England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Claim No: CH/2012/0432 Rolls Building, Royal Courts of Justice 7 Rolls Buildings, Fetter Lane, London EC4A 1NL
		11 April 2013

MR JUSTICE NEWEY:

1. I have before me an appeal arising out of a mortgage fraud.
2. The background is, in brief, as follows. In August 2010 an application for a mortgage loan was made to the respondent, Nationwide Building Society, by a person calling herself Nancy Barbara Rozario. The application related to a house at 29 Cedar Lawn Avenue, Barnet, and on the strength of the application Nationwide agreed to lend £244,300 to assist with its purchase. Nationwide was led to believe that the property in question was being offered for sale by its owners, a Mr and Mrs Whittington, who appeared to be represented by a firm of solicitors called McLee & Co. The balance of the purchase price amounting to some £104,700 was required to be found.
3. Nationwide's solicitors were told by, I think, McLee & Co that the latter had received the £104,700 direct from the supposed purchaser. Nationwide and its solicitors expressed dissatisfaction with that and insisted that all the purchase monies passed through Nationwide's solicitors' bank account. It was at that stage, it seems, that the appellant, Mr Thompson, provided £104,700, apparently by way of loan, to McLee & Co, and that money was passed on to Nationwide's solicitors. Thereafter, Nationwide advanced the requested £244,000 odd and the total of that and the £104,000 odd was paid to McLee & Co in respect of the purported acquisition of 29 Cedar Lawn Avenue.
4. At that stage McLee & Co made two transfers. £220,400 was paid to a company called KDC Communications Limited. The second transfer was of £125,640. That sum was transferred into an account held by Mr Thompson, seemingly in respect of the £104,000 odd that he had initially provided with interest of 20 per cent on top.
5. In fact the owners of 29 Cedar Lawn Avenue knew nothing about the supposed sale of their property to Nancy Rozario, and when Nationwide discovered that it had advanced the £244,000 odd on the basis of false representations it disavowed the transaction and claimed to be entitled to rescind the loan agreement and to trace the monies it had paid out into the hands of Mr Thompson.
6. The dispute came before Master Marsh in the summer of last year. The contest at that stage was essentially between Mr Thompson and Nationwide Building Society. In a reserved judgment dated 12 July 2012, the master ruled in favour of Nationwide. In the course of his judgment he considered whether Nationwide had proved Mr Thompson to have been dishonest. In that respect, his conclusions can be seen in particular in paragraphs 41, 49 and 50 of his judgment. In paragraph 41, the master said that he was unable to accept Mr Thompson's evidence that he was acting in good faith as a bridging lender without knowing that he was involved in a dishonest transaction. In paragraph 49, the master said that he had concluded that there was cogent evidence to enable him to be satisfied that Mr Thompson knew the transaction involved dishonesty. In paragraph 50, the master said this:

"Despite all this, I find that Mr Thompson acted dishonestly because no one could have believed that this was a bona fide transaction and Mr Thompson did not believe that. He knew this transaction involved some element of dishonesty, even if he did not know exactly to what use his money was to be put."

7. On that footing, the master took the view that the money paid to Mr Thompson by McLee & Co had not been received by him as a bona fide purchaser for value without notice. From that, it would follow that Mr Thompson had not taken free of Nationwide's equity of rescission. The master did not, however, take the view that that of itself entitled Nationwide to succeed on the dispute. He noted that Nationwide had contended that it did not need to show that Mr Thompson was a wrongdoer, but he rejected that approach. In paragraph 29 of his judgment, the master said this:

"In my judgment, it is incumbent on Nationwide to prove and the burden is on them to show wrongdoing on the part of Mr Thompson. Unless Nationwide is able to do so the claim falls away because of the funds paid [the next word is 'by' but it may be the master intended the word to be 'to'] Mr Thompson was subject to the trust. They have to show that he had knowledge of the transaction being a dishonest one. Mere suspicion that it was, as it were, dodgy and that it was better not to ask too much or know much is insufficient."

8. In this respect, the master had in mind the question of whether Nationwide could rely on a reverse burden of proof in relation to its tracing claim. As to this, the master quoted from Snell's Equity at paragraph 30-057, which states as follows:

"Punitive presumptions of identification apply where the other contributor to the bank account is a wrongdoer. They aim to preserve the value contributed by the claimant to the mixed fund in the bank account at the expense of the value contributed by the wrongdoer. A reverse burden of proof operates. The mixed money in the bank account is presumed to belong to the innocent trust claimant to the extent that the wrongdoer cannot prove that it is attributable to his own contributions to the account."

9. Having directed himself that Nationwide needed to prove that Mr Thompson was a wrongdoer, the master concluded that it had, on the basis of the findings of dishonesty to which I have already referred. The master's conclusion in this respect is to be found in paragraph 57, which reads as follows:

"Having made that finding, I conclude that Nationwide is entitled to trace part of the mortgage advanced to the funds frozen in Mr Thompson's account, which have now been paid into court. Mr Thompson was a wrongdoer and so the reverse burden of proof applies. He is unable to show that the money he received back into his account was his money. The presumption is that it was Nationwide's money and I so hold. I will therefore grant the relief which Nationwide is seeking."

