Murad v Al-Saraj [2005] EWCA Civ 959; [2005] WTLR 1573

Key Points

  • A fiduciary who induces another to enter into a joint venture upon a fraudulent misrepresentation holds any profits he earned on to account of the other, subject to allowances for services and expenditure he rendered
  • It is no defence to a claim for account of profits for the fiduciary to say that, but for the breach of his fiduciary duties, he would have profited anyway as the beneficiaries would have entered into the joint venture anyways had not been dishonest

Facts

  • Two sisters (M) had some money to invest and asked a financier (S) where to put it
  • S said that he and the sisters should enter into a joint venture to invest in a hotel
  • The sisters discovered that S had made a side deal with the vendor. The vendor had owed S some money and thus agreed to reduce the sale price
  • As a result, S was not putting in any money at all and M got a different deal than they expected
  • M sought to disgorge S’s profits

Issue

Should S account for all profits, or just the difference between S’s profit and what S would have made had M had full knowledge of the secret deal?

Held (Court of Appeal)

Appeal dismissed; S’s profit was unauthorised and thus he was liable to account

Arden LJ

Liability to account for profits

  • The normal remedy for breach of fiduciary relationship is an account of profits: [46]
  • ‘I would highlight two well-established points about the reach of the equitable remedies: (1) the liability of a fiduciary to account does not depend on whether the person to whom the fiduciary duty was owed could himself have made the profit. (2) when awarding equitable compensation, the court does not apply the common law principles of causation.’: [59]
  • Regal (Hastings) v Gulliver  [1967] 2 AC 134 is authority for the proposition that it is no defence to say that the fiduciary would have profited even if there had been no breach:[67]
  • Regal also sets out the principle that good faith and intent is not a factor in determining whether a remedy of account is available. However, intent will be relevant to the question of whether equitable allowances will be granted to the fiduciary: [68]
  • ‘It is only actual consent which obviates the liability to account’: [71]
  • ‘in the interests of efficiency and to provide an incentive to fiduciaries to resist the temptation to misconduct themselves, the law imposes exacting standards on fiduciaries and an extensive liability to account.’: [76]

Current case

  • S had made a fraudulent misrepresentation to M, who had placed their trust in him
  • The appropriate remedy is to disgorge all profits. [84]
  • However, S may be entitled to an allowance for his ‘services and disbursements’, such as his role in managing the hotel. Equitable allowances are well established by case law: see Boardman v Phipps [1967] 2 AC 46: [88]

Commentary

  • Murad v Al-Suraj is a key authority for the principle that liability to account is not dependent on unjust enrichment, but on unauthorised profits. It also confirms that equitable allowances may be granted at the court’s discretion
  • For a developed discussion on the role of causation in liability to account, see Mitchell, ‘Causation, Remoteness and Fiduciary Gains’ (2006) 17 KCLJ 325