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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Dyson Technology Ltd & Ors v Curtis & Anor [2010] EWHC 3289 (Ch) (20 September 2010)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2010/3289.html
Cite as: [2010] EWHC 3289 (Ch)
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CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
B e f o r e :
____________________
| (1) DYSON TECHNOLOGY LIMITED | ||
| (2) DYSON LIMITED | ||
| (3) DYSON RESEARCH LIMITED | ||
| (4) DYSON MANUFACTURING Sdn Bdn | Claimants | |
| and | ||
| (1) KEITH CURTIS | ||
| (2) DIANE MARGARET CURTIS | Defendants |
____________________
Crown Copyright ©
- Introduction
- Relevant Interlocutory History
- On 24 September 2009 in default of the First Defendant filing a defence, an order was made (pages A/95-98) declaring that the Claimants were entitled as against the First Defendant, at their election (for the avoidance of doubt the Claimants' right to elect being expressly reserved) to:
- Representation at Trial
- The Background
- The Issues to be Determined at Trial
- The First Defendant failed to serve a defence; the consequence of that failure is that, in accordance with CPR Rule 16.5 (5), the First Defendant is taken to admit the various allegations made against him in the amended particulars of claim. The First Defendant has not advanced any positive case in this claim; hence the terms of the order made on 24 September 2009.
- In practical terms, as regards what the Claimants described as the "Lismolde monies", this aspect of the case was admitted by the First Defendant in two senses;
- As regards what the Claimants described as the "Far Eastern monies", while the First Defendant is taken to admit the allegations made against him in this regard as a consequence of his failure to serve a defence, he made no admission in relation to the Far Eastern monies in the course of his various interviews. The Claimant thus adduced evidence at trial from Mr Ball and Mr Bowen to establish the Claimants' own positive case in this respect, not only as regard the First Defendant, but also in relation to the Claimants' claim for knowing receipt against the Second Defendant.
- As regards remedy, the Claimants advance both a personal and a proprietary claim against the First Defendant, in respect of both what has been described by the Claimants as the "Lismolde monies", and the "Far Eastern monies".
- As regards the Claimants and the Second Defendant, the primary issue to be determined at trial is whether the Second Defendant was a knowing recipient in respect of the sums of money alleged to have been received by her into the accounts in the names of IMSL and TMS. If that issue is resolved in favour of the Claimants, it would then be necessary to consider the nature and extent of the relief to which the Claimants were entitled as against the Second Defendant.
- The legal elements of the Claimants' case against the Second Defendant are set out in paragraph 40 of Mr Ashworth QC's written opening submissions:-
- The essence of the Claimants' case as regards the Second Defendant's knowledge is that, in all the circumstances of the case, the Second Defendant knew that the money she received into the accounts in the names of IMSL and TMS could only have derived from what are described in legal terms as "breaches of fiduciary duty by the First Defendant"; see paragraph 23 of the amended particulars of claim (page A/14), and what could be described in less formal terms as either deriving from a "dishonest" source, or at the least money to which the First Defendant and/or Second Defendant had no lawful entitlement.
- As regards remedy, the Claimants again advance a personal and a proprietary claim against the Second Defendant, again in respect of what had been described by the Claimants as the "Lismolde monies" and the "Far Eastern monies".
- The Second Defendant's case is that, certainly until the First Defendant was dismissed by Dyson on 20 May 2009, she was unaware of any misdoing on his part, and at all material times up to and including that date she believed that the monies she received into the accounts in the names of IMSL and TMS were the lawful fruits of her husband's work on his own behalf as a consultant: see paragraphs 23 to 26 of her second (main) witness statement at page B/56.
- In the course of the Claimants' opening and the Second Defendant's short opening submissions, there was a deal of debate about the subject matter of the trial, and the various issues that fell to be determined at trial. It was common ground between Mr Ashworth QC and Mr Dodge that the first question to be determined was whether the Second Defendant was a knowing recipient in the manner alleged. There was then some divergence of approach as regards the extent of the remaining issues which should be determined at trial.
- Mr Ashworth QC submitted that the Claimants anticipated that the Court would give judgment deciding whether or not the Second Defendant was a knowing recipient as alleged, and if so whether the Claimants were entitled to "cherry-pick" i.e. whether the Claimants were entitled to trace the monies thus received into assets currently owned or in the possession of the Second Defendant, on the basis of "cherry-picking", rather than on the basis of "first in first out" ("FIFO"). But the Claimants did not expect, and were not asking, for the Court to deliver a judgment making findings of fact at this stage in respect of what items of property the Claimant was entitled to trace on the "cherry-picking" basis.
- Mr Dodge submitted that the first question to be tried was whether the Second Defendant was a knowing recipient as alleged; and the next question to be tried was, if she had received trust property, did she still have it? Mr Dodge submitted that "the Court may well feel it necessary to have a further hearing; there has been no direction for a split hearing. I am content to leave it to closing submissions as to whether there are other matters that should be dealt with at a further hearing".
- I therefore gave a direction in the course of opening that:
- In his oral closing submissions Mr Ashworth QC submitted that the appropriate approach was for the Court to undertake the following tasks;
- In the course of his closing oral submissions Mr Dodge conceded that if the Court was to find that the Claimants had established a personal claim against the Second Defendant, then that could found an argument for the need for a further hearing. As regards the proprietary claim, Mr Dodge submitted that it was for the Court to determine the basis upon which any proprietary claim should be determined. Mr Dodge also accepted that the decision as to the basis upon which any tracing exercise was to be carried out could only be made after a finding had been made as regards the Second Defendant's knowledge i.e. into which category of recipient she fell. Mr Dodge further submitted that as regards the work that had been carried out by Mr Draper, the expert accountant instructed on behalf of the Second Defendant, Mr Draper "had carried out a FIFO exercise", and that he (Mr Dodge) could see that, depending upon what finding was made as regards the Second Defendant's knowledge, that could be said to have been the wrong exercise.
- Mr Dodge further submitted that, on the evidence adduced to date, the proprietary claim could not be made out at this trial; and further that there were strong grounds for deciding that, whatever resources might be thrown at this issue at a later date, the proprietary claim could never be made out. Notwithstanding that note of caution, I have come to the conclusion that the appropriate approach is that contended for by Mr Ashworth QC on behalf of the Claimants. The principal reasons for coming to such a conclusion are:-
- I shall therefore determine in this judgment the five issues or categories of issue, identified by the Claimants. There are in addition the various issues set out in the list of issues prepared by the Claimants, which Mr Dodge has adopted in his written opening submissions as being appropriate for determination at this trial.
- In his closing submissions, Mr Dodge submitted that the Court should beware what he described as "forbidden reasoning". Mr Dodge submitted at paragraph 5:-
- However, in paragraph 29 in his written opening submissions, Mr Ashworth QC submitted as follows:-
- I fully bear in mind Mr Dodge's general warning against what may be described as "forbidden reasoning". But I also have regard to Mr Ashworth QCs submission, which I accept, that in a case such as this (a) it is appropriate for the Court to test explanations given by those who have been found (if they be) to be in receipt of the proceeds of wrongdoing, and (b) it may also be appropriate for the Court to draw inferences of fact from other findings of fact previously made. Bearing all those matters in mind, I therefore turn to consider the accountancy evidence and the financial background of the parties.
- The Accountancy Evidence and the Financial Background of the Defendants
- Mr Lewis was instructed inter alia to analyse the money received and spent by the First Defendant and the Second Defendant, and to carry out a review of their "lifestyle", in particular to consider whether or not such a lifestyle could have been maintained without recourse to funds other than those legitimately earned in their respective employments, and also to the Lismolde monies i.e. to consider whether such a lifestyle could only have been maintained by the Defendants having recourse to other sources of funds.
- Mr Draper was instructed to carry out a tracing exercise in relation to the Second Defendant's money, on the footing that the Lismolde monies received into the IMSL and TMS accounts were "tainted", such tracing exercise being carried out on the FIFO basis.
- Thus, both experts agreed "that their reports do not enable a direct comparison to be made between them, because of the nature of their respective instructions": see paragraph 3 of the joint statement.
- However, in the course of his cross-examination, Mr Draper agreed that the approach taken by Mr Lewis was wholly appropriate in the circumstances of the case. He stated:-
- Mr Draper repeated that general note of caution about the incomplete nature of the material which had been made available to both experts. Notwithstanding that note of caution, which in my judgment was a sensible point to make, and to which I have appropriate regard, in the light of that evidence I have concluded that the appropriate starting point in considering the underlying financial position of the Defendants is that set out in Mr Lewis' reports, and in particular his analysis of the Defendants' lifestyle.
- In paragraph 2.1.2 of his supplemental report (page C2/225) Mr Lewis stated:-
- Mr Lewis was also asked in cross-examination about his "table 1", which is a summary of all receipts and payments of both Defendants, the first version of which is in his first report at page C1/6, a second version of which is at his supplemental report at page C2/226, and a third version of which is at page C2/228b, the changes in the versions of table 1 reflecting the further documents which had been made available to Mr Lewis in the course of his work. Mr Lewis explained that he had looked at some 4,190 individual transactions in reviewing the "unexplained paying in slips" in the accounts. That gives an indication of the scale of the review he had undertaken. Against that background, while it is to be appreciated that not all relevant information has been made available to either Mr Lewis or Mr Draper, I am satisfied that Mr Lewis has had recourse to a sufficient body of information to enable him to express a reasonable opinion on the Defendants' lifestyle and overall financial position.
- In paragraph 4.1.2 of his supplemental support, Mr Lewis sets out his analysis of the Defendants' lifestyle. The essence of it is that during the period of his review (which is essentially from October 1997 to May 2009, when the First Defendant's employment with the Claimants was terminated, although not all elements of Mr Lewis' review are in respect of all of that period), the Defendants received both as legitimate income and as the Lismolde monies a total of £980,059. Mr Lewis then identified expenditure totalling £1,480,148, which expenditure was £500,089 in excess of such identified income.
- In carrying out his analysis of the Defendants' several bank accounts, Mr Lewis referred to his table 1. Mr Lewis identified various categories of receipt; he described row 2 as "unexplained paying in slips"; row 6 as "unknown credit"; and row 11 as "unknown deposits". Mr Lewis explained in the course of his cross-examination that, while he had been able to verify the fact of such receipts made in these different ways, he had not been able to identify the source of the money in question because the Defendants had not provided any explanation of such source. These unexplained receipts total £1,130,702: see the third version of table 1 at page C2/228b.
- As regards payments, Mr Lewis identified payments recorded in row 13 as "known but unexplained cheques amounting to £512,711, and payments in row 14 described as "unknown cheques" amounting to £1,097,299. Mr Lewis explained in cross-examination that the payments he recorded in row 13 were payments where he had been able to identify the payee (hence the description "known"), but he was not aware of and had not been provided with, any explanation of the reason why such payments had been made. Mr Lewis also explained in the course of his cross-examination that the payments he recorded in row 14 were payments where he had not been able to identify the payee (hence the description unknown), and again he was neither aware of, nor provided with, any explanation of the reason why such payments had been made.
- Thus, Mr Lewis gave his opinion at paragraph 4.1.3 of his supplementary report as follows:-
- The figures Mr Lewis cited in paragraph 4.13 were the figures as set out in the second version of his table 1, which were then superseded by the adjusted figures in the third version of table 1 which is at page C2/228b referred to above.
- Mr Lewis continued at paragraph 4.1.4 of the supplementary report as follows:-
- I accept Mr Lewis' numerical analysis set out in paragraph 4.1.2 of his supplemental report, and the conclusions he draws in paragraphs 4.1.3 and 4.1.4 of his supplemental report. In my judgment there is credible evidence:
- The Case against the First Defendant as regards the Far Eastern Monies
- Mr Ashworth QC also submitted that in the particular circumstances of this case, namely that the First Defendant was Global Group Tooling Manager and thus a very senior employee with particular and substantial responsibilities, there was a fiduciary relationship between the Claimants and the First Defendant, relying on the principle established in University of Nottingham -v- Fishel [2000] ICR 1462: see paragraph 31 of Mr Ashworth QC's written opening submissions.
- Mr Ashworth QC also submitted, as part of the fiduciary duties which he owed, the First Defendant owed a duty to his employers to disclose not only any misconduct on his own part but also any misconduct on the part of fellow employees, relying here on Sybron Corporation -v- Rochem [1984] 1 Ch 112 and Tesco Stores -v- Pook [2002] EWHC 823 (h).
- I accept those submissions as being accurate statements of the law, and will apply them to the facts of this case.
- The Claimants' case on the facts on this part of the claim is set out in paragraphs 21 to 25 of Mr Ashworth QC's written opening. In connection with this part of the case, the Claimants called Mr Gary Ball, a tooling engineer who had been seconded by the Claimants to the Far East, and Mr Martin Bowen, the Group Legal Director of the Second Claimant.
- Mr Ball gave evidence about his instructions in or about March 2008 to implement a "3 quote" system. At paragraph 7 of his witness statement he stated:-
- In the course of his cross-examination, Mr Ball was asked about paragraph 8 of his witness statement where he had stated: "I remember on some occasions challenging Mr Pok about the quotes he had received which I thought were too expensive. Although he appeared somewhat annoyed by this he responded by simply crossing out the amount on the quote and entered a new lower figure, which he said the supplier would accept." In his cross-examination Mr Ball stated:-
- Mr Ball also gave evidence about his obtaining alternative quotes for manufacturers in Singapore as compared to manufacturers in Malaysia and/or China: see paragraph 15 of his witness statement, where he stated that:-
- Mr Ball was then recalled to the UK, and his employment terminated in March 2009. However, Mr Ball was subsequently re-employed by the Claimants in June 2009, and in August 2009 he carried out a further exercise obtaining alternative quotations from five new or potential suppliers; see paragraph 18 of his witness statement. He stated in paragraph 19 of his witness statement:-
- Mr Pok was interviewed on 4 June 2009, and he admitted that he had received money from certain moulding companies, see paragraph 50 of Mr Bowen's original affidavit (page B/11). However, when he was interviewed for the second time on 10 June 2009, now accompanied by lawyers, he withdrew that admission, stating that he had "felt trapped" and "played along to get out of the meeting quickly". In paragraph 23 of his written opening submissions, Mr Ashworth QC submits that "while (Mr Pok) subsequently had sought to resile from this, there is no proper ground for doubting that (Mr Pok) was telling the truth at the meeting of 4 June 2009".
- It is instructive to consider the way in which the First Defendant behaved when Mr Ball sought to implement the 3 quote system. Mr Ball stated in paragraph 12 of his witness statement:-
- Then at paragraph 13 of his witness statement, Mr Ball stated:-
- Mr Ball was cross-examined by Mr Dodge on behalf of the Second Defendant on paragraphs 11 and 12 of his witness statement. He stated inter-alia as follows:-
- Then a little later in his cross-examination Mr Ball stated:-
- Mr Ball was also asked in cross-examination about the alternative quotations he had obtained for tools (see paragraph 15 of his witness statement at page B/31). He stated as follows:-
- The First Defendant had also sent an email to Sean Robinson on 20 March 2008 (page D1/179-80) in which he stated as follows:-
- In the course of his cross-examination by the First Defendant, Mr Ball stated as follows:-
- In my judgment, these passages of Mr Ball's evidence are characteristic of the overall way in which Mr Ball gave his evidence, which he did in a measured, reasonable and fair manner. I found Mr Ball to be a careful and accurate witness, without any side and I accept his evidence in its entirety.
- It is also instructive to consider the relationship between Mr Pok and the First Defendant. Mr Pok reported to the First Defendant. The Claimants' case is that the First Defendant had an overall worldwide responsibility for tooling in Dyson.
- In this regard, the Claimants called Mr Bowen, the Second Claimant's Group Legal Director, and Mr Briggs, a Solicitor employed by the First Claimant and Third Claimant. In his original affidavit, Mr Bowen gave evidence of the series of interviews of the First Defendant he conducted, in company with other senior Dyson personnel. Mr Briggs gave direct evidence of the interview of the First Defendant which he conducted on 26 May 2009 when accompanied by Brian Walsh, the Deputy Legal Director of the Second Claimant.
- At paragraph 77 of his affidavit Mr Bowen stated:-
- At paragraph 78 Mr Bowen continued:-
- It is to be recalled that the freezing injunction was first made on 18 June 2009 (at page A/46).
- In the course of his cross-examination, Mr Bowen was asked about the First Defendant's demeanour in interview. As regards the first interview on 20 May 2009 Mr Bowen stated as follows:-
- Then, as regards the position as at 11 June 2009 Mr Bowen stated:-
- In the course of his cross-examination Mr Bowen also stated as follows:-
- A little later in his cross-examination Mr Bowen stated:-
- In paragraph 82 (d) of his original affidavit (page B/21) Mr Bowen stated:-
- I found Mr Bowen to be a thoroughly professional witness, who had a careful and thorough recollection of the events to which he deposed. Based on his evidence, which I accept, I have concluded that initially the First Defendant was less than forthcoming in his interviews with Mr Bowen and others, and that by the conclusion of that series of interviews and/or discussions, the First Defendant was providing far less cooperation than someone in his senior position should have afforded to his employer.
- There is no direct documentary evidence to record the receipt by the First Defendant of payments from the Claimants' suppliers in the Far East, whether based in Malaysia, China or Singapore. However, there is cogent evidence from Mr Ball and Mr Bowen as set out above (a) that the Claimants had been substantially overpaying for parts over a considerable period while the First Defendant was based in the Far East; (b) that Mr Pok was the person who had instigated such overpayment; (c) that Mr Pok admitted in his first interview that he had received monies from such suppliers; and (d) that at all material times Mr Pok reported to the First Defendant, and that the two men had a very close working relationship.
- Based on all that evidence taken together, in particular the First Defendant's conduct in the context of Mr Ball's attempt to introduce the 3 quotes system, and the fact that the First Defendant failed to serve a defence in these proceedings, and thus is taken to admit the allegations in connection with the Far Eastern monies made against him in the Particulars of Claim, I infer that the First Defendant (a) knew of the fact of such overpayments; (b) knew that Mr Pok was the person who had instigated such overpayments; (c) failed to do anything to stop such overpayments being made and (d) he instead himself derived financial benefit out of the fact of such overpayments. In each respect, the First Defendant was in breach of the contractual duties he owed the Second Claimant as alleged in paragraph 9 of the Amended Particulars of Claim, and of the fiduciary duties he owed the Second and Fourth Claimants as alleged in paragraphs 10 & 11 of the Amended Particulars of Claim.
