England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL
CIVIL DIVISION
ON APPEAL FROM
THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		30th July 2015

The Chancellor of the High Court :

1. This is an appeal from the order dated 15 November 2013 of Mr Stephen Jourdan QC, sitting as a Deputy High Court Judge, granting summary judgment to the claimant, Creation Consumer Finance Limited ("Creation") on part of its claim against the 12 defendants.

The claim

2. The first defendant, Allied Fort Insurance Services Limited ("Allied Fort"), is an insurance broker. Creation lends money to people who wish to take out insurance policies and wish to borrow money to pay the premium.
3. Between 2002 and 2012 Allied Fort was Creation's agent for the purposes of entering into such loans and had Creation's authority, on certain terms, to bind Creation to such loans. The loans were generally repayable over 10 months.
4. The claim form was issued on 28 May 2012. It states that the claim is for damages for breach of agency, breach of trust and/or fraudulent misrepresentation; accounts and inquiries into the dealings of all the defendants knowingly in receipt of money had and received by the defendants to Creation's use in the course of the agency in and since February 2008; payment of any sums found due; compound interest; costs and other relief. There is also a claim for an interim injunction freezing assets pending judgment. The claim form then contains the following four paragraphs elaborating the claim:

"(1) With the knowing assistance and collusion of the 2^nd – 12^th Defendants, the 1^st Defendant is in breach of fiduciary duty to the Claimant and in wilful default of the express terms of an agency agreement between the Claimant and the 1^st Defendant dated about December 2006; by reason of providing false and misleading information concerning applications for loan funding.

(2) The 1^st Defendant (as the remaining Defendants well knew) entered false and/or misleading data into a computerised software accounting programme supplied to it by the Claimant, for the purpose of creating multiple false loan accounts; by fraudulently misrepresenting that applications for finance were being made by genuine customers.

(3) In fact the data which the 1^st Defendant supplied to the Claimant consisted of multiple variations of the names, addresses and bank accounts of the remaining Defendants; of whom the 6^th – 12^th Defendants are companies owned or controlled by the 2^nd – 4^th Defendants, and the 5^th Defendant is a close associate of and co-resident with the 4^th Defendant.

(4) The 1^st Defendant is liable to account to the Claimant for its receipt of the Claimant's money; which constitutes money had and received by the Defendants to the Claimant's use and dealt with in breach of trust."

