Melissa von Westenholz & Ors. v Marcus Gregson & Anor.

A fiduciary who has clear notice that trust property, or a fund in his possession, is claimed by another must not deal with it in disregard of that claim. Liability does not depend on dishonesty, the issue having been litigated, or an injunction having been obtained. A person who knowingly undertakes to safeguard disputed property pending resolution of the dispute may owe fiduciary duties to the claimant even if the formal trust instrument identifies different beneficiaries. A resulting trust may arise where the payer did not intend to make a gift to the legal owner, even though the payer intended the beneficial interest ultimately to benefit other family members.

The claimants alleged that money paid by Michael Sanders between 2005 and 2008 funded 80,000 shares in companies within the ASL Group, although the shares were registered in the name of his son-in-law, Mark Von Westenholz. The defendants, directors of the group, later took security over the shares and held them as nominees. When a dividend of £400,000 was declared in 2018, it was retained by the company in reduction of Mark’s debt.

The claimants brought trust-based claims, claims for dishonest assistance and inconsistent dealing, and claims based on economic torts. The central issues were whether the shares were held on trust, whether the defendants were liable under the Guardian Trust principle or for breach of fiduciary duty, and whether the other causes of action were established.

1. Trusts. No shares were shown to have been issued in connection with the first £20,000 subscription. However, 60,000 shares funded by the later subscriptions were issued to Mark. A resulting trust arose because Mr Sanders paid for the shares and did not intend to make a gift to Mark. The relevant question was whether he intended to benefit Mark, not whether he intended to retain the beneficial interest personally.

2. The correspondence of May to July 2011 was sufficient to create an express trust over 80,000 shares. Mark knew that the shares did not beneficially belong to him and agreed that they should be held for Mrs Sanders, Milly and Rupert in the stated proportions. Segregation was relevant but not essential. The beneficial interests were 45,000 shares for Milly, 25,000 for Rupert and 10,000 for Mrs Sanders.

3. Guardian Trust principle. The defendants were fiduciaries holding the disputed shares. From March 2018 they had clear notice that the Sanders family claimed the shares and that the claim was intended to be pursued. They nevertheless permitted the dividend to be retained by ASLG. The principle did not require the claim to be established beforehand, nor did it require the claimant to obtain an injunction. The defendants were liable because they consciously disregarded the claim, although they had not acted dishonestly.

4. Fiduciary duties. By accepting the shares on the understanding that they would safeguard them pending resolution of the dispute, the defendants assumed fiduciary duties towards the claimants. Their duties as trustees conflicted with their interests as ASLG directors. By permitting ASLG to retain the dividend, they preferred their company duties over their fiduciary duties and were liable for the resulting £400,000 loss.

5. The dishonest-assistance claim failed. The defendants assisted breaches of trust, but their conduct was not dishonest under the objective limb of the Ivey test. The claims for procuring breach of contract, unlawful means, unlawful means conspiracy and lawful means conspiracy also failed. In particular, affirmation did not create a fresh breach of the subscription agreements, and the defendants acted in good faith within the scope of their directorial authority.

6. Judgment was given for the relevant claimants for £400,000 by way of equitable compensation: £225,000 to Milly, £125,000 to Rupert and £50,000 to Mrs Sanders. Interest and consequential matters were left for further submissions.