Ipsofactoj.com: International Cases [2001] Part 1 Case 5 [HL]


HOUSE OF LORDS

Coram

Blake

- vs -

Attorney General

LORD NICHOLLS OF BIRKENHEAD 

LORD GOFF OF CHIEVELEY

LORD BROWNE-WILKINSON

LORD STEYN

LORD HOBHOUSE OF WOODBOROUGH

27 JULY 2000


Judgment

Lord Nicholls of Birkenhead

My Lords,

  1. George Blake is a notorious, self-confessed traitor. He was employed as a member of the security and intelligence services for 17 years, from 1944 to 1961. In 1951 he became an agent for the Soviet Union. From then until 1960 he disclosed valuable secret information and documents gained through his employment. On 3 May 1961 he pleaded guilty to five charges of unlawfully communicating information contrary to section 1(1)(c) of the Official Secrets Act 1911. He was sentenced to 42 years' imprisonment. This sentence reflected the extreme gravity of the harm brought about by his betrayal of secret information.

  2. In 1966 Blake escaped from Wormwood Scrubs prison and fled to Berlin and then to Moscow. He is still there, a fugitive from justice. In 1989 he wrote his autobiography. Certain parts of the book related to his activities as a secret intelligence officer. By 1989 the information in the book was no longer confidential, nor was its disclosure damaging to the public interest. On 4 May 1989 Blake entered into a publishing contract with Jonathan Cape Ltd. He granted Jonathan Cape an exclusive right to publish the book in this country in return for royalties. Jonathan Cape agreed to pay him advances against royalties: 50,000 on signing the contract, a further 50,000 on delivery of the manuscript, and another 50,000 on publication. Plainly, had Blake not been an infamous spy who had also dramatically escaped from prison, his autobiography would not have commanded payments of this order.

  3. The book, entitled No Other Choice, was published on 17 September 1990. Neither the security and intelligence services nor any other branch of the Government were aware of the book until its publication was announced. Blake had not sought any prior authorisation from the Crown to disclose any of the information in the book relating to the Secret Intelligence Service. Jonathan Cape has, apparently, already paid Blake about 60,000 under the publishing agreement. In practice that money is irrecoverable. A further substantial amount, in the region of 90,000, remains payable. These proceedings concern this unpaid money.

    THE PROCEEDINGS

  4. On 24 May 1991 the Attorney General commenced an action against Blake, with a view to ensuring he should not enjoy any further financial fruits from his treachery. The writ and statement of claim sought relief on a variety of grounds. The trial took place before Sir Richard Scott V.- C. Blake was not represented at the trial. He had sought unsuccessfully to have access to the further money due and owing to him by the publisher for the purpose of funding his defence. He was refused legal aid. But the court had the assistance of leading and junior counsel as amici curiae. At the trial the Crown rested its claim exclusively on one cause of action: that in writing the book and authorising its publication Blake was in breach of fiduciary duties he owed the Crown. The Vice-Chancellor rejected this claim and dismissed the action: see [1997] Ch. 84. The Vice-Chancellor accepted that former members of the intelligence and security services owed a lifelong duty of non-disclosure in respect of secret and confidential information. But the law did not impose a duty which went beyond this.

  5. The Crown appealed. Blake was not represented on the hearing of the appeal but, once again, the court had the assistance of leading and junior counsel as amici curiae. The Court of Appeal, comprising Lord Woolf M.R., Millett and Mummery L.JJ., allowed the appeal: see [1998] Ch. 439. The court upheld Sir Richard Scott V.-C.'s ruling on the breach of fiduciary claim. On this appeal to your Lordships' House the Attorney General has not sought to challenge that decision. However, the Court of Appeal permitted the Attorney General to amend his statement of claim and advance a public law claim. In making this claim the Attorney General asserted, not a private law right on behalf of the Crown, but a claim for relief in his capacity as guardian of the public interest. In this latter capacity the Attorney General may, exceptionally, invoke the assistance of the civil law in aid of the criminal law. Typically this occurs where an offence is frequently repeated in disregard of an inadequate penalty: see Gouriet v Union of Post Office Workers [1978] A.C. 435. In the present case Blake's disclosure of the information in his autobiography to his publishers was a breach of section 1(1) of the Official Secrets Act 1989:

    A person who is or has been .... a member of the security and intelligence services .... is guilty of an offence if without lawful authority he discloses any information .... relating to security or intelligence which is or has been in his possession by virtue of his position as a member of any of those services ....

  6. If Blake's disclosure occurred before this Act came into force on 1 March 1990, the disclosure was an offence under comparable provisions in section 2(1) of the Official Secrets Act 1911. The Court of Appeal held that the jurisdiction of the civil courts, on an application of the Attorney General, was not limited to granting an injunction restraining the commission or repeated commission of an offence. Lord Woolf said, at p. 462:

    If, as here, a criminal offence has already been committed, the jurisdiction extends to enforcing public policy with respect to the consequences of the commission of that crime, e.g. restraining receipt by the criminal of a further benefit as a result of or in connection with that crime .... This is an exceptional case in which the Attorney General is entitled to intervene by instituting civil proceedings, in aid of the criminal law, to uphold the public policy of ensuring that a criminal does not retain profit directly derived from the commission of his crime.

    The court made an order in the following terms:

    That the defendant George Blake be restrained until further order from receiving or from authorising any person to receive on his behalf any payment or other benefit resulting from or in connection with the exploitation of No Other Choice in any form or any information therein relating to security and intelligence which is or has been in his possession by virtue of his position as a member of the Secret Intelligence Service.

  7. Blake appealed against this decision of the Court of Appeal. On the hearing of this appeal by your Lordships he was represented by counsel and solicitors acting pro bono. I wish to pay tribute to the thoroughness with which counsel and solicitors prepared the appeal and the expertise with which Mr. Clayton presented it to your Lordships.

    THE PRIVATE LAW CLAIM

  8. In the course of his judgment Lord Woolf made some interesting observations, at [1998] Ch. 439, 455G to 459D, on a matter which had not been the subject of argument either in the Court of Appeal or before the Vice-Chancellor. The point arose out of the amendments made to the statement of claim in the course of the proceedings in the Court of Appeal. On 16 August 1944 Blake signed an Official Secrets Act declaration. This declaration included an undertaking:

    .... I undertake not to divulge any official information gained by me as a result of my employment, either in the press or in book form. I also understand that these provisions apply not only during the period of service but also after employment has ceased.

  9. This undertaking was contractually binding. Had Blake not signed it he would not have been employed. By submitting his manuscript for publication without first obtaining clearance Blake committed a breach of this undertaking. The Court of Appeal suggested that the Crown might have a private law claim to 'restitutionary damages for breach of contract', and invited submissions on this issue. The Attorney General decided that the Crown did not wish to advance argument on this point in the Court of Appeal. The Attorney General, however, wished to keep the point open for a higher court. The Court of Appeal expressed the view, necessarily tentative in the circumstances, that the law of contract would be seriously defective if the court were unable to award restitutionary damages for breach of contract. The law is now sufficiently mature to recognise a restitutionary claim for profits made from a breach of contract in appropriate situations. These include cases of 'skimped' performance, and cases where the defendant obtained his profit by doing 'the very thing' he contracted not to do. The present case fell into the latter category: Blake earned his profit by doing the very thing he had promised not to do.

  10. This matter was pursued in your Lordships' House. Prompted by an invitation from your Lordships, the Attorney General advanced an argument that restitutionary principles ought to operate to enable the Crown to recover from Blake his profits arising from his breach of contract. It will be convenient to consider this private law claim first.

  11. This is a subject on which there is a surprising dearth of judicial decision. By way of contrast, over the last 20 years there has been no lack of academic writing. This includes valuable comment on the Court of Appeal dicta in the present case: by Janet O'Sullivan, 'Reflections on the Role of Restitutionary Damages to protect contractual expectations' (to be published), and Catherine Mitchell, 'Remedial Inadequacy in Contract and the Role of Restitutionary Damages' (1999) 15 J.C.L. 133. Most writers have favoured the view that in some circumstances the innocent party to a breach of contract should be able to compel the defendant to disgorge the profits he obtained from his breach of contract. However, there is a noticeable absence of any consensus on what are the circumstances in which this remedy should be available. Professor Burrows has described this as a devilishly difficult topic: see 'No Restitutionary Damages for Breach of Contract' [1993] L.M.C.L.Q.R. 453. The broad proposition that a wrongdoer should not be allowed to profit from his wrong has an obvious attraction. The corollary is that the person wronged may recover the amount of this profit when he has suffered no financially measurable loss. As Glidewell L.J. observed in Halifax Building Society v Thomas [1996] Ch. 217, 229, the corollary is not so obviously persuasive. In these choppy waters the common law and equity steered different courses. The effects of this are still being felt.

