Group Seven v Notable Services [2019] EWCA Civ 614

WTLR Issue: Autumn 2019 #176

1) GROUP SEVEN LIMITED

(a company incorporated under the laws of Malta)

(2) RHEINGOLD MANAGEMENT INCORPORATED

(a company incorporated under the laws of Panama)

V

(1) NOTABLE SERVICES LLP

(2) MARTIN LANDMAN

And Between:

EQUITY TRADING SYSTEMS

and

(1) NOTABLE SERVICES LLP

(2) MARTIN LANDMAN

And Between:

LLB VERWALTUNG (SWITZERLAND) AG (formerly known as LIECHTENSTEINISCHE LANDESBANK (SWITZERLAND) LIMITED)

(a company incorporated under the laws of Switzerland)

v

(1) GROUP SEVEN LIMITED

(a company incorporated under the laws of Malta)

(2) RHEINGOLD MANAGEMENT INCORPORATED

(a company incorporated under the laws of Panama)

(3) NOTABLE SERVICES LLP

(4) MARTIN LANDMAN

And Between:

LLB VERWALTUNG (SWITZERLAND) AG

(formerly known as LIECHTENSTEINISCHE LANDESBANK (SWITZERLAND) LIMITED)

(a company incorporated under the laws of Switzerland)

and

(1) EQUITY TRADING SYSTEMS LIMITED

(2) NOTABLE SERVICES LLP

(3) MARTIN LANDMAN

And Between:

OTHMAN LOUANJLI

- and -

(1) GROUP SEVEN LIMITED

(a company incorporated under the law of Malta)

(2) RHEINGOLD MANAGEMENT INCORPORATED

(a company incorporated under the laws of Panama)

(3) NOTABLE SERVICES LLP

(4) MARTIN LANDMAN

And Between:

OTHMAN LOUANJLI

- and -

(1) EQUITY TRADING SYSTEMS LIMITED

(2) NOTABLE SERVICES LLP

(3) MARTIN LANDMAN

Analysis

These appeals arose from the a ‘brazen fraud’ by which Allseas Group SA was defrauded of €100 million. After the fraud took place, there was an attempt to launder the proceeds through the client account of a London firm of solicitors, Notable Services LLP, whose partners included Mr Landman. Police intervention secured the return of €88 million – the present proceedings concerned attempts to recover the remainder of this sum from Notable, Mr Landman, Mr Louanjli (a bank employee who provided information to Notable) and LLB Verwaltung, the bank who employed him (”the Bank”).

In addressing the numerous appeals by the various parties the Court of Appeal grouped them into three main categories:

(1) Issues relating to liability for dishonest assistance in a breach of trust;

(2) Issues concerning causation; and

(3) Issues concerning vicarious liability.

Issue 1 – Dishonest assistance

The Appellants on this issue (Group Seven and Equity Trading Systems, which was formerly known as Larn Ltd) asserted that the Judge was wrong to conclude that Mr Landman was not liable as an accessory for dishonestly assisting breaches of trust by Larn and breaches of fiduciary duty by Mr Nobre (a director of Larn) when Mr Landman procured or otherwise helped to bring about payments made from Notable’s client account in November 2011.

The only matter in issue was whether Mr Landman’s conduct satisfied the requirement of personal dishonesty by him. Morgan J held that this crucial requirement had not been established in relation to the relevant breaches of trust and fiduciary duty, because he found that Mr Landman did not know (or have blind-eye knowledge) that the money in the client account was not beneficially owned by Larn and was not at Larn’s free disposal. In the absence of such knowledge, it was insufficient that Mr Landman did act dishonestly in facilitating the payments made out of the client account, that his actions formed a central part of the assistance, or that he had received a bribe of £170,000 to perform them.

At first instance, Morgan J had found that, by application of an objective test, that an honest and reasonable person in Mr Landman’s position, and knowing the facts which he did, would have concluded that Mr Nobre was not entitled to the €100 million, but did not find this sufficient to fix him with liability for dishonest assistance.

