Sydney Law Review
CHARLES E F RICKETT[†]
In the last 15 years or so of the previous century, equitable compensation was recognised by the courts of all the major Commonwealth jurisdictions as an important component of the judiciary’s remedial armoury. But this recognition has not been without difficulty. In particular, there now exists some considerable ambiguity about the nature of and limitations upon the remedy. Two companies of players each appear to be performing a play (whether tragedy or comedy is unclear!) with the same name, ‘Equitable Compensation’, but with a rather different plot, and sometimes in the same theatre!
One company might be happy to be described as the purists, and the other as the modernists. The purists tend to regard equity as a jurisprudence to be maintained in a state as far as possible unsullied by association with the common law. Its particularities and peculiarities should be protected, especially the notion that equity does not award damages and is more concerned with specific and gain-stripping remedies than with compensation. The role for equitable compensation should therefore be a very contained one, because the established blueprint of that jurisprudence, as historically determined, must be respected.
The modernists, on the other hand, tend to focus on coherence within a single united legal system, perhaps being less interested in historical fit than in doctrinal and conceptual fit. In many respects, the appearance of the modernists is the consequence of two developments. First, it spins off the rapid expansion in the last third of the previous century of civil liability for wrongdoing. The energetic increase in the realm of common law torts has been matched by an energetic development of the reach of equitable duties to define expected behaviour, and of their breach in creating a large class of equitable wrongs. Secondly, at the same time, there has been infatuation with articulating the law of restitution, which, no matter what particular form it might take, requires as fundamental to its very articulation a theory of the whole of the private law. And in that taxonomic enterprise, the equity/common law divide is regarded, indeed, as divisive and to be avoided in the search for unity and coherence.
This bipolarity of schools of thought within modern equity is a major challenge. It can only be overcome by an appreciation that features of both schools are part and parcel of an understanding of modern equity. For, in the end, the debate about equitable compensation, as many involved in it already realise, is actually a debate about the make-up of modern equity, and the latter’s place in the civil law of obligations and property in the new century. The blueprint for equitable compensation is a particular application of the greater blueprint for modern equity.
Equitable compensation has become established in large measure because modern equity has recognised an increased range of equitable duties. Furthermore, because of this broadened range of equitable duties, equitable compensation cannot in fact be neatly packaged as if it were a single item encompassing only one exclusive set of stipulated rules. An award of equitable compensation is the outcome of the court’s process of compensating a plaintiff in respect of a breach of an equitable duty. That process is a complicated one, requiring a sophisticated appreciation not only of what is being sought to be achieved (ie, what is the objective of a monetary award?), but how best to achieve it (ie, what are the controlling features in the determination of the quantum of a monetary award?). Indeed, a mere glance at a list of the more important equitable duties that courts have recognised immediately behoves caution in our approach to understanding equitable compensation as a modern equitable remedy. The more obvious duties include:
It is important to appreciate at this point that some of the difficulties experienced in analysing equitable compensation result also from problems of taxonomy. First, not all equitable duties require breach before they become legally ‘remediable’. Thus, if a duty is in truth a primary obligation to perform, then it may be that an order for performance is a remedy available in equity. It would be surprising, indeed, if performance were not available in respect of some obligations recognised exclusively in equity, which jurisdiction after all grants performance remedies for many non-equitable obligations. The issue of what performance entails is a separate matter.
Secondly, if a primary duty in equity is not performed, that breach will give rise to a secondary right in the person to whom the primary obligation is owed to obtain a remedy. Thus, if there occurs non-performance of a positive equitable duty, or failure to maintain a negative equitable duty, and a ‘wrong’ thereby occurs, is that wrong remediable by compensating for loss suffered by the plaintiff (which is the presumptive remedy for common law wrongs), or only by stripping of gains made by the defendant? Most breaches of equitable duties have historically been met with gain-based responses, notably through the process of accounting for profits or by a proprietary remedy. Those responses are ‘disgorgement’ (or ‘restitutionary’ in a ‘giving up’ sense) remedies, responding to wrongdoing. But if wrongdoing is the true cause of action, how can the mere fact that the wrongdoing is defined as an ‘equitable’ wrongdoing rather than a ‘common law’ wrongdoing mean that compensation might not be a legitimate response? If the plaintiff in equitable wrongdoing has suffered a loss, why should that not be compensable by a money award?
Thirdly, although the factual matrix of the case may appear at first glance as a matter of law to signal a breach of an equitable duty, and thus a wrongdoing, sometimes the claim might in truth be founded on an obligation to make restitution in order to reverse an unjust enrichment by the defendant. If the cause of action is not wrongdoing, but unjust enrichment, then no matter that a monetary remedy is provided (because, for example, restitutio in integrum is not possible, or is inappropriate), that remedy is restitution (in a ‘giving back’ sense), not compensation.
Thus, not only is equitable compensation itself the result of a complicated process in each individual case to which it is applied, but care must be taken to ensure that what is at issue really is ‘compensation’ and not something else.
In an earlier published paper, I offered a tentative thesis about understanding the dynamic role of equitable compensation, in these terms:
I still believe this thesis to be essentially sound, but it now requires some slight elaboration in the light of a very important analysis in a recent DPhil thesis at Oxford University, submitted by Dr Steven Elliott. In particular, the notion of compensation requires extension. In my earlier paper, and as indicated in the propositions cited above, I took the term ‘compensation’ to refer to a monetary remedy available only for loss caused by a wrongdoing, or breach of duty. This is of course the normal meaning given to the term. The objective of compensation is to repair a loss suffered by the plaintiff. Reparation is the normal connotation of ‘compensation’. However, it transpires that the compensatory jurisdiction of equity is more sophisticated than this. There is a further form of compensation by payment of money, as revealed in the manner in which equity deals with enforcing the primary obligations of custodial fiduciaries, which class of fiduciaries was of course for a very long time almost the sole focus of equity’s attention. In this circumstance, as Dr Elliott writes, ‘compensation consists in a money equivalent to property of which a person has been deprived or denied’. Dr Elliott calls this ‘substitutive compensation because it is calculated to provide a substitute for the property’. But, as Dr Elliott goes on to show, from a very early time equity was also concerned with monetary compensatory awards founded on the objective of reparation. Thus, at the very centre of equity’s realm, compensation was an established remedy, but with two faces. The importance of this insight is that it aids in removing a misconception about the proper controlling limits of equity in providing compensation. This needs further examination in the following section.
All custodial fiduciaries, of which the express trustee is the paradigm example, are bound to apply the property they receive in that capacity for the benefit of another, and are thus under a fiduciary duty to account for the trust fund, which duty arises immediately upon receipt of the relevant property. This is a primary obligation. It is enforceable in itself as a primary obligation by those who are interested in the trust fund whether or not there has been any breach of that obligation by the fiduciary. Its enforcement does not depend upon any breach, because a secondary obligation is not necessary. The duty to render an accounting does not depend on the fiduciary having mishandled the property or having otherwise breached his or her trust. The enforcement is directed at the administration of the trust. Hence, the mechanism by which it is enforced is the common account, or ‘the order for administration in common form’.
As Austin J succinctly commented in a recent New South Wales Supreme Court decision:
An order for an account of administration is made for the taking of accounts of money received and disbursed by the person who is responsible for the administration of a business enterprise or fund or other property [what I term here a custodial fiduciary], and for payment of any amount found to be due by that person upon the taking of the accounts .... In such a case the making of the order need not imply any wrongdoing by the defendant... . The usual form of order ... requires the defendant to account only for what he or she has actually received, and his or her disbursement and distribution of it. The defendant prepares accounts and it is open to the other parties to surcharge or falsify items in those accounts. A surcharge is the showing of an omission for which credit ought to have been given, while a falsification is the showing of a charge which has been wrongly inserted, the falsifying party alleging that money shown in the account as paid was either not paid or improperly paid ....
An account will balance when the sum of the receipts equals the sum of the discharges and property still on hand. If the account does not balance, the difference represents the sum that the custodial fiduciary is liable to make good out of his or her own pocket. It bears repetition that the court orders that follow from the common account are not granted in order to enforce secondary obligations to make good any loss caused by breach of trust. In some cases the orders enforce primary duties of the fiduciary by directing ‘restitution’ or ‘restoration’ of the trust property (in specie or by payment of a pecuniary substitute) to the beneficiaries, where there is a duty to distribute the fund to beneficiaries who have an immediate right to be paid, or to the current trustee, where there is a duty to transfer the trust fund to a replacement custodial fiduciary. In so far as the orders here are to pay money, they are not concerned with reparation, but with substituted performance. Compensation is payable, but it is ‘substitutive compensation’, not ‘reparative compensation’. In other circumstances, court orders after common account enforce primary duties of the fiduciary in a non-restitutionary or non-restorationary manner by requiring the segregation and protection of the fund where the custodial relationship is a continuing one.
Common account is a claim to performance. It is a vindication of an existing in personam right. It is the way in which a custodial fiduciary is required to execute his or her personal obligation of accountability in respect of the trust property. If the fiduciary no longer has the original property, and cannot therefore specifically perform his or her obligation, the claim will be that he or she must perform by payment of a monetary equivalent. This vindication claim is not a claim for damages caused by equitable wrongdoing. ‘The claim does not rest upon the allegation of loss in the sense of detriment or injury, and for this reason considerations of causation, remoteness, mitigation and contributory fault are inapposite. The award may be described as compensation but it is compensation of the substitutive variety.’ The monetary equivalent or compensation is measured by the objective value of the property lost as determined after the account is taken. The subjective position of the individual claimant is not relevant in assessing the loss, nor is ‘consequential loss’ to be considered. Nor does the claim require any unjust enrichment by the custodial fiduciary. The claimant gets simply the fulfilment of the primary right, even if that requires monetary substitution.
