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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> AIB Group (UK) Plc v Mark Redler & Co Solicitors [2013] EWCA Civ 45 (08 February 2013) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2013/45.html Cite as: [2013] EWCA Civ 45 |
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IN THE CONSOLIDATED APPEALS FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION, BIRMINGHAM DISTRICT REGISTRY
His Honour Judge Cooke
1BM30094
Strand, London, WC2A 2LL |
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B e f o r e :
and
LORD JUSTICE PATTEN
____________________
AIB Group (UK) plc |
Claimant/Appellant and Respondent to the Cross-Appeal |
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-and - |
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Mark Redler & Co Solicitors |
Defendant/Respondent and Appellant on Cross-Appeal |
____________________
Graeme McPherson QC and Siān Mirchandani (instructed by Mills & Reeve LLP) for the Defendant/Respondent
Hearing dates : 15th and 16th October 2012
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Crown Copyright ©
Lord Justice Patten :
Introduction
"7. (vi) On 22 July 2006, Mr Mark Redler, the defendant's senior partner, met the borrowers. He was told by them at that meeting that the property was charged to Barclays and that their debt to Barclays was approximately £1.5 million. They told him that they wished to complete the remortgage by 31 July, and expressed a great deal of urgency about doing so. Mr Redler obtained from his clients a signed mortgage document in the form provided by the bank, to be held pending completion.
(vii) On 28 July, a Friday, Mr Redler sent a letter by fax (2/668) to Barclays asking for a redemption statement as at Monday 31 July, stating that it was hoped to complete the remortgage on that day. Barclays' initial response (2/682) sent on the Monday was to return the letter saying that it could not be acted upon unless a correct mortgage account number was quoted. This may have crossed with a further fax from the defendant on the same date (2/683) repeating the request.
(viii) Also on Monday 31 July, the defendant sent the certificate of title in the bank's required form by fax to its securities Department, requesting that the amount of the advance be sent by funds transfer to their client account. The funds were received by the defendant at 13.03 on 1 August.
(ix) The second letter to Barclays did produce a response, in the form of a faxed letter dated 31 July but apparently received on Tuesday, 1 August 2006 (1/407). That letter referred to two account numbers, and attached two documents entitled "Mortgage Valuation Statement", one for each account. The letter made clear that these were not redemption statements, saying:
"Thank you for your request for a balance in respect of the above accounts. The amount quoted is an indication of the current balance outstanding at the date you have requested. This may not be the figure required to effect full redemption.
IMPORTANT INFORMATION
THIS IS NOT A REDEMPTION STATEMENT
For a redemption figure to be issued, you must make a request for a Redemption Statement at least three working days before the intended redemption date. Due to the flexible nature of the mortgage and linked accounts, the amount required to redeem is likely to differ from this quotation.
Should your clients wish to redeem the mortgage, please contact us on 0845 607 6603 to request a Redemption Statement. You will need to provide your client's mortgage account number when you call."
(Emphasis and capitalisation in the original). The significance of making clear that the documents were not "redemption statements" would be that the bank would not be bound to release its charge on receipt of the sum stated, for example if some error should be found, or further liability incurred to it by additional borrowing on a flexible account.
(x) Mr Redler's evidence was that he asked an employee, Miss Brown, to telephone Barclays and obtain a redemption figure. Miss Brown gave evidence, exhibiting a telephone note she made (1/485) recording that she had spoken to someone called Vicky at Barclays and noting "figure to redeem is £1,235,785.07" with the details of the bank account to which it should be sent. She was unable to say whether she had given any mortgage account numbers to Vicky in this conversation. If she had seen the fax referring to the two accounts, she obviously did not notice that the figure given could only have related to one of them.
