England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		30/04/2007

MR JUSTICE RIMER :

Introduction

1. This is a claim by Sinclair Investments Holdings SA ("Sinclair") for recovery of a proprietary nature in consequence of alleged breaches of fiduciary duty and dishonest assistance in a breach of trust. It is made in the aftermath of a fraudulent conspiracy carried on by Carlton Cushnie and Frederick Clough during the 1990s. Their fraud was one whereby so-called "traders", including Sinclair, were induced to advance money to an offshore company called Trading Partners Limited ("TPL") by false representations that the money would be used by TPL for trading transactions of a particular type. Sinclair was induced to advance £2.35m to TPL.
2. In fact the money advanced by the traders was not used by TPL for such transactions. It was instead used in a "cross-firing" operation involving transfers between bank accounts held by TPL, Versailles Trade Finance Limited ("VTFL", the first defendant) and other companies in the control of Messrs Cushnie and Clough with the object and effect of falsely inflating VTFL's turnover, profit and assets. VTFL was a subsidiary of Versailles Group Plc ("VGP"), a listed company. The further effect of the fraud was falsely to inflate the value of VGP's shares and so enable Mr Cushnie to procure his company Marrlist Limited ("Marrlist") to sell shares it held in VGP at that inflated price: Marrlist sold approximately 5% of its VGP shares on 9 November 1999 for just under £29m.
3. Marrlist also held (through Strathforn Limited, a subsidiary) a valuable house, which Mr Cushnie occupied, at 19 Upper Phillimore Gardens, London W8 ("the Kensington property"). Strathforn had purchased it on 17 August 1999 with the help of a loan from the Royal Bank of Scotland Plc on the security of a charge of the property. The charge was paid off by 28 January 2000 with (in round figures) (i) £9.6m of the proceeds of sale of the VGP shares that Marrlist had sold in November 1999 and (ii) £384,000 provided by Mr Cushnie from an unknown source.
4. The sham basis of VTFL's trading activities and on which VGP attained its status as a listed company could not continue undiscovered indefinitely. The collapse came on 20 January 2000 when three creditor banks appointed joint administrative receivers in respect of VTFL and VGP. The joint receivers (Anthony Lomas, who is the second defendant, and Neville Khan) later entered into a series of settlement agreements with Mr Cushnie and Marrlist, as a result of which the Kensington property was sold on 5 December 2001. Out of the proceeds, and pursuant to the agreements, some £5.2m was paid to the receivers, which they still hold. Robert Birchall, the third defendant, replaced Mr Khan as a receiver on 30 September 2002. The receivers are partners in PricewaterhouseCoopers ("PwC").
5. By this claim Sinclair seeks a declaration that the defendants hold those proceeds of the Kensington property upon a constructive trust for beneficiaries that include itself; and that Sinclair, as such a beneficiary, is entitled to an account of the sums due to it under the trust and to payment. The claim is exclusively property based: Sinclair's case is that those proceeds represent property in which it had had a proportionate beneficial interest. It relies on the assertions that: (i) the Kensington property was (or is to be regarded as having been) purchased with profits improperly made by Mr Cushnie (namely, the realised value of the VGP shares) in breach of a fiduciary duty he personally owed to Sinclair with regard to the application by TPL of the advances that it had made to TPL; alternatively (ii) that it was (or is to be regarded as having been) purchased with profits whose making had been achieved by Mr Cushnie's unconscionable and dishonest conduct in inducing Sinclair to pay its advances to TPL and then dishonestly assisting in TPL's breach of trust towards Sinclair by procuring the use of the money for an unauthorised purpose which had the effect of artificially inflating the profits of VTFL and, in turn, the price of the VGP shares.
6. The defendants resist Sinclair's claim as unfounded. They say that, on the facts, Mr Cushnie owed no personal fiduciary duty to Sinclair with regard to the application of the money it paid to TPL and so the first basis of the claim must fail. As to the second, they admit that, on the facts, TPL was a trustee of the money paid to it by Sinclair, that it breached that trust and that Mr Cushnie dishonestly assisted in that breach. But they say that a claim for dishonest assistance is one that entitles the claimant to no more than monetary compensation for breach of trust. It does not entitle him to a proprietary remedy in respect of the fruits of such assistance, which is what is sought. Sinclair has already, in other proceedings, obtained a money judgment against Mr Cushnie for his fraud and has entered into a compromise with him in respect of its claim against him for compensation for dishonest assistance in TPL's breach of trust. The defendants say that Sinclair is not entitled to further, proprietary, relief in consequence of his wrongs.

Background story

7. Until the appointment of the receivers in January 2000, Marrlist, VGP, VTFL and TPL were, at all relevant times, under the management and control of Mr Cushnie and Mr Clough. They were both directors of VTFL, with Mr Cushnie being the chairman and chief executive officer and Mr Clough the finance director. They were also the sole executive directors of VGP, again holding like positions.
8. Returning to the beginning of the story, in 1989 Marrlist acquired a Northern Ireland company called Normandy Marketing (NI) Limited ("Normandy") and Mr Cushnie and Mr Clough became Normandy's two directors. Normandy's business was that of providing transaction based finance to small and medium sized distributors or manufacturers who were supplying goods to large businesses. In 1990 Marrlist transferred Normandy's business to England, where it was carried on through VTFL. VTFL had been incorporated on 16 November 1990 as a wholly-owned subsidiary of Normandy.
9. In March 1992 VGP (then a private company, which had been incorporated on 29 January 1992 as a Marrlist subsidiary) acquired the share capital of each of Normandy and VTFL. VGP only ever operated as a holding company. VTFL became its principal trading subsidiary.
10. VTFL's principal activity (like that of Normandy before it) was so-called accelerated payment trading ("APT"). APT involved the provision of funds on a short-term basis to enable transactions to take place. It worked as follows. VTFL would purchase at a discount (usually about 2.5% of the purchase price) goods that its clients (usually small manufacturers or distributors who could not afford to wait for payment) had already agreed to supply to the end-buyers, i.e. customers. VTFL would insure the goods for their full face value, sell them on to the customer for that value and the client would then deliver them to the customer. VTFL would invoice the customer and then, within seven days, pay the client 80% of the discounted purchase price, retaining the remaining 20% until the customer had paid it the full amount of the purchase price. The customer acquired title to the goods as and when it paid VTFL; and when VTFL had received the full price from the customer, it paid the client the remaining 20% of the discounted price less a daily interest charge calculated by reference to the time the customer had taken to pay the full price. VTFL's profit was the amount by which the discount and the interest exceeded its costs of the operation. In 1995/96 VTFL introduced a second product which enabled manufacturers to obtain finance for the purpose of acquiring raw materials from abroad. There is no need to describe its details.
11. The APT business required finance. Normandy had difficulty in raising bank finance and so it obtained funding from individuals. They were termed "traders". They advanced money to Normandy and received a profit distribution. When Normandy moved its business to England and VTFL carried it on, the traders continued to be involved as before. In 1992, at about the time when VGP became the holding company of VTFL, Marrlist incorporated Versailles Traders Limited ("VTL"), a United Kingdom company, as another subsidiary. VTL became the vehicle to which the traders advanced funds for the purpose of APT transactions. Mr Cushnie was active in enlisting wealthy individuals as traders.
12. The separate business of VTFL was, ostensibly, increasingly successful. In February 1995 VGP, its parent, was permitted by the London Stock Exchange to trade its shares under rule 4.2 of the Stock Exchange Rules. In May 1995 VGP re-registered as a public limited company. In July 1995 it offered 23.6m ordinary shares for sale and 90m ordinary shares for subscription. The shares were admitted to the Alternative Investment Market. In October 1997 VGP's shares were admitted to the Official List of the London Stock Exchange.

The period following 1 March 1996

13. The Sinclair story started in earnest in early 1996. VTL had ceased to trade on 29 February 1996. Its business was transferred to, and carried on by, Versailles Traders (BVI) Limited. This was a new company that was incorporated in the British Virgin Islands on 16 February 1996 and which commenced business on 1 March 1996. On 21 March 1996 it changed its name to Versailles Traders Limited (not to be confused with VTL); on 11 December 1998 to VT (BVI) Limited; on 15 January 1999 to Versailles Trading Partners Limited; and on 26 January 1999 to Trading Partners Limited (ie TPL), and I will call it TPL at all stages of its history. As from March 1996, it was TPL that solicited funds from traders for the purpose of being applied in APT.
14. By March 1996 the group corporate structure was as follows. Mr Cushnie owned 99% of Marrlist and his wife the other 1%. Mr Cushnie and Mr Clough were directors of Marrlist. Marrlist had formerly owned 99% of VGP and Mr Cushnie had held the other 1% as a nominee for Marrlist; but by 1995 VGP had become a listed company and a minority of its shares was now held elsewhere. Marrlist, however, always retained a majority holding. Mr Cushnie and Mr Clough were the sole executive directors of VGP. VGP in turn owned 100% of VTFL, of which Mr Cushnie and Mr Clough were and remained the sole directors. Marrlist also held 100% of VTL, whose business was transferred to TPL in early 1996. TPL appears to have been owned as to 100% by WSW Nominees Limited, of which the beneficial owner is said to have been Mr Cushnie's daughter, Sam Lopez. Mr Cushnie was a director of TPL from 9 March 1996 to 15 January 1998. He was also its president. He had de facto control of TPL at all times: in particular, he had extensive dealings with the traders and he maintained their confidence in TPL's enterprise.
15. Sinclair was a trader that advanced funds to TPL: (i) £1.25m on 6 May 1996; (ii) £0.5m on 27 September 1996; (iii) £0.4m on 18 October 1996; and (iv) £0.2m on 7 February 1997. Those advances totalled £2.35m. By January 2000, when the receivers were appointed, Sinclair and other traders had advanced a total of just over £23m to TPL.
16. Sinclair provided its money to TPL on the terms of "trader agreements". The other traders did so as well. The first one that Sinclair signed was entered into on about 16 May 1996. It was in the form of a letter agreement signed on behalf of Sinclair by Paul Herzberg (its secretary) and addressed to TPL at a Jersey address. Brian Smith signed for TPL. It related to Sinclair's first payment of £1.25m. It recorded that Sinclair was providing TPL with its £1.25m "for the purpose of buying and selling goods for us subject to the following conditions." It provided in part:

"1. We [Sinclair] may direct you [TPL] as our agents to buy particular goods but in the absence of any specific direction from us you shall purchase goods of merchantable quality and goods which have been agreed for sale.

2. If any of the money provided by us is not currently used in the purchase of goods it shall be deposited by you in trust for us in a money bank account or such other account as we shall from time to time discuss. …

5. Unless we direct otherwise you will account to us for the sale and purchase of all goods and the profit therein on a quarterly basis and will pay the net profit to us with quarterly reports if so requested and in the absence of any specific direction any profit will be deposited in accordance with Clause 2.

6. Upon request you will provide details of all goods purchased and sold and copies of any invoices relating thereto.

7. (a) Any of the monies paid hereunder and accrued interest shall be repaid to us at not less than three months notice in writing expiring at the end of a quarter except for that relating to goods which have been sold but not paid for by the purchaser, in which event repayment in respect of that money shall be made when payment has been received by you for the sale of the goods.

(b) You may terminate this agreement by giving us not less than three months notice in writing expiring at the end of a quarter.

8. You are permitted to purchase the goods as our agents …"

17. The agreement did not identify how the quarterly profit was to be calculated, and the evidence is that in fact no profits – from genuine trading transactions – were ever made. In practice, however, TPL did make payments to its traders by way of purported profits on the capital invested, initially at a rate of 17%, and then 15%. Clause 2 is of particular importance for present purposes, providing as it did that any money not used in purchase transactions was to be deposited by TPL in a bank account upon trust for Sinclair. As none of the traders' advances to TPL was ever used in any such transactions, all their advances remained held by TPL on trust for them.
18. No agreements in relation to Sinclair's second and third advances are in evidence, although I understand it to be accepted that like agreements were signed in relation to each. A further agreement was, however, signed on 9 April 1997, by which time Sinclair had advanced its total sum of £2.35m. That agreement was also in the form of a letter agreement addressed by Sinclair to TPL, and recorded the advance of the full £2.35m. It was signed by Mr Herzberg for Sinclair and by Mr Cushnie for TPL. Clauses 1 to 6 were in the same terms as the agreement of 16 May 1996, as were clause 7(b) and the opening words of clause 8. Clause 7(a) was a new provision which entitled Sinclair to recover its advance and interest on three months' notice, save that if TPL had specified a so-called "Lock-In Period" – which could up to a year – Sinclair was not entitled to give any such notice expiring during that period. In effect, Sinclair was agreeing to tie up all its money for any lock-in period. The invitation to Sinclair to enter into this new, consolidated agreement had been foreshadowed by a letter of 14 February 1997 (misdated 1996) from Mr Cushnie to Mr Herzberg explaining that TPL's proposal was that:

"… with effect from 1^st March 1997, [TPL] will guarantee your existing level of profit distribution until 28^th February 1998. In return we would ask you for twelve months notice prior to removing any of your funds. We would then re-negotiate with you every twelve months."

19. On 15 September 1997 Mr Cushnie wrote to Mr Hill (to whose interest in Sinclair I will come) thanking him for agreeing to the lock-in and explaining that all the other traders had also agreed to the new terms, which had resulted in "a significant inflow of Traders' funds." A graph in evidence shows that the funds advanced by traders (including Sinclair) to TPL amounted (in round figures) to: (i) £20.5m at February 1997, (ii) £25.2m at February 1998, (iii) £24.3m at February 1999 and (iv) £23.1m at January 2000.
20. On 4 July 1996 TPL entered into a management agreement with VTFL. It is not in evidence, but it is agreed that its terms were essentially similar to those of a later management agreement dated 16 October 1997, which is. That recited that TPL had, since 1 March 1996, carried on the business of the provision of trade finance; and that TPL and VTFL had agreed terms upon which VTFL had "taken over and will continue to take responsibility for the management and administration of the business activities of [TPL]." By clause 1 TPL appointed VTFL to be such manager, with effect from 1 March 1996. By clauses 3(a) and (b) VTFL assumed responsibility for TPL's business activities, with "complete discretion to enter into contracts for the sale and purchase of goods or any other contracts in the ordinary course of [TPL's] business.…" By clause 3(e)(ii) VTFL was to "make all purchases and sales of goods for [TPL] in the name of [TPL] or as the Board [of TPL] shall direct." By clause 3(f) TPL was to effect through VTFL "all transactions and dealings in its business of the provision of trade finance." Clause 3(g) provided that nothing in the agreement was to make VTFL responsible "to any other person in association with whom [TPL] carries on its business for any of [TPL's] obligations to those persons." By clause 6(A) TPL was to pay VTFL a management fee equal to 95% (for the financial year commencing 1 March 1996) and 99.5% (for subsequent years) of TPL's pre-tax profit in each such year. This agreement was replaced by a further agreement dated 1 March 1998, which was identical to the prior agreement save that it did not include provisions in the terms of clauses 3(f) and (g) of that agreement.
21. Those management agreements entitled VTFL to transact business in TPL's name. They did not entitle VTFL to use TPL's funds for its own purposes.

