Kirill Ace Stein v Eugene Jaffe [2025] EWHC 1337 (Ch)

[2025] EWHC 1337 (Ch)Case No BL-2023-000501IN THE HIGH COURT OF JUSTICEBUSINESS AND PROPERTY COURTS OF ENGLAND & WALESBUSINESSS LIST (ChD)Venue The Rolls Building, 7 Rolls Buildings, Fetter Lane, LondonEC4A 1NLDate of hearing: 22 April 2025Start Time: 15:45 Finish Time: 16:06
Before
MASTER BRIGHTWELL
Between
MR KIRILL ACE STEINClaimantMR EUGENE JAFFEDefendant
MR LAURENCE PAGE (instructed by Eversheds Sutherland (International) LLP) for ClaimantMS LISA LACOB (instructed by Peters & Peters Solicitors LLP) for Defendant
APPROVED JUDGMENTThis Transcript is Crown Copyright.  It may not be reproduced in whole or in part other than in accordance with relevant licence or with the express consent of the Authority.  All rights are reserved.Digital Transcription by Marten Walsh Cherer Ltd.,2nd Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP.Telephone No: 020 7067 2900. DX 410 LDEEmail: info@martenwalshcherer.comWeb: www.martenwalshcherer.comDate 2025-04-22

MASTER BRIGHTWELL :

[1]This application to amend the particulars of claim, which has been made returnable at the PTR, was issued on 28 March 2025. A number of proposed amendments put forward by the claimant had already been agreed by that date and I deal in this ruling only with those amendments which are the subject of dispute.[2]The claimant claims to be entitled to equitable compensation based upon a breach of an express trust, alleged to have been created over the sum of USD 2 million, paid over to a company called Pumula Management Ltd in 2012 in circumstances which are particularised in the particulars of claim. It is alleged that the defendant was constituted as an express trustee in relation to the sums that were paid over in relation to services provided by the claimant, in connection with other litigation. The allegations of breach of trust are particularised in paragraph 19 of the Particulars of Claim. The allegation is that the defendant failed to transfer the payments to the claimant and/or misapplied the assets of the alleged trust in ways which are variously described.[3]The application before me concerns a claim to interest. As matters stand, paragraph 20 of the Particulars of Claim pleads:
“20. By reason of the breaches of trust set out above, the claimant has suffered loss and damage in the sum of US$2 million. “21. Accordingly, the claimant is entitled to and seeks: 21.1. Equitable compensation in the sum of US$2 million. 21.2. An account as to the use made by the Defendant of the trust assets and all profits made by the Defendant in respect of those assets. 21.3. Compound, alternatively simple, interest on all sums pursuant to section 35A of the Senior Courts Act 1981 and/or the Court’s equitable jurisdiction at a rate of 8% or at such rate and for such period as the court shall think fit.”
[4]It is accepted by the claimant that an election must be made by the time of trial, whether to seek equitable compensation or an account of profits. The issue relating to interest arises in the event that the election is to pursue to equitable compensation in the event, of course, that the claim succeeds.[5]The amendment which is sought to be introduced in paragraph 22 of the draft amended particulars of claim seeks to add three alternative ways in which the claimant is entitled to equitable compensation and/or compound interest. “22. By reason of the matters aforesaid, the Claimant is entitled to equitable compensation and/or compound interest (each in the alternative, but in no particular order): 22.1. At a rate which matches the performance of the S&P 500 index from 27 June 2012 (close price US$1,331.85) to the date of trial and continuing until payment. As at 10 March 2025 (based on S&P 500 close price of US$5,614.56), the Claimant estimates this head of loss to be US$8,431,219.73; 22.2. At a rate which a reasonable person with the general characteristics of the Claimant could have borrowed from a bank on an unsecured basis. The Claimant considers that such borrowing rates would have been:(a) The US Prime Rate plus a spread, compounding on at least a quarterly basis. At present, the Claimant’s best evidence is a Wells Fargo Rate sheet dated 23 June 2014 (“the Rate Sheet”). Wells Fargo is the Claimant’s bank. The Rate Sheet provides for an unsecured personal loan at a rate of 9.25% to 18.5% per annum (i.e. US Prime Rate of 3.25% plus 6% to 15.25%). If a loan for US$2 million had been obtained using this spread on 27 June 2012, the interest accrued to 10 March 2025 on this rate would have been US$5,506,036.66 (US Prime Rate plus 6% spread) to US$21,289,911.28 (US Prime Rate plus 15.25% spread); alternatively(b) Such other rate and compounding frequency as the Court shall determine. 22.3 All profits made by the Defendant in respect of the uses made by him of the Payment, to be assessed.”