Eric John Watson v Kea Investments Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Hamblen,Lord Justice McCombe,Sir Bernard Rix |
| Judgment Date | 23 October 2019 |
| Neutral Citation | [2019] EWCA Civ 1759 |
| Date | 23 October 2019 |
| Docket Number | Case No: A3/2018/2495 |
| Court | Court of Appeal (Civil Division) |
[2019] EWCA Civ 1759
Lord Justice McCombe
Lord Justice Hamblen
and
Sir Bernard Rix
Case No: A3/2018/2495
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
Mr Justice Nugee
HC/2015/001647
Royal Courts of Justice
Strand, London, WC2A 2LL
Joseph Dalby (SC, Republic of Ireland) and Simon Harding (instructed by Direct Access) for the Appellant
Elizabeth Jones QC and Paul Adams (instructed by Farrer & Co. LLP) for the Respondent
Hearing dates: 17 and 18 July 2019
Approved Judgment
Introduction
This is the appeal of Mr Eric Watson (“Mr Watson”) from part of the Order of 13 September 2018 of Nugee J made after the trial of an action between the respondent, Kea Investments Limited (“Kea”) and Sir Owen Glenn (“Sir Owen”), as claimants, against several defendants including Mr Watson and two companies called Novatrust Limited (“Novatrust”) and Spartan Capital Limited (“Spartan”). Kea and Spartan were incorporated in the British Virgin Islands; Novatrust was incorporated in Jersey.
By paragraph 4 of his Order, the judge declared that Kea was entitled to equitable compensation from Mr Watson in the maximum sum of £43,495,891.33 as at 13 September 2018 and that interest should continue to accrue at a rate of 6.5% per annum compounded annually. In circumstances which I shall relate shortly, the figure of £43 million (+) reflected the unpaid liability of Spartan to Kea, including interest to 13 September 2018, with interest to continue to accrue thereafter at the stated rate and compounded.
The issue on this appeal raises the question whether the interest, payable by Spartan, and continuing to accrue, should properly have been fixed by the judge at 6.5% to reflect what the money to be recovered would have produced if invested in “proper trustee investments” — this would include an element of total return (including capital return) to the victim (Kea) — or should be fixed at some other (and if so, what) rate. The judge set the rate as a proxy for the rate of return that trustee investments would achieve. He did so based on performance indices of investment managers in different risk categories, as analysed by two (as was and is accepted) independent and reputable organisations, Asset Risk Consultants (“ARC”) and the Society of Trust and Estate Practitioners (“STEP”). The judge adopted a medium-risk rate identified by reference to those two indices.
For Mr Watson it is contended that the judge was wrong to approach the case on the basis that interest was to be calculated as against a defaulting trustee and that, in any event, an appropriate rate of interest, representing income yield only, should have been fixed. This summarises the ten formal grounds of appeal, which were drawn together in paragraph 6 of the skeleton argument settled by previous counsel for Mr Watson, Mr James Brightwell. The oral argument on the appeal was presented by Mr Dalby (newly instructed for Mr Watson for the hearing of the appeal) and was somewhat different from that appearing in Mr Brightwell's skeleton. I return to this below. Indeed, Mr Dalby did not pursue a number of the formal grounds of appeal before us (namely, grounds 6 to 9, and perhaps also 10).
The judge granted Mr Watson permission to appeal because he considered that there was a compelling reason for this court to give guidance on the exercise of discretion by trial judges in fixing interest rates in cases of this type.
As I will explain, I find that the judge exercised his discretion to award interest under the equitable jurisdiction of the court entirely in accord with the principles to be found in the decided cases and that his decision should be upheld. It was objected that an award of interest at that rate was without precedent. In my judgment, what is important is whether the award was in accord with equitable principles, rather than whether an award at the specific rate in question has been made before.
Background Facts
The judge heard the trial of the action over 39 days in May, June and July 2017. He handed down his reserved judgment (of 186 pages and 581 paragraphs) (“the Trial Judgment”) on 30 July 2018: [2018] EWHC 2016 (Ch). Consequential matters were argued out on 10 September 2018, with a further judgment, on the question of interest (“the Interest Judgment”), being delivered by the judge on 25 September 2018: [2018] EWHC 2483 (Ch). This was a highly complex action on its facts. What I will now set out is merely the bare bones of the case, in order to give an understanding of how the present dispute about interest arises.
