It has long been recognised that gain-based remedies are available where the defendant has committed a proprietary tort, such as trespass to land. This is because the defendant's gain arises from interference with the claimant's property rights and should be regarded as belonging to the claimant. But where the defendant has made a gain from a non-proprietary tort, such as breach of statutory duty, is a gain-based award available to the claimant? In Devenish Nutrition Ltd. v. Sanofi-Aventis SA (France) and others [2008] EWCA Civ 1086 the Court of Appeal held no.
The claim in Devenish arose from agreements amongst suppliers of vitamins to increase their prices, such agreements being contrary to Article 81 of the EC Treaty. Significant fines were imposed on the sellers by the European Commission. Devenish had purchased vitamins at inflated prices from a number of parties to the cartel agreements and sued for breach of the sellers' statutory duty under competition law. The preliminary issue for the Court of Appeal simply concerned what remedy might be available. Devenish accepted that compensatory damages were available, but this was not attractive to it both because it might be difficult to prove its loss and because it might be established at trial that it had mitigated its loss by passing the overcharge on to its customers. Consequently, Devenish sought a gain-based remedy, specifically an account of the defendants' illegal profits which had been derived from the claimant: Tuckey L.J., at [150].
The key case for the Court of Appeal was Attorney-General v. Blake [2001] 1 A.C. 268 where the House of Lords held that an account of profits was exceptionally available where a defendant had profited from a breach of contract, even though there had been no interference with property rights. Arden L.J., giving the leading judgment in Devenish, recognised, at [67], that the effect of this and subsequent cases on gain-based remedies for breach of contract was “a cultural change in the law in favour of the classification of remedies on a coherent basis rather than on the basis of some formulaic division between different wrongs.” Consequently, the fact that an account of profits was awarded in Blake should mean that this gain-based remedy is in principle available regardless of the nature of the wrong committed and certainly without the need to prove that the wrong involved interference with property rights.
In the light of Arden L.J.'s analysis of Blake it is perhaps surprising that the Court concluded that a gain-based award was not available in Devenish. This was for two reasons. First, the Court considered itself to be bound by its earlier decision in Stoke-on-Trent City Council v. W and J Wass Ltd. [1988] 1 W.L.R. 1406, which was interpreted as recognising that gain-based awards are not available for non-proprietary torts (although Longmore L.J. specifically did not accept that this was what the case decided: at [144]). Secondly, gain-based remedies are not available following Blake where compensatory damages are an adequate remedy. The Court accepted that compensatory damages will be adequate even though a loss could not be quantified or the loss had been passed on to customers so that there was nothing more than nominal damages to recover.
Neither reason is convincing. Wass did not decide that gain-based remedies were unavailable to non-proprietary torts and, even if Wass did decide that, the decision was made well before Blake set the law on gain-based remedies on a new course and so could be treated as though it was overruled. As regards the adequacy of compensatory damages reason, it is correct to conclude that such damages are adequate even if a loss is difficult to quantify. But if the claimant has not suffered any loss, for example because the overcharge has been passed on to customers, compensatory damages are not necessarily adequate. It is then necessary to consider whether the case falls within the “exceptional” category for the award of gain-based remedies, as recognised in Blake. In that case Lord Nicholls recognised that: “A useful general guide, although not exhaustive, is whether the plaintiff had a legitimate interest in preventing the defendant's profit-making activity and hence in depriving him of this profit” ([2001] 1 A.C. 268, 284–285). There was no such legitimate interest in Devenish because there had already been public action brought by the European Commission to identify an infringement of the competition rules and also substantial fines had been imposed as a result. However, such a legitimate interest could be identified where there has been no prior public action, in order to encourage private parties to deploy additional resources to the task of identifying anti-competitive conduct to the benefit of the community. Indeed, Arden L.J. recognised, at [88], that an exceptional circumstance in Blake was that “the Attorney-General sued in the public interest for harm done to the community at large. It was not a mere breach of contract or tort committed in a commercial setting.” Similarly the private enforcement of competition law is not simply a matter of vindicating private law rights but has benefits of a much wider public significance: Commission Staff Working Paper: Annex to the Green Paper Damages Actions for Breach of the EC Antitrust Rules SEC (2005) 331, at paras. 52 and 192. Gain-based awards may be necessary in order to encourage private parties to serve the important public function of monitoring compliance with competition law.
Although gain-based awards are barred by Devenish when the infringement of competition law is conceived of as a breach of statutory duty, there is possibly another route to a gain-based remedy by means of the distinct cause of action in unjust enrichment. The defendants had certainly been enriched by the profits obtained at the claimant's expense and the ground of restitution could be a causative mistake. Passing on of loss by the claimant to third parties does not defeat a claim in unjust enrichment: Kleinwort Benson Ltd. v. Birmingham CC [1997] Q.B. 380. The defendants might have argued that their payment of fines constituted a change of position, but their involvement in serious illegality involving bad faith would presumably have prevented them from establishing this defence. Gain-based remedies for torts may have been curtailed by Devenish, but unjust enrichment might still provide an alternative route to recover illegally obtained profits.
