MR JUSTICE LINDSAY:
- I have before me a Summons dated the 20th November 1996 for a striking-out of the Plaintiffs' pleadings as against one defendant. The action is between three Plaintiffs and six Defendants. The hearing of the Summons was in Chambers but both sides have invited me to give the judgment in open court. I do so but, having regard to the origin of the matter in Chambers, I have thought it right to couch my judgment in anonymous terms.
- The First Plaintiff, a company carrying on the business of a trustee, is, with the Second Plaintiff, an individual, trustee for the time being of a company pension scheme ("the Scheme"). I shall call the First and Second Plaintiffs together "the Present Trustees". The principal company concerned in the Scheme is now in receivership. I shall call that company "the Main Operating Company". The Third Plaintiff, an individual, has at all material times been a beneficiary-member of the Scheme and, although the Statement of Claim seeks no representation order, the Writ describes the Third Plaintiff as claiming on behalf of himself and all other beneficiaries of the Scheme (except the Second and Third Defendants).
- The First Defendant ("the Former Corporate Trustee") is a company which I shall need to describe in greater detail later; it was, until removed from that office on the 6th April 1992, the trustee of the Scheme. The First and Second Plaintiffs, although not appointed at one and the same time, have in effect become trustees of the Scheme in place of the Former Corporate Trustee in that there has been no other intervening trustee.
- The Second Defendant, an individual, at material times held high office in both the Main Operating Company and the Former Corporate Trustee. The Third Defendant (whom I shall call "Mr C"), the only applicant in the Summons before me, is a solicitor who at material times, like the Second Defendant, was both a Director of the Former Corporate Trustee and an officer (Managing Director) of the Main Operating Company. He was also for a time himself a trustee of the pension scheme although his tenure of that office was after the events with which I shall be concerned. The Fourth Defendant was both a Director and the Secretary of the Former Corporate Trustee and also an Executive Director and the Secretary of the Main Operating Company. The Sixth Defendant, a firm of solicitors which acted both on specific occasions and more generally as solicitors to the Main Operating Company, acted also on occasions for the Second Defendant and for the Former Corporate Trustee in certain transactions material to the proceedings. Mr C had been a partner in that firm and has, since the events in question, returned to being one.
- In the action, begun by Writ on the 25th October 1995 (but not served until the 3rd February 1996) the Plaintiffs claim differing relief from differing Defendants in respect of the various transactions in relation to which it is said those Defendants were respectively involved. As joint and several liability is often asserted, recovery is often claimed in respect of the same loss from more than one defendant. It is thus difficult to put a single figure on the sums said by the Plaintiffs to have been lost to them by the Defendants' acts or omissions but suffice it to say that the Plaintiffs claim several million pounds by way of principal and interest from the Defendants as lost to the Scheme through their respective alleged failures. Some 80 pensioners have been adversely affected and a further 214 or so deferred beneficiaries have had their prospects of receipts from the Scheme annihilated.
- By his Summons of the 20th November 1996 Mr C, who, as yet, has filed no Defence, asks that the Statement of Claim as against him should be struck out pursuant to Order 18 Rule 19 on the sole ground that it discloses no reasonable cause of action against him. The Summons does not identify any parts of the Statement of Claim which should go as an alternative to the striking-out of the whole; it is, on the face of the Summons, an all or nothing strike-out that is sought.
- The original Statement of Claim was dated the 25th September 1996. Some other Defendants have, I am told, already filed Defences but I have not seen them. Before the hearing began the Plaintiffs had served an Amended Statement of Claim, amended under Order 20 Rule 3. During the hearing the Plaintiffs sought leave to make further amendments which were resisted by Mr Halpern, Junior Counsel for Mr C in the then absence of Mr Anthony Mann Q.C., who had at an earlier stage in the argument led him for Mr C. The only substantial ground of resistance to the amendments was that the late amendments amounted to new causes of action being sought to be added after the expiry of the relevant period of limitation. Order 20 Rule 5(2) confers upon the Court a discretion to grant leave to amend even in such a circumstance "if it thinks it just to do so". Order 20 Rule 5 (5) limits the operation of Rule 5 (2) to cases in which "The new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment". I heard argument from both sides as to whether or not these provisions were here satisfied. The question of whether the facts out of which the new claims are said to arise are "substantially" the same as those from which spring the existing claims is not capable of great elaboration beyond a comparison between the two. Making that comparison and having regard to the justice of the case as I see it, I hold sub-rules (5) and (2) to be satisfied and I permit the late amendments. Whilst the making of the late amendments may have repercussions as to costs, as there has been no request for any consequential amendment to the Summons before me I shall consider the strike-out on the basis that it is still the whole of the Plaintiffs' pleadings as against Mr C, in other words the Re-Amended Statement of Claim as against the Third Defendant, that is now sought to be struck-out.
- Before I turn to the case in more detail I shall first deal with three short points. Firstly, whilst I shall, as is proper in relation to applications to strike-out, determine the matter upon the assumed basis that the facts alleged are true and capable of proof, it is to be remembered that that is no more than an assumption. Although I shall not in every case lard the judgment with repetition of words such as "alleged" or "claimed", it has to be borne in mind that I shall be describing matters merely assumed rather than matters held to exist, that there has been no evidence yet sworn, that there are, as yet, no findings of fact, that Mr C has not yet had the opportunity of addressing the facts and that, if the case goes forward, some or all of the Defendants, including Mr C, will be likely to wish vigorously to defend themselves and, of course, may in time successfully refute some or all of the allegations, often serious allegations, made against them.
- Secondly, as respondents to a strike-out application the Plaintiffs have more than once in the course of argument taken the familiar line that unless the Court can be sure that the case which they have pleaded must fail then the matter should be allowed to go to trial. The Plaintiffs were thus invoking the familiar plea that it is only in plain and obvious cases that recourse should be had to the summary process of Order 18 Rule 19 - see, for example, para 18/19/7 of the current Annual Practice. However, at the last of all stages of the hearing, when Mr Sher Q.C. for the Plaintiffs was being briefly heard to deal only with the new cases which Mr Halpern had introduced in his reply, Mr Sher for the first time invited me, if I was with him, to decide points of law in his favour as if, all along, there had been an application for the summary determination of questions of law under Order 14A. Hardly surprisingly, Mr Halpern resisted this late argument, one perhaps best described as a tongue-in-cheek sally on Mr Sher's part. Mr Halpern and, before him, Mr Mann Q.C. had all along mounted, and there had been contested, said Mr Halpern, only an Order 18 Rule 19 application. The earlier argument having taken the course it had, it was with some justice that Mr Halpern said that it would be unfair for me to decide anything but whether it was plain and obvious that the Plaintiffs' pleaded case against the Third Defendant must fail. That is the most compressed form of the only question before me.
- Thirdly, it follows from that being the only question before me, that:-
"........where the legal viability of a cause of action is unclear (perhaps because the law is a state of transition), or in any way sensitive to the facts, an order to strike-out should not be made".
See per Sir Thomas Bingham M.R. in E (a Minor) -v- Dorset C.C. [1995] 2 AC 633 at p. 694 in the Court of Appeal (in which the Defendants' Appeal to the House of Lords was dismissed).
- I now turn to set out the facts (and some of the comments) alleged or made in the Plaintiffs' pleading.
The Pleaded Facts
- The Former Corporate Trustee was for some from 1986 the sole trustee of the Scheme, a company pension scheme in which the principal company concerned was, as I have mentioned, the company I have called "the Main Operating Company". Whilst the Former Corporate Trustee was such a sole trustee the Main Operating Company had the Second Defendant, "Mr A", as its Chairman and Managing Director. Mr A, whilst the Former Corporate Trustee was trustee of the Scheme, was also the Chairman of its Board of Directors. There was thus, at the material times and at the most senior level, a degree of identity or overlap between the management of the Main Operating Company and that of the Former Corporate Trustee. That identity or overlap, as will have been seen from my description of the parties to the action, went a great deal further than Mr A; Mr C, a commercial solicitor and the person with whose position I am chiefly concerned, was a member of the Board of the Former Corporate Trustee and also Managing Director of the Main Operating Company. The Secretary of the Former Corporate Trustee was also a Director and the Secretary of the Main Operating Company.
- Throughout the material period the Former Corporate Trustee, which had the exclusive conduct of all aspects of the management and administration of the Scheme, had an authorised share capital of £100 with, I am told, only 30p described as paid-up, by way of the payment-up of 6 shares of 5p each. They were issued to its Directors who, as such shareholders, were by its articles, required to be amongst the directors or employees of the Main Operating Company. It has no assets (other than that 30p, if it was ever truly paid) and was incorporated for the purpose of acting as trustee of the Scheme. I am told that the Former Corporate Trustee has never had any business other than that of the trusteeship of the Scheme nor any income, nor, the 30p perhaps apart, any assets whatsoever held by it or vested in it other than assets held on the trusts of the Scheme. Its balance sheet as at 5th April 1990 (presumably unaudited) shews the share capital I have mentioned and "cash at Bank 30p" but nothing else. There is no profit and loss account. It has had no staff, nor any premises. The only activity of the directors of the Former Corporate Trustee as such was the management and administration of the Scheme, of which they were intended to have and, as I mentioned, did have the exclusive conduct.
