Family Law Hub

Agarwala v Agarwala [2016] EWCA Civ 1252

Appeal in proceedings where the claimant was seeking loss of profit arising from her brother in law's occupation of a property she owned. See also the postscript regarding the use of emails by the parties who were litigants in person

  • Case No: B5/2015/1648 and 3070

    Neutral Citation Number: [2016] EWCA Civ 1252




    His Honour Judge Moloney


    Royal Courts of Justice

    Strand, London, WC2A 2LL

    Date: 08/12/2016

    Before :





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    Between :

    Jaci Agarwala (Appellant)

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    Sunil Agarwala (Respondent)

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    Cheryl Jones (instructed by Direct Public Access) for the Appellant

    The Respondent appeared in Person

    Hearing date : 23 November 2016

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    Lady Justice King :

    1. By this appeal the appellant Mrs Jaci Agarwala (the appellant) appeals orders made by HHJ Moloney QC on 11 July 2014 and 30 April 2015 whereby he ordered the appellant to pay to her brother-in-law, the respondent, Mr Sunil Agarwala (the respondent) the sum of £40,284 by way of equitable compensation in the form of an account for loss of profits.

    2. On 18 August 2015 Christopher Clarke LJ granted limited permission to appeal the judge's order. The grounds in respect of which permission was granted focus on the judge's assessment of the respondent's claim in relation to "loss of profit" over a period of time when the appellant had possession of a property of which she was the legal owner but the respondent was the sole beneficial owner


    3. The respondent has had a chequered business career, including having been made bankrupt. An inevitable consequence was that he had a poor credit rating, which prevented him from obtaining a mortgage in his own name. At the relevant time he worked in property investment and management and, in particular, running bed and breakfast properties in the Cambridge area.

    4. The appellant is the respondent's sister-in-law, she being married to his brother Sudhir Agarwala (Sudhir). The appellant and Sudhir, although separated, have remained close. In or about the middle of 2006, at a time when Sudhir was abroad, the respondent identified a property, 79 High Street, Cherry Hinton, Cambridge (the property) as suitable for development and use as a bed and breakfast business. Given his difficulties in obtaining a mortgage, the appellant agreed to take out a mortgage, initially of £296,000, but subsequently increased by a further £85,000, in order to fund the purchase price of £349,000.

    5. In April 2007 the purchase was completed. Once the property was open for business as a "bed and breakfast", the respondent managed the day to day business. The appellant was, however, liable for the mortgage payments under the covenants of the mortgage and the arrangement, therefore, was that the respondent transferred money into her account from the bed and breakfast receipts to cover the mortgage payments. Very quickly the appellant became concerned that there was a shortfall between the income and outgoings on the property and she also believed that there was at least the possibility that income, which should be directed towards the mortgage payments, was being used by the respondent to subsidise other properties with which he was connected.

    6. The developing dispute between the appellant and the respondent was exacerbated in about July 2008 by the return to England of Sudhir, who strongly disapproved of what his estranged wife had agreed to do in his absence. Matters came to a head on the night of 28/29 July 2008 when the appellant and Sudhir changed the locks on the property so as to exclude the respondent from it. Thereafter Sudhir lived in the property, managing it, initially as bed and breakfast and later as student accommodation. The appellant remained in possession of the property from July 2008 until its eventual sale in January 2016.

    7. The respondent's response to this turn of events was to forge the appellant's signature on a lease and deed of trust in his favour in relation to the property, backdated to the time of completion of the purchase in April 2007. The respondent went so far as to take this document to the police in support of his attempt to re-enter the property.

    8. The forged declaration identifies the appellant as the trustee and the respondent as the purchaser. The deed:-

    i) declares that the appellant holds the property in trust for the respondent, providing that the appellant will not be required to execute the transfer of the property unless at the same time the respondent procures the release of the trustee from the mortgage;

    ii) that the respondent covenanted with the appellant to indemnify her in relation to the mortgage, allowing the appellant to place the property on the market in the event of default;

    iii) upon completion of the purchase of the property (in April 2007) provides for the respondent to pay to the appellant £5,000 in cleared funds.