10. The grounds on which Mr Thompson has appealed are found in the amended grounds of appeal, running to seven paragraphs. This morning Mr Charles Ete, the solicitor who under somewhat adverse circumstances has had to represent Mr Thompson today, sought to enlarge the grounds of appeal in one respect. Nationwide had had no warning of any such new ground of appeal, and there did not seem to me in all the circumstances to be a proper basis for me to allow the already amended grounds of appeal to be augmented. I therefore need to approach the matter by reference to those amended grounds of appeal.
11. To a great extent those grounds of appeal and Mr Ete's submissions to me this morning go to whether there was a sufficient basis for the master's findings of dishonesty. Mr Ete, in the course of his submissions in reply, summarised Mr Thompson's case in this respect by saying that there was no evidence whatsoever that Mr Thompson had been dishonest. It is, however, well known that an appeal against a finding of fact faces particular obstacles that are not encountered with an appeal on a true point of law.
12. In the present case, the master set out with some care seven factors that led him to the conclusion that Mr Thompson had been dishonest. Taking them cumulatively, I cannot see how I could take the view that there was no sufficient basis for the master's finding. The question of course is not whether I would necessarily have arrived at the same conclusion. Indeed I am not really in a position necessarily to form a view as to that; unlike the master, I have not seen the witnesses give their evidence. The question is rather whether there is enough evidence to warrant the master's finding, and it seems clear to me that the matters to which the master has referred do provide an adequate basis for the finding.
13. A particular point raised in the grounds of appeal relates to the approach that the master adopted when considering whether dishonesty had been established. So far as that is concerned, however, it can be seen from paragraph 29 of the judgment that the master proceeded on the basis that Nationwide's allegation had to be proved by cogent evidence, and later in his judgment the master stated in terms that in his view there was cogent evidence allowing him to be satisfied as to Mr Thompson's dishonesty. In the circumstances, I cannot see how it can be said that the master applied an inappropriate test when considering whether dishonesty had been demonstrated.
14. Another specific point raised by the grounds of appeal concerns whether the master might incorrectly have concluded that mere "Nelsonian" knowledge rendered Mr Thompson a wrongdoer. In that connection, it can be seen that in paragraph 49 of his judgment the master observed: "It is not open here to Mr Thompson to turn a blind eye to the obvious." [Quotation unchecked.]
15. Taken in isolation, as Mr Michael Clark, who appears for Nationwide, accepted, that could suggest that the master had approached matters on the basis that blind eye (or "Nelsonian") knowledge would suffice. In the context, however, of the overall judgment, it is apparent that the master did not take that view. Indeed earlier in his judgment he had said in terms that:

"Mere suspicion that it was, as it were, dodgy and that it was better not to ask too much or know much is insufficient."

Whether or not the sentence I quoted a moment ago is misleading if taken in isolation, reading the judgment as a whole it is apparent that the master considered, not merely that Mr Thompson had turned a blind eye, but rather that he actually knew that the transaction involved dishonesty.

16. The other point canvassed before me relates to whether Mr Thompson was a wrongdoer in a relevant sense such as to import the reverse burden of proof. So far as that is concerned, I have already quoted the passage from Snell. I was also referred to the decision of Millett J in El Ajou v Dollar Land Holdings [1993] 3 All ER 717. At pages 735 to 736, Millett J said this:

"The victims of a fraud can follow their money in equity through bank accounts where it has been mixed with other moneys because equity treats the money in such accounts as charged with the repayment of their money. If the money in an account subject to such a charge is afterwards paid out of the account and into a number of different accounts, the victims can claim a similar charge over each of the recipient accounts. They are not bound to choose between them. Whatever may be the position as between the victims inter se, as against the wrongdoer his victims are not required to appropriate debits to credits in order to identify the particular account into which their money has been paid. Equity's power to charge a mixed fund with the repayment of trust moneys (a power not shared by the common law) enables the claimants to follow the money, not because it is theirs, but because it is derived from a fund which is treated as if it were subject to a charge in their favour."

17. What Mr Thompson contends is that the master should have proceeded on the basis that at any rate most of the money paid to Mr Thompson by McLee & Co represented the funds that he had himself advanced. Nationwide, in contrast, says that because Mr Thompson was a wrongdoer a reverse burden of proof applies such that it is incumbent on Mr Thompson to prove that the money he received from McLee & Co was not derived from Nationwide's advance, but rather that Nationwide's advance, or nearly all of it, had been paid to KDC. Plainly Mr Thompson was not in a position to discharge that burden of proof if it applied. The master took the view that his findings of dishonesty meant that Mr Thompson was a wrongdoer of a relevant kind such that the reverse burden of proof applied, and I can see no reason to take a different view.
18. In circumstances where Mr Thompson was not merely somebody who could not take free of the equity of rescission as equity's darling but had been found to be dishonest, it makes sense to me that he should be seen as a wrongdoer for the purpose of the tracing rules and so required to prove that Nationwide's money had been paid out to KDC rather than to him. In this respect, too, it seems to me that the master's decision is not open to substantial criticism.
19. As I indicated earlier, the thrust of Mr Thompson's appeal has anyway been directed at the findings of fact rather than the limited points of law. For the reasons I have given earlier, I take the view that the master's findings of fact are not open to challenge and I also think that, insofar as other grounds of appeal have been advanced, they have not been sustained. In all the circumstances, I shall dismiss Mr Thompson's appeal.