It’s really quite an interesting case! I suppose it will now have to be
read alongside AIB. It seems to suggest, at least in parts, that
the bringing together of equitable compensation and common law damages might
have stopped. Admittedly the Court does say “It is unnecessary to decide why
the common law and equity appear to start from opposite ends of a possible
spectrum of time for assessing loss or value (between breach and trial dates),
when both are pursuing broadly the same compensatory objective. It may be that
the explanation given by Street J in In re Dawson, adopted in Libertarian by
Ribeiro PJ, namely that unlike the common law, equity is not concerned with
issues of remoteness, foreseeability and mitigation, comes nearest to a
satisfying explanation. But a firm conclusion about the reasons for that
divergence of approach between common law and equity is for another day.” (para
97)
However, throughout it does seem to emphasise what we could call the
policy or purpose of fiduciary law, i.e., that “A fiduciary, as steward of his
principals property or affairs, to whom he owes a duty of loyalty, has the
responsibility to account for and explain what has happened in relation to
them” (111) and sets out some of the differences, for example as regards
intervening causes, changes in value and so on. Perhaps most interesting in
that regard is para 95, which explains that where property “If events occur
diminishing the value of the property which are extraneous to the relationship
between beneficiary and trustee (or between company and director) and which
would have had the same effect if the property had remained in the hands of the
trust fund or the company, there is no sound justification for holding the
trustee or director responsible for that loss of value. On the other hand,
where the fall in value of the property is caused by misconduct by the trustee
or director there may be justification for holding the trustee or fiduciary
responsible for it.”
The example given by the Court, where a trustee claims beneficial
ownership of a painting hanging in a gallery, but this causes no loss as the
gallery burns down and thus the loss would have been suffered in any event,
versus a situation where the trustee takes the painting home, breaching their
duties, and is destroyed by fire, so the trustee is liable, has, in my mind,
obvious parallels with the discussion of Lord Eldon in Caffrey v Darby where
he discusses the case of property destroyed by lightning or fire where it was
‘got in’ by the trustees due to their negligence. The facts of Al Jaber themselves
also give a good example, in that an argument seemed to be run that the
misappropriated shares would have been worthless even if the fiduciary had
complied with their duties, because they would have, in any event, made them
worthless due to a later breach. As the Court noted this, in effect, would have
amounted to an argument that “if he had not destroyed the value to the Company
of the 891K shares in 2016 he would in any event have succeeded in destroying
that value a year later by the 2017 Asset and Liability Transfer, or at least
have reaped the same benefit to himself, as the ultimate beneficial owner of
the MBI Group. Using the analogy of the painting held on trust, he would
actually have lit the fire which destroyed it.” (para 122)
I think this leans towards an equitable sort of intervening causes
doctrine, or at least differs from the common law one, but I can’t really say
anymore about that.
A final point is that the Court, perhaps unsurprisingly, again defends
the Target and AIB but for approach, referring to 19th century
cases, and noting that “Neither In re Brogden nor Carruthers were
cases about a misappropriation of trust money by the defendant trustee. Rather,
they were about breaches of trust consisting of failure to take steps to
prevent foreseeable loss to the trust fund. But they both imposed a burden on
the defendant, in effect to disprove an apparent connection between breach and
loss, in the context of a ‘but for’ and therefore counterfactual analysis. In
short, they required the defendant to prove that, even if there had been no
breach of trust, the same loss would have been incurred. It is noteworthy that
the courts in both those cases acknowledged that a ‘but for’ counterfactual
analysis was an appropriate way of assessing loss, a century before Target and
AIB. Thus it cannot be said that the principle as to the burden of proof which
they laid down was overtaken by the requirement to carry out a counterfactual
analysis in either of those much more recent cases.” (para 105)
Of course, it might be fair to say that it leans towards an equity
focused, or Lord Reed approach, as opposed to a common law focused, or Lord
Toulson approach, but I appreciate that’s probably highly contestable.
Please no more fiduciary/equity cases before next year, as I’m not sure
we can keep up ☹
Fans of the UK Supreme Court’s current Fiduciary Era will be interested
to see yet another decision this year on liabilities in equity, in Mitchell v
Al Jaber [2025] UKSC 43 https://www.supremecourt.uk/cases/judgments/uksc-2024-0075.
There is material from a range of jurisdictions considered by the Justices. The
Court upholds the finding that the defendant Sheikh, who had intermeddled with
the property of the company despite not having authority to enter into
transactions on its behalf, was an ad hoc fiduciary. The treatment of this
point is of note because it follows so soon after Hopcraft, the car finance
decision from earlier this year, which seemed to narrow the scope for ad hoc
fiduciary relationships. The Court also concludes that it is possible for the
act that generates the duty in such cases also to amount to a breach of the
duty. There is then lengthy discussion about how to calculate loss in such
cases, with the date of assessment, counterfactuals, chains of causation and
intervening & supervening causes all examined. The Sheikh’s argument that
the loss to the company was zero (for various reasons) was rejected by the
Supreme Court.
The Dickson Poon School of Law
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