Angel Group Ltd v Davey

The court held that the declarations of trust dated 30 April 2007 and 30 April 2008 created effective trusts so that the listed properties were held by the defendant, Ms Davey, on trust for Angel Group Limited (AGL) or, in respect of Plot #39, for Angel London (a subsidiary). The 2008 schedule also encompassed two identified bank accounts containing £900,000, which were held on trust for AGL.

The court rejected the defendant's account that the trusts took effect only to the extent of any company contribution and interpreted the deeds as vesting the beneficial interest in favour of AGL or the contributing subsidiary. Documents dated April/May 2009 and May 2010 purporting to record company resolutions were found to have been created later and deliberately backdated; the court concluded they were false records dishonestly produced. Even if those documents had been effective in June 2011, the court held that declaring a dividend and transferring the properties then would have been a breach of fiduciary duty because AGL was at real risk of insolvency and creditor interests ought to have prevailed.

Accordingly, the properties (or their sale proceeds) belong to AGL or Angel London; the defendant was in breach of trust and liable to account and to pay damages for dissipation of proceeds. The payment of £550,000 by the Home Office to the defendant was also held to have been received in breach of fiduciary duty and is recoverable by AGL.

Background and parties: The claimants were four Angel group companies acting by their liquidators. The defendant, Ms Julie Anne Davey, was the dominant director and majority shareholder of the group. She had executed declarations of trust in 2007 and 2008 in relation to various properties in California, Israel and Northern Cyprus and two bank accounts. The claims sought recovery of those properties or sale proceeds and compensation for breach of trust and breach of fiduciary duty.

Procedural posture: First instance trial in the Chancery Division. The defendant failed to comply with disclosure and was debarred from calling factual witnesses because she did not seek relief from sanctions; she therefore did not give evidence. The defendant changed positions during the proceedings and relied on company minutes and resolutions dated 2009 and 2010 which were later shown to have been created only in 2011.

Nature of the relief sought: Proprietary recovery of properties (or proceeds), equitable compensation for breach of trust or breach of fiduciary duty, and recovery of a £550,000 sum paid by the Secretary of State.

Issues for decision: (i) construction and effect of the 2007 and 2008 Trust Deeds; (ii) whether the 2008 Trust Deed covered two bank accounts; (iii) whether AGL passed valid resolutions in April 2009 or May 2010 transferring beneficial interests, or whether the disclosed documents were false and backdated; (iv) whether any transfers in June 2011 were effective and, if so, whether they were breaches of fiduciary duty given AGL's financial position; (v) the valuation date and quantum of compensation; and (vi) entitlement to the £550,000 paid in 2012.

Reasoning and findings:

• The 2007 deed was interpreted to mean that properties on the schedule were held on trust for AGL or, where a subsidiary had funded acquisition, for that subsidiary; accordingly Plot #39 was held for Angel London and the Cypriot plots for AGL.
• The 2008 deed operated to declare the Californian properties and Plot #37 held on trust for AGL; the schedule's listing of two bank accounts brought those accounts within the trust.
• Documents dated 30 April 2009 and 4/11 May 2010 were created later (June 2011 and after) and were deliberately backdated. The court found they were prepared and signed to give a false impression; it made an express finding of dishonesty on the balance of probabilities given the defendant's choice not to give evidence.
• Even if the documents had operated as resolutions in June 2011, the court found that AGL was at real risk of insolvency by June 2011; a dividend and transfer then would have been a breach of the director's fiduciary duty to consider creditors' interests.
• Remedies: the properties (or proceeds) belong to AGL or Angel London. For properties sold and proceeds dissipated, the defendant is liable in damages. The Cypriot plots appear possibly unsold and, if retained, are to be reconstituted as trust property. The £550,000 settlement paid to the defendant in February 2012 was received in breach of fiduciary duty and is recoverable.
• Quantum: the court assessed compensation principally by reference to the actual sale prices achieved for the properties on their respective sale dates, with interest to be decided.

Wider observations: The court emphasised the rarity and gravity of making express findings of dishonesty and the impact of a defendant's failure to give evidence when debarred from calling witnesses.

The claim succeeded. The court held that the 30 April 2007 and 30 April 2008 declarations of trust created effective trusts so that the identified properties (and the two bank accounts listed in the 2008 schedule) were held by Ms Davey on trust for AGL or, in the case of Plot #39, for Angel London. Company documents dated April/May 2009 and May 2010 were backdated false records deliberately produced and signed by the defendant; any purported transfer in June 2011 would in any event have been a breach of fiduciary duty because AGL was at real risk of insolvency. The defendant therefore breached trust and fiduciary duties, is accountable for remaining properties or proceeds and must repay the £550,000 settlement paid to her.