Gain-based Remedies for Breach of Contract: A Comparative Analysis of English and Polish Law 3031254511, 9783031254512

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Daniel Zatorski

Gain-based Remedies for Breach of Contract A Comparative Analysis of English and Polish Law

Gain-based Remedies for Breach of Contract

Daniel Zatorski

Gain-based Remedies for Breach of Contract A Comparative Analysis of English and Polish Law

Daniel Zatorski Frankfurt am Main, Germany

ISBN 978-3-031-25452-9 ISBN 978-3-031-25451-2 https://doi.org/10.1007/978-3-031-25452-9

(eBook)

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Contents

1

Introduction and Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 The Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 The Comparative Question . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 The Approach Towards Answering the Question . . . . . . . . . . . . . 1.4 The Work’s Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 2 2 3 5 7 7 7

2

Gain-Based Remedies for Breach of Contract in General . . . . . . . . . 2.1 Introduction to Gain-Based Remedies and Basic Terminology . . . . 2.2 An Overview of the Most Relevant English Case Law on Gain-Based Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 The Wrotham Park Remedy . . . . . . . . . . . . . . . . . . . . . . . 2.2.2 Case Law After Wrotham Park . . . . . . . . . . . . . . . . . . . . . 2.2.3 The Blake Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.4 Case Law After Blake . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 The Relation Between Wrotham Park and Blake . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Finding Gain-Based Remedies Under Compensatory Principles . . . . 3.1 The Principles of the Law of Damages . . . . . . . . . . . . . . . . . . . . . 3.1.1 The Compensatory Principle of Damages . . . . . . . . . . . . . 3.1.2 The Interests Protected by an Award of Damages . . . . . . . . 3.2 Criticism of the Traditional Notion of Compensatory Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Alternative Understandings of Compensation . . . . . . . . . . . . . . . . 3.3.1 Reparative Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.2 Substitutive Compensation . . . . . . . . . . . . . . . . . . . . . . . .

17 17 20 22 28 36 40 40 41 43 44 45 47 52 56 58 63 v

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Contents

3.4 The Most Suitable Compensatory Approach . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commentaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

5

. . . . .

101 104 104 106 106

Finding Gain-Based Remedies Under Restitutionary Principles . . . . 4.1 The Lack of a Common Language of Restitution . . . . . . . . . . . . . 4.2 The Interrelation Between Contract and Restitution . . . . . . . . . . . . 4.3 Restitutionary Disgorgement for Breach of Contract . . . . . . . . . . . 4.3.1 Establishing a Restitutionary Interest . . . . . . . . . . . . . . . . . 4.3.2 Unjust Enrichment as the Underlying Principle of Restitutionary Disgorgement for Breach of Contract . . . . . . 4.4 The Most Suitable Restitutionary Approach . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commentaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

109 110 112 116 116 118 152 155 155 156 157

Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

Case Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . England and Wales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

165 165 166 166

Other Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 Normative Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 Restatements and Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

Chapter 1

Introduction and Methodology

The goal of this work is to address a seemingly simple comparative question: can Polish law facilitate the English notion of gain-based remedies for breach of contract? The necessity to pose this question stems from an intense development of, most notably, English contract law on the subject of assessing remedies for breach of contract based, seemingly, on the breaching party’s gains from the breach. Modern English case law recognizes that classic loss-based damages are not always an adequate remedy to protect the totality of a party’s interests when a breach of contract occurs. Hence, in certain cases, English courts applied a more creative approach in protecting an aggrieved party’s interests in contractual matters. This resulted in the creation of gain-based remedies. The theoretical principles underlying gain-based remedies are not yet clearly established; they can be either compensatory or restitutionary. For this reason, the work will address and apply a comparative analysis of both principles. On a marginal note, this is not to say that English law has settled the analyzed problem unambiguously. To the contrary, English legal scholars do not agree on every aspect or understanding of gain-based remedies. These uncertainties will however be clearly underlined in this work. It is first important to introduce the method I chose in handling the comparative law issue at hand. I will describe this in four short stages: the methodology I have chosen (Sect. 1.1), the question I have posed (Sect. 1.2), the way in which I will endeavor to answer that question (Sect. 1.3), and the overall structure of the work (Sect. 1.4).

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. Zatorski, Gain-based Remedies for Breach of Contract, https://doi.org/10.1007/978-3-031-25452-9_1

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1.1

1

Introduction and Methodology

The Methodology

Konrad Zweigert and Hein Kötz keenly underline that there is no one systematic method of comparative law and that such a method should be gradually discovered through trial and error.1 Indeed, Geoffrey Samuel points out the multitude of difficulties comparative law poses, the issue of methodology being a primary one.2 However, Zweigert’s and Kötz’s answer to this problem is that the “basic methodological principle of all comparative law is that of functionality.”3 I do not wish to stray from this approach, and methodologically this work draws inspiration from Zweigert and Kötz, as well Solène Rowan’s functional analysis of remedies for breach of contract.4 Under a functional approach “Law is to be understood in terms of what it does.”5 The method fits perfectly with this work’s topic, as it is problem-oriented, i.e. it looks at a specific problem in one system and tries to assess how that problem would be solved in another.6 Moreover, a functional approach “allows for the bringing together of two quite different objects by reference to their practical uses and purpose.”7 To achieve this I wish to apply what Esin Örücü called the functionalinstitutional approach in order to find functional equivalents of institutions in Polish and English law. This entails asking questions such as: “Which institution in system B performs an equivalent function to the one under survey in system A?”8

1.2

The Comparative Question

The issue of a properly framed comparative question is of crucial importance. A research question cannot namely be too vague or too complex.9 Thus, a properly posed question is a balancing act between simplicity and precision. Moreover, a comparative question should refer to a specific problem. As Gerhard Danneman underlines: “Comparative legal enquiries are frequently made as part of an effort to improve a legal rule or institution which has been suspected or

1

See Zweigert and Kötz (1998); see also Samuel (2014). See Samuel (2014), p. 9. 3 Zweigert and Kötz (1998), p. 34; see also id, at 65. 4 See Rowan (2012) (“Since legal systems that face similar problems do not necessarily structure their solutions in the same ways, and may also adopt different terminology, comparative questions have been considered in functional terms.”). 5 Cohen (1935), p. 809; see also Samuel (2014), p. 86. 6 See generally Samuel (2014), p. 67. 7 Id., at 65. 8 Id. (referring to Örücü (2006), p. 443. 9 See id., at 31. 2

1.3

The Approach Towards Answering the Question

3

recognized as a source of problems.”10 Therefore, the conclusion to any research project in comparative law should be one that is obtainable only through the bringing together of two or more objects of comparison and consequently the research question should reflect this necessity.11 In other words, comparison should be a means which shed light onto a particular legal problem. The legal problem in question is the inadequacy of traditional compensatory damages for breach of contract. This problem—as will be shown—is clearly evidenced in an enrichment without subtraction situation. It also pertains to Polish law and has not been tackled in Polish legal writing thus far. It also seems to be proper to grapple this problem due to the fact that legal regulations are undergoing violent changes while the current Polish regulation is—as Piotr Machnikowski pointed out—still strongly rooted in Western Europe’s late nineteenth and early twentieth century laws.12 This begs the question whether Polish law can still facilitate new developments. Consequently, I wish to put Polish law in the spotlight. Moreover, the analysis will be limited to breach of contract. What this means is that the work will deal purely with contract law, thus excluding tort, administrative, criminal, or company law; it will also exclude fiduciary duties or pre-contractual duties. This does not mean however that certain provisions pertaining to these bodies of law will not be mentioned at any time. In opposition to Polish law, English law has been grappling with the aforementioned problem for some time. It has provided answers through two groundbreaking cases, which are at the heart of this work, i.e. Wrotham Park Estate Co. Ltd v. Parkside Homes Ltd13 (“Wrotham Park”) and Attorney General v. Blake14 (“Blake”). Due to the revolutionary influence of these judgments, English law will form the basis for comparison. Furthermore, other legal systems will serve as a helpful tool in order to shed more light on more detailed problems. Taking the above into consideration, I believe that the question I pose meets the prerequisites of a properly framed comparative question, namely: can Polish law incorporate the English notion of gain-based remedies for breach of contract?

1.3

The Approach Towards Answering the Question

An additional step—having posed a properly-framed question—is to set out the function of comparison. In other words, it is important to state how the work will try to tackle the posed question. In this regard two opposing approaches to a

10

Danneman (2006), p. 403. See Samuel (2014), p. 26. 12 See Machnikowski (2017). 13 Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798 [hereinafter Wrotham Park]. 14 Attorney-General v. Blake, [2001] 1 AC 268 (H.L.) (Eng.) [hereinafter AG v. Blake]. 11

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Introduction and Methodology

comparative work exist: Zweigert’s and Kötz’s praesumptio similitudinis on the one hand, and Pierre Legrand’s presumption of dissimilarity on the other.15 The former is connected with harmonization proposals that “suggest that one central function of comparison is to look for similarities, and in fact this idea of similarity has been elevated by Zweigert and Kötz into a presumption.”16 In their opinion: [T]he comparatist can rest content if his researches through all the relevant material lead to the conclusion that the systems he has compared reach the same or similar practical results, but if he finds that there are great differences or indeed diametrically opposite results, he should be warned and go back to check again whether the terms in which he posed his original question were indeed purely functional, and whether he has spread the net of his researches quite wide enough.17

The latter, on the other hand, argues that “one should start out from a presumption of difference because presumptions of similarity can lead to a type of comparison that involves a deductive approach which presents the danger of eclipsing whole sections of the objects of comparison and this can result in the establishment of ‘universalist myths’.”18 As far as functional methodology is concerned, both approaches have merit. Gerhard Danneman points out: “[C]omparing legal systems involves, at least to some degree exploring both similarities and differences.”19 He goes on to ague: The functional comparatist will find greatest satisfaction in unearthing similarities in results which are hidden deep inside a jungle of different styles, methods, procedures, and sources of law – just as critics of functionalism may derive the greatest pleasure from uncovering hidden differences even where the law appears similar.20

From this it emerges that just as framing the right question was a balancing act, so too is an approach towards similarity and dissimilarity. In this regard Danneman points out that “the proper balance between discovering common features and detecting contrasting features depends on the purpose of the enquiry, or the Erkenntnisinteresse.”21 As I have mentioned, the problem of this work comes from the inadequacy of traditional compensatory damages under Polish law. Hence, a need to tackle this problem arises. As I have also mentioned, English law—having responded to this problem—will serve as a basis for comparison. Therefore, the purpose of the enquiry is to find a solution to the inadequacy of compensatory damages by asking whether Polish law can incorporate English solutions. I believe that the best approach for such a purpose of enquiry is a cautious presumption of similarity. This means that I will not presume similarity from the 15

See Samuel (2014), pp. 53–54. Id., at 53. 17 Zweigert and Kötz (1998), p. 40; see also id., at 53–54. 18 Samuel (2014), p. 55 (referring to Heidmann (2006)). 19 Danneman (2006), p. 384. 20 Id., at 395. 21 Id., at 400. 16

1.4

The Work’s Structure

5

outset. My intention is rather to look for functional equivalents of English gain-based remedies in Polish law. Having found them, the second step will be to ask whether it is permissible to presume similarity between these equivalents. Indeed, Ewoud Hondius and Adnrè Janssen rightfully pointed out that remedies for disgorging unlawful profits are often less obvious or even hidden.22 Hence, the goal of this work is to cautiously try to uncover that which is hidden. In practice I wish to posit that, to a degree, functional equivalents of gain-based remedies for breach of contract can indeed be found in Polish law, if certain prerequisites are met. There are namely two alternative functional equivalents of these remedies under Polish law. Both however require a specific sort of interpretation to work, and therefore not every scholar, judge or lawyer may find them agreeable. Firstly, I will argue that gain-based remedies for breach of contract may be found under ordinary rules on damages (Chap. 3), if a wide interpretation of loss is applied. Secondly, as an alternative, I will argue that such remedies may be found under unjust enrichment principles of Polish law (Chap. 4), if a wide understanding of subtraction is applied.

1.4

The Work’s Structure

Many authors in their analysis of gain-based remedies for breach of contract consider the rules on traditional compensatory damages to be a starting point. I do not consider this to be erroneous; to the contrary, this is a logical point of departure. Nonetheless, as I will highlight later, gain-based remedies can be analyzed not only through traditional compensatory rationales of contract law, but also through the rationales of the law of restitution. The latter approach requires a completely different mindset than the former. Because of this, the work uses a somewhat bifurcated structure. Namely – after having introduced the reader to the topic of gain-based remedies, including terminology, in Chap. 2—I will, in Chap. 3, analyze gain-based remedies through the compensatory rationale. In that chapter I shall ask the question whether it is possible to find a functional equivalent of gain-based remedies—dubbed gain-based damages—under the Polish rules on damages. I shall first introduce the reader to the principles underlying the law of damages in the English and Polish legal systems (Sect. 3.1), including the compensatory principle underpinning that body of law (Sect. 3.1.1), as well as the interests that it protects (Sect. 3.1.2). Next, I shall criticize the traditional principles of the law of damages due to their limitations in protecting all of an aggrieved party’s interests (Sect. 3.2). As a next step I shall present alternative approaches to the fundamental compensatory principle (Sect. 3.3): first the approach through the commonly known reparative compensation standpoint (Sect. 3.3.1), which I shall argue is a dead end towards finding a functional equivalent of gain-based damages. I shall therefore, 22

Hondius and Janssen (2015), pp. 374, 371.

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Introduction and Methodology

subsequently, present a more controversial method of viewing compensation— substitutive compensation—as the method which, I shall argue, enables to find a functional equivalent of gain-based damages (Sect. 3.3.2). This part will further analyze three substitutive compensation rationales: compensation for lost right (Sect. 3.3.2.1), compensation for lost objective benefits (Sect. 3.3.2.2), and the rights-based approach (Sect. 3.3.2.3). Finally, I shall summarize the chapter and argue that the so-called rights-based approach is the most workable (Sect. 3.4). In Chap. 4 I shall take a completely different approach and analyze gain-based remedies—dubbed restitutionary disgorgement for breach of contract—from a restitutionary standpoint. In this chapter I shall ask the question whether there exists a Polish functional equivalent of the English restitutionary disgorgement for breach of contract, and posit that such a possibility exists under the Polish rules of unjust enrichment. I shall first introduce the reader to the English law of restitution and argue that no functional equivalent of this body of law exists in the Polish legal system (Sect. 4.1). Next, I shall touch upon the interrelation between restitution and contract law (Sect. 4.2), since it is necessary to establish whether a restitutionary remedy is possible for a breach of contract. The rest of the chapter I shall dedicate towards finding a functional equivalent of restitutionary disgorgement for breach of contract in Polish law (Sect. 4.3). This I shall explore in two parts; the first in which I shall analyze the problem of the so-called restitutionary interest under contract law (Sect. 4.3.1); a prerequisite, in my opinion, necessary to introduce restitutionary disgorgement for breach of contract. The second part, in which I shall explore unjust enrichment as the mechanism for protecting the restitutionary interest for breach of contract (Sect. 4.3.2). In this part I shall argue that unjust enrichment principles can work as a functional equivalent of restitutionary disgorgement for breach of contract, if the scope of application of unjust enrichment is treated sufficiently broadly (Sects. 4.3.2.1 and 4.3.2.2), and if the prerequisite of subtraction is also treated broadly (Sect. 4.3.2.3) as either a wrongful interference with property (Sect. 4.3.2.3.1) or a type of wrong (Sect. 4.3.2.3.2). Finally, I shall summarize the chapter and argue that a wrong-based application of unjust enrichment rules is the most workable approach (Sect. 4.4). In Chap. 5 I shall summarize all the conclusions I have made, and posit that the most workable approach under current Polish law is the restitutionary approach (Fig. 1.1).

References

7

Gain-based remedies

Comepnsatory (gain-based damages)

Restitutionary (restitutionary disgorgement) Unjust enrichment

Reparative Lost opportunity to bargain or apply for an injunction

Property

Wrong

Substitutive Lost right Lost objective benefits Rights-based approach

Fig. 1.1 A graphical presentation of the work’s structure

References Books Danneman G (2006) Comparative law: study of similarities or differences? In: Reimann M, Zimmermann R (eds) The Oxford handbook of comparative law. Oxford University Press Hondius E, Janssen A (2015) Original questionnaire: disgorgement of profits. In: Hondius E, Janssen A (eds) Disgorgement of profits: gain-based remedies throughout the World. Springer, p 374 Machnikowski P (2017) Kontraktowa odpowiedzialność odszkodowawcza. In: Kuniewicz Z, Sokołowska D (eds) Prawo kontraktów 270 Rowan S (2012) Remedies for breach of contract: a comparative analysis of the protection of performance. Oxford University Press Samuel G (2014) An introduction to comparative law theory and method. Hart Zweigert K, Kötz H (1998) An introduction to comparative law (trans: Weir T). Oxford University Press

Articles Cohen F (1935) Transcendental nonsense and the functional approach. Colum Law Rev 35:809 Heidmann U (2006) Épistémologie et pratique de la comparaison différentielle. L'exemple des (ré)écritures du mythe de Médée. In: Burger M, Calame C (eds) Comparer les comparatismes: perspectives sur l'histoire et les sciences des religions, pp 141, 144 Örücü E (2006) Methodology of comparative law. In: Smits JM (ed) Elgar Encyclopedia of comparative law, ch. 41. p 443

Chapter 2

Gain-Based Remedies for Breach of Contract in General

As mentioned at the outset, this work overarching legal problem is the inadequacy of traditional compensatory damages for breach of contract in the Polish legal system. To illustrate this in greater detail, under English law the normal route to take when a contract is breached is for the claimant1 to claim damages for the loss suffered.2 Such a route becomes more complicated when the claimant does not suffer any measurable loss, and yet the defendant is enriched as a result of the breach.3 Such situations are problematic in terms of classic rules on breach-of-contract damages, since—as Katy Barnett keenly noted—“[i]n some circumstances compensatory damages and specific relief are not adequate to protect the claimant’s interest in performance of the contract.”4 The reply of the English legal system to this precarious issue was to create gain-based remedies for breach of contract. Two landmark English cases are most notable for shaping these remedies. Firstly, the 1973 case of Wrotham Park in which Steyn LJ awarded so-called negotiating damages which are “assessed according to the price which the claimant could reasonably have charged the defendant for releasing the defendant from the obligation that has been broken had the defendant approached the claimant immediately before committing the breach.”5 Throughout this work—albeit somewhat against English legal terminology as imposed by the UK Supreme Court6—I shall refer to this remedy as the Wrotham 1

On a terminological note, Polish law often divides two parties to a contract as the creditor (wierzyciel) and debtor (dłużnik), while English legal literature—for illustrative purposes—divides them from a dispute-standpoint into the claimant and the defendant. I will maintain the English approach, albeit fully aware of its limitations. 2 See Poole (2010), pp. 340, 413. 3 See id., at 413. 4 Barnett (2012). 5 Burrows (2016), p. 133. 6 See Morris-Garner v. One Step (Support) Ltd [2018] UKSC 20 [hereinafter Morris-Garner], ¶ 3 (“This judgment will abjure the use of the term ‘Wrotham Park damages’. Although it will be necessary to consider the case of Wrotham Park, it is a source of potential confusion because of the © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. Zatorski, Gain-based Remedies for Breach of Contract, https://doi.org/10.1007/978-3-031-25452-9_2

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Gain-Based Remedies for Breach of Contract in General

Park remedy. Secondly, the 2001 case of Blake in which the House of Lords awarded a full account of profits for breach of a contractual obligation of confidentiality; a remedy, which is, by its very nature, “assessed according to the profits made by the defendant from the breach and the purpose of such an award is to remove those profits.”7 I shall refer to this remedy as the Blake remedy. There is absolutely no doubt that these cases have had a profound international effect,8 and shall thus serve as an intellectual bedrock for posing the functional problem of this work: can Polish law incorporate the English notion of gain-based remedies for breach of contract? A comparative analysis of this problem cannot be simple. Firstly, the nature of gain-based remedies under English law is still not conclusively decided.9 The discussion over their nature relates to the interplay between compensation and restitution in a contractual setting. Gain-based remedies are namely viewed by some as compensatory remedies, by others as restitutionary remedies, or even a bit of both. Secondly, the problem of gain-based remedies has thus far not been tackled thoroughly in the context of Polish law. Whilst conducting a comparative analysis on the subject, one can only rely on bits and pieces, sometimes loosely connected to the subject. Nonetheless, the remedies that this work tackles warrant a thorough comparative analysis for reasons made clear by Katy Barnett. Gain-based remedies namely “fill a gap in the law, as they allow for an appropriate recognition of the claimant’s rights in those cases where specific performance would have been available but it is no longer possible, and where compensatory damages are inadequate. They also serve to deter defendants from breaching contracts. . . .”10

2.1

Introduction to Gain-Based Remedies and Basic Terminology

It is generally not an easy task to classify remedies, and consequently it becomes an even more challenging task to ascertain where gain-based remedies fall into the entire complicated structure of remedies. In order to come to a sensible classification it is first and foremost important to determine why a remedy is awarded. The answer may be summarized as follows: “The award of a remedy in private law is intended to opacity of its reasoning, and it can now be regarded as being of little more than historical interest. Instead, this judgment will use the expression ‘negotiating damages’.”). 7 Burrows (2016), p. 133. 8 See e.g. Saidov (2008), p. 33 et seq; see also Mohtashami et al. (2018), pp. 23, 28–29; Tay and Ang (2018), p. 7. 9 But cf. Arvind (2022), p. 529 (“Until the decision of the Supreme Court in Morris-Garner v One Step (Support) Ltd, for example, the hypothetical bargain measure was often treated as a restitutionary remedy, based on the defendant’s gain rather than the claimant’s loss. Following the Supreme Court’s decision in One Step, the main type of restitutionary award for breach is the ‘account of profits’ measure.”). 10 Barnett (2012), p. 1.

2.1

Introduction to Gain-Based Remedies and Basic Terminology

11

vindicate the claimant’s right, in the sense that the claimant’s right is made good.”11 In other words, the reason for a remedy to be awarded is to achieve an effect, i.e. the vindication of the claimant’s substantive right. For the purpose of such a premise, this work will use the innovative taxonomy created by Rafał Zakrzewski. In his taxonomy he set out from a strong criticism of the dogma that remedies for breach of contract be divided into damages and specific performance.12 In creating his taxonomy, Zakrzewski took an effectuation-based approach under which remedies may be classified according to “their relationship to the rights which existed before the parties found themselves in court”13 and “whether and how substantive rights are given effect or effectuated in the remedy.”14 For Zakrzewski the main question which arises “is whether remedies are simply restatements of substantive rights existing independently before them or whether the court’s order generates something which is quite different from the rights and duties which already pertained between the parties.”15 Zakrzewski argues that “[t]he fundamental proposition should be that remedies either replicate antecedent (substantive) rights or transform them.”16 For this reason his classification divides remedies into two categories: replicative and transformative. This division is based on the question whether a court “order is the same as (replicates) or is different from (transforms) the substantive rights which the parties had before coming to court.”17 In other words, the former restate or replicate substantive rights (e.g. a decree of specific performance, an injunction, restitution for unjust enrichment or an award of damages), while the latter generate something that is quite different from the original rights and duties that existed between the parties (e.g. the creation of a remedial constructive trust).18 For the purpose of this analysis only replicative remedies are relevant. These can further be divided into specific and substitutionary remedies. This division is based on primary and secondary rights. To elaborate on this point, Lord Diplock explained in Photo Production Ltd v Securicor Ltd that the breach of a primary obligation gives rise to a secondary obligation:

Id. Zakrzewski (2005), p. 67 (“It is often treated as dogma that remedies for breach of contract fall into two groups, namely, damages (or, more broadly, compensation) and specific performance (or, more broadly, specific enforcement).”). 13 Id., at 78. 14 Id. 15 Id. 16 Id., at 63. 17 Id., at 77–81. 18 See Cunnington (2002), pp. 207, 214 (“Dr Zakrewski, in his excellent taxonomy of remedies, has distinguished between remedies which restate or replicate substantive rights (replicative remedies), and those that generate something that is quite different from the original rights and duties that existed between the parties (transformative remedies). At a lower level, he divides replicative remedies into specific remedies (which replicate primary rights) and substitutionary remedies (which replicate secondary rights).”). 11 12

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[A] contract is the source of primary legal obligations upon each party to it to procure whatever he has promised will be done is done . . . . Every failure to perform a primary obligation is a breach of contract. The secondary obligation on the part of the contract breaker to which it gives rise by implication of the common law is to pay monetary compensation to the other party for the loss sustained by him in consequence of the breach.19

When it comes to Polish law—firstly—Iwona Karasek-Wojciechowicz notes that the sheer definition of a remedy (roszczenie) is not entirely clear.20 According to more modern concepts, the common denominator of remedies is a right that originates from a specific person’s obligation and contains some form of vindication of a claimant’s rights.21 At first glance this seems to correspond with the common law definition of a remedy (“The award of a remedy in private law is intended to vindicate the claimant’s right, in the sense that the claimant’s right is made good.”22). This does not however mean that the English and Polish concepts can be equated. Karasek-Wojciechowicz namely notes that the Polish definition of an obligation in Article 353 § 1 of the Civil Code contains the bare minimum elements of an obligation: a creditor relationship (wierzytelność), a debt relationship (dług) and the—not necessarily actionable—right to demand performance.23 Moreover, not every obligation gives rise to a remedy. For a remedy to come into existence an additional substantive law modality must be present, i.e. actionability (zaskarżalność), meaning that a claimant has a substantive law competence to demand performance (świadczenie); a competence which exists regardless of the occurrence of any breach.24 This, she argues, is the differentiating factor between the English and Polish concepts of remedy. The former namely requires, among others, a breach of contract to occur.25 Secondly, it seems that the aforementioned division into primary and secondary rights may also be applied to Polish law, since Polish law achieves the same result, albeit through different terminology. Namely, Fryderyk Zoll notes that, based on the Germanic legal tradition, Polish law also divides rights into primary (pierwotne) and secondary (wtórne).26 Karasek-Wojciechowicz also applies this terminology when speaking about the interrelation between the primary remedy of performance in natura and the secondary remedy of damages.27 This interrelation should in her Photo Production Ltd v. Securicor Ltd [1980] AC 827 (HL) 848. See Karasek-Wojciechowicz (2014), ch. II.1.1. 21 See id. (“][W]spółcześnie formułowane poglądy są już w mniejszym lub większym stopniu zgodne co do tego, że roszczenie jest różnym od wierzytelności uprawnieniem, będącym pochodną obowiązku zachowania się względem uprawnionego, który to obowiązek spoczywa na indywidualnie oznaczonym podmiocie.”). 22 Barnett (2012), p. 1. 23 See Karasek-Wojciechowicz (2014), ch. II.1.2. (noting that the element of actionability is necessary for a claim to arise). 24 See id., ch. II.1.2, 3. 25 See id., ch. II.1.3. 26 See Zoll (2018), p. 6, at 1046, 1142. 27 See Karasek-Wojciechowicz (2014), ch. VIII.3.1. 19 20

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Introduction to Gain-Based Remedies and Basic Terminology

13

Remedies Transformative

Replicative Specific

Restitution for unjust enrichment

Substitutionary Damages

Fig. 2.1 Rafał Zakrzewski’s classification of remedies

opinion be settled in favor of the claimant’s choice of remedies (alternatywny zbieg roszczeń) while still maintaining the defendant’s right to cure.28 Furthermore, in the context of liability for loss—including liability for breach of contract—it is said that the aggrieved party becomes the breaching party’s creditor (wierzyciel), while the breaching party becomes the debtor (dłużnik).29 As a consequence of the above, it seems that despite certain differences, Zakrzewski’s classification of remedies can also be helpful for this work’s purposes when analyzing Polish remedies. Coming back to Zakrzewski’s taxonomy, specific remedies replicate primary rights. An award of restitution for unjust enrichment fits into the category of replicative remedies and its sub-class, i.e. those that replicate specific remedies.30 Substitutionary remedies, on the other hand, replicate secondary rights. An award of damages fits into the second category: it is a replicative remedy, because it replicates the claimant’s right arising from a breach, i.e. the right to receive damages, which is a secondary right;31 and it is a substitute for performance.32 In other words, an award of damages is a replicative substitutionary remedy (Fig. 2.1). Both categories of remedies—replicative specific (restitution) and replicative substitutionary (damages)—will be relevant for this work, as it may be argued that gain-based remedies are present in either category. To proceed further however, certain terminological issues need to be explained. When writing about gain-based remedies, Joanna Khoo rightfully observed that “[t]he single largest contributor to confusion in this area appears to be the lack of consistent terminology.”33 Indeed, it is a challenge to apply consistent terminology throughout this area of law. A multitude of terms have been used in scholarly

See id. See Radwański and Olejniczak (2016), p. 82. 30 See Zakrzewski (2005), pp. 79–81. 31 See id., at 81. 32 Morris-Garner, ¶ 35. 33 Joanna Khoo (2011), pp. 21, 22. 28 29

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writings; most of them having overlapping, if not identical, meanings. One source of confusion may be the work of James Edelman whose book Gain-Based Damages. Contract, Tort, Equity and Intellectual Property was—in his words—“an examination of two particular remedies given in response to wrongdoing, both of them gainbased—that is to say, measured by the gain or benefit to the defendant wrongdoer— rather than the loss to claimant victim.”34 These particular remedies being: disgorgement damages and restitutionary damages. I wish to touch upon the terminological confusion created by Edelman’s definitions of restitutionary damages and disgorgement damages.35 Edelman’s taxonomy is based on a hard distinction between compensation, restitution and disgorgement.36 According to some scholars, restitution requires one to give back a gain, while disgorgement requires one to give it up.37 Some argue that restitution strikes a middle ground between compensation and disgorgement by requiring a restoration of a benefit that a defendant received from the claimant.38 Consequently, one can distinguish between remedies that require one to give back a gain and remedies that require one to give up a gain.39 Based on this, for Edelman restitutionary damages “are a remedy which operates to reverse wrongful transfers of value from a claimant to a defendant”40 and “an award which gives back value transferred from a claimant to a defendant as a result of a defendant’s wrong and is almost always measured by the objective gain received by the defendant.”41 In case of restitutionary damages “the gain in question is that objective gain received by the defendant which has been wrongfully transferred from the claimant. . . .”42 This is not necessarily limited to transfers of money.43 The remedy based on disgorgement—also referred to as the Blake measure44— was dubbed by James Edelman as disgorgement damages.45 These enable a party “to obtain something of value which he or she never had before.”46 They further 34

Edelman (2002). See generally id. 36 See e.g. McInnes (2006), pp. 76, 78 (“[T]here is in principle a clear difference between reversing a transfer and stripping a gain, just as there is a clear difference between reversing a transfer and repairing loss.”). 37 See Virgo (2015), p. 5. 38 See McInnes (2006), pp. 76, 78 (“Restitution is no closer to disgorgement than it is to compensation.”). 39 See Edelman (2002), p. 1; see also Cunnington (2004), pp. 46, 47; Victoria Jardine (2017), pp. 36, 47. 40 Edelman (2002), p. 1. 41 Id., at 66. 42 Id., at 1. 43 See id., at 67 (“Restitutionary damages are not confined to cases where the transfer is of money. They may also be awarded in instances where non-monetary benefits are wrongfully transferred.”). 44 See Cunnington (2004), pp. 46, 47. 45 See Edelman (2002), p. 1. 46 Virgo (2015), p. 5. 35

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15

“operate to strip a defendant of profit made by wrongful conduct.”47 In Edelman’s opinion, in that case “the gain to be disgorged is that which has accrued to the defendant as a result of the wrong irrespective of whether there has been any transfer of value and not limited by any possible value transferred.”48 To summarize Edelman’s understanding of these terms: Edelman’s distinction between ‘disgorgement damages’ and ‘restitutionary damages’ is based on the view that the former are exceptional, to be awarded only where compensation is inadequate, and are concerned to effect deterrence of wrongdoing by stripping profits. In contrast, the latter are concerned to reverse an enrichment that has been acquired at the expense of the claimant (in the sense that value has been transferred from the defendant to the wrongdoer), are non-exceptional and straightforwardly rest on corrective justice.49

Edelman’s terminology has come under heavy criticism. Firstly, it seemingly uses a misguided understanding of restitution. Katy Barnett suggests that restitutionary damages “is an inapposite label because ‘restitution’ is an ambiguous term with two mutually exclusive meanings, either a ‘giving back’ of a benefit unjustly received or a ‘giving up’ of a benefit made at the expense of the claimant because a wrong has been committed against her.”50 This notion was indeed confirmed by Lord Nicholls in Blake who called the term restitutionary damages an “unhappy expression.”51 Secondly, similarly to restitution, disgorgement also has two meanings under English law. The first meaning—disgorgement in the extensive sense—is a category containing restitutionary remedies not based on unjust enrichment.52 The second meaning—disgorgement in the restrictive sense—is the remedy of account of profits available for breach of a fiduciary duty.53 It is therefore no wonder that there exists much confusion in this area of law, which can be illustrated in the following manner (Fig. 2.2). It is difficult to say what terminology can be consistently applied to gain-based remedies. Both Peter Birks and Katy Barnett argue that damages should not be terminologically mixed with restitution. Birks argues that “[t]he word ‘restitution’ is not entirely happy in this partnership with ‘compensation’. It has had to be maneuvered into that role. ‘Disgorgement’, which has no legal pedigree, might be said to fit the job more easily and more exactly.”54 Katy Barnett thus suggested to bring both restitutionary damages and disgorgement damages under the umbrella of the latter:

47

Edelman (2002), p. 1. Id.; see also Grantham and Rickett (2003), p. 159 (“Disgorgement is the giving up to a claimant of a gain made by a defendant, as a consequence of a wrongdoing committed against the claimant, but received from a third party”). 49 Burrows (2002), pp. 165, 178–179. 50 Barnett (2012), p. 1. 51 AG v. Blake, at 284. 52 See Caggiano (2016), pp. 243, 250. 53 See id., at 251. 54 Birks (2005), pp. 3–4. 48

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Restitution as giving

Restitution as giving up

back Disgorgement in the restrictive sense

Disgorgement in the extensive sense (restitutionary remedies not based on unjust enrichment)

Fig. 2.2 The various meanings of restitution and disgorgement I suggest that ‘restitutionary damages’ for breach of contract should be subsumed into the category of disgorgement damages, because under my analysis, they are simply a mechanism for achieving partial disgorgement of gain. Rather than distinguishing between restitutionary damages and disgorgement damages for breach of contract, I argue that the scale of disgorgement damages ranges from a proportion of the profit at the lower end to disgorgement of full profit at the upper end.55

Consequently, Katy Barnett uses the term disgorgement damages “to describe the remedy for stripping profits from a wrongdoer for breach of contract.”56 I do not believe that any of the aforementioned terminology serves the purposes of this work, as the approach taken here requires—firstly—an openness to both the compensatory and restitutionary rationale; and secondly, a comparative openness, since restitution itself is a comparatively ambiguous term.57 I therefore postulate to use an umbrella term, i.e. a term which will encompass both the compensatory and non-compensatory aspect of the remedies, namely gain-based remedies. As will be later visible, depending on the underlying rationale for gain-based remedies, they shall be called either gain-based damages—when talking about the compensatory rationale—or restitutionary disgorgement—when talking about the restitutionary rationale.

55

Barnett (2012), p. 146. Id., at 1. 57 See generally Schlechtriem et al. (2001), p. 377; see also Arvind (2022), p. 529. 56

2.2

An Overview of the Most Relevant English Case Law on Gain-Based Remedies

2.2

17

An Overview of the Most Relevant English Case Law on Gain-Based Remedies

When it comes to the existence of gain-based remedies for breach of contract, English scholarship provided fertile ground for their existence.58 However, it is through case law that such measures gained real traction. In order for the subsequent analysis to be clearer, it is imperative to present a short summary of the relevant English case law on the subject of gain-based remedies for breach of contract. Although the equivalent of gain-based remedies were achieved by courts through measures such as breach of fiduciary duties,59 or through establishment of a trust,60 such measures are beyond the scope of this work, and hence case law on them will be omitted. The awards of gain-based remedies can be divided into two stages. The first concerns such awards being made starting with Wrotham Park until the award in Blake. The second stage, starting with Blake and culminating with Morris-Garner. The subsequent summary follows this chronological order.

2.2.1

The Wrotham Park Remedy

Although Wrotham Park is deemed to be the first step towards establishing gainbased remedies for breach of contract, and it is not a recent decision, its principle is still undergoing evolution (although, as mentioned, it has been argued that in MorrisGarner the Supreme Court provided clarity on this remedy61). To briefly summarize the facts of the case: the defendant’s—Parkside Homes Ltd—land was subject to a restrictive covenant (a contract) registered as a land charge in favor of the adjoining estate belonging to the claimant—Wrotham Park Estate Co Ltd. The restrictive covenant forbade to develop the land without the claimant’s permission: [N]ot to develop the . . . land for building purposes except in strict accordance with a lay-out plan to be first submitted to and approved in writing by the vendor or the surveyors, such plan to indicate thereon the roads sewers and drains to be constructed.62

The claimant however built fourteen houses and a road without said permission, and thus breached the restrictive covenant. After construction work had been completed

See Roberts (2008), p. 945, 698 (summarizing the most noteworthy scholarly work on the subject.). 59 Attorney-General v. Observer Ltd. [1988] 3 W.L.R. 776 (H.L.) (Eng.). 60 Lake v. Bayliss [1974] 1 W.L.R. 798 (Ch. 1973); Snepp v. United States 444 U.S. 507 (1980). 61 See Arvind (2022), p. 529. 62 Wrotham Park, at 798, 802. 58

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the claimant brought a lawsuit against the defendant.63 At trial the claimant sought a restorative injunction but Brightman J refused to grant it, as granting it would in his opinion constitute a waste of housing. Turning to the question of quantum of damages, Brightman J noted his statutory power to award damages in lieu of the injunction under the Lord Cairns’s Act which stated:64 In all cases in which the Court of Chancery has jurisdiction to entertain an application for an injunction against a breach of any covenant, contract, or agreement, or against the commission or continuance of any wrongful act, or for the specific performance of any covenant, contract, or agreement, it shall be lawful for the same court, if it shall think fit, to award damages to the party injured, either in addition to or in substitution for such injunction or specific performance, and such damages may be assessed in such manner as the court shall direct.

He then turned to the general rule of damages: “The basic rule in contract is to measure damages by that sum of money which will put the plaintiff in the same position as he would have been in if the contract had not been broken.”65 The breach caused no financial damage, which would justify granting either no or nominal damages.66 This seemed hardly fair according to Brightman J for whom this would contravene common sense.67 The question thus arose on what basis should damages in lieu of an injunction be assessed. He turned his reasoning to the tort of trespass and detinue where damages are assessed according the value of the use. He noted the price of hire principle referred to by Lord Shaw in Watson, Laidlaw & co Ltd v Pott, Cassels & Williamson: It is at this stage of the case . . . that a second principle comes into play. It is not exactly the principle of restoration, either directly or expressed through compensation, but it is the principle underlying price of hire. It plainly extends--and I am inclined to think not infrequently extends--to Patent cases. But, indeed, it is not confined to them. For wherever an abstraction or invasion of property has occurred, then, unless such abstraction or invasion were to be sanctioned by law.68

This led Brightman J to the overarching problem: I am faced with the problem what damages ought to be awarded to the plaintiffs in the place of mandatory injunctions which would have restored the plaintiffs’ rights. If the plaintiffs are

See e.g. Burrows (2022), pp. 165, 166 (providing a more detailed description of the facts); Wrotham Park, at 798, 810 (Brightman J outlining the reasons why the claimants did not seek interim relief to prevent the houses being erected before the trial). 64 See Campbell (2003), p. 131. 65 Wrotham Park, at 798, 812. 66 Id. at 810 (“[T]he damages are nil or purely nominal, because the value of the Wrotham Park Estate as the plaintiffs concede is not diminished by one farthing in consequence of the construction of a road and the erection of 14 houses on the allotment site.”). 67 Id., at 812. 68 Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC at 119. 63

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An Overview of the Most Relevant English Case Law on Gain-Based Remedies

19

merely given a nominal sum, or no sum, in substitution for injunctions, it seems to me that justice will manifestly not have been done.69

Although the claimant admitted to having suffered no loss, Brightman J awarded damages based on the percentage of the defendant’s anticipated profits.70 Consequently, “[t]he damages were assessed using a hypothetical bargain approach.”71 He namely argued that one way in which the defendant could have avoided breaking the contract was to seek a relaxation of the covenant from the claimant.72 The measure therefore becomes “the amount the plaintiff could reasonably have asked for the release from the covenant.”73 For this reason negotiating damages are often defined as “damages based on a hypothetical release bargain.”74 The Wrotham Park judgment met initially with criticism.75 Firstly, the case’s facts make it difficult to justify its outcome; a difficulty towards which Andrew Burrows made the following remark: It is important to note the following two facts or sets of facts. It was accepted that the claimant would not have granted the defendants a release from the covenant. Moreover, even if there had been some price at which the claimant would have been prepared to grant such a relaxation, it was clearly not the price of £2,500 fixed by the court.76

Secondly, it is difficult to pinpoint what was the principle underlying the Wrotham Park remedy. On the one hand, it can be argued that the remedy compensated a loss. As Lord Nicholls later noted in Blake: “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.”77 Indeed Lord Cairns’ Act “did not alter the measure to be employed in assessing damages”78 Lord Nicholls further noted: “[T]he judge applied by analogy the cases . . . concerning the assessment of damages when a defendant has invaded another’s property rights but without diminishing the value of the property.”79 A compensatory view of Wrotham Park will be the subject of Chap. 3.

Wrotham Park, at 798, 815. Id. 71 Burrows (2022), pp. 165, 166. 72 Wrotham Park, at 798, 815. 73 Rusch (2001), pp. 59, 65; Wrotham Park, at 798, 815 (“In my judgment a just substitute for a mandatory injunction would be such a sum of money as might reasonably have been demanded by the plaintiffs from Parkside as a quid pro quo for relaxing the covenant.”). 74 Burrows (2022), pp. 165, 167. 75 Surrey County Council v. Bredero Homes Ltd. [1993] 1 W.L.R. 1361 (C.A.) (Justice Dillon) [hereinafter Surrey]. 76 Burrows (2022), pp. 165, 167. 77 AG v. Blake, at 268, 281. 78 Id. 79 Id., at 283. 69 70

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On the other hand, some authors consider Wrotham Park to be a hint of a restitutionary remedy—which will be covered in Chap. 4—as it was one of the few cases where damages were measured by reference to the wrongdoer’s gain.80 For the sake of clarity, although a case may be made for a comparative analysis of Wrotham Park in connection with Polish regulations on servitudes (służebności), this work shall not touch upon this topic. This work deals with the broader contract law aspect of the judgment rather than with a comparative analysis relating to servitudes.