    INTERFERENCE WITH RIGHTS OF PROPERTY

  12. So I turn to established, basic principles. I shall first set the scene by noting how the court approaches the question of financial recompense for interference with rights of property. As with breaches of contract, so with tort, the general principle regarding assessment of damages is that they are compensatory for loss or injury. The general rule is that, in the oft quoted words of Lord Blackburn, the measure of damages is to be, as far as possible, that amount of money which will put the injured party in the same position he would have been in had he not sustained the wrong: Livingstone v Rawyards Coal Co. (1880) 5 App. Cas. 25, 39. Damages are measured by the plaintiff's loss, not the defendant's gain. But the common law, pragmatic as ever, has long recognised that there are many commonplace situations where a strict application of this principle would not do justice between the parties. Then compensation for the wrong done to the plaintiff is measured by a different yardstick. A trespasser who enters another's land may cause the landowner no financial loss. In such a case damages are measured by the benefit received by the trespasser, namely, by his use of the land. The same principle is applied where the wrong consists of use of another's land for depositing waste, or by using a path across the land or using passages in an underground mine. In this type of case the damages recoverable will be, in short, the price a reasonable person would pay for the right of user: see Whitwam v Westminster Brymbo Coal Co. [1892] 2 Ch. 538, and the 'wayleave' cases such as Martin v Porter (1839) 5 M. and W. 351 and Jegon v Vivian (1871) L.R. 6 Ch. 742. A more recent example was the non-removal of a floating dock, in Penarth Dock Engineering Co. Ltd. v Pounds [1963] 1 L1oyd's Rep. 359.

  13. The same principle is applied to the wrongful detention of goods. An instance is the much cited decision of the Court of Appeal in Strand Electric and Engineering Co. Ltd. v Brisford Entertainments Ltd. [1952] 2 Q.B. 246, concerning portable switchboards. But the principle has a distinguished ancestry. Earl of Halsbury L.C. famously asked in The Mediana [1900] A.C. 113,117, that if a person took away a chair from his room and kept it for 12 months, could anybody say you had a right to diminish the damages by showing that I did not usually sit in that chair, or that there were plenty of other chairs in the room? To the same effect was Lord Shaw's telling example in Watson, Laidlaw & Co. Ltd. v Pott, Cassels, and Williamson (1914) 31 R.P.C. 104, 119. It bears repetition:

    If A, being a liveryman, keeps his horse standing idle in the stable, and B, against his wish or without his knowledge, rides or drives it out, it is no answer to A for B to say: "Against what loss do you want to be restored? I restore the horse. There is no loss. The horse is none the worse; it is the better for the exercise.

    Lord Shaw prefaced this observation with a statement of general principle:

    wherever an abstraction or invasion of property has occurred, then, unless such abstraction or invasion were to be sanctioned by law, the law ought to yield a recompense under the category or principle .... either of price or of hire.

  14. That was a patent infringement case. The House of Lords held that damages should be assessed on the footing of a royalty for every infringing article.

  15. This principle is established and not controversial. More difficult is the alignment of this measure of damages within the basic compensatory measure. Recently there has been a move towards applying the label of restitution to awards of this character: see, for instance, Ministry of Defence v Ashman [1993] 2 E.G.L.R. 102, 105, and Ministry of Defence v Thompson [1993] 2 E.G.L.R. 107. However that may be, these awards cannot be regarded as conforming to the strictly compensatory measure of damage for the injured person's loss unless loss is given a strained and artificial meaning. The reality is that the injured person's rights were invaded but, in financial terms, he suffered no loss. Nevertheless the common law has found a means to award him a sensibly calculated amount of money. Such awards are probably best regarded as an exception to the general rule.

  16. Courts of equity went further than the common law courts. In some cases equity required the wrongdoer to yield up all his gains. In respect of certain wrongs which originally or ordinarily were the subject of proceedings in the Court of Chancery, the standard remedies were injunction and, incidental thereto, an account of profits. These wrongs included passing off, infringement of trade marks, copyrights and patents, and breach of confidence. Some of these subjects are now embodied in statutory codes. An injunction restrained the continuance of the wrong, and the wrongdoer was required to account for the profits or benefits he had obtained from breaches or infringements which had already occurred. The court always had a discretion regarding the grant of the remedy of an account of profits, and this remains the position. Further, the circumstances in which an account of profits is available under the statutes vary. For instance, an account of profits may not be ordered against a defendant in a patent infringement action who proves that at the date of the infringement he was not aware, and had no reasonable grounds for supposing, that the patent existed: Patents Act 1977, section 62(1).

  17. In these cases the courts of equity appear to have regarded an injunction and account of profits as more appropriate remedies than damages because of the difficulty of assessing the extent of the loss. Thus, in 1803 Lord Eldon L.C. stated, in Hogg v Kirby 8 Ves. Jun. 215, 223, a passing off case:

    what is the consequence in Law and in Equity? .... a Court of Equity in these cases is not content with an action for damages; for it is nearly impossible to know the extent of the damage; and therefore the remedy here, though not compensating the pecuniary damage except by an account of profits, is the best: the remedy by an injunction and account.

  18. Whether this justification for ordering an account of profits holds good factually in every case must be doubtful. Be that as it may, in these types of case equity considered that the appropriate response to the violation of the plaintiff's right was that the defendant should surrender all his gains, and that he should do so irrespective of whether the violation had caused the plaintiff any financially measurable loss. Gains were to be disgorged even though they could not be shown to correspond with any disadvantage suffered by the other party. This lack of correspondence was openly acknowledged. In Lever v Goodwin (1887) 36 Ch. D. 1, 7, Cotton L.J. stated it was 'well known' that in trade mark and patent cases the plaintiff was entitled, if he succeeded in getting an injunction, to take either of two forms of relief: he might claim from the defendant either the damage he had sustained from the defendant's wrongful act or the profit made by the defendant from the defendant's wrongful act.

  19. Considered as a matter of principle, it is difficult to see why equity required the wrongdoer to account for all his profits in these cases, whereas the common law's response was to require a wrongdoer merely to pay a reasonable fee for use of another's land or goods. In all these cases rights of property were infringed. This difference in remedial response appears to have arisen simply as an accident of history.

  20. In some instances the common law itself afforded a wronged party a choice of remedies. A notable example is the wrong of conversion. A person whose goods were wrongfully converted by another had a choice of two remedies against the wrongdoer. He could recover damages, in respect of the loss he had sustained by the conversion. Or he could recover the proceeds of the conversion obtained by the defendant: see United Australia Ltd. v Barclays Bank Ltd. [1941] A.C. 1, 34, per Lord Romer. Historically, the latter alternative was achieved by recourse to an element of legal fiction, whereby the innocent party 'waived the tort'. The innocent party could suppose that the wrongful sale had been made with his consent and bring an action for money 'had and received to his use': see Lamine v Dorrell (1701) 2 Ld. Raym. 1216, 1217. Holt C.J. observed that these actions had 'crept in by degrees'.

    BREACH OF TRUST AND FIDUCIARY DUTY

  21. I should refer briefly to breach of trust and breach of fiduciary duty. Equity reinforces the duty of fidelity owed by a trustee or fiduciary by requiring him to account for any profits he derives from his office or position. This ensures that trustees and fiduciaries are financially disinterested in carrying out their duties. They may not put themselves in a position where their duty and interest conflict. To this end they must not make any unauthorised profit. If they do, they are accountable. Whether the beneficiaries or persons to whom the fiduciary duty is owed suffered any loss by the impugned transaction is altogether irrelevant. The accountability of the army sergeant in Reading v Attorney General [1951] A.C. 507 is a familiar application of this principle to a servant of the Crown.

    DAMAGES UNDER LORD CAIRNS' ACT

  22. I must also mention the jurisdiction to award damages under section 2 of the Chancery Amendment Act 1858, commonly known as Lord Cairns' Act. This Act has been repealed but the jurisdiction remains. Section 2 empowered the Court of Chancery at its discretion, in all cases where it had jurisdiction to entertain an application for an injunction or specific performance, to award damages in addition to or in substitution for an injunction or specific performance. Thus section 2 enabled the Court of Chancery, sitting at Lincoln's Inn, to award damages when declining to grant equitable relief rather than, as had been the practice since Lord Eldon's decision in Todd v Gee (1810) 17 Ves. 273, sending suitors across London to the common law courts at Westminster Hall.

