England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, CHANCERY DIVISION
(The Hon. Mr. Justice Etherton)

		Royal Courts of Justice Strand, London, WC2A 2LL
		29/07/2005

Lady Justice Arden :

1. This is an appeal from parts of the orders dated 28 May and 14 July 2004 of Etherton J. These orders gave effect to the various judgments of the judge following the trial of this action.

Background

2. The claimants in this action, who are the respondents to this appeal, are two sisters, Aysha and Layla Mohammed Murad. I shall call them the Murads. In the action, they sought from the defendants, who are now the appellants, wide-ranging relief including rescission, declarations, damages and an account of profits and other benefits. The respondents are Westwood Business Inc and Mr Hashim Ibrahim Khahil Al-Saraj, whom I will call respectively Westwood and Mr Al-Saraj. Westwood is a company owned by Mr Al-Saraj.
3. In about September 1997, Mr Al-Saraj proposed to the Murads that they should together buy a hotel, called the Parkside Hotel in Clapham, London, for £4.1 million, of which £1 million was to be paid by the Murads, and £500,000 by Mr Al-Saraj. The balance was to be raised by way of bank loan. It was orally agreed between the parties that Mr Al-Saraj and the Murads would share the revenue profits from the hotel as to one third each. If the hotel was sold, the capital profit would be shared 50:50 between Mr Al-Saraj on the one hand and the Murads on the other hand. The purchase of the hotel was effected by Danescroft Properties Limited ("Danescroft"), a Gibraltarian company owned by Mr Al-Saraj and the Murads on 26 November 1997, and the consideration stated in the transfer was £3.6 million. In December 1997, the Murads entered into a written agreement with Westwood, called the Westwood agreement by the judge, and this agreement regulated the disposal of the proceeds of sale.
4. In the action the Murads contended that prior to the purchase of the hotel Mr Al-Saraj represented to them that the purchase price for the hotel would be £4.1 million and that he would make his contribution of £500,000 to the purchase price in cash. In the event, this contribution had been made by offsetting unenforceable obligations of the same nominal aggregate amount due from the vendor, a Mr Al Arbash, to Mr Al-Saraj against part of the price. The obligations included a sum of £369,000, which represented Mr Al-Saraj's commission for introducing the purchasers to Mr Al Arbash. Mr Al-Saraj argued that it was not necessary for him to contribute the £500,000 in cash. However, the judge found against Mr Al-Saraj. He held that Mr Al-Saraj had fraudulently represented that the total price for the hotel would be £4.1 million and that his contribution of £500,000 would be in cash. He also accepted the Murads' case that the actual price of the hotel was £3.6 million not £4.1 million. However, the judge found in favour of Mr Al-Saraj that, although the £500,000 set off could not be described as part of the purchase price for the hotel, the seller would not have sold the hotel for anything less than £4.1 million in total. The judge further held that there was a fiduciary relationship between the Murads and Mr Al-Saraj in relation to the joint venture to acquire the hotel. He held that: "The relationship between [the Murads and Mr Al-Saraj] was a classic one in which [the Murads] reposed trust and confidence in Mr Al-Saraj by virtue of their relative and respective positions." (judgment, para 332). There is no appeal from that holding. The judge further held that Mr Al-Saraj was in deliberate breach of his fiduciary duty in not disclosing to the Murads that he was making his contribution by way of set off.
5. He found that, separately from the £500,000 referred to above, Mr Al-Saraj contributed £225,817.99 in cash towards the total purchase price and expenses of purchase. It is said by the respondents that Mr Al-Saraj lent this sum to Danescroft, and is therefore a creditor of Danescroft for this amount.
6. The judge handed down his judgment on 28 May 2004. He made a number of orders, including an order that there should be judgment for the respondents for an account of the appellants' profit from the sale of the hotel. He adjourned the question of whether any part of the £500,000 set off should be treated as part of the costs and expenditure of the appellants for the purpose of calculating the appellants' profit from the transaction.
7. The matter came back before the judge on 12 July 2004 and again on 25 February 2005 when the judge made a number of further orders. In particular, he ordered that the appellants should account to the respondents for the entire profit which they made from the acquisition of the hotel excluding any sums or benefits to which Mr Al-Saraj was entitled as an employee of the company which managed the hotel. The judge further ordered that "the amount of £500,000 negotiated and agreed between Mr Al-Saraj and [the seller of the hotel] should be treated for the purposes of the account as an expense of the transaction incurred by [Mr Al-Saraj] whereby [Danescroft] was enabled to acquire the Parkside Hotel." The judge rejected the respondents' contention that the sum of £369,000 should not be allowed because it was a secret commission. He held that there should have been a separate pleaded claim for an account of that sum.
8. The appellants appeal against the judge's order for an account. There are a number of grounds of appeal, but the primary ground is that the account of profits should have been limited to the profits obtained by the breach of fiduciary duty. They submit that the judge should have taken account of the fact that he found that, if the set off had been disclosed to the Murads, they would have agreed to go ahead with the acquisition of the hotel but demanded a higher profit share. Accordingly, the appellants' case is that they should only be liable for the loss incurred by the Murads as a result of the non-disclosure of the set off arrangement.
9. The appellants raise further grounds of appeal. In particular, they submit that it was not open to the respondents on the pleadings to contend that it had been agreed between the Murads and Mr Al-Saraj that the sum of £500,000 should be contributed by him in cash.
10. The respondents for their part cross appeal on the issue of whether the judge was correct in holding that the sum of £500,000 should be allowed to Mr Al-Saraj on the account as an expense of the acquisition of the hotel.
11. The form of the judge's order of 14 July 2004 was not settled until 25 February 2005. Mr Stephen Cogley, for the appellants, has sought leave to amend his grounds of appeal so as to challenge the inclusion in the judge's order of revenue, as well as capital, profits. It is clear from the judge's judgment of 25 February 2005 that the judge intended that such revenue profits should be included on the grounds that they were a profit made in breach of duty.

The judgment below

12. The judge gave a lengthy judgment on 28 May 2004. As the appeal is against part only of his findings, it is not necessary for me to summarise it all. Crucially, the judge made the following findings about the effect of the alleged misrepresentation:-

"286. Having heard Mrs Murad and her husband in the witness box, and considering the evidence as a whole, I reject any suggestion that she would simply have accepted, without question or proof, that the set-off arrangement of £500,000 was equivalent to a cash contribution of the same amount. She would have enquired as to the genuine existence of the indebtedness and its composition. Such enquiry, if truthfully answered, would have disclosed that the commissions represented by the £500,000 were not the result of any legal obligation under a continuing contractual retainer, but were the result of negotiation and agreement in the context of the sale of the Hotel to Claimants and the Defendants. Mrs Murad would have discovered, on Mr Al-Arbash's evidence, that as much as £369,000 commission was attributable to the sale of the Hotel to the Claimants and the Defendants. In other words, Mr Al-Saraj was treating as a substantial part of his contribution to the purchase price a notional commission on the sale to himself. The overwhelming probability is that Mrs Murad would have rejected any such commission as giving rise to any entitlement to a share in the revenue or capital profits of the Hotel.

287. I consider that the probability is that, in the light of the complicated nature of Mr Al-Saraj's proposed contribution to the purchase price, and the scepticism with which Mrs Murad would have greeted it, Mrs Murad's strong inclination would have been to reject the investment proposal as a whole. I accept her evidence, however, that Mr Al-Saraj was extremely keen to persuade her to invest. He would have used all his skill and experience to persuade her to do so. In the light of an actual cash contribution of over £225,000, I consider, on balance, that he would have succeeded in persuading her to invest, but, in order to achieve that agreement, he would have been prepared to accept that, and Mrs Murad would only have agreed to proceed on the basis that, he (or Westwood) would be entitled to receive less than 50% of the capital profit on any resale.

288. Neither side has advanced any submissions to me as to what percentage would have been agreed between the parties if Mr Al-Saraj had disclosed all the facts to Mrs Murad. For the reasons which appear subsequently in this judgment, it is not necessary for me to reach any conclusion as to what precise share would have been agreed in favour of Mr Al-Saraj or Westwood."

13. There is no appeal from the judge's finding that Mr Al-Saraj was a fiduciary vis-à-vis the Murads. The appellants do not challenge the right of the respondents to proceed on the basis of an account, rather than their claim to damages for fraudulent misrepresentation. The judge held that the remedy of account was "a particularly appropriate remedy in the case of deliberate and dishonest conduct designed to achieve a commercial advantage for the fiduciary over [sic] those to whom he owes his fiduciary duty." (judgment, paragraph 340). The judge continued: "In this connection, I record, for the sake of completeness, that Mr Cogley accepts that, if I had found there was a deliberate and dishonest breach of duty by Mr Al-Saraj, there could be no claim by him for any reward or allowance for introducing to the claimants the investment in acquiring the hotel." (judgment paragraph 341). However, the respondents accepted before the judge and in this court that Mr Al-Saraj's right to be remunerated for managing the hotel on the basis agreed by the parties should not be disturbed, and in addition that Mr Al-Saraj would be able to recover his loan of £225,817.99.
14. With respect to the claim for an account of profits, the judge held as follows:-

"347. In my judgment, the Claimants are entitled, by reason of Mr Al-Saraj's actionable deceit, to an account of the profit to which Westwood is entitled under the Westwood Agreement. In this connection, I should observe that no submission was made to me by either side that, if I came to the conclusion that the Claimants are entitled to an account of profit by reason of Mr Al-Saraj's deceit, the account of profit should be for anything less than the entire profit to which the Defendants are entitled out of the proceeds of sale of the Hotel by Danescroft."

Submissions of the appellants

Extent of the liability to account

15. This ground of appeal states:

"The Learned Judge ordered an Account of Profits that the Defendants would otherwise have been entitled to under the Westwood Agreement (which apportioned the net profits upon the sale of the Hotel the subject matter of the joint venture). The learned Judge concluded that the effect of the fraudulent misrepresentations – which also founded a breach of fiduciary duty, was that if full disclosure had been made, i.e. no misrepresentation, the joint venture would still have gone ahead but each party would have negotiated a different profit share: accordingly instead of the Defendants receiving 50% of the net distributable profits they would have received a lesser percentage. The Judge made these express findings (which did not form the subject matter of either party's case) in order to identify loss for the purposes of advancing the Claimants' case based on waiver of tort. However, having so found, it follows that the Account of Profits, the subject matter of the waiver of tort, and breach of fiduciary duty, is limited to the profits obtained via such tort/breach of fiduciary duty – namely the difference between the 50% agreed under the Westwood Agreement, and that sum which the Claimants' would have agreed with full knowledge. Accordingly the Learned Judge was wrong in law, and was not entitled to hold, the Account be of all profits that the Defendants would otherwise receive under the Westwood Agreement. Not only is there no correlation between the Account ordered and the breaches of duty/misrepresentation alleged, but the Account of Profits ordered is a remedy for entirely different wrong – namely a breach of fiduciary duty/misrepresentation which would have caused the Claimants to withdraw from the joint venture. This consequence was contended for by the Claimants – but specifically rejected by the Judge."

