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|Judgments - Her Majesty's Attorney General v. Blake and Another
HOUSE OF LORDS
Lord Nicholls of Birkenhead Lord Goff of Chieveley Lord Browne-Wilkinson Lord Steyn Lord Hobhouse of Wood-borough
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
HER MAJESTY'S ATTORNEY GENERAL
ON 27 July 2000
LORD NICHOLLS OF BIRKENHEAD
George Blake is a notorious, self-confessed traitor. He was employed as a member of the security and intelligence services for 17 years, from 1944 to 1961. In 1951 he became an agent for the Soviet Union. From then until 1960 he disclosed valuable secret information and documents gained through his employment. On 3 May 1961 he pleaded guilty to five charges of unlawfully communicating information contrary to section 1(1)(c) of the Official Secrets Act 1911. He was sentenced to 42 years' imprisonment. This sentence reflected the extreme gravity of the harm brought about by his betrayal of secret information.
In 1966 Blake escaped from Wormwood Scrubs prison and fled to Berlin and then to Moscow. He is still there, a fugitive from justice. In 1989 he wrote his autobiography. Certain parts of the book related to his activities as a secret intelligence officer. By 1989 the information in the book was no longer confidential, nor was its disclosure damaging to the public interest. On 4 May 1989 Blake entered into a publishing contract with Jonathan Cape Ltd. He granted Jonathan Cape an exclusive right to publish the book in this country in return for royalties. Jonathan Cape agreed to pay him advances against royalties: £50,000 on signing the contract, a further £50,000 on delivery of the manuscript, and another £50,000 on publication. Plainly, had Blake not been an infamous spy who had also dramatically escaped from prison, his autobiography would not have commanded payments of this order.
The book, entitled No Other Choice, was published on 17 September 1990. Neither the security and intelligence services nor any other branch of the Government were aware of the book until its publication was announced. Blake had not sought any prior authorisation from the Crown to disclose any of the information in the book relating to the Secret Intelligence Service. Jonathan Cape has, apparently, already paid Blake about £60,000 under the publishing agreement. In practice that money is irrecoverable. A further substantial amount, in the region of £90,000, remains payable. These proceedings concern this unpaid money.
On 24 May 1991 the Attorney General commenced an action against Blake, with a view to ensuring he should not enjoy any further financial fruits from his treachery. The writ and statement of claim sought relief on a variety of grounds. The trial took place before Sir Richard Scott V.- C. Blake was not represented at the trial. He had sought unsuccessfully to have access to the further money due and owing to him by the publisher for the purpose of funding his defence. He was refused legal aid. But the court had the assistance of leading and junior counsel as amici curiae. At the trial the Crown rested its claim exclusively on one cause of action: that in writing the book and authorising its publication Blake was in breach of fiduciary duties he owed the Crown. The Vice-Chancellor rejected this claim and dismissed the action: see  Ch. 84. The Vice-Chancellor accepted that former members of the intelligence and security services owed a lifelong duty of non-disclosure in respect of secret and confidential information. But the law did not impose a duty which went beyond this.
The Crown appealed. Blake was not represented on the hearing of the appeal but, once again, the court had the assistance of leading and junior counsel as amici curiae. The Court of Appeal, comprising Lord Woolf M.R., Millett and Mummery L.JJ., allowed the appeal: see  Ch. 439. The court upheld Sir Richard Scott V.-C.'s ruling on the breach of fiduciary claim. On this appeal to your Lordships' House the Attorney General has not sought to challenge that decision. However, the Court of Appeal permitted the Attorney General to amend his statement of claim and advance a public law claim. In making this claim the Attorney General asserted, not a private law right on behalf of the Crown, but a claim for relief in his capacity as guardian of the public interest. In this latter capacity the Attorney General may, exceptionally, invoke the assistance of the civil law in aid of the criminal law. Typically this occurs where an offence is frequently repeated in disregard of an inadequate penalty: see Gouriet v. Union of Post Office Workers  A.C. 435. In the present case Blake's disclosure of the information in his autobiography to his publishers was a breach of section 1(1) of the Official Secrets Act 1989:
If Blake's disclosure occurred before this Act came into force on 1 March 1990, the disclosure was an offence under comparable provisions in section 2(1) of the Official Secrets Act 1911. The Court of Appeal held that the jurisdiction of the civil courts, on an application of the Attorney General, was not limited to granting an injunction restraining the commission or repeated commission of an offence. Lord Woolf said, at p. 462:
The court made an order in the following terms:
Blake appealed against this decision of the Court of Appeal. On the hearing of this appeal by your Lordships he was represented by counsel and solicitors acting pro bono. I wish to pay tribute to the thoroughness with which counsel and solicitors prepared the appeal and the expertise with which Mr. Clayton presented it to your Lordships.
