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Linking Gains to Wrongs
Published online by Cambridge University Press: 28 March 2022
Abstract
This article provides a theoretical and doctrinal explanation of how the but-for test links gains to the wrong that produced them. Gain-based damages cases focus on the gain resulting from the defendant’s tortious behaviour. In these cases, the contrastive aspect of the but-for test, requiring the factfinder to consider the hypothetical result that would have occurred had the right thing happened instead of the defendant’s wrongdoing, is not confined to the question of reasonability, as it is in negligence cases. Rather, in gain-based damages cases, the factfinder faces the open-ended normative task of determining the hypothetically appropriate scenario that contrasts with the wrongdoing that happened in reality. For this reason, in gain-based damages cases, the normative sensitivity of the but-for test is revealed in full. The article explains how this sensitivity influences the result of the but-for test expressing the amount of gain causally attributed to the defendant’s wrongdoing.
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- Research Article
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- © The Author(s), 2022
References
1. See for example, Nyang v G4S Care & Justice Services Ltd, [2013] EWHC 3946 (QB); Clements v Clements, 2012 SCC 32; Doull v Foster, 163 NE (3d) 976 (Mass 2021). See also for example Restatement (Third) of Torts: Liability for Physical and Emotional Harm § 26 (2010) [Restatement of Torts]; Richard W Wright, “Causation in Tort Law” (1985) 73:6 Cal L Rev 1735.
2. For thoughtful debates on the categorization of the law of restitution or the related issue of terminology, see for example Lionel D Smith, “Restitution: A New Start?” in Peter Devonshire & Rohan Havelock, eds, The Impact of Equity and Restitution in Commerce (Hart, 2019) 91 at 94-95. See also Robert Stevens, “The Unjust Enrichment Disaster” (2018) 134:4 Law Q Rev 574; Francesco Giglio, “Gain-Related Recovery” (2008) 28:3 Oxford J Leg Stud 501; Andrew Burrows, “Quadrating Restitution and Unjust Enrichment: A Matter of Principle?” (2000) 8:3 RLR 257.
3. In Atlantic Lottery Inc v Babstock, 2020 SCC 19 at paras 24, 27, Justice Brown defined the remedy of restitution as responding to the causative event of unjust enrichment “where there is correspondence between the defendant’s gain and the plaintiff’s deprivation,” and disgorgement as “an alternative remedy for certain forms of wrongful conduct.” See also Peter Birks, Unjust Enrichment, 2d ed (Oxford University Press, 2005) at 13, referring to disgorgement cases as instances of restitution for wrongs and explaining that they have nothing to do with the law of unjust enrichment.
4. See for example R B Grantham & CEF Rickett, “Disgorgement for Unjust Enrichment?” (2003) 62:1 Cambridge LJ 159 at 160. See also Restatement (Third) of Restitution and Unjust Enrichment § 51(4) (2011) [Restatement of Restitution].
5. See Robert Stevens, Torts and Rights (Oxford University Press, 2007) at 60-61, 79-84; Ernest J Weinrib, “Restitutionary Damages as Corrective Justice” (2000) 1:1 Theor Inq L 1 at 4-5.
6. See Restatement of Restitution, supra note 4 at § 51 cmt f.
7. 173 P (2d) 652 (Wash 1946) [Olwell].
8. The plaintiff alternatively offered to sell the machine for half of its original cost. See ibid at 653.
9. Ibid at 654.
10. This amount was calculated on the assumption that without the machine, the plant would have hired employees to hand-wash the eggs, which would have cost $10 per week, amounting to $1,560 ($10 × 156 weeks) for the period of three years that the plant used the machine. The court eventually reduced this sum to $900, based on the sum claimed by the plaintiff. Ibid at 655.
11. See for example E Allen Farnsworth, “Your Loss or My Gain? The Dilemma of the Disgorgement Principle in Breach of Contract” (1985) 94:6 Yale LJ 1339 at 1343; Daniel Friedmann, “Restitution for Wrongs: The Measure of Recovery” (2001) 79:7 Tex L Rev 1879 at 1894-95; Hanoch Dagan, The Law and Ethics of Restitution (Cambridge University Press, 2004) at 215.
12. See for example Mark P Gergen, “Causation in Disgorgement” (2012) 92:3 BUL Rev 827 at 835-36.
13. See for example Weinrib, supra note 5 at 10.
14. This conclusion can be grounded either in the idea that the damages are substitutive for the right infringed (see Stevens, supra note 5 at 59-60), or that the damages are what Ernest Weinrib views as the qualitative form allowing the restoration of the plaintiff’s right, which continued to exist after the defendant’s infringement. See Ernest J Weinrib, Corrective Justice (Oxford University Press, 2012) at 91-93. A discussion on the differences between these approaches or of the concept of continuity in corrective justice is not within the scope of this article.
