The Privy Council has unusually overturned the findings of fact of a lower court in a case involving a decision regarding the honesty or otherwise of certain corporate transactions.
The case involved transfers of loans and interests in companies in return for shares and Global Deposit Receipts. The transferor was an asset management fund, and the transferee was a company. The fund argued that the defendants (including the company) had dishonestly assisted breaches of trust by one of the fund’s investment advisers. The trial judge and the Court of Appeal rejected these arguments, but the Privy Council held that there had in fact been such dishonesty.
The Privy Council found as follows:
- It would generally decline to interfere with a lower court’s findings of pure fact, except in very limited circumstances (for instance miscarriage of justice or violation of a principle of law or procedure – Devi v Roy [1946] AC 508). However, this general principle did not always preclude an appellate court from intervening.
- The present was an an exceptional case, falling outside the scope of the general principles. The circumstances here were similar to those in Armagas Ltd v Mundogas SA (The “Ocean Frost”) [1985] 1 Lloyd’s Rep 1. There, Goff LJ had “found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities”.
- Whether the respondents dishonestly procured or assisted in a breach of trust should be assessed in the light of their conduct and actual state of knowledge at the relevant times. Moreover, if objectively no honest person would in that light have acted as they did, it was unnecessary to show that the respondents actually recognised that what they were doing was dishonest (Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37).
- Consequently, the question here was whether the respondents could honestly have believed that their actions were in the interests of the company; in other words, whether they could have believed that the Global Deposit Receipts and shares were worth what the company had paid for them. Both lower courts had failed to address this key question, and had not probed the witnesses’ evidence on why the transactions could or could not have been in the company’s interests.
- Having found that the defendants had behaved dishonestly, the Privy Council held that the fund was entitled to recover the value of the amount paid for the Global Deposit Receipts and shares ($191m).
Central Bank of Ecuador and others v Conticorp SA and others (Bahamas) [2015] UKPC 11, 23 March 2015
