The but-for test is widely acknowledged as the dominant test for establishing a causal link between a defendant’s wrongful behaviour and the resulting harm to the plaintiff.Footnote 1 This article focuses on the theoretical plausibility of this dominant test of causation in establishing a causal link between a defendant’s wrongful behaviour and their resulting gain. At issue are legal settings in which a tort results in gain to the wrongdoer, and the plaintiff, whose right was appropriated by the wrongdoer, is entitled to recovery estimated based on the defendant’s ill-gotten gain. The categorization of these cases has been a matter of debate. In a nutshell, throughout the common law, the concepts of ‘restitution’ and ‘unjust enrichment’ have been treated as encompassing two types of remedial obligations. The first is the reversal of unjustified transfers between the parties; the second strips away benefits obtained by the breaching of private law obligations.Footnote 2 The conventional view is that only the former remedy is characterised as restitution for unjust enrichment,Footnote 3 while the latter, which is the focus of this article, should be described as disgorgement for civil wrongs.Footnote 4 I do not address the issue of categorization of the law of restitution here, as the topic of the present article is the theoretical tenability of the but-for test for linking the gain to the wrong that produced it. Focusing on the resulting outcome of these cases, I refer to them here as cases of gain-based damages.
The plausibility of the but-for test in cases of gain-based damages has been contested using normative and technical arguments. According to the normative argument, pertinent to theories of rights, the but-for test is irrelevant to gain-based recovery because the recovery to the plaintiff should be decided based on the value of the infringed right, rather than on the random consequences of the infringement.Footnote 5 Perhaps the best example to illustrate this argument is that of unauthorized use. If one uses an asset without the owner’s permission, recovery for the owner should reflect the value of the use, rather than the gain resulting from it. The technical argument against the theoretical plausibility of the but-for test in gain-based damages cases is that the test fails to find a causal link between a defendant’s wrongfulness and the resulting gain whenever the defendant can argue that they could have derived the same gain in some lawful way.Footnote 6 In these cases, the argument goes, the but-for test—asking what would have been the result had the defendant acted lawfully rather than unlawfully—leads to the absurd inference of no causation, even when it is clear that in practice the defendant gained from the wrongdoing.
In this article, I argue that the but-for test is theoretically and doctrinally plausible in cases of gain-based damages just as in those of loss-based damages, but to understand exactly how, we must recognize the sensitivity of the test to the legal context in which it is applied. In particular, the causal analysis I propose here suggests that the answer to both the normative and technical arguments lies in the understanding of the contrastive aspect structurally embedded within the but-for test. This aspect, familiar mostly from the use of the test in negligence cases, requires the factfinder to ask what would have been the result had the defendant acted reasonably instead of negligently. Only after establishing the contrastive case in which the defendant acted reasonably can the factfinder proceed to the technical stage of comparing the probable result of the contrastive reasonable case with the actual result, and determine the difference that the defendant’s wrongdoing made. This difference represents what the defendant’s wrongdoing, rather than merely doing, has, in fact, caused. In this article, I explain that the contrastive aspect of the causal inquiry, pertinent to negligence cases, is a particular application of the generic causal formula, which asks what would have been the result had the right thing happened instead of the defendant’s wrongful behaviour?
Indeed, in negligence cases, the right thing that should have happened is defined in terms of reasonability, which is often determined based on empirical reference to statistically prevalent norms of conduct. The empirical element that is often involved in determining whether a behaviour is reasonable in negligence cases may disguise the normative nature of the contrastive aspect of the but-for test, requiring the factfinder to define what was the right thing that should have happened as part of implementing the test. In gain-based damages cases, where factfinders are not confined to terms of reasonableness, the normative aspect embedded within the contrastive aspect of the but-for test is revealed in full. To implement the causal test and determine the amount of gain factually attributed to the defendant’s wrong, factfinders must make a normative choice and define what was the right thing that should have happened under the circumstances. Only then can they proceed to the technical stage of examining whether the defendant’s wrongdoing made a difference, and if so, to what extent—that is, to determine the amount of gain that the defendant obtained because of their wrongdoing.
The plausibility of the but-for test in cases of gain-based damages has important implications, some of which go beyond the particular legal paradigm of gain-based damages. For instance, a possible implication of the analysis proposed here is that whereas in cases focusing on the plaintiff’s harm, the but-for result must ultimately be translated into monetary terms to determine the recovery amount, in gain-based damages cases, the but-for result reflects both the difference that the defendant’s wrongfulness has made and the sum of recovery. Another possible implication of exposing the way in which the but-for test is applicable in gain-based damages cases is that it sheds light on the relation between facts and norms in the doctrinal setting of these cases. Last, to the extent that coherence and consistency in private law matter, the idea that the dominant test for establishing factual causation in the law is implausible when it comes to gain-based damages should not be taken lightly. In this article, I provide a possible explanation supporting the doctrinal and theoretical applicability of the but-for test. This explanation shifts the focus from the question of whether the but-for test is plausible in cases of gain-based damages to how the test is applied in such cases.
