Glen Dimplex Home Applicances Ltd v Smith & Ors [2011] EWHC 3392 (Comm)

Case No 2010 Folio No 1402[2011] EWHC 3392 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 20 December 2011
Before
Jonathan Hirst QC
Between
GLEN DIMPLEX HOME APPLICANCES LIMITEDClaimantSHELAGH ANN SMITHDefendantROY SMITHDefendantKAREN LEWISDefendantKANE CALVIN LEWISDefendantPAUL ANTHONY SMITHDefendantPAUL EDWARD SMITHDefendantJOANNA MARIE KAYDefendantPAUL KAYDefendant
DEREK SWEETING QC AND TIMOTHY J WALKER (instructed by GORDONS LLP) for ClaimantMARK E G HARPER (instructed by BRABNERS CHAFFE STREET) for 2 nd and 3 rd DefendantsThe Fourth Defendant in person for in personHearing Hearing date: 9 December 2011
JUDGMENTJonathan Hirst QCMr Hirst QC:
[1]Between 3 June 2005 and 13 October 2010, the First Defendant (“Mrs Smith”) stole £2,811,904.30 from her employer, the Claimant. She committed the fraud by manipulating BACS payments due to suppliers to divert funds, and she concealed it by falsifying creditor listings and forging bank statements. The fraud was discovered in October 2010 whilst she was away from work and unable to continue the cover up. She was summarily dismissed. On 20 June 2011, she submitted to judgment for £2,800,000 plus costs.[2]The Claimant now seeks summary judgment against the Second Defendant (“Mr Smith”), her husband, the Third Defendant (“Mrs Lewis”), their daughter, and the Fourth Defendant (“Mr Lewis”), her second husband. Judgment in default has been obtained against the Fifth Defendant, Mr and Mrs Smith’s son, and the Sixth Defendant, Mr and Mrs Smith’s grandson and the first husband of the Seventh Defendant. The claims against the Seventh Defendant, first wife of the Fifth Defendant, and the Eighth Defendant, second husband of the Seventh Defendant have been settled.[3]Thus, whatever the result of this application, it can be seen that Mrs Smith’s greed and dishonesty have brought disaster to her family.

The facts in more detail

[4]Mrs Smith was employed by the Claimant from 8 September 1975. For 21 years she worked as a Purchase Ledger Supervisor. At the date of her summary dismissal on 18 November 2010, she was earning £25,423.58 gross p.a.[5]Mr Smith was also employed by the Claimant as an engineer. He retired on 31 March 2005 as a result of a serious back injury sustained in May 2003 whilst he was at work. At the time of his retirement, he was earning £30,540 gross p.a. In May 2005, he appears to have received a tax free lump sum payment of £53,710.75 and a company pension of £5,350 p.a.[6]Mrs Lewis their daughter lived with her husband Mr Lewis and their two surviving children in Anglesey. She worked for Asda Stores Ltd taking home about £800per month, although in some months her earnings were significantly less[7]The fraud started on 3 June 2005, some two months after Mr Smith’s retirement, when Mrs Smith arranged for £29,252.60 to be paid from the Claimant to Mr and Mrs Smith’s joint account at the St Helens branch of National Westminster Bank (“NatWest”). At the commencement of the fraud, Mr and Mrs Smith’s assets consisted of their home at 161 St Helens Road, Ecclestone Park, Prescot, Merseyside (“St Helens Road”), owned outright, and £19,032 in their joint account: the cash was the remains of £66,000 realised when they sold their previous home and downsized to St Helens Road and Mr Smith’s pension lump sum payment Unless it was paid into another account, as to which there is no evidence. .[8]As from 22 June 2005, Mrs Smith arranged for large payments to be made to Mrs Lewis’s account at the St Helens branch of Barclays Bank. The first payment was £39,091.57. Prior to the receipt of the first payment, Mrs Lewis’s assets consisted of 59 Upland Road, Grange Park, St Helens There had been a mortgage on the property and there is evidence that it was discharged by a payment of £37,440.21 made by Mrs Lewis out of the first payment received from the Claimant. and £944 held in the Barclays account. All payments received from the Claimant were recorded in Mrs Smith’s bank statements as having been made by Glen Dimplex SP. Sometimes there were additional narrative entries such as “Lewis Electrical”, “Lewis”, “Maritime Cargo Ser” and “Maritime”.

