When seeking or resisting an account of profits in breach of fiduciary duty claims, the Warman v Dwyer framework applies, particularly regarding the distinction between specific assets and businesses, the onus on the fiduciary, and the approach to allowances for skill and effort.
Later decisions that cite Warman International Ltd v Dwyer
Decisions cited by Warman International Ltd v Dwyer
WARMAN INTERNATIONAL LIMITED AND ANOTHER v DWYER AND OTHERS
F.C. 95/012
Number of pages - 18
[1995] HCA 18; (1995) 182 CLR 544
(1995) 128 ALR 201
(1995) 69 ALJR 362
Equity
HIGH COURT OF AUSTRALIA
MASON CJ, BRENNAN, DEANE, DAWSON AND GAUDRON JJ
Equity - Fiduciary duty - Breach - Remedies - Equitable damages - Account of profits - Diversion by manager of part of employer's business to own company - Whether employer entitled to whole profit of business - Onus - Whether allowance to be made for manager's endeavour and skill.
HEARING
BRISBANE, 1994, June 28; CANBERRA, 1995, March 23ORDER
Appeal allowed.DECISION
MASON CJ, BRENNAN, DEANE, DAWSON AND GAUDRON JJ This appeal raises the questions whether an account of profits should be awarded in favour of a successful plaintiff in an action for breach of fiduciary obligation and, if so, the basis upon which such an account should be taken in all the circumstances of the particular case.
The facts
2. The first respondent, Mr Dwyer ("Dwyer"), was the general manager of the
Queensland branch of the first appellant ("Warman").
Warman was a subsidiary
of the second appellant ("Peko-Wallsend"). The learned trial judge
(Derrington J) found that Warman carried
on its relevant business as
"undisclosed agent" for its holding company, Peko-Wallsend. However, no point
about that has been taken
at any stage of the proceedings and the only
significance which has been attached to the intrusion of Peko-Wallsend as an
"undisclosed"
principal has been that the relief granted in the courts below
was in favour of Peko-Wallsend and not Warman. The case has been
argued on
that basis in this Court and, in the absence of any suggestion to the
contrary, it is convenient to ignore the underlying
interest of Peko-Wallsend
except for the purposes of framing final orders.
3. Warman's principal business was the manufacture and distribution of slurry
pumps, although before 1988 it had been involved in
a number of other
activities, including an agency for the distribution of gearboxes manufactured
in Italy by the Bonfiglioli group
together with some related products. It is
generally unnecessary to distinguish between the various companies in that
group and
their management by the Bonfiglioli family, and we shall refer to
them collectively as Bonfiglioli or Bonfiglioli interests.
4. The Queensland branch of Warman sold more Bonfiglioli products in
Australia than any other branch. Accordingly, that branch
controlled the
running of the agency, which included dealing with Bonfiglioli. By 1986,
Dwyer was becoming dissatisfied with his
employer, partly because it was
pursuing restrictive policies in relation to the Bonfiglioli agency. Warman
had abandoned its agencies
for Bonfiglioli products in all other States in
favour of sub-dealerships with independent companies which dealt through the
Queensland
branch. Thus, the Queensland branch was the only Warman branch
directly exploiting the Bonfiglioli agency. Even in the Queensland
branch
there were reductions in stock levels and staff numbers. In the light of
those and other developments, Dwyer was discontented
and anxious. As the
learned trial judge found:
"Although he had given it long service and had for a time served in a
position associated with its highest level he had then been
relegated to the
Queensland branch managership. This was compounded by the subsequent heavy
reduction in the activity and consequently
the staffing of that branch so that
his status increasingly became even less than it had been. At that time he
correctly foresaw
that his salary would be relatively diminished, and no doubt
he was anxious even as to the continuity of his future employment.
It is not
surprising that this was also the source of some discontent to him."
5. In August 1986 Mr Carboni, Bonfiglioli's overseas sales manager, visited
Australia and said to both Warman's Sydney management
and management of the
Queensland branch that Bonfiglioli wished to enter into a joint arrangement,
preferably with Warman, for the
local assembly of its products in Australia.
The trial judge found that the Sydney management (who were Dwyer's superiors)
made it
very clear that Warman would not be interested in participating in
such a venture. It seems that that response provoked Dwyer, together
with Mr
Jarvis, the former Queensland sales manager for Bonfiglioli products, to sign
a letter dated 28 August 1986 addressed to
Mr Bonfiglioli. The letter was
predominantly the work of Dwyer. It stated that:
"Warman has relatively new top management who are imposing certain
restrictions on the operation of Bonfiglioli and other equipment.
We are
working at having these restrictions changed ... However, if we are
unsuccessful, I am considering leaving Warman ... It
would be my intention to
set up our own business which would include and feature Bonfiglioli."
The letter added that Dwyer would be prepared to visit Italy for further
discussions, and concluded with the statement that discussions
concerning the
assembly of units in Australia "would also prove of great interest to us".
6. During the next year Bonfiglioli explored the possibility of Australian
operations with other companies, including Lucas Fluid
Power, Gibson Battle
and Co. and Muir Engineering. Towards the end of 1987 the proposal of a joint
operation with Dwyer was raised
again by Bonfiglioli. At around the same
time, Mr Lockhart, Warman's Australian sales manager and Dwyer's immediate
supervisor,
visited Queensland and asked Dwyer whether he would be interested
in leaving Warman and purchasing the agencies division for himself.
Dwyer
declined. Instead, he maintained his own secret negotiations with Bonfiglioli
and, to that end, arranged for the two corporate
respondents, Bonfiglioli
Transmission (Aust.) Pty. Ltd. ("BTA") and Engineering Transmission Agencies
Pty. Ltd. ("ETA"), to be incorporated.
On 24 February 1988, Dwyer wrote to Mr
Bonfiglioli, setting out detailed suggestions concerning share ownership and
control of the
proposed business, including bringing in as shareholders
existing Warman staff in Queensland. He made arrangements with the existing
staff in Warman's Queensland branch to work in the new venture, although
ultimately they did not take up shares in the new companies.
