Account of Profits, Contracts and Equity

Account of profits, contracts and equity

Justin Gleeson SC and James Watson*

In 1944 George Blake joined the British Secret Service where he signed a contract promising not to disclose secret information. Among many other wrongs, he breached that contract when, from 1951, he became an agent for the Soviet Union, supplying secrets. He was discovered, imprisoned, and in 1966 escaped to Moscow. In 1990 he published an autobiography, including in the United Kingdom for which he was to be paid royalties. In about 1997 the Crown commenced proceedings to intercept the royalties. In Attorney-General v Blake [2001] 1 AC 268, the House of Lords determined that Blake was in breach of his 1944 contract and, on restitutionary principles, he was required to account for the profits made from the breach of contract. In this article the account at common law and in equity, restitution and Blake are considered. It is contended that, although not addressed by the Lords, the case called for an application of the equitable remedy of an account. There is Chancery authority for the analysis, and Blake is (and negative covenant cases ought to be) explicable on those authorities.

INTRODUCTION Like tracing and contribution, the account has its origins in the earliest developments of the law. Like contribution,1 the account has been appropriated to equity and today is often described as a purely equitable remedy.2 In fact the account is well established both at common law, and as a remedy in equity. In both jurisdictions, the account remedies the (deemed) better right or title of the plaintiff to a sum of money in the hands of the defendant. However, at common law the account was overtaken in part by money had and received, and the remainder then run over by contract. The result was that for some cases which might previously have called on the account, damages came to prevail.3 In Chancery, within its exclusive jurisdiction, the account was “always available if an account was necessary to give effect to his equitable rights”.4 Chancery also made the account available as a remedy for breach of common law rights, although precisely which common law rights could be remedied by an equitable account was never finally determined. Amidst all of this, in Attorney-General v Blake [2001] 1 AC 268, the House of Lords determined that an account of profits could lie in exceptional circumstances as a remedy for a breach of contract. The Lords reached this conclusion by applying a “restitutionary” analysis to contract, largely without consideration of the separate and remedial purpose of equity. It should be noted at the outset that it is not intended in this article to make any point about the availability or desirability of fusion of law and equity.5 However, it is contended that the result obtained in Blake might be one that would have obtained in Chancery in any event. This article first considers the development of the account; the related but relatively recent development of a unified “restitution”; and whether, and if so how, an account can be included as a term of a contract. The article then considers the context of Blake; the speeches of Lord Hobhouse

* Barristers, New South Wales Bar. 1 Burke v LFOT Pty Ltd (2002) 209 CLR 282 at 38. 2 See, eg Dal Pont GE and Chalmers DRC, Equity & Trusts in Australia (3rd ed, Lawbook Co, Sydney, 2004) p 90. 3 See n 17. 4 Meagher R, Heydon D and Leeming M, Meagher, Gummow & Lehane’s Equity Doctrine & Remedies (4th ed, Butterworths, Australia, 2002) p 870; Glover J, Equity, Restitution & Fraud (Butterworths, Australia, 2004) p 404. 5 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at [15]ff; cf [132]ff; see also “Current Issues” (2005) 79 ALJ 73; Edelman J and Degeling S, “Fusion: The Interaction of Common Law and Equity” (2004) 25 Aust Bar Rev 195.

(dissenting) and Lord Nicholls for the majority; English case law subsequent to Blake; and the reception of Blake in Australia. Finally, it is contended that, although not addressed by the Lords, there is authority in Chancery which supports the making available of an account upon a contract. It is the thesis in this part that equity may make the account available in circumstances where on a true analysis of a bargain, and pursuant to the expectation of the parties, the defendant has submitted to being an accounting party. This lies in equity’s jurisdiction to act in aid of legal rights.6 It is perhaps a long way of establishing that equity will not suffer a wrong without a remedy7 although it is still necessary to establish (and something of the length of this article is directed towards establishing) the suitability of the particular remedy for that wrong. Where the problem lies The starting proposition is that parties are entitled to organise their duties and responsibilities to each other as they wish. Where those duties were expressed in contract, the common law came to construe bargains strictly, and recognise only damages for breach.8 Equity developed an altogether different philosophy, both in terms of looking to the true bargain between the parties and, in cases where damages were inadequate,9 enforcing the bargain specifically, or by injunction. In some cases, however, damages and injunction alone could be insufficient. A hard example is this. P contracts with D for consideration. Among the provisions in the contract D promises not to do a thing, Y. The doing of Y will not harm P financially, but it is a condition of reaching any agreement that D promises not to do that thing. Shortly after, D quietly goes about doing Y. D makes a profit. P suffers no direct financial loss (in the sense of some diminution of assets). On one view, P has lost the opportunity to negotiate a relaxation of the covenant with D. However, for these purposes P is adamant (and both parties understood) that no agreement would ever have been made without the stipulation, and P would never have relaxed that covenant. On the facts: (a) P has suffered no financial loss; (b) P has not in any real sense lost an opportunity to bargain, because P never would have bargained; but (c) P was not able to obtain an injunction to enforce the promise because Y was done without P’s knowledge. At common law, this ultimately may be merely unfortunate.10 However, to leave the matter there would be to subvert the true intention and expectations of the parties. The undertaking given by D may be pointless where it is both incapable of sounding in damages, and the remedy available to P (injunction) is in the hands of D to subvert. The question is, then, how does the law, and then equity, respond? Damages and account In Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1970) 122 CLR 25, Windeyer J explained, speaking in the context of trade mark infringement (at 32 [17]): The distinction between an account of profits and damages is that by the former the infringer is required to give up his ill-gotten gains to the party whose rights he has infringed: by the latter he is required to compensate the party wronged for the loss he has suffered. The two computations obviously yield different results, for a plaintiff’s loss is not to be measured by the defendant’s gain, nor the defendant’s gain by the plaintiff’s loss … If a plaintiff elects to take an inquiry as to damages the loss to him of profits which he might have made may be a substantial element of his claim ... But what a plaintiff might have made had the defendant not invaded his rights is by no means the same thing as what the defendant did make by doing so. Windeyer J’s dicta apprehends (arguably) three different measures of compensation. The orthodox is first, compensation for the plaintiff’s loss; and secondly an account of the profits made by

6 See Meagher et al, n 4, pp 10-11 on “concurrent” and “auxiliary”. 7 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at [205], [224]; see also Meagher et al, n 4, p 85. 8 Butler PA, “Mistaken Payments, Change of Position and Restitution” in Finn PD (ed), Essays on Restitution (Law Book Co, 1990) p 89. 9 See Spry ICF, Equitable Remedies (Lawbook Co, 2001) p 60; see also Aitken L, “When are Damages an Adequate Remedy?” (2004) 78 ALJ 544. 10 But laissez-faire, better for society.

(2005) 79 ALJ 676 677 © Justin Gleeson SC and James Watson the defendant as a result of her, his or its infringement. The question raised incidentally, but critically, by Blake, was whether the cases revealed a third type of compensation, being damages assessed by the defendant’s gain. The third point is the one which has taken hold in the few cases subsequently applying Blake in England; and is probably the principal point of dissatisfaction with Blake in subsequent cases in Australia. This issue is noted below, although only to distinguish it for the purposes of this article from the making available of an account. ACCOUNT, RESTITUTION AND CONTRACT CLAUSES It is perhaps surprising that there does not appear to be any authoritative definition of the “account”. In the cases, the account refers collectively to two related matters.11 First, the account refers to the entitlement of a plaintiff to have a defendant account for (disgorge) money in her, his or its hands. In all cases of an account it was (and is) necessary to establish the obligation to account first: A decree for an account is not, as appears to have been assumed, a mere direction to inquire and report. It proceeds, and must always proceed, upon the assumption that the party calling for it is entitled to the sum found due. It is a decree affirming his rights, only leaving it to be inquired into, how much is due to him from the party accounting ... We cannot make a decree, ordering them to account, without first determining that they are liable to pay if anything be found due.12 Secondly, having established that the defendant is an accounting party, the corollary is that the plaintiff is entitled to inquire (if necessary) to determine the quantum of the account.13 Entitlement to a sum found due In an article published in 1964, S J Stoljar traced the history of the action of account.14 Professor Stoljar pointed out that the earliest actions for an account appeared in the 13th century, making it one of the oldest actions at common law. In its early form, the account was essentially concerned with property: it was an allegation that the defendant had in her or his possession a sum or thing to which the plaintiff asserted the better title or right.15 That conception of the account was temporarily lost amidst what Young J called a “contractualisation” of law.16 With the development of indebitatus assumpsit, and the abandonment of debt, “contract” came to explain (and overtake) the common relationships of commerce.17 Consistently with that process, the obligation to account (the better right or title) came to be asserted as an implied condition of various commercial dealings.18 As Stoljar continued:

11 Town & Country Property Management Services Pty Ltd v Kaltoum [2002] NSWSC 166 at [84]; cf Acme Office Service Pty Ltd v Ludstrom [2002] NSWSC 277 at [38]. 12 Baboo Janokey Doss v Bindabun Doss (1843) 3 Moo Ind App 175 (PC); Lang v Simon (1952) 53 SR (NSW) 508 at 514; Re Sharpe (unreported, Federal Court of Australia, 11 December 1992, Drummond J). 13 On the various modes of inquiry see Glazier v Australian Men’s Health Pty Ltd [No 2] [2001] NSWSC 6 (reversed on appeal: Meehan v Glazier Holdings Pty Ltd (2002) 54 NSWLR 145; [2002] NSWCA 22 on other issues). 14 Stoljar SJ, “The Transformation of Account” (1964) 80 LQR 203; see also Asset Risk Management Ltd v Hyndes (1998) 43 AILR 5-160; [1998] NSWSC 131 (reversed on appeal on other issues: Asset Risk Management Ltd v Hyndes [1999] NSWCA 201).. 15 Stoljar SJ, The Law of Quasi-Contract (2nd ed, Law Book Co, 1989) p 17 noting the Roman origins of the action. 16 Asset Risk Management Ltd v Hyndes (1998) 43 AILR 5-160; [1998] NSWSC 131; see also Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105 at 131. 17 See Beatson J, Anson’s Law of Contract (27th ed, OUP, 1998) p15: “Since the indebitatus assumpsit action was formally for reliance damage and not the debt, it now had to be made clear that the debt itself was recoverable as well as any damage, that the actions [debt, assumpsit] were alternative, and that one barred the other. And since formally the reliance damage flowed entirely from the promise to pay the debt, there was no logical need to specify how the debt had arisen; and so a defendant in an indebitatus action might not know the actual case he was to answer. The courts therefore required minimum particulars to be given; and a series of ‘common counts’ developed … With the important exception of agreement supported by sealed documents … all contract litigation after Slade’s Case [(1602) 4 Co Rep 91a; 76 ER 1072] was brought on assumpsit; and it was from this that the modern law of contract developed.”. 18 Hawkins v Parke (1614) 1 Rolle 52; Wilkins v Wilkins (1689) 1 Show KB 70.

Now such a contractual relationship was (and indeed is) quite sufficient to explain a duty to account where D was a bailiff or agent or partner, since such person could always be said to have expressly or at any rate implicitly undertaken to account for money or property received or collected in the course of the agency or partnership.19 Chancery also recognised the better right or title in these cases, giving effect to the undertaking.20 So in Mackenzie v Johnstone (1819) 4 Madd 373; 56 ER 742, Sir John Leach LC states, “The Defendants here were agents for the sale of property of the Plaintiff, and wherever such a relation exists, a bill will lie for an account”, and in King v Rossett (1827) 2 Y & J 33; 148 ER 820 (a claim between partners), Alexander LCB said, “Undoubtedly, a principal is entitled to an account from his agent, and may apply to Equity for that purpose”. It is important to note that these were not claims against a defaulting fiduciary (as is usually, but not necessarily, the case with agents).21 Rather, the suit was for an account based on common law rights, a point recognised by the court in King in dismissing the bill on the basis that the remedy could equally be had at law. Chancery maintained a wide jurisdiction in matters of account, but it was also concerned to keep a wide discretion. In Fowle v Lawrason 30 US 495 at 503 (1831), Marshall CJ in an appeal from “the equity side of the circuit court” explained: That a court of chancery has jurisdiction in matters of account cannot be questioned, nor can it be doubted that this jurisdiction is often beneficially exercised; but it cannot be admitted that a court of equity may take cognizance of every action for goods, wares, and merchandise sold and delivered, or of money advanced … or of every contract, express or implied, consisting of various items, on which different sums of money have become due and different payments have been made. Although the line may not be drawn with absolute precision, yet it may be safely affirmed that a court of chancery cannot draw to itself every transaction between individuals in which an account between parties is to be adjusted. In all cases in which an action of account would be the proper remedy at law, and in all cases where a trustee is a party, the jurisdiction of a court of equity is undoubted. But in transactions not of this peculiar character, great complexity ought to exist in the accounts, or some difficulty at law should interpose, some discovery should be required, in order to induce a court of chancery to exercise jurisdiction. That is, there was no particular desire for Chancery to take over all of the work which could be remedied by an account, where it was otherwise able to be remedied at law.22 Shift to equity It was recognised early – including by the common law courts – that the procedure at law for the taking of accounts was not always satisfactory.23 As the authors of Equity: Doctrine & Remedies observed, the process apparently required a determination by the court (including jury)24 as to whether the defendant had an obligation to account; then an inquiry by auditors; and finally an action at law to recover the sums so determined. The process was further complicated because the auditors could not determine legal questions: if a legal question arose in the inquiry the matter was returned to the court; and then back to the auditor for further inquiry consistently with that determination.25 All of this was cumbersome, but engendered a number of important developments in the law. On the one part, the process encouraged the use and development at law of alternative procedures for simple accounts, in particular evolving the action for money had and received. Money had and

19 Stoljar, n 14 at 211 (emphasis added). 20 Daniell’s The Practice of the High Court of Chancery (5th ed, Stevens & Sons, London, 1871) p 275 explains that where the suit for an account was based on “privity” between the parties, it was not necessary to plead any pre-existing proprietary rights for the account. 21 See Browne D, Ashburner’s Principles of Equity (2nd ed, Butterworth & Co, London, 1933) p 349. 22 See generally, Asset Risk Management Ltd v Hyndes (1998) 43 AILR 5-160; [1998] NSWSC 131, referring to the various ways in which the text books sought to identify the circumstances in which Chancery and later the Chancery Division usually would intervene. 23 Wilkins v Wilkins (1689) 1 Show KB 70. 24 Wilkins v Wilkins (1689) 1 Show KB 70. 25 Meagher et al, n 4, p 869; Stoljar, n 14 at 213; see also Ex parte Bax (1751) 2 Ves Sen 388; 28 ER 248.

