Attorney General v Blake (Jonathan Cape Ltd Third Party)

House of Lords HL

Lord Nicholls of Birkenhead, Lord Goff of Chieveley, Lord Browne-Wilkinson,

Lord Steyn and Lord Hobhouse of Woodborough

LORD NICHOLLS OF BIRKENHEAD.

My Lords, 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.

The proceedings

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 *276 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. Sir Richard Scott
V-C rejected this claim and dismissed the action [1997] 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 MR, Millett and Mummery LJJ, allowed the
appeal [1998] 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 [1978] AC 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:
"A person who is or has been ... a member of the security and intelligence services ... is
guilty of an offence if without lawful authority he discloses any information ... relating to
security or intelligence which is or has been in his possession by virtue of his position as
a member of any of those services ..."
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 MR said [1998] Ch
439, 462:
"If, as here, a criminal offence has already been committed, the jurisdiction extends to
enforcing public policy with respect to the consequences of the commission of that crime,
eg restraining receipt by the criminal of a further benefit as a result of or in connection
with that crime ... This is an exceptional case in which the Attorney General is entitled to
intervene by instituting civil proceedings, in aid of the criminal law, to uphold the public
policy of ensuring that a criminal does not retain profit directly derived from the
commission of his crime."
*277 The court made an order in the following terms:
"That the defendant George Blake be restrained until further order from receiving or from
authorising any person to receive on his behalf any payment or other benefit resulting
from or in connection with the exploitation of No Other Choice in any form or any
information therein relating to security and intelligence which is or has been in his
possession by virtue of his position as a member of the Secret Intelligence Service."
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 [1998] Ch 439, 455-459 Lord Woolf MR made some
interesting observations on a matter which had not been the subject of argument either in
the Court of Appeal or before Sir Richard Scott V-C. 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:
"... 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. I also understand that these provisions
apply not only during the period of service but also after employment has ceased."
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 *278 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 JCL 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" [1993] LMCLQ 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 LJ observed in Halifax Building Society v
Thomas [1996] 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
AppCas 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
Whitwham v Westminster Brymbo Coal and Coke Co [1896] 2 Ch 538, and the
"wayleave" cases such as Martin v Porter (1839) 5 M & W 351 and Jegon v Vivian
(1871) LR 6 ChApp 742. A more recent example was the non-removal of a floating dock,
in Penarth Dock Engineering Co Ltd v Pounds [1963] 1 Lloyd'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 [1952] 2 QB 246, concerning portable switchboards. But the
principle has a distinguished ancestry. The Earl of Halsbury LC famously asked in The
Mediana [1900] AC 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 *279
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 RPC 104, 119. It bears repetition:
"If A, being a liveryman, keeps his horse standing idle in the stable, and B, against his
wish or without his knowledge, rides or drives it out, it is no answer to A for B to say:
'Against what loss do you want to be restored? I restore the horse. There is no loss. The
horse is none the worse; it is the better for the exercise.'"
Lord Shaw prefaced this observation with a statement of general principle:
"wherever an abstraction or invasion of property has occurred, then, unless such
abstraction or invasion were to be sanctioned by law, the law ought to yield a recompense
under the category or principle ... either of price or of hire."
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 [1993] 2 EGLR 102, 105 and Ministry of
Defence v Thompson [1993] 2 EGLR 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 LC stated, in Hogg v Kirby, 8 Ves 215,
223, a passing off case: *280
"what is the consequence in law and in equity? ... a court of equity in these cases is not
content with an action for damages; for it is nearly impossible to know the extent of the
damage; and therefore the remedy here, though not compensating the pecuniary damage
except by an account of profits, is the best: the remedy by an injunction and account."
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 ChD 1, 7, Cotton LJ 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 [1941] AC 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 (1705) 2 Ld Raym 1216, 1217. Holt CJ 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 [1951] AC 507 is a familiar application of this principle to a servant of the
Crown. *281 Damages under Lord Cairns's Act
I must also mention the jurisdiction to award damages under section 2 of the Chancery
Amendment Act 1858 (21 & 22 Vict c 27), commonly known as Lord Cairns's 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's 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 CB 696. Lord Cairns's 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 [1924] AC
851, 859, per Viscount Finlay. 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 [1980] AC 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 [1975] Ch 408 and Jaggard v Sawyer [1995] 1