- In July 1990 the Former Corporate Trustee lent £3m of Scheme monies to the Main Operating Company without taking or requiring any security and without any provision for interest. This was done at a time when the bankers to the Main Operating Company were pressing for the reduction of its overdraft and the re-structuring of its borrowings. Those bankers were unwilling to extend further credit without security. The industry in which the Main Operating Company was engaged was then in serious recession and the company's business had fallen substantially, its overheads were increasing and its borrowings exceeded £18m. Interest alone was running at some £2.6m p. a. and falling property values and the lack of marketability of the company's properties were further adverse features of the position of the Main Operating Company.
- In September 1990, that sum of £3m not having been repaid or demanded, the Former Corporate Trustee contracted to buy from the Main Operating Company the latter's principal working premises ("the Main Site") at a price of £3.5m. Mr C set the price and the terms as to completion and signed the contract on behalf of the Former Corporate Trustee. In deciding upon that purchase at that price the Former Corporate Trustee took no independent valuation, investment, actuarial or legal advice. The Former Corporate Trustee agreed to pay the Main Operating Company a so-called "deposit" of £3.5m, despite that being the total purchase price, and to pay it as to £3.3m upon exchange of contracts and as to the remaining £200,000 on or about the 31st October 1990. That was despite the contractual completion date being agreed to be in September 1992. The price of £3.5m was substantially in excess of the open market price applicable upon a sale with completion and vacant possession delayed until 1992. One of a number of further or alternative allegations is that Mr C knew that the open market value of the Main Site with completion delayed until September 1992 must have been substantially less than £3.5m. The £3.3m slice of the "deposit" was paid as to £3m by way of the Former Corporate Trustee writing-off the £3m it had lent the Main Operating Company in July 1990 (but without any credit to the Former Corporate Trustee in respect of the use the Main Operating Company had had of that £3m for, by then, almost two months). The remaining £300,000 of the £3.3m slice of the "deposit" was paid by the Former Corporate Trustee to the Main Operating Company on the 1st October 1990. The remaining £200,000 of the full price was paid by the Former Corporate Trustee to the Main Operating Company on the 15th October 1990 but without any express provision for any security as to any of the purchase price monies so paid, despite the Main Site being already charged for over £l.3m to one of the Main Operating Company's banks and for a substantial sum that is not specified in relation to the other. The contract, which contemplated the Main Operating Company remaining in possession until completion, made no provision for an occupation rent or interest in lieu thereof being payable to the Former Corporate Trustee in the meantime.
- On the 27th December 1990 the Former Corporate Trustee paid a further £500,000 to the Main Operating Company for the expressed consideration of the completion date being brought forward to the 30th September 1991. Mr C set the figure of £500,000. In agreeing this sum for such an acceleration the Former Corporate Trustee took no independent valuation, investment, actuarial or legal advice and it agreed it by way of an agreement drafted by Mr C and signed by Mr C on behalf of the Main Operating Company and, as it seems, signed by no-one on behalf of the Former Corporate Trustee. This episode is described by the Plaintiffs as merely window dressing for the extraction by Mr C of £500,000 from the Scheme and its payment to the Main Operating Company in flagrant disregard of the interests of the Scheme and its beneficiaries. This deal had been resolved upon by the Former Corporate Trustee at an occasion (one cannot call it a meeting) attended only by Mr A as its Chairman. This agreement for acceleration, so far as concerns the Main Operating Company, was resolved upon by and only by Mr C as Managing Director of the Main Operating Company speaking on the telephone to Mr A. It was a term of this acceleration that the £500,000 should be paid forthwith.
- Despite the facts that the Former Corporate Trustee had not only paid the full agreed purchase price but also a further £500,000 for acceleration, the completion did not take place in 1991 but not until September 1992, the month of the originally specified completion date. The Former Corporate Trustee had not either attempted to enforce the accelerated completion for which it had paid, nor, it seems, to escape the contract, as might have been open to it. The pleadings mention no repayment of or in respect of the £500,000 paid for an acceleration which did not take place but it is there asserted that in the interval between the accelerated completion date of the 30th September 1991 and the actual completion date of September 1992 the Main Operating Company continued to have the use of the Main Site rent free.
- The effect of the expenditure of the £3.5m and £500,000 as I have described it (all the component payments having been authorised by Mr C) was that over 50% of the Scheme's funds were invested in the Main Site and were for the time being yielding no interest or its equivalent; the Scheme's funds were, as to some 70%, in real property. Less than 10% of the funds were in quoted securities. The remaining parts of the funds were made up of a holding of shares in the Main Operating Company and a loan to one of its subsidiaries.
- The Main Site was sold by the Former Corporate Trustee in September 1992 for £2,200,050, which represented, it is said, a capital loss to the Scheme of £1.742m, which loss, together with compensation for a lost investment return at rates said by the Plaintiffs to be appropriate, represents a loss to the Scheme of £3.268m in respect of the "Main Site transaction", as I shall call it, down to the date of delivery of the Statement of Claim in September 1996. Mr C was actively involved in these dealings in relation to the Main Site; he had initiated, approved and implemented them. The Plaintiffs claim that, in making the payments of £3.5m plus £500,000 plus stamp duty costs and expenses in relation to the original loan and then in the acquisition of the Main Site, the Former Corporate Trustee subordinated the interests of the Scheme to those of the Main Operating Company. The objects of the exercise had been to provide the Main Operating Company with cash and purportedly to regularize the original loan. Mr C is said to have been actively involved in this subordination.
- Apart from that complaint as to the Main Site, the Plaintiffs have another complaint against Mr C. It relates to an augmentation of Mr A's pension ("the Augmentation"). It arises as follows. In December 1991 the Former Corporate Trustee augmented the pension entitlement of Mr A, then Chairman of the Former Corporate Trustee and then or recently Chairman of the Main Operating Company. It did so by increasing provision for him under the Scheme to the Inland Revenue's maximum permitted limit. There was a payment to him of an immediate lump sum in connection with his then-impending early retirement from the Main Operating Company. Mr C, then a Director of the Former Corporate Trustee and Managing Director of the Main Operating Company, was actively involved in this transaction; he initiated and approved it and assisted the Former Corporate Trustee in its implementation. The cost to the Scheme of the Augmentation, actuarially computed, was £515,000 and Mr A was enabled to take a lump sum of £219,321 from the Scheme and an immediate pension of £77,168.50 p.a.. The Former Corporate Trustee conferred this benefit on Mr A having received advice from the well-known firm of actuaries, Bacon & Woodrow, that, on that firm taking the assets of the Scheme to have the values which the Former Corporate Trustee supplied to it, the fund was in surplus at the 18th October 1991 in the order of some £1.51m. However, the values so given to the actuaries by the Former Corporate Trustee, which included the Main Site at a value of £4m, were grossly inflated. Indeed, the Former Corporate Trustee had then had recent valuation advice giving the Main Site a value of only £2m. The Scheme was in fact in deficit at the time, to the tune of some £1.8m. Mr C exercised the discretion to augment A's pension on a mistaken assumption as to the solvency of the Scheme. He knew (or ought to have known) that the valuation upon the basis of which Bacon & Woodrow had advised was grossly inflated- In this augmentation the Former Corporate Trustee acted at the direction of the Main Operating Company, whose interest was to provide Mr A with a generous early retirement package at the expense of the Scheme rather than at its own expense. The Scheme thereby suffered a loss, including in the loss a provision for the investment return the Trust Company might otherwise have received, of the order of £226,000.
- Whilst the pleadings themselves, concerned chiefly with fact, are not as readily divisible into separate parts as the argument, it is upon those pleaded facts the Plaintiffs assert claims against Mr C in manner put in argument in several different ways. I shall examine the ways separately to see firstly if each one "is unarguable or almost incontestably bad" -see E (A Minor) -v- Dorset supra at p. 693. If any is not, then I shall go on to check that the pleadings sufficiently clearly and fully embody that form of claim which the argument has asserted so as to enable it to survive the Order 18 Rule 19 Summons. I shall in the first place rule for or against each particular formulation of the Plaintiffs' claims as if each was the separate and only formulation. After I have done that I shall finally see whether I need to review any of my separate decisions when I look then to all formulations together.
