St Dunstan's House
133-137 Fetter Lane
London EC4A 1HD
Date: 30 January 2003
Before:
Claimants
- and -
Defendants/Part 20 Claimants
- and -
Part 20 Defendants
Graham Platford (instructed by Kagan
Moss & Co for the claimants)
Ben Patten (instructed by Henmans for the defendants)
The Part 20 defendants did not appear and were not represented
1. The claimants are the children of Mr and Mrs Robin Knowles. Mr and Mrs Knowles senior were married in the early part of 1961. Their eldest child, the first claimant, is now Mrs Sharon Margaret Hulbert. For the purposes of the trial she was referred to as "Sharon" , and I trust that she will forgive me if I adopt the same usage. Sharon was born on 2 November 1961. Her brother, Mr Robin Edward Knowles, who also was referred to at the trial by his first name, and to whom I shall refer in this judgment as "Robin", was born on 27 June 1965. The third child of the family, Mr Simon David Knowles, to whom I shall refer in this judgment as "Simon", was born on 21 September 1966.
2. In July 1977 Mr and Mrs Robin Knowles senior purchased the property known as and situate at Fenns Farm, Fenns Lane, West End, Woking, Surrey ("the Property"). The Property comprised a house and some ten acres of land. In 1981 Mr and Mrs Robin Knowles senior were approached concerning a possible sale of the Property, or part of it, for redevelopment for housing. A year or so earlier, when they had been contemplating a sale of the Property, they had made contact with a firm of estate agents called Chancellors. The senior partner in that firm was Mr Tony Edwards, the second defendant. In the light of the approach made in 1981 they went back to Mr Edwards for his advice. They were interested in taking advantage of the opportunity of turning the development value of the Property to account. Mr Edwards suggested that it would be prudent to take steps to minimise the impact of Development Land Tax in the event of a sale of the Property, or part of it, for development. He suggested that the Property should be divided into six parcels. The idea was that Mr and Mrs Robin Knowles senior should each have one of the parcels, that Mrs Knowles's mother, Mrs Gladys Skinner, should have one, and that each of Sharon, Robin and Simon should be the beneficiary under a trust which would hold one. As matters turned out, Mr and Mrs Robin Knowles senior retained jointly what had been thought of as two parcels, but nothing turns on that for the purposes of any issue which I have to decide.
3. The first defendant, Mr Neville Avens, was, in 1982, the senior partner in a firm of solicitors called at that time Campbell Hooper Wright and Supperstone, but now called Campbell Hooper. By a letter dated 19 November 1982 Mr Edwards recommended to Mr and Mrs Robin Knowles senior that they instruct Mr Avens to do the legal work involved in setting up the trusts for their children which he had advised. Mr and Mrs Robin Knowles senior accepted that recommendation and instructed Mr Avens. Mr Avens duly prepared, or caused to be prepared within his firm, appropriate deeds of trust. Those deeds were executed on 5 January 1983.
4. Each trust deed was in common form. Under each Mr Avens himself and Mr Edwards were appointed trustees. Each trust deed recited that a sum of £5,625 had been transferred by Mr and Mrs Knowles senior to the trustees prior to the execution of the deed. For present purposes the deed executed in relation to Sharon can be treated as typical of all three. After the recitals it went on:
1. THE said sum of FIVE THOUSAND SIX HUNDRED AND TWENTY FIVE pounds and all other moneys to be invested hereunder in any investments including the purchase of land which the Trustees in their absolute discretion consider suitable for the investment of the Trust Fund or any part thereof as though the Trustees were the absolute owners thereof with power from time to time to transpose such investments into others hereby authorised.
2. THE Trustees shall hold the Trust Fund upon trust for the said Sharon Margaret as and when she shall attain the age of thirty years provided that if she shall die under the age of thirty years leaving issue surviving her then such issue if and when they attain the age of thirty years shall take by substitution and if more than one in equal shares per stirpes the share of the Trust Fund which such deceased person would have taken if she had survived.
3. ANY Trustee being a Solicitor or other person engaged in any profession or business may act in relation to the trusts hereof and shall be entitled to charge and be paid all professional and other charges for any business transacted time expended or act done by him or his firm or any partner of his in connection with the trusts hereof including acts which a Trustee not being engaged as aforesaid could have done personally.
5. The day after the execution of the three deeds of trust Mr and Mrs Robin Knowles senior transferred to Mr Avens and Mr Edwards as trustees in relation to each of their children a parcel of land at the Property in consideration of the payment by Mr Avens and Mr Edwards of the sum of £5,625 in each case. The parcels transferred to Mr Avens and Mr Edwards in respect of each of Sharon, Robin and Simon were, it seems, intended to be the same size, but that transferred in relation to Sharon in the event was, or was perceived to be, a little smaller than the parcels transferred for her brothers.
6. By a letter dated 5 August 1983 marked "Subject to contract" Mr H Giblin, managing director of a company called Martin Grant Homes Ltd ("Grant") offered to purchase the bulk of the Property at a price of £5,000 per acre, plus a further sum on the grant of planning permission for residential development equal to 75 per cent of the open market value less the purchase price of £5,000 per acre and the costs of achieving planning permission. It was envisaged that Mr and Mrs Robin Knowles senior would retain the house at the Property as their residence, together with an area of land around the house.
7. The offer contained in the letter dated 5 August 1983 was subsequently increased, as Mr Edwards recorded in a letter dated 25 October 1983 to Mr and Mrs Robin Knowles senior, to £6,000 per acre and 80 per cent of the open market value on the grant of planning permission, less the deductions to which I have already referred. That was the deal eventually done. The overall agreement was negotiated on the instructions of Mr and Mrs Robin Knowles senior. The function of the trustees under each of the trusts for Sharon, Robin and Simon was simply to receive, and thereafter to administer, the funds to which the transaction would give rise which related to the part of the Property which was the subject, prior to sale to Grant, of the relevant trust.
8. Completion of the sales of the various parcels into which the Property had been divided for the purposes of sale for development took place on 8 May 1984. At that time a sum of £8,160 was paid to Mr Avens and Mr Edwards in respect of each of the parcels which they had held as trustees up to that date. Just over a year later substantially the whole of the funds held by Mr Avens and Mr Edwards as trustees for any of Sharon, Robin or Simon were expended in a purchase for them collectively, along with Mr and Mrs Robin Knowles senior, of part of the property known as and situate at Heathermead Nurseries, Fenns Lane, which was opposite the Property The agreement for the sale of Heathermead Nurseries was dated 4 June 1985 and provided for completion of the sale of part of the property to take place on 7 June 1985, with completion of the sale of the balance taking place after receipt of the further consideration monies anticipated as coming from Grant following the grant of planning permission for the development of the Property.
9. On 5 July 1988 Grant paid to Mr Avens and Mr Edwards a sum of £362,140.67 in their capacity as trustees for Sharon, a sum of £397,189.32 in their capacity as trustees for Robin and a like sum in their capacity as trustees for Simon.