2.2.2

Case Law After Wrotham Park

Wrotham Park concerned a breach of a restrictive covenant which is not only a contractual undertaking but is also intimately connected with property rights. The proprietary nature of the judgment was the focal point of the two subsequent cases. Surrey County Council v. Bredero Homes The first noteworthy case that not only discussed the Wrotham Park remedy but the facts of which were similar to Wrotham Park, was Surrey County Council v. Bredero Homes (“Surrey”). The defendant—Bredero Homes—purchased land from the claimants in order to develop it. Under the parties’ contract the land was to be developed according to a concrete plan; specifically, seventy two units were to be constructed. The defendant breached this covenant by obtaining planning permission from the planning authority to build up to seventy seven units. The defendant did so, consequently breaching the covenant.81 Just like in Wrotham Park, the claimants did not seek an injunction, instead seeking an account of profits for the gains made by the defendant for the additional units.82 At first glance it would seem that since the facts are similar to Wrotham Park, the case should carry with it the same result. This did not happen, as in the court’s opinion it had no jurisdiction to award damages under Lord Cairn’s Act.83 The judgment hinged on a peculiar technicality: In the Surrey case it is clear that the defendant had not interfered with any of the claimant’s proprietary rights, since the covenant in that case was simply a contractual promise not to build save in accordance with the planning permission which had already been obtained, whereas the right in Wrotham Park was a restrictive covenant, which is a proprietary right which attaches to land.84

80

Poon (2019), pp. 139, 140. See Surrey, at 1361, 1364. 82 See id.; see also Poon (2019), pp. 139, 140–141. 83 Id., at 139, 141 (“Despite the glaring similarity to Wrotham Park, the Court of Appeal applied the traditional measure of damages and held that since the plaintiffs had suffered no loss, they were not entitled to substantial damages.”). 84 Virgo (2015), p. 473. 81

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In other words, the damages in Wrotham Park “were awarded in Equity in lieu of an injunction, whereas in the Surrey case the claimants had never sought an injunction and were simply seeking damages for breach of contract at Common Law.”85 Furthermore, for Dillon LJ “it was somewhat unreal to base awards of damages on a hypothetical bargain that no one ever contemplated in the first place.”86 What can be concluded from this is that for Steyn LJ the Wrotham Park remedy was a restitutionary one; these were not damages for loss. For him namely, unlike damages at common law, the Wrotham Park remedy was a transfer of a defendant’s benefit.87 For this reason not every breach of a contractual term may breed gain-based liability. Only a breach that is within the jurisdiction of equity can. As Graham Virgo noted: Steyn LJ . . . acknowledged that restituionary damages could be awarded where the defendant had breached a contract and he accepted that the damages in Wrotham Park were restitutionary and were justified because the defendant had invaded the claimant’s property rights, whereas in the Surrey case the defendant’s conduct did not ‘involve any invasion of the claimant’s interests even in the broadest sense of that word’.88

Almost ten years later the House of Lords in Blake criticized the Surrey judgment. Lord Nicholls stated that “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.”89 Jaggard v. Sawyer As John McCamus observed, there was tension between the Wrotham Park and Surrey judgments, and this tension “surfaced for reconsideration by the Court of Appeal in Jaggard v. Sawyer” (“Jaggard”).90 Similarly to Wrotham Park, Jaggard “concerned a breach of a covenant not to use a portion of land other than as a private garden.”91 Although the breach in Jaggard constituted also an interference with proprietary rights,92 “Millett LJ was adamant that the damages were compensatory and not restitutionary. . . .”93 Consequently, he was critical of the interpretation of Wrotham Park presented in the Surrey judgment: Id.; see also See Tettenborn (2002), p. 249 (“[W]hereas in Wrotham the covenant bound the land, and hence the defendants’ acts could be referred to in a loose sense as an infringement of property rights, in Bredero it was only enforceable inter partes; and . . . damages were sought in lieu of an injunction in Wrotham, whereas in Bredero they were sought at common law.”). 86 See Tettenborn (2002), p. 247. 87 See Surrey, at 1361, 1364. 88 Virgo (2015), p. 473. 89 AG v. Blake, at 268, 283. 90 McCamus (2003), pp. 943, 956. 91 Id., at 943, 956–957. 92 See Poon (2019), pp. 139, 141 (“Clearly, this was a case involving the infringement of proprietary rights just as in Wrotham Park, and it was therefore unsurprising that the Court of Appeal also declined to order an injunction but awarded damages in lieu. Similarly, the damages were assessed by referring to what the plaintiff could have received had the defendant sought a relaxation.”). 93 Virgo (2015), p. 473. 85

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I cannot . . . accept that Brightman J's assessment of damages in Wrotham Park was based on other than compensatory principles. The defendants had committed a breach of covenant, the effects of which continued. The judge was not willing to order the defendants to undo the continuing effects of that breach. He had therefore to assess the damages necessary to compensate the plaintiffs for this continuing invasion of their right. He paid attention to the profits earned by the defendants, as it seems to me, not in order to strip the defendants of their unjust gains, but because of the obvious relationship between the profits earned by the defendants and the sum which the defendants would reasonably have been willing to pay to secure release from the covenant.94

Therefore, for Millet LJ the object of the award was not to strip the profits from the defendants but to assess a compensatory award.95 He makes this abundantly clear in a later passage: It is plain from his judgment in the Wrotham Park case that Brightman J's approach was compensatory, not restitutionary. He sought to measure the damages by reference to what the plaintiff had lost, not by reference to what the defendant had gained. He did not award the plaintiff the profit which the defendant had made by the breach, but the amount which he judged the plaintiff might have obtained as the price of giving its consent. The amount of the profit which the defendant expected to make was a relevant factor in that assessment, but that was all.96

In summary, the initial tension between Wrotham Park and Surrey, was transformed by Jaggard into a tension between Surrey and Jaggard over what principles underpin Wrotham Park. The next step to be taken was another milestone; as Graham Virgo put it: “This confusing body of law has now been clarified by the decision of the House of Lords in Attorney-General v Blake.”97

2.2.3

The Blake Remedy

“My Lords, Gorge Blake is a notorious, self-confessed traitor”98 were the first words of the judgment presented by Lord Nicholls of Birkenhead in Blake. The case was a milestone in English judicature, as “[i]n Attorney-General v Blake, the House of Lords recognized for the first time the availability of gain-based damages for breach of contract.”99

Jaggard v. Sawyer [1995] WLR 269 ¶ 40 [hereinafter Jaggard v. Sawyer]. McCamus, supra note 112, at 943, 957 (“The Court of Appeal agreed with this approach and approved the decision in Wrotham Park, although it chose to explain Wrotham Park as a case based on compensatory principles, the plaintiff being compensated for a continuing invasion of his contractual right.”). 96 Jaggard v. Sawyer, ¶ 69. 97 Virgo (2015), p. 473. 98 AG v. Blake, at 268, 275. 99 Cunnington (2002), p. 207. 94 95

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23

The Facts George Blake was a member of the British Secret Intelligence Service. He was however also a Soviet informant. His rich story was deserving of a book, which was indeed published and became the center of this case: George Blake was a Soviet informant who worked as a member of the British Secret Intelligence Service. On discovery of his treason he was tried and imprisoned for 42 years. In 1966, Blake escaped from Wormwood Scrubs prison and fled to Moscow. In 1989, he entered into a contract with Jonathan Cape Ltd for the publication of his autobiography entitled No Other Choice. Jonathan Cape agreed to pay him advances against royalties totaling £150,000, £60,000 of which was to be paid prior to publication of the book. Following publication, the Crown commenced proceedings against Blake to stop him from receiving the remaining £90,000.100

Due to these facts the Attorney-General, acting on behalf of the Crown, lodged a lawsuit in order to recover the said amount.101 Blake’s contractual obligation was of crucial importance to the outcome of the case. He namely signed an Official Secrets Act declaration which was a contractually-binding undertaking and which stated: 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.102

The breach of the undertaking was in no way an interference with the Crown’s property rights. Consequently the Attorney-General could not rely on the Wrotham Park principle. The Attorney-General needed therefore to rely on another principle which would justify an account of profits.103 At first instance the Attorney-General relied on a breach of fiduciary duty, as in equity one could be required to account for one’s profits. This argument was rejected by Sir Richard Scott VC “holding that the fiduciary duty did not extend to prohibit profiting from the disclosure of information which was no longer confidential.”104 The Court of Appeal Before the case finally made it to the House of Lords, the Court of Appeal ruled that disgorgement of Blake’s profits was possible. The general rule that the Court of Appeal extrapolated was that an award of a gain-based remedy is possible in two situations. Firstly, circumstances of skimped performance. This relates to situations

Id., at 209. See Virgo (2015), p. 474. 102 AG v. Blake, at 268, 277. 103 See Virgo (2015), p. 474 (“Since the breach of contract did not involve interference with the Crown’s property rights, the Wrotham Park principle was not applicable. The issue then was whether it was appropriate to develop another principle to require Blake to account for all profits made as a result of the breach of contract.”). 104 Cunnington (2002), pp. 207, 209. 100 101

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where the defendant, after having received remuneration, provided less extensive services.105 On this point Graham Virgo argued: In such circumstances the defendant should be required to disgorge to the claimant the amount saved by breaching the contract. This is because in such a case compensatory damages are an inadequate remedy, since by requesting the particular performance the claimant has shown that he or she has an interest in it being performed, and the benefit obtained by the defendant, namely the amount saved, arises directly from the breach of the contract.106

Secondly, circumstances of negative undertakings, “[w]here the defendant promised not to do something and then obtained a benefit as a result of doing this. . . .”107 This is due to the fact that “the very contractual interest is that the defendant refrains from a certain act but where no financial loss arises from the breach.”108 The Court of Appeal allowed an appeal on two grounds: a public law ground— which is beyond the scope of this work—and a private law ground relating to a claim for breach of contract namely Blake’s Official Secrets declaration on 16 August 1944.109 The latter was of key importance to the House of Lords. The House of Lords The House of Lords rejected the approach of the Court of Appeal arguing that if its approach were applied “it would follow that gain-based remedies would be potentially available in a wide variety of circumstances.”110 In other words, the approach taken by the Court of Appeal was too far-reaching. For this reason the House of Lords applied a different approach. Two parts of the judgment are of crucial importance to the subsequent analysis of this work. Firstly, the prevailing judgment of Lord Nicholls. Secondly, the dissenting opinion of Lord Hobbhouse. In regards to the former, in his prevailing judgment Lord Nicholls was of the opinion that a gain-based remedy could be awarded against Blake due to the exceptional circumstances of the case.111 Lord Nicholls noted that as regards disgorgement for breach of contract “there is a surprising dearth of judicial decision.”112 Before he proceeded with an analysis of Blake’s case, he considered several examples of non-compensatory relief, i.e. interference with rights of property, breach of trust and fiduciary duty, damages under Lord Cairn’s Act, and finally breach of contract.113 The judgment noted a lack of consequence in case law

See Virgo (2015), p. 474; see also Rusch (2001), pp. 59, 62 (“[T]he plaintiff is overcharged inasmuch as the defendant does not bring his side of the bargain fully.”). 106 Virgo (2015), p. 474. 107 Id. 108 Rusch (2001), pp. 59, 64. 109 Cunnington (2002), pp. 207, 209. 110 Virgo (2015), p. 476. 111 See Edelman (2002), p. 152. 112 AG v. Blake, at 268, 277. 113 See id., at 278–286. 105

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regarding interference with rights of property, where for similar infringements different remedies were awarded; either an account of profits or the requirement to pay a reasonable fee.114 This lack of consequence was plainly visible when discussing the tension between Surrey and Jaggard. Lord Nicholls considered this to be “an accident of history.”115 Nonetheless, he considered Wrotham Park, where the decision was grounded in the protection of property rights, to be “a solitary beacon, showing that in contract as well as tort damages are not always narrowly confined to recoupment of financial loss.”116 He concluded this remark by stating: [D]amages 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.117

Nevertheless, in Blake the Crown did not want to merely measure damages based on Blake’s gains, but wanted all of Blake’s gains.118 This—albeit in exceptional circumstances—Lord Nicholls was prepared to grant.119 He considered that such an award “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.”120 He further argued: 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

See id., at 280. Id. (“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.”). 116 Id., at 283. 117 Id., at 283–284. 118 See id., at 284. 119 See Virgo (2015), pp. 473–474 (“Despite the general principle against the award of gain-based remedies for breach of contract, the House of Lords in Attorney-General v Blake recognized that restitutionary remedies can be available where the defendant has breached a contract, but only in the most exceptional circumstances.”); see also Siems (2003), pp. 27, 31 (“Their Lordships concluded that in exceptional cases where normal remedies were inadequate to compensate for breach of contract it was open to the court to order that the defendant should account for all profits either received or to which he or she was entitled.”); Cunnington (2008), pp. 115, 122 (“Lord Nicholls, who delivered the leading speech in the case, insisted that gain-based damages should only be available in exceptional cases where damages and other contract remedies are shown to be inadequate.”) 120 AG v. Blake, at 268, 285. 114 115

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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.121

The prerequisites for such an award were not provided. Nonetheless, Blake drastically reshaped English contract law. Graham Virgo enumerated several principles stemming from the Blake judgment.122 First, this is an exceptional remedy.123 Second, there are no fixed rules as to when a court may grant such a remedy.124 Lord Nicholls emphasized that the applicability of the remedy under consideration should be on a case-by-case basis: 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.125

In support of Lord Nicholls’ conclusion, Lord Steyn raised that the applicability of the remedy in question is “best hammered out on the anvil of concrete cases.”126 Third, it may be granted only when other remedies are inadequate.127 Damages are inadequate when “damages would be nominal because the claimant has suffered no pecuniary loss”128 or there is no market substitute for performance which is often the case when there is a breach of a negative covenant.129 One may put forward the example that “[c]ompensatory damages will be considered to be inadequate when . . . the contract relates to unique goods which may be impossible to value.”130 There was indeed no substitute for Blake’s performance and consequently classic damages would be inadequate to right the wrong he had committed.131 Fourth, the claimant should have a legitimate interest in preventing the defendant’s profit-making

Id., at 284. See also Cunnington (2002), pp. 207, 232–233 (“Five situations were identified: (i) cases in which no market substitute for performance is available; (ii) cases in which compensatory damages are difficult to quantify; (iii) cases in which the defendant is insolvent by the time the action reaches court; (iv) cases in which only nominal damages are available; and (v) cases in which damages are deemed to be insufficient to accomplish the objective of deterrence.”). 123 Virgo (2015), p. 475. 124 Id.; see also Cunnington (2002), pp. 207, 210 (“In relation to when this exceptional remedy should be available, Lord Nicholls insisted that ‘no fixed rules can be prescribed’.”). 125 AG v. Blake, at 268, 285. 126 Id., at 291. 127 Virgo (2015), p. 475; Cunnington (2002), pp. 207, 210. 128 Cunnington (2008), pp. 115, 124. 129 Id., at 123.; see also Turf Club Auto Emporium Pte Ltd. v. Yeo Boong Hua [2018] SGCA 44, ¶ 227(a). 130 Virgo (2015), p. 475; see also Cunnington (2008), pp. 115, 124. 131 Cunnington (2008), pp. 115, 123 (“There was no substitute for Blake’s performance. Damages could not be used to right Blake’s wrong. Therefore compensatory damages were inadequate”). 121 122

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activities.132 According to James Edelman this limitation “unique in cases of breach of contract, operates to deny the same protection to contractual interests which the law has traditionally afforded to other property rights, unless it is satisfied.”133 Fifth, the obligation in question should be closely akin to a fiduciary obligation.134 On this point the House of Lords noted an almost identical case from the Supreme Court of the United States135—Snepp v. United States136—which, however, was determined under equitable rules rather than contractual and is as such beyond the scope of this work. The second relevant part of the judgment and equally authoritative as Lord Nicholls’s opinion—albeit a minority opinion—was the dissenting opinion of Lord Hobbhouse. Lord Hobbhouse was against a restitutionary remedy to be applied; he advocated for a compensatory remedy.137 He addressed two major concerns. First, he believed that the ends do no justify the means. Namely, according to his opinion, “[i]t is not a commercial claim in support of any commercial interest.”138 In simple terms, the House of Lords was punishing Blake by using remedies not meant for punishment: 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.139

Second, Lord Hobbhouse believed that classic rules on damages were sufficient, and need not have been supplemented by any additional rules. He disagreed with Lord Nicholls “that there is some gap in the existing state of the law which requires to be filled by a new remedy.”140 In his opinion there existed on the facts an identifiable loss, namely “[w]hat the plaintiff has lost is the sum which he could have exacted

See AG v. Blake, at 268, 285; see also Virgo (2015), p. 476; Cunnington (2002), pp. 207, 210; see also Edelman (2002), p. 153 (“[A] requirement that the contractual provision breached must be one which courts are prepared to protect as a primary right. Lord Nicholls expressed this as a requirement that the defendant have a “legitimate interest in performance.”). 133 Edelman (2002), pp. 149–153 (“Lord Nicholls stated that this legitimate interest was required for the disgorgement damages remedy of an account of profits in the same way as a legitimate interest in performance was required for an order for specific performance or an injunction.”). 134 See Virgo (2015), p. 476; AG v. Blake, at 268, 287 (“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.”). 135 AG v. Blake, at 268, 287 (“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. . . .”). 136 Snepp v. United States, 444 U.S. 507 (1980). 137 AG v. Blake, at 268, 293–299 (Lord Hobbhouse, dissenting). 138 Id., at 295. 139 Id. 140 Id. 132

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from the defendant as the price of his consent . . . . 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.”141 Similarly to the prevailing opinion, he expressed his support for the approach in Wrotham Park, “[h]owever, he took the view that this was an example of compensatory damages since the claimant had lost the sum which it could have exacted from the defendant as the price of its consent . . . .”142 Lord Hobbhouse argued: 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.143

It was thus unsettling for Lord Hobbhouse to see non-compensatory damages being introduced into contract law.144 He consequently warned: 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.145

Based on these two parts of the Blake judgment, and by means of summary, I would argue that Wrotham Park and Blake set the stage for a major academic debate on the principle underlying gain-based remedies. Are they—as Lord Nicholls seemed to hold—restitutionary? Or are they—as Lord Hobbhouse argued—compensatory?

2.2.4

Case Law After Blake

The second phase for gain-based remedies was demarcated by Blake and was a turning point for the Wrotham Park remedy. It marked the moment when such damages started to be awarded independently from the Lord Cairn’s Act.146 PostBlake gain-based remedies were expanded by making recovery available “based on the commercial value of the right infringed.”147 The second phase therefore— firstly—expanded gain-based remedies into a purely commercial context, most notably to cases of breach of joint venture agreements and confidentiality

Id. Siems (2003), pp. 27, 31. 143 AG v. Blake, at 268, 298–299 (Lord Hobbhouse, dissenting). 144 See Edelman (2002), p. 153. 145 AG v. Blake, at 268, 299 (Lord Hobbhouse, dissenting). 146 Morris-Garner, ¶ 48. 147 Id., ¶ 83. 141 142

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obligations.148 These sort of cases were categorized as pertaining to a loss of an opportunity to exercise control over the use of information.149 Secondly, the postBlake phase may also be said to be a struggle of courts to try to grapple with the interplay between Blake and Wrotham Park, and the interplay between restitutionary disgorgement and compensatory damages. Esso Petroleum v. Niad It did not take long for the Blake judgment to be applied. The first such reported case was Esso Petroleum v. Niad (“Esso”).150 The defendant—Niad—operated a petrol station and was party to a promotional scheme called Pricewatch. In return for a discount, he was to report the prices of his competitors and match his prices to those set by the claimant—Esso. The defendant purposefully breached this obligation, did not report the competitors’ prices. and kept the discount he received.151 Morrit VC confirmed that Esso is entitled to damages based on the expectation basis but that it would not be easy to prove such damages.152 He considered the breach to be exceptional enough and awarded the Blake remedy to Esso. Firstly, the breach by Niad was deliberate and repeated. Indeed, a major part of the judgment concerned the fact that according to Morrit VC, Niad’s breach went to the root of his obligation: [T]he obligation to implement and maintain the recommended pump prices was fundamental to Pricewatch. Failure to observe it gives the lie to the advertising campaign by which it was publicised and therefore undermines the effectiveness of Pricewatch in achieving the benefits intended for both Esso and all its dealers within Pricewatch.153

Secondly, traditional damages were “not an adequate remedy, because it was not possible to ascertain Esso’s loss arising from lost sales following breach. . . .”154

See Pell Frischmann Engineering v. Bow Valley Iran [2011] 1 WLR 2370 (The case concerned an award for breach of a party’s right to participate in a business opportunity under a joint venture agreement); Vercoe v. Rutland Fund Management [2010] EWHC 424 (Ch) (The case concerned the breach of a joint venture agreement through using information about a commercial opportunity provided by the claimants without including the claimants in the transaction.). 149 Hull (2019), pp. 180, 184. 150 See Cunnington (2008), pp. 115, 124. 151 See Esso Petroleum Co Ltd v. Niad Ltd [2001] EWHC Ch 458 [hereinafter Esso], ¶ 2–3; see also id. 152 See Esso, ¶ 56 (“Esso will have to establish that it has lost sales of motor fuels by reason of the failure of Niad to charge at or below the Pricewatch recommended price. This may not be easy. In any event the amount is unlikely to be commensurate with the amount of additional price support derived by Niad from Pricewatch which it should have passed on to its customers.”). 153 Id., ¶ 63. 154 Virgo (2015), pp. 477–478; see also Esso, ¶ 63 (“[D]amages is an inadequate remedy. It is almost impossible to attribute lost sales to a breach by one out of several hundred dealers who operated Pricewatch.”). 148

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Thirdly, the claimant had a legitimate interest in preventing the defendant from profiting from the breach.155 The judgment is not without criticism, as it considerably expanded the exceptional circumstances of Blake. It has namely been raised that “[t]he worrying aspect of the decision relates to the liberal interpretation of the Blake principles said to govern circumstances in which the remedy of an account of profits was to be available.”156 Indeed, Morrit VC was quite laconic when substantiating his reasoning on why Esso had a legitimate interest; he namely limited the ratio decidendi to the following: “Esso undoubtedly has a legitimate interest in preventing Niad from profiting from its breach of obligation.”157 Experience Hendrix In 2003 the Court of Appeal was called upon to decide the applicability of an account of profits in a fairly typical commercial situation. Namely, under the facts of the case of Experience Hendrix LLC v. PPX Enterprises Inc. (“Experience Hendrix”) the successor of the musician’s, Jimi Hendrix’s, estate—Experience Hendrix LLC— reached—after it had earlier initiated court proceedings—a settlement agreement with PPX Enterprises in 1973 regarding the exploitation of certain master records of Jimi Hendrix. However, PPX Enterprises continuously breached the settlement agreement by using records that were not encompassed by it. Thus, Experience Hendrix lodged proceedings for breach of contract (the settlement) based on both the Wrotham Park and Blake remedies, and clearly underlining that it could not prove any loss.158 Under such facts “compensatory damages were inadequate and, since the claim related to past profits, the remedies of specific performance and injunction were inapplicable.”159 Firstly, the court awarded the Wrotham Park remedy stating that “as a matter of practical justice, PPX should make (at the least) reasonable payment for its use of masters in breach of the settlement agreement.”160 This sum might have, in the court’s opinion, been demanded by the Jimi Hendrix estate as a quid pro quo for agreeing to permit to use the recording by PPX Enterprises.161 The court admitted

See Esso, ¶ 63. Poole (2010), p. 418. 157 Esso, ¶ 63. 158 Experience Hendrix Llc v PPX Enterprises Inc. & Anor [2003] EWCA Civ 323 [hereinafter Experience Hendrix], ¶ 14 (“[T]he appellant made clear that he had no evidence, and he said that he did not imagine that he could ever possibly get any evidence, to show or quantify any financial loss suffered by the appellant as a result of PPX’s breaches.”). 159 Virgo (2015), p. 478. 160 Experience Hendrix, ¶ 42. 161 See id., ¶ 45; see also Virgo (2015), p. 479 (“The remedy which was awarded was a reasonable sum assessed with reference to what the claimant would reasonably have demanded for the defendant’s use of the recordings in breach of the agreement, by analogy with the approach adopted in Wrotham Park.”). 155 156

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that this is an artificial approach, but accepted such deficiencies due to the fact that the infringed right has a commercial value: [T]he approach adopted by Brightman J has the merit of directing the court’s attention to the commercial value of the right infringed and of enabling it to assess the sum payable by reference to the fees that might in other contexts be demanded and paid between willing parties. It points in the present case towards orders that PPX pay over, by way of damages, a proportion of each of the advances received to date and (subject to deduction of such proportion) an appropriate royalty rate on retail selling prices. I would therefore allow the appeal against the judge's decision on the first point and declare accordingly.162

The UK Supreme Court later expanded on this award in the 2018 case of MorrisGarner stating: In the absence of any possibility of assessing the difference that the breach had made to the claimants’ sales, the notional release fee in that case was simply the value which the reasonable people in the position of the parties would have placed on the prospect of performance of the relevant obligation.163

Secondly, the court did not award the Blake remedy stating that the facts were not sufficiently exceptional.164 The court distinguished this case from Blake, the main distinguishing factor being the commercial context of the case.165 Thus, for the court the threshold between the Wrotham Park and Blake measures was the exceptional nature of a breach. The court distinguished the case from Esso, as “it is not shown that the present defendant's breaches went to the root of the appellant’s programme or gave the lie to its integrity. Nor is the present a case where the defendant can be said to have profited directly, by receipt under the agreement which it broke of monies that it ought in fairness to restore.”166 Finally, the Experience Hendrix judgment distinguishes the Wrotham Park remedy from the Blake remedy167 stating that the former requires a defendant to give back a gain, while the latter requires the defendant to give up a gain.168 However, the judgment does not clearly define whether both Wrotham Park and Blake are instances of restitutionary remedies or only the former. On the one hand, the case has been said to apply a sliding scale theory of Wrotham Park and Blake ranging from full compensatory awards to “hypothetical release damages, which equate with partial disgorgement, to an account of all profits which constitutes total Experience Hendrix, ¶ 45. Morris-Garner, ¶ 122. 164 See Experience Hendrix, ¶ 27 et seq. 165 See Khoo (2011), pp. 21, 29. 166 Experience Hendrix, ¶ 38. 167 See Cunnington (2004), p. 46 (“The anvil was struck by the Court of Appeal in Experience Hendrix LLC v PPX Enterprises Inc, Edwald Chalpin. The decision was important for two reasons. First, the Court explicitly acknowledged the availability of two alternative measures of gain-based damages: the Blake measure and the Wrotham Park measure. Second, the judgments made some progress with the task of expounding principled criteria for the availability of gain-based damages.”). 168 See Cunnington (2008), pp. 115, 142 (this difference will become relevant later in this work). 162 163

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disgorgement.”169 In light of such an interpretation, the award in Experience Hendrix is deemed to be “a halfway house between the award of no gain-based remedy and a full account of the profits made from the breach, since the remedy was to be assessed with reference to the defendant’s profits made from the breach of contract without requiring the defendant to disgorge all those profits.”170 For this reason, Graham Virgo dubs the Wrotham Park remedy as a hybrid remedy.171 On the other hand, both remedies may be viewed as “two separate remedies based on different principles.”172 In terms of interpreting Wrotham Park in relation to Experience Hendrix Joanna Khoo argues: The court in each case arguably saw the question as being what the plaintiff would have accepted to relax the restriction, rather than what the defendant would have been willing to pay. It is possible to calculate the value of the right lost by the plaintiff without knowing the actual profit earned by the defendant, as the value of the right lost may be based on the defendant’s potential profit.173

Under this interpretation, the rule that Experience Hendrix enshrines is that where compensatory damages or an injunction for breach of contract are not sufficient, subsidiary remedies must come into play: Wrotham Park—which is a hybrid remedy—or in exceptional circumstances Blake—which ensures a full account of profits.174 When analyzing the history of gain-based relief, the UK Supreme Court noted that Experience Hendrix was not a straightforward case giving rise to interpretational difficulties.175 Nonetheless, it underlined the underlying real value of the judgment: In refusing to be deterred by the fact that Experience Hendrix was neither a property case nor a case in which damages were being awarded in lieu of an injunction, Mance LJ was doing no more than following the call of Lord Nicholls in Blake for a more coherent approach to the law of damages, and in particular for an assimilation in appropriate cases of the principles for awarding a notional release fee as damages in property and contract cases. Lord Nicholls’ analysis has had the valuable effect of freeing the law of damages from artificial categorisations which had turned the principles . . . into an incoherent mass of sub-rules for different categories which exhibit no real differences in fact.176

See Rowan (2012), p. 160; see also Virgo (2015), p. 479. Virgo (2015), p. 479. 171 See id. 172 Khoo (2011), pp. 21, 29. 173 Id., at 29. 174 See Virgo (2015), pp. 479–480 (“[W]here compensatory damages and specific performance are inadequate remedies for breach of contract, there are two remedies which are available: account of profits and negotiation damages, the former of which ensures disgorgement of profit and the latter being a hybrid remedy, with compensatory and restitutionary components”). 175 Morris-Garner, ¶ 85. 176 Id., ¶ 122. 169

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WWF: World Wide Fund for Nature v World Wrestling Federation Entertainment In World Wide Fund for Nature v. World Wrestling Federation Entertainment (“WWF”) the dispute arose over the use of the abbreviation WWF. The parties reached an agreement on how these initials were to be used, however the defendants—World Wrestling Federation Entertainment—breached this agreement. In earlier proceedings, which ended in 2001, the claimants had been refused the Blake remedy. Hence, in 2004, they instigated new proceedings requesting for the application of the Wrotham Park remedy. The defendants appealed this arguing that the refusal to grant the Blake remedy extends—on the basis of res judicata—to the Wrotham Park remedy.177 In essence the Court of Appeal tackled the question whether the Wrotham Park remedy was the same as, or a juridically highly similar remedy to, the Blake remedy.178 Unlike the lower court, the Court of Appeal reached a drastically different conclusion.179 Namely, after having conducted a thorough analysis of the Experience Hendrix award, the Court concluded that the Wrotham Park remedy cannot be considered as restitutionary, and thus must be viewed as compensatory.180 Having established that, the court moved on to analyze the nature of the Blake remedy concluding that it is—as the Wrotham Park remedy—compensatory.181 The Court’s reasoning was as follows: The circumstances in which an award of damages on the Wrotham Park basis may be an appropriate response, and those in which the appropriate response is an account of profits, may differ in degree. But the underlying feature, in both cases, is that the court recognises the need to compensate the claimant in circumstances where he cannot demonstrate identifiable financial loss. To label an award of damages on the Wrotham Park basis as a “compensatory” remedy and an order for an account of profits as a “gains-based” remedy does not assist an understanding of the principles on which the court acts. The two remedies should, I think, each be seen as a flexible response to the need to compensate the claimant for the wrong which has been done to him.182

See WWF – World Wide Fund for Nature v. World Wrestling Federation Entertainment Inc. [2008] 1 All ER 74 [hereinafter WWF], ¶ 17. 178 Id., ¶ 23. 179 Burrows (2022), p. 165 (“Peter Smith J reasoned that, while there was a close link between Wrotham Park damages and the Blake account of profits, the former are compensatory while the latter are restitutionary (that is, gain-based).”). 180 WWF, ¶ 56 (“I am not persuaded that, on a true analysis, the outcome in the Experience Hendrix case provides support for the proposition that an award of damages on the Wrotham Park basis is to be characterised as a gains-based remedy. I think that it is clear from the speeches in the House of Lords in Attorney General v Blake that it is not.”). 181 Id., ¶ 60. 182 Id., ¶ 59. 177

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In essence both remedies were considered to be a flexible response to compensate a claimant in a situation where no loss can be established.183 This interpretation met with heavy criticism.184 Andrew Burrows raised that “[c]ontrary to Chadwick LJ’s confused obiter dicta in the WWF case, an account of profits is a ‘gain-based’ remedy (by definition it looks at the defendant’s gains and not the claimant’s losses).”185 Morris-Garner In April 2018 the UK Supreme Court handed down a judgment relating to the circumstances in which Wrotham Park damages are applicable; a “first occasion on which the issue has come before the highest court for decision”.186 On the facts the Supreme Court considered whether the Wrotham Park remedy could be granted for breaches of non-compete and non-solicitation clauses in contracts for the sale of business. Namely, Karen and Andrea Morris-Garner sold their business to One Step (Support) Ltd. The share purchase agreement contained a non-compete provision, which the Morris-Garners breached. In his leading judgment Lord Reed recapitulated the relevant law in several points. Firstly, he summarized the application of user damages—more popularly referred to as the user principle187—which are awarded in a situation where a trespasser has made valuable use of someone else’s land without causing any diminution in its value.188 In such a situation damages are awarded to the landowner and measured by what a reasonable person would have paid for the right to use the land.189 The same principle applies for intellectual property infringements.190 The Supreme Court noted that in such cases “the courts have treated user damages as providing compensation for loss, albeit not loss of a conventional kind.”191 A situation where one’s property is infringed breeds a more unconventional loss, namely “the person who makes wrongful use of the property prevents the owner from exercising his right to obtain the economic value of the use in question, and should therefore compensate him for the consequent loss. Put shortly, he takes

See Cunnington (2002), pp. 207, 208 (“Chadwick LJ, delivering the leading judgment of the court, insisted that neither Wrotham Park damages nor Blake damages are examples of ‘gainsbased’ relief but are instead nothing more than ‘flexible response to the need to compensate the claimant’.”). 184 See e.g. id., 228 (“Chadwick LJ did not elaborate upon his position. Instead, in a rather enigmatic passage, his lordship quoted from Lord Nicholls’s judgment in Blake, claiming that it supported his own conclusion.”). 185 Burrows (2022), pp. 165, 177. 186 Morris-Garner, ¶ 1. 187 See id., ¶ 29. 188 See id., ¶ 26. 189 See id., ¶ 26. 190 See id., ¶ 26–27. 191 Id., ¶ 30. 183

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something for nothing, for which the owner was entitled to require payment.”192 Secondly, the Supreme Court took a look at the rules of common law damages for breach of contract. Thirdly, the Supreme Court clearly distinguished the Wrotham Park remedy from the Blake remedy. It thus also did away with the sliding scale interpretation of remedies.193 In the Supreme Court’s opinion Blake concerned a different issue from the case at hand.194 Moreover, the Supreme Court shut the door on attempts to apply the Blake remedy in an expansive fashion (as was the case in Esso).195 It is however a shame that even obiter the Supreme Court did not delve deeper into the interplay between Wrotham Park and Blake limiting the issue to the following: “What Blake decided was that in exceptional circumstances an account of profits can be ordered as a remedy for breach of contract. The soundness of that decision is not an issue in this appeal.”196 Finally, the Supreme Court established the following circumstances when the Wrotham Park remedy may be applied: [S]uch circumstances can exist in cases where the breach of contract results in the loss of a valuable asset created or protected by the right which was infringed, as for example in cases concerned with the breach of a restrictive covenant over land, an intellectual property agreement or a confidentiality agreement. Such cases share an important characteristic . . . . The claimant has in substance been deprived of a valuable asset, and his loss can therefore be measured by determining the economic value of the asset in question. The defendant has taken something for nothing, for which the claimant was entitled to require payment.197

An important thread of Lord Reed’s judgment was the notion that the claimant’s right is an asset.198 However, applying negotiating damages under such a supposition must in his opinion be narrowly confined to proprietary interests such as “breach of a restrictive covenant over land, breach of an intellectual property agreement or a breach of confidence”;199 a non-compete obligation is excluded from this catalogue. It would be premature to say that Morris-Garner closed the debate over the scope of the Wrotham Park remedy. Firstly, Lord Sumpton did not agree with Lord Reed’s characterization of a contractual right as an asset doubting that it “contributes anything to the argument.”200 He further argued that “[i]n one sense almost any legal right can be described as a right of property, including the business and goodwill which the Morris-Garners may be said to have appropriated by their breach

Id. See id., ¶ 81. 194 See id., ¶ 64. 195 Id., ¶ 95 (“Common law damages for breach of contract cannot be awarded merely for the purpose of depriving the defendant of profits made as a result of the breach, other than in exceptional circumstances, following Attorney General v Blake.”); see also Arvind (2022), p. 532. 196 Morris-Garner, ¶ 82. 197 Id., ¶ 92. 198 See Hull (2019), pp. 180, 182. 199 Id., at 184. 200 Morris-Garner, ¶ 120 (Lord Sumpton). 192 193

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of the non-compete covenant.”201 Secondly, it is also worth noting that in Turf Club Auto Emporium Pte Ltd. v. Yeo Boong Hua the Singapore Court of Appeal—on similar lines to Lord Sumpton—did not follow the UK Supreme Court’s approach and applied a more expansive one.202 Rather than concentrating on a purely proprietary analysis, as the UK Supreme Court, the Singapore Court of Appeal concentrated on the aggrieved party’s interest in protecting that party’s performance interest.203 The Court namely echoed the doubts expressed previously by Lord Nicholls: [I]t is not clear to us why it should be any more permissible to expropriate personal rights than it is permissible to expropriate property rights; and the fact that the contractual right breached was of a personal nature does not detract from the need to protect the plaintiff’s performance interest by addressing the remedial lacuna which arises where orthodox contractual remedies are otherwise unavailable. For the same reason, we do not accept that a hard line should be drawn to exclude from the scope of the Wrotham Park doctrine cases where the plaintiff’s interest in the performance of a contract is “purely economic” . . . .”204

The scope of application of the Wrotham Park remedy might be narrower in the United Kingdom for the time being. However, it still seems justified to analyze whether the result presented in Morris-Garner is the optimal solution.

2.3

The Relation Between Wrotham Park and Blake

The cases summarized above are by no means all the cases on the subject of gain-based remedies. They are however the most noteworthy milestones in the development of this subject. The major theme that echoed throughout this judicial development was the tension between compensation and restitution to which the beginning of this work alluded (Sect. 2.1). The described cases are also a source of confusion as to the principles that were at their foundations.205 The interrelation between Wrotham Park and Blake is complicated and there is no consensus as to the principle underlying them. Although Lord Nicholls agreed with the Wrotham Park judgment, he noted that in Blake the Crown wanted to go further and claim all of Blake’s profits.206 The bifurcated understanding of Wrotham Park is plainly visible in the words of Mance LJ in Experience Hendrix:

Id. Turf Club Auto Emporium Pte Ltd. v. Yeo Boong Hua [2018] SGCA 44. 203 See Tay and Ang (2018), ¶ 39. 204 Turf Club Auto Emporium Pte Ltd. v. Yeo Boong Hua [2018] SGCA 44, ¶ 280. 205 Burrows (2022), pp. 165, 169. 206 AG v. Blake, at 268, 283–284. 201 202

2.3

The Relation Between Wrotham Park and Blake

37

The law can in such cases act either by ordering payment over of a percentage of any profit or, in some cases, by taking the cost which the wrongdoer would have had to incur to obtain (if feasible) equivalent benefit from another source.207

The lack of agreement as to how these cases should be understood lies in the fact that a plethora of arguments on both sides—pro-restitutionary and pro-compensatory— have been presented. In both cases gain-based remedies can be interpreted in the following way: “On the one hand, an illegal benefit can be seen as the entirety of the assets that have accrued to the infringer as a result of the infringement; alternatively, an illegally gained benefit can be seen in the sum of money the infringer avoided paying by using another person’s right without authorization.”208 In other words, one can summarize the remedies as either a full account of the profits or as an award of the expense saved. Ralph Cunnington argued that the two measures perform different functions: the Wrotham Park remedy compels the defendant to give up the value of his non-performance, while the Blake remedy approximates to a monetized form of specific relief by removing the incentive to breach.209 In essence it is possible to extrapolate three positions. The first—purely compensatory—approach is a compensatory interpretation of both remedies. This was most strongly represented by Lord Hobbhouse for whom it was possible to explain the result of Blake “without a departure from principle”,210 i.e. the compensatory principle.211 It was namely unacceptable for him to rely on a restitutionary basis.212 Under the purely compensatory approach both Wrotham Park and Blake fall onto a sliding scale of compensation: Wrotham Park, because, as was mentioned by Lord Hobbhouse in Blake, the Lord Cairn’s Act “did not alter the measure to be employed in assessing damages”;213 Blake because the award against George Blake “is a remedy based on proprietary principles when the necessary proprietary rights are absent.”214 For Lord Hobbhouse only proprietary principles could justify a restitutionary award; hence the award must have been compensatory. The difference between the two remedies becomes in consequence more subtle, as Wrotham Park is simply not as far-reaching as Blake.215 In the WWF judgment Experience Hendrix, ¶ 26. Helms (2015), p. 219. 209 See Cunnington (2008), pp. 115, 142. 210 AG v. Blake, at 268, 299 (Lord Hobbhouse, dissenting). 211 See Edelman (2002), p. 153. 212 AG v. Blake, at 268, 299 (Lord Hobbhouse, dissenting) (“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.”). 213 Id., at 281. 214 Id., at 299. 215 See Rusch (2001), pp. 59, 66. 207 208

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Compensation

Compensatory awards

Wrotham Park

Blake

Fig. 2.3 The sliding scale of compensation

Compensation

Compensatory awards

Restitution

Wrotham Park

Blake

Fig. 2.4 The hybrid approach

Chadwick LJ referred to both heads of damages—on the Wrotham Park as well as Blake basis—“as a flexible response to the need to compensate the claimant for the wrong which has been done to him.”216 He thus considered both Wrotham Park and Blake as compensatory (Fig. 2.3). Ralph Cunnington argued for this scale by positing that the Wrotham Park measure is a monetized form of specific performance in the weak sense while the Blake measure is a monetized form of specific performance in the stronger sense.217 This is due to the fact that the former does not constitute an absolute deterrent since the defendant may retain part of the profit from the breach, while the latter compels the defendant to disgorge all of the defendant’s profits.218 The second—hybrid—approach treats the remedies as two different creatures and modifies the sliding scale slightly (Fig. 2.4). This sliding scale theory suggested that there exists a “sliding-scale of remedies available for breach of contract ranging from a full account of profits through to the negotiation measure, which can deprive the defendant of some of the profits made, and on to a full compensatory award.”219 The approach applies a strong differentiation of Wrotham Park and Blake. What makes the former different from the latter is that “the courts did not award the profit which the defendant had made by the breach, but rather the amount which it was WWF, ¶ 59. See Cunnington (2008), pp. 115, 143. 218 Id. 219 Virgo (2015), pp. 479–480 (“It follows that, where compensatory damages and specific performance are inadequate remedies for a breach of contract, there are two remedies which are available: account of profits and negotiation damages, the former of which ensures disgorgement of profit and the latter being a hybrid remedy, with compensatory and restitutionary components.”). 216 217

2.3

The Relation Between Wrotham Park and Blake

39

Restitution

Wrotham Park

Blake

Fig. 2.5 The sliding scale of restitution

judged the plaintiff might have obtained as the price of giving his consent.”220 According to this approach the Wrotham Park remedy becomes a “hybrid remedy, which has compensatory and restitutionary components. . . .”221 Most importantly, this seems to be the approach taken by the UK Supreme Court in Morris-Garner.222 The approach has however been criticized, as “it ignores the fact that gain-based remedies, in the context of breach of contract at least, are subsidiary to compensatory remedies.”223 I believe that both gain-based measures—the Wrotham Park measure and the Blake measure—are creatures of the same species. I consequently do not believe that one can be compensatory and one restitutionary; it should be one or the other, but not both. For this reason, this view shall not be included in this work. According to the third—purely restitutionary—approach both remedies are considered as restitutionary.224 This approach utilizes a sliding scale of restitution (Fig. 2.5). The approach finds strong academic backing due to the fervent criticism of the compensatory approach. The compensatory rationale has been criticized by James Edelman in whose opinion “[i]t is entirely fictitious to irrebutably presume that a loss has been suffered in order to justify an account of profits.”225 Similarly, Mathias Siems has argued that use of the term damages in this context is a contradictio in adiecto, because the term itself—deriving from the Latin damnum—suggests that only loss, not gain, is decisive.226 It has even been argued that in their compensatory justifications courts lacked a degree of transparency in stating the true reasons for their awards.227 The most stark example of this is the WWF case. The restitutionary approach was applied most vehemently in Graham Virgo’s interpretation of Blake:

220

Rusch (2001), pp. 59, 66. Virgo (2015), p. 479. 222 see Arvind (2022), pp. 492, 529. 223 Id. 224 See e.g. Birks (2005), p. 13; see also Cunnington (2022), pp. 207, 217 (“This was unmistakably a gain-based remedy. Blake was required to ‘give up’ the gain he had acquired by virtue of his breach of contract . . . .”). 225 Edelman (2002), p. 82. 226 See Siems (2003), pp. 27, 28. 227 See Barnett (2012), p. 13. 221

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Lord Nicholls approved of the approach in Wrotham Park whereby remedies can be awarded where the defendant has interfered with the claimant’s property right. He considered that such remedies are explicitly restitutionary, since they are assessed by reference to the value of the defendant’s benefit from the breach, namely what the defendant would have had to pay the claimant to interfere with the property right. Lord Nicholls justified the award of such remedies on the basis that property rights are superior to contractual rights because they may survive against an indefinite class of person.228

The homeland for the legal issues of gain-based remedies is England and Wales, i.e. a common law jurisdiction. Yet I do not believe that a comparative analysis based on the law of Poland—a civil law jurisdiction—is an exercise in futility. Such an analysis will however require an openness to a fundamental reconsideration of certain concepts Polish lawyers take for granted. Illara Caggiano when analyzing gain-based remedies in the Italian legal systems rightfully underlined that “[e]ither view (unjustified enrichment, compensation for damages) implies the need to reconsider the meaning of the respective branch of law.”229 The subsequent analysis will apply a bifurcated approach. It will firstly—in Chap. 3—take a compensatory approach of gain-based remedies and analyze them through the scope of the Polish rules on damages. In Chap. 4 the analysis will shift to a restitutionary approach and analyze gain-based remedies through the Polish rules on unjust enrichment.

References Books Arvind TT (2022) Contract Law, 3rd edn. Oxford University Press, p 529 Birks P (2005) Unjust enrichment. Oxford University Press Cunnington R (2002) The measure and availability of gain-based damages for breach of contract. In: Saidov D, Cunnington R (eds) Contract damages domestic and international perspectives. Hart Publishing, p 207 Cunnington R (2008) The inadequacy of damages as a remedy for breach of contract. In: Rickett C (ed) Justifying private law remedies, vol 115. Hart Publishing Edelman J (2002) Gain-based damages: contract, tort, equity and intellectual property. Hart Helms T (2015) Disgorgement of profits in German law. In: Hondius E, Janssen A (eds) Disgorgement of profits: gain-based remedies throughout the World 219. Springer Karasek-Wojciechowicz I (2014) Roszczenie o wykonanie zobowiązania z umowy zgodnie z jego treścią. Wydawnictwo Prawnicze LexisNexis Mohtashami R et al (2018) Non-compensatory damages in civil and common law jurisdictions: requirements and underlying principles. In: Trenor J (ed) The guide to damages in international arbitration, 3rd edn. Law Business Research Ltd., p 23 Poole J (2010) Textbook on contract law, 10th edn. Oxford University Press Radwański Z, Olejniczak A (2016) Zobowiązania – część ogólna. Wydawcnictwo C.H. Beck

228 229

Virgo (2015), p. 473. Caggiano (2016), pp. 243, 257.

References

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Rowan S (2012) Remedies for breach of contract: a comparative analysis of the protection of performance. Oxford University Press Tettenborn A (2002) The law of restitution in England and Ireland. Cavendish Publishing Limited Virgo G (2015) The principles of the law of restitution, 3rd edn. Oxford University Press Zakrzewski R (2005) Remedies reclassified. Oxford University Press Zoll F (2018) Wykonanie i skutki niewykonania lub nienależytego wykonania zobowiązań. In: Olejniczak A, Mostowik P (eds) System Prawa Prywatnego, 6, p 1046

Articles Barnett K (2012) Accounting for profit for breach of contract theory and practice 1. Hart Publishing Ltd Burrows A (2002) Are ‘Damages on the Wrotham Park Basis’ compensatory, restitutionary or neither. In: Saidov D, Cunnington R (eds) Contract damages domestic and international perspectives. Hart, pp 165, 166 Burrows A (2016) A restatement of the English law of contract. Oxford University Press, p 133 Caggiano I (2016) Disgorgement, compensation and restitution: a comparative approach. Global Jurist 16:243 Campbell D (2003) Hamlet without the prince: how Leng and Leong use restitution to extinguish equity. Mar J Bus Law 131 Cunnington R (2004) Rock, restitution and disgorgement. J Obligat Remed 3:46, 47 Grantham R, Rickett C (2003) Disgorgement for unjust enrichment? Cambridge Law J 62:159 Hull J (2019) Case Comment. A reappraisal of negotiating damages: the Supreme Court judgment in Morris-Garner v One Step (Support) Ltd. EIPR 41:180 Khoo J (2011) Non-compensatory damages for breach of contract: far reaching and disruptive? Cambridge Stud Law Rev 7:21 McCamus J (2003) Disgorgement for breach of contract: a comparative perspective. Loy Los Angeles Law Rev 36:943 McInnes M (2006) Gain, loss and the user principle. Restitution Law Rev 16:76 Poon N (2019) Turning example into exemplary: ten years on, the curious case of Attorney-General v Blake. Sing Law Rev 29:139 Roberts C (2008) A commonwealth of perspective on restituioanry disgorgement for breach of contract. Wash Lee Law Rev 65:945 Rusch C (2001) Restitutionary damages for breach of contract: a comparative analysis of English and German law. South Afr Law J 118:59 Saidov D (2008) The law of damages in international sales: the CISG and other international instruments. Hart Publishing, p 33. et seq Schlechtriem P et al (2001) Restitution and unjust enrichment in Europe. Eur Rev Priv Law 2&3: 377 Siems M (2003) Disgorgement of profits for breach of contract: a comparative analysis. Edinburgh Law Rev 7:27 Tay YS, Ang AL (2018) Wrotham park damages. Principles and practical issues. SAL Prac 7 Victoria Jardine E (2017) Awarding disgorgement damages under Art. 74 CISG: is it time to keep up with the times? Vindobona J Int Law 21:36

Chapter 3

Finding Gain-Based Remedies Under Compensatory Principles

This chapter will explore gain-based remedies through the compensatory principle of damages. The chief presupposition of this chapter is therefore that the Wrotham Park and Blake remedies are compensatory. To make this clear, when writing about both the Wrotham Park remedy and the Blake remedy together, I will refer to them as gain-based damages.1 When writing individually about these cases, I will refer to the Wrotham Park remedy as negotiating damages, while to the Blake remedy as disgorgement damages. The comparative argument I wish to put forward is that it is possible to find a functional equivalent of gain-based damages under the Polish rules on damages (Fig. 3.1). To achieve this goal, I will firstly set out to describe the principles underlying the law of damages in the English and Polish legal systems (Sect. 3.1), including the compensatory principle underpinning the law of damages (Sect. 3.1.1), as well as the interests that the law of damages protects (Sect. 3.1.2). Secondly, I will put forward the arguments criticizing the traditional principles of the law of damages (Sect. 3.2) in order to—thirdly—present alternative approaches to the fundamental compensatory principle (Sect. 3.3). This penultimate part will explore the existence of gainbased damages from the commonly known reparative compensation standpoint (Sect. 3.3.1) and the less known substitutive compensation standpoint (Sect. 3.3.2). Fourthly, and finally, I will summarize the chapter and argue which approach is the most workable (Sect. 3.4).

The term damages by its very nature is considered as compensatory. Therefore, for the needs of this chapter, I consider gain-based damages to be synonymous with gain-based remedies, however I limit the use of the former term only to this chapter.

1

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. Zatorski, Gain-based Remedies for Breach of Contract, https://doi.org/10.1007/978-3-031-25452-9_3

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Gain-based damages Ý

Þ

Negotiating damages

Disgorgement damages

(Wrotham Park)

(Blake)

Fig. 3.1 The measures of gain-based damages

3.1

The Principles of the Law of Damages

In a perfect world all contractual obligations are properly performed and contracts are not breached. This is not always so, and as a rule, a breach of contract gives rise to a “secondary obligation to pay compensation (damages).”2 Polish legal scholarship keenly observes that liability for damages (odpowiedzialność odszkodowawcza3) is quite simply an exception to the rule that everyone is responsible for one’s economic interests.4 The law must clearly provide that in certain circumstances someone else bear that responsibility. A breach of contract creates such an exception. Therefore, in the case of liability to pay damages, someone else bears the burden of another’s economic interests. The English common law has a slightly different view of the perfect world, since in the common law—according to the traditional view—there is no duty to perform a contract.5 However, if one does not perform, then damages will be awarded.6 There is no single definition of damages. Nonetheless, in order to encompass both traditional compensatory damages and gain-based damages, it is necessary to apply a broader definition of that term. In my opinion the best definition thus far is: “[A] monetary award given for a wrong”7 or “monetary compensation for the loss suffered by the injured party.”8 Both combine simplicity with adequate precision and may, as will be shown later, be considered wide enough to encompass gain-based damages.

