by breach which are important,137 though it evidently represents what some commentators would wish the law to be.

If the challenge of rights theorists does not accord with the stated approach of the courts, what of the problem that courts do on occasion award damages that do not reflect the performance interest, but some other interest of the innocent party? Do such awards fundamentally undermine a ‘substitution for performance’ based view of contractual damages?

(a)  Contractual damages and interests other than the performance interest

In most legal systems, the performance measure of damages for breach of contract is conceived of as encompassing both actual losses suffered by the innocent party as a result of the breach (what is sometimes called damnum emergens) as well as lost opportunities to profit by the expected performance (what is sometimes called lucrum cessans). As discussed further below, wasted expenditure in preparing for a contract (an aspect of the actual, rather than speculative, loss) is usually factored in as part of the net claim made by the claimant. Both damnum emergens and lucrum cessans are rightly seen as legitimate monetary compensation for the position which the innocent party would have been in had the contract been performed properly: the innocent party would have avoided the losses it has suffered, and would have made the profit it has been deprived of. As Lord Chancellor Haldane put it in British Westinghouse Electric and Manufacturing Co. Ltd v. Underground Electric Railways Co. of London Ltd,138 ‘as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed. The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach.’ Given the construction by courts of the hypothetical circumstances that would have prevailed upon proper performance, the idea of a ‘performance measure’ of damages (or the ‘performance interest’ of the claimant) makes sense, though it ought to be borne in mind that courts,

137As demonstrated recently, for instance, in The Golden Victory [2007] UKHL 12, where the House of Lords assessed damages in a breach of contract case at the time of the claim, thus including consequential losses after the date of breach, rather than at the time of breach. Had the latter approach been adopted, then the case for arguing that damages compensate for loss of the right to performance would have been strengthened.

138[1912] AC 673, 689.

when deciding the issue of damages, do not always, or even usually, talk in terms of performance ‘measure’ or ‘interest’ when making their awards, but simply rather ‘what would have happened’ had performance occurred, or (to put it in the negative) what the parties ‘might reasonably have foreseen’ as the outcome had proper performance not occurred. Evidently, counterfactual judicial conceptions of the outcome of the case had proper performance occurred mean that, where claimed, both damnum emergens and lucrum cessans must be proven to be connected causally with the defendant’s breach of contract using the ordinary tests of causation.

As will be seen in the discussion below, however, sometimes contracting parties are exceptionally permitted to raise a claim which does not reflect protection of the performance interest. One of the arguments levelled against a promissory, will-based approach to contract theory is that because exceptionally there is recovery of damages in the restoration and restitutionary interests, rather than the performance interest, this shows that contractual liability is not based exclusively (or even at all) on the will of the parties, otherwise the performance measure of damages would be awarded in every case. What may be said in response to such a criticism?

First, it should be noted that damages is not in every jurisdiction the primary (or default) remedy – in most civilian and mixed systems, it is not substitutionary remedies but actual performance which is conceived of as the primary entitlement of an aggrieved party. Where that is so, the will is clearly given greater prominence, which helps to counter any suggestion that the availability of non-performance measures of damages in certain cases somehow indicates a jurisdictional lack of respect for the will of the parties. Second, it should not be forgotten that the performance measure is the primary measure of damages, even though (like other obligations) there may be another interest which is protected apart from the primary interest. Protection of another interest may be awarded in some cases because, for instance, no evident measure of performance can be determined, in which event the restoration interest often seems a reasonable fall back measure of recovery,139 or because the performance measure would be inadequate because, for instance, breach has caused foreseeable harm to the other party in excess of the performance measure. Recourse to non-performance damages is, however, exceptional and only available to support specific, limited objectives which do not detract from a general emphasis upon performance.

139See, for instance, McRae v. Commonwealth Disposals Commission (1951) 84 CLR 377 and Anglia Television Ltd v. Reed [1972] 1 QB 60.