16. Mr Cogley submits that not to take account of the fact that, even if disclosure had been made, the Murads would still have agreed to go ahead with the acquisition of the hotel, albeit with a larger profit share, results in the unjust enrichment of the Murads. The hotel was ultimately sold for a profit of £2 million. Under the judge's order, Mr Al-Saraj will not share any part of this. The allowance of £500,000 does not alter this. The fact remains that, without the set off arrangement, the hotel would not have been acquired at all. Mr Cogley submits that there has to be a direct correlation between the breach and the profit for which a fiduciary is ordered to account. Mr Cogley submits that, as a part of the funding of the purchase of the hotel, Mr Al-Saraj contributed, by way of set off, the sum of £500,000 and in addition the sum of £225,817.99. The Murads, on the other hand, made a total contribution of £858,744. This was put up by way of loan to Danescroft.
17. Mr Cogley submits that both the nature of the fiduciary relationship and the consequences of the breach have an impact on the scope of any account of profits. Mr Cogley submits that the account which was ordered went well beyond stripping Mr Al-Saraj of the profit for breach of fiduciary duty. There has to be a link between the identified breach of duty and the profit.
18. Mr Cogley submits that in all the earlier authorities there was a nexus between the profit and the breach of duty. In this he relies on Boardman v Phipps [1967] 2 AC 46, Regal (Hastings) Limited v Gulliver [1967] 2 AC 46; Gwembe Valley Development Company Limited v Koshy (No3) [2003] EWCA Civ 6048. Mr Cogley submits that the effect of the judge's judgment at paragraph 287 is that some part of the profit must in fact have been authorised. He accepts that the common law principle that damages are to compensate a party for his loss, does not apply in this field. Nonetheless, he submits that there has to be some connection between the breach of duty and the remedy. In particular, he submits that there is a distinction to be drawn between the failure to make disclosure affecting the whole of a transaction and the failure to make disclosure affecting part only of the transaction.
19. Mr Cogley relies on Swain v Law Society [1982] 1WLR 17 (reversed on other grounds [1983] AC 598), in which this court held that there had to be a nexus between the breach of fiduciary duty and the profit which the claimant sought to recover.
20. Mr Cogley relies on Bristol & West v Mothew [1998] Ch 1 in support of the proposition that the remedy for breach of trust needs to be no more than is necessary. On his submission, this case also establishes that it is the nature of the duty which determines the nature of the breach.
21. Mr Cogley further relies on Warman International Limited v Dwyer [1994-l995] 182 CLR 541, a decision of the High Court of Australia. In this case, the fiduciary was a director who had misappropriated corporate opportunities. The trial judge ruled that all the profits should be disgorged. The High Court limited the account to two years. It held that the onus was on the defendant to prove that profit was not generated by his breach of duty. The High Court held that the remedy of account should not be transformed into a vehicle for unjust enrichment.
22. Mr Cogley also relies on Fyffes Group v Templeman [2002] Lloyds Law Rep 643. The issue in that case was whether there should be an account by a person who had given a bribe. Toulson J held that there should be no such account because the principal of the bribed agent would have entered into the contract anyway.
23. Mr Cogley accepts that he did not address the judge on the extent of liability to account when the judgment was handed down (see paragraph 347 of the judgment set out above). However, he contends that he is entitled to challenge the question of the extent of the liability to account because of the judge's later order.
24. In short, Mr Cogley submits that the court should circumscribe the account in this case and determine what the profit shares would have been if Mr Al-Saraj had disclosed his profit. The case would have to be remitted to the judge to determine this amount.
25. In addition, Mr Cogley submits that the sum of £225,817.99 advanced in cash by Mr Al-Saraj to Danescroft in connection with the acquisition of the hotel, and the sum of £131,000 (being the balance of £500,000 less £369,000) ought at the very least to be treated as representing his profit share in the acquisition of the hotel. The respondents' investment was £858,000, being the sum in cash ultimately advanced by them for the acquisition of the hotel. On these figures, Mr Cogley contends that Mr Al-Saraj would be entitled to a 29.3 per cent profit share in the company.

The pleading point

26. Mr Cogley submits that the pleadings did not permit the respondents to raise a case that the £500,000 was agreed to be raised in cash, but accepts that this is no more than a point on the pleadings. He cannot say that he would have called some further evidence if he had known that a wider view was being taken.

The revenue profits point

27. Mr Cogley submits that, by virtue of the judge's order dated on 25 February 2005, the account was widened to include revenue profits arising from the acquisition of the hotel. The hotel traded for some six years and was then sold as a going concern. It traded profitably. Mr Cogley submits that in his main judgment the judge found that the legal consequences of Mr Al-Saraj's failure to disclose affected his capital share. He submits that this court should not assume that Mr Al-Saraj's share of revenue profits would be likewise affected.

The allowance in the account for the sum of £500,000

28. Mr Cogley seeks to uphold the judge's judgment of 12 July 2004. He opposes the respondents' cross appeal against this order, which seeks an order of this court disallowing that part of the sum of £500,000 which represented a secret commission on the acquisition of the hotel.

The proper claimant in respect of the secret commission

29. Mr Cogley submits that the proper claimant in respect of any alleged secret commission paid to Mr Al-Saraj on the acquisition of Parkside Hotel is Danescroft. Although the judge held that Mr Al-Saraj owed fiduciary duties to his fellow co-adventurers, when it came to the purchase of the hotel the purchaser was Danescroft. The respondents made a deliberate decision at the start of the trial that Danescroft should not be joined as a party to the proceedings. Indeed, one of the directors of Danescroft was present at the trial and it was stated on his behalf that Danescroft did not wish to be a party. If Danescroft now brought separate proceedings, the appellants would raise defences. Specifically, they would seek to argue that it was an abuse of the process for Danescroft to bring separate proceedings. All the issues should have been determined in the current proceedings. In support of this submission, Mr Cogley relies on Johnson v Gore Wood [2002] 2 AC 1. Alternatively, the appellants would seek to argue that the Danescroft must have ratified the commission or be estopped by reason of its acquiescence and delay in seeking to recover the sum of £369,000.

Submissions of the respondents

Extent of the liability to account and the revenue profits point

30. Mr Guy Newey QC, for the respondents, submits that a fiduciary who obtains a benefit as a result of a conflict between his interest and duty, is liable to account for that profit. It is not a question of there being a duty to inform; it is a principle of accountability.
31. Mr Newey submits that there was a plain nexus in this case between the breach of duty and the account. In this regard, he relies on the judge's observation on the application for permission to appeal in this case that: "The fiduciary has to take the position that he or she must disgorge all the profit made from the transaction". Mr Newey also relies on paragraph 47 of the judgment of Morritt LJ in United Pan-Europe Ltd v Deutsche Bank AG [2000] 2 BCLC 461.
32. Mr Newey relies on Gwembe Valley v Koshy. In this case, Mummery LJ held that, if a fiduciary makes a profit without informed consent from his principal, he is accountable to the party to whom the fiduciary duty is owed. The Gwembe case also establishes that it is not a defence for a fiduciary to say that he would have made a profit even if he had acted properly. Mr Newey submits that the decision in the Gwembe case is consistent with the decision of the House of Lords in Regal (Hastings) v Gulliver. He submits that the same principle is reflected in the decision of Slade J in English v Dedham Vale Properties Limited [1978] 1WLR 93. In that case, Slade J ordered simply an account of the profits resulting from the planning permission. Accordingly, in this case, the sum of £131,000 should just be a credit in the taking of the account.
33. Mr Newey submits that one of the reasons why courts of equity do not inquire into what profit the fiduciary would have obtained, if the duty had been performed, is that it is difficult to investigate such matters. The burden is put on the defendants. A further reason is the need for deterrence. It is a very well established rule of policy in these cases that the court should not inquire into whether the principal had in fact suffered a loss. In this regard, Mr Newey relies on ex parte James (1803) 8 Ves.337 and Parker v McKenna (1874) LR 10 Ch App 96. He further relies on Bray v Ford [1896] AC 44, the Regal case per Lord Wright, United Pan-Europe Ltd v Deutsche Bank AG per Morritt LJ at paragraph 47, and the Gwembe case at page 164. Mr Newey submits that while an account may be ordered of an unauthorised profit, this is because there would be no difficulty on investigation. In this case, no part of the profit was the subject of informed consent. No untainted share of profits can be identified.
34. Mr Newey submits that the Murads would not have accepted that Mr Al-Saraj was entitled to any share of profits at all, whether revenue or capital. Mr Newey submits that not only was the sum of £500,000 not paid in cash as promised, but also the judge found that the price was £3.6 million not £4.1 million. That was the price in the transfer for the hotel. The set off in respect of amounts totalling £500,000 due to Mr Al-Saraj from the owner of the hotel was in respect of matters which the judge found did not constitute legally binding obligations of the owner of the hotel. The Murads would not have accepted that liabilities of this kind should count as costs of the acquisition. Moreover, the advance of £225,817.99 was never intended to give rise to a profit share. It was simply an advance of cash. The parties referred to this sum in the Westwood agreement. It was only the sum of £500,000 which was to give rise to a profit share. The question whether in the light of the judge's findings about fraudulent misrepresentation any part of that sum should be treated as giving rise to a profit share should have been ventilated at trial.
35. Mr Newey distinguishes the Fyffes case on the grounds that this was not a case about a fiduciary but about a defendant who was found liable for dishonest assistance in a breach of trust. Mr Newey submits that different principles apply here. If the principles are the same, the Fyffes case is inconsistent with the Gwembe case and cannot stand.
36. Mr Newey also seeks to distinguish the Warman case. In that case there was a mixed fund, which is not the situation in this case. Mr Newey points out that this is a decision of the High Court of Australia and submits that the High Court has taken a wider view of the jurisdiction to allow allowances on an account than the English courts. Mr Newey relies on the passage at page 558 which makes in clear that the imposition of the liability to account is grounded in policy to ensure that other fiduciaries are deterred. Mr Newey also relies on the passage at page 561 to 562 that the defendant has the burden of proof at trial.
37. Mr Newey submits that it is contrary to public policy that the fiduciary should recover any profit in these circumstances.

The allowance in the account of the sum of £500,000

38. Mr Newey accepts that as a matter of law, the court can make an allowance against a profit found on the taking of an account but in this case it was conceded that no such allowance was available. In this regard, Mr Newey relies on two passages in the judge's judgments (at paragraphs 61 and 341) in which the judge stated that it was conceded that there could be no allowance on the taking of the account for Mr Al-Saraj's work in securing the investment. That is a different matter from whether or not there could be any allowance for a profit share in respect of monies which he put into the joint venture.
39. In support of his cross appeal, Mr Newey submits that an equitable allowance is only allowed where the court can be satisfied that, if it is allowed, it will not encourage fiduciaries to act in breach of duty. Accordingly, an allowance is limited to a sum in respect of the fiduciary's services to enable the profit to be earned. In support of this submission, Mr Newey relies on Guinness v Saunders [1990] 2 AC 663 at page 791E per Lord Goff.
40. Mr Newey submits that the judge found that £369,000 out of this sum of £500,000 represented indebtedness in respect of a secret commission agreed to be paid by the owner of the hotel to Mr Al-Saraj in respect of the sale to Danescroft. Accordingly this should not in any event be allowed as a deduction from the account. As regards the sum of £225,817.99, Mr Newey submits that this was a loan to Danescroft which will be repaid and accordingly no reduction from profit should be made in respect of that sum.
41. Mr Al-Saraj will be remunerated for his services under the terms of the judge's order of the 12 July 2004. The effect of the judge's order is not to put Mr Al-Saraj in any worse position from that in which he was before. The effect of the order is simply to strip him of any profit. The Murads regard themselves as having been tricked by Mr Al-Saraj, and the judge so found.

The proper claimant in respect of the secret commission

42. Mr Newey submits that the exclusionary rule in Johnson v Gore Wood does not apply in the present case. The company had no claim to recover the commission. In this regard he relies on Shaker v Al-Bedrawi [2003] Ch 350. That case also establishes that if a party wishes to rely on the exclusionary rule, it has to show that the company would also have a claim. Mr Newey submits that in the present case there was no breach of duty to the company.
43. Mr Newey submits that a similar submission was made to the judge that Mr Al-Saraj was a fiduciary for Danecroft, not the Murads. But the point was not raised that Danescroft was also the proper claimant in relation to the commission. The point now raised on Johnson v Gore Wood on the commission was thus not raised below. He submits that the respondents are prejudiced. The point should have been raised at trial or at one of the hearings thereafter. In any event, the point on his submission is arid because, if the company had a claim, there would be no answer to it.
44. On the judge's finding, this was treated as a cost of the acquisition in its entirety and it was accordingly allowed as a deduction from the profits for which Mr Al-Saraj was to account. But it is said that this overlooks the fact that some £369,000 was a commission earned by Mr Al-Saraj on the acquisition of the Parkside Hotel for which he should account as a secret profit. On the judge's findings, no objection can in my judgment be taken to the allowance of the balance of the £500,000, namely the £131,000.
45. The claim for an account of the £369,000 is in my judgment unanswerable on general principles unless of course the claim to recover that sum belongs to Danescroft. I now turn to that issue.

