Remember to read what you sign…..

The recent judgment of Manolete Partners plc v Nag highlights the potential consequences for non-administrative spouses signing documents they have not read or understood.

A director of the company was being sued by the liquidators for misconduct over the misappropriation of a significant portion of the sale proceeds following a business sale transaction entered into by the company shortly before the issue of a petition for liquidation and at a time when the company was in serious financial difficulty. The liquidators also sued the director’s wife for dishonest help.

The director’s wife had been implicated only insofar as she had been required to authorize the transaction and sign certain documents in connection with it. She claimed that she had not read any of the relevant documents because she trusted her husband and therefore felt she did not need them.

While the judgment and findings of misconduct against the director are very specific to the facts, the judgment regarding the conduct of the wife is much broader in scope – namely that anyone defending a claim on the grounds that they trusted the person asking him to sign the documents is no good defense against claims of dishonest assistance or knowing receipt.

Notably, the judge presiding over the case did not find that the wife was a dishonest witness. However, he concluded that his actions amounted to willful blindness. The wife therefore had to account for the proceeds on the grounds of dishonest assistance. It has been held that while it is understandable for a person to have a high level of trust in their spouse, there is a difference between having a high level of trust and simply doing what your spouse asks you to do, be it good or bad. The judge found that the wife had chosen to allow her husband to be the arbiter of right or wrong and that amounts to willful blindness, which is not the way an ordinary honest person would have behaved in circumstances.

In particular, the wife had not read or had someone explain the documents to her, although she had had every opportunity to seek legal advice or challenge the transaction. Under these circumstances, it was no defense for her to say that she trusted her husband and was not involved in the business. Still, she was about to benefit substantially from what was clearly a dodgy transaction.

As lawyers, we balk at the idea of ​​clients (and friends) blindly signing documents they haven’t understood or read. This case reminds us that relying on a “trusted” partner or colleague will simply not be a good defense against dishonest help through willful blindness.