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‘Arghh me hearties, there be treasure in these parts’… and the government has identified that the law surrounding it calls for some reform.

Treasure is most commonly associated with stormy seas, adventures, maps with X marking the spot where antique chests heaving with fabulous jewels, doubloons and items of exquisite luxury are to be found, usually by outlaws and old-timey pirates. What you don’t think of are individual enthusiasts, wigged barristers or frankly anything remotely close to the 21st century.

But in actual fact, treasure and its discovery are as common — if not more common — now as they ever were.

What’s more, treasure law in the UK is completely distinct from that found in any other country — not least because the government allows individuals to actively look for treasure, through mudlarking (digging about in mud) and metal detecting.

Currently, the law in this area is substantially governed by the Treasure Law Act 1996. If goods found, including while mudlarking, a practice with roots in the late 18th and 19th centuries, fall within the 1996 Act’s definition of ‘treasure’ then they must be handled in accordance with the Act.

The meaning of ‘treasure’

The Act came into force in 1997, replacing the previous doctrine of “treasure trove” and was intended to be the last word in the way treasure finds are handled in this country. As many legislative pieces do, it streamlined the law in this area, providing clarity around definitions, rights and duties. Crucially, it defined treasures as: (i) items 300 years old made of silver or gold; and (ii) all coins from the same find if it consists of two or more coins as long as they are 300 years old, and if they contain less than 10% gold or silver, there must be at least 10 coins. It also set out a clear process for how to handle treasure finds. Specifically, the need to register the finding with the coroner, and, if found to be treasure as defined by the Act, to notify a museum in case of a desire to accession it, as well as a scheme of rewards for finders and landowners.

Some 25 years since its introduction, it remains a vital piece of legislation but, as you might expect, a number of issues have cropped up.

First, and most crucially, the conception of “treasure” the act provides is extremely narrow. It excludes anything that is not in part gold or silver or that is gold or silver in insufficient quantities or form. This means any coin or artefact that is, for example, bronze is not classed as treasure at all and is not subject to the Act. Second, there was a lack of clarity around who paid for the reward.

How the Leasingham Horse & Birrus Britannicus got lucky

It was with this scenario that the Leasingham Horse was nearly lost. In 2020, a small enamelled horse brooch of Roman origin was found in Lincolnshire. Its main material was bronze. It was therefore not counted as treasure and so, despite being identified as “incredibly rare”, did not fall within the jurisdiction of the Act. Fortunately, the finder of the artefact recognised its value and kindly donated it for display in the Collection Museum, in Lincoln.

Nor was this an isolated incident: a similar near-miss occurred in 2017, involving the finding in Chelmsford of an artefact known as the Birrus Britannicus. The name refers to the hooded duffle coat-like item of clothing that the small figure (believed to be a hunter or archer from the quiver on his back) appears to be wearing. The “birrus britannicus” was a specifically British item of clothing and was a main export during the Roman occupation of Britain. It is extremely rare to find portable art of this time depicting a typically British figure, especially with this high level of artistic craftsmanship. The item, a copper alloy, was to be sold overseas.

On the recommendation of the British Museum, however, the then arts minister John Glen intervened and placed a temporary bar on the export licence to allow time for the Chelmsford Museum to gather funds sufficient to purchase the item. Subsequently, the Chelmsford Museum was contacted by a “well wisher in America” who kindly donated the purchase price as a gesture of goodwill between the two countries.

Both these stories have happy endings but it all too easily could have gone the other way. Moreover, while it is admirable and a touching win for the goodness of human nature that the items should be donated or the purchase funds donated, respectively, the system shouldn’t rely on this.

The definition clearly doesn’t reflect our cultural understanding of treasure, as it fails to take into account cultural, artistic and historical value. This brings us to the next problem, and the real heart of the issue, namely, that items of significance are being lost.

Do you remember when Indiana Jones would say, “that belongs in a museum”? (Strictly speaking, the particular items he was talking about didn’t belong in a museum, but with the traditional owners of the artefacts ie their rightful owners, and in their cultural and historical context.) Nevertheless, Indiana Jones’ basic point is a good one. These items are at risk of being not declared, not studied, damaged or forgotten about or otherwise lost to the public and the academics that could learn from studying them. If they end up in a public collection on display in another country, that is better than being damaged but nevertheless represents a huge loss to the British public.

Due to these issues, the need for reform was clear.

