Kea Investments Limited v Eric John Watson

In assessing equitable compensation where a claimant has recovered sums from several sources, the court must prevent double recovery while allowing proper allocation of recoveries between overlapping and non-overlapping claims.

Where the recovery agreement or objective circumstances do not determine allocation, the claimant may allocate the recovery among viable claims. If the judge cannot assess the merits fully, the relevant claim need only be shown not to be obviously unsustainable. A recovery overlaps with the claim against the defendant where both claims concern the same loss.

Illiquid assets need not necessarily be valued immediately. Where valuation is difficult, credit may instead be given when the assets produce actual receipts, subject to avoiding double recovery.

The claimant had previously obtained findings that the defendant’s fraud and breaches of fiduciary duty caused it to invest £129 million in a joint venture. An earlier order awarded equitable compensation, subject to adjustment for recoveries, tracing claims and profits.

After further settlements, proprietary recoveries and tracing orders, the claimant applied for final determination of the compensation due. The defendant had been served but did not participate. The central issues were the proper allocation and timing of recoveries, the treatment of overlapping claims, and whether retained illiquid interests should be valued immediately or credited when realised.

1. Disposition. Judgment was given for the equitable compensation finally due, calculated in accordance with the court’s rulings. The claimant was required to provide an updated calculation to the date of the order.
2. The court accepted the general appropriation rule that a debtor may appropriate a payment until payment is made, after which the creditor may appropriate it, provided the appropriation is communicated: The Mecca [1897] AC 286. The claimant was therefore entitled to allocate recoveries where the settlement terms and objective circumstances did not determine allocation.
3. Following FM Capital Partners Ltd v Marino [2021] QB 1, allocation required identification of the claim on which the recovery should be treated as made and whether that claim overlapped with the claim against the defendant. Where the allocation was not otherwise determined, the claimant could allocate among claims that were not obviously unsustainable. The court accepted that, where it could not assess the merits fully, only a general view of validity and quantum was required (paras [32]-[41]).
4. Claims overlapped where both were based, wholly or partly, on loss suffered by the claimant and the loss was the same. Recoveries allocated to non-overlapping costs claims did not reduce the equitable compensation.
5. The claimant had properly accounted for repayments, tracing recoveries, settlement receipts and interest. It could credit amounts at dates which avoided double recovery between equitable compensation and proprietary claims.
6. Claims for costs incurred in proceedings against another party were legally recognisable and could be allocated by reference to a reasonable estimate, supported by Hermann v Withers [2012] PNLR 28 (paras [106]-[117]).
7. The retained illiquid interests did not need to be valued immediately. Consistently with Trustor v Smallbone (transcript, 9 May 2000), and having regard to the burden on the defendant to prove recovery elsewhere, credit should be given when the interests generated actual receipts. The approach avoided double recovery and was fair in the circumstances (paras [121]-[129]).