High Court ruling: Manager overpaying himself from company account deemed a true trustee

Businesses that fall victim to employee fraud have increased their recovery prospects, thanks to a judgment of the High Court in Glenea Contracts Limited v Philip Friel [2024] EWHC 1243 (Ch), approved yesterday (22nd May) following a three-day trial before Deputy Master Scher on 8-10 May 2024 involving allegations of fraud and misuse of confidential information. 

The High Court’s decision highlights that employees who abuse a position of trust to take extra money from their employer may, depending on the circumstances, be held liable as fiduciaries and trustees. 

Such a finding would give the employer the following additional protections:

•  The employee has the burden to justify any payments made to them.
•  Sums taken over many years can be recovered without limit of time.
•  The employer can trace the money taken into the assets on which it was spent, such as mortgage repayments.

Glenea, a civil engineering company, sued its former Commercial Manager for taking around £570,000 from the company's bank account in small payments since 2014. The manager argued that the company needed to prove its entitlement to the money and that any payments made more than six years before the claim was issued were barred by limitation.  Although the manager was not a director of Glenea, Glenea argued that he was completely trusted with responsibility for the company’s financial affairs and for the operation of its bank account (the manager disputed this), and that he should therefore be treated as a fiduciary and trustee for Glenea despite falling outside the established categories of fiduciary relationship.

The court accepted Glenea’s arguments on all of these points, ruling that the burden was on the manager to prove his entitlement to the money, that he had essentially failed to do so, and that no limitation period applied to the company's claim.

Max Marenbon of Serle Court was sole Counsel at trial for Glenea in Glenea Contracts Limited v Philip Friel [2024] EWHC 1243 (Ch), instructed by Oli Worth and Molly Lockerbie of Archor LLP.  Glenea was also advised by James Mather and George Vare, also of Serle Court.