Al Khudairi & Anor v Abbey Brokers Ltd & Ors [2010] EWHC 1486 (Ch)

Case No HC09C00434[2010] EWHC 1486 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 22/06/2010
Before
MR JUSTICE NEWEY
Between
ABDUL SATTAR MUHI AL KHUDAIRIClaimantsFATHIA DAWOOD SALMANClaimantABBEY BROKERS LIMITEDDefendantsRIENZE ALBERT JOSEPH ASOKA SILVADefendantWHARFLAND LIMITEDDefendantHUGO R S DE MELDefendant
Mr Hugh Norbury (instructed by Russell-Cooke LLP) for ClaimantsThe First and Third Defendants were represented by the Second Defendant, a director.The Second and Fourth Defendants appeared in person. for in personHearing Hearing dates: 5-7 and 10-14 May 2010
Judgment
[1]This case concerns sums which the Claimants borrowed in 2002 and 2007 on the security of a property they own at 40 Hogarth Road, London SW5 (“40 Hogarth Road”). It is the Claimants’ case that £150,000 of the 2002 loan was paid to the Third Defendant, Wharfland Limited (“Wharfland”), and that Wharfland has failed to account satisfactorily for some of that money. The Claimants’ larger claims arise out of the 2007 loan, of £1,495,000. £1,348,546.86 of this (i.e. £1,495,000 less certain costs and the amount needed to redeem the 2002 mortgage) was paid into an account in the name of the Fourth Defendant, Mr Hugo De Mel (“Mr De Mel”), and then disbursed in accordance with instructions given by the Second Defendant, Mr Joe Silva (“Mr Silva”). The Claimants allege that the First Defendant, Abbey Brokers Limited (“Abbey”), which (they say) advised and acted for them, is liable to them for the £1,348,546.86 (plus interest). They further allege that they are entitled to recover against Mr Silva both for dishonestly assisting Abbey to breach its fiduciary duties and for deceit. Mr De Mel is also said to be liable for dishonest assistance.[2]A central issue, as was recognised by all the parties, is as to the basis on which the £1,348,546.86 was paid into the account held by Mr De Mel (“the De Mel Account”).[3]The dispute has clearly caused a serious rift within the Claimants’ family. The Second Claimant spoke of the family having been “shattered because of this matter”, primarily because of the part played in relevant events and the present proceedings by Dr Mohamed Sunba (“Dr Sunba”), who is married to the Claimants’ eldest daughter.

The Claimants

[4]The First and Second Claimants are husband and wife. They are both Iraqi nationals, but they have been living in the United Kingdom since the early 1990s and attained British residency in 1996. The First Claimant, Mr Abdul Sattar Al Khudairi (“Mr Al Khudairi”), is now aged 80, and the Second Claimant, to whom I shall refer as “Mrs Al Khudairi” although she is named in the Claim Form as, and also called, “Fathia Dawood Salman”, is 76 years of age.[5]Neither Mr nor Mrs Al Khudairi speaks very much English. Mr Silva was inclined to suggest that Mr Al Khudairi speaks reasonable English, and Dr Sunba asserted that Mr Al Khudairi understands English perfectly. However, I am satisfied that even Mr Al Khudairi’s spoken English is poor. I also accept that Mr and Mrs Al Khudairi do not write or read in English.[6]Mr Al Khudairi was evidently a successful businessman in Iraq. He owned a large electrical shop in Baghdad and was part owner of a plant which manufactured powdered drinks. He was, he said, able to make sufficient money to live a good life in Iraq.[7]Mr and Mrs Al Khudairi have three daughters and a son. Their son and one of their daughters live in Jordan and Syria respectively. Their other daughters live in this country. It is the older of these, Shatha, who is married to Dr Sunba. The other, Reem (“Mrs Alkhedairy”), is married to Mr Saad Alkhedairy (“Mr Alkhedairy”).[8]The Claimants were represented by Mr Hugh Norbury.

The Defendants

[9]Abbey, the First Defendant, was incorporated in 2004 and carries on business as a mortgage and insurance broker from premises in Croydon. Mr Silva, the Second Defendant, is a director and shareholder of the company, and the other directors and shareholders appear to be members of his family. Mr Silva said that he was the only director taking an active role in the company.[10]Wharfland, the Third Defendant, which was incorporated in 1978, is, in effect, a predecessor of Abbey. Like Abbey, it traded as “Abbey Brokers” from an address in Croydon and, as with Abbey, the directors and shareholders comprised Mr Silva and other members of his family.[11]The successive “Abbey Brokers” businesses have been subject to regulation. Abbey is now regulated by the Financial Services Authority. Before the Financial Services Authority became responsible for the regulation of “Abbey Brokers”, the business was regulated by another body.[12]Mr De Mel, the Fourth Defendant, has worked for “Abbey Brokers” (whether Wharfland or, more recently, Abbey) as office manager since 1993. Before that, he had worked for more than 20 years for National Westminster Bank, latterly in the lending section. He has known Mr Silva since childhood. The two were at school together in Sri Lanka, and they have remained close friends.[13]The Al Khudairis were introduced to Mr Silva by Dr Sunba, who himself first met Mr Silva in the early 1980s. Mr Silva and Dr Sunba clearly know each other well, and they went on holiday to Sri Lanka together in July 2008. They differed somewhat in the evidence they gave about their business dealings. Mr Silva said in cross-examination that Dr Sunba had introduced various clients to him over the years (“maybe about two or three a year”), though he said that Dr Sunba was never paid for the introductions. He said, too, that Dr Sunba had helped him with the refurbishment of some premises in Fulham (for which he had been paid) and that Dr Sunba had wanted to come into partnership in relation to that property. Mr Silva also said that Dr Sunba had wanted to provide foreign exchange services at the premises and had “introduced a lady to come and do that counter”, although he (Dr Sunba) closed that down after a couple of months. In contrast, Dr Sunba said that he never wanted to go into partnership with Mr Silva and that he was not paid for the services he provided at the Fulham premises. He also said that a foreign exchange trading business was “just a talk” and that he “never did it in my life”. He further said that he had introduced only about one person a year to Mr Silva. In my judgment, however, Mr Silva is unlikely to have overstated the links between himself and Dr Sunba. I therefore consider that Dr Sunba probably introduced more clients to Mr Silva than he (Dr Sunba) was prepared to admit, was paid for work at the premises in Fulham, wanted to enter into a partnership in relation to that property and took steps to provide foreign exchange services there.[14]Although formerly represented by solicitors, Mr Silva and Mr De Mel each appeared in person at the trial, and Mr Silva also represented Abbey and Wharfland. However, the Defendants’ Defences were drafted by counsel.

Witnesses

[15]The Claimants’ witnesses comprised Mr and Mrs Al Khudairi themselves, Mr and Mrs Alkhedairy and Mr Barrie Grossman.[16]Mr Grossman is a chartered accountant and a consultant with the Claimants’ solicitors. His evidence essentially involved an explanation of a spreadsheet which he had prepared. He was not cross-examined.[17]Both the Defendants and Dr Sunba attacked Mr Alkhedairy in strong terms. Mr Silva spoke of Mr Alkhedairy exploiting “an opportunity to eclipse Dr Sunba” and “to expand his own property empire”, Mr De Mel of Mr Alkhedairy’s “insane jealousy and hatred for Dr Sunba”. I can see no basis for these accusations. Mr Alkhedairy struck me as a careful, measured and reliable witness.[18]The other witness whom Mr Silva and Mr De Mel cross-examined at some length was Mr Al Khudairi. My impression was that Mr Al Khudairi’s recollection of events was less clear than Mr Alkhedairy’s, and I am not well-placed to judge the accuracy of his evidence about, for example, the circumstances in which he and his wife omitted to pay any United Kingdom tax for some years. However, I accept that Mr Al Khudairi gave a truthful account of the events with which I am essentially concerned.[19]There was no sustained cross-examination of either Mrs Al Khudairi or Mrs Alkhedairy.[20]As regards the Defendants’ witnesses, Mr Silva and Mr De Mel each gave evidence, as did Dr Sunba. Dr Sunba attended pursuant to a witness summons; he had earlier sworn at least one affidavit and made at least one witness statement.[21]I was not impressed by the evidence of Mr Silva or Dr Sunba. I do not consider that either was a reliable or truthful witness.[22]I shall come back to Mr De Mel’s evidence later in this judgment (see paragraphs 141 and 142).[23]Mr and Mrs Al Khudairi bought 40 Hogarth Road in 1986. The property was purchased as an investment and let out.[24]Mr Al Khudairi said that he and his wife authorised Dr Sunba to manage the property on their behalf, although from about 2001 management was undertaken by both Dr Sunba and Mr Al Khudairi. More generally, Mr Al Khudairi said that, until he and his wife moved to England in the early 1990s, Dr Sunba and his wife managed their affairs in the United Kingdom using powers of attorney. Mr Al Khudairi described Dr Sunba as his agent and “in charge”, and he said that he “was relying entirely on [Dr Sunba]”.[25]For his part, Dr Sunba was insistent that he was not in charge of managing 40 Hogarth Road and said that he could not remember ever having held a power of attorney for the Al Khudairis. On the other hand, he also said:
“After 33 years of absolute slavery, they used me very well, to the bone.”
Further, Mr and Mrs Al Khudairi produced during the trial copies of powers of attorney which they had given to Dr Sunba and his wife in 1986.[26]Here, as elsewhere, I prefer Mr and Mrs Al Khudairis’ evidence. I therefore find that the Al Khudairis relied substantially on Dr Sunba and, more specifically, that Dr Sunba was responsible for the management of 40 Hogarth Road, albeit with the assistance of letting agents and, from about 2001, jointly with Mr Al Khudairi himself.

