Key Facts
- •Floreat Investment Management Ltd (FIML) appealed a High Court judgment finding three individuals and a company liable for dishonestly diverting US$1.1 million from Global Fixed Income Fund 1 Ltd (the Fund).
- •The Fund received a US$2.2 million termination fee from Reading Football Club; this was split equally between a company owned by Mr. Mutaz Otaibi (FCM Cayman) and the appellants' company (IRL).
- •Mr. Otaibi, the sole shareholder and executive director of FIML, was complicit in the diversion, and FIML sued as the Fund's assignee.
- •The High Court judge found the appellants liable for breach of fiduciary duty, dishonest assistance, conspiracy, knowing receipt, and equitable proprietary claim.
- •The appellants argued they believed they were entitled to 50% of the termination fee under an informal profit-sharing agreement, and the diversion was a 'shortcut'.
- •The High Court judge found that Mr. Otaibi knew the termination fee was due to the Fund, but that he lacked the authority to agree to its diversion.
Legal Principles
Test for dishonesty: Subjective assessment of the individual's knowledge and belief, followed by an objective assessment against the standards of ordinary decent people.
Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67
Liability for dishonest assistance requires dishonesty.
Group Seven Ltd v Nasir [2019] EWCA Civ 614
Equitable proprietary claims depend on showing a breach of fiduciary duty.
Various cases cited, relevant to knowing receipt and equitable proprietary claims
Fiduciary duties can be limited by contract.
Hospital Products Ltd v United States Surgical Corp (1984) 55 ALR 417
Outcomes
Appeal allowed; High Court order set aside.
The Court of Appeal found the High Court judge erred in finding the appellants dishonest. The Court held the diversion was a 'contractual shortcut' and that, while ill-advised, it was not dishonest based on the full picture of the appellants' knowledge and belief.
Judgment for the appellants.
The Court of Appeal found the Fund was contractually obliged to pay the termination fee to FIML, of which Mr. Otaibi was the sole shareholder and executive director. Therefore, no loss was suffered by the Fund, and the appellants’ actions, while potentially ill-advised, were not dishonest.