This analysis helps us to understand the correct reach of a passage that has become widely regarded as the locus classicus on the law of equitable compensation, found in Street J’s judgment in Re Dawson:
The obligation of a defaulting trustee is essentially one of effecting a restitution to the estate. The obligation is of a personal character and its extent is not to be limited by common law principles governing remoteness of damage ... . Caffrey v. Darby, supra, is consistent with the proposition that if a breach has been committed then the trustee is liable to place the trust estate in the same position as it would have been in if no breach had been committed. Considerations of causation, foreseeability and remoteness do not readily enter into the matter ... . The principles embodied in this approach do not appear to involve any inquiry as to whether the loss was caused by or flowed from the breach. Rather the inquiry in each instance would appear to be whether the loss would have happened if there had been no breach ... . The cases to which I have referred demonstrate that the obligation to make restitution, which courts of equity have from very early times imposed on defaulting trustees and other fiduciaries is of a more absolute nature than the common law obligation to pay damages for tort or breach of contract ... . Moreover, the distinction between common law damages and relief against a defaulting trustee is strikingly demonstrated by reference to the actual form of relief granted in equity in respect of breaches of trust. The form of relief is couched in terms appropriate to requiring the defaulting trustee to restore to the estate the assets of which he deprived it. Increases in market values between the date of breach and the date of recoupment are for the trustee’s account: the effect of such increases would, at common law, be excluded from the computation of damages; but in equity a defaulting trustee must make good the loss by restoring to the estate the assets of which he [sic] deprived it notwithstanding that market values may have increased in the meantime. The obligation to restore to the estate the assets of which he deprived it necessarily connotes that, where a monetary compensation is to be paid in lieu of restoring assets, that compensation is to be assessed by reference to the value of the assets at the date of restoration and not at the date of deprivation. In this sense the obligation is a continuing one and ordinarily, if the assets are for some reason not restored in specie, it will fall for quantification at the date when recoupment is to be effected, and not before.
The defendant was a defaulting custodial fiduciary who had control over assets that formed a trust estate, ie, the equitable obligations of the trustee to the plaintiff beneficiaries related to an estate. Thus, the relief sought was substitutive compensation. The primary liability of the defaulting fiduciary was to restore the property in specie. If that were not possible, then the monetary compensation payable in lieu (which might be termed equitable compensation) must reflect the economic position had restoration in specie been possible. This was not a case where reparative compensation was being sought, no matter the loose references to ‘breach’ or ‘loss’. Accordingly, Street J’s account was not intended to state the parameters of equitable compensation on the basis of reparation for loss. The obviously plaintiff-friendly nature of the controlling limits on the compensation remedy should be appreciated as determined by the nature of the claim under discussion, being for performance of primary obligations rather than based on the wrongdoing of the trustee (even though, on the facts, such wrongdoing had indeed occurred).
(ii) Breach of Trust and the Notion of Reparative Compensation
Of course, common account is not the only form of ‘account of administration’ available against a custodial fiduciary. There is also available the ‘account on the basis of wilful default’.
As Austin J has stated:
The order is ‘entirely grounded on misconduct’, the defendant being required to account not only for what he or she has not received, but also for what he or she might have received had it not been for the default: ... the concept of ‘wilful default’ is confined to cases where there has been ‘a loss of assets received, or assets which might have been received’: ... the concept is evidently not confined to cases of conscious wrongdoing: ... the court may make an order that general accounts be taken on the footing of wilful default if at least one instance of wilful default has been proved ... . An order for accounts based on wilful default has the effect of casting a much more substantial burden of proof on the accounting party than applies in the case of common accounts. On a falsification, the onus is on the accounting party to justify the account ... . An accounting on the footing of wilful default leads to an order requiring the defendant to replenish funds wrongfully depleted by him or her and in that sense to make restitution for the benefit of the plaintiff.
Austin J also pointed out an important aspect of the account on the basis of wilful default, by distinguishing it with an order for an account of profits. The objective of the latter is to identify those gains made by the fiduciary through a finding of specific wrongdoing, such as breach of trust or fiduciary duty. That gain is then to be disgorged (‘given up’), as a remedy for the wrongdoing. The former type of account relates to administration of the trust, where ‘emphasis is placed on whether the defendant has failed to discharge his or her duty, rather than whether the plaintiff has established active conduct in breach of duty’. One commentator has suggested that: ‘The technical meaning of “wilful default” is a failure to receive assets that would have been received if the trust had been performed properly.’ This leads to an important observation, made by Austin J in the extract reproduced above. Charging a defendant trustee in their account meant that he or she was chargeable with property actually received, and was liable to be surcharged with property he or she might have received. The basis upon which the defendant would be surcharged with foregone receipts (ie, beyond actual receipts) was wilful default. But it is strongly arguable that ‘wilful default’ and ‘breach of trust’ are coextensive concepts, and that the focus of the account for wilful default extends beyond merely the failure to receive assets. If breach of trust really amounts to nothing more than an infringement by the trustee of any duty owed as trustee to the beneficiary, then the basis upon which the trustee can be surcharged for foregone receipts, termed wilful default, is actually no greater than that the defendant trustee has breached a duty he or she owes by virtue of the office of trustee. Thus, an ‘account on the basis of wilful default’ covers the same ground as an ‘account in common form’ (ie, what property the trustee received and what has become of it), but goes further (ie, the trustee may be surcharged with property he or she would have received but for his or her wilful default/breach of trust). But more still needs to be said.
There is therefore a problem in linking too closely the two forms of accounts of administration. The danger is that an important taxonomic point is missed. As seen above, the common form of account is not founded upon misconduct by a custodial fiduciary. The duty it enforces is a primary duty. And its objective is merely to ascertain the property that the fiduciary is understood to hold in that capacity with a view to the carrying out of the trust by the fiduciary. Any order of payment of money by the fiduciary personally is at most substitutive compensation. The wilful default form of account is, however, conceptually quite distinct. It is founded upon a breach of duty by the custodial fiduciary that has resulted in loss. The duty it enforces is a secondary duty. And its objective is to remedy the breach by making good the loss through surcharging the fiduciary’s account. The focus is reparative compensation, because the surcharge, although often misleadingly described as a charge on the basis of what the fiduciary ought to have but did not receive, is really a charge on the amount of the loss sustained, determined as if the fiduciary had received more than he actually did.
It can be seen from the previous discussion that equity has long recognised monetary awards in connection with trusts and other forms of custodial fiduciary relationships. These awards are compensatory, even though they are hidden behind the language of accounts. Compensation is ‘achieved ... by making [custodial fiduciaries] accountable for assets which they [have] lost or [have] failed to receive’. The monetary compensation can be measured differently, either as substitution for performance, or as reparation for loss. Once compensation for reparation of loss is recognised as a legitimate objective in the case of wrongdoing by custodial fiduciaries, it does not require much of a leap to see it as a legitimate objective in the case of other types of equitable wrongdoing. But there is a further lesson to be learned from the case of the custodial fiduciary, and that is that the controlling limits on substitutive compensation awards, as exemplified in Street J’s judgment in Re Dawson, should not alone, without more, be taken to be the correct controlling limits on reparative compensation.
Indeed, although the decision presents a further problem, that was the very point in issue in the decision of the House of Lords in the custodial fiduciary case of Target Holdings Ltd v Redferns. This decision, as would be expected, has been enormously influential in the development of the jurisprudence on equitable compensation. The plaintiff was a finance company which instructed the defendant firm of solicitors to act for it in the provision of a loan as mortgagee on a commercial property to a proposed mortgagor. The same solicitors were instructed by the proposed mortgagor. The latter had told the plaintiff that the property had been valued at £2 million. In fact, unknown to the plaintiff, the proposed mortgagor was paying only £775 000 for the property. The plaintiff gave the solicitors over £1.5 million to be held on a bare trust, and then to be transferred to the mortgagor once the property had been purchased and charges over the property in favour of the plaintiff had been executed by the mortgagor. The solicitors actually paid out most of the £1.5 million before the mortgagor had purchased the property and thus before any charges had been executed, informing the plaintiff that all was in order. All this was admitted to be in breach of trust. A short time later, the property was in fact charged to the plaintiff. The mortgagor later became insolvent, and the charged property was sold by the plaintiff as mortgagee, but fetched only £500 000. The plaintiff claimed ‘restitution’ of the entire sum it had transferred to the solicitors on the basis of the latter’s breach of trust.
In the Court of Appeal, a majority found in favour of the plaintiff. Peter Gibson LJ stated that ‘a trustee or other fiduciary [who] in breach of trust disposes of trust property to a stranger comes under an immediate duty to make restitution ... .’ No inquiry as to causation was necessary. The ‘loss’ was immediate, and the (factual) causal connection was obvious. The loss here was £1.5 million, which the plaintiff could recover from the solicitors, subject only to giving credit for the £500 000 recovered on the sale of the charged property.
The House of Lords, however, allowed an appeal by the solicitors. Lord Browne-Wilkinson, the only equity lawyer on the panel, gave a speech in which the remainder of the panel concurred. He saw the issue as being whether a defaulting trustee could be held liable to make good a loss suffered by the beneficiary where there was no causal link between the breach of trust and the loss. And his conclusion was that the defaulting trustee could not be held liable.
His Lordship began with a general statement:
At common law there are two principles fundamental to the award of damages. First, that the defendant’s wrongful act must cause the damage complained of. Second, that the plaintiff is to be put “in the same position as he [sic] would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation”: Livingstone v Rawyards Coal Co  UKHL 3; (1880) 5 App. Cas. 25, 39, per Lord Blackburn. Although, as will appear, in many ways equity approaches liability for making good a breach of trust from a different starting point, in my judgment those two principles are applicable as much in equity as at common law. Under both systems liability is fault-based: the defendant is only liable for the consequences of the legal wrong he has done to the plaintiff and to make good the damage caused by such wrong. He is not responsible for damage not caused by his wrong or to pay by way of compensation more than the loss suffered from such wrong. The detailed rules of equity as to causation and the quantification of loss differ, at least ostensibly, from those applicable at common law. But the principles underlying both systems are the same.
