Mark Glenn Hawkes v Gordon Adrian Cook

A person authorised to realise company assets, hold the proceeds for the company and direct payments from them may be both a fiduciary agent and trustee, even if the appointment is informal or disputed. A breach of trust is fraudulent where the trustee acts without honesty or good faith, including recklessness as to the consequences. Dishonesty is assessed using the two-stage approach in Ivey, applying the civil standard of proof. Equitable relief is not barred by delay alone; laches requires delay causing such prejudice that relief would be unconscionable. The clean-hands doctrine requires an immediate and necessary relation between the claimant’s misconduct and the equity sought. A settlement with one alleged wrongdoer does not release claims against another unless the agreement, construed in context, has that effect.

The claimant, as assignee of a company’s claims, sued the defendant over a 2004 rescue arrangement involving the sale and leaseback of company machinery and land. He alleged that the defendant had induced his appointment by fraudulent misrepresentations and had thereafter dishonestly diverted company funds to himself and associates.

The defendant denied any fiduciary appointment, alleged that payments were authorised by the company’s administrator, and relied on delay, unclean hands, a settlement with the former liquidator, and alleged misconduct by the claimant. The central issues were whether the defendant owed fiduciary and trustee duties, whether the relevant conduct was fraudulent, and whether equitable compensation was barred or reduced by the defences.

1. Liability. The claim succeeded. The defendant was engaged on behalf of the company. The Board Resolution empowered him to realise company assets, collect monies due, hold realisation proceeds on trust, and make necessary payments. That made him a fiduciary agent and trustee. Even if the appointment had been formally defective, he was at least a de facto trustee because he assumed responsibility for disposing of company property.
2. Insolvency and company-law objections. Section 127 of the Insolvency Act 1986 did not invalidate the appointment because the Board Resolution was not itself a disposition of company property. The subsequent realisations might have required validation, but the administration order dismissed the winding-up petition under paragraph 40(1) of Schedule B1, so section 127 was not engaged. The claimant had no personal interest in the specific matters authorised by the Board Resolution requiring disclosure under section 317(1) of the Companies Act 1985.
3. Deceit and dishonesty. The defendant knowingly misrepresented his suitability, independence and international business operations. Those representations induced the appointment. He then failed to correct the deceit while owing fiduciary duties. The court applied the civil balance-of-probabilities standard and the two-stage dishonesty test in Ivey: ascertain the defendant’s actual knowledge or belief, then apply the objective standards of ordinary decent people.
4. Fraudulent breaches of trust. The defendant dishonestly directed company funds to himself and associates, including illegitimate additional fees and a kick-back. A deliberate breach is fraudulent where there is an absence of honesty or good faith; recklessness may suffice.
5. Defences and relief. Laches did not apply because the defendant had suffered no material prejudice from delay. The claimant’s alleged director’s loan and collection of book debts did not have the necessary relation to the equity claimed and did not involve seeking an advantage from dishonest conduct. The settlement with the former liquidator released claims between those parties, not claims against the defendant. The claimant was awarded equitable compensation of £123,250 for the dishonest payments, with no double recovery.