WLR 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. *282 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 Exch 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 [1968] AC 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.
An instance of this nature occurred in Wrotham Park Estate Co Ltd v Parkside Homes
Ltd [1974] 1 WLR 798. For social and economic reasons the court refused to make a
mandatory order for the demolition of houses *283 built on land burdened with a restrictive
covenant. Instead, Brightman J made an award of damages under the jurisdiction which
originated with Lord Cairns's Act. The existence of the new houses did not diminish the
value of the benefited land by one farthing. The judge considered that if the plaintiffs
were given a nominal sum, or no sum, justice would manifestly not have been done. He
assessed the damages at 5% of the developer's anticipated profit, this being the amount of
money which could reasonably have been demanded for a relaxation of the covenant.
In reaching his conclusion the judge applied by analogy the cases mentioned above
concerning the assessment of damages when a defendant has invaded another's property
rights but without diminishing the value of the property. I consider he was right to do so.
Property rights are superior to contractual rights in that, unlike contractual rights,
property rights may survive against an indefinite class of persons. However, it is not easy
to see why, as between the parties to a contract, a violation of a party's contractual rights
should attract a lesser degree of remedy than a violation of his property rights. As Lionel
D Smith has pointed out in his article "Disgorgement of the profits of Breach of Contract:
Property, Contract and 'Efficient Breach'" (1995) 24 Can BLJ 121, it is not clear why it
should be any more permissible to expropriate personal rights than it is permissible to
expropriate property rights.
I turn to the decision of the Court of Appeal in Surrey County Council v Bredero Homes
Ltd [1993] 1 WLR 1361. A local authority had sold surplus land to a developer and
obtained a covenant that the developer would develop the land in accordance with an
existing planning permission. The sole purpose of the local authority in imposing the
covenant was to enable it to share in the planning gain if, as happened, planning
permission was subsequently granted for the erection of a larger number of houses. The
purpose was that the developer would have to apply and pay for a relaxation of the
covenant if it wanted to build more houses. In breach of covenant the developer
completed the development in accordance with the later planning permission, and the
local authority brought a claim for damages. The erection of the larger number of houses
had not caused any financial loss to the local authority. The judge awarded nominal
damages of £2, and the Court of Appeal dismissed the local authority's appeal.
This is a difficult decision. It has attracted criticism from academic commentators and
also in judgments of Sir Thomas Bingham MR and Millett LJ in Jaggard v Sawyer [1995]
1 WLR 269. I need not pursue the detailed criticisms. In the Bredero case Dillon LJ
himself noted, at p 1364, that had the covenant been worded differently, there could have
been provision for payment of an increased price if a further planning permission were
forthcoming. That would have been enforceable. But, according to the Bredero decision,
a covenant not to erect any further houses without permission, intended to achieve the
same result, may be breached with impunity. That would be a sorry reflection on the law.
Suffice to say, in so far as the Bredero decision is inconsistent with the approach adopted
in the Wrotham Park case, the latter approach is to be preferred.
The Wrotham Park case, therefore, still shines, rather as 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 *284 wrongdoer from the breach. The defendant must make a
reasonable payment in respect of the benefit he has gained. In the present case the Crown
seeks to go further. The claim is for all the profits of Blake's book which the publisher
has not yet paid him. This raises the question whether an account of profits can ever be
given as a remedy for breach of contract. The researches of counsel have been unable to
discover any case where the court has made such an order on a claim for breach of
contract. In Tito v Waddell (No 2) [1977] Ch 106, 332, a decision which has proved
controversial, Sir Robert Megarry V-C said that, as a matter of fundamental principle, the
question of damages was "not one of making the defendant disgorge" his gains, in that
case what he had saved by committing the wrong, but "one of compensating the
plaintiff". In Occidental Worldwide Investment Corporation v Skibs A/S Avanti [1976] 1
Lloyd's Rep 293, 337, Kerr J summarily rejected a claim for an account of profits when
ship owners withdrew ships on a rising market.
There is a light sprinkling of cases where courts have made orders having the same effect
as an order for an account of profits, but the courts seem always to have attached a
different label. A person who, in breach of contract, sells land twice over must surrender
his profits on the second sale to the original buyer. Since courts regularly make orders for
the specific performance of contracts for the sale of land, a seller of land is, to an extent,
regarded as holding the land on trust for the buyer: Lake v Bayliss [1974] 1 WLR 1073.
In Reid-Newfoundland Co v Anglo-American Telegraph Co Ltd [1912] AC 555 a
railway company agreed not to transmit any commercial messages over a particular
telegraph wire except for the benefit and account of the telegraph company. The Privy