The proceedings

5. On 29 May 2012 Creation made an ex parte application before Sales J for a freezing injunction against all 12 defendants. Katie Gregory, who described herself as the "client stability accountant" for Creation's parent company, swore two affidavits in support of the application. The first affidavit ran to 21 pages. It was also supported by an unsworn (but subsequently sworn) affidavit of Heidi Hartgrove, the Midlands regional manager for Creation. That ran to 24 pages and 136 paragraphs.
6. Sales J made a freezing order until 6 June 2012. Ms Gregory swore a third affidavit for the purposes of the hearing on that date. There was also an affidavit in support of Stavros Makaritis, the group finance director of Creation. It is not necessary to describe the contents of those further affidavits. The hearing took place before Floyd J. He continued the injunction but gave the defendants an express right to vary or discharge it.
7. Creation filed particulars of claim dated 13 June 2012. They run to 17 pages (without annexures). So far as relevant to this appeal, they contain the following allegations.
8. Creation is engaged in the business of insurance premium financing. Allied Fort is engaged in the business of an insurance broker. The second defendant, Mohammed Iqbal Khan ("Mr Khan"), was at the relevant times the sole director of Allied Fort. The third defendant, Khalid Mahmood ("Mr Mahmood"), was at the relevant times the company secretary and the regional manager of Allied Fort. The fourth defendant, Munawar Ahmed ("Mr Ahmed"), was at the relevant times the company secretary of the eighth, ninth and tenth defendants. The sixth to twelfth Defendants were all companies owned or controlled by Mr Khan at the relevant times.
9. In about 2002 Creation appointed Allied Fort as its agent for the introduction of premium finance business. Various written agreements governed the agency at different times. The last one was dated about 21 December 2006 but Creation only had an unsigned copy.
10. By those agency arrangements Allied Fort was authorised by Creation to operate Creation's "Telesign" online computerised application system, under which Allied Fort entered up the prospective customer's data into a software application known as "iFinance". Creation, having established by automatic checks the actual existence of the bank account and the customer's address as supplied by Allied Fort, remitted credit funds into Allied Fort's account. Allied Fort was, subject to that automatic checking, given authority by Creation to grant premium finance agreements in favour of individual customers up to a maximum of £7000 for any single loan agreement.
11. From about October or November 2009 the Telesign computer system was modified so that, if any customer should pay monthly instalments or default payments directly to Allied Fort, Allied Fort was required to account to Creation by entering the amount received as a "debit-back" against the customer's loan account.
12. By virtue of those matters, at all material times Allied Fort was acting as fiduciary and trustee of the funds received from Creation, and was under a fiduciary duty to apply such funds strictly in accordance with the express terms of the agency, and was under a fiduciary duty to account to Creation for all sums received directly from customers.
13. Until January 2008 Allied Fort held "non-recourse" status as agent; that is to say, in the event of default of repayment by customers, Creation's recourse to Allied Fort was limited to the amount of the return or refund of premiums received from the relevant insurer following cancellation or termination of the relevant insurance policy.
14. From February 2008, at Allied Fort's request, its agency became "recourse". That meant that, in consideration of enhanced rates of commission and weekly reconciliations, Allied Fort would indemnify Creation against the total value of a customer's default. That sum, together with "debit-back" entries, would be deducted against the weekly reconciliation of loan funds plus commission due to be remitted by Creation to Allied Fort in the following week The net sum would then either be paid to, or repaid by, Allied Fort to Creation, as appropriate.
15. In March 2011 Creation carried out an audit which disclosed a number of breaches of the "Telesign" procedures, including the following. Where a single premium exceeded the financial limit of £7000 set by the Telesign system, Allied Fort had arranged to split the total sum across a number of loan agreements with the same customer, each of which purported to be for lesser individual amounts of premium. Several premiums paid in respect of a collection of insurance policies taken out by a number of different customers had been financed within a single loan agreement. If the value of a single loan agreement, or the aggregate value of a collection of loan agreements, was less than the £7000 limit, the difference had been added to the total sum of credit sought from Creation and described as "a fee". If the aggregate value of a collection of loan agreements submitted within a single application for financing exceeded the £7000 limit, Allied Fort had applied a "discount" so as to bring the total below that limit. Those breaches of the Telesign procedures were both breaches of the agency arrangements and breaches of trust.
16. When challenged to explain Allied Fort's conduct, Mr Khan and Mr Mahmood described the loan arrangements, which on their face appeared to feature a collection of different customers or various insurance policy premiums, as "umbrella arrangements".
17. Mr Khan promised at a meeting on 23 March 2011 attended by, among others, Ms Hartgrove and in an email of the same date that Allied Fort would cease to deploy umbrella arrangements forthwith and, in respect of existing umbrella arrangements, would procure the signing of individual loan contracts by each of the borrowers alleged to be participating within them. Accepting the truth of the representations so made, and in consideration of those promises given on behalf of Allied Fort, Creation waived Allied Fort's breaches.
18. Creation waived further breaches of the agency arrangements that occurred in May and June 2011.
19. Following certain discrepancies that became apparent in February 2012, Creation conducted a series of internal audits of all "live" accounts introduced by Allied Fort under the Telesign agency.
20. The audit disclosed the following. Firstly, of the £6.87 million or so total credit money (in respect of outstanding credit agreements) supplied by Creation to Allied Fort under the Telesign agency, approximately £5.21m was traced to only five bank accounts. Secondly, some 90% of the loan accounts introduced by Allied Fort had been opened using combinations of the names and addresses of the second to fifth defendants and of companies of which the second to fourth defendants were variously a director and the company secretary, namely the sixth to twelfth defendants. The audit strongly suggested that, far from stopping the further use of umbrella arrangements and reducing the number already in existence in March 2011, in fact Allied Fort had substantially increased and expanded the use of such arrangements.
21. By about 15 March 2012 Allied Fort's negative position had reached the sum of £405,872.11 and was increasing daily.
22. At a meeting on about 12 April 2012 with Creation's group finance director Mr Khan asserted that the value of credit claimed within individual loan agreements had been "inflated" in order to "make repayments" to Creation; the inflated balance of credit had built up "to cover the [default] fees and compounded interest" due under the recourse agency terms; and there were real customers behind the "umbrella arrangements" and Allied Fort had no bad debtors.
23. Following the delivery of files of documents by Mr Khan to Creation in May 2012, Creation discovered that (1) the same insurance policy reference may have been used more than once in respect of different agreements; (2) clients of Allied Fort appeared to have paid their insurance premiums in full, and yet Allied Fort had created Telesign accounts in the name of their client and had requested up to £7000 of credit; and (3) there was little or no correlation between the date of the policy "offered up" in support of a loan agreement and the date of the agreement itself, suggesting that there was in fact no link between the alleged loan and policy.
24. The particulars of claim allege that, in light of those matters, Allied Fort had acted since about January 2008 in wilful default and breach of express and implied terms of the Telesign agency, and in wilful breach of the warranties given in order to procure Creation's waivers of March and June 2011, by systematically misappropriating money from Creation by means of false loan accounts using multiple combinations of the names, addresses and bank accounts of the second to twelfth defendants, with the "knowledge and assistance" of those defendants.
25. They further allege that those acts of misappropriation were hidden from Creation at all material times under the appearance of so-called umbrella arrangements. Those arrangements were a sham designed to (1) recover the value of charges and interest accruing due on default of loan agreements and which had been deducted by Creation from the balance of the payment due to Allied Fort pursuant to the "recourse agency", while hiding the process of recovery from Creation; (2) create a false impression of genuine turnover, falsely maintaining Creation's continuing forbearance and goodwill, and so generating an entitlement to commission payments to Allied Fort; and (3) steal from Creation.
26. The particulars of claim allege that, by reason of those matters, Allied Fort is liable as fiduciary to account to Creation for all money received from Creation pursuant to the Telesign agency, and for all money received directly by Allied Fort from customers making repayments under any loans taken out with Allied Fort funded by Creation's money. Further, the second to twelfth defendants are liable as constructive trustees to account to Creation for all money received from Allied Fort's dealings in and with Creation's money.
27. The relief claimed in the particulars of claim included (1) a freezing order until trial or further order in respect of the defendants' assets in the jurisdiction; (2) an account of all sums received by Allied Fort from Creation pursuant to the Telesign agency and all sums received from any clients of Allied Fort who had been loaned or supplied money by recourse to Creation's money; (3) an account of all sums received from Allied Fort by any of the second to twelfth defendants as constructive trustees of the proceeds of the money provided by Creation; (4) an inquiry as to what the defendants had done with that money; (5) a declaration that the defendants hold any property acquired by recourse to such sums as constructive trustees for Creation; (6) an order for the transfer of any such property to Creation; (7) an order for the payment by the defendants to Creation of all sums found on the taking of that account; and (8) compound interest.
28. Acting by the same solicitors and counsel, the defendants other than the fourth and fifth Defendants ("the represented defendants") served a defence and Allied Fort made a counterclaim dated 10 August 2012. The defence consists largely of admissions and non-admissions. Paragraphs 22, 28, 33 and 40, however, contain express denials that the represented defendants were in breach of agency or in breach of trust as alleged or at all. Further, it is positively averred in paragraphs 25, 28, 34 and 41 that Creation was at all material times aware of Allied Fort's umbrella arrangements and consented to them and encouraged the use of them. It is denied in paragraph 27 that Mr Khan attended any meeting on 23 March 2011 and that Mr Mahmood indicated that he would over the course of time try to ensure that Allied Fort would reduce the use of umbrella agreements and that he would cease to deploy umbrella agreements forthwith; and it is also denied that Mr Khan promised that, in respect of existing umbrella arrangements Allied Fort would procure the signing of individual loan contracts by each of the borrowers participating in them. In paragraph 44 the represented defendants deny that Creation is entitled to the relief claimed or any relief, save that Allied Fort also seeks an account of all sums received and paid by Creation. The counterclaim includes, among other things, a claim for such an account. It is not necessary, for the purpose of this appeal, to refer further to the counterclaim.
29. The fourth defendant and the fifth defendant each served a defence dated 13 August 2012. Much of those defences consists of assertions that they are unable to admit or deny allegations in the particulars of claim. They do, however, deny that Mr Khan was their "principal motivating mind". They admit and aver that Mr Khan was their close friend; the fourth defendant carried on business as a self employed travel agent; the fifth defendant was his wife and assisted him from time to time with that business; neither of them had ever been employed by any of the first to third defendants or the sixth to twelfth defendants. In his defence the fourth defendant admitted that he was the company secretary of the ninth, tenth and eleventh defendants but denied that he was the company secretary of the eighth defendant. Both the fourth and the fifth defendant averred that they had no involvement with the running of those companies and had no knowledge of their respective businesses or affairs. The fourth defendant averred that he had not been asked to undertake any duties as company secretary of those defendants. Both the fourth defendant and the fifth defendant respectively denied that they had procured or knowingly permitted or assisted with their name (or any variation of it) being used as a customer on the loan agreements referred to in the particulars of claim. They each denied that they were liable as constructive trustee to account to Creation for all money received from Allied Fort as set out in the particulars of claim.
30. In September 2012 the represented defendants responded to a request by Creation for further information pursuant to CPR Part 18. The composite document containing the request and the response runs to twenty six pages.
31. On 4 October 2012 the fourth defendant and the fifth defendant each replied to a request by Creation for information pursuant to CPR Part 18.
32. Creation served a reply to the defence of the represented defendants and to Allied Fort's counterclaim. Creation generally joined issue with the represented defendants on the allegations contained in their defence. In addition, Creation specifically denied the allegations in the defence that Creation gave its express or implied consent to the use of the umbrella agreements through Ms Hartgrove. It denied that Ms Hartgrove either offered or gave any such consent to any of the defendants, whether expressly or impliedly. It denied that Ms Hartgrove had Creation's authority to give any such consent, and it denied that she either held herself out or was held out or permitted to hold herself out by Creation as authorised to give consent, whether expressly or impliedly, to the manner in which Allied Fort deployed umbrella agreements, namely the creation of false loan accounts with non-existing customers in order to procure funds from Creation or alternatively to evade a liability to Creation. It was further averred in the Reply that, if Ms Hartgrove knew of the manner in which Allied Fort deployed umbrella agreements, she would have been acting unlawfully and in breach of trust with respect to Creation, and therefore any knowledge of hers could not constitute consent on the part of Creation, whether express or implied.
33. On the same day as they filed their defence and counterclaim the represented defendants applied to set aside the freezing order on grounds of material non-disclosure, delay and a lack of risk of dissipation. That application was supported by the first witness statement of Mr Khan dated 17 September 2012. That witness statement ran to 53 pages and 172 paragraphs. I shall refer to that witness statement in more detail in due course. It is sufficient to say that it contains criticisms of the accuracy of Ms Hartgrove's affidavit and sets out the matters said to show that Creation, and Ms Hartgrove in particular, knew and encouraged use of the umbrella arrangements.
34. On 24 September 2012 Master Price gave case management directions, including that the trial take place between 1 November 2013 and 31 January 2014 with a time estimate of six to seven days. Pursuant to those directions a trial was listed to take place in a window commencing on 13 January 2014.
35. Ms Hartgrove then made a witness statement dated 31 October 2012 in answer to the represented defendants' opposition to the application of Allied Fort to set aside the freezing order. Her witness statement runs to 17 pages and 98 paragraphs. I shall refer to her witness statement in more detail in due course. It is sufficient for the present to say that in it she denies many of the allegations made by Mr Khan, particularly concerning herself.
36. The represented defendants' application to discharge the freezing order came before Mr Robert Englehart QC, sitting as a High Court Judge, on 28 November 2012. It was heard by him over three days between 28 and 30 November 2012 when, upon the represented defendants' undertaking forthwith to procure the provision of certain bank statements to Creation's solicitors, he granted the represented defendants' application and discharged the freezing order on the basis that there was no risk of dissipation of assets.