(2005) 79 ALJ 676 679 © Justin Gleeson SC and James Watson received offered distinct advantages in procedure.26 It came to be pleaded as a liquidated claim;27 and, as Lord Mansfield explained in Moses v Macferlan (1760) 2 Burr 1005 at 1010; 97 ER 676 at 679 (emphasis added): One great benefit, which arises to suitors from the nature of this action is that the plaintiff needs not state the special circumstances from which he concludes “that ex aequo & bono, the money received by the defendant ought to be deemed to belong to him”: he may declare generally, “that the money was received to his use” and make out his case at the trial. The action for money had and received later fell under the spell of contract, to be resurrected again as an independent claim to account, later appropriated to restitution.28 On the other part, the inconvenience of the account at common law led to the passing of the account generally to equity. Prior to the judicature reforms, Chancery had three great advantages: it had sworn responses; the bill of discovery; and Masters who could conveniently take the accounts.29 In circumstances where the account could not be adequately determined at law, Chancery would lend its remedies. In all of this, Chancery considered its jurisdiction to order an account as concurrent.30 Accordingly, and in accordance with general principle, a plaintiff in Chancery had to demonstrate a sufficient (that is, additional) basis for equity to intervene in order to obtain an account. In the early cases, the account in equity was often obtained by also seeking the bill of discovery, or as an adjunct to an injunction. So in Jesus College v Bloom (1745) 23 Atk 262; 26 ER 953 (a case concerning common law waste) the Vice Chancellor explained (at 262; 593): this court has gone further, merely upon the maxim of preventing a multiplicity of suits, which is the reason that determines this court in many cases. As in bills for account of assets &c that originally was only a bill for discovery, which cannot be had without an account, and therefore the court will make a complete decree and give the party his debt likewise. So in bills for injunctions, the court will make a complete decree and give the party a satisfaction, and not oblige him to bring an action at law, as well as a bill here. In industrial property cases, the (additional) equity was typically found in an injunction.31 This appears to be the genesis of the requirement (now hardened into a rule)32 that an account will only be given in intellectual property cases if an injunction is also sought. In fact, the question of when equity would make the account available was never exhausted, as Chancery continued to reserve for itself the discretion. As Lord Cottenham LC explained in North- Eastern Railway Co v Martin (1848) 2 PH 757 at 761; 41 ER 1136 at 1138: The jurisdiction in matters of account is not exercised, as it is in many other cases, to prevent injustice which would arise from the exercise of a purely legal right, or to enforce justice in cases in which Courts of Law cannot afford it; but the jurisdiction is concurrent with that of the Courts of Law, and is adopted because, in certain circumstances, it has a better means of ascertaining the rights of parties. …

26 Mason K and Carter JW, Restitution Law in Australia (Butterworths, Sydney, 1995) p 979. 27 Those procedures are reflected in the court rules today: see, eg Supreme Court Rules (NSW), Pt 15.12. 28 Sinclair v Brougham [1914] AC 398; Asset Risk Management Ltd v Hyndes (1998) 43 AILR 5-160; [1998] NSWSC 131; Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 respectively. 29 See Ex parte Bax (1751) 2 Ves Sen 388; 28 ER 248; Stoljar, n 14 at 221; Maitland FW, The Constitutional History of England (CUP, 1920) pp 467-469. 30 See Shepard v Brown (1862) 4 Giff 208 at 219; 66 ER 681 at 686; Smith v London & South-Western Railway Co (1854) Kay 408 at 415; 69 ER 173 at 176; see also Browne, n 21, p 351. 31 See Smith v London & South-Western Railway Co (1854) Kay 408 at 415; 69 ER 173 at 176 per Sir W Page Wood VC: “The true ground of relief in these cases is laid down in Baily v Taylor (1 Russ & My 75) where Sir J Leach MR says: ‘The Court has no jurisdiction to give to a plaintiff a remedy for an alleged piracy, unless he can make out that he is entitled to the equitable interposition of this Court by injunction; and, in such case, the Court will also give him an account that his remedy here may be complete. If this Court did not interfere by injunction, then his remedy, as in the case of any other injury to his property, must be at law’.” (Emphasis added.) 32 Delpin Pty Ltd v Nargol Holdings Pty Ltd [2002] NSWSC 422.

It is therefore impossible with precision to lay down rules or establish definitions as to the cases in which it may be proper for this Court to exercise this jurisdiction. The infinitely varied transactions of mankind would be found continually to baffle such rules, and escape such definitions. It is, therefore necessary for this Court to reserve to itself a large discretion in the exercise of which due regard must be had, not only to the nature of the case, but as to the conduct of the parties.33 Accounts on contracts To this point the position seems to be that (a) Chancery maintained a broad jurisdiction with regards to the account, (b) the fact that a suit for an account might arise from a relationship which was established by law was no prohibition,34 but (c) such limitations as there were arose from Chancery’s insistence that it would only intervene where the process or remedy at law was inadequate. Two years after reserving to Chancery the “large discretion” (above), Cottenham LC permitted an action for an account to proceed in equity in circumstances where the plaintiff’s claim was that the defendant under a building contract had prevented the principal engineer from issuing certificates necessary to establish the plaintiff’s contractual entitlements: M’Intosh v Great Western Railway Co (1850) 2 Mac & G 74; 42 ER 29. Cottenham LC said (emphasis added): It is therefore no answer, in the present case, for the defendants to urge that if they, or their agent, have been neglectful of what they undertook to do, by which the plaintiff has suffered, they may be liable in damages to the plaintiff. He contracted for a specific thing, and is not bound to take that or something in lieu of it, if such other thing be not what this Court considers as a fair equivalent. The plaintiff was entitled to proceed with the account in equity because: this is clearly a case in which the plaintiff cannot obtain what he is entitled to at law; and that his inability to do so has arisen from the acts of the defendants, or their agent; and whether such acts arose originally from any fraudulent motive or not, I think that to use them for the purpose of defeating the plaintiff’s remedy would constitute a fraud which this Court will not permit the defendants to avail themselves of. 35 The court thus permitted the account to proceed in equity to ascertain what sums of money the plaintiff would have been entitled to if the principal engineer had duly and properly issued certificates under the contract. The account was made available as equity’s conception of what was a “fair equivalent” of that which the defendant had contracted for and been promised to receive. Pausing in 1862, two cases are reported in that year of a plaintiff seeking an equitable account for what would otherwise be understood today as a purely contractual claim. The grievances of William Whittaker Barry provide a useful, and hopefully interesting, first illustration (Barry v Stevens (1862) 31 LJ Ch 785). In 1860, Mr Barry wrote a textbook, a treatise, On the Statutory Jurisdiction of the Court of Chancery. He had some difficulty in securing a publishing contract. He approached Messrs Stevens & Co, law publishers, but “after seeing it, they declined, as they feared the sale would not justify the expense”. Barry persisted and convinced Stevens & Co to publish the book on terms that Barry was to meet the cost of publication, and Stevens & Co to account for proceeds. At the insistence of Barry, Stevens & Co duly arranged for the printing of some 500 copies. The book apparently did not sell well. After a year or so on sale, Stevens & Co sent Barry an account which showed that they had incurred costs of, and duly invoiced him for, £125.3.9. The invoice was met with outrage, and Stevens & Co filed a writ at common law. Barry shot straight to Chancery. The bill filed in equity records something of the resolute faith of Barry in his work. Upon receiving the invoice from Stevens & Co:

33 On the facts the Lord Chancellor considered that (a) the dispute was not one of mutual accounts, it was simply a claim for fees by Martin & Fox; and (b) it was inappropriate to order the injunction in circumstances where the plaintiff on the motion in equity had (without explanation) waited until the matter was ready for trial to make the application. 34 Mackenzie v Johnstone (1819) 4 Madd 373; 56 ER 742; King v Rossett (1827) 2 Y & J 33; 148 ER 820. 35 M’Intosh v Great Western Railway Co (1850) 2 Mac & G 74 at 95; 42 ER 29 at 37.

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as the account shewed only of forty-nine copies of the book, the plaintiff was at once convinced that there must be some mistake or error; that he requested the defendants to allow him to examine the stock of the work unsold.36 The bill prayed for an order for discovery and account. Stevens & Co demurred, or in the language of today, sought to strike the bill out. The Master of the Rolls described the case as “a mere money demand: the contract is for printing, publishing and selling 500 copies of the plaintiff’s book on certain terms and conditions”. Romilly MR refused to order the account, not because an account could not lie on the contract, but because, the subject matter is confined within certain specified limits, and the accounts shew that this is a mere money demand which may perfectly well be tried at law, where the account will be taken before the Master in the same way that it would be taken here.37 The plaintiff having failed to show some other reason for equity to intervene, such as the need for discovery or injunction; or some allegation of “fraud or misstatement” which could not be handled at law, the bill was struck out.38 A more successful application for an account in an otherwise contractual context is reported in the same year in Shepard v Brown (1862) 4 Giff 208; 66 ER 681. Sir John Stuart VC summarised the case: “The substance of the Plaintiff’s case is that he was employed by the Defendants to obtain orders for goods manufactured by them, and that he was to be allowed remuneration in the shape of commission upon the amount of all goods sold under orders which were obtained through his exertions.” The bill was resisted by the defendants because, “It was said in support of the demurrer that at law he might recover in an action the whole of the amount of that commission which he seeks to recover by account in this Court” (at 217; 685). The Vice Chancellor rejected that argument. It was conceded by the defendant that the suit was a proper one for discovery; and with that, an account would also be taken “Because when relief is sought in the shape of an account, Courts of law and Equity have, generally speaking, a concurrent jurisdiction”.39 Accordingly, at least where the contractual claim was “in the shape of an account”, Chancery would determine whether the defendant was an accounting party; make the inquiry; and provide as a remedy a monetary sum. The bill in Shepard explains how this was achieved: Upon that he comes to the Court and prays for relief, first in the shape of a declaration that the Defendants are bound by the letter of their agent, which promised the remuneration, and next he seeks an account of all orders received and executed by the Defendants through his exertions and to have it ascertained how much is coming to him for commission in respect of the quantity of goods sold.40 Now, by the time of Shepard it was already established at common law that the only remedy for breach of contract was damages.41 Contract had long since usurped debt, so that a claim at common law was for “damages” in the nature of debt (the common counts); or damages at large.42 Accordingly, and whatever else may be said about the meaning of account in these cases,43 they are cases in which equity contemplated giving or did give to the plaintiff a monetary remedy in the form of an account upon what would otherwise be understood as contract.`

36 Barry v Stevens (1862) 31 LJ Ch 785 at 786. 37 Barry v Stevens (1862) 31 LJ Ch 785 at 788. 38 Barry v Stevens (1862) 31 LJ Ch 785 at 788 (the report contains two footnotes: the first, perhaps not surprisingly, records that upon hearing the judgment Barry immediately sought leave to amend the bill by adding an allegation of fraud (that application was dismissed); the second records that the Master of the Rolls was correct in his estimate that the common law could do as well (the referee provided his certificate within a month also certifying that Barry was to pay the costs)). 39 Shepard v Brown (1862) 4 Giff 208 at 217; 66 ER 681 at 686. 40 Shepard v Brown (1862) 4 Giff 208 at 217; 66 ER 681 at 685 (emphasis added); see also Daniell’s, n 20, p 1093: “Where an account of debts is directed, the plaintiff, if a creditor, must prove his debt in proceedings under the decree: although he has established his right to the decree.” 41 Robinson v Harman (1848) 1 Ex 850; 154 ER 363. 42 See n 17. 43 Parkinson P (ed), The Principles of Equity (Law Book Co, 1996) p 885.

It is critical that the court was not purporting to award damages;44 or to order some specific performance or injunction. The bill in Shepard sought a declaration and then an account. But if the suit was not to enforce the contract as such, what was the basis for allowing the suit to proceed? The critical feature in Shepard (and that contemplated in Barry) appears to be that, by conduct (the agreement), equity recognised that the defendant had submitted to being an accounting party. It is the same recognition that premised the suit by the principal against the agent in King. And, having recognised a party as one who had undertaken to account, the court was prepared to lend its remedies to give effect to the undertaking. Returning then to the narrative. In Manners v Pearson (1898) 67 LJ Ch 304; [1898] 1 Ch 581, an account was sought in the Chancery Division pursuant to a contract which entitled the plaintiff to “one cent in Mexican currency for every cubic metre of certain excavation works”. In argument, the plaintiffs had asserted that, “An action for an account is, in fact, the same thing as an action for damages”. Lindley MR is recorded in short terms, responding (in argument): “An action for an account is not a series of actions for damages for breach of contract on which you get separate judgments. The account is taken and you get judgment for the balance.” Lord Lindley returned to the point in his judgment (at 589 (emphasis added)): Before the Judicature Acts no one ever heard of investigating damages in taking an account in Chancery of money due under a contract. Since the Judicature Acts, damages can be given in the Chancery Division where they could not have been given before; but even now a judgment or order for an account of what is due under a contract does not involve an inquiry as to damages in taking the account. At first instance in Manners the concern appears to have been whether the plaintiff was the assignee of the contract, and was entitled to the sums due. The court found that he was, and ordered the defendant to account. On appeal, the case focused on whether and when the sum payable was to be converted into English pounds. Lindley MR said (at 588-589 (emphasis added)): Failure by the defendants to make these payments would be breaches by them of their contract, and would expose them to claims for damages in some shape or other. … But, for reasons which I proceed to state, I am of opinion that no claim by the plaintiff to damages in any shape can be supported in the present case. The order [at first instance] was the judgment on the trial of the action, and it limits the right of the plaintiff to an account of what is due to him from the defendants under their agreement. The case might today be explained as one on a contract creating some agency, but neither the argument of counsel nor the reasons of the court refer to that. It was sufficient that the contract made the defendant an accounting party. As late as 1933 the relationship between contract and equitable account survived in the commentary, as the authors of Ashburner’s Principles of Equity note: A might bring an action at law against B for the balance found due from B on taking the account between him and A, either where B was liable under a contract to pay money to A or where B was A’s agent to receive money on A’s behalf. Courts of equity here had from the earliest time a concurrent jurisdiction with courts of law, but before the Judicature Act they only exercised this jurisdiction where the account was mutual or complicated or where the plaintiff and the defendant stood in the relation of principal and agent.45 Intriguingly, the authors added that since the Judicature Act 1873 (UK) assigned “the taking of partnership or other accounts” expressly to the Chancery Division, “no action of account, except where the account is of the simplest character, ought to be brought in the Queen’s Bench Division”. Nonetheless, these kinds of suits (suits in equity for an account on a contract) appear to have waned from the reports following the judicature reforms, presumably with the making available of

44 From 1858, Chancery had been able to award damages in defined circumstances: Vict c 27 (Lord Cairns Act), ss 21, 22. 45 Browne D, n 21, p 349.

