The balance between trusting and submitting – Manolete Partners PLC v Nag

As a follow on from our article on the recent case of Manolete Partners PLC v Nag [2022] EWHC 153 (Ch), this article offers supplementary information in regards to claims of dishonest assistance and knowing receipt. To recap the law, dishonest assistance refers to the personal liability of a non-trustee that arises when:

• A trust exists. For instance, directors will be regarded as trustees of the company’s assets, which in turn constitute trust property;
• A trustee acts in breach of trust;
• A non-trustee acts as an accessory by inducing or enabling the breach of trust;
• The non-trustee acted dishonestly. Here, dishonesty is determined using an objective test on whether an ordinary decent member of society in the same position, and with the same knowledge, would have acted in the way the non-trustee did.

Whereas, knowing receipt refers to the personal liability of a non-trustee that arises when there is:

• A disposal of trust property in breach of trust by the trustee;
• A beneficial receipt by the non-trustee of the trust property or its traceable proceeds; and,
• whether a reasonable person, with the same knowledge as the non-trustee, would have acknowledged or enquired further into whether a transaction was possibly in breach of trust.

Recent considerations

While the Manolete Judgment did not establish any new law, the case does provide some valuable commentary. Mrs Nag signed documents relating to a company share transaction. Despite never paying anything for the shares, she was a 50% shareholder and displayed no shock when they sold for a considerable profit. She defended her actions by maintaining she had never read the relevant documents and only signed them following the request of her husband, Mr Nag, a director and trustee of the company’s assets, who she trusted wholeheartedly.

The requirement for dishonesty for a dishonest assistance claim was met when Mrs Nag allowed her spouse to fully decide by turning a blind eye to obvious facts. As for the other three elements, the shares constituted trust assets, Mr Nag breached his fiduciary duty (the details of which are discussed in our article here), and the transaction would have not been possible without Mrs Nag’s assistance. Consequently, Mrs Nag was held personally liable to pay the sum of £1,267,430, the amount gained by Mr and Mrs Nag from the transaction minus the £100,000 returned to the purchaser.

Considering her liability for knowing receipt, again the first element is satisfied by Mr Nag’s breach of trust. Then, Mrs Nag’s ability to control who received the shares was sufficient to constitute beneficial receipt. Lastly, a reasonable person would have read the documents and queried why there was no price to pay for the shares. Accordingly, she would have still been liable for knowing receipt under its lower threshold, however this was already included in the £1,267,430 awarded for dishonest assistance.

Comments

The decision serves as an important reminder to pause before executing documents. Whilst trust is the foundation to many relationships, it should be differentiated from submitting to whatever your spouse requests with no consideration for whether it is right or wrong. Individuals should strive to find a middle ground; acknowledging directions from the person they trust and then balance this with the principles that society sets as honest. It is not unusual for those involved in questionable dealings to maintain the defence that they merely followed instructions made by someone they believed to be reliable. However, the Manolete Judgment demonstrates that such a defence has little to no merit in regards to dishonest assistance or knowing receipt claims.

For more information, please contact Holly Ransley or another member of the Restructuring & Insolvency team.