(a)  Compensation for loss

That equitable compensation is a remedy available for breach of fiduciary duty has now been clearly established.⁹ As we shall see below, the best view is that equitable compensation has absorbed, or been assimilated with, the remedy for breach of fiduciary duty of ‘accounting (for loss)’. There are also proprietary estoppel cases where the monetary remedy awarded is best viewed as ‘equitable compensation’.¹⁰ The reasoning of the Privy Council in (p. 512) Royal Brunei Airlines v Tan,¹¹ and cases subsequent to it,¹² also indicates that the primary monetary remedy for the equitable wrong of dishonestly procuring or assisting a breach of fiduciary duty is equitable compensation, albeit that the traditional language of ‘accounting as a constructive trustee’ has often tended to obscure this.¹³

Peculiarly, there has been no English case in which equitable compensation has been awarded for breach of confidence.¹⁴ Instead, the courts have tended to think of equitable damages awarded in substitution for, or in addition to, an injunction under the Senior Courts Act 1981, s 50.¹⁵ As the standard remedy for breach of fiduciary duty is equitable compensation, it is odd that the same is not also true of breach of confidence.

The basic aim of ‘equitable compensation’, as its name suggests, is to compensate a loss. In other words, it is concerned to put the claimant into as good a position as if no wrong had occurred. It therefore has exactly the same function as compensatory damages. This is why the House of Lords in Target Holdings Ltd v Redfern¹⁶ and the Supreme Court in AIB Group (UK) Ltd v Mark Redler & Co¹⁷ (the facts of which are examined below)¹⁸ held that there could be no equitable compensation where the loss would have been suffered even if there had been no breach of duty; that is, where the breach of fiduciary duty had caused the claimant no loss. Of course, and just as at common law, what is a loss and hence what is required in order to compensate will vary according to the duty broken and fiduciary duties may be positive as well as negative. If the duty broken was a failure to invest on behalf of a trust fund the aim of the compensation will be to put the beneficiaries into as good a position as if there had been that investment. If the duty broken was in stealing money from the trust fund, the aim of the compensation will be to put the beneficiaries into as good a position as if that money had not been stolen (ie to restore the money).

In principle, in order to put the claimant into as good a position as if the equitable wrong had not occurred, the equitable compensation should cover non-pecuniary as well as pecuniary loss (albeit that, as a matter of policy, there may be particular restrictions on this). Although there has as yet been no English case awarding equitable compensation for non-pecuniary loss, there is support in Canada for this.¹⁹

An important question is whether the same limitations that apply to compensatory damages also apply to equitable compensation. In other words do limitations such as remoteness, intervening cause, and contributory negligence apply to equitable compensation? The practical importance of this is that where a claimant has a choice of causes of action, so that the claimant may choose to sue for breach of contract, tort, or an equitable wrong, it may be advantageous to found the claim on the equitable wrong if the limitations (p. 513) that would apply to compensatory damages do not apply (or apply in a less restrictive way) to equitable compensation.

Examination of the cases in the common law world on this central question reveals that there is a fundamental conflict of opinion. On the one hand, there are those judges who consider that the limitations on common law compensatory damages, such as remoteness, intervening cause, and contributory negligence, do not apply to equitable compensation. This was the opinion of Lord Browne-Wilkinson, giving the leading speech, in Target Holdings v Redfern. In emphasising that a trustee would be liable for breach of trust even if the immediate cause of the loss was a third party, his Lordship said, ‘thus the common law rules of remoteness of damages and causation do not apply.’²⁰ This was also the approach of the minority, led by McLachlin J, in the influential Canadian case of Canson Enterprises v Broughton.²¹ Here a claim for equitable compensation was brought against a solicitor for breach of fiduciary duty in relation to the claimant’s purchase of land. While all the judges in the Supreme Court of Canada concurred in the result, namely that the solicitor was liable for the claimant’s loss but only until the intervention of third parties which in effect broke the chain of causation, the minority and the majority disagreed in their reasoning. McLachlin J for the minority said:

So the argument of the minority was that common law limitations were not directly applicable to equitable compensation and that no analogy should be drawn with contract and tort. In other words, common law and equity are here different and should remain so.

This is also the view in Australia. In Pilmer v Duke Group Ltd²³ the High Court, in obiter dicta, said that contributory negligence was inapplicable to equitable compensation for breach of fiduciary duty. In a joint judgment, McHugh, Gummow, Hayne, and Callinan JJ, said, ‘[I]n Australia, the measure of compensation in respect of losses sustained by reason of breach of fiduciary duty by a trustee or other fiduciary is determined by equitable principles and these do not necessarily reflect the rules for assessment of damages in tort or contract.’²⁴ Again in Youyang Pty Ltd v Minter Ellison Morris Fletcher²⁵ the High Court of (p. 514) Australia (Gleeson CJ, McHugh, Gummow, Kirby, and Hayne JJ) cited with approval the second part of the passage from McLachlin J’s judgment in the Canson case set out above.