Issue 2: Causation

Morgan J found that Mr Louanjli’s interventions, by which he encouraged Notable to consider that Mr Nobre was a reliable individual who was entitled to deal with the €100 million as his own, clearly did assist Larn to commit a breach of trust. Mr Louanjli and the Bank argued that the Judge ought to have found that Mr Landman’s actions were the cause of Group Seven’s losses, which therefore amounted to a break in causation. This meant that Mr Louanjli’s actions were merely part of the history of events. In effect, the actions of Mr Landman should be considered a novus actus interveniens which exculpated Mr Louanjli and the Bank from any liability for the wrongful payment of these sums. The Respondents opposed these arguments, and sought to uphold Morgan J’s decision.

Issue 3: Various Liability

At trial Morgan J found that the Bank was vicariously liable for Mr Louanjli’s wrongdoing.

He found that an employer’s vicarious liability for the wrongdoing of an employee is not confined to wrongdoing which is within the actual or apparent authority of the employee. All that needs to be established is that the conduct in question was sufficiently closely connected with the work which the employee was authorised to do so that the conduct should be regarded as within the scope of the employee’s employment and so that the employer should be held liable for it.

In this case, Morgan J found that Mr Louanjli’s position at LLB was central to the statements which he made. Notable wished to hear from Mr Louanjli because of his role as the relevant relationship manager at LLB. Statements made by Mr Louanjli, ostensibly as a relationship manager of LLB, at the request of the person in respect of whom he was the relationship manager, were sufficiently closely connected with the scope of his employment by LLB as to make it just for LLB to be liable for those statements and Mr Louanjli’s wrongdoing, even though Mr Louanjli was acting in his own interests and was dishonest.

The Bank appealed against this decision. Their arguments were based upon various documents showing the particular nature of his employment and expert evidence regarding Swiss banking law. Along with the judge’s factual findings, these showed that Mr Louanjli was engaged in a frolic of his own and it was wrong to find the Bank vicariously liable

Held:

1) On the issue of whether Mr Landman and Notable were liable for dishonest assistance in a breach of trust, the appeals of Group Seven, Equity Trading Systems and the Bank were allowed, and Mr Landman and Notable were therefore found liable.

2) The touchstone of accessory liability for breach of trust or fiduciary duty is dishonesty. The court must appraise this on an objective basis, by asking whether the defendant’s conduct was honest or dishonest according to the standards of ordinary decent people.

3) Based upon the Judge’s unchallenged findings of fact, he erred by applying a compartmentalised approach. He ought to have found that Mr Landman must have had blind-eye knowledge that the €100 million was not beneficially owned by Larn, and that the money was not at Larn’s free disposal.

4) On the issue of causation, the appeals of Mr Louanjli and the Bank were dismissed. There was no reason to introduce common law concepts of causation into this area of law. All that is necessary is to show that the conduct assisted in the breach of trust, and the loss directly resulted from the breach of trust. Both elements were satisfied in this case.

5) The Bank’s appeal regarding its vicarious liability for Mr Louanjli’s conduct was also dismissed. The imposition of vicarious liability is an extremely fact sensitive exercise. Despite the fact that Mr Louanjli was pursuing his own interests and was not seeking to benefit LLB, he was not on a ”frolic of his own”. His conduct was within the nature of his job, viewed broadly, and that there was sufficient connection between the position in which he was employed and his wrongful conduct to make it right for LLB to be held liable under the principle of social justice.

6) Obiter: In a case of alleged dishonest assistance, the relevant breach of trust and the relevant acts of assistance will always have to be pleaded and proved. It is in that context that the question whether the defendant acted dishonestly will have to be considered, having regard to the totality of the defendant’s actual knowledge, blind-eye knowledge, and subjective beliefs falling short of blind-eye knowledge. The extent of the defendant’s knowledge and beliefs, and their relationship both with the underlying trust and with the acts of assistance relied upon, will always be highly material matters for the court to consider, and the more tenuous the connection, the less likely it is that the objective standard of dishonesty will be met. Knowledge falling far short of detailed knowledge of the specific breach of trust may suffice to ground liability.

