The trial judge's reasoning on the availability of exemplary damages
257 The trial judge first referred to the leading English authorities decided since 1964. In Rookes v Barnard [1964] AC 1129 at 1226 the House of Lords held that at common law exemplary damages could only be awarded in two areas: in the case of "oppressive, arbitrary or unconstitutional acts by the servants of the government"; and in the case where the defendant's conduct was "calculated … to make a profit … which may well exceed the compensation payable to the plaintiff." In Kuddus v Chief Constable of Leicestershire [2002] 2 AC 122 the House of Lords held (overruling AB v South West Water Services Ltd [1993] QB 507) that Broome v Cassell & Co Ltd [1972] AC 1027 had not limited the power to award exemplary damages to cases where the cause of action had been recognised before 1964 as justifying an award of exemplary damages. The trial judge drew attention to the opinion of Lord Slynn of Hadley in Kuddus v Chief Constable of Leicestershire that the areas in which exemplary damages should be awarded were best defined not by the cause of action relied on but by "the features of the behaviour in question", as Lord Slynn said at [26], or the "categories of conduct", as the trial judge said. The trial judge said that it followed that the court, in deciding whether to award exemplary damages, "should pay no attention to whether the plaintiff sues on a cause of action at law or a cause of action in equity". After referring to Lord Mackay of Clashfern's remarks at [38], which were similar to those of Lord Slynn, the trial judge said:
"there is no logical reason to acknowledge the power of the court to award exemplary damages for wrongful conduct calculated to produce profit in cases where the cause of action is pleaded in tort, for example deceit, but to deny that power when the same conduct is pleaded as a breach of an equitable duty." (at [153])
258 The trial judge then quoted parts of the speech delivered by Lord Nicholls of Birkenhead. He referred in particular to the statement: "the availability of exemplary damages should be coextensive with its rationale". He said that if that were so:
"it is difficult to see why the remedy should be confined to causes of action in tort. Can it seriously be suggested that if my solicitor grossly deceives me in the course of his professional dealing with me and decamps with my life's savings, the law regards my sense of outrage as demonstrably greater if I sue him in a common law court for deceit than if I sue him in an equity court for breach of fiduciary duty? Is there any rational basis for believing the policy of the law in such a case will permit the common law court to vindicate my outrage by an award of exemplary damages but will prevent the equity court from doing so? My answer to both these questions would be in the negative."
259 The trial judge then noted that while the High Court (Australian Consolidated Press Ltd v Uren (1966) 117 CLR 185) and the Privy Council (Australian Consolidated Press Ltd v Uren (1967) 117 CLR 221) had denied that the limitations imposed on English law by Rookes v Barnard existed in Australian law, the traditional view remained that, statute apart, exemplary damages were only available in tort, and not in equity. He said, however, that there was "no decided case upon that point".
260 He then said:
"In Bailey v Namol [ Pty Ltd (1994) 53 FCR 102] at 112, the Full Federal Court (Burchett, Gummow and O'Loughlin JJ) observed that there were authorities in Canada and New Zealand which suggested that as a general proposition exemplary damages could be awarded for breach of fiduciary duty. The court found it unnecessary to decide the point but remarked that ' there is much to be said for the contrary view ... that 'equity and penalty are strangers' : at 112-113.
Extra-curial comment on the question is not wanting. The learned authors of Meagher, Gummow & Lehane 'Equity: Doctrines and Remedies' 3rd Ed, para.259, castigate the majority of the New Zealand Court of Appeal in Aquaculture Corporation v New Zealand Green Mussel Co Ltd ([1990] 3 NZLR 299) for deciding that exemplary damages may be awarded for breach of confidence, citing the case as an illustration of the errors produced by the fallacy that equity and the common law have been fused by the Judicature Acts. The authors quote with approval the statement of Somers J in that case that ' equity and penalty are strangers' .
On the other hand, Dr I.C.F. Spry in 'Principles of Equitable Remedies' (3rd Ed [p 600]) says that there is no reason in principle why a court of equity should not award exemplary damages.
The delphic remark of Somers J. in Aquaculture that 'equity and penalty are strangers' was not explained by his Honour nor was authority cited in support. The remark seems to be an evocation of a view, long held by some, that the concept of punishment was always foreign to the nature of the equity jurisdiction and that equity never gave a plaintiff more than that to which he or she was strictly entitled: D.B. Dobbs 'Handbook on the Law of Remedies: Damages, Equity, Restitution' West (1973) 212 note 99.
However, the concept of punishment was by no means always foreign to the Chancery courts. Numerous decisions in the 16th and 17th centuries may be found which show that Chancery judges exercised a jurisdiction encompassing wrongs such as forgery and perjury, and that defendants were sometimes punished with imprisonment, fines, the pillory and irons: see, for example, in 21 ER the following cases reported by Tothill and by Cary: Barker v Ireland & Morris at 136 (1610-11); Baskervile v Guilliams at 153 (1545-46); Phillips v Benson at 108 (1578-79); Sacheverell v Sacheverell 116 (1621); Barker v Shepheard at 136 (1663); Woodcock v Woodcock 34 (1576-77); Clegge v Waberton at 38 (1577-78); Griffith v Jenkin at 40 (1579).
But 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. When a fiduciary has derived profit by reason of his or her breach of duty, an account of profits is awarded in favour of the plaintiff. Allowances for the work and skill of the fiduciary in producing the profits are given in the accounting. If there has been no actual dishonesty on the part of the fiduciary in deriving the profit, the allowances are said to be on a liberal scale, but if there has been dishonesty then the Court, in its discretion, may stipulate that the scale of allowances will not be liberal and will reflect the degree of the fiduciary's dishonesty: see e.g. Phipps v Boardman [[1967] 2 AC 46] at 104, 112; Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No.2) [1984] WAR 32; Bailey v Namol at 112. A grossly dishonest fiduciary may even be deprived of his or her allowances altogether: see, e.g., Mason & Carter Restitution Law in Australia , para.1735.