7. In April, Dwyer was asked by Lockhart to prepare a review for Warman of
the agency division, with a view to assisting Warman's
chief executives to
decide whether or not to retain it. Shortly afterwards, in May, Dwyer visited
Italy without telling his employer,
and the trial judge concluded that while
he was there he reached final agreement with Bonfiglioli on the joint
enterprise.
8. In June 1988 Warman's management received written notice dated 26 May from
Bonfiglioli terminating the agency agreement. Under
the terms of the
agreement, either party was entitled to bring the agency to an end on three
months' notice. Despite their efforts,
representatives of Warman were unable
to persuade Bonfiglioli to reverse its decision. At this point, Dwyer
revealed that he had
accepted a proposal to enter a joint venture with
Bonfiglioli. On 20 June he gave notice of resignation and he stopped working
for
Warman on 30 June. It would seem to be common ground that the agency
agreement between Warman and Bonfiglioli came to an end on
26 August.
9. In August 1988, shares of BTA were issued to Dwyer and his wife (jointly)
and to FinBonfiglioli SpA, a member of the Bonfiglioli
group, with the result
that BTA's shareholding was equally divided between Mr and Mrs Dwyer and
Bonfiglioli. ETA remained wholly
owned by Mr and Mrs Dwyer (separately) and
distributed some Bonfiglioli products and the range of complementary
non-Bonfiglioli products
in conjunction with the joint venture. Warman had
abandoned the non-Bonfiglioli products because their turnover depended
substantially
on their complementary status to Bonfiglioli products. On 12
September, FinBonfiglioli SpA and BTA executed a joint venture agreement
with
Dwyer and Mrs Dwyer, which provided for the assembly and distribution of
Bonfiglioli gearboxes in Australia for a 20 year term.
The range of
Bonfiglioli stock was substantially increased and the local assembly venture
was set up. BTA took over the agency business
in Australia which included the
assembly and the distribution of gearboxes. The businesses have been
successful, with net profits
(before tax) of some $1.6 million over the four
years preceding the trial.
The decision of the trial judge
10. Warman commenced proceedings against Dwyer and the corporate respondents
on 25 October 1988, seeking relief including an account
of profits. The trial
judge found that Dwyer's conduct amounted to a clear breach of the fiduciary
relationship between himself
and Warman. With the connivance of BTA and ETA
and Bonfiglioli, Dwyer had used his knowledge and his position as a senior
executive
officer of Warman to advance his own interests and those of the
other defendants to Warman's disadvantage, by reducing Bonfiglioli's
confidence in Warman and offering himself and the agency staff as an
attractive competitor for Bonfiglioli's business.
11. The result was that Bonfiglioli probably terminated its agency with
Warman earlier than it otherwise would have done. In this
respect, it is
important to note that the trial judge found that "in the absence of (Dwyer's)
conduct in providing an alternative,
Bonfiglioli may well have retained Warman
as its agent indefinitely". Indeed, his Honour stated that, if Dwyer had
defended Warman,
instead of denigrating it, "the agency may well have been
preserved to it". At the same time, his Honour acknowledged that, while
Warman was content to retain the agency, "it probably would not have been
willing to enter into any arrangement such as presently
exists for holding a
substantially larger amount of stock or for a joint venture in the assembly of
the machinery". This was a matter
of considerable importance to Bonfiglioli
which was "independently active in pursuit of seeking such an arrangement".
Bonfiglioli
was somewhat dissatisfied with Warman's performance as its
distributor.
12. Without Bonfiglioli products, the other products were not worth
retaining, so that the entire agency division was lost. His
Honour also found
that BTA and ETA were equally liable with Dwyer, because their controlling
minds were fully aware of and joined
in the breach.
13. The trial judge stated that it was open to the plaintiffs to recover
"equitable damages" for "the loss of Warman's chance of
retaining the agencies
business". In assessing such damages it would be necessary to take into
account, inter alia, the considerations
that Bonfiglioli seriously intended to
find another agent if Warman remained uninterested in a local assembly joint
venture and that,
although Bonfiglioli would probably eventually have
terminated the agency, it would probably not have done so as quickly as it did
but for Dwyer's conduct. His Honour concluded that the appropriate figure
would have been $325,000 which was the "figure (which)
would have been reached
by assessing the value of the business at that time at one year's potential
profits before tax". Presumably,
the reference to "that time" was a reference
to the time when the Bonfiglioli agency was lost. However, the plaintiffs
sought a declaration
that the goodwill of the defendants' business was held in
trust for Warman, together with an account of profits to date. His Honour
refused to make a declaration of trust of the goodwill but acceded to the
claim for an account of profits. In determining the appropriate
basis for
such an account, he attempted to determine the proportion of the defendants'
business which flowed to them by reason of
the breach of Dwyer's fiduciary
obligation. His Honour also provided for the payment of an additional amount
on account of the "present
value" of that proportion of the goodwill of the
defendants' business.
14. Derrington J considered that the case for the making of allowances to the
defendants for the time, energy, skill and capital
they brought into the
business was quite strong, because of a number of factors. Some profits were
derived from the local assembly
venture, although it was difficult to quantify
precisely the extent to which this was so. The trial judge also made
allowances for
increased sales due to the combination of the larger stock
holding and the flexibility produced by the assembly process resulting
from a
large capital injection for stock and equipment; Dwyer's skill, energy and
effort; and the selective acquisition of only the
most profitable agencies
formerly held by Warman. Consequently, the trial judge chose to make an
allowance to the defendants of
one-half of the goodwill of the business and
its after-tax net profits. The trial judge said that the value of the
respondents'
businesses "should be estimated upon a capitalisation rate of one
applied to the combined net profit after tax of the whole business".
This had
the effect of giving to each business a "present value" equal to its after-tax
profit for the 1991/1992 year of income.
