Gray v Smith & Ors [2013] EWHC 4136 (Comm)

[2013] EWHC 4136 (Comm)Case No 2012 Folio 297
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 20th December 2013
Before
MR JUSTICE COOKE
Between
MR ROBERT GRESHAM GRAYClaimant(1) MR RICHARD SMITHDefendants(2) JMPC SALES LIMITEDDefendant(3) MR RICHARD EDWARDSDefendant
Mr S. Gee QC and Miss S. Healy (instructed by Solomon Taylor and Shaw) for claimantMr A. Temple QC and Mr O. Ticciati (instructed by Wilmot & Co) for defendantsHearing Hearing dates: 3rd, 4th, 5th, 9th, 10th, 11th, 12th and 20th December 2013
Judgment

Introduction

[1]On the evidence before me and in the language used in the authorities of earlier centuries, Mr Richard Edwards was a “rogue”. He was a defendant in this action but did not appear. On the evidence of all the witnesses who knew him, he was a highly plausible, charming and well-connected individual whose honesty and integrity was not questioned until some time in late 2011. Prior to that, he was seen as honest, but regarded by some as disorganised and chaotic (a shambles/a mess/a nightmare) and as unreliable in the sense that he was often short of immediate cash to fund the deals in classic cars in which he was involved, borrowed money in order to tide him over and had a somewhat casual or haphazard approach to questions of detail with resultant inconsistency in his dealings. He sometimes put down deposits for the purchase of cars and failed to complete them. These witnesses included the claimant (Mr Gray), Mr Regis, a director of Asphaltic Ltd which invested in classic and high value cars and lent money to individuals (including Mr Edwards) against the security of a pledge over such cars, Mr Barker, a director of C.A.R.S United Kingdom Ltd (Cars UK), a company specialising in the transporting and storage of valuable classic and historic cars which stored the cars for Mr Regis and Mr Edwards, and Mr Macari, a director of JMPC Sales Ltd which bought the McLaren Formula One racing car, which is the subject of the action, from Mr Edwards. Mr Gray described him as charismatic and Mr Regis said that there was nothing he would not do for you in fixing the best restaurants and the like. The fact is that, until 2011/2012, when Mr Edwards’ dealings unravelled, Mr Gray trusted him completely and was duped by him in relation to a good number of cars of an historic interest to collectors which Mr Edwards was supposedly holding for Mr Gray. There is no evidence that anyone considered that he would dishonestly sell a car to which he did not have title.[2]Mr Gray, over a period of some two years, parted with $11-12 million to Mr Edwards or on his instructions with a view to purchasing classic cars. The basis upon which Mr Edwards purchased the McLaren F1 (R/19) is the subject of dispute, as are the circumstances in which he later sold it. As at December 2008, the McLaren was owned by a company in California, Symbolic Motor Car Company (Symbolic), which was owned by Mr Van Schoote and for whom Mr Noon worked, as “the one man department” of the company which dealt in classic collectors’ cars. At that stage, Mr Edwards was in dispute with Symbolic, having bought a Californian Spyder from Symbolic and paid US$250,000 as a deposit to secure it. He had been unable to complete the deal and had forfeited his deposit and took proceedings against Symbolic on a date which does not appear on the evidence. In consequence of this dispute, however, Mr Edwards told others that he considered that Symbolic would not contract with him in the future or would, if he paid money for the purchase, simply retain it against its claims against him, and so dealt with Mr Noon by means of an alias - that of “Peter Williams”, when concluding purchases in October and December 2008 and thereafter.[3]In essence “Peter Williams” agreed a purchase price for the McLaren with Mr Noon of £950,000 and Mr Gray paid £1 million for the car. In circumstances which I shall later describe in more detail, “Peter Williams” also purchased other cars from Symbolic but needed funds to pay which he borrowed from Mr Regis/Asphaltic, pledging those cars and the McLaren as security for the loans and procuring bills of sale/commercial invoices from Symbolic addressed to Mr Regis/Asphaltic. The McLaren was transported to the UK in mid-2009 and held by CARS UK to the order of Mr Regis/Asphaltic, which paid the transportation and storage charges and was not prepared to release the car (and other cars similarly pledged) until the particular loan and further loans made to Mr Edwards were repaid. At the end of 2010, Mr Regis/Asphaltic was prepared to release the McLaren and the car was sold by Mr Edwards to JMPC Sales Ltd (Mr Macari’s company) which on-sold it to Mr Smith, the defendant in this action.[4]The essential dispute now is as to the ownership of the car, as between Mr Gray and Mr Smith both of whom have paid for the car. Mr Gray contends that Mr Edwards bought the McLaren as his agent and that he was the undisclosed principal in Mr Edwards’ purchase transaction with Symbolic. He claims legal title in the car, alternatively an equitable title under the law of California and maintains that Mr Smith never acquired title to the car, whilst Mr Smith contends that he acquired good title to the car from JMPC Sales.

The Witnesses

[5]Mr Gray and his witnesses, Mr Brokaw, Mr Broadhurst and Mr Regis were of limited help to me in my determination of the dispute. I was not satisfied that Mr Gray told me the truth about his relationship with Mr Edwards and the absence of documentation disclosed by him in relation to that relationship and the purchase of cars, purportedly on his behalf, suggested that there was something closet or untoward about it. Mr Gray denied that he was “trading” in such cars, stating that he was investing in them through Mr Edwards in the knowledge that gains on sales were exempt from capital gains tax in this country. The absence of documentation and accounting between him and his supposed agent, Mr Edwards, is astonishing in the absence of some intent to keep the dealings secret, whether with regard to the tax authorities or otherwise. He does not appear ever to have asked for a document of title to the car, to have known where it was, what the storage or transportation costs were or anything much about it. I could place no reliance on what appeared in his witness statements save where supported elsewhere in the evidence. The supposed arrangements with Mr Edwards in relation to the purchase of the McLaren, as recorded in Mr Gray’s witness statement do not tally with the documents which were disclosed by him and others (including documents forged by Mr Edwards) and his account of the agreement for Mr Edwards’ remuneration or commission makes no sense for a businessman of Mr Gray’s experience. The idea that Mr Edwards was entitled to a commission which represented the difference between any price that he could negotiate with a seller and the price at which Mr Gray bought the car, without disclosure of the amount in question, is truly bizarre.[6]Mr Regis was a close associate of Mr Edwards and was regarded by some as effectively his “partner” in the purchase of cars. It is plain that he financed Mr Edwards and on Mr Macari’s evidence, they effectively bought cars together. Mr Edwards would put down deposits and Mr Regis would fund the balance of the purchase price with bills of sale and invoices made out to him and/or his company Asphaltic. The car would be in the latter’s possession or held to its order. Mr Macari, who dealt with Mr Regis on numerous occasions, considered him to be the effective owner of the car in such circumstances, whether or not he was, in law, a pledgee, holding the car as security with a promise to reconvey title to Mr Edwards on repayment of outstanding indebtedness.[7]Mr Barnaby Brokaw of the Grand Garage was used by Mr Edwards to defraud Mr Gray and received some $28,000 out of the £1 million paid by Mr Gray to him in respect of the purchase of the McLaren from Symbolic. He dealt with Mr Edwards alone and never received any authorisation from Mr Gray to retain the sum of money in question. On his evidence, all he did for this money was to receive a bank transfer from Mr Gray for £1 million, pay £950,000 to Symbolic, $45,000 to Mr Edwards and retain the balance for himself or his company. Whilst he was clear that various invoices and other documents which supposedly emanated from him were forgeries by Mr Edwards, his involvement in what took place does him no credit even though no-one seriously challenged any of the evidence which he gave. The sole purpose for Mr Edwards using Mr Brokaw appears to have been to defraud Mr Gray by preventing him from knowing the price at which the McLaren was obtained by Mr Edwards and to channel the money to the seller with Mr Edwards and Mr Brokaw taking a “rake-off” on the way. This course of action was of the same kind as that effected in relation to other cars, as appears later in this judgment.[8]Mr Broadhurst’s evidence was limited to a meeting which he and Mr Gray had with Mr Macari in late 2011. Both Mr Broadhurst and Mr Gray in their witness statements referred to this meeting as taking place on 6th December 2011 but having re-checked his diary, Mr Broadhurst’s evidence was that it was on 24th November. By this stage Mr Edwards’ fraudulent activities were known and I find, as Mr Macari accepted, that he did describe Mr Edwards as someone he could not trust “as far as he could throw him”. Mr Gray and Mr Broadhurst were seeing Mr Macari as part of their investigations into Mr Edwards dealings with their assets and it is clear to me that, if Mr Macari had indicated that, as at December 2010 (as opposed to November 2011) he had viewed Mr Edwards in this way, that would have been seen as a significant admission which would have immediately been held against Mr Smith and gained a prominent place in the claim made and in the particulars of claim. The ascription of this comment to Mr Macari as his view in December 2010 is inconsistent with the general view of Mr Edwards at the time and the fact that he had done tens of millions of pounds worth of business in cars prior to that with nearly all of those who gave evidence and continued to do so for a while thereafter. Similarly, the gloss that has been put by Mr Gray and Mr Broadhurst on Mr Macari’s description of the two invoices he had, the first of which came from Mr Edwards and was inaccurate and was corrected by a second invoice signed by them both, does them no credit at all. Mr Broadhurst had bought five or six cars with Mr Edwards and sold one but, he said, was not correctly described as his business “partner” which was a phrase that Mr Edwards had used of him. It was to him in 2012 that Mr Edwards had given the forged invoice from Mr Brokaw to Mr Gray for the McLaren to which reference is made later in this judgment. I am clear that I can place no reliance upon the evidence of Mr Gray or Mr Broadhurst about the details of this meeting because, had anything significant of the kind that they suggest been said, Mr Broadhurst would have seen it as significant at the time, which he did not, and the point surfaced only in witness statements made in 2013.[9]Mr Smith was accepted as being an entirely honest man although it was said that he was on notice as to a defect in Mr Macari’s title to the car and took a chance on that. That would have been inconsistent with his engagement of Mr Emmison, a lawyer specialising dealings in classic cars, in order to protect his position. As he said, he relied upon Mr Emmison for protection in relation to a purchase of a high value car of this kind. I have no difficulty in accepting his evidence. Similarly, Mr Dean Lanzante was a straightforward witness whose recollection of his meeting with Mr Smith and Mr Macari on 3rd December and of subsequent events was reliable. Mr Noon of Symbolic was a careful and considered witness who essentially relied upon the documents but whose evidence again I found reliable. Mr Barker of Cars UK had, it seemed to me, limited recollection of events, which is not surprising and essentially sought to reconstruct from the documents he was shown, apart from the major point that he always looked to Mr Regis for instructions and held the cars to his order until he released them.[10]The main focus of attention by Mr Gee QC, acting for Mr Gray, was Mr Macari, whom he accused of dishonesty. Mr Gee QC and Mr Macari got across one another. Mr Macari, who said his reputation in the trade was such that he could take cars worth millions on loan or purchase them from dealers all over Europe by word of mouth alone, deeply resented the accusations of dishonesty. Whilst he accepted that he told a lie to Mr Smith on one occasion in relation to the unavailability of spares for the McLaren and was inclined to “shoot from the hip” in answering some questions without reference to the documents, where he was shown to be wrong on some matters of detail, I find that he was both honest and accurate in the evidence he gave as to the circumstances in which he acquired the McLaren. Notwithstanding the points which were put to him, he had no reason to discuss Mr Edwards or Mr Regis, with whom he checked prior to purchase of the car from Mr Edwards, a signed invoice and warranty of title to record the fact. He had himself been prepared to lend Mr Edwards money, albeit on a very small scale, certainly as compared with others. I find that, had he had any reason to suspect Mr Edwards had no title to sell the car, he would not have purchased it since, as he testified, his reputation in the market was such that he could not afford to take a risk in that respect.

