Interactive Technology Corporation Ltd v Ferster

Where a fiduciary elects to claim equitable compensation for losses resulting from an unauthorised payment, the wording of the remedy ordinarily requires an inquiry into what losses resulted from that payment. The court should not treat the issue as conclusively resolved by recasting the breach in formal terms or by comparing it with a different restitutionary remedy. On a summary judgment application, a causation defence should not be shut out where it has a reasonable prospect of success and depends on disputed counter-factuals. A court should be particularly cautious about developing unsettled law summarily, before findings of fact and after hearing only one side.

Following a trial on liability, ITC obtained an order for equitable compensation to be assessed for losses resulting from Mr Ferster’s unauthorised remuneration. The court had previously determined that ITC had elected compensation for loss rather than an account and repayment of sums due on an account.

ITC applied under CPR Part 24 for summary judgment that Mr Ferster had no defence based on causation, and sought an interim payment of approximately £4.5 million under CPR rule 25.6. Mr Ferster did not appear, but relied on arguments previously advanced, including that ITC might have suffered no loss because the remuneration reflected the market value of his services. The central issue was whether that causation issue could be determined summarily.

1. Applications dismissed. The application for summary judgment was refused. The application for an interim payment was also dismissed because it depended on summary judgment being granted.
2. The order obtained on 19 December 2016, as construed in the judgment of 10 February 2017, required compensation for losses resulting from the payment of unauthorised remuneration. The language of compensation for losses resulting from the payment necessarily contemplated an inquiry into causation. The authorities concerning an account and repayment did not exclude such an inquiry where ITC had deliberately elected a different remedy.
3. The court rejected the submission that describing the breach as the taking of money, rather than failure to obtain prior authorisation, produced a fundamentally different causation analysis. That would be an excessively formalistic approach to a single set of circumstances. The previously advanced claim for tax penalties and interest also illustrated that the elected remedy involved causation, even though ITC no longer pursued that head of loss.
4. For summary judgment purposes, the court assumed that the market value of a chief executive’s services might have been similar to the sums taken. The proposed counter-factuals, including what would have happened if Mr Ferster had sought authorisation or resigned, had a reasonable prospect of success and could not fairly be decided before findings of fact. The causation defence had not been lost through earlier pleading, since quantum had not been tried and future directions could provide for pleadings.
5. The court declined to develop the law in ITC’s favour on a summary application. The issue was in an area said to be developing, the court had heard argument on one side only, and Mr Ferster’s bankruptcy meant that other creditors could be affected. The appropriate course, if the proceedings continued, was assessment of equitable compensation after pleadings, disclosure, evidence and findings of fact, with a preliminary issue only if later considered suitable.

The judgment records that ITC had obtained permission from Kitchin LJ to appeal the earlier ruling of 10 February 2017. That appeal was not determined before these applications, and the court proceeded on the basis of the earlier ruling.