Those values were $148,370 for BTA,
and $45,092 for ETA. The plaintiffs' half-share of the sum of those values is
$96,731. His
Honour calculated the total net profits of BTA for the preceding
four years at $1,086,257 and of ETA at $515,923. Half of that sum
is
$801,090.
15. In estimating the goodwill of each business by reference to one year's
profits, his Honour appears to have taken into account
"Warman's various
chances of abandoning or retaining or losing (the business)" and Bonfiglioli's
endeavours for some time to make
arrangements for assembly thereby indicating
"its serious intention to find some such alternative if Warman remained
uninterested".
His Honour made only a nominal allowance for interest on the
profits in earlier years, namely, $10,000, on the basis that most,
if not all,
of the profits were returned to the businesses which, in turn, contributed to
their subsequent profitability.
16. The trial judge declined to make a declaration that the defendants held
part of their business on trust for Warman, on the basis
that it was
undesirable to thrust the parties into a continuing business relationship when
it was clear that there was no confidence
or comity between them. Instead,
his Honour ordered that the respondents pay to Warman one-half of the present
value of the goodwill
of the businesses. It is common ground that, owing to an
arithmetical error, the trial judge determined that the value of the
half-share
was $146,731 instead of $96,731. This latter amount was charged
against the assets of both BTA and ETA. Altogether, the trial judge
awarded
judgment against Dwyer, BTA and ETA of $957,821, being the sum of $801,090,
$10,000 and $146,731.
The decision of the Court of Appeal
17. All members of the Court of Appeal upheld the conclusion of the trial
judge that Dwyer had acted in breach of his fiduciary
duty, and that holding
was not challenged in this Court. However, the majority (Macrossan CJ and
Pincus JA) allowed the appeal,
on the basis that, instead of taking an account
of profits, Warman was only entitled to recover its loss flowing from the
breaches
of fiduciary duty. McPherson JA dissented, and would have dismissed
the appeal, apart from correcting the arithmetical error in calculating
the
value of the goodwill.
18. The majority mentioned the following considerations which were relevant
to their conclusion that an account of profits should
not have been ordered.
First, Dwyer did not himself make any profits as a direct result of trading in
Bonfiglioli products; the profits
were made by BTA and ETA. Nevertheless, the
trial judge held each defendant liable to account for all of the profits made
by the
others. While that might have been correct in respect of ETA, of which
Dwyer constituted the controlling mind, it could hardly be
the case in respect
of BTA, in which Mr and Mrs Dwyer held only a half-interest. Macrossan CJ and
Pincus JA stated that they had
been unable to find any authority for the view
that if a fiduciary, in breach of duty, takes part in the formation of a
company which
earns profits which would have gone to the plaintiff but for the
breach, then the fiduciary is liable to account as if he had himself
earned
the profits. Secondly, the majority considered that it was unclear on what
basis Dwyer should have been held liable to pay
the one-half of the value of
the goodwill of BTA and ETA, for he did not himself personally receive that
benefit. The majority were
also critical of the trial judge's calculation of
the value of the goodwill; their Honours said that ordinarily a buyer would be
expected to pay a multiple of the figure awarded by the trial judge. The award
should have included an estimate of the present value
of the expected future
profits. Thirdly, they said that it was difficult to see that there was any
real foundation for the view that
one-half of the goodwill, rather than some
other fraction, should be attributed to the business which Warman had lost.
Fourthly,
BTA and ETA each carried on businesses of a very different character
from the Bonfiglioli agency Warman had formerly enjoyed. Fifthly,
it was said
that it was not BTA and ETA which participated in Dwyer's breach of duty, but
rather Bonfiglioli, the Italian company,
while BTA and ETA had merely carried
on business knowing of Dwyer's breach. Sixthly, the majority considered that
the cases manifested
a reluctance to let the wronged party reap a great
benefit from the wrong done to it, and that in all cases the fiduciary's
liability
must be imposed flexibly, bearing in mind all the facts of the case.
Their Honours held that "only by assessing the profits gained
on the
assumption that they ceased at trial and attaching a remarkably low value to
the goodwill was the learned primary judge able
to arrive at a figure which
might not seem to be beyond the bounds of reason". This result was not
defensible. Accordingly, their
Honours ordered that the matter should be
remitted so as to allow judgment to be given against the defendants for the
loss suffered
by the plaintiffs consequent upon the breaches of fiduciary
duty.
The appeal to this Court
19. The argument on the appeal to this Court has been confined to the
questions mentioned at the commencement of this judgment,
namely, whether
Warman was entitled to an account of profits and, if so, the basis upon which
such an account should be taken. Neither
in this Court nor in the Court of
Appeal has Warman sought to attack the trial judge's conclusion that it was
inappropriate to make
a declaration of trust of the goodwill of the business
of either BTA or ETA. For their part, Dwyer, BTA and ETA have not argued
either in this Court or in the Court of Appeal that any amount awarded by way
of account of profits or equitable compensation should
not be made against all
three of them jointly. Nor has Dwyer, BTA or ETA sought to argue that the
order for equitable compensation
made by the Court of Appeal was too generous
to Warman. That being so, it has been common ground that Warman was entitled
to be
compensated by Dwyer, BTA and ETA for the loss actually sustained by it
consequent upon the breaches of fiduciary duty by Dwyer.
The consequences of a breach of a fiduciary obligation
20. There is no doubt that, before leaving the employment of Warman, Dwyer
had made at least a preliminary agreement to set up a
joint venture with
Bonfiglioli, thus supplanting Warman. Instead of attempting to enhance the
relationship between Bonfiglioli and
his employer, Dwyer actively sought to
reduce Bonfiglioli's confidence in Warman. So much is plain from the
correspondence and from
the fact that Dwyer caused BTA and ETA to be
incorporated months before he resigned in 1988. It is also plain that Dwyer
made arrangements
with the other staff of Warman's Queensland branch to the
effect that they would leave Warman and become the staff of the new
distributing
agent if and when his plans came to fruition. Hence, this is a
clear case of a fiduciary breaching his obligations.