Taking the opposing view—that common law restrictions on compensatory damages should apply also to equitable compensation—are, for example, the majority in the Canson Enterprises case, led by La Forest J; the New Zealand Court of Appeal in Day v Mead²⁶ and Bank of New Zealand v New Zealand Guardian Trust Ltd;²⁷ and, as regards equitable compensation for breach of fiduciary duty comprising a failure to use care and skill, Millett LJ in Bristol & West Building Society v Mothew.²⁸

In Day v Mead, where contributory negligence was applied to equitable compensation for breach of fiduciary duty by a solicitor, Cooke P said:²⁹

And Millett LJ in Bristol & West Building Society v Mothew said:³¹

This ‘opposing’ view is to be preferred.³² Given the discretion open at common law in applying limitations, and the different approach to limitations that has been taken in respect of, for example, the tort of deceit,³³ there is no good reason for equitable compensation going its own separate way from compensatory damages. On the contrary, compensatory damages and equitable compensation should be regarded as identical in function—compensation—and identical in relation to the application of limitations. This is not to say that identical compensation will always be awarded irrespective of whether the claimant sues for breach of fiduciary duty, breach of contract, or for the tort of negligence. But any differences should rationally turn on the different duties in question and not on the fact that the remedy is equitable compensation rather than common law damages.³⁴

(p. 515) (b)  No separate non-compensatory ‘account’ remedy

It is also important to clarify that the remedy of equitable compensation has absorbed, or been assimilated with, the remedy of accounting (for loss).³⁵ The argument has been put that the latter remedy may operate differently as a remedy against a trustee than equitable compensation because it is concerned to restore a trust fund to where it was, prior to an unauthorised disposal of trust assets, rather than to compensate. The account remedy, so it is argued, is therefore analogous to an action in debt (or specific performance or a mandatory injunction) in contrast to equitable compensation which is analogous to an action for compensatory damages. Where there has been a breach of trust (eg by an unauthorised payment of money from the trust fund), it allows the beneficiaries to ‘falsify’ the account and therefore to require the trustee to restore the trust fund by the equivalent of a debt action (hence the traditional language of this as being an ‘equitable debt’ action).³⁶ Put another way, the account remedy, unlike equitable compensation, responds to a trustee’s primary obligation rather than being a remedy for breach of a trustee’s primary obligation. That there is this type of difference has been argued by, for example, Peter Birks,³⁷ Lord Millett,³⁸ Steven Elliott,³⁹ Charles Mitchell,⁴⁰ and James Edelman.⁴¹

But that argument is inconsistent with the central reasoning of the House of Lords in Target Holdings Ltd v Redfern⁴² and was expressly considered and rejected by the Supreme Court in AIB Group (UK) Ltd v Mark Redler & Co.⁴³

In the former case the defendants were solicitors who were acting for mortgagees (the claimants) in relation to the purchase of property by C Ltd. In breach of trust the defendants paid over the loaned money (£1,525,000) from the claimants to the vendors prior to the completion of the sale and charge. That was a breach of trust albeit that a few days (p. 516) afterwards the completion of the sale and charge did take place. Subsequently C Ltd became insolvent and the claimants repossessed the property selling it for £500,000. The defendants argued that their breach of trust was technical only because the claimants had subsequently obtained the charge to which they were entitled. The breach of trust had not caused the claimants the loss they had suffered which was rather caused by the property having been overvalued so that the claimants’ security was inadequate. The House of Lords agreed and held that there could be no equitable compensation and, although this was implied rather than expressly stated, no account remedy where, as on these facts, the loss would have been suffered even if there had been no breach of duty.⁴⁴

However, applying the argument of Birks, Millett, Elliott, Mitchell, and Edelman, the House of Lords should have taken a different approach to the supposedly separate account remedy than to equitable compensation (even if ultimately the same result might have been reached on the facts) precisely because, like an action in debt (or specific performance), the account remedy does not require loss to have been caused by the breach of trust: the fact that the beneficiaries would have suffered the loss in question irrespective of the breach of trust should have been irrelevant.

While historically it may be that the account remedy was viewed in this way, it is hard to see why logically or as a matter of policy one would wish to retain a distinctive remedy of that type. Why should one regard a trustee, who has without authority paid money out of a trust fund, as having a continuing positive duty to restore the trust fund to where it was prior to the payment out even though the same loss would have been suffered even if the trustee had complied with its duty? A trustee does not (normally) undertake to pay a particular sum to the beneficiaries so there is no direct analogy to a contractual debt claim.⁴⁵ And it is misleading to separate out one part of the trustee’s duties as if there is a continuing duty to maintain the trust fund irrespective of the trustee’s other duties or what has subsequently happened. True it is that one is seeking to replicate, by a monetary remedy, the required performance of the trustee not to make an unauthorised payment from the trust fund (just as where one compensates loss for breach of contract). But the essential point is that, had the trustee properly performed its duties, the beneficiaries would still have suffered the loss to the trust fund. One ought not artificially to freeze the trustee’s duty and performance at one point in the past thereby ignoring the trustees’ other duties and the other facts relevant to working out what the claimant’s loss has been.

Sarah Worthington makes the same point and illustrates its force by an example.⁴⁶ Say a trustee takes £1 million from the trust funds for its own use, and uses it non-traceably. Assume that what it should have done, according to the trust deed, was invest these particular funds in shares which would now be worth £½ million. According to Worthington, it is inappropriate to regard the beneficiaries as having a remedy which requires the trustee to restore the trust fund by paying £1 million. That is to concoct a duty to restore the fund whereas the correct analysis was that there was an ongoing duty to invest the funds in shares. It is to that ongoing duty that the remedy must respond and the equitable compensation remedy, responding to the loss to the trust fund, would correctly lead to an award of (p. 517) £½ million. As Worthington writes, ‘The beneficiary could claim equitable compensation for breach of trust, requiring the trustee to restore the trust fund to the state it would have been in if proper performance had been delivered.’⁴⁷

It is submitted, therefore, that Target Holdings v Redfern, which is most naturally interpreted as having impliedly laid down that loss must have been factually caused in respect of the remedy of accounting (for loss), should be applauded for (impliedly) rejecting older cases that may have supported the view that the accounting remedy can operate differently from the remedy of equitable compensation. It impliedly laid down that, at least where a trust is over, there is no duty on a trustee, who has paid out money in breach of trust, to restore the trust fund to the position as it was prior to the payment out and hence there is no equitable debt remedy in that situation.

