'Restitutionary Damages' Vs. 'Compensatory Damages' For Breach Of Contract: Madras High Court Explains

In a significant judgment pertaining to breach of contract, the Madras High Court ventured into when a party aggrieved is entitled to compensatory damages and under what circumstances the Court may grant restitutionary damages by way of an account of profits.Compensatory damages are awarded to redress the loss suffered by an aggrieved party. Whereas, restitutionary damages are more in the nature of directing the Defendants to disgorge the benefit accrued in his favour due to unjust enrichment at the expense of the Plaintiff.Justice N. Anand Venkatesh has made it clear that compensatory damages for breach of contract is awarded where the damages were indentifiable in the normal way. It added that Compensatory damages normally present themselves with difficulties associated in computing a reliable assessment of the loss caused to the party. It is in such "exceptional circumstances" that warrant a deviation from the general principle and seek for an account of profits."This Court is of the considered view that an order directing an account of profits developed in response to cases where the loss suffered could not be measured adequately or if measured could/would not adequately place the plaintiff in the same position as if the breach had not occurred. In such a situation, the Court was empowered to justly compensate the plaintiff by assessing damages with reference to the gains made by the defendant instead of conventionally assessing it with reference to the loss caused to the plaintiff," it held. When the damages payable can be ascertained in the normal way, the court need not resort to assessing damages based on account of profits, the bench clarified by relying on One Step (Support) Limited v Morris-Garner (2018) where the Supreme Court of England addressed the question of assessment for breach of a non-compete clause. In the case relied upon by Madras High Court, the Supreme Court made clear that the general rule of compensatory damages must be applied since the pecuniary loss was identifiable by conventional means like loss of profits, loss of goodwill, loss accrued from wrongful competition etc. Background The plaintiff company had moved against the Respondent, its former employee, alleging breach of non-compete, non-disclosure/ confidentiality and non-solicit agreements entered into between them. According to the plaintiff, the first defendant floated the second defendant Company with same business model, having one of the plaintiff's primary clients as a subscriber to the latter's MoA. The matter proceeded ex-parte as the defendants did not enter appearance. Court's Observations While the court concurred with the plaintiff's submission that the confidentiality and non-solicitation of customer clauses in the letter of appointment binds the first defendant, there were certain reservations made about the applicability of the non-compete clause. Insofar as the non-compete clause is concerned, the same cannot be made enforceable after the first Defendant has left the employment, the Court said relying on the Madras High Court judgment in FL Smidth (P) Ltd. v. Secan Invescast (India) (P) Ltd (2013).It added,"first Defendant had an obligation under the nonsolicit and confidentiality/non-disclosure clauses and if the same is violated, he is bound to face the consequences. This is more so since the first Defendant is bound by the non-solicit clause for a period of 3 years even after leaving the employment. Insofar as the confidentiality clause is concerned, he was bound by the same during the term of employment and even thereafter."While examining the plea for damages, the court observed that the first defendant had caused a computable loss of Rs 96 lakhs to the plaintiff by soliciting one of its primary clients, PI Holdings. In this backdrop, it relied on the case of Attorney General v. Blake (2000) where the Supreme Court of the United Kingdom had refused to resort to order an account of profits where the damages were indentifiable in the normal way."This has a direct bearing on the case at hand, since there exists unrebutted material providing a legitimate basis on which the Court can base its conclusion to assess damages. This Court also finds that there is nothing "exceptional" in the facts of this case so as to warrant a deviation from the general principle," the High Court observed.Reliance was further placed on State of Kerala v. K. Bhaskaran, AIR 1985 Ker 49, where it was noted that the liability is restricted for reasonably foreseeable losses under Section 73 of Contract Act — those that a normally prudent person, standing in his place possessing his information when contracting would have had reason to foresee.According to the bench, determination of the measure of damages 'must be made with reference to the loss caused to the claimant rather than with reference to the gain made by the other party' in the normal course of things. In...

'Restitutionary Damages' Vs. 'Compensatory Damages' For Breach Of Contract: Madras High Court Explains

Sebin James

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