The arguments and proposed analysis in this article are expounded through discussion of the seminal case Olwell v. Nye, Footnote 7 to which I now turn.
II. Olwell v. Nye and the Plausibility of the But-For Test
In Olwell, the defendant, an egg-packer plant, used an egg-washing machine, stored in a place adjacent to the premises occupied by the defendant, without the consent or knowledge of its owner, the plaintiff. The defendant had operated the machine for a period of three years before the owner accidently discovered the unauthorised use. Upon making this discovery, the owner offered to sell the machine to the defendant for six hundred dollars.Footnote 8 The defendant made a counteroffer of fifty dollars, which the owner rejected. The owner then filed a claim to recover the defendant’s gain from using the machine. The Washington Supreme Court ruled in the owner’s favor, allowing him to waive his claim in tort and base it instead on the theory of unjust enrichment, thereby acknowledging that the defendant’s behaviour had given rise to a claim to restitution.Footnote 9 The Court calculated the amount of recovery to the plaintiff based on the expenses that the defendant saved through the unauthorised use of the egg-washing machine, that is, the defendant’s profit from using the machine, rather than on the reasonable value of its use.Footnote 10
Possibly because it is based on such a minor yet simple and clear case of appropriation of right, the decision in Olwell has been at the heart of the ongoing controversy in the literature regarding the appropriate amount of recovery in gain-based damages cases.Footnote 11 While law and economics scholarship explains the decision as consistent with deterrence considerations,Footnote 12 corrective justice theorists find the decision in Olwell mistaken because, in their view, the remedy should be determined according to the value of the right infringed rather than according to the profit generated by the infringement.Footnote 13 My purpose in this article is not to ‘pick a normative side’ and determine which of these arguments is correct. Rather, I want to draw attention to the plausibility that the but-for test can help reveal the gain causally attributed to the defendant’s wrongful behaviour in a way that is consistent with both.
A. Prominent Arguments About the (Ir)relevance of the But-For Test to Cases of Gain-Based Damages
The circumstances in Olwell depict a legal setting, in which a tort has resulted in gain to the wrongdoer. In these cases, the plaintiff, whose right was appropriated by the wrongdoer, is usually entitled to gain-based recovery, also referred to as disgorgement. The dominant view in scholarship about this type of case is that the but-for test is either irrelevant or entirely fails to provide factual inference as to the scope of gain causally attributed to the defendant’s wrongdoing. The prominent arguments against the tenability of the but-for test, briefly mentioned above, can easily be explained based on the Olwell decision.
1. The Normative Argument
As noted above, according to corrective justice, the amount of recovery should be determined according to the scope of the right that the defendant infringed, rather than by the consequential gain to the defendant.Footnote 14 Correspondingly, so the argument goes, even when a causal link can be established between the defendant’s wrong and the gain attributed to this wrong, this should not affect the defendant’s liability or the scope of recovery.Footnote 15 The latter conclusion conforms to Ernest Weinrib’s criticism of the court decision in Olwell.
Weinrib is perhaps the most prominent contemporary theorist of corrective justice, and it is his theory that provides the focus for presenting what I term here ‘the normative argument’ against the theoretical plausibility of the but-for test in cases of gain-based damages. In Weinrib’s view, the amount of recovery in Olwell should have corresponded to the particular infringement of the plaintiff’s right, which was the use of the plaintiff’s egg-washing machine without permission.Footnote 16 Therefore, the recovery should have been measured based on the value of the use of the machine, regardless of the amount the defendant gained by violating the plaintiff’s right. For this reason, even if the causal inquiry reveals that the defendant’s savings from avoiding the need to hand-wash the eggs would not have materialised but-for his unauthorised use of the plaintiff’s machine, this should have no effect on the scope of the plaintiff’s recovery.Footnote 17 Weinrib explains that the recovery determined by the expenses saved through the unauthorised use of the machine expresses a right to hand-washed eggs that the plaintiff never had or claimed to have.Footnote 18 On this basis, Weinrib finds the ruling in Olwell not only erroneous,Footnote 19 but also demonstrating the failure of the but-for test to lead to normatively satisfying results in the case of gain-based damages.Footnote 20
2. The Technical Argument
The Restatement (Third) of Restitution and Unjust Enrichment presents a different argument against the tenability of the but-for test in gain-based damages cases. Before proceeding to this argument, however, note that the normative presumption of the Restatement is that in cases like Olwell, recovery aims to strip the wrongdoer of the ill-gotten gain resulting from their wrongdoing to foster deterrence, rather than to correspond to the particular infringement of right.Footnote 21 Yet, at the same time, the Restatement also questions the plausibility of the but-for test being able to produce results expressing the gains causally attributed to the wrong that produced them. The suggested reason for this, which I call here ‘the technical argument,’ is that the but-for test may result in erroneous inferences when a defendant can claim that they could have produced the same gain in some way other than their wrongful behaviour.Footnote 22 According to the technical argument, in such cases the but-for test leads to a result of no causation even when it is clear that the defendant was enriched by their wrongdoing toward the plaintiff. Below I will explain that a defendant’s counterfactual argument that they could have obtained the same amount of gain in some other lawful way, but-for their wrongdoing, does not necessarily reflect a valid causal claim. I will do so by proposing an explanation of how the but-for test applies in gain-based damages cases like Olwell and then describe how the proposed analysis answers both the normative and technical arguments presented above. Before proceeding to these central tasks, however, I briefly review the principal attempt to explain the implementation of a counterfactual inquiry of causation in gain-based damages cases.