Conclusions

Extent of the liability to account and the revenue profits point

46. It would be tempting to jump to the conclusion from paragraph 347 of the judge's judgment (set out in paragraph 14 above) that in this case the judge took the novel step of awarding the equitable remedy of account for the common law tort of deceit (cf Attorney General v Blake [2001] 1AC 268), but that is not in my judgment the true interpretation of the judge's judgment. The judge gave a remedy of account because there was a fiduciary relationship. For wrongs in the context of such a relationship, an order for an account of profits is a conventional remedy. The Murads considered that that remedy would be more beneficial to them because, if they were awarded damages at common law, they would simply be entitled to recover the difference between the profit share to which they agreed and that which they would have negotiated if the true position had been disclosed to them. The reference to deceit is, however, a reminder that the judge's finding was that Mr Al-Saraj's failure to disclose the set off arrangement to the Murads was both deliberate and fraudulent, a point to which I shall have to return.
47. A distinguishing feature of this case is that, because the claim was brought both in tort and for breach of fiduciary duty, the judge carefully made all the findings which might be relevant if his conclusion on fiduciary duty was reversed on appeal. He accordingly made a finding as to what the Murads would have done if they had been given the information withheld from them. As I have explained, he held that the Murads would still have entered into a joint venture with Mr Al-Saraj but they would have agreed with him that he should have a reduced profit share. The appellants seize on that finding as relevant also to the question of liability to account as a fiduciary. The finding is highly compressed, and it is not clear, on the facts as found by the judge, exactly why the Murads would have agreed to give Mr Al-Saraj a profit share in the changed circumstances. I consider it most likely that what the judge had in mind was that the Murads would have agreed to give Mr Al-Saraj a profit share in return for a cash injection (other than by way of loan). In other words, what the judge found was that the Murads would have given him a profit share in return for an investment not as a reward for the service of introducing the Murads to the Park Hotel venture. If the position had been the latter, the more obvious course for Mr Al-Saraj would have been to attempt to convince the judge on the taking of the account that he ought to be allowed a profit share as an introductory fee.
48. Even on my reading of the judge's findings, it is not clear if the Murads would have been willing to give Mr Al-Saraj a (reduced) profit share if they were not also told about the secret commission Mr Al-Saraj was to receive from Mr Al Arbash. But that is by the by.
49. There has been some debate as to whether Mr Al-Saraj was liable for breach of fiduciary duty because he was under a duty to disclose information which he failed to disclose, or whether he made a secret profit for which, in the absence of disclosure and the consent of the Murads, he is liable to account on the basis that such liability is an incident of the fiduciary relationship rather than a breach of duty. The judge's judgment suggests the former. The respondents rely on the latter because that leads them directly to the Regal case. For my own part, for the purposes simply of the question on this appeal, I do not think it matters which way the appellants' liability is analysed.
50. Before going further I must deal with the submission that it is now too late for the appellants to raise the issue of the scope of the liability to account. I have set out above paragraph 347 of the judge's judgment where he noted that no submission had been made to him that the account should be of anything less than the whole of the profit from the acquisition of the Parkside Hotel. The scope of the liability to account was the subject of further submissions to the judge after judgment, and accordingly I would not hold that the appellants are precluded from challenging the order for account made by the judge on 28 May 2004 on the grounds, as suggested, that the judge made an error of law.
51. There is in fact another pleading point, which has not in fact been pressed by Mr Cogley but with which I should deal. It concerns the question whether the respondents could contend for the disallowance from the account of the £369,000 commission forming part of the £500,000 set off agreed between Mr Al Arbash and Mr Al-Saraj.
52. In disagreement with the judge, I do not consider that there had to be any pleaded claim to recover the sum of £369,000 since the Murads' case is that the sum of £500,000 should (to that extent) be disallowed as an expense on the taking of the account. Moreover, the judge also rejected the claim to disallow the sum of £369,000 on the footing that Mr Al Arbash would not have sold the hotel to the parties unless that sum had been paid, but the logically prior point is whether Mr Al Arbash insisted on paying a commission in the first place. It does not follow from the set off arrangement that he required there to be a commission. Indeed, that would be contrary to common sense.
53. It would be convenient to record that neither counsel had suggested that the sum of £500,000 should be valued for the purposes of the account rather than taken at its nominal amount.
54. The argument which Mr Cogley makes is a powerful one. His case is that, where a fiduciary is made to account, there has to be a link between the profit and his wrongful act. This argument receives powerful support from the judgment of Millett LJ in Bristol & West v Mothew, with whom Otton LJ agreed:

"Although the remedy which equity makes available for breach of the 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 damages should not be applied by analogy in such a case. It should not be confused with equitable compensation for breach of fiduciary duty, which may be awarded in lieu of rescission or specific restitution.

This leaves those duties which are special to fiduciaries and which attract those remedies which are peculiar to the equitable jurisdiction and are primarily restitutionary or restorative rather than compensatory…"

55. On Mr Cogley's submission, the account ordered by the judge would not be restitutionary or restorative. It would result in unjust enrichment of the Murads. It is (he submits) wrong in principle that the Murads should receive the benefit of any profits which, if there had been full disclosure, they would have been content for Mr Al-Saraj to have. They all along anticipated being co-venturers with him and so expected him to have a share of the profits from the acquisition of Parkside Hotel. Increases in profits not attributable to his wrongful conduct should be excluded from the profits for which he has to account. There is the further circumstance that the judge found that Mr Al Arbash would not have sold the hotel to Danescroft but for the set-off arrangement negotiated between him and Mr Al-Saraj.
56. To test Mr Cogley's argument on the extent of the liability to account, in my judgment it is necessary to go back to first principle. It has long been the law that equitable remedies for the wrongful conduct of a fiduciary differ from those available at common law: hence the observations in the first paragraph of these conclusions. Equity recognises that there are legal wrongs for which damages are not the appropriate remedy. In some situations therefore, as in this case, a court of equity instead awards an account of profits. As with an award of interest (as to which see Wallersteiner v Moir (No 2) [1975] QB 373), the purpose of the account is to strip a defaulting fiduciary of his profit.
57. That last point, and other valuable points, are made by Morritt LJ, with whom Ward LJ and Charles J agreed, in the Pan-Europe case:

"47. For my part I think that there is substance in both submissions. If there is a fiduciary duty of loyalty and if the conduct complained of falls within the scope of that fiduciary duty as indicated by Lord Wilberforce in New Zealand Netherlands Society 'Oranje' Inc v Kuys [1973] 2 All ER 1222, [1973] 1 WLR 1126 then I see no justification for any further requirement that the profit shall have been obtained by the fiduciary 'by virtue of his position'. Such a condition suggests an element of causation which neither principle nor the authorities require. Likewise it is not in doubt that the object of the equitable remedies of an account or the imposition of a constructive trust is to ensure that the defaulting fiduciary does not retain the profit; it is not to compensate the beneficiary for any loss. Accordingly comparison with the remedy in damages is unhelpful."

58. Furthermore, a loss to the person to whom a fiduciary duty is owed is not the other side of the coin from the profit which the person having the fiduciary duty has made: that person may have to account for a profit even if the beneficiary has suffered no loss.
59. I would highlight two well-established points about the reach of the equitable

remedies:

(1) the liability of a fiduciary to account does not depend on whether the person to whom the fiduciary duty was owed could himself have made the profit.

(2) when awarding equitable compensation, the court does not apply the common law principles of causation.

60. Proposition (1) is established by numerous authorities. It is sufficient for me to cite the well-known passage from the speech of Lord Russell of Killowen in the Regal case at pages 144G – 145A:

"The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made."

61. The position is no different in Australia: see Warman International Ltd v Dwyer, where the High Court specifically rejected the notion of unjust enrichment:

"It has been suggested that the liability of the fiduciary to account for a profit made in breach of the fiduciary duty should be determined by reference to the concept of unjust enrichment, namely, whether the profit is made at the expense of the person to whom the fiduciary duty is owed, and to the honesty and bona fides of the fiduciary (23). But the authorities in Australia and England deny that the liability of a fiduciary to account depends upon detriment to the plaintiff or the dishonesty and lack of bona fides of the fiduciary." (page 557)

62. The High Court went on to say that (in a context such as this) the fiduciary will be liable to account (only) "for a profit or benefit if it was obtained… by reason of his taking advantage of [an] opportunity or knowledge derived from his fiduciary position" (page 557). It must of course be the case that no fiduciary is liable for all the profits he ever made from any source. However, it is clear that the High Court contemplated that the relevant profits would be ascertained through the process of the account. The court held: "Ordinarily a fiduciary will be ordered to render an account of the profits made within the scope and ambit of his duty." (page 559)
63. The High Court considered the allowances appropriate in that case. It concluded that a distinction should be drawn between the profits made from the use of a specific asset and those generated by a business which the defaulting fiduciary had diverted to himself. In the latter case, an allowance for skill, experience and expenses might have to be made. I return to the question of allowances below.
64. The High Court made it clear that the power to make an allowance for skill and efforts (or some other reason):

"is not to say that the liability of a fiduciary to account should be governed by the doctrine of unjust enrichment, though that doctrine may well have a useful part to play; it is simply to say that the stringent rule requiring a fiduciary to account for profits can be carried to extremes and that in cases outside the realm of specific assets, the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff." (page 561)

65. In the Koshy case, the trial judge, Rimer J, limited the profits for which a defaulting fiduciary was ordered to account to those arising from a particular asset. He considered that the claim for an account of other profits resulting from the breach of fiduciary duty was statute-barred. This court disagreed with the judge on this point. Mummery LJ (giving the judgment of the court) reached the conclusion also that all profits generated by the breach of trust should be brought into the account:

"Scope of the account

[136] In our judgment, Rimer J was wrong in limiting the scope of the account as he did. For the reasons stated above, no part of the claim against Mr Koshy for an account of profits for dishonest breach of fiduciary duty was statute-barred.

[137] The point is not, as Mr Page contended, whether the loan transactions are void or voidable, or whether they were rescinded or not, or whether the property in the sums repaid passed out of the beneficial ownership of GVDC and became the property of Lasco, or even whether Lasco received the sums as trust property. The point is that Mr Koshy was not, as a fiduciary vis-à-vis GVDC, entitled to retain for his personal benefit any of the unauthorised profits dishonestly made from transactions between him and the company. If he received those profits directly in the form of payments to him or indirectly by, for example, the consequent increase in the value of his shareholding in Lasco, he cannot be heard to say, as against the beneficiary company, that he was entitled to retain any of the profits for himself.

[138] The judge failed to follow through the consequences of his finding of dishonesty on the part of Mr Koshy when he declined to order an account against him of all the profits obtained by him from the pipeline loan transactions. It is true that Mr Koshy received profits of the pipeline loan transactions indirectly via Lasco rather than directly from GVDC, but, in our judgment, that fact does not affect the application of the doctrine that the profits made by him, as a result of his dishonest breach of fiduciary duty belong in equity to GVDC. Mr Koshy is accordingly liable to account to GVDC in respect of all profits made by him."

66. In the Koshy case, Mummery LJ later held that, when considering the amount of compensation which the defaulting fiduciary should be ordered to pay, the court could take account of the fact that the beneficiary had suffered no loss (see paragraph 147 of his judgment) but this was in the context of compensation for breach of trust, not an account of profits.
67. The fact that the fiduciary can show that that party would not have made a loss is, on the authority of the Regal case, an irrelevant consideration so far as an account of profits is concerned. Likewise, it follows in my judgment from the Regal case that it is no defence for a fiduciary to say that he would have made the profit even if there had been no breach of fiduciary duty.
68. In the present case, the conduct of Mr Al-Saraj was held to be fraudulent. This was not the position of the directors in the Regal case. The principle, however, established by the Regal case applies even where the fiduciary acts in the mistaken belief that he is acting in accordance with his fiduciary duty. As Lord Russell made clear in the passage cited above, liability does not depend on fraud or lack of good faith. The existence of a fraudulent intent will, however, be relevant to the question of the allowances to be made on the taking of the account (which subject I consider below).
69. Reliance has been placed by Mr Cogley on the Fyffes case where Toulson J declined to make an order for an account of profits in favour of the principal of a bribed agent as against the briber because the transaction with the defrauded principal was one into which the defrauded principal would have entered in any event. Toulson J held that those profits were attributable to the provision of services under the agreement, not the payment of the bribe. On the face of it, this holding is precluded by the Regal case. However, while it is not entirely clear, it may be that this should be treated as a case where the wrongdoer was held to be entitled to an allowance for its services despite his fraudulent conduct. In view of the fact that the Regal principle is a decision of the House of Lords, which has been followed more recently in Boardman v Phipps, I do not consider that it would be helpful further to analyse the Fyffesowever, while it is not entirely clear, it seems that t case, or, with respect to counsel, to cite the passages on which they relied in English v Dedham Vale Properties Ltd or the decision of the court in Swain v The Law Society.
70. The next issue is that of authorisation or consent to the breach of duty. There was no consent in fact in this case. What is said is that the Murads would have consented to the set off arrangement and reduction in the purchase price for the hotel, if they had been asked. The House of Lords in the Regal case recognised that there would have been no liability to account in that case if the directors had been authorised by their company to take the opportunity which they had appropriated for themselves. As Lord Russell said at page 150:

"They could, had they wished, have protected themselves by a resolution (either antecedent or subsequent) of the Regal shareholders in general meeting. In default of such approval, the liability to account must remain".

