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Claiming Disgorgement Remedy Involves Taking Benefits or Profits Away From a Wrongdoer
Question: How can a victim of wrongdoing receive compensation if there is no direct loss but the wrongdoer benefits?
Answer: When a wrongdoer profits from wrongdoing without causing direct harm, the legal concept of disgorgement may apply. This principle allows for the stripping of ill-gotten gains from the wrongdoer, ensuring they cannot benefit from the act, thus deterring future misconduct. According to Pharmascience v. Novartis Pharmaceuticals, 2020 ONSC 6534, disgorgement is typically used when damages are inadequate, such as breaches of fiduciary duty, trust, or in exceptional cases of crime, contract breaches, or torts. Disgorgement ensures fairness and serves as a preventative measure against wrongful conduct. For further understanding of such legal matters, contact Civil Litigations Paralegal Services at (416) 229-1479.
Can a Lawsuit Claim Improper Profits Gained By a Wrongdoing?
When a Wrongdoer Benefits or Profits From a Wrongdoing, the Victim of the Wrongdoing May Claim Disgorgement of the Benefits or Profits From the Wrongdoer.
Understanding Disgorgement Remedy Principles Involving Restitution For Wrongdoings Resulting In Ill Gotten Gains
In some circumstances a wrongdoer may receive a benefit or profit arising from the wrongdoing while little, if any, loss or harm arises to the victim of the wrongdoing. Whereas the law generally forbid a person from suing unless a loss or harm has occurred per no harm, no foul principles, a valid lawsuit may involve claims for the illegitimate benefits or profits arising from the misconduct of the wrongdoer.
The Law
Disgorgement remedy, as a stripping of ill gotten gains from a wrongdoer, was well explained within the Pharmascience Inc. v. Novartis Pharmaceuticals Canada Inc., et al, 2020 ONSC 6534, case wherein it was stated:
[19] Under the “profiting from wrong” theory of unjust enrichment, disgorgement may be available if the defendant has committed “an underlying legal wrong against a plaintiff, and the ordinary damages remedy for the underlying wrong is inadequate”. As the Court of Appeal noted, disgorgement in these cases is typically reserved for when there has been a breach of fiduciary duty or a breach of trust. However, in exceptional cases, disgorgement as a restitutionary remedy can also be granted where the “underlying legal wrong” is a crime or a breach of contract or a tort.[6] In cases premised on “profiting from wrong”, the concept of “corresponding deprivation” takes on a slightly different meaning. A plaintiff may be able to prove a corresponding loss by showing that the defendant’s gain was “made possible” by the defendant’s wrongful act towards the plaintiff rather than proving a direct or indirect transfer of wealth.[7]
Explained Principles
There may be circumstances where a person commits a criminal fraud or a civil fraud, among other wrongs, without causing harm or loss to the wronged person and yet benefits or profits arise in favour of the wrongdoer. The law, applied by the courts, seeking to discourage and deter wrongful conduct, may order that the benefits or profits be disgorged from the wrongdoer and provided to the victim. In this way the remedy of disgorgement ensures that the wrongdoer fails to benefit or profit from the wrongdoing and is, presumably, discouraged and deterred from engaging in wrongful conduct.
Summary Comment
Disgorgement is a restitutionary remedy rather than a compensatory remedy, meaning that the law applies disgorgement as a matter of fairness rather than as a matter of making a victim whole for loss or harm suffered by the victim.