B. Gain-Based Damages and Causal Over-Determination
Only a small fraction of the vast scholarship on but-for causation has studied its implementation in cases of gain-based damages, perhaps because of the above objections to applying the but-for test in these cases. Against the relative dearth of scholarly attention, Mark Gergen’s study stands out as a prominent project exploring the counterfactual inquiry of causation in gain-based damages cases.Footnote 23 In response to the arguments against the applicability of the but-for test in these cases, Gergen suggests resorting to special rules that apply in cases of “over-determination.”Footnote 24 The term ‘over-determination’ generally refers to a factual pattern in which more than one factor is sufficient in itself to cause a certain outcome, making it possible to claim that the outcome would have obtained even in the absence of each individual factor.Footnote 25 For example, if either of two motorcycles made enough noise to startle the plaintiff’s horse, the but-for test can plausibly lead to the determination that neither motorcyclist can be held liable because each can claim that the horse would have been startled without the noise emitted by the motorcycle.Footnote 26 Therefore, in these cases, the but-for determination is that there is no causal link between any of the possible causal factors and the resulting harm. The conventional approach to these cases applies alternative rules, whereby each of the wrongdoers, whose conduct was sufficient to cause the victim’s harm, can be held legally responsible for their wrongfulness.Footnote 27
Gergen finds a resemblance between the problematic pattern of over-determination and gain-based damages cases, and argues that they should be treated in a somewhat similar manner.Footnote 28 He notes that gain-based damages cases represent a particular pattern of over-determination, in which one of the competing causes never comes into play.Footnote 29 According to Gergen, defendants in cases of appropriation of right, such as Olwell, should not be relieved of liability any more than a defendant who killed someone in a car accident should escape liability “merely because the decedent was on her way to catch a plane that was later blown up by a terrorist.”Footnote 30
Gergen illustrates his theory based on Olwell, where he identifies two competing causal scenarios. In the first (hypothetical competing) scenario, the parties reached a consensual transaction whereby the defendant paid the plaintiff the market value of the egg-washing machine. In the second scenario, which actually came true, the defendant used the machine without the plaintiff’s permission. Gergen explains that the court decision in Olwell set aside the hypothetical competing cause (the consensual transaction) and considered only the actual competing cause (the defendant’s unauthorised use of the machine) with the aim of promoting deterrence and discouraging deliberate wrongdoers from taking others’ entitlements instead of bargaining with them.Footnote 31 Therefore, according to Gergen, in cases like Olwell, the defendant should not be allowed to keep a windfall even if they can prove that they could have made a better deal but for their wrongdoing.Footnote 32
The causal analysis I present next identifies the case of Olwell as one of under-determination rather than over-determination. In particular, I argue that the causal setting presented in Olwell is not a problem of multiple competing causes that lead to one causal result but rather one of several ‘contrastive causes’ that may lead the causal inquiry to at least two different causal results. At this juncture, however, it suffices to note that Gergen’s thoughtful analysis raises some concerns. First, to the extent that coherence and consistency matter, establishing a general rule of causation in cases of restitution for wrongs based on a practice developed to contend with exceptional situations (of over-determination) may be a plausible option, but only after attempts to apply the dominant test of causation in the law have been exhausted.Footnote 33 Second, Gergen’s reliance on considerations of deterrence to explain the desired causal analysis fails to establish the need for such an analysis in the first place: why resort to semi-rules of over-determination if court decisions in gain-based damages cases are supposedly motivated exclusively by deterrence? If this is the case, it is not clear why Gergen thinks that we need a test of causation at all. Last, if we follow Gergen’s approach, the but-for test will always result in a determination of a causal link between the defendant’s wrong and subsequent gain in cases like Olwell.Footnote 34 Thus, a result of no-causation is apparently impossible under his theory in such cases, and if it is possible, it is not clear what conditions are required to produce such a result.
