Equitable compensation for breach of trust - Property II - Lecture 9

What is known as ‘breach of trust’? And what is the first point of understanding equitable compensation for breach of trust?

Breach of trust is where the trustee has failed to obey one of the terms of the trust or acted against one of the terms of the trust.

The starting point in understanding equitable compensation for breach of trust is that -

1. If a trustee is in a breach of trust, there will be money paid to remedy the breach

2. if there is a breach of contract, then you have committed a tort in which we pay money to reverse the effects of the tort or compensate for the tort

What was the old law and approach prior to equitable compensation for breach of trust - ‘taking account’? And what did this entail, and an example of this?

Prior to equitable compensation existing …

In the past, we had 'taking account' where you would take account against the trustee, there is a debt and credit component (money going in and money going out).

An account is akin to a bank account, discovering where the transactions went and what the balances should have been, this was a legal process involved a Lord Chancellor enforcing the accounts on the beneficiaries’ behalf, checking for receipts, authorisation and remaining debt, striking through any unreferenced finances made by the trustee which would be 'struck off' otherwise known as 'falsification' (falsification is where the trustee denies the transaction ever occurred, hence putting the account in the position it ought to have been in)

An example is an apartment is supposed to be worth 2k, but is charged 1k for rent. This would then be surcharged the account and it ought to have received 2k. And say that the bank balance in the account shows 2k of trust money left, but there should be more within it such as 8k more, that would be a measure of the trustees liability and this is how the account process used to work.

Doss v Doss outlines the old law approach prior to equitable compensation for breach of trust - ‘the account’, what did it outline?

An account presupposes a duty on the trustee's behalf or right on the behalf of the beneficiary. This is a pre-existing right that continues and worked out factually through the account as per Doss v Doss.

Re Collie, Ex Parte Adamson outlines the old law approach prior to equitable compensation for breach of trust - ‘the account’, what did it outline?

Re Collie provided a distinction between common law and equity.

Common law gave damages assessed by a jury in the form of restitution of actual money or thing or the value of the thing that the cheated party has been cheated out of.

However, equity doesn't provide damages, it provides a different liability - which was always an equitable debt or liability in the nature of debt.

Head v Gould outlines the old law approach prior to equitable compensation for breach of trust - ‘the account’, what did it outline?

Head v Gould outlined that one can work out the proper account, paying up the money, then make the actual account match what the correct account should have been. Theredore, rhe trustee will be compelled to pay the sum to reach the balance, and the account will be set straight.

Re Dawson outlines the old law approach prior to equitable compensation for breach of trust - ‘the account’, what did it outline?

R v Dawson is an Australian Common Law case regarding breach of trust and the application of equity. This case doesnt use the language of accounts, it is the language of causation (relating to tort law).

Restitution is a contrast to 'compensate', there is a distinction, since restitution is not to be limited by common law principles of remoteness of damage, even if the term 'restitution' follows similar tort law language, there is a DIFFERENCE.

• R v Dawson outlined that when a breach of trust has been committed, then the trustee will be liable to place the trust estate in the same position as it should have been in, if no breach had been committed. Therefore, questions of whether the loss would have happened if there was no breach must appear.

• There is a distinction between common law damages, and relief in equity - in common law, the trustee must restore the estate of assets they have deprived of it, BUT any increases in market values would be excluded from damages. BUT in equity, a trustee must make good of the loss by restorting the estate of its assers irrespective of market values increasing.

What did Libertarian Investments Ltd v Hall outline in relation to ‘the account’, ‘equitable compensation’, ‘falsifications’ and ‘surcharging’?

• Once the trust or fiduciary relationship is established or conceded, the beneficiary/principal is entitled to an account as of right - the court is not granting a remedy for wrong, BUT enforcing performance of an obligation.

• An account does not provide the plaintiff with a remedy, it acts as the first step in a process that enables them to identify and quantify any deficit in the trust fund and seek the appropriate means by which it may be good.

• Once the plaintiff has been provided an account, they can falsify or surcharge it.