71. In my judgment it is not enough for the wrongdoer to show that, if he had not been fraudulent, he could have got the consent of the party to whom he owed the fiduciary duty to allow him to retain the profit. The point is that the profit here was in fact wholly unauthorised at the time it was made and has so remained. To obtain a valid consent, there would have to have been full and frank disclosure by Mr Al-Saraj to the Murads of all relevant matters. It is only actual consent which obviates the liability to account.
72. Proposition (2) in paragraph 59 above is also established by many authorities. Most recently, in Target Holdings Ltd v Redferns [1996] 1AC 421, 436, Lord Browne-Wilkinson held:

"[But] the basic equitable principle applicable to breach of trust is that the beneficiary is entitled to be compensated for any loss that he would not have suffered but for the breach."

73. This principle is not applicable simply to fraudulent breaches of trust. As Lord Eldon LC said in Caffrey v Darby (1801) 6 Ves 488; 31ER 1159:

"It would be very dangerous, though no fraud could be imputed to the trustees, and no kind of interest or benefit to themselves was looked to, to lay down this principle; that trustees might without any responsibility act, as these did: in eight years, within which time the whole money ought to have been paid, receiving only £250; and taking no step as to the remainder. It would be an encouragement to bad motives; and it may be impossible to detect undue motives. If we get the length of neglect in not recovering this money by taking possession of the property, will they be relieved from that by the circumstance, that the loss has ultimately happened by something, that is not a direct and immediate consequence of their negligence: viz. the decision of a doubtful question of law? Even supposing they are right in saying, this was a very doubtful question, and they could not look to the possibility of its being so decided, yet, if they have been already guilty of negligence, they must be responsible for any loss in any way to that property: for whatever may be the immediate cause, the property would not have been in a situation to sustain that loss, if it had not been for their negligence. If they had taken possession of the property, it would not have been in his possession. If the loss had happened by fire, lightning, or any other accident, that would not be an excuse for them, if guilty of previous negligence. That was their fault."

74. It may be asked why equity imposes stringent liability of this nature. The passage just cited from the judgment of Lord Eldon LC makes it clear that equity imposes stringent liability on a fiduciary as a deterrent – pour encourager les autres. Trust law recognises what in company law is now sometimes called the 'agency' problem. There is a separation of beneficial ownership and control and the shareholders (who may be numerous and only have small numbers of shares) or beneficial owners cannot easily monitor the actions of those who manage their business or property on a day to day basis. Therefore, in the interests of efficiency and to provide an incentive to fiduciaries to resist the temptation to misconduct themselves, the law imposes exacting standards on fiduciaries and an extensive liability to account. As Lord King said in the leading case of Keech v Sandford (1726) Sel Cas t King 61:

"I very well see, if a trustee, on the refusal to renew, might have a lease to himself, few trust-estates will be renewed to cestuis que use."

75. I accept that any rule that makes a wrongdoer liable for all the consequences of his wrongful conduct or for actions which did not cause the injured party any loss needs to be justified by some special policy. But the authorities just cited show that in the field of fiduciaries there are policy reasons which have for a long time been accepted by the courts.
76. For policy reasons, the courts decline to investigate hypothetical situations as to what would have happened if the fiduciary had performed his duty. In Regal case at page 154G, Lord Wright made the following point, to which I shall have to return below:

"Nor can the court adequately investigate the matter in most cases. The facts are generally difficult to ascertain or are solely in the knowledge of the person being charged. They are matters of surmise; they are hypothetical because the inquiry is as to what would have been the position if that party had not acted as he did, or what he might have done if there had not been the temptation to seek his own advantage, if, in short, interest had not conflicted with duty."

77. Again, for the policy reasons, on the taking of an account, the court lays the burden on the defaulting fiduciary to show that the profit is not one for which he should account: see, for example, Manley v Sartori [1927] Ch 157. This shifting of the onus of proof is consistent with the deterrent nature of the fiduciary's liability. The liability of the fiduciary becomes the default rule.
78. This principle was applied by the High Court of Australia in the Warman case:

"It is for the defendant to establish that it is inequitable to order an account of the entire profits. If the defendant does not establish that that would be so, then the defendant must bear the consequences of mingling the profits attributable to those earned by the defendant's efforts and investment, in the same way that a trustee of a mixed fund bears the onus of distinguishing what is his own."

79. In the Warman case, the defaulting fiduciary was able to show that some of the profit was not attributable to his wrongful act, but to his own skill and effort. The Court limited the account accordingly. On the facts, the court was satisfied that the period of time for which profits were to be accounted should be limited to two years. I will come back to this point below.
80. The above examination of the rule of equity applied in the Regal case is not promising for Mr Cogley's argument. On the contrary, on its most obvious analysis, his argument is clearly inconsistent with it, since the essence of his approach is to seek to limit Mr Al-Saraj's liability to account for profit to the loss suffered by the Murads. As the Regal case shows, liability to account for profit in equity does not depend on whether the beneficiary actually suffered any loss. I thus turn to consider whether there is any other way in which Mr Cogley's argument can be analysed in conformity with the principles of equity.
81. While the rule of equity applied in the Regal case is a rigid and inflexible rule, historically equity has been able skilfully to adapt remedies against defaulting trustees or fiduciaries so as to meet the justice of the case. One small example of this is the VGM principle. Under this principle, a director ordered to pay compensation for misfeasance to his company in liquidation will not be required to pay amounts which would simply be distributed in the liquidation back to him as, say, a creditor (see for example Selangor United Rubber Estates v Cradock (No 4) [1969] 1WLR 1773). Likewise a court of equity will fix the measure of damages against a defaulting but innocent trustee more leniently than it would otherwise have done: see for example Shaw v Holland [1900] 2 Ch 305, 310. Again, courts of equity award simple or compound interest and interest at different rates according to the circumstances of the case (see for example Wallersteiner v Moir (No.2) [1975] QB 373). In these ways, equity tempers the harsh wind to the shorn lamb.
82. I have already set out Lord Wright's observations in the Regal case about the difficulties of investigating the conduct of a defaulting trustee. Under the rule of equity applied in that case (and in part summarised in proposition (1) above), cases can be found where the fiduciary or trustee acted in all good faith believing that he was acting in the interests of his beneficiary but yet has been made to account for the profits obtained as a result of the breach of trust without limitation. Now, in a case like the Regal case, if the rule of equity under which the defendants were held liable to account for secret profits were not inflexible, the crucial issue of fact would be: what the company would have done if the opportunity to subscribe for shares in its subsidiary had been offered to it? In the passage just cited, as I have said, Lord Wright makes the point that it is very difficult to investigate that issue. However, while that may have been so in the past in the days of Lord Eldon and Lord King, that would not be the case today. The court has very extensive powers under the Civil Procedure Rules for instance to require information to be given as to a party's case. If the witness cannot attend the hearing, it may be possible for his evidence to be given by way of a witness statement or it may be possible for him to give evidence by video-link. The reasons for the rule of equity are many and complex (for a recent discussion, see Conaglen, The Nature and Function of Fiduciary Loyalty ([2005] LQR 452). There have been calls for its re-examination (see, for example, the articles cited at [2005] LQR 452,478 at footnote 151). It may be that the time has come when the court should revisit the operation of the inflexible rule of equity in harsh circumstances, as where the trustee has acted in perfect good faith and without any deception or concealment, and in the belief that he was acting in the best interests of the beneficiary. I need only say this: it would not be in the least impossible for a court in a future case, to determine as a question of fact whether the beneficiary would not have wanted to exploit the profit himself, or would have wanted the trustee to have acted other than in the way that the trustee in fact did act. Moreover, it would not be impossible for a modern court to conclude as a matter of policy that, without losing the deterrent effect of the rule, the harshness of it should be tempered in some circumstances. In addition, in such cases, the courts can provide a significant measure of protection for the beneficiaries by imposing on the defaulting trustee the affirmative burden of showing that those circumstances prevailed. Certainly the Canadian courts have modified the effect of equity's inflexible rule (see Peso Silver Mines Ltd v Cropper (1966) 58 DLR (2d) 1; see also the decision of the Privy Council on appeal from Australia in Queensland Mines v Hudson (1978)52 AJLR 399), though I express no view as to the circumstances in which there should be any relaxation of the rule in this jurisdiction. That sort of question must be left to another court.
83. In short, it may be appropriate for a higher court one day to revisit the rule on secret profits and to make it less inflexible in appropriate circumstances, where the unqualified operation of the rule operates particularly harshly and where the result is not compatible with the desire of modern courts to ensure that remedies are proportionate to the justice of the case where this does not conflict with some other overriding policy objective of the rule in question.
84. However that is not this case. Mr Al-Saraj was found to have made a fraudulent misrepresentation to the Murads who had placed their trust in him. I do not consider that, even if we were free to revisit the Regal case, this would be an appropriate case in which to do so. The appropriate remedy is that he should disgorge all the profits, whether of a revenue or capital nature, that he made from inducing the Murads by his fraudulent representations from entering into the Parkside Hotel venture, subject to any allowances permitted by the court on the taking of the account.
85. The imposition of liability to account for secret profits and the placing of the burden of proof on the defaulting trustee are not, however, quite the end of the matter. The kind of account ordered in this case is an account of profits, that is a procedure to ensure the restitution of profits which ought to have been made for the beneficiary and not a procedure for the forfeiture of profits to which the defaulting trustee was always entitled for his own account. That is Mr. Cogley's case and I agree with him on this point. Even when the fiduciary is not fraudulent, the profit obtained from the breach of trust has to be defined. It may indeed be derivative, as where a trustee misappropriates trust property and then sells it and make a profit out of something else. But equity does not take the view that simply because a profit was made as part of the same transaction the fiduciary must account for it. I can give an example of that. In Giddings v Giddings (1826) 3 Russ 241, 38ER 547, a tenant for life renewed a lease belonging to the trust. The renewed lease, however, included land which had not been within the original lease. Sir John Copley MR dealt with the point briefly. He held that the remaindermen were only entitled to the benefit of the lease so far as it related to the land originally leased to the tenant for life. Another example is Docker v Somes (1834) 2My2k 655 at 688, 39ER1095 at 1099, where Lord Brougham expressed the view that in some circumstances a trustee who had applied considerable skill and labour to trust property which he had misapplied would be awarded a share of the product of his skill and labour:

"Mr. Solicitor General… might have taken the case of trust money laid out in purchasing a piece of steel or skein of silk, and these being worked up into goods of the finest fabric, Birmingham trinkets or Brussels lace, where the work exceeds by 10,000 times the material in value. But such instances, in truth, prove nothing; for they are cases not of profits upon stock, but of skilful labour very highly paid; and no reasonable person would ever dream of charging a trustee, whose skill thus bestowed had so enormously augmented the value of the capital, as if he had only obtained from it a profit; although the refinements of the civil law would certainly bear us out, even in charging all gains accruing upon those goods as in the nature of accretions belonging to the true owners of the chattels."

86. In the present case, any recognisable contribution made by Mr. Al-Saraj was to the business of the joint venture. As the Warman case shows, there can be particular difficulty applying the above principles where the trustee mixes trust property with his own business. The profit which belongs to the trust has to be disentangled from that which belongs to the defaulting trustee because it is a profit of his business. I have explained above how these difficulties were resolved in the Warman case by limiting the account to two years' profits. The problem in the Warman case has also faced courts within our own jurisdiction. In Vyse v Foster (1872) 9 Ch App 309, one of the partners in a business died but his capital remained in the business and was thus used by the surviving partners. One of the residuary legatees of the deceased partner sought an account of the share of the profits of the business to which she was entitled. The matter came before James and Mellish LJJ. (Mellish LJ did not deliver a separate judgment). This court was prepared in principle to ascertain the share of the profits of the business but when it came down to working out how this was to be done this court decided that the appropriate remedy would be to order repayment of the capital with interest. In his judgment, James LJ held that the share of profits to which the plaintiff was entitled could not simply be ascertained by working out the proportion of the capital to which she was entitled:

"But it was pointed out by Vice-Chancellor Wigram, in the case of Willett v. Blanford (1), and his judgment was afterwards repeated and approved of by the Lords Justices, that there was no rule for apportioning the profits according to the respective amounts of the capital, but that the division would be affected by considerations of the source of the profit, the nature of the business, and the other circumstances of the case. It is obvious that it must be so, for it would be easy to suggest a number of instances in which the profit of a business has no ascertainable reference to the capital – e.g., solicitors, factors, brokers, or, as was the case before the Lords Justices, bankers. Indeed, in almost every case where the business consists of buying and selling, the difference between prosperity and ruin mainly depends on the skill, industry, and care of the dealers; no doubt also greatly on their credit and reputation, and the possession of ready money to take advantage of favourable opportunities and to enable them to bide their time in unfavourable states of the market, and also greatly on established goodwill and connection of the house."

