Bellis and Others v Challinor and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Briggs,Lord Justice Underhill,Lord Justice Moore-Bick |
| Judgment Date | 05 February 2015 |
| Neutral Citation | [2015] EWCA Civ 59 |
| Docket Number | Case No: A3/2013/1011 |
| Court | Court of Appeal (Civil Division) |
| Date | 05 February 2015 |
[2015] EWCA Civ 59
Lord Justice Moore-Bick,
VICE PRESIDENT OF THE COURT OF APPEAL, CIVIL DIVISION
Lord Justice Underhill
and
Lord Justice Briggs
Case No: A3/2013/1011
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
Mr Justice Hildyard
HC10C03729
Royal Courts of Justice
Strand, London, WC2A 2LL
Ian Croxford QC and Clare Stanley (instructed by CLYDE & CO LLP) for the APPELLANTS
Andrew Sutcliffe QC and Adam Kramer (instructed by HEWLETT SWANSON LLP) for the RESPONDENTS
Hearing dates: Tuesday 16 th– Thursday 18 th December 2014
Introduction
In late August and early September 2007, the Appellant solicitors' firm Juliet Bellis & Co ("the Firm") received into its client account payments from the Respondents, a group of 21 intending investors in a property investment scheme relating to land at and around an airport in Surrey known as Fairoaks. The aggregate amount paid by the Respondents to the Firm was £2.28 million. The amount paid by each investor ranged between £30,000 and £250,000.
The bulk of that sum was shortly thereafter paid out by the Firm in two tranches to Royal Bank of Scotland, in reduction of short-term borrowing ("the RBS equity bridge") of some £7 million incurred by a client of the Firm, Albemarle Fairoaks Limited ("AFL"), a single purpose Guernsey company which had been acquired off the shelf as the vehicle for the Fairoaks scheme, and which had acquired the airport land before the payments were made. Much later, a further amount was transferred from its client account to its office account in settlement of a liability of AFL to the Firm for professional fees.
The Fairoaks scheme did not prosper, and AFL was eventually placed in insolvent administration in 2010. Although some of the Respondent investors lodged claims against AFL as creditors, there was, and remains, little prospect of any significant distribution on account of those claims.
In November 2010, the Respondents commenced proceedings (as co-claimants in a single claim) seeking to recover their losses in full from the Firm on the main basis that the Firm had paid the £2.28 million out of its client account to or for the benefit of AFL in breach of what was described as an escrow agreement that it should be held by the Firm pending satisfaction of conditions which were in the event never satisfied. Alternatively (and partly by amendment), the Respondents claimed that the Firm received the £2.28 million upon trust for them, and disbursed it in breach of that trust. Finally, the Respondents made a claim in restitution upon the alternative bases of payment by mistake and total failure of consideration.
There were claims (under Part 20) by the Firm and, at a late stage, by the Respondents themselves, against an intermediary who played a central role in the Fairoaks scheme, a Mr. Geoffrey Egan. The Respondents' claims against him arose only in the event that they were unsuccessful against the Firm. I need say nothing about the Firm's claims against him, since they were dismissed, and no claim by anyone against Mr. Egan has been pursued by way of appeal.
After a 20 day trial, ending on 18 th June 2012, and the handing down of a detailed reserved judgment running to 167 pages on 25 th February 2013, Hildyard J gave judgment for the Respondents on their claim against the Firm, for the full amount of £2.28 million plus interest at 3% over base. He rejected the Respondents' claim that a contractual escrow had been agreed with the Firm. The trust claim had been argued in three forms: first, a Barclays v Quistclose trust; secondly, an implied resulting trust analogous to a Barclays v Quistclose trust; and thirdly, a resulting trust arising from the fact that the Firm had received the Respondents' money without authority from AFL. The judge rejected the first but held in favour of the second and alternatively third bases for the existence of the trust.
Having regard to his findings in favour of the Respondents on their trust claims, the judge made no finding about restitution but indicated, had he been against the Respondents on their trust claims, that he probably would have upheld a restitutionary claim in the alternative.