The 2002 mortgage

[27]In June 2002 Mr and Mrs Al Khudairi borrowed some £150,000 from GE Money Home Lending with a view to renovating 40 Hogarth Road. The net advance (of £181,500) was initially deposited in an account which Mr and Mrs Al Khudairi held with Lloyds Bank, but sums totalling £150,000 were transferred on. According to Mr Al Khudairi:
“This £150,000 money was for the purposes of the renovation works but Mr Silva (through Wharfland, we understood) would hold it for us from the outset.”
[28]Mr Silva suggested in cross-examination that the £150,000 was deposited in an account in his own name. Regardless of whether he was correct about that, the money is, in my view, properly regarded as having been paid to Wharfland. Not only was Mr Al Khudairi’s evidence to the effect that he understood himself to be dealing with “Abbey Brokers” (which, at the time, would have meant, Wharfland), but Mr Silva substantially accepted in cross-examination that the money was transferred to “Abbey Brokers” (referring to the £150,000 having been “tucked into Abbey Brokers account”). Moreover, Dr Sunba spoke of money having been left with “Abbey Brokers”.[29]At some stage, Mr and Mrs Al Khudairi were supplied with a statement of account covering the period from June 2002 to August 2003. This records the receipt of the £150,000. It also includes a number of entries in respect of interest and some transfers to Lloyds Bank. The outstanding balance as at 4 August 2003 is given as £56,009.03.[30]Mr Al Khudairi said that he asked Mr Silva to return what was left of the £150,000 when he saw him at the wedding of one of Dr Sunba’s daughters in 2005. Mrs Al Khudairi gave evidence to similar effect. Mr Silva denied the incident, but I prefer Mr and Mrs Al Khudairi’s evidence.[31]In July and August of 2008, Abbey Brokers sent Mr and Mrs Al Khudhairi further statements, for the period between 4 August 2003 and 31 December 2007. These list additional deductions as a result of which there is shown to be no outstanding balance by the end of 2007.[32]By October 2008, however, the Al Khudairis had queried certain deductions. In an email of 3 October, Mr Alkhedairy asked Mr Silva to explain items totalling £26,272. The deductions were also referred to during the meeting of 10 October to which reference is made below (see paragraph 58). An email sent in Mr Al Khudairi’s name on 20 October from Mr Alkhedairy’s email address asked that Mr Silva:
“Return the following amounts wrongly debited from my account during 2004, 2005, and 2007 by the end of the week…. Date Description Value Comment 1. 1st Jan 2004 Account Certificate £216-54 Please clarify 2. 31st Dec 2004 Transfer Lloyds £5886 No money was received 3. 31st Dec 2004 Transfer Lloyds £5886 No money was received 4. 15 Jun 2005 Transfer Lloyds £6000 No money was received 5. 21st May 2007 Account fees £8500 Please clarify On 21 October, Mr Alkhedairy noted in an email to Mr Silva that the latter had confirmed in a telephone conversation that morning that the “bank in Jersey is investigating the disputed sums deducted in 2004, 2005, and 2007 and will send their report in the coming few days”
. On 10 November, Mr Alkhedairy chased Mr Silva for the “report about the missing funds”. On 16 December, Mr Silva informed Mr Alkhedairy in an email:
“Incidentally, we have now received details of the debits raised, which I shall pass over on Monday.”
The meeting which had been planned for the next Monday (22 December) not in the event having taken place, and no details of the debits having yet been supplied, Mr Alkhedairy told Mr Silva in an email dated 5 January 2009 that he was to remit, among other things, “the £27 K odd that was illegally deducted from the 2003 account immediately”. In a letter which the Al Khudairis received soon afterwards (although dated 24 December 2008), Mr Silva said:
“We have received the detailed information regarding the charges to the account, which we will pass on to you when we meet.”
[33]In cross-examination, Mr Silva said that he did not think that there was discussion at the 10 October 2008 meeting of the money from the 2002 mortgage, that he thought that the reference to “investigating the disputed sums” related to the 2007 mortgage, and that he could not remember which debits he had intended to “pass over on Monday”. On each of these points, however, I reject Mr Silva’s evidence.[34]In any event, no payment has ever been made in respect of the queried deductions. Neither has Mr Silva (or Wharfland) given the Al Khudairis any further information about the deductions. In cross-examination, Mr Silva said that he could not accept or deny that the £56,000 odd was retained because he had “no recollection of this at this moment in time”.[35]Aside from the £26,272 deductions, the statements of account feature two transfers of £20,000 each, dated respectively 28 September and 30 October 2007. I shall return to these transfers below (see paragraphs 74, 113 and 144).

