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RESTITUTIONARY DAMAGES FOR
BREACH OF CONTRACT:
A COMPARATIVE ANALYSIS OF
ENGLISH AND GERMAN LAW
KONRAD RUSCH*
Research Assistant in Private Law, Roman Law and Comparative
Legal History, University of Regensburg
I INTRODUCTION
According to English contract law, damages for breach of contract consti-
tute compensation for loss. Recent academic debate and judicial development
have begun to question this orthodox position. Is compensation satisfactory
when the defendant has obtained a benefit from its breach of contract which
exceeds any loss suffered by the plaintiff? The recent House of Lords decision
in Attorney-General v Blake has brought an alternative measure to the fore:
restitutionary damages that force the party in breach to give up its gains to
the aggrieved party.I Other legal systems need to deal with this issue as well:
how should the law respond to a breach of contract that entails more profit
to the party in breach than loss to the aggrieved party? A comparative survey
reveals that German law, too, has had to find ways to protect the aggrieved
party's interest beyond compensation of loss and to prevent defaulting parties
from profitably exploiting their breach of contract. In this paper I discuss this
issue in the light of latest developments, comparing the solutions proferred
by English and German law.
In Blake the House of Lords for the first time directly addressed the issue
as to whether restitutionary damages can, in principle, be available as a
response to a breach of contract. The answer of the majority was a cautious
'yes' - but it was emphasized that 'exceptions to the general principle that
there is no remedy for disgorgement of profits against a contract breaker are
best hammered out on the anvil of concrete cases' 2 and that 'no fixed rules
can be described'. 3 The problems thus remain. Apart from the fact that it is
now clear that disgorgement awards for breach of contract can in principle
* MJur (Oxon). I would like to thank Mrs Mindy Chen-Wishart for her encouragement and support
in researching this article and also Stephen Watterson and Jean Meiring for valuable comments on earlier
drafis.
1 [2000] 3 WLR 625 (HL).
2 Attorney-General v Blake [2000] 3 WLR 625 (HL) at 645, per Lord Steyn.
3 At 639, per Lord NichoUs.
6) THE SOUTH AFRICAN LAW JOURNAL
be available, the question is still open as to the circumstances in which a claim

to the gain would be permitted.
I conclude that the House of Lords was correct not to shut the door to
restitutionary damages for breach of contract; I argue that there is a place for
disgorgement awards as a response to breach of contract. However, at the root
of the current dissatisfaction with the compensatory regime in English law is
not the absence of restitutionary damages but rather the insufficient protec-
tion of the performance interest that the traditional armoury of contract
remedies provides. It is along the lines of established contract remedies that
further development will be able to overcome these shortcomings. 4 The
introduction of restitutionary damages as a readily available, general response
to breach of contract would bear no relation to the central goal of contract
damages, the protection of the contracting parties' interest in obtaining
performance, and would yield arbitrary results. Sometimes restitutionary
awards fall short of the performance interest, sometimes they exceed it.
Disgorgement awards for breach of contract are justified where the gain
consists of the substitute of the promised performance to which the aggrieved
party had an exclusive contractual entitlement. The paradigmatic example is
the civilian notion of the commodum ex negotiatione cum re under § 281
I Biirgerliches Gesetzbuch (Civil Code - BGB), which finds its common
law counterpart in cases like Lake v Bayliss.5 Lord Nicholls in Blake recognized
precisely this type of case as an instance of account of profits for breach of
contract: 6 'A person who, in breach of contract, sells land twice over must
surrender his profits on the second sale to the original buyer.'
On terminology, Lord Nicholls noted: 'My conclusion is that there seems
to be no reason, in principle,why the court must, in all circumstances, rule out
an account of profits as a remedy for breach of contract. I prefer to avoid the
unhappy expression "restitutionary damages"....'7 None the less,the 'unhappy'
term of restitutionary damages is used here; this use reflects its still predomi-
nant role in academic literature. 8 The term describes a remedy which (as a
response to the wrong of breach of contract) forces the party in breach to
give up his gains generated through the breach to the aggrieved party.
'Account of profit' and 'disgorgement' are synonyms. 9
4 This position is not new.Mindy Chen-Wishart 'Restitutionary damages for breach ofcontract' (1998)
114 LQR 363 at 367-8 suggests addressing the problem of inadequacy 'directly' by improving the
compensatory measure. Taking the same line are Janet O'Sullivan 'Reflections on the role of restitutionary
damages to protect contractual expectations'in DavidJohnston & Reinhard Zimmermann (eds) Comparative
Law of Unjustified Enrichment (to be published 2001); Catherine Mitchell 'Remedial inadequacy in contract
and the role ofrestitutionary damages' (1999) 15Journalof Contractlaw 133 at 140 and 154;Ewan McKendrick
'Breach of contract and the meaning of loss' (1999) 52 Current Legal Problems 37 at 71.
5 [1974] 1 WLR 1073.
6 Attorney-General v Blake [2000] 3 WLR 625 (HL) at 638, per Lord Nicholls.
7 Ibid.
8 See note and Law Commission Report No 247 (1997) Aggravated,Exemplary andRestitutionaryDamages;
Lord Steyn also refers to 'restitutionary damages': Attorney-General v Blake [2000] 3 WLR 625 (HL) at 644.
9 It is not ignored that some commentators argue in favour of a different nomenclature, e g Lionel D
Smith 'Disgorgement of the profits of breach of contract: Property, contract and efficient breach' (1994-5)
24 CanadianBusiness LJ 121 at 122 (in favour of the term 'disgorgement' when the giving up of the - entire
- wrongful gain is ordered) and James Edelman 'Restitutionary damages and disgorgement damages for
RESTITUTIONARY DAMAGES FOR BREACH OF CONTRACT
II THE TRADITIONAL MEASURE OF COMPENSATION

