Sinclair Investments (UK) Ltd v Versaille Trade Finance Ltd (In Administration) & 5 Ors (2011)
A judge had been right to reject a company's proprietary claim to the proceeds of sale of shares which its director had held in another company; although the proceeds could not have been obtained had the director not enjoyed his fiduciary status, they were not beneficially owned by the claimant.
The appellant (T) appealed against a decision ((2010) EWHC 1614 (Ch)) that they were not entitled to assert a proprietary interest in the proceeds of sale of some shares. Investors had paid money to T for the purpose of certain trades. However, T's director (C) had permitted those monies to be transferred to another company (V), in which he held shares. V used those monies for fraudulent activities. As a result of those activities, V's share prices rose. C consequently sold his shares in V for £28.69 million. V's activities were later discovered and the receivers were brought in. T had lost money as a result of V's activities and was also wound up. T brought a claim asserting that it was entitled to assert a proprietary interest in the proceeds of the sale of the shares as they had been an unauthorised gain by C in breach of his fiduciary duty and were therefore held on constructive trust by C for T's benefit. T also asserted that its claim was good against the defendant banks (B), who had been reimbursed by the receivers in relation to money they had lent to V. The judge, following the approach of the Court of Appeal in Metropolitan Bank v Heiron (1879-80) LR 5 Ex D 319 CA and Lister & Co v Stubbs (1890) LR 45 Ch D 1 CA, held that T had no proprietary interest in the proceeds of sale of the shares, and even if that conclusion were wrong, B were bone fide purchasers for value without notice. However, he found that T did have a proprietary claim in relation to the monies which it had passed to V and which V had mixed with its own monies, and stated that T was entitled to trace those funds into distributions made by the receivers to B from the time that B had notice of T's proprietary interest in the mixed funds. In the instant case the court had to consider whether (i) T had a proprietary interest in the proceeds of sale of the shares; (ii) if so, B were entitled to rely on the defence of bona fide purchaser for value without notice; (iii) the judge had been correct to limit the extent to which T could trace the mixed funds. T submitted that the judge had erred in his approach in relation to the proceeds of sale of the shares claim and that the decision of the Privy Council in Attorney General of Hong Kong v Reid (1994) 1 AC 324 PC (NZ) should be followed.
(1) The Court of Appeal could not follow Reid in preference to its own decisions unless there were domestic authorities showing that those decisions were per incuriam or at least of doubtful reliability (see para.73 of judgment). There was a consistent line of reasoned decisions of the Court of Appeal, spread over 95 years, which appeared to establish that the beneficiary of a fiduciary's duties could not claim a proprietary interest, but was entitled to an equitable account, in respect of any money or asset acquired by the fiduciary in breach of his duties to the beneficiary, unless the asset or money was or had been beneficially the property of the beneficiary or the trustee had acquired the asset or money by taking advantage of an opportunity or right which was properly that of the beneficiary. A claimant could not claim proprietary ownership of an asset purchased by the defaulting fiduciary with funds which, although they could not have been obtained if he had not enjoyed his fiduciary status, were not beneficially owned by the claimant or derived from opportunities beneficially owned by the claimant. In such a case, a claimant had a personal claim in equity to the funds, but there was no case which appeared to support the notion that such a personal claim entitled the claimant to claim the value of the asset, and there were judicial indications which tended to militate against that notion. As C did not owe trustee-like duties in relation to the shares, the judge had been right to reject T's proprietary claim to the proceeds of sale of the shares, North Australian Territory Co, Re (1892) 1 Ch 322 CA and Powell v Evan Jones & Co (1905) 1 KB 11 CA considered, Reid not applied, Heiron and Lister applied (paras 88-89, 92). (2) Even if T had a proprietary claim to the proceeds of sale of the shares, on the evidence B had not had notice of the proprietary claim at the time they received the relevant payments. The judge had been at the very least entitled to decide that, even if T had a proprietary claim, B took free of that claim (para.122). (3) The judge had been entitled to conclude that B had not had notice of T's proprietary interest in the mixed fund before the time claimed by T. He had plainly considered that B and the receivers had acted in good faith in not appreciating that they should have sought legal advice as to whether T had, or might have had, a proprietary interest in the mixed fund (para.146).