  23. Lord Cairns' Act had a further effect. The common law courts' jurisdiction to award damages was confined to loss or injury flowing from a cause of action which had accrued before the writ was issued. Thus in the case of a continuing wrong, such as maintaining overhanging eaves and gutters, damages were limited to the loss suffered up to the commencement of the action: see Battishill v Reed (1856) 18 C.B. 696. Lord Cairns' Act liberated the courts from this fetter. In future, if the court declined to grant an injunction, which had the effect in practice of sanctioning the indefinite continuance of a wrong, the court could assess damages to include losses likely to follow from the anticipated future continuance of the wrong as well as losses already suffered. The power to give damages in lieu of an injunction imported the power to give an equivalent for what was lost by the refusal of an injunction: see Leeds Industrial Co-operative Society Ltd. v Slack [1924] A.C. 851, 859, per Viscount Finlay L.C. It is important to note, however, that although the Act had the effect of enabling the court in this regard to award damages in respect of the future as well as the past, the Act did not alter the measure to be employed in assessing damages: see Johnson v Agnew [1980] A.C. 367, 400, per Lord Wilberforce. Thus, in the same way as damages at common law for violations of a property right may by measured by reference to the benefits wrongfully obtained by a defendant, so under Lord Cairns' Act damages may include damages measured by reference to the benefits likely to be obtained in future by the defendant. This approach has been adopted on many occasions. Recent examples are Bracewell v Appleby [1975] Ch. 408 and Jaggard v Sawyer [1995] 1 W.L.R. 269, both cases concerned with access to a newly-built house over another's land.

  24. The measure of damages awarded in this type of case is often analysed as damages for loss of a bargaining opportunity or, which comes to the same, the price payable for the compulsory acquisition of a right. This analysis is correct. The court's refusal to grant an injunction means that in practice the defendant is thereby permitted to perpetuate the wrongful state of affairs he has brought about. But this analysis takes the matter now under discussion no further forward. A property right has value to the extent only that the court will enforce it or award damages for its infringement. The question under discussion is whether the court will award substantial damages for an infringement when no financial loss flows from the infringement and, moreover, in a suitable case will assess the damages by reference to the defendant's profit obtained from the infringement. The cases mentioned above show that the courts habitually do that very thing.

    BREACH OF CONTRACT

  25. Against this background I turn to consider the remedies available for breaches of contract. The basic remedy is an award of damages. In the much quoted words of Baron Parke, the rule of the common law is that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same position as if the contract had been performed: Robinson v Harman (1848) 1 Ex. 850, 855. Leaving aside the anomalous exception of punitive damages, damages are compensatory. That is axiomatic. It is equally 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 recognises that a party to a contract may have an interest in performance which is not readily measurable in terms of money. On breach the innocent party suffers a loss. He fails to obtain the benefit promised by the other party to the contract. To him the loss may be as important as financially measurable loss, or more so. An award of damages, assessed by reference to financial loss, will not recompense him properly. For him a financially assessed measure of damages is inadequate.

  26. The classic example of this type of case, as every law student knows, is a contract for the sale of land. The buyer of a house may be attracted by features which have little or no impact on the value of the house. An award of damages, based on strictly financial criteria, would fail to recompense a disappointed buyer for this head of loss. The primary response of the law to this type of case is to ensure, if possible, that the contract is performed in accordance with its terms. The court may make orders compelling the party who has committed a breach of contract, or is threatening to do so, to carry out his contractual obligations. To this end the court has wide powers to grant injunctive relief. The court will, for instance, readily make orders for the specific performance of contracts for the sale of land, and sometimes it will do so in respect of contracts for the sale of goods. In Beswick v Beswick [1968] A.C. 58 the court made an order for the specific performance of a contract to make payments of money to a third party. The law recognised that the innocent party to the breach of contract had a legitimate interest in having the contract performed even though he himself would suffer no financial loss from its breach. Likewise, the court will compel the observance of negative obligations by granting injunctions. This may include a mandatory order to undo an existing breach, as where the court orders the defendant to pull down building works carried out in breach of covenant.

  27. All this is trite law. In practice, these specific remedies go a long way towards providing suitable protection for innocent parties who will suffer loss from breaches of contract which are not adequately remediable by an award of damages. But these remedies are not always available. For instance, confidential information may be published in breach of a non-disclosure agreement before the innocent party has time to apply to the court for urgent relief. Then the breach is irreversible. Further, these specific remedies are discretionary. Contractual obligations vary infinitely. So do the circumstances in which breaches occur, and the circumstances in which remedies are sought. The court may, for instance, decline to grant specific relief on the ground that this would be oppressive.

  28. An instance of this nature occurred in Wrotham Park Estate Co. Ltd. v Parkside Homes Ltd. [1974] 1 W.L.R. 798. For social and economic reasons the court refused to make a mandatory order for the demolition of houses built on land burdened with a restrictive covenant. Instead, Brightman J. made an award of damages under the jurisdiction which originated with Lord Cairns' Act. The existence of the new houses did not diminish the value of the benefited land by one farthing. The judge considered that if the plaintiffs were given a nominal sum, or no sum, justice would manifestly not have been done. He assessed the damages at five per cent of the developer's anticipated profit, this being the amount of money which could reasonably have been demanded for a relaxation of the covenant.

  29. In reaching his conclusion the judge applied by analogy the cases mentioned above concerning the assessment of damages when a defendant has invaded another's property rights but without diminishing the value of the property. I consider he was right to do so. Property rights are superior to contractual rights in that, unlike contractual rights, property rights may survive against an indefinite class of persons. However, it is not easy to see why, as between the parties to a contract, a violation of a party's contractual rights should attract a lesser degree of remedy than a violation of his property rights. As Lionel Smith has pointed out in his article Disgorgement of the profits of Contract: Property, Contract and 'Efficient Breach' 24 Can. B.L.J. 121, it is not clear why it should be any more permissible to expropriate personal rights than it is permissible to expropriate property rights.

  30. I turn to the decision of the Court of Appeal in Surrey County Council v Bredero Homes Ltd. [1993] 1 W.L.R. 1361. A local authority had sold surplus land to a developer and obtained a covenant that the developer would develop the land in accordance with an existing planning permission. The sole purpose of the local authority in imposing the covenant was to enable it to share in the planning gain if, as happened, planning permission was subsequently granted for the erection of a larger number of houses. The purpose was that the developer would have to apply and pay for a relaxation of the covenant if it wanted to build more houses. In breach of covenant the developer completed the development in accordance with the later planning permission, and the local authority brought a claim for damages. The erection of the larger number of houses had not caused any financial loss to the local authority. The judge awarded nominal damages of 2, and the Court of Appeal dismissed the local authority's appeal.

  31. This is a difficult decision. It has attracted criticism from academic commentators and also in judgments of Sir Thomas Bingham M.R. and Millett L.J. in Jaggard v Sawyer [1995] 1 W.L.R. 269. I need not pursue the detailed criticisms. In the Bredero case Dillon L.J. himself noted, at p. 1364, that had the covenant been worded differently, there could have been provision for payment of an increased price if a further planning permission were forthcoming. That would have been enforceable. But, according to the Bredero decision, a covenant not to erect any further houses without permission, intended to achieve the same result, may be breached with impunity. That would be a sorry reflection on the law. Suffice to say, in so far as the Bredero decision is inconsistent with the approach adopted in the Wrotham Park case, the latter approach is to be preferred.

  32. The Wrotham Park case, therefore, still shines, rather as a solitary beacon, showing that in contract as well as tort damages are not always narrowly confined to recoupment of financial loss. In a suitable case damages for breach of contract may be measured by the benefit gained by the wrongdoer from the breach. The defendant must make a reasonable payment in respect of the benefit he has gained. 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 of profits can ever be given as a remedy for breach of contract. The researches of counsel have been unable to discover any case where the court has made such an order on a claim for breach of contract. In Tito v Waddell (No. 2) [1977] Ch. 106, 332, a decision which has proved controversial, Sir Robert Megarry V.-C. said that, as a matter of fundamental principle, the question of damages was 'not one of making the defendant disgorge' his gains, in that case what he had saved by committing the wrong, but 'one of compensating the plaintiff.' In Occidental Worldwide Investment Corpn. v Skibs A/S Avanti [1976] 1 Lloyd's Rep. 293, 337, Kerr J. summarily rejected a claim for an account of profits when ship owners withdrew ships on a rising market.

  33. There is a light sprinkling of cases where courts have made orders having the same effect as an order for an account of profits, but the courts seem always to have attached a different label. A person who, in breach of contract, sells land twice over must surrender his profits on the second sale to the original buyer. Since courts regularly make orders for the specific performance of contracts for the sale of land, a seller of land is, to an extent, regarded as holding the land on trust for the buyer: Lake v Bayliss [1974] 1 W.L.R. 1073. In Reid-Newfoundland Co. v Anglo-American Telegraph Co., Ltd. [1912] A.C. 555 a railway company agreed not to transmit any commercial messages over a particular telegraph wire except for the benefit and account of the telegraph company. The Privy Council held that the railway company was liable to account as a trustee for the profits it wrongfully made from its use of the wire for commercial purposes. In British Motor Trade Association v Gilbert [1951] 2 All E.R. 641 the plaintiff suffered no financial loss but the award of damages for breach of contract effectively stripped the wrongdoer of the profit he had made from his wrongful venture into the black market for new cars.

