England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE CHANF 1998/0315/3,

COURT OF APPEAL (CIVIL DIVISION) 0317/3, 0318/3,

ON APPEAL FROM THE HIGH COURT OF JUSTICE 0319/3, 0320/3,

CHANCERY DIVISION 0322/3, 0323/3.

(Mr Justice Evans-Lombe)

Royal Courts of Justice

Strand, London WC2

Thursday, 29th July 1999

B e f o r e :

LORD JUSTICE NOURSE

LORD JUSTICE SEDLEY and

MR JUSTICE COLMAN

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JYSKE BANK (GIBRALTAR) LIMITED Plaintiff

-v-

(1) JAN HENNING SPJELDNAES (Male)

(2) MICHAEL METCALF

(3) PABLO ZOLTAN-FRANK

(4) ROLF JACOBSEN

(5) JULIA GOULD

(6) PATRICIA BULLEN

(7) JUILLET LIMITED

(8) RECOLTE INVESTMENTS LIMITED

(9) FONDCONSULT LTD

(10) BLAKE (INTERNATIONAL) LIMITED

(11) HIBRO-INTERNATIONAL INVESTMENTS LIMITED

(12) JEFFERSON PROPERTIES LIMITED

(13) PEREGINE CORPORATE SERVICES LIMITED

(14) NEY INVESTMENTS LIMITED

(15) COEUR DE LION INVESTMENTS LIMITED

(16) PROSPEROUS INVESTMENTS LIMITED

(17) ANGLO AMERICAN TRUST COMPANY LIMITED

(18) VILLACOURT ESTATES LIMITED

(19) VILLACOURT CONSTRUCTION LIMITED

(20) SIDSEL PERNILLE JACOBSEN

(21) WOLFGANG HERBERT HEINL (Appellant)

(22) PARALEGAL CONSULTANCY LIMITED

(23) FALSTAFF LIMITED

(24) ANGLO DEUTSCHE TRADING CO PLC

(25) DECLAN PATRICK BURKE

(26) SOSPA HOLDING LIMITED

(27) WATERVILLE TIMESHARE LIMITED

(28) EXECUTIVE GOLF WORLD LIMITED

(29) KERRY PARK GOLD AND COUNTRY CLUB LIMITED

(30) LONDON BRIDGE SECURITIES LIMITED

(40) ECCLESTON INTERNATIONAL LIMITED

Defendants

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Handed Down Judgment

Smith Bernal Reporting Limited

180 Fleet Street London EC4A 2HG

Tel: 0171 421 4040 Fax: 0171 831 8838

(Official Shorthand Writers to the Court)

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MR J HARVIE QC, MR H PAGE and MR C JONES (instructed by Messrs Charles Buckley, Bowden, Altrincham) appeared on behalf of the Appellant Twenty-first Defendant.

MR T WEISSELBERG (instructed by Messrs Joblings, Daventry, Northants) appeared on behalf of the Seventeenth, Twenty-third, Twenty-eighth, Twenty-ninth and Fortieth Appellant Defendants.

MR T PHILIPSON QC and MR A WHITE (instructed by Messrs Herbert Smith, London EC2) appeared on behalf of the Respondent Plaintiff.

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J U D G M E N T

(As Approved by the Court)

Lord Justice Nourse:

These appeals against a decision of Mr Justice Evans-Lombe are primarily concerned with questions arising under Rolled Steel Products (Holdings) Ltd v. British Steel Corporation [1986] Ch. 246 and the further question whether, as the judge found, the principal appellant, Wolfgang Herbert Heinl, acted dishonestly under the knowing assistance head of constructive trust; cf. Royal Brunei Airlines Sdn. Bhd. v. Tan [1995] 2 AC 378.

The plaintiff, Jyske Bank (Gibraltar) Ltd ("the Bank"), is a wholly owned Gibraltar subsidiary of A/S Jyske Bank, one of the five largest banks in Denmark. Between February 1989 and February 1991 the Bank's managing director, the first defendant Jan Henning Spjeldnaes, in fraudulent breach of his fiduciary duty to the Bank, caused it to pay away in pesetas the equivalent of about £71.5m. All but one of the 17 transactions pursuant to which the payments were made took the form of loans by the Bank, and in every case the payments were made to companies which were the creatures of Mr Spjeldnaes and his associates, principally the second defendant Michael Metcalf. The Bank has estimated its loss, after recoveries, at about £46m. These appeals relate to only £4.5m of the £71.5m paid away. A recital of the facts can be correspondingly abbreviated.

The Bank commenced this action by a writ on 12th August 1992 against 17 defendants, the principal claims against those other than Mr Spjeldnaes being made under the knowing assistance or knowing receipt heads of constructive trust in connection with Spjeldnaes' fraudulent breaches of fiduciary duty. The 17th defendant is a company called Anglo American Trust Co. Ltd ("AAT"), an Irish company which is owned and controlled by Mr Heinl. On 7th October 1992 AAT served a defence prepared on Mr Heinl's instructions.

In 1995 further defendants were added, including Mr Heinl himself and six other companies associated with him, namely an English company called Paralegal Consultancy Ltd ("Paralegal") and five Irish companies called Falstaff Ltd, Waterville Timeshare Ltd, Executive Golf World Ltd, Kerry Park Golf and Country Club Ltd ("Kerry Park") and London Bridge Securities Ltd. I shall refer to AAT and the other six companies collectively as Mr Heinl's companies. The principal claims made against Mr Heinl were in knowing assistance; against AAT and Paralegal primarily in knowing assistance but also in knowing receipt; and against the other companies in knowing receipt or as volunteers into whose hands the Bank's monies could be traced. There were also claims in conspiracy. The basis of the claims in knowing assistance was that Mr Heinl, knowing that more than £4.5m of the Bank's moneys which passed through accounts under his control had been fraudulently extracted from it by Mr Spjeldnaes, assisted in their misapplication. It is important to emphasise at the outset that it is not suggested that Mr Heinl or his companies played any part in the extractions themselves.

Broadly stated, there were two phases in Mr Spjeldnaes' and Mr Metcalf's dealings with the Bank's monies. To begin with they made investments on the Costa del Sol where, in February 1989, there was a bull market in land capable of being developed for the construction of holiday villas, associated in particular with golf courses. That market appeared to level off, indeed it started to fall, during 1990. Mr Spjeldnaes and Mr Metcalf then turned their attention to Ireland and, to a lesser extent, to Liverpool. Mr Heinl and his companies did not come onto the scene until the second phase. However, it is necessary, in describing the principal players, to include some of those who were only or mainly concerned in the first phase. I describe them mainly in the judge's own words.

Mr Spjeldnaes, a lawyer by training, was 44 years old at the time of the trial. He was described by the judge as coming from a moderately wealthy Scandinavian family, his father being Norwegian and his mother Swedish. Prior to taking up appointment as managing director of the Bank on 1st December 1987 he was the manager of the Danish bank's legal department. He tendered his resignation from the Bank on 10th April 1991, but remained working at its premises until 16th May of that year. The judge said of Mr Spjeldnaes:

"At the time of his appointment Mr Spjeldnaes enjoyed a considerable reputation. In his witness statement Mr Kaj Steenkjaer, the managing director and chief executive of the Danish bank says "Jan-Henning Spjeldnaes was a valued employee who enjoyed great respect throughout the organisation for his energy, initiative and drive". All witnesses who met Mr Spjeldnaes were agreed that, if somewhat distant at times, Mr Spjeldnaes was a man of charm, but with an obviously strong personality. All the Bank's witnesses agreed that Mr Spjeldnaes was impatient of the formalities of banking practice and record keeping. His disregard of internal practice and rules became known as the 'lex Jan Henning'."

Later, in dealing with the case against Mr Zoltan-Frank (see below), the judge said that Mr Spjeldnaes must clearly have been a man of great apparent authority and considerable persuasive powers.

Mr Metcalf, who was about 50 years old at the time of the trial, was born in Liverpool, the son of an English father and an Irish mother. In the late 1970s he set up a commercial vehicle supply business in Liverpool, which at one stage employed some 400 people. That business went into receivership in 1979, at which point Mr Metcalf went to Spain. He became involved in building development, in particular in the construction of developments for holiday makers on the Costa del Sol. It is not clear when he first met Mr Spjeldnaes, but it could well have been before the end of 1988, at which time Mr Metcalf was in partnership with two Spaniards in an estate agency business in Marbella. They had certainly met by the early part of 1989.

The third defendant, Victor Pablo Zoltan-Frank was 48 years old at the time of the trial, having been born in Argentina of Hungarian parents. He became a Spanish citizen in 1986, having resided in Spain for 20 years previously. By 1988 he was conducting a land broking business in Marbella and in April 1989 he was approached by Mr Metcalf with a view to a business association.

The fourth defendant, Rolf Jacobsen, was a Norwegian business associate of Mr Spjeldnaes. Although he was held liable for knowingly assisting Mr Spjeldnaes in what the judge described as the most blatant fraud of all the 17 transactions, his part in the affair is of no relevance to the subject matter of these appeals. Except where his name appears in material parts of the pleadings, he need be mentioned no more.

The fifth defendant, Julia Gould, is Mr Metcalf's third wife, by whom he has had two children. At the time of the trial she was 34 years old and estranged from her husband. She was sued in her unmarried name and has been referred to accordingly. Miss Gould worked in Mr Metcalf's estate agency business in Marbella from about 1986. She claimed to have been beneficially entitled to two houses in Spain and, after the second had been sold, to a house known as the Mount, Woodlands Road, Aigburth, near Liverpool ("the Mount"), which was Mr Metcalf's home in England and which Miss Gould claimed was bought out of the proceeds of that sale. The Bank claimed that it had been bought out of moneys which belonged to it.

Mr Heinl is a German citizen who has been resident in Ireland since 1975. His wife is Irish and they have three daughters. He described himself in evidence as a management consultant. By himself and through his companies he was at the material time conducting business as a commercial agent in Ireland. He was introduced to Mr Metcalf at the end of October or the beginning of November 1990 and thereafter formed a business association with him, primarily for the acquisition and development of land in the area of Waterville in southern Ireland for the purpose of golf related holidays. He later assisted Mr Metcalf in relation to building developments in Liverpool. The nature of Mr Heinl's association with Mr Spjeldnaes remains a matter of acute controversy.

The moneys in respect of which the Bank claims against Mr Heinl and his companies came from three only of the 16 loan transactions, namely those known as the Golf Homes transaction, the second Uffe Holdings ("Uffe 2") transaction and the Vastervik Properties ("Vastervik") transaction. In summary, between 28th February and 23rd May 1991, seven payments were made into accounts in the names of AAT, Paralegal, Fontevraud Investments Ltd and Aventurier Investments Ltd ("Fontevraud" and "Aventurier" - both Isle of Man companies owned and controlled at the material times by Mr Spjeldnaes and Mr Metcalf) amounting in the aggregate to £4,309,910. It is accepted on behalf of Mr Heinl and his companies that those moneys came either from the Uffe 2 transaction or from the Vastervik transaction. In addition, on 30th January, 27th February and 5th April 1991 respectively three payments amounting in the aggregate to £263,000 were made from the overdrawn Golf Homes sterling account at the Bank into accounts in the name of AAT. Again, it is accepted on behalf of Mr Heinl and his companies that those moneys came from the Golf Homes transaction.

The total of those payments was therefore £4,572,910, being the principal sum for which the judge held Mr Heinl to be liable. He also held some of Mr Heinl's companies (in particular AAT and Paralegal) to be liable for varying lesser amounts and made tracing declarations against all but three of them. I shall have to return to those payments and to the subsequent dealings with the moneys paid in greater detail later. At this stage it is enough to say that the Bank claims, and the judge found, that those dealings constituted dishonest assistance by Mr Heinl and some of his companies in the relevant breaches of Mr Spjeldnaes's fiduciary duty.

The trial started before Mr Justice Evans-Lombe on 4th June 1996 and lasted for 89 days. It ended on 11th March 1997, when judgment was reserved. When the trial opened Mr Spjeldnaes was represented by leading and junior counsel, he having served a defence denying liability and having put in a lengthy witness statement in support. However, on the fifth day the judge was informed that Mr Spjeldnaes would not be giving evidence and that his legal aid certificate had been withdrawn. He did not appear or give oral evidence and was not further represented at the trial. His witness statement was treated as part of the evidence.

Mr Metcalf also served a defence denying liability and put in a witness statement in support. He was represented by leading and junior counsel for much of the trial. However, on the 52nd day, after extensive cross-examination of the Bank's witnesses, the judge was shown a letter from Mr Metcalf indicating that he did not intend to give evidence. On the 65th day the judge was informed that Mr Metcalf's legal aid certificate had been withdrawn. He did not further appear or give oral evidence and was not further represented at the trial. His witness statement was also treated as part of the evidence.

Both Mr Zoltan-Frank and Miss Gould were represented throughout by leading and junior counsel, in each case with the benefit of a legal aid certificate. Mr Heinl was, as the judge put it, the only active defendant who paid for his own defence. He and his companies served defences denying liability and Mr Heinl put in a very lengthy witness statement in support. We have been told that, by incurring costs of between £600,000 and £700,000 before trial, he had run out of money. In the result, he and his companies were represented by junior counsel only intermittently. Counsel was present for two days during the five weeks which it took the Bank's leading counsel to open the case. On the 68th day, the judge having read Mr Heinl's witness statement, counsel made a short opening speech. He was present for the six days of Mr Heinl's cross-examination and afterwards re-examined him. The same procedure was adopted with Mr Pierce, (see below), who gave evidence on Mr Heinl's behalf. Mr Heinl himself put in two sets of written submissions, but no further oral submissions were made on behalf of him and his companies.

The judge's reserved judgment of 363 pages was handed down on 23rd July 1997. Having described the parties and referred to other preliminary matters, he dealt with each of the 17 transactions in detail. Between pp. 141 and 291 he then dealt one by one with the cases against (amongst others) Mr Spjeldnaes, Mr Metcalf, Mr Zoltan-Frank, Miss Gould and Mr Heinl, including at each stage the cases against the companies associated with the individual defendant. It may be of some significance that, whereas it took more than 80 pages to deal with the case against Mr Zoltan-Frank, it took just under 40 pages to deal with the case against Mr Heinl. The case against Miss Gould (other than the tracing claim in respect of the Mount) was dealt with in 9 pages. However, some of the arguments advanced by her counsel were directly relevant to the case against other defendants, in particular Mr Heinl and his companies.

In dealing with the case against Mr Spjeldnaes, the judge started by rejecting a quite hopeless argument advanced by counsel for Miss Gould to the effect that the Bank's only remedy against Mr Spjeldnaes was in contract and not as a fiduciary. Having then read passages from the authorities, including well known passages from the judgments of Lindley LJ in Re Lands Allotment Co [1894] 1 Ch 616, 631, and Buckley LJ in Belmont Finance Corp. v. Williams Furniture Ltd (No. 2) [1980] 1 All ER 393, 405, the judge concluded, correctly, that although directors are not accurately described as trustees of the company's assets (the assets being vested in the company), nevertheless they have always been treated as trustees of assets which are in their hands or under their control.

In a passage to which I will have to return, the judge then dealt with factual questions and concluded that the Bank was procured to enter into the transactions by Mr Spjeldnaes. He continued:

". . . the final question is whether in doing so he acted fraudulently that is dishonestly. It is, in my judgment, overwhelmingly apparent from my description of the facts surrounding each transaction that he did. Among the many aspects of those facts pointing to the dishonesty of Mr Spjeldnaes it is necessary only to draw attention to the diversion of substantial amounts from the advances for his personal benefit, his concealment from the Bank of his personal interest in the transactions, his deception of the Bank by misrepresenting the nature of the transactions, their terms and the parties to them in his reports to the Bank's board, both in such credit applications as he was compelled to produce and in his supplemental reports.

In my judgment, therefore, the Bank has made out its primary case against Mr Spjeldnaes for relief consequent upon his fraudulent breach of fiduciary duty in respect of each of the transactions in question."

The judge entered judgment against Mr Spjeldnaes in the sum of £46.13m plus interest of £27.123m.

The judge stated the primary case against Mr Metcalf to be that he knowingly assisted Mr Spjeldnaes in his fraudulent breaches of fiduciary duty in each of the transactions except one. He then dealt with and rejected another legal argument advanced by counsel for Miss Gould. That is an argument to which I will return. In dealing with the facts, the judge found:

"It seems to me that Mr Metcalf must have become involved in the dishonesty of Mr Spjeldnaes as soon as he realised that Mr Spjeldnaes had a personal interest in any of the transactions because such a personal interest was inconsistent with Mr Spjeldnaes' duties to protect the Bank's interests. If he was not already aware that Mr Spjeldnaes was acting dishonestly such knowledge must have put him on enquiry that Mr Spjeldnaes was so acting. There is no evidence that at any stage Mr Metcalf took any steps to contact other officials of the Bank with relation to the conduct of Mr Spjeldnaes. Accordingly the question of Mr Metcalf's dishonesty turns, in my view, on whether and if so when he became aware of Mr Spjeldnaes' personal interest in the transactions."

The judge concluded that there was an overwhelming case that Mr Metcalf was acting dishonestly from an early stage in his relationship with Mr Spjeldnaes and that the Bank had made out its primary case against him. He entered judgment against Mr Metcalf in the sum of £41.03m plus interest of £24.124m.

In dealing with the case against Mr Zoltan-Frank, the judge recorded his evidence that when he was approached by Mr Metcalf in April 1989 Mr Metcalf told him of the Bank's role as financier of the purchases of land in Spain thus far completed and that the Bank was willing to advance money to assist in future purchases of developments; that he agreed to enter into a joint venture with Mr Metcalf at the beginning of May 1989; and that it was not until the beginning of December 1989 that he realised that Mr Spjeldnaes was a director of the joint venture company. The judge said that there did not appear to be any substantial issue that Mr Zoltan-Frank assisted in some of the transactions and that the question was whether he gave that assistance with knowledge of the frauds of Mr Spjeldnaes and Mr Metcalf. He continued:

"It seems to be common ground that that turns on whether and if so when Mr Zoltan-Frank came to know, as he admits he ultimately did, that there was a third partner in the joint venture . . . and that that third partner was Mr Spjeldnaes in his private capacity and not in his capacity of managing director of and on behalf of the Bank."