Safeguarding our heritage

In February 2019, the government launched plans to update the Act and revise the definition of “treasure”, in a consultation paper, “Revising the definition of treasure in the Treasure Act 1996 and revising the related codes of practice”. Feedback from museums, landowners, detectorists, archaeologists and members of the public revealed that treasure finds had been growing year on year for the past six years and had each time exceeded 1,000 finds with a total of 20,906 artefacts found in 2018 alone, and that the majority of these finds (96%) were made by detectorists.
As a result of this consultation, new statutory instruments will be introduced within the next year (there was some delay due to the Covid-19 pandemic). The changes will span five areas: (i) procedures for declaring finds, including the inquest procedure; (ii) museums’ expressions of interest; (iii) valuation of treasure, crucially, a re-defining of treasure; (iv) a new rewards system and clarity on who provides that reward (the museum); and (v) greater speed when handling cases.

Most positively, it is set to expand the definition of treasure to focus less on materials and more on the item’s historical and cultural significance.

As always, the consequences of any new reform can never be fully understood until they have been introduced and have had time to settle into practice. It is, however, likely that with the broadening of the definition of “treasure” itself we will see a great deal more treasure finds being reported. Hopefully also we will see important objects go into museums, many of these being local and regional galleries that continue to act as important heritage repository sites and providers of specialist knowledge.

One thing is certain, however, and that is that treasure law will continue to be a spicy little area of the law, full of swashbuckling finds and interesting cases.

This is the first of a series of Journals examining Treasure law reforms in England and Wales.

Hillary Curtis has a bachelor of science (botany) and a bachelor of arts (art history and anthropology) degree from the University of Sydney, and has worked in galleries and museums. She is due to commence pupillage next year.

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If you are a law student interested in working in the corporate or commercial sector, then you will need to understand not only how secured transactions work, but also why taking security is such an important business decision for a lender.

To give some context, a secured transaction is one where a lender lends money to a borrower and, in return, the borrower gives the lender a proprietary interest in its assets (security). The assets could be all or any part of the borrower’s property which might include land, premises, plant and machinery, work in progress, intellectual property, book debts or investments.

The critical legal point here is the creation of the proprietary interest in the borrower’s assets in favour of the lender. You may ask yourself two questions at this point. First, why would a borrower allow a lender to obtain property rights over its assets and second, why would a lender want them? The answer is that such an arrangement is mutually beneficial.

The benefit for the borrower is that it gets the money it needs to run its business. It may also get the benefit of paying a lower rate of interest on the loan than it would have obtained if it had not granted security over its assets.

The benefit to the lender is that in the event that the borrower becomes unable to repay the loan (i.e. becomes insolvent), the lender can exercise its proprietary rights over the borrower’s assets and sell those assets to generate funds to repay the debt.

So far, so straightforward, you may think. But despite the simplicity of the commercial structure and the fact that the law works well in practice, the reality is that English secured transactions law is complicated and highly technical. This is not a good thing, as laws which are complicated and technical tend to result in increased transaction costs for the parties involved.

Discussions about reforming English secured transactions law are not new. In fact, discussions as to how this can be achieved have been taking place for almost half a century. The good news is that progress has been made, even if it has not yet resulted in legislation.

In 2015, the City of London Law Society produced a draft Secured Transactions Code (the Code) to codify and update the English law of secured transactions for the twenty-first century. Over the last five years, the draft has been updated and modified following extensive discussion among academics and practising lawyers.

This article will discuss some of the main changes the Code seeks to introduce and explain why it makes sense for the UK government to consider enacting the Code as legislation as we move into the post-Brexit, COVID-19 rife world.

What is the matter with English secured transactions law?

It has already been noted that the law in this area is complicated. But why is this the case?

First of all, to understand secured transactions, you have to have a very clear understanding of both contract law and property law before you begin. (Ask yourself: can you separate your rights in rem from your rights in personam?) You will also need to draw on your understanding of equity and trusts. And land law. And company law. And insolvency law.

Once you have mastered all this, you will be able to determine at the outset whether a transaction is a secured transaction, or whether it is a transaction that looks like a secured transaction, but in fact has a different legal characterisation (sometimes referred to as quasi security). Examples of quasi security include retention of title clauses, guarantees and sale and leaseback arrangements.