Payments to Mr and Mrs Smith and their expenditure

[9]The total payments made by the Claimant to Mr and Mrs Smith’s accounts and Mrs Lewis’s account were as follows: Account Account Holder Amount NatWest A/c No. 94241899 Mrs and Mrs Smith (joint a/c) £448,581.32 NatWest A/c No. 51177277 Mr and Mrs Smith (joint a/c) £1,672,430.68 Barclays A/c No. 50845639 Mrs Lewis £677,158.88 NatWest A/c No. 51121212 Mrs Smith £13,733.42[10]Split between calendar years the following sums were paid into Mr and Mrs Smith’s joint accounts: 2005 (7 months): £175,500.72 2006: £198,191.75 2007: £561,070.92 2008: £285,899.52 2009: £459,023.14 2010 (10 months): £441,325.95 Total: £2,121,012.00[11]I have already indicated that Mr Smith retired following a serious back injury sustained at work. This led to a claim against the Claimant which was settled in November 2007 by payment of £230,205; some £40,000 of this may have been received earlier. £86,000 of the compensation was used to purchase an Aviva joint life investment bond. Another £14,000 went into ISA investments. The balance (according to Mr Smith) was used to make modifications to St Helens Road to cater for his disability and in “nominal gifts and assistance to our family”.[12]The proceeds of the fraud received into Mr and Mrs Smith’s joint accounts were used in a number of significant capital purchases. These totalled £684,000 and included: - £60,000 towards the costs of purchasing the Old Police station for the Third Defendant (see below). - £174,500 towards the costs of purchasing Baleek, Ballina, Mayo, Ireland (“Baleek”) for the Fifth and Sixth Defendants in February 2007 - £210,000 for the purchase of 16 Chisledon Close, Haydock, St Helens (“Chisledon Close”) for the Seventh and Eighth Defendants in June 2007; - £122,500 to purchase 11 New Road, Prescot on 9 April 2009, which was lived in rent free by a grandson - £117,000 to purchase 13 New Road, Prescot on 28 July 2010, which was lived in by another grandson.[13]Richard Pughe, a chartered accountant and a partner in BTG Global Risk Partners LLP, has produced two reports which identify the following expenditure out of the joint accounts: Personal expenditure: £762,021 Cash Withdrawals: £105,486 Cheques: £230,784 Included in this expenditure was the purchase in June 2010 of a Cherokee Jeep for £32,889, of which £24,889 was paid in cash The balance was in part exchange for another vehicle. .[14]Mr Pughe has also analysed Mr Smith’s own expenditure after the fraud commenced as follows: 2005 2006 2007 2008 2009 2010 TOTAL Debit card 24,515 27,189 41,573 34,959 33,270 45,362 £206,868 Credit card 1,243 4,368 9,842 21,568 24,888 6,137 £ 68,046 Cheques 42,500 20,291 20,630 24,577 13,523 9,543 £131,064 Cash (D1 & D2) 12,130 10,289 13,098 13,498 23,882 32,589 £105,486 TOTAL 80,388 62,137 85,143 94,602 95,563 93,631 £511,464 This figure excludes the £83,000 cheque by which most of the Aviva receipt was paid into Mr Smith’s bank account. Excluding the cash withdrawals, the annual figures are as follows: 2005 2006 2007 2008 2009 2010 TOTAL Debit card 24,515 27,189 41,573 34,959 33,270 45,362 £206,868 Credit card 1,243 4,368 9,842 21,568 24,888 6,137 £ 68,046 Cheques 42,500 20,291 20,630 24,577 13,523 9,543 £131,064 TOTAL 68,258 51,848 72,045 81,104 71,681 61,042 £405,978 This figure also excludes the £83,000 cheque by which most of the AVIVA receipt was paid into Mr Smith’s bank account.[15]There was one other source of funds for Mr and Mrs Smith. In 2006 and 2007, they realised a net sum of £110,000 by equity release on their St Helens Road home. The sums realised were as follows: 10 July 2006: £100,000 22 February 2007: £50,000 31 October 2007: £20,000 £170,000 Less repayment to Bristol and West in 2007: £60,000

