Starglade Properties v Nash

The Court of Appeal allowed the appeal and held that the defendant, Mr Nash, dishonestly assisted in a breach of trust by causing an insolvent company, Larkstore Ltd, to pay away assets which were held on trust for the claimant, Starglade. The court applied the established objective standard of dishonesty for accessory liability, as clarified by the authorities Royal Brunei Airlines, Twinsectra, Barlow Clowes and Abu Rahman, and concluded that deliberately removing assets of an insolvent company to defeat a creditor’s claim transgresses ordinary standards of honest commercial behaviour.

The court rejected reliance on limited legal advice that related only to the largest creditor and not to payments to recipients connected to Mr Nash, and found that the deputy judge had asked the wrong question by concentrating on whether particular payments might be voidable as preferences under ss.239–241 Insolvency Act 1986 rather than on whether the deliberate removal of assets to frustrate Starglade was dishonest.

Background and parties: Starglade instructed a consultant, Technotrade, and later assigned to Larkstore the benefit of a site investigation report subject to a side letter under which Larkstore undertook to pay Starglade half of the net monies recovered from Technotrade. After settlement of Part 20 proceedings against Technotrade, Larkstore received funds and Mr Nash, its sole director, caused substantial payments to other creditors and connected parties while Larkstore was insolvent. Starglade sued Mr Nash for restitution on two bases: (1) dishonest assistance in a breach of trust (seeking restitution of the half-share) and (2) repayment of sums received by Mr Nash personally.

Procedural posture: The action was tried before Deputy Judge Nicholas Strauss QC, who dismissed the first claim for dishonest assistance but upheld the second claim for repayment of £15,500. Starglade appealed the dismissal of the first claim; Mr Nash sought permission to appeal the order on costs.

Issues before the Court of Appeal:

• Whether the deputy judge was correct to dismiss the claim for dishonest assistance.
• Whether Mr Nash should have permission to appeal the costs order.
• Whether the order for no costs below should be varied.

Court’s reasoning: The court analysed the law on dishonest assistance, referring to Royal Brunei Airlines v Tan, Twinsectra Ltd v Yardley, Barlow Clowes Ltd v Eurotrust Ltd and Abu Rahman v Abacha. It accepted that the standard of dishonesty is to be determined objectively by the court while taking into account the defendant’s knowledge and attributes. The court concluded that the deputy judge erred by focusing on whether particular payments could be characterised as voidable preferences under ss.239–241 Insolvency Act 1986 and by treating the limited legal advice about the largest creditor as determinative. The correct enquiry was whether Mr Nash’s deliberate removal of assets from an insolvent company so as to defeat Starglade’s just claim transgressed ordinary standards of honest commercial behaviour. Having found that Mr Nash knew Larkstore to be insolvent, used the Tomlin Order confidentiality and the company strike-off to frustrate Starglade, and caused payments to connected parties, the court held his assistance in the breach of trust to be dishonest.

Disposition: The Court of Appeal allowed the appeal, dismissed Mr Nash’s application for permission to appeal the costs order, and ordered Mr Nash to pay Starglade’s costs in this court and below, to be assessed on the standard basis if not agreed.

Appeal allowed. The deputy judge erred in focusing on whether payments might be voidable preferences and on limited legal advice about the largest creditor; the relevant conduct — deliberately removing assets of an insolvent company to defeat a creditor’s just claim — was dishonest by ordinary standards of honest commercial behaviour. Consequently Mr Nash was liable for dishonest assistance and the costs order below was displaced.

Appeal from the Chancery Division (Deputy Judge Nicholas Strauss QC sitting as Deputy High Court Judge; trial judgment handed down 26 January 2010). Permission to appeal granted by Jacob LJ. Neutral citation for the Court of Appeal decision: [2010] EWCA Civ 1314.