England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Rolls Building, 7 Rolls Buildings Fetter Lane, London EC4A 1NL
		23/05/2017

CHIEF MASTER MARSH :

1. Mr Maitland Hudson, who is the claimant, was a member with Mr Peter Dempsey ("Mr Dempsey") of a firm of solicitors named Maitland Hudson & Co LLP ("the Firm"). Mr Dempsey was a member of the Firm from August 2009 until 8 July 2013. He was the firm's Money Laundering Reporting Officer and a Compliance Officer for Finance and Administration ("MLRO" and "COFA"). Prior to his resignation from the Firm, Mr Dempsey became concerned about the manner in which Mr Maitland Hudson was conducting his practice and on about 8^th July 2013 he removed from the Firm and handed to the defendant, the Solicitors Regulation Authority ("SRA") two hard disc drives ("the Drives") and two lever arch files of hard copy documents ("the Documents").
2. Mr Dempsey's actions led to a claim being instigated against him by Mr Maitland Hudson and the Firm issued on 24^th March 2014. For convenience, I will refer to those proceedings as the "Dempsey Claim". Mr Maitland Hudson instituted this claim against the SRA on 9^th November 2016. He does so on his own account and as assignee of the Firm, which went into creditors voluntary liquidation on 31^st March 2016.
3. The SRA has not yet served a defence. On 6^th January 2017 the SRA issued an application under CPR 24.2 on the basis that Mr Maitland Hudson has no real prospect of succeeding the whole or a part of the claim and there is no other compelling reason why the claim should be disposed of at a trial. The application for summary judgment is made purely on legal grounds. The SRA says that Mr Maitland Hudson has no real prospect of establishing in relation to any of the three causes of action he relies upon that the alleged breach of duty by the SRA has caused recoverable loss. For the purposes of the application, the SRA accepts the facts as pleaded in the Particulars of Claim. The issue for the court is whether the claim as pleaded gives rise to a viable cause of action, one out of the three will suffice to defeat the application, or whether there is any other compelling reason why this claim should be tried.

The Claim

4. For the purposes of the application the SRA accepts that the Drives and the Documents were the property of the Firm and that they both incorporated a substantial amount of confidential information belonging to Mr Maitland Hudson and the Firm.
5. On 1^st April 2014 Lewis Silkin LLP, solicitors acting for Mr Dempsey, wrote to the SRA. They reported that the Dempsey Claim had been commenced and asserted that the proceedings were part of an attempt by Mr Maitland Hudson to gag Mr Dempsey. They requested the SRA to provide them with the Drives and the Documents to assist them in preparing a defence to the claim. Pursuant to that request, the SRA handed over the Drives and the Documents to Lewis Silkin.
6. Mr Maitland Hudson's case in these proceedings is that the handing over of the Drives and the Documents was a breach of duty by the SRA, an assertion the SRA does not dispute for the purposes of the application, in the following ways:

(1) it amounted to a wrongful interference with the Firm's goods within a meaning of section 1 of the Torts (Interference with Goods) Act 1977 (the claim in conversion).

(2) The SRA breached an equitable duty owed to Mr Maitland Hudson and the Firm not to allow anyone other than Mr Maitland Hudson and the Firm to have access to the confidential information save in furtherance of the SRA's investigative objectives.

(3) The SRA was in breach of a tortious duty to take reasonable care to preserve the confidentiality of the confidential information.

7. Paragraphs 13 and 14 of the Particulars of Claim put Mr Maitland Hudson's case in the following way:

"13. Discovery by [Mr Maitland Hudson] and [the Firm] that [Mr Dempsey] had obtained possession of the drives and the documents from the SRA caused them to make an interim application for delivery up, which application was successful ("the Application"). The Application would not have been required if the SRA had not acted in breach of duty as alleged herein.

14. As a result [Mr Maitland Hudson] seeks the unrecovered costs of the Application plus interest at such rate and for such period as the court may order."

8. Two points of note arise from the way in which Mr Maitland Hudson's case is put forward. First, it is alleged the discovery that Mr Dempsey had possession of the Drives and the Documents caused Mr Maitland Hudson and the Firm to make an interim application for delivery up. It is not in dispute that Mr Maitland Hudson is able to establish a causal link between the SRA returning the Drives and Documents to Mr Dempsey and the Application being made. In the strict sense, but for their release by the SRA, the Application would not have been made. The SRA, however, says that "but for" causation does not suffice. Secondly, Mr Maitland Hudson's claim for loss is limited to the unrecovered costs of the Application. He does not seek to recover the costs of the claim as such, or any part of the claim other than the costs of the Application.
9. At the hearing of the SRA's Part 24 Application there was a very wide-ranging review of the authorities relating to causation in respect of the three causes of action Mr Maitland Hudson relies upon. However, before dealing with those authorities it is necessary to review the core facts of the Dempsey Claim.

