Source: https://www.ucc.ie/academic/law/restitution/archive/englcases/gwembe.htm
Timestamp: 2019-04-23 08:01:27+00:00

Document:
This is the judgment of the Court to which all members of the court have contributed.
1. Despite the thickets of company law, contract, fiduciary law, limitation of actions and equitable remedies, which have grown around this case, the central questions for decision can be stated quite concisely: between 1986 and 1988 did the managing director of a joint venture company deliberately and dishonestly fail to disclose his personal interest in transactions with the company and, if so, is he liable to account to the company for all, or for only part of, the unauthorised profits made by him; alternatively, did that failure to disclose his interest render him liable to compensate the company for its losses in the joint venture? In the mass of material, which has been generated by this complex and protracted litigation and is condensed in this long judgment, those short questions should be the focus of all the detailed arguments.
2. In 1986 a joint venture was formed in Zambia. Its aim was to develop a cotton and wheat farm of 2,500 hectares at Sinazongwe on the shores of Lake Kariba. A group of investors funded the project. Each investor was allowed representation on the board of Gwembe Valley Development Company Limited (GVDC), a Zambian company incorporated in November 1985 as the corporate vehicle for the project. Representation on the board was proportionate to the size of the investment. There were no outside "independent" directors.
3. The venture faltered. The investors fell out. GVDC became insolvent. The project collapsed. Litigation broke out. In September 1993 GVDC was put into administrative receivership by one of the investors (DEG). As late as 14 December 2000 the Court of Appeal appointed a receiver. His receivership was confined to the causes of action vested in GVDC. The court�appointed receiver (Mr Michael Rollings of Ernst & Young) ratified and continued the legal proceedings, which GVDC had started in November 1996. The court order was made after the out-of-court appointment of administrative receivers of GVDC was successfully challenged following litigation in the courts in Zambia and in England.
4. GVDC, acting by its receiver, was the claimant in the proceedings (the GVDC action). The action was begun by writ on 15 November 1996. The date of the commencement of the action is crucial to the limitation issues.
5. The relief claimed in the GVDC action included an account of profits made by its managing director, Mr Thomas Koshy. He is an accountant. Alternative claims were made against him for equitable compensation for breaches of fiduciary duty and for damages for deceit and conspiracy. A declaration was also sought that Mr Koshy and a company controlled by him (Lasco) were liable as constructive trustees of all GVDC's money received by them.
6. An application for summary judgment was made (1) against Mr Koshy for an account of all profits (if any) made by him as a result of the dealings, which he had procured between GVDC and Lasco and (2) against Lasco for a declaration that it held payments that it received from and on behalf of GVDC in the period from 1 January 1987 and 31 December 1989 as a constructive trustee for GVDC and for an account of all payments received from or on behalf of GVDC during that period. On 20 March 1998 Harman J made such orders against Mr Koshy and Lasco, holding that the claims were not time barred under, or outside, the 1980 Act: GVDC v. Koshy  BCLC 613. By case management orders on 28 March 2001 and 6 April 2001 the Court of Appeal set aside the orders against Mr Koshy, but without determining whether or not they had been correctly made.
7. The trial of the action against Mr Koshy lasted for two months. On 26 October 2001 Rimer J handed down his reserved judgment. It is a careful, comprehensive and well reasoned judgment running to 89 pages. The judge summarised the relevant issues and the evidence. He made clear and firm findings of fact. He reviewed difficult areas of the law: the scope of fiduciary obligations in the setting of corporate risk-taking, the available and appropriate remedies for breach of fiduciary duty and the impact of some of the less familiar provisions of the Limitation Act 1980 (the 1980 Act) and related equitable doctrines.
8. On 12 December 2001 Rimer J heard further argument on the final form of the orders. With his permission the orders were appealed against both by Mr Koshy (No 0090) and by GVDC (No 0095).
(1) Appeal No 0090 Mr Koshy appealed against the order directing him to account to GVDC for unauthorised profits. Rimer J found that, dishonestly and in breach of fiduciary duty, Mr Koshy had procured GVDC to enter into loan transactions with Lasco without making proper disclosure to the other directors of GVDC, or to its shareholders, of the existence and extent of his personal interest and that of his company, Lasco, in the transactions and the size of the profit which they would make out of them. His grounds of appeal are that there was no evidence to support Rimer J's finding of dishonesty; that the judge wrongly held that he was liable to account to GVDC; that he ought to have held that, in any event, the claim for an account of profits was statute-barred under the provisions of the Limitation Act 1980 (the 1980 Act); that the relevant limitation period for the account of profits was six years, which had expired well before the issue of the writ on 15 November 1996; and that Rimer J wrongly held that no limitation period was applicable to the claim for an account of profits.
(2) Appeal No 0095 GVDC appealed on the ground that Rimer J was wrong to limit the scope of the account of profits against Mr Koshy. The judge limited the account to the value of property, belonging in equity to GVDC, that Mr Koshy had received. He refused a more general account of profits. GVDC contended that the judge should have ordered an account of all the unauthorised profits made by Mr Koshy, in whatever form, as a result of his dishonest breaches of fiduciary duty. As for limitation considerations, a wider form of account should have been allowed under, or by analogy with, or irrespective of, subsection (a) or (b) of s 21(1) of the 1980 Act. Alternatively, Rimer J wrongly refused to award, or to direct an inquiry to assess the amount of, equitable compensation payable by Mr Koshy to GVDC for loss resulting from his dishonest breach of fiduciary duty. GVDC was entitled to be restored to the position that it was in prior to the loan transactions procured by Mr Koshy's dishonest breaches of fiduciary duty.
9. Mr Koshy also appealed against a costs order made by Harman J on 20 March 1998 in respect of an unsuccessful interlocutory application by Mr Koshy and by Lasco to discharge a freezing order made at the commencement of the litigation. Permission to appeal (No 2661) was granted by the Court of Appeal on 11 March 2002. In that appeal the respondent (DEG) applied for permission to adduce fresh evidence. The application was not proceeded with at the hearing. This has given rise to yet another dispute about who should pay the costs of that application and whether the costs should be summarily assessed. Mr Koshy seeks an immediate order for payment of his costs to be summarily assessed. DEG contends that the costs of the application should follow the outcome of the appeal against Harman J's order. We mention this comparatively minor side issue at this stage only to illustrate the general comments made earlier about the course of this litigation and other satellite litigation. It is not satisfactory that more and more of the time of the courts is spent on resolving disputes about the legal costs of resolving disputes. As we shall explain later, the determination of those and all other disputes concerning appeals against costs orders and the costs of the applications and appeals will be dealt with on a later separate occasion (see paragraph 39 below).
10. The International Finance Corporation (IFC), an arm of the World Bank, was a member of the group of investors in GVDC. It made a $US investment by way of loans and equity investments. IFC had a 17.4% shareholding in GVDC.
11. Hoechst (Zambia) Limited (HZL), a subsidiary of Hoechst AG, had an agrochemicals business in Zambia. It held a shareholding of 9.7% in GVDC. Mr Koshy, who was employed by HZL as its finance director down to 1987, was also its representative on the board of GVDC until the appointment of a Mr De Winter.
12. DEG-Deutsche Investitions und Entwicklungs Gesellschaft Mbh (DEG), a German development bank owned by the German Government, specialises in Third World joint development projects. It invested DM 6m in GVDC and acquired a shareholding of 11.6%. Dr Helmut Polzer was project manager between June 1986 and July 1989. He replaced Mr Helmut Klingler. Dr Polzer was DEG's only representative on the board of GVDC.
13. By far the largest investment in GVDC was made by or through the UK company controlled by Mr Koshy, Lasco (Lummus Agricultural Services Company Limited). As evidenced by a formal Loan Agreement dated 1 June 1987, GVDC acknowledged a substantial $US debt of $5.8m repayable to Lasco on demand. The debt arose from advances (pipeline loan transactions) made by Lasco to GVDC in local Zambian currency (kwacha). Lasco was represented on the board of GVDC by Mr Koshy, Mr James Weatherford, Mr Joseph Halevi and Mr James Peiris. All of them were also directors of Lasco.
14. Mr Koshy was the key player in arranging funding for the project. He was a director of Lasco from the date of its incorporation in December 1985. He was in de facto control of Lasco. At the same time he was the managing director of GVDC. He arranged the advances by Lasco to GVDC. He signed the Loan Agreement on GVDC's behalf. He also arranged a Management Agreement between the two companies. Lasco was appointed to manage GVDC. Mr Koshy's involvement was such that GVDC later made extremely serious allegations of dishonest breaches of fiduciary duty, deceit and conspiracy against him.
15. Other proceedings had been started by DEG on 8 November 1996 (the DEG action). DEG sued Mr Koshy for deceit and conspiracy. Freezing orders were made by Harman J after an inter partes hearing on 20 November 1996. DEG alleged that Mr Koshy had made fraudulent misrepresentations, inducing DEG to commit funds to GVDC. He had led DEG, it was alleged, to believe that a US manufacturer of agricultural machinery, Lummus Industries Inc (Lummus), intended to make, and did in fact make, a substantial investment in the project and that Lummus would be DEG's principal project partner. DEG sought to recover the entirety of its investment in GVDC. DEG claimed that it was unaware that Mr Koshy's transactions with GVDC, as described later, resulted in very substantial profits for Lasco and for Mr Koshy; that it only discovered in August 1989 that Mr Koshy owned 2/3rd of Lasco; and that it only found out in June 1996 the true position about Lasco's profits from its investment in GVDC.
16. The DEG action was tried at the same time as the GVDC action. It was dismissed by Rimer J. He ordered DEG to pay 50% of Mr Koshy's costs. DEG appealed (No 0094). It obtained limited permission from the Court of Appeal. Mr Koshy made an application (No 0091), which was adjourned by the Court of Appeal on 11 March 2002 to the substantive hearing, for permission to appeal against the costs order made by Rimer J on dismissing the DEG action.
17. DEG dropped its appeal on 3 September 2002. That was after the first part of the appeal hearing held on 16, 17, 18 and 19 July 2002, but before the completion of the hearing of the appeals in December 2002. As indicated earlier, there is a dispute about what the parties agreed concerning the costs of the abandoned DEG appeal.
18. The profits claimed against Mr Koshy in the GVDC action arose out of various loan transactions between Lasco and GVDC. The loans led up to GVDC's acknowledgement of a debt to Lasco for a total of $US 5.8m, repayable on demand. Mr Koshy arranged all of GVDC's funding deals with Lasco. He, rather than Lasco, was the principal defendant in the GVDC action. Lasco was originally joined as a second defendant, but it dropped out of the picture at an early stage. It was put into compulsory liquidation in August 1998. It has taken no part in these appeals. Though Lasco appealed against the summary judgment against it by Harman J on 20 March 1998 declaring that it was a constructive trustee of all GVDC's money received by it, the appeal was struck out after it failed to provide security for costs ordered by the court. As already noted, the similar order made against Mr Koshy was set aside by the Court of Appeal in March 2001.