The relationship between Mr Gray and Mr Edwards

[11]Mr Gray’s evidence was that he first met Richard Edwards in the late 1990s and he became a friend. Over the years they saw each other quite frequently, occasionally visiting each other’s houses, eating out together and engaging in sporting activities. He regarded him as a trustworthy friend and had no reason to doubt his integrity. By early 2007 Mr Gray had a small collection of classic cars and having swapped an Aston Martin DB5 for a 1950s Thunderbird and a 1930s Rolls Royce Phantom II, regretted that swap and decided that he needed guidance from someone who was a specialist in classic cars. At the same time, he was also looking to invest in valuable cars because of the uncertainties in the global economy. In circumstances where Mr Edwards had often talked to him about top-end classic cars, particularly ones which had scarcity value, Mr Gray turned to him for advice and assistance in purchasing such cars. He did not know that Mr Edwards had been an undischarged bankrupt since 1995.[12]Mr Gray’s evidence was that Mr Edwards advised him that the USA was the best place to sell such cars as the Rolls Royce Phantom II and the Ford Thunderbird and that he offered to act as an agent to sell them on Mr Gray’s behalf. Mr Gray agreed that Mr Edwards could seek to find a good trade for those cars for him in the USA and look for cars to be purchased. Mr Gray’s evidence was that Mr Edwards would contact him by email or telephone with details of cars in which he thought Mr Gray might be interested. He would usually send photographs and Mr Gray would decide whether or not he wanted to purchase. If he did wish to do so he would transfer the purchase price in accordance with Mr Edwards’ directions on the basis that the funds would be used for the purchase. Similarly, if he instructed Mr Edwards that he wished to sell a car, and Mr Edwards found a buyer, the latter would inform Mr Gray who would decide whether to make the sale.[13]In his statement, Mr Gray said that:
“It was clearly understood between Mr Edwards and I from verbal discussions that took place around the time that Mr Edwards first started assisting me in acquiring cars that I was the principal and would become the outright owner of the car upon it being purchased and he would act only as my agent in purchasing or selling the cars as well as making all the practical arrangements in relation to them. … I am absolutely certain that this was the agreement between us and this is reflected in our subsequent dealings. … My arrangements with Mr Edwards in relation to his remuneration for finding the cars and acquiring them on my behalf were informal, as were the arrangements for the payment of transportation costs, insurance, storage … for the cars that I purchased through him. He would call and ask for an appropriate commission for him and others involved and I would usually simply agree. He would bill me for VAT and import duty as well as transportation costs. As regards remuneration, we did not work to a precise formula, but Mr Edwards and I both knew that he was not giving me the benefit of his contacts and experience for free. I trusted him to take a reasonable commission on each transaction to reflect the assistance that he was providing me. Broadly speaking, I knew that his remuneration on each car would be the difference between the gross price which I paid for the car less the price at which he was able to acquire it on my behalf.”
[14]The first car purchase in which Mr Edwards was involved for Mr Gray related to a Jaguar XJR 15 in October 2007, which he ultimately sold on Mr Edwards’ advice in part-exchange for a BMW 507. Mr Gray’s recollection is that between March and December 2008 he purchased, through Mr Edwards, a Maserati Ghibli, a Ferrari 512, a Lamborghini Miura and a Jensen Interceptor, from Germany, South Africa, California and Oxfordshire respectively. In all cases Mr Gray said that the agreement between him and Mr Edwards was that the car would be purchased for him and Mr Edwards was entrusted to make arrangements for shipment of the cars to the UK where they were to be stored. The purchase money was paid as directed by Mr Edwards and Mr Gray said that he believed that he was paying a gross sum which from Mr Edwards would take his fee or commission though in some cases he was requested to agree to an additional commission to be paid to a third party.[15]Over and above this, Mr Gray purchased from Mr Edwards himself an Aston Martin DB6 Volante.[16]In cross-examination it emerged that Mr Gray had purchased in excess of fifteen cars through Mr Edwards.[17]The precursor to the McLaren purchase was a BMW 507 which Mr Edwards, in the guise of Peter Williams, purchased from Symbolic for $750,000, as evidenced by a written agreement dated 22nd October 2008. Mr Gray’s evidence was that this came up in the context of his wish to sell the Rolls Royce Phantom II, the Ford Thunderbird and the Jaguar XJR 15. He said that Mr Edwards told him that Barnaby Brokaw, a contact of his in California, had sourced a BMW 507 which could be purchased at a price of $1.1 million with the Rolls Royce and Jaguar exchanged by way of part-payment amounting to $350,000. With a commission of $15,000 to be paid to Mr Brokaw, the balance of the payment required in cash was therefore $765,000. Mr Gray agreed to this deal to “monetise” the Rolls Royce and Jaguar and to acquire the BMW 507 which he was advised could be sold for a sum in excess of $1.1 million. Consequently he paid $765,000 to Mr Brokaw’s account to close the deal, asking for invoices to be issued which confirmed the agreement reached and against which funds had been paid.[18]Although Mr Edwards purchased the BMW 507 from Symbolic in the name of “Peter Williams” for $750,000 in October 2008, the agreement showed that $225,000 was to be paid as a non-refundable deposit by 29th October and the balance of $525,000 within three business days of the car’s arrival at Symbolic’s premises in San Diego. Transportation to “Peter Williams’” specified destination would only occur on receipt of payment in full, with “Peter Williams” being responsible for all transportation charges incurred thereafter. “Peter Williams” did not pay the deposit by 29th October and money did not arrive until December as appears hereafter, but the sale did go ahead.

