GRUPO TORRAS AND ANOR v AL-SABAH AND ORS

An appellate court may reconsider an inference based on inherent probability without undue inhibition, particularly where the trial judge did not see the principal persons whose motives are in issue. However, the appellate court must still respect findings dependent on credibility and the trial judge’s advantages.

Dishonesty in accessory liability is assessed objectively by reference to the circumstances known to the defendant, while retaining a subjective element concerning actual knowledge. Deliberately closing one’s eyes or declining to ask obvious questions may amount to dishonesty. Judges should state clearly whether dishonesty is objective dishonesty or deliberate blind-eye dishonesty.

For dishonest assistance, causation concerns the loss resulting from the assisted breach, not the precise causal contribution of the assistance. A distinct director-liability case based on lack of due diligence must be properly pleaded and fairly investigated.

Grupo Torras SA and Torras Hostench London Ltd brought a consolidated action arising from large-scale frauds against numerous defendants. Mance LJ gave judgment for the claimants against Sheikh Khaled Naser Hamoud Al-Sabah for conspiracy and against Juan Jose Folchi Bonafonte for dishonest assistance.

Sheikh Khaled appealed the finding that he knowingly participated in the Pincinco fraud. The claimants relied alternatively on Spanish company-law liability for breach of directors’ duties. Mr Folchi appealed the findings of dishonest assistance in four transactions, challenging the dishonesty test, causation and conflict-of-laws approach.

The central issues were whether the trial judge’s inferences were sustainable, whether Mr Folchi’s conduct satisfied the governing standard of dishonesty, and whether the alternative Spanish-law claim could be determined on the pleadings and evidence.

1. Sheikh Khaled’s appeal allowed. The trial judge had treated the explanation that the US$20m payment was intended to compromise Sheikh Khaled as far-fetched. That was a possible or probable explanation which required evaluation against the competing explanation that the payment was his reward for joining the fraud. The trial judge’s reasoning was therefore flawed at a central point. Having reviewed the evidence, the Court of Appeal was not satisfied that Sheikh Khaled’s explanation was untrue. The finding of dishonesty, and the judgments founded on conspiracy and dishonest assistance, could not stand.
2. The Court reaffirmed the appellate approach in Benmax -v- Austin Motor Co. Ltd. [1955] AC 370. The trial judge’s advantage in seeing and hearing witnesses remains important, but an appellate court may assess inherent probabilities itself where the issue does not depend materially on credibility. The burden remained on the claimants to prove dishonesty on the balance of probabilities, with the seriousness and inherent improbability of the allegation being relevant to the strength of evidence required.
3. Mr Folchi’s appeal dismissed. Under Royal Brunei Airlines -v- Tan [1995] 2 AC 378, dishonesty is not established merely by negligence, but the standard of honest conduct is objective and is applied to the circumstances known to the defendant. The Court construed the trial judge’s findings as a finding of deliberate blind-eye dishonesty: Mr Folchi understood that the transactions were questionable, but deliberately refrained from asking obvious questions and proceeded regardless. His belief that the transactions benefited GT did not preclude dishonesty where it was sustained by deliberately shutting his eyes to the obvious.
4. The Court rejected the argument that a person must be a conspirator to incur accessory liability. Concerted action directed at the claimant is essential to conspiracy, but not to dishonest assistance. Causation required consideration of the loss resulting from the assisted breach, rather than an attempt to quantify the precise causal significance of the assistance. Mr Folchi was a linchpin of the arrangements, and his assistance was crucial to the transactions.
5. The alternative claim under Article 133(2) of the Spanish Companies Law Act 1989 could not properly be determined. Lack of due diligence had not been pleaded as a distinct basis of liability, had not been fairly put to Sheikh Khaled, and had not been adequately investigated. Nor had the Court been addressed on whether, absent conspiracy, the claim would be actionable under English law. The Respondents’ Notice therefore failed. The judgment against Sheikh Khaled was set aside. Mr Folchi’s appeal was dismissed, with the order on Sheikh Khaled’s appeal to be agreed.

• Court of Appeal (Civil Division): Sheikh Khaled’s appeal allowed and the judgment against him set aside; Mr Folchi’s appeal dismissed.
• Commercial Court: Mance LJ gave judgment for Grupo Torras against Sheikh Khaled for conspiracy and against Mr Folchi for dishonest assistance. The judgment was handed down on 24 June 1999.