Kwok Choon Chiang and Another v Mishcon De Reya
| Jurisdiction | England & Wales |
| Judge | Mr Justice Roth |
| Judgment Date | 23 May 2013 |
| Neutral Citation | [2013] EWHC 2319 (Ch) |
| Date | 23 May 2013 |
| Court | Chancery Division |
| Docket Number | Case No: HC13B00664 |
[2013] EWHC 2319 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
7 Rolls Building
Fetter Lane
London
EC4A 1NL
Mr Justice Roth
Case No: HC13B00664
Mr David Melville QC and Mr Robert Hantusch (Instructed by Kennedys Law LLP) appeared on behalf of the Claimants
Mr Ian Croxford QC and Mr Robert Weekes (Instructed by Robin Simon LLP) appeared on behalf of the Defendant
Approved Judgment
Thursday, 23 May 2013
Introduction
This is an application for summary judgment, alternatively interim payment. The first claimant lives in Alabama in the United States. He says that he is known as "KC" and I shall adopt that nomenclature. KC is engaged in real estate development, in part through the second claimant ("Merlion") which is an Alabama limited partnership of which KC is the principal owner and president. The defendant ("Mishcons") is a well-known firm of solicitors in London.
In the course of the transaction which gives rise to the present claim, the claimants transferred from the United States $4 million to Simmons & Simmons, solicitors, in London, towards the cost of the arrangement of funds for a real estate development in Alabama. Simmons & Simmons transferred just under $3.5 million of that money to Mishcons, who in turn paid it out to their client, a Mr Michael Shephard, or to third parties on Mr Shephard's instructions and for his benefit. The partner at Mishcons handling the matter and acting for Mr Shephard was a Mr Kevin Steele. No funding as envisaged was ever procured. The Alabama development never took place and, without making any conclusive findings on what is a summary application, the claimants appear to be victims of a fraud orchestrated by Mr Shephard.
In December 2011, both Mr Shephard and Mr Steele were sentenced at Southwark Crown Court to terms of imprisonment after being convicted on three counts of fraud. The frauds for which they were convicted, and the only frauds for which they were charged, do not concern the transaction involved in the present case, albeit that the facts underlying the present case were at least considered as part of the investigations carried out by the Serious Fraud Office.
The loss of his money, some of which he had borrowed from his sister and other third parties, was undoubtedly a terrible blow for KC. But the issue in these proceedings is whether he can recover on account of his loss from Mishcons. And the question for the present application is whether there are grounds on which he can establish that Mishcons have no real prospect of defending the claim, such that KC and/or Merlion are entitled to summary relief or would obtain judgment at trial such that the court can now order an interim payment.
The claim
The claim form and Particulars of Claim, as clarified by Mr Melville QC on behalf of the claimants in the course of argument, put forward three distinct grounds of claim: (1) that monies originating with the claimants that were received by Mishcons were subject to a so-called Quistclose trust in respect of which Mishcons, as trustees, were in breach of their duties and liable to make good the claimants' loss; (2) dishonest assistance by Mr Steele to Mr Shephard in misapplying, for the benefit of Mr Shephard and others, monies supplied by the claimants, for which conduct Mishcons are vicariously liable; (3) conspiracy between Mr Steele and Mr Shephard to use unlawful means to defraud the claimants, for which Mishcons are similarly vicariously liable as regards the participation of their then partner, Mr Steele.
The claimants' pleading appears to put forward a fourth and independent ground of claim, ie that the conduct of Mr Steele in handling Mr Shephard's client account was in breach of the Solicitors Accounts Rules and that Mishcons is liable to compensate the claimants for the resulting loss. However, Mr Melville explained in oral submissions that this was not advanced as an independent cause of action but only in support of the obligation of Mishcons to make good the loss resulting from breach of their duties under the alleged Quistclose trust. In those circumstances, I consider that any question of breach of the Solicitors Accounts Rules is relevant only to the alleged defence raised by Mishcons under section 61 of the Trustee Act 1925, in the event that liability for breach of trust should otherwise be established.
