Somerset Equipment Finance (UK) Ltd v Lan Support Ltd

Hearing date: 25 February 2025

Approved Judgment

This judgment was handed down remotely at 10.30am on 14 March 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Paul Mitchell KC:

There are two applications before me: the Defendant's application for security for costs dated 14 April 2023 and the Claimant's for summary judgment dated 19 August 2024. I address them in reverse order.

I am most grateful to Mr Turlough Stone, for the Claimant, and Mr Alexander Pelling, for the Defendant, for the clarity of their written and oral submissions and their collaborative and sensible approach to assisting the court.

The facts

The application for summary judgment arises from the following uncontroversial facts.

The Claimant is an asset finance company. The Defendant, among other things, brokers finance agreements to other businesses. On or about the following dates, the Claimant received invoices (“ the Invoices”) on the Defendant's letterhead, sent by email:

i) 20 September 2021, in the sum of £1,199,509.20 (inclusive of VAT)

ii) 4 October 2021, in the sum of £1,238,730 (inclusive of VAT)

iii) 19 October 2021, in the sum of £1,287,300 (inclusive of VAT).

Each invoice was a standard form document. The Invoices were addressed to the Claimant and showed a schedule of equipment for use in outdoor broadcasting (“ the Equipment”). The unit cost of each item of Equipment was shown and VAT was applied to all items. There was a box at the top of the invoice titled “Equipment location”, completed to show the address of a company called Arena Holdings Limited at Redhill Aerodrome (“ Arena”). The Defendant's banking coordinates were provided showing where the Claimant was to remit payment; and at the bottom of the invoice was the rubric “Please refer to Lan Support Ltd's Terms & Conditions”.

The Defendant did not itself send the Invoices. Rather, they were emailed to the Claimant by representatives of a company called Primary Asset Finance (“ PAF”). The Claimant says of PAF in its Particulars of Claim merely that it was “an asset finance broker on behalf of Arena in relation to the funding of the Equipment”. In his evidence in support of the summary judgment application, the Claimant's Mr Royer says much the same: that PAF “sources and introduces finance providers/ lenders to its customers who require funding for the acquisition of assets”. The Claimant says nothing further about PAF's role, on the basis, it contends, that the undisputed facts alone are relevant.

The Defendant's Mr Stuart Tidy gives more evidence regarding PAF in his witness statement. I shall consider Mr Tidy's evidence further below after stating the remainder of the agreed facts.

The Equipment which was the subject of the Invoices was intended by the Claimant and the Defendant to be leased by the Claimant to Arena.

The Defendant was not the manufacturer of the Equipment. It believed it was acquiring title to the Equipment via a chain of contracts, as follows:

i) Arena purportedly sold the Equipment to a company called CMI Corporation Limited (“ CMI”).

ii) CMI was a company related to the Defendant: at the time of the Invoices, it, like the Defendant, was owned by Mr Tidy; and Mr Tidy directed the affairs of both the Defendant and CMI. Mr Tidy caused CMI, rather than the Defendant, to enter into the purchase from Arena in order to increase the turnover of CMI shown in its statutory accounts.

iii) CMI then sold the equipment to the Defendant in a “back-to-back” sale.

Unknown to the Claimant or the Defendant at the time payments were made by the Claimant to the Defendant, and then by the Defendant to CMI, and finally by CMI to Arena, as a matter of fact the Equipment which was the subject matter of the invoices did not exist. On 10 November 2021, very shortly after the last payment was made to it by CMI in relation to the Equipment particularised in the third of the Invoices, Arena apparently ceased trading; it went into administration on 18 November 2021 and subsequently into liquidation. It is common ground that a fraud was perpetrated by Arena/ persons connected with Arena in relation to the procuring of finance from the Claimant.

