Patel v Mirza
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rimer,Lady Justice Gloster,Lord Justice Vos |
| Judgment Date | 29 July 2014 |
| Neutral Citation | [2014] EWCA Civ 1047 |
| Docket Number | Case No: A3/2013/2039 |
| Court | Court of Appeal (Civil Division) |
| Date | 29 July 2014 |
[2014] EWCA Civ 1047
Lord Justice Rimer
Lady Justice Gloster
and
Lord Justice Vos
Case No: A3/2013/2039
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr David Donaldson QC, sitting as a Deputy High Court Judge
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Philip Shepherd QC (instructed by K. A. Arnold & Co) for the Appellant
Mr William McCormick QC and Mr Faisel Sadiq (instructed by Dale Langley Solicitors) for the Respondent
Hearing date: 30 January 2014
The appellant is Chandrakant Patel, the claimant. The respondent is Salman Mirza, the defendant. Mr Patel's appeal is against an order made on 5 July 2013 by David Donaldson QC, sitting as a Deputy High Court Judge in the Chancery Division, dismissing his claim for the repayment of £620,000 he had paid Mr Mirza between September and December 2009. On Mr Patel's own case, he had paid the money to Mr Mirza for the purposes of an illegal agreement for insider dealing in shares in Royal Bank of Scotland Plc ('RBS'). In the event, the agreement could not be and was not carried out because the expected inside information was not forthcoming, but the judge held that Mr Patel's claim was still barred by illegality. The position would, the judge held, have been different if Mr Patel had withdrawn from the agreement before its implementation became frustrated, but he had not.
Mr Shepherd QC, for Mr Patel, submitted that (i) the judge was wrong to find that Mr Patel needed to rely on any illegality in making his claim; and (ii) the fact he had not withdrawn from the agreement before its performance was frustrated was also no bar to his claim. Mr McCormick QC and Mr Sadiq, for Mr Mirza, submitted that the judge's order was correct.
The facts
George Georgiou was, until the financial crisis of 2008, a successful and wealthy property investor and dealer, although his fortunes then declined and he was adjudicated bankrupt in 2010. Mr Patel, also a wealthy man, became friends with Mr Georgiou in about 2004. They clubbed and socialised together. Mr Patel bought properties from Mr Georgiou and also offered Georgiou properties to friends, for which he received a commission. Mr Patel had a desk in Mr Georgiou's Ilford office.
Mr Mirza was employed by Tullett Prebon Plc as a foreign exchange broker. He also had a personal spread-betting account with IG Index. He and Mr Georgiou had known each other since they were teenagers. Mr Mirza made at least two loans to Mr Georgiou.
Mr Patel and Mr Mirza first met at Mr Georgiou's house at about the end of 2008 at one of Mr Georgiou's Friday poker evenings. Mr Patel sought thereafter to interest Mr Mirza in buying cars and watches that he was able to source at a large discount.
In August 2009, Mr Georgiou told Mr Patel of a deal offered by Mr Mirza involving the use of Mr Mirza's spread-betting account to bet on the movement of RBS shares. The claimed beauty of the deal was that Mr Mirza knew people who would sit in on any meeting between RBS heads and government officials, and within minutes of the end of the meeting he would know its outcome. Mr Georgiou suggested that Mr Patel should be involved. He telephoned Mr Mirza there and then, with his phone in loudspeaker mode, and Mr Mirza confirmed the scheme to Mr Patel. Shortly afterwards, all three men met around Mr Georgiou's kitchen table during a Friday poker evening in early September 2009. The judge said that Mr Patel's evidence was that:
'8. … Mr Mirza confirmed that he had contacts in RBS who could supply him with information of meetings with government officials, and in particular of a public statement expected from the Chancellor which would have an effect on the RBS share price. Mr Mirza expressed his readiness to include Mr Patel's money in a bet based on such information, and wrote down the details of his bank current account to which Mr Patel could send the money.
9. I interject by way of brief technical excursus that a spread bet on listed shares is on analysis a contract of differences, based on movements in the quoted share price over a specified period. In the case of IG Index the client was required, as Mr Mirza told me, to deposit 15–20% of the initial share price and maintain a deposit to at least this level as the price moved. The level of the deposit meant that substantial gearing, of at least 5 times, could be achieved. Mr Mirza told me that the level of margin required would decrease – and hence the available gearing would increase – with the size of the bet. It follows that Mr Mirza could benefit from agglomerating outside money with his own in placing any bet.'
