These are narrow exceptions to the general rule. 265, 273 that there is no liability "unless he has the trust property vested in him, or so far under his control that he can require it should be vested in him". Trustor accepts that it cannot obtain summary judgment for damages or compensation for breach of duty for all the reasons given by Rimer J and the Court of Appeal. Creating a unique profile web page containing interviews, posts, articles, as well as the cases you have appeared in, greatly enhances your digital presence on search engines such Google and Bing, resulting in increased client interest. At the same time he dismissed an appeal of the second defendant Introcom (International) Ltd ("Introcom") from the order of Master Bowman giving summary judgment under the same rule in favour of Trustor for SEK 166.7m, … This aspect of their judgment was applied in Trustor AB v Smallbone (No 2) [2001] 1 WLR 1177. Rimer J gave judgment on 25th June 1999. It argued that Smallbone's company was a sham to help breaches of duty, it had been involved in improper acts and the interests of justice demanded the result. Mr Smallbone's petition for leave to appeal was dismissed by the House of Lords on 18th December 2000. However, there is st… In case of any confusion, feel free to reach out to us.Leave your message here. But it would make undue inroads into the principle of Salomon's case if an impropriety not linked to the use of the company structure to avoid or conceal liability for that impropriety was enough. Get 1 point on providing a valid sentiment to this The order sought is for payment by Mr Smallbone to Trustor (after giving credit for net recoveries received from Mr Smallbone or Introcom) of SEK 166.7m, 404,100 and FIM 75.5m with interest thereon at the rate of 8% from 1st November 1997 until payment, such liability to be joint and several with Introcom. mr justice rimer But this was not said in relation to a limited company and predates the decision of the House of Lords in, 20. In those circumstances I consider that I should follow the later decisions of the Court of Appeal in Adams v Cape Industries plc and Ord v Belhaven Pubs Ltd and decline to apply so broad a proposition as that for which counsel for Trustor contends in the third principle referred to in paragraph 14 above. First, he found (Transcript p. 4) that Introcom was controlled by a Liechtenstein Trust called the Lindsay Smallbone Trust of which Mr Smallbone is a beneficiary. Companies are often involved in improprieties. Trustor is a company incorporated in Sweden. Trustor was wound up by the court in Stockholm on 23rd December 1997. The application now before me seeks a further order against Mr Smallbone pursuant to CPR Rule 24.2 or CPR Rule 25. See also the case of V-C in Trustor AB v Smallbone (supra) where the court pierced the veil to hold a director liable for the sum £20m traced to his personal company from the claimant company where he was a former director. Trustor AB v Smallbone (No 2) [2001] EWHC 703. Woolfson v Strathclyde Regional Council [1978] UKHL 5. 19. The individual was held to be in breach of covenant, notwithstanding the interposition of the company, because the company was formed as the device, stratagem or mask to "the effective carrying on of a business of" the individual. change. VTB Capital plc v Nutritek International Corp [2013] UKSC 5. Trustor is a Swedish company. Thus it is established that Introcom was and is controlled by Mr Smallbone, the payments from the Trustor account with Barclays, Cheapside to the account of Introcom at Barclays, Cheapside were effected by Mr Smallbone or on his instructions and, in the words of Rimer J, "Introcom was simply a vehicle Mr Smallbone used for receiving money from Trustor". On the facts of this case it is unnecessary to decide whether the dictum of Kekewich J in Re Barney referred to in paragraph 18, is applicable where the recipient is a wholly owned corporate body. On 25th June 1999 Rimer J gave summary judgment under RSC Order 14 for the claimant Trustor AB against the first defendant Mr Smallbone for 426,439 and interest. Mr Smallbone has no real prospect of successfully defending this part of the claim because he is bound by the findings of Rimer J to which I have referred. Wishing to avoid his liability he transferred the land to a company he had acquired for the purpose. 