- In table 1 (as revised), and in paragraph 4.1.5 of his supplemental report, Mr Lewis explained that he had identified "unknown receipts of £1,111,539", which figure Mr Lewis subsequently adjusted to £1,130,702; that is in respect of "unknown receipts" by the First Defendant and the Second Defendant. The First Defendant has provided no explanation of the source of such receipts; the Second Defendant's case is that at all material times she understood that any such receipts derived from her husband's work as a consultant.
- In his evidence, Mr Ball explained that the Claimants had been significantly overpaying in respect of tooling in the Far East during the period the First Defendant was employed by the Claimants in the Far East; Mr Bowen estimated the total as being between £4.7 million and £16.5 million: see paragraph 4 and 5 of his witness statement (page B/37).
- Given the evidence of Mr Ball and Mr Bowen, I conclude that the source of such unexplained receipts into the accounts of the First and Second Defendant was payments initially made to, or at the direction of, the First Defendant arising out of or in connection with the underlying fact of the Claimants having significantly overpaid for tooling in the Far East.
- The Case against the Second Defendant.
- As already noted, the legal basis of the Claimants' case against the Second Defendant, as regards knowing receipt, is set out in paragraph 40 of Mr Ashworth QC's written opening submissions. Mr Ashworth QC further submitted in paragraph 41 as follows:-
- There was a deal of common ground between Mr Ashworth QC and Mr Dodge on this aspect of the case. At paragraph 27 of his written opening, Mr Dodge submitted:-
- Mr Dodge went on to submit in paragraphs 34 and 35 of his written opening submissions as follows:-
- In paragraph 27 of his written closing submissions, Mr Ashworth QC submitted as follows:-
- I did not read Mr Dodge's submissions to include the submission that "dishonesty (was) a necessary ingredient" to establish a claim in knowing receipt. The difficulty may lie in the way the authors of Underhill and Hayton went on to describe the topic in paragraph 100.53 where they wrote:-
- The Court of Appeal considered this issue in BCCI v Akindele, the head note of which provides as follows:-
- That seems to me to be decisive of the issue, and consistent with those passages of the judgments of Peter Gibson J in Baden, and Millett J in Agip (Africa) Ltd -v- Jackson (as each then was) to which I will refer later.
- It follows that, if Mr Dodge's submissions in this respect included a submission to the effect that "dishonesty (was) a necessary ingredient to establish a claim in knowing receipt", then I reject such a submission. Instead, I shall approach this aspect of the case in the manner explained by the Court of Appeal in BCCI v Akindele, and ask the question; was the Second Defendant's state of knowledge such as to make it unconscionable for her to retain the benefits of the receipts in question?
- Then, turning to the facts, at paragraph 28 Mr Dodge submitted:-
- The submissions identified by Mr Dodge as being central to the Claimants' case against the Second Defendant can be summarised as follows:-
- General Assessment of the Second Defendant
- In my judgment the following specific parts of the Second Defendant's evidence were of particular relevance to the critical issue, namely what was her state of knowledge at the material time.
- (1) The Second Defendant gave evidence about what she expected to earn or receive through the medium of TMS and IMSL, and what she in fact received. In cross examination she stated:-
- Then a little later the Second Defendant stated:-
- Subsequently, the Second Defendant stated in her evidence as follows:-
- That evidence establishes (a) that the Second Defendant knew in general terms what her husband's salary level was; (b) that the Second Defendant knew precisely what sum she was receiving through the medium of both IMS and TMSL; and (c) that the Second Defendant had the continuous opportunity to compare the one with the other. I therefore infer from those facts, and thus find, that the amounts of money which the Second Defendant received though the medium of IMS and TMSL were consistently of such a size, both of themselves and in comparison with the First Defendant's salary, that the Second Defendant should have made reasonable enquiries about the basis of such receipts. The Second Defendant's case is, of course, that she did so: she understood that these receipts were the product of her husband's work as a consultant effecting introductions to Lismolde.
- (2) The Second Defendant gave evidence about her instructions to Mr Holden, the Accountant she selected from the Yellow Pages. At paragraph 31 of her second (main) witness statement (page B/57) she stated:-
- The Second Defendant was asked about that in her cross examination, and stated:-
- That evidence establishes that the Second Defendant knew that her instructions to the accountant, Mr Holden were false; she represented her involvement with the alleged "businesses" carried out in the names of IMS and TMSL on a false basis. I infer from those facts that the Second Defendant either made the positive decision to go along with what her husband had told her to say, and thus permitted herself to be party to a plan whereby Mr Holden was instructed on a false basis, or that she simply "shut her eyes to the obvious" in the sense described by Peter Gibson J in Baden -v- Société Générale pour Favouriser le Développement du Commerce et de l'Industrie en France SA [1993] 1 WLR 509.
- (3) The Second Defendant gave evidence about the First Defendant's involvement in the two alleged "businesses" and her instructions to Mr Holden. She stated in paragraph 23 of her main witness statement (page B/56):-
- However, the Second Defendant gave evidence in cross examination that she did not inform Mr Holden about the First Defendant's involvement in the alleged "businesses" carried out in the names of IMS or TMSL. She stated:-
- That evidence establishes that the Second Defendant knew at all material times that the First Defendant was the person who in fact carried out the alleged "businesses" in the names of IMS and TMSL, save for the minor support services of a clerical nature which she carried out in England. I infer from that fact that the Second Defendant knew that she had not given Mr Holden full or accurate instructions as regards the nature of the alleged businesses.
- (4) The Second Defendant gave evidence about the reason why the two alleged "businesses" were to be run in her name, rather than in the First Defendant's name. She stated in cross examination as follows:-
- Then later in her cross examination the Second Defendant stated:-
- Later the Second Defendant stated:-
- That evidence establishes that, while the Second Defendant made an assumption that there were, or might be, tax advantages in having both the alleged "businesses" carried out in the names of TMS and IMSL run in her name, she did not discuss what such tax advantages might be when she discussed matters with Mr Holden. The Second Defendant did not give any, or any plausible, evidence to explain why she did not ask Mr Holden about this aspect of the proposed businesses.
- (5) The Second Defendant also gave evidence about her practice in preparing invoices. This was in two respects (1) as regards the preparation of 5 invoices to the same customer all on the same date; and (2) as regards the use of "catch-up" invoices. As regards the former she stated in cross examination:-
- As regard the second respect, the Second Defendant stated in the cross examination:-
- That evidence, taken together, reveals a situation where the Second Defendant was aware of anomalies in the way she was asked to, and did, issue invoices: first in batches, and secondly as 'catch up' invoices, which were never paid in full. That situation was one which called for further or reasonable explanation, which the Second Defendant did not seek from the First Defendant, and which the First Defendant did not provide to her. In failing to seek such an explanation, the Second Defendant failed to make obvious enquiries; that fact begs the question why she did not make such obvious enquiries.
- (6) The Second Defendant also gave evidence about how she claimed for mileage and postage as being alleged 'expenses' incurred in connection with her business trading as TMS. As she stated in cross examination:-
- Then a little later in her cross examination, having been warned that she did not have to answer questions that might incriminate her, the following exchange occurred:-
- That evidence shows that the Second Defendant was prepared to allow herself to be party to a deceit which, while of relatively modest proportions, indicated that in this respect (i.e. as regards the truthfulness of her account of expenses being incurred by her in connection with the business carried on in the name of TMS) she was not being truthful. That begs the question whether in other respects the Second Defendant also lacks credibility.
- (7) The Second Defendant also gave evidence to the effect that the First Defendant had told her that his work for the Claimants was 'secret', and that was part of the reason why he told her little about it. At paragraph 12 of her main witness statement (page B/54) she stated:-
- The Second Defendant also gave evidence about certain emails which her husband forwarded to her in March 2008 when Mr Ball was attempting to implement the 3 quote system. She stated in cross examination:-
- The email at page D1/179 which the First Defendant forwarded to the Second Defendant was his email to Sean Robinson dated 20 March 2008, where he wrote as follows:-
- The First Defendant sent a chaser on 25 March 2008 and then forwarded those emails to the Second Defendant. Her reply was as follows:-
- The email at page D1/183 which the First Defendant forwarded to the Second Defendant was his email to Mr Pok and others, copied to Gary Ball and Bela Horvath, in which he stated as follows:-
- The email at page D1/185 was Sean Robinson's email to Bela Horvath, Gary Ball and the First Defendant where he wrote:-
- That evidence shows that, certainly by March 2008, the relationship between the First Defendant and Second Defendant was such that the First Defendant could forward such emails to his wife for her information, without comment or explanation, and she did not (certainly via the medium of email) seek any such explanation. That indicates that the First Defendant felt the Second Defendant ought to be made aware of the subject matter of these emails, and I infer from their subject matter that the First Defendant also felt that the Second Defendant would understand their content without any further explanation. Such a position is inconsistent with an assertion by the Second Defendant that she knew little of her husband's work, whether in general terms, or more specifically as regards what was going on in the Far East in March 2008 in connection with the Claimants' attempts to implement the 3 quotes system.
- (8) The Second Defendant was also asked in cross examination about a number of emails which Mr Chan had sent to her husband via her email address. They were dated 18 June 2009 (page D2/361), 24 July 2009 and 26 August (page D2/383), 11 September 2009 (page D2/384) and 9 October 2009 (page D2/385). It is to be recalled that Mr Chan was (apparently until 15 October 2009) employed by VSI, which company was a supplier of the Fourth Claimant's; that the First Defendant's employment with the Claimants had terminated on 21 May 2009 (page B/8); and that the first meeting between Mr Bowen and Mr McNaught of the Claimants with Mr Pok in Malaysia had taken place on 4 June 2009 and the second meeting on 10 June 2009.
- In her second witness statement dated 13 April 2010, the Second Defendant stated, at paragraph 19 (page B/77):-
- The Second Defendant was asked about that in cross examination, and stated:-
- Then, among the emails which had been disclosed late by the Second Defendant, was an email dated 12 September 2009 (page G/46) sent by Mr Chan to the First Defendant via the Second Defendant's email address. The Second Defendant forwarded that to her husband under cover of her own note, which read:-
- The Second Defendant was asked why this email had not been disclosed earlier. She stated:-
- That evidence establishes that (a) Mr Chan used the Second Defendant as a conduit through whom he could send email messages to the First Defendant; (b) that the Second Defendant knew enough about Mr Chan certainly by September 2009 to appreciate that he was a friend of the husband, and (c) again by September 2009 she was of the opinion that her husband should get in touch with Mr Chan. I therefore infer that for an appreciable period the Second Defendant knew sufficient about Mr Chan, i.e. his business and his relationship with her husband, to enable her to conclude that it was in her husband's interests to keep in touch with Mr Chan after he had been dismissed from the Claimant's employment.
- (9) The Second Defendant was also asked in cross examination about the email exchanges between herself and her son (page D1/346a-b), which occurred between 8 June and 10 June 2009 i.e. a few weeks after her husband had been dismissed from the Claimants' employment. Her sons email dated 8 June inter alia asked what was happening, and the Second Defendant replied:-
- That evidence is revealing in the sense that (a) it contains an acknowledgment by the Second Defendant of her joint responsibility for matters which had led to her husband's dismissal; and (b) it does not contain any protest by her of her innocence, or of her having been let down in any way by her husband.
- Summary of the Claimants' case against the Second Defendant in Knowing Receipt.
- However the evidence adduced at trial (the salient extracts of which are set out above) establishes that (a) on occasions she was prepared to do a dishonest act e.g. her claims for mileage and postage, and her false signatures on her tax returns; and (b) of more consequence, that she was throughout prepared not to ask questions or make enquiries which a reasonable person would have been expected to do in her position, especially in her position of director and shareholder of IMSL.
- At the very least, she was on enquiry about the nature of the consultancy work her husband alleged he had been doing, and the source of the money she received via the accounts held in the names of TMS and IMSL. To adopt the language of Peter Gibson J (as he then was) in Baden which I do with gratitude, she was either wilfully shutting her eyes to the obvious, or wilfully and recklessly failing to make such enquiries as an honest and reasonable person would have made.
- As Millett J (as he then was) explained in Agip (Africa) Ltd -v- Jackson [1990] Ch 265, the analysis carried out by Peter Gibson J of the various mental states involved in establishing whether or not a person had the requisite degree of knowledge is only an aide or a tool to be used in the assessment of the overall issue, which is the proper distinction between honesty and dishonesty, which is essentially a jury question. Millett J held at page 295 as follows:-
- Defences raised by the Second Defendant
- Mr Ashworth QC responded to a defence of change of position in paragraph 46 of his written opening submissions, where he submitted:-
- Mr Ashworth QC responded to a defence based on limitation in paragraph 47 of his written opening submission where he submitted:-
- In the course of closing oral submissions, two further issues were raised. The first was whether the fact that it was Lismolde which paid monies to the First Defendant and/or the Second Defendant, rather than any of the Claimants, prevented the Claimants from making any claim in respect of Lismolde monies. Mr Ashworth QC submitted that the appropriate principle had been established in Boston Deep Sea Fishing, namely that the profit which arose out of the transaction belonged to the employer, and thus the Claimants could make their claim in respect of Lismolde monies. Mr Dodge did not dispute that analysis, acknowledging that what the Claimants had to establish was that, at point of receipt by the Second Defendant, this was someone else's money i.e. it was property held by the Second Defendant on trust, and thus was not Lismolde's money. I therefore find that the fact that it was Lismolde, and not any of the Claimants, which paid "bribes" to the Defendants, or either of them, does not preclude the Claimants, or any of them, from making a claim against the Defendants in respect of Lismolde monies.
- The second was whether the fact that some of the Lismolde monies were paid into an account held in the name of IMSL also prevented the Claimants from making any claim in respect of the Lismolde monies. In paragraph 59 of his written opening submissions Mr Ashworth QC submitted as follows:-
- Mr Ashworth QC also referred to the evidence of Mr Draper, who was called as an expert witness on behalf of the Second Defendant. Mr Draper gave evidence to the effect that, on the basis of the material that had been made available to him, IMSL "was not run as a proper business". Certainly no evidence was adduced in the course of the trial to establish that IMSL, as a company, was carrying on business in any realistic meaningful way. In my judgment the evidence establishes that this is a case where the First Defendant and the Second Defendant were using a company, here IMSL, as a device or a façade to conceal the true facts, namely that the First Defendant was securing payments from Lismolde to his own personal benefit in breach of contractual and fiduciary duties. I therefore find that the fact that monies were paid into accounts in the name of IMSL does not preclude the Claimants, or any of them, from making a claim against the Defendants in respect of Lismolde monies.
- In respect of what sums was the Second Defendant a knowing recipient?
- Mr Lewis made it clear that the money he had identified as "unknown receipts" was quite different from the money the Second Defendant had received as payments from Lismolde into the accounts held in the names of IMS and TMSL: see paragraph 4.1.5 of his supplemental report see C2/237. I accept Mr Lewis's calculations as set out in his table 1, supplemented by his tables 2, 3, and 4.
- The Second Defendant was asked whether she had any explanation of the origin of such receipts into her accounts and/or the joint accounts. She stated in cross examinations as follows:-
- The Second Defendant continued a little later:-
- As regards receipt of money from the lottery, the evidence about this derives from the witness statement of the First Defendant's father, Mr William Curtis senior, which was put in under the Civil Evidence Act (page B/97A). Mr Curtis senior stated as follows:-
- Mr Dodge's application to put in a statement of Mr Curtis senior was not in fact opposed, and I admitted the statement in evidence, subject to appropriate weight being placed upon it. Mr Dodge had earlier informed me that Mr Curtis Senior was 79 years old, living half the year in Lanzarote and half the year in the UK, travelling usually by air some 3 to 4 times a year; he suffered from diabetes, and has been fitted with a pace maker in connection with a heart condition. On specific instructions Mr Dodge submitted that the reason for Mr Curtis not attending the trial was the general stress of travel, a more recent problem with a knee, and the general stress of appearing as a witness at the trial.
- I accept the evidence of Mr Curtis senior to the effect that in or about 1997 he gave his son the First Defendant £210,000 as a gift out of his lottery winnings. Mr Lewis identified the sum £150,000 as the receipt which was used to open one of the joint accounts on 21 October 2004, namely account number 07126744 with Sainsbury's: see C2/378 within appendix 4 to Mr Lewis' supplemental report.
- Mr Lewis' record of receipts into the accounts in the names of TMS and IMSL is set out in appendix 6 to his first report: see pages C1/96 onwards. The record of receipts in both the TMS and IMSL bank accounts (see pages C1/101 and 103-5 respectively) reveal that all of those receipts were in the single thousands of pounds (i.e. not five figure sums, nor indeed six figure sums) that is with the one exception of the bank credit received of £15,000 into the TMS account on 12 July 2005. I have regard to the size of the single receipt, namely £150,000, and accordingly I accept the Second Defendant's evidence that this receipt represented monies which had been originally given by Mr Curtis senior to his son the First Defendant arising out of Mr Curtis senior's fortuitous lottery win in 1997.
- I therefore find that the Claimants' case in this regard is established to the following extent: namely that the Second Defendant received the following sums as a knowing recipient:
- The Separate Personal and Proprietary Claims as regards the Second Defendant.
- Mr Lewis' evidence identifies the accounts into which those sums were first paid. But Mr Lewis has not yet embarked on an exercise to establish into what accounts or other property now held by the Second Defendant such monies can be traced or followed. That is because, so the Claimants submit, until the Court has made its findings of fact, the Court is not in a position to determine upon what basis such a tracing or following exercise should be carried out i.e. whether on a FIFO or a cherry-picking basis. I have already accepted the Claimants submission in this regard.
- I therefore find, and direct as follows:-
- The Separate Personal and Proprietary Claim as Regards the First Defendant
- The points relating to the ambit of Mr Lewis' evidence which apply to the Second Defendant (see paragraph [144] above) also apply to the First Defendant, I shall therefore make like directions as regards the First Defendant as provisionally identified in paragraph [145] above.
- Interest
- The House of Lords made it clear in Sempra Metals Ltd v IRC (2007) 3 WLR 354 that, in cases involving "restitution of money paid under mistake" (see the head note), the Court had a discretion, as part of its general equitable jurisdiction, to award compound interest on such sums.