IN ENGLAND AND GERMANY: REASONS FOR
DISSATISFACTION
The House of Lords, in Blake, refrained from introducing restitutionary
damages as a generally available response to breach of contract. In fact, this
would would have been a novelty to both English and German law. An
illustrative case of the English law is The Siboen and the Sibotre.10 There, the
defendant shipowner, in breach of contract, withdrew ships from a charter-
party. The charterers claimed an account of the profits which the owners had
made from the use of the ships during the remainder of the charter periods.
Kerr J could '... see no basis for the charterers being entitled to an account
of the profits made by the owners'. He continued: 'If they are entitled to
anything they are entitled to damages in the normal way on the ground that
the owners wrongfully repudiated the charter parties by withdrawing the
ships from their service.'
Tito v Waddell (No 2) provides another example of the compensatory
measure. In breach of contract, the defendant had refused to restore Ocean
Island in the Pacific to its former condition after mining operations. In
awarding merely nominal damages, Megarry V-C stated:l 1'[I]t is fundamental
to all questions of damages that they are to compensate the plaintiff for his
loss or injury by putting him as nearly as possible in the same position as he
would have been in had he not suffered the wrong. The question is not one
of making the defendant disgorge what he has saved by committing the wrong,
but one of compensating the plaintiff.' This, the English point of departure, is
summed up in the words of Lord Nicholls: 1 2 'Leaving aside the anomalous
exception of punitive damages, damages are compensatory. That is axiomatic.'
German law takes a similar position. However, it would be misleading to
speak ofconsequences of 'breach ofcontract'in German law generaliter. There
is no broad category of breach of contract; rather, there is a variety of different
types of irregularities of performance giving rise to different remedies. In this,
German law also differentiates between various types of contract, for example
between sales and works contracts. 13 These 'irregularities' can give rise to
damages for expectation loss, i e for non-performance (Schadensersatz wegen
Nichterfiillung). In establishing the extent to which the plaintiffis made worse
off through the breach of contract, German law takes account of his financial
position only, not of the gain to the defendant. This leaves no room for
disgorgement.
breach ofcontract'(2000) Restitution LR 129 at 132 (in favour ofa distinction between 'restitutionary damages'
as the 'reversal of a wrongful transfer of value' and 'disgorgement damages' as the giving up of the value
received). The use of the term 'restitutionary damages'as suggested here isjustified as long as the mistake is
avoided to include also such awards (as the award in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974]
1 WLR 798 (Ch)) where the gain is not given up in its entirety but rather used as a yardstick for the calculation
of a different measure, see text to note 37.
10 [1976] 1 Lloyd's Rep 293 (QB) at 337 col 1. " [1977] Ch 106 at 332.
12 Aitorney-General v Blake [2000] 3 WLR 625 (HL) at 635.
13 See Werner Lorenz 'Reform of the German law ofbreach ofcontract' (1997) Edinburgh LR 317 with
an overview over the current system and the reform proposals presently under discussion.
62 THE SOUTH AFRICAN LAW JOURNAL
What reasons are there for deviating from this shared tenet of English and
German law, and awarding restitutionary damages? Two lines of criticism can
be identified asjustifying a restitutionary award. The first focuses on the failure
of compensatory awards to deter wilful breaches, committed purposely to
generate gains;1 4 the second focuses on the failure of compensatory awards
to protect adequately the plaintiff's performance interest. 15
The first line of criticism rests on the view that the defendant ought not
to be allowed to keep the ill-gotten gains derived from a wilful and
opportunistic breach of contract. Birks 16 gives the example of a firm that
contracts with a hospital to carry out certain kinds of cleaning at rigorous
standards of hygiene. In full knowledge of the risks, but hoping for the best,
the firm saves money by ignoring these standards. After a while the hospital
realizes the firm's breach of contract. If no harm is attributable to the
substandard nature of the cleaning, no compensatory damages can be awarded.
Birks suggests that in such a case an award of restitutionary damages would
be justified as a way of deterring the firm from gambling with the other party's
contractual interests.
Rather than focusing on the reprehensible conduct of the defendant, the
second line of criticism looks at the situation from the perspective of
the plaintiff compensatory damages often leave the plaintiff deprived of an
effective remedy because no value is placed upon the plaintiff's interest in
having the contract duly performed. Arguably, restitutionary damages for
breach ofcontract are needed in order to fill this gap and elevate the protection
of contractual rights.
The Court of Appeal in Blake identified two typical cases which illustrate
this inadequacy of compensatory damages in protecting the plaintiff's
interests. 17 These are the so-called cases of 'skimped performance' and those
of 'negative undertakings'.
In the first category the plaintiff is overcharged inasmuch as the defendant
does not bring his side of the bargain filly.For example, in the Louisiana case,
City of New Orleans v Firemen's CharitableAssociation,18 the defendant's fire
fighting service had failed to keep available the specified numbers of men and
lengths of hosepipe, thereby saving $40 000. The Louisiana Supreme Court
held that substantial damages could not be recovered as no loss had been
14 Peter Birks 'Restiutionary damages for breach of contract: Snepp and the fusion of law and equity'
(1987) Lloyd's Maritime and Commercial LQ 421 at 440; idem 'Profits of breach of contract' (1993) 109 LQR
518 at 519; Richard O'Dair 'Remedies for breach of contract: A wrong turn' (1993) Restitution LR 31 at
37-8; Smith op cit note 9 at 128-9; Sir William Goodhart 'Restitutionary damages for breach of contract
- The remedy that dare not speak its name' (1993) Restitution LR 3 at 9;Andrew Burrows 'Legislative reform
of remedies for breach of contract' in idem Understandingthe Law of Obligations 135 at 140-5.
'5 CfBrian Coote 'Contract damages, Ruxley, and the performance interest' (1997) Cambridge LJ537;
Chen-Wishart op cit note 4 at 367-9; O'Dair op cit note 14 at 123-8;Janet O' Sullivan 'Loss and gain at
greater depth: The implications of the Ruxley decision' in Francis Rose (ed) Failure of Contracts,Contractual,
Restitutionary and Proprietary Consequences (1997) 1 at 19-22; Hugh Beale 'Exceptional measures of damages
in contract' in Peter Birks (ed) Wrongs and Remedies in the Twenty-First Century (1996) 217 at 223-9.
16 (1993) 109 LQR 518 at 519.
17 Attorney-General v Blake [1998] Ch 439 (CA) at 458, per Lord WoolfMR.
18 [1891] 9 So 486.
caused through fires. A more recent example is Ruxley Electronics and Construc-
tion Ltd v Forsyth.19 The defendant's failure to build a swimming pool as deep
as promised caused the plaintiff no financial loss.
The second category of restitutionary damages advocated by the Court of
Appeal are cases of negative undertakings. The facts of Blake itself fall squarely
within this category. Blake was a classic spy. From 1944 to 1961 he was a
member of the British security and intelligence service and, from 1951 until
1960, also a Soviet informant. He was tried and sentenced to 42 years'
imprisonment, but escaped to Moscow in 1966, where he wrote his auto-
biography entitled No Other Choice, published in 1990. Back in 1944, Blake
had signed an undertaking not to divulge any official information gained as
a result of his employment either in the press or in book form. The outstanding
royalties for his book were gains generated by breaching the negative
undertaking not to publish information obtained through his work for the
secret intelligence service. Another example is given by Birks of a gardener
who disregards his undertaking not to publish private information obtained
whilst working in his celebrity employer's garden. 20 The employer has suffered
no financial loss and no cost of cure award could fulfil his original contractual
expectations.
The skimped performance cases reveal the shortcomings of the assumption
that the expectation interest extends only to the protection of the financial
position ofthe plaintiff.2 1There is more to the purpose ofcontractual damages
than to secure the economic end-result of performance. 0 W Holmes'
proposition that there is no such thing as a duty to perform a contract, but
merely a probability that a court will order damages to be paid for its breach, 22
cannot explain a case like Ruxley: the employer's interest in securing the
economic end result of performance in that case was nil. Contracts are more
than merely undertakings in the alternative, to perform or to pay damages. It
is the purpose of creating contractual obligations that they are to be complied
23
with, not only that damages are paid in lieu of performance.
The authorities do recognize this. According to Lord Nicholls's speech in
Blake it is already 'trite law' that contract damages do not take account of
financial loss only:2 4 'It is ... well established that an award of damages, assessed
by reference to financial loss, is not always "adequate" as a remedy for a breach
of contract. The law recognizes that a party to a contract may have an interest
in performance which is not readily measurable in terms of money.' Indeed,
exceptions to the principle of compensating financial loss have long been
1' [19961 AC 344. Other examples have already been given; Birks's example of the failure to provide the
full extent of hospital cleaning and Tito v Waddell.
20 (1993) 109 LQR 518 at 519.
21 These shortcomings are widely recognized in the academic literature: McKendrick op cit note 4 at
72; Coote op cit note 15 at 540-2; Daniel Friedmann 'The performance interest in contract damages' (1995)
111 LQR 628 at 654.
22 Oliver W Holmes The Common Law (1881) 301.
23 p S Atiyah 'Holmes and the theory ofcontract'in idem Essays on Contraa (1986) 57 at 65-7.
24 A torney-General v Blake [20001 3 WLR 625 (HL) at 636.
25
recognized: contractual damages may include compensation for pain and
suffering, and for disappointment and mental distress caused, for instance, by
the failure to provide a holiday of the advertised standard. 26 But, so far, these
extensions of the compensatory measure do not cover cases of skimped
performance such as City of New Orleans or Tito v Waddell. In Ruxley the
solution found was a loss of amenity award, the cost of cure award being
'unreasonable'. The argument in favour of restitutionary damages is that
where gains have been generated in breach of contract, restitutionary damages
could fill the gap. Instead of obtaining what he bargained for, the plaintiff
should at least get the profits made by the defendant.
To summarize: there seem to be two basic criticisms of the compensatory
measure. The first is the failure ofcompensatory awards to prevent wrongdoers
from keeping the proceeds of their wrongdoing. The second is the inadequate
protection of the plaintiff's legitimate interest in having the contract duly
performed. The Court ofAppeal in Blake identified two situations where these
shortcomings arise. On the one hand are cases where the plaintiff's non-
financial expectations are only partly fulfilled (due to a skimped performance)
and where cost of cure is either retrospectively impossible (City of New
Orleans) or unreasonable (Ruxley). On the other hand are cases of negative
undertakings, where the very contractual interest is that the defendant refrains
from a certain act but where no financial loss arises from the breach. The two
criticisms are not mutually exclusive. They underlie the reasoning of both the
Court ofAppeal and the House of Lords in Blake.The fact that the 'wrongdoer
should not be permitted to retain any profit from his breach', though in itself
not a sufficient ground for restitutionary damages, 27 justifies the award in
conjunction with the idea that the plaintiff's interest in performance requires
such protection.
III THE CASE LAW: TRACES OF RESTITUTIONARY

DAMAGES
Lord Nicholls accepted that there was a 'surprising dearth of judicial
decision' on the recovery of profits arising from breach of contract. 28 Blake
itself has not come up with an ultimate test to single out the circumstances
in which such recovery is allowed. The inquiry into the basis for the contract
remedy of disgorgement will thus have to continue. Cases of restrictive
covenants do not provide this basis. This is discussed in section A below.
Since the Court of Appeal's obiter dicta in Blake, the two categories of
skimped performance and negative undertaking have been mooted as possible
instances where restitutionary damages would be appropriate. The House of
Lords thought that this categorization would not assist to determine when
25 Cf Hugh Beale (ed) Chitty on Contracts 28 ed (1999) % 27-068-27-071.

26Jaits v Swans Tours Lid [1973] QB 233 (CA).
27 Attorney-General v Blake [1998] Ch 439 (CA) at 457, per Lord WoolfMR; [2000] 3 WLR 625 (HL)
at 640, per Lord Nicholls.
28 At 631.
PLESTITUTIONARY DAMAGES FOR BREACH OF CONTRACT
an account of profits would be available. 29 However, these are the categories

where the dissatisfactions with the compensatory regime arise. Even though
restitutionary damages might not be the right solution to these cases,
the dissatisfaction with the traditional remedies remain. Moreover, it is in the
30
category of negative undertakings where a 'light sprinkling of cases' of
gain-based awards can be found. In this respect, the Court ofAppeal categories
of skimped performance and negative undertakings have not lost their
relevance even after the decision of the House of Lords. They are discussed in
sections B and C.
It has been suggested that in a system with a higher level of protection of
the performance interest, an indication for which is the general availability
of specific performance, restitutionary damages would be more openly
available. 31 It will therefore be of interest to see, in section D, whether this is
so in German law. It will appear that the scope of disgorgement remedies in
German law is in fact rather limited.
A Restrictive covenant cases

The courts have had the chance to award restitutionary damages for breach
of contract in three cases of restrictive covenants: Wrotham Park Estate Co Ltd
v ParksideHomes Ltd,32 Surrey County Council v Bredero Homes Ltd33 andJaggard
" Sauyer.34 Restitutionary damages could have been the response to the failure
to abide by the terms of the restrictive covenant. In Wrotham Park the
defendants had built a number of houses on land in breach of a restrictive
covenant with the plaintiff neighbouring landowner, thereby making a gain
ofk50 000. In Bredero the defendant builder made an extra profit by building
77 instead of 72 houses, in breach of a covenant with the plaintiff local
authority. In Jaggard v Sauyer the defendant's new house was built in breach
of a restrictive covenant with the plaintiff neighbour. In Wrotham Park and
Jaggard v Sauer 'damages' were awarded in lieu of an injunction to prevent
the breach of covenant. They were measured by the amount the plaintiffcould
reasonably have asked for the release from the covenant. In Bredero no damages
in lieu of an injunction were awarded because the plaintiff had delayed
proceedings for an injunction until after the sale of the houses. At that point
the covenant was no longer enforceable by means of an injunction. Therefore,
no damages could be awarded.
Differing views have been put forward to explain these cases. The 'lost
opportunity to bargain' approach characterizes the award as compensatory: 35
29 At 639, per Lord Nicholls; at 645, per Lord Steyn.