10. Mr Avens and Mr Edwards seem to have realised that the receipt of the sums to which I have referred in the previous paragraph would give rise to a liability on them as trustees to pay Capital Gains Tax ("CGT") in respect of the sums received by each trust. In a letter dated 15 July 1985 to Mr P H Scares, a corporate manager at Barclays Bank Plc, Mr Avens wrote as follows:
Re Robin & Simon Knowles
Thank you for your letter of 11 July. I did specifically request that the money be invested in the name of the Trustees, myself and Mr Edwards. The reason for this is that the monies are part of the trust and should be shown as such. The Trustees need to make reserves for taxation and there are already other committments [sic] upon the funds I shall require a cheque for £150,000 to complete the purchase of a farm [that is to say, the balance of Heathermead Nurseries that was contracted for by the Trustees on behalf of the Knowles family some time ago. Could you let me have a cheque for £100,000 now, £50,000 drawn from the Trustees of Robin Knowles and £50,000 drawn from the Trustees of Simon Knowles.
11. Mrs Robin Knowles senior also appears to have appreciated that there would be tax to pay. In a letter to Mr Avens dated 18 July 1988 she wrote, so far as is presently material:
Also with regard to the children's tax to pay, dont [sic] you think it would be a good idea to transfer say £100,000 as soon as possible to the new Capital Advantage, which pays at the moment 7.25 per cent nett. We have put our money on this as it pays more than high deposit account. You need a month's notice, but this will be no problem as they will not be touching this until we have to pay the taxman.
12. The CGT payable consequent upon the payment by Grant of the sums due upon the grant of planning permission for residential development of the parts of the Property transferred to Grant was payable on 1 December 1988. The sums in fact due were £112,962.30 in respect of Sharon's trust and £118,700 each in respect of Robin's trust and Simon's trust. As a result of advances made by Mr Avens and Mr Edwards to Sharon, Robin and Simon prior to 1 December 1988, as at 1 December 1988 they held insufficient funds in relation to Sharon's trust and in relation to one of Robin's trust or Simon's trust the evidence is unclear as to which — to pay the CGT due. In Sharon's trust the sum held as at 1 December 1988 was £ 109,816.83. The sum held apparently in Robin's trust was £94,119.01, while the sum held apparently in Simon's trust was £266,473.22. On the material put before me there are inconsistencies as to the exact sums held in Robin's trust and Simon's trust in 1988 and subsequently but on balance it seems that the picture which I have indicated is sufficiently accurate for the purposes of the matters which I have to decide. No attempt was made to make any payment of, or towards, the CGT due at this stage.
13. During 1989 and 1990 Mr Avens and Mr Edwards advanced various Sums to each of Sharon, Robin and Simon notwithstanding that the question of making payment of the CGT due had not been addressed. However, they obviously knew that CGT had to be paid. In a letter to Mr John Foreman of Messrs Foreman & Co, accountants to Mr and Mrs Robin Knowles senior and to each of the trusts, Mr Avens said this:
Mrs Caroline Knowles has taken up with me the question of the payment of the tax. Have you reached any final calculation of the tax payable? Would it not be sensible to make some payment on account of tax as the Trustees would not wish interest to be running for too long and to find the amount of tax was too much for the Trust to pay.
14. Mr Foreman does not seem to have reacted positively to Mr Avens's enquiries concerning CGT. Mrs Robin Knowles senior wrote to Mr Foreman a letter dated 4 May 1990 in which she said, so far as is presently material:
Mr Avens said he has not heard from you and he has written a couple of letter [sic] regarding the Trust as he is worried about the tax implications and interest. I am afraid I have left all the trust dealings with you and him.
15. In a facsimile transmission to Mr Avens dated 19 March 1991 Mrs Robin Knowles senior wrote in relation to taxation:
In my letter dated 10.2.90 I did state "childrens Capital Advantage A/C" NOT just Simon as TAX for Inland Revenue is running higher than Capital Advantage. AT the moment the Treasury A/C in the Banks in short term are the best rates. This is MOST important as 1 per cent interest extra in a TAX Bill makes a lot of difference.
Mr Avens acknowledged receipt of that facsimile transmission in a letter dated 20 March 1991 and indicated that he was moving the other children's accounts to Treasury accounts.
16. On 2 November 1991 Sharon attained the age of 30 years.
17. In February 1992 Mr Avens and Mr Edwards as trustees lent to Sharon a sum of £35,000 on the security of a property which she and her husband wished to purchase called Brookside Cottage, Windlesham.
18. In November 1993 Mr Foreman's firm produced draft accounts in relation to the trusts of Sharon, Robin and Simon for the first time. Those draft accounts showed that Mr Avens and Mr Edwards were then holding insufficient funds for the various trusts to pay the sums which Mr Foreman's firm calculated were due in respect of CGT.
19. On 3 December 1993 Mr Avens, who had not previously debited any of the trust funds with any amount in respect of his own time, debited each £4,382. On the same date Mr Edwards, who also up to this point had not levied any charge to any of the trust funds for his time, debited each £500.
20. All the while Mr Avens and Mr Edwards held funds for any of the trusts those funds were on deposit earning interest.
21. As at 1 June 1994 Mr Avens and Mr Edwards held a sum of £91,938.43 in Sharon's trust fund, a sum of £115,745.96 in Robin's trust fund, so it appears, and a sum of £161,721.09, it would seem, in Simon's trust fund. The sums held for Sharon's trust fund and Robin's trust fund were insufficient to pay the whole of the CGT due, never mind any interest or penalties. However, payments on account of the CGT due, and, at least so far as Simon's trust was concerned, and possibly also Robin's trust, interest on the amount of the CGT due, were made by cheque dated 24 June 1994. A copy of a letter dated 22 May 2000 written by Mr C H Tilsley, HM Inspector of Taxes, to Messrs Anson Gowing, which by then had become accountants to each of the trusts, was put in evidence. That indicated that the sum paid on account of the liabilities of Sharon's trust fund in June 1994 was £81,000, that paid on account of the liabilities of Robin's trust fund £110,000, and that paid on account of the liabilities of Simon's trust fund £150,356. The figures recorded in Mr Tilsley's letter for the payments made in respect of Robin's trust fund and Simon's trust fund were indicated as taking into account loan adjustments of an amount of £27,477 as between Robin's trust and Simon's trust. That seems to be why, in a "Schedule of Tax, Interest Penalty Payments Made to the Inland Revenue" ("the Tax Schedule") attached to a supplementary report of Mr David Gowing of Messrs Anson Gowing which was put in evidence, and which treated by the parties before me as accurate, the payments on account made on behalf of Robin's trust fund and Simon's trust fund in June 1994 were recorded as different sums from those recorded in Mr Tilsley's letter, namely £137,477 and £122,879 respectively. For the purposes of this judgment I shall work with the figures in the Tax Schedule which the parties accepted as accurate. Which figures are in fact correct does not matter, as it seems to me, in the context of the matters which I have to decide, but it is necessary to work on some set of figures in order to explain how the points which I have to decide are said to arise and what the implications of them may be.
22. After the payments on account of CGT and interest had been made in June 1994 some money remained in each of the trust funds. As at 1 July 1995 the amount remaining in Sharon's trust fund was £10,938.43, the amount remaining in Robin's trust fund was £5,745.96 and the amount remaining in Simon's trust fund was £11,365.09. Those sums remained on deposit in interest earning bank accounts.
23. Robin attained the age of 30 years on 27 June 1965.
24. Simon attained the age of 30 years on 21 September 1996. At that point, if not before, Mr Avens and Mr Edwards held each of the trust funds as bare trustees.