The summary judgment application

37. On 1 May 2013 Creation issued an application for summary judgment against each of the defendants pursuant to CPR 24.2 on the ground that they have no real prospect of defending the claims against them. The application was for summary judgment against Allied Fort for £6,981,724 in contract; alternatively, for accounts and enquiries against the defendants as constructive trustees. The application was also for an order for interim payment by each of the defendants.
38. The application was supported by a witness statement of Adam Berman, Creation's solicitor. He does not appear to have had any first hand knowledge of the factual matters in issue. His witness statement essentially consists of setting out matters contained in the particulars of claim and the affidavits sworn in support of the application for a freezing order and arguing Creation's case. Unsurprisingly, no reference was made to the contents of his witness statement on the hearing of the appeal.
39. Mr Khan made a second witness statement (incorrectly endorsed as his first witness statement) in opposition to the application for summary judgment. This witness statement adds little to his earlier witness statement, to which he makes reference for the background of the relationship between Allied Fort and Creation and Allied Fort's use of umbrella agreements and in answer to points made in Mr Berman's witness statement. Mr Khan states at paragraph 24 that a key issue of the proceedings is Allied Fort's use of umbrella agreements and whether, and to what degree, Creation authorised and encouraged Allied Fort's use of umbrella agreements. That point is repeated elsewhere in the witness statement. He said that Allied Fort began to increase its use of umbrella agreements in around March 2006, and Creation was aware of that and, through Ms Hargrove, encouraged it. He said that one of the reasons why Creation allowed Allied Fort, with the encouragement of Ms Hartgrove, to continue to utilise umbrella agreements for at least 12 months after March 2011 was because of the benefit that Creation was deriving from Allied Fort's business. He said that Ms Hartgrove's evidence is wrong. It is not necessary to refer further to that witness statement.
40. It appears that other witness statements were made for the purpose of the summary judgment application but we were not referred to them on the hearing of the appeal.
41. At the hearing of the summary judgment application reliance was primarily placed on the substantial first witness statement of Mr Khan in support of the application of the represented defendants to discharge the freezing injunction and the equally substantial first witness statement of Ms Hartgrove in opposing that application. That has equally been the case on the hearing of this appeal. I shall therefore set out important parts of those witness statements relevant to this appeal.
42. I begin with Mr Khan's first witness statement. It must be noted, at the outset, that in many places in his witness statement, in respect of particular matters, Mr Khan stated that Ms Hartgrove's affidavit was wrong or misleading or failed to provide full and frank disclosure of events that took place.
43. In paragraph 38 of his witness statement Mr Khan gave particulars of Creation's knowledge, and particularly that of Ms Hartgrove, that Allied Fort increased its use of umbrella agreements in about March 2006.
44. In paragraph 47 Mr Khan referred to the introduction of the debit-back facility in October 2009. In paragraph 53 he challenged the assertion in Ms Hartgrove's affidavit that debit-backs should not have been processed until the customer had actually paid the money owed. Mr Khan contended that Ms Hartgrove and Creation were both aware that, shortly after the debit-back facility was introduced in October 2009, Allied Fort processed debit-backs without first collecting the defaulted loan repayments from its customers. In paragraphs 64 and 69 Mr Khan asserted that Ms Hartgrove and Creation were aware, from March 2011 onwards, that Allied Fort was charging fees in respect of the applications for credit submitted by it.
45. Mr Khan commented on a meeting with Ms Hartgrove on 21 June 2011 in paragraphs 107 to 113 of his witness statement. He said that on that day Mr Mahmood and he had lunch with her at a hotel in Coventry. He said that during the meeting Ms Hartgrove advised them that they should begin to process umbrella agreements using company names instead of personal names since she could then ensure credit applications would be automatically approved up to £25,000, as opposed to just £7000 if personal names were used. This would mean that further fees could be charged to cover the increasing arrears. He said that Ms Hartgrove was essentially advising Allied Fort how to "stay under the radar" with Creation because processing high value umbrella agreements using company names would arouse less suspicion than processing such agreements using personal names. He said Ms Hartgrove told him that as long as they "ticked all the right boxes" the applications would go through. He said that when Mr Mahmood went to the toilet Ms Hartgrove said to Mr Khan:

