Saturday, May 23, 2015

Lusina Ho on Equitable Compensation

"Equitable compensation on the road to Damascus?"
Lusina Ho
Law Quarterly Review
(2015) 131 (April), pp. 213-218
In the controversial decision in Target Holdings v Redferns [1996] A.C. 421; [1995] 3 All E.R. 785, the House of Lords held that a doctrine of causation applied to the assessment of equitable compensation for misapplied trust funds, albeit it might not directly apply the rules of causation and remoteness at common law. Ever since then, powerful criticisms have been levelled against this approach, primarily on the ground that the beneficiary’s right to take common account and falsify an unauthorised disbursement is an exercise of their primary right—very much like an action for a liquidated sum—and hence the doctrine of causation is irrelevant... 
     Almost two decades had passed when the same issue reached the Supreme Court in AIB Group (UK) Plc v Mark Redler & Co [2014] UKSC 58; [2014] 3 W.L.R. 1367. Having taken cognisance of nearly 900 pages of academic writing submitted to it, the Supreme Court unanimously affirmed Target Holdings. Their Lordships considered it a "backward step" to rely on the "historical origin" of the remedy (at [138]) or "fairy tales" constructed about it (at [69]) to depart from the fundamental equitable principle that a defaulting trustee should only be required to restore the trust fund to the position it would have been in had the breach not occurred (at [63]–[64] and [134]–[135]).... 
     In fairness to the critics of Target Holdings, it must be recognised that the dichotomy between adhering to the nature of the accounting process and limiting compensation to loss attributable to the breach is a false one. The Supreme Court could have achieved justice and common sense in the present case within the historical parameters of the accounting process. Nonetheless, it is submitted that there is something to be said for parting with the artificial steps of falsification where the court is making a direct award of equitable compensation.... Full text available for download on Westlaw.

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