25. In the accounting year ending on 5 April 1993 and in those ending on 5 April 1994, 1995, 1996 and 1998 Mr Avens debited each trust fund with an amount of £588 in respect of his own time. In each of the periods ending 21 September 1996 and 5 April 1997 he debited each trust fund with an amount of £294. Mr Edwards also debited each trust fund with charges for his time over the period between the year ending 5 April 1993 and the year ending 5 April 1998. The fees charged were £50 in the year ending 5 April 1993, £100 in each of the years ending 5 April 1994, 1995, 1996, and 1998, £75 in the period ending 21 September 1996 and £25 in the period ending 5 April 1997. Over the total period from that ending on 5 April 1993 to that ending on 5 April 1998, therefore, Mr Avens charged each of the trust funds a total of £3,528 in fees, and Mr Edwards charged a total of £550. The total sum charged by each to each trust fund by way of fees was, therefore, £7,910 in the case of Mr Avens and £ 1,050 in the case of Mr Edwards.
26. The present action was commenced by an originating summons issued on 20 December 1996. As is evident, the action took a long time to come to trial, in part because related actions were commenced on behalf of Mr and Mrs Robin Knowles senior against Mr Foreman's firm and against Mr Avens's firm. At the time this action was commenced there were various issues raised on behalf of Sharon, Robin and Simon, but as time passed most of those issues were progressively compromised. In the course of dealing with the various issues a number of payments were made to the Inland Revenue in relation to the outstanding liability of Sharon's trust fund to settle the balance of the CGT due, and the outstanding liabilities of each of the trusts to pay interest and penalties. Sums were also paid in respect of income tax liabilities of the trusts. A payment of a total of £38,918 was made on 29 July 1999 on behalf of Mr Avens and Mr Edwards in respect of the outstanding sum due from Sharon's trust fund in respect of CGT, £31,962, and income tax due from each of the trust funds. In October 2000 Sharon redeemed the loan on the security of Brookside Cottage, Windlesham by a repayment of capital of £ 35,000 and a payment of £31,798.98 as interest. On 25 October 2000 a payment of a sum of £30,000 generally on account of outstanding interest due from Sharon's trust fund in relation to late payment of CGT was made by Mr Avens and Mr Edwards out of monies which they held in the trust fund following the redemption by Sharon of her loan. On 25 July 2001 the outstanding sums due from the respective trust funds to the Inland Revenue as interest on late payment of CGT and penalties were paid. The sums in question were a total of £45,362.26 in respect of Sharon's trust fund, a total of £ 46,369.12 in respect of Robin's trust fund and a total of £59,492.45 in respect of Simon's trust fund. Of those sums the whole of those relating to the trusts of Robin and Simon were paid on behalf of Mr Avens and Mr Edwards, along with an amount of £14,715.56 towards the amount due from Sharon's trust fund. The balance of £30,647 due from Sharon's trust fund came from sums held in the fund itself following repayment by her of her loan and payment of the interest thereon.
27. The payments made on behalf of Mr Avens and Mr Edwards towards settling the liabilities of Sharon's trust fund, Robin's trust fund and Simon's trust fund to the Inland Revenue were made because it was accepted that they were in breach of trust in failing to pay when due the CGT payable in respect of each of the funds, and that in consequence liabilities to pay interest and penalties had arisen which would not have arisen but for the breaches of trust in question.
28. It was, I think, common ground that the total sum due from Sharon's trust fund by way of interest and penalties in respect of late payment of CGT was £75,362.06. The failure of Mr Avens and Mr Edwards to pay out when they should have sums due in respect of CGT meant that over the period 1 December 1988 to 21 September 1996 interest was earned on monies held on deposit for Sharon's trust fund which totalled £37,349. In respect of the liabilities to the Inland Revenue which related to Sharon's trust fund there was contributed on behalf of Mr Avens and Mr Edwards a total of £ 50,563.06. Thus the total of the interest by not paying CGT when due, £37,349, and the sum contributed on behalf of Mr Avens and Mr Edwards, £50,563.06, namely £87,912.06, exceeded by a margin of £12,550 the total due as interest and penalties, £75,362.06.
29. A similar pattern to that which emerges from the analysis set out in the previous paragraph in the case of Sharon's trust fund can be found also with Robin's trust fund and Simon's trust fund. The respective figures for Robin's trust fund are: total sum due by way of interest and penalties, £65,146.60; total sum earned by way of interest on money held on deposit within the trust fund, £42,040; total contribution on behalf of Mr Avens and Mr Edwards towards liabilities to the Inland Revenue, £49,101.12; excess of interest earned and contribution from Mr Avens and Mr Edwards over liabilities to the Inland Revenue, £25,994.52. For Simon's trust fund the figures are: total sum due by way of interest and penalties, £63,671.40; total sum earned by way of interest on money held on deposit within the trust fund, £59,339; total contribution on behalf of Mr Avens and Mr Edwards towards liabilities to the Inland Revenue, £59,830.45; excess of interest earned and contribution from Mr Avens and Mr Edwards over liabilities to the Inland Revenue, £55,498 05.
30. It was accepted on behalf of Mr Avens and Mr Edwards that they had been in breach of trust in relation to each of the trust funds in some minor respects in relation to which it was appropriate for allowance to be made to the funds. I need not set out in this judgment the details of the minor breaches of trust to which I have referred. It is enough to say that, taking into account the agreed allowances in respect of them, the excess figures set out in the two preceding paragraphs are reduced to an amount of £8,843.27 in respect of Sharon's trust fund, an amount of £22,447.22 in respect of Robin's trust fund, and an amount of £50,448.32 in respect of Simon's trust fund. These figures in each case exceed the total amount charged to that trust fund by Mr Avens and Mr Edwards as fees.
31. It was common ground before me that the trust funds of Sharon, Robin and Simon have now been wound up, with the remaining assets of each being vested in the person beneficially entitled thereto.
32. It is apparent that, in deciding what contribution it was appropriate to be made on behalf of Mr Avens and Mr Edwards to each of the trust funds in respect of their admitted breach of trust in failing to pay at the appropriate time CGT, and thereby incurring a liability on the part of themselves as trustees to pay interest and penalties, which liability was met in part by recourse to the monies held on trust, account has been taken in favour of Mr Avens and Mr Edwards of the amounts of interest earned by monies within the funds held on deposit which would not have been available to earn interest if they had been paid when they should have as CGT. The main outstanding issue in this action is whether it was appropriate for the interest earned to be taken into account in that way. It was contended on behalf of Sharon, Robin and Simon by Mr Graham Platford, who appeared on their behalf at the trial, that the obligation of Mr Avens and Mr Edwards was to reconstitute the various trust funds as they should have been as at June 1994 when the first payments in respect of CGT were made. What in practical terms that involved, submitted Mr Platford, was Mr Avens and Mr Edwards making now a further payment to each fund of the amount debited to that fund in respect of interest on CGT and penalties which was not in the first instance provided on behalf of Mr Avens and Mr Edwards. In its simplest form Mr Platford's submission was that Mr Avens and Mr Edwards were not entitled to take credit, as they had, against the sums which they had to pay to remedy their breaches of trust, for the amounts of interest on monies held on deposit which could not have been earned but for those breaches of trust.
33. An issue subsidiary to that to which I have referred in the preceding paragraph concerned the use of the monies repaid by Sharon in October 2000, and the interest thereon, to pay part of the sums due from her trustees in respect of interest on CGT and penalties. Mr Platford submitted as a separate point that that was objectionable, principally, as I understood it, because at the time it happened the monies in question belonged to her absolutely, she having become absolutely entitled to her trust fund on her thirtieth birthday, or at the latest on her brother Simon's thirtieth birthday, 21 September 1996. What in effect was happening, submitted Mr Platford, was that the trustees, Mr Avens and Mr Edwards, were recouping themselves in respect of their liabilities to the Inland Revenue by recourse to the beneficiary.
