Trafalgar Multi Asset Trading Company Limited (in liquidation) v James David Hadley & Ors

A bribe is a secret payment or inducement which creates a realistic prospect of conflict between an agent’s personal interest and the principal’s interest. Actual influence on the agent is unnecessary.

Informed consent requires disclosure of every material fact needed for the principal to understand the transaction fully. Merely revealing the existence of an interest, or facts which put the principal on enquiry, is insufficient. Materiality depends on whether the information might have affected the principal’s decision.

A secret payment may taint later dealings while the potential conflict remains real. Summary judgment may therefore be granted where the defendant has had ample opportunity to allege full disclosure, has not done so, and there is no realistic prospect that supporting evidence will emerge at trial.

Trafalgar, an investment trading company in liquidation, alleged that its fiduciary, Mr Hadley, received two bribes from PPL while committing Trafalgar to purchase bonds issued by CGrowth. PPL was entitled to retain 29% of Trafalgar’s subscription monies and was simultaneously negotiating to purchase Mr Hadley’s investment-management company.

A deputy High Court judge refused summary judgment and declined to strike out the respondents’ defences. His reasons appeared in [2022] EWHC 641 (Ch) and [2022] EWHC 919 (Ch). He permitted the alleged timing and informed-consent defences to proceed to trial.

The central issues on appeal were whether those defences had any realistic prospect of success and whether the absence of evidence that Trafalgar had been told about PPL’s commission arrangements was fatal to the informed-consent defence.

1. Appeal allowed unanimously. The timing and informed-consent defences were fanciful in relation to both the March and June bond transactions. The deputy judge was wrong to permit the informed-consent defence to proceed to trial. Stuart-Smith LJ delivered the judgment, with which Falk and Coulson LJJ agreed.

2. The facts alleged and admitted created a clear potential conflict. PPL was negotiating to purchase the fiduciary’s company while marketing bonds to Trafalgar. PPL would receive 29% of Trafalgar’s investment, thereby obtaining a financial advantage which could assist its purchase, from which the fiduciary might benefit. For the proprietary claim to the bribes, Trafalgar did not have to establish a separate breach of fiduciary duty.

3. The timing defence had no realistic prospect of success. The letter of intent dated 7 March 2016 was not contractually binding. Trafalgar could have withdrawn before execution of the bond purchase forms on 14 March 2016. The respondents’ own pleadings and evidence indicated that discussions concerning the sale had begun on or shortly after 7 March. It was fanciful to suggest that they began only after 14 March.

4. Informed consent required full disclosure of everything material to the transaction. Disclosure merely that VAM might be sold to PPL and that a deposit might be paid did not reveal the nature of the conflict. The respondents never alleged that Trafalgar had been told of PPL’s commission entitlement or that Trafalgar’s investment could enhance PPL’s ability to purchase VAM. Without that information, Trafalgar could not make a fully informed decision.

5. The burden of establishing full disclosure rested on the respondents. They had ample opportunity to assert disclosure of the commission arrangements but did not do so. There was no material evidential conflict, no need for a mini-trial and no realistic prospect that evidence establishing informed consent would emerge at trial.

6. The June transactions were also tainted by the earlier undisclosed conflict. A report supplied only after those transactions could not establish prior full disclosure and, at most, might have put Trafalgar on enquiry. That would not satisfy the informed-consent requirement.

1. Court of Appeal (Civil Division): By [2022] EWCA Civ 1639, unanimously allowed Trafalgar’s appeal and held that the timing and informed-consent defences had no realistic prospect of success.
2. High Court, Business and Property Courts: In [2022] EWHC 641 (Ch), the deputy High Court judge refused summary judgment and declined to strike out the respondents’ defences. In [2022] EWHC 919 (Ch), he gave further clarification and refused permission to appeal.