In the end, as I have said, James LJ held that it would be too difficult to work out the share of profits to which the legatee was entitled and instead this court awarded her interest on her share of the residue to compensate her for the fact that her capital had been employed in the partnership business.

87. Does this line of authority help Mr Al-Saraj in this case? I think not. The hypothetical share, which the Murads would have given him if he had disclosed the set off arrangement, is not relevant to this argument because it was never actually agreed or put up as his contribution. Mr Al-Saraj under this approach would have to say that the £500,000 which he actually put up by way of set off should be treated as his investment in the joint venture. But that was the very sum that he lied to the Murads about. It was not a cash sum as they had been led to believe and accordingly I do not consider that he can say that he is entitled to an order which treats the £500,000 as his contribution to the profits made by the venture.
88. It would, however, be open to Mr Al-Saraj to apply to the court for an allowance for his services and disbursements, as indeed he did. The order of 12 July 2004 makes an allowance for his remuneration for managing the hotel. It is well established that, on the taking of an account, the court may make an allowance for the skill and efforts of the defaulting trustee: see, for example, Re Jarvis, dec'd [1958] 1 WLR 815, Boardman v Phipps [1967] 2 AC 46. This is common ground. The grant of an allowance is discretionary: see, for example, Poppet v Shonchhatra [1997] 1 WLR 1367 and the Warman case at page 562.

The allowance in the account of the sum of £500,000

89. On the judge's findings, the sum of £500,000 was treated as a cost of the acquisition in its entirety and it was accordingly allowed as a deduction from the profits for which Mr Al-Saraj was to account. But it is said that this overlooks the fact that some £369,000 was a commission earned by Mr Al-Saraj on the acquisition of Parkside Hotel for which he should account as a secret profit. On the judge's findings, no objection can in my judgment be taken to the allowance of the balance of the £500,000, namely the £131,000. The judge found that this sum was one of the costs of acquisition.
90. The claim for an account of the £369,000 is in my judgment unanswerable on general principles unless of course the claim to recover that sum belongs to Danescroft. I now turn to that issue.

The proper claimant in respect of the secret commission

91. The claim raised on this appeal is a new one, and thus is not covered by the judge's finding that no fiduciary duty was owed to Danescroft. The fiduciary duty now relied upon arises out of the sale of the hotel to Danescroft. One possible conclusion is that a fiduciary duty was owed to both Danescroft and the Murads. Mr Cogley relies on Johnson v Gore Wood for the proposition that, in that event, Danescroft's claim will trump that of the Murads. This point should have been raised at trial or at the hearings immediately thereafter. However, as it was a discrete point of law, I do not consider that it should not be raised in this court provided that any prejudice to the respondents can be resolved. In my judgment, that prejudice can be resolved by remitting the issue of whether the claim to recover the commission is vested in Danescroft to the judge on terms that the appellants should join Danescroft as a defendant. I would also give leave to Danescroft, if so advised, to file its own claim to recover the sum of £500,000.

The pleading point

92. Mr Cogley submits that the Murads' allegation that Mr Al-Saraj represented to them that his £500,000 contribution would be made in cash was not pleaded. However, this caused no prejudice to the appellants. The pleading point accordingly affords no basis for challenging the judge's judgment.

Miscellaneous issues

93. I do not consider that the sum of £225,817.99 contribution entitled Mr Al-Saraj to any profit share. This contribution is recorded in the Westwood agreement. The parties did not take any steps at this point to adjust their profit shares. In those circumstances, I accept Mr Newey's submission that it was not intended by the parties that this contribution should give rise to any profit share. I do not see why the position should be different because the Murads have successfully challenged Mr Al-Saraj's right to a profit share arising out of his contribution of £500,000.
94. I see no basis on which the amount of £131,000 (being the sum of £500,000 less than £369,000) implies a profit share. As I have said, the parties did not regard the sums contributed by them to the funding of the purchase of the hotel as giving rise to a profit share.

Disposition

95. Accordingly, I would dismiss the appeal and the application to amend the notice of appeal to challenge the inclusion of revenue profits in the order for an account. I would also allow the cross-appeal, with respect to the £369,000, for the purpose of remitting to the judge for determination the question whether any claim to recover the commission paid to Mr Al-Saraj in respect of the acquisition of the hotel is vested in Danescroft or the Murads. As indicated above, I would give leave to Danescroft (if so advised) to be joined to that issue. If the judge determines that issue in favour of the Murads, the sum of £369,000 should be deducted from the sum of £500,000 which the judge allowed as a deduction from the profits for which Mr Al-Saraj has to account to the Murads.

Lord Justice Jonathan Parker:

96. I agree that the appeal should be dismissed and the cross-appeal allowed, essentially for the reasons given by Arden LJ. However, since Clarke LJ (whose judgment I have had the benefit of reading in draft) takes a different view from Arden LJ on question of the extent of Mr Al-Saraj's liability to account for the profits which he has made from the joint venture, I will give my reasons for agreeing with Arden LJ's conclusion on that issue in my own words.
97. In his judgment delivered on 28 May 2004 the judge made the following findings, against which there is no appeal:

• that Mr Al-Saraj owed fiduciary duties to the Murads in relation to the joint venture (paragraph 332);

• that Mr Al-Saraj deliberately breached those duties in not disclosing to the Murads that the contractual purchase price for the hotel was not £4.1M but £3.6M, and that the difference was to be treated as paid by a personal accounting arrangement between himself and the vendor (paragraph 334);

• that £369,000 of that difference consisted of a secret commission which the vendor regarded himself as obliged to pay to Mr Al-Saraj on the sale of the hotel which formed the subject-matter of the joint venture (paragraph 286); and

• that had Mr Al-Saraj made full disclosure to the Murads as he should have done, the likelihood was that he would have persuaded the Murads to invest in the venture, but that they would only have agreed to join in the venture on the basis that Mr Al-Saraj (or his company Westwood) would be entitled to something less than 50 per cent of the capital profit on a resale of the hotel (paragraphs 287 and 315).

98. On those findings it is beyond argument that, unknown to the Murads (and hence without their consent), Mr Al-Saraj placed himself in a position of acute conflict between his fiduciary duty to them in relation to the joint venture and his personal interest in earning a secret commission from the vendor.
99. By ground 3 of his amended grounds of appeal, Mr Al-Saraj contends that, given the last of the findings set out above, the judge was wrong in law to hold him liable to account for all the profits which he made from the joint venture, but rather that he should be held accountable only for the difference between his agreed 50 per cent share of the capital profits and such lesser share as he would have had if he had made full disclosure (that is to say, the share he had would have had but for his deliberate breach of his fiduciary obligations).
100. In my judgment, that contention is directly contrary to long-standing authority in this jurisdiction.
101. I start with the well-known passage in the judgment of Sir W. M. James LJ in Parker v. McKenna (1874) LR 10 Ch App 96, where he said this:

"I do not think it is necessary, but it appears to me very important, that we should concur in laying down again and again the general principle that in this Court no agent in the course of his agency, in the matter of his agency, can be allowed to make any profit without the knowledge and consent of his principal; that that rule 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."

102. In the same case, Lord Cairns LC said this (at p.118):

"Now, the rule of this Court, as I understand it, as to agents, is not a technical or arbitrary rule. It is a rule founded upon the highest and truest principles of morality. No man can in this Court, acting as agent, be allowed to put himself in a position in which his interest and his duty will be in conflict. …. The Court will not inquire, and is not in a position to ascertain, whether the bank has lost or not lost by the acts of its directors. All that the Court has to do is examine whether a profit has been made by an agent, without the knowledge of his principal, in the course and execution of his agency, and the Court finds, in my opinion, that these agents in the course of their agency have made a profit, and for that profit they must, in my opinion, account to their principal."

103. To similar effect is the following passage from the speech of Lord Russell of Killowen Regal (Hastings) Ltd v. Gulliver [1967] 2 AC 134 at 144G-145A:

"The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profits would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk and acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well-intentioned, cannot escape the risk of being called upon to account."

104. See also Boardman v. Phipps [1967] 2 AC 46 esp. at 154F-G (per Lord Wright), 159B-D (per Lord Porter) and 104E-F (per Lord Cohen), Industrial Development Corporation Consultants Ltd v. Cooley [1972] 1 WLR 443 and Logicrose Ltd. v. Southend United Football Club Ltd [1988] 1 WLR 1256, esp. at 1264B-C.
105. In the Privy Council case of Brickenden v. London Loan and Savings Co [1934] 3 DLR 465 a solicitor acting for the loan company had a personal interest in certain loans made to a customer of the company which, in breach of his fiduciary duty, he failed to disclose to the company. The trial judge entered judgment for the company. The Court of Appeal of Ontario set aside the judgment on the ground that no breach of duty had been proved, and that in any event the company had suffered no loss. The Supreme Court of Canada restored the judgment of the trial judge, and its decision was affirmed by the Privy Council. Giving the judgment of the Privy Council, Lord Thankerton said this (at p.469):

"When a party, holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered his decision to proceed with the transaction, because the constituent's action would be solely determined by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the Court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant." (My emphasis.)

106. To the same effect is Gwembe Valley Development Co Ltd & Anor v. Koshy [2004] BCLC 131. In that case Mummery LJ, giving the judgment of the Court of Appeal, said this (at paragraph 145):

"In considering … whether the director should account for unauthorised profits, what would have happened, if the required disclosure had been made, is irrelevant."

107. As Lord Eldon made clear in Ex parte James (1803) 8 Ves 337 at 345, one of the policy reasons behind equity's "inflexible rule" (for convenience I will refer to it hereafter as "the 'no conflict' rule") is the perceived difficulty in determining what might have happened but for the fact that the fiduciary had placed himself in a position of conflict (a point also made by Lord Wright in the passage in his speech in Boardman v. Phipps referred to above). Another policy reason for the 'no conflict' rule is the need to deter fiduciaries from placing themselves in positions of conflict (see, e.g., Bray v. Ford [1896] AC 44 at 51 per Lord Herschell).
108. It is thus clear on authority, in my judgment, that the 'no conflict' rule is neither compensatory nor restitutionary: rather, it is designed to strip the fiduciary of the unauthorised profits he has made whilst he is in a position of conflict. As Lord Keith observed in Attorney-General v. Guardian Newspapers Ltd (No 2)[1990] 1 AC 109, at 262E-F, the remedy of an account of profits:

"… is, in my opinion, more satisfactorily to be attributed to the principle that no one should be permitted to gain from his own wrongdoing".

109. See also English v. Dedham Vale Properties Ltd [1978] 1 WLR 93 and United Pan-Europe v. Deutsche Bank [2000] 2 BCLC 461 at para 42 per Morritt LJ.
110. By contrast, however, in addressing a claim for equitable compensation for breach of trust the court may have regard to what would have happened but for the breach (see the passage from the judgment of Millett LJ in Bristol & West Building Society v. Mothew [1998] Ch 1 at 17H quoted by Arden LJ in paragraph 54 above, the passage from the speech of Lord Browne-Wilkinson in Target Holdings Ltd v. Redferns [1996] 1 AC 421 at 436 which she quotes in paragraph 72 above, and Gwembe at para 147 per Mummery LJ).
111. I therefore conclude, on the basis of long-standing authority, that Mr Al-Saraj's liability to account extends to the entirety of the profits which he made from the joint venture. As the judge put it (at the hearing on 12 July 2004):

"… the general principle is that a fiduciary is obliged by the strict rule of equity to disgorge all the profits that he has made from the transaction, which has involved his breach of duty, … it does not matter whether or not the transaction would have been entered into by the beneficiary instead of the fiduciary in its entirety or as to part."