30 At 638, per Lord Nicholls.
31 McKendrick op cit note 4 at 72, referring to the Israeli case Adras Building Material Ltd v Harlow &
Jones GmbH (1995) Restitution LR 235 (Israel Supreme Court).
32 [1974] 1 WLR 798 (Ch). 33 [1993] 1 WLR 1361 (CA).
34 [1995] 1 WLR 269 (CA).
35 R Sharpe & S M Waddams 'Damages for lost opportunity to bargain' (1982) 2 OxfordJournalof Legal
Studies 290 at 292 and 296; S M Waddams 'Profits derived from breach of contract: Damages or restitution'
(1997) 11 Journal of Contract Law 115 at 116-17 and 125-6.
in Wrotham Park andJaggardv Sawyer the courts did not award the profit which
the defendant had made by the breach, but rather the amount which it was
36
judged the plaintiff might have obtained as the price of giving his consent.
The Wrotham Park award was calculated on the basis of a percentage of the
defendant's profit. It amounts to an award of the cost of user, the reasonable
licence fee. That fee is tied to the profits only because in negotiating the user
fee the parties would take these anticipated profits as a yardstick. 37 This view
is criticized for involving an artificial inquiry into hypothetical bargains
which, on the facts of the case, would never have been made. 38 As an
alternative, it is suggested to view the award as 'restitutionary damages' in a
different sense, restoring the market value of the right (in Wrotham Park
the right of development worth _2 500) wrongfully transferred to, or appro-
39
priated by the defendant.
The point of importance in this context is that, whichever of these
positions is taken, they distinguish the award in the restrictive covenant cases
from true disgorgement awards. It is not denied that the award in Wrotham
Park was measured by the defendant's gains. Restitutionary damages, however,
would have amounted to the whole of the defendant's gains, i e C50 000,
although the defendant might have claimed counter-restitution for the costs
of generating the gain. By contrast, Brightman J awarded only C2 500, 5 per
cent of that sum. The case, therefore, is no authority for restitutionary
damages. Lord Nicholls in Blake sees this difference. Having discussed the
restrictive covenant authorities, he notes that 'in the present case the Crown
seeks to go further. The claim is for all the profits of Blake's book which the
publisher has not yet paid him. This raises the question whether an account
40
of profits can ever be given as a remedy for breach of contract.'
B Skimped performance
It is difficult to find a case of skimped performance in which restitutionary
damages have been awarded. In Radford v De Froberville4l the facts were similar
to Tito v Waddell except for the extent of the neglected duty - only a wall
was to be erected. The plaintiff was awarded the cost of cure. But that is hardly
disgorgement. Oliver J adopted compensatory reasoning by saying that the
award reflected the plaintiff's loss of the wall. Nothing would be gained by
labelling this award as restitutionary. In fact, the cost of cure could be more
or less than the expense saved, depending on how efficiently the defendant
was able to perform at the respective point in time. Such factors are entirely
36 CfJaggardv Sawyer [1995] 1 WLR 269 (CA) at 291, per Millet LJ. Lord Hobhouse in Attorney-General
v Blake [2000] 3 WLR 625 (HL) at 652-3 also adopts this explanation of'compulsory purchase'.
37 CfSarah Worthington 'Reconsidering disgorgement for wrongs'(1999) 62 Modern LR 218 at 228n58.
38 e g Edelman op cit note 9 at 133. There was an express finding to that effect in Wrotham Park [1974]
1 WLR, 798 (Ch) at 815.
39 Edelman op cit note 9 at 133.
40 Attorney-General v Blake [2000] 3 WLR 625 (HL) at 637 (emphasis added).
41 [1977] 1 WLR 1262 (Ch).
irrelevant to the award of cost of cure. The award is, therefore, better viewed
as compensatory.
The introduction of restitutionary damages as a general remedy by the
House of Lords in Blake would have been contrary to existing authorities
such as Tito v Waddell or White Arrow Express Ltd v Lamey's DistributionLtd.42
In the former case, as is well known, this measure was explicitly refused. That
decision would have to be overruled: disgorgement of the defendant's gains
would amount to an award of the cost of cure - which was denied in Tito
v Waddell. In White Arrow the defendant had contracted to deliver and collect
goods for the plaintiffs at an 'enhanced'level of services for an extra price. But
rather than awarding disgorgement, the Court of Appeal regarded the 'over-
payment', due to the lower standard of performance, as a loss that would have
to be compensated. For want of appropriate pleading, however, only nominal
damages were awarded. The same compensatory approach was taken in
Ruxley. A loss of amenity award was given because, on the one hand, the
compensatory principle did not seem to protect the employer's interest
adequately and, on the other hand, a cost of cure award seemed unreasonable.
The House of Lords in Blake did not take the occasion to overrule cases
like Tito v Waddell. There are now dicta by Lord Nicholls which suggest a
solution along other lines. He indicates that skimped performances call for
a partial refund of the price agreed for the services, and not for an account of
profits.'The resolution of the problem of cases ofskimped performance,where
the plaintiff does not get what was agreed, may best be found elsewhere. If a
shopkeeper supplies inferior and cheaper goods than those ordered and paid
for, he has to refund the difference in price. That would be the outcome of a
claim of damages for breach of contract.' 43 Lord Nicholls proposes the award
of the difference in price reflecting the inferiority of the performance
provided, understood as a form of 'compensation'. In search of an adequate
solution along these lines, possible alternative remedies will be discussed in
section IV A.
C Negative undertakings
It is in this category that Lord Nicholls found the 'light sprinkling' of

instances of the judicial acceptance ofrestitutionary damages. 44 The restrictive
covenant cases fall squarely within this category. The covenantor is liable for
doing the very thing he contracted not to do. It has been seen that these
cases provide no basis for disgorgement. But is disgorgement available in
other cases of negative undertakings?
Blake is a case of breach of a negative undertaking where an award of
restitutionary damages was given. However, it was made clear by the House
of Lords that the breach itself was not sufficient to justify the remedy. In the
42 [1995] The TimesJuly 21 (CA); noted Hugh Beale 'Damages for poor service' (1996) 112 LQR 205.
43 Attorney-General v Blake [2000] 3 WLR 625 (HL) at 639-40, per Lord NichoUs.
44 At 638.
Court of Appeal the Crown obtained a public-law injunction on the ground

that the publishers would be aiding and abetting a criminal offence in paying
royalties to Blake. A claim for an account of profits, based on breach of
contract, was not advanced any further because the public-law remedy had
already been obtained. In obiter dicta the Court of Appeal advocated an award
of restitutionary damages when two requirements are satisfied. There has to
be a direct connection between the profit and the breach: the breach must
not merely provide the opportunity to make the profits. In addition, the
breach must attract 'inadequate' compensation with regard to the objects
which the plaintiffs sought to achieve by the contract. This would be the case
45
with 'skimped performance' or 'negative undertakings'.
The House of Lords set aside the public-law injunction and awarded
restitutionary damages. However, the broad categories put forward by the
Court ofAppeal were not endorsed. Recovery was grounded on a much more
narrow basis. First, a variety of relevant factors was laid down. Those include:
'the subject matter of the contract, the purpose of the contractual provision
which has been breached, the circumstances in which the breach occurred,
the consequences of the breach and the circumstances in which the relief is
sought. A useful general guide, although not exhaustive,is whether the plaintiff
had a legitimate interest in preventing the defendant's profitmaking activity
and, hence, in depriving him of his profit.' 46 Next, some of these indicia were
applied to the facts of Blake. Referring to the 'legitimate interest'requirement,
it was held that '[t]he Crown has a legitimate interest in preventing Blake
profiting from the disclosure of official information, whether classified or not,
while a member of the service and thereafter. Neither he, nor any other
member of the service, should have a financial incentive to break his under-
taking.'47 A further consideration was the analogy with fiduciary obligations:
even though the general prerequisites of a fiduciary duty to disgorge the
profit were absent, 48 Blake's undertaking was 'closely akin to a fiduciary
obligation' and 'in the special circumstances of the intelligence services, the
same conclusion should follow even though the information is no longer
confidential'. 49 The case does not justify restitutionary damages in cases of
negative undertakings generally. '[S]omething more is required than mere
breach of such a [negative] obligation before an account of profits will be the
50
appropriate remedy'
There appear to be two more negative undertaking cases where restitu-
tionary damages have been awarded, both quoted by Lord Nicholls in Blake
as 'cases where courts have made orders having the same effect as an order for
45 See text to note 17; similar dicta can be found in the Irish case Hickey and Company LDdv Roches Stores
(Dublin) Lid (No 1) (1993) Restitution LR 196 (Irish High Court).
48 Attorney-General v Blake [1997] Ch 84 at 96, per Scott V-C; aff'd [1998] Ch 439 (CA) at 453-5, per
Lord WoolfMR.
49 Attorney-General v Blake [2000] 3 WLR 625 (HL) at 641, per Lord Nicholls. Cfat 646,per Lord Steyn:
'[T]he reason of the rule applying to fiduciaries applies to him.'
R.ESTITUTIONARY DAMAGES FOR BREACH OF CONTRACT
an account of profits': 5 I Reid Newfoundland Co v Anglo-American Telegraph Co52

