421

1 A.C.

A
[HOUSE OF LORDS]

TARGET HOLDINGS LTD RESPONDENT

AND
R E D F E R N S (A FIRM) AND A N O T H E R APPELLANTS

1995 Feb. 20, 21, 22; Lord Keith of Kinkel, Lord Ackner,
July 20 Lord Jauncey of Tullichettle,
Lord Browne-Wilkinson and Lord Lloyd of Berwick

Trusts—Trustee—Breach of trust—Sale of commercial property—

Solicitor holding funds on trust for transfer on completion of
purchase and charge to mortgagee—Funds paid away to strangers
C in breach of trust before completion—Charge subsequently
effected—Mortgagee suffering loss—Defence that same loss would
have occurred if no breach—Whether obligation to restore trust
fund—Whether summary judgment to be granted
A finance company instructed a firm of solicitors to act for it
in the provision of a loan as mortgagee on commercial property.
The solicitors were also instructed by the proposed mortgagor,
D who had informed the finance company that the property had
been valued by a firm of surveyors at £2m. Unknown to the
finance company, the proposed mortgagor was in fact paying only
£775,000 for the property. The finance company gave the solicitors
a total of £1,525,000 to be held on a bare trust and transferred to
the mortgagor once the property had been purchased and charged
to the finance company. In breach of trust and before the
p prospective mortgagor had purchased the property, the solicitors
paid away a total of £1,490,000 without having received any
charge on the property. The solicitors untruthfully informed the
finance company that the purchase and charges had been
completed. Almost a month later, the property was charged to
the finance company, which subsequently contracted to sell it for
£500,000. The finance company brought an action against the
solicitors alleging, inter alia, breach of trust and claiming
F restitution of the entire sum. On the finance company's application
for summary judgment Warner J. gave the solicitors leave to
defend, conditional on bringing £lm. into court and, subject to
the finance company providing a bank guarantee, paying it over
to it as an interim payment. On the solicitors' appeal and on the
finance company's cross-appeal, the Court of Appeal dismissed
the appeal but (by a majority) allowed the cross-appeal, holding
.-, that in the circumstances the solicitors were liable to replace all
the moneys paid away in breach of trust, subject only to the
finance company giving credit for any moneys recoverable on
the realisation by it of its security, and judgment was given for
the finance company.
On appeal by the solicitors:—
Held, allowing the appeal, that the specialist rules as to
damages for breach of traditional trusts were not necessarily
H applicable to bare trusts arising in commercial situations; that
although in the event of a breach of trust the beneficiary was
entitled to be compensated for any loss he would not have
suffered but for the breach, once the underlying commercial
transaction had been completed there was no obligation to
422
Target Holdings Ltd. v. Redferns (H.L.(E.)) |1996|
reconstitute the fund; that where there was an accrued cause of A
action for breach of trust the quantum of compensation was not
fixed at the date of breach but at the date of judgment as the
figure necessary to put the beneficiary in the position he would
have, been in if there had been no breach; that on the facts to be
assumed the finance company had not shown that it was entitled
to any compensation since it had obtained precisely what it would
have acquired had no breach of trust occurred, namely, a valid
security for the sum advanced; and that, accordingly, on the B
assumption that the finance company had sustained no
compensatable loss, the solicitors were entitled to defend the
breach of trust claim, and the judge's order would be restored
(post, pp. 4 2 7 G - 4 2 8 A , 435G-H, 436B-E, 437OE, 438H-439B,
440F-G, 441c).
Jaffray v. Marshall [1993] 1 W.L.R. 1285 overruled.
Nant-y-glo and Blaina Ironworks Co. v. Grave (1878) p
12 Ch.D. 738 and Bishopsgate Investment Management Ltd. v.
Maxwell (No. 2) [1994] 1 All E.R. 261, C.A. distinguished.
Decision of the Court of Appeal [1994] 1 W.L.R. 1089; [1994]
2 All E.R. 337 reversed.

The following cases are referred to in the opinion of Lord Browne-Wilkinson:

Alliance & Leicester Building Society v. Edgestop Ltd. (unreported), 18 January D
1991, Hoffmann J.
Bartlett v. Barclays Bank Trust Co. Ltd. (Nos. 1 and 2) [1980] Ch. 515; [1980]
2 W.L.R. 430; [1980] 1 All E.R. 139; [1980] 2 All E.R. 92
Bishopsgate Investment Management Ltd. v. Maxwell (No. 2) [1994] 1 All
E.R. 261, C.A.
Caffrey v. Darby (1801) 6 Ves. 488
Canson Enterprises Ltd. v. Boughton & Co. (1991) 85 D.L.R. (4th) 129 E
Clough v. Bond (1838) 3 M. & C. 490
Dawson, deed., In re; Union Fidelity Trustee Co. Ltd. v. Perpetual Trustee Co.
Ltd. [1966] 2 N.S.W.R. 211
Jaffray v. Marshall [1993] 1 W.L.R. 1285; [1994] 1 All E.R. 143
Livingstone v. Rawyards Coal Co. (1880) 5 App.Cas. 25, H.L.(Sc)
Miller's Deed Trusts, In re (1978) 75 L.S.G. 454
Nant-y-glo and Blaina Ironworks Co. v. Grave (1878) 12 Ch.D. 738 F
Nestle v. National Westminster Bank Pic. [1993] 1 W.L.R. 1260; [1994] 1 All
E.R. 118, C.A.
Nocton v. Lord Ashburton [1914] A.C. 932, H.L.(E.)

The following additional cases were cited in argument:

Adamson, Ex parte; In re Collie (1878) 8 Ch.D. 807, C.A.
Salway v. Salway (1831) 2 R. & M. 215 sub nom. White v. Baugh (1835) G
3 CI. & F. 44

The following additional cases, although not cited, were referred to in the
printed cases:
Bishopsgate Investment Management Ltd. v. Maxwell [1993] B.C.L.C. 814
Brickenden v. London Loan & Savings Co. [1934] 3 D.L.R. 465 j-j
Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465; [1963]
3 W.L.R. 101; [1963] 2 All E.R. 575, H.L(E.)
Henderson v. Merrett Syndicates Ltd. [1995] 2 A.C. 145; [1994] 3 W.L.R. 761;
[1994] 3 All E.R. 506, H.L.(E.)
 423
1 A.C. Target Holdings Ltd. v. Redferns (H.L.(E.))

A APPEAL from the Court of Appeal.