15. See Stevens, supra note 5 at 79.
16. See Weinrib, supra note 5 at 11.
17. For a similar argument see Stevens, supra note 5 at 62.
18. See Weinrib, supra note 5 at 20-21.
19. Ibid.
20. Ibid .
21. See Restatement of Restitution, supra note 4 at § 51(4), stating that a conscious wrongdoer must surrender all their profits from the wrong, including consequential gains they earned by using the property after they took it. See especially ibid §40 cmt b, noting that “[i]f liability in restitution were limited to the price that would have been paid in a voluntary exchange, the calculating wrongdoer would have no incentive to bargain.”
22. Ibid § 51 cmt f, stating that the absence of causation “does not necessarily exonerate the wrongdoer, because a finding that the defendant would have realised the profit in any event does not compel the conclusion that the defendant, under the circumstances, has not been unjustly enriched.” This argument has been mentioned in different contexts. See for example Lionel D Smith, The Law of Tracing (Oxford University Press, 1997) at 20, mentioning this argument to illustrate the difference between tracing and causation. See also Deborah A DeMott, “Causation in the Fiduciary Realm” (2011) 91:3 BUL Rev 851 at 853, 866, generally accepting the claim that the absence of but-for causation does not necessarily exonerate a defendant who breached a fiduciary duty, and suggesting either loosening the test of causation or considering a standard of “substantial factor” in some cases.
23. See Gergen, supra note 12.
24. Ibid at 833-37.
25. For a review of situations of over-determination and proposed solutions, see for example HLA Hart & Tony Honoré, Causation in the Law, 2d ed (Clarendon Press, 1985) at 122-28, 235-49. See also David Lewis, “Causation as Influence” (2000) 97:4 Journal of Philosophy 182; Richard W Wright, “Causation, Responsibility, Risk, Probability, Naked Statistics, and Proof” (1988) 73:5 Iowa L Rev 1001 at 1018-23.
26. See Corey v Havener, 65 NE 69 (Mass 1902).
27. See for example Restatement of Torts, supra note 1 at § 27 cmt f, embracing the NESS test, which identifies a particular behaviour as “a cause” by asking whether that behaviour was a necessary element in a set sufficient for the occurrence of the consequence. See also Wright, supra note 1 at 1788-803.
28. See Gergen, supra note 12 at 834.
29. Ibid at 835.
30. Ibid.
31. Ibid at 835-36.
32. Ibid .
33. In Ernest Weinrib’s words, “private law strives to avoid contradiction, to smooth out inconsistencies, and to realize a self-adjusting harmony of principles, rules, and standards.” Ernest J Weinrib, The Idea of Private Law, revised ed (Oxford University Press, 2012) at 12. Weinrib explains that the aspiration for coherence is a characteristic of private law and important not only for the understanding of its operation but also of its institution.
34. Gergen did concede the option of allowing a wrongdoer to keep all or part of the gain based on non-causal considerations, noting that “sometimes the nature of the entitlement taken justifies allowing a wrongdoer to keep all or part of the gain [although this gain is] causally attributable to the wrong.” Gergen, supra note 12 at 851. My claim is, however, that Gergen’s analysis does not allow for an inference of no-causation or any explanation regarding the conditions under which such an inference may be possible.
35. See for example Jonathan Schaffer, “Contrastive Causation in the Law” (2010) 16:4 Leg Theory 259; Alex Broadbent, “Fact and Law in the Causal Inquiry” (2009) 15:3 Leg Theory 173 at 175-77.
36. See Schaffer, supra note 35 at 285.
37. The perception of causing as making a difference has long been accepted in the literature. See for example Hart & Honoré, supra note 25 at 29; David Lewis, “Causation” in Ernest Sosa, ed, Causations and Conditionals (Oxford University Press, 1975) 180 at 181.
38. See Broadbent, supra note 35 at 187. For an exploration of whether the standard of reasonability is, at its core, based on a pure normative commitment, or rather, is designed according to empirical observations about the way in which most people behave, see for example Alan D Miller & Ronen Perry, “The Reasonable Person” (2012) 87:2 NYU L Rev 323.
39. Broadbent, supra note 35 at 189. A comprehensive review of Broadbent’s approach to the causal inquiry in the law is beyond the scope of this article. For a critique on Broadbent’s analysis, see Schaffer, supra note 35 at 293-95.
40. For the view that the contrastive cause should denote whatever is codified in the law, see Jane Stapleton, “Choosing What We Mean by Causation in the Law” (2008) 73:2 Mo L Rev 433 at 451; Jonathan Schaffer, “Contrastive Causation” (2005) 114:3 The Philosophical Review 327 at 345.
41. See for example Heidi M Hurd & Michael S Moore, “Negligence in the Air” (2002) 3:2 Theor Inq L 333 at 377; Nancy S Ehrenreich, “Pluralist Myths and Powerless Men: The Ideology of Reasonableness in Sexual Harassment Law” (1990) 99:6 Yale LJ 1177 at 1180-81.