Having acknowledged that the Bank's case against Mr Zoltan-Frank necessarily involved his having acted dishonestly, the judge concluded that the Bank had failed to discharge the burden of proof which rested upon it to establish that he was party to the fraud of Mr Spjeldnaes and Mr Metcalf from the beginning of May 1989. He stated his reasons for arriving at that conclusion at great length, starting thus:

"My primary reason is that it seems extremely unlikely that Mr Spjeldnaes and Mr Metcalf, who on my findings had already embarked on a campaign of fraud against the Bank, would immediately bring Mr Zoltan-Frank, to whom they had only been introduced shortly before, into their confidence."

Later the judge said that there seemed to be compelling evidence that Mr Spjeldnaes and Mr Metcalf did not take Mr Zoltan-Frank fully into their confidence at any stage in the history of their relationship and particularly not in its early stages. He therefore treated the case against Mr Zoltan-Frank as depending on whether it had been established that he must have known that Mr Spjeldnaes had a personal interest in the joint venture.

Having considered that question with great care and having observed that by early 1991 Mr Zoltan-Frank was undoubtedly suspicious of Mr Metcalf, Mr Spjeldnaes and the Bank, the judge continued:

"I have however come to the conclusion that the Bank have not established, even by this late stage, that Mr Zoltan-Frank must have known that the transactions in which he had been participating constituted a massive fraud on the Bank itself. With the benefit of hindsight it is easy to present the facts of some of the transactions as demonstrably uncommercial for a Bank to enter into so pointing to the fraud of Mr Spjeldnaes who authorised them. One must however bear in mind that as the details of the transactions in question filtered out to other Bank employees and officials that it was not until long after Mr Spjeldnaes had left the Bank that those officials formed the view that the Bank had been massively defrauded . . . in my judgment the Bank have not established the existence of circumstances known to Mr Zoltan-Frank from which it can be said that he must have realised that they were engaged in a fraud on the Bank, in particular, that Mr Spjeldnaes had a personal interest in the Continental venture conflicting with his position as managing director of the Bank."

The judge dismissed the Bank's claims against Mr Zoltan-Frank and his associated companies.

The Bank's primary case against Miss Gould was that she gave knowing assistance in the unlawful extraction of moneys from the Bank involved in four of the transactions and that she knowingly received the proceeds of three of them. The judge found that neither that case nor the other claims against Miss Gould had been established on the evidence. He therefore dismissed the action against her personally, though without costs. He made a declaration that the Bank could trace sums totalling £408,000 into the purchase of the Mount and a further declaration that it was held on trust for the Bank.

The case against Mr Heinl and his companies and its outcome have already been described in outline. Mr Heinl and all the companies other than Falstaff duly entered notices of appeal against the judge's decision. Falstaff, which is in a somewhat special position, has made two applications for leave to appeal which are also before us. Mr Heinl, who has been granted legal aid for the purposes of his appeal, has been represented by Mr Jonathan Harvie QC, Mr Hugo Page and Mr Clive Jones, the last named having been he who represented Mr Heinl and his companies intermittently at the trial. The Bank has been represented by Mr Trevor Philipson QC and Mr Antony White, both of whom appeared for it below.

Mr Heinl's companies were initially represented on their appeals and applications by leading and junior counsel, who lodged a skeleton argument on their behalf. However, at the start of the hearing on 14th April junior counsel, Mr Weisselberg, informed us that three of the companies, Paralegal, Waterville Timeshare and London Bridge Securities, had been struck off and dissolved in January and February of this year and that the remaining four were listed for strike off in the near future, one of them at 4.30 pm. that day, two on 16th April and the fourth between 14th and 21st May. The immediate result of that was that we struck out the appeals of the three companies which had been dissolved. Mr Weisselberg told us that immediate steps were being taken to keep the four remaining companies in existence, and later in the hearing we were told that those steps had been successful. However, Mr Weisselberg's instructions did not permit him to do more than move the appeals and applications for leave to appeal on behalf of those companies, to refer us to the skeleton argument and prospectively to adopt the submissions to be made on behalf of Mr Heinl. Having done just that, Mr Weisselberg withdrew.

The Bank's statement of claim was amended from time to time, it appears on ten different occasions. In order to understand the case as pleaded against Mr Heinl and his companies, it is necessary to start with the basic allegations as to the 16 loan transactions. In paragraph 23.1, which we were told was added in January 1993, it was alleged that each of those transactions and all payments by the Bank of moneys made available by means of them were made in the interest and for the benefit of the borrowers, the recipients of the payments and/or such of Mr Spjeldnaes, Mr Metcalf, Mr Zoltan-Frank and Mr Jacobsen as had a beneficial interest in or controlled or was connected with such borrower or recipient:

"and adversely to the interests, to the prejudice and at the expense of the Bank and constituted dishonest misappropriations in wilful breach of trust of moneys of the Bank."

It was further alleged that each of the borrowers, the recipients and the four named individuals knowingly participated in such dishonest breaches of trust and/or received the moneys and/or control of the moneys with such knowledge. Particulars of dishonest misappropriation were then given.

On the judge's undisputed findings, those basic allegations were made out. As will appear, their clear legal consequence was that the beneficial interest in the moneys paid away never left the Bank. However, it was argued by counsel for Miss Gould supported by counsel for Mr Zoltan-Frank, both on an unsuccessful five day application to strike out the statement of claim before the trial and at the trial itself, that the legal effect of the basic allegations, if made out, would merely be to render the loan transactions voidable, so that the beneficial interest in the moneys paid out would have passed to the borrowers unless and until the transactions were rescinded by the Bank, which they never were. That argument, had it succeeded, would have defeated the Bank's right to trace the moneys into the hands of volunteers and might also have affected its claims in knowing assistance and knowing receipt.

Faced with that sustained attack on the statement of claim as it then stood, the Bank's advisers understandably thought it prudent to introduce further amendments. On about the 37th day of the trial, "for the avoidance of doubt" and with the leave of the judge, paragraph 23 was amended so as to spell out the Bank's case in relation to the loan transactions in greater detail. That was done by pleading a primary case on two different bases and two alternative cases.

The primary case was based, first, on breach of fiduciary duty. In paragraph 23.2.1 it was alleged:

"Each of the transactions constituted the payment away of the Bank's money by [Mr Spjeldnaes] in dishonest breach of his fiduciary duty. Accordingly:

(a) Any Defendant who dishonestly assisted in [Mr Spjeldnaes's] breaches of fiduciary duty by assisting with the extraction of the moneys or by receiving the proceeds or by laundering or by assisting in the laundering of the proceeds is personally liable in equity as an accessory to pay compensation and/or to account and/or as a constructive trustee;

(b) The Bank retains or obtains an equitable proprietary right to recover the moneys extracted from it or the proceeds thereof save in so far as the same have been received by a bona fide purchaser for value without notice. None of the purported borrowers was a bona fide purchaser for value without notice. . ."

The second basis for the primary case was fraud, but I agree with Mr Philipson, the whole focus of the argument having been on the first basis, that the second can be disregarded. However, it is material to note that in paragraph 23.2.3, under the heading "Primary Case - additional feature of certain transactions", it was alleged, first, that in the cases (amongst others) of the Uffe 2 and Vastervik transactions the proceeds "were not paid to or for the benefit of or received by the purported borrowers but were mostly paid to or for the benefit of the defendants" and, secondly, that it "is immaterial whether the transactions were loans or mere devices, ie were voidable or void transactions."

The first alternative case, which was pleaded in paragraph 23.2.4, was described by Mr Philipson as an attempt to rely on the concept of a sham transaction as defined by Diplock LJ in Snook v. London & West Riding Investments Ltd [1967] 2 QB 786, 802. However, as Mr Philipson immediately accepted, that concept cannot be applied to the loan transactions in this case because, as Diplock LJ made clear, all the parties to a sham transaction must have a common intention that the relevant acts or documents are not to create the legal rights or obligations which they give the appearance of creating, an intention which cannot be attributed to the Bank here. That is enough to dispose of the first alternative case. The second, which was very much a long stop in the event of the failure of the primary and first alternative cases, asserted breaches of contract by Mr Spjeldnaes and the procuring of such breaches by Mr Metcalf, Mr Zoltan-Frank and Mr Jacobsen. That case, being one not targeted at Mr Heinl and his companies, can be disregarded.

Such was the Bank's pleaded case as to the 16 loan transactions. It was on that foundation that the specific case against Mr Heinl and his companies, as previously described, was pleaded in paragraphs 37, 48 and 49A to 49E of the statement of claim.

The basic allegations in paragraph 23.1 of the statement of claim having been made out, I have said that their clear legal consequence was that the beneficial interest in the moneys paid away never left the Bank. Although it was unnecessary for paragraph 23 to be further amended, the Bank's primary case based on breach of fiduciary duty, as subsequently pleaded, put the matter beyond doubt. That is established by the decision of this court in Rolled Steel Products (Holdings) Ltd v. British Steel Corporation [1986] Ch. 246.

The facts of that case, though complicated, can for present purposes be summarised as follows. On 22nd January 1969 the plaintiff company ("Rolled Steel"), in which Mr Shenkman (one of its two directors) was the majority shareholder, executed a guarantee of the indebtedness of a company wholly owned by Mr Shenkman to Colvilles Ltd, then wholly owned by British Steel Corporation (which later succeeded to all its assets and obligations). On the same day Rolled Steel executed a debenture creating fixed and floating charges over all its assets in favour of Colvilles, the debenture being delivered as an escrow and becoming unconditional and binding on 17th February 1969. The execution of the guarantee and the debenture, having been within its corporate capacity, was not ultra vires Rolled Steel in the correct sense. However, for reasons which sufficiently appear from the judgments in this court, the directors, as was known to Colvilles and British Steel, had no authority to cause Rolled Steel to enter into either transaction.

Vinelott J at first instance made an order that the guarantee be set aside and granted consequential relief. Though the appeal of British Steel and the receiver appointed under the debenture was dismissed, this court expressed the view that the appropriate form of relief was a declaration to the effect that neither the guarantee nor the debenture was the deed of Rolled Steel; see p. 299F-G. I agree with Mr Philipson that that was a significant indication of the legal consequences of the two transactions. The essential grounds on which the decision was based were twofold. First, it was held, on ordinary principles of agency, that a person who enters into a transaction with a company to which the directors, to the knowledge of that person, have no authority to commit it can acquire no rights under the transaction. Secondly, it was held that a person who enters into a transaction with a company in such circumstances becomes, by virtue of the directors' breach of fiduciary duty and his own knowledge of that breach, a constructive trustee for the company of any of its assets received pursuant to the transaction.

The leading judgment was given by Slade LJ. In regard to the agency point, he said at p. 295H:

"If . . . a person dealing with a company is on notice that the directors are exercising the relevant power for purposes other than the purposes of the company, he cannot rely on the ostensible authority of the directors and, on ordinary principles of agency, cannot hold the company to the transaction."

At p. 297E he said:

". . . the entering into the guarantee and, to the extent of the sum guaranteed, the debenture was beyond the authority of the directors, because they were entered into in furtherance of purposes not authorised by the plaintiff's memorandum. Despite this lack of authority, they might have been capable of conferring rights on Colvilles if Colvilles had not known of this lack of authority. Colvilles, however, did have such knowledge and so acquired no rights under these transactions."

In regard to the constructive trust point Slade LJ, having read the well known passage from the judgment of Buckley LJ in Belmont Finance Corp. v. Williams Furniture (No 2) (supra), said at p. 298D:-

"The Belmont principle thus provides a legal route by which a company may recover its assets in a case where its directors have abused their fiduciary duties and a person receiving assets as a result of such abuse is on notice that they have been misapplied. The principle is not linked in any way to the capacity of the company; it is capable of applying whether or not the company had the capacity to do the acts in question.

Furthermore, the Belmont principle must, in my opinion, be equally capable of applying in a case where the relevant misapplication of the company's assets by the directors has consisted either of an application for purposes not authorised by its memorandum or an application in breach of the company's articles of association, eg pursuant to a board resolution passed at an inquorate meeting of the directors."

Browne-Wilkinson LJ agreed with the judgment of Slade LJ and added some views of his own. In regard to the agency point, he said at p. 304A:

"Apart from questions of ostensible authority, directors like any other agents can only bind the company by acts done in accordance with the formal requirements of their agency, eg, by resolution of the board at a properly constituted meeting. Acts done otherwise than in accordance with these formal requirements will not be the acts of the company. However, the principles of ostensible authority apply to the acts of directors acting as agents of the company and the rule in Turquand's case, 6 E&B 327 establishes that a third party dealing in good faith with directors is entitled to assume that the internal steps requisite for the formal validity of the directors' acts have been duly carried through. If, however, the third party has actual or constructive notice that such steps [have] not been taken, he will not be able to rely on any ostensible authority of the directors and their acts, being in excess of their actual authority, will not be the acts of the company.

In regard to the constructive trust point, Browne-Wilkinson LJ said at p. 303H:

"If a third party has received the company's property with notice of the excess or abuse of powers, such third party will be personally liable as a constructive trustee and the company will be able to recover the property: see [the Belmont case]."

At p. 306H he said:

"A third party who has notice - actual or constructive - that a transaction, although intra vires the company was entered into in excess or abuse of the powers of the company, cannot enforce such transaction against the company and will be accountable as constructive trustee for any money or property of the company received by the third party."

Lawton LJ, who adopted generally the reasons given in Slade LJ's judgment, said of the agency and constructive trust points at p. 309E-F:

"What Mr Shenkman and his father did on 22 January [1969] by giving the guarantee was a misfeasance and British Steel Corporation knew it was. The legal consequences of what happened are set out in Slade LJ's judgment with which I agree."

Before explaining the application of the Rolled Steel decision to the present case I must say something about two of the defences which were advanced in the court below. Most, if not all, of the defendants asserted that the Bank had affirmed the 16 loan transactions as loans and was thus disentitled to the relief which it claimed. In a short and puzzling passage in his judgment the judge found that affirmation had been established on the facts. The Bank has put that finding in issue in this court by means of a respondent's notice and I will return to it later. However, quite apart from that defence there was the argument, already referred to, that caused the Bank's advisers to introduce the further amendments to paragraph 23 of the statement of claim.

The principal proponent of that argument having been Mr Bannister QC, leading counsel for Miss Gould, it was natural for the judge to deal with it when considering the Bank's claim to trace its moneys into the purchase of the Mount. Perhaps the best description of the argument is the judge's own. It was that the Bank could not trace the money into the Mount:

"because the money left the Bank pursuant to three contracts of loan, which have not been rescinded and which the Bank, by its subsequent actions with full knowledge of the material facts has affirmed. It follows, so Mr Bannister contends, that property in the Bank's money passed to the borrowing entities. The Bank has retained no interest in that money, equitable or otherwise, and so has no claim in rem to the money or to any property into which it has been converted. Mr Bannister submits that the Bank could have traced its money if, once the full facts became known to the Bank in late 1991, the Bank had taken steps to rescind the relevant agreements of loan. The Bank elected not to do this, indeed by the various steps which I have outlined the Bank has affirmed the loan contracts."

So the argument was that, quite apart from affirmation, the loan contracts were voidable and the beneficial interests in the moneys passed to the borrowers unless and until the loan contracts were rescinded. That argument was rejected by the judge, but because of the view that he took on the question of affirmation the rejection involved a longer process of reasoning than was necessary. The short and conclusive answer to the argument is that it is inconsistent with both grounds of the Rolled Steel decision.

In regard to the agency point, Slade LJ said of Colvilles, the party in the position of the borrowers here, that it "cannot hold the company to the transaction" and that it "acquired no rights" thereunder. Browne-Wilkinson LJ said that the acts of the directors "being in excess of their actual authority, would not be the acts of the company". Those observations all come to the same thing. Where an agent is known by the other party to a purported contract to have no authority to bind his principal, no contract comes into existence. The agent does not purport to contract on his own behalf and the knowledge of the other party unclothes him of ostensible authority to contract on behalf of the principal. Whether or not such a transaction is accurately described as a void contract, it is plainly not voidable. If no contract comes into existence, there is nothing to avoid or rescind, nor can any property pass under it. On that simple ground Mr Bannister's argument was doomed to failure.

On the constructive trust analysis, its failure was no less doomed. If a director fraudulently misapplies the company's money by paying it to someone who knows of the misapplication, it does not matter how the payment is dressed up, whether as an out and out payment, gratuitous or for consideration, or as a loan, secured or unsecured and with or without interest. Whatever its garb, it remains a misapplication of the company's money. Moreover, a transaction which gives rise to a constructive trust of the money or property paid or transferred pursuant to it is of its nature one by which the beneficial interest never passes to the payee or transferee. As Millett J said of the dishonest fiduciary in Agip (Africa) Ltd v. Jackson [1990] Ch. 265, 290E-F:

"He took advantage of his possession of [the signed payment orders] to divert the money and cause the separation between its legal ownership which passed to the payees and its beneficial ownership which remained in the plaintiffs".

Mr Harvie cited other passages in the judgment of Browne-Wilkinson LJ in the Rolled Steel case, with a view to persuading us that he did not subscribe to the analysis set out above. I am unable to accept that that was so. The passages I have read from his judgment conclusively demonstrate the contrary. Mr Harvie also relied on a footnote in Chitty on Contracts, 27th ed., vol 1, para 9-017 (p. 480), in which it is said that where a third party dealing with the company knows that the transaction is in excess of or an abuse of its powers he will not be able to enforce it against the company "but it is voidable at discretion of the company", the authority cited being Browne-Wilkinson LJ's judgment at pp. 306-307. With respect to the learned editor, I cannot see anything in that part of the judgment which establishes his proposition. In any event, for the reasons given, I cannot agree that the transaction is voidable. It is simply of no effect.

It follows that, subject to the question of affirmation, the moneys at all times remained the Bank's property in equity and can be traced accordingly. It also follows, subject to the like question, that it will be unnecessary to consider a further argument advanced by Mr Harvie to the effect that a person cannot be held liable in knowing assistance if at the time that the assistance is given there is no longer trust property or traceable proceeds of trust property in existence.

