The High Court, embroiled in longstanding litigation, had to determine whether equitable compensation for the breaches was owed and, if so, the quantum due. 

Background:

Mrs. Linda Riley held in trust a property at 1 Parkgate Road for Rollerteam Limited pursuant to a trust deed dated 11 April 2013. The director of Rollerteam was Mr. John Aidiniantz, Linda's half-brother. At a certain point in time, the property was occupied by Linda’s brother Stephen, who had tried to assert rights in respect of the property. 

In a 2022 judgement, Linda was declared in breach of trust as she failed to transfer the property to Rollerteam with vacant possession when requested to do so by Rollerteam in 2015. She had also failed to produce the sale of the property as requested in 2017. She treated the two requests as being either illegal or optional and thus did not seek any indemnification or funding from Rollerteam. 

In January 2023, an order was made to determine Rollerteam's entitlement to equitable compensation. The main heads of equitable compensation, as contended for by Rollerteam, relate to mortgage interest payments which it incurred solely due to Linda’s non-compliance. There is also a claim for lost opportunity to benefit from the vacant possession of the property. Linda claims that it would be inequitable for her to be ordered to pay compensation and she should be relieved from liability based on Section 61 of the Trustee Act 1925.

Decision: 

The Court awarded Rollerteam Limited equitable compensation of £7,500. The Court disagreed that Rollerteam was owed equitable compensation for the period leading up to June 2019, as Linda’s breach did not directly cause losses incurred during that period. 

The Court applied the ‘but for’ test found in Target Holdings v Redferns [1996]. The Judge noted that the answer to the question of what would have occurred had Linda complied with the direction is not straightforward. However, it is clear that ‘vacant possession would have been obtained, the mortgage would have been discharged and such legal costs, as Rollerteam team incurred, after whichever direction came to be implemented, would not have had to be incurred’. However, the vacant possession would have been complicated to achieve due, inter alia, to Stephen. It would have resulted in significant costs for Linda. 

Linda’s claim for reimbursement of expenses incurred for the maintenance and repair of the property was largely denied except for those insurance costs incurred in 2015 amounting to £334.44, as many of the claims were unsubstantiated. Moreover, some of the expenses incurred by Linda in the performance of her obligations as trustee, which might have been sufficient to give rise to a right to indemnity, were actually due to her breach. 

Implications:

This case highlights the importance for a trustee to act in accordance with their obligations under the trust deeds. Failing to do so could result in potential financial consequences. Another key implication from the judgement is that the trustee should take legal advice rather than consider a direction as being illegal or optional. 

For reimbursement claims to be valid, they must be duly substantiated with clear documentation. Moreover, one cannot claim compensation based on one’s own failure to comply with directions.