1.

Read the following statement:

Considerations of causation are just as pertinent when assessing the

availability and amount of an account of profits, as when assessing the
quantum of equitable compensation.

Is this statement correct in relation to the remedy of account of profits? In

answering this question consult primary and secondary materials, which are
relevant and current.

Considerations of causation are just as pertinent when assessing the availability and
amount of account of profits as when assessing the quantum of equitable compensation. This
paper will not address the law surrounding fiduciary duties, instead it will focus on the remedy of
an account of profits which may be sought once a breach of fiduciary duty is proven. This paper
adopts the definition of causation as the relationship between the actions of a party and the of an
event or a process.

Stevens v Premium Real Estate1 is a foundational case on the equitable remedy of account for
profits. In this case, Premium was an agent who sold a home to a buyer who they had previously
worked for which amounted to breach of the agent’s fiduciary duty. The court held that since the
defendant was acting as the plaintiff’s agent, they owed them a fiduciary duty. The failure to
disclose key information to the transaction was a breach of the fiduciary duty. Thus, the court
held that the plaintiff be paid the difference between the initial price and the sale. The defendant
was also to refund the commission that they had received from the plaintiff during the initial
transaction. The findings of the court established an inconsistency in the manner in which the
rules of causation are applied in cases of breach of fiduciary duty. The decision of the court
suggests that the remedies of accounts of profits and compensation may not be awarded
simultaneously. However, at the same time, the court allowed the plaintiff to recover the gains
that the defendant had made from the transaction.

The above is better explained by the pronouncements of Professor Birks argues that when
a plaintiff is entitled to recover the gains made by a defendant having suffered no loss, it is

1
Stevens v Premium Real Estate [2009] NZSC 15, [2009] 2 NZLR 384.
unclear on the reason for the inconsistency where he suffered loss, why the defendant to make a
disgorgement of his gains to make good of the losses suffered by the plaintiff.

The matter of Tang Man Sit v Capacious Investments Ltd and United Australia Ltd v
Barclays Bank 2will be used in this paper to show how reasoning based on contractual and the
tortious principle of causation are relevant when assessing whether an agent will account for the
profits they make when a breach of fiduciary duty occurs. Further, it is important to note whether
these principals can be interchanged and whether their application results in fundamental
inconsistences since the remedies carry distinct issues. The finding in case law as will be
observed is that an agent will be required to account for profits made only when they breach their
fiduciary duty. Another issue of deliberation is whether awarding further damages would overlap
with the account for profits which would allow for the vindication of the fiduciary relationship
without risking awarding an excessive award.

In the Premium Real Estate case,3 court made an order for account of profits and did not
consider the issue of causation. The court’s decision requiring the return of the commission was
based on the fact that the commission was not earned due to a breach in the fiduciary duty that
was owed by the defendant. There was a characterization of this by Chief Justice Elias and
Blanchard J as an unearned payment. This is close to the definition given to an account for
profits which is an order capturing the illicit gains made by a fiduciary after breaching their
substantive duty. In order to establish a breach of fiduciary duty, the court has to establish
whether there was a breach of good faith. In this case, the consideration is a specific application
of allowances for fiduciaries in breach of duty, an accepted aspect of accounts.

To further gain knowledge on whether proving causation is relevant requires

consideration of account for profits as restorative. Justice Tipping argues that casuation is a
justified remedy because it reinforces the fiduciary obligations. The difference that allows for
causation not to be factored in issues of accounting for profits is the profits that are to be
received by the plaintiff which causes the breach of fiduciary duty. Therefore, causation becomes
unnecessary in attempting to prove the same when its shown that indeed there was a breach in

2
Tang Man Sit v Capacious Investments Ltd. [1995] UKPC 54, [1996] AC 514. United Australia Ltd. v Barclays Bank
Ltd. [1941] AC 1 (HL).
3
Premium Real Estate, above n 1. Elias CJ at [31
fiduciary duty. It is important to note that the Premium case found that return of commission is
an independent remedy. 4

Furthermore, the remedy of account of profits may use other factors beyond causation to
prove a breach of fiduciary duty. Hence, we are required to differentiate compensatory damages
from gain-based damages. Gain based remedies are broad in nature and are available for
contractual accounts and restitution awards. Accounts on the other hand are assessed by the gain
made by the fiduciary without making reference to whether the plaintiff made any losses. In this
limb, we get to know that the fiduciary relationship is what needs to be proved and not the
causation for the wrongful acts. On the other hand, compensatory damages stem from a variety
of rights which are loss-based. The term restitution in this scenario appears alongside the concept
of accounts for profits. Professor Birks’ made a classic definition of restitution dividing it to two
major forms the first being the wrong done by the defendant where he makes unjust profits. The
second issue is the account for profits which can also be termed to as a disgorgement of wrongs.

The position is that compensation and an account for profits are alternate remedies and
therefore require different means of proof. Lord Nicholls opines that alternate remedies are those
which are inconsistent and therefore require the plaintiff to pick one between the two once a
judgment is issued.5 The meaning of this is that awarding one remedy fully satisfies the
principles of the other and therefore making another award becomes excessive. On the other
hand, cumulative remedies do not require an election of remedies by the plaintiff but the
aggregate award cannot exceed the loss suffered.

