Kenneth Davies v Stephen Ford & Ors.

The Court of Appeal held that findings of liability in a prior split trial are confined to the specific breaches expressly found by the liability judge, and that a claim in knowing receipt requires the recipient to have received identifiable trust property (or its traceable proceeds) as the consequence of a breach of fiduciary duty; equitable compensation for a fiduciary breach is properly awarded on a reparative basis unless an account of profits is sought; and an arm’s‑length contemporaneous investment may, if so found as a matter of fact, provide the best evidence of a company’s market value.

The appeal and cross-appeal arose from competing remedies following a split trial: the High Court (Holland KC, sitting as deputy judge) had determined issues of quantum after an earlier liability trial ([2020] EWHC 686 (Ch)). The appellant (assignee of company claims) sought broader relief than the liability judge’s explicit findings, challenged limitations imposed on claims in knowing receipt, and contended for a proprietary remedy and account of profits against the recipient company. The defendants cross-appealed the valuation used to assess equitable compensation. The Court of Appeal reviewed (a) the scope of the liability findings made at the liability trial; (b) the law of knowing receipt and remedies for fiduciary breach; (c) the proper basis for equitable compensation; and (d) valuation evidence, including a contemporaneous arm’s‑length investment reported in October 2011. The central questions were whether liability extended beyond the seven specific breaches listed in the liability judgment, whether knowing receipt can embrace business opportunities or only identifiable property received, whether compensation should be assessed on a reparative or substitutive basis, and whether the contemporaneous investment fairly indicated market value.

Overall disposition: Appeal and cross-appeal dismissed. The Court of Appeal (Macur LJ, Asplin LJ and Henderson) upheld the Quantum Judgment.

1. Interpretation of liability findings
   • The liability judge’s findings of breach were confined to the specific matters set out in paragraph [272] of the Liability Judgment; that list was, in context, intended to be exhaustive for the purposes of establishing liability at the liability trial. (Reasons: purpose of split trial, the judgment read as a whole, and absence of an express reservation.) See paras (1)–(3) above. [2023] EWCA Civ 167 paras [56]–[72].
2. Knowing receipt
   • A claim in knowing receipt requires (i) a disposal of assets in breach of fiduciary duty; (ii) beneficial receipt by the defendant of assets traceable to the claimant; and (iii) knowledge (or other state of mind) making retention unconscionable. Receipt of mere business opportunities or later-acquired business assets will not suffice. The disposition that gave rise to the property must itself have been a breach. The court applied and relied upon recent authorities, notably Byers v Saudi National Bank. (See paras (4)–(7).)
3. Equitable compensation and account of profits
   • Equitable compensation awarded against a fiduciary in lieu of an account of profits is properly assessed on a reparative (loss-based) basis unless the claimant elects and the court orders an account of profits. The Supreme Court’s guidance in AIB is authoritative that equitable monetary remedies aim to make good loss caused by the breach. Accordingly the judge was right to assess compensation by reference to the value of the business as at mid‑October 2011 and to refuse (in the exercise of discretion) an account of profits against the non-fiduciary recipient where it would add nothing beyond the compensation awarded against the fiduciary. (See paras (6)–(11).)
4. Equitable allowance to fiduciary
   • An errant fiduciary may, in the court’s discretion, receive an equitable allowance for services or capital invested, but the allowance must not undermine fiduciary duties. The trial judge’s allowance of £3,000 per month for ten months (total £30,000), on the evidence and having regard to the Handover Note and market evidence, was within lawful discretion. (See para (12).)
5. Valuation evidence
   • A contemporaneous arm’s‑length investment (the October 2011 subscription by Mr Simmons) was properly treated by the judge as the best available evidence of GBRK’s market value at that date, provided the judge finds as a matter of fact that the transaction was arm’s‑length and commercial. The judge so found, and was entitled to prefer that real‑world evidence over the experts’ net‑asset estimates; the cross-appeal against the £800,000 valuation accordingly failed. (See paras (13)–(16).)
6. Practical orders and costs
   • The appeals were dismissed. The Court gave effect to the Quantum Judgment’s primary orders (equitable compensation, allowance, interest and denials of proprietary relief) as summarised in the Quantum Judgment. Costs and consequential directions were dealt with in accordance with the court’s usual practice. (See final operative paragraphs of the judgment.)

• Court of Appeal (Civil Division) appeal from the Chancery Division (Holland KC, sitting as Deputy Judge) in the Business and Property Courts: [2021] EWHC 2550 (Ch); judgment handed down 17 February 2023, allowing the Quantum Judgment to stand.
• High Court (Chancery Division) Liability Judgment and consequential order: [2020] EWHC 686 (Ch) (Liability Judgment); the Quantum Judgment and Quantum Order followed at first instance: [2021] EWHC 2550 (Ch).