Payments to Mrs Lewis and her expenditure

[16]Split between calendar years the following sums were paid directly from the Claimant’s accounts to Mrs Lewis’s account at Barclays: 2005 (7 months): £39,091.57 2006: £42,408.22 2007: £353,834.69 2008: £127,569.80 2009: £80,874.46 2010 (10 months): £34,380.14 Total: £677,158.88 Additionally, when 59 Upland Road was sold in July 2006 for £90,000, Mrs Smith contributed £60,000 By direct payment to the solicitors instructed by Mrs Lewis. towards the £150,000 cost of purchasing the Old Police Station, Anglesey in Mrs Smith’s sole name. This £60,000 was paid from the Smith’s joint account and was therefore an additional payment for Mrs Lewis’s benefit.[17]The payments into Mrs Lewis’s account were irregular in timing and amount. As and when the Barclays account went into overdraft or was close to depletion, a further payment was procured from the Claimant by Mrs Smith. The following substantial transactions stand out:(1) On 18 August 2006, Mrs Lewis purchased a boat for Mr Lewis at the cost of £21,714.96. The payment was made possible by a payment from the Claimant on 15 August of £26,606.71.(2) In May 2007, two cars were purchased: one for about £9,800 and the other for about £5,000.(3) On 4 July 2007, Twr Gwyn, Pen-Y-Bonc, Amlwch, Anglesey (“Twr Gwyn”) was purchased in the names of Mr and Mrs Lewis at a cost of £225,000. The purchase was funded as follows: 18 April 2007 Received from Claimant: £189,016.29 Transfer to Easysaver a/c Barclays Bank a/c 70147370 in Mrs Lewis’s name. The existing balance was £3.32 : £185,000 1 May 2007 Received from Claimant: £43,579.27 2 May 2007 Transfer to Easysaver a/c: £42,000 24 May 2007 Received from Claimant: £50,280.00 25 May 2007 Transfer to Easysaver a/c: £50,000 On 2 July 2007, Mrs Lewis arranged for £228,587.48 to be paid to T R Evans Hughes, the solicitors instructed in relation to the purchase. During the period 18 April – 2 July 2007, no other sums were credited to the Easysaver account, apart from interest.(4) On 30 June 2008, a caravan was purchased for £13,000.[18]Otherwise, Mrs Lewis appears to have spent the monies received from the Claimant on general expenses and substantial cash withdrawals. By 30 November 2010, her cash resources were only £5,000.

Other gifts to family

[19]Other substantial gifts of money were made to members of Mr and Mrs Smith’s family. Over £150,000 was given to the 5th and 6th Defendants, in addition to the contribution towards the costs of purchasing Baleek. Over £25,000 was given to the 7th Defendant, in addition to the cost of purchasing Chisledon Close.

The exposure of the fraud

[20]Mrs Smith left work with the Claimant on 15 October 2010 and fled to Edinburgh without telling her family, who were understandably extremely concerned. In his defence Mr Smith states that Mrs Smith returned home on around 22 October 2010. In his witness statement, he says he now believes she returned slightly earlier. She returned depressed and tearful, no longer in control of herself.[21]At 8 a.m. on 19 November 2010, the Claimant’s solicitors executed a search order at St Helen’s Road granted by Steel J. on 18 November 2010. According to Mr Smith and Mrs Lewis this was the first time that they became aware of the allegation that Mrs Smith had been involved in a fraud on the Claimant. Shortly afterwards, she attempted suicide by taking an overdose of pills. The following handwritten notes were found on her. I set them out, omitting personal messages, because they are relied upon by Mr Smith and Mrs Lewis:(1) Roy, ... this mess must be breaking you into little pieces ... I know I did and need to tell you that that all the terrible things you are going to find out about I did in my own stupid way to keep the kids safe and happy ... I cannot finish without saying that I fibbed to you and did underhand things to stop you finding anything out.(2) Karen, ... I cannot believe the position I have put you in, the over a million pounds from Glen Dimplex was a lie and I am so very sorry, your dad’s settlement was much less.(3) My ... family, by the time you read this you will probably heard of the dreadful things I have done. ... he [Mr Smith] is the most kind respected honest man and does not deserve what I have done (sic). Mrs Smith survived the suicide attempt.[22]In this context, it is relevant to record the following events which took place between 15 October and 19 November 2010: - On 18 October 2010, four transfers totalling £37,000 were made from account nos. 23062924 and 514484320 (both in Mrs Smith’s sole name) into the Smiths’ joint account no. 94241899. - The resulting balance in the joint account was £39,890.14. - Between 18 and 21 October, £30,500 was transferred from the joint account to members of the family, including £5,000 to Mrs Lewis. - On 19 October, £15,000 was transferred from the joint account to Mr Smith’s sole account no. 51494493. On 21 October 2010, £6,000 was transferred back. - Mr Smith asked Andrew Bruce and Paul Smith (grandsons) to leave 11 and 13 New Road so that they could be sold. - Mr Smith decided to move the Smith’s banking to the Santander branch in St Helens and visited NatWest and Santander in order to initiate the change. - On 28 October, Mr Smith gave instructions to Aviva for the bond to be surrendered. The proceeds of £83,895.22 were paid on 2 November into the Smith’s joint account. On 4 November, £83,000 was transferred to a new account opened in Mr Smith’s sole name. The net result of these transactions was that:(1) the balances in Mrs Smith’s two accounts were reduced to zero and near zero(2) not much was left in the joint accounts(3) the jointly held Aviva bond was cashed in and largely paid over to Mr Smith solely.