What actually happened

22. Sinclair was unaware of the purported delegation by TPL of the responsibility for the management and administration of its business activities to VTFL. TPL in fact never carried on any business that VTFL could claim to be managing. Investigations carried out by the Serious Fraud Office and the receivers revealed that TPL conducted at most only one legitimate trade in its own name and that made a loss. Whereas each trader's advances to TPL should either have been used to finance specific APT transactions, or else kept on deposit at a bank upon trust for the trader, the advances to TPL were instead used to finance the bank transfers necessary to create the fiction that VTFL was carrying on a genuine, and increasingly profitable, trade and to finance the illusory profits that TPL paid to traders. The traders, including Sinclair, were ignorant of the manner in which the funds they advanced were being misused.
23. As for VTFL, in the years since its establishment it reported an uninterrupted increase in turnover and profit. Between 1992 and 1999 it published annual accounts in which the figures for turnover and debtors were stated to be significantly higher than they in fact were. This in turn resulted in a steady increase in VGP's share price. VTFL's turnover was inflated in the following manner: (i) the accounts showed money paid to and received from other companies controlled and managed by Mr Cushnie and Mr Clough (the so-called "cross-firing" companies) as if they were genuine trading payments and receipts, which they were not; and (ii) the nominal ledger contained entries which purported to be sales, purchases and trading receipts and payments which were not justified by any actual trading. The main cross-firing companies were Artagent Limited, Discgift Limited, Superhandy Limited, but they also included Palmerston Limited, Normandy, TPL and perhaps (if only to a smaller extent) Marrlist. Mr Cushnie held 99% of the issued shares of Artagent, Discgift and Superhandy and 50% of those of Palmerston. In broad terms, it worked as follows. VTFL had a Customer Service Division, which was a genuine trade generating funds. VTFL was financed by bank loans. It also received finance from, first, VTL and, from March 1996, TPL; and VTL and TPL were successively financed by the traders. The money so received by VTFL was then revolved around the cross-firing companies. The nature of this activity has been investigated by PwC and the receivers and counsel were agreed as to the relevant facts. There is no need to detail it beyond saying that between June 1993 and October 1999 hundreds of millions of pounds were transferred both ways between VTFL and various cross-firing companies. VTFL's receipts were disguised in its cash books to make them appear as genuine sales to genuine customers, so falsely inflating its turnover.
24. On 5 May 1999 the Department of Trade and Industry commenced an investigation into VGP's affairs under section 447 of the Companies Act 1985. On 30 November 1999 Baker Tilley were commissioned to provide a report under section 2.11 of the London Stock Exchange's Yellow Book. On 8 December 1999 dealings in VGP shares were suspended. At that date the share price had stood at 268p and VGP had a market value on paper of £632m. In early January 2000 three creditor banks with fixed and floating charges (National Westminster Bank Plc ("NatWest"), Royal Bank of Scotland plc ("RBS") and Barclays Bank PLC ("Barclays")) appointed PwC to investigate and review VGP's affairs. On 18 January 2000 the Serious Fraud Office announced an investigation into the VGP group. On 20 January 2000 PwC produced their report; and on the same day the three banks made the appointment of the joint administrative receivers in respect of VGP and VTFL. At that date the banks' total secured debt amounted to some £70.5m (Natwest, £37.25m; RBS, £23.12m; and Barclays, £10.15m). The Barclays indebtedness was in fact only incurred very late in the day – in about September or October 1999. VTFL had trade creditors of some £1.8m. Preferential creditors were estimated to total at least £127,000, although that remained to be investigated. Its main asset at the time of the receivership appeared to be book debts of some £100m, comprising £89m due from over 850 customers and £11m from clients for deals that were part completed. The receivers' investigations led them to conclude, however, that a significant proportion of these debts were not genuine, with the true book debt figure being very substantially less. Whilst its reported accounts for the years ended 28 February 1995 to the period ended 20 January 2000 purported to show increasing gross profits, in fact the accumulated loss over that period amounted to over £81m. As for TPL, the findings were that, apart from raising funds from traders and paying interest and principal to them, its only activity was that of participating in the cross-firing exercise. It had carried on no legitimate business with the traders' funds. The draft accounts and reports that had been produced – showing that between 1993 and 1998 the annual turnover of VTL and (its successor) TPL had increased from £3m to £102m - were fiction and none of that turnover had actually been achieved. The funds that TPL ostensibly held on behalf of traders did not exist and had almost entirely been dissipated. The profits it had purportedly paid the traders were not profits at all, because none was made: they were returns of capital. Some traders had been repaid in full before the collapse of TPL in January 2000, but the remainder had sums totalling approximately £22.6m invested in TPL. TPL had just £1,314,766 in its bank account, which went in investigations and professional fees. All creditors faced huge losses and investors who had bought shares in VGP (at a cost of over £100m) found that they were worthless.
25. When VTFL went into receivership, Mr Cushnie and Mr Clough were still its sole directors. They were also still the sole executive directors of VGP (which had also had some non-executive directors). Both VTL and TPL had run their purported businesses from an office in Hammersmith. On 3 May 2000 Sinclair and another trader presented a petition in the British Virgin Islands for the compulsory winding up of TPL and on 27 July 2000 such an order was made. Mark Chapman was appointed its liquidator and Stephen Akers was appointed a joint liquidator on 11 October 2000. Both were partners in Deloitte & Touche (Mr Akers has since moved to Grant Thornton).
26. Sinclair's case is that, at least from February 1995, VTFL was a worthless company of no value, although it was falsely presented over the following years as being increasingly profitable. The painting of that false picture was dependent on the cross-firing operations in which the traders' advances and the banks' loans were applied. It follows, submitted Sinclair, that the inflation in the value of VGP's shares was similarly referable to that dishonest activity. VGP was also at all material times insolvent, including during the whole period when it was listed in the FTSE 250.

The Kensington property

27. Strathforn, a Marrlist subsidiary, bought the Kensington property on 17 August 1999. It did so with the help of an advance of £9.975m from RBS, secured by a legal charge dated 17 August 1999. The amount of the purchase price was not proved, although Mr King, for Mr Sinclair, said a price of £11m had been mentioned in certain newspapers, and the evidence was at least to the effect that it exceeded the RBS loan: there was, however, no evidence as to the source of the money that met that excess. Mr Cushnie occupied the property as his residence.
28. On 9 November 1999 (about a month before dealings in VGP shares were suspended) Marrlist sold about 5% of its VGP shares for just under £29m. On 19 November 1999 Marrlist reduced the RBS mortgage loan by £4.975m, using money transferred from its RBS deposit account: it is agreed that it derived from the share sale proceeds. On 21 January 2000 RBS made a demand on Strathforn and on Marrlist (under a guarantee) for payment of the money still secured by its charge; and a further payment of £4.652m was paid to RBS, that being the balance on deposit in Marrlist's RBS account: it is agreed that that also derived from the share sale proceeds. The balance to clear the RBS loan (residual principal plus interest to close) was paid on 28 January 2000. That amounted to £383,895.14 and came out of £500,000 that had been injected into Marrlist's account by Mr Cushnie. The source of the £500,000 is unknown.

The settlement agreements

29. In 2001, 2002 and 2005 the joint receivers entered into settlement agreements with Mr Cushnie and Marrlist. The first was dated 26 February 2001. This recited and settled claims that VGP and VTFL had against Mr Cushnie and Marrlist, namely (i) a claim by VGP for some £2.7m against Marrlist for repayment of dividends paid on the false basis that VGP had distributable profits enabling the dividends to be paid; and (ii) a claim by VTFL against Mr Cushnie for breach of his duties as a director. Under the settlement VTFL and VGP acquired charges over the Kensington property. On 5 December 2001 receivers appointed under the Law of Property Act 1925 sold the property for £8.64m (rather less than had been paid for it) and net proceeds of some £8.4m were paid to the receivers. The terms of settlement had provided that certain liabilities (including Marrlist's corporation tax liability) would be paid out of the sale proceeds. That gave rise to complications which I need not detail. Suffice it to say that the effect and outcome of a further settlement agreement of 5 August 2002 was that the total sum retained by the receivers out of the sale proceeds earlier paid to them was £5,192,522.06 (hereafter "£5.2m"). The receivers still hold that £5.2m and it is that money which is the target of Sinclair's claim. Its case is that, putting it generally, it represents in material part the fruit of (a) Mr Cushnie's breach of fiduciary duty owed to it; alternatively, (b) his dishonest assistance in TPL's breach of trust towards the traders (including Sinclair). Sinclair claims to be entitled to its proper share.

The criminal proceedings

30. Mr Cushnie and Mr Clough were charged with criminal offences. On 8 July 2003 Mr Clough pleaded guilty to count 1 (which alleged the carrying on of Normandy's business with intent to defraud creditors). That count was not pursued against Mr Cushnie and the trial judge (Jackson J) made an order that it should lie on the file. Count 2 ("the Versailles fraud", which became known as count 1 at the trial) was conspiracy to defraud. The particulars were that between 30 June 1991 and 21 January 2000 Mr Cushnie, Mr Clough and Ms Lorraine Marcia Jones conspired together to defraud (i) trade creditors of VTFL, (ii) banks and other lenders to VGP and/or VTFL, (iii) the London Stock Exchange and (iv) shareholders in VGP by dishonestly (a) falsely overstating the trading turnover of VGP and/or VTFL, (b) falsely overstating the assets of VGP and/or VTFL, (c) falsifying accounts, records or documents made or required for accounting purposes, and (d) concealing accounts, records or documents made or required for accounting purposes. Count 3 ("the traders fraud", which became count 2 at the trial) was also conspiracy to defraud. The particulars were that, between 1 March 1992 and 21 January 2000, Mr Cushnie, Mr Clough and Ms Jones conspired to defraud the traders (people who might provide moneys to VTL and/or TPL) by dishonestly (a) falsely representing that those moneys would be used for the purpose of specific and genuine trading transactions by or on behalf of VTL and/or TPL; and (b) transferring those moneys directly and indirectly between bank accounts held by VTL and/or TPL and bank accounts held by VTFL for the purposes of falsely inflating the turnover and assets of all three companies.
31. Mr Clough pleaded guilty on counts 2 and 3. The prosecution did not pursue either charge against Ms Jones, in respect of whom the jury was directed to return not guilty verdicts. Mr Cushnie pleaded not guilty on counts 2 and 3. The jury's task was to decide whether he had conspired with Mr Clough to defraud in the manner specified in those counts. The trial occupied four months in 2004. Mr Clough gave evidence for the prosecution, which included admissions that he had perpetrated frauds of the nature alleged under both counts. Mr Cushnie did not give evidence.
32. On 25 May 2004 the jury found Mr Cushnie not guilty on count 2 (the Versailles fraud) but guilty on count 3 (the traders fraud). On 8 June 2004 the court sentenced Mr Clough to a total prison sentence of six years (reduced on appeal to five) and Mr Cushnie to a sentence of six years. The court made disqualification orders under the Company Directors Disqualification Act 1986 against Mr Clough and Mr Cushnie for 15 and 10 years respectively. Questions of confiscation and compensation were adjourned.

The confiscation and compensation orders

33. On 29 June 2005 Jackson J made findings as to the benefit Mr Cushnie had derived from the traders fraud. A related finding was that Mr Clough had stolen £4,350,309 from what Jackson J called "the traders' company", a reference to both VTL and TPL. There was no evidence before me as to what amounts were stolen from which or when. Jackson J made a confiscation order against Mr Cushnie under section 71 of the Criminal Justice Act 1988 in the sum of £10,140,732. Payment was to be made by 22 April 2007 with, in default, a three-year term of imprisonment. The judge made a further order under section 130 of the Powers of Criminal Courts (Sentencing) Act 2000 requiring compensation to be paid to the traders from the confiscated sum in specified amounts, that due to Sinclair being £1,115,185. The payment in fact made to Sinclair, on 23 November 2006, was £1,054,062.75.
34. Sinclair had advanced a total of £2.35m to TPL. It had received back £1,168,370.47 by way of purported profits, but being in fact returns of capital. Giving credit against the £2.35m for those repayments and the compensation paid on 23 November 2006, Sinclair's net loss on its advances stood, as at that date, at £127,566.78. Mr King submitted, however, that that does not represent Sinclair's real loss. He said that interest should be treated as running in its favour on the amount of its capital from time to time unpaid, and he produced calculations on the basis that 6% was a fair rate. On that basis, its loss as at 23 November 2006 was £1,117,199.53. Mr Hill said in his oral evidence that in January 2007 Mr Cushnie's creditors voted in favour of an individual voluntary arrangement that Mr Cushnie had proposed, under which Mr Cushnie is to pay his creditors £300,000 over the next three years. Mr Hill said that Sinclair's share would be about £30,000.