Council held that the railway company was liable to account as a trustee for the profits it
wrongfully made from its use of the wire for commercial purposes. In British Motor
Trade Association v Gilbert [1951] 2 All ER 641 the plaintiff suffered no financial loss
but the award of damages for breach of contract effectively stripped the wrongdoer of the
profit he had made from his wrongful venture into the black market for new cars.
These cases illustrate that circumstances do arise when the just response to a breach of
contract is that the wrongdoer should not be permitted to retain any profit from the
breach. In these cases the courts have reached the desired result by straining existing
concepts. Professor Peter Birks has deplored the "failure of jurisprudence when the law is
forced into this kind of abusive instrumentalism"; see "Profits of Breach of Contract"
(1993) 109 LQR 518, 520. Some years ago Professor Dawson suggested there is no
inherent reason why the technique of equity courts in land contracts should not be more
widely employed, not by granting remedies as the by-product of a phantom "trust "
created by the contract, but as an alternative form of money judgment remedy. That well
known ailment of lawyers, a hardening of the categories, ought not to be an obstacle: see
"Restitution or Damages" (1959) 20 Ohio SLJ 175.
My conclusion is that there seems to be no reason, in principle, why the court must in all
circumstances rule out an account of profits as a remedy for breach of contract. I prefer to
avoid the unhappy expression "restitutionary damages". Remedies are the law's response
to a wrong (or, more precisely, to a cause of action). When, exceptionally, a just response
to a breach of contract so requires, the court should be able to grant the discretionary
*285 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 breach
of contract.
The state of the authorities encourages me to reach this conclusion, rather than the
reverse. The law recognises that damages are not always a sufficient remedy for breach
of contract. This is the foundation of the court's jurisdiction to grant the remedies of
specific performance and injunction. 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, the 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 the 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.
The main argument against the availability of an account of profits as a remedy for
breach of contract is that the circumstances where this remedy may be granted will be
uncertain. This will have an unsettling effect on commercial contracts where certainty is
important. I do not think these fears are well founded. I see no reason why, in practice,
the availability of the remedy of an account of profits need disturb settled expectations in
the commercial or consumer 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 a breach of contract. It will be only in exceptional
cases, where those remedies are inadequate, that any question of accounting for profits
will arise. 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 general guide, although not exhaustive, is whether the plaintiff had a legitimate
interest in preventing the defendant's profit-making activity and, hence, in depriving him
of his profit.
It would be difficult, and unwise, to attempt to be more specific. In the Court of Appeal
[1998] Ch 439 Lord Woolf MR suggested there are at least *286 two situations in which
justice requires the award of restitutionary damages where compensatory damages would
be inadequate: see p 458. Lord Woolf MR was not there addressing the question of when
an account of profits, in the conventional sense, should be available. But I should add
that, so far as an account of profits is concerned, the suggested categorisation would not
assist. The first suggested category was the case of "skimped" performance, where the
defendant fails to provide the full extent of services he has contracted to provide. He
should be liable to pay back the amount of expenditure he saved by the breach. This is a
much discussed problem. But a part refund of the price agreed for services would not fall
within the scope of an account of profits as ordinarily understood. Nor does an account of
profits seem to be needed in this context. The resolution of the problem of cases of
skimped performance, where the plaintiff does not get what was agreed, may best be
found elsewhere. If a shopkeeper supplies inferior and cheaper goods than those ordered
and paid for, he has to refund the difference in price. That would be the outcome of a
claim for damages for breach of contract. That would be so, irrespective of whether the
goods in fact served the intended purpose. There must be scope for a similar approach,
without any straining of principle, in cases where the defendant provided inferior and
cheaper services than those contracted for.
The second suggested category was where the defendant has obtained his profit by doing
the very thing he contracted not to do. This category is defined too widely to assist. The
category is apt to embrace all express negative obligations. But something more is
required than mere breach of such an obligation before an account of profits will be the
appropriate remedy.
Lord Woolf MR [1998] Ch 439, 457, 458, also suggested three facts which should not be
a sufficient ground for departing from the normal basis on which damages are awarded:
the fact that the breach was cynical and deliberate; the fact that the breach enabled the
defendant to enter into a more profitable contract elsewhere; and the fact that by entering
into a new and more profitable contract the defendant put it out of his power to perform
his contract with the plaintiff. I agree that none of these facts would be, by itself, a good
reason for ordering an account of profits.