2

Poole (2010), p. 58. An exact translation of odpowiedzialnosć odszkodowawcza into English would be liability for loss. There is, however, no better translation for damages under Polish legal terminology, and for this reason I was forced to use an imperfect translation. 4 See Radwański and Olejniczak (2016), p. 82. 5 See Stevens (2007), p. 60; see also Pearce et al. (2010), p. 8 (“The availability of damages for breach of contract means, in effect, that there is no compulsion in contract law for anyone to actually perform a contract.”). 6 See Rusch (2001), pp. 59, 63 (referring to Oliver W. Holmes, The Common Law 301 (1881)) (“O. W. Holmes’ proposition that there is no such thing as a duty to perform a contract but merely a probability that a court will order damages to be paid for its breach . . . .”). 7 Cunnington (2002), pp. 207, 215. 8 Saidov (2008), p. 17. 3

3.1

The Principles of the Law of Damages

3.1.1

45

The Compensatory Principle of Damages

Damages for breach of contract are said to be compensatory; indeed the term is considered synonymous with compensation.9 They are meant “to compensate the claimant for the loss the claimant has suffered as a result of a breach of contract. Therefore, in calculating these damages the traditional focus has been placed on the claimant’s loss.”10 Loss therefore sets the bar for both the minimum and maximum compensation11 meaning that “[a] claimant cannot recover more than his actual loss.”12 This—as will be covered in greater detail later (Sect. 4.1)—is, interestingly enough, referred to under Polish law as the restitutionary principle (zasada restytucji).13 Polish law on damages applies a common thread for both delict and contractual damages embodied by Articles 361–363 of the Civil Code.14,15 Under English law, contractual damages are also viewed differently than damages in tort. The latter are awarded for civil wrongs, and are meant to place the claimant in the same position as the claimant would have been had the tort not been committed.16 The former, on the other hand, are meant to place the claimant in the position the claimant would have been had the contract been performed.17 Loss is not defined in the Civil Code leaving this task for judges and scholars.18 Under the continental approach “loss is a negatively valued difference between the actual situation the harmed party is in and the hypothetical position it would have been in if the fact would not have occurred.”19 Polish scholars argue that Polish law adopts a normative understanding of loss (szkoda normatywna).20 This means that its existence depends wholly on legal norms.21 They further define loss (szkoda) as any detriment to the assets (dobra) and legally-protected interests of the aggrieved Cunnington (2002), pp. 207, 214 (“The term ‘damages’ has a natural association with the occurrence of injury and, for that reason, is often assumed to be synonymous with ‘compensation’.”); see also AG v. Blake, at 268, 278; see also Keglević (2015), pp. 373, 371. 10 Poole (2010), p. 340; see also Siems (2003), p. 27 (“The orthodox remedial response to a breach of contract is in most countries that the innocent party . . . can recover the loss which he or she has actually suffered.”). 11 See Kryla-Cudna (2018), ch. I, § 6; see also Kruithof (2015), pp. 89, 92; Zervogianni (2015), pp. 231, 232. 12 Poole (2010), p. 340. 13 See Kryla-Cudna (2018), ch. I, § 6; see also Kaliński (2014), ch. II, § 1, pt. X. 14 Kodeks cywilny [Civil Code] Apr. 23, 1964 [hereinafter Civil Code]. 15 See Machnikowski (2017), p. 270. 16 Morris-Garner, at 20, ¶ 31. 17 See Robinson v Harman, (1848) 1 Exch. 850, 855; see also M Morris-Garner, at 20, ¶ 31. 18 See Kryla-Cudna (2018), ch. I, § 1; see also Kaliński (2014), ch. II, § 1, pt. I; see also Dybowski (1981), pp. 163, 213–214. 19 Kruithof (2015), pp. 89, 90; see also Radwański and Olejniczak (2016), p. 93. 20 See Dybowski (1981), pp. 163, 214; but see Kaliński (2014), ch. II, § 1, pt. VI. 21 See Kaliński (2018), pp. 6, 82. 9

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party suffered against that party’s will.22 It is namely such a detriment to one’s assets resulting from the difference of the state of the aggrieved party’s assets due to the event that caused such a detriment (zdarzenie szkodzące) and the hypothetical state of those assets that would have existed but for that event or if the contract had been properly performed.23 This difference or detriment is referred to in Polish legal literature as uszczerbek. Polish law utilizes this approach to calculate loss; it is the so-called differential method (metoda dyferencyjna).24 The core of Polish law on damages is the obligation to compensate the detriment to the aggrieved party’s assets (referred to as świadczenie odszkodowawcze). Contractual liability is however more limited than that, as it encompasses only patrimonial loss (szkoda majątkowa).25 In order to understand the meaning of patrimonial loss it is essential to delve into the meaning of the term patrimony (majątek).26 Indeed, the Polish Supreme Court underlined that the compensatory function of damages is given effect through an award which takes into account a person’s patrimony.27 Patrimony is a difficult term to define, as different meanings have been ascribed to it. Despite this, it can broadly be defined as a person’s assets (aktywa28)—according to a narrower understanding—and, in certain contexts, additionally, liabilities (pasywa29)—according to a broader understanding.30 In other words, it can be broadly understood as encompassing a wide array of a person’s interests31 including a person’s patrimonial rights (prawa majątkowe).32 Patrimonial rights stem from a person’s economic interests and possess a pecuniary dimension.33 Coming back to patrimonial loss, in order for such loss to exist, a detriment must affect an interest that is patrimonial (it may namely be ascribed a monetary value).34 The flipside of the coin—non-patrimonial loss (szkoda niemajątkowa)—is

See Radwański and Olejniczak (2016), p. 91; see also Kryla-Cudna (2018), ch. I, § 1 (defining loss as any negative change in a person’s legal sphere or assets.). 23 See Kaliński (2014), ch. II, § 9, pt. I. 24 See Radwański and Olejniczak (2016), p. 94. 25 See Ruszkiewicz (2014); see also Gawlik (2014). 26 See generally Radwański and Olejniczak (2016), p. 138 (defining the wide and narrow understanding of patrimony.). 27 Uchwała [resolution] SN [Supreme Court] z [of] Mar. 19, 1998, III CZP 72/97; see also Kaliński (2018), pp. 6, 70. 28 For lack of a different translation in the language of accounting, the term liabilities has been used, however it is not to be confused with the legal meaning of this term. 29 For lack of a different translation in the language of accounting, the term assets has been used, however it is not to be confused with the legal meaning of this term. However, throughout this work assets shall be translated as dobra. 30 Cf. Radwański and Olejniczak (2016), p. 138; see also Żelechowski (2019). 31 Kaliński (2018), pp. 6, 101; see also Katner (2014) (defining patrimony as a person’s patrimonial rights and obligations). 32 See Katner (2014), p. 260. 33 See Pyziak-Szafnicka (2012), pp. 780, 820. 34 See Kaliński (2014), ch. II, § 2, pt. I. 22

3.1

The Principles of the Law of Damages

47

understood by some as a detriment to human personality.35 Despite the generality of this definition, there is no need to delve deeper into non-patrimonial loss, as it is beyond this work’s scope. In essence, the difference between patrimonial and non-patrimonial loss is hard to grasp; some gleam it in the interests that are infringed (economic and non-economic), while for some the differentiating factor is the existence of a monetary value.36 To summarize up to this point, the detriment (uszczerbek) to one’s patrimony (majątek)—which encompasses a wide array of patrimonial interests—existing due to a breach of contract constitutes patrimonial loss (szkoda majątkowa) and is reparable through an award of damages. Contractual liability may be said to entail two sides of one coin. One side encompasses liability through the scope of patrimonial loss.37 This loss—per Article 361 § 2 of the Civil Code—is divided into: direct loss (strata/damnum emergens), and lost profits (utracone korzyści/lucrum cessans).38 The other side of the coin entails liability through the scope of the interests infringed and the consequences of the contract being breached.39 Liability on this side of the coin is divided into the positive and negative interests of the injured party.40 For comparative reasons, these interests become important when talking about liability under English law, and so they will be expanded on further.

3.1.2

The Interests Protected by an Award of Damages

The common law views remedies for breach of contract through the interests that remedies serve to protect.41 Damages specifically—as a rule—protect a limited number of interests: the expectation and reliance interests.42 The US Restatement Second of Contracts section 344 defines these interests: Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a promisee: (a) his “expectation interest,” which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed,

Id. See Żelechowski (2019). 37 Ruszkiewicz (2014). 38 See Radwański and Olejniczak (2016), p. 93; see also Kryla-Cudna (2018), ch. I, § 2. 39 See Kaliński (2018), pp. 6, 110. 40 Id. 41 Saidov (2008), p. 26. 42 Rickett (2001), pp. 375, 375–376. 35 36

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(b) his “reliance interest,” which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made. . . .

This catalogue has been extended to also include a third interest—the restitution interest “which is . . . interest in having restored . . . any benefit that [one] has conferred on the other party.”43 From an English perspective, the restitution interest is a more murky interest than the others, in that it is questionable whether it is indeed protected.44 It will be covered in later parts. At this juncture the expectation and reliance interests will be covered.

3.1.2.1

Performance/Expectation Interest

There are two approaches towards the principles underpinning the law of damages. The first, the common law approach, propagates that the primary goal of compensatory damages it to protect the aggrieved party’s expectation45 or performance interest.46 This means that “where one party does not perform its obligation in accordance with the contract, then the other party’s interest in performance . . . can be said to be damaged because the party does not get what it is entitled to receive under the contract.”47 In other words the term “refers to the interest of the promisee in obtaining the performance to which he is entitled under the contract.”48 From this stems the basic rule of English law on damages expressed in the notable case of Robinson v. Harman: 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 situation, with respect to damages, as if the contract had been performed.49

Restatement (Second) of Contracts § 344 (1981). Virgo (2015), p. 468; but see Arvind (2022), p. 523 (“Since at least the 1930s, gain-based remedies have been seen as protecting the restitution interest which, along with the expectation interest and the reliance interest, is one of the three core interests protected by contract remedies.”) 45 Id. 46 Both these terms are used in practice, however for the avoidance of doubt, I will only use the term performance interest. 47 Saidov (2008), pp. 52–53; see also Poole (2010), p. 341 (“a contract is the source of primary legal obligations upon each party to it to procure whatever he has promised will be done is done . . . Every failure to perform a primary obligation is a breach of contract. The secondary obligation on the part of the contract breaker to which it gives rise by implication of the common law is to pay monetary compensation to the other party for the loss sustained by him in consequence of the breach.”). 48 Rowan (2012), p. 2. 49 Robinson v. Harman, (1848) 1 Exch. 850, 855; see also Surrey; Tito v Waddell (No 2) [1977] Ch 106 at 332 (“[I]t is fundamental to all questions of damages that they are to compensate the plaintiff for his loss or injury by putting him as nearly as possible in the same position as he would have been in had he not suffered the wrong. The question is not one of making the defendant disgorge what he has saved by committing the wrong but one of compensating the plaintiff.”) 43

44

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49

The essence of the rule is that a claimant should be compensated for loss of the bargain,50 including loss of profit, gain prevented,51 or lost benefit.52 The performance interest “is based on identifying and assessing the value of certain ‘benefits’ which the claimant expected to receive under the contract.”53 The category of benefits is broad, as “benefits may not be limited to an expectation of financial benefits but can include anticipated subjective benefits”;54 known also as the consumer surplus.55 What may be concluded from this is that the performance interest is a broad category that may be expanded to include wide array of expectations. The second approach towards the principles of damages, the civil law approach, propagates the principle of full compensation, which provides that the injured party is entitled to damages consisting of the suffered loss and lost profit.56 In essence, both principles—protection of the performance interest and the principle of full compensation—are actually two sides of the same coin.57 While comparing the performance interest and the principle of full compensation Djakhongir Saidov keenly remarked: Despite different formulations of the basic measure of damages, there is no doubt that both the principle of full compensation and the protection of the expectation/performance interest are based on the very same idea: it is only by being fully compensated for its loss (including loss of profit) that the party is placed in the position in which it would have been had the contract been performed.58

He goes further to state that “[a] convenient way of conceptualising the relationship between the two principles is to view the protection of the expectation/performance interests as the aim that the remedy of damages seeks to achieve whilst treating the principle of full compensation as the means of achieving that aim.”59 By means of example, this approach has been harmoniously incorporated into Article 74 of the United Nations Convention on Contracts for the International Sale of Goods (“CISG”),60 which is said to be based on both principles.61

50

Saidov (2008), p. 26. Id., at 25; see also Poole (2010), p. 342 (“Lost expectation may therefore comprise loss of a profit which would have been made but for the breach.”). 52 Poole (2010), p. 342. 53 Id., at 343. 54 Id. 55 See generally Ruxley Electronics v Forsyth [1996] AC 344. 56 See e.g. Keglević (2015), pp. 374, 371. 57 Saidov (2008), p. 26. 58 Id. 59 Id., at 27. 60 United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, U.N. Doc. A/CONF.97/18, Annex I, reprinted in 19 I.L.M. 668 [hereinafter CISG]. 61 Id., at 26–27 (“This explains why art 74 CISG, for example, has been interpreted as being based on both the principle of full compensation and the protection of the expectation/performance interest.”). 51

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All of this fits neatly with Polish law. The principle of full compensation (zasada pełnej kompensacji szkody/zasada pełnego oszkodowania) is said to be contained in Article 361 § 2 of the Civil Code.62 Moreover, Polish law does not contain a definition of compensation but only a technical provision enabling compensation.63 In order to ascertain what compensation is due—or rather to quantify damages—it is established legal practice to apply the so-called differentiation method.64 The differentiation method allows for ascertaining what a claimant’s interest is, as the claimant’s interest lies between the hypothetical state (what the state of affairs would have been but for the damaging event) and the current state.65 This is expressed by the Latin proverb: id quod, quanti, in quantum alicuius inter est.66 Moreover, as Marcin Spyra noted, the compensatory function of damages establishes that damages cannot exceed the amount the claimant would have received had the contract been properly entered into and performed;67 a statement that seems to echo the fundamental case of Robinson v. Harman mentioned above. Further, it seems in my view that from the perspective of Polish law the more fitting functional equivalent of the performance interest would be the positive contractual interest (pozytywny interest umowny) embodied in Article 471 of the Civil Code:68 A debtor is obliged to remedy any damage arising from non-performance or improper performance of an obligation unless the non-performance or improper performance is due to circumstances for which the debtor is not liable.69

Within the framework of this interest the aggrieved party may recover loss sustained as a consequence of a breach of contract.70 The positive interest—similarly to the performance interest—encompasses that which the aggrieved party would have had had the contract been properly performed.71 Thus, to establish the positive interest two prerequisites need to be established. Firstly, that the loss would not have occurred; secondly, that the contract would have been properly performed.72

See Kryla-Cudna (2018), ch. I, § 5. See Machnikowski (2017), pp. 270, 278 (criticizing Polish regulation of compensation for not providing an idea of compensation.). 64 See Radwański and Olejniczak (2016), pp. 93–94; see also Dybowski (1981), pp. 163, 214.; cf. Siems (2003), pp. 27, 28 (noting that German law applies a similar approach – the Differenztheorie – under § 249 BGB). 65 See Kryla-Cudna (2018), ch. I, § 1; cf. Dybowski (1981), pp. 163, 214. 66 Kaliński (2014), ch. II, § 1, pt. I. 67 See Spyra (2014), ch. VII, § 6.III; cf. Siems (2003), pp. 27, 36 (noting a similar concept under German law called schadensrechtliches Bereicherungsverbot). 68 See Machnikowski (2017), pp. 270, 278 (arguing that the idea of compensation and contractual damages are embodied by the positive contractual interest.); see also Kaliński (2018), pp. 6, 113. 69 Civil Code (Ewa Kucharska, trans.). 70 See Radwański and Olejniczak (2016), p. 96. 71 Kaliński (2018), pp. 6, 110. 72 Id. 62 63

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Finally, it is important to note that the principle of full compensation primarily applies a subjective method of valuating loss.73 Under this method the entirety of an aggrieved party’s economic situation must be taken into consideration and not the objective market value of the loss.74 Moreover, any methods that endeavor to objectively valuate loss are demed to bring the danger of overcompensation.75 This is similar to the approach of English law where “[a]lthough loss is not limited to financial loss, in principle it requires proof that the claimant was factually worse off as a result of the infringement of the right.”76 However, this is not an approach without its cracks, because Polish courts indeed apply objective measures in quantifying damages. This will be covered later on (Sect. 3.3.2). In summary, under a functional analysis, it seems that at their cores the Polish and English rules on contractual damages set out to achieve the same goals. Indeed, they look at the problem from slightly different perspectives, however at the end of the day both serve to protect the same interests.

3.1.2.2

Reliance Interest

A party may also suffer loss when it “has expended money either in preparation for, or in partial performance of, the contract which is then wasted because of the breach.”77 The foundation of reliance loss is—quite obviously—the reliance interest: Sometimes, where it is not possible to ascertain what position the claimant would have occupied had the contract not been breached, the purpose of the award of damages is to place the claimant in the position which he or she would have occupied had the contract not been entered into. In such cases the claimant will be reimbursed for the expenditure which he or she had incurred before the contract was breached.78

Measuring loss through the scope of the reliance interest may be said to be a backup mechanism, as it is utilized in situations where the expectation loss would be too speculative and it would consequently be too difficult to ascertain the loss through the scope of the performance interest.79 The textbook example of this is the case of Anglia Television Ltd v. Reed80 where “the plaintiff television company had been forced to abandon its project to make a film when the lead actor withdrew from the

73

Tischner (2008), ch. II.2.4. Id. 75 Cf. Kaliński (2014), ch. II, § 1, pt. X. 76 Stevens (2007), p. 59. 77 Poole (2010), p. 353. 78 Virgo (2015), p. 468. 79 See Poole (2010), p. 353 (“Where expectation loss is too speculative to recover because it is impossible to say what the profit on the contract would have been, reliance loss will necessarily have to be claimed”). 80 Anglia Television Ltd v. Reed [1972] 1 QB 60. 74

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project in breach of contract. The company was able to recover wasted expenditure, including expenditure incurred before the contract with the actor had been made.”81 Analogously to the performance interest so too does Polish law seem to possess a functional equivalent to the reliance interest, namely the negative contractual interest (negatywny interest umowny). Similarly to its English equivalent, Polish legal literature directly states that loss arising within the negative contractual interest framework encompasses loss that results from a party’s reliance that a contract comes into existence or fruition (niedojście umowy do skutku)82 as a result of it being null and void (nieważność) or not being entered into (niezawarcie).83 It is generally accepted that the amount a claimant may recover based on the negative contractual interest is limited by the amount of the positive contractual interest.84 The reliance interest does not seem to facilitate gain-based damages, as it is more focused on wasted expenditure.85 Despite this, finding functional Polish equivalents to the performance and reliance interests were two important steps to take. This namely helped show that there exist similar patterns for both legal systems in regard to the rules on contractual damages. For this reason I posit that there should be no hesitation in exploring further whether these patterns can lead to establishing Polish rules on gain-based damages.

3.2

Criticism of the Traditional Notion of Compensatory Damages

To summarize up to this point, damages are meant to compensate loss. This in turn means that “the claimant cannot, as a general rule, recover any profit made by the defendant even if that profit resulted from a deliberate breach of contract by the defendant.”86 Indeed, it can be said that the nature of the principle of full compensation, performance, or even positive interest excludes such a possibility: [T]he principles of full compensation and the protection of the party’s expectation/performance interest also set a limit on how much the injured party can recover. In other words, these principles dictate that the party cannot be awarded damages which exceed the amount of its loss and thereby be put in a better position than the one in which it would have been had the contract been performed. This means that to prevent over-compensation, all gains made

81

Poole (2010), p. 353. Radwański and Olejniczak (2016), p. 96. 83 See Kaliński (2018), pp. 6, 110 (providing examples of Article 103 § 3, Article 387 § 2 of the Polish Civil Code for instances of null and void contracts, and Article 39, Article 72 § 2, Article 390 § 1, Article 736 of the Polish Civil Code for instances of contracts not being entered into.). 84 See Spyra (2014), ch. VII, § 6.III. 85 See Arvind (2022), p. 486. 86 Poole (2010), p. 340 (referring to Surrey, at 1361). 82

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53

and costs saved as a consequence of the breach need to be taken into account when calculating damages.87

Nonetheless, two groups of arguments arise in criticism of this approach. Firstly, it would simply be unfair for the breaching party “to be allowed to keep the ill-gotten gains derived from a willful and opportunistic breach of contract.”88 For some, allowing the breaching party to keep such gains amounts even to expropriation.89 As Lord Nicholls commented on the compensatory principle in Blake: “[T]he 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.”90 This connects with the criticism that traditionally-understood compensatory damages do not protect the totality of a claimant’s interests,91 because they do not deter gambling with another’s contractual interest.92 In this context Graham Virgo asks the following question: [I]n those cases where the claimant did not suffer any loss as a result of the breach of contract but the defendant obtained a benefit, or where the value of the defendant’s benefit arising from the breach exceeds any loss suffered by the claimant, should it be possible for the remedy which is awarded for the breach of contract to be ascertained by reference to the value of the benefit which had been obtained by the defendant?93

Damages under the traditional principles do not provide sufficient protection in a situation when a party has suffered no loss but the breaching party has made a gain resulting from a breach of contract.94 For this reason, Solène Rowan criticized the development of English case law on gain-based monetary relief for treating such relief as a backup device.95 However, she supported the notion that a possible avenue of tackling the issue is to adopt a more expansive approach to the identification of loss.96 Moreover, on a more international note, in his analysis of the CISG, Djakhongir Saidov argued that “the benefits received by the breaching party as a result of its breach cannot be dismissed outright as entirely irrelevant for calculating compensatory damages because, in some cases, damages reflecting gains made by the breaching party may be an appropriate way of implementing the compensatory purpose of damages.”97 This, Saidov underlined, may also be relevant due to the fact that courts may apply domestic disgorgement remedies which would undermine the 87

Saidov (2008), p. 29. Rusch (2001), pp. 59, 62. 89 See Roberts (2008), pp. 945, 968 (citing Smith (1994), pp. 121–123). 90 AG v. Blake, at 268, 278, 282 (“It is . . . well established that an award of damages, assessed by reference to financial loss, is not always “adequate” as a remedy for breach of contract.”). 91 Barnett (2012), p. 1. 92 See Rusch (2001), pp. 59, 62. 93 Virgo (2015), p. 468. 94 Rickett (2001), pp. 375, 375–376. 95 See Rowan (2012), p. 163 (referring to O’Sullivan (2004), pp. 327, 334). 96 Id., at 164 (referring to McKendrick (1999), pp. 37, 71). 97 Saidov (2008), p. 33. 88

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CISG.98 Finally, from a Polish perspective Piotr Machnikowski raised that a situation where the gain from the breach is greater than the loss suffered begs for a remedy.99 In essence, there exist multiple arguments for gain-based damages based on the notion of fairness. An interest arising from a similar situation to that contemplated by Machnikowski above has been called by some scholars the disgorgement interest.100 When writing about this interest, Melvin Eisenberg defined this interest as “the promisee’s interest in requiring the promisor to disgorge a gain that was made possible by her breach but did not consist of a benefit conferred on her by the promise.”101 He further criticized the traditional American approach for having omitted it.102 This inadequacy in protecting all of the aggrieved party’s interests was also recognized in the Blake case. As Lord Nicholls elaborated: 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.103

For this reason disgorgement damages—understood as a remedy which strips profits from a wrongdoer for breach of contract104—“fill a gap in the law, as they allow for an appropriate recognition of the claimant’s rights in those cases, where specific performance would have been available but is no longer possible, and where compensatory damages are inadequate.”105 The arguments put forward by Eisenberg are valid, albeit they use different terminology. They are based on the narrow understanding of restitution as giving back and disgorgement as giving up (Sect. 2.1). To use this work’s terminology: it seems that the same arguments put forward by Eisenberg may be used for gain-based damages in general; not limiting these arguments to just disgorgement damages. Secondly, traditional damages may be inefficient from a law and economics standpoint. The goal of economic analysis is wealth maximization, i.e. putting resources towards their most valuable use.106 At first glance it can be argued that

Id. See Machnikowski (2017), pp. 270, 280. 100 See Eisenberg (2006), p. 559. 101 Id., at 559, 560–561. 102 See id., at 559. 103 AG v. Blake, at 268, 282. 104 Barnett (2012), p. 1. 105 Id. 106 Saidov (2008), p. 28 (“[T]he economic goal of wealth maximization requires that resources be put to their most valuable use and, as noted, ‘expectation’ damages aim to do just that.”) 98 99

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such an approach justifies damages on the basis of protection of the performance interest but not gain-based damages due to the theory of efficient breach. The theory of efficient breach “refers to a situation where it is efficient for a party to breach its contract because by doing so it will be able to fully compensate the injured party for the loss suffered and still be left with a benefit greater than that which it would have received had it performed the contract.”107 Under this theory “it makes commercial sense to allow a party to determine whether it is in its commercial interest to continue with performance or to breach the contract and pay compensatory damages.”108 The theory echoes the proposition of Oliver Wendell Holmes “that there is no such thing as a duty to perform a contract but merely a probability that a court will order damages to be paid for its breach . . . .”109 As Djakhongir Saidov underlined: For a breach to be efficient, not only must the breaching party be made better off but also no one must be made worse off (Pareto efficiency) and the ‘expectation damages’ generally meet these criteria as in the efficient breach situation, the injured party by being awarded a full value of the promised performance is not, as rule, worse off as a result of the breach while the breaching party is better off.110

Further, Richard Posner argued that “[i]n many cases it is uneconomical to induce completion of performance of a contract after it has been broken.”111 Inducing performance would, in his opinion, be “a waste valuable resources.”112 To bring his argument home, he provided the following example: If the law compels completion, the supplier will have to make arrangements with other producers to complete his contract with me. Probably it will be more costly for him to procure an alternative supplier than for me to do so directly (after all, I know my own needs best); otherwise he would have done it voluntarily, to minimize his liability for the breach. To compel completion of the contract (or costly negotiations to discharge the promisor) in such a case would again waste resources, and so again the law limits the victim to seeking damages.113

Hence, a conclusion can be drawn that “[p]rovided defaulting parties are willing to pay damages for failure to meet their contractual obligations, they can walk away from their contractual obligations.”114

Id., at 19. Poole (2010), p. 341. 109 Rusch (2001), pp. 59, 63 (referring to Oliver W. Holmes, The Common Law (1881) 301); see also Roberts (2008), pp. 945, 948 (explaining why the theory of efficient breach advances a Holmesian vision of contract damages.). 110 Saidov (2008), p. 29. 111 Posner (2007), p. 119. 112 Id. 113 Id., at 120. 114 Pearce et al. (2010), p. 8. 107 108

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This approach has been criticized on the ground that no value is placed on the interest in having the contract duly performed.115 After all, sheer performance of the contract may be an interest in of itself. As noted by Mathias Siems: [I]t is doubtful whether this theory leads to a better use of resources, because the relaxation of contract remedies may have deterious effects on contract efficiency in general. Since the parties could not rely on performance, or would fear uncompensated loss, they could be either deterred from entering into a contract in the first place or they could be pressurized into costly and inefficient negotiations about the terms of the contract.116

As quoted earlier, the importance of performance was recognized in the Blake case by Lord Nicholls. Due to this, Daniel Friedmann argued that “a damage award may frequently undervalue the full scope of a loss, particularly in that damages may not adequately account for loss of opportunity as reflected in the defendant’s gain.”117 It therefore seems that there are valid arguments that the traditional approach to compensation under both English and Polish law should be reevaluated.

3.3

Alternative Understandings of Compensation

In order to facilitate gain-based damages under both English and Polish law it is necessary to reevaluate the narrow compensatory principle of damages described in the preceding parts. To achieve this, it is crucial to understand, and maybe redefine, compensation. The compensatory approach to gain-based damages follows the traditional rule of contract law damages, i.e. “to compensate the plaintiff for his loss or injury by putting him as nearly as possible in the same position as he would have been in had he not suffered the wrong.”118 It also seems to be a logical approach when talking about breach of contract. For this reason, when issuing or refusing to issue an award of gain-based damages, courts inevitably have to grapple with the compensatory rationale.119 That means that if they issue an award of gain-based damages, they must substantiate this award under some principle be it compensatory or restitutionary (the latter will be dealt with in the next chapter).120 It therefore seems suitable in this chapter to analyze whether Polish law allows for gain-based damages to be justified under the compensatory rationale.

See Rusch (2001), pp. 59, 62 (“[C]ompensatory damages often leave the plaintiff deprived of an effective remedy because no value is placed upon the plaintiff’s interest in having the contract duly performed.”) 116 Siems (2003), pp. 27, 52. 117 See Friedmann (1980), pp. 504, 515. 118 Tito v Waddell (No 2) [1977] Ch 106 at 332. 119 See e.g. Jaggard v. Sawyer. 120 See generally Barnett (2012), p. 13. 115

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Under Polish law compensation is one of the core functions of an award of damages.121 The chief goal of the compensatory function is to create a situation as if the damaging event had never occurred.122 In order to achieve this, under the compensatory rationale, the burden of the loss must be shifted from the injured party to another party in order to restore patrimonial equilibrium.123 Can this be interpreted to mean that gain-based damages cannot find a compensatory justification under Polish law? Polish legal literature merely scratched the problem’s surface, oftentimes axiomatically assuming that measuring loss in relation to gains is a concept that is unanimously criticized and that such an approach can by no means constitute compensation.124 This supposition should however be reevaluated, as civil law systems come under heavy fire for their laconic analysis of the principle of full compensation.125 In my opinion, the first light in the tunnel justifying such a reevaluation and what undermines the aforementioned supposition, seems to be a more loose understanding of compensation under Article 363 § 1 of the Polish Civil Code which states: Damage should be remedied, at the aggrieved party’s choice, either by the previous condition being restored or a relevant sum of money being paid. If, however, restoration of the previous condition is not possible or it results in excessive difficulties or costs for the obliged person, the aggrieved party’s claim is limited to monetary performance.126

In other words, under Polish law compensation may be awarded in the form of damages or restitution in natura (restytucja naturalna),127 which can also include the restitution of benefits that would have entered the claimant’s patrimony but for the breach (wydanie korzyści, które nie weszły a powinny były wejśc do majątku poszkodowanego).128 Both of these methods are considered to fulfill a compensatory function.129 One may find it shocking that the law of obligations finds it possible to compensate loss on a restitutionary basis, yet Polish law seems to abandon a clear separation between compensatory damages and restitution. It even goes a step further so as to treat restitution as category of compensation. Such an understanding of compensation creates an avenue for the broader understanding of compensation introduced by common law scholars (Fig. 3.2). Having said this, the question thus arises: how far can compensation be stretched and can this lead to the facilitation of gain-based damages? The first step in the reinterpretation of compensation is the notion that it is not enough to state that damages are merely compensatory and stop there. Namely, Ralph Cunnington See Radwański and Olejniczak (2016), p. 98. See id. 123 See Kaliński (2018), pp. 6, 70; see also Mostowik (2006), pp. 216, 228. 124 See Kaliński (2014), ch. II § 9, pt. X. 125 See Saidov (2008), p. 26. 126 Civil Code (Ewa Kucharska, trans.). 127 See Olejniczak (2014). 128 See Dybowski (1981), pp. 163, 288. 129 See Radwański and Olejniczak (2016), p. 102; see also Kryla-Cudna (2018), ch. I, § 6. 121 122

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Compensation (Article 363)

Damages

Restitution

Fig. 3.2 The compensatory principle under Article 363 of the Civil Code

keenly observed that it is possible to distinguish two compensatory rationales. The first—compensation for loss or reparative compensation—is defined as a monetary recompense for factual loss or damage suffered.130 The second—substitutive compensation—is a monetary equivalent to a right of which a person has been deprived or denied.131 The major difference between the two is that reparative compensation is subjective—it corresponds with a party’s factual loss; substitutive compensation is objective—it values the specific right of which a party has been deprived.132 When analyzing English law, legal scholars have argued for the existence of gain-based damages under both reparative and substitutive compensation principles. Therefore, having in mind that the compensatory principle under Polish law is broad, I will argue that Polish law is flexible enough to facilitate substitutive compensation, and consequently gain-based damages under such an understanding of compensation. Due to this bifurcation the subsequent analysis will be structured after Katy Barnett’s opus: Accounting for Profit for Breach of Contract.133 The analysis will be formed of two main parts: reparative compensation (Sect. 3.3.1) and substitutive compensation (Sect. 3.3.2).

3.3.1

Reparative Compensation

The goal of compensatory damages is to put the claimant in a position the claimant would have been in had the contract been properly performed.134 This type of compensation requires financial loss.135 Reparative compensation, also known as

130

Cunnington (2002), pp. 207, 215. Id. (“[T]he word ‘compensation’ can carry two different meanings: it can mean a monetary equivalent to a right of which a person has been deprived or denied . . ., which might be labelled ‘substitutive compensation’; or it can mean a monetary recompense for loss or damage suffered . . . . This is the much more familiar sense of ‘reparative compensation’ or ‘compensation for loss’.”); see also Barnett (2012), p. 18 (“’Substitutive compensation’ is where money is given as a compensatory substitute for a right of which a person has been deprived”). 132 Barnett (2012), p. 14. 133 See Barnett (2012), p. 14. 134 See Robinson v Harman, (1848) 1 Exch. 850, 855; see also id. 135 See Barnett (2012), p. 14. 131

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compensation for loss, means a monetary recompense for loss suffered.136 In this chapter, in order to avoid confusion, I will be using the term reparative compensation, as still the notion of loss will carry significance when talking about substitutive compensation. At first glance it may seem that under no circumstances can compensatory damages be reconciled with gain-based damages, because they do not compensate for factual loss; they aim to disgorge the breaching party’s benefit in full or in part,137 or somehow measure loss through the gains of the breaching party. This is why it is difficult to explain Wrotham Park or Blake on a reparative compensation basis, since “there is clearly no financial loss in the usual sense—because there is no difference in value (of the property) and no incurred or likely to be incurred cost of cure. . . .”138 Illara Caggiano has however pointed out that “in most cases benefits obtained by the defendant are mirrored by the profits lost by the claimant, which can be awarded as ordinary damages.”139 Under this logic, when talking about Wrotham Park, its result “can be explained as awarding compensation”140 for lost expectation understood as “loss of a profit which would have been made but for the breach.”141 To explain this logic further, two main rationales are presented when trying to explain gain-based damages on an ordinary reparative compensation basis. Gain-based damages may either be viewed as compensating the claimant for lost opportunity to bargain or for lost opportunity to apply for an injunction.

3.3.1.1

Compensation for Lost Opportunity to Bargain or Apply for an Injunction

The most basic and best known compensatory interpretation of gain-based damages interprets loss as stemming from a lost opportunity to bargain.142 It is further property-based. In other words, when a defendant wrongfully uses the claimant’s property, that claimant is deprived of an opportunity to bargain with the defendant for use of that property or release from a contract;143 this is the claimant’s loss.144 In 136

Cunnington (2002), pp. 207, 215. Barnett (2012), p. 14 (“If compensatory damages are seen as compensation for factual losses suffered by a person, then, by their very nature, full disgorgement damages do not fit within such a rationale. They do not compensate for the claimant’s factual loss but seek to cause the defendant to disgorge his factual gain.”). 138 Burrows (2002), pp. 165, 169. 139 Caggiano (2016), pp. 243, 257–258. 140 Burrows (2002), pp. 165, 169. 141 Poole (2010), p. 342. 142 Burrows (2002), pp. 165, 169. 143 Cunnington (2002), pp. 207, 219 (“[T]he damages awarded in Wrotham Park and in the other ‘reasonable fee’ cases were just examples of monetary recompense for the loss of an opportunity to bargain release from the contract. . . .”). 144 Barnett (2012), p. 16. 137

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a nutshell, the claimant being deprived of the opportunity to negotiate with the defendant constitutes a proprietary infringement (a deeper analysis of this approach of the notion of property will be provided later; Sect. 3.3.2.1). Sufficed to say at this juncture, this understanding of gain-based damages was conclusively dubbed by the UK Supreme Court as negotiating damages.145 The approach is rooted in the Chancery Amendment Act 1858—commonly referred to as Lord Cairn’s Act—which enables a court to award damages apart from or in lieu of an injunction or specific performance.146 According to Lord Nicholls’ opinion expressed in Blake, under this power a court grants an equivalent to an injunction which was refused.147 He further noted that “[t]he 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.”148 Similarly Lord Hobbhouse in his dissent in Blake stated that “[w]hat the plaintiff has lost is the sum which he could have exacted from the defendant as the price of his consent to the development.”149 Indeed this interpretation is taken from the wording of Wrotham Park: In my judgment a just substitute for a mandatory injunction would be such a sum of money as might reasonably have been demanded by the plaintiffs from Parkside as a quid pro quo for relaxing the covenant.150

The loss therefore stems from “the right to control (effectively be paid for) how a valuable right was used.”151 Such a notion finds also strong grounding in another post-Wrotham Park case, Tito v. Wadell, where it was noted: If the plaintiff has the right to prevent some act being done without his consent, and the defendant does the act without seeking that consent, the plaintiff has suffered a loss in that the defendant has taken without paying for it something for which the plaintiff could have required payment, namely, the right to do the act. The court therefore makes the defendant pay what he ought to have paid the plaintiff, for that is what the plaintiff has lost.152

In summary, the loss is the opportunity to conclude the hypothetical bargain.153 Under this approach the claimant is compensated for the amount the claimant would have received had it bargained with the defendant to amend the contract (in case of Wrotham Park, to relax a restrictive covenant). In order to assess the loss through a hypothetical bargain “courts assess the proportion of profit at the lower end of the

See Morris-Garner, ¶ 3. Currently this power is granted to the courts under s.50 of the Senior Courts Act 1981; see Hull (2019), pp. 180, 182. 147 AG v. Blake, at 268, 281. 148 Id. 149 Id., at 298 (Lord Hobbhouse, dissenting). 150 Wrotham Park, at 798, 815. 151 Hull (2019), pp. 180, 182. 152 Tito v Waddell (No 2) [1977] Ch 106 at 335. 153 Burrows (2002), pp. 165, 169. 145 146

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scale by using the ‘reasonable fee’ measure, representing the amount which the claimant would have accepted for release from the contractual term. This hypothetical bargain is not more than a convenient fiction by which to assess the appropriate level of partial disgorgement.”154 This approach has been strongly criticized. Firstly, it “rests on the assumption that the hypothetical bargain would have resulted in the defendant agreeing to pay the claimant a reasonable sum for release from the contract and, therefore, that such a sum constitutes the financial loss suffered by the claimant.”155 Secondly, it assumes that the plaintiff would be willing to sell the right.156 For this reason Ralph Cunnington noted in regard to Wrotham Park that “damages awarded against the second defendants cannot be considered to be compensation for a lost opportunity to bargain since no such opportunity ever existed with the second defendants.”157 This seems to be a strong argument hitting at the core of reparative compensation, which is by its nature subjective. Consequently, individual circumstances, such as the claimant’s willingness to bargain, become relevant. If the circumstances point towards a factual impossibility of the bargain taking place—like in Wrotham Park—then damages awarded as reparative compensation do not solve the problem of gain-based damages in its entirety. Thirdly, this approach touches upon only one piece of the puzzle—negotiating damages. It does not fully explore disgorgement damages. In this context, however, similar arguments may raised, as disgorgement damages awarded in Blake can also be interpreted as damages for loss being the deprivation of the ability to control the publication of George Blake’s book,158 which, as was already mentioned, was the point that also Lord Hobbhouse made.159 Alternatively, it is possible also to view the reparative approach as compensating the claimant for the lost opportunity to apply for an injunction.160 The approach has the advantage that one does not to rely on any fiction.161 The problem however is that the claimant already had an opportunity to apply for an injunction but did not

154

Barnett (2012), p. 146. Cunnington (2002), pp. 207, 220–221; see also Burrows (2002), pp. 165, 181–182. 156 Burrows (2002), pp. 165, 181–182. 157 Cunnington (2004), pp. 46, 50; see also Cunnington (2002), pp. 207, 221 (criticizing the approach since it “fails to explain the availability of gain-based damages in two important categories of case: (i) cases where the claimant would never have agreed to release the defendant from his obligations; and (ii) cases where there never had been an opportunity for the claimant to bargain for release with the defendant. Interestingly, both these problems arose on the facts of Wrotham Park.”); Burrows (2002), pp. 165, 169 (“[I]n many situations the claimant would not have made that bargain.”). 158 See Rowan (2012), p. 165 (referring to Richard Scott, Damages, [2007] LMCLQ 465). 159 Id., at 298 (Lord Hobbhouse, dissenting) (“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.”). 160 See Barnett (2012), p. 17. 161 Burrows (2002), pp. 165, 171 (“The price of the bargain is not posited as the actual fee the claimant has lost; rather, it is a means of valuing the lost opportunity to apply to court”). 155

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take it (this indeed happened in Wrotham Park) or did not obtain such an injunction. Consequently, also this approach does not provide a satisfactory answer.

3.3.1.2

Reparative Compensation Rationales Under Polish Law

The search for a functional equivalent of negotiating damages (i.e. the notion that gain-based damages compensate for loss of an opportunity to bargain which may be equal to the amount of the defendant’s gain or an adequate portion of it), and disgorgement damages as well, under Polish law must logically start with ascertaining whether the Polish notion of loss fits this framework. As was mentioned (Sect. 3.1.1), according to Polish law the detriment (uszczerbek) to one’s patrimony (majątek) existing due to the breach of contract constitutes patrimonial loss (szkoda majątkowa). Patrimonial loss encompasses a wide array of a person’s interests that may be ascribed a monetary value.162 To build on such a wide notion of patrimonial loss, it is arguable that a breach of contract that deprives a person of an opportunity to bargain with the breaching party is a breach that causes patrimonial loss; such loss may be equal to or a part of the breaching party’s gains from the breach. This is not an approach that has never been conceived of in Polish judicature, and is most visible in intellectual property judgments. In its judgment of 1 March 1955 the Polish Supreme Court stated that it is a factual presumption that an aggrieved party’s loss is equal to the amount of remuneration the claimant would have received had the defendant contracted with him.163 Three years later this line of reasoning was conclusively confirmed by the Supreme Court in its judgment of 28 June 1958.164 Intellectual property cases will be expanded upon in greater detail later (Sect. 3.3.2). Sufficed to say at this juncture, it is difficult to say whether the Supreme Court’s measure of damages was subjective or objective. Nonetheless, I posit that a functional equivalent of negotiating damages may be said to exist under Polish law, and indeed Polish courts have applied a similar concept. Since at this point I am discussing reparative compensation, I shall assume that such an award was made on a subjective basis, since such an assessment of damages lies at the very nature of reparative compensation. If so, the same multitude of obstacles as under English law appears. Namely, Marcin Spyra rightfully pointed out the problematic nature of presuming a fictional contract or of quantifying hypothetical damages in case a contract did not come into fruition.165 The construct which he creates to illustrate this problem is the hypothetical extent of the positive contractual

Kaliński (2018), pp. 6, 101; see also Katner (2014) (defining patrimony as a person’s patrimonial rights and obligations). 163 Judgment [wyrok] SN [Supreme Court] z [of] Mar. 1, 1955, I C 1859/53. 164 Judgment [wyrok] SN [Supreme Court] z [of] Jun. 28, 1958, III CR 100/57. 165 See Spyra (2014), ch. VII, § 6.III (It must be however noted that Marcin Spyra analyzed situation under Article 72 § 1 of the Civil Code which covers matters of cupla in contrahendo). 162

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interest (hipotetyczna wielkość pozytywnego interesu umownego) (Sect. 3.1.2.1 for greater background on the positive contractual interest), meaning the damages that would have been awarded had a contract been entered into but had it also been breached; a construct he finally disqualifies as inappropriate in all circumstances.166 Indeed, a subjective quantification of compensation within the framework of the positive contractual interest seems problematic. Such compensatory damages may be viewed as either being potential loss (szkoda ewentualna) or lucrum cessans. The first constitute the mere possibility of profits; the second constitute lost profits.167 Whether it is the former or the latter depends on the probability of the loss; the latter being highly probable while the former not. To establish lucrum cessans under Polish law, one must establish its near certainty or at least a high degree of probability.168 Indeed, the notion of probability is where the theory falls apart and does not lead to finding of a satisfactory blueprint for Polish negotiating damages. Namely, in my opinion the greatest limitation of this approach—regardless of whether analyzed under English or Polish law—is the fact that the assessment of the loss must be subjective, and thus heavily dependent on the facts. For this reason the criticism aimed at this approach is valid. The very nature of gain-based damages is that they must be disconnected from any sort of probability; they cannot be subjective. After all, it was patently visible to the court in Wrotham Park that the claimant would under no circumstances negotiate a release of the restrictive covenant.169 Indeed, the Privy Council in Pell Frischmann Engineering v. Bow Valley Iran pointed out clearly that in assessing negotiating damages “[b]oth parties are to be assumed to act reasonably. The fact that one or both parties would in practice have refused to make a deal is therefore to be ignored.”170 For this reason in order to find a functional equivalent an objective measure of damages must be found. Since reparative compensation does not offer one, the only avenue that offers such a possibility is substitutive compensation.