19. The essential point in all the claims against Mr Koshy is that he was at the same time both the managing director of GVDC, in which the majority interest was held by Lasco, and a director and the controlling shareholder of Lasco. When it was incorporated in December 1985 Lasco was owned by Lummus. At the end of 1985 Mr Koshy agreed to acquire 2/3rd of the shares in Lasco from Lummus. He actually acquired the shares in September 1987. The remaining 1/3rd of the shares was retained by Lummus.
20. The $US 5.8m debt acknowledged by GVDC to Lasco was in respect of the total sum advanced of K56.4m ( K= kwacha, the local currency in Zambia). The sum of $US 5.8m was the official equivalent of K56.4m at the time of the loans by Lasco to GVDC. The circumstances in which the kwacha were obtained by Lasco to lend to GVDC are relevant to the claim for an account of profits against Mr Koshy.
21. The kwacha advanced to GVDC were obtained by Lasco at a cost to it of only just over $US1m, by means of a process called "pipeline dismantling." Approval of a pipeline dismantling scheme was obtained by Lasco from the Bank of Zambia in April 1986. The approval specifically related to GVDC, which needed the funds for the farming project. The funds for investment by Lasco in GVDC, via the pipeline loan transactions, were provided by Mr Koshy.
22. In brief, the process of "pipeline dismantling", which was described in detail by Rimer J (see paragraphs 14-18 of his judgment) was a means of releasing funds blocked by Zambian exchange control regulations. The process enabled Lasco to buy kwacha at an advantageous rate from two foreign creditors, who had no other way of obtaining payment of $US outside Zambia. The foreign creditors had joined a formal queue of foreign currency debts administered by the Bank of Zambia. They were waiting for the availability of sufficient foreign currency before they could be paid. The queue was the "pipeline." Under a system introduced in 1984 the Bank of Zambia permitted a foreign creditor to accept payment of its debt by the debtor depositing with the Bank of Zambia an equivalent amount of kwacha for investment in Zambia. The deposited kwacha were treated as a new foreign authorised investment in Zambia for exchange control purposes. An informal market developed in "pipeline dismantling transactions." A person proposing to invest in an approved project in Zambia could buy, at a discount, pipeline debts from the foreign creditors and then agree with the Bank to write them off. In exchange for the kwacha originally deposited by the debtors the investor was allowed to invest the kwacha in the approved project. The investment was made on the basis that it gave rise to a foreign currency debt, which could actually be repaid in foreign currency earned by the project, if it was successful. Top-up payments could also be negotiated on an individual basis. A more formal scheme for top up payments was officially introduced in May 1987.
23. In the summer of 1986 two $US debts owing to foreign companies (IBM and Energo-Invest) waiting in the pipeline were purchased by Lasco. K10.8m originally deposited by the debtors with the Bank were released to GVDC for an outlay by Lasco of US$ 1.04m, of which $540,000 came from Mr Koshy and $500,000 from HZL. The kwacha released were the kwacha equivalent of the face value of the $US at that time. GVDC acknowledged a debt of $US 1.5m to Lasco. That was the nominal value of the kwacha at the exchange rate prevailing at that time. (Throughout 1986 the kwacha continued to depreciate). The pipeline loan transactions, which were formalised in the Loan Agreement dated 1 June 1987 signed by Mr Koshy on behalf of GVDC, were informally approved by the members, or prospective members, of GVDC, but they were never considered by, or resolved upon by, the board of GVDC.
24. As a result of Mr Koshy negotiating and agreeing a substantial "top up " payment of kwacha (K45m) for investment in GVDC from the Bank of Zambia in respect of the IBM pipeline debt on 12 December 1986, Lasco stood to make a massive profit out of the pipeline loan transactions. A total estimated profit of $US 4.8m on the same initial outlay by Lasco of $US 1m arose from the acknowledgement by GVDC to Lasco of the total debt of $US 5.8m in respect of all the kwacha received.
25. GVDC claimed that, in dishonest breach of his fiduciary duties to GVDC, Mr Koshy made a deliberate decision not to disclose to the board of GVDC, or to the members of GVDC, the cost to Lasco of providing the advances of kwacha to GVDC, or the extent of its profit, or his 2/3rd interest in Lasco (estimated to make for him a profit of US$ 3.2m ). The board of GVDC never considered, deliberated on, or passed any resolution in respect of, any of the pipeline loan transactions. Mr Koshy never even sought the authority or approval of the board of GVDC for the transactions; though the judge held that the board had impliedly acquiesced in them at three meetings in 1987, in particular at a meeting on 25 May 1987 when they were presented by Mr Koshy as part of his finance report. It was described by the judge as a "fait virtually accompli".
26. It was alleged by GVDC that Mr Koshy had breached his fiduciary duties by procuring GVDC to enter into the pipeline loan transactions for his own purposes, knowing that they were not in the best interests of GVDC. Their effect was that Mr Koshy and Lasco could treat GVDC as liable to pay $US 5.8m on demand. Mr Koshy later procured GVDC to repay to Lasco substantial sums in respect of that purported debt. It was claimed that an award of equitable compensation should be made to restore GVDC to the position it was in prior to the pipeline loan transactions.
27. The original Loan Agreement dated June 1987 was subsequently cancelled. It was replaced in 1988 by a different agreement, which treated the investment by Lasco in GVDC as an interest bearing loan of $US 3.8m, plus the purchase of $US 2m equity in GVDC with a nominal value of K19.6m. That agreement was, so the judge held, impliedly authorised by the board of GVDC.
28. The validity of the pipeline loan transactions and the repayments was challenged by GVDC in these proceedings. Mr Koshy's position was that they were valid. At most they were voidable and they had never been avoided. It was now impossible to avoid them. The result was that monies passing under them by way of loan repayments by GVDC to Lasco became the property of Lasco. They could not be recovered by GVDC as its beneficial property.
29. GVDC's position was that the pipeline loan transactions were not binding on it. They were wholly without effect. The judge found that it was a dishonest breach of fiduciary duty for Mr Koshy to procure GVDC to enter into them, without making disclosure of his interest in the pipeline loan transactions.
30. Rimer J found that the net effect of the GVDC/Lasco transactions in the period 1987-1989 was that GVDC paid $US 2.075m towards the Lasco loan. That was in part repayment of the "debt" of US$ 5.8m. The repayments were made in the following way. GVDC held its foreign currency bank account at Grindlay's Bank in London. It received foreign currency income in that account, which was controlled by Lasco under the Management Agreement. The instructions were given by Mr Koshy. Lasco maintained an account at the same bank. GVDC also maintained a loan account and a current account with Lasco. It maintained a second loan account with Lasco for dealings with the Lasco/GVDC loans. Payments were made out of GVDC's foreign currency account at Grindlay's Bank to the Lasco account there. Out of those sums various payments were made, such as Lasco's management fees and repayments of the Lasco/ GVDC loan. Payments were also made by Lasco on behalf of GVDC. They were debited to GVDC's current account with Lasco. There was a credit balance on that account, which was transferred in 1988 by Lasco to the Lasco/GVDC loan account in part repayment of the loan. By a similar process a further repayment in reduction of the loan was made in 1989.
31. The bases of GVDC's case against Mr Koshy for an account of profits or for equitable compensation were that he had acted (a) in breach of the "no-profit rule" binding on him as a director of GVDC and (b) in dishonest breach of his fiduciary duties as a director of GVDC. He had done so in respect of the pipeline loan transactions by procuring GVDC to enter into them for his own purposes and in his own interests and those of Lasco in preference to the interests of GVDC. As part of his plan to benefit himself, he acted in breach of his duty to make full disclosure to the other directors of GVDC, and to the shareholders, of the existence and extent of Lasco's interest, or of his personal interest, in the transactions. He thereby made for himself an unauthorised profit out of the pipeline loan transactions. He had an expectation of 2/3rd of the prospective profit of $US 4.8m made by Lasco (US$ 3.2m). He had also procured GVDC's money to be paid to Lasco under agreements which were wholly without effect, so that the beneficial property in the repayments did not pass to Lasco.
32. Mr Koshy responded that the pipeline loan transactions with Lasco were impliedly authorised by the board of GVDC. They were specifically approved by DEG. They represented fair exchange, so far as GVDC was concerned. The other members of the board knew of the involvement of Lasco and that it would make a profit. The profit was authorised. No breaches of duty had been committed. Mr Koshy repeated his contention that the agreements with Lasco were at most voidable by GVDC. They had never been avoided. They could not now be avoided. The result was that GVDC's money paid under them became the beneficial property of Lasco. He was not liable to account for it to GVDC.
34. The appeals are against the orders made on 12 December 2001. As indicated earlier, each side was dissatisfied with the orders: Mr Koshy appealed against the account of profits and the order that he should pay 80% of the costs of the action; GVDC appealed against the limit on the scope of the account of profits, which confined it to moneys traceable to payments by GVDC to Lasco. GVDC also appealed against the refusal to award, or to direct an inquiry to assess, equitable compensation for loss caused by dishonest breaches of fiduciary duty.
35. Permissions to appeal were required. On 12 December 2001 Rimer J granted Mr Koshy permission to appeal against the order for an account. He also granted GVDC permission to appeal against (a) his decision to limit the scope of the account and (b) his dismissal of its claims for equitable compensation.
36. Rimer J refused permission to DEG to appeal from his order in the DEG action. A renewed application for permission was heard by the Court of Appeal on 11 March 2002 along with (a) an application for permission to adduce further evidence and (b) an application by Mr Koshy to appeal against that part of the judge's order which limited to 50% the proportion of costs to be paid to him by DEG. DEG was granted limited permission to appeal on a point under s 32 of the 1980 Act (No 0094). Mr Koshy's application (No 0091) was adjourned to be heard with the pending substantive appeal.
37. On 11 March 2002 the Court of Appeal granted permission to Mr Koshy to appeal (No 2661) against the costs order made by Harman J in the DEG action on 20 March 1998, when he dismissed the application by Mr Koshy and by Lasco to discharge the freezing order of 20 November 1996 for material non-disclosure. In the light of the discharge of that freezing order by Rimer J on 12 December 2001 and the grant of liberty to apply for an inquiry as to damages on the cross undertaking, Mr Koshy sought to re-open the costs order against him on the basis of what was said by Rimer J in his judgment (paragraphs 78 and 236). He submitted that the freezing order appeared to have been granted on a false basis of fact which, he contended, was known to DEG at the time. Had the true position been disclosed by DEG when the freezing order was made in November 1996, or when the discharge application was made in March 1997, Harman J would not have made the order for costs that he did on 20 March 1998.
