Account of Profits Notes

Intro and Overview

Account of Profits is a personal remedy, meaning it operates in personam rather than in rem.
It is also referred to as "gain-based relief."
The remedy functions by stripping the defendant of the net profits they gained from a breach of duty.
This remedy is subject to allowances and discretionary bars.
It is primarily used for breaches of fiduciary duty, trust, and confidence.
This is contrasted with equitable compensation, which is loss-focused.

Dwyer was the general manager of Warman's Queensland branch, which distributed Bonfiglioli gearboxes.
While still employed, Dwyer secretly negotiated with Bonfiglioli to establish a competing joint venture.
He arranged for Warman's staff to join his new companies, BTA and ETA.
Bonfiglioli terminated Warman's agency, and Dwyer resigned.
The new venture made a profit of 1.6 million over 4 years.
Warman was entitled to an account of profits, but this was limited to 2 years instead of 4.
The court recognized that for businesses, accounting for all profits indefinitely might be inequitable.
Deductions were allowed for the defendants' expenses, skill, expertise, and resources.
The court held that 2 years was an appropriate period to cover all benefits derived from the breach.

The liability of a fiduciary to account differs from patent infringement cases; it is not about preventing unjust enrichment but is based on "the stringent rule that the fiduciary cannot profit from his trust".
The rule serves two main purposes:
- To ensure the fiduciary accounts for what has been acquired at the expense of the trust.
- To ensure fiduciaries conduct themselves "at a level higher than that trodden by the crowd".
The objectives are to prevent the fiduciary from being influenced by personal interest and from misusing their position for personal advantage.

A fiduciary must account for profits obtained either:
- When there was a conflict or possible conflict between fiduciary duty and personal interest.
- By reason of their fiduciary position or taking advantage of opportunity/knowledge derived from it.
It is not a valid defense that:
- The plaintiff was unwilling/unable to make the profits themselves.
- The fiduciary acted honestly and reasonably.
- The opportunity would not have been used but for the fiduciary's skill.
The remedy is discretionary but granted according to settled principles, subject to equitable defenses.
The cardinal principle is that "the remedy must be fashioned to fit the nature of the case and the particular facts".

In cases involving a single defendant, a plaintiff must choose between an account of profits or equitable compensation.
GM & AM Pearce and Company v Australian Tallow Producers [2005] VSCA 113 : [56] clarifies:
- A plaintiff must decide whether to pursue an account of profits or equitable compensation.
- Tang Man Sit v Capacious Investments and Warman International Ltd v Dwyer confirm that an account of profits and an award of damages are alternative, not cumulative, remedies.
- Typically, the election is made when judgment is given, not before the trial starts.
- The court may order discovery to help the plaintiff choose the more favorable remedy if they lack sufficient information at the time of judgment.

Ancient Order of Foresters in Victoria Friendly Society v Life Plan Australia Friendly Society is a relevant case.
Lifeplan provided funeral products through its subsidiary, FPM.
Two Lifeplan employees, Woff and Corby, secretly planned to divert Lifeplan's business to competitor Foresters over a 5-year period.
They used Lifeplan's confidential information and approached its funeral directors while still employed by Lifeplan.
After implementing the plan, Foresters' profits significantly increased, while Lifeplan's profits declined.

A liberal "but for" test is applied.
The key question is whether the profit would have been made "but for" the breach.
The defendant cannot argue that the profits could have been made honestly.
The same causation test applies for both the primary breach and knowing assistance.
The breach does not need to be the sole cause of the profit.
The deterrent rationale supports this liberal approach to causation.

The general rule is that the entire profit from the fiduciary position should be accounted for.
This is not a punishment; it is only about recovering actual gains.
Allowances can be made for:
- Expenditure incurred.
- Skill and expertise.
- Resources invested.
- Time devoted.
Unrealized or future profits can be included.
The onus is on the wrongdoer to prove reasons to reduce the amount.

The remedy is available in equity's exclusive jurisdiction.
Optus Networks v Telstra Corp is a key case.
There can be a concurrent contractual duty.
The contract does not necessarily exclude the equitable obligation.
The plaintiff must still elect between remedies.
The four elements per Optus Networks are:
- Identified information.
- Quality of confidence.
- Received in circumstances importing an obligation of confidence.
- Actual or threatened misuse of information without consent.

In Australia, generally, an account of profits is NOT available for breach of contract (Hospitality Group case).
In the UK, it IS available in exceptional cases (AG v Blake).
The UK uses a "legitimate interest test."
Australia has concerns about the fusion fallacy.
Justice Deane's isolated comment is noted.
Academic debate on this issue continues.
There is a clear difference in approach between Australia and the UK.

Account of profits is a powerful equitable remedy.
It strips the wrongdoer's gains.
The plaintiff must elect between account of profits and compensation (for a single defendant).
A split election is possible with multiple defendants.
A liberal causation test is applied.
Assessment can be complex.
It is not available for breach of contract in Australia.
The remedy is subject to equitable discretion.