The judge did not address the Bank's primary case head on. He went straight to the first alternative case (see below). However, in considering the Bank's claim to trace its moneys into the purchase of the Mount he dealt with the primary case tangentially, when he said:

"In the present case the very payments over of the money from the Bank constituted a breach of fiduciary duty by Mr Spjeldnaes. Accordingly, and applying the words of Millett J in the Agip case there then took place 'the separation between its legal ownership which passed to the payees and its beneficial ownership which remained in the plaintiffs'."

That passage implies acceptance of the Bank's primary case.

The structure of the latter part of the judge's judgment was as follows. After he had dealt one by one with the cases against the various defendants ending with Mr Heinl and his companies there was a section headed "Conclusion" in which he summed up the effect of the judgment so far, setting out the relief to be granted against each of the defendants he had held to be liable. There was then a short section headed "The tracing claim generally" followed by a long penultimate section headed "Tracing claims", in which the judge dealt with each of those claims in turn beginning with the claim to the Mount. There was a final short section headed "Remaining matters".

Under the heading "The tracing claim generally", the judge said that it was convenient to deal at that point with the Bank's first alternative case. Having set out that case as pleaded, he referred to an earlier section of the judgment in which he had described how the Bank had showed the transactions in its books and records, how it had demanded repayment of the advances in accordance with the terms of the separate loans agreements, the dates on which those demands were made and how the Bank had initially pleaded the transactions as loans after the commencement of the proceedings. He added that where the Bank had held securities for any of those advances it had taken steps to preserve and/or to enforce them, and that where it had held guarantees it had enforced payment of such guarantees.

The judge then referred to some of the evidence and continued:

"It is apparent, therefore, that by the early autumn of 1991 the Bank were aware of Mr Spjeldnaes's frauds yet continued at that time and thereafter to treat the transactions as loans and had taken no steps to rescind them at the date at which these proceedings commenced, indeed, pleaded the transactions as loans only . . .

The consequence, however, seems to me to be that the Bank has affirmed the transactions as loans, that is, payments of money pursuant to contracts of loan with the various borrowing entities and they cannot now seek relief on the basis that the moneys paid pursuant to the transactions pleaded in paragraph 23.2.4 of the amended statement of claim were simply paid away for no consideration in breach of fiduciary duty. In my judgment it is too late for the Bank to advance its first alternative case with relation to these transactions."

I have described that passage in the judge's judgment as puzzling. There are two main reasons for that view. First, when dealing with the case against Mr Spjeldnaes, he had said:

"It is also true that from the records of the Bank's board meetings and of the board meetings . . . of the Danish Bank and the actions of the various directors and officials of the Danish Bank, when these transactions were discovered, it can be made to appear as if the Bank and the Danish Bank, having found out about the transactions, ratified them. I accept the Bank's evidence . . . that the boards of the Bank and of the Danish Bank were confronted successively with apparent completed loan transactions, upon which their information was complete, to which the Bank had been committed by its managing director, a long serving servant of the Danish Bank and of good reputation within it. In my judgment the reactions of the boards of the Bank and of the Danish Bank and their treatment of the loan transactions, when discovered, cannot be treated as any sort of ratification or adoption of any of the transactions so as to confer any sort of defence on Mr Spjeldnaes."

Although those observations were specifically directed to Mr Spjeldnaes, it is difficult to see why, if the Bank's treatment of the transactions, when discovered, could not be treated as an affirmation of them so as to confer a defence on Mr Spjeldnaes, they should be treated as conferring a defence on the other defendants.

Secondly and more significantly, affirmation of a breach of trust or fiduciary duty is, like concurrence, release or acquiesence, an equitable defence. It is well established of such defences that those who invoke them must show that the beneficiary or person to whom the duty is owed had a sufficient knowledge of the facts constituting the breach and its consequences to make it fair and equitable, in all the circumstances of the case, that he should be barred from obtaining the relief to which he would otherwise have been entitled; cf. Re Pauling's Settlement Trusts [1962] 1 WLR 86, 107, per Wilberforce J (concurrence), approved by this court in Holder v. Holder [1968] Ch 353 (acquiesence).

Both the skeleton argument lodged on behalf of Mr Heinl and that lodged on behalf of his companies have set out in some detail the acts and omissions of the Bank relied on as constituting affirmation. Viewing them generally, I am by no means sure that they come to more than those summarised by the judge. Be that as it may, affirmation is not a defence which can succeed on a catch all basis. It would have to be considered in relation to the transactions one by one. Before it could succeed in relation to any particular transaction, it would be necessary for the Bank's knowledge of that transaction and its consequences to be separately investigated. That was not done at the trial and it is too late to do it now. Moreover, it requires a spacious imagination to suppose that it could be thought fair and equitable, in all the circumstances, that the Bank should be barred from obtaining relief in respect of any of these transactions. Indeed, the suggestion that a bank, which, suspecting or even knowing that its moneys have, with the connivance of the borrower, been fraudulently misapplied in the guise of a loan, calls it in or takes steps to preserve or enforce its security, thereby curtails its rights to recover its moneys, is absurd. It is entitled, without risk of nonsuiting itself, to take every step available to it in order to achieve that end.

For these reasons, I would hold that the defence of affirmation is unsustainable on the facts and reverse the judge's finding on that issue. I should add that Mr Heinl did not plead affirmation in his defence. When the matter came back for further consideration on 1st October 1997 Mr Heinl sought leave to amend, but the judge, understandably enough, refused it, on the ground that he had already decided that affirmation did not enable a defendant in the position of Mr Heinl to escape liability. Mr Heinl has appealed against that refusal. Like the judge, I would refuse leave, but on the ground that affirmation is not established on the facts. Had I been of the view both that it was established and that it provided Mr Heinl with a good defence, I would have granted leave.

Although knowing receipt was pleaded in the alternative, the case made against Mr Heinl at the trial was in knowing assistance. That no doubt was because he, as opposed to his companies, did not receive any of the moneys. Claims in knowing assistance were also made against AAT and Paralegal, the success or failure of those claims depending upon the success or failure of the claims against Mr Heinl himself.

Although "knowing assistance" remains a convenient shorthand for describing one of the two well established categories of case in which someone who is not a trustee or does not owe a fiduciary duty to another can become liable as a constructive trustee of trust property (see Barnes v. Addy (1874) 9 Ch. App. 244, 251, per Lord Selborne LC), the Privy Council have stated a preference for "accessory liability" as a more accurate description of a principle in which dishonesty is the essential ingredient and in which "knowingly" is in their view better avoided as a defining ingredient; see Royal Brunei Airlines Sdn. Bhd. v. Tan [1995] 2 AC 378, 392, per Lord Nicholls of Birkenhead, who stated the principle thus:

"A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation."

An earlier section of the judgment contains a valuable discussion of what dishonesty means in this context, being equated for the most part with conscious impropriety; see p. 389. That section recognises that, even if it is better to remove "knowingly" from the definition, the application of the principle to the facts of any particular case invariably depends, to a greater or lesser extent, on the state of knowledge of the person who is sought to be made liable. For this reason I believe that counsel's fivefold categorisation accepted by Peter Gibson J in the Baden case [1993] 1 WLR 509, 575-576, will sometimes continue to be helpful in identifying different states of knowledge which may or may not result in a finding of dishonesty.

The case against Mr Heinl is that he dishonestly assisted in Mr Spjeldnaes's breaches of fiduciary duty to the Bank by causing £4,572,910 of its moneys to be passed through accounts in the names of AAT, Paralegal, Fontevraud and Aventurier, either as part of the concealment or laundering of those moneys or by assisting in their misapplication in other ways, knowing in each case that they had been fraudulently extracted by Mr Spjeldnaes from the Bank. In regard to the case based on money laundering it is clear in principle that the concealment of misapplied trust moneys in that way can constitute "assistance" and in Agip (Africa) Ltd v. Jackson [1990] Ch. 265, 293, Millett J found that it had. At p. 293 he said of the two accountant accessories in that case:

"The money was under their control from the time it was paid into Baker Oil's account until the time it left [their] clients' account in the Isle of Man Bank. One or other of them gave the actual instructions to the banks which disposed of the money. They plainly assisted in the fraud. The sole remaining question is: did they do so with the requisite degree of knowledge?"

In the present case Mr Justice Evans-Lombe, having stated that it was not in issue that £4,309,910 of the moneys was received into the accounts of AAT, Paralegal and Aventurier and that those receipts substantially originated from the Golf Homes, second Uffe and Vastervik transactions said:

"There is no issue that the accounts into which those sums were received were, at the material time, controlled by Mr Heinl either because they were accounts in the name of his companies AAT and Paralegal or accounts operated by AAT, in the name of Aventurier. Mr Heinl accepts that he was instrumental in making payments out of those accounts. It is also not in issue that three payments totalling £263,000 were made from a Golf Homes account, to accounts in the name of AAT in January, February and April 1991 as already described and thereafter disposed of. It follows, in my judgment, that Mr Heinl assisted in Mr Spjeldnaes's fraud. As in the Agip case 'the sole remaining question is did (Mr Heinl) do so with the requisite degree of knowledge?'."

It will be observed that the judge did not include Fontevraud amongst the account holders into which the £4,309,910 was received, a point to which I will return later.

Although the moneys had been extracted from the Bank some weeks beforehand and had already passed through accounts in the Isle of Man and Jersey controlled by Mr Spjeldnaes and Mr Metcalf, there has been no appeal against the judge's finding that, after the moneys had come under his control, Mr Heinl assisted in Mr Spjeldnaes's frauds by dealing with them in accordance with the instructions of Mr Spjeldnaes and Mr Metcalf and for their benefit. The question is whether he did so dishonestly or, as the judge put it, with the requisite degree of knowledge. In order to answer that question it is necessary to describe the dealings in some detail. Since it is the assistance which must be dishonest, it is Mr Heinl's state of knowledge at the time the dealings were carried out that is material.

Since writing the great bulk of what follows I have had the advantage of reading in draft the judgment to be delivered by Mr Justice Colman. I am fortified in my own conclusion on the issue of dishonest assistance by the knowledge that, after considering the material events and the evidence bearing on them, in particular Mr Heinl's cross-examination, in great detail, Mr Justice Colman has independently arrived at the same conclusion. Except where otherwise appears, I gratefully adopt his analysis and reasoning in support of my own conclusion.

The Uffe 2 transaction may be said to have originated in the payment, on 1st February 1991, of about 1.287 billion pesetas, thus extinguishing the first Uffe loan and leaving a balance which, on the same day, was transferred into an account at the Bank known as the Uffe Holdings top account. Four days later, on 5th February, the net balance after deduction of the Bank's arrangement fee (about 315 million pesetas) was transferred in sterling (£1,721,837) from Gibraltar to a current account in the name of Peregrine Corporate Services Ltd ("Peregrine") at Lloyds Bank in the Isle of Man, Peregrine being an Isle of Man registration agent which provided Mr Spjeldnaes and Mr Metcalf with companies through which they operated. On 11th February £1,721,816 was transferred from the Peregrine account into, first, the current account and then the deposit account at the same bank of Fontevraud. On 28th February £1,000,671 was transferred back into Fontevraud's current account and on the same day £1m was transferred from that account to an account of Fontevraud at the Anglo Irish Bank ("AIB") in Limerick.

The instructions for the foregoing transfers were all given by Mr Spjeldnaes or Mr Metcalf. Mr Heinl played no part in them. He maintained in evidence that he did not manage Fontevraud's account at the AIB in Limerick. Although the judge did not include Fontevraud when naming the holders of the accounts into which the £4,309,910 was received (see above) it seems plain from the arithmetic that the £1m was included in it. It is possible that the judge made a mistake on that point. But if he did, it was favourable to Mr Heinl, who would otherwise have been debited with the £1,016,234 next referred to. I therefore proceed on the footing that the £1m came under Mr Heinl's control on 28th February 1991.

On 17th April 1991 £1,016,234 was transferred from the Fontevraud account at the AIB in Limerick to the Paralegal no 1 account at the same bank. At that stage, if not before, the moneys came under the control of Mr Heinl. On the following day, 18th April, £996,564 was transferred from that account to an Aventurier account at the same bank, where it remained until 30th July 1991. On that date £1,028,367 was transferred from that account to the Paralegal no 2 account at the same bank whence, on the same day, transfers of £342,399 and £684,798 were made to the nos 1 and 2 accounts respectively, also at the same bank, of Trans-Atlantic Management Services Ltd ("TAMS"), an Isle of Man company effectively owned and controlled by Mr Metcalf through which he acquired his interest in the Irish lands project jointly with Mr Heinl. Those were the material dealings with the £1m.

I now return to the balance of the £1,721,816 transferred from the Peregrine account to the Fontevraud deposit account at Lloyds Bank, Isle of Man on 11th February 1991. On 26th March 1991 £739,690 was transferred from that account to the Fontevraud current account at the same bank, whence, on the same day, £700,000 was paid into the deposit account of Aventurier at the National Irish Bank ("NIB") in Dublin, a draft for that amount being handed by Mr Metcalf's brother in law to Mr Heinl, who then paid it in. Since it is accepted that Aventurier's Irish accounts were managed by AAT, at that stage the £700,000 came under the control of Mr Heinl. On 5th June 1991 £714,000 was transferred from Aventurier's deposit account at the NIB in Dublin to the AAT fixed deposit account at the same bank, where it remained for some months. Subsequently, £144,736 was transferred to the AAT current account at the same bank in two payments of £139,417 and £5,319 made on 30th September and 29th November 1991 respectively and £550,000 was transferred to the account, also at the same bank, of Daylex Holdings Ltd ("Daylex" - an Irish company owned and controlled by Mr Spjeldnaes and Mr Metcalf of which Mr Heinl was also a director) in three payments of £300,000, £200,000 and £50,000 made on 31st October 1991 and 23rd January and 5th August 1992 respectively. Those were the material dealings with the £700,000.

The judge dealt with the Vastervik transaction in some detail. For present purposes the story can be taken up as at 10th January 1991, when sums amounting in the aggregate to just under 1.3 billion pesetas were transferred from two Vastervik accounts to another account at the Bank known as the Continental Land top account. On 16th January 450 million pesetas was paid from that account, on the instructions of Mr Spjeldnaes, to an unnamed account at the AIB in Jersey, where it was converted into sterling and split into two, £266,951 being paid into an account at the same bank in the name of Recolte Investments Ltd ("Recolte" - a Gibraltar company) and £2,135,611 being paid into an account at the same bank in the name of Hersal Investments Ltd ("Hersal" - an Isle of Man company). Both the Recolte and Hersal accounts were set up on the instructions of Mr Metcalf, and he and Mr Spjeldnaes were the authorised signatories on them.

I deal first with the Recolte account. Several further payments having been made into it, on 15th April, on the instructions of Mr Metcalf, two payments were made out of it for the benefit of Mr Spjeldnaes. On 1st May £701,283 was transferred from the Recolte account to a current account in the name of Aventurier at the AIB in Jersey. The transfer was effected by Mr Metcalf by a devious method which the judge found an honest person would not have adopted. However, there being no suggestion that Mr Heinl was involved at that stage, the details are immaterial.

On 23rd May £669,970 was transferred, on the instructions of Mr Metcalf, from the Aventurier current account at the AIB in Jersey to the Paralegal no 2 account at the AIB in Limerick, where it came under the control of Mr Heinl. On 30th July 1991 £684,798 was transferred from that account to the no 2 account of TAMS at the same bank, whence it was thereafter disbursed in numerous transactions for the benefit of Mr Spjeldnaes and Mr Metcalf.

I return to the Hersal account at the AIB in Jersey, into which £2,135,611 was paid on 16th January. On 22nd March £2,151,164 was transferred from that account to the Aventurier account 36677 at the same bank. On 3rd April two sums of £400,000 and £599,970 were transferred from that account to the Aventurier nos 1 and 2 accounts respectively at the AIB in Limerick, where they came under the control of Mr Heinl. On 23rd May two further sums were transferred from the Aventurier account 36677 at the AIB in Jersey. The first was a sum of £339,970 which was transferred to the Paralegal no 2 account at the AIB in Limerick, where it came under the control of Mr Heinl. The second was a sum of £599,970 which was transferred to the AAT deposit account at the NIB in Dublin, where it came under the control of Mr Heinl. From the four accounts which had been fed from the Aventurier account 36677 at the AIB in Jersey sums were thereafter disbursed in numerous transactions for the benefit of Mr Spjeldnaes and Mr Metcalf.

Having described the transaction at some length, the judge said that by late 1989 the proceeds of the three Golf Homes advances had been spent, but that nonetheless payments continued to be made from two accounts at the Bank in the name of Golf Homes, thus putting them into overdraft, one of which was the Golf Homes sterling account. On 30th January, 27th February and 5th April 1991 payments of £200,000, £27,000 and £36,000 respectively were made from that account into an account or accounts in the name of AAT at the NIB in Dublin, where they came under the control of Mr Heinl. Each of the three payments was made by a cheque drawn on the Golf Homes sterling account which appeared to Mr Mark Ballamy, the author of the Price Waterhouse report, to have been signed by Mr Metcalf. The £200,000 appears to have been used to purchase Mr Metcalf's interest in the share capital of Waterville Timeshare Ltd. The ultimate destination of the £27,000 and the £36,000 is unclear, but it may be assumed that those sums were also disbursed for the benefit of Mr Metcalf.

As I have stated, the case against Mr Heinl is based partly on an allegation that he caused the Bank's moneys to be passed through accounts under his control as part of the concealment or laundering of those moneys. The judge found that Mr Heinl took part in what were plainly operations of that kind and gave two examples. The first was in relation to the £1m from the Uffe 2 transaction. Having said that the instructions for the transfers down to and including the transfer of that sum to Fontevraud's account at the AIB in Limerick on 28th February 1991 appeared to have been carried out on the instructions of Mr Spjeldnaes or Mr Metcalf, the judge said:

"Thereafter what was left of the money after various payments passed into accounts of Paralegal, Aventurier and TAMS which were controlled by Mr Heinl.

