Summary

Unconditional leave was granted to defend a claim for knowing receipt of sums subject to a constructive trust and/or knowing assistance in respect of the disposal of such sums, as the evidence was insufficient to support a summary decision.

Facts

Interlocutory appeal by the second defendant ('D') against summary judgment entered by Collins J on 18 December 1998. Collins J made a declaration against the first defendant ('F') that: (i) F was liable to account to the 39th claimant, Fayers Legal Services Ltd ('FLS'), for misfeasance and breach of trust, and for F to pay to FLS the sum of £962,562 forthwith, being the minimum sum for which he was liable to account, together with interest; and (ii) there was judgment for the 38 individual claimants for fraudulent misrepresentation, with damages to be assessed. Against D the judge made a declaration that he was liable to account to FLS as constructive trustee for having received its property knowing that it was being paid to him in breach of trust and ordered that he pay £473,237 to FLS forthwith, being the minimum sum for which he was liable to account, together with interest. The factual background was that members of the public were induced to invest about £1.6 million in FLS and lost everything. The judge concluded that the scheme was fraudulent. FLS made aggregate payments of £398,162 into an account in the name of ASC, a company controlled by D's sons, and £75,075 into an account in D's name. Much of this was paid to F for his own personal use. Judgment was given against D under the "knowing receipt" head of constructive trust. Both defendants were granted leave to appeal, but the security ordered against F was not put up and his appeal was dismissed. D put up the security. D claimed that he did not know that there were outside shareholders and that payments were made in and out of the account on the basis that it was F's company. He also claimed that he had no connection with ASC. FLS and one of the shareholders cross-appealed.

Held

(1) The essential requirements under the "knowing receipt" head of constructive trust, were: (i) a disposal of assets in breach of fiduciary duty; (ii) the beneficial receipt by the defendant of assets which were traceable as representing the assets of the plaintiffs; and (iii) knowledge on the part of the defendant that the assets received were traceable to a breach of fiduciary duty (El Ajou v Dollar Land Holdings plc & Anor (1994) 2 All ER 685). (2) It was reasonable to assume that most of the £473,237 was paid away by F in breach of his fiduciary duty to FLS. (3) The £75,075 was prima facie received by D beneficially. (4) Although FLS had produced a great deal of documentary evidence tending to show the continuing involvement of D in ASC's affairs, that was a dispute which could only be resolved at a trial. It was not clear whether ASC was D's alter ego. (5) Summary judgment could not properly be entered against D in respect of the £398,162 in knowing receipt. In respect of that sum a case could only be made at this stage, if at all, in knowing assistance, the principle of which was stated in Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming (1995) 3 WLR 64. However, the evidence as it stood was insufficient to support a summary decision in favour of FLS in relation to the requirements of assistance and dishonesty. The evidence against D was less compelling than against F and arguably capable of an innocent explanation. (6) The judgment entered against D must be set aside in relation to the £398,162. (7) In relation to the £75,075, the requirements of disposal of assets and beneficial receipt were satisfied. D's statement that he did not know that FLS had outside shareholders and there could not have known that the moneys were paid to him in breach of F's fiduciary duty to FLS was a blatant untruth, in the light of D's own evidence. (8) FLS abandoned its cross-appeal in the course of the hearing. The court agreed with the judge that summary judgment could not be entered on the shareholder's appeal which was for money allegedly paid for a specific purpose and then misapplied.

Appeal allowed to the extent of substituting the sum of £75,075 for the judgment sum of £473,237 and giving the second defendant unconditional leave to defend in respect of the balance. Cross-appeals dismissed.