Belmont Finance Corporation Ltd -v- Williams Furniture Ltd (No 2); 1980

References: [1980] 1 All ER 393
Coram: Buckley LJ, Browne-Wilkinson LJ, Waller LJ
It had been alleged that there had been a conspiracy involving the company giving unlawful financial assistance for the purchase of its own shares.
Held: Dishonesty is not a necessary ingredient of liability in an allegation of a ‘knowing receipt’. The court was not swayed by the parties having obtained counsel’s advice that the scheme was lawful, apparently on the basis that: ‘if all the facts which make the transaction unlawful were known to the parties . . ignorance of the law will not excuse them’ and ‘A limited company is of course not a trustee of its own funds: it is their beneficial owner; but in consequence of the fiduciary character of their duties the directors of a limited company are treated as if they were trustees of those funds.’
Brown-Wilkinson LJ: ‘. . . If a transaction falls within the objects, and therefore the capacity, of the company, it is not ultra vires the company and accordingly it is not absolutely void. (5) If a company enters into a transaction which is intra vires (as being within its capacity) but in excess or abuse of its powers, such transaction will be set aside at the instance of the shareholders. (6) A third party who has notice – actual or constructive – that a transaction, although intra vires the company, was entered into in excess or abuse of the powers of the company cannot enforce such transaction against the company and will be accountable as constructive trustee for any money or property of the company received by the third party. (7) The fact that a power is expressly or impliedly limited so as to be exercisable only ‘for the purposes of the company’s business’ (or other words to that effect) does not put a third party on inquiry as to whether the power is being so exercised, i.e. such provision does not give him constructive notice of excess or abuse of such power.’
Buckley LJ: ‘In my judgment, the alleged conspiracy is established in respect of these three defendants, and they are not exempt from liability on account of counsel’s opinion or because they may have believed in good faith that the transaction did not transgress s 54. If all the facts which make the transaction unlawful were known to the parties, as I think they were, ignorance of the law will not excuse them: see Churchill v Walton ([1967] 2 AC 224 at 237). That case was one of criminal conspiracy, but it seems to me that precisely similar principles must apply to a conspiracy for which a civil remedy is sought. Nor, in my opinion, can the fact that their ignorance of, or failure to appreciate, the unlawful nature of the transaction was due to the unfortunate fact that they were, as I think, erroneously advised excuse them (Cooper v Simmons, and see Shaw v Director of Public Prosecutions, where the appellant had taken professional legal advice).
If they had sincerely believed in a factual state of affairs which, if true, would have made their actions legal, this would have afforded a defence (Kamara v Director of Public Prosecutions ([1974] AC 104 at 119)); but on my view of the effect of s 54 in the present case, even if £500,000 had been a fair price for the share capital of Maximum and all other benefits under the agreement, this would not have made the agreement legal.’
Waller LJ: ‘A person is a party to a conspiracy if he knows the essential facts to constitute that conspiracy even though he does not know that they constitute an offence (see Churchill v Walton). Since there was a breach of s 54 and the defendants through their directors made all the arrangements and knew all the facts constituting the breach, it would follow that they conspired together to contravene s 54, the object of their conspiracy being Belmont, and if Belmont suffered damage they are liable.’
Statutes: Companies Act 1948 54
This case cites:

  • Cited – Churchill -v- Walton CA ([1967] 2 AC 224)
    In a criminal conspiracy to evade fuel duties, the fact that the defendant had first obtained counsel’s opinion was no defence. . .
  • Cited – Re Lands Allotment Company CA ([1894] 1 Ch 616)
    A limited company is not a trustee of its funds, but their beneficial owner. However, the fiduciary character of the duties of its directors mean that they are treated as if they were trustees of those funds of the company which are in their hands . .
  • Cited – Russell -v- Wakefield Waterworks Co ((1875) LR 20 Eq 474)
    Jessel MR said: ‘In this court the money of the company is a trust fund, because it is applicable only to the special purposes of the company in the hands of the agents of the company, and it is in that sense a trust fund applicable by them to those . .
  • See also – Belmont Finance Corporation Ltd -v- Williams Furniture Ltd CA ([1979] Ch 250, [1978] 3 WLR 712, [1979] 1 All ER 118)
    The company directors had made cash available to the company’s buyer.
    Held: Fraud is not easily to be attributed to an employer. An employee’s knowledge is not to be treated as the employer’s knowledge: ‘indeed it is a well recognized . .