In April 2012 Mr Watson and Sir Owen agreed to participate in an investment joint venture, through Spartan as the joint venture vehicle. Mr Watson's participation was to be through Novatrust and that of Sir Owen was to be through Kea, a subsidiary of a trust known as the Corona Trust of which Sir Owen was the settlor. Between July and September 2012 Kea invested £129 million in the Spartan joint venture (“Project Spartan”). Relations between the parties deteriorated and in April 2014 Kea presented a petition for the winding-up of Spartan on the “just and equitable” ground. Novatrust, under an indemnity from Mr Watson, then brought a derivative claim on behalf of Spartan alleging that Kea had pursued a wrongful strategy, in breach of the joint venture agreements, designed to frustrate the investment through Project Spartan. On 29 April 2015, Sir Owen and Kea issued the Claim Form in the present proceedings, alleging deceit and breach of fiduciary duty on the part of Mr Watson and others and seeking the setting aside of the various joint venture agreements with Novatrust and Spartan. They also asked for accounts to be taken, restitution of the invested funds and/or payment of the sums found due on the taking of the accounts, together with equitable compensation. So far as interest was concerned, paragraph (17) of the Schedule to the claim form claimed:
“17. Compound, alternatively simple, interest pursuant to the court's equitable jurisdiction and/or section 35A of the Senior Courts Act 1981 on the sums found to be due to the Claimants at the rate which would have been obtained by Kea by investing in proper trustee investments, or at such other rate and for such period as the Court considers appropriate.”
The Trial and the Trial Judgment
The trial of the action began on 5 May 2017 and, during its course on 6 June 2017, Kea settled the proceedings between it and Novatrust/Spartan. The settlement provided for repayment to Kea by Spartan of the balance of the funds in its hands, without appropriation of the settlement money to any of the specific claims against Spartan. The underlying agreements between Kea, Novatrust and Spartan were set aside by consent. The consequence of the setting aside of the agreements, the judge held, was that Kea was entitled to treat Spartan as constructive trustee of the money (£129 million) that it had received and to re-claim that sum from it: see paragraph 540(5) of the Trial Judgment and paragraph 2(2) of the Interest Judgment. As the judge recorded in the Trial Judgment, it was common ground between the present parties that this gave Kea the right to interest on the sums to be recovered from Spartan under the equitable jurisdiction of the court or under s.35A of the Senior Courts Act 1981.
After the settlement between Kea and Novatrust/Spartan the judge proceeded to try the outstanding claims against Mr Watson and, as already mentioned, the claims were broadly upheld and Mr Watson was found by the judge to be liable to pay equitable compensation to Kea for breaches of fiduciary duty owed to Kea. The measure of that liability was to be the balance of the money (including interest on it) which was due from Spartan and which Spartan itself proved unable to pay. The judge explained this in paragraphs 541–542 of the Trial Judgment which I should set out. He was there answering “Question 6” in his list of questions for answer which was: “Whether equitable compensation should in principle be awarded?” The relevant passage in the judgment was this:
“541. It is now possible to identify what the claim for equitable compensation is. As has just been explained, Kea had a claim against Spartan to make it account as constructive trustee for the £129m and equitable interest. But Kea always expected that Spartan would be unable to pay the entirety of that sum. The claim for equitable compensation is a claim against Mr Watson for breach of fiduciary duty if the total recoverable from Spartan and the other parties falls short of that claim. The way it was explained by Ms Jones in her closing submissions was as follows:
“The reason for that, my Lord, is it has always been obvious that Spartan is insolvent. That is why it is no good getting an order for 129 million plus interest against Spartan, because it hasn't got it. That is why the equitable compensation has always been in there: to recover from Mr Watson anything that couldn't be recovered from other parties.”
542. It is now possible to answer Question 6 on the list, which is whether equitable compensation should in principle be awarded.”
Having decided that question, the judge had to fix the rate of interest which Kea was entitled to recover on sums owed to it by Spartan, as that would form part of the sum recoverable from Mr Watson by way of equitable compensation in respect of his breach of fiduciary duty. It is important to understand that the interest that fell to be determined was that which was payable by Spartan to Kea (and not interest payable by Mr Watson). Mr Watson's liability, consequent upon the judgment, is for the deficiency between Spartan's liability to Kea and those parts of the invested...
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