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IDENTIFYING THE PROFITS FOR WHICH A FIDUCIARY MUST ACCOUNT

Published online by Cambridge University Press:  30 April 2020

Matthew Conaglen Open the ORCID record for Matthew Conaglen [Opens in a new window]

Abstract

This article addresses the manner in which accounts of profits are quantified when they are ordered against fiduciaries. Unlike previous scholarship, which has often sought to explain recent case law by reference to preconceived conceptual models, the present article addresses the topic by drawing on the reasoning adopted in the cases over a longer period, with a view to helping with the practical resolution of future cases, while also offering arguments drawn from that analysis as to the correct approach to the conceptual questions that arise.

Keywords

fiduciariesaccount of profitscausationattributionallowances

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Articles
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The Cambridge Law Journal , Volume 79 , Issue 1 , March 2020 , pp. 38 - 63
Copyright
Copyright © Cambridge Law Journal and Contributors 2020

I. Introduction

This article is concerned with the manner in which the law identifies what profit must be accounted for when a fiduciary is found to have acted in breach of fiduciary duty and is forced to disgorge the profit that he or she has obtained. It is, of course, “integral to the formulation of the fiduciary principle itself”Footnote 1 that a fiduciary cannot profit from the fiduciary position unless that is authorised;Footnote 2 but there is no general principle as to how that profit is stripped,Footnote 3 as the fundamental principle has “manifold and various applications”.Footnote 4 The profit is sometimes stripped through a constructive trust,Footnote 5 or by the mechanism of rescission,Footnote 6 as well as through an account of profits. The various mechanisms for stripping profits are not islands unto themselves, but the focus of attention in the present article is on the account of profits mechanism. The concern here is not with the question whether or when a fiduciary must account for profits, but rather with the way in which such an account is taken – with the quantification of that remedy – when it is awarded. This topic is of practical importance when dealing with errant fiduciaries,Footnote 7 but it is difficult for a variety of reasons. Despite somewhat scant source material, it is suggested that it is possible to distil certain principles that have guided the courts, over a considerable period of time, in the way accounts of profits are quantified. In simple cases, the approach is relatively straightforward, but the topic becomes more complex in other cases, also raising important questions as to the role that concepts such as causation might play in this context. It is suggested that reference to causation brings an undesirable element of confusion to analysis of the topic, and that the courts are more concerned with determining which parts of the profit of a business have been made in breach of fiduciary duty and which parts of that profit, if any, are attributable to other, legitimate sources. The analysis also gives examples of the process of reasoning through which the parameters of an account of profits are established, which will help clarify the process for future cases.

II. Scant Source Material

The focus here is on the approach taken by courts, rather than the application of an a priori theory as to how this exercise ought to be conducted. In this area, as so often in equity generally, an inductive rather than a deductive approach is inescapable. In part, the difficulty in describing the principles which courts apply in taking accounts of profits arises because it was often not clear from the reported judgments what principles the courts applied in taking such accounts. The concept of an account of the profits made by a fiduciary in breach of fiduciary duty is clearly related to the concept of the normal trust account, in the sense that an account needs to be taken of the fiduciary's activity, with a view to determining how much profit has been made in breach of fiduciary duty and thus how much must be paid to the plaintiff. However, the principles applied in determining that profit are much less well documented in the textbooks on accounts than the principles applied to normal trust accounts.Footnote 8

The remedy of an “account of profits” is frequently thought of as the order requiring the defendant fiduciary to disgorge a profit to the plaintiff, but the label conceals an ambiguity in that it also refers to the logically prior exercise of inquiring into the relevant transactions to determine what amount of profit needs to be handed over to the plaintiff.Footnote 9 In simple cases it might be possible for the court to decide items of account without needing detailed inquiries to be conducted,Footnote 10 but deeper factual analysis was frequently required. In such cases, the account of profits was generally conducted by a Master in private in the Masters’ Chambers,Footnote 11 and the court's order requiring that the account be taken was generally simply an order that the account be taken with all just allowances.Footnote 12 The court's order did not normally indicate the principles by which the Master should take the account,Footnote 13 nor those by which allowances should be determined to be just, as it was considered impossible to provide in advance for the difficulties which might be encountered by the Master in taking the account.Footnote 14 The order would sometimes require the Master to state reasons for making or refusing allowances,Footnote 15 but the Master's reasons were not generally reported.Footnote 16 Exception could be taken to the Master's decisions,Footnote 17 which if adjudicated would generate some form of judicial pronouncement on the matter, although that did not necessarily clarify the principles that ought to be applied.Footnote 18 The original order sometimes contained a direction for payment of the amount that might be found due, but if not the matter would return to court later for final determination.Footnote 19

What follows, therefore, is pieced together from the printed case law and text book records that do exist, with a view to stating the position as best as can be done from that somewhat scant source material.Footnote 20 In view of the scant nature of the source material, it is even more imperative than normal – and certainly not less instructive – to consider the case law over a substantial period of time, rather than a few recent isolated instances, as that perspective enables one to discern trends and patterns which can assist with articulating the activity that the court is engaged in when it takes an account of profits in a particular case.

Another reason for there being scant material on the process by which accounts of profits were taken lies in the expense of taking accounts generally, and particularly in taking accounts of profits, which encouraged parties to settle the question of quantum once liability to account had been established. Accounts of profits were recognised to be difficult to take, and more so than other kinds of accounts.Footnote 21 They could take a considerable period of time to complete,Footnote 22 with consequential expense.Footnote 23 In recognition of these problems,Footnote 24 courts at times even went so far as to counsel the parties to compromise their dispute.Footnote 25

III. Allowances

Consistently with the courts’ refusal to prescribe principles by which the account should be taken, it was recognised that what would qualify as “just allowances” was something which could not be determined in advance “till the Master has thoroughly sifted it”.Footnote 26

The expectation that the Master would make all just allowances in taking the account of profits reflected the need to deduct expenses from receipts when calculating the profit for which a fiduciary would ultimately be held liable to account.Footnote 27 In other words, “just allowances” were taken into account in order that the fiduciary only account for the net profit which had been generated, rather than for gross receipts before expenses and other allowances were taken into account.Footnote 28 While expenses are different from allowances granted for work done in generating the profit, in the sense that the latter allowance is more discretionary than the former, the two kinds of deduction are all forms of “just allowance” in the accounting process.Footnote 29 Thus, while some case law indicates that any expenses which had been incurred would be brought into the account provided they had been incurred bona fide,Footnote 30 it seems that only expenses which were considered appropriate would be allowed (which is, of course, consistent with the nomenclature of “just allowances”); expenses which were in fact incurred in generating the profit were not always allowed if they were considered inappropriate.Footnote 31

The provision of just allowances also permitted the fiduciary to be compensated for time, effort and skill expended in generating the gains for which the fiduciary was prima facie liable to account, where that was considered appropriate. It is clear, from very early times, that the appropriate way for this to be brought into the account calculation was considered to be by the provision of just allowances.Footnote 32 These allowances thus have the same effect as allowances for other expenses: if granted, the allowance forms part of the calculation of the net profit for which the fiduciary must account.Footnote 33 The allowances have the same ultimate justification as well. To some degree, granting an allowance of this sort amounts to paying a fiduciary for time, effort and skill which has been spent in carrying out a breach of fiduciary duty, which appears to run counter to the fiduciary principles that prohibit remuneration and profit, in the sense that any allowance for time, effort and skill means the defendant fiduciary can retain some of what was earned in breach of fiduciary duty.Footnote 34 However, it is important to recall that the prohibition on fiduciary remuneration grew out of the trust situation, and that it was only ever a default rule, subject to alteration by the settlor who created the trust,Footnote 35 and also to alteration or amendment by the court which, in exercise of its ancientFootnote 36 inherent jurisdiction, could allow remuneration to a trustee.Footnote 37 In an early instance, the court allowed such remuneration to a fiduciary as a result of the analogy between his position and that of a trustee.Footnote 38 In other words, properly understood, the fiduciary prohibition is the prohibition of an uncontrolled ability for the fiduciary to take benefit from the fiduciary position, rather than an absolute prohibition on the fiduciary having any benefit from the position.Footnote 39

While it seems courts in Australia may be more willing to grant such allowances than courts in England,Footnote 40 authority on when such an allowance is appropriate remains “scanty”.Footnote 41 There is, necessarily, an element of discretion or “judgment”Footnote 42 in determining whether allowances should be made in a particular case, particularly for the fiduciary's time, effort and skill, and what allowance might be reasonable in the circumstances of that case.Footnote 43 That decision depends heavily on the circumstances of the particular case, and so it is difficult to formulate any general rule,Footnote 44 but a significant factor in the scant authority that exists appears to be whether the profit would not have been generated without the exercise of time, effort and skill, and whether it was reasonable – such that the court would have approved it if asked in advance – to pay someone to exercise that time, effort and skill without which the profit would not have been generated.Footnote 45 If that is the case, the work can be considered a legitimate expense in generating the profit, and thus deducted as a just allowance in the accounting process.

If granted, the allowance covers reasonable or “fair remuneration”Footnote 46 for the work done in generating the profit, rather than an estimate of what the particular defendant could have negotiated as remuneration for that work.Footnote 47 If the fiduciary could have negotiated a better rate of pay for the work which generated the profit, the failure to take that step is the fiduciary's own fault and so does not further diminish the amount of the profit for which he or she must account.Footnote 48 In O'Sullivan v Management Agency and Music Ltd., the Court of Appeal indicated that this remuneration could potentially include a profit element,Footnote 49 but it is important to recognise that Fox L.J. explained this on the basis that the “allowance could include a profit element in the way that solicitors’ costs do”.Footnote 50 In other words, what was accepted was that the remuneration could go beyond mere recovery of expenses out of pocket (disbursements and the like) and could extend to “profit costs” which would include payment for the expenditure of professional skill and labour. This approach anchors the decision as to the amount of the allowance to a reasonable sum for the work which was needed to generate the profit, bearing in mind relevant market conditions,Footnote 51 rather than it being a free-floating discretion to divide the profit between principal and fiduciary in some arbitrary proportion. In this way, an allowance for time, effort and skill, like allowances for other expenses which are determined to have been appropriately incurred in generating the relevant profit, is part of the calculation of the net profit which has been made in breach of fiduciary duty.Footnote 52

IV. Different Profit-Making Activities

A key source of difficulty in identifying or calculating precisely the profit for which a fiduciary must account lies in the wide variety of different ways in which profits can be generated.Footnote 53 This is an instance of the aphorism that “the law has to reflect life in all its untidy complexity”.Footnote 54 This makes it difficult to corral into a single principle, or simple description, the process by which courts determine the profit for which a fiduciary must account.