The implied rejection in Target Holdings v Redfern of an account as being a separate remedy from equitable compensation, and as not concerned with the claimant’s loss, has subsequently been explicitly and strongly endorsed by the Supreme Court in AIB Group (UK) Ltd v Mark Redler and Co.⁴⁸ The defendants were solicitors. They were acting for both the borrowers and the claimant bank who was lending money to the borrowers which was to be secured by a charge over the borrowers’ property. There was already a first charge over the property in favour of another bank (Barclays) and the new borrowing was to be used to discharge that charge. In breach of trust to the claimant bank, in respect of the money paid to them by the claimant bank, the defendants failed to pay the correct amount of money to Barclays with the consequence that Barclays’ first charge was not discharged as it should have been. In other words, the defendants, in breach of trust, had failed correctly to use, as the trust required of them, the £3.3 million paid to them by the claimant bank. The claimant bank claimed £3.3 million (subject to a deduction of £867,697 as is explained below) by means of the remedy of an account arguing that that was a remedy to reconstitute the trust fund as it had been prior to the incorrect payment out. The claimant bank had received from the defendants £867,697, from the subsequent sale of the property, so that their precise account remedy sought was for the difference between those two figures (ie some £2.5 million).

The Supreme Court held that the equitable compensation/account remedy was concerned to compensate for the claimant’s loss; and that, had the defendants paid across the correct sum, so that Barclays’ first charge had been discharged, the claimant would still have suffered most of the loss because they had entered into a bad bargain with the borrowers whereby they had insufficient security for the money they were lending. As it was, the claimant had negotiated a deal with Barclays so that Barclays’ first charge priority was limited to £273,777. It followed that, as a result of the breach of trust, the claimant was overall worse off by £273,777 because its charge was worth less by that amount than it should have been. The Supreme Court therefore awarded £273,777 as equitable compensation.

It is very important to appreciate that there was no question here of the Supreme Court not being made aware of the argument that there is an account remedy that is analogous to a claim in debt and is different from compensating for loss. The claimant put that argument up front and drew to the Supreme Court’s attention the judicial reasoning of Lord Millett sitting in Hong Kong⁴⁹ and Edelman J in Australia⁵⁰ and the academic writings (of, for (p. 518) example, Charles Mitchell)⁵¹ in which that argument had been forcefully put forward. The Supreme Court explicitly rejected that argument. There is no such separate remedy analogous to a claim in debt. Target Holdings was correctly decided and reasoned on this issue and did not require reinterpretation or rejection. In Lord Toulson’s words, giving one of the two leading judgments:⁵²

And he later went on:

Even if it might perhaps be said that, while a trust is ongoing, it can be reconstituted by an account remedy which requires the trustee to pay money as required by its duty—although it may be thought more obvious for that to be accomplished by a mandatory injunction to that effect rather than an equitable monetary account remedy—plainly, once the trust is over, there is no such continuing duty. As was emphasised in Lord Toulson’s judgment,⁵⁴ in both Target Holdings and Redler the trusts were over as a practical matter because the relevant transactions had been completed. So in neither case could it be said that the defendant solicitor should still be holding money paid by the claimant pending the sale and charge (in Target Holdings) or pending the discharge of the first charge (in Redler). Clearly the time for seeking a mandatory injunction had long since passed and no such injunction could now be granted.

A further point made in Redler was that the equitable compensation awarded would be of the same amount as an award of common law damages had the claimant bank sued the solicitors for breach of contract or the tort of negligence.⁵⁵ In that sense, there was welcome assimilation of the equitable and common law remedies. Similarly it should be noted that, had there been a claim brought in contract, specific performance could not have been granted because, in the light of what had subsequently happened, it was impossible for the trustees now to comply with their previous duties to reconstitute and continue the trust.

James Edelman has argued that the decision in Redler was plainly incorrect both at common law and in equity.⁵⁶ He presents the simple argument that, according to the express terms of the contract (and hence the terms of the trust), the loaned money was to be held on trust until ‘completion’; and that, if completion were delayed, it was to be paid back. On his interpretation of those express terms, there never was a completion, so that the clause about delayed completion applied. There was therefore a common law debt claim (as (p. 519) well as an equitable account debt claim although it was unnecessary to turn to that) for the repayment of the money. But it seems clear that the Supreme Court was taking a different interpretation of the contract and trust according to which there was no express provision for dealing with where the loaned money had been paid over but the charge of Barclays had not been fully discharged. In other words, the Supreme Court was taking the view that there had been completion for these purposes or, at least, that this situation was not covered by the provision on delayed completion.