21. In Nocton v. Lord Ashburton (1) Viscount Haldane LC described the three
primary remedies consequent upon a breach of a fiduciary
obligation between a
solicitor and client:
"Courts of Equity had jurisdiction to direct accounts to be taken, and in
proper cases to order the solicitor to replace property
improperly acquired
from the client, or to make compensation if he had lost it by acting in breach
of a duty which arose out of his
confidential relationship to the man who had
trusted him."
22. Although the Lord Chancellor was addressing the fiduciary relationship
which arises between a solicitor and client, his words
are of general
application. In the present appeal, all three of those remedies are relevant,
but, as has been indicated, the primary
focus is the remedy of account.
23. The remedy is ancient and notoriously difficult in practice (2) and it
gives rise to a liability, even in a case of a fiduciary,
which is personal
(3). In the context of patent infringement, the purpose of ordering an account
is not to punish the defendant,
but to prevent the defendant's unjust
enrichment (4). But the liability of a fiduciary to account differs from that
of an infringer
in an intellectual property case. 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 (5). 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. Gibbs J in Consul
Development Pty. Ltd. v. DPC Estates Pty. Ltd. (6) stated:
"Where the rule applies, the liability of the person in a fiduciary position
does not depend on the fact that the person to whom
the duty is owed has
suffered injury or loss."
A fiduciary must account for a profit or benefit if it was obtained either (1)
when there was a conflict or possible conflict between
his fiduciary duty and
his personal interest, or (2) by reason of his fiduciary position or by reason
of his taking advantage of
opportunity or knowledge derived from his fiduciary
position (7). The stringent rule that the fiduciary cannot profit from his
trust
is said to have two purposes: (1) that the fiduciary must account for
what has been acquired at the expense of the trust, and (2)
to ensure that
fiduciaries generally conduct themselves "at a level higher than that trodden
by the crowd" (8). The objectives which
the rule seeks to achieve are to
preclude the fiduciary from being swayed by considerations of personal
interest and from accordingly
misusing the fiduciary position for personal
advantage (9).
24. Thus, it is no defence that the plaintiff was unwilling, unlikely or
unable to make the profits for which an account is taken
or that the fiduciary
acted honestly and reasonably (10). So, in Regal (Hastings) Ltd. v. Gulliver
(11), although the directors
acted in good faith and in the interests of the
company of which they were directors in taking up shares in a subsidiary which
the
company could not afford to take up, they were held accountable for the
profit made on the sale of the shares. And, in Phipps v.
Boardman (12), the
solicitor was held accountable for the profit he made, notwithstanding that he
acted bona fide and in the interests
of the trust and that the opportunity
would not have been availed of but for his skill and knowledge.
25. 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" (13). 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
(14).
26. In Hospital Products Ltd. v. United States Surgical Corporation (15),
Mason J referred to the two approaches to the problem
of determining the
fiduciary's liability mentioned by Upjohn J in In re Jarvis (decd) (16):
"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."
This distinction was raised in argument in this Court and in the courts below,
and it will be necessary to return to it.
27. Ordinarily a fiduciary will be ordered to render an account of the
profits made within the scope and ambit of his duty (17).
Of course, if the
loss suffered by the plaintiff exceeds the profits made by the fiduciary, the
plaintiff may elect to have a compensatory
remedy against the fiduciary. That
election will bind the plaintiff (18).
28. Although an account of profits, like other equitable remedies, is said to
be discretionary, it is granted or withheld according
to settled principles.
It will be defeated by equitable defences such as estoppel, laches,
acquiescence and delay. And, notwithstanding
what was decided in Regal
(Hastings) Ltd. v. Gulliver and Phipps v. Boardman, it may be that (19):
"the liability to account for a personal benefit or gain obtained or
received by use or by reason of fiduciary position, opportunity
or knowledge
will not arise in circumstances where it would be unconscientious to assert it
or in which, for example, there is no
possible conflict between personal
interest and fiduciary duty and it is plainly in the interests of the person
to whom the fiduciary
duty is owed that the fiduciary obtain for himself
rights or benefits".
The conduct of the plaintiff may be such as to make it inequitable to order an
account. Thus a plaintiff may not stand by and permit
the defendant to make
profits and then claim entitlement to those profits (20).
29. 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. As Fletcher Moulton LJ observed in In re Coomber; Coomber
v. Coomber (21):
"Fiduciary relations are of many different types ... and the Courts have
again and again, in cases where there has been a fiduciary
relation,
interfered and set aside acts which, between persons in a wholly independent
position, would have been perfectly valid.
Thereupon in some minds there
arises the idea that if there is any fiduciary relation whatever any of these
types of interference
is warranted by it. They conclude that every kind of
fiduciary relation justifies every kind of interference. Of course that is
absurd. The nature of the fiduciary relation must be such that it justifies
the interference. There is no class of case in which
one ought more carefully
to bear in mind the facts of the case ... than cases which relate to fiduciary
and confidential relations
and the action of the Court with regard to them."
30. But the basic principle remains that a principal who so elects is
entitled to an account of profits, subject to considerations
of the kind
already mentioned. In the present case, not only was Dwyer actively
dishonest, but also Warman commenced proceedings
in the Supreme Court of
Queensland in October 1988, shortly after Dwyer's departure, so that Dwyer had
an opportunity to consider
his position and take appropriate action such as
the proper purchase of the goodwill of the agency business from Warman. And
when
the fiduciary is actively dishonest and obtains an identifiable profit
from that dishonesty, it is more difficult still to conceive
of circumstances
in which no account at all should be ordered.
31. 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.
Thus, according to the rule in Keech v.
Sanford (22), a trustee of a tenancy who obtains for himself the renewal of a
lease holds
the new lease as a constructive trustee, even though the landlord
is unwilling to grant it to the trust. But the rule "depends partly
on the
nature of leasehold property" and partly on the position which the trustee
occupies (23). 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 duty is owed.