The 2007 mortgage

[36]In 2007, Mr and Mrs Al Khudairi obtained a loan of £1,495,000 from Northern Rock plc (“Northern Rock”) on the security of 40 Hogarth Road.[37]Mr and Mrs Al Khudairi gave evidence to the effect that they wanted to put the flats at 40 Hogarth Road into the names of their children, with each daughter receiving one flat and their son two, and that the £1,495,000 was borrowed with a view to achieving this objective. Mr Al Khudairi explained as follows in his witness statement:
“Dr Sunba told us that Mr Silva had a way of effecting the transfer of the 5 flats to minimise the likely tax payable on any transfers. Mr Silva advised us through Dr Sunba that we would have to borrow only about £300,000 in total and that each flat would be transferred one at a time. We understood that this would be a tax efficient way of transferring the flats to our children. The scheme was explained to us as follows: (i) We should obtain a mortgage in the sum of £300,000 to £400,000 for the first flat. This sum would be held by Abbey and used to show that the first child was buying the flat from us, then it would be used similarly for the other flats. (ii) We should register the flats one at a time. (iii) This would take 3 to 4 months for each flat. (iv) The interest payments we would receive from Abbey on the funds drawn down would equal or exceed the interest payments we had to make under the mortgage. We were subsequently asked by Dr Sunba if we in fact wanted to accelerate the process and complete all 5 flats together. He explained to us that we would then need to get a mortgage of approximately £1.5m to be held by Abbey. We agreed to this hoping to finalise the transfer in the shortest possible time. I still do not know precisely what was proposed but I assumed at the time that it was all entirely legitimate.”
[38]Mr Silva’s version of events is very different. His case is in essence that it was agreed that he should be entitled to use the net advance from Northern Rock as he wished for at least five years. He also maintains that the Al Khudairis were dealing with him personally rather than with Abbey.[39]I return to the conflicts between the parties on these points later in this judgment. The linked questions of why the £1,495,000 was borrowed from Northern Rock and the basis on which the net advance was paid into the De Mel Account are addressed in paragraphs 88-105, and the issue of whether the Al Khudairis were dealing with Abbey or Mr Silva personally is considered in paragraphs 106-111.[40]On 23 March 2007, Abbey sent Barrington Charles Edwards & Co, a firm of solicitors often used by Abbey, a letter authorising them to act on behalf of Mr and Mrs Al Khudairi in connection with the Northern Rock loan. The letter, which was signed by Mr and Mrs Al Khudairi, concluded as follows:
“Please forward a cheque for 2% of the mortgage advance to Abbey Brokers Ltd … on completion in respect of the brokerage fee and we shall let you have instructions for dispersal of the net proceeds through Abbey Brokers Ltd nearer completion.”
[41]A letter dated 9 May 2007 from Mr and Mrs Al Khudairi to Barrington Charles Edwards & Co stated as follows:
“We would like to have an initial draw down of £550,000.00 … immediately on completion and the balance in two or three equal instalments, which we would authorise Abbey Brokers Limited … to deal with, which would be in line with our proposed property purchase programme …. Please note that it is essential to complete this matter before Friday 11th May 2007 as we have already gone passed the dates to complete other associated business as this matter was due to conclude by 4th May 2007.”
[42]Although this letter was signed by Mr and Mrs Al Khudairi, there can be no question of it having been drafted by them. Mr Silva said that there was a 50% chance that he dictated the letter and a 50% chance that it was prepared by someone else, but he was unable to identify anyone else who realistically could have drafted the letter. In my judgment, it was clearly drafted by Mr Silva.[43]It was put to Mr Silva in cross-examination that he was pressing for urgent completion because he was running out of money. He rejected this suggestion, but I come back to the point later in this judgment (see paragraph 126(iii)).[44]Mr Al Khudairi said in his witness statement that in April/May 2007 Dr Sunba’s wife (his eldest daughter) brought him and his wife some documents which they were told were to register the first flat at 40 Hogarth Road in her name and that, as asked, they signed the documents and put them in an envelope addressed to Mr Silva at Abbey. Mrs Al Khudairi speaks in her witness statement of this incident having happened “in around September or October 2007”, but I think the likelihood is that it in fact occurred shortly before completion and that the documents in question related to the Northern Rock mortgage. It is difficult to see what documents could have been signed by the Al Khudairis later in the year.[45]The transaction was completed on 16 May 2007 when Northern Rock was granted a legal charge over 40 Hogarth Road and £550,000 was drawn down. £111,321.95 of the £550,000 was paid to GE Money to redeem the 2002 mortgage. A further £32,000 was paid to Abbey in respect of its brokerage fee, and certain other costs were also deducted. The balance of the £550,000, amounting to £404,134.36, was transferred by Barrington Charles Edwards & Co to the De Mel Account, which was opened and operated for the benefit of Mr Silva.[46]It can be seen from a ledger that Mr De Mel kept in respect of the De Mel Account that most of the £404,134.36 was disbursed very quickly. According to the ledger, the account was overdrawn to the extent of £1,525.16 before the £404,134.36 was credited to it on 17 May 2007. A payment of £18,756.33 was made that same day. On the next day, 18 May, there were withdrawals totalling more than £136,000. By 2 June, the balance on the account had fallen to £21,454.78.[47]In cross-examination, Mr Silva accepted that he had all but spent the £404,134.36 within three weeks of receiving it. He said that the various payments were made in respect of debts he owed. As regards the position he would have been in without the £404,134.36, he said:
“I would have paid those debts, yes, certainly I would have. But it would not have been paid in that time, it might have been a bit later ….”
[48]The remainder of the loan from Northern Rock was drawn down in five tranches. £250,000 was drawn down on 5 June 2007, £125,000 on 9 August, £125,000 on 25 September, £250,000 on 23 October and £195,000 on 2 November. On each occasion, the money (less costs) was transferred by Barrington Charles Edwards & Co to the De Mel Account. (The precise sums credited were £249,882.50, £124,882.50, £124,882.50, £249,882.50 and £194,882.50, so that, in total, £1,348,546.86 was credited to the De Mel Account.) Mr Silva accepted in cross-examination that he drew down funds when he needed them and, more specifically, that he had to make the £250,000 draw-down in June 2007 so that he could repay creditors.[49]Barrington Charles Edwards & Co attendance notes exist for all these draw-downs. By way of example, an attendance note dated 21 September 2007 reads as follows:
“Attending receiving telephone call from Abbey Brokers Limited … when I spoke to Joe Silva. He informed me that our clients wanted me to withdraw a further £125,000 from Northern Rock secured against 40 Hogarth Road, Earls Court. I said that I would ask for funds. Joe Silva informed me that he wanted the money to be sent to the account of H R S D’Mel with Abbey National plc.”
As regards the 9 August draw-down, Barrington Charles Edwards & Co’s instructions were confirmed in a fax dated 8 August which was signed “For and on behalf of Abbey Brokers Limited” and sent on paper headed “Abbey Brokers Limited” and giving Abbey’s details.[50]The first payment to Northern Rock in respect of interest, of £3,083.01, was made on 15 June 2007. The monthly interest payments increased as more money was drawn down, rising to a peak of £9,086.01 in December 2007. The payments fell back somewhat as interest rates declined.[51]In the autumn of 2007, 40 Hogarth Road was discussed at a meeting attended by Mr and Mrs Al Khudairi, Dr and Mrs Sunba and Mr and Mrs Alkhedairy. It was on this occasion, I think, that, as Mr Alkhedairy remembered events, Dr Sunba said that he was tired of asking Mr Silva what had happened to the transfer of the flats. Following this meeting, Mr Alkehdairy contacted Mr Silva and asked him for a receipt for the money and about his instructions.[52]That led to Mr Silva sending a letter to Mr and Mrs Al Khudairi dated 28 December 2007 in the following terms:
“… Our instructions are the subject property was purchased several years ago and it is your wish to transfer same in favour of your family. The purchase consideration has been set at £1,495,000.00 … and it is your intention to mitigate capital transfer taxes and other tax liability wherever possible. The mortgage facility of £1,495,000.00 would be shown as part payment for the respective transfers and the interest on the deposit is being transferred to your joint current account at Lloyds TSB … periodically until this transaction has been completed. You will note the sum of £40,000.00 … has already been credited on account of drawings this would enable you to service the mortgage facility outside your own resources. Despite being quite a complicated transaction in view of your personal circumstances we shall extend every assistance to bring this matter to a satisfactory conclusion at the earliest opportunity.”
[53]When giving oral evidence about this letter, Mr Silva explained that the idea was that the children would buy the flats at 40 Hogarth Road for a total of £1,495,000 using the money their parents had borrowed from Northern Rock on the basis that the Al Khudairis were giving this money to their children.[54]On 10 March 2008, a Mr Joe Hills of Northern Rock sent Mr Silva an email in which, after referring to a telephone conversation, he said that he had been “told there are two ways we could approach this”. The first was for “the clients simply [to] add the daughter to the title”, in which case Northern Rock would “require a new legal charge”. Mr Hills summarised the second option as follows:
“If add the daughter to the title and the loan, we would need a ‘TR1 form’ from solicitors, a net worth statement, personal details … and … probably ID too”
[55]Mr Silva said in evidence that he had started exploring how a transfer could be effected “when we got the request for the transfer”. He said that the telephone conversation mentioned in Mr Hills’ email could have been “a matter of weeks” before the email was sent.[56]Mr Silva was asked in cross-examination where the money would have come from given that the sums paid into the De Mel Account had already been spent. He said:
“they were talking about over a long period of time, so then we could find the money and then pay it into the payments.”
He gave no real explanation of how he could have found the money.[57]By the autumn of 2008, Mr Alkhedairy was asking Mr Silva for interest payments and for a meeting. On 3 October, Mr Alkhedairy sent Mr Silva an email in which, among other things, he said that he and his parents-in-law were “somewhat perturbed” that Mr Silva had “not kept [his] promise to arrange a meeting as agreed 3 weeks ago”. Within a few minutes, Mr Hills’ email of 10 March was forwarded to Barrington Charles Edwards & Co on Mr Silva’s instructions. Later that day, Mr Silva rang Barrington Charles Edwards & Co, and there was discussion of the two approaches outlined in Mr Hills’ email. Barrington Charles Edwards & Co’s attendance note in respect of the conversation includes this passage:
“Joe Silva informed me that it is intended that father and mother will transfer the property at 40 Hogarth Road … from their joint names and will also add their daughter Mrs Shatha Abdul Sattar Al-Khudairi … subject to the existing Northern Rock Plc mortgage.”
[58]On 10 October 2008, Mr Silva attended a meeting with Mr and Mrs Al Khudairi and Mr Alkhedairy. Mr Alkhedairy said in evidence, and I accept, that Mr Silva explained that his scheme was for each of the children to be added to the deeds of 40 Hogarth Road and then to make it look as though they were buying the flats. Mr Alkhedairy also gave evidence to the effect that Mr Silva said at the meeting that the net advance from Northern Rock was in an offshore consolidated account in Abbey’s name and that it was a 90-day notice account. Likewise, Mr Al Khudairi spoke of Mr Silva having said that “the money will be overseas for 90 days and it will be back”, and Mrs Al Khudairi related that Mr Silva said that the funds were held in an offshore consolidated account in the name of Abbey on a 90-day deposit. For his part, Mr Silva accepted that he told the Al Khudairis that they could not have their money back straightaway, but said that he could not recollect “with any degree of accuracy” whether he mentioned that the money was held in a 90-day consolidated account in Jersey. I accept the evidence given by Mr and Mrs Al Khudairi and Mr Alkhedairy, especially as it is consistent with the contemporary correspondence (see below).[59]Following the meeting on 10 October 2008, Mr and Mrs Al Khudairi decided not to proceed with any transfer of 40 Hogarth Road. On 13 October, Mr Alkhedairy sent Mr Silva an email in which he said:
“… It appears that [Mr and Mrs Al Khudairi] had a different understanding of the procedures to that explained by you on Friday, and decided to call the whole matter off. Please let me know when you give the 90 days notice to return the £1.5M to the lender.”
Mr Alkhedairy attached to his email a letter dated 12 October which he explained that his parents-in-law had asked him to draft. This read as follows:
“Following your visit to our house last Friday (Oct 10th) and the discussions we had about 40 Hogarth Road, I regret to inform you that my wife and I have decided not to proceed with the transfer/registration of this property. This decision was taken based on the following considerations: • At the time of our initial contacts, we were led to believe that the matter would take a few months at best, and would involve borrowing about £500,000 only. The sum borrowed far exceeded this amount (about £1.5M), and it has been 18 months since the monies were withdrawn. This has caused us considerable hardship in trying to pay the monthly interest charges, despite our repeated and unsuccessful calls for you to release the interest on the £1.5M in a timely manner over the past 12 months. • The method of transfer was only explained properly to us in last Friday’s meeting. We cannot agree to this method since any obstacles that may arise in the future will leave only one or two of our children in possession of large stakes in the property. This was never our intention. • We could not obtain a convincing explanation as to why it has taken so long to make such little progress, despite the positive messages over the past 18 months. In October last year, you informed our son-in-law Saad that the first flat will be registered in Shatha’s name in March 2008, and then the other flats in our other children’s names to follow every three months thereafter. We appreciate the efforts you have exerted but must now ask you to give the 90 days notice immediately to release the £1.5M and return it to the lender. The lender is to have the money by the middle of January 2009.” • At the time of our initial contacts, we were led to believe that the matter would take a few months at best, and would involve borrowing about £500,000 only. The sum borrowed far exceeded this amount (about £1.5M), and it has been 18 months since the monies were withdrawn. This has caused us considerable hardship in trying to pay the monthly interest charges, despite our repeated and unsuccessful calls for you to release the interest on the £1.5M in a timely manner over the past 12 months. • The method of transfer was only explained properly to us in last Friday’s meeting. We cannot agree to this method since any obstacles that may arise in the future will leave only one or two of our children in possession of large stakes in the property. This was never our intention. • We could not obtain a convincing explanation as to why it has taken so long to make such little progress, despite the positive messages over the past 18 months. In October last year, you informed our son-in-law Saad that the first flat will be registered in Shatha’s name in March 2008, and then the other flats in our other children’s names to follow every three months thereafter. We appreciate the efforts you have exerted but must now ask you to give the 90 days notice immediately to release the £1.5M and return it to the lender. The lender is to have the money by the middle of January 2009.”
[60]No response having been received from Mr Silva, an email was sent in Mr Al Khudairi’s name on 20 October 2008 in which Mr Silva was requested, among other things, to confirm within 48 hours that he had “given the 90 days notice to the offshore syndicated account where you are keeping my £1.5M mortgage (to be returned in the same amounts as originally taken plus all accrued interest)”. On the next day, Mr Alkhedairy sent Mr Silva an email in which he referred to a telephone conversation that morning and said that he was pleased that Mr Silva had confirmed, among other things, that “All the outstanding interest” would be in Mr Al Khudairi’s account by the end of the month and that “The 90 day notice to withdraw the total funds has been given”; Mr Alkhedairy confirmed in his witness statement that Mr Silva had said on the telephone that he had given the 90-day notice to release the money. On 16 December, after a number of chasers, Mr Silva sent Mr Alkhedairy an email stating as follows:
“Thank you for your numerous emails and faxes and to reiterate my comments once would be sufficient. I would like to confirm an appointment at your father-in-law’s residence on Monday 22nd December 2008 at around 11.30am. It is imperative for Dr Sunba to … attend this meeting to clear any misconceptions that seem to be crowding the issue. Furthermore, he was available throughout and, therefore, his presence would be essential. We are awaiting the transfers to come through and upon receipt shall forward the payment. This is not a tactic but procedures to follow …. You are free of course to seek whatever measures but would suggest that you wait to consider the audit report which is quite comprehensive and legally binding in areas of taxation. Therefore, we can only suggest calm progress and not regret with substantial costs, which is bound to be the consequence in hasty decisions and actions …. We shall contact you as soon as funds are received and ready to transfer. It is fair to state that we take umbrage at your comments especially when all we do is save enormous costs, which would be unavoidable if one wrong move is made.”
[61]Mr Silva accepted that he was not in a position in December 2008 to repay the £1,348,546.86 deposited in the De Mel Account. He said in cross-examination:
“I was at that stage trying to make some arrangements if possible, and that’s what I was waiting for. But I couldn’t come through with it …. I was trying to see whether I could get most of the funds or part of it or something like that but it was not possible for me to get it at such short notice.”
[62]In the event, the meeting scheduled for 22 December did not take place. On 22 December, Mr Alkhedairy sent Mr Silva an email in which he said:
“I am very disappointed that the meeting which we have been waiting for for a number of weeks was cancelled today [because] Sunba is sick. This meeting was considered by us as the last chance you have to implement the numerous written and verbal instructions to return the monies which you hold in your possession, and to provide proof that you have given the 90 days notice to release our £1.5M, and to give a firm written commitment to return all the £1.5M (including all accrued interest) by the end of January 2009 …. The meeting must proceed tomorrow at 11 am with or without Sunba as you have already been informed that he is no longer authorised to deal with you on this matter.”
In an email to Mr Silva of 5 January, Mr Alkehdairy expressed “great disappointment” at Mr Silva’s “continued postponement of the meeting between us” and said:
“Also we wish to make it clear beyond any shadow of a doubt that we expect to receive all the £1.5 M from you by the end of January 2009. No delay will be accepted nor partial payments. Northern Rock have been contacted and told to expect to close out the mortgage by end of January. You told us that the money is in a consolidated account in the name of Abbey Brokers and that you gave the 90 day notice to release the money last October, so it should be ready by then ….”
[63]Shortly after this, a letter to Mr and Mrs Al Khudairi dated 24 December 2008 was received from Mr Silva. This said the following:
“Your son in law Mr Saad Al-Khudairy has been dealing with this matter recently. Unfortunately it appears that he is not appreciating the enormity of the situation which we have attempted quite successfully to remedy and thereby avoid a substantial loss. These being the original instructions. It would be preferable if we could meet by convenient appointment and it would be necessary for Dr Sunba to be present. Needless to say we were surprised that he was not advised of our last meeting and his presence would reconfirm our approach to this matter, as conflicting views seem to permeate. We have obtained the services of Chartered Management Tax Consultants and we would make a copy of their report available for your serious consideration …. This matter has progressed over a period of some twenty-three years and it would be a futile exercise and folly to try to remedy it in a couple of months duration …. Please be advised that one wrong move would result in massive payments and it is a problem that can be solved to your satisfaction as all parties originally intended …. We were initially advised that it is your intention for the property to pass on to your children in equal shares mitigating tax liabilities and the programme in hand was precisely aimed to achieving this end. We have made arrangements for the interest payment withdrawals, which would enable you to service the loan facility. Please note these are paid gross ….”
[64]It is noteworthy that neither in this letter nor elsewhere did Mr Silva(a) suggest that he was entitled to retain any of the Northern Rock money for five years (as he now claims had been agreed) or(b) disabuse the Al Khudairis of the idea that the money was in a 90-day notice offshore account.[65]In their reply of 19 January 2009, Mr and Mrs Al Khudairi said:
“… The original instruction to you was rescinded following our meeting last October, and you were asked to return all monies in your possession all as per our letter of 12th October and as confirmed in Saad’s numerous phone calls, emails and faxes. You were not asked to employ a management tax consultant, nor act as our tax consultant. Our tax affairs will be handled by our solicitors and should not be your concern. We can meet if you wish (including Sunba) but the standing instructions for the return of all monies in your possession by the end of this month (including all accrued interest) still stand and no delays will be accepted as you’ve had more than enough notice to arrange it ….”
[66]Soon after this, Dr Sunba delivered to Mrs Al Khudairi a letter dated 5 December 2008 from Sagexcel Accountancy Limited (“Sagexcel”), described as “Chartered Management Accountants and Tax Consultants”. This letter contained the following warning:
“Before your client commits to any course of action, make sure that he would be happy for all the facts and documentation to be laid out before the HM Inspector of Taxes.”
Later in the letter, Sagexcel said:
“We strongly feel steps are being taken to remove substantial share of the equity of the property by way of the mortgage facility gives the client substantial benefit and relief …. In approximate terms it is best for your client to progress with the family transfers proposed to minimise the tax burden rather than repay the mortgage facility and increase the liability substantially. On the average figures in hand we can very conservatively estimate the tax due with penalties and interest on unpaid tax to date would be in excess of £889,067.50 ….”
It can be seen from the envelope that Abbey sent this letter to Dr Sunba on 22 December 2008.[67]Mrs Al Khudairi said that, when Dr Sunba gave her the envelope, he begged her and her husband not to proceed with any action against Mr Silva. Dr Sunba said that he never begged anybody, but that he had been concerned about how long legal proceedings would take and their cost.[68]Mr Silva said that he obtained the Sagexcel report because he was “just really trying to be helpful”, not to frighten the Al Khudairis. Dr Sunba said that he gave the report to the Al Khudairis “just to warn them about the implication of not paying tax”.[69]Notwithstanding their evidence to the contrary, it seems to me that Mr Silva and Dr Sunba were both seeking to deflect the Al Khudairis from pressing for the return of the money which had been paid into the De Mel Account and, moreover, that they were doing so for reasons other than any concern about the delay and cost associated with legal proceedings. I note in this context Mr Silva’s references to the “enormous costs” and “massive payments” which could arise if “one wrong move” were made, the fact that Dr Sunba urged the Al Khudairis not to proceed against Mr Silva and the fact that the Sagexcel report was obtained and supplied to the Al Khudairis without their having requested any such report. Contrary to Mr Silva’s and Dr Sunba’s evidence, the Sagexcel report was, in my judgment, intended to frighten the Al Khudairis.[70]On 26 December 2008, Abbey wrote to Northern Rock asking for an interest statement to be supplied “at [their] earliest convenience” as “we are finalising the tax returns for these clients”. However, Mr Silva accepted in cross-examination that he was not in fact involved in preparing tax returns for the Al Khudairis.[71]After the Sagexcel letter had been delivered, Mr Alkhedairy sent Mr Silva an email on 5 February 2009 in the following terms:
“Dr Sunba delivered a letter written by your tax consultant regarding my in laws tax affairs and said that he and you would like to discuss this with us. So please arrange a meeting with my in laws and myself as soon as you return to the UK. At this meeting we will need to see proof that the £1.5M is ready to be transferred to the account advised to you in my 6th January email ….”
[72]By now, Mr and Mrs Al Khudairi had taken steps to obtain tax advice for themselves. At the end of 2009, Mr and Mrs Al Khudairi were calculated by HM Revenue and Customs to owe about £34,000 by way of tax on profits from UK land and property for the years 2003-2004 to 2007-2008. The amounts claimed were paid in January of this year.[73]Both Mr Silva and Dr Sunba asserted that they had advised the Al Khudairis to take tax and legal advice earlier on. However, Mr Al Khudairi denied this, and I prefer his evidence.[74]Between September 2007 and April 2008, the Al Khudairis were paid sums totalling £60,000 by Abbey/Mr Silva, but £40,000 of the £60,000 was charged to the account relating to the 2002 mortgage, leaving a balance of £20,000 (see paragraph 35 above). Some further payments were made in late 2008.