38. Mr Koshy was also granted permission by the Court of Appeal on 11 March 2002 to appeal (No 0091) against Rimer J's order in the GVDC action that he should pay 80% of GVDC's costs. Mr Koshy contended that the costs of the action for the account of profits ought to have been reserved until after the account had been taken. Costs ought not to have been awarded against him until the making of an actual profit had been proved and Mr Koshy's liability to GVDC thereby established. It might turn out, he said, that, on the taking of the account, nothing was in fact due from him. GVDC responded that liability to an account of profits did not depend on a finding that Mr Koshy had made an actual profit. His liability as an accounting party arose from his dishonest breaches of fiduciary duty owed to GVDC or simply from his fiduciary position as a director of GVDC, which disabled him in equity from retaining a profit. Permission to appeal that part of the order had been refused by Rimer J on 18 December 2001.
39. For the sake of convenience, and in view of the complications of the overall litigation, all outstanding arguments and decisions on costs, whether they concern appeals, or applications for permission to appeal, from costs orders made below, or the costs of the applications made to this court, or the costs of these appeals, will be dealt with at a separate hearing. This should give the parties and their advisers time to consider their respective positions in the light of this judgment.
40. The progress of the appeal hearings has been seriously disrupted and delayed. The time estimate of 3 days was over-optimistic for appeals on fact and law, which both sides intended to argue in the degree of detail evident from the skeleton arguments. A list of over 20 issues was placed before the court, along with almost as many lever arch files of trial documents, transcripts and authorities. There were multiple grounds of appeal from an 89 page judgment handed down after a two month trial. After an initial 3� day hearing between 16 and 19 July 2002 the appeal had to be adjourned part heard. The Long Vacation intervened. The constitution of the court changed in the new term. As is so often the case with part heard appeals, there were real difficulties in finding dates for the adjourned hearing, which were convenient to counsel and for which the same constitution of the court would be available. The adjourned hearing eventually took place on 12 and 13 December 2002, just before the Christmas Vacation. Even then two days were hardly sufficient to cover comfortably all the elaborate written and oral arguments, which each side wished to advance. After the oral hearing was over, further written submissions were made by each side, with the permission of the court, in January 2003.
41. We all know that it is sometimes difficult to make reliable time estimates. Different cases and different courts move at different speeds. The amount of time available for pre-reading, which should accelerate the pace of the oral hearing, varies according the amount to be read and to other commitments of the members of the court at the critical time. We would, however, repeat the perennial plea for reliable time estimates, if necessary in consultation with the appropriate supervising Lord Justice. Over-estimates are easier for the court to cope with than under-estimates, which often lead to adjournments. Fragmented hearings of the kind which have occurred in this case are seriously disruptive of the presentation of arguments, of the efficient dispatch of the court's business, of the preparation of the judgments and of the overall service which the court aims to provide to the parties.
42. In the long interval between the two hearings counsel (Mr Hugo Page QC for Mr Koshy and Mr Andrew Thompson for GVDC and DEG) helpfully responded to the court's request that each side should produce a single composite skeleton argument, consolidating, restructuring and replacing the confusing collection of different documents making separate submissions on different, but overlapping, aspects of the appeals and applications. Lists of issues and chronologies were gratefully received. Even so, the legal arguments on troublesome areas of the law remained dense and complicated. The preparation of this judgment has not been helped by a major technological failure, which occurred when it was close to completion. In all these circumstances it has unfortunately taken considerably longer than is usual to hand down judgment.
(1) Under the "no profit rule" i.e. the rule of equity that a company director may not make an unauthorised (secret) profit from his fiduciary position (see paragraphs 249 and 291-294 of the judgment). The rule stems from the general principle that a director, like the trustee of a trust, must avoid conflicts of duty and interest when discharging the fiduciary duties undertaken by him in the management of property beneficially belonging to the company (GVDC in this case) and in pursuing his personal interests. Liability to account could arise under this rule, even if Mr Koshy did not commit any breach of fiduciary duty, dishonest or otherwise, or misapply any of GVDC's assets, or cause GVDC any loss.
(2) Dishonest breaches of fiduciary duty i.e. dishonestly using his position as managing director of GVDC to procure, in his own interests rather than in the interests of the company, GVDC to enter into the pipeline loan transactions, while deliberately not disclosing to the other directors and to the shareholders of GVDC his controlling interest in Lasco and the scale of Lasco's, and his, intended profit from the transactions (see paragraphs 268-269 and 272-273 and the supplemental judgments of 12 December 2001), The judge found that the non-disclosure was deliberate, that it was part of Mr Koshy's dishonest scheme to benefit himself and that it involved the misapplication of GVDC's assets.
... the inflexible rule that, except under the authority of a provision in the articles of association, no director shall obtain for himself a profit by means of a transaction in which he is concerned on behalf of the company unless all the material facts are disclosed to the shareholders and by resolution a general meeting approves of his doing so or all the shareholders acquiesce. An undisclosed profit which a director so derives from the execution of his fiduciary duties belongs in equity to the company. It is no answer to the application of the rule that the profit is of a kind which the company itself could not have obtained, or that no loss is caused to the company by the gain of the director. It is a principle resting upon the impossibility of allowing the conflict of duty and interest which is involved in the pursuit of private advantage in the course of dealing in a fiduciary capacity with the affairs of the company. If, when it is his duty to safeguard and further the interests of the company, he uses the occasion as a means of profit to himself, he raises an opposition between the duty he has undertaken and his own self interest, beyond which it is neither wise nor practicable for the law to look for a criterion of liability. The consequences of such a conflict are not discoverable. Both justice and policy are against their investigation.
The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well intentioned, cannot escape the risk of being called upon to account.
(1) Article 89 exemption It was submitted that (a) Mr Koshy was expressly exempted by Article 89 of the Articles of Association of GVDC from the strict duty to account to the company for the profits made from the pipeline loan transactions, even if he had made no disclosure to the board of his personal interest in the transactions or of his profits; and that (b) the disclosure in fact made by him was sufficient for that purpose and under the general law.
(2) Implied modification of the rule It was submitted that the "no profit rule" was, in the particular circumstances of this case, impliedly abrogated in relation to GVDC.
(A) A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest at a meeting of the Directors.
(B) Subject to disclosure under the provisions of paragraph (A) of this Article, a Director shall be entitled to vote in respect of any contract or arrangement in which he is interested and he shall be taken into account in ascertaining whether a quorum is present.
(A) A director may hold any other office or place or profit under the Company (other than Auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or otherwise nor shall any such contract or any contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relation thereby established.
50. On behalf of Mr Koshy, Mr Page QC contended that, on the true construction of Article 89, Mr Koshy was under no duty to account to GVDC for the profits made by him from the pipeline loan transactions. He relied both on the very wide language of Article 89, placing emphasis on the expressions "or otherwise" and "or any contract" and on the special circumstance that GVDC was used as a vehicle for a joint venture by the investors. It was not a normal company. It was never intended to have an independent board. It was a joint venture vehicle intended to generate a range of profits for all of the investing shareholders (i.e. DEG and Hoechst, as well as Lasco). They would not want the directors representing them on the board to be under any duty to account for non-disclosure of profits made from transactions with GVDC. It was intended to relax the strict doctrine of equity as to profits made by directors from their position.
51. We are unable to accept this submission. It is necessary to read Article 89 in its proper context and, in particular, in conjunction with Article 88, which requires a formal declaration of interest to be made by a director at a meeting of the board of the company. The profits intended to be made by the investing shareholders are beside the point. This case concerns unauthorised profits made by a director of GVDC. Further, the relaxation in Article 89 of the strict doctrines of equity against unauthorised self-dealing and secret profits, applicable to directors as fiduciaries, is made on the basis of compliance with the director's duty of disclosure under Article 88, even though not expressed to be conditional on it.
52. In Movitex v. Bulfield  BCLC 104, where the relevant Articles were in similar form (see p.112h-113d), Vinelott J treated the general exclusion of the self-dealing rule in the Articles as subject to the duty of the director to declare his interest in a transaction to be entered into by the company. The self-dealing rule was not excluded by the Articles, if the director's interest was not disclosed in accordance with the Articles: see p114e-g.
53. We also note that Articles 88 and 89 are similar to the provisions in Regulation 84 of Table A in the Companies Act 1948 (now the Companies Act 1985 Table A, articles 85 and 86 and 94-97). Regulation 84 is treated in the leading company law text books as requiring full disclosure of an interest by a director to the board for the operation of an exclusion of his liability to account for profits made from transactions with the company: see Buckley on the Companies Acts (15th Ed) at para T [A85.1] and Gower's Principles of Modern Company Law (6th Ed) at p. 613.
54. GVDC advanced, without objection from Mr Page, a new point on the construction of the Articles. Mr Thompson (for GVDC) submitted that there is a distinction between, on the one hand, a mere breach of the self-dealing rule and of the "no profit" rule, as discussed in Tito v. Wadell  1 Ch 107 at 248-251, and, on the other hand, an actual breach of fiduciary duty, especially one involving bad faith on the part of the fiduciary. We will consider this distinction in more detail in the later discussion on limitation. We are inclined to the view that the language of Article 89 is, subject to compliance with its terms, more apt to exclude liability for a mere breach of the self-dealing rule than liability for breaches of fiduciary duty, involving breach of the duty of loyalty by acting deliberately in his own interests rather than in the interests of the company, or by acting in bad faith.
55. Mr Koshy's second ground of appeal under this head also emphasised the special joint venture character of GVDC. It was submitted that none of the members of the board of GVDC would expect other members of the board to disclose their principal's profits from transactions with GVDC. The board was made up of representatives of the investors. They would protect the interests of the shareholders, who appointed them, rather than the interests of the shareholders generally. It was not intended to be an independent board. The directors did not owe fiduciary obligations to GVDC in respect of transactions between the principals they represented and GVDC. In particular, it was argued that the directors of GVDC were well aware that Mr Koshy had a conflict of interest and was making a personal profit. It was to be implied from all the circumstances that the fiduciary's duty of disclosure of interests in relation to transactions with the company was excluded.
56. This argument should be rejected. It has no valid factual or legal basis. The Articles constituted an express contract between the members of GVDC. The Articles contained express provisions for the relaxation of the strict duties of the directors in equity. There was no evidence of any other express agreement modifying the fiduciary duties owed to GVDC by its directors. It is not possible to imply from the surrounding circumstances any additional or different agreement modifying the scope of the fiduciary duties owed by the directors to GVDC as a joint venture company. Kelly v. Cooper  AC 205 at 214B-215F, which was cited by Mr Page, was a different case. The court there was able to imply into an express contract of agency a term entitling an estate agent to act for numerous other competing principals selling similar properties and to keep confidential information received from each principal. It was known to the principal that the estate agent would be so acting in the course of its business. The effect of the implied term was to modify the normally strict fiduciary duties owed by an agent to the principal not to put himself into a position where his duty and interest conflicted, not to profit from his position (for example, by earning commissions from selling properties for rival principals) and to make disclosure of confidential information to the principal.