(xi) In his oral evidence, Mr Redler said that he could only recall seeing one of the pages from the Barclays fax, being the statement relating to the larger of the two accounts. He said that he had telephoned Dr Ravindra Sondhi because the amount was lower than the £1.5 million he had been expecting, and Dr Sondhi had confirmed that it was correct, or at least not told him that it was too low. He could not say why he would only have seen one page of the fax (which had five pages in all) and accepted that if he had seen the whole fax, or read the covering letter, he could not have failed to notice that the figure quoted was insufficient to discharge both accounts.
(xii) In accordance with her instructions from Mr Redler, Miss Brown gave instructions for the amount she had been quoted by Vicky to be sent by telegraphic transfer to Barclays, and for the balance, deducting the firm's costs, to be sent to the borrower, all of which happened on the afternoon of 1 August 2006. The form of mortgage deed was completed with the date 1 August 2006.
(xiii) Mr Redler did not seek to excuse his firm's omissions, which are accepted to have been negligent. At the conclusion of the witness evidence Mr Cousins confirmed that he did not seek to pursue any argument that Mr Redler or the defendant had acted otherwise than in good faith.
(xiv) The result was that the amount sent to Barclays was insufficient to discharge its secured debt and it subsequently refused to do so. It has not been contended before me that Barclays had given any binding assurance that it would release its security. The defendant was not able to procure the registration of AIB's charge until it was in a position to submit a discharge of Barclays' charge. For some time, Mr Redler did not alert AIB to the difficulty that had arisen. He contacted Dr Sondhi who promised that he would return sufficient funds to enable the outstanding amount due to Barclays to be cleared, but failed to comply with this promise over a period of several months. In the meantime, Mr Redler protected the priority of AIB's charge by continuing to renew his priority search at the land registry.
(xv) Eventually, the problem came to light. The evidence before me does not deal in detail with what then happened, though it appears that AIB entered into direct discussions with Barclays. I have no information, for instance, as to whether AIB offered, with or without the assistance of the defendant, to discharge the outstanding sum due to Barclays, or if so why that did not occur. On 28 April 2008, AIB and Barclays entered into a deed of postponement by which Barclays permitted AIB's charge to be registered as a second charge on the property, limiting its priority in respect of its own charge to £273,777.42, plus interest, costs and expenses. That principal amount was somewhat less than the balance outstanding at 1 August 2006 (approximately £309,000) by virtue of repayments that the Sondhis had made in the meantime. AIB's charge was finally registered on 9 May 2008.
(xvi) AIB obtained judgment against the Sondhis for a total exceeding £3.5 million, and an order for possession of the property, on 14 July 2010. It was subsequently sold for £1.2 million, of which just over £300,000 was paid to Barclays in satisfaction of their first charge, and the balance (after costs) of £867,697.78 to AIB on 14 April 2011. Bankruptcy orders were made against the Sondhis on 14 June 2011."
i) did the Defendant act in breach of trust in releasing the Advance Monies in the circumstances pleaded in paragraph 22 of the amended particulars of claim? and
ii) if so, to what remedy, if any, is the Claimant entitled?
"23. In the present case, in my judgment what the defendant's instructions authorised them to do with the funds paid to them was to pay to Barclays (or to its account) such sum as was required to procure a release of its charge, and to pay the balance to the borrowers or to their order. Had they complied with their instructions they would have paid (taking all the figures in round terms) £1.5m to Barclays and £1.8m to the borrowers. In the event they paid £1.2m to Barclays and £2.1m to the borrowers. In my judgment, in so doing they committed a breach of trust insofar as payment was made contrary to the authority they had been given.