(2005) 79 ALJ 676 683 © Justin Gleeson SC and James Watson discovery and injunction to the common law courts, and the maturing of contract.46 By 1914, contract theory was at its height,47 although throughout this time and into the very modern era the Chancery Division continued to give certain aspects of contracts proprietary-like status, in particular by enjoining the breach of negative undertakings contained in contracts.48 Probably, there were very few cases where equity was ever asked to consider making available the account on contract after this time, since contract came to explain almost all relationships of privity; there were injunctions to encourage performance; and otherwise only a few cases where the breach caused the defendant no damage. Interestingly, however, in New South Wales where the Judicature Act reforms came late,49 there is evidence of an account being sought for a breach of contract in the early 1920s. In Davis v Hueber (1923) 31 CLR 583, the plaintiff carried on business in Australia as agent for a foreign company. He had a right (on a proper construction of a very brief agreement) to an indemnity out of the assets of the business in respect to the debts which he incurred on behalf of the foreign company and for which he was personally responsible. The foreign company determined that its business in Australia would in future be carried on with the defendant as manager. The plaintiff agreed with the defendant to hand over the assets of the business (and he did hand them over) in exchange for a promise that the defendant would liquidate the firm by taking over the assets and discharging the ordinary running expenses, but would not withdraw any of the capital invested in the firm without the plaintiff’s consent. The defendant breached his promise by passing some of the proceeds of the assets to the foreign company without the necessary permission. The plaintiff instituted his suit against the defendant in the Supreme Court of New South Wales in its (still separately administered) equitable jurisdiction. Street J held, on the proper construction of the defendant’s undertaking, that the defendant constituted himself a trustee for the plaintiff of the assets of the business and the proceeds therefrom. On the basis of this trust relationship, Street J made orders requiring the defendant to deliver up to the plaintiff the assets, moneys and books of the business remaining in his hands, an injunction restraining the defendant from dealing with the assets otherwise than in accordance with the plaintiff’s consent, and directed the taking of accounts of the dealings of the defendant as liquidator with the assets of the business. The majority in the High Court (Knox CJ and Starke J) held that upon the proper construction of the letter of undertaking a trust relationship was not established. Instead, there was a mere contract whereby, (a) on the plaintiff handing over the assets of the business, the defendant promised that the plaintiff’s right of indemnity against those assets would not be prejudiced, and (b) the defendant as security for the arrangement promised not to withdraw any capital invested in the firm without the plaintiff’s consent. The majority then addressed the defendant’s argument that the only claim of the plaintiff could be one for an ascertained sum of money or for damages for breach of the agreement, which the plaintiff should be left to bring at law.50 In particular, the majority considered that a claim by the plaintiff against the defendant for an account of the liquidation of the firm and an order restraining him from parting with the assets of the business without the plaintiff’s consent, was a proper subject for the exercise by the court of its equitable jurisdiction. Because the plaintiff had a right to indemnity against all the assets of the business, his claim was not a mere debt (only to be dealt with by law). The court had equitable jurisdiction, for the purpose of giving effect to the plaintiff’s right to indemnity, to order an inquiry as to the realisation of the assets and what had become of the proceeds, as well as ordering an injunction to restrain the defendant from disposing of proceeds.

46 Evidence Act 1851 (UK); Common Law Procedure Act 1854 (UK); Judicature Act 1873 (UK). 47 Sinclair v Brougham [1914] AC 398. 48 See Meagher et al, n 4, p 749ff; cf Zhu v Treasurer (NSW) (2004) 79 ALJR 217; [2004] HCA 56. 49 Heydon JD, “The Role of the Equity Bar in the Judicature Era” in Lindsay G and Webster C (eds), No Mere Mouthpiece: New South Wales Bar Association Centenary Essays (Butterworths, Australia, 2002). 50 The majority held that the suit in equity was wrongly constituted. The foreign company needed to be joined as an additional defendant. However, the majority considered that the plaintiff should be given leave to amend the proceedings both as to parties and to statement of the case.

In the result, with the defendant now offering to pay into the Supreme Court the balance of the assets in his hands, the majority discharged the orders made by Street J but gave the plaintiff leave necessary to continue his suit.51 Significantly, this is a case where there was jurisdiction in equity to order an account in the context of a breach of contract, although the defendant was not a trustee or fiduciary; and the obligation of the defendant as an accounting party was discerned in equity from the relatively scant words of the written undertaking. It should be noted that these contractual cases were not the only cases in which the account was made available for infringement of common law rights.52 The account followed for an infringement of (common law) patent before the statutes overtook the remedy;53 and in 1915 the Lords determined that the account would lie for the common law tort of passing-off.54 The intellectual property cases came to be rationalised as an account for the unauthorised use of the plaintiff’s (quasi) property, in turn giving to the plaintiff the better right or title to the proceeds. “Restitution” Money had and received and the remedy of account are now seen by many as pillars in the law of restitution. In the last 20 years, the courts in England have been impressed with the academic development of a unified law of restitution, including the re-organisation of remedies.55 In order better to place Blake in context, it is necessary to set out a short and potted history of the development of restitution. The authorities for a unified law of restitution, or at least unjust enrichment, begin in 1760 with the dealings between Mr Moses and Mr Macferlan. Moses had endorsed a promissory note to Macferlan, apparently worth about £6. At the time, the parties also entered into a written agreement pursuant to which Macferlan promised not to pursue Moses on the note.56 In due course, the promisor failed and Macferlan sued Moses in the inaptly named Court of Conscience, an inferior common law court. The Commissioners in the Court of Conscience refused to recognise the collateral agreement, and accordingly ordered Moses to pay. Moses paid over the money and then, to the delight of restitution lawyers, went to the King’s Bench to recover the money on an indebitatus assumpsit. In the King’s Bench, Macferlan argued that indebitatus could not lie because the payment was made pursuant to a court order and not any contract. Lord Mansfield stepped that issue, apparently to the chagrin of the reporter of the case.57 In any event, for these purposes, Lord Mansfield set down the parameters of money had and received and the foundation for unjust enrichment: If the defendant be under an obligation, from the ties of natural justice, to refund; the law implies a debt, and gives this action, founded in the equity of the plaintiff’s case, as it were upon a contract (“quasi ex contractu” as the Roman law expresses it). …

51 In dissent, Higgins J considered that there was no question of complication in the accounts and the plaintiff should have been left to bring his action at law. His Honour did not say that equity could not order an account on the contract; rather (in a pre- judicature state) there was no “additional” equity upon which equity should entertain an action otherwise resolvable at law. The conclusion was reluctant, his Honour describing the (pre-judicature) consequences as a “fiasco”. 52 Meagher et al, n 4, pp 873-875. 53 Baily v Taylor (1829) 1 Russ & M 75; Smith v London & South-Western Railway Co (1854) Kay 408 at 415; 69 ER 173; Price’s Patent Candle Co Ltd v Bauwen’s Patent Candle Co Ltd (1865) 4 K&J 727. 54 AG Spalding Bros v AW Gamage Ltd [1914-15] All ER Rep Ch 147. Tilbury refers to this as an account in the exercise of the auxiliary jurisdiction of equity: Tilbury MJ, Civil Remedies, Vol I, (Butterworths, Sydney, 1990) p 230; see also Trindade F and Cane P, The Law of Torts in Australia (3rd ed, OUP, Australia, 2001) p 210. 55 See Stoljar, n 15, Preface. Following early recognition, the courts in Australia have been more reserved: see Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; Andrew Shelton & Co Pty Ltd v Alpha Healthcare Ltd (2002) 5 VR 577; [2002] VSC 248; cf David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 378; Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 at 544. 56 Moses v Macferlan (1760) 2 Burr 1005; 97 ER 676. 57 See Moses v Macferlan (1760) 2 Burr 1005 at 1010; 97 ER 676 at 679 (fn): “(d) Qu. of this? For how can it be legal for any Court of Law to give judgment for a plaintiff to recover a sum, which as soon as paid, the defendant hath a legal right to recover back again, and that on the very same facts as the former suit”; see also Birks P, An Introduction to the Law of Restitution (OUP, 1985) p 336.

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... it lies for money paid by mistake; or upon consideration which happens to fail; or for money got through impositions (express or implied) or extortion; or oppression; or an undue advantage taken by the plaintiff’s situation, contrary to laws made for the protection of persons under those circumstances.58 As noted above and as Professor Stoljar explained, over the next 150 years the development of the common law account, the equitable account and money had and received separated. This period also saw the rise of contract theory, which came to dominate the landscape. For a time, money had and received was also subjugated to that cause. So, in Sinclair v Brougham [1914] AC 398,59 the Lords categorically asserted that money had and received and the common counts were founded on contract, implied by law; as “quasi-contract”. Viscount Haldane LC (with Lord Atkinson agreeing) added that for proceedings in personam, English law only recognised two classes of action: tort and contract. The contract implied might be a fiction of law,60 but it was contractual nonetheless. In 1943 the Lords revisited Sinclair in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, although they did not contemplate overruling it.61 Lord Wright expressed frustration with the commentators for misconstruing the authority of Sinclair,62 which, given the speeches in Sinclair, was perhaps unfair on the commentators. The Lords accepted that there was indeed a third category of case in English law, called quasi-contract or restitution (at 61): It is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money or some benefit derived from another which it is against conscience that he should keep. Such remedies in English law are generically different from remedies in contract or in tort, and are now recognised to fall within third category of the common law which has been called quasi-contract or restitution. The contest between those theories remained relatively subdued until, in 1966, Goff and Jones published The Law of Restitution. The text collected the quasi-contractual remedies at common law, encouraging the search for common principles underlying them. In the first edition the authors wrote: Quasi-contractual claims are, therefore, those which fall within the scope of the actions for money had and received or for money paid, or of quantum meruit or quantum valebat claims, and which are founded upon the principle of unjust enrichment.63 Nineteen years later, in 1985, Peter Birks published An Introduction to the Law of Restitution. A more accurate title might have been Introducing Restitution. In that book, Professor Birks set out to “take [the] legal subject and to cut away its detail so as to reveal the skeleton of principle which holds it together”. Birks was “convinced that the dispersal of Restitution was no more than an intellectual error, a mistake whose causes and effects can be objectively documented”.64 Birks went considerably further than Goff and Jones. Birks contended that all remedies and actions by which the courts of

58 Moses v Macferlan (1760) 2 Burr 1005 at 1008-1012; 97 ER 676 at 678-681. Lord Mansfield’s language (“suitors” at 1010;: Maitland, n 29, p 468) and determination to intervene was decidedly equitable at least insofar as equitable defences also appear to have been invited onto the common law field: at 1010; 679; sf Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 at [100] on the equitable association of the action. 59 The case concerned, inter alia, a claim by investors for money had and received to recover money paid by a company ultra vires. The Lords rejected the claim because, if their could be no express contract at law (by reason the acts were ultra vires), the courts could not provide a remedy by implying one. 60Compare Maitland FW, “The Forms of Action at Common Law” (1909) in Chaytor AH and Whittaker WJ (eds), The Forms of Action at Common Law: A Course of Lectures by F W Maitland (CUP, 1964) p 2. 61 Practice Statement (Judicial Precedent) [1966] 1 WLR 1234. 62 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at 64:“The claim for money had and received always rested on a debt or obligation which the law implied or more accurately imposed … yet serious writers have seemed to say that these words of the great judge in Sinclair closed the door to any theory of unjust enrichment in English law. I do not understand why or how.” 63 Goff R and Jones G, The Law of Restitution (Sweet & Maxwell, London, 1966), p 4, extracted in Burrows A and McKendrick E, Cases and Materials on the Law of Restitution (OUP, 1997) p 19. The authors also recognised the theme of “unjust enrichment” in other causes or remedies, including undue influence, contribution and subrogation. 64 Birks, n 57, p 1.

© 686 (2005) 79 ALJ 676 Account of profits, contracts and equity common law and equity identified and removed a benefit obtained by a defendant could be explained by the common case of “unjust enrichment”. The historical distinction between equity and common law was an aberration: the duty of a fiduciary to account was a restitutionary principle, as was the account of profits that followed from a breach of confidence, or a tort.65 Accordingly, with Birks’ thesis proving particularly significant in England, the “fusion” debate renewed.66 In Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, the High Court of Australia was the first to recognise “unjust enrichment”, rejecting Sinclair and the implied contract theory for the common counts. In the same year, the third edition of The Law of Restitution was published, with the authors able to say: “In our view the case law is now sufficiently mature for the courts to recognise a generalised right to restitution.”67 Six years later, in 1991 (with Robert Goff of Goff and Jones now a Law Lord), the Lords recognised “unjust enrichment” in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, and in 1996 laid Sinclair to rest, rejecting the “quasi-contract” thesis in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669.68 Since Lipkin Gorman and Westdeutsche, the law of unjust enrichment has flourished in England and Wales, to the point where it can be pleaded as a cause of action.69 Most recently, Lightman J set out the cause categorically: It is now authoritatively established that there are four essential ingredients to a claim in restitution: (i) a benefit must have been gained by the defendant; (ii) the benefit must have been obtained at the claimant’s expense; (iii) it must be legally unjust, that is to say there must exist a factor (referred to as an unjust factor) rendering it unjust, for the defendant to retain the benefit; (iv) there must be no defence available to extinguish or reduce the defendant’s liability to make restitution.70 The “authority” appears to be the text books.71 Nonetheless, the formulation neatly captures the common elements for actions such as money had and received, quantum meruit and quantum valebat, Stoljar’s original “simple” cases for a common law account. (It is interesting to consider whether the account – as originally conceived – might provide an alternative explanation of these restitution cases. Simply, in the restitution cases the plaintiff has demonstrated a better right or title to money or goods, or to the money value of services or property,72 in the hands of the defendant and the defendant is therefore liable to account.) In any event, as noted above, the claim made on behalf of restitution was that all causes which measure the remedy by the benefit obtained by the defendant can be explained as “unjust enrichment ... at the expense of the plaintiff”. Professor Birks introduced that broader thesis this way: in this chapter [on wrongs] the plaintiff puts himself within the other sense of “at the expense of”. His prima facie title to restitution rests on the statement that the defendant has enriched himself by committing a wrong against him ... The word “wrong” is used ... to cover all conduct, acts or omissions, whose effect in creating legal consequences is attributable to its being characterised as a

65 Birks, n 57, pp 7, 332-333. 66 Lehane J, “Review of Jones G and Goodhart W, Specific Performance” [1987] CLJ 163 at 165; Meagher et al, n 4, p xi, Preface. 67 Goff R and Jones G, The Law of Restitution (3rd ed, Sweet & Maxwell, London, 1986) p 15, extracted in Burrows and McKendrick, n 63, p 94. 68 Interestingly, Lord Goff did not consider it necessary to overrule Sinclair. 69 In Australia cf Mason and Carter, n 26, p 969ff. 70 Rowe v Vale of White Horse District Council [2003] 1 Lloyd’s Rep 418. 71 The adoption by the courts of academic theory perhaps reached its height in Rowe: see Halliwell M, “Treatises as Precedents of English Law: Unjust Enrichment Marches On” (2003) 62 CLJ 561. 72 See Dutch v Warren (1721) 1 Strange 406; 93 ER 598.