The Dempsey Claim

10. The Dempsey Claim was based upon access by Mr Dempsey to two email accounts. Firstly, an email account used by Mr Maitland Hudson in relation to his practice in Paris under the name Cabinet Maitland Hudson. Secondly, the Firm maintained a personal computer server and email servers for the provision of services to clients. Mr Maitland Hudson's case was that both email accounts were private and both contained client information which was privileged. The claim was based, inter alia, upon breach of confidence, tortious misuse of confidential and private information, conversion and breach of database rights.
11. Mr Maitland Hudson did not accept an assurance provided by Mr Dempsey's solicitors on 5^th July 2013 that he would deliver up all documents belonging to the LLP and alleged that Mr Dempsey had continued to retain copies of some of the private information. In the claim, Mr Maitland Hudson sought, inter alia, delivery up and destruction, injunctions and damages.
12. On 7^th May 2014 Warren J heard an application made by Mr Maitland Hudson and the Firm. The Application sought an order that Mr Dempsey should return what is described in the application notice as "the Documents" (otherwise the Drives and the Documents) to Rylatt Chubb, the claimant's solicitors, to be held by them to the order of the court. They also sought an order that Mr Dempsey must instruct his legal representatives not to read any of the Documents. The Application was opposed by Mr Dempsey in part on the basis that he needed the Documents to complete his witness statement in opposition to the application and for that purpose sought an adjournment. It is clear from Warren J's judgment he considered Mr Dempsey's position was misguided and that it was open to Mr Dempsey to apply to obtain the Documents using the provisions of the CPR and also to use his own memory for preparing his witness statement. An order was made to hold the position pending a full hearing of the Application and directions were given permitting Mr Dempsey to serve evidence. An order requiring Mr Dempsey to return the Documents was not made on this occasion. There was, however, an order that Mr Dempsey must not read or use any of the material. The claimants' costs of the Application were reserved to the adjourned hearing, save that Mr Dempsey was ordered to pay the costs of the hearing on 7^th May and ordered to make a payment on account of those costs. It is plain the judge considered the hearing on 7^th May 2014 to have been unnecessary. In other words, Mr Dempsey should have acceded to a request that he should not read or use any of the disputed material.
13. Prior to the adjourned hearing, the SRA applied to be joined as a party to the claim. The application then came before Mann J on 24^th October 2014. The SRA's interest related to what was perceived to be the possible 'chilling effect' of the proceedings upon the obligations of an MLRO and/or a COFA.
14. During the intervening period the application had come before Mr Justice Morgan on 4^th June 2014 to deal, amongst other things, with an application on the part of Mr Maitland Hudson and the Firm about a witness statement filed by Mr Coad of Lewis Silkin and for directions as to time. Again, Mr Dempsey was told that he should deal with the claim without access to the relevant information.
15. By the time of the hearing before Mr Justice Mann on 24^th October 2014 there were five applications listed. These included the Application, Mr Dempsey's application under CPR Part 18, Mr Maitland Hudson's and the Firm's application for summary judgment or to strike out the defence, Mr Dempsey's application seeking order permitting him to refer to particular material and the SRA's application to be joined. Both sides had instructed leading counsel and the proceedings had by then become a battle royal. Mr Dempsey took a position vigorously opposing Mr Maitland Hudson's and the Firm's application for delivery up of the Drives and Documents. However, part way through the hearing he abandoned his resistance and consented to an order whereby the Drives and the Documents were to be delivered to Mr Maitland Hudson's solicitors. The only distinction between the Application as it was made and the order as granted is that the parties agreed the materials be delivered to Mr Maitland Hudson's other solicitors, Russell Cooke LLP, who were acting for him in relation the SRA's investigation. In effect, Mr Dempsey capitulated and agreed the relief which Mr Maitland Hudson and the Firm had been seeking all along.
16. Mr Maitland Hudson and the Firm sought their costs of the Application and submitted that Mr Dempsey had acted so unreasonably that the costs should be paid on an indemnity basis. Judgment in relation to costs was reserved and Mann J handed down his judgment on 3^rd November 2014. Although he accepted that Mr Maitland Hudson and the Firm had been successful, the judge ordered that the costs were to be reserved to the trial judge. It is apparent that this order was made because the judge had some reservations about whether or not the proceedings brought by Mr Maitland Hudson and the Firm were part of a general tactic to go on the offensive against Mr Dempsey to lessen the risks of an investigation being carried out. He described Mr Maitland Hudson's approach as aggressive and expressed the view that if Mr Dempsey was proved to be right in thinking that Mr Maitland Hudson had behaved improperly, about which no finding was made, he might have been justified in his nervousness about handing over the material. In any event, whatever the reasons may have been for the order, the costs were to be assessed by the trial judge at some point in the future with no certainty about the outcome.
17. The claimants' application for summary judgment came before Mann J on 30th March 2015. The application was disposed of by Mr Dempsey giving permanent undertakings in the form requested by the claimants. On 6^th May 2015 it was agreed between the parties that there was no outstanding relief to be sought in the claim, save for costs, and paragraph 1 of the order made on that occasion provided that there should be no order on the claim. Directions were given for a hearing to be fixed to determine any remaining costs issues with the time estimate of 1.5 days. Directions for the service of position statements were given. Following the exchange of position statements the claim came back before Mann J on 23^rd July 2015 for a determination of the costs issues. The judge gave a clear indication early on to the parties that they had an "enormous mountain" to climb in the light of the authorities dealing with a request to the court to make a decision upon costs where there were no outstanding issues other than costs left in the claim. No order was made on that occasion save that there be a directions hearing. Not long afterwards the claimants and defendant to that claim agreed to settle costs on a drop hands basis.
18. The key features of the Dempsey Claim relied upon by the SRA are:

(1) That Mr Dempsey's opposition to the application for interim relief was wrong-headed and unreasonable.

(2) The claimants were unsuccessful in obtaining an order that Mr Dempsey should pay their costs (save in relation to the costs of the first hearing) before Warren J.

(3) Mr Dempsey vigorously opposed the application for return of the Documents but then capitulated half way through the hearing.

(4) The parties agreed on 6^th May 2015, despite the order of Mann J that the costs of the application were reserved to the trial judge, to settle the claim on the basis that there should be further hearing for the determination of the costs issues.

