## Facts

- Digital Pulse Pty Ltd employed Christopher Harris and a co-employee as IT professionals under contracts restricting competition during employment.
- While still employed, the employees secretly set up a competing business offering substantially the same services.
- They solicited and obtained work from Digital Pulse’s actual or prospective clients and diverted business opportunities that would likely have gone to Digital Pulse.
- After discovering the competing activity, Digital Pulse terminated their employment and sued for breach of contract, breach of fiduciary duty, statutory breaches, and (as to one employee) misuse of confidential information.
- At trial, the court ordered an account of profits and other monetary relief, and additionally awarded exemplary damages against each employee for the fiduciary breaches.
- The employees sought leave to appeal, challenging the availability of exemplary damages in equity for breach of fiduciary duty.

## Issues

1. Whether a court exercising equitable jurisdiction may award exemplary (punitive) damages for breach of fiduciary duty by an employee.
2. Whether administering law and equity in one court permits importing common-law exemplary damages into equitable wrongs.
3. Whether exemplary damages are coherent with equitable gain-based remedies such as an account of profits.

## Decision

- Leave to appeal was granted.
- By majority (Spigelman CJ and Heydon JA; Mason P dissenting), the Court of Appeal allowed the appeal.
- The court held there is no power in equity to award exemplary damages for breach of fiduciary duty by an employee.
- The exemplary damages orders were set aside, while the account of profits and other compensatory/restitutionary relief remained.

## Legal Principles

- Equitable monetary relief for breach of fiduciary duty is confined to compensation (for loss) and restitutionary relief (including disgorgement of profits), not punishment.
- Exemplary damages are a common-law remedy directed to punishment and deterrence and are not part of equity’s traditional remedial jurisdiction absent statutory authority.
- The unified administration of law and equity does not authorize creating hybrid remedies merely because a remedy exists at common law (the “fusion fallacy”).
- Combining disgorgement (account of profits) with punitive damages for the same fiduciary misconduct risks incoherent remedial outcomes and “double punishment.”
- Any general extension of equitable remedies to include punitive monetary awards is a matter for legislation rather than judicial development.

## Conclusion

The NSW Court of Appeal majority held that exemplary damages are unavailable in equity for an employee’s breach of fiduciary duty, reversing the punitive awards while leaving intact the gain-stripping and compensatory orders.


Harris v. Digit. Pulse Pty. Ltd., [2003] NSWCA 10 (N.S.W. Ct. App. 2003)