Dear Members,

 

The UK Supreme Court has just decided AIB Group v Mark Redler & Co Solicitors [2014] UKSC 58: https://supremecourt.uk/decided-cases/docs/UKSC_2013_0052_Judgment.pdf. In what is the third major trusts decision from the Court this year, the Court considered the proper approach to causation in cases of breach of trust. There are also various observations on fusion and the relationship between damages at common law and equitable compensation, and fusion more generally. The Court affirms the general approach of Lord Browne-Wilkinson in Target Holdings, Lord Toulson believing that ‘it would be a backward step for this court to depart from Lord Browne-Wilkinson’s fundamental analysis in Target Holdings or to “re-interpret” the decision’ (at [63]). Lord Browne-Wilkinson’s judgment is carefully scrutinised, particularly his observations after such differences as there may be between bare commercial trusts and traditional trusts. The Justices survey Commonwealth authority and the academic literature. There is much in the judgments of Lords Toulson and Reed, but a key summary is offered by Lord Reed towards the end of his concurring opinion:

 

‘136. It follows that the liability of a trustee for breach of trust, even where the trust arises in the context of a commercial transaction which is otherwise regulated by contract, is not generally the same as a liability in damages for tort or breach of contract. Of course, the aim of equitable compensation is to compensate: that is to say, to provide a monetary equivalent of what has been lost as a result of a breach of duty. At that level of generality, it has the same aim as most awards of damages for tort or breach of contract. Equally, since the concept of loss necessarily involves the concept of causation, and that concept in turn inevitably involves a consideration of the necessary connection between the breach of duty and a postulated consequence (and therefore of such questions as whether a consequence flows “directly” from the breach of duty, and whether loss should be attributed to the conduct of third parties, or to the conduct of the person to whom the duty was owed), there are some structural similarities between the assessment of equitable compensation and the assessment of common law damages.

 

137. Those structural similarities do not however entail that the relevant rules are identical: as in mathematics, isomorphism is not the same as equality. As courts around the world have accepted, a trust imposes different obligations from a contractual or tortious relationship, in the setting of a different kind of relationship. The law responds to those differences by allowing a measure of compensation for breach of trust causing loss to the trust fund which reflects the nature of the obligation breached and the relationship between the parties. In particular, as Lord Toulson explains at para 71, where a trust is part of the machinery for the performance of a contract, that fact will be relevant in considering what loss has been suffered by reason of a breach of the trust.

 

138. This does not mean that the law is clinging atavistically to differences which are explicable only in terms of the historical origin of the relevant rules. The classification of claims as arising in equity or at common law generally reflects the nature of the relationship between the parties and their respective rights and obligations, and is therefore of more than merely historical significance. As the case law on equitable compensation develops, however, the reasoning supporting the assessment of compensation can be seen more clearly to reflect an analysis of the characteristics of the particular obligation breached. This increase in transparency permits greater scope for developing rules which are coherent with those adopted in the common law. To the extent that the same underlying principles apply, the rules should be consistent. To the extent that the underlying principles are different, the rules should be understandably different.’

 

Best wishes,

James

 

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James Lee

Senior Lecturer in Private Law

The Dickson Poon School of Law
King's College London
Strand
London WC2R 2LS

 

E-mail: james.lee@kcl.ac.uk

 

Profile: http://www.kcl.ac.uk/law/people/academic/j-lee.aspx