1
The nature of the remedy of account for unauthorised profits
The proper approach to the nature of the remedy when a fiduciary acquires an
unauthorised profit is set out by Rimer J in Sinclair Investment Holdings SA v Versailles
Trade Finance Ltd (No 3)1 and by Lawrence Collins J in CMS Dolphin Ltd v. Simonet,2
as set out variously below.3 The remedy has always been generally described by the
courts on the basis that the fiduciary is “liable to account” to the beneficiaries for the
unauthorised profit. The question then is: what is meant by the obligation to account? It
could relate either to a proprietary right in relation to the profits themselves or simply a
personal obligation to pay an amount of money equal to the profits earned.
Rimer J has explained this doctrine accurately in Sinclair Investment Holdings SA v
Versailles Trade Finance Ltd (No 3)4 in the following terms:
“… any identifiable assets acquired by fiduciaries in breach of their fiduciary duty
are, and can be declared to be, held upon constructive trust for the principal
(Boardman v Phipps, AG Hong Kong v Reid, Daraydan Holdings Ltd v Solland)
… There will in practice often be no identifiable property which can be declared
by the court to be held upon such a constructive trust, in which case no
declaration will be made and the principal may at most be entitled to a personal
remedy in the nature of an account of profits. In Boardman’s case the court made
a declaration that the shares that had been acquired by the fiduciaries were held on
constructive trust (a proprietary remedy), and directed an account of the profits
that had come into their hands from those shares (a personal remedy).
Boardman’s case can be said to have been a hard case as regards the fiduciaries,
whose integrity and honesty was not in doubt; and it well illustrates the rigours of
the applicable equitable principle. The recovery by the trust of the shares was
obviously a valuable benefit to it; and equity’s softer side was reflected in the
making of an allowance to the fiduciaries for their work and skill in obtaining the
shares and profits. On the very different facts of Reid’s case, there was no
question of any such allowance being made.”
Therefore, the position is clear: the primary remedy is for a proprietary constructive trust
over the personal profits; the secondary remedy (if there is no property over which the
constructive trust can take effect) is for a personal remedy in the form of an account of
profits; and thirdly the court may make some equitable accounting to reduce the amount
of any such account if the court considers the circumstances to be appropriate for the
equitable relief of such a defendant.5
1 [2007] EWHC 915, 10 ITELR 58.
2 [2001] 2 BCLC 704.
3 This discussion is set out below at the end of this section in relation to the “corporate opportunity
doctrine” in company law.
4 [2007] EWHC 915, 10 ITELR 58.
5 See also Markel International Insurance Co Ltd v Surety Guarantee Consultants Ltd [2008] EWHC 1135
(Comm) illustrating the principle that secret profits made by a fiduciary must be accounted for.