The total indebtedness of Arena and its related companies to asset-based lenders such as the Claimant was in excess of £1 billion, and there are currently claims by the liquidators of Arena and another company in the Arena group against those companies' former bankers in the order of £280,000,000 seeking reconstitution of the company's bank accounts in about that sum. No recoveries have yet been effected by the liquidators.

It is common ground that:

i) The parties were seeking to contract with each other on terms that would result in the Claimant obtaining legal title to the Equipment;

ii) The Claimant paid the Defendant in full in relation to each invoice and at the moment of payment, a contract purportedly came into existence between the parties;

iii) Given the Equipment did not exist, then as a matter of law the contracts which the parties had purported to enter were void ab initio;

iv) In principle, the Defendant is liable to repay to the Claimant those sums which it received in respect of the Invoices.

The Defendant has repaid the Claimant a sum which represents the commission it retained when passing money from the Claimant to Arena by way of the contractual structure outlined above at paragraph 9. It maintains, however, that it should not be ordered to repay the Claimant any further sum. By its Defence and Counterclaim, it pleads at paragraph 29.1:

“LAN has changed its position, in that of the money LAN received from Somerset further to the purported Contracts, all but the Profit Element was upon receipt, and/ or in reliance upon such receipt, paid away by LAN to Arena (through CMI) as intended consideration for the Equipment under the very back-to-back transactions of which the purported Contracts were a part, as Somerset knew it would be”.

The Defendant contends at paragraph 29.5 of its Defence and Counterclaim that “in all the circumstances of the case it would be inequitable to require LAN to make restitution of any more than the Profit Element”.

The Defendant also contends, at paragraph 27.3 of the Defence and Counterclaim:

“further, Somerset's restitutionary claim falls to be reduced by the value of such sums as Somerset has received from Arena in respect of the Equipment, which sums LAN understands to have been in the region of or in excess of £800,000”

In its Reply and Defence to Counterclaim, the Claimant:

i) Denies that it was aware that sums paid to the Defendant would be paid away by LAN to Arena through CMI;

ii) Denies that the Defendant has changed its position as a result of receipt of the moneys transferred by the Claimant;

iii) Denies that it would have to give credit for any sum it had received from Arena on the basis that “there is no requirement in a restitutionary claim to take into account benefits received by the innocent purchaser [sic, sc. ‘paying party’]”

On grounds which I shall address more comprehensively below, the Claimant seeks summary judgment on the Defendant's change of position defence. At the heart of the Claimant's argument is this proposition: “If A receives money from B and enters into a transaction with C which is void ab initio, A cannot rely on the transaction with C in answer to B's restitution claim”. The Claimant contends that on this basis the Defendant has no real prospect of establishing its change of position defence.

Although there is a counterclaim by the Defendant, that counterclaim is predicated on the court at trial finding, contrary to the submissions of both the parties, that the contracts between them were not void ab initio. If the contracts were valid, then, the Defendant says, it has various rights arising under the terms and conditions which it says were incorporated into the contracts by the rubric at the end of each of the Invoices (see above, paragraph 5).

If, however, the contracts were void ab initio, then the areas of dispute between the parties are more narrow:

i) The Claimant alleges by way of alternative to its restitutionary claim that the Defendant represented to it that the Equipment was in existence and/ or that it had good title to the Equipment;

ii) On the basis of these alleged representations, the Claimant avers that it is entitled to damages for breach of a collateral warranty alleged to have been given by the Defendant/ damages for negligent misstatement on the part of the Defendant.

Unlike with its restitutionary claim, where liability is strict (subject to any change of position defence), to establish either of the alternative claims the Claimant would have to prove that it relied on that which it says was impliedly represented by the Defendant.

I now turn to the facts raised by the Defendant in its evidence. Some of these are disputed but the Claimant's position is that even if such disputes were resolved in the Defendant's favour, that would make no difference to the outcome of its application for summary judgment.

The Defendant contends that the circumstances which would make it inequitable to require it to make restitution of the full sums received by it in payment of the Invoices include the following:

i) It was as much deceived by...