Direct Fiduciary Duty
- The Plaintiffs allege in this part of their case that Mr C, as also other active directors of the Former Corporate Trustee, directly owed a duty as a fiduciary "to the Scheme", meaning, by that, a duty both to the trustee or trustees for the time being of the Scheme and to its beneficiaries, past, present and future. The particular duty so falling to Mr C to discharge was one of care, a duty which he broke in relation to his dealings both as to the Main Site transaction and the Augmentation. I shall need to keep in mind that:-
"The liability of a fiduciary for the negligent transaction of his duties is not a separate head of liability but the paradigm of the general duty to act with care imposed by law on those who take it upon themselves to act for or advise others"
see Lord Browne-Wilkinson in Henderson -v- Merrett Syndicates Ltd [1995] 2 AC 145 at p. 205 and see also Bristol & West Building Society -v- Mothew [1996] 4 All ER 698 at p. 711-712 per Millett L.J..
- Mr C accepts he was, as a Director, a fiduciary (but not a trustee) but he says he owed his duty as such only to the Former Corporate Trustee, which as yet makes no claim against him. Subject only to instances within the exceptions to the rule in Foss -v- Harbottle, it is only, says Mr C, the Former Corporate Trustee which can sue him in respect of any such breach of duty and it does not do so. In particular Mr C draws attention to Wilson -v- Lord Bury [1880] 5 QBD 518 C.A. and to Bath -v-Standard Land Co. [1911] 1 Ch 618 C.A..
- In Wilson -v- Lord Bury and Others supra the Plaintiff had sent £1,000 to the Colonial Trusts Corporation, a company which acted as an agent for the investment of money and of which the three defendants were directors. The sum was to be a deposit for five years against the security of an identified mortgage of which the company was mortgagee. The company went into liquidation and the plaintiff sued the defendants claiming his £1,000 had been lost by their gross negligence. The Court of Appeal held there was no contract between the plaintiff and the defendants and, indeed, contract formed a large part of the considerations in the Court of Appeal. However;-
"It was strenuously moved on behalf of the plaintiff that the defendants were as a necessary consequence of their position as directors of the company personally trustees of the plaintiff and had been guilty of a breach of trust" -per Brett L.J. at p. 525.
- Brett L.J. firmly rejected this argument at p. 526, emphasising, by way of his italicising a passage from the judgment of Cairns L.J. in Ferguson -v- Wilson, L.R. 2 Ch 77 that Cairns L.J. had asked "What is the position of directors of a public company? There are merely agents of a company.". Brett L.J. took it that Cairns L.J. had there held that a Court of Equity would not in such a case find directors to be liable on the mere ground of their "being directors" - p. 527. At p. 528 he held:-
"I am of opinion that the defendants were not from the mere fact of their being directors trustees of the plaintiff at all".
- The case was discussed chiefly as being in contract but, after Bagallay L.J. has dissented, Bramwell L.J. concluded at p. 537 as follows:-
"........ assuming that there is a trust and a breach of
it, I can see no reason on which directors can be held personally liable for it to the plaintiff. On this matter also I agree entirely with the reasoning and authorities of my brother Brett ......."
- Mr Sher was entitled to point out that the Defendants-Directors there had been very little involved in the business complained of. They had - p. 524 - merely been present at a Board Meeting at which some material information was made available.
- In Bath -v- Standard Land Co. Ltd. supra the defendant company managed the estates of the plaintiff, a bankrupt, as mortgagees in possession and were thus obliged to account to the plaintiff for receipts after authorised deductions permitted in the company's favour. In the taking of the account it had been held below by Neville J. that the defendant company was not entitled to charge the plaintiff for any profits or remunerations for its directors or for any firm of which the directors were members so far as they had been engaged as professional advisers to the company in relation to the Plaintiff's affairs. As the Appellant the defendant company argued in the Court of Appeal that whether or nor the company itself might or might not be in a fiduciary position to Mr Bath, "There was no fiduciary relationship between the directors and the plaintiff". On the appeal the defendant company thus argued that it was able to charge, for example, for solicitors, accountants, valuers and surveyors who rendered to services to the company in relation to the plaintiff's affairs notwithstanding that the gentlemen concerned and so instructed by the company were directors of the defendant company. Cozens-Hardy M.R. accepted this; at p. 525 he says:-
"Directors stand in a fiduciary relation to the company but not to a stranger with whom the company is dealing. It is of course true that a company acts through its directors. But that does not involve the proposition that if a breach of trust is committed by a company, acting through its board, a beneficiary can maintain any action against the directors in respect of such breach of trust. Of course I accept the case where the trust property can be followed into the hands of a director, or of any stranger with notice. No such points arises here".
At p. 627 he said:-
"I base my decision upon the broad principle that directors stand in a fiduciary position only to the company, not to creditors of the company, nor even to individual shareholders of the company, still less to strangers dealing with the company. This principle applies equally whether the relation between the company and the stranger is one purely of contract, such as principal as an agent, or as one of trustee and cestui que trust".
- Although Cozens-Hardy M.R. was, throughout these passages, dealing only with the question of whether a disability which afflicts fiduciaries (the inability personally to profit from their office in the absence of express authority) was material on the facts before him, his reasoning is more widely based than that and I see the statement of principle cited above as necessary to his decision. Similarly Buckley L.J. at p. 642, speaking of the Judge's conclusion that the directors could not make a profit to themselves outside the remuneration provided to the company by its agreement with Mr Bath continued at p. 642:-
"This conclusion is rested upon the proposition that the directors stand in a fiduciary position towards Mr Bath. In my opinion this is erroneous. A fiduciary relation can only arise either contractually or by implication of law".
After negating any contract between Mr Bath and the directors, Buckley L.J. continued:-
"Then does there arise as between those parties any fiduciary relation by implication of law? I think not. Under circumstances such a relation might arise by implication of law. The facts here do not raise it."
Whilst a trustee could not profit from his trust because doing so would put him in a position in which his duty and his interest would conflict - p. 644 - he continued:-
"A director is not personally liable for the breach of trust or breach of duty of the company towards a person contracting with the company".
At p. 647 he held that a declaration:-
"That the remuneration is to be disallowed on the mere ground that the recipient was a director is in my judgment erroneous".
The case includes a very powerful dissent from Fletcher Moulton L.J. who, at p. 637, held that where a limited company undertook the administration of a trust its directors came under a duty direct to the beneficiaries of the trust. He said that:-
"In my opinion they are liable for matters of personal conduct inconsistent with their full knowledge of the fiduciary character of the duties which in the name of the company, they have to carry out".
- Mr Sher rightly points out that these cases do not deal with a one-trust, no asset, 30p company such as the Former Corporate Trustee and that it is only a particular fiduciary disability rather than the boundaries of fiduciary duty which were there in issue. However, there is nothing in the reasoning of the majority to suggest that the Court is to be required to or should distinguish by reference to any discernible principle between substantial and insubstantial companies or between the cases of trust companies with only one or more than one client trust. Moreover, although the result of the cases related to particular fiduciary disabilities, the disability was seen as part of the broader position of fiduciaries and the result was arrived at by way of the broad statement of principles that I have noted. I am, of course, not able to prefer the judgment of Fletcher Molton L.J. unless I can find that there is some distinction or later authority that frees me to do so. Subject to that, I regard myself as bound as a matter of ratio by the majority view that directors, even of a trust company, are not, as such and without more, in a fiduciary position in relation to the beneficiaries of a trust of which their company is trustee.
- Mr Sher seeks to free me from that ratio by reference to later English authorities, first of which is French Protestant Hospital [1951] Ch 567, an ex tempore judgment of Dankwerts J. in which Wilson -v- Lord Bury supra and Bath -v- Standard Land Co. supra were not cited. Indeed, no case other than Bray -v-Ford appears to have been cited. The French Protestant Hospital was a charitable corporation incorporated by Royal Charter of 1718. Its governing body included persons who quite fortuitously were given the title "Directors", a term made familiar by later Company Law. No person who received emoluments from the corporation could be a "Director" . By 1950 it had amongst its "Directors" an honorary solicitor and a surveyor who, although they charged for their services to the Corporation less than otherwise they might have done, nonetheless were remunerated by the Corporation. A bye-law by way of amendment was proposed to regularise this position. An application to Court was necessary. A charitable trust does not, of course, have beneficiaries in quite the same sense as a private trust; rather it has charitable objects and purposes. The Attorney-General was heard in the case, represented by Mr Denys Buckley, on behalf of those objects and purposes and he argued that the proposed amendment was repugnant. At p. 569 he argued:-
"The corporation cannot do what it likes with its assets, but must apply them in furtherance of the objects of the charitable trust. This duty is also imposed on the corporators, who are in complete control of the corporation."
