In a previous post, we discussed disgorgement as an alternative remedy to compensatory damages in cases where a fraudster has profited from the wrongful acts. In a recent Ontario Superior Court decision, Justice Koehnen granted a $10.2 million disgorgement order to return ill-gotten profits made by a former Canadian National Railway Company (CN) employee in breach of his fiduciary duties. This is noteworthy as most of the profits to be disgorged were gone as they been used up during the course of a long and expensive receivership.


Scott Holmes, former CN employee, had authority within CN to hire contractors and approve invoices. He created a number of companies of which he was the beneficial owner. Holmes then caused CN to hire these companies for various projects between 1999 and 2008, and approved invoices in their favour. Holmes concealed his involvement and ownership interest in the companies to CN while he caused CN to conduct business with them.

After an internal investigation in 2008 revealed the misconduct, CN brought an action against Holmes, his companies, his common law spouse, and their respective personal trusts. These defendants were eventually found liable for breach of fiduciary duty, breach of contract, breach of confidence, and deceit.

Disgorgement Award

As primary remedy, the court ordered disgorgement of the profits the defendants earned from CN. The court confirmed the wide availability of disgorgement as a remedy “for both legal and equitable wrong”, including breach of fiduciary duty, breach of contract, breach of confidence and conversion. The court rejected Holmes’ argument that, by contracting with his companies, CN obtained contracts at a lower price than what would have been charged by other companies, thereby failing to establish compensable harm. Applying the leading Supreme Court decision in Strother, the court emphasized the importance of disgorgement as a deterrent to prevent fiduciaries from benefitting from their wrongdoing, stating that disgorgement “is a necessary mechanism to incentivize fiduciaries to avoid conflict.”

Notably, the court also dismissed the defendants’ argument that no remedy should be awarded against them because they had already lost $7 million in assets, representing most of the profits earned from CN, as a result of an expensive and lengthy receivership initiated by CN. Citing Strother, the defendants asserted that disgorgement should not be used to punish them “with harsh damage awards out of all proportion to their actual behaviour”.

While the court agreed that the receivership was excessively costly, it held that a significant disgorgement order was still warranted in the circumstances because the time and expense of the 13-year receivership were attributable to the defendants’ conduct. Among other things, the defendants had dissipated assets on the eve of a Mareva injunction, obstructed access to assets, made false allegations against different parties, and disregarded their obligations to provide accurate information under various court orders.

This decision clarifies the use of the disgorgement remedy in cases involving fiduciaries, and that it may be granted even where the ill-gotten profits are no longer in the wrongdoer’s hands.

** With thanks to Juliette Mestre for assistance in preparing this article.