- Lord Nicholls made it clear that the issue before the House in Sempra Metals was whether or not the Court had "... power to make an award of compound interest on a personal claim for restitution of a sum of money paid by mistake or following an unlawful demand"; see paragraph 104 of the Judgment. Lord Nicholls went on to consider the earlier decision in the Westdeutsche case [1996] AC 669; he held at paragraph 109 and 110 as follows:-
- The appeal in the Westdeutsche case ... proceeded on that footing. Lord Goff of Chieveley recorded this, noting that the central issue was whether there is jurisdiction in equity to award compound interest in a case such as the instant case ... The majority of the House ... held there is no such jurisdiction. Lord Goff and Lord Woolf dissented. They held an award of compound interest in equity is necessary to grant full restitution. In exercise of its equitable jurisdiction the Court has power to make such award in personal claims in restitution."
- Lord Nicholls continued in paragraph 111 and 112 as follows:-
- I therefore understand the decision of the House of Lords in Sempra Metals to be confined to cases concerning claims made in restitution, whether brought in equity or at common law i.e. cases which concern the restitution of monies which the Defendant has in fact received. I shall therefore apply the principles of Sempra Metals to the facts of this case, and direct that the Claimants are entitled to recover compound interest on the sums of £615,903.55 in respect of the Lismolde monies, and on the sum of £1,130,702 in respect of the Far Eastern monies.
- Mr Smith, the Second Claimant's director of Tax and Treasury, made a witness statement (page B/34) in which he stated that the Claimants' borrowing costs at the time were 0.75% over LIBOR. There was no dispute about that evidence, and Mr Lewis took it into account in preparing his calculation of compound interest in respect of the Lismolde monies, which appears at appendix 12 to his first report (page C1/218-200). That was a calculation carried out to 11 May 2010 and produced a calculation of compound interest in the sum of £255,165.
- I shall therefore award compound interest against both Defendants as follows:-
- However, the same position does not obtain as regards the sums Dyson overpaid for tooling in the Far East as a result of the First Defendant's various breaches. Here, neither the First Defendant nor the Second Defendant received any separate or further financial advantage as a result of such breaches; the financial advantage they each received was the receipt of the monies identified above. The Claimants claim in respect of these monies is not a claim in restitution; instead it is a claim for damages for breach of contract and/or for equitable compensation see paragraph 6 of the prayer to the Amended Particulars of Claim.
- I shall therefore only award simple interest on the sum of £4.7 million, either under Section 35A of the Senior Courts Act 1981 or as an element of the claim for equitable compensation. Again I shall hear submissions as to the appropriate rate which should be applied, and the date from which such calculation is to be made.
- Appendix
- Background & recent events
- As set out at paragraphs 20 & 23 above, at trial the following issues fell to be determined:
- Mr Ashworth QC's written opening submissions dealt with the topic of proprietary claims between paragraphs 48-58: paragraph 48 contained an introduction; paragraph 49 dealt with the principles of following & tracing; paragraph 50 contained a citation from the speech of Lord Millett in Foskett v McKeown; paragraphs 51-53 dealt with the different bases upon which a tracing exercise should be carried out i.e. whether on a FIFO or a cherry-picking basis; paragraphs 54-56 dealt with the underlying principles upon which a proprietary claim can be established, again citing from the speech of Lord Millett in Foskett v McKeown, and also citing Attorney-General for Hong Kong v Reid [1994] 1 AC 324; paragraphs 57-58 dealt with the circumstances in which a constructive trust arises, further citing Attorney-General for Hong Kong v Reid.
- At paragraph 9 of his written opening submissions, Mr Dodge identified the "the 'key battle ground' as being the 'knowing receipt' claim"; see paragraph 76 above. Mr Dodge also characterised two aspects of the Claimants' case as having been "over-egged": the alleged receipt of 'non-Lismolde monies', and the proprietary claim. Mr Dodge then dealt with the proprietary claim between paragraphs 12-23 of his written opening submissions: in paragraph 12 he submitted that the Claimants' proprietary claim had to rest on the basis that assets now held by the Second Defendant represented trust property, citing a passage in Underhill and Hayton; it is not necessary to refer further to paragraph 13; in paragraph 14 he also cited from the speech of Lord Millett in Foskett v McKeown, drawing the distinction between the terms 'tracing', 'following' & 'claiming'; in paragraphs 15-19 he dealt with the difficulties of tracing into mixed monies; in paragraph 20 he referred to evidence from the Second Defendant's accountant expert re her expenditure; in paragraphs 21-22 he submitted that money which may have been trust money had now been spent by the Second Defendant, leading to a concluding submission in paragraph 23 that "the Court should determine issue 26(b) as follows: 'There are no available remedies as regards Diane Curtis (for knowing receipt) as to proprietary claims, there being no longer in her hands any property which might have been trust property or its traceable proceeds'." The thrust of those submissions was that, on the evidence, it would not be open to the Claimants to establish a proprietary claim in respect of money or property now in the hands of the Second Defendant.
- Neither counsel submitted that, as a matter of law, it was not open to the Claimants to establish a proprietary claim against the Second Defendant (and/or the First Defendant for that matter), and neither cited the recent first instance decisions of Lewison J in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2010] EWHC 1614 (Ch) and of Mr Donaldson QC in Apcoa Parking v. Perrera (14th October, 2010).
- A draft of my judgment (comprising paragraphs 1-157 above, before correction of typographical errors & clarification of syntax in two paragraphs) was made available to the parties on 5 October 2010, and a date for handing down the judgment was fixed for 4 November 2010.
- On 22 October 2010 Mr Ashworth QC wrote a letter, which is at tab 2 of the hearing bundle prepared for 4 November 2010. In it he drew my attention to the two first instance decisions of Sinclair Investments and Apcoa Parking, explaining that he had been unaware of them until he saw the decision in the latter published on Lawtel on 20 October 2010; stating that he was not asking me to consider amending the text of the draft judgment which had been made available; and further stating that the Claimants would be making an application to re-amend the Particulars of Claim, to add a claim in knowing (i.e. dishonest) assistance.
- On 28 October 2010 Mr Dodge wrote a letter, which is at tab 3 of the hearing bundle. In it he submitted that I neither could nor should ignore these two first instance decisions; that they were fatal to the proprietary claims; and also that they were fatal to the personal claims for the reasons identified at paragraph 30 of his written opening submissions.
- The Claimants had also issued an application for release of further monies under the Freezing Injunction. I therefore issued directions that the hearing fixed for 4 November 2010 should, instead of being used to hand down the judgment, rather be used to deal with (a) the application for release of further monies; (b) the application for permission to re-amend; & (c) to receive submissions as to the appropriate procedure to be adopted in light of the subject-matter in the letters I had received.
- Both Mr Ashworth QC & Mr Dodge prepared further written submissions for the hearing on 4 November 2010, Mr Ashworth QC's being directed rather more to matters of substance, Mr Dodge's rather more to matters of procedure.
- On 4 November 2010 (a) I ruled on the application for release of further monies; (b) I gave permission to the Claimants to re-amend, and gave the Second Defendant permission to serve a re-amended Defence if so advised; & (c) I directed that by 19 November 2010 the Second Defendant file and serve such a re-amended Defence, which was to be accompanied by written submissions in answer to those of Mr Ashworth QC.
- I permitted a short extension of time for the Second Defendant to file and serve those documents, which were filed and served on 22 November 2010. On 24 November 2010 I informed the parties that I did not require any further submissions.
- Reconsideration of the draft judgment already made available to the parties
- As already observed, in his letter dated 28 October 2010 Mr Dodge submitted that I neither could nor should ignore these two first instance decisions; that they were fatal to the proprietary claims; and also that they were fatal to the personal claims for the reasons identified at paragraph 30 of his written opening submissions.
- For the reasons I set out below, having considered these two first instance decisions, and having regard to the decisions of the Court of Appeal in Stewart v Engel [2000] 1 WLR 2268 & in Robinson v. Fernsby, and the various submissions made by Mr Ashworth QC and Mr Dodge, I have concluded that it would require either "exceptional circumstances" or "strong reasons", to adopt Rix LJ's term, for me to alter the text of the draft judgment which was made available to the parties on 5 October 2010. If I had come to the conclusion that, having regard to these two first instance decisions and the other relevant authorities, it was not open to the Claimants to maintain a proprietary claim against either Defendant, then such a conclusion would have come within the definition of an exceptional circumstance or strong reason. However, for the reasons set out below, I have not come to that conclusion. Accordingly I have decided that the appropriate course to adopt is to deliver a supplemental judgment which deals with the various submissions that have been made since the draft judgment was made available to the parties on 5 October 2010.
- The circumstances of this case are, of course, materially different to those in Stewart v Engel, in that here judgment has not yet been given, nor yet has an order been made. Instead the position is akin to that in Robinson v. Fernsby, where Blackburne J had made a draft judgment available to the parties. I also note, and respectfully concur with, the observation of Rix LJ in Noga v Abacha [2001] 3 All ER 513 that reconsideration of a judgment by a trial judge could have the consequence of "subverting" any appeal process (to use the language of May LJ at paragraph 85 of his judgment in Robinson v. Fernsby). Rix LJ's observation was, of course, made in the context of a case where judgment had been formally delivered.
- Precedent.
- In his letter of 22 October 2010, Mr Ashworth QC referred to the recent decision of the Court of Appeal in Perrins v Holland [2010] EWCA Civ 840 as authority for the proposition that a decision of the Privy Council was in fact binding on a judge at first instance. In paragraph 22 of his submissions dated 19 November 2010 Mr Dodge took issue with that submission.
- In Perrins v Holland the Chancellor held at paragraph 28:
- It is thus clear that a distinction is to be drawn between (a) a decision of the Privy Council when acting in an appellate capacity in England & Wales, which is binding on courts of first instance; & (b) a decision of the Privy Council when acting in an appellate capacity in respect of a jurisdiction outside England & Wales, which is theoretically not binding on courts of first instance. The decision in Attorney-General for Hong Kong v Reid falls into the latter category.
- Two other decisions, which have not been cited in argument, have relevance. The first is the decision of Nourse J (as he then was) in Colchester Estates (Cardiff) v Carlton Industries plc [1984] 2 All ER 601. The headnote provides:
- The second decision is that of the Court of Appeal in R v James [2006] 1 QB 588. That case concerned two matters of significance: the law of provocation in murder, and judicial precedent as regards decisions of the Privy Council. Because of the importance of the case, the court was constituted of 5 members, presided over by Lord Phillips; Sir Igor Judge (the President as he then was) was also part of the constitution, together with 3 other members of the Court. It is thus a decision of the Court of Appeal to which both a former, and the current, Lord Chief Justice contributed. At paragraph 42 of the judgment of the Court, Lord Phillips held;
- As Lord Phillips explained at paragraph 21, the circumstances in which a decision of the Judicial Committee of the Privy Council can take precedence over a decision of the House of Lords are circumstances where it is accepted that the applicable law is the law of England & Wales. The question here is therefore whether the law which the Privy Council applied in Attorney-General for Hong Kong v Reid was, or represented, or was consistent with, the law of England & Wales. In my judgment it was. Nowhere in his speech does Lord Templeman state that the law of New Zealand differed in any respect in this regard from the law of England & Wales. In such circumstances the same principle as the Court of Appeal explained in R v James would apply to a decision of that Court, namely that the Court of Appeal would prefer a decision of the Privy Council to a prior decision of the House of Lords, would also apply to a judge at first instance, who should thus prefer a decision of the Privy Council to a prior decision of the House of Lords and a fortiori the Court of Appeal.
- However, were that not to be the case, and as a judge at first instance I am not theoretically bound by a decision of the Privy Council, having regard to the constitution of the Privy Council in Attorney-General for Hong Kong v Reid I would be very slow to depart from it, and would only do so (a) after full argument; & (b) if I was clearly satisfied that the decision could not be supported. For the reasons set out below, I am far from coming to such a conclusion in the present case. I shall therefore proceed on the basis that the law as laid down by the Privy Council in Attorney-General for Hong Kong v Reid represents the law of England & Wales, in the same way as Arden LJ in Abou-Rahmah v Abacha [2006] EWCA Civ 1492 stated in paragraph 69 of her judgment "… that the judge was right to proceed on the basis that the law as laid down (by the House of Lords) in Twinsectra as interpreted by the Privy Council in Barlow Clowes represented the law of England & Wales".
- The authorities dealing with a proprietary claim
- I have thus reminded myself of (a) the previous decisions which the Privy Council expressly disapproved in Attorney-General for Hong Kong v Reid, namely The Metropolitan Bank v Heiron (1880) 5 Ex.D. 319, C.A & Lister & Co v Stubbs (1890) 45 ChD 1, C.A; & (b) the reference by Lord Templeman at p 337H-338D of his speech to the earlier decision of the House of Lords in Phipps v Boardman [1967] 2 AC 46, where he stated:
- Lord Templeman had stated the general principle earlier in his speech at p331B as follows;
- Lord Templeman then continued:
- In paragraph 46 of his judgment in Sinclair Investments, having reviewed the facts and cited extracts from the speeches of Lords Cohen & Hodson in Phipps v Boardman, and then the following extract from the speech of Lord Guest:
- For my part, I read or construe those words of Lord Guest in Phipps v Boardman as being consistent with those of Lord Templeman in Attorney-General for Hong Kong v Reid cited above, and thus that there is House of Lords authority, as well as a decision of the Privy Council, to the effect that the imposition of a trust on property obtained by a fiduciary in breach of trust brings about the consequence that a proprietary claim can be maintained against such a fiduciary in respect of such property. I therefore hold that, as a matter of law, it is open to the Claimants to make a proprietary claim against the First Defendant.
- In Daraydan Holdings Ltd v Solland International Ltd [2005] Ch D 119 Lawrence Collins J (as he then was) held at paragraph 80 as follows:
- Then, at paragraph 86, Lawrence Collins J held as follows, dealing in effect with the second of the two objections to there being a proprietary remedy which Lord Templeman had previously identified:
- The personal and proprietary claims against the Second Defendant in knowing receipt.
- As regards the proprietary claim against the Second Defendant, Mr Dodge dealt with this in paragraphs 27– 36 of his submissions dated 19 November 2010. The legal principles are set out in the extracts from the speech of Lord Templeman in Attorney-General for Hong Kong v Reid which I have cited above. In my judgment there is no, or no material, difference between (a) circumstances where the false fiduciary himself receives the bribe, and (b) circumstances where the false fiduciary directs a third party (here Lismolde and/or any supplier in the Far East) to pay the bribe to another party (here the Second Defendant via IMSL and/or TMS). As Lord Templeman explained, in the first case, the false fiduciary holds the bribe on a constructive trust for the person injured. Similarly, in my judgment, in the second case the other party who receives the bribe at the direction of the false fiduciary also holds the bribe on a constructive trust for the person injured. In the second case the property (the bribe) held by the other party is held "subject to some other fiduciary duty", thus satisfying the first element described in paragraph 100.52 of Underhill; and in failing to pay or transfer the bribe to the person injured, the other party misapplies the property, thus satisfying the second element described in Underhill.
- The new claims against the Second Defendant in dishonest assistance
- Mr Dodge dealt with the new claims in dishonest assistance in paragraphs 37– 51 of his submissions dated 19 November 2010. By reference to the analysis of the cause of action in dishonest assistance at paragraph 100.17 of Underhill he made three specific submissions. The first was a submission to the effect that the authorities are undecided whether a defendant can be liable in dishonest assistance if he does not "misapply" property: see paragraph 100.20 of Underhill. However the authors go on to opine:
- The second submission related to the mental state required to establish liability in dishonest assistance. Mr Dodge referred to the decisions of the Privy Council in Royal Brunei Airways v. Tan [1995] 2 AC 378, the House of Lords in Twinsectra Ltd v Yardley [2002] 2 AC 164, and the Privy Council in Barlow Clowes International v. Eurotrust International [2006] 1 WLR 1476; he also referred to the recent decisions of the Court of Appeal in Abou-Rahmah v Abacha [2006] EWCA Civ 1492, of Nicholas Strauss QC in Starglade Properties Ltd v Nash [2010] EWHC 148 Ch, and of Newey J in Al Khudairi v Abbey Brokers Ltd [2010] EWHC 1486 Ch The decision of Nicholas Strauss QC in Starglade Properties has been appealed, and the Court of Appeal delivered its judgment on 19 November 2010, the very day of Mr Dodge's submissions.
- In Royal Brunei Lord Nicholls held at page 389:
- In Twinsectra Lord Hutton held at paragraph 36:
- Lord Hoffman held at paragraph 36:
- Then in Barlow Clowes Lord Hoffman held at paragraph 15:
- Similarly in the speech of Lord Hoffmann, the statement (in para 20) that a dishonest state of mind meant "consciousness that one is transgressing ordinary standards of honest behaviour" was in their Lordships' view intended to require consciousness of those elements of the transaction which make participation transgress ordinary standards of honest behaviour. It did not also require him to have thought about what those standards were."
- Against that background, the authors of Underhill wrote in November 2006:
- Also in 2006, in Abou-Rahmah Arden LJ held at paragraph 59:
- In Al Khudairi Newey J held at paragraph 134:
- In Abou-Rahmah Rix LJ held at paragraph 22:
- I do not need to enter into that controversy for the purposes of this appeal. It is sufficient to concentrate on what was said in Barlow Clowes about the element of knowledge required to set up an investigation of the subsequent element of dishonesty. For in this respect, the Privy Council underlined that there may be sufficient knowledge (a) in suspicion and (b) despite ignorance that money is held on trust at all."
- In its recent decision in Starglade Properties, the Court of Appeal has held that the relevant standard in a case of dishonest assistance is "the ordinary standard of honest behaviour". The Chancellor, Sir Andrew Morritt held at paragraph 32:
- I thus approach this aspect of the case on the basis that there is binding Court of Appeal authority to the effect that, as explained by Lord Nicholls in Royal Brunei, and as further explained by Lord Hoffman in Barlow Clowes, "it is unnecessary to show subjective dishonesty in the sense of consciousness that the transaction is dishonest. It is sufficient if the defendant knows of the elements of the transaction which make it dishonest according to normally accepted standards of behaviour."