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breach of duty. The term thus includes not only torts but also breaches of equitable and statutory duties and breaches of contract.73 Language of restitution As a short discursion, the claims by some for restitution as the third pillar of law has produced an industry in semiotics. The introduction to the chapter titled “Wrongs” in Cases and Materials on the Law of Restitution provides a useful illustration. In just two paragraphs the authors refer to “subtraction” “by wrong”; “dependent unjust enrichment”; “autonomous unjust enrichment”; “subjective devaluation”; “incontrovertible benefit”; “free acceptance” and “reprehensible seeking out”.74 Each of these terms has a particular meaning within the academic debate. Within that debate, they are undoubtedly useful signs. But it should also be recognised that they are not the language of, or descriptive of, the case law. They are not descriptive of the cases because it has not been (to date) the purpose of English or Australian courts to develop a systematic taxonomy of civil law.75 As Windeyer J noted: “Moreover, we are concerned with what Fullagar J once called “a system which has never regarded strict logic as its sole inspiration”: Tatham v Huxtable ((1950) 81 CLR 639 at 649).”76 This is not to say that the common law or equity embrace the illogical; it is to say that the courts of law and equity had other inspirations, most notably the justice of the case, unconscionability and fairness as approved by successive judges over time. Philosophy of contract The competition between orthodox damages and restitution; between the speeches in Blake, and perhaps even within the fusion debate, is manifest in the case of contract. It is convenient here to consider the attitude of the common law to contract. At common law a party may either perform the contractual obligations, or pay damages.77 This is the “primary” and “secondary” obligation of contract.78 However, the common law courts never would enforce performance, assuming instead that the alternative of damages was adequate. (This assumption of the adequacy of damages is important. A contract is not merely a promise in “the alternative to perform or pay damages”.79 In Australia “each contracting party may be said to have a right to the performance of the contract by the other”.80 In particular, contractual rights amendable to injunction have something of the indicia of property, indicia in turn falling from the inadequacy of damages.) What then are damages? The orthodox position, described as “axiomatic” by Lord Nicholls in Blake, is that the remedy for breach of contract is compensatory only. The measure of compensation is the sum of money which would place the plaintiff in the same position as had the contract been performed.81

73 Birks, n 57, p 313 (emphasis added). 74 Burrows and McKendrick, n 63, p 569. 75 See Dixon, Sir Owen, “Two Constitutions Compared” in Jesting Pilate (Law Book Co, Australia, 1965) p 100 (address, American Bar Association, 1942): “Australia … is a common law country. That simple statement carries with it prodigious consequences. I believe that the outlook of a people nurtured in and living under the Roman law tradition can never be the same as that of people whose conception of government, of liberty, of justice and of right have been moulded by the common law. This fact explains some of the features of the present conflict.”; see also Reviews and Notices, “A Draft Code for Victoria” (1884) 1 LQR 248. 76 Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 504. 77 Robinson v Harman (1848) 1 Ex 850; 154 ER 363; see also Maitland, n 29, pp 225-226. 78 Photo Productions Ltd v Securicor Transport Ltd [1980] AC 827. 79 The efficient breach theory of contract is attributed to Oliver Wendell Holmes, described in turn as “the father of the bad man’s theory of contract”: Goff R and Jones G, The Law of Restitution (6th ed, Sweet & Maxwell, London, 2002) p 517; see also Zhu v Treasurer (NSW) (2004) 79 ALJR 217 at [128]; [2004] HCA 56; Attorney-General (NSW) v Perpetual Trustee Co (1952) CLR 237 at 294; Meagher et al, n 4, pp 751-753. 80 Zhu v Treasurer (NSW) (2004) 79 ALJR 217; [2004] HCA 56. 81 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 161.

Accounting clauses in contract Given these principles, the practical issue is whether, and if so how, an account is dealt with at law. Most obviously, an account may arise because the parties expressly agree for the defendant to provide an “account of profits to P” (typically, a percentage of them). In Mainland Holdings Ltd v Szady [2002] NSWSC 699, the plaintiff sought to imply a contractual obligation to account, which Gzell J noted (at [64]) appeared to be “com[ing] close to implying a contractual obligation to provide an equitable remedy”. Certainly parties cannot, by contract, require a court to give an equitable remedy.82 However, where parties agree to an account of profits in a contract, the obligation83 is a primary obligation. On an orthodox application of damages, the money owed by the defendant on the contract can either be recovered as a debt on the common counts; or (on a general damages analysis) as compensation measured by the sum the plaintiff would have received if the defendant had performed, being in this case, a sum representing his profits. There is no reason why the same result would not follow from a conditional promise to account. For example: “in the event of D doing Y, D will account to P for a share of profits”.84 This is merely a contingent example of the obligation above, and the same orthodox analysis of the quantum of damages should apply. However, a difficulty may arise where the condition for the account is itself a breach of contract. For example: “D promises not to do Y. If D does Y, then D is to account for all profits”. The difficulty is not the inclusion of a conditional (primary) obligation, but whether the purpose of the clause offends the prohibition against penalties.85 The basis upon which a penalty clause is avoided at law and equity is a study of its own.86 For these purposes, it is sufficient to note the following. In the first place, in the case of penalties, is the question of construction.87 Depending on the wording of the clause, and on its context, the clause may simply be an alternative means of performance.88 In effect, either D performs this contract by not doing Y; or D can perform by accounting for profits from doing Y. However, for the purposes of this article this is not a particularly satisfactory outcome, since (on this construction) there would be real doubt as to whether a plaintiff could obtain any injunction to enforce performance in the first place. It is therefore necessary to consider whether a clause “for an account upon breach” is, in all cases a penalty. There is no objection as such to parties stipulating conditional obligations which arise on breach, including in terms of a sum of money. Further, the courts routinely give effect to “liquidated damages” clauses. However, in determining whether a sum contracted to be paid is liquidated damages or a penalty, one is to consider whether the contract, whatever its language, would, at the time it was entered into, have been unconscionable and extravagant, and one which no Court ought to allow to be enforced if this sum were to be treated as liquidated damages, having regard to any possible amount of damage likely to have been in the contemplation of the parties when they made the contract.89 Perhaps ironically, an account clause may fall within the prohibition (read too literally) where it is inserted precisely because no loss would be found at common law (that is, including damages for

82 Contractual clauses which stipulate specific performance or injunction do not create the right to the equitable remedy, or confine the discretion, although they are relevant matters in the exercise of discretion: see Spry, n 9, p 76. 83 See Photo Production Ltd v Securicor Transport Ltd [1980] AC 827. 84 This was the common law claim in Shepard v Brown (1862) 4 Giff 208 at 217; 66 ER 681. 85 See Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at [59]ff (jurisdictional basis of the penalty); cf Meagher et al, n 4, p 577ff; Beatson, n 17, p 587. 86 See Meagher et al, n 4, p 577-580. 87 See Beatson, n 17, p 587. 88 On the construction of liquidated damages clauses see Spry, n 9, p 75. 89 Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 95 per Lord Atkinson; see also Meagher et al, n 4, p 593.

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“lost opportunity”, see below). That is, in the very case of a negative covenant which the plaintiff would never agree to relax at any price. It is apparent from the cases and commentary that “penalty clauses” are examples of the courts looking behind an arrangement. This is an important issue: the relief is not confined by the express words used by the parties (for example, “liquidated damages”), but determined upon a true analysis of its purpose.90 The relevant purpose is to take an unfair or oppressive benefit. It has been referred to as an instance of the courts protecting parties from the inequality of bargaining power.91 It is not obvious that a clause inserted to provide some remedy (for the reason that the common law otherwise offers no adequate remedy) is a clause relevantly intended as a penalty for breach. Three further points arise. First, a penalty assumes the adequacy of damages. It is the fact of a plaintiff seeking to obtain (unconscionably) more than adequate compensation that is prohibited. In the case of a negative covenant, there may be no adequate compensation at law at all. In these circumstances, it is only in a trivial sense that an undertaking to account could be a penalty; for it assumes that the plaintiff is adequately compensated at common law by what is otherwise recognised in equity as inadequate (that is, in equity the injunction may be obtained on the negative covenant). Secondly, it is not a penalty to agree on the consequences of a breach, being that the defendant submits to account. It may be a penalty to pre-empt the value of the account, but not the contractual obligation to account itself. As Spigelman CJ said (in another context): I hypothesis the existence of a contract with an express term to the same effect as the order in this case: that the employer could recover, for a relevant breach, either damages or an account of profits plus $10,000. It is clear that the reference to $10,000 would be struck down as a penalty.92 Thirdly, in circumstances where the account is expressly used by parties, in full knowledge of the limitations of compensatory damages; but included in the contract nonetheless – and in circumstances where the defendant subverts equitable remedies for compelling performance – it is difficult to see how it would be unconscionable for the plaintiff to seek, or oppressive on the defendant to give effect to, an agreed obligation to account. Nothing in this is intended to suggests that a clause for an account can never amount to a penalty. Rather, it depends on the purpose of the parties. In summary then, it is contended that an obligation to account can be expressed in contract and relevantly bind the parties. Where it is appropriately deployed, the damages will be the sum that will put the plaintiff in the position as if the defendant had performed the account. This is an orthodox assessment of damages. In these circumstances, there is no work for equity to do, and no call on the equitable account. The remainder of this article concerns the harder case: whether, in circumstances where the parties have not expressly incorporated an account as a “primary obligation”, equity might yet provide an account where damages at law are inadequate. BLAKE, DAMAGES AND RESITUTIONARY DAMAGES The facts in Blake were introduced in the speech of Lord Nicholls: My Lords, George Blake is a notorious and self-confessed traitor. He was employed as a member of the security and intelligence service for 17 years from 1944 to 1961. In 1951 he became an agent for the Soviet Union. From then until 1960 he disclosed valuable secret information and documents gained through his employment. … In 1966 Blake escaped … and fled to Berlin and then to Moscow. He is still there … In 1989 he wrote his autobiography.93

90 See Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 86, 92, 100. 91 AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 193. 92 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at [58] (not considering the question of how such an express term breached would be remedied at law or in equity); see also at [187].

Having written his autobiography, Blake entered into an agreement with Jonathan Cape Ltd for publication. Unlike Barry,94 Blake’s book attracted attention. Blake was to receive an advance on royalties paid in instalments to £150,000. The book was published in 1990. Publication by Blake of some of the content of the book was an offence under the Official Secrets Act 1989 (UK) (or its predecessors). In 1944 Blake had also signed an undertaking “not to divulge any official information gained by me as a result of my employment either in the press or in book form”. In the Court of Appeal the Crown argued only that it was entitled to an injunction by virtue of its (public) status as the Crown.95 The Crown succeeded in the Court of Appeal in obtaining a “public law injunction” which was in effect a confiscation order for the remaining instalments to be paid to Blake. Blake appealed. The Lords unanimously rejected the public law claim and dissolved that injunction.96 Remarkably, on Blake’s appeal to the Lords, the Crown “with your Lordships’ encouragement and leave, cross-appealed to make the private law claim to restitutionary damages which it had previously declined to make”.97 This indulgence, and perhaps even the result may be explained by the profound concern of the Court of Appeal and the Lords to find a remedy: “The ordinary member of the public would be shocked if the position was that the courts were powerless to prevent [Blake] profiting from his criminal conduct.”98 The facts before the Lords were the more remarkable because of the way in which the Crown had approached the case. The Crown’s predicament was neatly summarised by Lord Hobhouse: The cross-appeal has to be determined on the basis that the only civil cause of action which the Crown has against Blake is a bare legal cause of action in contract for breach of contract in that he failed in 1989 to observe the negative undertaking which he gave in 1944.99 The appeal was heard by Lord Nicholls, Lord Goff, Lord Browne-Wilkinson, Lord Steyn and Lord Hobhouse. Lord Hobhouse’s dissent Lord Hobhouse alone amongst the Lords would have refused relief to the Crown. For reasons which were not fully explained in the speech, he considered that the nature of the undertaking given by Blake was not an enforceable or binding contract. Accordingly, there was no commercial or proprietary interest for the court to protect. In those circumstances, Lord Hobhouse disagreed with the other Lords for two reasons. First, he considered that the Crown’s claim was in truth one that “Blake should be punished and deprived of any fruits of conduct connected with his former criminal and reprehensible conduct”. This was not a proper role for the civil law. Secondly, he considered that the Lords were seeking to fill “some gap in the existing state of the law” where no such gap existed, at least on the facts: [I]n 1989 and 1990, had it chosen to do so, the Crown could have applied for an injunction to restrain publication of the book and would probably have been successful. Had the court decided in its discretion not to grant an injunction at that time, one or more of the remedies alternative to an injunction could have been considered and, if thought appropriate, adopted. The present litigation has only come about because the Crown chose not to take that course at that time.100 For Lord Hobhouse, the Crown’s claim and entitlement to any relief ought to have ended there. Certainly if the account of profits was equitable it is difficult to see how the Crown, given its laches, managed to avoid the ordinary limiting principles of equity.

93 Attorney-General v Blake [2001] 1 AC 268 at 275. 94 See the discussion of Barry v Stevens (1862) 31 LJ Ch 785 above under the heading “Accounts on contracts”. 95 Attorney-General v Blake [1998] Ch 439; [1998] 2 WLR 805. Notably, it did not seek to argue that the copyright was held on trust for the Crown. 96 See Attorney-General v Blake [2001] 1 AC 268 at 288, 292, 296. 97 Attorney-General v Blake [2001] 1 AC 268 at 295. 98 Attorney-General v Blake [1998] Ch 439 at 464; [1998] 2 WLR 805; cf Attorney-General v Blake [2001] 1 AC 268 at 295. 99 Attorney-General v Blake [2001] 1 AC 268 at 295. 100 Attorney-General v Blake [2001] 1 AC 268 at 294-295.

