Examining the Structure of Remedial Law

Abstract

Stephen A. Smith, Rights, Wrongs, and Injustices: The Structure of Remedial Law, Oxford: Oxford University Press, 2019, 368pp, £80.00 Conventionally, a judicial private law remedy (JPLR) is understood as a court order made following two types of events: a violation of a legally recognised right, or a threatened violation of a legally recognised right.1 When there is a ‘rights-violation’, the prevailing view is that the innocent party obtains (at least) a ‘secondary’ remedial right against the defendant to be placed in as near position as possible as if the ‘primary’ right had not been violated.2 When there is threatened rights violation, the innocent party may receive a power to obtain a judicial ruling directing the defendant to comply with its correlative ‘primary’ duty.3 On this view, the principal reason that most judicial JPLRs are awarded is to declare, or provide defendants with further reasons to comply with, the ‘primary’ or ‘secondary’ legal duties that defendants already owe to claimants. In Rights, Wrongs, and Injustices: The Structure of Remedial Law4 (Structure), Stephen Smith rejects this view of JPLRs. Smith argues, first, that although certain JPLRs are made on the ‘grounds’ of threatened rights violations, many of the JPLRs that courts issue are instead made on the ‘grounds’ of ‘wrongs’ or ‘injustices’. Secondly, Smith argues that the idea of ‘secondary legal duties’ is largely5 misplaced and that, prior to a judicial ruling, rights violations only give rise to legal liabilities. The book, which is the culmination of many years’ work,6 is an original and thought-provoking work of scholarship demanding serious engagement. Structure is replete with arguments deserving close attention, ranging from broad claims about the structure and philosophical foundations of remedial law to more specific claims about the nature of various judicial ‘orders’, the distinctiveness of ‘legal’ and ‘equitable’ judicial ‘orders’, and a thought-provoking final chapter on ‘defences’. This review is inevitably highly selective; its focus being on Smith's classification of the ‘grounds’ upon which courts issue JPLRs – ‘rights-threats’, ‘wrongs’, and ‘injustices’ – and the specific remedies that Smith places within these categories.7 Detailed attention is given to these issues because Smith's classification of the ‘grounds’ upon which courts issue JPLRs is both novel and central to his interpretation of the ‘structure’ of ‘remedial law’. This review makes three principal claims: first, the reasons that Smith provides against the existence of a ‘secondary’ legal duty to pay ‘compensatory damages’ are unpersuasive; second, the taxonomy of damages awards that Smith advances should largely be rejected; and third, Smith's argument that all restitutionary orders following ‘defective transfers’ are made on the ‘grounds’ of ‘injustices’ is doubtful. As explained below, these criticisms substantially undermine the ‘structure’ of ‘remedial law’ that Smith defends. Smith's stated aim is to provide an explanatory theory of the scope, foundations, and structure of ‘remedial law’ in common law jurisdictions.8 He pursues this task by addressing four main questions: (1) the content of remedial law; (2) why courts issue remedies at all; (3) the specific ‘grounds’ upon which remedies are issued; and (4) how the remedies issued relate to the ‘substantive law’.9 Regarding the first question, Smith says that he is not concerned to reform or evaluate the law, ‘but simply to understand it’.10 In relation to the second question, Smith claims that explanatory theories of remedies can be categorised according to whether and how they address two questions: the ‘normative’ question of what principles or values underlie the law; and the ‘analytic’ question of how remedies relate to other parts of the law.11 Smith's specific focus is the relationship between ‘remedial’ and ‘substantive’ law. By ‘remedial law’, he means the legal rules relating to when courts issue ‘directive rulings’ as part of the resolution, whether permanent or temporary, of a private law dispute.12 By ‘substantive law’, Smith means the legal rules determining the (primary) legal duties persons owe independently of any judicial event.13 A ‘directive ruling’ or ‘order’ is a judicial order made as part of the resolution of a private law action directing a defendant to act or refrain from acting.14 To understand the relationship between substantive and remedial law, Smith focuses on the ‘grounds’ upon which remedies are ordered and on how the rights and duties that JPLRs impose relate to the prior right-duty relations between claimants and defendants. In addressing these two issues, he discerns a ‘structure’ to remedial law based upon the reasons why courts make certain kinds of rulings and how the rights and duties these rulings impose differ from or resemble, the substantive law right-duty relations between claimants and defendants. According