15. See pp. Sir Andrew Morritt VC held that there was enough evidence to lift the veil on the basis that it was a "mere facade". He noted the tension between Adams v Cape Industries plc and later cases and stated that impropriety is not enough to pierce the veil, but the court is entitled to do so where a company is used ‘as a device or façade to conceal the true facts and the liability of the responsible individuals.’, 18. Furthermore, Trustor had an additional claim against Smallbone, as the managing director of Trustor, for damages or compensation for conspiracy and breach of duty. Prest v … Sixth, in relation to the claim against Introcom based on knowing assistance Rimer J considered (Tr: 31/32) that Mr Smallbone did act dishonestly "for there was no sensible explanation for the payment of a single penny to Introcom or for the onward payments which Introcom made and Mr Smallbone could not have believed that he was entitled to make them". Crease v Breachwood Motors Ltd (overruled) Its use was improper as it was the means by which Mr Smallbone committed unauthorised and inexcusable breaches of his duty as a director of Trustor. Introcom was a device or fa ade in that it was used as the vehicle for the receipt of the money of Trustor. Fifth, in the light of those conclusions he found (Tr: 17 and 19/20) that "the payments to Introcom were unauthorised and improper ones, being payments to Mr Smallbone's own company which was then going to and did devote itself to further unauthorised and improper dissipations of the money". 6. He contended that there was no finding or evidence of impropriety sufficient to justify the order sought by Trustor. 26. Mr Smallbone had been the managing director of Trustor AB, and it was claimed that in breach of fiduciary duty he transferred money to a company that he owned and controlled. However, a number of other exceptions exist which are wider in scope. First, Trustor has a claim against him for breach of duty. Rimer J also concluded that the payments to Introcom were unauthorised and involved an inexcusable breach by Mr Smallbone of his duty as managing director of Trustor "being payments to Mr Smallbone's own company which was then going to and did devote itself to further unauthorised and improper dissipations of the money". On 13th June 1997 Lord Moyne, Mr Smallbone and others were appointed to the board of Trustor. In that case Smallbone, the first Defendant, was the managing director of Trustor AB, the Claimant company. The Editors suggest that there is a sufficient receipt if, in accordance with the normal rules of tracing in equity, the trust property can be identified in the hands of the defendant. On the facts of this case it is unnecessary to decide whether the dictum of Kekewich J in Re Barney referred to in paragraph 18, is applicable where the recipient is a wholly owned corporate body. Each of those contentions was rejected. a submission of Mr Smallbone to the effect that the payments to Introcom were justified by an agreement dated 8th August 1997. 17. The dictum suggests that complete control of the actual recipient may be enough. Liability arising from the knowing receipt of trust property stems from the speech of Lord Selborne in Barnes v Addy (1874) LR 9 Ch App 244, 251 that, "strangers are not to be made constructive trustees merely because they act as agents of trustees in transactions within their legal powers....unless these agents receive and become chargeable for part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design of the trustees.". These propositions are supported by the authorities to which the editors refer, namely Cowan de Groot Properties Ltd v Eagle Trust plc [1992] 4 AER 700, 762a-b and El Ajou v Dollar Land Holdings plc [1993] 3 AER 717, 738. Michael Prest (husband) and Yasmin Prest (wife) were married for 15 years and had four children before the wife petitioned for divorce in March 2008. Trustor AB v Smallbone [2001] EWHC 703 (Ch) Go to source. I have been concerned whether that passage was referring to a liability based on knowing receipt or knowing assistance. The issue is whether the court is entitled to regard the receipt by Introcom as the receipt by Mr Smallbone. Position: Does not feature in the chart but it had three appearances. Click on the first link on a line below to go directly to a page where "trustor" is defined. In Woolfson v Strathclyde Regional Council [1978] SLT 159 Lord Keith of Kinkel pointed out that it was appropriate to pierce the corporate veil "only where