Parr v Keystone Healthcare Ltd & Ors

A fiduciary must disgorge an unauthorised profit received within the scope of the fiduciary duty. Liability does not depend on proof that the principal suffered loss, could have obtained the profit, or provided the profit.

The breach need not cause the profit in the manner required for compensatory relief. There must, however, be a sufficient connection between the breach and the profit. When applying this rule, the court will not investigate what might have happened had the fiduciary performed the duty.

A company director participated in a fraud against Keystone Healthcare Ltd and concealed his wrongdoing. He subsequently sold his shares at full value. The High Court found that disclosure would have triggered compulsory-transfer provisions under which the shares could have been acquired at a 50 per cent discount. It ordered him to account to Keystone for the additional amount received.

The director appealed. He argued that the purchase price had been paid by a holding company to which he owed no fiduciary duty, that his breach had not caused any profit, and that the claim had been pleaded as compensatory damages rather than disgorgement. The central issue was whether Keystone could recover the unauthorised profit despite the difference between the company owed the duty and the company that paid the price.

1. Appeal dismissed. The claim was properly approached as one for recovery of an unauthorised profit. Although the pleading had described damages for breach of fiduciary duty, the case had been advanced at trial as a disgorgement claim. Counsel had agreed that no formal amendment was necessary, and the judge found that an amendment could not have caused prejudice.
2. A fiduciary’s liability to account does not depend on whether the principal suffered loss, could itself have obtained the profit, or supplied the money constituting the profit. Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 established that liability arises from the fiduciary’s receipt of profit in the relevant circumstances. FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45 also showed that payment by a third party to whom no fiduciary duty was owed makes no difference. Sections 176 and 178 of the Companies Act 2006 reflected the same equitable principle.
3. The causation requirement governing equitable compensation did not apply to an account of unauthorised profits. Swindle v Harrison [1997] 4 All ER 705 concerned compensation and was distinguishable. An account instead requires a sufficient connection, reasonable connection or reasonable relationship between the fiduciary breach and the profit. The profit must fall within the scope and ambit of the duty that conflicts, or may conflict, with the fiduciary’s personal interest.
4. The court will not investigate the hypothetical outcome had the fiduciary performed the duty. In any event, the trial judge had found that disclosure would have led to the director’s removal and the compulsory acquisition of his shares at the discounted price. His concealment therefore enabled him to receive twice the amount to which he would otherwise have been entitled. That established the necessary connection between breach and profit.
5. The order granted relief only to Keystone. The fact that another company paid the share price did not convert the award into compensation for that company’s loss. What Keystone did with the judgment sum was a matter for it.

1. Court of Appeal (Civil Division): The appeal was dismissed. The court upheld the order requiring the director to account to Keystone for £650,612.04 as an unauthorised profit.
2. High Court of Justice, Chancery Division: His Honour Judge Stephen Davies, sitting as a High Court judge, entered judgment for Keystone for £650,612.04 on the overpayment claim. No neutral citation is stated.