Brown & Anor v Bennett & Ors

Liability for knowing receipt requires a direct connection between the receipt and the breach of trust or fiduciary duty. A purchaser who acquires assets for full value from independent receivers is not liable merely because it knew of earlier breaches which did not cause the sale.

Knowing assistance likewise requires causative assistance in the relevant breach. Where the alleged breaches were complete before the defendant became involved, subsequent acquisition of the business does not constitute assistance. A pleading alleging dishonest assistance may nevertheless proceed where an amendment adequately particularises the alleged dishonesty.

Mr and Mrs Brown, minority shareholders and assignees of the insolvent company, challenged the acquisition of its business by Oasis after the company entered administrative receivership. They alleged that the company’s directors had deliberately placed it under financial pressure, causing the receivership and subsequent sale.

Rattee J struck out the claims against Oasis for knowing receipt, knowing assistance and conspiracy, and struck out the dishonest-assistance claim against Mr Sarson. The appeal concerned whether the pleaded facts disclosed those causes of action and whether the claim against Mr Sarson could be amended sufficiently.

1. Knowing receipt. The court upheld the striking out of the claim against Oasis. The principle requires a disposal of assets in breach of trust or fiduciary duty, beneficial receipt of traceable assets, and knowledge that the assets were traceable to that breach. The receipt must be the direct consequence of the breach. Oasis purchased the business for full value from independent receivers. The earlier alleged breaches did not cause Oasis to receive the business in breach of trust. Notice of those earlier breaches was insufficient.
2. The discussion in Baden v Societe Generale did not assist the appellants. That case concerned a volunteer who received trust property and later acquired notice before dealing with it. It did not impose liability on a bona fide purchaser for value from independent fiduciaries. Corporate-opportunity cases such as Cook v G S Deeks and others involved a disposal of company property in breach of trust and therefore did not alter the result.
3. Knowing assistance. The court did not decide whether dishonest assistance could extend beyond assistance in a breach of trust affecting property. The claim failed in any event because Oasis did not causatively assist the alleged breaches. Those breaches and the resulting damage were complete before Oasis was incorporated or acquired the business. Oasis was, at most, a passive purchaser which gave full value.
4. The conspiracy claim against Oasis stood or fell with the knowing-assistance claim and was therefore also rejected.
5. Mr Sarson. Dishonesty was a necessary ingredient of the alleged dishonest-assistance claim. The proposed addendum alleged that Mr Sarson knew of the directors’ dishonest conduct and particularised the circumstances relied upon. Although the allegations might fail at trial, they were technically adequate at the pleading stage. Leave to amend was therefore granted, particularly since the related conspiracy claim would proceed to trial.

Subject to that amendment, the appeal was dismissed with costs against the Legal Aid Fund. Leave to appeal was refused.

• Court of Appeal (Civil Division): Brown & Anor v Bennett & Ors, [1998] EWCA Civ 1881. Appeal against Rattee J’s order of 25 November 1997 dismissed, subject to leave to amend the claim against Mr Sarson.