    9. The pleadings available are incomplete but it seems that following his exclusion from the property there was a significant delay while the respondent attempted to obtain legal aid. It was not, therefore, until 1 September 2009 that the respondent issued possession proceedings, relying on the forged deed of trust. On 28 October 2009 the respondent admitted in court to having forged the deed of trust and he thereafter amended his pleadings, still relying on the substance of the deed, but now accepting that the appellant did not sign the document herself.

    10. The respondent's case, as pleaded and maintained at trial, was that there was an agreement between himself and the appellant to the effect that that:-

    i) the property would be beneficially owned by the respondent;

    ii) that the respondent would pay the appellant £800 per month for book-keeping.

    11. There was no mention in the amended particulars of claim of the £5,000 referred to in the trust deed and which has in any event never been paid.

    12. Progress towards a hearing of the action was tortuous. The judge was faced with a multitude of applications and cross-applications and what has been described by Ms Jones, who appears today by direct access, as a "slew" of emails from both parties to the judge and to the court. As a consequence the case became nearly impossible to case manage effectively and, inevitably, matters, which in the normal course of events would and should have been dealt with by formal application and the making of orders, were dealt with informally by way of email.

    13. The matter finally came on for trial with judgment being handed down on 6 December 2012. The critical issue to be determined was as to who held the beneficial ownership of the property. The judge put the respondent's case this way:-

    "3c. The respondent's case is that he wanted No. 79 for himself as a home and business, but could not obtain a mortgage in his own name because he had a bad credit rating. His sister-in-law, Jaci, agreed to help him by taking up the mortgage in her name, but he would provide her with money to pay it, and the house and business would in fact be 100% his. She would, in legal terms, be a bare trustee. He would however make it worth her while by paying her a monthly salary of £800 to do the accounts of the business."

    14. The judge examined numerous documents, including contemporary emails between the parties. He referred to one email dated 14 January 2008 sent from the appellant to the respondent. This email assumed some importance in later hearings and is of significance for the purposes of this appeal; it said:-

    "When we made the list of ins and outs I remembered that there would be just about enough to cover High Street and £500 for Jaci . . ."

    15. The judge, whilst finding that the respondent was "generally unscrupulous and self-interested" concluded that he was, nevertheless, the sole beneficial owner of the property. It follows that the appellant holds the legal estate as a bare trustee on trust for the respondent.

    16. Having resolved the issue of ownership the matter was adjourned for a further hearing in order for an account to be taken from July 2008 onwards.

    17. That same day, 6 December 2012, the respondent made the inevitable application that, in the light of the judge's finding that he was beneficially entitled to the property, an order for possession should be made against the appellant.

    18. The judge gave a separate ruling in relation to this application, summarising first his specific findings as to the terms of the trust, namely that it provided for the respondent:-

    i) to run a business from the premises, but not to reside there;

    ii) to use the proceeds of the business firstly to clear the mortgage, to indemnify the appellant against the mortgage and other expenses to which she, as legal owner, would be liable;

    iii) pay a monthly wage to the appellant for book-keeping services, which was initially intended to be £800 per month.

    19. The judge refused the respondent's application for possession. The judge found that the respondent was "not a trustworthy man in financial matters" and went on to say:-

    "Were I to permit him to re-occupy, then in the light of the ill feeling between the parties, which is now at a very intense level, the likelihood that there would be a degree of co-operation between them, such as would secure Jaci's payments under the mortgage and so forth until the date of sale or redemption, the likelihood of that degree of co-operation is, to my mind, negligible."

    20. The judge felt that the legitimate interests of the respondent would be sufficiently respected by "recognising that he could put forward such claims as he thinks fit in respect of periods since July 2008".

    21. The judge concluded by saying:-

    "If Mr Sunil Agarwala is permitted to re-occupy the property, the pressure on him to clear the mortgage or sell the property will be very greatly reduced. So long as he is kept out, and so long as his position is somewhat at risk because of the possibility he may not be able to enforce against Jaci to the full amount of his claim, the impetus on him to arrange for redemption or for sale – which I would be minded to permit at any time provided the mortgage and any other outstanding propriety liabilities were cleared, the pressure on him to achieve those ends would be greatly enhanced."