The focus of Lord Browne-Wilkinson’s statement of principle was thus reparative compensation for loss in equity, following a breach of duty by the custodial trustee. But his Lordship was clearly troubled by the plaintiff’s argument that the solicitors’ duty, as custodial trustee, was to reconstitute the trust fund rather than pay compensation for loss. His Lordship dealt with this point by introducing a troubling distinction between types of trusts, being ‘traditional trusts’ (ie, subsisting trusts with indeterminate or contingent beneficial interests) on the one hand, and bare trusts (ie, trusts under which the beneficiaries are absolutely entitled) on the other. The latter grouping of bare trusts was further subdivided into exhausted traditional trusts and bare commercial trusts (of which Target Holdings was said to be an example). His Lordship stated that the rules of equitable compensation for breach of trust were largely developed in relation to ‘traditional trusts’, where the basic rule is that a trustee in breach must restore, or pay into, the trust estate either the assets which have been lost to the estate by reason of the breach, or compensation for such loss. Courts of equity did not award damages but, acting in personam, ordered (or charged) the defaulting trustee to restore the trust estate. If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed. Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good the loss to the trust estate if, but for the breach, such loss would not have occurred.
It should be apparent that, although his Lordship appeared to be concerned throughout with reparative compensation for loss caused by a breach of trust, in effect his discussion of the limits of equitable compensation in cases of traditional trusts confused the rules established for providing substitutive compensation in equity with the rules for the pursuit of reparative compensation. Indeed, having lifted out wholesale the rules relating to substitutive compensation in respect of performance of traditional trusts, his Lordship applied these as if they were the standard rules on reparative compensation for breach of trust, with a bit of tweaking on the matter of causation. There was some awareness of having crossed a conceptual divide, because his Lordship then had to say that these rules would not apply to every breach by a trustee of a traditional trust. For example, if a trustee commits a breach of trust with the acquiescence of one beneficiary, that beneficiary has no right to complain and an action for breach of trust brought by him or her would fail. Further, if a trustee makes an unauthorised but profitable investment, the investment might be sold at the insistence of the beneficiary and the funds applied towards authorised investments, but the trustee would be under no liability to pay compensation either to the trust fund or to the beneficiary because the breach had caused no loss to the trust fund. His Lordship emphasised that ‘in each case the first question is to ask what are the rights of the beneficiary: only if some relevant right has been infringed so as to give rise to a loss is it necessary to consider the extent of the trustee’s liability to compensate for such loss’.
Lord Browne-Wilkinson then stated that it was wrong to lift out wholesale the detailed rules developed in the context of ‘traditional trusts’ and seek to apply them to bare trusts, as he defined them. The trust in Target Holdings was a bare (commercial) trust. As such, it was simply an aspect of a wider commercial transaction involving agency. The commercial objective of the plaintiff was to lend money on security. One step in that process involved the plaintiff depositing money in the solicitors’ trust account. Until the money was loaned in accordance with the plaintiff’s instructions, it was undoubtedly trust money. Thus, if it had been paid away other than in accordance with the plaintiff’s instructions, and the commercial transaction anticipated had not been finalised, general equitable principles applicable to trusts would demand that the fund be restored to the plaintiff’s account. However, once the commercial transaction had been completed Lord Browne-Wilkinson considered it ‘entirely artificial’ to import into such a trust an obligation to restore the trust fund.
His Lordship continued:
The obligation to reconstitute the trust fund applicable in the case of traditional trusts reflects the fact that no one beneficiary is entitled to the trust property and the need to compensate all the beneficiaries for the breach. The rationale has no application in a case such as the present. To impose such an obligation in order to enable the beneficiary solely entitled (ie, the client) to recover from the solicitor more than the client has lost flies in the face of common sense and is in direct conflict with the basic principles of equitable compensation. In my judgment, once a conveyancing transaction has been completed the client has no right to have the solicitor’s client account reconstituted as a “trust fund.”
Lord Browne-Wilkinson also discussed the matter of quantification of any compensation payable. His Lordship agreed with the majority of the Court of Appeal that the trustee’s duty to remedy the breach — even in the case of a bare trust — arose immediately, and thus, had proceedings been brought before the conveyancing transaction had been completed, an order requiring restoration would have issued. However, in the events which occurred, and in view of the real interest of the plaintiff, he could not agree with the view taken by Peter Gibson LJ that ‘events which occur between the date of breach and the date of trial are irrelevant in assessing the loss suffered by reason of the breach’. This rejection of Peter Gibson LJ’s position is, of course, to bring equitable reparative compensation into line with the approach generally taken at common law to assessing the quantum of reparative compensatory damages in tort. Since the quantum of compensation was to be assessed at the time of judgment, not at an earlier date, that quantum ‘would be the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had there been no breach’. Compensation would ‘make good a loss suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach’. The plaintiff, it was assumed for the purpose of argument (since the substantive matter still had to be tried), obtained exactly what it would have obtained had no breach occurred, and accordingly the loss suffered was not compensable because it was not caused by the breach. Had there been no breach, the plaintiff would have experienced the very same loss. This examination of causation in Target Holdings was the consequence of adopting a reparative compensatory approach in equity and then applying it to a case dealing with loss arising from the breach of a (bare) trust.
Dr Elliott comments:
Lord Browne-Wilkinson set out in Target Holdings to restate the law relating to compensation claims against trustees from first principles. The “basic equitable principle applicable to breach of trust” on which he founded his conclusions was that the beneficiary, or the fund where reconstitution is appropriate, “is entitled to be compensated for any loss he would not have suffered but for the breach.” The corollary is that the beneficiary should not recover as compensation more than his causally-related loss. It is implicit in this that a beneficiary’s only compensation claim against a trustee who has misapplied trust property is reparative in nature. Lord Browne-Wilkinson seems to have considered this idea to be self-evident and he did not offer any authority for his broad statement of principle which depends upon it.
It is clear that Target Holdings’ claim against the solicitors as custodial trustees was for substitutive compensation. Lord Browne-Wilkinson recast it as a reparative compensation claim, on the basis that that was what compensation in equity was concerned with. If substitutive compensation in equity is to disappear, this would mark a radical restructuring of the nature of the in personam liabilities of custodial fiduciaries.
Two points must be made. The first is a point related to the comment in the previous paragraph. Has substitutive compensation disappeared? The second point is more general, about the ‘atmosphere’ that Target Holdings has introduced.
(i) The Future for Custodial Fiduciaries?
It is notable, and perhaps not at all surprising, that in decisions after Target Holdings, where there have been breaches of custodial duties by custodial trustees, the courts have largely reverted to a Re Dawson-like position on the limits of equitable compensation to be awarded. This reversion has, however, been promulgated as part of a generally reparative compensatory framework modelled on Target Holdings, and the only potential relaxation on Dawson principles has been understood to be in the context of causation, although even here there has been little movement away from a plaintiff-friendly causation test.
Thus, for example, the New South Wales Court of Appeal, in O’Halloran v RT Thomas & Family Pty Ltd, was quick to equate the position of a director who improperly dealt with assets of the company to that of a traditional trustee for the purposes of applying a strict causation test. Spigelman CJ entered into an analysis of the policy reasons requiring the strict test, focusing on the vulnerability of the company in placing its property in the hands of a custodial trustee as being similar to the vulnerability of the beneficiaries of a trust with respect to the disposition of trust property by the trustee. Meagher JA was more direct. The director had deprived the company of its property, and equity would see to it that the value of the property was restored.
But there is clearly considerable unease about Target Holdings’ reparative framework. Bairstow v Queens Moat Houses plc was a recent custodial fiduciary case where the difficulties introduced by Target Holdings were at least given a brief airing by Robert Walker LJ (as he then was). Directors were held to be accountable to the company for dividends unlawfully paid out in contravention of statutory requirements. The directors were said to have trustee-like responsibilities in respect of company property. An attempt to apply Target Holdings to suggest that the breach of custodial duties had caused no compensable loss was rejected. Robert Walker LJ questioned, without deciding, whether Target Holdings was intended to cover a case of the sort before him. His Lordship seemed, to my way of thinking, to wish to recapture the simple (and rather obvious) circumstance where reimbursement was required without the trammels of reparative compensatory considerations.
First, his Lordship said that the qualities of the fiduciary obligations undertaken by the directors in Bairstow ‘involved heavy and continuing responsibilities for the stewardship of the company’s assets’, whereas ‘the trust in Target Holdings ... was simply an aspect of a wider commercial transaction involving agency’. This raised an issue whether ‘a more satisfactory dividing line is not that between the traditional trust and the commercial trust, but between a breach of fiduciary duty in the wrongful disbursement of funds of which the fiduciary has this sort of trustee-like stewardship and a breach of fiduciary duty of a different character (for instance a solicitor’s failure to disclose a conflict of interest ...)’. It is not clear, however, that Robert Walker LJ’s suggested dividing line can be applied, as he implies, to sustain the holding in Target Holdings itself. Surely Redferns had a ‘trustee-like stewardship’? If Redferns’ trusteeship was to be seen as not of this sort, then how exactly was it to fall on the other side of the dividing line? What is the ‘different’ character of the fiduciary duty owed by Redferns? The more satisfactory dividing line is surely that between custodial fiduciary duties and fiduciary duties of loyalty and fidelity, and that is the very dividing line that Target Holdings threatens. It will not be an easy threat for a Court of Appeal judge to avoid, as I suspect Robert Walker LJ realised.
A second suggestion from Robert Walker LJ was to focus instead on the fault of the custodial fiduciary. In Target Holdings, ‘the solicitors were shown to have done no more than to have acted imprudently in disbursing their client’s funds before they obtained their client’s security’, whereas in Bairstow the directors had deliberately and dishonestly paid away the company’s funds. Again, with respect, this will not work. While Lord Browne-Wilkinson referred to liability for breach of trust as fault-based, he was referring only to the issue of causal connection between breach and loss. This was made clear by a differently constituted Court of Appeal in Collins v Brebner. That latter decision also showed why an argument that Lord Browne-Wilkinson did not intend to exclude fraudulent breach of trust from the ambit of his judgment could not be sustained. In any event, his Lordship was not intending to dispatch the rule that in making an unauthorised disposition of trust property a trustee will be strictly liable.