[6]Mr Page, appearing for the claimant, referred to the decision of Nugee J in the Glenn v Watson litigation. There were two relevant judgments. First, the trial judgment ([2018] EWHC 2016 (Ch)) and then a subsequent judgment which dealt further with the question of interest ([2018] EWHC 2483 (Ch)). Nugee J awarded compound interest, compounded annually, at a rate of 6.5%. An appeal to the Court of Appeal on the question of interest only was dismissed: Watson v Kea Investments Ltd [2019] EWCA Civ 1759.[7]The equitable compensation sought and awarded in that case was for breach of fiduciary duty for sums which could not be recovered from a third-party joint venture company when various transactions were set aside because of the established breaches of fiduciary duty. Nugee J accordingly characterised the loss which the claimant was entitled to recover as the loss of that principal sum plus interest: see at [542].[8]In his principal judgment, after setting out the various claims, he discussed a number of then recent decisions of High Court judges on the calculation of interest on awards for equitable compensation at [547] to [548]. Then at [549] to [550], he said:
“549. It can be seen that these citations are concerned with cases where the rate of interest was based on the rate at which the claimant can borrow, and decide that one does not look at the individual claimant but at what a class of claimant (small business, large business and the like) can borrow at. I accept that the borrowing rate, which has been said to be suitable in commercial cases, is not necessarily suitable in all types of case (see Hildyard J’s detailed analysis of this point in Challinor v Bellis [[2013] EWHC 620 (Ch)]) and that where the claimant that is out of pocket is a trustee that would otherwise have invested in proper trustee investments, the appropriate rate would not be the borrowing rate but a rate to reflect the return on such investments. I also accept that this would apply to Kea which although not itself a trustee is a vehicle for trustee investment. However I do not see that this affects the principle that in assessing such a rate the Court adopts a broad brush approach based on what a person with the general characteristics of the claimant might have received by way of investment on trustee investments, not a rate that reflects what the individual claimant would itself have done. 550. That is I think supported by the usual practice in cases where interest is sought against defaulting trustees. The Court does not as far as I am aware attempt to investigate what other investments the particular trust fund might have made, but adopts, on a broad brush basis, a rate that is intended to be a proxy for the rate of return that trustee investments would normally earn. …”
[9]Nugee J also declined to permit a late amendment, which was sought during the trial itself, to introduce a claim to interest based upon the investments which Kea would, in fact, have made. That was both because the application was too late and because the court does not look to what the particular claimant would have done when calculating interest.[10]He also commented at [563], as indeed have other judges when deciding issues relating to interest, that the question is often resolved on the basis of evidence and submissions made after the trial judgment has been delivered. That is how the issue was resolved in Glenn v Watson: after the main judgment had been handed down, the claimant adduced evidence of what the return on proper trustee investments would have been.[11]It is worth commenting that, in his second judgment, Nugee J brought up to date a series of Victorian authorities on how interest was calculated in claims against trustees, to take account of modern conditions and changes in interest rates. In that second judgment, referring back to Hildyard J in Challinor v Bellis at [34] on the different ways in which interest can be calculated, he indicated at [46] that it was not appropriate in the case of a conventional trust fund to adopt a rate based on the cost of borrowing. Then he said, at [47]:
“47. ….for the reasons I have given above, it seems to me both logically correct and principled and consistent with the early cases that the rate should reflect the fact that, by depriving the fund of capital, the defaulting trustee also deprives the fund, until the capital loss has been made good, of the income that such capital would have earned. That points to a rate based on a suitable investment return.”
[12]He then went on at [49]:
“49. I conclude that in the ordinary case of a defaulting trustee, who is liable to make good a capital loss to the fund, the equitable interest to be awarded can be regarded as a means of compensating the fund for the income that has been lost to the fund. The rate of interest to be awarded can, therefore, be one that acts as a proxy for the investment return that trust funds with the general characteristics of the fund in question could expect to make.”
