Account of Profits

An account of profits differs from an award of negotiating, or Wrotham Park, damages in that the court orders the defendant to hand over the entire profit made from the breach of contract. While the precise circumstances in which an account will be ordered are unclear, what is clear is that an account of profits will remain an exceptional contractual remedy.

Attorney General v Blake [2001] 1 AC 268

The defendant, a KGB spy and former MI5 agent, published his autobiography thereby breaching a non-disclosure obligation contained in his original contract of employment. The Crown could not establish that it had suffered any loss by publication of the book. The House of Lords, Lord Hobhouse dissenting, held that it was just and equitable that the defendant should retain no benefit from his breach of contract and should account to the Crown for all the profits made.

Lord Nicholls (with whom Lord Goff, Lord Browne-Wilkinson and Lord Steyn agreed) at 284-285:

‘When, exceptionally, a just response to a breach of contract so requires, the court should be able to grant the discretionary 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 . . .

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.’

Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323

By way of a settlement agreement made in 1973, D was given the right to exploit certain Jimi Hendrix master recordings. Subsequently, D exploited numerous other master recordings in violation of the agreement. At first instance, Buckley J dismissed C’s claim for damages, which was framed as coming within the Wrotham Park principle, on the basis that C would never had done a deal with D to license what were poor quality recordings which did not feature Jimi Hendrix and which might have confused the buying public.
The Court of Appeal allowed C’s appeal in respect of its damages claim. D would be ordered to pay a reasonable sum in respect of the use it had made of recordings in breach of the agreement.

Vercoe v Rutland Fund Management Ltd [2010] EWHC 424 (Ch)

C brought a claim against D for breach by D of its contractual obligation of confidence. C claimed that it was free to elect for an account of profits as the appropriate remedy. The CA held that the appropriate remedy was an award of damages based on a notional release fee.

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