Kirill Ace Stein v Eugene Jaffe

Interest on equitable compensation for breach of trust may be assessed by reference to a proxy for the return on appropriate trustee investments, or, depending on the nature of the obligations and the basis of the remedy, by reference to borrowing rates. A pleading should identify the basis of the interest claim and the claimant’s general characteristics relied upon. Precise rates need not ordinarily be pleaded where the assessment is broad-brush and can be dealt with after trial. A claim based on investment loss is different and requires sufficiently detailed particulars, disclosure and evidence. An unexplained stock-market index or unsupported borrowing-rate schedule is inadequate.

The claimant alleged that the defendant held US$2 million on an express trust and had breached that trust by failing to transfer or properly apply the money. The claimant sought equitable compensation, an account of profits and interest. At a pre-trial review, the claimant applied to amend the particulars of claim to plead alternative bases for compound interest, including S&P 500 performance, borrowing rates derived from a Wells Fargo rate sheet and profits made by the defendant.

The court considered whether the proposed amendments properly particularised claims for interest on equitable compensation and whether any proposed investment-loss claim could be introduced shortly before trial.

1. Application adjourned. The proposed amendment was not allowed in its present form. The claimant was given an opportunity to propose a narrower amendment limited to the basis of the interest claim and the claimant’s general characteristics.
2. Interest on equitable compensation may be assessed on a trustee basis where the fund was deprived of capital which would have earned investment income. The appropriate rate may be a proxy for the return that trust funds with the general characteristics of the fund could have achieved. Borrowing rates may instead be relevant where the nature of the defendant’s obligations or the basis of the remedy makes that appropriate. The distinction between reparative and substitutive relief may be material: where existing trust property has been misappropriated, the assessment may proceed on the basis that the fund retained the money and would have invested it.
3. A proper pleading should state whether interest is claimed on a trustee basis, on a conventional common-law damages basis, or both in the alternative. It should give particulars of the claimant’s general characteristics relied upon, and of the nature of the defendant’s obligations where relevant. Because the assessment is generally broad-brush and may be dealt with after judgment, precise rates and rests do not ordinarily need to be pleaded. Any claim for non-annual rests requires a factual basis.
4. A claim that the primary loss was investment loss, rather than merely loss of use of money, requires materially fuller particulars. The alleged investment rate must be explained sufficiently for the defendant to understand and answer the case, ordinarily requiring disclosure, factual evidence and expert evidence. Introducing such a claim one month before trial would be too late.
5. The proposed S&P 500 index rate was not adequately particularised. A stock-market index is not, without explanation, a recognised method of calculating interest. The pleading needed to explain why a trustee-investment proxy was appropriate and why such investments should have been made. The Wells Fargo rate sheet was also inadequate because the selection of the rate, its date and the proposed spread were unexplained, and the claimant’s general characteristics did not justify the proposed rates.
6. The proposed claim for profits merely repeated the existing claim for an account of profits and required no amendment.