    22. So it was that from 6 December 2012 the appellant remained in possession of the property, although now no longer in possession in breach of her duties as a bare trustee, but legally following the judge's dismissal of the respondent's application for an order for possession.

    23. The new position was reflected in the judge's order of 14 December 2012 which provided:-

    "2. For so long as the defendant remains liable under the said mortgage, or until earlier order, she may continue to occupy the property as against the claimant; but provided that during that time:-

    a. she shall pay the mortgage and all other outgoings of the property;

    b. she is prohibited from further charging it, or from any other act or omission which may cause a material diminution in its net value;

    c. her continuing occupation shall be taken into account in the account and enquiry."

    24. The order goes on to make directions in relation to the anticipated account and enquiry in relation to what the judge referred to as "all pecuniary matters outstanding between the parties in this action relating to the occupation of the property".

    25. The appellant made an application for permission to appeal the declaration of beneficial interest. Whilst the permission application was awaiting determination, the appellant made an application on 13 March 2013 pursuant to the order of 14 December 2012 to sell the property. The precise chronology is unclear. What is clear however is that this application for an order for sale was never dealt with. A few days later, on 27 March 2013, Lewison LJ granted permission to appeal the orders of 6 December 2012 and 14 December 2012, which had the effect of placing the remedies hearing on hold. The appellant's appeal was dismissed on 17 December 2013 and so it was not until March 2014 that the remedies litigation was resurrected.

    26. Once again the progress of the litigation was fraught, no doubt for the parties but undoubtedly for the judge. It finally came on for trial in July of 2014, with the judge giving a judgment on 11 July 2014.

    27. By the time of the trial both sides agreed that due to planning difficulties the property could only be utilised as student lets and not as a Bed and breakfast. In the course of his judgment the judge considered two alternative calculations by which he could determine the proper quantum of equitable compensation payable by the appellant to the respondent to reflect the period of time when she had been in possession of the property in breach of her duty as trustee:-

    i) The actual profits made by the business in the six year period since July 2008, when the appellant went into occupation of the property;

    ii) A calculation of notional or hypothetical profit to reflect the profits which would have been made by the respondent had he been in possession and allowed to carry on the business.

    28. The respondent produced a schedule prepared on her behalf by an accountant showing that the business had been conducted at a net loss over a period of six years, although it made a modest profit between 2011 and 2013. The judge rejected the respondent's case that these figures were inaccurate or misleading. He did, however, make adjustments in relation to a number of items which he felt could not properly be included as legitimate expenses for the benefit of the business and had improperly depressed the profitability. The judge concluded that, even after discounting these exaggerated expense claims, he was satisfied that the business over the six year period had not broken even but had suffered modest losses.

    29. The judge then turned to assess notional profit, namely the profit the respondent would have made from the business had he been in possession. The judge concluded that typical gross receipts, running the property as student accommodation, would be £3,151 pcm (B basis). The schedules supporting the B basis figures are within the appeal bundle. Within the schedules legitimate deductions from gross receipts are set out including the basic utilities, insurance and payment of the mortgage. The schedules also contain an unchallenged figure of £400 per calendar month for housekeeping.

    30. The judge, having fixed on £3,151 pcm as the base figure for receipts, then turned to consider any additional expenses the respondent would have been liable to pay in addition to those found on the schedule. One such expense was what the judge described as "management charges". The judge noted that the B base schedules did not allow any cost for the time that either the respondent, or someone on his behalf, would have had to spend managing the letting business. The judge emphasises that "managing" was in distinction from acting as a caretaker or housekeeper (the latter of which was on the schedule). Having heard submissions as to the time necessary to manage the property as student accommodation (as opposed to a bed and breakfast) the judge concluded that ten hours each week would be an appropriate figure at a minimum rate of £7.00 per hour. This produced the figure, over the six year period, of £21,480. The judge described this management role as:-

    "23. . . . allowing for booking in of tenants, the administration of the building, the book-keeping and various other things that would need to be done by the manager, the least that I can realistically allow is ten hours a week."