53
and British Motor Trade Association v Gilbert.
In Reid the Anglo-American Telegraph Co had contracted with a third
party to provide a special wire along a Canadian railway. This third party had
undertaken not to pass or transmit commercial messages over the wire except
for the benefit and account of Anglo-American. The railway was first sold
to the Newfoundland Government 'subject to subsisting contract with
Anglo-American', who then leased it to Reid Newfoundland. When Reid
Newfoundland breached the subsisting undertaking by using the wire for
various other commercial purposes, Anglo-American claimed an account of
profits for the use of the wire. The Privy Council held that Reid was
accountable as a trustee for the profits made from the unauthorized user of
the wire; according to special Newfoundland trust legislation, therefore, the
plea of limitation had to be rejected.
Although the award is clearly restitutionary, it is difficult to view the case
as a principled basis for disgorgement awards. It relies on the finding of a trust
- but it remains unclear on what facts the trust should have arisen. Had the
trust already arisen between the original parties to the contract, by agreement?
The brief reasoning and unsatisfactory explanation of the disgorgement
measure based on a fiduciary relationship is perhaps due to the fact that the
case before the Privy Council merely turned on a limitation point.
British Motor Trade Association v Gilbert is sounder authority in favour of
restitutionary damages. The defendant purchased a Jaguar for roughly C1 300
and covenanted with the plaintiff trade association that he would not, during
a period of two years from the date of delivery, sell the vehicle without the
consent of the plaintiffs. The plaintiffs had the right to purchase the car at
the original list price. The BMTA hoped, by agreements of this kind, to
prevent inflation in the value ofmotor cars on the market, owing to the limited
supply in the post-war period. In breach of contract the defendant sold the
car at the market price. The plaintiff claimed the difference between the list
price and the market value.
On the face of it, Dankwerts J awarded damages for the loss of the
opportunity to purchase the car at the list price. But this option was
hypothetical: the defendant would not have sold the car if not at the higher
market price. Dankwerts J seems to be concerned to protect the 'horizontal'
restraint of trade regime 54 between the parties. To achieve this, he ordered
disgorgement of the gains generated in breach of the negative undertaking
rather than compensation for loss. This is a clear restitutionary award, albeit
'shoehorned' into a compensatory framework. 55
5 At 638.
52 [19121 AC 555 (PC).
53 [195112 All ER 641 (Ch).
5 Cf Hugh Beale (ed) ChiUtty on Contracts § 17-130-17-138.
5 Smith op cit note 9 at 126.The award'effectively stripped the wrongdoer ofthe profit':Attorney-General
v Blake [2000] 3 WLR 625 (HL) at 638, per Lord Nicholls.
To sum up, apart from Blake there appear to be two cases of disgorgement
for breach of a negative undertaking. 56 Reid Newfoundland reaches this result
through the imposition of a trust. The case is very thin on why, and under
what contractual circumstances, the account of profits would be available. In
the BMTA case the restitutionary award seems to have been given in order
to enforce a specific trade agreement, not as a general sanction for breach of
contract. The object of the restitutionary award is to enforce those restraint
of trade and competition regimes. It is not the contractual right as such that
the courts seek to protect. This confirms the view taken by Lord Nicholls
that other considerations than the mere breach of the negative undertaking
are involved whenever a restitutionary award is given.
D German law: Commodum ex negotiatione cum re and other cases

(a) The general availabilityof specific performance
In protecting a contracting party's performance interest, German law has
a different point of departure. Specific performance is available as of right. 57
German law thus generally provides more extensive protection of the
performance interest. In principle, there is no reason why German courts
should not allow specific performance in a case like Tito v Waddell. German
law has adopted unreasonableness clauses only in certain cases: for example,
the contractor of a contract for works is entitled to refuse the removal of a
defect in the work if that requires disproportionate outlay (§ 633 II 3 BGB).
The law of damages contains another unreasonableness clause: here, the
aggrieved party can generally claim 'Naturalherstellung', i e restitution in
kind. He can force the debtor to bring about restitution in kind, and he does
not have to put up with financial compensation.Exceptionally, 251 I11 BGB
allows the debtor to provide compensation sounding in money if restitution
in kind entails disproportionate outlay. But generally, if a party promises an
extremely costly performance - and the contract is not frustrated through
a change of circumstances - German courts will not seek to release the
contracting party from his burdensome, but contractually agreed-upon, duty.
In Ruxley, however, specific performance would not have been available,
because of the unreasonableness clause in § 633 II 3 BGB. In Tito v Waddell
no such clause would have prevented the creditor's obtaining specific
performance of his primary obligation.
56 Peter Birks An Introduction to the Law of Restitution rev ed (1989) 335-6, idem (1987) Lloyd's Maritime
and Commercial LQ 421 at 429-30, Smith op cit note 9 at 139-40 and Edelman op cit note 9 at 141 view
Moses v Macferlan [1760] 2 Burr 1005, 97 ER 676 as another restitutionary case - which would indeed
follow the negative undertaking fact pattern. It is difficult to see this case as one of disgorgement. A
compensatory claim for breach of contract would have been perfectly adequate: the same C6 would have
been awarded.
57 Cf Basil S Markesinis, Werner Lorenz & Gerhard Darmerarm The German Law of Obligations, Vol 1,
The Law of Contracts and Restitution:A ComparativeIntroduction (1997) 617-24.
(b) Disgorgement of the substitute under 5 281 BGB
Besides having recourse to specific performance, the creditor can make use
of the gain-based remedy under 5 281 BGB. This is a claim to the substitute
that the debtor may have obtained as a result of the very fact that has rendered
performance impossible (stellvertretendes Kommodum). The classic situation
arose before the Oberlandesgericht Celle (Court of Appeal - OLG).58The
defendant had sold a house to the plaintiff. The house burned down before
tide passed. The very reason which rendered performance (the transfer of title)
impossible (the fire) gave rise to the defendant's claim against his insurer. Even
though the plaintiff-buyer had paid only DM 5 000 for the larger half of the
house, he could claim the proportionate share of the insurance sum of
DM 12 000 (i e more than DM 6 000) the defendant-seller had received as
a gain-based award. The result would have been the same if the defendant had
sold the house to a third party for DM 12 000: for the same reason for which
the defendant's performance becomes impossible (the sale of the house) the
defendant gains DM 12 000. The defendant has to give up these DM 12 000
to the first purchasers. 59 This is the factual situation the draftsmen of 5 281
BGB had in mind: the creditor can claim the substitute as a corollary to the
principle enshrined in 5 275 BGB that the debtor is freed from the contractual
bond if the performance of his obligation becomes impossible. 60 With the
burden of risk on him (Leistungsgefahr), the creditor should at least get
the substitute that remains in the hands of the debtor - a principle the BGB
took over from the Roman commodum eius esse debet, cuius periculum est.
There is considerable ambiguity inherent in this measure. 61 On the one
hand, as the draftsmen of the BGB thought, 5 281 BGB attributes the
substitute to the creditor - something upon which the contracting parties
may be taken to have agreed. On the other hand, § 281 BGB can serve as a
deterrent to prevent the debtor from wilfully expropriating the creditor's
contractual right in order to make a gain, thus giving effect to the pro-
disgorgement rationale 'breach must not pay'. It will appear that this measure
is concerned primarily with the former goal: to attribute the substitute of the
promised performance to the creditor.
Three points should be made about this measure. First, the debtor can
conceivably disgorge more than the value of the promised performance, even
if the surplus was due to the application of the seller's skill. Secondly, a causal
nexus must exist between the substitute and the promised performance that
has now become impossible. Thirdly, it is irrelevant whether the debtor has
acted intentionally in generating the gain.
58 OLG Celle (1954) NeueJuristische Wochenschrit 679.

59 (1966) 46 Entscheidungen des Bundesgerichtshofes (Federal Supreme Court - BGH) in Zivilsachen
(BGHZ) 260 at 264; cfVolker Emmerich in Manchener Kommnentar zum Biirgerlichen Gesetzbuch vol 11 3 ed
(1994) § 281 para 16.
60 See Markesinis, Lorenz & Dannemann op cit note 57 at 406-9;Johannes Kbndgen 'Immaterialschadens-
ersatz, Gewinnabsch6pfung oder Privatstrafen als Sanktion fir Vertragsbruch? - Eine rechtsvergleichend-
6konomische Analyse' (1992) 56 Rabels Zeitschriftfirausliindisches und internationalesPn'vatrecht696 at 737-8;
Friedmann op cit note 21 at 630.
6 Ktndgen op cit note 60 at 739-42.
In respect of the first point,it is now agreed that the surplus benefit accruing
to the debtor (the so-called commodum ex negotiatione), has to be given
up.62 The textbook example is that of a portrait sold to X,but not yet delivered.
If the vendor sells it again at a higher price to Y, all the proceeds of this second
sale have to be given up to X, even when they exceed the market price.
Therefore, under present German law, the creditor can disgorge under § 281
BGB even more than the promised performance was worth, irrespective of
any loss.
One may be tempted to think that under § 281 BGB the plaintiff in the
Israeli case Adras Building Material Ltd v Harlow &Jones GmbH 63 would have
won, as it did under Israeli law. That, however, is not the case. The reason for
this outcome is to be found in the second observation made above: the
substitute has to be causally directly related to the fact that the performance
has become impossible. In 1974 Adras agreed to purchase 7 000 tons of steel
from Harlow at DM 620 per ton. All but 1 762 tons was delivered. Following
the outbreak of the Yom Kippur War, the price of steel increased and Harlow
received an offer from a third party to purchase the remainder for DM 804,70
per ton. Despite Adras' protests the seller accepted this offer. The buyer did
not purchase an alternative supply on the market but in 1976 claimed
restitution of the seller's profits. The Supreme Court of Israel awarded Adras
the difference between the contract price and the price obtained on the
wrongful sale. The outcome under § 281 BGB would be different. It makes
a crucial difference that Adras involved a sale of generic goods. As Ben-Porath
V-P observed, the subject-matter was the purchase of 7 000 tons of steel of
various types and not specific merchandise allocated to the plaintiff by the
contract. 64 The seller was allowed to continue its business and sell any steel it
wished out of its stock, including the types of steel which the appellant
required. The appellant could not point to any steel as the specific item
which the seller had to supply § 281 BGB does not apply to such cases,
where a person owes a thing described by class (Gattungsschuld, § 243 BGB).
The wrongful sale of a. generic item to a third party does not render the
performance impossible. Therefore, the substitute does not have to be dis-
gorged. Under the BGB the plaintiff would have had to content himself with
compensatory damages. 65 This would have been of little help: the steel price
in the world market later fell to its ordinary price, with the result that he could
prove no loss.
The strict application of the idea of substitution excludes many cases from
the ambit of § 281 BGB. If an opera singer in breach of contract refuses to
sing for the company with whom she contracted to do so, but sings at a
62 (1966) 46 BGHZ 260 at 264; Emmerich op cit note 59 at § 281 para 16; Kdndgen op cit note 60 at
738n188. Contra: the older view of the Reichsgericht (RG - imperial Court), (1917) 91 Entscheidungen
des Reichsgerichts in Zivilsachen (RGZ) 260.
63 Translated in (1995) Restitution LR 235 (Israeli Supreme Court).
64 At 252-3.
65 Either after granting Harlow a reasonable additional time to perform (§ 326 1 BGB) or immediately,
if Harlow can be understood to have refused to deliver once and for al!;see Markesims, Lorenz & Dannemann
op cit note 57 at 415-17.
competing opera house for a higher wage, § 281 I BGB does not force her
to give up the gains to the former company.66 German law orders disgorge-
ment of the substitute of a specific item (Gegenstand) owed. That is seen to
be the case with obligations to transfer rights or things, but not in the case of
contracts for services or works.
It was suggested earlier that another possible rationale of § 281 BGB is to
prevent the debtor from wilfully expropriating the creditor's contractual right
in order to make a gain - giving effect to the pro-disgorgement rationale
that 'breach must not pay'. One might therefore expect German law to require
an intentional breach in order to generate gains. However, the third important
point to note is that there is no such requirement: it is irrelevant whether the
debtor innocently or purposely rendered the performance impossible in order
to obtain the substitute. 67 The prevention of wrongful breaches of contract
and the restitution of an unjust enrichment thereby obtained is only an
incidental consequence of this disgorgement measure. The preventive element
is not acknowledged by the courts. Only in the academic literature is such a
rationale advocated: it is said that one of the aims of5 281 BGB is to prevent
the party in breach from gambling on the other party's interest without taking
any risk. 68 As applied by the courts, however, the disgorgement reveals no
anti-wrongdoer tendency,but rather aims at attributing assets to the party that
has obtained a contractual entitlement to them - under the guise of giving
effect to what the parties can be understood to have agreed upon. 6 9 The idea
behind this attribution is that the specified item 'belongs', at least contractually,
to the creditor.
There is a link between this attribution and the general availability of
specific performance in contract. The contractual entitlement to the specific
item survives even if it is sold on to a third party. But the creditor cannot
recover the item itself, his entitlement to its fruits is still distinct from a
proprietary right. Applied in the context of contractual obligations, § 281
BGB constitutes a disgorgement measure and presupposes a breach of
contract. However, it is concerned with attributing the substitute of the
promised performance to the creditor. The measure is not a sanction for
the breach of contract.
(c) Special provisions of negative undertakings
Another area of law in which a trace of restitutionary damages for breach

