Neutral Citation Number: [2012] EWCA Civ 195
Case No: A3/2011/0172
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Peter Smith
HC08C03132
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 28th February 2012
Before :
LORD JUSTICE LLOYD
LORD JUSTICE PATTEN
and
LORD JUSTICE TOMLINSON
--------------------Between :
INDEPENDENT TRUSTEE SERVICES LIMITED
- and GP NOBLE TRUSTEES LIMITED & OTHERS
- and SUSAN MORRIS
Claimant/
Appellant
Defendants
Respondent
----------------------------------------Mr Richard Spearman QC and Jonathan Hilliard (instructed by Taylor Wessing LLP) for
the Appellant
Mr James Lewis QC, Andrew Twigger QC and Miss Anna Dilnot (instructed by Blick & Co
Solicitors) for the Respondents
Hearing date : 5th October 2011
---------------------
Approved Judgment
Judgment Approved by the court for handing down.
Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
Lord Justice Patten :
Introduction
1.
Each of the parties to this appeal is the victim of a fraud. Between August 2007 and
April 2008 a total of some £52m was misappropriated from various occupational
pension schemes by their UK corporate trustees, GP Noble Trustees Limited (“GPN”)
and BDC Trustees Limited (“BDC”). Following a trial in May 2010 Peter Smith J
held that the frauds had been orchestrated by Mr Anthony Morris who set up a
number of offshore companies into which the bulk of the trust assets were transferred.
He also directly received a total of £4.89m of the misappropriated funds.
2.
The appellant, Independent Trustee Services Limited (“ITS”), was appointed as
trustee of the pension schemes by the Pensions Regulator in July 2008 and in
November 2008 commenced proceedings against Mr Morris and 17 other defendants
for the recovery of the trust assets. Judgment was handed down by Peter Smith J on
1st July 2010 in which he held that Mr Morris was liable for £52m plus interest for
dishonest assistance and was liable to account for the £4.89m which he had
knowingly received. A full account of the fraud and of Mr Morris’s participation in it
is contained in the judgment (see Independent Trustee Services Limited v GP Noble
Trustees Limited & Ors [2010] EWHC 1653 (Ch)) but no further detail is necessary
for the purposes of this appeal.
3.
In September 1988 Mr Morris had married the respondent, Mrs Susan Morris. There
are three children of the marriage. Mr and Mrs Morris separated in December 2003
and Mrs Morris commenced divorce proceedings in November 2004. A decree nisi
was pronounced on 10th February 2005.
4.
In April 2001 Mr Morris had set up a company (The Money Portal PLC (“TMP”))
which had been capitalised by a loan raised on the security of the matrimonial home.
Mr Morris owned about 27% of the issued share capital of the company which in
March 2003 he placed into a Gibraltar-based settlement (the JVK Settlement) in
favour of himself, his wife and their children. Following the breakdown of the
marriage, Mrs Morris (and later the children) were excluded as beneficiaries and
Mrs Morris believed that her husband was taking steps to dispose of the TMP shares.
A freezing order was therefore obtained from Singer J in the ancillary relief
proceedings on 14th September 2005 which prevented Mr Morris from disposing of or
dealing with the shares in TMP or any monies received from the company.
5.
The ancillary relief proceedings were eventually compromised following negotiations
between solicitors which culminated in the signing of minutes of order in January
2007. On 11th February 2007 District Judge Black made an order which embodied the
agreed terms and which recited that Mrs Morris accepted the provision made by the
order in full and final satisfaction of all claims for lump sum, property adjustment and
pension sharing orders which she might be entitled to bring against her husband. The
order transferred the matrimonial home to Mrs Morris; directed Mr Morris to pay to
Mrs Morris £300,000 by 31st March 2007 and a further £900,000 by 31st December
2007; and provided for periodical payments to Mrs Morris (including for the benefit
of the children) together with the payment of school fees.
6.
The decree absolute was pronounced on 12th February 2007.
Judgment Approved by the court for handing down.
Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
7.
Later that year Mrs Morris saw a document which disclosed the transfer of significant
sums of money between accounts held by Mr Morris in Switzerland. She was also
told by her children that their father (who, by now, was living in Australia with his
new partner) seemed to enjoy a standard of living which was inconsistent with his
financial position as disclosed in the ancillary relief proceedings. Her evidence is that
Mr Morris also told the children that he was about to sell his shares in TMP for £70m.
What Mr Morris had not disclosed in the ancillary relief proceedings was the receipt
of some £5.1m from the JVK Settlement in 2006. In April 2007 he received a further
£9.8m from the same source.
8.
On 1st February 2008 Mrs Morris issued an application in the Family Division in
which she sought an order that the order of DJ Black of 11th February 2007 (“the 11th
February order”) be set aside and that there should be a re-hearing of her application
made on 15th September 2005 for ancillary relief. The grounds of the application
were that her former husband had failed to make full disclosure of his assets in his
form E and form M1 or of any significant changes in his financial position between
the service of the form E and the making of the 11th February order.
9.
By now (unbeknown to Mrs Morris) the misappropriation of assets from the pension
funds had begun. £30m was extracted on 14th August 2007 followed by a further
£22m in April 2008. As of then Mr Morris had still not paid the lump sums due under
the 11th February order by 31st December 2007 and there were also significant arrears
in the periodical payments. By 10th July 2008 the total amount due, inclusive of
interest, was £1,481,012.
10.
On 14th July 2008 Mrs Morris applied to Hedley J and obtained a worldwide freezing
order against Mr Morris up to a limit of £25m which included his house in Australia
and the monies held in his bank accounts wherever situate. On the same day
Mr Morris paid to Mrs Morris’s solicitors the sum of £1,481,920 in respect of the
arrears due under the 11th February order using money held by Glencalvie Limited,
one of his companies. In his judgment against Mr Morris and the pension fund
trustees referred to earlier, Peter Smith J held that these monies were traceable out of
the £52m extracted from the pension funds and that is common ground on this appeal.
It is, however, also common ground that the source of the funds was unknown to
either Mrs Morris or her solicitors at the time.
11.
By July 2008 the misappropriation of the £52m was the subject of a criminal
investigation and on 7th October 2008 a restraint order was made against Mr Morris
pursuant to s.41 of the Proceeds of Crime Act 2002. In the meantime, the freezing
order granted by Hedley J in the ancillary relief proceedings was continued until
further order. Finally, on 6th November 2008 ITS commenced its own proceedings in
the Chancery Division against Mr Morris and the former pension fund trustees having
obtained a freezing order against Mr Morris in the sum of £52m on 4th November.
12.
Mrs Morris’s application to set aside the order of 11th February was heard by Moylan
J on 28th April 2009: see [2009] EWHC 2156 (Fam). He decided that she should be
given permission to make the application out of time and that there had been
significant and material non-disclosure of assets by Mr Morris including the receipt
by him of the £5.1m in late 2006 after the service of his form E statement of assets.
Judgment Approved by the court for handing down.
13.
Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
As the judge himself explained, an order for financial provision will only be set aside
for material non-disclosure if it can be said that the non-disclosure complained of has
led the court to make an order substantially different from the one which it would
have made had the disclosure been given. But Moylan J was satisfied that this
condition was met in the present case. He said that:
“61. I am satisfied that the disclosure made by the husband
was deliberately and materially deficient. I am also
satisfied that, if he had made proper disclosure the court,
on the facts available to me today, would have been very
unlikely – or I think I can go as far as to say – would not
have made the order which was made, because the wife
would have had, applying the law pursuant to the recent
House of Lords decisions of White v. White and Miller v.
Miller, an expectation that she would receive up to or
approaching half of the total family wealth. The total
wealth, including the sum paid in April 2007, was of the
order of £16m.
14.
62.
I appreciate that arguments might be deployed as to the
extent to which some of that wealth accrued after the date
of separation. However, I have no doubt at all in
concluding that the court would have made an order
which was very materially or substantially different from
the terms of the consent order made by District Judge
Black.
63.
So, in conclusion, I propose to give the wife permission to
apply to set aside the order of District Judge Black,
notwithstanding the fact that her application was not
issued until 1 February 2008. I also propose to set aside
the consent order of District Judge Black.”
His judgment was given effect in an order finally drawn up on 9th June 2009. This
provided in paragraph 2 that:
“The order of District Judge Black dated the 11th February
2007 be set aside save to the extent that the provision therein
for periodical payments of maintenance do remain in force on
an interim basis until the final hearing, and there shall be a
rehearing of the Petitioner’s application dated the 15th
September 2005, together with her application dated the 4th
February 2008 for variation of periodical payments.”
15.
On 7th October 2009 Mr Morris applied to adjourn the hearing of the ancillary relief
application until after the determination of the claim by ITS in the Chancery Division
(“the Chancery Action”) and the criminal prosecution. The application was refused
by Holman J who directed a hearing to take place on 13th January 2010 preceded by a
directions hearing on 26th November 2009. He also ordered Mrs Morris to give notice
of her renewed application for ancillary relief to ITS and the SFO and gave them
permission to intervene in the proceedings if so advised. They were to attend the
Judgment Approved by the court for handing down.
Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
directions hearing but ITS was enjoined in the meantime from taking any steps to
obtain judgment against Mr Morris in the Chancery Action.
16.
At the directions hearing on 26th November some of the issues which arise on this
appeal began to emerge. Mr Spearman QC on behalf of ITS submitted to the judge
that his client wished to trace its claim to the trust monies misappropriated from the
pension funds into the £1.481m received by Mrs Morris on 14th July 2008. ITS would
contend that the rescission of the order of District Judge Black enabled it to assert a
claim to those monies free of any defence which Mrs Morris might otherwise have
that she had received the payment as a bona fide purchaser for value under the terms
of the agreement to compromise her claim for ancillary relief. By the same token
Mr Morris would not be entitled to credit in respect of the £1.481m against any higher
sum which he might be ordered to pay when the ancillary relief application was reheard. As trust money belonging to the pension funds, the £1.481m could not be
brought into account either as part of the assets of the marriage or as a payment on
account. On this basis ITS sought an order either that the hearing of the ancillary
relief application should be postponed until after judgment in the Chancery Action or,
alternatively, that Mrs Morris should not be permitted to take enforcement
proceedings which were adverse to the ITS claim. In any event it sought the
discharge of the injunction of 7th October 2009 which prevented it from pursuing
Mr Morris to judgment.
17.
What Mr Spearman therefore proposed and Holman J approved was that the parties
should attempt to reach an agreement under which ITS would have its claims to
beneficial ownership of the £1.481m determined in the Chancery Action but
Mrs Morris would be able to pursue her claim for ancillary relief without waiting for
the Chancery Action to be disposed of. The solution achieved was embodied in a
consent order made by Holman J on 13th January 2010. After reciting the various
applications I have referred to and the response of each party to them, the order
provides that :
“2. Any ancillary relief order that the Court may make on the
rehearing of the Wife’s ancillary relief application of 15
September 2005 (“the Ancillary Relief Order”) currently due
for final hearing on the 13th January 2010 is to be made on the
following bases:(a) As between the Wife and the Husband, the Husband is not
entitled to take credit for the payment to the Wife of the lump
sum payment of £1,481,920.53 (“the Lump Sum Payment”)
made on or around 14 July 2008 pursuant to the order of
District Judge Black dated 11 February 2007;
(b) The Wife will not seek to contend that any of the assets to
which ITS has asserted proprietary claims in the Chancery
Proceedings at the date of the Ancillary Relief Order form part
of the financial resources of the Husband for the purposes of
Part II of the Matrimonial Causes Act 1973; and
(c) As between the Wife and ITS, the Ancillary Relief Order
will be made without prejudice to the contentions of either of
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Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
those two parties as to who is beneficially entitled to the Lump
Sum Payment.
3. The injunction contained in paragraph 7 of the order dated 7
October 2009 is discharged with immediate effect on the 13th
January 2010.
4. In the event that the Wife succeeds in enforcing against the
Husband the full amount awarded to her, and becoming the full
beneficial owner thereof, under the Ancillary Relief Order
together with satisfaction of all orders for costs made in these
proceedings in her favour, she will forthwith pay the amount of
the Lump Sum Payment into Court to the credit of the
Chancery Proceedings (with the intention that in that event the
entitlement as between ITS and the Husband to the Lump Sum
Payment should be determined in the Chancery Proceedings).