34. A further issue subsidiary to the question of whether it was appropriate for Mr Avens and Mr Edwards in effect to claim the benefit of the interest earned on monies held for each of the trust funds on deposit winch ought to have been paid as CGT was whether it was a breach of trust for them to make excessive advances to beneficiaries such that they held insufficient funds to pay CGT when due, and, if so, what consequences should follow. Mr Platford submitted that to distribute excess amounts was a breach of trust and that the consequence was that the trustees were liable to make good the trust fund in each case to the extent necessary to pay to the Inland Revenue what was due.
35. The other principal issue which remained outstanding when the trial began was whether in principle it was permissible for Mr Avens and Mr Edwards to charge fees for their time spent in the administration of the various trusts. Mr Platford disavowed any interest in having an enquiry as to that to which the fees charged related and whether the fees were reasonable for the work in fact done, if any. He confined himself to objections in principle. The first objection in principle was that it was not permissible for Mr Avens and Mr Edwards to charge, and to pay themselves, fees in December 1993 at a time when the trust funds retained insufficient assets both to discharge the liability to pay CGT and to pay their fees. That submission was not factually sound in the case of Simon's trust fund in any event. The second objection in principle was that Mr Avens and Mr Edwards should not be permitted to recover any sum by way of fees because they had, as they accepted, been in breach of trust. The third objection in principle was that each of the trusts had been administered on the basis that there would be no charge. What Mr Platford seemed to be submitting was that, notwithstanding the provision for making charges contained in clause 3 of each trust deed, it was to be inferred from that fact that no attempt was made to levy any charge until December 1993 that the right conferred by clause 3 would not be exercised. The fourth objection in principle was that Mr Avens and Mr Edwards were not entitled to charge fees in respect of any period after they became in relation to any beneficiary bare trustees. Thus they were, so Mr Platford submitted, not entitled to charge Sharon' s trust fund any fees after 2 November 1991, not entitled to charge Robin's trust fund any fees after 27 June 1995, and not entitled to charge any fees at all after 21 September 1996.
36. It was, I think, common ground between Mr Platford and Mr Ben Patten, who appeared on behalf of Mr Avens and Mr Edwards, that the general rule is that a trustee is not entitled to indemnity out of the assets of the trust of which he is trustee in respect of the consequences of a breach of trust. Moreover, it seemed not to be in dispute that, save in exceptional circumstances which do not exist in the present case, it is not open to a trustee who has been in breach of trust to look to the beneficiary of the trust to indemnify him in respect of the consequences of a breach of trust. Mr Patten, however, submitted, first, that when it is necessary for a court to assess equitable compensation in respect of a breach of trust it does so in the light of the circumstances as they appear at the date of the assessment. He submitted that it is not correct in law simply to require a defaulting trustee to reconstitute the trust fund as it would have been but for the breach of trust at the moment of the breach of trust. Thus, the essential nature of an assessment of equitable compensation was to consider whether the trust fund, or, if the trust had come to an end, the beneficiary or beneficiaries, were at the date of assessment worse off than if there had been no breach of trust, and, if so, to assess that amount by way of compensation which was necessary to put the fund or the beneficiary or beneficiaries in the same position as they would have been in but for the breach of trust. Mr Patten also submitted that in any event where a trustee has caused a loss to the fund of which he is trustee by a breach of trust, but the commission of that breach of trust has resulted in a benefit to the trust, the trustee was entitled to indemnity from the assets of the trust to the extent of the benefit arising. Mr Patten relied upon a number of authorities in support of his submissions. Mr Platford responded not by relying upon different authorities, but by seeking to distinguish the authorities upon which Mr Patten relied and then to appeal to general principle. Because of the nature of Mr Platford's response to Mr Patten's submissions it is convenient to consider the points made by Mr Patten in reverse order and the relevant authorities chronologically starting with the earliest.
37. In Vyse v. Foster (1872) LR 8 Ch App 309 one of the issues before the court was whether trustees should be allowed in their accounts an amount of £1,600 which they had expended from trust funds in building a house on land which they held as an asset of the trust with a view to making that land appear to prospective purchasers more attractive for residential development. It was not in dispute that that expenditure had been in breach of trust. As to how that breach of trust should be treated for the purposes of the trustees' accounts, James LJ said at pages 336 to 337 of the report:
[The Vice-Chancellor at first instance] has directed that a sum of £1600, part of the testator 's personal estate, laid out in erecting a villa on part of his real estate directed to be sold, should be disallowed in their accounts. This sum was laid out by the trustees bona fide, under advice, as a means of facilitating the sale and increasing the value of the land near Luton as building ground. The house so built has been let for £80 a year, and the rest of the land, with the exception of a minute portion, has been sold and realized £3456, and the villa itself is saleable. As the real and personal estate constituted one fund, we think it neither reasonable nor just to fix the trustees with a sum, part of the estate, bona fide laid out on other part of the estate in the exercise of their judgment as the best means of increasing the value of the whole. If they were mistaken in this, which does by no means appear, the utmost they could be fairly charged with would be the loss, if any, occasioned by the mistake in judgment. The Plaintiff's share in that loss must be so minute as not to justify the expense of any litigious inquiry in Chambers as to it. If the Plaintiff prefers it, the trustees, being willing, may be ordered, as between them and her, to take the villa themselves, as at the price of £1,600 and the value of the site as unbuilt on, as to which an affidavit may be produced to us.
38. Mr Platford submitted that the principle for which the decision in Vyse v. Foster is authority is that if a trustee, in breach of trust, utilises trust money improperly and thereby earns money for the trust, the money so earned can be taken into account in assessing the amount of the equitable compensation which the trustee must pay for his breach of trust. He submitted that on the facts of the present case the trustees, Mr Avens and Mr Edwards, had not sought to invest any sum in breach of trust, and had not earned any money for any of the trusts by such investment. Thus, submitted Mr Platford, the principle illustrated in Vyse v. Foster is of no application in the present case. He also submitted at one point that the entitlement of a trustee to have any credit for sums earned by an unauthorised investment depended upon the adoption by the beneficiary or beneficiaries of the transaction. That submission seemed to be based upon the latter part of the passage quoted in the preceding paragraph. However, it seems clear that that part was a comment on the circumstances of that case, in which the trustees seem to have been willing to take the title to the villa built by use of trust funds in breach of trust at the sum paid out of the trust assets plus site value. It certainly does not seem to support the submission made by Mr Platford. In the event he did not pursue that part of his submissions.
39. The decision in Vyse v. Foster was the subject of comment by Brooking J sitting in the Supreme Court of Victoria in R W G Management Ltd v. Commissioner for Corporate Affairs [1985] VR 385. The facts of that case were some way from the facts of the present case. It was concerned with the conditions sought to be imposed by a regulatory authority upon a trading trustee proposing to conduct a stockbroking business on the Melbourne Stock Exchange. In the course of his judgment, at page 396 in the report, Brooking J indicated that he considered the decision in Vyse v. Foster to be authority for the proposition that:
A trustee is, however, entitled to be indemnified in respect of a liability improperly incurred to the extent to which, acting in good faith, he has benefited the trust estate
Mr Patten submitted that that analysis of the principle underlying the decision in Vyse v. Foster showed that the principle was wider than that for which Mr Platford contended. It was not only in a situation in which it was by the application of trust assets in breach of trust that a benefit had been earned that it was permissible for a trustee to claim credit for a benefit obtained by the trust. All that was necessary, submitted Mr Patten, was that there had been a breach of trust and as a result of that breach of trust a benefit had in fact been derived by the trust.