The SRA's application

19. I start from the basis that the release of the Drives and the Documents by the SRA was wrongful. Mr Maitland Hudson relies on three separate causes of action (conversion, equitable duty of confidence and a common law duty to preserve confidentiality). If the defendant is to succeed on its application, it must satisfy the court in relation to each cause of action that its breach of duty, which is assumed for the purposes of the application, has not caused any loss. Mr Cohen QC who appeared for Mr Maitland Hudson pointed out that in relation to the equitable duty of confidence, he could be entitled to nominal damages and I will approach the application, as suggested by Mr Levey who appeared for the SA, disregarding that possibility.
20. The loss which Mr Maitland Hudson seeks to recover is the unrecovered costs of the Application namely the costs of the:

"Interim application for delivery up, which application was successful."

21. It is important to note that this judgment does not deal with the quantum of Mr Maitland Hudson's claim. If the SRA is to succeed, it must show that Mr Maitland Hudson is entitled to no damages at all, other than possibly nominal damages, in other words that no element of the costs of and relating to the Application were caused by one of the breaches of duty.
22. It is convenient to summarise the party's cases before dealing with the law because they are a useful lens through which the wide ranging legal principles that were argued, all too briefly, before me and the many authorities that were cited, can be viewed.

The SRA's case

23. The SRA submitted that an examination of legal causation leads to the conclusion that the claimant does not have a case which has real prospects of success whichever cause of action is looked at. It says that the claimant is wrong to focus on the question of foreseeability, which is not in issue. In any event, even if it was reasonably foreseeable that Mr Maitland Hudson would incur some legal costs in seeking to recover the Drives and the Documents, or to preserve the confidentiality in the information contained in them, it does not follow that the SRA has in law caused such loss. The SRA contends that the conduct of Mr Dempsey in opposing the Application on a "flawed" basis (per Mann J) and then capitulating at a later hearing or, alternatively, the conduct of Mr Maitland Hudson consenting to the settlement on 6 May 2015, which made it impossible for the court to decide whether the costs of the Application should be borne by Mr Dempsey or Mr Maitland Hudson or some other order should be made, broke the chain of causation. Both the conduct of Mr Dempsey and the conduct of Mr Maitland Hudson are said to be intervening acts.
24. Mr Dempsey's conduct is, according to the SRA's argument, to be measured in the following way:

i) If Mr Dempsey had provided the undertakings requested on 23 April 2014, or delivered up the materials when asked to do so, the claimant would not have needed to make the Application and the costs would not have been incurred.

ii) Mr Dempsey's conduct in withholding the materials from Mr Maitland Hudson was wholly unreasonable. He persisted in a course of action, notwithstanding the observations made by Warren J at the first hearing, right through to a substantive hearing before Mann J.

iii) The SRA was not in any way responsible for Mr Dempsey's conduct.

25. As to the alternative intervening act, the only reason Mann J decided against making an order in favour of Mr Maitland Hudson in relation to the Application was his residual concern about Mr Maitland Hudson's behaviour. By settling the proceedings on the terms which he did, the claimant prevented the underlying issues from being determined which meant that the outstanding costs issues simply could not be resolved.

Mr Maitland Hudson's case

26. Mr Maitland Hudson's case is that the Application is not suitable for judgment under CPR part 24. It is said that there are fact sensitive issues relating to causation that make it unsuitable for summary judgment and, in any event, the claimant relies upon the second limb of CPR Part 24, bearing in mind the SRA's regulatory responsibility. It is said that if the SRA was permitted to avoid a trial of this matter on the basis that any breach of duty did not cause loss, it would effectively escape scrutiny of its actions and that is undesirable.
27. Mr Maitland Hudson's case on the law developed from the way it was put forward in Mr Cohen QC's skeleton argument which concentrated on issues of foreseeability rather than causation. Furthermore, the claimant submits that causation is irrelevant in relation to a claim in conversion.
28. In relation to conversion, the claimant's case is that the person converting goods (the Drives and the Documents) takes upon himself all of the risk of subsequent harm to goods inflicted by third parties. Thus, it is said that the usual rules in relation to causation that apply in other torts do not apply in the case of conversion.
29. In the case of the breach of the equitable duty of confidence, the claimant submits that foreseeability is equally irrelevant and it suffices for the loss to flow directly from the breach on a 'but for' basis.
30. As to the breach of the common law duty to preserve confidentiality, the claimant's case is that damage of the type that is claimed, namely legal costs, were plainly foreseeable. The duty was to preserve the confidentiality and if, as is assumed, the SRA was in breach of that duty it is unsurprising that legal costs were incurred to make good the breach. In that connection, the behaviour of Mr Dempsey is irrelevant because he is not properly seen as a third party whose intervening conduct broke the chain of causation. As to the agreement to leave it to the judge to determine the issue of costs, the claimant says that he and the firm were acting reasonably and that it does not amount to an intervening event. In its starkest form, the claimant's case is that if A gives B's property to C and B has to spend money to get it back, B is entitled to recover that expenditure. If it is right, as the SRA claims, that fairness is the touchstone upon which causation is based, then the SRA should be liable for the expenditure that Mr Maitland has incurred.