5. Each of the Wife and ITS shall have liberty to apply to either
the Chancery Division or the Family Division of the High
Court in relation to the determination of which of them is
beneficially entitled to the Lump Sum Payment, provided that
such application shall not be made by the Wife if she has
succeeded in enforcing against the Husband the full amount
awarded to her under the Ancillary Relief Order, and becoming
the full beneficial owner thereof, or by ITS if its solicitors have
been informed in writing by her that she has so succeeded and
complied with Paragraph 4 above.
6. In the event that it is determined in the Chancery
Proceedings that the Lump Sum Payment paid to the Wife did
not comprise trust assets to which ITS would have had a
proprietary claim, then as between the Wife and the Husband,
the Husband shall be entitled to claim appropriate credit for the
payment of the Lump Sum Payment to her (whether in
diminution of his outstanding liability to the Wife or with the
effect that the Wife is required to make a repayment to the
Husband).
The amount of such credit shall either be
determined as part of the Order made in the substantive
proceedings for ancillary relief by this Court or deferred for
further consideration by this Court (or agreement of the parties)
in the event that any entitlement to credit pursuant to this
Paragraph later arises.”
18.
The substantive hearing of the ancillary relief application then proceeded, and on 19th
January Holman J gave judgment and made a new order that Mr Morris should pay a
lump sum of £6m by 1st April 2010 and £68,100 in respect of the arrears of periodical
payments and school fees. By paragraph 2 of his order he also directed that the orders
for periodical payments and school fees contained in paragraphs 3 and 4 of District
Judge Black’s order should continue until payment of the lump sum of £6m and any
accrued interest.
Judgment Approved by the court for handing down.
19.
Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
In his judgment (see [2010] EWHC 575 (Fam)) Holman J outlined the history of the
matrimonial proceedings and the circumstances giving rise to the order of Moylan J
setting aside the original order for ancillary relief made by the District Judge. He then
described the competing claims to the £1.481m and the agreed order which arose out
of the directions hearing:
“33. The order was finally made by consent of all parties –
except of course the husband, who was neither present nor
represented. It is complex but nevertheless, I hope, selfexplanatory when read with care. The factual basis of the order
dated 13 January 2010 is as follows. It is not alleged by the
SFO or ITS that there was any criminal offending or
misappropriation of pension funds before August 2007.
Neither of them suggests that any of the assets owned by the
parties during or at the end of the marriage are in any way
tainted by crime. Neither of them suggests that the sums
totalling £14·9 million which the husband received from the
JVK Settlement in 2006 and April 2007 are in any way tainted
by crime. Neither of them suggest that the wife (who was by
then divorced) had any knowledge of, or was in any way
involved or implicated in, the alleged misappropriation in 2007
and 2008. But the SFO and ITS do both say that the actual
money with which the husband paid the sum of £1,481,920·53
to the wife in July 2008 is directly traceable as part of the
alleged misappropriated pension funds.
34. Since the consent order pursuant to which the sum was
paid has been set aside, ITS submit that the sum of
£1,481,920·53 which was paid to the wife and which, although
unbeknown to her, was the directly traceable proceeds of crime,
is now recoverable by ITS from the wife. The SFO submit that
it could now be expressly the subject of the restraint order,
although a judge at the Central Criminal Court recently
declined to vary the restraint order on the discretionary basis
that there is no evidence of any intention on the part of the wife
to dissipate it.
35. It has accordingly been agreed, and now ordered by me,
that that sum of £1,481,920·53 (the £1·481 million) should, as
it were, be carved out of the assets for consideration at the
present hearing and notionally put to one side. The outcome in
relation to that sum (still held within the assets, including her
new home, of the wife) will be decided within the Chancery
proceedings and any further proceedings in relation to the
restraint order.
36. Paragraph 6 of the order of 13 January 2010 then makes
provision that in the event that it is determined in the Chancery
proceedings that that sum did not comprise trust assets to which
ITS would have had a proprietary claim, then as between the
husband and wife, the husband shall be entitled to claim credit
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Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
for the payment of that sum; the amount of such credit to be
either determined as part of the order I make at this hearing, or
deferred for further consideration by this court in the event that
any entitlement to credit does actually arise.
37. I was very grateful to Mr. Spearman QC for his very
constructive approach and proposals on 26 November 2009, for
if he had not made them it is difficult to see how the wife, who
has already suffered grievously, could have made further
progress with her claim for ancillary relief until, at the earliest,
the conclusion of the Chancery proceedings.”
20.
On this basis the judge calculated the wife’s total assets (excluding the £1.481m) as
£716,000 and those of the husband as £13.116m most of which was derived from the
payments out of the JVK Settlement.
21.
The trial of the Chancery Action took place in May 2010 and judgment was reserved
and handed down on 1st July. But at the conclusion of the trial on 24th May Peter
Smith J indicated that he could see no defence to a claim for the £31m which had
been recovered to date and which had been paid into court as a result of an order
made by HH Judge Thornton QC in January 2009 varying the terms of the original
restraint order made in the criminal proceedings.
22.
The judge therefore made an order declaring that various identified sums (now
comprised within the £31m) were held on trust absolutely for the pension schemes
and that other sums also held in court should be paid out as equitable compensation
for Mr Morris’s dishonest assistance in the fraudulent breaches of trust which had
occurred.
These sums included an amount of £1,978,162.66 and one of
US$330,699.98 which had been recovered from an account in the name of Mr Morris
at Credit Suisse. For convenience, I will refer to them as the Credit Suisse monies.
23.
These were not sums to which ITS made any proprietary claim on the basis that they
had originally been extracted from or represented the proceeds of assets extracted
from the pension funds as part of the fraud. They were therefore assets of Mr Morris
which would have been available to meet his liabilities to other creditors including
those to Mrs Morris under the new order for ancillary relief made on 19th January.
The Credit Suisse monies had been frozen by the bank itself when the original
freezing order obtained by Mrs Morris in the renewed ancillary relief proceedings had
come to the attention of the bank. They were then subject to the freezing orders made
in the Chancery Action. Mrs Morris was not given notice of the judge’s proposed
order of 24th May and only discovered that it had been made when informed of it by
the solicitors for ITS. The judge very fairly accepted that the failure to ensure that
Mrs Morris was notified of his intended order was due to a mistake on his part. The
consequence was that ITS had recovered the Credit Suisse monies under a final order
of the court and they were no longer therefore available to satisfy the lump sum order
which she had obtained unless Mrs Morris could succeed in setting the order of 24th
May aside.
24.
She therefore applied for such relief on 30th June 2010 relying on CPR 40.9 or,
alternatively, CPR 3.1(7) as giving the court power to set aside the order. Her
primary contention was that an award of the entirety of the Credit Suisse monies to
Judgment Approved by the court for handing down.
Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
ITS would breach the pari passu rule for the distribution of assets between unsecured
creditors which had come into play as a result of Mr Morris’s impending bankruptcy.
But the judge rejected this argument whilst accepting that he did have jurisdiction to
entertain her application.
25.
At the same hearing ITS made its own application to recover the £1.481m received by
Mrs Morris under the 11th February order. This was also dismissed by the judge for
reasons which I will come to shortly. Both parties appealed but Mrs Morris’s appeal
was compromised shortly before the hearing and I need say no more about it. What
remains for decision is the challenge by ITS to the judge’s rejection of its claim to the
£1.481m held by Mrs Morris.
The claim to the £1.481m
26.
As mentioned earlier, it is common ground that the source of the £1.481m payment
was the £52m extracted by Mr Morris and his associates from the pension funds. ITS
can therefore assert its beneficial interest in those monies by tracing them into funds
held by anyone who is not able to present a valid equitable defence to the claim. In
the case of Mrs Morris, her only defence was that she was a bona fide purchaser for
value without notice. She had given value in the form of agreeing not to pursue any
further claims for ancillary relief in return for the lump sum and other orders
contained in the 11th February order.
27.
ITS does not quarrel with that and, had the 11th February order and the compromise it
embodied remained in place, it accepts that it could not enforce its tracing claim
against the £1.481m. Its application to the judge was based on the fact that
Mrs Morris had succeeded in having the 11th February order set aside by Moylan J
which she needed to do in order to be able to renew her application for ancillary
relief. The effect of this is said to be that she can no longer rely on the bona fide
purchaser defence to its claim and therefore cannot object to ITS’s right to trace into
the monies which she holds.
28.
Both before the judge and in his skeleton argument for this appeal, Mr Spearman
submitted that the effect of Moylan J’s order was that Mrs Morris took back the
consideration which she had provided by agreeing to the 11th February order and
therefore ceased with retrospective effect to be a purchaser for value. Her claims to
ancillary relief were thereby resuscitated and restored so that, at least from the date of
the consent order of 13th January 2010, she continued to hold the £1.481m subject to
the beneficial title of the pension schemes. The new order of Holman J for ancillary
relief made on 19th January did not alter this because (under the 13th January order)
the £1.481m was not taken into account as part of the assets of Mr Morris available
for distribution and, as a result of the judgment of Peter Smith J of 1st July 2010, it
cannot now be so.
29.
Part of the reasoning in support of these submissions is based on an analogy with the
position which obtains when a contract is rescinded for misrepresentation. There is,
submits Mr Spearman, a giving and taking back on both sides which necessarily
includes a re-vesting of any beneficial interest in property which passed under the
rescinded transaction. He relies on the principles outlined by Rimer J (as he then was)
in Shalson v Russo [2005] Ch 281 to the effect that, on a rescission of the contract, the
court will treat the equitable title as re-vesting in the party who has been defrauded of
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Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
his property and can therefore compel its re-transfer. In a case such as this where the
property has passed from the person guilty of making the representation or nondisclosure then the same result can be achieved through a process of restitutio in
integrum by the court making consequential orders for the re-vesting of the property:
see Alati v Kruger (1955) 94 CLR 216 at page 223 approved by the Court of Appeal
in O'Sullivan v Management Agency and Music Ltd [1985] QB 428 at page 437.
30.
The judge did not accept that assets received from the representor were necessarily revested in him on the rescission of the contract. His analysis was as follows:
“54. I do not consider that it was intended by those
observations to suggest that title to assets received by the
innocent party from the wrongdoer re-vested in the
wrongdoer. Take the present case. If one supposes that
ITS was not involved and the claim was against
Mr Morris but he was made bankrupt I would find the
idea that Mrs Morris would have to disgorge the Lump
Sum Order to the trustee because of a proposition that she
had rescinded the Consent Order untenable.
55.
The reality is in my view that upon seeking rescission of a
contract for fraudulent misrepresentation the victim may
have a right to assert some kind of proprietary right in the
assets he transferred to the wrongdoer for the purpose of a
tracing or other proprietary claim but as regards benefits
he received it seems to me that they have to be brought
into account only when the court has finally adjudicated
on the claim to rescind the contract. By that time there
may be other intervening events. Bankruptcy is an
example as I have set out above. There are other
examples. As Rimer J pointed out in paragraph 126 of his
judgment (when dealing with the case of in re Goldcorp
Exchange Ltd [1995] 1 AC 74):“it is no part of the philosophy of the re-vesting
theory that all intermediate transactions
occurring prior to the rescission can be undone.
Until rescission the property is vested in the
representor and if it is disposed of to a good
faith purchaser that purchaser will obtain a title
which will be unimpeachable after any
rescissions.”
56.
Mrs Morris’ position is entirely the same in my view. All
Moylan J did was to set aside the order for the Lump Sum
Payment. He was exercising his powers as a matrimonial
Judge in that behalf given to him under the Matrimonial
Causes Act 1973 (to which I will refer further in this
judgment). In my judgment the final reckoning on a
claim for rescission of the contract would only take place
when the reconstituted hearing of Mrs Morris’ claim for
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Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
financial provision was heard. This is the right which she
seeks to reassert by reason of the fraudulent
misrepresentation.
31.
57.
At that hearing the question of the Lump Sum Payment
will have to be considered. Mrs Morris will have to give
a credit for it one way or another. I fully accept that she
could not obtain both the benefit of the Lump Sum
Payment under the Consent Order and seek a larger
payment on a reconsideration. What would happen in
effect is that if Mr Morris was not ordered to pay any
larger sum then she would retain it. Alternatively it is
possible that she might be given a larger sum and be
required to repay the Lump Sum Payment in exchange for
the larger sum. That is in my view unlikely. If she
obtained a larger sum it is inevitable that Mr Morris
would be able to appropriate that sum in partial discharge
of his greater liability on the reconsideration. All of this
is in the future in my view.
58.