A. Simple Cases

In simple cases, particularly those regarding single assets,Footnote 55 and often single transactions, the calculation of the net profit for which the fiduciary must account is relatively straightforward. For example, in De Bussche v Alt, an agent was asked to sell a steamship for no less than $90,000. Having identified a Japanese prince who was willing to pay substantially more, the agent purchased the steamship himself at the stipulated minimum price, and then sold it to the prince at a considerable mark up. The court ordered the agent to account for all moneys that he had received in respect of the sale of the steamship to the prince, with allowances for proper commission payable to the agent on the sale and any disbursements or expenses properly made or incurred in respect of the sale.Footnote 56

Similarly, where the defendant holds the plaintiff's property in a fiduciary capacity, if that property has been used to acquire another asset, accounting for the profit from that transaction is often not difficult. In Attorney-General v Edmunds, for example, the defendant was Clerk of the Patents, in which capacity he was entitled to receive fees for which he had to account quarterly to the Consolidated Fund. The defendant used some of these funds to purchase stamps at discounted prices, which he then sold to patentees at their face value. He was held liable to account for any profits made by the purchase and re-sale of those stamps.Footnote 57 The calculation of that profit requires an allowance to be made for the cost of purchasing the stamps, but it is not a difficult calculation. Stripping profits in this way captures profits which have been generated by reason of the fiduciary holding the plaintiff's asset, such as dividends declared on shares held on trust,Footnote 58 interest paid on balances held by a trustee in a bank account,Footnote 59 and other valuable rights which are acquired by reason of the property being held by the fiduciary.Footnote 60

In these latter decisions, the liability to account effectively treats the profits as an “accretion to the property which has yielded them”,Footnote 61 which provides an effective means of stripping the profit that the fiduciary otherwise claims for himself. In Tang v Tang, Lord Millett N.P.J. rebuked counsel and the courts below for seeking to apply profit-stripping principles to the case at hand, rather than tracing principles,Footnote 62 arguing that the two involve conceptually distinct principles. However, that distinction is not as clear as he suggested. In Scott v Scott,Footnote 63 for example, which Lord Millett relied on in Tang v Tang,Footnote 64 the High Court of Australia held that a trustee who purchased property using a mixture of trust funds and his own could be required to account for the profit generated when that property increased in value, and that the obligation to account for that profit would be secured by a lien against the property. The High Court mentioned, but expressly did not decide, the question whether this could potentially be given effect through a co-ownership constructive trust, of the kind that the House of Lords (including Lord Millett) later recognised, following a tracing exercise, in Foskett v McKeown.Footnote 65 The point here is not to argue that tracing and accounts of profits necessarily operate on identical principles and will always produce the same results.Footnote 66 The point being made, and to which it will be necessary to return, is that the principles overlap, in the sense that both provide mechanisms for stripping profits from an errant fiduciary, and that the principles have influenced one another in their development.Footnote 67

In Gardner v M‘Cutcheon, for example, the defendant was part-owner and Master of a ship with authority to charter it for freight, or to engage in trade on the owners’ account. The defendant claimed to have engaged in trade using his own assets, purchasing a consignment of wool, but Lord Langdale M.R. considered that the wool had been bought with the proceeds of an earlier consignment of tea, which had been partnership property.Footnote 68 His analysis is thus based, albeit not explained in terms, on tracing of the partners’ property in the tea into the wool consignment. But, in Dean v MacDowell, Thesiger L.J. explained it as having been decided on the basis that any profit which the defendant had generated had been made by using the ship, which was partnership property, and thus had to be disgorged.Footnote 69 The latter analysis is more in the nature of accounting for profits generated in breach of fiduciary duty. A trustee is expected to account for profits made from the fiduciary office itself, just as much as for profits generated by use of trust property.Footnote 70

B. More Complex Cases

As the preceding analysis demonstrates, the calculation of profit generated in breach of fiduciary duty is not always difficult. However, it can become much more complex, due in particular to the complexity of identifying the source of profits made in a business concern.Footnote 71

1. Partnership Dissolution

The nineteenth century case law on partnership dissolution illustrates this difficulty and appears to have influenced the fiduciary profit-stripping cases more generally. Where a partner died, or otherwise left the partnership, the partnership dissolved, unless the partnership agreement provided otherwise.Footnote 72 Where the partnership was dissolved on the death of a partner, unless the partnership agreement provided otherwise the surviving partners were required to realise the partnership assets in order that the deceased partner's share of that value could be provided to his or her estate.Footnote 73 If the surviving partners failed to realise the deceased partner's share of the partnership assets and pay it into his or her estate, not only did they remain liable to do so, but they were also obliged to account to the estate for any profits made by continuing to use the partnership assets, as that necessarily included assets belonging to the deceased partner.Footnote 74 The difficulty in these cases lay in identifying and calculating what profit was made by employment of the deceased partner's assets in the subsequent running of the partnership business.

The essential claim in these cases was that the surviving partners profited from use of the deceased's assets, and so it was only profit generated from those assets that had to be disgorged to the deceased partner's estate. In some of the cases, that profit was calculated by reference to the proportion of capital which the partners had agreed that the deceased partner had invested and left in the business.Footnote 75 However, contributions to capital do not necessarily translate directly into assets in the business, and certainly do not necessarily reflect the assets of the business at the time of the deceased partner's death given those assets vary from day to day,Footnote 76 so this approach was little more than a convenient approximation. Other cases recognised that the profits were not necessarily generated from capital,Footnote 77 and so refused to order an account calculated on that basis.Footnote 78

In his judgment in Willett v Blanford,Footnote 79 which was subsequently praised as “elaborate”Footnote 80 and “masterly”,Footnote 81 Wigram V.-C. explained that there could be no general or universal rule because the circumstances in which profits are generated by businesses are so varied. The profit could be generated directly by sale of the very property which belonged to the deceased partner, or from contracts entered into before the death, in which case an account of those profits would lie (and could potentially include other profits if “the surviving partners should have so mixed up new dealings with the old [contracts] that the two could not be separated”Footnote 82). Similarly, if the profits generated after death derived from goodwill that had been generated before the death. But if one partner had contributed capital and the other skill, and the latter died before goodwill had developed, profits derived after the death would not be attributable to the deceased partner's contribution to the partnership.Footnote 83 And if the deceased partner had generated goodwill through his or her work, despite not contributing capital at the outset, that deceased partner's estate should share in the profits generated after his or her death.Footnote 84 Thus, the partners’ capital account could not identify accurately in all cases the source of profits generated after death.Footnote 85 As Turner L.J. put it in Simpson v Chapman, “the profits derived from the trade carried on after the death of the testator must depend upon the nature of the trade, the manner of carrying it on, the capital employed, the state of the account between the partnership and the deceased partner at the time of his death, and the conduct of the parties after his death”.Footnote 86 Part of the purpose of the work conducted by the Master, in taking the account, was to identify “to what extent the profits derived from the trade ought to be attributed to the capital, and to what extent they ought to be attributed to other sources”.Footnote 87

Consistently with what has been said earlier regarding the overlap between tracing and accounting for profits, there is an element of tracing in this approach,Footnote 88 but it is predominantly at the input stage. The output stage is focused on whether, and the degree to which, the profit was generated using the assets of the deceased partner, or from other sources.Footnote 89 In other words, these are not simple exchange cases, and so tracing, which is focused on exchange,Footnote 90 struggles to resolve the question – it is not irrelevant, nor unrelated, but it is not sufficient on its own to answer the question. Thus, as Lord Brougham L.C. recognised in Docker v Somes, property belonging to another might be used in a way that generated value far exceeding the value of the property, but it would not necessarily follow that this was profit generated from the property as it could instead be derived from “skilful labour very highly paid”,Footnote 91 with the implication that this excess value need not be accounted for.Footnote 92

2. Fiduciary Application

In Wedderburn v Wedderburn, Romilly M.R. differentiated the situation of surviving partners trading using a deceased partner's assets from the situation of an executor using assets from the deceased estate in his or her business: both situations generate an obligation to account for profits, but the latter situation was said to rest on “misconduct and breach of trust” whereas the former did not.Footnote 93 (Executors of a deceased partner who are also surviving partners combine both situations.) It is not clear, however, that this distinction has affected the analysis of fiduciary cases to a great degree. There is a line of case law which recognises the surviving partners as owing a continuing duty to realise the benefits of the partnership assets for all partners, including the deceased partner, based on the confidential (or fiduciary) relationship between partners.Footnote 94 The fiduciary status of an executor was treated as an additional reason for stripping profits in nineteenth century text book accounts.Footnote 95 The fiduciary cases refer to the deceased partner cases,Footnote 96 and the thinking in them appears to reflect similar concerns, particularly where there is a need to work out what profits have been generated in a business by the use of assets that were held in a fiduciary capacity.

In Re Jarvis, for example, the defendant opened a new business in premises which had previously been used for a similar business by her father, and she was held to have benefited from the goodwill which attached to the premises associated with her father's business, which she now held as executrix. This included an ability to get supplies for the business, and she was held accountable for those benefits. Reflecting what Wigram V.-C. had said in Willett v Blanford, Upjohn J. considered it impossible to lay down any general principle as to how that benefit should be valued,Footnote 97 but recognised that there would be a difference between the defendant using the goodwill associated with her father's business premises to gain supplies for a separate but similar business that the defendant ran elsewhere, and essentially reincarnating her father's business on its prior premises. The latter conduct, which was what Upjohn J. considered the defendant to have done, justified an accounting for all profits from that business (but not the defendant's separate business), subject to all just allowances for the defendant's work in reviving the business, for assets she contributed to the business, and for her payment of debts owed by the father's business.Footnote 98 This reflects the same concern as that present in the partnership cases, to identify what part of the profits of the subsequent business was earned by use of assets which belonged to the partnership before it ceased, including its goodwill.Footnote 99

Where an executor had misused property from the deceased estate in his or her own business, the plaintiff could alternatively claim interest on the value of that property,Footnote 100 but that was again merely an approximation of the profit that had been generated by use of those assets. If the executor could show that he or she had made less profit, that would limit the recovery,Footnote 101 and if more profit had been earned the plaintiff could opt to recover that.Footnote 102 Lord Brougham L.C. considered even compound interest was “much less advisable than an account of actual profits”,Footnote 103 although where the account of profits would be expensive to take, thus depleting the fund available to the plaintiff, it could be sensible to opt for an award of interest.Footnote 104

Identification of what profit an executor made from use of assets from the deceased estate can be difficult for the same sort of reasons as it is difficult in partnership cases. Executors, and other fiduciaries, are entitled to generate profits from their own work, outside of that fiduciary position,Footnote 105 just as partners can make profits from business activity that is not connected with the partnership business.Footnote 106 The difficulty arises from the use of the deceased estate's assets in the executor's business, which then generates a need to identify what profit the business made from the estate assets as opposed to from other, legitimate, sources. In CMS Dolphin Ltd. v Simonet, Simonet was the managing director of an advertising company, CMSD. In breach of fiduciary duty, he set up a competing business, taking with him the staff from CMSD and CMSD's three principal clients, Argos, DFB and Reebok. Lawrence Collins J. held Simonet liable to account for the benefit of the contracts that CMSD had with Argos and DFB, which Simonet had diverted to his new business, and for the benefit of the business opportunities CMSD had with all three clients, which Simonet had also diverted to his new business.Footnote 107 The claim appears not to have been allowed in respect of any of the profits generated by Simonet's new business from other clients.