57. Rimer J held that Mr Koshy had not made sufficient disclosure to the board of GVDC, either under the Articles of Association or under the general law. Mr Koshy challenged the judge's conclusions on each point.
58. Rimer J found as a fact that Mr Koshy had never made formal disclosure of the nature of his interest in the pipeline loan transactions to a board meeting of GVDC. Although the judge held that the pipeline loan transactions with Lasco were entered into with the knowledge and implied approval of the GVDC board, he found as a fact that the board had not passed any resolution at a meeting specifically authorising the transactions. Those findings of fact, which are not challenged on the appeal, are important in the context of the strict approach taken by the courts to disclosure requirements, such as are to be found in the Articles of GVDC and in s 317 of the Companies Act 1985.
59. Article 88 required Mr Koshy to declare the nature of his interest in the transactions "at a meeting of the Directors". He did not do that. Informal disclosure made piecemeal or proof of the knowledge of individual board members does not comply with the formal requirements of Article 88, which would involve an opportunity for consideration of the matter by the board as a body. See Guinness v. Saunders  1 WLR 863 at 868D-H for the Court of Appeal's strict interpretation of the similar requirements in s 317, which was unaffected by the decision of the House of Lords on appeal. See also Neptune v. Fitzgerald  1 BCLC 352 at 358h-360c. The passages in Movietex v. Bulfield (supra) at pp 114e-f and 121c-g cited by Mr Page are not authority for the proposition that informal disclosure, or knowledge informally acquired, is sufficient to satisfy the formal disclosure requirements in the Articles.
60. As to the other directors' knowledge of Mr Koshy's interest, Rimer J held that Mr Koshy kept secret his beneficial interest in Lasco and in the profits which were made. He found that he had lied about his interest to Mr Klingler, then project manager of DEG, though not a director of GVDC. He found that certain of the GVDC board may have known that he had some sort of interest in Lasco.
61. Mr Page submitted that the other directors of GVDC were aware that Mr Koshy was interested in Lasco and that the judge's finding that he had kept his beneficial interest a secret was contrary to the evidence. He referred to parts of the evidence and submitted that all of the other directors had been told of Mr Koshy's interest in Lasco prior to the board meeting in May 1987. In June 1986 DEG had been informed that it was intended that Mr Koshy would take a 2/3rd shareholding in Lasco. Mr Page relied particularly on a memorandum prepared by GVDC's bankers, Grindlays, for prospective investors. Mr Koshy was partly responsible for its contents. Dr Polzer had seen the Grindlays Memorandum and had probably discussed it with Mr Koshy. Dr Polzer had also been given a document by Mr Milton in January 1987 stating that "T Koshy and Associates" had provided cash for the pipeline transactions in mid-1986.
62. Another director of GVDC, Mr Weatherford, had agreed with Mr Koshy the nature and extent of Mr Koshy's personal interest in Lasco in 1986. Mr Halevi was aware of Mr Koshy's exact interest in Lasco from 1986. Rimer J found that Mr Mantanyani, a director who died before the proceedings started, probably had a fair idea of the amount of the potential profit. Mr de Winter was aware that Mr Koshy was to become a shareholder in Lasco and of the amount of the potential profit.
63. In our judgment, the evidence of the knowledge of Mr Koshy's interest, informally and individually acquired piecemeal by other directors of GVDC, does not assist Mr Koshy in overcoming his fundamental difficulty that, in order to satisfy the requirement of disclosure under the Articles, he must demonstrate formal disclosure of his interest to the GVDC board. That never took place. The above matters raised by Mr Page are more directly relevant to the allegation of dishonesty and we shall return to them later in this judgment.
64. Rimer J held that Mr Koshy failed to make sufficient disclosure in order to avoid liability to account under the general law for breach of fiduciary duty, as distinct from being exempted from the duty to account by making formal disclosure of his interest under the Articles.
65. The requirement of the general law is that, although disclosure does not have to be made formally to the board, a company director must make full disclosure to all the shareholders of all the material facts. The shareholders in the company, to which he owes the fiduciary duty not to make an unauthorised profit from his position, must approve of, or acquiesce in, his profit. Disclosure requirements are not confined to the nature of the director's interest: they extend to disclosure of its extent, including the source and scale of the profit made from his position, so as to ensure that the shareholders are "fully informed of the real state of things," as Lord Radcliffe said in Gray v. New Augarita Porcupine Mines  3 DLR 1 at 14.
66. Rimer J held that Mr Koshy, on whom the onus of proving full disclosure to shareholders lay, fell short of the requirements of the general law. He failed to show that all of the other directors and shareholders were aware of his intended personal interest in Lasco. Further, he did not disclose to them the source and scale of his intended profit, in particular the nature, existence and scale of the very substantial profit from the top-up payment in December 1986.
67. Mr Page submitted that Rimer J ought to have found that Mr Koshy had made sufficient disclosure to the directors and/or shareholders of GVDC and that they had acquiesced. He contended that the judge wrongly concluded that it was necessary for Mr Koshy to disclose the cost to Lasco of acquiring the kwacha by the pipeline dismantling process. It was not material for GVDC to know the cost. He repeated the contentions already noted as to the knowledge of the other directors by May 1997 about Mr Koshy's interest in Lasco.
68. In our judgment, Rimer J was entitled to conclude on the evidence that Mr Koshy had not proved that he made full disclosure to all the shareholders in GVDC of all the material facts relating to his interest in Lasco and in the pipeline loan transactions.
69. Mr Koshy challenged the evidential basis for the judge's findings of fact under the second head of liability to account for profits made from dishonest breaches of fiduciary duty in relation to the pipeline loan transactions.
70. Rimer J found that Mr Koshy had pursued a fraudulent scheme of deliberate concealment from GVDC in early 1987 of his intended interest in Lasco and of the cost of the kwacha to Lasco. The non-disclosure of his profits from the pipeline loan transactions was, he found, deliberate and dishonest. That was a grave finding of fact. It is particularly relevant to Mr Koshy's limitation defences to an account of profits. Accordingly, we will consider it in more detail, having discussed the law relating to that aspect of the case.
71. Is GVDC's action against Mr Koshy for an account of profits time-barred? This seemingly straightforward question has led the parties to a prolonged and intricate analysis of the provisions of section 21 of the Limitation Act 1980, which contains special rules for "actions in respect of trust property". The question was answered in the negative by Rimer J, although not entirely to the satisfaction of GVDC, as the account of profits ordered was more limited in scope than the account sought by GVDC.
72. The current limitation rules have been described by the Law Commission as "unfair, complex, uncertain and outdated" (Limitation of Actions Law Com No 270 (2001) para 1.5). The Commission proposes the substitution of a "core regime" for most categories of claim. The core regime would, in summary, involve two elements: a limit of three years from the date of knowledge of the facts giving rise to the claim; and a "long-stop" limit of ten years from the date when the cause of action accrued (see Law Commission, draft Bill, cl 1-3). The Commission concluded that the same core regime should apply to actions within the scope of section 21 of the 1980 Act, even where fraud was involved (paras 4.94-101). Although the Government has in principle accepted the Commission's recommendations, there is as yet no indication when Parliamentary time will be available to implement them.
73. Any such reforms cannot, of course, affect the resolution of this case, which must turn on the application of the 1980 Act. However, the prospect of legislative reform does not remove our duty to approach the task of interpretation in a constructive way. We should start from the assumption that the draftsman's aim was to achieve clarity and coherence, rather than complexity and confusion.
A claim for breach of trust is a claim in equity, and the application of the law of limitation to claims in equity is extremely complex. Limitation at common law is simply a question of statute: the claim is either caught by the relevant limitation period or it is not. Equity, by contrast, has both a judge-made system of limitation rules, known as "laches", and a statutorily-based set of rules. And to make the matter worse, these statutory rules apply either directly, i.e. where express provision is made in the statute for their application to an equitable claim, or "by analogy", i.e. where no express mention of the equitable claim appears but is treated by the courts as analogous to one barred by the statute at common law.
(i) Is this an action to which there is an express statutory time limit on the bringing of claims?
(ii) If not, is this an action to which a court will apply a statutory time limit by analogy?
(iii) If not, is this an action nevertheless barred by the doctrine of laches?
76. With respect to his illuminating analysis, we think it is unduly pessimistic, and gives too little credit to the much-needed light thrown on this area of the law by recent decisions in this court. As we hope to explain, these judgments, properly understood, show the way to a simple and logical interpretation of section 21, and to a narrow view of the issue in this case.
An action for an account shall not be brought after the expiration of any time limit under this Act which is applicable to the claim which is the basis of the duty to account.
The next step, therefore, is to identify the claim which was "the basis of" the duty to account in this case, and to determine what time limit (if any) was applicable to it.
(3) Subject to the preceding provisions of this section, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a limitation period is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued.
By section 38(1) (applying Trustee Act 1925 s 68) the words "trust" and "trustee" are defined as extending to "implied and constructive trust."
the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.
References in this subsection to the defendant include references to the defendant's agent and to any person through whom the defendant claims and his agent.
shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any such time limit may be applied by the court by analogy in like manner as the corresponding time limit under any enactment repealed by the Limitation Act 1939 was applied before 1st July 1940.
(2) Nothing in this Act shall affect any equitable jurisdiction to refuse relief on the ground of acquiescence or otherwise.
For where the remedy in Equity is correspondent to the remedy at Law, and the latter is subject to a limit in point of time by the statute of limitations a Court of Equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation ... But if any proceedings in Equity be included within the words of the statute, there a Court of Equity, like a Court of Law, acts in obedience to the statute.
82. In this case, as will be seen, we consider that the same result can be achieved either (a) by direct application of section 21 of the 1980 Act by treating the director as a constructive trustee and therefore as being a "trustee" within section 21, against whom claims are made by the "beneficiary" (the company) for "breach of trust" (breach of fiduciary duty) and by treating the profit in question as being "trust property" for which he is liable to account to the company; or (b) by applying by analogy the statutory limitation periods prescribed for actions by beneficiaries for breach of trust and for recovery of trust property to claims by a company against a director for making an unauthorised profit in breach of fiduciary duty.
