ODL Securities Ltd v McGrath & Ors

An employee occupying a senior position of trust may owe fiduciary duties closely analogous to those owed by a company director, even without being a director. Those duties include acting in good faith and in the company’s best interests, avoiding conflicts, and disclosing relevant misconduct. Credit facilities ancillary to trading do not establish that a broker is in the business of making unrelated commercial loans. Unauthorised commercial loans require appropriate corporate approval and security. Dishonesty is assessed objectively by asking whether the defendant failed to act as an honest person in that position would have acted. A dishonest fiduciary breach may justify equitable compensation and compound interest, although the court may award simple interest where that is sought.

ODL Securities, a foreign exchange and derivatives broker, claimed damages and equitable compensation from its former head of risk, Adrian McGrath. He had authorised substantial unsecured advances to A1 Holdings, a company connected with the A1 Grand Prix venture, in 2006 and 2009. ODL alleged that the advances were outside its ordinary business, unauthorised, contrary to its interests, dishonest, and concealed from its directors.

The central issues were whether McGrath had authority to make the advances, whether he breached contractual and fiduciary duties, whether the breaches were dishonest, and what relief followed.

1. Claim and authority. Judgment was entered for ODL against McGrath. The advances were not within ODL’s ordinary business. Credit permitted on trading accounts, including temporary debit balances supported by margin or collateral, was materially different from unrelated commercial lending. The advances therefore required approval from the relevant committees and the board, which they did not receive.
2. Duties. McGrath’s contractual duties included reasonable skill and care and good faith and fidelity. Given his senior position, control over transfers, and the trust placed in him, he also owed fiduciary duties closely analogous to those of a director. Those duties required him to act in ODL’s interests, avoid conflicts, and disclose matters, including his own misconduct, which ODL ought to know.
3. Breach. The 2006 advances were made without adequate documentation, due diligence, approval, or security. The direct US$2.5 million advance to A1 was made without any binding investment commitment from RAB Capital. The 2009 advances were even less defensible because A1 was on the brink of insolvency, the earlier loan remained substantially unpaid, and no adequate security existed. McGrath concealed the advances, misled ODL personnel, and failed to disclose his conflict and personal interest.
4. Dishonesty. Applying the objective approach in Barlow Clowes International v Eurotrust International [2006] 1 WLR 1476, McGrath acted dishonestly. His conduct included disguising the debit balance, making false statements about repayment and guarantees, accepting a personal bribe, and diverting ODL funds for his house purchase.
5. Relief. ODL was entitled to damages or equitable compensation for the outstanding loans, subject to credit for sums recovered from Mr Clements. Interest was awarded at the judgment rate from the dates of the advances, and McGrath was liable for ODL’s costs.