The claims

[23]The allegations against Mrs Smith are that she was liable to pay the £2,811,904.30 stolen from the Claimant. The claims were put in breach of contract, deceit, breach of fiduciary duty, as a constructive trustee of the misappropriated funds, money had and received and unlawful means conspiracy.[24]As against Mr Smith, the Claimant asserts that:(1) He dishonestly assisted Mrs Smith to breach her fiduciary duties and to breach the constructive trust, by allowing the joint accounts at NatWest to be used to receive and retain the monies paid into those accounts and to pay out monies, and he is liable to account for them.(2) He received funds belonging to the Claimant into the joint accounts knowing that they belonged to the Claimant and/or that they were transferred in breach of fiduciary duty and/or that Mrs Smith was obliged as constructive trustee to apply them only for the benefit of the Claimant.(3) He has been unjustly enriched and is liable to repay the money.(4) He unlawfully conspired with Mrs Smith to injure the Claimant.[25]As against Mrs Lewis, the Claimant alleges that:(1) She dishonestly assisted Mrs Smith to breach her fiduciary duties and to breach the constructive trust, by allowing her Barclays account to be used to receive and retain the monies paid into that account and to pay out monies, and she is liable to account for them.(2) She received funds belonging to the Claimant into the Barclays account knowing that they belonged to the Claimant and/or that they were transferred in breach of fiduciary duty and/or that Mrs Smith was obliged as constructive trustee to apply them only for the benefit of the Claimant.(3) She has been unjustly enriched and is liable to repay the money.(4) She unlawfully conspired with Mrs Smith to injure the Claimant.[26]As against Mr and Mrs Lewis, the Claimant additionally maintains a tracing claim in respect of Twr Gwyn on the basis that it was purchased with sums misappropriated by Mrs Smith from the Claimant. The Claimant relies on the transfers recorded in paragraph 17(3) above and asserts that Twr Gwyn is held by Mr and Mrs Lewis on constructive or resulting trust for it. A claim is also made in unjust enrichment, on the basis that Mr and Mrs Lewis received monies to which they were not entitled (with which Twr Gwyn was purchased) and it is unconscionable that they should retain them.

The Defences

[27]In his defence, Mr Smith asserts that, like the Claimant, he has been duped by Mrs Smith. He relied on the contents of the suicide note addressed to him. Following the downsizing and the release of equity in about 2003, he believed that they were “cash rich” outside their incomes from employment. Following his accident, he has been on medication which has impaired his memory. As from shortly after the accident, Mrs Smith assumed total responsibility for and control of their finances, and he did not concern himself with them. He did not know that Mrs Smith had misappropriated funds from the Claimant, and did not know that the funds had been received into joint accounts. He was aware that they had purchased two investment properties in New Road but he understood them to have been purchased from the equity release from St Helens Road. He not aware of gifts to friends and family beyond nominal amounts, and certainly not of the level that would lead him to suspect that Mrs Smith was using misappropriated funds. He only came to know of the alleged fraud when the Search Order was executed on 19 November 2010.[28]In her defence, Mrs Lewis asserts that she was also duped by Mrs Smith. She was led to believe that Mr Smith’s claim against the Claimant had been settled for over £1 million and that the monies paid to her were gifts from her parents from this compensation. She relies on the terms of the letter addressed to her by her mother when she attempted suicide as supporting this. She makes no admission as to the tracing remedy claimed in respect of Twr Gwyn.[29]In his defence, Mr Lewis (who has been unrepresented throughout) denies he acted dishonestly or that he received any money or assisted anyone. He states that “the really worrying and distressing thing is I don’t even know what I am supposed to be defending myself against”.

