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The High Court has granted summary judgment in favour of a company in liquidation, establishing a constructive trust over properties acquired using funds wrongfully diverted by its former directors in breach of their fiduciary duties: L&S Accounting Firm Umbrella Ltd (in liquidation) v Shiloh House Holdings Ltd[2026] EWHC 618 (Ch).
Although the defendant was not a party to earlier proceedings against the directors, the court held that it was bound by the factual findings made in those proceedings as a privy, and that it would in any event be an abuse of process to permit the defendant to re-litigate those findings. Applying well-established tracing principles, the court further held that the claimant was entitled to trace its assets into the properties and that a constructive trust should be imposed, all the elements of a knowing receipt claim being clearly satisfied on the facts.
The decision underscores the court's strict approach to attempts to re-litigate findings through corporate vehicles, particularly where there is a close identity of interest between such vehicles and the defendants to earlier proceedings. It also serves as a useful reminder of the tracing rules applicable where fiduciaries have mixed assets with their own funds.
Background
The proceedings concerned the defendant's acquisition of three properties in Bedford between August 2022 and February 2023. The claimant alleged that its funds had been used to acquire all three properties, having been wrongly diverted by two of its former directors, Mr and Mrs Oronsaye. The claimant applied for summary judgment seeking a declaration that the properties were held on constructive trust to the extent that they represented the traceable proceeds of its misappropriated assets.
Mr Oronsaye was a director of the defendant throughout the relevant period. Mrs Oronsaye had purported to resign as a director immediately after the defendant's incorporation, but the evidence suggested that she retained ongoing control. Both Mr and Mrs Oronsaye, along with their children (all minors at the relevant time), were also shareholders in the defendant.
The claim was described by the court as "the latest leg of ongoing litigation". In July 2024, the High Court had granted summary judgment in favour of the claimant in separate proceedings against Mr and Mrs Oronsaye and three connected companies (the "2024 Judgment"). Permission to appeal was sought and refused by both the High Court and the Court of Appeal.
The claim in the earlier proceedings was that Mr and Mrs Oronsaye had used the claimant as a vehicle to perpetrate a fraud on HMRC and had then diverted the proceeds of that fraud to various assets held by them or by a company owned or controlled by them.
The claimant was later placed in voluntary liquidation.
Decision
The High Court (Richard Farnhill sitting as a Deputy Judge) granted summary judgment, finding that the defendant had no real prospect of defending the claim and that there was no other compelling reason why the case ought to proceed to trial.
Three questions were key to the application before the court:
- Whether the defendant was bound by the 2024 Judgment.
- What was the relevant approach to tracing?
- Whether the legal test for knowing receipt had been satisfied.
Did the 2024 Judgment bind the defendant?
This issue arose because the claimant relied heavily on the findings of fact in the 2024 Judgment regarding the duties owed to it by Mr and Mrs Oronsaye and the breach of those duties. The defendant argued that it was not a party to the earlier proceedings and was therefore not bound by those findings.
The court rejected that submission on two grounds. First, res judicata. The court noted that if the defendant was a privy of Mr and Mrs Oronsaye, or of the other defendants in the earlier proceedings, it would be bound by the 2024 Judgment. The question was therefore whether there was a sufficient degree of identification or connection between the defendant and the parties to the earlier proceedings such that it would be just to hold the defendant bound by that decision, notwithstanding that it had not itself been a party. The court acknowledged that whilst examples of privity in a corporate context do exist – per Foxton J in PJSC National Bank Trust and another v Mints and others [2022] EWHC 871 (Comm) – such cases are "very much the exception". In the court's view, however, this was one such exception given the "strong community of interest" between the defendant and the defendants to the earlier proceedings. In particular, the court placed weight on the following factors:
- Mr and Mrs Oronsaye treated their companies almost interchangeably. For example, one of the Oronsayes' other companies (itself a defendant to the earlier proceedings) had originally been intended to purchase one of the properties but was replaced by the defendant on the day of completion.
- While the defendant was legally the purchaser of the properties, its factual role in the ownership and management of at least two of them was apparently nominal. It was Mr Oronsaye who was intimately involved in their management and who benefitted from the income they generated.
- The evidence used by the defendant was almost identical to that relied on by the defendants in the earlier proceedings.
- The litigation was controlled in substance by Mr and Mrs Oronsaye.
Second, irrespective of the privity point, it would be an abuse of process to allow the defendant to relitigate issues already determined in the 2024 Judgment. The court was referred to Secretary of State for Trade and Industry v Bairstow [2003] EWCA Civ 321, in which the Court of Appeal held that where parties to later proceedings were not parties to, or privies of those who were parties to, earlier proceedings, it would only be an abuse of process to challenge the earlier decision if: (a) it would be manifestly unfair to a party to the later proceedings to allow the same issue to be relitigated; or (b) permitting such relitigation would bring the administration of justice into disrepute.