By this appeal the Firm challenges the judge's conclusions on the trust claim. By a Respondents' notice the Respondents seek, if necessary, a judgment in their favour on their restitutionary claim. No attempt has been made by the Respondents to challenge the judge's rejection of the escrow claim.
The issues
This appeal raises one central issue, and a variety of subsidiary issues which arise only if the central issue is determined in a particular way. The central issue is whether the Respondents advanced the money which they each paid to the Firm on trust for themselves pending the satisfaction of ill-defined conditions to which the judge gave the label "safety", or whether the Respondents each made an immediate loan to AFL by paying the money, with no strings attached, to the Firm as AFL's agents. Since, as is common ground (on this appeal at least), none of the Respondents set out the basis upon which they were paying their money to the Firm, either orally or in writing, the answer to that question depends upon an intense focus upon the terms of the invitation to which they responded by making those payments, set in its proper context, which consists mainly of their participation in previous Albemarle investment schemes.
If the judge was right in his answer to that question, then the second question is whether, as he found, the Firm knew (again, in the relevant sense) that the money which it received was trust money, before it disbursed it for AFL's benefit. This issue depends, of course, upon an intense focus upon the conduct of the Firm in relation to the Fairoaks scheme, and in particular the conduct of Mrs. Bellis, the proprietor of the Firm, who acted in all relevant respects on its behalf. But if the judge was wrong in his answer to the first question, this issue does not arise at all.
The remaining issues arise only if the judge's answers to the first and/or second questions were wrong. The third question is whether the Firm had AFL's authority to receive and disburse the Respondents' money and, if they did not, whether the consequence was that the money was held by the Firm upon a resulting trust for the Respondents. That general question raises a number of issues of mixed fact and law, and in particular the question, unresolved thus far in this court, whether the "own act" principle (by which 100% of the members of a solvent company may commit the company to an intra-vires decision without going though the requisite constitutional formalities) applies to something done by the single beneficial owner of the whole of the company's shares.
The final issue, which arises (as the judge himself recognised) only if his answers to the foregoing issues were wrong, is whether the Respondents had a restitutionary claim against the Firm in respect of the unjust enrichment constituted by its receipt of their money. That question depends in part on the correct answer to the authority issue, but involves (if necessary) an analysis of the following additional questions. The first is whether there was a relevant mistake, or total failure of consideration for the advance of the money. The second is whether payments into a solicitors' client account (which are inevitably held upon trust for someone) unjustly enriched the Firm. The third is whether, on a detailed analysis of the Firm's conduct, its payment of the Respondents' money to or for the benefit of AFL constituted a change of position in good faith.
Summary of conclusions
It may make this judgment more easily intelligible if I summarise my conclusions at the outset. They are as follows:
(a) The judge was, in my view, wrong to find that the Respondent investors paid the money to the Firm upon trust for themselves, pending fulfilment of the safety condition. On the contrary, an objective review of the relevant primary facts leads me to the conclusion that they paid the money to AFL's solicitors as immediate loans to AFL.
(b) On that analysis, the issue whether the Firm knew of the alleged trust does not arise.
(c) Again, contrary to the judge's conclusion, I consider that regardless whether the Firm had AFL's authority to receive the money on its behalf, the Firm nonetheless held it on trust solely for AFL and not on resulting trust for the Respondents. Whether the Firm had AFL's authority to disburse the money for AFL's benefit in the way in which it did is also irrelevant to the legal consequences as between the Respondents and the Firm.
(d) Again, contrary to the judge's provisional view, I consider that there can be no restitutionary claim by the Respondents against the Firm. It was not unjustly enriched by receipt of the money into client account, on statutory trust for AFL. Regardless whether there was a relevant mistake or a total failure of consideration, the disbursement of the money by the Firm to or for the benefit of AFL was a sufficient change of position in good faith, vis a vis the Respondents, to bar any restitutionary claim. It is in that context irrelevant whether the Firm acted in all respects with commercial probity in relation to their dealings with the money, vis a vis AFL.
(e) In the result, I consider that this appeal should be allowed.
The facts
The judge set out the most comprehensive factual basis for his conclusions. In the summary which follows I shall focus upon those of his...
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