In Parr v Keystone Healthcare Limited, the English Court of Appeal considered a fiduciary’s liability to account for unauthorised profits.

Mr Parr was a shareholder and director of Keystone. The articles and the shareholders agreement contained ‘bad leaver provisions’, which deemed a share transfer notice to have been given where a shareholder was in persistent breach of a relevant agreement and imposed a 50% discount on the sale price of their shares. Mr Parr was party to a fraud and in breach of the fiduciary duties he owed as Keystone’s director. His concealment of that, however, meant the bad leaver provisions were not invoked and when he later sold his shares, no discount was applied. For finance reasons, the shares were bought and paid for by a separate company, not Keystone.

Summary judgment was awarded against Mr Parr at first instance. The Court of Appeal agreed. The Court of Appeal approached the appeal on the basis that what Keystone sought was recovery of the unauthorised profit made by Mr Parr consequent on the sale of his shares at full value rather than at a 50% discount.

On appeal, Mr Parr argued that there was a mismatch between the company to which the fiduciary duty was owed and the company which made the overpayment. The Court of Appeal disagreed and held that the fact that the money was paid by a third party to whom no fiduciary duty was owed made no difference. The claimed mismatch was no bar to recovery: the fact that Keystone itself would not have made the profit was irrelevant.

The Court of Appeal also rejected Mr Parr’s argument that the breach of duty needed to be the cause of the profit. It distinguished claims for equitable compensation, where there is a requirement for causation, from claims for disgorgement of unauthorised profits, where there is not. All that is necessary in an unauthorised profit claim is a sufficient degree of connection between the breach of fiduciary duty and the receipt of the secret profit. Thus the difference between the price paid and the discounted price was an authorised profit in the hands of Mr Parr, which equity required him to disgorge to Keystone.

Relief is not compensatory in nature, nor predicated on causation; liability arises from the mere fact of a profit being made and exists to bring a secret profiteer to account.