24. It does not however in my judgment necessarily follow that the whole of the payment out of £3.3m was made in breach of trust. The difference between what the defendant did and what it ought to have done if it had complied with its instructions was the £300,000 that should have been paid to Barclays but was instead paid to the borrowers. That in my judgment was the extent of the breach of trust committed. It was not a breach of trust to pay £1.2m to Barclays; that payment was made as partial performance of the authority and obligation to discharge Barclays secured debt. It was not a breach of trust to pay £1.8m to the borrowers, as that was the sum to which they were entitled. The breach consisted of the failure to retain an additional £300,000 and apply that to discharge of Barclays debt."
i) Was there a breach of trust and, if so, was it limited to the release of the £273,777.42 as found by the judge;
ii) If the release of the entire £3.3m mortgage advance was in breach of trust, what remedy is AIB entitled to; and
iii) Ought the Defendant to be relieved of liability under s.61 of the Trustee Act 1925?
Breach of Trust
"This case is concerned with a trust which has at all times been a bare trust. Bare trusts arise in a number of different contexts: e.g. by the ultimate vesting of the property under a traditional trust, nominee shareholdings and, as in the present case, as but one incident of a wider commercial transaction involving agency. In the case of moneys paid to a solicitor by a client as part of a conveyancing transaction, the purpose of that transaction is to achieve the commercial objective of the client, be it the acquisition of property or the lending of money on security. The depositing of money with the solicitor is but one aspect of the arrangements between the parties, such arrangements being for the most part contractual. Thus, the circumstances under which the solicitor can part with money from client account are regulated by the instructions given by the client: they are not part of the trusts on which the property is held. I do not intend to cast any doubt on the fact that moneys held by solicitors on client account are trust moneys or that the basic equitable principles apply to any breach of such trust by solicitors. But the basic equitable principle applicable to breach of trust is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach. I have no doubt that, until the underlying commercial transaction has been completed, the solicitor can be required to restore to client account moneys wrongly paid away. But to import into such trust an obligation to restore the trust fund once the transaction has been completed would be entirely artificial. The obligation to reconstitute the trust fund applicable in the case of traditional trusts reflects the fact that no one beneficiary is entitled to the trust property and the need to compensate all beneficiaries for the breach. That rationale has no application to a case such as the present. To impose such an obligation in order to enable the beneficiary solely entitled (i.e. the client) to recover from the solicitor more than the client has in fact lost flies in the face of common sense and is in direct conflict with the basic principles of equitable compensation. In my judgment, once a conveyancing transaction has been completed the client has no right to have the solicitor's client account reconstituted as a "trust fund"."
"It is not disputed that from the time of its receipt by the defendant the mortgage money was trust money. It was client's money which belonged to the society and was properly paid into a client account. The defendant never claimed any beneficial interest in the money which remained throughout the property of the society in equity. The defendant held it in trust for the society but with the society's authority (and instructions) to apply it in the completion of the transaction of purchase and mortgage of the property. Those instructions were revocable but, unless previously revoked, the defendant was entitled and bound to act in accordance with them.
The society's instructions were not revoked before the defendant acted on them, and in my judgment there was no ground upon which the judge could properly conclude that his authority to apply the money in completing the transaction had determined.
. . .
Before us the society put forward a more sophisticated argument. The defendant's instructions, it pointed out, expressly required him to report the arrangements in question "to the society prior to completion". This, it was submitted, made it a condition of the defendant's authority to complete that he had complied with his obligation. Whether he knew it or not, he had no authority to complete. It was not necessary for the society to revoke his authority or withdraw from the transaction. I do not accept this. The society's standing instructions did not clearly make the defendant's authority to complete conditional on having complied with his instructions. Whether they did so or not is, of course, a question of construction, and it is possible that the society could adopt instructions which would have this effect. But it would in my judgment require very clear wording to produce so inconvenient and impractical a result. No solicitor could safely accept such instructions, for he could never be certain that he was entitled to complete.
In my judgment the defendant's authority to apply the mortgage money in the completion of the purchase was not conditional on his having first complied with his contractual obligations to the society, was not vitiated by the misrepresentations for which he was responsible but of which he was unaware, had not been revoked, and was effective to prevent his payment being a breach of trust. Given his state of knowledge (and, more importantly, that his authority had not been revoked), he had no choice but to complete."
