In deciding equitable compensation for dishonestly assisting a company director in breaching his fiduciary duties, the dishonest assisters were not liable to compensate the company for the misapplication of money which had been recouped before the company’s liquidation. The misapplication of that money had not caused the company any loss because it had been repaid.
The second, fourth, fifth and sixth appellants appealed against findings of fact in the respondent company’s claim ((2014) EWHC 1587 (Ch)) that they had dishonestly assisted the first appellant company director in breaching his fiduciary duties and the Companies Act 2006 s.175.

The company (G) was a tour operator and the director, who owned 100 % of the company, had attempted to sell 50% of his shares to each of two companies without the one knowing about the other. G went into liquidation leaving passengers stranded overseas and owing £20 million for repatriation. The judge found that the appellants had dishonestly assisted the director to breach his duties to G by diverting to himself £1.4 million which would otherwise have been due to G. The judge decided that that money would have been paid to G as payment for an opportunity, namely entering into a five-year seat commitment with an airline. She also found that they had dishonestly assisted the director in misapplying £1.25 million of G’s money for airline seats which was diverted to a Seychelles company owned by the director. She held that they were only liable to compensate G for the loss that it had suffered, rather than for the profit that the director made, but she rejected the contention that G’s equitable compensation should be reduced by £500,000 for flight seats that had been recouped.

The appellants submitted that the judge had unfairly approached the case and had allowed the liquidators to pursue an unpleaded case that they never intended to repay £750,000 of the deposits paid by G for airline seats so that they were unfairly disadvantaged in adducing evidence. They argued that the judge’s findings ignored commercial common sense.

HELD: (1) The judge’s reasoning in concluding that there was an opportunity of which G was deprived by the director was entirely convincing. Her findings were not perverse. The judge’s finding that the opportunity was worth £1.4 million did not ignore commercial common sense. The liquidators alleged that the £1.4 million had been paid for the five-year seat commitment and that was sufficient to establish what it was worth. There was no evidential lacuna. There was no lack of nexus between the alleged dishonesty and the alleged assistance. The issue of whether the deposits were a genuine part of the seat sale agreements was plainly put in issue by the pleadings and the judge was justified in allowing the liquidators to assert in the course of the trial that the deposits were not truly intended by the parties to be repayable. The judge had not behaved unfairly. The appeal on the findings of fact failed (see paras 34, 36, 40, 50, 60, 69-70 of judgment). 

(2) The judge had addressed the wrong question when deciding not to reduce G’s equitable compensation for the recouped £500,000. The question was whether the appellants as dishonest assisters of the director in the misapplication of G’s monies should be required to compensate G for the loss of the extra £500,000 that G had in fact recovered. The director’s misapplication of G’s £500,000 did not cause G any loss because it was repaid. The appellants succeeded in reducing the award of equitable compensation for their dishonest assistance in the misapplication of G’s monies from £1.25 million to £750,000 (para.64).

Appeal dismissed

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