- Further, as Newey J pointed out in his judgment in Al Khudairi, Millett J in Agip (Africa) Ltd v Jackson, Rix LJ in Abou-Rahmah & Lord Hoffman in Barlow Clowes were each of the same opinion that it is not necessary for a defendant to be aware of the precise nature of the underlying breach, or to know either that the money is held on trust, or even what a trust means, to be liable in dishonest assistance. See paragraph 135 of Newey J's judgment where he held:
- Applying those tests, namely that it is sufficient if the defendant knows of the elements of the transaction which make it dishonest according to normally accepted standards of behaviour, and that it is not necessary for a defendant to be aware of the precise nature of the underlying breach, or to know either that the money is held on trust, or even what a trust means, to the facts as already found (see paragraphs 92, 95, 98, 102, 105, 108, 115, 121 & 123 above) I go on to find as a fact that the Second Defendant knew and/or suspected that she was assisting in a misappropriation of money, and thus her conduct and mental state came well within the parameters of that which is necessary to establish a claim in dishonest assistance.
- The third submission related to the observation in paragraph 100.41 of Underhill that "The question has arisen whether a defendant is relevantly dishonest if he thinks that he is participating in some wrongful transaction other than the breach of trust in which he has actually participated?" Mr Dodge submitted that "the question of dishonesty must be looked at in the round" and that a defendant should not be "taken to be relevantly dishonest merely because he has acted dishonestly in some minor way in the course of a transaction which he believes to be genuine …" Given the facts as already found (see paragraph 206) I do not find that the Second Defendant was acting "dishonestly in some minor way in the course of a transaction which she believed to be genuine".
- Further, in paragraph 29D of the Re-amended Defence of the Second Defendant, Mr Dodge states that "it is not admitted that liability as a dishonest assistant can be incurred … in the absence of the misapplication of a trust fund or other property subject to fiduciary obligation."
- In my judgment the answer to that submission is as follows:
- I therefore accept the submission that, in order to establish liability as a dishonest assistant, there has to be in existence a trust fund or other property subject to fiduciary obligation, and find as a fact that in the circumstances of the present case the Lismolde and/or Far Eastern monies constituted such a fund or property.
- Conclusion on the new claims against the Second Defendant in dishonest assistance
| PARAGRAPH NUMBER | SUBJECT |
| 1 | Introduction. |
| 2-3 | Relevant Interlocutory History. |
| 4 | Representation at Trial. |
| 5 | The Background. |
| 6-26 | The Issues to be Determined at Trial. |
| 27-41 | The Accountancy Evidence and the Financial Background of the Defendants. |
| 42-75 | The Case against the First Defendant as regards the Far Eastern Monies. |
| 76-86 | The Case against the Second Defendant. |
| 87-88 89-123 |
General Assessment of the Second Defendant. Specific Aspects of the Evidence Regarding the Second Defendant. |
| 124-127 | Summary of the Claimants' case against the Second Defendant in Knowing Receipt. |
| 128-133 | Defences raised by the Second Defendant. |
| 134-142 | In respect of what sums was the Second Defendant a Knowing Recipient? |
| 143-145 | The Separate Personal and Proprietary Claims as regards the Second Defendant. |
| 146-147 | The Separate Personal and Proprietary Claim as regards the First Defendant. |
| 148-156 | Interest. |
| 157 | Appendix. |
| 158-169 | Background & recent events |
| 170-173 | Reconsideration of the draft judgment already made available to the parties |
| 174-181 | Precedent. |
| 182-189 | The authorities dealing with a proprietary claim |
| 190-191 | The personal and proprietary claims against the Second Defendant in knowing receipt. |
| 192-210 | The new claims against the Second Defendant in dishonest assistance |
| 211 | Conclusion on the new claims against the Second Defendant in dishonest assistance |
In this case four Dyson companies (to whom I shall refer collectively either as "the Claimants" or as "Dyson") make claims against both Mr Keith Curtis, the First Defendant, and his wife Mrs Diane Curtis, the Second Defendant. Dyson's claims against the First Defendant arise out of his alleged dishonest conduct whilst employed as Tooling Manager for various of the Dyson companies, initially in connection with Portuguese suppliers called Lismolde, and thereafter, in connection with a number of Dyson suppliers in the Far East, particularly in Malaysia. Dyson's claims against the Second Defendant arise out of her alleged knowing receipt of monies which the Defendant alleges were the fruit of bribes, either carried out or conducted by the First Defendant as regards Lismolde, or with his knowledge and/or under his direction as regards the Far Eastern suppliers.
The first Freezing Order was made on 18 June 2009 (page A/41-57); it was varied and renewed on a number of subsequent occasions and continued through the trial.
(a) An account for monies having been received by the First Defendant and interest thereon ...; or
(b) An account for profits and interest thereon ....; or
(c) Damages and interest thereon; and/or
(d) Such further or other relief as may be necessary or that is in accordance with the equities ...
By paragraph 3 of that order, a detailed order for disclosure was made against the First Defendant. By paragraph 7 of that order it was ordered that the First Defendant should make an interim payment to the Claimants in the sum of £615,903.65. By paragraph 8 of that order it was ordered that the First Defendant should pay the Claimants' costs of the proceedings incurred to date, and by paragraph 9 an order for payment of the sum of £70,000 on account of those costs was made.
At the trial, the Claimants were represented by Lance Ashworth QC; the First Defendant represented himself, and the Second Defendant was represented by Peter Dodge of Counsel. At the outset of the trial I made the following directions as regards the First Defendant's participation at the trial:
(1) That he was entitled to cross-examine any witness called in the course of the trial;
(2) That he was not entitled to advance any positive case on his own behalf; and
(3) That he was not permitted to give evidence on behalf of himself. However as the Second Defendant had filed and served a short witness statement of Mr Curtis (page B/70-71), in which, absent 3 short points made in paragraphs 5 to 7, he simply confirmed what the Second Defendant said in her witness statement, it would be possible for the Second Defendant to call Mr Curtis as a witness on her behalf, if so advised. In the event Mr Dodge decided not to call Mr Curtis as a witness on behalf of the Second Defendant.
This section of the Judgment is taken from Mr Ashworth QC's written opening note. While by definition having been drafted on behalf of Dyson, and thus reflecting Dyson's understanding of the matter as at the commencement of the trial, in my judgment paragraphs 6 to 28 of Mr Ashworth QC's written opening are cast in sufficiently neutral terms to enable me to adopt them for the purposes of setting out the essential background to the case. They provide as follows:
"6. Keith Curtis was a long-standing employee of the first 3 Claimants from August, 1996 to 21st May, 2009. Fuller details of his employment are set out in paragraph 4 of the Amended Particulars of Claim [A/2/7]. He was a senior tooling manager responsible for specifying and commissioning from third parties the manufacture of injection moulding tools for the Claimants and other members of the Dyson group of companies to make plastic components for their products. His salary details from October, 1997 onwards are set out at paragraph 1.27 of Appendix 4a [C1/5/39]. In the period between October, 1997 and his dismissal on 21st May, 2009 Keith Curtis received total legitimate net pay of £517,164.64.
"7. In March 2009 Mr Bowen, Dyson's Group Legal Director, learned that there were irregularities occurring in Dyson Technology's tooling department. It was said that Keith Curtis had been receiving payments from tooling manufacturers as an incentive to place Dyson Group's contracts with them. It was suggested that Keith Curtis had been engaged in this practice since he joined Dyson in 1996. It was also suggested that Lea Yuen Pok ("Mr Pok") a tooling manager for Dyson Malaysia, had also been receiving payments.
"8. The Claimants promptly undertook investigations initially by way of instructing commercial and bank investigators, Hogan & Co. International, to investigate the veracity of the claims. In two reports dated 7 May 2009 [D1/205-210] and 14 May 2009 [D1/253-254] respectively, they reported that:
(a) Keith Curtis' wife, Diane Curtis, and a schoolteacher by vocation had set up or acquired a company called Injection Mould Services Limited (IMSL) which had been incorporated on 3rd February 1998. She was the main shareholder (holding 99 of the 100 shares, the other share being held by the Curtis's 16 year old daughter) and sole director for the relevant times, having been appointed as such on 8th June, 1998 [D1/281];
(b) Notes to the statutory accounts of IMSL also disclosed that Diane Curtis was purportedly a sole trader trading as Technical Moulding Services ("TMS");
(c) On 19 October 2003 Keith & Diane Curtis purchased for £511,004 without a mortgage a property called St Mary House at 15 St Mary Street, Chippenham ("the Property"). Their earlier residence had not been sold at the time of such purchase.
"9. There followed a series of meetings from 20 May 2009 to 17 June 2009 [D1/285-295, D1/298-303, D1/312-321, D1/322-323, D1/333-337, D1/343-346, D2/357-360] between senior executives of the Dyson Group and Keith Curtis. Despite initial denials of any wrongdoing, followed by limited admissions, ultimately:
(a) Keith Curtis accepted he had received monies from Lismolde LDA ("Lismolde"), a supplier to the Dyson Group, for placing Dyson contracts with Lismolde. He said that he had received hundreds of thousands of pounds in this way. He also said that as recently as 15th May 2009 he had received payment from Lismolde.
(b) Keith Curtis said that invoices were raised by IMSL or TMS to Lismolde.
(c) Keith Curtis said that Diane Curtis knew what was going on.
(d) Keith Curtis initially cooperated in providing certain documentation including in relation to at least some of his and his wife's bank accounts (although certain bank accounts for TMS were not provided). Keith Curtis provided some documentation in relation to 38 or so bank accounts in his name or those of his wife or IMSL or TMS, together with a few in the name of their daughter Emma Jane.
(e) Keith Curtis was involved in the placing of Dyson contracts for injection mould tooling in Malaysia from the time when Dyson re-sourced its tooling manufacture to that country (which is understood to have commenced in or about 2000); although he denied that he received any bribes in relation to such placements.
"10. In meetings in early June 2009 senior executives of the Dyson Group interviewed Mr Pok. At the first meeting [D1/325-332]:
(a) Mr Pok initially denied having received any income from tooling or moulding suppliers in return for work given by the Dyson group;
(b) Mr Pok then admitted that he had received monies from certain moulding companies, identifying Ecomould, Primeira, Good Fix, Excellence and VSI;
(c) Mr Pok could not recall how much and said that payment had stopped;
(d) Mr Pok said he knew he would have to repay the money;
(e) Mr Pok said that payments had been made in cash, in particular from Mr Chan of VSI.
At the second meeting [D1/338-342], now accompanied by a lawyer (Wong Lock Heng), Mr Pok:
(f) retracted his admission and denied receiving payments;
(g) asserted that he had only made the admission because he "felt trapped and had played along to get out of the meeting quickly".
"11. Mr Pok reported to Keith Curtis. Keith Curtis approved all contracts that Mr Pok placed with Dyson suppliers. It appears from analyses undertaken by Gary Ball (see his witness statement dated 15th January, 2010 at [B/2/27-33] in particular at paragraphs 15, 18, 19 and 20) both shortly before and after Keith Curtis's dismissal that these tooling contracts had been entered into at prices which were substantially over the market price.
"12. THE BRIBERY - PORTUGAL
It is now apparent that by no later than 1998 (because of missing documents, it is not possible to go back further than this), Keith Curtis had entered into an arrangement with Lismolde whereby he would receive significant bribes from them in return for placing tooling orders with them. He had no permission from Dyson to receive such sums and his actions in this respect were completely dishonest.
"13. He had initially said that he was to receive 5% of the value of purchase contracts placed by Dyson. Between November, 1997 and November, 2007 the value of such contracts was £23,980,098 [D3/959-973], 5% of which is approximately £1.2 million.
"14. It is now asserted by Keith and Diane Curtis that the only monies received were the monies received from Lismolde into TMS and IMSL, in respect of invoices rendered by those outfits. IMSL was a company set up by or on the instruction of Diane Curtis at the request or instruction of Keith Curtis. She was the sole director and the holder of 99% of the shares. It is clear that this company was set up to hide Keith Curtis's dishonesty. At the same time, but for reasons which have not been explained (and are incapable of rational honest explanation), TMS began to "trade", that is to say that it began to submit invoices to Lismolde.
"15. Invoices from TMS have been made available [D3/658-741] but there are no copy invoices from IMSL, that company having been dissolved in July 2003 and the paperwork having apparently been destroyed.
"16. An analysis of the available bank statements for these 2 (entities) (see paragraph 2.3.6 of Mr. Lewis's report [C1/1/13]) shows payments from Lismolde:
(a) to TMS in the sum of £465,515.15 in the period 7th April, 1998 to 16th April, 2009;
(b) to IMSL in the sum of £150,388.40 in the period 12th February, 19993 to 15th May, 2003.
This gives a total sum of £615,904.55. There were additional deposits totalling £23,086.
"17. There is no doubt that bribes of at least the sum of £615,904.55 were paid by Lismolde for the benefit of Keith Curtis and in breach of his fiduciary duties owed to Dyson. There may well have been more.
"18. N/A
"19. N/A
"20 N/A
"21. BRIBES/BREACH OF FIDUCIARY DUTY IN MALAYSIA
In 2000, Dyson began the process of re-sourcing their tooling requirements in the Far East, operating out of Malaysia. Mr. Pok, whose "boss" was Keith Curtis, was employed in 2000. This process took a number of years and it was not until 2006/2007 that Dyson ceased to place tooling orders in Portugal and was placing them all in the Far East.
"22. It is clear that Dyson was paying too much for tooling in the Far East. Reliance is placed on evidence from before and after the dismissal of Keith Curtis:
(a) the querying by Gary Ball of quotes which had been approved by Mr. Pok leading to the subsequent reduction in purchase price evidenced by Mr. Pok simply crossing out amounts on a quote and entering a lower figure that he said the supplier would accept (see paragraph 8 of Mr. Ball's witness statement [B/2/29]) and by the reduction of the Meiban approved quote by MYR 148,742 [D1/167] and [D1/192];
(b) the obtaining of alternative lower quotes from the supposedly more expensive toolmaker in Singapore which came in at 25-30% lower than the price which Dyson had paid (see paragraph 15 of Mr. Ball's witness statement [B/2/31] and the comparative costs at [D2/382]);
(c) the exercise undertaken in August, 2009 by Mr. Ball obtaining quotes from 5 audited and approved suppliers for 20 tools which Dyson had ordered from its established suppliers in the Far East, showing an average overpayment by 40% in 2006 and 43% in 2007 and a range of overpayments of 10% to 67% (see paragraphs 18-19 of Mr. Ball's witness statement [B/2/32] and the comparative costs at [D2/381]);
(d) the further exercise undertaken at that time by Mr. Ball to obtain a new quote in respect of the DC23 project, resulting in prices 20% lower (see paragraph 20 of Mr. Ball's witness statement [B/2/32] and the comparative costs at [D2/401-402]).
"23. Mr. Pok initially admitted that he had received bribes in cash from 5 toolmakers, payment of some or all of this having been made by a Mr. Chan of VSI [D1/325-332]. While (after he engaged lawyers) he subsequently has sought to resile from this, there is no proper ground for doubting that he was telling the truth at the meeting of 4th June, 2009 in this respect.
"24. Keith Curtis's conduct in relation to Mr. Ball's attempts to introduce a 3 quote system in 2008 is extremely telling. The exchanges of email in March and May, 2008 are indicative of a person who is bound to be rumbled if the 3 quote system is introduced - see the emails at [D1/170-175, 176, 179-181, 183, 185, 193-195, 197-198]. The contact he maintained with Mr. Chan even after his dismissal by Dyson (as shown by the very recently disclosed emails) is similarly consistent with someone who knows full well what is going on [D2/361, 383, 384, 385].
"25. The evidence establishes overwhelmingly that Dyson had been overpaying for tooling and that Mr. Pok was receiving bribes from suppliers. It is to be inferred that Keith Curtis was well aware of this and must have been receiving some form of kickback. It is less easy to identify specific payments, which is not surprising given that Mr. Pok says the bribes were paid in cash and therefore there would have been no need to pay against apparently legitimate invoices.
"26. The analysis undertaken by Mr. Lewis, however, identifies that Keith and Diane Curtis had substantially greater outgoings than can be accounted for out of his legitimate income from Dyson, her legitimate income from her job as a resident housemistress at St. Mary's Calne and the illegitimate income from Lismolde. There is at the least a shortfall of in excess of £500,000, but in addition there are unexplained receipts into bank accounts5 of in excess of £1.1 million (see paragraphs 4.1.2 to 4.1.5 of his Supplemental Report [C2/13/236-237]). Accordingly, it is to be inferred that the source for these additional sums must be at least some of the bribes received by Keith Curtis from Far East toolmakers.
"27. Of the £1.1 million of unexplained receipts, some £811,490 passed through Diane Curtis's own bank accounts [C2/13/229]. Her alleged "innocence" again does not stand up to scrutiny, especially in light of her knowledge as regards the Lismolde monies.
"28. However, even if Keith Curtis received no pecuniary benefit, the very fact that he allowed the purchase orders to be placed at over inflated prices would amount to a breach of his obligations to Dyson and he is liable in respect thereof. On a conservative estimate the losses to Dyson amount to between £4.7 million and £16.5 million (see paragraphs 4 to 5 of Mr. Bowen's witness statement [B/4/37])."
As regards the Claimants and the First Defendant, given the terms of the order made on 24 September 2009 (page A/95-98), Mr Ashworth QC submitted in oral opening that what remained to be determined at trial was the nature and extent of the relief to which the Claimants were entitled as against the First Defendant. I accept that submission in general terms. It remained for the Claimants to establish at trial the underlying factual basis upon which such entitlement to relief would obtain.
(i) By deemed admission pursuant to the provisions of CPR Rule 16.5 (5) as a result of his failure to serve a defence; and
(ii) By actual admission in the course of the interviews which took place in May 2009.
As a result, it has already been established by the First to Third Claimants that the First Defendant was in breach of his contractual and fiduciary duties owed to them.
"This is the real issue between the Claimants and Diane Curtis. The Claimants will have to show first a disposal of its assets in breach of fiduciary duty in this case by Keith Curtis, secondly the beneficial receipt by Diane Curtis of assets which are traceable as representing the assets of the Claimants and thirdly knowledge on the part of Diane Curtis that the assets she received are traceable to a breach of fiduciary duty (El Ajou v. Dollar Land Holdings plc [1994] 2 All ER 685 at 700 quoted in BCCI v Akindele [2001] Ch 437 at 448B-C)."
(1) The primary issue to be determined at trial as between the Claimants and the Second Defendant was whether the Second Defendant was a knowing recipient as alleged, and if so in respect of what sums; and
(2) Whether it was possible, and or practical, and/or just and convenient to determine what, if any, trust property can now be traced into what items of property was a matter to be reviewed in the course of closing submissions.