of contract can be found is governed by % 61 I, 113 I Handelsgesetzbuch
6' This is the scenario of the twin cases of Lumley v Wagner [1852] 1 DM & G 604, 42 ER 687 and
Lumley v Gye [1853] 2 El & B 261,118 ER 749.
67 K6ndgen op cit note 60 at 738; Emmerich op cit note 59 at § 281 para 9; cf (1966) 46 BGHZ 260
at 267-8.
68 Emmerich op cit note 59 at S 281 para 16; Ludwig Ennecerus & Heinrich Lehmann Recht der
Schuldverhalmisse 15 ed (1958) 202-3.
69 Cf the general statements in (1957) 25 BGHZ I at 8-9; BGH (1988) NeueJuristische Wochenschrifi-
Rechtsprechungsreport 902 at 903 and OLG Celle (1954) NeueJuristischeWochenschrifi 679 at 680; K6ndgen op
cit note 60 at 739; Emmerich op cit note 59 at § 281 para 1.
(Commercial Code - HGB), § 88 II Aktiengesetz (Stock Corporation Act

- AktG). Generally speaking, these special provisions prohibit employees
from competing with their principal. The rules form part of the contractual
regime; to infringe them can therefore be regarded as a breach of a negative
undertaking.
In a case before the Bundesgerichtshof (Federal Supreme Court - BGH)
the defendant was a partner of the plaintiff company that ran a cinema. 70 He
was also partner of a different company that took over a competing cinema
in the same town. Under § 113 HGB the defendant had to give up the gains
71
he made because of the other company's takeover of the competing cinema.
Here, the disgorgement measure required a difficult inquiry into what
proportion of the total profits could be attributed to the wrongful competi-
tion. But this distinction is regarded as necessary in order to avoid punishment
of the partner in breach of contract:7 2 only the wrongful gains shall be taken
away.
According to the BGH, the rationale of this disgorgement measure is to
enforce the duty of loyalty owed to the company. It was necessary to remove
any incentive to put the company's interests at risk. 73 At the same time, the
gains are regarded as the presumed loss of the principal; loss being difficult to
prove, one could assume that the employee's profits amount to the principal's
loss. 74 It is difficult to see this award as a sanction for breach of contract. 5§ 61,
113 HGB, § 88 AktG being part of the contractual regime, infringement of
any of these rules automatically entails a breach of contract. But it is not the
breach itself that triggers the remedy: if the member of a company's managing
board uses his time for commercial activities that are in no way related to the
company's line of business, he is not liable to account for his profits - even
though he may be acting in breach of contract. 75 These rules intend to protect
certain institutions quite different from contracts: § 113 HGB enforces the
duty of loyalty owed by partners to their commercial partnership. 76 Likewise,
5 88 AktG protects a company from the competing activities of the members
of its own managing board, 77 and 5§ 60, 61 HGB are similarly the result of
the duty of loyalty owed by a commercial clerk to his principal. 78 It is for
these specific reasons that the law awards restitutionary damages for breach
of a negative undertaking.
70 (1962) 38 BGHZ 306.

71 (1962) 38 BGHZ 306 at 310-11.
72 Klaus-Peter Martens in Schlegelberger,Handelsgesetzbuch vol 11 5 ed (1992) § 113 para 9.
73 (1962) 38 BGHZ 306 at 309.
74 Bundesarbeitsgericht (Federal Supreme Court for labour matters -BAG) (1962) NeueJuristische
Wochenschrifi 1365 at 1366; (1962) 38 BGHZ 306 at 309; Horst Konzen & Christoph Weber in Groflkommnentar,
Handelsgesetzbuchvol I 5 ed (1995) § 61 para 12 (ad § 611 HGB);Joachim Meyer-Landrut in Groflkommentar,
Aktiengesetz vol 1 3 ed (1973) § 88 para 6 (ad § 88 II AktG); Martens op cit note 72 § 113 para 8 (ad 5 113
HGB).
75 CfK6ndgen op cit note 60 at 701.
76 (1962) 38 BGHZ 306 at 309.
77 BGH (1997) Weripapiermitteilungen1015 at 1016.
78 Konzen & Weber op cit note 74 § 60 para 1.
RESTITUTIONARY DAMAGES FOR BREACH OF CONTRACT 75
The parallel with English law is immediately apparent. Contractually

assumed fiduciary obligations give rise to a claim for disgorgement if the
79
fiduciary makes a secret profit or acts in competition with the beneficiary.
The ground for recovery does not lie in the contractual nature of the duty
that has been breached but in the fiduciary nature of the duty.
IV COMPARATIVE ANALYSIS: RESTITUTIONARY DAMAGES

VERSUS OTHER REMEDIES
Despite the 'dearth of judicial decision' on disgorgement for breach of
contract,80 the fact remains that in Blake the House of Lords left room for
disgorgement awards. The general merits of this measure are, therefore, still
worthy of discussion in order to establish in which situations the award should
be given. This will be undertaken in this section, drawing together the results
of the comparative analysis.
A general argument against restitutionary damages is derived from the
efficient breach theory: in the interest of the general maximization of wealth
it is better to allow breach of inefficient contracts than to deter such breach,
as restitution would prima facie do.8 1 But it is still to be proved that the costs
of performing the inefficient contract or the transaction costs associated with
bargaining around restitution exceed the cost of the dispute over damages
that may end in costly litigation. Efficient breach implies that the payment of
damages by the party in breach entails little or no transaction costs. But this
seems unrealistic in view of the likelihood of protracted negotiations, or even
litigation.8 2 This argument will therefore not be relied upon.
A Skimped performance
The first section suggested two basic reasons to support awards of restitu-
tionary damages in cases ofskimped performance: the failure ofcompensatory
awards to prevent wrongdoers from keeping the proceeds oftheir wrongdoing
and adequately to protect one party's interest in having the contract duly
performed.
The first rationale - the defendant's deliberate exploitation of the breach
of contract - hardly provides a useful test as to when restitutionary damages
are justified. The courts have recognized that the natural desire to deprive a
deliberate wrongdoer of profits is not a valid ground for departing from the
normal measure of damages for breach. 83 It is said that this would fly in
the face of the whole tradition of contract law, in terms of which it is never
considered relevant that the defendant's breach was cynical. 84 But more
'9 Regal (Hastings) Lid v Gulliver [1967] 2 AC 134; Boardman v Phipps [1967] 2 AC 46.
81 CfRichard A Posner Economic Analysis ofLaw 4 ed (1992) 117.
82 Daniel Friedmann 'The efficient breach fallacy' (1989) 18Journalof Legal Studies I at 6-7 and 24.
13 Attorney- General v Guardian Newspaper Ltd (No 2) [1990] 1 AC 109 at 261, per Lord Keith;
Attorney-General v Blake [1998] Ch 439 (CA) at 457,per Lord WoolfMR; [2000] 3 WLR 625 (HL) at 640,
per Lord Nicholls.
84 Andrew Burrows The Law of Restitution (1993) 402.
/6 THE SOUTH AFRICAN LAW JOURNAL
crucially, the requirement that a breach be 'deliberate', 'opportunistic' or