III. The Contrastive Aspect of Causation and Cases of Gain-Based Damages
In this part, I present the framework for understanding causal analysis in gain-based damages cases in a way that addresses the noted concerns about Gergen’s analysis.
A. From Losses to Gains: Same Causal Formula, Different Legal Paradigm
The but-for analysis I present here is based on a particular approach to counterfactual causation. Under this approach, reflecting the logic of a contrastive view of causation, a causal link is not determined by a binary relation between A (cause) and B (result), but rather it is expressed through the following inquiry: What if A* (the contrastive cause) rather than A had caused B* (the probable result of A*) rather than B?Footnote 35 In this question, the conclusion about the existence of such a causal link depends on the presence of a difference between B and B* (i.e., if B–B*>0, there is a causal link).Footnote 36 This contrastive framework of causal inquiry resembles the traditional formula of the but-for test typically applied for establishing the existence of a causal link between a wrong and its harmful result in the law, particularly in negligence cases. A simple example is one in which a physician treats a patient negligently (A), and subsequently the patient dies (B). In this setting, the contrastive form of the but-for test asks what would have been the outcome had the physician acted reasonably (A*) instead of negligently (A)? To establish causation, the plaintiff(s) need to preponderantly prove that had the physician treated the patient reasonably, they would have likely survived. Only then can it be said that the physician’s negligence made a difference to the patient and is therefore the cause of their death.Footnote 37
The contrastive formulation of causation is used here for sharpening that the but-for test, often perceived as a purely factual test, in reality consists of a contrastive aspect that is normative in nature.Footnote 38 To infer whether the defendant’s wrongdoing made a difference for the plaintiff, it is necessary to compare the result of the defendant’s (actual) negligence and the probable result of the reasonable (contrastive) conduct, which ought to have been followed under the circumstances. Importantly, the contrastive structure of the but-for test is not a technical matter. Rather, it conveys the idea that the law does not care about every kind of result, but only about those deriving from people’s wrongdoing, rather than their doings in general. The contrastive aspect of the but-for test reminds us that the concept of wrongdoing is inherently contrastive: we cannot tell what the defendant did wrong except by contrasting it with whatever is considered right in the circumstances.
The requirement of defining a contrastive state of affairs reflecting the right thing that should have happened in the circumstances when applying the but-for test is most intuitive in the area of negligence. In negligence cases, the inquiry regarding the state of affairs that contrasts with the defendant’s unreasonable behaviour—that is, the reasonable scenario in these circumstances—is an internal part of the adjudication about whether the defendant was negligent. The same contrastive-reasonable state of affairs is then incorporated in the but-for test to determine whether it was the unreasonable behaviour that made the difference. Conversely, in cases of gain-based damages, like Olwell, when a defendant uses another person’s asset without permission, a preliminary inquiry regarding the state of affairs that contrasts with the defendant’s wrongful behaviour is rarely conducted, possibly because in these cases, the defendant’s wrongfulness is usually evident and indisputable. Clearly, the defendant should not have used or taken another’s asset without permission.
It may be, therefore, that because the defendant’s wrongfulness is not in dispute in cases like Olwell, factfinders tend to skip the normative stage of defining the state of affairs that contrasts the defendant’s wrongdoing, and focus instead on the question of the measure of recovery. But as the contrastive formulation of the but-for test reminds us, these two questions are inseparable. The gain attributed to the defendant’s wrongdoing can be determined only by the difference between the actual gain and the gain that the defendant would have obtained had the state of affairs that contrasts with the defendant’s particular wrongdoing occurred instead. In negligence cases, this contrastive scenario is defined based on reasonableness. Conversely, in gain-based damages cases, like Olwell, the normative nature of the task requiring the factfinder to define the state of affairs that contrasts with the defendant’s wrongdoing is revealed in full. The factfinder engaging in the causal inquiry faces the normative task of deciding upon the particular state of affairs that should have occurred instead of the defendant’s unauthorised use. In other words, to apply the factual test of causation, the factfinder must decide what was the right thing that should have happened in the given circumstances. This conclusion is consistent with Alex Broadbent’s suggestion to define the contrastive cause in the counterfactual test of causation by what he calls the “appropriate foil.”Footnote 39
Broadbent’s description of the contrastive cause in terms of appropriateness expresses the understanding that, in the law, the contrastive cause is denoted by a hypothetical state of affairs that presents a normative statement as to what should have happened (instead of what actually did happen). This is not to say that the normative determination of what the defendant should have done is not expressed in the duty mandated by the law.Footnote 40 It means that in some cases, particularly the gain-based damages cases that are the subject of this article, the question of how to comply with this duty is left quite open to interpretation. In such cases, when a defendant has a choice between several ways of meeting their duty to a plaintiff, they face a choice between permissible factual paths. But when the defendant chooses neither, resulting in harm or gain, the factual paths not-taken by the defendant ex ante transform into normative paths from which the factfinder performing the causal inquiry must choose ex post. This realization of the way in which factual and normative determinations are intertwined in the causal inquiry through the contrastive aspect of the but-for test is crucial for understanding how this test is applied in gain-based damages cases.