The proceedings

[75]The present proceedings were issued on 13 February 2009, and a freezing order was made against Abbey and Mr Silva on the same day.[76]Mr and Mrs Al Khudairi said, and I accept, that, following the making of the freezing order, Dr Sunba’s eldest daughter visited them and said that she had been told at a meeting she had had with Mr Silva, among other things, that he (Mr Silva) would claim that the Northern Rock money was lost, that he did not mind spending six months in prison, that he would return the money and interest but could not return it all at once, and that he would expose the Al Khudairis for not having paid tax since 1985. In cross-examination, Mr Silva denied speaking to Dr Sunba’s daughter before her visit to her grandparents, but I think it likely that he did.[77]The freezing order required Mr Silva to provide certain information. On 26 February 2009, Mr Silva swore an affidavit in which he observed that the order was “primarily concerned with funds allegedly received by the Respondents from Northern Rock”, and he continued:
“That allegation is untrue since no funds at all have been received by either Respondents from Northern Rock other than the commission due from Northern Rock which was paid into the 1st Respondents Office account. No funds the subject of the Order have ever been paid into the Respondents Client or Trust accounts or indeed into any accounts held by the Respondents.”
While this last sentence may have been literally true (because the Northern Rock advances had been paid into the De Mel Account instead of an account in the name of Abbey or Mr Silva), the previous sentence was, at best, highly misleading.[78]On 1 May 2009, the Claimants’ solicitors wrote to Dr Sunba and his wife asking for(a) accounts for 40 Hogarth Road for 2004 to 2006 and(b) information about a £123,825 transfer made to Dr and Mrs Sunba’s solicitors from the De Mel Account on 4 December 2007. On 28 September, the Claimants’ solicitors wrote again, pressing for papers relating to 40 Hogarth Road to be made available. In a reply dated 15 October, Dr Sunba said merely:
“Thank you for your letter of 24th September 2009 and would advise you that we do not have any documentation relating to the matter referred to.”
There was no response to the request for information about the £123,825 transfer.[79]In the course of his oral evidence, Dr Sunba said that he had not supplied Mr Silva with any information for him to use when cross-examining the Al Khudairis. Similarly, Mr Silva denied that Dr Sunba had provided him with material to assist with cross-examination of the Al Khudairis and, more generally, that Dr Sunba had been in contact with him for the purpose of the proceedings.[80]However, Mr Silva accepted in cross-examination that Dr Sunba “was giving [him (Mr Silva)] any offers that were made to him [Dr Sunba]”. He also said that Dr Sunba had told him that he had made a complaint to the police about the Al Khudairis and that Dr Sunba had supplied him with documents relating to this. In contrast, Mr Bernard Weatherill QC, who appeared for Dr Sunba in connection with the witness summons which had been served on him, said (doubtless on instructions) of one of the documents supplied to the police:
“we have absolutely no idea how that came into Mr Silva’s possession.”
[81]Despite the evidence which Mr Silva and Dr Sunba gave to the contrary, I think it very likely that they collaborated in relation to these proceedings, for example by Dr Sunba providing Mr Silva with cross-examination material (e.g. about a house in Baghdad owned by Dr Sunba’s wife).

