Common law damages cannot be awarded in respect of a purely equitable wrong such as breach of trust or breach of fiduciary duty. Instead, a compensatory remedy has developed in equity’s exclusive (or inherent) jurisdiction: equitable compensation. This remedy originated in cases involving breach of trust, although for many years it was not explicitly recognised as a compensatory remedy and was known instead as one of the forms of ‘account’ that a trustee must make when a breach of trust occurs. It is therefore necessary to have a brief look at the main forms of account, which are still used today.

Common law damages are awarded to compensate the innocent party for the breach of a common law wrong, and equitable compensation is awarded to compensate an innocent party for a purely equitable wrong.

The central concept of the first part of this chapter is that the object of equitable compensation is to restore the plaintiff to the position they would be in if not for the breach. It discusses the application of this central concept to the recoverability of non-pecuniary loss and the basic measure of equitable compensation. The former explores whether equitable compensation is even available for non-pecuniary loss (embarrassment and distress); the latter probes the reasoning which establishes that equitable compensation puts the plaintiff into as good a position pecuniarily as before the injury, thereby satisfying the object of equitable compensation.

The second part of the chapter explores whether the wrongdoer should be visited with the consequences of their conduct in the context of the various equitable wrongs explored – Breach of trust; Breach of fiduciary duty; and Breach of an equitable duty of care.

The principal liability for any breach of trust lies with the trustee who must compensate the trust for any loss caused by the breach or account for any profit arising from the breach. Where loss to the trust estate has been caused by the commission of a tort or breach of contract by a third party, the duty to obtain compensation from the third party also rests on the trustee, and failure to seek compensation may itself constitute a breach of trust on the part of the trustee unless it would be impracticable to litigate. If the trustee fails to pursue the third party, the beneficiary can bring a claim, joining the trustee as co-defendant. Liability for breach of trust is in principle strict although liability for failure to exercise reasonable care and skill, for example in making trust investments, requires proof of fault, applying, as the context requires, equitable or statutory standards of care. The rigour of the trustee’s strict liability persuaded legislatures. Trustee legislation also includes provisions excusing trustees from personal liability in cases where the principal wrongdoer is co-trustee or an agent of the trust and the trustee has not behaved improperly.

The fiduciary may not be the only person who is accountable for a breach of fiduciary obligation. Other parties may also be liable. Suppose a solicitor misappropriates client money and then pays it into his wife’s bank account. The solicitor might also have been helped to commit the breach by an accountant who gave the solicitor access to the client account. Will these third parties – the wife and accountant – be liable in equity for their participation in the fiduciary’s breach? If the solicitor is solvent, the answer to this question may not matter much. The solicitor will be ordered to restore the money to the fund, together with compound interest to compensate for the loss of investment opportunity caused by the misappropriation. But if the solicitor is insolvent, the client will look to other participants in the fraud with ‘deep pockets’ to recover her funds.

Whereas most people agree that trust has an instrumental value, there is a considerable debate about whether trust is a moral notion and hence is of moral significance. To defend their position that trust is morally significant, the authors present two arguments: (1) a breach of trust typically leads to a feeling of betrayal, a reactive attitude, which is only warranted in cases pertaining to morality, and (2) the belief in a moral obligation of the trustee can be justified by the concept of obligation-ascription.

This chapter makes an argument for the limited fission of law and equity: a limited argument, that is, that equity should be seen and kept as a somewhat separate element of common law systems. The argument is expounded through the example of liability for breach of trust. English decisions have adopted a fused approach to relief for breach of trust which assimilates trusts to contracts. However, this assumes away the distinct normative concerns of equity, particularly the politically important value of autonomy which is expressed through the doctrines of accounting applicable to trustees. It is then shown that the argument has limits, since in charity law the influence of equity is contingently important: if it becomes unimportant, the argument for separately recognising equity there would lose validity.