Fiduciary cases have the additional facet, however, that the profit can be generated not from assets held in a fiduciary capacity, but instead in circumstances where the fiduciary position or status was the occasion for the profit-making activity. This can potentially justify the fiduciary being made to account for all of the profit generated by the profit-making activity, on the basis that the fiduciary ought not to have engaged in the activity at all. This reflects the point made in Jarvis, that a fiduciary could be made to account for profits made by using particular assets in a business in breach of fiduciary duty, or could alternatively be made to account for all of the profits made from the business (with suitable allowances).Footnote 108

However, even that distinction is not always going to be clear.Footnote 109 Consistently with what was seen in the partnership cases, the central concern is always to identify what profit has been made in breach of fiduciary duty, and thus must be accounted for, and whether any of the profit was made legitimately such that it can be retained. As Upjohn J. identified in Jarvis itself, the different approaches that he mentioned to answering that question are not determined according to whether the profit was generated in a single asset transaction or in a business: while the single asset transaction is easier, both of the approaches that Upjohn J. mentioned were applied to business profits in the examples he considered.Footnote 110 “There are no firm rules for determining which is the relevant profit”,Footnote 111 and often the court can only make a reasonable approximation of the actual profit or benefit derived in breach of fiduciary duty.Footnote 112 Equitable remedies are discretionary, but that discretion is not at large: it is constrained by principles,Footnote 113 and the factors which have been mentioned in connection with the partnership cases are brought to bear in determining what remedy will best salve the defendant's conscience by removing from him the profits which were obtained in breach of fiduciary duty, but only those profits in order that the remedy should not become a penalty.Footnote 114 That requires consideration of the way in which the profits have been generated and thus the degree to which the profit is considered to have been made in breach of fiduciary duty. “[I]dentification of a benefit or gain for which a defendant fiduciary … is to be ordered to account is the outcome neither of discretion nor of the determination of a mere factual issue of causation. Identification of the benefit or gain is a matter of judgment informed by equitable principle”Footnote 115 and “minds reasonably may differ as to the outcome of the application of these principles”.Footnote 116

3. Carve Outs

One factor which appears, in particular, to have influenced courts to award an account of the entire profits (with just allowances) of the defendant's business, notwithstanding that that business has been built and grown by activity on the part of the defendant fiduciary, is the question whether the business which the defendant has developed was “carved out” of the business of the plaintiff.Footnote 117 In Timber Engineering Co. Pty. Ltd. v Anderson, for example, senior employees of the plaintiff company, TECO, in breach of the fiduciary duties they owed to TECO, set up a rival company, Mallory Trading. “The whole substance of Mallory Trading as a viable business enterprise stemmed from the resources of TECO … the business of Mallory Trading was carved out of the business of TECO.”Footnote 118 Kearney J. gave effect to the obligation to account for the profits made by Mallory Trading by way of a constructive trust over that business. The mode of the remedy is presently of less interest than the point that “the business of [Mallory Trading] represented the measure of the profit or benefit which was obtained in breach of fiduciary duty, for relief by way of constructive trust is merely a means of giving effect to the fiduciary's basic liability to account”.Footnote 119 This approach appears to have been the primary basis on which the High Court of Australia differed from the lower courts in the Foresters case.Footnote 120 In that case, senior employees of a company, Lifeplan, surreptitiously approached another company, Foresters, with a proposal that they could develop funeral plan business products for Foresters which would capture much if not all of the existing business of Lifeplan in that field. The employees did so in breach of the fiduciary duties they owed to Lifeplan, and Foresters knowingly assisted in those breaches. In quantifying the amount of profit for which Foresters was liable to account,Footnote 121 the Full Federal Court considered that Foresters had developed its business as a result of the breaches, but that it had not taken any assets or extant business from Lifeplan, and awarded the net present value of the funeral plan contracts that Foresters had acquired in five years of operation of the funeral plan business that it developed following the breach, on the basis this “gives recognition to the necessary reality of the contribution of factors unrelated to any breach which generated the profits”.Footnote 122 In the High Court, the majority disagreed with this approach, and awarded an account of the (net present) full capital value of the business that Foresters had created by “despoiling the business of Lifeplan”.Footnote 123 The calculation of this value was conducted in a way that included allowances for expenditure and a discount to projected cash flows to reflect the risk Foresters assumed in the future operation of the business.Footnote 124

Where the whole of the new business has been carved out of the plaintiff's business, then the fiduciary is more likely to be held liable to account for all of the profit from that business, subject to allowances, because the whole business represents a profit or benefit that has been obtained in breach of fiduciary duty. However, consistently with what has been seen already, even where the defendant's business has been carved out of the plaintiff's business, there can be other, legitimate, contributions to the generation of that profit. In Warman International Ltd. v Dwyer, for example, Warman's managing director, Dwyer, created companies which entered into agreements with Warman's supplier, Bonfiglioli, to assemble its products locally in Australia, rather than importing them from Italy as Warman had done. While this was a business opportunity that Warman had been offered and declined, the local assembly aspect of the business was coupled with the distributorship business in a way that meant Dwyer's new businesses were effectively carved out of Warman's distributorship business. That would have justified an accounting of the entire profits of Dwyer's new businesses, less appropriate allowances for expenses, skill, expertise and resources.Footnote 125 However, the court also recognised that the new businesses were part-owned by Bonfiglioli, which had thus willingly contributed its own goodwill to the development of Dwyer's new businesses; the local Australian goodwill in Bonfliglioli products belonged to Bonfiglioli rather than Warman.Footnote 126 Further, local assembly had never formed part of Warman's business, but was part of the businesses that Dwyer had built, albeit not as substantial a part as the distributorship business.Footnote 127 It was these considerations that led the court in Warman to move away from a comprehensive accounting of all profit generated by Dwyer's new businesses. Whereas, in Foresters, the defendant “did not demonstrate that any of its increased profitability was generated by matters other than the business connections that were appropriated from Lifeplan”,Footnote 128 that was the case in Warman. As has been seen, it is not always straightforward to identify what proportion of a profit is generated from a particular source, and so proxies may need to be used. In Warman, the High Court held that the complexities which have been mentioned justified a reduced period of accounting, limited to accounting for the net profits of Dwyer's businesses for two years. Although the court mentioned that Warman's distributorship of Bonfiglioli products was unstable, and unlikely to have lasted more than a year,Footnote 129 the structure of the court's reasoning indicates that it was the contribution of Bonfliglioli's goodwill and of the local assembly business to the profit-making which justified the limited accounting.Footnote 130 No attempt had been made at trial to value the goodwill of Bonfiglioli,Footnote 131 and for reasons already discussed a further analysis would have been needed to determine the degree to which that goodwill contributed to the profits of the new businesses. The two-year accounting term appears to have been employed as a convenient “judicial estimation”Footnote 132 of the “true measure of the profit or benefit obtained by the fiduciary in breach of his duty”.Footnote 133

C. Summary

In summary, while calculation of the quantum of the net profit made by a fiduciary can in some cases, particularly those involving single transactions and single assets, be relatively straightforward, this is not so in other cases. Especially where the fiduciary has generated profits from the successful operation of a business venture, difficult questions arise as to the degree to which that profit was generated in breach of fiduciary duty, or from legitimate sources. This is illustrated in the nineteenth century partnership cases, which have influenced the way in which accounts of profits are taken in fiduciary cases. In addition to the complexities that the partnership cases reveal in identifying the source of profits, fiduciary cases possess the related but distinct complexity of determining whether any of the fiduciary's profit-making activity was legitimate, and if so to what degree that was the case. Especially where the fiduciary's breach lies in carving out an entire business from his or her principal, it is more likely that the courts will hold the fiduciary liable to account for the entire profits of that business activity, notwithstanding that the fiduciary has built and grown the new business. However, even that proposition must take account of other, legitimate, contributions made to the generation of that profit.

Quantification of the profit in these more complex cases has one particularly contentious, and conceptually difficult, aspect: namely, what role, if any, is played by concepts of causation in this context. Attention turns to that question in the next section.

V. Causation

The role, if any, played by causation, and what criterion of causation might be at work, when an account of profits is taken is somewhat “disguised”Footnote 134 in the case law. Whereas some decisions suggest that “difficult questions of causation”Footnote 135 arise in such cases, others suggest that neither principle nor the authorities require an element of causation.Footnote 136

Commentators have suggested that common law notions of causation, such as “but for” causation of the sort used frequently in tort law,Footnote 137 or more complex analyses such as NESS and probabilistic causation,Footnote 138 ought to be deployed. But the latter, more complex, forms of analysis are not used in resolving actual cases, even in tort contexts,Footnote 139 and it is far from clear that it is appropriate to analogise with tort law notions when thinking about the very different context of fiduciary liability.Footnote 140

As is well known, it is clear that the quantum, if any, of the plaintiff's loss is not relevant to determining the quantum of profit that the fiduciary has made in breach of fiduciary duty, and which is thus to be stripped by an account of profits.Footnote 141 The court does not inquire whether the profit was one which could, or should, have been earned by or for the principal: “[t]he liability arises from the mere fact of a profit having, in the stated circumstances [i.e. by use of a fiduciary positionFootnote 142], been made.”Footnote 143 Further, the mere fact of the profit having been made is sufficient to justify its disgorgement even if the defendant can show that it could potentially have been earned without a breach of fiduciary duty – for example, by making full disclosure of all material facts to the principal and obtaining his or her consent to the fiduciary benefitting in this way – because the fiduciary has chosen not to take that route. “It is only actual consent which obviates the liability to account.”Footnote 144 The strictness of this approach is designed to provide fiduciaries with an incentive to resist the temptation to misconduct themselves.Footnote 145 Thus, “[f]or policy reasons, the courts decline to investigate hypothetical situations as to what would have happened if the fiduciary had performed his duty”.Footnote 146 Fiduciary doctrine is clear in requiring that the fiduciary should not have taken the profit unless he made full disclosure and obtained consent; having failed to avail himself of that potential escape route, and chosen instead to take the profit, there is nothing incoherent in stripping the fiduciary of that profit even if the fiduciary could potentially have obtained consent from his or her principal. The profit was made, it was made without authorisation, and remains so unless and until authorisation is obtained.Footnote 147 In other words, it simply does not follow that profit can, or should, only legitimately be stripped from a fiduciary in circumstances where the breach of fiduciary duty is a “but for” cause of that profit.Footnote 148

“But for” causal links are not the only way to think about causation.Footnote 149 There are two dimensions to the notion of cause: how a phenomenon could have been prevented, and how it was produced.Footnote 150 When thinking about accounts of profits, fiduciary doctrine has focused on the second of those dimensions. “But for” counterfactual analysis can potentially be useful in this context, in the sense of identifying assets or profits that could not otherwise have been gained, and so must have been obtained in breach of fiduciary duty.Footnote 151 But the fact those profits could have been earned legitimately, if the fiduciary had acted in a different way (which, on a “but for” counterfactual analysis, would suggest they were not caused by the breach) is not itself a reason to keep them if they were in fact obtained in circumstances that amounted to a breach of fiduciary duty and without the fully informed consent of the fiduciary's principal.

