Disgorgement of Profits in Scots Law

© Springer International Publishing Switzerland 2015
Ewoud Hondius and André Janssen (eds.)Disgorgement of ProfitsIus Comparatum – Global Studies in Comparative Law810.1007/978-3-319-18759-4_18

18. Disgorgement of Profits in Scots Law

Martin A. Hogg 

University of Edinburgh, Edinburgh, Scotland, UK



Martin A. Hogg


Scots private law provides what may be called ‘gain-based awards’ as a response to certain types of (in a broad sense) ‘wrongful’ conduct, not just delict (perhaps the paradigm the civil wrong) but also breach of contract, breach of fiduciary duty, and other sorts of conduct which are contrary to legal duties undertaken by, or imposed upon, a party. These awards are not, however, classified as damages. In consequence, in Scots law there are strictly no ‘disgorgement damages’ (or ‘restitutionary damages’) of the sort commonly encountered in English law and the law of other Common Law systems. The disgorgement response is largely (though not entirely) achieved through remedies granted to reverse the retention of unjustified enrichment, though in some circumstances of delictual wrongdoing a disgorgement remedy may be an alternative to a more commonly sought remedy (usually compensatory damages) of a non-disgorgement nature. In such cases the pursuer usually has the freedom to choose whether to pursue the disgorgement remedy or (compensatory) damages, but the classification of the disgorgement remedy (as delictual or unjustified enrichment in nature) is not a wholly clear matter in Scots law.

DisgorgementRestitutionDamagesRestitutionary damagesDisgorgement damagesProfit-strippingGain-strippingScots law

is Professor of the Law of Obligations at the University of Edinburgh, having previously held the posts of lecturer and senior lecturer there.


Structural Underpinnings of Scottish and English Private Law

To understand why Scots law does not possess the disgorgement or restitutionary ‘damages’ of the Common law, some explanation will first be given (in this section) of structural, doctrinal, and terminological differences between Scots and English private law, before an examination is undertaken (in the sections “The Terminology of Gain-Based Awards and Damages” and “Developing the Terminology of Gain-Based Awards”) of the terminology of gain-based awards, and the extent to which such are available in Scots law (in the section “Disgorgement of Gains in Different Areas of Scottish Private Law”).

Scots law is a mixed legal system.1 That simple point needs little further explanation to a scholarly comparative legal readership. The private law of England is not the same as that of Scotland, and in this field of disgorgement remedies (where the ancient common law/equity divide has been so important in English law) that is particularly so. Scots law does not recognise, and has never recognised, any law/equity division: equitable principles and ideas are generally accepted as being infused throughout the law of Scotland, albeit that some sorts of remedy (e.g. of recompense for unjustified enrichment) are said particularly to disclose an ‘equitable’ character (in a general, and not an English law sense). As Scots law recognises no division between ‘common law’ and ‘equitable’ remedies in the English sense, there is, for instance, no question of a barrier to the award of disgorgement remedies in contract and delict merely because these fields of private law are not fundamentally equitable in nature – the fact that disgorgement of gain is not generally available as a remedy in those two fields has more to do with the existence of other parts of Scots law (especially unjustified enrichment) which have the stripping of improperly held gains at their heart, and the functions which these parts of the law serve in Scotland. The functions of these well-established parts of the law often perform the role played by aspects of the Common law which are absent from Scots law, for instance the proprietary torts of the Common law.

The territory of the Scots law of obligations is different to that of England, and there is a much stricter divide between obligations and property law than exists in England (so there are no ‘proprietary torts’ of the sort just mentioned). In Scotland there are five major obligations recognised in the law: the two voluntary obligations of contract and unilateral promise; and three involuntary obligations of delict, unjustified enrichment, and negotiorum gestio (benevolent intervention). Unjustified enrichment has a great deal to do with disgorgement in Scots law. Indeed it is perhaps the pre-eminent field of private law dealing with disgorgement, allowing recovery both in cases of transfer (restitution narrowly so called) and in cases of enrichment ‘by other means’ (disgorgement narrowly so called). In this latter category fall such cases as (i) gains made by an enriched party (E) through his debts being paid by a consequently impoverished party (I), (ii) profit made through E’s land or buildings being improved by I in the belief mistakenly held by I that the land/buildings belonged to I, and (iii) gains made by E through interference with certain rights possessed by I (e.g. through unauthorised use by E of I’s moveable property). Notably in the field of unjustified enrichment, Scots law had a developed action of recompense (for enrichment unjustifiably retained at the expense of another) at an early stage, in contrast to England’s late development of a comparable enrichment-based action – this early Scots development somewhat obviated the need to develop other sorts of remedy which were used in English law to strip gains held by another wrongfully or without justification.