[13]As Ms Lacob points out, with reference to the decision of Mr David Holland QC in Davies v Ford [2021] EWHC 2550 (Ch), a claim involving a trustee or fiduciary will not always be treated in this way for the purposes of interest. The question will be whether the trustee is required to make an order on a reparative or a substitutive basis. The latter applies where there has been a misappropriation of existing trust property, in which case the order is made “on the basis that the fund had the relevant sums at all material times and would have invested them” (see at [210]-[211]). Interest is then assessed on the same basis, as it was in Glenn v Watson,by the search for a proxy for the rate of return on trustee investments.[14]This is not a matter on which I have heard detailed submissions and which could be determined today. It seems to me that there is a point open as to whether borrowing rates or trustee investment rates are appropriate. Indeed, the claimant plainly acknowledges this as it is reflected in the fact that both options are provided for in the alternative bases of interest claim in the proposed amendment.[15]I will also briefly make reference to the principles applicable more generally to interest on common law damages, as discussed by Hamblen LJ in Carasco v Johnson [2018] EWCA Civ 87, especially at [16]. They would assume relevance in the event that a trust rate was not the appropriate rate. For present purposes, the key point is that interest is generally paid to compensate successful claimants from being kept out of their money and not as compensation for damage done or for loss of profit. Where commercial claimants are concerned, “the general presumption will be that they would have borrowed less and so the court will have regard to the rate at which persons with the general attributes of the claimant could have borrowed”.[16]The authority that Mr Page referred to in that context is the decision of Foxton J in Lonestar Communications Corp LLP v Kaye [2023] EWHC 732 (Comm). The judge indicated at [14] that, going forward, where US dollar awards are concerned the default practice of the Commercial Court should be to award interest based upon US Prime, rather than LIBOR or the traditional Commercial Court rate of Bank of England base rate plus 1%. The award in the present case is, of course, sought in US dollars.[17]Mr Page takes from that judgment the proposition that where an averment is to be made for an uplift of greater than 1% or 2% from US Prime, evidence in support of the uplift should be put forward at trial. I am not sure that the judgment goes quite that far. The point is dealt with at [16]. Foxton J said this:
“16. As its name indicates, US Prime is the rate offered by US banks to their most creditworthy business customers. In these circumstances, it would not be appropriate to have a default rule that there will always be an uplift over and above US Prime in an interest award. In some cases, even without evidence, it will be obvious from the general characteristics of the claimant that it would have to pay a higher rate to borrow US$ than a bank’s most creditworthy customers. In such cases, the court may well be persuaded to order interest at US Prime plus 1% or US Prime plus 2% for certain types of claimant. Higher uplifts than that are likely to require evidence to justify them.”
[18]In that case, the question was resolved at a consequentials hearing after the principal judgment had been delivered, as had happened in Glenn v Watson.[19]It seems to me, in the light of these authorities, that what is a proper pleading of an interest claim is first a statement whether the claimant is claiming on a trustee basis and/or on one of the conventional bases applicable to common law damages. In a borderline case, as I have acknowledged, it may well be appropriate to plead more than one basis in the alternative. If the claim is on a trustee basis, it will either be because of the nature of the defendant’s obligations towards the beneficiaries of his or her trust, or because the claimant is a trustee or should be treated as a trustee that would otherwise have invested in proper trustee investments, as Kea would have done in Glenn v Watson. Where the claimed loss is on a trustee basis, this is because the fund would have been invested during the period from when it had been wrongfully dealt with.[20]What I then consider to be a proper plea of interest are some particulars of the general characteristics of the claimant, relied on by him, in support either of a higher than normal borrowing rate, or the sort of factors which would inform the sort of investments that either the claimant or the defendant, as the case may be, would have made as trustee, or which they ought to have made.[21]Given the broad brush nature of the exercise of finding an appropriate interest rate, and the fact that it is generally dealt with separately after judgment, it does not seem to me clear on the authorities that precise rates of interest need to be pleaded. This might be said to benefit claimants who can raise such matters after trial, but it cuts both ways. It also means the defendant should not be required, at the pleading stage, to engage in detail on interest rates.[22]I consider it to be different where the judge at trial will be asked to find that the claimant’s primary loss, not including interest, will require an assessment of investment loss. An obvious case where this may arise is where it is alleged that a trustee has failed properly to invest assets which were held as trustee such that the trust fund has suffered loss. The pleading in such a case will have to articulate the claim as to the investment rate which ought to have been achieved in sufficient detail for the defendant to understand it and to respond to it. This will generally entail disclosure, witness statements of fact and almost certainly of expert evidence for the issue to be resolved.