The next step in the process is being able to distinguish between the different types of security interest. These are generally classified as consensual and non-consensual. Consensual security is security where the parties have agreed to its creation. This type of security includes mortgages, charges and pledges. It could also include a contractual lien. Non-consensual security is security that is created without the agreement of the parties. An example would be a lien that arises by operation of law.

Each of these kinds of security has its own legal construction: a pledge is a common law security interest, whereas a charge can only exist in equity.

When it comes to mortgages, they can be legal or equitable. Whilst it may be that a lender might choose to take an equitable rather than a legal mortgage for specific reasons, equitable mortgages may arise unintentionally if the formalities for a legal mortgage are not completed.

There is a further distinction to be made between the legal mortgage and the legal assignment. A legal mortgage can be created over a chose in possession, but when it comes to a chose in action, then an assignment under section 136 of the Law of Property Act 1925 will be necessary to obtain legal equivalence. But again, if the formalities for the statutory assignment (rather unhelpfully referred to as a “legal” assignment in the legislation) are incomplete, it will only take effect in equity.

At this point, we must not forget the humble charge, which exists as a creature of equity and is the workhorse of the secured transactions trade. It must, nevertheless, be distinguished from the statutory charge by way of legal mortgage created under section 85 of the Law of Property Act 1925 that applies to land.

Finally, we need to recognise that there are two types of charge — the fixed charge and the floating charge. The distinction between the two is critical when it comes to the insolvency of the borrower, as a lender may — to its disadvantage — have to cede some of the value of a floating charge to specified priority creditors.

To summarise then, we have the following consensual security interests: the statutory charge by way of legal mortgage, the legal mortgage, the equitable mortgage, the fixed charge, the floating charge, the contractual lien, the pledge, the statutory assignment and the equitable assignment.

Into this mix bring the necessity for formalities, the registration of security interests (both at Companies House and in asset registers) and the complex rules on the order of priorities, and it is apparent that the English law of secured transactions is very complicated indeed.

The way forward

It is hardly surprising that English law is as technical as it is; it has developed largely through case law over a period of 400 or so years. Even the Law of Property Act of 1925 is now almost a century old. Modernising and simplifying the law makes complete sense, particularly as most modern security documents are drafted to overcome any subtle distinctions between the different types of security interest all of which have broadly the same effect in any event.

The advantage of setting out the existing law in the Code means that the law can be presented clearly and concisely in one place.

Simplification of terminology is key. Instead of a multiplicity of different security interests, the Code opts for the term “Charge” to encapsulate all of them.

This means that there will no longer be a distinction between fixed and floating charges. This is important, because on an insolvency, it is often a vexed question as to whether a charge will be construed as fixed or floating for the purposes of determining the value to be apportioned to different classes of secured and priority creditors. Debating the issue takes time and costs money — to the disadvantage of the ultimate creditors.

The Code also simplifies the priority rules between chargees as well as minimising the formalities required to create a charge. It has long been recognised that it is not always possible or practicable to obtain manuscript signatures on transaction documents — something brought into sharp relief by the COVID-19 pandemic. The Code reflects the digital reality of current practice and allows the electronic execution of documents.

Having clear, certain and easily understandable secured transactions laws can only be of benefit to anyone seeking access to finance. The modernisation of the English law of secured transactions in the Code will achieve this clarity as well as retaining much of the flexibility of the existing law.

In times of economic crisis such as the present, providing easy access to finance is an essential part of supporting the UK recovery and is therefore a social good. But the advantages of the Code go beyond the UK. The UK government should be encouraged to adopt the Code as legislation not only for its societal benefits, but also because the Code could serve to enhance the attraction of English law to overseas investors as the UK leaves the EU.

And, of course, adopting the Code will have an undoubted advantage for law students who will no longer have to cudgel their brains quite so hard to grip this legal lexicon.

Like all the best secured transactions, adopting the Code is a win-win for everyone.

Professor Paula Moffatt is Director of External Engagement at Nottingham Law School, Nottingham Trent University and is a member of the City of London Law Society’s Advisory Group on the Secured Transactions Code.

Nottingham Law School will be delivering a workshop at The Legal Cheek December UK Virtual Law Fair on Thursday 3 December 2020. The workshop, ‘Experience, skills and education: How to write a winning application’, will be run by Laura Pinkney, Director of Nottingham Law School’s Legal Advice Centre and Ed Mosley, one of the Nottingham Law School Careers Consultants. Secure your place now.