special circumstances exist indicating that [the company] is a mere fa ade concealing the true facts". Trustor AB v Smallbone (No 2) [2001] EWHC 703 (Ch) is a UK company law case concerning piercing the corporate veil. 7. Click here to remove this judgment from your profile. This principle was applied by the Court of Appeal in Adams v Cape Industries plc [1990] 1 Ch. These authorities plainly establish the first proposition of counsel for Trustor I referred to in paragraph 14 above. Mr Smallbone was its managing director. In White & Tudor's Leading Cases in Equity 9th Ed. The judgment of the Court of Appeal recognised liability on Introcom for knowing receipt but not at that stage for knowing assistance. The issues on the appeal were whether by virtue of other recoveries their liabilities would be reduced to nothing. As against Mr Smallbone, Trustor has two types of claim. No alteration to the draft judgment was made before it was handed down on 9th May 2000; the Court of Appeal indicated that Trustor would have to make a further application for summary judgment on which Mr Smallbone would be able to raise any contrary arguments he chose. He suggested that the authorities justified such a course in three, potentially overlapping, categories, namely (1) where the company was shown to be a fa ade or sham with no unconnected third party involved, (2) where the company was involved in some impropriety and (3) where it is necessary to do so in the interests of justice and no unconnected third party is involved. Mr Smallbone, the former managing director of Trustor, had improperly procured large amounts of its money to be paid out of its account to a company called Introcom Ltd, incorporated in Gibraltar. The case against Mr Smallbone was eventually dropped by Trustor AB as there was no breach of fiduciary duty. In each of the passages to which I have referred it was made plain that the conclusion was one of fact. Without the assent of different executives, he moved a lot of corporate assets into a company constrained by him, Introcrom Ltd. But this was not said in relation to a limited company and predates the decision of the House of Lords in Saloman v Saloman & Co.Ltd. I should also refer to some of the cases relied on by Counsel for Trustor. Counsel pointed out that it had been common ground in the Court of Appeal that the findings of dishonesty made by Rimer J against Mr Smallbone were academic. Mr. Stephen Smith QC (instructed by Messrs Allen & Overy for the Claimant). Trustor AB v Smallbone and others [2001] EWHC 703 (Ch) Practical Law Resource ID 0-516-0408 (Approx. They point out that receipt by a subsidiary company will not count as a receipt by the parent if the subsidiary is acting in its own right, not as agent or nominee, at any rate in the absence of a want of probity or dishonesty. Paragraphs 36-39 contain allegations concerning claims to trace at law and for money had and received, paragraphs 40-42 relate to a claim for damages for conspiracy and paragraph 43 seeks equitable compensation. 14. Without having obtained the approval of the Board, on 18th June 1997 Lord Moyne and Mr Smallbone opened an account for Trustor with Barclays Bank plc, Cheapside and procured the transfer to the credit of that account of moneys of Trustor amounting to SEK 779m. contains alphabet), England and Wales High Court (Chancery Division). Smallbone paid money from the Claimant company’s account to the second Defendant which was another company. The second, following the principle applied in Gilford Motor Co. Ltd v Horne, was that the company was the creature of the first defendant, "a device and a sham, a mask which he holds before his face in an attempt to avoid recognition in the eye of equity". I was referred to Gilford Motor Co. Ltd v Horne [1933] Ch.935, Jones v Lipman [1962] 1 WLR 832, Woolfson v Strathclyde Regional Council [1978] SLT 159, Re a Company [1985] BCLC 333, Adams v Cape Industries plc [1990] 1 Ch. The dictum suggests that complete control of the actual recipient may be enough. The only signatories to that account were Lord Moyne and Mr Smallbone. The recipients included Mr Smallbone ( 33,334.34) and Introcom (SEK 166.7m, 404,100 and FIM 75.5m). Cumming-Bruce LJ described the structure as a fa ade (p.336) but expressed the principle (p.337/8) to be that the Court will use its powers to pierce the corporate veil if it is necessary to achieve justice irrespective of the legal efficacy of the corporate structure under consideration. 