  34. These cases illustrate that circumstances do arise when the just response to a breach of contract is that the wrongdoer should not be permitted to retain any profit from the breach. In these cases the courts have reached the desired result by straining existing concepts. Professor Peter Birks has deplored the 'failure of jurisprudence when the law is forced into this kind of abusive instrumentalism': see (1993) 109 L.Q.R. 518, 520. Some years ago Professor Dawson suggested there is no inherent reason why the technique of equity courts in land contracts should not be more widely employed, not by granting remedies as the by-product of a phantom 'trust' created by the contract, but as an alternative form of money judgment remedy. That well known ailment of lawyers, a hardening of the categories, ought not to be an obstacle: see 'Restitution or Damages' (1959) 20 Ohio L.J. 175.

  35. 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'. Remedies are the law's response to a wrong (or, more precisely, to a cause of action). When, exceptionally, a just response to a breach of contract so requires, the court should be able to grant the discretionary remedy of requiring a defendant to account to the plaintiff for the benefits he has received from his breach of contract. In the same way as a plaintiff's interest in performance of a contract may render it just and equitable for the court to make an order for specific performance or grant an injunction, so the plaintiff's interest in performance may make it just and equitable that the defendant should retain no benefit from his breach of contract.

  36. The state of the authorities encourages me to reach this conclusion, rather than the reverse. The law recognises that damages are not always a sufficient remedy for breach of contract. This is the foundation of the court's jurisdiction to grant the remedies of specific performance and injunction. Even when awarding damages, the law does not adhere slavishly to the concept of compensation for financially measurable loss. When the circumstances require, damages are measured by reference to the benefit obtained by the wrongdoer. This applies to interference with property rights. Recently, the like approach has been adopted to breach of contract. Further, in certain circumstances an account of profits is ordered in preference to an award of damages. Sometimes the injured party is given the choice: either compensatory damages or an account of the wrongdoer's profits. Breach of confidence is an instance of this. If confidential information is wrongfully divulged in breach of a non-disclosure agreement, it would be nothing short of sophistry to say that an account of profits may be ordered in respect of the equitable wrong but not in respect of the breach of contract which governs the relationship between the parties. With the established authorities going thus far, I consider it would be only a modest step for the law to recognise openly that, exceptionally, an account of profits may be the most appropriate remedy for breach of contract. It is not as though this step would contradict some recognised principle applied consistently throughout the law to the grant or withholding of the remedy of an account of profits. No such principle is discernible.

  37. The main argument against the availability of an account of profits as a remedy for breach of contract is that the circumstances where this remedy may be granted will be uncertain. This will have an unsettling effect on commercial contracts where certainty is important. I do not think these fears are well founded. I see no reason why, in practice, the availability of the remedy of an account of profits need disturb settled expectations in the commercial or consumer world. An account of profits will be appropriate only in exceptional circumstances. Normally the remedies of damages, specific performance and injunction, coupled with the characterisation of some contractual obligations as fiduciary, will provide an adequate response to a breach of contract. It will be only in exceptional cases, where those remedies are inadequate, that any question of accounting for profits will arise. No fixed rules can be prescribed. The court will have regard to all the circumstances, including 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 relief is being sought. 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 his profit.

  38. It would be difficult, and unwise, to attempt to be more specific. In the Court of Appeal Lord Woolf, M.R. suggested there are at least two situations in which justice requires the award of restitutionary damages where compensatory damages would be inadequate: see [1998] Ch. 439, 458. Lord Woolf was not there addressing the question of when an account of profits, in the conventional sense, should be available. But I should add that, so far as an account of profits is concerned, the suggested categorisation would not assist. The first suggested category was the case of 'skimped' performance, where the defendant fails to provide the full extent of services he has contracted to provide. He should be liable to pay back the amount of expenditure he saved by the breach. This is a much discussed problem. But a part refund of the price agreed for services would not fall within the scope of an account of profits as ordinarily understood. Nor does an account of profits seem to be needed in this context. The resolution of the problem of cases of skimped 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 for damages for breach of contract. That would be so, irrespective of whether the goods in fact served the intended purpose. There must be scope for a similar approach, without any straining of principle, in cases where the defendant provided inferior and cheaper services than those contracted for.

  39. The second suggested category was where the defendant has obtained his profit by doing the very thing he contracted not to do. This category is defined too widely to assist. The category is apt to embrace all express negative obligations. But something more is required than mere breach of such an obligation before an account of profits will be the appropriate remedy.

  40. Lord Woolf, at [1998] Ch. 439, 457, 458, also suggested three facts which should not be a sufficient ground for departing from the normal basis on which damages are awarded: the fact that the breach was cynical and deliberate; the fact that the breach enabled the defendant to enter into a more profitable contract elsewhere; and the fact that by entering into a new and more profitable contract the defendant put it out of his power to perform his contract with the plaintiff. I agree that none of these facts would be, by itself, a good reason for ordering an account of profits.

    THE PRESENT CASE

  41. The present case is exceptional. The context is employment as a member of the security and intelligence services. Secret information is the lifeblood of these services. In the 1950s Blake deliberately committed repeated breaches of his undertaking not to divulge official information gained as a result of his employment. He caused untold and immeasurable damage to the public interest he had committed himself to serve. In 1990 he published his autobiography, a further breach of his express undertaking. By this time the information disclosed was no longer confidential. In the ordinary course of commercial dealings the disclosure of non-confidential information might be regarded as venial. In the present case disclosure was also a criminal offence under the Official Secrets Acts, even though the information was no longer confidential. Section 1 of the Official Secrets Act 1989 draws a distinction in this regard between members of the security and intelligence services and other Crown servants. Under section 1(3) a person who is or has been a Crown servant is guilty of an offence if without lawful authority he makes 'a damaging disclosure' of information relating to security or intelligence. The offence is drawn more widely in the case of a present or past member of the security and intelligence services. Such a person is guilty of an offence if without lawful authority he discloses 'any information' relating to security or intelligence which is or has been in his possession by virtue of his position as a member of those services. This distinction was approved in Parliament after debate when the legislation was being enacted.

  42. Mr. Clayton submitted that section 1(1) is drawn too widely and infringes article 10 of the European Convention of Human Rights. Section 1(1) criminalises disclosure of information when no damage results. It focuses on the status of the individual who makes the disclosure, rather than on the nature of the information itself. A non-damaging disclosure by a member of the security and intelligence services is criminal, but the identical non-damaging disclosure by a Crown servant is not.

  43. This argument was raised for the first time in this House. Your Lordships are not equipped with the material necessary to decide the point. In the event this does not matter, because there is in the present case another consideration which is sufficient for the purposes of the Attorney General. When he joined the Secret Intelligence Service Blake expressly agreed in writing that he would not disclose official information, during or after his service, in book form or otherwise. He was employed on that basis. That was the basis on which he acquired official information. The Crown had and 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 undertaking. It is of paramount importance that members of the service should have complete confidence in all their dealings with each other, and that those recruited as informers should have the like confidence. Undermining the willingness of prospective informers to co-operate with the services, or undermining the morale and trust between members of the services when engaged on secret and dangerous operations, would jeopardise the effectiveness of the service. An absolute rule against disclosure, visible to all, makes good sense.

  44. In considering what would be a just response to a breach of Blake's undertaking the court has to take these considerations into account. The undertaking, if not a fiduciary obligation, was closely akin to a fiduciary obligation, where an account of profits is a standard remedy in the event of breach. Had the information which Blake has now disclosed still been confidential, an account of profits would have been ordered, almost as a matter of course. In the special circumstances of the intelligence services, the same conclusion should follow even though the information is no longer confidential. That would be a just response to the breach. I am reinforced in this view by noting that most of the profits from the book derive indirectly from the extremely serious and damaging breaches of the same undertaking committed by Blake in the 1950s. As already mentioned, but for his notoriety as an infamous spy his autobiography would not have commanded royalties of the magnitude Jonathan Cape agreed to pay.

  45. As a footnote I observe that a similar conclusion, requiring the contract-breaker to disgorge his profits, was reached in the majority decision of the United States Supreme Court in Snepp v United States (1980) 444 U.S. 507. The facts were strikingly similar. A former employee of the Central Intelligence Agency, whose conditions of employment included a promise not to divulge any information relating to the agency without pre-publication clearance, published a book about the agency's activities in Vietnam. None of the information was classified, but an agent's violation of his non-disclosure obligation impaired the agency's ability to function properly. The court considered and rejected various forms of relief. The actual damage was not quantifiable, nominal damages were a hollow alternative, and punitive damages after a jury trial would be speculative and unusual. Even if recovered they would bear no relation to either the government's irreparable loss or Snepp's unjust gain. The court considered that a remedy which required Snepp 'to disgorge the benefits of his faithlessness', was swift and sure, tailored to deter those who would place sensitive information at risk and, since the remedy reached only funds attributable to the breach, it could not saddle the former agent with exemplary damages out of all proportion to his gain. In order to achieve this result the court 'imposed' a constructive trust on Snepp's profits. In this country, affording the plaintiff the remedy of an account of profits is a different means to the same end.