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In the last few years environmental issues such as deforestation, the climate crisis, and plastic pollution have enjoyed more attention in the news than they previously did.

In times gone by, membership of Greenpeace would have caused some to form stereotypical, new-age assumptions about you, whereas today joining Extinction Rebellion gives rise to no such stigma. Whether you’re a tree-hugging, sandal-wearing, all organic vegan or simply thinking about switching to a bamboo toothbrush, we’re all increasingly aware of the pejorative impact that humans are having on our planet. Not least politicians, who continuously fail to reach consensus on how the international community should manage various environmental problems.

However, in amongst the environmental hullabaloo, in an odd Guardian article here, or a chance TED Talk there, there are some who think that there should be a paradigm shift in the way we think about the degradation of nature — they think that trees (and other natural objects) should have their own legal rights.

“Don’t be silly,” I hear you cry. “Trees can’t have rights, they’re not even human!” But hold on. The notion that a natural object could be a rights holder is not as bizarre as it first seems. After all, companies, nation states and even ships have legal personality and they’re obviously not human, so it deserves serious consideration.

The idea that trees can have legal rights (hereafter called “the Trees Thesis”) was originally posited by Christopher Stone in an article published in 1972 entitled ‘Should Trees Have Standing? — Toward Legal Rights for Natural Objects’. It became hugely influential in environmental thought and law, particularly after it formed the basis of a dissenting judgment in the American case of Sierra Club v Morton. Stone said that there are three aspects to holding legal rights:

(1) The holder should be able to instigate legal action on their own behalf

(2) The holder’s injury should be considered when calculating damages, and

(3) Damages should directly benefit the holder

The Trees Thesis ensures that natural objects possess these aspects. Environmental groups could apply to a court to be appointed an object’s ‘guardian’. Guardianship would confer the right to act on the object’s behalf, akin to a deputy acting for someone who lacks mental capacity. Natural objects would have specific rights, e.g. a river could have the right to respect to integrity, which would prohibit water pollution. If these rights were breached, a guardian could investigate the resulting environmental damage and take legal action against the breaching party in the object’s own name. If successful, damages would be awarded to the guardian to hold on trust for the natural object. They would then be obliged to use the damages to benefit or restore the object. Proponents argue that current legal frameworks have failed to prevent environmental degradation and that treating nature like people rather than property is the solution.

And it has actually already happened. In 2017, New Zealand granted legal personhood to the Whanganui River and, more recently in 2019, Lake Erie in North America also gained legal personhood. But despite these examples, it is difficult to see how the Trees Thesis would actually work in practice in the United Kingdom. Much can be said about each part of the Thesis; however, I want to focus on how one would actually hold damages for a natural object on trust. Any law graduate knows that, as a general rule, English law only allows trusts for people rather than purposes save for a handful of exceptions — these are trusts for animals, monuments or graves, and private religious masses. Given that a trust for a natural object would constitute a purpose trust, it’s highly unlikely that such a trust would be valid under English law, pouring cold water on the Thesis as a whole.

Although, in reality, there are actually lots of perfectly valid purpose trusts in existence. These are the charitable purpose trusts which must satisfy the requirements outlined in the Charities Act 2011 (“The Act”). Obviously, these requirements would have to be met if a trust for a natural object was established this way. The first requirement is that they must have one of the aims listed in section 3 of the Act. As “the advancement of environmental protection” is one such aim, a natural object trust may be halfway to being created. The trust would then have to confer an ascertainable public benefit, as per section 4 of the Act. Given that benefits are determined on a case by case basis, it is reasonable to assume that a natural object trust would confer a wide ecological benefit to the public at large. So is it really that simple?

The problem lies in the fact that the public benefit is just that, a public benefit — a benefit for the public and the public only. As already stated, the Trees Thesis is premised on the assertion that damages should directly benefit the natural object in question. But if a natural object trust was analysed as a charitable trust, this direct benefit would be subverted by a different, independent benefit for the public instead of the object itself. Turning a natural object trust into a charitable trust would therefore be self-refuting and undermine the whole Thesis. This is to say nothing of other practical hurdles. If a natural object could take legal action against a polluter, could an aggrieved person take similar action if a natural object caused damage to them? For instance, if a river burst its banks and flooded a house. Furthermore, what even is a natural object?

It seems unlikely then that trees or other natural objects could ever be given their own legal rights in the United Kingdom. Instead, continued attempts at international political cooperation will be necessary to take on environmental challenges, perhaps paired with the proclamations of Greta Thunberg.

