Kenneth Davies v Stephen Ford & Ors.

In a split trial, a quantum hearing proceeds on the liability findings already made; it is not an opportunity to add breaches of duty. A claim in knowing receipt requires receipt of trust property or traceable proceeds, and the disposition received must itself be a breach of trust or fiduciary duty. A mere business opportunity, expectation of contracts, benefit from trust assets, or increased security of tenure is insufficient. Against a non-fiduciary recipient, an account of profits is discretionary and may be refused where disproportionate or futile. Equitable compensation for a fiduciary breach is reparative where the claimant elects compensation instead of an account, unless substitutive relief is sought for misapplied trust property. An equitable allowance to a dishonest fiduciary remains discretionary. Appellate courts should not disturb factual or expert-evidence assessments absent plain wrongness.

The appellant pursued claims assigned by the liquidators of Greenbox Recycling Limited against its former directors and Greenbox Recycling (Kent) Limited. At the liability trial, the High Court found breaches of fiduciary duty by Richard Monks, entered default judgment against Stephen Ford, and found GBRK liable in knowing receipt: [2020] EWHC 686 (Ch). Liability was established, while the nature and quantum of relief were reserved.

At the quantum trial, the High Court awarded equitable compensation against Mr Monks, granted an equitable allowance, refused proprietary and account-of-profits remedies against GBRK, and valued GBRK at £800,000 as at 18 October 2011: [2021] EWHC 2550 (Ch). Mr Davies appealed on seven grounds. Mr Monks and GBRK cross-appealed against the valuation. The central issues concerned the finality of the liability findings, knowing receipt, equitable compensation, equitable allowances, proprietary remedies, and appellate review of valuation evidence.

The Court of Appeal unanimously dismissed both the appeal and the cross-appeal. Sir Launcelot Henderson gave the leading judgment, with which Lady Justice Asplin and Lady Justice Macur agreed.

1. Liability findings. A split quantum trial must proceed on the liability findings already made. The liability judgment, read as a whole, confined Mr Monks’ established breaches to the seven matters listed in paragraph 272. The word include did not permit further liability findings at the quantum stage. Finality in litigation would otherwise be undermined: [66]-[73].
2. Knowing receipt. Following Byers v Saudi National Bank [2022] EWCA Civ 43, the recipient must receive trust property or traceable proceeds, and the transaction by which it is received must itself constitute a breach of trust or fiduciary duty. The claimant must identify specific property resulting from a specific breach. A business opportunity, an expectation of contracts, a direct contract, or enhanced security of occupation is not sufficient. The claim concerning the £21,000 withdrawals also failed because no finding had been made that GBRK received the money: [74]-[108].
3. Proprietary remedies and accounts. The fiduciary rules discussed in Keech v Sandford and Protheroe v Protheroe presupposed a fiduciary relationship at the time of acquisition. GBRK never owed fiduciary duties to GBR. The surrender of the leases extinguished them and prevented tracing: Barrett v Morgan [2000] 2 AC 264; Allen v Rochdale Borough Council [2000] Ch 220 (CA). Relief in Companies Act 2006 unfair-prejudice proceedings did not establish the juridical basis of relief in knowing receipt. An account of profits against a non-fiduciary was discretionary and would have been futile or disproportionate in the circumstances: [109]-[124].
4. Compensation and allowance. The court applied AIB Group (UK) PLC v Mark Redler & Co Solicitors [2014] UKSC 58. Existing misapplied trust property could attract substitutive relief, but the elected claim for further equitable compensation was reparative and confined to loss caused by the breaches. An equitable allowance for a dishonest fiduciary remained discretionary, subject to the policy against encouraging conflicts, and the £30,000 allowance was within the Judge’s discretion: [125]-[140].
5. Cross-appeal. The Judge was entitled to treat the arm’s-length investment by Mr Simmons as the best contemporary evidence of GBRK’s value. The cautious insolvency findings did not prevent a going-concern valuation after the cash injection. The valuation of £800,000 was not plainly wrong. The approach to facts and expert evidence accorded with Volpi v Volpi [2022] EWCA Civ 464 and Griffiths v TUI (UK) Ltd [2021] EWCA Civ 1442.

• Court of Appeal (Civil Division). The appeal and cross-appeal were dismissed in their entirety: [2023] EWCA Civ 167.
• High Court, Chancery Division. The quantum judgment awarded equitable compensation against Mr Monks, granted an equitable allowance, refused the proprietary and account-of-profits claims against GBRK, and valued GBRK at £800,000: [2021] EWHC 2550 (Ch).
• High Court, Chancery Division. The liability judgment established breaches of fiduciary duty, default judgment against Mr Ford, and knowing-receipt liability against GBRK, reserving the quantum and nature of relief: [2020] EWHC 686 (Ch).