32. But a distinction should 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 (decd) (24) 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 In re Jarvis (decd) Upjohn J said (25):
"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."
His Lordship then went on to cite the observations of Knight Bruce LJ in Clegg
v. Edmondson (26):
"A mine which a man works is in the nature of a trade carried on by him. It
requires his time, care, attention and skill to be bestowed
on it, besides the
possible expenditure and risk of capital, nor can any degree of science,
foresight and examination afford a sure
guarantee against sudden losses,
disappointments and reverses. In such cases a man having an adverse claim in
equity on the ground
of constructive trust should pursue it promptly, and not
by empty words merely. He should shew himself in good time willing to
participate
in possible loss as well as profit, not play a game in which he
alone risks nothing."
33. 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 upon 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 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. This 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.
34. 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
(27), in the same
way that a trustee of a mixed fund bears the onus of
distinguishing what is his own (28).
35. 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 (29). 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 allowance for skill, expertise and other
expenses.
The Court of Appeal's refusal to order an account of profits
36. In the present case, Dwyer, BTA and ETA have, in different capacities,
all knowingly profited from Dwyer's breach of fiduciary
duty. There is no
acceptable basis for depriving Warman, as the majority in the Court of Appeal
did, of any right to elect to have
an account of profits and thereby allowing
Dwyer, BTA and ETA to retain any benefit flowing from Dwyer's breach of
fiduciary obligation
over and above the amount which represents equitable
compensation for the loss actually sustained by Warman. As already explained,
it is firmly established that the liability of a fiduciary to account for a
profit or gain made in breach of fiduciary duty does
not depend upon the
person to whom that obligation is owed suffering a loss or injury (30); and it
is ordinarily immaterial to the
fiduciary's liability to account that the
person to whom the fiduciary obligation is owed could not have earned the
profit or gain
(31). The courts have always insisted on compliance by
fiduciaries with strict and rigorous standards with a view to ensuring that
they do not expose themselves to a conflict of interest and duty. The point
is that a fiduciary is not entitled to make a profit
out of, or by reason of,
a fiduciary position without the knowledge and assent of the person to whom
the fiduciary duty is owed (32).
It follows that, if a profit has been made
in breach of fiduciary duty, the person to whom the duty is owed is entitled
to an account
subject to the considerations discussed above and to the making
of any appropriate allowance.
37. The trial judge awarded an account of profits made by BTA and ETA during
the four year period preceding the hearing, but permitted
the respondents to
retain an allowance of 50 per cent of those profits. The Court of Appeal by
majority overturned the trial judge's
decision, stating:
"The cheat may have to pay nothing, or a great sum, depending on whether or
not he was a fiduciary. The defendant who in a marginal
case is held to have
breached a fiduciary duty may think it odd that his mistake - for it may be no
more than that - is more expensive
than simple fraud would have been."
This passage overlooks the strict and rigorous standards which the courts have
applied to fiduciaries and the critical and essentially
undisputed fact that
Dwyer was a fiduciary in breach of his obligations to Warman. As it happened,
Dwyer was almost certainly also
in breach of a confidentiality agreement
between himself and Warman, which inter alia imposed on him express
obligations to refrain
from using confidential information in a manner that
might cause loss to Warman. For his contractual breaches, the usual
compensatory
remedies would lie. But, because Dwyer was also a fiduciary, and
therefore in a position of trust, the consequences of his action
are, rightly,
more severe. Any other result misapprehends the fiduciary relationship and
the consequences in equity of a breach
of fiduciary obligations.
38. Prima facie, one would have expected that the focus of Warman's attack
would have been directed to Dwyer's shareholdings in
BTA and ETA. Clearly
enough, it was arguable that any amount by which the value of Dwyer's shares
in those two companies exceeded
their cost to him represented a capital profit
which Dwyer had derived by his breach of fiduciary duty and for which he
should be
called to account either by the imposition of a constructive trust
of the shares (subject to payment by Warman of subscription moneys
and other
appropriate expenses or allowances) or by the payment by him to Warman of an
amount of money equal to the excess of the
value of his shares. While the
statement of claim sought a declaration that Dwyer held his shares in the two
companies in trust,
the trial judge's judgment contains nothing to suggest
that any such claim was pursued at the hearing. One can conceive of a variety
of possible reasons for that, including the difficulty in establishing that
the shares in BTA or ETA were worth more than Dwyer had
paid for them and the
considerations which the trial judge took into account in refusing to make a
declaration of trust of goodwill
and which would militate against making an
order which introduced Warman as an equal shareholder (with Bonfiglioli) in
BTA which
was essentially a joint venture company. In addition, the position
was complicated by the fact that Mrs Dwyer, who was not a party
to the
proceedings, was a joint holder with Dwyer of the "Dwyer shares" in BTA and
was the holder of one of the two issued shares
in ETA. Be that as it may,
neither in this Court nor, apparently, in the Court of Appeal has Warman
sought to argue that the trial
judge fell into error in failing to grant any
relief in relation to Dwyer's shareholding in either BTA or ETA. To the
contrary,
its claim in this Court for an account has focused exclusively upon
the businesses of BTA and ETA and the profits made by those companies.
39. The learned trial judge found that "those who constituted the minds of"
BTA and ETA "were fully aware of and joined in" Dwyer's
breach of fiduciary
obligation. That finding was justified by the evidence. The two companies
had been incorporated for the purpose
of reaping the benefits of Dwyer's
breach of fiduciary duty. In due course, they knowingly sought and obtained
those benefits by
beginning and carrying on the distribution business which
had been lost by Warman or (in the case of the agency for complementary
non-Bonfiglioli products) rendered non-viable when Warman's Bonfiglioli agency
was prematurely terminated. In these circumstances,
the conclusion was clearly
warranted that the two companies had knowingly and actively participated in
Dwyer's breach of fiduciary
obligation to the extent necessary to bring them
within the principle identified by Gibbs J in Consul Development (33):
"a person who knowingly participates in a breach of fiduciary duty is liable
to account to the person to whom the duty was owed for
any benefit he has
received as a result of such participation".
