Bank of Ireland & Anor v Jaffery & Anor

A senior bank employee breached fiduciary duty by accepting or expecting secret interests in projects financed by his employer, investing in one such project, taking undisclosed loans from bank customers, promoting related lending and giving supporting references. A fiduciary conflict arises where there is a real sensible possibility of conflict; actual loss or dishonesty is unnecessary. Fully informed consent is required to authorise the conflict. The employee’s informal permission to seek other business opportunities did not amount to consent to interests in existing bank-funded projects. The assisting customer was liable for dishonest assistance and for bribery in relation to the promised interest in one project. Salary and bonuses were not forfeited because the breaches concerned only part of the employee’s work and equitable compensation and disgorgement provided adequate remedies.

The claimants, the Governor and Company of the Bank of Ireland and Bank of Ireland (UK) PLC, sued a former senior executive, Mr Jaffery, for breach of fiduciary duty, breach of contract, deceit, bribery and related relief. Mr Gill, a customer representative closely associated with the financed projects, was joined as a defendant for dishonest assistance and bribery.

The dispute concerned loans to companies connected with Mr Gill and alleged undisclosed interests held or expected by Mr Jaffery in the Hendon and Stoke projects, together with undisclosed benefits, lending support and false Code of Conduct certifications. The court also considered the effect of the transfer of the Bank’s UK business from GCBOI to BOI PLC and the later assignment of claims.

1. Fiduciary duties. Mr Jaffery owed fiduciary duties to GCBOI and, after the transfer of the UK business, to BOI PLC in relation to the financial affairs he handled for it. Those duties included the no-profit rule, the conflict rule and, in the circumstances, a duty to disclose his own wrongdoing.
2. Breaches. He was promised a 10 per cent interest in the Hendon project by August 2007 and was intended to have an interest in the Stoke project. He invested at least £400,000 in Stoke. He also accepted undisclosed loans from Mr Treon’s and Mr Kanji’s entities, promoted the relevant loans and provided supporting references. These matters created actual conflicts. The Backford loan was not affected because the Hendon interest had not yet been promised. His friendship with Mr Gill and assistance with refurbishment costs were not, without more, breaches.
3. Consent. Mr Cunningham permitted Mr Jaffery to seek other employment and business opportunities while preparing to leave. That was not fully informed consent to interests in projects already financed by the Bank. The Bank had not been told of the Hendon or Stoke interests and had not waived the conflicts.
4. Causation and deceit. The Bank would not have proceeded with the Hendon, Stoke or Hornchurch transactions had it known of the conflicts. Mr Jaffery’s final four Code of Conduct certifications were knowingly false and induced later lending; the February and May 2010 certifications also induced salary and bonus payments.
5. Dishonest assistance and bribery. Mr Gill knew of the conflicts, procured Mr Jaffery’s assistance and participated in concealing the interests. His conduct was dishonest by the applicable objective standard. The promised Hendon interest was a bribe. The £35,000 refurbishment payment and Stoke interest were not proved to be gratuitous bribes.
6. Remedies and disposition. The claims succeeded in part against both defendants. The contractual claim succeeded concerning unauthorised interests in Hendon and Stoke. The claims for forfeiture of salary and bonuses were dismissed as disproportionate and inequitable. The Scheme and subsequent Assignment transferred the relevant claims to BOI PLC. The court reserved the form of order and costs.