The De Mel Account

[82]The De Mel Account strictly comprised two accounts with Abbey National: the first account was closed, and the second opened in its place, because of a problem in 2008. The earlier of the accounts appears to have been opened in the autumn of 2002.[83]Mr Silva said that he could not remember why he started using the De Mel Account and that there was “no particular reason” for him using it. Mr Silva maintained that rules governing Abbey did not bear on money paid into the De Mel Account. He said that many of the payments made from the De Mel Account were to people who had “given [him] money at various times”, but that he was not a money-lender: he would merely “introduce somebody who has the money to somebody who needs the money”.[84]Mr De Mel said in his witness statement that he was initially asked to open the account to help Mr Silva out for a short period and that he was told by Mr Silva that most of the money credited to the account would be in connection with property transactions. He went on to say the following:
“After several months I asked Mr Silva when I could close this account. He said to me words to the effect: ‘Hugo, give me a little more time please, but why are you getting impatient? As you see, the account has given you no trouble and I can assure you that there will never be any problem. So please let it continue and as soon as I am ready I shall make alternative arrangements’ …. … [F]rom time to time I raised the issue of the continuation of the account with Mr Silva, only to be reassured by him each time that alternative arrangements would be put in place as soon as he had some free time, and that he would not do anything to harm my interests or reputation. Given these assurances, I agreed to continue the account.”
[85]In cross-examination, Mr De Mel said that Mr Silva had told him, “I just want this for a short period of time until I get the banks sorted out”. He accepted that he must have realised that Mr Silva had accounts of his own, but said that he “didn’t think much at all”.[86]The money in the account, Mr De Mel explained, was not his. It was Mr Silva’s personal money, and the operation of the account was managed by Mr Silva alone. Mr De Mel would never fill out any cheques, but would rather sign cheques in blank, leaving Mr Silva to fill in the details.[87]The De Mel Account was closed in 2009, when Mr De Mel withdrew £61.97 in cash and gave it to Mr Silva. The basis on which the £1,495,000 was borrowed and the net advances were paid into the De Mel Account The Claimants’ case[88]It is the Claimants’ case that they borrowed the £1,495,000 from Northern Rock with a view to transferring the flats at 40 Hogarth Road to their children and that the net advances were to be held by Abbey pending the transfers.[89]A passage from Mr Al Khudairi’s witness statement is set out in paragraph 37 above. Elsewhere in his witness statement, Mr Al Khudairi said that he and his wife “understood that the Northern Rock advances would be used only for the purposes of transferring the flats at 40 Hogarth Road into the names of our children”.[90]In cross-examination, Mr Al Khudairi was insistent that the loan was taken out “to register five flats for my children”. For example, he said (as his answer was interpreted from Arabic):
“The agreement when taking the loan was to register the five flats, one of them within three to four months, and because registering the five would take five months for each, so the suggestion was to take a big loan of 1.5 million, to register the whole flat within three to four months and to reimburse the money.”
[91]Mr Al Khudairi said that he understood that what was planned would help from a tax point of view. He said:
“My understanding, and it was said by Silva and Dr Sunba, is that if their flats were registered, it will relieve the taxes.”
[92]Mrs Al Khudairi’s evidence was to similar effect. She said, for example, in her witness statement:
“… it was my understanding throughout this period that Mr Silva had come up with a scheme to implement our intention of transferring the flats to our children in a tax efficient way.”
[93]Mrs Alkhedairy said (and her mother confirmed) that she was told by her mother in early 2007 that the intention was to transfer the flats at 40 Hogarth Road into the names of the children. Discussions at a meeting which she attended in the autumn of 2007 with her husband, her parents and Dr and Mrs Sunba were also, she said, inconsistent with Mr Silva’s claim that he had been intended to have full use of the money borrowed from Northern Rock.

Mr Silva’s evidence

[94]It is Mr Silva’s case that he was to have the use of the net Northern Rock advances for at least five years.[95]Mr Silva explained his position as follows in his witness statement:
“… I had [the Claimants’] permission to use the money for 5 years. It was an unsecured loan. They wanted the funds out of their hands for tax purposes as they had not paid tax for over 25 years from income derived from the property.”
Later in his witness statement, he said:
“I subsequently learned that the Claimants purpose and the reason why they re-mortgaged for the second time was to reduce the equity in the property so that if the Taxman seized it that property was effectively fully encumbered. There was no other reason for the Claimants to re-mortgage. They did not need the money, the re-mortgage was simply a device to reduce the equity in the property. Similarly the Claimants did not want the proceeds of the re-mortgage to be in their possession or traceable to their accounts in case the taxman finally caught up with them. In addition I believe that when the war with Iraq commenced the Claimants as Iraqis should have declared their accounts and assets to the Bank of England and the latter would have frozen them. The Claimants deliberately failed to notify the Bank of England.”
[96]In cross-examination, Mr Silva at first said that he was not initially given any reason for the re-mortgage. He subsequently modified his position, claiming that he was originally “made to believe that [the loan] was for property development purposes”. Asked when he realised that the money was not, after all, wanted for property development, Mr Silva said:
“Just before completion I would think. I’m talking from memory here, just before completion or maybe just after completion.”
Mr Silva said that it was also “shortly after completion” that it was agreed that he should keep the money for at least five years. He suggested that this idea had come up “just before the first draw-down”, but he later said that “it was shortly after that first draw-down” that he “was made aware that [the money] was not going to be needed for [property development]”. Money from the first draw-down was nonetheless, he said, to go to the De Mel Account rather than Abbey because the Al Khudairis “wanted it to be completely away in a different account”, but “they didn’t give [Mr Silva] a reason for that” and “there was no need for [him] to ask”. Mr Silva said that he might have learned that the money was not going to be used for property purposes “a few days later, a couple of weeks maybe”, and he sought to explain the payments made from the De Mel Account on 17 and 18 May on the basis that he “did not know when [the Al Khudairis] would require [the money]”. However, he subsequently said that he would have learned that the money was not to be used for property purposes “almost the time of completion, or even … a bit earlier”.[97]Mr Silva maintained that the question of transferring the flats at 40 Hogarth Road had not arisen until after the mortgage had been effected, perhaps “just before the final draw-down”.[98]At one point in his oral evidence, Mr Silva said:
“we were told … , originally, … that [the Al Khudairis] wanted to obtain British passports and they wanted to release the value of the property for tax purposes, not having paid any tax for 25 years.”
When pressed, however, he said that he was not told about these reasons at first, but that “various things were brought to our attention” later from which “we realised what the true situation was and why it was done that way”. Mr Silva identified Dr Sunba as his source of information. Later in his evidence, Mr Silva said:
“… I asked Dr Sunba – because Dr Sunba was getting some information as a messenger … , and when I was trying to get the reasons for why he was doing it, and he said, ‘Oh, they want to reduce the value of the property’, et cetera, et cetera …. When they wanted to transfer the property into the children’s names, I wanted to know why and this is when it all came through.”
Mr Silva proceeded to suggest that the information could also have come direct from Mr Al Khudairi on the telephone.[99]As regards interest, Mr Silva said:
“I didn’t guarantee them interest at any time. I said when the period is finished, I will pay the interest, but if they want something in the interim, if they ask me and if I am able to, I will pay it to them.”
The interest, Mr Silva said, was to be at the rate of “approximately 8 per cent”. Elsewhere, Mr Silva said that it had been agreed at the beginning that he had to pay interest at the rate of 8%.[100]Mr Silva seemed reluctant to put to Mr Al Khudairi in cross-examination the suggestion that he was to have the use of the money for five years. When he eventually did so, Mr Al Khudairi denied it.

Dr Sunba’s evidence

[101]Dr Sunba’s written evidence was along the same lines as Mr Silva’s. Dr Sunba said in a witness statement:
“In 2005 the Claimants knowing that they had not paid tax wanted to reduce the equity in 40 Hogarth Road so that the available equity was reduced should the Inland Revenue wish to seize the property for back tax. It was for this reason that they remortgaged the building in the sum of £1.4m via Abbey Brokers and Northern Rock. For similar revenue reasons the Claimants did not want the proceeds of the remortgage to be in their names or in this country and wanted it invested off shore and at a rate of interest that would equal the repayments to Northern Rock ie about 8% …. … The Claimants prime directive was that the funds should not be in their name and Mr. Silva … was asked to ensure this did not happen. He was given full use of the funds for 5 years to deal with as he wished and without any obligation to account ….”
[102]When giving oral evidence, Dr Sunba said that the money was borrowed “to exhaust the building, so that when tax come, there is nothing left in it” and that his parents-in-law had asked when the mortgage was being arranged that the money be invested offshore for five years. He further said that the mortgage originally had nothing to do with giving flats to the children, although “Maybe later [the Al Khudairis] spoke with [Mr Silva] about such a plan”. When asked whether he recalled family transfers being mentioned at a later stage, he replied, “not precisely”, and he said that he had not told Mr Silva that family transfers were intended and that he (Dr Sunba) was not involved. Dr Sunba described his own role as being that of a messenger: he would “just pass the message, what they want, to [Mr Silva]”, and he said that he never discussed the purpose of the loan with the Al Khudairis when it was taken out. He said that, at the time, he did not think about whether the question of applying for British citizenship arose in relation to the mortgage and that he never spoke to Mr Silva about this. Dr Sunba expressed concern that what was contemplated was an “illegal act”, but he was vague about the intended illegality and how he knew of it.

Conclusion

[103]I unhesitatingly accept the Claimants’ case in preference to Mr Silva’s. My reasons include these: i) Mr Silva referred in his letter of 28 December 2007 to having received instructions that the Al Khudairis wished to transfer 40 Hogarth Road to their children (paragraph 52). By this stage, moreover, the idea was, on Mr Silva’s own evidence, that the money borrowed from Northern Rock should be used to effect the transfer of the flats at the property (paragraph 53). Yet there is no indication in the 28 December letter that there had been a change of plan since the Northern Rock mortgage was taken out; ii) the Al Khudairis’ evidence as to their intentions is consistent with the contents of their letter dated 12 October 2008 (paragraph 59); iii) Mr Silva said in his letter dated 24 December 2008 that he had been “initially advised” that it was the Al Khudairis’ intention “for the property to pass on to [their] children in equal shares mitigating tax liabilities” (paragraph 63). There was, once again, no suggestion that the plan had changed at any point, and the word “initially” indicates otherwise; iv) the likelihood is that Dr Sunba’s wife brought the Al Khudairis shortly before completion documents which they were told were to register the first flat at 40 Hogarth Road in her name (paragraph 44). If that is right, it confirms that the plan even at that stage was to transfer the flats; v) had it been agreed that Mr Silva should be entitled to use the money for five years, he would surely have said so before the proceedings were issued, particularly since he was in no position to repay at once (paragraphs 56 and 61). He did not do so. Instead, he indicated that he was making arrangements to repay, lying that the money was tied up in a 90-day notice account (paragraphs 58-63). Thereafter, he tried to deflect the Al Khudairis from pressing for the return of the money, in particular by trying to frighten them about their tax position (paragraph 69); vi) the evidence given by Mr Silva and Dr Sunba was unpersuasive. The evidence that each of them gave was neither wholly clear nor wholly consistent. Further, Mr Silva’s evidence cannot readily be reconciled in all respects with Dr Sunba’s. For example, Mr Silva named Dr Sunba as someone from whom he had learned “originally” that the Al Khudairis “wanted to obtain British passports and … to release the value of the property for tax purposes”, but Dr Sunba said that he did not discuss the purpose of the loan with Mr Silva when it was taken out and that he never spoke to Mr Silva about the question of applying for British citizenship; vii) it is inherently improbable that the Al Khudairis should have wished to lend such large sums of money to Mr Silva for such a long period (at least five years) and without any security, especially when they would themselves have had to meet mortgage payments in the interim.[104]In the circumstances, I find that the Al Khudairis, as advised by, and agreed with, Mr Silva, borrowed the £1,495,000 from Northern Rock with a view to facilitating the transfer of the flats at 40 Hogarth Road to the Al Khudairis’ children in a tax-efficient way and that the net advance was to be held by Abbey pending the transfers. I reject the Defendants’ arguments that there was an agreement entitling Mr Silva to use the money for five years.[105]As regards interest, I accept the Al Khudairis’ evidence that they were led to believe that they would receive interest which “would equal or exceed the interest payments [they] had to make under the mortgage” (to quote from Mr Al Khudairi’s witness statement). However, I do not consider that there will have been any contractual term to this effect. In my view, what the Al Khudairis were to be entitled to was whatever interest could be earned on the net advances. There was no more than a representation that that interest would be as much as the mortgage payments.

