(iv) Gain-Based Remedies Which Are Available for Breaches of Fiduciary Duty
Although it is now possible to award compensatory remedies for breach of fiduciary duty, the usual remedy is still gain-based.
Where a transaction has been entered into as a result of a breach of fiduciary duty, it will be voidable and can be rescinded by the principal, regardless of whether the transaction is made with the fiduciary or a third party. Rescission will be barred, however, (i) if it is not possible to return the parties to their original position; (ii) if property has been transferred under the transaction to a bona fide purchaser for value; (iii) if the principal has affirmed the transaction; or (iv) if too much time has elapsed before the principal has sought to rescind it. Where the fiduciary breaches the conflict of duty and duty rules by acting for more than one principal, it is possible for a transaction entered into as a result to be rescinded, although this may be available only if the principal with whom the transaction was made was aware of the inconsistent duties.
(2) Account of Profits
The typical remedy for breach of fiduciary duty is to require the defendant to account to the claimant for all the profits obtained from the breach. The remedy is most definitely gain-based rather than compensatory because it does not depend on whether the principal could have made the profit. When taking the account it is not necessary to show that the profits were a ‘but for’ cause of the breach. Rather, it is sufficient that the profits fall within the scope of the fiduciary’s duty of loyalty to the principal. This is justified because the special position of the fiduciary means that the breach of fiduciary duty is not the fact that the fiduciary had made a profit, but that the fiduciary seeks to keep this profit for him or herself. For policy reasons the courts refuse to speculate about what would have happened had the breach of duty not occurred, so it is irrelevant that the profit would have been made even had there been no breach of duty. Further, this strict approach to causation in the context of breach of fiduciary duty is justified by the very high standards of loyalty we expect of fiduciaries and from a desire to deter disloyal behaviour. It is appropriate, however, to deduct expenses incurred by the defendant in making the profit, as well as a sum to represent reasonable overheads. The burden is placed on the defendant to show that a particular profit did not derive from the breach of duty. This shift in the burden of proof is presumably justified by the stringent policy that fiduciaries should not profit in any way from their breach of duty. Consequently, it is presumed that all profits were derived from the breach, and it is for the defendant to show that this was not the case. If the defendant is unable to distinguish the profits made from the breach with the profits made legitimately from other sources, he or she will be liable to disgorge all the profits, because of the policy, reflected in the law of tracing as well, that everything is presumed against a fiduciary in breach of duty.  
This strict approach to causation is particularly well illustrated by Murad v Al-Saraj162 where a majority of the Court of Appeal recognized that the fiduciary, who had failed to disclose a material fact to his principals in breach of fiduciary duty, was liable to account for the whole profit he made as a result of the principals entering into a joint venture with him, even though some profit might still have been made had the fiduciary made the relevant disclosure. The fiduciary would only not have been liable to account for other profits which had arisen from a different transaction. The claimants and the defendant had entered into a joint venture to buy a hotel. The defendant fraudulently told the claimants that the purchase price was ?4.1 million, when it was actually ?3.6 million, and that he would contribute ?500,000 in cash. This contribution took the form, in part, of a secret commission for introducing the claimants to the vendor, and a set off of certain non-enforceable obligations. The trial judge found that, had the actual purchase price and the set off been disclosed to the claimants, they would still have agreed to the joint venture but with a higher profit share for themselves. The majority held that this was irrelevant and the defendant was liable to disgorge all the profits, both revenue and capital, which he had made from the joint venture following the sale of the hotel, even though some profit would still have been made had the defendant not breached his fiduciary duty. 3 The majority appears to have assumed that, since but for causation is relevant to establishing loss for the purposes of equitable compensation and because loss is not relevant to the account of profits, it must follow that but for causation is not relevant either. But this conclusion does not follow. Nevertheless, the conclusion is consistent with the earlier decision of the Court of Appeal in United Pan-Europe Communications NV v Deutsche Bank AG165 where Morritt LJ166 said: ‘I see no justification for any further requirement that the profit shall have been obtained by the fiduciary ‘by virtue of his position’. Such a condition suggests an element of causation which neither principle not the authorities require.’ But this is inconsistent with the decision of the House of Lords in Regal v Gulliver where this ‘further requirement’ was recognized.167 To confuse matters further this requirement was even recognized by Jonathan Parker LJ in Murad v Al-Saraj168 itself.
Clarke LJ dissented from the majority’s approach on the basis that the question of whether the defendant would have made the profit even had there not been a breach of fiduciary duty is relevant to the extent of the account of profits, although he accepted that it was not relevant to whether there was any liability to account at all. Clarke LJ preferred to treat the assessment of the profits as being dependent on what was an equitable result. But that way confusion and uncertainty lies.
The decision of the majority in Murad v Al-Saraj creates significant difficulties when determining the extent of the account of profits. It is clear that the fiduciary who has breached his or her duty need not account for all profits made from whatever source; some link to the breach of duty must be established. For it would be absurd to say, for example, that a defendant who has breached his or her fiduciary duty and who at the same time won a large sum in a lottery would have to account for that lottery win. So, if causation is relevant and, as the Court of Appeal in Murad v Al-Saraj recognized, the profit must arise ‘within the scope and ambit of the relevant fiduciary duty’, what profit derived from the breach of fiduciary duty? Surely, if the defendant would have made a profit anyway had there not been a breach of duty, the only profit which was caused by the breach must be the difference between the profit which was made and what would otherwise have been made. Consequently, there is no justification for the rejection of the but for test of causation when accounting for profits following a breach of fiduciary duty. It should be shown that, but for the breach, the profit would not have been made. This does not involve the watering down of the policy of deterring breaches of fiduciary duty. It is simply a matter of ensuring that the profit which must be disgorged derives from the breach of duty.
The principle of remoteness of benefits, whereby the defendant is only liable to account for profits which derive directly from the commission of the wrong, is interpreted differently where the defendant has profited from a breach of fiduciary duty, so that the fiduciary is also liable to account for profits which arise indirectly from the commission of the wrong. So, for example, in Gwembe Valley Development Co Ltd v Koshy (No 3), the defendant fiduciary was held liable to account for all the profits he had made from unauthorized loan transactions. The account included those profits which derived directly from the commission of the wrong, in the form of payments made to him, and also indirect benefits arising from the increase in the value of his shareholding in the company. It follows from this, for example, that if a fiduciary has received a bribe, he or she should be liable to account for the value of the bribe and any income obtained from its investment.  This relaxation of the rules on remoteness is presumably justified by the policy to deter breaches of fiduciary duty by ensuring that the fiduciary is deprived of all benefits which derive from the commission of the wrong. It was recognized by the Court of Appeal in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd176 that the effect of the defendant being required to account for benefits indirectly obtained from the commission of the wrong meant that, if the defendant had received a bribe in breach of fiduciary duty and had invested the bribe in land which had increased in value, the defendant would be liable to account to the principal for the value of that land.177
A problem with ordering that an account of profits be taken is that there is a danger that requiring the defendant to give up all profits made from the breach of duty might unfairly benefit the claimant.178 Two mechanisms are available to limit the account.
- (1) Limiting the period for which the account must be taken. Where the nature of the breach of fiduciary duty is that the defendant earns a profit over a period of time, and might still be earning the profit at the time of the trial, a difficult question arises as to whether the defendant is required to account for all of the profits which have been made and also those which may be made in the future. This was a matter which was examined in Warman International Ltd v Dwyer179 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. In that case the account was limited to two years of profits to reflect the policy that the defendant should only account for the profits ‘made within the scope and ambit of his duty’.180
- (2) The equitable allowance. The defendant may be awarded an equitable allowance in respect of those profits that 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.181 The assessment of the allowance is not necessarily limited to the value of the fiduciary’s work, but can also include part of the profit made from the venture if it is considered to be just to award this.182 The award of the allowance is not automatic and will be awarded only where it is equitable to do so. The decision to award the allowance, 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.183 So where there is an abuse of the fiduciary relationship by the fiduciary, the allowance might be reduced184 or not awarded at all.
Although the award of the equitable allowance to a fiduciary who has breached his or her fiduciary duty was recognized by the House of Lords in Boardman v Phipps,185 a subsequent decision of the same court, Guinness plc v Saunders,186 casts doubt on the legitimacy of the award of an allowance to the fiduciary in such circumstances. In Guinness plc v Saunders, ?5.2 million had been paid to a director of Guinness for the advice and services that he had given in respect of the takeover of another company by Guinness. It was accepted that this money had been received by the director in breach of his fiduciary duty and consequently he was liable to repay it to Guinness. But the director argued that he was entitled to an equitable allowance for the services that he had supplied to the company. The House of Lords rejected this claim on two grounds. First, because Equity had no power to grant an allowance to a director who had breached his or her        
fiduciary duty if the company’s articles made no provision for such a payment. The reason for this is that the court is reluctant to interfere with the affairs of the company, and so the decision to award an allowance should be a matter for the company and not for the court. Secondly, because of the fundamental principle that trustees are not entitled to be remunerated for their services except where such remuneration is provided for in the trust deed, it was considered to follow that a fiduciary should not be awarded an equitable allowance save in the most exceptional circumstances under which the award of the allowance would not encourage the fiduciary to put him or herself in a position in which his or her personal interest conflicted with the duty that was owed to the principal. Since the nature of the director’s breach of duty was to place him in a position in which his personal interest conflicted with his duty to the company, it followed that the equitable allowance was denied to him.
But neither of these reasons is convincing. First, why should the allowance be unavailable where the fiduciary is a director? If the defendant has incurred expense and provided services, particularly where the expense and services have benefited the claimant company, why should this not be taken into account when determining the extent of the defendant’s liability to the claimant? Secondly, the award of the equitable allowance should not be considered to be encouraging the fiduciary to place him or herself in a position in which personal interest and duty to the principal conflict. This is because the equitable allowance should not enable the fiduciary to profit from his or her breach of duty; rather it should simply ensure that the fiduciary is remunerated for expense incurred and services provided. There can surely be no objection to a fiduciary being remunerated, since this would not encourage the fiduciary to breach his or her fiduciary duty. It has, in fact, been recognized that there is nothing wrong with the court granting an allowance to remunerate a fiduciary for services provided to the principal. The real objection arises where the fiduciary is allowed to profit from the breach of duty. Despite this, Guinness v Saunders was followed in Quarter Master UK Ltd v Pyke where an equitable allowance was not awarded to two directors who had exploited a business opportunity for themselves, on the ground that directors should not profit from their breach of fiduciary duty and that the directors concerned had not demonstrated special skills or taken unusual risks.
The major difficulty with the award of an equitable allowance arises from the uncertainty as to the reason for awarding the allowance. Two justifications can be identified. First, the award of an equitable allowance might constitute a mechanism to ensure that the claimant is not unjustly enriched at the fiduciary’s expense. This unjust enrichment would otherwise arise because, if the effect of the defendant’s work is that the claimant obtains a benefit, the claimant will have been enriched at the defendant’s expense. The ground of restitution would be total failure of basis, in that the defendant would have expected to be remunerated for his or her services by retaining the profit, but the defendant would receive nothing if he or she were liable to disgorge all of the profit to the claimant. Although this unjust enrichment explanation of the equitable allowance can be used to justify why the allowance was awarded in certain cases in which the principal was benefited by what the fiduciary had done, this explanation has never been recognized by the courts and, crucially, the nature of the allowance that is awarded does not appear to be assessed by reference to the value of the benefit obtained by the principal. Rather, the allowance seeks only to remunerate the fiduciary for his or her work and skill. Also this explanation of the equitable allowance would be inapplicable in any case in which the principal had not obtained a benefit from the fiduciary simply because the principal would not have been enriched at the fiduciary’s expense.
The alternative, and preferable, explanation of the equitable 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. Since the defendant should be required to disgorge only those profits that did arise from the wrongdoing, it follows that the equitable allowance seeks to apportion profits so that the claimant recovers only those profits that derive from the breach of trust or fiduciary duty, and the defendant is allowed to retain those profits that can be considered to derive from his or her work and skill. 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 contribution. This explanation of the award of the allowance was expressly recognized by the High Court of Australia in Warman International Ltd v Dwyer, which noted that the allowance was available:
when it appears that a significant proportion of an increase in profits has been generated by the skill, efforts, property and resources of the fiduciary, the capital which he has introduced and the risks he has taken, so long as they are not risks to which the principal’s property has been exposed. Then it may be said that the relevant proportion of the increased profits is not the product or consequence of the plaintiff’s property but the product of the fiduciary’s skill, efforts, property and resources.
If the equitable allowance seeks to apportion the profits between those profits that derive from the breach and those deriving from the defendant’s personal contribution, it should have followed that the director in Guinness plc v Saunders was awarded an allowance, because he had provided valuable services for the remuneration that he had received. But the denial of the allowance in that case might be justified on another ground, although it was a ground that was not specifically recognized by the court. Although the House of Lords assumed throughout that the director had been acting in good faith, there was clearly a suspicion of bad faith, since criminal charges had been brought as a result of the acquisition of the company by Guinness and an application had been made to extradite the director to the United States. If the House of Lords had been satisfied on the balance of probabilities that the director had been acting in bad faith, it would have been appropriate, in the exercise of the equitable jurisdiction, to decline to award an equitable allowance.
(3) Proprietary Remedies Following the Recognition of a Constructive Trust
The most controversial question relating to the award of gain-based remedies for breach
of fiduciary duty is whether profits made from the breach of duty should be held on constructive trust for the principal, so that the principal will have an equitable proprietary interest in the profits which he or she can vindicate by virtue of proprietary restitutionary remedies. This gives the principal priority over the fiduciary’s unsecured creditors if the fiduciary became insolvent. The principal is entitled not just to the value of the profits obtained by the fiduciary but also the fruits of those profits. Further, the principal can assert proprietary rights against innocent third parties who have received the profits or its traceable substitute.
Where the fiduciary has profited by interfering with the principal’s proprietary rights, it is clear that the fiduciary will hold this property on constructive trust for the principal. This includes where the fiduciary has obtained a bribe or a secret commission and it can be shown that this was derived from money paid by the principal to the fiduciary. The recognition of a constructive trust in such circumstances is defensible because the profits made by the defendant can be considered to represent the fruits of the claimant’s property. Consequently, it is entirely appropriate that the claimant should have an equitable proprietary interest in the profits. In addition, it is justifiable that the fiduciary should hold property on constructive trust where the consequence of the breach of duty is that the fiduciary obtains property which the principal would have obtained had the defendant not breached his or her duty. Goode has described the property which the defendant obtains in such circumstances as a ‘deemed agency gain’, which should be held on constructive trust for the principal simply because the demands of the fiduciary relationship are such that it should be assumed that the defendant obtained the property for his or her principal rather than for him or herself. This is illustrated by Cook v Deeks where the directors of the claimant company were negotiating a contract with a third party on behalf of the company. Rather than signing the contract on behalf of the company, some of the directors signed it on behalf of themselves. It was held that the directors were liable for a breach of fiduciary duty and held the profits they had made on constructive trust for the company. This can be justified because, had the defendants not breached their duty, the company would have obtained the contract, so the defendants’ gain could be presumed to have been made on behalf of the company.
The most controversial issue arises where the fiduciary has obtained a benefit from a third party rather than depriving the claimant of property or the opportunity to make a profit. This has proved to be particularly controversial where the fiduciary has received a bribe or a secret commission from a third party. In such circumstances the profit cannot be considered to have derived from the principal. Consequently, the orthodox view was that only the personal remedy of an account of profits was available, and not a proprietary constructive trust. The leading case was Lister and Co v Stubbs where it was held that the defendant, a foreman who bought supplies for the claimant and who had accepted secret commissions from one of the suppliers in return for placing orders with that supplier, was liable to account to the claimant for the value of the commission. The defendant had invested some of the money in land, but it was held that the claimant did not have an equitable proprietary interest in the land. It followed that the relationship between the parties was not one of trustee and beneficiary but was simply one of debtor and creditor.
However, in Attorney-General for Hong Kong v Reid203 the Privy Council recognized that a defendant fiduciary who had received a bribe held that bribe on constructive trust for the principal. The defendant fiduciary in this case held a number of public offices in Hong Kong, including that of Director of Public Prosecutions. He had accepted bribes to induce him to frustrate the prosecution of some criminals. He purchased land with this money and the claimant claimed that the land was held on constructive trust for it. The Privy Council agreed and specifically rejected Lister and Co v Stubbs for the following reason. Where a defendant receives a bribe in breach of fiduciary duty it is clear that the defendant is liable to account to the principal for the value of the bribe immediately it is received, simply because it is the receipt of the bribe which constitutes the breach of duty. There is consequently a personal liability to account to the principal. However, by virtue of the equitable maxim that Equity looks on as done what ought to be done, Equity presumes that the fiduciary has accounted for the value of the bribe when it is received. It follows, therefore, that Equity considers the principal to have an equitable proprietary interest in the bribe immediately it is received, with the result that the defendant holds the bribe on constructive trust for the principal.
The Privy Council in Reid considered that it was appropriate to recognize that the principal had an equitable proprietary interest in the bribe as a matter of policy, even though this would mean that the unsecured creditors of the fiduciary would be deprived of their right to share in the money if the fiduciary were to become insolvent, because it was considered that the unsecured creditors could not be in a better position than their debtor. Also, it would not be appropriate for the fiduciary to retain any increase in the value of the bribe because of the principle that wrongdoers should not profit from their wrong. So, on the facts of Reid, although it was clear that the defendant was liable to account for the value of the bribe received, it was also inappropriate for him to retain the increase in the value of the land.
Reid was, however, a decision of the Privy Council which conflicted with earlier decision of the House of Lords  and decisions of the Court of Appeal. Despite this, Reid was followed in some cases  and can be considered to be consistent with earlier decisions, notably Boardman v Phipps,207 where the shares which were purchased in breach of fiduciary duty were held on constructive trust even though there had been no interference with the claimant’s property rights. The decision in Reid was, however, rejected by the Court of Appeal in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd.208 In that case the claimant had advanced money to a company to be used to purchase goods. The money was used fraudulently for other purposes. The defendant had sold shares in the company that he already owned for a profit. These shares had not been acquired with money in which the claimant had a proprietary interest, but the profit that he had obtained on their sale was attributable to his dishonest conduct in creating the appearance of trading which had not taken place, which had inflated the apparent turnover and profits of the company, so increasing its market value. It was held that the defendant had breached his fiduciary duty but he was only personally liable to account for the profits, which were not held on constructive trust for the claimant.
Although the profit in this case was not a bribe or a secret commission, the Court of Appeal considered that it should be analysed in the same way, because the profit made by the director was an unauthorized secret profit that had resulted from his breach of fiduciary duty. The Court of Appeal held that the fact that a breach of fiduciary duty enabled the defendant to make a profit was not sufficient to give the claimant a proprietary interest in that profit. The rationale behind the recognition of the constructive trust in Reid was considered and was rejected as a matter of authority, as a matter of principle, and as a matter of policy. The key principle was that profits should only be held on constructive trust where they derived directly or indirectly from the principal’s property or from the exploitation of an opportunity which had been available to the principal, since the defendant will then have profited from interference with the principal’s property rights, although this is difficult to justify where the defendant has only exploited an opportunity which should have been procured for the principal. The key policy was that the claims of the unsecured creditors of the fiduciary should not be defeated by recognizing that the fiduciary’s property was held on constructive trust for the principal.
The decision of the Court of Appeal in Sinclair Investments was, however, overruled by the Supreme Court in FHR European Ventures LLP v Cedar Capital Partners LLC. It was held that, wherever a fiduciary is liable to account for profits made as a result of a breach of fiduciary duty, those profits will be held on constructive trust for the principal, even though they did not derive from interference with the principal’s property or from the exploitation of an opportunity which should have been exploited for the principal. Consequently, wherever a fiduciary receives a bribe or secret commission in breach of fiduciary duty, that bribe or secret commission will be held on constructive trust. The decision in Lister v Stubbs was also overruled. The constructive trust recognized by the Supreme Court is an institutional constructive trust which arises by operation of law and is justified because the fiduciary is treated as though he or she had acquired the bribe or secret commission on behalf of the principal, who therefore has an equitable proprietary interest in it. This assumption that the bribe has been acquired for the principal has been defended by virtue of the need to ensure fiduciary fidelity. 
The decision of the Supreme Court in FHR European Ventures does at least resolve a long-standing controversy as to the role of the constructive trust where the fiduciary has profited from breach of their fiduciary duty. The Supreme Court cut through authorities to the contrary and rejected the principles and policies identified by the Court of Appeal in Sinclair.213 The real difficulty with FHR European Ventures relates to the Supreme Court’s emphasis that the constructive trust was institutional, arising by operation of law, rather than remedial,214 which enables the operation of the trust to be modified through the exercise of judicial discretion.215 Whether an institutional constructive trust is appropriate in this context depends on whether the three proprietary advantages of the constructive trust216 can necessarily be justified where the fiduciary has profited from breach of duty. If any of these advantages cannot be justified it would be appropriate to modify the institutional constructive trust through the operation of judicial discretion, such that the trust operates as a remedial constructive trust.
First, where the defendant has profited from the investment of the profit made in breach of fiduciary duty, he or she should not benefit from this indirect profit, so that the institutional constructive trust should not be modified to exclude such profits, because of the strict nature of fiduciary duties. So, for example, it was not appropriate for the defendant in Attorney-General for Hong Kong v Reid217 to have benefited from the investment of the bribes in land.
The second advantage of the constructive trust is that the principal has priority over the fiduciary’s unsecured creditors if the fiduciary became insolvent. Lord Millett218 has argued that such an advantage is justifiable, because the fiduciary’s creditors claim through the fiduciary and should have no claim to property to which they are not entitled. In Grimaldi v Chameleon Mining NZ (No 2)219 Justice Finn, in recognizing that normally a bribe should be held on constructive trust, added that, if the fiduciary was bankrupt, a lien should suffice to ensure practical justice. This was obiter and would not protect the interests of the unsecured creditors since even where there is a lien the principal would have priority,220 but would only be unable to claim the fruits of the profits made from the breach of duty. But even though the approach of the English courts in recognizing an institutional constructive trust appears to militate against flexibility in the operation of the constructive trust, in a very significant dictum in FHR European Ventures221 the Supreme Court recognized that concern about the position of unsecured creditors of the defendant fiduciary has considerable force in some contexts, although it has limited force in the context of bribes and secret commissions. The Court did not elaborate beyond this and it is unclear why the position of unsecured creditors might matter more in some contexts, although it is unclear which, and why not where the profit took the form of bribes or secret commissions. But, acknowledging that the position of the unsecured creditors of the fiduciary might need to be considered in some cases, is highly significant. It might suggest a willingness of the English court to recognize the constructive trust in principle, but then its effect might be modified to ensure that, whilst the fiduciary does not benefit from the profit, the relative positions of the principal and unsecured creditors are treated equally. In fact, this modification of the constructive trust is more justifiable in cases where the fiduciary’s profit is derived from a third party than from the principal. For where the profit is taken from the principal, so that the principal has suffered a loss which needs to be reversed, the principle of corrective justice might justify the principal’s claim ranking 214 215 *   
above that of the fiduciary’s unsecured creditors. Where, however, the gain is made from a third party, without the principal suffering a loss, the principal of corrective justice is not necessarily engaged, since there is no loss to reverse.  Rather, the relevant principle is that of distributive justice,2 3 whereby the gain made by the fiduciary needs to be distributed from the fiduciary to the principal, but the principal should not be considered to have a stronger claim than that of the fiduciary’s unsecured creditors. Consequently, usually where the fiduciary has received a bribe or a secret commission, this should be held on constructive trust for the principal, but this should be modified to ensure that the principal’s claim to the profits ranks equally with that of the fiduciary’s unsecured creditors.
The third advantage of the institutional constructive trust is that the principal is able to assert a proprietary restitutionary claim against a third-party recipient of the property which was held on trust. This result is much more difficult to justify where the third-party recipient is innocent of any wrongdoing, for why should the claim of the principal, to profits which have not been taken from the principal, prevail over that of an innocent volunteer? In such circumstances it would be appropriate to modify the institutional constructive trust so that the principal and third-party volunteer share the property equally. Where, however, the third party’s receipt can be considered to be unconscionable, because they knew or suspected that the fiduciary had obtained the profit in breach of fiduciary duty, it is appropriate to enable the principal to assert their equitable proprietary rights against the third party, whose conscience has been tainted. So, for example, in Attorney-General for Hong Kong v Reid assets were transferred to the fiduciary’s wife and his solicitor who appear to have been aware that they had been purchased with bribe money. In such circumstances it is appropriate that the proprietary claim of the principal should prevail over such recipients whose consciences have been tainted by their knowledge of the breach of duty. However, as English law stands, the principal has a proprietary claim against the third-party recipient who has received and retained the property or its substitute which was held on constructive trust, regardless of the recipient’s ignorance of the breach of fiduciary duty. This is an unfortunate consequence of the recognition of the institutional constructive trust, which could be avoided if there was greater willingness to modify the proprietary impact of such a trust.
-  Wilkinson). See p 277, above. 149 Swindle v Harrison  4 All ER 705.
-  See Chapter 1 for analysis of rescission generally.
-  Transvaal Land Co v New Belgium (Transvaal) Land and Development Co  2 Ch 488.
-  Nocton v Lord Ashburton  AC 932, 956-7 (Viscount Haldane VC); Murad v Al-Saraj EWCA Civ 959,  WTLR 1573,  (Arden LJ).
-  Murad v Al-Saraj  EWCA Civ 959,  WTLR 1573,  (Arden LJ).
-  Novoship (UK) Ltd v Mikhaylyuk  EWCA Civ 908,  2 WLR 526, .
-  Cf where a non-fiduciary is liable as an accessory for assisting a breach of trust, where the liability toaccount for profits is dependent on the profits being caused by the assistance. See p 521, below.
-  Murad v Al-Saraj  EWCA Civ 959,  WTLR 1573,  (Arden LJ).
-  See T Etherton, ‘The Legitimacy of Proprietary Relief ’ (2014) 2 Birkbeck LR 59, 74.
-  Murad v Al-Saraj  EWCA Civ 959,  WTLR 1573,  (Jonathan Parker LJ).
-  Ibid,  (Arden LJ). 160 See p 619, below.
-  161 Warman International Ltd v Dwyer (1995) 182 CLR 544.
-  162  EWCA Civ 959,  WTLR 1573. 163 Ibid,  (Arden LJ).
-  164 See Swindle v Harrison  4 All ER 705. 165  2 BCLC 461. 166 Ibid, .
-  167 As it was in Warman International Ltd v Dwyer (1995) 182 CLR 544, 559.
-  168  EWCA Civ 959,  WTLR 1573,  (Jonathan Parker LJ).
-  Ibid, . 2 Ibid,  (Arden LJ). 3 Ibid,  (Jonathan Parker LJ).
-  172 The language of but for causation was used by Clarke LJ in his dissenting judgment in Murad v Al-Saraj,
-  ibid, .
-  173 See p 435, above. 6  EWCA Civ 1048,  1 BCLC 131.
-  175 Murad v Al-Saraj  EWCA Civ 959,  WTLR 1537,  (Arden LJ).
-  176  EWCA Civ 347,  1 AC 776.
-  177 Ibid,  (Lord Neuberger MR). Today all the profit, whether obtained directly or indirectly, could be
-  held on constructive trust. See p 512, below.
-  See Fyffes Group Ltd v Templeman  2 Lloyd’s Rep 643, 672 (Toulson J). See further p 426, above.
-   182 CLR 546. See also Murad v Al-Saraj  EWCA Civ 959,  WTLR 1573, (Jonathan Parker LJ).
-  Warman International Ltd v Dwyer  182 CLR 546, 559.
-  Boardman v Phipps  2 AC 46; Warman International Ltd v Dwyer (1995) 182 CLR 544, .
-  O’Sullivan and Management Agency and Music Ltd  QB 428, 468 (Fox LJ).
-  Boardman v Phipps  2 AC 46; Guinness v Saunders  2 AC 663; Warman InternationalLtd vDwyer (1995) 182 CLR 544.
-  O’Sullivan andManagementAgencyandMusicLtd  QB 428,468 (Fox LJ); Nottingham Universityv Fishel  ILRL 471, 485 (Elias J).
-   2 AC 46. 186  2 AC 663.
-  Ibid, 692 (Lord Templeman). 188 Ibid, 701 (Lord Goff).
-  189 Dale v IRC  AC 11, 27 (Lord Normand).
-  190 But note O’Sullivan v Management Agency and Music Ltd  QB 428, in which the Court of Appeal
-  contemplated that the allowance might include a profit element, but only where it is considered to be just to
-  include this. 191  EWHC 1815 (Ch);  1 BCLC 245.
-  See M Harding, ‘Justifying Fiduciary Allowances’ in A Robertson and HW Tang (eds), The Goals ofPrivate Law (Oxford: Hart Publishing, 2009), ch 14, who prefers to justify the allowance on the basis of desert,in that the fiduciary’s deserving conduct outweighs the application of policies of deterrence to the fiduciary.