However, Dankwerts J. observed at p. 570:-
" It seems to me that in a case of this kind the Court is bound to look at the real situation which exists in fact. It is obvious that the corporation is completely controlled under the provisions of the Charter by the Governor, Deputy Governor and other directors, and that those are the persons who in fact control the corporation and decide what shall be done. It is plain that those persons are as much in a fiduciary position as trustees in regard to any acts which are done respecting the corporation and its property."
He then supposes the case of such a "director" pocketing the property of the corporation, points to the obviousness of that being illegal and continued, as to the "Directors" - (and with my emphasis):-
"Therefore it seems to me plain that they are, to all intents and purposes, bound by the rules which affect trustees."
- If the "Directors" had pocketed the corporation's funds they would, no doubt, be liable as recipients of trust funds, receiving them inconsistently with the trust, by reference to Barnes -v- Addy, a quite different head of possible liability that I shall need to deal with later. One cannot safely proceed from the view that a man in a position to control the deployment of trust funds would be liable were he without any authority and for his own purposes to pocket those funds that he is "therefore", before and independent of that receipt, in the position of owing the duties of a trustee. The "therefore" in the citation above is thus, if I may respectfully say so, rather suspect and the reference to the "Directors" being bound by "the rules which affect trustees" does not, any rate clearly, include the duties attendant upon a trustee's office. Nor, of course, does the case there have the three tiers of the case with which I am dealing where there are beneficiaries, a trust company and directors of a trust company. In the French Protestant Hospital case there was only the corporation and its "Directors", with the Attorney-General representing not beneficiaries as such but charity. But perhaps, above all, it is the absence of the citation of Wilson and Bath supra, both in the Court of Appeal, which disables me from regarding the case of making any inroads into the ratio of those two earlier and binding cases.
- Dankwerts J. himself followed his own decision in French Protestant Hospital a little later in 1951 in The Abbey and Malvern Wells Ltd -v- Ministry of Local Government [1951] 1 Ch 728. The Town and Country Planning Act 1947 Section 85 exempted from Development Charge "land an interest in which is held on charitable trusts or for ........ other charitable purposes". The land in question, occupied by a girls' school, was owned by the plaintiff company. Its Articles provided that the company should be managed by a Council consisting of the trustees for the time being of a Trust Deed. Every person who became a trustee ipso facto became a member of the company's Council. The shares in the plaintiff company were held and held only by the trustees of the Trust Deed, the trusts of which were charitable. The respondent Ministry argued that it was not the land but only the shares in the company which were held in trust by the trustees. However, describing his earlier decision in French Protestant Hospital, Dankwerts J said that he had there held:-
"That I must look at the substance of the matter and see who really controls the situation. I held, accordingly, that the Governors and Directors were just as much in a fiduciary position and in the position of trustees as the corporation itself."
He held that the persons (the Council members) who regulated the operation of the company in Abbey Malvern were not:-
"free persons unrestricted in their operations, but are the trustees of the Trust Deed, who may act only in accordance with the provisions of that deed, may only use the property of the company in a particular way and must not make use of the assets of the company for the purpose of a profit-making concern. I find that they are strictly bound by the trusts of the Trust Deed, and that those trusts are charitable trusts".
- As the company was there controlled by persons whose duties confined them to charitable purposes for the land, the land, as property of the company "is held either upon charitable trusts or for charitable purposes". Again, Wilson and Bath were not cited. The conclusion rests upon an assumption that the trustees, even qua-Council members, could act only in accordance with the provisions of the Trust Deed. That is far from obvious; whilst, on the facts, it would be difficult to suppose a case in which a conflict arose between the wishes and duties of the Council members as such and of the same persons as trustees, I see no reason why, as Council members, those persons should not look to the best interests of the company regardless of their wishes and duties qua trustees. If, as Millett L.J. points out in Bristol & West Building Society -v- Mothew [1996] 4 All E.R. supra at p. 711-712 the distinguishing obligation of a fiduciary is the obligation of loyalty and if also:-
"The principal is entitled to the single minded loyalty of his fiduciary"
then the company in Abbey Malvern could surely expect from its Council members a single minded loyalty that put its interests ahead of those trustees. I do not see the Abbey Malvern case as adding real weight to French Protestant Hospital; it purported to reveal no principle which is applicable to the case before me and certainly none, in my judgment, that at first instance can be preferred to the ratio in Bath in the Court of Appeal. As Mr Mann emphasised, there is the additional curiosity, if third parties have all along been directly liable to beneficiaries for breach of duty of care owed directly to the beneficiaries and without such third parties either improperly receiving trust property or dishonestly assisting in dealings with it, that the law should have been driven to develop the stricter requirements of Barnes -v- Addy accessory liability, to which I shall need to refer below.
- Turning to Commonwealth authority, in Australian Securities Commission -v- A S Nominees Ltd (1996) Pension Law Reports 297 Finn J. heard argument that the directors of a trustee company running superannuation schemes owed "fiduciary duties not just to their companies respectively but also to the beneficiaries of the trusts of those companies" - p. 311. He found it unnecessary to express a view on the point but drew attention to Wilson supra, French Protestant Hospital supra and Bath supra. He continued:-
"It is not open to doubt that the particular factual relationship existing between a (or the) director(s) of a trustee company and a beneficiary or beneficiaries of a trust, may properly warrant the finding of a fiduciary relationship between them; cf Coleman -v- Myers [1977] 2 NZLR 225; Glandon Pty Ltd -v- Strata Consolidated Ltd 1993 11 ACSR 543. But to say this is not to say that there is anything fiduciary in the trust company director-trust beneficiary relationship as such."
- Finn J. then drew attention to further considerations but, as he found it unnecessary to express a concluded opinion, I shall not lengthen this judgment with further citation from the passage between paragraph 76 and 81 of his judgment.
- In Hurley and Anor -v- B G H Nominees Pty Ltd and Ors (1984) 10 ACLR 197 Walters J. was concerned with the trial of a derivative action brought by the plaintiffs as shareholders in a trading trust company against that company and a director and associates of that director of that company. The director raised the plea that he could not be under any duty to the company in relation to property which the company held in trust and that the only complainants who could complain as to loss to such property were the beneficiaries of the trusts. Walters J. held that the plaintiffs, without the need to join any beneficiaries, had locus standi to complain even as to property held by the company on trust. I do not read him to hold that there was a direct duty of care owed by directors of the trust company to, and directly enforceable by, beneficiaries of the trust but rather that shareholders in the trust company could complain as to the activity of a director in relation to property held by the company on trust because the directors as such owed a duty to the company: in relation to such property to take into account the interests of such beneficiaries.
- In my judgment neither subsequent English authority nor Commonwealth authority enables me to distinguish Bath supra (which Mr Sher reserved the right, in higher courts, to say was wrongly decided). There is a broad principle, as Cozens-Hardy M.R. described it in Bath at p. 627, that the directors of a trust company stand in a fiduciary position only to the company itself not to strangers dealing with the company and not even where the stranger is able to describe himself as a beneficiary of a trust of which the company is trustee. Whilst exceptional facts can be envisaged, as Finn J. suggested and as Barnes -v-Addy (as I shall come to) illustrates, in which a finding of a fiduciary relationship between a beneficiary and the directors of the trustee company may be justified, I do not see the facts here relied on in argument, consisting only of directors purporting to act as such and acting (alleged carelessness apart) as one might expect directors of a trustee company to act, to be sufficient to enable any such a finding. In other words, at any rate at first instance and so long as Bath supra stands, I regard this way of putting the Plaintiffs' case as unarguable.
- Some parts of the argument under this heading were far from easy to separate from the arguments under other headings. As an example, in the course of the argument on Barnes -v- Addy Accessory Liability I was taken to Royal Brunei Airlines P.C. infra where, at p. 391, Lord Nicholls giving the judgment of the Privy Council says:-
"...... it is difficult to identify a compelling reason why, in addition to the duty of skill and care vis-a-vis the Trustees which the third parties have accepted, or which the law has imposed upon them, third parties should also owe a duty of care directly to the beneficiaries".
- Rather than repeating considerations in mind at other stages, I shall merely say that in concluding as to the unarguability of this first way of putting the case I have had in mind some at least of the considerations that were urged under other headings, to which I now turn.
Direct Tort
- The Plaintiffs' direct claims in tort are argued, as I have understood them, in two ways. Firstly the argument is by reference to the recent decisions of the House of Lords in Henderson -v- Merrett Syndicates Ltd [1995] 2 AC 145 and White -v- Jones [1995] 2 AC 207. It is said that there can be liability under a duty to act with care which is to be imposed by law on those who take it upon themselves to act for others -see Henderson supra at p. 205 where Lord Browne-Wilkinson, after speaking of trustees, carriers, bailees, directors, agents and others, said that the duty of care:-
"........ Arises from the circumstances in which the defendants were acting, not from their status or description. It is the fact that they have all assumed responsibility for the property or affairs of others which renders them liable for the careless performance of what they have undertaken to do, not the description or the trade or position which they hold".