Part of the difficulty in the present context lies in the baggage that the concept of “causation” carries when it is transported from compensatory contexts – and particularly those dealt with by the common law, where it is most frequently encountered – into the equitable context of accounts designed to strip profits from fiduciaries. For that reason, in Keystone Healthcare Ltd. v Parr, Lewison L.J. (with the agreement of McCombe and Bean L.JJ.) rejected the “argument that the breach of fiduciary duty must be a cause of the profit”.Footnote 152 But he immediately went on to state that “[t]here must, of course, be a sufficient degree of connection between the breach of duty and the receipt of the secret profit”.Footnote 153 Similarly, in Maguire v Makaronis, the High Court of Australia observed that where equitable compensation or an account of profits is sought on the basis of a breach of fiduciary duty:

there directly arises a need to specify criteria for a sufficient connection (or “causation”) between breach of duty and the profit derived, the loss sustained, or the asset held. Where the plaintiff seeks recovery of a profit, the necessary connection has been identified in this Court by asking whether the profit was obtained “by reason of [the defendant's] fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position”.Footnote 154

As Deane J. famously put it in Chan v Zacharia:

Stated comprehensively, in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it.Footnote 155

The liability is focused more on the fact that making and retaining the profit is itself the breach of fiduciary duty,Footnote 156 than on whether the breach caused a profit to be made, although the two questions are bound up together in the sense that it is only a breach to make or retain a profit from assets held in a fiduciary capacity, or otherwise generated within the scope of,Footnote 157 or by reason of,Footnote 158 the fiduciary position, or in a transaction that involved a conflict between duty and interest.Footnote 159 This is the relevant “sufficient connection” between the breach of fiduciary duty and the profit which is stripped. It may be convenient to refer to this as a requirement of causation, but that is “somewhat inaccurate”.Footnote 160 Consistently with what has been seen earlier, the connection “depends on ‘a precise examination of the facts’ of the case, rather than upon attempts to refine the expression ‘as a result of’, as if that phrase has some determinate operation of its own that may be discerned and applied independently of the equitable principle of which it is part”.Footnote 161

This “is essentially a question of fact”.Footnote 162 Dixon J.'s judgment in Birtchnell v Equity Trustees, Executors & Agency Co. Ltd. is instructive in this regard. The case concerned a partnership of estate and financial agents. When one partner, Porter, died, the other partners sued his executors, seeking an account of money paid by a client of the firm, Spreckley, to Porter in respect of sales of land which the firm was selling on commission on behalf of Spreckley. Spreckley appeared to the firm to have been the sole principal interested in the land sales, but the evidence later showed that Spreckley had shared the profits made on the sales equally with Porter. The court held that the benefit which Porter received had been taken in breach of fiduciary duty, and therefore had to be accounted for to the partnership, as the land sales fell within the scope of the partnership. Dixon J. said that it was necessary to identify “the specific occasion and cause of Porter being admitted to participate in the profits”Footnote 163 but this was unclear (particularly as both Spreckley and Porter had died) and so he considered various alternative possibilities. One was that Porter may have invested funds in the transactions. If that were the case, he would have taken for himself an opportunity to enter a transaction within the scope of the firm's business with one of its clients. Alternatively, Spreckley may have offered Porter a share of the profits in order to induce him to devote his energies to the land sales. If that were the case, Porter had diverted to himself remuneration which he was bound by his partnership to earn for the firm. A further alternative may have been that Spreckley had made a gift of the profits. This was extremely unlikely, but even if it were the case this would be additional remuneration to Porter for work that he had done within the scope of his work for the partnership which would have a tendency to divert his attention from his other work for the partnership. The point which is important for present purposes is that, notwithstanding his reference to what had “caused” the profit to be made, Dixon J.'s actual analysis was really concerned with identifying whether the profit was made in a way that involved a breach of fiduciary duty. Porter's breach of fiduciary duty lay in the very fact of his receiving and keeping the profits that Spreckley shared with him, rather than there being a breach and then identifying what profit that breach had caused.

This is better understood as a process of “attribution”Footnote 164 rather than one of causation, although if the term “causation” is understood appropriately for the context, it perhaps might not be so problematic – provided always that it does not result in a confusion of the question which the court needs to address. The relevant question is whether, and to what degree, the profit was made from assets held in a fiduciary capacity, or otherwise generated within the scope of, or by reason of, the fiduciary position, or in a transaction that involved a conflict. As Finn, Stone and Perram JJ. observed in Grimaldi v Chameleon Mining NL (No. 2), consistently with what has been seen in the case law discussed in this article:

The courts have long recognised that benefits or the profits derived by a misbehaving fiduciary may be attributable to multiple sources only one of which was the breach of fiduciary duty or trust; personal skill, expertise and exertion, goodwill or the financial contributions of the fiduciary and of third parties may have played their part as well in generating profits. In such circumstances, the assessment of the actual profit or benefit derived may involve a difficult, complex and costly exercise of attribution.Footnote 165

VI. Conclusions

This article addresses the way the law identifies what profit must be accounted for when a fiduciary is found to have acted in breach of fiduciary duty. The source material on this question is more scant than that normally available in respect of questions regarding the practices of chancery courts, particularly historically, as the accounts were conducted by Masters in Chambers, with the result that the accounts were not reported in the way court judgments were. Notwithstanding that difficulty, answers to the question can be gathered from the evidence that does exist. The issue is relatively straightforward in simple cases, such as those concerning the acquisition by the fiduciary of single assets or entry into single transactions. Allowances are to be made for expenses and other outgoings appropriately incurred in the completion of that transaction, and allowances may also be granted for the exercise of skill and effort in generating the profit. However, the topic becomes more complex in other cases, particularly those involving the development of a business in a way that involves a breach of fiduciary duty but where the profit of that business may also be attributable to other legitimate contributions. The question of which profits are attributed to the breach of fiduciary duty, and which to legitimate behaviour or sources, is inherently difficult and heavily dependent on a close analysis of the facts. The court is concerned with what was actually acquired by the fiduciary as a result of holding assets in a fiduciary capacity, or otherwise generated within the scope of, or by reason of, the fiduciary position, or in a transaction that involved a conflict. The account is concerned with identifying whether, and to what degree, the profit was actually made in breach of fiduciary duty, rather than what might hypothetically have been acquired if the fiduciary had acted properly. That is some form of connection, and hence a “causal” analysis of some sort is involved, but it is not causation in the normal common law (particularly tort law) sense, which explains why the courts prefer labels such as “sufficient connection” and “attribution”. The article has also given examples of the process of reasoning through which the parameters of an account of profits are established, which will help clarify the process for future cases.

Footnotes

*

Professor of Equity and Trusts, University of Sydney.

I am grateful, with the normal disclaimer, to Jamie Glister, Bill Gummow, Richard Nolan, Joellen Riley, Sandy Steel, Cameron Stewart and Andreas Televantos for helpful discussions and comments.

References

1 Grimaldi v Chameleon Mining NL (No. 2) [2012] FCAFC 6, (2012) 200 F.C.R. 296, at [513].

2 Dale v Inland Revenue Commissioners [1954] A.C. 11, 27, 34, 35; Brown v Inland Revenue Commissioners [1965] A.C. 244, 256, 263, 265; Consul Development Pty. Ltd. v DPC Estates Pty. Ltd. (1975) 132 C.L.R. 373, 385; Murad v Al-Saraj [2005] EWCA Civ 959, [2005] W.T.L.R. 1573, at [71], [142]–[143]; Piety v Stace (1799) 4 Ves. 620, 622 (31 E.R. 319).

3 Grimaldi v Chameleon Mining NL (No. 2) [2012] FCAFC 6, (2012) 200 F.C.R. 296, at [517]; Re Jarvis [1958] 1 W.L.R. 815, 820.

4 Regal (Hastings) Ltd. v Gulliver [1967] 2 A.C. 134n., 154; Hospital Products Ltd. v United States Surgical Corp. (1984) 156 C.L.R. 41, 110.

5 E.g. Lees v Nuttall (1829) 1 Russ. & M. 53 (39 E.R. 21); affirmed: (1834) 2 My. & K. 819 (39 E.R. 1157); Fawcett v Whitehouse (1829) 1 Russ. & M. 132 (39 E.R. 59).

6 O'Sullivan v Management Agency and Music Ltd. [1985] 1 Q.B. 428, 458.

7 The analysis is also potentially relevant to the remedies available against other participants in a breach of fiduciary duty (as to which compare Novoship (UK) Ltd. v Mikhaylyuk [2014] EWCA Civ 908, [2015] Q.B. 499 with Akita Holdings Ltd. v Attorney General of the Turks and Caicos Islands [2017] UKPC 7, [2017] A.C. 590 and Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918; and see Gummow, W.M.C., “Dishonest Assistance and Accounts of Profits” [2015] C.L.J. 405CrossRefGoogle Scholar; Turner, P.G., “Accountability for Profits Derived from Involvement in Breach of Fiduciary Duty” [2018] C.L.J. 255CrossRefGoogle Scholar), and whether the liability of those other participants is joint and several, or only several (as to which see e.g. Flockton v Bunning (1864) L.R. 8 Ch. App. 323n., 326; Vyse v Foster (1872) L.R. 8 Ch. App. 309, 323; Vyse v Foster (1874) L.R. 7 H.L. 318, 333–34; Ultraframe (UK) Ltd. v Fielding [2005] EWHC 1638 (Ch), at [1589]–[1601]; J.D. Heydon, M.J. Leeming and P.G. Turner, Meagher Gummow & Lehane's Equity: Doctrines & Remedies, 5th ed. (2015), [5-270]). There is not space in the present article to address these questions.