This was an appeal by leave dated 14 March 1994 of the House of
Lords (Lord Keith of Kinkel, Lord Jauncey of Tullichettle and Lord
Nolan) by Redferns, a firm of solicitors from the judgment dated
8 November 1993 of the Court of Appeal (Ralph Gibson, Hirst and Peter
Gibson L.JJ.) dismissing an appeal by the appellants and allowing a cross-
appeal (Ralph Gibson L.J. dissenting) by the respondents, Target Holdings
Ltd., from the order of Warner J. made on 30 November 1992 in
Order 14 proceedings.
The facts are stated in the opinion of Lord Browne-Wilkinson.

Jonathan Sumption Q.C., Anthony Mann Q.C. and Grant Crawford for
r the appellants. It is common ground that Redferns received the loan
money from Target on trust (subject to any contrary directions by Target)
to pay to or to the order of the proposed mortgagor ("Crowngate") when
the property had been conveyed to Crowngate and Crowngate had
executed charges in Target's favour. It is common ground that Redferns
acted in breach of that trust in that they paid out the money prematurely
when the conditions had not been satisfied. But because ultimately the
D property was conveyed to Crowngate and the charges were duly executed
in favour of Target, Target's position at the end of the transaction was
precisely what it would have been if Redferns had performed their trust.
If there had been no breach of trust, the funds would still have been paid
out beyond recall at the direction of Crowngate, but some 11 days later.
Target has therefore suffered no loss by the premature payment out of the
E funds.
The appeal is concerned only with the question: what loss, if any, has
been suffered by the premature payment out of the funds?
Target's case, on which they succeeded in the Court of Appeal,
depends upon a distinction between legal and equitable principles
governing the award of compensation for a breach of duty. At common
p law it is clear that to recover substantial damages for the premature
payment out of the funds Target would have to prove that this particular
breach of duty has caused their loss. They would fail if the loss would
have occurred in any event. Their claim is therefore put as a claim for
equitable compensation only, supported by an argument (accepted in the
Court of Appeal) that it is irrelevant in equity what would have happened
„ if there had been no breach of trust.
There are differences between equitable compensation and damages at
common law, although the differences have more to do with the historical
origins of the two systems than with any issue of principle dividing them.
It was not the general practice of courts of equity to award damages. That
was not because of any perceived deficiency in the common law remedy.
The reason was simply that the function of equity was historically to
H enforce the performance of legal and equitable obligations in specie. The
equitable jurisdiction to order a trustee who had misapplied trust funds to
restore them is an example of the exercise of that function: see Nocton
v. Lord Ashburton [1914] A.C. 932, 952, per Viscount Haldane L.C. It has
424
Target Holdings Ltd. v. Redferns (H.L.(E.)) |1996|

been said that "considerations of causation, foreseeability and remoteness A

do not readily enter into the matter:" In re Dawson, deed.; Union Fidelity
Trustee Co. Ltd. v. Perpetual Trustee Co. Ltd. [1966] 2 N.S.W.R. 211.
215. But on the authorities in which such dicta appear the least that the
plaintiff must show is that he has suffered a loss which he would have
avoided but for the breach of trust. What is meant by the dicta is that
once the plaintiff has established this much, the trustee is not entitled to
resist liability on the ground that the misapplication will have caused no
loss if it had not been for some unforeseeable intervening factor. The "but
for" test of causation, which is not normally good enough at common
law, may suffice in equity: see Caffrey v. Darby (1801) 6 Ves. 488, 496;
Clough v. Bond (1838) 3 M. & C. 490; In re Dawson, deed; Union Fidelity
Trustee Co. Ltd. v. Perpetual Trustee Co. Ltd. [1966] 2 N.S.W.R. 211; In
re Miller's Deed Trusts (1978) 75 L.S.G. 454; Canson Enterprises Ltd. v. C
Boughton & Co. (1991) 85 D.L.R. (4th) 129 and Nestle v. National
Westminster Bank Pic. [1993] 1 W.L.R. 1260. But it is not the law that the
mere occurrence of a breach of trust makes a trustee chargeable with
losses which have no causal connection with it or would have occurred
for extraneous reasons even if there had been no breach of trust. In In re
Miller's Deed Trusts, 75 L.S.G. 454 Oliver J. emphasised that causation J-J
was a necessary requirement. The decision of the Supreme Court of
Canada in Canson Enterprises Ltd. v. Boughton & Co., 85 D.L.R. (4th)
129, 160-162, shows that unforeseeable losses are recovered but not purely
extraneous losses caused by a third party. If reliance is to be placed on
the receiveship case of Salway v. Salway (1831) 2 R. & M. 215; (1835)
3 CI. & F. 44, it is pertinent to point out that the main ground for that
decision is irrelevant to the present case. In the context of receiverships it E
is authority for the proposition that the "but for" test is sufficient.
[Reference was made to Snell's Equity, 29th ed. (1990), p. 294.] The only
authority for making a distinction between a breach of trust and the
breach of other duties is the judgment of La Forest J. in the Canson case.
The views of McLachlin J. in that case are to be preferred since they are
more consonant with the English cases and more consistent with principle. p
The result of the rule proposed by the Court of Appeal is remarkable.
It means that in cases of "immediate loss" the loss is treated as established
at the moment of payment out and subsequent events are disregarded. It
must follow, if this be right, that the plaintiff recovers the whole value of
the asset misapplied, regardless of whether it is subsequently recovered.
The rule (if it be one) is apt to put the plaintiff in a substantially better _,
position than he could have ever been in if the breach of trust had not
occurred. As Ralph Gibson L.J. [1994] 1 W.L.R. 1089, 1099H observed it
was a very fortunate thing indeed for Target that Redferns committed the
breach of trust.
Target have given credit for their actual recovery on enforcing the
security, and Peter Gibson L.J. [1994] 1 W.L.R. 1089, 1104c remarked
that equity was "sufficiently flexible" to insist on this. But it is difficult to "
see why that concession should have been made bearing in mind the
highly inflexible rule propounded by the Court of Appeal to the effect
that events after the payment cannot affect the loss.
 425
1 A.C. Target Holdings Ltd. v. Redferns (H.L.(E.))