- That such a duty can exist and its breach be complained of without there having been any conscious reliance upon the performance of the duty by the person who complains of its breach is illustrated in passages in White -v- Jones supra where, at p. 271, Lord Browne-Wilkinson says:-
"If B is unaware of the fact that A has assumed to act in B's affairs (e.g. in the case of B being an unascertained beneficiary) B cannot possibly have relied on A. What is important is not that A knows that B is consciously relying on A, but A knows that B's economic well-being is dependent upon A's careful conduct of B's affairs".
Lord Browne-Wilkinson continued, on p. 272, to say:-
"It does not follow that in all cases based on negligent action or inaction by the defendant it is necessary in order to demonstrate a special relationship that the plaintiff has in fact relied on the defendant or the defendant has foreseen such reliance. If in such a case careless conduct can be foreseen as likely to cause and does in fact cause damage to the plaintiff that should be sufficient to found liability".
- The fact that the loss is only economic is no bar - p. 274D. Lord Browne-Wilkinson concluded at p. 274 that:-
"The law of England does not impose any general duty of care to avoid negligent mis-statements or to avoid causing a pure economic loss even if economic damage to the plaintiff was foreseeable. However, such a duty of care will arise if there is a special relationship between the parties. Although the categories of cases in which such special relationship can be held to exist are not closed, as yet only two categories have been identified, viz. (1) where there is a fiduciary relationship and (2) where the defendant has voluntarily answered a question or tendered skilled advice or services in circumstances where he knows or ought to know that an identified plaintiff will rely on his answers or advice. In both these categories the special relationship is created by the defendant voluntarily assuming to act in the matter by involving himself in the plaintiff's affairs or by choosing to speak. If he does so assume to act or speak he is said to have assumed responsibility for carrying through the matter he has entered upon".
- However the whole of Lord Browne-Wilkinson's speech is directed to the filling of an identified lacuna in the law, a position which their Lordships found to be an unjust one, in that on the facts of that case the complainants (prospective beneficiaries) who had suffered loss had no previously recognised cause of action open to them and yet where those who had such a cause of action (the deceased and his estate) had suffered no loss -p. 275B. Lord Browne-Wilkinson's agreement with Lord Goff at p. 270B points to that being the particular target of his analysis; Lord Goff had regarded it as a point of cardinal importance that the identified lacuna in the law needed to be filled - p. 260A. In that circumstance I cannot read the broad language used as intended impliedly to override long established existing principles as to the identification, outside the identified lacuna, of as between whom fiduciary relationships exist or as to the identity of he who should be taken to have been the actor who should have assumed responsibility and who, on that account, became vulnerable to a claim. Such established principles suggest, as in Bath supra, that the fiduciary relationship to which the beneficiaries might be party was one only with the Former Corporate Trustee - see also White -v- Jones supra at p. 256C. Equally well-established principles such as those found in Salamon -v- Salamon [1897] AC 22 suggest that on the facts before me as pleaded it would be the Former Corporate Trustee rather than any individual who would be regarded as the actor who, if anyone had, had assumed responsibility. In other words, however much Mr C might have known that the economic well-being of the pension beneficiaries was dependent upon his careful conduct, as a director of the Former Corporate Trustee, of the administration of the Scheme or had foreseen loss to those beneficiaries if he were to be careless, established principles identify not him but the trustee as the person with whom the beneficiaries enjoyed a fiduciary relationship and identify not him but the trust company, the Former Corporate Trustee, as the person which assumed responsibility for administering the trusts of the Scheme. I cannot think that the considerable upheaval in the law that would be a consequence if, for example, Salamon was as readily avoidable as it would be if a plaintiff could look directly through the trust company to its members (or directors or servants), would have been left to later divination from the speeches in White -v- Jones rather than being clearly expressed by their Lordships had it been intended. Nor is there here any comparable lacuna in the law as the Former Corporate Trustee can here undoubtedly be (and is) sued by a beneficiary; the fact that the Former Corporate Trustee is in this particular case without means (even, it seems, by way of insurance) is a weakness of the facts not a lacuna in the law. Still less is there a lacuna in the law if other remedies can be available to beneficiaries, as I shall turn to below. I do not see this first way in which the Plaintiffs argue a case in tort as having any prospect of success.
- A second way in which the Plaintiffs argue the case in tort is to point to authorities in which, although the prima facie tortfeasor has been a company, the Court has, by reference to special facts, felt able to impose liability upon the director or directors personally concerned. Such cases are helpfully collected in the recent case in the Court of Appeal Williams and Anor -v- Natural Life Health Foods Ltd and Anor 5th December 1996 of which I have been given a transcript. There, dealing with an alleged mis-statement of financial projections. Hirst L. J., who, with Waite L.J., composed the majority, said at p. 28 of the transcript:-
"Dealing first with the law, it is, as already noted, not in dispute that, in order to fix a director with personal liability, it must be shown that he assumed personal responsibility for the negligent mis-statement made on behalf of the company. In my judgment, having regard to the importance of the status of limited liability, a company director is only to be held personally liable for the company's negligent mis-statements if the plaintiffs can establish some special circumstances setting the case apart from the ordinary; and in the case of a director of a one-man company particular vigilance is needed lest the protection of incorporation shall be virtually nullified. But once such special circumstances are established, the fact of incorporation, even in the case of a one-man company, does not preclude the establishment of personal liability. In each case the decision is one of fact and degree".
- He concluded that what was important in the case before him was that the mis-statements promulgated by the defendant company were mis-statements of the personal experience of the Appellant second defendant, a Mr Mistlin, coupled with the fact that Mr Mistlin had been involved in the promulgation. As to the relevant publication said to be a mis-statement:-
"In other words the relevant knowledge and experience was entirely his qua Mr Mistlin, and not his qua director. Indeed, I would go so far as to say that, in reality, Mr Mistlin held himself out as personally responsible for the only available figures to support the projections, as was indeed the fact".
He therefore supported the Judge's holding that the second director, Mr Mistlin, was personally liable, adding, at p. 32:-
"I should emphasise that I have reached this conclusion solely on the particular facts of this case and I do not think there is any risk of compromising the general concept of limited liability".
Waite L.J., speaking of a director, asked:-
"Do the circumstances, when viewed as a whole, involve an assumption by the director of personal responsibility for the impugned statement?"
- He agreed with Hirst L.J.'s conclusion. Sir Patrick Russell drew attention to the expression, used by McGechan J. in Trevor Ivory -v- Anderson [1992] 2 NZLR 517, that if, on a director's part, there was nothing but "Routine involvement for and through his company" there would be no personal liability. He concluded at p. 37 on the facts that Mr Mistlin "Never stepped outside his function of managing director of the first defendants, nor did he do or say anything save in that capacity". He would thus have held the second defendant not to be liable.
- Mr Sher emphasised, as he had at other parts of his case, that the Former Corporate Trustee was a 30p company, that it had never had any business but trusteeship of the Scheme, that it had no income and no assets of its own and he pointed to Mr C's position as both a director of the Main Operating Company and of the Former Corporate Trustee. He emphasised Mr C's profession as a solicitor and his undoubted personal involvement in the activity that I have described as the Main Site Transaction and the Augmentation. It is tempting to say, as this is a corner of the law which is so much dependent upon matters of fact and degree, that it should, without more inquiry, be allowed to go to trial. However, I do not see the pleaded facts, even on the assumption that every one of them is proved to the hilt, as indicative of a case in which the "basic premise" (as Hardie Boys J. put it in Trevor Ivory supra) of an identification between a director and his company should be displaced by a view that Mr C had been acting not as the company "but as the company's agent or servant in a way that renders him personally liable" - per Hardie Boys J. at p. 526 supra. There is nothing here alleged, in my judgment, comparable to the promulgation in Williams supra of the separate personal experience of that director and that director's personal involvement in its promulgation by his company. What is pleaded in the case before me, as it seems to me, is merely activity by Mr C as a director of the Former Corporate Trustee, being activity of a kind which one might expect of a director of such a company. Although the line is hard to describe and will sometimes be hard to see, I do not see Mr C as here over-stepping the line between the area in which identification of a director's acts with his company is the basic premise and that area in which it can be recognised that the director's acts involve an assumption of personal liability. Accordingly I find this second route in tort also to be one not open to the Plaintiffs.
Accessory Liability
- The frequently cited dictum of Lord Selborne L.C, in Barnes -v- Addy (1874) LR 9 Ch App 244 at p. 251-252 concludes:-
"But .... strangers are not to be made a constructive trustee merely because they act as the agents of trustees in transactions within their legal powers, transactions perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees".