"5.4.1 The title to the property must be good and marketable free of any restrictions, covenants, easements, charges or encumbrances which, at the time of completion, might reasonably be expected to materially adversely affect the value of the property or its future marketability.
. . .
5.8 First Legal Charge
On completion, we require a fully enforceable first charge by way of legal mortgage over the property executed by all owners of the legal estate. All existing charges must be redeemed on or before completion, unless we agree than an existing charge may be postponed to rank after our mortgage. Our standard deed or form of postponement must be used.
. . .
6.1.1 The loan to the borrower will not be made until all relevant conditions of the mortgage offer which need to be satisfied before completion have been complied with and we have received your certificate of title.
. . .
10.3 You are only authorised to release the loan when you hold sufficient funds to complete the purchase of the property and pay all stamp duties and registration fees to perfect the security as a first legal mortgage or, if you do not have them, you accept responsibility to pay them yourself. You must hold the loan on trust for us until completion. If completion is delayed, you must return it to us when and how we tell you (see part 2).
. . .
14. AFTER COMPLETION
14.1 Application to HM Land Registry
14.1.1 You must register our mortgage at H M Land Registry. Before making your H M Land Registry application for registration, you must place a copy of the results of the Official Search on your file together with certified copies of the transfer, mortgage deed and any discharges or releases from a previous mortgage."
"We the Conveyancers named above give the Certificate of Title set out in the Appendix to Rule 6(3) of the Solicitors' Practice Rules 1990 as if the same were set out in full, subject to the limitations contained in it."
"39. The judge rejected that submission for reasons he expressed in two sentences in [19] of his judgment. I agree with him, although I shall deal with the point more extensively. 'Completion' in a typical domestic sale and purchase transaction of a property with a registered title conventionally refers to the ceremony, or the agreed postal equivalent, at which the vendor and purchaser (or their respective agents) perform the prior contract. Putting it generally, the purchaser pays money to the vendor, which the vendor applies in redeeming the prior charges and satisfying the unpaid balance of the purchase money. The vendor, in exchange, gives vacant possession of the property to the purchaser and delivers to him the transfer and certificates of discharge of the prior charges. It is this exchange of money and documents that is normally referred to as completion. When, as is usual, the contract incorporates formal conditions of sale, they will specify the 'completion date' when these events must be performed (see, for example, in the current (fifth) edition of the Standard Conditions of Sale, conditions 1.1.1(c) and 6.1.1).
40. Completion as described is not, however, the end of the story for the purchaser and any chargee. They also need to be registered at HM Land Registry as proprietors of the property and charge respectively since only then will the transfer and charge 'operate at law'. The documents provided to the purchaser on completion and (when subsequently obtained) the SDLT certificate issued by HMRC, will enable the purchaser to apply to HM Land Registry for the registration of the transfer showing him as the proprietor of the property, an application which he will or should make within the priority period of the official search of the title of the property that he should have made just before completion. If he has bought the property with the assistance of a mortgage loan, he will by the time of completion also have executed a legal charge in favour of the lender; and its provision to HM Land Registry will also enable the charge to be registered showing the chargee as its proprietor.
41. There is, therefore, in practice a time gap between completion and the subsequent registration of transfer and charge. Miss Sandells' submission is, however, that it is wrong to regard what I have described as completion as being the sense of 'completion' in clause 10.3.4 of the Handbook. She submitted that completion in the sense there used occurs only upon the subsequent registration of transfer and charge.
42. There is, first, a practical difficulty with that argument. Let it be assumed that the sale and purchase contract in this case had been a genuine one, with genuine solicitors acting for genuine vendors, and that the contract had provided for completion to be on 4 September. There is no doubt what that would have meant, namely what I have described as completion. On Miss Sandells' submission, however, M&U would not on such completion have been entitled to have released a penny piece of the loan money to the vendors' solicitors: they could only release it upon Mr Davies and C&G being respectively registered as proprietor and chargee. Unless, however, the parties agreed some fundamental re-structuring of the contract in order to accommodate C&G in this respect, such registrations would not have happened. Instead, if the purchaser was unable to pay the balance of the purchase price on completion, he would probably find himself faced with a forfeiture of his deposit and a claim for breach of contract.
