Where a defendant has made a profit from a civil wrong such as a breach of contract or a tort, damages can be directed to stripping the profit from the defendant. For example, in Hickey v Roches Stores (High Court, unreported, 14 July 1976) (pdf) Finlay P held

Where a wrongdoer has calculated and intended by his wrongdoing to achieve a gain or profit which he could not otherwise achieve and has in that way acted mala fide then irrespective of whether the form of his wrongdoing constitutes a tort or a breach of contract the Court should in assessing damages look not only to the loss suffered by the injured party but also to the profit or gain unjustly or wrongly obtained by the wrongdoer.

So far as breach of contract is concerned, English law reached the same conclusion in AG v Blake [2001] 1 AC 268, [2000] UKHL 45 (27 July 2000). It was a controversial conclusion. It has been applied in Esso Petroleum Co Ltd v Niad [2001] EWHC 6 (Ch) (22 November 2001), considered in passing in Sempra Metals v Revenue [2008] AC 561, [2007] UKHL 34 (18 July 2007) and Kuddus v Chief Constable of the Leicestershire Constabulary [2002] 2AC 122, [2001] UKHL 29 (7 June 2001), and distinguished in Experience Hendrix Llc v PPX Enterprises [2003] EWCA Civ 323 (20 March 2003), WWF-World Wide Fund for Nature v World Wrestling Federation Entertainment [2008] 1 All ER 74, [2008] 1 WLR 445, [2007] EWCA Civ 286 (02 April 2007), and Devenish Nutrition v Sanofi-Aventis SA (France) [2008] 2 All ER 249, [2008] 2 WLR 637, [2007] EWHC 2394 (Ch) (19 October 2007).

There are some dicta in Canada in favour of this measure. For example, in Bank of America (Canada) v Mutual Trust Co [2002] 2 SCR 601, 2002 SCC 43 (CanLII) (26 April 2002) Major J observed “Restitution damages, which are infrequently employed, focus on the advantage gained by the defendant as a result of his or her breach of contract” (at para [25]). Now, this measure has been spectacularly applied in a first instance judgment in Canada:

Disgorgement Damages Awarded against Canada for Breach of a Modern Land Claim Agreement

by Nigel Bankes

Case commented on: NTI v Canada (Attorney General), 2012 NUCJ 11

In this important case Justice Earl Johnson in the Nunavut Court of Justice has granted summary judgement against Canada in the amount of $14,817,500 for breach of Article 12.7.6 of the Nunavut Land Claims Agreement (NLCA [pdf]) which provided for the establishment of a monitoring program to cover “the long term state and health of the ecosystemic and socio-economic environment in the Nunavut Settlement Area.” Justice Johnson assessed damages on a disgorgement basis calculated by reference to the expenditures that Canada avoided making by failing to implement this provision of the NLCA in a timely way.

Katy Barnett has argued in her great new book Accounting for Profit for Breach of Contract. Theory and Practice (Hart Publishing, Oxford, 2012) that disgorgement (or account of profits, or restituitonary damages) for breach of contract within the orthodox contract law principles. In her view, the moral bases for disgorgement damages are deterrence and punishment, which shape the remedy in important ways. Moreover, courts are also concerned with vindication of the plaintiff’s performance interest, and it is pivotal in these cases that the plaintiff cannot procure a substitute performance via an award of damages or specific relief. As a consequence, she argues that disgorgement should be available in two categories of case: ‘second sale’ cases, where the defendant breaches his contract with the plaintiff to make a more profitable contract with a third party; and ‘agency problem’ cases, where the defendant promises the plaintiff he will not do a certain thing, and the plaintiff finds it difficult to supervise the performance. NTI v Canada seems to be a case of this second type. As Johnson J said (at para 333):

I am satisfied that Canada’s failure to implement an important article of the land claims for over 15 years undermined the confidence of aboriginal people, and the Inuit in particular, in the important public value behind Canadian land claims agreements. That value is to reconcile aboriginal people and the Crown. It would be manifestly unjust to allow the Crown to benefit from its failure to fulfill its obligations under Article 12.7.6. It is also important that to ensure that the Crown properly respects and fulfills its obligations under land claims agreements, including obligations to provide benefits that are not capable of being quantified in financial terms.