  • (in terms of falsification) If the account discloses an unauthorised disbursement, the plaintiff may falsify it and ask for the disbursement to be disallowed, producing a deficit a defendant must make good - in form of specie or money. If the defendant is order to make good by payment, the award is sometimes (1) payment of equitable compensation, but is NOT compensation for loss but restorative.

  • (in terms of falsification) The amount of the award is measured by the objective value of the property lost at the date when the account is taken and WITH full benefit of hindsight

  • (in terms of surcharging) If the account is shown to be defective because it does not include property which the defendant in breach of his duty failed to obtain for the benefit of the trust, the plaintiff can surcharge the account - by asking it be taken on the basis of ‘wilful default’ where the property should be treated as if the defendant had performed his duty and obtained it for the benefit of the trust.

  • (in terms of surcharging) The defendant will be ordered to make good the deficiency by the payment of money, and the payment of ‘equitable compensation’ is akin to payment of damages as compensation for loss.

Target Holdings Ltd v Redferns is the leading HOC authority on equitable compensation for breach of loss, what is the context, issue, importance and outcome (outcome being specifically Lord Browne-Wilkinson and Blackburn’s reasoning)? And what did Lord Browne-Wilkinson state when distinguishing commercial and traditional trusts alongside the accounting process?

Context → Target was a finance company, lending out money on a standard mortgage. However, there was a fraud in overvaluing the property, knowing the property isnt worth that and subsequently, the fraudsters vanished from the UK (unable to be found). The property was worth 700k, and this value was mismanaged with a chain of companies inflating the property each time. This made the bank believe it was £2mil even if it was £700k, The bank goes to sell but realises they only obtained 700k. The solicior completed the bank’s role. There was a 3 way transaction (vendor, purchaser and bank) and then the money was released, the solicitor worked for multiple clients, hence the bank gave the solicitor money creating a trust and legal title for their money, creating an express trust in favour of the bank. It was alleged the solicitor had committed breach of trust, they paid the money out to borrowers one day early and they got the signed documents in a week. BUT the terms of the trust was that the solicitor has the power to pay out of the money when they have received the signed documents, so in equitable terms, the payment of money (for the properties by the bank) was ultra vires.

Issue → Where trust funds meant for a transaction are transferred out in breach of trust, is the trustee under a duty to reconstitute the whole sum, even when the beneficiary would later suffer in the transaction, even if the money had been transferred at completion (without breach of trust)?

Importance → In a claim for breach of trust, compensation is limited to:

1. Loss that would not have been caused ‘but for’ the breach of trust

2. Loss which is assessed at the time of judgement rather than at the time the action was accrued

Outcome →

• Lord Blackburn concluded that the transaction was redolent of fraud, but in considering the principals involved, suspicions of such wrongdoing must be put aside. He states that equity approaches liability in the form of making good of a breach of trust from a different starting point by the account, and in his judgement, those two principles are applicable as much in equity as that common law. He argued that 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. The defendant is NOT responsible for damages not caused by his wrong, or to pay by way of compensation, more than the loss suffered from such role. The detailed rules of equity as to causation and the quantification of loss DIFFER from those applicable that common law, but the principles underlying both systems are the SAME. However, he applies causation AND remoteness, and comes to the conclusion that ‘but for’ the breach the same loss would have been suffered and therefore, there is NO liability towards the defendant.

• Lord Browne-Wilkinson outlined that Target case was a case where they were defrauded by third parties to be able to advance money on the security of the property. If there had been no breach by Redferns of their instructions and the transaction had gone through, Target would have suffered a loss in round figures of 1.2 million, i.e. 700k recovered when they sold the property. Such loss would have been wholly caused by the fraud of the third parties. The breach of trust committed by red funds left Target in exactly the same position as it would have been economically. If there had been no such breach, receiving the same amount of money, same security and same amount on realisation by redferns cannot be said to have caused the actual loss suffered by target, UNLESS it can be shown that, BUT FOR the breach, the transaction would not have gone through (generally speaking) since the fraudsters cannot be found, the bank is next morally responsible as opposed to the solicitors who filled out the mortgage forms for the bank and their role was NOT the valuation of the security, hence the HOL emphasises that there is greater sympathy towards solicitors rather than banks.

