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Kirby, Hon Michael --- "Account of profits by Peter Devonshire" [2014] OtaLawRw 7; (2014) 13 Otago LR 369

Last Updated: 21 May 2016

^{BOOK REVIEWS}

Account of Profits

(by Peter Devonshire, Thomson Reuters, Wellington, 2013)

In the scheme of pecuniary remedies, a broad distinction can be drawn between compensatory and gain-based awards. While damages will commonly provide an appropriate and just solution to wrongs, in some cases a sense of justice suggests that the wrongdoer should be deprived of the fruits of proved misconduct. This is particularly appropriate where relationships of trust have been abused or the vulnerable have been exploited. It is here that an account of profits enters the picture.

An account of profits is an equitable remedy for disgorging unauthorised gains. Despite its obvious utility, this remedy has received little attention in the literature. While damages and principles of compensation have been the subject of major texts,¹ the same cannot be said of an account of profits. This lacuna is all the more surprising when it is remembered that other equitable remedies such as the injunction and specific performance were addressed in authoritative texts in the mid-19th century.² This is to be regretted. Where remedies are neglected, there is a distinct possibility that litigants and their advisers will fail to identify and pursue the full measure of relief.

The publication of Account of Profits by Peter Devonshire is therefore particularly to be welcomed. Account of Profits was the joint winner of the JF Northey Memorial Book Award, 2013. This book provides for the first time³ a systematic analysis of an account of profits in its principal contexts. The remedy is diverse and the book is arranged under the broad categories of breach of fiduciary duty, breach of confidence, intellectual property infringement and gain-based remedies for common law wrongs. Each chapter analyses the nature and dimensions of the legal obligation and the manner in which it is addressed by an account of profits. The remedy is placed in context and this promotes a nuanced understanding of the relationship between the breach of duty and the remedial response.

¹ Harvey McGregor McGregor on Damages (19th ed, Sweet & Maxwell, London, 2014).

² William Kerr A Treatise on the Law & Practice of Injunctions in Equity (Maxwell & Sons, London, 1867); Sir Edward Fry A Treatise on the Specific Performance of Contracts (Butterworths, London,1858).

³ There is no exact equivalent to this book amongst published legal texts of which I am aware. Professor (now Justice) Edelman’s respected work Gain-Based Damages: Contract, Tort, Equity & Intellectual Property (Hart Publishing, Oxford, 2002), is based on his doctoral research at Oxford University. In conformity with its origins, it is written at a high level of legal theory, traversing a range of gain-based awards. Katy Barnett’s Accounting for Profit for Breach of Contract (Hart Publishing, Oxford, 2012), addresses only one of the categories covered in Account of Profits.

Chapter 1 briefly explains the scope of the book. Chapter 2 examines the historical origin of an account of profits. Although the order in its modern form is an equitable remedy, it can be traced to a limited class of common law proceedings dating back to the 13th century. As its application expanded, the superior procedure and investigative focus of equity ultimately led to the decline of an account of profits as a common law remedy and its ascendance in the Court of Chancery.

Chapter 3 analyses the nature of the fiduciary principle in its diverse forms. After discussing established principles, such as the profit and conflict rules, self-dealing and others, the author turns to the evolving nature of fiduciary duty and its emergence in relationships far removed from the trust paradigm. This engages with modern controversies such as the role of fiduciary doctrine in commercial joint ventures. An allied consideration is the tension between commercial contracts and fiduciary obligations. It is generally held that the contractual foundation of the parties’ relationship regulates their rights, including the nature and extent of fiduciary obligations.⁴ In particular, the case for equitable intervention is limited when sophisticated commercial parties are at liberty to define contractual benefits and the allocation of risk.

The second part of Chapter 3 considers the application of an account of profits. While an account of profits is a personal remedy, it can, in the court’s discretion, be augmented by proprietary orders. This is examined with particular reference to the vexed topic of bribes and secret commissions.⁵ The strictness of a fiduciary’s duty to disgorge illicit gains is analysed by reference to the well-known objective of prophylaxis. At the same time, it is recognised that equitable relief is both flexible and context-sensitive. This brings into play a perspective that is generally neglected, namely the role of limiting principles such as causation, remoteness and novus actus in shaping the scope and content of the remedy. This culminates in a discussion of the landmark decision of the High Court of Australia in Warman International Ltd v Dwyer.⁶ It is argued that in Warman, the division of profits between the betrayed principal and the errant fiduciary must be understood in terms of causation analysis rather than judicial discretion.

