In re Duckwari Plc (No 2)

Compensation under section 322(3)(b) of the 1985 Act is confined to loss resulting from the transaction which contravened section 320(1). Where the transaction is an unauthorised acquisition, the recoverable loss arises from the acquisition itself. It does not extend to the cost of borrowing or the opportunity cost of funds used to finance it.

The equitable liability is strict. Depreciation is recoverable without proof of foreseeability or absence of remoteness. Proper expenditure on preserving and realising the asset may be allowed where it helped to obtain the best available price. A commercial company should receive simple interest at a commercial rate, rather than the rate appropriate to a private trust.

Duckwari Plc acquired property for £505,923 under an arrangement involving its director, Mr Cooper, and Offerventure Ltd. The property was eventually sold for £177,970 net of expenses. The High Court had declared that the arrangement caused Duckwari no damage: [1997] Ch 201.

In an earlier reserved judgment, reported at [1998] 3 WLR 913, the Court of Appeal allowed Duckwari’s appeal and held the respondents jointly and severally liable for the loss caused by the property’s depreciation. This supplementary judgment determined the extent of that relief.

The principal questions were whether Duckwari could recover its actual and notional financing costs, whether its expenditure on holding and realising the property was recoverable, and the appropriate basis and rate of interest.

1. Disposition. Lord Justice Nourse, with whom Lord Justice Pill and Lord Justice Thorpe agreed, held that Duckwari was entitled to £352,933 before interest. The formal order entered judgment as at 8 May 1998 for £751,655, with interest thereafter at the judgment rate. There was no order as to costs from that date onwards.

2. Section 322(3)(b) confined recovery to loss or damage resulting from the relevant arrangement or transaction. Section 322(1) required the arrangement and the transaction pursued under it to be identified. The arrangement permitted Duckwari to take over Offerventure’s contractual rights and liabilities. The relevant transaction was Duckwari’s acquisition of the property, not the borrowing and use of its own funds by which that acquisition was financed.

3. Liability under section 322(3)(b) arose because section 320(1) had been contravened. The recoverable loss was therefore limited to loss resulting from that breach. Duckwari could recover the depreciation in the property’s value, but not the bank interest or notional investment return associated with financing the purchase.

4. The statutory basis of recovery was equitable, notwithstanding section 322(4), which preserved liabilities arising independently of subsection (3). This equitable basis was strict. A person liable as a trustee must make good the depreciation of an unauthorised investment on its realisation. Foreseeability and remoteness, which would arise in a common-law damages claim, were irrelevant.

5. Holding and realisation costs are not invariably recoverable; each case depends on its facts. The planning appeal costs had substantially contributed to the eventual sale price. The rates and insurance premiums had properly preserved the property and assisted in obtaining the best price. Those costs, totalling £24,980, were therefore allowed.

6. Duckwari was entitled only to simple interest. The private-trust rate discussed in Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515 was inappropriate because Duckwari was a commercial concern. The court followed the commercial precedent in Belmont Finance Corporation Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 and awarded simple interest at base rate plus 1 per cent. No case had been established for compound interest or for a rate varying with the company’s size and borrowing position.

1. House of Lords Appeal Committee: On 16 July 1998, leave to appeal from the Court of Appeal’s earlier liability decision was refused.

2. Court of Appeal: In the earlier judgment reported at [1998] 3 WLR 913, the court allowed Duckwari’s appeal, discharged the High Court’s declaration and established the respondents’ liability. In this supplementary judgment, the court quantified the recoverable principal and determined the basis of interest.

3. High Court, Chancery Division: His Honour Judge Paul Baker QC declared that the arrangement had caused Duckwari no damage: [1997] Ch 201. That declaration was discharged on appeal.