83. The trustee-like nature of directors' duties has always been recognised as very relevant to the statutory limitation periods for actions by beneficiaries against express trustees for breach of trust and for the recovery of trust property, whether those periods are applied directly or by analogy: Re Lands Allotment Company  1 Ch 616 at 631-632, 638-639 and 643 (a case of a company director being treated as a trustee within the limitation provisions of ss1(3) and 8(1) of the Trustee Act 1888 in respect of a claim that unauthorised investments had caused loss to the company); Re Sharpe  1 Ch 154 at 166-167 (misapplication of company money in the form of ultra vires payments of interest to shareholders treated as breach of trust by the directors); Bairstow v. Queen's Moat Houses  2 BCLC 531 at 548c-549f paragraphs 49-54 (accountability of directors for unlawfully paid dividend); and JJ Harrison v. Harrison  BCLC 162 at 173 (insufficient disclosure by director on purchase of property from the company).
84. Three recent cases have clarified the effect of those provisions of the 1980 Act generally and, in particular, their impact on claims for equitable relief for breach of fiduciary duty, either for an account of profits or for equitable compensation. Claims for breach of fiduciary duty are on the increase, both on their own and as additions to claims for breach of contract and tort. Such claims may be the subject of equitable relief, such as an account in equity or equitable compensation; but, unlike actions for breach of trust and for the recovery of trust property and actions for tort and contract, they are not expressly mentioned as such in the 1980 Act. In those circumstances the authorities have discussed the extent to which breaches of fiduciary duty are treated in the same way as actions for breach of trust and are subject to the same limitation periods, either by direct application of the statute or by analogous application of the statutory provisions.
The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff.
87. Millett LJ went on to explain that in the first class of case the constructive trustee "really is a trustee". He does not receive the trust property in his own right. He receives it by a transaction, by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff.
88. In the case of the second class of constructive trust the defendant was not in fact a trustee at all. He never assumed the duties of a trustee; but, because of his implication in a fraud, he is held liable to account. He is liable to account as if he were a trustee in respect of property, which he has received adversely to the claimant by an unlawful transaction impugned by the claimant. The constructive trust is the response of equity in supplying a remedial formula for dealing with the consequences of fraud. It is different from the response of equity to the consequences of a breach of a pre-existing trust obligation. It is used to prevent the legal owner of property, which he has received in his own right, from asserting a beneficial interest in it.
90. For limitation purposes the two classes of trust and/or fiduciary duty are treated differently. The first class of case arising from the breach of a pre-existing duty is, or is treated by analogy as, an action by a beneficiary for breach of trust falling within section 21(1) of the 1980 Act. This means that there is no limitation period for the cases falling within section 21(1)(a) or (b)); but that there is a six year limitation period for cases falling within s 21(3).
91. In the second class of case s 21 would not apply, but a limitation defence to a claim might be available by analogy with common law claims, such as tort (for example, deceit) or breach of contract, even though the liability is exclusively equitable, as may be the case with breaches of fiduciary duty in the absence of a contract.
The expressions 'trust property' and 'retained by the trustee' properly apply, not to a case where a person having taken possession of the property on his own behalf is liable to be declared a trustee by the Court; but rather to a case where he originally took possession upon trust or on behalf of others. In other words they refer to cases where a trust arose before the occurrence of the transaction.
... it was there laid down that there is a distinction between a trust which arises before the occurrence of the transaction impeached and cases which arises only by reason of that transaction.
95. Cia De Seguros Imperio v. Heath (REBX) Ltd  1 WLR 112 was concerned with the application of limitation periods by analogy to a case of breach of fiduciary duty. The Court of Appeal held that a six year limitation period should be applied by analogy to a claim for equitable compensation for dishonest breach of fiduciary duty by an underwriter. Claims against the underwriter in contract and tort based on the same facts were statute barred under sections 2 and 5 of the 1980 Act. More than six years had expired since the accrual of the cause of action. It was held the analogy of the six year time limit for claims in contract and tort would have been applied by a court of equity before 1 July 1940 to the claim for breach of fiduciary duty. The statutory technique used by s 36(1) to achieve that result was criticised as tortuous, but it maps out the correct route until amended by legislation.
... it is fundamentally to misunderstand the judgment of Millett LJ to suggest that he would have approved the view that a claim for damages brought against a fiduciary, even alleging a dishonest breach of that duty, would be free from limitation altogether.
... (i) that a company incorporated under the Companies Acts is not trustee of its own property; it is both legal and beneficial owner of that property; (ii) that the property of a company so incorporated cannot lawfully be disposed of other than in accordance with the provisions of its memorandum and articles of association; (iii) that the powers to dispose of the company's property, conferred upon the directors by the articles of association, must be exercised by the directors for the purposes, and in the interests of, the company; and (iv) that, in that sense, the directors owe fiduciary duties to the company in relation to those powers and a breach of those duties is treated as a breach of trust.
99. Applying the distinction drawn by Millett LJ in Paragon, Chadwick LJ held that a director who obtained the company's property for himself by the misuse of the powers, with which he had been entrusted as director, was a constructive trustee within Millett LJ's first class of constructive trust (paragraph 29).
100. As for limitation, Chadwick LJ held that Mr Harrison was prevented by section 21(1) (b) of the 1980 Act from raising such a defence. The claim against him was for taking a transfer of the company's property to himself in the context of an abuse of trust and confidence reposed in him as a director. He was to be treated as a trustee falling within the first class of case in Paragon. For the purposes of section 21(1)(b) the "beneficiary" was the company, "the trustee" was the director and "the trust property" was the property transferred from the company to the director. The defence of laches was also rejected. As the defendant director had already sold the property in question, the proper remedy was for an account of the value of the property and all other profits.
Thus, the defendant in that case, although in a pre-existing fiduciary relationship with the company, was not himself the custodian of its property. This did not help Mr Harrison, who, as a director, had been directly responsible for the terms of its sale.
103. It is convenient at this point to dispose of two issues which were discussed in argument, but which in our view are of no assistance.
104. The first concerns the claim based simply on breach of the "no profit" rule, without more. Under the classification expounded by Sir Robert Megarry V.-C in Tito v. Waddell  1 Ch 107 at 248-251 the liability to account for profits on breach of the self-dealing rule and the fair-dealing rule does not arise from a breach of duty at all. In his judgment such liability is the consequence of an equitable disability rather than of a breach of duty, such as a breach of trust by a trustee or, it appears, a breach of an analogous duty, such as the fiduciary obligations of a company director to his company. The claim for an account of profits is a claim for unjust enrichment, which may succeed, even in the absence of the commission of any wrong, such as a breach of trust or of fiduciary duty or the misuse or misapplication of any of the assets of the beneficiary of the duty.
106. The result of that classification was that, on the facts of Tito v. Waddell, the breach of the self-dealing and fair-dealing rules were not subject to the six year limitation period laid down by section 19(2) of the Limitation Act 1939. That was the predecessor of section 21(3) of the 1980 Act. If the classification in Tito v. Waddell is applied, GVDC's claim for an account of profits against Mr Koshy is not barred by section 21(3) or by any other period of limitation prescribed by the 1980 Act. The Act simply does not apply.
107. However, before us the Tito v. Waddell approach was not supported by GVDC on the appeal. Indeed, it was submitted that an unsound distinction was drawn in that case between being afflicted with a disability from making a profit and a breach of a core fiduciary duty of loyalty, of which the duty not to make an unauthorised profit was an aspect. Their differing treatments for limitation purposes could not be justified. There was no reason for treating the "no profit" rule as falling outside a statutory scheme, which draws a distinction between, on the one hand, the treatment in s 21(1) of dishonest breaches of duty and proprietary claims, which are not subject to a limitation period, and, on the other hand, the treatment of other breaches of trust under s 21(3), which are subject to a six year period.
108. With respect to Sir Robert Megarry, but in the light of the subsequent authorities to which we have referred, we agree with GVDC in not seeking to uphold this distinction. We note that in Harrison, Chadwick LJ commented on the issue, but reached no conclusion (p 176g). In our view, however, such a distinction is an unnecessary complication, and is inconsistent with Millett LJ's exposition of the nature of fiduciary duties, to which we have referred. Whether viewed as duties or disabilities, all such incidents are aspects of the fiduciary's primary obligation of loyalty. Contrary to the Vice-Chancellor's concern, this does not lead to any anomalous distinction between trustees and others subject to the fair-dealing rule. They are all subject, directly or by analogy, to section 21. On the contrary, the Tito v. Waddell distinction would itself lead to anomaly. Across the wide spectrum of conduct which may give rise to fiduciary liability, the six year limitation would apply except at the two extremes. At one end, fraud would be excepted by section 21(1)(a); at the other, innocent breach of the no-profit rule would be excepted because it relates to a disability rather than a duty. The former exception is defensible in legal policy terms; the latter is not.
109. We should note that, in one of the twists which has characterised this case, Mr Page (for Mr Koshy) has sought to uphold the Tito v. Waddell distinction, but with the same result. He submits that a claim for simple breach of the no-profit rule is outside the scope of section 21, but that a 6-year limitation period should still apply. This would be by analogy with a claim for restitution or unjust enrichment, to which, he says, the time-limit for a contract (1980 Act s 5) is applied (also by analogy � see Goff & Jones, Restitution 5th Ed p 847. This approach appealed to the judge, although he rejected it on the facts (para 293). In our view, however, the submission merely reinforces the view that the Tito v. Waddell distinction is a needless complication.
110. The second issue is that arising from a decision of Harman J at an earlier stage in these proceedings. He held that "any company director who makes a profit by receiving a payment from the company not expressly authorised by the company is accountable for that payment" and that a claim against him for an account simpliciter is not a claim to which the 1980 Act has any application: GVDC v. Koshy  BCLC 613 at 621-623. That particular route is no longer the correct one following the decision of the Court of Appeal in Paragon. Harman J cited Nelson v. Rye  1 WLR 1378 at 1390 in support of his conclusion. When that case was cited to the Court of Appeal in Paragon as authority for the proposition that a claim for an account in respect of a breach of fiduciary duty is outside the scope of the 1980 Act and was accordingly not subject to any period of limitation, Millett LJ, with whose judgment Pill and May LJJ agreed, held that, in so far as Nelson v. Rye decided that the defendant managing agent was liable to account without limit of time, even if the money in question was not trust money, it was wrongly decided, as well as being irrelevant to the issues in Paragon:  1 All ER 400 at 416f-g. Millett LJ emphasised the difference, for limitation purposes, between a defendant who was merely a fiduciary, such as an agent owing fiduciary duties to his principal, and a trustee owing trust or fiduciary duties in relation to the money in question. Claims of the former kind are subject to a limitation period, either expressly, as where the duty is based on contract, or by analogy with the period of six years prescribed for contract or tort. Different considerations apply to claims for breach of trust and for the recovery of trust property. On the facts in Nelson v. Rye it was doubtful whether the defendant managing agent was a trustee of the money in question, as, unlike a trustee of money, he was entitled to deal with the money as his own, paying it into his account, using it for his own benefit, deducting his commission and only accounting to the principal for the balance at the end of the year.