Confusion has been caused by the Court of Appeal’s subsequent decision in Main v Giambrone & Law.⁵⁷ The defendants were again solicitors and the claimants were prospective purchasers of holiday homes in Italy. The claimants had signed preliminary contracts and had paid deposits to the defendants on trust pending the issue of a bank loan guarantee issued by a financial institution listed in art 107 of an Italian decree. In breach of trust, the defendants had released the deposits on the issue of a bank loan guarantee issued by a financial institution listed in art 106. The institutions in art 106 were not as strong as those listed in art 107. As it transpired, it did not matter which guarantee was in place because the events that occurred, even though involving the loss of the deposits, did not constitute a ‘crisis’ situation so as to trigger either guarantee. In other words, it would appear that the breach of trust had not caused the claimants any loss. They would have lost their deposits even if the defendants had complied with their duty. The claimants had successfully rescinded the contracts of purchase but had not recovered their deposits. They were therefore claiming equitable compensation for breach of trust (as well as damages for breach of contract and for the tort of negligence). One would have thought that, applying Target Holdings and Redler, the claim for equitable compensation should have failed because the breach of trust had caused no loss.

But the Court of Appeal contrived to distinguish those cases and held that the claimants were entitled to recover the loss of the deposits as equitable compensation. The ground of distinction put forward was the solicitors’ role in relation to the security. In both Target Holdings and Redler the defendant solicitors had had an obligation ‘to take active steps’⁵⁸ to secure a charge or to remove a charge whereas here the defendant solicitors had an obligation ‘to act as custodians of the deposit monies indefinitely’⁵⁹ and merely had to check that the guarantees were compliant. With respect, it is hard to see that these were valid grounds of distinction. In all three cases, the defendants had positive obligations to fulfil requiring active steps (checking the guarantee in Giambrone required an active step); and in all three cases one could say that the solicitors’ obligation was to act as custodians of money indefinitely, ie until the required condition had been fulfilled (or had been overtaken by events).

Also controversial was the assertion by Jackson LJ that the same measure of damages would have applied had the claimants sought damages for breach of contract.⁶⁰ Surely if the solicitors had performed their contractual duty, the correct guarantee would have been put in place and the deposits would in any event have been lost. It is only if one assumes that no (p. 520) correct guarantee would have followed on rejection of the incorrect guarantee, so that the whole deal would have been called off, that Jackson LJ’s approach would hold good.

Also confusing is the Court of Appeal’s decision in Interactive Technology Corporation Ltd v Ferster.⁶¹ Here a director, in breach of fiduciary duty, had dishonestly induced a company to make an excessive remuneration payment to him. The Court of Appeal accepted that equitable compensation comprises two separate remedies: the restoration of the trust remedy and the compensation for loss remedy and that the claimant must elect between them. In so doing, the court explicitly endorsed the approach of Lord Millett and Charles Mitchell. The rejection of that approach in Target Holdings and Redler was ignored with the only mention of those leading cases being in the last sentence where it was simply said that the facts of those cases were different.

Equitable damages are damages awarded in addition to, or in substitution for, an injunction or specific performance under the Senior Courts Act 1981, s 50. We have seen in chapter 17 that they can be awarded, and can offer some advantages over common law damages, for a tort or breach of contract.

In respect of equitable wrongs, there appears to be no case illustrating the award of equitable damages other than for breach of confidence. But in principle there is no reason why, instead of equitable compensation, such damages should not be awarded for breach of fiduciary duty or dishonestly procuring or assisting a breach of fiduciary duty. Such damages would seem especially appropriate where the breach of fiduciary duty has not yet accrued and one is seeking damages for an anticipated breach. In that situation, it is unclear whether ‘equitable compensation’ as opposed to equitable damages could be awarded although, given that equitable compensation is an equitable remedy, it may be thought that there is not the same difficulty as where common law damages are sought.

Lest the point be lost, one should interject at this stage that all these technical distinctions between common law damages, equitable compensation, and equitable damages bring no credit to the legal system. They are the irrational historical residue of an unfused system that should be swept away.

As regards breach of confidence, damages, arguably best viewed as equitable damages, have been awarded in several cases. These will now be examined under two sub-headings. First, the jurisdiction to award damages for breach of confidence; and, secondly, the assessment of compensatory damages for breach of confidence.

(a)  The jurisdiction to award damages for breach of confidence

There is an on-going debate as to the jurisdiction to award damages for breach of confidence. This directly links to general questions about the fusion of common law and equity and as to whether breach of confidence should be recognised as a tort rather than as an equitable wrong. In particular, if common law damages, rather than equitable damages (or equitable compensation) are being awarded for breach of confidence, this may be interpreted as showing either that breach of confidence is now a common law tort or that, contrary to the traditional ‘anti-fusion’ view, common law damages can be awarded for an equitable wrong.

(p. 521) Whatever the attractions in principle, it is submitted that it cannot yet be said that breach of confidence (as a cause of action independent from breach of contract) is a tort. In so far as the judges have referred to, or discussed, this question, they have overwhelmingly viewed breach of confidence as an equitable wrong not a tort.⁶² And in Vidal-Hall v Google Inc,⁶³ the tort of misuse of private information (ie the tort of privacy) was precisely distinguished from, and recognised as protecting different interests from, the equitable wrong of breach of confidence. Assuming then that breach of confidence (as opposed to the tort of privacy) is an equitable wrong, the ‘jurisdictional’ question is whether the damages awarded have always been equitable damages or whether, on the contrary, the best analysis is that common law damages have sometimes been awarded.