(1) Decide the issue whether or not the Second Defendant was a knowing recipient as alleged;
(2) If the Second Defendant was a knowing recipient as alleged, then decide in respect of what sum she was a knowing recipient;
(3) Then decide what remedies are available to the Claimants against each Defendant;
(4) As regards the Claimants' personal claims against each Defendant, decide these on the basis of the evidence adduced at trial; and
(5) As regards the Claimants' proprietary claims against each Defendant: determine the basis upon which such proprietary claim should be pursued i.e. whether an accounting exercise should then be carried out on (a) the FIFO basis, in accordance with the Rule in Clayton's case (1816) 1 MER 572; or (b) a "cherry-picking" basis, in accordance with the Rule in Re Hallet's Estate (1880) 13 CHD 696, and Re Oatway (1803) 2 CH 356, and Rosco -v- Winder (1915) 1 CH 62; and/or (c) whether on a backward tracing basis as explained in Bishopsgate Investment Ltd v Homan (1995) CH 211. See also Mr Ashworth QC's written opening submissions at paragraphs 51 to 53.
(a) It is not until the relevant findings of fact have been made, on the issue whether or not the Second Defendant is a knowing recipient as alleged, that the appropriate basis on which any tracing exercise could be carried out can be established; and
(b) The two accountancy experts have in fact considered quite separate aspects of the case in their evidence: Mr Lewis on behalf of the Claimants has directed his attention to the income, receipts and expenditure of the two Defendants, while Mr Draper for the Second Defendant has carried out a tracing exercise on the basis of FIFO. It follows that the experts have not yet had the opportunity to consider, whether jointly or otherwise, the details of an accountancy exercise to be carried out after such findings of fact have been made.
"Here, Mr Curtis has accepted his conduct in relation to Lismolde was improper. It does not follow from this that, where there are two or more explanations of a particular unrelated fact or circumstance involving Mr Curtis, the Court should prefer the explanation which would involve impropriety on the part of Mr Curtis. It is for example suggested that (i) Mr Pok has been involved in impropriety, and (ii) that, if he was, Mr Curtis was also involved in that same impropriety. The Court could, however, only properly reach such a conclusion on the basis of cogent evidence."
Mr Dodge then developed that submission in paragraphs 6 to 19 of his written closing submissions.
"When considering a case such as this, where there has undoubtedly been the taking of very substantial bribes by a senior employee, it is important to remember that a wronged party such as Dyson being a victim is always going to find it difficult to obtain live testimony from any alleged wrong doers (cp Tesco Stores Ltd. v. Pook [2003] EWHC 823 (Ch) at [28]). That is not to say that the burden of proof does not lie on the Claimants to establish wrong-doing, but it is submitted that the Court should examine closely assertions made by implicated parties, including those who have received the fruits of the bribery and test them with a critical and even cynical mind (cp MGN v. Horton [2009] EWHC 1680 (QB), another case of an allegedly "innocent" wife who had spent large sums of her husband's employer's money, but who was ultimately held to have been a knowing recipient). These are the sorts of cases where Courts will have to draw inferences from the surrounding circumstances."
The Claimants' accountancy expert was Mr Lewis, and the Second Defendant's was Mr Draper. Both experts are agreed that they had not had access to all the relevant documents: see paragraph 7 of their joint statement (page C2/507). Both experts also agree that a mismatch has arisen as regards their opinion evidence, in the sense that they have been instructed respectively to carry out different exercises; see paragraph 3 of their joint statement.
"A: I totally accept the approach. It is the sort of approach we would use in a POCA enquiry. But here, my concern is that we haven't yet looked at the whole picture".
"I understand that 74 separate bank accounts have been identified, though my analysis refers to only 47 bank accounts. At Appendix 3 of the Report I set out the schedule of the known bank statements that had not been disclosed to me. Therefore my analysis is not complete and furthermore, there may also be accounts of which I am not aware".
"I have identified known but unexplained payments of £512,780. To the extent that these do not relate to school fees, holidays and horses, it is likely that a number of these relate to further household expenditure. This would further increase the deficit at paragraph 4.1.2. Further there are unknown cheque payments of £1,072,123."
"On the basis of the amount in the bank accounts and the apparent deficit set out from the comparison of income and expenditure, then this does suggest that Mr and Mrs Curtis must have had access to further unidentified funds."
(a) That the Defendants incurred a significant expenditure in excess of their legitimate income and in receipt of Lismolde monies during the period of review of 1997 to 2009; and
(b) Such excessive expenditure derived from their receipt of monies from other sources.
I therefore turn to consider the evidence as regards what were such other sources.
As regards the legal principles relating to this part of the claim, the position was, perhaps inevitably, one sided, in the sense that Mr Ashworth QC made detailed submissions as regards the applicable law in his written opening, which Mr Curtis did not dispute. Mr Ashworth QC submitted that money wrongfully received by the First Defendant in such circumstances, which Mr Ashworth QC described as "bribes", were to be treated as property belonging to the employer, following the principle established in the 19th Century in Boston Deep Sea Fishing -v- Ansell [1888] 39 CH 339, and that the taking of such bribes was a breach of fiduciary duty: see paragraphs 1 and 34 of Mr Ashworth QC's written opening submissions.
"Around two and a half years ago (that is in mid 2007) Dyson sent me on secondment to work in the Far East. I was no longer reporting to Keith Curtis, but initially to Steven Ames (Deputy General Manager of Dyson) and then to Bela Hovarth the procurement director of Dyson Malaysia. I was asked to assist with projects in the Far East, including establishing manufacture of the Dyson Airblade hand drier in China and development of ATA in Malaysia as a third prime contractor to make finished projects for Dyson.
At paragraph 8 he stated:-
"The person in charge of Dyson's tooling in Malaysia was Lea Yeun Pok, who reported to Keith Curtis, since Mr Curtis was Group Tooling Manager ...."
At paragraph 9 he stated:-
"I found it odd that Dyson appeared to pay more than it needed to for tools in Malaysia. I raised this with Keith Curtis when he visited our Singapore premises, telling him of my surprise that prices in Malaysia seemed to be getting almost as high as the prices we had been paying in Portugal, but he did not seem interested in doing anything about it and nothing appeared to change."
At paragraph 10 he stated:-
"Mr Curtis, with Mr Pok, decided how much they wanted to pay for each tool, and raised a capital expenditure request for that amount ... they did not obtain competitive quotes, as far as I was aware ..."
At paragraph 11 he stated:-
"My brief from the Finance Director, Neil Ritchie, and Bela Hovarth the Commercial Director, for my role in the Far East was to implement a 3 quote system, whereby at least 3 quotes would be obtained from different suppliers before any contract was placed."
"But this is not the right way to do things, it is just not correct"
"As part of my investigation I had chosen a spectrum of four middle of the range tools for the DC 25 project, and asked the contractor in Singapore, Suningdale, to give me quotations for producing them. I had been told by the tooling people (including Keith Curtis and Lea Yeun Pok) that tooling made in Singapore was generally more expensive; but when the quotations for these tools came back they were 25-30% cheaper than the price Dyson had paid for these same tools."
"Taking the average of 5 quotes in each year, Dyson overpaid by around 40% in 2006, and by around 43% in 2007. Taking the lowest new quote obtained, Dyson overpaid by 59% in 2006 and by 67% in 2007. Even taking only the highest quote obtained (which clearly Dyson would not have accepted, other things being equal) that is still almost 10% lower than the price actually paid in 2006, and almost 18% lower than that paid in 2007".
"I had difficult and acrimonious meetings with Mr Curtis and Sean Robinson (the Global Operations Director, to whom Mr Curtis reported) in Malaysia, where they vigorously resisted my efforts to introduce the three-quote system. Whilst Bela Horvath appeared to support the principle of obtaining three quotes, as he reported to Sean Robinson he was unable to implement this for the tooling department. This culminated in a chain of email correspondence in March 2009 (attached at pages 1-13 of GAB1) in which Mr Curtis said:-
(a) On 13 March 2008, that "to get 3 quotes would not work as we do not have 3 suppliers with the same capability." (Page D1/137)
(b) On 18 March 2008, that a "three quote" system was "on a daily bases [sic] fine but not on a tooling placement as in these matters it still comes back to me." (page D1/170)
(c) On 26 March 2008, that " This is the final word ... simply obtaining 3 quotes for tooling is impractical ... therefore the 3 quote system for tooling will not happen ... Lea and I have in detail looked at the live new projects and have completed our conclusions on cost which has drive the capexs ... We will monitor the tooling costs against our estimates and will monitor to ensure costs are fair and agreeable best practise [sic]," (page D1/183)
(d) On 26 March 2008, Sean Robinson emailed Messrs Hovarth and Curtis, and me, stating that he was "sensing some minor issues" which he wanted us "to address in a collegiate manner." He set out the roles and responsibilities of the various team members and included the comment that "sometimes it may not be possible to obtain 3 quotes or it may be impracticable." (page D1/185)
"I was perplexed as to why attempts to introduce the three-quote system provoked such reactions. Whilst my emails and my efforts to introduce the system had been professional, Mr Curtis' responses appeared angry and overly defensive. I was surprised that Sean Robinson, too, appeared to want to block the three-quote system. Mr Robinson was the individual responsible for keeping costs down for Dyson."
"Q: As regards the emails of 13 March 2008: in the Far East who of you and Keith Curtis would know better the capabilities of supplies in the Region?
A: Both of us.
Q: As regards yourself and Mr Pok?
A: I would say me. The reason is that Mr Pok is not a tool maker. I am; I have 35 years experience. Mr Pok is just a process engineer."
"A: Keith Curtis is a very good engineer; he is better than me, but I would be better than Mr Pok.
Then a little later Mr Ball stated:-
"Q: As regards office politics, was there a difficulty of treading on other people's toes?
A: I was put in to implement the 3 quote system, which I thought might have been quite simple, but turned out to be quite difficult"
A little later in his cross-examination Mr Ball also stated that:-
"A: The 3 quote system was working for every other department, except for tooling".
"Q: So, a supplier who had been attempting to sell to Dyson for some time, was asked for a quote for something already known to be in existence. Is it not surprising that you would get a competitive price, almost as a loss leader?
A: Yes, but a 30% difference was a bit excessive".
In re-examination Mr Ball stated as follows:-
"Q: It was suggested that the suppliers gave a cheap price?
A: But even making an allowance for that, which I am sure they did, the cost savings were far greater than I expected."
"Sean help,
Gary has used my name falsely without even a hint of truth.
I regard this as serious gross misconduct and would like to take it up formally as this is not an internal document but has been sent to our suppliers.
I have not responded to this document as it would mean I would have to respond externally, I don't think that would be professional, at least until we have spoken.
I fully support that after the first year of main contractor system fiscal controls needed to be addressed once unforeseen issues surfaced during the implementation of the new strategy, not only within tooling.
As you know I voiced my concerns to you months ago and am/are dealing with it.
I need this resolving once and for all.
I have already had suppliers phoning me and I have told them I wish not to comment.
As you know it is a long holiday weekend in the UK, but I will have my phone on all times and text or will reply.
Best Regards
Keith"
"Q: Is there any inference that I was behind you going?
A: No, but having now seen your emails, I would question it".
"Mr Curtis at the outset expressed his desire to co-operate with Dyson Group in its enquiries into these matters, and did initially provide a number of documents. Because Mr Curtis appeared to be co-operating, Dyson Group did not consider it necessary or appropriate immediately to seek any injunctive relief against him or his wife. However I am now of the strong opinion that Mr Curtis has ceased seriously and fully to cooperate with Dyson Group's enquiry."
"In particular, Mr Curtis' demeanour and general attitude at the meeting on 10 June was completely different to his approach at earlier meetings. Whereas ... previously he had been keen to co-operate, and provided documentary evidence to assist the investigations, at that meeting he appeared deliberately to avoid answering questions, and would not make eye contact when questions were posed. The clear impression I gained was that his co-operation had come to an end and he was stonewalling. This was reinforced by Mr Curtis's conduct at the meeting on the morning of 17 June, when he failed to provide information on even the most basic level ...
"Q: He did not volunteer anything about Malaysia?
A: Correct, though "volunteered" mischaracterises the nature of the meeting. Keith Curtis was very reticent. He was feeling his way, volunteering small pieces of information and truncating his answers. It was not a case of him sitting down and volunteering information; it had to be extracted."
"Q: But you had no reason to suppose at this stage that Diane Curtis was being uncooperative?
A: At this stage, I formed the view that we were not receiving full cooperation from Keith Curtis. That was because of the totally inordinate amount of time it was taking to get answers to very simple questions. Keith Curtis was saying he was unsure about matters that had already been explained a number of times. We invited him to take legal advice. It felt very much less than the full cooperation Keith Curtis had afforded at the Four Pillars Hotel."
"Q: Although the matter had been referred to the Police, there was nothing to link Keith Curtis to these matters in connection with Mr Pok.
A: Other than the relationship between them, and that Keith Curtis had stated in email correspondence that all these matters re placing orders for tooling in Malaysia came back to him, and that he would have the final word."
"Q: So the suspicion of Keith Curtis in relation to the Far East was (1) he was Mr Pok's boss (2) the investigation, so far as it related to all these suppliers, might turn something up; and (3) you rely on unexplained receipts in Keith Curtis and Diane Curtis' bank accounts.
A: That is a very simplified summary, especially in relation to item (1). Keith Curtis was responsible for tooling matters worldwide for our business. He took very great care to be involved in all aspects of placing orders, and the way in which suppliers were assessed. This relationship between Mr Pok and Keith Curtis was not one of distance; it was a very close working relationship."
"Sean Robinson, who was managing director of Dyson Group's Malaysian businesses, was also recently dismissed for misleading the board with regard to what tender process was followed before a contract was awarded to another supplier to Dyson Malaysia (i.e. not one of the five named in paragraph 51 of this affidavit). Sean Robinson was operations director in charge of the Malaysian manufacturing business and also in overall charge of engineering R&D in Malaysia and the UK. Investigations in relation to this by Dyson Group are continuing."
Mr Ashworth QC's cross examination of the Second Defendant occupied 2 full days of the hearing, spread over 3 days of trial. That was not surprising: as Mr Dodge put it in paragraph 9 of his written opening, "the 'key battle ground' is the 'knowing receipt' claim", which point Mr Dodge repeated in paragraph 25.
"It is not necessary to prove dishonesty on the part of Diane Curtis (although once it has heard the evidence the Court may well make a finding to that effect). Rather the test is whether her state of knowledge was such that it makes it unconscionable for her to retain the benefit (BCCI v Akindele [2001] Ch 437 at 448H and 455E-G)."
"The six "Elements of liability where misapplied trust property has been received and dealt with by a defendant for his own benefit" are set out in Underhill and Hayton, 100.52. This reads as follows:
"To make a defendant personally liable where he has received misapplied trust property and dealt with the property for his own benefit it is currently necessary to establish that there was:
(1) property held on trust or subject to some other fiduciary duty;
(2) misapplication of the property by the trustees or fiduciary in breach of trust or fiduciary duty;
(3) receipt of the property or its traceable proceeds by the defendant;
(4) a causal link between the defendant's receipt and the breach of trust or fiduciary duty;
(5) a dealing with the property by the defendant for his own benefit, and not in his character as agent for another party;
(6) knowledge by the defendant that the property has been transferred in breach of trust or breach of fiduciary duty, either at the time of receipt or at any other time prior to his dealing with the property for his own benefit."
"As is further observed in Underhill and Hayton, 100.73:
'Essentially it is a matter of fact - a jury question - whether the defendant exhibited a sufficient degree of fault by virtue of having actual, Nelsonian, or naughty knowledge of the misapplication, bearing in mind that where 'he knows of circumstances which may on the one hand make the payment a misapplication but which may on the other hand be consistent with perfect propriety ... such a case might be determined on its particular facts by the principle that a party to a commercial agreement should not be fixed with notice simply because in a loose sense he has been put on enquiry.'
"35 Here, it is impossible to ignore the background circumstances against which D2 could possibly have acquired knowledge. She was not an experienced business person, but was dependent for any knowledge which she might have acquired of the circumstances of the transaction upon a husband who (i) was an experienced and apparently successful business person and who (ii) would have appeared to have been jeopardising his own success and the well-being of his family were he to become involved in anything underhand.
"The passages in Underhill and Hayton referred to in Mr Dodge's skeleton argument at paragraphs 26 and 27 start from the fundamentally wrong position that dishonesty is a necessary ingredient. The test is not that set out in paragraphs 33 or 34 of Mr Dodge's closing argument, but the single test from BCCI v Akindele."
"Although the courts have discussed this final requirement in many cases, it still cannot be said that it has been definitively settled what states of mind will suffice to incur liability. However, some recent judicial observations on the nature of liability under this head suggest that the time is now ripe for the courts to take a more radical approach to this question, by recognising not only that it is a fault-based equitable wrong to receive and deal with misapplied trust property for one's own benefit with a dishonest state of mind, but also that a strict liability claim in unjust enrichment will alternatively lie against the recipients of misapplied trust property, subject to the recipients' ability to raise the defence of change of position. In the following account, each of the current requirements for liability will be considered, and the future direction of the law will then be discussed."
"... although a knowing recipient would often been found to have acted dishonestly, dishonesty was not a pre-requisite to liability under the knowing receipt head; that in order to be liable for knowing receipt, the recipient had to have knowledge that the assets received were traceable to a breach of trust or of fiduciary duty, the single test for which was whether the recipient's state of knowledge was such as to make it unconscionable for him to obtain the benefit of the receipt;"
That head note derives from the judgment of Nourse LJ at page 448H where he held:-
"While a knowing recipient will often be found to have acted dishonestly, it has never been a pre-requisite of the liability that he should."
Then at page 450 C-F Nourse LJ held further as follows:-
"Belmont Finance Corporation Ltd v Williams Furniture Ltd (No 2) [1980] I All ER 393 is clear authority for the proposition that dishonesty is not a necessary ingredient of liability in knowing receipt. There have been other, more recent, judicial pronouncements to the same effect. Thus in Polly Peck International plc v Nadir (No 2) [1992] 4 All ER 769, 777D Scott LJ said that liability in a knowing receipt case did not require that the misapplication of the trust funds should be fraudulent. While in theory it is possible for a misapplication not to be fraudulent and the recipient to be dishonest, in practice such a combination must be rare. Similarly in Agip (Africa) Ltd v Jackson [1990] Ch 265, 292A Millett J said that in knowing receipt it was immaterial whether the breach of trust was fraudulent or not. The point was made most clearly by Vinelott J in Eagle Trust plc v SBC Securities Ltd [1993] I WLR 484, 497:
"What the decision in Belmont Finance … shows is that in a 'knowing receipt' case it is only necessary to show that the defendant knew that the moneys paid to him were trust moneys and of circumstances which made the payment a misapplication of them. Unlike a 'knowing assistance' case it is not necessary, and never has been necessary, to show that the defendant was in any sense a participator in a fraud."
