(B) ACCOUNT OF PROFITS
Account of profits is a mechanism to require the taking of a literal account, to determine the profits made after deducting expenses incurred, after which the defendant is required to disgorge the net profit made from the wrong. An account of profits is a discretionary equitable remedy and consequently it may be defeated by equitable defences such as laches. It may also be unavailable if the claimant’s conduct can be regarded as unconscionable, as will be the case where the claimant stood by whilst the defendant made the profit and then claimed to be entitled to those profits. Although the remedy of an account of profits is equitable, it is not confined in its operation to equitable wrongs, since it is clearly available in respect of some torts and for breach of contract. It is often difficult to ascertain exactly what profits the defendant made as a result of the wrongdoing, since usually the profits will have been increased by the contribution of the defendant’s own ideas, property and money. Consequently, the courts do not require absolute accuracy in the determination of the profits which derived from the commission of the wrong. As Lord Nicholls recognized in Attorney-General v Blake: ‘Despite the niceties and formalities once associated with taking an account, the amount payable under an account of profits need not be any more elaborately or precisely calculated than damages.’
This remedy is clearly gain-based, since it requires the defendant’s gain to be ascertained and transferred to the victim of the wrong, but it straddles both the literal restitutionary and disgorgement function of gain-based remedies. For, where the claimant has paid money to the defendant as the result of the commission of a wrong, the appropriate remedy may be an account of the profits. Equally, where the defendant has obtained a profit from a third party, he or she may be liable to account for this profit too. Indeed, in Murad v Al-Saraj, a case involving breach of fiduciary duty, Arden LJ described the remedy as a ‘procedure to ensure the restitution of profits which ought to have been made for the beneficiary’. Jonathan Parker LJ in the same case, however, described the remedy as being neither restitutionary nor compensatory but designed to strip the fiduciary of profits. But a remedy which is focused on the stripping of the defendant’s profits is properly analysed as restitutionary in the sense of its being a gain- based remedy, albeit a remedy which may sometimes operate to disgorge profit rather than being literally restitutionary. The remedy cannot be characterized as compensatory because it has long been recognized that it is irrelevant that the claimant could not have obtained the profit him or herself.
A problem with ordering an account of profits is that requiring the defendant to give up all profits made might unfairly benefit the claimant,  especially where all the profit made cannot be attributed to the commission of the wrong. Two mechanisms have been identified which can assist in the assessment of the profits for which the defendant should account to the claimant.
- (1) Limiting the period for which the account must be taken. Where the nature of the wrong is such that the defendant earns a profit over a period of time, and is still earning the profit at the time of the trial, a difficult question arises as to whether the defendant should be required to account both for all the profits which have already been made and also those which may be made in the future. This was a matter which was examined in Warman International Ltd v Dwyer72 where the High Court of Australia recognized that, where it is equitable to do so, the defendant may only be required to account for the profits generated over a specified period of time. This was the type of account which was ordered in Warman International Ltd v Dwyer itself. The defendant in that case was an employee who had breached his fiduciary duty by taking a business opportunity for himself. It was held that the defendant was only required to account for those profits which he would not have incurred but for the breach of fiduciary duty, which was found to be two years’ profits made from the exploitation of the business opportunity.
- (2) The equitable allowance. Alternatively, the defendant may be awarded an allowance in respect of those profits which were earned by virtue of the defendant’s own efforts and this sum will be deducted from the amount for which the defendant has to account to the claimant. The preferable explanation of this allowance is that, where the defendant has made a profit as a result of the exercise of his or her time and skill, it is not possible to say that all of the defendant’s profits derived from the commission of the wrong. It follows that the equitable allowance seeks to apportion profits so that the claimant only recovers those profits which derive from the wrong and the defendant is allowed to retain those profits which can be considered to derive from his or her own contribution. It will, of course, be very difficult to apportion the profits exactly, but at least the existence of the allowance gives the court the opportunity to determine in general terms how much of the profits derived from the defendant’s input, so that the defendant is not required to account for those profits because they did not derive from the commission of the wrong. But the award of the allowance is not automatic, since the decision to award it, and the amount awarded, depends on the operation of judicial discretion which will be influenced by a variety of factors, including the good faith of the defendant. But, despite this, the existence of the allowance is still preferably analysed as being grounded on principles of causation, albeit that the award will be tempered by judicial discretion.
-  Seager v Copydex Ltd  1 WLR 923, 932 (Lord Denning MR). 59 See p 741, below.
-  60 Re Jarvis (deceased)  1 WLR 815, 820 (Upjohn J).
-  61 Through the operation of Equity’s auxiliary jurisdiction, in the same way that the equitable remedy of an
-  injunction is available to restrain tortious conduct and specific performance to enforce contractual obligations.See K Barnett, Accounting for Profit for Breach of Contract (Oxford: Hart Publishing, 2012), 85.
-  See, in particular, the torts which involve interference with intellectual property rights, discussed at p 460,below.
-  Attorney-General v Blake  1 AC 268. See p 473, below.
-  Watson, Laidlaw and Co Ltd v Pott, Cassels and Williamson (1914) RPC 104, 114 (Lord Atkinson). Seealso MyKinda Town Ltd v Soll  FSR 147, 159 (Slade J).
-   1 AC 268, 288.
-  See My Kinda Town Ltd v Soll and Grunts Investments  FSR 147, 156 where Slade J said that thepurpose of ordering an account of profits is ‘to prevent an unjust enrichment of the defendant’. This can onlybe correct if ‘unjust enrichment’ is used in a purely descriptive sense rather than as a substantive principle. Seep 8, above.
-   EWCA Civ 959,  WTLR 1573, . 68 Ibid, .
-  69 Cf WWF—World Wide Fund for Nature v World Wrestling Federation Entertainment Inc  EWCA
-  Civ 286,  1 WLR 445,  (Chadwick LJ).
-  See, for example, IDC v Cooley  1 WLR 443; Murad v Al-Saraj  EWCA Civ 959, WTLR 1573,  (Arden LJ).
-  See Fyffes Group Ltd v Templeman  2 Lloyd’s Rep 643, 672 (Toulson J).
-  (1995) 182 CLR 544. See also Murad v Al-Saraj  EWCA Civ 959,  WTLR 1573, (Jonathan Parker LJ).
-  The High Court also suggested that the profits might be split between the claimant and the defendant, butthis would normally be appropriate only where there was an antecedent profit-sharing arrangement.
-  See Re Jarvis, deceased  1 WLR815, BoardmanvPhipps  2 AC 46 and Warman InternationalLtd v Dwyer (1995) 182 CLR 544, . See also Docker v Somes (1834) 2 My and K 655, 39 ER 1095.
-  Warman International Ltd v Dwyer (1995) 182 CLR 544, .
-  Boardman v Phipps  2 AC 46; Guinness v Saunders  2 AC 663; Warman International Ltd vDwyer (1995) 182 CLR 544.