The private law claim
In the course of his judgment Lord Woolf made some interesting observations, at  Ch. 439, 455G to 459D, on a matter which had not been the subject of argument either in the Court of Appeal or before the Vice-Chancellor. The point arose out of the amendments made to the statement of claim in the course of the proceedings in the Court of Appeal. On 16 August 1944 Blake signed an Official Secrets Act declaration. This declaration included an undertaking:
This undertaking was contractually binding. Had Blake not signed it he would not have been employed. By submitting his manuscript for publication without first obtaining clearance Blake committed a breach of this undertaking. The Court of Appeal suggested that the Crown might have a private law claim to 'restitutionary damages for breach of contract', and invited submissions on this issue. The Attorney General decided that the Crown did not wish to advance argument on this point in the Court of Appeal. The Attorney General, however, wished to keep the point open for a higher court. The Court of Appeal expressed the view, necessarily tentative in the circumstances, that the law of contract would be seriously defective if the court were unable to award restitutionary damages for breach of contract. The law is now sufficiently mature to recognise a restitutionary claim for profits made from a breach of contract in appropriate situations. These include cases of 'skimped' performance, and cases where the defendant obtained his profit by doing 'the very thing' he contracted not to do. The present case fell into the latter category: Blake earned his profit by doing the very thing he had promised not to do.
This matter was pursued in your Lordships' House. Prompted by an invitation from your Lordships, the Attorney General advanced an argument that restitutionary principles ought to operate to enable the Crown to recover from Blake his profits arising from his breach of contract. It will be convenient to consider this private law claim first.
This is a subject on which there is a surprising dearth of judicial decision. By way of contrast, over the last 20 years there has been no lack of academic writing. This includes valuable comment on the Court of Appeal dicta in the present case: by Janet O'Sullivan, 'Reflections on the Role of Restitutionary Damages to protect contractual expectations' (to be published), and Catherine Mitchell, 'Remedial Inadequacy in Contract and the Role of Restitutionary Damages' (1999) 15 J.C.L. 133. Most writers have favoured the view that in some circumstances the innocent party to a breach of contract should be able to compel the defendant to disgorge the profits he obtained from his breach of contract. However, there is a noticeable absence of any consensus on what are the circumstances in which this remedy should be available. Professor Burrows has described this as a devilishly difficult topic: see 'No Restitutionary Damages for Breach of Contract'  L.M.C.L.Q.R. 453. The broad proposition that a wrongdoer should not be allowed to profit from his wrong has an obvious attraction. The corollary is that the person wronged may recover the amount of this profit when he has suffered no financially measurable loss. As Glidewell L.J. observed in Halifax Building Society v. Thomas  Ch. 217, 229, the corollary is not so obviously persuasive. In these choppy waters the common law and equity steered different courses. The effects of this are still being felt.