3.3.2

Substitutive Compensation

As was stated earlier, the term compensation may be understood in a broader sense. On the one hand it may mean reparative compensation or compensation for loss,

See Spyra (2014), ch. VII, § 6.III. See Koch (2019). 168 See Spyra (2014), ch. VII, § 3.II (arguing that in order to establish lucrum cessans in terms of a lost opportunity to enter into an alternative agreement, one must establish that entering into such an agreement would need to be almost certain.); see also Gawlik (2014). 169 See Burrows (2002), pp. 165, 170 (stating that under this approach “we are operating hypothetically as regards the claimant as well as the defendant and usually, albeit not always, that hypothetical willingness of the claimant runs counter to the facts.”). 170 Pell Frischmann Engineering v. Bow Valley Iran [2011] 1 WLR 2370, ¶ 49. 166 167

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which is a monetary recompense for loss or damage suffered.171 This understanding was described in the preceding part (Sect. 3.3.1). It may, on the other hand, also be said to mean a monetary equivalent to a right of which a person has been deprived or denied.172 This is what substitutive compensation entails. The difference between reparative and substitutive compensation lies in the fact that the former is subjective—it corresponds to the actual loss suffered by the claimant.173 The latter is objective and refers to the value of the right that the claimant was deprived of.174 Thus, for an award based on substitutive compensation, financial loss is irrelevant.175 Its calculation is based on the objective value of the infringed right, not on financial loss or harm.176 Under such an interpretation gainbased damages are equivalent to the value of non-performance.177 This innovative approach to compensation also found support in the courts: 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.178

Further, such a shift towards objective measures has been alluded to by Mance LJ in Experience Hendrix: Whether the adoption of a standard measure of damages represents a departure from a compensatory approach depends upon what one understands by compensation and whether the term is only apt in circumstances where an injured party’s financial position, viewed subjectively, is being precisely restored.179

Because of such judicial statements, some English scholars argue that gain-based damages fall into the substitutive compensation category.180 As already mentioned, such a notion finds backing in the Pell Frischmann judgment where it was stated that

171

Cunnington (2002), pp. 207, 215. Id. (“[T]he word ‘compensation’ can carry two different meanings: it can mean a monetary equivalent to a right of which a person has been deprived or denied . . ., which might be labelled ‘substitutive compensation’; or it can mean a monetary recompense for loss or damage suffered . . . . This is the much more familiar sense of ‘reparative compensation’ or ‘compensation for loss’.”); see also Barnett (2012), p. 18. 173 Cunnington (2002), pp. 207, 215–216. 174 Id., 215–216; see also Barnett (2012), p. 18 (“[S]ubstitutive compensation attempts to put a monetary value on the deprivation of the right.”). 175 Cunnington (2002), pp. 207, 215–216. 176 Id.; see also Stevens (2007), p. 60 (“In the assessment of damages it is necessary to distinguish between damages awarded as a substitute for the right infringed and consequential damages as compensation for loss to the claimant, or gain to the defendant, consequent upon this infringement.”) 177 See Cunnington (2008), pp. 115, 141. 178 AG v. Blake, at 268, 298 (Lord Hobbhouse, dissenting). 179 Experience Hendrix, ¶ 26. 180 See e.g. Barnett (2012), p. 18. 172

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“[t]he fact that one or both parties would in practice have refused to make a deal is therefore to be ignored.”181 Under Polish law, the question arises whether such an analysis is justified; whether this alternative understanding of the term compensation is permissible. Polish law takes a limited approach towards compensation, and Polish courts and legal scholars apply only the reparative compensation approach.182 To briefly, and by means of example, recall the point made by Marcin Spyra: the construct of hypothetical extent of the positive contractual interest—the hypothetical amount of damages the claimant would have received had the contract been properly entered into but breached—is not workable under Polish law due to the practical difficulties in trying to subjectively assess such damages.183 In other words, subjectivity might seem to be a major obstacle. Consequently, it would probably shock some Polish scholars to hear Lord Hobbhouse’s statement that it is an “error . . . to describe compensation as relating to a loss as if there has to be some identified physical or monetary loss to the plaintiff.”184 However, as an initial remark, I do not think that such a possibility should be hastily excluded. Namely, according to Robert Stevens loss may be defined as normative.185 Such an understanding of loss is independent of being factually worse off. Mathias Siems makes the point that the “idea of ‘normative damages’ means that integrity and morality, which merit protection by law, must be considered in measuring the proper amount of damages.”186 This gives greater freedom towards applying alternative methods of compensation. Polish law, firstly, indeed adopts a normative understanding of loss (Sect. 3.1.1).187 This means that loss occurs, if it is reparable under legal norms.188 In simpler terms, loss occurs, if the law says so. Therefore, whether Polish normative loss allows for substitutive compensation or not may be subject to scrutiny of legal norms. Secondly, there exist two concepts in Polish legal doctrine on the meaning of loss: the first states that loss is the sheer infringement of rights; the second that it is the result of an infringement.189 The first concept is of particular importance, as it is objective190 similarly to the substitutive compensation interpretation. Indeed, critics Pell Frischmann Engineering v. Bow Valley Iran [2011] 1 WLR 2370, ¶ 49; see also Tay and Ang (2018), ¶ 63 (“[T]he fact that one or both parties would in practice not have agreed on a hypothetical release fee is irrelevant. It follows that the court does not require actual proof of the amounts parties would have demanded as the hypothetical release fee.”). 182 See e.g. Tischner (2008), ch. II.2.4. 183 See Spyra (2014), ch. VII, § 6.III. 184 AG v. Blake, at 268, 298. 185 Stevens (2007), p. 78. 186 Siems (2003), pp. 27, 35. 187 See Dybowski (1981), pp. 163, 214; contra Kaliński (2014), ch. II, § 1, pt. VI. 188 See Kaliński (2018), pp. 6, 82. 189 Compare id., at 97–99 (arguing in favor of the view that loss is the result of an infringement), with Dybowski (1981), pp. 163, 224–226 (arguing in favor of the view that loss is the sheer infringement). 190 See Kaliński (2018), pp. 6, 82. 181

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of the differential method argue that the claimant’s interest should be assessed objectively, and consequently damages form a surrogate of the infringed asset.191 Thirdly, Polish scholars have long known the concept of objective loss (szkoda obiektywna/realna) which is defined as a detriment to an asset assessed without reference to the entirety of the claimant’s patrimony.192 All these cracks in mainstream legal doctrine give, in my opinion, all the more reason for this analysis. The field of intellectual property illustrates the deficiencies of the subjective differentiation method of assessing damages (which were alluded to in Sect. 3.3.1.2), since in many cases of such infringements the claimant might not even notice an infringement.193 John Hull provides a keen example in the context of a pure know-how licence: [A]ssume a pure know-how licence where the value of the transaction lies in the continued confidentiality of the know-how. . . In clear breach of the agreement, the licensee discloses the know-how and puts it in the public domain for all to see and use. The licensor has a clear claim for breach of contract, but his asset—the previously confidential know-how—has been rendered worthless. . . So his only claim is now one for damages. But damages for what? . . . There is no conceivable reason he would have bargained with his licensee to allow that to happen, and it is difficult to see how the court could easily arrive at a damages award on normal compensatory principles. So this may well be the kind of case where the court has to consider a hypothetical negotiation between a licensor in the position of the licensor concerned and a licensee to permit the licensee to do what he has done— destroyed the licensor’s business. . . .194

Further, Anna Tischner argues that the traditional approach towards establishing loss fails when, for example, a trademark infringement takes place, and it is established that the trademark holder would have never licensed the trademark.195 For this reason Polish judicature was forced to apply objective methods for assessing damages.196 Indeed, certain judgments seem to apply measures functionally similar to negotiating damages. Intellectual property judgments relating to reasonable license fees illustrate how objective measures for calculating damages were applied in Polish law. As a rule, a hypothetical license agreement should not be calculated based on the factual gains of the infringing party, as such calculations are not in accordance with lucrum cessans principles.197 In reasonable license fee cases, the Polish Supreme Court stated that claimant’s loss is equal to the amount of remuneration

See id., at 84. See Dybowski (1981), pp. 163, 219. 193 See Tischner (2008), ch. III.3.1. 194 Hull (2019), pp. 180, 185. 195 See Tischner (2008), ch. III.3.1. 196 Id. 197 Id. 191 192

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the claimant would have received had the defendant contracted with the claimant.198 These judgments were seemingly based on subjective measurements and thus—at first glance—cannot be applied to substitutive compensation, which applies an objective measure. Nonetheless, I posit that this should not be treated as an insurmountable obstacle, because in other cases the Supreme Court clearly applied objective measures. This is illustrated by the judgment of 1 December 1959 where Supreme Court stated that when the defendant non-contractually (bezumownie) exploits another’s invention, it deprives the claimant of the income the claimant could have received had the claimant received a license fee.199 The appropriate value of a reasonable license fee should be measured by objective standards—the average market value.200 It therefore seems that the Supreme Court equated loss more with the value of the infringed right rather than the claimant’s patrimonial situation. Moreover, in the context of unfair competition infringements, namely passing off cases, the Supreme Court remarkably strayed from the general rules on damages and applied a measure functionally similar to disgorgement damages. On 11 October 2001 the Supreme Court issued a noteworthy judgment on the quantification of lucrum cessans for passing off. The case concerned the production by the defendant of similar shaving cream packaging to that produced by the claimant (“Shaving cream packaging case”). The infringement was without question, leaving the issue of the quantification of loss open. The Court of Appeal was of the opinion that the defendant’s gains from the sale of the confusing packaging represented the claimant’s loss. As a consequence of such reasoning, the defendant lodged a further appeal to the Supreme Court. The Supreme Court upheld the lower instance judgment. The bone of contention among scholars is whether the method for quantifying lucrum cessans taken by the Supreme Court was rightful. It namely took the gains of the defendant as a measure of damages; in this case lucrum cessans.201 In the court’s opinion gains made by a defendant whose product is deceivingly similar to the claimant’s product, leads the defendant to intercept the claimant’s profits which in normal circumstances would have gone to the claimant’s hands. In essence the remedy of damages became a remedy for an account of profits (i.e. disgorgement damages).202 It is worth noting how similar this line of reasoning is to that of James Edelman in whose opinion disgorgement damages—which he refers to as restitutionary damages—reverse a transfer of value.203

198

Judgment [wyrok] SN [Supreme Court] z [of] Mar. 1, 1955, I C 1859/53 (Ruling that it must be assumed that loss for a design right infringement is equal to the amount that the defendant would need to pay the claimant in order to obtain a license.); see also judgment [wyrok] SN [Supreme Court] z [of] Jun. 28, 1958, III CR 100/57. 199 Judgment [wyrok] SN [Supreme Court] z [of] Dec. 1, 1959, I CR 477/59. 200 Id.; see also judgment of the Supreme Court of 29 January 1970, I CR 434/69. 201 Judgment [wyrok] SN [Supreme Court] z [of] Oct. 11, 2001, II CKN 578/99. 202 See Justyna Piś-Baranowska, Glosa do wyroku SN z dnia 11 października 2001 r., II CKN 578/99, in Przegląd Sądowy (2003). 203 See Edelman (2002), p. 66.

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The abovementioned judgments have been criticized for straying from compensatory principles, most notably Article 361 § 2 of the Civil Code.204 Firstly, they assumed, but did not analyze, the existence of a causal connection between the infringement and the loss.205 Secondly, they applied an objective measure for hypothetical license agreements while not focusing on the change to the claimant’s patrimony.206 Further, in the context of the Shaving Cream Packaging case, it has been argued that the extent of the claimant’s loss could depend on a variety of factors, such as the level of production or the distribution system.207 This was not factored in. It is not far-fetched to argue that although the Polish Supreme Court formally applied general compensatory rules, it in actuality applied an objective measure to put a price tag on the infringed right. Moreover, the Supreme Court relied on the gains of the defendant to calculate loss, which brings them close to a substitutive compensation measure. I therefore posit that Polish law has shown—admittedly unintentionally—to be open to the ideas underpinning substitutive compensation. Finally, the field of breach of confidentiality is also illuminating when talking about disgorgement damages, as it shows that substitutive compensation is not alien to the Civil Code. As will be elaborated later (Sect. 4.3.2.2), Article 721 of the Civil Code provides for disgorgement damages (or account of profits depending on one’s interpretation of the provision) in case a party breaches a confidentiality obligation: § 1. If, in the course of negotiations, a party disclosed information deemed confidential, the other party shall not disclose or convey it to other persons or use it for its own purposes, unless the parties agreed otherwise. § 2. In the case of non-performance or improper performance of the duties referred to in paragraph 1, the entitled person may demand from the other party that the damage be redressed or the obtained benefit be released.208

Article 721 § 2 of the Civil Code becomes important at this juncture, because it brings disgorgement damages under the umbrella of contractual liability.209 Although the aforementioned provision does not impose liability strictly for a breach of contract, it does impose liability for breach of a legally-imposed obligation.210 Consequently this liability is still considered liability ex contractu.211 In this chapter it is not relevant whether § 2 imposes liability based on unjust enrichment or not; this will be the next chapter’s topic. What is however relevant now is that from a compensatory standpoint this seemingly minor provision of the Civil Code allows

See Tischner (2008), ch. II.2.5.2., II.3.1.; see also Żelechowski (2003), pp. 52, 53. See Żelechowski (2003), pp. 52, 53; see also Jastrzębski (2003), pp. 50, 52. 206 Tischner (2008), ch. III.3.1. 207 See Żelechowski (2003), pp. 52, 53. 208 Civil Code (Ewa Kucharska, trans.). 209 See Machnikowski and Radwański (2019), pp. 420, 457. 210 Id. 211 Nowacki (2019). 204 205

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for a glimpse of something broader. Namely, this, very specific, contractual liability regime provides for an alternative objective measure of lability, i.e. the totality of the defendant’s profits. It is consequently arguable that this is the law’s attempt of putting a price tag on the claimant’s interest in not having the claimant’s confidential information disclosed. Hence, I posit that under a compensatory interpretation, Article 721 § 2 of the Civil Code may be viewed as imposing a substitutive compensation measure for breach of confidentiality. With all of the above in mind, I will set out to analyze the different approaches towards substitutive compensation put forward under English law and apply a comparative analysis to Polish law. There is no consistent approach towards substitutive compensation. As Robert Stevens noted “the courts have failed to adopt a consistent approach and it is difficult, if not impossible, to reconcile the authorities.”212 However, three approaches may be distinguished based on the sort of right that is infringed. The first—compensation for lost right (Sect. 3.3.2.1)—compensates a claimant for the value of lost dominium. The second—compensation for lost objective benefits (Sect. 3.3.2.2)—compensates the claimant for the lost opportunity to exercise control over property arising from a deprivation of the possession or use of property. The third— the rights-based approach (Sect. 3.3.2.3)—compensates a claimant for infringement of the claimant’s performance interest. The three interpretations seem similar at first glance but look at the same problem from different angles.

3.3.2.1

Compensation for Lost Right

Katy Barnett argued that disgorgement damages cannot be justified under the reparative compensation rationale, because they do not compensate for factual loss.213 This holds true, because all attempts to establish factual loss—lost opportunity to bargain or lost opportunity to apply for an injunction—contain various deficiencies which were described in the preceding part (Sect. 3.3.1.1). Hence, a different approach was applied by Mitchell McInnes who based his analysis on the substitutive compensation rationale. His more nuanced approach—compensation for lost right—shifts the focus from attempting to establish factual loss through various legal fictions, to the necessity to compensate the claimant for the value of the lost right of dominium,214 i.e. “the opportunity to exercise the control over property that proprietary rights give.”215 In other words, McInnes disposed of any intermediary fictions by establishing an alternative definition of loss. He argued namely that “the real explanation for the gain-based language lies largely in the fact that a claimant’s

212

Stevens (2007), p. 70. Barnett (2012), p. 18. 214 Id. 215 Burrows (2002), pp. 165, 173. 213

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loss may be most accurately assessed by reference to the price that she could have charged the defendant for his use of her property if the issue had arose ex ante.”216 The analysis below will firstly deal with the general approach applied by McInnes and its support under English law (Sect. 3.3.2.1.1). It will become patently clear that at the core of this approach lies the concept of property which will be analyzed in the second part (Sect. 3.3.2.1.2). The final part will be dedicated to a comparative analysis of the lost right approach under Polish law (Sect. 3.3.2.1.3).

3.3.2.1.1

The User Principle and the Lost Right of Dominium

To explain gain-based damages on a compensatory basis McInnes relied on the user principle. In tort—cases of trespass, detinue or infringement of patent—this principle allows for a claimant to be compensated by a sum that is reasonable to expect for a defendant to pay for the use of property.217 In other words, in such cases an award of damages equal to a reasonable fee is made. According to McInnes, the law of tort in certain cases creates an exception to the general rule of damages “and awards a slightly different species of compensation damages. It does so by adopting a special conception of loss in the property context.”218 In these tort cases “by making an award of damages, the law is assigning a monetary value to the claimant’s injury to her right.”219 Most notably, the principle was referred to by Nicholls LJ in Stoke-onTrent City Council v. W & J Wass Ltd: It is an established principle concerning the assessment of damages that a person who has wrongfully used another’s property without causing the latter any pecuniary loss may still be liable to that other for more than nominal damages. In general, he is liable to pay, as damages, a reasonable sum for the wrongful use he has made of the other’s property. The law has reached this conclusion by giving to the concept of loss or damage in such a case a wider meaning than merely financial loss calculated by comparing the property owner’s financial position after the wrongdoing with what it would have been had the wrongdoing never occurred. Furthermore, in such a case it is no answer for the wrongdoer to show that the property owner would probably not have used the property himself had the wrongdoer not done so. In The Mediana [1900] AC 113, 117, Earl of Halsbury LC made the famous observation that a defendant who had deprived the plaintiff of one of the chairs in his room for 12 months could not diminish the damages by showing that the plaintiff did not usually sit upon that chair or that there were plenty of other chairs in the room.220

216

McInnes (2006), pp. 76, 77. Poon (2019), pp. 139, 146 (“In these proprietary cases tort cases, the ‘user principle’ allows a claim to be measured by the amount which could reasonably be required to obtain permission to use the property. It is the usage of the plaintiff’s property and derivation of profits from it that amounts to enrichment at the plaintiff’s expense. In other words, it is this enrichment that provides the restitutionary basis.”); see also Hull (2019), pp. 180, 181. 218 McInnes (2006), pp. 76, 81. 219 Barnett (2012), p. 19 (referring to McInnes (2004), pp. 405, 416). 220 Stoke-on-Trent City Council v. W & J Wass Ltd, [1988] 1 WLR 1406 at 1416 (referring to The owners of the steamship Mediana v the owners, master and crew of the lightship Comet [1900] AC 113, 117). 217

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The analysis of gain-based damages becomes in consequence a proprietary analysis. Such an approach finds strong support in Wrotham Park, since “Brightman J drew on a number of proprietary tort cases concerning the wrongful use of another’s real, personal or intellectual property as support for his approach. In each, the claimant had not obviously suffered any financial loss, yet substantial damages were awarded assessed according to the reasonable price or hire for the use.”221 The user principle was also noted in the Blake judgment where “Lord Nicholls drew a close link between the ‘user principle’ in tort and the account of profits awarded for infringement of intellectual property rights, before going on to build a similar link in relation to breach of contract between negotiating damages and an account of profits.”222 He further noted a meaningful example presented in the 1914 case of Watson, Laidlaw & Co Ltd v. Pott, Cassels and Williamson: 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.223

The point being that “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.”224 Lord Nicholls further noted that “[a] property right has value to the extent only that the court will enforce it or award damages for its infringement.”225 Most importantly he sounded his support for extending such protection to contractual relations: “[I]t 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.”226 This train of thought was definitively confirmed by the UK Supreme Court in Morris-Garner in its brief remark on Experience Hendrix: The agreement gave the claimant a valuable right to control the use made of PPX’s copyright. When the copyright was wrongfully used, the claimant was prevented from exercising that right, and consequently suffered a loss equivalent to the amount which could have been obtained by exercising it.227

McInnes argued for the application of such property principles to contract law. He posited that gain-based damages are a means to compensate a claimant for the “value 221

Burrows (2002), pp. 165, 168. Id.; see also AG v. Blake, at 268, 278. 223 Watson, Laidlaw & Co Ltd. v. Pott, Cassels and Williamson, (1914) 31 RPC 104, 119. 224 Id. 225 AG v. Blake, at 268, 281. 226 Id., at 283. 227 Morris-Garner, at 20, ¶ 89–92 (“The claimant has in substance been deprived of a valuable asset, and his loss can therefore be measured by determining the economic value of the asset in question. The defendant has taken something for nothing, for which the claimant was entitled to require payment.”). 222

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of her lost right of dominium (being the right to control access and to use her property)”;228 that right alone, having substantial value, is “reparable through the payment of a price at which a reasonable purchaser would buy, and a reasonable vendor would sell, such a right.”229 The valuation of property rights therefore is based according to a readily available market.230 In McInnes’ opinion a careful reading of Lord Nicholls’ judgment in Blake “reveals that he actually believed that . . . gains generally were relevant not as objects of disgorgement, but rather as evidence of compensable losses.”231 This is also why for McInnes the Wrotham Park hypothetical bargain was merely a method of valuating the lost right;232 it is therefore neither a method of establishing factual loss nor a method of imposing partial disgorgement. To summarize up to this point, a wrong—the infringement of the right of dominium—constitutes an infringement resulting in normative loss quantified using objective measures.233 Due to the above, McInnes argues, the error that critics of the compensatory approach make is that they equate the only possible loss under cases contemplated by the user principle to be loss of an actual bargain.234 However, the compensation for lost right approach gives a new meaning to damages: [D]amages are not intended to replicate the contract that the parties actually would have created if given a chance. The court aims instead to restore the value of the lost right per se. The focus is not on the hypothetical bargain that the parties might have reached, but rather on the reason why the claimant could have demanded a bargain in the first place235

For this reason the goal of gain-based damages under substitutive compensation is still compensatory, because a certain type of loss is indeed compensated; this loss is a loss of right. Namely, as James Edelman explained, we are still dealing here with a transfer of value, i.e. a subtraction from the claimant’s dominium, rather than from financial wealth.236 As he further elaborated: “[T]he generation of value has come from the assets of the claimant even though the claimant may not have suffered any financial loss.”237 Nicholas Poon goes on to explain this further: [E]ven though the plaintiff has not suffered any loss, there was a value in the right, quantified by reference to factors such as the market value of the right at that time of breach. The

228

Barnett (2012), p. 18. McInnes (2006), pp. 76, 81. 230 See Stevens (2007), p. 78. 231 See McInnes (2006), pp. 76, 80. 232 See Barnett (2012), p. 19; see also Burrows (2002), pp. 165, 172. 233 See Burrows (2002), pp. 165, 173. 234 See McInnes (2006), pp. 76, 84. 235 Id., at 85. 236 Edelman (2002), p. 67 (“This transfer of value has been described as a subtraction from the claimant’s dominium rather than from his financial wealth. In other words, the generation of value has come from the assets of the claimant even though the claimant may not have suffered any financial loss.”). 237 Edelman (2002), p. 67. 229

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defendant had wrongfully gained this value inherent in the right belonging to the plaintiff and in so doing, should be liable in damages for this appropriation.238

Indeed, this was an approach on which Lord Reed relied on in Morris-Garner: “There are certain circumstances in which the loss for which compensation is due is the economic value of the right which has been breached, considered as an asset.”239 Hence, a subtraction from the claimant’s dominium—a right that may generate wealth—constitutes loss. Nevertheless, the use of the word loss may breed confusion. Indeed, Andrew Burrows rightfully underlined that “[i]t is inaccurate to say that the claimant has lost its rights. Certainly the claimant’s (proprietary) rights have been infringed. That is precisely what a wrong is.”240 Similarly Lord Nicholls in Blake underlined when discussing awards on property infringement cases: [T]hese 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.241

For this reason Andrew Burrows reinterpreted McInnes’ theory by stating that “[w] hat McInnes may in reality have in mind is that the claimant has lost the opportunity to exercise the control over property that proprietary rights give.”242 This statement shows also why McInnes’ approach can be applied to both negotiating damages and disgorgement damages as well. McInnes’ approach namely corresponds with the opinion expressed by Lord Scott that in Blake stating that the Crown did in fact suffer a loss;243 it was deprived of the ability to control the publication by Blake. This is however Burrows’ interpretation, which brings the lost right approach extremely close to the next one—the lost objective benefits approach (Sect. 3.3.2.2; Table 3.1).

3.3.2.1.2

The Problematic Nature of Property

It sometimes seems difficult to grasp what the infringed right may be. McInnes argued that this right is proprietal in nature—i.e. dominium—which seems to surprise scholars.244 McInnes argues that “[t]o say that a person owns a piece of property is to say that she enjoys, inter alia, the right of dominium (ie the right to 238

Poon (2019), pp. 139, 151–152. Morris-Garner, at 20, ¶ 91. 240 Burrows (2002), pp. 165, 173. 241 AG v. Blake, at 268, 279. 242 Burrows (2002), pp. 165, 173. 243 Rowan (2012), p. 165 (referring to Richard Scott, Damages, [2007] LMCLQ 465). 244 See e.g. Burrows (2002), pp. 165, 173. 239

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Table 3.1 Compensation for lost right approach in a nutshell. Loss Loss of the opportunity to exercise the control over property that proprietary rights give

Extent of loss Objective market value of the right infringed

Remedy (depending on the extent of loss) Negotiating damages (partial disgorgement; Wrotham Park) Disgorgement damages (full disgorgement; Blake)

control access and use).”245 Moreover, the law assigns value to such a right.246 It is however difficult to determine how far into contract law McInnes’s view extends. Katy Barnet namely points out: [McInnes] does not explain whether a ‘reasonable fee’ award will or should be awarded in a case where a contract is not intended to protect property rights. Presumably he considers that ‘reasonable fee’ awards can only be made for breach of contract when the contract seeks to protect a proprietary interest (as in Wrotham Park). His concept of substitutive compensation for a lost right is tied inextricably to property rights and the use value of those rights, not to a contractual right to performance.247

In other words, McInes’ view is limited to contracts that seek to protect property rights. This limitation is problematic—as John McCamus underlines—because of their special nature.248 As will be shown later, this imperfection is remedied by the rights-based approach (Sect. 3.3.2.3). The scope of application of the lost right approach depends on the definition of property. Firstly, scholars argue that “[c]haracterising a right as ‘proprietary’ is not in itself an explanation but rather the outcome of a complex evaluation process.”249 Further, for McInness’ approach to work more modern concepts of property need to be applied.250 In terms of such modern concepts, John McCamus argues that “the distinction between proprietary and non-proprietary interests is . . . a very narrow and arguably artificial one”;251 it is grounded in archaic approaches. David Pearce argues namely that the recent approach towards property rights—rights in rem— persistently followed the Roman law approach that there exists a real tie between a

245

McInnes (2006), pp. 76, 85. See McInnes (2006), pp. 76, 85 (“[T]he common law habitually expresses its commitment to protected interests by assigning value to rights which otherwise might be garded as having no value per se.”). 247 Barnett (2012), p. 19. 248 See McCamus (2003), pp. 943, 958. 249 Schlechtriem et al. (2001), pp. 377, 402. 250 See Friedmann (1980), pp. 504. 507. 251 McCamus (2003), pp. 943, 958–959. 246

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person and an object.252 He further argues that that approach has recently changed whereby a “property right is not a right in, to or over, a thing, but rather is a relation or set of relations between persons concerning a thing.”253 This is what he dubs the bundle of rights approach which is “the view that my ownership of a book should not be viewed as comprising rights in the book, but as consisting of a series of separate rights which I hold against all others generally, each of whom owes me correlative duties.”254 Secondly, the question arises: “To what extent are contractual rights ‘strong’ rights?”;255 meaning whether contractual relations can be treated as a form of property rights. A more modern approach to property justifies, in Daniel Friedmann’s opinion, that contractual rights are a form of property.256 In this context Peter Benson strongly advocated for the theory of contract as a transfer of ownership257 or of performance rights or entitlements,258 i.e. transfer theory. According to this theory “the parties’ mutual assents can transfer an ownership right from one to the other prior to and independently of performance, and on this basis show that breach of contract is an interference with a protected interest, making the expectation remedy compensatory in character.”259 Upon the contract’s creation, the right to performance is transferred to the promisee.260 Under Benson’s analysis “non-performance by the promisor is a usurpation of the promisee’s exclusive authority to possess, use or alienate the benefit received under the contract.”261 In a nutshell, contractual rights are a form of property, and consequently a breach of contract constitutes an interference with a property right. Such an approach rests on the assumption that ownership is a broad concept “consisting of any right to exclusive possession, use, or alienation of something as against another or others.”262 Ownership further contains two modes of acquiring rights;263 firstly property which is a form of ownership and a form of acquiring rights in rem.264 Secondly, contract which is a form of ownership and a form of acquiring rights in personam.265 The logical conclusion being that “contractual rights are also

252

David Pearce (2003), pp. 87, 89. Id. 254 Id., at 89–90. 255 Id., at 98. 256 See Friedmann (1980), pp. 504. 515. 257 See Benson (2007), p. 1673. 258 See Pearce (2003), pp. 87, 102–103. 259 Benson (2007), pp. 1673, 1693. 260 Pearce (2003), pp. 87, 103. 261 Barnett (2012), p. 20 (referring to Benson (2004), pp. 311, 326). 262 Benson (2007), pp. 1673, 1719. 263 See id., at 1693. 264 See id., at 1693, 1719. 265 See id., at 1719. 253

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Ownership (exclusive authority to control over the thing promised)

Acquisition through contract

Rights in rem

Rights in personam

Fig. 3.3 Benson’s understanding of ownership acquisition

ownership rights, although in a different way.”266 However, what rights does a contract transfer? Benson answers in the following way: At the moment of agreement and in accordance with its terms, what one party transfers to the other is the exclusive authority to exercise control over the thing promised (whether the thing is an external object or a service). This is what the promisor gives up and what the promisee takes. This exclusive authority to exercise control over a thing is ownership (Fig. 3.3).267

At first glance, there seems to be a lack of terminological consistency in this approach; when arguing on the nature of contractual entitlements, sometimes the term property while sometimes the term use ownership268 is used. Benson cuts this seeming inconsistency by stating that “property and contract are same insofar as both entail the idea of ownership.”269 He further argues that “both personal and real rights are taken as rights of ownership. Their difference lies in how ownership is acquired and as against whom it operates.”270 The notion of ownership of a contractual right will be of key importance in the subsequent analysis. Such an approach to property and ownership seems quite revolutionary, as it extends these terms into the field of contract law. Yet, it is not unheard of in practice; as will be described later (Sect. 4.3.2.3); the concept is strongly present in, for example, Israeli law.271 It seems justified to now analyze whether such an approach can find grounding under Polish law.

3.3.2.1.3

Compensation for Lost Right Under Polish Law

In order for the subsequent analysis to be clearer and terminologically consistent, I intend to apply the following translations of certain concepts (Table 3.2). Admittedly the translations are imperfect, yet they are necessary in order for the subsequent analysis to be possible. It is, in my opinion, extremely difficult to find proper equivalents of certain terms under Polish law and consequently the table

Id., at 1719. Id., at 1725. 268 Id., at 1693 (“’[O]wnership’ is a larger, general conception of which ‘property’ (right in rem) is a particular instance. Contract rights . . . are another different particular instance of ownership rights.”). 269 Benson (2004), pp. 311, 313. 270 Id., at 324. 271 See generally Einhorn (2015), p. 299. 266 267

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Table 3.2 Polish functional equivalents of certain English legal concepts English term Law of property Property right Property Object Ownership Patrimonial right Ownership and other patrimonial rights

Polish functional equivalent prawo rzeczowe (as a field of law) prawo rzeczowe (as a right) mienie rzecz własność prawo majątkowe własność i inne prawa majątkowe

above serves as a mere approximation of functionally similar concepts. The most notably problematic translation of these terms is the translation of property. It seems counterintuitive to translate law of property as prawo rzeczowe, and at the same time translate the term property as mienie, and the term object as rzecz.272 As was made clear in the preceding part (Sect. 3.3.2.1.2), property under English law is a strange creature. It may relate to an object, but it may also relate to an array of rights. Under Article 45 of the Civil Code property pertains only to material objects; generally Polish property law pertains exclusively to objects, meaning both chattel and land.273 Only in certain instances can property law relate to rights (prawa rzeczowe na prawach).274 To analyze the lost right approach under Polish law three questions become relevant. Firstly, does the Polish law of damages even remotely consider the protection against—as McInnes called it—a loss of dominium? Secondly, if so, can contractual interests be considered property interests? Thirdly, if so, could Polish contract law give rise to gain-based damages based on a loss of dominium? These questions will be considered. Loss of Dominium as a Protected Interest Under Polish Law Does Polish law protect against what McInnes called a loss of dominium; loss of the right to control access and to use property?275 It is at this juncture important to recall the reasoning of Porfessor Edelman who explained that gain-based damages deal with a transfer of value, i.e. a subtraction from the claimant’s dominium, rather than from financial wealth.276 This is relevant, because, as was mentioned earlier (Sect. 3.1.1), contractual liability encompasses only patrimonial loss (szkoda

Often the term rzecz is translated as thing, which in my opinion does not do justice to the term, and hence in my opinion object is a better term. 273 See Gniewek (2016), p. 25. 274 See id. 275 See Barnett (2012), p. 18. 276 See Edelman (2002), p. 67 (“This transfer of value has been described as a subtraction from the claimant’s dominium rather than from his financial wealth. In other words, the generation of value has come from the assets of the claimant even though the claimant may not have suffered any financial loss.”). 272

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majątkowa).277 However, I would be hesitant to equate it with sheer financial wealth, since patrimony is a wide term, and consequently, so is patrimonial loss. Patrimonial loss is said to encompass any detriment to a person’s assets or legally-protected interests that may be expressed in a monetary value.278 Moreover, patrimonial loss should be viewed as a detriment to a person’s patrimony as a whole, not a singular object or part of that patrimony.279 Therefore, if damage to a person’s patrimony should be viewed as a whole, this leaves much room for a wide spectrum of liabilitybreeding events. Polish law further bifurcates patrimonial loss into personal loss (szkoda na osobie) and property loss (szkoda na mieniu). The former occurs when one’s personal rights (dobra osobiste) are infringed.280 When it comes to the latter, property (mienie) is a narrower term than patrimony.281 It is moreover clearly defined in Article 44 of the Polish Civil Code as ownership and other patrimonial rights (własność i inne prawa majątkowe). Property is deemed to be a general term associated often with a variety of patrimonial rights such as receivables (wierzytelności) or claims (roszczenia).282 It is further always deemed to encompass only assets (aktywa).283 Nonetheless, property is still an immensely wide term, since it contains within it patrimonial rights. It is difficult to grasp what this category entails. Łukasz Żelechowski—following in the footsteps of Aleksander Wolter— posits that the patrimonial rights mentioned in Article 44 are those that are tied to economic interest, regardless of their value.284 What logically follows from the above is that property loss stems from an infringement to ownership and to other patrimonial rights.285 I posit that dominium may be viewed as a patrimonial right encompassed by the property loss category. In other words, since patrimonial loss and property loss are wide terms, the latter may encompass the sort of subtraction Edelman wrote about.286 Therefore, it seems that the term loss under Polish law allows for an inclusion of the abovementioned subtraction.

277

Ruszkiewicz (2014). Kaliński (2018), pp. 6, 92, 101; see also Katner (2014) (defining patrimony as a person’s patrimonial rights and obligations); see also Dybowski (1981), pp. 163, 237. 279 Tischner (2008), ch. II.2.4. 280 See Kaliński (2014), ch. II, § 4, pt. I. 281 Kaliński (2018), pp. 6, 101; but cf. Bednarek (1997); Gniewek (2016), p. 47 (equating the term property with patrimony). 282 See Katner (2012), p. 1296; see also Żelechowski (2019). 283 Świgroń-Skok (2019). 284 See Żelechowski (2019). 285 See Kaliński (2018), pp. 6, 100–102; see also Kaliński (2014), ch. II, § 4, pt. I. 286 See Edelman (2002), p. 67 (“This transfer of value has been described as a subtraction from the claimant’s dominium rather than from his financial wealth. In other words, the generation of value has come from the assets of the claimant even though the claimant may not have suffered any financial loss.”). 278

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Patrimonial loss may take various forms under Polish law, among them the form of a deprivation of a right. To illustrate this point: one form of loss is loss of the possibility to utilize or use an object of property287 (utrata możliwości korzystania z rzeczy),288 which resembles the German concept of Nutzungsmöglichkeit.289 Namely, to deprive one of the enjoyment of one’s property constitutes patrimonial loss; it constitutes an infringement of one’s patrimony.290 In such a case the law of damages does not compensate for the dissatisfaction associated with the deprivation of one’s property but the lack of possibility to use one’s property, which in turn has a price tag.291 It is however disputable whether this entails use for non-economic enjoyment.292 After all, patrimonial rights and interests are distinguishable from non-patrimonial rights and interests by the economic interests they protect, such as property interests (Sect. 3.1.1).293 Nonetheless, Polish legal scholars raise that a distinction between economic interests that breed liability and non-economic interests that do not, is erroneous.294 It is thus irrelevant whether the property right infringed was intended for economic or non-economic use.295 Comparatively, such a distinction may be to an extent justified, however both the economic and non-economic interests should be deemed reparable. Two concepts from two different jurisdictions come into play here. As far as non-economic use is concerned such loss may be reparable similarly to a loss of amenity from Ruxley Electronics v. Forsyth.296 In that case the claimant contracted for a swimming pool of specific depth; an obligation the defendant did not fulfill. However, the House of Lords ruled that servicing the pool to conform to contractual standards would not be reasonable, because the pool’s depth was still sufficient to fulfill the claimant’s needs. In other words, the House of Lords ruled that “the court should measure the promisee’s subjective value directly.”297 Hence, it was deemed possible to put a reasonable monetary value on the difference in terms of satisfaction and pleasure.298 In the context of economic interests, it is helpful to delve into intellectual property law. This is a useful approach from, firstly, a comparative perspective, since under

In this case I believe that the use of the term property is more adequate. This is due to the fact that the general argument of legal scholars is not that the loss stems from not utilizing merely one’s object (rzecz), but rather more expansively, the loss stems from not utilizing one’s property (mienie) or even patrimony (majątek). 288 See Dybowski (1981), pp. 163, 231. 289 See Oetker (2016). 290 See Dybowski (1981), pp. 163, 233. 291 Id. 292 Id., at 232. 293 Bednarek (1997). 294 Dybowski (1981), pp. 163, 232. 295 Id., at 233. 296 Ruxley Electronics v Forsyth [1996] AC 344. 297 Eisenberg (2006), p. 595. 298 See Morris-Garner, at 20, ¶ 39. 287

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English law the aforementioned user principle (Sect. 3.3.2.1.1) underpins principles of damages in intellectual property law.299 Secondly, what sets infringements of intellectual property apart is that they are not easily visible at first glance and must be approached in a novel way. The debate over the scope of liability in intellectual property law illustrates that patrimonial interests may be understood very broadly. Namely, the question legal scholars posed was what sort of infringement of one’s patrimony may breed liability. Part of the debate concerned the German concept of Auswertungsmöglichkeit. This term encompasses the possibility of economically utilizing one’s rights or interests,300 or hidden values (ukryte wartości) of such rights or interests.301 The debate over the latter term is of particular importance to this work. Namely, in his analysis of the hidden values concept Witold Czachórski argued—albeit based on unjust enrichment principles—that loss is constituted whenever an infringement of the the uti, fruti, abuti rights arises.302 Quite notably such rights seem to be nothing else than dominium (“opportunity to exercise the control over property that proprietary rights give”303). It thus seems that the interest that is protected under the Polish law of damages is in fact the dominium of the owner. Based on this I posit that Polish law is flexible enough to facilitate the concept of Auswertungsmöglichkeit or dominium. Applying it would mean that a deprivation of the sheer right to economically use one’s property may be reparable through an award of damages. Such compensation would thus be substitutive, because the award would not compensate for factual loss but for the infringed right of what may be called Auswertungsmöglichkeit or dominium. To summarize, loss under Polish law may be understood very broadly. Under such a wide understanding, the Polish law of damages protects against a lost opportunity to exercise control over property that proprietary rights give. This infringement may take the form of loss of the possibility to utilize or use one’s property. It is still deemed a loss, regardless of whether the property was meant for economic or non-economic use. The next question that needs to be answered is whether a contractual entitlement can be deemed to constitute a proprietary right under Polish law. Extending Property Rights to Contractual Interests It has been established that Polish law deems an infringement of the right of dominium reparable. This raises the second question: is there room in Polish law for gain-based damages for breach of contract based on a loss of dominium? As

Hull (2019), pp. 180, 181; but see Jaffey (2003), pp. 166, 181 (“The claim is not compensatory, because the claimant has not necessarily suffered any loss – the unauthorized use may not have adversely affected the claimant at all – and if he has suffered a loss it is not necessarily in the measure of a reasonable fee.”). 300 See Czachórski (1982), pp. 1, 6. 301 See Tischner (2008), ch. III.2.3.3. 302 See Czachórski (1982), pp. 1, 10 (making the broader point that infringement of the uti, fruti, abuti rights constitutes a detriment while still criticizing of the concept of Auswertungsmöglichkeit). 303 Burrows (2002), pp. 165, 173. 299

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mentioned earlier, Lord Nicholls did indeed raise a similar point in Blake stating that he does not see why personal or contractual rights should receive a lesser degree of protection than property rights.304 Can a similar argument be made under Polish law? From a modern comparative standpoint, the question whether the creditor-debtor relationship can be turned into property is controversial.305 Under Polish law a claim (roszczenie) is deemed to part of one’s property (mienie).306 Nonetheless, it is not afforded protection against third parties; it is not protected erga omnes.307 To hold a different opinion would be to proprietize obligations (urzeczowienie zobowiązania).308 There are two ironies to the backlash against proprietization of obligations. The first is a comparative irony. Namely, the traditional rule of English law holds that there exists no duty to perform a contract (Sect. 3.1). In opposition to this archaic view, the major contract law debate under the English legal system is whether there exists a substantive duty to perform.309 Whereas under Polish law the term pacta sunt servanda is practically a rule set in stone.310 It would however be remiss not to mention at this stage—as Iwona Karasek-Wojciechowicz keenly notes—that in fact nowhere does Polish law set this rule.311 The rule is rather strongly assumed than codified. Regardless, it seems ironic that a jurisdiction where performance is protected in a weaker fashion is the jurisdiction that is starting to propagate a stronger protection of contractual entitlements. The second irony is connected with almost a total abandonment of a view similar to the English view that was once formulated almost a century ago. Namely, a more modern concept of property can in actuality be found in an old and disregarded theory posed by Fryderyk Zoll of ownership of receivables (własność wierzytelności).312 I posit that only an application of this theory might enable the application of the lost dominium approach, as only under this approach would a party’s right to receive performance become akin to a property right. Zoll namely criticized the notion that property rights should exclusively pertain to corporeal objects (res corporales).313 He distinguished two categories of patrimonial rights (prawa majątkowe): property rights and receivables (wierzytelności), i.e. the right to demand to receive performance (świadczenie).314

See AG v. Blake, at 268, 283. See Schlechtriem et al. (2001), pp. 377, 403. 306 Cf. Kaliński (2014), ch. II, § 4, pt. II.3. 307 Cf. Id. 308 Cf. Id. 309 See e.g. Pearce (2003), pp. 87, 98. 310 See Gawlik (2014). 311 See Karasek-Wojciechowicz (2014), ch. VII.3.1.2. 312 See Zoll (1938), pp. 203, 214. 313 See id., at 220. 314 See id., at 214. 304 305

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The former he further divided into: ownership rights, rights to use another’s assets, and pledge rights.315 All three were considered patrimonial assets (dobra majątkowe).316 Despite his bifurcated division of patrimonial rights, he considered receivables to also be encompassed within the ownership right category.317 This is due to the fact that receivables constitute patrimonial assets.318 He notably underlined that it is possible to treat a receivable as both the right to demand to receive performance as well as a patrimonial asset belonging to a specific person.319 For the latter reason receivables can also be subject to the law of property.320 It seems that in order to facilitate Zoll’s concept, it would be necessary to reformulate the Polish law of property. In other words, the theory seems untenable under current law. The most notable obstacle to overcome would be to apply the same liability regime from property loss to personal loss. Despite this obstacle, the subsequent part will set out from the assumption that Zoll’s theory is workable under Polish law. Protecting Against a Loss of Dominium Through Subsidiary Property Remedies If—as argued by Zoll—contractual interests were treated like property interests under Polish law, how could gain-based remedies be applied? The remarks of Anna Tischner made in the context of intellectual property are especially relevant here. In her analysis of the Polish remedy of account of profits she, firstly, tied the remedy to property law remedies.321 Secondly, the action to be paid a reasonable license fee corresponds in her opinion with an action for use of property.322 Anna Tischner posited that the Polish functional equivalent of gain-based damages is rooted in remedies that are intended to protect ownership.323 She rightfully raised in the context of intellectual property that not all interests of an aggrieved party may be protected through ordinary rules on damages.324 In order for these interests to be fully protected also subsidiary property remedies (roszczenia

See id., at 212. See id., at 214. 317 See id, at 218 (“Despite this we need to stretch the norms of property law onto receivables, as receivables, due to the fact that they enable a creditor to demand from the debtor performance, which has pecuniary value, constitute patrimonial assets, they are therefore part of the patrimony, a good, a value.”) (Daniel Zatorski, trans.). 318 See id. 319 See id., at 220. 320 See id. 321 See Tischner (2008), ch. 3. 322 See id., ch. 3.3.2. 323 Cf. id., ch. II.3.1. (For the sake of clarity and in order not to distort her views, it needs to be underlined that Anna Tischner explicitly rejects the possibility of gain-based remedies based in contract law). 324 See id., ch. 3.3.1. 315 316

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uzupełniające właściciela) should be applied.325 Subsidiary property remedies are considered to be separate from ownership remedies and—to an extent—part of the law of obligations.326 They exist to compensate the infringement of one’s property.327 Their goal is to create a shift in patrimony from one person to another.328 They are independent of any factual loss to the claimant.329 Substitutive compensation for loss of dominium may thus be viewed similarly to an infringement of an intellectual property right, such as a trademark. In such case the damage is the sheer infringement of the trademark while loss is measured objectively—by valuing the trademark itself.330 An award of damages in such a situation should be viewed as a substitute (surogat) for the infringed trademark. This is indeed very similar to substitutive compensation, where compensation is a monetary equivalent to a right of which a person has been deprived or denied.331 Here, also compensation plays the role of a monetary equivalent to the infringed trademark. It therefore seems that, unbeknownst to many, Polish law applies the substitutive compensation approach. At first glance it may be difficult to find a connection between subsidiary property remedies and intellectual property remedies, on the one hand, and contract law remedies on the other. After all, subsidiary property remedies are independent of any factual loss.332 However, it is important to restate that we are not in the realm of factual loss and thus reparative compensation; we are in the realm of substitutive compensation, i.e. a monetary equivalent to a right of which a person has been deprived or denied.333 This understanding of loss should serve as a gateway towards applying bolder ideas of contractual remedies. It therefore seems that they fit into the substitutive compensation category. I would not hastily disregard the notion that subsidiary property remedies may be applied in a contract law context in cases of inadequacy of the differentiation

See id. See Wójcik (1977), p. 509; see also Gniewek (2016), p. 149. 327 See Gniewek (2016), p. 149. 328 Wójcik (1977), p. 509. 329 Tischner (2008), ch. 3.3.1. 330 Id., ch. II.2.5.1. 331 Cunnington (2002), pp. 207, 215 (“[T]he word ‘compensation’ can carry two different meanings: it can mean a monetary equivalent to a right of which a person has been deprived or denied . . ., which might be labelled ‘substitutive compensation’; or it can mean a monetary recompense for loss or damage suffered . . . . This is the much more familiar sense of ‘reparative compensation’ or ‘compensation for loss’.”); see also Barnett (2012), p. 18. 332 Tischner (2008), ch. 3.3.1. 333 Cunnington (2002), pp. 207, 215 (“[T]he word ‘compensation’ can carry two different meanings: it can mean a monetary equivalent to a right of which a person has been deprived or denied . . ., which might be labelled ‘substitutive compensation’; or it can mean a monetary recompense for loss or damage suffered . . . . This is the much more familiar sense of ‘reparative compensation’ or ‘compensation for loss’.”); see also Barnett (2012), p. 18. 325 326

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method. There are namely strong reasons to apply them. As John McCamus pointed out, this might some times be the only option: One might justify the relief granted in the property cases on the basis that the disgorgement measure is being used in these cases to respond to situations where compensatory damages are inadequate, or where equitable relief, which might otherwise correct the inadequacy, is for some reason unavailable.334

To summarize, I posit that it is arguable that—firstly—patrimonial loss, including property loss, is a wide concept. Property loss can namely be linked with an infringement of the the uti, fruti, abuti rights, i.e. dominium. The concept of dominium encompasses the possibility to make use of one’s property both for economic and non-economic reasons. Secondly, the theory of ownership of receivables may enable one to consider contractual interests to be property interests. It is arguable that a breach of contract may be equated to an infringement of a proprietary interest—the ownership of a receivable—which consequently breeds property loss. Through such an approach, a breach of contract constitutes an infringement of one’s dominium over a receivable. Thirdly, if this were the case, then subsidiary property remedies could serve as gain-based damages resulting in partial or full disgorgement, depending on the extent of the infringement. Such remedies do not have the limitation of having to establish factual loss and could thus serve as a means of applying gain-based remedies to a contractual context.