Equally when the matter is finally resolved by the order
of Holman J on 13th January 2010 Mrs Morris is able to
appropriate for herself in satisfaction of the greater
liability the Lump Sum Payment which she has retained.”
Later in his judgment he said this:
“61. The Shalson decision is looking at the position of the
victim and the creation in the victim of a sufficient equity
in property he handed over so as to enable him to trace
into other assets. It has nothing to do with the present
situation.
62.
Even if it did it requires a further leap in logic then to
decide that the monies automatically vest in ITS. I do not
see that that is the case. ITS has its separate claims
against Mr Morris for knowing receipt and dishonest
assistance. That enables it to claim against him. It is not
an absolute right. Even if the monies were paid back to
Mr Morris any right on the part of ITS to claim those
monies might be lost. For example Mr Morris might have
charged any funds to a third party. When he received
them they could become subject to the charge
immediately which would operate (assuming the chargee
has no notice of ITS’ claims) in priority to the ITS claim.
63.
Therefore in conclusion I find no assistance from these
authorities. In my view the effect of Moylan J’s order
was to set aside the Consent Order. It did not address the
full implications of that. The order was not set aside in
toto because the periodical payments order remained.
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Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
Mrs Morris obtained title to the monies. I do not see that
she lost title subsequently by reason of her seeking to
rescind the Consent Order by reason of Mr Morris’
fraudulent representations. She might for the reasons that
I have set out above become under a personal obligation
to return those monies if she is ordered so to do. No such
order has been made.
64.
If such an order were made it seems to me that
Mrs Morris would be entitled to set off against any such
personal obligation the amounts ordered in her favour by
Holman J on 13th January 2010. ITS cannot in my view
circumvent that by bringing a direct claim. Its claim must
be through Mr Morris and thus subject to any rights that
Mrs Morris can assert against him.
65.
There is a further fatal flaw in ITS’ argument. It seeks to
bypass Mr Morris and make a direct claim against the
monies. I do not see that it can do so. Any claim must be
brought through Mr Morris. If the Lump Sum Order had
not been set aside any claim would have had to come
through him and it would have failed as ITS
acknowledges because Mrs Morris acquired the monies
under the Lump Sum Order bona fide and without notice
of any ITS claim. If the Lump Sum Order is set aside
nevertheless ITS cannot ignore intervening events that
have occurred. It must still assert a claim via Mr Morris.
Thus to be able to seek the payment of the monies of
£1.4m back from Mrs Morris it must be subject to rights
that have accrued by the time that claim is made. The
most important right is the financial adjustment order
made by Holman J on 13th January 2010 which awarded
Mrs Morris a lump sum of £6m. Any claim to the £1.4m
(whether by Mr Morris or by ITS claiming through
Mr Morris) must be subject to Mrs Morris being able to
raise a set off of £6m. That fatally flawed ITS’ claim in
any event in my view.
66.
Alternatively Mrs Morris impliedly might acknowledge
she is under some obligation to restore the fruits of the
Consent Order if she seeks to enforce the Holman J Order
in full. She can simply do that by appropriating the
money notionally repayable to Mr Morris in part
satisfaction of his liability to her.
67.
I conclude therefore that Mrs Morris became the
beneficial owner of the monies paid over to her by the
Consent Order and she did not cease to be the beneficial
owner merely because she applied to set aside the
Consent Order and obtained further relief by virtue of the
order by Holman J on 13th January 2010. For the reasons
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I have set out above this will not enable her to obtain
benefits under both the Consent Order and the Holman J
order but that is not the point. I do not see she ceased to
be the beneficial owner of these monies free from any
claim by ITS.”
32.
I find some of the judge’s reasoning difficult to follow not least because, by the time
of the hearing of ITS’s application, the result of the renewed application for ancillary
relief was known. Although the judge refers to the order of 13th January 2010, he
appears to place no weight on the fact that, under that order, no claim was made to the
£1.481m as part of the husband’s assets and the monies could not be taken into
account unless ITS failed to establish its beneficial title to them. It is also not clear
why the judge thought that the only claim which ITS could bring was one through
Mr Morris. Although he had paid the £1.481m to Mrs Morris under the order of 11th
February, he never acquired a title to those monies free of the beneficial interest now
asserted by ITS on behalf of the pension schemes and if the legal title vested in
Glencalvie Limited he had no title to the monies at all. ITS is not therefore limited to
the title which Mr Morris can assert against his former wife. It can enforce its own
title against the monies subject only to her being able to claim that she is a purchaser
for value. No question of set-off can therefore arise.
33.
I do, however, accept that the analogy with a rescinded contract is an imperfect one
and, in my view, does not accurately describe the process which is involved when the
court is asked to set aside an order for ancillary relief made in terms which the parties
have on advice agreed.
34.
First and foremost, the making of any order for ancillary relief involves an exercise by
the court of its statutory jurisdiction under the Matrimonial Causes Act 1973. The
court therefore has to be satisfied that the provision made under the order is a proper
exercise of those powers. The function of the court is not merely to rubber stamp the
agreement which the parties have made. It is therefore a different exercise from what
occurs when parties to a contractual or similar dispute reach a settlement which the
court gives effect to by the consent order which it makes. This is made clear in the
judgment of Thorpe LJ in Xydhias v Xydhias [1999] 1 FLR 683 at page 691:
“My cardinal conclusion is that ordinary contractual principles
do not determine the issues in this appeal. This is because of
the fundamental distinction that an agreement for the
compromise of an ancillary relief application does not give rise
to a contract enforceable in law. The parties seeking to uphold a
concluded agreement for the compromise of such an
application cannot sue for specific performance. The only way
of rendering the bargain enforceable, whether to ensure that the
applicant obtains the agreed transfers and payments or whether
to protect the respondent from future claims, is to convert the
concluded agreement into an order of the court. The decision of
the Privy Council in de Lasala v de Lasala [1980] AC 546
demonstrated that thereafter the rights and obligations of the
parties are determined by the order and not by any agreement
which preceded it. The order is absolute unless there is a
statutory power to vary or unless vitiated by a fact that would
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Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
vitiate an order in any other division. Additionally, as was
demonstrated in Robinson v Robinson [1983] FLR 102 an order
in ancillary relief proceedings may be set aside if the product of
a material breach of the duty of full and frank disclosure. An
even more singular feature of the transition from compromise
to order in ancillary relief proceedings is that the court does not
either automatically or invariably grant the application to give
the bargain the force of an order. The court conducts an
independent assessment to enable it to discharge its statutory
function to make such orders as reflect the criteria listed in
section 25 of the Matrimonial Causes Act as amended.”
35.
At page 692 he went on:
“In consequence, it is clear that the award to an applicant for
ancillary relief is always fixed by the court. The payer’s
liability cannot be ultimately fixed by compromise as can be
done in the settlement of claims in other divisions. Therefore
the purpose of negotiation is not to finally determine the
liability (that can only be done by the court) but to reduce the
length and expense of the process by which the court carries
out its function.”
36.
The statement by Thorpe LJ (at page 691) that the only way of making an agreement
to pay money enforceable between husband and wife was to convert it into an order of
the court has been criticised in a subsequent decision of the Court of Appeal as too
wide: see Soulsbury v Soulsbury [2007] EWCA Civ 969; [2008] Fam 1. But nothing
in the later judgment detracts from the proposition that the making of the order has to
be a proper and fully informed exercise of the powers contained in the 1973 Act and
that, once made, it is the order which therefore governs the rights and obligations of
the parties.
37.
The emphasis on the order rather than on the prior compromise as governing the
parties’ rights in the future is obviously relevant when one comes to consider the
consequences of it being set aside for misrepresentation or material non-disclosure. It
is well established that an order for ancillary relief may be set aside on either ground:
see Robinson v Robinson [1982] 1 WLR 786; Jenkins v Livesey [1985] 1 AC 424.
The basis for setting aside the order on these grounds is that the court has been
deprived by the non-disclosure or the falsity of the material which has been disclosed
of the ability to exercise its powers correctly under the 1973 Act by taking all relevant
matters into account.
38.
Because the parties’ rights are regulated by the order it would seem to follow that
their entitlement to assets transferred under an order which is set aside and therefore
ceases to have effect from non-disclosure cannot continue to be based on the order
once it is revoked. The only way in which they can seek to retain those assets is by
persuading the court to re-exercise its discretion in their favour on the renewed
application for ancillary relief.
39.
In this case, as indicated in the passage from his judgment which I have quoted,
Moylan J set the 11th February order aside. One of the issues which has arisen,
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although a subsidiary one, is whether the apparent retention of the order for periodical
payments means that the judge did not set aside the entirety of the 11th February
order. The practical consequence of a finding that paragraphs 3 and 4 of the 11 th
February order continued in effect is that the part of the £1.481m which represented
the arrears of periodical payments would be unaffected by Moylan J’s order and
would therefore remain protected from the claim now made by ITS.
40.
My own view is that Moylan J set aside the entirety of the 11th February order. That
is what he was asked to do and what he had to do in order to free Mrs Morris from the
effects of that order. Although in terms the preservation of paragraphs 3 and 4 of the
11th February order, it was in substance the making of a new interim order for
periodical payments in identical terms. The same must go for Holman J’s order of
19th January 2010 which continued the order for periodical payments until payment of
the lump sum of £6m which has not so far occurred. But the continuation of the order
for periodical payments does not in any event impinge on title to the £1.481m. One of
the judge’s reasons for concluding that title to the £1.481m did not automatically revest in Mr Morris when the lump sum order of the District Judge was set aside was
that it might become liable in his hands to the claims of his other creditors on his
bankruptcy. Although this would undoubtedly be an unfortunate consequence of the
setting aside of the order, it seems to me that this could follow if (unlike in this case)
the contest for the asset lay between the wife and the husband’s unsecured creditors.
In Hill v Haines [2007] EWCA Civ 1282 the Court of Appeal had to consider whether
the husband’s trustee in bankruptcy could recover property transferred to his wife as
part of an order for ancillary relief under s.24 of the Matrimonial Causes Act 1973 on
the ground that it was a transaction at an undervalue. That question was answered in
the negative on the basis that the property transferred was to be treated as the
equivalent in value to the rights of the relevant spouse to share in the assets of the
marriage. Sir Andrew Morritt C said that:
“29. ….. But, whatever the position may have been in earlier
days, it is, in my view, self-evident that the ability of one
spouse to apply to the court for one or more of the orders
referred to in ss. 23 to 24D is a right conferred and
recognised by the law. Further it has value in that its
exercise may, and commonly does, lead to court orders
entitling one spouse to property or money from or at the
expense of the other. That money and property is, prima
facie, the measure of the value of the right…..
35.
If one considers the economic realities, the order of the
court quantifies the value of the applicant spouse's
statutory right by reference to the value of the money or
property thereby ordered to be paid or transferred by the
respondent spouse to the applicant. In the case of such an
order, whether following contested proceedings or by way
of compromise, in the absence of the usual vitiating
factors of fraud, mistake or misrepresentation the one
balances the other. But if any such factor is established by
a trustee in bankruptcy on an application under s.339 then
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it will be apparent that the prima facie balance was not the
true one and the transaction may be liable to be set aside.”
41.
To the same effect Thorpe LJ at paragraphs 43-47 said that:
“43. There is an obvious tension between the statutory scheme
for the protection of a bankrupt's creditors and the
statutory scheme for the financial protection of the
bankrupt's former wife and child. Bankruptcy Acts and
Matrimonial Causes Acts may be said to compete for
shares in the fund which will always be incapable of
satisfying both. Clearly if the act of bankruptcy precedes
an order made under the Matrimonial Causes Act the
legal and practical outcome is straightforward.
Difficulties arise when the order under the Matrimonial
Causes Act precedes the bankruptcy.
42.
44.
The rules of law governing this tension have been settled
and well understood for almost a hundred years. The
decision of this court in re: Pope Ex Parte Dicksee [1908]
2KB 169 established that the financial benefit obtained by
the wife under a post-nuptial settlement made by the
husband within two years of his bankruptcy in
consideration of the wife refraining from taking divorce
proceedings against him was valid against the trustee in
bankruptcy. That was the conclusion of the Master of
Rolls and Fletcher-Moulton LJ, a conclusion from which
Buckley LJ dissented.
45.
That this remained the proper approach was demonstrated
by the decision of the Divisional Court of the Chancery
Division in re: Abbott (a bankrupt) [1983] 1 Ch 45.
46.