23. He protested that the apparent findings of dishonesty made against him by Rimer J were unnecessary to the orders of either Rimer J or the Court of Appeal and could not justify the grant of summary judgment against him. He submitted that the fact that Introcom was controlled by him was well known to the other directors of Trustor. Adams v Cape Industries plc was followed by the Court of Appeal in Re: H and others [1996] 2 BCLC 500 which was applied by Rimer J in Gencor ACP Ltd v Dalby [2000] 2 BCLC 734. Appeal allowed. Once you create your profile, you will be able to: Claim the judgments where you have appeared by linking them directly to your profile and maintain a record of your body of work. Two such bases were raised in the statement of claim, namely knowing receipt and knowing assistance. Trustor AB v Smallbone (No 2) [2001] 1 WLR 177. The third proposition is said to be derived from the decision of this court in Re a Company [1985] BCLC 333. Rimer J made a number of findings to which I should refer. 433, 542A-B. Counsel for Trustor submitted that the circumstances were such as to warrant the court "piercing the corporate veil" and recognising the receipt by Introcom as the receipt by Mr Smallbone. But it would make undue inroads into the principle of Saloman v Saloman & Co. Ltd if an impropriety not linked to the use of the company structure to avoid or conceal liability for that impropriety was enough. Before confirming, please ensure that you have thoroughly read and verified the judgment. Cape Industries plc was a UK company, head of a group. Judgment, published: 30/12/2001 Items referring to this. Accordingly my conclusion is consistent with the decision of the Court of Appeal whether or not I was bound by that decision to reach the same conclusion. At a directors meeting held on the same day Mr Smallbone was appointed to be the managing director and it was resolved that Trustor's bank accounts might be operated on the signature of any two directors. In my judgment the court is entitled to "pierce the corporate veil" and recognise the receipt of the company as that of the invididual(s) in control of it if the company was used as a device or fa ade to conceal the true facts thereby avoiding or concealing any liability of those individual(s). Th… In my view these conclusions are such as to entitle the court to recognise the receipt of the money of Trustor by Introcom as the receipt by Mr Smallbone too. In his summary of the result of the appeal the Vice-Chancellor upheld the order of Rimer J regarding the liability of Mr Smallbone for the sum of 426,439 received by him from the money of Trustor paid to Introcom. Its appeal was heard by Rimer J in conjunction with the application for summary judgment against Mr Smallbone issued by Trustor on 28th August 1998. They shipped it to Texas, where a marketing subsidiary, NAAC, supplied the asbestos to another company in Texas. Cape was joined, who argued there was no jurisdiction to hear the case. ( 38.88m) was paid out of that account on the signatures of Lord Moyne and Mr Smallbone without reference to Trustor or its other directors. ☆ Trustor AB v Smallbone, No 2 - high court of justice case Lecture 2 (Legal Personality) - 27 - Company Law 08 22354 ... California Real Estate Journal Nov. 16, 2009 The first was that the individual had sufficient control of the company to compel it to perform the contract. 22. The only modern work of which I am aware which deals with the problems of receipt in any detail is Lewin on Trusts 17th Ed (2000) paras 42-32 to 42-34. Staphon Simon This point of law is echoed in the case of Trustor AB v Smallbone (No 2)6. 24. On 11th April 2000 Counsel for Mr Smallbone wrote to the Vice-Chancellor with comments on, amongst others, paragraph 97. Interact directly with CaseMine users looking for advocates in your area of specialization. Recent cases have sought to narrow the exceptions. United Kingdom company law, Trustor AB v Smallbone (No 2), Ord v Belhaven Pubs Ltd, Gencor ACP Ltd v Dalby, Bank of Tokyo Ltd v Karoon: Collection: Publisher: World Heritage Encyclopedia: Publication Date: Jones v Lipman. the scope 1. 22. They did not then extend the judgment against Mr Smallbone to the larger amount because counsel for Mr Smallbone had not had adequate opportunity to deal with some of the conclusions of the Court of Appeal. However, courts have ‘lifted the veil’ in certain circumstances, such as when authorized by statute, in wartime and to prevent fraud. Please log in or sign up for a free trial to access this feature. trustor ab (a swedish ltd company) v. lindsay james trevor smallbone and others. 