Disgorgement and Accounts of Profits Explained

Disgorgement and an Account of Profits

The remedy of an account of profits gives effect to a legal entitlement arising from an established wrong. In equity, breach of fiduciary duty is a common basis. Plead the relationship, duty and breach before asking the court to order an account. The underlying fiduciary duty determines which conduct supports relief.

The NSW Supreme Court’s discussion of equitable money remedies distinguishes the defendant’s gain from loss-based compensation. An account can be available even where the claimant has no known loss. Conversely, a claimant can suffer loss without the defendant earning a profit. A suspicious payment therefore needs a legal and evidential explanation before it becomes an item in an account.

Statutory remedies require their own analysis. For example, section 122 of the Patents Act 1990 permits either damages or an account of profits at the plaintiff’s option for patent infringement. That provision concerns patent rights. It does not establish an equivalent entitlement for every commercial dispute or replace the rules governing equitable relief.

Identify the Benefit Attributable to the Wrong

Identify what the defendant obtained through the alleged wrong and follow the records supporting that benefit. Start with the pleaded transaction or diverted opportunity, then test the money movements against the commercial documents.

For a diverted customer payment, connect the customer contract and invoice to the receiving account. For a secret commission, retain the commission agreement, payment advice and records of the recipient’s role. Where a related company receives the money, record its identity separately from the individual defendant. Ownership or control alone does not resolve who must account.

Build an evidence schedule that records each receipt and the basis for including it. Use these checks when completing the schedule:

• Identify the invoice or agreement explaining the receipt and the work that generated it.
• Name the supplied receiving account and its holder.
• Follow later transfers to determine whether they move the same money between related accounts.
• Explain the conduct connecting the benefit to the pleaded wrong.
• Separate any part of the receipt arising from independent work or an existing business.
• Give the source document and page supporting the entry, with a separate field for disputed issues.

A transfer of $60,000 from a receiving company to its director is a second movement of the same money. Counting both movements as new receipts would overstate the starting total. Preserve both entries in the transaction history and count the economic receipt once in the gain schedule.

Causal attribution can extend beyond individual bank credits. In Ancient Order of Foresters v Lifeplan [2018] HCA 43, the High Court examined the value of business connections acquired through knowing assistance. Its reasoning addresses the wrong’s contribution to the benefit and the evidence needed to justify a reduction. This requires analysis of the actual advantage obtained, not an automatic claim to all company turnover.

For large statement bundles, FinTrace takes hours of conversion and transaction review off the legal team or instructed forensic accountant. Its searchable ledger follows transfers across supplied accounts and gives direct access to source PDF pages. That leaves more time to connect the transactions with contracts and evaluate the benefit alleged in the proceedings.

Calculate Net Profit and Contested Allowances

Calculate a provisional net figure from attributable receipts and supported expenditure, while showing contested deductions separately. The schedule must make the effect of each disputed assumption visible.

The following fictional example concerns one diverted contract. Assume the legal team identifies all $240,000 of customer receipts as attributable to the alleged breach. All figures exclude GST, and the example assumes no tax adjustment. The records contain a further $60,000 transfer to the director, already included in those receipts.

On those assumptions, the provisional balance is $140,000. Accepting the overhead deduction alone reduces it to $122,000. Accepting both contested amounts reduces it to $102,000. These figures show the consequences of the disputed claims. They do not decide which deductions the court will allow.

A payment supports expenditure, but its connection to the profit needs its own evidence. For the $18,000 overhead claim, obtain the general ledger and allocation method. Identify which costs relate to the diverted contract and explain whether those costs also support unrelated work. Keep unsupported allocations in the disputed column.

An allowance for skill and effort raises a different issue from reimbursing a supplier invoice. In Lifeplan, the joint reasons discuss allowances for costs, labour and skill alongside limits on attributable benefits. Record the requested allowance separately, with evidence of the contribution and any remuneration already deducted. This prevents the same work reducing the account twice.

Bank records also leave some benefits outside a cash schedule. A business opportunity, acquired asset or unpaid entitlement needs its own entry and supporting documents. Preserve these items for the instructed expert’s assessment instead of assigning them a zero value because no deposit appears.

Before sending the schedule to the expert, reconcile its receipt total to the underlying ledger. Explain excluded internal transfers and retain the original transaction rows. Give the lawyer a separate list of contested attribution issues so a calculation assumption cannot silently become a liability finding.

Election, Interest and Double Recovery

Compare the available remedies before combining any amounts in a demand or proposed order. Equitable compensation restores loss under the applicable equitable principles. An account measures attributable gain. Their availability and the point at which an election binds require advice on the cause of action and procedural stage.

Prepare separate alternatives while the election remains open. The NSW Supreme Court discussion explains the inconsistency between compensation and an account against the same defendant. It also identifies the need for an election. Treat the pleadings, earlier choices and existing orders as part of that assessment.

Use a shared transaction reference to identify overlap. Suppose a separate fictional dispute concerns a $40,000 secret commission also pleaded as a $40,000 loss through an inflated invoice. An account schedule records the commission as a benefit. The compensation schedule records the alleged loss. Adding them produces $80,000 from the same $40,000 economic item without addressing the overlapping recovery.

The lawyer must decide the available alternative or adjustment. Show any repayment or recovery against that same item, including money received from another liable party. Separate genuinely distinct items and explain their basis before proposing cumulative relief.

Keep interest outside the principal-profit calculation. Record the relevant receipt dates and repayments, then identify the legal basis, period and rate claimed. The Council of Chief Justices’ interest guide separates pre-judgment and post-judgment rules by jurisdiction. An equitable interest claim also needs consideration of the relief sought and the court’s power. Do not apply one assumed rate across the entire schedule.

Give the instructed lawyer and accountant both remedy schedules with the overlap references intact. Use those records to settle the disputed items before calculating interest on the selected principal amount.