Credit given for proprietary awards when calculating equitable compensation (Mercy Global Consult Ltd (in liquidation) v Adegbuyi-Jackson and others)

Dispute Resolution analysis: In a wide-ranging judgment determining a number of consequential matters following a VAT fraud claim, the Court has given useful guidance in relation to the treatment of proprietary claims when valuing equitable compensation.

Mercy Global Consult Ltd (in liquidation) v Adegbuyi-Jackson and others [2024] EWHC 171 (Ch)

What are the practical implications of this case?

The main point of principle to be taken from this judgment on a consequentials hearing following a trial in which equitable compensation was ordered in a claim for breach of duty is the correct approach to valuing compensation where proprietary claims in respect of the same breaches have succeeded. It confirms that the task when assessing equitable compensation is to put the Claimant back in the position they would have been but for the breaches. Unless credit is given for the value of any successful proprietary claim, the Claimant would be overcompensated.

What was the background?

At trial, in proceedings brought by the liquidators of Mercy Global Consult Ltd on the company’s behalf, the Claimants were awarded equitable compensation as a result of VAT fraud perpetrated by the company’s director. A hearing was required to determine a number of consequential matters arising. In the substantive judgment itself, the trial judge identified that submissions were required on the calculation of equitable compensation to be ordered, interest and costs. At the hearing itself, counsel for the Claimant invited the Court to make post-judgment freezing orders against some of the Defendants, to make charging orders against some of their assets and to grant third party debt orders. Counsel for the Defendants (apparently instructed late) applied to adjourn the consequentials hearing and sought permission to appeal the judgment made following trial and made submissions in relation to the level of equitable compensation to be awarded.

What did the court decide?

The adjournment was refused. The Defendants had been made subject to debarring orders before the trial. This restricted not only their participation at trial but also their ability to make submissions in relation to quantum. The reason for seeking an adjournment was to adduce further evidence on the question of quantum. Such evidence should, if relevant, have already been put before the Court. In any event, where a proprietary claim is made to an asset, the beneficiary is usually entitled to take the benefit of any increase in the value of the asset. There was some uncertainty as to whether the Court had power to grant permission to appeal given that the grounds of appeal all related to the inability of the Defendants to make submissions at trial and this was as a result of the debarring orders which were already subject to an appeal to the Court of Appeal. In any event, permission to appeal would not have been granted on the basis that the appeal had no real prospect of success. In calculating the equitable compensation payable, credit should be given for assets to which a proprietary claim had been established. Compensating in respect of the value of those properties would not form part of the sum required to put the Claimant in the position it would have been in if the breaches of duty had not been established. The Court declined to rule upon whether the Claimant was entitled to rent in respect of properties in which a proprietary claim had been brought. No such had claim had been pleaded and should in any event be considered at a later hearing in relation to the continuation of freezing injunctions.

Case details

• Court: Business and Property Courts, Business List
• Judge: HHJ Johns KC (sitting as a High Court Judge)
• Date of judgment: 31 January 2024

Article by Phillip Patterson – first published by LexisNexis