Creggy v Barnett
| Jurisdiction | England & Wales |
| Judge | Lord Justice Patten,Lord Justice Sales,Sir Terence Etherton, MR |
| Judgment Date | 11 October 2016 |
| Neutral Citation | [2016] EWCA Civ 1004 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2015/0548 |
| Date | 11 October 2016 |
[2016] EWCA Civ 1004
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice David Richards
Royal Courts of Justice
Strand, London, WC2A 2LL
Sir Terence Etherton, Master of the Rolls
Lord Justice Patten
and
Lord Justice Sales
Case No: A3/2015/0548
Christopher Lundie (instructed by Brian Harris & Co) for the Appellant
Steven Thompson QC and Matthew Watson (instructed by DWFM Beckman) for the Respondents
Hearing date: 30 June 2016
Approved Judgment
This is an appeal by the defendant, Mr Stuart Creggy, against an order of David Richards J dated 29 January 2015. The judge ordered Mr Creggy to pay to the claimants the sum of US$2,305,795.68 including interest as equitable compensation for his breach of fiduciary duty in transferring in 1998 approximately US$1.2m to a Maltese lawyer, Dr Patrick Spiteri. The monies came from the Swiss bank accounts of two Liberian companies, Pound Investments Inc ("Pound") and Glacier Investments Inc ("Glacier"), which, together with other offshore structures, were established by Mr Creggy for the purpose, as the judge found, of tax avoidance.
The claimants are brothers who emigrated to Canada and established there and overseas a number of successful restaurant businesses. Mr Creggy was at the time practising as a solicitor and specialised in setting up and managing offshore companies used for the holding and investment of clients' funds. The claimants were clients of Mr Creggy from sometime in the mid-1970's until about 2002. He incorporated Pound and Glacier on behalf of the claimants (one for each brother) with bank accounts in Switzerland. The directors of the two companies were in Gibraltar and the shares were held in bearer form. There was therefore no visible link between the claimants and the companies although, as the judge found, there was no doubt that they were the beneficial owners of the companies.
Once established, funds were routed from the claimants or their businesses (sometimes through the client account of Mr Creggy's firm, Talbot Creggy) to the Swiss bank accounts. The judge found that, once in these accounts, any further movement of funds was controlled by Mr Creggy until the monies were eventually paid out to the claimants or their order.
The claimants alleged and the judge found that the transfer of the US$1.2m to Dr Spiteri was made without their knowledge or authority and in breach of fiduciary duty. Their pleaded claim was that they came to trust Mr Creggy as a solicitor and a friend in relation to his dealings with the monies in the Swiss accounts.
In January 2012 the claimants issued a claim against Mr Creggy seeking an account and inquiry in relation to his management of the Swiss accounts. In particular, they alleged that the transfer of the monies to Dr Spiteri was unauthorised. David Richards J conducted a detailed analysis of the various transactions under which monies were paid into and out of the Swiss accounts. He rejected the claimants' allegation that they relied upon Mr Creggy to invest the funds on their behalf and found that they continued throughout to take a careful and detailed interest in the funds and their application. Mr Creggy's role was to ensure that the funds were transferred to various investment and other projects in accordance with the claimants' directions and, in the meantime, to hold the funds in the Swiss accounts. But he held that the transfer of the US$1.2m to Dr Spiteri was unauthorised and a breach of Mr Creggy's duties as signatory of the bank accounts of Pound and Glacier.
Most of the monies transferred to the Swiss accounts came from the claimants' trading companies and businesses in Canada and elsewhere. They were not therefore funds in which the claimants had any pre-existing beneficial interest. In the particulars of claim it was pleaded that all sums received by Talbot Creggy for onward transmission to the accounts of Pound and Glacier or which were paid directly into the Swiss accounts were held by Mr Creggy on either an express or resulting trust for the claimants. But that plea was obviously unsustainable and the judge rejected it as an accurate description of the legal relationship between the parties:
"71. Funds provided by or for the claimants were paid, often to the client account of Talbot Creggy, so that they could be paid into and held, pending further application, in the Swiss bank accounts of the off-shore companies. Until the transfer of funds to Dr Spiteri in July 1998, I am satisfied that full effect was given to these arrangements and all sums were paid into accounts of the off-shore companies. The funds were not, save while passing through Talbot Creggy's client account, held by Mr Creggy as trustee for the claimants nor were the funds in the Swiss bank accounts held on trust for Mr Creggy as trustee for the claimants.
