Lloyd's Maritime and Commercial Law Quarterly
ACCOUNTING FOR PROFITS—FIDUCIARIES REQUIRED TO DISGORGE IN NEW ZEALAND
Estate Realties Ltd. v. Wignall (No. 2)
Cook v. Evatt (No. 2)
There have been relatively few occasions where, having found a defendant accountable for improper gains, courts have been required to proceed to calculate the account of profits. In two recent cases in New Zealand, involving breach of fiduciary duty, the measure of an account has had to be taken. The two cases are mirror images of one another. In the first, an agent appointed to sell an asset bought it for itself; while, in the second, an agent appointed to buy, or at least to assist in purchasing, bought a property for the purpose of selling it on to the beneficiary.
1. Agent for sale buys for itself
The case here is Estate Realties Ltd v. Wignall (No. 2).1 In his first judgment,2 Tipping, J., had found that two of the defendants,3 principals of the firm of sharebrokers acting for the plaintiff in the sale of shares (and options) it owned, had misled the plaintiff into believing that they had a genuine client who wished to purchase the shares, when in fact they were purchasing for themselves. They later sold on the shares at a price some $952,000 higher than they paid. The plaintiff alleged that a gross profit had been made in excess of $1.1 million, a figure which included the brokerage charged the plaintiff, the difference in price in the selling on, the dividends received in the interim, and directors’ fees. The court was now asked to determine the measure.
Tipping, J., first affirmed that it was irrelevant that the defendants may have paid the market price of the shares. It was not necessary for the beneficiary of the fiduciary relationship to prove loss. Nor was bad faith on the fiduciaries’ part required. The judge then undertook a lengthy review of leading English decisions as to the accountability of fiduciaries for profits. A number of issues arose. First was the possibility of making allowance for the fiduciary’s skill and effort in deriving the profit, a possibility supported by a number of cases, most notably Boardman v. Phipps
4 and O’Sullivan v. Management Agency & Music Ltd.5 In the latter, an allowance was made in favour of a defendant even though it had used undue influence over the plaintiff in order to be in a position to make the gains. The issue was important in the instant case because the judge had concluded that much of the profit that had been made had been achieved only through the skill and enterprise
1. [1992] 2 N.Z.L.R. 615.
2. [1991] 3 N.Z.L.R. 482.
3. A third defendant, a partner of the others who was subsequently cut into the purchase, escaped liability on the basis that he lacked actual or constructive knowledge of his partners’ breach of duty. This conclusion was found to be unaffected by the provisions of the Partnership Act 1908, the local equivalent of the U.K. Partnership Act 1890.
4. [1967] 2 A.C. 46.
5. [1985] 1 Q.B. 428.
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