Target Holdings Ltd.

Respondent v Redferns (A Firm) and Another Appellants

House of Lords 20 July 1995 [1995] 3 W.L.R. 352 [1996] A.C. 421 Lord Keith of Kinkel , Lord Ackner , Lord Jauncey of Tullichettle , Lord Browne-Wilkinson and Lord Lloyd of Berwick 1995 Feb. 20, 21, 22; July 20 TrustsTrusteeBreach of trustSale of commercial propertySolicitor holding funds on trust for transfer on completion of purchase and charge to mortgagee Funds paid away to strangers in breach of trust before completionCharge subsequently effectedMortgagee suffering lossDefence that same loss would have occurred if no breachWhether obligation to restore trust fundWhether 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, 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 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 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 1m. 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 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 reconstitute the fund; that where there was an accrued cause of 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 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. 427G-428A, 435G-H, 436B-E, 437C-E, 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) 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: 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 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 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 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 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 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 been said that 'considerations of causation, foreseeability and remoteness do not readily enter into the matter:' In re Dawson, decd.; 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, decd.; 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. Boughton & Co. (1991) 85 D.L.R. (4th) 129 and Nestle v. National Westminster Bank Plc. [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 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 Cl. & 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 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. 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. 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 & 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 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 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 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 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. Target's cause of action for breach of trust was complete as soon as 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 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. 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 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 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 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. On the question of causation, In re Dawson, decd.; 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. 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. Edgestop Ltd. , 18 January 1991 and Bishopsgate Investment Management Ltd. v. Maxwell (No. 2) [1994] 1 All E.R. 261 . In 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 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-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 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. 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 BrowneWilkinson, 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.

LORD JAUNCEY OF TULLICHETTLE.

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 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 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 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 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. 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 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, 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 on certain insurance policies. On 23 June 1989 Referns 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, 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 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 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. 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 signed and executed on behalf of Panther and returned to Redferns by 11 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. 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 were otherwise than in accordance with Redferns' instructions from 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 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 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 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 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 1m. He did not expressly decide whether there was a triable issue as to whether the whole transaction would have fallen through had it not 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 1m. Target cross-appealed against the refusal to give summary judgment on the breach of trust claim. On *431 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 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 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 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 suffered a loss in round figures of 1.2m. (i.e. 1.7m. 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 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 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 Gibson L.J. 1100B-C; Peter Gibson L.J. 1104B) and it is common ground 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 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 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. 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 , 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. 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 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 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 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. 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 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 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 rise to a loss is it necessary to consider the extent of the trustee's liability 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 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 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 Underhill and Hayton, Law of Trusts & Trustees 14th ed. (1987), pp. 734-736; In re Dawson, decd.; 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. 1 and 2) [1980] Ch. 515 . Thus the common law rules of remoteness of damage and causation do not apply. However there does have to be some causal connection between the breach of trust and the loss to the trust estate for which

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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 Plc. [1993] 1 W.L.R. 1260 . Hitherto I have been considering the rights of beneficiaries under 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 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. 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 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. 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 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.

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This case is concerned with a trust which has at all times been a bare 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 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 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 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.' 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. 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 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 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 does not in my judgment mean that the quantum of the compensation

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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 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, decd. [1966] 2 N.S.W.R. 211 . In that case a testator had established separate executors for his New Zealand and his 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 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. In Canson Enterprises Ltd. v. Boughton & Co. (1991) 85 D.L.R. (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 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 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 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: '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

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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 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 plaintiff's loss of opportunity. The plaintiff's 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 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 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. Edgestop 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 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 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 something back from Crdit 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. Crdit Suisse appears to have taken the shares on the basis that they were registered in the name of Robert Maxwell Group Plc. 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 *440 500,000 was a reasonable proportion of the damages which the 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 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

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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 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 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. 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 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 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 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 1m. 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 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. 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. (J. A. G. )

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