'cynical' is unpractical. Putting aside cases of sheer indifference or cases where
the purpose is to harm the aggrieved party, every intentional breach of
contract is aimed at saving something. The Louisiana Firemen's Association
might have provided less than the stipulated number of men because it was
on the verge of insolvency and had to cut down on expenses in order to avoid
closing shop altogether. Would this breach of contract attract restitutionary
damages because the association acted deliberately in order to make crucial
savings? Would such a case be excused, whereas if the association was well off
and skimped its performance simply to make extra profits, it would not be?85
This kind of inquiry into the moral culpability of the party's behaviour
should not influence the award of contractual remedies. It would entail
investigations not only into the defaulting party's responsibility for the breach
but also into his general morality. To find out whether restitutionary damages
are available, parties to commercial transactions would have to assess each
other's moral standards. This runs counter to the general commercial interest
in predictability of contract damages.
Is the test proposed by the Court of Appeal in Blake a better solution? It
is submitted that it is not and that Lord Nicholls was right in rejecting it. Most
important, perhaps, is the complaint that disgorgement for breach of contract
leads to arbitrary results. Moreover, the subdivision into cases of skimped
performance and other cases is not workable.
The arbitrariness derives from the failure to explain why the plaintiff
should receive the wrongful profits, particularly if they exceed the amount by
which the defendant has been overpaid. To define breach of contract as a
restitution-yielding wrong reflecting the slogan 'wrongdoing must not pay'
cannot explain why the profits should be conferred on the plaintiff. This is
closely related to the problem of lack of 'fit'.86 The amount of gain does not
increase in proportion to the inadequacy of compensation.\The protection of
the plaintiff's contractual rights is not the worse the more the party in breach
gains by disregarding them. In City of New Orleans the expense saved by
providing fewer men and less material depends on how much the firemen's
association spends per head and per item. This can vary depending on the size
of the firm. It may happen that contracting with smaller companies which
have higher production or service costs leads to higher restitutio'nary awards
than contracting with large companies. Unacceptable results such as these
stem from the fact that restitutionary damages do not take account of the
promisee's interest to receive the promised performance. The non-financial
performance interest may in some cases be much higher than the savings or
gains of the party in breach and in some cases much lower. The restitutionary
award bears no relation to the performance interest of the aggrieved party.
A strict requirement of causation, as suggested by the Court of Appeal in
Blake, does not help to get around this problem oflack of 'fit' and arbitrariness.
85 Ibid.
86 CfChen-Wishart op cit note 4 at 367-9.
According to this causation test, profits that are not directly caused by the
breach need not be disgorged. They are not considered to be 'tainted by
the defendant's wrongdoing'. 87 Therefore, in Teacher v Calder8 8 the mere fact
that the defendant's breach of contract enabled him to enter into a more
profitable contract with someone else does not suffice. Accordingly, an
employee who in breach of contract leaves for a better job would not have
to disgorge his gains. The breach of contract consists of leaving the employer.
But the gains are generated by quite a separate act, which is doing the other
job. Nevertheless, this strict causation test does not avoid the arbitrariness of
the restitutionary measure: by breaching the contract the defendant saves
expenses. According to the Court of Appeal in Blake, these would have to be
given up, even if they are entirely unrelated to the plaintiff's performance
interest.
The Blake solution must also be criticized for the category of skimped
performance itself. On closer examination, it is difficult to draw the line
between 'skimped' and other cases of 'defective' performance. There are no
guidelines for this distinction. Why should disgorgement be awarded in City
of New Orleans,but not if the requisite number of firemen were throughout
available, but usually drunk? Their performance would be equally inadequate.
The plaintiff's award should in both cases be the same.
To sum up, restitutionary damages do not seem to be an appropriate
solution to the problem of insufficient protection of the performance interest.
As Lord Nicholls intimated, the solution may best be found elsewhere. The
inadequate protection of the plaintiff's performance interest should be directly
addressed, by developing and improving existing contractual remedies. Two
general approaches can be identified in English and German law, as an
alternative to disgorgement for breach of contract. Two possible solutions
will be briefly outlined, although a final assessment of whether either (or
both) should be adopted is beyond the scope of this paper.
(a) Improving compensatory awards

The first approach is to improve the measure of compensation. In Ruxley
the House of Lords already made a start. The significance of that decision is
that the scope of damages was extended beyond the two opposite poles of
the cost of reinstatement and the depreciation in value. Instead, there is only
one measure of damages: the loss truly suffered by the promisee. 89 In cases
such as Ruxley and City of New Orleans the solution is to compensate the
excess of the value of the promise to the promisee over the financial
enhancement of his position which fill performance will secure. Admittedly,
this award entails putting figures on intangibles since a personal, subjective
and non-monetary gain needs to be quantified. But given the performance
87 Graham Virgo 'Clarifying restitution for wrongs'(1998) Restitution LR 118 at 123.

88 [1899] AC 451;cfAttorney-Generalv Blake [1998] Ch 439 (CA) at 458.
89 [1996] 1 AC 344 at 360, per Lord Mustill.
interest, it is necessary to award this amount, regardless of how difficult it may

be to establish it precisely. Such an award meets the plaintiff's needs and still
avoids windfalls.
This solution no doubt comes at the price of less efficient deterrence. But
this is, at best, a collateral effect of contractual damages and should not be
achieved by subverting the contractual balance of interests. Deterrence of
wrongdoing through restitutionary damages would lead to awards that do not
take account of the plaintiff's performance interest. Above all, even the
restitutionary approach leaves room where courts are forced to put a figure
on the unquantified, subjective surplus. Ruxley is the paradigmatic case where
even disgorgement would not be adequate. 'Why shouldn't the courts grasp
the nettle and do so [evaluate the subjective surplus] in all cases?' 90 The system
of contractual damages would be much more coherent if the protection of
the performance interest was achieved through compensatory awards rather
than by arbitrarily awarding windfalls where the defendant's gains happen to
exceed the plaintiff's loss.
Adopting the compensatory approach, loss of amenity awards are the last
resort. Cost of cure awards should be generally available where they are
possible and reasonable. The predictability of cost of cure awards can be
ensured by use of objective requirements. Guidelines were given in Ruxley,
and can be further developed. 9 1
In Wigsell v Schoolfor the Indigent and the Blind 92 a cost of cure award should
have been available. The defendant had bought a piece of land from the
plaintiff, covenanting that the land should be enclosed on the plaintiff's
side with a brick wall or iron railing. The measure of damages was the
difference in the plaintiff's financial position before and after the breach of
contract. Following the improved compensatory approach, this decision
cannot be upheld. The plaintiff's performance interest would have been
adequately protected only by an award of the cost of performance.
Even where the cost of cure is extraordinarily high, as in Tito v Waddell, a
cost of cure award might be justified. It would be the only way to protect
adequately the performance interest, the islander's interest to inhabit their
homeland. 93 Whether the performance interest really deserves this absolute
protection must, at this point, be left open. Under German law the Tito v
Waddell contract would have been specifically enforceable. One would need
to say more about the general role of the reasonableness test and issues such
as the plaintiff's intention to have the work done. However, if cost of cure
appears to be unreasonable, then the alternative should not be disgorgement
but an award of loss of amenity - or perhaps other remedies. These will now
be dealt with.
90 Edwin Peel 'Loss and gain at greater depth: The implications of the Ruxley decision - A comment'
in Rose op cit note 15, 27 at 33.
91 CfCoote's proposals op cit note 15 at 566.
92 [1882] 8 QB 357.
93 CfCoote op cit note 15 at 567.
(b) Unjust enrichment 'by subtraction'

There are two versions of the unjust enrichment approach. The first version
enables the plaintiff to recover the amount of overcharging by means of a
cause of action for unjust enrichment - not restitutionfor the wrong but an
'autonomous' unjust enrichment claim 'by subtraction'. 94 The 'unjust factor'
would have to be 'partial failure of consideration'. The second version would
be the German concept of price reduction (Minderung).
The first version faces two major obstacles. The first is the requirement of
a total failure of consideration. If the performance is incomplete - if, for
example, in City of New Orleans only half the specified number of firemen
were available - the consideration does not fail 'totally'. Traditionally,in such
cases, there is no right to recover a proportionate part of the money paid.95
This rule remains an obstacle where apportioning the part performance to
the consideration given entails difficulties - and such difficulties arise often
in cases of skimped performance. 96 The second is the requirement that the
relevant contract must be ineffective. 97 In order to prevent parties from
subverting bargains and escape losing contracts the restitutionary claim is
precluded where the breach is minor or where the contract has been affirmed
or fulfilled. These difficulties would have to be overcome before the perform-
ance interest can be protected through the recovery of the overpayment. In
spite of this the direct recovery of the amount of overpayment is to be
preferred to disgorgement in overcoming the underlying dissatisfaction with
the compensatory measure. The performance interest is adequately protected
if the promisee can recover the amount by which he has 'overpaid for the
job'.98
The second version of this unjust enrichment approach can be found in
German law.Recovery is achieved not by applying the unjustified enrichment
model of % 812 ffBGB, but by the use of a genuine civilian remedy derived
from the Roman actio quanti minoris:99 the recovery ofoverpayment through
price reduction (Minderung).
Under German law no disgorgement is available in a Ruxley-type case.
Nor would the contractor have to remove the defect. He is entitled to refuse
such removal if it requires disproportionate outlay (§ 633 II 3 BGB): the
German counterpart of the Ruxley reasonableness test. The employer seeking
financial remuneration for the skimped performance can choose: either he
claims damages under § 634,635 BGB or he makes use of his right to reduce
the price.
14 Cfthe taxonomy of Peter Birks An Introduction to the Law of Restitution rev ed (1989) 22-5.
" CfG H Treitel The Law of Contract 10 ed (1999) 977-9.
96 lbid; cfalso O'Sullivan op cit note 15 at 23. Where counter-restitution can be quantified more easily,
recovery for partial failure of consideration is in effect already possible: Goss v Chilcott [1996] AC 788 (PC)
at 798, per Lord Goff.
17 Thomas v Brown [1876] 1 QB 714; cf Burrows op cit note 84 at 257; McKendrick op cit note 4 at
70-1.
98 O'Sullivan op cit note 15 at 25.
99 CfG H Treitel Remedies for Breach of Contract - A ComparativeAccount (1988) 107-9.
b0 THE SOUTH AFRICAN LAW JOURNAL
In Ruxley a claim for damages under 55 634,635 BGB would have enjoyed
little success because damages are assessed objectively, by reference to the
difference in market value. No loss could therefore be established. The other
remedy, Minderung, entails an arithmetical calculation. The employer can
reduce the contract price under 55 634 I, II, IV, 472 1BGB in the proportion
which the actual value of the work done bears to the promised value of the
completed work. In comparing this measure with damages for loss in market
value, one could be misled to say that Minderung is nothing but damages
measured by the diminution of value in the work.100 But the principle on
which price reduction is assessed is that the promisor is unjustly enriched,
rather than that the promisee is to be compensated for not having received
what he bargained for. 10 1 The contract price is reduced proportionally. This
can lead to higher recovery than damages where the aggrieved party has made
a bad bargain: assume the promised swimming pool was worth 100 and the
contract price was 120. The shallower pool is worth only 50. The difference
in market value recoverable as damages would be 50. In this case of a bad
bargain, price reduction would reduce the contract price by 50 per cent. The
employer could therefore reduce and recover half of his contract price (60)
with the condictio indebiti (5 812 I 2, alt 1 BGB).102
This right to price reduction is confined to contracts for works and sales
contracts. It does not apply to contracts for services, under § 611 ff BGB. 103
But there does not seem to be any reason ofprinciple why the strategy applied
to contracts for works should not be used in contracts for services, e g in the
case of a security company's failing to have the stipulated number of guards
available. The amount of overpayment, the percentage of the contract price
corresponding to the 'skimped' part of the deficient performance, can provide
the guideline in a pure services case just as well. Indeed, the claim for a right
to reduce the price in contracts for services has already been made in German
law 104 This would be the European approach. Following most civil-law
countries, art 9:401 of the Principles of European Contract Law generalizes
the remedy provided by the actio quanti minoris and extends it to all types
of contracts. 105
100 Like Markesinis, Lorenz & Dannemann do, op cit note 57 at 623.
101 Treitel op cit note 99 at 108.
102 In the case of a 'good' bargain he would choose damages: with a contract price of 80 he would still
get the 50 rather than recovering 50 % of the price, or 40.