Paul Wyard is an education law paralegal at Sinclairslaw, Cardiff. He graduated last year with a first-class degree in law from Oxford Brookes University. In addition to education law, Paul maintains an interest in environmental, criminal, and medical law.

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You probably haven’t ever had to think about the value of a fine forest or a lake or an English Oak, about what price tag we should put on a polar bear. But that is exactly what London School of Econmics PhD law student Sroyon Mukherjee is doing. His research is investigating how courts put a monetary value on specific parts of the natural world or, indeed, on a species or specific ecosystem. It’s called environmental valuation.

Valuation of the environment has many critics (The Guardian once passionately advocated against valuations). Those against believe that it devalues our natural world: as the argument goes, if you put a value on the polar bear as a species using standard valuation techniques, you might well come up with a number, say, US$100 billion (£79 billion), that is actually less than the wealth of an individual (Jeff Bezos’ net wealth is around US$150 billion (£119.5 billion)). Does that mean that polar bears are “worth less” than Jeff?

Mukherjee is, for now, leaving that question to others: “I am saying since we are doing valuations anyway, with some consistency and transparency, we can do them better”. He uses the example of the way we quantify personal injuries: “The courts can always find a way. It is not to say that the value of limb is reduceable to that number, but it is a way of compensating for your loss.”

He tells Legal Cheek: “What got me interested in this area is that there is a lot of economic literature on this subject but not much legal literature on what happens when these cases end up in court. If there is a drastic oil spill and a state then makes a damages claim against the shipping company for the environmental damage, interested parties put forward their own valuations, a judge needs to choose between two different valuations. But the decision-making process is not always consistent or transparent.”

Valuations may be backward- or forward-looking: you may need a ‘retrospective valuation’ where the damage has already happened such as in an oil spill case, but a ‘prospective valuation’ for a cost-benefit analysis of future effects: of a regulation to improve water quality, for instance. So there needs to be a valuation of the cost to industry of those rules. In such a scenario, says Mukherjee: “the regulator has its own expert whose valuation may be challenged by environmental groups arguing that the benefits of clean water have been under-valued, while industry lobbies argue that they have been over-valued.”

The main reason why values can be so different is variations in what should count in the valuation — a measure will depend on what you are measuring (much as a recipe will depend on its ingredients). If you are looking at damage caused by an oil spill, should you be looking at damage in a particular area, such as, for instance, the state of Florida, or are you looking at losses in other neighbouring states? Do you only consider losses only to residents of Florida, or also to non-residents such as visitors and tourists?

Another variable is whether you take into account what is known as use value, or non-use value, or both. Mukherjee explains: “If you use a resource, such as a park near where you live, and you get some value out of it, we call that ‘use value’. But if you live far away from the park and don’t directly use it, you might still value its existence, that is a form of ‘non-use value’.” Should the latter be included?

Mukherjee is exploring whether we can have a more considered — and consistent — approach to valuation so that judicial decisions are better informed: “A decision can be analysed as a series of steps. What forms of value should count, valuation methods, the role of experts.”

Before all that, however, Mukherjee envisages a step one where a judge is asking: “should I be valuing at all?” There might be other ways to make a decision. You can do an ‘informal’ cost-benefit analysis without putting a number on it. Or if you have to put a monetary value, there is a school of thought that damages should be based on deterrence, so you fix the amount to deter further incidents of damage.”

As environmental litigation continues to grow, valuing these precious resources is going to become more and more common. Mukherjee wants to find the best way to do that.

This is the fifth Legal Cheek Journal series looking at new and interesting legal research. If you are working on a paper or research which you’d like to share with Legal Cheek, email us.

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Ever been screwed over by a landlord or letting agents? Maybe not if you’re a lawyer or law student. But if you are part of ‘Generation Rent’, you will probably have had to shell out on letting agency fees at some point.

Tenancy fees

In Lambeth, London, where a lot of my friends live, the average fee paid by two tenants at the start of a tenancy is £409, and fees can range from £150 to a crippling £660. These are justified by being for reference checks and administration costs. Some letting agents also charge ‘checkout fees’ when you leave, and charge for refresher reference checks when you are renewing a tenancy. Add a deposit to that, a chunk of which might be deducted for the property not being clean enough when you leave, and you basically need a small fortune. If you add a deposit and the first month of rent, the costs are exorbitant for a student.