40. Mr Patten sought to support the submission which I have recorded in the preceding paragraph by reference to the decision of Brightman J in Bartlett v. Barclays Bank Trust Co Ltd [1980] 1 Ch 515. So far as is material for the purposes of this judgment, the facts of that case were that the assets of a trust of which the defendant was trustee comprised virtually all of the issued shares in a property company. In breach of trust the trustee failed to give that attention to the affairs of the company which it should. As a result it failed to prevent, as it should have if acting prudently, the directors of the company embarking upon speculative property developments through the medium of a subsidiary company. One speculative development, in Guildford, was profitable. Another development, in Old Bailey in London, was not. The undertaking of each development, conventionally analysed, amounted to a separate breach of trust. At page 538 in the report Brightman J dealt with the assessment of equitable compensation in this way:
The general rule as stated in all the textbooks, with some reservations, is that where a trustee is liable in respect of distinct breaches of trust, one of which has resulted in a loss and the other in a gain he is not entitled to set off the gain against the loss unless they arise in the same transaction ... The relevant cases are, however, not altogether easy to reconcile. All are centenarians and none is quite like the present. The Guildford development stemmed from exactly the same policy and (to a lesser degree because it proceeded less far) exemplified the same folly as the Old Bailey project. Part of the profit was in fact used to finance the Old Bailey disaster. By sheer luck the gamble paid off handsomely, on capital account. I think it would be unjust to deprive the bank of this element of salvage in the course of assessing the cost of the shipwreck. My order will therefore reflect the bank's right to an appropriate set-off.
41. Mr Platford emphasised the references in the passage quoted in the preceding paragraph to a "policy" and to use of trust funds to seek to earn profits. He submitted that in the present case there was no evidence of any "policy" on the part of Mr Avens and Mr Edwards, for example to seek to earn more for the trusts by investing money on deposit than would have to be paid as interest on unpaid CGT. Moreover, he submitted, no trust monies were used by Mr Avens and Mr Edwards to seek to earn profits. Both of these submissions seemed to me difficult. Such evidence as there was, and I have summarised it already in this judgment, indicates that there was an awareness on the part of Mr Avens, at least, of the need to pay CGT, and that the decision to put money on deposit pending payment of the CGT due was deliberate. Quite how it could be said that interest paid on money placed on deposit was not earned by use of the money deposited I confess I did not follow. At another point in his submissions Mr Platford seemed to be making what struck me as a different point, which was that by the time of the date of the breach of trust for which he contended, June 1994, the relevant interest had been earned and so should not be taken into account for that reason. However, that submission, if intended to apply to all of the interest earned, lacked a firm factual foundation, for, as I have shown, interest continued to be earned after June 1994.
42. The decision of Brightman J in Bartlett v. Barclays Bank Trust Co Ltd, with the reference in the passage quoted to what would be "unjust" to the defaulting trustee so far as the assessment of equitable compensation was concerned, is a convenient prelude to a consideration of the decision of the House of Lords in Target Holdings Ltd v. Redferns [1996] 1 AC 421, upon which Mr Patten relied heavily in relation to his first submission, that as to the basis upon which it is appropriate for the court to assess equitable compensation. In Target Holdings Ltd v. Redferns the material facts were that the claimant, a finance company, agreed to lend money to a customer on the security of a legal charge over property which the customer was intending to purchase. The defendants were a firm of solicitors. They were instructed to act on behalf of the finance company in the transaction. Funds were transferred by the finance company to the solicitors for them to hold as bare trustees until the property to be purchased by the customer had been purchased and the customer had executed a legal charge over it. At that time the money could be paid over to the customer. In breach of trust the solicitors paid the bulk of the money to the customer before any legal charge had been executed. However, a legal charge was subsequently executed in favour of the finance company over the property purchased by the customer. The customer defaulted on the loan and the finance company had to enforce its security. As a result of a fall in the property market the security proved to be inadequate to enable the finance company to recover the full amount of what was due to it. Having discovered that at the date at which the bulk of the loan from it was paid over to the customer no legal charge had been executed over the property which the customer was purchasing, the finance company sought to compel the solicitors as bare trustees of the money advanced, to reconstitute the fund which it held as at the date of the breach of trust. The solicitors, while accepting that they had acted in breach of trust, contended that even if they had not parted with the loan until after the execution by the customer of a legal charge over the property being purchased the finance company, which did actually obtain a charge such as was intended, would have suffered exactly the same loss as it in fact did. The sole substantive speech in the House of Lords was that of Lord Browne-Wilkinson.
43. At pages 432 to 433 in the report of Target Holdings Ltd v. Redferns, Lord Browne-Wilkinson said:
The transaction in the present case is redolent of fraud and negligence. But, in considering the principles involved, suspicions of such wrongdoing must be put on one side. If the law as stated by the Court of Appeal is correct, it applies to cases where the breach of trust involves no suspicion of fraud or negligence. For example, say an advance is made by a lender to an honest borrower in reliance on an entirely honest and accurate valuation. The sum to be advanced is paid into the client account of the lender's solicitors. Due to an honest and non-negligent error (eg an unforeseeable failure in the solicitors' computer) the moneys in client account are transferred by the solicitors to the borrower one day before the mortgage is executed. That is a breach of trust. Then the property market collapses and when the lender realises his security by sale he recovers only half the sum advanced. As I understand the Court of Appeal decision, the solicitors would bear the loss flowing from the collapse in the market value: subject to the court's discretionary power to relieve a trustee from liability under section 61 of the Trustee Act 1925, the solicitors would be bound to repay the total amount wrongly paid out of the client account in breach of trust receiving credit only for the sum received on the sale of the security.
To my mind in the case of an unimpeachable transaction this would be an unjust and surprising conclusion. At common law there are two principles fundamental to the award of damages. First, that the defendant' s wrongful act must cause the damage complained of Second, that the plaintiff is to be put "in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation": Livingstone v. Rawyards Coal Co (1880) 5 App Cas 25, 39, per Lord Blackburn. Although, as will appear, in many ways equity approaches liability for making good a breach of trust from a different starting point, in my judgment those two principles are applicable as much in equity as at common law. Under both systems liability is fault-based: the defendant is only liable for the consequences of the legal wrong he has done to the plaintiff and to make good the damage caused by such wrong. He is not responsible for damage not caused by his wrong or to pay by way of compensation more than the loss suffered from such wrong. The detailed rules of equity as to causation and the quantification of loss differ, at least ostensibly, from those applicable at common law. But the principles underlying both systems are the same. On the assumptions that had to be made in the present case until the factual issues are resolved (ie that the transaction would have gone through even if there had been no breach of trust), the result reached by the Court of Appeal does not accord with those principles. Redferns as trustees have been held liable to compensate Target for a loss caused otherwise than by a breach of trust. I approach the consideration of the relevant rules of equity with a strong predisposition against such a conclusion.
