[1993] 1 WLR 1361
Court of Appeal
Surrey CC sold a piece of land to Bredero. As part of the sale agreement Bredero covenanted to build only 72 houses on the land. In breach of the agreement Bredero built 77 houses. Surrey CC sued Bredero for breach of covenant. The judge at first instance only awarded nominal damages. Surrey CC appealed claiming substantial damages.
Steyn LJ
'... The issue in this appeal was defined by Sir William Goodhart, appearing for the plaintiffs, as the correct measure of damages in a case where the following three circumstances are satisfied. (a) There has been a deliberate breach of contract, (b) the party in breach has made a profit from that breach and (c) the innocent party is in financial terms in the same position as if the contract had been fully performed. It is an important issue with considerable implications for the shape of our law of obligations, and I therefore add a few remarks of my own.
Dillon LJ has reviewed the relevant case law. It would not be a useful exercise for me to try to navigate through those much travelled waters again. Instead, it seems to me that it may possibly be useful to consider the question from the point of view of the application of first principles.
An award of compensation for breach of contract serves to protect three separate interests. The starting principle is that the aggrieved party ought to be compensated for loss of his positive or expectation interests. In other words, the object is to put the aggrieved party in the same financial position as if the contract had been fully performed. But the law also protects the negative interest of the aggrieved party. If the aggrieved party is unable to establish the value of a loss of bargain he may seek compensation in respect of his reliance losses. The object of such an award is to compensate the aggrieved party for expenses incurred and losses suffered in reliance on the contract. These two complementary principles share one feature. Both are pure compensatory principles. If the aggrieved party has suffered no loss he is not entitled to be compensated by invoking these principles. The application of these principles to the present case would result in an award of nominal damages only.
There is, however, a third principle which protects the aggrieved party's restitutionary interest. The object of such an award is not to compensate the plaintiff for a loss, but to deprive the defendant of the benefit he gained by the breach of contract. The classic illustration is a claim for the return of goods sold and delivered where the buyer has repudiated his obligation to pay the price. It is not traditional to describe a claim for restitution following a breach of contract as damages. What matters is that a coherent law of obligations must inevitably extend its protection to cover certain restitutionary interests. How far that protection should extend is the essence of the problem before us. In my view Wrotham Park Estate Co. Ltd v. Parkside Homes Ltd is only defensible on the basis of the third or restitutionary principle: see MacGregor on Damages, and Professor P. B. H. Birks, "Civil Wrongs: A New World," Butterworth Lectures (1990-1991).
The plaintiffs' argument that the Wrotham Park case can be justified on the basis of a loss of bargaining opportunity is a fiction. The object of the award in the Wrotham Park case was not to compensate the plaintiffs for financial injury, but to deprive the defendants of an unjustly acquired gain. Whilst it must be acknowledged that the Wrotham Park case represented a new development, it seems to me that it was based on a principled legal theory, justice and sound policy. In the defendant's skeleton argument some doubt was cast, by way of alternative submission, on the correctness of the award of damages for breach of covenant in the Wrotham Park case. In my respectful view, it was rightly decided and represents a useful development in our law. In Tito v. Waddell (No. 2), Sir Robert Megarry V.-C. interpreted the Wrotham Park case and Bracewell v. Appleby, which followed the Wrotham Park case, as cases of invasion of property rights. I respectfully agree. The Wrotham Park case is analogous to cases where a defendant has made use of the aggrieved party's property and thereby saved expense: see Penarth Dock Engineering Co. Ltd v. Pounds. I readily accept that "property" in this context must be interpreted in a wide sense. I would also not suggest that there is no scope for further development in this branch of the law.
But, in the present case, we are asked to extend considerably the availability of restitutionary remedies for breach of contract. I question the desirability of any such development. The acceptance of the plaintiffs' primary or alternative submission, as outlined by Dillon LJ, will have a wide-ranging impact on our commercial law. Even the alternative and narrower submission will, for example, cover charterparties and contracts of affreightment where the remedy of a negative injunction may be available. Moreover, so far as the narrower submission restricts the principle to cases where the remedies of specific performance and injunction would have been available, I must confess that that seems to me a bromide formula without any rationale in logic or common sense. Given a breach of contract, why should the availability of a restitutionary remedy, as a matter of legal entitlement, be dependent on the availability of the wholly different and discretionary remedies of injunction and specific performance? If there is merit in the argument I cannot see any sense in restricting a compensatory remedy which serves to protect restitutionary interests to cases where there would be separate remedies of specific performance and injunction designed directly and indirectly to enforce payment.
For my part I would hold that if Sir William Goodhart's wider proposition fails the narrower one must equally fail. Both submissions hinge on the defendant's breach being deliberate. Sir William invoked the principle that a party is not entitled to take advantage of his own wrongdoing. Despite Sir William's disclaimer it seems to me that the acceptance of the propositions formulated by him will inevitably mean that the focus will be on the motive of the party who committed the breach of contract. That is contrary to the general approach of our law of contract and, in particular, to rules governing the assessment of damages.
In my view there are also other policy reasons which militate against adopting Sir William's primary or narrower submission. The introduction of restitutionary remedies to deprive cynical contract breakers of the fruits of their breaches of contract will lead to greater uncertainty in the assessment of damages in commercial and consumer disputes. It is of paramount importance that the way in which disputes are likely to be resolved by the courts must be readily predictable. Given the premise that the aggrieved party has suffered no loss, is such a dramatic extension of restitutionary remedies justified in order confer a windfall in each case on the aggrieved party? I think not. In any event such a widespread availability of restitutionary remedies will have a tendency to discourage economic activity in relevant situations. In a range of cases such liability would fall on underwriters who have insured relevant liability risks. Inevitably underwriters would have to be compensated for the new species of potential claims. Insurance premiums would have to go up. That, too, is a consequence which mitigates against the proposed extension. The recognition of the proposed extension will in my view not serve the public interest. It is sound policy to guard against extending the protection of the law of obligations too widely. For these substantive and policy reasons I regard it as undesirable that the range of restitutionary remedies should be extended in the way in which we have been invited to do so.
The present case involves no breach of fiduciary obligations. It is a case of breach of contract. The principles governing expectation or reliance losses cannot be invoked. Given the fact of the breach of contract the only question is whether restitution is an appropriate remedy for this wrong. The case does not involve any invasion of the plaintiffs' property interests even in the broadest sense of that word, nor is it closely analogous to the Wrotham Park position. I would therefore rule that no restitutionary remedy is available and there is certainly no other remedy available. I would dismiss the appeal.'