Sinclair Investment Holdings SA v Versailles Trade Finance Ltd & Ors

At the strike-out stage, a claim should proceed where the pleaded facts disclose a real, rather than fanciful, prospect of success and the legal issue cannot fairly be resolved without a trial. A person outside established fiduciary categories may owe fiduciary duties if the pleading arguably shows a personal undertaking of loyalty in relation to identified property. The duty may be limited to that property or transaction. A possible conflict with duties owed to a company is a contraindication, not an automatic bar. A novel proprietary claim based on actual fraud and profits derived from trust money is not necessarily defeated by the absence of tracing where no binding authority requires that result.

Sinclair claimed that funds provided under trader agreements had been misused and that profits were made from the misuse. It advanced a fiduciary-duty claim based on personal assurances and responsibilities allegedly undertaken by Mr Cushnie, together with an alternative claim for a constructive trust over profits.

Master Bowman refused to strike out the claim and permitted amendments. Nicholas Strauss QC, sitting as a Deputy Judge of the Chancery Division, allowed the resulting appeal in part but held that both claims should proceed to trial. Versailles Trade Finance Limited appealed, arguing that neither claim had a reasonable prospect of success.

The central issues were whether the proposed amendments sufficiently pleaded a personal fiduciary relationship and whether the alternative proprietary claim was legally arguable despite the absence of tracing.

The appeal was dismissed unanimously. Arden LJ gave the leading judgment. Clarke LJ and Buxton LJ agreed that both claims should proceed to trial. There was no order as to costs.

1. The court applied the approach stated in Three Rivers District Council v the Bank of England [2003] 2 AC at p 1. Strike-out is appropriate where, even assuming the pleaded facts are proved, the law affords no remedy, or where the factual basis is fanciful, wholly unsubstantial or contradicted by the material relied on. The court should not conduct a mini-trial, particularly where the facts or the law are complex or developing.
2. A fiduciary relationship is defined by the assumption of a duty of loyalty. Following Bristol and West Building Society v Mothew [1998] Ch 1, a person outside established categories may arguably become a fiduciary by manifesting an intention to undertake such a duty. The relationship may concern identified property only. It is not necessary that the individual hold legal title if he controls, or is in a position to control, the company’s powers over the property.
3. The original pleading did not sufficiently distinguish Mr Cushnie’s personal position from that of TPL. The proposed amendments alleged personal monitoring, personal responsibility and reliance on personal assurances. They therefore gave the fiduciary-duty claim a sufficient prospect of success. A conflict with duties owed to TPL was a contraindication, but not an automatic bar, because performance of TPL’s obligations could serve Sinclair’s interests. Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 showed that personal liabilities may be accepted in appropriate circumstances.
4. The alternative claim was also arguable. It concerned alleged actual fraud which began before profits were made from the misuse of money held on trust. The absence of tracing, and the fact that Mr Cushnie was a stranger to the trust, did not make the claim incapable of succeeding at the pleading stage. The observations in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, Halifax Building Society v Thomas [1996] Ch 217 and Paragon Finance v DB Thakerar [1999] 1 All ER 400 did not require the claim to be struck out. Its final legal sustainability should be considered after factual findings.
5. Buxton LJ added that known defects in a pleading could not be left to be cured by evidence at trial. The revised pleading had to state the individual undertaking distinctly from the company’s obligations and, in his view, reliance on the personal assurances.

1. Court of Appeal (Civil Division) — In [2005] EWCA Civ 722, dismissed Versailles Trade Finance Limited’s appeal on both pleaded claims.
2. High Court, Chancery Division — On 28 September 2004, Nicholas Strauss QC, sitting as a Deputy Judge, allowed in part an appeal from Master Bowman’s order of 16 March 2004, but held that the fiduciary-duty and constructive-trust claims should proceed.