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Core elements of this article were presented at a Chancery Bar Association seminar in Lincoln's Inn on 24 May 2010. I am grateful, with the normal disclaimers, to participants at that seminar who made useful observations, and to Brian Cheffins and Richard Nolan for helpful comments on a draft of the article.
I.
Introduction
This article is concerned with the extent of a fiduciary's obligation to account for profits that have been made in breach of fiduciary duty. In particular, it responds to suggestions made recently by some senior judges that the courts ought to have a wide-ranging discretion to alter the degree to which a fiduciary must account for profits. It is well-settled that a fiduciary must account for profits that have been generated from his fiduciary position or in circumstances involving a conflict between the fiduciary's duty and his interest. The fiduciary need not account if the profit or conflict was properly authorised, in which case there was no breach of fiduciary duty. But in the absence of such authorisation, the fiduciary must account for all of the profit that has been made in breach of fiduciary duty, other than insofar as the court grants an equitable allowance to the fiduciary for work done in generating that profit. The question addressed here is whether the court ought to have a wider discretion to award an account of only part of the profits that a fiduciary has made in breach of fiduciary duty, leaving the remainder of the profits in the fiduciary's hands?
It is argued that the courts ought not to develop fiduciary doctrine so as to adopt any such discretion. A number of reasons are advanced in support of that view. A wide judicial discretion to alter the extent of the fiduciary's obligation to account for unauthorised profits would interfere with the fundamental function that fiduciary doctrine serves in protecting non-fiduciary duties from inconsistent temptations. Fiduciary doctrine adopts a strict, or full, obligation to account for profits in order to deter fiduciaries from acting in such situations. Allowing fiduciaries to believe that they might be able to retain some of their profits provided they acted in a way that the court somehow considers less egregious than...