Nourse LJ continued at page 455 D-F:-
"What then, in the context of knowing receipt, is the purpose to be served by a categorisation of knowledge? It can only be to enable the court to determine whether, in the words of Buckley LJ in Belmont Finance …, the recipient can "conscientiously retain [the] funds against the company" or, in the words of Sir Robert Megarry VC in re Montagu's Settlement Trusts [1987] Ch 264, 273, "[the recipient's] conscience is sufficiently affected for it to be right to bind him by the obligations of constructive trustee." But, if that is the purpose, there is no need for categorisation. All that is necessary is that the recipient's state of knowledge should be such as to make it unconscionable for him to retain the benefit of the receipt.
For these reasons I have come to the view that, just as there is now a single test of dishonesty for knowing assistance, so ought there to be a single test of knowledge of knowing receipt. The recipient's state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt. A test in that form, though it cannot, any more than any other, avoid difficulties of application, ought to avoid those of definition and allocation to which the previous categorisations have led. Moreover, it should better enable the courts to give commonsense decisions in the commercial context in which claims in knowing receipt are now frequently made, paying equal regard to the wisdom of Lindley LJ on the one hand and of Richardson J on the other."
It is to be noted that Ward LJ and Sedley LJ agreed with the judgment of Nourse LJ.
"It is accepted that the issues which go to the heart of these elements are:
(15) In respect of the monies received by IMSL and TMS, what was Diane Curtis's knowledge as to the source of these funds?" and
(16) Was Diane Curtis's knowledge such that it would be unconscionable for her to retain the benefit of the same?"
(1) The Claimants cannot establish the case in knowing receipt as against the Second Defendant as regards the Far Eastern monies; see paragraphs 10 to 11 of Mr Dodge's written opening submissions;
(2) The Claimants cannot establish a proprietary claim against the Second Defendant: see paragraphs 12 to 23 of his written opening submissions; and
(3) The knowing receipt claim is thus to be confined to the Lismolde monies; see paragraphs 24 to 37 of this written opening submissions.
Having had the opportunity of observing the Second Defendant while she gave evidence over a significant period of time, I have come to the following general conclusions about her character:-
(1) The Second Defendant is a woman of considerable intelligence. She stated in cross examination that when she was 17 and 18 years old, she undertook a beauty therapy course at Cannock Chase Technical College. She further stated:-
"I have a Cert Ed from Oxford in Primary Education. I was at Lady Spencer Churchill College when 18 to 19 years old; it is now part of Oxford Brookes. It was a 3 year full time course."
The Second Defendant also explained that, when she was working at Saint Mary's School in Calne, she did not teach academically; instead her duties were pastoral. A little later in her cross examination, the following exchange occurred:-
"Q: You are an intelligent woman?
A: Yes, I can talk. He can work on moulds and figures."
There were many instances in the course of her cross examination when the Second Defendant displayed a quick intelligence.
(2) The Second Defendant was strongly supportive of her husband, the First Defendant e.g. her explanation of being supportive in the context of the e-mail from her husband to Sean Robinson (see the e-mail chain at D1/179).
(3) The Second Defendant had a good grasp of detail e.g. she explained clearly in cross examination how she made the various detailed entries which appear in the "red book" in which she recorded the details of invoices and receipts in the name of TMS for the accountant.
Specific Aspects of the Evidence Regarding the Second Defendant.
"Q: What income did you expect?
A: I had no idea. I just wanted to be told what to put on the invoices.
Q: It must have been important to you to know what you were going to earn, having been a supply teacher?
A: Not necessarily. Supply teaching is a very hit and miss affair. My income was secondary to Keith's. It was not crucial I made a certain amount of money myself."
"Q: So you would expect to receive an income of about the same as a supply teacher i.e. about £300 per week. Say you were working 30 weeks a year, that would be a total of about £9,000 per annum?
A: I believed I was responsible, and I believed that the money was available to me.
Q: This business was to supplement his income, and not to be the main income?
A: Yes. I said I would be happy to receive the same as a supply teacher.
Q: Did you receive any money from IMSL?
A: As a Director about £40,000 I believe.
Q: From TMS?
A: I was able to draw from TMS's account.
Q: Who decided how much you could withdraw?
A: I did.
Q: Not Keith?
A: No: I did."
"Q: Did you know at the time i.e. 1998 what Keith's salary was?
A: Probably, roughly.
Q: You would have to have known that to understand the "tax advantages".
A: Correct."
Then a little later she stated:-
Q: Please refer to the table of the First Defendant's receipts from Dyson and Lismolde. It is inconceivable that he could earn twice his salary in 1999?
A: If you say so.
Q: You were seeing these sums?
A: I never saw a lump sum of £65,000, never compared this with his wages. It was all very fluid.
Q: You totalled figures in the book?
A: I did not have my husband's salary in front of me. Had I done the examination, it would have been 'wow: that's a lot of money'. If I had that information then, I would have thought that.
Q: But you did have all this information.
A: But I never made the comparison."
"Accordingly I went to see Peter Holden, a Chartered Accountant whom I found in the Yellow Pages, in order to set up TMS and IMSL as instructed by Mr Curtis. Mr Curtis did not have any direct contact with Mr Holden. He left all that to me. He told me to tell them that I was an intermediary and was being paid for putting suppliers and customers in contact."
"Q: Refer to paragraph 31: is it accurate?
A: In what it says: yes. The 'he' in the last sentence is Keith Curtis.
Q: Did you tell Mr Holden that?
A: Yes.
Q: So, Keith told you to tell Mr Holden a lie?
A: Yes.
Q: Because you were not an intermediary at all?
A: I was not.
Q: You were, at best an office clerk.
A: Yes.
Q: You must have appreciated that what Keith Curtis was telling you to tell the accountant was a lie?
A: Yes.
Q: Did it cause you to question why your husband was telling you to tell the accountant this?
A: I believe the reason was I was told this was what the accountant would ask me.
Q: At what point did you know that you were being asked to tell a lie?
A: I was being asked to say something by my husband.
Q: But you knew it was dishonest?
A: Yes.
Q: Why did you not say 'stop; it is all dishonest; tell me what is going on'?
A: At the time I was doing my husband's bidding. He was the intermediary.
"In 1998 Mr Curtis suggested that I give up my work as a supply teacher and set up a technical consultancy. He told me that he wanted to work for himself in addition to his employment with the Claimants, that he believed he could earn income from some contract consultancy work in Portugal. He said that he wanted me to set up a business (and a Company) to service it ..."
She also stated at paragraph 24:-
"He said that the unincorporated business should be called Technical Mould Services ("TMS") and that the limited company, which would be owned and controlled by me, should be called Injection Mould Services Ltd ("IMSL").
She stated at paragraph 25:-
"I assumed that while abroad he developed another source of work with Lismolde that he was able to carry out under the TMS/IMSL banner while working for Dyson. I thought that Lismolde was paying Mr Curtis for finding other customers for Lismolde ..."
And at paragraph 26 she stated:-
"I did not question the arrangement nor did I ask what Mr Curtis would actually do, nor did I later ask what he did. I had no understanding of the technical side of his work and no interest in the business side."
"Q: Did you tell Mr Holden about Keith's role in the businesses?
A: No, I did not.
Q: Was there any mention of Keith to Mr Holden?
A: No, there was not."
Q: Why could TMS not be run in Keith's name to the outside world?
A: Presumably because my tax position would be useful; as a non working person I have a single person's allowance. I was doing the administration.
Q: You say "assumed"; no-one ever told you it would be advantageous?
A: No, I agree ...
Q: Why was it in your name not his?
A: Because of the tax situation.
Q: But that is an assumption.
A: I had the time to be piggy in the middle, running around."
"Q: Why was Keith Curtis not a director?
A: It was not necessary to have another, according to Mr Holden.
Q: But why you and not Keith Curtis?
A: I have no idea.
Q: Why not say to Keith Curtis "this is your business"?
A: I did not ask that.
Q: Why?
A: Because I am stupid.
Q: Plainly not.
A: I trusted my husband.
Q: Why not have your husband as a shareholder?
A: It was not necessary. I am here and Keith Curtis was abroad.
Q: What is the difficulty about making Keith Curtis a director and/or shareholder?
A: I have no idea; I was doing the simplest thing.
Q: No: the simplest thing was to have him as a director and a shareholder, running the business.
A: No: because there are tax implications. That is what I am assuming.
Q: But you never asked Mr Holden about that?
A: I assumed. I was not working.
"Q: If you thought that it was all a good tax break, you would have discussed this with Mr Holden?
A: We did not discuss the tax levels.
Q: You did not discuss tax with Mr Holden?
A: Only in connection with having an incorporated company - it was beneficial for dividends."
"Q: Refer to the 5 invoices each dated 22 March 1998 (page D3/658) for work you presumed must have been done since January 1998. These total £14,886 over a two month period. Was it your understanding that he had worked sufficiently over two months to generate these sums?
A: I had no idea what sort of work he was doing.
Q: What was his income from Dyson then?
A: I have no idea.
Q: Refer to the table: that shows net pay for 1998 as £26,715. Now refer to three more invoices each dated 13 March 1998 (page D 3/664-6) totalling £13,174. So in these 3 months there are invoices totalling some £28,000, which is more than his net annual salary for Dyson? You can't have believed that this was a legitimate income?
A: I did believe that.
Q: So why did you not ask your husband: why continue to work for Dyson?
A: I did not:
Q: Why not?
A: He was out of the country a lot. I believed it allowed him to make contacts, to place work with Lismolde. It would have been counterproductive if he was in England all the time, and not visiting Portugal.
Q: So you believed he was doing this work while out of the country and working for Dyson?
A: Yes."
"Q: Refer to paragraph 49 of your witness statement where you refer to 'catch up invoices' (page B/59). Did you ever issue a credit note to Lismolde?
A: No.
Q: So these were invoices for items already invoiced?
A: Yes.
Q: Say you issued an invoice for £8,000; if £1,500 was not paid you would re-invoice that £1,500?
A: Yes.
Q: For tax purposes, did IMSL pay tax on invoices billed, or cash received?
A: On what the accountant saw in the books. So it must have been from the invoices ... what is the difference?
Q: Didn't you think it rather strange to 'double invoice' rather than get Lismolde to pay the first invoice?
A: No. But what I did is down here.
Q: You would expect a catch up invoice to be paid in full?
A: But they still retained 15%.
Q: So there was always an amount outstanding: a spiral i.e. there was always a shortfall on every invoice, and the catch up invoice made the position worse. How can that be part of an honest business?
A: It does sound bizarre, but that is what I did, that is what I was told to do. I did explain it to the accountant, because I did think it was a bit weird, and this is how he told me to set it out.
Q: But this does not get around the point that you knew that these invoices were for services that would not be paid. That is only consistent with the business where these are bribes.
A: I did not know these were bribes."
"Q: How many miles did you travel for TMS?
A: Mr Holden told me I could claim for petrol. I had a little log book. It was for going to exhibitions, which I did not attend.
Q: You did not in fact do any mileage for TMS?
A: No.
Q: So you had no motoring expenses?
A: Correct.
Q: Nor did Keith?
A: Correct.
"Q: Refer to the document at page D2/613: this is a document you supplied to the Accountant for reimbursement to yourself. It is not a legitimate fuel claim, because you had not done any mileage for TMS?
A: I would like to answer that. I have put in my tax return fuel receipts that are not legitimate: that is the truth.
...
Q: Do you accept that you have deceived HMRC?
A: I have taken the oath. I admit that I have deceived HMRC. I claimed fuel expenses in a dishonest fashion: nothing else.
Q: Nothing else?
A: Except for postage.
Q: So you prepared false tax returns?
A: I knowingly put in incorrect expenses claims.
Q: You accept that this is thoroughly dishonest?
A: I accept it is not the right thing to do.
Q: You accept it is not honest?
A: It is not honest.
Q: Thus it was dishonest?
A: In this instance, I was dishonest.
Q: Refer to the statement and your signature on the tax return dated 21 October 2004 at page D2/567: this was a lie every year?
A: As I explained, my accountant needed something: you must be doing mileage, you must be writing letters. I was led into it.
Q: But you gave him information which you knew to be false.
A: The information I gave to the accountant I knew to be false. The information about setting up was true. I have told the truth today, at my cost probably. I have been led on by my husband, and suggested to by my accountant. It is not fair. I have not done anything wrong."
"He did not discuss his work and remuneration in any detail with me. My references to them in this statement are based on what little he did tell me. "
In similar vein she stated at paragraph 22 of that witness statement:-
"Mr Curtis continued to visit Portugal frequently. He never discussed his work much with me. He told me that his work for 'Dyson' was secret. I gathered from what little he told me that he was still dealing with Lismolde."
"Q: Refer to the Particulars of Claim at paragraph 15(d) and the allegations there by the Claimants against the First Defendant, and to your Defence at paragraph 19 where you do not admit those allegations. Refer now to the email forwarded to you on 25 March 2008 at page D1/179. Do you accept that you received that email?
A: Yes.
Q: Keith Curtis forwarded that to you without comment; do you accept your reply?
A: Yes.
Q: Refer also to the email Keith Curtis forwarded to you on 26 March 2008 at page D1/183, and the further email also forwarded to you on 26 March 2008 at page D1/185. These were forwarded to you because he was worried?
A: Are you asking me what he was thinking?
Q: Why do you think he did so?
A: At home he was very withdrawn. He was very quiet. I was aware something was wrong. By way of showing me what was wrong, he sent me these.
Q: His concern was that if the 3 quote system was introduced, the bribery in Malaysia would be found out?
A: I have no idea what his concern was.
Q: Where is your response to him saying 'I don't know what these are all about'?
A: These were sent as explained from him being upset, withdrawn and going to the pub every night.
Q: Look at your reply at page D1/179. You wrote that because you knew he was being concerned that Sean Robinson was not helping him out.
A: Not so. I was trying to be supportive, as I always have been, now with much regret.
Q: Refer to the emails pages D1/193 and 195: these were forwarded to you by Keith Curtis. Why?
A: I presume so that I knew someone was having a go at him.
Q: And he forwarded the response: see page D1/194.
A: He was keeping me informed of personal disagreements.
Q: This is not the hallmark of someone who says everything in Dyson is secret.
A: It is the hallmark of someone who can't express himself, so he forwards me these emails.
"Sean help,
Gary has used my name falsely without even a hint of truth.
I regard this as serious gross misconduct and would like to take it up formally as this is not an internal document but has been sent to our supplier.
I have not responded to this document as it would mean I would have to respond externally, I don't think that would be professional, at least until we have spoken.
I fully support that after the first year of main contractor system fiscal controls needed to be addressed once unforeseen issues surfaced during the implementation of the new strategy, not only within tooling.
As you know I voiced my concerns to you months ago and am/are dealing with it.
I need this resolving once and for all.
I have already had suppliers phoning me and I have told them I wish not to comment.
As you know it is a long holiday weekend in the UK, but I will have my phone on all times and text or will reply.
Best Regards
Keith"
"Thank you 4 emailing me. Keep calm Keithy Boy, you will get a response in time. He has probably taken his holiday, even though he may be in China etc with hundreds of emails to trawl through - you know what it is like after a holiday!
I LOVE YOU, YOU ARE OKAY!!
DI DI XXX"
"All,
I am now in a position to respond to the emails that have floating around regarding tooling placement and ordering.
This is the final word.
It is important cost is controlled and documented correctly and the best deal and quality for tooling is achieved but simply obtaining 3 quotes for tooling is impractical as asking for quotes for quotes sake without giving business will quickly become self defeating and negate any relationship management we have with suppliers.
Therefore the 3 quote system for tooling will not happen but tight and proper controls will be in place to understand fully the implication of any costs.
Lea and I have in detail looked at the live new projects and have completed our conclusions on cost which has driven the capexs. (I am also doing this with the other projects around the World I am responsible for.)
We will monitor the tooling costs against our estimates and will monitor to ensure costs are fair and agreeable best practise.
There will be disputes and maybe from time to time we have to make adjustment but there will be no allowances for the on costs tooling were lumbered with last year at the start of the new strategy implementation.
This is where Gary's over view will be important.
Tool placement and agreement still lies with in tooling and even though Gary primarily reports to Bela, Gary reports functionally to me for Tooling sources, quality and delivery.
Best regards
Keith"
"Gentlemen,
I am sensing some minor issues which I would like you to address in a collegiate manner.
One of our largest spends is 'non production'; the majority of this spend is in the Far East. This is as much for tax and treasure reasons as it is proximity, and it will not change and probably expand.
Within non production we have to major items, tooling and prototyping.
The person located in the Far East who has the most experience of both is Gary Ball, currently on secondment for 2 years.
Gary is essentially a technical person and as such is qualified to 'value' the above items. However non production purchasing sits organisationally within Bela Horvath's organisation. Therefore Gary reports to Bela.
This leaves us with a problem, Lea and his team used to report to Steven Ames, but with his and Tony Reas recent move we have to put Lea under somebody and given Gary's experience it makes sense to put him here.
Gary's role is to obtain purchasing efficiencies and ultimately cost reductions on all non production purchasing. To do this he must exercise good judgment and work within the stringent procurement procedures which we have, to ensure transparency and demonstrate value for money ... this is usually known throughout the industry as "3 quotes".
3 quotes is a practice which has been used for years by procurement organisations which typically do not have technical expertise or work within tight regulatory environments or 'internal controls'.
Our organisation is actually developing and does not sit in either of these camps. That is to say we do not slavishly follow either but rather use the best of both.
Bela Horvath is our commercial director, he must ultimately be responsible for achieving efficient purchasing and developing strategic suppliers.
Keith Curtis is our primary technical expert. He is also my advisor on strategic tooling. Our method into new manufacturing areas or countries is predicated on tooling competence. Therefore unless Keith is advising capable tooling suppliers we will not venture into a regions, unless under extreme caution. In effect Keith decides who we do business with (from a tooling perspective). This is because he has:-
The most experience.
