The law is clear that a fiduciary who has breached a duty must account, but only for what the fiduciary acquired in consequence of the breach of duty.
The High Court of Australia in Warman International v Dwyer (1995) 128 ALR 201 (HCA) at 214 stated:
“ In determining the proper basis for an account of profits, it is of first importance in this, as in other cases, to ascertain precisely what it was that was acquired in consequence of the fiduciary’s breach of duty. And in some situation, it may also be relevant to ascertain what was lost by the plaintiff.
That passage was quoted with approval in 346-4920 Canada Inc. v Strother 2007 SCC 24.
The Supreme Court of Canada reiterated that there must be a causal connection between a breach of fiduciary duty and any benefits obtained by the wrongdoer before the court can order an accounting or disgorgement of the benefits.
There must be a causal relationship between the breach of fiduciary duty and the profits before an order for an accounting should be ordered.
The court also reiterated that equitable doctrined should not be used to impose awards out of proportion to the fiduciary’s behavior.
An accounting for profits is an equitable remedy and is not so rigid as to be susceptible to being used as a vehicle for punishing defendants with harsh damage awards out of all proportion to their actual behavior.
To the same affect the High Court of Australia noted in the Warman decision from at paragraphs 211 – 12 that the stringent rule requiring a fiduciary to account for profits can be carried to extremes and in cases outside the realm of specific assets, the liability of the fiduciary should not be transferred into a vehicle for the unjust enrichment of the plaintiff.
In the Strother case, the court rejected Mr. Struthers argument that most of the amount of profit he earned came from his own skill and ability as a lawyer. The majority of the Supreme Court held that Strother must account for the profits he earned from the new vehicles up to a certain point in time, but not thereafter.
The majority was of the view that the purpose of deterring a lack of faithfulness was adequately addressed by requiring Strother to disgorge the profits he earned from the new venture during the time that he or his law firm continued to have a solicitor client relationship with the client.