In USSC v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 (reversed on appeal (156 CLR 41) without affecting the present point), the Court of Appeal would have deprived the dishonest fiduciary defendant of any allowance at all for its skill and effort in building the business over which the plaintiff claimed a constructive trust. The Court, at 242, adopted as applicable to the determination of what allowance should be made to a defaulting fiduciary the following passage from Story on Equity (3rd Ed) para.697:
' On the other hand, where the party seeking relief is the sole guilty party, or where he has participated equally and deliberately in the fraud; or where the agreement which he seeks to set aside, is founded in illegality, immorality, or base and unconscionable conduct on his own part; in such cases courts of equity will leave him to the consequences of his own iniquity; and will decline to assist him to escape from the toils which he has studiously prepared to entangle others, or whereby he has sought to violate with impunity the best interests and morals of social life. And if acts of this sort have been deliberately done under circumstances in which innocence has been betrayed, or confidence seduced, or falsehood or concealment systematically practised, a fortiori, courts of equity could not, without straining the administration of justice, interfere to save the party from the just results of his own gross misconduct, when the failure of success in the scheme would manifestly be the sole cause of his praying relief.'
Again, it is difficult to suggest that there is no element of deterrence underlying the often-cited statement of James LJ in Parker v McKenna ((1874) LR 10 Ch.App. 96, at 124) that the rule that a fiduciary cannot make any profit without the knowledge of his principal is 'an inflexible rule, and must be applied inexorably by this Court, which is not entitled, in my judgment, to receive evidence, or suggestion, or argument as to whether the principal did or did not suffer any injury in fact by reason of the dealing of the agent; for the safety of mankind requires that no agent shall be able to put his principal to the danger of such an inquiry as that.' That statement recognises that an honest fiduciary who has, by unwitting breach of duty, made a profit that the principal would never have obtained by his or her own efforts must, nevertheless, account to the principal in order that the standards of integrity required of fiduciaries may be kept up and fiduciaries may not succumb to the temptation to stray.
In proposing that exemplary damages be available for breach of fiduciary duty, breach of confidence and procuring or assisting in a breach of fiduciary duty, the United Kingdom Law Commission, in its Report No.247 'Aggravated, Exemplary and Restitutionary Damages' said at para.5.55:
' But despite the absence of English authorities for awarding exemplary damages for an equitable wrong, we can ultimately see no reason of principle or practicality for excluding equitable wrongs from any rational statutory expansion of the law of exemplary damages. We consider it unsatisfactory to perpetuate the historical divide between common law and equity, unless there is a very good reason to do so. Professor Waddams argues, ... the availability of exemplary damages should not be determined by classification of the wrong as a common law tort or as a breach of an equitable obligation ... Indeed, we can see good reason for allowing punitive damages to be recovered against, for example, the dishonest trustee who acts in breach of his fiduciary duty or the person who dishonestly abuses another's confidence. Thus if, as we propose, punitive damages are awardable in respect of the (common law) tort of deceit, it would be anomalous if analogously wrongful conduct could not also give rise to an award, just because the cause of action originated in equity. Moreover, 'deterrence' is an aim that is not alien to courts of equity. For example it is a clear aim of the commonplace equitable remedy of an account of profits awarded for breach of fiduciary duty or breach of confidence.'
In my opinion, the present position in Australia can be summarised thus. There is no authority which decides that exemplary damages cannot, as a matter of principle, be given by a court of equity for breach of fiduciary duty. Accordingly, to hold that wrongful conduct which would attract an award of exemplary damages in an action in tort cannot attract exemplary damages if the cause of action is equitable creates an anomaly which, in this country, is not justifiable either by precedent or by principle.
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.
There is no need to appeal to any perceived fusion between the principles of equity and those of the common law in order to invest the equity court with jurisdiction to award exemplary damages. Such jurisdiction is already inherent in the court. It is, and always has been, a court of conscience; at least until the early seventeenth century, it frequently inflicted punishments in aid of its ordinary and traditional jurisdiction. Since then the exercise of the jurisdiction to punish has been muted, manifesting itself in the manner in which dishonest fiduciaries, as distinct from honest fiduciaries, will be called to account for profits and in the higher rate of interest imposed upon dishonest defaulting trustees, as distinct from honest defaulting trustees. The jurisdiction of the equity court to punish and deter may have been muted for many years but it is by no means dead.
Finally, as has been pointed out by the High Court, it is no longer appropriate to think in terms of a 'sharp cleavage' between the criminal law and the civil law. The equity court, which at least in NSW administers the Corporations Act , is empowered to inflict punishment under the civil penalty provisions on those who breach duties under the Corporations Act which in former times were cognisable only in equity: Pt.9.4B Corporations Act . Likewise, criminal courts are increasingly invested with jurisdiction to award compensation to victims of crime, a jurisdiction formerly exercised only by civil courts: see Gray at 7-8. Whatever the views of Chancery lawyers in former times might have been as to the place of punishment and deterrence in the jurisdiction of equity, the rationale for depriving the equity court of such a jurisdiction has now disappeared. As the New Zealand Court of Appeal said in Aquaculture at 301:
' The practicality of the matter is that in the circumstances of the dealings between the parties the law imposes a duty of confidence. For its breach a full range of remedies should be available as appropriate, no matter whether they originated in common law, equity or statute '."
261 It was for those reasons that he concluded that Australian law permits the award of exemplary damages for breach of fiduciary duty.