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However, in light of the developments in the law proposed in the speeches of the other Lords, Lord Hobhouse engaged the “damages and restitution” debate. Lord Hobhouse’s view of damages measured by the defendant’s gain in contract In order to put in context the reaction to Blake among the commentators and courts, it is necessary to isolate the debate on “restitutionary damages”. Lord Hobhouse noted that the Crown was not claiming damages. It was not claiming damages because it considered that it had suffered no financial loss. However, on Lord Hobhouse’s analysis this did not demonstrate any gap in the law; it was a misunderstanding of the nature of compensatory damages: The error is to describe compensation as relating to a loss as if there has to be some identified physical or monetary loss to the plaintiff. In the vast majority of cases this error does not matter because the plaintiff’s claim can be so described without distortion. But in a minority of cases the error does matter and cases of the breach of negative promises typically illustrate this category.101 Damages properly understood are available in cases of a breach of a negative covenant (where otherwise there had been no identified monetary loss): the damage is “the sum which he could have extracted from the defendant as the price of his consent to [relax the negative covenant]”. This is the “licence fee” or “compulsory purchase” analysis; it is the orthodox explanation for the waiver of tort, way-leave and trespass cases. However, objection to the “licence fee” analysis is that, obviously enough, in some cases the plaintiff will honestly say that he, she or it never would have permitted the wrong at any price. Lord Hobhouse’s response was: Where the plaintiff has failed to obtain or failed to apply for an injunction ... what has happened in such cases is that there has either actually or in effect been a compulsory purchase of the plaintiff’s right of refusal.102 It is to be noted that two very different situations are included within this analysis: cases where the plaintiff failed to obtain; and cases where the plaintiff failed to apply for an injunction. Where a plaintiff fails to apply for an injunction – at least with full knowledge of the facts – it lies poorly for a plaintiff to subsequently assert that damages are inadequate and only performance will do. That is, in deciding not to pursue the equitable remedies at the time, the plaintiff can fairly be taken to have considered that performance was not the only acceptable remedy. The harder case (fails to obtain) is whether an account would follow in circumstances where: (a) the plaintiff would not at any price have relaxed a covenant; (b) an injunction could have been obtained to protect the covenant: that is, recognising the unique nature of the covenant; and (c) the plaintiff did not approbate and reprobate on the necessity of performance by failing to seek an injunction. The harder case was not the case put before the Lords, and Lord Hobhouse did not venture to consider the question expressly. On the other hand, the majority did not address the Crown’s failure to apply for an injunction at the right time, that is, as soon as the Crown became aware that the book was being published. Claim on restitutionary principles Lords Goff and Browne-Wilkinson agreed with the speech of Lord Nicholls. Lord Nicholls began by explaining the Crown’s claim: Prompted by an invitation from your Lordships, the Attorney General advanced an argument that restitutionary principles ought to operate to enable the Crown to recover from Blake his profits arising from his breach of contract.103

101 Attorney-General v Blake [2001] 1 AC 268 at 298. 102 Attorney-General v Blake [2001] 1 AC 268 at 298. 103 Attorney-General v Blake [2001] 1 AC 268 at 277.

As his Lordship observed: “This is a subject on which there is a surprising dearth of judicial decision. By way of contrast, over the last 20 years there has been no lack of academic writing.” It is not intended to be facetious to note that this comment could be applied to much of “restitution”. Remedies measured by the defendant’s gain in property cases Lord Nicholls “set the scene by noting how the court approaches the question of financial recompense for interference with rights of property”, proceeding to note briefly the remedial response in cases of breach of trust and fiduciary duty, and then damages under Lord Cairns’ Act (Chancery Amendment Act 1858 (UK)). There are a number of observations made by his Lordship in this part of his speech of particular interest. For example, his Lordship pointed to cases at common law, particularly in response to trespass, detinue and conversion where the “damages” awarded could be rationalised as being measured by the gain made by the defendant. This interpretation of these cases might be described as one that is open, but not compelling. To take one example, Lord Nicholls pointed to the “way-leave” cases as instances of damages assessed “in short, by the price a reasonable person would pay for the right of user”, citing Martin v Porter (1839) 5 M & W 351 and Jegon v Vivian (1871) LR 6 Ch 742.104 Jegon followed Martin. In Jegon, Lord Hatherly LC found himself assessing damages and applying the common law’s approach. The Lord Chancellor made orders for: An account of coal and mineral got from the mines since the 25th of March 1861 and the value thereof, the Defendants to be charged with the fair value of such coal and other minerals at the same rate as if the mines had been purchased by the Defendants at the fair market value of the district.105 This is more redolent of damages for the plaintiff’s lost opportunity than any assessment based on the actual gain made by the defendant. A second matter of interest was the manner in which Lord Nicholls grouped intellectual property rights, passing-off, trespass, detinue, conversion and breach of confidence as undifferentiated proprietary wrongs.106 Lord Nicholls concluded that the account of profits (as opposed to “licence fee” response) was an “accident of history” occasioned by whether the causes “originally or ordinarily were the subject of proceedings in Chancery”.107 Whether or not the abandonment of the account at common law was an accident of history,108 for the purposes of this article, it is quite possible to find a rationale for the different responses in the context of consensual dealings. In the case of an account (subject to any limiting terms in the relationship) the defendant is made to account for profits because he, she or it, submitted to being an accounting party. Whether the parties understood that the plaintiff would never negotiate a waiver of a covenant may be one factor which suggests the relationship was an accounting one. In the “licence fee” cases, the defendant does not undertake to be an accounting party, but is merely in breach of contract, the damages for which are assessed by the opportunity lost to the plaintiff to negotiate a fee.109 The “scene” having been set, Lord Nicholls extracted from these cases a broader, first proposition in his argument:

104 Jegon eventually made its way to Chancery. The matter itself had a remarkable common law history, making its way to the Lords, which the reporter noted “as shewing that the case of the Defendants was not flimsy”: Jegon v Vivian (1871) LR 6 Ch 742 at 761. Following orders made by the Lords in relation to the existence of a mining lease, Lord Hatherley LC heard the claims for damages and account. 105 Jegon v Vivian (1871) LR 6 Ch 742 at 762 (emphasis added). 106 In this regard, it is interesting to consider how Blake might have developed if there had been a sufficient item of property involved in the Crown’s claim, eg, whether the Crown might have eschewed, “waived”, the contract and pursued Blake for money had and received. 107 Attorney-General v Blake [2001] 1 AC 268 at 280. 108 Compare Smith v London & South-Western Railway Co (1854) Kay 408 at 415; 69 ER 173 where the court appeared to consider the remedy for patent infringement the same in law as in equity. 109 Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798.

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The question under discussion is whether the court will award substantial damages for an infringement when no financial loss flows from the infringement, and, moreover, in a suitable case will assess the damages by reference to the defendant’s profit obtained from the infringement. The cases mentioned above show that the courts habitually do that very thing.110 This proposition is itself not free from difficulty. The “cases mentioned above” in Lord Nicholls’ speech included a mix of common law and equitable responses to wrongs which, at least in the case of the equitable causes, undoubtedly measured compensation by reference to what the defendant had gained. However, it is not usual to speak of these responses as “damages”. On the other hand, if Lord Nicholls intended, by reference to “damages”, only to refer to common law actions, the proposition that the court habitually measures those by reference to the gains made by the defendant appears overstated. Damages measured by the defendant’s gain in contract Lord Nicholls then turned to consider several cases which he concluded were (a) relevantly contractual, not proprietary;111 and (b) were instances of damages being assessed by the gain made by the defendant. In Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, Brightman J was faced with an application for a mandatory injunction to demolish a housing estate, built on land burdened by a restrictive covenant which had been breached. The plaintiffs were the beneficiaries of the covenant, being the successors in title to the original owners of the entire estate. None of the plaintiffs suffered direct financial loss from the breach. Brightman J found for the plaintiffs but (unsurprisingly) refused to order the demolition of the houses. However, the plaintiffs were not confined to nominal damages. Brightman J concluded that the plaintiffs had lost the (theoretical) opportunity to negotiate a waiver of the restrictive covenants, and awarded damages assessed as a “licence fee” instead, adding (at 815): I think that in a case such as the present a landowner faced with a request from a developer which, it must be assumed, he feels reluctantly obliged to grant, would have first asked the developer what profit he expected to make from his operation. In Surrey CC v Bredero Homes Ltd [1993] 1 WLR 1361, a case with similar facts (save that the beneficiary of the covenant did not enjoy any continuing proprietary interest in the land) the Court of Appeal refused to make any substantive award, concluding that in the absence of financial loss, no damages (other than nominal damages) were recoverable.112 Steyn LJ thought (at 1369) that the argument that Wrotham Park could be justified on the basis of lost opportunity to bargain was “a fiction”. Wrotham Park was correctly decided, said Steyn LJ, but explicitly as a restitutionary response to an invasion of a property right. Steyn LJ considered that Bredero involved no property right, only a breach of contract, and restitution should not be extended into this area. Subsequently, in Jaggard v Sawyer [1995] 1 WLR 269, Millett LJ set about reconciling Wortham Park and Bredero. Millett LJ considered that a breach of a negative covenant gave rise to substantial damages for the lost opportunity to bargain. On Lord Steyn’s “fiction”, Millett LJ concluded that it was “plain from the judgment in the Wrotham Park case that Brightman J’s approach was compensatory, not restitutionary” (at 291). In Blake, Lord Hobhouse aligned himself with Millett LJ’s analysis and would have set Bredero aside as wrongly confining the orthodox principles of damages.113 Steyn LJ was appointed to the Lords before Millett LJ. Lord Nicholls preferred Steyn LJ’s interpretation114 in what was an important step in his reasoning to the account of profits. Although at one point Lord Nicholls described the payment ordered in Wrotham Park as “the amount of money which could reasonably have been

110 Attorney-General v Blake [2001] 1 AC 268 at 281 (emphasis added). 111 Compare Attorney-General v Blake [2001] 1 AC 268 at 298 (Lord Hobhouse). 112 Compare Lord Uxbridge v Staveland (1747) 1 Ves Sen 56 where a demurrer was allowed in Chancery on very similar facts because the plaintiffs failed to show that the defendants were bound by the covenant. 113 Attorney-General v Blake [2001] 1 AC 268 at 298. 114 In turn described as “controversial” in Goff and Jones (2002), n 79, p 517.

© 694 (2005) 79 ALJ 676 Account of profits, contracts and equity demanded for a relaxation of the covenant” (suggesting demand by the plaintiff), he concluded that Wrotham Park was: a solitary beacon showing that in contract as well as tort damages are not always narrowly confined to recoupment of financial loss. In a suitable case damages for breach of contract may be measured by the benefit gained by the wrongdoer from the breach. The defendant must make a reasonable payment in respect of the benefit gained.115 Subsequently, the case law in England has focused on this concept of damages measured by the defendant’s gain.116 Arguably, this was a much bigger (and less warranted) development than the making available of the account. Account of profits for breach of contract Having determined that the courts “routinely” assess loss by reference to the defendant’s gain in tort and property cases, Lord Nicholls identified three further factors. First, the availability of specific performance and injunction where damages were not adequate showed that “the law recognised that the innocent party to the breach of contract had a legitimate interest in having the contract performed”.117 Secondly, Lord Nicholls referred to Wrotham Park as an example of a restitutionary measure of damages following a breach of contract. Thirdly, Lord Nicholls identified a “light sprinkling” of cases where courts have found equitable relationships in order to make the account available as a remedy. He pointed in particular to Reid-Newfoundland Co v Anglo-American Telegraph Co Ltd [1912] AC 555 and British Motor Trade Association v Gilbert [1951] 2 All ER 641 as cases were existing concepts were being strained to meet the justice of the case.118 Lord Nicholls’ conclusion With that, Lord Nicholls concluded that there was “no reason in principle” to rule out an account of profits on a breach of contract. In his Lordship’s view, the “state of the authorities encourages me to reach this conclusion, rather than the reverse”. The summary of the state of the authorities is set out here in full: The law recognises that damages are not always a sufficient remedy for breach of contract. Even when awarding damages, the law does not adhere slavishly to the concept of compensation for financially measurable loss. When the circumstances require, damages are measured by reference to the benefit obtained by the wrongdoer. This applies to interference with property rights. Recently, a like approach has been adopted to breach of contract. Further, in certain circumstances an account of profits is ordered in preference to an award of damages. Sometimes the injured party is given a choice: either compensatory damages or an account of the wrongdoer’s profits. Breach of confidence is an instance of this. If confidential information is wrongfully divulged in breach of a non-disclosure agreement, it would be nothing short of sophistry to say that an account of profits may be ordered in respect of the equitable wrong but not in respect of the breach of contract which governs the relationship between the parties. With the established authorities going thus far, I consider it would be only a modest step for the law to recognise openly that, exceptionally, an account of profits may be the most appropriate remedy for breach of contract. It is not as though this step would contradict some recognised principle applied consistently throughout the law to the grant or withholding of the remedy of an account of profits. No such principle is discernible.119 This passage alone raises an extraordinary number of issues. For these purposes, it is enough to note that the critical logical step appears to be in the reference to “confidence” and “sophistry”.

115 Attorney-General v Blake [2001] 1 AC 268 at 283 (emphasis added). 116 See, eg Esso Petroleum Co Ltd v Niad Ltd [2001] All ER(D) 324; Experience Hendrix LLC v PPX Enterprises Inc [2003] All ER(D) 328; [2003] EWCA Civ 323. 117 Attorney-General v Blake [2001] 1 AC 268 at 282. 118 Attorney-General v Blake [2001] 1 AC 268 at 284. 119 Attorney-General v Blake [2001] 1 AC 268 at 285.

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While it may be undesirable to have distinct jurisdictional bases (with different consequences) for overlapping causes of action, it is hardly specious, fallacious or intentionally deceptive reasoning.120 The same issues arise within the common law,121 as well as within well recognised overlapping legal and equitable rights.122 Indeed, there may be good reasons for the differentiation in the case of confidence. A contractual non-disclosure undertaking may, and typically does, cover all sorts of information that could not properly be described as confidential. Equity protects only the genuinely confidential; and then only where there is some inadequacy or lacuna at law.123 The common law does not require performance of mere contractual undertakings, including promises not to disclose, but the effect of equitable remedies is to protect the keeping of the secret itself,124 that is, to require and encourage performance of the undertaking.125 When might an account lie Lord Nicholls declined to set out the circumstances in which an account would be ordered for breach of contract (he cautioned against the suggestions in the Court of Appeal that restitution might arise for “skimped performance”, or a breach of the very thing the defendant promised not do126). His Lordship considered that an account would only be ordered where the established remedies (notice, not damages) were inadequate: I see no reason why in practice the availability of the remedy of an account of profits need disturb the settled expectations of the commercial world. An account of profits will be appropriate only in exceptional circumstances. Normally, the remedies of damages, specific performance and injunction, coupled with the characterisation of some contractual obligations as fiduciary, will provide an adequate response to the breach of contract. It will only be in exceptional cases, where those remedies are inadequate, that any question of accounting for profits arise.127 Apart from this rule (if it is a rule), Lord Nicholls considered that: no fixed rules can be prescribed. The court will have regard to all the circumstances, including the subject matter of the contract, the purpose of the contractual provision which has been breached, the circumstances in which the breach occurred, the consequences of the breach and the circumstances in which relief is being sought. A useful guide, although not exhaustive, is whether the plaintiff has a legitimate interest in preventing the defendant’s profit-making activity and, hence, depriving him of his profit.128 It is convenient to note here that the authors of Equity: Doctrine & Remedies considered Blake as a case to be rationalised as an account for “a treasonous breach of contract”.129 This is probably not how Lord Nicholls would summarise his speech. Lord Steyn (in a separate, concurring speech) only added: “Exceptions to the general principle that there is no remedy for disgorgement of profits against a contract breaker are best hammered out on the anvil of concrete cases.”130 Legal or equitable account The authors of the 4th edition of Equity: Doctrine & Remedies, placed Blake clearly (although perhaps reluctantly) as a further category of equitable account cases.131

120 See Shorter Oxford English Dictionary, 1992. 121 For examples consider contractual duties of care, or trespass, a wrong in tort as well as criminal law: Maitland, n 29, p 230. 122 For example, principal and agent, the fiduciary, the constructive trust: see Gummow WMC, “Unjust Enrichment, Restitution and Proprietary Remedies” in Finn, n 8, p 75. 123 Meagher et al, n 4, p 1112 [41-020]. 124 Australian Broadcasting Corp v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; Meagher et al, n 4, p 1110. 125 For example, by injunction. Further, the account in these cases can be explained as prophylactic in the same way as it is in support of fiduciary duties: Boardman v Phipps [1967] 2 AC 46; see also Mason and Carter, n 26, p 665. 126 Attorney-General v Blake [2001] 1 AC 268 at 286 (both suggestions appear to come from Birks, n 57, p 326ff). 127 Attorney-General v Blake [2001] 1 AC 268 at 285. 128 Attorney-General v Blake [2001] 1 AC 268 at 285. 129 Meagher et al, n 4, pp 874-875. The urgency of treason, and its content, tends to vary with the times: see Maitland, n 29, p 226ff (in Elizabethan times treasonous activities included “Jesuits born in the dominions and remaining in the realm”). 130 Attorney-General v Blake [2001] 1 AC 268 at 291 (in passing, an “anvil of concrete cases” is a curiously mixed metaphor). 131 Meagher et al, n 4, p 874.