The Law

31. It is convenient to deal with the law in relation to each cause of action separately and to start with the law relating to conversion.
32. As a preliminary observation, although there was some doubt about it at the hearing, the Application made by Mr Maitland Hudson concerned both the return of the Drives and Documents and preservation of the confidential information. Furthermore, the outcome of the Application was that the Drives and Documents were deposited with Mr Maitland Hudson's solicitors. Thus, he incurred legal costs in relation to the return of his property.
33. The decision of the House of Lords in Kuwait Airways Corporation v Iraqi Airways Company (Nos 4 and 5) [2002] 2 AC 883 is of central importance. The part of claim that is relevant for present purposes concerned what became known as the "Iran Six", namely six aircraft removed from Kuwait to Iran where they were detained. The claimant sought loss falling into a number of categories, including the costs of recovery of the aeroplanes and their repair and, in addition, what are described as consequential losses. Lord Nicholls' speech deals with the costs of recovery and repair at paragraphs 91 – 94 and consequential losses at paragraphs 95 – 103. The difference of approach in relation to these heads of damage is significant in this case because the SRA contends that the legal costs incurred by Mr Maitland Hudson are properly characterised as consequential losses.
34. At an earlier stage of Lord Nicholls' speech, he makes general remarks about the identification of the claimant's true loss in cases of tort. At paragraph 69 he takes as a starting point what he describes as the commonly accepted approach that the extent of a defendant's liability for loss calls for a two-fold enquiry:

"whether the wrongful conduct causally contributed to the loss and, if it did, what is the extent of the loss for which the defendant ought to be held liable."

He describes the first of these enquiries as predominantly a factual enquiry and goes onto say at [70]:

"The second enquiry, although this not always acknowledged by the courts, involves a value judgment ("ought to be held liable"). Written large, the second enquiry concerns the extent of the loss for which the defendant ought fairly or reasonably or justly to be held liable (the epithets are interchangeable)."

35. By contrast, liability for conversion is strict. This is explained by Lord Nicholls at [78] as being consistent with the purpose of conversion which is to provide a remedy for misappropriation of goods. In the same paragraph he goes on to say:

"Baron Cleasby's aphorism, uttered in 1872 in Fowler v Hollins LR 7 QB 616, 639, still represents the law: "persons deal with property in chattels or exercise acts of ownership over them at their peril." This, he observed, was regarded as a salutary rule for the protection of property."

At paragraph [92] under the heading "Intervening acts, and the costs of recovery and repair" he says:

"The loss flowing from unforeseen circumstances should be borne by the wrongdoer not the innocent owner of the goods. Additionally, provided the amount is not out of proportion to the value of the goods, the wrongdoer ought to reimburse the owner for any money spent on recovering the goods or carrying out necessary repairs."

36. It is clear as the judgment proceeds that where Lord Nicholls is referring to consequential losses he is referring to the cost of hire of substitute aircraft, loss of profits and finance cost. In paragraph [99] he says:

"By consequential loss I mean loss beyond that represented by the value of the goods."

However, it is apparent from what has gone before that this is intended to be a short hand and the costs of recovery of a chattel fall within loss represented by the value of the goods, hence Lord Nicholls remark at [92] that the costs of recovery must not be out of proportion to the value of the goods.

37. Lord Hoffmann dealt with causation in a similar way to Lord Nicholls. At paragraph [129] he said:

"In the case of conversion, the causal requirements follow from the nature of the tort. The tort exists to protect proprietary or possessory rights in property; it is committed by an act inconsistent with those rights and it is a tort of strict liability.

…

The liability is strict. Thus the causal questions are answered by reference to the nature of the liability."

38. He goes on to deal with consequential loss in the following paragraph:

"When one comes to consequential loss, the causal requirements are different. The primary purpose of conversion is to protect the proprietary or possessory interest in the chattel. Thus the cost of putting the aircraft into repair or paying a ransom for their recovery from Iran of the damage or expenditure incurred in mitigation of the damage to the proprietary interest. When comes to real consequential losses, such as the cost of hiring substitute aircraft, the cost of financing the purchase of new ones and loss of profit, there is no reason why causal requirements which are considered fair in other cases of consequential loss flowing from wrongful acts should not also be applied."

39. Applying these principles, the outcome is entirely clear. Although Mr Levey sought to persuade me that the legal costs incurred by Mr Maitland Hudson should properly be regarded as consequential loss, and thus traditional causation principles will apply, I am satisfied that this is not a correct analysis based on the speeches of both Lord Nicholls and Lord Hoffmann.
40. Mr Maitland Hudson took steps to protect his proprietary interest in the Drives and the Documents by making the Application not just to preserve them but also to obtain their return or placing for safe keeping with his lawyers. Such expenditure is directly related to his and the Firm's proprietary interest. It is broadly analogous to the expenditure incurred by Kuwait Airways in paying a ransom for the return of the aircraft from Iran. The normal tortious rules in relation to causation, including those relating to intervening acts, do not apply to loss that relates to the proprietary or possessory interest.
41. The losses claimed as consequential losses by Kuwait Airways are of an entirely different nature and are losses that arise at one remove, or more, from the proprietary interest. It would be quite wrong to treat the costs of the Application as being consequential loss.
42. In Kuwait Airways, the ransom paid to Iran was not a foreseeable loss but was, nevertheless, recoverable because it related to the proprietary interest. Although it is not a necessary part of the analysis in this case, the possibility of Mr Maitland Hudson incurring legal costs to recover, or preserve, the Drives and Documents was foreseeable. The foreseeability of this type of loss provides an additional reason why legal costs are recoverable. In that connection, I note Lord Nicholls remarks at paragraph [100] in relation to whether the test for liability for consequential loss in cases of conversion is reasonable foreseeability as distinct from whether the loss arises and directly from the wrong. He says:

"Expressed in terms of the traditional guideline principles, the choice is between confining liability for consequential loss to damage which is "foreseeable", as distinct from damage flowing "directly and naturally" from the wrongful conduct. In practice, these two tests usually yield the same result. Where they do not, the foreseeability test is likely to be more restrictive."