- I am not at all concerned here with the first limb, "knowing receipt". The second limb, hitherto called "knowing assistance", has been recently considered by the Privy Council in Royal Brunei Airlines -v- Tan [1995] 2 AC 378. Before me the parties have not sought to say that the applicable law is now other than as Royal Brunei shows it to be. On that basis, although a director of a trustee company, being one of the individuals only through whom a corporate trustee can act and express itself, is, in a sense, more of an insider, less of a stranger to the trusts than, say, a solicitor or banker instructed or employed by the trustee and, if an "accessory" of the trustee, is such in a different sense than would be that solicitor or banker, it is plain that he can nonetheless be a stranger who, in appropriate circumstances, may attract "accessory liability", as it is called in Royal Brunei. Royal Brunei itself was a case of a director finding himself liable as an "accessory" of his company, a trustee of the sums in question. In the judgment of the whole Board Lord Nicholls raises at p. 391 the question:-
"Whether an honest third party who receives no trust property should be liable if he procures or assists in a breach of trust of which he would have become aware had he exercised reasonable diligence? Should he be liable to the beneficiaries for the loss they suffer from the breach of trust?".
- The conclusion of the Board was that such liability should be found only where the "accessory" was dishonest - p. 392 C and F -but that such liability could exist irrespective of whether the trustee was dishonest - p. 392G. Lord Selborne's second limb has thus been radically changed; dishonesty is required of the "accessory" rather than "knowledge" and there need be no dishonest or fraudulent design on the part of the trustee. However, dishonesty is carefully defined in the judgment for use in this particular concept. I shall speak of "Royal Brunei dishonesty", an appellation which I hope that the airline will tolerate with the stoical indifference with which the citizens of Wednesbury bear the attribution to them of that particular degree of unreasonableness. Royal Brunei dishonesty is governed by an objective rather than subjective standard - p. 389; it is not dependent on the lower (or higher) moral standards of the individuals concerned, although regard may be had to some personal attributes such as the experience and intelligence of the individuals concerned - p. 391B-C. Carelessness is not such dishonesty - p. 389D-E - nor is imprudence, although imprudence may be carried recklessly to such lengths as to call in question the honesty of the person concerned - p. 389H. Acting in reckless disregard of others' rights or possible rights can be a tell-tale sign of this kind of dishonesty - p. 390G-H. It is Royal Brunei dishonest for a person, unless there is a very good and compelling reason, to participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries or if he deliberately closes his eyes and ears or chooses deliberately not to ask questions so as to avoid his learning something he would rather not know and for him then to proceed regardless - p. 389F-G. Lord Nicholls added at p. 390:-
"It is impossible to be more specific. Knox J. captured the flavour of this, in a case with a commercial setting, when he referred to a person who is "guilty of commercially unacceptable conduct in the particular context involved" -see Cowan De Groot Properties Ltd -v- Eagle Trust plc [1992] 4 All ER 700 , 761"
- Unfortunately I have reason, derived from hearing other cases, to find that Knox J.'s dictum can be misunderstood and distorted. It may, for example, be in one sense "commercially unacceptable" for a bank to lend money without security or without investigating the title to the security it is offered by its borrower. It may be thus "unacceptable" because too risky, but if the bank chooses to do so because, for example, it genuinely trusts the personal covenant of the borrower or is truly content to rely only upon his assertion of his own beneficial title to the security he offers, that may involve conduct which is "commercially unacceptable", if at all, only in relation to the bank's own position. That it is taking a great risk may be relevant in a suit between, say, a shareholder in the bank or the bank itself and the director concerned in the taking of the risk but if the bank truly failed to raise questions because of the trust it placed in its borrower it is unlikely that its running that sort of risk would be significant as between the bank and those claiming that the bank had deliberately closed its eyes so as not to acquire notice, for example, that the security offered was trust property not at the disposition of the borrower. There may sometimes be difficult lines to draw between a person taking risks as to what he understands to be his own position and his affecting so to do but in truth being vulnerable to the charge that he did so to avoid knowledge of a risk to others that he was preferring to ignore. Despite occasional difficult distinctions of fact and questions of credibility arising on the facts, the fact that a person takes a risk in relation to what is genuinely beneficially wholly his own or which is truly and reasonably seen by him as likely to affect not others but only himself will in most cases be irrelevant to "accessory" liability, however "commercially unacceptable" that conduct might be. In other words, as I understand the judgment in the case, Royal Brunei dishonesty, so far as concerned with risk, is not directed to the taking of risk in relation to one's own position but with the taking of a risk which is "commercially unacceptable" because it might jeopardise the position of others. However, on the facts of this case, Mr C could hardly say that his activity as a director of the Former Corporate Trustee could reasonably be thought not to affect anyone but that trust company.
- Mr Mann Q.C. and Mr Halpern do not say that Mr C cannot in any possible circumstances be liable by way of such "Accessory Liability". Rather they say that the pleadings do not sufficiently clearly and with adequate particularity make such a case against him. That the Plaintiffs intend that their case should include that Mr C is guilty of Royal Brunei dishonesty and of "Accessory Liability" based upon that has been, in terms, asserted by Mr Sher in the course of argument. The only question is thus whether the pleadings suffice to incorporate the claim.
- As to that, leaving aside many alternative pleas, it is said in the pleadings that Mr C drafted and signed the agreement by which the Former Corporate Trustee paid £500,000 to accelerate completion of the Main Site Transaction, an agreement valueless, it is said, to the Scheme, and one made whilst the Main Operating Company was in severe financial difficulties. It was an agreement that was made without any quorate meeting of the Former Corporate Trustee and made without that trustee taking any independent investment or other relevant advice and despite the Main Site remaining charged to the Main Operating Company's bankers. It is pleaded, as I mentioned when dealing with the facts, as having been mere window dressing by which £500,000 could be extracted by Mr C from the Scheme. It is said also that Mr C, a director of the Former Corporate Trustee and managing director of the Main Operating Company and himself a solicitor, actively participated in the substantial loan to the Main Operating Company and in the later purchase of the Main Site. It is said, as to the Main Site Transaction, that Mr C dishonestly assisted the Former Corporate Trustee in its breach of trust. As to the Augmentation, it is said that he assumed responsibility and dishonestly assisted the Former Corporate Trustee in its breach of trust. It is said Mr C knew of the impropriety of the Scheme entering upon the Main Site Transaction and that he entered into it dishonestly and with lack of probity and recklessly and by way of his deliberately choosing to turn a blind-eye. It is said that he knew of the impropriety of the Scheme entering upon the Augmentation and that he entered into that transaction dishonestly and with the further additional pleas that I have just mentioned.
- It is to be remembered that the pleadings, notwithstanding the requirement as to particulars in the special cases of breach of trust and dishonesty - Order 18 Rule 12 R.S.C. - are to contain and contain only not every last possible detail but a statement in a summary form of the material facts on which the party relies and not the evidence and that such statement is to be as brief as the nature of the case admits - Order 18 Rule 7 R.S.C..
- I do not regard the Plaintiffs plea of Accessory Liability as so incomplete or unparticularised as to deserve to be struck-out. The case on the pleadings is such that, in my view, Mr C can know what it is that he has to meet; the argument on this application has served only to make that even clearer. Mr C is entitled to know, as Mr Halpern put it, whether it is being said that he has been dishonest. It is plain that such is said; it is asserted that Mr C has been guilty of Royal Brunei dishonesty. This part of the case must, in my judgment, go to trial, but, before leaving the subject, I must deal with an argument from Mr Halpern as to the expression "knew or ought to have known", an argument which he seeks to apply also to other alternative pleas to be found amongst the Plaintiffs' pleadings.
- In Bristol & West Building Society -v- Mothew [1996] 4 All ER 698 the Court of Appeal heard an appeal where judgment had been given below under Order 14 for damages to be assessed. The Judge below had held that there had been a breach of trust, a breach of fiduciary duty by the defendant-solicitor who had given misleading information to his client. There had been a warranty given, held the Judge, which the defendant "knew ..... or must be taken to have known, to be misleading" .
Commenting on this reference at p. 709 Millett L.J. said:-
"The Judge's reference to the solicitor having made a representation which "he knew, or must be taken to have known" to be misleading is not an accurate description of the facts of the present case. It is not alleged that the defendant "knew or must be taken to have known" the facts, but only that he "knew or ought to have known" them, which is a very different matter.".