    THE FORM OF THE ORDER

  46. The Attorney General's entitlement to an account of Blake's profits does not, in this case, confer on the Crown any proprietary interest in the debt due to Blake from Jonathan Cape. The Crown is entitled, on the taking of the account, to a money judgment which can then be enforced by attachment of the debt in the usual way. These formal steps may be capable of being short-circuited. Despite the niceties and formalities once associated with taking an account, the amount payable under an account of profits need not be any more elaborately or precisely calculated than damages. But in this case there is a complication. Blake has brought third party proceedings against Jonathan Cape, seeking payment of 90,000 (less tax). In the third party proceedings Jonathan Cape has sought to deduct legal expenses incurred in resisting a defamation claim and in resisting the Crown's claim. Accordingly, the appropriate form of order on this appeal is a declaration that the Attorney General is entitled to be paid a sum equal to whatever amount is due and owing to Blake from Jonathan Cape under the publishing agreement of 4 May 1989. The injunction granted by the Court of Appeal will remain in force until Jonathan Cape duly makes payment to the Attorney General. I would dismiss this appeal.

    THE PUBLIC LAW CLAIM

  47. The public law claim, advanced by the Attorney General as guardian of the public interest, arises only if the Crown as Blake's former employer has no private law claim in respect of the royalties. Accordingly, having regard to the conclusion already reached on the private law claim, the public law claim does not call for decision. However, it is right that I should state briefly why I cannot agree with the decision of the Court of Appeal on this point, much as I sympathise with the court's objective. The public law claim is founded on the premise that the royalties belong to Blake. The order made by the Court of Appeal was not intended to be confiscatory. It was not intended to extinguish Blake's title. The Solicitor General stated explicitly that the order was intended only to be preservative: a 'freezing' order. Indeed, the order is so drafted. Blake is merely restrained from receiving payment of the royalties 'until further order'. This is the classic form of order that seeks to preserve property pending the happening of some other event. Typically, the event is a decision by the court on who is entitled to the property. Lord Woolf said that the injunction in the present case would serve the ordinary purpose of preserving assets pending adjudication.

  48. This form of order prompts the question: in the absence of a private law claim, what is the event pending which the money held by Jonathan Cape is being frozen in its hands? What is the anticipated adjudication? If Blake were to return to this country he could be prosecuted for a breach of section 1(1) of the Official Secrets Act 1989. When criminal proceedings were launched, the court would have statutory jurisdiction to make a restraint order to prevent the proceeds of a criminal offence being used or dissipated. If convicted, the Crown could seek a confiscation order under Part VI of the Criminal Justice Act 1988, as amended by the Proceeds of Crime Act 1995. But none of this is a realistic possibility. The Solicitor General openly accepted that this is so. There is no prospect of Blake returning to this country. Thus, the money is not being preserved pending a criminal prosecution.

  49. This being the case, one must look elsewhere for the event which will decide what is to happen to the money thus frozen in Jonathan Cape's hands. I have to say that one seeks in vain for any satisfactory explanation of what that event will be. The Crown suggested that at some stage in the future an application might be made to the court for the money to be released to a charity, or used in some other way which would not benefit Blake. The Court of Appeal envisaged the possibility of some use for the unpaid royalties which would not be 'contrary to the public interest.' But these suggestions serve only to underline that, although not so expressed, the effect of this order is confiscatory. The order will have the effect of preventing the money being paid to Blake. It is not envisaged that the money will ever be paid to him. He is being deprived of the use of the money indefinitely. That is the intention. Although the order is strictly only interlocutory in character ('until further order'), the basis on which the court has made the order is that Blake will never receive any of the unpaid royalties. That is confiscation in substance, if not in form. In my view the court has no power to make such an order. In respect of the proceeds of crime Parliament has conferred upon the court power to make confiscation orders and ancillary restraint orders. In Part VI of the Criminal Justice Act 1988, since amended by the Proceeds of Crime Act 1995, Parliament has carefully marked out when these orders may be made. The common law has no power to remedy any perceived deficiencies in this statutory code. An attempt to do so would offend the established general principle, of high constitutional importance, that there is no common law power to take or confiscate property without compensation: see Attorney General v De Keyser's Royal Hotel, Ltd. [1920] A.C. 508, Burmah Oil Co. Ltd. v Lord Advocate [1965] A.C. 75 and, in this context, Malone v Metropolitan Police Commissioner [1980] 1 Q.B. 49, 61-63, per Stephenson L.J.

  50. I should add that in his judgment Lord Woolf, at p. 463, referred to several cases where interlocutory injunctions were granted to chief constables freezing the suspected proceeds of crime in circumstances where there had not yet been a conviction for a criminal offence. In this House Mr. Clayton mounted a sustained attack on these decisions. For his part the Solicitor General did not seek to rely on these decisions in support of the Attorney General's case. As Lord Woolf noted, the Attorney General stands in an altogether different legal and constitutional position. Since the House has not heard contrary argument, it would not be right to express any views on Mr. Clayton's submissions regarding these cases.

    Lord Goff of Chieveley

    My Lords,

  51. I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Nicholls of Birkenhead. I agree with it and for the reasons which he has given I would dismiss this appeal.

    Lord Browne-Wilkinson

    My Lords,

  52. I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Nicholls of Birkenhead. I agree with it and for the reasons which he gives I would dismiss this appeal but vary the order of the Court of Appeal to declare that the Attorney-General is entitled to be paid a sum equal to whatever amount is due and owing to Blake from Jonathan Cape under the publishing agreement of 4 May 1989.

    Lord Steyn

    My Lords,

  53. In law classification is important. Asking the right questions in the right order reduces the risk of wrong decisions. This truth is illustrated by the case before the House. Blake is a convicted traitor. From 1944 to 1961 he was a member of the intelligence services. In 1944 he was required to and did sign a contractual undertaking "not to divulge any official information gained by me as a result of my employment, either in the press or book form". This undertaking still binds Blake. In flagrant breach of the terms of the undertaking Blake published a book in September 1990 dealing in part with his period in the intelligence services. This appeal concerns a sum of about 90,000 payable by Jonathan Cape Ltd., the publishers, to Blake. The Court of Appeal upheld the decision of the Vice-Chancellor, Sir Richard Scott, that Blake is not liable to account for his profits as a fiduciary: Attorney-General v Blake [1998] Ch. 439. Despite the encouragement of the Court of Appeal Mr. John Smith Q.C., the Attorney-General at that time, declined to pursue a claim for restitutionary damages for breach of contract. While recording its view that such a claim, if made, might be sound, the Court of Appeal was powerless to act on that view: at 456B-458B. In a case crying out for effective relief against Blake, the Court of Appeal devised an injunction, the objective of which was to prevent the money reaching Blake. Due to an initiative taken by the House, the issue of the availability of a restitutionary remedy is now before the House. At the hearing of the appeal counsel for Blake addressed first the public law question whether the Court of Appeal had the power to grant the injunction before he dealt with the question whether a restitutionary remedy is available. My Lords, taxonomy requires that the question whether there is such a private law remedy should be considered first. This is so because the Court of Appeal in granting the injunction undoubtedly extended the reach of existing powers of the Attorney-General. And that course could only sensibly be entertained if there was not a restitutionary law remedy. It is therefore to the private law position that I first turn.

  54. In the Court of Appeal in Surrey County Council v Bredero Homes Ltd. [1993] 1 W.L.R. 1361 I discussed some of the difficulties inherent in creating a general remedy for the recovery of restitutionary damages for breach of contract. On that occasion I remarked that it is not traditional to describe a claim for restitution following a breach of contract as damages. The terminology is however less important than the substance: under consideration are claims for the disgorgement of profits against a contract breaker. There has been a substantial academic debate on the merits of the actual decision in Bredero. Since this issue has not been directly debated in the present case I propose to express no view on it. But it is right to acknowledge that the academic comment has been critical of the decision in Bredero. I would, however, respectfully offer a comment on the valuable academic debate. On the one hand, there is no or virtually no support for a general action for disgorgement of profits made by a contract breaker by reason of his breach. On the other hand, there is significantly absent from the post Bredero academic comment a reasoned statement of the particular circumstances when such a remedy should be available. That is not surprising because it is a notoriously a difficult subject. But the Court of Appeal has been bold. It is said that the remedy should be available in two situations, viz 

    1. in cases of "skimped" performance (where the "gain" would take the form of expense saved) and

    2. "where the defendant has obtained his profit by doing the very thing which he contracted not to do".

    The second would cover the present case. But it potentially has wide application. Sir Guenter Treitel, Q.C., The Law of Contract, 10th ed., (1999) p. 868-869, has questioned the soundness of the observations of the Court of Appeal: see also the valuable comment by Janet O'Sullivan, "Reflections on the role of restitutionary damages to protect contractual expectations" (to be published) and Hanoch Dagan, "Restitutionary Damages for Breach of Contract: An Exercise in Private Law Theory, Theoretical Inquiries in Law," January 2000 Vol. 1, No. 1, 115. I am not at present willing to endorse the broad observations of the Court of Appeal. 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.

