Mrs Adelle Challinor and 20 Others v Juliet Bellis & Company (Defendant and Part 20 Claimant) Mr Geoffrey Egan (Second Defendant and Part 20 Defendant)
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr Justice Hildyard,Mr Justice Hildyard |
| Judgment Date | 25 February 2013 |
| Neutral Citation | [2013] EWHC 347 (Ch) |
| Docket Number | Case No: HC10C03729 |
| Court | Chancery Division |
| Date | 25 February 2013 |
and
[2013] EWHC 347 (Ch)
The Honourable Mr Justice Hildyard
Case No: HC10C03729
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Andrew Sutcliffe QC, Adam Kramer (instructed by Hewlett Swanson LLP) for the Claimant
Ian Croxford QC, Clare Stanley (instructed by Clyde & Co LLP) for the First Defendant
Francis Bacon (instructed by Messrs Reynolds Porter Chamberlain) for the Second Defendant
Hearing dates: 9–10, 11, 14–18, 21–25, 28–30 May 2012, 13 – 15. 18 June 2012
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
TABLE OF CONTENTS
Table of Contents
| The parties: the Main Claim and the Part 20 Clai | 6 |
| The Claimants | 6 |
| The Defendant Firm | 6 |
| Gist of Main Claim | 6 |
| Gist of Part 20 Claim | 7 |
| Gist of claim against Mr Egan in Main Claim | 7 |
| Questions in issue | 8 |
| Summary of the nature and basis of the Claims | 9 |
| (1) Claimants' primary case in the Main Claim | 9 |
| (2) Claimants' secondary case in the Main Claim | 9 |
| (3) Alternative remedies for the Claimants in the Main Claim | 10 |
| (4) Claimants' contingent claim against Mr Egan in the Main Claim | 10 |
| (5) The Defendant Firm's Part 20 claim against Mr Egan | 11 |
| The Albermarle investors and previous Albermarle schemes | 11 |
| Characteristics of previous Albermarle schemes | 11 |
| Relevance of previous Albermarle schemes in informing Claimants' approach | 14 |
| Changes in Albermarle pattern after acquisition of Egan Lawson by Erinaceous | 17 |
| Egan Lawson becomes ECS and part of the Erinaceous Group | 17 |
| Erinaceous Group's developing financial difficulties | 17 |
| Mrs Bellis takes over the role of solicitor | 19 |
| Mrs Bellis's perception of her role | 19 |
| Mrs Bellis and her other family interests | 19 |
| Albermarle Fairoaks scheme and the facts in more detail | 21 |
| The underlying investment: Fairoaks airport land | 21 |
| Purchase and funding of the Fairoaks land | 22 |
| SDLT changes and Erinaceous difficulties bring further complication | 22 |
| Chronological sequence of background events | 23 |
| Development of the structure | 23 |
| Mr Egan's agreed funding terms | 25 |
| Arrangements for ownership and control of SPV | 26 |
| Mr Cummings becomes beneficial owner of AFL | 27 |
| The Engagement Letter | 28 |
| The "initial teaser" | 29 |
| Proposal for a loan note | 29 |
| Revised Teaser and the Teaser email | 30 |
| Draft Loan Notes are provided and sent out | 31 |
| PwC advise right of conversion not feasible | 32 |
| Payments start into the client account | 33 |
| Payments out of client account to RBS | 34 |
| Delay and uncertainty continues | 35 |
| RBS Equity Bridge repayments | 39 |
| Investors become aware of their treatment as unsecured subordinated lenders | 40 |
| Mrs Bellis' contemporaneous Memorandum in December 2007 | 41 |
| Events in 2008: the investors call for the return of their monies | 43 |
| Denouement | 43 |
| Issues | 44 |
| Scope and nature of the evidence: gaps in disclosure | 47 |
| Scope and nature of evidence | 48 |
| Are the "offering documents" part of the admissible factual matrix? | 51 |
| Witnesses | 52 |
| Observations as to the witnesses | 54 |
| (1) Nature of the "investment" solicited | 56 |
| (a) The evidence given on the Claimants' subjective point of view as to the nature of the investment | 56 |
| (b) Mr Egan's point of view as to the nature of the investment | 60 |
| (c) Mrs Bellis' point of view as to the nature of the investment | 63 |
| (2)(a) Was Mrs Bellis aware of the terms of the "offering documents" and did she know they had been sent to the investors? | 67 |
| (3) What did the parties understand to be the role of the Defendant Firm? | 73 |
| (a) Investors' understanding as to the role of Mrs Bellis | 73 |
| (b) Mr Egan's understanding as to the role of Mrs Bellis | 73 |
| (4) Requirement for investors to make payments into client account | 76 |
| (a) The investors' understanding of reasons for use of client account | 76 |
| (iii) Mr Egan's perception as to reason for use of client account | 77 |
| (iii) Mrs Bellis' perception as to reasons for use of client account | 79 |
| (5) What did parties perceive to be required to authorize payments out of client account? Were such requirements satisfied? | 82 |
| (a) Claimants' understanding | 82 |
| (b) Mr Egan's understanding as to what authority was required for payments out | 84 |
| (c) Mrs Bellis' understanding on the issue of authority | 86 |