And what did Lord Browne-Wilkinson in Target Holdings v Redfern state in his judgment when distinguishing commercial and traditional trusts AND the accounting process?

Discussions on Traditional versus Commercial Trusts and the Accounting Process

Lord Blackburn rejects the reconstitution of a trust, and outlines the trust within the Target case was a commercial trust. Though Lord Browne-Wilkinson expanded on this, drawing a distinction between commerial and traditional trusts, with traditional ones being an ongoing family trust, and a commercial trust being an overall contractual transaction where it eventually comes to an end. He believed that in a commercial trust, it would be artifical to reconstitute the trust fund and treat it as a continuing obligation, when a compensation payment can just be paid.

Lord Browne-Wilkinson discussed the accounting process - cases where the beneficiary authorises the breach, or trustee commits judicious breach of trust (judicious breach = financially beneficially to the beneficiary = example being settlor refuses investment into fossil fuels, and the trustee rebels by investing in shell companies, this is a breach of trust since there is no power to buy in fossil fuels) - In that process, the beneficiary can insist that the unauthorised investment be sold and the proceeds placed in an authorised investment, 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. The right of each beneficiary is to have the whole fund vested in trustee, so as to be available to satisfy the equitable interest when and if it falls into position.

• Accordingly, in the case of a breach of trust (such a trust involving the wrongful paying away of trust assets), there is a liability on trustees to restore to the trust fund/estate, and he says all the rules are for traditional trusts, but believes they are not relevant to commercial trusts. He draws a distinction between traditional and commercial trusts, hence traditional trusts can ONLY be applied in the accounting process and NOT commercial trusts.

Birk discusses the two types of ‘breach of trusts’, what are they and how are they different? And which one of these ‘breach of trusts’ was the Target Holdings v Redfern case, and what did Birk state about Lord Browne-Wilkinson’s judgment?

Birk viewed Target Holdings v Redferns as an ultra vires disposition. Therefore when Lord Browne-Wilkinson uses the languages of faults, breach and wrong in the case, Birk argues that none of this applies since there is no breach in the sense of negligence. They are merely liable, because they received the sum as a trustee and cannot take credit of an ultra vires disbursement.

Despite both bearing on the trustee’s account, the difference is that they impact upon the taking of the account.

Birk outlines that there are two types of ‘breaches of trust’ which are -

1. ULTRA VIRES DISPOSITIONS OF TRUST PROPERTY → The beneficiaries can disavow the outlay, such as the trustee of £100,000 renders his account showing that the fund stands at £90,000 because he paid £10,000 to his mistress, BUT this is an unauthorised investments and it can be disavowed at the option of the beneficiary. There is a double obligation born of the receiving the property on a trust which is (1) to account and (2) to honour the account. The trustee is NOT liable under this head for the wrong (not to say ultra vires dispositions aren’t wrong, but there is no fault since there is no standard of care or negligence needed to be proved), but liable because they received the given sum as a trustee, and in the taking of the account, they may not take credit for an ultra vires disbursement. Therefore, you simply construe the power and then ask whether the factual conditions are met, this is a breach and not a fault or wrong, there is either automatic properitary effect or not. The account merely reflects the proprietary state of beneficial interest and falsification.

2. FAILURES IN THE MANAGEMENT OF THE TRUST → This is a failure of management. The account will stand as the trustee renders it unless the beneficiaries can establish the management failure caused a loss. Without proof of his loss, there is no adjustment to be made. The proof is that the trustees were negligent in the management of the trust. However, if the trustees fail to confirm the requirements of the trust deed in respect of management activities (such as not compiling an inventory), it is ONLY necessary to show non-compliance, NOT negligence (breach of equitable duty which looks like negligence). There is no focus on the formal relationship of the breach to the trustee’s accountability. The ONLY substantial question is whether the trustee has committed a breach of trust. → You obtain a remedy of surcharging which looks like common law compensation, since it requires a fault and a role you have to prove.