The purchase of the McLaren from Symbolic

[19]Mr Noon’s evidence was that his first contact with the man who called himself “Peter Williams” was in early 2008 on the telephone. He presented himself as a rich Englishman interested in classic cars and the beneficiary of a trust fund. By an email of 26th April 2008, “Claire Evans”, purportedly the PA to Peter Williams, requested pictures and details of three cars, including the McLaren. In fact that email would have come from Mr Edwards since “Claire Evans” did not exist. “Peter Williams” rang a couple of days later asking Mr Noon for further details of the McLaren which he forwarded on 29th April. There followed a series of emails in which the prices of the various cars were discussed and on 2nd May, “Claire Evans” sent an offer of $6 million for four cars which Mr Noon rejected.[20]On 20th May 2008, following further emails and telephone calls with “Peter Williams” a sale of a Lamborghini Miura was agreed for $420,000, with all the paperwork to be sent to an address in Switzerland. It seems that this was for a friend of Mr Gray and Mr Gray supplied the money to Mr Edwards. At around this time “Peter Williams” again professed interest in the McLaren and Mr Noon sent him further details of its history. There was discussion of two McLarens at this point, for which “Peter Williams” offered $3.7 million which Mr Noon rejected. On the night of 23rd May he offered to sell the McLaren 19R to “Peter Williams” for $1.75 million. Nothing came of this however.[21]Payment for the Lamborghini Miura had still not been completed and it was moved to a storage facility and on 29th July 2008 Mr Noon told “Peter Williams” that unless he completed by paying the outstanding balance, the Miura would be remarketed and sold to an alternative buyer. After further delay, the balance of the price was eventually paid and the Lamborghini was shipped to Switzerland on 15th September 2008.[22]This was followed on 22nd October 2008 by “Peter Williams’” agreement with Mr Noon to buy the BMW 507 for $750,000 as referred to in paragraph 17 above. Despite the payment obligations undertaken, no payment arrived. On 19th November 2008, Mr Noon received an email from “Claire Evans” stating that payments had not been made because of a problem with Peter Williams’ trustees in the Bahamas who were responsible for providing the funds. There was further prevarication with reference to “Peter Williams’” “complex tax structure” and his absence “at a spa in Thailand fasting and meditating”. On 29th November 2008, Mr Noon, on the instructions of Mr Van Schoote emailed to say that Symbolic regarded the sale of the BMW 507 to be null and void and that the vehicle would be remarketed. Once again “Peter Williams” blamed his trustee and forwarded a forged email purporting to come from his trustee.[23]Matters continued in the same vein until the deal was concluded for the McLaren on 3rd December 2008 whereupon “Peter Williams” rang Mr Noon saying that funds for the purchase of both the BMW 507 and the McLaren would be coming from Barnaby Brokaw, a dealer in California who ran “The Grand Garage”. On 3rd December 2008 $450,000 was sent by Barnaby Brokaw which meant that a balance of $300,000 remained due on the BMW 507.[24]It was during this interim period prior to 3rd December that “Peter Williams” expressed further interest in the McLaren 19R. In early December Mr Edwards mentioned to Mr Gray that the McLaren was for sale in California at a price of $1.5 million and on 3rd December sent some photographs of it to him. Mr Noon agreed a price of £950,000 (approximately $1.4 million) with “Peter Williams” who asked for an invoice in pounds sterling. Mr Noon’s evidence was that Peter Williams said that he wanted the BMW 507 to be delivered to his home in Florida for personal use in the winter there and the McLaren delivered to the UK where he wanted to race it in track events. There was no suggestion to Mr Noon that Peter Williams was acting as an agent for anyone else. The terms of the deal were recorded in an email of 3rd December 2008 from Mr Noon to “Peter Williams”. This referred to the receipt of $450,000 in respect of the BMW and requested payment of the balance forthwith. The email records the sale of the McLaren on an “Invoice” basis. As appears from the terms of the email and from Mr Noon’s evidence, this meant that the contract was conditional upon the payment of the purchase price which was required to be made the next day. If the funds arrived later than that Symbolic was free to sell the vehicle to an alternative buyer, whereupon any funds later received from “Peter Williams” were to be returned in full.[25]It was accepted by all the witnesses who were asked that Mr Edwards forged a series of documents which purported to come from Barnaby Brokaw in the trading name of “The Grand Garage”: i) An invoice of 2nd December 2008 addressed to Mr Gray referring to the purchase from him of the Jaguar and Rolls Royce Phantom II “as described by Richard Edwards” for a total price of $350,000. ii) An invoice dated 2nd December addressed to Mr Gray referring to the sale of the BMW 507 for a price of $1.1 million with all shipping and transport costs to be paid by the purchaser. iii) A sale and purchase statement dated 2nd December 2008 addressed to Mr Gray referring to the purchase of the Jaguar and Rolls Royce Phantom II and the sale of the BMW at the prices in those invoices set off against one another, with a commission to Barnaby Brokaw of $15,000 and a total to be paid of $765,000 to be transferred to an account in the name of “The Grand Garage Barnaby Brokaw”. iv) A sales invoice for the sale of the McLaren 19R to Mr Gray for the price of £1 million with all shipping and transport costs to be paid by the purchaser, with the vehicle remaining insured by the Grand Garage until collection.[26]On 3rd December Mr Noon of Symbolic issued a commercial invoice for the sale of the McLaren 19R to “Peter Williams” for £950,000. On the basis of the information given to him, Mr Gray provided $765,000 and £1 million for the BMW 507 and the McLaren 19R respectively as well as giving up ownership of the Jaguar and Rolls Royce Phantom II (said to be received by the Grand Garage as the equivalent of $350,000). Mr Gray remitted the cash sums to the Grand Garage Barnaby Brokaw account on 3rd-5th December 2008.[27]Additionally, on Mr Brokaw’s evidence, Mr Edwards forged emails in which Mr Brokaw sought commission from Mr Gray in respect of the McLaren and accepted the Thunderbird in lieu thereof. Of the sum of £1 million which arrived with Mr Brokaw on 5th December, £950,000 was transferred to Symbolic on 9th December, $45,000 was transferred to Mr Edwards and the balance retained by Mr Brokaw. On Mr Brokaw’s evidence he never received the Thunderbird as commission.[28]It is unclear what happened to the $765,000 ostensibly paid to Mr Brokaw in respect of the BMW 507 but Symbolic did not receive the $300,000 balance owing in respect of it, although receiving payment for the McLaren in full.[29]Mr Noon continued to press “Peter Williams” for the balance of $300,000 on the BMW 507 and on 20th December said that the McLaren had been moved back into secure long-term indoor climate controlled storage where the BMW 507 was also being kept “pending the balance transfer”. He informed “Peter Williams” that the cars would remain insured until 1st January and offered to obtain a quotation for “Peter Williams” to secure insurance from that point on.[30]What emerges from this history, whatever Mr Gray thought at the time and whatever authority Mr Gray had given Mr Edwards, the latter, using the alias of “Peter Williams” never, as a matter of the law of California or England, contracted with Symbolic as Mr Gray’s agent. Under his alias, he agreed to purchase the BMW and McLaren from Symbolic at $750,000 and £950,000, whilst taking the Jaguar, the Rolls Royce Phantom II and the Thunderbird off Mr Gray together with the sums of $765,000 and £1 million. He forged invoices from Barnaby Brokaw showing a sale by The Grand Garage to Mr Gray which, on their face, purported to record sale contracts for the BMW and the McLaren between that entity and Mr Gray at different prices to those at which he had purchased them, without disclosing that to Mr Gray. At no stage was Mr Edwards acting as the agent for an undisclosed principal, Mr Gray, because he never intended to put Mr Gray into a contractual relationship with Symbolic and intended to buy the cars to make profit from Mr Gray and not on his behalf. He was, from the outset, swindling Mr Gray. He intended to purchase from Symbolic himself (which he did in the name of “Peter Williams”) and make a profit from Mr Gray on the transaction, by passing on the car at a higher price, whilst representing that he had contracted for Mr Gray with Mr Brokaw for the sale of the BMW and the McLaren for the consideration set out in the forged documents.[31]In a witness statement in another action, Mr Edwards, whose evidence is obviously to be treated with great caution, stated that “if I had a client who wanted a car I had found, I would commit to buying the car and sell it on with an uplift, in effect to pay my commission and also to pay the commission of any other intermediary brokers”. The reality of his dealings for his client, therefore, on his evidence as well as the documents, involved a purchase by Mr Edwards for himself.[32]Moreover, Mr Gray at the time considered that he had bought the BMW and the McLaren from Barnaby Brokaw. This appears from a letter from Mr Gray’s solicitors in December 2011 and in a response to a Request for Information in June 2012 where it was expressly stated that Mr Gray assumed at the time that the McLaren was being purchased directly from Mr Brokaw. In cross-examination Mr Gray accepted that this was the position. He agreed that in December 2008 he relied on, and paid money over on the basis of, the forged invoices purportedly coming from Mr Brokaw. The case put forward in the re-amended Particulars of Claim and in Mr Gray’s statement to the effect that he remitted purchase funds to Mr Brokaw’s account and purchased the McLaren through Mr Edwards as his agent and Mr Brokaw as sub-agent, is inconsistent with the contemporary documents upon which he relied at the time, the answer to the Request for Information referred to above, and these answers in cross-examination, although he sought elsewhere under cross-examination to revert to the position that Mr Brokaw was sub-agent for him in contracting with Symbolic. Mr Brokaw had, of course, no dealings at all with Symbolic other than as acting as a conduit for some of Mr Gray’s money. Mr Gray did not know of the involvement of Symbolic at all and I reject any suggestion in his evidence (including paragraph 21 of his statement) that he believed at the time that Mr Edwards was using Mr Brokaw as a sub-agent or a finder of the McLaren for which the latter was charging a commission. This is a later invention on his part to advance his own case, evidencing an approach to giving evidence not dissimilar from that found by Vos J (as he then was) in Global Energy Horizons Corp v Gray [2012] EWHC 3703 (Ch).[33]The parties agreed that the existence or otherwise of an agency relationship between Mr Gray and Mr Edwards was governed by English law. They also agreed that the purchase transaction between Mr Edwards, posing as “Peter Williams”, and Symbolic was governed by the law of California. At the material time, therefore, in December 2008, as a matter of the English law of agency which, it is accepted, applies to the internal relationship between Mr Edwards and Mr Gray, Mr Edwards was not acting as agent for Mr Gray in purchasing the McLaren. (The same holds good as a matter of the law of California.) Whilst the law of California governs the contract between Symbolic and “Peter Williams”, it was submitted on behalf of Mr Gray that the determining factor in the transfer of title depended as a matter of Californian law on the English law of agency and not on the Californian law of contract relating to undisclosed principals.