The present case

The present case is exceptional. The context is employment as a member of the security
and intelligence services. Secret information is the lifeblood of these services. In the
1950s Blake deliberately committed repeated breaches of his undertaking not to divulge
official information gained as a result of his employment. He caused untold and
immeasurable damage to the public interest he had committed himself to serve. In 1990
he published his autobiography, a further breach of his express undertaking. By this time
the information disclosed was no longer confidential. In the ordinary course of
commercial dealings the disclosure of non-confidential information might be regarded as
venial. In the present case disclosure was also a criminal offence under the Official
Secrets Acts, even though the information was no longer confidential. Section 1 of the
Official Secrets Act 1989 draws a distinction in this regard between members of the
security and intelligence services and other Crown servants. Under section 1(3) a person
who is or has been a Crown servant is guilty of an offence if without lawful authority *287
he makes "a damaging disclosure" of information relating to security or intelligence. The
offence is drawn more widely in the case of a present or past member of the security and
intelligence services. Such a person is guilty of an offence if without lawful authority he
discloses "any information" relating to security or intelligence which is or has been in his
possession by virtue of his position as a member of those services. This distinction was
approved in Parliament after debate when the legislation was being enacted.
Mr Clayton submitted that section 1(1) is drawn too widely and infringes article 10 of the
European Convention for the Protection of Human Rights and Fundamental Freedoms
(1953) (Cmd 8969). Section 1(1) criminalises disclosure of information when no damage
results. It focuses on the status of the individual who makes the disclosure, rather than on
the nature of the information itself. A non-damaging disclosure by a member of the
security and intelligence services is criminal, but the identical non-damaging disclosure
by a Crown servant is not.
This argument was raised for the first time in this House. Your Lordships are not
equipped with the material necessary to decide the point. In the event this does not
matter, because there is in the present case another consideration which is sufficient for
the purposes of the Attorney General. When he joined the Secret Intelligence Service
Blake expressly agreed in writing that he would not disclose official information, during
or after his service, in book form or otherwise. He was employed on that basis. That was
the basis on which he acquired official information. The Crown had and has a legitimate
interest in preventing Blake profiting from the disclosure of official information, whether
classified or not, while a member of the service and thereafter. Neither he, nor any other
member of the service, should have a financial incentive to break his undertaking. It is of
paramount importance that members of the service should have complete confidence in
all their dealings with each other, and that those recruited as informers should have the
like confidence. Undermining the willingness of prospective informers to co-operate with
the services, or undermining the morale and trust between members of the services when
engaged on secret and dangerous operations, would jeopardise the effectiveness of the
service. An absolute rule against disclosure, visible to all, makes good sense.
In considering what would be a just response to a breach of Blake's undertaking the court
has to take these considerations into account. The undertaking, if not a fiduciary
obligation, was closely akin to a fiduciary obligation, where an account of profits is a
standard remedy in the event of breach. Had the information which Blake has now
disclosed still been confidential, an account of profits would have been ordered, almost as
a matter of course. In the special circumstances of the intelligence services, the same
conclusion should follow even though the information is no longer confidential. That
would be a just response to the breach. I am reinforced in this view by noting that most of
the profits from the book derive indirectly from the extremely serious and damaging
breaches of the same undertaking committed by Blake in the 1950s. As already
mentioned, but for his notoriety as an infamous spy his autobiography would not have
commanded royalties of the magnitude Jonathan Cape agreed to pay.
As a footnote I observe that a similar conclusion, requiring the contract breaker to
disgorge his profits, was reached in the majority decision of the United States Supreme
Court in Snepp v United States (1980) 444 US 507. *288 The facts were strikingly similar.
A former employee of the Central Intelligence Agency, whose conditions of employment
included a promise not to divulge any information relating to the agency without
prepublication clearance, published a book about the agency's activities in Vietnam. None
of the information was classified, but an agent's violation of his non-disclosure obligation
impaired the agency's ability to function properly. The court considered and rejected
various forms of relief. The actual damage was not quantifiable, nominal damages were a
hollow alternative, and punitive damages after a jury trial would be speculative and
unusual. Even if recovered they would bear no relation to either the government's
irreparable loss or Snepp's unjust gain. The court considered that a remedy which
required Snepp "to disgorge the benefits of his faithlessness", was swift and sure, tailored
to deter those who would place sensitive information at risk and, since the remedy
reached only funds attributable to the breach, it could not saddle the former agent with
exemplary damages out of all proportion to his gain. In order to achieve this result the
court "imposed" a constructive trust on Snepp's profits. In this country, affording the
plaintiff the remedy of an account of profits is a different means to the same end.

