Professional Documents
Culture Documents
Cameron Stewart
Equitable compensation and damages
• There are two possible bases for an order for the payment
of money to an aggrieved party at equity.
• The first arises from the inherent jurisdiction of equity to
make orders for monetary compensation as an appropriate
means to remedy a purely equitable wrong such as breach
of fiduciary duty. This is known as ‘equitable
compensation’.
• The second is the ability conferred by statute for an order
of damages to be substituted for, or added to, specific
performance or injunction where those remedies have
been sought in respect of contracts, torts or any wrongful
act. Thus, in certain situations, equity has the power to
provide for a remedy of damages in respect of a common
law wrong. This is referred to as ‘equitable damages’.
Equitable compensation
• Although equity courts never ordered damages as a
remedy for the infringement of equitable obligations,
they did provide for monetary forms of relief.
• In Ex parte Adamson (1878) 8 Ch D 807, at 819, James
and Baggallay LJJ noted that relief in such cases was by
way of ‘a suit … for equitable debt or liability in the
nature of a debt. It was a suit for the restitution of the
actual money or thing, or value of the thing, of which
the cheated party had been cheated’.
• Equitable compensation orders were originally
restricted to cases involving breaches of fiduciary
obligations.
Re Dawson (dec’d) [1966] 2 NSWR 211
• A trustee who had improperly dealt with trust
funds was ordered to pay equitable
compensation to the trust to restore the trust
to the position it would have been in had
there been no default on his part.
Nocton v Lord Ashburton
• Nocton was a solicitor
• Lord Asburton was his client
• Nocton and Baring (Ashburton’s brother) entered into a land
development
• They later agreed to sell the land to Douglas and Holloway but
Douglas and Holloway needed a mortgage
• Nocton convinced Ashburton to lend them the money, after a
valuation (even after being warned by
• Later, as the properties were developed, it became clear that there
was insufficient security in the land
• At trial the judge treated the case as one of fraud and found not
evidence of intention
• The Court of Appeal, found that there was actual fraud which would
enable an action in deceit
Nocton v Lord Ashburton
• Viscount Haldane was very critical of the
proceedings but said that there was a third
way – breach of fiduciary duty
• That breach did not require that actual fraud
be proved in the common law sense of
intention
• Lord Dunedin and Lord Shaw agreed
Equitable compensation
• The House of Lords was prepared to award
monetary compensation on the basis of Nocton’s
breach of fiduciary obligations. Viscount Haldane
LC, at 952, affirmed the longstanding ability of
the equity courts to order monetary
compensation, and said:
Operating in personam as a Court of conscience it could
order the defendant, not, indeed, in those days, to pay
damages as such, but to make restitution, or to
compensate the plaintiff by putting him in as good a
position pecunarily as that in which he was before the
injury.
The nature of equitable
compensation
• In achieving its goal of restoring the position of the plaintiff
to the position that he or she was in before the breach of
equitable obligation occurred, equity’s approach to
compensation, like all other equitable remedies, is
conditioned by its ‘flexible character’: Cole v Manning
[2002] NSWCA 150, at [63]. The appropriate date for the
assessment of equitable compensation is the date on which
the court makes the order for compensation and the
quantum of compensation should reflect the amount that
is necessary to put the plaintiff back into the position in
which he or she would have been had there been no
breach of equitable obligation: McNally v Harris (No 3)
[2008] NSWSC 861, at [12]-[17].
Accounts of profits or equitable
compensation
• You can have one or the other
• Warman International v Dwyer (1995) 182 CLR 544 – Bonfiglioli
made gear boxes in Italy and used Warman as its agent to sell them
in Australia
• Warman was aked to enter into a joint venture to make the
gearboxes I Australia but declined
• Dwyer was a manager at Warman which ran the agancy side of the
business. He was thinking of leaving and Warman offered to sell
him the agency. He declined
• Before leaving he undermined Warman’s relationship with
Bonfiglioli , set up a new business, and took up the joint venture
with Bonfiglioli, which then took over the agency business
• Trial judge – breach of fiduciary duty – account of profits with
allowaNCES
• Court of Appeal – should be equitable compensation
Accounts of profits or equitable
compensation
• Remedy? Account - MASON CJ, BRENNAN, DEANE, DAWSON AND GAUDRON JJ
• In the case of a business it may well be inappropriate and inequitable to compel the
errant fiduciary to account for the whole of the profit of his conduct of the business or
his exploitation of the principal's goodwill over an indefinite period of time. In such a
case, it may be appropriate to allow the fiduciary a proportion of the profits, depending
upon the particular circumstances. That may well be the case when it appears that a
significant proportion of an increase in profits has been generated by the skill, efforts,
property and resources of the fiduciary, the capital which he has introduced and the
risks he has taken, so long as they are not risks to which the principal's property has
been exposed. Then it may be said that the relevant proportion of the increased profits
is not the product or consequence of the plaintiff's property but the product of the
fiduciary's skill, efforts, property and resources. This is not to say that the liability of a
fiduciary to account should be governed by the doctrine of unjust enrichment, though
that doctrine may well have a useful part to play; it is simply to say that the stringent
rule requiring a fiduciary to account for profits can be carried to extremes and that in
cases outside the realm of specific assets, the liability of the fiduciary should not be
transformed into a vehicle for the unjust enrichment of the plaintiff
Accounts of profits or equitable
compensation
• Result
• Contributory negligence focuses on the conduct of the plaintiff, fiduciary law upon
the obligation by the defendant to act in the interests of the plaintiff. Moreover,
any question of apportionment with respect to contributory negligence arises
from legislation, not the common law. Astley indicates that the particular
apportionment legislation of South Australia which was there in question did not
touch contractual liability. The reasoning in Astley would suggest, a fortiori, that
such legislation did not touch the fiduciary relationship.
