When a director breaches their fiduciary duties, the legal response is not merely compensatory. Equity has developed a range of powerful remedies designed to strip wrongdoers of their gains—and restore the position of the company and its shareholders.
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Account of Profits
An account of profits is the primary equitable remedy for breach of fiduciary duty. It requires the wrongdoer to account to the company for all profits they have made as a result of the breach—regardless of whether the company suffered an equivalent loss.
Unlike damages, which compensate for loss, an account of profits strips gain. If a director diverted a corporate opportunity and made a $2 million profit from it, but the company’s losses were only $500,000, an account of profits can recover the full $2 million.
Causation and Apportionment
The profits subject to the account must be causally connected to the breach. Where a director has made profits from a combination of breach and their own skill, time, and effort, courts may apportion—allowing the defendant to retain a portion attributable to their legitimate contribution. The onus is on the defendant to establish the apportionment.
Constructive Trust
Where a director has acquired property—an asset, a business, shares—in breach of fiduciary duty, a court can impose a constructive trust over that property in favour of the company. The director holds the property as trustee for the company, which is entitled to call for its transfer.
A constructive trust is particularly powerful where the misappropriated asset has increased in value—the company can claim not just the value at the time of breach, but the current value of the property held on constructive trust.
Equitable Compensation
Where the company has suffered actual loss as a result of the breach—for example, a business opportunity lost because a director took it for themselves—the court can award equitable compensation. Unlike common law damages, equitable compensation is assessed with some latitude—courts in equity do not apply strict foreseeability principles in the same way.
Equitable compensation is used where account of profits is not available (e.g., where no profit was made) or as an additional remedy where the company’s loss exceeds the director’s gain.
Rescission
Where a transaction was entered into in breach of fiduciary duty — for example, a contract the director procured while undisclosed interests existed — the company can seek rescission (unwinding) of the transaction. Rescission restores the parties to their pre-contractual positions. It is available unless barred by affirmation, lapse of time, or the impossibility of restoration.
Injunction
Where the breach is ongoing—or is about to occur—an injunction can be sought to restrain the director from continuing or completing the misconduct. Urgent interlocutory injunctions are available in the Supreme Court where there is a serious question to be tried and the balance of convenience favours restraint. See D06 for urgent injunctions in shareholder disputes.
Which Remedy Is Best?
The choice of remedy depends on the facts:
| Director made large profits from breach | Account of profits—strip the gain, not just compensate the loss |
| Director acquired specific assets improperly | Constructive trust—claim the asset itself, especially if it has appreciated |
| Company suffered a quantifiable loss from breach | Equitable compensation—recover the loss |
| Tainted transaction to be unwound | Rescission—restore the pre-breach position |
| Breach is ongoing or imminent | Injunction—stop it before the damage is done |
Frequently Asked Questions
Q: Can I claim both an account of profits and equitable compensation?
A: Courts will not allow double recovery. A plaintiff must elect between an account of profits and equitable compensation before final judgment. The choice is strategic—elect the larger recovery based on the available evidence.
Q: Does the company need to show loss to claim an account of profits?
A: No. An account of profits does not require the company to show it suffered any loss at all. The remedy is triggered by the breach and the profit—not the company’s damage. This is why it is often more powerful than common law damages.
Q: What if the director has transferred the assets to a third party?
A: If the third party received the assets knowing of the breach, the constructive trust may follow the assets into their hands. An innocent third party who acquired the assets without notice for value is generally protected. Knowing receipt liability applies to knowing recipients.
Q: How does a constructive trust work with company creditors?
A: If the company is insolvent, assets held on constructive trust by a third party are not available to the company’s creditors—they belong beneficially to the company in equity, not on the balance sheet. This can be significant in insolvency scenarios.
Q: Is there a time limit for fiduciary duty claims?
A: Equitable claims are subject to the Limitation of Actions Act 1974 (Qld) and the court’s equitable doctrines of laches and acquiescence. Most breach of fiduciary duty claims must be brought within six years. Fraudulent concealment may toll the limitation period.
Q: Can a director defend by saying the company knew about and accepted the breach?
A: Yes—ratification by the company (usually by the shareholders, excluding the interested director) can authorise or retrospectively approve a transaction in breach of fiduciary duty. The requirements for valid ratification are technical—legal advice is essential.
