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Summary of Starglade Properties Ltd v Nash [2010]? Exam tomorrow

Ketchuplover

Please could you help me summarise it? I can't find a summary anywhere and I have an exam tomorrow :frown:

Reply 1

Mimir

Original post by Ketchuplover

From Westlaw:
Summary: In a claim alleging dishonest assistance in a breach of trust, the judge had erred in holding that the test to find dishonesty was whether a person had been guilty of conduct that all, as opposed to some, people would consider dishonest. The relevant standard was the ordinary standard of dishonest behaviour; it was irrelevant that there might be a body of opinion which regarded the ordinary standard as being too high.

Abstract: The appellant company (S) appealed against a decision (Starglade Properties Ltd v Nash [2010] EWHC 148 (Ch), [2010] W.T.L.R. 1267) to dismiss its claim alleging that the respondent former company director (N) had dishonestly assisted in a breach of trust.A company (L) controlled by N had issued proceedings against a third party. L agreed to hold money obtained in the proceedings on trust for division between itself and S. By the time L received the money it was insolvent.

N distributed the money on L's behalf to various creditors, excluding S. S issued proceedings against L, but N had L dissolved, and he was substituted for L as the defendant. S claimed restitution of its share of the money on the basis that N had dishonestly assisted L in a breach of trust.

The judge found that N had wanted to frustrate S because he felt that it had taken unfair advantage of him. He found that N had discussed the enforceability of L's agreement with S with his solicitor and had asked if he could lawfully avoid paying S and prefer other creditors. He held that if N had been advised that that would be unlawful, he would not have gone ahead. The judge found that there had been a breach of trust and that N had assisted in its commission. However, holding that the test for dishonesty was whether the defendant had been guilty of conduct that all normal people would regard as dishonest, he concluded that the test had not been met. He held that, the legal position on preferring creditors not being generally known, there was not a general view on what was dishonest in that situation, so N's conduct did not transgress generally accepted standards of commercial behaviour.

S argued that (1) the judge's view that the standard of honesty concerned what all, as opposed to some, normal people would regard as dishonest was wrong; (2) the judge had failed correctly to apply the law on dishonesty to the facts.

Held: Appeal allowed.

(1) The relevant standard was the ordinary standard of honest behaviour. Just as the subjective understanding of the person concerned as to whether his conduct was honest was irrelevant, so also was it irrelevant that there might be a body of opinion which regarded the ordinary standard of honest behaviour as being set too high.

Ultimately, it was for the court to determine what that standard was and to apply it to the facts of the case, Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 A.C. 164 followed, Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 A.C. 378 and Barlow Clowes International Ltd (In Liquidation) v Eurotrust International Ltd [2005] UKPC 37, [2006] 1 W.L.R. 1476 considered (see paras 25, 28-29, 32 of judgment).

(2) The judge's conclusion had related to the honesty of whether a director could prefer some creditors over others and he had considered that that might depend on the advice received. That was the wrong question. N's concern had not been to prefer some creditors over others but, as the judge had found, to frustrate S. N had known that L was insolvent but that L's obligation to S was binding. He could only frustrate S by leaving it to pursue its remedy against an insolvent company without assets. He could only remove L's assets by paying its other creditors. That was what he had done. He could not be protected from the course of that conduct by the solicitor's advice. He had not asked the solicitor or been advised as to the legality or otherwise of the payments actually made. The judge had never considered whether N's conduct in seeking to frustrate S had been dishonest. The deliberate removal of the assets of an insolvent company so as to entirely defeat the just claim of a creditor was not in accordance with the ordinary standards of honest commercial behaviour. Nor could a person in N's position have thought otherwise, notwithstanding a lack of understanding as to the legal position.

N's assistance of the breach of trust had been dishonest (paras 34-35, 39-40).

(3) It would be of concern if the concept of dishonesty for the purposes of civil liability differed to any marked extent from that concept as understood in the criminal law, Tan , Twinsectra , Barlow Clowes , Abou-Rahmah v Abacha [2006] EWCA Civ 1492, [2007] 1 All E.R. (Comm) 827 and R. v Ghosh (Deb Baran) [1982] Q.B. 1053 considered. It was therefore important that the Court of Appeal (Criminal Division) should revisit the issue (paras 42-44).

Judge: Sir Andrew Morritt C; Hughes LJ; Leveson LJ
Counsel: For the appellant: Adrian Jack. For the respondent: Donald McCue.Solicitor: For the appellant: Vance Harris LLP. For the respondent: Shirley Griffiths.

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Breach of trust; Creditors; Dishonest assistance; Dishonesty; Preferences

In 1998, the claimant (Starglade Properties Ltd) commissioned Technotrade Ltd to prepare an investigation report as to the suitability for development of a sloping site in Kent. The report indicated that the site was suitable for the development of a number of two-story houses. The following year, Starglade sold the site to Larkstore Ltd and the development was commenced. In 2001, there was a landslip and this caused substantial damage to properties uphill from the site. The owners of those properties commenced proceedings against Larkstore.During 2004, an agreement was entered between Starglade and Larkstore under which the former assigned to the latter the full benefit, interest and rights in or under the report and the right to enforce the same. In return, Starglade would receive half of the net monies received from Technotrade.

Larkstore then commenced proceedings against Technotrade, claiming substantial damages for the loss suffered in consequence of the landslip. The matter was settled on the payment of £365,000. After the payment of costs, Larkstore received the sum of £309,154. Of this sum, £154,577 was to be held by Larkstore on trust for Starglade. Allegedly acting on legal advice, Mr Nash, as the sole director of Larkstore, distributed the entire amount amongst himself and certain creditors of the company. In 2007, Larkstore was dissolved at the behest of its director.

Starglade claimed against Mr Nash for restitution of the sum of £154,577 on the basis that Mr Nash had dishonestly assisted in the breach of trust by Larkstore. It also claimed repayment of £15,500, which had been paid to Mr Nash by Larkstore, as money paid in breach of trust. At first instance, the first claim was dismissed, but the second claim upheld. Starglade appealed against that dismissal.Starglade submitted that the deputy judge had failed correctly to apply the law.

The lower court had suggested that the honesty or otherwise of a company director preferring some creditors over others might depend on the nature of legal advice received. The Chancellor felt that was the wrong question, “It is unarguable that by his conduct Mr Nash assisted in the breach of trust … The question is whether that assistance was dishonest”. As regards dishonest assistance, the Chancellor surveyed the key authorities and identified the concept of dishonesty or want of probity to be the touchstone of liability.

The deputy judge had erroneously referred to there being a sliding scale of knowledge. The Chancellor emphasised that there is an ordinary standard of honest behaviour and the subjective understanding of * the person concerned is irrelevant. The standard of dishonesty is not flexible and must be determined by the court on an objective basis. He explained:“There is a single standard of honesty objectively determined by the court. That standard is applied to specific conduct of a specific individual possession the knowledge and qualities he actually enjoyed.”

The deputy judge’s comments had been apt to mislead. Mr Nash had sought to frustrate Starglade by leaving it to pursue its remedy against an insolvent company with no assets. He could not be protected from the consequences of that course of conduct by relying upon his solicitor’s advice. As the Chancellor concluded:“The deliberate removal of the assets of an insolvent company so as to entirely to defeat the just claim of a creditor is, in my view, not in accordance with the ordinary standards of honest commercial behaviour, however much it may occur. Nor could a person in the position of Mr Nash have thought otherwise notwithstanding a lack of understanding as to the legal position.”