Canson Enterprises Ltd v Boughton &
Co [1991] 3 SCR 534
• Solicitors acted in a dodgy land devlopment where
secret profits were made but others
• Later the land development went sour due to
negligence in the pile driving during construction
• A negligence action was successful but the judgment
was partly unsatisfied
• Could you sue the defaulting solicitor for the shortfall?
• Trial judge found liability and assessed damages by the
same causation rules as a deceit
• La Forest, Sopinka, Gonthier and Cory JJ - yes
Canson Enterprises Ltd v Boughton &
Co [1991] 3 SCR 534
• La Forrest J:
• There might be room for concern if one were indiscriminately attempting
to meld the whole of the two systems. Equitable concepts like trusts,
equitable estates and consequent equitable remedies must continue to
exist apart, if not in isolation, from common law rules. But when one
moves to fiduciary relationships and the law regarding misstatements, we
have a situation where now the courts of common law, now the courts of
equity moved forward to provide remedies where a person failed to meet
the trust or confidence reposed in that person. There was throughout
considerable overlap. In time the common law outstripped equity and the
remedy of compensation became somewhat atrophied. Under these
circumstances, why should it not borrow from the experience of the
common law? Whether the courts refine the equitable tools such as the
remedy of compensation, or follow the common law on its own terms,
seems not particularly important where the same policy objective is
sought.
Canson Enterprises Ltd v Boughton &
Co [1991] 3 SCR 534
• McLachlin J (in dissent on this point but not on dismissal of appeal) said:
•
• In negligence and contract the law limits the actions of the parties who are
expected to pursue their own best interest. Each is expected to continue to look
after their own interests after a breach or tort, and so a duty of mitigation is
imposed. In contrast, the hallmark of fiduciary relationship is that the fiduciary, at
least within a certain scope, is expected to pursue the best interest of the client. It
may not be fair to allow the fiduciary to complain when the client fails forthwith to
shoulder the fiduciary’s burden. This approach to mitigation accords with the basic
rule of equitable compensation that the injured party will be reimbursed for all
losses flowing directly from the breach. When the plaintiff, after due notice and
opportunity, fails to take the most obvious steps to alleviate his or her losses, then
we may rightly say that the plaintiff has been ‘the author of his own misfortune’.
At this point the plaintiff’s failure to mitigate may become so egregious that it is no
longer sensible to say that the losses which followed were caused by the
fiduciary’s breach. But until that point, mitigation will not be required.
Exemplary damages?
• Aquaculture Corporation v NZ Mussel Co Ltd
[1990] 3 NZLR 299 and the Supreme Court of
Canada in Norberg v Wynrib (1992) 92 DLR
(4th) 440
Harris v Digital Pulse Pty Ltd (2003) 56
NSWLR 298
• This case concerned an action by Digital Pulse against
two former employees who had diverted work to their
own company.
• This was in clear breach of the clause in their contracts
of employment not to compete with Digital Pulse for
business.
• At first instance, Palmer J also found that the
defendants had been in breach of the fiduciary duty
which they owed their employer.
• So flagrant was the defendants’ behaviour that, in
addition to other forms of relief, his Honour awarded
$10,000 exemplary damages against each.
Harris v Digital Pulse Pty Ltd (2003) 56
NSWLR 298
• The majority of the Court of Appeal upheld the appeal and found that Palmer J
had erred in awarding exemplary damages on these facts.
• Heydon JA, at 360–91, who authored the leading judgment, expressed a
fundamental objection to the concept of damages as punishment at equity after a
thorough canvassing of authorities. He rejected the persuasiveness of New
Zealand and Canadian authorities. Indeed, his Honour’s ultimate dismissal of
exemplary damages in equity laid the blame for the suggestion at the door, not so
much of Palmer J, but the New Zealand Court of Appeal. His Honour, at 416, said:
•
• What [that court] contemplated in the Aquaculture Corporation case was a form —
perhaps a mild form, but a form nonetheless — of fusion. It was fusion in the
sense of selecting a remedy from the common law range of remedies which a
court of equity administering the law relating to equitable wrongs before the
introduction of a judicature system would not have administered. What is
contemplated is that the unified court administering the two systems may select a
remedy historically granted by the courts of common law in relation to a wrong
recognised only in the courts of equity. But whatever one calls the process, it must
be recognised as a process involving a deliberate judicially-engineered change in
the law
Harris v Digital Pulse Pty Ltd (2003) 56
NSWLR 298
• Mason P dissented. His Honour, at 326, said: