What is an Account of Profits?
An account of profits is an equitable remedy which aims to cut the profits made through committing an equitable wrong. Find out more in this article.
In Australia, an account of profits is an equitable remedy available for cases involving a breach of fiduciary duty. This may be given in cases where a defendant has profited from committing an equitable wrong. This therefore requires the offending party to give up the profits made. This can be a long process and will likely require you to go Court. However, it is important that you do your research and get independent legal advice first.
What does account of profits involve?
Account of profits involves calculating the profit that the defendant made in breaching their duties. This is so that profits made can be returned to the plaintiff. Account of profits does not aim to punish the defendant, but rather serve justice by taking away the profits made by the defendant in committing a wrongful act. Account of profits is common in cases involving breach of duties by company directors and trustee breaches.
Breach of fiduciary duty
Fiduciary duties arise out of a fiduciary relationship between two individuals. A fiduciary is someone who has another’s ‘confidence’. This confidence is for the fiduciary to act in the other person’s, known as the beneficiary, best interests. A breach typically occurs when the fiduciary uses the fiduciary relationship as a basis for personal financial gain. A breach of a fiduciary duty can create significant legal and financial consequences. Significant fines and possible prison sentences can result if a fiduciary breaches their obligations. Furthermore, a breach can open you to being sued by the beneficiary.
Account of profits is a method of preventing unjust enrichment. Unjust enrichment is where one party benefits from disadvantaging another. Further, the circumstances where this occurs are unjust, and usually involve a breach of fiduciary duty. Unjust enrichment falls under the concept of restitution. Restitution focuses on recovering funds gained (such as where someone profits from committing an equitable wrong), rather than compensating a plaintiff for their loss.
Account of profits is a way of ensuring people in trusted positions don’t benefit from breaching their duties. Applying for an equitable remedy can be a complicated and long process, with the Court not calculating the specific amount of profit gained, but rather reaching an estimation. If you want to find out more about account of profits or other equitable remedies, it may be worth getting in touch with a lawyer.
Sheza is a legal intern at Lawpath. She is completing a Bachelor of Laws at Macquarie University. She is interested in corporate/commercial issues within the legal industry.