In some cases the damages are most naturally viewed as equitable. In Saltman Engineering Co Ltd v Campbell Engineering Ltd,⁶⁴ having established that the defendants were in breach of an equitable obligation of confidence in using drawings to make special tools, the Court of Appeal refused an injunction to restrain use or sale of the tools, but ordered an inquiry as to damages, Lord Greene MR saying that damages could be awarded under Lord Cairns’s Act (now the Senior Courts Act 1981, s 50) ‘… to cover both past and future acts in lieu of an injunction’.⁶⁵ Again in Seager v Copydex Ltd⁶⁶ the Court of Appeal ordered damages to be awarded by the master for breach of confidence in manufacturing a carpet grip invented by the claimant. Although no explanation was offered as to the jurisdiction to award damages, the most natural interpretation, given the claimant’s application for an injunction, was that they were granted in lieu of that injunction under Lord Cairns’s Act.

Similarly, there are several cases in which the courts have accepted that damages in addition to an injunction can be awarded for breach of confidence. In Peter Pan Manufacturing Corpn v Corsets Silhouette Ltd,⁶⁷ for example, Pennycuick J said that, in addition to an injunction, the claimant had the option to claim damages or to take an account of profits (in fact the claimant chose the latter); and in Ackroyds (London) Ltd v Islington Plastics Ltd⁶⁸ Havers J, in addition to granting an injunction, ordered an inquiry into damages for breach of confidence. Although there was no explanation of the basis for the damages in these cases, it is natural to assume that they were additional to an injunction under Lord Cairns’s Act.

However, in Nichrotherm Electrical Co Ltd v Percy⁶⁹ no application for an injunction had been made by the claimants and yet at first instance Harman J ordered an inquiry as to damages for breach of confidence. Unless one can make something of the fact that the claimants were also given leave to apply for an injunction it would seem that the damages (p. 522) cannot be regarded as equitable and that the decision is out of line with the other authorities. As Jones writes, ‘Harman J’s suggestion is mildly revolutionary in that, by implying that a damages claim can succeed independently of any prayer for equitable relief, it presupposes a fusion of law and equity.’⁷⁰ Significantly, the Court of Appeal⁷¹ left open the question of whether there was jurisdiction to award damages in such a situation for breach of an equitable duty of confidence and instead upheld Harman J’s decision on the ground that there had been a breach of a contractual duty of confidence where the jurisdiction to award damages was indisputable.

But the above interpretation of the cases is not the only one that can be offered. In particular it has been argued that, other than in respect of future acts, the damages in the above cases were ordinary common law, rather than equitable, damages.⁷² Apart from the first instance decision in Nichrotherm the strongest point in support of this approach is that ‘at first blush’ one would expect damages in lieu of an injunction to cover only future and not past acts and, if so, the damages awarded for past acts, where no injunction was being granted, must have been given at common law. But Lord Greene MR in the Saltman case considered that damages in lieu of an injunction can cover past acts and ultimately this seems a preferable view.⁷³ For it avoids the anomaly of the courts being able to grant equitable damages to cover past acts in addition to an injunction, but only damages to cover future acts where no injunction is granted.

Meagher, Gummow, and Lehane have argued that even the award of equitable damages in these cases was incorrect because ‘wrongful act’ in Lord Cairns’s Act referred only to legal and not equitable wrongs.⁷⁴ In their view, the remedy in question in these cases should therefore have been recognised as being not damages but ‘equitable compensation’. But if there was ever any force in this narrow view, the re-enactment of the Lord Cairns’s Act power in the Senior Courts Act 1981, s 50 has surely removed it; for that omits any reference to the detailed circumstances in which there is jurisdiction to entertain an application for an injunction or specific performance so that the term ‘wrongful act’ is no longer included.

More recent cases have continued to ‘skirt’ the issue as to whether the damages are equitable or common law. So while in obiter dicta in Attorney-General v Guardian Newspapers (No 2)⁷⁵ Lord Goff expressed the clear view that the damages were equitable, as being based on a generous interpretation of Lord Cairns’s Act, the Court of Appeal in Dawson & Mason Ltd v Potter⁷⁶ awarded (compensatory) damages for breach of confidence without an injunction being granted or sought. A possible explanation for there being seen to be no problem with this was that, as in the Nicrotherm case, the breach of duty in question could have been viewed as purely contractual. In Campbell v MGN Ltd⁷⁷ the House of Lords upheld an award of £2,500 damages for mental distress plus £1,000 aggravated damages, in a claim framed as one for breach of confidence, without making any comment as to the jurisdictional basis of those damages: but that decision would now be viewed as awarding damages for the tort of privacy not the equitable wrong of breach of confidence.⁷⁸

(p. 523) (b)  The assessment of compensatory damages for breach of confidence

Whether common law or equitable (and leaving aside a possible restitutionary analysis), damages for breach of confidence are compensatory with the aim being to put the claimant into as good a position as if no breach of confidence had occurred.

Where the breach has been of a commercial (rather than a personal) confidence, one would therefore expect the damages to be assessed in a directly analogous way to damages compensating pecuniary loss for wrongful infringement of intellectual property rights.⁷⁹ Confidential information is very similar to, and may even be regarded as, intellectual property. This is borne out by the approach to damages of the Court of Appeal in Dowson & Mason Ltd v Potter.⁸⁰ The claimants were manufacturers of a part for lorries. They would not have licensed the use of confidential information (obtained by the first defendant and used by the second defendant) relating to that part (which comprised the names and addresses of the suppliers to the claimants of the various components for the part and the price paid for them). The claimants were awarded as damages their lost sales profits consequent on the breach of confidence. This was to assess damages on the same basis as for (other) cases of intellectual property infringement.