Abbey/Mr Silva

[106]In what I have said in paragraph 104 above, I have ignored Mr Silva’s contention that the Al Khudairis’ dealings were with him personally rather than Abbey.[107]This was a point that recurred in Mr Silva’s evidence. Further, in his closing submissions, Mr Silva was insistent that the “arrangement was between myself personally and absolutely nothing at all to do with Abbey Brokers”.[108]In my judgment, however, the Al Khudairis were dealing with Abbey, and with Mr Silva as a representative of Abbey, rather than with Mr Silva in a personal capacity.[109]In the first place, it is evident from the Al Khudairis’ evidence that they considered themselves to be dealing with “Abbey Brokers”.[110]Secondly, the documents are replete with references to Abbey. By way of example, the letter of 23 March 2007 to Barrington Charles Edwards & Co was sent on Abbey headed paper, signed “For and on behalf of, ABBEY BROKERS LIMITED”, and stated to enclose instructions from “our above clients” (viz. Mr and Mrs Al Khudairi). The enclosed letter asked that Barrington Charles Edwards & Co forward a cheque for 2% of the mortgage advance “to Abbey Brokers Ltd” and said that Barrington Charles Edwards & Co would be given instructions “for dispersal of the net proceeds through Abbey Brokers Ltd”. Likewise, Barrington Charles Edwards & Co were informed by the letter dated 9 May 2007 from the Al Khudairis that “Abbey Brokers Limited” was authorised to deal with draw-downs. The attendance notes which Barrington Charles Edwards & Co prepared in respect of telephone calls relating to draw-downs also refer to Abbey; the attendance notes typically begin, “Attending receiving telephone call from Abbey Brokers”; and on 8 August 2007, Barrington Charles Edwards & Co were given instructions as to where money should be paid to in a fax on Abbey headed paper signed “For and on behalf of Abbey Brokers Limited”. In fact, having regard to the letters of 23 March and 9 May 2007, Barrington Charles Edwards & Co could not, as it seems to me, have acted on the instructions they received unless they understood them to come from Abbey. A letter to Mr and Mrs Al Khudairi dated 28 December 2007 was similarly sent on Abbey headed paper and signed “For and on behalf of Abbey Brokers Limited”; it also bore an Abbey reference number. Another fax on Abbey headed paper and signed “For and on behalf of Abbey Brokers Limited” was sent to Barrington Charles Edwards & Co on 3 October 2008 concerning the possible transfer of 40 Hogarth Road.[111]Thirdly, when asked during his oral evidence whether the money was sent to Abbey or to Mr Silva personally, Dr Sunba queried the difference and said that he understood that “Abbey Brokers is Joe Silva” (although it is right to add that on the next day Dr Sunba volunteered that the Al Khudairis dealt with Mr Silva “on a personal level, not because Abbey Brokers or something”).

Claims relating to the second mortgage against Abbey

[112]The Claimants advance several claims against Abbey in relation to the 2007 mortgage. In brief, they contend that: i) Abbey was bound to repay on reasonable notice the sums which were paid into the De Mel Account, but it failed to do so; ii) Abbey owed fiduciary duties to the Al Khudairis which it breached; iii) Abbey owed the Al Khudairis a duty to exercise reasonable care which it breached. I shall take these claims in turn.

Failure to repay on reasonable notice

[113]The Claimants allege that Abbey had a contractual obligation to hold the net Northern Rock advances to the Al Khudairis’ order and to repay them with accrued interest on reasonable notice. I agree. Such an obligation follows, as I see it, from my findings above as to the basis on which the £1,495,000 was borrowed and the net advances were paid into the De Mel Account. I accordingly hold that the Al Khudairis are entitled to judgment against Abbey for the £1,348,546.86 which was paid at Abbey’s request into the De Mel Account and any interest which had accrued by the time it was required to repay. As from that time, the Al Khudairis will be entitled to interest pursuant to the Senior Courts Act 1981. Abbey is, however, to be credited with such sums as have previously been repaid to the Al Khudairis, though not the two payments of £20,000 each which appear in the statements of account in respect of the £150,000 from the 2002 mortgage credited to Wharfland (see paragraphs 35 and 74 above).

Breach of fiduciary duty

[114]“A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence” (per Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 at 18). The circumstances in which a person will be a fiduciary have been well summarised by Dr Finn as follows (in “Commercial Aspects of Trusts and Fiduciary Obligations”, ed. McKendrick, at page 9):
“A person will be a fiduciary in his relationship with another when and in so far as that other is entitled to expect that he will act in that other’s interests or (as in a partnership) in their joint interests, to the exclusion of his own several interest.”
[115]In the present case, Abbey was, in my judgment, a fiduciary. The reasons include these: i) agents are conventionally fiduciaries, and Abbey acted as the Al Khudairis’ agent. It was specifically authorised to give Barrington Charles Edwards & Co instructions on the Al Khudairis’ behalf in relation to the draw-down of the Northern Rock loan and the dispersal of the net proceeds (paragraphs 40 and 41 above), and it in fact (primarily through Mr Silva) gave such instructions. More generally, it was, as I see it, agreed between the Al Khudairis and Abbey that the latter should be responsible for taking steps to achieve the transfer of the flats at 40 Hogarth Road to the Al Khudairis’ children and should hold the net advances pending those transfers; ii) it is, moreover, apparent that the Al Khudairis were relying on Abbey. Mr Silva said that the Al Khudairis did not seek advice from him or Abbey and that none was given, but I do not accept that evidence. In my judgment, Abbey (through Mr Silva) advised that the Northern Rock loan should be taken out to facilitate the transfer of the flats at 40 Hogarth Road, and the Al Khudairis proceeded to borrow the £1,495,000 on the strength of that advice; iii) it is, in all the circumstances, fair to conclude that Abbey undertook to act for the Al Khudairis in circumstances giving rise to a relationship of trust and confidence.[116]As a fiduciary, Abbey will have had an obligation of loyalty with several facets (see Bristol and West Building Society v Mothew [1998] Ch 1 at 18). As Millett LJ explained in Bristol and West Building Society v Mothew [1998] Ch 1 (at 18):
“A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.”
[117]The Claimants contend that Abbey acted in breach of its duties as a fiduciary by, essentially, causing the Northern Rock advances to be paid into the De Mel Account with a view to their being used for the benefit of Mr Silva. I agree. I have already found that the Al Khudairis, as advised by, and agreed with, Mr Silva, borrowed the £1,495,000 from Northern Rock so as to facilitate the transfer of the flats at 40 Hogarth Road to their children and that the net advance was to be held by Abbey pending the transfers. However, Abbey gave instructions for the sums drawn down from Northern Rock to be transferred, not into one of Abbey’s accounts, but to the De Mel Account. Further, I am satisfied that Abbey (through Mr Silva) was contemplating when the payments into the De Mel Account were authorised that the sums so transferred would be used for the benefit of Mr Silva (by, among other things, discharging debts of his); as explained in paragraph 126(iii) below, I consider that Mr Silva was planning to use the Northern Rock advances for his own benefit even before the first draw-down. In causing the Northern Rock money to be made available to Mr Silva in this way, Abbey was, moreover, disabling itself from implementing the scheme for the transfer of the flats at 40 Hogarth Road for which, as Abbey (through Mr Silva) knew, the Northern Rock loan had been taken out and for which it was intended. It seems to me that, in all the circumstances, Abbey acted otherwise than in good faith in the interests of the Al Khudairis and, rather, to advance the personal interests of Mr Silva. It follows, in my judgment, that Abbey acted in breach of its fiduciary duties.[118]This conclusion is obviously of significance in relation to the claims of dishonest assistance made against Mr Silva and Mr De Mel: had I decided that there had been no breach of fiduciary duty, the dishonest assistance claims would necessarily have failed. The importance of the point as regards Abbey is much reduced by the fact that I have already determined that it is contractually liable to repay the outstanding balance of the £1,348,546.86. Where the Al Khudairis may be entitled to additional relief as against Abbey for breach of fiduciary duty may be in relation to interest: interest which would have accrued on the £1,348,546.86 had it been held by Abbey and/or interest which the Al Khudairis have had to pay to Northern Rock on money which, but for Abbey’s breach of fiduciary duty, would have been repaid to Northern Rock. My provisional view is that, for the present, I should give judgment against Abbey for equitable compensation to be assessed, with interest. However, I shall hear the parties on the precise relief that I should grant.

Failure to exercise reasonable care

[119]Section 13 of the Supply of Goods and Services Act 1982 provides as follows:
“In a contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill.”
[120]The Claimants contend that, by virtue of this provision, it was an implied term of the contract between Abbey and the Al Khudairis that the former should exercise reasonable care. They say, too, that Abbey owed a duty to exercise reasonable care in tort. They further allege that Abbey negligently failed to safeguard the Northern Rock advances.[121]It seems to me that this claim is probably well-founded, but the point can be of no practical significance in the light of my conclusions on the Claimants’ other claims against Abbey. Deceit The Claimants’ case

Deceit

[122]The Claimants allege that Mr Silva represented to them that he intended to cause Abbey to hold the Northern Rock loan for the purpose of the transfer of the flats at 40 Hogarth Road when that was not in fact his intention. Legal principles[123]The ingredients of deceit are conveniently summarised in Clerk & Lindsell on Torts, 19th ed., as follows (in paragraph 18-01):
“Where a defendant makes a false representation, knowing it to be untrue, or being reckless as whether it is true, and intends that the claimant should act in reliance on it, then in so far as the latter does so and suffers loss the defendant is liable for that loss.”
[124]It is well established that a false statement of intention can found a claim for deceit. In Edgington v Fitzmaurice (1885) 29 Ch D 459, Bowen LJ said (at 483):
“There must be a misstatement of an existing fact: but the state of a man's mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man's mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man's mind is, therefore, a misstatement of fact.”

