Gable Insurance AG v William Dewsall & Ors

Directors of an insurance company governed by foreign law may breach their duties by permitting informal, unsecured and interest-free transfers to a company under their control, even where the transfers are recorded as loans, disclosed to auditors and known to the board. A contractual payment between group companies is not ordinarily a misappropriation from the company that made the payment unless the arrangement was part of a scheme to extract its funds.

Tracing into improvements to property is available only to the extent that the expenditure can be shown to have increased the property's value. Subrogation to a discharged security, where the claim is purely proprietary, requires either an appropriate security expectation or a claim in unjust enrichment. A foreign-law directorial relationship may nevertheless be fiduciary for the purposes of English tracing principles.

GIAG, a Liechtenstein insurer in liquidation, claimed against its former directors, William Dewsall and Michael Hirschfield, for losses arising from payments to Hogarth and other group entities, diversions of income, payments made after regulatory orders, and payments from Hogarth trust accounts. It also claimed knowing receipt against Horatio Risk Consulting LLP and proprietary relief against Judith Dewsall concerning Weald Hall.

The principal issues were the scope and breach of the directors' Liechtenstein-law duties, causation, dishonesty, limitation, tracing, subrogation and knowing receipt. The proprietary claims concerned payments for improvements to Weald Hall and a payment used to reduce a secured acquisition loan.

1. Directors' duties. Under Liechtenstein law, directors owed duties of care, prudent management, accounting oversight, prevention of unauthorised use of company funds, avoidance of conflicts and supervision of entrusted third parties. Liability required an intentional or negligent breach causing loss. Breach of an order of the FMA did not automatically establish liability.
2. Hogarth loan. Genuine commercial agreements between GIAG and group companies could not be ignored merely because money later moved between those entities. The relevant question was whether GIAG's own funds were paid away in breach of duty. The informal Hogarth loan nevertheless involved unsecured, interest-free advances with no commercial benefit to GIAG, significant solvency concerns and an insufficiently considered conflict of interest. Mr Dewsall breached his duties by procuring or authorising the payments. Mr Hirschfield breached his duties by failing to require the arrangements to be formally reconsidered by the independent directors. His liability was limited to the increase after his appointment.
3. Dishonesty and other payments. Applying Ivey v Genting Casinos (UK) Limited, the Hogarth-loan breaches by both directors were not dishonest, although Mr Dewsall was dishonest in relation to identified trust-account payments, diverted receipts, certain post-FMA payments and later withdrawals. Mr Hirschfield was liable for the unauthorised £943,857 payment to GSLL because he failed to check whether it was due.
4. Tracing and proprietary relief. Payments for improvements could support a proprietary claim only if they increased the property's value and the increase could be proved. A payment used to repay the Investec loan did not establish a proprietary interest by backwards tracing, and GIAG had no expectation of security. Subrogation was unavailable without a claim in unjust enrichment. The foreign-law directors' relationship was sufficiently fiduciary for English tracing purposes, but the payment used to repay the loan was not shown to derive from the Hogarth loan.
5. Disposition. Judgment was entered for GIAG against Mr Dewsall for £4,957,788.52, Mr Hirschfield for £2,327,632 and Horatio for £280,000, subject to non-recovery of overlapping losses. The claim against Mrs Dewsall for an equitable proprietary interest in Weald Hall and its proceeds failed.