Sinclair's civil proceedings against Mr Cushnie and others

35. In 2003 Sinclair brought proceedings in the Chancery Division against Mr Cushnie, Marrlist and four others. On 24 June 2004 it applied for summary judgment against Mr Cushnie under CPR Part 24. The hearing was deferred to await the outcome of his application for leave to appeal against his conviction and sentence, which was dismissed on 8 April 2005. After further adjournments to accommodate Mr Cushnie, the application came before Mr Thomas Ivory QC, sitting as a Deputy Judge of the Chancery Division, on 20 January 2006, and he delivered his judgment on 27 January 2006. Sinclair was represented by Lord Brennan QC and Mr Tony Oakley. Miss Susan Prevezer QC represented Mr Cushnie. Summary judgment was sought only on a limited basis against Mr Cushnie: whatever the outcome of the application, the trial against him and the other defendants was due to start in March 2006.
36. In his judgment, Mr Ivory rejected two points that Mr Cushnie advanced in defence of Sinclair's claim for damages. Mr Ivory then discussed the measure of damages to which Sinclair was entitled. He held that as the primary claim was in tort he had to proceed on the basis that Sinclair was entitled to be put into the position it would have been if it had never entered into its transactions with TPL. It followed in his view that Sinclair had to give credit for the payments of purported profits that TPL had made to it. Lord Brennan's response to that is recorded as being that, on a claim against Mr Cushnie for conspiracy to defraud or for compensation for his dishonest assistance in TPL's breach of trust, the measure of recovery would be different: and, in particular, no credit ought to be given for those payments. The judge doubted whether that could be right in relation to conspiracy to defraud but recognised that it might arguably be so in relation to the dishonest assistance claim; and he considered that the question was best left to the trial. On that basis Lord Brennan had invited the judge to give Sinclair a judgment for damages on account, with credit in their calculation being given for the "profit" payments: the plan was to argue for more at trial. The judge was satisfied that he could order an interim payment.
37. On 27 January 2006 the judge made an order reflecting that it was by way of judgment against Mr Cushnie for conspiracy and dishonest assistance. Paragraph 1 required the payment of £1,282,779.63 damages for conspiracy (£1,097,369.07 principal and £185,410.56 interest); paragraph 2 ordered that any additional sum payable by way of equitable compensation for dishonest assistance was to be determined at the trial. Mr Cushnie was ordered to pay costs of £25,000 to Sinclair. The capital element of the judgment gave credit for the "profit" payments; it is unclear how the interest figure was calculated, but it is unlikely that it was by reference to the balance of capital outstanding from time to time. Mr Cushnie has made no payment under the judgment, although it was in part satisfied by the compensation payment that Sinclair received on 23 November 2006.
38. The trial came before me over five days in March 2006. Following (i) my refusal on day 2 of an application by Sinclair to make a major amendment to its claim; (ii) the refusal of the Court of Appeal to give permission to appeal against that decision; and (iii) a day of evidence from Mr Hill and Mr Smith, the proceedings were settled.

The TPL claim

39. On 4 September 2006 Sinclair Investments (UK) Limited (a Sinclair subsidiary) obtained an assignment from TPL's liquidators of TPL's claims in respect of the profits made by Mr Cushnie as a result of Marrlist's sales of its VGP shares (including, but not limited to, some £28.9m made by the November 1999 sales); and TPL has since started such a claim in the Chancery Division. The defendants are the present defendants plus the three banks. The claim is supported by the traders, but can be regarded as competitive with Sinclair's present claim. Sinclair sought the defendants' agreement to the claims being tried together, but it was declined.

The evidence relating to the making by Sinclair of its advances to TPL

40. I now set out the evidence relating to the making by Sinclair of its advances to TPL. This is material to the first basis on which Sinclair makes its claim: namely, that in the circumstances in which it came to make its advances to TPL, Mr Cushnie assumed a personal fiduciary duty to Sinclair relating to the manner in which TPL would apply the money so advanced.
41. Sinclair was advised in relation to the matter of its investment in TPL by Daniel Hill. Mr Cushnie persuaded Mr Hill to advise Sinclair to advance money to TPL. Mr Hill made four witness statements. He also adopted as his evidence in chief part of his evidence in cross-examination (by leading counsel for Mr Cushnie) at the March 2006 trial of Sinclair's claim against Mr Cushnie and others.
42. Sinclair is incorporated in the British Virgin Islands ("the BVI"). It is owned by a discretionary trust known as the Falcon Trust. It has a single corporate director, First Directors Limited ("FDL"). FDL is based in the Isle of Man. The relevant representatives of FDL are David Stevenson and Colin Forster. It was they who made the decisions on Sinclair's behalf to invest in TPL, but the evidence includes not a word from them. For practical purposes the relevant running – but not the decision making – was done by Mr Hill, whose formal role was never more than that of an adviser.
43. It will probably be no surprise if I say that the Falcon Trust is a Hill family trust. During his cross-examination in March 2006, Mr Hill accepted that and he said that it had been established with funds derived from assets in Canada owned by him and his wife. However, in his third witness statement made for the present claim, Mr Hill withdrew that evidence as incorrect and said that he and his wife had not been such settlors; and in cross-examination he also - at least initially - denied that the Falcon Trust was a Hill family trust. He then moderated that evidence and said he did not know whether it was or not; and that he did not know who had created it or who the trustees were, although he said he could find out. But he did know that it was a discretionary settlement for the benefit of a class of beneficiaries comprising Hill family members (including his sons) and certain charities.
44. It is not unknown for witnesses in Chancery Division proceedings to claim little knowledge of offshore discretionary settlements of which they are or may be beneficiaries. My own experience is that such professed ignorance usually tends to emerge in cases in which the witness's assets are under threat, but that may be just a coincidence. That, however, is not this case and I make clear that I found Mr Hill to be a wholly truthful witness; and I certainly did not regard him as attempting to conceal anything material from the court. I accept that his offers to find out the details of which he was uncertain were genuine; and that, given the opportunity (had it been necessary, which it was not), he could and would have done so. Whatever his own uncertainties, I find that the Falcon Trust was a discretionary trust established for the benefit of Hill family members; and when Mr Hill and his family came to England from the United States in 1991 (they have since lived in Ascot), Mr Hill obtained professional advice about his tax affairs, which was that it was important that the control of that (and other) family trusts and their assets was not brought onshore.
45. There was therefore no question of Mr Hill becoming a director of Sinclair. He does, however, give advice to Sinclair on matters of business; and Sinclair's director, FDL, makes its decisions on the basis of that advice. Mr Hill does not give that advice to FDL directly. He gives it to Sinclair's secretary, Mr Paul Herzberg. Mr Herzberg became such secretary at the joint request of Mr Hill and the trustees of the Falcon Trust. Mr Herzberg also performs various other administrative services for Mr Hill - in whose house he has an office - as well as performing duties as an estate manager for the family from which Mr Hill rents his house. Mr Hill's evidence was that he occasionally spoke direct to FDL's directors, but that he usually talked to Mr Herzberg, who would then communicate with those directors. Mr Hill has no knowledge of how Mr Herzberg so communicates. Mr Hill is, however, plainly very close to the action. He is helping Sinclair in this claim and has made the main witness statements in support; he has a written authority from FDL to make decisions in relation to it; and he had a like authority to make decisions in relation to Sinclair's earlier claim against Mr Cushnie and others. None of that is surprising. The object of the claims has been and is to recover money for Mr Hill's family.
46. Turning to how Mr Hill learnt of the Versailles group, Mr Hill's neighbour is Brian Smith. They became friendly. Mr Smith told Mr Hill of an investment he had made in about 1993 in VTL, of which Mr Smith was a director. Mr Smith suggested that Mr Hill should meet Mr Cushnie so that he could explain to him the business of the Versailles group and of VTL. I make clear that there is no suggestion that Mr Smith was involved in the frauds that Mr Clough and Mr Cushnie perpetrated through VTL: he was fooled along with everyone else.
47. Mr Hill said in his second witness statement that he first met Mr Cushnie in 1994 at an informal business lunch in London. Mr Smith was also there. After that he met Mr Cushnie three or four times a year over the next few years, when they discussed the business of VTL, TPL, VTFL and VGP. He said that during the meetings Mr Cushnie explained how the group's business worked, in particular that of TPL. Mr Hill has no diary or other notes of the meetings.
48. Mr Hill said in paragraph 52 of that witness statement that at the first meeting in 1994 Mr Cushnie explained his two roles, one at VTFL and one at TPL. In fact, TPL did not exist then – it was not incorporated until February 1996, following which it purportedly carried on offshore the business purportedly previously carried on onshore by VTL. I do not accept that any discussions between Mr Cushnie and Mr Hill as early as 1994 related to TPL as opposed to VTL, and in this respect I regard Mr Hill's memory as inaccurate. I find that the meetings in 1994 and 1995 were confined to what Mr Cushnie told Mr Hill about the (exclusively onshore) operations of VTL and the Versailles group.
49. Mr Hill said that at those meetings Mr Cushnie tried to get him to advise Sinclair to invest in VTL. It is, I consider, a fair summary of his evidence that Mr Cushnie was generally touting the virtues of VTL, including explanations of what he personally was doing with it, how the business worked and how it was making lots of money for the traders (one of whom was Mr Smith). He showed Mr Hill a pamphlet headed "Versailles Traders Limited – Trade Programme", which explained that VTL was associated to VTFL, how APT worked and how "the company is funded by individuals (Traders) whereby VTL act as an agent in the employ of their funds." It was plainly produced during the VTL era. It described Mr Cushnie and Mr Smith as the directors of VTL. Mr Hill emphasised that during this pre-1996 period he was not considering any investment by Sinclair in VTL and nor did Mr Cushnie give him any assurances as to VTL's operations. He said Mr Cushnie only gave him any relevant assurances when he was considering a Sinclair investment in TPL in 1996.
50. In 1996 Mr Cushnie explained TPL's operations to Mr Hill - in particular at a meeting on 30 April 1996, shortly before Sinclair made its first advance to TPL in May 1996. Mr Hill knew from Mr Cushnie that this was the beginning of Mr Cushnie's move offshore, and he thought that Sinclair might have been the first offshore investor. He said his impression at the time that Sinclair first invested was that Mr Cushnie was going to continue his onshore operation via VTL, although in fact he did not. Mr Cushnie told Mr Hill that he was not and could not be a director of TPL since that would prejudice its offshore tax status. But Mr Hill said that, in the context of those explanations, Mr Cushnie explained to him that, as president of VTFL, he and his staff would go out and find business, or trades; and that, as regards TPL, he was, or would be, personally responsible for "advising and directing" TPL as to which traders' funds should go into what trades. The quoted words were ones that Mr Hill used in his witness statement; and in cross-examination he explained the word "directing" as meaning, in the context, that Mr Cushnie was "… responsible. Overseeing that, to make sure that that was what was happening." He confirmed that he understood that Mr Cushnie had the capacity to make sure that what he wanted would happen. To the question whether Mr Cushnie was really directing the whole TPL operation, Mr Hill replied "Yes, he is, yes. And then other people were executing of course. He is saying: let us do it this way, like I am saying here; that is right."
51. Mr Hill explained in his witness statement how Mr Cushnie "walked him through" a typical transaction in which, say, Harrods ordered £100,000 worth of suits from a particular manufacturing client; and how, if Harrods accepted the suits as being of merchantable quality, at that point he, Mr Cushnie, would take the decision on whether to use traders' funds in the transaction and to what extent. Mr Hill continued:

"54. In the case of the Harrods' suits example Mr Cushnie explained that VTFL may have funded 50% of the payment to the client with Sinclair and Michael Moseley [another trader] funding 25% each. Mr Cushnie told me that he would then direct TPL to make the payment on behalf of the Traders. At the same time, wearing his VTFL hat Mr Cushnie would direct VTFL to make its part of the payment and would also arrange insurance for the trade with 95% insurance of the transaction. I later was told that the insurance cover for Trades was increased to 100%.

55. I remember being particularly impressed by Cushnie's assurances to me that he would personally monitor the use of Sinclair's Funds in trades. I questioned Mr Cushnie as how he would be able to do this and I specifically recall Mr Cushnie mentioning his considerable experience in computers and him saying to me, words to the effect that:

'… I am a computer guy on any given day I can tell you where your funds are and what goods they are in ….'

56. He went on to say that he could tell me at any time how much of any particular stock belonged to each Trader and whether Sinclair's funds were in:

'… shorts or golf balls ….'

57. I recall remarking to Mr Cushnie that without the computer, which at this time was still a relatively new technology, this type of business would just not have been possible, he agreed and saying that it was:

'… a new technology and a new business …'

58. I have later discovered that Mr Cushnie did indeed have a background in computers, having been a programmer with ICL and having run a computer business called Pentagon Business Systems PLC … with Mr Clough. Pentagon collapsed shortly before Mr Cushnie and Mr Clough went into the trade finance business with [Normandy] ….

59. Mr Cushnie told me that not only would he monitor the investments but also the returns on the investments, which were distributed quarterly. Mr Cushnie told me he did this as he knew some of the Traders personally and they were friends. As such he wanted to ensure that they were dealt with properly.

60. Mr Cushnie impressed me, I was left with the very clear belief that Mr Cushnie would deal with Sinclair's Funds personally and that it would not simply be a matter of Sinclair being dealt with by some back office such [as] the accounts department [where] things could have slipped through the cracks. As I understand matters from Brian Smith, Mr Cushnie did indeed check and approve each distribution made to each Trader.

61. As a result of Mr Cushnie's assurances and personal commitment he was prepared to make to any monitoring and directing the use of Sinclair Funds, I came to the conclusion that Mr Cushnie was [a] man running the bigger business of VTFL and also as managing what I saw as a Traders' mutual fund. It was Mr Cushnie's technical knowledge that enabled him to do this and I felt he was someone on whom Sinclair could rely.

62. In my view Mr Cushnie seemed very clearly to me to be a man who was, to use a colloquialism 'on top of his game': he had a detailed technical facility which enabled him to deal personally with Sinclair's investment, It was not the case that once Mr Cushnie had persuaded Sinclair to invest that he was prepared to pass Sinclair's Funds onto someone else to deal with; if it had been the case I would doubtless not have advised Sinclair to invest."

52. During his 2006 cross-examination Mr Hill gave evidence to much the same effect. He said Mr Cushnie told him that he could not be a director or officer of TPL, or run its accounts, because that would have the effect of bringing TPL into the UK for tax purposes whereas the whole purpose of putting it into the BVI was to be tax efficient. That was a notion that Mr Hill would have well understood, because he had himself received similar advice that he could not be a director of Sinclair without prejudicing its tax situation. But he also said that Mr Cushnie told him that he, Mr Hill, did not have to fly to the BVI to meet TPL's directors because he, Mr Cushnie (in London), was going to make sure that TPL did its job and would be monitoring Sinclair's investments. He said he was unaware until after the collapse of the Versailles group of the management agreements between TPL and VTFL. He again related how Mr Cushnie gave him the Harrods suits example as to how TPL would work. He added that Mr Cushnie told him that he, Mr Cushnie, would "advise, in effect direct the guys in the British Virgin Islands to put up on behalf of, say, you and Moseley, 25 each because each of our accounts were always to be kept separate …." He explained how Mr Cushnie told him how he could keep on track of all the investments with a computer. Mr Hill summarised the relationship in that evidence as being that Mr Cushnie "was going to take care and monitor and sit on top of the TPL guys down in the British Virgin Islands to make sure that when they made these investments, that they were making them pursuant to what Sinclair had agreed to do." Mr Hill agreed in that cross-examination that the difference between the onshore operations of VTL and the offshore operations of TPL was that the former had been under the control of Mr Cushnie and other directors whom Mr Hill might meet, whereas he was being told that Mr Cushnie could not be a director of the latter and so investment in the offshore operations of TPL was potentially more dangerous. He said that was why Mr Cushnie's assurances were so important. He disagreed that Mr Cushnie was saying no more than that there was no greater risk in the offshore operation than in the onshore one. He said:

"No, he was saying something different, because when it was onshore, he was a director and officer of the company and he was running the company. He now no longer was doing that, he had other people offshore who were responsible for the company, and since I did not know them or meet them or interview them, and since it really was a new situation for the company, he said, 'Dan I personally am going to watch Sinclair and monitor. I will stay on top of it. I will make sure what is supposed to happen there will happen', and that is what I relied on, this personal thing. It was not a shell company sitting in the British Virgin Islands."