A The result in the present case is contrary to the principle on which

equity makes restitutionary orders in such cases. It is, moreover,
particularly odd in the case where the trust arises wholly out of the
contract between Redferns and their clients, and the contractual measure
of damages wholly compensates Target for their actual loss, so that there
is no reason of principle for equity to allow a more generous measure of
compensation. Indeed, if the claim had been brought as a claim for breach
of fiduciary duty, equity would give the same measure of compensation as
the common law: Canson Enterprises Ltd. v. Boughton & Co., 85 D.L.R.
(4th) 129.
In ascertaining the loss one does not stop the clock but one looks at
all the circumstances. The suggested distinction between "immediate" and
other loss has no basis in authority; neither of the two decisions, Alliance
C & Leicester Building Society v. Edgestop Ltd. (unreported), 18 January
1991 and Bishopsgate Investment Management Ltd. v. Maxwell (No. 2)
[1994] 1 All E.R. 261, was founded upon any such distinction.
The analysis of the Court of Appeal would appear to leave no room
for the trustee voluntarily to make good the loss after the breach.
Moreover, it overlooks the central feature of the case, namely, that the
rj purpose of the trust over the funds in Redferns' hand was that they should
be paid away at the appropriate time and on the appropriate terms. Where
the proper performance of the trustees' duties would lead in the ordinary
course to the disappearance of the funds, it cannot be right to disregard
what would have happened had they been properly performed. The
subsequent obtaining of the charges in this situation fulfils the purpose of
the trust. Equity by tradition has always looked at the substance rather
E than the form of a transaction.
Nicholas Patten Q.C. and Thomas Leech for the respondents. The
appeal is concerned with the misapplication by a solicitor trustee of his
client's money. It minimises the issue to state that it is concerned with the
premature release of the money. The issue here is: what is the remedy in
the circumstances of the case for the misapplication of the mortgage
F money? The appellants seek to show that there is one general test of
compensation in all trust cases, and that the "but for" test applies
generally. It cannot be doubted that in many cases it is an appropriate
test, for example, in the omission cases. But there is a danger of using that
test where there is no need for it.
Once a breach of trust is established the remedy is an equitable one.
_ The trustee is liable to account and restore the trust property which has
been paid away in breach of trust. The nature of the remedy is a suit for
the restitution of the actual trust property or the value of that property:
see Ex parte Adamson; In re Collie (1878) 8 Ch.D. 807. In the courts
below the appellants argued that the respondents had suffered no loss as
a result of the breach of trust because they eventually received the security
which the appellants had been instructed to obtain. But this argument
H ignores the true nature of the loss and the remedy given for it. It also
assumes that the solicitor/trustee in such circumstances is entitled to insist
that his client takes the benefit of the security and confirms the transaction
without ever being informed of the breach of trust involved.
426
Target Holdings Ltd. v. Redferns (H.L.(E.)) [19961

Target's cause of action for breach of trust was complete as soon as A

the money was released. At that point in time the obligation of the trustee
was to restore the funds which he had misapplied. It is therefore
inappropriate to consider whether some financial loss would have occurred
(e.g., due to the inadequacy of the security) even if the trustee had
performed his duty. The fact is that the trustee chose to distribute the
trust property in breach of trust and his obligation is one to make
restitution, not to pay damages. The breach of trust complained of is the "
misapplication of Target's money. It was lost when it was paid away and
it must be replaced. Therefore, as a matter of principle, it is not
appropriate to measure the compensation payable by reference to what
might have happened had there been no breach of trust.
Before the Court of Appeal an alternative argument arose to the effect
that the loss would have occurred in any event because even with full Q
knowledge of the facts Target would still have proceeded by instructing
Redferns to get in the security. Not only is this inherently unlikely (and
denied by the respondents) but it was not raised by the appellants as a
possibility either in their defence or in the evidence before Warner J. It is
also irrelevant. Once the breach of duty is established it is not open to the
trustee to contend that the beneficiary would still have proceeded even
with knowledge of the material facts. D
Nocton v. Lord Ashburton [1914] A.C. 932 was a case of non-disclosure.
The test propounded by Viscount Haldane L.C., at pp. 951-952, is not the
same as the "but for" test but is entirely consistent with the test of
restitution in specie.
The appellants contended before Warner J. that the respondents cannot
complain because it in fact got the security which it required. This p
argument assumes that Target was bound to accept it. A solicitor who is
instructed to act for a lender in a transaction of this kind does not
contract to produce a result, that is, the completed charges. His obligation
is to carry out the terms of his instructions with all due skill and care. But
the retainer to continue to act can be terminated by the client at any time.
Therefore Target has no obligation to allow Redferns to get in the legal
charges if they could. It would have been entitled to demand back its F
money and to withdraw Redferns' instructions to act further. At the very
least, it would have had a choice as to whether or not to accept late
delivery of the security in satisfaction of the breach of trust. To allow
Redferns to rely on what did eventually occur is to give them the benefit
of their own non-disclosure. The breach of trust creates its own distinct
remedies and distinct consequences. Nothing that happens subsequently
to that breach of trust changed the nature of the remedy open to the G
respondents. There exists a trust obligation which arises out of the
solicitor-client relationship. In this connection it is pertinent to refer to
the observations of Viscount Haldane L.C. in Nocton v. Lord Ashburton
[1914] A.C. 932, 956 where it was stated that the fact that there was a
contractual relationship between solicitor and client did not preclude a
remedy for breach of trust, and emphasis was laid upon the nature of the „
remedy.
As to Canson Enterprises Ltd. v. Boughton & Co., 85 D.L.R. (4th) 129,
the plaintiff was not seeking restitution, and the claim was for a quite
separate loss in damages.
 427
1 A.C. Target Holdings Ltd. v. Redferns (H.L.(E.»

A On the question of causation, In re Dawson, deed.; Union Fidelity

Trustee Co. Ltd. v. Perpetual Trustee Co. Ltd. [1966] 2 N.S.W.R. 211 is of
no assistance for causation was not in issue. The question there was what
had to be paid back by way of restitution. The question is: what is
necessary to remedy the breach of trust? If the property cannot be returned
then the beneficiary is entitled to its value. The fact that in the
circumstances the beneficiary turns out to be better off is nihil ad rem.
B The primary rule in equity is that the trustee must preserve and protect
the trust property.
The contention that the position is finalised as of the moment of
breach of trust is supported by two recent decisions: Alliance & Leicester
Building Society v. Edges top Ltd., 18 January 1991 and Bishopsgate
Investment Management Ltd. v. Maxwell (No. 2) [1994] 1 All E.R. 261. In
Q Bishopsgate the distinction between omissions and positive dealings with
trust property was emphasised. Hoffmann L.J. held that the loss was
caused by the improper transfer of the shares and that the burden of
justification was on the defendant. In that case, as in the present no
attempt was made to justify the fiduciary's actions. The suggestion was
also dismissed that in calculating the loss some account should be taken
of the possibility of recovering the shares from the transferee. The
D obligation of the trustee was to restore the funds. Likewise the obligation
of Redferns is to restore their clients' money. The obtaining of the legal
charges is not enough unless the client makes an informed decision to
accept them in satisfaction of the breach of duty. Target was never given
this opportunity and did not do so.
The respondents' approach to compensation is also supported by Nant-
n y-glo and Blaina Ironworks Co. v. Grave (1878) 12 Ch.D. 738, which shows
that a trustee can be held liable to recoup to the trust fund the value of
shares at the highest value between the date of breach and
the date of judgment. In Jaffray v. Marshall [1993] 1 W.L.R. 1285 the
principles applicable in an action for an account of profits were applied to
a claim for compensation for breach of trust.
As to the interim payment, if it is held that the decision of the Court
F of Appeal that the respondents are entitled to summary judgment was
wrong, the respondents are entitled to keep the interim payment on the
grounds set out in the judgment of Ralph Gibson L.J.
Sumption Q.C. replied.