8 As to which, see e.g. Cory, I.P., A Practical Treatise on Accounts, 2nd ed. (London 1839)Google Scholar; Daniell, E.R., The Practice of the High Court of Chancery, vol. 2 (London 1840), 877Google Scholar; Williams, S.E., The Law of Account (London 1899)Google Scholar; Henderson, J.G., Chancery Practice (Chicago 1904)CrossRefGoogle Scholar.

9 Nevill, A.G. and Ashe, A.W., Equity Proceedings with Precedents (New South Wales) (Sydney 1981)Google Scholar, at [301].

10 Parker v McKenna (1874) L.R. 10 Ch. App. 96, 122. See also Hill v South Staffordshire Railway Co. (1865) 11 Jur. N.S. 192, 193.

11 Kerly, D.M., Historical Sketch of the Equitable Jurisdiction of the Court of Chancery (Cambridge 1890), 272–73Google Scholar.

12 The direction to make just allowances fell away over time as civil procedure rules came to provide for it automatically: Williams, The Law of Account, pp. 30–31 (and see e.g. Rules of the Supreme Court 1883 (UK), O. 33 r. 8). Prior to these procedural changes, the Master was unable to make allowances if the court had not so directed: Hill, J., The Law Relating to Trustees (London 1845), 593Google Scholar; Howell v Howell (1837) 2 My. & Cr. 478 (40 E.R. 722).

13 Bennet, W.H., The Master's Office in the Court of Chancery (London 1834), 17–18Google Scholar; Hill, The Law Relating to Trustees, p. 602; Daniell, Chancery Practice, p. 887; Williams, The Law of Account, p. 31; Parker v McKenna (1874) L.R. 10 Ch. App. 96, 122; Agar v Gurney (1817) 2 Madd. 389, 390 (56 E.R. 378).

14 Crosley v Derby Gas-Light Co. (1838) 3 My. & Cr. 428 (40 E.R. 992), 435–36.

15 See e.g. Cook v Collingridge (1823) Jac. 607 (37 E.R. 979), 625.

16 The report in Featherstonhaugh v Turner (1858) 25 Beav. 382 (53 E.R. 683), 392–93, is unusual for containing a statement of how the Chief Clerk took the account in that case.

17 Bennet, The Master's Office, pp. 20–22; Daniell, Chancery Practice, p. 887.

18 See e.g. Wedderburn v Wedderburn (1854) 18 Beav. 465 (52 E.R. 183) where Lord Langdale ruled upon exceptions to the Master's report, but without determining which principle the Master ought to have applied.

19 H.W. Seton, Judgments and Orders, 7th ed., by A.R. Ingpen, F.T. Bloxam and H.G. Garrett, vol.2 (London 1912), 1312; Bennet, The Master's Office, p. 23.

20 The National Archives hold some records of the work done by Masters in Chancery, but the different kinds of records (pleadings, orders, evidence, Masters’ records etc) in the relevant cases are kept separately according to the type of record rather than the case to which they relate (see http://www.nationalarchives.gov.uk/help-with-your-research/research-guides/chancery-equity-suits-after-1558/). It has not been possible to consult those materials in preparing this article.

21 Siddell v Vickers (1892) 9 R.P.C. 152, 162–63; Crosley v Derby Gas-Light Co (1838) 3 My. & Cr. 428 (40 E.R. 992), 434–35; Colbeam Palmer Ltd. v Stock Affiliates Pty. Ltd. (1968) 122 C.L.R. 25, 44. These are intellectual property cases, but the difficulties in calculating accounts in such cases are analogous to those in fiduciary cases: see also N. Lindley, Law of Partnership, 5th ed., by N. Lindley, W.C. Gull and W.B. Lindley (London 1888), 524–25. However, not all aspects of intellectual property account cases analogise well with fiduciary cases: see note 141 below.

22 See e.g. Crawshay v Collins (1808) 15 Ves. 218 (33 E.R. 736), where the account was ordered in 1808, and a final decree was made in 1826. Similarly, in Wedderburn v Wedderburn (1836) 2 Keen 722 (48 E.R. 807), the bill was filed in 1831; an account was ordered in 1836; the Master reported on the account in 1846 but the report was sent back to the Master (see Wedderburn v Wedderburn (1854) 18 Beav. 465 (52 E.R. 183)); the Master reported again in 1855; exceptions to that report were determined in April 1856; and an appeal to the Lords Justices was finally compromised in December 1856: Wedderburn v Wedderburn (1856) 22 Beav. 84 (52 E.R. 1039). See also Stocken v Dawson (1843) 6 Beav. 371 (49 E.R. 869); (1845) 9 Beav. 239 (50 E.R. 335); (1848) 17 L.J. Ch. 282 (L.C.). There were, of course, also delays in Chancery generally – not merely in the taking of accounts – during this period, famously satirised by Dickens: see e.g. Lees (1829) 1 Russ. & M. 53 (39 E.R. 21) and (1834) 2 My. & K. 819 (39 E.R. 1157), where the Lord Chancellor determined an appeal from a decision which the Master of the Rolls had reached five years earlier.

23 Wedderburn v Wedderburn (1838) 4 My. & Cr. 41 (41 E.R. 16), 55; D.J. Hayton, P.B. Matthews and C.C.J. Mitchell, Underhill & Hayton's Law of Trusts and Trustees, 19th ed. (London 2016), [27.34]. See also W.M. Hindmarch, A Treatise on the Law Relating to Patent Privileges for the Sole Use of Inventions (London 1846), 297; Siddell v Vickers (1892) 9 R.P.C. 152, 163.

24 Partnership articles were also drafted with the intention of avoiding these complications after the death of a partner: see e.g. Vyse v Foster (1874) L.R. 7 H.L. 318, 338.

25 Wedderburn v Wedderburn (1838) 4 My. & Cr. 41 (41 E.R. 16), 55. Similarly in intellectual property cases (Crosley (1838) 3 My. & Cr. 428 (40 E.R. 992), 436; Colbeam Palmer Ltd. v Stock Affiliates Pty. Ltd. (1968) 122 C.L.R. 25, 36), where the courts also occasionally praised the wisdom of waiving the right to an account in favour of a more straightforward damages calculation: e.g. Penn v Bibby (1866) L.R. 3 Eq. 308, 311 (V.-C.); Automatic Coal Gas Retort Co. Ltd. v Mayor &c. of Salford (1897) 14 R.P.C. 450, 471.

26 Brown v de Tastet (1821) Jac. 284 (37 E.R. 858), 298. See also W. Strachan, The Law of Trust Accounts, 2nd ed. (London 1937), 197; Lindley, Law of Partnership, p. 519.

27 Strachan, The Law of Trust Accounts, 197–98; Daniell, Chancery Practice, p. 887; Re Norrington (1879) 13 Ch.D. 654, 662–63; Re Jarvis [1958] 1 W.L.R. 815, 820; E.V. Williams, The Law of Executors and Administrators, vol. 2 (London 1832), 1137–38; United States Surgical Corp. v Hospital Products International Pty. Ltd. [1983] 2 N.S.W.L.R. 157, 242; Victoria University of Technology v Wilson [2006] VSC 186, (2006) 68 I.P.R. 597, at [13].

28 Bagnall v Carlton (1877) 6 Ch.D. 371, 400, 403, 404, 408; Emma Silver Mining Co. v Grant (1879) 11 Ch.D. 918, 940; Yates v Finn (1880) 13 Ch.D. 839, 843; Edwards v Lee's Administrator (1936) 96 S.W. 2d. 1028, 1032; Regal (Hastings) Ltd. v Gulliver [1967] 2 A.C. 134n., 154.

29 Cf. P. Devonshire, “Account of Profits in Breach of Fiduciary Duty” (2010) 32 Syd.L.R. 389, at 404.

30 Emma Silver Mining Co. v Grant (1879) 11 Ch.D. 918, 939–41.

31 Bagnall v Carlton (1877) 6 Ch.D. 371, 408; De Bussche v Alt (1878) 8 Ch.D. 286, 307; Lydney & Wigpool Iron Ore Co. v Bird (1886) 33 Ch.D. 85, 95; Bennet, The Master's Office, p. 148; cf. P. Devonshire, Account of Profits (Wellington 2013), [4.1].

32 Brown v de Tastet (1821) Jac. 284 (37 E.R. 858), 294.

33 O'Sullivan v Management Agency and Music Ltd. [1985] 1 Q.B. 428, 468.

34 J. Palmer, “The Availability of Allowances in Equity: Rewarding the Bad Guy” (2004) 21 N.Z.U.L.R. 146.

35 T. Lewin, The Law of Trusts and Trustees (London 1837), 443; Hill, The Law Relating to Trustees, pp. 598–601.

36 Re Duke of Norfolk's Settlement Trusts [1982] Ch. 61, 78; Harris v Digital Pulse Pty. Ltd. [2003] NSWCA 10, (2003) 56 N.S.W.L.R. 298, at [312].

37 Trustees and executors were not “in general” allowed remuneration for time spent managing the trust (Bennet, The Master's Office, p. 147; E.H.T. Snell, Principles of Equity, 12th ed., by A. Brown (London 1898), 159–62), but the court had a discretion to allow it: Hill, The Law Relating to Trustees, p. 601; Williams, The Law of Account, p. 185. The default position meant there was no right to this kind of allowance (which was then sometimes treated as a rule against it: Stocken v Dawson (1843) 6 Beav. 371 (49 E.R. 869), 375 and (1848) 17 L.J. Ch. 282, 285 (L.C.), citing Burden v Burden (1813) 1 V. & B. 170 (35 E.R. 67), 172) but it could be allowed where that was in the best interests of the beneficiaries: Marshall v Holloway (1820) 2 Swans. 432 (36 E.R. 681), 453–54; Cook v Collingridge (1823) Jac. 607 (37 E.R. 979), 623; Green v Folgham (1823) 1 Sim. & St. 398 (57 E.R. 159), 407; Morison v Morison (1838) 4 My. & Cr. 215, 224 (41 E.R. 85); Bainbrigge v Blair (1845) 8 Beav. 588 (50 E.R. 231), 596–97; Re Masters [1953] 1 W.L.R. 81, 83; Dale v Inland Revenue Commissioners [1954] A.C. 11, 34; Duke of Norfolk's ST [1982] Ch. 61, 75–76, 79; Re Queensland Coal & Oil Shale Mining Industry (Superannuation) Ltd. [1999] 2 Qd. R. 524, 526–27.