43. Despite its obvious practical complications, Miss Sandells' point is not, however, completely novel. Whilst its possible origins were not discussed in argument, a like point was the subject of discussion in the middle of the last century in The Contract of Sale of Land as Affected by the Legislation of 1925, 1930, T. Cyprian Williams. The author there engaged, in footnote (s) on page 80, in a discussion as to whether under an open contract for the sale and purchase of registered land, the vendor is entitled to insist on payment of the purchase price at any time before the registration of the purchaser as proprietor. The discussion is interesting but not, I consider, of present relevance. The purported contract in this case was not an open contract (that is, an agreement merely as to parties, property and price). It purported to incorporate the National Conditions of Sale. Contracts that incorporate such standard conditions thereby spell out expressly that the obligation to pay the balance of the purchase money is one that falls to be complied with on completion in the conventional sense (see, for example, condition 6.7 of the current Standard Conditions of Sale). A purchaser signing up to such a contract cannot decline to pay the balance until he is registered as proprietor; and a vendor is entitled to complain if he does.
44. C&G was not of course a party to the contract. It retained M&U on the basis of the instructions in the Handbook. The relevant question is, therefore, what that said about the terms of the trust that C&G thereby imposed upon M&U in respect of the loan money. Clause 10.3.4 told M&U that 'You must hold the loan on trust for us until completion'. So what did 'completion' as there used mean?
45. The Handbook comprises 17 headed sections. The provisions of various of them prior to section 14 refer to 'completion', clause 10.3.4 being one example (see [15] above). It is in my view clear beyond reasonable argument that they are using that word in the sense of the conventional meaning of completion. It is possible to argue, as Miss Sandells did, that they might be read as if they were using the word 'completion' synonymously with 'registration', although I found the argument unconvincing. The argument is, however, given its quietus by section 14, headed 'After completion' (my emphasis), of which clause 14.1 imposes upon M&U the obligation to register the mortgage as a first legal charge at HM Land Registry (and see also clause 14.1.4). Section 14 plainly proceeds on the basis that the prior references to completion are to completion in the conventional sense, not to the subsequent registration of title. In addition, as the judge pointed out, paragraphs (2)(c)(i) and (iii) of M&U's certificate of title (in C&G's prescribed form and so in the form of the certificate referred to in section 10 of the Handbook) draw a distinction between (a) completing the mortgage in the conventional sense and (b) the subsequent delivery to the Land Registry of the documents necessary to register it. A like distinction between completion and registration was made in the first and third bullet points of C&G's instructions to M&U (see [13] above).
46. In my view, therefore, the judge was right to hold that 'completion' in clause 10.3.4 did not refer to the successive moments when the transfer and charge were respectively registered. It referred to the prior date when conventional completion occurred. M&U were authorised by C&G to release the loan money to enable such completion to take place. The trust was only destined to subsist until such time as it did."
"The purported contract was a nullity, since the Greens had not agreed to sell their property to Mr Davies, nor had they authorised anyone to sell it to him in their name; and the purported completion of that nullity by way of the exchange of purchase money for forged documents could not in my view have amounted to completion. Nothing, said Lear, will come of nothing, and so it was here. Completion in the present context must mean the completion of a genuine contract by way of an exchange of real money in payment of the balance of the purchase price for real documents that will give the purchaser the means of registering the transfer of title to the property that he has agreed to buy and to charge. An exchange of real money for worthless forgeries in purported performance of a purported contract that was a nullity is not completion at all. Had that happened in this case, the parting with the loan money would have been a breach of trust."