    31. At the end of his assessment the judge held (paragraph 23) that the total profit on the B base schedules (gross receipts less listed expenses, including the mortgage and housekeeping) was £99,120. From that he deducted an additional £33,030, being some additional legitimate expenses including the management charges identified at £21,480. The judge then deducted the basic rate of income tax and concluded that the respondent was entitled to equitable compensation from the appellant for loss of profit in the sum of £52,872.

    32. Predictably the judge's judgment did not mark the end of the litigation as it was after this judgment in July 2014 that the appellant made an application dated 26 August 2014 that the whole of the respondent's claim should be struck out on the grounds of his "persistent and cumulative frauds". The judge, dismissing the application, not unreasonably described the litigation as "one of the most protracted and vexatious pieces of litigation which has been my unfortunate experience to try". The application also sought leave to amend the pleadings to claim the £800 to be offset against any award to the Respondent.

    33. Having disposed of the abuse of process application (Judgment No 1) the judge proceeded to give two further judgments. The first (Judgment No 2) was in relation to the question of whether the judge should re-open the question of what allowance should properly be made for the costs of the management of the property. The judge raised this issue of his own motion, utilising the so-called "Barrell" jurisdiction (Re: Barrell Enterprises [1973] 1 WLR 19). The judge decided to re-open the issue of management charges because, he said, he had been left with a "feeling of concern" that the issue may have been dealt with "too quickly and too summarily in proportion to its importance, such as it would have left the defendant (appellant) with a lingering sense of injustice".

    34. The judge therefore turned to reconsider the issue of so-called 'management charges'. It was in this, the third judgment of 17 November 2014 (Judgment No 3), that, for the first time, the judge revisited the original agreement as between the appellant and respondent that the respondent was, pursuant to the terms of the trust, to pay to the appellant the sum of £800 per month. The judge referred to having "ruled that there was no proper counterclaim in this case" but that there was a "a proper question for consideration whether those sums should be deducted from Sunil's hypothetical figures". There is no other formal ruling or judgment in respect of the appellant's application to amend the counterclaim.

    35. It is in respect of the conclusions reached in this Judgment No 3 and the resulting calculations that Ms Jones, on behalf of the appellant, says that the judge fell into error and in respect of which permission to appeal has been granted. Before turning to that judgment, for my part I can only express my considerable respect for the judge, who must have profoundly wished to see the end of this unremitting litigation and yet brought the matter back before himself when he felt he may have taken a wrong turning, and in doing so subjected himself to a further barrage of largely unmeritorious applications and cross-applications, the abuse of process application being but one.

    Judgment No 3

    36. The judge, with admirable frankness, said that this issue, "the £800", had "got lost" and that he had not, as a result, dealt with the question fairly before him on the pleadings and instead dealt with the issue of management costs on a different and less generous basis, namely by "giving an allowance for a relatively modest number of hours of management time at a relatively modest wage".

    37. The judge said that the "original deal" between the appellant and the respondent, according to the respondent himself, was that he was going to allow her £800 a month in return for her part in the transaction, including book-keeping and other administrative work in relation to the property. The judge also noted that the email of 14 January 2008 (referred to at paragraph 14 above) referred to £500 pcm as being the appellant's expectation once the income and outgoing had been calculated.

    38. The judge regarded it as incumbent upon him to correct his oversight saying:-

    "19. It appears to me, doing the best I can on the hypothetical exercise that we are engaged in here, that there is no basis for supposing that over the years 2008-2014, instead of Jaci excluding Sunil, Sunil would have excluded Jaci. The hypothesis I should apply is that Sunil and Jaci would have worked together on the property. I entirely accept that in the real world there would have been changes from time to time. Sunil might have been generous or he might have been mean. However, in terms of the parties' expectations at the time, and with all things considered, the likely outcome is that Sunil would have paid Jaci not perhaps the full £800 but at least the £500 a month she appears to have expected, and Jaci would have done the management work that must be allowed for. I shall therefore vary my original account by removing the figure of £21,481 in paragraph 23 and substituting it for a figure of £36,000 – being £500 per month for the applicable six year period."

    39. The judge reflected this change in approach by removing the sum of £21,480 which represented management fees on the time costed basis in July 2014 and substituting the sum of £36,000, being £500 pcm from July 2008 to July 2014.