The subject of allowances by defaulting fiduciaries is discussed in Chapter 4. On the taking of accounts, an errant fiduciary may be permitted to set off certain claims against gross profits. The relationship between fiduciary duty and allowances is complex and sometimes misunderstood. This is particularly evident when attempts are made to reconcile the rigorous expectations of fidelity by which a fiduciary is

⁴ Hospital Products Ltd v US Surgical Corp [1984] HCA 64; (1984) 156 CLR 41, John Alexander’s

^{Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1.}

^{5 Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA}

^{Civ 347, [2012] Ch 453; FHR European Ventures LLP v Mankarious [2013]}

^{EWCA Civ 17, [2014] Ch 1; Grimaldi v Chameleon Mining NL (No 2) [2012]}

^{FCAFC 6[2012] FCAFC 6; , 200 FCR 296.}

^{6 [1995] HCA 18; (1995) 182 CLR 544.}

governed, with the seemingly liberal approach to allowances for industry, enterprise and skill.

^{Chapter 5 addresses the law of confidence, which, like the fiduciary}

^{principle, bears the distinct imprint of the ancient Court of Chancery.7}

^{This chapter is instructive in explaining the diverse circumstances in}

^{which the law will recognise a duty of confidence. This includes not only}

^{formal relationships and contractual arrangements, but also areas such as}

^{privacy, where strangers to the plaintiff can be fixed with an obligation}

^{of confidence. The latter, of course, needs no introduction, given that}

^{challenges by film and sports celebrities to unwanted media attention}

^{are particularly in vogue. An account of profits is explored by reference}

^{to a theme developed throughout this book, namely the tension between}

^{equity and common law in identifying, and responding to, wrongs. An}

^{aspect to this enquiry is that a duty of confidence can arise through the}

^{operation of equitable doctrine, or as an express or implied contractual}

^{term. It is argued that unless jurisdiction is specifically ousted, an account}

^{of profits can be granted in the court’s equitable jurisdiction where a}

^{duty of confidence has been breached.}

Chapter 6 reviews the role of an account of profits for the infringement of intellectual property rights. While the rights and remedies are largely embodied in statutes and international treaties, an account of profits retains its characteristics as an equitable remedy. In describing the function of an account of profits in this unique setting, attention is directed to the identification, calculation and apportionment of unlawful gains.

Finally, Chapter 7 addresses gain-based remedies for common law wrongs. There are three main areas of enquiry: pecuniary awards for interference with property rights, restitutionary awards reflecting the defendant’s gain, and gain-based awards for personal obligations arising from contractual or other undertakings. The third category raises the question whether an account of profits can be granted for a breach of contract, as suggested in the controversial decision of Attorney General v Blake.⁸ However, the remedy has had little traction in England and has failed to attract support in Australia.⁹ In contrast, New Zealand may be more receptive to disgorgement for breach of contract due to the explicit recognition in this jurisdiction of the interaction of law and equity.¹⁰

Account of Profits takes an inclusive approach, addressing general

⁷ Coco v AN Clark (Engineers) Ltd [1969] RPC 41 (Ch) at 46.

^{8 [2000] UKHL 45; [2001] 1 AC 268 (HL).}

^{9 Hospitality Group Pty Ltd v Australian Rugby Union Ltd [2001] FCA 1040 (Full}

^{Court); Biscayne Partners Pty Ltd v Valance Corp Pty Ltd [2003] NSWSC 874;}

^{Dalecoast Pty Ltd v Guardian International Pty Ltd [2003] WASCA 142. For}

^{a recent iteration of this view, see Testel Australia Pty Ltd v KRG Electrics}

^{Pty Ltd [2013] SASC 91 at [102]–[110].}

^{10 Day v Mead [1987] NZCA 74; [1987] 2 NZLR 443 (CA); Aquaculture Corp v NZ Green}

^{Mussel Co Ltd [1990] NZCA 360; [1990] 3 NZLR 299 (CA). See Denaro Ltd v Onyx Bar & Café}

^{(Cambridge) Ltd HC Hamilton CIV–419–777, 7 February 2011.}

principle and the case law that underlies it. This is framed from a comparative perspective, drawing on leading authorities from England, Australia and New Zealand. When the material is considered, it is surprising that an account of profits has not hitherto attracted the attention it deserves. Peter Devonshire is to be commended for producing a scholarly and comprehensive work on the subject. I am mindful that in some proceedings there is a moral instinct that the defendant should be stripped of some, or all, of the gains attributable to his wrongdoing. It is hoped that Account of Profits will serve as a salutary reminder that in appropriate cases this option can be pursued where the justice of the case demands it.

The Hon Michael Kirby,

Justice of the High Court of Australia (1996-2009).