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The Coherence of Contractual Damages In The Wake of Attorney General v Blake

Alex Gibb, 4th Year LLB and Law Society Media Convenor 2014/15, discusses whether the coherence of the law of contractual damages was undermined in Attorney General v Blake, in which some critics suggest the court confused 'compensation' with 'deterrence' as the purpose of damages for breach of contract.

Contractual damages are designed to remedy loss – they have a compensatory purpose. The question is ‘not one of making the defendant disgorge what he has saved by committing the wrong, but one of compensating the plaintiff’.[1] This principle has dominated contractual breach for hundreds of years. However, the award given in Attorney General v. Blake[2] was quite clearly not motivated by loss. Deterrence, amongst other things, can be seen as an underlying purpose of the award and it is arguable that the introduction of such an award is problematic for the coherence of contractual damages. However, it seems clear that the bigger problem emerging from the decision in Attorney General v. Blake[3] is the lack of clarity and underlying motives in the reasoning of the judges.

As mentioned above, the primary rule of contractual damages is that they are compensatory; to place the plaintiff in the position they would have been in had they not sustained the wrong[4], and the consequential loss. The defendant’s gain is not at issue.[5] In the most part, this principle has historically focussed on pecuniary loss, that which is capable of economic valuation. The greatest deviation from this long-standing principle, prior to Blake,[6] was that in Ruxley Electronics and Construction Ltd v. Forsyth,[7] where a compensatory award for non-pecuniary damage was awarded for the first time. Even in this, seemingly ground-breaking case, the status quo as regards the purpose of damages remained clear:

‘damages for breach of contract must reflect, as accurately as the circumstances allow, the loss which the Claimant has sustained because he did not get what he bargained for. There is no question of punishing the contract breaker.’[8]

The award in Blake[9] cannot be said to conform to this model. The damages awarded, known as ‘restitutionary’ or disgorgement of profits for breach of contract,[10] do almost exactly the opposite. The focus is placed on the defendants gain, and ignores the plainly stated fact – that the Crown has suffered no loss.[11] These are deterrent and punitive in nature, seeking to prevent future breaches of contracts made under the Official Secrets Act.[12]

The most obvious example of this is Lord Nicholls account of the considerations involved in considering the ‘just response’ to Blake’s breach. He posits that no ‘member of the service [Secret Intelligence Service] should have a financial incentive to break his undertaking’[13]. He continues to say that this is ‘of paramount importance’[14] and that ‘an absolute rule against disclosure, visible to all, makes good sense’.[15]  This remedy is ‘tailored to deter those who would place sensitive information at risk’.[16] This is obviously at odds with the concept of compensatory damages - as pointed out by Lord Hobhouse in his dissent, Blake may have made financial gain ‘but he has not done so at the expense of the Crown’.[17] Punishing the contract breaker where there is no loss is obviously slightly at odds with the prior jurisprudence, and would indeed require some adjustment. But in theory, the introduction of deterrence as a ground for contractual damages is not itself hugely problematic to the legal landscape, especially not when the judgment specifically states these awards are to be ‘exceptional’[18] and therefore uncommon. This new outlet for relief has the potential to prevent a defaulting promisor from benefiting from his breach and also to remove incentives for others to breach in a similar fashion in the future.[19]

But these ‘potential intrinsic benefits’[20] get little, to no, other consideration[21] in the course of the decision in Blake.[22] This lack of further explanation and consideration is the real issue arising from the case, in relation to the coherence of the law of contractual damages.

As expressed, this new approach has the potential to be beneficial for this area of law, but it is introduced in such a vague and unclear manner in the speeches of Lord Nicholls and Lord Steyn that it gives future judges and legal academics little to no guidance on how this bold proposition is to shape the future of contractual damages. The reasoning given, by their Lordships, was that an account of profits would be available in ‘exceptional’[23] cases – when other remedies prove inadequate with regard to the particularly circumstances of the case.[24] Lord Nicholls follows this with ‘a useful general guide’[25] that the plaintiff ought to have a ‘legitimate interest in preventing the defendant’s profit making activity and, hence, in depriving him of his profit’. Nothing about any of these factors can truly be said to be particularly ‘useful’ and is, at best, ‘thin on detail’[26].

‘Inadequacy’ and ‘legitimate interest’ are both unfortunately open ended terms. In this context, inadequacy of alternate remedies relates to compensatory damages, specific performance and injunctions. This could have any number of meanings, including that they ought to be available where ‘specific performance and injunction would have been available’[27] (an approach previously rejected in Surrey CC v. Bredero Homes Ltd[28]) or when specific performance is unavailable. This is, again, wholly discretionary and like ‘legitimate interest’ leaves the ultimate decision up to the judges. This lack of clarity or clearly applicable test for deterrence-based damages clearly begs the question – what is an exceptional case that would warrant such an award? It is this question that undermines the coherence and certainty of contractual damages.

Unhelpfully, the factual situation in Blake[29] is unusual, and does not provide a lot of further guidance on this issue. The defendant was an ex-intelligence service member involved in a criminal act, and a breach of contract almost amounting to breach of a fiduciary duty. The judges were undeniably unsympathetic to Blake and his cause, calling him ‘a notorious, self-confessed traitor’ and his previous sentence a reflection of ‘the extreme gravity’[30] of his crime. The lack of guidance and discussion on the concept of deterrence can be pinned, at least in part, on the punitive nature of the claim made by the Crown. Lord Hobhouse notes in his dissent that the answer given by his colleagues ‘does not reflect the essentially punitive nature of the claim’.[31] It is arguable that the award here, though legally sound, was made with the wrong reasons at the forefront of the decision-making. This is clearly problematic for the coherence of the law of contractual damages, if new remedies are being introduced that though seemingly motivated by deterrence, are actually punitive at heart. If it is not clear what motivated the award and therefore how it fits with the other forms of contractual damages, then how can the law possibly be deemed to be coherent?