to Smith, courts issue JPLRs on three distinct ‘grounds’: ‘rights-threats’, ‘wrongs’, and ‘injustices’.15 By ‘grounds’, Smith claims to denote the ‘summary descriptions of the facts that claimants must establish to obtain remedies’.16 But Smith also occasionally refers to the ‘grounds’ for a remedy to denote the reason(s) for that remedy being awarded.17 This equivocation arguably reveals an ambiguity as to precisely what Smith is seeking to explain.18 As noted above, this view departs from previous expositions for why JPLRs are awarded.19 According to Smith, a ‘rights-threat’ occurs ‘whenever it is likely that, if the defendant's plans do not change’ the defendant will infringe, or continue to infringe, one of the claimant's ‘substantive rights’.20 A ‘substantive right’ is a legal right that a person possesses either because they reside in a jurisdiction where such rights exist generally or because an ‘ordinary’ right-creating event has occurred.21 Such rights can be contrasted with ‘remedial rights’, which are rights arising from a judicial event, such as the making of an order.22 Smith claims that on proof of a rights-threat, courts normally make ‘replicative’ orders,23 which are orders directing a defendant to do what they already had a substantive legal duty to do vis-à-vis the claimant.24 Smith argues that ‘replicative orders’ made on the grounds of ‘rights-threats’ include: orders to pay sums due under a contract, ejectment, delivery up, certain injunctions, specific performance, and ‘substitutionary damages’ awards, which he conceives as ‘monetary substitutes for specific relief’.25 The reason courts make ‘replicative orders’ in response to ‘right-threats’ is that if a defendant is unwilling to comply with a substantive duty owed to a claimant, the reasons that the substantive law has provided the defendant for not violating the claimant's correlative right must be insufficient.26 Courts, therefore, make ‘replicative orders’ on the ‘grounds’ of ‘rights-threats’ to provide defendants with further reason to respect the claimant's threatened right. The usual way that claimants establish a ‘rights-threat’ is by demonstrating the defendant's engagement in an ongoing rights-violation, which courts properly regard as evidence that the defendant is unwilling to respect the claimant's substantive rights. But although defendants engaged in ongoing rights-violations have committed a legal wrong, Smith argues that ‘replicative orders are not responses to wrongs qua wrongs.’ The object of an order to, for example, not trespass on the claimant's land is to ensure that, by providing the defendant with a further reason for complying with their substantive duty not to trespass, a defendant does not in future (or continue to) trespass on the claimant's land. Smith provides three main reasons supporting his claim that ‘replicative orders’ are made on the grounds of ‘rights-threats’ rather than ‘wrongs’.27 First, courts may issue ‘replicative orders’ notwithstanding that a defendant is yet to have breached any substantive duty it owes to a claimant.28 For example, on proof that a defendant is imminently intending to infringe a restrictive covenant, a court may issue a quia timet injunction directing the defendant to comply with the covenant. This shows that the occurrence of a wrong is not a necessary precondition to a ‘replicative order’ being made. Secondly, courts generally refuse to issue ‘replicative orders’ where a defendant has committed a wrong, but the wrong is unlikely to be repeated.29 For example, an injunction is unlikely to be issued in response to a one-off trespass. This shows that the commission of a wrong is not sufficient for the making of a ‘replicative order’. Finally, it is difficult, says Smith, to think of any reason that could justify courts issuing ‘replicative orders’ other than that the claimant's right was threatened.30 He suggests, contrary to the view that he attributes to Birks, that the ‘the cause of action for ‘replicative orders’ is simply proof that the defendant has a substantive duty to do what the order requires’, cannot account for, among other things, quia timet orders or the fact that courts will refuse to order defendants to comply with negative contractual duties merely on proof that they exist. More fundamentally, however, the Birksian view ‘supposes that courts will issue orders regardless of whether this serves any practical purpose’.31 The second ‘ground’ upon which courts issue JPLRs is, Smith argues, that a ‘wrong’ has occurred, which is where ‘something that [the law says] ought not to happen’, happens.32 Although Smith accepts that most private law orders are directed at persons who have committed wrongs, he argues that it does not necessarily follow that when a remedy is directed at a wrongdoer the remedy is issued on the ‘grounds’ of the wrong.33 So, for example, Smith claims that whilst compensatory damages are generally conditional upon a wrong's occurrence, the