One problem that will have to be faced if Target Holdings is to be revisited, and substitutive compensation is to be re-established in the context of liability of custodial fiduciaries, is the charge of harshness as to results in custodial fiduciary cases like Target Holdings itself. There are doctrinal reasons, however, why the charge of harshness is misdirected. Most custodial fiduciaries are trustees or executors. It can be suggested that the strict approach to a trustee’s obligation in respect of the trust property is best understood as founded upon the trustee’s general duty of strict compliance with the trust deed (or testamentary document). By agreeing to assume the obligations of trustee or executor, including that of complying with the deed, there is nothing unfair about the rigorous nature of the substitutive (and reparative) compensatory response. The notion of the duty of strict compliance also justifies a company director’s liability as if he or she were a trustee, where he or she fails to account properly for the company’s property. The director has assumed a duty to comply (strictly) with the company’s constitutional documents, especially in respect of the company’s assets. This explains why, for example, when it comes to a compensatory claim against the director for loss of the company’s assets, ‘[t]here is a sufficient connection, irrespective of the identification of a separate and concurrent cause, when the loss would not have occurred if there had been no breach of duty’. Further, since the trustee/executor/company director assumes his or her duties, their position is accordingly analogous to that of a party who assumes obligations in a contractual setting. Liability for breach of the latter tends to be strict, and why should that not be so also in a custodial fiduciary context? A further doctrinal reason for the harshness encountered in the determination of a substitutive compensation response is found in the nature of the claim. Although the obligation sought to be enforced is an in personam obligation to perform, that obligation is ultimately referable to the existence of property rights (rights in rem). The essential distinguishing feature of a custodial fiduciary is the existence of property belonging in equity to others. In other areas of equity and common law, property rights, even if their protection is mediated indirectly, are generally protected without too much concern for the resulting harshness to the defendant. Further, in unjust enrichment law, where the focus is the protection of the plaintiff’s value in circumstances where property transfers, although legally effective to transfer property rights, are essentially defective, the claim itself is based on strict liability, with no concern for harshness to the defendant. Harshness of result is only considered, if at all, in the context of well-defined defences.
There are other more technical reasons why concern about harshness of results might be overstated. First, custodial fiduciaries can usually seek directions as to the lawfulness of their proposed activities prior to undertaking them. Secondly, the scope for improper disposition of property has been much reduced by the introduction of enlarged general powers of investment of trustee funds. Thirdly, many custodial fiduciaries can rely upon express exculpatory clauses. Fourthly, there are statutory relief provisions available for ‘worthy’ trustees whose breach of duty is largely technical. And, fifthly, Dr Elliott has suggested that a discretionary hardship defence might be recognised in equity. Indeed, he suggests that Target Holdings itself might be the harbinger of such a defence:
Where a beneficiary effectively seeks to shift losses owing to his [sic] own misjudgment onto his fiduciary and the fiduciary has not profited in the transaction, as happened in the Target Holdings case, there is a prima facie case of hardship, though proof that the fiduciary has acted dishonestly would generally deprive him of this defence.
(ii) The ‘Atmosphere’ After Target Holdings
More generally, whatever the deficiencies of the actual reasoning in Target Holdings, the decision heralded a much greater prominence for the remedy of reparative compensation in equity. In particular, the manner in which Lord Browne-Wilkinson drew a distinction between different types of trusts, and hence different types of obligations which might be breached causing some loss, has enabled a rapid development of the remedy. As indicated in Part I of this paper, there are other equitable obligations, beyond custodial fiduciary obligations, such as fiduciary obligations founded on trust and confidence, or equitable obligations founded perhaps on an unconscionability principle. Identification of the differences between various types of equitable obligations, as undertaken (even if somewhat questionably achieved) in a very limited context at one end of the spectrum in Target Holdings, is essential from a remedial perspective. Once the nature of any particular equitable obligation that has been breached is identified, it becomes much easier to develop equitable compensation in a manner which properly reflects that loss suffered by the plaintiff which, consistent with the nature of the obligation, ought to be compensated.
If the breach of a custodial duty causes loss to the trust estate, and it is sought to remedy the loss by an avowedly reparative compensatory claim, thus deliberately eschewing account, equity is likely to adopt a plaintiff-friendly approach to defining the controlling limits of recovery. This is indicated by the post-Target Holdings custodial fiduciary cases, even though some of these cases have actually tended to hover unhappily between substitutive and reparative compensation. The custodial obligation breached here has very particular characteristics — of both policy and legal doctrine — that require the reparative compensatory response to be rather strict and inflexible as far as the fiduciary is concerned, mirroring to a considerable degree the contents of the substitutive compensatory response.
It must be stressed, however, that the obligation in question here is the custodial fiduciary’s obligation only in respect of the estate. Compensation does not, on the basis of breach of this duty, extend to consequential losses unrelated to the ‘restoration’ of the trust estate, or to the compensation of a particular beneficiary’s personal loss beyond the loss of the trust fund. A custodial fiduciary will likely have other obligations, including fiduciary obligations of trust and confidence, and duties of care. If those obligations are breached, they must be separately analysed, and the reparative compensatory response of equity to those breaches may well be rather different, in that it may be rather less plaintiff-friendly in respect of its controlling limits.
It must be quite clear that the manner in which equity compensates for loss in a case of a breach of duty by a custodial fiduciary in respect of the property under that fiduciary’s control cannot provide an exclusive blueprint for equity’s compensating in other contexts. To some degree, this is because compensation in this part of equity’s domain has a very particular history. And, further, both the issues whether compensation is appropriate, and the extent of such compensation, must be determined by the nature and scope of the obligation said to have been breached. Equitable obligations exist to further particular policies, and have differing conceptual foundations. Their breach may be met by compensation, but what that means will be particular to the obligation at issue.
The established fiduciary duties of loyalty and fidelity, emanating from a relationship of trust and confidence, manifest themselves in rules prohibiting profit-making at the expense of the beneficiary, and prohibiting activity which causes a conflict with the requirement to be loyal and faithful. The consequences of breaches of the no-profit and no-conflict duties are therefore remedied by traditional equitable responses designed to strip gains and to avoid transactions. These responses are consistent with the prohibitive objectives of the rules, and in that respect continue to be the presumptive responses for their breach. It is in that sense that they can be said to be ‘traditional’.
It is reasonably easy to appreciate why breaches of custodial fiduciary duties, whereby loss is caused to the trust estate, should be met where necessary by reparative compensation. The entire thrust of the custodial fiduciary’s role is the management of property within certain limits and for the benefit of the beneficiaries. Loss by breach of duty cannot be permitted and must be remedied. However, in respect of non-custodial fiduciary duties, where the focus of the duties appears to be proscriptive, it is less obvious that reparative compensation should follow automatically from their breach. To reach that conclusion needs a re-visioning of the duty of loyalty and fidelity as constitutive of positive requirements, which, if not met and resulting in loss, behove such a reparative compensatory response. In England, New Zealand and Canada such re-visioning has in effect occurred. In Australian cases, there has been much less readiness to adopt such a re-visioning, and fiduciary duties retain their strongly proscriptive character. However, having at the same time ‘adopted’ Target Holdings, and thereby accepted the proposition that reparative compensation is available in equity as a remedy for loss, Australian courts are struggling with the conceptual fit of such a remedy within their understanding that non-custodial fiduciary duties of loyalty are fundamentally (and exclusively) proscriptive.
I have examined elsewhere a number of the more recent decisions from the leading Commonwealth jurisdictions, and it is not necessary to repeat all that detailed analysis here. As it turns out, the Australian cases unsurprisingly mirror a regime of equitable compensation for non-custodial cases whose content is very close to that of reparative compensation for breach of custodial fiduciary obligations (which itself is largely modeled on the substitutive compensation regime). The content of Re Dawson is alive and well, and operating happily in the land of equitable compensation for breach of non-custodial fiduciary obligations. However, on the whole, the other Commonwealth jurisdictions, although more ‘advanced’ in re-visioning non-custodial fiduciary duties, have not found themselves minded to depart overly much from a Re Dawson-like position in laying down the features of equitable compensation. There is a growing awareness in all jurisdictions that the key to understanding the approach of equity to compensating reparatively for loss caused by breach of a fiduciary duty of loyalty is a close analysis of the scope of the duty in question and the nature of a breach of that duty.
Thus, to take one example, although New Zealand has gained for itself something of a reputation for looseness of doctrine and hyperactivity in its approach to compensating in equity, recently the New Zealand Court of Appeal in Bank of New Zealand v New Zealand Guardian Trust Co Ltd  adopted a strict approach to compensation for breach of the fiduciary duty of loyalty. Tipping J stated:
In the second kind of case, the trustee or other fiduciary has committed a breach of duty which involves an element of infidelity or disloyalty engaging the fiduciary’s conscience — what might be called a true breach of fiduciary duty... . In short, in such a case once the plaintiff has shown a loss arising out of a transaction to which the breach was material, the plaintiff is entitled to recover unless the defendant fiduciary, upon whom is the onus, shows that the loss or damage would have occurred in any event, i.e. without any breach on the fiduciary’s part. Questions of foreseeability and remoteness do not arise in this kind of case ... . Policy dictates that fiduciaries be allowed only a narrow escape route from liability based on proof that the loss or damage would have occurred even if there had been no breach.
In his judgment (for himself, Richardson P, Henry and Blanchard JJ), Gault J suggested that there was a link between breaches of trust in dissipating the trust estate, and abuse of fiduciary duties of loyalty and fidelity, in that both would attract liability on a ‘restitutionary’ basis. These cases were then linked with ‘dishonesty in the commission of certain intentional torts such as fraudulent misrepresentation’ (later enlarged to fraud and impropriety) as circumstances where there was justification to approach issues of causation and remoteness in determining compensation differently from contract and non-intentional tort cases. Tipping J also adverted to this. If the wrong committed was one ‘engaging the conscience of the wrongdoer, what has sometimes been called fraud in equity, a stricter approach is justified. That corresponds with the position when there is fraud in the common law sense, ... In such cases the greater moral turpitude of the wrongdoer supports a restitutionary ‘but for’ approach, at least on a prima facie basis.’ The true fiduciary duty, being one of loyalty and fidelity, can only be breached by disloyalty and infidelity, which per se is equitable fraud.