These authorities did not, of course, establish that all
ancillary relief orders are proof against the claims of the
trustee in bankruptcy. Plainly if the ancillary relief order
was the product of collusion between the spouses
designed to adversely affect the creditors the trustee
would intervene in the ancillary relief proceedings and
apply for the order to be set aside. Such a situation is
illustrated by the decision of Ferris J in re: Kumar (a
bankrupt) [1993] 1 WLR 225.
47.
Additionally the ancillary relief order, like any other
order, might be set aside if some other vitiating factor
could be established, including a failure on the part of the
wife to make full and frank disclosure of her own assets.”
These extracts from the judgments are important for present purposes because they
indicate that an order for ancillary relief may not be immune from challenge by a
trustee in bankruptcy if it subsequently transpires that the wife gave less in value than
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she received or there was collusion between the parties. The judge was therefore
wrong in my view to hold that the rescission of an order for ancillary relief on
grounds of non-disclosure necessarily preserved the wife’s entitlement to the assets
already transferred to her. Once the lump sum or property transfer order is set aside
by the wife or the trustee (on an application under s.339 of the Insolvency Act) the
court can be asked by the trustee to order the re-transfer of the assets into the
husband’s estate and the only answer available to the wife is to renew her own claim
for ancillary relief against the same assets. The judge will then be faced with
competing claims between the wife and the husband’s creditors of a kind which is not
unfamiliar.
43.
I do not, however, accept the submission that the setting aside of the order for
ancillary relief has the effect of automatically re-vesting title in the husband. The
judge was, I think, right on this point. Title is not, without more, re-vested in the
husband any more than the original order vested title in the wife. When the order is
set aside it is for the court to give effect to that order by making whatever
consequential orders are necessary to restore the parties to their former positions. In
each case the parties are ordered to transfer or re-transfer the property in question and
it is the act of transfer which passes or restores the transferee’s title.
44.
In the present case Moylan J (for perfectly obvious and understandable reasons) did
not order Mrs Morris to re-transfer the £1.481m or the matrimonial home to her
former husband and I accept Mr Lewis QC’s submissions that the title to these assets
which she gained on their earlier transfer was not re-vested in him whether
beneficially or otherwise. But in my view that is immaterial to the outcome of this
appeal. The claim by ITS to the £1.481m is based on its own beneficial title derived
from the pension schemes and, as explained earlier, it can enforce that title
independently of and in priority to any claim by the husband’s estate on the basis of
the judgment against Mr Morris of 1st July. The real issue therefore is not whether the
£1.481m has re-vested in Mr Morris, but whether Mrs Morris can resist the claim of
ITS to the money in her possession by continuing to assert that she is a purchaser for
value.
45.
After we had made our judgments available to the parties for correction we received a
request from Mr Twigger QC (who had been recently instructed on behalf of
Mrs Morris) to postpone their handing down until he had been given the opportunity
of making further submissions on a point that was not argued during the hearing of
the appeal. This is whether the receipt of the £1.481m by Mrs Morris as a purchaser
for value without notice continued to govern her title to those monies notwithstanding
the subsequent rescission of the 11th February order. Mr Twigger drew our attention
to a statement in the 7th edition of Megarry & Wade on The Law of Real Property (at
8-025) that:
“The protection of the doctrine of purchaser without notice also
extends to any purchaser claiming through such a purchaser,
even though he took with notice of the equity. Similarly, a
mere volunteer, if he claims through a purchaser without
notice, can presumably claim freedom from the equity, because
the principle is that once a legal estate has passed into the hands
of a purchaser without notice of the equity, that equity ceases to
be enforceable against that estate, and cannot be revived.
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Unless this were so, the owner of the equity could, by widely
advertising his claim, make it difficult for the purchaser without
notice to dispose of the land for the price that he gave for it.”
46.
In order to understand the scope of this submission we reluctantly agreed to allow
Mr Twigger to put in further written submissions on the point and invited
Mr Spearman to reply to them. This has resulted in our receiving extensive written
arguments on behalf of Mrs Morris and two further bundles of authorities. Regardless
of the merits of the point now raised, I am bound to record that it is completely
unacceptable for the Court of Appeal to be faced with this situation following the
conclusion of the oral argument and it is only the potential importance of the point for
other cases that has persuaded me that we should receive argument on an issue which
could and should have been dealt with as part of the substantive appeal.
47.
In its simplest form, Mr Twigger’s submission is that once the £1.481m had been paid
to Mrs Morris under the order of 11th February, any subsisting equitable title of ITS
was lost and cannot be resuscitated by the rescission of that order. The premises for
this conclusion can be broken down into a number of statements of principle.
(1)
the question of notice is to be determined at the time when the legal estate
passes (i.e. the date of purchase): see e.g. Macmillan Inc v Bishopsgate
Investment Trust plc (No. 3) [1995] 1 WLR 978 at p. 1000;
(2)
as between vendor and purchaser, title passes even if there is a subsequent
total failure of consideration and is not re-vested in the vendor: see
Westdeutsche Landesbank Girozentrale v Islington BC [1996] AC 669 which
confirmed that a claimant under such a contract did not have a proprietary
remedy based on a resulting trust because the relevant time for testing the
conscience of the transferee was that of his receipt of the property which predated the failure of consideration;
(3)
where a bona fide purchaser subsequently transfers the property to a volunteer
or even to persons with notice of a prior equitable interest, those transferees
nevertheless take free of such interests: see Wilkes v Spooner [1911] 2 KB 473
where (at p. 483) Vaughan-Williams LJ said that:
“It cannot seriously be disputed that the proposition
which I quoted from Ashburner's Principles of Equity,
p. 75, is good law. It is as follows: ‘A purchaser for
valuable consideration without notice can give a good
title to a purchaser from him with notice. The only
exception is that a trustee who has sold property in
breach of trust, or a person who has acquired property
by fraud, cannot protect himself by purchasing it from a
bona fide purchaser for value without notice.’”
(4)
48.
The effect of a transfer of property to a bona fide purchaser is to extinguish
any prior equitable interest: see Re Diplock [1948] Ch 465 (at p. 537).
On the basis of these principles, Mr Twigger submits that any beneficial title in the
£1.481m which ITS could have asserted was extinguished when Mrs Morris received
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the money from her husband pursuant to the 11th February order and that her
successful application to have that order rescinded so as to be able to pursue a fresh
claim for ancillary relief did not change the position. There was (for the reasons I
have explained in paragraph 43 above) no automatic re-vesting of title in Mr Morris
(and therefore in ITS) and Mr Twigger submits that no trust arose in favour of ITS so
as to give it a proprietary interest which it could therefore enforce against the money
remaining in Mrs Morris’s hands. Absent such a proprietary interest, its claim to trace
the £1.481m must fail.
49.
I have no difficulty in accepting the first three of these propositions but it is
misleading to treat the fourth as unqualified. As Vaughan-Williams LJ pointed out in
Wilkes v Spooner (which is the basis of the principle set out in Megarry & Wade), an
established exception exists in the case of an actual or constructive trustee who
subsequently re-acquires the property from the bona fide purchaser. In such cases the
original title of the beneficiary is not permanently extinguished by the sale to the bona
fide purchaser and is either revived or remains enforceable against the trustee. Had
Mrs Morris transferred the £1.481m back to her husband following the rescission of
the 11th February order ITS could therefore have maintained its tracing claim against
the money in his hands.
50.
The thrust of much of Mr Twigger’s new argument is that any deviation from the
principles I have set out would create uncertainty for third party purchasers who have
acquired title from persons in the position of Mrs Morris. They would, he submits,
acquire only defeasible interests rather than a title absolute if the rights of the original
beneficial owner could be revived by a subsequent failure of consideration or its
equivalent. That seems to me to overstate the problem. Regardless of whether
Mrs Morris’s title could subsequently be impugned, any transferee from her for value
without notice would continue to be protected in their own right. They would be able
to rely upon their own status as bona fide purchasers for value without notice in
relation to any claim by ITS and their title would continue to remain unimpeachable
regardless of any change in Mrs Morris’s position in relation to the money remaining
in her hands. This is the point made by Rimer J in Shalson v Russo in the passage
quoted earlier from the judgment of Peter Smith J.
51.
The issue therefore is whether Mrs Morris should be entitled to rely on the protection
of the 11th February order to confirm her status as a bona fide purchaser when she has
herself taken steps to have it set aside. Despite Mr Twigger’s recent submissions, I
remain of the view that she lost that protection when the order was rescinded and that
she is not able to rely upon it in the current proceedings. As explained earlier, the
order can only be set aside if it can be shown that the non-disclosure or
misrepresentation was such as to make it an invalid or incomplete exercise of the
statutory powers contained in the Matrimonial Causes Act. The rescission of the
order undoes that exercise of discretion and leaves the court free to re-exercise the
discretion on a properly informed basis.
52.
Mr Twigger likens the position to one involving a subsequent failure of consideration
but that is not, in my view, the right analogy. So far as any contractual analogy is
appropriate, the most relevant one is the rescission of a contract of sale for fraud. If
Mrs Morris had acquired the property of ITS under a contract of sale with her
husband which was later rescinded for fraudulent misrepresentation, I do not see how
she could thereafter rely upon that contract as giving her a clear title to the assets she
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acquired. Her election to rescind the contract would have reversed the process by
which such a title was acquired and thereby exposed the property remaining in her
hands to the prior equities which affected it.
53.
Rescission avoids the contract ab initio. In relation to assets transferred to the
representor, the better view (encapsulated in the authorities reviewed by Rimer J in
Shalson v Russo) is that title re-vests in the representee retrospectively once the
election to rescind the contract is made. A convenient statement of principle can be
found in the judgment of the Court of Appeal in Twinsectra Limited v Yardley [1999]
Lloyd’s Rep Bank 436 at pages 461-2:
“98. In the course of his submissions Mr Tager sought to build
upon a short passage of Lord Browne-Wilkinson's speech
which I have quoted, an edifice which I do not think it was
meant to support. He has argued (i) that the obtaining of monies
by false pretences (at least in the circumstances of this case)
should be regarded as “theft”, it having been long accepted, by
whatever conceptual route, that theft, as such, immediately
constitutes the thief a constructive trustee of the stolen money
so that the victim may later trace in equity: see Banque Belge
Pour L'Etranger v Hanbrouk [1921] 1 KB 321 per Bankes and
Atkin LJJ, who held in the case of stolen cheques that the
plaintiff bank could trace its money in law and equity, and per
Scrutton LJ who considered that the bank could trace only in
equity; (ii) that, even if that were not so, Lord BrowneWilkinson's observation should be read at face value as
recognising that a constructive trust is imposed upon the
recipient at the moment of receipt.
99. I do not accept either argument. It seems to me that,
whatever the legal distinctions between “theft” and “fraud” in
other areas of the law, the distinction of importance here is that
between non-consensual transfers and transfers pursuant to
contracts which are voidable for misrepresentation. In the latter
case, the transferor may elect whether to avoid or affirm the
transaction and, until he elects to avoid it, there is no
constructive (resulting) trust; in the former case, the
constructive trust arises upon the moment of transfer. The
result, so far as third parties are concerned, is that, before
rescission, the owner has no proprietary interest in the original
property; all he has is the “mere equity” of his right to set aside
the voidable contract. That equity binds volunteers and those
taking with notice of the equity, but not purchasers for value
without notice; see generally Worthington: Proprietary
Interests in Commercial Transactions (1996) Clarendon Press
at pp 163-165 and 167. Despite dicta of Lord Mustill in
Re Goldcorp (a case in which the purchase monies sought to be
traced were unidentifiable), which, if generally applied beyond
the context of the facts in that case, would suggest that
equitable title does not (or in appropriate circumstances may
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not) revest on rescission, the general position seems to me that
summarised in Underhill and Hayton (15 Ed) at p.372(f). It is
there stated that equity imposes a constructive trust on property
where a transferor's legal and equitable title to his property has
passed to the transferee according to basic principles of
property law but in circumstances (eg involving fraud and
misrepresentation) where the transferor has an equitable right
(ie mere equity) to recover the property by having the transfer
set aside, and the court declares that from the outset the
transferee has held the property to transferor's order, though
nowadays it seems better to regard a restitutionary resulting
trust as arising.”
54.
The necessary condition for obtaining the assistance of equity in the rescission
process is that the representee should make counter-restitution. In a contractual case
this will ordinarily involve him restoring to the representor any benefits which he has
himself received under the contract or their equivalent value.
55.