The application for summary judgment

[30]The Claimant now applies for summary judgment against Mr Smith and Mr and Mrs Lewis. It does so in respect of the following causes of action:(1) As against Mr Smith and Mrs Lewis that they dishonestly assisted in that breach of trust and/or both received funds misappropriated by Mrs Smith in breach of trust knowing of her breach of trust.(2) As against Mr and Mrs Lewis, relying on the tracing claim, that they hold Twr Gwyn on trust for the Claimant.

Evidence and Submissions

[31]In its evidence, consisting mainly of the reports of Mr Pughe and the witness statements of Mr James Laycock, a partner in Gordons LLP, the Claimant sets out the facts which I have summarised in paragraphs 4-22 above. There has been no attempt to controvert them.[32]In his submissions for the Claimant, Derek Sweeting QC relied particularly on the following points:(1) Mr and Mrs Smith never had more than a fairly modest income. As from his retirement in March 2005, it reduced significantly as his earnings of £25,000 were replaced by a £5,000 pension. Their total net income as from June 2005 did not exceed £25,000 p.a.(2) Yet their expenditure was wildly beyond their means. Even looking only at Mr Smith’s own expenditure by debit and credit cards and by cheques, his spending greatly exceeded his family’s net income. It is particularly striking that this was so in the nearly 2½ years between the start of the fraud and the receipt of compensation for his injury. Even if he did leave financial management to Mrs Smith, Mr Smith’s own expenditure was such that he must have realised that they could not afford that expenditure out of their income. It beggared belief that he would have made these payments without knowing of the other sources of income.(3) When the lump sum was received, £100,000 was to Mr Smith’s knowledge immediately invested in Aviva and ISA’s. According to him, most of the balance was spent on home improvements to cater for his disability.(4) No explanation is given as to how they could afford to buy the New Road properties (of which he was aware) for £250,000.(5) It is inconceivable that Mr Smith was unaware of gifts being made to his family, especially Mrs Lewis.(6) It was obvious that Mr Smith carried out the transactions summarised in paragraph 22 above after Mrs Smith disappeared – she was either absent or in no fit state to do anything by herself. This showed that he did have a clear understanding of the family’s finances, that he was aware of the fraud and that he was seeking to dissipate remaining funds to the family and himself before the Claimant acted against Mrs Smith.[33]In his witness statement made in March 2011, Mr Smith confirms the statements made in his defence. He states that at no time had anything been purchased, and at no time were any gifts made to any person or financial assistance provided, which led him to believe, suspect or even consider that funds were being used outside their resources. He further adds that what may appear to be personal spending needs further investigation. For example, on occasion he went to Costco to purchase stationery-type materials for the Claimant for which Mrs Smith obtained a refund. He had no idea of the vast sums paid out and was shocked by the evidence produced by the Claimant. He indicated that he would seek to obtain further evidence dealing with the detailed points made by Mr Pughe, but in the event none has been produced.[34]In her witness statement also made in March 2011, Mrs Lewis confirms the statements made in her defence. She did not know or even suspect that her mother was fraudulently taking and using funds from the Claimant. She did not open her bank statements, which she threw away, so she did not know that the moneys were coming from the Claimant. Even if she had, it would not follow that she would have appreciated that this was fraud. She did not appreciate how much money had been given to her in total.[35]As to the purchase of Twr Gwyn, she deposes that she and Mr Lewis had put the Old Police Station on the market, but a sale fell through. She goes on to state:
“That’s when [Mrs Smith] stepped in and offered to buy it. She said it would be her “retirement nest egg” for her and [Mr Smith] but asked me to keep it in my name until they eventually moved there. I again thought that the funds came from [Mr Smith’s] compensation and their own resources.”
She asserts that the funds regarding the sale of the Old Police Station were transferred to her Barclay’s account in April 2007[36]In his submissions on behalf of Mr Smith and Mrs Lewis, Mark Harper submitted that, at trial, there needed to be cogent evidence of dishonesty: see Secretary of State for the Home Department v. Rehman [2003] 1 AC 153 at §55. His clients are people of good character. There was a strong presumption that the innocent explanation for the activities alleged to be dishonest is the correct explanation. Summary judgment should only be granted where it is plain and obvious that there has been dishonesty. His clients had a real prospect of success at trial and should be given the opportunity of giving oral evidence in support of their defence that they had no knowledge of Mrs Smith’s fraud. In particular Mrs Smith’s flight to Scotland and the suicide notes supported their fundamental case – that she duped them. Mr Sweeting had made good points, but his clients should have the opportunity of answering them in the witness box.[37]Mr and Mrs Lewis had an answer to the tracing claim on Twr Gwyn in that she gave good consideration for it by the agreement to sell the Old Police House to Mrs Smith for which £190,000 was paid. It was inappropriate to decide whether Mrs Lewis’s evidence is true at this stage. There should be a trial of the facts.[38]Mr Lewis did not put in a witness statement. That is not a matter for criticism. In his oral submission to me he said that he felt he could not sign the proposed settlement agreement with the Claimant because his children would suffer.[39]In reply, Mr Sweeting criticised Mr Smith for being unwilling to deal with the case against him based on his own spending. There had been a spending spree and he made no attempt to deal with the cogent points made. He also criticised his failure to deal with the transactions after Mrs Smith’s disappearance.[40]He also criticised Mrs Lewis for her failure to engage with the evidence deployed. Her answers consisted of generalities. As regards Twr Gwyn, there was not the slightest evidence to support the case that Mrs Smith had paid £190,000 to buy the Old Police Station. There was nothing in writing as would be required for a sale of land. The property remained in the sole name of Mrs Lewis. There had been no payment of £190,000 to Mrs Lewis. The entire payment for Twr Gwyn had been provided by the Claimant. There was no reason not to declare now that Twr Gwyn was held in trust for the Claimant.