43. It follows that even if the legal costs incurred by Mr Maitland Hudson are properly characterised, for the purposes of the claim in conversion as consequential losses, they will be recoverable as consequential loss because they were foreseeable.
44. As a result of the stricter test for causation, issues concerning intervening acts do not arise. Even if the SRA is right that Mr Dempsey's conduct was unreasonable, or that the agreement to leave costs to the court to resolve made it, in practice impossible for Mr Maitland Hudson to make a recovery, Mr Maitland Hudson has a real prospect of success at the trial in showing he is entitled to recover the legal costs relating to the Application. The amount, or the proportion, of his costs he is entitled to recover is at large (about which I offer no view) and he may not be entitled to an indemnity, but it is clear he is entitled to some legal costs. That is sufficient for the purposes of this application. As a consequence of the conclusion I have reached, the SRA's application for summary judgment must fail and it is strictly unnecessary for me to consider the alternative causes of action upon which Mr Maitland Hudson relies. It is right, however, that I do so, albeit relatively briefly, because (a) they were fully argued before me and (b) this decision may be the subject of further consideration.

Breach of the equitable duty of confidence

45. The SRA's case is that Mr Maitland Hudson's claim under this heading is subject to the same rules as if it were a common law claim. It is said there is no special rule in relation to causation for such a claim. There is, however, no direct authority on this point.
46. The SRA relies upon a short passage in Confidentiality 3^rd Edition by Toulson and Phipps at 9-039. The passage follows a discussion about remarks made by Sir Robert Megarry VC in Malone v Metropolitan Police Commissioner [1979] 1 Ch 344 at 360 where he refers to the equitable right of confidentiality being a right that was still in the course of development. His remarks relate to circumstances in which the claimant has no entitlement to the grant of an injunction and whether an award of damages or compensation may be made in those circumstances. The authors of Confidentiality say:

"A more problematical question has the been the availability of damages in the situation instanced by Megarry VC where there is no case for the grant of an injunction. …It is suggested that, quite apart from Lord Cairn's Act, compensation in equity (also known as equitable damages) may be awarded generally for breach of an equitable duty of confidence, just as for breach of duty by fiduciary; and that the same compensatory principles underlie compensation or damages in equity as underlie damages at common law. Despite past doubts, it is now accepted that damages are available for breach of duty of confidence, whether in contract or in equity."

[The footnote refers to the decision in Royal Bank of Brunei v Tan [1995] 2 AC 378 and to the discussion by the Supreme Court of Canada in Cadbury Schweppes Inc v FBI Foods Limited [1999] 167 DLR (4th) 577, at paras 55-61].

47. The Claimant relies upon the decision of the Supreme Court in AIB Group (UK) plc v Mark Redler & Co Solicitors [2015] AC 1503. Lord Toulson refers extensively to Lord Browne-Wilkinson's speech in Target Holdings v Redferns [1996] AC 421 in which he cited with approval the dissenting judgment of McLachlin J in Canson Enterprises Limited v Boughton & Co [1991] 85 DLR (4^th) 129, 163 where he said:

"In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach, ie the plaintiff's loss of opportunity. The plaintiff's actual loss is a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach."

48. Lord Browne-Wilkinson in Target Holdings expressed the view that this passage is good law in relation to equitable compensation for breach of trust. Both Target Holdings and AIB Group (UK) Plc were cases involving a breach of trust.
49. Reference was also made in the course of argument to the decision at first instance of Arnold J in Force India Formula One Team Limited v Malaysia Racing Team [2012] RPC 29 The judge concluded after a lengthy review of the authorities [393] to [424] that the same approach is to be adopted to the assessment of damages or equitable compensation whether the obligation of confidentiality which has been breached is contractual or equitable. On appeal, apart from observing that the review of the authorities was over lengthy, the Court of Appeal did not deal with the point in question.
50. It is now beyond doubt that the court has power to award damages or equitable compensation for breach of an equitable duty of confidence and such a power is not confined to cases where Lord Cairn's Act applies. I am inclined to the view, however, that the basis upon which such loss is to be assessed is not properly aligned to breach of trust cases and the ratio in Redfern Holdings and AIB Group (UK) Plc are only of limited assistance. As a matter of principle, however, there is no good reason for loss to be assessed on a different basis depending upon whether there happens to be a contractual obligation between the parties. Fundamentally the duty is the same. It follows that in my judgment, the correct approach is that the ordinary rules of causation will apply. It may be a mere matter of chance whether in one situation there is a contract and another none albeit that the surrounding circumstances are similar. It is difficult to think of a reason why there should be an importance difference between the two causes of action which have the same objective, namely the protection of confidential information merely because the one cause of action originated in the common law tradition and the other out of equitable principles.

The duty in tort to take reasonable care to preserve confidentiality

51. In the relatively limited time that was available, the court was treated to a whirlwind tour of the mainly twentieth century authorities dealing with causation and what may amount to an intervening act. The discussion of the relevant authorities on this subject also ranged, in part, to the issue of remoteness. I do not consider, however, that remoteness is a relevant concept for the purposes of this issue. Although there is plainly some interaction between causation and remoteness (and foreseeability), remoteness is principally concerned with issues of policy as to whether or not the type of damage which has been incurred will be recoverable. It is not suggested, nor do I consider it could be, that incurring legal costs to preserve or recover property wrongfully released to a person who was not entitled to custody of it could be loss of a type which is too remote.
52. The interaction between legal causation and foreseeability is both relevant and, I consider, important. The two concepts are close relations but perform different functions. As Lord Nicholls noted in Kuwait Airways at [100], the application of the two tests may often lead to the same outcome, although foreseeability is more the restrictive of the two. As it was put by Salmon LJ in Quinn v Burch Bros. (Builders) Limited [1966] 2 QB 370 at (394A):

"Although the foreseeability test is a handmaiden of the law, it is by no means a maid of all work. To my mind, it cannot serve as the true criterion when the question is, how was the damage caused? ".