A convenient statement of the processes involved is set out in the judgment of Dixon
CJ in Alati v Kruger (supra) at p. 457 which, as mentioned earlier, was cited with
approval by the Court of Appeal in O'Sullivan v Management Agency and Music Ltd.
He said in relation to assets required by the defendant party that:
“equity has always regarded as valid the disaffirmance of a
contract induced by fraud even though precise restitutio in
integrum is not possible, if the situation is such that, by the
exercise of its powers, including the power to take accounts of
profits and to direct inquiries as to allowances proper to be
made for deterioration, it can do what is practically just
between the parties, and by so doing restore them substantially
to the status quo ….. It is not that equity asserts a power by its
decree to avoid a contract which the defrauded party himself
has no right to disaffirm, and to revest property the title to
which the party cannot affect. Rescission for misrepresentation
is always the act of the party himself ….. The function of a
court in which proceedings for rescission are taken is to
adjudicate upon the validity of a purported disaffirmance as an
act avoiding the transaction ab initio, and, if it is valid, to give
effect to it and make appropriate consequential orders ….. The
difference between the legal and the equitable rules on the
subject simply was that equity, having means which the
common law lacked to ascertain and provide for the
adjustments necessary to be made between the parties in cases
where a simple handing back of property or repayment of
money would not put them in as good a position as before they
entered into their transaction, was able to see the possibility of
restitutio in integrum, and therefore to concede the right of a
defrauded party to rescind, in a much wider variety of cases
than those which the common law could recognize as admitting
of rescission. Of course, a rescission which the common law
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courts would not accept as valid cannot of its own force revest
the legal title to property which had passed, but if a court of
equity would treat it as effectual the equitable title to such
property revests upon the rescission.”
56.
If in a case of this kind the representee had transferred to the representor assets which
were themselves subject to a prior equity in his hands but which were received by the
representor as a bona fide purchaser for value, I cannot see how on the subsequent
rescission of the contract for misrepresentation the representee could rely on the status
of the representor as a bona fide purchaser for value in relation to the prior equitable
interests of the third party in order to defeat those interests once title had been revested in him. If the contract is avoided ab initio he should in principle take back the
asset subject to the prior equities.
57.
In relation to assets which the representee has obtained from the representor under the
rescinded contract, the same consequence ought in principle to apply. The
representee could, as a result of electing to rescind, be required to return any assets
transferred to him under the contract and in the representor’s hands they would be
subject to any prior equities.
58.
The rescission of an order of the court is not an identical process. There is no
automatic re-vesting although the same can be achieved by subsequent orders of the
court. But where there are similarities is in the effect which the order for rescission
has. The order of 11th February was set aside by Moylan J and thereupon ceased to
have any effect. The ability of Mrs Morris to re-new her ancillary relief claim
depended upon there having been no effective exercise of the statutory powers under
the 11th February order. In Jenkins v Livesey [1985] 1 AC 424 Lord Brandon said (at
pages 437 and 440) that unless the court is provided with complete and up-to-date
information on matters that are relevant to the exercise of its discretion under s.25 of
the Matrimonial Causes Act then it cannot lawfully exercise that discretion. It must
follow that there was no proper exercise of that power in this case and that by setting
the 11th February order aside the court recognised it as a nullity.
59.
It was submitted to us that an order of a court of competent jurisdiction continues to
have effect until set aside whether on appeal or, in this case, on grounds of material
non-disclosure: see Isaacs v Robertson [1985] 1 AC 97. That is undoubtedly true in
the sense that a person commits no wrong by acting in reliance on the order and must
continue to comply with it until it is set aside: see Hillgate House Ltd v Expert
Clothing Services & Sales Ltd [1987] 1 EGLR 65. Similarly property rights created
in favour of third parties in reliance on the order in the interim period would remain
valid notwithstanding its subsequent rescission: see London Borough of Brent v Botu
[2000] All ER (D) 298. But once it is set aside the order cannot be relied upon by the
parties to it as determinative of their rights and Mrs Morris is not entitled, in my view,
to claim that she was a purchaser for value by reason of the order any more than she
would be entitled to rely upon a contract which she had succeeded in having set aside
for fraud. The fact that Moylan J did not order the re-transfer of the £1.481m to
Mr Morris is irrelevant. What matters is that the order of 11th February has gone and
with it Mrs Morris’s right to rely upon it.
60.
Therefore, although it is accepted that Mrs Morris falls to be treated as a bona fide
purchaser in relation to her acquisition of the £1.481m under the 11th February order, I
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Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
am not persuaded that her position following the rescission of that order should be
strictly equated even with the position that would obtain under a contract rescinded
for fraud. As explained earlier in this judgment, her rights to retain the £1.481m
depended not upon the agreement which preceded the 11th February order but on the
order itself. The rescission of that order restored Mrs Morris to the position she was
in before the order was made which was a pre-requisite to her ability to restore her
application for ancillary relief. Consistently with this, she could not, in my view, rely
upon that order for the purpose of maintaining status as a bona fide purchaser for
value and so treat the £1.481m as an asset of the marriage which would be taken into
account for the purpose of her new application. As the dicta in Hill v Haines indicate,
the effect of rescission is to set the order aside for all purposes.
61.
Nor in fact did Mrs Morris rely on the 11th February order in her renewed application
for ancillary relief. The course she took was to agree that the £1.481m should not be
treated as an asset of the marriage unless and until it was determined in the Chancery
Action that it was not an asset “to which ITS would have had a proprietary claim”. In
July 2010 Peter Smith J decided that the £1.481m did represent part of the assets of
the pension funds and Mrs Morris did not intervene at the trial of the action to assert
the title she now relies upon even though she was given permission to do so.
62.
The court has therefore already recognised the rights of ITS in the order which it
made on 13th January 2010 and has thereby given effect to the rescission of the 11th
February order. In the light of these events we are not faced with issues about
whether a trust has arisen in favour of ITS (whether resulting or constructive) but with
the much simpler issue of whether Mrs Morris can now rely on the bona fide
purchaser defence based on the 11th February order. If, as I believe, that defence is
not now open to her then she has no answer to the tracing claim in the light of the
decision of Peter Smith J in the Chancery Action. The answer to Mr Twigger’s
submission that ITS can only re-assert its beneficial interest in the £1.481m if the
court re-imposes such a trust on the money remaining in Mrs Morris’s hands is the
one given by Lloyd LJ in his judgment (particularly at paragraph [113]); namely that
the title of the pension funds has continued to subsist and in the present circumstances
is no longer capable of being defeated by the bona fide purchaser defence. His
judgment contains an illuminating analysis of the law on this point which I agree
with.
63.
There is no doubt that the consequences of this were both unforeseen and unintended
when the application was made to set the District Judge’s order aside. Mrs Morris is
now left to compete with the other creditors for a share in her husband’s assets. But,
as a matter of authority and principle, that is in my view the consequence of Moylan
J’s order and issues of discretion do not really arise. Mr Spearman submits that his
client’s claim ought in any event to be preferred because it prevents Mr Morris from
being able to use the proceeds of his fraud to meet his personal liabilities. If policy
considerations of that kind are decisive of the appeal I can see much force in that
argument. But, in the event, it is unnecessary for him to rely upon it.
Conclusion
64.
I would therefore allow the appeal.
Judgment Approved by the court for handing down.
Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
65.
Mr Twigger’s new submissions raised two further matters which I must deal with.
Mrs Morris has now put in evidence detailing what has become of the £1.481m since
she received it. Some of this money has been used to purchase her current home and
to meet other liabilities. As a result, there are issues between the parties as to whether
Mrs Morris has any personal liability to account for the £1.481m and whether the
claim by ITS (if limited to a proprietary claim) can succeed against all or any of her
current assets.
66.
The scope of this appeal has been limited to a consideration of whether the judge was
right to dismiss ITS’s claim on the basis that Mrs Morris remains the lawful owner of
the £1.481m free of any prior equity in favour of ITS. The judge dealt with this as in
effect a preliminary issue about beneficial entitlement. We have not been addressed
on any issues of personal liability or on whether Mrs Morris has any other answers to
the tracing claim.
67.
It goes without saying that the ability of ITS to trace the £1.481m into the hands of
Mrs Morris on the basis of a subsisting beneficial interest may not be sufficient in
itself to impose upon her a personal liability. The rescission of a contract for
misrepresentation or breach of fiduciary duty does not impose a retrospective liability
for breach of trust: see Bristol & West Building Society v Mothew [1998] Ch 1. If ITS
intends to pursue such a claim it will have to be properly pleaded and determined in
subsequent proceedings in the Chancery Division. The judge who conducts that
hearing will have to determine the extent to which the £1.481m paid to Mrs Morris
remains traceable and whether ITS has a remedy (either for an account or the payment
of interest) in respect of any monies which are irrecoverable as part of the tracing
process.
68.
The task of this court is simply to determine whether Mrs Morris has a defence to any
tracing claim on the basis that she received the £1.481m as a bona fide purchaser for
value without notice. To that end, the order should simply declare that ITS is
beneficially entitled to the traceable proceeds of the £1.481m and remit all
consequential matters to the Chancery Division. In the first instance it should return
to a Master for further directions.
69.
Mr Twigger accepts that if we conclude that the bona fide purchaser defence is not
available to Mrs Morris, ITS will ultimately be able to show that some of her assets
constitute the traceable proceeds of the £1.481m. He does not therefore oppose an
order for an interim payment of £500,000 from Mrs Morris’s S&W savings account
and I would make an order for such a payment within 21 days.
Lord Justice Tomlinson:
70.
I agree with both judgments.
Lord Justice Lloyd:
71.
Lord Justice Patten has set out the facts and the issues in this appeal, and has
explained its history, which accounts for the regrettable lapse of much more time than
normal between the hearing of the appeal and the delivery of judgment.
Judgment Approved by the court for handing down.
Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
72.
The arguments addressed on the respondent’s behalf by Mr Twigger in his written
submissions elaborated on points which had been touched on in the skeleton argument
for the respondent submitted by Mr Lewis, but which were not the subject of any oral
argument at the hearing. In those circumstances, it might have been proper for the
court to decline to accept the further submissions. I agree with the comments of
Patten LJ on this situation at paragraph [46] above. Some of the problems which can
arise from the draft judgment procedure have recently been discussed by Kirsty
Hughes at (2011) 127 LQR 565. She observes at page 585 that the procedure has
serious implications for the judicial process and otherwise which need to be fully
considered. That observation is no doubt well justified, but this is not a suitable
occasion to contribute to that consideration.
73.
Mr Twigger’s points developed the original submissions on behalf of the respondent
with a deeper analysis, raising several new points. The case is unusual in factual
respects, and there is no close analogy in any previous decided case of which we have
been made aware. We were provided with a number of authorities including some
academic writings. I have carried out some independent research, following up leads
found in the authorities supplied. I have not found any text in which the particular
point is foreseen or addressed in the observations of judges or academic writers. It is
therefore necessary to have recourse to basic principles.
74.
The essence of the situation is as follows:
i)
The first and second defendants, GP Noble Trustees Ltd and BDC Trustees
Ltd, held assets as trustees of nine pension schemes, which were invested in a
conventional manner. In breach of trust, they liquidated the assets, or most of
them, and paid the funds away. So far as concerns the money now at issue,
they paid £22 million to a company controlled by Mr Morris, referred to as
MUFF, the 18th Defendant. (This was the second stage of the operation by
which a total of £52 million was extracted from the pension funds.) MUFF in
turn paid £1.495 million, partly directly and partly indirectly, to another
company, Glencalvie Ltd, the 25th Defendant (also controlled by Mr Morris).
That company then paid £1,481,920.53 to Mr Morris’ solicitors, Alexiou
Fisher Phillips, on 14 July 2008. This was to be (and was) paid straight to
Mrs Morris’ solicitors, in satisfaction of the liability under the consent order
which had been made by DJ Black in February 2007. All of these payments
and transfers were in breach of trust. Therefore, at least until the moment of
payment to Mrs Morris’ solicitors, the beneficial interest of the beneficiaries
under the pension scheme trusts survived the various dispositions. No holder
of the money up to that moment could have resisted ITS’ claim.
ii)
If the matter had rested there, however, Mrs Morris’ title to the funds would
have been unassailable. She had no notice of the breach of trust at the time
when her solicitors received the money on her behalf and, because the
payment to her was made in satisfaction of Mr Morris’ liability under the court
order, she acquired the legal title as a purchaser and for value (see Hill v
Haines [2008] Ch 412 as to value in this context). So she was in the category
of bona fide purchaser for value without notice. As such she would have had a
complete defence to a claim against her in respect of the funds which she had
received.
