Andrew Anderson Kelsall & Anor (as joint liquidators of Gamenation (UK) Limited) v Biljana Stajic & Anor [2023] EWHC 3020 (Ch)

"When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual's knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest." vi) However, the standards in question are those of an ordinary honest person in the circumstances of the defendant. Thus, in applying the test of dishonesty, the Court must have regard to all the circumstances known to the defendant at the time, and have regard to the defendant's personal attributes, such as their experience and the reason why they acted as they did: Royal Brunei Airlines v Tan at 391.’ 11. Dishonest assistance therefore relies upon there being a fiduciary obligation or trust owed by a trustee or fiduciary to the claimant, but a constructive or resulting trust will also suffice. There must be a breach by the trustee/fiduciary because dishonest assistance is a type of accessory liability. In other words, it is parasitic upon the breach by the principal ( the fiduciary/trustee) of the fiduciary obligation or trust. The dishonest assistance as pleaded here relies upon the breach of fiduciary duty and breaches of trust which are pleaded at paragraphs 57 to 66 of the Points of Claim against the First Respondent as a director of the Company. 12. Mr Lewis submits that on its very wording, the provision is clearly restricted to cases where a respondent owes a duty to the company. Effectively he submits that an accessory liability relating to a breach of duty or trust is incapable of falling within section 212. Mr Lewis submitted that liability pursuant to section 212 required there to be a breach of duty, such as a breach of trust or a breach of duty by the respondent against whom the dishonest assistance claim is made. Misfeasance, he submitted is a breach of duty. He submitted that knowing assistance does not therefore fall under section 212. In relation to a case of knowing receipt, something which I raised with him, he submitted that this was also not a breach of duty and therefore did not fall under section 212. A respondent needs to fall under section 212(1) (c ) being a person who is or has been concerned or taken part in the promotion, formation or management of the company. Mr Lewis submitted that this meant that the person needed to be senior management. 13. Mr Lewis relied heavily in what is set out in Re B Johnson & Co ( Builders )ltd [1955] Ch 634. That case concerned section 333(1) of the Companies Act 1948. That section differs from section 212 IA 86 in that it applies to, ‘any person who has taken part in the formation or promotion of the company, or any past or present director, manager or liquidator, or any officer of the company, has misapplied or become liable or accountable for any money or property of the company, or been guilty of any misfeasance or breach of trust in relation to the company, the court may……compel him to repay or restore the money or property or any part thereof respectively with interest ….or contribute such sum to the assets of the company by way of compensation…’ 14. The wording in section 212 IA 86 is somewhat wider in that it states ‘any person is or has been concerned, or has taken part, in the promotion, formation or management of the company’. Whilst section 333 of CA 1948 does refer to a person who is a manager as well as any past or present director, section 212 IA 86 refers to a person who has been concerned, or taken part in the management, formation or promotion without that person having to be considered as a manager. There is also a slight change of wording in that section 212 IA86 refers to a person who has misapplied or retained whilst section 333 CA 1948 refers to a person who has misapplied or become liable for. 15. In Re Johnson, the applicant had been, since incorporation, the chairman and manager of the company, which carried on business of builders and contractors. On 9 August 1947, pursuant to a debenture, the bank exercised its powers under the debenture and appointed the first respondent as receiver and manager of the company’s property. A compulsory winding up order was subsequently made on 27 January 1948 with the second respondent thereafter being appointed as liquidator. The receiver was discharged in May 1949. Thereafter, a question arose relating to the conduct of the receiver whilst in office. The Applicant asserted that the receiver had been negligent in not continuing the company’s business and instead had sold certain buildings resulting in a loss. The Court of Appeal held that that a receiver and manager of company’s property appointed by a debenture holder was not an ‘officer’ of the company within the definition of ‘officer’ in section 455 of the Companies Act 1948, since any work of management he might do was not done by virtue of any office which he held of the company. Additionally, the Court held that the receiver was not a ‘manager’ of the company within section 333 of the Companies Act 1948 because such a receiver or manager was not managing on the company’s behalf but was managing on the debenture holder’s behalf to facilitate the enforcement of the security. Accordingly, the receiver was not within the class of persons whose conduct could be the subject of an examination under section 333 CA 1948. 16. Mr Lewis relies upon various passages in the judgements. Firstly, he relies upon the fact that section 333 CA 1948 was held to be a procedural section which created no new cause of action and that acts covered by the section were acts which were wrongful in accordance with established rules of law and equity. Not every kind of wrongful act fell within the section, a good example being a case of negligence under common law. The claims against the receiver were claims of negligence and did not, according to the Court of Appeal, fall within section 333 CA 1948 because the receiver was not a ‘person’ to whom section 333 CA 1948 applied. 17. The reasoning for the Court of Appeal’s finding in relation to the receiver is based upon established legal principles relating to the receivers appointed under debentures, being to realise the assets for the benefit of the security holder. The receiver does not therefore owe some duty to the company to carry on the business of the company and to preserve its goodwill (see page 645 Lord Evershed MR). Accordingly, the Master of the Rolls held that a person appointed as a receiver (called receiver and manager in the debenture documentation) is not appointed with any duties to carry on the business of the company in the best interests of the company. The receiver is appointed to realise for the debenture holders or mortgagees the security which they have over the relevant property. It is only for that limited purpose that the receiver has been given powers of management. The receiver is not a manager of the company but a manager of the relevant property of the company. 18. Accordingly, a receiver/manager is excluded from the word ‘manager’ in section 333 CA 1948 because the receiver/manager is only endowed for the purposes of his receivership with certain powers of management. On this basis, the Court of Appeal overturned the decision below and the appeal succeeded. The Court of Appeal then went on to consider the second point which had been raised and the Master of the Rolls considered that, ‘it will be perhaps desirable that I should say something also on the second point, namely, whether the allegations made against the receiver were allegations of misfeasance as that word is understood in that section. That point raises the problem of the scope of section 333 not as regards the persons who are subject to the procedure ordained by that section, but as regards the nature of the claims which may be made under it.’ 19. The Master of the Rolls stated as follows ( page 648 ) ‘There is no such distinct wrongful act known to law as “misfeasance”. The acts which are covered by the section are acts which are wrongful, according to the established rules of law or equity, done by the person charged in his capacity as “promoter, director,” etc. But it is clearly established that it is not every kind of wrongful act so done that is comprehended by the section. At one end of the scale it may, I think, be taken as prima facie clear that a wrongful act involving misapplication of property in the hands of the person charged would be covered by its terms. At the other end of the scale, a claim based exclusively on common law negligence, an ordinary claim for damages for negligence simply, would not be covered by the section. Nor is such a claim brought within the section by the mere expedient of adding epithets to the negligence charged, calling it " gross " or " deliberate."

" The language of Sir George Jessel in dealing with the matter " in his decision in Ex partc Pelly strongly tends to show " that in his view section 215 " (now section 333 of the Act of 1948) '' really only applies where there has been some " wrongful act by the director, manager, liquidator, or other "officer of the company, either of the nature of misfeasance, or "of the nature of breach of trust in a wide sense, including no " doubt a breach of trust by negligence, or something of that " kind."