Foskett v McKeown

This is an appeal from the order made by Laddie J. on 12 July 1996. The case arises out of fraudulent misappropriations made by one Timothy Murphy out of money entrusted to him by a number of prospective purchasers of plots of building land in the Algarve, Portugal. In 1988 Mr Murphy and an associate of his, Patrick Deasy, an accountant, acquired control of Anglo European Land place ("AEL") an English company which owner and controlled a Portuguese company, Anglo Europa Propriedades Lda. ("AEP"). AEL marketed in England plots of land forming part of a development site in the Algarve. The site was to be developed by AEP and in due course the plots were to be sold by AEP. A large number of purchasers; some 220 in all, entered into contracts with AEP for the purchase of plots. The contractual arrangements required each purchaser to pay the purchase price to Mr Deasy to be held by him upon the trusts of a Trust Deed the parties to which were AEL and Mr Deasy. Under the Trust Deed Mr Deasy was to hold the purchaser's money in a separate bank account until either AEP transferred the plot to the purchaser or the expiration of two years, whichever first happened. If after two years the plot had not been transferred, the money was to be repaid, with interest, to the purchaser.

£2.645 million was paid to Mr Deasy by purchasers. It was credited to two bank accounts with Lloyds Bank, Sheffield, one in the joint names of Mr Deasy and Mr Murphy, the other in Mr Deasy's sole name.

In the event, although land in the Algarve was purchased by AEP, the land was never developed. When the time came for the purchasers' money to be repaid to them it was found that the money in the two accounts had been dissipated.

Mr Murphy was born on 7 November 1945. On 5 November 1986, when 40 years of age, he effected with Barclays Life Assurance Company Ltd ("the Insurers") a whole life policy (`the Policy') in the sum of £1 million. I shall have to refer in some detail to the terms of the Policy but, put shortly, the Policy provided that on Mr Murphy's death a "Death Benefit" would become payable and that the amount of the Death Benefit would be the greater of (a) the £1 million and (b) the aggregate value of the "units" that had been allocated to the Policy. A premium of £10,220 was payable annually on 6 November throughout Mr Murphy's lifetime. On the payment of each premium after the initial one, units were to be allocated to the Policy.

In a document dated 20 October 1986 addressed to the Insurers, Mr Murphy requested that Policy be issued to himself as trustee to hold for the benefit of his mother, Mrs Bridget Murphy, but "subject to the Standard Trust Provisions printed overleaf …".

The Standard Trust Provisions (inter alia) gave Mr Murphy the power to appoint additional trustees of the Policy and, under paragraph 6, provided as follows:—

"Provided the Policy is still in force the Trustees may at any time by deed appoint the whole or part of the trust property to the Applicant for his absolute benefit provided that this power may not be exercised by the Applicant alone. The Trustees may at any time release such power of appointment".

So, when the Policy was issued on 5 November 1986, it was held by Mr Murphy as trustee on the trusts and subject to the powers and provisions I have maintained. At this stage Mr Murphy was plainly not excluded from any beneficial interest under the Policy.

On 14 March 1989 Mr Murphy appointed his second wife, Mrs Jean Murphy, to be an additional trustee of the Policy. On 15 March he and his new co-trustee executed an irrevocably appointment of the Policy to him absolutely. And by a deed executed on 16 March 1989 Mr Murphy appointed a solicitor, Mr Nelson, to be an additional trustee of the Policy and settled the Policy on trusts for Mrs Jean Murphy and his mother, Mrs Bridget Murphy but subject to a power for him to appoint to members of a class which included his wife, his mother and his children but which expressly excluded himself. As from 16 March 1989, therefore, Mr Murphy retained no beneficial interest in the Policy.

By a Deed of Appointment dated 1 December 1989 Mr Murphy appointed the Policy and all moneys payable thereunder upon trust (in the events which happened) as to one-tenth for Mrs Bridget Murphy and nine-tenths for his three children, Daragh Timothy Murphy, Jason John Murphy and Louise Mary Murphy.

The initial annual premium of £10,220 was paid by Mr Murphy on 6 November 1986 out of his own money. The 1987 premium, too, was paid by Mr Murphy out of his own money. As to the 1988 premium, there is a dispute as to the source of the money by which the £10,220 premium was paid. Laddie J. concluded that the evidence established that £596.74 of the purchasers' funds held in the joint accounts to which I have referred could be traced to the funds used to pay the premium. As to the 1989 and 1990 premiums, the judge held, and it is not challenged before us, that Mr Murphy used the purchasers' funds to pay the two premiums.

Mr Murphy died by his own hand on 9 March 1991. The Insurers on 6 June 1991 duly paid to the two surviving trustees of the Policy, Mrs Jean Murphy and Mr Nelson, the sum of £1,000,589.04, of which £1 million was the Death Benefit due under the Policy.

Mr Paul Foskett, the plaintiff in this action and respondent before us, is one of the purchasers who entrusted their money to Mr Murphy and Mr Deasy. He commenced the proceedings by Writ and Statement of Claim served on 19 July 1995 in which he purported to sue "on his own behalf and on behalf of all other purchasers of plots of land at Mount Eden, Algarve, Portugal". The purpose of the proceedings is to obtain for the benefit of the purchasers the Policy moneys paid by the Insurers to the trustees of the Policy. It is contended that it was the purchasers' money that kept the Policy on foot, and that the purchasers can trace their money into the proceeds of the Policy. The first and second defendants are the two surviving trustees of the Policy, Mrs Jean Murphy having remarried and become Mrs McKeown. They were the only defendants originally joined. They served a defence on 22 August 1995 which, apart from admissions of the non-controversial facts, in effect put the plaintiff to proof of the tracing claim. On 27 September 1995 the plaintiff applied for summary judgment under Order 14 for payment to him, in his representative capacity, of the proceeds of the Policy together with interest and costs. This Summons was subsequently replaced by a substitute Summons of 22 March 1996. Under the substituted Summons the relief claimed was, first, a representation order pursuant to Order 15 rule 13 appointing the plaintiff to represent the interests of all purchasers of plots in the Algarve site, and, second, a declaration that the purchasers were entitled to £600,000, with interest thereon from 6 June 1991, out of the proceeds of the Policy. The reduction of the claim to three-fifths of the proceeds of the Policy presumably resulted from the realisation that of the five premiums that had been paid, the first two appeared to have been paid by Mr Murphy out of his own money. At an early stage in the hearing before Laddie J., however, counsel for the plaintiff applied for and was granted leave to seek, in the alternative, recovery of the whole of the proceeds of the Policy.

It may seem surprising that, in such a potentially complex case, the plaintiff was in a position to apply for summary judgment at all. That he was in a position to do so appears to have resulted from a considerable degree of co-operation that he and those advising him received from the first defendant, Mrs McKeown. In 1993 the plaintiff had commenced an action, CH 1993 F No. 3721, for the purpose of obtaining for himself and his fellow purchasers control of AEP and, through AEP, the land in Portugal that had been acquired with their money. Mrs McKeown, as Mr Murphy's personal representative, was a necessary party to that action but was also sued in her personal capacity. During the course of the action the claim against Mrs McKeown in her personal capacity was dropped on terms which required her to make available to the plaintiff and his legal advisers all relevant documents in her possession or under her control. None of the other defendants to the 1993 action took any part therein and the action culminated in declarations made by His Honour Judge Paul Baker QC, sitting as a deputy High Court Judge, to the effect that the shares in AEP and the land in Portugal were held in trust for the purchasers.

Under the terms of the compromise with Mrs McKeown a considerable volume of documents, including copies of bank statements and cancelled cheques relating to the bank accounts maintained...