Equitable compensation for a fiduciary’s non-disclosure and hypothetical courses of events

Where a fiduciary failed to disclose to the principal material facts pertaining to a transaction between the principal and a third party, the principles governing the determination of the principal’s loss can be expressed in the form of a two-stage inquiry. The first stage involves the question of whether the principal, if fully informed, would still have entered into the impugned transaction. This article argues that the preferable approach is the one that has prevailed in Canada and New Zealand, which is a rebuttable presumption that disclosure would have made a difference. The second stage involves the question of what the principal, if fully informed, would have done instead of entering into the impugned transaction. Where the evidence on that question is inconclusive, a default hypothetical forms the basis of determining the principal’s loss. This article argues that the default hypothetical ought to vary depending upon the likelihood of the principal entering into an alternative transaction and upon the existence of a market price for the subject matter of that transaction.