53. In Simmons v British Steel Plc [2004] ICR 585, para 67 Lord Rodger summarised the law of Scotland in the following way:

"These authorities suggest that, once liability is established, any question of the remoteness of damage is to be approached along the following lines which may, of course, be open to refinement and development. (1) The starting point is that a defender is not liable for a consequence of a kind which is not reasonably foreseeable [authorities omitted] (2) While a defender is not liable for damage that was not reasonably foreseeable, it does not follow that he is liable for all damage that was reasonably foreseeable: depending on the circumstances, the defender may not be liable for damage caused by a novus actus interveniens or unreasonable conduct on the part of the pursuer, even if it was reasonably foreseeable: McKew v Holland & Hannen & Cubitts (Scotland) Limited 1970 SC (HL) 20, 25, per Lord Reid: Lamb v Camden London Borough Council [1981] QB 625; but see Ward v Cannock Chase District Council [1986] Ch 546. (3) Subject to the qualification in (2), if the pursuers injury is of a kind that was foreseeable, the defender is liable, even if the damage is greater in extent than was foreseeable or was caused in a way that could not have been foreseen: Hughes v Lord Advocate [1963] AC 837, 847, per Lord Reid…."

54. This statement of principle was cited by Lord Bingham in Corr v IBC Vehicles Limited [2008] UKHL 13 [8] on the basis that the law of Scotland is not different in any relevant respect from the law of England in this area.
55. The second element of Lord Rogers analysis deals with the possibility of there being a novus actus interveniens or unreasonable conduct on the part of the pursuer. A similar analysis is made in Clerk & Lindsell on Tort 21^st (Ed at 2-103) describing intervening acts (or novus actus) as taking three possible forms:

"(i) Some natural event independent of any human agency;

(ii) An act (or omission) by a third party;

(iii) The conduct of the claimant himself."

56. It seems to me that Lord Rodger is describing, when he uses the expression novus actus interveniens, the first two of the categories described in Clerk & Lindsell with unreasonable conduct being the third category.
57. What may amount to an intervening act has been the subject of much judicial discussion and there is very real difficulty in finding a common thread to knit together disparate judicial utterances. In Yorkshire Dale Steamship Co Limited v Minister of War Transport [1942] AC 691 (706) Lord Wright opined that a party will be held to have caused the loss if such a conclusion would "…accord with ordinary moral motions of when someone should be regarded as responsible for something which has happened…". And "Causation is to be understood as the man in the street… would understand it." In Galoo Limited (in liquidation) v Bright Grahame Murray (a firm) [1994] 1 WLR 1360 Glidewell LJ stated that whether one particular cause is to be regarded in law as the relevant cause of loss is a question to be determined "…by the application of the court's common sense". Galoo was a case dealing with causation in contract but, in principle, the approach to causation should not be, in terms of policy, significantly different.
58. In Corr v IVC Vehicles Limited Lord Bingham said:

"The rationale of the principle that a novus actus interveniens breaks the chain of causation is fairness".

A similar approach can be seen in Aikens LJ in Chubb Fire Limited v Vicar of Spalding [2010] EWCA Civ 981 at [64] where he said:

"…the ultimate question is: What is the extent of the loss for which the defendant ought fairly, or reasonably or justly to be held liable".

59. In an extra-judicial observation Lord Hoffmann [Causation (2005) 121 LQR 592, 593] he explains that causation as a concept is used by the law "to attribute responsibility for things that happen".
60. Lord Hoffman's explanation was cited with approval by Aikens LJ in the Court of Appeal in Spencer v Wincanton Holdings Ltd [2009] EWCA 1404 and in Chubb Fire Ltd v Vicar of Spalding. Lord Hoffman has, however, again extra-judicially, observed that to describe causation as a question of fact which can best be answered by "ordinary common sense" as being in the "best tradition of English anti-intellectualism". In Environment Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22 the House of Lords considered criminal liability for "causing" polluting matter to enter controlled waters contrary to the Water Resources Act 1991 s 85(1) where it was the act of an unknown person who had opened the tap of a diesel oil tank. Lord Hoffman commented that:

"These examples show that one cannot give a common sense answer to a question of causation for the purpose of attributing responsibility under some rule without knowing the purpose and scope of the rule. Does the rule impose a duty which requires one to guard against, or makes one responsible for, the deliberate acts of third persons? If so, it will be correct to say, when loss is caused by the act of such a third person, that it was caused by the breach of duty…before answering questions about causation. It is therefore first necessary to identify the scope of the relevant rule."

61. These remarks bear some similarity with Lord Hoffmann's approach in Kuwait Airways at [129] cited above where he remarked that the causal requirements of the law relate to the tort in question. Although his remarks in the Environment Agency v Empress Car were made in the context of a statute imposing criminal liability, whether common sense or fairness (or neither) underpin the correct approach to causation, it is hard to escape from the notion that the nature of the duty will inform an answer to the question whether the intervening act was "ultroneous, something unwarrantable, a new cause which disturbs the sequence of events, something which can be described as either unreasonable or extraneous or extrinsic" (per Lord Wright in The Oropesa [1943] p 32). In Clerk & Lindsell [2-103] the editors distinguish between an event of such impact that it "obliterates" the wrongdoing of the defendant from an event which is merely contributory. Importantly, an event which does not fully break the causal link between the "but for" cause and the damage and merely contributes to the damage is not an intervening act.
62. The following passage from Clerk & Lindsell cites other judicial language which has been used to describe the type of event which is sufficient to break the chain of causation:

"Did the intervening act "isolate", or "insulate" or "eclipse" the defendant's conduct so that it was merely the occasion of the harm rather than the cause of it."

