7 Equitable Compensation PDF

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7 COMPENSATION IN EQUITY

Key cases (to be discussed in detail): 1.

Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211; Textbook [5.30]

2.

Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; Textbook [5.40], [5.70]

3.

Giller v Procopets [2008] VSCA 236; Textbook [5.145] and [5.170]

Principle Rule of Equity: Equity is not just to compensate the plaintiff but to enforce trust. -

trustee is liable to place trust estate in the same position as it would have been in if no breach has been committed. Considerations of causation, foreseeability and remoteness do not readily enter the matter.

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the question is not whether the loss was caused by the breach but rather, the question is whether the loss would have happened had there been no breach. - the obligation is more of an absolute nature than the common law obligation to pay damages for tort or breach of contract

BROAD OVERVIEW: 3 TYPES OF $ REMEDIES IN EQUITY 1.

Equitable compensation* p2

2.

Equitable damages* p15

3.

Account of profits

I EQUITABLE COMPENSATION 1.

Nature and Object

2.

Causation

3.

Intervening acts and remoteness of loss

4.

Contributory Responsibility or Fault?

5.

Mitigation

6.

Assessment of Loss

Only used in equity’s exclusive jurisdiction. 1.

breach of trust (Youyang Pty Ltd v Minter Ellison)

2.

breach of fiduciary duty (Nocton v Lord Ashburton)

Bryan Cheong, 163201

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3.

breach of an equitable duty of care

4.

breach of confidence (Smith Kline .. v Secretary, Dept of Community Services…)

5.

possibly equitable estoppel (Giumelli v Giumelli) s

1. Nature and Object Object: Placing P in as close a financial position had D’s breach not occurred. Equity is subject to equitable discretions – CL dependant on proof of breach of right; Equity is not limited to CL principles (remoteness, damage, foreseeability and cauation) – it’s a binary/strict liability – if equitable duty breached = fault. RULE1: quantum amount owing is at the time of restoration/date of action, not at the time breach happened (Re Dawson) Re Dawson -

MF: misappropriation of T $. By the time Trustee was caught the amount of 4.7k @ 1939 was not in parity with 1966. Instead was akin to 5.8k.

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I: confined to 1939 Price or 1966 Price? Date of breach vs. date of action.

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H: date of action/time of restoration.

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R: restore the estate as if no breach was commmitted + account for market fluctuations o/t. o

If a breach has been committed, then the trustee is liable to place the trust estate in the same position as it would have been in if no breach have been committed.

o

Considerations of causation, foreseeability and remoteness do not really enter into the matter.

2. Causation General Test: If there's “an adequate or sufficient connection between the equitable compensation claimed and the breach of fiduciary duty.” – very basic nexus. 3 circumstances: 1.

Misapplication of trust property**

2.

Breach of fiduciary duty*

3.

Breach of equitable duty of care

(i) Misapplication of trust property: used to be very strict: - wheher or not T actually misappropriated the trustee must repay the fund RULE 1: A trustee who has misapplied trust property in an unauthorized transaction and is unable to return the actual property itself must pay the value of the property into the trust fund (Youyang). 2

Causation: But for test - applied to all breaches of trust (as well as all breaches of fiduciary duty) in relation to any loss for which equitable compensation is claimed from the Trustee Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 -

MF: YY was trustee. Wanted to inv 500k into EC (investment scheme run by ME). Terms of contract said that certificate of deposit must be given for ME to release $ from scheme. ME didn't do so in an attempt to dec tax – they went into liq after. ME said Y would have lost the $ anyway because even if the proper cert was given, YY themselves (overtaking cause) threw its own security by giving the instructions that lost it the money.

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I: was ME fully liable for misapplication?

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H1: Yes liable. Even if a proper certificate had been issued, and ECCCCL had not gone into liquidation, part of the money would have been lost anyway. The trial judge limited YYs compensation.

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H2: Yes liable. TJ was incorrect. The trustee Minter Ellison had one duty (which is to hold the $500k in its trust account until the certificate was issued; in not doing so he wrongly handed the $ over). But they failed in that duty. Therefore, they had to fully compensate $500k.