Judgment Approved by the court for handing down.
Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
iii)
In February 2008 she had applied to the Family Division for an order setting
aside the consent order of DJ Black, on the ground of non-disclosure of assets
on the part of Mr Morris, namely the proceeds of the sale of, and generally the
value of, his interest in the Money Portal Ltd. There is no reason to suppose
that this was other than a genuine, proper and successful business.
iv)
In November 2008 the appellant, ITS, the new trustee of the nine pension
schemes, brought proceedings against the former trustees, Mr Morris and
many others (but not Mrs Morris), to reclaim the assets.
v)
In April 2009 Moylan J set aside the consent order made by DJ Black, directed
a rehearing of the ancillary relief application, and ordered Mr Morris to pay
periodical payments in the meantime. He did not order Mrs Morris to pay
anything back to Mr Morris. No doubt it was expected (rightly in the event)
that on a rehearing Mr Morris would be ordered to pay a larger sum to her.
Nevertheless, the consent order having been set aside, the basis on which the
payment had been made to her was removed.
vi)
During 2009 ITS discovered the facts which showed that trust money was the
direct source of the £1.48 million paid to Mrs Morris’ solicitors. Notice of the
trustee’s claim was given to Mrs Morris by a letter to her solicitors dated 18
November 2009. The precise date on which she first had notice of the claim
does not matter for present purposes, though it may do so at a later stage; for
now I take it to have been by way of that letter. She was aware before receipt
of that letter of the investigation into Mr Morris’ dealings with the assets
extracted from the pension funds, and of the claim by ITS against the former
trustees, Mr Morris and others, but (as I understand it) not until then of any
assertion that the money that she had received had come from the pension
funds. There has not yet been any investigation of what happened to the £1.48
million in Mrs Morris’ hands in the meantime.
75.
If the £1.48 million had been paid to Mrs Morris without having been required under
the court’s order (an unlikely hypothesis, of course, but useful to test the position) she
would not have given value, and she would therefore have been a volunteer, albeit
innocent. The beneficial title of the beneficiaries under the pension schemes would
still have subsisted in the money after the payment to her. Therefore, she would not
have had a defence to a proprietary claim by the trustee for the recovery of the money.
Being innocent, she would not, on the other hand, be liable to a personal claim.
76.
Thus, to the extent that she had any of the money, or its traceable product, in her
hands at the time she received notice of the trustee’s claim, she could be ordered to
pay it over to the trustee. On the other hand, to the extent that, before she had notice
of the claim to the funds, she had disposed of any of the money without receiving
traceable proceeds, she would not be liable to the trustee. That is shown by the
decision of Millett J in Agip (Africa) Ltd v Jackson, [1990] Ch 265 at 290-1, and by
that of Sir Robert Megarry V-C in Re Montagu’s Settlement Trusts [1987] Ch 264.
Millett J held that a volunteer who has received trust property is not liable to account
for the trust property if he has parted with it without having previously acquired
knowledge of the existence of the trust. Thus, it is clear that, if the proprietary claim
against the respondent is justified, it only extends to money (or its traceable proceeds)
which was in her hands at the time she was given notice of the trustee’s claim. This
Judgment Approved by the court for handing down.
Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
could be significant as regards the relief to which the trustee would be entitled. (It is
not necessary for present purposes to consider what amounts to sufficient notice to the
holder of the assets in this context.)
77.
So, in the case of an innocent volunteer recipient of money which is the product of a
breach of trust, the legal title is in the recipient but the equitable title remains in the
beneficiaries of the relevant trust throughout. Conventionally, in a situation where the
legal title to an asset is held by A but the beneficial ownership is in B, A is regarded
as holding the asset on trust for B. To say that, however, is only the beginning of the
analysis because it does not tell you what duties A owes to B in respect of the asset.
The fact that A is not liable to account to B for the asset if A has parted with it
(without receiving traceable proceeds) at a time when he had no knowledge of B’s
interest shows that this is not a case of a trustee who is subject to strict liability.
78.
This situation is inherently unstable in two respects. For so long as A has no notice of
B’s interest, B’s interest is fragile because A may dispose of the property in a way
which leaves no traceable product. On the other hand A’s immunity from claims in
respect of his dealings with the assets is also at risk because it can be brought to an
end (for the future) if notice is given to him of B’s interest.
79.
In Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 (which I
will call Westdeutsche Landesbank) Lord Browne-Wilkinson said at page 707 that
innocent receipt by A of property in which B has a beneficial interest, A being
unaware of that interest, “does not by itself make [A] a trustee despite the severance
of the legal and equitable titles”. He said this on the premise, stated at page 703, that
if A held on trust despite his ignorance and therefore innocence, he would be
personally liable, regardless of fault, for any subsequent payment of the money to any
third party even though at the time of the payment he was still innocent of B’s
interest. He recognised at page 707E-F that whether A is regarded as a trustee may be
no more than a semantic question, so long as it is accepted that A’s accountability
does not extend to property which left A’s hands before he had notice of B’s interest.
I take note of a warning on this point in Underhill & Hayton, Law of Trusts and
Trustees, 18th edition, at paragraph 28.4.
80.
Despite what Lord Browne-Wilkinson said, it seems to me that it is appropriate to
speak of A holding on trust for B in this situation, provided that one is not misled into
thinking that to call the relationship one of trustee and beneficiary tells you, of itself,
what the duties and liabilities of the trustee are. Since the trust arises from the asset
having been extracted, in breach of trust, from a fund held on express trusts, it seems
correct to characterise the trust as a constructive trust, rather than a resulting trust.
81.
Thus, if the respondent had not given value for the payment, she would, in my view,
have been a trustee of the money, that is to say a constructive trustee, holding it on
trust for the beneficiaries under the pension fund trusts. She would have been under
no relevant duty as regards the money until she had notice of the interest of the
beneficiaries. Once she had such notice, she would be under a duty not to part with
the remaining funds (and the traceable proceeds in her hands of any which had
already gone) otherwise than by restoring them to or for the benefit of the
beneficiaries, in the present case by payment to the new trustee, the appellant. That is
the equivalent of the relief to which the appellant would be entitled by way of its
proprietary claim.
Judgment Approved by the court for handing down.
Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
82.
I am fortified in my respectful disagreement with Lord Browne-Wilkinson’s
observations in Westdeutsche Landesbank by a reading of “Restitution and
Constructive Trusts”, by Sir Peter Millett, (1998) 114 LQR 399, at 403 to 405, by the
observations of the Privy Council in Hardoon v Belilios [1901] AC 118, at 123, by
Simon Gardner’s Introduction to the Law of Trusts (3rd edition, 2011) at pages 25 to
27, by Remedies for Knowing Receipt, by Charles Mitchell and Stephen Watterson,
in Constructive and Resulting Trusts, ed. Charles Mitchell (2010), page 115,
particularly at pages 116 to 120, and the cases there cited, which include observations
of Millett LJ, in passing, in R v Chester and North Wales Legal Aid Area Office, ex
parte Floods of Queensferry Ltd [1998] 1 W.L.R. 1496 at 1500H, and by paragraphs
28.1 to 28.10 of Underhill & Hayton, Law of Trusts and Trustees, 18th ed. I have also
gained assistance on the points arising on the appeal generally from several of the
papers collected in Breach of Trust, ed. Peter Birks and Ariane Pretto (2002), in
particular Overreaching by David Fox and Transfers by Lionel Smith.
83.
In Foskett v McKeown [2001] 1 AC 102, at 108-9, Lord Browne-Wilkinson said that
equitable interests of beneficiaries in an equivalent position to those of the
beneficiaries of the pension fund trusts in the present case “are also enforceable
against whoever for the time being holds those assets other than someone who is a
bona fide purchaser for value of the legal interest without notice or a person who
claims through such a purchaser”. It may not matter whether the holder of the legal
title who is liable to be sued so as to enforce such rights is or is not to be categorised
as a trustee. What does matter is the recognition of the right to sue and thereby to
enforce those rights, in relevant circumstances.
Even if Mrs Morris (as,
hypothetically, a volunteer) was not to be regarded as having been a trustee before she
had notice of the beneficiaries’ interest, or for that matter later, that would not affect
the nature of the duties to which she would have been subject at the different stages,
before and after having notice, as set out in paragraph [76] above.
84.
One of Mr Twigger’s new points was a contention that, first, Mrs Morris cannot have
been a trustee at a time when she was entitled to dispose freely of the assets received
and to mix them with her own assets and, secondly, that because she was in that
position before she had notice of the claim that the money had been the subject of a
breach of trust, she cannot later have become a trustee, either upon the setting aside of
DJ Black’s order or upon receiving notice of the trustee’s claim. In the light of what I
have said about the position of an innocent volunteer recipient of trust assets
transferred in breach of trust, before he has notice of the trust interest, it does not
seem to me that the first part of this proposition is correct. Since such a volunteer
cannot be made accountable for relevant assets disposed of at a time when he had no
notice of the adverse interest, even though the beneficial interest of the beneficiaries
continued to exist, the volunteer is (for the time being) able to mix the trust assets
with his own, with impunity, and to dispose of them freely, despite the beneficiaries’
continuing beneficial interest. So in that situation the volunteer, even if regarded as
holding the property on trust, is not constrained by any imposed duty as regards his
free powers of dealing with the assets, until he has notice of the inconsistent interest
of the beneficiaries. Of course, if he gives a relevant asset away, the beneficiaries
may be able to follow it into the hands of the later recipient, and if he disposes of it
for value, then he may receive another asset which would represent the trust property
in his hands, and the beneficiaries may then be able to assert a claim to that asset by
way of tracing. Once he has notice of the beneficiaries’ adverse interest, he is no
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Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
longer free to deal with the assets as he pleases. At that stage there is no conceptual
difficulty or oddity in calling him a (constructive) trustee, at least as from that time.
85.
However, it seems to me that it is not particularly sensible, for present purposes, to
focus on whether, and if so when and in what circumstances, the recipient of trust
assets is properly to be characterised as a trustee. It is more useful to address directly
the question whether the prior equitable interests of the beneficiaries under the
original trust can be asserted against the recipient.
86.
That depends on whether the respondent can successfully deploy the defence that she
is a bona fide purchaser for value without notice. It is clear that this is a defence for
her, the onus being on her to raise it and to establish it; it is not up to the claimant to
prove that she does not have that status. This is not a case in which anything is likely
to turn on evidential points, but it seems to me that it is important to keep it in mind
that this is how the point works.
87.
So, the question is whether she can establish that defence when the value that she
gave at the time of receipt of the legal title to the money was given under a transaction
(I use the word in a broad sense, with support from Hill v Haines [2008] Ch 412)
which was voidable and has since then been avoided. It may or may not matter at
whose instance it was avoided, but in the present instance it was at her initiative.
88.
The question whether the recipient of the legal title had notice is to be determined at
the time of acquisition of that title, at the latest. The cases in which an earlier date
may be relevant do not matter for present purposes and I will ignore that possibility. I
am not aware of any circumstances in which the question whether the recipient had
notice could be affected by anything that happened later. That is because it is a
question of fact.
89.
Mr Twigger’s argument was that whether the purchaser gave value ought to be tested
as at the same date. He pointed out that it is settled that a purchaser for value without
notice can give an effectively valid and clear title by a subsequent transfer, even if the
transferee under that disposition does have notice of the beneficiaries’ title: see Wilkes
v Spooner [1911] 2 KB 473. There is one exception to this, namely that the party
whose breach of trust gave rise to the problem cannot acquire a clear title by selling to
a purchaser for value without notice and then acquiring the property back from that
person; this point is recognised in Wilkes v Spooner by Vaughan Williams LJ at 483,
quoted by Patten LJ at paragraph [47(3)] above.
90.
Ignoring that exceptional case, the policy behind this principle is that otherwise the
title of the purchaser, having acquired for value without notice, would be capable of
being blighted by the later assertion of the breach of trust. The point is made in
Megarry & Wade, Law of Real Property, 7th edition, in the passage quoted by Patten
LJ at paragraph [45] above. Consistently with this, Mr Twigger relied on a number of
statements in the cases to the effect that, once the property is in the hands of a
purchaser for value without notice the equitable title of the beneficiaries is
extinguished: see Re Diplock [1948] Ch 465 at 539, interpreting Lord Parker’s speech
in Sinclair v Brougham [1914] AC 398, and Foskett v McKeown [2001] 1 AC 102 at
129 where Lord Millett said that a proprietary claim “is subject to the bona fide
purchaser for value defence which operates to clear the defendant’s title.”