42. See Bas C van Fraassen, The Scientific Image (Oxford University Press, 1980) at 127-28.
43. See for example Marlan O Scully & Kai Drühl, “Quantum Eraser: A Proposed Photon Correlation Experiment Concerning Observation and ‘Delayed Choice’ in Quantum Mechanics” (1982) 25:4 Physical Review 2208.
44. In terms of the theory of contrastive causation, since different A*s lead to different B*s, the result B–B* is likely to change in accordance with the definition of A*s.
45. See generally Maytal Gilboa, “Multiple Reasonable Behavior Cases: The Problem of Causal Underdetermination in Tort Law” (2019) 25:2 Leg Theory 77. A core example is negligence cases that consist of the following pattern: it can be empirically verified that there were two (or more) reasonable ways that a negligent defendant could have taken to meet their duty of care toward the plaintiffs; the defendant didn’t take any of these reasonable paths; a harm occurs; conducting the causal inquiry retrospectively, it is proven that on the one hand, had the defendant acted according to first reasonable way, the result to the defendant would have been different, but on the other hand, had the defendant acted according to the second reasonable way, the result would have been the same.
46. Ibid at 80.
47. See Weinrib, supra note 33 at 82, 84.
48. See Arthur Ripstein, Private Wrongs (Harvard University Press, 2016) at 81.
49. See Weinrib, supra note 33 at 118-20.
50. Ibid at 153.
51. See supra note 37 and accompanying text.
52. See Weinrib, supra note 33 at 9-10.
53. See Christopher Essert, “Thinking Like a Private Lawyer” (2018) 68:1 UTLJ 166 at 173.
54. This approximation of value is for illustration purposes only. The plaintiff in Olwell offered to sell the machine to the defendant for $600, but this offer was made after his discovery of the unauthorised use and might not reflect the rent value at the time of its use or the price that the defendant would have negotiated with the defendant ex ante.
55. For an explanation of how the court in Olwell computed the amount of expenses saved by the defendant see supra note 10.
56. The plausibility of defining an omission as a cause has been a matter of debate in the literature on causation. See e.g. David M Armstrong, “The Open Door: Counterfactual Versus Singularist Theories of Causation” in Howard Sankey, ed, Causation and Law of Nature (Kluwer Academic, 1999) 175 at 177; Michael S Moore, Causation and Responsibility: An Essay in Law, Morals, and Metaphysics (Oxford University Press, 2009) at 55. Although a thorough review of this debate is not within the scope of the present article, it is important to note that the analysis that follows conforms to Hart and Honoré’s observation that an omission is not nothing but rather a way of describing the world: “a real state of affairs.” Hart & Honoré, supra note 25 at 38. Schaffer explains that denoting the contrastive cause with an imaginary pure omission on the part of the defendant allows the perception of omissions not as nothing but as “ways to describe actual events that specify the relevant contrasts.” Schaffer, supra note 35 at 266.
57. See the ground-breaking article of Guido Calabresi & A Douglas Melamed, “Property Rules, Liability Rules, and Inalienability: One View of the Cathedral” (1972) 85:6 Harv L Rev 1089.
58. Ibid at 1106-11.
59. Ibid at 1092. This weaker protection of entitlement allows the defendant to use the plaintiff’s asset and thereafter pay the objectively determined value of that use, which makes holding out inefficient for the plaintiff.
60. See Olwell, supra note 7 at 654.
61. The circumstances indicated the efficiency of the potential transaction: the plaintiff did not use the egg-washing machine for three years and could therefore only profit from renting or selling it to the defendant, for whom the machine was clearly beneficial.
62. This assumption may be true because the defendant, who bought the plant from the plaintiff, who was the previous owner, excluded the egg-washing machine from the sale contract, keeping it stored at a location near the plant. Perhaps the defendant excluded the machine from the contract because he was planning to use it free of charge without the plaintiff’s permission, knowing he would have access to it. Another possible explanation is that the machine was excluded from the contract because of a bilateral monopoly created between the parties. In this case, the conclusion would be that high transaction costs prevented the parties from including the machine in the contract, and therefore the plaintiff’s entitlement to the machine should have been protected by a liability rule, not a property rule.
63. Or specific performance. See Calabresi & Melamed, supra note 57 at 1126.
64. Contrasting the defendant’s wrongdoing in Olwell with a state of affairs envisaging the defendant abstaining from any action with respect to the plaintiff’s right in the machine can also be interpreted as a validation of the plaintiff’s property right ‘to exclude the world from the resource.’ See for example Thomas W Merrill & Henry E Smith “The Morality of Property” (2007) 48:5 Wm & Mary L Rev 1849 at 1857.
65. See Gergen, supra note 12 at 835-36.