Topic 3: Disgorgement

Question 0

What are the three disgorgement remedies for a breach of FIDUCIARY obligations?

Answer 0

1. Equitable Compensation
2. Account of profits
3. Constructive Trust

Question 1

What is disgorgement?

Answer 1

• It is a response to a wrong, where the D has acquired a benefit by reason of it’s wrong doing.
• It can be obtained from a third party for example AG (HK) v Reid

Question 2

What is the difference between equitable compensation and account of profits?

Answer 2

Warman International v Dwyer:

• The plaintiff has an election between equitable compensation and account of profits, whichever is more advantageous, up until time of judgment.
• Right of election exists because it’s not always certain that the Principal would have made the same profit that the Fiduciary did if he had pursued the same opportunity.

Question 3

Does the remoteness rule apply for equitable compensation?

Answer 3

• Re Dawson, no it does not. Compensation is assessed at date of judgment.
• Account of profits, are only those that have been causally made from the breach of FD.

Question 4

What is a constructive trust?

Answer 4

In a remedy for breach of fiduciary obligation, the principal can claim an asset in the hands of the fiduciary.

Question 5

What are the causes for the courts being cautious with respect to imposing constructive trusts for breach of FO?

Answer 5

• Where the fiduciary has no duty to acquire the asset for the principal, courts are CREATING property rights for the principal, thereby putting them in a BETTER position which gives them extra rights: Daily v Sydney Stock Exchange
• It gives the Principal priority over other plaintiffs.

Question 6

What are the facts of Daily v Sydney Stock Exchange

Answer 6

• D wanted to invest money and went to a firm of stock brokers for advice
• They said not a good time, but place deposit with them and they would pay interest to D
• He loaned money so they could invest it when the time was right, but they were in financial difficulties
• Eventually became insolvent.
• He argued they held it for him on trust.

Court held:

• Only where the principal has a right to et aside the contract or rescind, would a constructive trust arise.
• But until the principal (Daily) elected to rescind, no constructive trust would arise.
• He hadn’t elected, so no constructive trust. D couldn’t claim proprietary rights, UNLESS he had rescinded.

Question 7

What was the approach to constructive trust in AG (HK) v Reid?

Answer 7

Recall facts.

• the imposed Constructive trust saying it was necessary to prevent the Defendant from profiting from his wrong. To give full effect to a remedy, he had to impose a constructive trust because the D owned land in NZ
• He said, a constructive trust arose immediately upon the Fiduciary receiving the bribes. It was at that moment that a constructive trust arose.
• This coincided with the notion that there was already existing property rights, Lord Templeman was just giving effect to them by imposing a constructive trust.

Question 8

What is the relevance of Sinclair Investments v Versailes Trade Finance?

Answer 8

• Recall Mr C who was director and principal share holder of Versailles Trade limited. He owned another company.
• In breach of his fiduciary duty, he made a profit selling shares in Versailles.

Court held:

• The opportunity he took, was not one where he had an existing obligation to pursue on behalf of Trading partners.
• P only had personal claim to the shares, no CT arose.

Question 9

What is a case that says a constructive trust will arise where the fiduciary is renewing a lease?

Answer 9

Peach v Sunbeard.

Question 10

What is the Australian Approach to Constructive Trust as a disgorgement remedy for breaches of Fiduciary Obligations?

Answer 10

Bromaldi v Chameleon Mining:

• The Full Court said not following reasoning in AG (HK) v Reid.
• The imposing of a constructive trust is discretionary and it is for the court to decide whether it would be an appropriate remedy.

Question 11

What is the relevance of Muschinski v Dodds?

Answer 11

Recall the facts! She paid whole purchase price, agreement he would pay later. She shared legal title.
Rebutted presumpting trust because of actual intention for her to share.
Courts imposed a constructive trust because unconscionable to allow D to retain his share when joint endeavour had ended.

Relevance:
- Constructive Trusts are REMEDIAL. They don’t arise from any parties’ intentions.

Question 12

What is the difference between a remedial and institutional Constructive Trust and what case?

Answer 12

Westdeutsche Lands Bank v Islington.
Institutional Constructive trust key features:
1. Brought into being by specified events
2. Courts merely recognising a pre-existing property right
3. Court has no discretion
4. Exists from the time events give rise to it occur
5. Gains priority over interest acquired by third parties

Remedial Constructive Trust:

1. Court ORDER CREATES the constructive trust rather than the events
2. Arises from date of court judgment
3. Court has discretion to impose it or some other remedy
4. Constructive trust does not gain automatic priority over interests of third parties.

Question 13

Can there be a disgorgement remedy for a Breach of Contract?

Answer 13

• Traditionally, it has just been restoring the position of the Plaintiff.
• There was no rule that the Defendant cannot make a profit on the side.
• If disgorgement remedy of account of profits was granted, it would place P in BETTER position.

Question 14

What case endorsed an award of an account of profits in Contract cases?

Answer 14

AG (UK) v Blake

Question 15

What are the facts of AG(UK) v Blake?

Answer 15

• Blake employed as MI 5 agent wrote a spy catcher book containing details of his career
• Information had been obtained by virtue of his employment
• Disclosure amounted to breach of his contract because there was a term requiring him to keep it confidential
• Argument that he had profited from his breach of contract, should be required to give it up.
• UK gov hadn’t suffered any loss so can’t measure compensatory measure.

Court held:

• Injunction can’t be obtained, too late.
• Use disgorgement to fill in gaps in contract law. So awarded account of profits
• Discussed Wrotham Park damages concerning breaches of restrictive covenants.
• Also awarded entire profits to deter FUTURE intelligence agents from doing the same thing.

SO EXCEPTIONAL DECISION, EVEN IN THE UK.

Question 16

Which is a case that refused to grant an account of profits (disgorgement remedy) for a breach of contract?

Answer 16

Hospitality Group v Australian Rugby Union (ARU).

Question 17

What are the facts of Hospitality Group v ARU?

Answer 17

• HG sold hospitality packages. They would acquire tickets to particular events
• They obtained tickets from a third party instead of from a licensed ticket agency.
• HG then sold the tickets as part of hospitality packages
• Terms of sale for tickets was that ticket couldn’t be resold at premium price without consent of ARU
• HG had breached that contract as they hadn’t obtained consent of ARU
• ARU claimed account of profits.

Court held:

• HG not bound by the terms of the contract, so can’t grant account of profits
• Further, they considered AG v Blake: it was inconsistent with traditional view of damages for breach of contract, especially with cases like Cth v AA.