This case is cited by:

  • Cited – Bank of Credit and Commerce International (Overseas) Ltd and Another -v- Akindele CA (Times 22-Jun-00, Gazette 29-Jun-00, [2001] Ch 437, Bailii, [2000] EWCA Civ 502, [2000] Lloyd’s Rep Bank 292, [2000] 4 All ER 221, (1999-2000) 2 ITELR 788, [2000] 3 WLR 1423, [2000] WTLR 1049, [2000] BCC 968)
    The test of whether a person who received funds held them on constructive trust, was not whether he himself was dishonest, but rather whether he had knowledge of circumstances which made it unconscionable to hold on to the money received. In respect . .
  • Cited – Eagle Trust Plc -v- SBC Securities Ltd; Same -v- Sbci Bank Corporation Investment Banking Ltd ChD (Independent 28-Sep-94, [1993] 1 WLR 484)
    A financial adviser was not liable in negligence for the allegedly negligent selection of sub-underwriters. On the issue of knowing receipt in a claim for restitution, ‘What the decision in Belmont (No 2) . . shows most clearly is that in a . .
  • Cited – Criterion Properties Plc -v- Stratford UK Properties and others CA (Bailii, [2002] EWCA Civ 1783, [2003] 1 WLR 218)
    The parties came together in a limited partnership to develop property. The appeal was against a refusal to grant summary judgment on a claim that one party had been induced to enter the contract by a fraudulent misrepresentation.
    Held: In . .
  • Cited – Criterion Properties Plc -v- Stratford UK Properties and others CA (Bailii, [2002] EWCA Civ 1783, [2003] 1 WLR 218)
    The parties came together in a limited partnership to develop property. The appeal was against a refusal to grant summary judgment on a claim that one party had been induced to enter the contract by a fraudulent misrepresentation.
    Held: In . .
  • Cited – Criterion Properties Plc -v- Stratford UK Properties Llc and others ChD (Bailii, [2002] EWHC 496 (Ch))
    Criterion sought to set aside a shareholders agreement. Their partner had said they were concerned that another party was taking Criterion over and that this would put at risk their working relationships. The agreement sought to add a poison pill to . .
  • Cited – Royal Brunei Airlines SDN BHD -v- Tan PC (Independent 22-Jun-95, [1995] 2 AC 378, Bailii, [1995] UKPC 4, [1995] 3 All ER 97, Bailii, [1995] UKPC 22)
    (Brunei) A dishonest third party to a breach of trust was liable to make good a resulting loss even though he had received no trust property. The test of knowledge was an objective one: ”knowingly’ was better avoided as a defining ingredient of the . .
  • See also – Belmont Finance Corporation Ltd -v- Williams Furniture Ltd CA ([1979] Ch 250, [1978] 3 WLR 712, [1979] 1 All ER 118)
    The company directors had made cash available to the company’s buyer.
    Held: Fraud is not easily to be attributed to an employer. An employee’s knowledge is not to be treated as the employer’s knowledge: ‘indeed it is a well recognized . .
  • Cited – Meretz Investments Nv and Another -v- ACP Ltd and others ChD (Bailii, [2006] EWHC 74 (Ch), Times 27-Apr-06, [2007] Ch 197, [2006] 2 P & CR 23, [2006] 3 All ER 1029, [2006] 6 EGCS 170, [2007] 2 WLR 403)
    The applicant challenged the exercise of a power of sale under a mortgage, saying that the mortgagee’s purposes included purposes not those under the mortgage. The parties had been involved in an attempted development of a penthouse.
    Held: The . .
  • Cited – Criterion Properties plc -v- Stratford UK Properties LLC and others HL (House of Lords, [2004] UKHL 28, Bailii, Times 25-Jun-04, [2004] 1 WLR 1846, [2004] BCC 570, [2004] NPC 96)
    The parties presented their claim before the House, but the House found that it was to be argued differently. The new arguments had not been pursued or prepared before the case came to the House, and it was remitted to the lower courts for the issue . .
  • Cited – Holland -v- Revenue and Customs and Another SC (Bailii, [2010] UKSC 51, UKSC 2009/0131, SC Summary, SC, [2010] STI 3074, [2010] 1 WLR 2793, [2011] BCC 1, [2011] 1 All ER 430, [2011] Bus LR 111, Bailii Summary)
    The Revenue sought an order under section 212 of the 1986 Act, for payment of the tax debts of the insolvent company by a de facto director. H had organised a scheme under which IT contractors had worked through companies created by him under a . .

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