[23]I do not consider that it requires any analysis of the authorities on late amendments to state that the introduction of such a claim at this stage would be far too late. I would note the way in which Nugee J dealt with the late amendment application in that regard at [554] in his main judgment. That was in relation to an application made during the trial itself, but we are now only a month before trial and there would clearly not be time for the relevant steps to be taken. For that reason, I would not permit the claimant to amend the claim now to amend the claim to equitable compensation but Mr Page has made clear in his submissions that, despite the fact that paragraph 22.1 might be read as seeking to introduce such a claim, that is not what the claimant seeks to do.[24]The view I have come to on the proposed amendments is that, in failing to particularise the general characteristics of the claimant or the nature of the obligations said to be owed by the defendant, they do not achieve what particulars of claim might properly achieve in connection with interest on equitable compensation. I would note that the claim to compound interest is already pleaded. It is not, in my experience, conventional to plead the rests, annual or otherwise, which it is said should apply where compound interest is sought. If the claimant wishes, in due course, to contend for rests other than annual rests, as he has indicated he will, then clearly some factual basis for that, tied to the claimant’s general characteristics, will be required.[25]As far as paragraph 22.1 is concerned, I do not consider that merely making reference to a stock market index is a recognised way of calculating interest. If a proxy for a trustee investment rate were to be adopted, that would be based on what return would likely have been obtained from proper trustee investments. For such a plea to be properly particularised, I considered it would have to set out why that is the appropriate rate to adopt and why trustee investments should have been invested in by the defendant. I would note that the original pleading in Glenn v Watson did include such a plea.[26]As far as the borrowing rates based on the Wells Fargo rate sheet is concerned, the spread of rates is very significant. There is no evidence before the court explaining why this rate sheet has been selected, although it has been identified that the claimant has, for many years, been a customer of Wells Fargo. The selection of a rate sheet from June 2014, not being the date when the sums were alleged to have been paid over, has also not been explained. There is also nothing in the proposed amendment which explains the general characteristics of the claimant or explains why those general characteristics would justify such a high rate being applied. For that reason, I consider the plea to be unparticularised. I do not consider that this rate sheet enables either the defendant or the court to understand the way in which the claim is being put forward.[27]As far as paragraph 22.3 is concerned, there is already a claim to an account of profits at paragraph 21.2. It seems to me that paragraph 22.3 merely repeats that; that claim is already adequately pleaded.[28]An amendment limited to a statement of the basis on which interest will be claimed and the general characteristics of the claimant relied on would be permissible. It seems to me that it would be permissible even at this stage, even without a plea of any specific rates. It also seems to me unlikely that the court will wish to go further than this in the trial judgment. It may well be, as is the normal case, that it is appropriate to deal with all questions of interest after trial, if the claimant is successful, of course. I consider this to be consistent both with practice and with principle.[29]For reasons I have given, I do not consider that the amendment, in the form in which it has been put forward, should be allowed. That is primarily because of the lack of particulars and the fact that it does not set out the general characteristics which are relied on. I am also concerned that there is no evidence explaining these rates and there is no evidence explaining why the application to amend has been brought at this juncture. In particular, I do not accept that the failure of the defendant to give disclosure of the interest rate of the account into which the monies were paid can sensibly be said to be the cause of such a delay in pursuing this application.[30]I consider the appropriate course to be to adjourn the application, rather than simply to dismiss it. This will give the claimant an opportunity to seek to rely on an alternative amendment limited to the matters I have mentioned concerning the general characteristics of the claimant. It may be that if the amendments are strictly so limited, they may be capable of agreement. If not, the application will have to be considered at trial, as the amendment application in Glenn v Watson was considered at trial.[31]For those reasons, I will adjourn the application. - - - - - - - - - - Marten Walsh Cherer hereby certifies that the above is an accurate and complete record of the proceedings or part thereof. Digital Transcription by Marten Walsh Cherer Ltd 2nd Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP Tel No: 020 7067 2900. DX: 410 LDE Email: info@martenwalshcherer.com Web: www.martenwalshcherer.com

Cited in 1 later judgment