111. In the light of those cases, in our view, it is possible to simplify the court's task when considering the application of the 1980 Act to claims against fiduciaries. The starting assumption should be that a six year limitation period will apply � under one or other provision of the Act, applied directly or by analogy � unless it is specifically excluded by the Act or established case-law. Personal claims against fiduciaries will normally be subject to limits by analogy with claims in tort or contract (1980 Act s 2, 5; see Seguros). By contrast, claims for breach of fiduciary duty, in the special sense explained in Mothew, will normally be covered by section 21. The six-year time-limit under section 21(3), will apply, directly or by analogy, unless excluded by subsection 21(1)(a) (fraud) or (b) (Class 1 trust).
112. In the present case, it is clear that these principles were applicable to a director in Mr Koshy's position. He had "trustee-like responsibilities" in the exercise of the powers of management of the property of GVDC and in dealing with the application of its property for the purposes, and in the interests, of the company and of all its members. In our view, accordingly, the claim for an account, if it was based on a failure in the exercise of those responsibilities, was within the scope of section 21. It was in principle subject to a six-year time-limit under section 21(3). The question is whether it was excluded under either of the two statutory exceptions in section 21(1)(a) and (b).
Accordingly, the claim fell within section 21(1)(b). Mr Koshy was "liable to account for all profits he has received as a result of the GVDC/Lasco agreements."(paragraph 297).
114. At the hearing on 12 December 2001 Rimer J heard argument on the appropriate form of the account, as the parties had been unable to agree on the scope of the account to be taken in the light of his handed down judgement. On the one hand, GVDC argued for an order for an account of all profits simply following the passage quoted from his judgment above. On the other hand, Mr Koshy argued that that wide wording failed to give effect to the underlying reasoning of the judgment on the limitation point arising under s 21(1)(b). Mr Koshy was liable as a director of GVDC, occupying the position of a trustee in relation to the property of GVDC. The profits for which he should be liable to account were confined to those received by him, which could also be traced or identified as derived from payments made by GVDC to Lasco.
(b) Represented or were derived from trust property beneficially owned by GVDC or the proceeds of such trust property converted to his use.
116. As regards the wider claim for an account, the judge appears to have regarded it as statute-barred after six years either under, or by analogy with, section 21(3).
117. The question of limitation was argued very elaborately on both sides. As already indicated, the arguments proceeded through a series of alternative submissions on the express provisions of the 1980 Act, the analogies with the statutory provisions, which would have been made by a court of equity before 1 July 1940, and the equitable doctrines, such as laches. Considerable time was also spent by both sides on argument as to whether the pipeline loan transactions were valid, voidable or void, and with what consequences.
118. As there is a risk of the detail of the arguments obscuring the real issue, some preliminary observations may help to clarify the position.
(i) GVDC's causes of action against Mr Koshy were not, and did not need to be, based on either knowing receipt of trust property or on dishonest assistance in a breach of fiduciary duty, being claims usually made against third parties, and claims of the kind recently considered by the House of Lords in Twinsectra v. Yardley  2 AC 114. The claim against Mr Koshy concerned the personal liability of the fiduciary himself for breach of duty, not the third party liability of a recipient or of an accessory to a breach of trust by a trustee or to a breach of fiduciary duty by a director.
(ii) Mr Koshy's personal liability to account to GVDC for profits made by him from his fiduciary position as a director is not dependent on establishing that he has received any money or other property belonging GVDC as a result of the misapplication of GVDC's assets, whether in the form of payments made by GVDC directly to him, or in the form of payments made, via Lasco, indirectly to him. GVDC's causes of action against Mr Koshy were based on the equitable disabilities or the fiduciary duties to which he was subject as a director of GVDC. As such, he was under a personal liability in equity to account to GVDC for unauthorised profits: either because he was disabled in equity from making an unauthorised personal profit out of the position occupied by him and/or because he acted in dishonest breach of fiduciary duty by deliberately and secretly doing so. The profits made by him are treated as taken for and of behalf of GVDC, as the person to whom he owed the duty to account. As between him and GVDC, equity prevents Mr Koshy from asserting, in answer to the claim for an account, that he is entitled to retain the profits (if any) made by him for his own benefit.
(iii) Conversely, his fiduciary position as director of GVDC, and the liability which results, are quite separate from any responsibility borne by Lasco as manager of the project, or Mr Koshy as its agent. Mr Thompson presented a number of elaborate arguments, designed to establish that Mr Koshy's failings invalidated the whole of the Lasco arrangements, with the result that no money passed under them; or, alternatively, that, regardless of the non-disclosure, all payments made by Lasco from GVDC funds were misapplications for which Mr Koshy was liable. We hope that we will be forgiven for not dealing with these points in detail. In our view, they confuse and misrepresent the facts. Lasco had a valid role as manager of the project, under the Management Agreement (para 129). The GVDC current account (para 187) seems to have been a perfectly normal part of that arrangement. Mr Koshy's role as agent for Lasco was well known to the GVDC Board (para 266), and his responsibilities in that regard were distinct from those as director of GVDC. The judge made no finding that any payments made by GVDC to Lasco, or any payments made by Lasco out of the current account, were improperly made. The only thing wrong with them was Mr Koshy's failure, in his separate capacity as director of GVDC, to make full disclosure to that Board of the nature and extent of his own financial interest.
119. If that is the correct analysis, then it is clear in our view that any trust imposed on Mr Koshy is a class 2 trust, within Millett LJ's classification. We agree with the judge that liability to account for unauthorised profits may arise within a wide spectrum of factual situations. However, that does not alter the analysis under section 21(1)(a) and (b), each of which must be applied in accordance with its own terms. We disagree, respectfully, with the judge in treating dishonesty as a factor taking the case from class 2 to class 1, for the purposes of paragraph (b). Nor do we think that is the effect of the passage from Chadwick LJ's judgment in Harrison quoted by the judge (at para 294). As the judge recognised, in that case the director transferred to himself property which had previously belonged to the company, and in relation to which he had "trustee-like responsibilities" before the transaction in question. By contrast, Mr Koshy's liability to account for undisclosed profits, and any constructive trust imposed on those profits, do not depend on any pre-existing responsibility for any property of the company. They arose directly out of the transaction which gave rise to those profits, and the circumstances in which it was made. The fact that Mr Koshy was in a pre-existing fiduciary relationship with the company was not enough, by itself, to bring the case within class 1, any more than it was in Taylor v. Davies.
120. Accordingly, in our view, GVDC's case cannot be bought within section 21(1)(b). It stands or falls on section 21(1)(a), and that depends on establishing fraud. In saying this we have not ignored section 32. That depends on a finding of fraud or deliberate concealment (see section 32(1), quoted in para 79 above). In this case, the alleged fraud is the deliberate concealment of the secret profit. If that case is not established, it is difficult to see how the facts can be brought within either limb of section 32. If it is, no extension under section 32 is needed.
121. Accordingly, with respect to the impressive learning and industry displayed on both sides, and the many ways in which the various arguments have been put, the determinative issue on this part of the case is the short, but difficult, question whether the breach of fiduciary duty was fraudulent. In other words, was Mr Koshy guilty of simple non-disclosure or of deliberate and dishonest concealment?
123. In the DEG action, which he dismissed as it was statute-barred, Rimer J found that Mr Koshy represented to Mr Klingler in January 1986 that Lummus was to be DEG's expert partner in the GVDC project and that it intended to contribute about $US 3m, which conveyed a materially misleading picture, never corrected by Mr Koshy, as to the role that Lummus intended to play and as to the investment it then had the intention of making (paragraph 207); that he falsely represented that Lummus, not he, was the real partner (paragraph 210); and that the subsequent Lasco investments came from Lummus, whereas the truth was that they came from him (paragraph 215); that the representations were made dishonestly with the intention of painting a false picture to DEG and of inducing it to invest in the GVDC project (paragraph 211); that the original representation he had made about the $US 3m provided at least part of the inducement to DEG to commit itself to the GVDC project; and that, but for the representations, DEG would not have made its DM 5m loan investments or its DM 1m equity investment and would not have entered into the loan and investment agreements at all (paragraph 219).
GVDC submitted that Mr Koshy breached his fiduciary duties in spades. I agree. His scheme was simple. First, almost from the outset, he had a prospective beneficial interest in Lasco, an interest which would in due course give him control of it. He was also a director of Lasco. There is some evidence that certain of the GVDC board may have known that he had some sort of interest in Lasco, but the evidence on this is unclear. The formal picture, at least until September 1987, was that Lasco was wholly owned by Lasco USA, a company controlled, if not wholly owned, by Lummus. Down to September 1997, Mr Koshy appears to have kept his prospective beneficial interest in Lasco a secret. He lied to DEG about it. There is no evidence that he ever made a formal disclosure of his interest in Lasco to GVDC. And even after September 1987 he lied to IFC about it, signing an investment agreement with IFC which described Lasco as a wholly owned subsidiary of Lasco USA. Having said this, however, I also find that the GVDC board was aware that, for some not very obvious reasons, Mr Koshy acted for Lasco virtually from the start. The oddity about this is because his interest at that stage was ostensibly as an HZL employee, whereas Lasco was a Lummus company. But no-one appears to have regarded his activities for Lasco as requiring any explanation.
At no point in any of that did Mr Koshy volunteer either his interest in Lasco or explain the massive profit which those transactions would give Lasco and - whether via Haze or otherwise - would also give him. At no point did he suggest that, because of his interest in the transactions, he should take no part in the decision as to whether GVDC should recognise the various liabilities to Lasco. At no point did he suggest that, in order to ensure that GVDC's interests were properly respected, the terms of the proposed GVDC/Lasco agreements should be the subject of negotiation between someone on behalf of GVDC who was independent of Lasco, and someone on behalf of Lasco who was independent of GVDC.
272 ... In my view, it is clear that Mr Koshy concealed from GVDC matters which it was obviously in its interests to know before committing itself to the Lasco agreements. A full knowledge of the facts would have enabled it to consider whether or not it did in fact wish to deal with Lasco on such terms; whether it might be able to negotiate better terms; or whether it might be in its interests instead to raise money itself on the pipeline. I find that the reason Mr Koshy concealed the information from GVDC is because he was concerned that its revelation might spoil his plans. How he would have responded had he ever been asked the direct question of what Lasco's cost of the kwacha has been, I do not know. I do not exclude the possibility that he would have given an untruthful answer. I find that his decision to conceal the information from GVDC was not because he genuinely regarded it as simply of no interest. It was a deliberate, and dishonest, decision arrived at by reason of the fact that he was preferring Lasco's interests to GVDC's. I find that he was dishonest in the sense that he was pursuing a particular course of action in his own interests, either knowing that it was contrary to the interests of GVDC, or recklessly indifferent as to whether it was (see Armitage v. Nurse and Others  Ch. 241, at 251, per Millett L.J.).
