Starglade Properties Ltd v Nash

Dishonesty in accessory liability is determined by the court according to the ordinary standards of honest behaviour. The defendant’s actual knowledge, experience, intelligence and reasons for acting form part of the assessment, but the defendant cannot substitute a personal standard of honesty.

A director acts dishonestly by deliberately removing the assets of a company known to be insolvent for the specific purpose of defeating a creditor’s just claim. The possibility that payments to selected creditors might constitute voidable preferences does not determine whether the conduct is dishonest.

An insolvent property company received settlement proceeds, half of which it held on trust for its former owner. Its sole director knew that the agreement requiring payment was binding. He nevertheless caused the company to distribute virtually all the proceeds to other creditors, several connected with him, and later caused the company to be dissolved.

The deputy High Court judge held that the director had assisted a breach of trust but dismissed the dishonest-assistance claim. He upheld a separate claim concerning money received personally and made no order for costs. The former owner appealed against the dismissal and costs order. The central issue was whether the director’s assistance was dishonest according to the applicable legal standard.

1. Appeal allowed. The deputy judge had asked the wrong question and approached the conduct from the wrong perspective. The relevant question was whether the director acted dishonestly by seeking to frustrate the creditor’s claim while knowing that the company was insolvent.

2. The standard of honesty for accessory liability is the ordinary standard of honest behaviour, objectively determined and applied by the court. The assessment concerns the particular conduct of a person possessing the knowledge, experience, intelligence and other qualities that the defendant actually had. The defendant’s own understanding of whether the conduct was dishonest is irrelevant. Nor does the existence of a body of opinion accepting the conduct alter the applicable standard. Royal Brunei Airlines v Tan [1995] 2 AC 378, Twinsectra Ltd v Yardley [2002] 2 AC 164, Barlow Clowes Ltd v Eurotrust Ltd [2006] 1 WLR 1476 and Abu Rahman v Abacha [2007] 1 Lloyd’s Rep 115 considered.

3. The director knew that the company was insolvent and that its obligation to the creditor was binding. His purpose was to defeat that creditor by leaving it to pursue an assetless company. The solicitor’s advice concerned only whether one creditor was or might become secured. No advice was sought or given about the payments actually made, the company’s insolvency, or the director’s purpose. The deliberate removal of an insolvent company’s assets specifically to defeat a just claim fell outside ordinary standards of honest commercial behaviour. A person in the director’s position could not have thought otherwise.

4. Insolvency Act 1986, sections 239 to 241, governed whether company payments were voidable preferences. A payment’s voidability did not itself establish whether it was honest. Those provisions did not determine the dishonest-assistance claim, which concerned assistance in the admitted breach of trust.

   The respondent’s application for permission to appeal against the costs order was dismissed. The respondent was ordered, subject to further argument, to pay the appellant’s costs in both courts and the costs of the earlier information application, assessed on the standard basis if not agreed.

Leveson LJ, concurring, expressed concern that civil and criminal concepts of dishonesty should not differ markedly. That issue did not arise for decision. Hughes LJ agreed with both judgments.

1. Court of Appeal (Civil Division): In [2010] EWCA Civ 1314, allowed Starglade’s appeal against the dismissal of its dishonest-assistance claim, set aside the costs order and refused Mr Nash permission to appeal on costs.

2. High Court, Chancery Division: Mr Nicholas Strauss QC, sitting as a deputy High Court judge, dismissed the dishonest-assistance claim, upheld the claim concerning £15,500 received by Mr Nash and made no order for costs. The judgment was handed down on 26 January 2010; no neutral citation is stated.