Interference with rights of property
So I turn to established, basic principles. I shall first set the scene by noting how the court approaches the question of financial recompense for interference with rights of property. As with breaches of contract, so with tort, the general principle regarding assessment of damages is that they are compensatory for loss or injury. The general rule is that, in the oft quoted words of Lord Blackburn, the measure of damages is to be, as far as possible, that amount of money which will put the injured party in the same position he would have been in had he not sustained the wrong: Livingstone v. Rawyards Coal Co. (1880) 5 App. Cas. 25, 39. Damages are measured by the plaintiff's loss, not the defendant's gain. But the common law, pragmatic as ever, has long recognised that there are many commonplace situations where a strict application of this principle would not do justice between the parties. Then compensation for the wrong done to the plaintiff is measured by a different yardstick. A trespasser who enters another's land may cause the landowner no financial loss. In such a case damages are measured by the benefit received by the trespasser, namely, by his use of the land. The same principle is applied where the wrong consists of use of another's land for depositing waste, or by using a path across the land or using passages in an underground mine. In this type of case the damages recoverable will be, in short, the price a reasonable person would pay for the right of user: see Whitwam v. Westminster Brymbo Coal Co.  2 Ch. 538, and the 'wayleave' cases such as Martin v. Porter (1839) 5 M. and W. 351 and Jegon v. Vivian (1871) L.R. 6 Ch. 742. A more recent example was the non-removal of a floating dock, in Penarth Dock Engineering Co. Ltd. v. Pounds  1 L1oyd's Rep. 359.
The same principle is applied to the wrongful detention of goods. An instance is the much cited decision of the Court of Appeal in Strand Electric and Engineering Co. Ltd. v. Brisford Entertainments Ltd.  2 Q.B. 246, concerning portable switchboards. But the principle has a distinguished ancestry. Earl of Halsbury L.C. famously asked in The Mediana  A.C. 113,117, that if a person took away a chair from his room and kept it for 12 months, could anybody say you had a right to diminish the damages by showing that I did not usually sit in that chair, or that there were plenty of other chairs in the room? To the same effect was Lord Shaw's telling example in Watson, Laidlaw & Co. Ltd. v. Pott, Cassels, and Williamson (1914) 31 R.P.C. 104, 119. It bears repetition:
Lord Shaw prefaced this observation with a statement of general principle:
That was a patent infringement case. The House of Lords held that damages should be assessed on the footing of a royalty for every infringing article.
This principle is established and not controversial. More difficult is the alignment of this measure of damages within the basic compensatory measure. Recently there has been a move towards applying the label of restitution to awards of this character: see, for instance, Ministry of Defence v. Ashman  2 E.G.L.R. 102, 105, and Ministry of Defence v. Thompson  2 E.G.L.R. 107. However that may be, these awards cannot be regarded as conforming to the strictly compensatory measure of damage for the injured person's loss unless loss is given a strained and artificial meaning. The reality is that the injured person's rights were invaded but, in financial terms, he suffered no loss. Nevertheless the common law has found a means to award him a sensibly calculated amount of money. Such awards are probably best regarded as an exception to the general rule.
Courts of equity went further than the common law courts. In some cases equity required the wrongdoer to yield up all his gains. In respect of certain wrongs which originally or ordinarily were the subject of proceedings in the Court of Chancery, the standard remedies were injunction and, incidental thereto, an account of profits. These wrongs included passing off, infringement of trade marks, copyrights and patents, and breach of confidence. Some of these subjects are now embodied in statutory codes. An injunction restrained the continuance of the wrong, and the wrongdoer was required to account for the profits or benefits he had obtained from breaches or infringements which had already occurred. The court always had a discretion regarding the grant of the remedy of an account of profits, and this remains the position. Further, the circumstances in which an account of profits is available under the statutes vary. For instance, an account of profits may not be ordered against a defendant in a patent infringement action who proves that at the date of the infringement he was not aware, and had no reasonable grounds for supposing, that the patent existed: Patents Act 1977, section 62(1).