Their Lordships took time for consideration.

G
20 July. LORD KEITH OF KINKEL. My Lords, for the reasons given
in the speech to be delivered by my noble and learned friend, Lord
Browne-Wilkinson, which I have read in draft and with which I agree,
I would allow this appeal.

LORD ACKNER. My Lords, I have had the advantage of reading in

draft the speech prepared by my noble and learned friend, Lord Browne-
Wilkinson. For the reasons which he gives, I, too, would allow the appeal,
set aside the order of the Court of Appeal and restore the order of
Warner J.
428
Target Holdings Ltd. v. Redferns (H.L.(E.)) |1996]
LORD JAUNCEY OF TULLICHETTLE. My Lords, I have had the advantage A
of reading in draft the speech prepared by my noble and learned friend,
Lord Browne-Wilkinson. For the reasons he has given, I, too, would allow
this appeal.

LORD BROWNE-WILKINSON. My Lords, this appeal raises a novel

point on the liability of a trustee who commits a breach of trust to g
compensate beneficiaries for such breach. Is the trustee liable to
compensate the beneficiary not only for losses caused by the breach but
also for losses which the beneficiary would, in any event, have suffered
even if there had been no such breach?
Prior to 15 May 1989 two adjoining plots of freehold land in
Birmingham, together known as 60-64, Great Hampton Street, Hockley
("the property") were owned by Mirage Properties Ltd. ("Mirage"). On C
15 May 1989 Mirage agreed, subject to contract, to sell the property to
Crowngate Developments Ltd. ("Crowngate") at a price of £775,000.
A firm of solicitors, the defendants Redferns, acted as Crowngate's
solicitors. Draft contracts were sent to Redferns and received on 17 May
1989.
On 9 June 1989 the plaintiff, Target Holdings Ltd. ("Target"), received D
two completed loan application forms signed by a Mr. Kohli on behalf of
Crowngate. The applications were for loans totalling £1,706,000 and stated
the purchase price of the property to be £2m. The application gave no
particulars of the vendor. Target was never told that Crowngate had
agreed to buy the property for £775,000. The application was supported
by a professional valuation of the property at £2m. made by the second
defendant, Alexander Stevens and Co. Ltd. E
Unknown to Target, Crowngate's scheme was that Mirage would sell
the property to a Jersey company, Panther Ltd. ("Panther"), for £775,000;
Panther would then sell it to an English company, Kohli & Co. Ltd.
("Kohli and Co.") for £1,250,000; and Kohli & Co. was then to sell the
property on to Crowngate for £2m., being the price at which Target
believed Crowngate was purchasing the property. Redferns (the relevant p
partner in which was Mr. Anthony Bundy) acted for Crowngate, Panther
and Kohli & Co. They took their instructions in regard to the purchase of
the property from two individuals, Mr. Ajit Kohli and Mr. Baboo
Musafir. On their instructions Mr. Bundy caused Panther to be
incorporated in Jersey by Reads Ltd., the relevant director of which was
Mr. Brian Pierce. The person beneficially interested in Panther was
stated by Mr. Kohli and Mr. Musafir to be a United States resident, G
Mrs. Jasdeep Chadha, but it may be that Panther was in fact incorporated
for the benefit of those interested in Mirage. Kohli & Co. was a company
in which Mr. Kohli and his family were interested. Mr. Musafir was the
person who was principally beneficially interested in Crowngate, although
Kohli & Co. owned a minority sharehold.
On 15 June 1989 Target, who knew nothing of the original agreement
between Mirage and Crowngate or of the proposed sub-sale, approved
loans to Crowngate totalling £1,706,000 to be secured by a first mortgage
on the property. Of the sum to be advanced, £1,525,000 was to be used
for the purchase of the property and the balance used to pay premiums
 429
Lor
I A.C. Target Holdings Ltd. v. Redferns (H.L.(E.)) ^ v ? 1 r k '! , ™ e "
A on certain insurance policies. On 23 June 1989 Redferns were instructed
by Target to act for them.
On 28 June 1989 Target transferred £1,525,000 to Redferns without
giving any express instructions to Redferns as to its release. It is common
ground that Redferns had implied authority to pay the money to or to the
order of Crowngate when the property had been conveyed to Crowngate
and Crowngate had executed charges in Target's favour. On 29 June,
B without seeking Target's consent, Mr. Bundy transferred £1,250,000
(namely the sum payable on the purchase by Kohli & Co. from Panther)
to Panther, the bank account of which was controlled by its directors.
Contracts for the sale of the property to Panther were signed by
Mirage on 30 June, on which date Mirage also executed transfers to
Panther. Also on that date Mr. Bundy instructed the directors of Reads
Q to pay from Panther's bank account sums totalling £1,072,787-42, of which
the sum of £772,787-42 was to be paid to Mirage (being the sum due on
completion) and various payments amounting to £300,000 were to be
made to others (who may have been those interested in Mirage) pursuant
to Mr. Kohli's instructions. Also on 30 June, Mr. Kohli informed
Mr. Bundy that the balance of £510,000 of the purchase money payable
to Kohli & Co. on the sale to Crowngate and not being borrowed from
D Target had been paid by Crowngate to Kohli & Co.
A further £240,000 out of the Redferns' client account was paid out by
Redferns to Kohli & Co. on 3 July, being the balance of the £2m. payable
by Crowngate to Kohli & Co. on the purchase. That left £35,000 in
Redferns' client account: that sum was expended on stamp duty, land
registry fees and Redferns' fees.
g On 4 July Mr. Bundy sent a letter dated 30 June 1989 by fax to Target
informing Target, quite untruthfully, that the purchase of the property
and the charges to Target had been completed on that day. In fact what
happened was that on 6 July Reads received various documents sent by
Mr. Bundy for execution by Panther including (a) the contract of purchase
from Mirage (b) the transfers from Mirage (c) the contract of sale to
Kohli & Co. and (d) the transfers to Crowngate. Those documents were
F signed and executed on behalf of Panther and returned to Redferns by
II July. The contracts of sale to Kohli & Co. and to Crowngate were
probably signed by those companies by 5 July. The legal charge of the
property in favour of Target had also probably been executed by
Crowngate by 5 July. The contracts and transfers were dated 30 June 1989
and the legal charges 31 July 1989.
Q The moneys in Panther's bank account were paid out to various
individuals and to a numbered Swiss bank account. Panther was
subsequently dissolved on Mr. Kohli's instructions on 24 May 1990.
The situation therefore was as follows. Redferns, acting by Mr. Bundy,