Conclusion

[125]I have approached the deceit claim (and also the other allegations of dishonesty which the Claimants make) on the basis that dishonest conduct is inherently improbable (compare the explanations of the civil standard of proof given in In re B (Children) [2008] UKHL 35).[126]I am, nonetheless, satisfied that the deceit claim has been made out. The reasons include these: i) I have already found that the Al Khudairis, as advised by, and agreed with, Mr Silva, borrowed the £1,495,000 from Northern Rock with a view to facilitating the transfer of the flats at 40 Hogarth Road to their children and that the net advance was to be held by Abbey pending the transfers (paragraph 104); ii) it may be implicit in that, but I in any event find,(a) that Mr Silva (via Dr Sunba) represented to the Al Khudairis that he intended to cause Abbey to hold the Northern Rock loan for the purpose of the transfer of the flats at 40 Hogarth Road and(b) that the Al Khudairis relied on that representation; iii) in my judgment, Mr Silva did not in fact intend to cause Abbey to hold the Northern Rock loan for the purpose of the transfer of the flats at 40 Hogarth Road. Mr Silva himself has not, of course, suggested that that was his intention: his case (which I have rejected) was rather to the effect that the money never needed to be held for that purpose. It is also significant that Mr Silva began spending money derived from the first draw-down immediately after it had reached the De Mel Account, which suggests that he had that in mind even before completion. The letter to Barrington Charles Edwards & Co of 9 May 2007 points in the same direction. That letter, which I consider to have been drafted by Mr Silva (paragraph 42 above), pressed for early completion because “dates to complete other associated business” had already passed (paragraph 41). So far as I know, however, there was no particular urgency from the point of view of the Al Khudairis. The likelihood, I think, is that Mr Silva drafted the 9 May letter in the way he did because he had pressing obligations which he was already planning to use the loan to discharge; iv) while there is little direct evidence as to Abbey’s financial circumstances, it can be inferred that it is not in a position to repay all the Northern Rock money and, hence, that the Al Khudairis will have suffered loss as a result of Mr Silva’s false representation.[127]I do not, however, consider that I am at present in a position to quantify the Claimants’ loss. Regard must, I think, be had to the value of the Al Khudairis’ debt claims against Abbey. If a person has been induced by deceit to buy shares, the value of the shares has to be taken into account when calculating the loss caused by the deceit (compare e.g. Smith New Court Ltd v. Scrimgeour Vickers (Asset Management) Ltd [1997] 1 AC 254); it seems to me that it must similarly be right to take account of the value of the Al Khudairis’ entitlement to have the outstanding balance of the £1,348,546.86 repaid by Abbey. As matters stand, however, there is insufficient information to determine what that entitlement is (or has been) worth. I therefore consider that the appropriate course so far as the deceit claim is concerned is to give judgment against Mr Silva for damages to be assessed, with interest pursuant to section 35A of the Senior Courts Act 1981.

Dishonest assistance

[128]It is the Claimants’ case that Mr Silva and Mr De Mel are both liable to them for dishonest assistance.

Legal principles

[129]“A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation” (Royal Brunei Airlines v Tan [1995] 2 AC 378 at 392, per Lord Nicholls).[130]Lord Nicholls commented on what “dishonesty” means in this context in the Tan case. He said (at 389):
“Whatever may be the position in some criminal or other contexts …, in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour. In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others' property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless ….”
[131]The meaning of “dishonesty” has since been addressed by the House of Lords in Twinsectra Ltd v Yardley [2002] 2 AC 164, by the Privy Council in Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 WLR 1476 and by the Court of Appeal in Abou-Rahmah v Abacha [2007] 1 Lloyd’s Rep 115. In Twinsectra, Lord Hutton, with whom Lords Slynn, Steyn and Hoffmann agreed, said the following:
“35 There is, in my opinion, a further consideration which supports the view that for liability as an accessory to arise the defendant must himself appreciate that what he was doing was dishonest by the standards of honest and reasonable men. A finding by a judge that a defendant has been dishonest is a grave finding, and it is particularly grave against a professional man, such as a solicitor. Notwithstanding that the issue arises in equity law and not in a criminal context, I think that it would be less than just for the law to permit a finding that a defendant had been "dishonest" in assisting in a breach of trust where he knew of the facts which created the trust and its breach but had not been aware that what he was doing would be regarded by honest men as being dishonest. 36 … I consider … that your Lordships should state that dishonesty requires knowledge by the defendant that what he was doing would be regarded as dishonest by honest people, although he should not escape a finding of dishonesty because he sets his own standards of honesty and does not regard as dishonest what he knows would offend the normally accepted standards of honest conduct.”
[132]This decision was widely taken to mean that a person could not be dishonest unless he appreciated that his conduct would be regarded as dishonest by honest people. However, in the Barlow Clowes case the Privy Council said that that was not so. Lord Hoffmann, giving the judgment of the Board, said of the remarks made by Lord Hutton in Twinsectra:
“15 … The reference to "what he knows would offend normally accepted standards of honest conduct" meant only that his knowledge of the transaction had to be such as to render his participation contrary to normally acceptable standards of honest conduct. It did not require that he should have had reflections about what those normally acceptable standards were.”
[133]The relationship between the decisions in Twinsectra and Barlow Clowes was the subject of discussion in Abou-Rahmah v Abacha. In that case, Rix LJ took the view that he did not need to enter into the “academic controversy … as to whether the Privy Council has in Barlow Clowes rowed back towards Lord Millett’s views in Twinsectra” (see paragraphs 22 and 23), and Pill LJ expressed the view (in paragraph 94) that the implications of the explanation of Twinsectra in Barlow Clowes were “best considered in a case in which a real issue arises on its impact”. In contrast, Arden LJ concluded (in paragraph 69) that the judge had been “right to proceed on the basis that the law as laid down in the Twinsectra case, as interpreted in the Privy Council in Barlow Clowes, represented the law of England and Wales”. She therefore considered (see paragraph 59(a)) that: “it is unnecessary to show subjective dishonesty in the sense of consciousness that the transaction is dishonest. It is sufficient if the defendant knows of the elements of the transaction which make it dishonest according to normally accepted standards of behaviour”.[134]I find Arden LJ’s comments persuasive, and I shall accordingly proceed on the basis that a person can be dishonest regardless of whether he appreciates that his conduct would be considered dishonest by ordinary honest people.[135]Another issue aired in Abou-Rahmah v Abacha was the extent to which a defendant must have had knowledge of the breach of fiduciary duty or trust that he is alleged to have assisted. In this connection, Rix LJ said the following:
“38 As Millett J said in Agip (Africa) Ltd v Jackson [1990] Ch 265 at 295: “it is no answer for a man charged with having knowingly assisted in a fraudulent and dishonest scheme to say that it was ‘only’ a breach of exchange control or ‘only’ a case of tax evasion. It is not necessary that he should have been aware of the precise nature of the fraud or even of the identity of its victim. A man who consciously assists others by making arrangements which he knows are calculated to conceal what is happening from a third party, takes the risk that they are part of a fraud practised on that party.” 39 In Brinks Ltd v Abu-Saleh (No 3) [1996] CLC 133 Rimer J had differed from that view, and in Grupo Torras SA v Al Sabah [1999] CLC 1469 Mance J had preferred Rimer J's view to that of Millett J; but in Barlow Clowes [2006] 1 WLR 1476 , para 28, Lord Hoffmann said that the Privy Council did not agree. I therefore consider that Millett J's observations in Agip apply in the present case.”
In Barlow Clowes, Lord Hoffmann had said (in paragraph 28):
“ … it is quite unreal to suppose that Mr Henwood needed to know all the details to which the court referred before he had grounds to suspect that Mr Clowes and Mr Cramer were misappropriating their investors' money. The money in Barlow Clowes was either held on trust for the investors or else belonged to the company and was subject to fiduciary duties on the part of the directors. In either case, Mr Clowes and Mr Cramer could not have been entitled to make free with it as they pleased. In Brinks Ltd v Abu-Saleh [1996] CLC 133, 151 Rimer J expressed the opinion that a person cannot be liable for dishonest assistance in a breach of trust unless he knows of the existence of the trust or at least the facts giving rise to the trust. But their Lordships do not agree. Someone can know, and can certainly suspect, that he is assisting in a misappropriation of money without knowing that the money is held on trust or what a trust means: see the Twinsectra case [2002] 2 AC 164, para 19 (Lord Hoffmann) and para 135 (Lord Millett). And it was not necessary to know the "precise involvement" of Mr Cramer in the group's affairs in order to suspect that neither he nor anyone else had the right to use Barlow Clowes money for speculative investments of their own.”

Mr Silva

[136]There can be no doubt but that Mr Silva procured or assisted in the breaches of fiduciary duty which I have held were committed by Abbey (see paragraph 117 above). It was he who instigated the transfers to the De Mel Account and the payments out of that account.[137]I am satisfied, moreover, that Mr Silva was dishonest. He knew that the Al Khudairis were borrowing money from Northern Rock to facilitate the transfer of the flats at 40 Hogarth Road to their children and that the net advances were to be held by Abbey pending the transfers. He nevertheless caused the net advances to be paid into the De Mel Account rather than to Abbey with a view to using the money for his own purposes, with the result, as he will have been aware, that the money would not be available for the purpose for which it had been borrowed and was to be held. Mr Silva’s conduct was, in my judgment, plainly dishonest according to normally accepted standards of behaviour. In case it matters, I also consider that Mr Silva must have appreciated that he was transgressing ordinary standards of honest behaviour.[138]In the circumstances, I hold that the dishonest assistance claim against Mr Silva has been made out and that, accordingly, Mr Silva shares Abbey’s liability to compensate the Al Khudairis for Abbey’s breaches of fiduciary duty. My provisional view is that the appropriate course at this stage is to give judgment against Mr Silva for equitable compensation to be assessed, with interest, but I shall hear the parties on the precise relief to be granted. In principle, it seems to me that the Al Khudairis are entitled to be compensated for the following: i) the outstanding balance of the £1,348,546.86 plus accrued interest if and to the extent that Abbey is, as a result of the disbursement of the £1,348,546.86, unable to discharge its liability to repay those amounts; and ii) interest which would have accrued on the £1,348,546.86 had it been held by Abbey and/or interest which the Al Khudairis have had to pay to Northern Rock on money which, but for Abbey’s breach of fiduciary duty, would have been repaid to Northern Rock.