Mr Heinl was asked to provide any commercial reason for passing money through these accounts to its ultimate destination. He was not able to provide any but simply said that he acted on the instructions of Mr Metcalf throughout."

The judge said that the same picture was portrayed by the transfer of the £700,000 from the Uffe 2 transaction to the Aventurier deposit account at the NIB in Dublin on 26th March 1991. He said of the £700,000:

"From its arrival in that account it appears to have passed into an account controlled by AAT and Mr Heinl and ultimately £139,417 is seen to be transferred into an AAT current account at the National Irish Bank Dublin. Its course thereafter can be followed on page 56 of the Price Waterhouse charts.

I have already found Mr Metcalf guilty of money laundering operations with relation to the proceeds of the Vastervik transaction. It seems to me that these two passages of money from the Uffe Holdings Top account into and through accounts controlled by Mr Heinl are further examples of money laundering to which Mr Heinl lent his aid."

Where it is necessary to determine whether someone has taken part in money laundering operations the first question must be to ask whether the dealings with the money are inherently likely to have been carried out for the purpose of concealing its origins; in other words, whether the money appears to have been transferred from account to account for no other purpose. With respect to the judge, and with the exception of the dealings with the £1m from the Uffe 2 transaction, I do not think that any of Mr Heinl's dealings with the moneys from the Uffe 2, Vastervik or Golf Homes transactions have that appearance.

In regard to the dealings with the £1m from the Uffe 2 transaction, two points can be made. First, it is difficult to understand why it was thought necessary to transfer £1,016,234 from the Fontevraud account at the AIB in Limerick to the Paralegal no 1 account at the same bank on 17th April when, on the following day, £996,564 was transferred from the Paralegal no 1 account to another Aventurier account, also at the same bank. Why was the £996,564 not transferred directly to the Aventurier account? Secondly, it is difficult to understand why it was thought necessary to transfer £1,028,367 from the Aventurier account to the Paralegal no 2 account at the same bank on 30th July 1991 when, on the same day, transfers of £342,399 and £684,798 were made to the nos 1 and 2 accounts respectively of TAMS, also at the same bank. Why were the £342,399 and £684,798 not transferred directly to the two TAMS accounts?

In my view Mr Heinl's dealings with the other moneys do not give rise to such questions. Although Mr Philipson tried to make something of the fact that the £700,000 from the Uffe 2 transaction had been handed to Mr Heinl in the form of a draft, I see nothing inherently suspicious about that and it was not a point that was mentioned by the judge. Moreover, that sum remained in the deposit account of Aventurier at the NIB in Dublin from 26th March until 5th June 1991. On the latter date it was transferred (presumably with interest) to the AAT fixed deposit account at the same bank, from which no onward transfer was made until 30th September 1991. There seems to have been nothing inherently suspicious either about the transfer to the AAT fixed deposit account on 5th June or about the two transfers to the AAT current account at the same bank of £139,417 and £5,319 made on 30th September and 29th November 1991 respectively or about the three transfers of £300,000, £200,000 and £50,000 to the Daylex account, also at the same bank, on 31st October 1991 and 23rd January and 5th August 1992 respectively.

Similarly with the moneys from the Vastervik transaction. The £669,970 from the Recolte account remained in the Paralegal no 2 account at the AIB in Limerick from 23rd May until 30th July 1991, when £684,798 of it was transferred to the no 2 account of TAMS at the same bank where, incidentally, it joined the £684,798 (part of the £1m from the Uffe 2 transaction) which was transferred to that account on the same day. Having reached that account, the £684,798 was thereafter disbursed in numerous transactions for the benefit of Mr Spjeldnaes and Mr Metcalf. The four sums of £400,000, £599,970, £339,970 and £599,970 from the Hersal account which were transferred to the Aventurier nos 1 and 2 accounts at the AIB in Limerick, the Paralegal no 2 account at the same bank and the AAT deposit account at the NIB in Dublin on 4th April and 23rd May 1991 were also thereafter disbursed in numerous transactions for the benefit of Mr Spjeldnaes and Mr Metcalf. I cannot see anything inherently suspicious in the dealings with the moneys from the Vastervik transaction.

The same must be said of the moneys from the Golf Homes transaction. Of the £263,000 in question, £200,000 appears to have been used to purchase Mr Metcalf's interest in the share capital of Waterville Timeshare Ltd and the remaining £63,000 may be assumed to have also been disbursed for his benefit.

I am therefore of the opinion that the judge's finding that Mr Heinl took part in what were plainly money laundering operations is only capable of being sustained in relation to the £1m from the Uffe 2 transaction. Whether it ought to be sustained, even to that extent, is a question to which I will return. At this point I turn to the more general allegation against Mr Heinl. If, at the time of any dealing which assisted the misapplication of the moneys, he knew that they had been fraudulently extracted from the Bank by Mr Spjeldnaes, Mr Heinl would be liable in dishonest assistance, irrespective of whether the dealing could be described as a money laundering operation or not. So the question remains: Did Mr Heinl have the requisite degree of knowledge at the time the dealings were carried out?

After asking himself the same question at the end of the last passage I have read from his judgment, the judge said, in another important passage:

"It seems to me that to establish that Mr Heinl had the requisite knowledge it must be shown, first, that he knew that all or any part of the £4.3 million received originated from moneys advanced by the Bank and, secondly, that at the time of any such receipt or subsequent disposition of the money Mr Heinl knew that Mr Spjeldnaes had a personal interest in the assets and businesses into which the money was being poured. Like Mr Zoltan-Frank Mr Heinl was an intelligent and apparently experienced business man. If he simultaneously knew that funds coming into his hands were being or had been received from a Bank of which Mr Spjeldnaes was or had been managing director he must have been put on enquiry that Mr Spjeldnaes was acting in breach of fiduciary duty in the absence of any confirmation that the board of directors of the Bank sanctioned such an operation."

So, in order to answer the question whether Mr Heinl had the requisite degree of knowledge, the judge set himself to answer two other questions: first, whether Mr Heinl knew that all or any part of the moneys which passed under his control originated from moneys advanced by the Bank; secondly, whether at the time of any dealing with the money Mr Heinl knew that Mr Spjeldnaes had a personal interest in the assets and businesses into which it was being channelled. The judge's view was that if both those questions were answered in the affirmative, Mr Heinl "must have been put on enquiry that Mr Spjeldnaes was acting in breach of fiduciary duty". Although that test, if read literally, would fall short of what is required for dishonesty, it is clear from other passages in his judgment that what the judge meant was that Mr Heinl must have known that Mr Spjeldnaes was acting in breach of fiduciary duty. I agree with Mr Philipson that that was the test he did apply.

The judge dealt with the second of his questions first. He began his consideration of the case against Mr Heinl with a long and detailed chronological account of the relationship between Mr Heinl on the one hand and Mr Spjeldnaes and Mr Metcalf on the other, from which he concluded that it was entirely apparent that Mr Heinl was aware that Mr Spjeldnaes was in partnership with Mr Metcalf for the purposes of investment in property in Ireland by the end of February 1991, if not before. That finding has not been seriously questioned in this court. Its real significance was and still is that it was contrary to the whole of Mr Heinl's case from the time that AAT's defence, prepared on his instructions, was served in October 1992 until the close of his evidence before the judge in December 1996. It was inevitable that the judge's view of the reliability of Mr Heinl's evidence on other matters should be influenced by his persistent lying on that important point. That is another matter to which I will return in due course.

The answer to the first of the judge's questions and his view that, if both were answered in the affirmative, Mr Heinl must have known that Mr Spjeldnaes was acting in breach of his fiduciary duty to the Bank are more problematical. The judge's answer to his first question became merged in his answer to the second. He said:

"The evidence before the Court of what happened in the months succeeding February and March 1991 until the commencement of these proceedings and thereafter indicate that Mr Metcalf, Mr Spjeldnaes and Mr Heinl were concerned to conceal Mr Spjeldnaes's personal interest in the relevant businesses prior to his leaving the Bank."

The judge then took two of what he described as the more blatant examples of such attempts.

The first example was an allegedly forged letter of resignation by Mr Spjeldnaes as a director of Kerry Park on 1st May 1991, following his resignation as managing director of the Bank on 10th April of that year. The judge said that there could be no justification, on Mr Heinl's case, for Mr Spjeldnaes remaining a director of Kerry Park after he had ceased to be managing director of the Bank. Having considered the evidence, both oral and documentary, at some length, the judge found that the letter had been concocted at a later date and probably as late as May 1992. This is a point against Mr Heinl on which Mr Philipson has strongly relied in this court. I agree with Mr Justice Colman that the judge was entitled to draw the inference that the letter had been concocted in 1992 by Mr Heinl or on his instructions, in order to conceal Mr Spjeldnaes's continuing interest in Kerry Park.

The second example arose out of certain payments made to a company called Bathgate Ltd, which between January 1990 and May 1992 sold various medals and military memorabilia to Mr Spjeldnaes, the payments being made from accounts under the control of Mr Heinl. Mr Richard Kirch of Bathgate said in evidence that certain of the invoices had affixed to them sticky labels masking the original address care of Daylex in Co. Wicklow, the address on the labels being care of the Bank in Gibraltar. He added that the sticky labels were put on at the request of Mr Spjeldnaes. The judge said that there could only have been one reason for Mr Spjeldnaes's intervention, namely, to conceal the fact that Mr Heinl must have received an invoice in that form and directed payment of it from funds held by him. However, I am unable to see how that can have been evidence of a concealment by Mr Heinl. I should add that that was not a point which was relied on by Mr Philipson in oral argument in this court.

Having referred to those examples of the attempts to conceal Mr Spjeldnaes's personal interest in the relevant businesses prior to his leaving the Bank, the judge said:

"In my judgment the attempts by Mr Metcalf, Mr Spjeldnaes and Mr Heinl to conceal Mr Spjeldnaes's personal interest in the developments in Ireland and Liverpool etc extending back to a time before he left the Bank can only be explained on the basis that they knew that the sums of money being introduced for the purpose of those investments came from the Bank of which at the material time Mr Spjeldnaes was, or had recently been, managing director."

The judge then, in the passages to which I have referred, dealt with Mr Heinl's alleged participation in money laundering operations.

The judge stated his conclusion in regard to the case against Mr Heinl in the following two paragraphs, of which the first is the decisive one:

"To the question why was it necessary to take steps at the time to conceal Mr Spjeldnaes's role in all these matters, to launder the money on its way to the AAT, Paralegal and Aventurier accounts and to present a misleading picture in evidence before me, the answer can only be that Mr Metcalf, Mr Spjeldnaes and Mr Heinl appreciated that the source of the money used to effect the various investments was not profits made by Mr Metcalf from property dealings in Spain, as Mr Heinl said he was informed, but money abstracted from the Bank in fraudulent breach of fiduciary duty.

In my judgment therefore the Bank is entitled to relief against Mr Heinl on the basis that he gave knowing assistance to Mr Spjeldnaes's breach of fiduciary duty in assisting with the disposition of moneys totalling £4,572,910, knowing of such breach from a date before any part of that sum was received by him and thereafter disposed of, namely at least by February 1991 and probably by early January 1991."

As appears from that passage, Mr Heinl's evidence throughout was that he was informed and believed that the moneys which came under his control were profits made by Mr Metcalf from property dealings in Spain. Even if it is accepted that Mr Heinl knew, first, that Mr Spjeldnaes had an interest in some at least of those moneys and, secondly, that some at least of them originated from moneys advanced by the Bank, it does not follow that he knew that they had been fraudulently extracted from it by Mr Spjeldnaes. The judge's view that Mr Heinl must have known that Mr Spjeldnaes was acting in breach of fiduciary duty was an inference of dishonesty and, as such, could only be justified if the evidence of dishonesty was sufficiently convincing to support such a finding.

On behalf of Mr Heinl, Mr Harvie has emphasised the disadvantages from which he suffered at the trial, in particular his inability to cross-examine Mr Spjeldnaes or Mr Metcalf and his lack of legal representation except intermittently. In relation to the latter point Mr Harvie drew a contrast between the way in which the judge dealt with the case against Mr Zoltan-Frank, who was represented by leading and junior counsel throughout, and the way in which he dealt with the case against Mr Heinl. It took the judge more than 80 pages to deal with the case against Mr Zoltan-Frank, but only 40 pages (25 of them being taken up with background and the chronological account to which I have referred) to deal with the case against Mr Heinl. Naturally, Mr Harvie did not suggest that the dismissal of the Bank's claims against Mr Zoltan-Frank was a reason for dismissing its claims against Mr Heinl. But he did submit that Mr Heinl's lack of adequate legal representation had the result, perhaps inevitable, that the judge did not put the case against Mr Heinl in a correct framework. It was also, I think, implicit in Mr Harvie's argument that the judge was hampered in his consideration of the case against Mr Heinl, to which he came only after considering the cases against the other principal players, by the sheer magnitude of the trial and the multifarious factual issues raised at it.

As has been seen, the judge treated the case against Mr Zoltan-Frank as depending on whether it had been established that he must have known that Mr Spjeldnaes had a personal interest in the joint venture in which he had taken part with Mr Metcalf. In other words, the case against him was similar to that against Mr Heinl. However, as Mr Philipson pointed out, there was a crucial distinction, in that Mr Zoltan-Frank throughout admitted knowledge of Mr Spjeldnaes' involvement in the joint venture, his defence being that he thought that the involvement was on behalf of the Bank.

Mr Harvie's principal complaint on this part of the case is this. The judge's primary reason for concluding that the Bank had failed to make out dishonesty on the part of Mr Zoltan-Frank was that it seemed extremely unlikely that Mr Spjeldnaes and Mr Metcalf could have immediately brought him into their confidence. Later he said that there seemed to be compelling evidence that Mr Spjeldnaes and Mr Metcalf did not take Mr Zoltan-Frank fully into their confidence at any stage in the history of their relationship. However, the judge did not ask himself a similar question in the case of Mr Heinl. Mr Harvie submitted that that was a serious omission. On the face of it, there was no more reason for Mr Spjeldnaes and Mr Metcalf to have taken Mr Heinl into their confidence than Mr Zoltan-Frank. Mr Philipson retorted that Mr Spjeldnaes and Mr Metcalf had a quite different relationship with Mr Heinl, whom they employed as a commercial agent. Not so Mr Zoltan-Frank, who was a co-venturer with them.

A related point on which Mr Harvie also relied was the judge's omission, in dealing with the case against Mr Heinl, to consider the implications of Mr Spjeldnaes' charm and strong personality, on which, as the judge said, all witnesses who had met him were agreed. Again, in dealing with the case against Mr Zoltan-Frank, the judge said that Mr Spjeldnaes must have clearly been a man of great apparent authority and considerable persuasive powers. He said nothing about those qualities as they might have affected Mr Heinl.

Mr Spjeldnaes's formidable qualities are directly relevant to another point on which Mr Harvie relied. During his chronological account the judge referred to the first meeting between Mr Heinl and Mr Spjeldnaes on 29th November 1990 at the Grosvenor Hotel in Chester, when Mr Metcalf was also present. The judge recorded that in cross-examination Mr Heinl said that he understood Mr Spjeldnaes's presence as being in the capacity of the managing director of a potential lending bank to approve the proposed investment in Ireland, and that Mr Spjeldnaes described his role as "guardian angel" of Mr Metcalf, by which he meant general supervisor of Mr Metcalf's business affairs and adviser.

Mr Harvie made the relatively minor point that Mr Heinl had already candidly deposed to these matters in his witness statement. His major complaint was that, when he came to consider whether Mr Heinl knew that Mr Spjeldnaes had a personal interest in the assets and businesses into which the money was being channelled, the judge, without considering the impact of Mr Spjeldnaes's qualities and personality, ridiculed Mr Heinl's evidence on this point. He said:

"I regard the concept of Mr Spjeldnaes acting as a 'guardian angel' of Mr Metcalf impossible to accept as an explanation for his presence. The idea that the managing director of an important branch of a major international bank should spend even a small part of his time on visits to the United Kingdom and Ireland to supervise the affairs of one customer is, in my view, entirely ridiculous."

Mr Harvie submitted that Mr Heinl's account of what Mr Spjeldnaes said was entirely plausible; that the judge's characterisation of it as ridiculous showed an approach that was not only unwarranted but a misunderstanding of what was being said; and that the judge's view of that matter infected the rest of his judgment.

Mr Harvie further submitted that the information given to Mr Heinl that the moneys came from profits made by Mr Metcalf from property dealings in Spain was plausible; that the judge gave no explanation as to how Mr Heinl must have known that the moneys came from the Bank when it was transferred to the accounts under his control from accounts either in the Isle of Man or Jersey; and that the judge gave no consideration to letters dated 8th May 1991 which Mr Heinl wrote to at least three Irish banks in regard to a project at Jericho Lane, Liverpool, openly stating that Mr Spjeldnaes was one of the directors of a company involved in the project, and further that:

"Mr Spjeldnaes is the Managing Director of the Jyske Bank, Bank of Jutland, in Gibraltar. He is leaving the Bank on the 1st June 1991 to concentrate on his private enterprise commitments . . ."

While I agree with Mr Justice Colman that Mr Heinl's response to his cross-examination about those letters was devious and entirely unconvincing (this was part of his persistent lying already referred to), I think that Mr Harvie was entitled to rely on them in order to show that in reality Mr Heinl was acting openly about Mr Spjeldnaes's role at the time.

I return to the decisive paragraph in the judge's judgment, in which he referred, first, to the concealment of Mr Spjeldnaes' role in the transactions, secondly, to the laundering of the money "on its way to" the AAT, Paralegal and Aventurier accounts and, thirdly, to the presentation of a misleading picture in evidence before him. I take those matters in turn. First, the concealment of Mr Spjeldnaes' role in the transactions, in respect of which I have already discounted one of the judge's two examples. That leaves Mr Heinl's resignation letter dated 1st May 1991 of which it was certainly open to the judge to take a serious view against Mr Heinl.