The court found that both limbs were satisfied. The claim in the earlier proceedings was that Mr and Mrs Oronsaye had used the claimant as a vehicle to perpetrate a fraud on HMRC and had then diverted the proceeds of that fraud into various assets held by them or by a company owned or controlled by them. The claim before the court was exactly the same and could, therefore, have been brought in the earlier proceedings. The only reason it was not was that Mr Oronsaye had failed to disclose the existence of the defendant or the flow of funds to acquire the properties – a failure which was itself a breach of his duties as a director of the claimant.
In the court's view, it would plainly be unfair to allow Mr and Mrs Oronsaye to profit from that breach by allowing them to run before a second judge many of the same defences that had previously failed. That unfairness was compounded by the fact that the costs of the litigation fell on the creditors of the claimant, being the very company that Mr and Mrs Oronsaye had already been found to have fraudulently mismanaged and which had already incurred significant costs to establish the facts underpinning that conclusion.
Further, the court found that allowing the matter to be relitigated "would bring the administration of justice into disrepute". The questions of Mr and Mrs Oronsaye's dishonesty and their breaches of duty to the claimant had already been fully and fairly addressed by the court. There was no suggestion of any new evidence being available on this issue.
Tracing
Funds had flowed from the claimant into the property acquisitions in various ways. Most of the payments out of the claimant, however, had been mixed with Mr and Mrs Oronsaye's own funds in their personal accounts, which received other deposits and were used to make other payments. This gave rise to an evidential issue: whether the payments out of those accounts, which ultimately funded the purchase of the properties, represented the claimant's assets.
The court noted that there are many approaches to tracing, which is concerned with identifying an asset that represents the claimant's property, ie, not the claimant's original property, but one which is treated as a substitute for it. It was therefore important to establish which approach should apply on the facts of this case.
The court favoured the approach adopted in Shalson v Russo [2003] EWHC 1637 (Ch):
"Normally, it is presumed that if a trustee uses money from a fund in which he has mixed trust money with his own, he uses his own money first...this is not an inflexible rule...if the trustee can be shown to have made an early application of the mixed fund into an investment, the beneficiary is entitled to claim that for himself...The justice of this is that, if the beneficiary is not entitled to do this, the wrongdoing trustee may be left with all the cherries and the victim with nothing."
The claimant accepted that any approach to tracing would be subject to the "lowest intermediate balance" rule laid down in James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62: the maximum amount that can be traced is the lowest balance in the account between the point at which the trust money is paid in and the point at which the sum to be traced is paid out.
Applying these principles, the court rejected the defendant's submission that the Oronsayes had funded the acquisitions from their legitimately earned income. Instead, it found that all payments made to acquire the properties (with the minor exception of commission payments to the auctioneers in respect of two of the properties, the source of which had not been identified) could be traced back to the claimant's assets.
Knowing receipt
It was not sufficient for the claimant simply to trace its assets into the acquisition of the properties; it also had to establish a proprietary claim to them. The claimant advanced two bases for doing so: knowing receipt and dishonest assistance.
El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 established that a claimant must satisfy three requirements to succeed in a claim for knowing receipt: (i)"a disposal of his assets in breach of a fiduciary duty"; (ii)"the beneficial receipt by the defendant of assets which are traceable as representing the assets of the [claimant]"; and (iii) "knowledge on the part of the defendant that the assets he received are traceable to a breach of fiduciary duty."
In determining whether a company has the requisite knowledge, the court will generally attribute to it the knowledge of the natural person or persons who manage and control its actions. A person's formal position within the company is highly relevant to this assessment, but it is not necessarily decisive.
Considering the facts, the court held that each element of the knowing receipt test was plainly satisfied. Breach of fiduciary duty by Mr and Mrs Oronsaye had already been established in the 2024 Judgment, which was equally binding on the defendant. The claimant had also largely demonstrated that the properties were acquired with the traceable proceeds of its assets (with the exception of the auctioneers' commissions). As to the third limb, the court held that Mr and Mrs Oronsaye plainly knew of their respective breaches of fiduciary duty, and their knowledge was to be imputed to the defendant. This was on the basis that: (i) the Oronsayes were managing the claimant at the time the funds were paid away and were the controlling minds of the defendant, both generally and in respect of the purchase of the properties; (ii) Mr Oronsaye was managing the properties; and (iii) even on the defendant's own case, the only person managing its affairs at the time the properties were acquired was Mr Oronsaye.
In such circumstances, it would be unconscionable for the defendant to retain the properties. The claimant was therefore entitled to summary judgment establishing a constructive trust over them (in varying proportions reflecting the traced sums). In light of this finding on the knowing receipt claim, the court considered it unnecessary to address the dishonest assistance claim.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