3.3.2.2

Compensation for Lost Objective Benefits

A very close approach—seemingly identical to McInnes’—has been described by Burrows in his article entitled Are ‘Damages on the Wrotham Park Basis’ Compensatory, Restitutionary or Neither?. This approach comes close to McInnes' substitutive compensation approach,335 yet still focuses on factual deprivation. Namely, under this approach one needs to ask “whether the claimant has been deprived of factual benefits that objectively have a market value.”336 Although Burrows after having introduced this approach, immediately criticized it, I will nevertheless describe it, because it offers an interesting avenue of interpreting gain-based damages from a Polish perspective. It is important to distinguish this approach from the reparative compensation approach and from the approach taken by McInnes. It is namely crucial to note that Burrows’ theory is still objective. Burrows, instead of focusing on the lost right of dominium, draws the reader’s attention to a deprivation of factual benefits that may be objectively valued. He adds that this view may be analogous to the unjust enrichment debate “as to whether a defendant who has been objectively benefited

334

McCamus (2003), pp. 943, 959. Burrows (2002), pp. 165, 173. 336 Id. 335

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can subjectively devalue that benefit.”337 It therefore does not fit into the reparative compensation category and does not fit McInnes’ reasoning, as the latter concentrated merely on the value of the right of dominium. On the issue of compensation, Burrows presents the example of the use of a horse or car and returning it undamaged: While, at first sight this claimant appears to have suffered no financial loss, one could say that objectively the claimant has suffered a financial loss; he has been deprived of the possession or use of the horse or car. As the right to possession or use of goods can be bought and sold, the loss of possession and use can be given a market value.338

In summary, “we are focusing not on the gains made by the defendant but on the benefits lost by the claimant.”339 In other words—as illuminated by Ilaria Caggiano—“profits gained by the claimant should be considered nothing more than, a contrario, the loss of profits on the defendant’s side.”340 Nonetheless, the theory has limits, which Burrows does not hesitate to point out. Namely, the problem that this analysis encounters is that it does not really explain Wrotham Park, because, in his opinion, there was no loss of wealth, even objectively measured.341 Burrows’ namely takes issue with the objective approach, as he asks whether—analogously to a devaluation to a benefit in unjust enrichment—it is relevant whether the claimant would not have realized the benefit.342 He goes on to say that “it is hard to see in principle why a claimant should receive compensation that does not reflect the evidence as to its own position.”343 I believe that Burrows tried to create a compensatory theory of gain-based damages by artificially distinguishing it from the theory proposed by McInnes. It is namely artificial to try to distinguish a loss of the right of dominium or a deprivation of the opportunity to exercise control over property from a deprivation of the possession or use of an asset or a right; especially when the notion of property is to be treated broadly. Regardless, although the distinction is in my opinion artificial and the quantification not entirely objective, Burrows’ approach puts an emphasis in a different place. Namely, the emphasis is put on potential benefits. This theory is illuminating from a Polish perspective. It seems that this approach may be—from a functional approach—found in Polish law under lucrum cessans. However, the measure is still ascertained objectively; according to the market value of the infringed right. Liability for lucrum cessans occurs due to the infringing party thwarting a positive change to the aggrieved person’s patrimony.344 The question in

Id. Id. 339 Id. 340 Caggiano (2016), pp. 243, 248. 341 Burrows (2002), pp. 165, 175. 342 See Id., at 174. 343 Id. 344 Tischner (2008), ch. II.2.4. 337 338

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ascertaining the amount of damages boils down to: what if the aggrieved party had not been deprived of factual benefits? I do not believe that this approach may in any way apply Wrotham Park or Blake into Polish law. This is for the same reason why the entire concept was criticized by Burrows. Namely, the availability of damages based on lucrum cessans hinges on their great probability. It was noticeable in Wrotham Park that there was absolutely no chance of relaxing the restrictive covenant. Nonetheless, I do not think that this approach should be wholly disregarded, because, as was indicated before, Polish legal practice has applied objective measures to calculate lucrum cessans (Sect. 3.3.2).

3.3.2.3

The Rights-Based Approach

The third substitutive compensation interpretation of gain-based damages is the rights-based approach; an approach introduced by Robert Stevens. Its theoretical starting point is the notion that “contracts create individual rights to performance and corresponding duties on other individuals to fulfill those rights. . . . In this . . . view, breach of contract is a wrong done to a particular individual—the promisee.”345 The approach may be differentiated from a lost right approach, firstly, by the fact that it is not confined to a purely compensatory rationale.346 In other words, from this standpoint a substitutive analysis of an award of gain-based damages should not be viewed as compensatory; an award of damages does not recompense a lost right but is a sheer substitute for the infringed right.347 It is important to note that for Stevens an award of substitutive damages for the right infringed renders the category of loss irrelevant. No loss of any kind needs to be established or presumed. This is a broader approach than the ones mentioned before and thus deserves a more detailed analysis. The rights-based approach is the most controversial of the three approaches, as it considers every breach as necessitating an award in accordance with the value of the infringed right to performance.348 Furthermore, Stevens does not rely on the user principle but on the performance interest; the performance interest constitutes the infringed right that damages substitute.

345

Smith (2004), p. 389. Barnett (2012), pp. 18, 23 (“Stevens has a broader analysis, mentioned below, which does not confine substitutive damages for the right to the compensatory rationale alone, and may extend to restituttionary damages and disgorgement damages in appropriate cases”). 347 Id., at 24 (“[H]e does not see disgorgement damages as ‘compensatory’ as this would involve an illegitimate stretching of the concept of ‘loss’ and ‘gain’. Rather, disgorgement damages are substitutive for the right”). 348 Burrows (2002), pp. 165, 181–182. 346

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The Performance Interest

The performance interest—which was described earlier (Sect. 3.1.2.1)—is the point of departure for the rights-based approach. As the House of Lords observed in Blake, a party needs to possess a legitimate interest in the performance of the contract for gain-based recovery to be possible. 349 Indeed, Lord Nicholls stated that “the plaintiff’s interest in performance may make it just and equitable that the defendant should retain no benefit from his breach of contract.”350 Entering into any contract gives rise to this interest.351 As namely Katy Barnett points out, there exist three ramifications due to the formation of a contract:352 1. “Contracts are made to be performed and not to be avoided”353 2. Upon the formation of a contract each party assumes a legal right to the performance of the contract.354 3. Each party assumes a legally recognized and enforceable obligation to perform.355 When taking these factors under consideration, it may be argued that a party who does not receive performance under the contract has sustained infringement to its performance interest.356 Daniel Friedmann presented a similar argument under the law of restitution, arguing that performance of a contract that was withheld from a party is in essence a deprivation of that party’s interest.357 As other scholars phrased it—admittedly still relying on the concept of loss—a loss of performance interest is loss that entitles a party to compensatory damages.358 Consequently, such damages give effect to a party’s interest in performance.359 AG v. Blake, at 268, 282 (“The law recognises that a party to a contract may have an interest in performance which is not readily measurable in terms of money.”); Edelman (2002), pp. 149–150 (“The additional limitation on gain-based damages for a breach of contract introduced by the House of Lords in the Blake case is a requirement that the claimant have a “legitimate interest” in the performance of the contract. This limitation upon gain-based damages, unique in cases of breach of contract, operates to deny the same protection to contractual interests which the law has traditionally afforded to other property rights, unless it is satisfied”). 350 Id., at 285. 351 Barnett (2012), p. 18 (“The contract gives rise to a ‘performance interest’. . . that needs to be recognized.”). 352 Id., at 59. 353 Id. (referring to Cehave N.V. v. Bremer Handelsgesellschaft mbH (The Hansa Nord) [1974] 2 Lloyd's Rep. 216). 354 Id. (referring to Alley v Deschamps (1806) 13 Ves Jun 225, 228; 33 ER 278, 279 (Lord Erskine); see also Saidov (2008), p. 27). 355 Id. (referring to In Re T & N Ltd [2005] EWHC 2870, [2006] 1 WLR 1728 (Ch) [26] (David Richards J)). 356 Saidov (2008), p. 53. 357 See Friedmann (1980), pp. 504. 515. 358 Poon (2019), pp. 139, 148. 359 Id. 349

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As mentioned earlier (Sect. 3.1), in the common law—according to the traditional approach—there is no duty to perform a contract. Consequently, there is no recognized primacy of a party’s interest in performance. However, if one does not perform, then damages will be awarded. Namely, in Oliver Wendell Holmes’ opinion contracts are merely disjunctive obligations: either one performs or pays damages; it is a choice.360 A claimant never has a legitimate interest in performance, because “the only universal consequence of a legally binding promise is that the law makes the promisor pay damages if the promised event does not come to pass.”361 For this reason—as the UK Supreme Court underlined—“[t]he courts will not prevent self-interested breaches of contract where the interests of the innocent party can be adequately protected by an award of damages. Nor will the courts award damages designed to deprive the contract breaker of any profit he may have made as a consequence of his failure in performance.”362 This approach is not however universally accepted: “[T]he recognition that an award of damages is frequently an inadequate remedy for breach of contract necessitates the rejection of Oliver Wendell Holmes’ claim that contractual promises entail no obligation to perform.”363 In other words, performance cannot be equated with damages; it should have primacy. William Buckland notably explained this primacy of performance stating that “one does not buy a right to damages, one buys a horse.”364 Katy Barnett made this notion the starting point in analyzing the key role that the performance interest plays in understanding disgorgement.365 Along with other English scholars366 she criticized that the courts’ preference of expectation damages over specific performance, which indicates that their commitment towards performance is less than wholehearted.367 Daniel Friedmann (admittedly arguing for a claim in restitution for breach of contract) wrote that “the proposition that a person is free to break a contract subject only to liability for damages cannot be accepted as an unqualified general principle, although it may be applicable in certain circumstances.”368 Similar criticisms were raised by the courts, and so, for example, in the case of Alfred McAlpine Construction Ltd v. Panatown Ltd, Lord Millett criticized the English notion of loss which does not take into consideration the value of the performance interest:

See Cunnington (2008), pp. 115, 133. Oliver Wendell Holmes (1920), pp. 167, 175. 362 Morris-Garner, at 20, ¶ 35. 363 Cunnington (2008), pp. 115, 133. 364 Buckland (1944), pp. 247, 249–251. 365 Barnett (2012), p. 58. 366 See e.g. O’Sullivan (2004), pp. 327, 334 (“The ‘performance interest’ tends not to be accorded sufficient weight in the English remedial system, which generally assumes that a plaintiff is neutral as between damages (assessed by reference to market value) and performance itself”). 367 Barnett (2012), p. 58. 368 See Friedmann (1980), pp. 504. 514–515. 360 361

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[T]here has for some time been a growing consensus among academic writers that English law adopts an unduly narrow approach to the concept of loss, and that it ought to recognise that the performance of a contractual obligation may have an economic value of its own. . . .369

Most notably it was the House of Lords that underlined the importance of this interest in Blake: 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.370

Another relevant example is Lord Hobbhouse’s dissent in Blake. For Lord Hobhouse it was possible to explain the result of Blake without a departure from the compensatory principle.371 He achieved this via reference to Ruxley Electronics v. Forsyth:372 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 . . . 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.373

In Lord Hobbhouse’s opinion the Ruxley case is a case of compensation not in the sense “relating to a loss as if there has to be some identified physical or monetary loss to a plaintiff”374 but in a sense that compensation is “a substitute for performance”.375

Alfred McAlpine Construction Limited v. Panatown Limited, [2000] 4 All ER 97. AG v. Blake, at 268, 282. 371 Id., at 299 (Lord Hobbhouse, dissenting); see also Edelman (2002), p. 153. 372 Ruxley Electronics v. Forsyth, [1996] AC 344. 373 AG v. Blake, at 268, 298 (Lord Hobbhouse, dissenting). 374 Id., at 297. 375 Edelman (2002), p. 184 (“In the Blake case, Lord Hobbhouse also referred to the Ruxley case and although explaining it as a case of “compensation”, explained that it is not “compensatory” in the 369 370

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When taking all of the above into consideration, the arguments for the performance interest as a fundamental principle for gain-based damages are very similar to the transfer theory (Sect. 3.3.2.1.2). This is a valid conclusion, as “[a]ccording to transfer theory the contract effects an immediate transfer of the performance right into the hands of the promisee. It is this fact that underpins the expectation principle which is central to contract.”376 However, under the rights-based approach one need not rely on an extended definition of property, but on a strongly protected interest in performance. The focus is rather shifted from the primary right to how the law treats the secondary right to damages. Through this approach one may argue that “[p] ersonal rights merit equal protection to property rights.”377 Indeed, this is an approach consistent with Lord Nicholls’ judgment in Blake: 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. . . . [I]t is not clear why it should be any more permissible to expropriate personal rights than it is permissible to expropriate property rights.378

From a comparative standpoint such an approach to contract finds strong grounding, since the importance of performance has been underlined in various jurisdictions. Here, several examples can be named. Firstly, Australian judicature rejected Oliver Wendell Holmes’ disjunctive approach which equates damages to performance.379 Secondly, the US Restatement of Contracts defines a contract as “a promise . . . for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.”380 Thirdly, as already mentioned (Sect. 2.2.4), in Turf Club Auto Emporium Pte Ltd. v. Yeo Boong Hua the Singapore Court of Appeal underlined the importance of the performance interest in assessing whether to award gain-based damages.381 Fourthly, Israeli law recognizes a strong duty to perform: “[A] party to contract has to behave be-emunah (in a trustworthy manner) with his friend (haver) with whom he has contracted. Such a requirement implies that a party motivated to breach a contract by availing itself of an opportunity to become enriched, at the expense of the other party, will not be forgiven.”382 Fifthly, in Germany this protection is stronger than under English law. Konrad Rusch made the point that “[i]n protecting a contracting party’s performance interest, German law

sense of “relating to a loss as if there has to be some identified physical or monetary loss to a plaintiff” he considered that compensation in this sense means “a substitute for performance”.”). 376 Pearce (2003), pp. 87, 103. 377 Id., at 109. 378 AG v. Blake, at 268, 283. 379 Zhu v. The Treasurer of the State of New South Wales [2004] HCA 56 (Austl.); see also Barnett (2012), p. 59. 380 Restatement (Second) of Contracts § 1 (1981); see also Barnett (2012), p. 59. 381 Turf Club Auto Emporium Pte Ltd. v. Yeo Boong Hua [2018] SGCA 44, ¶ 280. 382 Einhorn (2015), pp. 299, 303.

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has a different point of departure. Specific performance is available as of right.”383 Sixthly, in the context of the CISG, Djakhongir Saidov states that “relying upon the concept of the performance interest in describing losses cannot be abandoned altogether as there are cases where it has special relevance.”384 This in his opinion would however greatly expand liability: [W]here one party does not perform its obligation in accordance with the contract, then the other party’s interest in performance (‘performance interest’) can be said to be damaged because the party does not get what it is entitled to receive under the contract. It would follow from this that nearly every breach can be said to damage the innocent party’s interest in and right to performance, and a striking consequence of such a description of the party’s loss is that whenever there is a breach there is necessarily a loss.385

Saidov however posits to limit the protection of the performance interest to situations “where the injured party places a subjective or non-economic value on the performance.”386 Seventhly, Henrique Sousa Antunes seems to have a similar view to Saidov when describing gain-based damages under Portuguese law. In his opinion the ground for such an award is the sheer fact that the injured party’s rights have been encroached upon.387 Indeed, he goes on to state that the injury in this case is the fact that the sense of justice is offended: [R]elevant non-patrimonial damage occurs whenever an economic benefit for a third party is the result of the culpable sacrificing of rights of the injured party. It is damage which is born out of a rupture in the fair patrimonial relationship between individuals. Compensation for this damage may only, naturally, be achieved by passing into the sphere of the injured party the advantages that the third party obtained unlawfully.388

The foundations for disgorgement in Antunes’ opinion thus seem to lie in the twilight between patrimonial relationships and non-patrimonial injury. It therefore seems that to disagree with Oliver Wendell Holmes’ reasoning that performance and damages are equal and disjunctive obligations is—quite simply— to recognize an interest in performance.389 As a consequence, an infringement of this

383

Rusch (2001), pp. 59, 70. Saidov (2008), p. 53. 385 Id., at 52–53. 386 Id., at 53. 387 Sousa Antunes (2015), pp. 171, 178 (“The grounds for awarding the profit to the injured party lie in the fact that the exercise of his rights has been encroached upon. This is the reason for the loss, whether the other damage is non-patrimonial, patrimonial or even non-existent.”). 388 Id. 389 Edelman (2002), p. 153 (The notion that, in some circumstances, a claimant might not have an “interest in performance” might derive support from Oliver Wendell Holmes, who thought that a claimant never had a legitimate interest in performance. Holmes considered that “the only universal consequence of a legally binding promise is that the law makes the promisor pay damages if the promised event does not come to pass”. He therefore considered that a promise should be free to break his contract if he chooses.”) 384

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interest breeds the right to claim damages.390 I shall therefore posit (Sect. 3.3.2.3.4) that Polish law strongly opposes the Holmesian approach, consequently recognizing an interest in performance. This, in my opinion, substantiates the argument that an infringement of this interest gives rise to gain-based damages.

3.3.2.3.2

Damages as the Next Best Thing

Robert Stevens criticized the approach taken by Oliver Wendell Holmes, as in his opinion, firstly, Holmes’ interpretation “makes it appear that the obligation to pay damages is not triggered by a wrong at all.”391 After all, if performance and the payment of damages are treated as equals, then performing the latter obligation is just as good to the other party. This cannot be correct, which Stevens points out in a humoristic way: “In theory, the law could adopt almost any secondary obligation as a response to the wrong. A trespasser could have his hands cut off, or a slanderer could be required to be locked in stocks and publicly humiliated.”392 Secondly, treating specific performance and damages as equals “would cause sight to be lost of the fact that the secondary right to damages is awarded as a ‘next best’ substitute for the primary right.”393 This next best approach needs to be explained in greater detail. In his analysis Stevens sets out from a seemingly obvious premise. He namely defines the best contractual scenario: The ‘best’ thing to have occurred would have been for the right not to have been infringed at all. Where the wrong has been committed, the secondary obligation to pay money imposed upon the wrongdoer can be seen as the law’s attempt to reach the ‘next best’ position to the wrong not having been committed by him in the first place.394

When viewing damages from such a perspective, “[t]here are circumstances where the courts will not enforce the primary right but will only give damages for its infringement. This is commonplace in the law of contract.”395 However, in the context of the rights-based approach Stephen Smith raises the fundamental question: “[W]hy should the defendant pay compensation? . . . [C]ompensatory orders cannot be justified on the ground that they merely enforce the original obligation. Compensation is not performance.”396 He immediately answers that under the rights-based

390

Saidov (2008), p. 53 (“Therefore, damage to the performance interest is a separate issue requiring special treatment and should, it is submitted, be viewed as an independent head of loss but only, as noted, where the injured party places a subjective or noneconomic value on the performance”). 391 Stevens (2007), p. 60. 392 Id., at 59. 393 Id. 394 Id., at 59 (noting Livingstone v Raywards Coal Co (1880) LR 5 App Cas 25 (HL) at 39 (Lord Blackburn)). 395 Id., at 58. 396 Smith (2004), p. 392.

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approach, the only explanation for a compensatory order is the concept of justice; corrective justice in case of contract law.397 From a similar assumption Stevens argues that in situations “where the defendant is required to make good the claimant’s consequential loss or give up his own consequential gains, this is the law’s attempting to reach this nearest approximation of the wrong not having occurred.”398 The logical ramification of this is that where a specific remedy is available, the law protects that specific right and not potential for future loss.399 In other words, the fact that the law provides for specific relief where damages might be inadequate demonstrates that the law does indeed protect the right itself.400 This begs the question: what right is being protected? The answer should be obvious at this juncture; it is the right to performance.401 Katy Barnett built on this reasoning further and formed the essential link of substitutive compensation with the performance interest: If one argues that the right of which the claimant has been deprived is the right to contractual performance, it is possible to argue that disgorgement damages are substitute for the deprivation of this right which can no longer be awarded through specific relief (disgorgement damages are effectively a substitute for specific relief). It is the deprivation of this right which creates the nexus between the defendants’ gain and the claimant as a suitable recipient of that gain.402

To expand on the nexus between a breach of contract and gains as a way of quantifying damages: as mentioned earlier, gain-based damages give effect to a party’s performance interest.403 Under this reasoning reference to gain in quantifying damages is merely a method for quantifying an appropriate amount.404 In other words, a contract gives rise to a performance interest;405 a breach of contract infringes upon that interest; that interest may be valued and thus an award of damages may be issued upon the basis of that value; that value should be made by reference to gain. This last issue—quantification—will now be expanded upon.

Id. Stevens (2007), p. 58. 399 Id., at 57. 400 Id. 401 Barnett (2012), p. 23 (“The right is the right to performance, and the infringement of this right will give rise to disgorgement damages in the situations where the subject matter of the contract is not substitutable”). 402 Id. 403 Poon (2019), pp. 139, 148. 404 Id., at 143. 405 Barnett (2012), p. 18. 397 398

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Putting a Price Tag on Performance

The main issue in the protection of the performance interest for Katy Barnett is subistitutability, i.e. “how courts best ensure that the claimant gets what she bargained for, or an appropriate substitute, in a way that is as non-intrusive as possible.”406 Robert Stevens also recognized this problem when stating that “[o]ne objection to substitutive damages is that they do not have any naturally correct quantification.”407 Traditional compensatory damages may not be enough to fulfil this goal. Namely, “compensatory damages often leave the plaintiff deprived of an effective remedy because no value is placed upon the plaintiff’s interest in having the contract duly performed.”408 On the other hand, “[t]he protection of the expectation/performance interest compensates the injured party for loss of the bargain.”409 Such reasoning does not put limitations on coming up with what the best remedy in a specific situation is. Thus, if a party’s performance interest is encroached upon “the defendant’s gain may represent the best substitute for the claimant’s right to performance if compensatory damages and specific relief are both unavailable.”410 The goal of gain-based damages is thus to provide effective relief by putting a value on the performance interest. Putting a price on the performance interest seems a challenging task. In this regard two approaches may be distinguished: the purely substitutive approach, which I shall call the market approach; and the non-market approach. The Market Approach The market approach adopted by Stevens values the infringed right according to “the market value of the right assessed by the methodology of constructing a reasonable hypothetical bargain between the parties.”411 This in my opinion may entail, naturally, the methodology of Wrotham Park (negotiating damages) but also the far-end of the sliding scale of compensation (Sect. 2.3), i.e. Blake (disgorgement damages). The approach taken by Stevens may seem at first glance to be similar to that of MicInnes. However, Stevens goes one step further; and this is what primarily differentiates his approach from the McInnes’. Namely, he posits that “where damages are claimed for the value of the right infringed ‘use’ of the claimant’s asset is unnecessary.”412 This means nothing more than that depriving a claimant of the “opportunity to exercise the control over property that proprietary rights give”413 (i.e. dominium) is not necessary. The sheer infringement is sufficient. Hence, in Id., at 58. Stevens (2007), p. 78. 408 Rusch (2001), pp. 59, 62. 409 Saidov (2008), p. 26. 410 Barnett (2012), p. 23. 411 Burrows (2002), pp. 165, 181. 412 Stevens (2007), p. 79. 413 Burrows (2002), pp. 165, 173. 406 407

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Stevens’ words: “The preferable approach is to award the claimant damages as a substitute for the value of the right infringed: even where this causes no loss to the claimant and no gain to the defendant.”414 This means that Stevens also does away with Edelman’s reasoning that gain-based remedies deal with a transfer of value.415 The approach taken by Stevens still fits the category of substitutive compensation, i.e. “where money is given as a compensatory substitute for a right of which a person has been deprived.”416 For Stevens it is namely critical to distinguish between “damages awarded as a substitute for the right infringed and consequential damages as compensation for loss to the claimant, or gain to the defendant, consequent upon this infringement.”417 The former are assessed objectively and are independent from loss or gain.418 This distinction may be difficult to see in Stevens’ opinion, because “in most cases the value attached to the right is precisely the same as the loss suffered, usually financial, by the claimant.”419 Nonetheless, in situations where no loss in the ordinary sense exists, this distinction is key. In summary, an award of gain-based damages indeed does not recompense a claimant for any loss or deprivation. Nonetheless, there still is present an element of awarding damages for a sheer infringement of the performance interests based on the objective value of that interest. This I would still call substitutive compensation. The Non-Market Approach As Janet O’Sullivan remarked, the performance interest “is undervalued by the practice of measuring the plaintiff’s loss by reference to the exchange or market value of performance, even in a non-commercial context where he contracted for reasons other than the realization of profit.”420 Hence, Djakhongir Saidov proposes to limit the protection of the performance interest to situations “where the injured party places a subjective or non-economic value on the performance.”421 However, putting a price tag on a subjective performance interest is also problematic. One cannot always apply an abstract measure. One can consider the following example: [T]he seller supplies a wedding ring of greater market value than that agreed upon in the contract but which comes as a great disappointment to the buyer because of an emotional attachment to a cheaper ring; a ring cheaper than that contracted for is delivered but the

414

Stevens (2007), p. 80. See Edelman (2002), p. 67 (“This transfer of value has been described as a subtraction from the claimant’s dominium rather than from his financial wealth. In other words, the generation of value has come from the assets of the claimant even though the claimant may not have suffered any financial loss.”). 416 Barnett (2012), p. 18. 417 Stevens (2007), p. 60. 418 Id. 419 Id., at 61. 420 Janet O’Sullivan (2004), pp. 327, 334–335. 421 Saidov (2008), p. 53. 415

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injured party’s wife actually prefers the delivered ring to the one provided for by the contract.422

For Saidov the answer to this problematic issue is as follows: “[W]hether the party can be considered to have suffered any loss depends on whether the law is prepared to compensate the party for damage to the ‘subjective’ value (non-economic interest) it has placed on the performance.”423 This is why he proposes that the performance interest be identified and quantified by asking “hypothetically, if the parties had agreed on a liquidated damages clause, whether . . . it would have included compensation for non-pecuniary benefits.”424 An alternative and yet simpler way to incorporate such subjective gain-based damages via substitutive compensation was hinted by Henrique Sousa Antunes in his analysis of disgorgement remedies under Portuguese law. He proposed the following: In our view relevant non-patrimonial damage occurs whenever an economic benefit for a third party is the result of the culpable sacrificing of rights of the injured party. It is damage which is born out of a rupture in the fair patrimonial relationship between individuals. Compensation for the damage may only, naturally, be achieved by passing into the sphere of the injured party the advantages that the third party obtained unlawfully.425

Thus, an infringement of a person’s rights gives rise to gain-based damages.426 At the heart of this approach is an expansion of the duty to redress non-patrimonial injury. Namely, Portuguese law in this context is based on the notion that money for non-patrimonial injury is not only aimed at compensating a victim for harm but also to address the actions of the injuring party.427 To paraphrase Antunes’ argument, it seems that there lies a possibility to valuate the performance interest through non-patrimonial damage.

3.3.2.3.4

The Rights-Based Approach Under Polish Law

Similarly to the preceding parts, the analysis of the rights-based approach should concentrate on whether Polish law recognizes an interest in performance. The major benefit of this approach is the fact that there is no necessity to connect the performance interest with a property right and consequently there is no necessity to rely on the ownership of receivables concept.

Id. Id. 424 Id., at 54 (noting Ogus (2002), pp. 125, 135). 425 Sousa Antunes (2015), pp. 171, 178. 426 Id. (“The grounds for awarding the profit to the injured party lie in the fact that the exercise of his rights has been encroached upon. This is the reason for the loss, whether the other damage is non-patrimonial, patrimonial or even non-existent.”). 427 Id. 422 423

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The preceding analysis led to two distinct methods of protecting the performance interest. The first, based on the views of Djakhongir Saidov and Henrique Sousa Antunes, applies a subjective measure and protect non-economic interests. The second, posed by Robert Stevens, is based on a market value of the performance interest in any situation stemming from a breach of contract. The Non-Market Approach To shortly recall the views of Saidov and Antunes. In the context of the CISG Saidov argued that the performance interest should be protected but this protection should be limited to the protection of the performance interest to situations “where the injured party places a subjective or non-economic value on the performance.”428 A similar subjective view was expressed by Antunes for whom the basis of gain-based damages lie in non-patrimonial recovery for offending the sense of justice.429 I do not believe that such an approach would be workable under Polish law. Firstly as was mentioned earlier (Sect. 3.3.2.1.3), Polish legal scholars raise that a distinction between economic interests that breed liability and non-economic interests that do not, is erroneous.430 It is thus irrelevant whether the right infringed was intended for economic or non-economic use.431 Nonetheless, whether we ascribe the subjective value—as Saidov suggests—as a measure of damages is a different story. This in my opinion would not be achievable. Secondly, the non-market approach would entail the recoverability of non-patrimonial assets for breach of contract. Under Polish law this does not seem possible under the rules on contractual liability.432 Thirdly, even if there is a valid argument to be made for applying gain-based damages to an infringement of one’s personal rights (dobra osobiste), this is not the subject of this work, because it is outside of the contractual context. Gain-based damages based on Antunes’ approach would be tortious in nature, not contractual. I therefore do not believe that this is an avenue that may be applicable to Polish contract law. There is finally, as was mentioned earlier (Sect. 3.1.1), explicit agreement that contractual liability encompasses only patrimonial loss.433

428

Saidov (2008), p. 53. See Sousa Antunes (2015), pp. 171, 178 (“[R]elevant non-patrimonial damage occurs whenever an economic benefit for a third party is the result of the culpable sacrificing of rights of the injured party. It is damage which is born out of a rupture in the fair patrimonial relationship between individuals. Compensation for this damage may only, naturally, be achieved by passing into the sphere of the injured party the advantages that the third party obtained unlawfully.”). 430 Dybowski (1981), pp. 163, 232. 431 Id., at 233. 432 See Spyra (2014), ch. VII, § 3.II; see also Radwański and Olejniczak (2016), p. 265 (arguing that personal loss is only recoverable due to the occurrence of a delict.); Borysiak (2019b); Gawlik (2014); but see judgment [wyrok] SN [Supreme Court] z [of] Dec. 17, 2004, II CK 303/04 (ruling that a breach of contract may constitute a delict allowing for non-patrimonial recovery). 433 Ruszkiewicz (2014). 429

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The Market Approach There should be no doubt that it is the compensatory rationale’s function to protect the interests of an injured party (Sect. 3.1.2).434 The law on damages protects more than merely a party’s sheer financial interests, it protects a party’s entire legal sphere,435 i.e. patrimonial interests which are broader than a party’s mere financial interests. The entirety of a party’s legal sphere encompasses the interest in the non-occurrence of the damaging event, which should include a breach of contract.436 A breach of contract takes place, if a party does not receive performance. This in turn can be deemed to cause loss, if we accept the notion that loss is constituted through the sheer infringement of rights. As was namely already mentioned (Sect. 3.3.2), some argue that loss is the sheer infringement of rights, not its consequences.437 To substantiate this last point in greater detail, and consequently coming back—by means of example—to Anna Tischner’s arguments relating to intellectual property, it has namely been argued that an infringement of intellectual property rights strikes at the very heart of said right.438 It could similarly be argued in contract law that a breach of contract strikes at the very heart of a party’s interest in performance. To summarize up to this point, it must be underlined that a party has an interest in performance under Polish law. Can however this be enough to validate an award of gain-based damages? To answer this, it is relevant to recall the core of Robert Stevens’ argument on the rights-based approach. Stevens namely posits that where a specific remedy is available, the law protects that specific right and not potential for future loss.439 Similarly, David Pearce suggests that “[o]ne way in which the strength of the primary right in contract may be tested is to examine the extent to which a promisor is under a duty to render the performance actually promised or whether, in practice, the only obligation is to pay compensation in the event of a failure to perform.”440 In this regard Polish law—firstly—puts primacy upon performance through Article 353 § 1 of the Civil Code:441 An obligation shall consist in that the creditor may demand a performance from the debtor, and the debtor is obliged to provide the performance.442

See Kaliński (2018), pp. 6, 70. See id., at 77. 436 See id., at 78. 437 Compare id., at 97–99 (arguing in favor of the view that loss is the result of an infringement), with Dybowski (1981), pp. 163, 224–226 (arguing in favor of the view that loss is the sheer infringement).See generally Kaliński (2018), pp. 6, 97. 438 See Tischner (2008), ch. 3.3.2. 439 Stevens (2007), p. 57. 440 Pearce (2003), pp. 87, 98. 441 See Karasek-Wojciechowicz (2014), ch. I.4.5. (noting the similarity of the common law’s approach towards primary rights to the Polish norm under Article 353 of the Civil Code.). 442 Civil Code (Ewa Kucharska, trans.). 434

435

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This provision is said to contain the bare minimm elements of an obligation, which is the—not necessarily actionable (zaskażalne)—right to demand performance.443 This primacy of performance is often defined as the debtor’s duty to act in a certain way and the creditor’s right that the debtor act in a certain way.444 Connected with this are the types of rights a party is granted in case a contract is breached. The first is the concept of formatory rights (prawa kształtujące) which rather than forcing the defendant’s performance may in certain cases enable a claimant to modify the actual obligation.445 The second is the concept of a remedy (roszczenie) which according to Iwona Karasek-Wojciechowicz must by its very essence contain the competence to force a defendant’s performance.446 Although the concept of a remedy is connected with Article 353 § 1 of the Civil Code, it cannot be said—as Karasek-Wojciechowicz notes—to be embedded in it, as not in all cases a claimant will be able to force performance.447 Furthermore, is also debatable how far-reaching the primacy of performance is. Namely, it is subject to dispute whether a claimant’s right to demand performance effectively blocks the claimant’s right to demand damages until the claimant clearly rejects the former right (via either Article 491 and 492 or 477 § 2 depending on the specific case) (rozłączność uprawnień) or whether the claimant has a freedom to choose the remedy (alternatywny zbieg konkurencyjny).448 Nonetheless, despite the plethora of opinions which are beyond the scope of this work, I would argue that—to use Perace’s terminology—Polish law protects the primary right in contract in a strong fashion, as in many cases a defendant may be forced to perform. Secondly, in Polish law, similarly to German law,449 a claim for specific performance—or to be more precise: a claim for the performance of one’s obligation (roszczenie o wykonanie zobowiązania)450—is so strongly present in Polish legal culture that it is even argued that it need not be expressly provided in written law.451 Such conclusions may nonetheless be drawn from the provisions on contractual liability (odszkodowawcza odpowiedzialność kontraktowa) embodied by Article 471 of the Civil Code:

443

Karasek-Wojciechowicz (2014), ch. II.1.2. (noting that the element of actionability is necessary for a claim to arise). 444 See Machnikowski (2013), p. 120; see also Borysiak (2019a). 445 See Machnikowski (2017c); see also Borysiak (2019a). 446 See Karasek-Wojciechowicz (2014), ch. II.1.2. 447 See id. 448 See id., ch. VIII.3.1 (outlining the different views on the interplay between the remedy for specific performance and the remedy of damages). 449 Rusch (2001), pp. 59, 70. 450 See Karasek-Wojciechowicz (2014), introduction.2 (elaborating on terminological issues). 451 See Zoll (2018), pp. 1046, 1142.

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Contractual liability (Article 471)

Specific performance

Compensation (Article 363)

Restitution

Damages

Breach of contract

Fig. 3.4 The framework of contractual liability under the Civil Code The debtor shall be obliged to redress the damage resulting from the nonperformance or improper performance of the obligation unless non-performance or improper performance were due to circumstances for which the debtor is not liable.452

Article 471 protects the performance interest by making specific performance available as of right. Article 471 not only enables a party to claim specific performance, but the claim for specific performance is deemed the primary remedy while a claim for damages only supplementary.453 Thirdly, as was already mentioned (Sect. 3.3), under Article 363 § 1 of the Civil Code compensation may be awarded in the form of damages or restitutio in natura (restytucja naturalna):454 Damage should be remedied, at the aggrieved party’s choice, either by the previous condition being restored or a relevant sum of money being paid. If, however, restoration of the previous condition is not possible or it results in excessive difficulties or costs for the obliged person, the aggrieved party’s claim is limited to monetary performance.455

Restitution under Article 363 § 1 of the Civil Code, i.e. restitution as a remedy for breach of contract, is equated with specific performance.456 When taking this into consideration, it becomes patently visible that Polish law views an award of damages as one of two or three options; and most definitely not the primary option for a claimant (Fig. 3.4). Therefore, unlike Oliver Wendell Holmes, Polish law does not even distinctly treat contracts as disjunctive obligations to either perform or pay damages. As a rule, if a party does not perform its contractual obligations, the primary right of a claimant is to claim performance.457 This in Polish law is referred to as the rule of real

452

Civil Code (Ewa Kucharska, trans.). See Borysiak (2019b). 454 See Olejniczak (2014). 455 Civil Code (Ewa Kucharska, trans.). 456 See Zoll (2018), pp. 1046, 1206 (arguing that the role of restitution is taken over by specific performance in case of existing obligations and that the only compensatory claim under Polish law for breach of contract is a claim for damages); see also See Karasek-Wojciechowicz (2014), ch. VII.3.1.2. 457 See Rzetecka-Gil (2011); see also Borysiak (2019b); Radwański and Olejniczak (2016), p. 82. 453

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performance (zasada realnego wykonania zobowiązania).458 As a consequence, a claim for damages is directly referred to by some Polish scholars as a substitute for performance.459 In other words, a claim for performance transforms under article 471 of the Civil Code into a claim for compensation, only if performance is not possible or was improperly rendered.460 For this reason I posit that the rule of real performance is a gateway towards finding the rights-based approach in the Polish legal system. I am however perfectly aware that applying such a violently different approach towards damages under Polish law would go against current practice. Nonetheless, as Karasek-Wojciechowicz righly noted, we are currently living in times of an intense convergence of legal systems, which may ultimately lead to the development of optimal legal solutions on a European level.461 I would therefore not hastily exclude even such radical—from a Polish perspective—solutions, especially since such solutions axiologically fit the Polish legal system maybe even better than the English legal system. In summary, the rights-based approach connects neatly with several remarks made throughout this work. Firstly, compensation under Article 363 § 1 of the Civil Code is understood broadly as encompassing both damages and restitution (Sect. 3.3). In consequence the understanding of compensation should be flexible enough to allow for a substitutive compensation rationale. Indeed, as was remarked at the outset of the chapter on substitutive compensation, Polish law has already shown an openness towards measuring loss according to objective measures of the right infringed—similarly to negotiating damages—or even measuring that loss against the defendant’s gains—similarly to disgorgement damages (Sect. 3.3.2). Secondly, measuring an award of damages according to the substitutive compensation rationale may be justified under contract law due to the primacy of specific performance under Article 471 of the Civil Code. Such primacy namely indicates a strong protection of the performance interest, the infringement of which—due to a breach of contract—should justify gain-based damages. Furthermore, since an award of damages is treated as a substitute for performance under Polish law, a similar argument to Robert Stevens’ may be applied: damages serve as a substitute of performance, and should thus be quantified to its the objective market value.

3.4

The Most Suitable Compensatory Approach

There seem to be convincing policy considerations for allowing a remedy of gainbased damages for breach of contract under Polish law. Indeed, by means of example, Piotr Machnikowski raised a variety of arguments for including, what he

See Rzetecka-Gil (2011); see also Borysiak (2019b). See Rzetecka-Gil (2011); see also Stojek (2018); Gawlik (2014). 460 See id. 461 See Karasek-Wojciechowicz (2014), introduction.1. 458 459

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called, preventive remedies for breach of contract, which would include a remedy of an account of profits granted by a court on a discretionary basis.462 I would add to this—and have argued throughout this chapter—that despite a lack of a direct provision in the Civil Code, there do exist indications that a court could award gain-based remedies on a discretionary basis. We have seen that seemingly similar theories of the compensatory rationale created by common law scholars, breed violently different results under Polish law. Nonetheless, there exist several obstacles engraved in Polish law of damages to overcome in order to make gain-based damages workable. Regarding the first, the reparative compensation approach (Sect. 3.3.1); its analysis wielded certain positive results, most notably that the notions of patrimony and patrimonial loss under Polish law are quite flexible notions. This can allow for a wide variety of events to breed contractual liability. Under such a broad approach it is arguable that a breach of contract that deprives a person of an opportunity to bargain with the breaching party is a breach that causes patrimonial loss; such loss may be equal to or form part of the breaching party’s gains from the breach. Regardless, I posit that such an approach is unworkable to establish an effective remedy of gain-based damages. The greatest difficulty would namely be to apply a subjective measure where only an objective measure of loss would be workable. Regarding the substitutive compensation approach (Sect. 3.3.2), I posit that only such an approach is workable in order to find a functional equivalent of gain-based damages under Polish law. However, in order to apply it an objective view of loss must be applied; a concept not alien to Polish judicature, and indeed a Roman law concept.463 Further, I have presented three theories of gain-based damages under the substitutive compensation rationale which draw one’s attention to different concepts. The first—the compensation for lost right analysis (Sect. 3.3.2.1)—through its loss of dominium concept draws attention to how Polish law understands property loss. The analysis finds its functional equivalent of gain-based damages under subsidiary property remedies. This would however require a fundamental reformulation of the Polish notion of property so that it encompasses contractual entitlements. The second—the compensation of lost objective benefits (Sect. 3.3.2.2)—draws one’s attention to the concept of lucrum cessans and how broad the term should really be. This approach I deem least convincing, as it applied the objective measure only half-heartedly. It namely objectively measures the value of potential benefits, but still focuses on factual deprivation forcing in consequence an assessment of the probability of such potential benefits. The third—the rights-based approach (Sect. 3.3.2.3)—puts an emphasis on a party’s interest in having the contract performed. Of all the theories I believe that this is the one that can find the strongest functional equivalent under Polish law, as it corresponds in the strongest fashion with the

See Machnikowski (2017), pp. 270, 281 (It is however worth noting that he did not consider disgorgement damages to be compensatory.). 463 Cf. Kaliński (2014), ch. II, § 1, pt. I (noting however that the Roman understanding was limited to visible changes in the material world). 462

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Table 3.3 An illustration of the substitutive compensation approach Issue Rule

Application

Conclusion

The Wrotham Park scenario The Blake scenario (1) breach of contract, (2) loss, (3) causal link between the breach and the loss. (1) Breach of contract The defendant breached its contractual The defendant breached its contractual obligation not to construct housing in obligation never to divulge any inforcontravention to the restrictive mation on his employment with the covenant. intelligence services. (2) Loss The loss under the rights-based approach is the infringement of the claimant’s interest in performance. A party has a strong interest in performance, as: (i) the interest in the non-occurrence of a damaging event is the claimant’s patrimonial interest, which is protected; (ii) the claimant has a right to claim real performance from the defendant. Therefore, since the contract was breached – which is by its nature an infringement of the party’s performance interest – there must exist a loss. (3) Causal link between the breach and the loss The breach is directly connected with the infringement of the claimant’s performance interest. There exists a sliding scale of compensation. The conclusion depends on the ultimate interpretation of what loss to the claimant’s performance interest exists. This is heavily reliant on the facts of the case. The market value of the right is the loss The market value of the right is are of the bargain. Therefore, the quantum entirety of the defendant’s gains from of damages is equal to a reasonable fee. the breach. Therefore, the quantum of damages is equal to the defendant’s (what the Claimant was not paid) profits (the Supreme Court’s approach in the Shaving Cream Packaging case holding that the defendant intercepted the claimant’s profits).

principles of Polish contract law. At the core of the theory lies the notion that an award of gain-based damages is the next best thing to performance, and it being awarded “is the law’s attempting to reach this nearest approximation of the wrong not having occurred.”464 The approach finds strong grounding in the primacy of specific performance under the rule of real performance (zasada realnego wykonania zobowiązania). Such primacy namely indicates a strong protection of the performance interest, the infringement of which—due to a breach of contract—should justify gain-based damages. Based on this I believe that substitutive compensation and the rights-based approach form a functional equivalent of the rule of real performance and Article 471 of the Civil Code. Such an approach would be workable under Polish law in the manner indicated below (Table 3.3).

464

Stevens (2007), p. 58.

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Compensation Reparative compensation

Compensatory awards

Substitutive compensation

Wrotham Park

Blake

Lost bargain

Interception of profits

Reasonable fee

Disgorgement

Fig. 3.5 The sliding scale of compensation (full version)

If one were to graphically outline the Polish functional equivalent of gain-based damages situated on a compensatory scale, it would present as follows (Fig. 3.5). By means of a final remark, Ralph Cunnington strongly criticized any compensatory interpretation of Blake stating that such attempts to rationalize that case are “utterly unconvincing. They are predicated on the outdated view that only compensatory relief is available for breach of contract.”465 Indeed, also from a Polish standpoint measures of damages based on a reasonable fee or a total disgorgement have been strongly criticized.466 This is why it is justified to also try to approach gain-based remedies from a restitutionary standpoint, which is the goal of the next chapter.

References Books Arvind TT (2022) Contract Law, 3rd edn. Oxford University Press, p 529 Benson P (2004) Disgorgement for breach of contract and corrective justice: an analysis in outline. In: Neyers J et al (eds) Understanding unjust enrichment. Hart Publishing, p 311 Cunnington R (2002) The measure and availability of gain-based damages for breach of contract. In: Saidov D, Cunnington R (eds) Contract damages domestic and international perspectives. Hart Publishing, p 207 Cunnington R (2008) The inadequacy of damages as a remedy for breach of contract. In: Rickett C (ed) Justifying private law remedies, vol 115. Hart Publishing

465 466

Cunnington (2008b), p. 569. See Kaliński (2014), ch. II, § 9, pt. VII.3, 4.

