Lloyd's Maritime and Commercial Law Quarterly
ACCOUNTING FOR WRONGFUL PROFITS
Warman v. Dwyer
Warman v. Dwyer
1 offered the High Court of Australia the opportunity to grapple with an issue that has long troubled the courts of all the common law jurisdictions, namely the appropriate remedy to grant in respect of a breach of fiduciary duty. The defendant Dwyer was the manager of the Queensland branch of the plaintiff company Warman International Ltd. (“Warman”). Warman had acted for some time as the Australian distributor of the products of Bonfiglioni, an Italian manufacturer. In the years leading up to the dispute, Warman had confined its Bonfiglioni agency business to the Queensland branch and Dwyer, whose prospects were linked to the agency business, considered that the business was underexploited and was concerned at the effect of Warman’s policy on his own future in the company. When Warman rejected an offer from Bonfiglioni to take on the local assembly of Bonfiglioni products, Dwyer began to make overtures to Bonfiglioni on his own behalf. At the same time as apparently trying to persuade Warman to expand its Bonfiglioni business, Dwyer made plans to set up his own business in Bonfiglioni products. Eventually Dwyer resigned from Warman and established the new business in Bonfiglioni products, which was run through two companies, BTA and ETA, of which Dwyer, his wife, and Bonfiglioni were the shareholders. A number of the new companies’ employees were recruited from Warman for their specialist knowledge of the Bonfiglioni agency business.
No time was taken up in considering the time-honoured question how to identify a fiduciary; there was taken to be no doubt that Dwyer was indeed a fiduciary, and that by making arrangements with Bonfiglioni to take over Warman’s business while still a senior employee of Warman he had committed a deliberate breach of his fiduciary duty. Furthermore, it was clear that ETA and BTA were liable for knowing assistance in Dwyer’s breach of duty. There was no dispute that Warman was entitled to be compensated for loss resulting from the breach of fiduciary duty. What was in issue was whether Warman was entitled to an account of profits made by Dwyer and by ETA and BTA, and if so on what basis. At first instance Warman also made a proprietary claim, contending that Dwyer’s new Bonfiglioni business was held on trust for Warman; however, although some consideration was given to this point by the High Court, the claim was not pursued before it. The High Court held that Warman was entitled to an order against Dwyer, ETA and BTA for an account of the profits over the first two years of operation of the new business.
The basis of liability
Strictly speaking, the principal issue appears to have been the liability of a third party for knowing, or dishonest, assistance2 in a breach of fiduciary duty, since the account was actually ordered not of Dwyer’s own profits from the business, but of the profits of the two
1. (1995) 128 A.L.R. 201.
2. The term “dishonest assistance” may now displace the traditional “knowing assistance”: see Royal Brunei Airlines Sdn Bhd v. Tan [1995] 2 A.C. 378; P. Birks, “Accessory Liability” [1996] LMCLQ 1; J. Stevens, “Dishonest Assistance: Developing the Concept of Equitable Wrongs” [1995] Restitution Law Review 105.
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