Primlake Ltd v Matthews Associates & Ors

A person may be a de facto director where he assumes the status and functions of a director and exercises real control over the company’s business, even though he has not been formally appointed. A person who procures company payments to himself without legal entitlement breaches the fiduciary duties applicable to a director and may be liable personally and proprietarily as a constructive trustee.

Restitution may include subrogation to security where company funds have improperly discharged a secured debt. A partnership requires an agreement to carry on business together with mutual agency; joint accounts, shared profits or use of a trading name are not conclusive.

Primlake Ltd, a Nevis company in liquidation, sought recovery of payments totalling £836,500 made from its funds to Derrick Matthews and connected recipients. Matthews asserted that the payments were authorised remuneration, reimbursement of loans and disbursements. He also counterclaimed for a 5% fee or remuneration on a quantum meruit basis.

The issues included whether Matthews was a de facto director, whether the payments were made in breach of fiduciary duty, whether he or Ann Matthews was liable to restore them, whether Primlake was entitled to subrogation to a mortgage security, and whether Matthews Associates was a partnership.

1. Payment claim. The court held that there was no agreement between Primlake and Matthews for the payment of fees. The only established agreement was between Matthews and David Rees for 2% of sale proceeds when received. The asserted 4% and 5% arrangements, and the alleged fee based on gross value, were inventions unsupported by the contemporaneous documents.
2. De facto directorship. Matthews was a de facto director. Although Rowe was the formal director and controlled the bank mandates, Matthews performed the management functions, took the strategic and tactical decisions, negotiated the crucial contracts and effectively controlled Primlake’s business. The absence of formal appointment and signing authority was not decisive.
3. Fiduciary breach and liability. Matthews procured payments to himself to which he knew he was not entitled. He thereby breached the fiduciary duties of a director and was liable as a constructive trustee. Alternatively, he was liable for dishonest assistance and knowing receipt. The payments were also recoverable as money had and received because they lacked legal basis. The £25,100 payment to Bolton Consulting was found to be for Rowe, and the claim concerning £75,200 paid to Bridging Finance Ltd was not proved against Matthews.
4. Reimbursement. Matthews could rely only on payments made before 22 March 2001, and had not shown proper appropriation of those sums to Primlake expenses. The £84,000 payment was made to discharge Matthews’s own secured debt and had no proper basis, although there was evidence of an underlying loan to Neyland.
5. Subrogation and tracing. Primlake was entitled to subrogation to the RBS Guernsey security over Pebble Lodge because its money had improperly discharged that secured debt. It was also entitled to an inquiry and to trace the payments as unauthorised. Compound interest was available.
6. Partnership and counterclaim. Ann Matthews was not a partner. Her name on stationery and joint accounts did not establish agreement to carry on business in common. Matthews had no contractual or quantum meruit claim against Primlake.