The contrastive formula of the but-for test reminds us that a factfinder cannot infer the result of a wrongdoing without realizing first why it is a wrongdoing—that is, without considering what is the particular ‘rightdoing,’ or as I refer to it below, the ‘appropriate state of affairs’ in the circumstances. Only then can the factfinder proceed to the technical stage of comparing the result (loss or gain) that actually occurred with the probable result that would have occurred had the appropriate state of affairs happened instead. In cases like Olwell, this difference represents the amount of gain that can be causally attributed to the defendant’s wrongdoing.
B. Contrasting the Wrongdoing with What Should Have Happened
I explained above that the choice of appropriate state of affairs, expressed in the contrastive aspect of the but-for test, expresses a transformation: from a factual choice between different possible paths of behaviour through which the defendant could have met their duty toward the plaintiff ex ante, to an ex post normative choice the factfinder faces in determining which of these possible paths of behaviour represents what should have happened in the circumstances. This transformation reflects the significant influence that the factfinder’s normative perspective has upon the but-for test result. The task of defining the state of affairs that contrasts with the defendant’s wrongdoing—that is, the appropriate state of affairs in the circumstances—renders the but-for test sensitive to the factfinder’s normative view. This sensitivity may be less noticeable in negligence cases, where the defendant’s wrongful behaviour is contrasted with the reasonable behaviour in the given circumstances, which is typically determined by reference to prevalent norms of conduct or even statistical inferences.Footnote 41 In gain-based damages cases like Olwell, however, where contrasting the defendant’s wrongdoing with what should have happened is a more open-ended normative task, the normative perspective of the factfinder is much more strongly reflected in the application of the but-for test.
The sensitivity of the causal inquiry to the point of view of the inquirer has long been acknowledged in the non-legal literature on causation. One aspect of it was demonstrated in Bas van Fraassen’s illustration of how the question ‘Why did Adam eat the apple?’ can elicit a variety of contrastive alternatives.Footnote 42 Van Fraassen explained that the way in which the question is construed depends on how the inquirer chooses to ask it: ‘Why was it Adam who ate the apple (rather than Eve)?’ or ‘Why was it the apple Adam ate (rather than a different fruit)?’ or ‘Why did Adam eat the apple (rather than, say, throw it away)?’ It is the inquirer’s focus on certain aspects of the question rather than others that shapes their choice of the contrastive alternative. Van Fraasen’s illustration demonstrates how different perspectives can lead to choosing different contrasts to investigate a similar case. The sensitivity of the causal inquiry to the inquirer’s point of view is acknowledged even with regard to scientific inquiries, where the experimenter’s choice of measuring device or technique is known to have a critical effect on the experiment results, as for example, in physics experiments.Footnote 43
Acknowledging the sensitivity of the but-for test to the factfinder’s normative perspective lays the ground for yet another observation: because different factfinders may hold different normative views, they may also differ in defining the state of affairs that contrasts with a particular wrongful behaviour—that is, in their view of what the right thing that should have happened in the given circumstances is. The contrastive formula of the but-for test elucidates why the causal test may yield different factual results under different definitions of the right thing that should have happened instead of the wrongdoing that actually did happen.Footnote 44
Cases in which the but-for test leads to at least two contradictory factual results are generally identified as cases of causal under-determination.Footnote 45 These cases are perceived as generating impossible causal inferences.Footnote 46 I suggest, however, that when causal under-determination arises from a multiplicity of normative perspectives, which in turn influences the definition of the contrastive aspect of the but-for test, it is not indicative of a causal anomaly. Drawing on the above example of physics experiments as a metaphor, there is a difference between a case in which the same measuring device is applied in an experiment and yields conflicting results and one in which different measuring devices are used in an experiment and yield conflicting results. Assuming that the measuring device is sound and properly calibrated, it is only in the former case that the experiment produced an impossible result. The latter case is less problematic because it is not unlikely that two measuring devices (or techniques) lead to different results. In the law, the experimenters’ measuring device is not scientific machinery, but rather their normative perspective, and it stands to reason that different normative lenses (normative measuring devices, in this case) would lead to different but-for results.
