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Forfeiture of fiduciary remuneration following breach of duty: from contract to conscience

Lloyd's Maritime and Commercial Law Quarterly

Forfeiture of fiduciary remuneration following breach of duty: from contract to conscience Seb Oram * This article considers the scope of the doctrine of forfeiture by which a fiduciary agent found to be in breach of fiduciary duty will become disentitled to remuneration otherwise due under the terms of his engagement. The article considers recent Court of Appeal and Commonwealth clarification of the doctrine and suggests an alternative rationale for stripping a fiduciary of remuneration, based on common-law contractual principles . I. INTRODUCTION It is well-established law that, where a fiduciary receives in the course of his duties a payment from a third party, his principal being unaware of the payment, the fiduciary will be liable to account to his principal for that payment. 1 In what circumstances, however, will such a breach of duty disentitle the fiduciary to remuneration to which he would otherwise be entitled, and require him to repay remuneration that he has earned? The Court of Appeal has recently reconsidered the issue in Imageview Management Ltd v. Jack . 2 A power to declare fiduciary remuneration as having been forfeited can be identified through a series of cases of considerable antiquity. There is, however, a distinct lack of clarity as to the basis upon which the court’s jurisdiction to forfeit (if there be one) will be exercised or the circumstances in which forfeiture will arise. It will be submitted that forfeiture is best understood as an application of common law principles rather than as an equitable jurisdiction. Further, this most recent addition misinterprets those principles by eliding two quite separate issues: first, whether there has been a breach of duty (Stage 1) and, secondly, what further requirement needs to be satisfied in order for the fiduciary to forfeit his remuneration (Stage 2)? It is necessary to separate the two stages since, on established authority, not every breach of fiduciary duty will result in forfeiture. This article considers the previous case law relied upon by the Court of Appeal in Imageview v. Jack and the policy justifications formulated in support of the supposed * Barrister, 3 Paper Buildings, Temple. The writer acted as junior counsel for the fiduciary in the Court of Appeal proceedings in Imageview Management Ltd v. Jack . I am most grateful to Matthew Conaglen and Peter Watts for comments on an earlier draft on this article. The views expressed, and any errors, are my own. 1. J McGhee (ed), Snell’s Equity , 31st edn (London, 2005) (hereafter “ Snell ”), [7.127]; Boston Deep Sea Fishing v. Ansell (1888) 39 Ch D 339; Rhodes v. Macalister (1923) 29 Com Cas 19; Lister & Co v. Stubbs (1890) 45 Ch D 1; Salford v. Lever [1891] 1 QB 168. The principal will be entitled to choose between imposing a constructive trust over the profit, or rely on the fiduciary’s personal accountability in equity: A-G for Hong Kong v. Reid [1994] 1 AC 324. 2. [2009] EWCA Civ 63; [2009] Bus LR 1034; [2009] 1 Lloyd’s Rep 436 . LLOYD’S MARITIME AND COMMERCIAL LAW QUARTERLY 96

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