FP Redhill Limited & Ors v Ashank Patel & Ors

Dishonesty is determined by a two-stage inquiry. The court must first establish the individual’s actual knowledge or belief as to the facts. It must then apply the objective standards of ordinary decent people. A person need not appreciate that the conduct was dishonest.

Fiduciaries must not divert company property, conceal conflicts of interest or disregard the separate interests protected by special purpose vehicles. Third parties who knowingly assist breaches of fiduciary duty may be liable in equity. Knowing receipt requires beneficial receipt of property transferred in breach of duty, with knowledge making retention unconscionable.

The claimants were investment companies and their holding company. They alleged that directors and associated companies had diverted investment monies through excessive commissions, a purported planning-management arrangement concerning Dunsty Farm, and payments to Verdi Construction Limited.

The principal participating defendants were Plan 9 Designs Limited, Harminder Singh Soor and Avnish Patel. The court determined whether the payments were authorised or contractually justified, whether the relevant defendants acted dishonestly, and whether the pleaded equitable and common-law claims were established.

1. Dishonesty. Applying [2017] UKSC 67, the court first established each defendant’s subjective knowledge or belief and then applied the objective standards of ordinary decent people. The court found the directors, Equity Real Estate Developments Limited, Plan 9 Designs Limited, Harminder Singh Soor and Avnish Patel dishonest.
2. Improper commissions and Plan 9. The directors and Equity Real Estate Developments Limited dishonestly charged commissions above the market rate and diverted the excess. The Dunsty Farm project was a sham from inception. Plan 9 and Mr Singh Soor performed no meaningful planning service, issued invoices for work not done, and used the company as a conduit for improper payments. The Project Management Agreement was a back-dated sham, relevant to Mr Singh Soor’s honesty.
3. Verdi payments. The building contracts required interim payments related to work performed. The alternative construction, under which Verdi could receive scheduled payments irrespective of performance, was rejected. Payments made without proper valuation, or by SPVs with no contractual relationship, were improper. The separate SPV structure could not be treated as a single fund.
4. Equitable and common-law liability. The directors owed fiduciary duties under sections 171 to 177 of the Companies Act 2006. The elements of dishonest assistance, unlawful-means conspiracy and knowing receipt were established. Tracing through mixed funds required further investigation and could not finally be determined on the evidence.
5. Disposition. Judgment was entered on the substantive claims against the relevant defendants. Further directions, including a likely substantive hearing and directions hearing, were required.

First-instance decision. No earlier decision under appeal was stated in the judgment.