Efficient Breach and Ex-post Disgorgement of the Defendant’s Gain: A Comparative Contract Law and Economics Perspective

Abstract

Abstract Compensating the plaintiff’s expectancy loss is the established remedy for breach of contract in common-law jurisdictions. Legal theory has examined losses and gains extending beyond lost expectancy, especially gain-based disgorgement as a remedy reflecting the restitution interest in contract law. The theory of efficient breach implies that restitution remedies inaccurately compensate loss, whereas the case in jurisprudence for gain-based disgorgement ignores efficiency all together in focussing on ‘wrongs’ and ‘just’ compensation. We consider legal developments in the UK and US to show (i) efficient breach and gain-based disgorgement can be reasonably reconciled; (ii) a full disgorgement remedy will be evaded because the defendant will deliver specific performance; (iii) careful recognition of the type of externalities affecting the plaintiff, defendant and third parties indicates when disgorgement is useful.