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Commentaries Bednarek M (1997) Mienie. Komentarz do art. 44-553 Kodeksu cywilnego. Kantor Wydawniczy Zakamycze Borysiak W (2019a) Article 353 of the Civil Code Commentary. In: Osajda K (ed) Kodeks cywilny. Komentarz Borysiak W (2019b) Article 471 of the Civil Code Commentary. In: Osajda K (ed) Kodeks cywilny. Komentarz Gawlik Z (2014) Article 471 of the Civil Code Commentary. In: Kidyba A (ed) Kodeks cywilny. Komentarz. Tom III. Zobowiązania. LEX Kaliński M (2014) Szkoda na mieniu i jej naprawienie. C.H. Beck Katner W (2014) Article 44 of the Civil Code Commentary. In: Księżak P, Pyziak-Szafnicka M (eds) Kodeks cywilny. Komentarz. Część ogólna. System Informacji Prawnej LEX Koch A (2019) Article 361 of the Civil Code. In: Gutowski M (ed) Kodeks cywilny. Tom II. Komentarz. Art. 353–626. Wydawcnictwo C.H. Beck. Machnikowski P (2017c) Article 353 of the Civil Code Commentary. In: Gniewek E (ed) Kodeks cywilny. Komentarz Nowacki A (2019) Article 721 of the Civil Code Commentary. In: Osajda K (ed) Kodeks cywilny. Komentarz Oetker H (2016) BGB § 249 Art und Umfang des Schadensersatzes. Münchener Kommentar zum BGB Olejniczak A (2014) Article 363 of the Civil Code Commentary. In: Kidyba A (ed) Kodeks cywilny. Komentarz. Tom III. Zobowiązania. LEX Ruszkiewicz B (2014) Art. 471. In: Ciszewski J (ed) Kodeks cywilny. Komentarz. Wydawnictwo Prawnicze LexisNexis Rzetecka-Gil A (2011) Article 471 of the Civil Code Commentary. In: Kodeks Cywilny. Komentarz. Zobowiązania – część ogólna. System Informacji Prawnej LEX Stojek G (2018) Article 471 of the Civil Code Commentary. In: Fras M, Habdas M (eds) Kodeks cywilny. Komentarz. Tom III. Zobowiązania. Część ogólna (art. 353-534) Świgroń-Skok R (2019) Article 44 of the Civil Code Commentary. In: Załucki M (ed) Kodeks cywilny. Komentarz Żelechowski Ł (2019) Article 44 of the Civil Code Commentary. In: Osajda K (ed) Kodeks cywilny. Komentarz

Articles Barnett K (2012) Accounting for profit for breach of contract theory and practice 1. Hart Publishing Ltd Benson P (2007) Contract as a transfer of ownership. William Mary Law Rev 48:1673 Buckland W (1944) The nature of contractual obligations. CLJ 8:247 Burrows A (2002) Are ‘Damages on the Wrotham Park Basis’ compensatory, restitutionary or neither. In: Saidov D, Cunnington R (eds) Contract damages domestic and international perspectives. Hart, pp 165, 166 Caggiano I (2016) Disgorgement, compensation and restitution: a comparative approach. Global Jurist 16:243 Cunnington R (2004) Rock, restitution and disgorgement. J Obligat Remed 3:46, 47 Cunnington R (2008b) The assessment of gain-based damages for breach of contract. Mod Law Rev 71:559 Czachórski W (1982) O ochronie autorskich praw majątkowych przez wydanie uzyskanych korzyści. Annales Universitatis Mariae Curie-Skłodowska 29:1

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Eisenberg MA (2006) The disgorgement interest in contract law. Mich Law Rev 105:559 Friedmann D (1980) Restitution of benefits obtained through the appropriation of property or the commission of a wrong. Colum Law Rev 80:504 Hull J (2019) Case Comment. A reappraisal of negotiating damages: the Supreme Court judgment in Morris-Garner v One Step (Support) Ltd. EIPR 41:180 Jastrzębski J (2003) Zwalczanie nieuczciwej konkurencji. Glosa do wyroku SN z 11.10.2001 r. (II CKN 578/99). Przegląd Prawa Handlowego 50 (April 2003) Keglević A (2015) Disgorgement of profits in Croatian law. In: Hondius E, Janssen A (eds) Disgorgement of profits: gain-based remedies throughout the world. Springer, p 373 McCamus J (2003) Disgorgement for breach of contract: a comparative perspective. Loy Los Angeles Law Rev 36:943 McInnes M (2004) Account of profits for common law wrongs. In: Degeling S, Edelman J (eds) Equity in commercial law. NSW Lawbook Co., p. 405, 416 McInnes M (2006) Gain, loss and the user principle. Restitution Law Rev 16:76 McKendrick E (1999) Breach of contract and the meaning of loss. CLP 52:37, 71 Ogus A (2002) The economic basis of damages for breach of contract: inducement and expectation. In: Saidov D, Cunnington R (eds) Contract damages domestic and international perspectives. Hart Publishing, p 125, 135 Pearce D (2003) Property and contract: where are we? In: Hudson A (ed) New perspectives on property law, obligations and restitution, p 87 Poon N (2019) Turning example into exemplary: ten years on, the curious case of Attorney-General v Blake. Sing Law Rev 29:139 Rickett J (2001) Disgorgement for breach of contract: my loss, your gain? Auckland Univ Law Rev 9:375 Roberts C (2008) A commonwealth of perspective on restituioanry disgorgement for breach of contract. Wash Lee Law Rev 65:945 Rusch C (2001) Restitutionary damages for breach of contract: a comparative analysis of English and German law. South Afr Law J 118:59 Saidov D (2008) The law of damages in international sales: the CISG and other international instruments. Hart Publishing, p 33. et seq Schlechtriem P et al (2001) Restitution and unjust enrichment in Europe. Eur Rev Priv Law 2&3: 377 Siems M (2003) Disgorgement of profits for breach of contract: a comparative analysis. Edinburgh Law Rev 7:27 Smith LD (1994) Disgorgement of the profits of breach of contract: property, contract and “Efficient Breach”. Can Bus Law J 24:121, 122–123 Sousa Antunes H (2015) Disgorgement of profits in Portugal: a journey between the present and the future. In: Hondius E, Janssen A (eds) Disgorgement of profits: gain-based remedies throughout the world. Springer Stevens R (2007) Torts and rights. Oxford Publishing, p 60 Tay YS, Ang AL (2018) Wrotham park damages. Principles and practical issues. SAL Prac 7 Wójcik S (1977) Ochrona własności. In: Igantowicz J (ed) System Prawa Cywilnego Prawo własności i inne prawa rzeczowe, p 509 Żelechowski Ł (2003) Odszkodowanie za czyn nieuczciwej konkurencji. Glosa do wyroku Sądu Najwyższego z 11.10.2001 r. (II CKN 578/99). Przegląd Prawa Handlowego 52 Zoll F (1938) Przedmiot praw rzeczowych. Kwartalnik Prawa Prywatnego 3:203

Chapter 4

Finding Gain-Based Remedies Under Restitutionary Principles

The previous chapter analyzed gain-based remedies and their availability under Polish law through a compensatory standpoint. This chapter, on the other hand, will utilize a different perspective, namely, a restitutionary one. The difference between the two is of paramount importance: compensation is loss-based recovery while restitution is gain-based.1 Restitution deals with either “giving back or generally restoring a previous situation, which has been altered”2 or “‘giving up’ of a benefit made at the expense of the claimant because a wrong has been committed against her.”3 A restitutionary analysis therefore “shifts the focus away from the effect of the wrong on the claimant’s position to the effect of the wrong on the defendant’s position.”4 The previous chapter used the term gain-based damages to denote gain-based remedies for breach of contract understood as a compensatory remedy. As far as this chapter’s terminology is concerned, of the literature available on the subject, the best term for gain-based remedies for breach of contract in a restitutionary context is, in my view, restitutionary disgorgement for breach of contract. The term was applied by Caprice Roberts.5 This shall be the term used throughout this chapter. The chapter’s overarching functional question is whether there exists a Polish equivalent of the English restitutionary disgorgement for breach of contract. I posit that such a possibility exists under the Polish rules of unjust enrichment. To prove this, the chapter is divided into three parts. Since the chapter deals with a restitutionary analysis, it is necessary to firstly describe what the English law of restitution is and whether Polish law possess a functional equivalent to that body of law (Sect. 4.1). In the second part I shall touch upon the interrelation between

1

See Birks (2005), p. 11. Caggiano (2016), pp. 243, 256. 3 Barnett (2012), p. 1. 4 Burrows (2002), pp. 165, 176. 5 See Roberts (2008), p. 945. 2

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. Zatorski, Gain-based Remedies for Breach of Contract, https://doi.org/10.1007/978-3-031-25452-9_4

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restitution and contract law (Sect. 4.2), since it is necessary to establish whether a restitutionary remedy is possible for a breach of contract. The third part will be dedicated towards finding a functional equivalent of restituionary disgorgement for breach of contract under Polish law (Sect. 4.3). It will be further divided into two parts, the first of which will analyze the problem of the so-called restituionary interest under contract law (Sect. 4.3.1); a prerequisite in my opinion necessary to introduce restitutionary disgorgement for breach of contract. The second part will explore unjust enrichment as the mechanism for protecting the restitutionary interest for breach of contract (Sect. 4.3.2).

4.1

The Lack of a Common Language of Restitution

The logical—yet deceptive—first step in the endeavors to find restitutionary disgorgement for breach of contract under Polish law would simply be to find it in the English law of restitution and then to find a functional equivalent in the Polish law of restitution. This would be in my opinion an erroneous starting point for this analysis. Restitution is a tough nut to crack from a comparative standpoint. Namely, the English and Polish approaches towards restitution are violently different. As I will expand on further, they do not constitute functional equivalents6 that would form a viable starting point in finding restitutionary disgorgement for breach of contract. Under English law, restitution is a separate body of law.7 For Graham Virgo “[t]he Law of Restitution is like a mountain. From a distance it may appear somewhat insignificant; indeed, some have dismissed it simply as a hill, a minor bump on the legal landscape. But, on closer inspection, it is definitely a mountain.”8 He continues: “The law of restitution is concerned with the award of a generic group of remedies which arise by operation of law and which have one common function, namely to deprive the defendant of a gain rather than to compensate the claimant for loss suffered. These are called the restitutionary remedies”9 Unlike contractual remedies “restitutionary remedies do not provide a response to one party’s failure to satisfy another party’s expectation under the contract.”10 Therefore, “[t]he law of restitution is the law of gain-based recovery, just as the law of compensation is the

6

The most important obstacle being that the Polish legal system does not distinguish a separate body of law called the law of restitution. 7 Virgo (2015), p. 3 (“[I]t is only because there are a group of remedies which have a common function of depriving defendants of gains that we are able to assert that there is an independent body of law which can be called the law of restitution, a body of law which is concerned with the defendant’s liabilities to orders made by the court.”). 8 Id. 9 Id. 10 Poole (2010), p. 409.

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law of loss-based recovery.”11 One might therefore conclude that both bodies of law are in somewhat opposition. Moreover—for some—“[t]he law of restitution aims at preventing unjust enrichment.”12 Regarding unjust enrichment, some authors note: “In England . . . lingering doubts remain about the need for a law of unjust enrichment, notwithstanding the recognition of the general principle and the efforts by courts and academics to shape the principle against unjust enrichment into a set of coherent legal rules . . . ..”13 The Polish legal system does not distinguish a separate law of restitution. Moreover, as was already said, Polish law does not put the compensatory principle and the restitutionary principle in opposition (this is starkly visible when reading Article 363 § 1 of the Civil Code) (Sect. 3.3).14 To the contrary, the restitutionary principle is deemed to be rather a subset of the compensatory principle, forming part of the differentiation method to assess damages.15 Its exact content is summed up in the rule that the injured party cannot become better off than it would have been had the damaging event not occurred (ne quis ex damno suo lucrum faciat; Bereicherungsverbot des Geschädigten).16 However, as will be shown later (Sect. 4.3.2.1), the approach of Polish law—similarly to English law—as to the scope of unjust enrichment, is uncertain. In summary, simply comparing the English and Polish law of restitution is an erroneous avenue. Peter Schlechtriem rightfully expressed the opinion that “the law of restitution . . . is not an isolated body of law subject to its own peculiar sets of rules, but part of a complex web with many interconnections which take account of what is going on in other parts of law.”17 Theres is after all “no common core to the law of restitution.”18 Therefore, the problem should rather be approached through the restitutionary principle and whether it has any place in contract law. This will be covered next.

11

Birks (2005), p. 3. Friedmann (1980), p. 504. 13 Schlechtriem et al. (2001), pp. 377, 378. 14 See Kaliński (2018), pp. 6, 70. 15 See id. 16 See id., at 90; see also Kryla-Cudna (2018), ch. I, § 6; Kaliński (2014), ch. II, § 1, pt. X. 17 Schlechtriem et al. (2001), pp. 377, 379. 18 Id. 12

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The Interrelation Between Contract and Restitution

There seems to be a discrepancy between the English and Polish restitutionary principles. The English restitutionary principle states that one cannot be permitted to profit from one’s wrongdoing.19 The Polish restituionary principle, on the other hand, states that the injured party cannot become better off than it would have been had the damaging event not occurred.20 In both jurisdictions these principles are strongly present in the law of contract. Despite this, the use of the term restitutionary for an analysis of gain-based remedies breeds disputes between common law and civil law lawyers. On the one hand, Mathias Siems argues that the use of the term restitution is unfortunate: If you have to “re-“stitute (cf Latin restituere) something, this implies that you have to give it – or at least a substitute – back to its proper owner. Yet the problem . . . is that the benefit which the defendant gained from the breach of contract had not belonged to the claimant and would not have been gained by him or her.21

This argument seems valid especially under German law which provides for restitutionary remedies for breach of contract in specific situations. Namely, “the aggrieved party can generally claim ‘Naturalherstellung’, i.e. restitution in kind. He can force the debtor to bring about restitution in kind, and he does not have to put up with financial compensation.”22 Indeed, this is also the case under Article 363 § 1 of the Civil Code which also allows a claimant to demand restitutio in natura. On the other hand, since restitutionary remedies may also—in effect—operate to restore one’s loss, Graham Virgo argues that even in such situations “[r]estitutionary is clearly the most appropriate word to describe such remedies, since their function is to restore to the claimant the value of the thing, the thing itself, or its substitute, which the claimant had lost.”23 In my opinion this is a convincing statement, and the term restitution should be used in this chapter. Regardless of how one uses the term restituionary, I posit that the Polish equivalent of restitutionary disgorgement for breach of contract cannot be found by simply comparing the English law of restitution and the Polish law of restitution. The simplest reason being that the latter does not exist (Sect. 4.1). Nonetheless, there do exist functional equivalents of certain institutions that may lead this analysis on the right track. After all, both legal systems contain the remedy of restitution. Both the English and Polish legal systems apply a bifurcated approach towards rights and duties, which are divided into in rem and in personam. The idea is derived

19

McCamus (2003), pp. 943, 944; see also Halifax Bldg. Soc'y v. Thomas, [1995] 4 All E.R. 673, 682 (C.A.) (Eng.). 20 See Kaliński (2018), p. 6, 90. 21 Siems (2003), pp. 27, 28. 22 Rusch (2001), pp. 59, 70. 23 Virgo (2015), p. 4.

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from the Roman law which applied this approach towards actions.24 The English legal system divides restitutionary remedies into two categories. Firstly, personal restitutionary remedies which operate in personam. Through the operation of these remedies “the defendant is liable to pay the value of the benefit to the claimant rather than transfer the benefit itself.”25 In other words, “[t]hese remedies restore to the claimant the value of a benefit which the defendant has received”26 Personal restitutionary remedies seem to be vaguely similar to Polish remedies based on personal liability (odpowiedzialność osobista). A defendant is namely personally liable, if the defendant and only the defendant bears liability with its own patrimony.27 Secondly, under the English legal system there exist proprietary restitutionary remedies which operate in rem.28 Their function “is to enable the claimant to assert his or her property rights in an asset which is held by the defendant.”29 Analogously, Polish law contains in rem liability. This type of liability is provided for in the law of property (prawo rzeczowe), as such liability operates only towards objects that are individually established.30 Such liability cannot be personal, as it is borne by each owner of the relevant object.31 This division is relevant when speaking about restitutionary disgorgment, since rights in rem are deemed to be worthy of restitutionary protection;32 a noteworthy example being the Surrey judgment (Sect. 2.2.2) where the court did not award the Wrotham Park remedy for an ordinary breach of contract, as the contract did not pertain to any property rights.33 This division becomes all the more relevant for this analysis, as Peter Benson quite rightfully posed the question: ”[D]oes the fact that contractual rights are in personam rather than in rem preclude disgorgement as a measure of recovery?”34 In answering such a question as regards English law, Daniel Friedmann acknowledged there exists an overlap between the law of restitution and the law of contracts.35 An important indication of this overlap in the common law is Section 39 in the US Restatement (Third) of Restitution and Unjust Enrichment.36 Section 39 namely allows for disgorgement of a breaching party’s profits in certain situations

24

See Pearce (2003), pp. 87, 88. Virgo (2015), p. 4. 26 Id. 27 See Radwański and Olejniczak (2016), p. 21. 28 Virgo (2015), p. 4. 29 Id. 30 See Radwański and Olejniczak (2016), p. 24. 31 Id. 32 See Roberts (2008), pp. 945, 971. 33 See generally Surrey. 34 Benson (2004), pp. 311, 312. 35 Friedmann (1980), p. 504. 36 See Roberts (2008), pp. 945, 947. 25

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which will be explored further later (Sect. 4.3.1). The introduction of Section 39 has been deemed a “fundamental shift away from focus on the plaintiff’s diminished position to the defendant’s wrongdoing.”37 Such introduction of restitutionary principles into contract law seems to be present in analyses of both Wrotham Park and Blake. Namely, as was mentioned (Sect. 3.4), Ralph Cunnington, strongly criticized a compensatory interpretation of Blake.38 He noted that the Blake remedy was “an award requiring the defendant to disgorge or ‘give up’ the profits that he made by the wrong.”39 Regarding Wrotham Park, he proposed to view the Wrotham Park remedy as an objective gain-based award based on conventional restitutionary principles; not as an objective subtraction from the claimant’s dominium.40 He posited that the Wrotham Park remedy is a “gain-based award, calculated by reference to the objective benefit acquired by the defendant as a result of its trespass.”41 For Andrew Burrows under a restitutionary interpretation of negotiating damages “[t]hose damages have been measured by the fair proportion of the profits made by the wrong (although it is possible, in some cases, to say that the measure corresponds to the expense saved by the wrong). On this approach the hypothetical bargain is merely an assessment mechanism for arriving at what is a fair proportion of profits to strip away.”42 There are indeed indications in the Blake opinion that both the Blake and Wrotham Park remedies should be viewed as restitutionary. Firstly, the House of Lords took a view that Blake’s obligation is considered to have been “closely akin to a fiduciary obligation,”43 which, after all, is the purview of restitution. Secondly, Lord Nicholls underlined the importance of the existence of a restitutionary remedy for breach of contract: 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

37

See id., at 953. See Cunnington (2008b), pp. 559, 569. 39 Cunnington (2004), pp. 46, 54. 40 See Cunnington (2008b), pp. 559, 565 et seq.; see also Cunnington (2004), pp. 46, 48 (“It is clear that the damages awarded in Wrotham Park were not compensatory in the ordinary sense because the value of the Wrotham Park Estate was, ‘not diminished by one farthing.’ Nor were they an account of profits.”); see also Cunnington (2002), pp. 207, 226 (“[T]he award focuses on the objective gain acquired by the defendant rather than the objective subtraction from the claimant’s dominium.”). 41 Cunnington (2008b), pp. 559, 565. 42 Burrows (2002), pp. 165, 177–179 (“The great strength of the restitutionary analysis is, it is submitted, that it can realistically explain all the cases in which ‘Wrotham Park damages’ have been awarded and yet a compensatory analysis is unrealistic. Those damages have been measured by the fair proportion of the profits made by the wrong (although it is possible, in some cases to say that the measure corresponds to the expense saved by the wrong.”). 43 AG v. Blake, at 268, 287. 38

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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.44

Thirdly, in Blake, Lord Nicholls explained Wrotham Park on the basis of this principle.45 Namely, he “took a restitutionary interpretation of Wrotham Park . . ., in which he saw Wrotham Park as the bridge to the account of profits.”46 However— unlike the Wrotham Park remedy—the House of Lords limited the application of an account of profits for breach of contract to seemingly limited circumstances, i.e. when “the plaintiff had a legitimate interest in preventing the defendant's profit-making activity.”47 Moreover, the presupposition that the Wrotham Park remedy is restitutionary seems to find merit in the words of Mance LJ in Experience Hendrix who also deemed the Wrotham Park remedy as gain-based: Whether the adoption of a standard measure of damages represents a departure from a compensatory approach depends upon what one understands by compensation and whether the term is only apt in circumstances where an injured party's financial position, viewed subjectively, is being precisely restored. The law frequently introduces objective measures (e.g. the available market rules in sale of goods) or limitations (e.g. remoteness) . . . . In a case such as Wrotham Park the law gives effect to the instinctive reaction that, whether or not the appellant would have been better off if the wrong had not been committed, the wrongdoer ought not to gain an advantage for free, and should make some reasonable recompense. In such a context it is natural to pay regard to any profit made by the wrongdoer (although a wrongdoer surely cannot always rely on avoiding having to make reasonable recompense by showing that despite his wrong he failed, perhaps simply due to his own incompetence, to make any profit). The law can in such cases act either by ordering payment over of a percentage of any profit or, in some cases, by taking the cost which the wrongdoer would have had to incur to obtain (if feasible) equivalent benefit from another source.48

The interrelation between Wrotham Park and Blake under a restitutionary analysis has been interpreted as “a sliding scale between expense saved through a fair proportion of profits and on to an account of all profits.”49 In other words, “an account of profits operates at the top of the restitutioanry scale while restitutionary damages operate at the bottom: in the middle (where a fair proportion of profits is being stripped) they can both operate.”50 Thanks to this sliding-scale important policy objectives became achievable: Removing a fair proportion of profit from a wrongdoer seems a sensible mid-position, whether justified by a policy of reasonable deterrence or corrective justice, and is, it is submitted, a valid interpretation not only of the discretionary allowance afforded in some

44

Id., at 277. See id., at 284 (”[C]ircumstances 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.”). 46 Burrows (2002), pp. 165, 178. 47 AG v. Blake, at 268, 285. 48 Experience Hendrix, ¶ 26. 49 Burrows (2002), pp. 165, 178. 50 Id., at 177. 45

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account of profits cases but also of the award of damages, using a hypothetical bargain approach, in a case like Wrotham Park.51

It is this sliding scale of restitution which in my opinion lies at the core of the restituionary approach. Both the Wrotham Park and Blake remedies fit within such a framework under the guise of restitutionary disgorgement for breach of contract. The subsequent part of this chapter will be dedicated towards establishing whether a functional equivalent of restitutionary disgorgement for breach of contract exists under Polish law.

4.3

Restitutionary Disgorgement for Breach of Contract

As I have posited earlier, there does not exist a functional equivalent of the English law of restitution in Polish law (Sect. 4.1). For this reason a different starting point should be found in the endeavors to find restitutionary disgorgement for breach of contract in Polish law. This starting point is in my opinion the restitutionary interest. A short analysis of such an interest will therefore constitute the first step (Sect. 4.3.1). As the second step I shall posit that this restitutionary interest and consequently a restitutionary analysis may be functionally equated to an unjust enrichment claim under Polish law (Sect. 4.3.2). In order to apply unjust enrichment in such a context two prerequisites need to be met. Firstly, a wide understanding of unjust enrichment should be utilized (Sects. 4.3.2.1 and 4.3.2.2) and secondly, a wide understanding of the subtraction prerequisite should be applied (Sect. 4.3.2.3).

4.3.1

Establishing a Restitutionary Interest

As was already mentioned, contract law recognizes the existence of certain interests that contract law seeks to protect: the expectation and reliance interests (Sect. 3.1.2). In this context Graham Virgo poses the question whether—apart from the expectation and reliance interests—there exists a third interest.52 He asks the question: [I]n those cases where the claimant did not suffer any loss as a result of the breach of contract but the defendant obtained a benefit, or where the value of the defendant’s benefit arising from the breach exceeds any loss suffered by the claimant, should it be possible for the remedy which is awarded for the breach of contract to be ascertained by reference to the value of the benefit which had been obtained by the defendant?53

51

Id., at 179. Virgo (2015), p. 468. 53 Id. 52

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One of the answers is to say that such an interest exists when the claimant’s interest boils down to an interest in warranting specific performance.54 Indeed, in Blake the House of Lords underlined that a requirement for a gain-based award for breach of contract is the existence of a legitimate interest in the contract’s performance.55 Some legal scholars deem restitutionary disgorgement to be a monetized form of specific performance.56 This notion seems to echo substitutive compensation which has already been covered (Sect. 3.3.2). Daniel Friedmann argued that performance of a contract that was withheld from a party is in essence a deprivation of that party’s interest.57 In a restituionary context this has been connected with the so-called restitution interest “which focuses not on the party’s loss but on the breaching party’s gain in order to prevent that party from being unjustly enriched . . . .”58 The breach of this interest—as will be argued later (Sects. 4.3.2.3.1 and 4.3.2.3.2)—may either be viewed as a subtraction from the claimant’s property or as a wrong. As was mentioned earlier (Sect. 2.1), the term restitution may have two meanings. On the one hand, restitution may require one to give back a gain; on the other, it may require one to give it up.59 A restitutionary interest based on such differing understandings is bifurcated by the law of the United States into the restitution interest and the disgorgement interest. The US Restatement of Contracts recognizes only the former, i.e. a party’s restitution interest, and defines it as a party’s “interest in having restored to him any benefit that he has conferred on the other party.”60 In other words, the restitution interest “is used to describe the situation in which the aggrieved party seeks to recover from the defaulting party a benefit which the former has conferred on the latter by performing his obligations under the contract.”61 This interest thus requires one to give back a gain. Moreover, Section 39 of the Restatement (Third) of Restitution and Unjust Enrichment allows for restitution for breach of contract in three situations: deliberate breach, where damages do not afford adequate protection to the promisee’s contractual entitlement, and the breach is profitable.62 The American legal scholar, Melvin Eisenberg, has distinguished an additional interest: the disgorgement interest, “which is the promisee’s interest in requiring the 54

See Roberts (2008), pp. 945, 978. AG v. Blake, at 268, 287; see also Edelman (2002), pp. 149–150 (“The additional limitation on gain-based damages for a breach of contract introduced by the House of Lords in the Blake case is a requirement that the claimant have a “legitimate interest” in the performance of the contract. This limitation upon gain-based damages, unique in cases of breach of contract, operates to deny the same protection to contractual interests which the law has traditionally afforded to other property rights, unless it is satisfied.”). 56 See Roberts (2008), pp. 945, 954 (quoting Beatson (1991), p. 17). 57 See Friedmann (1980), pp. 504. 515. 58 Saidov (2008), p. 33; see also Arvind (2022), p. 523. 59 See Virgo (2015), p. 5. 60 Restatement (Second) of Contracts § 344 (1981). 61 Treitel (2012), p. 83. 62 Restatement (Third) of Restitution and Unjust Enrichment § 39 (2011). 55

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promisor to disgorge a gain that was made possible by her breach but did not consist of a benefit conferred on her by the promisee.”63 He further differentiates the disgorgement interest from the restitution interest: Cases involving the recovery of a wrongdoer’s gain are of two types. In the first type, the plaintiff seeks to recover the value of a benefit the plaintiff conferred upon the wrongdoer. This type of recovery protects the interest that Restatement Second section 344 calls the restitution interest. In the second type, the plaintiff seeks to recover the value of a gain that resulted from or was made possible by the defendant’s wrong, but did not consist of a benefit that the plaintiff conferred on the defendant. This type of recovery protects the disgorgement interest.64

In other words, this interest requires one to give up a gain. Melvin Eisenberg criticized Section 344 of the US Restatement Second of Contracts for its omission of the disgorgement interest.65 However, the necessity to distinguish between a restitution and disgorgement interest is in my opinion unnecessary, since I posit to treat the restitution interest in a broad fashion (Sect. 2.3), as encompassing what Melvin Eisenberg dubbed the disgorgement interest. Hence, restitution under this analysis contains both the obligation to give back and give up a gain. Does Polish law make room for such a broad interest, i.e. an interest that requires one to give back or give up a gain? As already established (Sect. 4.1), Polish law does not recognize a separate body of law similar to the law of restitution. Concordantly, there does not seem to be a functional equivalent of a restitution interest. However, I will endeavor to establish in the subsequent part that the Polish law of unjust enrichment has the potential to safeguard such an interest and play the same function as the English restitutionary disgorgement for breach of contract. In the subsequent analysis I posit that the protection of the restitution interest is made possible through unjust enrichment. It will be noticeable that—probably inadvertently—Polish debates on the scope of unjust enrichment echo English debates on the scope restitution. Hence, the tension caused by James Edelman’s introduction of two measures of gain-based remedies—restituionary damages and disgorgement damages (Sect. 2.1)—can be gleamed also in Polish debates.

4.3.2

Unjust Enrichment as the Underlying Principle of Restitutionary Disgorgement for Breach of Contract

Among the broad category of remedies is located what is most relevant to this chapter, namely, traditionally-understood restitution, i.e. restitution which as a response to autonomous or subtractive unjust enrichment.66 Graham Virgo deems

63

Eisenberg (2006), pp. 559, 560–561. Id., at 563. 65 Id., at 560. 66 Poon (2019), pp. 139, 143. 64

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this as the substantive sense of unjust enrichment, namely “a substantive principle which can be used to determine when restitutionary remedies should be available.”67 To remind at this point of Rafał Zakrzewski’s taxonomy, an award of restitution for unjust enrichment fits into the category of replicative remedies—those which restate or replicate primary rights—and its sub-class, i.e. those that replicate specific remedies (Sect. 2.1).68 Yet unjust enrichment remains a strange creature in civil law; Daniel Friedmann acknowledged that it is even difficult to define.69 For Graham Virgo it is connected with the law of obligations: as “liability for unjust enrichment is properly regarded as falling within the law of obligations and it should be treated as being on a par with the law of tort and law of contract.”70 Yet it must be treated separately. Thus, Peter Birks calls unjust enrichment a tertium quid—not a wrong and not a contract—a third kind of causative event that breeds liability.71 In other words, a wrong cannot breed a cause of action under unjust enrichment.72 Wrongs are namely encompassed by tort.73 Hence, for Peter Birks analyzing Blake under the unjust enrichment regime is an erroneous dressing up of this case in the language of unjust enrichment.74 This is due to the notion that the liability in that case flows from the wrong.75 Equally contract law is a separate body, since “liability for breach of contract arises from the agreement itself, liability for unjust enrichment is imposed by operation of law and does not depend on any agreement having been made between the parties.”76 Nonetheless, Peter Schlechtriemm argued that policy-wise in certain cases unjust enrichment may even serve as a better remedy for contractual claims than a wide notion of damages.77 Hence, as Illara Caggiano underlined, to

67 A principle is defined as “a generalized rule of law which has explanatory force in synthesizing complex policies and doctrines in a simple pithy statement.” See Virgo (2015), pp. 7–9. 68 Zakrzewski (2005), p. 81. 69 Friedmann (1980), p. 504. 70 Virgo (2015), p. 51. 71 See Birks (2005), pp. 8–9 (“In short, there is no contract and there is no wrong. This is crucial to the independence of the law of unjust enrichment. Where there is an unjust enrichment, the reason why restitution is obligatory is never a contract and never a wrong”). 72 See id., at 12. 73 See Virgo (2015), p. 51 (“[L]iability for unjust enrichment is very different from these other aspects of the law of obligations, hence the justification for treating it separately. The law of tort is concerned with the identification of wrongdoing, whereas liability for unjust enrichment does not depend on proof of any wrong.”) 74 See Birks (2005), p. 13. 75 See id. 76 Virgo (2015), p. 51. 77 See Schlechtriem et al. (2001), pp. 377, 380 (“If damages are granted liberally, taking into account not only the plaintiff’s loss but also the wrongdoer’s gain, most of the field can be covered by tort or contract law. Nevertheless, there are good grounds to include these issues as part of the law of unjust enrichment, not only because many legal systems do so classify them, but also becauses a clearer analytical focus is provided by keeping damages and disgorgement of gains well apart.”).

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apply unjust enrichment to a contractual context may even go so far as to reconsider this body of law.78 It may be argued under Polish law that in most circumstances a claim for damages is more beneficial for a claimant than an unjust enrichment claim. The topic under review however does not fit the notion of most circumstances. Consequently, it is sensible to analyze whether a claim for unjust enrichment fits the ticket. For an application of unjust enrichment under Polish law as a functional equivalent of restitutionary disgorgement for breach of contract to make sense, I posit that two prerequisites should be met. The two prerequisites touch the two most controversial judicial and academic topics in the field of unjust enrichment: the topic of the scope of unjust enrichment and the topic of defining enrichment and subtraction.79 The first prerequisite is that the norms of unjust enrichment should possess a wide-enough scope to encompass contractual claims; this will be the topic of the next two parts (Sects. 4.3.2.1 and 4.3.2.2). The second prerequisite is that the requirement of subtraction—the enrichment being at the claimant’s expense—be independent of any narrowly-construed patrimonial subtraction (Sect. 4.3.2.3).

4.3.2.1

The Scope of Unjust Enrichment

The exact scope of unjust enrichment under English law is fluid, as—depending on one’s understanding of unjust enrichment—it can either underlie the entirety of the law of restitution, or be—more narrowly—only part of it. To clarify this fluid state of affairs, Graham Virgo divides unjust enrichment into its descriptive and substantive sense.80 The descriptive sense (descriptive unjust enrichment)—on the one hand—simply describes “a state of affairs where the defendant can be said to have been enriched in circumstances of injustice.”81 In that sense unjust enrichment is judicially recognized as underlying the entirety of the law of restitution.82 In the words of Lord Goff in Lipkin Gorman: The recovery of money in restitution is not, as a general rule, a matter of discretion for the court. A claim to recover money at common law is made as a matter of right; and even though the underlying principle of recovery is the principle of unjust enrichment, nevertheless, where recovery is denied, it is denied on the basis of legal principle.83

78

See Caggiano (2016), pp. 243, 257. See Trzaskowski (2018) (listing these two topics as most controversial). 80 Virgo (2015), pp. 8–9. 81 Id., at 8. 82 See Lipkin Gorman v. Karpnale Ltd, [1991] 2 AC 548, 578; see also Virgo (2015), p. 8 (“[T]he descriptive notion of unjust enrichment can be treated as underlying the whole of the law of restitution.”); see also Poole (2010), p. 409 (“The modern law of restitution is firmly based in the notion of unjust enrichment.”). 83 Lipkin Gorman v. Karpnale Ltd, [1991] 2 AC 548, 578. 79

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Such is the approach under the law of the United States where “[u]njust enrichment is just liability for gains, no matter if it is based on wrongdoing or not; any case of restitution is a case of unjust enrichment.”84 On the other hand, as a substantive principle (substantive unjust enrichment), unjust enrichment “can be used to determine when restitutionary remedies should be available.”85 For Graham Virgo the law of restitution cannot be equated with the law of unjust enrichment; for him it namely is “a body of law concerning a common category of remedies which may be awarded in particular circumstances. . . .”86 Only a part of these circumstances are encompassed by unjust enrichment. Similarly, Peter Birks underlines: Restitution, like compensation, is a category of response, not a category of causative event. The causative event is not always unjust enrichment. It follows that the law of unjust enrichment is a subset of the law of restitution, when right to restitution are divided according to their causative events.87

The scope of unjust enrichment is also unclear in civil law jurisdictions. Save for cases of mistaken payments (condictio indebiti) there do not exist many common denominators as to the scope of unjust enrichment on a European level.88 There does however exist a tendency in European private law to differentiate between contractual and non-contractual restitution.89 Such is the example of the Draft Common Frame of Reference (“DCFR”) which does not use the term restitution in a broad fashion but limits its application to the consequences of a contract’s termination.90 Similarly German law which applies the rules of restitution to cases of termination (Rücktritt) and the rules of unjust enrichment (ungerechtfertigte Bereicherung) to cases of a contract’s avoidance or the contract being void.91 This is however not a universal approach as visible in French law which affords the same treatment to avoidance (annulation) and termination (résolution).92 Similarly Article 2041 of the Italian Civil Code treats unjust enrichment as the animating principle for restitution.93 For this reason under Italian law unjust enrichment covers a broad range of

84

Caggiano (2016), pp. 243, 254. Virgo (2015), p. 9. 86 Id., at 17. 87 Birks (2005), p. 17. 88 See Schlechtriem et al. (2001), pp. 377, 379 (“Payments which are made in the absence of any valid obligation to the payee, perhaps on account of mistake, trigger remedies which are regarded as restitutionary in virtually all countries, and which are often explicitly described as ‘condictio indebiti’.”). 89 See Pietro Sirena (2008), pp. 445, 447. 90 See generally Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of Reference (DCFR) (Christian von Bar & Eric Clive eds., Sellier, Munich 2009) [hereinafter DCFR]. 91 See Sirena (2008), pp. 445, 446. 92 See id., at 448. 93 Caggiano (2016), pp. 243, 256. 85

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categories: undue transfer of property, undue performance, or encroachment in someone else’s property.94 The Polish Civil Code seems—firstly—to apply the latter understanding of unjust enrichment. This is however a matter of debate, as will be expanded on more in the subsequent part (Sect. 4.3.2.2). Secondly, the Civil Code seems not to create the same ambiguity on unjust enrichment as English law. As is more characteristic for the continental tradition, the Civil Code treats unjust enrichment as a general category containing undue performance (nienależne świadczenie) and other categories of unjust enrichment.95 Simply put, the Civil Code treats undue performance as a subcategory of unjust enrichment.96 Undue performance is namely the bedrock of unjust enrichment.97 It is enshrined in Article 410 § 2 of the Civil Code: A performance is undue if the person who makes it is not under any obligation or is not under any obligation towards the person to whom he makes the performance, or if the basis of the performance has ceased to exist or the intended purpose of the performance is not attained, or if the legal act binding him to make the performance is invalid and does not become valid after the performance is made.98

Beyond that, unjust enrichment contains categories other than undue performance, including—what English lawyers might call—restitution for wrongs as well as proprietary restitution. Moreover, unjust enrichment contains categories that go beyond the Polish traditional understanding of restitution, i.e. the bringing about of the state prior to enrichment.99 Unjust enrichment namely disgorges the defendant’s gain but need not necessarily bring about the state prior to enrichment.100 This is enshrined in the broad definition of unjust enrichment contained in Article 405 of the Civil Code: Anyone who without legal grounds has gained a financial benefit at the expense of another person is obliged to hand over the benefit in kind, and if this is not possible, to return its value.101

It is glaring that Article 405 leaves the catalogue of covered situations open.102 Due to such broad wording unjust enrichment is a difficult category to classify. Case law has not endeavored to create a clear classification, rather satisfying itself with

94

Id. See Łętowska (2000) ch. I, § 1; see also Radwański and Olejniczak (2016), p. 298; see also Grochowski and Łętowska (2000); Schlechtriem et al. (2001), pp. 377, 380 (“The majority of legal systems seem to prefer the combination of a number of particular types of unjust enrichment claims with a general clause intended to function as a fall-back line.”). 96 See Łętowska (2000), ch. I, § 4. 97 See id., ch. I, § 1. 98 Civil Code (Ewa Kucharska, trans.). 99 See Mostowik (2018), pp. 216, 262. 100 See id. 101 Civil Code (Ewa Kucharska, trans.). 102 See Grochowski and Łętowska (2000), pp. 213, 214. 95

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determining individual and narrow cases.103 Regardless, when reading Article 405 of the Civil Code it may be gathered that the Civil Code imposes four requirements for a claim for restitution in unjust enrichment: (1) (2) (3) (4)

a patrimonial benefit (enrichment), at the expense of another person (subtraction), a connection between the enrichment and the subtraction, without legal grounds.104

Under English law “four elements must be considered for actions in unjust enrichment: the defendant must be enriched; that enrichment must be unjust; the enrichment must come at the expense of the claimant; and a court should consider if any defences apply.”105 Graham Virgo adds a fifth element, i.e.: the engagement of a recognized ground of restitution.106 The multitude of elements point to the conclusion that unjust enrichment in its substantive sense is—at least for some authors— more limited than the broad Polish understanding of unjust enrichment. This is due to the fact that under English law “[u]njust enrichment is firmly established as a category of the law unconcerned with wrongdoing”107 Peter Birks further confirms this by stating that the term unjust “always denotes a reason for restitution which is not a manifestation of consent and not a wrong.”108 Here, however, I must sound a caveat that this is not the only view. Some argue namely in favor of the doctrine of quadration under which unjust enrichment claims are equated with restitution, consequently there exists an underlying principle of unjust enrichment for all restituionary claims.109 Not all scholars, however, share the wide notion of quadration, arguing against a principle of unjust enrichment.110 This work is not however dedicated towards a full institutional comparison of unjust enrichment. The aforementioned arguments are therefore sufficient to conclude at this point. The conclusion thus far seems to be that the Polish and English understanding of unjust enrichment differ; they are most notably not equivalent. The English understanding of unjust enrichment seems to be narrower than the Polish understanding (unless one agrees with the doctrine of quadration). Functionally speaking, English substantive unjust enrichment may at most be equated with Polish undue See Łętowska (2000), ch. I, § 1. See Barta and Markiewicz (2015) (arguing for the necessity to establish a causal connection in copyright infringement cases); but cf. Sokołowski (2014) (noting that this connection is a mere coincidence and cannot be analogous to a causal link.). 105 Edelman (2002), p. 35 (referring to Banque Financière de la Cité v. Parc (Battersea) Ltd [1999] 1 AC 221 (HL) 227 (Lord Steyn) 234 (Lord Hoffmann, with whom Lord Griffiths, Steyn, Clyde and Hutton agreed generally); Portman Building Society v. Hamlyn Taylor Neck [1998] 4 All ER 202 (CA) 206). 106 See Virgo (2015), p. 10. 107 Edelman (2002), p. 33. 108 Birks (2005), p. 13. 109 See Jaffey (2003), pp. 139, 145. 110 See generally id. 103 104

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performance (nienależne świadczenie). James Edelman confirms this narrower understanding by stating that “[t]he archetypal action in unjust enrichment is an action for restitution of a mistaken payment”,111 where the connection between the parties is independent of wrongdoing.112 For this reason, understanding Wrotham Park and Blake under the English approach towards unjust enrichment is untenable. In order for the subsequent analysis to be a meaningful one, the Polish understanding of unjust enrichment should be functionally equated with the broader category of descriptive unjust enrichment, i.e. “a state of affairs where the defendant can be said to have been enriched in circumstances of injustice.”113

4.3.2.2

The Necessity to Apply a Broad Understanding of Unjust Enrichment

Wiktor Serda notes that the function of unjust enrichment depends on the specific legal system.114 And so too do Mateusz Grochowski and Ewa Łętowska point out that the scope of unjust enrichment depends on the architecture of the specific legal system as well as the flexibility of the scholars and practitioners within that system.115 It seems that in itself unjust enrichment can function as a flexible mechanism. Indeed, the principle underlying the entirety of unjust enrichment law is that no one should be enriched without basis at the cost of another.116 This is why the law of unjust enrichment is meant to be a mechanism safeguarding against improper patrimonial shifts.117 Such a policy is known as corrective justice.118 To initially gleam the flexibility of the Polish notion of unjust enrichment, one needs to start with its name. The translation of bezpodstawne wzbogacenie—unjust enrichment—is not exactly accurate. A more accurate translation should be baseless enrichment. Paweł Księżak emphasizes however that the name should not be definitive.119 This is due to the fact the term bezpodstawne—baseless—may be understood in two ways. Either as a technical term or as a term based on fairness.120 According to the former approach unjust enrichment is concerned with enrichments that go against legal norms contained in e.g. statutes or judgments.121 According to the latter approach an enrichment should go against principles of fairness, even if it is

111

Edelman (2002), p. 33. See Birks (2005), p. 13. 113 Virgo (2015), p. 8. 114 Serda (1988), p. 11. 115 See Grochowski and Łętowska (2000), pp. 213, 214. 116 See Księżak (2014). 117 See id.; see also Podrecki and Traple (2017), pp. 365, 394. 118 Virgo (2015), p. 4. 119 See Księżak (2014). 120 See id. 121 See id. 112

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within the law.122 Because of such a broad understanding, the Polish law of unjust enrichment has enormous potential of application to various situations of unjustified transfers, becoming the ultima ratio remedy to correct erroneous patrimonial shifts and fill in gaps in the law.123 This potential however cannot obscure the danger of unjust enrichment becoming too broad a measure, substituting all other measures; a condictio generalissima124 or unjust enrichment sensu largo.125 In this regard Alfred Ohanowicz warned that if applied too broadly, unjust enrichment would be a competing claim towards other claims.126 After all, under both the continental tradition and the common law tradition, restitutionary remedies, including the law of unjust enrichment, are oftentimes a subsidiary mechanism to other norms dealing with patrimonial shifts:127 It is clearly recognized that such remedies are subsidiary to compensatory remedies, so that they are only available where compensatory remedies are inadequate. This will typically be because the claimant has not suffered any provable loss. The remedy of a full account of profits will only be available in the most exceptional of circumstances.128

It may raise concerns that the creation of a condictio generalissima could absorb other institutions.129 As Peter Schlechtriemm noted: “While a general clause clearly has the advantage to be twistable, if unforeseeable needs and developments should occur, it suffers from the necessity of having to develop additional criteria to limit and clarify its scope of application.”130 One such institution may be negotiorum gestio. Under German law negotiorum gestio (unechte Geschäftsführung) provides for the most extensive possibility of disgorgement.131 The provision on negotiorum gestio – § 687(2) BGB132—stipulates: If a person treats the business of another person as his own although he knows that he is not entitled to do so, then the principal can assert claims resulting from sections 677, 678,

122

See id. See Grochowski and Łętowska (2000), p. 213; see also Łętowska (2000), ch. I, § 1, 5; Michalak (2003) 583, 588 - 589 (arguing that unjust enrichment is a general notion encompassing a wide variety of cases of enrichment at the cost of another). 124 See Grochowski and Łętowska (2000), p. 213; see also Ohanowicz (1981), pp. 470, 471. 125 See Mostowik (2018), pp. 216, 225 (arguing that the term under Polish law should only be used for scholarly purposes). 126 See Grochowski and Łętowska (2000), p. 213. 127 See Księżak (2014); see also Mostowik (2018), pp. 216, 268 (arguing that the term under Polish law should only be used for scholarly purposes). This seems to be a trend limited not only to Polish law see Zervogianni (2015), pp. 231, 242 (regarding Greeek law on unjust enrichment). 128 Virgo (2015), p. 480. 129 See Ohanowicz (1981), pp. 470, 471. 130 Schlechtriem et al. (2001), pp. 377, 380. 131 See Siems (2003), pp. 27, 38 (indicating § 667 BGB as the legal basis for wide-reaching disgorgement). 132 Bürgerlichen Gesetzbuch [BGB] [Civil Code], Aug. 18, 1896, Reichsgesetzblatt [RGBl.] 195, as amended [hereinafter BGB]. 123

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681 and 682. If he asserts them, then he is under a duty to the voluntary agent under section 684.133

The provision specifying disgorgment—§ 684 BGB –stipulates: If the requirements of section 683 do not apply, then the principal is obliged to return everything that he obtains as a result of the voluntary agency under the provisions on the return of unjust enrichment. If the principal ratifies the agency, then the voluntary agent is entitled to the claim specified in section 683.134

Some interpret the term “the business of another” (ein fremdes Geschäft) broadly “claiming that it is sufficient, if a contract stipulates that one party must not do something, since this concurs with private autonomy and justice.”135 In regard to Polish law, it is considered that an incursion into the legal sphere of another without a legal basis may constitute an unjust enrichment.136 In certain circumstances such an incursion is not deemed as baseless, including when one (the negotiorum gestor) manages the affairs of another without mandate while acting to the benefit of the other and in accordance with the other’s likely intention, and with due diligence (Article 752 of the Civil Code).137 The relationship of the provisions on negotiorum gestio and unjust enrichment are not entirely clear. Firstly, unlike the BGB, Article 754 of the Civil Code does not provide for disgorgement, in situation where the prerequisites of Article 725 are not met: Whoever manages another person's affairs contrary to the intention of the person whose affairs are managed by him, cannot demand the reimbursement of expenses and shall be liable for damage unless the intention of that person is contrary to statutory law or the principles of community life.138

Secondly, it is considered that the improper management of another’s affairs—either in good faith or in bad faith—may constitute an unjust enrichment.139 Thirdly, the opinions on the subsidiarity of the unjust enrichment claim are unclear. Some consider the negotiorum gestio provisions as excluding the possibility to pursue an unjust enrichment claim.140 Yet some accept the possibility for a claimant to have a choice between a negotiorum gestio claim and an unjust enrichment claim.141 Based on the current status of academic debate, it is, I believe, arguable that negotiorum gestio falls under a general unjust enrichment principle. This would mean that indeed unjust enrichment constitutes a condictio generalissima.