wrong is not the reason why such awards are made.34 Orders made by courts merely on proof of a wrong's occurrence are, according to Smith, roughly the private law equivalent of criminal punishment since, like criminal punishment, these orders are made in response to a wrong without any need for the victim to prove that ‘consequential loss’ has been suffered.35 Furthermore, JPLRs that are ordered on the ‘grounds’ of wrongs are, like criminal punishments, set at a monetary figure that is ultimately ‘a matter of choice and convention’.36 On proof of ‘wrongs’, courts respond by making ‘creative orders’,37 which bring rights into existence that are different from the ‘substantive rights’ violated.38 According to Smith, examples of ‘creative orders’ made on the ‘grounds’ of wrongs are orders to pay exemplary, nominal, and ‘vindicatory’ damages.39 Significantly, the final category includes ‘user damages’,40 ‘market-price damages’,41 ‘gain-based damages’,42 and ‘damages for wrongs to the person’.43 Contrary to orthodoxy, Smith claims that these awards are not responses to ‘right threats’ because there is no substantive legal duty to pay damages before the order is made. A novel claim made by Smith is that there is a third ‘ground’ upon which courts issue JPLRs: ‘injustices’, which is ‘an unfair loss or gain arising from a transaction between the claimant and defendant’.44 More accurately, an ‘injustice’ is an action or state of affairs that is unfair ‘because a loss or gain … has been unfairly allocated, distributed, or allowed to persist’,45 though Smith leaves open what makes a gain or loss ‘unfair’. On proof of an ‘injustice’, courts respond by making ‘creative orders’,46 the content of which depends upon the specific ‘injustice’ in question. The purpose of such orders is to correct the ‘injustice’. Smith claims that there are two main remedies that courts issue on the ‘ground’ of ‘injustices’:47 orders to make restitution for ‘defective transfers’ and orders to pay damages for ‘consequential losses’. Smith understands the latter to include balance-sheet losses caused by a breach of duty and certain ‘cost-of-cure’ awards following contractual breach.48 As discussed below, Smith's classification of restitutionary awards and damages awards for ‘consequential losses’ as injustice-responding orders rests primarily on two observations: first, that restitutionary awards for ‘defective transfers’ and damages awards for ‘consequential losses’ are orders creating new duties; and secondly, that the ‘ground’ for such orders is neither ‘rights-threats’ nor ‘wrongs’.49 From the perspective of ‘remedial law’, the central question posed by the law of damages, claims Smith, is whether orders to pay damages ‘confirm [pre-existing] substantive duties to pay damages … [or] create new duties’.50 This is because if ‘duties to pay damages only arise once courts order defendants to pay … then the entirety of damages law is part of remedial law’.51 For Smith, the distinction between the ‘duty-confirming view’ and ‘duty-creating view’ of orders to pay damages is therefore fundamental. This makes examining his reasons for favouring the ‘duty-creating view’ essential to assessing his account. This section undertakes that task. The discussion commences by considering Smith's claim that the positive law in common law jurisdictions does not recognise a pre-judgment legal duty to pay damages. Next, Smith's specific objections against the most plausible theoretical explanation for the ‘duty-confirming view’, ‘the continuity thesis’, are examined. Finally, we consider an important implication of Smith's preference for the ‘duty-creating view’ of damages awards: his proposed classification of different kinds of damages awards. It is conventionally thought that orders to pay damages enforce a secondary legal duty of reparation that arises upon the breach of a primary legal duty. This is what Smith calls the ‘duty-confirming view’ of damages awards. In Structure, Smith reiterates certain arguments he has previously advanced against the duty-confirming view. Briefly, these arguments are: (1) that common law judges typically, though not exclusively, speak in terms of wrongdoers being ‘liable’ to pay damages as opposed to having pre-judgment ‘duties’ to do so;52 (2) that a failure to pay damages until ordered to do so by a court is never a source of a further duty (or liability) to pay damages;53 (3) that paying damages prior to the making of such a court-order is no defence to a claim for damages;54 and (4) that the existence and content of any such duty cannot be determined in advance of a court order compelling payment.55 Smith's thesis has some prominent supporters. Goldberg and Zipursky, for example, have argued that a defendant's liability to pay damages upon the commission of a civil wrong is not grounded in any legal (or moral) duty arising upon the violation of a primary right; rather it is imposed by the court via a principle of ‘civil recourse’.56 