The Terminology of Gain-Based Awards and Damages

The terminology employed in Scotland in the field of gain-based remedies and damages is different in a number of respects to that employed in the Common Law, and this reflects the different structure of our private law explained above.

In the case of the former – gain-based awards – the case law discloses a variety of different terminology which has been employed in gain-based award cases scattered across Scots private law: ‘ordinary profits’,2 ‘violent profits’,3 a ‘reasonable sum’,4 a ‘royalty’,5 a ‘notional licence fee’,6quantum lucratus7 (the amount by which a party is enriched), ‘quantum meruit8 (the ‘amount merited’), and an ‘award of profits’ in an action of accounting and payment of profits.9 These are all regarded by some as varieties of ‘gain-based award’, though – given the precise measure of recovery applicable in each – not all of them appear to strip gains or profits from a defender. The various nomenclatures and class are award are discussed further in the section “Disgorgement of Gains in Different Areas of Scottish Private Law” below.

As to the latter – damages – the absence of ‘disgorgement damages’ or ‘restitutionary damages’ from the gain-based terminology list is noteworthy. Damages (in all fields of Scots private law, including contract and delict) are restricted to the idea of monetary compensation for loss suffered by the party bringing the claim. By contrast, the idea of damages in English law encompasses not only compensatory damages, but also aggravated, exemplary, disgorgement, restitutionary, punitive, and nominal damages.10 As one respected commentator has put it, damages in English law “means nothing more specific than a monetary award for a wrong”,11 a definition of sufficient breadth to allow compensation, gain-stripping, punishing, and other aims to be met in Common law systems through a damages award.

What all of the foregoing means is that, while ‘gain based awards’ are available in Scots law in the cases discussed below, these awards ought not to be termed damages. That being so, comparative judicial recourse to English cases awarding so-called ‘gain based damages’, ‘restitutionary damages’, or ‘disgorgement damages’ can only be undertaken with caution: a disgorgement result may be mirrored in both Scots and English law in certain types of factual circumstance, but the classification, terminology, and often underlying doctrine, properly to be deployed in order to reach the same result will often differ. As for ‘punitive damages’, these have no place in Scots law,12 nor have ‘aggravated damages’.

Developing the Terminology of Gain-Based Awards

No agreement yet exists on the preferable terminology for use in Scotland in relation to disgorgement awards: should all such awards be classed as ‘disgorgement’ in nature? Or as an ‘accounting of profits(s)’? Or as ‘restitutionary’? And would any common terminology assert a common measure of recovery, and/or a common theory as to the purpose underlying the award? Do we even need a single term to describe all such awards? Scots law is only in the infancy of exploring such questions systematically, though it seems relatively clear (to this observer at least) that ‘restitutionary’ is unlikely to do as an umbrella term: whilst the late Peter Birks asserted13 that the idea of ‘restitution’ includes not just giving back, but also giving up, the intuitive sense of ‘restitution’ is of restoring/returning some value or thing to a party; a stripping of a gain which was never transferred is not about restitution, but concerns ‘disgorgement’, and if it is that which is at the heart of a claim it would seem appropriate to use that term as an umbrella term (if such an umbrella term is indeed desirable). That said, disgorging itself may also have intuitive limitations: it suggests a stripping of something from a party and a giving it to another, whereas in some cases of stripping of gains what is awarded is the equivalent value of what was gained, rather than the exact thing gained. Account(ing) of profit seems a better term for such cases, but this may simply show that no one term is entirely apt for capturing the essence of the multitude of awards made by the Scottish courts.

One taxonomic solution to the terminological debate may be to group the entirety of the various remedies available in this field (and discussed further below) under a single general heading of remedies for ‘disgorgement of profits and redress of unjustified enrichment’, which would encompass both restitution and disgorgement. That is the approach currently proposed for the forthcoming reissue of the ‘Obligations’ title in volume 15 of The Stair Memorial Encyclopaedia of the Laws of Scotland,14 the principal scholarly encyclopaedia of Scots law (and a publication which has had a very pronounced effect upon court practice and judgments).

The vastly larger Common Law world enjoys a more developed debate on terminological issues, the debate having benefitted from a particularly scholarly and impressive effort by James Edelman to achieve terminological order.15 On Edelman’s approach, there are two species of non-compensatory, gain-based damages: (1) “restitutionary damages” and (2) “disgorgement damages”. Edelman explains the terminology as

a vocabulary in which the word ‘restitution’ whether in the law of unjust enrichment (‘restitution for unjust enrichment’) or the law of wrongdoing (‘restitutionary damages’) is used to refer to an award which reverses a transfer of value from a claimant to a defendant, and therefore focuses on the immediate benefit received by the defendant. In contrast, the word disgorgement should be used where, in the law of wrongdoing, a personal award is made to disgorge actual profits made by a defendant.16

Ignoring for the moment the usage of ‘damages’ in these two terms (a borrowing of which would not, given the point made earlier about the Scots idea of ‘damages’, be appropriate for Scots law), the distinction made by Edelman between ‘restitution’ (the reversal of a transfer of value) and ‘disgorgement’ (a disgorging of profits made by a party) mirrors the distinction suggested above in these ideas. It is a usage which merits some consideration in Scots law, albeit without the addition of the term damages (the simple term ‘award’ would suffice as a replacement).

