovertibly benefited by the breach. Should the defendant berequired to disgorge the profit or at least to pay what would haverepresented a reasonable fee for the relaxation of the restrictivecovenant? Such an outcome would appear draconian. It should beremembered that, even if the profit was made in breach of a restrictivecovenant, it was made by using the defendants own property.Moreover, the claimant did not act to attempt to prevent the activitytaking place by notifying the defendant that she was in breach of the covenant and/or by seeking an injunction. If the wrong wasunintentional and caused no loss, there is no compelling reason toaward relief. Given that what is involved is a transient breach of arelatively minor right, even careless defendants should be excused of liability. Compensation for any loss suffered and an injunction to

prevent future breaches should be sufficient to provide an adequateremedy where defendants were unaware that their conduct wasprohibited. On the other hand, those who deliberately breach aclaimants rights are likely to be required at the very least to pay whatwould have been a reasonable fee for the relaxation of the rightbreached in order to deter others from acting in this way.

We might also consider an example from the law of nuisanceinvolving the frequently encountered problem of temporary distur-bances caused by building developments. Because they are disinclined

to paralyse such projects, rather than issuing an injunction withimmediate effect, courts are often prepared to postpone the operationof an injunction. 104 In some cases, the defendant is required toundertake to pay for damages committed in the interim period; 105 inothers, claimants are simply left to sue for any damages that mightresult from the activity in question. 106 However, Edelmans analysissuggests an alternative: aggrieved neighbours might recover, not onthe basis of their loss of amenity, but through the award of a sumreflecting a reasonable fee for the relaxation of their right to the quiet

enjoyment of their land a sum that would be calculated in part on the104 See Stephen Tromans, Nuisance Prevention or Payment? [1982] C.L.J. 87.105 See, for example, Pennington v. Brinsop Coal Company (1877) 5 Ch. D. 769.106 See, for example, Pride of Derby Case [1953] 1 All E.R. 179.



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basis of the defendants expected return from the scheme. 107 There isno authority for such an approach, and it would be regrettable if this were to change. Temporary inconveniences are an inevitablepart of life, and making a benefit-based award available in thesecircumstances would tend to deter useful development by encoura-ging unmeritorious rent-seeking behaviour on the part of those whomight be affected. A restitutionary award would make sense if thecourts were trying to encourage developers to negotiate with thosein the neighbourhood for the relaxation of their right to quietenjoyment. However, we cannot necessarily expect such a process totake place, as it is liable to be marked by high transaction costs andthe danger of strategic bargaining. 108 Provided the defendant hasgained the permission of local planning authorities and takenreasonable care to reduce the nuisance as far as possible, neighboursshould be left to their entitlement to recover compensation for anyloss suffered.

IV. C ONCLUSION

Given the fictions that have pervaded this area of the law until veryrecently, it is perhaps unsurprising that work remains to be done in

identifying principles that might determine when benefit-based relief should be available and precisely how the quantum of that relief should be calculated. What is perhaps surprising is the continueddisagreement among commentators as to the conceptual characterisa-tion of relief in this area. This confusion is a particular concern, as it isonly if the analytical structure of this area of law is understood thatthe policy choices facing the courts can be correctly identified.

The analysis developed by Beatson and Edelman reclassifies casesin which a defendant has profited as a result of wrongfully exploiting

the claimants rights even though the claimant may have suffered noloss. Perhaps the acid test of this endeavour is whether the classes thatare thrust together as a consequence of this recategorisation are indeedalike in all normatively significant respects. It is difficult to concludethat this test is satisfied. Cases in which defendants have profited frombreaching claimants rights but in which claimants have suffered noharm are both analytically and normatively distinguishable from casesin which claimants do actually endure a loss as a result of the breach.The risk posed by the reinterpretation of this area proposed by

107 Cf. Wrotham Park Estate Co Ltd v. Parkside Homes Ltd [1974] 1 W.L.R. 798, 816, perBrightman J.

108 See, generally, Guido Calabresi and Douglas Melamed, Property Rules, Liability Rules andInalienability: One View of the Cathedral (1972) 85 Harvard Law Review 1089.



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Beatson and Edelman is that injustice will result from unlike casesbeing treated alike.

Recent attempts to reinterpret fundamentally the law of restitutionfor wrongs are misconceived. The central premise of this reinterpreta-tion the claim that value is transferred from the claimant to thedefendant in this context is analytically unsustainable. Moreover, theprincipal practical implication of the new analysis that restitutionaryrelief based on the fair market value of the right breached shouldautomatically be available is difficult to justify normatively.Understanding restitution for wrongs requires a better appreciationof the reasons for which different benefit-based remedies might bemerited and which recognises that rights vary in nature and do not

necessarily demand identical protection.


Documents

The Conceptual Structure of Restitution