Equipped with an understanding of the sensitivity of the but-for test to the factfinder’s normative perspective, let us return to Olwell and show how the test determines a causal link between gains and the wrongs that produced them.
IV. Factual Causation, Gain-Based Damages, and What About Olwell?
A. Linking Gains to Wrongs and Corrective Justice
As noted, in Olwell, the court set the recovery according to the amount of gain the defendant had obtained from his unauthorised use of the plaintiff’s egg-washing machine, namely, the hand-washing expenses the defendant had saved. Recall Weinrib’s critique of this ruling, explaining that the amount of recovery in Olwell should have reflected the machine’s rent value, by arguing, inter alia, that the ruling in Olwell is illustrative of the irrelevance of the but-for test. Below I offer a causal analysis that incorporates the insight regarding the normative sensitivity of the but-for test presented above, and apply it to the circumstances of Olwell. The analysis suggests that the contrastive formulation of the but-for test provides a framework for incorporating Weinrib’s normative structure of corrective justice within the structure of the but-for test. But first, a brief review of Weinrib’s approach to causation is in order.
1. Weinrib’s approach to causation
Through the lens of Weinrib’s view of private law, corrective justice provides a justificatory structure for transactions between people as equal and free beings.Footnote 47 This structure represents rights and duties in relational terms. Everyone has the right that others not interfere with their body or property and bears a correlative duty not to interfere with others’ body or property.Footnote 48 When one uses another’s property without obtaining their permission and harms them as a result, a wrongful transaction between the wrongdoer and the victim is completed, and the victim is entitled to a remedy that rectifies the particular injustice resulting from the wrongful transaction.Footnote 49 Weinrib’s conception of causation is therefore intrinsic to his view of corrective justice. The requirement of causation, according to Weinrib, is satisfied when the risk to which the wrongdoer unreasonably exposed the victim materializes to actual harm. Thus, when the wrongful transaction is completed, the plaintiff has grounds to complain because, as Weinrib explains, “[w]ithout injury at the actor’s hands, there is no sufferer to whom the actor is liable.”Footnote 50
Weinrib’s notion of causation as the materialization of the unreasonable risk to which the defendant exposed the plaintiff can be settled with the contrastive formula of the but-for test, looking for the difference that the defendant’s wrongful behaviour made (loss or gain).Footnote 51 This difference is identified by contrasting the outcome resulting from the defendant’s wrongdoing with the outcome that would have resulted had the defendant complied with their duty to the plaintiff. The existence of such a difference determines whether the harm to the plaintiff resulted from the defendant’s wrongdoing, or in Weinrib’s words, whether the plaintiff’s harm is a materialization of the specific unreasonable risk that the defendant’s behaviour created. This conclusion is as relevant to negligence cases that result in harm to the plaintiff as it is to cases of appropriation of right that result in gain to the defendant.
2. Incorporating the relational structure of corrective justice into the but-for test
The following analysis suggests that the structure of corrective justice can be incorporated into the formula of the but-for test through the contrastive element of the test. Consider again the relational or correlative form of normativity that lies at the core of corrective justice,Footnote 52 in which a completed private wrong is one in which the defendant’s duty-breaching act is also the plaintiff’s right-infringing injury.Footnote 53 This relational structure can be translated into that of the but-for test in its contrastive form presented above. Applying the but-for test through the normative lens of corrective justice, the state of affairs that contrasts with the defendant’s wrongdoing should be defined by the particular hypothetical scenario correlative to the wrongful transaction that occurred in reality. In Olwell, the wrongful transaction was the defendant’s use of the machine without receiving the plaintiff’s permission. The particular hypothetical scenario that contrasts with this wrongful transaction should thus be one in which the defendant obtained the plaintiff’s permission by contracting with him to use the machine—in other words, a scenario of voluntary transaction.
Having defined the particular state of affairs that contrasts with the defendant’s wrongdoing in Olwell, we can turn to the technical stage of the but-for test and measure the difference that the wrongdoing made in gains to the defendant. The difference between the gain that the defendant derived from using the plaintiff’s machine without permission (estimated based on the expenses that the defendant saved through this use) and the gain that the defendant would have derived had he contracted with the plaintiff to use the machine, expresses the amount of gain that the defendant would not have obtained but-for the breach of his duty to the plaintiff.