As to the money laundering operations, I have already expressed the opinion that it is only in respect of the £1m from the Uffe 2 transaction that the judge's finding is capable of being sustained. I now consider whether it ought to be sustained. Mr Harvie referred us to a passage towards the end of Mr Heinl's six-day cross-examination, in which he was referred to the £1,016,234 transferred to the Paralegal no 1 account at the AIB in Limerick and to the £996,564 transferred from that account to an Aventurier account at the same bank on the following day. On being asked by Mr Philipson what was the commercial purpose of those transfers, Mr Heinl said:

"I do not know. From Mr Metcalf's instructions we accepted them. We passed them on to the Anglo-Irish Bank who knew Mr Metcalf and knew that these were his moneys."

On being pressed to explain why the money should need to pass through the account of Paralegal before landing in the account of Aventurier, Mr Heinl said:

"I think from memory he claimed he had made a mistake that it should have gone from Fontevraud to Aventurier. I think there were some sort of written instructions - I no longer know, but all I know is that we recorded it in our notes and our reports to Mr Metcalf exactly the same way as he instructed . . ."

It having been put to him that there was no commercial purpose for such a transfer other than to disguise the source of the money, Mr Heinl said:

"Not so. These were Mr Metcalf's moneys. What he does with his moneys and how he asks them to be managed was a matter for him."

There were then exchanges between the judge, Mr Philipson and Mr Heinl, in which Mr Heinl said that he did not control the Fontevraud account at the AIB in Limerick. Later, after Mr Heinl's attention had been drawn to the transfer of the £1,028,367 from the Aventurier account at the AIB in Limerick to the Paralegal no 2 account at the same bank and the transfers, on the same day, from that account of £342,399 and £684,798 to the nos 1 and 2 accounts respectively, also at the same bank, of TAMS, there was the following exchange:

"Q: The truth is, Mr Heinl - the regrettable truth is that you provided services to Metcalf and Spjeldnaes to obscure the source of the money they had put into your hands; that is right, is it not?

A: Mr Philipson, that is not true, and I have said it over and over for seven days, it is not true. Here we are, you are transacting something in the same bank, the bank who had met Mr Metcalf, there was no hiding. . . It is Mr Metcalf, Mr Metcalf's money, in a bank to which we have introduced him, and they knew it was his money."

At that point the judge intervened and asked Mr Heinl a series of questions, starting with a reference to £1.7m going though nine different accounts. Those exchanges included the following:

"Q: Looking at it yourself now, what explanation can you give for dealing with the sum of money in this way?

A: All I can say to you, my Lord, is that we had - by then you are talking well into the middle of 1991 -we had met Mr Metcalf we had checked him out, we were told by everybody that he was -

Q: I have heard your evidence about what a splendid fellow you thought Mr Metcalf was at this stage in the proceedings.

A: We saw no reason to question it.

Q: I am not asking you for your then view, I am asking you about your present view.

A: My present view is, as I said yesterday, my Lord, I was well hung out, I thought I was doing a good job, I did not see -

Q: I am not talking about you; I am talking about what view you take about dealing with a sum of money in this way.

A: Now or then?

Q: Now. Looking at it now, here we have a transfer through nine separate accounts with no deductions of any kind whatever. What explanation can there be for that being done?

A: My Lord, first of all I did not see the first five accounts.

Q: I am not asking you what you saw; I am asking you what you see today, looking at it.

A: If I looked today, I would never ever dream again of going into a transaction like that.

Q: That does not answer the question. If it was put to you that this was plainly an attempt to conceal money by passing it through a number of accounts in the hopes that the trail will be lost on the way, the answer is obvious, is it not, that it must be so?

A: My Lord, with great respect, it would be so if it would not have been in the same bank, because the bank knew as much as I did about the man for whom we were working. I saw nothing wrong and I still today - if I were today in the same situation also I would never lend myself to assist anybody in this manner any more - even today I would see nothing wrong if it is with the same bank, with the same bank manager, in the same branch. The bank manager at the Anglo-Irish Bank knew as much as I did, so there was not any hiding. It did not even come to anybody's mind. I can see today, looking at the context of a flow chart, I can see what can be made out of it, but I have no answer, my Lord.

Q: You presided over at least four of these changes?

A: I presided over all of them after it moved from Fontevraud to Paralegal, yes."

Although by the end of those exchanges the judge had identified Mr Heinl's case as being that he was only responsible for the last four of the transfers, before that stage he was proceeding on the footing that Mr Heinl had been involved in all nine transfers starting with the transfer of the £1,721,816 from the Peregrine current account at Lloyds Bank in the Isle of Man on 11th February 1991. In the light of the final exchange, that might not in itself have been a cause of concern. However, what the judge referred to in the decisive paragraph of his judgment was laundering the money "on its way" to the AAT, Paralegal and Aventurier accounts. That does raise a concern as to whether the judge correctly understood the limited number of transfers on which a finding of money laundering could properly be based. Another cause of concern is that, just as in the case of the alleged concealment, the judge referred to only two examples of Mr Heinl's part in what he said were "plainly money laundering operations", the implication being that there were others which could be relied on. Yet, as I have sought to demonstrate, it is only in the case of the £1m from the Uffe 2 transaction that this allegation is sustainable at all.

Finally in regard to money laundering, I repeat the paragraph immediately preceding the decisive paragraph in the judge's judgment:

"I have already found Mr Metcalf guilty of money laundering operations with relation to the proceeds of the Vastervik transaction. It seems to me that these two passages of money from the Uffe Holdings Top account into and through accounts controlled by Mr Heinl are further examples of money laundering to which Mr Heinl lent his aid."

My concern about that passage is that it has the flavour of finding Mr Heinl guilty of money laundering by association with Mr Metcalf. In the end I am satisfied that even the judge's finding as to the £1m from the Uffe 2 transaction cannot be sustained. The answers which Mr Heinl gave about the relevant transfers, ie that he did not know what their commercial purpose was, that he accepted Mr Metcalf's instructions to make them, that Mr Metcalf may have made a mistake in giving those instructions and that since everything was being done at the same bank nothing was being hidden, were not so inherently improbable as to justify a finding of dishonesty against him in this respect.

Finally in this analysis of the judge's reasoning in relation to Mr Heinl's state of knowledge, I come to Mr Heinl's presentation of a misleading picture in evidence before the judge, which I have earlier described as persistent lying as to his knowledge of Mr Spjeldnaes's personal interests in the assets and businesses into which the Bank's moneys were being channelled. Although the judge did not say that he gave more weight to that factor than to the others which came to influence his decision, it seems very likely that that was the case, especially after he had listened to Mr Heinl being cross-examined for six days. As Mr Philipson pointed out, Mr Heinl's denials of his knowledge of Mr Spjeldnaes's personal interest were not just formal or mechanistic. They were positive throughout, starting with the AAT defence and carrying on through other pleadings and affidavits right down to the close of Mr Heinl's evidence at the trial.

On the other side it can be said that the judge did not ask himself whether there might have been some explanation for Mr Heinl's persistent and positive denials which would have made it unsafe to jump to the obvious conclusion that he did have the requisite degree of knowledge at the material time. Mr Harvie submitted that the reasonable and probable explanation was that Mr Heinl's self-protective purpose in the litigation was from the start to distance himself from Mr Spjeldnaes, a purpose to which he became more strongly committed as the trial progressed, particularly as he read or heard about the line which was being taken in the cross-examination of Mr Zoltan-Frank. The thrust of that very long cross-examination, as Mr Harvie put it, was that anyone who effectively touched the hem of Mr Spjeldnaes's coat was infected with his dishonesty.

The foregoing analysis of the judge's reasoning has resulted in the elimination of one of the three factors on which his decision was principally based, namely Mr Heinl's participation in money laundering operations. The substance of what is left of them consists in Mr Heinl's concoction of Mr Spjeldnaes's resignation letter of 1st May 1991 and his persistent lying as to his knowledge of Mr Spjeldnaes's personal interest in the assets and businesses into which the moneys were being channelled. While I accept that those matters, serious as they were, might in themselves have been capable of founding an inference that Mr Heinl had the requisite degree of knowledge, I have come to the conclusion, after careful reflection and having taken account of the points relied on by Mr Harvie as I have stated them, that the judge's judgment, viewed in the round, does not make out a satisfactory basis for an inference of dishonesty to be drawn. I do not think that the evidence was sufficiently convincing for that purpose. I believe that Mr Heinl may from time to time have suspected what was going on, but I cannot say that the evidence went so far as to show that he shut his eyes to it or anything like that. I should add that Mr Philipson accepted that if the claim against Mr Heinl in dishonest assistance failed, so also must the claim against him in conspiracy.

I wish to emphasise that my conclusion on this question implies no criticism of the judge, who performed an enormous task in the management and decision of this difficult and complicated case with diligence and care. Whereas we in this court have had to consider only one aspect of it, he had to consider many others as well. There must always be a danger in huge cases of this kind that the part played by a third party down the line, such as Mr Heinl in this case, will not be adequately disentangled from the parts played by those who were manifestly fraudulent.

I would allow Mr Heinl's appeal. That means that AAT's appeal (being one of those which was not struck out) ought also to be allowed so far as it relates to knowing assistance. However, the result, as I understand it, of the holdings that the judge's finding on affirmation ought to be reversed, and that the moneys at all times remained the Bank's property in equity and can be traced accordingly, will be that much of the relief granted by the judge against Mr Heinl's companies will survive. Although there was some discussion about this during the course of the argument, I think it preferable to say no more at the present stage. After judgment has been delivered, we will discuss with counsel how best to deal with all outstanding matters.

Lord Justice Sedley:

I agree that in the particular circumstances of this case Mr Heinl is entitled to be acquitted of giving knowing assistance to Mr Spjeldnaes' in the latter's breach of constructive trust. It should, however, be made very clear that Mr Heinl has not been acquitted either by the trial judge or by this court of dishonesty. Among other things he has lied assiduously on oath about his knowledge of Mr Spjeldnaes' personal interest in the businesses and properties into which the stolen funds were being channelled. What has spared him the crucial inference that he equally well knew that Mr Spjeldnaes was unlawfully helping himself to the bank's money is that in a civil action tried by a judge alone the decision (unlike the verdict on a true jury question) is a speaking verdict. Where in a criminal trial there would, I apprehend, have been a perfectly good case to go to the jury and no ground for impeaching a guilty verdict had one been returned, Mr Heinl has the advantage in these proceedings of a closely reasoned decision which can be and has been scrupulously analysed and matched against the evidence.

Mr Harvie's expert performance of this task has raised, for me at least, a concern that the want of continuous representation at trial may have disadvantaged Mr Heinl in ways which, although the judge clearly did his best to redress them, left him trapped in a position from which Mr Zoltan-Frank, with lawyers at his side, was able by persuasion to escape. The line between guilt and innocence in this region of activity, as the judgments of Nourse LJ and Colman J demonstrate, is a fine one: it runs between suspecting what was going on (and I have no difficulty in agreeing that Mr Heinl, who is no fool, must have suspected it) and either knowing or shutting one's eyes to it.

For my part, I am not prepared to say that Mr Justice Evans-Lombe was necessarily wrong in his conclusion. I agree only that in the face of a tangled web of evidence (I use the phrase advisedly) he was led to overestimate the case against Mr Heinl. This court, having therefore to disaggregate it, has to ask itself whether when the remaining elements are put back together they still amount to proof of knowing assistance. While I would not wholly adopt Colman J's exegesis of Royal Brunei Airlines v. Philip Tan Kok Ming [1995] 2 AC 378, in particular in relation to the necessary standard of imputed knowledge, I agree that this court cannot now say with the requisite assurance that all the elements of knowing assistance of a breach of trust were present.

Mr Justice Colman:

I agree that Mr Heinl’s appeal should be allowed. Since preparing that part of this judgment which deals with the judge’s conclusion that relevant dishonesty had been proved against Mr Heinl, I have had the advantage of reading in draft the judgment which has been delivered by Lord Justice Nourse. I entirely agree with his analysis of the legal consequences of Spjeldnaes’s dishonest procurement of the loans material to the case against Mr Heinl and with his conclusion that the evidence in this case did not justify a finding that Mr Heinl’s assistance in disposing of the proceeds of those loans had been dishonest. In view of the fact that we are differing from the conclusion arrived at by Mr Justice Evans-Lombe in the course of a judgment which must have presented an exceptionally burdensome and complex task, not least because of the incomplete legal representation available to Mr Heinl and his companies, I have thought it right to set out in my own words the reasons which make it necessary to allow this appeal.

Once it was established that both Spjeldnaes and Metcalf were dishonest in as much as Metcalf knew that Spjeldnaes had procured the “loans” to his companies without the authority of the Bank, it necessarily followed that there could be no binding contract of loan between the Bank and the borrower companies. The position of a contract purportedly made by a director without his company’s authority to the knowledge, actual or constructive, of the other party is no different from that of a contract purportedly made by any other agent on behalf of a principal from whom the agent has no actual or ostensible authority. In both cases the principal is not bound by the agent’s contract because, in the absence of actual or ostensible authority to create privity of contact, the conduct of the agent is incapable of giving rise to any agreement binding on the principal. In the absence of any such binding agreement no beneficial interest in the principal’s property transferred in consequence of the transaction entered into by the agent can pass to the third party and there is clearly no room for affirmation for there is nothing to affirm.

In such a case the apparent principal can become bound to a contract on the terms entered into without authority only if it ratifies the contract or if, by its conduct, it enters into a fresh contract with the third party on the same terms.

In the present case, therefore, the purported contracts of loan were not voidable and unless they were ratified by the Bank or a fresh contract subsequently made, they were incapable of giving rise to the transfer of any beneficial interest in the funds to the borrower companies.

As to ratification, Lord Justice Nourse has already drawn attention to the judge’s conclusion that the Bank had not “ratified” the transactions so as to confer any defence on Spjeldnaes. In so concluding, I have no doubt that the judge was correct. The investigation of Spjeldnaes’s operations by the Bank was necessarily an extremely complex and therefore time- consuming exercise. It is difficult to see how the Bank’s actions could amount to ratification of a transaction for the purposes of its claim against one defendant alleged to have rendered dishonest assistance if it did also amount to ratification as against Spjeldnaes himself in respect of that same transaction. The Bank’s conduct in calling in the loans or enforcing its security was clearly motivated by its determination to make good the losses to which Spjeldnaes’s dishonesty had given rise, but I am quite unable to see how that could amount to adoption of the transactions. In my judgment, in a case where there has been dishonesty on the part of a party seeking to rely on ratification by way of defence to a claim based on that very dishonesty, such conduct of the defrauded party should not be treated as giving rise to ratification. The doctrine of ratification is not so inflexible a concept that it must be treated as preventing an innocent lender from taking every step reasonably available to it to recover funds of which it has been fraudulently deprived. In the present case, the Bank’s overriding concern was recovery of as much as possible of those funds. It was not concerned to continue an on-going contract, but rather to terminate the borrower companies’ continuing disposition of its funds. To refer to this conduct as ratification of the very transaction which had enabled them to obtain the funds would, in my judgment, be wrong in principle.

Finally, there has been no suggestion at any stage in these proceedings that the Bank’s subsequent conduct gave rise to a new contract binding upon it on the same terms as the loan agreements. Nor on the evidence would such an argument have had any chance of success.

For these reasons, I have no doubt that the Bank never became bound to any of the material loan agreements and at no stage did any beneficial interest in the funds pass to the borrower companies.

Had it been necessary to decide whether affirmation, as distinct from ratification, had been established, I should have concluded that it was not and for the reasons already given by

Lord Justice Nourse.

The most explicit analysis of the elements of accessory liability is to be found in the decision of the Judicial Committee of The Privy Council in Royal Brunei Airlines v. Philip Tan Kok Ming [1995] 2 AC 378. The judgment was delivered by Lord Nicholls of Birkenhead. The issue in that case was whether the managing director of an airline ticket agency was liable as an accessory in respect of the agency’s breach of trust in failing to account to the airline for the proceeds of ticket sales and in using those proceeds for its own business purposes. Accessory liability had to be investigated on the basis that the agency company had not been dishonest or fraudulent and that the managing director had received none of the trust property.

In the course of his illuminating analysis of the elements of accessory liability Lord Nicholls explained the basis of that liability. In rejecting the argument that an accessory should be under no liability for assisting a breach of trust, Lord Nicholls said this at page 386-7:

“If, for his own purposes, a third party deliberately interferes in that relationship by assisting the trustee in depriving the beneficiary of the property held for him by the trustee, the beneficiary should be able to look for recompense to the third party as well as the trustee. Affording the beneficiary a remedy against the third party serves the dual purpose of making good the beneficiary’s loss should the trustee lack financial means and imposing a liability which will discourage others from behaving in a similar fashion.

The rationale is not far to seek. Beneficiaries are entitled to expect that those who become trustees will fulfil their obligations. They are also entitled to expect, and this is only a short step further, that those who become trustees will be permitted to fulfil their obligations without deliberate intervention from third parties. They are entitled to expect that third parties will refrain from intentionally intruding in the trustee-beneficiary relationship and thereby hindering a beneficiary from receiving his entitlement in accordance with the terms of the trust instrument. There is here a close analogy with breach of contract. A person who knowingly procures a breach of contract, or knowingly interferes with the due performance of a contract, is liable to the innocent party. The underlying rationale is the same.”

In considering the opposite argument that there should be liability on a third party who rendered assistance in ignorance of the existence of any trust or that the trustee was in breach of any trust, Lord Nicholls observed at page 387:

“The other extreme possibility can also be rejected out of hand. This is the case where a third party deals with a trustee without knowing, or having any reason to suspect, that he is a trustee. Or the case where a third party is aware he is dealing with a trustee but has no reason to know or suspect that their transaction is inconsistent with the terms of the trust. The law has never gone so far as to give a beneficiary a remedy against a non-recipient third party in such circumstances. Within defined limits, proprietary rights, whether legal or equitable, endure against third parties who were unaware of their existence. But accessory liability is concerned with the liability of a person who has not received any property. His liability is not property-based. His only sin is that he interfered with the due performance by the trustee of the fiduciary obligations undertaken by the trustee. These are personal obligations. They are, in this respect, analogous to the personal obligations undertaken by the parties to a contract. But ordinary, everyday business would become impossible if third parties were to be held liable for unknowingly interfering in the due performance of such personal obligations. Beneficiaries could not reasonably expect that third parties should deal with trustees at their peril, to the extent that they should become liable to the beneficiaries even when they received no trust property and even when they were unaware and had no reason to suppose that they were dealing with trustees.” (emphasis added).