was fully aware of the transaction involving Mirage, Panther, Kohli
& Co. and Crowngate. Although Redferns were also acting for Target as
lender, they never informed Target of the facts. In the course of acting as
" Target's solicitors Redferns had paid away the mortgage money in its
client account to a stranger who had no contractual relationship with
Crowngate and before completion of the purchase by Crowngate or the
mortgages by Crowngate to Target. Such payments out of client account
430
wlikiSoT6" Tar
g e t Holdings Ltd. v. Redferns (H.L.(E.)) |1996]
were otherwise than in accordance with Redferns' instructions from A
Target. It is common ground that the payments constituted a breach of
trust by Redferns. On the other hand, Target had obtained exactly what it
had originally intended to obtain, that is to say a loan to Crowngate
secured by valid charges over the property.
Crowngate was wound up as insolvent on 25 September 1991. Target
has sold the property as mortgagee for £500,000.
Target believes itself to have been the victim of a fraud perpetrated by ^
Messrs. Kohli and Musafir. It commenced these proceedings against
Redferns and against the valuers, the second defendant, which it alleged
had negligently valued the property. Judgment has been obtained in
default against the second defendant, which is in insolvent liquidation.
Target's case against Redferns is put in two ways. First, it is alleged
that Redferns was in breach of its duty of care as Target's solicitors in Q
failing to alert Target to the suspicious circumstances which indicated a
fraud. Secondly, and of direct relevance in the present appeal, Target
alleges breach of trust by Redferns in parting with the mortgage moneys
without authority. On 3 August 1992 Target issued a summons seeking
summary judgment on its claims pursuant to R.S.C., Ord. 14, with an
alternative claim for an interim payment under R.S.C., Ord. 29, r. 10.
On 19 November 1992 the summons came before Warner J. It has at D
all times been common ground that Redferns committed a breach of trust
when, on 29 June and 3 July 1989, Redferns paid away Target's money
otherwise than in accordance with Target's instructions. Counsel for
Target submitted to Warner J. that Redferns came under an immediate
duty to restore the whole of the money paid away in breach of trust, that
common law principles of causation of damage did not apply to such a g
claim and that it was irrelevant that Target had received exactly the
security that it was intending to obtain. Target further submitted, in the
alternative, that if Target's money had not been made wrongly available
to pay the purchase price to Mirage on 30 June the whole transaction
would have fallen through. If that had happened, even on ordinary
principles of causation the loss to Target caused by the breach of trust
was the total amount wrongly paid away since, if there had been no F
breach of trust, the money would never have been paid away at all.
Warner J. held that the claim based on breach of trust was "very nearly
strong enough" to justify a summary judgment. However he gave leave to
defend the breach of trust claim conditional upon the payment into court
of £lm. He did not expressly decide whether there was a triable issue as
to whether the whole transaction would have fallen through had it not Q
been for the breach of trust. As to Target's claim based on negligence,
Warner J. gave unconditional leave to defend on the grounds that there
were triable issues of fact, including the issue whether Target, if it had
been informed by Redferns of the chain of sales of the property, would
have withdrawn from the transaction or would have continued in reliance
on the valuation made by the second defendants.
Redferns appealed to the Court of Appeal against the refusal to give "
them unconditional leave to defend the breach of trust claim and against
the order for the payment into court of £lm. Target cross-appealed against
the refusal to give summary judgment on the breach of trust claim. On
 431
1 A.C. Target Holdings Ltd. v. Redferns (H.L.(E.)) ^wukE
A 8 November 1993 the Court of Appeal (Ralph Gibson, Hirst and Peter
Gibson L.JJ.) [1994] 1 W.L.R. 1089, dismissed Redferns' appeal and
(Ralph Gibson L.J. dissenting) allowed Target's cross-appeal. They gave
final judgment for £1,490,000 less the net sum realised by Target on the
subsequent sale of the property. Shortly stated, Peter Gibson L.J. (with
whom Hirst L.J. agreed) held that the basic liability of a trustee in breach
of trust is not to pay damages but to restore to the trust fund that which
° has been lost to it or to pay compensation to the beneficiary for what he
has lost. He held that, in assessing the compensation payable to the
beneficiary, causation is not irrelevant but common law rules of causation,
as such, do not apply: the beneficiary is to be put back in the position he
would have been in but for the breach of trust. He held that in cases
where the breach of trust does not involve paying away trust money to a
Q stranger (e.g. making an unauthorised investment), the answer to the
question whether any loss has been thereby caused and the quantification
of such loss will depend upon events subsequent to the commission of the
breach of trust. But he held that in cases, such as the present, where the
trustee has paid away trust moneys to a stranger, there is an immediate
loss to the trust fund and the causal connection between the breach and
the loss is obvious: the trustee comes under an immediate duty to restore
D the moneys to the trust fund. He held that the remedies of equity are
sufficiently flexible to require Target (as it has always accepted) to give
credit for the moneys received on the subsequent realisation of its security.
But otherwise Redferns' liability was to pay to Target the whole of the
moneys wrongly paid away.
Redferns appeal to your Lordships against the decision of the Court
g of Appeal.
Before considering the technical issues of law which arise, it is
appropriate to look at the case more generally. Target allege, and it is
probably the case, that they were defrauded by third parties (Mr. Kohli
and Mr. Musafir and possibly their associates) 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
F suffered a loss in round figures of £l-2m. (i.e. £l-7m. advanced less
£500,000 recovered on the realisation of the security). Such loss would
have been wholly caused by the fraud of the third parties. The breach of
trust committed by Redferns left Target in exactly the same position as it
would have been if there had been no such breach: Target advanced the
same amount of money, obtained the same security and received the same