129. Mr Page submitted that Rimer J lacked the necessary cogent evidence to justify a finding of fraud by dishonest concealment. He argued that the judge had inferred dishonesty from four findings of fact (summarised in paragraph 266), which he had made contrary to the evidence.
(i) The first was that Mr Koshy had kept his prospective beneficial interest in Lasco secret down to September 1987. The finding was attacked principally on the basis that it was undermined by contradictory contemporaneous documentary evidence in the form of the Grindlay's memorandum. The memorandum was authorised by Mr Koshy. It was intended to be shown to prospective investors, such as DEG. It showed that Mr Koshy told GVDC's bankers about his interest in Lasco. Apart from Dr Polzer, none of the other directors had given evidence that Mr Koshy had concealed from them his interest in Lasco and there was no evidence that he had. They were aware that he acted for Lasco, and there was evidence that some at least were aware of his personal interest in it. As for Dr Polzer, he could not escape from the fact that he was informed of Mr Koshy's interest in the Grindlay's memorandum.
(ii) The second was that, in early 1986, Mr Koshy had lied DEG about his stake in Lasco. This was a reference to the evidence of Mr Helmut Klingler, a member of DEG's staff, about what was said to him in early 1986. In detailed submissions Mr Page sought to demonstrate that the finding was not supported by the evidence and that it should be reversed by this court. Mr Klingler's involvement in the project was brief, and he was superseded by Mr Polzer in June 1986. He had visited Zambia in January 1986. He met Mr Koshy, who took him to see the proposed site of the project. An internal memorandum on the project was prepared by Mr Klingler on 29 January 1986. It stated that Lummus was proposing to invest $US 3m. Rimer J found that the figure, which is incorrect, was supplied to Mr Klingler by Mr Koshy, though the document does not say that it was, and that Mr Koshy knew. Relying on the memorandum Mr Klingler gave oral evidence at the trial that the incorrect figure came from Mr Koshy. The judge accepted Mr Klingler's evidence on that point. He concluded that, by his misrepresentation, Mr Koshy was pretending to DEG that its main partner was Lummus and that Lasco was its subsidiary vehicle. It was submitted that the judge should not have trusted, to the extent he did, the recollection of Mr Klingler of what had been said to him informally by Mr Koshy 15 years previously, particularly in view of his very limited involvement in the project.
(iii) The third was that there was "no evidence that he made formal disclosure to GVDC". This, if correct, showed no more than a breach of the duty of disclosure; it did not show that it was dishonest.
(iv) The fourth was that Mr Koshy had lied to IFC about his interest in Lasco. The finding was based on an incorrect recital in the IFC Investment Agreement that Lasco was indirectly a wholly owned subsidiary of Lummus. Mr Page submitted that the more likely explanation was not that Mr Koshy was dishonest, but that he had not noticed the error when he signed the agreement and that there was no evidence that IFC was misled. There was evidence that in January 1987 Mr Milton of IFC knew that the finance for Lasco's shareholding in GVDC had been provided by Mr Koshy and he told Dr Polzer so.
130. On the basis of those criticisms of the judge's findings of fact, Mr Page submitted that there was no adequate foundation for the finding of dishonesty and that it should be reversed by this court. He emphasised the disclosure of the interest in Lasco in the Grindlay's memorandum, the disclosures to all the directors of GVDC in 1986 and to Mr Milton in 1988. As for the "massive profit," there was evidence, much of which the judge expressly accepted (para 270), that the directors were aware that Lasco was making a profit, and that some of them were aware of its potential size. There was no evidence that Mr Koshy actively sought to conceal it from any of them.
... connotes at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the company or being recklessly indifferent whether it is contrary to their interests or not.
Mr Page noted that this was a case where the trial judge had rejected the allegation of dishonesty. By contrast a finding of dishonesty should be more readily susceptible to review, because of the strong evidence required to establish such a case. He also reminded us of the authorities which emphasise the danger, in cases alleging fraud after a substantial lapse of time, of over-reliance on the unaided recollections of witnesses (see e.g. The Ocean Frost  1 Ll R 1, 57).
133. We see some force in the criticisms made of the factors relied on by the judge in paragraph 266. The Grindlay's memorandum and the judge's findings on it (para 83ff) seem to contradict the view that, at least after July 1986, there was any deliberate concealment of Mr Koshy's interest in Lasco. The "lie" to DEG (the alleged statement to Mr Klingler in January 1966) was not directly relevant to the Board's decisions in 1987. Furthermore, his unaided recollection of events 15 years before seems a fragile basis for a finding of dishonesty. The "lie" to IFC in September 1987 was again peripheral to the allegation of non-disclosure to the GVDC Board, and there appears to be no evidence that IFC itself was prejudiced. Against that, the judge made a number of favourable findings as to the knowledge of the other directors.
134. Mr Thompson emphasised that, in relation to the GVDC claim, the critical period is the time when the transaction was being decided upon by the GVDC Board, that is late 1986 to early 1987. He said that this was distinct from the question whether Mr Koshy deliberately concealed his interest at other times, such as in early 1986. We agree. However, he cannot avoid the fact that the judge took into account allegations of dishonesty at other times in forming his overall picture of Mr Koshy, and that this provided the background for his findings on the critical period.
The principle is well settled that where there has been no misdirection on an issue of fact by the trial judge the presumption is that his conclusion on issues of fact is correct. The Court of Appeal will only reverse the trial judge on an issue of fact when it is convinced that his view is wrong. In such a case, if the Court of Appeal is left in doubt as to the correctness of the conclusion, it will not disturb it.
136. In our judgment, Rimer J was wrong in limiting the scope of the account as he did. For the reasons stated above, no part of the claim against Mr Koshy for an account of profits for dishonest breach of fiduciary duty was statute barred.
137. The point is not, as Mr Page contended, whether the loan transactions are void or voidable, or whether they were rescinded or not, or whether the property in the sums repaid passed out of the beneficial ownership of GVDC and became the property of Lasco, or even whether Lasco received the sums as trust property. The point is that Mr Koshy was not, as a fiduciary vis a vis GVDC, entitled to retain for his personal benefit any of the unauthorised profits dishonestly made from transactions between him and the company. If he received those profits directly in the form of payments to him or indirectly by, for example, the consequent increase in the value of his shareholding in Lasco, he cannot be heard to say, as against the beneficiary company, that he was entitled to retain any of the profits for himself.
138. The judge failed to follow through the consequences of his finding of dishonesty on the part of Mr Koshy when he declined to order an account against him of all the profits obtained by him from the pipeline loan transactions. It is true that Mr Koshy received profits of the pipeline loan transactions indirectly via Lasco rather than directly from GVDC, but, in our judgment, that fact does not affect the application of the doctrine that the profits made by him, as a result of his dishonest breach of fiduciary duty, belong in equity to GVDC. Mr Koshy is accordingly liable to account to GVDC in respect of all profits made by him.
139. Mr Page submitted that, even if there were no applicable time period for bringing the claim for an account of profits, the judge ought to have held that the board and shareholders of GVDC had been aware of the potential claim against Mr Koshy since at the latest the board meeting of May 1987, when they were aware that Lasco was making a profit and that Mr Koshy had an interest in Lasco, and that he had not made full or formal disclosure of the precise extent of his interest; but they did nothing about it until after the appointment of the receiver. This was sufficient to support a finding of laches, which was pleaded and of acquiescence, which was not pleaded.
140. The defence of laches is not available. As already explained no period of limitation is specified by the 1980 Act in respect of the cause of action for dishonest breach of fiduciary duty. The effect of s 21(1)(a) is that either as a result of direct application, or of analogy, there is no period of limitation applicable to that cause of action.
141. In any event there were no grounds of applying the doctrine of laches: the delay in starting the proceedings was not inexcusable; no substantial prejudice had been caused to Mr Koshy by the delay; and the balance of justice favoured the granting, rather than the withholding, of relief by way of an account.
142. A company director may be held personally liable to pay equitable compensation to a company where, as a result of a breach of fiduciary duty on his part, the company has suffered loss. The paradigm case is the application of the company's property, without authority, for a purpose which is in the interests of the directors, but is not in the interests of the company. In such cases the measure of compensation is the value of the company's property which has been misapplied. The director may be held liable for the company's loss, even though he has not himself received any of the misapplied property. (In cases in which he has actually received property of the company, as a result of a breach of fiduciary duty on his part, the company is more likely to seek to establish liability as a constructive trustee).
143. In view of the judge's findings of a deliberate and dishonest concealment by Mr Koshy of his interest in the pipeline loan transactions it is unnecessary to enter into the debate whether the mere failure by a director to disclose his interest in a transaction with the company is a breach of the fiduciary-dealing rules for which the remedy of equitable compensation, as distinct from the remedies of rescission and account of profits, is available. There are arguments, both on authority and in principle, for holding that the remedy of equitable compensation is available in such a case: they are deployed in a recent article, which discusses the relevant case law ( including the decision of this court in Swindle v. Harrison  4 All ER 704 and academic writings on the topic) - "Equitable Compensation for Breach of Fiduciary Dealing Rules" by Matthew DJ Conaglen Vol 119 LQR 246. The judicial resolution of that question must await a case in which it arises for decision.
When a party, holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the constituent's action would be solely determined by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the Court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure would have taken is not relevant.
145. The strictness of the rule of equity that a fiduciary should not profit from the trust and confidence placed in him in respect of the management of the property and affairs of another is such that the transaction should not be allowed to stand, if it is still possible to rescind it, and that the director, who has failed to disclose his interest in the transaction, should not be allowed to retain the unauthorised gains that he has made from the transaction. In considering whether the transaction should be rescinded for non-disclosure or whether the director should account for unauthorised profits, what would have happened, if the required disclosure had been made, is irrelevant.
146. As with a claim for damages for a common law wrong, such as a tort or a breach of contract, the company, in a claim for compensation for non-disclosure of material facts, must first establish that a wrong has been committed. The wrong in this case was a dishonest and deliberate decision by Mr Koshy not to disclose his interest in the pipeline loan transactions entered into by GVDC with Lasco. As already explained, it is not relevant, when determining whether the non-disclosure was actionable as a civil wrong, to consider what would have happened if Mr Koshy had complied with the fiduciary-dealing rules by making the required disclosure.