What were Lord Millett’s criticisms of Lord Browne-Wilkinson’s judgment in Target Holdings v Redfern? And how does Lord Millett walk us through the accounting process (an alternative approach to Target Holdings v Redfern being wrongly decided)

Specific criticisms to Lord Browne-Wilkinson’s judgment -

Lord Millett rejects Lord Browne-Wilkinson judgment as misleading and conflating equity and common law. Lord Millett criticised Lord Browne-Wilkinson’s decision to go to common law (as in causation and remoteness in the form of ‘but for’ test), as opposed to simply relying on the accounting process. Lord Millett’s view is that we should use the account process, but ALSO give credit when the trustee does something right, even if they are not strictly authorised and that this erases their liability, since the beneficiary received the charge as they intended (and as requested by the bank to the solicitors).

Lord Millett’s criticism focuses on how Lord Browne-Wilkinson construes trustee authority, as the trustee’s authority in Target Holdings v Redfern was to get a charge before paying out the money. It is possible to say that once the trustees paid away the money, they have no authority left to get a charge. This is the problem. Lord Millett argues that this was an unauthorised application of trust money which entitled the plaintiff to falsify the account, allowing the disbursement to be disallowed and the solicitor be treated as accountable as if the money was still in his client account and available to be laid out in the manner directed by the plaintiff. BUT it was laid out, therefore the plaintiff could not object to the disbursement which it obtained and an authroised application on taking of the account. Therefore, the trustee’s obligation to restore the trust property is NOT an obligation to restore it in the very form which he disbursed it, BUT an obligation to restore it in any form authorised by the trust.

Lord Millett emphasises that the primary obligation of a trustee is to account for his stewardship, and the primary remedy of the beneficiary is to have the account taken, to surcharge and falsify the account, and to require the trustee restore the trust estate any deficiency which may appear when the account is taken. […] The account must be taken down to the date on which it is rendered, therefore there is no question of ‘stopping the clock’.

Millett argues that we must conduct the accounting process ourselves, and demonstrates the process (regarding Target Holdings v Redfern as being wrongly decided) -

1. The first thing is the opening to any of the accounts. Basically, new money has come into the account. If there is a credit of £1.5 million, and this money is paid out of the account to the clients by the solicitors, what does this falsify?

2. The second thing is entry. The money was paid out. Was it authorised? No. Why? Because they didn't get the charge documents. They were only authorised to pay out the money when they got in the charge. And they didn't. So if we falsify this transaction by the solicitor, we disallowed it and strike through the entry that shows it leaving the account. And therefore at that date, the account is in deficit. It ought to have 1.5 million still in it, and it doesn't.

3. But Lord Millett tells us that we do not stop there, since at this point, the trustee comes under a liability to restore the trust account to its authorised state. However Lord Millett tstaes that they are allowed to do that in any form authorised by the terms of the trust. And what were the trustees authorised to do? The trustees were authorised with getting a charge over the property. This was the bank’s instructions to the solicitor. Subsequently, the bank is supposed to get the charge and a week later, they obtain the charge. And what it says in the charge documents is what you then write into the account. Charge documents received a value of £1.5 million. Who set the value? The bank (aka the beneficiary) did. Therefore, the trust fund is restored and there is no liability.

What was Charles Mitchell’s criticisms of Lord Millett’s article where he criticised Lord Browne-Wilkinson’s judgment in Target Holdings v Redfern? And what is his stance on Target Holdings v Redfern?

He believes the current law has been pulled out of shape by authorities who argue that no award will be made unless a casual link can be established between the steward’s breach of duty and the principal’s loss. Since these claims don’t rest on a breach of duty, he argued that the casual requirement is conceptually inapt and should be abandoned. He regarded it too harsh to fix solicitors like AIB with liability to restore the full amount of purchase money, he argued the best way is to use section 61 of the Trustee Act 1925 to relieve them from all or some of their liability in cases where they have acted honestly and reasonably.

Charles Mitchell's point is that we have Section 61 of the Trustee Act 1925, and focusing on Target Holding v Redfern, Mitchell argued that the breach of trust (by the solicitors) was honest and reasonable.

However, Charles Mitchell’s argument regarding Section 61 Trustee Act 1925 was not explored, since new case law would be required to assess whether a solicitor was honest and followed their obligations.

What was Elliott’s perspective on distinguishing falsification and surcharging? And how does Birk distinguish breaches and powers?

