Jyske Bank (Gibraltar) Ltd v Spjeldnaes & Ors

Where a company director, known to lack authority, procures a disposition of company money, no binding contract arises and the beneficial interest does not pass to the recipient. The transaction is therefore not merely voidable, and affirmation or rescission is unnecessary.

Accessory liability for dishonest assistance requires dishonesty assessed against an objective standard of honest conduct, while taking account of the defendant’s actual knowledge and circumstances. Suspicion, or facts from which a reasonable person ought to infer dishonesty, is insufficient unless the defendant actually appreciated the relevant probability or deliberately shut their eyes to it.

The Bank sued numerous defendants after its managing director dishonestly procured substantial advances to companies associated with himself and others. The principal issues on these appeals concerned whether the advances were voidable or ineffective, whether the Bank had affirmed them, and whether Wolfgang Heinl was liable for dishonest assistance in dealing with the proceeds.

Mr Justice Evans-Lombe held that Heinl had knowingly assisted the fraud and that the Bank had affirmed the loan transactions. Heinl and associated companies appealed. The central questions were the proprietary consequences of the unauthorised advances, the availability of affirmation as a defence, and whether the evidence established dishonest assistance.

1. Unauthorised transactions. Applying Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1986] Ch 246, where an agent is known by the other contracting party to lack authority, no contract binds the principal. The agent does not contract personally, ostensible authority is unavailable, and no property passes under the purported transaction. The transaction is not voidable because there is nothing to rescind.
2. The same conclusion follows from the constructive-trust analysis. A fraudulent misapplication of company money remains such whether described as a payment, loan, secured loan or other transaction. The beneficial interest remains with the company and the money may be traced.
3. Affirmation and ratification. The Bank’s calling in loans, preserving securities and attempting to recover its money did not amount to affirmation or ratification. Any equitable defence had to be considered transaction by transaction, with sufficient knowledge of the breach and its consequences. A bank seeking to recover money fraudulently obtained does not lose its rights merely by taking practical recovery steps. The judge’s finding of affirmation was reversed.
4. Dishonest assistance. The governing principle in Royal Brunei Airlines Sdn. Bhd. v Tan [1995] 2 AC 378 requires assistance given dishonestly. Dishonesty is judged objectively by the standards of an honest person, but in light of what the defendant actually knew at the time. A defendant is not liable merely because a reasonable person would have made further enquiries. Liability requires actual appreciation of facts amounting to, or indicating a substantial likelihood of, a breach, or deliberate closing of the eyes to that possibility.
5. Participation in money laundering may constitute assistance, as explained in Agip (Africa) Ltd v Jackson [1990] Ch 265, but the defendant must appreciate that concealment is the purpose of the transfers. The evidence did not establish that Heinl possessed the necessary dishonest state of mind. His appeal was allowed, as was AAT’s appeal so far as it concerned knowing assistance. The proprietary and tracing consequences against other companies remained for further consequential orders.

• Court of Appeal (Civil Division): appeals by Heinl and certain associated companies considered. The appeals of dissolved companies were struck out. Heinl’s appeal was allowed; AAT’s appeal was allowed so far as it concerned knowing assistance. The finding of affirmation was reversed and consequential matters were stood over.
• High Court, Chancery Division: Mr Justice Evans-Lombe held Heinl liable for dishonest assistance and found that the Bank had affirmed the loan transactions.