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J: not interested in the later damning instructions. This is NOT a case of providing a remedy to restore or replenish funds to be held on trusts yet to be fully performed. This was a case of breach of duty by a trustee. o

Distinguishing Youyang from Target Holdings

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1. Y was not a client of ME - he was a Beneficiary

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2. The proposed commercial transaction was not completed as was in Target. The security was never provided and Minters should not have disbursed Youyang's moneys.

RULE 2: Factual causation is relevant. But tf there was no detrimental effect attributable to the payment anyway, there is every likelihood that the trustee will not have to compensate the fund (Target Holdings) Target Holdings -

MF: solicitors misappro clients $ under trust. under instruction that payment was only to occur when property had been conveyed to mortgagor and mortgagor had executed charges in favour of client. Solicitors breached trust and paid money out prematurely and were liable to account. o

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BUT property was still conveyed and charges were duly executed. Proposed commercial transaction was completed & Target Holdings did in fact get the security it wanted, only a bit late.

H: Client suffered no loss - Target was refused compensation as the Breach of trust left the client in exactly the same position as if there had been no breach.

(ii) Breach of Fiduciary Duty RULE1: Question is whether the loss WOULD HAVE HAPPENED WITHOUT the breach? NOT whether the loss was caused by or flowed from the breach.

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RULE1.2: FRAUD = STRICT LIABILITY = Brickenden Rule: PRESUMPTION is THAT once you have failed in your duty of disclosure = fradulent action, the court is not interested in what would have/not happened – the fiduciary is automatically responsible. - Court immediately infers that this caused the P's loss, without further evidence. - Presumption can be rebutted if D can show that the loss would have occurred anyway RULE1.3 NON-FRAUDULENT BREACH of fiduciary duty: A 'but for' test is applied at the outset. 

Onus is on the P to show that the loss would not have occurred but for the breach

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UK CASE: Swindle v Harrison [1997] 4 All ER 705 - i.e. Brickenden rule does not apply for non-fraudulent breaches – especially if it's a minor breach of duty

Swindle v Harrison [1997]  UK stance (for non-fraudulent fiduciaries) 

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MF: P (lawyer) gave D briding loan to buy hotel – P didn't tell D his firm was intending to buy the hotel foreseeing D will default on loan  D was further borrowing on her house at that time – which she already defaulted. P took possession once D foreseeably defaulted. D counter-claimed P breached fiduciary cause P didn't disclose profit he was getting and Brickenden would require P to restore D to position she was in b4 the breach (pay D’s house and hotel off). I: if P was liable for breach of fiduciary H1: Court rejected the Brickenden because D could not show evidence of Fraud. Everything P did was legit. J: o The disclosure of the true facts would not have affected her decision to accept it. o Even if full disclosure, she would have still accepted the loan, and go ahead with the purchase. Which means that she would have still lost the value of the equity in her home in any event. o She cannot recover damages unless she can prove that:  the Ps acted fraudulently or in a manner equivalent to fraud OR  that she would not have completed the purchase if full disclosure had been made

Maguire v Makaronis (1997)  Australian stance is UNCERTAIN RULE1.4: endorse Brickenden --> Court is VERY WARY of denying Brickenden; Should not deny the principle that Brickenden can extend to delinquent fiduciaries, particularly solicitors and other professional advisers.  

MF: lawyers gave M bridging loan. Ls didn't tell them they were going to be mortgagees or to seek independent advice. Solicitors argued that Makaronis’s would have gone ahead with the mortgage whether or not there had been a breach H: The transaction is voidable even if the beneficiary would still have acted as they did, even if the fiduciary had made a full disclosure of the relevant facts.

There is no clear rule. However, as a rule of thumb, Brickenden can still apply. Though, courts are becoming more reluctant to simply apply it without investigation of possible causation. So the presumption in Brickenden weakens.

(iii) Breach of Equitable Duty of Care RULE1: The test of causation for breach of fiduciary duty (no remoteness and foreseeability) is different from the causation test in a breach of equitable duty. - A breach of equitable duty applies the same test as that of the CL duty. - Causation of breach of fiduciary duty is lower than CL/Equitable duty - Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187

3. Intervening Acts and Remoteness of Loss 3 types: 4

1. 2. 3.