Indeed, no submission to the contrary was advanced in the course of argument
in this Court.
The basis for an account of profits
40. In determining the proper basis for an account of profits, it is of first
importance in this, as in other cases, to ascertain
precisely what it was that
was acquired in consequence of the fiduciary's breach of duty. And, in some
situations, it may also be
relevant to ascertain what was lost by the
plaintiff. The starting point in the present case is that Warman's Bonfiglioli
agency
business rested on the contract by which Bonfiglioli appointed Warman
its exclusive Australian distributor of gearboxes and other
components. The
contract was terminable by Bonfiglioli on three months' notice to Warman. The
local goodwill associated with the
Bonfiglioli products distributed by Warman
- the local product goodwill - was the property of Bonfiglioli just as the
local product
goodwill in Australia in Hospital Products (34) was that of the
United States principal. That, of course, is not to deny the existence
in
Warman of a goodwill associated with its distribution of Bonfiglioli products.
It does not appear that any distinction was drawn
at trial between the
goodwill of Bonfiglioli and that of Warman or that any attempt was made to
identify and value each of them.
41. But, in light of the fact that the contract was terminable on three
months' notice and that Bonfiglioli was dissatisfied with
the Australian
arrangements and wished to engage in local assembly, it is reasonable to
conclude that, in all likelihood, the Warman
distributorship would not have
endured for much longer in any event. That seems to have been the view of the
trial judge from the
findings he made. No doubt Dwyer's disloyal machinations
played a part in Bonfiglioli's disenchantment with Warman. At the same
time,
it seems fairly clear that the relationship between Warman and Bonfiglioli was
not mutually enthusiastic and that the association
was destined to end.
42. Precisely when it would have ended were it not for Dwyer's breach of
fiduciary obligation is unclear. Earlier in these reasons
we set out the
findings of the trial judge as they bear on that issue. It seems to us that
his Honour, when his findings are properly
understood, valued the Bonfiglioli
distributorship business in the hands of Warman by reference to one year's
profits on the basis
that, taking account of the various contingencies
including the remote possibility that the agency might have continued
indefinitely,
the distributorship, in all likelihood, would have remained on
foot for a further year but no more. That view about what would have
happened
in the absence of Dwyer's breach of fiduciary obligation was certainly open to
his Honour. It should be accepted as correct.
43. That means that the immediate detriment sustained by Warman by reason of
Dwyer's breach of fiduciary obligation, was the loss
of an agency (i.e., the
Bonfiglioli agency) which, on the probabilities, would otherwise have survived
for, but only for, a further
year. The advantage gained by BTA (and,
indirectly, by Dwyer as a shareholder in BTA) from Dwyer's breach of fiduciary
duty was
not, however, confined to profits or other financial benefits
directly attributable to the carrying on of the Bonfiglioli agency
during the
year following the termination of Warman's distribution agreement. Dwyer's
breach of fiduciary duty included, to the
knowledge of BTA, the persuasion of
employees of Warman to leave Warman and join BTA. It was on the basis of the
acquisition of
the Bonfiglioli agency that the entitlement to assemble the
Bonfiglioli products locally was acquired and exploited by BTA. In so
far as
ETA is concerned, the associated distributorship business of that company was
likewise established upon the basis of BTA's
acquisition of the Bonfiglioli
agency.
44. If all of the issued shares in BTA were owned by Dwyer, it might be
difficult to reach any conclusion other than that the whole
of BTA's assembly
and distributorship business had been built upon Dwyer's breach of fiduciary
duty. On balance, however, it seems
to us that the fact that BTA was half
owned by the Bonfiglioli interests precludes that conclusion in the
circumstances of this case.
As has been mentioned, the local goodwill
associated with the Bonfiglioli products had always remained the property of
Bonfiglioli.
Warman was entitled to exploit that local goodwill only during
the period of its distributorship. Warman's agency had not extended
at all to
the local assembly of the Bonfiglioli products. Realistically, the main basis
of BTA's business was what Bonfiglioli had
always retained and been entitled
to exploit, namely, the local goodwill of the Bonfiglioli products after the
termination of Warman's
agency and the right to assemble those products
locally. Nonetheless, the fact remains that BTA knowingly benefited from
Dwyer's
breach of fiduciary duty in the manner and to the extent which has
been indicated above. In these circumstances, the appropriate
approach is to
see BTA's business as built, to the extent of that benefit, upon Dwyer's
breach of fiduciary duty but otherwise upon
Bonfiglioli's ownership of local
goodwill and local assembly rights. Similarly, ETA's business, being
complementary to BTA's business,
can properly be seen as indirectly and
correspondingly based upon those foundations.
45. Once that is accepted, as in our opinion it must be, it seems to us that
the appropriate order for an account is an order which
is restricted to
requiring an account of the profits of BTA's and ETA's business for a limited
initial period. The critical question
is what is the appropriate duration of
that limited initial period. The starting point must be the finding that,
were it not for
Dwyer's breach of fiduciary duty, Warman's Bonfiglioli
distributorship would probably have continued for, but only for, a further
period of one year. Clearly, any order against BTA for an account of profits
must encompass an account on an appropriate basis for
any profits earned by it
from the exploitation of the Bonfiglioli agency during that period. Such an
order must, however, take account
of other advantages knowingly gained by BTA
by reason of Dwyer's breach of fiduciary obligation. As has been said, the
entitlement
to assemble the Bonfiglioli products locally was based upon the
Bonfiglioli agency. More important, the acquisition of the services
of former
Warman employees through Dwyer's breach of fiduciary obligation enabled BTA
effectively to take over the limited goodwill
of Warman's agency business (as
distinct from the local goodwill of the Bonfiglioli products) and to derive
benefits from the experience,
contacts and know-how of those employees. Those
benefits would, at least to some extent, have endured beyond the initial one
year
period.
