El Ajou v Dollar Land Holdings Ltd

For knowing receipt, a company's knowledge may be identified with that of a director or officer who is its directing mind and will for the particular transaction. The inquiry is transaction-specific. Formal office, nominee status, a non-executive description, or the absence of a board resolution is not decisive where the person had the relevant authority and committed the company to the transaction. Different persons may be the directing mind for different activities. Knowledge attributed at the outset remains attributable through later stages sufficiently connected with the same transaction. Agency-based imputation is distinct. A private duty to disclose does not automatically impute knowledge where the company had no duty to investigate and the agent acquired the information otherwise than as its agent.

The appellant claimed a constructive trust against Dollar Land Holdings PLC in respect of money fraudulently obtained from him and invested in a property development. The High Court, after an 11-day trial, held that the money could be traced into assets received by the company but dismissed the claim because the knowledge of Mr Ferdman, a director and chairman, was not the company's knowledge. The decision was reported at (1993) 2 All ER 717.

On appeal, the appellant challenged the findings concerning the assets beneficially received, tracing, and the attribution of Mr Ferdman's knowledge. The company also filed a respondent's notice challenging part of the tracing analysis. The central issues were whether Mr Ferdman was the company's directing mind and will for the relevant transactions and, alternatively, whether his knowledge could be imputed through agency.

The appeal was allowed unanimously. The question of relief was remitted to the trial judge.

1. Knowing receipt. The claim required a disposal of the claimant's assets in breach of fiduciary duty, beneficial receipt by the defendant of traceable assets, and knowledge that the assets represented the breach.
2. Assets and tracing. The court upheld the findings that the money could be traced to proceeds of the fraud. The inference drawn from the documentary evidence was one the judge was entitled to draw. DLH London was the principal contracting purchaser of the site, so the deposit was not received beneficially by DLH itself. DLH later received an interest in the site corresponding to the deposit. The £1,030,000 was invested on trust for Yulara in the joint venture. DLH received it beneficially only when it bought out Yulara's interest.
3. Directing mind and will. The inquiry concerned the particular transactions by which DLH received or dealt with the assets, not the company's business generally. The relevant person had to possess the status and authority which made his acts those of the company. Formal constitutional position was important but not conclusive, and different persons could be the directing mind for different activities. Mr Ferdman arranged the receipt and disbursement of the money, signed the relevant documents and committed DLH to the Yulara agreement without a board resolution. In relation to those transactions, he had the company's de facto management and control. His knowledge was therefore DLH's knowledge.
4. Continuing knowledge. DLH retained that knowledge through the later, sufficiently connected stages of the same transaction. Mr Ferdman's departure as a director did not cause the company to lose knowledge already attributed to it.
5. Agency. The alternative agency argument failed. The categories of agency-based attribution include knowledge affecting an authorised contract, knowledge received where the principal has a duty to investigate or disclose, and communications received under the agent's authority. Mr Ferdman acquired the relevant knowledge while acting for the Canadians, and DLH had no duty to investigate. His duty to disclose did not itself make his undisclosed private knowledge DLH's knowledge.

• Court of Appeal (Civil Division) — The appeal was allowed unanimously. The court upheld the tracing findings, held that Mr Ferdman's knowledge was attributable to DLH as its directing mind and will, and remitted relief.
• High Court (Chancery Division) — Mr Justice Millett dismissed the claim, accepting that the money was traceable but rejecting attribution of Mr Ferdman's knowledge to DLH. The decision was reported at (1993) 2 All ER 717.