Having considered the divergent views expressed in previous decisions as to the mental element required for accessory liability, in particular whether the basis should be dishonesty or negligence, Lord Nicholls went on to test the problem by analysing the nature of dishonesty and the particular associated conduct of preparedness to take risks with trust property. As to dishonesty he said this, at page 389:

“Before considering this issue further it will be helpful to define the terms being used by looking more closely at what dishonesty means in this context. Whatever may be the position in some criminal or other contexts (see, for instance, Reg v. Ghosh [1982] QB 1053), in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional sale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.

In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others’ property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless . However, in the situations now under consideration the position is not always straightforward. This can best be illustrated by considering one particular area: the taking of risks.” (emphasis added).

Speaking of the position of the accessory who is in a position where it is not entirely clear whether a transaction by a trustee is or is not in breach of trust Lord Nicholls observed, at page 390-391:

“He is required to act honestly; but what is required of an honest person in these circumstances? An honest person knows there is doubt. What does honesty require him to do?

The only answer to these questions lies in keeping in mind that honesty is an objective standard. The individual is expected to attain the standard which would be observed by an honest person placed in those circumstances. It is impossible to be more specific. Knox J. captured the flavour of this, in a case with a commercial setting, when he referred to a person who is “guilty of commercially unacceptable conduct in the particular context involved:” see Cowan de Groot Properties Ltd v. Eagle Trust Plc [1992] 4 All ER 700, 761. Acting in reckless disregard of others’ rights or possible rights can be a tell-tale sign of dishonesty. An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise and seriousness of the adverse consequences to the beneficiaries. The circumstances will dictate which one or more of the possible courses should be taken by an honest person. He might, for instance, flatly decline to become involved. He might ask further questions. He might seek advice, or insist on further advice being obtained. He might advise the trustee of the risks but then proceed with his role in the transaction. He might do many things. Ultimately, in most cases, an honest person should have little difficulty in knowing whether a proposed transaction, or his participation in it, would offend the normally accepted standards of honest conduct.

Likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time. The court will also have regard to personal attributes of the third party, such as his experience and intelligence, and the reason why he acted as he did.”

The observation that “for the most part dishonesty is to be equated with conscious impropriety” must involve that the person alleged to have assisted the breach of trust must be shown to have had, at the time when he provided the assistance, actual knowledge of facts which amount to a breach of trust or which suggest that a breach of trust has been or is to be committed. If the accessory knows facts which fall short of constituting a breach of trust, but which lead him to believe that other facts exist which do amount to an actual breach of trust or will involve a future breach, although he cannot be certain that those facts exist, he will be judged to have been acting dishonestly if he renders assistance when in all the circumstances an honest man, having that knowledge, would not have done so, either at all or without making further enquiry or taking some other steps to satisfy himself that there was no breach of trust.

It is against that background that it is necessary to approach the judge’s analysis of the evidence and the conclusions which he drew on liability in the present case.

It is submitted on behalf of Mr Heinl that, in the course of arriving at the conclusion that Mr Heinl gave dishonest assistance, the judge failed to take account of certain key parts of the evidence and took into account other matters which were of little probative weight. It is further submitted that by confining his investigation to two main areas of Mr Heinl’s knowledge and ignoring the overall commercial setting of the relationship between Mr Heinl and Mr Spjeldnaes and Mr Metcalf, the judge’s conclusion on the issue of dishonesty could not be justified. Further, the evidence did not support the judge’s conclusion that Mr Heinl was aware, at the time when he gave assistance, that some or all of the funds which he was being instructed to handle through his companies had originated from the Bank.

When he came to consider the case against Mr Heinl the judge began by setting out a chronological account of the contacts which Mr Heinl had with Spjeldnaes and Metcalf and of the transactions in which companies controlled by Mr Heinl had participated in connection with companies controlled by Spjeldnaes and Metcalf, with particular reference to the Golf Homes, second Uffe and Vastervik transactions. Having indicated (at page 277) that the Bank’s case was that Mr Heinl “assisted in the disposition of part of the money abstracted from the Bank as a result of those three transactions and that he did so dishonestly”, he then (at page 278) first considered the question whether Mr Heinl assisted in the disposal of the moneys emanating from the Bank and thereby assisted in Spjeldnaes’s fraud. He concluded that he did so by means of procuring AAT, Paralegal and Aventurier to receive part of those moneys in the course of 1991 and then by arranging for them to make payments out.

The second question which the judge then addressed was whether Mr Heinl gave his assistance “with the requisite degree of knowledge.” By that he clearly meant knowledge that was such as to render the giving of assistance dishonest. He then approached that question by the following analysis (at page 278):

“It seems to me that to establish that Mr Heinl had the requisite knowledge it must be shown, first that he knew that all or any part of the £4.3 million received originated from moneys advanced by the Bank, and secondly, that at the time of any such receipt or subsequent disposition of the money, Mr Heinl knew that Mr Spjeldnaes had a personal interest in the assets and businesses into which the money was being poured. Like Mr Zoltan-Frank Mr Heinl was an intelligent and apparently experienced businessman. If he simultaneously knew that funds coming into his hands were being or had been received from a Bank of which Mr Spjeldnaes was or had been managing director he must have been put on enquiry that Mr Spjeldnaes was acting in breach of fiduciary duty in the absence of any confirmation that the board of directors of the Bank sanctioned such an operation.”

The judge’s use of the words “he must have been put on enquiry that Mr Spjeldnaes was acting in breach of fiduciary duty” might suggest that he was applying a test of dishonesty which differed from that in Royal Brunei Airlines v. Tan , supra. However, earlier passages in his judgment show that this was not the case. Thus, when he came to consider the liability of Metcalf against whom liability as an accessory was alleged, he said this at page 151:

“Further, in order to make Mr Metcalf liable as an accessory it must be shown that the assistance which he gave was given dishonestly. In the present case the Bank alleges that Mr Metcalf acted dishonestly because he must have known that Mr Spjeldnaes in procuring the Bank to enter into the advances was acting in dishonest breach of his duties to the Bank and dishonestly helped him to do so. See Royal Brunei Airlines Ibid at page 392.

It seems to me that Mr Metcalf must have become involved in the dishonesty of Mr Spjeldnaes as soon as he realised that Mr Spjeldnaes had a personal interest in any of the transactions because such a personal interest was inconsistent with Mr Spjeldnaes’s duties to protect the Bank’s interests. If he was not already aware that Mr Spjeldnaes was acting dishonestly such knowledge must have put him on enquiry that Mr Spjeldnaes was so acting. There is no evidence that at any stage Mr Metcalf took any steps to contact other officials of the Bank with relation to the conduct of Mr Spjeldnaes. Accordingly, the question of Mr Metcalf’s dishonesty turns, in my view, on whether and if so when he became aware of Mr Spjeldnaes personal interest in the transactions.”

Underlying the judge’s approach to the question whether there was dishonesty on Mr Metcalf’s part was quite clearly the assumption that if he had knowledge that at one and the same time as Spjeldnaes was managing director of the Bank he also had a personal interest in any of the transactions, that is to say the various loan transactions, Metcalf must have known that Spjeldnaes was acting in breach of his fiduciary duty to the Bank or must at least have known enough about Spjeldnaes as to suggest to him that Spjeldnaes was probably acting without the Bank’s authority in making the loans. If he had the latter state of knowledge, the likelihood of there having been breaches of fiduciary duty was so substantial that Metcalf would be acting dishonestly if he provided assistance without first enquiring whether the loans were fully authorised. It is true that the judgment does not provide such an explicit analysis of each step in the route from the facts known to Metcalf to the imputation of dishonesty. Nevertheless, having directed himself by reference to Royal Brunei Airlines v. Tan , the judge’s words - “such knowledge must have put him on enquiry that Spjeldnaes was so acting” - are a clear indication that he was proceeding to apply Lord Nicholls’ approach under the sub-heading “Taking Risks” at pages 390-391 of that judgment.

The judge adopted a similar approach in that part of his judgment which dealt with the liability as an accessory of Mr Zoltan-Frank at page 174 where he said this:

“Mr Zoltan-Frank was an experienced businessman, of obvious intelligence whose experience would have included wide ranging contact with banks and banking institutions. He must have appreciated that to find the managing director of a bank sanctioning the making of advances to borrowers in which he had a personal interest, direct or indirect, necessarily raised a question whether such advances were regular and in the interests of the bank. It is, of course not beyond the bounds of possibility that the board of directors of a bank, in possession of the full facts, might sanction such an advances were regular and in the interests of the bank. It is, of course, not beyond the bounds of possibility that the board of directors of a bank, in possession of the full facts, might sanction such an advance. But it seems to me that anyone called upon to take part in such a transaction could not excuse themselves from liability as an accessory to any fraudulent breach of duty which resulted, unless they could demonstrate that they took all reasonable steps to satisfy themselves that the board of directors at the bank were in possession of the full facts and had given their sanction.”

He concluded that Mr Zoltan-Frank had no knowledge that Mr Spjeldnaes had a personal interest in the transactions and was therefore not acting dishonestly when he participated in them.

When he came to consider Mr Heinl’s position in the passage which I have quoted, the judge referred to him as being, like Mr Zoltan-Frank, “an intelligent and apparently experienced businessman”. Although this is not spelled out in that passage, it is obviously implicit that a person of that intelligence and experience who had knowledge of the two facts in question must have appreciated that there was a substantial likelihood that Mr Spjeldnaes had acted in breach of fiduciary duty in procuring the money from the Bank. Accordingly if he entered into the transactions without investigation of their probity, he would necessarily be acting dishonestly.

Although the judge quite rightly directed his investigation to the question whether Heinl must have appreciated that there was a substantial likelihood that Spjeldnaes was acting in breach of fiduciary duty to the Bank, his method of answering that question was to confine his investigation to whether Mr Heinl, as an intelligent and experienced business had actual knowledge of two matters only: (i) that the funds put under his management originally emanated from the Bank while Spjeldnaes was managing director and (ii) that Spjeldnaes had a personal interest in the borrower companies or the companies into which the funds were transferred. This method therefore involved the assumption that, once it was established that Mr Heinl had knowledge of those two facts, it must necessarily follow that he knew that there was a substantial likelihood that Spjeldnaes was acting in breach of duty.

In so directing himself, the judge excluded from his consideration the question whether, even if Mr Heinl had knowledge of those two facts, there might be other evidence which would displace the inference that he must have known that there was a substantial likelihood that Spjeldnaes had acted in breach of fiduciary duty. Particularly in a case where dishonesty is alleged, that was not a permissible course.

Accordingly, it is necessary to consider on this appeal, not only whether there was evidence to support the judge’s conclusion that Mr Heinl was aware that some or all of the funds handled by him had originated from the Bank, but also whether, if he did have that knowledge, as well as the knowledge of Spjeldnaes’s personal interest in the companies, it is to be inferred from that state of knowledge and from evidence not considered by the judge that Mr Heinl must also have appreciated that there was at least a substantial likelihood that Spjeldnaes had acted in breach of duty to the Bank in procuring the funds.

The judge concluded, at page 290, that Mr Heinl appreciated that the source of the money which was transferred into and out of the accounts of AAT, Paralegal and Aventurier was money abstracted from the Bank in fraudulent breach of fiduciary duty. That conclusion was arrived at from the following findings.

(i) Mr Heinl’s evidence about what passed at the 29th November 1990 meeting at Chester attended by Spjeldnaes, Metcalf and Smith was that Spjeldnaes had presented himself and the Bank to be a “guardian angel” for Metcalf as an important customer. The judge held that this suggestion was “entirely ridiculous”. It was, if true, an explanation plainly intended to conceal Spjeldnaes’s personal interest in the business matters being discussed, which, if disclosed, would lead inevitably to the suspicion that the source of the funding of the enterprises was the Bank (Judgment page 285). As I understand it, the implausibility of this explanation is held to have indicated that Mr Heinl was aware of both Spjeldnaes’s personal interest and the origin of the funding.

(ii) Mr Heinl’s knowledge from at latest February 1991 that Spjeldnaes had a personal interest in the Irish and Liverpool investments and the steps which he, together with Metcalf and Spjeldnaes, took to conceal that personal interest by such steps as those referred to at pages 286 to 288 of the judgment and by the money laundering operations referred to at pages 288 to 290 of the judgment, showed that he was trying to protect Mr Spjeldnaes and he must therefore have appreciated that the need for such protection arose from the fact that the source of the funds was money abstracted from the Bank in fraudulent breach of trust. In other words, what he was being asked to do was to conceal the source of the funds because it was the Bank (Judgment page 290).

Mr Heinl first came into contact with Metcalf in the second half of 1990 in the course of trying to put together sufficient funding for a hotel and golf course development near Waterville in the south of Ireland. That development was later to be known as Kerry Park. The funding was to be provided as to 25 per cent each by Mr Smith, a Mr Wade and by London Bridge Securities Ltd, a company controlled by Mr Heinl. There was a 25 per cent shortfall and it was to try to complete the funding that Mr Smith brought in Metcalf.

Mr Heinl met Metcalf at Waterville on 3rd November 1990. At that meeting, according to Mr Heinl’s evidence, both in his witness statement and in cross-examination, Metcalf impressed Heinl as a most successful businessman and property developer. He told Heinl that he was the largest independent landowner in the Costa Del Sol where he had very successful developments. He also had developments in Liverpool. He let it be known that he would be introducing his own capital derived from the profits which he had made on his Spanish developments. He was also confident of obtaining development funding from Jyske Bank from which he had obtained assistance for his development in Spain. He told Mr Heinl that his connection with the Bank was through Spjeldnaes saying that he was one of the Bank’s biggest customers. He gave Spjeldnaes’s name as a reference. Mr Heinl, although he had never heard of the Bank, was impressed by Metcalf as a successful, colourful and entertaining businessman.

The next meeting between Mr Heinl and Metcalf was also attended by Spjeldnaes. It was held at Chester on 29th November 1990. Smith was also present. Mr Heinl understood that the Bank was a potential lending bank and that Spjeldnaes was there to hear about the Irish project. He gave a presentation of it. At some stage Metcalf assured Heinl that he would honour his commitment to introduce capital even if Spjeldnaes would not agree that the Bank would advance funds. Spjeldnaes cross-examined Heinl in detail about the project. In his witness statement Mr Heinl said this at paragraphs 194-196.

“(194). Mr SPJELDNAES, on his part, was very aloof and very difficult to read. He made it clear that he was there; (a) to listen to what I had to say; (b) to evaluate my proposals; (c) that he and his bank were the “guardian angel” to MM who tended to rush into things; and (d) as MM was an important customer of the bank, they (the bank) had a duty to properly advise him. He confirmed that MM was a client of good standing for many years and confirmed (what MM and Mr Smith had told me) of MM’s high net worth and that he was the largest independent land owner in the Costa Del Sol.

(195). Mr SPJELDNAES enlarged on the “guardian angel” concept (my words), stating that the bank offered services as holders of shares for their off-shore clients, acting as nominee director for their customers, and supervising the execution of agreements and contracts. He mentioned for the first time that he was not only the Managing Director of the bank, but also a lawyer, who in the past was “Head of the Legal Department” at the bank’s head office.

He mentioned that neither he, nor the bank, would tolerate errors.”

He added at paragraph 198:

“(b) This meeting established to my mind that MM was who he said he was. Managing Directors of banks do not “willy-nilly” attend meetings on behalf of clients (hundreds of miles from their office) without the client being important;

(c) Mr SPJELDNAES had confirmed in precise terms MM’s wealth, credit rating and good standing;

(d) The idea of banks taking seats on boards of companies is accepted on the continent and it gave me further comfort as to MM’s standing. I always believed such participation to be a seal of approval and in common with most people, did assume that banks make detailed enquiries of their clients. The fact that the bank and Mr SPJELDNAES were acting for MM in the manner described by them, was to my mind, an accolade. I was therefore even more determined to close the deal with MM.”

When, in the course of his cross-examination, it was put to him that it was rather unusual for the managing director of a Gibraltarian bank to turn up at Chester to discuss a client’s potential development in Ireland, Mr Heinl said this:

“No, I thought it was - it gave me a lot of comfort. I was very impressed; I believed what Mr Metcalf had told me, how important he was in terms of business, how important he was with his international connections. I was surprised, I must admit. It is not very often that the managing director of any bank goes to a hotel for a lunch to meet these people, but it happens, you read about it, and I was impressed, I felt very comforted by it, yes.”

He was unable to explain why the meeting was held in Chester. He said that he never enquired.

The judge in effect rejected Mr Heinl’s account of what passed at that meeting in the following passage from his judgment:

“I regard the concept of Mr Spjeldnaes acting as a ‘guardian angel’ of Mr Metcalf impossible to accept as an explanation for his presence. The idea that the managing director of an important branch of a major international bank should spend even a small part of his time on visits to the United Kingdom and Ireland to supervise the affairs of one customer is, in my view, entirely ridiculous. It is plain that if there is any truth in this account of a conversation between Mr Spjeldnaes and Mr Heinl, Mr Spjeldnaes’s story was intended as a smoke screen to conceal his personal interest in the business matters being discussed, which interest was plainly inconsistent with his continued employment as managing director at the Bank and would lead inevitably to the suspicion that the source of the large sums of money to support the proposed enterprises was money wrongfully extracted from the Bank. In any event if the conversation took place and Mr Heinl was gulled by it his misapprehension of Mr Spjeldnaes’s role must have been dispelled by the time he came to give instructions to PKF in February 1991 for the purposes for their reports. For what it is worth Mr Spjeldnaes, in his witness statement, rejects the whole idea.”

