Law Society of England & Wales v Isaac & Isaac International Holdings Ltd & Ors

Recipients of trust property are liable in knowing receipt where, at receipt, their knowledge makes retention unconscionable. Dishonest assistance additionally requires assistance in the breach and dishonesty judged by ordinary standards of honest conduct. Receipt alone will not establish assistance in a breach already committed by the transferor, unless the receipt itself facilitates that breach. A conspiracy claim requires loss caused by unlawful action pursuant to a combination or agreement intended to injure the claimant. Corporate control and knowledge do not, without more, justify piercing the corporate veil. Multiple equitable and common-law liabilities arising from the same loss are alternative, not cumulative, bases of recovery.

The Law Society intervened in the practices of Southbank Solicitors and Phoenix Nova Solicitors after mortgage advances were misappropriated from their client accounts. It brought claims against companies and individuals who allegedly received or distributed the money.

The claims included knowing receipt, dishonest assistance in breaches of trust, and conspiracy to injure by unlawful means. Most defendants did not attend trial or provide evidence. The central issues were whether the payments were trust money paid in breach of trust, whether individual defendants had beneficially received it or assisted the breaches dishonestly, and whether the defendants participated in a common conspiracy.

1. Knowing receipt and dishonest assistance. The mortgage advances were held on trust for the lenders, and payments unrelated to completion of the relevant transactions were breaches of trust. Applying BCCI v Akindele [2001] Ch 437, knowing receipt required beneficial receipt and knowledge making retention unconscionable. Applying Royal Brunei v Tan [1995] 2 AC 378, as interpreted in Barlow Clowes International v Eurotrust Limited [2006] 1 WLR 1476, dishonest assistance required assistance in the breach and dishonesty.
2. Companies which made their accounts available to receive and distribute the proceeds could be liable for dishonest assistance as well as knowing receipt. However, receipt of money after the relevant breach had already occurred did not, without further pleaded conduct, constitute assistance in that breach. Several dishonest assistance claims were therefore dismissed or limited, while knowing receipt claims succeeded where beneficial receipt and unconscionable knowledge were proved.
3. Conspiracy. The elements identified in Kuwait Oil Tanker Co v Al Bader [2000] 2 All ER (Comm) 271 were satisfied. The evidence of linked mortgage applications, common references, financial transfers, personal connections and criminal convictions established a common design to obtain and misappropriate mortgage advances. Loss of £6,283,071 was recoverable as damages. The pleading was legally sufficient, consistently with Lonrho v Al Fayed (No.5) [1993] 1 WLR 1489.
4. Corporate veil. Applying the principles surveyed in Ben Hasham v Al Shayif [2009] 1 FLR 115 and the façade principle in Woolfson v Strathclyde Regional Council (1978) SC (HL) 90, knowledge and control of companies, and their receipt of fraudulent proceeds, were insufficient. Piercing the corporate veil should not become a routine adjunct to claims against companies.
5. Judgment was entered for the Society on the successful knowing receipt, dishonest assistance and conspiracy claims. Where liabilities arose from the same loss, equitable and damages awards were alternative and not cumulative.