46. As has been indicated, the basis upon which an account of profits should
be taken is often extremely difficult to determine
in practice. It is so in
the present case. Indeed, what is required in the present case is essentially
what Lord Wilberforce described
as a "judicial estimation of the available
indications" (35). However, even after making full allowance for the limits
of judicial
discretion, it appears to us that the learned trial judge's order
requiring accounts of four years' profits plus payment of a purchase
price for
goodwill at the end of that period went beyond what is fair and equitable in
the circumstances. It seems to us that, in
all the circumstances and in the
context of what is said in the following two paragraphs, the adequate and
appropriate period in
respect of which an account of BTA's profits should be
ordered is a total period of two years. An account of profits in respect
of
that period would, in our view, clearly cover the whole of the benefits
acquired by BTA through Dwyer's breach of fiduciary duty.
It follows from
what has been said above that the period of two years is also the appropriate
period in respect of which an account
of profits should be ordered against
ETA.
47. In deciding which of the two approaches discussed by Upjohn J in In re
Jarvis (decd) should be applied, it is relevant to ascertain
the relationship
of the distributorship business as it was carried on by Warman and as it was
later carried on by BTA and ETA. The
local assembly aspect of the business of
Bonfiglioli was new but it was relatively small in comparison with the whole,
employing
only one man full-time and a couple of part-time helpers. There
were differences in the complementary agencies and there was a substantial
increase in the level of stock maintained by the respondents compared with the
level maintained by Warman. Despite these differences,
the distributorship
business conducted by Warman - importation of Bonfiglioli components - became
the core business of BTA. The
question whether a particular business acquired
by a defendant as a result of misuse of his position is sufficiently the same
as
that formerly conducted by the plaintiff is essentially a question of fact
(36). In the present case, Dwyer was asked in cross-examination:
"Would it be fair to say that the business operated by BTA and ETA has been
carved out of the business that was operated by the
Queensland branch of the
engineering agency division of Warman?"
He replied:
"Generally, yes."
That answer accords with the evidence as a whole.
48. In these circumstances, the respondents should be ordered to account on
the basis of the approach less favourable to them; they
must account for the
entirety of the net profits of the businesses before tax less an appropriate
allowance for expenses, skill,
expertise, effort and resources contributed by
them. There is insufficient material before this Court to determine what that
allowance
should be. Nor is it possible to adopt the trial judge's approach
that the appropriate order is for an account of one-half of the
profits of the
relevant years since that approach was based, to some extent, on his Honour's
conclusion that the account should be
only in respect of "the proportion of
the defendants' business which flowed to them by reason of the breach".
Denial of natural justice
49. The respondents contended that the trial judge erred in taking an account
without giving the parties an opportunity to call
evidence and make
submissions when the evidence before him was insufficient for that purpose.
The respondents submitted that, in
these circumstances, the taking of an
account constituted a denial of natural justice. McPherson JA, in his
dissenting reasons for
judgment in the Court of Appeal, recorded that Warman,
while acknowledging that the trial judge was not asked to take the account
himself, denied that the respondents were prejudiced in any way. McPherson JA
pointed out that evidence relevant to damages and
profits was presented at the
trial by all parties with a view to the trial judge determining what relief
would be appropriate, that
is, whether damages should be awarded or profits
recouped. While our conclusion that the orders made by the trial judge should
not
be reinstated in any event makes the question of academic interest only,
we would express our agreement with McPherson JA's conclusion
that the matter
of profits and their attribution was the subject of extensive evidence and
examination at the trial and that there
was no denial to the respondents of an
adequate opportunity of presenting their case.
Election
50. It is arguable that any order, such as that made by the trial judge, for
payment of a sum determined by an account of BTA's
and ETA's profits should be
divided into two orders, one against BTA alone for the amount determined by
reference to its profits
and the other against ETA alone for the amount
determined by reference to its profits. It is also arguable that any order
for an
account of equitable compensation for the loss sustained by Warman
should have been made against Dwyer only. As has been mentioned,
however,
Dwyer, BTA and ETA did not argue in this Court or in the Court of Appeal that
the respective orders made in the courts below
should not have been made
against the three of them jointly. In the absence of any such argument, it
has effectively been common
ground that any orders made should be against all
three. That being so, the question arises whether Warman should, at this
stage,
be given the opportunity to elect between an order for equitable
compensation or an order for an account of profits or whether it
has already
made an election in favour of an account of profits if, as we have found, it
is otherwise entitled to such an order.
51. The case has been argued in this Court on the footing that Warman seeks
an account of profits in preference to the order for
equitable compensation
made by the Court of Appeal. The material before the Court would seem to
indicate that the order for an account
of profits which we have found Warman
to be entitled to is a more favourable one from its point of view. In these
circumstances,
the appropriate course would seem to be to delay the making of
final orders for seven days to give the appellants (Warman and Peko-Wallsend)
the opportunity of seeking to retain the order for equitable compensation made
by the Court of Appeal in preference to the order
for an account of profits.
If no such application is made within that period, the final orders providing
for an account of profits
should be made.
Conclusion
52. In the result and subject to what is said in the preceding paragraph, we
would allow the appeal and set aside the orders made
by the Court of Appeal.
In lieu thereof, we would allow the appeal to that Court, set aside the orders
made by the trial judge other
than the orders for costs and order that the
matter be remitted to enable accounts to be taken of the profits made by the
businesses
conducted by BTA and ETA in their first two years of operation,
which appear to be the two years commencing on 12 September 1988,
that being
the date on which the joint venture agreement between Bonfiglioli, BTA and the
Dwyers was executed. It will be for the
trial judge to determine the amount of
interest accruing on the amount due, after making due allowance for the
expenses, skill, expertise,
efforts, capital and resources contributed by the
respondents. That part of the amount found due on the taking of the account
which
relates to BTA's profits (together with interest thereon) should be
secured by an equitable charge over the assets of BTA and that
part of that
amount which relates to ETA's profits (together with interest thereon) should
be secured by an equitable charge over
the assets of that company. The
respondents should be ordered to pay the costs of the appellants in this
Court. The orders for
costs made in the courts below should remain
undisturbed. The costs of the taking of the accounts should be in the
discretion of
the Supreme Court.