The proximity to design (which is where the tooling philosophy is outlined).
The most senior technical person.
The head of Tooling.
Keith is also our primary person for evaluating project performance, from a tooling perspective. In short if a tooling programme is late, over costs, not effective, this is Keith's responsibility. If we have a payment or warranty or a terms problem then that is Bela's primary responsibility.
As things develop I can see more of the strategic input from Keith and less of the programme management. That depends on Gary and Lea's performance.
Therefore we are inevitably in a matrix organisation, Keith utilising the tooling supplier strategy and Gary/Lea managing the detailed mechanics of purchasing the tools and delivering them.
The person in the most difficult position here is Gary, as he is drawn one way from Bela and potentially another from Keith.
Sometimes it may not be possible to obtain 3 quotes or it may be impractical. For example if our strategy is to utilise a certain type of hot runner system and potential suppliers have no experience or can't or won't then there is no point obtaining a quote. Similarly asking for quotes without giving business eventually will become self defeating, some good relationship management is required. A final example is repeat tooling, it is obvious if electrodes and construction process are already defined there is no point requiting in general terms unless circumstances dictate.
In summary:-
Keith is responsible for strategic tooling items, i.e. who we do business with.
Gary is responsible for obtaining the cost requirement and managing the tooling and prototyping budget.
Bela is responsible for commercial terms and transparency.
Of course I'd prefer a team effort around the same objective .....
Keith and Bela co-responsible for delivering the best cost/quality/delivery of tooling.
Gary reports daily to Bela for things like day to day directions, objectives and holidays, Gary reports functionally to Keith for Tooling sources, quality and delivery.
This is how I see things working and developing, I am of course open to any discussion points anyone would like to raise. Its important for me that you are all comfortable with the environment so its time to speak plainly and resolve all items ....over to you.
Sean Robinson"
"On 24 February 2010 an acquaintance of Mr Curtis (Mr Curtis has told me that I have also met my informant socially, but I have no recollection of having done so) contacted me to tell me that the Claimants had issued proceedings against Mr Pok in Singapore in which they had made allegations of misconduct against Mr Pok, but that those proceedings had been dismissed.
Q: How did he (Mr Chan) contact you on 24 February 2010?
A: I don't think he did: I don't know where that has come from. I can only assume that Mr Chan contacted Keith Curtis, and Keith Curtis told me.
Q: That is not what the witness statement says: correct or not?
A: Unlikely. He didn't contact me. I have never spoken to him. He didn't email me. I have knowledge of this via Keith Curtis.
Q: Why not say that Keith Curtis had told you.
A: Why not indeed. I am a person under extreme stress for 14 months. I am not functioning properly. I apologise for it. You think I know everything: bloody hell! You are making a mountain out of a molehill.
"I do think you need to contact this friend in some way! I LOVE YOU X"
"Q: On 21 May 2010 you went through the emails with your solicitor?
A: Yes.
Q: There was very good reason not to disclose this email. You knew that Mr Chan and your husband were friends:
A: I knew he was a friend because he drank with him and played golf with him. Subsequently, having read the files, I knew Mr Chan was the person who paid the bribes to Mr Pok. He got Keith though places in China, where there is a lot of regulation. He was his 'buddy'.
"You are on top of it already Ed. Everything you have mentioned is happening. Meetings, bank statements etc. It feels like scare tactics as they cannot get police involved without damage to themselves.
We are up and down emotionally and obviously scared and unable to plan the future until this is over. May do consultancy, may do the good life?
This is a change in a big way, but change is the start of something new, and we do it together.
Thank you for your support ...
I am moving Harry to Old Yard saving £60 a week! How's that for 'cutting your costs accordingly' sorry for your anxiety, we are responsible.
Love you very much
Mum and Dad"
The Second Defendant's defence is essentially that she never knew that there was anything untoward as regards the monies she received into the accounts in the names of TMS and IMSL, and that she assumed that all these monies derived from her husband's lawful earnings while working as a consultant effecting business for Lismolde.
"Knowledge may be proved affirmatively or inferred from circumstances. The various mental states which may be involved were analysed by Peter Gibson J. in Baden's case [1993] 1 WLR 509 as comprising: (i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry. According to Peter Gibson J., a person in categories (ii) or (iii) will be taken to have actual knowledge, while a person in categories (iv) or (v) has constructive notice only. I gratefully adopt the classification but would warn against over refinement or a too ready assumption that categories (iv) or (v) are necessarily cases of constructive notice only. The true distinction is between honesty and dishonesty. It is essentially a jury question. If a man does not draw the obvious inferences or make the obvious inquiries, the question is: why not? If it is because, however foolishly, he did not suspect wrongdoing or, having suspected it, had his suspicions allayed, however unreasonably, that is one thing. But if he did suspect wrongdoing yet failed to make inquiries because 'he did not want to know' (category (ii)) or because he regarded it as 'none of his business' ('category (iii)), that it quite another. Such conduct is dishonest, and those who are guilty of it cannot complain if, for the purpose of civil liability, they are treated as if they had actual knowledge."
Adopting the language of Millett J (which I do also with gratitude) in my judgment the various aspects of the Second Defendant's conduct as found above are such that she cannot complain if she is treated, as I treat her, as if she had actual knowledge that the money she received into the accounts held in the names of TMS and IMSL derived from a breach of fiduciary duty on the part of her husband.
In his written opening submissions (see paragraphs 39 to 42, and 43 to 45) Mr Dodge raised two matters in defence of the claim in knowing receipt:-
(a) Change of position
(b) Limitation
"... there can be no defence of change of position to a party who is liable for knowing receipt of monies: see BCCI v Akindele [2001] Ch 437 at 456 F."
Given the finding of fact that the Second Defendant is liable to the Claimant as a knowing recipient, in my judgment Mr Ashworth QC's submission is made out. It is to be noted that Mr Dodge did not refer to this defence in his closing submissions, either in writing, or as developed orally.
"... it has not been suggested how the Claimants were or could have been aware of the fraud of Keith Curtis prior to May 2009, when he was interviewed. They cannot have been aware of Diane Curtis' knowing receipt at an earlier date. Limitation cannot have begun to have run until that time: see section 32 of the Limitation Act. For a similarly hopeless argument see MGN v Horton at paragraphs 34 to 35.
Again it is to be noted that Mr Dodge did not refer to this defence in his closing submission, either in writing or as developed orally. In my judgment the Second Defendant simply has not established any defence based on Section 21 (3) of the Limitation Act 1980.
"The Lismolde monies (or at least those specifically identified) were paid into bank accounts in the names of IMSL and TMS rather than to an account in the name of Keith Curtis. The fact that IMSL is a company does not prevent the Court from piercing the corporate veil and recognising the receipt by a company as the receipt by the individual or individuals in control, where the company is used as a device or facade to conceal the true facts (Trustor AB v. Smallbone (No. 2) [2001] 1 WLR 1177 at [23]-[25])."
The Claimants' case is that the Second Defendant received at least the following sums as a knowing recipient:-
(a) The sum of £615,903.55 as payments made by Lismolde into the accounts held in the names of TMS and IMSL: this sum is described by Mr Lewis as "receipts from Lismolde" in row 8 of his table 1 (see page C2/226, as revised on page C2/228 (b)); and
(b) The sum of £1,033,942 as "unknown receipts". In his table 1, Mr Lewis calculated the totals of the sums paid into the three categories of account (i.e. accounts in the name of the First Defendant, the Second Defendant, & the joint account) as follows: (i) "unexplained paying in slips" totalled in row 2 at £74,703; (ii) "unknown bank credit" totalled in row 6 at £865,951; and (iii) "unknown deposits" totalled in row 11 at £190,048. Those sums amount to £1,130,702: see page C2/226, as revised at page C2/228b. Of that sum, the amounts paid into the Second Defendant's accounts (£811,490) and into the joint account (which Mr Lewis originally identified as £218,952, but then revised upwards by £3,500 to £222,452) came to £1,033,942, which is the total figure contended for under this head, on the basis of Mr Lewis' revised figures at page C2/228b.
"Q: Refer to table 2 at page C2/229. The total of lines 26 and 11 (i.e. the combination of the items for which there is no explanation) is £811,490.
A: That's a lot of money!
Q: But you have no explanation?
A: I suppose it is counting items over and over again.
Q: The same question arises in respect of unidentified sums in respect of the joint accounts: see table 4 at page C2/231. They come to £218,952.
A: That figure of £150,000 seems familiar. Is it the money in the Sainsbury's savings account, which came after the lottery win? We got a good deal from the builders.
Q: The total of these sums is £1,030,442, for which you can only provide an explanation for £150,000. That leaves some £850,000 of unexplained receipts.
A: I don't know. You are asking me stuff I can't answer.
Q: So there must be some other money?
A: I don't see this amount of money.
Q: So there must have been some other source of income. Refer to paragraph 4.1.5; these are the unknown receipts from your account, your husband's account, and the joint account.
A: There must be double accounting.
Q: No, there's not. The lottery money you say was used on improvements to Downs View. So it is obvious that there must have been another source of funds.
A: It is not obvious.
Q: The only source is bribes?
A: I don't know.
Q: Do you say there is no other source of income?
A: I have not failed to disclose anything.
Q: We know that there is an additional £1,000,000 going though your bank accounts.
A: It was never put in as a figure of £1,000,000.
Q: But you had a close regard to the bank statements at TMS and IMSL.
A: Looking at those statements once a month is not close scrutiny.
Q: Do you accept that the only rational explanation for these monies is that you must have been receiving bribes?
A: I am not saying he must have been doing anything. I do not know."
"I won £1,580,273 on the National Lottery in March 1997. I then gave £210,000 to each of my son, Keith Curtis and my daughter Jacqueline Guy. I paid the money by cheque shortly before 21 April 1997. I no longer remember the exact dates of the cheques, but I refer to the ... copy of the statement from the Royal Bank of Scotland ... for the period 18 April to 7 May 1997 ... from which it appears ... that the cheques were cleared on 21 and 23 April 1997."
(a) The sum of £615,903.55 as payments made by Lismolde into the accounts held in the names of TMS and IMSL; and
(b) The sum of £883,942 (i.e. £1,033,942 less £150,000) as unknown receipts, namely receipts for which she had not been able to provide any, or any credible, explanation. I also find that these sums derived from a disposal of the Claimants' assets by the First Defendant in breach of fiduciary duty, and which assets are traceable into the Second Defendant's accounts thus representing the Claimants assets. The total of those two sums comes to £1,499,845.55.
Given the above, I find that the Claimants establish that the Second Defendant was a knowing recipient in respect of the total sum of £1,499,845.55. The Claimants are thus able to establish a personal claim against the Second Defendant in that amount. The question then arises whether, on the evidence adduced thus far, the Claimant can also establish a proprietary claim against the Second Defendant in that sum, or so much of it as the evidence establishes.
(1) On the basis of the findings of fact that the Second Defendant was a knowing recipient in the sum of £1,499,845.55, it is open to the Claimants to establish a proprietary claim in respect of such sum, or so much of such sum as the evidence establishes;
(2) Such proprietary claim may be established by Mr Lewis and/or Mr Draper undertaking a tracing and/or following exercise, which is to be carried out on a cherry-picking basis.
(3) I will hear further submissions as to the exact procedure hereafter to be adopted. My provisional view is that such an exercise can be carried out in one of two ways: (i) by Mr Lewis, who should prepare a first draft report, following which Mr Draper should be given ample opportunity to raise questions and/or queries, to which Mr Lewis should then respond or (ii) as a joint exercise carried out by Mr Lewis and Mr Draper together. Issues of cost and proportionality come into consideration in determining what is the appropriate course to adopt.
I have already found that the First Defendant was in breach of contract and in breach of fiduciary duty. The First to Third Claimants are thus able to establish personal claim against the First Defendant in the sum of £615,903.55; and the Second and Fourth Claimants similarly in the sum of £4.7 million. As with the Second Defendant, the question then arises whether, on the evidence adduced thus far those Claimants can also establish proprietary claims against the First Defendant in those, or any lesser, sums.
The actual money received by the Defendants was £615,903.55 in respect of the Lismolde monies, and collectively £1,130,702 in respect of the Far Eastern monies. Those are sums which, but for the breach of contractual and/or fiduciary duties by the First Defendant and/or the knowing receipt of the Second Defendant, the Defendants would never have received. The Defendants have therefore had use of those monies, to which they were not entitled.
" ... in Westdeutsche ... counsel opened (the) appeal ... on a claim for compound interest on money paid under interest rate swaps held to be void with these words: 'Both parties accept that compound, as opposed to simple, interest is payable only if the council received the money under the void interest rate swaps agreement as fiduciary ...' The Court has jurisdiction to award simple interest under Section 35A of the Supreme Court Act 1981, because "debt or damages" in Section 35A includes any sum or money recoverable by one party from another ... But no interest, whether compound or simple, is recoverable at common law. Sometimes interest, compound as well as simple, is recoverable in equity.
" In these unusual circumstances I consider it is open to your Lordships' House on this appeal to re-examine the basic point of law conceded and not argued on the Westdeutsche appeal, namely, whether interest may be awarded by the courts in exercise of their common law jurisdiction to grant personal restitutionary relief. Further, I consider your Lordships should undertake this task. Having only recently been released from the shackles of implied contract and, hence, the restraints of the London, Chatham and Dover Railway case [1893] AC 429, the law of restitution should now have the opportunity to develop as a coherent body of principled law. The decision of the House in a case where this point was conceded and assumed cannot properly stand in the way.
112. If the House takes this opportunity I venture to repeat that there can only be one answer on this important question of law. Nobody has suggested a good reason why, in a case like the present, an award of compound interest should be denied to a claimant. An award of compound interest is necessary to achieve full restitution and, hence, a just result. I would hold that, in the exercise of its common law restitutionary jurisdiction, the court has power to make such an award. I agree with the thrust of Mummery LJ's observations on this point in NEC Semi-Conductors Ltd v Inland Revenue Commrs … To that extent I would depart from the decision on the Westdeutsche appeal".
(a) On the sum of £615,903.55 in respect of the Lismolde monies, calculated at 0.75% above LIBOR in the manner set out in appendix 12 to Mr Lewis' first report; however that calculation needs to be extended to the date judgment is handed down;
(b) On the sum of £1,130,702 in respect of the Far Eastern monies, also calculated at 0.75% above LIBOR, in accordance with the calculation I shall direct Mr Lewis now to carry out having regard to the dates of receipt in the various accounts identified in tables 2, 3, and 4 at pages C2/229-231. As between the Defendants, this liability is to be apportioned, so that the Second Defendant's liability under this head is to be limited to a liability to pay compound interest in respect of the sum of £883,942; see paragraph 142(b) above.
Appended to this judgment is a schedule of answers to the agreed list of issues.
Claimants
Defendants
| PARAGRAPH NUMBER | SUBJECT |
| 158-169 | Background & recent events |
| 170-173 | Reconsideration of the draft judgment already made available to the parties |
| 174-181 | Precedent. |
| 182-189 | The authorities dealing with a proprietary claim |
| 190-191 | The personal and proprietary claims against the Second Defendant in knowing receipt. |
| 192-210 | The new claims against the Second Defendant in dishonest assistance |
| 211 | Conclusion on the new claims against the Second Defendant in dishonest assistance |
As explained in paragraphs 170 – 173 below, this additional text is supplemental to the text originally set out in paragraphs 1 – 157 above; the entire judgment thus comprises both the text first made available to the parties on 5 October 2010, together with this supplemental text.
(1) Whether the Second Defendant was a knowing recipient as alleged;
(2) If the Second Defendant was a knowing recipient as alleged, in respect of what sum she was a knowing recipient;
(3) The remedies which were available to the Claimants against each Defendant;
(4) As regards the Claimants' personal claims against each Defendant: decide these on the basis of the evidence adduced at trial; and
(5) As regards the Claimants' proprietary claims against each Defendant: determine the basis upon which such proprietary claim should be pursued.
In his submissions dated 3 November 2010, Mr Ashworth QC submitted in paragraph 7 as follows: "The starting point must be the discussion in Robinson v. Fernsby [2003] EWCA Civ 1820 at paragraphs [77] to [93]. A court should think long and hard before making a material alteration to a judgment which has been circulated in draft and will only exceptionally make material alterations to a judgment so provided (see paragraph [96]). It was suggested that there should be 'exceptional circumstances' or 'strong reasons'". Mr Ashworth QC further submitted in paragraph 8 that "Neither of the 2 judgments in the cases of Sinclair Investments … or Apcoa Parking … can amount to 'exceptional circumstances' or 'strong reasons'. They are both judgments of first instance judges and neither can be said to bind this Court. They are contrary to other first instance decisions, such as Daraydan Holding Limited v Solland International Limited [2005] Ch 119 which was cited in the instant case."
In Sinclair Investments Lewison J compared the decision of the Privy Council in Attorney-General for Hong Kong v Reid with the decision of the Court of Appeal in Lister & Co v Stubbs. Lewison J held at paragraph 54 that he was not free to follow a decision of the Privy Council where it conflicted with a decision of the Court of Appeal.
"Barry v Butlin (1838) II Moore 480 is a decision of the Privy Council on appeal from
the Prerogative Court of Canterbury. As such it is binding on courts of first instance
and, I would have thought, at least highly persuasive for the Court of Appeal, see
Halsbury's Laws of England 5th Ed. Vol.11 para 103 n.1. The advice was given by
Baron Parke."
That paragraph in Halsbury, written by Prof Zuckerman, provides:
"As a general rule the decisions of the Judicial Committee of the Privy Council are not theoretically binding on English Courts, but are treated as being of great weight and are commonly followed in similar cases."
Note 1 to that paragraph provides:
"Where, however, the Privy Council exercises jurisdiction as an English appellate court, e.g. in ecclesiastical or prize matters, its decisions are binding on courts of first instance."
"Since it is desirable that the law, at whatever level it is decided, should generally be certain, it follows that, when a decision of a judge of the High Court has been fully considered, but not followed, by another judge of the High Court, the second decision should normally be considered as having settled the point at first instance, except only in the rare case where a third judge is convinced that the second judge was wrong not to follow the first (as where some binding or persuasive authority was not cited in either of the first two cases). On that basis, unless the party interested seriously intends to submit that it falls within that exception, the hearing at first instance in the third case will, so far as the point in question is concerned, be a formality, with any argument on it reserved to the Court of Appeal (see p 604 h to p 605 b, post).