JUDGMENT Lord Justice Henderson, Lord Justice Peter Jackson and Lady Justice Asplin: [1] This is the judgment of the court to which each of its members has contributed. INTRODUCTION AND OVERVIEW [2] These appeals concern the scope of liability for dishonest assistance in a breach of trust and for vicarious liability in such circumstances. The …
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Counsel Details

Jeffrey Chapman QC, Simon Atrill and Simon Paul (Fountain Court, Temple, London EC4Y 9DH, Telephone: +44 (0)20 7583 3335, Email: chambers@fountaincourt.co.uk) instructed by Mishcon de Reya LLP (Africa House, L70 Kingsway, Londonn, WC2B 6AH, Telephone: +44 20 3321 7000, Email: contactus@mishcon.com) for Group Seven Limited, Rheingold Management Inc and Equity Trading Systems Ltd

William Flenley QC and Francis Bacon (Hailsham Chambers, 4 Paper Buildings, Temple, London EC4Y 7EX, Tel: +44 (0)20 7643 5000, Email: clerks@hailshamchambers.com) instructed by Caytons Law (85 Gracechurch Street, London, EC3V 0AA, Telephone: +44 (0)20 7398 7600, Email: info@caytonslaw.com) for Notable Services LLP

Sonia Tolaney QC (One Essex Court, Temple, London EC4Y 9AR, Telephone: 020 7583 2000, Email: clerks@oeclaw.co.uk) and Michael Ryan (7 King’s Bench Walk Temple, London EC4Y 7DS, Telephone: +44 (0)20 7910 8300, Email: clerks@7kbw.co.uk) instructed by Pinsent Masons LLP (30 Crown Place, Earl Street, London EC2A 4ES, Telephone: +44 (0) 20 7418 7000, Email: enquiries@pinsentmasons.com) for LLB Verwaltung (Switzerland) AG

Aidan Casey QC and Emily Moore (3 Hare Court, Temple, London EC4Y 7BJ, Telephone: +44 (0)20 7415 7800, Email: clerks@3harecourt.com) instructed by FPG Solicitors (Devonshire House, 582 Honeypot Lane, Stanmore HA7 1JS, Telephone: 0203 092 5484) for Mr Louanjli

Philip Hackett QC (The 36 Group, 4 Field Court, Grays Inn, London WC1R 5EF, Telephone: 020 7421 8000, Email: clerks@36commercial.co.uk) and Faisal Saifee (7 Lincoln’s Inn Fields, London WC2A 3BP, Telephone: +44 (0) 20 7404 7000, Email: clerks@thomasmore.co.uk) instructed by Janes Solicitors (Cording House, 34/35 St James’s Street, London SW1A 1HD, Telephone: 020 7930 5100, Email: office@janes-solicitors.co.uk) for Mr Landman