Footnotes
1 (1914) AC 932 at 956-957.
2 See Kerly, An Historical Sketch of the Equitable Jurisdiction of the Court
of Chancery, (1890) at 148-149; Meagher, Gummow and
Lehane, Equity: Doctrines
and Remedies, 3rd ed. (1992) at 659-660. Dart Industries Inc. v. Decor
Corporation Pty. Ltd. [1993] HCA
54; (1993) 179
CLR 101 illustrates some of the attendant
difficulties.
3 See Consul Development Pty. Ltd. v. DPC Estates Pty. Ltd. [1975] HCA 8; (1975) 132 CLR
373 at 395.
4 Dart Industries (1993) 179 CLR at 111.
5 Hospital Products Ltd. v. United States Surgical Corporation [1984] HCA 64; (1984) 156
CLR 41 at 107 per Mason J; Chan v. Zacharia
[1984] HCA 36; (1984) 154
CLR 178 at 199 per
Deane J.
6 (1975) 132 CLR at 394.
7 See Jones, "Unjust Enrichment and the Fiduciary's Duty of Loyalty", (1968)
84 Law Quarterly Review 472. In the United States,
the accountability of a
fiduciary is influenced by the doctrine of unjust enrichment.
8 Meinhard v. Salmon (1928) 164 NE 545 at 546 per Cardozo CJ.
9 Chan v. Zacharia (1984) 154 CLR at 198-199.
10 Birtchnell v. Equity Trustees, Executors and Agency Co. Ltd. [1929] HCA 24; (1929) 42
CLR 384 at 409; Furs Ltd. v. Tomkies
[1936] HCA 3; (1936) 54 CLR 583
at 592; Consul
Development (1975) 132 CLR at 394; Industrial Development Consultants Ltd. v.
Cooley
(1972) 1 WLR
443; Canadian Aero
Service Ltd. v. O'Malley (1973) 40 DLR
(3d) 371.
11 [1942] UKHL 1; (1967) 2 AC 134.
12 [1966] UKHL 2; (1967) 2 AC 46.
13 My Kinda Town Ltd. v. Soll (1982) FSR 147 at 159 per Slade J.
14 Hospital Products (1984) 156 CLR at 110.
15 ibid.
16 (1958) 1 WLR 815 at 820.
17 Phipps v. Boardman (1967) 2 AC at 127 per Lord Upjohn.
18 Kendall v. Marsters (1860) 2 De G F and J 200 [1860] EngR 964; (45 ER 598).
19 Chan v. Zacharia (1984) 154 CLR at 204-205 per Deane J.
20 In re Jarvis (decd) (1958) 1 WLR at 820-821 citing Clegg v. Edmondson
(1857) 8 De G M and G 787 [1857] EngR 375; (44 ER 593); Aquaculture Corp.
(No.3) (1986) 1 NZIPR
677 at 690; see also Colbeam Palmer Ltd. v. Stock Affiliates Pty. Ltd. [1968] HCA 50; (1968)
122 CLR 25 at
33.
21 (1911) 1 Ch 723 at 728-729; see also Chan v. Zacharia (1984) 154 CLR at
195, 205.
22 (1726) Sel Cas t King 61 (25 ER 223).
23 See Griffith v. Owen (1907) 1 Ch 195 at 203-204; In re Biss; Biss v. Biss
(1903) 2 Ch 40 at 57; Chan v. Zacharia (1984) 154
CLR at 181-182, 201.
24 (1958) 1 WLR 815.
25 ibid. at 821.
26 (1857) 8 De G M and G 787 at 814 [1857] EngR 375; (44 ER 593 at 604).
27 Dobbs, Law of Remedies, 2nd ed. (1993) at 435-436; see also Sheldon v.
Metro-Goldwyn Pictures Corp. [1940] USSC 57; (1940) 309 US 390 at 408;
Meehan v. Shaughnessy
(1989) 535 NE 2d 1255.
28 Hospital Products (1984) 156 CLR at 109-110; Brady v. Stapleton [1952] HCA 62; (1952) 88
CLR 322 at 336.
29 See McCamus, "Remedies for Breach of Fiduciary Duty", (1991) Special
Lectures of the Law Society of Upper Canada 1990 Fiduciary
Duties 57 at 62-63;
see also O'Sullivan v. Management Agency Ltd. (1985) QB 428.
30 Birtchnell v. Equity Trustees (1929) 42 CLR at 408-409 per Dixon J;
Consul Development (1975) 132 CLR at 394, 395 per Gibbs
J.
31 Birtchnell v. Equity Trustees (1929) 42 CLR at 408-409; Furs Ltd. v.
Tomkies (1936) 54 CLR at 592; Consul Development (1975)
132 CLR at 394, 395;
Industrial Development v. Cooley (1972) 1 WLR 443; Canadian Aero Service Ltd.
v. O'Malley (1973) 40 DLR (3d)
371; Green and Clara Pty. Ltd. v. Bestobell
Industries Pty. Ltd. (1982) WAR 1 at 4, 20.
32 Phipps v. Boardman (1967) 2 AC at 105; Consul Development (1975) 132 CLR
at 393 per Gibbs J.
33 (1975) 132 CLR at 397.
34 (1984) 156 CLR at 100-101.
35 General Tire and Rubber Co. v. Firestone Tyre and Rubber Co. Ltd. (1975)
1 WLR 819 at 826.
36 See Universal Thermosensors Ltd. v. Hibben (1992) 1 WLR 840 at 850-851.