Aggravated, Exemplary and Restitutionary ... - Law Commission

1.25 Yet, as we shall see below, 229
Lord Devlin’s second category of exemplary damages
is concerned to punish those who cynically commit torts with a view to making
profits. If the law is prepared to award exemplary damages against the cynical
profit-seeking tortfeasor, it must be willing to go to the less extreme lengths of
awarding restitution against such a tortfeasor. This is particularly obvious when
one realises that a restitutionary remedy need not strip away all the gains made by
the tortfeasor; rather the remedy can be tailored to remove a fair proportion of the
gains, taking into account, for example, the skill and effort expended by the
defendant.
1.26 In Broome v Cassell 230
Lord Diplock recognised the interplay within the second
category of exemplary damages between restitution and the more extreme
remedial response of punishment when he said the following:
[The second category] may be a blunt instrument to prevent unjust
enrichment by unlawful acts. But to restrict the damages recoverable
to the actual gain made by the defendant if it exceeded the loss caused
to the plaintiff, would leave a defendant contemplating an unlawful act
with the certainty that he had nothing to lose to balance against the
chance that the plaintiff might never sue him, or if he did, might fail in
the hazards of litigation. It is only if there is a prospect that the
damages may exceed the defendant’s gains that the social purpose of
this category is achieved - to teach a wrongdoer that tort does not
pay. 231
1.27 It therefore seems to us that the true reason why restitution was inappropriate in
Halifax Building Society v Thomas 232
was the same reason why exemplary damages
would also have been inappropriate (had they been pleaded): namely, that the
defendant was the subject of a criminal conviction and confiscation order which
was sufficient to reverse his unjust enrichment and to punish him for his fraud.
(2) Enrichments gained by an equitable wrong
1.28 It is a surprising fact, which reflects the unfortunate influence still exerted by the
common law/equity divide, that when one turns one’s attention from torts to
equitable wrongs, such as breach of fiduciary duty and breach of confidence, the
availability of restitution, through the remedy of an account of profits, is both wellestablished
and uncontroversial. While compensation (whether through the
remedies of equitable damages or equitable compensation) may also be available,
the account of profits is in no sense regarded as unusual or difficult to justify.
1.29 The account of profits is, therefore, standardly used to ensure that a fiduciary does
not make secret unauthorised profits out of his or her position, 233
and to ensure the
229 See the discussion of the ‘categories test’ formulated in Rookes v Barnard [1964] AC 1129,
and especially of ‘category 2’, paras 4.3 and 4.9-4.20 below.
230 [1972] AC 1027.
231 [1972] AC 1027, 1130C-D.
232 [1996] Ch 217.
233 Eg Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378, [1967] 2 AC 134; Boardman v
Phipps [1967] 2 AC 46.
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