- The Judge's conclusion that the defendant was in breach of fiduciary duty was set aside. Basing himself on that passage Mr Halpern argues that where there is an alternative plea that Mr C "knew or ought to have known" of something (for example, that he knew or ought to have known of the impropriety of the Scheme's entering into the Main Site Transaction or knew or ought to have known that the price which the Former Corporate Trustee paid for the Main Site was inflated) or where there are other alternative pleas (for example that Mr C "knowingly and/or dishonestly" assisted the Former Corporate Trustee in alleged breaches of trust), that will not suffice. In my judgment that is to confuse allegation with proof. In Mothew supra Millett L.J. was concerned with what facts the Court below had been entitled to find. Evidence of the kind that is received under Order 14, namely that a particular pleaded allegation is true and that there is no reasonable defence, where the allegation is that a "man knew or ought to have known" something, is entirely consistent with nothing having been proved beyond that the man ought to have known it. Depending on the particular cause of action asserted that may be insufficient to justify a grant of relief. But I am not here concerned with an examination of what has been proved but only with what is alleged; an allegation that a man knew or ought to have known something can be made good at trial by evidence that he did know it, which may suffice to justify whatever relief is claimed. I therefore do not see this argument as assisting Mr C, still less where the conjunction between the pleas is the expression "and/or". This part of the case, therefore, should go to trial.
Indirect Fiduciary Duty and Indirect Tort
- Here the claims, both in tort and as a matter of fiduciary duty, are that Mr C, with another or others, owed a duty of care to the Former Corporate Trustee, that he breached that duty, that thereby the Former Corporate Trustee suffered loss (in that it is obliged to make good a deficit to the Scheme) and that the chose in action against Mr C thus acquired by the Former Corporate Trustee is trust property which has, by succession, passed to and can be sued upon by the Present Trustees.
- Mr C accepts that under Section 40 (1) (b) of the Trustee Act 1925 where a new trustee is appointed by deed then, in the absence of any contrary provision, the deed operates to vest in that new trustee all things in action belonging to the trust. That the Present Trustees were appointed by deeds, the first of which appointed the First Plaintiff in direct succession to the Former Corporate Trustee, is pleaded. Moreover it is not Mr C's case that he owed no such duty as is claimed to the Former Corporate Trustee; he accepts that, although it has not done so, the Former Corporate Trustee could issue or could have issued in these very proceedings a Third Party Notice against Mr C. Nor is it Mr C's case that the Former Corporate Trustee has not suffered loss. Rather Mr C argues (when dealing with the Plaintiffs' argument that the Scheme and its beneficiaries would otherwise be bereft of any remedy and that there would, if they were so bereft, be a striking lacuna in the law, a position as unjust as that disclosed in White -v- Jones supra) that the Present Trustees may sue the Former Corporate Trustee to judgment. Then, on the basis of that judgment, the Present Trustees could wind up the Former Corporate Trustee (gross assets at most 30p) and then seek to procure the liquidator to sue Mr C, with a prospect that whatever would thus be recovered would be then distributed to them in the winding-up.
- As an aside, I mention that on the facts of this case there are limitation difficulties, perhaps insuperable, against such a process.
- The Plaintiff claims support for these indirect claims, so far as fiduciary, from Royal Brunei supra where Lord Nicholls, after speaking of advisers, consultants, bankers and agents of many kinds, continued in a passage part of which I have already cited, as follows:-
"This category also includes officers and employees of companies in respect of the application of company funds. All of these people will be accountable to the trustees for their conduct. For the most parts they will owe to the trustees a duty to exercise reasonable skill and care. Where that is so, the rights flowing from that duty form part of the trust property. As such they can be enforced by the beneficiaries in a suitable case if the trustees are unable or unwilling to do so. That being so, it is difficult to identify a compelling reason why, in addition to the duty of skill and care vis-a-vis the trustees which the third parties have accepted, or which the law has imposed upon them, third parties should also owe a duty of care directly to the beneficiaries. They have undertaken work for the trustees. They must carry out that work properly. If they fail to do so, they will be liable to make good the loss suffered by the trustees in consequence. This will include, where appropriate, the loss suffered by the trustees, being exposed to claims for breach of trust".
- Whilst Lord Nicholls was not dealing with third parties whose involvement was as or merely as directors of a corporate trustee, it is hard to see, where it is not contract alone that is relied upon, why such a defendant should ipso facto be less vulnerable to an indirect or, as it was called in the case, a "dog-leg" claim by beneficiaries than some more extraneous stranger such as a solicitor or banker whose involvement in the trusts would be likely to be more spasmodic and whose knowledge of the trusts less extensive than that of such a director.
- On this part of this case I have been referred to from Young and Others -v- Murphy and Another (1994) 13 ACSR in the Supreme Court of Victoria. The Court was dealing with an appeal from a decision on preliminary points of law arising upon agreed and assumed facts which, doubtless because they were so agreed and assumed, are only barely described. A trustee company ("BPTC") had had the administration of certain trusts, perhaps of a "unit trust" character, perhaps having numerous unit holders - see p. 739 line 51; p. 741 lines 6 and 7. BPTC had been put into liquidation. New trustees had been appointed. The new trustees sued a number of individuals, companies, accountants and solicitors in respect of defects in the earlier administration of the trusts and the loss thereby occasioned. There was no claim by beneficiaries as such - see p. 725, lines 26 and 27. Nor was it said that duty was owed by the defendants directly to any beneficiaries - p. 748, lines 22-26. It will be remembered that the Third Plaintiff before me is a beneficiary claiming to represent his fellows. It was argued in Young supra that the new trustees could not sue for breach of trust without joining the beneficiaries because judgment in favour of the new trustees would not bar an action by the beneficiaries and that therefore there was a risk of an unfair "double jeopardy". That ground, which in any event failed - p. 729 line 40; p. 731 line 20 - is one which, by reason of the presence of the Third Plaintiff, is one I am not even concerned with. The judgment of Phillips J., with whom Brooking J. and Batt J. agreed, deals with both tortious and fiduciary "dog-leg" claims against, inter alios, directors of the trustee company. At p. 738 he said:-
"The right of action for breaches of these duties was vested in BPTC before it ceased to be trustee and the new trustee claims to sue, by virtue of their appointment, as successor to the former trustee. The question is whether these rights of actions did pass to the new trustees upon their appointment.".
- Assets of the trust were lost or diminished - p. 744, lines 10-20 - and a director was said to be liable to the trust company to make good that loss. It was claimed that the new trustees were able to claim as successors to the trusteeship and hence also to the chose in action against the director. Apart from claims of a Barnes -v- Addy type there were claims against the directors for breach of the duty to use reasonable care and skill. It was held that such duty, arising only out of the director's office as such, was owed by the director only to the trust company; the fact that his company was a trust company did not alter that basic position - p. 746, line 40 et seq; p. 247, lines 34-36. Phillips J. continued:-
"The right of action held by the former trustee cannot be shown to have been trust property; there is no basis upon which to conclude it was. Unlike the valuer whom I have used for illustration, the directors cannot be said on the pleading in this case to have owed their duties to the company only in relation to some particular trust or trusts; nor were those duties imposed upon them in relation to some particular item or items of trust property as such. Rather the existence of both the trusts and the trust property was but the context in which the duties fell to be discharged by those who owed duties to the company generally as its officers. There is no basis, then, for supposing that the right of action was trust property in the hands of BPTC or for supposing that the right of action passed to the new trustees, upon their appointment as such".
- If, BPTC being in liquidation, the liquidator could be procured to sue the directors then:-
"...... the benefit of such proceedings would belong to the creditors generally, in the liquidation, consistently with my view that the directors owed their duty to BPTC and not to BPTC in a particular capacity" - p. 748
- The reasoning is thus seen to depend not upon any binding authority but in part on the particular form of pleading in that case and in part on the particular facts; it could not there be said that the directors owed their duties "only in relation to some particular trust or trusts". In the case before me, however, the Former Corporate Trustee has had no assets of its own and was trustee of only one trust; it never has had any business but the conduct of that one trust and no assets in its charge but the assets of that trust and its directors were as such concerned only in the administration of the one trust. Moreover, there is in my case no general body of creditors; it has no creditors outside the Scheme. I am thus not confident that the reasoning in Young cannot be distinguished, if not on the pleadings alone then on the facts. Further, Phillips J. added, and it is a further possible distinction between Young and the case before me, that:-
"It is important that the Plaintiffs do not allege in this portion of the pleading that the directors owed any duties to the beneficiaries; the only duties relied upon are those said to be owed by the directors to BPTC, the former trustee".
- I thus do not see the part of Young so far examined as rendering unarguable the Plaintiffs' "dog-leg" claim as derived from the passage in Royal Brunei which I have cited above. Later in the Young case Phillips J. turned to the claim by the new trustees against a firm of accountants who had audited the trust accounts of BPTC. The claim was that BPTC had the benefit of a contract with the auditors but also that the auditors were liable in tort. At p. 763 Phillips J says:-
"In making the contract with Priestley & Morris to be auditors of the trust, BPTC was clearly acting in the administration of the trust and for the purposes of the trust. In follows then that the benefit of the contract was itself trust property, with the result that any right of action arising thereunder was trust property too.