44. A little later on page 433 of the report of Target Holdings Ltd v. Redferns Lord Browne-Wilkinson considered a situation in which there had been a breach of trust but the beneficiary under the trust had no right to compensation. That situation was:
Say, as often occurs, a trustee commits a judicious breach of trust by investing in an unauthorised investment which proves to be very profitable to the trust. A carping beneficiary could insist that the unauthorised investment be sold and the proceeds invested in authorised investments: but the trustee would be under no liability to pay compensation either to the trust fund or to the beneficiary because the breach has caused no loss to the trust fund.
45. At the top of page 434 of the report begins a passage which continues onto page 435. Mr Platford relied heavily on the earlier part of the passage. In the passage Lord Browne-Wilkinson said:
The basic right of a beneficiary is to have the trust duly administered in accordance with the provisions of the trust instrument if any and the general law Thus, in relation to a traditional trust where the fund is held in trust for a number of beneficiaries having different, usually successive, equitable interests (eg A for life with remainder to B) the right of each beneficiary is to have the whole fund vested in the trustees so as to be available to satisfy his equitable interest when and if it falls into possession Accordingly, in the case of a breach of such a trust involving the wrongful paying away of trust assets, the liability of the trustee is to restore to the trust fund often called 'the trust estate what ought to have been there.
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 be 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 932, 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 NSWR 211; Bartlett v. Barclays Bank Trust Co Ltd (Nos 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 LSG 454; Nestle v. National Westminster Bank Plc [1993] 1 WLR 1260.
Hitherto I have been considering the rights of beneficiaries under traditional trusts where the trusts are still subsisting and therefore the right of each beneficiary, and his only right, is to have the trust fund reconstituted as it should be, But what if at the time of the action claiming compensation for breach of trust those trusts have come to an end? Take as an example again the trust for A for life with remainder to B. During A's lifetime B's only right is to have the trust duly administered and, in the event of a breach, to have the trust fund restored. After A's death, B becomes absolutely entitled. He of course has the right to have the trust assets retained by the trustees until they have fully accounted for them to him. But if the trustees commit a breach of trust, there is no reason for compensating the breach of trust by way of an order for restitution and compensation to the trust fund as opposed to the beneficiary himself. The beneficiary 's right is no longer simply to have the trust duly administered: he is, in equity, the sole owner of the trust estate. Nor, for the same reason, is restitution to the trust fund necessary to protect other beneficiaries. Therefore, although I do not wholly rule out the possibility that even in those circumstances an order to reconstitute the fund may be appropriate, in the ordinary case where a beneficiary becomes absolutely entitled to the trust fund the court orders, not restitution to the trust estate, but the payment of compensation directly to the beneficiary. The measure of such compensation is the same, ie the difference between what the beneficiary has in fact received and the amount he would have received but for the breach of trust.
Thus in Bartlett v. Barclays Bank Trust Co Ltd (Nos. 1 and 2) [1980] Ch 515 by the date of judgment some of the shares settled by the trust deed had become absolutely vested in possession: see at p543A. The compensation for breach of trust, though quantified by reference to what the fund would have been but for the breach of trust, was payable directly to the persons who were absolutely entitled to their shares of the trust fund see at p 544A. Accordingly, in traditional trusts for persons by way of succession, in my judgment once those trusts have been exhausted and the fund has become absolutely vested in possession, the beneficiary is not normally entitled to have the exhausted trust reconstituted. His right is to be compensated for the loss he has suffered by reason of the breach.
46. Mr Platford urged upon me that the general rule in a case of breach of trust is that the trust fund is to be restored to what ought to have been there at the date of the breach. His submissions took no account of the observations of Lord Browne-Wilkinson at the end of the passage quoted in the preceding paragraph as to how one should approach the assessment of equitable compensation in a case such as the present in fact is, namely one in which all relevant trusts have come to an end. I reject his submission that I should seek to reconstitute any of the trust funds in the present case, rather than simply consider, in the case of each of Sharon, Robin and Simon, whether they have suffered any loss, in the events which have happened, and, if so, how much, with a view to awarding to any of them who has suffered a loss equitable compensation intended to eliminate that loss.
47. Mr Patten reminded me of a passage in the speech of Lord Browne-Wilkinson at pages 436 to 437 of the report of Target Holdings Ltd v. Redferns in which Lord Browne-Wilkinson considered the question of as at what date the question of whether a trust fund or a beneficiary had suffered a loss fell to be evaluated He said:
The key point in the reasoning of the Court of Appeal is that where moneys are paid away to a stranger in breach of trust, an immediate loss is suffered by the trust estate as a result, subsequent events reducing that loss are irrelevant. They drew a distinction between the case in which the breach of trust consisted of some failure in the administration of the trust and the case where a trustee has actually paid away trust moneys to a stranger. There is no doubt that in the former case, one waits to see what loss is in fact suffered by reason of the breach, ie the restitution or compensation payable is assessed at the date of trial not of breach. However, the Court of Appeal considered that where the breach consisted of paying away the trust moneys to a stranger it made no sense to wait: it seemed to Peter Gibson LJ [1994] 1 WLR 1089, 1103G-H obvious that in such a case "there is an immediate loss placing the trustee under an immediate duty to restore the moneys to the trust fund". The majority of the Court of Appeal therefore considered that subsequent events which diminished the loss in fact suffered were irrelevant, save for imposing on the compensated beneficiary an obligation to give credit for any benefit he subsequently received. In effect, in the view of the Court of Appeal, one stops the clock at the date the moneys are paid away: events which occur between the date of breach and the date of trial are irrelevant in assessing the loss suffered by reason of the breach.
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 the 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.
48. Mr Platford's submissions never really got to grips with the date as at which an assessment of whether Sharon, Robin or Simon had in fact suffered a loss as a result of the admitted breaches of trust of Mr Avens and Mr Edwards ought to be made in the light of the passage quoted in the preceding paragraph.
49. In his written opening on behalf of the claimants Mr Platford made these submissions in relation to what he characterised as "The trustees' claim to set off interest earned on unpaid CGT":
39. The trustees invested some of the trust funds (which should have been paid to IR as CGT) between August 1988 and payment of CGT in 1994 and later, and therefore received income which they would not have received if they had paid CGT timeously. That was income made with trust assets, and the trustees are accountable to the beneficiaries for it (as they accept). The trustees seek credit for that "windfall" income; but there is no balancing expense in the accounts against which to credit the income ...
40. Even if the trustees were entitled to be reimbursed for the interest paid to JR, the disbursements were in 1994 and later, when the trustees no longer had the earned interest in their hands but had advanced it and used it to pay some of the CGT. Accordingly, the trustees seek to recover from the beneficiaries rather than set off profit against loss. They have no right to recover from the beneficiaries ...
41. It might have been different if the trustees had decided to delay payment of CGT in the belief that they could earn more, after income tax, than would be payable in interest to JR, and had administered the trusts accordingly (rather than advancing capital and income). That is not the trustees' case.
42. Assume (contrary to the trustees' case and admission) the trustees' case was that they decided to delay paying CGT in the mistaken belief that they could earn more than they would be liable to pay, and simply misjudged the liability and/or income. The breach of trust would have been imprudently misjudging the margin in the (composite) transaction, ie over-estimating the net return on the retained money and/or under-estimating the interest payable to IR; and the trustees might be liable only for the margin in the transaction, the excess of interest paid over interest received: ... But because this was not the trustees' policy, when they came to pay the interest, they had no funds.
43. In the event, because the trustees made no provision for interest payable to IR, they got in limited income, advanced capital and income, retained insufficient money to pay all the CGT and any interest, and got in no income on money allegedly "advanced by way of loan", and the beneficiaries got no identifiable and measurable income from the advanced money. Thus the trustees admit that incurring liability for interest and penalties rather than making bad judgment in a composite transaction was breach of duty.
