Money Remedies

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This article is a topic within the subject Equity and Trusts.

Contents

Required Reading

M.W. Bryan & V.J. Vann, Equity and Trusts in Australia (Cambridge University Press, 2012), pp. Textbook Chapter 4.

Warman International v Dwyer (1995) 182 CLR 544.

Recall also Pilmer v Duke Group (2001) 207 CLR 165([85]-[89]) from class 2-2 (equitable compensation).

Introduction

[1]In certain situations equity orders the defendant to make payments to the plaintiff as a remedy for the wrong done through an account of profits or equitable compensation. These remedies impose a personal obligation on the wrongdoer to pay and do not attach directly to property, which is a disadvantage in the case of the defendant’s insolvency. The remedies perform substantially different tasks.

Accounts of profits

[2]As a general rule, accounts of profits are not available at common law. They are designed to strip profits made in breach of equitable obligations, preventing the wrongdoer from profiting from his own wrong.

  • The remedy is awarded in response to breaches of trust, fiduciary obligations and the obligation of confidence.
  • Not designed to punish the defendant, only to do corrective justice by stripping net profits – the defendant should not be put in a worse opportunity than if they had no taken up the opportunity.
  • The award is discretionary and may be defeated by traditional equitable bars such as laches and unclean hands.

Because the remedy focuses on the profit made by the wrongdoer through the equitable wrong, it is irrelevant that:

  • The plaintiff has not suffered any loss, or has also suffered a loss.
  • The plaintiff could never have made a profit itself, or has also made a profit itself incidentally through the defendant’s breach.
  • The defendant’s motives or state of mind are not dishonest.
  • The plaintiff might have made more profit than the defendant from exploitation of the opportunity.

However, allowances must sometimes be made to the defendant for aspects of the profit not caused by his wrongdoing, but instead due to his personal input or effort.

How are accounts of profits calculated?

[3]

Warman International Ltd v Dwyer[4]

Facts: Warman was a company that had an agency agreement with an Italian manufacturer of gearboxes, Bonfiglioli. Dwyer was general manager at a branch of Warman. Bonfiglioli unsuccessfully approached Warman in August 1986 to set up a joint venture with it. Shortly after, Dwyer informed Bonfiglioli that he planned to leave Warman and set up his own business. He poached Warman’s staff to work in his new venture and Dwyer terminated tis agency agreement with Warman, entering into a 20 year contract with Dwyer’s company to assemble and distribute its gearboxes in Australia.
The trial judge held that there was a clear breach of fiduciary duty by Dwyer, resulting in Warman losing the opportunity to retain the agency agreement. Compensation to cover the loss but the court denied Warman an account of profits.
Held: The High Court reversed the decision, holding that Warman was entitled to elect between equitable compensation and an account of profits. The court made the following points:
  • As account of profits is difficult to calculate, mathematical exactness is not called for, a reasonable approximation is acceptable.
  • Liability to account does not depend on detriment to the plaintiff; or dishonesty or lack of bona fides on the part of the defendant.
  • It is no defence that the plaintiff was unwilling, unlikely or unable to make the profit itself.
  • The fiduciary is usually ordered to account for profits made within the scope and ambit of the fiduciary duty.
  • If the loss suffered by the plaintiff exceeds the profit made by the fiduciary, the plaintiff may elect a compensatory remedy against the fiduciary. The plaintiff is entitled to elect which ever remedy reaps the highest return.
  • A distinction can be drawn between cases where a fiduciary acquires a specific asset and where the fiduciary establishes and operates a business to exploit an opportunity. In the latter, it may be inappropriate to require the fiduciary to account for the whole of the business profits for an indefinite time, especially where profits can be attributed to its own inputs.
  • The defendant bears the burden of showing that it should not account for the whole of the profits.
  • As a general rule, a court will not apportion the profit made between fiduciary and the principal; but if it is inequitable for the fiduciary to account for the whole of the profits, the court will make allowance for the fiduciary’s skill, effort and expenses.
Applying these principles, the High Court held that Warman was likely to have lost its distributorship, probably within a year. An order for account of profits was limited to the initial period of two years, less an allowance for the skill, expertise, effort and resources contributed by them.