Q amount on the realisation of that security. In any ordinary use of words,
the breach of trust by Redferns cannot be said to have caused the actual
loss ultimately suffered by Target unless it can be shown that, but for the
breach of trust, the transaction would not have gone through, e.g. if
Panther could not have obtained a conveyance from Mirage otherwise
than by paying the purchase money to Mirage out of the moneys paid
out, in breach of trust, by Redferns to Panther on 29 June. If that fact
n
can be demonstrated, it can be said that Redferns' breach of trust was a
cause of Target's loss: if the transaction had not gone through, Target
would not have advanced the money at all and therefore Target would
not have suffered any loss. But the Court of Appeal decided (see Ralph
432
WJikiSoT"" Target Holdings Ltd. v. Redferns (H.L.(E.)) [1996J
Gibson L.J. 1100B-C; Peter Gibson L.J. 1104B) and it is common ground A
before your Lordships that there is a triable issue as to whether, had it
not been for the breach of trust, the transaction would have gone through.
Therefore the decision of the Court of Appeal in this case can only be
maintained on the basis that, even if there is no causal link between the
breach of trust and the actual loss eventually suffered by Target (i.e. the
sum advanced less the sum recovered) the trustee in breach is liable to
bear (at least in part) the loss suffered by Target. ^
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 Q
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 (e.g. 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 D
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. g
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, F
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, Q
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
(i.e. 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 the breach of trust.
 433
Lor
1 A.C. Target Holdings Ltd. v. Redferns (H.L.(E.)) ^ v ?. r k ° w n c "
A I approach the consideration of the relevant rules of equity with a strong
predisposition against such a conclusion.
The considerations urged before your Lordships, although presented
as a single argument leading to the conclusion that the views of the
majority in the Court of Appeal are correct, on analysis comprise two
separate lines of reasoning, viz.: (A) an argument developed by Mr. Patten
(but not reflected in the reasons of the Court of Appeal) that Target is
now (i.e. at the date of judgment) entitled to have the "trust fund"
restored by an order that Redferns reconstitute the trust fund by paying
back into client account the moneys paid away in breach of trust. Once
the trust fund is so reconstituted, Redferns as bare trustee for Target will
have no answer to a claim by Target for the payment over of the moneys
in the reconstituted "trust fund." Therefore, Mr. Patten says, it is proper
C now to order payment direct to Target of the whole sum improperly paid
away, less the sum which Target has received on the sale of property; and
(B) the argument accepted by the majority of the Court of Appeal that,
because immediately after the moneys were paid away by Redferns in
breach of trust there was an immediate right to have the "trust fund"
reconstituted, there was then an immediate loss to the trust fund for which
j} loss Redferns are now liable to compensate Target direct.
The critical distinction between the two arguments is that argument
(A) depends upon Target being entitled now to an order for restitution to
the trust fund whereas argument (B) quantifies the compensation payable
to Target as beneficiary by reference to a right to restitution to the trust
fund at an earlier date and is not dependent upon Target having any right
to have the client account reconstituted now.
E Before dealing with these two lines of argument, it is desirable to say
something about the approach to the principles under discussion. The
argument both before the Court of Appeal and your Lordships
concentrated on the equitable rules establishing the extent and
quantification of the compensation payable by a trustee who is in breach
of trust. In my judgment this approach is liable to lead to the wrong
F conclusions in the present case because it ignores an earlier and crucial
question, viz., is the trustee who has committed a breach under any
liability at all to the beneficiary complaining of the breach? There can be
cases where, although there is an undoubted breach of trust, the trustee is
under no liability at all to a beneficiary. For example, if a trustee commits
a breach of trust with the acquiescence of one beneficiary, that beneficiary
„ has no right to complain and an action for breach of trust brought by
him would fail completely. Again there may be cases where the breach
gives rise to no right to compensation. 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
H 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.
Therefore, in each case the first question is to ask what are the rights of
the beneficiary: only if some relevant right has been infringed so as to give
434
wikiSo7ne' Target Holdings Ltd. v. Redferns (H.L.(E.)) |1996|
rise to a loss is it necessary to consider the extent of the trustee's liability A
to compensate for such loss.
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, (e.g. 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 Q
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 D
estate: see Nocton v. Lord Ashburton [1914] A.C. 932, 952, 958, per
Viscount Haldane L.C. 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 Underbill and Hayton, Law of Trusts & Trustees
14th ed. (1987), pp. 734-736; In re Dawson, deed.; Union Fidelity Trustee
Co. Ltd. v. Perpetual Trustee Co. Ltd. [1966] 2 N.S.W.R. 211; Bartlett
v. Barclays Bank Trust Co. Ltd. (Nos. I and 2) [1980] Ch. 515. Thus the
common law rules of remoteness of damage and causation do not apply. F
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 L.S.G. 454; Nestle
v. National Westminster Bank Pic. [1993] 1 W.L.R. 1260.
Hitherto I have been considering the rights of beneficiaries under Q
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
 435
1 A.C. Target Holdings Ltd. v. Redferns (H.L.(E.)) ^wn'kS
A 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, i.e. the difference between
what the beneficiary has in fact received and the amount he would have
received but for the breach of trust.
Q 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 p. 543A, 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. 544. Accordingly, in traditional trusts for persons by way
D 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.
I turn then to the two arguments urged before your Lordships.