This summary application has proceeded only on the first of those three grounds, i.e. the alleged Quistclose trust. Mr Melville had sought to advance a claim for interim payment also on the two pleaded grounds of dishonesty and in fraud, but that had not been asserted in the claimants' evidence filed in support of this application. Since argument for summary relief on those claims, which the defendant had not expected to meet, would have prompted an adjournment, they were very sensibly not pursued. As Lewison J (as he then was) said in The Federal Republic of Nigeria v Santolina Investment Corporation & ors [2007] EWHC 437 Ch at paragraph 4:
"Although there is no longer an absolute bar on obtaining summary judgment when fraud is alleged, the fact that a claim is based on fraud is a relevant factor. The risk of a finding of dishonesty may itself provide a compelling reason for allowing a case to proceed to trial, even where the case looks strong on the papers…"
I consider, therefore, only the claim that the monies were impressed with a Quistclose trust.
The law
The requirements for a payment made to a third party to be subject to a Quistclose trust in favour of the payor as beneficiary are not in dispute. In the recent case of Bieber v Teathers Limited [2012] EWCA 1466 Civ, [2013] 1 BCLC 248, they were summarised by Norris J in a series of seven propositions which were approved in the Court of Appeal by Patten LJ at paragraph [14] of his judgment:
"16. First, the question in every case is whether the payer and the recipient intended that the money passing between them was to be at the free disposal of the recipient: Re Goldcorp Exchange [1995] 1 AC 74 and Twinsectra at [74].
17. Second, the mere fact that the payer has paid the money to the recipient for the recipient to use it in a particular way is not of itself enough. The recipient may have represented or warranted that he intends to use it in a particular way or have promised to use it in a particular way. Such an arrangement would give rise to personal obligations but would not of itself necessarily create fiduciary obligations or a trust: Twinsectra at [73].
18. So, thirdly, it must be clear from the express terms of the transaction (properly construed) or must be objectively ascertained from the circumstances of the transaction that the mutual intention of payer and recipient (and the essence of their bargain) is that the funds transferred should not be part of the general assets of the recipient but should be used exclusively to effect particular identified payments, so that if the money cannot be so used then it is to be returned to the payer: Toomey v Milne (1819) 2 BOA 683 and Quistclose Investments at 580B.
19. Fourth, the mechanism by which this is achieved is a trust giving rise to fiduciary obligations on the part of the recipient which a court of equity will enforce: Twinsectra at [69]. Equity intervenes because it is unconscionable for the recipient to obtain money on terms as to its application and then to disregard the terms on which he received it from a payer who had placed trust and confidence in the recipient to ensure the proper application of the money paid: Twinsectra at [76].
20. Fifth, such a trust is akin to a "retention of title" clause, enabling the recipient to have recourse to the payer's money for the particular purpose specified but without entrenching on the payer's property rights more than necessary to enable the purpose to be achieved. It is not as such a "purpose" trust of which the recipient is a trustee, the beneficial interest in the money reverting to the payer if the purpose is incapable of achievement. It is a resulting trust in favour of the payer with a mandate granted to the recipient to apply the money paid for the purpose stated. The key feature of the arrangement is that the recipient is precluded from misapplying the money paid to him. The recipient has no beneficial interest in the money: generally the beneficial interest remains vested in the payer subject only to the recipient's power to apply the money in accordance with the stated purpose. If the stated purpose cannot be achieved then the mandate ceases to be effective, the recipient simply holds the money paid on resulting trust for the payer, and the recipient must repay it: Twinsectra at [81], [87], [92] and [100].
21. Sixth, the subjective intentions of payer and recipient as to the creation of a trust are irrelevant. If the properly construed terms upon which (or the objectively ascertained circumstances in which) payer and recipient enter into an arrangement have the effect of creating a trust, then it is not necessary that either payer or recipient should intend to create a trust: it is sufficient that they intend to enter into the relevant arrangement: Twinsectra at [71].
22. Seventh, the particular purpose must be specified in terms which enable a court to say whether a given application of the money does or does not fall within its terms: Twinsectra at [16].
23. It is in my judgment implicit in the doctrine so described in the authorities that the specified purpose is...
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