Equity Stalling?

Document Cited authorities (12) Cited in Related
Pages388-395
Date01 September 2014
AuthorDaniel J Carr
DOI10.3366/elr.2014.0231
Published date01 September 2014
<p>From decisions on adjectival law come strange fruits. <italic>Ted Jacob Engineering Group Inc v Robert Matthew, Johnson-Marshall and partners</italic>,<xref ref-type="fn" rid="fn1"><sup>1</sup> </xref><fn id="fn1"><label>1</label> <p><italic>Ted Jacob Engineering Group Inc v Robert Matthew, Johnson-Marshall, partners and others</italic> <a href="https://vlex.co.uk/vid/ted-jacob-engineering-group-805652321">[2014] CSIH 18</a>.</p> </fn> an apparently innocuous case concerning the recovery of documents by commission and diligence, offers interesting, even tantalising, insights into other areas of substantive law, in particular the law of trusts. The Scots law of trusts has been much discussed in recent years, not least by the Scottish Law Commission (“SLC”).<xref ref-type="fn" rid="fn2"><sup>2</sup> </xref><fn id="fn2"><label>2</label> <p>The SLC hopes to have published a report on its ten-year old trust project by the end of this summer: see <ext-link ext-link-type="uri" xlink:href="http://www.scotlawcom.gov.uk/law-reform-projects/trusts/" xlink:type="simple"><italic>http://www.scotlawcom.gov.uk/law-reform-projects/trusts/</italic> </ext-link>.</p> </fn> In addition, there has been much academic comment on the fundamental nature of the trust, particularly the “patrimonial theory”,<xref ref-type="fn" rid="fn3"><sup>3</sup> </xref><fn id="fn3"><label>3</label> <p>G L Gretton, “Trust and patrimony”, in H L MacQueen (ed), <italic>Scots Law into the 21<sup>st</sup> Century: Essays in Honour of W A Wilson</italic> (1996) 189; G L Gretton, “Trusts without equity” (2000) 49 ICLQ 599; K G C Reid, “Patrimony not equity: the trust in Scotland” (2000) 8 Eur Rev of Priv Law 427; R G Anderson, “Words and concepts: trust and patrimony”, in A Burrows et al (eds), <italic>Judge and Jurist: Essays in Memory of Lord Rodger of Earlsferry</italic> (2013).</p> </fn> which has been making steady inroads into the different constituencies of Scottish law.<xref ref-type="fn" rid="fn4"><sup>4</sup> </xref><fn id="fn4"><label>4</label> <p>The SLC has suggested that the theory should be recognised: Discussion Paper on the Nature and Constitution of Trusts (Scot Law Com DP No 133, 2006) para 2.25.</p> </fn> The decision in <italic>Ted Jacob</italic> represents the second judicial opinion in as many months<xref ref-type="fn" rid="fn5"><sup>5</sup> </xref><fn id="fn5"><label>5</label> <p>The other is <italic>Glasgow City Council v The Board of Managers of Springboig St John's School</italic> <a href="https://vlex.co.uk/vid/glasgow-city-council-v-802268997">[2014] CSOH 76</a> at para 16 ff per Lord Malcolm.</p> </fn> to adopt the patrimonial theory as the point of departure for trust law. Furthermore, the decision suggests that knowing receipt, or at least some form of accessory liability in relation to trusts, perhaps with an equitable flavour, has become more firmly embedded since its first tentative appearance in <italic>Commonwealth Oil & Gas Co Ltd v Baxter</italic>.<xref ref-type="fn" rid="fn6"><sup>6</sup> </xref><fn id="fn6"><label>6</label> <p><italic>Commonwealth Oil & Gas Co Ltd v Baxter</italic> <a href="https://vlex.co.uk/vid/commonwealth-oil-and-gas-804519305">2010 SC 156</a>. On which, see D J Carr, “Equity rising?” (2010) 14 EdinLR 273; N R Whitty, “The ‘No profit from another's fraud rule’ and the ‘knowing receipt’ muddle” (2013) 17 EdinLR 37.</p> </fn> The decision also represents a further appellate endorsement of the prevailing orthodoxy concerning the need for a <italic>prima facie</italic> stateable case when seeking documents by way of a commission and diligence.</p> DRAMATIS PERSONAE AND PLOT

The petitioner, Ted Jacob Engineering Group Inc (“TJ”), was (and, at the time of writing, is) a company registered in California; the respondents were (i) a partnership (“the partnership”), (ii) a limited company, BSR 2013 Limited (“BSR”) and (iii) a limited company RMJM Architecture Limited (“RMJMA”). The respondents were closely linked to each other by both personnel and location. Each of them shared the same place of business. The first respondent's partners were RMJM Middle East Limited (“RMJMME”) and RMJM Overseas Limited (“RMJMO”), and the directors of these partner companies were the same two individuals. The directors of BSR were the same two individuals who were directors of RMJMO and RMJMME. RMJMA (the third respondent) was the parent company of RMJMME, and a subsidiary of BSR. It was common ground before the court that the entire RMJM group was in financial difficulties. The close interrelationship between the various respondents meant the knowledge of one respondent was deemed to be attributable to the others.7

Ted Jacob at para 16.

The significance of such a decision could be considerable when considering forms of accessory liability such as dishonest assistance or knowing receipt (or whatever they may be called in Scotland)

TJ purchased the partnership's engineering and architecture business in Dubai. The purchase was effected by a sale and purchase agreement (SaPA), and a subsequent closing agreement (August 2012). In order to conduct operations in Dubai the petitioner needed licences to operate, which would take time to procure, so transitional arrangements were built into the agreements. The agreements provided that TJ would carry out engineering work for clients, but that such work would take place under contracts agreed between the partnership and the clients. Any payments due under such contracts were to be paid into a bank account that was the partnership's account, though the account was entitled “RMJM/TJEG account”.8

Para 5.

Work was carried out by TJ for a number of clients under the transitional arrangements and the related fees were paid into the nominated account. Initially all was well: TJ had access to the account and was able to check the balance.9

Para 8.

 However, that changed in November 2012 when TJ ceased to have access to the account and discovered that funds had been taken out of the account and, indeed, out of Dubai.10

Para 8.

 Efforts on the part of TJ to ascertain where the money had been transferred to were rebuffed by various individuals associated with the partnership or the wider RMJM group.11

Paras 8-9.

The legal effect of this transitional arrangement was a central element of the case: did it create trusts (express or constructive), a relationship of agency, or sub-contracts? The answer was to be found in the wording of the agreements. If it did, then doctrines of accessory liability analogous to knowing receipt and dishonest assistance might also be available. Demonstrating all these grounds of action would allow a prima facie stateable case to be made in support of recovering the documents that were the subject of the commission and diligence.

 COMMISSION AND DILIGENCE

TJ raised legal proceedings in light of the removal of funds from the nominated...

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