The form of the order

The Attorney General's entitlement to an account of Blake's profits does not, in this case,
confer on the Crown any proprietary interest in the debt due to Blake from Jonathan
Cape. The Crown is entitled, on the taking of the account, to a money judgment which
can then be enforced by attachment of the debt in the usual way. These formal steps may
be capable of being short-circuited. Despite the niceties and formalities once associated
with taking an account, the amount payable under an account of profits need not be any
more elaborately or precisely calculated than damages. But in this case there is a
complication. Blake has brought third party proceedings against Jonathan Cape, seeking
payment of £90,000 (less tax). In the third party proceedings Jonathan Cape has sought to
deduct legal expenses incurred in resisting a defamation claim and in resisting the
Crown's claim. Accordingly, the appropriate form of order on this appeal is a declaration
that the Attorney General is entitled to be paid a sum equal to whatever amount is due
and owing to Blake from Jonathan Cape under the publishing agreement of 4 May 1989.
The injunction granted by the Court of Appeal will remain in force until Jonathan Cape
duly makes payment to the Attorney General. I would dismiss this appeal.

The public law claim

The public law claim, advanced by the Attorney General as guardian of the public
interest, arises only if the Crown as Blake's former employer has no private law claim in
respect of the royalties. Accordingly, having regard to the conclusion already reached on
the private law claim, the public law claim does not call for decision. However, it is right
that I should state briefly why I cannot agree with the decision of the Court of Appeal on
this point, much as I sympathise with the court's objective. The public law claim is
founded on the premise that the royalties belong to Blake. The order made by the Court
of Appeal was not intended to be confiscatory. It was not intended to extinguish Blake's
title. The Solicitor General stated explicitly *289 that the order was intended only to be
preservative: a "freezing" order. Indeed, the order is so drafted. Blake is merely restrained
from receiving payment of the royalties "until further order". This is the classic form of
order that seeks to preserve property pending the happening of some other event.
Typically, the event is a decision by the court on who is entitled to the property. Lord
Woolf MR said that the injunction in the present case would serve the ordinary purpose
of preserving assets pending adjudication.
This form of order prompts the question: in the absence of a private law claim, what is
the event pending which the money held by Jonathan Cape is being frozen in its hands?
What is the anticipated adjudication? If Blake were to return to this country he could be
prosecuted for a breach of section 1(1) of the Official Secrets Act 1989. When criminal
proceedings were launched, the court would have statutory jurisdiction to make a
restraint order to prevent the proceeds of a criminal offence being used or dissipated. If
convicted, the Crown could seek a confiscation order under Part VI of the Criminal
Justice Act 1988, as amended by the Proceeds of Crime Act 1995. But none of this is a
realistic possibility. The Solicitor General openly accepted that this is so. There is no
prospect of Blake returning to this country. Thus, the money is not being preserved