By contrast, Penner and Quek have argued that while Smith is correct that ‘there is no legal duty on a wrongdoer to pay … damages to the victim of his wrong prior to any court order … a wrongdoer does owe her victim a moral duty of repair’, which the authors characterise ‘as a Kantian duty of virtue’.57 More recently, Gardner,58 and Steel and Stevens, writing together,59 have issued forceful responses to earlier versions of Smith's arguments against the ‘duty-confirming view’. These responses cannot be comprehensively examined here, but three specific observations are worth making. First, although, as Gardner explains, Smith presents his objections as ‘doctrinal’, he generally uses ‘the black-letter law … to generate something more like a philosophical objection’,60 indicating that the dispute is at least partially theoretical. For example, Smith's concern that the content of the alleged duty to pay damages cannot be determined in advance of a court-order and is therefore ‘unknowable’ seems to rest on a deeper conviction that the law (generally) upholds the maxim that ought implies can. However, as Gardner, and Steel and Stevens, explain, private law does not conform to this principle; the objective negligence standard perhaps providing the clearest example. Moreover, even if Smith's concern here is more about retrospectivity than indeterminacy, Gardner explains that although retroactive legal duties do not conform to the ideal of the rule of law, law failing to conform to this ideal ‘is no surprise and no rarity’.61 Secondly, some of Smith's doctrinal claims are inaccurate or misleading. For example, Smith highlights the fact that a failure to pay damages until ordered to do so by a court is never a source of a further duty (or liability) to pay damages. But Steel and Stevens provide good reason to downplay the significance of this, noting that this may ultimately be attributable to the way obligations are individuated.62 Moreover, as they (and Gardner) also note, in some common law jurisdictions, interest payable on damages awards is calculated from the date when the wrong occurred rather than the date of judgment,63 indicating that the black-letter law is more equivocal than Smith admits. Smith also claims that paying damages prior to the making of such a court-order is no defence to a claim for damages, citing the Court of Appeal's decision in Edmunds v Lloyds Italico & l'Ancora Compagnia di Assicurazione e Riassicurazione SpA.64 But as Steel and Stevens explain, Smith has misinterpreted this case because, properly understood, it stands only for the narrower proposition that an obligation to pay money requires the payee's co-operation to fulfil.65 Finally, responding to Smith's observation that judges often speak in terms of a ‘liability’ to pay damages, Stevens and Steel correctly observe that this is explicable on the basis that, following breach, the wrongdoer has both a duty and a liability to pay damages. Since legal duties are not always enforceable (for example an unenforceable contractual obligation), it is necessary that the beneficiary of the duty also have a Hohfeldian ‘power’ to enable enforcement (via a court order) of the duty they are owed.66 Gardner makes essentially the same point, stating that there is actually ‘no such thing as a liability to pay damages’ as opposed to ‘a liability to be required to pay (a specified sum in) damages’.67 All this provides good reason to doubt Smith's claim that the positive law does not recognise a pre-judgment legal duty to pay damages. However, one difficulty in assessing Smith's view is that he does not clearly identify what he regards as the necessary conditions for a duty to be ‘legal’. It is therefore likely that at least some of the disagreement between Smith and others is attributable to holding different conceptions of a legal duty. But whatever conception of legal duties one adopts, Smith's claim that there is no pre-judgment legal duty to pay damages is questionable because it suggests that the breach of a legal duty may discharge the wrongdoer from the need to conform to the reasons that justified that duty, which is implausible. The (predominately) doctrinal dispute just described reflects a deeper disagreement between proponents of corrective justice as an explanation for damages awards, like Gardner, Steel and Stevens, and others, like Smith, who reject this explanation. The core of this disagreement revolves around the plausibility of the explanation for damages awards that Gardner labels ‘the continuity thesis’,68 which Smith admits provides the ‘most influential theoretical argument for the duty-confirming view’.69 In Structure, Smith defines ‘the continuity thesis’ in broad terms as the view that: ‘when we breach a substantive duty, the duty (or the reasons underlying the duty) continues in force, albeit partly or wholly in the form of (or giving rise to) a duty to pay damages’.70 Smith claims that while this thesis ‘presents a prima facie