Thursday, December 22, 2005
The concept of efficient breach suggests that where one party can reap large gains by breaching the contract while causing relatively little loss to the other party the law ought to encourage breaches. There's a net gain even when the breaching party fully reimburses the other party for its loss.
But might the non-breaching party in such situations be entitled to more than its mere expectation damages? Mathias M. Siems of Cambridge's Centre for Business Research thinks so. In Disgorgement of Profits for Breach of Contract - A Comparative Analysis, forthcoming in the Edinburgh Law Review, he looks at disgorgement as an alternative remedy. Here's the abstract:
This article considers whether a contract-breaker is obliged not only to pay compensatory damages but also to disgorge to the innocent party the profits obtained from breach of contract. After an introduction to the topic, the approach of the courts in Common Law jurisdictions will be outlined. The main focus will be on English Law and the decision of the House of Lords in Attorney General v Blake, although judgments from other countries will also be mentioned. Thereafter the focus will be upon Germany as an example of a Civil Law jurisdiction. The German law of contract, negotiorum gestio and unjustified enrichment will be examined as to their ability to award disgorgement. The mixed legal systems of Israel, Louisiana and Scotland will also be studied. The similarities and differences between the different legal systems will then be compared and interpreted. In particular, the article will consider common starting points, exceptions and new legal concepts, as well as differences in judicial decision-making and in the freedom to draft contractual terms. Finally, it will be contended that disgorgement of the benefits resulting from a breach of contract should in principle be awarded. Moreover, this should not be restricted to certain cases. It is necessary only that the gains should be attributable to breach of contract.