pending a criminal prosecution.
This being the case, one must look elsewhere for the event which will decide what is to
happen to the money thus frozen in Jonathan Cape's hands. I have to say that one seeks in
vain for any satisfactory explanation of what that event will be. The Crown suggested
that at some stage in the future an application might be made to the court for the money
to be released to a charity, or used in some other way which would not benefit Blake. The
Court of Appeal envisaged the possibility of some use for the unpaid royalties which
would not be "contrary to the public interest". But these suggestions serve only to
underline that, although not so expressed, the effect of this order is confiscatory. The
order will have the effect of preventing the money being paid to Blake. It is not envisaged
that the money will ever be paid to him. He is being deprived of the use of the money
indefinitely. That is the intention. Although the order is strictly only interlocutory in
character ("until further order"), the basis on which the court has made the order is that
Blake will never receive any of the unpaid royalties. That is confiscation in substance, if
not in form. In my view the court has no power to make such an order. In respect of the
proceeds of crime Parliament has conferred upon the court power to make confiscation
orders and ancillary restraint orders. In Part VI of the Criminal Justice Act 1988, since
amended by the Proceeds of Crime Act 1995, Parliament has carefully marked out when
these orders may be made. The common law has no power to remedy any perceived
deficiencies in this statutory code. An attempt to do so would offend the established
general principle, of high constitutional importance, that there is no common law power
to take or confiscate property without compensation: see Attorney General v De Keyser's
Royal Hotel, Ltd [1920] AC 508, Burmah Oil Co Ltd v Lord Advocate [1965] AC 75
and, in this context, Malone v Metropolitan Police Comr [1980] QB 49, 61- 63, per
Stephenson LJ.
I should add that in his judgment Lord Woolf MR [1998] Ch 439, 463, referred to several
cases where interlocutory injunctions were granted to chief constables freezing the
suspected proceeds of crime in circumstances *290 where there had not yet been a
conviction for a criminal offence. In this House Mr Clayton mounted a sustained attack
on these decisions. For his part the Solicitor General did not seek to rely on these
decisions in support of the Attorney General's case. As Lord Woolf MR noted, the
Attorney General stands in an altogether different legal and constitutional position. Since
the House has not heard contrary argument, it would not be right to express any views on
Mr Clayton's submissions regarding these cases.

LORD GOFF OF CHIEVELEY.

My Lords, I have had the advantage of reading in draft the speech prepared by my noble
and learned friend, Lord Nicholls of Birkenhead. I agree with it and for the reasons which
he has given I would dismiss this appeal.

LORD BROWNE-WILKINSON.

My Lords, I have had the advantage of reading in draft the speech prepared by my noble
and learned friend, Lord Nicholls of Birkenhead. I agree with it and for the reasons which
he gives I would dismiss this appeal but vary the order of the Court of Appeal to declare
that the Attorney General is entitled to be paid a sum equal to whatever amount is due
and owing to Blake from Jonathan Cape under the publishing agreement of 4 May 1989.

LORD STEYN.