-  Most notably Boardman v Phipps  2 AC 46. But if the equitable allowance does seek to ensure thatthe claimant is not unjustly enriched, it should also have been awarded in Guinness plc v Saunders  2 AC663, in which the company had also been benefited by the defendant’s services.
-  See Boardman v Phipps  2 AC 46, 102 (Lord Cohen) and 112 (Lord Hodson).
-  Warman International Ltd v Dwyer (1995) 128 ALR 201, 212.
-  See Chapter 22.
-  See Primlake Ltd v Matthews Associates  EWHC 1227 (Ch),  1 BCLC666,  (LawrenceCollins J).
-  Daraydan Holdings Ltd v Solland International Ltd  EWHC 622 (Ch),  Ch 119.
-  See RM Goode, ‘Property and Unjust Enrichment’ in AS Burrows (ed), Essays on the Law of Restitution(Oxford: Clarendon Press, 1991), 230.
-   1 AC 554. See also Keech v Sandford (1726) Sel Cas t King 61, 25 ER 223, p 497, above.
-  In CMS Dolphin Ltd v Simonet  2 BCLC 704, , Lawrence Collins J characterized theexploitation of a maturing business opportunity as appropriation of property belonging to the principal,with the result that the defendant fiduciary would hold the profits of the exploitation on constructive trustfor the principal. It is unprincipled however, to treat a maturing business opportunity as the principal’sproperty.
-  (1890) 45 Ch D 1. See also Metropolitan Bank v Heiron (1880) LR 5 Ex D 319.
-   1 AC 324. 204 Tyrrell v Bank of London (1862) 10 HL Cas 26.
-  205 Including Metropolitan Bank v Heiron (1880) 5 Ex D 319 and Lister and Co v Stubbs (1890) LR 45
-  Ch D 1.
-  Ocular Sciences Ltd v Aspect Vision Care Ltd  RPC 289, 412-13 (Laddie J); Fyffes Group Ltd vTempleman  2 Lloyd’s Rep 643; Daraydan Holdings Ltd v Solland International Ltd  EWHC 622(Ch),  Ch 119.
-   2 AC 46. See p 498, above. 208  EWCA Civ 347,  1 AC 776.
-  The decision was applied to a case involving bribes and secret commissions in Cadogan Petroleum plc vTolley  EWHC 2286 (Ch).
-  Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd  EWCA Civ 347,  1 AC 776,
-   (Lord Neuberger MR). 211  UKSC 45,  AC 250.
-  P Millett, ‘Bribes and Secret Commissions Again’ (2012) CLJ 583. See also LD Smith, ‘ConstructiveTrusts and the No-Profit Rule’ (2013) CLJ 260.
-  The judgment of the court being delivered by Neuberger LJ, who, as Lord Neuberger, delivered theunanimous judgment in the Supreme Court in FHR European Ventures. See WMC Gummow, ‘Bribes andConstructive Trusts’ (2015) 131 LQR 21.
-  The Supreme Court specifically rejected the recognition of the remedial constructive trust. See furtherp 595, below.
-  As is the caseinAustralia: GrimaldivChameleon MiningNZ (No2)  FCAFC 6, - (Finn J).See L Ho, ‘Bribes and the Constructive Trust as a Chameleon’ (2012) 128 LQR 486.
-  See p 510, above. 217  1 AC 324. 218 Millett, ‘Bribes and Secret Commissions Again’. 219  FCAFC 6, . 220 See p 635, below. 221 FHR European Ventures LLP v Cedar Capital Partners LLC  UKSC 45,  AC 250, .
-  See p 5, above.
-  K Barnett, ‘Distributive Justice and Proprietary Remedies over Bribes’ (2015) LS 302. See also MHarding, ‘Constructive Trusts and Distributive Justice’ in E Bant and M Bryan (eds), Principles of ProprietaryRemedies (Sydney: Thomson Reuters, 2013), ch 2.
-  Where the secret commission has been obtained from the principal the corrective justice principle will
-  be engaged. See p 510, above. 4 See p 632, below.
-  Where the third-party recipient has provided value and has acted in good faith the principal’sproprietary claim will be defeated. See Chapter 23.