  55. In the hearing before the House Mr. Ross Cranston Q.C., the Solicitor-General, in a thoughtful and careful speech argued for a recognition of an action for disgorgement of profits against a contract breaker where four conditions are fulfilled:

    1. There has been a breach of a negative stipulation.

    2. The contract breaker has obtained the profit by doing the very thing which he promised not to do.

    3. The innocent party (in this case the Crown as represented by the Attorney-General) has a special interest over and above the hope of a benefit to be assessed in monetary terms.

    4. Specific performance or an injunction is an ineffective or virtually ineffective remedy for the breach.

    The Solicitor-General persuaded me that in the case of Blake each of these conditions is satisfied. But since I recognise that it would be wrong to create a remedy simply to cover this case, it is right that I should explain the specific considerations which lead me to conclude that it is right on a principled basis to develop the law in a way which covers this case and other cases sharing materially similar features.

  56. My Lords, it has been held at first instance and in the Court of Appeal that Blake is not a fiduciary. This is not an issue before the House. But, as my noble and learned friend Lord Nicholls of Birkenhead has observed, the present case is closely analogous to that of fiduciaries: compare Reading v Attorney-General [1951] A.C. 507. If the information was still confidential, Blake would in my view have been liable as a fiduciary. That would be so despite the fact that he left the intelligence services many years ago. The distinctive feature of this case is, however, that Blake gave an undertaking not to divulge any information, confidential or otherwise, obtained by him during his work in the intelligence services. This obligation still applies to Blake. He was, therefore in regard to all information obtained by him in the intelligence services, confidential or not, in a very similar position to a fiduciary. The reason of the rule applying to fiduciaries applies to him. Secondly, I bear in mind that the enduring strength of the common law is that it has been developed on a case-by-case basis by judges for whom the attainment of practical justice was a major objective of their work. It is still one of the major moulding forces of judicial decision-making. These observations are almost banal: the public would be astonished if it was thought that judges did not conceive it as their prime duty to do practical justice whenever possible. A recent example of this process at work is White v Jones [1995] 2 A.C. 207 where by a majority the House of Lords held that a solicitor who caused loss to a third party by negligence in the preparation of a will is liable in damages. Subordinating conceptual difficulties to the needs of practical justice a majority, and notably Lord Goff of Chieveley, at pp. 259G-260H, upheld the claim. For my part practical justice strongly militates in favour of granting an order for disgorgement of profits against Blake. The decision of the United States Supreme Court in Snepp v United States (1980) 444 U.S. 507 is instructive. On very similar facts the Supreme Court imposed a constructive trust on the intelligence officer's profits. Our law is also mature enough to provide a remedy in such a case but does so by the route of the exceptional recognition of a claim for disgorgement of profits against the contract breaker. In my view therefore there is a valid claim vesting in the Attorney-General against Blake for disgorgement of his gain.

  57. In view of these conclusions the judgment of the Court of Appeal on the granting of the injunction may appear to be less important. But in a persuasive speech counsel for Blake has persuaded me that the judgment of the Court of Appeal on this aspect cannot stand. First, in granting the injunction to prevent Blake from receiving his royalties the Court of Appeal went significantly beyond the existing law governing the powers of the Attorney-General. Secondly, in this case it was unnecessary to do so because the Attorney-General in truth had a perfectly good private law remedy which he chose not to invoke. Giving to a member of the executive unnecessary powers is never a good idea. One does not know how such powers may be employed in future. Thirdly, the decision of the Court of Appeal is, in any event, an order with confiscatory effect. Parliament has legislated for the circumstances in which the profits of crime may be confiscated. An indispensable statutory requirement is a conviction for the relevant offence: see Webb v Chief Constable of Merseyside Police [2000] 1 All E.R. 209. In this case the only relevant offence could be the handing over by Blake of the manuscript to the publishers. He has not been convicted of that offence. Given the limitations upon the power to confiscate carefully laid down by Parliament it is a very strong thing for a court to create a power to confiscate directly or indirectly the proceeds of crime. After all, the constitutional function of the courts in creating law does not go beyond filling spaces left vacant by Parliament. Lastly, it has been a longstanding principle of the common law that, absent legislative authorisation, a court may not confiscate the property of a citizen: see Malone v Commissioner of Police of the Metropolis [1980] Q.B. 49; Webb v Chief Constable of Merseyside Police [2000] All E.R. 209, 223J-225E, per May L.J.; at 226E, per Pill L.J. This principle must also apply to a court granting an injunction designed to have a confiscatory effect.

  58. My Lords, for these reasons, as well as the detailed and far more compelling reasons given by Lord Nicholls of Birkenhead, I would make the order which he has proposed.

    Lord Hobhouse of Woodborough

    My Lords,

  59. When he opened this appeal, Mr. Clayton, to whose pro bono services on behalf of the appellant George Blake I too would wish to pay tribute, warned your Lordships against being drawn into making bad law in order to enable an intuitively just decision to be given against a traitor. It is therefore particularly important to be clear what are the facts which have given rise to the Attorney-General's claim in the present case. They are not materially in dispute.

  60. Between 1944 and 1961, Blake was employed by the Crown as a member of the Secret Intelligence Service. As such he was subject to the provisions of the Official Secrets Act 1911. In August 1944 he signed the requisite declaration under the Act. The declaration which he signed included the added sentence:

    I understand that the above clauses [2 and 3] of the Official Secrets Act 1911 and 1920 cover also articles published in the press and in book form and I undertake not to divulge any official information gained by me as a result of my employment either in the press or in book form.

  61. It is common ground in the present case that these words amounted to a contractual undertaking by Blake in favour of the Crown and that the Crown had a legitimate interest in asking for this undertaking in aid of the criminal provisions quoted earlier in the document. It was not a commercial document and its purpose was not to protect any commercial interest of the Crown or any right of the Crown commercially to exploit such information. Its purpose and justification was to support and reinforce the provisions of the criminal law to which Blake became subject by reason of his entering the employment of the Crown and signing the statutory declaration. It is that justification which prevented the undertaking from amounting to an unlawful restraint of trade and would now have to be relied upon to justify the infringement of his freedom to impart information.

  62. Blake had no regard for his duty of loyalty to his country and the Crown nor to his obligation to observe the criminal law. Between 1951 and 1960, he disclosed valuable secrets to foreign agents. He was later found out and in 1961 he was, on his own plea, convicted of 5 offences under the 1911 Act and sentenced to 42 years' imprisonment. He escaped in 1966 and fled to Moscow.

  63. In 1989, 28 years after his conviction, Blake entered into an agreement with Jonathan Cape Ltd, an English company, to publish a book to be written by him about his life from 1944 onwards. He delivered the manuscript by the end of that year and the book was published in September 1990.

  64. The Government however did not take any action against the publishers Jonathan Cape even though the Government knew of the existence of the book before it was published. Neither Blake nor anyone else had sought the Government's permission for the publication. It is accepted that, by delivering the manuscript to Jonathan Cape, Blake committed an offence under the 1911 Act (or its successor, the 1958 Act) and broke the contractual undertaking which he had given in 1944. It is also accepted that in 1989 and 1990, had it chosen to do so, the Crown could have applied for an injunction to restrain the publication of the book and would probably have been successful. Had the court decided in its discretion not to grant an injunction at that time, one or more of the remedies alternative to an injunction could have been considered and, if thought appropriate, adopted. The present litigation has only come about because the Crown chose not to take that course at that time.

  65. The reason why in May 1991 these proceedings were started was because the Crown had learnt of the size of the advance royalty which Jonathan Cape had agreed to pay Blake. It was about 150,000. The size of this royalty was accounted for not by any new facts contained in the book. The contents of the book were, as summarised in the agreed statement of facts, fairly unremarkable. Parts did relate to his activities as a secret service officer but by 1989 none of the information was any longer confidential nor was it alleged that it would damage the public interest. The size of the royalty was attributable to his notoriety as an infamous spy. The Crown thought that it was wrong that he should be allowed to enjoy the substantial sum which resulted from the publication of the book. Blake had escaped his just punishment for his crimes. There was no prospect of ever bringing him back into the jurisdiction and make him serve out his prison sentence. Now that he had an asset within the jurisdiction, that at least should be withheld from him; the asset had a connection with the crimes which he had committed.

  66. The remarkable history of the proceedings thereafter has been already described by my noble and learned friend Lord Nicholls of Birkenhead. The claim to the royalties was originally made on recognised proprietary and fiduciary principles. If applicable they would have given the Crown the private law remedy they sought, an order for the taking of an account and the payment over of the sums found due. But this claim could not be sustained on the facts. Too much time had elapsed since 1960. There was no longer anything which was confidential or which would damage the public interest; he no longer had any fiduciary relationship to the Crown. Scott V-C dismissed the action. The Crown appealed. Its appeal failed but before it was dismissed a new line was adopted with the encouragement of the court and leave to amend was given.