"In my view it is impossible to give the weight to paragraph A3.2 counsel for Davisons seeks to put on it. The trust imposed on the loan moneys in the hands of Davisons by paragraph 10.3.4 of the CML Handbook could only be discharged by completion of the purchase or the return of the money to Nationwide. As shown by Lloyds TSB Bank plc v Markandan & Uddin [2012] 2 All ER 884 no such completion ever took place and the money was not returned."
"4.2.13. Arrangements for the discharge of the seller's mortgage(s) over the property will have been agreed between the parties at the requisitions on title stage of the transaction. Where the mortgage is a first mortgage of the property in favour of a building society lender, the parties will frequently have agreed to permit the seller to discharge his mortgage after completion takes place by using part of the proceeds of sale to make payment to the lender. In such a case it will have been agreed that the seller's lender's solicitor should hand to the buyer's solicitor on completion an undertaking in the form of wording recommended by the Law Society to discharge the mortgage (F4.2.15) and to forward the receipted deed or Form DS1 to the buyer's solicitor as soon as this is received from the lender.
4.2.14. An undertaking to discharge the seller's mortgage should only be accepted from a solicitor or licensed conveyancer because of the difficulties of enforcement of undertakings against unqualified persons. The undertaking should also be in the form of wording approved by the Law Society. The current guidance from the Law Society is that it will not normally be advisable to accept an undertaking if the mortgagee is not a member of the CML, and/or where the amount required to redeem the mortgage exceeds the minimum level of solicitors' indemnity insurance (£1 million per claim). In such a case an undertaking should not be accepted and it may be necessary for completion to take place at the lender's solicitors' offices (not the seller's solicitors' offices) or for the lender's solicitor to attend personally at completion in order to discharge the mortgage. If the amount of the mortgage exceeds £2 million consider asking for a warranty from the seller's solicitor that his insurance cover does exceed the amount required to redeem the mortgage. See the Law Society's guidance at Appendix V.15."
"33. I do not agree that the authority should be construed so as to impose an absolute requirement that nothing could be paid to Barclays before a valid undertaking had been given. There is no such express term either in the letter of instruction or the CML handbook terms incorporated by that letter. The most nearly relevant provision is in para 10.3 of the handbook, which provides as follows:
"You are only authorised to release the loan when you hold sufficient funds to complete the purchase of the property and pay all stamp duty land tax and registration fees to perfect the security as a first legal mortgage or, if you do not have them, you accept responsibility to pay them yourself."
This wording is obviously not directly applicable to a remortgage, and is not without ambiguity of language, but it emphasises that the solicitors must hold sufficient funds to procure the first ranking mortgage title sought before the loan is released, and provides for the consequences if the funds held are insufficient, i.e. that the solicitors will be responsible to make payment themselves."
Causation and Remedy
"41. In the circumstances, I do not intend to venture into the arguments that were addressed to me as to whether, if the defendant committed a breach of trust in paying out any part of the advance at all, the correct remedy would be based on reconstitution of the trust by repayment of the entire advance, subject only to a credit for actual recovery on sale of the property, save to deal with one matter which would require a finding of fact in the event that I am wrong in my conclusions above. That is the question as to what would have happened but for the breach of trust. Since the breach alleged is the payment out without authority, it seems to me the question may be approached in principle on one of two bases, namely what would the outcome have been if the solicitors had either:
(i) in fact dealt with the funds held in the manner they were authorised to do, or
(ii) instead of making the unauthorised payment that they did, had asked the bank for its instructions at that point, disclosing the reasons why the payment was outside their existing authority.