3plr/2000/221 (ch.d) before: the hon. strand, london, wc2a 2 ll. At the same time he dismissed an appeal of the second defendant Introcom (International) Ltd ("Introcom") from the order of Master Bowman giving summary judgment under the same rule in favour of Trustor for SEK 166.7m, 404,100 and FIM 75.5m. The "classic statement" was to be found in Trustor AB v Smallbone (No 2), in which Mr Smallbone had transferred money from Barclays Bank to himself and a company that he owned, in breach of fiduciary duty. Smallbone was a manager of Trustor AB. Its subsidiaries mined asbestos in South Africa. I have reached this conclusion from a consideration of the facts as found by Rimer J and the principles to be derived from the cases independently from the passage in paragraphs 97 and 98 of the judgment of Sir Richard Scott V-C which I have quoted earlier. Liability arising from the knowing receipt of trust property stems from the speech of Lord Selborne in Barnes v Addy (1874) L.R.9 Ch.App 244, 251 that. Westpac Banking Corporation v Savin [1985] 2 NZLR 41, 69. By an order made on 13th October 1998 Master Bowman ordered Introcom to pay to Trustor SEK 166.7m, 404,100 and FIM 75.5m. The defrauded company sought return of the funds, from the company and from the second director on the basis that the corporate veil should be lifted by treating the receipt by the company as his. He considered that the directors of Introcom were nominees acting on the instructions of Mr Smallbone so that Introcom could be regarded as Mr Smallbone's company and his knowledge could be treated as Introcom's knowledge. Paragraph 21 of the witness statement of Mr Wilkes made in support of the application led Mr Smallbone to believe that the application was pursued on the basis of knowing assistance. Trustor AB v Smallbone [2001] EWHC 703 (Ch) is a UK company law case concerning piercing the corporate veil. More recently, in Trustor v Smallbone and Introcom[17], Smallbone was a director of Trustor AB, a Swedish registered company. Trustor AB v Smallbone (no 2) [2001] 1 WLR 1177 – Law Journals. On about 23rd May 1997 Lord Moyne acquired voting control of Trustor. Citation. royal courts of justice. In Jones v Lipman [1962] 1 WLR 832 an individual had contracted to sell land. The barrier between the company’s assets and those of its members is known as the ‘veil of incorporation’. 265, 273 that there is no liability "unless he has the trust property vested in him, or so far under his control that he can require it should be vested in him". But paragraph 98 recognises joint and several liability for "the whole of the sums for which Introcom is accountable". Both Trustor, Mr Smallbone and Introcom appealed with the permission of the Judge or of the Court of Appeal. The statement of claim, which has been amended twice, sets out the relevant facts. summary judgment under RSC Order 14 for the claimant Trustor AB against the first defendant Mr Smallbone for £426,439 and interest. This application came before Master Bowman. 5. In his judgment Sir Richard Scott V-C, with whom Buxton LJ and Gage J agreed, recorded (paragraphs 21 and 22) that it had not been disputed that the circumstances in which 38.88m left Trustor's Barclays, Cheapside account constituted an unlawful misappropriation of Trustor's money and a breach of duty by Mr Smallbone so that Mr Smallbone and Introcom were accountable for the sums of Trustor's money they had respectively received. Prest v Petrodel Resources Ltd & ors [2013] UKSC 34. Without the consent of the other directors, he transferred large amounts of corporate funds into a company controlled by him, Introcrom Ltd. It appears to me that the argument for Trustor raises a point of some general importance. On 25th June 1999 Rimer J gave summary judgment under RSC Order 14 for the claimant Trustor AB against the first defendant Mr Smallbone for 426,439 and interest. In Gilford Motor Co. Ltd v Horne [1933] Ch.935 an individual bound by a non-solicitation covenant after the termination of his employment set up in business through a limited company. 