Umbrella Care Limited v Khair Un Nisa & Ors.

Equitable compensation for breach of fiduciary duty is assessed by identifying the actual loss caused by the breach, using hindsight and common sense. Foreseeability is not required, but a causal connection remains necessary. The aim is to restore the claimant to the position it would have occupied without the breach.

Where a company accepts the amount stated in a Revenue proof of debt, that figure may provide the measure of the company’s loss, subject to appropriate credits for recovered assets. Directors may be liable where their failure to safeguard company assets causes tax liabilities to remain unpaid.

Umbrella Care Limited, in liquidation, pursued claims arising from the diversion of company funds which should have been used to meet PAYE, national insurance and VAT liabilities. An earlier judgment determined most liability issues and held that the First and Second Defendants had breached their duties as directors, while certain corporate defendants were liable for knowing receipt.

This judgment concerned the outstanding issues of causation and quantum, the claim against a further director, the quantification of knowing receipt liabilities, the stay of the claim against a bankrupt defendant, and the dismissal of claims against two other defendants.

1. Equitable compensation and causation. The principles stated in Target Holdings Ltd v Redferns [1996] AC 421, and reaffirmed in AIB Group (UK) plc v Mark Redler Associates & Co. [2014] UKSC 58, applied. Equitable compensation is intended to make good the claimant’s actual loss caused by the breach. The loss is assessed at the date of judgment with the benefit of hindsight. Foreseeability does not govern the assessment, but there must be a causal connection between the breach and the loss.
2. The same essential factual question applied to the claims framed in damages at common law: what sum was required to put the Company in the position it would have occupied had the breaches not occurred. The diversion of funds left the Company unable to meet its tax liabilities, and the loss was caused by the directors’ breaches.
3. The Company accepted the Revenue’s updated proof of debt in the sum of £35,170,471.98. The Second Defendant’s criticisms of the Revenue’s calculations were insufficiently particularised and did not establish a reliable challenge. After crediting realised assets, the Second Defendant was liable for £21,811,531.93.
4. The Third Defendant owed the pleaded fiduciary, statutory and common law duties while he was a director. The guidance in Re Barings plc (No. 5) [1999] 1 BCLC 433 and Lexi Holdings plc (In Administration) v Luqman [2009] EWCA Civ 117 confirmed the duties to acquire sufficient knowledge of the company’s business and to safeguard its assets by taking reasonable steps to prevent and detect fraud and irregularities. His failure to prevent the diversion of funds constituted breaches causing loss of £8,390,823.28 after credit for realisations.
5. The knowing receipt liabilities of Dynamic, Universal Real and Universal Total were quantified by reference to the UCL Funds received, less appropriate credits for recoveries and realised property. Their liabilities were respectively £17,403,626.74, £491,332.88 and £808,988.35.
6. The action against the First Defendant was stayed under section 285(1) of the Insolvency Act 1986. The claims against the Seventh and Eighth Defendants were dismissed with no order as to costs. The court dispensed with compliance with CPR PD57AC only because of the particular circumstances of this case; compliance remained important and the decision was not a precedent for general dispensation.

This was a first-instance judgment determining outstanding quantum and related issues after an earlier summary judgment in the same action. No appellate history was stated.