Bank not to recover more than its losses
The court was asked as to the remedy available to the appellant bank against the respondent, a firm of solicitors, for breach of the solicitors’ custodial duties in respect of money entrusted to them for the purpose of completing a loan which was to be secured by a first charge over the borrowers’ property. The solicitors had acted for both the bank and the borrowers. The bank appealed against rejection of its claim to be entitled to recover the entire sum it had paid, asserting a breach of trust, notwithstanding that its actual losses were rather less.
Held: The bank’s appeal failed. It was entitled to recompense only for the actual loss suffered. Payment of the amount claimed would be penal and retrograde.
Lord Toulson said: ‘The purpose of a restitutionary order is to replace a loss to the trust fund which the trustee has brought about. To say that there has been a loss to the trust fund in the present case of pounds 2.5m by reason of the solicitors’ conduct, when most of that sum would have been lost if the solicitors had applied the trust fund in the way that the bank had instructed them to do, is to adopt an artificial and unrealistic view of the facts.’
and: ‘in circumstances such as those in Target Holdings the extent of equitable compensation should be the same as if damages for breach of contract were sought at common law. That is not because there should be a departure in such a case from the basic equitable principles applicable to a breach of trust, whether by a solicitor or anyone else . . Rather, the fact that the trust was part of the machinery for the performance of a contract is relevant as a fact in looking at what loss the bank suffered by reason of the breach of trust, because it would be artificial and unreal to look at the trust in isolation from the obligations for which it was brought into being. I do not believe that this requires any departure from proper principles.’
Lord Reed concluded: ‘Some of the typical obligations of the trustee of a fund are strict: for example, the duty to distribute the fund in accordance with the purposes of the trust. Others are obligations of reasonable care: for example, the duty to exercise reasonable care and skill in the management of the fund. Since these equitable obligations relate to a fund held for trust purposes, the trustee’s liability for a breach of trust will, again putting the matter broadly, depend upon its effect upon the fund: the measure of compensation will generally be based upon the diminution in the value of the fund caused by the trustee’s default.’
and: ‘The result of the appeal was undoubtedly correct. The mortgage advance had been paid out prematurely and to the wrong person, with the consequence that at that point the trustee did not have the charges which he ought to have had. That deficiency was however remedied when the charges were obtained some weeks later. The assets under the control of the trustee were then exactly what they ought to have been. There was nothing missing from the trust fund, and therefore no basis for a claim for restoration. For the same reason, there was no basis for a claim to compensation by the mortgagee.’
Judges:
Lord Neuberger, Lady Hale, Lord Wilson, Lord Reed, Lord Toulson
Citations:
[2014] UKSC 58, [2014] 3 WLR 1367, [2014] WLR(D) 466, UKSC 2013/0052, [2015] AC 1503
Links:
Bailii, WLRD, Bailii Summary, SC, SC Summary
Statutes:
Jurisdiction:
England and Wales
Citing:
At ChD – AIB Group (UK) Plc v Mark Redler and Co (A Firm) ChD 23-Jan-2012
The claimant bank sought damages from the defendant solicitors, saying that they had paid on mortgage advance moneys but failed to deliver as promised and required, a first mortgage over the property purchased. The solicitors had failed to discharge . .
Cited – Target Holdings Ltd v Redferns (A Firm) and Another HL 21-Jul-1995
The defendant solicitors had acted for a purchaser, Crowngate, which had agreed to buy a property from a company called Mirage for andpound;775,000. Crowngate had arranged however that the property would first be passed through a chain of two . .
At CA – AIB Group (UK) Plc v Mark Redler and Co Solicitors CA 8-Feb-2013
The defendant firm of solicitors had acted for the claimants under instructions to secure a first charge over the secured property. They failed to secure the discharge of the existing first charge, causing losses. AIB asserted breach of trust.
Cited – Caffrey v Darby 1801
A fiduciary has a strict duty to account; equity imposes stringent liability on a fiduciary as a deterrent – pour encourager les autres. Lord Eldon LC said: ‘It would be very dangerous, though no fraud could be imputed to the trustees, and no kind . .
Cited – Nocton v Lord Ashburton HL 19-Jun-1914
The defendant solicitor had persuaded his client to release a charge, thus advancing the solicitor’s own subsequent charge on the same property. The action was started in the Chancery Division of the High Court. The statement of claim alleged fraud . .
Cited – Canson Enterprises Ltd v Boughton and Co 21-Nov-1991
Canlii Supreme Court of Canada – Canada – Damages — Breach of fiduciary duty — Solicitor preparing conveyance not advising purchasers of secret profit made on a flip — On agreed facts, purchasers fully . .
Cited – Libertarian Investments Ltd v Hall 6-Nov-2013
(Hong Kong) A trustee owes a duty to hold trust funds and apply them for the purposes of the trust (a stewardship or custodial duty). He is bound to answer for his stewardship when called on by the beneficiary to do so. If for any reason he . .
Cited – Bartlett v Barclays Bank Trust Co Ltd (Nos 1 and 2) ChD 1980
A claim was made against a trustee for compensation for losses incurred during the administration of the trust.
Held: For a court to order an account by a trustee on the basis of wilful default, and make the defendant liable not only for . .
Cited – Agricultural Land Management Ltd v Jackson (No 2) 2-May-2014
(Supreme Court of Western Australia) Equity – Fiduciary duties – Whether mere existence of conflict is actionable – Whether a breach of conflict rule requires a fiduciary actually to act in a position of conflict and pursue or prefer a personal . .
