The rule against profits is a strict one, which is designed to ensure that the fiduciary acts, as equity requires, from the purest motives – the fiduciary must be motivated only by the best interest of his beneficiary.
The Supreme Court of Canada in Soulos v Korkontzilas (1997) 2 SCR 217 held that to establish a constructive trust to be imposed upon a wrongful gain, four conditions must generally be satisfied:
- The defendant must of been under an equitable obligation- an obligation of the type that courts of equity have enforced in relation to the activities, giving rise to the assets in his hands;
- The assets in the hands of the fiduciary must be shown to have resulted from deemed or actual agency activities of the fiduciary in breach of his equitable obligation to the plaintiff/owner;
- The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties;
- There must be no factors which would render imposition of a constructive trust unjust in all of the circumstances of the case- for example, the interests of intervening creditors must be protected.