Even if you are being paid a maintenance grant from a law firm, this will be seriously watered down from the outset by these initial costs. If you are not lucky enough to rely on the Bank of Mum and Dad, you will be forced to work at least one job alongside your studies, incur serious debt, or be barred from the profession altogether.

A key problem is that the fees are wildly inconsistent across letting agents, and often grossly inflated and arbitrary. They often do not reflect the work actually done, argues Polly Neate, chief executive of homelessness charity Shelter. Vague descriptions such as ‘admin’ are not transparent — in reality this could just be printing paper and sending an email. However, we can now say goodbye to these charges.

Fees prohibited

The Tenant Fees Act 2019 will take effect in law on 1 June 2019. Letting Fees will be banned in England. All payments ‘in connection with the tenancy of housing in England’ are prohibited unless they are one of the prescribed ‘permitted payments’. These permitted payments include: rent, the deposit, a holding deposit, default payments, fees for changes to the tenancy agreement, fees for ending the tenancy, payments for utilities and communication services.

Fees for reference checks and administration fees will be prohibited under this law. Payments to third parties for cleaning fees will not be allowed. But, paying for a new key after you lose yours will be chargeable.

The Act applies to assured shorthold tenancies, licences and student lettings. It will apply to all new tenancies signed on or after 1 June 2019 and renewals granted from that date onwards too. After one year it will apply to pre-existing tenancies and clauses charging fees in them will be unenforceable.

Cap on deposits

The Act also introduces a cap for tenancy deposits (schedule 1). If annual rent is less than £50,000, the maximum you have to pay is five weeks’ rent. If the annual rent is £50,000 or more, up to six weeks’ rent can be required. Any excess at all would be a prohibited payment under section 3.

It never fails to amaze me how many people are ignorant of the current rules on deposits. If you rent on an assured shorthold tenancy starting after 6 April 2007 in England and Wales, your landlord MUST protect your deposit using a government-backed tenancy deposit scheme. This makes it easier to challenge deductions at the end of the tenancy and get your money back.

Penalties

If the landlord or letting agent does not comply with the new Act once, they will commit a civil offence and be fined up to £5,000 (section 8). If they do so again, they will commit a criminal offence and be fined up to £30,000 (section 12). It remains to be seen how rigorous or effective enforcement will be.

Can landlords get around the rules?

The new law won’t cover everything — letting agents will no doubt continue to try to impose costs on renters.

What if the landlord charges £1,500 in month one of the tenancy, £2,000 in month two, and then £1,500 in month three? This would be a way of recouping £500 in rent which would actually just be used to cover the banned fees. The legislators have thankfully foreseen this. The £500 would be prohibited under schedule 1 of the Act.

Effect on the market

This law will cause letting agents to lose a significant proportion of their profits. To cover this, they may decide to charge landlords more. This would be on top of the increase in stamp duty and reduction in mortgage interest tax relief that landlords have had to contend with.

But can letting agents actually pass on the costs? It is a very competitive market. There are over 1,000 letting agencies in London alone. Landlords, unlike tenants, are free to shop around for the cheapest agents.

The main worry is that landlords will raise rents. As with many laws, we can look to Scotland, which banned fees in 2012. Victoria Spratt, a journalist who campaigned for the new Act, points to Scotland and says the ban in 2012 resulted in only a marginal rent increase (£) in line with other urban areas in the UK. It has been argued that the market merely adapted, and in the long term, a better relationship between landlord and tenant was created.

According to a report compiled by Shelter, 59% of letting agency managers said the ban in Scotland had no impact on their business.

Letting agencies will have to adapt. They may have to promote longer tenancies to avoid renewal costs or move to unfurnished properties to avoid inventory checks. Service standards could drop.

Letting agents have been allowed to charge exorbitant, arbitrary fees for too long. I hope that the market will adapt and tenants will not have to bear these unfair costs again.

Considering that up to a third of millennials will probably never own their own home in their lifetime, this law is one I welcome.

Fraser Collingham is a University of Nottingham law graduate. He is currently studying the LPC at The University of Law and is due to commence a training contract at an international law firm later this year.

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Let’s begin with an imaginary scenario. Alex instructs Bianca to hold £100 on trust for his benefit. Bianca may release that money to Callum if, and only if, certain circumstances obtain. Unfortunately, Bianca releases the money before those circumstances are present. If Alex sues Bianca for her breach of trust, should Bianca be ordered to restore Alex’s £100?

