Bracken Partners Ltd v Gutteridge & Ors

Misappropriated money transferred into a company’s account becomes an asset of that company, even if it remains there only briefly. The company holds it on trust for the party entitled to it, but may trace the money into a substitute asset. A pre-existing fiduciary relationship is not required for tracing. As between successive recipients, each prior recipient has the better claim against a later recipient, subject to the rights of an innocent purchaser. A fiduciary who makes unauthorised personal payments is liable to account, and an asserted loan does not avoid liability where the transaction was undisclosed, unauthorised and contrary to the Companies Act.

Bracken Partners brought derivative proceedings concerning payments made by Eye Group Limited to its chairman, Graham Gutteridge, and companies or persons associated with him. Eye Group was later joined as a claimant and was in liquidation.

The application sought summary judgment and related proprietary relief concerning £272,000 transferred through Eye Group and GMG Management Limited towards the purchase of a property registered in Sariah Smalley’s name. It also sought judgment for further alleged misappropriated payments, together with an order for sale and directions concerning set-off and interest.

1. Proprietary claim. The £272,000 was misappropriated from Non-League Media and became mixed with money in Eye Group’s account. Once received, it became an asset of Eye Group, although Eye Group held it on trust for Non-League Media. The same reasoning applied to the subsequent transfers.
2. Tracing. The court rejected the submission that Eye Group could not trace because the money was only briefly in its account or because there was no fiduciary relationship between Eye Group and Ms Smalley. Applying Foskett v McKeown [2001] 1 AC 102, tracing was treated as a process for identifying property and its proceeds, not as a claim or remedy requiring a pre-existing fiduciary relationship.
3. Priority and relief. The vendor took without notice. As between Non-League Media, Eye Group, GMG and Ms Smalley, each prior recipient had a better title or claim than a subsequent recipient. Eye Group therefore had priority over Ms Smalley and was beneficially entitled to 39/40ths of the property. An order for sale was proposed under the Trusts of Land and Appointment of Trustees Act 1986.
4. Personal liability. Mr Gutteridge had not served evidence disputing the further payments. The court entered summary judgment for £62,342 after giving credit for £295,658. The payments were made in breach of fiduciary duty. Even if characterised as loans, they contravened sections 317 and 330 of the Companies Act 1985.
5. Set-off and interest. Set-off was unavailable for a proprietary claim and was unlikely to assist Mr Gutteridge because misappropriation of assets was not a dealing, following Manson v Smith [1997] 2 BCLC 161. The court reserved submissions on compound interest, referring to Wallersteiner v Moir (No 2) [1975] QB 373.

First-instance decision. The judgment records an earlier order of Stanley Burnton J, but no appellate history for the present proceedings.