Further, that is so, whether the respondents rest their claim in contract or in tort; for in either case, the circumstances giving rise to the duty are such that the cause of action is trust property so that the proceeds of any such action would be property belonging to the beneficiaries and would not be property of BPTC available for its creditors generally. If, as Counsel for the auditors submitted, the question of whether the right of action is trust property depends upon all of the circumstances, including such connection as there is with the administration of the trust and the nature and extent of that connection, then in this case I think the connection is such that the rights of action being asserted against the auditors were trust property when vested in BPTC and therefore, upon appointment of the new trustees, passed to the new trustees for the benefit of the trusts".
- That reference to liability in tort independent of contract opens the door to a parallel with claims against directors of trust companies despite their having no contracts with the companies of which they are directors. Whether a particular chose in action is or is not a trust asset involves no contest involving high principles and great authorities but rather an examination of the particular facts of the particular case. Phillips J.'s reference to regard being had to all the circumstances in order to determine whether a right of action is or is not trust property re-inforces my view that Young, so far as adverse to the Plaintiffs before me, is arguably at least, distinguishable on the facts. Given that there were no separate assets or business in the Former Corporate Trustee and given the one-trust nature of the Former Corporate Trustee which I shall not enlarge upon yet again there is, in my view, a stronger case than may be common and stronger than there was in Young itself for seeing a right of action against directors of the Former Corporate Trustee to be trust property.
- No doubt problems will arise in the course of such "dog-leg" claims. Is the duty falling upon Mr C to be measured, asks Mr Halpern, against the yardstick of his being a director or the different one of his being a trustee? I would have thought the answer plain as he is liable to the Former Corporate Trustee only as its director. However, the point is only likely to be of significance if he would be liable, if at all, only if judged by the more exacting of the two; it is a difficulty which may arise on particular facts but which I see no need to anticipate. Mr Halpern also argues that to allow such claims to go forward exposes individual directors of trust companies to claims as to which they may have thought themselves immune and may discourage persons from accepting office as directors. But it is only if the trustee company is insubstantial or uninsured that individuals are likely to find themselves pursued; if all that is discouraged is the use of insubstantial or uninsured trust companies that would be a discouragement many might think timely enough. In summary, I am not prepared to describe the Plaintiffs "dog-leg" claims as unarguable.
- But are they sufficiently pleaded? It is pleaded that the Former Corporate Trustee was bound to observe and perform diligently and with due care its duties as trustee of the Scheme (which duties are then amplified in the pleadings). It is pleaded that the Former Corporate Trustee breached those duties, including a breach of its fiduciary and other duty of care, in entering into the Main Site Transaction and in thereby subordinating the interests of the Scheme to those of the Main Operating Company. The Augmentation is also pleaded as a breach of trust by the Former Corporate Trustee, again representing, it is said, a subordination of the interests of the Scheme to those of the Main Operating Company. In each case loss to the Scheme consequential on those breaches is set out. It is also pleaded that those transactions, breaches of trust by the Former Corporate Trustee, also involved breaches by Mr C of the duty of care he, as a director of the Former Corporate Trustee, owed to that company as trustee of the Scheme. Mr C was in breach of his duty to the Former Corporate Trustee, it is said, in his causing or assisting it to enter into the Main Site Transaction and the Augmentation, so causing it to become liable to account to the Plaintiffs in relation to the losses incurred by way of those transactions. In my view the "dog-leg" claims are sufficiently pleaded; they can, in my judgment, properly go to trial.
"Piercing the Corporate Veil"
- Under this head Mr Sher invites me (but only, I think, if I have not, on other grounds, held there to be an arguable claim against Mr C) now to disregard the separate legal personality of the Former Corporate Trustee and instead to see its Directors, in particular Mr C, as the real and only actors in the Main Site transaction and in the Augmentation. In turn, I am invited to see also that duties owed to the Plaintiffs which, in other circumstances, would have been owed (contrary to Mr Sher's other submissions) only by the Former Corporate Trustee are here owed instead by Mr C (amongst others) directly to the Present Trustees or the beneficiaries. Just as there was in Woolfson -v- Strathclyde Regional Council [1978] AC 159 H.L. (S), there is an invitation that the Court should concentrate on the "realities of the situation". That case, though, emphasises at p. 161:-
"......that it is appropriate to pierce the corporate veil only where special circumstances exist indicating that it is a mere facade concealing the true facts" - per Lord Keith of Kinkel.
- I cannot see any ground for regarding the Former Corporate Trustee as being involved in or representing any form of concealment of any facts material to the lifting of the veil. That it was the trustee of the Scheme was plain to see at the time. No one interested in its structure or operations could, as it seems to me, have been deceived (nor has it been said that any was deceived) into thinking it was other than it was, an asset-less, income-less corporate entity with no function other than the management and administration of the Scheme, a function necessarily carried out by individuals on its behalf. Those individuals, in the absence of it having any visible employees, were necessarily some or all of its directors and secretary, whose identity was a matter of public record. No concealment of any relevant fact is pleaded. Nor can I see any grounds for an assertion that any of the corporators or directors of the Former Corporate Trustee intended, by the use of that corporate form, any relevant concealment, nor that there was any motive in any of them to employ "a device or sham or cloak" - see Adams -v-Cape Industries plc [1990] 1 Ch 433 at p. 540 C.A.. This way of putting the case is, in my judgment, quite hopeless.
Conclusion
- I have so far considered the various formulations of the Plaintiffs' arguments separately. It will be remembered, though, that the Summons seeks to obtain the striking-out of the totality of the claims against Mr C. It would be unjustifiably inflexible of me were I to allow the whole pleading against Mr C to go to trial on the simple ground that the only requested striking-out, namely one deleting all formulations, having failed, there could therefore be no striking-out at all. However, there are other factors beyond the form of the Summons pointing in that direction. There will, if I am right, be a trial on the accessory liability and on one or two "dog-leg" claims. Those claims and the defences to them will, as I see it, put in issue very much the very same facts as would have been in issue if the fiduciary and direct tort claims which I have ruled to be unarguable were also permitted to be raised. There are undoubtedly additional arguments of law involved in making and rebutting those direct claims but I do not see the additional Court and advisers' time and costs likely to be generated by those claims as of any probable significance in relation to the time and costs involved in the parts of the action that I have already ruled can separately go forward. Although it may seem illogical to permit the argument of the unarguable, I must here have in mind three further factors; firstly, the two direct claims give rise to important matters of wide relevance. As long ago as 1911 in Bath supra Fletcher Moulton L.J. said at p. 632:-
"It would be difficult to exaggerate the importance of the questions thus raised, especially at a time when there is an increasing tendency to employ corporate bodies in the execution of trusts".
- It is generally found desirable in the development of the law that it is developed on the basis of facts tested and found rather than upon mere pleaded assertion. Secondly, in the case, in particular, of the direct tort claims based on cases such as Williams -v- Natural Life Health Foods supra it has to be recognised that the difference between liability being only in a company or being also or alternatively in its director is very much a matter of fact and degree - see Williams supra pp. 28-29 of the Transcript. As a further example, in C Evans & Sons Ltd -v- Spritebrand Ltd [1985] Ch D 317 Slade L.J. at p. 331 said:-
"Lord Salmon himself observed in the Wah Tat Bank [1975] AC 507 that "each case depends upon its own particular facts" I would prefer to leave further elucidation of the limits of the personal liability of directors to the trial judge by reference to the facts as found by him".
- The Court of Appeal in that case declined to strike-out. I remind myself of the passage from E (a Minor) -v- Dorset C.C. in the Court of Appeal which I cited earlier.
- Thirdly, whereas, even in argument, there has been some overlap between the different formulations of the Plaintiffs' case, the pleadings are even less clearly divisible. They are not set out by separate headings. It is, of course, only pleadings that I can strike out; it would be for the trial judge later to rule that some attempted argument was or was not open to the plaintiff upon the surviving pleadings.
- Drawing these three considerations together and notwithstanding that I would, regarding each form of argument separately, have ruled some to be unarguable, as I have indicated, when the case is, as I have found, that some others of them are in any event to go forward to trial, then I should seek a balance. On the one side is the desirability of avoiding the extra costs and time involved in claims I would otherwise not have allowed to go forward. On the other is the desirability of the law in an important area and one "sensitive to the facts" being developed incrementally on the basis of cases decided and on tested facts. In my judgment this balance is in favour of my allowing all the Plaintiffs' claims and arguments to go forward, with the sole exception of the "lifting of the corporate veil" argument. That depends for any success upon a concealment of which there is, in the pleadings, not the slightest hint. If I have jurisdiction to put it to rest, I do so. With that exception, which requires no excision of any part of the Plaintiffs' pleadings, I would not stop any other of the Plaintiffs' claims and arguments going forward to trial. Accordingly, I strike out neither the whole nor any part of the Plaintiffs' present pleadings and particulars.