53. Sinclair's decision to invest in TPL was examined further in cross-examination at the present trial. The meeting with Mr Cushnie on 30 April 1996 was, I find, the crucial one with regard to Mr Hill's decision to recommend Sinclair to invest in TPL. By then VGP had gone public and Mr Smith had always been keen to sing the praises of the Versailles group's activities. Mr Hill's evidence was that it "seemed that what Cushnie told me years earlier was really all coming to pass in a real way." He explained, in terms similar to his 2006 evidence, the assurances that Mr Cushnie gave him:

"… I am going to personally monitor Sinclair's investments. I am going to make sure that the off-shore company does what the contract provides it to do, as I try to stay on top of the other trader investments, because I feel a great loyalty to these people because they are the people that put me in business. He said that to me more than once many times. So when we were recommending to Sinclair to make the investment, it was just critical that Carl [Mr Cushnie] himself – and again I did not believe he was a director of the off-shore company, and even later he said it was a mistake that he was and became a non-director of the off-shore company in 1998, but carried on monitoring and saying, I am monitoring Sinclair's investments for you, all the way up to 2000 until the company got struck out. So that is what I was relying on and that is what Sinclair invested on, those assurances that he was going to monitor, he was going to stay on top of it, he personally every month made the distributions to the traders. He made sure he approved every distribution. In other words he was going to make sure those directors in the BVI did what the contract said. That is what I understood. … He was going to make sure the off-shore entity, made sure he monitored, made sure that those directors did what that contract said that Sinclair was signing. That is what he was personally going to do, otherwise you would never put this kind of money into a shell company off-shore with no audit and no way to keep track of it. It would be crazy to do that."

54. Mr Hill summarised that later by saying that he "had an assurance that Mr Cushnie would be still involved in the traders' operations affairs, TPL, even though they were offshore." He said that was absolutely critical to him. He accepted that, following TPL's incorporation, Mr Cushnie "would be directing the TPL company to do what they were supposed to be doing, that is right." It then occurred to Mr Hill that "direct" might not be the right word, and he reverted to the word "monitor". The onshore business had been conducted from VTL's Hammersmith office and Mr Hill's understanding was that Mr Cushnie was going to carry on his monitoring operation of the offshore business from Hammersmith as well.
55. The result was that Mr Hill was prepared to, and did, advise Sinclair to invest in TPL. The administrative task of putting the investment in place was carried out by Mr Herzberg. Mr Hill said that he relayed his advice to Mr Herzberg, and also told him of the assurances as to TPL's operations that he had received from Mr Cushnie: he agreed in cross-examination that he told Mr Herzberg that "it was Mr Cushnie who was directing and managing the operation." Mr Herzberg then passed the proposal to the Sinclair directors, but Mr Hill was unable to give any evidence as to what he told them. Mr Herzberg later signed the trader agreements on Sinclair's behalf.
56. Sinclair made advances in 1996 and 1997 totalling £2.35m. The evidence of Liam Hemmings, Sinclair's solicitor, which Mr Hill confirmed, is that the £2.35m was Sinclair's sole asset, deriving from a loan from The First Hemisphere Corporation, a company owned by The Condor Trust, which is funding Sinclair's claims and (so far as Mr Hill knows) has furnished security for the defendants' costs of this claim. Mr Hill knew little about First Hemisphere, save that it was also an Isle of Man company; or about the trust, save that its beneficiaries were also Hill family members and charities. He accepted that at least part of The Condor Trust's assets derived from an American trust he had set up for his children.
57. Mr Smith did not give oral evidence before me at this trial, but he did give evidence at the 2006 trial. His evidence then was that, following TPL's incorporation and the start up of the offshore operations, there was no change in the personnel at Hammersmith who were conducting the business and Mr Cushnie continued to apply the same hands-on role as he had before. Mr Hill understood from Mr Smith that Mr Cushnie checked and approved the distributions that TPL made to each trader.
58. In addition to seeing Mr Cushnie a few times each year – including socially, at Mr Smith's house, at Lord's cricket ground and at the occasional lunch, usually with Mr Smith, at which lunches Mr Cushnie would again give assurances to Mr Hill as to how well TPL's business was going - Mr Hill would go to the annual traders' Christmas lunches that Mr Cushnie hosted. They were social rather than business occasions, although Mr Cushnie would tell everyone how well everything was going. The last Christmas lunch was on 14 December 1999 (just after the suspension of trading in VGP shares, so posing an extra problem for Mr Cushnie) but Mr Hill said that even then he was assuring the traders that their funds were ring-fenced from VGP's funds and were safe. Mr Hill described the TPL operations as "very much Carl's [Mr Cushnie's] personal bag…."
59. Mr Smith made a witness statement which was in evidence. He became a trader in 1993, when there were already a number of traders. It was probably during 1994 that he told Mr Hill about his investment in VTL. Mr Hill told him he would like to meet Mr Cushnie and he arranged a meeting. This was followed by further meetings, including at least one at VTL's Hammersmith offices, when Mr Cushnie explained the computer system to Mr Hill.

What knowledge did the receivers have of Sinclair's claim?

60. This is relevant to an additional defence raised by the defendants: namely, assuming all else in favour of Sinclair, the receivers received the £5.2m as good faith purchasers for value without notice of any claim such as Sinclair has now brought or of any trust such as Sinclair now asserts. If they are wrong on all else, but right on that, it affords a complete defence. Sinclair does not dispute that the defendants gave value for the £5.2m, nor does it question the receivers' good faith in negotiating the settlements. But it asserts that they had sufficient notice of its claim to deprive the defendants of this defence. I here summarise the evidence said to be relevant to this issue.
61. Mr Hill said that shortly after the collapse he spoke to Mr Hargrave, a PwC manager and a member of the receivers' team. He thought this was during the first quarter of 2000. He discussed with him that Sinclair wanted to make a claim against Mr Cushnie or the Versailles companies for the recovery of its funds. He said Mr Hargrave told him that the best thing to do would be to petition for the winding up of TPL. Mr Hill did not regard this as amounting to advice from Mr Hargrave but did later put in motion the steps that led to the presentation by Sinclair of the winding up petition.
62. On 3 April 2000 the receivers produced a report to the creditors of VTFL and VGP. That explained what the receivers had discovered about the cross-firing transactions, as a result of which they had learnt that a significant proportion of VTFL's book debts were not genuine. They summarised what the true position of VTFL appeared to be as compared with that shown in its books.
63. On 18 April 2000, following a telephone conversation that someone in Mr Lomas's team had had with Mr Hill, that someone wrote to Mr Hill. Only the first page is in evidence, it included no identifying reference and Mr Lomas (who gave evidence) did not know who the author was. He wrote that PwC were continuing their investigations into VTFL and that it appeared "at this stage that funds invested via [TPL] may not have been utilised in actual transactions with third party clients and customers although we have not by any means completed our investigations …." He said it "appears likely that these monies were utilised by [VTFL] over the course of the preceding years." He said that, if so, "it would appear that [TPL] would have the basis of a claim against [VTFL] albeit … an unsecured claim …." He confirmed there was no likelihood of any dividend for VTFL's unsecured creditors.
64. Mr Greaves, another member of Mr Lomas's team, wrote to Mr Hill on 16 May 2000. He confirmed that (a) there was no evidence "from [VTFL's] records that funds injected via [TPL] were ever applied against specific transactions (whether bona fide or fictitious)"; (b) that PwC had therefore "not discovered any receivables due to [TPL]"; and (c) that there was no evidence of third party funds related to VTFL "passing via the [TPL] accounts." Mr Lomas, in cross-examination, interpreted point (b) as meaning that PwC had not discovered any VTFL transaction that had used TPL money; and he suggested that point (c) meant there was no evidence that any money due to VTFL in respect of genuine transactions had been paid to TPL.
65. Mr Hill said that in early 2000 he had several conversations with staff at PwC, including Mr Greaves. Mr Greaves told him that the receivers would be pursuing Mr Cushnie for the profits made from the sale of Marrlist's VGP shares; and that the receivers believed that the Kensington property had been purchased by Mr Cushnie with the profits made from those sales (it had of course been purchased by Strathforn). Mr Hill further said that at a meeting on 29 June 2000 Mr Lomas told him that he thought that Mr Cushnie had been involved in a stock scam. He made a note of that meeting on the following day recording in it that "He [Mr Lomas] said that his clients have not decided yet whether to go after Carl Cushnie personally even though he believes that Carl was involved in a stock scam." Mr Lomas said in evidence that he had no recollection of saying any such thing to Mr Hill and that, as a cautious chartered accountant, "I definitely would not have said that. I categorically would not have said that. I have been doing this for 25 years. I would not have said that." These were relatively early days and Mr Lomas said he would not have been speculating that Mr Cushnie had been involved in, or generated, a share scam. On this minor conflict of evidence, I prefer and accept the evidence of Mr Lomas. He was positive that, at that stage in the story, that was not the sort of remark he would have made to Mr Hill, and I found that evidence to have a ring of probability. I am not suggesting that Mr Hill invented the note he made. I find simply that it was not an accurate record of whatever Mr Lomas actually said.
66. On 8 February 2002 Freshfields Bruckhaus Deringer (solicitors for TPL's liquidators) wrote to the receivers. They referred to the sale of the Kensington property and sought confirmation that the proceeds of sale "are currently held by your firm on trust for those potentially beneficially interested in those monies in a separate bank account."
67. Mr Hill also spoke to Mr Lomas on about 28 January 2003 in the lobby of PwC's offices. This was well after the settlement agreements and the receipt by the receivers of the £5.2m. He had previously written to Mr Lomas on 16 January 2003 expressing his view that the advances paid by Sinclair to TPL and subsequently transferred to VTFL and used in the cross-firing scheme were held upon constructive trust for Sinclair in priority to the banks' floating charges. Mr Hill says that Mr Lomas said words to the effect "Dan, I'm familiar with the cases. If you have a trust I am going to have to get money back from the banks." Mr Hill says he responded by expressing his own view that there was a trust in favour of Sinclair and that Mr Lomas would have to get the money back. He also said that Mr Lomas told him that the receivers had recovered some £17m, which had been paid to the banks, and that of that sum £8.6m had been received from Mr Cushnie out of the proceeds of the Kensington property. In cross-examination, Mr Hill was firm that the £17m figure came from Mr Lomas – perhaps over the telephone on another day - but was by then less confident that Mr Lomas had mentioned that figure to him on the occasion of the same meeting. He was confident that Mr Lomas had mentioned the £8.6m figure at that meeting.
68. Mr Lomas gave evidence and was cross-examined. He is PwC's head of insolvency. He said the indebtedness to the banks at the time of the appointment of the joint receivers was just over £70m. Some £45m interest has since accrued, taking the total to some £115m, but the receivers had made distributions of about £13m, leaving about £102m still owing to the banks. The receivers still hold the £5.2m. Mr Lomas made it clear in the early part of his cross-examination that his function as a joint receiver of VTFL and VGP had not required him to engage in an investigation of the affairs of TPL, which he saw primarily as a potential unsecured creditor, not as a potential debtor. He did not regard TPL as a source of potential recovery: it was more likely to be making an unsecured claim. He said he made no investigation into, and disclaimed knowledge of, the flow of money into TPL from traders, although he knew that there were people called traders who had advanced money to it.
69. In fact, there came a time when the receivers did regard TPL as a potential source of recovery. It appears that Mr Lomas has in the meantime forgotten some of the detail of what was going on, which is perhaps not surprising. In particular, on 2 July 2001 Denton Wilde Sapte (the receivers' solicitors) wrote to Freshfields (solicitors for TPL's liquidators) referring to the receivers' claims to money in TPL's bank account at the Hammersmith branch of NatWest, a reference to a sum of about £1.3m of which the receivers had known since at least 2 February 2000 (as shown by a meeting note of that date prepared by Mr Lomas's team). Mr Lomas could not remember what the basis of that claim was, although it is apparent that such a claim had been made. On 7 August 2001 Mr Lomas himself wrote to Mr Akers (a joint liquidator of TPL) asserting that VTFL was a creditor of TPL - as Mr Akers had apparently earlier acknowledged - and that it should have been on Mr Akers's mailing list. One of the letters to creditors to which Mr Lomas was there referring was dated 3 July 2001, in which Mr Akers had referred to the fact that PwC had put him on notice of "their proprietary claim over the £400,000 recovered from NatWest Hammersmith" and of the possibility of a claim by VTFL in TPL's liquidation, which Mr Akers understood was likely to be substantial and so to have a material impact on the claims of traders and other unsecured creditors. Mr Lomas suggested in his evidence that the basis of the proprietary claim to the £400,000 might be because the receivers had reason to believe it had come from VTFL. He was clear that nothing was in fact recovered.
70. The receivers had collected a large volume of documents from TPL's Hammersmith offices. They included the management agreements between TPL and VTFL. They were shown to Mr Lomas in cross-examination, who could not recall seeing them before. They also included (i) copies of TPL's agreements with the traders, (ii) instructions from Mr Cushnie and Mr Clough to TPL's bank for the making of payments out of TPL's account, which Mr Lomas accepted showed Mr Cushnie holding himself out as a director of TPL, (iii) other documents signed by Mr Cushnie in which he was described as a "director" of TPL, (iv) a copy cheque for £2,000 drawn to cash on TPL's account and signed by Messrs Cushnie and Clough, and (v) a traders report for the period 30 November to 30 December 1997, listing all the traders, including Sinclair, and identifying Mr Herzberg as its relevant contact. Mr Lomas agreed that, had he or his team read these documents, they would have learnt the terms upon which TPL accepted money from its traders; that Messrs Cushnie and Clough had authority to give instructions in relation to TPL's money; and that Mr Cushnie was holding himself out to traders as a TPL director.
71. Mr Lomas was asked about the efforts the receivers had made to ensure that they acquired an unchallengeable title to the £5.2m paid to them under the terms of the 2001 settlement agreement. They knew that the Kensington property was owned by a special purpose vehicle, Strathforn, that owned no other assets. Marrlist was in turn owned by Mr Cushnie. Mr Lomas said the receivers talked to the auditors of Marrlist and Strathforn and concluded that, as Mr Lomas put it, "… the substantial value of Marrlist was to be found in the [Kensington] property." They were in particular concerned that any payment to them should not render either Strathforn or Marrlist insolvent and they took that into account in considering at what level to settle with Mr Cushnie. Mr Lomas knew that the Kensington property had been purchased in about August 1999 and charged to RBS. The property was bought before Marrlist's sale of the VGP shares in November 1999 and Mr Lomas did not know where any balance of the purchase price (over and above the RBS loan) had come from. He knew of the sale of the VGP shares in November 1999, he knew that the RBS charge had been redeemed and inferred that the redemption had been achieved with part of the sale proceeds. He knew, or supposed, all of that before he entered into the settlement agreement with Mr Cushnie. By then he also knew about the cross-firing operation and the effect it must have had on the VGP share price. He did not at that stage know what Mr Cushnie's involvement in it had been, although he knew that the share sale in November 1999 was "either at the top or near the top of wherever it got to."
72. As regards Sinclair and Mr Hill, Mr Lomas knew that Mr Hill had made inquiries and had one or more conversations with Mr Lomas's staff – as had one or two other traders. He accepted that, by the date of the letter from the unknown author to Mr Hill of 3 April 2000, his team would at least have known that Mr Hill "had a trader interest". He did not accept that he would have known that Mr Hill's particular interest was in relation to Sinclair, but he did accept that he recognised that Mr Hill felt strongly that he had been wronged by Mr Cushnie and that Sinclair, or Mr Hill representing it, wanted to get Sinclair's money back.