Breach of trust Breach of fiduciary duty Breach of an equitable duty of care

(i) Breach of trust RULE1: No doctrine of intervening acts in breach of trusts (Dawson) RULE2: No consideration of causation, foreseeability, and remoteness in breach of trust. Issue of remoteness is irrelevant (Maguire v Makaronis) (ii) Breach of Fiduciary Duty RULE1: Breach of duty is a wrong in itself. Regardless of whether loss can be foreseen. STRICT (Brickenden) RULE2: The common law rules of remoteness and causation DO NOT APPLY to the breach of a trustee’s obligation. O’Halloran v R T Thomas (1998) 45 NSWLR 262 -

MF: breach of fiduciary duty concernening fraud. Property. – court refused to allow an intervening act. H: O’Halloran’s conduct was the cause of Thomas’s loss - O’Halloran’s conduct was fraudulent in equity. J: H was in breach of director's duty - which requires the director to exercise reasonable care and diligence, not to place himself in a position where his duty as a director and his own interests conflict, and not to exercise his/her powers for improper purpose o Strict "but for test" o Breach of fiduciary obligation needs causal link between breach and loss o Question to ask: Would the loss have occurred if there had been no breach."?? o If yes, H had to restore Thomas to position in which Thomas would have been had there been no breach  CL remoteness and causation which will sever causal connection do not apply o Company’s director as traditional trustee o Strict "but for test" is applied to the trustee of the traditional trust based on the vulnerability of beneficiaries, with respect to the disposition of property by a trustee who has control over such disposition.

(iii) Breach of Equitable Duty of Care RULE1: A director's duty (to exercise reasonable care) though equitable, is not a fiduciary obligation cause not a duty that stems from the requirements of confidence and trust imposed on a fiduciary (Permanent Building Society v Wheeler) RULE2: Brickenden rule only applies to breaches of a true fiduciary obligation (Fraudulent acts) - Breach of an equitable duty of care is similar to the tortious duty not to be negligent - so equity should follow tort (Permanent Building Society v Wheeler) – but not certain cause see below. - C.f. Youyang – HC said should not apply same rules to contract and tort RULE3: The test of causation for breach of fiduciary duty is different from the causation test in a breach of equitable duty. - A breach of equitable duty applies the same test as that of the CL duty. - Causation of breach of fiduciary duty is lower than CL/Equitable duty – more absolute Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 -

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MF: D was dir at PBS who bought land that was subeq controlled by other dirs..Other directors engineered the purchase for an improper purpose in breach of their fiduciary duties. D failed to oppose sale. PBS lost as a result of the purchase of land. PBS sought equitable compensation - breach of D's equitable duty to exercise reasonable degree of care and skill as director H:

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The D breached his duty of skill and care. But, director's duty of care and skill is NOT fiduciary duty. o for remedies: need to prove causation - which PBS failed in proving that, but for the breach by the defendant of his equitable duty to exercise reasonable care, the loss to PBS would not have occurred. J: Fundamental distinction between breaches of fiduciary obligations which involve dishonesty and abuse of the trustee's advantages and the vulnerable beneficiaries and honest, but careless dealings which breach mere equitable obligations. o Court of equity should not require an honest but careless trustee to compensate a beneficiary for losses without proof that but for the breach of duty, those losses would not have occurred. o

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4. Contributory Responsibility OR Fault 2 types: 1. Breach of fiduciary duty 2. Breach of equitable duty of care

(i) Breach of Fiduciary Duty In NZ: RULE1: Can reduce compensation when there is contributory negligence (Day v Mead) Day v Mead - MF: Mead (a solicitor) had persuaded his client Day to invest in a company in which Mead had an interest. The company failed and Day sued Mead to recover the money invested. Grounds: Day bought more shares after being advised to do so. - H: breach of fiduciary duty by Mead and that Day was entitled to equitable damages. o However, the Court also found that Day had contributed to his own loss by making a second investment after becoming aware of the true state of the enterprise. o To take account of this, damages in relation to the second investment were reduced In Australia: RULE2: Doctrine of contributory responsibility doesn't apply as a defence to a claim for equitable compensation (Pilmer v Duke Group Limited) - MF: A firm of accountants was retained by a company to provide an independent expert valuation report in connection with a proposed takeover. The report was negligently prepared by the accountants. Kia Ora went ahead with the takeover which was utterly disastrous. - H: HC rejected concept of contributory negligence - saying there were severe conceptual difficulties o o

Contributory negligence focuses on the conduct of the plaintiff whereas fiduciary law is upon the obligation by the defendant to be loyal. Moreover, any question of apportionment with respect to contributory negligence arises from legislation, not the common law e.g. CLA.