According to Elliott …

• Falsification means substitutive compensation

• Surcharging means reperative compensation.

The key difference is that falsification happens automatically or as of right and there is NO fault/wrong needed to be established. Whilst surcharging requires you to prove, or need to prove fault/breach of duty and FOCUSES on powers, NOT DUTIES. In relation to powers, you don’t get a debt till the court rewards it to you, hence there is a search process and surcharging. Whereas the falsification process is automatic since the trustee pays away the money automatically and it is a right to compensatkon from the moment onwards in the nature of the debt.

Since compensation consists in a money equivalent to the injury or loss that a person has suffered, Lord Blackburn in Livingston stated it can be called reparative compensation (aka surcharging) because it is calculated to repair the loss and is compensatory. In the second sense, substantive compensation (aka substitutive compensation) consists of money equivalent to property of which a person has been deprived or denied. Substitutes means the ultra vires disposition. Reparative means the breach of duty (aka failure of management of trust).

Distinction between duties and powers

Though this is uncertain, Birk outlines powers are self-enforcing since a proprietary consequence happens, as opposed to breaches which are enforced by the court and require you prove things before you receive compensation.

What are the three forms of account?

1. Account in common form. (An account in common form is one where you simply checked over whether the accounts whether the entries were within the palette. So this correlates with Birk's idea of ultra vires disposition.)

2) Account (in common form) on the basis of wilful defaults

3) Account of profits

AIB Group v Redler affirmed Target Holdings v Redfern and is the leading case for equitable compensation for breach of trust, what is the context, issue and outcome?

Context → The solicitors (Redler) worked for the bank (AIB) within a mortgage transaction relating to the borrowers’ property, and a charge was in favour of Barclays bank (which was £1.5mil) and the property is valued at 4.25 million. The borrowers wished to borrow more with the other bank (AIB) and they lend them 3.3 million. Of the 3.3 million, it was intended that AIB will pay and take over the Barclays Bank charge, this meant the solicitors were given the money to handle the conveyancing and pay out what was needed to discharge the Barclays Bank charge to discharge it and enter a new charge for 3.3 million for AIB. The solicitors make a mistake within the conveyance, contacting barclays to obtain the redemption statement to pay out their charge and the redemption statement is faxed over, picking up only the first page of the facts of £1.2mil and not an additional 309k, hence they sent of £1.2mil to Barclays Bank, expecting Barclays to eliminate the charge. Barclays don’t discharge the charge and Barclays allows AIB to register theirs, the property is sold over for less unable to pay the remainder of the debt and barclays obtains the first component of the money left whilst AIB receives the remainder.

Issue → How much compensation is C entitled to for breach of trust? C argues it should receive the full amount of its loan less the amount recovered by it. D contend that their liability is limited to the amount by which C suffered loss by comparison with its position if the solicitors had done as they should, which was to have paid Barclays the full amount of the Barclays debt so as to redeem the Barclays charge. The difference, leaving interest aside, is between £2.5m and £275,000 in round figures.

Outcome → The measure of compensation for AIB is 300,000. Lord Toulson argued there needs to be no distinction between different types of trusts, such a commercial and personal trust, hence Target Holding v Redfern and Lord Browne-Wilkinson’s judgment are affirmed and applied nonetheless. THOUGH, Lord Reed provides an additional judgement, stating it is NOT necessarily the same compensation as involved in tort or contract law, since we are dealing with equitable duties, and the remedy is related to the duty and ability to carefully consider the duty.

What were Lord Millett’s criticisms of AIB Group v Redler’s ruling?

Lord Millett emphasises the distinction between the roles of common law versus equity - common law reverses harm and loss occurred, whilst equity orders specific performance and injunction, and otherwise reverses harm when it is difficult to enforce. Common law is more focused on money enforcement.

His observation of AIB Group v Redler was that -

The solicitors had not misappropriated the money, they had not paid it to themselves or to a wrong party, they paid money to Barclays to discharge of its mortgage as they were instructed to do by AIB. AIB was entitled to disallow the overpayment of £300k to the borrowers and require the defendants to make good the resulting deficit of £300k in the trust fund. AIB was NOT entitled to disallow the payment of £1.2mil of AIB’s money to Barclays without obtaining a discharge of the mortgage was also a breach of trust BUT achieved the reduction in barclay’s charge and acqusition of a corresponding equitable charge by subrogation, which was replaced by the second legal charge and this had no further impact on the trust account.