  67. The public law claim was made. This relied upon the role of the Attorney-General as an officer of the Crown responsible for assisting in upholding the criminal law. In this capacity it is open to him to apply for an injunction. He sought, and after a further hearing the court granted him, an interim injunction to restrain the payment of the remaining royalty money (about 90,000) to Blake. However, perhaps conscious that this order might be open to criticism, the court in its judgment tentatively raised a further possibility - restitutionary damages.

  68. Blake has now appealed to your Lordships' House against the grant of the injunction. Like all of your Lordships, I agree that the grant of the injunction was wrong and should be set aside. But the Crown has, with your Lordships' encouragement and leave, cross-appealed to make the private law claim to restitutionary damages which it had previously declined to make. Your Lordships have concluded that this claim should be allowed.

  69. I cannot join your Lordships in that conclusion. I have two primary difficulties. The first is the facts of the present case. The speech of my noble and learned friend explores what is the "just response" to the defendant's conduct. The "just response" visualised in the present case is, however it is formulated, that Blake should be punished and deprived of any fruits of conduct connected with his former criminal and reprehensible conduct. The Crown have made no secret of this. It is not a commercial claim in support of any commercial interest. It is a claim relating to past criminal conduct. The way it was put by the Court of Appeal [1998] Ch. 439, 464 was:

    The ordinary member of the public would be shocked if the position was that the courts were powerless to prevent [Blake] profiting from his criminal conduct.

  70. The answer given by my noble and learned friend does not reflect the essentially punitive nature of the claim and seeks to apply principles of law which are only appropriate where commercial or proprietary interests are involved. Blake has made a financial gain but he has not done so at the expense of the Crown or making use of any property of or commercial interest of the Crown either in law or equity.

  71. My second difficulty is that the reasoning of my noble and learned friend depends upon the conclusion that there is some gap in the existing state of the law which requires to be filled by a new remedy. He accepts that the term "restitutionary damages" is unsatisfactory but, with respect, does not fully examine why this is so, drawing the necessary conclusions.

  72. The cross-appeal has to be determined on the basis that the only civil cause of action which the Crown has against Blake is a bare legal cause of action in contract for breach of contract in that he failed in 1989 to observe the negative undertaking which he gave in 1944. As already observed, it is recognised by Blake that the Crown had at the least a good arguable case for the grant of an injunction against him at that time. In other words it was a breach of contract - breach of a negative undertaking - liable to be restrained by injunction, i.e. specifically enforced.

  73. But the Crown did not apply for an injunction at the time it would have done some good and quite probably stopped the publication of the book. This is the source of the problems for the Crown in achieving its purpose in bringing these proceedings. It cannot say that it intends to prosecute Blake because it does not expect that he will ever return to this country; consequently it admits that it cannot say that it will ever be in a position to make use of the provisions of the Criminal Justice Act 1988 and the Proceeds of Crime Act 1995. It does not say that the payment of the 90,000 by Jonathan Cape to Blake would amount to the commission of any criminal offence by either Jonathan Cape or Blake. It accepts that it has no direct right of recourse against Jonathan Cape; it is confined to claiming some public law or private law remedy against Blake. It now accepts that its original claim that it has equitable or fiduciary or proprietary rights against Blake cannot be sustained. It cannot claim compensatory damages for breach of contract because it has suffered no loss as a result of the publication.

  74. What then was left? First there was the public law claim to an interim injunction as awarded by the Court of Appeal. Second there now is the claim not made as such in the Court of Appeal but now fully argued in your Lordships' House as a cross-appeal by the Crown for restitutionary damages.

    THE PUBLIC LAW CLAIM

  75. I agree that the decision of the Court of Appeal cannot be sustained. I agree with the reasoning of my noble and learned friends save in so far as it seeks to pray in aid their conclusion on the cross-appeal. The injunction was granted in aid of preserving a power later to confiscate the relevant sum of money. The Attorney-General has the locus standi to make such an application. He did not seek to rely on Chief Constable of Kent v V [1983] QB 34 and there has been no need to consider that case. The reason why the grant of the injunction cannot be sustained is that there is no common law power to confiscate as such the earnings of even convicted criminals (Malone v Metropolitan Police Commissioner [1980] QB 49) and, if there was any such power, the field is now fully occupied by statutory provisions which proceed on the basis that there is no such general power and make express and defined provision for a qualified grant of such a power. (cf. Att-Gen v De Keyser's Royal Hotel Ltd.[1920] AC 508) The Crown accepted that it could not realistically say that it would ever be in a position to invoke the statutory powers. The injunction was an interim one and unless it is in support of some sustainable further remedy it was wrong in principle and must be set aside.

    THE PRIVATE LAW CLAIM: RESTITUTIONARY DAMAGES

  76. It is with some hesitation that I enter upon this field at all in view of your Lordships' so far unanimous opinion save so as to record my dissent. The subject is a profound one which has attracted much attention among the academic writers for some time. Neither the subject nor the opinions of my noble and learned friends Lord Nicholls and Lord Steyn could be done justice in many fewer pages than their opinions will occupy. However I do not believe that it is helpful (or courteous to Mr. Clayton) that I should add nothing at all. Exceptional though this case is, courts hereafter will have to consider its relevance to the decisions of other cases which will surely come before them. I will however confine myself to what I regard as the minimum of explanatory comment (with the inevitable consequence of some simplification).

  77. The concepts of restitution and compensation are not the same though they will on occasions fulfil the same need. Restitution is analogous to property: it concerns wealth or advantage which ought to be returned or transferred by the defendant to the plaintiff. It is a form of specific implement. Its clearest form is an order for the return or transfer of property which belongs in law or in equity to the plaintiff. Property includes an interest in property. Then there are rights recognised in equity such as those which arise from a fiduciary relationship. These rights give rise to restitutionary remedies including the remedy of account which, depending on the circumstances, could also derive from a common law relationship such as agency. Then, again, there are the rights now grouped under the heading of the law of restitution or unjust enrichment. These are still truly restitutionary concepts leading to restitutionary remedies. Typically they require the payment of money by the person unjustly enriched to the person at whose expense that enrichment has taken place. In so far as the appropriate remedy is the payment of money or the delivery up of a chattel or goods is concerned the common law could provide it; insofar as it required some other remedy or the recognition of an equitable right, the chancery jurisdiction had to be invoked.

  78. The essential of such rights and their enforcement was the procuring by the courts of the performance by the defendant of his obligations. The plaintiff recovers what he is actually entitled to not some monetary substitute for it. If what the plaintiff is entitled to is wealth expressed in monetary terms, the order will be for the payment of money but this does not alter the character of the remedy or of the right being recognised. He gets the money because it was his property or he was in some other way entitled to it. It is still the enforced performance of an obligation. The same is the case where an injunction is granted or a decree of specific performance or the ordering of an account.

  79. It is this class of rights which the Crown is unable to invoke as a result of the judgment of the Vice-Chancellor upheld by the Court of Appeal. There is no obligation of Blake left to perform or which now can be enforced. That time passed with the failure to apply for an injunction in 1989 or 1990. The Crown has no right to an injunction to stop the payment of the royalty to Blake and procure its payment to the Crown instead. The Crown has no right to the royalty and does not now assert one.

  80. The law, including equity, provides extensive and effective remedies for protecting and enforcing property rights. It is no criticism of the law that they are not available now to the Crown. The Crown does not have the substantive rights to support such remedies.

  81. Two further points need to be briefly mentioned. There are cases which are treated as so closely analogous to proprietary rights that they are covered by remedies which are appropriate to such rights. The contractual right in Reid-Newfoundland Co. v Anglo-American Telegraph Co. Ltd. [1912] AC 555 was held to have created a trust. In Reading v Att-Gen [1951] AC 507, restitutionary remedies were awarded against an army sergeant who used his army uniform and army vehicle to enable him to assist smugglers. The money he was paid by the smugglers was held to be money for which he must account to his employer in the same way as if he had received a bribe: see per Asquith LJ in the Court of Appeal. These cases would have assisted the Crown had they succeeded on the facts before Scott V-C. The other point is that where a court declines to grant an injunction it may award damages in lieu. This does not alter the principles which are applicable nor does it provide the Crown with a remedy in the present case; but it is relevant to the understanding of the authorities.

  82. The Crown has to allege a breach of contract. This is not a claim to the performance of any obligation save in the sense used by Lord Diplock that contractual obligations are correctly understood as being the obligation to perform or pay damages for failing to do so - the primary and secondary obligation: Photo Production Ltd. v Securicor Transport Ltd. [1980] AC 827. The claim is for damages in order to put the plaintiff in the same position as if the contract had been performed. It is a substitute for performance. That is why it is necessarily compensatory. The error is to describe compensation as relating to a loss as if there has to be some identified physical or monetary loss to the plaintiff. In the vast majority of cases this error does not matter because the plaintiff's claim can be so described without distortion. But in a minority of cases the error does matter and cases of the breach of negative promises typically illustrate this category.

