Charter Plc & Anor v City Index Ltd & Ors

For the purposes of contribution under the Civil Liability (Contribution) Act 1978, a claim in knowing receipt may constitute a claim for compensation in respect of damage caused by a breach of trust, even though the remedy may also be described as restitutionary. The statutory expression “the same damage” must retain its natural and ordinary meaning.

In assessing contribution, the court must make a just and equitable allocation having regard to responsibility and all relevant circumstances. Receipt and use of the misapplied property are highly significant. A knowing recipient who has retained the money, or paid it away for its own purposes, will ordinarily have no real prospect of obtaining contribution from negligent directors or auditors who received no benefit.

Charter plc and Charter Central Finance Ltd claimed against City Index Ltd for recovery of funds transferred by an employee to finance his personal spread-betting transactions. The claim was settled for £5.5 million.

City Index then brought Part 20 proceedings against former and serving directors and the group auditors, seeking contribution or indemnity under the Civil Liability (Contribution) Act 1978. The Part 20 defendants applied to strike out or summarily dismiss the claim. The issues were whether a knowing-receipt liability fell within the Act and whether City Index had a real prospect of obtaining contribution.

1. The Part 20 claim was authorised by the Act. A disposal of trust assets in breach of trust causes loss or damage to the trust and beneficiaries. Liability of both the defaulting fiduciary and a knowing recipient is within section 6(1), whether described as compensation, restitution or both. The decision in Friends Provident Life Office v Hillier, Parker, May & Rowden [1997] QB 85, at 106–108, that knowing receipt is a claim to recover compensation in respect of damage, remained binding. The contrary observations in Royal Brompton NHS Trust v Hammond [2002] 1 WLR 1397 were obiter so far as restitution was concerned.
2. The statutory requirement of “the same damage” must be applied according to its natural and ordinary meaning. The court must compare the liabilities alleged to qualify for contribution without adding a gloss to the statutory language.
3. Whether contribution is recoverable, and its amount, depend on what is just and equitable having regard to the extent of each person’s responsibility. Responsibility involves both causation and blame, and the assessment requires consideration of all relevant facts. The fact that conduct caused the loss does not itself require an order for contribution.
4. The authorities, including Dubai Aluminium v Salaam [2003] 2 AC 366, McDonald v Coys of Kensington [2004] 1 WLR 2775 and Niru Battery v Milestone Trading Ltd [2004] 2 Ll.L.R. 319, established the importance of receipt and retention or use of the relevant property. A knowing recipient who pays the money away in bad faith is treated, for this purpose, like one who retains it.
5. City Index had admitted a profit of approximately £3 million from the transactions. It had no real prospect of recovering contribution for that amount. Nor did it have a real prospect of recovering contribution for the remaining £2.5 million paid in settlement. The ordinary equitable position was that a recipient who received and used trust money should bear the resulting liability, even if it no longer retained the money. No facts taking this case outside that rule had been shown.
6. The Part 20 proceedings were therefore summarily dismissed under CPR rule 24.2.

Not an appeal. The High Court determined applications by the Part 20 defendants to strike out or obtain summary judgment.