Therefore, Lord Millett argues the ONLY unauthorised act was the £300k less that was not given to the Barclays Bank by the solicitors.

What is the criticism that Gummow addressed when assessing AIB Group v Redler and Lord Millett’s criticisms?

Gummow argued that the solicitor were tasked with getting the first charge to obtain AIB a first ranking charge, instead they obtained a subrogation and grant of 2nd charge. As a result, Gummow questions “where, one would ask, would be the equity in the solicitors to oblige the client to accept this?”

THOUGH, Lord Millett argued that the risk didn’t materialise so it didn’t matter.

The differences of risk are important -

• From the lenders point of view, it would argue there is a distinction for a bank between a first and second charge and why should the beneficiary accept the second charge, when it falsified the £300k and the beneficiary/AIB should be able to reject this as per their request not being fulfilled, so the solicitor should be able to repay the 1.2 million provided.

• Gummow offers an alternative to Lord Millett's perspective that the granting of subrogation and second charge is DIFFERENT from requesting a first charge, and Gummow questions whether AIB must accept the secondary charge? Whilst, the court stated that AIB should accept the second charge, it isn’t discussed the fact that the bank/beneficiary is deprived from the election to make a choice, BUT the bank had a chance to reject it and they didn’t choose to waver it, THOUGH court said they COULD reject it.

What is the criticism that Worthington addressed when assessing AIB Group v Redler and Lord Millett’s criticisms?

Worthington disagreed with Lord Millett, arguing duty must get us to equity to get to the counterfactual.

He argued the court’s analysis in AIB Group v Redler is grounded in one principle - any analysis of remedial consequences must start with a precise understanding of the obligation that has been breached and the detailed performance requirements demanded by it. Only this would reveal the position that the claimant would have been in if the obligation had not been breached.

The gap between factual delivery and what ought to have been delivered gives the true measure of equitable compensation. It is the same as with compensation or performance remedies in contract and tort, although what ‘ought’ to be done is different.

What is the criticism that Ho and Nolan addressed when assessing AIB Group v Redler and Lord Millett’s criticisms?

Remedies for breach of trust reflect the performance interest in the law of trusts. By consenting to act in the role, the trustees have promised to perform both express and implied terms of the trust. Law of trusts seeks to hold trustees to perform their promise or provide nearest monetary approximation to performance as opposed to compensating beneficiaries for loss caused by trustee non-performance.

For misapplied trust property, the accounting mechanism mediates this by aiming to restore the trust fund to the state or value it would have if the trustees had acted in an authorised manner and performed the trust - an account of the actual state of the trust and the counterfactual proper state of the trust. The trustee is ordered to take action to restore the trust fund from its actual state TO its proper state.

Law of trusts focuses on restoring due administration of trust fund, and not reversing harm done to it - not a maladministered state. Therefore, trustees cannot argue even if they breached their trust and depleted the trust fund, the fund would have been depleted to the same extent in any other event for other reasons.

Contract law seeks to compensate the loss suffered by the victim of a breach of contract for which the party is responsible. BUT trust law addresses measure of compensation in two questions, (1) should the asset be represented in the counterfactual account? if not, it is ignored and left out of the calculation of the counterfactual account, (2) if yes, the second question is what monetary value should represent the asset in the account? The question of valuation on the date set for the taking of the account and this is crystalised by comparing that counterfactual account with actual account of assets.

Focusing on AIB -

They agreed with Lord Millett on the traditional accounting process analysis of Target Holding v Redfern.

On traditional accounting, the disbursement of £3.3mil would be falsifed, but it would not end here. The trustee’s liability to account is whether the disbursement from the trust estate is authorised or not, and they can point to their duty (discretionary powers) to establish the scope of their liability. AIB’s issue was not trustee’s powers, BUT duties - paying attention to the scope of the trustee’s basis and extent of their liability and scope of their duties. It is clearly the trustee’s DUTY to acquire the mortgage, not merely a power. The trustee had to expend the monies to the mortgage, and AIB could have called off the whole transaction until it took benefit of the second charge - though … its hard to see how AIB could reside once it had VOLUNTARILY taken a benefit (aka the second charge) from acqusition of the property - taking a benefit yet denying authority for the transaction that generated the benefit is inconsistent.