The issues

73. The relief Sinclair seeks is exclusively of a proprietary nature. It asserts that Mr Cushnie breached duties that he owed it and thereby enabled himself to achieve a considerable personal gain. That gain is said to have been achieved through Mr Cushnie's ownership of Marrlist, through which he held a majority holding in VGP, a holding which was rendered valuable in the open market as a direct result of his fraud and breach of duty. Mr Cushnie, via Marrlist, sold a proportion of those shares on 9 November 1999, before the crash, at a price of just under £29m. Over £9m of those proceeds was then applied towards the redemption of the RBS charge on the Kensington property, which Mr Cushnie had bought through Marrlist's subsidiary, Strathforn. It is further said that the fruits of his breach of duty can, therefore, in part be identified in the Kensington property, which was then sold in December 2002, with £5.2m of its proceeds being paid to the receivers under their settlement agreements with Mr Cushnie and Marrlist. Sinclair claims to be entitled to part of that £5.2m, which it claims is held upon constructive trust for it.
74. I say "part" of the £5.2m, because it is tolerably obvious that Sinclair can at most have a claim to part. Mr Cushnie did not achieve his gains merely by reason of a breach of any duty he owed to Sinclair. Overall Sinclair was, by itself, a relative minnow in his fraudulent operations. It admittedly advanced £2.35m to TPL, which is said to have been used in the cross-firing operation that was directed at falsely inflating VTFL's apparent success and, in turn, the price of VGP shares. But that was but a small part of the overall funds used in the dishonest scheme. At least part of VTFL's business (its consumer service division) was genuine and generated profits, although it is not suggested that they played a significant role in the fraud. On the other hand, the total amount of advances from traders, including Sinclair, was some £23m; and, in addition, VTFL used bank finance (the indebtedness by January 2000 being, with interest, some £70m) in the course of its dishonest operations. All this money played its part in the deception as to VTFL's profitability and, in turn, the value of VGP shares. It would therefore be odd if, were Sinclair in principle correct in its claim to a proprietary interest in the £5.2m, it could establish a claim to more than a fair proportionate part, whose calculation must have regard to the financial contributions to the fraud made by others. I did not understand Mr King to suggest otherwise, although the working out of any such proportion is potentially complicated. Its resolution is not made easier by the fact that the other traders are not before the court and nor is TPL. I have recorded that TPL has started its own claim to establish a beneficial interest in the £5.2m; and it is in principle unsatisfactory that the court should be expected rule finally in favour of Sinclair in proceedings which are being tried in advance of that competing claim. That observation involves, however, no criticism of the defendants in not agreeing to have this claim tried together with the TPL claim. Their stance is that Sinclair's claim was doomed to fail and they want it cleared off the books.
75. Assuming, therefore, that Sinclair can cross the threshold it must traverse if its case is to survive to the quantification stage, success to that extent would still leave open some difficult questions. I must first decide whether Sinclair can even get that far.

Breach of alleged fiduciary duty

76. The first way in which Mr King advanced Sinclair's case involved the following propositions: (i) Mr Cushnie assumed a personal fiduciary duty towards Sinclair with regard to the manner in which he undertook to supervise the application by TPL of Sinclair's advances to TPL; (ii) he breached that duty by procuring the use of the advances for the unauthorised purposes of the operations of VTFL; (iii) he made a profit, through Marrlist, by such unauthorised application of Sinclair's money, that profit being reflected in the falsely inflated sale proceeds of Marrlist's VGP shares; (iv) he held a proportion of those proceeds upon a constructive trust for Sinclair, which thereby obtained a proprietary interest in it; (v) part of those proceeds (including Sinclair's proportionate share) can be traced into the Kensington property that was sold in December 2001 and thence into the £5.2m now held by the receivers; (vi) Sinclair is therefore entitled to a like proportionate share of the £5.2m.
77. The correctness of all that is fundamentally in issue; and even if all its steps can be established, Mr Collings submitted that the receivers acquired the £5.2m as good faith purchasers for value without notice of Sinclair's claim so that the case must anyway fail on the basis of that ancient equitable defence. The first issue on which battle was joined was step (i): did Mr Cushnie assume, and owe Sinclair, a personal fiduciary duty?
78. In opening his submission Mr King cited Millett LJ's familiar passage about fiduciaries in his judgment in Bristol and West Building Society v. Mothew [1998] Ch 1, at 18:

"This leaves those duties which are special to fiduciaries and which attract those remedies which are peculiar to the equitable jurisdiction and are primarily restitutionary or restorative rather than compensatory. A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977), p.2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary. …

The nature of the obligation determines the nature of the breach. The various obligations of a fiduciary merely reflect different aspects of his core duties of loyalty and fidelity. Breach of fiduciary obligation, therefore, connotes disloyalty or infidelity. Mere incompetence is not enough. A servant who loyally does his incompetent best for his master is not unfaithful and is not guilty of a breach of fiduciary duty."

79. Mr King also referred to Peskin and another v. Anderson and others [2001] 1 BCLC 372, at 379, in which the Court of Appeal recognised that, for example, the fiduciary duties owed by a director to the company do not automatically preclude, in special circumstances, the assumption of a separate fiduciary duty owed by the director to the company's shareholders. Mummery LJ said, at paragraph 34 of his judgment:

"These duties may arise in special circumstances which replicate the salient features of well-established categories of fiduciary relationships. Fiduciary relationships, such as agency, involve duties of trust, confidence and loyalty. Those duties are, in general, attracted by and attached to a person who undertakes, or who, depending on all the circumstances, is treated as having assumed, responsibility to act on behalf of, or for the benefit of, another person. That person may have entrusted or, depending on all the circumstances, may be treated as having entrusted, the care of his property, affairs, transactions or interests to him. There are, for example, instances of the directors of a company making direct approaches to, and dealing with, the shareholders in relation to a specific transaction and holding themselves out as agents for them in connection with the acquisition or disposal of shares; or making material representations to them; or failing to make material disclosure to them of insider information in the context of negotiations for a take-over of the company's business; or supplying to them specific information and advice on which they have relied. These events are capable of constituting special circumstances and of generating fiduciary obligations, especially in those cases in which the directors, for their own benefit, seek to use their position and special inside knowledge acquired by them to take improper or unfair advantage of the shareholders."