I do not share the judge’s view of this evidence as intrinsically implausible. Whereas, it would be truly amazing if the managing director of a major international lending institution had turned up at the meeting with Metcalf, Spjeldnaes was no more than the head of what was in effect an offshore branch of a Danish bank previously unknown to Heinl located in a relatively insignificant financial centre. Experience of the involvement in their clients’ investment activities of executive directors of small Continental European banks suggests to me that Heinl’s account of Spjeldnaes participation in that meeting was by no means implausible. Nor, taken in isolation, could this have been expected to arouse at that stage any suspicion of Spjeldnaes’ want of authority to advance the Bank’s funds.

On 14th January Metcalf informed Heinl by telephone that he had attended a meeting with the Bank and that the project would definitely go ahead.

On 19th January 1991, in the course of a meeting at Metcalf’s house in Liverpool, Metcalf handed over to Heinl two cheques, one for £95,000 and one for £200,000, respectively for purchase of additional land for the Kerry Park project and for the purchase of shares in the company which currently owned the hotel. Both cheques were drawn by Golf Homes, a company controlled by Metcalf, on an account at the Bank. There is no evidence that Heinl then knew that these funds were the direct result of the Bank’s lending, but he must have appreciated that the payment were probably a consequence of the Bank’s decision of which Metcalf and informed him on 14th January. In truth, the Golf Homes account at the Bank was previously overdrawn, the sum of £285,000 was paid in just before these cheques were drawn. That payment originated from the Vastervik advance and a further £177,000 was later paid in which was derived from another advance by the Bank.

In cross-examination (68/131-133) Heinl said that he did not know that those payments had been provided out of funds advanced by the Bank. Metcalf had told him that he had sufficient funds of his own to pay for the purchase of the land and for obtaining planning permission and for the associated costs. For that reason, he had not considered that it might be money from the Bank. His evidence was in substance that the Bank’s funding would be for the subsequent costs of development over the next two or three years.

Ten days later, on 29th January 1991, there took place a meeting at the Manchester Airport Hilton Hotel attended by Heinl, Metcalf and Spjeldnaes. At that meeting there was much detailed discussion about the Kerry Park project and the contractual and corporate arrangements that were required. These included Spjeldnaes being appointed a director of the Kerry Park development company as a “guardian angel” to Metcalf. In cross-examination Mr Heinl said that he was there because the Bank was a potential lending bank on the project. In the course of that meeting Metcalf told Heinl that he wanted to be introduced to tax experts in relation to his investments in Ireland.

According to Heinl, on the day following the Manchester meeting, Metcalf telephoned to inform him that “all the finance requirements for the project were passed “by the Bank” and that they would see the project through to completion, subject to an acceptable business plan and confirmed grant aiding”.

Kerry Park Golf & Country Club Ltd (“KPGCC”) the development company for the project, was incorporated on 8th February 1991, its directors being Metcalf, Spjeldnaes and Pierce of Heinl’s Irish accountants. On 13th February Pannell Kerr Forster (“PKF”) were appointed company auditors. On the following day there was a meeting attended by Pierce, Heinl, Metcalf and Smith. In notes taken at that meeting Pierce recorded under “Next Action”:

“Decision from Jan/Mike to hold property in KPGCC or alternative vehicle.”

Mr Heinl explained in cross-examination that a decision had to be taken whether the Kerry Park property should continue to be held by the existing owning company - Waterville Timeshare Ltd - or should be transferred to the operating company. That was a matter which directly concerned the Bank as Metcalf’s guardian angel and as a potential lender. The judge probed their answer in some detail at 69/29-34. There is nothing in the explanation which Heinl gave which presents itself to me as intrinsically improbable. Mr Pierce was also closely cross-examined on this and his explanation at 74/11-14 is consistent in substance with that of Heinl.

According to Heinl, in the course of that meeting in the context of statements by Metcalf that he was keen to return to his roots in Ireland, Metcalf asked Pierce for information about house prices in Ireland and for details of tax structures for non-residents, residents and domiciled as well as of the prevailing system of deposit interest payments in Ireland.

There was a meeting at PKF on 26th February attended by partners of that firm in Ireland, Mr Blackwell and Mr O’Luanaigh, and by Heinl and Pierce. According to Heinl’s evidence, he attended at Metcalf’s request to obtain information as to the availability of grant aid in Ireland and as to Metcalf’s tax position in Ireland.

In consequence of this meeting, on 4th March 1991 PKF issued a draft report. This document played a significant part in the judge’s analysis of the facts known to Heinl and the conclusion which he reached as to Heinl’s dishonesty.

That report stated under the heading “Current Position”:

“The present position is that there is an Irish resident company, Waterville Time Share Limited (Waterville TS) which is currently owned by two Isle of Man (IOM) resident companies, Transatlantic Management ltd (Transatlantic) and Sportsworld Ltd (Sportsworld).

The entire shareholding in Transatlantic will be sold to two non Irish nationals. One share in Waterville TS will also be sold by Sportsworld to Transatlantic so that the two individuals through Transatlantic will control 50% plus one share in Waterville TS.

Under “Advice required” appeared inter alia:

“Advice is required regarding the following specific situations:-

Tax planning for the two non Irish national individuals.

Included in that advice at paragraph 4.8:

“It is also noted that one of the individuals is engaged in the financial services industry and it may be that he should consider locating operations in the Customs House Dock Financial Centre in Dublin which enables profits on financial services provided to persons outside of Ireland to be taxed in Ireland at the special 10% Corporation Tax rate whilst still utilising the network of Irish Double Taxation Treaties to relieve any further taxation in the relevant foreign countries.”

Schedule II shows “2 individuals” as 100 per cent shareholders of Transatlantic Management Ltd. The covering letter which had enclosed the draft report suggested a further in depth discussion with “the principals” to ascertain their ultimate intentions regarding the development and a review of “their current taxation status with the object of finalising the optimum tax structure for them”.

Mr Heinl denied in cross-examination that the two individuals referred to were Spjeldnaes and Metcalf. He said that PKF had misunderstood the information given to them about Transatlantic which included the fact that the company had been owned by one Albert Wade and Richard Smith and that they must have intended to refer to those two. He claimed that he had drawn Pierce’s attention to this error. The only person who had acquired Transatlantic was Metcalf. Heinl explained the reference to one of the individuals being engaged in the financial services industry as due to a yet further mistaken understanding on the part of PKF whose advice he, Heinl, had asked about his company, Paralegal, being admitted to Custom House Dock, the financial services centre in Dublin.

In the course of his cross-examination Mr Pierce stated that PKF were being asked to advise about only Metcalf’s tax position. However, the reference to a second individual engaged in the financial services industry must be to Spjeldnaes. But Spjeldnaes had never indicated any intention or desire to move to Ireland and so PKF were incorrect in addressing his tax position as well as Metcalf’s.

It is to be observed that, if PKF were indeed mistaken in referring to two individuals as requiring tax advice, this was never the subjection of complaint by way of correction by Heinl or Pierce who first received the report in draft a week before the final version was issued.

The judge rejected the explanation for the contents of the PKF report advanced by Heinl and the somewhat different explanation advanced by Pierce. He held that their evidence was deliberately misleading. He based his conclusion both on the intrinsic improbability of the explanations and on his view that Heinl had given misleading evidence as to his understanding of Spjeldnaes’ position as guardian angel when first introduced in November 1990. On this basis, the judge concluded that Heinl knew by February 1991 that Spjeldnaes had personal interest in the proposed investment. PKF thus referred to two individuals requiring tax advice because that is what they had been told by Heinl and Pierce.

If, as I have concluded, the evidence of events before the meeting with PKF does not, when taken alone, suggest that Heinl was then aware that Spjeldnaes had any personal interest in the Irish project or that he then knew that money had already been advanced by the Bank, the inference that Heinl asked PKF for advice as to the tax position of two individuals including Spjeldnaes and having in mind Spjeldnaes’s personal need for such advice is much less easily drawn.

At this point it is necessary to go back in time to identify two of the loan facilities made available by the Bank which were procured by Spjeldnaes.

A facility of 700 million pesetas was advanced to Vastervik Properties ltd, a Spanish corporation, to enable it to acquire plots in the Los Hidalgos development in Spain. Spjeldnaes signed the facility letters. He thereby exceeded his authority from the Bank. This facility was drawn down on 10th January 1991 by way of Deutsche Mark payments into two accounts at the Bank which on the same day were transferred into pesetas and mainly paid into the Continental Land Top Account at the Bank. That account was effectively under the control of Spjeldnaes and Metcalf. From that account a sum of 450 million escudos was paid on 16th January 1991 on Spjeldnaes’ instruction into an unnamed account at Allied Irish Bank, Channel Islands and on the same day the sterling equivalent of most of that sum (£2,135,611) was transferred into the account of Hersal Investments Ltd at the same bank. That account had been set up on Metcalf’s instructions and the signatories were Metcalf and Spjeldnaes. On 22nd March 1991 some £2,151,164 had been transferred to another account at Allied Irish Bank Channel Islands, that of Aventurier. That was an Isle of Man company controlled by Metcalf and Spjeldnaes. It is convenient to refer to these moneys as “the Vastervik fund”.

On 1st February 1991 the sum of 1,287,760 pesetas was paid by the Bank in Deutsche Marks to an account No.2 in the name of Uffe Holdings at the Bank. That payment was made under a loan facility granted on the same day and signed by Spjeldnaes in excess of his authority.

Again on 1st February 1991 there was a transfer of 5,086,844 Deutsche Marks from the Uffe No.2 account to the Uffe Holding Top Account at the Bank. On 5th February 1991 the balance on that account, after deduction of the Bank’s arrangement fee, some 315,010,099 pesetas, was transferred on Spjeldnaes’ instructions to a current account in the name of Peregrine Corporate Services at Lloyd’s Bank, Isle of Man. That company was an Isle of Man registration agent which was used by Spjeldnaes and Metcalf to provide them with Isle of Man companies. This sum was the equivalent of £1,721,837. On 11th February 1991 the latter sum was transferred on Metcalf’s instructions into a current account of Fontevraud Investments also at Lloyd’s Bank, Isle of Man.

Following Metcalf’s enquiries about Irish bank deposit rates at the meeting with Heinl and PKF on 14th/15th February 1991, Heinl contacted Mr McDonnell, the manager of the Limerick branch of Anglo Irish Bank (“AIB”) about the making of a deposit by Fontevraud Investments Ltd. Metcalf told Heinl and Pierce that Fontevraud was one of his investment companies and when it came to completion of the AIB bank mandate in respect of such deposit Metcalf requested that Spjeldnaes be made a co-signatory, saying, according to Heinl, that such an arrangement had to be made for all his companies to protect him and his family in case something happened to him and that Spjeldnaes was one of his executors as was the Bank and that the Bank therefore knew of Spjeldnaes’s business activities in that capacity. On 28th February 1991 £1 million was transferred by Fontevraud from its Lloyds Bank Isle of Man current account by way of deposit to AIB Limerick. The balance of the £1,721,830 and interest was left on deposit at Lloyds.

I refer to the two deposits respectively as “the Uffe 2 AIB fund and, for reasons which will appear, “the Uffe 2 NIB fund”.

On 12th March 1991 Mr Heinl had a meeting with Metcalf at which they discussed means of obtaining finance for Metcalf’s development at Dwerryhouse Lane, Liverpool. According to Heinl, Metcalf told him that the purchaser of the property was one of his Isle of Man companies, Hersal Investments Ltd, in whose name Metcalf had already deposited £3 million at AIB, Channel Islands. This was clearly a reference to the Vastervik fund, but, according to Heinl in his witness statement, there was no suggestion that the Bank had any involvement with those moneys. Metcalf wanted to organise a sale of the property by Hersal to Villacourt Construction Ltd for £5.7 million with deferred payment. Villacourt was a company developing another site in Liverpool - Jericho Lane. The means of financing the Dwerryhouse Lane development suggested by Metcalf was to offer AIB further deposits totalling (£1.881 million) as “sweetener” or “comfort” in addition to Fontevraud’s existing £1 million deposit. I decline the invitation of counsel for the Bank to draw any adverse inference from the use of such phraseology. These are words which, in my experience, are commonly used by perfectly honest businessmen. Heinl said that there was no suggestion or indication that any of this money was to emanate from the Bank.

At the same meeting Metcalf put to Heinl that Heinl’s Irish company, Anglo American Trust Co Ltd, (“AAT”) should be appointed to act as adviser, fiduciary, controller and manager of Metcalf’s company groups - Villacourt, Daylex and Continental. Metcalf produced a letter of agreement. It is partly couched in language which could suggest that the appointment was to be by more than Mr Metcalf alone. The judge referred to that document and the point taken on the language by the Bank at page 260 of the judgment. However, the lack of consistency in wording - referring sometimes to “I” and sometimes to “we” and “us” - suggests that if and when the plural is used it could well be understood as referring to the company, Aventurier Ltd, on behalf of which Metcalf signed the letter, as distinct from another person, such as Spjeldnaes.

Following that meeting, Heinl prepared a proposal for the required finance which on 14th March 1991 he sent to McDonnell at AIB. McDonnell responded with a formal offer on 29th March 1991 under which the advance of £1 million to Villacourt was to be secured by inter alia a back-to-back deposit by Aventurier. In order to persuade McDonnell to agree to this Heinl had sent him a fax stating that Metcalf had spoken to Spjeldnaes who wanted AIB to give the applicant a “favourite nation” status as he was “prepared to place further and additional business with you”. Spjeldnaes was also stated to have asked for certain further terms more beneficial to Villacourt and Aventurier.

In the course of cross-examination Heinl denied that he knew at this stage that Spjeldnaes was beneficially involved in any of the Liverpool developments.

Meanwhile, on 26th March 1991, by means of a draft carried by hand, as distinct from an inter-bank transfer, £700,000 was transferred from the Fontevraud account at Lloyd’s Bank, Isle of Man to a deposit account in the name of Aventurier at National Irish Bank, Dublin. This deposit was organised by Heinl on Metcalf’s instructions. It originated from the Uffe 2 NIB fund.

On 3rd April 1991 there was a meeting in Ireland between Heinl, Metcalf and Spjeldnaes. They visited the Kerry Park site and had a meeting over dinner in Killarney with Mr McDonnell of AIB. By this time, probably on 2nd April, Heinl had learned from Metcalf that Villacourt had borrowed money from the Bank for the Liverpool development. Metcalf had asked that the AIB £1 million loan to Aventurier for the Liverpool development should be passed through AAT to Villacourt by way of loan against a mortgage ranking second to that already granted by Villacourt to the Bank.

In the course of that meeting, according to Heinl, he first discovered that Spjeldnaes was a director of Villacourt and that shares in Villacourt had been pledged to the Bank as security. According to Heinl, Spjeldnaes explained to McDonnell that Metcalf was one of the top clients of the Bank and that the Bank as security for its loans always took a seat on the board of directors of the borrower companies and took shares as security. Further the bank always acted as protector to top clients by accepting directorships and a nominee function, as was the case with Villacourt and Aventurier. By this time Heinl also knew that Spjeldnaes and Metcalf were not only directors of Aventurier but that they controlled all the shares in that company.

By 10th April 1991 Spjeldnaes’ position at the Bank had become untenable as internal investigations as to his activities revealed further information. He resigned but remained working at the Bank until 16th May 1991. His impending departure was unknown to Heinl until 26th April. It appears that, in consequence, Spjeldnaes had represented to the Bank’s credit controllers that the Dwerryhouse facility to Villacourt would be repaid in full by no later than 1st May 1991. There is no direct evidence that Heinl knew of this representation or the reason for it.

On 12th April 1991 Metcalf instructed Heinl to arrange for the £1,016,234 deposited by Fontevraud at AIB (the Uffe 2 AIB fund) to be transferred to the No.1 account of Heinl’s company, Paralegal, at AIB, and then Metcalf immediately instructed a transfer to Aventurier’s account at that bank. These transfers took place on 17th and 18th April 1991 respectively. The AIB deducted £20,000 in respect of its back-to-back deposit/loan fee. Heinl said in his witness statement that Metcalf was at first concerned about there being a charge over the funds in Aventurier’s account and he therefore first used the Paralegal account to hold these funds. These moneys remained in the Aventurier account at AIB until 30th July 1991 when they were transferred to the Paralegal No.2 account at AIB and on the same day transferred out to Transatlantic No.1 account (£342,399) and Transatlantic No.2 account (£684,798). All three transfers were the subject of instructions simultaneously given by Heinl in his letter on AAT paper dated 23rd July 1991.

Heinl was closely cross-examined about these transfers from account to account at the same branch of AIB. He said that they were on the instructions of Metcalf (73/106,110). Apart from the explanation about not wanting Aventurier to hold the fund which appears in his witness statement, he was unable to provide any other coherent explanation for Metcalf’s instructions or to explain what he believed the commercial purpose to be. It is the Bank’s case that it must have been obvious to Heinl that this was money laundering.

On 16th April Metcalf told Heinl that he wished to re-finance the Jericho Road, Liverpool development to the extent of £2.6 million. Heinl said that he would try to make contacts with banks. The background to this request appears to have been that Spjeldnaes had been obliged to undertake to the credit investigators at the Bank that he would procure the repayment of the substantial part of the facilities provided by the Bank to Villacourt. In his witness statement Heinl stated that he knew from Metcalf that up to that time Metcalf had borrowed £3.15 million, increased with interest to £3.26 million, from the Bank for the Liverpool Jericho investment. There is no evidence that Heinl knew what Spjeldnaes had told the Bank’s credit investigators.

On 26th April 1991 Metcalf invited Heinl to visit him at his new offices at Albert Dock, Liverpool. On that occasion, according to his witness statement and his oral evidence, he met Spjeldnaes and Mrs Spjeldnaes and was informed that Spjeldnaes was about to leave the Bank and was looking to start a fish-farming business. Heinl said that as a result he was extremely concerned about the sources of finance for Kerry Park and, when he mentioned this to Metcalf, the latter told him that everything would go ahead as planned. Villacourt’s profits from the Liverpool development would be used to develop Kerry Park. Metcalf is said by Heinl to have told him that he wanted to refinance the Villacourt borrowing from the Bank because Spjeldnaes was leaving and, that being the only loan outstanding from the Bank, Metcalf wanted a clean break, although this was not necessary. He wanted to place his funds in Irish banks to support both his English and Irish developments. Heinl stated that he was shown over the Jericho and Dwerry House development sites in Liverpool and was most impressed. He persuaded McDonnell of AIB to visit Liverpool in order to prepare the ground for a credit application to AIB. McDonnell made it clear that he would not recommend a facility in respect of Dwerry House but that Jericho Lane might be acceptable.