The Court of Appeal distinguished Seager v Copydex Ltd (No 2).⁸¹ This dealt with a breach of confidence claim in respect of a carpet grip. The Court of Appeal put forward an approach that differs somewhat from the general approach to assessing damages for intellectual property infringement. Drawing an analogy with damages for conversion, Lord Denning viewed the issue in terms of the ‘value’ of the confidential information. He went on to say that the value depended on the nature of the confidential information. If there was nothing special about it, ie it was the sort of information which could be obtained by employing any competent consultant, the value was the fee which a consultant would charge for it because, by taking the information, the defendant has merely saved itself the time and trouble of employing a consultant. But if the information was special, for example, if it involved some inventive step, its value would be far higher: ‘… not merely a consultant’s fee, but the price which a willing buyer—desirous of obtaining it—would pay for it. It is the value as between a willing buyer and a willing seller.’⁸² It was suggested that this price might be calculated by a capitalisation of the royalties which the court thinks the defendant would have had to pay the claimant for the information.

This approach is controversial because Lord Denning’s emphasis on the expense the defendant has saved makes it appear that he was more concerned to reverse the defendant’s enrichment than to compensate the claimant’s loss.⁸³ Although this has its attractions, and (p. 524) is supported by the reasoning in some other cases awarding ‘negotiating damages’ for torts and breach of contract,⁸⁴ it is difficult to reconcile with the Supreme Court’s compensatory approach to ‘negotiating damages’ in Morris-Garner v One Step (Support) Ltd.⁸⁵

Accepting, then, that the purpose of ‘negotiating damages’ is to compensate, there have been several other cases which support the view in Seager v Copydex (No 2) that ‘negotiating damages’—aimed at awarding a reasonable licence or royalty fee—can be awarded for breach of confidence.⁸⁶

For example, in obiter dicta in Douglas v Hello! Ltd (No 6)⁸⁷ the Court of Appeal indicated that, by analogy to intellectual property cases, licence fee damages could be awarded for breach of confidence in an appropriate case. Lord Phillips referred to such damages being awarded where there had been ‘unauthorised use of, or unauthorised benefiting from, intellectual property and similar rights …’⁸⁸ On the facts, it was thought that such damages should not be awarded for various reasons, including that the claimants could not lawfully, and would not, have granted a licence to the defendants (Hello! Ltd) because they had already granted the exclusive licence to publish the wedding photographs to OK! Ltd.

Again, in Vercoe v Rutland Fund Management Ltd⁸⁹ the claimants had entered into a contract with the first defendant for them to purchase together a company. The first defendant in breach of contract had gone ahead and, along with other defendants, had purchased the company without involving the claimants. In so doing confidential information had also been used by the other defendants involved in the purchase. It was held that what are now called ‘negotiating damages’, assessed according to a reasonable price to buy a release from the claimants’ rights, should be awarded against the first defendant for breach of contract and against the other defendants for breach of confidence. Sales J saw this award as compensatory. Particularly importantly and controversially he held that, even for the breach of confidence claim, the claimants were not entitled to elect for an account of profits rather than damages. The choice between damages and an account of profits was seen as being a matter for the court not the claimants. In his view, the extent of protection afforded by the law moves ‘from lesser protection in relation to an ordinary commercial context to greater protection where there is a fiduciary relationship’.⁹⁰ Here one was in a commercial context and the remedy for breach of confidence should be analogous to that given for breach of contract. An account of profits was therefore inappropriate.

Finally, in MVF 3 APS v Bestnet Europe Ltd⁹¹ damages were awarded for breach of confidence in respect of the defendants’ manufacture and sale of mosquito nets. It was held that it was correct to have awarded damages on two bases. The first was the claimants’ lost profits from the sales that, but for the breach of confidence, they would have made. This was referred to as the ‘General Tire measure’ by analogy to the leading case on this approach to assessing damages for patent infringement.⁹² The second, applicable to other sales made by the defendants in respect of which the claimants could not establish lost profits, was an award of a reasonably royalty fee (assessed at 4%) for the defendants’ use of the confidential (p. 525) information. This was to apply the ‘user principle’ and is now referred to as an award of ‘negotiating damages’.⁹³

Where the breach is of a personal, rather than a commercial, confidence, damages can compensate for non-pecuniary, as well as pecuniary, loss. This is shown by Campbell v MGN Ltd⁹⁴ in which the House of Lords upheld an award of £2,500 damages for mental distress plus £1,000 aggravated damages⁹⁵ made to Naomi Campbell, the celebrity model, for breach of confidence by a newspaper. However, since the clarification of the law in Vidal-Hall v Google Inc,⁹⁶ the cause of action in the Campbell case (as is recognised in the judgment of Lord Nicholls) would now be viewed as one for the tort of misuse of private information (ie the tort of privacy) rather than the equitable wrong of breach of confidence.

We have explained in chapter 19⁹⁷ that, in the context of restitution for wrongs, restitution is synonymous with disgorgement. In this book, the term restitution has been preferred but nothing does, or should, turn on whether one instead uses the term disgorgement.