38 Brown v Litton (1711) 1 P. Wms. 140 (24 E.R. 329) (L.K.), 141. See also Cook v Collingridge (1823) Jac. 607 (37 E.R. 979), 623.

39 Dale v Inland Revenue Commissioners [1954] A.C. 11, 27.

40 Compare Harris v Digital Pulse Pty. Ltd. [2003] NSWCA 10, (2003) 56 N.S.W.L.R. 298, at [336]; Mid-City Skin Cancer & Laser Centre Pty. Ltd. v Zahedi-Anarak [2006] NSWSC 844, (2006) 67 N.S.W.L.R. 569, at [273], with Guinness plc v Saunders [1990] 2 A.C. 663, 701.

41 Phipps v Boardman [1964] 1 W.L.R. 993, 1018; Green v Bestobell Industries Pty. Ltd. (No. 2) [1984] W.A.R. 32, 36.

42 Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 562.

43 Cook v Collingridge (1823) Jac. 607 (37 E.R. 979), 623; Green v Bestobell Industries Pty. Ltd. (No. 2) [1984] W.A.R. 32, 38; Murad v Al-Saraj [2005] EWCA Civ 959, [2005] W.T.L.R. 1573, at [88].

44 Australian Postal Corp. v Lutak (1991) 21 N.S.W.L.R. 584, 596.

45 Phipps v Boardman [1964] 1 W.L.R. 993, 1018; Re Macadam [1946] Ch. 73, 82–83; O'Sullivan v Management Agency and Music Ltd. [1985] 1 Q.B. 428, 468. See also Re Berkeley Applegate (Investment Consultants) Ltd. [1989] Ch. 32, 50–51; Heydon et al., Meagher Gummow & Lehane's Equity, [5-280].

46 Harris v Digital Pulse Pty. Ltd. [2003] NSWCA 10, (2003) 56 N.S.W.L.R. 298, at [328].

47 O'Sullivan v Management Agency and Music Ltd. [1985] 1 Q.B. 428, 469; cf. Victoria University of Technology [2006] VSC 186, (2006) 68 I.P.R. 597, at [53], [55], which purports to apply the reasoning in O'Sullivan but misapprehends its meaning.

48 O'Sullivan v Management Agency and Music Ltd. [1985] 1 Q.B. 428, 469; Green v Bestobell Industries Pty. Ltd. (No. 2) [1984] W.A.R. 32, 38–39.

49 O'Sullivan v Management Agency and Music Ltd. [1985] 1 Q.B. 428, 459, 469, 473.

50 Ibid., at p. 469, emphasis added. Dunn L.J. agreed: p. 459.

51 Green v Bestobell Industries Pty. Ltd. (No. 2) [1984] W.A.R. 32, 39; Halliday & Nicholas Insurance Brokers Pty. Ltd. v Corsiatto [2001] NSWCA 188, (2001) 11 A.N.Z. Ins. Cas. 75,848, at [30].

52 V-Flow Pty. Ltd. v Holyoake Industries (Vic.) Pty. Ltd. [2013] FCAFC 16, (2013) 296 A.L.R. 418, at [71]. See also M. Harding, “Justifying Fiduciary Allowances” in A. Robertson and H.W. Tang (eds.), The Goals of Private Law (Oxford 2009), 341, 347; M. Conaglen, “The Extent of Fiduciary Accounting and the Importance of Authorisation Mechanisms” [2011] C.L.J. 548, 570; L. Ho, “Deemed Performance in Account of Profits” in P. Devonshire and R. Havelock (eds.), The Impact of Equity and Restitution in Commerce (Oxford 2019), 183, 198–99.

53 New Zealand Netherlands Society “Oranje” Inc. v Kuys [1973] 1 W.L.R. 1126, 1129–30; Consul Development Pty. Ltd. v DPC Estates Pty. Ltd. (1975) 132 C.L.R. 373, 392–93; Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [82].

54 R. Goff, “The Search for Principle” (1983) 69 Proc. Brit. Acad. 169, 174.

55 Grimaldi v Chameleon Mining NL (No. 2), [2012] FCAFC 6, (2012) 200 F.C.R. 296, at [515].

56 De Bussche v Alt (1878) 8 Ch.D. 286, 307. This order was affirmed on appeal: (1878) 8 Ch.D. 286, 317. The account in Massey v Davies (1794) 2 Ves. Jun. 317 (30 E.R. 651) would also have been straightforward (colliery manager held liable to account for profits made on sale of timber to the colliery).

57 Attorney-General v Edmunds (1868) L.R. 6 Eq. 381, 395.

58 Re Dover Coalfield Extension Ltd. [1908] 1 Ch. 65, 69.

59 Brown v Inland Revenue Commissioners [1965] A.C. 244, 260, 263, 265, 268.

60 E.g. an income-producing Crown charter for salmon fishing, granted to a Town Council only because of its ownership of the riparian land, where the Council held that land in trust for the plaintiff: Aberdeen Town Council v Aberdeen University (1877) 2 App. Cas. 544, 549, 553, 555–56.

61 Lindley, Law of Partnership, p. 522. In A-G v Edmunds, the defendant Clerk was referred to as “quasi a trustee”: (1868) L.R. 6 Eq. 381, 390.

62 Tang v Tang (2017) 20 H.K.C.F.A.R. 53, at [14]–[16].

63 Scott v Scott (1963) 109 C.L.R. 649.

64 Tang v Tang (2017) 20 H.K.C.F.A.R. 53, at [23]–[25].

65 Foskett v McKeown [2001] 1 A.C. 102.

66 See e.g. Paul A. Davies (Australia) Pty. Ltd. v Davies [1983] 1 N.S.W.L.R. 440, 455–59; Lutak, (1991) 21 N.S.W.L.R. 584. See also D. Friedmann, “Restitution of Benefits Obtained Through the Appropriation of Property or the Commission of a Wrong” (1980) 80 Columbia L.Rev. 504.

67 See also D. Friedmann, “Restitution for Wrongs: The Measure of Recovery” (2001) 79 Texas L.Rev. 1879, at 1918.

68 Gardner v M'Cutcheon (1842) 4 Beav. 534 (49 E.R. 446), 541, 543. The tea appears to have been bought with the proceeds of a consignment of opium, sold illegally in China, which was also considered to have been done on the partners’ joint account: see pp. 538–39.

69 Dean v MacDowell (1878) 8 Ch.D. 345, 355. See also Lindley, Law of Partnership, pp. 309–10; Shallcross v Oldham (1862) 2 J. & H. 609 (70 E.R. 1202).

70 Sugden v Crossland (1856) 3 Sm. & G. 192 (65 E.R. 620), 194; Re Macadam [1946] Ch. 73, 82.

71 Lindley, Law of Partnership, p. 524; Williams, The Law of Account, p. 89; M.J. Tilbury, Civil Remedies (Sydney 1990), [4082]; Featherstonhaugh v Turner (1858) 25 Beav. 382 (53 E.R. 683), 392.

72 Lindley, Law of Partnership, p. 590.

73 Ibid., at p. 592.

74 Wedderburn v Wedderburn (1836) 2 Keen 722 (48 E.R. 807), 750; Manley v Sartori [1927] 1 Ch. 157, 162, 163. The earlier decisions treat the deceased estate as beneficially interested in the partnership assets: Crawshay v Collins (1808) 15 Ves. 218 (33 E.R. 736), 227; Featherstonhaugh v Fenwick (1810) 17 Ves. 298 (34 E.R. 115), 310. This was later denied in Knox v Gye (1872) L.R. 5 H.L. 656, 675–76 (although see Lord Hatherley L.C.'s dissent at pp. 678–79), in order that the accounting be statute-barred after six years as a debt. But the debt is an unusual one (R.C.I. Banks, Lindley & Banks on Partnership, 20th ed. (London 2017), [23–34], [19-09]–[19-10]), and the principles by which the account of profits is calculated stem from the beneficial ownership mode of analysis. The tension created by Knox v Gye remains evident on the face of ss. 42 and 43 of the Partnership Act 1890 (UK). See generally P.D. Finn, Fiduciary Obligations (Sydney 1977), [199]–[203].

75 See e.g. Wedderburn v Wedderburn (1836) 2 Keen 722 (48 E.R. 807), 752; Lord Provost, Magistrates and Town Council of Edinburgh v Lord Advocate (ex parte M‘Laren) (1879) 4 App. Cas. 823, 839; Yates v Finn (1880) 13 Ch.D. 839, 843–44.

76 Lindley, Law of Partnership, pp. 320–21; Popat v Shonchhatra [1997] 1 W.L.R. 1367, 1371–72.

77 Vyse v Foster (1872) L.R. 8 Ch. App. 309, 331; cf. G.F. Hamilton, “On the Doctrine of Vyse v. Foster” (1887) 3 L.Q.R. 211, which Frederick Pollock considered to be “fighting against the current of opinion and expectation, if not of authority”: see p. 220.

78 Simpson v Chapman (1853) 4 De G.M. & G. 154 (43 E.R. 466), 170.

79 Willett v Blanford (1842) 1 Hare 253 (66 E.R. 1027).

80 Wedderburn v Wedderburn (1856) 22 Beav. 84 (52 E.R. 1039), 105.

81 Simpson v Chapman (1853) 4 De G.M. & G. 154 (43 E.R. 466), 171; Wedderburn v Wedderburn (1856) 22 Beav. 84 (52 E.R. 1039), 117.

82 Willett v Blanford (1842) 1 Hare 253 (66 E.R. 1027), 270. See also Birtchnell v Equity Trustees, Executors & Agency Co. Ltd. (1929) 42 C.L.R. 384, 398; Manley v Sartori [1927] 1 Ch. 157, 165–66; Sheldon v Metro-Goldwyn Pictures Corp. 309 U.S. 390 (1940), 401; Hospital Products v United States Surgical Corp. (1984) 156 C.L.R. 41, 109; Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 561; Murad v Al-Saraj [2005] EWCA Civ 959, [2005] W.T.L.R. 1573, at [77].