There is a confusion as to issues to do with causation and its application when proving a
case of accounting for profits. Equitable compensation is the same as what is known as common
law damages when one considered the similar goals of the two. The principles of causation may
differ but there is no instance in which a plaintiff will be allowed to make a double recovery. The
equitable remedy should not be combined with any other loss-focused remedy which would
result to the plaintiff obtaining more than their loss. In assessing causation, Edelman conceives
allowances as a tool that would be effective in assessing causation such that denial of damages
would be a punitive measure. Also, it has been found that there are lower causation requirements
in fiduciary relationships. This is because of how the law treats compensation as adequate in
4
Premium Real Estate, above n 1, at [89] per Blanchard J.
5
Premium Real Estate, above n 1, at [104]-[109] per Tipping J.
certain circumstances thus relegating the fiduciary relationship to a similar position as the
contractual and tortious relationships.

Mothew v Bristol & West Building Society define a fiduciary as an individual who has
taken up a responsibility to act on behalf of another person in a matter creating circumstances
that give rise to a relationship based on trust and confidence. Hospital Products Ltd v United
States Surgicl Corporation further defines the fiduciary as the individual who undertakes an
action for another in exercise of powers and discretion that will affect the interests of the
principle in a legal and practical sense.6 The rationale of this duty is that the fiduciary is given an
opportunity to exercise discretion and power to the detriment of the principal who becomes
vulnerable to abuse by the person who takes up the fiduciary position.

From the above, there arises the right to account for profits. Fiduciaries are supposed to
be accounting for profits due to the nature of the relationship. The beneficiaries are required to
prove that there has been a breach of trust or breach of the relationship in order to obtain an order
for an account of profits. Once the relationship is established then the right to account for profits
falls to the fiduciary to account to his principal. The order for an account for profits is therefore
an enforcement of this overriding right. It can be better explained by stating that the account for
profits is a means through which the principal requires the fiduciary to justify his stewardship of
a trust property. This was the finding in the Ultraframe Ltd v Fielding.7 The court is empowered
to make an interim order of account for profits whether or not there is a claim for a final remedy
of the kind.

The reason why causation is not a necessary part of a case calling for an account for
profits was further expounded in the Libertarian Investments Ltd Vs Thomas Alexej Hall 8where
it was held that an order for an account for profits is a first step in the process which enables the
beneficiary to identify and quantify deficits that may be glaring in the trust fund and further seek
appropriate legal means of making that good. In itself, the court held that an account for profits
may not provide a remedy. It is the means through which the fiduciary shows the actions taken
while performing their duties and responsibilities as agents of their principles. A plaintiff has

6
Tang Man Sit, above n 4, at 197
7
Premium Real Estate, above n 1, at [12] per Elias CJ.
8
Libertarian Investments Ltd v Hall [2013] HKCFA 93.
several measures he can take after this process. Ultraframe Ltd v Fielding 9introduces the
concept of surcharging an account. In this, if the principal is dissatisfied with the dealings of the
fiduciary with regards to the trust assets, he has the option of surcharging or falsifying the
account. The surcharge of the account happens when he makes an allegation that the fiduciary
has not obtained to the benefit of the trust all that he would have professionally undertaken.
When there is proof of this, the account will be taken as if the fiduciary had received for the
benefit of the trust what he would have been given he had taken due care and diligence.

On the other hand, falsifying the account is when the principal alleges that the fiduciary
did misapply the trust property, an example being by making unauthorized investments. What
will follow is that the account will be taken as if the investment had not formed part of the assets.
On the other hand, if the investment did indeed appreciate in value, the beneficiary will be
allowed not to falsify the account and the expenditure will remain as a trust asset and the
expenditure and therefore will be allowed when taking account. Libertarian10 further finds that if
there are deficits in the account, then the fiduciary has to make good in specie or by payment of
money as equitable compensation. In such a case where the trust asset has increased in value, the
fiduciary has to account for the profits that have been made. In both cases, we may find that an
account for profits will be both restorative and restitution.

In conclusion, causation bears crucial significance when assessing amount of account of

profits as well as when assessing the quantum of equitable compensation. As we have seen
above, the only thing that the courts need is a proof that there was a fiduciary duty in existence.
After the duty has been found, the next step would be to find out whether there was a breach of
this fiduciary duty. Causation can therefore not be used as a defense. We have also noted that a
connection between an account for profits and loss is difficult to conceptualize, more so in the
abstract. The link that exists between non-fiduciary duties and the type of loss suffered aids in
attempting to understand this difference. When the loss is measured in terms of the profits lost, it
is possible to compensate the account for these damages. The case would require that the
compensation be reduced appropriately. Finally, it is critical to understand that when the
fiduciary would not be able to benefit from the loss made by the principal’s loss, his gain would
be unconnected. What the court looks at is whether there is an independent wrong to the
9
United Australia Ltd. v Barclays Bank Ltd. [1941] AC 1 (HL).
10
Libertarian Investments Ltd v Hall [2013] HKCFA 93.
relationship with which compensation will not overlap. If the fiduciary makes some gains
whether direct or indirect which is part of the loss suffered by the principal, an account for
profits will then become satisfactory.