50. Mr Platford's written opening submissions thus seemed to disregard in its entirety the decision of the House of Lords in Target Holdings Ltd v. Redferns. The analysis for which he contended was that Mr Avens and Mr Edwards were only entitled to take into account interest earned by keeping on deposit money which ought to have been paid as CGT if they had made a deliberate decision to seek to invest money to secure overall a net advantage for the trust funds by earning more by way of interest net of income tax than would have to be paid by way of interest and penalties on late payment of CGT. He also asserted that Mr Avens and Mr Edwards were, on analysis, not seeking to set off funds in their hands which represented interest earned on money on deposit against liabilities to pay interest and penalties in respect of delayed payment of CGT, because all relevant interest had been distributed to the beneficiaries. Therefore, he contended, they were seeking reimbursement from the beneficiaries themselves which was not permissible. When I suggested to him that it was in fact impossible to tell, if it was important to do so, whether funds distributed had comprised original capital sums or interest earned because interest was credited to the relevant accounts so as to produce a mixed fund, he appeared to have no answer. As the counterclaim once made in this action has now been abandoned, I confess that I found totally impenetrable the submission that Mr Avens and Mr Edwards were seeking reimbursement from the claimants of sums paid by way of interest and penalties in respect of CGT.
51. A worrying aspect of all of Mr Platford's submissions in relation to how equitable compensation for the breach of trust constituted by failure to pay CGT when due should be calculated was that they all seemed to come back to the point that there was insufficient money in each of the trust funds to pay CGT in part, at least, because of distributions to the claimants, but, far from being a circumstance relevant to the assessment of equitable compensation that should be disregarded because it was itself a breach of trust. The logic the of the submission was that if there was a liability to pay £100 by way of CGT which could not be met because the trustees had advanced £100 to the contingent sole beneficiary, after the trustees had paid the liability out of their own resources and the trust assets had become vested in the beneficiary the beneficiary could claim from the trustees another £100 because he should not have been paid the first £100. That does not look very fair, or just, or equitable.
52. In his oral closing submissions Mr Platford did seek to face up to the implications of the decision in Target Holdings Ltd v. Redferns. He submitted that the decision was distinguishable from the principles applicable in the present case because of the factual differences between the two cases. The first suggested ground of distinction seemed to be that in Target Holdings Ltd v. Redferns money had been paid away in breach of trust, whereas in this case there was no complaint that money had been paid away. Rather the effect of the breaches of trust complained of was to create liabilities which could and should have been avoided. That analysis seemed to ignore the fact that the liabilities incurred were in fact those of Mr Avens and Mr Edwards. The real question was, in my judgment to what extent it was open to Mr Avens and Mr Edwards to say that they were in practice entitled to utilise monies earned as interest on sums held on deposit for the various trust funds to meet their own liabilities in reliance on the fact that the interest could not have been earned if the liabilities to pay CGT had been performed when they should have been and Mr Avens and Mr Edwards had reimbursed themselves, as they were entitled to do, from the assets of the trust funds in relation to the CGT which they paid. Technically the utilisation of trust funds to meet expenses which were not proper for the trusts to meet, namely the liability to pay interest and penalties consequent upon another breach of trust, namely failing to pay when due CGT payable in respect of the trust funds, was itself a breach of trust. However, it was a breach of trust without practical consequences if Mr Avens and Mr Edwards were entitled to have the interest earned taken into account in the assessment of equitable compensation in respect of both types of breach.
53. Mr Platford also contended that the principle to be derived from the decision in Target Holdings Ltd v. Redferns was that one looked forward from the date of the breach of trust to see whether, in the light of events subsequent to the breach, the loss which appeared to have been caused at the moment of the breach had in fact been mitigated or avoided. In the present case, he submitted, the date of the breach of trust was June 1994 and the interest which it was sought to take into account against the liability to pay interest and penalties in respect of delayed payment of CGT all arose before that date. As I have already indicated, it is not correct that all relevant interest earned on money on deposit had been earned prior to June 1994. Interest continued to be earned up to 1996. However that may be, the justification for the constant assertion that the date of the breaches of trust complained of was June 1994 was never really explained, and was contradicted by the analysis for which Mr Platford contended later in his submissions. That analysis was that there were actually four breaches of trust. The first was failing to declare any capital gain in respect of any of the relevant trust funds when such declaration should have been made. The second was failing to pay CGT when due. The third was failing to make provision for the payment of CGT. The fourth was making excessive distributions, but that was really another way of expressing the third. While the evidence did not establish precisely when the relevant capital gains should have been declared, it was obviously at some stage prior to the date as at which it was agreed before me CGT was payable, 1 December 1988. Failure to declare capital gains probably exposed the trustees to a contingent liability to pay penalties. However, it had no effect whatever on any of the trust funds, so the question of reconstituting any of the trust funds as at the date at which the relevant capital gains should have been declared does not arise. At that date they were each constituted as they should have been. Again, failure to pay CGT by 1 December 1988 had no negative impact on any of the trust funds on 1 December 1988. On 1 December 1988 each fund was in credit to a greater extent than it should have been because the proper expense of paying CGT had not been met. The question of whether there were adequate monies in any of the trust funds to pay the CGT properly due could not arise until the issue of making payment arose. That first happened in June 1994. After that stage the deficits in monies available to pay CGT and interest and penalties were met by payments made on behalf of Mr Avens and Mr Edwards. However, the monies made available took account of the availability to Mr Avens and Mr Edwards of monies earned as interest on sums which ought to have been paid as CGT by 1 December 1988, and the repayment by Sharon of the loan to her of £35,000 and interest thereon. Those latter sums were in fact applied, technically in breach of trust, in payment of part of the amounts of interest and penalties payable. In reality the issues to which the question of the assessment of equitable compensation give rise in this action are whether it was appropriate for Mr Avens and Mr Edwards to assess the sums which needed to be contributed by them in the way they did.
54. So far as the utilisation of funds provided by repayment by Sharon of the loan to her and interest thereon was concerned Mr Platford submitted that, as the loan had been made to her after she had attained the age of 30 years, the money lent was in fact money to which she was absolutely entitled, so she was never under any obligation to repay it or to pay interest on it. Thus she was not bound to make the repayment which she did, and Mr Avens and Mr Edwards were not entitled to use money which in fact belonged absolutely to Sharon to settle outstanding CGT and interest and penalties in respect of her trust fund. Mr Patten countered by submitting that Mr Platford's submission demonstrated a misunderstanding of the nature of a bare trust. He submitted that the effect of a trust being a bare trust was not that it was as if it did not exist, which was what Mr Platford seemed to contend, but that the beneficiary had a right to call for the assets of the trust to be vested in him or her. Unless and until he or she did so, submitted Mr Patten, the legal owner of the assets of the trust was the trustee and the trustee was bound to continue to administer the trust. I accept the submissions of Mr Patten on this point. In the light of the need to make provision for the payment of CGT in February 1992, when the loan to Sharon was made, it would not have been appropriate for Mr Avens and Mr Edwards to have advanced any sum to Sharon. They needed the money they held to meet the entirely proper expense of CGT. They decided to lend Sharon money which they would have been entitled to hold onto on terms that she paid interest on the loan. If the money had not been lent to Sharon it could, and should, have been placed on deposit to earn money for her trust fund. There was therefore nothing inappropriate in Mr Avens and Mr Edwards saying in effect to Sharon, "We will lend you the money you want, but actually we need it to meet the liability to pay CGT, so you will have to pay it back. If we did not lend it to you, we would place it on deposit, as we are bound to do, and earn money for the trust fund which we still administer. Therefore you should pay interest which otherwise we could and should earn from elsewhere." However, although I accept the submissions of Mr Patten to which I have referred in this paragraph, the fact remains that the funds repaid by Sharon, and the interest which she also paid, were trust assets, and utilising them to pay interest and penalties on delayed payment of CGT amounted technically to a breach of trust.