83 Willett v Blanford (1842) 1 Hare 253 (66 E.R. 1027), 271.

84 Some decisions indicated that partnership goodwill would be subject to survivorship (e.g. Hammond v Douglas (1800) 5 Ves. 539 (31 E.R. 726), 539–40; Lewis v Langdon (1835) 7 Sim. 421 (58 E.R. 899), 425), but that was inaccurate: Wedderburn v Wedderburn (1856) 22 Beav. 84 (52 E.R. 1039), 104; Smith v Everett (1859) 27 Beav. 446 (54 E.R. 175), 452; Re Arbitration between David & Matthews [1899] 1 Ch. 378, 382–83; Manley v Sartori [1927] 1 Ch. 157, 166; Lindley, Law of Partnership, pp. 443–44, 446.

85 Capital contributions might have changed over time as well, by further additions or subtractions, although partnership capital did not normally change without agreement: Willett v Blanford (1842) 1 Hare 253 (66 E.R. 1027), 266, 272; Lindley, Law of Partnership, p. 321.

86 Simpson v Chapman (1853) 4 De G.M. & G. 154 (43 E.R. 466), 171.

87 Ibid., at p. 172. See also Crawshay v Collins (1808) 15 Ves. 218 (33 E.R. 736), 230 and (1820) 1 Jac. & W. 267, 278 (37 E.R. 377); Featherstonhaugh v Fenwick (1810) 17 Ves. 298 (34 E.R. 115), 314; Willett v Blanford (1842) 1 Hare 253 (66 E.R. 1027), 272–74; Wedderburn v Wedderburn (1856) 22 Beav. 84 (52 E.R. 1039), 117.

88 See Docker v Somes (1834) 2 My. & K. 655 (39 E.R. 1095), 664–65, 673; Clegg v Fishwick (1849) 1 Mac. & G. 294 (41 E.R. 1278), 298–99, 301 and (1849) 1 H. & Tw. 390 (47 E.R. 1463), 398, 400; Warman International Ltd. v Dwyer (1992) 46 I.R. 250, 260; Lindley, Law of Partnership, p. 522.

89 Featherstonhaugh v Turner (1858) 25 Beav. 382 (53 E.R. 683), 391–92. See also Featherstonhaugh v Fenwick (1810) 17 Ves. 298 (34 E.R. 115), 314.

90 Grimaldi v Chameleon Mining NL (No. 2) [2012] FCAFC 6, (2012) 200 F.C.R. 296, at [560]; R.C. Nolan, “The Administration and Maladministration of Funds in Equity” in P.G. Turner (ed.), Equity and Administration (Cambridge 2016), 72.

91 Docker v Somes (1834) 2 My. & K. 655 (39 E.R. 1095), 668.

92 Murad v Al-Saraj [2005] EWCA Civ 959, [2005] W.T.L.R. 1573, at [85].

93 Wedderburn v Wedderburn (1856) 22 Beav. 84 (52 E.R. 1039), 99–100.

94 Clegg v Edmondson (1857) 3 De G.M. & G. 787 (44 E.R. 593), 806; Chan v Zacharia (1984) 154 C.L.R. 178. See also Featherstonhaugh v Fenwick (1810) 17 Ves. 298 (34 E.R. 115), 311.

95 Williams, The Law of Account, pp. 88, 184; Lindley, Law of Partnership, pp. 522–23.

96 E.g. Grimaldi v Chameleon Mining NL (No. 2) [2012] FCAFC 6, (2012) 200 F.C.R. 296, at [517], [526].

97 Re Jarvis [1958] 1 W.L.R. 815, 820.

98 Ibid. The plaintiff's claim ultimately failed because of laches: see p. 821.

99 See John Taylors v Masons [2001] EWCA Civ 2106, [2005] W.T.L.R. 1519, at [37].

100 Docker v Somes (1834) 2 My. & K. 655 (39 E.R. 1095), 673; Flockton v Bunning (1864) L.R. 8 Ch. App. 323n.; Vyse v Foster (1872) L.R. 8 Ch. App. 309, 334.

101 Rocke v Hart (1805) 11 Ves. 58 (32 E.R. 1009), 61; Ratcliffe v Graves (1683) 1 Vern. 196 (23 E.R. 409), 197.

102 Prior to Docker v Somes (1834) 2 My. & K. 655 (39 E.R. 1095), return of the misapplied capital coupled with interest seems to have been the normal remedy, but the possibility of an award of profits generated from that capital was not unrecognised: see Williams, The Law of Executors, 1134; cf. R. Lee, “Disgorgement of Unauthorised Fiduciary Gains: An Exercise in Causation?” (2017) 11 J. Eq. 29, at 34–35.

103 Docker v Somes (1834) 2 My. & K. 655 (39 E.R. 1095), 673.

104 Re Davis [1902] 2 Ch. 314, 317; Docker v Somes (1834) 2 My. & K. 655 (39 E.R. 1095), 673.

105 Murad v Al-Saraj [2005] EWCA Civ 959, [2005] W.T.L.R. 1573, at [62], [116].

106 Aas v Benham [1891] 2 Ch. 244, 255; Birtchnell v Equity Trustees, Executors & Agency Co. Ltd. (1929) 42 C.L.R. 384, 409. This is so even where the partnership agreement contains a clause prohibiting other activity: Dean v MacDowell (1878) 8 Ch.D. 345.

107 CMS Dolphin Ltd. v Simonet [2001] 2 B.C.L.C. 704, at [140].

108 Re Jarvis [1958] 1 W.L.R. 815, 820.

109 Dwyer v Warman International Ltd. (unreported, Queensland Court of Appeal, 23 February 1994), per McPherson J.A. (dissenting) at p. 28.

110 Re Jarvis [1958] 1 W.L.R. 815, 820.

111 CMS Dolphin Ltd. v Simonet [2001] 2 B.C.L.C. 704, at [97] (citing Hospital Products v United States Surgical Corp. (1984) 156 C.L.R. 41, 110). See also Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [16].

112 Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 558, 567; Grimaldi v Chameleon Mining NL (No. 2) [2012] FCAFC 6, (2012) 200 F.C.R. 296, at [517]. A similar point is made in intellectual property cases, where the same difficulties are encountered: see Sheldon v Metro-Goldwyn Pictures Corp. 309 U.S. 390 (1940), 404; Colbeam Palmer Ltd. v Stock Affiliates Pty. Ltd. (1968) 122 C.L.R. 25, 46; Dart Industries Inc. v Decor Corp. Pty. Ltd. (1993) 179 C.L.R. 101, 111, 119. Difficulties in assessment do not relieve the court from its responsibility, just as difficulty in assessing compensatory damages at times also requires guesswork: see Commonwealth v Amann Aviation Pty. Ltd. (1991) 174 C.L.R. 64, 83.

113 Ultraframe (UK) Ltd. v Fielding [2005] EWHC 1638 (Ch), at [1588].

114 “[T]he purpose of the processes of the Court of Chancery was to rectify and reform the conscience of the wrongdoer. … its orders are primarily coercive or remedial rather than punitive”: Australian Consolidated Press Ltd. v Morgan (1965) 112 C.L.R. 483, 498–99. See also Vyse v Foster (1872) L.R. 8 Ch. App. 309, 333, 334; Colbeam Palmer Ltd. v Stock Affiliates Pty. Ltd. (1968) 122 C.L.R. 25, 34; Harris v Digital Pulse Pty. Ltd. [2003] NSWCA 10, (2003) 56 N.S.W.L.R. 298, at [300]–[310], [406]–[407].

115 Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [83]; see also at [93]–[95].

116 Maguire v Makaronis (1997) 188 C.L.R. 449, 468.

117 Timber Engineering Co. Pty. Ltd. v Anderson [1980] 2 N.S.W.L.R. 488, 496; Hospital Products v United States Surgical Corp. (1984) 156 C.L.R. 41, 116; Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 568; Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [97]. There is an analogy here with intellectual property cases where the infringing product is entirely attributable to the wrongful use of the plaintiff's patent, design or copyright: see Colbeam Palmer Ltd. v Stock Affiliates Pty. Ltd. (1968) 122 C.L.R. 25, 43.

118 Timber Engineering Co. Pty. Ltd. v Anderson [1980] 2 N.S.W.L.R. 488, 496.

119 Hospital Products v United States Surgical Corp. (1984) 156 C.L.R. 41, 116. A constructive trust may be an inappropriate means of stripping profits if it would undesirably yoke parties together (Warman International Ltd. v Dwyer (1992) 46 I.R. 250, 261–62) or where the plaintiff's property made only a very small and indirect contribution to the generation of the profit (Grimaldi v Chameleon Mining NL (No. 2) [2012] FCAFC 6, (2012) 200 F.C.R. 296, at [672]–[681]). English law will need to address whether these considerations can affect the recognition of a constructive trust over profits taken in breach of fiduciary duty, given remedial constructive trusts are not recognised in England: FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45, [2015] A.C. 250, at [47]; Heydon et al., Meagher Gummow & Lehane's Equity, [5-250].

120 Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918.

121 The analysis here leaves to one side questions as to whether the liability of a participant in a breach of fiduciary duty should differ from that of the fiduciary: see note 7 above.

122 Lifeplan Australia Friendly Society Ltd. v Ancient Order of Foresters in Victoria Friendly Society Ltd. [2017] FCAFC 74, (2017) 250 F.C.R. 1, at [86].

123 Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [8]; see also at [4], [10], [16], [17].

124 Ibid., at paras. [111], [113].

125 Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 566, 568.

126 Ibid., at p. 566.

127 Ibid., at pp. 566–67, 568.

128 Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [21].

129 Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 566.

130 Cf. R. Lee, “Causation and Accounts of Profits for Breach of Fiduciary Duty” [2006] Sing. J.L.S. 488, at 502; C. Mitchell, “Causation, Remoteness, and Fiduciary Gains” (2006) 17 K.C.L.J. 325, at 338; G.J. Virgo, “Restitutionary Remedies for Wrongs: Causation and Remoteness” in C. Rickett (ed.), Justifying Private Law Remedies (Oxford 2008), 301, 326; Hayton et al., Underhill & Hayton, [27.49].

131 Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 565.

132 Ibid., at p. 567.

133 Ibid., at p. 558. See also Murad v Al-Saraj [2005] EWCA Civ 959, [2005] W.T.L.R. 1573, at [116]. In CMS Dolphin Ltd. v Simonet [2001] 2 B.C.L.C. 704, CMSD did not seek an account for any period beyond the year in which Simonet committed his breaches of fiduciary duty, and so while he effectively carved out CMSD's business (CMSD was left with no business apart from the litigation: see at [4]), this issue did not arise: see at [140]. cf. Devonshire, “Account of Profits”, which describes CMS Dolphin Ltd. as taking an expansive view of profits (see p. 395), but then says that Simonet was actually “found liable on a more restrictive basis”: see p. 396 (fn. 61).