Between 9 September and 16 December 2009, Mr Patel transferred to Mr Mirza's bank account four payments totalling £620,000 sourced from his 'investor pool', which included his cousin Chirag Patel. The judge said that, with gearing of five times or more, that was sufficient to open a position of more than £3m worth of RBS shares.
In the event, nothing came of the proposal. In late January or February 2010, according to Mr Patel, Mr Mirza told him that there was no longer expected to be a government statement about RBS and that he would return the money to Mr Patel at about the beginning of March. But, come March, Mr Patel's evidence was that he was told by Mr Mirza that the £620,000 had, by a mistake by Mr Mirza's bank, been paid instead to Mr Georgiou. Mr Patel failed in his attempts to recover the money from Mr Georgiou or his trustee in bankruptcy. So Mr Patel sued Mr Mirza for the money.
At the heart of this murky story is, therefore, the entry by Mr Patel and Mr Mirza into what, on Mr Patel's case, was an illegal arrangement directed at achieving a profit from the movement of RBS shares by using insider information. Such illegality was the reason why the judge dismissed Mr Patel's claim. It is relevant to see how his case was pleaded.
The pleadings
The amended particulars of claim (not the work of Mr Shepherd) were not shy about proclaiming the illegal nature of the arrangement. Having pleaded Mr Mirza's status as a foreign exchange dealer in paragraph 1, paragraph 3 pleaded that in two conversations in August and September 2009, Mr Mirza outlined the following proposal to Mr Patel:
'3.1 [Mr Mirza] would get advance knowledge of what information a statement anticipated to be made by the Chancellor of the Exchequer about the Government investment in [RBS] would contain, and that the shares in [RBS] would rise or fall dependent upon what information that statement contained.
3.2 If [Mr Patel] were to transfer monies to [Mr Mirza], he would place them in his IG Index account and would be able to gear them up to gain maximum benefit from such rise or fall.
3.3 [Mr Mirza] would only place any funds provided to him by [Mr Patel] once he had the information set out in sub-paragraph 3.1 above and therefore there was no risk associated with the placing of the funds with him.
3.4 [Mr Mirza] would be placing a large sum representing his personal funds into the same transaction.'
Paragraph 4 pleaded the terms governing any transfer of money by Mr Patel to Mr Mirza, which included allegations that Mr Georgiou was not, nor was to be, involved in the transaction in any way and that Mr Mirza was to be entitled to a commission from any profit generated for Mr Patel. Paragraph 5 pleaded that Mr Mirza's proposal was in the nature of an offer that Mr Patel accepted. Paragraph 9 pleaded the transfer of the £620,000 to Mr Mirza's bank account. Paragraph 10 pleaded a further, or alternative, case that the money was transferred to and held by Mr Mirza upon trust for the sole purpose of applying the money in accordance with the proposal. Paragraph 11 pleaded Mr Mirza's explanation in 2010 that the Chancellor was no longer expected to make the predicted statement and that he would not therefore be implementing the proposal and would return the money. Paragraph 12 pleaded what Mr Mirza had said was the mistaken payment to Mr Georgiou. Paragraph 13 pleaded that if Mr Mirza had paid the money to Mr Georgiou, he did so in breach of the contract with Mr Patel. Paragraph 14 pleaded that 'the consideration for the payment of the Funds by [Mr Patel] to [Mr Mirza] has wholly failed in that [Mr Mirza's] obligations under the terms of the contract remain wholly unperformed and [Mr Mirza] has provided no other consideration for the Funds'. Paragraph 14 alleged that Mr Mirza had, in receiving the money and in failing to repay it, been unjustly enriched. Paragraph 15 pleaded that the purpose of the trust upon which Mr Mirza had held the money had failed and that, as from such failure, Mr Mirza held the money upon a bare trust for Mr Patel. The claims were for damages and/or equitable compensation, payment of the £620,000, a declaration that the £620,000 was held on trust for Mr Patel, accounts, inquiries and payment.
The re-amended defence denied all dealings or agreements between Mr Mirza and Mr Patel. It admitted the payment of the £620,000 by Mr Patel, but advanced a complicated explanation that Mr Mirza believed this was really provided by Mr Georgiou for legitimate investment in bank shares and that it was only in about May 2011 that Mr Mirza discovered that Mr Patel had made funds available to Mr Georgiou for him to invest. Mr Mirza pleaded that in due course he decided not to proceed with his investment agreement with Mr Georgiou and returned the money to him. No point was made that Mr Patel's claim was, on its face,...
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