55. In his closing submissions Mr Platford recognised the difficulty to which I referred in paragraph 51 above. He suggested that there was no evidence that any of the beneficiaries had benefited from any sums distributed to them in the sense of having made profitable investments or the like, if that was a relevant consideration, as he seemed to suggest it was. He submitted that it was appropriate for me to consider qualitatively whether any of the beneficiaries had been made happier by spending whatever money had been distributed to him or her, if I were persuaded that it was relevant for me to consider benefits to beneficiaries.
56. I was reminded by both Mr Platford and Mr Patten that in Target Holdings Ltd v. Redferns in the Court of Appeal Peter Gibson LJ had expressed the view, [1994] 1 WLR 1089 at 1 l104C, that:
The elastic rules of equity are sufficiently flexible to require a beneficiary who subsequent to the loss receives a benefit from the trustee's actions to give credit for that benefit.
Mr Platford's submissions in relation to the issue of equitable compensation seemed to me to be an attempt to insist on the rigid application of inflexible rules to produce a conclusion that beneficiaries who were in fact no worse off at the conclusion of the administration of their respective trust funds than they would have been had there been no breaches of trust were entitled to further payment from their trustees. The principles applicable to the assessment of equitable compensation in this case, I am satisfied, are those expounded in the speech of Lord Browne-Wilkinson in Target Holdings Ltd v. Redferns in the passages which I have quoted earlier in this judgment. Those principles are binding upon me. The particular principles which are relevant are that equitable compensation falls to be assessed as at the date of trial in the light of all the information then available as to whether the relevant trust fund, or, if by the date of trial the trust has come to an end, beneficiary, has actually sustained a loss as a result of a breach of trust, and, if s o, the amount of such loss. In making that assessment it is appropriate in my judgment in this case, as Brightman J considered that it was in Bartlett v. Barclays Bank Trust Co Ltd, to look at all relevant matters in the round. I reject the suggestion that the broad principles set out by Lord Browne-Wilkinson are only applicable to the particular type of a breach of trust which consists in a payment away of monies from the trust fund. I also reject the suggestion that the proper application of those principles confines attention to what happens after the breach of trust in respect of which the need to assess equitable compensation arises. The scope of the enquiry is unfettered. It is an enquiry simply into the issue whether, as matters have turned out, the trust fund or the beneficiary is worse off as a result of the breach of trust than he or she would have been had it not occurred. In the present case, as I have demonstrated, and as was not disputed save by the contention that some artificial limitation had to be imposed upon the factors which it was relevant to consider, each of Sharon, Robin and Simon has turned out, in the light of the payments made on behalf of Mr Avens and Mr Edwards, to have received more from their respective trust funds than they would but for the breaches of trust which are admitted. Only a seriously distorted view of what was fair, just or equitable could lead, in my judgment, to the conclusion that, in assessing compensation for a breach of trust which consisted in failing to pay sums properly due as CGT when due, by reason of which a liability to pay interest and penalties was incurred which were partly met, technically in further breach of trust, by sums earned as interest on the monies which ought to have been paid as CGT, it was not relevant, to take into account the fact that but for the failure to pay the CGT when due the interest utilised in part payment of interest and penalties could never have been earned. The claim of each of the claimants for equitable compensation in respect of the admitted breaches of trust of Mr Avens and Mr Edwards therefore fails.
57. Mr Platford accepted that, in the light of the figures as to the sums in fact paid to each of Sharon, Robin, and Simon out of their respective trust funds, compared with the sums which would have been paid had there been no breaches of trust, the objections to payment of the fees of Mr Avens and Mr Edwards did not arise unless he succeeded in his submissions in relation to the assessment of equitable compensation. Nonetheless it is appropriate to consider his submissions in respect of those objections.
58. The questions of principle raised by Mr Platford in relation to the charges made by Mr Avens and Mr Edwards in respect of their time and attention to the affairs of each of the trusts must, it seems to me, be addressed on the basis that some part of the charges, at any rate, would have been justified, at least if there had been no breach of trust, and at least up to 21 September 1996.
59. Logically it is convenient to consider first the submission of Mr Platford that, if a trustee has acted in breach of trust, by virtue of that fact he disentitles himself from charging any fees even for work properly done. If there were any such rule it would mean that the slightest breach of trust, even one not culpable in any real sense, would mean that no further fees could be claimed for any work, however substantial or beneficial to the trust, and, possibly — Mr Platford did not seek to elaborate upon the detailed implications of the rule for which he was contending — that fees already paid had to be refunded. It would be surprising, if it existed, that the rule for which Mr Platford contended, with the draconian consequences which it would seem to have, had not been identified at some point over the many centuries of the development of equitable principles by the courts of this country and sister jurisdictions in the Commonwealth. Yet Mr Platford was unable to point to any authority for his proposition. I unhesitatingly reject his submissions on this point. I am satisfied that any such rule would be contrary to principle.
60. The submission that a trustee is not entitled to charge, and to pay himself, fees which the trust fund which he holds is unable to meet for so long as it is unable to meet them, is less immediately offensive than a suggestion that any breach of trust disentitles a trustee to charge any fees at all. However, again the submission was not supported by any authority, and so it is necessary to consider it as a matter of principle. If the relevant trust instrument permits a trustee to charge fees, and if the fees are otherwise proper, there can, it seems to me, be no legitimate objection to a trustee making a charge. Depending upon the circumstances, to pay oneself one's fees and thereby leave the trust fund unable to meet other legitimate expenses may amount to a breach of trust or bring about a situation in which the trustee is unable to reimburse himself out of trust funds for legitimate expenses. However, that would not make the charge for fees, as a charge, improper. If it was inappropriate for Mr Avens and Mr Edwards to debit any of the trust funds with which this action is concerned with sums for their own fees, all that that can have caused was a shortfall of funds available to meet CGT, and any such deficiency was made good by sums contributed on behalf of Mr Avens and Mr Edwards.
61. On the facts of this case there is, in my judgment, no warrant for inferring from the fact that Mr Avens and Mr Edwards delayed until December 1993 before charging any fees that they had somehow agreed to forgo the benefit of clause 3 of each of the relevant trust deeds.
62. The submission that it was not open to Mr Avens and Mr Edwards to charge fees in respect of anything done by them in the administration of a trust fund after they had become bare trustees of that fund was based, it seems to me, upon the misconceptions as to the nature of a bare trust and the duties of trustees under a bare trust to which I have already referred. As long as the trust continues in fact the trustees are bound to administer it. If the trustees are entitled to charge for time spent in administration of the trust, that entitlement continues so long as the trust continues.
63. In the result it seems to me that the points raised by Mr Platford in relation to the fees charged by Mr Avens and Mr Edwards also fail.
64. For the reasons which I have given the outstanding claims of the claimants in this action all fail.