7. Non Compensatory Money Awards Notes

Non-Compensatory Money Awards: Gain-Based Damages

Introduction

1. Basics

• Essence –

  • The essence of this sort of award is to deprive a wrong-doer of the profits of his wrongdoing.

  • However they are more complicated and controversial than it at first appears.

2. The Awards

• Nature of the Awards

  • Measured by the monetary value of the benefit received by the defendant, or –

  • Awarded as a response to a civil wrong committed against the claimant.

    • Note that gain-based damages are different from the characteristic remedy for a civil wrong (i.e. compensatory damages), the hook for a restitutionary reward is the wrong, not an autonomous basis such as a mistaken payment.

  • The diversity of remedial forms are a product of unsystematic, historical development influenced by both common law, equity and statute.

  • Different types of award of differing measures reflect different ways of understanding wrongs.

• Diversity of Measures

  • There are a wide range of possible measures that exist for a single wrong -

    • (i) Larger, punitive measures

    • (ii) Gross proceeds

    • (iii) Net profits

    • (iv) Reasonable user fee/license fee

• Diversity of Justification

  • Different awards are justified in different ways

  • There are doubts about the legitimacy of these awards, judges take different views on how far it is appropriate to give claimants a windfall benefit, going beyond redistributive justice.

• Alternative Characterisations

  • Some remedies may look gain based but actually be susceptible to other explanations – may actually be an award for autonomous unjust enrichment.

    • E.g. stealing a car and selling it – law requires paying over of profit – is this is unjust enrichment or gain based remedies for a wrong?

  • Some gain based awards are re-characterized as compensatory damages rather than gain based remedies.

• Spectrum of Extra-Compensatory Awards

Punitive exemplary damages Profit stripping License fee and similar damages.

Exemplary Damages (Category 2)

1. Two Categories

• Key Authority - Rookes v Barnard 1964

  • Lord Devlin established that there are two categories of case in which exemplary damages are awarded.

  • The second category - “the second [comprises cases] in which the defendant’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the plaintiff”.

  • This award is characterised by a defendant who has had “cynical disregard” for the claimant’s rights.

2. Basics

• Basics

  • Conduct must be sufficiently outrageous to justify punishment.

  • Exemplary damages aim at deterrence as well as punishment.

  • They can be awarded even where no profits have been made, or even if there have been profits made, the quantum may exceed this amount therefore not technically a gain-based award.

• Necessary?

  • Law Commission are of the opinion that this category of damages have largely been overtaken by common law developments.

Profit-Stripping Awards

1. Basics

• Basics

• Profit-stripping awards = “disgorgement”

• In essence, the defendant must give up profits made, regardless of whether they represent gains from the claimant, or whether the claimant has suffered loss or not. But this is controversial because it looks like a windfall to the plaintiff – therefore need for a cogent reason to justify them.

• The dominant mechanism is equity’s account of profits.

2. Rationale

• Rationale

  • Prima facie appears to most obviously be justified by wrongdoers not be allowed to profit from their own wrongdoing.

  • Edelman has a thesis that disgorgement remedies have a deterrent function, whereas compensatory damages alone are inadequate to deter wrongdoing. He identified two categories.

    • (i) Cynical profit seeking – where a wrong is committed deliberately or recklessly to gain

    • (ii) Fiduciary wrongdoing – inadvertent, without conscious wrongdoing.

  • Burrows argues that this looks more proscriptive than prescriptive.

2. Availability

• Types of Wrongdoing

  • We see variations in the level of fault required, for certain forms of wrongdoing, it is the almost automatic response, and there is little discretion exercised in denying it. Other types of wrongdoing where disgorgement is more tightly defined and courts exercise more discretion to limit their damages.

    • (1) Breach of fiduciary duty

      • Profiting from fiduciary position

      • Stripping profits is the primary response

      • No defence that he acted in good faith

      • Prophylactic or preventative measure – creation of a disincentive for fiduciaries.

        • Authority – Boardman v Phipps 1967

        • Authority – Muraj v Al-Saraj 2005

    • (2) Dishonest participation in breach of fiduciary duty

      • Clear deterrence rationale.

        • Authority – Royal Brunei Airlines v Tan 1995

    • (3) Intellectual property wrongs

      • Long history of awarding account of profits for such infringements – this predates most statutes governing this area of law.

      • Common law courts, before these statutes, would recognize that the infringement was a wrong and would award damages, but courts of equity supplemented this by making available injunctive relief as well as remedying past infringements by making account of profit.

      • Account of profit appears to be available widely, pretty much at the claimant’s election – barely discretionary in practice. True of infringements of patents, copyrights, trademarks, passing off etc.

      • Edelman’s theory – under Edelman’s theory, they should only be awarded as deterrent. But it seems more confusing than this.

      • In relation to patent-infringement – there is a defence of innocent infringement.

      • Likewise in passing off and trademarks – prepared to limit account of profits where there is good faith. But different in copyright – exempts D from liability for damages for innocent infringement, but account of profits can still be awarded

      • Edelman would say this is an unjustified exception.

      • See statutory schemes –

        • Patents Act 1977 ss.61(1)(d), (62)(1)

        • Copyright, Designs and Patents Act 1988, s 96(2), 97(1)

        • Trade Marks Act 1994, s 14(2)

        • Community Trade Mark Regulations 2006

    • (4)...

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