112. The judge's reference to the transaction "which has involved his breach of duty" is important, for the fiduciary is liable to account only for profits which he has made "within the scope and ambit of the duty which conflicts or may conflict with his personal interest" (see Lewin on Trusts 17^th edn. p. 449, citing Boardman v. Phipps at p. 127D per Lord Upjohn). In the instant case, however, the point does not arise, since on the judge's findings all the profits which Mr Al-Saraj made from the joint venture fall within that description.
113. In Warman International Ltd v. Dwyer [1994-1995] 182 CLR 546 (a decision of the High Court of Australia) the defendants, in breach of their fiduciary duty to the claimant company, set up a competing business. The trial judge awarded the company a sum as an account of profits, but refused to declare that the defendants held part of the new business on trust for the claimant. He also awarded the claimant damages equal to half the value of the goodwill of the business. The Queensland Court of Appeal allowed the defendants' appeal on the ground that the claimant company was entitled only to the loss flowing from the breach of fiduciary duty. On the claimant company's appeal, the High Court of Australia held the defendants liable to account to the claimant company for the profits made by the new business during its first two years of operation.
114. In the course of its judgment, after citing an observation by Upjohn J in In re Jarvis decd [1958] 1 WLR 815 at 821 that in dealing with a business "the principles applying are quite different from those in the case of a specific asset, such as a renewed lease", and an earlier observation to the same effect by Knight Bruce LJ in Clegg v. Edmondson (1857) 8 De G. M. & G. 787 at 814, the High Court of Australia continued:

"In the case of a business it may well be inappropriate and inequitable to compel the errant fiduciary to account for the whole of the profit of his conduct of the business or his exploitation of the principal's goodwill over an indefinite period of time. In such a case, it may be appropriate to allow the fiduciary a proportion of the profits, depending on the particular circumstances. That may well be the case when it appears that a significant proportion of an increase in profits has been generated by the skill, efforts, property and resources of the fiduciary, the capital he has introduced and the risks he has taken, so long as they are not risks to which the principal's property has been exposed. Then it may be said that the relevant proportion of the increased profits is not the product or consequence of the plaintiff's property but the product of the fiduciary's skill, efforts, property and resources. That is not to say that the liability of a fiduciary to account should be governed by the doctrine of unjust enrichment, though that doctrine may well have a useful part to play; it is simply to say that the stringent rule requiring a fiduciary to account for profits can be carried to extremes and that in cases outside the realm of specific assets, the liability of a fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff.

It is for the defendant to establish that it is inequitable to order an account of the entire profits. If the defendant does not establish that that would be so, then the defendant must bear the consequences of mingling the profits attributable to the defendant's breach of fiduciary duty and the profits attributable to those earned by the defendant's efforts and investment, in the same way that a trustee of a mixed fund bears the onus of distinguishing what is his own.

Whether it is appropriate to allow an errant fiduciary a proportion of profits or to make an allowance in respect of skill, expertise and other expenses is a matter of judgment which will depend on the facts of the given case. However, as a general rule, in conformity with the principle that a fiduciary must not profit from a breach of fiduciary duty, a court will not apportion profits in the absence of an antecedent arrangement for profit-sharing but will make an allowance for skill, expertise and other expenses."

115. I do not, for my part, read that passage in the judgment of the High Court of Australia as sanctioning any departure from, or as recognising any qualification to, the 'no conflict' rule. Rather, as I read its judgment, the court is regarding the defendants as trustees who have made a profit from trust property in breach of what I may call the 'no profit' rule, and recognising that given that the property in question is the goodwill of the claimant company's business, there will in all probability come a time when it can safely be said that any future profits of the new business will be attributable not to the goodwill misappropriated from the claimant company when the new business was set up but rather to the defendants' own efforts in carrying on that business.
116. Even if, contrary to my reading of its judgment, the court is applying the 'no conflict' rule as opposed to the 'no profit' rule, the conclusion which it reaches is in my judgment entirely consistent with the 'no conflict' rule in that it is merely recognising that an order for an account of all the profits of the new business over an indefinite period would in all probability include profits which are not tainted in any way by the position of conflict in which the defendants placed themselves: that is to say profits which, to adopt the expression in Lewin on Trusts quoted earlier (see paragraph 112 above), are not within the scope and ambit of the relevant fiduciary duty and hence not within the scope of the 'no conflict' rule. In Warman itself, the court concluded that the appropriate cut off point was the expiry of two years after the commencement of the new business.
117. If, contrary to my reading of the court's judgment in Warman, the court was (as Clarke LJ concludes that it was) recognising or introducing a qualification to the 'no conflict' rule, then I can only say that, on my reading of the authorities, no such qualification exists as yet in this jurisdiction.
118. In Fyffes Group Ltd v. Templeman & Ors [2000] 2 Lloyds Law Reports 643, Fyffes claimed against a defendant (Seatrade) which had bribed Fyffes' agent (Templeman) an account of all profits made by Seatrade as a result of dishonestly assisting in Templeman's breaches of fiduciary duty. Toulson J refused to order such an account, on the ground that it was highly probable that, had Templeman not acted dishonestly, Fyffes would have entered into an agreement with Seatrade. He accordingly awarded damages instead.
119. In the course of his judgment, Toulson J said this:

"I would conclude that there are cogent grounds, in principle and in practical justice, for following the approach of Gibbs J, and holding that the briber of an agent may be required to account to the principal for benefits obtained from the corruption of the agent. In Attorney General for Hong Kong v Reid [[1994] 1 AC 324] Lord Templeman described bribery (p.330) as 'an evil practice which threatens the foundations of any civilised society'. The law should not assist a party to retain the profits of such a vice.

However, there is in my view a compelling reason why it would not be right to direct an account of profits in this case. I have already found that it is highly probable that Fyffes would have entered into a service agreement with Seatrade if Mr. Templeman had not been dishonest. In so far as the terms agreed were more favourable to Seatrade than would have been agreed to by an honest and prudent negotiator on Fyffes' behalf, Fyffes are entitled to damages, which I have assessed. In so far as Seatrade made an 'ordinary' profit element, it was not caused by the bribery of Mr. Templeman, but was profit for the provision of services for which there would have been a contract in any event. I do not see the equity of ordering Seatrade to account to Fyffes for that profit. It is important to remember the warning of the High Court of Australia in Warman at par. 33 of the judgment that 'the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff'."

120. Like Arden LJ (see paragraph 69 above), I have difficulty in reconciling Toulson J's reasoning in the above passage with the authorities to which I have referred, and I note that it appears from the report of the case that none of those authorities was cited to Toulson J apart from Target v. Redferns (a case concerning equitable compensation for breach of trust). Had the judge been addressing a claim for equitable compensation for breach of trust, his reasoning would in my judgment have been entirely in accordance with authority (see paragraph 110 above); but in the context of the 'no conflict' rule, the authorities, as I read them, preclude such an approach.
121. All that said, there can be little doubt that the inflexibility of the 'no conflict' rule may, depending on the facts of any given case, work harshly so far as the fiduciary is concerned. It may be said with force that that is the inevitable and intended consequence of the deterrent nature of the rule. On the other hand, it may be said that commercial conduct which in 1874 was thought to imperil the safety of mankind may not necessarily be regarded nowadays with the same depth of concern. So, like Arden LJ (see paragraph 82 above), I can envisage the possibility that at some time in the future the House of Lords may consider that the time has come to relax the severity of the 'no conflict' rule to some extent in appropriate cases.
122. In my judgment, however, that day has not yet arrived. Nor, in any event, would I regard the instant case as being an appropriate case for any such relaxation. In the instant case, after all, Mr Al-Saraj acted in bad faith. It follows, in my judgment, that in contrast to cases such as Regal and Boardman v. Phipps, where the fiduciaries acted out of the best of motives, the instant case would not be a candidate for any relaxation of the 'no conflict' rule. As I see it, only the complete abolition of the rule could assist Mr Al-Saraj, and that must be out of the question.
123. Accordingly I must respectfully differ from Clarke LJ's conclusion (see paragraph 162 below) that the judge's finding that the Murads would have entered into the joint venture in any event is relevant to the scope of the account which should be ordered.

Lord Justice Clarke:

124. With one important exception, I agree with the conclusions reached by Arden LJ. That exception relates to the principles applicable to the taking of an account in a case of this kind. I have reached the conclusion that the principles applicable to the correct approach to the amount of the profits in respect of which an account should be ordered are more flexible than Arden LJ suggests.
125. This case seems to me to have some unusual features. On the judge's findings, the key features of it appear to me to be these.

(1) Mr Al-Saraj fraudulently misrepresented to the Murads that the price of the hotel was £4.1 million, when in fact it was £3.6 million. However, it is right to say that, although the judge held that the actual price of the hotel was £3.6 million, he also held that Mr Al-Arbash would not have sold it for less than £4.1 million.

(2) The figure of £4.1 million was made up of a set-off of £500,000 agreed between Mr Al-Arbash and Mr Al-Saraj, £225,817 in cash provided by Mr Al-Saraj, £858,744 in cash provided by the Murads and the remainder by way of bank loan procured by Danescroft. The sums of £225,817 and £858,744 were loans to Danescroft.

(3) Mr Al-Saraj fraudulently misrepresented to the Murads that he would contribute £500,000 in cash, whereas, not only did he do so by way of set-off instead of cash, but also, of the figure of £500,000 the sum of £369,000 was commission which Mr Al-Arbash agreed he should receive in connection with this very sale. That was on any view a secret commission since Mr Al-Saraj did not tell the Murads about it. Indeed he did not tell them about the remaining part of the sum of £500,000, namely £131,000, which did not represent a legal obligation owed by the vendor to Mr Al-Saraj but, as the judge put it in paragraph 276 of his judgment, represented sums agreed by Mr Al-Arbash in discharge of "what he described as a business or moral or religious duty" in respect of other property transactions in which Mr Al-Arbash was involved.

(4) Mr Al-Saraj owed fiduciary duties to the Murads and was in deliberate and fraudulent breach of those duties in not disclosing to them that he was making his contribution not in cash but by way of set off and, in particular (as I see it), in not disclosing the fact that he was taking a secret commission from the vendor.

(5) If Mr Al-Saraj had told the Murads the truth, they would have continued with the transaction but on different terms. As the judge put it in paragraph 287, Mr Al-Saraj would have succeeded in persuading the Murads to invest but, in order to achieve that agreement, he would have been prepared to accept, and Mrs Murad would only have agreed to proceed on the basis, that, he (or Westwood) would be entitled to receive less than 50% of the capital profit on any resale.

(6) It is I think implicit in the judge's findings, on the one hand that the Murads would have entered into the transaction, albeit on different terms as to profit share, and on the other hand that Mr Al-Arbash would only have sold for £4.1 million, that the sale would have proceeded at that price but at a different capital profit share. It is not clear whether the judge thought that the Murads would also have insisted upon a different share of any revenue profits. He did not expressly hold that they would but did not address the question in his judgment.

(7) The judge said in paragraph 288 that neither side had advanced any submissions as to what percentage would have been agreed between the parties if Mr Al-Saraj had disclosed all the facts to Mrs Murad.

126. Mr Cogley did not challenge the judge's findings that Mr Al-Saraj was guilty of fraudulent misrepresentation or that he was in breach of fiduciary duty. Nor did he submit to us that the Murads were not entitled to an account of profits. Before the judge he submitted that no account of profits should be ordered either for deceit or for breach of fiduciary duty. However, as to the correct approach to the account on the footing that those submissions were rejected, it is convenient to repeat here the quotation from paragraph 347 of the judgment which Arden LJ has set out in paragraph 14 of her judgment:

"In my judgment, the Claimants are entitled, by reason of Mr Al-Saraj's actionable deceit, to an account of the profit to which Westwood is entitled under the Westwood Agreement. In this connection, I should observe that no submission was made to me by either side that, if I came to the conclusion that the Claimants are entitled to an account of profit by reason of Mr Al-Saraj's deceit, the account of profit should be for anything less than the entire profit to which the Defendants are entitled out of the proceeds of sale of the Hotel by Danescroft."