133

BGB (Langenscheidt Translation Service, trans.) Id. 135 Siems (2003), pp. 27, 38. 136 Mataczyński and Saczywko (2019). 137 Id. 138 Civil Code (Ewa Kucharska, trans.). 139 Morek (2019). 140 See Księżak (2014). 141 See judgment [wyrok] SN [Supreme Court] z [of] Jul. 19, 2012, II CSK 724/11; see also Trzaskowski (2018). 134

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For Ewa Łętowska and Mateusz Grochowski the unjust enrichment claim is rather a catch-it-all mechanism which is applied when other restitutionary claims cannot be applied.142 On a similar note, in its judgment of 21 March 2007, the Supreme Court stated that unjust enrichment is a wide claim and should be treated rather as a general rule on the basis of which—firstly—no one should be enriched without a basis at another’s cost; and secondly, which should prevent a blind acceptance of patrimonial shifts that have no economic or even moral basis.143 In his analysis of gain-based remedies under the DCFR Hector MacQueen rightfully asked:144 is it possible to switch from the law on the non-performance of obligations to the law on unjustified enrichment? The Book on unjust enrichment states that “[t]his Book does not affect any other right to recover arising under contractual or other rules of private law.”145 He adds: “But if we have read the rules on damages correctly, they do not provide another right to recover. So there is no problem here.”146 In his opinion nothing in the DCFR precludes a contracting party from turning to rules on unjust enrichment in case of a breach of contract.147 It seems—coming back to Polish law—that despite all odds such a statement may also be made when reading Article 414 of the Civil Code: The provisions of this title do not prejudice the provisions on the obligation to remedy damage.148

This provision is said to weaken the subsidiary nature of unjust enrichment.149 It namely enables a claimant to choose whether to pursue a claim for damages or unjust enrichment.150 Some scholars even expressed the view that it should be up to the claimant to choose which remedy is most appropriate, however this view in the context of contractual liability is divisive.151 The Supreme Court has namely ruled that unjust enrichment cannot serve as a replacement for the remedy of damages152

See Grochowski and Łętowska (2000), pp. 213, 214. Judgment [wyrok] SN [Supreme Court] z [of] Mar. 21, 2007, I CSK 458/06. 144 MacQueen (2010), pp. 177, 188–189. 145 DCFR Artcile VII.-7:101(3). 146 MacQueen (2010), pp. 177, 189. 147 See id. 148 Civil Code (Ewa Kucharska, trans.). 149 See Grochowski and Łętowska (2000), pp. 213, 216. 150 See Osajda (2019); see also Radwański and Olejniczak (2016), p. 405. 151 See Trzaskowski (2018). 152 See Judgment [wyrok] SN [Supreme Court] z [of] Dec. 21, 2005, IV CK 305/05 (holding that unjust enrichment is a subsidiary remedy that only comes into play, if no other remedy is available); see also judgment [wyrok] SN [Supreme Court] z [of] Jul. 6, 2006, III CSK 66/05; judgment [wyrok] SN [Supreme Court] z [of] May 7, 2009, IV CSK 523/08; judgment [wyrok] SN [Supreme Court] z [of] Apr. 8, 2011, II CSK 434/10.; judgment [wyrok] SA w Szczecinie [Court of Appeals in Szczecin] z [of] Dec. 22, 2005, I ACa 525/05.; contra Judgment [wyrok] SN [Supreme Court] z [of] Apr. 12, 2012, II PK 174/11 (holding that a claimant is free to choose whether to pursue either a claim in damages or a claim in unjust enrichment). 142 143

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or subsidiary property remedies.153 Nonetheless, when it comes to contractual liability, in certain cases the Supreme Court accepted the possibility for a claimant to have a choice.154 In my opinion it is arguable that also Article 363 § 1 of the Civil Code permits the application of unjust enrichment as a restitutionary remedy. After all, as was mentioned (Sect. 3.3), Polish law considers also restitution as a means of compensating the claimant. Moreover, the exact mode of restitution rests on the facts.155 Consequently, in a situation where traditional compensatory damages fail due to a lack of an identifiable loss, the ultima ratio remedy of unjust enrichment should be allowed to come into play as the restituionary remedy aimed to compensate (under the broad reading of Article 363 § 1) the claimant. To sum up to this point, there seems to be an internal tension as regards the scope of unjust enrichment. On the one hand, the Civil Code defines unjust enrichment in extremely broad terms. On the other, there exists a backlash against such broad treatment, and consequently it is argued to apply unjust enrichment sparingly. Moreover, the Civil Code also creates a clear division between norms that regulate unjust enrichment—i.e. situations where one becomes unjustly enriched—and norms that regulate restitution—i.e. the ramifications of unjust enrichment.156 The latter category is said to encompass a wider set of situations than the former.157 For these reasons the topic of the broadness of unjust enrichment is not void of ambiguities. The above has meaningful repercussions regarding the interpretation of a variety of legal norms. There namely exist multiple norms in the Polish legal system regulating patrimonial shifts. Is Article 405 of the Civil Code the bedrock of these norms? Unsurprisingly, there is no definitive answer, since some of these norms explicitly refer the interpreter to the general norms (normy ogólne) and some do not.158 Therefore, were one to apply a purely linguistic construction, this would solve the problem fairly quickly. Yet sheer linguistic construction is not always the answer. Others namely argue that several norms imposing an account of profits— which is dubbed by some as unjust enrichment sensu largo—or a reasonable fee remedy, refer, either explicitly or implicitly, to the general norms of unjust enrichment.159 These include inter alia specific provisions of the Civil Code: Articles 39, 4310 and 721 § 2. Apart from those norms, there exist multiple similar ones 153 See judgment [wyrok] SN [Supreme Court] z [of] Mar. 28, 2012, V CSK 157/11 (holding that the legal provisions on proprietary remedies exclude the application of unjust enrichment provisions); see also Trzaskowski (2018). 154 Judgment [wyrok] SN [Supreme Court] z [of] Apr. 12, 2012, II PK 174/11 (holding that a claimant is free to choose whether to pursue either a claim in damages or a claim in unjust enrichment); see also Judgment [wyrok] SN [Supreme Court] z [of] Dec. 7, 2005, V CK 389/05; resolution [uchwała] SN [Supreme Court] z [of] Aug. 19, 2009, III CZP 58/09. 155 See Dybowski (1981), pp. 163, 288. 156 See Łętowska (2000), ch. I, § 4. 157 See id. 158 See Trzaskowski (2018). 159 See Księżak (2014).

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beyond the Civil Code. It is difficult to answer the question whether they form a subcategory of unjust enrichment claims or whether they form a sui generis claim.160 This disputable issue should be explored in greater detail. Breach of confidentiality is an important example in this catalogue. Firstly, because this claim echoes the developments on gain-based remedies under English law exemplified through the recent cases of Pell Frischmann, Vercoe v. Rutland Fund Management and Morris-Garner. Further, in Blake Lord Nicholls held that “[i]f 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.”161 Secondly, the claim for breach of confidentiality is directly regulated in the Civil Code and is consequently regulated in the same normative act as unjust enrichment. To explicitly settle the issue of how such a breach should be approached under Polish law, Article 721 of the Civil Code provides for an account of profits in case a party breaches a confidentiality obligation: § 1. If, in the course of negotiations, a party disclosed information deemed confidential, the other party shall not disclose or convey it to other persons or use it for its own purposes, unless the parties agreed otherwise. § 2. In the case of non-performance or improper performance of the duties referred to in paragraph 1, the entitled person may demand from the other party that the damage be redressed or the obtained benefit be released.162

The claim provided for in § 2 departs from established rules on contractual liability, yet it is deemed to be a form of extraordinary contractual liability.163 The predominant view on Article 721 states that it does not contain an unjust enrichment claim, since it would be impossible to prove patrimonial subtraction in case of a breach of confidentiality rendering the claim for an account of profits worthless.164 For this reason the account of profits claim therein is treated as a sui generis claim.165 The minority view posits that this claim is indeed an unjust enrichment claim.166 The majority view distorts in my opinion the meaning of enrichment and subtraction. In regards to the former, a party may be enriched either through a patrimonial subtraction—meaning that certain assets left the patrimony of one party—or that certain assets did not even enter the patrimony of a party.167 Enrichment is thus

160

See Michalak (2003), pp. 583, 588–589. AG v. Blake, at 268, 285. 162 Civil Code (Ewa Kucharska, trans.). 163 See Machnikowski (2017); see also Kociołek (2017), pp. 73, 79. 164 See Kociołek (2017), pp. 73, 79; see also Grykiel and Olejniczak (2018); Machnikowski and Radwański (2019), pp. 420, 457; Krajewski (2013), pp. 838, 864–865. 165 See Kociołek (2017), pp. 73, 79. 166 See Michalak (2003), pp. 583, 588–589. 167 Ohanowicz (1981), pp. 470, 482. 161

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understood both as a patrimonial benefit as well as an expense saved.168 As a side note, for Andrew Burrows this is indeed the measure of the Wrotham Park and Blake remedies.169 Moreover, the sheer fructification of another’s asset is deemed as an enrichment, even if the other party would not have gained the benefit of such fructification, were that party to try.170 This equates the subtraction and the enrichment with depriving the claimant of a chance to commercially exploit the claimant’s trade secret;171 and it is irrelevant whether this would truly happen. In other words, the requirement of enrichment is understood very broadly. This broad treatment of the prerequisites of unjust enrichment will be the cornerstone of the next part (Sect. 4.3.2.3). Similarly, Article 4310 of the Civil Code, which regulates the exploitation of the business name—the firm—also provides for an account of profits claim: An entrepreneur whose right to a business name is threatened by another person’s actions may demand that such actions be ceased unless they are not unlawful. In the case of an infringement, the entrepreneur may also demand that the effects thereof be removed, that a declaration or declarations of the appropriate form and content be made, and that the financial damage be remedied in accordance with general principles or that the benefits obtained by the infringing person be returned.172

The phrase “in accordance with general principles” is said to explicitly direct one to Article 405 of the Civil Code.173 Quite strangely, the exploitation of a business name is treated differently than exploitation of a trade secret. In the former case scholars argue that subtraction should not be understood as a sheer patrimonial subtraction (i.e. closely akin to loss as will be explained in Sect. 4.3.2.3).174 Under this broader interpretation the sheer exploitation of a business name without a legal basis is sufficient reason to deem the existence of a subtraction and an enrichment of the defendant.175 It must be however noted that such a remark is only valid, if one applies a strict—necessitating a patrimonial shift—interpretation of subtraction. If not—as argued in this work—then it is only natural that the sheer, unjust, exploitation of a business name—being an incursion into the legal sphere of another—is by its very nature a subtraction. There is consequently no need to create a special case of subtraction for Article 4310. Going beyond the Civil Code, intellectual property and unfair competition infringements have become a category of great debate among scholars, as it is

168

See Podrecki and Traple (2017), pp. 365, 394. Burrows (2002), pp. 165, 177 (“The measure of restitutionary damages may therefore be the ‘expense saved’ by the wrong or, more commonly, a ‘fair proportion of profits made’ by the wrong, taking into account a number of discretionary factors.”). 170 See Podrecki and Traple (2017), pp. 365, 394; see also Michalak (2003), pp. 583, 588–589. 171 See Michalak (2003), pp. 583, 588–589. 172 Civil Code (Ewa Kucharska, trans.). 173 See Szwaja and Mika (2009), pp. 774. 865; see also Kociołek (2017), pp. 73, 78. 174 See Szwaja and Mika (2009), pp. 774, 865. 175 See id.; see also Kociołek (2017), pp. 73, 78. 169

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unclear whether unjust enrichment principles apply to such infringements.176 In such cases statutes provide specific regulations which impose an account of profits obligation on the part of the infringer, without providing a more detailed legal regime for such a remedy.177 This therefore begs the question: does such an account of profits fall into the unjust enrichment category? Ewa Łętowska seems to answer in the affirmative due to historical reasons; the language of the Polish Code of Obligations, which preceded the Civil Code, in its regulations on unjust enrichment was more similar to the mentioned statutes.178 This may suggest a legislative intent that an account of profits—even without clearly pointing to the norms on unjust enrichment—should be regulated by unjust enrichment principles. Intellectual property remedies—both copyright and industrial property—are a chief example of the debate on whether the principles of unjust enrichment underlie these provisions. All of them form a peculiar patchwork of remedies that are similar, and yet minor details in their formulation imply meaningful differences. A chief example is Article 79(1) of the Polish Law on Copyright and Related Rights179: The rightholder may request from the person who infringed his/ her author's economic rights to: ... 3) repair the inflicted damage: ... b) by payment of double or, where the infringement is culpable, triple the amount of respective remuneration that would have been due as of the time of claiming it in exchange for the rightholder’s consent for the use of the work; 4) render the acquired benefits.180

Similarly, Article 287 (patent infringement) and Article 296 (trademark infringement) of the Polish Industrial Property Law181 provide for similar remedies as the Law on Copyright and Related Rights: 1. A patent holder whose patent has been infringed or a person entitled to do so under the law may demand that the patent infringer cease the infringement, hand over any unlawfully obtained benefits and, if the infringement is culpable, also repair damage: 1) in accordance with general principles; or

See Łętowska (2000), ch. I, § 4; see also Podrecki and Traple (2017), pp. 365, 391. See Łętowska (2000), ch. I, § 4. 178 See id. 179 Ustawa o prawie autorskim i prawach pokrewnych [Law on Copyright and Related Rights] Feb 4, 1994 [hereinafter Law on Copyright and Related Rights]. 180 Law on Copyright and Related Rights (Centrum Tłumaczeń PWN.PL, trans.). 181 Prawo własności przemysłowej [Industrial Property Law] Jun 30, 2000 [hereinafter Industrial Property Law]. 176 177

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2) by paying a sum of money of an amount corresponding to the licence fee or other relevant remuneration that when claimed would have been due and payable to the holder for consenting to the invention being used. 3. The court may order the person infringing the patent, on this persons’ request, if the infringement is non-culpable, to pay an appropriate sum of money to the holder if ceasing the infringement or the judgement referred to in article 286 is disproportionately severe for the infringer and payment of the appropriate sum of money duly takes into account the holder’s interests.182

It is noticeable that when regulating the remedy of an account of profits both acts do not make any reference to general principles, i.e. Article 405 et seq. of the Civil Code. Can one thus infer from this that in both acts this is a sui generis remedy? Indeed, this is the dominant view.183 Nonetheless, there also exists the countervailing view that the account of profits remedy is a special case of the unjust enrichment remedy.184 An almost identical provision is provided in Article 36a of the Plant Variety Act185 as well as in Article 18(1) of the Suppression of Unfair Competition Act;186 the latter provides the following remedies: In the event of committing an act of unfair competition, the entrepreneur whose interest has been threatened or impaired, may demand: ... 4) repairing of the damage inflicted, according to general principles; 5) release of unjust benefits according to general principles;187

Here, however, scholars raise that Article 18(1)’s reference to general principles is a direct reference to Article 405 of the Civil Code.188 Moreover, Polish courts definitively confirmed this on numerous occasions.189 It is arguable that Article 18(1)(5) of the Suppression of Unfair Competition Act is the chief example of how disjointed the Polish perception of unjust enrichment is. It is further arguable that all three acts—the Law on Copyright and Related Rights, Industrial Property Law, Plant Variety Act and the Suppression of Unfair 182

Industrial Property Law (Centrum Tłumaczeń PWN.PL, trans.). See Podrecki (2015); see also Barta and Błeszyński (2017), pp. 991, 998 et seq (naming the proponents of the majority view). 184 See Barta and Błeszyński (2017), pp. 991, 998 et seq. 185 Ustawa o ochronie prawnej odmian roślin [Plant Variety Act] Jun 26, 2003. 186 Ustawa o zwalczaniu nieuczciwej konkurencji [Suppression of Unfair Competition Act] Apr 16, 1993 [hereinafter Suppression of Unfair Competition Act]. 187 Suppression of Unfair Competition Act (The Polish Law Collection, trans.). 188 See Skubisz et al. (2019). 189 Judgment [wyrok] SN [Supreme Court] z [of] Feb. 24, 2016, I CSK 824/14; Judgment [wyrok] SN [Supreme Court] z [of] Jun. 12, 2015, II CSK 496/14; Ruling [postanowienie] SN [Supreme Court] z [of] Dec. 2, 2009, I CSK 120/09; Resolution [uchwała] SN [Supreme Court] z [of] Aug. 19, 2009, III CZP 58/09; Judgment [wyrok] SA w Warszawie [Court of Appeals in Warsaw] z [of] May 8, 2009, I ACa 1261/08. 183

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Competition Act—contain the same kinds of remedies.190 Janusz Szwaja and Anna Tischner describe Article 18(1)(5) as containing a typical intellectual property remedy.191 Is it therefore a typical intellectual property remedy or should this truly be deemed as the intent of the legislature to put this particular account of profits on a pedestal? Probably the former; as Szwaja and Tischner argue further, a lack of legislative synchronization in creating the unfair competition and intellectual property legislation, contributed to a lack of consistent terminology.192 The notable Shaving Cream Packaging case (Sect. 3.3.2) pertained to the aforementioned provision. In its judgment however the Supreme Court relied on compensatory norms (Article 18(1)(4)) and not on an account of profits (Article 18(1)(5)). Some commentators raised that this was erroneous and that the Supreme Court need not have equated loss to the defendant’s gains when it could have easily applied the unjust enrichment principles of Article 18(1)(5).193 As regards the remedy of an account of profits, the dominant view is that this is an independent—sui generis—remedy from unjust enrichment;194 while the minority view holds that such a remedy is an unjust enrichment claim.195 Further, Anna Tischner, unconvinced by the majority view, criticized its proponents for their exaggerated eagerness to create a remedy that would easily strip the profits of the breaching party.196 As will become apparent in the subsequent parts, there is no need to create a new remedy to do this; reliance on unjust enrichment is sufficient. One simply needs, as Jan Błeszyński posited, to expand unjust enrichment principles.197 He argued that a requirement of patrimonial subtraction or loss would lead to unfair results. It is a shame that this postulate was only limited to intellectual property.198 After all, unfair results may occur not only in an intellectual property context. To further elaborate on the reasonable fee issue, the language of the abovementioned acts seems to suggest that the reasonable license fee remedy is a means to repair the loss of the claimant.199 However, similar arguments to those of Wrotham Park are raised in literature regarding the reasonable license fee. Firstly, Anna Tischner notes that one must differentiate a lost license fee from a reasonable

190

See Kociołek (2017), pp. 73, 79. See Szwaja and Tischner (2014), p. 609. 192 See Szwaja and Tischner (2014), pp. 582, 609. 193 See Żelechowski (2019), pp. 52, 54. 194 See generally Tischner (2008), ch. III.3.1. (outlining the views on an account of profits remedy); see also Felchner and Jasińska (2016). 195 See Żelechowski (2019), pp. 52, 54 (positing that Article 18.1(5) of the Suppression of Unfair Competition Act clearly directs one to unjust enrichment principles of Article 405 of the Civil Code). 196 See Tischner (2008), ch. III.3.1. 197 See id. (outlining the views of Jan Błeszyński). 198 See id. 199 See Felchner and Jasińska (2016). 191

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license fee.200 The former is assessed subjectively according to ordinary rules on measuring damages. The latter is assessed objectively and it does not repair any loss, especially in a situation where there was no possibility for the parties to enter into a license agreement.201 Secondly, practice shaped the reasonable license fee remedy in such a way that its prerequisites contravene the norms on damages: the principle of full compensation is omitted, loss as well as a connection between the infringement and the loss is merely presumed to exist.202 For this reason it may seem doubtful whether indeed the reasonable license fee may be equated to lucrum cessans.203 This holds especially true, since—as in Wrotham Park—the profits of the breaching party may be used to ascertain the award.204 Therefore, since the claim does not fit a compensatory framework, it should be deemed restitutionary. From a comparative standpoint, under Croatian intellectual property law, unjust enrichment is said to achieve the result of an account of profits.205 Namely, “the injured party could in all cases claim the restitution of a gain (profit) made by the infringer as a result of the infringement of the injured part’s intellectual property rights, in accordance with the rules of unjust enrichment.”206 Italian law faces a similar challenge. Namely, the Italian Industrial Property Code (Codice della Proprietá Intellettuale) provides for several remedies for breach of industrial property rights: ordinary damages and for an account of profits. The Italian Copyright Code provides only for damages. Interestingly enough both remedies—a reasonable license fee and an account of profits—have been considered restitutionary.207 According to Illara Caggiano restitutionary disgorgement for breach of intellectual property is “a restitutionary remedy, but not infused by the principle of unjustified enrichment. Rather, it is a restitution rooted in the protection of property.”208 It seems that such an approach is similar to Wrotham Park which, after all, was a property law case.209 This difference seems also starkly clear under German law. In cases where it is difficult for a claimant to establish the value of the claim, such a party may namely lodge a claim for an unspecified amount—a so-called Stufenklage—under § 254 of the German Civil Procedure Code210:

200

See Tischner (2008), ch. II.2.5.2. See id.; cf. See Kaliński (2014), ch. II, § 9, pt. 7.3 (arguing however that it is a measure of assessing loss and nonetheless criticizing this method.). 202 See Tischner (2008), ch. II.3.1.; see also Kaliński (2014), ch. II, § 9, pt. VII.3 (criticizng the reasonable license method as a method for assessing loss.). 203 See Tischner (2008), ch. II.2.5.2. 204 See id. 205 Keglević (2015), pp. 373, 376–377, 371. 206 Id., at 386. 207 See Caggiano (2016), pp. 243, 259. 208 Id., at 260. 209 See e.g. Roberts (2008), pp. 945, 954. 210 Zivilprozessordnung [ZPO][Code of Civil Procedure], Sep. 12, 1950 [RGBl.] [hereinafter ZPO]. 201

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Should an action for presentation of accounts, or for the production of a schedule of assets, or for a statutory declaration to be made in lieu of an oath, be consolidated with an action for the surrender of whatever the defendant owes under the legal relationship giving rise to the legal dispute, the exact information on the performance being claimed by the plaintiff may be reserved until the accounts have been presented, the schedule of assets has been produced, or the statutory declaration in lieu of an oath has been made.211

Thanks to this, if it is proportional to do so, a claimant may request the production of evidence to ascertain the best method to quantify damages and consequently prepare the main claim.212 In essence this leaves the exact method of the quantification of damages open. In this context Anna Tischner makes the point that a claimant has a choice: the claimant may elect to pursue the claim through traditional loss-based damages; the claimant may however elect to pursue an account of profits or a reasonable license fee.213 Depending on the method, the claimant would require different sets of information. For the former the claimant would need information on the specific infringements: its extent, type, time-frame, intensity.214 For the latter the claimant would require information on the defendant’s gains.215 The German approach therefore indicates that both the account of profits as well as reasonable license fee remedies are different creatures from the traditional compensatory approach. To sum up, the scope of unjust enrichment under Polish law is unclear. This holds especially true when discussing the principles that underlie the remedies of a reasonable fee and account of profits;216 remedies of key importance in order to make restitutionary disgorgement for breach of contract workable. I posit that the Polish rules on unjust enrichment can accommodate both the Blake and Wrotham Park measures. This, I believe, is possible under a broad approach towards unjust enrichment; an approach that was put forward by Ewa Łętowska and Mateusz Grochowski who, in my opinion rightfully, argued that an attempt to try to create enclaves of remedies, which are similar to unjust enrichment, by nonetheless excluding unjust enrichment, is a counterproductive attempt.217 It is arguable that a more reasonable approach would be to consider unjust enrichment regulated in the Civil Code as intellectually underpinning all restitutionary claims.218 Furthermore, under such an interpretation, the entirety of the restitutionary spectrum could be accommodated by unjust enrichment principles whereby partial disgorgement is deemed to be the reasonable fee measure and full disgorgement is deemed to be an account of profits.

211

ZPO (Langenscheidt Translation Service, trans.). See Tischner (2008), ch. V.2.1.1. 213 Id. 214 Id. 215 Id. 216 Dybowski (1981), pp. 163, 241. 217 See Grochowski and Łętowska (2000), pp. 213, 226. 218 See id. 212

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Restitution

Wrotham Park

Blake

Fig. 4.1 The sliding scale of restitution

Before proceeding further, it must be reminded that it is arguable that both the Wrotham Park and Blake remedies are situated on a sliding scale of restitution. Further, the former remedy is a reasonable fee remedy while the latter an account of profits remedy. I shall therefore apply the same presupposition for the subsequent analysis, meaning that I shall treat the reasonable fee and account of profits remedies as situated on a sliding scale of restitution (Fig. 4.1).

4.3.2.3

The Necessity to Apply a Broad Understanding of Subtraction

Despite Article 405’s supposedly clear wording, Polish law is not clear on the exact prerequisites of an unjust enrichment claim.219 Some argue that the primary prerequisite is the existence of an enrichment (wzbogacenie).220 Enrichment is understood as a patrimonial benefit, which itself is a broad term, as it includes not only an increase in one’s assets but also an expense saved.221 Alfred Ohanowicz noted when discussing enrichment that it occurs when one receives gains from the incursion into another’s rights (uzyskanie korzyści przez wdarcie się w cudzą sferę prawną).222 In such a way, I would argue, one can sum up a claim for unjust enrichment; and consequently through such a broad understanding, an argument for restitutionary disgorgement can be made. A key component of a claim in unjust enrichment relates to the connection between the claimant and the enrichment, which is the requirement of the enrichment being at the expense of the claimant. This is often referred to as the requirement of subtraction (zubożenie). The narrowest understanding of this prerequisite implies an arithmetic subtraction, i.e. “a plus to the defendant and a corresponding minus to the claimant.”223 In other words, such an understanding implies patrimonial loss. Hence, for the avoidance of doubt, I will refer to the at the expense of another requirement as subtraction, while for any additional requirement of a patrimonial loss (which in

219

Podrecki and Traple (2017), pp. 365, 392. See Mostowik (2018), pp. 216, 259. 221 See id., at 259–260; see also Szwaja and Tischner (2014), pp. 582, 610; Trzaskowski (2018). 222 Ohanowicz (1981), pp. 470, 481. 223 Birks (2005), p. 78. 220

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essence narrows the scope of this prerequisite) I will refer to as patrimonial subtraction. The more traditional view on the prerequisites of unjust enrichment held that there need be a link between the enrichment and the subtraction.224 The label of subtraction—also in the Polish language—makes one think of a patrimonial, or even financial, subtraction, if not loss. Indeed, some have argued that whenever we can identify loss, we can also identify a subtraction.225 Most notably Alfred Ohanowicz pointed out the close relationship between subtraction and lucrum cessans noting that both require there to exist a patrimonial detriment (uszczerbek majątkowy).226 The only difference between the two is that it is relevant to identify the subtracted asset, while its identification is irrelevant in terms of lucrum cessans.227 Further, proponents of this approach argue that determining the existence of subtraction cannot be a fully objective analysis, and whether one has suffered a patrimonial detriment must be analyzed in concreto.228 Others however note that in order to prove lucrum cessans a sufficient degree of probability must be established; a prerequisite which does not exist in terms of subtraction.229 Because subtraction and loss were treated similarly for decades, the criteria for assessing liability under the rules of damages and unjust enrichment were similar.230 In other words, the requirement of subtraction was somewhat equated with the requirement of loss. Indeed, as was already noted, this was the Supreme Court’s view in its judgment of 11 October 2011—the Shaving Cream Packaging case— where the Supreme Court clearly took the gains of the defendant as a measure of damages.231 From a practical standpoint this makes sense, as “[i]n the standard case the asset moves from the claimant’s possession to that of the defendant.”232 Further, as was already mentioned (Sect. 3.3.2), it may be argued that what the Supreme Court in essence did was to apply an account of profits. The narrow approach to unjust enrichment is not unheard of also in other jurisdictions.233 Indeed some legal systems—such as the Dutch legal system— embrace this approach.234 Similarly Belgian law requires the aggrieved party to be 224

See Trzaskowski (2018); see also Podrecki and Traple (2017), pp. 365, 393; Ohanowicz (1981), pp. 470, 483. 225 See Kaliński (2014), ch. II, § 1, pt. XI. 226 See Ohanowicz (1981), pp. 470, 482; see also Kociołek (2017), pp. 73, 80. 227 Kaliński (2014), ch. II, § 1, pt. XI (consequently noting that a damages claim is more far-reaching than a claim for unjust enrichment.). 228 See Mostowik (2018), pp. 216, 265. 229 See Trzaskowski (2018). 230 See Piś-Baranowska (2003); see also Dybowski (1981), pp. 163, 241. 231 Judgment [wyrok] SN [Supreme Court] z [of] Oct. 11, 2001, II CKN 578/99. 232 Birks (2005), p. 75. 233 See e.g. Hill v. Van Erp (1997) 188 CLR 159 (HCA) 226–227 (Gummow J) (Australian courts also underlined the need for subtraction). 234 See Birks (2005), p. 17 (“Some systems do take that compensatory view, adding immediately that the loss which is recoverable is capped by the gain to the other. For example, the new Dutch

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impoverished.235 This is why unjust enrichment under Belgian law is considered to be “an alternative to civil liability to obtain compensatory relief damages, in cases where no fault can be established.”236 This is also why Belgian scholars refer to unjust enrichment as patrimonial shift without cause.237 Also “[u]nder French influence transmitted through Quebec, the law of Canada now uses words which appear to insist that the claimant must always have suffered such a corresponding loss.”238 Moreover, certain English awards also took the patrimonial subtraction approach: The principle [of unjust enrichment] requires at least that the plaintiff should have sustained a loss through the provision of something for the benefit of some other person with no intention of making a gift, that the defendant should have received some form of enrichment, and that the enrichment has come about because of the loss.239

Is however the requirement of subtraction identical to loss? A compensatory view of unjust enrichment is not embraced by all legal systems. For example Israeli law takes a different approach: [U]njust enrichment grants very strong remedies for breach of contract. The injured party may have recourse to all remedies not only under contract law but also in unjust enrichment. Contractual rights are likened to property rights and, as such, a disgorgement principle applies to the breaching party, who may be stripped by the courts of all gain, even if that exceeds the injured party’s loss.240

The most notable case illustrating the wide scope of an unjust enrichment claim under Israeli law is the case of Harlow & Jones v. Adras Ltd (“Adras”).241 On the facts, the case concerned a second-sale scenario, where “a vendor sells contracted goods a second time, for a higher price than they would have enjoyed under the contract with the first buyer.”242 In its judgment, the Israeli Supreme Court considered unjust enrichment as a prevailing principle, “similar to a great eagle which spreads its wings over all other laws . . . .”243 For this reason, apart from the Civil Code says the enrichee must ‘make reparation for the damage suffered by [the claimant] . . . up to the amount of his enrichment’.”); see also Schlechtriem et al. (2001), pp. 377, 383. 235 See Kruithof (2015), pp. 89, 112. 236 Id., at 113. 237 See id., at 112. 238 Birks (2005), p. 79; see also Citadel General Assurance Co v. Lloyds Bank Canada [1997] 3 SCR 805 (“A claim for unjust enrichment, is concerned with giving back to someone something that has been taken from them (a restitutionary proprietary award) or its equivalent value (a personal restitutionary award) . . . [the function] is to ensure that when a plaintiff has been deprived of wealth that is either in his possession or would have accrued for his benefit, it is restored to him. The measure of restitutionary recovery is the gain the defendant made at the plaintiff’s expense.”). 239 Banque Financière De La Cité v. Parc (Battersea) Ltd and Others [1999] AC 221. 240 Einhorn (2015), pp. 299, 301–302; see also Siems (2003), pp. 27, 43 (“Only the Israeli Supreme Court in Adras was bold enough to accept a general concerpt of disgorgement.”). 241 CA 815/80 Harlow & Jones v. Adras Ltd. 37(1) PD 225 [1983] (Isr.). 242 Victoria Jardine (2017), pp. 36, 38. 243 Einhorn (2015), pp. 299, 302.

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performance and reliance interests, contract law protects additionally the interest in prohibiting unjust enrichment.244 Consequently, “Israeli law recognizes a general rule according to which the injured party has, as a matter of policy, a right to the gain made by the breaching party, even if it had sustained no loss and even if the contract has not been avoided.”245 The Adras judgment, “which was the first to apply the disgorgement principle to a breach of a contract not involving fiduciary relations, has blurred the lines between contract law, property law and unjustified enrichment, and has profoundly affected Israeli private law ever more.”246 Similarly, the approach to disregard the requirement of loss seems to be making headway in Japan.247 Also the premise that the recovery in unjust enrichment is capped by the claimant’s loss is rejected by German law.248 This approach finds also strong academic grounding in the English legal system. Peter Birks posits that “English law shares with German law the view that the claimant need not be identified as a person who has suffered loss.”249 Graham Virgo also notes that “[a] claim for unjust enrichment is not a claim for compensation for loss.”250 James Edelman analogously underlines that “whether a transfer of value occurs or not is irrelevant.”251 On a similar note Lord Nicholls in Blake argued that restitution under equity was independent of any loss.252 Moreover, Peter Birks explains that a subtraction from “does not necessarily imply loss, and English law appears not to insist that the claimant must have suffered one.”253 For this reason oftentimes the word transfer used in an unjust enrichment context is misunderstood; a misconception, which has been straightened out by James Edelman: [T]he word “transfer” is still used . . . as it directs attention to the fact that the objective value received by the defendant must come from the claimant. . . it is the same requirement as the

244

Id. Id. 246 Id. 247 Yoshihisa Nomi (2015), pp. 440, 429 (“[T]oday many scholars oppose to the traditional doctrine of unjust enrichment and argue that the “loss” requirement should be discarded.”). 248 Birks (2005), p. 17 (“[T]he premise that the recovery in unjust enrichment is capped by the claimant’s loss of this capped-compensation analysis is one which in German law is robustly rejected. It assumes that there is a good cause of action only where and to the extent that the claimant in unjust enrichment has suffered a loss.”). 249 Birks (2005), p. 17. 250 Virgo (2015), p. 10. 251 Edelman (2002), p. 72. 252 AG v. Blake, at 268, 280 (“[E]quity 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 whether the violation had caused the plaintiff any financially measurable loss.”). 253 Birks (2005), p. 79. 245

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“at the expense of” element in unjust enrichment; a requirement which is also described by some as necessitating a “transfer” from the claimant.254

It is therefore, in my opinion, not a bold presumption to make that a person need not have suffered loss to have a claim in unjust enrichment also under Polish law. If a requirement of patrimonial subtraction were to exist, it would bring an unjust enrichment claim close to a claim for damages. This would in turn— counterintuitively—imply a compensatory view of unjust enrichment; a view that is often contested under Polish law.255 Such view namely cannot stand the test of time, and is not fit for modern transactions.256 Polish scholars underline that even the lack of any patrimonial subtraction does not mean that a restitutionary claim will not arise,257 or that enrichment can exist when patrimonial subtraction is equal to zero.258 Simply put, subtraction will not always be equivalent to a patrimonial subtraction;259 a notion that the Supreme Court confirmed in its judgment of 14 January 2010.260 After all, Article 405 of the Civil Code is silent on the patrimony of the claimant.261 Under Article 405 of the Civil Code the root of enrichment is the legal sphere of another.262 The enrichment is equated with merely using or infringing another’s assets (including interests263);264 or as some put it, to exploit the assets’ hidden values (ukryte wartości).265 The latter term was however heavily criticized in copyright law literature.266 According to Witold Czachórski there is no necessity to rely on the notion of infringement of one’s hidden values to justify an unjust

254

Edelman (2002), p. 67; see also Birks (2005), p. 74 (“[T]he subtractive sense according to which an enrichment at the expense of another as one which is drawn from that other. The subtractive sense is the ‘from’ sense.”). 255 See Księżak (2014); see also Podrecki and Traple (2017), pp. 365, 394. 256 See Tischner (2008), ch. III.2.3.3.; see also Szwaja and Tischner (2014), pp. 582, 610. 257 See Księżak (2014); see also Łętowska (2000), ch. I, § 1; Mostowik (2018), pp. 216, 265. 258 See Skubisz et al. (2019); see also Serda (1988), p. 211. 259 Księżak (2014); see also Sokołowski (2014). 260 Judgment [wyrok] SN [Supreme Court] z [of] Jan. 14, 2010 r. IV CSK 274/09. 261 See Księżak (2014); see also Trzaskowski (2018). 262 Księżak (2014); see also Trzaskowski (2018). 263 See Szwaja and Tischner (2014), pp. 582, 610. 264 See Trzaskowski (2018). 265 See Skubisz et al. (2019); see also Barta and Błeszyński (2017), pp. 991, 999–1000 (However, the authors posit a differentiation between unjust enrichment and an account of profits under the Polish Law on Copyright and Related Rights; the former being a special case of the latter. For this reason they treat the former claim narrowly and the latter broadly, consequently rejecting A. Kopff’s notion that it is necessary to establish for the account of profits claim an infringement into the hidden values of work. It is in their opinion sufficient to establish the use of the claimant’s work without a legal basis, however for an unjust enrichment claim to exist, it is still necessary to establish a patrimonial shift.). 266 See e.g. Czachórski (1982), p. 1.

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enrichment claim, as the sheer infringement is enough.267 In justifying this Witold Czachórski relied on the German concept of Bereicherung aus fremden Gut according to which a subtraction exists whenever a property right is infringed.268 In a nutshell, a benefit is at the expense of another, if it stems from the legal sphere of another—it stems from the incursion into or exploitation of another’s assets.269 Moreover, it can be argued—interestingly, in a similar fashion to scholars analyzing Wrotham Park—that there cannot be a subjective loss where the claimant whose asset was used without consent, had no intention to use said asset.270 In such situations the classic differentiation theory on damages shows no loss.271 However, from a restitutionary standpoint it is irrelevant whether the claimant were to make any use of a specific asset.272 The example put forward by Paweł Księżak is that of the use of another’s car when the car’s owner was on vacation.273 There is no patrimonial subtraction on part of the owner, yet the car’s user is enriched, as that user had saved the expenses that would have been incurred in order to borrow the car.274 To put it another way, value in the form of the use of the car has been transferred.275 Other notable examples put forward in literature include using an object without damaging it or eating another’s meal when it was certain that it would not have been eaten.276 As a side note, it is noteworthy how eerily similar Paweł Księżak’s example is to the earlier mentioned example put forward by the Earl of Halsbury LC in the Mediana who noted more than one hundred years earlier that “a defendant who had deprived the plaintiff of one of the chairs in his room for 12 months could not diminish the damages by showing that the plaintiff did not usually sit upon that chair or that there were plenty of other chairs in the room.”277 For this reason the Polish measure of restitution can be the enrichment on the one hand;278 i.e. the Blake measure. On the other hand, it may also be part of the enrichment through a reasonable fee; i.e. the Wrotham Park measure. Wiktor Serda argues that in order to determine the most appropriate measure of enrichment one must firstly apply an objective—market value—measure, e.g. the value of a

267

See id., at 11. See id., at 13. 269 See Księżak (2014); see also Łętowska (2000), ch. I, § 1; Skubisz et al. (2019); Szwaja and Tischner (2014), pp. 582, 609. 270 See Księżak (2014). 271 See id. 272 See Kaliński (2014), ch. II, § 1, pt. XI. 273 See Księżak (2014). 274 See id. 275 Cf. Edelman (2002), p. 67 (using similar language to describe the transfer of the value in the form the use of a landlord’s premises to a trespassing tenant). 276 See Mostowik (2018), pp. 216, 265. 277 The owners of the steamship Mediana v the owners, master and crew of the lightship Comet [1900] AC 113, 117. 278 Trzaskowski (2018). 268

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service rendered for the enriched party (the defendant).279 However, this will not universally be the case, e.g. in cases where the services would be badly performed thus decreasing the defendant’s enrichment.280 Serda therefore posits that which approach is most appropriate will depend on the ramifications on the defendant’s patrimony.281 Regarding the Blake measure, it is argued that in cases where the defendant saved no expense, the measure of restitution is the actual enrichment.282 I would add to this that also cases where it is impossible to determine an expense saved, permit one to claim full disgorgement. The Blake measure fits this ticket, since it is next to impossible to state whether—objectively speaking—there is a market-value price tag that would have convinced the Crown to permit George Blake to publish his book. Regarding the Wrotham Park measure, subtraction still exists, because it is hypothetically possible for the claimant to have demanded a fee for the use of the claimant’s asset.283 In other words, as mentioned earlier, the enrichment can be equated to an expense saved.284 In this regard, it may namely be argued that by using the claimant's assets, the defendant deprived the claimant of the possibility to provide the claimant’s assets to a third party for a fee.285 By means of a notable example, such problems occur in cases of unfair competition where patrimonial subtraction is not evident in cases of using another’s brand.286 The expense-saved view also finds grounding in Polish judicature. Namely, on 10 August 2006 the Polish Supreme Court handed down a judgment in which it stated that in case of an infringement of another’s trademark, the enrichment may be equated with the expense the defendant would have to bear to legally use the trademark.287 I believe that such a structure of the measure of restitution constitutes a functional equivalent to how the Wrotham Park and Blake measures function. The expense saved measure should be viewed as having primacy.288 Only in exceptional cases, where the expense saved approach cannot be utilized, would full disgorgement be possible (Fig. 4.2). It would be a gross omission to not mention the critique of this broad view of subtraction. Indeed, it has been even mentioned that this view in essence eliminates the requirement of subtraction.289 Proponents of the narrower view argue that there exists a strong—albeit not necessarily causal—connection between the enrichment

279

See Serda (1988), p. 214. See id., at 216. 281 See id., at 215 (arguing that it is necessary to delve into the enriched party’s patrimony to know the real extent of the enrichment). 282 See Księżak (2014). 283 Mostowik (2018), pp. 216, 265. 284 See Szwaja and Tischner (2014), pp. 582, 610. 285 See Skubisz et al. (2019); see also Trzaskowski (2018). 286 See Skubisz et al. (2019). 287 Judgment [wyrok] SN [Supreme Court] z [of] Aug. 10, 2006, V CSK 237/06. 288 See Serda (1988), p. 216. 289 See e.g. Trzaskowski (2018). 280

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The enrichment Ý

Þ

Partial disgorgement

Full disgorgement

expense saved

no expense saved

(Wrotham Park)

(Blake)

Fig. 4.2 The measure of restitution

and the subtraction.290 Both are namely connected by the fact that a certain patrimonial asset passes from the claimant to the defendant—a patrimonial transfer (przesunięcie majątkowe).291 Some scholars have even compared this connection to the opening of a dam.292 For this reason proponents of this view are against the— in their view—elimination of the perquisite of subtraction. I do not believe that this is the right way of looking at the problem. The argument that there need not be a patrimonial subtraction or shift only reformulates the prerequisite of subtraction, but does not dispose of it; the prerequisite still remains. I would even posit that the distinction between the two arguments is illusory. The chief proponent of patrimonial subtraction, Alfred Ohanowicz, argued that the asset being transferred from the the patrimony of the claimant need not be of the same quality or quantity than the defendant’s gain; what is key is that the shift originates in the claimant’s patrimony.293 I posit that this does not stand in contradiction with the arguments presented earlier. Namely, the prerequisite of subtraction—as well as the notion of patrimony—is broad, as it it occurs when one receives gains from the exploitation of another’s rights.294 The broad interpretation of subtraction fits well with the notion of restitutionary disgorgement. Without the requirement for patrimonial subtraction or loss the Polish law of unjust enrichment also covers “instances where non-monetary benefits are wrongfully transferred.”295 This is due to the fact that the source of the enrichment must be the assets of another.296 This would therefore mean that a restitutionary claim would cover a subtraction from one’s dominium (the “opportunity to exercise the control over property that proprietary rights give”297) or assets, and not just a loss

290

See Ohanowicz (1981), pp. 470, 483 (arguing for the necessity to establish a connection between enrichment and the subtraction but not a causal one); see also Radwański and Olejniczak (2016), p. 299. 291 See Ohanowicz (1981), pp. 470, 483; see also Trzaskowski (2018). 292 See Radwański and Olejniczak (2016), p. 299. 293 See Ohanowicz (1981), pp. 470, 481–483. 294 See id., at 481; see also Radwański and Olejniczak (2016), p. 299. 295 Edelman (2002), p. 67. 296 Księżak (2014). 297 Burrows (2002), pp. 165, 173.

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of financial wealth.298 A right to receive performance under a contract, it may be argued, may be a part of one’s dominium or assets. Such a division of the types of subtraction seems to correspond with the division introduced by Nicholas Poon who presented two theories resting on restitutionary principles: subtractive unjust enrichment or restitution for wrongs.299 Based on this, two approaches can be distinguished. The first (Sect. 4.3.2.3.1) is a property-based approach. Under this approach the encroachment into one’s property breeds a claim in unjust enrichment. As we shall see under such an approach the term property may be understood very broadly. The second (Sect. 4.3.2.3.2) approach is wrong-based, and does not rely on how one understands property.