Traditionally the answer would have been a resounding ‘yes’. Today, although the answer remains affirmative, it is a little more complex. This article will begin by explaining the traditional ‘accounting’ remedy for breach of trust. We’ll see how that remedy slowly became known as ‘equitable compensation’. This article will conclude by suggesting that this linguistic development is unfortunate because it threatens to distort the characteristically restorative nature of the remedy for breach of trust.

Traditional ‘accounting’ remedy

For at least three centuries, courts would order an ‘accounting’ remedy for breaches of trust. Although we need only focus on the first, it’s worth recognising that there were three types of ‘accounting’ remedy; (i) an account of administration in common form, (ii) an account on the basis of wilful default and (iii) an account of profits. If Bianca wrongfully released Alex’s £100, the court would order an ‘account of administration in common form’; disallowing Bianca’s unauthorised disposal and requiring her to restore the £100. If the trust fund was still in existence, Bianca would’ve had to restore money back into that fund. If the trust fund was no longer subsisting, she’d have to pay Alex directly. In short, when a trustee breached their duties, they’d immediately incur an obligation to reconstitute any assets that they wrongfully released from the trust fund. When I speak of the ‘restorative’ nature of the remedy for breach of trust, that is what I am referring to — the strict obligation imposed upon a trustee to restore any assets that were wrongfully paid away.

Linguistic developments: ‘Equitable compensation’

In the twentieth century, lawyers began speaking of ‘equitable compensation’ for breaches of trust instead of using the traditional ‘accounting’ language. Importantly, nobody suggested changing the legal principles that underlay the accounting remedy. This was a linguistic modernisation, nothing more. However, this is a dangerous development because ‘compensation’ is a loaded word. While ‘compensation’ may accurately describe the remedy in contract and in tort, it is out of place in equity.

Two points will be made in the remainder of this article. First, we’ll discuss why ‘compensation’ appropriately describes a remedy for breach of contract, but is misleading when applied to the remedy for breach of trust (the discussion applies equally to tort, but we’ll focus on the contractual remedy to keep things simple). Second, we’ll see that the language of ‘compensation’ erroneously implies that principles like remoteness and causation can relieve a trustee of the obligation to remedy their breach of trust.

Problem 1: ‘Primary’ and ‘secondary’ duties

In contract, there are primary and secondary duties. A party’s primary duty is to perform their contractual obligations. If they fail to perform, the primary duty disappears and the party is relieved from further performance. Upon such failure, a secondary duty will usually arise. Under this secondary duty, the party must pay reparation — or ‘damages’ — for failing in their primary duty. Let’s imagine that Daisy hires a boat from Elijah. Elijah’s primary duty might be to provide a boat that is in ‘good working order’. If Elijah’s boat has a hole in the bottom and Daisy sinks while out at sea, the contract of hire will come to an end. Elijah will then probably incur a secondary duty to pay damages for his failure to provide a boat that is in ‘good working order’.

In equity, there is no secondary duty. A trustee’s primary duty is to deal with trust assets in a manner defined by the trust instrument. Upon failure to do this, the primary duty does not disappear or make way for a secondary duty. The persisting primary duty is ‘enforced’ when the trustee is ordered to reconstitute the trust. After that reconstitution, the trustee is expected to resume their primary duty (unless the beneficiary chooses to engage the services of a different trustee). Unlike in contract, the court is not providing reparation for a primary duty that has been obviated. As Lord Millett asserted in ‘Equity’s place in the law of commerce’ for the Law Quarterly Review in 1998, “it is tempting, but wrong, to assume a trustee is… under a primary obligation to perform the trust and a secondary obligation to pay equitable compensation if he does not. The primary obligation of a trustee is to account for his stewardship”.

This is why the language of equitable ‘compensation’ is misleading. It incorrectly implies that in the event of a breach of trust, a trustee’s primary duty will come to an end, whereupon they will incur a secondary duty to pay equitable compensation. In reality, when ‘equitable compensation’ is awarded, a defendant is being held to their persisting primary duty.

Problem 2: Causation and remoteness

Earlier, I said that a secondary duty will ‘usually’ arise after a contracting party fails in their primary duty. I expressed this reservation because, in some situations, it’d be inappropriate for the defendant to pay compensation for their breach. Sometimes the claimant’s losses are too remote. Sometimes the defendant’s breach didn’t cause the relevant losses at all. When we speak of ‘compensation’, we’re not only implying the existence of a primary and secondary duty. We’re also implying that, in some circumstances, the nexus between a primary and secondary duty might be broken such that the latter might not arise.