In these cases the courts of equity appear to have regarded an injunction and account of profits as more appropriate remedies than damages because of the difficulty of assessing the extent of the loss. Thus, in 1803 Lord Eldon L.C. stated, in Hogg v. Kirby 8 Ves. Jun. 215, 223, a passing off case:
Whether this justification for ordering an account of profits holds good factually in every case must be doubtful. Be that as it may, in these types of case equity considered that the appropriate response to the violation of the plaintiff's right was that the defendant should surrender all his gains, and that he should do so irrespective of whether the violation had caused the plaintiff any financially measurable loss. Gains were to be disgorged even though they could not be shown to correspond with any disadvantage suffered by the other party. This lack of correspondence was openly acknowledged. In Lever v. Goodwin (1887) 36 Ch. D. 1, 7, Cotton L.J. stated it was 'well known' that in trade mark and patent cases the plaintiff was entitled, if he succeeded in getting an injunction, to take either of two forms of relief: he might claim from the defendant either the damage he had sustained from the defendant's wrongful act or the profit made by the defendant from the defendant's wrongful act.
Considered as a matter of principle, it is difficult to see why equity required the wrongdoer to account for all his profits in these cases, whereas the common law's response was to require a wrongdoer merely to pay a reasonable fee for use of another's land or goods. In all these cases rights of property were infringed. This difference in remedial response appears to have arisen simply as an accident of history.
In some instances the common law itself afforded a wronged party a choice of remedies. A notable example is the wrong of conversion. A person whose goods were wrongfully converted by another had a choice of two remedies against the wrongdoer. He could recover damages, in respect of the loss he had sustained by the conversion. Or he could recover the proceeds of the conversion obtained by the defendant: see United Australia Ltd. v. Barclays Bank Ltd.  A.C. 1, 34, per Lord Romer. Historically, the latter alternative was achieved by recourse to an element of legal fiction, whereby the innocent party 'waived the tort'. The innocent party could suppose that the wrongful sale had been made with his consent and bring an action for money 'had and received to his use': see Lamine v. Dorrell (1701) 2 Ld. Raym. 1216, 1217. Holt C.J. observed that these actions had 'crept in by degrees'.
Breach of trust and fiduciary duty
I should refer briefly to breach of trust and breach of fiduciary duty. Equity reinforces the duty of fidelity owed by a trustee or fiduciary by requiring him to account for any profits he derives from his office or position. This ensures that trustees and fiduciaries are financially disinterested in carrying out their duties. They may not put themselves in a position where their duty and interest conflict. To this end they must not make any unauthorised profit. If they do, they are accountable. Whether the beneficiaries or persons to whom the fiduciary duty is owed suffered any loss by the impugned transaction is altogether irrelevant. The accountability of the army sergeant in Reading v. Attorney General  A.C. 507 is a familiar application of this principle to a servant of the Crown.
Damages under Lord Cairns' Act
I must also mention the jurisdiction to award damages under section 2 of the Chancery Amendment Act 1858, commonly known as Lord Cairns' Act. This Act has been repealed but the jurisdiction remains. Section 2 empowered the Court of Chancery at its discretion, in all cases where it had jurisdiction to entertain an application for an injunction or specific performance, to award damages in addition to or in substitution for an injunction or specific performance. Thus section 2 enabled the Court of Chancery, sitting at Lincoln's Inn, to award damages when declining to grant equitable relief rather than, as had been the practice since Lord Eldon's decision in Todd v. Gee (1810) 17 Ves. 273, sending suitors across London to the common law courts at Westminster Hall.