The Applicable Law

[34]As Article 76 of Bowstead and Reynolds on Agency states relating to agency for an undisclosed principal, at paragraph 8-074:
“Although the intention of one party uncommunicated to the other is not usually relevant to the legal effect of a transaction, it is plain that this must be a case where intention is relevant: if the agent intended to act for his own profit and not on the principal’s behalf, the principal cannot intervene or be sued. Whether the agent so intended is a matter of evidence.”
The law of California on the evidence of the experts was to the same effect.[35]As appears from the judgment of Lewison LJ in FHR European Ventures LLP v Mankarious [2013] 3 WLR 467 (CA), the effect of Mr Edwards’ activities, as a matter of English law, was to vest the legal title to the McLaren in himself, albeit that courts would hold that he held the property on constructive trust for Mr Gray as the principal. This is “the first group of cases” to which Lewison LJ refers at paragraphs 38-40. This group consists of cases in which the principal had actually instructed the agent to acquire or to negotiate the acquisition of property for him, but where the agent purported to acquire the target property on his own behalf. In such circumstances the agent is held by the courts to hold the acquired property on constructive trust for the principal who has therefore a beneficial proprietary interest, whilst the agent holds the legal title. Lewison LJ cited Lord Cottenham LC in Taylor v Salmon(1838) 4 My & CR 134 at pp. 138-139, where the latter said that if, at the time when the individual entered into the agreement, he was acting as agent for the principal in negotiating for the lease, it was not material whether at that moment he intended that the agreement should be for the benefit of the principal or for his own because in either case the principal would be entitled, as against him, to the benefit of the contract. Lewison LJ went on to say that where Lord Cottenham described the issue in terms of title, although the third party had no objection to granting the lease to the principal, the question “whether an equitable proprietary interest binds third parties is usually governed by the second principle that a bona fide purchaser for value of a legal interest takes free of the equitable proprietary interest”. It is thus clear, as indeed appears from the second, third and fourth groups of cases to which Lewison LJ refers, that the agent acquires the legal title, albeit he has acted in breach of his contractual duty as agent, whilst the principal acquires an equitable interest which the courts will recognise by imposing a constructive trust and, where necessary, requiring delivery up.[36]I heard evidence from Californian lawyers as to the content of the law of California in relation to the transaction of purchase from Symbolic, namely from Mr Klein who was engaged by Mr Gray and Mr Graham who was engaged by Mr Smith. There was a difference in approach between these two, as revealed by the experts’ Joint Memorandum, on the interrelationship between principles of agency under Californian law and section 2403 of the California Commercial Code and the concept of “voidable title” referred to in it, in the context of a sale of the McLaren to Mr Edwards, without Symbolic knowing of Mr Gray’s existence.[37]In cross-examination, Mr Klein accepted that if Mr Edwards was acting on his own behalf and in his own interests when purchasing the McLaren but he used Mr Gray’s money to do so, Mr Edwards obtained legal title to the McLaren. He expressed concern that the Californian courts had not stated exactly what would happen if someone had “legal title” in those circumstances. He did not accept that Mr Gray received only equitable title and preferred to say that he got “full title” or “proper title”, but this makes no sense, given his acceptance that Mr Edwards obtained legal title. He did not accept that Mr Edwards’ legal title was a “voidable title” although his view was that if Mr Gray went into court claiming that the car belonged to him, the court would impose a constructive trust as a remedy and could order delivery of the car to him. He agreed that the concept of a trust involved the notion of the trustee holding legal title and the beneficiary holding an equitable interest.[38]In the Joint Memorandum, the two California law experts had agreed that if Mr Edwards was not acting as agent when he purchased the McLaren, but used Mr Gray’s money to pay Symbolic for it, Mr Gray could have requested the Californian court to impose a constructive trust over the McLaren as a remedy which would include the declaration that Mr Edwards held the McLaren for the benefit of Mr Gray. As between Mr Edwards and Mr Gray, the court would, if asked, order Mr Edwards to give up possession of the McLaren to Mr Gray.[39]It is clear from this and from Mr Graham’s evidence that California law, in this respect at least, corresponds with English law. As Mr Gray’s money was being used by Mr Edwards to purchase the car for his own account, in breach of his duty of agency to Mr Gray, his acquisition of the legal title to the car meant that he was the owner in law of it but that a court would hold that Mr Gray was the beneficial owner of it. Mr Klein recognised that the effect of a declaration by a Californian court of a constructive trust was that the agent held the legal title and the principal the beneficial ownership.[40]Mr Gee’s attack upon Mr Graham and suggestion that none of his evidence could be relied on was, in my judgment, ill-considered and ill-grounded. Section 2403 of the California Commercial Code and the concept of voidable title was the subject matter of evidence from Mr Graham but was not one upon which Mr Klein wished to give any view because he said that California law, both case law and statute law, did not define what was meant by voidable title and the application of section 2403 was a downstream application to a bona fide purchaser where the onward sale was governed by the law of California. He was not prepared to accept that Mr Edwards had a voidable title, contending, at some stages in his evidence that, when an agent acted on behalf of a principal in the acquisition of goods, he did not acquire title but merely a transitory custodial interest. This was based upon a false conclusion drawn from the US Supreme Court decision in Ford v Williams 62 US 287, 1858 WL 9393 (USMd) and the decision of a US District Court in California which is not cited in official publications but appears in Westlaw as Hoot Winc LLC. v RSM McGladrey Financial Process Outsourcing LLC 2011 WL 718662. Mr Klein accepted in cross-examination that the Supreme Court decision decided no more than that a contract in writing signed by an agent for an undisclosed principal bound both the agent and the principal and was not authority for the proposition that the “the rights and duties under the contract belong exclusively to the principal”. The Hoot Winc decision, though an unreported federal trial court decision was, he said, capable of being cited in California and the court might find it persuasive though it had no precedential value. In a motion for partial summary judgment, the court there found that there was a triable issue of material fact as to whether the plaintiff concluded an agreement as an agent for an undisclosed principal, stating that the agent in such circumstances could sue in its own name even though the damages were sustained by another and he claimed no financial interest in the transaction or litigation “even though he did not have title to, or more than a transient possessory or custodial interest in the property forming the subject of the dispute.” This does not constitute good and binding authority for the proposition that the agent for an undisclosed principal only ever acquires a transient possessory or custodial interest and, for the reasons given above, it is clear that where the agent contracted in his own name and for his own benefit, without disclosing the existence of a principal and with no intention to bind the principal, it is the agent who acquires the legal title to the goods.[41]Moreover, the wording of section 2403 of the California Commercial Code (which clearly governs the sale of the McLaren in California notwithstanding Mr Klein’s somewhat vain protestations that the Civil Code might also apply), provides as follows:
“(1) A purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though (a) The transferor was deceived as to the identity of the purchaser, or … (d) The delivery was procured through fraud punishable as larcenous under the criminal law.”
[42]Mr Graham’s evidence, which I accept, was that sub-paragraphs (a) and (d) are not only examples of the principle enunciated that the person with voidable title can transfer good title to a good faith purchaser for value, but enhancements of the law as understood prior to being enshrined in statute, making it clear that, even in the egregious circumstances referred to, good title could spring up in a good faith purchaser for value. Mr Gee submitted that this provision could not apply in circumstances where the seller had received the full purchase price and did not want to avoid the contract of sale. Mr Graham had two answers to this. He referred to two distinct frauds occurring in connection with Symbolic’s sale to Mr Edwards, namely Mr Edwards’ deception of Symbolic as to the identity of the purchaser (which was common ground between the parties to the action here) and the deception of Mr Gray by the whole structure which Mr Edwards adopted for the purchase. He concluded that the goods had been delivered under a transaction of purchase where Symbolic had been deceived as to the identity of the purchaser and delivered the car accordingly and, moreover, delivery had been procured by fraud perpetrated upon Symbolic and Mr Gray. He concluded that Mr Edwards had voidable title, both at the instance of Symbolic, had it wished to avoid the sale (although in practice Mr Noon said he was not interested as long as he was fully paid) and at the instance of Mr Gray who had a beneficial interest in the McLaren and was able to go to court and obtain an order for the transfer of the car from Mr Edwards to himself. The nature of Mr Edwards’ title was thus “voidable”.[43]As expressed in his second report relating to the “voidable title doctrine” that doctrine “is used throughout the United States in deciding who has superior title between the original owner and the current possessor of the goods. A “fraudster” or duplicitous agent is said to have voidable title, which means the fraudster or duplicitous agent has the power to transfer good title to a good faith purchaser for value, but the fraudster or duplicitous agent will lose a direct title battle with an original owner.” Both Mr Klein and Mr Graham recognised that Mr Edwards would acquire a cognisable property interest in the McLaren and the question was whether or not it should be classified as “voidable title”. Mr Graham drew upon the analogy with the seller who had been deceived into parting with the goods to express the view that the same principle would apply as between principal and agent, where the principal had been deceived. None of the authorities cited by him applied this doctrine in the agency context where the Californian decisions turn on questions of apparent authority (or ostensible authority as understood by English lawyers) and estoppel vis-à-vis a third party purchaser, whilst recognising the ability of the true owner to recover from the fraudulent agent at any time before transfer to a bona fide purchaser for value. Mr Graham had however enormous experience in this area and considered the analogy well drawn and one which the Californian courts would apply.[44]Whatever the strength of this analogy, in my judgment Mr Graham was right in pointing out that the language of section 2403 was engaged, whether or not Symbolic wished to avoid the sale transaction. Having been deceived as to the identity of the purchaser and delivering to Mr Edwards in consequence, sub-paragraphs (a) and (d) of the section applied. Mr Edwards thus had “voidable title”. It does not matter whether or not, as between principal and agent, the legal title acquired by Mr Edwards as agent was truly “voidable” at the instance of Mr Gray prior to any transfer to a good faith purchaser for value, if the nature of his title was voidable - as it was - being voidable at the instance of the seller, whether or not Symbolic wished to avail itself of that right. It is clear to me that Mr Gray could have intervened in California or in England (depending on the location of the car) to claim title from the Court on the basis of his equitable interest but although Mr Graham considered that this was properly called a voidable title as between agent and principal, I do not need to decide this. The imposition of a constructive trust or an order for delivery to Mr Gray would in fact be recognising the legal title that Mr Edwards had, when making such orders. Nonetheless the fact remains that, as Mr Graham pointed out, the nature of the title which was acquired by Mr Edwards was “voidable”, at the behest of Symbolic, whether or not there was any desire to avoid it.[45]As a matter of Californian law which governs the purchase transaction between Symbolic and “Peter Williams”, there was deceit on the part of Mr Edwards in using the name “Peter Williams”, in circumstances where he considered that Symbolic would either not deal with him in his own name (whether as principal or agent for an undisclosed principal) and a clear intention on the part of Mr Edwards not to act as agent for Mr Gray in so doing. He clearly intended Symbolic to think that it was contracting with “Peter Williams” and did not intend to bind Mr Gray to a contract to pay to Symbolic lesser sums than he himself was about to charge Mr Gray for the McLaren (and the BMW).[46]I conclude that the effect of what took place was to vest the legal title to the McLaren in Mr Edwards, by his alias “Peter Williams”, and the equitable title in Mr Gray, with what was a voidable title under the law of California at the instance of Symbolic. Mr Edwards had power to pass the legal title to the car to others although the issue would then arise as to Mr Gray’s equitable interest.