    40. It would seem that no order was drawn up following this hearing and it was not until 30 April 2015 that a composite order was drawn up to incorporate, and where applicable to replace, the rulings of July and November 2014. The order recorded the dismissal of the appellant's application to amend the counterclaim. This order exhibited a schedule showing that the appellant now had to pay to the respondent (as at April 2015 rather than November 2014) the sum of £40,284 net of basic rate tax but prior to interest and before various sums due to the appellant from the respondent were deducted. The judge made an order for sale of the property and ordered the appellant to pay occupational rent of £500 pcm as of 1 June 2015.

    The Appeal

    41. Before turning to the heart of the appeal I should deal with two subsidiary grounds, each of which is connected with the pleadings in the case.

    42. By ground 3 of her amended grounds of appeal, Ms Jones submits that the judge erred in refusing an application made by the appellant to amend her counterclaim to claim £800 pcm.

    43. Ms Jones accepts that the application to amend was very late and that any counterclaim could only have been dealt with by way of set off. She further accepted that, to a significant extent, that which a counterclaim sought to achieve had been subsumed into the judge's acceptance that credit in some form and to some extent must be given in relation to the agreement for payment of "the £800" by the respondent to the appellant.

    44. The second matter, which can also be quickly be disposed of, forms part of ground 8 of the grounds of appeal which asserts that the judge failed to take into account the £5,000 payable to the appellant as provided for in the forged trust document dated 5 April 2007.

    45. Ms Jones accepted that the pleadings themselves place no reliance on the failure to pay this sum and that no application was made to amend. At no time was this issue an active part of the appellant's case or properly before the court. Not only was it not adjudicated on in July 2014 but it was not raised before the court at the "Barrell" hearing in November 2014.

    46. Accordingly the appellant's appeal is dismissed in respect of these two matters.

    47. That then leaves the two principal issues with which this court has been concerned:-

    i) Did the judge fall into error in respect of the £800 per month:

    a) in determining that the proper figure to be included in the computations was £500 pcm rather than £800 pcm;

    b) in conflating the resulting figure with management payments which, it was submitted, should have been a separate and additional item.

    ii) Did the judge fall into error by awarding equitable compensation payable to the respondent by reference to notional profit rather than an account of the actual profits made by the appellant following the dismissal of the respondent's application for possession in December 2012 or, at the latest, the appellant's application for sale in March 2013.

    The £800

    48. In considering the judge's treatment of "the £800" it is important to keep in mind the distinction between actual and notional profit. The distinction, identified by the judge, when considering the issue of "the £800" is of importance in two respects:-

    i) Ms Jones rightly concedes that if the court accepts her submission that the proper approach would have been to order the appellant to account to the respondent for the actual profits made by her from December 2012 onwards, then as of that date, the £800 per month would cease to be a deductable expense. "The £800" is relevant only to the notional or hypothetical profit that the respondent would have made had he been in possession of the property and running it under the terms of the trust, as found by the judge, including his obligation to pay to the appellant a sum of £800 pcm.

    ii) In his oral submissions the respondent submits that the £800 pcm should be excised from the calculation in its entirety as, he says, the appellant only did the book-keeping for a couple of months and, in any event, he would not have needed her services when running the property as a student let as opposed to a bed and breakfast. That submission, whilst superficially attractive, must fail in the light of the judge's clear finding in Judgment No 3: that the hypothesis that he should apply, having seen and heard the parties give evidence, was that, had they not fallen out, the parties would have worked together on the property and that the likely outcome would have been that the respondent would have paid the appellant "not perhaps the full £800 but at least the £500 per month she appears to have expected, and Jaci would have done the management work that must be allowed for".

    49. In respect of the notional profit calculation, Ms Jones argues that: (a) the judge fell into error by reducing the £800 per month to £500 per month and (b) that in the notional profit calculation the figure of £800 per month should be included as a separate and additional expense; additional to both housekeeping (found in the base B schedule) and management charges.

