Manager Who Overpaid Himself Breached Fiduciary Duties

In a decision that will serve as both a relief and a warning to companies with trusted key employees, the High Court has ruled that a manager who made unauthorised payments to himself from his employer's bank account over an eight-year period was liable to repay the money.

The manager began working for a civil engineering and groundworks company in 2011. He had access to the company's bank account and was responsible for making payments, including his own salary. A recovering gambling addict, he relapsed in 2014 and began making payments to himself in excess of his salary. He continued to do so until leaving to work for another firm in 2022.

After discovering that the manager had received significantly more than he was entitled to, the company brought proceedings seeking repayment of the excess amounts, which it calculated at £566,707. It argued that the level of trust placed in him meant that he owed fiduciary duties to it. The manager admitted taking money but claimed that the amount was around £200,000.

The Court considered evidence from the manager's former colleagues and concluded that he had had practical control of the company's bank account and been in 'a position of great trust and confidence'. He therefore owed fiduciary duties in respect of the bank account. This meant that if any of the funds had been paid to him legitimately, it was for him to prove it. It also meant that he became a constructive trustee of the funds paid to him without authorisation and, by virtue of Section 21(1)(b) of the Limitation Act 1980, no time limit applied to the company's claim.

In considering the company's alternative claim for breach of contract, however, the Court noted that some of the funds were transferred more than six years before the company brought proceedings. With reasonable diligence, the unauthorised payments could have been discovered promptly by looking at the bank statements. The company therefore could not have relied on Section 32(1) of the Act to delay the start of the six-year limitation period that applies to breach of contract claims.

The Court found that some amounts paid in excess of the manager's salary related to bonuses or expenses, but was not convinced that any of the rest of the money was legitimately paid. It found that he had wrongly paid himself £552,994.