Cited – Mothew (T/a Stapley and Co) v Bristol and West Building Society CA 24-Jul-1996
The solicitor, acting in a land purchase transaction for his lay client and the plaintiff, had unwittingly misled the claimant by telling the claimant that the purchasers were providing the balance of the purchase price themselves without recourse . .
Cited – Ex parte Adamson; In re Collie CA 1878
The Court of Chancery never entertained a suit for damages occasioned by fraudulent conduct or for breach of trust, and that the suit was always for ‘an equitable debt, or liability in the nature of a debt’. . .
Cited – Livingstone v Rawyards Coal Co HL 13-Feb-1880
Damages or removal of coal under land
User damages were awarded for the unauthorised removal of coal from beneath the appellant’s land, even though the site was too small for the appellant to have mined the coal himself. The appellant was also awarded damages for the damage done to the . .
Cited – Magnus v Queensland National Bank 1888
A custodial bank was liable to restore trust funds merely because it dissipated the trust funds in a manner which was not authorised. Lord Halsbury LC said: ‘we are not at liberty to speculate whether the same result might not have followed whether . .
Cited – Bank of New Zealand v New Zealand Guardian Trust Co Ltd 1999
New Zealand Court of Appeal – Gault J said: ‘Recent cases show a trend in favour of analysis by reference to the scope of the duty, and enquire as to the risks against which there was a duty to protect the plaintiff. In South Australia Asset . .
Cited – Kelly v Cooper and Cooper Trading As Cooper Associates (A Firm) Co PC 19-Oct-1992
Bermuda – The fiduciary obligations imposed on an agent will depend on the express and implied terms of the contract. Although an agent is, in the absence of contractual provision, in breach of his fiduciary duties if he acts for another who is in . .
Cited – Hodgkinson v Simms 30-Sep-1994
Supreme Court of Canada – Fiduciary duty — Non-disclosure — Damages — Financial adviser — Client insisting that adviser not be involved in promoting — Adviser not disclosing involvement in projects — Client investing in projects suggested by . .
Cited – Cadbury Schweppes v FBI Foods 28-Jan-1999
Supreme Court of Canada – Commercial law – Confidential information – Breach of confidence – -Remedies – Manufacturer using confidential information obtained under licensing agreement to manufacture competing product – Whether permanent injunction . .
Cited – FHR European Ventures Llp and Others v Cedar Capital Partners Llc SC 16-Jul-2014
Approprietary remedy against Fraudulent Agent
The Court was asked whether a bribe or secret commission received by an agent is held by the agent on trust for his principal, or whether the principal merely has a claim for equitable compensation in a sum equal to the value of the bribe or . .
Cited – KM v HM 29-Oct-1992
Supreme Court of Canada – Limitation of actions – Torts – Assault and battery – Incest – Woman bringing action against father for damages for incest – Whether or not action limited by Limitations Act – Application of the reasonable discoverability . .
Cited – Breen v Williams 6-Sep-1996
High Court of Australia – Medicine – Doctor/patient relationship – Medical records – Patient’s right to access – Contractual right – Doctor’s duty to act in patient’s ‘best interests’ with utmost good faith and loyalty – Patient’s proprietary right . .
Cited – Maguire v Makaronis 25-Jun-1997
High Court of Australia – Equity – Fiduciary duties – Solicitor and client relationship – Mortgage by clients in favour of solicitors – Ascertainment of particular fiduciary duties.
Equity – Equitable remedies – Rescission – Relevance of . .
Cited – Youyang Pty Ltd v Minter Ellison Morris Fletcher 3-Apr-2003
High Court of Australia – Trusts – Express trust – Money received by firm of solicitors to be held for a specific purpose and in accordance with specific conditions – Misapplication of funds by firm – Breach of express trust – Liability of firm as . .
Cited – Pilmer v Duke Group Ltd 3-Apr-2003
High Court of Australia – Trusts – Express trust – Money received by firm of solicitors to be held for a specific purpose and in accordance with specific conditions – Misapplication of funds by firm – Breach of express trust – Liability of firm as . .
Cited – Amaltal Corpn Ltd v Maruha Corpn 20-Feb-2007
Supreme Court of New Zealand – Blanchard J said that even in a commercial relationship, there might be aspects which engaged fiduciary obligations: ‘That is because in the nature of that particular aspect of the relationship one party is entitled to . .
Cited – Premium Real Estate Ltd v Stevens 6-Mar-2009
Supreme Court of New Zealand – The court was asked as to the forfeiture of remuneration by an agent for breach of fiduciary duty.
Held: In relation to remoteness of damage, it was observed that the question of foreseeability in common law . .
Cited – Akai Holdings Ltd v Kasikornbank PCL 8-Nov-2010
Court of Final Appeal – Hong Kong – Lord Neuberger of Abbotsbury NPJ said: ‘the notion that equitable compensation is assessed on a somewhat different basis from common law damages is clearly right (albeit that the difference can be overstated)’ and . .
Cited by:
Cited – Purrunsing v A’Court and Co (A Firm) and Another ChD 14-Apr-2016
The claimant had paid money for a property, but the seller was a fraudster and no money or title was recovered. The claimant sued both his conveyancers and the solicitors who had acted for the fraudster, in each case innocently. The defendants each . .
Lists of cited by and citing cases may be incomplete.
Equity, Damages, Legal Professions
Leading Case
Updated: 11 February 2022; Ref: scu.538296