Monday, September 5, 2011

Court of Appeal on the Award of Damages

A recent decision of the UK Court of Appeal revisits the issue of alternative remedies, one on which there has been significant academic debate. An earlier post discussed the issue of concurrent liability in contract and tort, where the Court of Appeal had clarified some doubts in the area. However, the issue in Ramzan v Brookwide was different- not so much the existence and scope of different remedies in contract and tort, and the prevention of duplication of the remedy through different heads of damage.

The ‘unusual’ facts before the Court involved the misappropriation of property belonging to the claimant, by the respondent. The High Court judge awarded damages under the heads of lost profits, mesne profits, and damages for the breach of trust. In the Court of Appeal, the respondent’s contention was that the third head of damages duplicated the first, and that setting off was required to prevent duplication of damages. While there are also discussions on the individual heads, and the award of exemplary damages, for the present purposes, only the discussion on the prevention of duplication is relevant here (paragraphs 49-67; 90-100).

The Court begins by observing that both mesne profits and the damages for breach of trust were compensating for the profits which the respondent had earned from the use of the property, and hence awarding both would amount to double counting. The award of the latter was held to preclude the award of mesne profits on that ground. However, the more troublesome issue was whether damages for breach of trust could be awarded in addition to the loss of profits. The locus classicus on this area is the speech of Lord Nicholls in Tang Man Sit v Capacious Investments Ltd, where he draws a distinction between two types of alternative remedies- inconsistent and cumulative. In the case of the former, the claimant has to choose between the two possible remedies, in order to prevent duplication. However, in some cases (for instance when more than one defendant is liable for conversion successively), the claimant can maintain a cumulative claim against each of them. However, in this case too, while the mere existence of a claim against one tortfeasor does not preclude a claim against the second, full compensation for the loss from one defendant does prevent recovery from the second defendant. In other words, if A’s bicycle is converted by B and then C, the A can bring claims in conversion against both B and C. However, if the damages the Court awards against B is sufficient to compensate A for his loss, then he cannot again recover from C. Thus, both in single defendant and multiple defendant cases, the Court has the responsibility of preventing double recovery. The same principle was again approved by the Court in Severn Trent Water v Barnes, and followed by Lady Justice Arden in this case. She holds that since both damages for breach of trust and the damages for lost profits compensate the claimant in accordance with the defendant’s gain and the claimant’s own loss respectively. Allowing both would amount to double recovery. In this scenario, it was for the claimant to elect which of the two heads of damages he wanted to claim. On facts, it was held that the award of loss of profits was appropriate, and no additional award for damages for breach of trust could be awarded. That gave rise to the issue of whether mesne profits could be awarded in addition to damages for the loss of profits (note above that if damages for breach of trust had been awarded, there would be no award of mesne profits). The question was whether the claim for mesne profits was also compensatory, and hence required to be limited. Lady Arden, relying on her decision in Devenish Nutrition, holds that it is incorrect to classify user damages (mesne profits) as compensatory in the strict sense, since what they are awarded for is to prevent the defendant from profiting from his wrong. Hence, the underlying principle is that of restitution and not compensation. However, the measure of this benefit to the defendant was the same as that for the claim for lost profits, and hence, could not be awarded as an additional award. Also, on facts, no additional loss was caused to the claimant either, to justify a compensatory award.

Besides the discussion on preventing double counting in the award of damages, what is particularly significant about this decision, and is likely to lead to further judicial debate is a comparison of paragraphs 66 and 67 of Lady Arden’s decision, with paragraph 95 in Lloyd LJ’s decision. While Arden LJ classifies mesne profits more an restitutionary than compensatory, Lloyd LJ suggests that they continue to be compensatory in nature. The difference can be clarified by means of an example- if a trespasser makes a profit from using land belonging to the claimant, which the claimant would otherwise not have used; the defendant makes a gain from the illegal use of the land, although the claimant technically suffers no loss (apart from the violation of the right to the land). A restitutionary award would order the defendant to pay over the gains, while a compensatory award would not. Tomlinson LJ in paragraph 100 does acknowledge this difference between the two approaches, but observes that “There is a slight difference of approach between my Lady and my Lord as to the treatment of a possible claim in respect of mesne profits for a store room with shared access to the fire escape- see paragraphs 45 and 95 of their respective judgments. Since this difference is of no relevance to the ultimate outcome and arises simply out of the very unusual facts of this case and the manner in which it was argued at trial, I need express no view of my own”. While he is correct that the difference was not of relevance to the ultimate outcome, I doubt that it arises simply out of the unusual facts of the case. In any event, given the importance of this difference in approach, it is to be expected that there will be some judicial debate on this issue in the future, to clarify whether mesne profits are meant to be restitutionary or compensatory. On the principle of preventing double counting, however, the decision seems quite clear and helpful.

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