As regards restitution for the four main types of equitable wrong (breach of fiduciary duty, breach of confidence, dishonestly procuring or assisting a breach of fiduciary duty, and proprietary estoppel), there is little to say in relation to the last wrong. This is because there appears to have been no English case in which restitution, rather than compensation, has been awarded for proprietary estoppel.

The monetary remedies for the wrong of proprietary estoppel have not been restitutionary but have been compensatory and concerned to protect the claimant’s expectation⁹⁸ or, occasionally, reliance interests.⁹⁹ That is not surprising given that proprietary estoppel is closely (p. 526) akin to breach of contract in resting on a breach of promise or conduct equivalent to a promise; and restitution has not traditionally been available for breach of contract. Whether, following Attorney-General v Blake,¹⁰⁰ it will be and should be more widely available turns on the issues concerning restitution for breach of contract considered in chapter 19.

In contrast to proprietary estoppel, restitution (as we shall see in the next two sections)¹⁰¹ has been a common response to breach of fiduciary duty and breach of confidence through the remedy of accounting for profits. Indeed it has sometimes been assumed that restitution is so central to these wrongs that the claimant cannot alternatively claim compensation for them. That is incorrect. As we have seen,¹⁰² compensation, through either the remedy of equitable compensation (sometimes referred to as accounting for loss) or equitable damages in substitution for, or in addition to, an injunction, is readily available as an alternative to restitution.¹⁰³

As regards the equitable wrong of dishonestly procuring or assisting a breach of fiduciary duty, it has recently been recognised that, apart from equitable compensation, which is the usual remedy, an account of profits may be awarded. We look at this in the third section below.¹⁰⁴

(a)  Restitution for breach of fiduciary duty

(b)  Restitution for breach of confidence

It is clear that, as an alternative to compensatory damages, a claimant can be awarded an account of profits for breach of confidence at least if that breach was intentional.¹⁴¹ Prior to Morris-Garner v One Step (Support) Ltd,¹⁴² one could strongly argue that a restitutionary analysis of ‘negotiating damages’, which can be awarded for breach of confidence, was also (p. 533) attractive. But the Supreme Court in that case has taken the view that ‘negotiating damages’ are compensatory not restitutionary.

That an account of profits can be awarded is shown by, for example, Peter Pan Manufacturing Corpn v Corsets Silhouette Ltd¹⁴³ where the defendants had manufactured and sold brassieres knowingly using confidential information obtained from the claimants. And in Attorney-General v Guardian Newspapers Ltd (No 2)¹⁴⁴ the Sunday Times was held liable to account for profits made in publishing, in breach of confidence to the Crown, the first extract of Peter Wright’s book, Spycatcher, that publication having taken place before the information had reached the public domain. Lord Keith said of an account of profits:

And in Lord Brightman’s words, ‘the only remedy available to the Crown is the inadequate remedy of an account of profits, on the basis that the Sunday Times unjustly enriched itself and should therefore be stripped of the riches wrongfully acquired.’¹⁴⁶

Although there is no case law on this, it would seem clear that, as with breach of fiduciary duty, in awarding an account of profits for breach of confidence the courts have a discretion to afford the defendant a liberal allowance for work and skill.

In Seager v Copydex Ltd,¹⁴⁷ which we have already examined under compensatory damages for breach of confidence, the Court of Appeal appeared to think that an account of profits was not an appropriate remedy on the facts. Although the reason for this was not given, the obvious explanation is that, in contrast to the Peter Pan and Spycatcher cases, the wrongdoing was not intentional in Seager v Copydex. In none of the English cases has it been held that the gains made in breach of confidence are held on constructive trust.¹⁴⁸ However, in the difficult Canadian case of LAC Minerals Ltd v International Corona Resources Ltd¹⁴⁹ a constructive trust was imposed for breach of confidence. In negotiations for a joint venture between them, the defendants acquired from the claimant information about the mineral potential of some land. The defendants subsequently outbid the claimant in buying that land and set up a successful gold-mine on it. The majority of the Supreme Court of Canada held that the claimant was entitled to a constructive trust of the land as a remedy for the defendants’ breach of confidence, subject to an allowance to the defendants, secured by a lien, for expenses in developing the mine that the claimant itself would have necessarily had to incur.

(p. 534) La Forest J, giving the main majority judgment, rejected the argument that a proprietary restitutionary remedy is only justified where the claimant has a pre-existing right of property. He said:

As with a constructive trust imposed on unauthorised profits made, or bribes taken, in breach of fiduciary duty, some commentators have objected that the approach taken in the Lac Minerals case unjustifiably sacrificed the interests of the defendant’s creditors.¹⁵¹

Why then did La Forest J consider that a constructive trust should be imposed? He suggested the following: ‘Having specific regard to the uniqueness of the Williams property, to the fact that but for LAC’s breaches of duty, Corona would have acquired it, and recognising the virtual impossibility of accurately valuing the property, I am of the view that it is appropriate to award Corona a constructive trust over the land.’¹⁵²

It is hard to accept that difficulty of assessment is a valid reason for preferring a proprietary, as opposed to a personal, restitutionary remedy for a wrong. And even if a justification for a constructive trust could lie in there having been an unjust enrichment by interceptive subtraction,¹⁵³ that should surely have meant that the constructive trust existed from the date when LAC acquired the property.