£ Argument (A)
As I have said, the critical step in this argument is that Target is now
entitled to an order for reconstitution of the trust fund by the repayment
into client account of the moneys wrongly paid away, so that Target can
now demand immediate repayment of the whole of such moneys without
regard to the real loss it has suffered by reason of the breach.
p Even if the equitable rules developed in relation to traditional trusts
were directly applicable to such a case as this, as I have sought to show a
beneficiary becoming absolutely entitled to a trust fund has no automatic
right to have the fund reconstituted in all circumstances. Thus, even
applying the strict rules so developed in relation to traditional trusts, it
seems to me very doubtful whether Target is now entitled to have the
trust fund reconstituted. But in my judgment it is in any event wrong to
G lift wholesale the detailed rules developed in the context of traditional
trusts and then seek to apply them to trusts of quite a different kind. In
the modern world the trust has become a valuable device in commercial
and financial dealings. The fundamental principles of equity apply as
much to such trusts as they do to the traditional trusts in relation to
which those principles were originally formulated. But in my judgment it
is important, if the trust is not to be rendered commercially useless, to
distinguish between the basic principles of trust law and those specialist
rules developed in relation to traditional trusts which are applicable only
to such trusts and the rationale of which has no application to trusts of
quite a different kind.
436
wikinsoT6" Target Holdings Ltd. v. Redferns (H.L.(E.)) |1996|
This case is concerned with a trust which has at all times been a bare A
trust. Bare trusts arise in a number of different contexts: e.g. by the
ultimate vesting of the property under a traditional trust, nominee
shareholdings and, as in the present case, as but one incident of a wider
commercial transaction involving agency. In the case of moneys paid to a
solicitor by a client as part of a conveyancing transaction, the purpose of
that transaction is to achieve the commercial objective of the client, be it
the acquisition of property or the lending of money on security. The **
depositing of money with the solicitor is but one aspect of the arrangements
between the parties, such arrangements being for the most part contractual.
Thus, the circumstances under which the solicitor can part with money
from client account are regulated by the instructions given by the client:
they are not part of the trusts on which the property is held. I do not
intend to cast any doubt on the fact that moneys held by solicitors on Q
client account are trust moneys or that the basic equitable principles apply
to any breach of such trust by solicitors. But the basic equitable principle
applicable to breach of trust is that the beneficiary is entitled to be
compensated for any loss he would not have suffered but for the breach.
I have no doubt that, until the underlying commercial transaction has
been completed, the solicitor can be required to restore to client account
moneys wrongly paid away. But to import into such trust an obligation to D
restore the trust fund once the transaction has been completed would be
entirely artificial. The obligation to reconstitute the trust fund applicable
in the case of traditional trusts reflects the fact that no one beneficiary is
entitled to the trust property and the need to compensate all beneficiaries
for the breach. That rationale has no application to a case such as the
present. To impose such an obligation in order to enable the beneficiary g
solely entitled (i.e. the client) to recover from the solicitor more than the
client has in fact lost flies in the face of common sense and is in direct
conflict with the basic principles of equitable compensation. In my
judgment, once a conveyancing transaction has been completed the client
has no right to have the solicitor's client account reconstituted as a "trust
fund."
F
Argument (B)
I have already summarised the reasons of the majority in the Court of
Appeal for holding that Redferns were liable to pay to Target, by way of
compensation, the whole sum paid away in breach of trust, less the sum
recovered by Target. Mr. Patten supported this argument before your
Lordships. G
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, i.e. 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
 437
Lor
1 A.C. Target Holdings Ltd. v. Redferns (H.L.(E.)) wawSii
A of paying away the trust moneys to a stranger it made no sense to wait: it
seemed to Peter Gibson L.J. [1994] 1 W.L.R. 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
C under an immediate duty to remedy such 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
Q 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
E 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.
Moreover, in my judgment the distinction is not consistent with the
decision in In re Dawson, deed. [1966] 2 N.S.W.R. 211. In that case a
testator had established separate executors for his New Zealand and his
F Australian estates. In 1939 the New Zealand estate was under the
administration of attorneys for, amongst others, P.S.D. P.S.D. arranged
that N.Z. £4,700 should be withdrawn from the New Zealand estate and
paid away to a stranger, X, who in turn was supposed to lend the moneys
to an Australian company in which P.S.D. was interested. X absconded
with the money. In that case, therefore, the trust money had been paid
_, away to a stranger. Street J. had to decide whether the liability of P.S.D
to compensate the estate was to be satisfied by paying sufficient Australian
pounds to buy N.Z. £4,700 at the rate of exchange at the date of breach
(when there was parity between the two currencies) or at the date of
judgment (when the Australian pound had depreciated against the New
Zealand pound). He held that the rate of exchange was to be taken as at
the date of judgment. Although, contrary to the present case, this decision
H favoured the beneficiaries at the expense of the defaulting trustee, the
principle is of general application whether operating to the benefit or the
detriment of the beneficiaries. The equitable compensation for breach of trust
has to be assessed as at the date of judgment and not at an earlier date.
438
wlikiSoT"6" Target Holdings Ltd. v. Redferns (H.L.(E.)) |1996|
In Canson Enterprises Ltd. v. Boughton & Co. (1991) 85 D.L.R. A
(4th) 129 the plaintiffs had bought some property in a transaction in
which they were advised by the defendant, a solicitor. To the knowledge
of the solicitor, but not of the plaintiffs, there was an improper profit
being made by the vendors. If the plaintiffs had known that fact, they
would not have completed the purchase. The defendant's solicitor was in
breach of his fiduciary duties to the plaintiffs. After completion the
plaintiffs built a warehouse on the property, which due to the negligence "
of engineers and builders, was defective. The question was whether the
defendant solicitor was liable to compensate the plaintiffs for the defective
building, the plaintiffs contending that "but for" the defendant's breach
of fiduciary duty they would not have bought the property and therefore
would not have built the warehouse. Although the Supreme Court of
Canada were unanimous in dismissing the claim, they reached their Q
conclusions by two differing routes. The majority considered that damages
for breach of fiduciary duty fell to be measured by analogy with common
law rules of remoteness, whereas the minority considered that the equitable
principles of compensation applied. Your Lordships are not required to
choose between those two views. But the judgment of McLachlin J.
(expressing the minority view) contains an illuminating exposition of the
rules applicable to equitable compensation for breach of trust. Although D
the whole judgment deserves study, I extract the following statements.
At p. 160:
"While foreseeability of loss does not enter into the calculation of
compensation for breach of fiduciary duty, liability is not unlimited.
Just as restitution in specie is limited to the property under the
trustee's control, so equitable compensation must be limited to loss E
flowing from the trustee's acts in relation to the interest he undertook
to protect. Thus, Davidson states [The Equitable Remedy of
Compensation' (1982) 3 Melbourne U.L. Rev. 349] 'It is imperative
to ascertain the loss resulting from breach of the relevant equitable
duty (at p. 354, emphasis added)."
At p. 162: F
"A related question which must be addressed is the time of
assessment of the loss. In this area tort and contract law are of little
help. . . . The basis of compensation at equity, by contrast, is the
restoration of the actual value of the thing lost through the breach.
The foreseeable value of the items is not in issue. As a result, the
losses are to be assessed as at the time of trial, using the full benefit of G
hindsight." (Emphasis added.)
At p. 163:
"In summary, compensation is an equitable monetary remedy
which is available when the equitable remedies of restitution and
account are not appropriate. By analogy with restitution, it attempts
to restore to the plaintiff what has been lost as a result of the breach,
i.e., the plaintiffs loss of opportunity. The plaintiffs actual loss as a
consequence of the breach is to be assessed with the full benefit of
hindsight. Foreseeability is not a concern in assessing compensation,
 439
1 A.C. Target Holdings Ltd. v. Redferns (H.L.(E.)) ^wmSn
A but it is essential that the losses made good are only those which, on
a common sense view of causation, were caused by the breach."
(Emphasis added.)

