Aggravated, Exemplary and Restitutionary ... - Law Commission

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PART III RESTITUTION FOR WRONGS 1. THE LAW OF RESTITUTION 1.1 In Lipkin Gorman v Karpnale Ltd, 183 the House of Lords accepted for the first time that there is an English law of restitution based on the principle against unjust enrichment. There is now a wide measure of consensus among commentators that the law of restitution has two main divisions: unjust enrichment by subtraction (or autonomous unjust enrichment) and unjust enrichment by wrongdoing (or dependent unjust enrichment). 184 The difference between those two divisions is that the latter depends on the commission of a wrong by the defendant to the plaintiff (whether that wrong is a tort or a breach of contract or an equitable wrong, such as breach of a fiduciary duty or breach of confidence). The enrichment is ‘at the expense’ of the plaintiff in the sense that the defendant has committed a wrong to the plaintiff. Restitution, concerned to strip away the gains made by the defendant by the wrong, is only one of several possible remedial responses, of which the most common is compensation. In contrast, in unjust enrichment by subtraction, no wrong needs to have been committed by the defendant and the enrichment is ‘at the expense’ of the plaintiff in the more obvious sense that the gain to the defendant represents a loss to, or a subtraction from the wealth of, the plaintiff. The grounds for restitution in unjust enrichment by subtraction tend to comprise factors vitiating or qualifying the plaintiff’s true consent to a transfer of his or her wealth to the defendant: for example, mistake, duress, undue influence, and failure of consideration. 1.2 In this paper we are essentially concerned with unjust enrichment by wrongdoing (that is, restitution for wrongs). 185 We are concerned to identify when a plaintiff is entitled, or ought to be entitled, to a stripping of the gains made by a civil wrong. 183 [1991] 2 AC 548. For further acceptance and application of the principle against unjust enrichment by the House of Lords, see Woolwich Equitable Building Society v IRC [1993] AC 70; Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669. 184 See P Birks, An Introduction to the Law of Restitution (revised ed, 1989) pp 23-24, 40-44, 313-315, 346-355; A Burrows, The Law of Restitution (1993) pp 16-21, 376. For judicial recognition of this division, see Halifax Building Society v Thomas [1996] 2 WLR 63 and Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51, per Mason CJ. See also the central division in Lord Goff of Chieveley and G Jones, The Law of Restitution (4th ed, 1993) between “Section One: Where the Defendant has Acquired a Benefit from or by the Act of the Plaintiff” and “Section Three: Where the Defendant has Acquired a Benefit through his own Wrongful Act”. J Beatson, The Use and Abuse of Unjust Enrichment (1991) pp 206-243 is not convinced of the validity of the Birksian divide; nor is P Cane, “Exceptional Measures of Damages”, in P Birks (ed), Wrongs and Remedies in the Twenty-First Century (1996) pp 312-323. 185 For discussions of this area see, eg, Lord Goff of Chieveley and G Jones, The Law of Restitution (4th ed, 1993) chs 33, 36, 38, and pp 414-417; P Birks, An Introduction to the Law of Restitution (revised ed, 1989) pp 39-44, ch 10; A Burrows, The Law of Restitution (1993) ch 14; A Burrows, Remedies for Torts and Breach of Contract (2nd ed, 1994) ch 6; J Beatson, The Use and Abuse of Unjust Enrichment (1991) pp 206-243; I Jackman, “Restitution for Wrongs” (1989) 48 CLJ 302; P Birks, Civil Wrongs: A New World (Butterworth Lectures 1990-91) pp 94-98. 28
1.3 Historically, a number of differently labelled remedies have performed the role of stripping away gains made by a civil wrongdoer: for example, the award of money had and received (especially in the so-called ‘waiver of tort’ cases), an account of profits, and ‘restitutionary’ damages (where the damages are assessed according to the gains made by the wrongdoer rather than the loss to the plaintiff). 1.4 It is only comparatively recently - with the recognition of, and increased interest in, the law of restitution - that it has come to be appreciated that the law often is concerned to strip away gains made by a wrong. No-one would pretend that restitution in this context is as well-established and uncontroversial as compensation. And there are cases (sometimes analysed as awarding restitution) where one can realistically argue that the plaintiff has suffered a loss, in the extended sense that the plaintiff has not been paid what he or she would have charged for permitting the defendant’s conduct. 186 But to deny that the law does award restitution for some civil wrongs, and to argue that all past decisions have in reality been awarding compensation, would, in our view, be to distort the truth. 2. RESTITUTION FOR WRONGS: PRESENT LAW 1.5 It is convenient to divide the present law on restitution for wrongs into three parts: restitution of enrichments gained by a tort; restitution of enrichments gained by an equitable wrong; and restitution of enrichments gained by a breach of contract. (1) Enrichments gained by a tort 1.6 A word first needs to be said about ‘waiver of tort’. This is a confusing concept and it carries more than one meaning. It is normally used to refer to a sitaution in which a plaintiff seeks a restitutionary remedy for a tort rather than compensatory damages. So, for example, in the leading case of United Australia Ltd v Barclays Bank Ltd 187 the plaintiff initially brought an action for money had and received by conversion of a cheque. This was a claim for restitution of the gains made by the tort of conversion and the plaintiff was described as ‘waiving the tort’. Yet this did not mean that the plaintiff was excusing the tort, so that, when that claim was abandoned prior to judgment, the plaintiff was nevertheless entitled to bring an action claiming compensatory damages for conversion of the cheque by another party. Viscount Simon LC said: When the plaintiff ‘waived the tort’ and brought assumpsit, 188 he did not thereby elect to be treated from that time forward on the basis that no tort had been committed; indeed, if it were to be understood that no tort had been committed, how could an action in assumpsit lie? It lies only because the acquisition of the defendant is wrongful and there 186 That is, the damages can be viewed as compensating the plaintiff’s loss of opportunity to bargain. See R J Sharpe and S M Waddams, “Damages for Lost Opportunity to Bargain” (1982) 2 OJLS 290. For differing judicial views as to the usefulness of the notion of loss of opportunity to bargain, see the interpretations of Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798 by Steyn LJ in Surrey CC v Bredero Homes Ltd [1993] 1 WLR 1361 and by the Court of Appeal in Jaggard v Sawyer [1995] 1 WLR 269. See para 3.36 below. 187 [1941] AC 1. 188 That is, the action for money had and received. 29