Wilson J appeared to think that the constructive trust was being imposed as a compensatory remedy:

A merit of that approach is that the remedies of specific performance and delivery up suggest that, at least where the subject matter is unique, difficulty in assessing compensation for a wrong can constitute a valid ground for preferring a proprietary remedy. But, on the facts, to impose the constructive trust as a means of ensuring full compensation rested on the unrealistic assumption that, had there been no breach of confidence, not only would the claimant have developed the mine itself rather than jointly with the defendants but also would have developed it as profitably as the defendants had done.

The minority (Soprinka and McIntyre JJ) preferred to award compensatory damages. The remedy of an accounting of profits had not been in issue and they thought a constructive trust inappropriate because, on their view of the facts, the extent of the connection between the confidential information and the acquisition of the property was uncertain.

(p. 535) Leaving aside whether a constructive trust is justified or not, it is clear that a personal restitutionary remedy, in the form of an account of profits, may be granted for breach of confidence. Is that justified?

Certainly the leading cases are explicable on Birks’ primary test of cynical wrongdoing.¹⁵⁵ Moreover, Jackman’s ‘facilitative institution’ analysis¹⁵⁶ would suggest that an account of profits should be available even if there has been no conscious wrongdoing. A relationship of confidentiality (whether confidential information is property or not) is a facilitative institution which merits special protection by the courts. On this view, Peter Pan and the Spycatcher case are justifiably restitutionary but an account of profits might also have been awarded in Seager v Copydex.

(c)  Restitution for dishonest assistance

It was decided in Novoship (UK) Ltd v Mikhaylyuk¹⁵⁷ that restitution, through an account of profits,¹⁵⁸ can be awarded for the equitable wrong of dishonestly procuring or assisting a breach of fiduciary duty (‘dishonest assistance’ for short). There were also obiter dicta to the effect that the same should apply to ‘knowing receipt’ although it is not yet clear how far knowing receipt is an equitable wrong rather than merely lying within the law of unjust enrichment¹⁵⁹ and there was no discussion of that issue by the Court of Appeal.

The decision is to be welcomed. Given that a breach of fiduciary duty triggers an account of profits, it follows naturally that the accessory liability of a dishonest assister should also trigger that remedy. Moreover, given the requirement of dishonesty for this wrong, the awarding of restitution is supported by Birks’ view that it is the moral quality of the wrongdoing that is particularly important.¹⁶⁰

In the Novoship case the Court of Appeal stressed that, for an account of profits to be awarded against a dishonest assister, there was no need for the breach of fiduciary duty being assisted to comprise a misapplication of trust property (on the facts, the breach of fiduciary duty primarily comprised the taking of bribes). But there did need to be a direct causal connection (beyond ‘but for’ causation) between the dishonest assistance and the profit for which the defendant was being required to account. It was therefore held, on the facts, that no account of profits should be awarded against the dishonest assisters because the direct cause of their profit was not the payment of the bribes but the increase in market (p. 536) value of the vessels that they had acquired at a commercial rate. In any event, an account of profits was regarded as a discretionary remedy and here to award it would be disproportionate to the wrongdoing.

In contrast, in the important High Court of Australia decision in Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd¹⁶¹ an account of profits was ordered for dishonest assistance. The value of the whole of a business acquired by assisting a breach of fiduciary duty was ordered to be disgorged. It was held to be sufficient that the claimant could show that that business would not have been acquired ‘but for’ the dishonest equitable wrong. No separate allowance was made for the defendants’ skill, time, and cost incurred because this was already covered by the ‘discounted cash flow’ method of assessing the value of the business. It was stressed that because of the dishonesty involved, it was not open to the defendants to establish that some part of the profit would have been made had they acted honestly without committing a wrong. In contrast it was open to the defendants to prove that some of the profit was too indirectly related to the wrong—even though satisfying the ‘but for’ test—so as to fall outside its scope but they had failed to do that. The court’s approach to causation, which might seem harsh on defendants, reflected the idea that the account of profits had a prophylactic or deterrent purpose. It was also made clear that the account could, and here should, cover anticipated wrongful profits as well as those already obtained.

It is worth noting that there is a close analogy between this equitable wrong of dishonest assistance and the economic torts. This supports the argument that restitution, through an account of profits, should be available for those torts even though, traditionally, it has not been.¹⁶²

(a)  Delivery up of material containing confidential information

A claimant can be granted delivery up of material containing confidential information belonging to the claimant.¹⁹⁸ This is a remedy for the equitable wrong of breach of confidence¹⁹⁹ and is analogous to delivery up of goods for tortious interference with goods²⁰⁰ although, a fortiori, no common law damages can be awarded and hence no usual adequacy hurdle needs to be overcome. Delivery up of material containing confidential information is a remedy concerned to compel the undoing of a wrong.

(b)  Delivery up for destruction or destruction on oath

As with tortious infringement of intellectual property rights,²⁰¹ so with breach of confidence, the courts have an inherent jurisdiction to order, and have ordered, a defendant to deliver up to the claimant or the court for destruction, or itself to destroy, articles made in breach of the duty of confidence owed to the claimant.²⁰² This remedy is best viewed as being to prevent a breach of confidence and as going one step beyond a prohibitory injunction.²⁰³

It is important to realise that this remedy is granted even though the claimant does not own the articles ordered to be destroyed.²⁰⁴ This is the key to avoiding confusion with the different remedy of delivery up of material containing confidential information. It follows that, while a claimant granted delivery up of confidential information belonging to the claimant is entitled to do what it likes with that property, a claimant to whom delivery up for destruction is ordered ought to destroy that property.