72. There was exploration in the course of the oral evidence as to whether, in addition to owning the off-shore companies, the claimants were themselves the beneficial owners of the funds held in the Swiss bank accounts. This was an issue left open on the statements of case and was specifically raised by Mr Lundie in his opening on behalf of Mr Creggy. It is fair to say that the claimants found it difficult to see the difference. Their view was that if they owned the companies, as they did, they also owned the funds. As a broad commercial matter, as opposed to a legal matter, that was no doubt true. The companies had no liabilities and the claimants as the sole owners of the companies could direct the application of the funds as they saw fit. But I am satisfied that the funds were, as was intended, the property of the companies. The funds, and any income or other return on them, did not in law belong to the claimants. There was no evidence, for example the claimants' Canadian tax returns, to show that the income of Pound and Glacier was treated as the income of Jeffrey Barnett and Peter Barnett respectively. It is impossible to see that a pure nominee relationship would achieve anything beyond a simple cloak of deception.
73. Funds held in the bank accounts of Pound, Glacier and other off-shore companies were therefore legally and beneficially held by those companies. They were not held by Mr Creggy. He was not a trustee of those funds. He had a power to control the disbursement of funds by virtue of being an authorised signatory on the accounts. He owed fiduciary duties in respect of the exercise of his powers as a signatory and would be liable for any misuse by him of those powers. He was in a similar position to a director of a company having powers of disposal of the company's funds or other assets."
In these circumstances, the judge refused to order an account against Mr Creggy in respect of payments made before July 1998. He had on the evidence never held the funds himself save to the extent that they passed through the client account of Talbot Creggy en route to the Swiss accounts. But there was in any case no evidence to establish that there were any significant unauthorised payments in that period beyond those made to Dr Spiteri.
The judge, having found that the transfer of the US$1.2m was unauthorised and a breach of fiduciary duty, assessed equitable compensation in that amount. An attempt was made by Mr Lundie, on behalf of Mr Creggy, to raise a defence based on the reflective loss principle given the judge's finding that the monies in the Swiss accounts belonged to Pound and Glacier rather than to the claimants. But the judge held that the reflective loss principle turned on factual issues which had not been explored at the trial and declined to re-open the trial for the purpose of investigating them. He therefore rejected that defence and we are not concerned with the issue as part of this appeal.
Mr Creggy's other defence to the claim for equitable compensation was based on the Limitation Act 1980 ("the 1980 Act"). It was common ground before the judge that Mr Creggy was a trustee within the meaning of s.21 of the 1980 Act. This adopts the definition of "trustee" in s.68(17) of the Trustee Act 1925 which includes implied and constructive trustees. Since Mr Creggy had not misappropriated trust property for his own use or been party to a fraud or fraudulent breach of trust, the claim was therefore subject to the six-year limitation period for breach of trust contained in s.21(3). The cause of action in respect of the US$1.2m transferred to Dr Spiteri accrued in mid-1998 so that the 2012 claim was long out of time. But the claimants rely on a letter written in 2006 as constituting an acknowledgement of the claim for the purposes of s.29(5). This provides:
"Subject to subsection (6) below, where any right of action has accrued to recover—
(a) any debt or other liquidated pecuniary claim; or
(b) any claim to the personal estate of a deceased person or to any share or interest in any such estate;
and the person liable or accountable for the claim acknowledges the claim or makes any payment in respect of it the right shall be treated as having accrued on and not before the date of the acknowledgment or payment."
The letter of 21 July 2006 was addressed to Jeffrey Barnett and stated:
"I understand [this is a misprint for undertake] in the event of your funds currently held by Dr Patrick Spiteri in Malta, not being returned to you by the end of July 30 th, 2008 to procure that my estate acknowledges a debt to you of $961,416 (US).
This letter is sent to you so that you should have protection in the event of my death prior to that date.
This debt will of course only come into effect on my death and at no time prior and the debt will not...
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