127. As I read the judge's judgment, the point being argued before us was not argued before him. It is I think clear from what the judge said when the matter came back before him later, as for example on 25 February 2005, that the relief he ordered was, as he put it in paragraph 25 of his judgment on that date, in accordance with "equity's inflexible rule", intended to deprive Mr Al-Saraj of all the profit which he would be entitled to receive pursuant to the joint venture. It was in accordance with that principle that he held that Mr Al-Saraj must account for revenue profits as well as capital profits.
128. It was only in connection with an application for permission to appeal on 12 July 2004 that Mr Cogley first submitted that the account of profits should take account of the fact that the Murads would have entered into the transaction in any event but on different terms. In refusing permission to appeal, the judge made his view clear. It was that that fact is irrelevant, in essence because of equity's inflexible rule, namely that the fiduciary must disgorge all the profits made from entering into the transaction.
129. The particular questions in this appeal which I wish to consider are whether there is any room for flexibility and if so, what and whether any such flexibility can assist Mr Al-Saraj on the facts of this case. The general principle has been often stated. A good example is in the passage from the speech of Lord Russell of Killowen in the decision of the House of Lords in 1942 in Regal (Hastings) Limited v Gulliver [1967] 2 AC 134n at 144G-145A, which is quoted by Arden LJ in paragraph 60 of her judgment:

"The rule of equity which insists on those, who by the use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances been made."

Thus the fiduciary must disgorge the profit that he makes as a fiduciary without the informed consent of his principal and the fact that if the principal had been asked he would have agreed is irrelevant. So too is the fact that the principal is making a profit which he would not otherwise have made or that he would otherwise have made a loss.

130. There are many statements of principle to that effect in the authorities: see eg per Lord Wright in the same case at pp 154F-155E and the majority decision of the House of Lords in Boardman v Phipps [1967] AC 46. Thus Lord Hodson put the position thus at p 105:

"The proposition of law involved in this case is that no person standing in a fiduciary position, when a demand is made upon him by the person to whom he stands in the fiduciary relationship to account for profits acquired by him by reason of his fiduciary position and by reason of the opportunity and the knowledge, or either, resulting from it, is entitled to defeat the claim upon any ground save that he made profits with the knowledge and assent of the other person.

…

It is obviously of importance to maintain the proposition in all cases and to do nothing to whittle away its scope or the absolute responsibility which it imposes."

131. Arden LJ has applied that principle to the facts of this case. She has summarised the position in paragraph 71 of her judgment in this way. It is not enough for the fiduciary to show that, if he had not been fraudulent, he would have been allowed to keep the profit. The point is that the profit here was wholly unauthorised at the time it was made and has so remained. To obtain a valid consent, there would have to have been full and frank disclosure by Mr Al-Saraj to the Murads of all relevant matters. It is only actual consent which obviates the liability to account.
132. Arden LJ has deployed statements in two comparatively recent decisions of this court to demonstrate the principle that it is irrelevant here that, if Mr Al-Saraj had not been in breach of fiduciary duty, the Murads would have entered into the arrangement on different terms and would have agreed that Mr Al-Saraj should receive a share of the profits, albeit smaller than that agreed and set out above.
133. The first decision is that in United PAN-Europe Communications NV v Deutsche Bank AG [2000] 2 BCLC 461, where Morritt LJ, with whom Ward LJ and Charles J agreed, disagreed with the view expressed by Jacob J at first instance that the authorities, including Regal (Hastings) Limited v Gulliver and Boardman v Phipps only required a fiduciary to disgorge any profit made in breach of duty where the profit had come to the fiduciary 'by virtue of his position'. Morritt LJ said in paragraph 47:

"If there is a fiduciary duty of loyalty and if the conduct complained of falls within the scope of the fiduciary duty as indicated by Lord Wilberforce in New Zealand Netherlands Society 'Oranje' Inc v Kuys [1973] 1 WLR 1126 then I see no justification for any further requirement that the profit shall have been obtained by the fiduciary 'by virtue of his position'. Such a condition suggests an element of causation which neither principle nor the authorities require. Likewise it is not in doubt that the object of the equitable remedies of an account or the imposition of a constructive trust is to ensure that the defaulting fiduciary does not retain a profit; it is not to compensate the beneficiary for any loss. Accordingly comparison with the remedy in damages is unhelpful."

134. The second decision is that in Gwembe Valley Development Co Ltd (in receivership) v Koshy (No 3) [2003] EWCA Civ 1048, [2004] 1 BCLC 131, in which Mummery LJ gave the judgment of the court which also comprised Hale and Carnwath LJJ. In that case Mr Koshy owed fiduciary duties to GDVC. Mr Koshy's company Lasco was known to (and agreed by) the directors of the claimant ("GVDC") to be making some profit but the judge held that Mr Koshy was in dishonest breach of that duty because he made, not merely some profit, but what the judge said were "massive" profits. Those profits were on any view unauthorised. Mummery LJ said in paragraph 135 that the fact the directors might have accepted the position even if they had known the full story did not exonerate Mr Koshy.
135. The judge had limited the account of profits to monies traceable to payments made by GVDC to Lasco, whereas this court held that he should have ordered Mr Koshy to account for all the profits. Mummery LJ said in paragraphs 137 and 138:

"137 … The point is that Mr Kosco was not, as a fiduciary vis-à-vis GVDC, entitled to retain for his personal benefit any of the unauthorised profits dishonestly made from transactions between him and the company. If he received those profits directly in the form of payments directly to him or indirectly by, for example, the consequent increase in the value of the shareholding in Lasco, he cannot be heard to say, as against the beneficiary company, that he was entitled any of the profits for himself.

138 The judge failed to follow through the consequences of his finding of dishonesty on the part of Mr Koshy when he declined to order an account against him of all the profits obtained by him from the pipeline loan transactions indirectly via Lasco rather than directly from GDVC, but, in our judgment, that fact does not affect the application of the doctrine that the profits made by him, as a result of his dishonest breach of fiduciary duty, belong in equity to GVDC. Mr Koshy is accordingly liable to account to GVDC in respect of all profits made by him."

Mummery LJ also said in paragraphs 145 and 146 that, in considering whether the director should account for unauthorised profits or whether the non-disclosure was actionable as a civil wrong, what would have happened if the required disclosure had been made, was irrelevant.

136. It may be noted that, in so far as GVDC also claimed equitable compensation for loss, it was held that the court should consider whether, if the required disclosure had been made, GVDC would still have made the loss. The court held in paragraph 147 that a director is not liable for loss which the company would probably have suffered if the director had not been in breach of fiduciary duty. There is thus an important distinction in this regard between the correct approach to an account of profits, on the one hand, and to equitable compensation for loss on the other.
137. I will return briefly to equitable compensation below but, for my part, I do not think that the correct approach to the taking of the account is to be determined by reference to the principles relevant to the test of causation in respect of equitable compensation for loss. I do not therefore think that proposition (2) in paragraph 59 of Arden LJ's judgment is relevant to the question whether, in the taking of the account, it is open to Mr Al-Saraj to say that he ought not in equity to be compelled to account for the whole of the profit made by the joint venture.
138. Whatever the position with regard to equitable compensation, which the Murads do not claim, the cases relevant to the obligation to account for a breach of fiduciary duty provide a strong basis for Arden LJ's conclusion that Mr Al-Saraj should account for the whole of the profit which derived from the joint venture. However, Mr Cogley submits that, notwithstanding the strong statements of principle in the cases, including those which say that causation is irrelevant and that it is irrelevant what the principal or person to whom the fiduciary duty is owed would have done if full disclosure had been made, some element of causation must be established. Thus, for example, as Fox LJ observed in Swain v The Law Society [1982] 1 WLR 17 at 36H, in Regal (Hastings) Ltd v Gulliver Lord Russell said at page 143 that the fiduciary may be liable to account for the profits which they have made "if, while standing in a fiduciary relationship to Regal, they have by reason and in course of the fiduciary relationship made a profit." He also said at page 153 that the directors were accountable for any profit made "if it was by reason and in virtue of their fiduciary office".
139. Mr Cogley submits that Lord Russell must have been referring to any profit which was made by reason of the fiduciary's breach of duty and not to any profit made as a fiduciary because such profit might be authorised. Mr Cogley submits that here, if Mr Al-Saraj is obliged to account for all the profits, he will have to account for a large sum which bears no relation to the breach of fiduciary duty. He submits that this case is not like any of those to which Arden LJ has referred or to which I have referred so far because here it was always intended that any profits would be shared between the Murads and Mr Al-Saraj.
140. Mr Cogley relies in this regard upon this statement of Lord Nicholls in Attorney-General v Blake [2001] 1 AC 268 at 280:

"Equity reinforces the duty of fidelity owed by a trustee or fiduciary by requiring him to account for any profits he derives from his office or position. This ensures that trustees and fiduciaries are financially disinterested in carrying out their duties. They may not put themselves in a position in which their duty and interest conflict. To this end they must not make any unauthorised profit. If they do they are accountable. Whether the beneficiaries or persons to whom the fiduciary duty is owed suffered any loss by the impugned transaction is altogether irrelevant."

He also relies upon the observation by Lord Goff in Attorney-General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109 at 286 that the plaintiff's claim for restitution of benefits acquired in breach of a fiduciary relationship is usually enforced by an account of profit "made by the defendant through his wrong at the plaintiff's expense".

141. There is, in my opinion, considerable force in those submissions and, if the matter were free from authority I would hold that a person who makes a profit in the course of a fiduciary relationship must account for the profits he makes, that prima facie he must account for all the profits but that it should be open to him to show that it was always intended that he would make a profit from the transaction and to persuade the court if he can that, in the exercise of its equitable jurisdiction to order an account, in the circumstances of the particular case, he should not be ordered to account for the whole of the profits. Thus I would hold that, while the question what the claimant would have done if told the true facts, is irrelevant to the question whether the fiduciary should be ordered to account, it is or may be relevant to the extent of the account.
142. I am bound to say that, as I see it, such an approach would not infringe any of the principles which underlie the proposition that a fiduciary must account for any unauthorised profit made as a fiduciary. He would be liable to account for all the profits unless he discharged the burden upon him of persuading the court that some other solution was just. On the facts of this case there would I think be something to be said for such an approach. The Murads had agreed that Mr Al-Saraj should have a substantial share of the profit, both capital and revenue. They needed him if they were to go ahead. Given that the judge held that the Murads were keen to proceed with the sale and, if they had known the true facts, would have done so on the same terms, except that their share would be greater and that of Mr Al-Saraj less, if it were open to it, a court of equity might well conclude that justice required that, despite his fraud, he should be allowed to retain some share of the profits and not to account for them all. Whether a court would be willing to take that course would depend upon further argument and, perhaps, further evidence. Subject to argument on the question whether it is now too late, it is, I think, likely that the matter would have to be remitted to the judge.
143. In any event, the difficulty with that approach on the authorities as they stand is clearly explained by Arden LJ. There are two main problems. The first is that the authorities say that whether the principal or person to whom the duty is owed would have agreed that the profit should be made is irrelevant and the second is that the authorities show that what is meant by 'unauthorised profit' is profit which was not authorised at the time it was made and here, as Arden LJ has observed in paragraph 71 of her judgment, the profit was wholly unauthorised at the time it was made and has so remained.
144. Against that, it might be said with regard to the first problem, that there is no case to which we have been referred which is quite like this and that the authorities do not clearly state that what the claimants would have done if full disclosure is not made is irrelevant to the question whether the fiduciary should account for all the profits or only to the questions whether he should be liable to account at all and whether the non-disclosure was actionable as a civil wrong.
145. As to the second problem, suppose, for example, that in the Gwembe case GVDC had agreed that Mr Koshy and/or Lasco should be entitled to very substantial profits and that Mr Koshy had fraudulently appropriated to himself only a small sum, does it follow from the reasoning of the court that Mr Koshy would nevertheless be liable to account for all the profits? Or, suppose a specific sum (of more than de minimis value) were stolen in the course of the joint venture in breach of fiduciary duty, again would the fiduciary be bound to account for the whole of the profit? In each case, it seems to me to be arguable that the answer is no, that when Mummery LJ was referring to "the unauthorised profits dishonestly made" in paragraph 137 of his judgment in the Gwembe case he was not referring to the profit which it had previously been agreed that Mr Koshy could make, and that any other view is to take too narrow a view of the concept of unauthorised profit.
146. Some support for such an approach may be found in two cases to which we were referred. The more recent is the decision of Toulson J in Fyffes Group Ltd v Templeman [2000] 2 Lloyd's Rep 643. In that case the defendant, who was employed by Fyffes, dishonestly accepted certain bribes in connection with the entry into of a service contract between Fyffes and a company called Seatrade. Fyffes sought an account from Seatrade, not only of the bribes, but also of the whole of Seatrade's profit arising out of the service contract.
147. Toulson J held that Seatrade was liable to account for the bribes but no more. He said at page 672:

"However, there is in my view a compelling reason why it would not be right to direct an account of profits in this case. I have already found that it is highly probable that Fyffes would have entered into a service agreement with Seatrade if Mr Templeman had not been dishonest. Insofar as the terms agreed were more favourable to Seatrade than would have been agreed by an honest and prudent negotiator on Fyffes' behalf, Fyffes are entitled to damages, which I have assessed. Insofar as Seatrade made an "ordinary" profit element, it was not caused by the bribery of Mr Templeman, but was profit for the provision of services for which there would have been a contract in any event. I do not see the equity of ordering Seatrade to account to Fyffes for that profit. It is important to remember the warning of the High Court of Australia in Warman at para 33 of the judgment that "the liability of the fiduciary should not be transferred into a vehicle for the unjust enrichment of the plaintiff."