103 BGH (1983) NeueJuristische Wochenschrift 1188; BAG (1970) Arbeitsrechtliche Praxis, Nachschlagewerk
des Bundesarbeitsgerichtsad § 11 MuSchG para 3.
104 Manfred Lieb in his reform proposals made at the request of the Federal Ministy of Justice:
'Dienstvertrag' in Bundesminister der Justiz (ed) Gutachten und Vorschlage zur Oberarbeitung des Schuldrechts
(1983) 209-14. Where the performance owed can be subdivided into separate acts, e g where an employee
works only three days a week rather than five, price reduction is possible on the ground of'partialimpossibility'
(% 323 I 2,325 I 2 BGB), see BGH (1988)Juristische Schulung 567. It is argued that Minderung is available
for breach of a contract for services already today whenever the performance owed can be subdivided into
separate acts, e g where a doctor fails to undertake standard medical tests, though without causing any harm,
on the grounds of'partial impossibility': see Peter Schlechtriem Schuldrecht, BesondererTel 5 ed (1998) para 339.
105 Cf Ole Lando & Hugh Beale (eds) Principles of European Contract Law, Parts I and II (2000) 430-3.
For the second edition of the UNIDROIT Principles of International Commercial Contracts, price
reduction has been set as a new topic for the drafters - extending it to apply not only to sales contracts but
also to construction contracts, works contracts, leases etc: see Michael J Bonell An InternationalRestatement
of Contract Law- The UNIDROIT Principlesof International Commercial Contracts 2 ed (1997) 262-3.
(c) Comparison of alternatives
It is helpful to step back and see how this remedy of price reduction
compares with the other options: damages for loss of amenity and partial
failure of consideration. What is the difference between price reduction and
an award of loss of amenity? Damages for loss of amenity are an attempt to put a
figure on the consumer surplus. The courts have to establish the personal value
of the deeper swimming pool to the plaintiff. Price reduction presupposes the
same inquiry. A way of assessing the value of the defective performance
suggested in the German literature is to estimate freely what percentage of
the contract price corresponds to the defective part of the work, i e the depth
of one foot. 10 6 This is hardly any different from pricing the loss of amenity:
the employer can only be taken to have paid for the extra depth what it was
worth to him personally. In the case of an Olympic diver he could be taken
1 07
to have paid considerably more for the extra depth of the swimming pool.
Accordingly, a higher amount of the contract price could be deducted. By
the same token, the loss of amenity could be said to be relatively higher. The
two measures are similar in trying to establish the amount of overpayment,
either by saying that it equals the loss of amenity or by reducing the contract
price proportionally. Yet, we still meet the same difference between these
measures as between price reduction and damages for loss in market value.
The loss of amenity is simply to be compensated in money. With price
reduction one would, again, have to reduce the price proportionally. This
difference becomes clear only when looking at an example in detail.
Assume the plaintiff (reasonably) values the extra depth at 10 (loss of
amenity) and the contract price is 120 for a swimming pool objectively worth
90. In this example (of a bad bargain) the plaintiff has paid more than the
pool's objective value, and 10 of this overpayment of 30 can be regarded as
his personal valuation of the extra depth. Damages for loss of amenity would
be 10. Price reduction is proportionate to the decrease in (personal, not
objective) value of the actual performance compared to the value which a
conforming performance would have had. According to the equation:
100 (value to plaintiff) / 90 (objective value) = 120 (contract price) / x (reduced price)
the reduced price would be 108; the plaintiff could recover 12.
What would be the difference between price reduction and the partial
failure of consideration approach? This is difficult to know since English law
has not yet developed precise guidelines as to how exactly this restitutionary
claim might operate. 108 One could construe it as resembling price reduction:
in the example given above, because the swimming pool is too shallow, the
106 Frank Peters in Staudinger,Konmentarzum Biirgerlichen Gesetzbuch 12 ed (revised 2000) § 634 para 64;
idem (1983) Betriebsberater1951 at 1953.
107 Cf Coote op cit note 15 at 544.
10 It may yet turn out that the practice of compensating loss of amenity leads to awards lower than the
proportion of the contract price recoverable under failure of consideration: see McKendrick op cit note 4
at 71n99. Lord Nicholls views the refund of the difference in price as the 'outcome of a claim for damages
for breach of contract': Attorney-General v Blake [2000] 3 WLR 625 (HL) at 639-40.
plaintiff has received only 90 per cent of what he bargained for. Ten per cent
of his consideration has failed. He could recover 10 per cent of the contract
price, that is 12.
None of these three measures is necessarily superior to the others. In
Ruxley the process of quantification would not have been any easier if price
reduction had been awarded: how much less would the employer have paid
for the shallower pool? This, of course, is the same rough estimation as
establishing the loss of amenity. In other cases, it might be possible to identify
how much the employer would have paid for the skimped performance. As
the various examples show, price reduction and compensatory awards, such
as the Ruxley award, lead to different results, the former having the tendency
to favour the aggrieved party who has made a bad bargain.
A closer analysis of the merits of each of these approaches is beyond the
scope of this paper. The important point to note, however, is that both systems
are left to assess the consumer surplus where, as in City of New Orleansand in
Ruxley, the performance has been 'skimped'. But regardless of how difficult
this quantification may be, these solutions avoid the arbitrariness that
disgorgement measure entails. In measuring the award by the amount of
overpayment, these remedies yield the necessary 'fit' with the performance
interest of the aggrieved party where a cost of cure award is impossible or
'unreasonable'.
B Negative undertakings
In both English and German law instances can be found where restitu-
tionary damages are awarded as a means of prevention in order to remove any
kind of incentive to breach the negative undertaking. In the BMTA case the court
explicitly approved of the object of controlling car prices through the restraint
of trade regime in times of short supply after the Second World War. In this
context, the restitutionary award was a means of protecting the regime of
restraint of trade. In the German cases of restraint of competition, the
restitutionary award is aimed at protecting specific legal institutions. The factor
common to these situations is not breach of contract. It is rather the fact that
specific legal institutions are put at risk - the relationship of confidence and
loyalty between principal and commercial clerk, or the institution of the
partnership or the company itself in the case of§ 113 HGB and § 88 AktG.
This analysis approximates Jackman's concept of 'facilitative institutions':
disgorgement is awarded not for breach of contract but whenever a concur-
rent infringement of a legal institution is involved, the protection of which
necessitates this remedy.109 The institution may be a fiduciary relationship
or, as in the BMTA case, a restraint of trade regime. Generally, English courts
take the view that contract is excluded from this number of facilitative
institutions. 110 It is now clear, from Lord Nicholls' dicta in Blake, that this will
109 1 M Jackman 'Restitution for wrongs' (1989) Cambridge LJ 302 at 318-19.

10 See Surrey County Council v Bredero Homes Lid [1993] 1 WLR 1361 (CA) at 1370, per Steyn LJ.
RESTITUTIONARY DAMAGES FOR. BREACH OF CONTRACT
remain the case, despite the stance of the Court of Appeal. Negative under-
takings as such do not carry the justification for the restitutionary award.
The comparative overview has suggested that there is no need for a general
availability of restitutionary damages in cases of negative undertakings. In
many cases non-contractual interests justify the restitutionary award, not the
fact that a negative stipulation has been breached. Once the legal institution
which the remedy seeks to protect is singled out, disgorgement can be
awarded.
In the BMTA case the restitutionary measure can be justified to uphold
the restraint of trade regime - once it has been resolved that market
regulation in the form of this regime is desirable. In other cases English law
may still have to recognize the protected right: take Birks's hypothetical
example of the gardener who breaches his undertaking not to reveal in public
his insights into the celebrity employer's private life. The reprehensible aspect
about selling the information is not the breach of contract but the fact that
the information comprised intimate details. The restitutionary award is best
viewed as serving to protect the employer's right to privacy. This would be
the German position. There, the infringer of another's right to privacy has to
disgorge (at least in part) the profits made by the infringement. 111
In Blake itself it is similarly difficult to view the breach of the negative
undertaking as such as the policy reason for disgorgement. Applying the wide
range of indicia for instances in which breach of contract justifies disgorge-
ment, Lord Nicholls placed particular emphasis on the 'special circumstances
of the intelligence services' and the Crown's 'legitimate interest in preventing
Blake profiting from the disclosure of official information, whether classified
or not, while a member of the service or thereafter'.112 Even though the
indicia put forward are capable of covering factual situations unrelated to
the workings of the M16, the way they were applied in Blake indicates that
Lords Nicholls and Steyn were concerned with the factual context of gains
generated by the use of (former) state secrets rather than with providing a
remedy for the wrong of breach of contract. 113
In the German cases it is the relationship ofconfidence and loyalty between
principal and commercial clerk or the company itself that the restitutionary
measure seeks to protect. Under English law a fiduciary relationship could be
identified which might justify an account of profits.
The question remains whether there is a unifying idea underlying these
non-contractual interests. Is there a connecting factor between the protection
of the restraint of trade regime in the BMTA case, the relationship of
confidence between principal and commercial clerk or the company in the
German cases, and the right to privacy in Birks's example of the celebrity's
111(1994) 128BGHZ 1;cfPeter Schlechtriem'Some thoughts on the decision oftheBGH concerning