compelling prescriptive theory of damages’,71 certain ‘conceptual’ and ‘doctrinal’ objections demonstrate its falsity. Hence, a more fundamental objection Smith raises against the ‘duty-confirming view’ is that its most plausible version(s) are based on a false premise. Given what was said above, the persuasiveness of Smith's critique of the ‘duty-confirming view’ therefore ultimately appears to rest on the persuasiveness of his arguments against the continuity thesis. The formulation of the continuity thesis that Smith adopts is designed to remain neutral between the two main rival versions of the ‘duty-confirming view’, which are that the primary duty breached itself continues after the breach;72 and that the reasons for the primary duty persist following breach, helping to ground a new ‘secondary’ duty to pay damages.73 Since Smith aims to show why all ‘duty-confirming’ views are invalid, it is unsurprising that he does not investigate the relative merits of these rivals. However, when properly understood, at least the second view, and possibly the first,74 is capable of defusing Smith's objections. The ‘primary’ objection Smith raises against the continuity thesis is the ‘conceptual’ one that ‘the duties that … [this] thesis supposes are transformed into duties to pay damages ceased to exist before they could be transformed’.75 Smith cites the termination of a contract upon serious breach to support this claim.76 But, as he acknowledges, other than when performance has become ‘futile’,77 serious breach alone normally does not terminate a contract; the promisee must ‘elect’ to do so. Smith's real concern must therefore be that ‘it is not clear how’ the promisee's decision to terminate a contract can ‘transform [the defendant's primary] duty into a duty to pay damages’.78 In reality, there is no great mystery here. Following breach, the law of contract is generally concerned to maximise the innocent party's autonomy subject to this not unjustifiably prejudicing the breaching party. Upon the occurrence of a sufficiently serious breach, it is therefore unsurprising that the innocent promisee can choose between insisting upon performance, accompanied by the option to claim damages for recoverable loss, and electing to terminate the parties’ reciprocal arrangement and accept the outstanding performance in the form of a monetary substitute.79 For Smith, this second possibility is conceptually puzzling, but its solution can be found in the version of the continuity thesis favoured by Gardner, drawing on earlier work by Raz.80 To explain further, in addition to converging upon a particular version of the continuity thesis, both Raz and Gardner adopt a specific conception of what a legal (and moral) duty actually is. For these authors, to say that one owes another a duty means that the beneficiary of that duty has an interest of sufficient strength to provide both a reason for the duty-bearer to protect and promote that interest and a reason not to act for at least some reasons that may count against protecting or promoting that interest.81 Importantly, Gardner also explains that in determining what action(s) the breaching party must undertake following a breach of duty, new considerations ‘may countervail’ and assert normative force.82 It is accordingly the (normatively significant) events of the breach's occurrence and, where choice is available, the promisee's decision to seek a monetary substitute in lieu of actual performance that, together with those reasons that justified the original duty and still await ‘next-best satisfaction’,83 ground the new ‘secondary’ duty to pay damages. Smith's conceptual objection to the continuity thesis thus dissolves upon a proper understanding of Gardner's account. But Smith also raises the ‘doctrinal’ objection against the continuity thesis that it ‘is inconsistent with the rules governing the assessment of compensatory damages’.84 The ‘main inconsistency’ here, claims Smith: ‘arises in respect of the various rules that limit defendants’ liability for consequential losses, such as mitigation, contributory negligence, collateral benefits, exoneration of liability clauses (limitation and exclusion clauses), and “remoteness”’.85 Smith believes that these rules are ‘inconsistent with the continuity thesis’ because: ‘if paying damages is meant to make the world as if the defendant had performed its original duty, the fact that the claimant was careless or could have avoided the loss or, more generally, the loss was not reasonably foreseeable, seems irrelevant’.86 This might initially seem like a forceful objection against the continuity thesis, but it is not because it misinterprets the idea of ‘next-best conformity’ with the primary duty.87 The content of the reparative duty grounded by the continuity thesis following a breach of legal duty is not to put the victim of the breach in exactly the same factual position as if the breach had not occurred. To see why this is so, consider that the