Equitable Compensation Flashcards
What are the two main types of equitable compensation in breach of trust cases?
Reparative Compensation – for consequential loss caused by the breach; follows a causal, “but-for” approach.
Substitutive Compensation – for unauthorised use/misapplication of trust property; trustee is strictly liable to reconstitute the trust fund, regardless of causation.
What happened in AIB v Mark Redler?
Trustee (solicitor) released £3.3m to borrower without securing the first charge as required by the trust terms. Settlor only got a second charge and lost ~£273k when borrower defaulted.
What did the Supreme Court decide in AIB?
They awarded reparative compensation of £273k (actual loss), rejecting the claim for full £3.3m. Trustee was not strictly liable to reconstitute the trust.
What were the facts in Main v Giambrone?
Trustee (law firm) was to hold a deposit until settlor received a bank guarantee (per Italian law). Trustee paid deposit without guarantee. Buyer lost everything.
What type of duty did the trustee breach in Giambrone?
A custodial duty – holding money and only releasing it under specific conditions.
What did the Court award in Giambrone and why is it controversial?
Awarded full deposit value (looks like substitutive compensation), but called it reparative, saying that but for the breach the money would’ve stayed in trust.
What’s the problem with the reasoning in Giambrone?
Court ignored what would actually have happened (that guarantee would not pay out due to investigation from FBI) and assumed the trustee would have kept the funds, despite this being unlikely.
What theory explains the outcome in Giambrone?
Court wanted to award substitutive compensation but felt constrained by AIB, so manipulated reparative principles to achieve same outcome.
According to Burrows, what is the effect of AIB on Substitutive Compensation?
It’s no longer available. Equitable compensation is always about consequential loss.
According to McBride, when is Substitutive Compensation still possible?
In incomplete transactions, custodial duties. especially where trustees misapply funds before the purpose of the trust is fulfilled.
What issue does McBride raise with AIB?
The trust was not complete (no first charge), so Substitutive Compensation should have been awarded.
What does P Davies argue in “Equitable Compensation and the SAAMCO Principle”?
Courts are improperly importing SAAMCO-style reasoning into trust law, which is alien to fiduciary relationships and undermines strict accountability.
What does S. Williams argue about the current law on equitable compensation?
There’s doctrinal inconsistency: courts are disguising substitutive awards as reparative, leading to conceptual confusion and unpredictability in trustee liability.
What does A. Chan defend in his article on AIB?
The pragmatism of the decision. Chan supports limiting trustee liability to real loss, aligning equitable compensation with modern commercial expectations.
What is the role of Bartlett v Barclays Bank Trust Co (No.1)?
Where trustee commits multiple breaches, gains and losses can be netted off only if they are part of the same transaction.
What did Davies v Ford [2023] clarify about SAAMCO and equitable compensation?
Confirmed that SAAMCO reasoning applies to fiduciaries, and courts must distinguish “information” vs “advice” cases even in trust contexts. Affirms AIB’s causal, loss-based approach.
What are defences for breach of trust concerning land?
2(1)(ii) and 27(2) LPA: two trustees selling the buyer gets it free from any rights the beneficiaries had. Overreaching applies: moves the beneficiary’s right from the land itself to the money from the sale of the land.
How is a beneficiary’s right to land protected when the land is purchased by a bonafide buyer?
Actual occupation under schedule 3 paragraph 2 LRA.
What are non-land defences for breach of trust?
Bonafide purchaser - trust is extinguished
S61 TA 1925 (courts discretion), dependant on: Honestly, Reasonableness, Must be fair in all circumstances to excuse them.
Exemption clauses (armitage)
Beneficiaries consent to breach (Saunders v Vautier).