Judgment Approved by the court for handing down.
91.
Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
The point is expressed rather graphically by Lionel Smith in The Law of Tracing
(1997) at page 386 as follows:
“The effect of the defence is to allow the defendant to hold its
legal proprietary rights unencumbered by the pre-existing
equitable proprietary rights. In other terms, when the defence
operates, the pre-existing equitable proprietary rights are
stripped away and lost in the transaction by which the
defendant acquires its legal proprietary rights.”
Later, at page 388, he wrote that the pre-existing equitable proprietary rights
“vanished at the moment the defendant acquired the asset”.
92.
Undoubtedly the giving of value would normally be determined, one way or the other,
as at the moment of acquisition of the legal title. That is because, normally, once
value has been given it is not taken away or given back. Transactions by which value
passes are not normally set aside at a later stage. However, there are circumstances in
which a transaction can be set aside, either to recognise that it was void from the start,
or if it is voidable for some reason and an aggrieved party with the necessary standing
chooses to avoid it. What we have to address on this appeal is the effect of the
avoidance of a relevant transaction, where the earlier subsistence of the transaction
was what enabled a recipient to show that value was given for the receipt.
93.
I am not aware of any case or text in which this point has been considered. It was not
addressed by any of the judges or writers cited at paragraphs [90] and [91] above.
Accordingly what they said cannot be regarded as decisive on the point. The relevant
passages do not deal with the case of the property being re-acquired by the original
fraudster. Equally, they do not deal with the case now under examination, where the
transaction by which value was given has since been set aside.
94.
In the present case, the situation is a little more complex than that of a contract or
other dealing between two parties. There had been an agreement between Mr and
Mrs Morris, but the making of the consent order was not (as it would have been in
some other areas of the court’s jurisdiction) purely contractual. It depended on the
court’s willingness to exercise its statutory jurisdiction under the Matrimonial Causes
Act 1973, as Patten LJ has explained at paragraph [34] and following paragraphs
above.
95.
Nevertheless, it seems to me that the analogy with a contract or other consensual
disposition, set aside as being voidable for misrepresentation or on some other
ground, is of some value in determining the effect of the setting aside of the consent
order.
96.
In principle it seems to me that there is much to be said for the proposition that, where
a defendant relies on the defence of having been a bona fide purchaser for value
without notice at the time of receipt, and for that purpose has to show that value was
given under a transaction, but by the time that the point is raised the relevant
transaction has been set aside, then it is no longer open to the defendant to deploy that
defence successfully or, at any rate, that the fact that the transaction has been set
aside, and the circumstances in which it was, are relevant to the enquiry as to whether
value was given for the transfer of the legal title. Otherwise, the question whether the
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Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
defence can be made good would have to be determined on a false basis, ignoring not
only the factor vitiating the original transaction but also the fact that the transaction
has been set aside on the ground of that factor, and the parties to that transaction
restored, so far as they can be, to their original positions, as if the transaction had
never taken place.
97.
Mr Twigger submitted that this is not so, and that if the defence was open to the
defendant immediately after the time of receipt, then subsequent changes, including
the setting aside of the relevant transaction, make no difference. He argued that this
should be so as a matter of policy in the interests of certainty. He postulated that, if
later events could be relevant to the issue of value, someone who had for years had a
valid title could suddenly find that his title had disappeared. By analogy he argued
that authorities concerned with what counts as value in the context of a purchase of
land all focus on the substance of the transaction by which title passed. That is no
doubt correct. However, the special case which we have to consider is also one in
which what is in issue is the transaction under which title was acquired, but in the
unusual situation in which that transaction has later been set aside.
98.
Mr Twigger put forward a different hypothetical factual example, namely a case
where money which (unknown to the seller) has been stolen is used to purchase shares
in a company which, a year later, becomes insolvent, so that the shares then turn out
to be worthless. It could not be suggested that, because of the later change in value,
the seller of the shares had not given value at the time of the transaction. There would
be nothing in those circumstances which could allow attention to be given to anything
other than the circumstances as they were at the time of the original transaction. That
case has nothing to do with the present issue. The same would be true if the contract
under which value passed was later discharged for the future upon acceptance by one
party of the other’s repudiation. That, too, would have only prospective effect and
could not falsify or undermine the proposition that value had been given at the start.
99.
The decision in Westdeutsche Landesbank, as to the absence of a proprietary remedy
where a transaction turned out to have been affected by one party’s lack of capacity to
enter into it, also featured in Mr Twigger’s submissions. The transaction was void,
but legal and beneficial title had passed under it despite the lack of capacity. I do not
find that a helpful analogy because in that case there was no doubt that, before the
transaction, each party had the entire legal and beneficial title to the assets which
passed from it under the transaction, and the entire title did pass. That was not so in
the present case.
100.
Mr Morris never had a legal title to the money which was paid to Mrs Morris.
Glencalvie Ltd had the legal title, until the money was paid to Mr Morris’ solicitors.
They held it for a very short period of time, and did so on behalf of Mr Morris as their
client.
101.
Because there had been no authorised disposition of the money under the trusts, the
beneficial interest of the beneficiaries under the pension fund trusts was unaffected
and could be asserted despite the subsequent dealings, unless and until the property
came into the hands of someone able to establish the defence of bona fide purchaser
for value without notice. Accordingly, neither Glencalvie Ltd nor Mr Morris had any
beneficial interest in the property. Glencalvie Ltd held the property as constructive
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trustee for the benefit of the original beneficiaries. The same would have been true of
Mr Morris if the money had ever been in his ownership at all.
102.
To avoid or mitigate the effect of this, Mr Twigger pointed out that in any case of a
voidable transaction liable to be rescinded, and even in case of a disposal in breach of
trust, the transfer of the property does have some effect unless and until it is
challenged. In a case such as the present there would be no likelihood that, once a
new trustee was in place, the assets dealt with in breach of trust would not be pursued,
as best they could be, into the hands of those who had dealt with them or received
them. That would not always be the case, even in a case of breach of trust. A dealing
with trust assets might be in breach of trust but nevertheless profitable, as in the case
of a successful though unauthorised investment, and the beneficiaries might choose to
ratify the trustee’s improper dealing and claim the benefit of the assets acquired,
which would be inconsistent with following the money used for their acquisition. (Of
course such following would only be possible, at all, if the seller had notice of the
breach of trust.)
103.
Support for Mr Twigger’s argument in this respect might be found in the judgment of
Potter LJ in the Court of Appeal in Twinsectra Ltd v Yardley quoted by Patten LJ at
paragraph [53] above, and in particular the proposition that, until rescission, in the
case of a transaction which is voidable for misrepresentation, the original owner has
no proprietary interest in the subject matter of the dealing, but has only a “mere
equity” consisting of his right to set aside the transaction. On that basis it could be
argued that even Glencalvie Ltd could pass some sort of a beneficial title to a
transferee, and a transferee who was a bona fide purchaser for value without notice
would acquire an indefeasible title as a result. In that sense, it might be argued that it
(and correspondingly Mr Morris) should be regarded as having had a beneficial title,
albeit subject to the prior equity of the beneficiaries to require them to account as
culpable recipients.
104.
The significant distinction between cases such as those under consideration in
Twinsectra v Yardley (and in Bristol and West Building Society v Mothew [1998] Ch
1, see Millett LJ at 22-23, to similar effect) and the present case is that in those cases
the transferor under the voidable transaction had the whole legal and beneficial title to
start with, just as the bank did in Westdeutsche Landesbank. It seems to me that it is
wrong, for present purposes, to draw an analogy from that type of case, where the
victim of the misrepresentation has a “mere equity” of rescission, to the case of
breach of trust. In the latter case the beneficiaries have more than a mere equity; they
still own their beneficial interests in the trust property unaffected by the disposition
made without authority under the trust. A trustee does not own the beneficial interest
in the property and cannot pass it to a transferee unless he does so by an act
authorised under the trust which overreaches the interest of the trust beneficiaries. I
note that the passage cited by Potter LJ from the fifteenth edition of Underhill
(paragraph (f) at page 372) is part of the treatment in that edition of the category of
constructive trusts arising from fraud or unconscionable conduct (article 35). It is
quite distinct from the treatment, in article 34, of constructive trusts imposed on
strangers holding trust property or its traceable proceeds. In the latest edition, the
eighteenth, the then article 34 has now become article 28, and the equivalent of the
then article 35 is article 30, but that does not include any text corresponding to that set
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Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
out (almost verbatim) by Potter LJ at the end of the passage quoted by Patten LJ
above.
105.
In a different area of the law, a person in possession of land, even though unlawfully
as against the true owner, has the right to exclude others and can pass the benefit of
his period of possession to an assignee, with a view to establishing a title by adverse
possession. In the same way, a person who holds under a title acquired in breach of
trust, even if not a bona fide purchaser for value without notice, has, in a sense, a kind
of a title which can be passed to others and which could, in practice, remain
undisturbed by any claim by a party entitled to complain of the breach of trust, even if
the title has not passed through someone who has the benefit of the status of bona fide
purchaser for value without notice.
106.
Nevertheless, it seems to me that the possibility of that occurring in practice does not
falsify the proposition that a transferee of the legal title to property under a disposition
made in breach of trust, or a successor in title to such a person, does not have the
beneficial title to the property, which remains held on the original trusts, unless either
the transferee, or a successor in title, was a bona fide purchaser for value without
notice. The trustee acting in breach of trust can transfer the legal title, but cannot vest
the beneficial interest in the property in a bona fide purchaser for value without
notice, since he does not own that title and is not acting in a way which enables him,
under the trust, to overreach the beneficiaries’ equitable interest. Despite that
inability, the availability of the bona fide purchaser defence means that a transaction
in favour of a bona fide purchaser for value without notice is as effective as it would
be if he could vest the beneficial title in the purchaser. Thereafter the purchaser can
deal with the asset free from any prior claim of the beneficiaries. That, however, does
not provide the answer to the question arising in the circumstances of the present case.
107.
The limit of the exceptional circumstances posed by the present case is that, if the
transaction under which value was given at the time of the acquisition of title has
subsequently been set aside, and if the adverse claim by the third party (here the
trustee on behalf of the original beneficiaries) is made after that has happened, then (if
the appellant is right) the question whether value has been given is to be addressed
with the benefit of knowing that the transaction has been set aside.
108.
In any given case, much may depend on the details of what has happened by way of
the rescission or setting aside of the transaction. I will turn to the details of the
present case in due course. But for the moment I address Mr Twigger’s submission
which was that, whatever the details may be, the rescission or setting aside is
irrelevant to the claim by the beneficiaries against the third party, here Mrs Morris.
Because she has once had the status of bona fide purchaser for value without notice,
he contended that she is thereafter immune from a claim against her, whatever may
have happened thereafter.
109.
It is not the present case, but his proposition would presumably apply even if the
conduct which led to the transaction being set aside was that of the recipient of the
legal title. Any misrepresentation or other conduct of the recipient which led to the
transaction being set aside at the instance of the party who had transferred the legal
title would, in itself, be entirely separate and distinct from the circumstances which
gave the beneficiaries a right to pursue the assets into the hands of their recipients. In
theory (I accept that it may not be at all likely to arise often in practice) an ancillary
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Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors
relief order might be set aside because the recipient had not complied with the duty of
full disclosure, for example if a wife had not disclosed funds received from a large
lottery win or an inheritance. If an order made in those circumstances were set aside
at the instance of the husband, and if it had in the meantime been satisfied by a
payment arranged by the husband but using money which he had obtained or procured
in breach of trust, it is hard to see why the value given by the wife in those
circumstances should be regarded as concluding the issue of recovery by the
beneficiaries of the trust for once and for all. The wife would not have committed any
wrong as against the beneficiaries, but her entitlement to use the bona fide purchaser
for value without notice defence would be difficult to maintain if the value had been
given under a transaction whose benefit she herself had obtained by misrepresentation
and non-disclosure, and which had been set aside on that ground.
110.
The present case is probably less unusual, in that the party whose non-disclosure
rendered the consent order liable to be set aside is also the party who (quite
separately) procured the breach of trust on the basis of which the beneficiaries’
equitable entitlement to the property subsists unless and until defeated by the bona
fide purchaser for value without notice defence. It is important to bear in mind the
distinction between the conduct which vitiated the transaction (the consent order) as
between Mr and Mrs Morris and the entirely separate wrongful conduct of Mr Morris
as against the beneficiaries of the pension fund trusts.