defendant's breach of duty may influence numerous later decisions of the claimant ranging from whom to contract with to what modes of transportation to engage in, with all the attendant further consequences that may flow from these decisions. Even limiting our concern only to those consequences that have accrued by the time of trial,88 Smith cannot be suggesting that, when assessing damages, the court must take an exhaustive ledger of all such costs and benefits no matter how tenuous the causal connection? Smith's error here involves misunderstanding what the continuity thesis actually entails. The continuity thesis does not require the breaching party to reconstitute the innocent party's non-breach factual position in every possible respect, but instead to achieve ‘next-best conformity’ with the reasons that justified the relevant primary duty subject to the constraints imposed by any new considerations now exerting normative force.89 Put another way, what the idea of ‘next-best conformity’ entails is not ‘next-best’ factual conformity with the claimant's non-breach position, but rather giving effect via a secondary duty to pay damages, so far as can now be justified, to the reasons grounding the primary legal duty. Although this typically involves making good some of the breach's adverse consequences for the innocent party, it does not necessarily require making good all such consequences and may even have the effect of placing the innocent party into a better factual position than it would have been in had the breach not occurred. The truth of this final observation is demonstrated by cases where a post-breach causally related benefit of the breach accrues to the innocent party and is not deducted from the damages payable.90 The Supreme Court's decision in The New Flamenco,91 where ship owners claimed lost profits following early redelivery by the charterer of the chartered ship, provides a notable recent example. There the Court unanimously held that the substantially higher sale price that the owners obtained in selling the ship in October 2007, compared to what would have been obtained had the sale occurred in November 2009 when the charterparty was due to end, did not need to be taken into account when assessing damages; principally because the owner's choice to sell the ship was ‘a commercial decision [taken] at their own risk’.92 Decisions of this kind are controversial and there is scope for reasonable disagreement regarding precisely when a post-breach benefit should be considered sufficiently ‘collateral’ to the breach to be disregarded for the purposes of damages assessment. But unless one takes the view that post-breach benefits that, no matter how tenuously related to the breach's occurrence, would not have accrued to the innocent party ‘but for’ the breach should always reduce the sum awarded, a damages award will sometimes result in the innocent party being placed into a better financial position than if the breach had not occurred. Smith rightly observes that there is a puzzle here, but he draws the wrong conclusion from these cases, claiming that, like rules limiting damages awards, the ‘collateral benefits’ doctrine demonstrates the falsity of the continuity thesis.93 He also ‘more tentatively’ suggests that the continuity thesis ‘has difficulty explaining compensation for lost profits or incidental out-of-pocket expenses’.94 However, Smith's simultaneous objection to the continuity thesis for failing to explain why certain consequential losses are recoverable and the fact that not all consequential losses are recoverable is puzzling. It is true that on a purely factual interpretation of what the continuity thesis entails, any rules having the effect of placing the innocent party into a worse (or better) factual position than had the breach not occurred are problematic. But on this (incorrect) interpretation of the continuity thesis, one aspect of the law not requiring explanation is the availability of ‘compensation for lost profits or incidental out-of-pocket expenses’.95 Thus, assuming that the aforementioned ‘collateral benefits’ decisions can be justified, what they really demonstrate is that Smith's interpretation of what the continuity thesis entails is incorrect. Rather than aiming to place the victim of the breach in exactly the same factual position as if the wrong had not occurred, the continuity thesis seeks to achieve ‘next-best conformity’ with the reasons justifying the primary duty in the way that best accommodates those new considerations now exerting normative force. Some have argued that in both the contractual and tortious contexts this generally involves substituting for the primary right infringed and making good those adverse consequences of the breach falling within the scope of the breaching party's reparative responsibility.96 But one need not endorse such an account to support (a version of) the continuity thesis.97 To elaborate, when determining the scope of a breachi