In order to effect the refinancing of the Jericho Lane development by Irish banks Mr Heinl prepared a letter from AAT which he circulated to several such banks. They included Equity Bank, Dublin. This letter, dated 8th May 1991, very shortly before Spjeldnaes had left the Bank, is illuminating. In the course of his cross-examination, Heinl said that he got the information set out in that letter from Spjeldnaes and Metcalf. Although the judge quoted extensively from it in the course of his judgment, (pages 265 to 267) he did not revert to it or appear to draw from it any material inference. In my view, it is of great assistance in establishing the state of Heinl’s knowledge at this time. The key facts then known to Heinl as shown by that letter are as follows:

1. The directors of Aventurier were also shareholders of Hersal Ltd of IOM.

2. Those individuals controlled by way of share holding the Villa Court companies.

3. Since Heinl had known since, at the latest, 3rd April 1991 that Spjeldnaes was a director of Aventurier, he also must have known that Spjeldnaes was a shareholder in Hersal and so controlled the Villa Court companies by shareholding as well as being a director of Villa Court Construction Ltd, “the operative developer” of Jericho.

4. Villa Court was at the time of the letter one of Spjeldnaes’s “private enterprise commitments”.

5. At the time of the letter the “promoters” of Villa Court Group, (which must have included Spjeldnaes) had in Ireland on external accounts £2.7 million, including £2 million deposited with AIB and £700,000 with National Irish Bank. This must clearly include the £1 million transferred by Heinl on Metcalf’s instructions from the Uffe 2 facility to the Fontevraud account at AIB on 28th February 1991 and thence on 17th April 1991 via Paralegal’s No.01 account to Aventurier’s account at AIB. It must also include the £700,000 which Heinl had just arranged to be transferred from Aventurier’s deposit account at NIB Dublin to Aventurier’s fixed deposit account at the same bank. The £1 million balance of the £2.7 million came from the Vastervik Fund, having been transferred to the accounts of Aventurier at AIB on 4th April 1991.

6. The letter stated that “our clients wish to redeem the facilities they presently enjoy with the Jyske Bank. The cost of redemption as of today’s date is £3,225,060.84. Our clients will contribute from their own resources a further sum of £735,060.84 thus requiring to borrow against the security of the site the sum of £2.5 million (only)”. There can be no real doubt that the “clients” referred to are those who control Villa Court, namely Spjeldnaes and Metcalf.

7. The letter later refers to “our clients, as Hersal Limited” being allowed by the proposed financing arrangements and subsequent sale of the Jericho development to redeem their original investments and the profit thereon tax efficiently.

Heinl was cross-examined in great detail about this letter. He said that what he had meant to convey was that Spjeldnaes would provide assistance to Metcalf in the Liverpool development only after he had left the Bank. This would become a private enterprise commitment of Spjeldnaes only in the future. He blamed any other apparent meaning on his defective English. When he was asked about the statement that the shareholders of Hersal controlled Villacourt, he said that for him Metcalf had sole control with Spjeldnaes as his “protector” and that he meant that Spjeldnaes was only a nominee shareholder of Aventurier. He said later that because of his defective English he had used the present tense instead of the future in describing Spjeldnaes’s participation. He meant that his “clients” were Metcalf and his companies.

From the transcript I have found Heinl’s response to his cross-examination about this letter transparently devious and entirely unconvincing. Even allowing for his efforts to present to potential lenders a development project supported by a banker about to leave his bank, I am not persuaded that the contents of this very clearly expressed letter can be explained away by linguistic shortcomings. Other documents before the court demonstrate that his written English was of a high standard and was significantly more accurate than his answers suggest. His answers point strongly to the conclusions (i) that by the date of that letter Heinl knew that Spjeldnaes, as well as Metcalf, currently had at least some personal beneficial interest through Hersal in the Liverpool developments and (ii) that by that date he was also aware that the Bank had advanced in respect of principal and interest £3.225 million towards those developments. In other words, the letter is very strong evidence that Heinl then knew that Spjeldnaes, then still the managing director of the Bank, had already acquired a personal beneficial interest in the Liverpool developments which had been financed by the Bank and that he would hold that beneficial interest in the future.

It is, however, important to appreciate that that letter is not evidence that Heinl knew on 5th May 1991 that either the funds deposited in the Aventurier accounts at AIB in April 1991 or in the Aventurier deposit account at NIB in March 1991 emanated from loans by the Bank. The most that the letter shows was that Heinl was aware that, as a “promoter” of Villa Court, Spjeldnaes had some connection with those Irish deposits.

There is strong evidence that Heinl became aware during the period May-July 1991 that Spjeldnaes had beneficial interests in companies such as Juillet and International Merchants Ltd. Heinl also appears to have known of Ney Investments Ltd, a nominee company through which Spjeldnaes held his interest in International Merchants.

Further, by a letter to Halifax Building Society from which the judge quoted at page 270-271 Heinl introduced Metcalf and Spjeldnaes in such a way as to show that he must have known by then that Spjeldnaes was beneficially interested in the Kerry Park and Villa Court investments.

The judge founded his conclusion that Heinl provided dishonest assistance to Spjeldnaes in the disposition of funds procured to be advanced by the Bank on Heinl’s conduct during the months following March 1991 up to and after the commencement of these proceedings which he held to represent attempts by Heinl, Metcalf and Spjeldnaes to conceal Spjeldnaes’s personal interest in the relevant businesses. He relied in particular on two specific matters, namely Spjeldnaes’s Kerry Park resignation documents and the Bathgate payments, and on what he described as plainly “money laundering” operations in the process of channelling money extracted from the Bank in the accounts controlled by Heinl, namely those of AAT, Paralegal and Aventurier.

As to the Kerry Park resignation documents, the position is that there emerged on discovery two documents in identical form save for the date by which Spjeldnaes purported to resign as a director of Kerry Park. If Heinl’s account of the reason for Spjeldnaes’s directorship of that company is correct and his sole function was to look after the Bank’s customer and its interest his membership of the board would not be justified after he ceased to be employed by the Bank in May 1991. Amongst Heinl’s discovery was a copy of the resignation letter on Heinl’s company’s typeface dated 1st May 1992 whereas another letter in identical typeface was dated 1st May 1991. Yet an application to open an account in the name of Kerry Park dated 27th May 1991 submitted to NIB shows Spjeldnaes as a director and signatory of the proposed account. That application was in Heinl’s handwriting and was signed by Heinl and Pierce. Other documents dated 18th May 1991, 23rd July 1991 and 25th September 1991 all show Spjeldnaes as a director of Kerry Park. That dated 18th May 1991 was signed by Heinl.

Like the judge, at page 287, of his judgment, I find the explanations for the contents of these documents to be extremely implausible. It is highly improbable that Heinl would have permitted the account application to NIB to be sent off if he had believed on the date in question that Spjeldnaes was no longer, or would by the date of the letter no longer be, a director of Kerry Park. The inference that the resignation letter bearing the date 1st May 1991 was in truth prepared by Heinl’s company in 1992 and was so prepared in order to provide camouflage for Spjeldnaes’s continuing interest in Kerry Park is, in my view, one which the judge was in all the circumstances entitled to draw.

The judge considered the Bathgate payments at pages 287 to 288 of his judgment. Bathgate were coin and medal dealers and Spjeldnaes collected medals and memorabilia. He made purchases from Bathgate. According to Mr Richard Kirch of Bathgate during the period from January 1990 to May 1992 some of the invoices for such purchases bore the address of Daylex Holdings. That was an Irish company incorporated on 9th April 1991 with Metcalf and Spjeldnaes as directors. However, in the course of that month, Spjeldnaes resigned as a director and Heinl became a director. Metcalf was the sole beneficial shareholder. According to Mr Kirch sticky labels were attached to those invoices so as to obscure the name and address of Daylex. On the labels were “c/o Jyske bank, Main Street, Gibraltar”. This exercise was carried out at the request of Spjeldnaes made in approximately late March/early April 1992. The judge concluded that the only possible explanation for this conduct was to conceal the fact that the invoice must have been sent to Daylex, which was one of the companies under Heinl’s management. The connection between Spjeldnaes and the funds in Daylex would thereby be concealed. The payments in respect of these invoices were made out of funds which had been transferred on Heinl’s direction in July 1991 into the No.02 account of Transatlantic at AIB, having been designated by Mr Pierce, Heinl’s accountant, as attributable to Spjeldnaes’s company, International Merchants Ltd “Intermer”. These funds emanated from the Bank, being part of the Uffe 2 AIB fund. Heinl was cross-examined at length about these transfers but explained them simply by saying in effect, that he was instructed by Metcalf and followed those instructions.

In my judgment, there was ample material from which the judge was entitled to draw the inference that he did. It is therefore to be concluded that a very substantial part of the Uffe 2 AIB fund was known by Heinl to be feeding Spjeldnaes’s personal operations by way of the Transatlantic 02 account at AIB. There is, however, no evidence that Heinl had anything to do with the use of the sticky labels by Bathgate or that he was aware at any material time of Spjeldnaes’s instructions to use them.

It is next necessary to consider the various so-called “money laundering” fund transfers procured by Mr Heinl in moving money from account to account at AIB and NIB.

I have already considered the evidence as to Heinl’s dealings during April - July 1991 with the Uffe 2 AIB fund and in particular his explanation that the account movements were on Metcalf’s instructions. On 1st August 1991 AIB wrote to Heinl a letter in response to his letter of instructions of 23rd July 1991 to which I have previously referred. The letter set out the rates of deposit interest applicable to each of the Aventurier, Paralegal and, Transatlantic accounts. the deposit maturity dates were also set out. Alongside the reference to the Transatlantic No.02 account Mr Heinl wrote “Jan Henning”. When it was put to him in cross-examination that he knew that this fund of £684,798 was treated by him as belonging to Spjeldnaes, he denied this and said that they did not know why Metcalf split up his deposits in the way he did. He had “designated pots of money to use some for one purpose, and something else for another purpose”. They at Transatlantic always considered that the money was solely that of or controlled by Metcalf. They simply followed his instructions. He said (Day 69 page 19) -

“We were service providers. We were not interested in reality why he was doing things. We did the job and we got paid for it.”

As regards payments to Bathgate in 1991, Heinl said that Metcalf had given him to understand that these were made in respect of a nursing home investment in which Metcalf and Spjeldnaes were interested.

The other movements of funds by Heinl between accounts at AIB, being money originating in the Vastervik loan, and at NIB, originating from the Uffe 2 loan, do not appear to have been explored with Mr Heinl in the course of his cross-examination. The account movements relating to the Uffe 2 NIB fund involved transfers to accounts of Daylex Holdings at the same branch between October 1991 and August 1992. The transfers involving the Vastervik fund were all between the Aventurier, Paralegal and Transatlantic accounts at AIB.

I interpose that if the purpose of those transfers was money laundering, it was a strikingly inept way of achieving it. In fact, the subsequent transfers, like those of the Uffe 2 AIB fund, are confined to accounts at the same branch and all made on the instructions of Mr Heinl. Indeed, the letter of instruction to AIB of 23rd July 1991, to which I have already referred contained multiple instructions as to movement of funds, hardly the course that would be taken if concealment were an objective. Further, the bank where the accounts were opened, AIB, was being used for legitimate financial facilities, in particular the financing of the Liverpool development in which the very companies, such as Aventurier, through which the funds passed, were directly involved.

If anybody wanted to trace those funds it would therefore be extremely easy to do so. So obvious would the trail be and so clearly would that have appeared to astute businessmen such as Metcalf and Spjeldnaes that it is, in my judgment, somewhat improbable that this was the main purpose of these transfers.

Having regard to Heinl’s state of knowledge of Spjeldnaes’s connection with the Irish and Liverpool investments and of the source of the funding of those investments and in view of the contents of his oral evidence, did he either have knowledge that the funds which, at Metcalf’s request, he was procuring to be transferred must have been obtained by Metcalf through Spjeldnaes in fraud of the Bank or must he at least have appreciated that there was a serious probability that the funds which he was transferring had been dishonestly obtained from the Bank in breach of Spjeldnaes’s duty?

It is important in this analysis to be very clear that the material question is not the objective test whether he ought as a reasonable businessman to have appreciated that the funds subject to his control had been fraudulently procured from the Bank or that there was a real probability that they had been, but the subjective test whether he did indeed appreciate that the funds had been or probably had been so procured.

There was no direct evidence to show that Heinl had at any time prior to April 1991 acquired knowledge of the origin or routing of the Vastervik funds from the Bank to the Aventurier account at AIB. Nor is there direct evidence to show that Heinl had knowledge of the origin or routing of the Uffe 2 AIB fund prior to the transfers from the Fontevraud Investments accounts at Lloyd’s Bank, Isle of Man, to the Aventurier account at NIB on 26th March 1991 or to the Fontevraud Investments account at AIB on 28th February 1991. Accordingly, it is necessary to ask whether he must have inferred from other facts known to him that the Bank was or probably was the source of the funds.

I have already concluded that certainly by the time he wrote the 5th May 1991 letter to Equity Bank, Dublin, Heinl probably knew that Spjeldnaes had a beneficial interest in the Liverpool developments and that the Bank had provided facilities for the Liverpool development. His answers in cross-examination suggest that he was at pains to give the impression that his understanding was that at no time before Spjeldnaes left the Bank did he have any personal interest in the developments at Liverpool or in Ireland. His evidence was in this respect deliberately misleading. So also was his evidence about the Kerry Park resignation documents. His evidence as to the transfer to the Transatlantic 02 account at AIB is also extremely improbable. He cannot therefore be treated as a witness of truth and his evidence has to be read as motivated in certain key areas by a desire to emphasise that his understanding of Spjeldnaes’s conduct could not have suggested any fraud against the Bank. He attempted to conceal all knowledge of Spjeldnaes’s personal interest in the investments before he left the Bank. That exercise in concealment can be inferred to have been motivated by the belief that concealment would assist his case that there was no dishonest assistance on his part. Nonetheless, it is not in itself proof that his assistance was dishonest.

I have already concluded that the fund transfers in which Heinl was involved, although, on the evidence, many of them seem to have had no commercial purpose, do not point unambiguously to money laundering. They would not therefore amount to a clear intention to Heinl that such was their main purpose.

Further, even allowing for substantial exaggeration and concealment on Heinl’s part, there is clear evidence to suggest that Metcalf was a very plausible and persuasive businessman well able to convince others of his personal wealth and resources when it suited him to do so. In so far as it goes the evidence strongly suggests that he was concerned to emphasise his success as a developer in Spain and to give the impression that he had access to very substantial funds in consequence of these profitable activities. There is probably some truth in Heinl’s evidence that Metcalf had told him that he was interested in transferring funds to productive deposits and investments in Ireland as well as enjoying facilities for his further developments in Liverpool from the Bank and, subsequently, from AIB. It would thus have appeared to Heinl that although these developments were being financed at least in part by the Bank, that would not be the sole origin of the very substantial funds at Metcalf’s disposal. There is no evidence that at any material time Heinl had knowledge of the extent of all the funds available to Metcalf or of the origin of all parts of such funds.

We were referred by Mr Philipson, on behalf of the Bank, to the judgment of Millett J. in AGIP (Africa) Ltd v. Jackson [1990] 1 Ch 265 and particularly to his analysis of the evidence required to make good a case of knowing assistance in the context of allegations of money laundering. The essence of the reasoning in that judgment and of Fox LJ. in the Court of Appeal at [1991] Ch 569 is that participation in an exercise known to be that of concealment for whatever reason in itself gives rise to an inference that the person providing assistance in such an exercise has acted dishonestly in relation to the transfer of the funds in question in breach of trust. It is, however, essential to that reasoning that the person alleged to have provided knowing assistance appreciated that the purpose of the fund transfers was concealment.

On the whole of this evidence it is not, in my view, established that Heinl must have known that the funds which he was transferring on Metcalf’s instructions during the period from February 1991 to early 1992 originated from loans procured by Spjeldnaes in fraud of the Bank. The highest it can be put on the evidence is that he must have appreciated that there was a very real probability that this was so and that therefore he acted dishonestly in acceding to the instructions without first confirming with the Bank that the funds were properly at the disposal of the companies in question. The strongest basis for this contention is the fact that by 8th May 1991 Heinl clearly knew of Spjeldnaes’s personal interest in the Liverpool and Irish developments and that the Bank had advanced funds for the Liverpool development. In these circumstances, was he acting dishonestly in the relevant sense in causing the transfer of funds of uncertain origin to companies in which Spjeldnaes had a personal interest without first enquiring where those funds had come from and in particular, in satisfying himself that they had not originated in a fraud on the Bank?

It has to be emphasised that it is not enough that on the whole of the information available to him he ought as a reasonable man to have inferred that there was a substantial probability that the funds originated from the Bank. It must be established that he did indeed draw that inference.

Taking fully into account the very unsatisfactory nature of much of Heinl’s evidence, I have with some hesitation come to the conclusion that, even allowing that at the end of the day this is essentially a so-called jury question, there is insufficient evidence to support a finding of relevant dishonesty on his part. Given what he knew of Metcalf’s operations, it would not be obvious to him that any funds under Metcalf’s control probably originated from the Bank. Nor would it be obvious that because the funds were going into the accounts of companies under the control of Metcalf and Spjeldnaes or even into accounts controlled by or designated for Spjeldnaes that meant that those funds were probably fraudulently procured. If third parties are to be held accountable on the basis of accessory liability for breaches of trust committed by others the standard of proof of dishonesty, although not as high as the criminal standard, should involve a high level of probability. In this case I am not satisfied that such level has been established.

Order: counsel to agree a minute of the orders being made today in relation to discharging the Heinl Mareva injunction, extending the other Marevas and remitting the inquiry as to damages on the cross-undertaking to a judge of the Chancery Division; various consequential matters stood over for a further hearing (time estimate 3 days).