"look Ikki, I know everything is not right in your books, just make sure you bloody have insurance policies backing the umbrellas and start to use more companies to place through the system. This will mean more credit approval and less use of your personal names."

46. He said that, at one point, Ms Hartgrove also suggested that there was no harm in using their own personal account numbers for the actual loan repayments but said that they should either use false company names for the actual credit agreements or companies belonging to other clients. He said that, despite his concerns, the arrears were so substantial at that stage that he thought he had no option but to take Ms Hartgrove's advice. Accordingly, following the meeting on 21 June 2011 and acting on her advice, Allied Fort began to process umbrella agreements using the names of the sixth to twelfth defendants. He said that Allied Fort never used false company names as Ms Hartgrove had suggested.
47. Mr Khan then referred to a meeting on 14 July 2011 with Stephen Hunt, Creation's chief executive, at which Ms Hartgrove was present. Mr Khan said that they discussed the umbrella model and he told Mr Hunt that it was important for Allied Fort to continue utilising umbrella agreements to ensure that Allied Fort could continue processing new business and make repayments against the umbrella agreements already in operation. Mr Khan said that, although it was clear that Creation was becoming concerned with Allied Fort's use of umbrella agreements and the amount of credit that was being requested, Creation was not prepared at that stage to request that Allied Fort cease trading in that way, as they were aware that that was the only way the substantial arrears could be satisfied on a weekly basis. Mr Khan said that Mr Mahmood and he did say that they would try to reduce the number of umbrella agreements going forward but made Mr Hunt aware that it would be difficult for Allied Fort to depart from the umbrella model altogether since it had become an integral part of Allied Fort's business process. He said that during the remainder of 2011 Allied Fort continued to submit umbrella agreements to Creation, which continued to be approved.
48. Mr Khan then referred to the fact that he became aware on 17 February 2012 that Ms Hartgrove had told Mr Mahmood that she had made an anonymous call to the Office of Fair Trading, in which she had enquired as to the lawfulness of the operation of umbrella models by a consumer credit licensee such as Creation. Mr Khan continued that Ms Hartgrove had been told that umbrella models were not lawful and could culminate in the revocation of the consumer credit licences of parties involved in them. Mr Khan said that, upon hearing that news, he took the decision to instruct Allied Fort to cease processing umbrella agreements with immediate effect. He then recounted that on 23 February 2012 he sent an email to Ms Hartgrove, in which he proposed a meeting with a view to ceasing Allied Fort's trading relationship with Creation and arranging a mutually acceptable transition of business. He said that, shortly after sending that email, he received a telephone call from Ms Hartgrove who was extremely distressed and asked him why he had not called her to discuss the situation prior to sending the email "on the record".
49. Mr Khan referred to various communications between Ms Hartgrove and himself in February and to telephone calls in March 2012, in which:

"[Ms Hartgrove] said that despite her particular instructions Allied Fort needed to continue processing umbrella agreements through the system to prevent a negative build up."

50. Mr Khan said that on 1 March 2012 Mr Mahmood received a telephone call from Ms Hartgrove, who said that she was extremely distressed, explaining that Allied Fort's account was in a negative position of approximately £390,000, and insisted that Allied Fort cleared down the position immediately by processing new umbrella agreements.
51. In paragraph 128 of the witness statement Mr Khan said that, during that telephone conversation, Mr Mahmood explained to Ms Hartgrove that Allied Fort had stopped processing umbrella agreements pursuant to her advice about umbrella agreements being unlawful and that, in response, Ms Hartgrove shouted that the finance department "were on her case" and that Allied Fort must process umbrella agreements immediately to prevent Allied Fort remaining in a negative position.
52. Mr Khan said that he insisted that, before any action was taken, Mr Mahmood ask Ms Hartgrove formally to request Allied Fort to process umbrella agreements in writing.
53. Mr Khan then referred to an email dated 2 March 2012 from Ms Hartgrove to Mr Mahmood in which she stated as follows:-

"Khalid

Further to our conversation yesterday, your account is £329K in a negative (you owe us) this will be because you ceased to place business with us, as discussed please continue placing business with us as normal so that it keeps your account out of a negative.

When we meet on the 12^th we will work with you to put a plan in place moving forward on what we need you to do to ensure you are operating correctly and we will also discuss previously funded agreements and how we can move forward to correct these.

I know you want to break away yourselves from the umbrella style policies and that you now understand the severity of the issue we have raised again with you so it's now important that we meet to discuss the plan and process forward."

