The Law of Restitution as it affects contracts
Restitution as a remedy for breach of contract
Remedies and Wrongs
Modern writers on the Law of Restitution (Virgo; Birks; Goff and Jones; Burrows and
McKendrick) group together cases in which a restitutionary remedy has been
granted for a breach of contract and regard that group as forming an essential
component of the law of restitution. It is important to note therefore that these
cases are not part of the group of cases where even though no wrong has been
committed the law has imposed an obligation to make restoration. In the case of
restitutionary remedies for breach of contract there is first the contract which is the
source of the legal obligations between the parties. A party who breaches those
obligations has committed a wrong and in some circumstances the remedy for that
wrong will be restitutionary.
Damages
The usual remedy for a breach of contract is an award of damages. The general
principle behind the award of damages is the provision of compensation for a loss
suffered by the innocent party as a result of the breach. It is said that the object of
damages is to put the innocent party into the position he would have been in had
the contract been performed (i.e. not broken). Damages of this kind recognise the
expectation interest of the contracting party. Alternatively an award of damages
might recognise the reliance loss – i.e. that the innocent party has incurred
expenditure in reliance on the contract and that expenditure is now lost because of
the breach. Damages of this kind recognise the reliance interest of the contracting
party.
Restitutionary damages
Restitutionary damages have as their aim the restoration of a benefit obtained by
the guilty party – they do not address the loss suffered by the innocent party. The
leading case in English law is Attorney General v Blake [2000] 4 All ER 385 where
some general principles were set out for what must be regarded as a wholly
exceptional remedy for breach of contract.
Two principles seem to have been laid down:
1. compensatory damages are inadequate
2. benefit has been obtained directly from the breach
1– see East Ham Corporation v Bernard Sunley & Sons [1966] AC 406: stone
panels began to fall off the outside of a new building 2 years after completion. The
, cost of replacement was awarded. The HL said however that if the fault had been
due to the builder saving money by skimping on the work then damages could have
been awarded to the value of the saving to the builder (assuming that was greater
than the cost of remedying the defects.)
cf Ruxley Electronics and Construction v Forsyth [1996] AC 344: F contracted for
swimming poll to be constructed. The finished pool had a maximum depth of 6 feet
whereas the contract specified 7 feet 6 inches. The pool was however safe for all
purposes and the value of the property overall had not been affected by the breach.
Held: to have awarded the cost of rebuilding to the correct depth (£21,000) would
have been so unreasonable that such an award should not be made.
2– see Attorney General v Blake [2000] 4 All ER 385: Blake was a member of the
intelligence service. By contract with the Crown he undertook not to divulge official
information. He broke that undertaking by disclosing information in his auto-
biography for which he was paid royalties. The Crown sought restitution of the
royalties. Held: In exceptional cases where no other adequate remedy was available,
damages could be awarded on the basis of the befit obtained by a party in breach of
contract.
The HL in Blake rejected a broad basis for restitution based upon two types of case
where a restitutionary remedy might be seen to be justified:
1. where the party in breach has failed to provide what he contracted to
provide
2. where the defendant does exactly what he has contracted not to do
Instead said the HL, restitution was justified because the profits arose directly from
the defendant’s breach and were attributable to the claimant’s interest in
maintaining confidentiality. Ordinary damages for loss were inadequate – the Crown
had an interest in maintaining performance of the contractual duty.
Restitutionary claims arising from contracts
Total failure of consideration.
Example:
A pays £500 to B on the basis that a contract between A and B states that in return B
will transfer his car to A. If B does not transfer the car to A, A can recover his £500. A
has not got any of what he bargained for – there has been a total failure of
consideration.
Hunt v Silk (1804) 5 East 449: A paid £10 to B. B promised to give A immediate
possession of some premises, to repair them and within 10 days to grant A a lease. A
gained possession but B failed to carry out the other promises. A left the premises.
2
Restitution as a remedy for breach of contract
Remedies and Wrongs
Modern writers on the Law of Restitution (Virgo; Birks; Goff and Jones; Burrows and
McKendrick) group together cases in which a restitutionary remedy has been
granted for a breach of contract and regard that group as forming an essential
component of the law of restitution. It is important to note therefore that these
cases are not part of the group of cases where even though no wrong has been
committed the law has imposed an obligation to make restoration. In the case of
restitutionary remedies for breach of contract there is first the contract which is the
source of the legal obligations between the parties. A party who breaches those
obligations has committed a wrong and in some circumstances the remedy for that
wrong will be restitutionary.
Damages
The usual remedy for a breach of contract is an award of damages. The general
principle behind the award of damages is the provision of compensation for a loss
suffered by the innocent party as a result of the breach. It is said that the object of
damages is to put the innocent party into the position he would have been in had
the contract been performed (i.e. not broken). Damages of this kind recognise the
expectation interest of the contracting party. Alternatively an award of damages
might recognise the reliance loss – i.e. that the innocent party has incurred
expenditure in reliance on the contract and that expenditure is now lost because of
the breach. Damages of this kind recognise the reliance interest of the contracting
party.
Restitutionary damages
Restitutionary damages have as their aim the restoration of a benefit obtained by
the guilty party – they do not address the loss suffered by the innocent party. The
leading case in English law is Attorney General v Blake [2000] 4 All ER 385 where
some general principles were set out for what must be regarded as a wholly
exceptional remedy for breach of contract.
Two principles seem to have been laid down:
1. compensatory damages are inadequate
2. benefit has been obtained directly from the breach
1– see East Ham Corporation v Bernard Sunley & Sons [1966] AC 406: stone
panels began to fall off the outside of a new building 2 years after completion. The
, cost of replacement was awarded. The HL said however that if the fault had been
due to the builder saving money by skimping on the work then damages could have
been awarded to the value of the saving to the builder (assuming that was greater
than the cost of remedying the defects.)
cf Ruxley Electronics and Construction v Forsyth [1996] AC 344: F contracted for
swimming poll to be constructed. The finished pool had a maximum depth of 6 feet
whereas the contract specified 7 feet 6 inches. The pool was however safe for all
purposes and the value of the property overall had not been affected by the breach.
Held: to have awarded the cost of rebuilding to the correct depth (£21,000) would
have been so unreasonable that such an award should not be made.
2– see Attorney General v Blake [2000] 4 All ER 385: Blake was a member of the
intelligence service. By contract with the Crown he undertook not to divulge official
information. He broke that undertaking by disclosing information in his auto-
biography for which he was paid royalties. The Crown sought restitution of the
royalties. Held: In exceptional cases where no other adequate remedy was available,
damages could be awarded on the basis of the befit obtained by a party in breach of
contract.
The HL in Blake rejected a broad basis for restitution based upon two types of case
where a restitutionary remedy might be seen to be justified:
1. where the party in breach has failed to provide what he contracted to
provide
2. where the defendant does exactly what he has contracted not to do
Instead said the HL, restitution was justified because the profits arose directly from
the defendant’s breach and were attributable to the claimant’s interest in
maintaining confidentiality. Ordinary damages for loss were inadequate – the Crown
had an interest in maintaining performance of the contractual duty.
Restitutionary claims arising from contracts
Total failure of consideration.
Example:
A pays £500 to B on the basis that a contract between A and B states that in return B
will transfer his car to A. If B does not transfer the car to A, A can recover his £500. A
has not got any of what he bargained for – there has been a total failure of
consideration.
Hunt v Silk (1804) 5 East 449: A paid £10 to B. B promised to give A immediate
possession of some premises, to repair them and within 10 days to grant A a lease. A
gained possession but B failed to carry out the other promises. A left the premises.
2
