Brent London Borough Council v Davies & Ors, Court of Appeal - Chancery Division, November 15, 2018, [2018] EWHC 3129 (Ch)

Resolution Date:November 15, 2018
Issuing Organization:Chancery Division
Actores:Brent London Borough Council v Davies & Ors
 
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Case No: HC-2014-001643

Neutral Citation Number: [2018] EWHC 3129 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS

OF ENGLAND AND WALES

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 15/11/2018

Before :

THE HONOURABLE MR JUSTICE ZACAROLI

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Between :

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Hefin Rees QC, Jennifer Thelen (instructed by Legal Services, Brent London Borough Council) for the Claimant

Nigel Hood (direct access Counsel) for the First Defendant

Ian Clarke QC, Vivienne Tanchel (instructed by Hughmans) for the Second Defendant

Anthony Speaight QC (instructed by Lock & Marlborough) for the Third Defendant The Fourth Defendant in person

Iain Pester (instructed by SCA Ontier LLP) for the Fifth and Sixth Defendants

Hearing date: 18 October 2018

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JudgmentMr Justice Zacaroli :

  1. This judgment deals with consequential matters following the handing down of the main judgment in this action on 17 August 2018. I refer to that main judgment for the background and my detailed conclusions on the substantive issues.

  2. The parties have reached agreement on a number of consequential matters, including: (i) the principal amounts recoverable from each defendant, subject only to one point to which I refer below; (2) the rate of pre-judgment interest to be applied to the principal sums due from the defendants; and (3) the claimant's entitlement to seek an account and tracing remedies against the first defendant.

  3. The following matters remain for decision:

    i) Whether the amounts to be ordered against the second, third and fourth defendants on the basis of unconscionable receipt include the amounts of PAYE and NI contribution paid directly by the claimant to HMRC (I will call this the ``net or gross issue'');

    ii) The time period for which the claimant should be entitled to pre-judgment interest on the principal sums due;

    iii) Costs; and

    iv) An application by the first defendant for permission to appeal.

    Net or Gross

  4. The claimant succeeded, as against the second, third and fourth defendants, solely on the ground that they were liable to account on the basis of unconscionable receipt of sums paid in breach of fiduciary duty, received by them after 10 July 2008.

  5. Each of them was an employee of the school. Accordingly, the amount actually received by them, on each occasion when a sum was paid in breach of the fiduciary duty owed by one or other of the defendants, was a net sum after deduction of PAYE and NI contributions. The amounts so deducted were paid directly by the school to HMRC, pursuant to a statutory obligation imposed on the school: see Regulation 1 of the Income Tax (Pay as You Earn) Regulations 2003 (SI 2003/2682) and paragraph 3 of Schedule 1 to the Social Security Contributions and Benefits Act 1992.

  6. As a preliminary matter, I was concerned that this point had not been raised at any stage during the trial. The overpayments claimed from the defendants were, throughout the claimant's opening written submissions for trial, expressed as gross amounts, and no party took issue with this during the trial.

  7. For the following reasons, however, I accept the submission made by Mr Clarke QC for the second defendant (adopted by each of the second to fourth defendants) that it is not too late for the point to be raised at this stage.

  8. First, it is only in respect of the cause of action in unconscionable receipt that it is relevant to distinguish between the gross and net amounts paid. That is because the claims in conspiracy, breach of fiduciary duty and misfeasance in public office sought compensation for the amounts paid and it is irrelevant in that context to distinguish between that part of each payment received by the relevant defendant and that part paid to HMRC.

  9. Second, the claim in unconscionable receipt was not the principal focus of the claimant's case. As I noted in the main judgment, although the elements of the cause of action were pleaded, it was not until the trial had commenced that the claimant clarified that it sought relief based on a claim in unconscionable receipt (but did not assert an alternative claim in dishonest assistance).

  10. Third, in response to an order made by Rose J at a pre-trial review on 24 July 2017, while some of the defendants stated that they ``did not deny'' receiving the payments set out at paragraph 41 of the Particulars of Claim (where the gross amounts are set out), two of the defendants (being the first and fourth defendants) did specifically deny receiving the amounts pleaded on the basis that tax and national insurance had been paid by them. In other words, the claimant had at least been alerted to this issue at an earlier stage of the proceedings.

  11. Fourth, and most importantly, the claimant itself did not seek to persuade me that this point should not be determined on the grounds that it was now too late. The net or gross issue is a pure point of law, the facts (i.e. the extent to which the school deducted and paid PAYE and NI contributions) being agreed. In response to the point raised by me that, had the issue been raised at an earlier stage, it might have been open to the claimant to overcome it by pleading a claim in unjust enrichment in the alternative, Mr Rees QC for the claimant fairly responded that the claimant would not have done so because of the perceived problems with limitation in relation to such a cause of action. The same limitation problem existed (as matters turned out, as decided by me in the main judgment) in relation to the claim in unconscionable receipt, but the importance of this concession lies in establishing the lack of prejudice, in practice, caused by the net or gross issue being squarely raised only at this very late stage.

  12. As to the substance of the net or gross point, Mr Clarke QC relied on a number of authorities that establish that actual receipt of trust assets is a fundamental requirement of the cause of action.

  13. He relied first, on Underhill & Hayton, Law of Trusts and Trustees (16th edition, 2016) at paragraph 98.15:

    ``Receipt of trust property is the `gist of the action' for knowing receipt. It does not suffice for liability that the defendant has been benefited in the abstract sense that his overall wealth has been increased, e.g. because his debt to a third party has been discharged: he must have received property for which he can be made accountable as constructive trustee.''

  14. Second, he relied on Goff & Jones, The Law of Unjust Enrichment (9th edition, 2016) at paragraph 8-20, in a passage distinguishing `knowing receipt' from claims in unjust enrichment:

    ``As the law now stands, the reason why the defendant must have received misapplied assets or their traceable proceeds before he can be liable is not that the defendant must have been unjustly enriched, but that liability for knowing receipt depends on the defendant owing custodial duties as a trustee of assets which he has actually received. If the only reason why it mattered that the defendant had received title to such assets was to establish that he had been enriched, then liability for knowing receipt could be expected to arise in a far wider range of cases - as where the defendant has never received any assets, but has been enriched as a result of assets being used in some other way, as in the discharge of his debts. However, the courts have expressly denied that ``receipt'' has this extended meaning.''

  15. Third, he referred me to the case cited in the last sentence of that passage from Goff & Jones, Quince v Varga [2008] QCA 376, in which the Supreme Court of Queensland distinguished between (a) payments made to the defendant and (b) payments made to others in discharge of debts owed to those others by the defendant (for example school fees). The former, but not the latter, could be recovered from the defendant on the basis of a claim in knowing receipt.

  16. Fourth, he submitted that the importance of receipt as the foundation of a claim in unconscionable receipt was restated in the following passage from the judgment of Lord Sumption in Williams v Central Bank of Nigeria [2014] AC 1189, at [31]:

    ``The essence of a liability to account on the footing of knowing receipt is that the defendant has accepted trust assets knowing that they were transferred to him in breach of trust and that he had no right to receive them. His possession is therefore at all times wrongful and adverse to the rights of both the true trustees and the beneficiaries. No trust has been reposed in him. He does not have the powers or duties of a trustee, for example with regard to investment or management. His sole obligation of any practical significance is to restore the assets...

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