Page 1 and 2: THE LAW COMMISSION Item 2 of the Si
Page 3 and 4: should emphasise at the outset that
Page 5 and 6: practitioners and academics) consid
Page 7 and 8: punitive damages should survive for
Page 9 and 10: and sued, he will, at worst, be mad
Page 11 and 12: ‘exceptional’ 62 conduct or mot
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Page 15 and 16: an undertaking in damages which was
Page 17 and 18: likely adversely to affect him or h
Page 19 and 20: noting the concession by the respon
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Page 23 and 24: two of their lordships who gave jud
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Page 27: (1) legislation should provide that
Page 31 and 32: nuisance 195 has also been recognis
Page 33 and 34: day market). At first instance, Pet
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Page 39 and 40: disgorge what he has saved by commi
Page 41 and 42: there is no consensus among comment
Page 43 and 44: (a) Restitutionary damages should b
Page 45 and 46: the purposes of the claim to restit
Page 47 and 48: account of profits and damages but
Page 49 and 50: area. The problem of ‘election of
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Page 53 and 54: PART IV EXEMPLARY DAMAGES: PRESENT
Page 55 and 56: that exemplary damages were not awa
Page 57 and 58: 1.96 These questions were recently
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Page 61 and 62: 1.107 Consistently with the apparen
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Page 71 and 72: 1.137 The ‘non-discrimination’
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easons of fairness to defendants: i
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(6) Multiple plaintiffs 1.165 Very
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Legal Services Act 1990 and Rules o
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MR himself suggested figures to ass
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Thompson v MPC achieves its aims, t
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proceeded on the basis that the doc
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would be that to allow insurance wo
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PART V EXEMPLARY DAMAGES: REFORM 1.
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1.8 As regards the divide between t
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3. THE CASE FOR AND AGAINST EXEMPLA
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(5) The criminal approach to vicari
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particularly unsatisfactory to rely
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1.34 On the first interpretation an
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4. OUR CENTRAL REFORM PROPOSALS (1)
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when applying this principle a cour
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indefensible position which the com
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... the availability of exemplary d
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But these concepts are inadequate,
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for a wrong which arises under an A
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view that such an award would be co
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the promise. To award exemplary dam
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else should, actually constitute in
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awarded as damages (including exemp
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1.88 The first argument is that it
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(2) the relationship between (on th
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was determined, the court could mak
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(iii) A ‘last resort’ remedy (2
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A discretionary or an absolute bar
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1.117 We have therefore recommended
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discrimination between, for example
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(24) our draft Bill should lay down
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1.141 In our view, this is necessar
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the punitive damages award on the A
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to that remedy. 720 Yet this means
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(31) once punitive damages have bee
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e so where the defendant consents t
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1.183 We also think that any ‘adv
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liability’) which applies to any
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(c) Implications of the adoption of
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‘moderation’ and of ‘proporti
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conduct. 756 Although it has consis
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liable to pay a sum of money which
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1.224 The second difference is that
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award if they succeed in persuading
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approaches. 786 132, 787 Although i
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... [c]ontracts should only be held
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(ii) The problems of defining with
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the insured wrongdoer’s inability
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award to be covered by insurance, t
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punitive damages, no enactment shal
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one case, 831 and arguably done so
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common law to hold, if necessary, t
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PART VI SUMMARY OF RECOMMENDATIONS
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(19) the ‘cause of action’ test
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damages shall be permitted for that
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MICHAEL SAYERS, Secretary 11 Septem
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Nigel Ley Harvey McGregor QC Tim Ow
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APPENDIX C Persons and organisation
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Steve Hedley John Hodgson L Hoyano
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197
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