Mr Edwards’ arrangements with Mr Regis/Asphaltic

[47]So far as Mr Noon was concerned “Peter Williams” still owed $300,000 in relation to the BMW 507 following payment of the purchase price for the McLaren. “Peter Williams” expressed no interest in taking delivery or possession of the McLaren, probably because he realised that Mr Noon would not let him do that without payment for the BMW 507. “Peter Williams” was however expressing interest in buying further cars and in particular a BMW 328 which was in Japan and which Symbolic had it in mind to purchase and on-sell. On 10th February 2009 “Peter Williams” telephoned Mr Noon to discuss the purchase of cars, including the BMW 328. When asked about the balance of $300,000 outstanding on the BMW 507, he falsely said it was on its way. In the hope that this was the case, Mr Noon asked him what he wanted done with the Bill of Sale/Ownership documents on the McLaren and the BMW 507. The balance was not forthcoming and despite Mr Noon pressing for payment on 9th March 2009 within a week, nothing happened. On 13th April 2009 he referred to possible alternative buyers and asked if “Peter Williams” would like the BMW 507 re-marketed. This led to “Peter Williams” enquiring about the price of the BMW 328 (still in Japan), for which he was quoted a price of $425,000 with Mr Noon making it plain that any sale would be strictly contingent on the balance of $300,000 being paid on the BMW 507. “Peter Williams” responded by saying that he would pay $700,000 in total for the BMW 328 and for the balance of the price on the BMW 507, an offer which Mr Noon accepted on the telephone and in an email, stating that the purchase from Japan depended upon sums arriving from “Peter Williams”. There then followed the usual delay in any funds coming with excuses made by “Peter Williams” about having trouble with his trustee.[48]Mr Edwards then said that he would take funds from one of his companies to pay Symbolic and asked for an invoice for the BMW 328 and the BMW 507 showing a total purchase price of $1.15 million, without listing the individual prices. He also wanted confirmation to the company that he had already paid $450,000 in relation to the BMW 507. The company he named was Asphaltic Ltd of 1 Regis Road London NW5 3EW. He asked Mr Noon to contact Mr Regis which he did by email of 30th April, saying that he had been “directed by Peter Williams to provide you with a commercial invoice to complete the balance of payment on two vehicles”. Attached was a Commercial Invoice/Bill of Sale naming the seller as Symbolic and the buyer as Asphaltic and referring to a total purchase price for both vehicles of $1.15 million and a payment already made of $450,000, with a resulting balance of $700,000. Mr Noon’s evidence was that at some point, “Peter Williams” asked him on the telephone to send the McLaren to Asphaltic as well as the two BMWs, a point which is confirmed by an email of 12th May in which “Peter Williams” asked for confirmation that funds had been received as he was anxious to collect the McLaren at the same time as the two BMWs. Mr Regis wanted security over the McLaren as well as the BMWs for the funds he was providing.[49]On 9th May Mr Noon emailed “Peter Williams” to say that his time for payment had run out and that the BMW 507 would go back on the market but a response was received that day assuring him that $700,000 had been paid the previous day.[50]On 13th May Mr Noon received a fax “out of the blue” from Adlaw, a firm of solicitors at the same address as Asphaltic, who said they were acting for Asphaltic and had a copy of the invoice (the invoice of 30th April 2009) and that the sum of $700,000 would be available for transmission on 15th May. Adlaw asked to receive written confirmation by fax that upon payment of the outstanding balance of $700,000, the BMW 507 and the BMW 328 would belong, unencumbered, to Asphaltic Ltd and that they would be held to its order. Mr Noon was surprised by this fax and emailed “Peter Williams” forwarding a copy of the fax, saying he had no idea how to respond. Adlaw did not appear to be listed as solicitors and an email address given did not exist. He said he had not heard further from Mr Regis since sending the invoice of 30th April. The BMW 507 funds had been due on 22nd October and the BMW 328 funds due four weeks before 13th May 2009. Mr Noon was looking for immediate payment because of past assurances and failure to pay. The following day he faxed Adlaw at Asphaltic’s address referring to the document sent on 30th April and the new instructions received, including both instructions for payment and a Commercial Invoice/Bill of sale dated 13th May addressed to Asphaltic for the two BMWs stating that “Payment is due in full upon receipt of this invoice. An outstanding balance of $700,000 is now due in full. Upon receipt of funds, I will provide by fax confirming receipt and arrange for the transfer of ownership of these vehicles as directed.” The $700,000 was received by Mr Noon on Monday 18th May and an email of the same date from Mr Regis asked for a new invoice with paperwork for the cars made out to him c/o Asphaltic Ltd “as I paid personally”. Mr Noon issued another Commercial Invoice/Bill of sale dated 15th May addressed to Mr Regis but only for the BMW 507 because there was now some doubt about the saleability of the BMW 328 from Japan.[51]Arrangements were to be made by Mr Noon to fly the BMW 507 and the McLaren to the UK and on the instructions of “Peter Williams” the vehicle/vessel transfer and reassignment form for each, dated 18th May 2009 was completed by Mr Noon showing the sale/transfer and delivery of the McLaren to Peter Williams at the address of Asphaltic Ltd at Regis Road and the BMW 507 to Peter Regis at the same address. Neither form, on Mr Noon’s evidence, had any legal effect until signed by both seller and purchaser and, although signed by him, no purchaser ever did sign them. Mr Noon was in contact with Mr Regis about the arrangements and about the BMW 328 which was still in Japan. Because of the delay in “Peter Williams” and/or Mr Regis producing money, the owner of the BMW 328 in Japan then decided not to sell it after all. As Mr Noon had already received $700,000 in payment for the balance of the BMW 507 and for the purchase price of the BMW 328, he and “Peter Williams” agreed that a Delahaye 135S be substituted for the BMW 328 with a value of $270,000. Although it appeared that Mr Regis was not being kept informed about this at this stage, a vehicle/vessel transfer reassignment form dated 20th May 2009 in respect of the Delahaye, at that value, referred to the sale, transfer and delivery of it to Peter Regis. Once again this was signed by Mr Noon but not by any purchaser. On “Peter Williams’” instructions Mr Noon then sent Mr Regis an invoice of 28th May 2009 in respect of the Delahaye, naming him as the buyer. This referred simply to “payment … in full for value received”. “Peter Williams” asked for the $130,000 differential (between the purchase price of the BMW 328 and the Delahaye) to be paid to him but as Mr Regis continued to ask for the BMW 328, Mr Noon sought instructions from “Peter Williams” as to what to do. He could get no response before the time that all three cars had arrived in the United Kingdom in early June. On 2nd June Cars UK asked Mr Regis for individual bills of sale for the three cars to be imported to clear UK customs.[52]“Peter Williams” eventually gave him instructions to send an invoice to Mr Regis for the McLaren and Mr Noon sent the usual form of Symbolic Commercial Invoice/Bill of sale to Mr Regis (dated 15th June 2009) which referred to Symbolic as the seller, to Peter Regis as the buyer and to payment being made in full for £950,000. Amongst the documents is also a copy of a sales invoice from Peter Williams to Asphaltic Ltd for the McLaren, dated 18th June.