80. Mr King recognised that the present case is remote on its facts from those of these authorities, and that the identification of circumstances in which a particular person is a fiduciary of another is a fact-sensitive one; but he relies on Peskin as showing that there can be cases in which a particular person can come under a duality of fiduciary obligations. Thus, it is said, the fact that Mr Cushnie may have owed fiduciary duties to TPL itself does not preclude the possibility that he assumed a separate, personal fiduciary duty to Sinclair. The question is whether, by giving Mr Hill the various assurances that I find he did in relation to TPL's operations, including the application of Sinclair's advances, Mr Cushnie assumed a fiduciary obligation of loyalty and fidelity to Sinclair as to how TPL would apply those advances.
81. I have set out Mr Hill's evidence about his meetings with Mr Cushnie fairly fully. Mr King disclaimed that anything said by Mr Cushnie at the meetings with Mr Hill prior to that on 30 April 1996 could have given rise to the claimed fiduciary duty. Those earlier meetings were confined to discussions about the operations of VTL, and Mr Hill said he had no intention of advising Sinclair to invest in VTL. He only became interested in investing in APT when, in 1996, he learnt that Mr Cushnie had set up TPL as an offshore vehicle for carrying on that business.
82. The essence of the Cushnie/Hill story is that down to 1996 Mr Cushnie extolled the virtues of VTL as a vehicle in which Sinclair might invest; and I find that he was selling – or trying to sell – VTL to Mr Hill on the basis that he was the key man in the success of its operations. When Mr Cushnie came, in 1996, to the like exercise in relation to TPL he explained to Mr Hill that he could not himself be a director of TPL (although, unbeknown to Mr Hill, in fact he was a director and the evidence includes documents he signed which so describe him). Mr Hill was, therefore, understandably nervous about investing in a BVI company ostensibly run by individuals about whom he knew nothing. But his concern was removed by, so I find, Mr Cushnie's assurances to him that, in practice, he was going to be personally responsible for running TPL's operations.
83. Mr Cushnie's assurances were described in various ways by Mr Hill. Mr Cushnie told him he would be personally responsible for "advising and directing" TPL as to what traders' funds should go into what trades; and he would "make sure" that the funds were so applied. Mr Hill understood that Mr Cushnie would have the capacity to do just that; and that was because he understood that, in practice, Mr Cushnie would be directing the whole TPL operation. Mr Hill's evidence of Mr Cushnie's explanation to him of the Harrods suits example included the statement that Mr Cushnie would direct TPL as to what to do. At other times Mr Hill referred to his understanding that Mr Cushnie would monitor the application of traders' money, but he plainly understood "monitoring" as synonymous with "directing". And of course he gave evidence of the assurances that Mr Cushnie gave him as to how he would personally oversee, monitor and direct (I paraphrase) Sinclair's investment in TPL. In that connection, however, Mr King specifically disclaimed the notion that Mr Cushnie was thereby offering Sinclair any preferential treatment as compared with that which other traders would enjoy. They were all going to get the benefit of the Cushnie touch as regards the investment of their advances to TPL.
84. The picture painted by Mr Hill's evidence was, therefore, that even though (so Mr Hill understood) Mr Cushnie was not a director of TPL, he had ultimate de facto control of it; and that he would be in day to day control of the application of the traders' advances, including Sinclair's. Mr Hill had, by 1996, come to the view that Mr Cushnie's APT operations were profitable and he wanted a part of them for Sinclair. The personal, hands-on Cushnie touch in relation to TPL's operations was, however, of the essence of any decision by Mr Hill to recommend FDL to invest Sinclair's money in TPL; and in the course of his sales pitch as to how TPL would work, Mr Cushnie laid that personal touch on with a trowel. He was, in effect, saying to Mr Hill that he, Mr Cushnie, made the decisions in VTL as to how traders' money was invested (and he had demonstrated the workings of the Hammersmith computer to him); and that, for practical purposes – even though for tax reasons he could not be a director of TPL – TPL would work in the same way. Mr Hill believed him.
85. That being the picture painted - and Mr Hill's perception of it - I am unable to accept Sinclair's submission that Mr Cushnie's assurances resulted in an assumption by Mr Cushnie of a separate, and personal, fiduciary duty owed by him to Sinclair as to the overseeing of how TPL would apply the traders' (including, in particular, Sinclair's) advances. Mr Cushnie's sales pitch about TPL was directed simply at persuading Mr Hill that TPL was a company in which it would be profitable for Sinclair to invest. True it is he was emphasising the personal role he would be playing in the investment of traders' funds generally, including Sinclair's funds. But he was doing so in the context of a sales pitch by way of the promotion of a new company in which (even though he could not be a director) he would in practice be the key man who would bring to TPL's operations the same personal skills he had brought to VTL's. A company can only operate through human beings; and all that Mr Cushnie was saying was that TPL was a company in which in practice he was going to be the key human being. The sales pitch was not directed at offering some collateral assurance from him as to how (from some remote position on the outside) he would procure those on the inside to manage TPL's affairs; and nor was it (so I find) so interpreted by Mr Hill. It was directed at persuading Mr Hill that, notwithstanding that Mr Cushnie was not going to be a director of TPL, the commercial reality was that TPL was nevertheless a Cushnie company, just like VTL, in which Sinclair would obtain the benefit of the personal, hands-on Cushnie touch. His representations amounted to no more, and no less, than an assurance that TPL was Mr Cushnie in corporate guise. "Invest in TPL and you get me" is all he was saying. That was in fact true. He was in control of TPL. Unfortunately, he did not tell Mr Hill how he would be exercising it.
86. I find, therefore, that whilst the Cushnie assurances persuaded Mr Hill to recommend Sinclair to invest in TPL, Mr Hill was not so persuaded on the basis that he regarded Mr Cushnie as assuming a collateral personal fiduciary duty towards Sinclair as to how he would procure TPL to handle Sinclair's investments. That is the artificial construct that Sinclair's lawyers have sought to conjure out of the assurances with a view to setting up a case. The assurances were as to how TPL would handle Sinclair's investments. It was sales pitch exclusively directed at what TPL was offering.
87. That, in my judgment, is all there was to it. No doubt Mr Cushnie's assurances to Mr Hill involved dishonest misrepresentations about TPL in respect of which a claim in deceit might be available. But I regard as groundless Sinclair's attempt to characterise them as giving rise to a separate and personal duty of loyalty and fidelity by Mr Cushnie. The artificiality of the argument was highlighted by Mr King's written submission (repeated orally) that Mr Cushnie's overtures to Mr Hill demonstrated an intention to be loyal and faithful to Sinclair and "demonstrated that he did not intend to profit from the use of Sinclair's investment otherwise than (inferentially) to the extent that [VTFL's] business might benefit from the application of Sinclair's investment in accordance with the terms of the Trader Agreements."
88. With respect, I regard that as quite unreal. The representations had nothing to do with expressions of loyalty and fidelity by Mr Cushnie; they were simply representations that he, Mr Cushnie, would be running TPL. Considerations of loyalty and fidelity did not come into it. As for the quoted element of the submission, no such thought would have occurred to Mr Hill and no such representation was impliedly being made by Mr Cushnie. This peculiar proposition is, however, obviously regarded as important to Sinclair's case. That is because, as Millett LJ pointed out in Mothew, a fiduciary "must not make a profit out of his trust; … he may not act for his own benefit … without the informed consent of his principal." If, therefore, Mr Cushnie had not been engaged in a dishonest scheme, TPL's business had been genuine, Sinclair had invested in it and things had worked out as Mr Hill had intended, Sinclair might have made a nice profit. But Mr Cushnie would also have profited, since businessmen such as he do not work for nothing. On this hypothesis, the logic of Sinclair's proposition that Mr Cushnie was a fiduciary leads to the conclusion that – unless the giving of some "informed consent" as to the retention of any such profit can be identified – Mr Cushnie would be accountable to Sinclair for every penny of his profit that could be said to be referable to his application of Sinclair's advances, even though every such penny had been honestly made. That is because the ordinary – and strict – equitable principle is that a fiduciary must account to the person to whom the obligation is owed for any profit or benefit that was obtained or received by use or by reason of his fiduciary position; see Boardman and Another v. Phipps [1967] 2 AC 46.
89. Where was Sinclair's "informed consent" in this case? Did Mr Cushnie explain to Mr Hill how, and the extent to which, he would or might benefit through TPL as a result of any investment that Sinclair might make in it? Did Mr Hill agree to it? Of course they did not. So there was no informed consent. In order, therefore, to avoid the absurd consequence that, on Sinclair's case, Mr Cushnie would be so accountable if the whole operation had been an honest and profitable one all round, the alleged fiduciary duty becomes one in which Mr Cushnie was impliedly entitled to make, and retain, an honest (but unexplained) profit of (presumably) any dimensions that he might make by reason of his position of fidelity and loyalty owed to Sinclair in relation to the investment of Sinclair's money; but was not entitled to retain any profit dishonestly so made. This was nowhere spelt out in his discussions with Mr Hill (to have done so would have been ridiculous) but it is a distinction that now has to be advanced in order to shoehorn the relationship between Mr Cushnie (as promoter of TPL) and Sinclair (as a would-be investor) into a totally artificial fiduciary relationship directed at enabling recovery of Mr Cushnie's dishonest profits whilst leaving him free to enjoy his honest ones. In my judgment, the argument simply does not work: it merely highlights that Mr Cushnie did not become a fiduciary at all.
90. I should refer to an additional point upon which Mr Collings QC, for the defendants, relied. It only arises if I am wrong in my conclusion that the assurances were not of a nature capable of giving rise to the assumption of a personal fiduciary duty by Mr Cushnie. For the purposes of this additional point, I will assume that I am wrong.
91. At an earlier stage these proceedings went to the Court of Appeal on an appeal by the defendants against a refusal of Mr Nicholas Strauss QC, sitting as a deputy judge of the Chancery Division, to strike Sinclair's claim out as having no reasonable prospect of success. I need hardly add that the appeal failed. The Court of Appeal's decision is reported: see Sinclair Investment Holdings SA v. Versailles Trade Finance Ltd and others [2005] EWCA Civ 722; [2006] 1 BCLC 60. In the course of his judgment, Buxton LJ offered the view that it was essential to Sinclair's case that it should allege and prove that its representative relied upon Mr Cushnie's alleged assurances if it were to have any prospect of success on its "personal fiduciary duty" argument (see [2006] 1 BCLC 60, at 76, paragraphs 51, 52).
92. The evidence proved that the assurances were given by Mr Cushnie to Mr Hill, a Sinclair adviser. Mr Hill then gave his advice to Mr Herzberg, also passing on a summary of the assurances. Mr Herzberg in turn passed the advice on to FDL, although there is no evidence that he also passed on a summary of the assurances. Thus, said Mr Collings, the decision to invest in TPL was made by FDL but there is no evidence that it knew of the Cushnie assurances, let alone relied on them. So there is no proof of relevant reliance. Had Mr Hill been an agent for Sinclair, Mr Collings accepted that it might have been sufficient for the assurances to have been given to, and relied upon, by him. But he was not.
93. I do not find this point easy but, first of all, I respectfully agree with Buxton LJ that it is necessary for Sinclair to prove reliance. It is obvious that the claimed duty arose, if at all, merely by virtue of the assurances that Mr Cushnie gave. By that I mean that it was not a duty that, absent any such assurances, could have arisen as between Mr Cushnie (as a de facto controller of TPL) and Sinclair (as an investor in TPL), because such a relationship was not one which could, without more, give rise to a fiduciary duty: contrast, for example, the relationship between a trustee and his beneficiary, which will automatically give rise to a fiduciary duty owed to the beneficiaries, whether or not they know about it or can be said to have relied on it.
94. In the special factual circumstances of the present case, I therefore agree that it has to be shown that Sinclair relied upon Mr Cushnie's assurances. I find that Mr Hill did rely upon them in making the recommendation to Mr Herzberg that Sinclair should invest in TPL. But is Mr Collings correct that that reliance is not enough? I have come to the view that he is not. First, I would regard Mr Hill as being Sinclair's representative in his discussions with Mr Cushnie, and as having been known by Mr Cushnie to be such, even if his formal status was merely that of an adviser to Sinclair. It must have been obvious to Mr Cushnie, from his earliest meetings with Mr Hill, that it was his, Mr Hill's, assessment of Mr Cushnie's wares that would be crucial as to whether or not Sinclair would invest. Secondly, Mr Hill's function as an adviser to Sinclair was to find out about the merits of the investment and then to make a judgment on it which he would pass on to Sinclair. If that investigation exercise resulted in the obtaining of important assurances as to how TPL's business would be run, I cannot see why it is not enough for Sinclair's purposes that he should have taken due account of them in evaluating the investment opportunity and in then making his investment recommendation to Sinclair. I do not accept that it is necessary for the assurances solemnly to be relayed to Sinclair itself so that it can itself separately assess them and place separate purported reliance upon them. In my judgment there was sufficient reliance if the assurances were given to the adviser, Mr Hill, and they formed a material part of his decision to recommend Sinclair to invest. I find that he did rely on the assurances.
95. Assuming, therefore, that I am wrong in my characterisation of the effect of the assurances, I would not find against Sinclair on the "reliance" ground. But, for the reasons given, I find that Sinclair anyway fails at the first stage of the argument by reference to which it seeks to make good its claim to a proprietary share of the £5.2m. It follows that that basis on which its claim is founded must fail.
96. That being so, it is unnecessary to devote extended space to the subsequent steps in Sinclair's argument. But in case this matter goes further - and as they are also relevant to Sinclair's alternative argument - I will make brief findings on some of them. I do so on the basis, contrary to my decision, that Mr Cushnie assumed a personal fiduciary duty towards Sinclair of the nature asserted.
97. The second step in the argument is that Mr Cushnie breached that duty by knowingly suffering or procuring TPL to apply Sinclair's advances for the unauthorised purposes of VTFL's dishonest operations. Sinclair's case is that the whole of its £2.35m was, or should be regarded as having been, applied in the cross-firing exercise. Is Sinclair right about that? If it is not, it has important knock-on effects.
98. As to that, it must be consistent with Sinclair's case to regard the other traders' advances as having also been applied in the cross-firing exercise; and also so to regard the loans from the banks, which (with interest) stood at some £70m at the collapse. It was not just Sinclair's £2.35m (or any of it) that resulted in the false inflation of the VGP share price; it was also achieved by the use of all the other money. I understand Sinclair's position to be that the other traders' contributions should be brought into account at the like face value of their respective total advances to TPL.
99. The trouble with this approach is that it is more than a bit rough and ready. Can a trader who makes his advance in year 1 claim to have contributed a like amount to the creation of the ultimate cake as a trader who makes an identical advance in year 4? Does a time-weighting factor come into it? How, asks Mr Collings, does one factor into the exercise that Mr Clough stole some £4.35m from VTL and/or TPL (the evidence is no more precise)? Should this result in a pro rata reduction of all traders' stakes in the cross-firing pool? Should a different adjustment be made? Or should it simply be ignored? Why, asks Mr Collings, should Sinclair's stake at the crash be regarded as £2.35m, when it had by then received repayments of capital of £1,168,629.53 so reducing its net capital investment by then to some £1.18m? Is it the gross or the net figure that Sinclair can claim was applied in the cross-firing exercise? Whatever the answer, should not the other traders rank on a like basis? This, said Mr Collings, potentially makes a major difference, because the pot in which Sinclair makes its claim was achieved not just by the use of traders' money, but by the banks' advances. And, as regards the banks' advances, there are also further difficulties: Barclays lent its £10m almost in the last scene of the last act - in about October 1999. Is it to be regarded as having made the like proportionate contribution to the VGP share price as NatWest and RBS, whose loans were made earlier?
100. These are collectively important questions, involving difficult issues. I have already indicated that it would be unsatisfactory to purport to make any final ruling on quantum in the absence of representations from TPL, whose claim is awaiting trial. Counsel did not assent to any suggestion that the matter might be deferred until the TPL trial. But they did agree that, were Sinclair to get as far as the point of quantification, the issues which that would raise would have to be the subject of a separate inquiry. I am, therefore, not required to make findings on these matters and I do not do so.
101. The third step in the argument is that Mr Cushnie made a profit, through Marrlist, by the cross-firing activities, that profit being reflected in the inflated proceeds achieved on the sale of Marrlist's VGP shares; and Sinclair claims that a share of it is referable to its particular contribution (whatever that may be) to the cross-firing exercise. Sinclair does not suggest that the VGP shares were originally acquired by Marrlist in any unauthorised way; or therefore that the shares themselves can ever have been regarded as representing the fruits of Mr Cushnie's breach of duty (a matter on which, if Sinclair is otherwise right, I express no view). But it says that the evidence shows that (i) the reality was that at all relevant times VTFL and VGP were insolvent, (ii) the true value of the VGP shares was at all times nil but (iii) the dishonest re-cycling of Sinclair's and others' money resulted in the false inflation of the price of VGP shares from nil to an enormous paper value, which (iv) Mr Cushnie realised (at least in part) by the Marrlist sale on 9 November 1999, which yielded just under £29m. Therefore, it is said, Mr Cushnie became accountable in equity to Sinclair for that share of the proceeds of sale that can fairly be said to reflect the improper use of its money. The case is expressly not put on the basis that Sinclair's money can be traced directly into the proceeds of the VGP shares, or that its money ever came into Mr Cushnie's hands. It is put on the more general basis that those proceeds can nevertheless properly be regarded as representing unauthorised profits made by Mr Cushnie by reason of his position - and in consequence of his breaches of duty - as a fiduciary towards Sinclair.
102. Subject to the appropriate method of quantification, I did not understand it to be disputed that the proceeds represented by the share sale could be said to represent relevant profit. The real issue at this step in the argument was whether it is open to the court to regard such profits as profits of Mr Cushnie; or whether they should be regarded as profits of Marrlist. Mr Collings argued for the latter, and if he is right that too is the end of Sinclair's case, since Marrlist owed no fiduciary duty towards Sinclair. Mr King's submission was that, on the facts, Marrlist could and should properly be regarded as Mr Cushnie's alter ego and Mr Cushnie could therefore be regarded as personally accountable for the profits realised on the share sale. He owned 99% of Marrlist and his wife the other 1%. He and Mr Clough were both directors of Marrlist and knowledge of all their dishonest scheming could properly be attributed to Marrlist. There is no evidence that Marrlist carried on any trade or had any function other than as a holder for Mr Cushnie of assets of one sort or another – including the VGP shares and, through Strathforn, his house (the Kensington property).
103. Marrlist and Mr Cushnie are not parties to these proceedings; and so it is on one view unsatisfactory for the court to have to make a finding on this issue without argument from them. But nor is any relief sought against them, and so they did not need to be joined: relief is sought only against the defendants. I consider it is therefore open to the court to make findings as to Marrlist's status, although such findings would probably not bind either Marrlist or Mr Cushnie.
104. I find that Marrlist should be regarded simply as a vehicle in the nature of a device or façade that Mr Cushnie used in order to hold assets for him and thus was his alter ego; and that it would (were he and it parties to this claim) not be open to them to say that it should be regarded as an entity totally separate from Mr Cushnie. Compare, for example, the approach of the court to creature companies used by defaulting fiduciaries in Cook v. G.S. Deeks and Others [1916] AC 554, at 564, 565; and Trustor AB v. Smallbone and others (No 2) [2001] 1 WLR 1177, at paragraphs 14 to 25.
105. The next step in the argument is that Sinclair has a right not merely to an account of the profit so realised (a personal remedy) but to a direct proprietary interest in the assets representing that profit, namely the proceeds realised on the sale of the VGP shares. Mr King's submission was that unauthorised profits acquired by a fiduciary in breach of his fiduciary duty are (if identifiable) held by the fiduciary upon a constructive trust for the person to whom the fiduciary duty is owed, who thereby obtains an immediate proprietary interest in them. I accept the proposition that any identifiable assets acquired by fiduciaries in breach of their fiduciary duty are, and can be declared to be, held upon constructive trust for the principal: see Boardman and Another v. Phipps [1967] 2 AC 46 (the headnote is inaccurate as to the relief sought and obtained: but see for that, and for the relevant issues and principle, 71E to G, 98G to 99E, 100A to B, 104C to E, 112F to G and 115D to 117G); Attorney-General for Hong Kong v. Reid and Others [1994] 1 AC 324, at 331B to 332E, 336F to G, 338A to D; and Daraydan Holdings Ltd v. Solland International Ltd and others [2005] Ch 119, paragraph 86 (Lawrence Collins J). There will in practice often be no identifiable property which can be declared by the court to be held upon such a constructive trust, in which case no declaration will be made and the principal may at most be entitled to a personal remedy in the nature of an account of profits. In Boardman the court made a declaration that the shares that had been acquired by the fiduciaries were held on constructive trust (a proprietary remedy), and directed an account of the profits that had come into their hands from those shares (a personal remedy). Boardman can be said to have been a hard case as regards the fiduciaries, whose integrity and honesty was not in doubt; and it well illustrates the rigours of the applicable equitable principle. The recovery by the trust of the shares was obviously a valuable benefit to it; and equity's softer side was reflected in the making of an allowance to the fiduciaries for their work and skill in obtaining the shares and profits. On the very different facts of Reid, there was no question of any such allowance being made.
106. Turning to the present case, the identification of the asset in respect of which the claimed constructive trust is said to arise is more difficult than it was, for example, in Boardman. The asset is said to be the proceeds of sale realised by Marrlist in November 1999, although the history of what happened to them is not comprehensively proved. Just under £29m was realised, but where it all went to is not known. Sinclair's case is, however, founded upon the proposition that at least the £9m odd that was applied towards the redemption of the RBS charge represented an identifiable credit in a Marrlist bank account in which it had a proportionate beneficial interest, and that it can trace that interest thence into the Kensington property and into the £5.2m. In the absence of fuller evidence as to Marrlist's dealings with the £29m sale proceeds, I have felt an instinctive reluctance to find that any of the money applied by Marrlist in redeeming the RBS charge was money in which Sinclair had or could claim a proprietary interest; but, if Sinclair were able to get this far in its argument, I did not understand Mr Collings to question that Sinclair could advance such a claim, and so I will proceed on the basis that it could.
107. The next proposition is that the claimed trust asset can be traced into the Kensington property and into the £5.2m proceeds now held by the receivers. I have explained the uncertainty as to (a) the purchase price of the property, (b) the source of that price over and above the RBS loan and (c) the source of the £383,895.14 used to make the final payment in redemption of the RBS charge. Subject to these uncertainties, Mr Collings accepted that for practical purposes the Kensington property can and should be regarded as having been purchased in material part with the proceeds of sale of the VGP shares. Had a quantification exercise been required to be performed, it would have had to include the calculation of the proportion of the £5.2m that can fairly be said to be represented by share sale proceeds.
108. The final consideration is whether the defendants are anyway entitled to rely on the defence that they were good faith purchasers for value of the right to the £5.2m without notice of Sinclair's interest in that money. I will deal with that later, when dealing with the like question in respect of Sinclair's alternative case, to which I turn.

