Trustor AB Ltd (Swedish Company) v Smallbone & Ors

Restitutionary liability and damages for loss are distinct remedies. A recipient of misappropriated money who becomes a constructive trustee must account for the money received, subject to preventing double recovery. Recoveries from other sources reduce restitutionary liability only where they relate to the same money or represent an alternative proprietary remedy. A payment discharges liability only when it places the money at the creditor’s disposal. Potential recoveries may be considered when assessing damages for loss, but they do not reduce a constructive trustee’s immediate accountability where no effective recovery has occurred. The proper law of a constructive trust arising from payments made and received in England was English law. Section 5 of the Swedish Companies Act did not affect the recipient’s constructive-trust obligations.

Trustor, a Swedish company, alleged that approximately SEK 486 million had been paid from its English bank account without board authority after Lord Moyne and Mr Smallbone had obtained control of the company. It sought restitutionary relief against recipients and damages for breach of duty against Mr Smallbone.

Rimer J held that Mr Smallbone, Introcom, GML and M&A were liable, but reduced or deferred the relief because of alleged recoveries, including SEK 417 million paid into a Luxembourg account, recoveries concerning Trustor shares, and possible remedies under section 5 of the Swedish Companies Act. Trustor appealed. Mr Smallbone and Introcom obtained permission to appeal. The central issues concerned the effect of actual and potential recoveries on restitutionary liability and damages.

1. Appeal and cross-appeals. The Court of Appeal, unanimously agreeing with the Vice-Chancellor’s judgment, substantially allowed Trustor’s appeal. Mr Smallbone’s and Introcom’s appeals were dismissed except that the interim-payment order against Mr Smallbone was set aside.
2. Constructive trust and applicable law. Money paid from Trustor’s English account to Introcom was held under a constructive trust governed by English law. Introcom was accountable for the money received. Mr Smallbone became accountable for money paid to him through Introcom, and his receipt did not place him in a better position than Introcom. The conflict-of-laws difficulties considered in The Arab Monetary Fund v Hashim and Kuwait Oil Tanker Company v Abdul Fattah Sulaiman Kaled Al Buder did not arise on these facts.
3. No double recovery. Where several recipients are accountable for the same money, their liabilities are joint and several. Payment by one discharges the others to the extent of the payment. Trustor could not recover the same sum twice.
4. SEK 417 million. The money paid into Trustor’s Luxembourg account was not an effective recovery because it was sequestrated and had never been at Trustor’s disposal. It therefore did not reduce the restitutionary liabilities of Introcom or Mr Smallbone. It could, however, be taken into account when assessing damages for loss.
5. Alternative proprietary recovery. Recoveries concerning Trustor shares purchased with misappropriated money were relevant to damages. As against the recipients of the money, the proprietary remedy concerning the shares and the personal restitutionary remedy were alternative remedies. They could not be claimed cumulatively. The share recoveries were irrelevant to Introcom and Mr Smallbone because the relevant money had not passed through them.
6. Section 5. Section 5 of the Swedish Companies Act did not affect Introcom’s English-law obligation under the constructive trust, including money paid on to Lord Moyne.
7. Orders. Master Bowman’s orders requiring Introcom to account and repay were restored, subject to joint and several liability with Mr Smallbone for the relevant £426,439. The damages assessment against Mr Smallbone remained. The £1 million interim payment ordered on account of damages was set aside because the loss remained uncertain. The remaining specified directions were varied or set aside as stated in the judgment.

• Court of Appeal (Civil Division): Trustor’s appeal substantially allowed. Mr Smallbone’s and Introcom’s appeals permitted and dismissed except that the £1 million interim-payment order against Mr Smallbone was set aside.
• Chancery Division: Rimer J’s judgment of 25 June 1999 established liability but reduced or deferred aspects of the relief.
• Master Bowman: Orders of 13 August and 13 October 1998 required Introcom to pay and account for Trustor money.