[53]What is plain from the evidence of Mr Regis is that he and/or Asphaltic had lent Mr Edwards/“Peter Williams” the sum of US$700,000 in order to pay for the BMW 328 and the balance on the BMW 507 (which was replaced by the lesser value Delahaye) and, in accordance with Asphaltic’s normal practice, security was required which involved both control and possession of pledged cars and documents, such as a sales invoice which showed Asphaltic as the buyer of the cars pledged as security. Mr Regis was clear in his evidence that the object of the commercial invoice/bill of sale in his favour for the McLaren was to give security over it in respect of loans made to Mr Edwards (and notwithstanding his evidence to the contrary, the documents showed that he must have known that Mr Edwards was using the alias “Peter Williams”.) Money was owing by Mr Edwards prior to the advance of $700,000 for the purchase of the BMWs and money was owing thereafter at all times until November 2010. It was essential that the legal title to any security be vested in Mr Regis/Asphaltic and that the security itself be held in custody to the order of Mr Regis/Asphaltic, as Mr Edwards knew. The BMW 507, the Delahaye and the McLaren were all consigned by Mr Noon’s transport agents to Cars UK Ltd in the United Kingdom to be held to the order of Mr Regis/Asphaltic. The latest Bills of Sale/Invoices all showed the latter as the purchaser. Mr Edwards had purported, with Mr Noon’s assistance, to convey legal title to the McLaren to Mr Regis/Asphaltic. A document from Symbolic, referring to the McLaren and addressed “To whom it may concern” states that the McLaren had been sold “per the attached Bill of Sale” and that the race car would be exported to London, England. It stated that the vehicle was not titled or registered and was a bona fide purchase through a Bill of Sale. It stated that “race cars are ordinarily transferred on Bills of Sales only”. To the best of Symbolic’s knowledge it had not ever been titled. This document appears on Cars UK’s files and, despite the date, the attached bill of sale appears to be that of 15th June 2009 from Symbolic to Peter Regis.[54]Mr Barker’s evidence was that he was told by Mr Edwards of the importation of the three cars from Symbolic and of his use of the alias “Peter Williams” because of his previous dispute with the seller. However the documents which Mr Barker received were ultimately all in the name of Peter Regis/Asphaltic. He sought instructions from Mr Edwards and Mr Regis for clearance through customs or transfer into bond. He had conversations with both Mr Edwards and Mr Regis at that time confirming that Mr Regis was the owner of the McLaren and the BMW 507 which arrived on a flight together from Los Angeles on 6th/7th of June. He needed formal confirmation of ownership and received from Symbolic by fax on 15th June a copy of the invoice for the sale of the car to Peter Regis of Asphaltic Ltd of that date. This was sufficient for presentation and process through HMRC. Mr Noon also sent a history of the McLaren showing it to be a classic racing car which would enable it to qualify for import duty at the VAT rate of 5%, although it was held in bond by Cars UK on arrival. The evidence showed that Mr Noon consigned the cars, through his shipping agents, to Cars UK where they were held to the order of Mr Regis/Asphaltic and would not be released to “Peter Williams” whilst money was owing. It was not until November 2010 that Mr Regis was prepared to release the McLaren to Mr Edwards.[55]Mr Regis confirmed in evidence that he did not feel the need to do anything further to check title on the McLaren over and above his contact with Mr Noon and Mr Edwards. Mr Edwards, to his certain knowledge, traded on his own account as well as operating as a “finder” and agent for clients that were interested in buying or selling high value cars. In his statement Mr Regis said that there had been occasions where Mr Edwards approached Asphaltic for a loan that was to be secured by pledge over a car that he held and controlled and that provided that he could demonstrate that he had custody and control over the car, Asphaltic was willing to accept that he was entitled to deal with it and to pledge the car to secure the loan. It was not unusual for him to want to raise funds to complete the purchase of a car and to pledge a car over which he had control for that purpose. The key fact was, from Asphaltic’s point of view, that Mr Edwards could show that he had custody and control over the car which was the subject of the pledge. By correspondence with Mr Noon of the seller, he also obtained a Commercial Invoice/Bill of sale in his name for the McLaren as referred to above. Apart from earlier loans and the loan of $700,000 in respect of the BMWs, Mr Regis refers in his witness statement to a further loan of $145,000 and the substitution of the Delahaye for the BMW 328 which never arrived. Although by the end of 2009 Mr Edwards had paid off the US$700,000 loan in full, the car remained at Cars UK with Asphaltic paying the storage charges with the result that Asphaltic could take it as a pledge when Mr Edwards requested further loans during 2010. Mr Regis had a copy of the Symbolic Commercial Invoice/Bill of sale to “Peter Williams”, the Commercial Invoice/Bill of sale from Symbolic to himself and perhaps the Invoice from “Peter Williams” to Asphaltic. Although, in his statement he stated that he thought that “Peter Williams” was an agent in a chain, it is inconceivable, given the closeness of his relationship to Mr Edwards as his backer and funder (referred to by some as his partner in car deals) that, in these circumstances, where Mr Barker knew of Mr Edwards’ alias, Mr Regis did not.[56]On Mr Noon’s evidence, there had been some to-ing and fro-ing between him and Mr Regis over the substitution of the Delahaye for the BMW 328, which had originally taken place without, it appears, the consent of Mr Regis, who was pressing for the return to him of $400,000. In an email of 17th July to Mr Regis, Mr Noon explained the history of the purchase of the McLaren, the BMW 507, the BMW 328 and the substitution of the Delahaye, explaining that his central contact throughout had been with “Peter Williams” and the request that ownership documents should be made out in Mr Regis/Asphaltic’s name. On 29th July, Mr Regis emailed Mr Noon asking for “any details you have on my car” and Mr Noon subsequently obliged on 4th/5th August with a history of the BMW 507 and the McLaren. By a further email of 10th August to Mr Regis, Mr Noon told him about the sales history of the McLaren which had been sold from the factory to the racing team and bought from that team by Symbolic before selling it to a client on the East Coast, later buying it back and selling it to “Peter Williams” “who never took delivery until I shipped it to you”. Mr Regis thus enquired as to the history of title to Mr Edwards/“Peter Williams” and had no inkling of Mr Gray’s involvement which did not appear anywhere in the documentation he had seen nor in the history as related to him by Mr Edwards or Mr Noon.[57]In September 2009 Mr Noon arranged for a shipment of the spares to Mr Regis and on being asked by the latter about their value for customs purposes, said, in November 2009, that they had minimal separate value on their own but immense value when accompanied by the car to which they belonged.[58]In September 2009 Mr Gray, through his secretary, made enquiry of Mr Edwards as to the location and contact details for a number of cars purchased through him, including the McLaren and seeking outstanding paperwork. It appeared that Mr Edwards was looking for a short term loan of £600,000 from Mr Gray at the time. Mr Edwards’ response to the enquiry in September was to say that he would drop off the paperwork on Wednesday and that he had found a secure storage facility near Petersfield with 24 hour security. No further details were given and no further enquiry made until 29th March 2010 which did not receive a response. Mr Gray, on the material available and the documents disclosed by him appears to have adopted an astonishingly relaxed approach to the paperwork and location of cars purchased with his money, so that no-one other than Mr Edwards and himself was aware of his interest in the McLaren, the BMW and the Delahaye.[59]Mr Noon, in his witness statement, said that he spoke to Peter Regis on several occasions from which it was clear to him that the latter regarded the McLaren and the spares as his property. This also was the evidence of Mr Macari at a later stage in the history. What is abundantly clear from the documents and the evidence before me is that Mr Regis regarded Mr Edwards as the purchaser of the McLaren from Symbolic and that he was entitled to raise money against it, using it as security. Whilst in his witness statement he referred to this as a pledge and stated that neither he nor Asphaltic purchased the McLaren, the effect of his evidence and of the involvement of Adlaw was that the Bill of sale from Symbolic to “Peter Williams” was followed by a Bill of sale, at “Peter Williams’” request, from Symbolic to Peter Regis, and a sales invoice from Peter Williams to Asphaltic with a transfer of “Peter Williams’” interests in the McLaren to Mr Regis/Asphaltic as security for monies owing and the implied promise of re-transfer when all monies were repaid. Mr Regis was entitled to consider and reasonably considered that he had legal ownership of the McLaren.

