The Law Society of England and Wales v Habitable Concepts Ltd & Anor

A recipient of trust property is not personally liable merely because the property was transferred in breach of trust. The claimant must establish a recognised cause of action.

For knowing receipt, the claimant must prove beneficial receipt and knowledge making retention of the benefit unconscionable. Guilty knowledge may be inferred from unexplained and unusually large payments, the absence of a commercial explanation and subsequent dealings with the money.

For dishonest assistance, the defendant must know that the money is not at the free disposal of the trustee and must participate in conduct contrary to ordinary standards of honest conduct. Control of a company alone does not justify piercing the corporate veil.

The Law Society intervened in a solicitor’s practice after discovering extensive mortgage fraud. It obtained a vesting resolution under Schedule 1 to the Solicitors Act 1974 and claimed recovery of £450,150 paid from the practice’s client account to Habitable Concepts Ltd.

The Society alleged that Habitable knowingly received trust money and that its sole shareholder and director, Mr Onuiri, was personally liable either through veil piercing or for dishonest assistance in breach of trust. The defendants admitted receipt but did not attend trial to give evidence. The issues were whether Habitable had knowingly received trust property and whether Mr Onuiri was personally liable.

1. Habitable’s receipt. Money held in the solicitor’s client account was held on trust under the Solicitors Accounts Rules 1998. The payment to Habitable was made in breach of that trust. Because Habitable received the money into its ordinary business account under an asserted contract, the receipt was beneficial.
2. Knowing receipt. Applying the constituent elements identified in BCCI v Akindele [2001] Ch 437, the Society had to prove beneficial receipt and knowledge making retention unconscionable. The size and unexplained nature of the payment, the absence of any commercial relationship with the solicitor’s practice, and Habitable’s immediate dealings with the money justified an inference of guilty knowledge. Habitable’s failure to attend trial meant that it had not discharged the resulting burden of explanation. It was therefore liable to account as constructive trustee, with equitable tracing into identifiable proceeds.
3. Mr Onuiri and the corporate veil. The principles in Woolfson v Strathclyde Regional Council (1978) SC (HL) 90, as surveyed in Ben Hashem v Al Shayif [2009] 1 FLR 115, required both control and use of the company as a façade or device to facilitate or conceal the individual’s wrongdoing. The evidence did not establish that Habitable’s receipt was merely a mask for receipt by Mr Onuiri. Veil piercing was therefore refused.
4. Dishonest assistance. Mr Onuiri had assisted the breach by providing or arranging the company’s banking details and retaining the money. Under Barlow Clowes International Ltd v Eurotrust International Limited [2006] 1 WLR 1476, the issue was whether his participation, measured objectively in light of his knowledge, was dishonest. He knew the money was not at the free disposal of the practice, knew there was no commercial explanation, made no enquiry and dealt with it for Habitable’s benefit. He was accordingly liable as a constructive trustee.
5. Habitable and Mr Onuiri were ordered to account for £450,150, with compound interest in equity at 5 per cent with half-yearly rests from 23 November 2007 until repayment. The common-law claims were unnecessary. The defendants were ordered to pay the Society’s costs under rule 44.3(2) of the Civil Procedure Rules 1998.