Lord Nicholls did not address expressly the question of whether the account ordered in Blake was equitable or common law,132 or whether, in the era of fusion it was both, or it did not matter. He did not survey the availability of equitable account, preferring to develop the law in increments from damages cases such as Wrotham Park. Nor did he consider in his speech whether Blake revived the common law account.133 This aside, in a summary of the circumstances in which an account would be ordered for breach of contract, Lord Nicholls clearly invoked the discretion associated with equitable remedies and the equitable account: When, exceptionally, a just response to a breach of contract so requires, the court should be able to grant the discretionary remedy of requiring a defendant to account to the plaintiff for the benefits he has received from his breach of contract. In the same way as a plaintiff’s interest in performance of a contract may render it just and equitable for the court to make an order for specific performance or grant an injunction, so the plaintiff’s interest in performance may make it just and equitable that the defendant should retain no benefit from his contract.134 Subsequent cases in England At the conclusion of his dissenting speech in Blake, Lord Hobhouse added “a note of warning” against interpreting Blake as extending restitution into commercial contracts, adding “I do not believe that such is the intention of your Lordships”.135 Subsequent decisions in England suggest that the warning has been somewhat disregarded. In Esso Petroleum Co Ltd v Niad Ltd [2001] All ER 324, Sir Andrew Morrit VC, considered a case in which Esso had subsidised the price of fuel to its petrol station contractors in exchange for a covenant that the contractors would maintain a lower price. The covenant was breached by the contracting party charging a higher price, effectively expropriating the subsidy intended by Esso for the customers to itself. The Vice Chancellor concluded, in very short terms, that an account should lie (at [63]). He added that he also thought the “unjust enrichment” case was made out, and made orders for the plaintiff to have the benefit of all three: (a) damages; (b) an account of profits for breach of contract; or (c) to restore the amount by which the pump prices the defendant charged its customers exceeded the recommended prices (at [65]). The reasoning for the account (b) appeared premised on the difficulty of assessing damages, rather than any inadequacy. While the order (c) appears to have followed from an enrichment made at the expense of the customers, and not Esso at all. In any event, there is something of the “remedial smorgasbord”136 developing for contract in England. Or, as it was put in a recent article: “the law is a dreadful mess”.137 At the other extreme, an account was dismissed in short terms by Jacob J in World Wide Fund for Nature v World Wrestling Federation Entertainment Inc (2001) 53 IPR 205 at 224 as a case where: all one really has here is a negative covenant. The fact that it relates to the use of initials and so it is a bit “trademarkish” or “IPish” does not mean the common law should provide what parliament provides by statute for an infringement of a registered mark or intellectual property right.138 A more careful consideration of Blake was given by the Court of Appeal in Experience Hendrix LLC v PPX Enterprises Inc [2003] All ER(D) 328; [2003] EWCA Civ 323. The estate of Jimmy Hendrix had reached an agreement with PPX for the licensing of certain recordings, and for prohibiting other recordings which the estate wished to withdraw from the market. In startling disregard for the agreement, PPX issued further albums with the prohibited recordings. In the result,

132 See the argument posed in Gull Petroleum (WA) Ltd v Tah Land Pty Ltd [2001] FCA 1531 at [93]. 133 As Meagher et al, n 4, p 875 points out, the common law account was recognised in statute (Common Law Procedure Act 1899 (NSW)), although it appears never to have been utilised; the Act was repealed by Supreme Court Act 1970 (NSW), s 5, so there may now be a question as to whether at law only an equitable account can be administered. 134 Attorney-General v Blake [2001] 1 AC 268 at 285 (emphasis added). 135 Attorney-General v Blake [2001] 1 AC 268 at 299. 136Compare Akron Securities Ltd v Illife (1997) 41 NSWLR 353 in the different context of Trade Practices Act 1974 (Cth), s 82. 137 Campbell D and Wylie P, “Ain’t no Telling (Which Circumstances are Exceptional)” (2003) 62 CLJ 605. 138 Note the comments of Lord Justice Mance suggesting that Jacob J’s “terse dismissal ... may require reconsideration in future cases”: Experience Hendrix LLC v PPX Enterprises Inc [2003] All ER(D) 328 at [32]; [2003] EWCA Civ 323.

(2005) 79 ALJ 676 697 © Justin Gleeson SC and James Watson the case was determined as one in which “damages for breach of contract may be measured by the benefits gained by the wrongdoer for breach” (at [58]). A licence fee was ordered, that is, a reasonable payment for the use of the prohibited recordings. The court refused to order what it considered would be a more draconian remedy, namely an account of all profits made by PPX as a result of the conduct in breach of contract. The position in England after Blake appears to be as follows. In the case of a breach of contract, a plaintiff may, depending on the circumstances, obtain: (a) damages; (b) damages measured by (or by a percentage of) the gain made by the defendant;139 (c) in exceptional cases, an account of profits; (d) restitution for a benefit unjustly made by the defendant at the plaintiff’s expense. Commentary on Blake There appears to be little commentary in support of Blake in Australia. The case was noted in (2000) 74 ALJ 817 (R I Barrett), emphasising the strength of Lord Hobhouse’s dissent. Barrett J subsequently expressed the view in an unpublished paper that Blake was wrong in principle since the account of profits should be reserved solely as a remedy where there is a breach by a person in a position of ascendency, influence or trust.140 As discussed below, the case is addressed in Equity: Doctrines & Remedies, although in a relatively short manner;141 but the treatment in Equity and Trusts in Australia142 is even shorter. Sharon Erbacher143 argued that the account should be confined to cases where the plaintiff can show “a special interest” in preventing a defendant from profiting, “over and above the usual interest in having the defendant perform the contract”. Phang and Lee144 adopted a decidedly restitutionary analysis of the case focusing more on restitutionary damages than the equitable account. More recently, Peter Jaffey has argued that Blake can be best understood by analysing the obligations arising from contract.145 Professor Jaffey argues that the basal principle is that the law will not tolerate a person to profit from his own wrong. He argues that it is not relevantly a wrong to breach a contract, but it may become a wrong (a duty arises on the defendant) where the “claimant is unable to procure substitute performance and so is liable to suffer uncompensatable loss as a result of non-performance”. Where the duty has arisen the defendant will relevantly commit a wrong in failing to perform, and will not be permitted to profit. Not in Australia As Windeyer J remarked in a different context in Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 499: “Fortior et potentior est dispositio legis quam hominis. Where then does the law now stand?”146 Writing before the Court of Appeal or Lords dealt with Blake, Ian Jackman neatly summarised the common law position: As a matter of fundamental principle, the purpose of contractual damages is to compensate the plaintiff, not to transfer from the defendant to the plaintiff the profit made (or the expense saved) by committing the breach. The question is thus one of the plaintiff’s loss, not the defendant’s gain, and restitution for breach of contract seems to be absolutely excluded.147 After Blake, between the third and fourth editions of Equity: Doctrine & Remedies, the authors added to the categories in which an account can be ordered for breach of common law rights, an eighth:

139 That is, the “licence fee” analysis but described as being restitutionary. 140 Extracted (in part) in Biscayne Partners Pty Ltd v Valance Corp Pty Ltd [2003] NSWSC 874 at [235]. 141 Meagher et al, n 4, p 874. 142 Dal Pont and Chalmers, n 2, p 909. 143 Erbacher S, “Contracts and Restitution” (2001) 29 ABLR 73 at 76. 144 Phang A and Lee P-W, “Rationalising Restitutionary Damages in Contract Law: An Elusive or Illusory Quest?” (2001) 17 JCL 240. 145 Jaffey P, “Disgorgement and ‘Licence Fee Damages’ in Contract” (2004) 20 JCL 1 at 7. 146 See Dixon, Sir Owen, “The teaching of Classics and the Law” in Jesting Pilate (Law Book Co, 1965) p 227. 147 Jackman IM, The Varieties of Restitution (Federation Press, Sydney, 1998) p 127.

Eighthly, apparently, an order for an account will be made against persons who make profits from treasonable activities. This was decided recently by the House of Lords in Attorney-General v Blake … However, Blake’s case should be treated with some caution, insofar as it supports the proposition that an account of profits is an appropriate remedy for a mere breach of contract. It is not, at least in Australia: see Hospitality Group Pty Ltd v Australian Rugby Union Limited.148 Blake may be expected to receive a cool reception in Australia.149 However, strictly, Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157150 decided nothing of the sort. The Full Federal Court rejected the argument that any relevant contract existed between Australian Rugby Union Ltd (ARU) and Hospitality Group, and accordingly the question of an account for breach of contract was not an issue that the court was required to resolve (at [158]). In late 1999, ARU arranged for most tickets to test rugby matches to be sold to the general public with a condition on them that they were not to be resold or used for commercial purposes (at [10], [23]): The ticket may not be resold at a premium or used for advertising or other commercial purposes without the prior written consent of the ARU. If this ticket has been resold in contravention of the condition, the bearer of the ticket will be denied admission. ARU allowed some other tickets to be sold by authorised agents as part of “hospitality” packages. Hospitality Group was not one of those authorised. Nonetheless, Hospitality Group obtained blocks of tickets from persons who held public tickets, with knowledge of the restrictive condition, and used them to promote and sell its own hospitality packages. Thus, the restrictive condition was breached by the seller to Hospitality Group, and Hospitality Group aided that breach for its own reward. The principal difficulty for ARU was that it could not demonstrate any clear financial loss: the tickets concerned were sold by ARU at their full value to the original purchasers. The wrong was that the tickets were subsequently obtained and used to the profit of the original purchaser and Hospitality Group without ARU’s approval. At first instance, Gyles J had only the obiter discussions of the Court of Appeal in Blake.151 The appeal to the Lords was underway. However, his Honour ventured (at [128]): Such a radical change in the received wisdom as to the common law of Australia is not for a single judge. Even if the House of Lords were to approve what was said on the issue in the Court of Appeal, I would have significant reservations about adopting it. Gyles J found that Hospitality Group had both breached a contract with ARU (a contract embodied in the ticket assigned to it) and committed the tort of inducing a breach of contract by the original purchaser of the ticket. Having rejected “restitutionary damages”, and any analogue for an account of profits for the tort of inducing a breach of contract, or passing off, Gyles J turned instead to exemplary damages, as at least one means available to demonstrate “that tort does not pay” (at [128]- [130]).152 The objections to civil courts imposing punishment in the exercise of some discretion, whether at common law or in equity153 are profound.154 However, for these purposes it is sufficient to ask why a finding that particular acts in inducing, for example, breach of contract, are “contumelious” could be more satisfactory than the making available by equity of the well developed remedy of the account. The difficulty at first instance was that, faced with a manifest wrong, exemplary damage was all that

148 Meagher et al, n 4, p 874. 149 Lord Nicholls made plain on a number of occasions that he intended the account as exceptional: Attorney-General v Blake [2001] 1 AC 268 at 284, 286. 150 One of the authors was counsel in the Australian Rugby Union Ltd litigation. 151 Attorney-General v Blake [1998] Ch 439; [1998] 2 WLR 805. 152 See Birks, n 57, p 327.: “The strongest argument that [an account for all wrongs] is [accepted by the law] comes from outside the area of restitution … When Lord Devlin reviewed [the incidence of penal damages] in Rookes v Barnard [1964] AC 1129 one of the categories in which he thought that they should still be awarded was that in which the wrongdoer consciously and cynically committed the wrong in the belief that his profits were likely to outweigh anything he might have to pay by way of compensation.” 153 See Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298. 154 See Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157 at [180].

