Onzm & Anor v Watson & Ors

In assessing equitable interest against a defaulting trustee liable to restore capital to a trust fund, the court should generally use a rate reflecting the investment return which funds with the relevant general characteristics could have expected from proper trustee investments. A borrowing-rate approach is appropriate for commercial claims where money would generally have been borrowed to replace lost funds, but it does not necessarily apply to a conventional trust fund. The assessment is broad-brush and must not depend on what the individual claimant would specifically have done. Objective investment data may be admitted after judgment where the parties have a fair opportunity to address it. Applying those principles, the court awarded annually compounded interest at 6.5%.

This was a consequential judgment following the trial judgment in Onzm & Anor v Watson & Ors, [2018] EWHC 2016 (Ch). The court had found that Kea Investments Limited had been induced by deceit to pay £129 million to Spartan Capital Limited. Spartan was liable to account for the money as constructive trustee, and the rate of equitable interest affected the equitable compensation payable by Mr Watson.

The issue was whether the rate should reflect borrowing costs, deposit rates, or returns available from proper trustee investments, and whether further investment material could be admitted after judgment.

1. Reconsideration and evidence. The court could reconsider its earlier view before an order had been perfected. The jurisdiction was not confined to exceptional circumstances and was exercised consistently with the overriding objective. It was also appropriate to consider objective ARC and STEP investment data supplied after trial because the parties had a fair opportunity to address it.
2. Applicable legal basis. A claim by Kea against Spartan was closely analogous to a beneficiary’s claim against a defaulting trustee. The relevant inquiry was therefore the rate of equitable interest payable where a trustee had caused loss to a fund which should have been invested.
3. Rate of interest. The court rejected a borrowing-rate approach for a conventional trust fund. Such a fund would not ordinarily borrow to finance its investment activities. Equitable interest compensates the fund for income lost while its capital is depleted, so the appropriate rate is a proxy for the investment return which funds with the relevant general characteristics could have expected from proper trustee investments.
4. The court distinguished the commercial and business cases, including Fiona Trust v Privalov, Challinor v Juliet Bellis & Co and Carrasco v Johnson, because those cases concerned different categories of loss. The assessment remained broad-brush and did not investigate Kea’s own investment preferences or what it would specifically have done.
5. ARC and STEP data supported a middle-range return for large private trusts investing through professional managers. Having preferred a cautious rounded figure rather than the precise central rate, the court awarded interest at 6.5% per annum, compounded annually.