| (6) Were there any other factors operating on Mrs Bellis in making payments out of client account? | 88 |
| (7) The alleged conversation between Mrs Bellis and Mr Wallis | 89 |
| (8) What went wrong: the aftermath | 95 |
| THE MAIN CLAIM: ESCROW/QUISTCLOSE TRUST | 97 |
| Issue 1: was a contractual relationship established between the Claimants and the Defendant Firm? | 97 |
| Was there any express escrow agreement made between the Claimants and the Defendant Firm? | 98 |
| Was there any implied escrow agreement between them? | 98 |
| Contracting parties and the engagement to be demonstrated | 98 |
| Was there an intention to create legal relations between the Claimants and the Defendant Firm? | 99 |
| Can terms of sufficient certainty to establish a valid contract be implied or inferred? | 104 |
| Answer no different if "offering documents" taken into account | 105 |
| Did the Claimants have different subjective intentions? | 107 |
| Should a form of Quistclose trust be implied? | 107 |
| Nature of a Quistclose trust | 107 |
| Application in this case | 111 |
| Breach of trust in making payments to RBS | 117 |
| If necessary to show breach of fiduciary duty or that Mrs Bellis's conscience affected | 118 |
| CLAIMANTS' ALTERNATIVE CASE: the Defendant Firm had no authority to receive funds raised | 120 |
| Engagement Letter as alleged source of authority | 125 |
| Had Mr Cummings authority to bind AFL to the Engagement Letter? | 125 |
| When did he become beneficial owner of the shares in AFL? | 125 |
| Can a sole beneficial owner of shares informally bind a company? | 129 |
| Consequences if no authority to borrow and/or receive monies | 130 |
| Alternative contention: ratification | 132 |
| The need to establish "conscious awareness" | 135 |
| FURTHER ALTERNATIVE CLAIM IN RESTITUTION | 136 |
| REMEDIES/LOSSES | 139 |
| CLAIMANTS' CLAIM AGAINST MR EGAN | 143 |
| (1) Were representations made by Mr Egan to the Claimants as to the terms on which monies paid into the client account would be held? | 144 |
| (2) Were the circumstances such as to give rise to a duty of care on the part of Mr Egan? | 149 |
| PART 20 CLAIM | 153 |
| Dishonestly procuring breach of trust | 155 |
| Breach of warranty of authority/collateral contract | 159 |
| Allegation that Mr Egan owed fiduciary duties of which he was in breach | 159 |
| Procuring wrongdoing by ECS | 162 |
| Conclusion as to Part 20 Claim | 163 |
| SUMMARY OF CONCLUSIONS | 163 |
| POSTSCRIPT | 164 |
| SCHEDULE A…. | 167 |
The parties: the Main Claim and the Part 20 Claim
The Claimants
The 21 Claimants ("the Claimants") in the main Part 7 claim ("the Main Claim") comprise a group of investors who paid monies into the First Defendant's client account in respect of a property investment opportunity ("the Albermarle Fairoaks scheme") relating to development land ("the airport land") at and around an airport property in Surrey by the name of "Fairoaks".
The airport land had been acquired by a special purpose vehicle ("SPV") which came to be called Albermarle Fairoaks Limited ("AFL"). AFL was incorporated in Guernsey, originally under the name Shelco Twenty-Two Limited. AFL has been in administration since 2010.
The Defendant Firm
The First Defendant to the Main Claim is a firm of Solicitors ("the Defendant Firm"). Its principals at the material time were Mrs Juliet Bellis ("Mrs Bellis") and Mr Patrick Solomon. (The latter had no involvement in any of the matters in dispute and has played no part in any of these proceedings.)
The Defendant Firm acted as solicitors in the Albermarle Fairoaks scheme, and its client account was used to receive money raised from investors in that scheme.
Gist of Main Claim
The focus of the Main Claim is as to the purposes for which, and the terms on which, the Claimants made payments into that client account ("the Defendant Firm's client account" or "the client account" as appropriate in the context) with a view to participation in the Albermarle Fairoaks scheme. The total sums invested amounted to some £2,280,000.
The Claimants contend that the monies so remitted were at all material times held subject to escrow conditions, and further or alternatively, on a form of Quistclose or resulting trust for them or otherwise to their order. They claim that the payment of those monies out of the Defendant Firm's client account constituted a breach of contract and/or trust for which the Defendant Firm is liable.
The Defendant Firm contends that the monies were paid by way of immediate loan to AFL and not subject to any escrow conditions or any form of Quistclose or resulting trust. The Defendant Firm denies that the payments it made out of its client account were wrongful in any way and rejects the claims made against it.
The Second Defendant and Part 20 Defendant
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