Certainty in Calculating Monetary Remedies for Breach of Fiduciary Duty

Abstract

Breach of equity’s proscriptive fiduciary duties against unauthorized profit or conflict between self-interest and duty or conflict(s) between duties owed to multiple principals may result in a profit in the hands of the defendant wrongdoer. In Warman International Ltd v Dwyer, a unanimous High Court of Australia confirmed the ‘stringent rule that the fiduciary cannot profit from his trust’ such that it is irrelevant that the fiduciary is in good faith, has acted honestly and reasonably or that the profit is one which the principal ‘was unwilling, unlikely or unable’ to make. The claimant is entitled, subject to any discretionary factors such as laches and acquiescence, and any allowances, to an account of profits.

Subject to the doctrine of election, the fiduciary’s conduct also leaves her vulnerable to a claim for equitable compensation. Relevantly, equity recognizes as a head of loss the principal’s lost commercial opportunity, where a real loss has been suffered, such as a lost opportunity to put funding to a profitable use. In calculating the value of the lost chance, the court may make some adjustments to the value of the lost opportunity in recognition of the expenses which would have been incurred had the principal pursued the now lost opportunity. For example, a court may permit an adjustment to the value of loss for which equitable compensation is awarded reflecting ‘the notional salaries which would have been paid’ by the principal to the defaulting fiduciary had the commercial opportunity been pursued by the principal.

This chapter argues that in both the loss and the gain measures, equity must grapple with the task of bringing into the ledger hypothetical value. When considered through the lens of lost commercial opportunity, this issue arises since the value of the claimant’s lost opportunity will include anticipated or as yet unearned profit, which might be cast as the claimant’s future or past hypothetical loss. Similarly, when viewed through the lens of the fiduciary’s unauthorized gains, the difficulty becomes one of determining the extent to which the fiduciary’s future profit is incorporated and is vulnerable to return via an account of profits. In previous work, I have suggested that in awarding equitable compensation for breach of fiduciary duty, equity has employed techniques to make certain the claimant’s loss. Thus, the question arises: how does equity value and take account of the fiduciary’s gains expected to be earned through the fiduciary’s breach of duty? This chapter explores whether a parallel analysis may be required in relation to valuing gains made by the fiduciary. It asks whether a certainty principle operates on the gain side of the remedial menu. At the outset it must be conceded that the overall purpose of this chapter is exploratory rather than conclusive. In identifying this larger conceptual pattern of hypothetical value in both the loss and gain responses to breach of fiduciary duty, some tentative answers are proposed in suggesting a certainty principle for particular equitable monetary remedies. However, the analysis also identifies further lines of inquiry for future research. The general rules giving shape to monetary remedies in equity are still developing and further work is required satisfactorily to resolve the controversies and puzzles surrounding hypothetical value in both the loss and gain response. Some of these issues are highlighted in Section IV below, Implications.

Keywords: Fiduciary, Remedies, Account of Profits, Certainty