Topic 4: Remedies for breach of Fiduciary duty

Question 0

What are the principles for Equitable Compensation for breach of Fiduciary duty?

Answer 0

It is the same as in duty of administration: Re Dawson

1. There is no remoteness rule
2. Once the but for causation can be established, all losses flowing from the breach are recoverable.

Question 1

What are the possible remedies for the principal for a breach of Fiduciary duty?

Answer 1

1. Ordinarily, it is account of profits;
2. Where the loss suffered is greater than the profits gained by the Defendant, they can choose equitable compensation - Warman International v Dwyer
3. Possibly constructive trust
   Certainly in the case of renewal of leases- Chan v Zacharia

Question 2

What are the cases regarding equitable compensation for breach of Fiduciary duty?

Answer 2

1. McKenzie v McDonald;
2. Brickenden v London Loan
3. Maguire v Makaronis

Question 3

What are the facts of McKenzie v McDonald?

Answer 3

• P was widow of a small farm.
• She engaged the D to sell the farm for her at 4 pounds 10 shillings
• D proposed to for P to sell the farm to him in exchange for his property in Melbourne which was worth 2,000
• He valued her property at 2,300, so he paid extra 300 pounds.
• D subsequently sold the land for 4 pounds 10 shillings.
• Eventually found out, D’s property only wroth 1550 rather than 2,000

Court held:

1. D breached his fiduciary duty as advisor
2. Evidence showed only D could have obtained the sale of 4 pounds 10 shillings because of his skill
3. The best P could have gotten was 4 pounds 5 shillings. making the possible sum of 2445.
4. 300 deducted from 2445, and 1550 deducted for value of Melbourne property.
5. Full amount of equitable compensation was: 595 pounds.

Question 4

What are the facts of Brickenden v London Loan?

Answer 4

-B was the solicitor acting for both lender and borrower in a loan transaction

Court held:

1. he had breach of duty because he had personal interest in transaction
2. He had not disclosed his personal interest and had taken steps to conceal it
3. B argued they would have gone ahead with transaction regardless of whether they had known
4. Argument rejected, once disclosed facts were established material, irrelevant whether principal would have done something or not.

Question 5

What is the relevance of Maguire v Makaronis?

Answer 5

Per Kirby Obitere:

1. Brickenden v London Loans not correct because it dispenses with need for causation and discourages fiduciary default

Question 6

What is an account of profits?

Answer 6

It is different from compensation as it focuses on the Defendant’s gain rather than the loss of the plaintiff.
The P may not have suffered any loss at all, but the Defendant, by virtue of his breach may be required to disgorge profits.

Question 7

What are the cases for account of profits?

Answer 7

1. Boardman v Phipps

2. Warman International v Dwyer

Question 8

Why is Boardman v Phipps relevant to account of profits?

Answer 8

• Boardman was held to give an account of profits
• However he was entitled to allowance which was on a liberal scale.
• This was to represent his work and skill which had contributed significantly to the making of a profit.
• Furthermore, there was no suggestion that B had acted on anything but the best interests of the trust and in complete honesty.

Question 9

What are the facts of Warman International v Dwyer?

Answer 9

• The plaintiff was part of Warman’s business which was distribution of gear boxes in Australia
• The defendant was general manger of Warmn’s Qld branch so clearly he was fiduciary
• D entered into agreement as agent of Warman with another company to assemble and distribute their gear. It was more profitable than agreement with Warman.
• D then terminated it’s agency agreement with Warman International.

Court held:

1. Breach of Fiduciary duty
2. D required to account for profits but with allowance representing his skill and resources in procuring the new personal arrangement
3. It may be inequitable where the profits have been made significantly due to the Fiduciary’s own skill and resource.
4. However, still a discretion for the court, they won’t necessarily get allowance.

Question 10

Can exemplary damages be awarded in Australia?

Answer 10

They have the aim of punishing and deterrence, and equity always allowed relief from these, so it would be inconsistent: Harris v Digital Pulse

Question 11

What are the facts of Harris v Digital Pulse?

Answer 11

• In the course of his employment, the D had secretly worked for the benefit of his own business which was in competition with employer.
• This was fiduciary relationship but also contractual
• Express term of employment contract not to compete with his employer
• Employer terminated contract once he found out and sought exemplary damages for breach of FD.

Court held:

1. Not necessary or desirable to award those types of damages.
2. The duty in this case was analogous to contract and in contract can’t award exemplary damages, so not here as well.
3. But possible where the duty doesn’t arise by contract.

Question 12

In what circumstances can a third party be liable for breach of fiduciary duty?

Answer 12

Barnes v Addy: Where there is:

1. Knowing Assistance; and
2. Knowing Receipt.

In those circumstances, they are liable for purely personal claims for the same remedies that trustees would be.