What is important is that the controlling limits on the reparative compensatory response for loss suffered by breach be seen to be coherent with the nature of the obligation owed. Thus, the ‘absolute’ nature of the duty, which carries with it the notion that any breach is ‘equitable fraud’, sustains a ‘but for’ test of causation. If this is so, it follows that there should be little, if any, scope for considerations which would enable the defendant to escape liability. This would support the presumption in the rule in Brickenden v London Loan & Savings Co (that, in effect, once the court has determined the materiality of a breach of fiduciary duty arising from non-disclosure of a conflict of interest or a significant likelihood of such a conflict, speculation as to what course the aggrieved party would, on disclosure, have taken is not relevant). It might also mean that there ought to be no judicial jurisdiction to apportion responsibility for loss, although there might be discretion to attach certain conditions on the award of equitable compensation.
Equitable compensation has found itself thrust into the limelight in part because of the recent articulation of duties of care in equity. In Bristol and West Building Society v Mothew, Millett LJ (as he then was) stated:
It is ... inappropriate to apply the expression [‘fiduciary duty’] to the obligation of a trustee or other fiduciary to use proper skill and care in the discharge of his duties. If it is confined to cases where the fiduciary nature of the duty has special legal consequences, then the fact that the source of the duty is to be found in equity rather than the common law does not make it a fiduciary duty. The common law and equity each developed the duty of care, but they did so independently of each other and the standard of care required is not always the same. But they influenced each other, and today the substance of the resulting obligations is more significant than their particular historic origin. ... Although the remedy which equity makes available for breach of that equitable duty of skill and care is equitable compensation rather than damages, this is merely the product of history and in this context is in my opinion a distinction without a difference. Equitable compensation for breach of the duty of skill and care resembles common law damages in that it is awarded by way of compensation to the plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damage should not be applied by analogy in such a case.
His Lordship made it quite clear that equitable compensation in this context is to be distinguished from the earlier forms of equitable compensation discussed in this paper.
As Tipping J stated in Bank of New Zealand v New Zealand Guardian Trust Co Ltd, breaches of duty of care and skill ‘involve neither loss to the trust property, nor infidelity or disloyalty’. Where a failure to take care is the material dimension in an alleged breach of duty, trust and fiduciary duties are ‘not relevantly engaged’. Gault J said that the ‘but for’ test of causation and remoteness was not appropriate where there was a breach of a duty in equity of equivalent scope to duties owed in contract or tort, unless the breach was dishonest or fraudulent. He stated:
That the liability arises in equity is no sufficient reason. Surely the stage has been reached in the development of the law where something more substantial than historical origin is needed to justify disparate treatment in the law of those in breach of the obligation to exercise reasonable care.
It followed, therefore, that an equivalent approach to causation and remoteness as applied in contract and tort ought to apply to the equitable duty.
The rules for equitable compensation for loss in breach of duty of care cases will mirror to a considerable extent the rules developed for damages awards at common law. Particular care may need to be exercised in determining whether the equitable duty of care has been assumed in the circumstances or must be imposed. This distinction may itself determine whether a contract or tort model of damages is followed. This subtlety was adverted to in Bank of New Zealand, but the Court of Appeal regarded it as unnecessary on the facts to draw a clear distinction. Most of the central features of compensation awards at common law (eg, contributory negligence, duty to mitigate, exemplary damages, aggravated damages) will be fundamental factors in compensation awards in equity. In the background, however, there will also be the overriding discretion of the equitable jurisdiction, but this will very likely surface only in the rarest of cases. Indeed, the discretion ought perhaps to wither away through disuse and a growing recognition that its retention simply perpetuates the historical jurisdictional divide in a context where there are no legitimate policy or doctrinal grounds to do so. Any work that needs to be done to balance the position of the plaintiff and the defendant, in pursuit of a just solution, can and ought to be done by the established principles, without appeal to overriding discretion.
One final comment is called for. An interesting notion has been introduced by Young CJ in Eq in his judgment in Youyang v Minter Ellison. A firm of solicitors paid away the plaintiff’s money without receiving in return for it a deposit certificate in the correct form. The plaintiff’s investment was ultimately lost, and he sought to have the fund replenished. The firm disputed, however, that the loss was caused by the breach of the firm’s custodial duty, relying upon Target Holdings. By a majority the New South Wales Court of Appeal held in the firm’s favour. Treating the duty breached as ‘fiduciary’, the majority concluded that the loss had not been caused by the breach. Young CJ in Eq, however, expressed a reservation as to the fiduciary nature of the duty at issue, although he would have decided the case in the same way. His Honour outlined the distinction between fiduciary duties and equitable duties of care, and seemed to suggest that Target Holdings might best be understood as a case where the more flexible rules relating to compensation for breach of a duty of care were to be applied. He concluded:
The authorities say that in this area of the law, courts must act with commonsense. Further, the trend of authority, culminating in Target Holdings Ltd v Redferns  UKHL 10;  1 AC 421, is that, in applying equitable principles to commercial relationships, courts must not be too technical and must take care to apply the basic equitable concepts rather than blindly follow the result of private equity cases of yesteryear. Thirdly, courts must be careful not to effectively widen liability in negligence by saying that a person who is in fact a trustee or fiduciary and who breaches his or her duty of care to the beneficiaries is charged with all losses that would not have occurred but for such carelessness without regard to principles of foreseeability or contributory negligence: Bristol and West Building Society v Mothew  Ch 1, 17.
This view envisages the re-visioning of some duties that appear to be fiduciary (either custodial or non-custodial) as, in reality, duties of care. Such re-visioning would apparently be required where applying rules of trusts and fiduciary law would be to laud technicalities rather than appreciating the wider factual context of commercial (and largely contractual) relationships. Whether the duty of care needs especially to be equitable in these circumstances is, of course, questionable. In any event, this innovative position is possibly at the edge of what the modernist school of equity might be happy to live with.
Professor Michael Tilbury has written that ‘[e]quitable compensation seems to have a secure function in modern law due to the absence of an alternative for the compensation of breaches of equitable rights’. He further suggested that:
[T]here will be a tendency, wherever possible, to equate the principles applicable to equitable compensation ... with the rules relating to damages which have been well developed at law. This is a natural development in a post-judicature world. Its danger is that it may lead to a failure to appreciate the operation, in appropriate contexts, of traditional equitable principles which, in the circumstances of the particular case, more appropriately mirror the equitable right breached.
In the first flush of innocence and excitement, there was something of a rush in Canada and New Zealand towards wholesale integration of equitable compensation with the common law of damages by simple adoption of common law principles and rules. England and Australia were much more measured, as befits the much keener awareness in those jurisdictions of the doctrinal and historical dimensions of the core of equity jurisprudence. ‘Compensation’ was understood to be limited and plaintiff-friendly because it was essentially ‘restitutionary’.
Gradually, however, it has come to be appreciated that, although in general terms the peculiarity of equity must not be overlooked, the fundamental point is to examine carefully the type and content of any equitable duty allegedly breached, and the nature of that breach. From that examination should flow the answer to how equity will compensate in any case. And so, custodial fiduciary duties can be enforced by performance orders, including in some cases orders for money payments, and their breach can be remedied by a range of orders, including in some cases orders for reparative compensation for loss caused to the estate. The process of compensating is girded by strict rules that cohere with the nature of the duties. Loss caused by breaches of non-custodial fiduciary duties is also compensable, but only by reparation. Strict compensation rules also apply here, not because equitable compensation is automatically strict, but because coherence of response with the nature of the duties breached requires those strict rules. That equitable compensation is not per se automatically strict is most clearly seen in the case of compensation for breaches of duties of care and skill, where there simply would be no coherence between duty and response if a strict regime were adopted. Compensating in equity for loss caused by breach of obligations originating in equity is a process, as is compensating at common law for loss caused by breach of obligations originating in the common law. How can it possibly be otherwise? The consequence is that the rules that equity develops for dealing with compensating for loss caused by breaches of the other equitable duties identified in Part 1 of this paper will be sensitive to the need for coherence between the duty and the reparative compensatory response.
A rigorous taxonomy reveals that custodial fiduciary duties can be enforced by performance orders, requiring substitutive compensation where appropriate. Breaches of equitable duties, both fiduciary and of care, are met by orders for compensation. Such breaches are also met by orders for disgorgement (or restitution). What of punishment in that part of the civil law structured by equity? Will the increasing readiness to award compensation in cases of breach of equitable duty, especially given the potential in some areas for appeal to a tort analogy, lead inexorably to the embrace of exemplary damages? Of course, there is no sound conceptual link between compensation and punishment, but a ‘practical’ link does often offer itself.
A recent decision in New South Wales has confronted this issue head on. In Digital Pulse Pty Ltd v Harris, Digital provided multi-media services to clients. The defendants were its employees. They became dissatisfied with Digital and decided to leave and set up their own competing business. While continuing in the employ of Digital they diverted business opportunities to themselves and their new company. Digital sued the defendants for, inter alia, breach of fiduciary duty. Palmer J awarded equitable compensation and, in the alternative, an account of profits. After a lengthy discussion concluding that exemplary damages can be awarded in equity, and having earlier listed the various factors that made punishment appropriate in the case before him, his Honour awarded exemplary damages against the defendants.
Were exemplary damages available? Palmer J commented particularly on Somers J’s remark in his dissenting judgment in Aquaculture Corporation v New Zealand Green Mussel Co Ltd to the effect that exemplary damages were not available in equity because ‘equity and penalties are strangers’, a comment whose sentiment has received considerable approval in Australia. Palmer J did not agree with it. His reasons need attention, and it transpires that they are not strong.
First, Palmer J stated that ‘the concept of punishment was by no means always foreign to the Chancery courts’. This historical argument was supported by appeal to cases from the 16th and 17th Centuries. It is, with respect, not clear that the division between criminal and civil jurisdictions was as well developed then as it is now. Furthermore, it is quite clear that the conceptualisation of the civil law was not as well developed then as it is now. On this basis, which, as I shall argue below, requires a careful appreciation of the structure of civil law claims, it becomes problematic to appeal to historical sources in a rather uncritical manner. To be fair to Palmer J, however, his approach was undergirded by an appeal to the notion that there should not be a ‘sharp cleavage’ between criminal and civil law, and he made observations on the position in Australia. I am not familiar enough with this Australian development to be able to do more than make the following three points. First, the examples used by Palmer J to illustrate his point are statutory (certain provisions of the Corporations Act and the jurisdiction given to criminal courts to order compensation for victims of crime). Secondly, compensating victims of crime in the context of the state’s punishing criminals is very different — because it is a matter of vindicating society’s interest or right, which can as a matter of policy be extended to compensation — from the state’s punishing duty-breachers in the context of private law claims for compensation or disgorgement — where society has no legitimate interest or right which courts can appeal to. Thirdly, if the divide between criminal and civil law is to wither away, then in my view we will be conceptually much the poorer. I shall return to this below.