The Relationship between Cars UK, Mr Edwards, Mr Regis and Mr Macari

[60]Mr Barker was a director of Cars UK and had known Mr Edwards and Mr Regis for many years prior to the import of the McLaren. He had always found Mr Regis straightforward and honest with considerable experience in importing cars and making use of Cars UK’s facilities on many occasions. Mr Regis often acted in conjunction with Mr Edwards whom Mr Barker found disorganised and unreliable in the sense that he was not a reliable payer and Mr Barker was not prepared to extend credit to him. If Mr Edwards was involved in the importation of a car, Mr Barker always required either the cost of Cars UK’s services to be guaranteed by a third party or by an assurance backed up with documentary evidence that the car itself was owned by a third party. He always regarded Mr Edwards as the arranger of deals for Mr Regis but never the principal in those deals.[61]It was Mr Edwards who told him of the importation of the BMW 507, the McLaren and the Delahaye into the UK from Symbolic. Mr Barker knew Symbolic and had done business with them on many occasions before. The first two cars were to come by air whilst the Delahaye and some spares for the McLaren were to come later by sea. Mr Barker was told of Mr Edwards’ prior dispute with Symbolic and the reasons for the use of the alias “Peter Williams”. The documents in Cars UK’s files showed 5th June 2009 as the entry date for the McLaren and a formal request on 8th June from Cars UK to HMRC for importation into its Customs Bonded Warehouse. At that time, Mr Barker had conversations with Mr Regis and Mr Edwards and was told that Mr Regis was the owner of the car. Subsequently Mr Regis asked him to research the background to the McLaren and referred to it in emails and discussions as “my car”. The air waybill relating to both the McLaren and the BMW 507 referred to the consignee as Cars UK. By way of confirmation of ownership, Mr Barker was sent by Symbolic, by fax on 15th June, the 15th June invoice for the sale of the car to Peter Regis of Asphaltic recording that payment had been completed for £950,000. That was sufficient for presentation and processing through HMRC. The spares for the McLaren arrived with a consignment note dated 20th November 2010 but with the sender named as Mr Edwards and the receiver named as Joe Macari Performance Cars.[62]In his witness statement, Mr Barker referred to a request that the car be released from bond and delivered to a dealer who was a friend of Mr Edwards in Cheshire, one Andrew Howarth, with a possible ultimate destination of a town in Germany. Mr Barker obtained Mr Regis’ permission for this release. The documents showed that the McLaren left the bonded warehouse on IPR (Inward Processing Relief) in June 2009 but was returned to bond on 9th November 2009. According to Mr Barker, IPR is a concession whereby cars coming into this country for a period of not more than six months for the purposes of repair or processing, can be released from bond and, provided they are then returned to bond or go to whence they came, no tax is payable.[63]The next movement of the car, according to Mr Barker, was when it was transported to JMPC Sales at Wandsworth on a special truck on Saturday 20th November 2010. Mr Regis confirmed to Mr Barker that he no longer had an interest in the car and it was then released at Mr Edwards’ request and transferred once again from bond to IPR. The cost of delivery (£450) and the cost of transfer from bond to IPR (£250) was later paid by JMPC Sales on an invoice addressed to it. The spares were also sent with the car.[64]On the later sale of the car by JMPC Sales to Mr Smith, because the car was now being imported from bond, duty became payable at the VAT rate of 5% of the value of the car. The declared value of the car was $1 million with duty payable of £31,903.29 which was paid by JMPC Sales.[65]There was an issue between the parties as to this declaration and the duty paid, because of the difference between the declared value on which duty was paid of $1 million, as compared with the price of £950,000 paid by Mr Edwards for the car in 2008 and subsequently by JMPC to Mr Edwards in December 2010. There was also an issue about the utilisation of the IPR regime by JMPC Sales.[66]Mr Barker’s evidence was that the IPR regime allowed goods to be imported into the UK for processing, for evaluation, for repair and all sorts of different purposes without tax being paid. There was a period of six months allowed for such processing before the goods were to be taken out of the IPR regime and re-exported. They could however be imported into the UK, out of IPR, at which point duty would become payable. The IPR regime worked on the basis that the custodian of the goods in the UK gave HMRC its VAT number so that it became chargeable for any duty which might fall to be levied, should there be a change in the regime under which the goods were held. HMRC would allow the IPR to be discharged against payment of duty, although the process essentially existed for the purpose of processing with an intention to re-export. Mr Barker plainly did not think it odd that a car should leave bond under the IPR regime for sale purposes, provided that any duty payable was paid on a change of the car’s Excise status.[67]In Mr Barker’s file was an Import Entry Acceptance Advice dated 19th November 2010 by which HMRC accepted the movement of the goods into IPR under the custody of JMPC Sales with a value declared of £630,715.96, which is the equivalent of $1 million. Mr Barker’s evidence was that this figure came from Mr Macari and Mr Macari’s evidence was that he was given this figure by Mr Edwards as the value of the car at the time of it being brought into the country. Mr Edwards had told Mr Macari that this took place back in 2008 and this figure equated with Mr Macari’s view of the value of the car at that time.[68]Mr Barker’s evidence was that Mr Regis told him that he had no further interest in the car and Mr Edwards provided a statement to confirm that the car plus paperwork could be released to JMPC. There was no document on his file confirming this, although Mr Barker had a declaration from Mr Macari dated 19th November expressing the desire to import the vehicle for “mechanical repair on a temporary basis, for no longer than six months” and a declared value of US$1 million. JMPC Sales thus became, so far as Cars UK was concerned, the importer of record. There was also an exchange of emails between Mr Macari and Mr Barker on that date setting out the costs of transfer, as referred to above, which Mr Macari asked to be invoiced to JMPC Sales.[69]Although there is no documentation, I am entirely satisfied that Mr Barker received the instructions of which he gave evidence, namely from Mr Regis and Mr Edwards. He would not have let the car go to Mr Macari without such instructions.[70]Mr Barker accepted that he had, on his file, the Vehicle/Vessel Transfer Reassignment form dated 18th May 2009 which showed Symbolic as the seller and Peter Williams at Asphaltic Ltd as the buyer with a price of £950,000. He also had the 15th June Invoice/Bill of sale showing the sale from Symbolic to Mr Regis at the same price. At the time of import into bond on 5th June, the declared value was £950,000. As far as Mr Barker was concerned, he merely took instructions from the person responsible for the car at the relevant time as to the value to be declared and made computer entries appropriately on the requisite forms. Although there was a significant difference between the value declared on import in June 2009 and the value declared on movement to IPR in November 2010, Mr Barker did not inform Mr Macari of that differential and Mr Macari had no knowledge of the documents on Mr Barker’s file. There was therefore no reason for Mr Macari to know of the value at which the car had been declared on originally being brought into the country.

Mr Edwards’ arrangements with Mr Macari and Mr Macari’s arrangements with Mr Smith