As to wasted contractual expenditure, such expenditure on the part of the party suffering a breach of contract will usually be absorbed into a claim for damages made by reference to the performance measure, because what will be claimed is the gross amount which that party expected to gain by the other’s performance (the contract price, for instance, if a seller is the claimant). Alternatively, though the claim is seldom presented that way, net profits together with wasted expenditure may be claimed. However, gross profits and wasted expenditure cannot both be claimed, as such expenditure would have had to have been incurred in any event to make the gross profit. Thus, if A expected to make £5,000 gross profit on a contract (this being the contract price charged by A) and to incur £1,000 in costs related to the performance, if B breaks the contract then either the gross profit/contract price of £5,000 or the £4,000 net profit together with the £1,000 expenditure can be claimed by A, but not the £5,000 gross profit/contract price and the £1,000 costs. A difficulty arises in cases where, unluckily for A, following formation of the contract with B, A’s costs rise to such an extent that they exceed the price agreed for A’s services. What, thus, if by the eve of performance, A’s costs have risen to £6,000, and B then breaches the contract: can A choose to claim these wasted costs rather than the contract price? If A is so permitted, then it will be able to avoid a bad bargain, and to recover costs which would have had to have been incurred as part of its contractual duties in any event had the contract not been breached by B. For that reason, such wasted costs ought not to be recoverable by A, and all A should get is the £5,000 price agreed for its performance. In other words, a proper respect for the contract, and for the allocation of risk between the contracting parties, should mean that there is no free choice between the performance measure and restoration measure where the latter would permit recovery in excess of the former.140

What of a choice between performance and restitutionary measures? The restitutionary interest is hardly ever protected in contractual ­damages, in any jurisdiction. Even the notable and exceptional recent protection of the restitutionary interest by English law in AttorneyGeneral v. Blake141 concerned not the remedy of damages but the remedy of an account of profits, a remedy the granting of which was said to be justified given the exceptional, quasi-fiduciary nature of the relationship

140This is, in any event, the approach of English law: CCC Films (London) Ltd v. Impact Quadrant Films Ltd [1985] QB 16.

141[2001] 1 AC 268, [2000] 4 All ER 385.

in question.142 It is a fundamental principle of contractual damages that such damages should measure the actual losses suffered by the aggrieved party rather than any gain made by the party in breach.143 Whilst there are some voices arguing that penal damages should be recoverable in some instances of breach of contract,144 or that restitutionary damages should be available in cases of ‘cynical’ breach of contract, while the Common law (and mixed systems) maintain the view, discussed further below, that damages for breach of contract are not a fault based remedy, but a strict one, it seems equitable that loss rather than gain should remain the fundamental touchstone of the assessment exercise. In addition, it is noteworthy that, following a breach of contract, an innocent party is not usually permitted to seek financial recompense by abandoning a claim for damages in contract and instead raising a potentially more advantageous claim in unjustified enrichment.145

In English law, the principle that damages reflect actual loss has been exceptionally deviated from in cases involving a breach of a specific covenant, where, though a party undertook not to do something, it has done the very thing it covenanted not to, profiting thereby. In such cases, the courts have permitted recovery in damages in a fictional measure (without the need to demonstrate any loss), that measure being in an amount which the aggrieved party might reasonably be imagined to have charged for a relaxation or waiver of the covenant.146 It must not be thought, however, that this exceptional recovery somehow represents compensation in the restitutionary measure: there is no question of any gains made by the contract breaker being used as the basis upon which recovery is

142The Blake approach was also adopted in Esso Petroleum v. Niad [2001] EWHC 6 (Ch), though given that this case did not involve any fiduciary or similar relationship between the parties, the decision is hard to square with an orthodox approach to damages. For a similar decision to Blake in US Common law, see Snepp v. United States 444 US 507 (1980).

143Tito v. Waddell (No. 2) [1977] Ch 106.

144In Canadian Common law, penal damages for breach, though rare, may be awarded:

Vorvis v. Insurance Corp. of British Columbia [1989] 1 SCR 1085.

145In some systems this rule is enforced via a principle that unjustified enrichment remedies are ‘subsidiary’ to, or ‘postponed’ to, remedies under other branches of the law of obligations, so that where a remedy exists under another such branch, an enrichment remedy is precluded. Even if no such principle of subsidiarity is recognised, another rule or rules typically operates to exclude enrichment remedies if the remedy of damages for breach of contract is available.

146Wrotham Park Estate Co. Ltd v. Parkside Homes Ltd [1974] 1 WLR 798 (Ch); Amec Development Ltd v. Jury’s Hotel Management (UK) Ltd [2001] 1 EGLR 81 (Ch); Experience Hendrix LLC v. PPX Enterprises Inc. [2003] EMLR 25 (CA). See also the Privy Council Appeal Pell Frischman Engineering v. Bow Valley Iran [2009] UKPC 45.