63. In Weld-Blundell v Stephens [1920] AC 956 at 986 Lord Sumner posed the question whether the intervening act was:

"No mere conduit pipe through which consequences flow from [defendant to claimant], no mere part of a transmission gear set in motion by the [defendant]."

64. There seems little judicial enthusiasm in a modern context to endorse the approach to causation adopted by Lord Reid in Dorset Yacht Co v Home Office [1970] AC 1004, 1030B:

"…where human action forms one of the links between the original wrongdoing of the defendant and the loss suffered by the plaintiff, that action must at least have been something very likely to happen if it is not to be regarded as novus actus interveniens breaking the chain of causation. I do not think that a mere foreseeable possibility is or should be sufficient, for then the intervening human action can more properly be regarded as a new cause than as a consequence of the original wrongdoing. But if the intervening action was likely to happen I do not think that it can matter whether the action was innocent or tortious or criminal."

65. In Lamb v Camden Council [1981] 1QB 625 Lord Reid's test was considered by the Court of Appeal. Lord Denning considered that on this occasion "Homer nodded". In any event Lord Reid's remarks were obiter. Lord Denning stated explicitly that he considered Lord Reid's test was wrong and, although put more obliquely, it is plain from the judgment of Watkins LJ that he agreed.
66. In relation to the intervening conduct of a third party, the editors of Clerk & Lindsell observe [2-107]:

"No precise or consistent test can be offered to define when the intervening conduct of a third party will constitute a novus actus interveniens sufficient to relieve the defendant of liability for his original wrongdoing. The question of the effect of a novus actus can only be answered on a consideration of all the circumstances and, in particular, the quality of that later act or event. (per Lord Simonds in Hogan v Bentinck West Hartley Collieries (Owners) Ltd [1949] 1 All ER 588 at 593). Four issues need to be addressed. Was the intervening conduct of the third party such as to render the original wrongdoing merely part of the history of events? Was the third party's conduct either deliberate or wholly unreasonable? Was the intervention foreseeable? Is the conduct of the third party wholly independent of the defendant, i.e. does the defendant owe the claimant any responsibility for the conduct of that intervening third party? In practice in most cases of novus actus more than one of the above issues will have to be considered together." [my emphasis]

67. This paragraph was considered at length by Aikens LJ in Chubb Fire Ltd v Vicar of Spalding in which Aikens LJ concluded that the question of intervening acts is now considered in terms of whether it is fair to hold the defendant responsible.
68. To my mind, the tests to which reference has been made above are of varying degrees of assistance. As others have observed, to stretch the dictionary to or beyond breaking point by describing the necessary event as "ultroneous" or to say that causation is a matter of the court's common sense or a matter of fairness provides little assistance to the first instance judge. It is, however, helpful to look at the duty because the scope of the duty will give a good pointer to whether or not events which are said to be intervening acts are sufficient to break the chain of causation. I do find it helpful to consider the notion of whether or not the intervening act has obliterated the wrongdoing of the defendant or, put another way, whether it is sufficient to eclipse that wrongdoing. Equally, to look at the intervening act as being more than a mere conduit pipe through which the consequences flow and no mere path of a transmission gear set in motion by the defendant does help to put the events, which are said to break the chain of causation, in a proper context.
69. It also seems to me that foreseeability is a helpful notion in relation to causation. It is by no means determinative; a handmaiden rather than a maid for all purposes. This approach is picked up in Clerk & Lindsell at 2-14 where the editors express the view that if intervening conduct is foreseeable, it is less likely to constitute a novus actus than unforeseeable conduct. The more likely the intervention the less likely it is to break the chain of causation; but foreseeability is not conclusive. The true question is whether the defendant should properly bear responsibility for the third party's intervention.
70. During the hearing I was referred extensively to McGregor on Damages 19^th Ed (2014). I need only say that in considering issues on causation I have found the analysis in Clerk & Lindsell to be the more compelling.

