Sir Owen George Glenn Knzm Onzm v Eric John Watson (personally and as trustee of the Richmond Trust)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Nugee |
| Judgment Date | 25 September 2018 |
| Neutral Citation | [2018] EWHC 2483 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No: HC-2015-001647 |
| Date | 25 September 2018 |
[2018] EWHC 2483 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (Ch D)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Justice Nugee
Claim No: HC-2015-001647
Elizabeth Jones QC, Justin Higgo, Paul Adams and Oliver Jones (instructed by Farrers) for the Claimants
Paul McGrath QC and James Brightwell (instructed by Grosvenor Law) for Mr Watson
Hearing date: 10 September 2018
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
I handed down my judgment after trial of this action on 31 July 2018, the neutral citation being [2018] EWHC 2016 (Ch) ( “the main judgment”). A number of consequential issues were argued before me on 10 and 13 September 2018, one of which was the appropriate rate of interest. At the conclusion of the argument on that point on 10 September I ruled that the appropriate rate was 6.5% pa, compounded annually, indicating that I would give my reasons later. This judgment contains my reasons for that ruling.
I do not propose in this judgment to set out the background in detail, but will assume that anyone reading it will have read, or will have access to, the main judgment, and I will also adopt the same abbreviations. But it may be helpful to briefly recap the context in which the issue arises:
(1) I found that Kea had been induced to enter into the July agreements by deceit and that the July agreements and the subsequent agreements were liable to be set aside for deceit (among other grounds): see the main judgment at [528(1)].
(2) The consequence of that was that Kea was entitled to treat Spartan as a constructive trustee of its money and claim back from Spartan the £129m it had paid to it: see the main judgment at [540(5)].
(3) That also entitled Kea to claim interest under the equitable jurisdiction ( “equitable interest”) from Spartan on the £129m: ibid.
(4) Kea's claim against Spartan had in fact been settled by the 2017 settlement with Novatrust, but the quantum of its claim against Spartan remained a live issue as it formed the basis of Kea's claim against Mr Watson for equitable compensation. I found that Mr Watson was liable to pay Kea equitable compensation if the total sum recoverable from Spartan fell short of the amount of Kea's claim against it: see the main judgment at [541]–[542].
(5) In that way the rate of interest that would have been payable by Spartan to Kea on the £129m had its claim not been settled directly affected the amount recoverable by Kea as equitable compensation from Mr Watson.
In the main judgment I then had to deal with a contested amendment to plead a claim to interest at 8% pa. This was based on what it was said Kea would itself have done had it not invested in Spartan. I refused the amendment for the reasons given at [543]–[554], which were in effect that it was neither open to Kea on the unamended pleading, nor in accordance with the authorities, which indicated that the Court should not have regard to what the individual claimant would have done but should adopt a broad brush approach based on the general attributes of the claimant.
In the course of refusing the amendment I said this (at [549]–[551]):
“549. It can be seen that these citations are concerned with cases where the rate of interest was based on the rate at which the claimant can borrow, and decide that one does not look at the individual claimant but at what a class of claimant (small business, large business and the like) can borrow at. I accept that the borrowing rate, which has been said to be suitable in commercial cases, is not necessarily suitable in all types of case (see Hildyard J's detailed analysis of this point in Challinor v Bellis) and that where the claimant that is out of pocket is a trustee that would otherwise have invested in proper trustee investments, the appropriate rate would not be the borrowing rate but a rate to reflect the return on such investments. I also accept that this would apply to Kea which although not itself a trustee is a vehicle for trustee investment. However I do not see that this affects the principle that in assessing such a rate the Court adopts a broad brush approach based on what a person with the general characteristics of the claimant might have received by way of investment on trustee investments, not a rate that reflects what the individual claimant would itself have done.
550. That is I think supported by the usual practice in cases where interest is sought against defaulting trustees. The Court does not as far as I am aware attempt to investigate what other investments the particular trust fund might have made, but adopts, on a broad brush basis, a rate that is intended to be a proxy for the rate of return that trustee investments would normally earn. In the 19 th century that was 4%, but in more modern times has been fixed by reference to investment returns. I would accept, by analogy with what Forbes J said in Tate & Lyle v GLC, that the Court could take into account the general characteristics of the trust in question, so if large private trusts were shown to earn higher investment returns than small ones that could be taken into account, but I do not accept that under this jurisdiction the Court would have regard to what the claimant itself would have done or its particular appetite for investments.
551. In the present case the evidence that Ms Jones relies on in support of the claim to 8% interest is not evidence of what large trust funds are in general able to obtain by investing in proper trustee investments, but evidence of what Kea itself would have wanted to do and sought to do. I do not need to detail the evidence she relied on as in accordance with the principles that I have referred to, I do not think this sort of inquiry is one that the Court would entertain on an application for equitable interest.”
I reverted to the question at [561]–[564], where among other things I said this:
“563. I have decided above that Kea's claim for equitable interest at 8% cannot be sustained on the basis on which it is sought to be put forward, and that the appropriate rate of interest depends on that available on proper trustee investments. That is not something that the parties have really addressed. Ms Jones quite correctly points out that the question of what rate of interest should be awarded is very often dealt with after judgment, and it appears, judging from the reported cases (and my own experience), that it is not uncommon for parties to put material before the Court after judgment to justify a particular interest rate.
564. That raises the question therefore whether I should assess the appropriate rate now on such material as I have, or give the parties a further opportunity to adduce material on this question. This question was not dealt with in closing submissions and although Question 9 is on the agreed list, I think I ought to hear from the parties as to whether Kea (and indeed Mr Watson) should have any further opportunity to establish what an appropriate interest rate should be.”
In those circumstances Ms Jones QC, who appears for the Claimants, submits that I have already decided that the appropriate rate of interest for these purposes is to be measured by the return available on proper trust investments, and that it is indeed appropriate to allow her to adduce further material on that question. She relies for that purpose on newly-adduced material from Farrers, the Claimants' solicitors, which addresses the very question as to what rate of return a trust could expect to receive from proper trustee investments. I give the details below.
Mr McGrath QC, who now appears for Mr Watson, submits that it is too late for the Claimants to seek to adduce the material that they rely on; that the appropriate rate should in any event, in accordance with the authorities, be determined having regard to the cost of borrowing and not the return on investments; and that there is no good reason to adopt a rate different from that adopted in recent cases of 3% above base rate.
Preliminary matters
I will deal first with certain preliminary matters which I can dispose of quite shortly.
First, although I did express the view in the main judgment that the appropriate rate depended on that available on proper trustee investments, I do not think I should prevent Mr McGrath from arguing that that was to take a wrong view. As appears from the main judgment the argument put forward in closing submissions at trial by Mr McCaughran QC (who then appeared for Mr Watson) was primarily focussed on the submission that Kea should not be permitted for the purposes of equitable compensation to rely on evidence as to what it would actually have done with the money instead if it had not been induced to invest in Spartan. Mr McCaughran did not dispute that Spartan would be liable to pay equitable interest on the £129m if Kea's substantive claims were established, but there was little argument directed specifically at what such a rate of interest should be. That was why I declined in [563]–[564] to deal with the rate without further argument.
In those circumstances, I do not think it right to prevent Mr McGrath from arguing that I was wrong to say that the appropriate rate depended on investment...
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