Cases Referenced

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  • Agip (Africa) Ltd v Jackson [1990] Ch 265
  • AIB Group (UK) plc v Mark Redler & Co Solicitors [2014] UKSC 58; [2015] WTLR 187 SC
  • Anderson v City of Bessemer [1985] 470 US 564
  • Assicurazioni Generali SvA v Arab Insurance Group [2002] EWCA Civ 1642
  • Baden v Société Générale [1993] 1 W.L.R. 509
  • Barlow Clowes International Ltd v Eurotrust International Ltd [2005] WTLR. 1453, [2005] UKPC 37
  • Barnes v Addy (1874) L.R. 9 Ch. App. 244
  • Bartonshill Coal Co v McGuire (1858) 3 Macq. 300
  • Bazley v Curry (1999) 174 D.L.R. (4th) 45
  • BCCI (Overseas) Ltd v Akindele [2000] WTLR. 1049, [2001] Ch 437
  • Biogen Inc v Medeva plc [1977] R.P.C. 1
  • Brinks Ltd v Abu-Saleh [1996] C.L.C. 133
  • British Council v Jeffery [2018] EWCA Civ 2253
  • Broom v Morgan [1953] 1 Q.B. 597
  • Cox v Ministry of Justice [2016] A.C. 660
  • Datec Electronics Holdings Ltd v United Parcels Service Ltd [2007] UKHL 23
  • Deatons Pty Ltd v Flew (1949) 79 C.L.R. 370
  • Doyle v Olby (Ironmongers) Ltd [1969] 2 Q.B. 158
  • Dubai Aluminium Co Ltd v Salaam [2003] WTLR. 163, [2003] 2 AC 366
  • Duncan v Findlater (1839) 6 Cl. & Fin. 894
  • Fage UK Ltd v Chobani UK Ltd [2014] EWCA Civ 5
  • Group Seven Ltd v Allied Investment Corp Ltd [2014] EWHC 2046 (Ch)
  • Group Seven Ltd v Allied Investment Corp Ltd [2015] EWCA Civ 631
  • Group Seven Ltd v Nasir [2017] EWHC 2466 (Ch)
  • Grupo Torras SA v Al Sabah [1997] C.L.C. 1553
  • Grupo Torras SA v Al-Sabah [2001] WTLR 641, [2001] Lloyds Rep. Bank 36
  • Henderson v Foxworth Investments Ltd & anor [2014] UKSC 41
  • Housen v Nikolaisen [2002] 2 SCR 235
  • Ivey v Genting Casinos (UK) Ltd [2017] 1 WLR 679
  • Ivey v Genting Casinos (UK) Ltd [2018] A.C. 391
  • JSC Bank v Ablyazov [2018] EWCA Civ 1176
  • Kooragnag Investments Pty. Ltd v Richardson & Wrench Ltd [1982] A.C. 462
  • Lister v Hesley Hall Ltd [2002] 1 A.C. 215
  • Lloyd v Grace, Smith & Co [1912] A.C. 716
  • Madoff Securities International Ltd v Raven [2014] Lloyd's Rep. F.C. 95
  • Maga v Archbishop of Birmingham & Anr [2010] 1 W.L.R. 1441
  • Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2003] 1 A.C. 469
  • McGraddie v McGraddie [2013] UKSC 58
  • Mohamud v WM Morrison Supermarkets plc [2016] A.C. 677
  • Morris v C W Martin & Sons Ltd [1966] 1 Q.B. 716
  • Novoship (UK) Ltd v Mikhaylyuk [2014] WTLR 1521, [2015] Q.B. 499
  • Pettersson v Royal Oak Hotel Ltd [1948] N.Z.L.R. 13
  • Piglowska v Piglowski [1999] 1 W.L.R. 1360
  • Playboy Club London Ltd & Ors v Banca Nazionale Del Lavoro SPA [2014] EWHC 2613 (QB)
  • R v Ghosh [1982] Q.B. 1053
  • Re B (A Child) [2013] UKSC 33
  • Rose v Plenty [1976] 1 W.L.R. 141
  • Royal Brunei Airlines v Tan [1995] 2 A.C. 378
  • Smech Properties Ltd v Runnymede BC [2016] EWCA Civ 42
  • Smith New Court Ltd v Scrimgeour Vickers [1997] A.C. 254
  • Starglade Properties Ltd v Nash [2010] WTLR 1267, [2011] 1 Lloyd's Rep. F.C. 102
  • Target Holdings v Redferns [1996] A.C. 421
  • Todd v Adams & Chope (trading as Trelawney Fishing Co) [2002] 2 Lloyd's Rep. 293
  • Turberville v Stampe (1698) 1 Ld. Raym. 264
  • Twinsectra Ltd v Yardley & ors [2002] UKHL 12; [2002] WTLR 423 HL
  • Ultraframe v Fielding [2007] WTLR. 835, [2005] EWHC 1638
  • Various Claimants v Catholic Child Welfare Society [2013] 2 A.C. 1
  • Warren v Henlys Ltd [1948] 2 All E.R. 935
  • Weddall v Barchester Healthcare Ltd [2012] I.R.L.R. 307

Legislation Referenced

  • Marine Insurance Act 1906, s39(5)
  • Theft Act 1968