My Lords, in law classification is important. Asking the right questions in the right order
reduces the risk of wrong decisions. This truth is illustrated by the case before the House.
Blake is a convicted traitor. From 1944 to 1961 he was a member of the intelligence
services. In 1944 he was required to and did sign a contractual undertaking "not to
divulge any official information gained by me as a result of my employment, either in the
press or book form ". This undertaking still binds Blake. In flagrant breach of the terms
of the undertaking Blake published a book in September 1990 dealing in part with his
period in the intelligence services. This appeal concerns a sum of about £ 90,000 payable
by Jonathan Cape Ltd, the publishers, to Blake. The Court of Appeal upheld the decision
of Sir Richard Scott V-C, that Blake is not liable to account for his profits as a fiduciary:
Attorney General v Blake[1998] Ch 439. Despite the encouragement of the Court of
Appeal Mr John Smith QC, the Attorney General at that time, declined to pursue a claim
for restitutionary damages for breach of contract. While recording its view that such a
claim, if made, might be sound, the Court of Appeal was powerless to act on that view: at
pp 456-458. In a case crying out for effective relief against Blake, the Court of Appeal
devised an injunction, the objective of which was to prevent the money reaching Blake.
Due to an initiative taken by the House, the issue of the availability of a restitutionary
remedy is now before the House. At the hearing of the appeal counsel for Blake
addressed first the public law question whether the Court of Appeal had the power to
grant the injunction before he dealt with the question whether a restitutionary remedy is
available. My Lords, taxonomy requires that the question whether there is such a private
law remedy should be considered first. This is so because the Court of Appeal in granting
the injunction undoubtedly extended the reach of existing powers of the Attorney
General. And that course could only sensibly be entertained if there was not a
restitutionary law remedy. It is therefore to the private law position that I first turn.
*291 In the Court of Appeal in Surrey County Council v Bredero Homes Ltd [1993] 1
WLR 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 the
Bredero case. 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 the Bredero case 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 QC in
The Law of Contract, 10th ed (1999), pp 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" [2000] 1 Theoretical Inquiries in Law 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, 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 *292 present case is closely analogous to
that of fiduciaries: compare Reading v Attorney General [1951] AC 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 AC 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 259- 260, 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,
444 US 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] QB 427. 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 *293 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 Comr of Police of the Metropolis [1980] QB 49; Webb v Chief Constable of
Merseyside Police [2000] QB 427, per May LJ, at pp 446-448, per Pill LJ, at p 449. 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.

LORD HOBHOUSE OF WOODBOROUGH.

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 five 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 *294 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 1989 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. Sir Richard 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.
*295 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 *296 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 Comr
[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 Attorney
General 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 *297 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
Sir Richard Scott V-C 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 Attorney General [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 Sir Richard 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 *298 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, at
pp 359-361, 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 County
Council 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 *299 Jonathan Cape to Blake. That is a remedy based on proprietary principles when
the necessary proprietary rights are absent.
The principle of compensation is both intellectually sound as the remedy for breach and
provides the just answer. The examples discussed in my noble and learned friend's speech
do not on the correct analysis disclose the supposed need to extend the boundaries of
remedies for breach of contract. The reason why the Crown should not recover damages
in the present case derives from the exceptional public law nature of the undertaking
which Blake gave. If the relationship had been a commercial one it is probable that by
1989 the undertaking would be regarded as spent or no longer enforcible, but if still
enforcible the breach of it would have supported compensatory damages on the
"compulsory purchase" basis.
The examples given by my noble and learned friend are examples of compensatory
damages. Lord Halsbury's dining-room chair is no different unless the error which I have
identified is made. He would have lost the use of the chair and it, like other such amenity-
value assets, can be assessed by reference to the sum which has been expended on its
acquisition and/or maintenance or interest upon its capital value during the period of
deprivation. The supposed problem arises from asking the wrong question not from
receiving the wrong answer.
I must also sound a further note of warning that if some more extensive principle of
awarding non-compensatory damages for breach of contract is to be introduced into our
commercial law the consequences will be very far reaching and disruptive. I do not
believe that such is the intention of your Lordships but if others are tempted to try to
extend the decision of the present exceptional case to commercial situations so as to
introduce restitutionary rights beyond those presently recognised by the law of restitution,
such a step will require very careful consideration before it is acceded to.
My Lords, Mr Clayton was right to say that the exceptional facts of this case have been
critical to its decision. The policy which is being enforced is that which requires Blake to
be punished by depriving him of any benefit from anything connected with his past
deplorable criminal conduct. Your Lordships consider that this policy can be given effect
to without a departure from principle. I must venture to disagree. I would allow the
appeal and dismiss the cross-appeal.

Appeal dismissed with costs. Declaration that Attorney General entitled to be paid by
defendant sum equal to whatever amount was due and owing to defendant from publisher
under publishing agreement of May 1989. (S H )

[2001] 1 AC 268