Dishonest assistance in a breach of trust

109. Mr King's alternative argument was that if Mr Cushnie did not assume a personal fiduciary duty towards Sinclair entitling it to argue for a proprietary interest (arising under a constructive trust) in respect of part of the £5.2m, Sinclair could achieve a like result on the basis that Mr Cushnie was anyway guilty of dishonest assistance in a breach of trust by TPL relating to the £2.35m that Sinclair paid to TPL. If so, it was said that Mr Cushnie was similarly accountable to Sinclair for the profit he dishonestly made by reason of such assistance; and that Sinclair has a like proprietary interest – under a constructive trust – in respect of it.
110. Mr Collings accepted that Mr Cushnie assisted dishonestly in a relevant breach of trust by TPL. Sinclair paid £2.35m to TPL on the terms of the trader agreements. That money was either to be applied in APT transactions or else put on deposit in a bank account in trust for Sinclair (clause 2 of the agreements). It was not so applied and so it should have been put into and kept in such a trust account. It was not so deposited but was instead used in the cross-firing operation. That was a breach of trust by TPL. It was admitted that Mr Cushnie participated in it and did so dishonestly. It follows that he assisted dishonestly in TPL's breach of trust in misapplying Sinclair's £2.35m.
111. There is no dispute that a claim for compensation for loss to the trust estate is available against someone who dishonestly assists in the misapplication of trust money: it is known as accessory liability. Sinclair has already sued Mr Cushnie for compensation on that basis, the trial came on in March 2006 and it was settled. The present claim is not a second bid to recover such compensation. It is to establish a like proprietary interest in the £5.2m that Sinclair has sought under its (unsuccessful) breach of fiduciary duty argument. Again, the claim is not advanced on the basis that Sinclair's money can be traced into the £5.2m, or that it can be regarded as having come into Mr Cushnie's hands: the claim is specifically not advanced on the basis that Mr Cushnie was a participant in TPL's breach who can be regarded as having been in "knowing receipt" of Sinclair's money. It is advanced on the basis of the proposition that someone who (i) dishonestly assists in a breach of trust, and (ii) achieves a profit for himself by reason of such dishonest assistance, is (iii) accountable in equity to the trust estate or to the beneficiary for such profits and (iv) also holds such profits (to the extent they are represented by identifiable assets) on a like constructive trust as profits dishonestly made by a fiduciary by reason of his position as such. Step (iii), if correct, amounts merely to an assertion that the beneficiary has a personal claim against the dishonest assistant and is of no present help to Sinclair. Sinclair must succeed on steps (i), (ii) and (iv) if it is to set up its claim to a share of the £5.2m.
112. Mr King submitted that it was relevant that, in addition to Mr Cushnie's dishonest assistance once the £2.35m was in TPL's hands, Mr Cushnie had fraudulently induced Sinclair to pay that money to TPL in the first place. I do not regard such fraudulent inducement as adding anything material to the case based on Mr Cushnie's dishonest assistance in TPL's breach of trust. Mr King conceded that Mr Cushnie's fraud in the former respect did not by itself justify the court in holding that the profit he ultimately made should be regarded as held on a constructive trust for Sinclair, although he reserved his right to argue otherwise in higher tribunals. His argument was primarily dependent on the "dishonest assistance" element; and I did not understand him to submit that the "fraudulent inducement" element was essential to its success. I will therefore concentrate solely on the "dishonest assistance" argument. Does someone who so assists become a constructive trustee for the beneficiary of his profits from such assistance? Mr King accepted that there is no authority which answers "yes" to that question. Mr Collings submitted that the answer is "no" and that the only remedy available against a dishonest assistant is for compensation.
113. Mr King's submission started from his acceptance that someone made liable for dishonest assistance in a breach of trust will not himself be a trustee of that trust. If he were such a trustee, there would be no need to fix him with liability on the basis of dishonest assistance. If a trustee participates in the misapplication of money of which he is a trustee, he is liable to make good the loss to the trust fund by reason of his status as a trustee. If he has applied it in unauthorised investments, the beneficiary will be entitled to adopt them and have them treated as trust assets. If he has used his position as a trustee to make profits for himself in an unauthorised manner, he will (at least) be accountable for them to the beneficiary as a fiduciary and (if they are represented by identifiable assets) he will hold them on a constructive trust for the beneficiary.
114. Someone, however, who is liable to the beneficiary by reason merely of his dishonest assistance in a breach of trust is a stranger to the trust and is not a trustee; and his liability is purely in the nature of accessory liability. Mr Cushnie was such a stranger: he was not an express trustee of the £2.35m. Some of the authorities contain dicta to the effect that a stranger who dishonestly so assists will be liable to the beneficiary as if he were a trustee – even though he is not a trustee and does not receive any trust property. The critical question is what this means. Mr King's submission was that since such a stranger is made liable as if he were a trustee, there is no good reason why (like an actual trustee) he cannot and should not be made accountable in equity for any profit he makes as a result of his dishonest assistance; and, if he can and should, why should equity not also regard that profit (if represented by an identifiable asset) as held upon a constructive trust for the trust estate?
115. Mr King referred to several well-known authorities relating to the liability of those who dishonestly assist in a breach of trust (such accessory liability used to be called "knowing" assistance, but since the decision of the Privy Council in Royal Brunei Airlines Sdn. Bhd. v. Philip Tan Kok Ming [1995] 2 AC 378 it has been called "dishonest" assistance). In Barnes v. Addy (1874) 9 Ch. App. 244, Lord Selborne LC said, at p. 251:

"Now in this case we have to deal with certain persons who are trustees, and with certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees."

116. It is the latter alternative in the last sentence which used to be regarded as identifying the basis of liability for accessory liability on the part of someone who was to be made liable as a constructive trustee by reason of (what is now known as) dishonest assistance in a breach of trust. Mr King derived from that passage that the dishonest assistant is treated as a constructive trustee; and, he submitted, there can therefore be no reason not to make him liable to the full extent that he would be if he were in fact a trustee – including accounting for gains made by reason of that assistance and, if appropriate, declaring him to be a constructive trustee. It is, however, not suggested that Barnes v. Addy provides authority for that wider proposition. Nor that Soar v. Ashwell [1893] 2 QB 390 does, although I should refer to the passages which Mr King cited from it, being observations of, respectively, Lord Esher MR at 394, Bowen LJ at 396 and Kay LJ at 405:

"There is another recognised state of circumstances in which a person not nominated a trustee may be bound to liability as if he were a nominated trustee, namely, where he has knowingly assisted a nominated trustee in a fraudulent and dishonest disposition of the trust property. Such a person will be treated by a Court of Equity as if he were an express trustee of an express trust. …

An express trust can only arise between the cestui que trust and his trustee. A constructive trust is one which arises when a stranger to a trust already constituted is held by the Court to be bound in good faith and in conscience by the trust in consequence of his conduct and behaviour. Such conduct and behaviour the Court construes as involving him in the duties and responsibilities of a trustee, although but for such conduct and behaviour he would be a stranger to the trust. A constructive trust is therefore, as has been said, 'a trust to be made out by circumstances.' …

A stranger to the trust, who receives trust property with notice of the trust, or knowingly assists the actual trustee in a fraudulent and dishonest disposition of the trust property is a constructive trustee. The trust may be clear, may be declared in a written instrument, and may be in that sense express, but the stranger is not expressly appointed a trustee. He becomes bound by the trust by the construction which the law puts upon his dealings with the trust property."

117. Moving to the last century, Mr King referred to the observations of Ungoed-Thomas J in Selangor United Rubber Estates Ltd v. Cradock and Others (No 3) [1968] 1 WLR 1555. By reference to the constructive trusteeship imposed on those who dishonestly assist in a breach of trust, the judge said at 1582:

"It seems imperative to grasp and keep constantly in mind that the second category of constructive trusteeship … is nothing more than a formula for equitable relief. The court of equity says that the defendant shall be liable in equity, as though he were a trustee. He is made liable in equity as trustee by the imposition or construction of the court of equity. This is done because in accordance with equitable principles applied by the court of equity it is equitable that he should be held liable as though he were a trustee. Trusteeship and constructive trusteeship are equitable conceptions."

118. So far, therefore, the cited passages have asserted the circumstances in which a stranger to the trust may be regarded as a constructive trustee, but have not explained what consequences that might entail for him. Guidance can, however, be found in the Royal Brunei Airlines case, which was decided next in the chronology. The case was exclusively about the accessory liability of a dishonest assistant and, at [1995] 2 AC 378, 386E to F, Lord Nicholls of Birkenhead explained that different considerations apply to accessory liability than to recipient liability: "Recipient liability is restitution-based; accessory liability is not." At 386G to 387A, he described the basis of accessory liability as being that:

"… the beneficiary should be able to look for recompense to the third party [ie the accessory] 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."

119. A little later, at 387E to F, Lord Nicholls said:

"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."

120. Those observations do not support Mr King's proposition that the remedies available against a dishonest assistant – even if regarded as a "constructive trustee" – are of the proprietary/restitutionary nature for which he contends. On the contrary, they support the view that the remedy is confined to one for compensation for the loss caused by his dishonest assistance. That is because his liability is not "property-based" and gives rise to a personal obligation.
121. Millett LJ touched on the matter in Paragon Finance plc v. D.B.Thakerar & Co (a firm) [1999] 1 All ER 400. He said, at 409e:

"The second class of case is different. It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be 'liable to account as constructive trustee'. Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions 'constructive trust' and 'constructive trustee' are misleading for there is no trust and usually no possibility of a proprietary remedy; 'they are nothing more than a formula for equitable relief': Selangor United Rubber Estates Ltd v. Cradock (No 3) [1968] 2 All ER 1073 at 1097, [1968] 1 WLR 1555 at 1582 per Ungoed-Thomas J."

122. The importance of that passage is, first, that it is concerned with a case such as the present in which Mr Cushnie was a dishonest party to a breach of a trust of which he was not a trustee. Secondly, it confirms that even though it has become traditional to describe such a wrongdoer as a "constructive trustee", he is not in fact a trustee at all, and the formula is nothing more than one intended to indicate that equitable relief will or may be available against him by reason of his participation in the breach. It is not a formula which, once applied, has the effect of turning the wrongdoer into an actual trustee. The passage does not of course attempt a comprehensive explanation of the remedies that may be available against such a constructive trustee beyond recognising that he may be liable "to account as if he were a trustee" and that, as against such a wrongdoer, there will "usually [be no] possibility of a proprietary remedy." In a case in which the wrongdoer's liability is based on his knowing receipt of the trust property, and he still retains it, a proprietary remedy will be available (and Millett LJ had just contemplated a case in which the wrongdoer had received the trust property). That is consistent with Lord Nicholls's observations in Royal Brunei Airlines. I do not derive anything from that passage as supporting the proprietary claim that Sinclair seeks to make in respect of the profits that Mr Cushnie, as a dishonest assistant, is said to have made by reason of his participation in TPL's breach of trust. Mr King recognised that it does not support Sinclair's case, but he submitted that nor does it rule it out. It can, however, be said that if Sinclair is right in its submission, it follows that equity does treat a dishonest assistant just as if he were an actual trustee; which appears to be inconsistent with what Lord Nicholls had said in Royal Brunei Airlines.
123. Lord Millett (as he had by them become) reverted to the theme in Dubai Aluminium Co Ltd v. Salaam [2003] 2 AC 366, at 404. He referred to the passage just cited from his judgment in Paragon and re-affirmed what he had there said about the nature of the "constructive trusteeship" attached to those who, not being trustees at all, become mixed up in the fraudulent misapplication of trust property. He said:

"141.… But he is not in fact a trustee at all, even though he may be liable to account as if he were. He never claims to assume the position of trustee on behalf of others, and he may be liable to account without ever receiving or handling the trust property. If he receives the trust property at all he receives it adversely to the claimant and by an unlawful transaction which is impugned by the claimant. He is not a fiduciary or subject to fiduciary obligations; and he could plead the Limitation Acts as a defence to the claim.