While I see the argument that those conclusions are not consistent with the reasoning of cases like Regal (Hastings) Limited v Gulliver, another view is that they evidence a more flexible, but permissible, approach to the taking of an account in a case which is somewhat different from that which the House of Lords had in mind.

148. The second case is the decision of the High Court of Australia in Warman International Limited v Dwyer (1994-5) 182 CLR 544, to which Toulson J referred. The defendant, Dwyer, was employed by the claimant, "Warman". Warman's business included an agency for the distribution of gearboxes manufactured in Italy. Warman declined the Italian manufacturer's offer to enter into a joint venture. Thereafter, in breach of a fiduciary duty owed to Warman, Dwyer entered into a joint venture with the Italian company through companies called BTA and ETA, which made substantial profits. The High Court of Australia held that Warman was entitled to an account of the profits and set out in detail the principles applicable in such a case: see pages 556-558. I detect no difference in principle between the approach in Australia and the approach here, so far as the underlying principles are concerned: see especially pages 557 and 558.
149. However, after setting out the underlying principles, the judgment, which was the judgment of the court comprising Mason CJ and Brennan, Deane, Dawson and Gaudron JJ, then focused on the correct approach to the assessment of the profit in respect of which an account should be ordered in a way in which (so far as I am aware) none of the English cases have so far done. Thus the court said at p 558:

"The assessment of the profit will often be extremely difficult in practice; accordingly it has been said that "[w]hat will be required on the inquiry … will not be mathematical exactness but only a reasonable approximation". What is necessary however is to determine as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his duty."

150. The court then referred to the two approaches to the problem mentioned by Upjohn J in In re Jarvis (decd) [1958] 1 WLR 815 at 820:

"One approach, more favourable to the fiduciary, is that he should be held liable to account as constructive trustee not of the entire business but of the particular benefits which flowed to him in breach of his duty. Another approach, less favourable to the fiduciary, is that he should be held accountable for the entire business and its profits, due allowance being made for the time, energy, skill, and financial contribution that he has expended or made. … In each case the form of inquiry to be directed is that which will reflect as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his duty."

151. The court said that ordinarily the fiduciary will be ordered to render an account of the profits made within the scope and ambit of his duty. It then set out (at page 559) a number of types of case in which an account of profits would not be ordered, which are not applicable here, and added:

"It is necessary to keep steadily in mind the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts."

It referred to a dictum of Fletcher Moulton LJ in In re Coomber, Coomber v Coomber [1911] 1 Ch 723 at 728-729, where he emphasised the importance of the facts of the particular case. The High Court stressed for example the importance of the fact that in Warman Dwyer had acted dishonestly and added (at page 560):

The outcome in cases of this kind will depend upon a number of factors. They include the nature of the property, the relevant powers and obligations of the fiduciary and the relationship between the profit made and the powers and obligations of the fiduciary."

152. The court then referred to the facts of Keech v Sandford (1726) Sel Cas t King 61, where the trustee of a tenancy who obtained for himself the renewal of a lease was held to hold the lease as a constructive trustee, and said:

"A similar approach will be adopted in a case in which a fiduciary acquires for himself a specific asset which falls within the scope and ambit of his fiduciary responsibilities, even if the asset is acquired by means of the skill and expertise of the fiduciary and would not otherwise have been available to the person to whom the fiduciary is owed."

The court then made what to my mind is an important distinction. It said (at pages 460-561):

"But a distinction is to be drawn between cases in which a specific asset is acquired and cases in which a business is acquired and operated. Such a distinction was drawn by Upjohn J in In re Jarvis in the context of considering a defence of laches, acquiescence and delay. However, in our view, the distinction is also relevant in the context of the fiduciary's liability to account for profits.

…

In the case of a business it may well be inappropriate and inequitable to compel the errant fiduciary to account for the whole of the profit of his conduct of the business or his exploitation of the principal's goodwill over an infinite period of time. In such a case, it may be appropriate to allow the fiduciary a proportion of the profits, depending on the particular circumstances. That may well be the case when it appears that a significant proportion of an increase in profits has been generated by the skill, efforts, property and resources of the fiduciary. The capital which he has introduced and the risk he has taken, so long as they are not risks to which the principal's property has been exposed. Then it may be said that the relevant proportion of the increased profits is not the product or consequence of the plaintiff's property but the product of the fiduciary's skill, efforts, property or resources. This is not to say that the liability to account should be governed by the doctrine of unjust enrichment, though that doctrine may well have a useful part to play; it is simply to say that the stringent rule requiring a fiduciary to account for profits can be carried to extremes and that in cases outside the realm of specific assets, the liability of the fiduciary should not be transferred into a vehicle for the unjust enrichment of the plaintiff."

153. It was that passage to which Toulson J was referring in the Fyffes case. As I read that part of the judgment, the Court is saying that all will depend on the facts of the particular case and that, depending upon the circumstances of the particular case, it is open to the court to hold that it would not be equitable to order the fiduciary to account for all the profits made by a joint venture. It is not simply saying that some allowance may be made for skill and effort on the part of the fiduciary but also for the nature of the investment put in by the fiduciary. I see no reason, why, at the end of that process it should not be open to a court of equity to hold that it would only be equitable to order the fiduciary to account for a proportion of the profits. Moreover, in a joint venture case of this kind, I do not think that it can be right to hold that the finding that the Murads would have entered into the joint venture on the same terms except for profit share if they had been told the whole truth is irrelevant to the question whether Mr Al-Saraj should be ordered to account for the whole of the revenue and capital profit. It seems to me, for example, to be relevant to the question whether, in the words of the High Court of Australia, an account of all the profits (which together were very substantial) would be to transform the liability of the fiduciary "into a vehicle for the unjust enrichment of the plaintiff".
154. In Warman itself some account was taken of what would have happened were it not for Dwyer's breach of fiduciary duty: see pages 565-566 and 567. The judge had held that the receivership would have continued for about another year. The High Court reduced the profits to be accounted for from a period of four years to a period of two years because the period of four years "went beyond what is fair and equitable in the circumstances".
155. The correct approach can to my mind be seen from the next two paragraphs of the judgment in Warman at pages 561-562:

"It is for the defendant to establish that it is inequitable to order an account of the entire profits. If the defendant does not establish that that would be so, then the defendant must bear the consequences of mingling the profits attributable to the defendant's breach of fiduciary duty and the profits attributable to those earned by the defendant's efforts and investment, in the same way that a trustee of a mixed fund bears the onus of distinguishing what is his own.

Whether it is appropriate to allow an errant fiduciary a proportion of profits or to make an allowance in respect of skill, expertise and other expenses is a matter of judgment which will depend on the facts of the given case. However, as a general rule, in conformity with the principle that a fiduciary must not profit from a breach of fiduciary duty, a court will not apportion profits in the absence on an antecedent arrangement for profit-sharing but will make an allowance for skill, expertise and other expenses."

156. In paragraph 81 of her judgment Arden LJ recognises that historically equity has been able (as she puts it) skilfully to adapt remedies against defaulting trustees or fiduciaries so as to meet the justice of the case and she gives examples. In paragraph 82 she refers to Lord Wright's observations in the Regal case about the difficulties of investigating the conduct of a defaulting trustee. In particular she notes Lord Wright's point that it is very difficult to investigate the question what (in his example) the company would have done if the opportunity to subscribe to shares in its subsidiary had been offered to it. Arden LJ then makes what to my mind are two very important points. The first is that the court has very extensive powers under the CPR for instance to require information as to a party's case in order to assist in the resolution of issues of this kind.
157. The second is perhaps more important. It is that the courts can provide a significant measure of protection for beneficiaries by imposing the appropriate burden of proof on a defaulting trustee or fiduciary. Thus the principle has recently been developed that the burden of proof is on the fiduciary to persuade the court that, in the words on the High Court of Australia just quoted from Warman at page 561, that "it is for the defendant to establish that it is inequitable to order an account of the entire profits."
158. If that approach is adopted then, given the tools available to the court to which Arden LJ has referred, the particular concern identified by Lord Wright seems to me to be met. Arden LJ expresses the view that it may be that the time has come when the court should revisit the inflexible rule of equity in what she describes as harsh circumstances. I agree. However, I do not think that the authorities prevent this court from applying the principles identified in Warman and set out above.
159. Moreover, I do not think that the court is prevented from applying those principles on the facts of this case. I recognise that the judge has made findings of fraud against Mr Al-Saraj and that his fraud is a very important factor in deciding whether Mr Al-Saraj has discharged the burden of showing that it would be inequitable to order him to account for all the profits. Nevertheless, while of great importance, the finding of fraud does not seem to me to be conclusive. In the end the question for the judge should be whether the court is persuaded by Mr Al-Saraj that it would be inequitable to order an account of all the profits having regard to all the circumstances of the case.
160. Here there was an antecedent arrangement for profit sharing. But for the fraudulent breach of fiduciary duty, the profit sharing agreement would have been different but there would still have been a profit sharing agreement and the court might hold that, given the resources provided by Mr Al-Saraj, it would be inequitable not to allow him some share of the profits and not merely to make an allowance for his skill, expertise and expenditure, albeit that the amount of any such share must take full account of his fraudulent breach of duty.
161. I do not think that the authorities, taken as a whole, lead to the conclusion that it is not open to the court to adopt that approach. As stated above, the approach is in my opinion consistent with that in Warman, which is not to my mind inconsistent with the English cases, none of which addresses the scope of the permissible account of profits on the facts of a case of this kind.
162. In all these circumstances I have reached a different conclusion from Arden LJ. I would hold that the finding that the Murads would have entered into this joint venture in any event is relevant to the scope of the account which should be ordered. The judge did not so hold because he regarded the finding as irrelevant because of equity's inflexible rule. In these circumstances, subject to hearing submissions as to the precise scope of the remission, I would remit the matter to the judge in order to give Mr Al-Saraj the opportunity to seek to persuade him that it would be inequitable to order him to account for all the profits of the joint venture, subject only to his expenses and skill. I would therefore allow the appeal to that extent.
163. I add three points by way of postscript. The first is that, in reaching the above conclusion, I do not intend to accept the proposition set out in the grounds of appeal and quoted by Arden LJ in paragraph 15 of her judgment that, in the light of the judge's finding that the Murads would have agreed to share some of the profits with Mr Al-Saraj if they had had full knowledge of the facts, it was wrong in principle to order Mr Al-Saraj to account for the whole of the profit but must be limited as there set out. My conclusion is simply that the judge's finding is relevant to the question whether Mr Al-Saraj has shown that it would be inequitable to order him to account for the whole of the profits.
164. The second point is that I do not think that the approach to the equitable remedy of account for deceit or breach of fiduciary duty is any different on the facts of this case. Indeed, I do not understand the contrary to be argued.
165. The third point relates to the court's approach to causation when awarding equitable compensation, which is discussed in some detail by Arden LJ. I have already referred to my view that the test of causation in that context here is irrelevant because we are not concerned in this appeal with a claim for equitable compensation but with the principles applicable to the question whether the court should direct an account of all the profits of a fiduciary. I would only add that to my mind, in Target Holdings Ltd v Redferns [1996] 1 AC 421, the House of Lords was concerned with a case in which it was said that the claim was a claim for compensation for the whole sum paid away in breach of trust. This is not such a case.
166. Although I would allow the appeal to the extent stated above, I otherwise agree with the conclusions of Arden LJ.
167. Since writing the above I have had the advantage of seeing the judgment of Jonathan Parker LJ in draft. While I see the force of his conclusions, I remain of the view that it is open to the court to hold that the relevant principles are more flexible and that the judge's finding that the Murads would have entered into the joint venture in any event is relevant to the scope of the account which should be ordered.