The court was asked whether, for the purposes of establishing a company’s liability under the knowing receipt head of constructive trust, the knowledge of one of its directors can be treated as having been the knowledge of the company.
Held: The company was fixed with the knowledge of its part-time chairman and a non-executive director, because he had acted as its directing mind and will for the particular purpose of arranging its receipt of the tainted funds. It was sufficient that the director had management and control so far as the receipt of the fraud was concerned, having made arrangements for the receipt and disposal of the money, even though he had no general managerial responsibility in the company.
Hoffmann LJ set out the ingredients of knowing receipt: ‘For this purpose the plaintiff must show, first a disposal of his assets in breach of fiduciary duty; secondly, the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and thirdly, knowledge on the part of the defendant that the assets are traceable to a breach of fiduciary duty.’
When asking who was the controlling mind of a company, the relevant test is to find the person who had management and control in relation to the act or omission in point. The formal position or status as a director is relevant but not decisive. A ‘pragmatic’ approach is necessary: ‘Decided cases show that, in regard to the requisite status and authority, the formal position, as regulated by the company’s articles of association, service contracts and so forth, though highly relevant, may not be decisive. Here Millett J adopted a pragmatic approach. In my view he was right to do so, although it has led me, with diffidence, to a conclusion different from his own’ and ‘ . . different persons may for different purposes satisfy the requirements of being the company’s directing mind and will. ‘ The court considered the ingredients of the tort of ‘knowing receipt’: ‘For this purpose the plaintiff must show, first, a disposal of his assets in breach of fiduciary duty; secondly, the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and thirdly, knowledge on the part of the defendant that the assets he received are traceable to a breach of fiduciary duty.’ (Hoffmann LJ)
Nourse LJ said: ‘The doctrine attributes to the company the mind and will of the natural person or persons who manage and control its actions. At that point, in the words of Millett J ([1993] 3 ALL ER 717 at 740): ‘Their minds are its mind; their intention its intention; their knowledge its knowledge.’ It is important to emphasise that management and control is not something to be considered generally or in the round. It is necessary to identify the natural person or persons having management and control in relation to the act or omission in point. This was well put by Eveleigh J in . . R v Andrews Weatherfoil Ltd . .
Decided cases show that, in regard to the requisite status and authority, the formal position, as regulated by the company’s articles of association, service contracts and so forth, though highly relevant, may not be decisive. Here Millett J adopted a pragmatic approach. In my view he was right to do so, although it has led me, with diffidence, to a conclusion different from his own.’
Judges:
Nourse, Rose, Hoffmann LJJ
Citations:
Times 03-Jan-1994, [1994] 2 All ER 685, [1993] EWCA Civ 4, [1994] BCC 143, [1994] 1 BCLC 464
Links:
Jurisdiction:
England and Wales
Citing:
Appeal from – El Ajou v Dollar Land Holdings Plc and Another ChD 3-Jan-1993
A non active director may still be company’s ‘directing mind’. The doctrine of attributing the actions of individuals to a company is that ‘Their minds are its mind; their intention its intention; their knowledge its knowledge.’
Tracing was no . .
Cited – Lennard’s Carrying Company Limited v Asiatic Petroleum Company Limited HL 1915
The House was asked as to when the acts of an individual became those of his employer under section 502 (‘any loss or damage happening without (the ship owner’s) actual fault or privity’).
Held: Viscount Haldane LC said: ‘It must be upon the . .
Cited – Regina v Andrews-Weatherfoil Ltd CACD 1972
For so long as it is possible for persons concerned in a single offence to be tried separately, it is inevitable that the verdicts returned by the two juries will on occasion appear to be inconsistent with one another. Eveleigh J: ‘It is necessary . .
Cited by:
Applied – Bank of Credit and Commerce International (Overseas) Ltd and Another v Akindele CA 22-Jun-2000
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 – Crown Dilmun, Dilmun Investments Limited v Nicholas Sutton, Fulham River Projects Limited ChD 23-Jan-2004
There was a contract for the sale of Craven Cottage football stadium, conditional upon the grant of non-onerous planning permissions. It was claimed that the contract had been obtained by the defendant employee in breach of his fiduciary duties to . .
Cited – Mahonia Limited v JP Morgan Chase Bankwest Lb Ag QBD 3-Aug-2004
The Claimant claimed on a letter of credit issued by the Defendant on behalf of Enron Ltd, who asserted it was not liable to pay there having been unlawful behaviour by Enron Ltd. Swap agreements had been entered into, and the defendant said the . .
Cited – Fassihim, Liddiardrams, International Ltd, Isograph Ltd v Item Software (UK) Ltd CA 30-Sep-2004
The first defendant (F) had been employed by a company involved in a distribution agreement. He had sought to set up a competing arrangement whilst a director of the claimant, and diverted a contract to his new company.
Held: A company . .
See Also – El Ajou v Dollar Land Holdings Plc ChD 1995
The tracing of assets into the hands of a third party depends upon a notional charge. There are no inflexible rules. The essential elements of ‘knowing receipt’ are: ‘For this purpose the plaintiff must show, first, a disposal of his assets in . .
Cited – Ultraframe (UK) Ltd v Fielding and others ChD 27-Jul-2005
The parties had engaged in a bitter 95 day trial in which allegations of forgery, theft, false accounting, blackmail and arson. A company owning patents and other rights had become insolvent, and the real concern was the destination and ownership of . .
Cited – KR and others v Royal and Sun Alliance Plc CA 3-Nov-2006
The insurer appealed findings of liability under the 1930 Act. Claims had been made for damages for child abuse in a residential home, whom they insured. The home had become insolvent, and the claimants had pursued the insurer.
Held: The . .
Cited – Charter Plc and Another v City Index Ltd and others ChD 12-Oct-2006
An employee of the claimant had fraudulently spent several million pounds of the claimant’s money on personal bets through the defendant company. The claimant said that the defendants knew the origin of the funds and were liable to repay them. . .
Cited – Jetivia Sa and Another v Bilta (UK) Ltd and Others SC 22-Apr-2015
The liquidators of Bilta had brought proceedings against former directors and the appellant alleging that they were party to an unlawful means conspiracy which had damaged the company by engaging in a carousel fraud with carbon credits. On the . .
Cited – Akers and Others v Samba Financial Group SC 1-Feb-2017
Saad Investments was a Cayman Islands company in liquidation. The liquidator brought an action here, but the defendant sought a stay saying that another forum was clearly more appropriate. Shares in Saudi banks were said to be held in trust for the . .
Lists of cited by and citing cases may be incomplete.
Company, Equity, Torts – Other, Trusts
Updated: 17 July 2022; Ref: scu.262615