Judgments - Her Majesty's Attorney General v. Blake and Another

(back to preceding text)

    In the Court of Appeal in Surrey County Council v. Bredero Homes Ltd. [1993] 1 W.L.R. 1361 I discussed some of the difficulties inherent in creating a general remedy for the recovery of restitutionary damages for breach of contract. On that occasion I remarked that it is not traditional to describe a claim for restitution following a breach of contract as damages. The terminology is however less important than the substance: under consideration are claims for the disgorgement of profits against a contract breaker. There has been a substantial academic debate on the merits of the actual decision in Bredero. Since this issue has not been directly debated in the present case I propose to express no view on it. But it is right to acknowledge that the academic comment has been critical of the decision in Bredero. I would, however, respectfully offer a comment on the valuable academic debate. On the one hand, there is no or virtually no support for a general action for disgorgement of profits made by a contract breaker by reason of his breach. On the other hand, there is significantly absent from the post Bredero academic comment a reasoned statement of the particular circumstances when such a remedy should be available. That is not surprising because it is a notoriously a difficult subject. But the Court of Appeal has been bold. It is said that the remedy should be available in two situations, viz (1) in cases of "skimped" performance (where the "gain" would take the form of expense saved) and (2) "where the defendant has obtained his profit by doing the very thing which he contracted not to do". The second would cover the present case. But it potentially has wide application. Sir Guenter Treitel, Q.C., The Law of Contract, 10th ed., (1999) p. 868-869, has questioned the soundness of the observations of the Court of Appeal: see also the valuable comment by Janet O'Sullivan, "Reflections on the role of restitutionary damages to protect contractual expectations" (to be published) and Hanoch Dagan, "Restitutionary Damages for Breach of Contract: An Exercise in Private Law Theory, Theoretical Inquiries in Law," January 2000 Vol. 1, No. 1, 115. I am not at present willing to endorse the broad observations of the Court of Appeal. Exceptions to the general principle that there is no remedy for disgorgement of profits against a contract breaker are best hammered out on the anvil of concrete cases.

    In the hearing before the House Mr. Ross Cranston Q.C., the Solicitor-General, in a thoughtful and careful speech argued for a recognition of an action for disgorgement of profits against a contract breaker where four conditions are fulfilled: (1) There has been a breach of a negative stipulation. (2) The contract breaker has obtained the profit by doing the very thing which he promised not to do. (3) The innocent party (in this case the Crown as represented by the Attorney-General) has a special interest over and above the hope of a benefit to be assessed in monetary terms. (4) Specific performance or an injunction is an ineffective or virtually ineffective remedy for the breach. The Solicitor-General persuaded me that in the case of Blake each of these conditions is satisfied. But since I recognise that it would be wrong to create a remedy simply to cover this case, it is right that I should explain the specific considerations which lead me to conclude that it is right on a principled basis to develop the law in a way which covers this case and other cases sharing materially similar features.

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

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

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


My Lords,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Public Law Claim

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

The Private Law Claim: Restitutionary Damages

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

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

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

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

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

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

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

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

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

continue previous