    50. In relation to the base figure Ms Jones, whilst not abandoning her submission that the proper figure was £800 pcm, accepted that the figure of £500 per month had been the subject of a judicial determination resulting from judicial consideration of the evidence, not least, of the email of 14 January 2008. In my judgment Ms Jones' near concession on this point is well made and there is no basis for interfering with the judge's conclusion that whilst a monthly payment would have continued pursuant to the terms of the trust, there had in effect, by virtue of the email of 14 January 2008, been an acceptance on the appellant's part that the appropriate monthly figure going forward would be £500 and not £800.

    51. In order to make good her submission that the judge should have ordered the payment of the £800 (or £500) in addition to the ten hours allowable each week by way of management charges (calculated at £21,480 in paragraph 23 of the judgment of 11 July 2014) Ms Jones took the court to references both to the £800 and to management charges found within the judgments and the bundles. Ms Jones in particular relied upon the respondent's own pleadings and witness statement.

    52. In the amended particulars of claim the respondent pleaded that he would pay the defendant £800 per month for book-keeping etc but also at paragraph 8 said as follows:-

    "After the renovation works had been completed the property was managed by AJA Corporation plc (the company) of which the claimant was neither shareholder nor director. The claimant was employed by the company as Lettings Manager at a salary of £19,000 per annum."

    53. This assertion was repeated by the respondent at paragraph 22 of his witness statement dated 24 March 2010 where, once again, he speaks of being employed by the management company AJA as a lettings manager on a salary of £19,000 per annum. The judge found AJA to be an "alter ego" company of the respondent.

    54. Ms Jones submits therefore that the respondent's own case was that there were at all relevant times two separate outgoings, namely (a) payment to the respondent as the lettings manager at a rate of £19,000 per annum (£1,583 pcm) and (b) payment of £800 pcm to the appellant, pursuant to the terms of the trust.

    55. Ms Jones confirms that this was the case throughout, drawing the court's attention to the judge's judgment of 2012 in relation to the beneficial interest, where he records the respondent's case as having been that he, the respondent, wanted the property in order to run a business but that he would make it "worth her while by paying her a monthly salary of £800 to do the accounts of the business". Moreover, Ms Jones says, lest there be any doubt that the housekeeping figure of £400 pcm found in the base B notional profits schedule was not an additional sum but was part and parcel of the expense incurred in paying the respondent £19,000 per year as letting manager, cognisance needs to be taken of paragraph 8 of the judge's 2012 judgment; this refers to the fact that the respondent had submitted a witness statement from a woman called Ekatrina Skorokhod (Katya), a Russian woman who had lived at the house in 2008 as "housekeeper and receptionist".

    56. Put together Ms Jones submits that the respondent's case throughout and which he should not now be permitted to gainsay, was that prior to the appellant going into possession there were three distinct elements of expense in relation to payment to individuals (as opposed to other outgoings), namely:-

    i) Housekeeping (Katya)

    ii) Management charges (payment to the respondent to act as letting manager)

    iii) The £800 (payment to the appellant per the 2007 agreement)

    57. Ms Jones does not now submit that the management charge which, she says, should have been deducted from the net notional profit, should be £19,000 per annum, the figure relied upon by the respondent in his pleadings. She accepts that the amount of work and management required to run student accommodation is significantly less than that necessary to run a bed and breakfast business. Ms Jones does not therefore seek to go behind the judge's original figure for management charges of ten hours a week at £7 an hour namely £303 pcm or £21,480 over the six year period. Ms Jones submits that the judge should have made allowance for both the £800 per month and £303 per month. Rather than substituting the figure of £21,480, (his time-costed management charges set out in his July 2014 judgment) with £36,000, (being £500 per month for six years), he should rather have deducted both the figure of £36,000 and of £21,480. This would reduce the overall award for a period of six years, from £66,090 less basic tax to £30,090 (£66,090-£36,000) less basic rate tax.