Secondly, Palmer J argued that ‘even in modern times it cannot be right to say that equity never gives a plaintiff more than his or her strict entitlement and never exacts a punishment from a defendant’. This argument was supported by appeal to the existence of awards of accounts of profits against fiduciaries and reduction or disallowance of allowances for the work and skill of the fiduciary. But, with respect, accounts of profits are a strict entitlement of the plaintiff. The award of disgorgement against a defendant is founded upon a plaintiff’s claim right as against that defendant. In respect of allowances, the grant or non-grant of those allowances, and their quantum in any case, is also determined by a careful examination of the rights of the parties as between each other. Considerations of unjust enrichment enter into the matter if an allowance is not made. Reduction or disallowance is, as Palmer J stated, premised on the level of dishonesty of the defendant. Again, this matter is germane to the nature and extent of the breach of duty by the defendant and how it impacts upon the rights of the plaintiff. It is not a matter of punishment at all.
Thirdly, Palmer J went on to suggest that equity gave recognition to an element of deterrence in its resolution not to allow fiduciaries to make profits. But the no-profit rule is part and parcel of the duty of loyalty undertaken by the fiduciary. Equity is neither deterring nor punishing the fiduciary. Rather, equity is defining what it is to be under a fiduciary obligation, and if a profit is made and then stripped away, then that is because the plaintiff has that right as against the fiduciary!
Fourthly, Palmer J sought support from comments made by the English Law Commission in its Report No 247 on Aggravated, Exemplary and Restitutionary Damages. The paragraph cited by Palmer J simply focused in essence on the need to synthesize equity and the common law. If exemplary damages are available at common law, they should also be available in equity. This, of course, simply imports into the law of equitable wrongs the deeply problematic issue of the basis upon which exemplary damages are awarded. Just because others do it does not of itself mean that equity should also do it, especially if what others do is conceptually indefensible. I shall return to this below.
Palmer J stated:
Consistency in the law requires that the availability of exemplary damages should be coextensive with its rationale. Where wrongful and reprehensible conduct calls for the manifest disapprobation of the community, where a punishment is called for to deter the wrongdoer and others of like mind from similar conduct and where something more than compensation is felt necessary to ameliorate the plaintiff’s sense of outrage, then it should make no difference in the availability of exemplary damages that the court to which the plaintiff comes is a court of equity rather than a court of common law.
His Honour concluded that equity had an inherent jurisdiction to punish, which although muted was not dead.
The issue whether exemplary damages are, or should be, available in equity boils down, in my view, to a re-visitation of the general debate about their availability within the civil law generally. Indeed, Palmer J’s judgment made much of the need for coherence between the common law and equity. However, the more fundamental issue is to address their coherence within the very structure of civil law claims, whether sourced at common law or in equity. In an important forthcoming article, Dr Allan Beever has argued convincingly that:
It is not possible to bring private law and exemplary damages together into a single legal structure and pretend that that structure makes sense. Exemplary damages in private law are on ‘foreign soil’.
This is because compensation and/or disgorgement/restitution is a response to a breach of a duty that is owed to the specific plaintiff. The key point is that the breach of the initial duty-right relationship creates the claim of the plaintiff, which is correctly a claim in personam arising from a secondary right owed to that plaintiff by that defendant. This analysis is the correct structural analysis of private law claims. Dr Beever argues, with considerable force, that:
[W]hile, as a matter of practice, exemplary damages are awarded when the defendant has breached a duty to the [plaintiff], it is not correct to regard the duty to pay exemplary damages as a duty owed to that [plaintiff]. Instead, the duty is owed to society at large. Perhaps it is owed when defendants seriously breach duties owed to [plaintiffs], but it is not owed for those duties. Liability for exemplary damages, then, is not a ‘term of relation’ between the parties; it results from ‘a wrong to the public at large’. Exemplary damages do not operate in personam.
Accordingly, Dr Beever continues, exemplary damages are inconsistent with the structure of liability in civil law and must be rejected as part of the private law.
Embracing compensation and rejecting punishment may therefore be required of equity if it is to cement its position as a coherent part of the entirety of a coherent private law. Indeed, if equity, by rejecting exemplary damages, avoids succumbing to the enticing call for complete integration with the common law, the resulting dissonance with the common law on this matter might provide a reason for future integration the other way, but this would appear to have to await common law’s coming back to its senses.
[*]This paper was originally presented at the New South Wales Supreme Court Annual Conference in August 2002. I thank the Judicial Commission of New South Wales for its kind invitation to speak at the Conference. I also wish to thank Dr Steven Elliott, who provided me with a copy of his Oxford DPhil thesis (see n4 below); Dr Allan Beever, who provided me with a copy of a forthcoming article (see n122 below); and Professor Ross Grantham, who read the paper in draft and saved me from many errors. I thank the New Zealand law firm Chapman Tripp, which generously sponsored a Research Scholar, Lisa Fong (whose able assistance I also acknowledge), to aid me in completing this paper.
[†] Professor and Head of School-elect, TC Beirne School of Law, The University of Queensland; Professorial Fellow, The University of Melbourne.
 See, for example, Preface to Peter Birks & Arianna Pretto (eds), Breach of Trust (2002).
 See, for example, Joshua Getzler, ‘Equitable Compensation and the Regulation of Fiduciary Relationships’ in Peter Birks & Francis Rose (eds), Restitution and Equity Volume 1: Resulting Trusts and Equitable Compensation (2000) at 246–248.
 ‘Custodial fiduciary’ is a term used in Steven Elliott, Compensation Claims Against Trustees (DPhil thesis, University of Oxford, 2002) Ch II, ‘Fiduciaries and Claims’ at 1. The Custodial Fiduciary Relation. Dr Elliott states: ‘A custodial fiduciary may be tentatively defined as any person who receives property in circumstances binding him in equity to apply it for the benefit of another.’
 See further id at 2. The Duty of Loyalty. Dr Elliott states: ‘The relation of trust and confidence is nowadays usually thought to consist in a cluster of duties emanating from the core requirement of loyalty.’ The relation of trust and confidence gives rise to two proscriptive principles: the no-profits rule and the no-conflict rule. Proscriptive duties are essentially disabilities, rather than requirements to act. For their modern transmutation into prescriptive-focused duties, see further at Part 4 below.
 These will be prescriptive duties requiring certain levels of conduct.
 See Charles Rickett, ‘Compensating for Loss in Equity — Choosing the Right Horse for Each Course’ in Peter Birks & Francis Rose (eds), Restitution and Equity Volume 1: Resulting Trusts and Equitable Compensation (2000) at 175–176.
 In Beach Petroleum NL v Kennedy  NSWCA 408; (1999) 48 NSWLR 1 at 90 (hereinafter Beach Petroleum), the Court of Appeal of New South Wales (Spigelman CJ, Sheller & Stein JJA) stated: ‘The rules for the recovery of equitable compensation are less developed than the rules for proprietary remedies in equity. The rigour of the remedy is of comparatively recent vintage. At this stage of the development of the remedy, each case requires a precise focus on both the nature of the obligations and the nature of the breach.’ I doubt that the observation in the last sentence will change with time. Indeed, I doubt it should. And, in any event, it is not clear that the law of proprietary remedies in equity, although having a much more reduced field of operation than equitable compensation, is any more ‘developed’ than the rules for equitable compensation: See, for examples, the debate around the rationale for the decision in Foskett v McKeown  1 AC 102 (Compare Ross Grantham and Charles Rickett, ‘Tracing and Property Rights: The Categorical Truth’ (2000) 65 Mod LR 905; Andrew Burrows, ‘Proprietary Restitution: Unmasking Unjust Enrichment’ (2001) 117 LQR 412 and Peter Birks, ‘Property, Unjust Enrichment, and Tracing’  CLP 231); the continuing problems in respect of granting proprietary remedies in circumstances of insolvency (See Charles Rickett, ‘Of Constructive Trusts and Insolvency’ in Francis Rose (ed), Restitution and Insolvency (2000) Ch 10); and the fundamental dispute about the jurisprudential basis upon which proprietary remedies are to be awarded (See general discussion in Craig Rotherham, Proprietary Remedies in Context — A Study in the Judicial Redistribution of Property Rights (2002)).
 Elliott, above n4. See also Steven Elliott, ‘Remoteness Criteria in Equity’ (2002) 65 Mod LR 588. Elements of Elliott’s argument are found in Sir Peter Millett, ‘Equity’s Place in the Law of Commerce’ (1998) 114 LQR 214 at 225–227, discussed in Charles Rickett, ‘Compensating for Loss in Equity — Choosing the Right Horse for Each Course’ in Peter Birks & Francis Rose (eds), Restitution and Equity Volume 1: Resulting Trusts and Equitable Compensation (2000) at 178. See also Peter Birks, ‘Equity in the Modern Law: An Exercise in Taxonomy’  UWALawRw 1; (1996) 26 UWALR 1 at 45–48; and Getzler, above n3 at 248–251.
 Elliott, above n4 Ch III, ‘Remedial Concepts’ at 1. Compensation.
 See also Robert Chambers, ‘Liability’ in Peter Birks & Arianna Pretto (eds), Breach of Trust (2002) at 3–6 (discussion of the primary obligations of custodial fiduciaries).
 This particular procedure can be part of what is more generally and historically called ‘judicial execution proceedings’. However, the latter are now rare, and the common account procedure is better understood as a form of direct enforcement of a custodial fiduciary’s primary obligation of accountability. Other forms of direct enforcement of primary obligations are by direction of the court, by injunction and by declaration: See above n12 at 10–11.
 Glazier Holdings v Australian Men’s Health (NSW Supreme Court, Austin J, 22 January 2001) at paras 37–38 (hereinafter Glazier). Although Austin J’s decision in Glazier was overturned on appeal, nothing that was said by Giles JA in giving the judgment of the New South Wales Court of Appeal contradicted Austin J’s structural analysis of accounting in equity: see Meehan v Glazier Holdings Pty Ltd  NSWCA 22; (2002) 54 NSWLR 146 at 149–150 (hereinafter Meehan).