Lord Cairns' Act had a further effect. The common law courts' jurisdiction to award damages was confined to loss or injury flowing from a cause of action which had accrued before the writ was issued. Thus in the case of a continuing wrong, such as maintaining overhanging eaves and gutters, damages were limited to the loss suffered up to the commencement of the action: see Battishill v. Reed (1856) 18 C.B. 696. Lord Cairns' Act liberated the courts from this fetter. In future, if the court declined to grant an injunction, which had the effect in practice of sanctioning the indefinite continuance of a wrong, the court could assess damages to include losses likely to follow from the anticipated future continuance of the wrong as well as losses already suffered. The power to give damages in lieu of an injunction imported the power to give an equivalent for what was lost by the refusal of an injunction: see Leeds Industrial Co-operative Society Ltd. v. Slack  A.C. 851, 859, per Viscount Finlay L.C. It is important to note, however, that although the Act had the effect of enabling the court in this regard to award damages in respect of the future as well as the past, the Act did not alter the measure to be employed in assessing damages: see Johnson v. Agnew  A.C. 367, 400, per Lord Wilberforce. Thus, in the same way as damages at common law for violations of a property right may by measured by reference to the benefits wrongfully obtained by a defendant, so under Lord Cairns' Act damages may include damages measured by reference to the benefits likely to be obtained in future by the defendant. This approach has been adopted on many occasions. Recent examples are Bracewell v. Appleby  Ch. 408 and Jaggard v. Sawyer  1 W.L.R. 269, both cases concerned with access to a newly-built house over another's land.
The measure of damages awarded in this type of case is often analysed as damages for loss of a bargaining opportunity or, which comes to the same, the price payable for the compulsory acquisition of a right. This analysis is correct. The court's refusal to grant an injunction means that in practice the defendant is thereby permitted to perpetuate the wrongful state of affairs he has brought about. But this analysis takes the matter now under discussion no further forward. A property right has value to the extent only that the court will enforce it or award damages for its infringement. The question under discussion is whether the court will award substantial damages for an infringement when no financial loss flows from the infringement and, moreover, in a suitable case will assess the damages by reference to the defendant's profit obtained from the infringement. The cases mentioned above show that the courts habitually do that very thing.
Breach of contract
Against this background I turn to consider the remedies available for breaches of contract. The basic remedy is an award of damages. In the much quoted words of Baron Parke, the rule of the common law is that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same position as if the contract had been performed: Robinson v. Harman (1848) 1 Ex. 850, 855. Leaving aside the anomalous exception of punitive damages, damages are compensatory. That is axiomatic. It is equally well established that an award of damages, assessed by reference to financial loss, is not always 'adequate' as a remedy for a breach of contract. The law recognises that a party to a contract may have an interest in performance which is not readily measurable in terms of money. On breach the innocent party suffers a loss. He fails to obtain the benefit promised by the other party to the contract. To him the loss may be as important as financially measurable loss, or more so. An award of damages, assessed by reference to financial loss, will not recompense him properly. For him a financially assessed measure of damages is inadequate.
The classic example of this type of case, as every law student knows, is a contract for the sale of land. The buyer of a house may be attracted by features which have little or no impact on the value of the house. An award of damages, based on strictly financial criteria, would fail to recompense a disappointed buyer for this head of loss. The primary response of the law to this type of case is to ensure, if possible, that the contract is performed in accordance with its terms. The court may make orders compelling the party who has committed a breach of contract, or is threatening to do so, to carry out his contractual obligations. To this end the court has wide powers to grant injunctive relief. The court will, for instance, readily make orders for the specific performance of contracts for the sale of land, and sometimes it will do so in respect of contracts for the sale of goods. In Beswick v. Beswick  A.C. 58 the court made an order for the specific performance of a contract to make payments of money to a third party. The law recognised that the innocent party to the breach of contract had a legitimate interest in having the contract performed even though he himself would suffer no financial loss from its breach. Likewise, the court will compel the observance of negative obligations by granting injunctions. This may include a mandatory order to undo an existing breach, as where the court orders the defendant to pull down building works carried out in breach of covenant.
All this is trite law. In practice, these specific remedies go a long way towards providing suitable protection for innocent parties who will suffer loss from breaches of contract which are not adequately remediable by an award of damages. But these remedies are not always available. For instance, confidential information may be published in breach of a non-disclosure agreement before the innocent party has time to apply to the court for urgent relief. Then the breach is irreversible. Further, these specific remedies are discretionary. Contractual obligations vary infinitely. So do the circumstances in which breaches occur, and the circumstances in which remedies are sought. The court may, for instance, decline to grant specific relief on the ground that this would be oppressive.