    58. In my judgment, the respondent's submission that there should have been no provision whatsoever for the £800 per month must fail and, following Ms Jones careful analysis, I am satisfied that the judge did indeed fall into error in substituting a figure representing "the £800" for the management fee of £21,480. Where, however, I part company with Ms Jones is with respect to the overall quantum. In my judgment the judge was entitled to conclude that the proper figure in relation to "the £800" pcm was £500 pcm. There is in my view however a modest measure of double accounting as between the time-costed management fee and "the £800" per month. In paragraph 23 of the July 2014 judgment the judge specifically identifies "book-keeping" as a part of the tasks undertaken by the time costed manager, a task also undertaken by the appellant under the 2007 agreement. In my judgement a more appropriate figure to acknowledge this overlap would be £250 per month, rather than the £303 pcm, allowed for by the judge. This results in the figure of £21,480 being replaced by the figure of £18,000.

    59. This adjustment would give the total figure to be added to the respondent's schedule of expenses, per paragraph 24 of the July 2014 judgment, as £65,520, (£33,000 + £36,000 - £3,480). This would leave a notional profit before basic rate tax of £33,920 (£99,120 - £65,520) or £27,136 net of basic rate tax).

    Lawful Occupation

    60. The other major plank upon which Ms Jones rests her appeal against the quantum of equitable compensation rests upon her submission that, the court having "encouraged" the appellant to remain in the property after 6 December 2012, the appellant ought not thereafter be ordered to pay a sum which represents what amounts to a penal sum when calculated by reference to the respondent's notional profits which far outstrip the actual profits accrued between July 2008 and July 2014. Ms Jones prayed in aid a number of matters including, as she would put it, the court's failure to adjudicate upon the appellant's application made on 3 March 2013 for an order for sale together with the respondent's dogmatic refusal to face up to the inevitable and allow the property forthwith to be sold. In this context Ms Jones referred the court to a document filed by the respondent as recently as 13 March 2015 where he sought an order for "return of property to claimant, Sunil, forthwith and damages from the court for not directing this in December 2012 at time of judgment".

    61. In this context Ms Jones refers the court to AIB Group (UK) plc v Mark Redler & Co Solicitors [2015] AC 1503, in which the Supreme Court, although in very different circumstances from those which pertain in this case, considered equitable compensation following the misuse of trust property. Ms Jones refers the court to a number of passages which, she submits, whilst not directly on point, are of assistance to this court. In considering her submissions, of particular relevance is one of Lord Reed's General Conclusions:-


    135] The measure of compensation should therefore normally be assessed at the date of trial, with the benefit of hindsight. The foreseeability of loss is generally irrelevant, but the loss must be caused by the breach of trust, in the sense that it must flow directly from it. Losses resulting from unreasonable behaviour on the part of the claimant will be adjudged to flow from that behaviour, and not from the breach. The requirement that the loss should flow directly from the breach is also the key to determining whether causation has been interrupted by the acts of third parties. The point is illustrated by the contrast between Caffrey v Darby,where the trustee's neglect enabled a third party to default on payments due to the trust, and Canson Enterprises, where the wrongful conduct by the third parties occurred after the plaintiff had taken control of the property, and was unrelated to the defendants' earlier breach of fiduciary duty.

    62. Ms Jones submits that from either December 2012 or, at the latest March 2013, there was no direct causal connection in respect of the respondent's losses which would lead a court to conclude that the proper measure of compensation was by reference to notional rather than actual profit. This she submits is because the difference between the actual profit made whilst the appellant was in unlawful possession and the more substantial notional profit allowed by the judge (calculated on the basis of the respondent being in possession) resulted from a wholly unreasonable refusal on the part of the respondent to sell the property when it was inevitable that a sale was the unavoidable outcome. It therefore follows, Ms Jones submits, that as identified by Lord Reed, the part of the respondent's losses which would have entitled him to the enhanced rate of notional profit flow from his unreasonable behaviour and not from the appellant's breach. As a consequence, she says, there is no causal connection entitling the respondent to equitable compensation at the greater rate.

    63. I regard Ms Jones' argument as both attractive and persuasive but, in my judgment, in order to determine this aspect of the matter, it is not necessary to embark on an investigation as to the reasons why the appellant's application for an order for sale did not take place (even if such a thing could be achieved) or why the respondent would not agree to a sale. In my view, following the judge's order refusing the respondent's application for possession on 12 December 2012, the appellant was lawfully in possession and there could thereafter be no basis upon which it would be appropriate for her to account to the respondent for the substantially higher notional profits than the profit actually made.

