Barlow Clowes International Ltd ((in Liquidation)) and Others v Eurotrust International Ltd (No 2)

 
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[2005] UKPC 37

Privy Council

Present at the hearing:-

Lord Nicholls of Birkenhead

Lord Steyn

Lord Hoffmann

Lord Walker of Gestingthorpe

Lord Carswell

Appeal No. 38 of 2004
(1) Barlow Clowes International Ltd. (in liquidation)
(2) Nigel James Hamilton
and
(3) Michael Anthony Jordan
Appellants
and
(1) Eurotrust International Limited
(2) Peter Stephen William Henwood
and
(3) Andrew George Sebastian
Respondents

From

THE COURT OF APPEAL OF THE ISLE OF MAN (STAFF OF GOVERNMENT DIVISION)

[Delivered by Lord Hoffmann]

1

In the mid-1980s Mr Peter Clowes, through a Gibraltar company called Barlow Clowes International Ltd ("Barlow Clowes"), operated a fraudulent off-shore investment scheme purporting to offer high returns from the skilled investment of funds in UK gilt-edged securities. He attracted about £140 million, mainly from small UK investors. Most of the money was dissipated in the personal business ventures and extravagant living of Mr Clowes and his associates. In 1988 the scheme collapsed and Mr Clowes was afterwards convicted and sent to prison.

2

Some of the investors' funds were paid away during 1987 through bank accounts maintained by companies administered from the Isle of Man by a company providing off-shore financial services which was then called International Trust Corporation (Isle of Man) Ltd ("ITC"). The principal directors were Mr Peter Henwood and Mr Andrew Sebastian. In proceedings in the Common Law Division of the High Court of the Isle of Man, Barlow Clowes (now in liquidation) claimed that Mr Henwood, Mr Sebastian and, through them, ITC, dishonestly assisted Mr Clowes and one of his principal associates, Mr Cramer, to misappropriate the investors' funds.

3

After a trial lasting 31days, during which Mr Henwood and Mr Sebastian gave evidence and were cross-examined at length, the Acting Deemster (Hazel Williamson QC) found that Mr Henwood was liable for dishonestly assisting in the misappropriation of three sums: £577,429 paid away on 8 June 1987, £6 million paid away on 7 July 1987 and £205,329 paid away on 12 November 1987. She found Mr Sebastian similarly liable for the same sums and an additional £1,799,603.32 paid away on 22 June 1987 and ITC liable, through Mr Henwood and Mr Sebastian, for all four payments. She dismissed a limitation defence.

4

All three defendants appealed to the Staff of Government Division of the High Court. Mr Sebastian and ITC appealed solely on the limitation point and their appeals were dismissed. Mr Henwood's appeal against the finding that he had given dishonest assistance was allowed on the ground that it was not supported by the evidence. Against that decision Barlow Clowes appeals to Her Majesty in Council. Mr Sebastian and ITC have taken no further part in the proceedings.

5

The circumstances in which Mr Henwood and ITC came to be involved in the affairs of Barlow Clowes are set out with exemplary clarity in the judgment of the Acting Deemster and only the briefest summary is necessary here. ITC provided off-shore financial services. In particular, it formed and administered off-shore companies, provided off-shore directors who would act upon the instructions of beneficiaries, opened bank accounts and moved money, sometimes through its own client account. In 1985 it was introduced to Mr Guy Cramer, a young businessman who was an associate of Mr Clowes but who had ventures of his own, probably funded with Barlow Clowes investors' money. He instructed ITC to form and administer a number of off-shore companies.

6

Between May 1986 and February 1987 ITC dealt with a series of payments from Barlow Clowes to off-shore companies which they administered on behalf of Mr Cramer. The Acting Deemster considered 10 such transactions, mostly in amounts of between £100,000 and £250,000, but with one payment of £1,137,500, from Barlow Clowes to companies under Mr Cramer's personal control. There was no apparent commercial purpose for these transactions, still less any reason for their being routed through the ITC client account or from one off-shore Cramer company to another. Counsel for Barlow Clowes invited the judge to find that even at that stage Mr Henwood and Mr Sebastian must have entertained strong suspicion that the money had been misappropriated and that the services of ITC were being used to conceal its origins. The judge found that Mr Sebastian probably did have suspicions but refused to find that Mr Henwood did so. ITC had a good deal of other business besides that of Mr Cramer. Mr Henwood, she said, was not of a naturally curious disposition concerning matters which did not affect him personally and might not have applied his mind to what was happening.

