Equitable Compensation

• Author: Jeffrey Berryman
• Pages: 476-499

476

CHAPTER 18

EQUITABLE

COMPENSATION

A. INTRODUCTION

Equitable compensation is a remedy derived from equity’s inherent

jurisdiction.1 In this sense it is quite distinct from equitable damages

under Lord Cairns’ Act.2 It is perhaps surprising to speak of a compen-

satory remedy giving damages in equity. As we have seen, much of

equity’s remedial jurisdiction only f‌lows following a f‌inding that com-

mon law damages are inadequate: where damages are adequate, equity

follows the law. Why then the development of equitable compensa-

tion? The chief reason is to provide remedies for the infringement of

purely substantive equitable rights, and primarily breach of f‌iduciary

duty. Where the common law would not recognize a given equitable

right, it was left to equity to create it s own compensatory regime. Other

equitable remedies award monetary relief; namely, specif‌ic perform-

ance with abatement, monetary adjustments accompanying rescission,

1 See Cadbury Schwepp es Inc. v.FBI Foods Ltd.,[1999] 1 S.C.R. 142 [Cadbur y

Schweppes]; and I.E. Davids on, “The Equitable Remedy of Compensation”

(1981–82) 13 Melbourne U.L. Rev. 349. Parts of this ch apter originate from my

article, J. Ber ryman, “Fact-Based Fiduc iary Duties and Breac hes of Conf‌idence:

an Overv iew of their Imposition and Remed ies for Breach” (2009) 15 New Zea-

land Busine ss Law Quarterly 35.

2 An Act to amend the Cour se of Procedure in the High Court of Chancery, the Court

of Chancery in Ireland , and the Court of Chancery of the Cou nty Palatine of Lan-

ca ste r, 1858 (U.K.), 21 & 21 Vict., c. 27.

Equitable Compen sation477

and orders for an account. However, the goal of these remedies is usu-

ally either to provide actual restoration of funds subject to a claim of

an infringed equitable right, or to provide restitution for wrongdoing

leading to disgorgement of prof‌its. The goal of equitable compensation

is to compensate a plaintiff’s actual provable losses.

Any discussion on the place of equitable compensation must take

account of signif‌icant developments in Canada on the law relating to

f‌iduciary duties. A trust relationship is immediately recognized as

a f‌iduciary relationship. Its def‌ining characteristic is the presence of

trust property over which the trustee administers for the benef‌it of

the benef‌iciaries. Where disputes commonly occur is in the misappro-

priation of trust property, or, in the failure to properly administer the

trust and to safeguard the property. The benef‌iciary’s action is to seek

restoration of the trust property through a constructive trust or an

account, and seek compulsory orders to ensure proper administration.

However, the law of f‌iduciaries goes well beyond the trust relation-

ship — while all trustees are f‌iduciaries, not all f‌iduciaries are trust-

ees. This makes the law of f‌iduciaries very open ended and not capable

of categorical classif‌ication, although most jurisdictions do make an

initial distinction between two classes: (1) “institutional” or “status

based,” of which solicitor–client, company–director, principal–agent,

executor–benef‌iciary a re all examples, and (2) “fact-based” or “ad-hoc,”3

of which there is an ever-growing list of ex amples.4 No Commonwea lth

jurisdiction shares identical criteria of recognition or gives the same

nuance to common criteria. Nevertheless, a common starting point for

all jurisdictions is a “meticulous examination of the facts.”5

3 See Lac Minerals v. Intern ational Corona Resources ,[1989] 2 S.C.R. 574[Lac Min-

erals], La Forest J., addi ng the remedial constr uctive trust as a thi rd classif‌ica-

tion of f‌iduciar y.

4 For example, see Frame v. Smith,[1987] 2 S.C.R. 99, f‌iduciary relationship

between former sp ouses to facilitate acce ss rights to children b y non-custodial

parent; Norberg v. Wynrib, [1992] 2 S.C.R. 226 [Norberg]; McIner ney v. MacDon-

ald,[1992] 2 S.C.R. 138, f‌iduciar y duty owed by doctor to patient; Hodgkinso n

v. Sim ms,[1994] 3 S.C.R. 377 [Hodgkinson], accountant to client; Daly v. Sydney

Stock Exch ange (1986), 160 C.L.R. 371 (H.C.A.), stockbroker to client; Com-

monwealth Bank of Australia v. Smith (1991), 102 A.L.R. 453 (F.C.A.), bank to

customer.

5 Hodgkinson, above note 4at 413–14, La Forest J. quoting L ord Scarman in Na-

tional Westminster Ba nk v. Morgan,[1985] 1 All E.R. 821 at 831 (H.L.); and Bren-

nan C.J. in Breen v. Williams (1995–96), 186 C.L.R. 71 at 82 (H.C.A.), quoting

Fletcher Moulton L.J. in Re Coomber, [1911] 1 Ch. 723 at 728–29, “. . . there is

no class of ca se in which one ought more carefully t o bear in mind the facts of

the case, when one re ads the judgment of the Court on t hose facts, than ca ses

which relate to f‌iduci ary and conf‌idential re lations . . . .” Arklow Investments Ltd.