To illustrate this estimation numerically, assume that the rent value of the egg-washing machine for a period of three years is approximately $600.Footnote 54 This amount represents the estimated price on which the parties would have agreed as the rent value of the machine in a voluntary transaction that should have taken place between them. Assume further that, similarly to the estimation of the court, the expenses that the defendant saved by using the machine are $1,560.Footnote 55 Under these conditions, the causal analysis indicates that had the defendant lawfully obtained the plaintiff’s permission to use the machine, instead of using it without permission, he would have gained $960 instead of $1,560. The difference between $1,560 and $960 represents the amount of gain attributable to the defendant’s wrongdoing. In corrective justice terms, this difference, in the amount of $600, expresses the injustice resulting to the plaintiff from the wrongful transaction. The defendant must therefore return this amount to the plaintiff and thereby restore the normative equality between them. The remaining $960 is a gain the defendant is allowed to keep because, as the contrastive formula demonstrates, the defendant would have obtained this gain had he committed no wrong and contracted with the plaintiff. This causal analysis is consistent with the correlative structure of corrective justice as well as with Weinrib’s conclusion regarding the appropriate sum of recovery in Olwell.
As I argued above, however, because different factfinders may hold different normative views, the hypothetical scenario that contrasts with the defendant’s wrongdoing in Olwell may be defined differently by a factfinder who holds a different normative perception. The contrastive formula of the but-for test shows that different presumptions about the particular right thing that contrasts with the defendant’s wrongdoing may lead to different but-for results, and the conclusion regarding the amount of gain attributed to the defendant’s wrongdoing may change accordingly. This conclusion is an inevitable consequence of the sensitivity of the causal inquiry to the normative perspective of the factfinder who conducts the inquiry. Below I illustrate this conclusion through an alternative causal analysis of Olwell.
B. Applying the But-For Test from Different Normative Perspectives
The court decision in Olwell aligns with a result of the but-for test when a factfinder contrasts the defendant’s wrongdoing with a state of affairs of pure omission, that is, with an imaginary hypothetical situation in which the defendant would have refrained from any activity with regard to the plaintiff’s machine.Footnote 56 Contrasting the defendant’s wrongdoing in Olwell with such a state of affairs, the causal result would be the difference between the gain the defendant obtained by using the plaintiff’s machine without permission (the expenses saved by the defendant through the unauthorised use) and the non-gain the defendant would have obtained had he not made any use of the machine (i.e., zero). But—and this is a key point—given the understanding of the normative essence of the contrastive aspect of the but-for test, the choice to contrast the defendant’s wrongdoing with a pure omission state of affairs lacks causal significance unless it is supported by a normative perspective that justifies this particular choice. I demonstrate a causal analysis that is based on such a normative perspective next.
1. An alternative implementation of the but-for test in Olwell
The following analysis demonstrates the significant influence that the factfinder’s normative view has on the factual inference of the but-for test, linking gains to wrongs, and on the way in which different normative perspectives may lead to different causal conclusions. While the correlative structure of corrective justice justifies contrasting the defendant’s wrongdoing in Olwell with a scenario of voluntary transaction, Calabresi and Melamed’s rules of protection of entitlementFootnote 57 may lead us to contrast the same wrongdoing differently.
The economic reasoning behind Calabresi and Melamed’s rules of protection is that efficient transactions occur without the interference of the law, unless the transaction costs are too high and prevent an efficient transaction from happening.Footnote 58 This may be the case, for instance, when a plaintiff is holding out, blocking a transaction and thus raising its costs. In such a case, Calabresi and Melamed suggest what they term a “liability rule” that expresses a protection of entitlement by means of liability for damages.Footnote 59 Conversely, when transaction costs are low, an efficient transaction should occur voluntarily. If it did not, a possible explanation is that the defendant was attempting to profit at the plaintiff’s expense by using, or even outright taking, the latter’s asset without paying for it. It appears that the court in Olwell regarded the circumstances of the case to be of the latter type.Footnote 60 The defendant’s behaviour may have indicated to the court that he was an intentional wrongdoer trying to avoid a consensual transaction, which may well have been efficient,Footnote 61 to increase his benefit from using the plaintiff’s machine without permission.Footnote 62
In these circumstances, Calabresi and Melamed’s property rule suggests enforcement by means of injunction.Footnote 63 The concept of injunction can be incorporated into the but-for test by a choice to contrast the defendant’s wrongdoing with a state of affairs in which the defendant refrained from any action with respect to the plaintiff’s right in the machine, or as I call it here, a ‘pure omission.’Footnote 64 Contrasting the defendant’s wrongdoing in Olwell with pure omission, the causal result would be the difference between the gain the defendant obtained by using the plaintiff’s machine without permission (the expenses saved through the unauthorised use) and the non-gain the defendant would have obtained had he not made any use of the machine. In these circumstances, the result would be the existence of a causal link between the defendant’s wrongful use of the plaintiff’s machine and each dollar the defendant saved by using the machine. This result is consistent with the ruling in Olwell as well as with the result of Gergen’s analysis.Footnote 65
I have addressed Gergen’s causal analysis above. I now wish to focus on one important difference between the causal analysis proposed here and Gergen’s proposal. Both the but-for analysis presented in this part through an economic lens and Gergen’s proposed analysis lead to the conclusion that attributes the defendant’s savings in Olwell to his unauthorised use. Yet, the internal logics of the two analyses are fundamentally different. Gergen’s analysis targets first the desired result—the defendant’s disgorgement of profit—with the aim of fostering deterrence. Then, it backtracks to identify what Gergen identifies as the ‘competing cause’ that fits this result. Conversely, the analysis described above does not choose a desired result first, but instead treats the causal inquiry as a necessary mechanism for arriving at the end result. It starts with the factfinder’s normative task of choosing what the defendant’s wrongdoing should be contrasted with, in the circumstances. Only then, it proceeds to the technical stage of finding the difference between the gain derived through the defendant’s wrongdoing and the gain the defendant would have obtained had the right thing (through an economic lens) happened instead.