Disgorgement of Gains in Different Areas of Scottish Private Law

The general position on the availability of gained-based awards in Scots private law can be succinctly stated: there is no general ‘disgorgement award’ available in all cases of ‘wrongful’ conduct, i.e. of breach of duty owed by a defender, or in all cases of delictual conduct, or even in all cases of intentional harm (e.g. the delict of assault gives rise to an entitlement only to damages for loss caused). There are merely pockets of law where gain-based awards may be available to pursuers: these pockets are now considered.


In Scots law, the primary remedy for breach of contract (i.e. contractual non-performance) is specific implement (the equivalent of the Common law’s specific performance):17 by ‘primary remedy’ is meant that, except in certain exceptional cases, a party which has suffered a breach of contract is entitled to a court order that the party in breach perform the duty in question. This primary remedial entitlement in theory takes pressure off the need to develop damages awards in contract which might strip a contract-breaker of profits made through breach; instead, the victim of the breach is entitled to the actual performance promised, enforcing such entitlement by a request for specific implement. The extent to which, in practice however, specific contractual duties are enforced in Scotland which would not be enforced in Common law countries is debateable. One divergent field, however, is that of ‘keep open’ and trade clauses in commercial leases (i.e. clauses requiring tenants of commercial premises to keep them open and trade from them): these have been enforced, via specific implement, in Scotland when similar clauses have not been so in England.18 The Scottish landlord thus gets to enforce occupation by a trading tenant, when the English landlord will likely have to rely on damages assessed merely by reference to likely losses (often very hard to assess, and usually worth a lot less to the landlord than occupation by a trading tenant) and not to any profit made through breach.

As for the most commonly sought contractual remedy – damages – the basic principle for assessing such damages is clear: damages are assessed by reference to the loss suffered by the victim. Such loss is measured primarily by reference to the so-called performance interest (i.e. by considering the position in which the innocent party would have been had the other party’s duty been performed),19 though there are cases where the so-called restoration, or status quo ante, interest (assessed by reference primarily to the victim’s wasted expenditure) has been awarded instead. The general approach to compensatory damages expressed for English law by Haldane LC in British Westinghouse Electric is thus accepted as a formulation of the general totality of loss which can be claimed in damages for breach of contract in Scots law: “[t]he fundamental basis [of damages] is thus compensation for pecuniary loss naturally flowing from the breach”.20 This measure encompasses both damnum emergens (losses rendering a party worse off) and lucrum cessans (lost opportunities/profit of the victim).

Because damages for breach are not fault-based, it matters not to their assessment by a Scottish court whether the breach was intentional or inadvertent (i.e. there are no greater damages available for intentional breach). Furthermore, and crucially for the present discussion, damages based upon any profit made by the contract-breaker are not permitted (even if they were a foreseeable result of the breach):21 this rule is clearly set out in the leading case of Teacher v Calder. 22 This common law rule cannot be evaded by the use of an agreed damages clause in the contract entitling the party in breach to an amount equalling any profit made upon breach by the defaulting party, as a Scottish court will only enforce an agreed damages clause to the extent that it embodies a reasonable assessment of the likely losses to the victim which will flow from the breach in question.23

Are any exceptions made to this rule? It has been said that the availability of so-called ‘violent profits’ in lease cases is one such exception. Violent profits are a financial award which may be ordered by a court to be paid by a tenant who remains in occupation beyond the agreed end date of the lease without the permission of the landlord. Such an award is designed to act as a deterrent against tenants refusing to quit the leased premises at the agreed date, and – in some cases at least – to strip the tenant who refuses to quit of profits made through continued unlawful possession. In urban leases, a somewhat arbitrary amount of double the agreed rent for the period of unlawful possession has become established as the measure of such violent profits: this arbitrary level of the award matches neither the likely losses of the landlord nor (except by chance) any profit made by the tenant through a refusal to quit the premises. However, in other leases, the courts have assessed violent profits according to the measure of the greatest profit that the landlord could have made either by possessing the leased subjects himself or by letting them to others, together with the measure of all losses which the landlord may have suffered at the hands of the wrongful possessor.24 Is this gain stripping? Indirectly perhaps, though note that the measure is of the landlord’s likely lost profits, not the actual gain of the tenant. Given the varying ways in which violent profits may be assessed, it is too simplistic (and inaccurate given the idea of damages discussed earlier) to call the remedy ‘damages’ or even ‘penal damages’, though such usage exists;25 it may perhaps be arguable that (indirect) gain-stripping forms part of the award in some cases (only for non-urban leases), but strictly such cases are focused on compensating the landlord’s losses, both damnum emergens and lucrum cessans.