This is the second difficulty with ‘compensation’ in equity. When we speak of ‘equitable compensation’, we risk erroneously implying that, in some circumstances, a defendant should not incur liability for a breach of trust because the claimant’s loss was too remote, or was not caused by the breach. When considering the remedy for breach of trust, not only is there no secondary duty at all, but as Tipping J noted in Bank of New Zealand v New Zealand Guardian Trust Co, “questions of foreseeability and remoteness do not come into [it]”. When you think about it, there’s little sense in considering ‘causation’ and ‘remoteness’ in breach of trust claims. In breach of trust, Bianca pays away Alex’s £100. Alex suffers ‘loss’ because his money is absent from the trust fund. As the breach and loss are so intimately connected, there’s no need to consider whether Bianca’s breach ‘caused’ Alex’s loss. Of course it did. What’s more, it’d be nonsense to suggest that Alex’s ‘loss’ was too remote for him to sue Bianca. So, the phrase ‘equitable compensation’ risks incorrectly implying that a defendant might raise matters of foreseeability and remoteness to avoid liability for breach of trust. As James Edelman, academic and justice of the High Court of Australia, has noted, such an implication is “ahistorical and unprincipled”.

Final remarks

In this article, we discussed the characteristically restorative nature of the ‘accounting’ remedy. We saw how, over time, that remedy became known as ‘equitable compensation’. Next, we considered two difficulties with that phrase. First, there is the misleading implication that, in the event of a breach of trust, a secondary duty will oblige a trustee to pay reparative damages for their breach. In fact, no secondary duty ever arises in equity. Second, there is the misleading implication that, in some circumstances, a trustee may escape liability if they can establish that the claimant’s losses were too remote, or were not caused by the breach. In fact, as soon as a breach of trust is established, the trustee incurs a strict obligation to reconstitute the assets that were wrongfully paid away.

Before concluding, I acknowledge that all of this sounds rather abstract. One might question whether there’s any evidence that the language of ‘equitable compensation’ has actually threatened the characteristically restorative remedy for breach of trust. Is there, for example, a case where defendants have actually tried to avoid liability by claiming that they did not cause the relevant loss? Well, yes, there is.

In Various Claimants v Giambrone & Law, the defendants were a firm of solicitors acting as trustees for English purchasers who hoped to buy holiday villas in southern Italy. The solicitors had authority to release the purchasers’ deposits if, and only if, specific Italian bank guarantees were furnished. Notwithstanding that the requisite guarantees were never provided, the solicitors released the purchasers’ deposits. Afterwards, various complications with construction of the villas meant that, even if the solicitors had not committed a breach of trust by releasing the funds prematurely, the purchasers’ deposits would have been lost forever. The solicitors tried to claim that, even if they’d released the purchasers’ deposits in compliance with the trust instrument, the subsequent complications meant that the money would’ve been lost forever anyway. In other words, the solicitors argued that they didn’t cause the claimants’ losses. The defendants argued this point numerous times, eventually in an application to appeal to the Supreme Court. The Supreme Court rejected the application on 18 December 2017 on grounds that “the application [did] not raise an arguable point of law”.

I think that Giambrone is troubling. The very nature of the solicitors’ argument — that they did not ‘cause’ the relevant loss — suggests that the characteristically restorative nature of the remedy for breach of trust is being forgotten. If the ‘accounting’ remedies were still in vogue, the solicitors would’ve had to restore the purchasers deposits as soon as it had been established that the purchasers’ loss (i.e. the emptying of their trust funds) flowed from the solicitors breach of trust. In such circumstances, no sensible defendant would’ve tried to escape liability by claiming that they didn’t cause the claimant’s loss.

Giambrone suggests that the language of ‘equitable compensation’ may erroneously and misleadingly imply that, in breach of trust claims, there is a secondary duty which can be avoided by raising questions of causation and remoteness. It is a shame that the Supreme Court did not hear this case. An opportunity to authoritatively restate the restorative character of the remedy for breach of trust has been missed.

Jordan Briggs is a second year undergraduate law student at the University of Oxford. He plans to complete a masters before pursuing a career at the bar.

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