2. Different normative perspectives and the case of no-causation
As noted above, my purpose in this article is not to take a stand about the appropriate measure of recovery in Olwell. On the contrary, I argue and demonstrate that the normative sensitivity embedded in the but-for test through its contrastive aspect adapts the test to the normative perspective of the inquirer. This makes possible different implementations of the causal formula, which, in turn, may lead to different causal inferences. Thus, as demonstrated above through Olwell, the causal inquiry could support both a result attributing the defendant’s savings from using the machine to his wrongdoing, and a determination attributing to the defendant’s wrongdoing a gain estimated according to the use value of the machine. This counterintuitive possibility of equally valid yet differing causal results attests to the sensitivity of the but-for test to the normative perspective of the inquirer, which is revealed in full in gain-based damages cases. In these cases, the normative task requiring the factfinder to define what is the appropriate thing that should have happened, by contrast to what actually happened, is open-ended in the sense that it is not confined to terms of reasonability.
Equipped with these insights, we can now return to the Restatement commentators’ argument that in gain-based damages cases, the but-for inquiry entails an undesirable determination of an absence of causation when a wrongdoer can claim that they could have obtained the same gain without behaving wrongfully. Indeed, if we were to accept this implementation of the but-for inquiry, it could lead to the absurd outcome that wrongdoers are released from liability in cases like Olwell. But it should now be clear that this implementation of the but-for test reflects a misunderstanding of the normative sensitivity of the causal inquiry.
The contrastive aspect of the but-for test requires the factfinder who applies it to decide on the appropriate state of affairs that should have taken place, in contrast to the appropriation of right that actually happened. A determination that in Olwell the defendant’s wrongdoing should be contrasted with, say, a state of affairs in which the plaintiff would have given to the defendant the machine for free (and thus, the defendant would have obtained the same amount of gain from the machine but-for his wrongdoing, meaning that there is no causation), must be justified by a normative theory. Otherwise, the use of counterfactual terminology has nothing to do with causation.
This article argued that the but-for test is theoretically plausible in gain-based damages cases in the same way that it is plausible in negligence cases. In both paradigms, the factfinder who administers the causal inquiry compares the actual consequence (harm or benefit, loss or gain) with the consequence that would have resulted had the ‘right thing’ occurred instead of the defendant’s wrongful behaviour. The requirement of contrasting the defendant’s wrongful behaviour with a particular hypothetical scenario that portrays what should have happened expresses the notion that, in the law, we care about results deriving from people’s wrongdoings rather than their doings. In negligence cases, the right thing that should have happened instead of the wrongful behaviour is confined to terms of reasonability, which may express empirical inferences about the prevalent norms of conduct in the circumstances. Conversely, in gain-based damages cases, the factfinder faces an open-ended choice about what is the appropriate state of affairs that should have happened in the circumstances.
By examining the tenability of the but-for test in gain-based damages cases, I was also able to address the meaning and significance of the contrastive aspect of the test, which renders it sensitive to the factfinder’s normative perspective. I demonstrated, first, how this sensitivity influences the but-for result regarding the amount of gain attributed to the defendant’s wrongdoing, and second, that because of this sensitivity, the two positions concerning the appropriate amount of recovery in Olwell can be explained through a but-for analysis.
For helpful comments on various versions of this article, I would like to thank Steve Bero, Natalie Davidson, Christopher Essert, Ariel Porat, Arthur Ripstein, Henry Smith, Lionel Smith, Robert Stevens, Ernest Weinrib, and the participants of the 2018 Legal Philosophy Workshop, the Canadian Private Law Workshop, and the Place of Restitution in the Modern Law Workshop.