Mr De Mel

[139]Mr De Mel made available the account into which the £1,348,546.86 was paid with a view to its being used for Mr Silva’s benefit, and Mr De Mel authorised (by signing cheques and otherwise approving withdrawals) the payments which were in fact made out of the De Mel Account for Mr Silva’s benefit. In the circumstances, it is apparent, in my judgment, that Mr De Mel assisted in Abbey’s breaches of fiduciary duty. To succeed in their claim against him, however, the Al Khudairis must also establish that Mr De Mel was dishonest.[140]Mr De Mel gave evidence to the effect that he saw nothing amiss as regards the De Mel Account. He said that it never occurred to him in his wildest dreams that there might be an illicit reason for the account. So far as he was concerned, the account was nothing to do with Abbey and the money in it was Mr Silva’s personal money:
“it was Joe Silva’s money,”
Mr De Mel said, “he can use for whatever he wants to do”. Mr De Mel said that he gave the account little thought; he described himself as “just an innocent, outside bystander” and said that there “no need for him to delve” into matters relating to the account. Asked whether he realised that the account was being used to pay Mr Silva’s bills, Mr De Mel said:
“… I don’t think I paid it any attention at all. … I am looking after it for him, it is up to him to pay or receive or whatever from that account.”
Mr De Mel said that he could see that very large sums of money were going in and out of the De Mel Account, but:
“if you have an account, money is going in, coming out, is the thing that normally happens in an account. And it is nothing strange that … kind of my eyes will pop out to such an activity.”
Mr De Mel thought that he might have been aware that large sums were coming in and going out to the same people, but he “didn’t give it a thought” and there “was no reason for [him] to make any specific note of it”. Mr De Mel accepted that he had seen certain of the people who featured in the ledger at Abbey’s offices and that some of them were, or might have been, clients of Abbey, but he observed that “one can be a friend and an Abbey Brokers’ client”, and he said that he thought that the transactions were “friendly transactions between friends” rather than business transactions. Mr De Mel said that his only concern was that the De Mel Account should not create tax liabilities for himself (or his estate). As regards money-laundering, he thought about it but was not worried about it. He was never, he said, aware of Mr Silva having financial difficulties: he “always thought [Mr Silva] very well-to-do man”.[141]I have nonetheless arrived at the conclusion that Mr De Mel was dishonest. My reasons include these: i) The purpose of the De Mel Account must, as it seems to me, have involved deception. Both Mr Silva and Abbey had bank accounts of their own. Why, then, should have Mr Silva asked Mr De Mel to open the De Mel Account unless he was seeking to conceal something from somebody? Neither Mr Silva nor Mr De Mel provided any plausible reason. As mentioned above (paragraph 83), Mr Silva said that he could not remember why he started using the De Mel Account and that there was “no particular reason” for it. For his part, Mr De Mel said that the only reason that he could think of for Mr Silva choosing to use the De Mel Account instead of an account in his own name was “keeping away from family matters separately to … what you call friendly matters”, but he said that he did not think of this at the time and the suggestion in any event makes no sense. Had Mr Silva’s aim been to distinguish family matters from “friendly” matters, he could have used different accounts in his own name; there would have been no need for him to ask Mr De Mel to open an account for him; ii) I cannot accept Mr De Mel’s evidence that it never occurred to him that there was an illicit reason for the De Mel Account. Mr De Mel had banking experience. Even without that, but especially with it, he would surely have assumed that the account had an illicit purpose unless given an innocent explanation. That Mr De Mel cannot now provide a satisfactory explanation for the existence of the account suggests that he was never given one himself. Further, as mentioned in paragraph 84 above, Mr De Mel said that he had raised with Mr Silva more than once the possibility of closing the De Mel Account. His doing so is likely to reflect unease about the account. In fact, I think Mr De Mel probably knew that the account had an illicit purpose of some kind. It seems to me that Mr De Mel would have wanted to understand why he was being asked to open the account and that, given the close relationship between the two, Mr Silva would have told him. I agree with Mr Norbury that Mr De Mel was by no means as naïve as his evidence might suggest; iii) This leads to a wider point. I have already said that I do not accept Mr De Mel’s evidence about what he understood about the purpose of the De Mel Account. It seems to me that, more generally, I cannot regard Mr De Mel’s evidence about the account as reliable; iv) The likelihood is, I think, that Mr De Mel will have been aware that sums paid into the De Mel Account related to “Abbey Brokers” business (as carried on successively by Wharfland and Abbey). My impression when Mr De Mel was giving evidence was that he was seeking to downplay what he knew of Abbey’s business and clients; he was probably, I think, more familiar with its affairs than he was prepared to admit. In any case, as already mentioned, he accepted in cross-examination that he had seen certain of the people who featured in the ledger at Abbey’s offices and that some of them were, or might have been, clients of Abbey. It is, as it seems to me, inherently improbable that Mr De Mel should have assumed that the large sums received into the De Mel Account, at least in part from people whom he knew to have come to Abbey’s offices, should have related exclusively to “friendly transactions” unrelated to Abbey. Further, Mr De Mel’s evidence that he regarded the De Mel Account as having nothing to do with Abbey is inconsistent with his Defence. This refers to Mr De Mel having “operated two bank accounts [i.e. the two accounts comprising the De Mel Account] for and on behalf of Abbey Brokers”. It is further pleaded:
“[Mr De Mel] believed that he held the Northern Rock Advances in the First Abbey Account [i.e. the earlier of the De Mel Account accounts] for and on behalf of Abbey Brokers and in this regard was obliged to deal with all funds held in the First Abbey Account, including the Northern Rock Advances, in accordance with the instructions of Mr Silva”; v) It is, moreover, apparent that Mr De Mel appreciated that people whose money was being paid into the De Mel Account did not always know where it was going. At one point in his evidence, Mr De Mel spoke of the people whose money was paid into the De Mel Account not “even know[ing] that this account was in existence”
. Pressed on this, he said: “… I said that they didn’t know me …. And besides, besides, did they have to know this account is the other question” vi) More specifically, Mr De Mel was probably, in my judgment, aware (a) that the £1,348,546.86 transferred to the De Mel Account in 2007 was paid by or on behalf of a client of Abbey and related to business of Abbey and (b) that the client may not have known where the money was going; vii) Further, Mr De Mel probably knew in 2007 that Mr Silva had financial problems. Mr De Mel’s evidence that he was never aware of such difficulties does not sit comfortably with the fact that, as he accepted in cross-examination, he himself lent Mr Silva £60,000 in 2004 and has still not been fully repaid. Moreover, the relationship between Mr Silva and Mr De Mel appears to me to have been such that Mr De Mel would have been likely to learn of large outstanding debts; viii) Mr De Mel said that he did not pay any attention to whether the De Mel Account was being used to pay Mr Silva’s bills: “I am looking after it for him, it is up to him to pay or receive or whatever from that account,” he said. In my judgment, Mr De Mel was probably aware that bills of Mr Silva were being paid from the account; ix) Focusing in particular on the £404,134.36 paid into the De Mel Account from the first draw-down, the entries in the ledger which Mr De Mel kept for the account indicate that he will have known that the money was being rapidly disbursed in circumstances where the account had previously been overdrawn. He is likely to have inferred, if he did not already know, that the money was being used to discharge liabilities of Mr Silva. Since he will probably also have known (a) that the money related to a client, and business, of Abbey, (b) that the client may not have known where his money was going and (c) that the account had an illicit purpose, he is likely to have realised, or at least suspected, that the money should not be being used as it was; x) He is similarly likely to have known, or at least suspected, that the other sums transferred into the De Mel Account from the Northern Rock loan were not being used as they should be; xi) In all the circumstances, I consider that Mr De Mel’s conduct was contrary to normally acceptable standards of honest conduct.[142]It follows that, in my judgment, Mr De Mel is liable to the Al Khudairis for dishonest assistance. As with Mr Silva, my provisional view is that I should give judgment against Mr De Mel for equitable compensation to be assessed, with interest, but I shall hear the parties as to the precise relief. In Mr De Mel’s case, as in Mr Silva’s, it seems to me that, in principle, the Al Khudairis are entitled to be compensated for the following: i) the outstanding balance of the £1,348,546.86 plus accrued interest if and to the extent that Abbey is, as a result of the disbursement of the £1,348,546.86, unable to discharge its liability to repay those amounts; and ii) interest which would have accrued on the £1,348,546.86 had it been held by Abbey and/or interest which the Al Khudairis have had to pay to Northern Rock on money which, but for Abbey’s breach of fiduciary duty, would have been repaid to Northern Rock.

Knowing receipt

[143]There is a pleaded claim against Mr De Mel for knowing receipt, but that is no longer pursued. The reason is doubtless that the authorities indicate that such a claim depends on “beneficial receipt” by the Defendant of the relevant assets (see El Ajou v Dollar Land Holdings [1994] 2 All ER 685 (at 700) and Agip (Africa) Ltd v Jackson [1990] Ch 265 (at 291-292)). In the present case, it is not suggested that Mr De Mel received any of the £1,348,546.86 for himself.

Relief in respect of the first mortgage

[144]As regards the £150,000 credited to Wharfland from the proceeds of the 2002 mortgage, which I addressed in paragraphs 27-35 above, I consider that it is appropriate to order(a) that an account to be taken and(b) payment by Wharfland to the Al Khudairis of the sum found due on the taking of that account. In taking the account, Wharfland should be given credit for the two £20,000 transfers (as to which, see paragraphs 35, 74 and 113 above).

Conclusion

[145]In summary, I have concluded as follows: i) Abbey is liable to repay the sums paid into the De Mel Account and for breach of fiduciary duty; ii) Mr Silva is liable for deceit and for dishonest assistance; iii) Wharfland is liable to account for the £150,000 credited to it from the proceeds of the 2002 mortgage; and iv) Mr De Mel is liable for dishonest assistance.[146]I shall hear the parties further on the precise terms of the order.

Cited in 2 later judgments