El-Ajou v Dollar Land Holdings Plc (No1)
[1994] 2 AllER 685(Judgment by: Rose LJ)
El-Ajou
vDollar Land Holdings Plc (No1)
Judges:
Nourse LJ
Rose LJHoffmann LJ
Legislative References:
Trades Descriptions Act 1968 - section 20
Case References:
Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd - [1915] AC 705
R v Andrews-Weatherfoil Ltd - [1972] 1 WLR 118
Tesco Supermarkets Ltd v Nattrass - [1972] AC 153
Blackburn, Low
&
Co v Vigors - (1887) 12 App Cas 531
Turton v London and North-Western Railway Co - (1850) 15 LT (OS) 92
Dresser v Norwood - (1864) 17 CB (NS) 466
Baldwin v Casella - (1872) LR 7 Ex 325
Gladstone v King - 105 ER 13
Regina Fur Co Ltd v Bossom - [1957] 2 L1 Rep 466
Blackley v National Mutual Life Association - [1972] NZLR 1038
Tanham v Nicholson - (1872) LR 5 HL 561
Kelly v Cooper - [1993] AC 205
Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd - [1915] AC 705
Powles v Page - (1846) 3 CB 16; 136 ER 7
Re Carew's Estate Act (No 2) - (1862) 31 Beav 39; 54 ER 1051
Judgment date: 2 December 1993
Judgment by:
Rose LJ
I gratefully adopt the recital of facts in the judgment of Nourse LJ. For the reasons which he gives, I agree that the appellant's submissions with regard to the payment of the deposit and the balance of the money fail. The judge's conclusions, namely that the deposit was paid to Dollar Land Holdings London beneficially and that the balance was received by DLH on trust to invest on behalf of Yulara pursuant to a joint venture agreement, were, on the evidence before him, correct. Equally, the judge's finding, which DLH seek to challenge, that the money can be traced to the proceeds of fraud by the Canadians, is, in my view, unimpeachable.
The submissions with regard to the role of Ferdman and whether his knowledge of the fraudulent origin of the invested funds should be attributed to DLH raise considerations of more general importance. In English law the concept of a company's directing mind and will has its origins in the speech of Viscount Haldane LC in Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 at p. 713. In Tesco Supermarkets Ltd v Nattrass [1972] AC 153 , Lord Diplock at p. 200A identified those who are to be treated in law as being the company as:
those natural persons who by the memorandum and articles of association or as a result of action taken by the directors, or by the company in general meeting pursuant to the articles, are entrusted with the exercise of the powers of the company.
Lord Reid at p. 171F said:
Normally the board of directors, the managing director and perhaps other superior officers of a company carry out the functions of management and speak and act as the company ... But the board of directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instructions from them.
At p. 190G Lord Pearson said:
There are some officers of a company who may for some purposes be identified with it, as being or having its directing mind and will, its centre and ego, and its brains ... The reference in section 20 of the Trades Descriptions Act 1968 to "any director, manager, secretary or other similar officer of the body corporate" affords a useful indication of the grades of officers who may for some purposes be identifiable with the company ...
There are, it seems to me, two points implicit, if not explicit, in each of these passages. First, the directors of a company are, prima facie, likely to be regarded as its directing mind and will whereas particular circumstances may confer that status on non-directors. Secondly, a company's directing mind and will may be found in different persons for different activities of the company.
It follows that Millett J's unchallenged conclusion that Stern, although neither a director nor an employee, was the 'moving force' behind the company's activities does not preclude a finding that Ferdman was the company's directing mind and will in relation to some activities.
In the present case, the company's activity to which Ferdman's knowledge was potentially pertinent was the receipt of over £1m for investment. Ferdman had been appointed by the Americans for two reasons in particular: first, as a Swiss resident operating the formal aspects of the company he was able to confer the tax advantages of non-resident status on DLH on the basis that its 'central management and control' was in Switzerland not England; and secondly because the Americans did not want Stern to be seen to have any official role in the company. Ferdman was a director and chairman of the board and his services were charged for at a higher rate than that for other directors. He instructed accountants and solicitors. He convened meetings. He claimed in the company's accounts to be its ultimate beneficiary. He was a necessary signatory of legal documents and signed the Yulara agreement without needing the authority of a board resolution to do so: by so doing he committed the company to that agreement.
Having regard to these matters, it seems to me to be plain that, for the limited purposes here relevant, i.e. the receipt of money and the execution of the Yulara agreement, he was the directing mind and will of the company. In consequence, his knowledge of the fraud was DLH's knowledge and, in this respect, I differ from Millett J. It is immaterial that by March 1988, when DLH acquired Yulara's interest, Ferdman had ceased to be a director. That cessation did not deprive DLH of its continuing knowledge in relation to the transaction, which embraced both the initial receipt of the money in May 1986 and the ultimate acquisition of Yulara's interest.
If the appellant does not succeed on this point, Mr Beloff's alternative submission based on agency is, in my view, doomed to fail. This court is, in my judgment, bound to hold, on the authority of Re David Payne [1904] 2 Ch 608 that, qua agent, Ferdman was under no obligation to disclose his knowledge to DLH, there being no duty on DLH to enquire as to the source of the offered money. I agree with Hoffmann LJ's analysis of the three categories of agency cases to which he refers and with his conclusion that they have no application in the present circumstances. To the extent indicated I would allow this appeal.