Amr Danyaal Mashal & Ors v Awais Javed & Ors

A person who undertakes to receive and manage another’s money for a proposed investment may become a fiduciary even where no final investment or joint venture agreement is concluded. The fiduciary must act with single-minded loyalty and must obtain informed consent before applying the money to a transaction. General intentions do not confer authority to use trust money.

Money transferred in those circumstances may be held on constructive trust. Unauthorised use of it permits tracing into acquired property and a personal claim for breach of trust. Where trust money is mixed with the fiduciary’s money, the fiduciary bears the burden of identifying his own assets. A fiduciary must account for profits, including rental income, but may receive only properly proved credits.

The claimants alleged that they entrusted £834,000 to the first defendant for a proposed property investment arrangement. They alleged that he acted as their fiduciary, used their money without authority, concealed mortgages and transactions, and appropriated part of the money for personal purposes. The defendant denied the alleged arrangement and asserted that the payments represented repayment of money allegedly owed to him.

The court rejected the defendant’s evidence as dishonest. It found that no final joint venture agreement had been concluded, but that the claimants had transferred their money to him in reliance on his professional knowledge and undertaking to arrange property investment. The central issues were whether a fiduciary relationship and constructive trust arose, whether the money had been misapplied, and what personal and proprietary remedies followed.

1. Judgment for the claimants. The court found that the defendant had committed fraud and fraudulent breach of trust. A money judgment was ordered in respect of the £834,000 transferred and not accounted for, subject to credits for recoveries.
2. The defendant had undertaken to act for the claimants in circumstances giving rise to trust and confidence. That undertaking created fiduciary duties despite the absence of a concluded joint venture agreement. The companies whose accounts received the money acted as his ciphers, agents and nominees; it was unnecessary to pierce the corporate veil.
3. The money was received on constructive trust for the claimants. The court rejected the defendant’s alternative characterisation as repayment of an earlier debt and rejected reliance on a Quistclose trust because no precise purpose or discretion had been conferred. The defendant had no power to use the money without further agreement.
4. Before using trust money to acquire property, the fiduciary required informed consent. That required disclosure, at least, of the property, its value, required refurbishment and cost, anticipated rent, the claimants’ interest, and the involvement and terms of any third party. The defendant’s secretive conduct and misrepresentations meant that no informed consent was obtained.
5. The three properties acquired with the money were therefore purchased in breach of trust. The claimants could trace into the purchase money and assert proprietary rights, together with an equitable lien or personal remedy. The court also ordered an account of rental profits, allowing only £3,980 of verified refurbishment costs.
6. Interest was to be calculated at 8 per cent compounded annually on specified sums and rental income. Orders for sale of the remaining properties required further information from the administrators or receivers.