The loss of the trust fund was the difference between the first charge and second - £300k difference. The only way the second charge would be left out of the account is if AIB lawfully disclaimed any benefit of accounting, AIB cannot retain benefit of an asset yet seek to leave it out of the account. Therefore, they argued that it was not open for AIB to disregard the benefit of the second charge in the accounting process which found that the £300k was due and payable by the trustee.

Main v Giambrone & Law is a post-AIB case, what is the context and outcome? And the comparisons to AIB Group v Redler?

Context → There is an investment scheme of real-estate, which is fraudulant in nature, luring innocent investors to make investments into the property and then for it to all collapse. The law firm had the money of the investments that the investors made and it was held under trust, and the trust was governed under a Italian statutes, but money was released with the obtaining of the WRONG type of guarantee, making it worthless, giving nothing to the beneficiaries/investors. The solicitors were told to pay out the money when they obtain a guarantee, but the solicitors didn’t do this and did it without the guarantee, losing the same amount of money.

Outcome → The court of appeal argued that they had to pay out the following money as opposed to giving no compensation, arguing we must pay careful attention to the duty and the solicitors were passive (unlike AIB where they were tasked to procure) and had no obligation to pass on these guarantees, they were meant to hold onto the money till a guarantee had arrived, otherwise the solicitors would have to remain in hold of the money..

• The position was different in Target and AIB. In Target the solicitors were under a duty to take active steps to secure a charge over the property, before releasing th monies. In AIB the solicitors were under a duty to take active steps to secure th removal of prior charges before releasing the money. Therefore Giambrone should have remained as custodians of the deposit monies until the preliminary contracts were rescinded, and then paid those monies back to their clients

• In Target the plaintiff’s claim failed on the “but for” test. In the present case the claimants’ claim passes the “but for” test. In AIB the claimants’ loss was limited to that which would have been recoverable in contract, because the trust was “part of the machinery for the performance of a commercial contract”. In the present case the trust was part of the machinery for the performance of the solicitors’ contract of retainer. Giambrone’s breach of contract consisted of wrongfully paying out deposit monies which it had undertaken to keep safe. The contractual measure of damages is the amount of the deposits, because those monies have now vanished

Recovery Partners GP Ltd v Rukhadze is also a post-AIB case, what was concluded?

It is undeniable that the twin cases of Target Holdings Ltd v Redferns [1996] AC 421 and AIB Group (UK) plc v Mark Redler & Co [2015] AC 1503 have transformed (or reformed) the law about equitable compensation by the erection of counterfactuals and the use of a but-for tes

They essentially reaffirmed the AIB v Redler, and Target Holdings v Redfern cases.

Hotel Portfolio II UK Ltd v Stevens is also a post-AIB case, what was concluded? (also guidance for how you handle PQ!)

The basis upon which loss qualifying for equitable compensation for breach of trust is to be assessed was so fundamentally re-stated in Target Holdings Ltd v Redferns that (although affirmed in AIB Group v Redler) it stands as an almost complete statement of the relevant principle. It requires the assessment of loss to be conducted through a “but-for” counterfactual: ie what would have been the beneficiary's position but for the breach of trust? The loss is assessed by comparing that but-for position with the position in which the beneficiary finds himself as the result of the breach.

• Must apply the ‘but for’ test!

This new principle has generally been regarded as a healthy implant of common sense, and from a common law origin: eg see Rukhadze. But it does not bring with it the rest of the scope of duty, causation, remoteness and loss analysis usually applied by the common law to a tort or a breach of contract.

The same but-for principle applied to the assessment of loss for breach of a traditional trust as applied to a commercial trust created for the purposes of a finance transaction (reinforced by Lord Toulson in AIB v Redler explained Lord Browne-Wilkinson’s reasoning in Target Holdings v Redfern was applicable to both commercial and traditional trusts)