147. However, when determining whether any compensation, and, if so, how much compensation, should be paid for loss claimed to have been caused by actionable non-disclosure, the court is not precluded by authority or by principle from considering what would have happened if the material facts had been disclosed. If the commission of the wrong has not caused loss to the company, why should the company be entitled to elect to recover compensation, as distinct from rescinding the transaction and stripping the director of the unauthorised profits made by him? There is no sufficient causal link between the non-disclosure of an interest by Mr Koshy and the loss suffered by GVDC, if it is probable that, even if he had made the required disclosure of his interest in the transaction, GVDC would nevertheless have entered into it. In our judgment, a director is not legally responsible for loss, which the company would probably have suffered, even if the director had complied with the fiduciary-dealing rules on disclosure of interests.
148. GVDC appeals against the refusal of Rimer J to make any order in respect of GVDC's claim against Mr Koshy for equitable compensation. Rimer J held that no limitation period applied to GVDC's claim against Mr Koshy for equitable compensation for breaches of fiduciary duty with regard to non-disclosure of profit, and the consequent procuring of GVDC to enter into the pipeline loan transactions and misapplication of GVDC's funds, as his breaches of duty were deliberate and dishonest. The claim accordingly fell within s 21(1)(a).
149. No order for payment of compensation was in fact made, however, as the judge found against GVDC on a crucial causation point. He held that GVDC had not satisfied him that Mr Koshy's dishonest breach of fiduciary duty had caused GVDC any loss (paragraphs 277 and 298). No loss had been proved.
... there is no sufficient evidence showing that GVDC has suffered any loss. The fact remains that Lasco did provide GVDC with K56.4m and I find that its nominal value-or worth-was US$5.8m. If the evidence had satisfied me that, had Mr Koshy laid all his cards on the table, the course of events would have been different, then that would be one thing. However, it did not. I find myself quite unable to conclude that, had it known the full facts, GVDC would in fact have dealt with the matter any differently. The evidence did not satisfy me that there was any good reason why it should not pay the market rate for its kwacha. It needed the money. Although now Dr Polzer and (as an afterthought) Mr de Winter both express shock at the thought of profit going to Lasco rather than to the project, I find that both knew perfectly well (as did other board members) that this was precisely what was happening and none of them at the time thought it appropriate even to inquire what the profit was.
151. It was argued on behalf of GVDC that Rimer J was wrong to hold that there was no evidence that GVDC had suffered any loss as a result of Mr Koshy's breach of duty, as it was impossible to assess what would have happened if Mr Koshy had made proper disclosure of all relevant facts to the board of GVDC or to the shareholders.
152. Mr Thompson submitted that the judge should have concluded that GVDC was entitled to compensation to put it back in the position that it was in prior to Mr Koshy's breach of duty and should have either quantified it or directed an inquiry. The position is that traditional trust rules apply, so that the only relevant question is whether the breach of duty caused by Mr Koshy caused the misapplication of GVDC's money in the sense that it would not have happened, but for the conduct constituting the breach of duty. A fiduciary in breach of his duty to make material disclosure should bear the burden of grappling with the hypothetical question whether his non-disclosure would have made any difference. The law should presume that disclosure of a material matter that was not disclosed would have made a difference. It should be left to the wrongdoing fiduciary to prove otherwise. The burden of proof was on Mr Koshy. It was not discharged by invitations to speculate about what would have happened. Rimer J should have proceeded on the basis that the transactions would not have been done and that all loss arising from GVDC's entry into the transactions was recoverable from Mr Koshy. Alternatively, if the burden of proof was on GVDC, the judge was wrong to hold that it had not been discharged. He should have concluded that, with proper disclosure, the pipeline loan transactions would not have been entered into. It was also contended that the causation issues would be simplified by identifying breaches of fiduciary duty other than non-disclosure, for example breach of the duty of loyalty and of the duty to avoid conflicts of interest and duty, in Mr Koshy's actions in committing GVDC to the transactions at all. But for the breaches of those duties, the transactions would not have happened at all and GVDC would not have suffered loss in the venture.
153. Mr Page supported Rimer J's conclusion that GVDC had not proved that the alleged breaches of duty by Mr Koshy had caused any loss to GVDC. The pipeline loan transactions gave to GVDC full value in kwacha for the $US 5.8m loan acknowledged by it. Rimer J found that GVDC needed the money to fund the project, that the loan acknowledged in the sum of $US 5.8m was equal in value to the local currency received and that the loan agreements were approved by the GVDC board. The loan was a condition of investment in GVDC and acquiring shares in it by the other investors, such as DEG and IFC. The loan agreements were valid and binding. They had not been rescinded.
154. Repayments made under them did not involve any breach of fiduciary duty and there was no misapplication of funds by GVDC by repaying to Lasco sums, which it was under a legal obligation to repay under the loan agreements.
155. The fact that Lasco had been able to secure a favourable top-up deal by pipeline dismantling did not make the loan transactions with GVDC unfair. The amounts lent by Lasco to GVDC and valued at the proper rate of exchange were not worth less as a result of the profit made by Lasco.
156. The entry into the transaction by GVDC was not itself a breach of duty by Mr Koshy as a director of GVDC nor was its performance by making repayments a misapplication of GVDC's funds.
157. On the question of causation the judge was entitled to find that GVDC had failed to show that it had suffered any loss as a result of entering into the loan agreements. GVDC had failed to satisfy the judge that, absent a breach of duty by Mr Koshy, the outcome would have been any different; that it would not have entered into the loan agreements, or that it would have been able to negotiate a better deal with Lasco and, failing that, that it would not have accepted the kwacha loans from GVDC at all; or that a better deal was available elsewhere.
158. GVDC had not contended at the hearing, as it now sought to do on the appeal, that the onus was on Mr Koshy to prove that his breach of duty did not lead GVDC to enter into the loan agreements.
159. In our judgment, Rimer J was entitled to refuse to order equitable compensation on the factual basis that he was not satisfied that loss had been caused to GVDC as a result of the breaches of duty by Mr Koshy. The crux of Mr Koshy's wrongdoing was non-disclosure of his personal interest in the pipeline loan transactions and the unauthorised profit made by him from the transactions. The appropriate remedy for non-disclosure is to make him account to GVDC for that profit. It is not appropriate, if GVDC so elected, to require him to compensate GVDC for loss suffered in the venture when the probabilities are, as the judge, on the evidence, found them to be, that disclosure by Mr Koshy of his interest would have made no difference to what GVDC would have done.
160. We accordingly dismiss GVDC's appeal on the equitable compensation point.
(1) Mr Koshy was under a duty to account to GVDC for the unauthorised profits made by him out of the pipeline loan transactions entered into by GVDC with Lasco.
(2) Mr Koshy acted in breach of his fiduciary duties, as a director of GVDC, in deliberately and dishonestly concealing from the directors and shareholders of GVDC the nature and extent of the profit made by him from the pipeline loan transactions between GVDC and Lasco.
(3) Mr Koshy is not entitled to rely on the provisions in the Articles of Association of GVDC excusing a director from liability for breach of the rule against self-dealing by not disclosing his interest in the pipeline loan transactions, as he did not make the disclosure to the board of GVDC required by the Articles.
(4) Mr Koshy is not entitled to rely on the general law to excuse him from liability for breach of the rule against self-dealing by not disclosing his interest in the pipeline loan transactions, as he did not make full disclosure of the nature and extent of his interest to the directors and shareholders of GVDC.
(5) The judge's findings that Mr Koshy did not make the required disclosure were justified on the evidence and on his own findings of fact.
(6) The judge's findings of fact that Mr Koshy deliberately and dishonestly concealed the nature and extent of the profits made by him out of the pipeline loan transactions were justified by the evidence.
(7) The questions whether the GVDC /Lasco Loan Agreement was voidable or void, and, if voidable, whether it was avoided by the service of the Amended Statement of Claim and whether the payments of money made to Lasco under the Loan Agreement were valid and passed to Lasco the property in the sums paid do not affect the liability of Mr Koshy to account for profits made by dishonest breach of fiduciary duty.
(8) The sum of $2.075m transferred to Lasco in 1987-8 was held by Lasco on a constructive trust for GVDC in accordance with the order made by Harman J on 20 March 1998.
(9) The action by GVDC for an account of profits against Mr Koshy is an action for, or is treated for limitation purposes as analogous to an action for, "fraud or fraudulent breach of trust" within s 21(1)(a) of the 1980 Act.
(10) The action for an account of profits against Mr Koshy was not an action, nor is it treated for limitation purposes as analogous to an action, "to recover from the trustee trust property ... in the possession of the trustee" within s 21(1)(b) of the 1980 Act.
(11) No limitation period applies to the claim by GVDC against Mr Koshy for an account of the profits made by him from the pipeline loan transactions.
(12) Acting on the analogy of the statutory provision in s 21(1) (a) the court of equity before I July 1940 would hold that there was no limitation period applicable to the cause of action against Mr Koshy.
(13) It is unnecessary to decide whether, if a limitation period did apply, the running of time would be postponed under s 32 of the 1980 Act.
(14) The claim for an account of profits is not barred by laches or acquiescence.
(15) The judge was wrong to confine the scope of the account of profits in the manner he did. A general account of profits should have been ordered.
(16) The judge was entitled to find that GVDC had not established that it had suffered any loss as a result of a breach of fiduciary duty by Mr Koshy.
(17) The judge was entitled to find that it had not been established that GVDC would not have entered into the pipeline loan transactions, absent any breach of fiduciary duty on the part of Mr Koshy.
(18) The judge was entitled to refuse to make an order for the payment of equitable compensation or to order an inquiry to assess such compensation.
(19) If loss had been established as a result of the dishonest breach of fiduciary duty by Mr Koshy, the claim for equitable compensation would not have been statute barred under the 1980 Act.
162. The appeal by Mr Koshy against the order for an account of profits is dismissed.
163. The appeal by GVDC against the form of the order for an account of profits is allowed. Sub-paragraph (b) of paragraph 1 of the order of 12 December 2001 (see para 115 above) should be deleted.
164. The appeal by GVDC against the refusal to award, or to order an enquiry to assess, equitable compensation is dismissed.
165. All outstanding disputes on costs will be decided at a further hearing to take place after the handing down of this judgment.
1. Mr Koshy's Appeal (A3/02/0090) be dismissed.
2. GVDC'S Appeal (A3/02/0095) allowed to the extent indicated in paragraph 3 below and otherwise dismissed.
3. Pursuant to GVDC'S appeal, paragraph 1 of the order of Mr Justice Rimer dated 12 December 2001 be varied so that it reads: "An account be taken of all profits received by the first defendant out of the provision to GVDC by lasco of the pipeline loan of k 56.4 million".
4. All questions of costs in relation to the action and both appeals are reserved to a further hearing before this court.
5. Both applications for permission to appeal to the House of Lords refused.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.