Shah v Shah & Ors

A court may waive a failure to plead interest where the issue has been clearly identified, the opposing party suffers no prejudice, and refusing relief would produce substantial injustice. In fiduciary-account cases, compound interest may be awarded to strip profits from the breach and compensate for deprivation, but the rate is a matter of equitable discretion and must not be penal or overcompensatory. Where the liability to account arises from winding-up arrangements rather than breach of fiduciary duty, only the applicable judgment interest may be appropriate. On discontinuance or its equivalent, the usual presumption is that the discontinuing party pays costs. A pragmatic settlement and a plausible claim do not ordinarily displace that presumption.

The judgment concerned further issues arising from earlier determinations in prolonged litigation between three brothers concerning business assets, property proceeds and accounting liabilities. The court had to decide the interest payable on sums for which the parties were accountable or liable to contribute, including whether interest should be compound or simple, the applicable rate and the relevant period.

A further issue concerned the costs of an unpursued claim that one brother had been complicit in the sale of Plot 94. That claim became unnecessary after a settlement with the property's legal owner. The central questions were whether the failure to plead interest should prevent its recovery, how equitable interest should be calculated, and whether the usual costs consequences of discontinuance should be displaced.

1. Interest despite pleading defect. The absence of a formal prayer for interest did not preclude relief. Interest had been identified between the parties and by the court as an issue, the opposing party was not taken by surprise or prejudiced, and refusing the claim would confer an unjust advantage. The failure was waived under CPR 3.10.
2. Fiduciary breaches. For proceeds of sale and rental income withheld in breach of fiduciary duty, compound interest with annual rests was appropriate. Interest ran from the relevant sale dates, or was calculated by treating rental income as accruing across the relevant years, until 1 November 2017. Thereafter, judgment interest applied at 8 per cent simple.
3. Rate and discretion. The equitable jurisdiction was not governed by a fixed 1 per cent rule or any other prescribed rate. The purpose was compensatory and to prevent the fiduciary profiting from the breach, not to impose a penalty. The appropriate rate was 3 per cent above base rate; the proposed 8.5 per cent would have overcompensated in a period of low interest rates.
4. Non-fiduciary accounting liabilities. Where the obligation to account arose from the general winding-up of the brothers' businesses and did not result from breach of fiduciary duty, compound interest was unjustified. Only judgment interest from the order of 1 November 2017 was payable.
5. Contributions. Payments made by Jaivant towards Ashok's share of joint debts were deducted from the sums attracting compound interest from the dates of payment. The obligation to contribute was not dependent on demand.
6. Plot 94 costs. The abandoned complicity issue was treated by analogy with discontinuance. The usual presumption that the discontinuing party pays costs was not rebutted. The settlement was pragmatic, Ashok had contributed to the change of circumstances, and Jaivant had not acted unreasonably to cause it. Jaivant therefore recovered his costs of the issue.
7. Basis of costs. Indemnity costs were refused. Although dishonesty had been alleged, the court retained a complete discretion and the usual rationale for indemnity costs had no application where both principal parties had already lost any reputation requiring protection in the litigation.

First-instance judgment determining further issues arising from earlier judgments in the same proceedings, including [2017] EWHC 2693 (Ch) and [2019] EWHC 535 (Ch).