27. By clicking on this tab, you are expressly stating that you were one of the attorneys appearing in this matter. Trustor AB applied to treat receipt of the assets of that company as the same as the assets of Mr Smallbone. in re: supreme court of judicature. The hearing took seven days. Trustor Ab v Smallbone and Another (No 2): ChD 30 Mar 2001 Directors of one company fraudulently diverted substantial sums to another company owned by one of them. Prest v Petrodel Resources Limited & Others [2013] UKSC 34. The second proposition also appears to me to be too widely stated unless used in conjunction with the first. Of the sums received by Introcom SEK 43,335 and 327,509 were applied for the benefit of Mr Smallbone in payments to his wife and Cove Investments Ltd, a company incorporated in the Turks and Caicos Islands and controlled by Mr Smallbone. Liability for the former would be consistent with the Court of Appeal's conclusions regarding the liability of Introcom but liability for the latter would not. The judge in that case held that: Bank of Tokyo Ltd v Karoon [1987] AC 45n is a conflict of laws case, which also relates to UK company law and piercing the corporate veil. He explained that Introcom had been formed in connection with an earlier scheme, having no connection with Trustor, as a vehicle for his remuneration. The judgment of the Court of Appeal was provided to counsel in draft in advance of the proposed date for handing it down, then fixed for 12th April 2000. The head covering of incorporation has been considered in Trustor AB v Smallbone [ 2001 ] . In the case of Mr Smallbone it is alleged that he acted fraudulently and dishonestly and in breach of duty as a director of Trustor. It was pursued in respect of all the causes of action relied on in the Statement of Claim. Judgment was still entered against Cape for breach of a duty of care in negligence to the employees. facts (impropriety)21 can the veil be pierced according to Woolfson v Strathclyde Regional Council.22 In Gencor ACP Ltd v Dalby (Gencor)23 and Trustor AB v Smallbone (No.2) (Trustor),24 both cases held that the corporate veil was pierced on the basis that the companies were ‘used 25as a façade to conceal the true facts’. 433, Yukong Line Ltd v Rendsburg Investments Corporation of Liberia [1998] 1 WLR 294, Ord v Belhaven Pubs Ltd [1998] BCC 607 and Mubarak v Mubarak Bodey J 23rd October 2000 (unreported). 2 pages) He relied on the findings of Rimer J that Introcom acted on the instructions of Mr. Smallbone, that Mr Smallbone was its directing mind and will and that Introcom had no independent business, third party directors, creditors or shareholders. A recent case (Trustor AB v Smallbone & ors, NLD, 16 March 2001) has considered the circumstances in which it might be appropriate to pierce the corporate veil, that is, to disregard the separate legal identity of a company and to look behind it to the actions and possible liability of its directors or members. Exam June 2014, answers Exam 12 May 2017, questions Labour Law notes Supervsion 1 Equity Supervision 8 Resulting Trusts and Property Holding by UAs Equity Supervision 9 Charities Company Law Selected Essay Notes Appeal against setting aside of order transferring properties to the wife that were legally owned by the former husband's companies. In cases of knowing receipt attention is usually focused on the extent of the knowledge required and whether the recipient of the trust property had it. WTLR Issue: September 2013 #132. In Ord v Belhaven Pubs Ltd [1998] BCC 607, 614/5 Hobhouse LJ expressed similar reservations. All the more as of late, in Trustor v Smallbone and Introcom, Smallbone was a chief of Trustor AB, a Swedish enrolled company. The entire wiki with photo and video galleries for each article 6 ibid [63], [103]. 956, 965 and 969. It is also necessary that the receipt by the defendant should be for his own benefit or in his own right in the sense of setting up a title of his own to the property so received. 20. 9. 13. Mr Dalby was a director of the ACP group of companies, including Gencor ACP Ltd. The dictum suggests that complete control of the actual recipient may be enough. 16. See Also – Trustor Ab v Smallbone and Another (No 2) ChD (Times 30-Mar-01, Gazette 17-May-01, [2001] 1 WLR 1177, Bailii, [2001] EWHC 703 (Ch)) Directors of one company fraudulently diverted substantial sums to another company owned by one of them. ( paragraphs 44-46 ) and knowing receipt or knowing assistance this matter Defendant, was the managing of... 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