54. Mr Khan observed that this email was not mentioned in Ms Hartgrove's affidavit.
55. Mr Khan said that, in the light of that email, he instructed Allied Fort to process umbrella agreements in the amount of £394,000 in accordance with her instructions. The consequence was that the negative position with Creation was cleared.
56. In paragraph 140 of his witness statement Mr Khan stated that, following the audit in March 2011, his "relationship with Heidi began to develop and ultimately led to what [he considered] to be an inappropriate relationship which impacted on the working relationship between Allied Fort and Creation." He then referred to the fact that she had taken receipt of a bed which Mr Mahmood had obtained for her, and he challenged her evidence in her affidavit where she said that she did not keep the bed and gave it straight away, unused and unopened. He referred to a phone text message which she had sent saying that "the bed is heaven thank u so much".
57. Between paragraphs 144 and 150 Mr Khan referred to and challenged the evidence in Ms Hartgrove's affidavit about a job offer made by Mr Mahmood to her. Mr Khan says that during his relationship with Ms Hartgrove he formed the impression that she was keen on leaving her employment with Creation and joining Allied Fort. He referred to a text message in which she wrote: "If this new project takes off remember me if you need someone to work for u guys I'll certainly consider it". Mr Khan says that during that period Ms Hartgrove was developing "an increasingly close and open relationship" with Mr Mahmood and himself (albeit, as acknowledged by their counsel on the hearing of the appeal, not a romantic one).
58. Ms Hartgrove's first witness statement contains numerous denials of allegations made by Mr Khan in his first witness statement. For the purposes of this appeal it is sufficient to mention only the following specific points made by her.
59. She stated that, to the best of her knowledge, she never met or even spoke to Mr Khan until March 2011. Prior to that time her working relationship was conducted through Mr Mahmood, Mr Khan's brother. She said that she had no idea what an umbrella agreement was, or that such types of agreement even existed, until March 2011. She denied that her email of 2 March 2012 in any way showed that she was aware that Allied Fort had been using the debit-back facility before it had collected arrears from its customer; and she asserted that the email was sent to request that Allied Fort continue placing new business through the system using the correct process, meaning no umbrella agreements, to help bring its account out of a negative position. She denied that any comments made by her during the 2011 audit are in any way evidence that either she or Creation had any knowledge that Allied Fort was utilising credit agreements to satisfy the ever increasing arrears. She denied that she told Mr Khan or Mr Mahmood to use company names instead of personal names to process umbrella agreements. She denied that she was ever asked to authorise, not ever did actually authorise, the use of umbrella agreements. She denied that the conversations which Mr Khan said took place on 21 June 2011, and on which Allied Fort relies, ever took place. She said that during that day all she reiterated to both Mr Khan and Mr Mahmood was that, if they followed the correct process and stopped using umbrella agreements, everything would be fine. She denied that she ever made a telephone call to the Office of Fair Trading to enquire about the lawfulness of umbrella agreements. She denied that in March 2012 she made a number of telephone calls instructing Allied Fort to continue processing umbrella agreements. She denied that Mr Mahmood ever asked her to submit a formal request for Allied Fort to continue processing umbrella agreements in writing, or that she ever agreed to provide that, or that her email of 2 March 2012 could be interpreted as such. She said that what she meant by "as normal" in that email was new business processed in the correct manner. She addressed and explained her relationship with Mr Khan and Mr Mahmood and the issue of the gift of the bed and the offer of employment in such a way as to show that none of them supported a defence to Creation's claim.

The hearing of the summary judgment application and the deputy Judge's judgment

60. The summary judgment application was heard by the deputy Judge over three days, with his judgment being delivered orally on the third day. The fourth and fifth defendants did not appear and were not represented. They made statements saying that they could not afford representation and they asked for their defences to be judged in the light of the case put forward on behalf of the represented defendants.
61. The transcript of the judgment runs to 48 pages and 116 paragraphs. It is a highly conscientious and meticulous examination of the arguments advanced before the deputy Judge and the evidential material to which he was referred.
62. From paragraph 6 he set out what he described as "the essential facts". Critically, he said that there were essentially two different types of umbrella agreement, which Creation's counsel called "type 1" and "type 2". The deputy Judge adopted those labels. He said that there were two varieties of the type 1 umbrella agreement. He described type 1.1 as "a customer collective loan", which involved credit applications of various customers being grouped together and processed under a single credit application in the name of one of the second to twelfth defendants. He described type 1.2 as a "split loan", where a single policy with a premium of more than £7000 is split into several credit applications of less than £7000 each, and each application was in the name of one of the second to twelfth defendants.
63. The deputy Judge said that a type 2 umbrella agreement is completely different. He said that, with that type of umbrella agreement, a loan is applied for in the name of one of the second to twelfth defendants. The premium element of the loan is a small fraction of the total with the remainder of the loan described in Allied Fort's internal documentation as "costs, expenses and fees", and the purpose of those costs, expenses and fees was to enable Allied Fort to repay amounts due under previous loans made by Creation. He said that there was another variant of the type 2 umbrella agreement where it appears that the premium element of the loan may have been paid by the customer out of his or her own funds, meaning that there was actually no need for any loan to be taken out at all. He said that, for the purposes of the summary judgment application, there was no significant difference between the two variants of the type 2 umbrella agreement, and that the really significant feature about them is that the vast majority of the loan was taken out not to pay for an insurance premium but to enable Allied Fort to repay sums that were due to Creation under earlier credit agreements.
64. The deputy Judge said that the key issue on the summary judgment application was whether Creation knew of the type 2 umbrella agreements before April to May 2012.
65. He said that Creation's case was that it first discovered the type 1 umbrella agreements in March 2011 when carrying out an audit of Allied Fort but Mr Khan said that Creation knew about them much earlier. The deputy Judge said that it did not seem to him to matter for present purposes who was right about that. He recorded that Creation accepted that it could not obtain summary judgment in respect of the type 1 umbrella agreements
66. The deputy Judge then turned to and described the allegations in the particulars of claim and the defences.
67. He then turned to and described the application notice and the evidence.
68. He then referred to the tests to be applied on the application. He referred to CPR 24.2 and to Lewison LJ's judgment in Mellor v Partridge [2013] EWCA Civ 477 at [3] setting out the relevant principles. The deputy Judge summarised what he understood them to be.
69. He said that at the stage when skeleton arguments were exchanged there were a large number of issues. He said that as a result of the oral argument, and with the considerable assistance of counsel, the issues before him to decide had been narrowed considerably.
70. The deputy Judge rejected Creation's application to amend the particulars of claim in order to be able to advance a claim in contract.
71. He said (at [58]) that the next issue (relevant to liability of the defendants as constructive trustees) was whether there was a realistic prospect of the represented defendants establishing at trial that Creation knew about the type 2 umbrella agreements before April 2012. He said that the effect of the type 2 umbrella agreements was that the second to twelfth defendants borrowed money from Creation which was then used to repay money due to Creation under earlier credit agreements. He said that, on the face of it, that was an extraordinary arrangement and it was inherently very unlikely that any sensible undertaking would have gone on lending money knowing that that was what was happening. He said that, accordingly, he started from the position that it was very unlikely that Creation was aware of the type 2 umbrella agreements.
72. The deputy Judge then referred to a sequence of emails and letters from March 2011 to March 2012. He said (at [59]) that they very clearly show two things. First, they show that Creation was well aware that Allied Fort was using type 1 umbrella agreements and was very unhappy about it, complained about it, and wanted it to stop but it carried on lending money despite the fact that it knew type 1 umbrella agreements were being used. Secondly, they show that when Allied Fort sought to justify the continued use of umbrella agreements it was never on the basis that they were needed to raise money to repay existing indebtedness. He said there was never any mention at all of type 2 umbrella agreements.
73. At paragraph [78] he said that:

".. given that sequence of correspondence and the complete absence in it of any indication that Creation was aware of type 2 umbrella agreements and given, as I have said, the inherent improbability of Creation continuing to lend money, if it did know about type 2 umbrella agreements, it seems to me that there is a heavy burden on the Represented Defendants to establish that they have a realistic prospect of establishing that Creation did have that knowledge. "

74. In paragraph [79] he said that, as he understood it, there were essentially 3 bases on which the represented defendants contended that it could be discerned that Creation knew about the type 2s: (1) documents were provided to Creation by Allied Fort in March and June 2011 which, it was contended, made it clear that type 2s were in use; (2) Creation must have realised that type 2s were in use because of the financial realities of the business relationship; and (3) Ms Hartgrove made it clear in a conversation in June 2011 that she was aware of the type 2 umbrella agreements and actively encouraged Allied Fort to go on using them and there was an email from her indicating that she knew type 2 agreements were being used.
75. The deputy Judge then considered each of those matters in turn. He considered that none of them was sustainable. He considered in detail Mr Khan's account in his first witness statement of what took place on 21 June 2011 and he also considered the email of 2 March 2012 from Ms Hartgrove to Mr Mahmood.
76. He said (at [97]) that, taken overall, he had reached the conclusion that there was no more than a fanciful prospect that a judge at trial would accept Mr Khan's evidence that Ms Hartgrove said that Allied Fort could charge fees to cover the arrears. He said it was inherently very improbable and it was completely contradicted by all contemporaneous documents and events. He also said (at [98]) that he would regard it as very unlikely indeed that any document would be found on a standard disclosure search which would support the represented defendants' case that Creation knew about the type 2s.
77. The deputy Judge stated (at [99]) that, in conclusion, he was satisfied that the defence of the represented defendants to the claim that Allied Fort breached its fiduciary duty by entering type 2 umbrella agreements had no realistic prospect of succeeding. He held that there should be orders for an account to be taken, and that Allied Fort should make an interim payment of £2.5 million and Mr Khan should make an interim payment of £50,000.
78. As to the fourth and fifth defendants, the deputy Judge said that counsel for Creation had accepted that any order should not prevent the fourth and fifth Defendants from demonstrating, on taking the account, that they did not have sufficient knowledge to make them personally liable to account. The deputy Judge stated (at [116]) that the order should so provide.

Discussion

79. As I have said, the deputy Judge's judgment is a model of conscientiousness. This is, however, a classic example of the type of case in which the judge should have resisted the siren call to bring the proceedings or a significant part of them to an early end before a full trial, no doubt with the best of intentions to save costs, resources, and the time of the court and of the parties.
80. The deputy Judge was aware of the correct principles applicable on summary judgment applications because he referred to the summary of them by Lewison LJ in Mellor. The deputy Judge himself summarised them. As the deputy Judge said, and has been stated on countless occasions and in cases too numerous to cite, it is not appropriate on a summary judgment application to conduct a mini trial in order to resolve conflicts of evidence, especially oral evidence which, in the ordinary course, would be given and tested by cross-examination at a trial. That is especially true where the factual background is complex. Yet, that is precisely what was done by the deputy Judge.
81. Further, although summary judgment is not precluded in a case in which the honesty of one or more of the parties is in issue, particular caution should be exercised before depriving a party of the opportunity of rebutting allegations of dishonest conduct: comp. ED&F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472, [2003] CP Rep 51, at [55], and Wrexham Association Football Club Ltd v Crucialmove Ltd [2006] EWCA Civ 237, [2008] 1 BCLC 508, at [51], [57] and [58]. As Sir Igor Judge P, with his wealth of experience handling both civil and criminal cases, wisely observed in that case:

"[57] I do not underestimate the importance of a finding adverse to the integrity to one of the parties. In itself, the risk of such a finding may provide a compelling reason for allowing a case to proceed to full oral hearing, notwithstanding the apparent strength of the claim on paper, and the confident expectation, based on the papers, that the defendant lacks any real prospect of success. Experience teaches us that on occasion apparently overwhelming cases of fraud and dishonesty somehow inexplicably disintegrate. In short, oral testimony may show that some such cases are only tissue paper strong. As Lord Steyn observed in Medcalf v Weatherill (2003) 1 AC 120 at paragraph 42, when considering wasted costs orders:

"The law reports are replete with cases which were thought to be hopeless before investigation but were decided the other way after the Court had allowed the matter to be tried".

And that is why I commented in Esprit Telecoms UK Ltd and others -v- Fashion Gossip Ltd, unreported, 27 July 2000 that I was

"troubled about entering summary judgment in a case in which the success of the claimant's case involves, as this one does, establishing allegations of dishonesty and fraud, which are strongly denied, and which cannot be conclusively proved by, for example, a conviction before a criminal court."

[58] This collective judicial experience does not always, or inevitably, provide a compelling reason for allowing the case to proceed to trial, nor for that matter require the judge considering the application to reject the conclusion that there is no real prospect of a successful defence of the claim if he is satisfied that there is none. That is not what the Rules provide, and if that had been intended, express provision would have been made. It is however a factor constantly to be borne in mind, if and when, as here, the reason for concluding summary judgment is appropriate is consequent on a disputed finding, adverse to the integrity of the unsuccessful party.