Question 13

What are the requriements for Knowing assitance?

Answer 13

There must be:

1. A breach of Fiduciary duty;
2. Which is dishonest and fraudulent; and
3. The third party assisted in the breach of trust OR Fiduciary duty; and
4. With the requisite degree of knowledge

Question 14

What is the authority that there must be a breach of trust for third party liability?

Answer 14

Consul Development v DPC Estates.
Recall the facts
-Mr G had told Mr C about potential properties and agreemnt to share profits if Mr C bought and redeveloped it.

Court held:

1. It did amount to breach of fiduciary duty by Mr G; but
2. Consul development not liable.
3. HC did note however, that where a third party knowingly assisted in a breach of Trust of FD, they could be held liable.

Question 15

What amounts to fraud and dishonesty in Knowing assistance and Knowing receipt?

Answer 15

• Some fault on the part of the third party: Royal Brunei Airlines v Tan
• Say Dee v Farah Constructions - Test in Australia follows Barnes v Addy: dishonest and fraudulent design on the part of the trustees.

Question 16

What are the facts of Royal Brunei Airlines v Tan?

Answer 16

• Borney travel had agreement with Royal Brunei to sell their tickets for them.
• Borney would hold the ticket money on trust for RB in current account
• Tan was managing director of Borney travel and they were in financial difficulties
• Tan used trust money to pay salaries of employees and overheads
• Company became bankrupt
• Royal Brunei brought action against Mr Tan because company was bankrupt on the grounds he had knowingly assisted in breach of trust
  Argument for defence: only be liable where it was dishonest and fraudulent

Court held:

1. There was a breach through misappropriation
2. Argument for defence rejected, the action requires some fault on the part of the third party (so broader test)

Question 17

How can a third party asst in the breach?

Answer 17

1. By either procuring the breach (persuading the trustee); or
2. Encouraging the breach
3. Other methods

Question 18

How did Tan assist the breach in Royal Brunei v Tan?

Answer 18

Tan was managing director of Borney Travel, so it’s obvious the company can only act through the employees.
Mr Tan was the one who used money to pay overheads and employees.
This was assistance in breach.

Question 19

What are the accepted categories of Requisite knowledge in Australia for knowing assistance and knowing receipt?

Answer 19

From Baden’s Case:
1. Actual knowledge;
2. Wilful blindness
3. Wilful and recklessly failing to make enquiries that an honest and reasonable man would make
4. Knowledge of circumstances which would indicate the facts to an honest and reasonable man;
5 .Constructive knowledge rejected in Australia; Say Dee v Farah Constructions

Question 20

What is the relevance of Consul Development to requisite knowledge?

Answer 20

Recall facts.

• Mr C had knowledge and imputed it through company.
• Judge said it may be unfair to a person who hasn’t acted dishonestly if they were held liable
• Mr G had lied to MR C saying Mr W was in financial difficulties
• Because Mr G worked so closely with Mr W, Mr C had no reason not to believe Mr G.
• Court held: Not even constructive knowledge of Mr G’s breach of fiduciary duty, hence no liability.

Question 21

What are the requirements of Knowing receipt?

Answer 21

From El Ajou v Dollar Land holdings:

1. Disposal of assets trustee or fiduciary in a breach of trust or FD; and
2. BENEFICIAL receipt by third party of the assets or traceable proceeds of the assets; and
3. Requisite degree of knowledge

Question 22

What does beneficial receipt mean?

Answer 22

Doneley v Doneley:

• The Third party must be a direct beneficiary of the breach and must receive the property for their own benefit.
• It is where they receive an interest in the property.

Question 23

What are the facts in Doneley v Doneley?

Answer 23

• A trustee, in breach of trust, mortgaged the trust property to bank.
• Bank sought to escape liability saying it hadn’t received any trust property but only a charge which didn’t transfer ownership or possession.

Court held:

1. Not necessary to receive actual possession or absolute interest in property
2. as long as they are direct beneficiary of breach by receiving property IDENTIFIABLE with trust property subject of the breach, that is sufficient.

Question 24

Is constructive notice sufficient for knowing receipt?

Answer 24

No: Grimaldi v Chamelon Mining

Question 25

What are the facts of Say dee v Farah constructions?

Answer 25

F entered into agreement with S to develop property
Initial application was refused by council. They told F that the land was too small.
The director of Farah constructions Mr F purchased an adjoining property to carry out the agreement in his personal capacity.
Mr F did not notify the plaintiff of the availability to purchase the land nor the council’s requirement.

Court held:

• Mr F could only have come across that information by virtue of his position in the relationship. He had a duty to tell the principal.
• as the director was a third party he had knowingly assisted in the breach of fiduciary duty of the company to Say dee.