Satnam Investments Ltd v Dunlop Heywood & Ors (1998)
A constructive trust was not the appropriate remedy where a third party acquired a business opportunity honestly but arose as a result of a breach of fiduciary duty on the part of the plaintiff's business advisers. * Leave to appeal to the House of Lords refused.
The defendants appealed from the judgment of Chadwick J of 25 July 1997 arguing that: (i) the July disclosure letter disclosed nothing that was new to the third defendants ('Morbaine'), or would not in any event have come to their knowledge within days, and that in consequence the disclosure had not harmed the plaintiff ('Satnam') (points on which the judge had made no finding); and (ii) the judge was wrong to hold that there was a constructive trust in these circumstances, relief for which there was no precedent. Satnam cross-appealed, arguing that the judge should equally have held that Morbaine also held another site in trust for Satnam.
(1) The judge was correct to hold that the defendant surveyors ('Dunlop') and its employee the second defendant ('Murray') were persons who owed fiduciary duties to Satnam. (2) There was no reason why the appointment of receivers should in itself alter the nature of or bring to an end the duties owed by Dunlop to Satnam. Dunlop and Murray had acted in breach of their fiduciary duties to Satnam. Morbaine knew that Dunlop and Murray were so acting. (3) In the absence of express findings by the judge as to the chain of causation and as Dunlop and Murray did not benefit at all from what happened, the court considered that it would be unfair to them if the judge's findings were upheld without knowing what evidence he accepted and rejected. On the other hand, it would be unfair to Satnam to conclude, simply because the judge made no findings, that they would probably not have beaten Morbaine in the contract race if Dunlop and Murray had told them what they should have told them if they had been loyal agents. There was no other option other than to exercise the court's powers under RSC O.59 r.11(1) and (3) to order a new trial between Satnam and Dunlop and Murray on this issue, question or questions to be formulated. (4) Morbaine did not participate in Dunlop and Murray's breaches of their fiduciary duties to Satnam; Morbaine did not itself come under a fiduciary duty to Satnam and it did not act dishonestly. The question was whether Morbaine's knowledge that the information had been disclosed to it in breach of Dunlop and Murray's fiduciary duties was sufficient to subject the site to a constructive trust when acquired by Morbaine. (5) Even assuming that confidential information could be treated as property for the purpose of establishing a constructive trust and secondly that, but for the disclosure of the information Morbaine would not have obtained the site, it was impossible, in knowing receipt (the first branch of constructive trusteeship: Royal Brunei Airlines Sdn Bhd v Tan Kok Ming (1995) 2 AC 378) to hold that there was a sufficient basis for subjecting the site to the constructive trust. The information could not be traced into the site and there was no other sufficient nexus between the two. (6) No finding of dishonesty having been made, a claim in knowing assistance also failed. (7) While there was no doubt that other cases in which someone who was not a trustee or did not owe a fiduciary duty to another would be held liable as a constructive trustee, in English law the liability depended on there having been dishonesty on the part of the person who was sought to be made liable (see Tan (supra)). (8) In the absence of a fiduciary duty the principles in Regal (Hastings) Ltd v Gulliver (1967) 2 AC 134 and Phipps v Boardman (1967) 2 AC 46 could not apply. Mere knowledge that the opportunity had been afforded in breach of someone else's fiduciary duty was not enough. (9) The court declined to hold Morbaine liable for an account of the profits on the facts of this case (cf the liability of the Sunday Times in A-G v Guardian Newspapers Ltd (No.2) (1990) 1 AC 109). (10) The court rejected Satnam's case against Morbaine in relation to the first site, including its claim for damages by way of equitable compensation. (11) The question of the second site was academic, although the court would have agreed with the judge about that site had they agreed with him about the first site.
Both appeals allowed, cross-appeal dismissed and judge's orders discharged. As between Satnam and Dunlop and Murray, a retrial was ordered on a question or questions to be formulated. The action against Morbaine was dismissed.
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21 Dec 1998
Court of Appeal
Nourse LJ, Schiemann LJ, Brooke LJ
LTL 22/12/98 :  3 All ER 652 :  1 BCLC 385 :  FSR 722 :  Lloyd’s Rep PN 201 :  EG 190 (CS) : (1999) 96(6) LSG 33 : (1999) 96(2) LSG 30 :  NPC 169 : Times, December 31, 1998
Catherine Newman QC