Discussion and conclusion

[41]The claims against Mr Smith and Mrs Lewis in dishonest assistance and knowing receipt depend on establishing that they knew that the monies being received were as a result of the breaches of trust – i.e. the fraud – committed by Mrs Smith. The claim for knowing receipt does not require proof of dishonesty, but it does require proof of a sufficient knowledge of the breach of trust that it would be unconscionable for them to retain the monies or their traceable proceeds. Both are serious allegations.[42]Although the Claimant needs only to prove its case to the civil standard, the more serious the allegation, the less likely it is to be true – see Lord Nicholls of Birkenhead in In Re H & ors (Minors) [1996] AC 563, 586C-H: The standard of proof Where the matters in issue are facts the standard of proof required in non-criminal proceedings is the preponderance of probability, usually referred to as the balance of probability. This is the established general principle. ... The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury. A stepfather is usually less likely to have repeatedly raped and had non-consensual oral sex with his under age stepdaughter than on some occasion to have lost his temper and slapped her. Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation. Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established. Ungoed-Thomas J. expressed this neatly in In re Dellow's Will Trusts [1964] 1 W.L.R. 451, 455:
“The more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it.”
That is all the more so when Mr Smith and Mrs Lewis are persons of good character. It makes it less likely that they would participate in a fraud.[43]This is a summary judgment application. Summary judgment is possible in fraud cases, but should only be granted where it is plain and obvious that there has been dishonesty: see Wrexham Associated Football Club Ltd v. Crucialmove Limited [2006] EWCA Civ 237 §§51 and 57-60 (per Sir Igor Judge, President) in which he observed inter alia: Experience teaches us that on occasion apparently overwhelming cases of fraud and dishonesty somehow inexplicably disintegrate. In short, oral testimony may show that some such cases are only tissue paper strong. As Lord Steyn observed in Medcalf v Weatherill (2003)1 AC 120 at paragraph 42, when considering wasted costs orders: “The law reports are replete with cases which were thought to be hopeless before investigation but were decided the other way after the Court had allowed the matter to be tried”.[44]More recently, in Antonio Gramsci Shipping Corporation v. Recoletos Ltd [2010] EWHC (Comm.) 1134, Gross J. put the matter this way: [3] On the one hand, summary judgment is designed for plain cases - cases which are not fit for trial at all: Three Rivers DC v Bank of England (No. 3)[2001] UKHL 16; [2001] 2 All ER 513, per Lord Hope at [95]. That consideration weighs all the more heavily when the case involves allegations of serious fraud or dishonesty; generally, conclusions on such issues ought to be reached at trial, so that obvious caution ought to be exercised before giving summary judgment in a case of that nature: Wrexham Associated Football Club Ltd v Crucialmove Ltd[2006] EWCA Civ 237; [2007] BCC 139, esp., at [49 – 59]. On the other hand, where it can be ascertained without the conduct of a mini-trial that there is no realistic prospect of a successful defence, then summary judgment will or may be appropriate and the Court should not be deterred from granting such relief simply because of the volume – or, in some cases, smokescreen – of documents. Moreover, if in all the circumstances, there is no real prospect of a defendant successfully defending a claim, then, even though good faith, fraud or integrity are in issue, there is no longer a bar to giving summary judgment: Wrexham Associated Football Club, supra.