Princess Caroline of Monaco' in Basil S Markesinis (ed) ProteaingPrivacy (1999) 131; Tilman U Amelung
'Damage awards for infringement ofprivacy: The German model' (1999) 14 Tulane European and Civil Law
Forum.
112 Attorney-General v Blake [2000] 3 WLR 625 (HL) at 641.
.3 See text to notes 46 and 47.
gardener? Lord Nicholls points in the direction ofsuch common factors when
he refers to 'something more' which is required 'before an account of profits
will be the appropriate remedy'. 114 German law has so far evaded the question
in the context of breach of contract. 115 Despite not being able to provide a
ready answer to this ultimate question, the comparative overview has shown
that in many cases non-contractual considerations can be found to justify the
award of disgorgement in cases of negative undertakings. In the reported cases
the mere fact of a breach of contract is not treated as a sufficient ground for
the award of disgorgement. The result reached by Lord Nicholls - not to
make restitutionary damages generally available in these cases - therefore
seems correct.
C Other cases: Substitution as a disgorgement measure

At this point the German case law on § 281 BGB should be recalled. The
idea behind this remedy is that substitutes of the performance have to be given
up where the creditor is exclusively entitled to the performance. This is a
reasonable ground for restitution: by undertaking to transfer a specified right
or thing to the creditor, the debtor exclusively attributes this asset to him.
From that moment the debtor is contractually debarred from disposing of the
thing in another way, even though he may be technically still be able to do
so. Restitutionary damages should be awarded for the wrongful disposal of
certain rights or things exclusively attributed to the creditor. This disgorge-
ment measure is rarely available: objects that are available on the open market,
as in Adras, are excluded from its ambit.
English cases take the same line. In Lake v Bayliss 116 the vendor of land
was considered to hold the land on trust and, accordingly, the purchaser
was entitled to the proceeds of any wrongful sale to a third party.Lord Nicholls
recognized this as an instance where English law recognized a disgorgement
award for breach of contract: in his words, an order of 'the same effect as an
order for an account ofprofits', 11 7 even though the language of trust was used.
It is difficult to find a case akin to Lake v Bayliss in the German law reports.
This is perhaps due to the German system of land registration: the purchaser
can make use of a 'Vormerkung' (5 883 BGB), which prevents the double
transfer of land. But still, Lake v Bayliss would, in principle, be decided in the
same way under § 281 I BGB. However, there seems to be no reason why
English law should make this award only in cases of the sale of land. The
rationale for disgorgement remains the same, whether a house or a unique
grand piano is resold. As was pointed out in Blake, 'there is no inherent reason
4 Attorney-General v Blake [2000] 3 WLR 625 (HL) at 640.

..
115 According to more recent academic views on § 281 1BGB, gain-based awards for breach ofcontract
can be justified on the basis of the doctrine of attribution (Lehre vom Zuweisungsgehalt), known from the
context of the Eingriffskondiktion: see e g Raimund Bollenberger Das stellvertretende Commodun - Die
Ersatzherausgabeim 6sterreichischen und deutschen &huldrecht unter Beriicksichtigungweiterer Rechtsordnungen(1999)
158-61; on the Lehre vom Zuweisungsgehalt generally see Markesinis, Lorenz & Dannemann op cit note 57
at 743-7.
116 [1974] 1 WLR 1073 (Ch).
RkESTITUTIONARY DAMAGES FOR BREACH OF CONTRACT
why the technique of equity courts in land contracts should not be more
widely employed'. 118 Where a unique and specific chattel is involved rather
than a piece of land, the Lake v Bayliss award is equally justified.
This substitution-based disgorgement measure is reminiscent of the
solution proposed by some academics and by the Law Commission in its 1993
Consultation Paper. They argue that the disgorgement measure coincides
with the availability of specific performance. 119 These views coincide with
German law in that a class of case is recognized in which the plaintiff has a
special interest in performance that calls for specific relief and, as a corollary,
for profits derived from the breach to be restored to the plaintiff. This
connection between specific relief and disgorgement has so far not been
recognized in English law. It was considered by Steyn LJ, as he then was,
a 'bromide formula'. 120 In fact, sometimes the substitution measure is
independent from the availability of specific performance: in Patel v Ali, for
instance, specific performance of a contract for the sale of a house was refused
after a four-year delay. The vendor's circumstances had changed disastrously
during this time as a result of her husband's bankruptcy and of an illness
which had left her disabled. 121 But if she had sold the house to a third party
at a profit, she would have had to give up these gains to the first buyer, both
under § 281 BGB and Lake v Bayliss.
V CONCLUSIONS
The House of Lords decision in Blake has opened up the possibility of
awarding disgorgement for breach of contract - although the precise legal
basis remains unsettled. In the process of further development of this award,
it must be realized that the introduction ofrestitutionary damages as a general
remedy for breach of contract, as it was proposed by the Court of Appeal,
would entail severe difficulties. In cases ofskimped performance restitutionary
damages constitute an arbitrary measure that bears no relationship to the
primary goal of contract damages, the protection of the performance interest.
It is also difficult to draw the line between 'skimped' performances and other
kinds of defective performances. The solution, as was indicated by Lord
Nicholls in Blake, must be sought along other lines. One way is to improve
the measure of compensation, combined with a more open award of specific
performance and cost of cure. Another solution can be found in unjust
enrichment remedies such as partial failure of consideration or price
reduction.
111Attorney-General v Blake [2000] 3 WLR 625 (HL) at 638, per Lord Nicholls.
1'8 Ibid, citing with approvalJ P Dawson 'Restitution or damages' (1959) 20 Ohio State LJ 175,
119 Jack Beatson 'The Nature ofWaiver of Tort' in idem The Use and Abuse of Unjust Enrichment (1991)
15 at 17;S M Waddams op cit note 35 at 121;idem (2000) 12 Supreme Court LR (2d) I at 26-9; Richard
Nolan 'Remedies for breach of contract: Specific enforcement and restitution' in Rose op cit note 15,35 at
43 and 55-9; Law Commission Consultation Paper No 132 (1993) para 7.7. A similar approach is taken in
the context of German and Austrian law by Bollenberger op cit note 115 at 119-30.
120 Surrey County Council v Bredero Homes Ltd [19931 1 WLR 1361 (CA) at 1370.
121 [1984] Ch 283.
The cautious approach taken by the House of Lords, refusing to endorse

the broad categories of the Court of Appeal, is in line with recent case law.
In Co-operative Insurance Society Ltd v Argyll Stores (Holdings)Ltd the House of
Lords had to deal with a case of 'skimped performance'. 122The defendant had
closed down its supermarket in a shopping centre, although it had covenanted
to keep the leased premises open for retail trade during the usual hours of
business in the locality. The term of the lease was for thirty-five years and
would have lasted until 2014. The issue arose whether the plaintiffwas entitled
to damages only or specific performance of the undertaking to keep the
premises open. Instead of awarding specific performance, the House of Lords
restored the trial judge's order of damages.
The issue of disgorging the defendant's gains was never raised. Instead, the
judgment contains statements that are irreconcilable with a disgorgement
measure. In considering the award of specific performance, Lord Hoffmann
expressed his concern about the injustice it may cause to allow the plaintiff
to enrich himself at the defendant's expense. The loss which the defendant
may suffer through specific performance may be far greater than what the
plaintiff would suffer from the contract being broken: 123 '[T]he purpose of
the law of contract is not to punish wrongdoing but to satisfy the expectations
of the party entitled to performance. A remedy which enables him to secure,
in money terms, more than the performance due to him is unjust.'
Lord Hoffmann's concern would be even more justified with regard to
restitutionary damages. This measure is never limited to the expectations of
the party entitled to performance. It will sometimes fall short of these
expectations, sometimes exceed them, in a most arbitrary way.
It is also to be welcomed that the House of Lords refused to accept the
breach of a negative undertaking as such as a causative event for disgorgement.
In the reported cases, including those in German law, these types of breach
are incidental to the infringement of other legal interests, such as fiduciary
relationships.
However, the idea of exclusive entitlement to the object of performance
does justify a disgorgement measure. Again, the rationale is not to sanction
the wrong of breach of contract but to protect the exclusive entitlement to
the object of performance by disgorging its substitute. This is a fairly narrow
category of cases, as the German case law reveals. But it would be an
unnecessarily restrictive approach if this substitution-based award was
confined to contracts of sale of land.
'22 [19981 AC 1.
123 [1998] AC 1 at 15, per Lord Hoffmann.

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be available, the question is still open as to the circumstances in which a claim

II THE TRADITIONAL MEASURE OF COMPENSATION

III THE CASE LAW: TRACES OF RESTITUTIONARY

25 Cf Hugh Beale (ed) Chitty on Contracts 28 ed (1999) % 27-068-27-071.

an account of profits would be available. 29 However, these are the categories

A Restrictive covenant cases

29 At 639, per Lord Nicholls; at 645, per Lord Steyn.

It is in this category that Lord Nicholls found the 'light sprinkling' of

Court of Appeal the Crown obtained a public-law injunction on the ground

an account of profits': 5 I Reid Newfoundland Co v Anglo-American Telegraph Co52

D German law: Commodum ex negotiatione cum re and other cases

(b) Disgorgement of the substitute under 5 281 BGB

58 OLG Celle (1954) NeueJuristische Wochenschrit 679.

(c) Special provisions of negative undertakings

Another area of law in which a trace of restitutionary damages for breach

(Commercial Code - HGB), § 88 II Aktiengesetz (Stock Corporation Act

70 (1962) 38 BGHZ 306.

The parallel with English law is immediately apparent. Contractually

IV COMPARATIVE ANALYSIS: RESTITUTIONARY DAMAGES

crucially, the requirement that a breach be 'deliberate', 'opportunistic' or

(a) Improving compensatory awards

87 Graham Virgo 'Clarifying restitution for wrongs'(1998) Restitution LR 118 at 123.

interest, it is necessary to award this amount, regardless of how difficult it may

(b) Unjust enrichment 'by subtraction'

get the 50 rather than recovering 50 % of the price, or 40.

(c) Comparison of alternatives

109 1 M Jackman 'Restitution for wrongs' (1989) Cambridge LJ 302 at 318-19.

111(1994) 128BGHZ 1;cfPeter Schlechtriem'Some thoughts on the decision oftheBGH concerning

C Other cases: Substitution as a disgorgement measure

4 Attorney-General v Blake [2000] 3 WLR 625 (HL) at 640.

The cautious approach taken by the House of Lords, refusing to endorse

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