Sinclair Investment Holdings SA v Versailles Trade Finance Ltd & Ors

On a renewed application for permission for a second appeal, the applicant must show an important point of principle or practice, or another compelling reason. Permission may be granted where factual findings may first be required, provided the proposed grounds have a real prospect of success. The court identified important and arguable questions concerning whether a company director could owe fiduciary duties personally to a person dealing with the company, and whether equity could impose a constructive trust over profits made through fraudulent misuse of another’s money. A tracing issue did not itself appear to raise an important point, but permission was granted on it because it was sensible to hear it with the other grounds.

The claimant had advanced money to a trading company in a factoring scheme. It alleged that the money was held on a Quistclose trust, was fraudulently misused, and ultimately contributed to profits used to acquire and sell a Kensington property. It sought fiduciary remedies, a constructive trust over profits, and tracing relief.

The Master refused amendments and struck out the claims. On appeal, the deputy High Court judge allowed the appeal concerning the Kensington claim but dismissed the appeal concerning the cross-firing claim. The defendants renewed their application for permission to appeal against the decision on the Kensington claim. The central questions were whether the proposed grounds raised important points of principle or practice and had a real prospect of success.

1. Permission for a second appeal. A renewed application required the defendants to show that the proposed appeal raised an important point of principle or practice, or that there was another compelling reason for it to be heard. The court accepted that the proposed grounds had a real prospect of success.
2. Personal fiduciary liability of a director. The proposed appeal raised an important point of principle concerning whether, in the pleaded circumstances, a director could personally assume fiduciary duties towards a person dealing with the company. The court recognised possible difficulties concerning competing loyalties and equities. It accepted that factual findings might properly precede determination of the issue, but considered the point sufficiently important and arguable for permission.
3. Constructive trust over profits. A further important question concerned whether equity could require a fraudster to hold profits for the defrauded person where the fraudster had participated in the fraudulent misuse of that person’s money and had made a subsequent profit. The court noted reliance on Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 676, at 716, and on Halifax Building Society v Thomas [1996] Ch 217. It did not decide the merits of the issue.
4. Tracing. The proposed tracing claim did not appear, standing alone, to raise an important point of principle or practice, in light of the authoritative statement in Foskett v McKeown [2001] 1 AC 102. Nevertheless, once permission had been granted on the first two grounds, it was appropriate to allow the tracing issue to be appealed with them.
5. Permission to appeal was granted. The appeal was directed to a constitution of three Lords Justices, one of whom could be a High Court judge, with at least one judge having Chancery experience.

• Court of Appeal (Civil Division): On 25 January 2005, Lord Justice Peter Gibson granted permission for the defendants’ appeal to be heard.
• High Court, Chancery Division: On 24 September 2004, the deputy High Court judge allowed the claimant’s appeal concerning the Kensington claim but dismissed the appeal concerning the cross-firing claim.
• Master Bowman: On 12 March 2004, with an addendum dated 16 March 2004, the Master refused the proposed amendments and struck out the claimant’s claims.