Dishonest assistance/knowing receipt

[45]In the light of these principles, I have considered very carefully the cases in dishonest assistance/knowing receipt against Mr Smith and Mrs Lewis.[46]I should start by recording that I find it established beyond doubt that Mrs Smith engaged in a fraud on the Claimant starting on 3 June 2005 and that she stole a total of at least £2,811,904.30. She is a constructive trustee of the monies she stole. That was not admitted by Mr Smith and Mr and Mrs Lewis, but the evidence is overwhelming and, of course, she has submitted to judgment for £2.8 million.[47]As regards Mrs Lewis, I accept Mr Harper’s submission that it is not sufficiently clearly established at this stage that she knew that the monies she received (in fact) from the Claimant were the result of a fraud committed by Mrs Smith. She has a great deal to answer for – not least the sheer scale of the monies she received and the contents of her bank statements – but she may not have known the true state of her parents’ financial affairs and may have been misled by her mother as to the extent of the compensation received by Mr Smith. In those circumstances it would be inappropriate to enter summary judgment on the dishonest assistance/knowing receipt claims, which must go to trial.[48]I have reached the opposite conclusion in relation to Mr Smith. Although it is a strong finding to make at an interlocutory stage, I am sure that he must at the very least have strongly suspected that Mrs Smith was stealing from her employer, and deliberately closed his eyes and ears and deliberately did not ask questions in case he learned something he would rather not know. I think it highly likely that actually he was fully aware of what Mrs Smith was doing, but a deliberate closing eyes and ears and a deliberate failure to ask blatantly obvious questions for fear of what he would learn amounts to dishonesty: see Lord Nicholls of Birkenhead in Royal Brunei Airlines v. Tan [1995] 2 AC 378, 389 E-G.[49]The following matters have driven me to reach that clear conclusion:(1) Mr and Mrs Smith were reasonably comfortably off, but they were only “cash rich” in a modest way. On Mr Smith’s retirement their income was significantly reduced. They could be expected to have to watch their spending rather carefully. Instead as from 3 June 2005, it is no exaggeration to say there was a spending spree. Even if that spending had been entirely by Mrs Smith, it could not have gone unnoticed by Mr Smith, who was living in the same household throughout. However as the tables in paragraph 14 above show, Mr Smith alone spent far more than the family’s legitimate income. His outgoings (excluding cash) in 2005 were over £68,000. Over £50,000 was spent in 2006 and over £70,000 in 2007. These are huge sums. He cannot have been unaware that they were also spending very significant sums in cash. Mr Smith fails to grapple with and explain his own spending in his evidence. He has had plenty of opportunity to challenge the detailed points made by Mr Pughe and I think it is a proper inference that he really has no answer to it.(2) The spending in 2005, 2006 and most of 2007 preceded the receipt of compensation from the Claimant. Unlike Mr, Lewis, who may have been misled by her mother, Mr Smith must have known when he received the compensation and how much it was. He knew that it had been part invested and that (according to him) much of the rest had been spent on alterations designed to assist with his disability.(3) Mr Smith asks the Court to believe that he thought there had only been nominal gifts to members of the family. I find that simply incredible. The family appear to have been close – Mr Smith and Mrs Lewis give the clear impression that it was. Given the very considerable scale of generosity to Mrs Lewis, which she says she believed derived from Mr Smith’s compensation, I am sure that she must have thanked him fulsomely and that he must have appreciated that the gifts were far from nominal and included a substantial contribution to the purchases of the Old Police House and of Twr Gwyn. I find it similarly incredible that the 5th-8th Defendants, to whom very large gifts were made See paragraph 19 above. , would not have thanked Mr Smith and given him at least some appreciation of the scale of the gifts made. It is implicit in Mr Smith’s evidence that if he had realised that the gifts were substantial, he would have realised that they could not afford it and that there was something very wrong.(4) Mr Smith says that he was duped by Mrs Smith. The suicide note provides corroboration for his evidence, but it is a note written by a very dishonest woman who knew the game was up and who had every incentive to try and protect her husband and family. More importantly, Mr Smith does not say how or in what way he was duped – that is what Mrs Smith said or did to explain their new found wealth. If he was to run a serious case of deception by Mrs Smith, he would need to explain what that deception was. He does not attempt to do so.(5) Mr Smith also says that he was affected by the painkillers given to him to mitigate the effects of his injury. I do not in any way discount the severity of his injury, but it is right to observe that he continued to drive long distances and he played golf. Although he may well have handed over the management of the family’s finances to Mrs Smith, he spent very large sums of money himself – over £400,000 over six years – and he cannot have been unaware of the dramatic improvement in their general standard of living.(6) He accepts that he knew of the purchases of 10 and 12 New Road. The purchase of the first could more or less be explained by the equity release, but the purchase of the second was another substantial capital expense which went beyond their means.(7) It is quite clear that the financial transactions after Mrs Smith’s disappearance were effected by Mr Smith. He does not really dispute this. His conduct is not of a man unable to handle finances. On the contrary, it shows that he was able to take decisive action which had the clear effect of dissipating Mrs Smith’s cash resources and of removing jointly held assets (the joint accounts and the Aviva bond). I think that it points strongly to a man knowing that the fraud (of which he was aware) had been discovered and that he needed to try and preserve the family’s assets from the inevitable claims that the Claimant would bring against Mrs Smith. Mr Smith has not grappled with the case against him.[50]For these reasons I have concluded that it is clearly established against Mr Smith that he knew of Mrs Smith’s fraud from the outset. In my judgment, Mr Smith has no real prospect of succeeding in his defence of the claims in relation to the joint accounts. There are limits to the credulity of the Court, even at a summary judgment stage. I find:(1) there was a breach of trust by Mrs Smith, that he assisted her in that breach of trust by allowing the joint accounts to be used to receive payments from the Claimant and that he acted dishonestly by the ordinary standards of reasonable people.(2) Mrs Smith appropriated the Claimant’s assets in breach of duty, Mr Smith received funds emanating from that breach of trust and he knew of that breach of trust. My findings are confined to the monies paid into the joint accounts. I will hear the parties as to the remedies to be granted.