Allowances

[5]A 'dishonest fiduciary will not be given an allowance at all or will be given a reduced allowance. Dishonesty may not be relevant, as in Warman, it may be more important that in the interests of justice between the parties, not all of the profit is attributed to the breach of fiduciary duty.

  • Honest or well-intentioned defendants are sometimes given allowances on a liberal or generous scale.
  • Parties frequently settle figures between themselves.

Victoria University of Technology v Wilson[6]

Facts: Two academics owed fiduciary obligations to their employer, a university. A former student came to them with a money-making opportunity which they exploited in breach of fiduciary duty. The trial judge appointed a special referee to determine the amount of allowance to be made to the fiduciaries, who had put in a significant amount of time, effort and money into the venture. The referee set an extremely low figure and the fiduciaries successfully appealed.
Issue: Calculation of allowances.
Held: Harper J held that the starting point for the calculation should have been the terms the university and the academics were most likely to have agreed at the outset, assuming they were at arm’s length, fully informed, properly advised and willing to be reasonable. The university itself had policies in place for similar situations, which allowed profits to be shared between the university and its employees, and these policies were highly relevant indicators of what would have been agreed. The resulting figure would be reduced if the fiduciary’s behaviour had in any way disadvantaged the principal (for example, neglecting their teaching duties in order to exploit the opportunity).

Equitable compensation

[7]Comparable (but not the equivalent of) common law damages. It addressing loss following breach and is available in respect of breaches of purely equitable duties such as breach of trust, fiduciary duty and obligations of confidence.

Emergence of jurisdiction to award equitable compensation

[8]The jurisdiction to award the remedy appears to have arisen in cases involving breach of trust.

Caffrey v Darby[9]

Facts: Trustees allowed a purchaser of trust property on terms into possession of the property and did not ensure that he agreed to make payments. The purchaser eventually became bankrupt without paying for the property.
Held: The trustees were liable to compensate the trust, in effect reconstituting the trust fund to the level at which it should have stood.

The trustee’s responsibility is to compensate the trust rather than the beneficiaries, although in exceptional circumstances, the beneficiary may be the appropriate recipient.

  • Nocton v Lord Ashburton[10] represented a major development because compensation was awarded where there was no contract to set aside between the fiduciary and the principal.
  • Since Nocton, equitable compensation has been widely ordered for breach of fiduciary duty and breach of confidence, even extending to cases of equitable estoppel where the court is unwilling or unable to order a direct transfer of property.
  • Traditionally it was not regarded as available for undue influence or unconscionable conduct, however it will be awarded if the result would otherwise be that the plaintiff would be frustrated simply because the property had passed out of the defendant’s hands.

How is equitable compensation calculated?

[11]Equitable compensation is calculated in response to the duty breached and aims to put the plaintiff in the position they would have been in had the defendant not wronged them. It is not intended to be punitive, only to effect justice.

  • It is assessed with the benefit of hindsight and is therefore usually judged at the date of trial rather than at the date of breach.
  • There must be a causative link between the wrong and the claimed loss but common law concepts such as reasonable foreseeability and novus actus interveniens are not applied. (The claim may still be affected by the discretionary bars to relief such as laches, hardship and unclean hands).
  • Traditionally, equitable compensation relieved economic losses and was regarded as not being available for personal losses such as distress.
  • However, in Giller v Procopets[12] the Victorian Court of Appeal allowed equitable compensation for distress following a breach of confidence.
  • To calculate compensation, specific attention must be given to the type of breach.

Calculating equitable compensation for breach of trust The trustee is strictly responsible to reinstate the trust in full. Considerations of remoteness not apply. It is also irrelevant that there might have been some loss anyway, had the breach not occurred.

End

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References

Textbook refers to M.W. Bryan & V.J. Vann, Equity and Trusts in Australia (Cambridge University Press, 2012).

  1. Textbook, p 57.
  2. Textbook, pp 57-8.
  3. Textbook, pp 58-60.
  4. (1995) 182 CLR 544.
  5. Textbook, pp 60-1.
  6. (2006) 68 IPR 597.
  7. Textbook, p 61.
  8. Textbook, pp 61-3.
  9. (1801) 6 Ves 488.
  10. [1914] AC 932.
  11. Textbook, pp 63-4.
  12. [2008] 24 VR 1.
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