In my view this is good law. Equitable compensation for breach of trust

is designed to achieve exactly what the word compensation suggests: to
make good a loss in fact suffered by the beneficiaries and which, using
B hindsight and common sense, can be seen to have been caused by the
breach.
The Court of Appeal relied on two authorities in support of the "stop
the clock" approach. Alliance & Leicester Building Society v. Edges top Ltd
(unreported), 18 January 1991, Hoffmann J. was another case of mortgage
fraud very similar to the present. The plaintiff building society had paid
^ moneys to solicitors in circumstances similar to the present case and the
solicitors had wrongly paid them away in breach of their instructions. The
building society obtained orders for interim payment against the solicitors
on the grounds that they were liable for breach of trust. The case however
is distinguishable because of one crucial difference, viz. the judge found
that if the building society had known the true facts it would not have
made the advance, i.e. one of the facts that has to be assumed to the
D contrary in the present case. In that case therefore at the date of judgment
a certain loss had been demonstrated in that the breach of trust had
caused the building society to enter into a transaction in which they would
not have participated had there been no breach of trust.
In Bishopsgate Investment Management Ltd. v. Maxwell (No. 2) [1994]
1 All E.R. 261 the plaintiff company was a trustee of a pension fund. It
„ brought proceedings for breach of fiduciary duty against a director who
had improperly transferred to a stranger shares held by the plaintiff
company as such trustee. The Court of Appeal held that the judge had
properly given summary judgment for an assessment of damages for
breach of fiduciary duty and ordered an interim payment of £500,000. In
that case, apart from one possibility, there was no doubt the shares were
irretrievably lost and that the value of the shares so lost was in excess of
F £500,000. The only possibility of reducing that loss was that the plaintiff
might have a claim to recover the shares from the transferee on the
grounds that the transferee had notice of the impropriety. In the context
of the claim for an interim payment, Hoffmann L.J. said, at p. 267:
"Secondly, [counsel] says it does not follow that the company's
loss would be the full value of the shares. It might be able to get
Q something back from Credit Suisse. But the company held the shares
as trustee for the pension fund and its liability as trustee was to
restore the fund. Prima facie, therefore, its loss was its liability to
make good the value of the shares. Credit Suisse appears to have
taken the shares on the basis that they were registered in the name of
Robert Maxwell Group Pic. and claim to be bona fide pledgees.
I do not think that the judge was required to speculate on the
" possibility that the company might be able to defeat this plea. It has
no duty to engage in doubtful litigation for the purpose of minimising
the loss for which Mr. Ian Maxwell is liable. In my judgment
therefore the judge was acting within his discretion in deciding that
440
wiiktaEI™" Target Holdings Ltd. v. Redferns (H.L.(E.)) [1996]
£500,000 was a reasonable proportion of the damages which the A
company was likely to recover."

In my judgment these remarks provide no basis for holding that final

judgment can be given when on the facts known at the date of judgment
the plaintiff has eventually suffered no loss. First, Hoffmann L.J. was only
considering the amount of the interim payment: the order for final R
judgment was for damages to be assessed. Secondly, it is sound law that a
plaintiff is not required to engage in hazardous litigation in order to
mitigate his loss. The only way in which the plaintiff company's loss could
be less than the value of the shares wrongly transferred was if such
hazardous litigation should be successfully pursued to judgment. It did
not lie in the mouth of the wrongdoing director to seek to reduce the
quantum of his liability by relying on the plaintiff company to take steps C
it was under no legal duty to take. The position is wholly different in the
instant case where, on the facts to be assumed, it is demonstrated that no
loss has in fact been incurred by reason of the breach of trust.
Mr. Patten (for Target) relied on Nant-y-glo and Blaina Ironworks Co.
v. Grave (1878) 12 Ch.D. 738 as showing that a trustee can be held liable
to recoup to the trust fund the value of shares at the highest value between D
the date of breach and the date of judgment. In my view that case has no
relevance. The claim there was not for breach of trust but for account of
profits made by a fiduciary (a company director) from shares which he
had improperly received in breach of his duty. The amount recoverable in
an action claiming an account of profits is dependent upon the profit
made by the fiduciary, not the loss suffered by the beneficiary. g
Mr. Patten also relied on Jaffray v. Marshall [1993] 1 W.L.R. 1285
where the principles applicable in an action for an account of profits were,
to my mind wrongly, applied to a claim for compensation for breach of
trust. In my judgment that case was wrongly decided not only because the
wrong principle was applied but also because the judge awarded
compensation by assessing the quantum on an assumption (viz. that the F
house in question would have been sold at a particular date) when he
found as a fact that such sale would not have taken place even if there
had been no breach of trust.
For these reasons I reach the conclusion that, on the facts which must
currently be assumed, Target has not demonstrated that it is entitled to
any compensation for breach of trust. Assuming that moneys would have
been forthcoming from some other source to complete the purchase from "
Mirage if the moneys had not been wrongly provided by Redferns in
breach of trust, Target obtained exactly what it would have obtained had
no breach occurred, i.e. a valid security for the sum advanced. Therefore,
on the assumption made, Target has suffered no compensatable loss.
Redferns are entitled to leave to defend the breach of trust claim.
However, I find it very difficult to make that assumption of fact. There H
must be a high probability that, at trial, it will emerge that the use of
Target's money to pay for the purchase from Mirage and the other
intermediate transactions was a vital feature of the transaction. The
 441
1 A.C. Target Holdings Ltd. v. Redferns (H.L.(E.)) "^wnESIii
A circumstances of the present case are clouded by suspicion, which suspicion
is not dissipated by Mr. Bundy's untruthful letter dated 30 June informing
Target that the purchase of the property and the charges to Target had
been completed. If the moneys made available by Redferns' breach of
trust were essential to enable the transaction to go through, but for
Redferns' breach of trust Target would not have advanced any money. In
that case the loss suffered by Target by reason of the breach of trust will
° be the total sum advanced to Crowngate less the proceeds of the security.
It is not surprising that Mr. Sumption was rather muted in his submission
that Redferns should have had unconditional leave to defend and that the
order for payment into court of £lm. should be set aside. In my judgment
such an order was fully justified.
I would therefore allow the appeal, set aside the order of the Court of
Q Appeal and restore the order of Warner J.

LORD LLOYD OF BERWICK. My Lords, I have had the advantage of

reading in draft the speech prepared by my noble and learned friend, Lord
Browne-Wilkinson. For the reasons which he has given, I, too, would
allow the appeal.

D Appeal allowed with costs of appeal to

House of Lords and in respect of
cross-appeal in Court of Appeal.
Appellants to pay respondents' costs in
Court of Appeal in respect of original
appeal.
E
Solicitors: Wansbroughs Willey Hargrove; Rosling King.

J. A. G.