111.
It is up to the party to the transaction who has been adversely affected by the nondisclosure to decide whether or not to apply to have the order set aside. If it were a
case of a disposition under a normal contract (or otherwise for value) rather than
under a matrimonial consent order, it would be for the party aggrieved by the
misrepresentation or other vitiating factor to decide whether or not to rescind the
transaction and, as necessary, to have recourse to the court to give effect to his or her
rights accordingly. If, despite having discovered the misrepresentation, the aggrieved
party were to choose not to rescind, the situation would not change as regards the
availability of the bona fide purchaser for value without notice defence. It is only if
that party (here the respondent) chooses to have the transaction set aside, in the hope
(here) of getting a better outcome on a re-hearing, (and, in this type of case, if she
succeeds) that the question arises whether the defence is still available.
112.
In relation to the argument that to allow the setting aside of the transaction to be taken
into account might render titles precarious even after a long time, it is, of course,
possible that a breach of trust might come to light only after some considerable time,
so that the rights of the aggrieved beneficiaries might be asserted only after a good
deal of time had elapsed. That might, therefore, lead to a transferee’s title being
challenged after some years. However, if the transferee was innocent, in the sense of
having no notice of the breach of trust at the time of acquiring the legal title,
intervening dealings with the property before the time when notice was given would
not give rise to any claim against the transferee, except to any traceable proceeds of
the disposition, and any person who had in the meantime acquired legal title to any
part of the property for value without notice would himself be safe in his possession
because he himself would have the defence. In relation to any innocent transferee, the
procedures for following and tracing would be applied in a different and less stringent
manner as compared to those which would operate if the transferee is not innocent,
where there would be less reason to be sensitive in relation to that process.
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113.
As it seems to me, if the defence of bona fide purchaser for value without notice
depends, as regards value, on a transaction which has been set aside by the time the
defence falls to be raised, the fact of the setting aside should be capable of being
relevant to whether the defence can be made out. I do not accept Mr Twigger’s
argument that this involves imposing a trust on the recipient in circumstances in
which that cannot properly be done, for the reasons given at paragraphs [77] to [84]
above. Nor is he correct to speak of the equitable title to the beneficiaries in the
original trust being revived or re-vested. Rather, that title has continued to subsist in
the meantime and it is no longer capable of being defeated by the bona fide purchaser
defence, any more than it would be if the property were again in the hands of the
person guilty of the original breach of trust. Neither in principle nor in practice can I
see any sound reason for the court being required to shut its eyes to the fact that, by
the time the point arises, the transaction on which the recipient of the property
depends to show that he or she is a bona fide purchaser for value without notice has
been set aside, at the instance of whichever party, on grounds such as
misrepresentation, non-disclosure or any other such vitiating factor, so that it is to be
treated, as far as possible, as if it had never happened, or at any rate had never had any
legal effect.
114.
If, on the facts of the given case, the setting aside of the transaction does deprive the
holder of the assets of the defence of bona fide purchaser for value without notice,
then I accept that a claim such as that made by ITS in the present case would have a
different outcome according to whether it is asserted before or after the setting aside
of the transaction by which value was given for the acquisition of the legal title. I do
not see this as a valid objection to the principle that the setting aside of such a
transaction can be relevant. It is commonly the case that similar proceedings brought
at one time or at another may have different outcomes because of changes in
circumstances in the meantime. If the beneficiaries’ claim is asserted before the
transaction is set aside, presumably the recipient will not take any steps to have it set
aside, or at any rate the possibility of such a claim being successfully asserted will be
taken into account in deciding whether to seek to have it set aside. I assume that it is
relatively unlikely in practice that the other party to the transaction would seek to
have it set aside, but if there is a proper basis for that to happen, I would have less
sympathy with the position of the recipient, being at risk in this way as well.
115.
Of course there is a practical difference between rescission of a contractual
disposition on the one hand, and the setting aside of an order for ancillary relief as
here. In the former case the parties are likely to be restored to their position as it had
been before the contract, so with no contract in force as between them (unless they
had other prior contractual relations). In the latter the parties are left with the rights to
apply for ancillary relief against each other, those rights no longer being merged in
and taking effect under the court’s order. It would therefore be for one party or the
other to pursue an application for ancillary relief to a re-hearing, as happened in the
present case. The existence of (here) Mrs Morris’ right to a re-hearing and the
prospect, as it appeared to Moylan J, that she might well do a good deal better at that
stage, accounts for her not being required to repay the benefit already received, or any
part of it, whereas restitution of benefits under a contract would be required on both
sides as a consequence of rescission.
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116.
The fact that Mrs Morris was left in possession of the sum already received pending
the re-hearing of her application is of course a relevant factor in the present case. It
does not seem to me that, of itself, it shows that she was still a bona fide purchaser for
value without notice, when she had taken back the value given, by succeeding in her
application to set aside the consent order. That brings me on to the circumstances of
the present case, and to the question of the relevance, if any, of the setting aside of DJ
Black’s order. For that purpose it is necessary to bear in mind the terms of the orders
made.
117.
The original consent order made by DJ Black provided, so far as relevant, that
Mr Morris must (1) transfer to Mrs Morris all his interest in the matrimonial home
(known as Park House), (2) pay her £1,200,000 in two instalments by given dates in
2007, (3) (by virtue of an undertaking) pay off a mortgage and a charge secured on
Park House, (4) pay periodical payments to her and (5) pay the school fees of the
children. He transferred his interest in Park House in accordance with the first
paragraph of the order. Mrs Morris later sold that property. The £1.48 million
covered the £1.2 million lump sum, and sums overdue in respect of the other
liabilities (including paying off the sums secured on Park House).
118.
The order of Moylan J on 28 April 2009 was expressed to set aside DJ Black’s order
“save to the extent that the provision therein for periodical payments of maintenance
do remain in force on an interim basis until the final hearing”.
119.
On the substantive re-hearing of Mrs Morris’ application before Holman J in January
2010, he ordered Mr Morris to pay her a lump sum of £6 million, and ordered that
until such payment the provision for payment of maintenance and school fees in DJ
Black’s order should continue in force, and that arrears under those provisions should
be paid forthwith. On payment in full of the sums due under those provisions (which,
of course, has not happened and will not happen), the order for payment of
maintenance in DJ Black’s order was to be discharged.
120.
No reference was made in the orders subsequent to that of DJ Black to Park House,
which had been vested in Mrs Morris alone and sold by the time of the later orders. It
must have been taken for granted that this was past history and that its fate was not in
issue. Although DJ Black’s order had been set aside, therefore, apparently in full
(leaving aside the maintenance payments), it should not be regarded as having been
set aside as regards the order in paragraph 1 as regards Park House. As for the
maintenance payments, I agree with Patten LJ, at paragraph [40] above, that Moylan J
is to be understood as having set aside the whole of DJ Black’s order, but as having
made a fresh order for maintenance payments, on an interim basis (as was made
explicit), pending the re-hearing, which was to include the hearing of Mrs Morris’
application to vary the maintenance payments. Therefore, although Holman J’s order
referred expressly to paragraph 3 of DJ Black’s order, it seems to me that it is to be
taken as referring, in reality, to the interim reinstatement of that obligation by Moylan
J’s order.
121.
Mrs Morris relies strongly on the fact that Moylan J’s order left her in undisturbed
possession of the money which had been paid to her by then. As Peter Smith J said at
his paragraph 45, that was not in any way surprising. Unless something quite
unforeseen had arisen, Mrs Morris was going to be better off after the re-hearing than
under the previous order. Whatever she had received would be taken into account on
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the re-hearing, and in the ordinary way what had already been paid would be taken as
having been paid on account of the eventual liability.
122.
That it was not so treated was the result of the intervention of ITS with its claim in the
Chancery Division, and the order of Holman J dated 13 January 2010 under which,
first, the £1.48 million was left out of account as between Mr and Mrs Morris,
pending the trial of ITS’ claim, and secondly if (as happened) ITS was able to make
good its proprietary claim to that money, then it was not to be treated as part of
Mr Morris’ financial resources nor could Mr Morris take credit for its payment to her.
123.
That order also provided for each of ITS and Mrs Morris to be entitled to apply to the
court to determine which of them was beneficially entitled to that payment, so the fact
of that order having been made is to be taken as without prejudice to each party’s
contentions against the other.
124.
In the light of what I have described, it seems to me that the effect of Moylan J’s
order was (1) to leave in place the order as regards the transfer of Park House (which
had happened) but (2) to set aside all other aspects of the consent order dated 11
February 2007, (3) to impose on Mr Morris an obligation to continue the maintenance
payments (money and school fees) as had been ordered by DJ Black, but now on an
interim basis which might be altered in the end, and (4) to direct a re-hearing of
Mrs Morris’ ancillary relief application as well as a hearing of her application to vary
the maintenance payments. What order she would end up with by way of ancillary
relief remained to be determined at the re-hearing. In all probability it would be
larger than the amount originally ordered, but events might intervene to alter that
position. To take only two examples, Mr Morris might have died in the meantime or
have become bankrupt. Mrs Morris took the risk of either of those events, or of any
other factor which might affect the outcome of her application.
125.
Hill v Haines shows that, if Mr Morris had become bankrupt in the meantime then
(ignoring for the present the claim by ITS) his trustee in bankruptcy would have had a
claim to recover funds from Mrs Morris which she would have had to have sought to
meet by the renewal of her application, as Patten LJ says at paragraph [42] above. If
he had died, then she may have had another remedy under the Inheritance (Provision
for Family and Dependants) Act 1975. However, either way, the position would have
been at large and it could not necessarily be assumed that she would have been able to
retain all that she had received under the order which by then had been set aside.
Therefore, while it was unlikely that her possession of that which had been paid over
to her would be disturbed as a result of the setting aside of the order and the eventual
re-hearing, it was not impossible. Nothing in the sequence of orders that I have
recited, after that of DJ Black, was conclusive in any respect at all as to that eventual
outcome. It gave her no independent right to retain the money already received as
against Mr Morris or anyone claiming under him, such as a trustee in bankruptcy or
personal representatives, even though it did not require her to part with it at that time.
I agree with what Patten LJ says on this at paragraphs [58] to [60] above. I also agree
with him that the position as between Mr and Mrs Morris, with which he deals at
paragraphs [43] and [44], is irrelevant to the issue as between ITS and Mrs Morris.
126.
In those circumstances, it seems to me that the setting aside of DJ Black’s order was
relevant both in principle and in practice to the position as between Mrs Morris and
ITS thereafter. Before the order of Moylan J she was able to assert and establish that
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she was a bona fide purchaser for value without notice. Afterwards she could not do
so, because the transaction under which she had given value had been set aside and
was of no effect; as between her and the other party, Mr Morris, it was as if it had not
happened.
127.
If she had not had notice until after the re-hearing, then it seems to me likely that she
would have been able to rely on the defence again, assuming that the order then made
entitled her to retain the money already paid. In establishing her right to retain that
sum, no doubt on account of a higher sum awarded to her, the court would have
decided what her rights were and her retention of the money would have stood in the
same position as if Mr Morris had then and there paid it over to her under the new
order. To have become aware of the breach of trust after that time would not have
affected her position as having given value at that time, without notice of the breach
of trust.
128.
However, because Mrs Morris acquired notice of the breach of trust affecting the
£1.48 million and the beneficiaries’ claim on that basis, asserted by ITS, at a time
when her beneficial retention of the money was not justified by any order of the court,
and the order under which she had received it had been set aside, it seems to me that it
is not now open to her to make good the defence that she was a bona fide purchaser
for value without notice to ITS’ claim.
129.
For the reasons set out above, I agree with Patten LJ that the appeal should be
allowed. As he says, issues remain to be considered as to what effect this has on
Mrs Morris’ position, having regard to what she had done with the money received
before the date on which she first had notice of ITS’ claim. Whatever that date may
be, it seems to me that she is only accountable for any part of the £1.48 million which
was in her hands at that time, and for the traceable proceeds then in her hands of any
of that money which she had disposed of in the meantime. That being so, I agree with
Patten LJ that this court should declare the position accordingly, and should remit the
case to the Chancery Division so that the further investigation can be made which is
necessary for a final determination as to what Mrs Morris must pay to ITS. I also
agree that, in the meantime, the interim order should be made which he mentions in
paragraph [69].