(2005) 79 ALJ 676 699 © Justin Gleeson SC and James Watson dicta in higher courts appeared to have left as a serviceable remedy. On appeal the majority of the court rejected the deployment of exemplary damages.155 As noted above, the Full Federal Court concluded that there was no relevant contract between the parties, however, Hill and Finkelstein JJ determined to go on to consider (at [156]) “whether the remedy might be available for breach of contract”: Whether or not the law of contract is “seriously defective” (Attorney-General v Blake [1998] Ch 439 at 457 … ), if the court is unable to award disgorgement damages … the position in Australia is that the loss recoverable for breach of contract is limited to that laid down in Robinson v Harman [(1848) 1 Ex 850; 154 ER 363]. That is, the aggrieved party is entitled only to compensation. If he has suffered no loss, he is not entitled to be compensated … it would be inconsistent with the current principles laid down by the High Court to confer a windfall on a plaintiff under the guise of damages for breach of contract.156 This dicta does not say anything about the availability of a remedy in equity. It is possible to agree with the majority that common law remedies for contract are compensatory only; to prefer Lord Hobhouse and Millett LJ’s analysis of damages for lost opportunity over Lord Nicholl’s analysis of damages measured by the gain of the defendant; and maintain a place for the equitable account.157 Emmett J dissented. Emmett J did not consider whether an account could follow a breach of contract; he preferred the view that, by analogy with the waiver of tort cases, an account could follow from the tort of intentionally inducing a breach of contract (at [177]-[178]). Subsequent support for the analysis of Emmett J may be found in Finesky Holdings Pty Ltd v Minister for Transport (WA) (2002) 26 WAR 368; [2002] WASCA 206. Money had and received and ARU As a short aside, and leaving aside contract, it is interesting to consider what other claims ARU may have had against the original purchasers of the tickets, had it sought to pursue them.158 Arguably, the “contractualisation” process at law distracted from or eclipsed other actions that might otherwise have been developed by the courts more robustly.159 As noted above, Stoljar explained that the original common law account, later money had and received, was a claim by the plaintiff in essence to a better right or title to money in the hands of the defendant. This is consistent with Lord Mansfield’s explanation of the action in Moses.160 Now, in the case of the ARU the tickets were sold subject to a condition – it need not be contractual – which prohibited the purchaser from dealing with the ticket. The ticket (and perhaps even the right to entry represented by the ticket) was property.161 If, in breach of the condition the original purchaser sold the ticket, a case could be made for recovery of that money as money had and received. In short, money obtained by the purchaser from the use of ARU’s property, to which ARU had the better right and title. Indeed, the money in the hands of Hospitality Group obtained in breach of ARU’s conditions may also have been susceptible to the action. In terms, at least in its origins, the action for money had and received required a compellingly simple balancing of claims. As between ARU and Hospitality

155 Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157 at [140]-[149] (Hill and Finklelstein JJ); cf [180] (Emmett J who would have remitted the matter to the trial judge for further consideration). 156 Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157 at [159]. The majority here cited two High Court authorities: Wenham v Ella (1972) 127 CLR 454 at 471; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 esp at 82. However, each case was limited to a claim by the plaintiff at common law for damages for breach of contract; neither had to consider the claim by a plaintiff for an equitable account of profits following a breach of contract. 157 See Maitland, n 29, pp 225-226, 470-471: Chancery from the beginning was “supplementing the meagre common law, enforcing duties which the common law does not enforce” including over contracts. 158 See Phang A and Lee P-W, “Restitutionary and Exemplary Damages Revisited” (2003) 19 JCL 1 for a thorough restitutionary analysis of Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157. 159 See Asset Risk Management Ltd v Hyndes (1998) 43 AILR 5-160; [1998] NSWSC 131. 160 Moses v Macferlan (1760) 2 Burr 1005; 97 ER 676. 161 See Finesky Holdings Pty Ltd v Minister for Transport (WA) (2002) 26 WAR 368; [2002] WASCA 206. A further interesting question is whether the ticket remained the property of ARU in all cases; it was certainly intended to be returned to ARU on admission to the events.

Group, in circumstances where Hospitality Group made a profit using ARU’s property without authority and in breach of conditions attached to the property,162 why should not the profit “ex aequo & bono … be deemed to belong to [ARU]”?163 Of course, a decision to pursue the remedy in money had and received would most likely carry with it an election not to proceed on the contract or in tort.164 It would probably remove the ability to obtain an injunction restraining the original purchaser and Hospitality Group from repetition or continuation of the infringing conduct. The plaintiff might be permitted to plead the alternative causes of action but at the stage of judgment would be required to elect. Thus, if the more important remedy for the plaintiff was the injunction, and the recovery of the profit made by the original purchaser or Hospitality Group was desirable but secondary, then it is understandable that a plaintiff in the position of ARU might eschew the money had and received claim and take on the perhaps legally harder claim of seeking an account of profits for breach of contract or tort. Cases in Australia after Blake In subsequent cases Australian courts have left Blake to one side.165 However, in Town & Country Property Management Services Pty Ltd v Kaltoum [2002] NSWSC 166, Campbell J considered the issue in more detail. His Honour noted that that there were “judicial statements which suggest that an account of profits is not available as a remedy for a breach of contract” but also that there are cases “where an account of profits has been awarded for breach of a legal obligation”. Referring to Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 124-125 per Deane J (the remedial constructive trust), Campbell J noted: This view of Deane J was a dissenting view. What one can draw from it, though, is that even if an account of profits is sometimes available in circumstances where there has been a breach of contract, something more than a mere breach of contract is needed to demonstrate the appropriateness of awarding the equitable remedy. The same conclusion follows from Attorney-General v Blake [2000] UKHL 45; [2000] AC 268.166 (The majority in Hospital Products ultimately found damages to be the appropriate remedy for the breach of contract found in that case. However, it should be noted that an account was apparently one of the many remedies originally pleaded in that case.167 The judgment of the majority and arguments of counsel recorded do not contain any direct discussion of why the account was not, or could not be, awarded for breach of contract. The argument in the reasoning of the majority turned on whether a fiduciary relationship overlay the contract, in which event an account would clearly have been available.) In any event, in Town & Country Campbell J concluded, respectfully, with a very proper analysis of what is required to consider the issue given the state of the authorities: In the present case, the plaintiffs have not alleged in their Statement of Claim anything beyond the existence of the restrictive covenant, its breach and consequent damage. If an equitable remedy is to be

162 Compare the position with common law passing-off: AG Spalding Bros v AW Gamage Ltd [1914-15] All ER Rep Ch 147. 163 Moses v Macferlan (1760) 2 Burr 1005 at 1010; 97 ER 676 at 679. 164 See Dutch v Warren (1721) 1 Strange 406; 93 ER 598 (referred to in Moses v Macferlan (1760) 2 Burr 1005; 97 ER 676): “If one man takes another’s money to do a thing, and refuses to do it; it is a fraud: and it is at the election of the party injured, either to affirm the agreement, by bringing an action for the non-performance of it; or to disaffirm the agreement ab initio, by reason of the fraud, and bring an action for money had and received to his use”; see also Lamine v Dorrell (1701) 2 Ld Raym 1216 (waiver of tort; held that plaintiff could recover in money had and received against defendant who sold plaintiff’s debentures pretending to have right to do so; by bringing action plaintiff affirms act of defendant in sale of debentures to be lawful so cannot proceed thereafter in conversion). 165 Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd at [41][2001] FCA 226 (revisiting Blake after the ARU case dealing only with the construction of the Trade Practices Act 1974 (Cth)); Gull Petroleum (WA) Ltd v Tah Land Pty Ltd [2001] FCA 1531 at [95]; Dalecoast Pty Ltd v Guardian International Pty Ltd [2001] WASC 199 (on appeal [2003] WASCA 142); Mainland Holdings Ltd v Szady [2002] NSWSC 699. In Biscayne Partners Pty Ltd v Valance Corp Pty Ltd [2003] NSWSC 874 at [235] Einstein J said that the criticisms of Blake, including that of Barrett J extra-judicially, had considerable weight. 166 Town & Country Property Management Services Pty Ltd v Kaltoum [2002] NSWSC 166 at [83]. 167 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 56.

granted, it is necessary for the material facts, which justify the award of the equitable remedy, to be pleaded.168 Accordingly, despite what may be said about the ARU case, the position remains that there is no clear authority in Australia addressing Blake or restricting equity, and more particularly restricting the remedy of account, so as to rule out its application to contracts in all cases. This distinguishes the account from the observation made by Windeyer J in Coulls. But at the commencement of the inquiry come some misgivings about the method and purpose. To wish that the law of England recognized the tertius and allowed a ius quaesitum tertio, as Scots law does, or recognized a stipulation pour autrui, as French law does, or to regret that the common law has not developed in England as it has in America is an attitude that I can appreciate … The history of much of our law is a story of development over centuries. The process still goes gradually on. The law of today is a living law. I would not suggest we should arrest its growth. But is a rule, which for a century or more has been said to be a fundamental principle of the common law and which has been asserted as such upon the highest authority, to be now condemned as a mistaken aberration because at some earlier stage in the history of our law a different rule prevailed? I think not.169 Never before The corollary is whether, if (as it appears) there has been no case after judicature reform170 where a court of equity has ordered an account in aid of contractual rights, there is any basis for a revival today? In Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at 310, a case concerning a development of equity in another direction171 Spigelman CJ noted: The fact that the relevant behaviour has occurred in the same kind of context over the course of centuries, without equity having developed a remedy of the character now urged on the court, of itself indicates that the development of the law in a case of this kind is inappropriate. However, in the case of the account the remedy is itself well developed. More importantly, the question of the scope of the account in aid of common law rights was not merely never settled, it has been positively preserved.172 Equity: Doctrine & Remedies concludes: “It is not suggested that [the categories of cases in which an account is made available in aid of common law rights] are closed.”173 Further, as has been seen, in 1923 the High Court in Davis174 recognised there remained an equitable jurisdiction to order an account in the context of a breach of contract, without requiring a fiduciary or trustee. At least one explanation for the absences of “account on contract” cases is, as Lord Nicholls noted in Blake: “Normally the remedies of damages, specific performance and injunction, coupled with the characterisation of some contractual obligations as fiduciary will provide an adequate response to a breach of contract.”175 The scope for the account – the occasion for it arising – is in a relatively narrow set of circumstances. It is further narrowed if, as is argued here, a failure to apply for an injunction (with knowledge of the breach) will defeat any expectation of performance of the undertaking. But it may also be significant that the dominance of contract and the emphasis that there is only damages available for contract (without the qualification at common law) may have dissuaded parties from attempting the claim. It took treachery for the issue to be worth the litigation.

168 Town & Country Property Management Services Pty Ltd v Kaltoum [2002] NSWSC 166 at [85]; see also Asset Risk Management Ltd v Hyndes (1998) 43 AILR 5-160; [1998] NSWSC 131: “The plaintiff must put before the Court facts which show that, in accordance with authority, the plaintiff brings itself within the scope of remedies it provides. Of course there is always a new situation that can exist where the Court gives relief, but generally speaking that is how cases are decided.” 169 Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 496. 170 Shepard v Brown (1862) 4 Giff 208; 66 ER 681; Davis v Hueber (1923) 31 CLR 583. 171 At first instance: Digital Pulse Pty Ltd v Harris [No 2] [2002] NSWSC 107. 172 North-Eastern Railway v Martin (1848) 2 PH 757; 41 ER 1136. 173 Meagher et al, n 4, p 875. 174 Davis v Hueber (1923) 31 CLR 583. 175 Attorney-General v Blake [2001] 1 AC 268 at 285.

EQUITABLE ACCOUNT IN AID OF CONTRACTUAL RIGHTS Some propositions The case for the intervention of equity by account on contracts is set out in propositional form. First, aspects of the development of the account are summarised as follows. 1. The basic remedy of an account gave effect to a plaintiff’s claim to a better right or title to a sum in the hands of the defendant; that is, a sum which was deemed in law or equity to belong to the plaintiff.176 2. That better right could arise because, for example, the defendant received money by mistake, or on a failure of consideration; or where the defendant used the plaintiff’s property without authority to make money.177 3. That better right came to be recognised in certain relationships, where an undertaking to account was gradually implied as of course.178 4. Further, a defendant could make herself or himself an accounting party outside the recognised relationships, by agreement.179 5. Today, if the undertaking to account is express in a contract, the plaintiff may claim for a liquidated sum, or (if necessary) damages putting the plaintiff in the position as if the undertaking had been performed. That is, damages corresponding to the sum for which the defendant was to account. Secondly, the argument for equity’s intervention with the account in aid of common law rights is put as follows. 1. Equity recognised the “better right” (above) to money in the hands of a defendant arising from legal dealings, that is, the equitable account was made available as a remedy for common law wrongs.180 This continued after common law account abated.181 2. Where a defendant agreed to being an accounting party in a contract, equity had no inherent difficulty entertaining the suit.182 3. Nothing in this is inconsistent with the common law rule that a breach of contract is only remedied by damages.183 It would be a fusion fallacy to conclude that because the common law remedy for contract is now accepted as only being damages, therefore the account cannot lie in equity. 4. Equity took the view that where the remedy available at law on contract would not offer the plaintiff a fair equivalent of the defendant’s promise then the account could be made available.184 5. That is, equity gave effect to the undertaking, and not just the contract;185 although the remedy would mould to the terms of the agreement.186 Once granted that equity recognised, and did give an account where a defendant had undertaken to being an accounting party (including by contract), it should follow that equity will apply its

176 Stoljar, n 14. 177 Wilkins v Wilkins (1689) 1 Show KB 70; Moses v Macferlan (1760) 2 Burr 1005; 97 ER 676. 178 Hawkins v Parke (1614) 1 Rolle 52; Wilkins v Wilkins (1689) 1 Show KB 70; see also Stoljar, n 14 at 211. 179 Wilkins v Wilkins (1689) 1 Show KB 70; Shepard v Brown (1862) 4 Giff 208 at 217; 66 ER 681; Manners v Pearson (1898) 67 LJ Ch 304; [1898] 1 Ch 581; Davis v Hueber (1923) 31 CLR 583. 180 Jesus College v Bloom (1745) 23 Atk 262; 26 ER 953; Mackenzie v Johnstone (1819) 4 Madd 373; 56 ER 742; King v Rossett (1827) 2 Y & J 33; Baily v Taylor (1829) 1 Russ & M 75; Smith v London & South-Western Railway Co (1854) Kay 408 at 415; 69 ER 173; Price’s Patent Candle Ltd v Bauwen’s Patent Candle Ltd (1865) 4 K&J 727; Manners v Pearson (1898) 67 LJ Ch 304; [1898] 1 Ch 581. 181 AG Spalding Bros v AW Gamage Ltd [1914-15] All ER Rep 147. 182 Fowle v Lawrason 30 US 495 (1831); Barry v Stevens (1862) 31 LJ Ch 785; Manners v Pearson (1898) 67 LJ Ch 304; [1898] 1 Ch 581. 183 Robinson v Harman (1848) 1 Ex 850; 154 ER 363; Manners v Pearson (1898) 67 LJ Ch 304; [1898] 1 Ch 581. 184 M’Intosh v Great Western Railway Co (1850) 2 Mac & G 74; 42 ER 29. 185 Shepard v Brown (1862) 4 Giff 208 at 217; 66 ER 681; Barry v Stevens (1862) 31 LJ Ch 785; Davis v Hueber (1923) 31 CLR 583. 186 Shepard v Brown (1862) 4 Giff 208; 66 ER 681; Davis v Hueber (1923) 31 CLR 583.