4.3.2.3.1

Subtraction as a Wrongful Interference with Property

Under English law restitution is intimately connected with property. As Lord Hobbhouse put it in the Blake judgment: “Restitution is analogous to property: it concerns wealth or advantage which ought to be returned or transferred by the defendant to the plaintiff.”300 Lord Nicholls when analyzing cases of interference with rights of property also considered an approach more akin to restitution.301 He further argued that the restitutionary approach was the purview of the courts of equity which “regarded an injunction and account of profits as more appropriate remedies than damages because of the difficulty of assessing the extent of the loss.”302 The property-based approach rests on the notion that “the appropriation by one person of another’s property ought to give rise to a right of restitution.”303 In other words, unjust enrichment exists, if a property interest is infringed. Namely, a loss of dominium—which was covered in the previous chapter (Sect. 3.3.2.1.1)—may also be interpreted as wrongful interference with property that breeds a claim in unjust enrichment. In this light, the unjust enrichment rests on the notion that the Wrotham Park remedy—as Nicholas Poon summed up—is “a restitutionary remedy on the basis that the defendant’s conduct amounted to wrongful interference with property. Such interference is a subtraction of the plaintiff’s right to exclusive enjoyment of property and it is this subtraction that forms the basis of unjust enrichment.”304 It is important to note that the understanding of property was the core reason Lord Hobbhouse dissented in Blake, as the award against George Blake “is a remedy

298

See Edelman (2002), p. 67. See Poon (2019), pp. 139, 143 et seq. 300 AG v. Blake, at 268, 296. 301 See id., at 268, 279–280 (“Courts of equity went further than the common law courts. In some cases equity required the wrongdoer to yield up all his gains.”). 302 Id., at 268, 279. 303 Friedmann (1980), pp. 504. 510. 304 Poon (2019), pp. 139, 144. 299

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based on proprietary principles when the necessary proprietary rights are absent.”305 Therefore, how wide-reaching such an approach is depends on how widely one defines property. On the one hand, it is possible to apply a narrow property-based approach.306 Traditionally, “[t]he essential attribute of property has . . . been the existence of a right of exclusive enjoyment, so exploitation of property by another gives rise to an enrichment that is necessarily at the expense of the owner’s right.”307 This understanding is applicable to “interests that a person is entitled to exploit and has a right to exclude others from enjoying. Such interests include rights in rem to realty and other tangibles as well as rights in such intangibles as patents, copyrights, and trademarks.”308 The German scholar Ernst von Caemmerer posited that “liability for unjust enrichment should be imposed whenever one person appropriates, uses, or consumes the property of another. In such a case, the defendant acquires a benefit that belongs, under principles of property law, to the owner; he is, therefore, unjustly enriched at the owner’s expense.”309 Daniel Friedmann underlines that the ramification of this is that “no claim for unjust enrichment should be allowed where there has merely been a breach of duty, without exploitation or appropriation of property belonging exclusively to another.”310 On the other hand, which Daniel Friedmann also noted, “[m]ore modern concepts of property would probably have compelled a different outcome. . . .”311 This approach encompasses “[o]ther, nontraditional interests also included within the scope of property for purposes of restitution.”312 He argues that nowadays “a wide range of interests are recognized as forms of property to which a person has no exclusive right but which are nevertheless protected against certain types of interference or invasion.”313 This includes interests “that are not usually marketable or ordinarily regarded as property”,314 or interests dubbed as quasi-property, such as interests in ideas, information, trade secrets, and opportunity.315 Since quasiproperty interests are not property interests—they lack the element of exclusiveness—the catalogue of such interests may be broad indeed, and include inter alia the interest of forming a contract.316 In quasi-property cases, however, the element of unjust appropriation is required.317 In his thought-provoking article Peter

305

AG v. Blake, at 268, 299 (Lord Hobbhouse, dissenting). See Friedmann (1980), pp. 504. 507. 307 Id. 308 Id., at 510. 309 Id., at 506 (referring to von Caemmerer (1968), p. 209). 310 Id. 311 Id., at 507. 312 Id., at 510. 313 Id., at 507–508. 314 Id., at 511. 315 See id., at 512. 316 See id. 317 See id., at 513. 306

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Benson argues that through entering into a contract “the plaintiff acquires an exclusive ownership right as against the defendant with respect to the latter’s promised performance.”318 Furthermore, Daniel Friedmann treats breach of contract cases as cases of interference with property rights. Hence, he posits: The property approach is . . . relevant in situations where one person, in breach of a contract, acquires a benefit not through the other party’s performance but by the use of his own labor or property, or by saving the expenses that performance would require. The question of restitution arises when such a person could not have derived this benefit but for his breach of the contract.319

There are indeed valid arguments in certain jurisdictions to support the propertybased approach. By means of example, proprietary claims for profits are present in the Belgian legal system.320 Greek law facilitates this approach by expanding the requirement of subtraction to property and another’s legal sphere.321 Article 904 of the Greek Civil Code clearly facilitates the property-based approach through its broad wording of an unjust enrichment claim: Whoever has become richer without legal cause from the property or at the cost of another person shall return the benefit.322

Further, as was already noted (Sect. 4.3.2.3), the Israeli Adras323 case demonstrates that through an unjust enrichment claim a party may be granted a wide array of protection against a breach of contract by likening a contractual interest to a property interest.324 In summary, if one applies a broad concept of property, this creates an avenue for the application of unjust enrichment as a restitutionary disgorgement for breach of contract mechanism. An analysis of the scope of property and the problems associated with it was already included in the chapter on McInnes’s compensatory lost right approach (Sect. 3.3.2.1). A theory of unjust enrichment akin to a property-based theory is not unknown to Polish law. This is the so-called surrogate theory (teoria surogacyjna).325 Within the framework of this theory Wiktor Serda posited that there exists a similarity between an unjust enrichment claim and actio negatoria due to the fact that both aim to correct an objectively erroneous state of events.326 Such an approach finds strong 318

Benson (2004), pp. 311, 322. See Friedmann (1980), pp. 504. 513. 320 See Kruithof (2015), pp. 89, 98–99. 321 See Zervogianni (2015), pp. 231, 241 (“It is generally accepted that enrichment from the property of another does occur not only when a person has used a property asset of another, but also when he has employed means which fall within another’s legal sphere, like e.g. the unauthorized use of the name of the image of another for advertising purposes.”). 322 Id. 323 CA 815/80 Harlow & Jones v. Adras Ltd. 37(1) PD 225 [1983] (Isr.). 324 Einhorn (2015), pp. 299, 301–302. 325 See e.g. Łętowska (2000), ch. I, § 2. 326 See Serda (1988), pp. 17–18. 319

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grounding in Roman law which provided a claimant a right (condictio) to the claimant’s property in the event of a failure of a rei vindicatio claim.327 In essence, under this theory, there exists a similarity between an unjust enrichment claim and a proprietary claim, since the former is a surrogate of the latter.328 A similar approach may be gleamed from the Polish Supreme Court’s judgment of 21 May 2014 where it took ruled that losing a deliverable (werzytelność) is tantamount to a subtraction.329 The case concerned a state enterprise which was put into liquidation. The claimant had a claim towards the liquidated enterprise which was not included in the bankruptcy estate. The proceeds that were left upon the liquidation proceedings ending went to the Minister for the State Treasury. The Supreme Court ruled in the claimant's favor holding that the fact that the Minister for the State Treasury received part of the proceeds from the liquidation was tantamount to an enrichment of the State and a subtraction from the claimant of a claim towards the failed enterprise.330 Regardless, the theory falls short when non-proprietary assets are involved, such as services331 or—I would argue—a contractual relationship. Sufficed to say, the expansion of the notion of property is a major obstacle under Polish law, and seems untenable. The loss of dominium points can similarly be made in the context of the Polish approach to unjust enrichment. Namely, as was mentioned, Witold Czachórski made the point that an unjust enrichment claim arises whenever an infringement of a property right (the uti, fruti, abuti rights) takes place relying on the German notion of Bereicherung aus fremden Gut.332 However, in order to accommodate this in a breach of contract context, it would be necessary to apply the Fryderyk Zoll’s concept of ownership of receivables; an exercise in futility under current legal doctrine (Sect. 3.3.2.1.3 for similar arguments under the law of damages). Another major obstacle which cannot be omitted is the interplay between unjust enrichment and subsidiary property remedies (Sect. 3.3.2.1.3). This is a divisive topic among scholars.333 As mentioned earlier, these remedies exist to compensate the infringement of one’s property.334 Unlike a classic claim for damages, one does not need to prove any causal connection between the infringement and loss; the claim exists only due to the infringement itself.335 However, their relation to the law

327

See Mostowik (2018), pp. 216, 229; see also Ohanowicz (1981), pp. 470, 472. Mostowik (2006), ch. IV, pt. IV. 329 Judgment [wyrok] SN [Supreme Court] z [of] May 21, 2014 r. II CSK 52/14. 330 See also Księżak (2019), p. 41. 331 See Mostowik (2018), pp. 216, 229. 332 See Czachórski (1982), pp. 1, 10–13. 333 See Trzaskowski (2018). 334 Gniewek (2016), p. 149. 335 Tischner (2008), ch. III.3.3.2.; see also Ohanowicz (1981), pp. 470, 483; see generally Jaffey (2003), pp. 166, 181–182 (presenting similar arguments regarding the use claim under English law); but see. 328

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of unjust enrichment is not clearly determined.336 Many legal systems exclude unjust enrichment claims from playing a role in the context of property rights.337 By means of example, from an English perspective unjust enrichment “in its substantive sense is completely irrelevant in this context, because the action to vindicate property rights forms part of the law of property and has nothing to do with the principle of reversing the defendant’s unjust enrichment.”338 However, this view on the meaning of unjust enrichment in terms of property rights is not shared by all English scholars.339 When it comes to Polish law, Katarzyna Górska posits that subsidiary property remedies form a separate claim from, and have primacy over claims in unjust enrichment and damages340 while Piotr Mostowik argues more for the proposition that unjust enrichment and subsidiary property remedies stand somewhat in competition.341 Furthermore, at this juncture, it seems, Polish law is too undecided on how far to extend unjust enrichment in regards to reasonable fee cases. On the one hand, it has been argued that unjust enrichment claims encompass claims for reasonable fees for the use of one’s property.342 On the other hand, in the intellectual property field Anna Tischner posited to abandon unjust enrichment rules for intellectual property infringements and apply subsidiary property remedies to such infringements.343 In spite of these views, one still needs to ask: are subsidiary property remedies independent of unjust enrichment, or can they be treated as part of proprietary restitution? The answer to this question brings back the earlier discussion on the scope of unjust enrichment (Sect. 4.3.2.2). Namely, if one applies a broad view of unjust enrichment, then the regime of unjust enrichment will nonetheless apply to subsidiary property remedies. In summary, interpreting the requirement of subtraction as a wrongful interference with property seems, at the least, difficult to apply under Polish law. Firstly, it faces the same problem as McInnes’ compensatory lost right approach, i.e. it would require Polish law to expand the notion of property to include contractual entitlements. This seems unrealistic under the current legal framework. Secondly, it would

Łętowska (2000), ch. I, § 4. See Schlechtriem et al. (2001), pp. 377, 399 (“[B]ecause of the importance of property rights, all legal systems offer specific remedies in this context, and some may therefore deny unjust enrichment remedies either because they do not consider the mere fact of possession as an enrichment, or on account of the principle of subsidiarity”). 338 Virgo (2015), p. 12; contra Rotherham (2003), p. 188 (“The view that norms of property and unjust enrichment are mutually exclusive is unsustainable. The mere fact that a given doctrine can be situated within the law of property does not mean, for example, that defences based on considerations of unjust enrichment should not be available.”). 339 See generally Craig Rotherham (2003), pp. 188, 188–189 (outlining the different views on the relationship between unjust enrichment and property rights under English law). 340 See Górska (2017). 341 See Mostowik (2018), pp. 216, 224. 342 See id., at 259. 343 Tischner (2008), ch. III.3.3.2. 336 337

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also require a claim in unjust enrichment to encompass subsidiary property remedies. Although a broad understanding of unjust enrichment is a presupposition of this entire chapter, this approach would still not be favored by current scholarly writings. I therefore posit that another interpretation of the requirement of subtraction would yield better results in establishing that a claim for unjust enrichment forms a functional equivalent to restitutionary disgorgement for breach of contract.

4.3.2.3.2

Subtraction as a Broader Category of Wrong

The previous analysis focused exclusively on interference with and the definition of property. This is indeed one avenue, but an avenue, I posit, not worth pursuing. This begs the question which maybe could accommodate the civilian tradition more: does one need to rely on property in order to establish that a claim for unjust enrichment forms a functional equivalent to restitutionary disgorgement for breach of contract? In other words, would another approach towards the prerequisite of subtraction facilitate this more easily than a redefinition of property? I posit that another avenue is to apply “an approach that advocates a broad right to restitution, regardless of the nature of the interest infringed or appropriated.”344 In English law this approach relies on the broader category of restitution for wrongs. Under the English restitution for wrongs, tort must not pay.345 Further, the term wrong can be understood broadly and encompass also a breach of contract: “Indeed, the meaning of ‘wrong’ can perhaps best be summarized as including any act amounting to a breach of duty giving consequences in civil law.”346 It is further argued that restitution for wrongs should be available for wrongs where the infringed right is a tradable one, i.e. “a right which is not inalienable or essentially personal, but instead which the holder has some legitimate interest in selling or turning into money if he wishes.”347 Restitution for wrongs is a common law concept which does not have direct roots in Roman law.348 However, as Pietro Sirena observed, since there is no better equivalent to restitution for wrongs in the civil law tradition, the closest equivalent should be the law of unjust enrichment.349 Such an analysis does not rely on an understanding of property but rather that “the ‘enrichment at the plaintiff’s expense’ occurs whenever a wrong is committed against the plaintiff. Hence, the restitution claim is parasitic on the wrong.”350 Daniel Friedman posits that “the very purpose of the broader approach is to allow recovery whenever a tortfeasor derived a benefit

344

Friedmann (1980), pp. 504. 508. Rookes v. Barnard [1964] AC 1129. 346 See Tettenborn (2002), p. 239. 347 Id., at 237. 348 See Sirena (2008), pp. 445, 450. 349 See id. 350 Poon (2019), pp. 139, 145. 345

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from his wrong, provided that a causal connection between the wrong and the benefit is established. Hence, under this view the defendant’s benefit is regarded as being “at the plaintiff’s expense” because it resulted from a wrong committed against him.”351 This understanding seems to find support in the DCFR where interference with one’s assets—which in my opinion may be equated to a wrong—constitutes unjust enrichment. The commentary to DCFR III.-3:701 explicitly rejects any gain-based damages.352 Consequently, Hector MacQueen turns our attention to DCFR’s Book VII on unjustified enrichment.353 Firstly, under the DCFR VII.–1:101(1): A person who obtains an unjustified enrichment which is attributable to another’s disadvantage is obliged to that other to reverse the enrichment.

Hence, what constitutes enrichment is the taking, use or interference with another’s assets.354 Further, assets under DCFR Annex 1 “means anything of economic value, including property; rights having a monetary value; and goodwill.” An asset is thus a broader category than a property right. Further, such an interference with one’s assets can also be used in a contractual framework. MacQueen argues that “[a] right to receive performance due under a contract would appear to be such an asset.”355 In other words, even if one rejects a broad understanding of property, then this rule still broadens the horizon of unjust enrichment to encompass a right to receive performance. Indeed, the definition of the term right under the DCFR confirms such a broad understanding: “Right”, depending on the context, may mean (a) the correlative of an obligation or liability (as in “a significant imbalance in the parties’ rights and obligations arising under the contract”); (b) a proprietary right (such as the right of ownership); (c) a personality right (as in a right to respect for dignity, or a right to liberty and privacy); (d) a legally conferred power to bring about a particular result (as in “the right to avoid” a contract); (e) an entitlement to a particular remedy (as in a right to have performance of a contractual obligation judicially ordered) or (f) an entitlement to do or not to do something affecting another person’s legal position without exposure to adverse consequences (as in a “right to withhold performance of the reciprocal obligation”).

A right to receive performance fits within the framework of this definition as well as the definition of an asset.356 Regarding the attribution of an enrichment to one’s disadvantage DCFR VII.-4:101(c) states:

351

Friedmann (1980), pp. 504. 508. Study Grp. on a Eur. Civil Code & Research Grp. on EC Private Law (Acquis Grp.), Principles, Definitions and Model Rules of European Private Law Draft Common Frame of Reference (DCFR), Book III, Principle III.-3:701, at 934 (Christian von Bar et al. eds.) (“A few of the laws [i.e., national laws] permit the creditor in particular circumstances to recover the gains made by the debtor through the non-performance, even if these exceed the loss to the creditor. The situations are so limited that this approach has not been adopted in these rules.”), see also MacQueen (2010), pp. 177, 187. 353 See MacQueen (2010), p. 177. 354 See id., at 187–188. 355 Id. 356 See id., at 188. 352

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An enrichment is attributable to another’s disadvantage in particular where the enriched person uses that other’s asset, especially where the enriched person infringes the disadvantaged person’s rights or legally protected interests;

This, in conjunction with the definition of use suggest a degree of intentionality in causing the unjustified enrichment; hence unintentional breaches will not trigger this remedy:357 A use of an asset imports as a minimum an exercise of another’s right or exploitation of the asset of that other. That in turn presupposes an intention to do the act which amounts to the utilisation of the asset. The requirement that another’s asset be used also contains a further inherent qualification. It involves the limitation that the enriched party has in effect displaced another’s (potential) enjoyment. Only then is a right or other asset belonging to another actually exercised rather than simply imitated. A further requirement contained within the notion of use of another’s asset for the purposes of unjustified enrichment law is that the exercise of the right or exploitation of the asset must be of such a form that use is made of the asset: the act of interference with another’s asset must be directed towards extracting utility from the subject-matter.358

For this reason MacQueen posits that it may be possible to recover the defendant’s gains for breach of contract under the rules on unjust enrichment.359 What is further important in the abovementioned definition is that the enjoyment may be potential. Hence, it is possible, in my opinion, to broadly apply the notion of unjust enrichment as a framework for restitutionary disgorgement for breach of contract. Apart from the DCFR, also the German notion of an encroachment into another’s right (Eingriffskondition) provides an interesting avenue for analysis. Namely, under § 812(1) BGB: A person who obtains something as a result of the performance of another person or otherwise at his expense without legal grounds for doing so is under a duty to make restitution to him. This duty also exists if the legal grounds later lapse or if the result intended to be achieved by those efforts in accordance with the contents of the legal transaction does not occur.360

Under this provision the invasion of another’s right, if it is without legal ground and at the other’s expense, gives rise to liability under unjust enrichment.361 Nevertheless, whether this provision could be extended to a breach of contract is, at best, debatable.362

357

Id. (“Some link to the idea of delibareteness or cynicism on the part of the contract-breaker found in English law may be apparent here. The inadvertent or merely negligent breaker of a contract who happens to profit as a result of the breach will not be liable to disgorge the gain.”). 358 Study Grp. on a Eur. Civil Code & Research Grp. on EC Private Law (Acquis Grp.), Principles, Definitions and Model Rules of European Private Law Draft Common Frame of Reference (DCFR), Book VI, Principle VII.-3:102, at 3811. 359 See MacQueen (2010), pp. 177, 188–189. 360 BGB (Langenscheidt Translation Service, trans.). 361 See Siems (2003), pp. 27, 39. 362 See id.

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Henrique Sousa Antunes hints at such an approach when describing disgorgement under Portuguese law. In his opinion the ground for disgorgement is the sheer fact that the injured party’s rights have been encroached upon. Indeed he goes on to state that the injury in this case is the fact that the sense of justice is offended: The grounds for awarding the profit to the injured party lie in the fact that the exercise of his rights has been encroached upon. This is the reason for the loss, whether the other damage is non-patrimonial, patrimonial or even non-existent.363

From a Polish perspective, it seems that such an approach may find grounding under another facet of the aforementioned surrogate theory. It is argued that the surrogate theory may also be understood as treating unjust enrichment as a sort of wrong (czyn niedozwolony/delikt); the wrong being the possession of an unjust enrichment.364 This approach—firstly—somewhat corresponds with how a breach of contract is perceived under Polish law; it is namely perceived as being unlawful (bezprawne).365 Secondly, it would also facilitate the argument that restitution for wrongs should be available when a tradable right is breached.366 Thirdly, from this standpoint, I would posit that an unjust enrichment claim for breach of contract can pertain to patrimonial rights which in turn contain contractual rights. In order to apply this approach under Polish law, a more expansive understanding of the term wrong is required. In order to reinterpret a wrong and place it within the framework of unjust enrichment, it would need to be independent of fault,367 and entail not just an unjust act, but the sheer wrongful possession of the enrichment. Finally, and in a nutshell, I posit that an analysis analogous to the rights-based approach (Sect. 3.3.2.3) should be applied. This will be covered in the final part.

4.4

The Most Suitable Restitutionary Approach

The primary obstacle towards facilitating restitutionary disgorgement for breach of contract (which is a term for a restitutionary understanding of gain-based remedies) was finding a proper institution of Polish law that is its functional equivalent. I have argued that unjust enrichment can be such a functional equivalent, if several prerequisites are met. Firstly, the scope of unjust enrichment must be wide enough to encompass contractual claims. This under Polish law is possible, as indeed the Civil Code (Article 405) seems to use a wide definition of unjust enrichment as containing 363

Sousa Antunes (2015), pp. 171, 178. See Mostowik (2018), pp. 216, 229; see also Mostowik (2006), ch. IV, pt. IV. 365 See Borysiak (2019) (It needs to be underlined, however, that contractual unlawfulness—a breach—cannot be equated with a delict.). 366 See Tettenborn (2002), p. 240; Łętowska (2000), ch. I, § 2. 367 See Ohanowicz (1981), pp. 470, 472 (noting that the approach under French law eliminates the prerequisite of fault). 364

4.4

The Most Suitable Restitutionary Approach

153

undue performance (nienależne świadczenie) and other categories of unjust enrichment. I have further argued that the latter category can be considered to encompass a wide variety of claims such as claims for an account of profits or reasonable fee claims under e.g. copyright or industrial property laws. Hence, the remedy of unjust enrichment may be considered as an ultima ratio remedy or even as a broad condictio generalissima. Therefore, the potential for an unjust enrichment claim to encompass a contractual claim is present. Secondly, the requirement of subtraction (zubożenie)—that the enrichment is at the claimant's expense—must also be wide, i.e. independent of any narrowlyconstrued patrimonial subtraction. In this regard I have argued that subtraction cannot be equated to a patrimonial loss. It should rather be understood as an encroachment into another’s assets or legal sphere, the value of which is objectively assessed. A right to receive performance under a contract may be construed to be such an asset. Thirdly, what one is left with after that, is deciding on the approach towards the prerequisite of subtraction: what sort of encroachment justifies a claim for unjust enrichment? Here two possibilities exist. The first, which states that subtraction is equated with a wrongful interference with property. The approach would make sense under Polish law, only if one greatly expanded the notion of property as encompassing contractual interests. I believe that relying on an expanded view of property and somehow transplanting it into the Polish legal system would probably not succeed. The second, and preferred, possibility was to treat a breach of contract as a category of wrong. This can be achieved in a similar fashion as the analysis of Stevens’ rights-based approach. To briefly recapitulate: the rights-based approach renders the category of loss irrelevant, because an award of damages does not recompense for loss but is a substitute for the infringed right. What is namely relevant for the rights-based approach is the sheer infringement of the claimant’s performance interest. Such an approach fits with a wide understanding of subtraction under the Polish rules of unjust enrichment which simply require gaining a benefit through an infringement of the claimant’s legal sphere. Moreover, the arguments put forward by Paweł Księżak as to the relationship between subsidiary property remedies and unjust enrichment claims suggest the workability of this solution. Paweł Księżak namely argued that one can put forward an unjust enrichment claim for situations covered also by a subsidiary property claim, if one does not rely on the fact that one is the owner of the used property.368 It is therefore not necessary to rely on any concept of property in order to apply rules similar to subsidiary property remedies. This fits the current approach perfectly. Finally, as was already mentioned, the Civil Code applies a wide definition of unjust enrichment which may be expanded to encompass contractual interests. For this reason I posit that the infringement of the performance interest—a breach of contract—may also be interpreted as subtraction under the unjust enrichment

368

See Księżak (2014).

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Table 4.1 An illustration of the restitutionary approach Issue Rule

Application

Conclusion

The Wrotham Park scenario The Blake scenario Article 405 of the Civil Code (1) a patrimonial benefit (enrichment), (2) at the expense of another person, (3) without legal grounds. (1) Enrichment The enrichment may identified in one of two ways. The enrichment is the expense that the The enrichment is the totality of the defendant saved by not contracting with benefits that the defendant derived from the Claimant (what the defendant would the breach. need to pay). (2) Subtraction The defendant breached the contract. This is deemed to be a category of wrong. (3) Lack of legal grounds The defendant breached its contractual The defendant breached its contractual obligation never to divulge any inforobligation not to construct housing in contravention to the restrictive covenant mation on his employment with the intelligence services. There exists a sliding scale of restitution ranging from partial to total disgorgement of the profits. The conclusion depends on the ultimate interpretation of the enrichment that is to be disgorged. Expense saved. Therefore, the amount Total disgorgement. Therefore, the amount to be paid is equal to the to be paid is equal to a reasonable fee. (what the Defendant would need to pay) defendant’s profits (an approach analogous to the Supreme Court’s approach in the Shaving Cream Packaging Case).

regime. Were this approach to be used in practice, it would breed the following results (Table 4.1). If one were to graphically outline the Polish functional equivalent of restitutionary disgorgement situated on a restituionary scale, it would present as follows (Fig. 4.3). Such a solution can however be validly criticized for its far-reaching consequences. Namely, the descriptive understanding of unjust enrichment as “a state of affairs where the defendant can be said to have been enriched in circumstances of injustice”369 seems immensely broad. To utilize such an understanding would cause unjust enrichment to encompass too many norms. Indeed, Piotr Mostowik keenly points out that a plethora of legal norms fulfills the broad idea of unjust enrichment.370 He further warns that treating unjust enrichment as a non-subsidiary general rule breeds major dangers of unjust enrichment consuming norms that fulfill a similar

369 370

Virgo (2015), p. 8. See Mostowik (2018), pp. 216, 227.

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Unjust enrichment in the broad sense

Restitution in the broad sense

Wrotham Park

Blake

Restitution in the strict

Disgorgement

sense (giving back)

(giving up)

Unjust enrichment in the strict sense

Reasonable fee

Account of profits

Fig. 4.3 The sliding scale of restitution (full version)

purpose.371 On the other hand, he argues, one cannot discard such a possibility, as this is the legal system’s safety valve.372 This begs the question: should cases such as Wrotham Park or Blake not be viewed as cases justifying the release of such a safety valve?

References Books Arvind TT (2022) Contract Law, 3rd edn. Oxford University Press, p 529 Barta J, Błeszyński J (2017) Ochrona majątkowych praw autorskich na drodze cywilnej. In: Barta J (ed) System Prawa Prywatnego, 13, p 991 Benson P (2004) Disgorgement for breach of contract and corrective justice: an analysis in outline. In: Neyers J et al (eds) Understanding unjust enrichment. Hart Publishing, p 311 Birks P (2005) Unjust enrichment. Oxford University Press Cunnington R (2002) The measure and availability of gain-based damages for breach of contract. In: Saidov D, Cunnington R (eds) Contract damages domestic and international perspectives. Hart Publishing, p 207 Dybowski T (1981) Naprawienie szkody. In: Radwański Z (ed) System Prawa Cywilnego Prawo Zobowiązań - Część Ogólna, p 163

371

See id., at 258. See id. (noting the words of Fryderyk Zoll on unjust enrichment constituting a remedy that heals wounds caused by the lack of appropriate remedies.).

372

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Edelman J (2002) Gain-based damages: contract, tort, equity and intellectual property. Hart Einhorn T (2015) Disgorgment of profits in Israeli law. In: Hondius E, Janssen A (eds) Disgorgement of profits: gain-based remedies throughout the World 299. Springer Gniewek E (2016) Prawo rzeczowe. Wydawcnictwo C.H. Beck Jaffey P (2003) The theory of unjust enrichment. In: Hudson A (ed) New perspectives on property law, obligations and restitution, p 166 Kaliński M (2018) Odpowiedzialność odszkodowawcza. In: Olejniczak A (ed) System Prawa Prywatnego, p 6 Krajewski M (2013) Zobowiązania powstające podczas zawierania umów. In: Łętowska E (ed) System Prawa Prywatnego, 5, p 838. Kruithof M (2015) Disgorgment of profits in Belgian private law. In: Hondius E, Janssen A (eds) Disgorgement of profits: gain-based remedies throughout the World 89. Springer Kryla-Cudna K (2018) Zadośćuczynienie pieniężne za szkodę niemajątkową powstałą wskutek niewykonania lub nienależytego wykonania umowy. Wydawnictwo C.H. Beck Machnikowski P (2017) Kontraktowa odpowiedzialność odszkodowawcza. In: Kuniewicz Z, Sokołowska D (eds) Prawo kontraktów 270 Machnikowski P, Radwański Z (2019) Zawarcie umowy. In: Radwański Z, Olejniczak A (eds) System Prawa Prywatnego, 2, p 420 Mostowik P (2006) Bezpodstawne wzbogacenie w prawie prywatnym międzynarodowym. Wydawnictwo Prawnicze LexisNexis Mostowik P (2018) Bezpodstawne wzbogacenie. In: Olejniczak A, Mostowik P (eds) System Prawa Prywatnego, 6, p 216 Nomi Y (2015) Disgorgement of profits in Japanese law. In: Hondius E, Janssen A (eds) Disgorgement of profits: gain-based remedies throughout the World 429. Springer Ohanowicz A (1981) Bezpodstawne wzbogacenie. In: Radwański Z (ed) System Prawa Cywilnego Prawo Zobowiązań - Część Ogólna, p 470 Poole J (2010) Textbook on contract law, 10th edn. Oxford University Press Radwański Z, Olejniczak A (2016) Zobowiązania – część ogólna. Wydawcnictwo C.H. Beck Rotherham C (2003) Property and unjust enrichment: a misunderstood relationship. In: Hudson A (ed) New perspectives on property law, obligations and restitution. p 188 Serda W (1988) Nienależne świadczenie. Państwowe Wydawnictwo Naukowe Szwaja J, Mika I (2009) Oznaczenia przedsiębiorcy (prawo firmowe). In: Włodyka S (ed) System Prawa Handlowego, p 774 Szwaja J, Tischner A (2014) Odpowiedzialność cywilnoprawna za czyny nieuczciwej konkurencji. In: Kępiński M (ed) System Prawa Prywatnego, 15, p 582 Tettenborn A (2002) The law of restitution in England and Ireland. Cavendish Publishing Limited Tischner A (2008) Odpowiedzialność majątkowa za naruszenie prawa do znaku towarowego. Oficyna Treitel G (2012) Remedies for breach of contract: a comparative account. Oxford Scholarship Online Virgo G (2015) The principles of the law of restitution, 3rd edn. Oxford University Press Zakrzewski R (2005) Remedies reclassified. Oxford University Press Zervogianni E (2015) Disgorgement of profits in Greece. In: Hondius E, Janssen A (eds) Disgorgement of profits: gain-based remedies throughout the World 231. Springer

Commentaries Barta J, Markiewicz R (2015) Article 79 of the Act on Copyright and Related Rights commentary. In: Barta J, Markiewicz R (eds) Ustawa o prawie autorskim i prawach pokrewnych. Komentarz. System Informacji Prawnej LEX

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Felchner K, Jasińska K (2016) Article 36a of the Plant Variety Act Commentary. In: Ustawa o ochronie prawnej odmian roślin. Komentarz. Wolters Kluwer Grykiel J, Olejniczak A (2018) Article 721 of the Civil Code Commentary. In: Gutowski M (ed) Kodeks cywilny. Tom I. Komentarz do art. 1–352 Kaliński M (2014) Szkoda na mieniu i jej naprawienie. C.H. Beck Księżak P (2019) Article 405 of the Civil Code Commentary. In: Osajda K (ed) Kodeks cywilny. Komentarz Mataczyński M, Saczywko M (2019) Article 752 of the Civil Code Commentary. In: Gutowski M (ed) Kodeks cywilny. Tom III. Komentarz do art. 627–1088 Morek R (2019) Article 725 of the Civil Code Commentary. In: Osajda K (ed) Kodeks cywilny. Komentarz Osajda K (2019) Article 414 of the Civil Code Commentary. In: Osajda K (ed) Kodeks cywilny. Komentarz Podrecki P (2015) Article 79 of the Act on Copyright and Related Rights commentary. In: Flisak D (ed) Prawo autorskie i prawa pokrewne. Komentarz. System Informacji Prawnej LEX Skubisz R et al (2019) Article 18 of the Suppression of Unfair Competition Act Commentary. In: Szwaja J (ed) Ustawa o zwalczaniu nieuczciwej konkurencji. Komentarz Sokołowski T (2014) Article 405 of the Civil Code Commentary. In: Kidyba A (ed) Kodeks cywilny. Komentarz Trzaskowski R (2018) Article 405 of the Civil Code Commentary. In: Gudowski J (ed) Kodeks cywilny. Komentarz. Księga trzecia. Zobowiązania Żelechowski Ł (2019) Article 44 of the Civil Code Commentary. In: Osajda K (ed) Kodeks cywilny. Komentarz

Articles Barnett K (2012) Accounting for profit for breach of contract theory and practice 1. Hart Publishing Ltd Beatson J (1991) What can restitution do for you? In: The use & abuse of unjust enrichment 1, 17 Burrows A (2002) Are ‘Damages on the Wrotham Park Basis’ compensatory, restitutionary or neither. In: Saidov D, Cunnington R (eds) Contract damages domestic and international perspectives. Hart, pp 165, 166 Caggiano I (2016) Disgorgement, compensation and restitution: a comparative approach. Global Jurist 16:243 Cunnington R (2004) Rock, restitution and disgorgement. J Obligat Remed 3:46, 47 Cunnington R (2008b) The assessment of gain-based damages for breach of contract. Mod Law Rev 71:559 Czachórski W (1982) O ochronie autorskich praw majątkowych przez wydanie uzyskanych korzyści. Annales Universitatis Mariae Curie-Skłodowska 29:1 Eisenberg MA (2006) The disgorgement interest in contract law. Mich Law Rev 105:559 Friedmann D (1980) Restitution of benefits obtained through the appropriation of property or the commission of a wrong. Colum Law Rev 80:504 Górska K (2017) Article 224 of the Civil Code Commentary. In: Gniewek E (ed) Kodeks cywilny. Komentarz Grochowski M, Łętowska E (2000) Czemu może dziś służyć bezpodstawne wzbogacenie? In: Olejniczak A et al (eds) Współczesne problemy prawa zobowiązań vol 213 Keglević A (2015) Disgorgement of profits in Croatian law. In: Hondius E, Janssen A (eds) Disgorgement of profits: gain-based remedies throughout the world. Springer, p 373 Kociołek M (2017) Żądanie wydania bezpodstawnie uzyskanych korzyści na tle ustawy o zwalczaniu nieuczciwej konkurencji. Przegląd Sejmowy 4:73

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Księżak P (2014) Roszczenie z bezpodstawnego wzbogacenia przeciwko Skarbowi Państwa, który przejął mienie zlikwidowanego przedsiębiorstwa państwowego. Glosa do wyroku SN z dnia 21 maja 2014 r. II CSK 52/14. Glosa 3:41 Łętowska E (2000) Bezpodstawne wzbogacenie, ch. I, § 1. Wydawnictwo C.H. Beck MacQueen HL (2010) The common frame of reference in Europe. Tul Eur Civ L.F 25:177, 188 McCamus J (2003) Disgorgement for breach of contract: a comparative perspective. Loy Los Angeles Law Rev 36:943 Michalak A (2003) Nowelizacja kodeksu cywilnego. Ochrona tajemnic handlowych w trakcie negocjacji. Monitor Prawniczy 13:583, 588–589 Pearce D (2003) Property and contract: where are we? In: Hudson A (ed) New perspectives on property law, obligations and restitution, p 87 Piś-Baranowska J (2003) Glosa do wyroku SN z dnia 11 października 2001 r., II CKN 578/99. Przegląd Sądowy Podrecki P, Traple E (2017) Roszczenia z tytułu naruszenia praw własności przemysłowej. In: Skubisz R (ed) System Prawa Prywatnego, 14C, p 365 Poon N (2019) Turning example into exemplary: ten years on, the curious case of Attorney-General v Blake. Sing Law Rev 29:139 Roberts C (2008) A commonwealth of perspective on restituioanry disgorgement for breach of contract. Wash Lee Law Rev 65:945 Rusch C (2001) Restitutionary damages for breach of contract: a comparative analysis of English and German law. South Afr Law J 118:59 Saidov D (2008) The law of damages in international sales: the CISG and other international instruments. Hart Publishing, p 33. et seq Schlechtriem P et al (2001) Restitution and unjust enrichment in Europe. Eur Rev Priv Law 2&3: 377 Siems M (2003) Disgorgement of profits for breach of contract: a comparative analysis. Edinburgh Law Rev 7:27 Sirena P (2008) The DCFR – Restitution, unjust enrichment and related issues. Eur Rev Cont Law 4:445 Sousa Antunes H (2015) Disgorgement of profits in Portugal: a journey between the present and the future. In: Hondius E, Janssen A (eds) Disgorgement of profits: gain-based remedies throughout the world. Springer Victoria Jardine E (2017) Awarding disgorgement damages under Art. 74 CISG: is it time to keep up with the times? Vindobona J Int Law 21:36 von Caemmerer E (1968) Bereicherung und unerlabute Handlung. Gesammelte Schriften, p 209

Chapter 5

Summary and Conclusions

The goal of this work was to highlight two different approaches towards finding functional equivalents and towards facilitating gain-based remedies for breach of contract under Polish law. Such remedies can be broadly defined as remedies that, to some extent, measure a monetary award for breach of contract by the defendant’s gain or benefit. Their intellectual bedrock can be found in two English cases which applied gain-based remedies in a different fashion. The first, Wrotham Park, where damages were awarded “assessed according to the price which the claimant could reasonably have charged the defendant for releasing the defendant from the obligation that has been broken had the defendant approached the claimant immediately before committing the breach.”1 The second, Blake, where the House of Lords awarded a full account of profits for breach of a contractual obligation of confidentiality; a remedy, which is “assessed according to the profits made by the defendant from the breach and the purpose of such an award is to remove those profits.”2 I have presented two avenues towards finding a functional equivalent of gainbased remedies. The first avenue was the a compensatory one which interprets gainbased remedies as a means of compensating the claimant for loss (in whichever fashion defined). It seems that the strongest clue for applying a more creative approach towards compensation in the Polish legal system is its understanding of compensation made visible through Article 363 § 1 of the Civil Code. The provision considers both an award of damages as well as restitution as fulfilling the compensatory function; an approach generally alien to English law. The compensatory approach can be viewed from either a reparative or substitutive compensation standpoint. The first standpoint holds that a claimant should be compensated for loss that was factually suffered. This is the most common approach to compensation. Reparative compensation did not yield satisfactory results due to the necessity to apply subjective criterions in ascertaining damages. The second standpoint

1 2

Burrows (2016), p. 133. Id.

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necessary to explore was the substitutive compensation standpoint. This further presented three avenues. First, the lost right approach holds that one should be compensated for a subtraction from one’s dominium (the “opportunity to exercise the control over property that proprietary rights give”3). This approach would unsatisfactorily necessitate an unrealistic expansion of the term property. Second, the lost objective benefits approach holds that one should be compensated for “factual benefits that objectively have a market value.”4 This approach was in essence still a subjective approach, and consequently also did not provide a proper functional equivalent. Third, the rights-based approach which objectively values damages as an award for the infringement of the performance interest. This approach was the preferred one, as it yields greatest promise in finding a functional equivalent of gain-based damages, since it corresponds in the strongest fashion with the principles of Polish contract law. At the core of the theory lies the notion that an award of gain-based damages is the next best thing to performance, and it being awarded “is the law's attempting to reach this nearest approximation of the wrong not having occurred.”5 The approach finds strong grounding in the primacy of specific performance under the rule of real performance (zasada realnego wykonania zobowiązania). Such primacy namely indicates a strong protection of the performance interest, the infringement of which—due to a breach of contract—should justify gain-based damages. Based on this I believe that substitutive compensation and the rights-based approach form a functional equivalent of the rule of real performance and Article 471 of the Civil Code. The second avenue of exploration was a restitutionary one which, unlike the compensatory approach, looks more at the defendant’s position as a result of a breach of contract. Under this approach I have argued that a functional equivalent to gain-based remedies could be found under the rules of unjust enrichment, if several prerequisites were met. First, the scope of unjust enrichment would have to be wide enough to encompass contractual claims. Indeed, I have established that the wide scope of Article 414 of the Civil Code could facilitate this. Through this provision an unjust enrichment claim need not necessarily be always subsidiary to traditional damages but may also be used as a remedy for breach of contract. Second, the requirement of subtraction would also have to be wide enough and independent of any narrowly construed patrimonial subtraction. In this regard Polish law— through the broad definition of unjust enrichment in Article 405 of the Civil Code—provides a wide enough approach, as subtraction may be understood as an encroachment into another’s assets or legal sphere, the value of which is objectively assessed. A right to receive performance under a contract may be construed to be such an asset. Third, a satisfactory approach towards subtraction needed to be found. An avenue that yielded unsatisfactory results was an approach that argued that subtraction should be treated as wrongful interference with property rights. This

3

Burrows (2002), pp. 165, 173. Id. 5 Stevens (2007), p. 58. 4

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161

approach was unsatisfactory for the same reasons as the compensatory lost right approach; it would namely require an unrealistic expansion of the term property. The alternative approach treated subtraction as a broad category of wrong. Such an approach, firstly, fits with a wide understanding of subtraction under the Polish rules of unjust enrichment, which require gaining a benefit through an infringement of the claimant’s legal sphere. Secondly, under the so-called surrogate theory, the sheer possession of the infringement can be construed as a wrong. I advocate for the latter—restitutionary—approach. Admittedly, it is not without its drawbacks; the most relevant being the condictio generalissima criticism. Furthermore, if it were to be chosen, it would stray from established English case law stating that—at least where the Wrotham Park remedy is concerned—negotiating damages are compensatory in nature. Nonetheless, firstly, I posit that the latter issue is not a major concern, and has limited bearing on how a Polish functional equivalent should be perceived. Secondly, when it comes to the condictio generalissima criticism, I believe that it can be counteracted by the ultima ratio argument. Namely, unjust enrichment should be used with reasonable restraint; it cannot be used blindly in all circumstances. Such an approach can easily echo English case law. After all, both the Wrotham Park and Blake remedies are also considered as straying from ordinary rules on damages, and must also be used carefully and with restraint. Thirdly, as regards the greater persuasiveness of the restitutionary approach when compared to the compensatory approach, the former relies on an institution that is still somewhat fluid; its prerequisites are still subject to intense evolution. The subjective differentiation theory, on the other hand, seems almost set in stone, constituting an insurmountable obstacle. Regardless of my—personal—view, at the end of the day, it seems that both the rights-based approach and the unjust enrichment approach are in essence similar, while the differences are subtle. Indeed, Mitchell McInnes rightfully pointed out that boundaries may be blurry when talking about remedies and their effects: An order compelling a defendant to pay a reasonable fee for, say, tortious interference with the claimant’s property may achieve a number of things. It may compensate the claimant for the fact that she was denied an opportunity to charge a price for the right to use her property. It may effect disgorgement of a benefit that the defendant obtained by failing to purchase that right at the outset. Or it may secure restitution by requiring the defendant to return an enrichment that he subtracted from the claimant.6

He further adds that “[i]f it is fictional to regard an objectively reasonable price as the claimant’s loss, it must equally be fictional to treat is as the defendant’s gain. Loss and gain reflect two sides of the same hypothetical agreement.”7 Indeed, “the defendant’s unilateral appropriation of the claimant’s right of dominium necessarily entails a loss, a gain, and a transfer.”8

6

McInnes (2006), pp. 76, 79. Id., at 83. 8 Id., at 86. 7

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Summary and Conclusions

Of all the interpretations of the Wrotham Park remedy Ralph Cunnington deemed the reparative compensation rationales as the least convincing, as “their focus on factual gains and losses is irreconcilable with the objective approach to assessment employed by the courts.”9 Differentiating between the restitutionary (i.e. objective gain-based) and substitutive compensation (objective loss-based) principles is however harder, as “the objective value of the right infringed will be exactly the same as the objective value of the benefit received by the defendant.”10 For Ralph Cunnington it is “important to determine whether Wrotham Park damages represent the objective value of the right infringed (objective compensation) or the objective value of the benefit acquired (objective gain-based award).”11 He himself has opted for the latter.12 Nonetheless, in my opinion, substitutive compensation and unjust enrichment lead to the same result, as they both concentrate on the value of the infringed right, and both ascertain that value objectively by looking at the gains of the other party. Therefore, despite being different in theory, the favored compensatory (the rights-based) and restitutionary (subtraction as a broad category of wrong) approaches are in essence similar. Consequently, in my opinion the final question should boil down to the following: which of the two should be applied? This in turn breeds the following questions. In terms of compensation: is Polish law prepared to use more frequently an objective criterion to assess damages? In terms of unjust enrichment: is Polish law prepared to utilize unjust enrichment as a condictio generalissima? In my opinion both questions may be answered in the affirmative. As I have argued, the current legal framework already facilitates this. For this reason, if gain-based remedies are to be truly applied under Polish law (whether through compensation or unjust enrichment) should be—to use Lord Steyn’s words from Blake as a final remark—“hammered out on the anvil of concrete cases.”13

References Articles Burrows A (2002) Are ‘Damages on the Wrotham Park Basis’ compensatory, restitutionary or neither. In: Saidov D, Cunnington R (eds) Contract damages domestic and international perspectives. Hart, pp 165, 166

9

Cunnington (2008), pp. 559, 566. Id. 11 Id. 12 See id. 13 AG v. Blake, at 268, 291. 10

References

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Burrows A (2016) A restatement of the English law of contract. Oxford University Press, p 133 Cunnington R (2008) The assessment of gain-based damages for breach of contract. Mod Law Rev 71:559 McInnes M (2006) Gain, loss and the user principle. Restitution Law Rev 16:76 Stevens R (2007) Torts and rights. Oxford Publishing, p 60

Case Law

England and Wales Alfred McAlpine Construction Limited v. Panatown Limited, [2000] 4 All ER 97. Anglia Television Ltd v. Reed, [1972] 1 QB 60. Attorney-General v. Blake, [2001] 1 AC 268 (H.L.). Attorney-General v. Observer Ltd, [1988] 3 W.L.R. 776 (H.L.). Banque Financière De La Cité v. Parc (Battersea) Ltd and Others, [1999] AC 221. Esso Petroleum Co Ltd v. Niad Ltd, [2001] EWHC Ch 458. Experience Hendrix Llc v. PPX Enterprises Inc. & Anor, [2003] EWCA Civ 323. Lipkin Gorman v Karpnale Ltd, [1991] 2 AC 548. The owners of the steamship Mediana v the owners, master and crew of the lightship Comet, [1900] AC 113. Morris-Garner and another v. One Step (Support) Ltd, [2018] UKSC 20. Pell Frischmann Engineering v. Bow Valley Iran, [2011] 1 WLR 2370 Robinson v. Harman, (1848) 1 Exch. 850. Rookes v. Barnard, [1964] AC 1129. Ruxley Electronics v Forsyth, [1996] AC 344. Stoke-on-Trent City Council v. W & J Wass Ltd., [1988] 1 WLR 1406. Surrey County Council v. Bredero Homes Ltd., [1993] 1 WLR 1361. Tito v. Waddell (No 2), [1977] Ch 106. Watson, Laidlaw & Co Ltd v. Pott, Cassels and Williamson, (1914) 31 RPC 104, 119 Wrotham Park Estate Co Ltd v. Parkside Homes Ltd, [1974] 1 WLR 798. Vercoe v. Rutland Fund Management, [2010] EWHC 424 (Ch)

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Case Law

Poland Judgment [wyrok] SN [Supreme Court] z [of] Feb. 24, 2016, I CSK 824/14. Judgment [wyrok] SN [Supreme Court] z [of] Jun. 12, 2015, II CSK 496/14. Judgment [wyrok] SN [Supreme Court] z [of] May 21, 2014 r. II CSK 52/14. judgment [wyrok] SN [Supreme Court] z [of] Jul. 19, 2012, II CSK 724/11. Judgment [wyrok] SN [Supreme Court] z [of] Apr. 12, 2012, II PK 174/11. judgment [wyrok] SN [Supreme Court] z [of] Mar. 28, 2012, V CSK 157/11. Judgment [wyrok] SN [Supreme Court] z [of] Apr. 8, 2011, II CSK 434/10. Judgment [wyrok] SN [Supreme Court] z [of] Jan. 14, 2010 r. IV CSK 274/09. Ruling [postanowienie] SN [Supreme Court] z [of] Dec. 2, 2009, I CSK 120/09. Resolution [uchwała] SN [Supreme Court] z [of] Aug. 19, 2009, III CZP 58/09. Judgment [wyrok] SA w Warszawie [Court of Appeals in Warsaw] z [of] May 8, 2009, I ACa 1261/08. Judgment [wyrok] SN [Supreme Court] z [of] May 7, 2009, IV CSK 523/08. Judgment [wyrok] SN [Supreme Court] z [of] Mar. 21, 2007, I CSK 458/06. Judgment [wyrok] SN [Supreme Court] z [of] Aug. 10, 2006, V CSK 237/06. Judgment [wyrok] SN [Supreme Court] z [of] Jul. 6, 2006, III CSK 66/05. Judgment [wyrok] SA w Szczecinie [Court of Appeals in Szczecin] z [of] Dec. 22, 2005, I ACa 525/05. Judgment [wyrok] SN [Supreme Court] z [of] Dec. 21, 2005, IV CK 305/05. Judgment [wyrok] SN [Supreme Court] z [of] Dec. 7, 2005, V CK 389/05. Judgment [wyrok] SN [Supreme Court] z [of] Dec. 17, 2004, II CK 303/04. Judgment [wyrok] SN [Supreme Court] z [of] Oct. 11, 2001, II CKN 578/99. Uchwała [resolution] SN [Supreme Court] z [of] Mar. 19, 1998, III CZP 72/97. Judgment [wyrok] SN [Supreme Court] z [of] Jan. 29, 1970, I CR 434/69. Judgment [wyrok] SN [Supreme Court] z [of] Dec. 1, 1959, I CR 477/59. Judgment [wyrok] SN [Supreme Court] z [of] Jun. 28, 1958, III CR 100/57. Judgment [wyrok] SN [Supreme Court] z [of] Mar. 1, 1955, I C 1859/53.

Other Jurisdictions Turf Club Auto Emporium Pte Ltd. v. Yeo Boong Hua [2018] SGCA 44 (Singapore). Zhu v. The Treasurer of the State of New South Wales [2004] HCA 56 (Austl.). Hill v. Van Erp (1997) 188 CLR 159 (HCA) (Austl.). Citadel General Assurance Co v. Lloyds Bank Canada [1997] 3 SCR 805 (Canada). CA 815/80 Harlow & Jones v. Adras Ltd. 37(1) PD 225 [1983] (Isr.). Snepp v. United States, 444 U.S. 507 (1980) (US).

Other Materials

Normative Acts Ustawa o ochronie prawnej odmian roślin [Plant Variety Act] Jun 26, 2003. Prawo własności przemysłowej [Industrial Property Law] Jun 30, 2000 (Centrum Tłumaczeń PWN.PL, trans.). Ustawa o prawie autorskim i prawach pokrewnych [Law on Copyright and Related Rights] Feb 4, 1994 (Centrum Tłumaczeń PWN.PL, trans.). Ustawa o zwalczaniu nieuczciwej konkurencji [Suppression of Unfair Competition Act] Apr 16, 1993 (The Polish Law Collection, trans.). United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, U.N. Doc. A/CONF.97/18, Annex I, reprinted in 19 I.L.M. 668. Kodeks cywilny [Civil Code] Apr. 23, 1964 (Ewa Kucharska, trans.). Zivilprozessordnung [ZPO][Code of Civil Procedure], Sep. 12, 1950 [BGBl.], as amended (Langenscheidt Translation Service, trans.) Bürgerlichen Gesetzbuch [BGB] [Civil Code], Aug. 18, 1896, Reichsgesetzblatt [RGBl.] 195, as amended (Langenscheidt Translation Service, trans.) Chancery Amendment Act 1858.

Restatements and Miscellaneous Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of Reference (DCFR) (Christian von Bar & Eric Clive eds., Sellier, Munich 2009). Restatement (Third) of Restitution and Unjust Enrichment (2011). Restatement (Second) of Contracts (1981).

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