  83. But, before coming to them, I would like to refer to Ruxley Electronics and Construction Ltd. v Forsyth [1996] AC 344. This was the case of the swimming pool. The defendant had contracted to build for the plaintiff a swimming pool of a specified depth. The pool was not of that depth. The defendant had broken his contract. The plaintiff was entitled to damages. The value of his property was affected either not at all or only marginally. The swimming pool was serviceable. But the plaintiff was entitled to a deeper pool. The prima facie measure of damages would have been the cost of increasing the depth of the pool to the stipulated depth - a considerable sum. But this sum was so disproportionate that the courts refused to award it. It would be unreasonable for the plaintiff to incur that expense. His damages must be assessed at a lower figure. The speech of Lord Mustill (pp. 359-61) is illuminating. The loss is a reasonable valuation of what the plaintiff ought to have had but did not get. It is not just the amount (if any) by which his property has a lower market value than that it would have had if the contract had been performed. In the present case, by 1989, Blake's undertaking had no remaining value to the Crown.

  84. The question of negative covenants typically arise in relation to land and covenants not to build. A complication is that they usually involve a proprietary right of the plaintiff which he is prima facie entitled to enforce as such. Where the plaintiff has failed to obtain or failed to apply for an injunction, he has to be content with a remedy in damages. What has happened in such cases is that there has either actually or in effect been a compulsory purchase of the plaintiff's right of refusal. (The award of damages in tort for the conversion or detinue of goods is also an example of compulsory purchase as is demonstrated by the common law rule that the payment of the damages vests the title in the goods in the defendant.) What the plaintiff has lost is the sum which he could have exacted from the defendant as the price of his consent to the development. This is an example of compensatory damages. They are damages for breach. They do not involve any concept of restitution and so to describe them is an error. The error comes about because of the assumption that the only loss which the plaintiff can have suffered is a reduction in the value of the dominant tenement. It is for this reason that I agree with my noble and learned friend Lord Nicholls that the decision in Wrotham Park Estate Co. Ltd. v Parkside Homes Ltd. [1974] 1 WLR 798 is to be preferred to that in Surrey C.C. v Bredero Homes Ltd. [1993] 1 WLR 1361: see also Jaggard v Sawyer [1995] 1 WLR 269. I would however add that the order proposed by your Lordships does not reflect this principle; it goes further. It does not award to the Crown damages for breach of contract assessed by reference to what would be the reasonable price to pay for permission to publish. It awards the Crown damages which equal the whole amount owed by Jonathan Cape to Blake. That is a remedy based on proprietary principles when the necessary proprietary rights are absent.

  85. The principle of compensation is both intellectually sound as the remedy for breach and provides the just answer. The examples discussed in my noble and learned friend's speech do not on the correct analysis disclose the supposed need to extend the boundaries of remedies for breach of contract. The reason why the Crown should not recover damages in the present case derives from the exceptional public law nature of the undertaking which Blake gave. If the relationship had been a commercial one it is probable that by 1989 the undertaking would be regarded as spent or no longer enforcible, but if still enforcible the breach of it would have supported compensatory damages on the 'compulsory purchase' basis.

  86. The examples given by my noble and learned friend are examples of compensatory damages. Lord Halsbury's dining-room chair is no different unless the error which I have identified is made. He would have lost the use of the chair and it, like other such amenity-value assets, can be assessed by reference to the sum which has been expended on its acquisition and/or maintenance or interest upon its capital value during the period of deprivation. The supposed problem arises from asking the wrong question not from receiving the wrong answer.

  87. I must also sound a further note of warning that if some more extensive principle of awarding non-compensatory damages for breach of contract is to be introduced into our commercial law the consequences will be very far reaching and disruptive. I do not believe that such is the intention of your Lordships but if others are tempted to try to extend the decision of the present exceptional case to commercial situations so as to introduce restitutionary rights beyond those presently recognised by the law of restitution, such a step will require very careful consideration before it is acceded to.

  88. My Lords, Mr. Clayton was right to say that the exceptional facts of this case have been critical to its decision. The policy which is being enforced is that which requires Blake to be punished by depriving him of any benefit from anything connected with his past deplorable criminal conduct. Your Lordships consider that this policy can be given effect to without a departure from principle. I must venture to disagree. I would allow the appeal and dismiss the cross-appeal.


Cases

Gouriet v Union of Post Office Workers [1978] A.C. 435; Halifax Building Society v Thomas [1996] Ch. 217; Livingstone v Rawyards Coal Co. (1880) 5 App. Cas. 25; Whitwam v Westminster Brymbo Coal Co. [1892] 2 Ch. 538; Martin v Porter (1839) 5 M. and W. 351; Jegon v Vivian (1871) L.R. 6 Ch. 742; Penarth Dock Engineering Co. Ltd. v Pounds [1963] 1 L1oyd's Rep. 359; Strand Electric and Engineering Co. Ltd. v Brisford Entertainments Ltd. [1952] 2 Q.B. 246; The Mediana [1900] A.C. 113; Watson, Laidlaw & Co. Ltd. v Pott, Cassels, and Williamson (1914) 31 R.P.C. 104; Ministry of Defence v Ashman [1993] 2 E.G.L.R. 102; Ministry of Defence v Thompson [1993] 2 E.G.L.R. 107; Hogg v Kirby 8 Ves. Jun. 215; Lever v Goodwin (1887) 36 Ch. D. 1; United Australia Ltd. v Barclays Bank Ltd. [1941] A.C. 1; Lamine v Dorrell (1701) 2 Ld. Raym. 1216; Reading v Attorney General [1951] A.C. 507; Todd v Gee (1810) 17 Ves. 273; Battishill v Reed (1856) 18 C.B. 696; Leeds Industrial Co-operative Society Ltd. v Slack [1924] A.C. 851; Johnson v Agnew [1980] A.C. 367; Bracewell v Appleby [1975] Ch. 408; Jaggard v Sawyer [1995] 1 W.L.R. 269; Robinson v Harman (1848) 1 Ex. 850; Beswick v Beswick [1968] A.C. 58; Wrotham Park Estate Co. Ltd. v Parkside Homes Ltd. [1974] 1 W.L.R. 798; Surrey County Council v Bredero Homes Ltd. [1993] 1 W.L.R. 1361; Tito v Waddell (No. 2) [1977] Ch. 106; Occidental Worldwide Investment Corpn. v Skibs A/S Avanti [1976] 1 Lloyd's Rep. 293; Lake v Bayliss [1974] 1 W.L.R. 1073; Reid-Newfoundland Co. v Anglo-American Telegraph Co., Ltd. [1912] A.C. 555; British Motor Trade Association v Gilbert [1951] 2 All E.R. 641; Snepp v United States (1980) 444 U.S. 507; Attorney General v De Keyser's Royal Hotel, Ltd. [1920] A.C. 508; Burmah Oil Co. Ltd. v Lord Advocate [1965] A.C. 75; Malone v Metropolitan Police Commissioner [1980] 1 Q.B. 49; Attorney-General v Blake [1998] Ch. 439; White v Jones [1995] 2 A.C. 207; Webb v Chief Constable of Merseyside Police [2000] 1 All E.R. 209; Chief Constable of Kent v V [1983] QB 34; Att-Gen v De Keyser's Royal Hotel Ltd.[1920] AC 508; Reading v Att-Gen [1951] AC 507; Photo Production Ltd. v Securicor Transport Ltd. [1980] AC 827; Ruxley Electronics and Construction Ltd. v Forsyth [1996] AC 344

Legislations

Official Secrets Act 1989: s.1, s.1

Official Secrets Act 1911: s.2

Patents Act 1977: s.62(1)

Chancery Amendment Act 1858 (Lord Cairns' Act): s.2

Criminal Justice Act 1988, Part VI

European Union

European Convention of Human Rights: Art.10

Authors and other references

Janet O'Sullivan, 'Reflections on the Role of Restitutionary Damages to protect contractual expectations' (to be published)

Catherine Mitchell, 'Remedial Inadequacy in Contract and the Role of Restitutionary Damages' (1999) 15 J.C.L. 133

Professor Burrows, 'No Restitutionary Damages for Breach of Contract' [1993] L.M.C.L.Q.R. 453

L. Smith, "Disgorgement of the profits of Contract: Property, Contract and 'Efficient Breach' " 24 Can. B.L.J. 121

Professor Peter Birks, (1993) 109 L.Q.R. 518

Professor Dawson, 'Restitution or Damages' (1959) 20 Ohio L.J. 175

Sir Guenter Treitel, Q.C., The Law of Contract, 10th ed., (1999) 

Hanoch Dagan, "Restitutionary Damages for Breach of Contract: An Exercise in Private Law Theory, Theoretical Inquiries in Law," January 2000 Vol. 1, No. 1, 115


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