Mary Shovlin v Site Civils and Surfacing Ltd & Anor

A claimant must prove, on the balance of probabilities, that a trustee acted outside the trust’s purposes or authority. Where the evidence concerning the trust’s purpose and investment instructions is incomplete, serious allegations against an honest professional may fail.

Knowing receipt requires receipt of trust property applied in breach of trust, together with knowledge making retention of the benefit unconscionable. Knowledge of a third-party source is insufficient without suspicion that the money was tainted or misapplied.

An account of profits against a knowing recipient requires more than a but-for causal connection and remains discretionary. Backward tracing requires sufficient coordination between the depletion of trust assets and acquisition of the asset traced into.

The claimant, acting as sole surviving trustee of the SPH Trust, claimed that Austin Fergus had acted in breach of trust by causing £645,000 to be advanced to Site Civils and Surfacing Ltd and George Crosby. She also claimed knowing receipt, dishonest assistance, an account of profits, and proprietary tracing into land and its proceeds.

The defendants denied breach of trust and contended that Mr Crosby believed the money was Mr Fergus’s own money. They also disputed unconscionable knowledge, causation, the availability of an account of profits, and backward tracing into property acquired using bridging finance.

The central issues were whether breach of trust and knowing receipt had been proved and, if not, whether the alternative personal and proprietary remedies would have been available.

1. Claim dismissed. The claimant failed to prove that Austin Fergus acted in breach of trust or fiduciary duty. The evidence about the trust’s establishment, purpose, beneficiaries and investment instructions was unclear. The absence of evidence from Mrs Shovlin was material, and the court was entitled to draw adverse inferences in the circumstances.
2. The court applied the guidance in Efobi v Royal Mail Group Ltd on the absence of a witness. Whether an inference should be drawn depends on ordinary rationality, the witness’s availability, the evidence reasonably expected from that witness, and the other evidence in the case.
3. Assuming breach of trust had been established, the knowing receipt claim would still fail. The relevant question was whether Mr Crosby’s state of knowledge made it unconscionable for him to retain the benefit. The court found that he trusted Austin Fergus, believed the money was Fergus’s own, and neither believed nor suspected that it was tainted by a misapplication of trust assets.
4. Knowledge within Baden categories 4 and 5 may found liability, but the court must first identify what the particular defendant actually knew. It must then ask whether, on those facts, a reasonable person would have appreciated that the transaction was probably a breach of trust or would have made enquiries revealing that probability. Suspicion may suffice, but there must at least be a clear suspicion.
5. The dishonest assistance claim also failed. Permission to amend was unnecessary because Mr Crosby had not dishonestly assisted any breach.
6. In the alternative, an account of profits would have been refused. Novoship (UK) Ltd v Mikhaylyuk requires an effective causal connection between the misconduct and the profit, not merely an opportunity for profit. The profit resulted from Mr Crosby’s identification, development and sale of the land. An account would also have been disproportionate after repayment of the principal and payment of interest.
7. Had a proprietary claim arisen, the court would have treated the defendants as purchasers for value without notice unless knowing receipt were established. Backward tracing into Vinesgrove and Greenacres would nevertheless have failed because the evidence showed insufficient coordination between the acquisition of Vinesgrove and the later use of sale proceeds to discharge the bridging loan.