I would add two further instances where a third judge (here myself) might reasonably regard the second decision (here that of Lewison J in Sinclair Investments) as not having settled the point at first instance; first where the second judge has himself acknowledged that the decisions in question are controversial, as here; and second where the second decision is itself to be appealed, as here. I would respectfully further concur with the observation of Nourse J that in such circumstances the appropriate forum for full argument is the Court of Appeal.
"The rule that this court must always follow a decision of the House of Lords and, indeed, one of its own decisions rather than a decision of the Privy Council is one that was established at a time when no tribunal other than the House of Lords itself could rule that a previous decision of the House of Lords was no longer good law. Once one postulates that there are circumstances in which a decision of the Judicial Committee of the Privy Council can take precedence over a decision of the House of Lords, it seems to us that this court must be bound in those circumstances to prefer the decision of the Privy Council to the prior decision of the House of Lords. That, so it seems to us, is the position that has been reached in the case of these appeals."
I have re-read Attorney-General for Hong Kong v Reid, Foskett v McKeown & Paragon Finance plc v DB Thackerar & Co [1999] 1 All ER 400 and have read the two first instance decisions of Lewison J in Sinclair Investments and Mr Donaldson QC in Apcoa Parking.
"The conclusions reached by Lai Kew Chai J. in Sumitomo Bank Ltd. v. Kartika Ratna Thahir [1993] 1 S.L.R. 735 and the views expressed by Sir Peter Millett were influenced by the decision of the House of Lords in Phipps v Boardman …which demonstrates the strictness with which equity regards the conduct of a fiduciary and the extent to which equity is willing to impose a constructive trust on property obtained by a fiduciary by virtue of his office. In that case a solicitor acting for trustees rescued the interests of the trust in a private company by negotiating for a takeover bid in which he himself took an interest. He acted in good faith throughout and the information which the solicitor obtained about the company in the takeover bid could never have been used by the trustees. Nevertheless the solicitor was held to be a constructive trustee by a majority in the House of Lords because the solicitor obtained the information which satisfied him that the purchase of the shares in the takeover company would be a good investment and the opportunity of acquiring the shares as a result of acting for certain purposes on behalf of the trustees; see per Lord Cohen, at p. 103. If a fiduciary acting honestly and in good faith and making a profit which his principal could not make for himself becomes a constructive trustee of that profit then it seems to their Lordships that a fiduciary acting dishonestly and criminally who accepts a bribe and thereby causes loss and damage to his principal must also be a constructive trustee and must not be allowed by any means to make any profit from his wrongdoing."
"When a bribe is offered and accepted in money or in kind, the money or property constituting the bribe belongs in law to the recipient. Money paid to the false fiduciary belongs to him. The legal estate in freehold property conveyed to the false fiduciary by way of bribe vests in him. Equity, however, which acts in personam, insists that it is unconscionable for a fiduciary to obtain and retain a benefit in breach of duty. The provider of a bribe cannot recover it because he committed a criminal offence when he paid the bribe. The false fiduciary who received the bribe in breach of duty must pay and account for the bribe to the person to whom that duty was owed. In the present case, as soon as the first respondent received a bribe in breach of the duties he owed to the Government of Hong Kong, he became a debtor in equity to the Crown for the amount of that bribe. So much is admitted. But if the bribe consists of property which increases in value or if a cash bribe is invested advantageously, the false fiduciary will receive a benefit from his breach of duty unless he is accountable not only for the original amount or value of the bribe but also for the increased value of the property representing the bribe. As soon as the bribe was received it should have been paid or transferred instanter to the person who suffered from the breach of duty. Equity considers as done that which ought to have been done. As soon as the bribe was received, whether in cash or in kind, the false fiduciary held the bribe on a constructive trust for the person injured."
"Two objections have been raised to this analysis. First it is said that if the fiduciary is in equity a debtor to the person injured, he cannot also be a trustee of the bribe. But there is no reason why equity should not provide two remedies, so long as they do not result in double recovery. If the property representing the bribe exceeds the original bribe in value, the fiduciary cannot retain the benefit of the increase in value which he obtained solely as a result of his breach of duty. Secondly, it is said that if the false fiduciary holds property representing the bribe in trust for the person injured, and if the false fiduciary is or becomes insolvent, the unsecured creditors of the false fiduciary will be deprived of their right to share in the proceeds of that property. But the unsecured creditors cannot be in a better position than their debtor. The authorities show that property acquired by a trustee innocently but in breach of trust and the property from time to time representing the same belong in equity to the cestui que trust and not to the trustee personally whether he is solvent or insolvent. Property acquired by a trustee as a result of a criminal breach of trust and the property from time to time representing the same must also belong in equity to his cestui que trust and not to the trustee whether he is solvent or insolvent."
"Applying these principles to the present case I have no hesitation in coming to the conclusion that the appellants hold the Lester & Harris shares as constructive trustees and are bound to account to the respondent"
Lewison J observed that "This formulation does have a proprietary flavour to it" and went on to state that "Opinion may differ about whether the remedy awarded in Phipps v Boardman was or was not proprietary."
"The decision of the Privy Council (in Attorney-General for Hong Kong v Reid) is regarded as black-letter law by Bowstead & Reynolds on Agency, para 6-082. It is also treated as representing the law by Lewin on Trusts, 17th ed (2000), para 20-34 and by Snell's Equity, 30th ed (2000), para 9-53. Goff & Jones, The Law of Restitution , 6th ed (2002), para 33-025, prefer Attorney-General for Hong Kong v Reid …but consider that Lister & Co v Stubbs … is a decision which is still technically binding."
There remains strong academic support for the proposition that Attorney-General for Hong Kong v Reid represents the law. By way of example, see the text of the current 31st edn (2005) of Snell's Equity: in particular paragraph 19.07 defining the circumstances in which a constructive trust arises; paragraphs 24.05 & 24.08 dealing with the circumstances which arise when a profit is obtained in breach of fiduciary duty and in circumstances of fraud; and specifically paragraphs 7.141-143 dealing with proprietary remedies.
"Accordingly, if this case were not distinguishable from Lister & Co v Stubbs … , I would have applied Attorney-General for Hong Kong v Reid . There are powerful policy reasons for ensuring that a fiduciary does not retain gains acquired in violation of fiduciary duty, and I do not consider that it should make any difference whether the fiduciary is insolvent. There is no injustice to the creditors in their not sharing in an asset for which the fiduciary has not given value, and which the fiduciary should not have had."
I respectfully concur in those observations.
As regards the personal claim against the Second Defendant in knowing receipt, Mr Dodge dealt with this in paragraphs 4 – 26 of his submissions dated 19 November 2010. At paragraph 13 he referred back to paragraph 30 of his written opening submissions. The essence of the point Mr Dodge makes here is that "it is difficult to see how payments by Lismolde of its own money to an innocent third party might be said to be 'property held on trust or subject to some other fiduciary duty' at the moment of receipt by that innocent third party: see the analysis of 'a gift accepted by a person in a fiduciary position as an incentive for his breach of duty' in A-G for Hong Kong v Reid", and thus the Claimants could not establish the first two of the six elements which, on the Second Defendant's case, the Claimants had to prove in order to establish this head of claim. I have already dealt with this aspect of the case at paragraph 131 above. Further, it is to be noted that Lord Templeman specifically considered this point at page 333 where, having referred to the decision of the Vice Chancellor in Sugden v Crossland (1856) 3 Sm & G, he held:
"This case is of importance because it disposes succinctly of the argument which appears in later cases and which was put forward by counsel in the present case that there is a distinction between a profit which a trustee takes out of a trust and a profit such as a bribe which a trustee receives from a third party. If in law a trustee, who in breach of trust invests trust moneys in his own name, holds the investment as trust property, it is difficult to see why a trustee who in breach of trust receives and invests a bribe in his own name does not hold those investments also as trust property."
In paragraph 38 of his submissions dated 19 November 2010 Mr Dodge submitted that the correct approach for the court to adopt, in light of the amended case and in the circumstances which have now obtained, was "(i) to consider the legal tests for a claim in dishonest assistance, & (ii) to decide whether or not the evidence which it heard at trial (when it did not have those tests in mind) would be sufficient to enable it to make findings one way or another now that it does have them in mind." I accept that submission and will thus approach the matter in that fashion.
"It is submitted that in principle a claim should lie in such a case, consistently with the courts' general desire to preserve the integrity of fiduciary relations."
Mr Dodge himself submitted that "… the position as it now stands is that it is possible that equitable relief may be available where there has been dishonest assistance in a breach of trust or fiduciary duty in circumstances where there has been no misapplication of property". I thus do not construe this as a submission that any uncertainty in this part of the law has the consequence that the Claimants cannot establish a cause of action against the Second Defendant in dishonest assistance. In any event, on the facts as already found (i.e. the way in which the Second Defendant dealt with and spent the Lismolde & Far Eastern monies paid to her via IMSL and/or TMS at the First Defendant's direction; see paragraphs 27 – 41 above, in particular paragraph 41) I find that the Second Defendant did assist in a misapplication of property.
"Whatever may be the position in some criminal or other contexts ( see, for instance, R v Ghosh [1982] QB 1053), in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour."
"It would be open to your Lordships to depart from the principle stated by Lord Nicholls that dishonesty is a necessary ingredient of accessory liability and to hold that knowledge is a sufficient ingredient. But the statement of that principle by Lord Nicholls has been widely regarded as clarifying this area of the law and, as he observed, the tide of authority in England has flowed strongly in favour of the test of dishonesty. Therefore I consider that the courts should continue to apply that test and that your Lordships should state that dishonesty requires knowledge by the defendant that what he was doing would be regarded as dishonest by honest people, although he should not escape a finding of dishonesty because he sets his own standards of honesty and does not regard as dishonest what he knows would offend the normally accepted standards of honest conduct.
"I do not think that it is fairly open to your Lordships to take this view of the law without departing from the principles laid down by the Privy Council in Royal Brunei … For the reasons given by my noble and learned friend, Lord Hutton, I consider that those principles require more than knowledge of the facts which make the conduct wrongful. They require a dishonest state of mind, that is to say, consciousness that one is transgressing ordinary standards of honest behaviour."
"15. Their Lordships accept that there is an element of ambiguity in these remarks which may have encouraged a belief, expressed in some academic writing, that the Twinsectra case had departed from the law as previously understood and invited inquiry not merely into the defendant's mental state about the nature of the transaction in which he was participating but also into his views about generally acceptable standards of honesty. But they do not consider that this is what Lord Hutton meant. The reference to "what he knows would offend normally accepted standards of honest conduct" meant only that his knowledge of the transaction had to be such as to render his participation contrary to normally acceptable standards of honest conduct. It did not require that he should have had reflections about what those normally acceptable standards were.
"Hence it may now be said that the mental element for dishonest assistance is not self-conscious dishonesty of the kind described by Lord Lane CJ in Ghosh but objective dishonesty of the kind described by Lord Nicholls in Royal Brunei and Lord Hoffman in (Twinsectra)."
"I agree with Rix LJ that the appeal on this issue fails. In Barlow Clowes …the Privy Council considered the case law of England and Wales on the issue of the element of dishonesty necessary for liability under this head. Its interpretation of that case law was that it is unnecessary to show subjective dishonesty in the sense of consciousness that the transaction is dishonest. It is sufficient if the defendant knows of the elements of the transaction which make it dishonest according to normally accepted standards of behaviour. This is the first opportunity, so far as I am aware, that this Court has had an opportunity of considering the decision of the Privy Council, and in my judgment this court should follow the decision of the Privy Council.
"I find Arden LJ's comments persuasive, and I shall accordingly proceed on the basis that a person can be dishonest regardless of whether he appreciates that his conduct would be considered dishonest by ordinary honest people."
"In Barlow Clowes the principal directors of an Isle of Man company providing off-shore financial services were sued by the liquidator of Barlow Clowes for having dishonestly assisted Mr Peter Clowes to misappropriate investors' funds. The question arose as to whether the directors knew enough to incriminate them in dishonesty. The trial judge found that they did. The appellate court disagreed. The Privy Council restored the judgment of the trial judge. The single judgment was delivered by Lord Hoffmann. There are passages in the judgment which have raised academic controversy (see for instance LQR 2006 171, JIBLR 2006 377) as to whether the Privy Council has in Barlow Clowes rowed back towards Lord Millett's views in Twinsectra: see at paras 10/18. For instance, Lord Hoffmann said of his own speech in Twinsectra –
"16. Similarly in the speech of Lord Hoffmann, the statement (in para 20) that a dishonest state of mind meant "consciousness that one is transgressing ordinary standards of honest behaviour" was in their Lordships' view intended to require consciousness of those elements of the transaction which make participation transgress ordinary standards of honest behaviour. It did not also…require him to have thought about what those standards were."
"For my part, I consider that the deputy judge's comments are apt to mislead. The relevant standard, described variously in the statements I have quoted, is the ordinary standard of honest behaviour. Just as the subjective understanding of the person concerned as to whether his conduct is dishonest is irrelevant so also is it irrelevant that there may be a body of opinion which regards the ordinary standard of honest behaviour as being set too high. Ultimately, in civil proceedings, it is for the court to determine what that standard is and to apply it to the facts of the case.
"Another issue aired in Abou-Rahmah v Abacha was the extent to which a defendant must have had knowledge of the breach of fiduciary duty or trust that he is alleged to have assisted. In this connection, Rix LJ said the following:
"38 As Millett J said in Agip (Africa) Ltd v Jackson [1990] Ch 265 at 295:
"it is no answer for a man charged with having knowingly assisted in a fraudulent and dishonest scheme to say that it was 'only' a breach of exchange control or 'only' a case of tax evasion. It is not necessary that he should have been aware of the precise nature of the fraud or even of the identity of its victim. A man who consciously assists others by making arrangements which he knows are calculated to conceal what is happening from a third party, takes the risk that they are part of a fraud practised on that party."
39 In Brinks Ltd v Abu-Saleh (No 3) [1996] CLC 133 Rimer J had differed from that view, and in Grupo Torras SA v Al Sabah [1999] CLC 1469 Mance J had preferred Rimer J's view to that of Millett J; but in Barlow Clowes … , para 28, Lord Hoffmann said that the Privy Council did not agree. I therefore consider that Millett J's observations in Agip apply in the present case."
In Barlow Clowes, Lord Hoffmann had said (in paragraph 28):
" … it is quite unreal to suppose that Mr Henwood needed to know all the details to which the court referred before he had grounds to suspect that Mr Clowes and Mr Cramer were misappropriating their investors' money. The money in Barlow Clowes was either held on trust for the investors or else belonged to the company and was subject to fiduciary duties on the part of the directors. In either case, Mr Clowes and Mr Cramer could not have been entitled to make free with it as they pleased. In Brinks Ltd v Abu-Saleh [1996] CLC 133, 151 Rimer J expressed the opinion that a person cannot be liable for dishonest assistance in a breach of trust unless he knows of the existence of the trust or at least the facts giving rise to the trust. But their Lordships do not agree. Someone can know, and can certainly suspect, that he is assisting in a misappropriation of money without knowing that the money is held on trust or what a trust means: see the Twinsectra case …, para 19 (Lord Hoffmann) and para 135 (Lord Millett). And it was not necessary to know the "precise involvement" of Mr Cramer in the group's affairs in order to suspect that neither he nor anyone else had the right to use Barlow Clowes money for speculative investments of their own."
(1) The Lismolde and/or Far Eastern monies which the First Defendant caused or directed to be paid to the Second Defendant via IMSL and/or TMS are, or represent the property of the Claimants: see the judgment of Bowen LJ in Boston Deep Sea Fishing -v- Ansell referred to in paragraph 42 above; in particular the passages at page 362-3 (with my underlining added for emphasis) where he held
"This is an age, I may say, when a large portion of the commercial world makes its livelihood by earning, and by earning honestly, agency commission on sales or other transactions, but it is also a time when a large portion of those who move within the ambit of the commercial world, earn, I am afraid, commission dishonestly by taking commissions not merely from their masters, but from the other parties with whom their master is negotiating, and with whom they are dealing on behalf of their master, and taking such commissions without the knowledge of their master or principal. There never, therefore, was a time in the history of our law when it was more essential that Courts of Justice should draw with precision and firmness the line of demarcation which prevails
between commissions which may be honestly received and kept, and commissions taken behind the master's back, and in fraud of the master.
Now, there can be no question that an agent employed by a principal or master to do business with another, who, unknown to that principal or master, takes from that other person a profit arising out of the business which he is employed to transact, is doing a wrongful act inconsistent with his duty towards his master, and the continuance of confidence between them. He does the wrongful act whether such profit be given to him in return for services which he actually performs for the third party, or whether it be given to him for his supposed influence, or whether it be given to him on any other ground at all; if it is a profit which arises out of the transaction, it belongs to his master, and the agent or servant has no right to take it, or keep it, or bargain for it, or to receive it without bargain, unless his master knows it."
(2) The Lismolde and/or Far Eastern monies were either held by the First Defendant on trust for the Claimants, or were subject to fiduciary duties on his part: see the way Lord Hoffman explained the money in Barlow Clowes was held in paragraph 28 of his speech in Barlow Clowes.
(3) As a result, the First Defendant became a constructive trustee of the Lismolde and/or Far Eastern monies in the way explained by Lord Templeman in Attorney-General for Hong Kong v Reid, after referring to Phipps v Boardman in that passage of his speech at p 337H-338D cited in paragraph 183 above. Hence the way the authors of Snell's Equity put it at paragraph 7 -141:
"In Reid, the Privy Council reasoned that the fiduciary's duty to account for the bribe means that the bribe ought to have been transferred to the principal as soon as it was received and, as equity considers as done that which ought to be done, it was therefore held on constructive trust for the principal. The Privy Council's analysis in Reid necessarily involves a conclusion that the fiduciary's duty to account is a duty to transfer the bribe to the principal in specie."
And further at paragraph 7 -144:
"As the constructive trust arises out of the fiduciary's obligation to transfer the bribe or secret commission to the principal in specie, the principal will need to follow or trace the bribe or secret commission in order to identify its current location before claiming a constructive trust over it or its substitute."
I therefore find that the Claimants have established their claim against the Second Defendant in dishonest assistance and are entitled to judgment in the sum of £1,499,845.55 as calculated in paragraph 142 above, with interest thereon. I will hear further submissions from Counsel as regards the precise terms of the order to be drawn when judgment is handed down.
DG
09.12.10