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Claiming Disgorgement Remedy Involves Taking Benefits or Profits Away From a Wrongdoer
Question: Can a victim recover profits made by a wrongdoer from their misconduct?
Answer: Yes, victims may claim disgorgement of profits from a wrongdoer if the wrongdoer's gain was obtained through illegal or unethical actions, even if the victim experienced little to no harm. This remedy aims to prevent wrongdoers from benefiting from their misconduct, ensuring fairness in the legal system.
Is There a Type of Legal Compensation Available From a Wrongdoer Who Profits From 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
There are some circumstances in which a wrongdoer receives a benefit or profit from the wrongdoing and yet the victim is without a corresponding harm or loss. Generally, under legal principles akin to no harm, no foul concepts, a legitimate lawsuit permits compensation for the loss or harm suffered by the victim; however, in some circumstances it is proper to claim disgorgement of benefits or profits received by the wrongdoer.
The Law
The availability of the remedy of disgorgement was well explained within the case of Pharmascience Inc. v. Novartis Pharmaceuticals Canada Inc., et al, 2020 ONSC 6534, wherein it was said:
[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 form of restitution rather than compensation whereas disgorgement is applied in law as a matter of fairness rather than as a means for making whole the losses or harms of a victim.