    64. As the judge had found, the appellant was the bare trustee of the property. In refusing to make the order for possession the judge was not just "holding the ring" pending the remedies hearing, rather the judge found that the respondent could not be trusted to indemnify the appellant in relation to the mortgage payments should he be in possession. The appellant bore the very substantial liability in relation to the mortgage and the judge was entitled to conclude that she required the protection of possession pending sale and accordingly made an order to that effect, an order from which there was no appeal. The appellant, as a trustee, has a right of indemnity in respect of her liability under the mortgage and, in the event that the mortgage fell into arrears, would have been entitled to apply to the court for an order for sale. The judge was entitled, as he did, to conclude that the only way the trustee's rights could be properly protected was to allow her to remain in possession pending the remedy hearing or sale.

    65. In those circumstances, in my judgment the appellant's continuing breach of her duties, as trustee, which had been ongoing since July 2008 when she wrongly took possession of the property, came to an end upon the making of the order of 12 December 2012. As from that time onwards, her hitherto unlawful possession of the property became lawful.

    66. Ms Jones properly accepts that the fact that the appellant's possession of the property had become lawful did not serve to release her client from her obligation to account for profits. What she submits, and I accept, is that from that date onwards the figure to be accounted for to the respondent relates only to actual profits, less appropriate expenses. Looking at the April 2015 order, any obligation to account for profit came to an end on 30 April 2015 as thereafter provision was made for the payment by the appellant to the respondent of occupational rent in relation to the property.

    67. It follows therefore that, in my judgment, the judge fell into error in calculating compensation at the notional profit rate from July 2008 to July 2014 and rather should have applied the notional profit rate (as now amended by this court) from July 2008 until 5 December 2012 only, and the actual profit rate from 6 December 2012 until April 2015.

    68. I would have wished, if it could be achieved, to have substituted figures in the light of this judgment which would have meant that it would not be necessary to remit the matter to HHJ Moloney to do the workings out. So far as the notional profits from July 2008 – 5 December 2012 are concerned, that will be a relatively straight forward matter, but in respect of the calculation of the actual profits from 6 December 2012 to April 2015, the matter is more difficult as the bundle does not have within in it the necessary accounts for the property covering that period of time.

    69. I have therefore reluctantly concluded that the most practical thing to do is to remit the matter for consideration only of the revised sum following the filing of accounts by the appellant to cover the later period. I should make it clear that this is not an opportunity to seek to persuade the judge to conduct a wholesale re-evaluation of quantum. The dates to be applied are those set out in this judgment and other than the modest alterations made to figures within this judgment which will have to be applied in calculating the final figure, all the other figures as found by the judge stand.

    70. The appeal will therefore be allowed to this limited extent and the matter shall be remitted to HHJ Moloney to settle the amounts payable in the light of the amendments made by this court.


    71. This litigation has been running almost continuously now for seven years. It has taken up countless court and judge hours as both parties, incapable of compromise, have bombarded the court with endless applications, such that Ms Jones now tells the court the judge has had to make orders that neither party may make an application without the leave of the court. The refusal of either party to accept any ruling or decision of the court has meant that the court staff and judge have been inundated with emails, which they have had to deal with as best they could, with limited time and even more limited resources. The inevitable consequence has been that matters have been dealt with "on the hoof" on occasion without formal applications or subsequent decisions being converted into formal rulings or orders.

    72. Whilst every judge is sympathetic to the challenges faced by litigants in person, justice simply cannot be done through a torrent of informal, unfocussed emails, often sent directly to the judge and not to the other parties. Neither the judge nor the court staff can, or should, be expected to field communications of this type. In my view judges must be entitled, as part of their general case management powers, to put in place, where they feel it to be appropriate, strict directions regulating communications with the court and litigants should understand that failure to comply with such directions will mean that communications that they choose to send, notwithstanding those directions, will be neither responded to nor acted upon.

    Lord Justice David Richards :

    73. I agree

    Lord Justice Longmore :

    74. I also agree.

Judgment, published: 14/12/2016


Published: 14/12/2016


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