42. In either case, it seems to me, the answer is the same on the facts of this case. There would have been a short delay while the solicitors obtained a redemption figure in a form that bound Barclays to release its charge, they would have paid that amount to Barclays and in due course have received that release and registered AIB's charge as a first charge. I am in no doubt that, in the somewhat implausible scenario that the solicitors, realising that they did not have a valid redemption quotation, approached AIB for instructions rather than simply dealing with the matter themselves, AIB would not have withdrawn from the transaction but simply instructed them to carry on with it, complying with their existing instructions. It was clear from the evidence that AIB as a whole was anxious to lend to the borrowers, and that the domestic remortgage was being driven by the need to facilitate the business lending which the bank was very keen to make. There would have been no reason for it to suppose that the failure to obtain a full redemption figure could not be corrected, or to use that failure as an excuse to withdraw from the mortgage lending."
"The equitable rules of compensation for breach of trust have been largely developed in relation to such traditional trusts, where the only way in which all the beneficiaries' rights can been protected is to restore to the trust fund what ought to be there. In such a case the basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss. Courts of Equity did not award damages but, acting in personam, ordered the defaulting trustee to restore the trust estate: see Nocton v Lord Ashburton [1914] AC 832, 952, 958, per Viscount Haldane LC. If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed: Caffrey v Darby (1801) 6 Ves 488; Clough v Bond (1838) 3 M & C 490. Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred: see Underhill and Hayton, Law of Trusts & Trustees 14th ed. (1987), pp 734-736; in re Dawson, decd; Union Fidelity trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NEW 211; Bartlett v Barclays Bank Trust Co Ltd (Nosy 1 and 2) [1980] Ch 515. Thus the common law rules of remoteness of damage and causation do not apply. However there does have to be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable, viz. the fact that the loss would not have occurred but for the breach: see also In re Miller's Deed Trusts (1978) 75 LAG 454; Nestle v National Westminster Bank Plc [1993] 1 WLR 1260.
. . .
A trustee who wrongly pays away trust money, like a trustee who makes an unauthorised investment, commits a breach of trust and comes under an immediate duty to remedy such breach. If immediate proceedings are brought, the court will make an immediate order requiring restoration to the trust fund of the assets wrongly distributed or, in the case of an unauthorised investment, will order the sale of the unauthorised investment and the payment of compensation for any loss suffered. But the fact that there is an accrued cause of action as soon as the breach is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred. The quantum is fixed at the date of judgment at which date, according to the circumstances then pertaining, the compensation is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had there been no breach. I can see no justification for "stopping the clock" immediately in some cases but not in others: to do so may, as in this case, lead to compensating the trust estate or the beneficiary for a loss which, on the facts known at trial, it has never suffered."
"The majority considered that damages for breach of fiduciary duty fell to be measured by analogy with common law rules of remoteness, whereas the minority considered that the equitable principles of compensation applied. Your Lordships are not required to choose between those two views. But the judgment of McLachlin J (expressing the minority view) contains an illuminating exposition of the rules applicable to equitable compensation for breach of trust. Although the whole judgment deserves study, I extract the following statements.
At p 160:
"While foreseeability of loss does not enter into the calculation of compensation for breach of fiduciary duty, liability is not unlimited. Just as restitution in specie is limited to the property under the trustee's control, so equitable compensation must be limited to loss flowing from the trustee's acts in relation to the interest he undertook to protect. Thus, Davidson states ['The Equitable Remedy of Compensation' (1982) 3 Melbourne UK Rev 349] 'It is imperative to ascertain the loss resulting from breach of the relevant equitable duty' (at p 354, emphasis added).
At p 162:
"A related question which must be addressed is the time of assessment of the loss. In this area tort and contract law are of little help . . . The basis of compensation at equity, by contrast, is the restoration of the actual value of the thing lost through the breach. The foreseeable value of the items is not in issue. As a result, the losses are to be assessed as at the time of trial, using the full benefit of hindsight." (Emphasis added.)
At p 163:
"In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach, i.e. the plaintiff's loss of opportunity. The plaintiff's actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation but it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach." (Emphasis added.)
In my view this is good law. Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach."
Section 61 of the Trustee Act 1925
Lord Justice Sullivan :
Lady Justice Arden :