142. In this second class of case the expressions 'constructive trust' and 'constructive trustee' create a trap. As the court recently observed in Coulthard v. Disco Mix Club Ltd [2000] 1 WLR 707, 731 this 'type of constructive trust is merely the creation by the court … to meet the wrongdoing alleged: there is no real trust and usually no chance of a proprietary remedy'. The expressions are 'nothing more than a formula for equitable relief' [and he cited the Selangor case]. I think we should now discard the words 'accountable as constructive trustee' in this context and substitute the words 'accountable in equity."

124. Those passages reflect more of the same from the same judge. But they are of particular importance even though Mr King emphasised that they should be regarded as obiter. First, because Lord Millett's views command the very highest respect. Secondly, because he there went one step further and made clear that a wrongdoer such as Mr Cushnie, who becomes subject to accessory liability for his involvement in a dishonest misapplication of trust property, is neither a fiduciary nor subject to fiduciary obligations. That is, with respect, obviously correct. A fiduciary is under a duty of loyalty and fidelity to his beneficiary. It is absurd to regard the wrongdoer in the present context as under any such duty: his only role in the matter was his dishonest participation in the misapplication of the beneficiary's property. Mr Cushnie may well have been a fiduciary as regards TPL. He was not a fiduciary as regards Sinclair.
125. That being so it is, in my judgment, difficult to see how, in principle, Mr Cushnie can be said to be accountable in equity to Sinclair for the profits he is said to have made by reason of his fraud; or (if he can) how those profits (if represented by identifiable assets) can be said to have become held by him upon a constructive trust for Sinclair. It is no part of Sinclair's case that it can trace its lost money into those profits, and so that is not a route by which it can seek to establish a proprietary claim. Nor is it said that Mr Cushnie made his profits by his receipt and use of Sinclair's property, and so a "property-based" claim against him as a "knowing recipient" is disclaimed. A fiduciary will, in certain circumstances, automatically hold his unauthorised profits upon trust for his principal, and that was the principle upon which the first limb of Sinclair's claim was founded. But that flows from the special relationship between a fiduciary and his principal; and cannot (without more) apply to profits obtained by a wrongdoer such as Mr Cushnie who is not a fiduciary.
126. There were of course other remedies available against Mr Cushnie for the loss to Sinclair caused by his participation in TPL's breach of trust – but they were primarily ones for compensation for loss suffered by the trust estate; and Sinclair has already obtained judgment against Mr Cushnie for such compensation. In principle, it is not obvious to me why Sinclair should now be entitled to more against such a wrongdoer, who was neither a trustee nor a fiduciary. It may of course be that such additional recovery would be available against a fiduciary who has both caused loss to the trust estate and has made unauthorised profits in breach of duty. If, for example, a trustee is induced by the payment of a substantial commission (which he invests in shares) to make an unauthorised investment of half the trust fund in his friend's ailing business, following which the whole is lost, the beneficiary will in principle be entitled to an order requiring the trustee both to restore the lost trust fund and disgorge his shares.
127. Like principles do not, however, ordinarily applies to a fraudster who is not a fiduciary and whose gains cannot be said to derive from his wrongful use of the claimant's property: see Halifax Building Society v. Thomas and Another [1996] Ch 217, at 226C to D (per Peter Gibson LJ, with whose judgment Simon Brown and Glidewell LJJ agreed). At 228E to F, Peter Gibson LJ rejected the general proposition that "wherever there is personal fraud the fraudster will become a trustee for the party injured by the fraud." And at 229C to F, he rejected the notion that the fraudster might be regarded as a constructive trustee for the claimant; in particular that the court might extend the law of constructive trusts in order to prevent a fraudster from benefiting from his wrong. In so saying he had in mind then recent legislative changes enabling the courts to make confiscation orders (as Jackson J did in relation to Mr Cushnie); and regarded as wise the dictum of Hoffmann J in Chief Constable of Leicestershire v. M [1989] 1 WLR 20, at 23, to the effect that in cases in which Parliament has intervened, the courts should not indulge in parallel creativity by the extension of general common law principles. In Daraydan Holdings Ltd v. Solland International Ltd [2005] Ch 119, Lawrence Collins J said (at paragraph 88) that he did not regard Halifax as ruling out a proprietary claim to the proceeds of fraud, and he referred to Halifax as being controversial. It may be that Halifax did not do any such ruling out, although it is important to focus on the particular facts on which it is said that such a claim might be ruled in. But the judge's comments in Daraydan about Halifax were anyway obiter: in the same paragraph he said that "… Mr Khalid was a fiduciary, and the claimants had not affirmed any of the contracts, and had rescinded the only contracts still to be performed."
128. More generally (and cases involving fiduciaries apart), the only type of case in which it will ordinarily be open to a claimant to claim an account of profits from the defendant will be those cases in which the wrong sued on can be said to be property based, and in which the profits can be said to have derived from the use of the claimant's property. Typical examples are intellectual property cases, for example copyright infringement claims, in which the claimant has an option to elect for damages or an account of profits. He cannot, however, have both; and if he elects for an account, that will merely give him a personal claim against the defendant. An election for an account will not turn the profits into property in which the claimant can assert a proprietary right. He has no proprietary right in respect of such profits and never did. Were the court to purport to recognise such a right in respect of such profits it could only do so by recourse to a remedial constructive trust, something which is not recognised in English law: Westdeutsche Landesbank Girozentrale v. Islington Borough Council [1996] AC 669, at 716; and In re Polly Peck International plc (No. 2) [1998] 3 All ER 812. It follows in my view that even if (which I doubt) Sinclair had any personal claim against Mr Cushnie for an account of the profits realised upon the sale of the VGP shares, it would not have any interest in such profits under any constructive trust and could not claim to pursue a proprietary claim into the Kensington property and thence into the £5.2m. In any event, Sinclair has already sued Mr Cushnie and tacitly made an election to claim damages, not an account of profits. I record that I was referred to Attorney General v. Blake [2001] 1 AC, which illustrates that exceptionally a defendant who has breached a contract may be ordered to account for the benefits he has received from the breach, but it was not suggested that that principle is of any assistance in the present context.
129. In principle, therefore, I consider there are fatal difficulties in the way of Sinclair's bid to establish that the consequence of Mr Cushnie's dishonest assistance was to give it a proprietary interest in the proceeds of sale of Marrlist's VGP shares - and whether or not it might have a personal claim against Mr Cushnie for an account of profits. For completeness, however, I should not leave the matter without referring to certain further authorities said to support the view that Sinclair would at least have had a claim against Mr Cushnie for an account of profits, although none can be said to go the extra length of making good its claim to a proprietary interest in the share sale proceeds.
130. The authorities are gathered together in the comprehensive review of the law by Lewison J in his mammoth judgment in Ultraframe (UK) Ltd v. Fielding and Others [2005] EWHC 1638 (Ch). The relevant passages are in paragraphs 1589 to 1601, under the heading "Remedies against a dishonest assistant". Lewison J referred to a passage in Lewin on Trusts, 17^th edition, at para. 20-50, which opines that a dishonest assistant in a breach of trust will be accountable for his profit. That receives support from the judgment of Gibbs J in Consul Developments Pty Ltd v. DPC Estates Pty Ltd (1975) 132 CLR 373, at 397, where the judge considered the liability of someone who knowingly participates in a breach of fiduciary duty owed by another. His opinion, at page 397, was such a person was "liable to account to the person to whom the duty was owed for any benefit he has received as a result of such participation." His reasoning appears to have been that such a participant should not be in any better position than the fiduciary himself as regards obligations to account for such benefits. It is apparent from page 395 that Gibbs J regarded any such accounting obligation as a purely personal liability. I do not understand him to have held the view that the appropriate remedy against such a participant could include a declaration of trust in respect of property he acquired by reason of his participation in the breach of duty; and he appears to have regarded the form of the order made in Cook v. G.S. Deeks and Others [1916] 554, at 565, as supporting the view that an account was the appropriate remedy. The Supreme Court - whose decision was reversed on the ground that, on the facts, liability could not be said to have been established against the participant - had held below that the third party did hold the disputed assets on constructive trust. Gibbs J said, at page 401, that that decision was wrong and that "Furthermore, I consider that Consul was under no duty to account to D.P.C. in respect of those properties." I regard it as probable that he added that so as to make clear that, in principle, an account was the only appropriate remedy, but that on the facts it was not available. Gibbs J's opinion in Consul was approved by the High Court of Australia in Warman International Limited and Another v. Dwyer and Others (1995) 182 CLR 544, at 564, 565, without any expansion of his reasoning. Nothing in Warman supports the view that benefits obtained by the dishonest assistant are held upon constructive trust for the claimant.
131. Lewison J referred to Consul and Warman and also to the decision of Toulson J in Fyffes Group Ltd v. Templeman and Others [2000] 2 Lloyd's Law Reports 643. That case raised many issues, of which one was whether the briber of a fiduciary was (i) liable to account for the profits he made as a result of his wrongdoing, or (ii) only liable to an order for damages or compensation. Toulson J embarked on that issue at page 668. He referred to Attorney-General for Hong Kong v. Reid [1994] 1 AC 324, and to the principle by reference to which Lord Templeman held that the briber himself would hold the bribe upon constructive trust for the principal. He then said, importantly for present purposes, "but that is to go further than is presently necessary, for this is not a case in which the claim for an account is founded on the assertion of a right to a proprietary remedy." Accordingly, he was not being asked to decide that the principal had any proprietary right, arising under a constructive trust, in respect of any benefit the briber might achieve for himself as a result of his bribery. He was concerned only to decide whether a personal claim for an account of profits lay against the briber.
132. In deciding that question, Toulson J referred to Consul and Warman. He referred to the counter argument that, whereas a fiduciary must account to his principal for any unauthorised profit, the dishonest assistant or intruder owes no obligation to the principal other than one of compensation. He referred to Royal Brunei Airlines as being said to support that, and I consider there is much to be said for the view that it does. He then referred to Cook v. Deeks. In that case three directors of T Ltd obtained the benefit of a contract which belonged in equity to T Ltd but which they sought to acquire for themselves by taking it in the name of their company, D Ltd. The claimant, a shareholder in T Ltd, sued them and D Ltd for the recovery of the benefit of the contract. The defence was that T Ltd had ratified their actions, the directors having purported to achieve that result by their control of 75% of its issued shares. The defence failed and the Privy Council held all four defendants liable to account to T Ltd for their profits of the transaction. The case appears to me to have had nothing to do with the liabilities of knowing or dishonest participants, since I do not understand any of the defendants to have been held liable on that basis. It was one in which the three individuals were accountable as fiduciaries and their creature company was similarly accountable because (so I infer) it was regarded as the device or façade by which they had fronted their diversion of T Ltd's property.
133. Toulson J dismissed the thought that the case was one involving the so-called lifting of the corporate veil; and cited a passage from the judgment which perhaps suggests that he may have favoured the view that D Ltd's liability was based on its participation in the wrongdoing of the three fiduciaries, so supporting the case for fixing the briber with like liability. That may be reading too much into Toulson J's brief reference to the case. But if it is not then, with respect, I would not regard that as a correct analysis of the basis of D Ltd's liability: and even if it is, there is arguably a significant difference as compared with the Fyffes case, namely that D Ltd had knowingly received the benefit of the directors' wrongdoing so that the account against it could be said to be property based. Toulson J then drew assistance from Attorney General v. Guardian Newspapers (No 2) [1990] 1 AC 109, in which he described the Sunday Times as having knowingly assisted Mr Peter Wright to breach his duty of confidentiality and so rendered itself liable to an account of profits. Again, with respect, I would not regard that as a correct assessment of the basis of the newspaper's liability. I do not understand it to have been held liable as an assistant to Mr Wright, but rather as a primary infringer of the duty of confidentiality, an account of profits being a remedy (an alternative to damages) for which a successful claimant in such proceedings is entitled to elect, on the basis that in equity the profits are regarded as belonging to him. After referring to further authorities, which I do not regard as decisive, Toulson J concluded that the briber could be required to account to the principal for benefits obtained from his wrongdoing. But he then held that, as a matter of discretion, he was not going to order an account.
134. I do not, with great respect, find Toulson J's approach to the point comprehensively convincing. But there is no need for me to form or express a view on whether Fyffes was, in this respect, correctly decided and I do not do so. It did not decide that the claimant had a proprietary claim to the benefits obtained by the briber and so it provides no help to Sinclair. At paragraph 1594 of his judgment, Lewison J regarded Fyffes as correctly decided on this point; and as supporting the view that, as a matter of principle, "a dishonest assistant is liable to account for any profit that he makes from his dishonest assistance or from the underlying breach of trust." Again, there is no need for me to form or express any view on whether or not that statement of principle was correct, and I do not do so. I do not understand Lewison J to have decided that the principal has a proprietary claim arising under a constructive trust in respect of any identifiable benefit that the dishonest assistance may have obtained for him and so his decision is of no help to Sinclair either.
135. I therefore conclude that Sinclair's alternative claim fails as a matter of principle. I hold that any profits obtained by Mr Cushnie as a result of his dishonest assistance in TPL's breach of trust were not held upon a constructive trust for Sinclair. Had Sinclair succeeded in principle on this point, I would have had to consider the like further matters on which I have already expressed views when dealing with the breach of fiduciary duty case. Those further views apply equally to the alternative claim.
136. The only matter which requires further consideration is the "good faith purchaser without notice" defence, which I will deal with briefly. For that purpose I must presumably assume that, contrary to my decision, Sinclair was a beneficiary of a constructive trust under one or other of its alternative arguments. I consider the relevant question to be whether, by the time of the first settlement agreement in February 2001, the defendants had actual or constructive notice of that trust; and I regard the relevant notice, if any, as that of the receivers. I have approached this issue bearing in mind the approach of the Court of Appeal to the like question that arose in Carl Zeiss Stiftung v. Herbert Smith & Co and Another (No 2) [1969] 2 Ch 276.
137. In my judgment the receivers had no notice of any trust in favour of Sinclair. They did not know, and could not have known, of the existence of any trust arising under the first limb of Sinclair's case, because it is accepted that they had no sort of notice of Mr Cushnie's assurances to Mr Hill, which are of the essence of that case. As for Sinclair's alternative case, the question is conceptually more difficult and I do not propose to wrestle with it: it would require me to consider whether they had actual or constructive notice of a trust arising on undisputed facts, being a trust which (in my view) is unrecognised by the law. I add that if, contrary to my view, the question is whether the receivers had actual or constructive notice of a trust claim being brought by Sinclair, I find they did not. Sinclair did not, prior to the February 2001 agreement, indicate to the receivers that it proposed to bring any such claim.

Result

138. Sinclair's claim will be dismissed.