 This is restitution in the sense of ‘a person to a condition’, not of ‘a thing to a person’: See above n1 at xi; and above n12 at 14. In Roxborough v Rothmans of Pall Mall Australia Ltd  HCA 68; (2002) 185 ALR 335 at 353, Gummow J adverted to the availability of an express trust beneficiary to an action for money had and received against his or her trustee ‘when there remains nothing to the trustee to execute except payment over of money to the beneficiary, or the trustee admits the debt ... .’ See also the comment of Mason J quoted at n111 below.
 Elliott, above n4, Ch I, ‘Introduction’ at 4. The Claims.
  2 NSWLR 211 at 214–216. See Elliott, above n9 at 590–591.
 Glazier, above n14 at paras 39–42.
 Id at paras 43–45.
 Id at para 46.
 Chambers, above n12 at 19.
 Two definitions of what is encompassed by referring to a ‘breach of trust’ are found in Peter Birks & Arianna Pretto (eds), Breach of Trust (2002). In the Preface, Professor Peter Birks and Dr Arianna Pretto comment that there are ‘breaches which consist in ultra vires acts and ... breaches which consist in doing badly acts which, done properly, would be intra vires’: at ix. Professor David Hayton states: ‘ A breach of trust is any act or neglect on the part of a trustee which is not authorised or excused by the terms of the trust instrument or by law, or which fails to satisfy the duties imposed on a trustee conducting authorised activities’: See ‘Overview’ at 384.
 This point was clearly made by Giles JA in Meehan, above n14 at 149-150, where his Honour stated: ‘Under such an order the accounting party must account not only for what has actually been received, but also for what should have been received: that is, for what would have been received if the relevant duties of the accounting party had been properly discharged.’ See also Armitage v Nourse  Ch 241 at 252 (Millett LJ): ‘A trustee is said to be accountable on the footing of wilful default when he is accountable not only for money which he has in fact received but also for money which he could with reasonable diligence have received. It is sufficient that the trustee has been guilt of a want of ordinary prudence: ... .’
 Professor Robert Chambers has recently presented a slightly different analysis. He states (above n12 at 7): ‘A common account is used to compel trustees to perform their primary duties, an account on the basis of wilful default is used to obtain compensation for loss, and an account of profits is used to obtain restitution of gain. However, a common account is also used to obtain compensation and the other two forms of account also provide direct enforcement of primary duties.’ In discussing compensation for loss, Chambers discusses account (both common account and account for wilful default) and equitable compensation as separate methods of compensation. See his full discussion at 2–34.
 Birks & Pretto, above n1 at xi.
  2 NSWLR 211.
  UKHL 10;  1 AC 421 (hereinafter Target Holdings).
  1 WLR 1089.
 Id at 1104.
 Id at 1102–1103.
 Target Holdings, above n27 at 432.
 Thus, although the common law rules of remoteness of damage and causation do not apply, there does have to be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable, namely, the fact that the loss would not have occurred ‘but for’ the breach. See further Getzler, above n3 at 237–246.
 Target Holdings, above n27 at 433.
 Id at 433–434.
 Id at 421, 435.
 Id at 436.
 Id at 437.
 Id at 439.
 Id at 440.
 Elliott, above n4, Ch VI, Target Holdings Ltd v Redferns at 3. Discussion (footnotes omitted).
 Dr Elliott refers to Mr Tony Oakley’s view (Parker & Mellows, The Modern Law of Trusts (1998) at 680–683) that the claim by Target Holdings was a claim for equitable (reparative) compensation without account. It is probably correct to say that this is how the case has come to be understood in hindsight, but it is a view not easily sustained on a close examination of the actual claim made. In Youyang v Minter Ellison (NSW Supreme Court, Handley JA, Hodgson JA and Young CJ in Eq, 8 October 2001 (hereinafter, Youyang)), Young CJ in Eq (as discussed below at text to n99) also took the view that Target Holdings was better understood as a claim for equitable (reparative) compensation without account. An appeal in Youyang was heard by the High Court of Australia on 13 November 2002. No decision has been given at the time of writing, but the transcript of the hearing indicates that the Court may well re-examine Target Holdings.
 Reference has been made at n9 above to articles by Lord Millett and Professor Birks: See generally Millett, above n9 at 225–227; and Birks, above n9 at 45–48. Their argument essentially is that Redferns was indeed held accountable, and that the right result was reached because Redferns had accounted for the funds paid away by obtaining the mortgage which Target Holdings had sought to have in the first place. This interpretation of course avoids the problem altogether.
  NSWSC 596; (1998) 45 NSWLR 262 (hereinafter O’Halloran). See also Harrison & Anor v Schipp, Cameron & Anor v Schipp (NSW Supreme Court, Handley JA, Giles JA and Fitzgerald JA, 20 February 2001) at para 123 (Giles JA).
 Id at 277.
 Id at 281. Unlike, however, in both Target Holdings, above n27, and Youyang, above n45, where the plaintiffs received some assets in return for the asset improperly disposed of, the company in O’Halloran never received any substitute.
  EWCA Civ 712;  2 BCLC 531. See also Allied Carpets Group plc v Nethercott  BCC 81.
 Id at 549.
 Collins v Brebner (English Court of Appeal, Aldous, Tuckey LJJ & Hale J, 26 January 2000).
 See the extract at n31 above; and see Speight v Gaunt (1883) 9 AC 1 at 19.
 See Robert Austin, ‘Moulding the Content of Fiduciary Duties’ in AJ Oakley (ed), Trends in Contemporary Trust Law (1996) at 164ff.
 See O’Halloran, above n47 at 277 (Spigelman CJ). In New Zealand, the duty of strict compliance has statutory force: See Companies Act 1993 (NZ), s134.
 See further on the nature of express trusteeship, Charles EF Rickett, ‘The Classification of Trusts’ (1999) 18 NZULR 305 at 310–312.
 See D Hayton, above n22 at 379–383.
 See discussion in Ross B Grantham & Charles EF Rickett, Enrichment and Restitution in New Zealand (2000) Ch 3 at 30–41.
 See Ross B Grantham & Charles EF Rickett, ‘On the Subsidiarity of Unjust Enrichment’ (2001) 117 LQR 273 at 275–288.
 Id at Chs 14–16.
 Elliott, above n4, Ch VI, Target Holdings Ltd v Redferns at 3. Discussion. Evaluation of the Way Forward.
 See, for examples, Trustee Act 1925 (NSW), s63; Trustee Act 1956 (NZ), s66. In any event, trustee investments are now largely regulated by a duty of care standard: see discussion in Joshua Getzler, ‘Duty of Care’ in Peter Birks & Arianna Pretto (eds), Breach of Trust (2002) at Ch 2.
 See, for examples, Trustee Act 1925 (NSW), s14; Trustee Act 1956 (NZ), s13A.
 See Armitage v Nourse  Ch 241. See full discussion in J Penner, ‘Exemptions’ in Peter Birks & Arianna Pretto (eds), Breach of Trust (2002) at Ch 8.
 See, for examples, Trustee Act 1925 (NSW), s85; Trustee Act 1956 (NZ), s73. This statutory jurisdiction may not extend to non-trustee fiduciaries: see Jalmoon Pty Ltd (in liquidation) v Bow  2 Qd R 62 at 72–73. The English Law Commission has recommended the extension of the relief jurisdiction to all fiduciaries: see Fiduciary Duties and Regulatory Rules (Law Com No 236, 1995) at 90–96. In the context of companies, see Corporations Act 2001 (Cth), s1318; Compare Companies Act 1993 (NZ), s376. See full discussion in J Lowry and R Edmunds, ‘Excuses’ in Peter Birks & Arianna Pretto (eds), Breach of Trust (2002) at Ch 9.
 Elliott, above n4, Ch IV, Target Holdings Ltd v Redferns at 3. Discussion: Evaluation of the Way Forward. Elliott refers to the hardship considerations revealed in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd  UKHL 17;  AC 1;  Ch 286.
 See the view of Oakley, referred to above n45; and the view of Professor Chambers, referred to above n24. See also Hayton, above n22 at 384–389.
 See, for example, Maguire v Makaronis (1996–97)  HCA 23; 188 CLR 449 at 473–474 (Brennan CJ, Gaudron, McHugh & Gummow JJ) (hereinafter Maguire); O’Halloran, above n47 at 276–277 (Spigelman CJ ); Bank of New Zealand v the New Zealand Guardian Trust Co Ltd  1 NZLR 664 at 687 (Tipping J) (hereinafter Bank of New Zealand); Aequitas Ltd v Sparad No 100 Ltd (NSW Supreme Court, Austin J, 9 April 2001) at paras 444–447 (hereinafter Aequitas). See also Getzler, above n3 at 236–246.
 These duties arise ‘whenever one party undertakes to act in the interests of another, or where he places himself in a position where he is obliged in the interests of another’: See Millett, above n9 at 219.
 See, most obviously, Breen v Williams (1996) 186 CLR 71; Bristol and West Building Society v Mothew  1 Ch 1 (hereinafter Bristol and West Building Society); Arklow Investments Ltd v Maclean  2 NZLR 1; Pilmer v Duke Group Ltd (in liquidation)  HCA 31; (2001) 75 ALJR 1067 (hereinafter Pilmer); Aequitas, above n71 at paras 278–288 (Austin J). See, generally, Peter Birks, ‘The Content of Fiduciary Obligation’ (2002) 16 Trust Law Int 34.
 England: Bristol and West Building Society, above n73; Swindle v Harrison  EWCA Civ 1339;  4 All ER 705; Longstaff v Birtles  EWCA Civ 1219;  1 WLR 470. New Zealand: Day v Mead  NZCA 74;  2 NZLR 443; Bank of New Zealand, above n71. Canada: Canson Enterprises Ltd v Boughton & Co  3 SCR 534; Hodgkinson v Simms  3 SCR 377. See the discussion in Getzler, above n3.