What is left in the aftermath of Blake[32] is an unfortunate situation in which the only substantive guidance we have is negative. Provided with only a series of situations in which this type of award are not appropriate[33], and criteria that essentially premises itself on a gap in existing legal reasoning, it is understandable why critics are concerned. The case law following on from Blake[34] has given note to this problem and indeed acknowledged the overall uncertainty and lack of guidance on this issue, with only one significant case awarding gain-based damages since[35]. In AB Corporation v. CD Company (Sine Nomine)[36] the arbitrators note concern about the possibility of claimants receiving compensation twice for the same loss.[37] In both Sine Nomine[38] and WWF — World Wide Fund for Nature v. World Wrestling Federation[39] account of profit orders were rejected, and in both these and numerous other cases[40] there can be seen to be a focus on the idea that these awards are simply a method of filling a gap, of ensuring that there is a remedy where the pre-existing forms of relief do not sit comfortably. There are numerous problems with these awards as a gap filling remedy, not least because they make little sense with the previous coherent body of compensatory contractual damages. If account of profits only arises where compensatory remedies fail, then it should not be relevant that the contract breaker has profited. The intention ought to be that the injured promise is properly compensated.[41] The latent ambiguity in Lord Nicholls judgement has resulted in an unfortunate reading of this type of award.

It is clear, therefore, that though the introduction of a deterrence based remedy may be unsettling to the existing law surrounding contractual damages, it is not the confusion with compensation that is causing a lack of coherence. What has led to difficultly in this area is the lack of justification and vagueness with which this judgement was delivered. Whether this was due to underlying motives or simply judicial uncertainty – the clear cause of declining coherence in contractual damages is simply a lack of clarity surrounding the introduction of an interesting addition to this area of law.


[1] Tito v Waddell (No 2) [1977] Ch 106, 332.

[2] [2001] AC 268 (HL) (‘Blake’).

[3] Attorney-General v Blake [2001] AC 268 (HL) (‘Blake’).

[4] Livingstone v Rawyards Coal Co (1880) 5 App Cas 25, 39 per Lord Blackburn.

[5] Blake [2001] AC 268 (HL), 278.

[6] [2001] AC 268 (HL).

[7] [1996] AC 344.

[8] Ruxley Electronics and Construction Limited v Forsyth [1996] AC 344, per Lord Bridge of Harwich.

[9][2001] AC 268 (HL).

[10] To avoid use of the term restitutionary, which Lord Nicholls of Birkenhead deemed an ‘unhappy term’ – Blake [2001] AC 268 (HL), 284.

[11] Blake [2001] AC 268 (HL), 296 per Lord Hobhouse.

[12] Official Secrets Act 1989 s1(1).

[13] Blake [2001] AC 268 (HL), 287.

[14] Ibid.

[15] Ibid.

[16] Snepp v. United States (1980) 444 US 507, quoted in Blake [2001] AC 268 (HL), 288.

[17] Blake [2001] AC 268 (HL), 295 per Lord Hobhouse of Woodborough.

[18] Blake [2001] AC 268 (HL), 285.

[19] Solène Rowan, Remedies for Breach of Contract: A Comparative Analysis of the Protection of Performance (Oxford, 2012) (‘Remedies for Breach of Contract’), 160.

[20] Ibid.

[21] Blake, 162

[22] [2001] AC 268 (HL).

[23] Ibid.

[24] Ibid.

[25] Ibid.

[26] Rowan, Remedies for Breach of Contract, 402.

[27] E. McKendrick, ‘Breach of Contract, Restitution for Wrongs, and Punishment’ in A. Burrows and E. Peel, Commercial Remedies (2003), 103.

[28] [1993] 1 WLR 1361, 1370.

[29] [2001] AC 268 (HL).

[30] [2001] AC 268 (HL), 275.

[31] [2001] AC 268 (HL), 299 per Lord Hobhouse.

[32] [2001] AC 268 (HL).

[33] Lord Nicholls agreed with the Court of Appeal that there were three facts that would not be sufficient to amount to an award of this kind: ‘that the breach was cynical and deliberate; the fact that the breach enabled the defendant to enter into a more profitable contract elsewhere; and the fact that by entering into a new and more profitable contract the defendant put it out of his power to perform his contract with the plaintiff’ – Blake  [2001] AC 268 (HL), 286.

[34] [2001] AC 268 (HL).

[35] Experience Hendrix LLC v. PPX Enterprises [2003] EWCA Civ 323 – although this did not amount to a full account of profits.

[36] 2002 1 Lloyds Rep. 805.

[37] Ibid. 806.

[38] 2002 1 Lloyds Rep. 805.

[39] [2002] F.S.R. 32.

[40] Experience Hendri LLC v. PPX Enterprises Inc [2003] EWCA Civ 323 (CA) and Esso Petroleum Co Ltd v. Niad Ltd [2001] All ER (D) 324 (Ch)

[41] Rowan, Remedies for Breach of Contract, 164.


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