7

All this changed in the spring of 1987 when Mr Cramer and Mr Clowes decided to merge their interests by a "reverse take-over" by Barlow Clowes of a listed company called James Ferguson Holdings plc ("JFH") controlled by Mr Cramer. ITC began to provide off-shore services for the combined entity and became much more involved in its affairs. On 2 April 1987 Mr Henwood went to Gibraltar and met Mr Clowes. Later that month, Mr Henwood went to the Bahamas with Mr Cramer and they discussed the possibility of absorbing Mr Henwood's ITC business into the JFH group, providing financial services from the Barlow Clowes offices in Geneva. Mr Henwood saw the possibility of becoming virtually a partner of Mr Clowes and Mr Cramer and began to take a lively interest in their business. On 5 June 1987 Mr Henwood went with Mr Clowes and Mr Cramer to Geneva to plan the development of the Barlow Clowes business, including the integration of ITC. Mr Henwood learned a great deal about the nature of the Barlow Clowes business and the source of its liquid funds.

8

It was during this summer of 1987 that the two impugned transactions, referred to by the judge as transactions 11 and 15, took place. The first part of transaction 11 was the payment on 3 March 1987 of £1,886,415 from Barlow Clowes through ITC's client account to a Cramer company called Ryeman Ltd. The money was required to enable Ryeman to put itself forward as a sub-underwriter of a rights offer by JFH which formed part of the reverse takeover by which the Barlow Clowes companies were injected into JFH. The money was not required for sub-underwriting and remained in the Ryeman account until 8 June 1987 when Mr Henwood authorised the payment of £577,429 for Mr Cramer's personal business. The judge found that by that time Mr Henwood knew enough about the origins of the money to have suspected misappropriation and that he acted dishonestly in assisting in its disposal.

9

The first part of transaction 15 was the payment on 22 June 1987 by Barlow Clowes to Ryeman of £7 million in connection with a proposed bid for a brewery company which was being made by Mr Clowes and Mr Cramer. On 7 July 1987 Mr Henwood and Mr Sebastian authorised the transfer of £6 million of this money to Mr Cramer's personal account. Here again, the judge held that Mr Henwood was acting dishonestly. In November 1987 Mr Henwood and Mr Sebastian authorised the payment of £205,329 of the remaining transaction 15 money to a company controlled by Mr Clowes. The judge found this also to be dishonest assistance.

10

The judge stated the law in terms largely derived from the advice of the Board given by Lord Nicholls of Birkenhead in Royal Brunei Airlines Sdn. Bhd. v Tan [1995] 2 AC 378. In summary, she said that liability for dishonest assistance requires a dishonest state of mind on the part of the person who assists in a breach of trust. Such a state of mind may consist in knowledge that the transaction is one in which he cannot honestly participate (for example, a misappropriation of other people's money), or it may consist in suspicion combined with a conscious decision not to make inquiries which might result in knowledge: see Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2003] 1 AC 469. Although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant's mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards. The Court of Appeal held this to be a correct state of the law and their Lordships agree.

11

The judge found that during and after June 1987 Mr Henwood strongly suspected that the funds passing through his hands were monies which Barlow Clowes had received from members of the public who thought that they were subscribing to a scheme of investment in gilt-edged securities. If those suspicions were correct, no honest person could have assisted Mr Clowes and Mr Cramer to dispose of the funds for their personal use. But Mr Henwood consciously decided not to make inquiries because he preferred in his own interest not to run the risk of discovering the truth.

12

Their Lordships consider that by ordinary standards such a state of mind is dishonest. The judge found that Mr Henwood may well have lived by different standards and seen nothing wrong in what he was doing. He had an

"exaggerated notion of...

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