 Pilmer, above n73 at 1084–1085 (McHugh, Gummow, Hayne & Callinan JJ) at 1093–1096 and 1098–1100 (Kirby J); Maguire v Makaronis, above n71 at 471–474 (Brennan CJ, Gaudron, McHugh & Gummow JJ).
 Charles Rickett, ‘Where are We Going with Equitable Compensation?’ in AJ Oakley (ed), Trends in Contemporary Trust Law (1996); Rickett, above n7.
 See, for a clear example, Aequitas, above n71 at paras 442–443 and 448 (Austin J). His Honour distinguished the approach taken in breach of fiduciary duty cases from the rather stricter approach taken in cases of breaches of duty by trustees and company directors: see paras 444–445. See also Youyang, above n45 at para 16 (Handley JA), for a list of ‘[t]he principles which govern the assessment of compensation for breaches of trust and other equitable duty ...’. His Honour stated that the principles were those established in Target Holdings, which decision had been approved in several Australian decisions. However, with respect, his Honour’s failure to distinguish between different types of equitable duty means that the list of principles is a little general, and in places repetitive. It appears limited also to custodial and non-custodial fiduciary duties. Compare the analysis presented in Youyang by Young CJ in Eq, referred to in the text to n99 below. As stated above n45, Youyang is currently under appeal to the High Court.
 Above n17.
 See Beach Petroleum, above n8 at 90 para 431 (Spigelman CJ, Sheller & Stein JJA); and Elliott, above n9.
 Bank of New Zealand, above n71.
 Id at 687.
 Id at 681. The reference to ‘restitutionary’ means ‘restorationary’, or the strict approach.
 Id at 682.
 Id at 688.
 See further Getzler, above n3.
  DLR 465 at 469.
 See Everist v McEvedy  3 NZLR 348; Gilbert v Shanahan  3 NZLR 528; Maguire, above n71; O’Halloran, above n47 at 280–281 (Priestley JA); Beach Petroleum, above n8 at 91-94 (Spigelman CJ, Sheller & Stein JJA); Aequitas, above n71 at paras 445–447 (Austin J).
 See Pilmer, above n73 at 1085 (McHugh, Gummow, Hayne & Callinan JJ), 1101–1103 (Kirby J); Nationwide Building Society v Balmer Radmore (a firm)  PNLR 606; Nationwide Building Society v Thimbleby & Co  PNLR 733; compare Day v Mead  NZCA 74;  2 NZLR 443.
 See Demetrios v Gikas Dry Cleaning Industries Pty Ltd (1991) 22 NSWLR 561. I am grateful to Mr Justice Ken Handley for this reference.
 These duties have an impressive pedigree. See discussion in Rickett, above n76. See also Julie K Maxton, ‘Equity and the Law of Civil Wrongs’ in Paul Rishworth (ed), The Struggle for Simplicity in the Law: Essays for Lord Cooke of Thorndon (1997) at 91; and Getzler, above n3 at 252–257.
 Above n73 at 16–17. See also Henderson v Merrett Syndicates Ltd  UKHL 5;  2 AC 145 at 204–206 (Lord Browne-Wilkinson) (hereinafter Henderson); White v Jones  UKHL 5;  2 AC 207, 271–272 (Lord Browne-Wilkinson) (hereinafter White); Permanent Building Society (in liquidation) v Wheeler (1994) 14 ACSR 109 at 157–158 (Ipp J); Bank of New Zealand v New Zealand Guardian Trust Co Ltd  1 NZLR 213; Medforth v Blake  Ch 86; Youyang, above n45 at paras 54–59 (Young CJ in Eq). For general discussion, see Getzler, above n65.
 These duties may well be owed, as Millett LJ’s comments in Bristol and West Building Society signal, to beneficiaries within a trust or fiduciary matrix, but they do not thereby metamorphose into trust or fiduciary duties. See also Henderson, above n93 at 204–206 (Lord Browne-Wilkinson); White, above n93 at 271–272 (Lord Browne-Wilkinson).
 Bank of New Zealand, above n71 at 687.
 Id at 688.
 Id at 681.
 See further Getzler, above n3; Getzler, above n65; and Elliott, above n9.
 Youyang, above n45.
 Handley JA & Young CJ in Eq.
 Youyang, above n45 at paras 54–59.
 Id at paras 60–62.
 Id at para 97.
 Michael Tilbury, ‘Equitable Compensation’ in Patrick Parkinson (ed), Principles of Equity (1996) at 814.
 See discussions by J Derek Davies, ‘Equitable Compensation: “Causation, Foreseeability and Remoteness” ’ in Donovan Waters (ed), Equity, Fiduciaries and Trusts 1993 (1993); John McCamus, ‘Equitable Compensation and Restitutionary Remedies: Recent Developments’ in Law of Remedies: Principles and Proof (1995) at 295; and Rickett, ‘Where are We Going with Equitable Compensation?’, above n76.
 In an earlier paper on the limits of equitable compensation, I wrote (see Rickett, above n7 at 183 (footnote omitted)): ‘In principle, exemplary damages and aggravated damages may also be properly awarded in some cases. Such damages awards may be sustainable by an appeal to the discretionary jurisdiction. If equity has a discretion to limit, why does it not also have a discretion to enlarge? But caution is the order of the day again. Breaches of duty amounting to disloyalty and infidelity are already met by a plaintiff-friendly approach centered on the “but for” analysis. The disloyalty and infidelity must not be counted twice.’ I have developed serious reservations since writing this, whether exemplary damages are defensible within the framework of the civil law.
 Digital Pulse Pty Ltd v Harris  NSWSC 33; (2002) 40 ACSR 487 (hereinafter, Digital Pulse). The New South Wales Court of Appeal heard an appeal from this decision in August 2002. My understanding at the time of writing is that judgment is likely early in 2003.
 Having held that the defendant employees owed Digital both statutory and general law duties of loyalty, the extent of which was the same, Palmer J examined in some detail the circumstances of the defendants’ breaches of those duties. He concluded that these demonstrated ‘deliberate wrongdoing for profit, in contumelious disregard of Digital’s rights, deserving of special condemnation and punishment’ (at 505 para 128). The defendants defrauded Digital of its valuable business opportunities and its confidential information, and their activities bore the stigma of fraud. Although the damage inflicted on Digital was relatively modest, ‘the character of the defendants’ dishonest conduct strikes at the heart of commercial integrity, upon which the business community, and ultimately the community as a whole, depends’ (at 507 para 134). ‘Employees should know that their deliberate and dishonest breach of their fiduciary duties of loyalty, calculated to produce profit for themselves, will not go unpunished and that, at the end of the day, breach of those duties does not pay.’ (at 507 para 134).
  NZCA 360;  3 NZLR 299 at 302.
 See, for example, Mason J in Hospital Products Ltd v United States Surgical Corporation  HCA 64; (1984) 156 CLR 41 at 109 (a dictum not cited by Palmer J): ‘..., there is authority for the proposition that equity does not assume jurisdiction to punish a fiduciary for misconduct by making him account for more than he actually received as a result of his breach of fiduciary duty. In Vyse v Foster [(1872) LR 8 Ch App 309 at 333] James LJ said: ‘This Court is not a Court of penal jurisdiction. It compels restitution of property unconscientiously withheld; it gives full compensation for any loss or damage through failure of some equitable duty; but it has no power of punishing any one. In fact, it is not by way of punishment that the Court ever charges a trustee with more than he actually received, or ought to have received, and the appropriate interest thereon. It is simply on the ground that the Court finds that he actually made more, constituting moneys in his hands “had and received to the use” of the cestui que trust.’ The decision of the Court of Appeal was affirmed by the House of Lords [(1874)  UKLawRpCh 124; L.R. 7 H.L. 318] without their Lordships reflecting on the passage which I have quoted.’ For recent discussion of the English position, see Chambers, above n12 at 34–37.
 Digital Pulse, above n108 at 512-513 para 164.
 Id at 515 para 172.
 Id at 513 para 165.
 Id at 513 paras 165–166.
 As Professor Chambers writes: ‘Of course, responses to breach of duty are not punishments just because they relate to the consequences of the breach or the moral culpability of the wrong done.’ See Chambers, above n12 at 35.
 Digital Pulse, above n108 at 513-514 para 167.
 Id at 514 para 168.
 Paragraph 5.55 of the Report.
 Palmer J stated that it would be anomalous if exemplary damages were to be available in tort claims but not where the cause of action was equitable: see Digital Pulse, above n108 at 514 para 169.
 Id at 514 para170.
 Id at 514–515 para 171.
 Allan Beever, ‘The Structure of Aggravated and Exemplary Damages’ (2003) 23 OJLS Issue 1 (forthcoming).
 In performance claims, the focus on the primary duty in the duty-right relationship obviously fits the model also. Enforcement of property rights are a little more complex, but since most property rights are enforced indirectly through breaches of in personam duties even here the model is vindicated.
 Beever, above n123 (forthcoming) (emphasis in original; footnotes excluded).
 The decision of the New South Wales Court of Appeal (see above n108) was delivered on 7 February 2003: Harris v Digital Pulse Pty Ltd. The judgments are too long, learned and important to enable full analysis at the proof stage of this paper. By a majority, the Court allowed the appeal against the grant of exemplary damages by Palmer J. Spigelman CJ applied a contract analogy. Since exemplary damages were not available in cases of breach of contract, they were not available in a case such as the present, where there was ‘a relationship created by contract between the parties, in which one party has a fiduciary obligation to act in the interests of the other in relevant respects’ (para 5). His Honour left open the possibility that a tort analogy might be more appropriate in other cases in equity, where, it would seem, the power to award exemplary damages might well be exercised (para 44). Heydon JA, in a firm, scholarly and lengthy judgment, denied any existing jurisdiction in (Australian) equity to award damages whose objective was to punish, and stated that an intermediate appellate court could not change the law to introduce such jurisdiction (para 470). Mason P, in the minority, upheld much of the reasoning of Palmer J, and proceeded on the basis that a recognition of power to award exemplary damages for equitable causes of action aided consistency and coherence in the private law (para 153). The judgments, although directed primarily to the issue of exemplary damages, all contain fascinating insights into the matters highlighted in Part 1 of this paper, and will repay very careful analysis.