(2005) 79 ALJ 676 703 © Justin Gleeson SC and James Watson particular techniques to look to the substance of the bargain to identify that undertaking. That is, thirdly: 1. Equity looks to the intent of the parties (the true purpose of the bargain) rather then merely to form.187 This is a technique of equity also evident in – among others – rectification; penalties; implied trusts; and security agreements; 2. The position was (and is) the same when determining whether a defendant is an accounting party. As Lord Cottenham LC explained in the context of an account, equity looks to the “nature of the case and the conduct of the parties”.188 These two propositions are the most difficult part of the case being made for an account in this article. They are addressed in more detail below. It remains, however, fourthly, to note some further matters which affect the availability of an account in equity. 1. At a time when accounts were concurrent, some additional equity was necessary to justify the intervention of Chancery. The additional equity could be found equally as well upon the equitable bill of discovery as on injunction.189 2. The account is no longer utilised at common law. It can no longer be described as a remedy equally available at law.190 Therefore the original reason for some additional equity no longer exists.191 It follows that an injunction (or any other equity) is not a necessary prerequisite of an account. 3. The remedy requires only that a defendant accounts for profits. The remedy retains flexibility in making allowances for expenditure and costs before identifying profits.192 4. The account of profits does not necessarily extend to innocent breaches of an undertaking.193 5. The account is also subject to all of the usual bars for remedies in equity, including that adequate relief can not be obtained at law and that the plaintiff has not acquiesced or delayed. No necessary fiduciary It is sometimes argued that (absent proprietary rights) an account will only be available on a contract if the defendant is also a fiduciary,194 or perhaps is only available for equitable wrongs.195 The fiduciary duty may be overlaid onto a contractual relationship in circumstances where, on a proper analysis of the bargain, the defendant undertook not only to act for the plaintiff, but to act exclusively of his own interests in the interests of the plaintiff. The bifurcated duty is well established.196 It is an obligation within the exclusive jurisdiction of equity. In those circumstances the account is one remedy which follows breach of the fiduciary duty.197 To say that an account follows a defaulting fiduciary does not require the conclusion that a fiduciary is necessary for an account. The undertaking to account argued for here is an entirely different activity. The intervention of equity contemplated here is not in aid of an exclusively equitable relationship; but in aid of the common law. Its purpose is to enforce the (true) expectations of the parties. Further, Barry198 and

187 M’Intosh v Great Western Railway Co (1850) 2 Mac & G 74; 42 ER 29; Davis v Hueber (1923) 31 CLR 583. 188 North-Eastern Railway v Martin (1848) 2 PH 757 at 761; 41 ER 1136 at 1138. 189 Jesus College v Bloom (1745) 23 Atk 262; 26 ER 953. 190 Jesus College v Bloom (1745) 23 Atk 262; 26 ER 953; Barry v Stevens (1862) 31 LJ Ch 785. 191 Cessante ratione legis, cessat lex ipsa: see D’Orta-Ekenaike v Victoria Legal Aid (2005) 79 ALJR 755 at [343] (fn 510). 192 See Mason and Carter, n 26, pp 667-668. 193 10th Cantanae Pty Ltd v Shoshana Pty Ltd (1987) 10 IPR 289 at 311ff. 194 See Town & Country Property Management Services Pty Ltd v Kaltoum [2002] NSWSC 166 at [80] and the cases therein. 195 Compare the extra-judicial comments of Barrett J referred to and extracted in part in Biscayne Partners Pty Ltd v Valance Corp Pty Ltd [2003] NSWSC 874 at [235]. 196 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41. 197 Meagher et al, n 4, p 200ff; see also Mason and Carter, n 26, pp 665-666. 198 Barry v Stevens (1862) 31 LJ Ch 785.

Shepard199 demonstrate that it is not necessary for a defendant to also be a fiduciary or otherwise to have committed a purely equitable wrong to obtain an account.200 Expectation of the parties At a high level of generalisation, Chancery and the common law courts adopted distinctly different philosophies in the consideration of common law rights. The maxim was that equity looked to intent, rather than to form.201 Whereas the common law courts were content to look to the strict terms of a contract, Chancery was constantly “supplementing the meagre common law”.202 So, for example, where the written contract did not record the true bargain of the parties, Chancery ordered a rectification of the document.203 Where a clause attempting to anticipate damages was in truth a penalty (even if described as “liquidated damages”) equity would refuse any attempt to enforce the clause.204 Where representations were made in and around a contract, an estoppel may arise by which “expectations generated by non-contractual promises are protected in equity”.205 Where property was acquired or transferred equity might find a trust, or a resulting trust depending on the true purpose of an arrangement.206 Similarly, where a contract required a party to act in the interests of another, that might be elevated to fiduciary.207 Most conspicuous was the equity of redemption. As noted in Equity: Doctrine & Remedies,208 in Salt v Northampton (Marquess) [1892] AC 1 at 18, per Lord Bramwell: Of course, one knows in a general, if not in a critical way, what is an equity of redemption. It is a right not given by the terms of the agreement between parties to it, but contrary to them, to have back securities given by a borrower to a lender, I suppose one might say by a debtor to a creditor, when by the terms of the agreement between the parties the securities were to be the absolute property of the creditor. For a recent example of this, in the context of very bare but clear contract, see Soyfer v Earlmaze [2000] NSWSC 1068; Soyfer v Earlmaze Pty Ltd [2004] NSWSC 1180. The same approach is evident in the cases determining a party to be an accounting party on a contract, where a strict application of the contractual terms would undermine the undertaking,209 or where the purpose of the relationship was reflected in writing only in the barest form.210 All of this shows that equity did, can, and does look to the true purpose of an arrangement in situations where a strict application of the common law is plainly contrary to the purpose of the agreement. Its corollary is that a party will not be allowed to rely on rights (including deficiencies in remedies) unconscientiously. When is a party an accounting party in equity? It is contended that the answer to this question does not lie only in identifying categories of relationships where the duty to account is well recognised, for example, as between agent and principal. Once it is accepted that an account can be made available in circumstances of a breach of

199 Shepard v Brown (1862) 4 Giff 208; 66 ER 681. 200 Other cases to similar effect include: Mackenzie v Johnstone (1819) 4 Madd 373; 56 ER 742; King v Rossett (1827) 2 Y & J 33; 148 ER 820; M’Intosh v Great Western Railway Co (1850) 2 Mac & G 74; 42 ER 29; Manners v Pearson (1898) 67 LJ Ch 304; [1898] 1 Ch 581; Davis v Hueber (1923) 31 CLR 583. 201 Meagher et al, n 4, p 106ff. 202 See generally Maitland, n 29, pp 225-226. 203 See MacKenzie v Coulson (1869) LR 8 Eq 368; Meagher et al, n 4, p 886ff. 204 See Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 86, 92, 100; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 193; see also Meagher et al, n 4, p 592; Spry, n 9, p 76; Dal Pont and Chalmers, n 2, p 357; Beatson, n 17, p 587. 205 Jackman, n 147, p 72. See Commonwealth v Verwayen (1990) 170 CLR 394; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 428ff; see also Meagher et al, n 4, p 550. 206 Napier v Public Trustee (WA) (1980) 55 ALJR 1; 32 ALR 153. 207 LAC Minerals Ltd v International Carona Resources Ltd [1989] 2 SCR 547 at 598; Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 69. 208 Meagher et al, n 4, p 106. 209 M’Intosh v Great Western Railway Co (1850) 2 Mac & G 74; 42 ER 29. 210 Davis v Hueber (1923) 31 CLR 583.

(2005) 79 ALJ 676 705 © Justin Gleeson SC and James Watson contract and that a common law determination to confine itself to damages does not prohibit equity (where damages are truly inadequate), the work of equity is applying its particular skills to identify whether, in the case before the court, the defendant in truth undertook to be an accounting party. One factor may be the nature of the covenant contained in the contract. On occasions parties include in their contracts prohibitions or requirements which will not cause either of them financial loss. This is typically the negative covenant: “D will not do Y”, but Y is not necessarily a source of financial loss to P. Now, if this clause is breached the plaintiff may struggle to demonstrate damages. This does not make damages inadequate since the plaintiff has the lost opportunity to negotiate a relaxation of the covenant, a loss compensable in damages. In Bredero211 the purpose of the restrictive covenant was to require the defendant to re-negotiate (that is, pay for) any changes to the agreed plan. In that case, the remedy ought properly have been damages for the lost opportunity. However, in other cases the parties may have agreed, may have the mutual expectation, that the plaintiff would never consent to a relaxation of the covenant at any price. In those cases, damages are plainly inadequate.212 If the parties between them understood that damages were inadequate, then the inference is that the parties intended the obligation to be enforced by other remedies, for otherwise why else would the covenant be included in the contract? In the first instance, the parties’ expectation would be that the covenant would be enforced by injunction if necessary. However the injunction alone may not be sufficient. The injunction enables the plaintiff to insist on performance where in a timely fashion the plaintiff becomes aware of the breach. It remains in the hands of the defendant to defeat the expectation of performance, by hiding the failure to observe the covenant. In these circumstances, the purpose of including the covenant would again be rendered redundant. Accordingly, the circumstances may be such where the parties were so clear about the insistence on the observation of the covenant, that on a true examination of their bargain, the parties also expected that the defendant would not be allowed to profit from failing to observe the covenant. Put another way, if the parties understood that damages were not to be an adequate remedy but included the obligation anyway; and if the defendant understood at the time of the contract that the condition would be enforced by injunction if necessary; then the available conclusion is that the expectation of the parties was that the defendant would oblige, and was not to profit from failing to perform: in the circumstances, the defendant was to be an accounting party. It is this that justifies the particular remedy for the particular legal wrong.213 This leaves the contract lawyer’s question: If the expectations of the parties was so clear, why then was it not reduced to writing? There may indeed be cases where the obligation to account is to be implied as a term of a contract in fact or at law; but in other cases not every aspect of a party’s conscience is always effectively reduced to contract.214 Settled expectations of commercial parties The analysis here focuses on the true expectation ex ante of the parties at the time of forming the relationship; it is not a selection of the most appropriate remedy in light the particular breach that has occurred. This is a point which is critically distinguishable from any analysis premised on restitutionary damages as it has evolved in England after Blake. It is for this reason that the making available of an account does not undermine the principle that damages are the remedy for breach of contract. It rather lies in amongst the sub-set of contractual cases where the courts will require performance of an agreement or undertaking. The only defendants who will be subject to an account on contract are those who (a) on a proper construction of the purpose of the agreement have undertaken to the plaintiff that they will be accounting parties and (b) who fail to abide by their undertaking. The remedy remains discretionary and may not be available for innocent breaches. Accordingly, the accounting defendant will also be

211 Surrey CC v Bredero Homes Ltd [1993] 1 WLR 1361 212 See Harnett v Yiekding (1805) 2 Sch & Lef 549; Spry, n 9, p 60 and the cases therein. 213 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at [205], [224]; see also Meagher et al, n 4, p 85. 214 See Davis v Hueber (1923) 31 CLR 583; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Commonwealth v Verwayen (1990) 170 CLR 394; Soyfer v Earlmaze [2000] NSWSC 1068; Soyfer v Earlmaze Pty Ltd [2004] NSWSC 1180.

(c) a party who has intentionally subverted the purpose of the agreement. Further, the account ought not be available in cases where a plaintiff had knowledge, but failed to enforce the covenant by an injunction, because the failure implicitly acknowledges that performance is not the only adequate remedy. It follows that (d) the accounting party will have committed the breach with knowledge and without any prior notice to the plaintiff. It these circumstances the issue becomes: What would commercial parties expect? Although there is no case (given the development of the common law) for saying that commercial parties in the ordinary course expect a defendant will do anything other than perform or pay adequate compensation; there is every case to be made for an account arising from their dealings where the defendant knows the covenant was non-negotiable; where the defendant well knew that he or she was not to profit; where the defendant knowingly subverted the purpose of that covenant; where this was done without notice. The parties can expect a “fair equivalent” to what was bargained for. Rationalising Blake Leaving to one side Lord Nicholl’s speech insofar as it addressed the jurisdiction to award an account, the reason for ordering an account in Blake came down to an interpretation of the purpose of the undertaking made by Blake, that is, to the “nature of the case and the conduct of the parties”.215 First, Blake was employed by the Crown as a spy. He was necessarily privy to highly sensitive information. He was paid for keeping that information to himself. Secondly, Blake expressly agreed that he would not disclose that information either during or after his employment. As Lord Nicholls expressed it: “This was the basis on which he acquired official information.”216 Thirdly, in the circumstances of that contract, the expectation of the defendant was that the Crown would never agree to disclosure. Fourthly, the undertaking was also agreed in circumstances where it was an offence to disclose secret information. Fifthly, the relationship between the Crown and Blake at the time the information was obtained by Blake (but not at trial) was fiduciary. This is not to say that an account should follow where an agreement is “a bit fiduciary-ish”,217 it is to say that part of the circumstances in which the real intent of the parties – their mutual expectations – are to be construed included that at the time the agreement was signed, Blake well understood that he was not to profit. In all of those circumstances, upon an examination of the true expectations of the parties in equity, Blake made himself an accounting party. Whether the relief ought to have been denied for other reasons, in particular the failure to obtain an injunction, was not considered by the majority. This may be explicable as a failure on the part of Blake to contest that issue in the circumstances of the case.218 What needs to be proved As was noted above, in the case of accounts, equity looks to the nature of the case and the conduct of the parties. This starts with a “scrape of the conscience”.219 More particularly, to obtain an account a plaintiff should establish by evidence that the defendant has acted contrary to the mutual understanding (unconscientiously), that damages are inadequate, and that there are no equitable bars to recovery. In general terms evidence might address: (a) the contract and its commercial context; 220 (b) whether the defendant was aware that the plaintiff would not agree to any deal unless the negative covenant was included; (c) whether the covenant was for the benefit of the plaintiff; (d) whether the defendant was aware that the plaintiff would not relax the covenant at any price;

215 North-Eastern Railway Co v Martin (1848) 2 PH 757 at 761; 41 ER 1136 at 1138. 216 Attorney-General v Blake [2001] 1 AC 268 at 287. 217 World Wide Fund for Nature v World Wrestling Federation Entertainment Inc (2001) 53 IPR 205 at 224. 218 Attorney-General v Blake [2001] 1 AC 268 at 272 (in argument). 219 Maitland, n 29, p 470. 220 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; 78 ALJR 1045; [2004] HCA 35.

(e) whether the defendant was aware that the covenant was sufficiently unique that damages would not be adequate; (f) whether the defendant understood that while a breach of the clause would not cause financial loss to the plaintiff, the clause was to be included (without any qualification on the part of the defendant) anyway; (g) whether, in the circumstances of (a) to (f), it was the reasonable expectation of both parties that the defendant was not to profit from breaching that covenant; (h) whether the defendant breached the covenant knowing her, his or its acts were a breach (that is, that the breach was not innocent or incidental); (i) whether the plaintiff had any real opportunity to obtain an injunction, including in evidence that the plaintiff was astute to protecting the particular right, so that it could not be said that the plaintiff approbated and reprobated on the necessity for performance by failing to seek an injunction or disregarding the covenant; and (j) other equitable bars (laches, oppressiveness) in the circumstances of the case. CONCLUSION Finally, in case it be said that the whole of the above is a monstrous subversion of the common law by misapplication or misstatement of equity, it can only be said in anticipation that the Lords have done the same and that there is worse company to keep. If the separate techniques and remedial purpose of equity are to survive “fusion”, it is essential that equity demonstrates its relevance by continuing to supplement the common law when the common law rules struggle. As Lord Justice Mance noted in Experience Hendrix LLC v PPX Enterprises Inc [2003] All ER(D) 328; [2003] EWCA Civ 323 at [16], Blake “marks a new start in this area of law”. A less dramatic view would be that Blake has revived the remedial purpose of equity and the account in particular.