Tracing remedy in relation to Twr Gwyn

[51]It is quite clearly established that the entire purchase monies for Twr Gwyn derived from the Claimant as a direct consequence of Mrs Smith’s fraud. There were paid in three tranches into Mrs Lewis’s Barclays account. She almost immediately transferred most of the money received into a savings account, in which there was only a nominal existing credit. On 2 July 2007, £228,587.48 was transferred on Mrs Lewis’s instruction to her solicitors. That was sufficient to pay the purchase price of £225,000 plus, I expect, the legal and conveyancing costs.[52]Thus there is no difficulty in tracing the Claimant’s monies, misappropriated by Mrs Smith, into Twr Gwyn. It is clear that the Claimant’s funds were used to pay the entire purchase price. On normal principles, the Claimant is prima facie entitled to trace its funds into that assets and to contend that Twr Gyyn is held in trust for it: see Foskett v. McKeown [2001] 1 AC 102, 130 C-E, per Lord Millett.[53]Mrs Lewis’s answer, in her witness statement, but not her defence, is that she gave consideration for the monies by agreeing to sell the Old Police Station to her mother for £190,000. There is not the slightest contemporary evidence to support this assertion. There is no signed written agreement as required by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which requires: A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each. There was no payment of £190,000 by Mrs Smith to Mrs Lewis. It is not possible even to identify a particular payment from the Claimant that ties into the £190,000. The Old Police Station remains in Mrs Lewis’s sole ownership.[54]In those circumstances, even if I were to accept Mrs Lewis’s evidence (as to which I entertain considerable reservations) I do not see how it can be said that Mrs Lewis gave consideration for the monies paid by the Claimant. There is no contract for the sale of the Old Police Station and Mrs Lewis still owns it absolutely. No other defence of change of position was advanced (even if it were available).[55]Mr Lewis was anxious to emphasise that he denied that he had been in any way dishonest. It is right that I should record that no allegation of dishonesty is made against him. The tracing remedy does not depend on any dishonesty being proved against Mr or Mrs Lewis.[56]In my judgment, Mr and Mrs Lewis have no real prospect of succeeding in their defence of the tracing claim in relation to Twr Gwyn. I shall therefore declare that Twr Gwyn is held by Mr and Mrs Lewis on trust for the Claimant absolutely. I will hear the parties as to what other relief should be granted.