Applying the law to the facts

71. The defendant relies on the conduct of Mr Dempsey as being so unreasonable as to break the chain of causation or in the alternative the conduct of Mr Maitland Hudson in agreeing to an order which, in effect, made it impossible to recover legal costs from Mr Dempsey. For the reasons I now set out, I am satisfied that in both cases Mr Maitland Hudson has a real prospect of success on causation at the trial, or put another way, the SRA will not be able to establish there was a novus actus interveniens.
72. The starting point is the duty which, for the purposes of the application, the SRA accepts that it breached. The SRA as regulator of solicitors in England and Wales was responsible for the regulation of Mr Maitland Hudson in his capacity as an English solicitor and for the regulation of the LLP. It is accepted that the Drives and Documents supplied by Mr Dempsey to the SRA contained confidential information and were handed to the SRA acting in its statutory capacity. The SRA was in breach of a duty (a) to preserve the confidentiality in that information and (b) to use it only for the purposes of investigation and (c) either to destroy the Drives and Documents once they were no longer required for investigative purposes or return them to Mr Maitland Hudson and the LLP. At one point it was suggested there was a fact-intensive investigation which would have to be carried out about the SRA's knowledge of Mr Dempsey's state of mind (in other words the extent to which he was ill-disposed toward Mr Maitland Hudson). However, such an enquiry is not necessary because it was accepted that it was foreseeable Mr Dempsey might not immediately return the Drives and Documents when asked to do so.
73. There seems little doubt that Mr Dempsey's approach in declining to return the Drives and Documents was misguided. At the initial hearing of the application made by Mr Maitland Hudson, Warren J did not accept that Mr Dempsey had a legitimate entitlement to have access to the Drives and Documents for the purposes of preparing his defence and subsequently the full-blooded opposition of Mr Maitland Hudson's application was inappropriate. Mr Dempsey simply capitulated part-way through the hearing. The difficulty for the defendant, however, in seeking to establish that Mr Dempsey's unreasonable conduct was sufficient to break the chain of causation falls into two distinct areas.
74. First, it does not seem to me that Mr Dempsey can be properly categorised as a "third party" for the purposes of establishing that there was an intervening act which broke the chain of causation. Mr Dempsey was the person to whom the Drives and Documents were wrongfully released and he is intimately bound up in the breach of duty that is relied upon by Mr Maitland Hudson. It was Mr Dempsey who asked the SRA to release the Drives and Documents to him. He was not a more remote party whose acts or omissions had the capacity to break the chain of causation. He was at the heart of the very events upon which the breach of duty is founded. And even if Mr Dempsey is properly seen as a third party, the SRA's breach of duty is very closely related to his actions and the expense he caused.
75. Secondly, it was foreseeable, looked at objectively, that Mr Dempsey might not immediately return the Drives and Documents upon receipt of a request. Even at that point legal expense had been incurred although it is not part of the claim, with the costs sought as damages being limited to those incurred on the application following issue of the proceedings. It was plainly foreseeable that some legal costs would be incurred following the release of the Drives and Documents to Mr Dempsey. Although the SRA has powerful arguments to make about Mr Dempsey's conduct being completely unreasonable, they are based upon a considerable degree of hindsight. It seems to me that unless the SRA is able to show that Mr Dempsey's conduct intervened at a point in time when Mr Maitland Hudson had incurred no expenditure at all on the application (that point in time being before it was issued) it is quite impossible to say that by virtue of subsequent unreasonable conduct the chain of causation is broken. That is because by the later date, Mr Maitland Hudson would have incurred expenditure which satisfied both the "but for" test and the legal causation test. The additional expenditure incurred when Mr Dempsey's conduct had become unreasonable is merely a matter of degree. As the editors of Clerk & Lindsell point out, there is no concept of an intervening contributory event which does not fully break the causal link between the "but for" cause and the damage. Such an event or behaviour merely contributes to the damage. That analysis is apposite to the circumstances relating to Mr Dempsey's conduct.
76. I turn to deal with the SRA's case relating to the conduct of Mr Maitland Hudson in entering into an agreement which prevented him from recovering legal costs from Mr Dempsey. I consider that the act relied upon is some considerable way from one which is sufficient to break the chain of causation. For the purposes of the application it has to be assumed that Mr Maitland Hudson was entitled to take steps to assert his rights to the Drives and Documents and the confidential information contained within them. Having asked for their return, and it having been refused, it was reasonable for him to bring proceedings to enforce his legal rights. The position in which Mr Maitland Hudson found himself was one created by an unlawful act on the part of the SRA. It is wrong to judge Mr Maitland Hudson's conduct with the benefit of hindsight and the SRA's case under this heading conflates Mr Maitland Hudson's ability to recover costs from Mr Dempsey with his entitlement to claim damages from the SRA for their breach of duty. The two run in parallel and, although they are related, they are not contingent upon one another. It seems to me that Mr Maitland Hudson was perfectly entitled to take a practical decision with a view to avoiding incurring yet further expenditure to make an agreement with Mr Dempsey to end the litigation, leaving open the possibility (albeit perhaps very remote) that he might be able to subsequently obtain an order for costs against Mr Dempsey. In doing so Mr Maitland Hudson was acting reasonably and it would be wrong to deprive him of an entitlement to recover legal costs from the SRA by virtue of him acting reasonably in the conduct of litigation, particularly litigation which had been strenuously and unreasonably opposed. If the principle that underlies causation is fairness, it would not be fair to deprive Mr Maitland Hudson of his right to claim damages for taking a reasonable decision during the course of hard-fought litigation even if hindsight might judge that decision harshly (which is not the case here).
77. In any event, I do not consider that the act of entering into the agreement with Mr Dempsey was an act that was, to use one description, "ultroneous". Even if Mr Maitland Hudson had been able to pursue a successful claim to obtain an order for costs against Mr Dempsey, it does not follow that he would have obtained a full indemnity for the costs he had incurred. The court has a broad discretion about an award of costs and if an award of costs on the standard basis had been made there would still have been costs incurred by Mr Maitland Hudson that he was unable to recover from Mr Dempsey. In principle, I can see no reason why such irrecoverable costs should not be treated as having been legally caused by the SRA and, thus, Mr Maitland Hudson has a real prospect of success on causation on his common law duty claim.
78. Having determined that the test for causation in relation to the breach of an equitable duty to preserve the confidential information is the general common law test, it follows that, had it been necessary to do so, I would also have held that Mr Maitland Hudson has a real prospect of success on causation under that cause of action.
79. I would add, however, that in the absence of authority in relation to the equitable duty, it is precisely the sort of point contemplated by the second limb of Part 24. There is, in my judgment, a compelling reason why this element of the claim should receive a full airing at a trial, not because there are necessarily complex issues of fact but because a careful and full review of the legal principles is highly desirable. In the course of the hearing before me, which lasted one court day, the vast preponderance of the time was spent dealing with the principles of causation in relation to a common law duty of care and I do not consider that this important aspect of the case has had the review it warrants.

Conclusion

80. For the reasons stated above the SRA's application will be dismissed. It will be desirable at the hand down hearing, after dealing with issues consequential upon this judgment, to give in addition preliminary directions for the conduct of this claim. I would hope even at this early stage the parties will be able to agree a provisional trial time estimate.