(ii) Breach of Equitable Duty of Care RULE1: UK POSITION: Contributory negligence can apply to a breach of an equitable duty of care RULE2: AUSTRALIAN POSITION: HC not convinced that you can apply contributory negligence to a breach of a DOC - CANNOT APPLY IN AUSTRALIA (Youyang Pty Ltd v Minter Ellison)

5. Mitigation Unclear in Australia

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6. Assessment of Loss Aim of compensation: To place the Plaintiff as nearly as possible in the position in which he or she would have stood had there been no breach. How to calculate? Method will vary according to nature of the duty breached. You could compensate the Plaintiff’s loss by:  looking at the Defendant’s gain, or  looking at the Plaintiff’s loss.  Mathematical certainty is not the aim, just a broadly equitable result. - Compensation is not intended to be punitive, just to effect justice between the parties. When is it judged? Date of the trial, not date of breach RULE1: If personal losses like distress can be claimed? Traditionally, only for economic loss, but NOW it seems to be changing and allowed (Though: Note: not HC cases: Jane Doe v ABC; Giller v Procopets) Jane Doe v ABC 2007  MF: Reporters from the ABC identified a rape victim. Excacerbated psy damage incurred on V.  H: She succeeded in actions of negligence, breach of confidence, breach of privacy etc o Gave equitable compensation for breach of confidence resulting in psychiatric injury o judge was guided by common law principles – awarded money for ‘hurt, distress, embarrassment, humiliation, shame and guilt Giller v Procopets 2008  MF: Plaintiff made an equitable claim for breach of confidence against D. D disclosed a homemadesextape.  I: Whether there could be recovery of compensation for emotional distress  H: could recover under equitable compensation/ Upheld award as damages under Vic equivalent of the Lord Cairns' Act  J:  o CL: Damages for 'mere distress o Campbell v Mirror Group Newspapers - HOL supported an award of damages not amounting to psychiatric injury, where breach of confidence was made out. o Douglas v Hello! - Court of Appeal and HOL awarded for distress for plaintiff who breached confidence o Equity: o (a) Equitable compensation  Equitable remedies such as injunctions are available to prevent publication of confidential material because of its private nature.

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Unnecessary to show breach will cause financial loss or psychiatric injury

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Rationale: An inability to order equitable compensation to a claimant who has suffered distress would mean that a claimant whose confidence was breached before an injunction could be obtained would have no effective remedy.

Statute: (b) Damages under Lord Cairns' Act?  No Australian authority on whether damages can be awarded to a plaintiff who has suffered distress or embarrassment (exposure of P’s private information) as a result of the breach of confidence (rather than D’s profteering from the exposure).  Thus, Court was allowed to give equitable damages in place of equitbale injunction. Although not allowed to give exemplary damages. Aggravated possibly allowed as compensatory (not punitive). 

Under negligence, damages for injury to feelings cannot be recovered unless accompanied by another recoverable loss.

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Cf in torts, damages for upset and distress can be awarded for torts such as defamation and deceit.

II EQUITABLE DAMAGES 1. 2. 3.

Jurisdiction and Object Comparing it to Common Law Damages Applicability of Monetary Remedies to Equitable Causes of Action

Awarding $ in equitable causes of action – equitable response to equitable wrong

1. Jurisdiction & Object Chancery Amendment Act 1858 / Lord Cairns' Act = Allowed equity to award BOTH CL damages where legal rights were infringed and Equitable award damages in addition to or in lieu of an injunction or specific performance for purely equitable claims AND award CL damges for prospective loss or damage 

Tas Equivalent: Civil Procedure 1932 (Tas) , s11(13)

RULE1: The power of a court to award damages exists as long as a court has jurisdi...