134 Gummow, “Dishonest Assistance”, p. 409. See generally O. Dixon, Jesting Pilate (Sydney 1965), 14.

135 Tang v Tang (2017) 20 H.K.C.F.A.R. 53, at [16]. See also e.g. Lifeplan Australia Friendly Society Ltd. v Ancient Order of Foresters in Victoria Friendly Society Ltd. [2017] FCAFC 74, (2017) 250 F.C.R. 1, at [68].

136 United Pan-Europe Communications N.V. v Deutsche Bank A.G. [2000] 2 B.C.L.C. 461, at [47]. See also Novoship (UK) Ltd. v Mikhaylyuk [2014] EWCA Civ 908, [2015] Q.B. 499, at [96] (although cf. at [109]); Akita Holdings Ltd. v Attorney General of the Turks and Caicos Islands [2017] UKPC 7, [2017] A.C. 590, at [17].

137 G.J. Virgo, The Principles of Equity and Trusts, 3rd ed. (Oxford 2018), 528; Lee, “Disgorgement of Unauthorised Fiduciary Gains”, p. 41.

138 Lee, “Causation and Accounts of Profits”, pp. 499–500.

139 J. Stapleton, “An ‘Extended But-For’ Test for the Causal Relation in the Law of Obligations” (2015) 35 O.J.L.S. 697, at 714 (fn. 81).

140 Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [89]; Gummow, “Dishonest Assistance”, p. 408; Ho, “Deemed Performance”, p. 195.

141 See e.g. Regal (Hastings) Ltd. v Gulliver [1967] 2 A.C. 134n., 154–55; Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 557, 558; Foster Bryant Surveying Ltd. v Bryant [2007] EWCA Civ 200, [2007] 2 B.C.L.C. 239, at [88], [101]; Akita Holdings Ltd. v Attorney General of the Turks and Caicos Islands [2017] UKPC 7, [2017] A.C. 590, at [17]; Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [70]; Keystone Healthcare Ltd. v Parr [2019] EWCA Civ 1246, [2019] 4 W.L.R. 99, at [15].

Hence, the claim is not an action in unjust enrichment (and nor is it restitutionary: Harris v Digital Pulse Pty. Ltd. [2003] NSWCA 10, (2003) 56 N.S.W.L.R. 298, at [414]), as there is no need for the fiduciary's profit to have been obtained at the expense of the plaintiff. This renders less informative the US case law on the topic, which is based more heavily on an unjust enrichment analysis: see D.B. Dobbs and C.L. Roberts, Law of Remedies, 3rd ed. (St Paul 2018), 415, 418; Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 557 (fn. 25). Caution is also needed with intellectual property cases for the same reason: see Dart Industries Inc. v Decor Corp. Pty. Ltd. (1993) 179 C.L.R. 101, 111, 114–15, 123; Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 557.

It is unclear why the High Court of Australia considered in Warman that “in some situations, it may also be relevant to ascertain what was lost by the plaintiff” when determining the proper basis for an account of profits (see p. 565). This may refer to the situation, discussed earlier, where the whole of the business for which the fiduciary must account has been “carved out” of the plaintiff's business, as that despoliation inevitably causes a loss to the plaintiff.

142 Regal (Hastings) Ltd. v Gulliver [1967] 2 A.C. 134n., 144.

143 Ibid., at p. 145.

144 Murad v Al-Saraj [2005] EWCA Civ 959, [2005] W.T.L.R. 1573, at [71].

145 Harris v Digital Pulse Pty. Ltd. [2003] NSWCA 10, (2003) 56 N.S.W.L.R. 298, at [414]; Murad v Al-Saraj [2005] EWCA Civ 959, [2005] W.T.L.R. 1573, at [74], [107]; Conaglen, “The Extent of Fiduciary Accounting”, pp. 557–58.

146 Murad v Al-Saraj [2005] EWCA Civ 959, [2005] W.T.L.R. 1573, at [76]; see also at [99]-[106]. And see e.g. Regal (Hastings) Ltd. v Gulliver [1967] 2 A.C. 134n., 154; Gray v New Augarita Porcupine Mines Ltd. [1952] 3 D.L.R. 1, 15; Gwembe Valley Devt. Co. Ltd. v Koshy (No. 3) [2003] EWCA Civ 1048, [2004] 1 B.C.L.C. 131, at [145]; Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [9]; Keystone Healthcare Ltd. v Parr [2019] EWCA Civ 1246, [2019] 4 W.L.R. 99, at [19]–[20]. See also text accompanying note 48 above; and see Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 565–66, where “but for” Dwyer's breach he would have acquired the distributorship after no more than a further year, but the account of profits was not limited to that period.

147 Murad v Al-Saraj [2005] EWCA Civ 959, [2005] W.T.L.R. 1573, at [71].

148 Cf. Virgo, The Principles of Equity and Trusts, p. 528; Cunnington, R., “The Assessment of Gain-Based Damages for Breach of Contract” (2008) 71 M.L.R. 559, 583–84CrossRefGoogle Scholar.

149 Stapleton, J., “Unnecessary Causes” (2013) 129 L.Q.R. 39Google Scholar; Stapleton, “An ‘Extended But-For’ Test”, p. 709.

150 Stapleton, “An ‘Extended But-For’ Test”, pp. 718, 725.

151 See e.g. Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [88]; Williams v Barton [1927] 2 Ch. 9, 12; V-Flow Pty. Ltd. [2013] FCAFC 16, (2013) 296 A.L.R. 418, at [67]; Emma Silver Mining Co. v Grant (1879) 11 Ch.D. 918, 938; Lifeplan Australia Friendly Society Ltd. v Ancient Order of Foresters in Victoria Friendly Society Ltd. [2017] FCAFC 74, (2017) 250 F.C.R. 1, at [66].

152 Keystone Healthcare Ltd. v Parr [2019] EWCA Civ 1246, [2019] 4 W.L.R. 99, at [18]; cf. Hayton et al., Underhill & Hayton, [27.44]–[27.45].

153 Keystone Healthcare Ltd. v Parr [2019] EWCA Civ 1246, [2019] 4 W.L.R. 99, at [18]; see also at [22].

154 Maguire v Makaronis (1997) 188 C.L.R. 449, 468 (quoting Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 557).

155 Chan v Zacharia (1984) 154 C.L.R. 178, 199.

156 See also Boston Deep Sea Fishing & Ice Co. v Ansell (1888) 39 Ch.D. 339, 367; Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 557; Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [68].

157 Parker v McKenna (1874) L.R. 10 Ch. App. 96, 118, 124; Re Canadian Oil Works Corp. (Hay's Case) (1875) L.R. 10 Ch. App. 593, 601, 605; Boston Deep Sea Fishing & Ice Co. v Ansell (1888) 39 Ch.D. 339, 363–64; Aas v Benham [1891] 2 Ch. 244, 255; Birtchnell v Equity Trustees, Executors & Agency Co. Ltd. (1929) 42 C.L.R. 384, 409; Furs Ltd. v Tomkies (1936) 54 C.L.R. 583, 592, 600; Boardman v Phipps [1967] 2 A.C. 46, 127; Industrial Development Consultants Ltd. v Cooley [1972] 1 W.L.R. 443, 451; United Pan-Europe [2000] 2 B.C.L.C. 461, at [47]; Murad v Al-Saraj [2005] EWCA Civ 959, [2005] W.T.L.R. 1573, at [112].

158 Regal (Hastings) Ltd. v Gulliver [1967] 2 A.C. 134n., 139, 144–45, 147, 149, 153, 158; Russell v Austwick (1826) 1 Sim. 52 (57 E.R. 498); Williams v Stevens (1866) L.R. 1 P.C. 352, 359; Hospital Products v United States Surgical Corp. (1984) 156 C.L.R. 41, 107; John Taylors v Masons [2001] EWCA Civ 2106, [2005] W.T.L.R. 1519, at [28]; Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [85], [119].

159 Burton v Wookey (1822) 6 Madd. 367 (56 E.R. 1131), 368; Parker v McKenna (1874) L.R. 10 Ch. App. 96, 118; Aas v Benham [1891] 2 Ch. 244, 255; Regal (Hastings) Ltd. v Gulliver [1967] 2 A.C. 134n., 137; Re Macadam [1946] Ch. 73, 81; Industrial Development Consultants Ltd. v Cooley [1972] 1 W.L.R. 443, 453; Consul Development Pty. Ltd. v DPC Estates Pty. Ltd. (1975) 132 C.L.R. 373, 393, 394; John Taylors v Masons [2001] EWCA Civ 2106, [2005] W.T.L.R. 1519, at [27]. See also Cory, A Practical Treatise, p. 277.

160 Visnic v Sywak [2009] NSWCA 173, (2009) 257 A.L.R. 517, at [22].

161 Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [9] (quoting Jenyns v Public Curator (Q.) (1953) 90 C.L.R. 113, 118).

162 Warman International Ltd. v Dwyer (1995) 182 C.L.R. 544, 568.

163 Birtchnell v Equity Trustees, Executors & Agency Co. Ltd. (1929) 42 C.L.R. 384, 417.

164 Simpson v Chapman (1853) 4 De G.M. & G. 154 (43 E.R. 466), 172; Featherstonhaugh v Turner (1858) 25 Beav. 382 (53 E.R. 683), 391; CMS Dolphin Ltd. v Simonet [2001] 2 B.C.L.C. 704, at [97]; John Taylors v Masons [2001] EWCA Civ 2106, [2005] W.T.L.R. 1519, at [36]; Murad v Al-Saraj [2005] EWCA Civ 959, [2005] W.T.L.R. 1573, at [115]; Grimaldi v Chameleon Mining NL (No. 2) [2012] FCAFC 6, (2012) 200 F.C.R. 296, at [517], [540], [710], [712]; Ancient Order of Foresters in Victoria Friendly Society Ltd. v Lifeplan Australia Friendly Society Ltd. [2018] HCA 43, (2018) 92 A.L.J.R. 918, at [12], [92]. See also note 87 above. And see Dart Industries Inc. v Decor Corp. Pty. Ltd. (1993) 179 C.L.R. 101, 120; Colbeam Palmer Ltd. v Stock Affiliates Pty. Ltd. (1968) 122 C.L.R. 25, 39, 42–43.

165 Grimaldi v Chameleon Mining NL (No. 2) [2012] FCAFC 6, (2012) 200 F.C.R. 296, at [517].