Interest in Breach of Trust Claims

By Daniel Winter


On 23 October 2019 the Court of Appeal handed down a judgment in litigation between Kea Investments Ltd and Eric Watson, regarding a joint property venture called Spartan Capital Ltd.

Kea Investments Ltd claimed that they were unlawfully induced in to the venture by Mr Watson, and they were also the victim of fraud and breach of fiduciary duty.

In July 2018, a judgment was given by Justice Nugee, after a three-month trial, finding that the joint venture agreements were void and £129 million was to be repaid by Spartan Capital Ltd. As Spartan Capital Ltd had insufficient funds to pay the total sum ordered, Mr Watson was personally liable to pay equitable compensation to Kea based on the shortfall.

Key to the question of determination of the amount of the shortfall was the interest, which the judge ordered at 6.5% compounded annually.

Mr Watson appealed against this method of interest calculation, asserting that the rate should be in line with usual borrowing or deposit rates. If this argument was accepted, it would result in a rate not higher than 3% over base rate.

The Court of Appeal dismissed Mr Watson’s appeal, and Lord Justice McCombe gave the leading judgment. As Kea was able to exhibit publicly available information to ascertain the likely performance of the investments over the relevant period, the court was able to exercise its discretion to award equitable interest designed to reflect the real-world returns that would likely to have been gained had the unlawful conduct not occurred.

This decision is of significance as it provides a summary of the authorities on equitable interest, and raises the possibility of claiming loss of investment interest to a wider range of claims than just breach of express trusts.

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