A related question concerning the occupation of land or buildings is how to deal with cases where there is never any express entitlement to occupy to begin with. The Scottish courts’ approach to such cases has often been to say, in vague terms, that such occupation gives rise to a ‘presumption to pay’, the occupier being able to counter such presumption by demonstrating a clear agreement that the occupier was entitled to occupy without charge. Speaking of a ‘presumption to pay’ is not however sufficient to determine whether the basis of the requirement to pay lies in contract (under an implied lease)26 or in unjustified enrichment, or to identify the appropriate measure of recovery. The answer to the first question is not necessarily provided by the answer to the second. As to the second question – the measure of recovery – the courts have variously required occupiers to pay a ‘reasonable sum’,27 a ‘fair value’,28 or a ‘market rent’.29 Some such awards (especially market rent) smack of a quantum meruit approach to valuation, which is itself more suggestive of a deemed contractual analysis; however, in some cases where the courts have explicitly made an award in recompense for unjustified enrichment, the measure of the award has also been assessed by reference to the market rent.30 Looking at the body of such cases, it must be admitted that there has often been a judicial vagueness in specifying the basis of recovery, and also that, while some cases have justified awards as compensation for the rent lost to the landlord, others have used language more indicative of a desire to prevent the occupier from unjustifiably gaining from the occupation. Gain-based awards have therefore played some part in this area of the law (albeit that whether they are based in contract or unjustified enrichment is not always clear).

Leaving aside cases of the occupation of property, there is the further contractual issue of what status decisions such as Wrotham Park 31 (and Experience Hendrix)32 have in Scots law, i.e. do cases of ‘breach of covenant’ (that is, breach of a specific contractual undertaking not to do a specific act) give rise to an entitlement to an award which goes beyond any loss made by the victim of the breach (which may be nothing)? The short answer is that it is unclear: neither Wrotham Park nor Experience Hendrix have been directly applied in Scotland. In any event, are such cases actually about stripping gains from defendants? When such cases have arisen in England, the courts have permitted recovery in damages in a fictional measure (without the need to demonstrate any loss), such measure being the amount which the court considers the victim of the breach might reasonably be imagined to have charged for a relaxation or waiver of the covenant. Many consider such awards to be ‘gained-based’ or as designed to ‘disgorge profits’ from the party in breach: such an argument seems to proceed from the basis that, by having evaded a possible payment for a waiver/relaxation, the defendant has ‘gained’ because it is better off than it would have been had it paid for such a waiver/relaxation. However, the courts have accepted that such awards are appropriate even in cases where it is clear that the claimant would not have agreed to any such waiver. As the court is assessing damages according to a deemed (albeit fictional) performance interest loss by the claimant (the claimant gets what it has theoretically lost from not being able to bargain for the relaxation or waiver, i.e. there is compensation for imagined lucrum cessans), there seems to be a stronger case for not classifying this sort of recovery as genuinely ‘disgorgement’ in nature.

Moving away from damages, there is also the question of whether an ‘account of profits’ (not classed as a damages award, but as a separate species of remedy) of the sort seen in Attorney General v Blake 33 is ever available in Scots law for breach of contract. Such a remedy was said to be justified in Blake on account of the quasi-fiduciary position in which the defendant stood towards H.M. Government, for whom he had worked in the British Secret Intelligence Service, his conduct being in breach of a contractual duty of confidence which he owed. However, when the ratio of Blake was later applied in Esso Petroleum v Niad,34 no such quasi-fiduciary relationship was present. It is very difficult to narrate a justification of the award of an account of profits in either case (the justification that a normal award of damages would be inadequate is too broad) which would be sufficiently tightly drawn to prevent inroads being made into the general rule that breach should not give rise to a remedy based upon the profit made by the breaching party. Neither case has been applied in Scotland, so, as with the breach of covenant cases, the status of awards for an accounting of profits in similar circumstances is doubtful. Breach of a clear fiduciary duty (discussed below in the section “Breach of Fiduciary Duties”) is of course a quite different matter, in which an accounting of profits is an available remedy (as it is in infringement of intellectual property cases, also discussed below, in the section “Conclusions”).


In delict (and note, Scots law has not just a number of nominate delicts, but also a general action for the reparation of wrongly inflicted harm), the principal remedy is that of damages, with interdict (the equivalent of the Common law injunction) also being available to prevent anticipated harm. Where interdict is granted, it may of course have the effect of preventing a defender from making a gain through delictual conduct in the first place.

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