Trustor-AB-v

TrustorABv.Smallboneandothers1TrustorABv.Smallboneandothers(No2)ChanceryDivisionChDSirAndrewMorrittV-C2001Feb28;March1;16ProceduralHistorya.Theplaintiff,Trustor,broughtacreditor’srightagainstIntrocom.On13October1998MasterBowmanorderedIntrocom,thedefendantatthefirstapplicationofTrustor,paidtoTrustorSWKr166.7m,£404,100andFinMk75.5m.Introcomappealed.b.ItwasheardbyRimerJinconjunctionwiththeapplicationforsummaryjudgmentagainstMr.SmallboneissuedbyTrustoron28August1998.On25June1999,RimerJgavejudgment.InsummaryhedismissedtheappealofIntrocomandgavejudgmentagainstMr..Smallbonefor(1)£426,439andinterestforknowingreceipt,(2)damagesandequitablecompensationtobeassessedforbreachofdutyand(3)paymentof£1mbywayofinterimpaymentonaccountofhisliabilityfordamagesorcompensation.RimerJconsideredtherewasnodefensetotheclaimbyTrustortorecoveryofthatpartofitsmoneywhichMr.Smallbonepaidtohimselfandretained.Withregardtothec.Trustor,Mr.SmallboneandIntrocomappealedtotheCourtofAppeal.InhissummaryoftheresultoftheappealSirRichardScottV-CupheldtheorderofRimerJregardingtheliabilityofMr.Smallboneforthesumof£426,439receivedbyhimfromthemoneyofTrustorpaidtoIntrocom.Mr.Smallboneforpaymentof£1mwassetasidebecausetheamountofthatlosswasstilltoouncertain.MaterialFactsMr.SmallbonehadbeenthemanagingdirectorofTrustorABandinbreachoffiduciarydutytransferredmoneytoacompanywithoutreferencetoTrustororitsotherdirectorsnamedIntrocomwhichheownedandcontrolled.LordMoyneandMr.SmallboneopenedanaccountforTrustorandprocuredthetransfertothecreditofthataccountofmoneysofTrustor.TrustorheldthereceiptswiththesignatureoftheMr.Smallbone.TrustorABv.Smallboneandothers2√TheApplicablelawSalomonv.SalomonandCoLtd[1987]AC22,andthetheoryof“piercethecorporateveil”.Issues(1)DidMr.SmallbonehavetheresponsibilityforthemisappropriationandfraudulentlyanddishonestlyinbreachofdutyasdirectorofTrustor?(2)CanIntrocombetreatedasanindependentcorporation?WasitatoolforMr.SmallbonetotransferthemoneytoTrustor?WasthecourtentitledtoregardthereceiptbyIntrocomasthereceiptbyMr.Smallbone?Holdings(1)Yes.Mr.SmallbonehadtheresponsibilityforthebreachofthedutyasthedirectorofTrustor.BecausehemisappropriatedthemoneyandtransferredtoIntrocomwithoutthereferencetoTrustororotherdirectors.(2)No.IntrocomwascontrolledbyMr.Smallboneandhewasabeneficiary.ThewillandknowledgeofIntrocomcanbetreatedassameasMr.Smallbone.IntrocomwassimplyavehicleMr.SmallboneusedforreceivingmoneyfromTrustor.Rationale(1)Thereis,however,afurtherpointtoconsider.Introcomisliable,asconstructivetrustee,toaccountforandrepaytoTrustortheTrustormoneysthatwerepaidtoit.HencetheorderforrepaymenttoTrustoroftheSWKr166.7m,the£404,000andtheFinMk70.45m(thewholetotalingsome£20minvalue).Inrespectof£462,439,theTrustormoneyreceivedbyMr.SmallbonefromIntrocom,Mr.Smallbone,aswellasIntrocom,isaccountable.IntrocomwasthecreatureofMr.Smallbone.HeownedandcontrolledIntrocom.ThepaymentsoutbyIntrocomofTrustormoneywerepaymentsmadewiththeknowingassistanceofMr.Smallbone.RimerJ,onseveraloccasionsinhisjudgment,characterizedMr.Smallbone'sparticipationinthestepstakentoextractTrustor'smoneyandpayitouttovariousrecipientswithouttheauthorityofTrustor'sboardasbeingdishonest...Mr.Hollington'sskeletonargumentprotestedthatthesefindingsofdishonestywereunnecessaryandshouldnothavebeenmade.Hedidnot,however,beforeuspersistinthatcontention.Itwouldfollow;itseemstome,fromthejudge'sfindingofdishonestyonMr.Smallbone'spartinrespectofthepaymentsoutmadebyIntrocomofTrustor'smoney,thatMr.SmallbonewouldbeliablejointlyandseverallywithIntrocomfortherepaymentofthatmoneywithinterestthereon.Mr.Smallbone'sjointandseveralliabilitieswouldnotbeconfinedtothepartthathepersonallyreceived.TrustorABv.Smallboneandothers3DispositionInhissummaryoftheresultoftheappealSirRichardScottV-CupheldtheorderofRimerJregardingtheliabilityofMr.Smallboneforthesumof£426,439receivedbyhimfromthemoneyofTrustorpaidtoIntrocom.Mr.Smallboneforpaymentof£1mwhichtheRimerJmadetheorderwassetasidebecausetheamountofthatlosswasstilltoouncertain.Thesecondpropositionalsoappearstometobetoowidelystatedunlessusedinconjunctionwiththefirst.Companiesareofteninvolvedinimproprieties.IndeedtherewassomesuggestiontothateffectinSalomonvASalomon&CoLtd[1897]AC22ButitwouldmakeundueinroadsintotheprincipleofSalomon'scaseifanimproprietynotlinkedtotheuseofthecompanystructuretoavoidorconcealliabilityforthatimproprietywasenough.Inmyjudgmentthecourtisentitledtopiercethecorporateveilandrecognizethereceiptofthecompanyasthatoftheindividual(s)incontrolofitifthecompanywasusedasadeviceorfacadetoconcealthetruefactstherebyavoidingorconcealinganyliabilityofthoseindividual(s).OnthefactsofthiscaseitisunnecessarytodecidewhetherthedictumofKekewichJinreBarney[1892]2Ch265,273referredtoinparagraph18,isapplicablewheretherecipientisawholly-ownedcorporatebody.Thedictumsuggeststhatcompletecontroloftheactualrecipientmaybeenough.ButthiswasnotsaidinrelationtoalimitedcompanyandpredatesthedecisionoftheHouseofLordsinSalomonvASalomon&CoLtd[1897]AC22.√ConcurringorDissentingOpinionsTherearenoconcurringordissentin