82. The factual background to the proceedings is not simple and straightforward. The length of the written evidence deployed by the parties both on the application for, and the discharge of, the freezing order and relied upon by both sides on the hearing of the summary judgment application, as well as the length of the hearing challenging the freezing order, should immediately have sent a warning signal to the deputy Judge. The fact that, in the event, argument before the deputy Judge took up two days and his judgment runs to 48 pages comes as no surprise.
83. Furthermore, whether or not dishonesty is formally an essential ingredient of the causes of actions alleged in the particulars of claim, the essence of Creation's complaint is that the defendants acted dishonestly.
84. Further, as the deputy Judge correctly identified in his judgment, at the heart of the defence of the represented defendants is the contention that Allied Fort, and in particular Ms Hartgrove, knew, consented to and, indeed, encouraged the umbrella arrangements. Mr Khan in his first witness statement referred in detail to conversations between himself and Mr Mahmood with Ms Hartgrove and others as evidence. Oral evidence of that kind, if disputed, is the paradigm type of evidence, the truth of which cannot, save in exceptional circumstances, be determined on a summary judgment application.
85. The deputy Judge's decision to proceed to hear the summary judgment application and to determine it in favour of Creation rested on three matters. First, he considered that it was possible to make a clear distinction between type 1 umbrella arrangements and type 2 umbrella arrangements. Secondly, he considered that the dispute between the parties as to whether or not Creation, and particularly Ms Hartgrove, knew, consented to and encouraged type 1 umbrella arrangements was irrelevant to the liability of the defendants for the type 2 arrangements. Thirdly, he considered that the contemporaneous documents so undermined the evidence of Mr Khan in his witness statements as to Ms Hartgrove's consent to, and encouragement of, type 2 umbrella arrangements that it was fanciful to believe that any oral evidence that might be given by Mr Khan to that effect at a trial would be believed by the trial judge.
86. Each of those assumptions by the deputy Judge was unsound. These proceedings turn on a fundamental conflict of evidence between Mr Khan and Mr Mahmood, on the one hand, and Ms Hartgrove, on the other. Neither the statements of case, nor Ms Hartgrove's affidavit and witness statement nor the witness statements of Mr Khan and others so far deployed by the parties in the proceedings draw the distinction between type 1 and type 2 arrangements. The application for summary judgment itself made no distinction between the two types of arrangement and was for judgment in respect of the whole claim. The distinction between type 1 arrangements and type 2 arrangements was made for the first time in Creation's skeleton argument for the summary judgment hearing with the awareness that Creation would not succeed in obtaining summary judgment for breach of fiduciary duty or on the basis of constructive trust for its entire claim. That tactic could only work, however, in salvaging the summary judgment application in respect of part of the claim if it is possible to treat the type 1 arrangements and the type 2 arrangements as falling for all forensic purposes into two separate and hermetically sealed compartments.
87. That was what the deputy Judge accepted but it was very unwise in advance of a trial, not least because that was not how Creation had presented its own case in its statements of case and its evidence. The credibility of Ms Hartgrove on whether she knew, consented to and encouraged the type 1 arrangements cannot possibly be said to be obviously irrelevant as to whether she is also to be believed on her lack of knowledge, consent to and encouragement of the type 2 arrangements. On the contrary, if she is disbelieved in relation to the type 1 arrangements, that may be highly relevant both to her credibility in relation to the type 2 arrangements and as potentially providing some explanation why she acted as she did in relation to the type 2 arrangements.
88. The deputy Judge felt able to discount Mr Khan's evidence about conversations he and Mr Mahmood had with Ms Hartgrove concerning type 2 arrangements because he considered it inconsistent with contemporaneous documents; it was not capable of providing a logical explanation for Ms Hartgrove's or Creation's alleged conduct; it was very unlikely that Creation would have been aware of the type 2 arrangements since the effect of them was that the second to twelfth defendants borrowed money from Creation which was then used to repay Creation money due to Creation under earlier credit agreements; and so, in view of that inherent improbability, there was a heavy burden on the represented defendants to establish that they had a realistic prospect of establishing that Creation did have that knowledge.
89. I do not consider that approach was appropriate. Firstly, in evaluating the credibility of Mr Khan's evidence in the light of the contemporary documents and the inherent probabilities the deputy Judge was conducting precisely the type of mini-trial which is, save in exceptional circumstances, inappropriate on a summary judgment application: see JD Wetherspoon plc v Harris [2013] EWHC 1088 (Ch), [2013] 1 WLR 3296, at [14] and [15]. The nature of the exercise undertaken by the deputy Judge is underlined by his observation (at [78]) that there is a heavy burden on the represented defendants to establish that they have a realistic prospect of establishing that Creation had the knowledge the represented defendants allege. I assume that the deputy Judge was there referring to an evidential burden since the overall burden of satisfying the court that the defendants have no real prospect of successfully defending the claims rests on Creation.
90. There will be exceptional cases where the factual context and the legal issue are so straightforward and the probabilities so overwhelming in the light of evidence and other circumstances incapable of challenge that it is possible on a summary judgment application to reject a disputed statement of fact of which direct oral evidence would be given by a witness at a trial: ED&F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472, [2003] CP Rep 51, at [10]. That, however, is not the present case.
91. The danger of the exercise undertaken by the deputy Judge in the present case can be illustrated by reference to the email dated 2 March 2012 from Ms Hartgrove to Mr Khan set out in paragraph 53 above. That email is relied upon by the represented defendants as evidence of Ms Hartgrove's consent to, and encouragement of type 2 arrangements. It was analysed by the deputy Judge in paragraphs [89] and [90] of his judgment. He said in paragraph [90]:

"That e-mail was sent in response to a threat by Allied Fort to take its business elsewhere. It supports the Represented Defendants' case only if one interprets "business with us as normal" as referring to type 2s rather then type 1s, but there is nothing in the e-mail itself which indicates that it is referring to type 2s. It could just as easily be referring to type 1s. That e-mail seems to me entirely equivocal."

92. The deputy Judge was there expressing a firm view about the meaning of this important email without allowing Mr Khan and Mr Mahmood to give oral evidence to put it in context and in circumstances where Mr Khan's witness statements had been prepared before Creation had in any document in the proceedings made a clear distinction between type 1 arrangements and type 2 arrangements. Moreover, as Mr Adam Tolley QC (who did not appear below) for the represented defendants pointed out, the deputy Judge did not comment upon or explain his understanding of the reference to "previously funded agreements" in the second paragraph of the email.
93. Further, the deputy Judge does not refer to the conversation which Mr Khan says in his first witness statement he had with Ms Hartgrove and Creation's CEO on 14 July 2011, the conversations he says he had with her in March 2012, and in particular his evidence that on 1 March 2012 Ms Hartgrove spoke to Mr Khalid in distress, explaining that Allied Fort's account was in a negative position of £390,000 and "shouted that the finance department were on her case, and that Allied Fort must process umbrella agreements immediately to prevent Allied Fort remaining in a negative position".
94. Mr Tolley submitted that, consistent with that evidence, one explanation for Ms Hartgrove's conduct in sanctioning and encouraging the processing of type 2 arrangements was her concern for her own position in permitting the accrual of such a large negative position on the part of Allied Fort. Mr Nigel Jones QC for Allied Fort submitted that, although he like Mr Tolley had not appeared before the deputy Judge, he did not believe such an explanation was suggested to the deputy Judge and that the only explanation given on behalf of the represented defendants to the deputy Judge was that Creation consented to the arrangements because Creation derived benefit from Allied Fort's business. Mr Jones submitted that, in those circumstances, this court should be reluctant to allow a new case on motivation to be advanced on appeal. It would be quite wrong, however, to shut out the defendants from advancing at this stage a viable argument that could be deployed at a trial. Inevitably lines of argument are refined, supplemented and replaced as the proceedings progress. That only serves to underline the dangers of evaluating disputed evidence in a complex case on a summary judgment application.
95. Mr Jones referred us to paragraphs [156] and [158] in the second speech of Lord Hobhouse in Three Rivers District Council v Governor and Company of the Bank of England (No 3) [2003] 2 AC 1. In paragraph [156] Lord Hobhouse said as follows:

"There is always an exercise of judgment to be undertaken by the judge whether the perceived short-cut will turn out to have been beneficial and, inevitably in a proportion of cases expectations will be confounded. Caution is required. But it is simplistic to suppose that in complex litigation the exercise should never be attempted. The volume of documentation and the complexity of the issues raised on the pleadings should be the subject of critical scrutiny and should not without more deter the judge from considering whether it is really necessary to commit the parties and the court to a lengthy trial and all the preparatory steps which that will involve. Indeed it can be submitted with force that those are just the sorts of case which most strongly cry out for the exclusion of anything that is unnecessary for the achievement of a just outcome for the parties."

96. I do not understand Lord Hobhouse to be making any observation about the mini-trial on a summary judgment application of disputed facts at the very heart of the proceedings. We were not referred to anything in any of the other speeches of the members of the appellate committee in that case which had any relevance to that issue.
97. The dangers of engaging with the short-cut tantalisingly laid before the deputy Judge in the present case in the form of the summary judgment application were predictable and have come to pass. The entire proceedings could have been tried at the six to seven day trial listed for January 2014. Instead, the parties have incurred the cost of a three day hearing of the application, the cost and delay of an inevitable appeal, and now the further delay of a six to seven day trial which will have to be relisted for some future date. In the meantime the memory of witnesses of events which took place as long ago as 2008 will be fading.
98. Furthermore, it was always apparent that, even if the summary judgment application was successful, that would not dispose of the entire proceedings. Creation refused to commit itself, at the stage of the summary judgment hearing (and indeed at any time prior to the hearing of the appeal), to a formal abandonment of its claims in respect of the type 1 arrangements should the summary judgment application succeed in respect of the type 2 arrangements. Accordingly, so far as the deputy Judge was aware, there was always going to be a trial of the history of the relations between Creation and the defendants so far as relevant to the implementation and consequences of the type 1 arrangements and the same witnesses would be likely to give evidence.
99. Furthermore, it was accepted at the summary judgment hearing, and provided for in the deputy Judge's order, that the fourth and fifth defendants would be entitled to demonstrate, on the taking of accounts, that they did not have sufficient knowledge to make them personally liable. In effect, their liability was left outstanding.
100. In paragraph [158] of Three Rivers Lord Hobhouse made the following comments about the phrase "no real prospect of succeeding" in what is now CPR 24.2(a):

"It requires the judge to undertake an exercise of judgment. He must decide whether to exercise the power to decide the case without a trial and give a summary judgment. It is a 'discretionary' power, ie one where the choice whether to exercise the power lies within the jurisdiction of the judge. Secondly, he must carry out the necessary exercise of assessing the prospects of success of the relevant party. If he concludes that there is 'no real prospect', he may decide the case accordingly. I stress this aspect because in the course of argument counsel referred to the relevant judgment of Clarke J as if he had made 'findings' of fact. He did not do so. Under RSC O.14 as under CPR Part 24, the judge is making an assessment not conducting a trial or fact-finding exercise. Whilst it must be remembered that the wood is composed of trees some of which may need to be looked at individually, it is the assessment of the whole that is called for. A measure of analysis may be necessary but the 'bottom line' is what ultimately matters."

101. Lord Hobhouse is plainly correct in saying that the decision whether or not to engage at all in the exercise of determining the case summarily before trial is a discretionary management power. If the court decides not to do so, that decision can only be challenged on appeal in the same limited circumstances as any other case management decision.
102. The position is quite different, however, if the judge has decided to embark on the exercise and has reached a decision that the defendant or the claimant has no real prospect of succeeding at trial. Lord Hobhouse called that "an assessment". It is plainly not a case management decision of the usual interlocutory kind since the judge's order granting summary judgment finally determines in favour of the applicant the whole case or that part of it which is the subject of the application on the basis of the strength of the respective arguments of the applicant and the respondent on the substantive dispute. Further, it is a decision which the appeal court is in as good a position as the first instance judge to make.
103. The appeal is nevertheless not a rehearing but a review. The degree of respect given by the appeal court to the first instance judgment is likely to depend on the reason for the order granting summary judgment. If the reason turns on a pure point of law, without any material factual dispute, then the appeal court will simply decide whether the first instance decision was correct or incorrect. The position may be different where the first instance judge has made an evaluative judgment on the facts likely to be established at trial or has made a multi-factorial decision: compare Trust Risk Group SpA v AmTrust Europe Ltd [2015] EWCA Civ 437 at [31]-[43] and [72]. Even if, however, that distinction is correct in theory, it is unlikely in practice to be of significance since, on any footing, the appeal court will interfere if satisfied that the first instance judge has taken into account immaterial factors, omitted to take account of material factors, erred in principle or come to a conclusion that was impermissible or not open to him or her. Conducting an inappropriate mini-trial on disputed facts on a summary judgment application is an error of principle and, moreover, will usually lead to a conclusion that the first instance judge was acting outside the area of permissible reasonable disagreement in concluding that the respondent to the summary judgment application has no real prospect of success at a trial.
104. In the present case, I am satisfied that, even though the deputy Judge acted conscientiously and with the best case management intentions, his decision to grant summary judgment in respect of the type 2 arrangements was fundamentally flawed in principle by conducting an inappropriate mini-trial of critical disputed facts, leading him to a conclusion that was not open to him to reach.

Further ground of appeal

105. On the hearing of the appeal the represented defendants applied to amend their grounds of appeal to include an argument that there could be no liability for breaches of the recourse agency basis of conducting business because that basis was not the subject of any written agreement and so it was unenforceable by virtue of section 4 of the Statute of Frauds 1677. That argument had not been advanced before the deputy Judge. We refused the application because the time estimated and allowed for the appeal was insufficient to enable the new point to be argued. In the event, that has made no difference to the outcome of the appeal.

Conclusion

106. For those reasons, I would allow this appeal.

Lord Justice Tomlinson

107. I agree.

Lady Justice King

108. I also agree.