[71]Mr Macari’s evidence was that he had known Mr Edwards for about 7-10 years and that Mr Edwards bought directly for his own account as well as putting together deals for clients. Mr Macari had not done many direct deals with Mr Edwards before. He knew however that the McLaren had come from the USA because Mr Edwards had offered him the car in about the middle of 2009 and may well have discussed it with him earlier than that. In the middle of 2009, Mr Edwards was asking for a price in the order of £950,000 - something under £1 million. This was subject to the proviso that Mr Regis had to release the car because it was tied up with several cars in which Mr Edwards was involved with Mr Regis. Mr Macari had dealt with Mr Regis over many years and knew his method of operation with Mr Edwards because he had explained it to him, namely that he would fund the majority of the purchase price and become the owner of the car. Mr Edwards said that he had bought the car the year before and said he could not sell it until all three other cars in which he was involved with Mr Regis were sorted out. He told Mr Macari that he had put down the deposit on the cars and bought them whilst Mr Regis had paid the balance and was the current owner.[72]Mr Macari considered Mr Edwards’ price of £950,000 too high in 2009 and subsequently said in evidence that “you would have had to have been mad” to pay that price in 2008 and that it was still substantially over-valued in the middle of 2009 at that level. The documents show Mr Edwards sending Mr Macari photographs of the McLaren on 27th June 2009.[73]In November 2010, on Mr Macari’s evidence, Mr Edwards called him and offered him the car once again. He told him that the car was in bond but held to Mr Regis’ order at Cars UK. He said he was sorting out the last bit of money to pay off Mr Regis in respect of his interest. Mr Macari said he wanted to take the car on sale or return for a period of two weeks. In principle he was prepared to buy the car but wanted to see it and so got the car down to his garage and workshop in Wandsworth. It would be normal to pay the costs of transit if a car was being borrowed in the hope of a sale. If the car was misdescribed then a refund of such costs would be sought.[74]Mr Macari checked with Mr Regis, whom he had known for years, on the telephone as to what the position was. Mr Regis confirmed that he had been the owner but had been paid back by Mr Edwards who was clear to sell it. Whilst it was suggested in cross-examination that this was a fabrication, I accept Mr Macari’s evidence on the point. It was later confirmed in writing, that he/Asphaltic had no further interest in the McLaren, and it was what Mr Macari needed to know in order to be confident that Mr Edwards could deal with the car in the circumstances which had previously been made known to him by Mr Edwards in 2009. Mr Edwards wanted £1 million but Mr Macari offered £950,000 and that figure was agreed in principle, with Mr Macari agreeing to clear the bond (i.e. to pay import duty on the car), subject to inspection and subject to on-sale.[75]The car was delivered on 20th November which was a Saturday but there was nothing unusual in that since this was an ordinary working day for JMPC Sales and indeed one of the busiest days for sales. It was placed on display in Mr Macari’s showroom. A day or two after the car’s arrival, Mr Edwards came to Mr Macari’s office. Mr Macari told him that he had a client at that time to whom he wanted to show the car but Mr Edwards was pressing for an outright sale. Mr Macari said he still needed time to show the car and matters were left on that basis. However, the purchaser he had in mind who inspected the car, then decided that he wanted a short tail McLaren, rather than this McLaren which was a long tail version and much more difficult to convert to road use. (In consequence the short tail versions were more expensive). On Mr Edwards’ subsequent enquiry as to this on-sale and Mr Macari’s response that it did not look like a sale to that client, Mr Edwards said he had other people interested and wanted a firm answer to whether or not Mr Macari would buy the car. Matters were left on the basis that there would be a review of the position shortly.[76]It was in these circumstances that Mr Smith came to see the car on Friday 3rd December with Mr Dean Lanzante whose company specialised in repairs and restoration work for historic cars of this kind. Mr Lanzante’s father had inspected the car with the potential buyer who turned out to be more interested in a short tail McLaren. Mr Lanzante himself had asked Mr Smith, who he knew was looking for such a car, whether he was interested in the car and introduced him to Mr Macari. He was asked to accompany Mr Smith in order to advise him on the potential cost involved in returning the car to its original specification and removing various alterations that had taken place over the years. It was also important to know the number of hours for which the engine had been run because, after one hundred hours or so, an engine in a car of this kind has to be rebuilt, which is an extremely expensive process. The number of hours’ usage would therefore potentially impact on the price to be paid.[77]Mr Lanzante’s evidence was that at the time of inspection on 3rd December 2010, another dealer/collector by the name of David Clarke had been showing interest in the car and was telling Mr Smith that he could sell the car to him, having agreed to buy it. In discussion with Mr Macari, the latter said that there was no agreement with Mr Clarke, who had apparently only come to know about the car because Mr Smith had told a friend of his about it. Mr Macari swivelled his computer around to show Mr Lanzante and Mr Smith that he was the person responsible to HMRC for the import of the car and paying duty on it and therefore, as the person with custody of it, had the right to dispose of it. No-one could identify which particular electronic Customs documents were shown on the computer at the meeting but Mr Lanzante knew that the effect of JMPC’s custodianship of the car and responsibility for duty meant that, as the company remained responsible to HMRC for the car, it could not have been sold elsewhere.[78]Mr Smith could not remember if, at this meeting, Mr Macari told him where the car had come from and was not sure whether price was mentioned then or later. He recalled some discussion about David Clarke and Mr Macari satisfying him that Mr Clarke had not bought it although he had apparently attempted to do so. After the meeting, Mr Smith returned home to consider the position and rang Mr Lanzante to ask him what he thought. Discussions continued between them at Mr Lanzante’s premises in Hampshire on the Saturday morning. At some point on the Friday or Saturday Mr Lanzante told him that the cost of restoration would be about £100,000 and that he would be prepared to do the restoration work for that fixed price plus VAT, subject to whatever work was required for the engine. The value of the car was discussed and Mr Smith decided that he was prepared to buy the car at around £1.2-1.3 million although there was a need to establish the engine life.[79]Mr Smith’s evidence was that he rang Mr Macari on Saturday 4th December and said he was interested in purchasing the car. On his evidence in his witness statement, Mr Macari had already rung Mr Edwards the previous evening to “call it on”, being confident that Mr Smith would purchase the car. Mr Macari asked Mr Smith for £1.3 million and after some haggling, they agreed on £1.2 million but with a discount at the rate of £1,000 per hour on any engine hours already utilised over fifty hours, with Mr Lanzante to be the arbiter of the engine hours already used. Mr Macari wanted to be paid immediately and it was agreed that Mr Smith would pay £1.15 million and take possession of the car by delivery to Mr Lanzante’s garage, with the issue of engine life to be resolved and the final price adjusted and paid accordingly.[80]Mr Macari’s evidence in cross examination was that after Mr Smith telephoned to say he would like to buy the McLaren on the Friday, he telephoned Mr Edwards and “called the car on” at the price previously agreed in principle, namely £950,000. He thought that both the sale and purchase were made by telephone calls on Friday 3rd December but I am satisfied that Mr Smith was right in saying that his purchase was agreed on Saturday 4th, because of the time which Mr Smith had spent in considering the matter with Mr Lanzante and his visit to Mr Lanzante’s premises. He thought that he had 4 or 5 telephone calls with Mr Macari between the Friday and the following Thursday. Mr Lanzante’s evidence was that he spoke to both Mr Macari and Mr Smith over that weekend and was told of the agreement reached and the formula as to the credit to be given to Mr Smith depending upon the number of hours that the engine had run. (In fact, his subsequent investigations, from looking through all the records for the car to establish when it had raced and making a suitable allowance for practice and testing, showed that the engine had only run for 40% of its life. Thus, the full purchase price became payable at that later stage.)[81]Mr Lanzante thought that it was probably on Monday 6th December that he was told that the car was to be collected by him once payment of £1.15 million had been made and that he collected the car on the evening of 7th December, by which time the money had been paid and Mr Smith had told Mr Macari that he wanted a lawyer to be involved to protect his interests.[82]It was on Tuesday 7th December that Mr Macari sent Mr Smith an email “just to confirm the deal as agreed verbally”. This referred to the price of £1.2 million with no more than fifty hours on the engine and the discount of £1000 for every hour used in excess of that up to a maximum of a further £50,000. The email referred to the receipt of £1.15 million and the need to await the findings of Mr Lanzante before issuing a final invoice for any adjusted price. It referred to the car being collected that day by Mr Lanzante, to additional wheels being supplied and stated that there was no spares package since they were sold separately by the original owner to a third party. This latter statement was not true but the email referred to them as all old used parts which had a negligible value, which appears, on the evidence of Mr Lanzante, who saw them later, to be the case. At most, in his view, they were worth some £5,000 or thereabouts.[83]It was during the course of the morning of the 7th that Mr Smith, having checked Mr Emmison’s website, after being recommended to him, instructed him in relation to the purchase, expecting him to check the provenance of the car and to do whatever was reasonable in the circumstances to alert him to any problems there might be. The version of Mr Emmison’ website for 2011 referred to the need to be satisfied about the title to any car purchased.[84]It is clear, in my judgment, that the deal struck between Mr Smith and JMPC Sales in the person of Mr Macari was made on Saturday 4th December, whether the deal between Mr Macari and Mr Edwards was struck the previous day or that day. Mr Edwards submitted an invoice in the name of Eurotrading, stating at the bottom “Richard Edwards trading as Eurotrading”, dated 4th December. The named recipient of the invoice was Joe Macari Service and the price was set out as £1 million (EEC tax free). The seller warranted that the vehicle was sold clear and free from any encumbrances or liens and that clear and unencumbered title was being given. In fact, as Mr Macari pointed out, the name of the purchaser and the price was wrong. The company should have been Mr Macari’s sales company, JMPC Sales, and not his service company. Equally, the price had been agreed at £950,000 with the purchaser paying any import duty. It was on the evening of 4th December that an invoice was sent with an email which suggested that Mr Edwards wished to be paid immediately because he needed funds for the purchase of a Californian Spyder on the Monday (a car for which he would have had to pay some $3-6.5 million according to Mr Macari). Mr Macari’s evidence was that on being told that the invoice he had supplied was wrong Mr Edwards produced one for the correct price addressed to the JMPC Sales and that there was a meeting at which it was signed. A copy of such an invoice dated 4th December and signed by Mr Edwards for Eurotrading appears in the disclosed documents but it seems unlikely that such a meeting could have occurred on that date and is more likely to have occurred on the Sunday or Monday, with the date reflecting the date that oral agreement had been reached.[85]The transfer of money from Mr Smith to JMPC Sales and from the latter to an account at HSBC in the name of Currency UK Ltd, as given by Mr Edwards in his invoice, took place on Monday 6th December. It was that which led to the instruction of Mr Emmison and the confirmation email at 13:40 on 7th December from Mr Macari to Mr Smith. Mr Emmison required money on account of costs from Mr Smith and sent him an engagement letter which referred to introductions “to advise you on the contractual/documentation side of your purchase of this McLaren”. Mr Smith sent an email to Mr Macari at 14:20 on 7th December saying that he was instructing a lawyer who was a specialist with cars who was going to go through some of the paperwork issues, as he, Mr Smith, was a bit out of his depth. The lawyer was also to “run through all the checks that the car has no outstanding finance on it”. In consequence Mr Macari, at 15:36, sent Mr Emmison a copy of the email which he had earlier that day sent to Mr Smith.[86]It is apparent from the terms of the email exchanges that, as at the evening of 7th December, Mr Emmison had spoken to Mr Macari who said that the car was then on its way to Mr Lanzante’s premises, that the selling company was JMPC Sales and that HMRC agreed that the tariff rate for import duty was the 5% import VAT figure. Mr Emmison had conducted a search and discovered that JMPC Sales Ltd had a debenture in place, including a floating charge. It appears that, at that stage, he thought that the car had been purchased directly by Mr Macari from the USA, since, in an email to Mr Smith, he said he would like to see “at least the bill of sale whereby his company bought the car from USA”. He also thought the correct course would be to require a certificate of non-crystallisation of the floating charge.[87]At about 18:34 hours that evening he responded to Mr Macari’s email stating that he would send a short draft contract the following day. He asked if he could see a copy of the last signed off title if the car did have a US State Title (which it did not) and for a copy of the US Sellers Bill of sale, together with “any relevant releases or discharge documents from the lender/lien holder that Richard has mentioned to me as we need to be certain there is no-one out there who still has any claim on the McLaren.” It would appear that, by this time, Mr Smith and Mr Emmison were aware of a seller/funder’s involvement in the purchase of the McLaren from the USA. Such information could only have come from Mr Macari.[88]At 13:03 hours on 8th December, Mr Emmison sent Mr Smith a draft contract for his approval before sending it to Mr Macari. In his email he stated that the draft contract took the position that title would only pass on payment of the final adjusted price, saying that he was a bit nervous about title and whether Mr Macari could prove that he got good title in US terms from whoever he bought it from (not disclosed yet). He referred to the possibility of JMPC buying the car from a lender who might or might not have been entitled to foreclose on the owner and the possibility of an existence of an unhappy owner still claiming to own the car which had been improperly taken from him. Alternatively, it would be possible to provide that title and risk had already passed on payment of the £1.15 million, with reliance on JMPC’s warranty of good title. It is clear that at this point, neither Mr Smith nor Mr Emmison knew of the involvement of Mr Edwards or Mr Regis in the McLaren. On Mr Macari’s evidence he did not mention them to Mr Smith- only to Mr Emmison which must have happened sometime that afternoon.[89]This email was followed later that afternoon with a different version of the draft contract “which reflects the facts Joe has now told me about Richard Edwards and Peter Regis and takes the position that title has already passed, but includes a warranty of good title by JMPC. Joe says that he will trust you for the balance over £1.15 million. I want Joe to state the car’s history, if he knows it, because that is quite important for the future.” Later that day, no doubt after further conversation with Mr Smith, Mr Emmison sent a draft contract to Mr Macari reflecting the past payment of £1.15 million and the passing of title and risk in the McLaren whilst setting out further “things still to be done”. These included the furnishing of a copy of “the Regis release letter and of Richard Edwards’ Bill of sale to JMPC Sales”, the payment of outstanding duty to Cars UK with proof that payment had been made, the certification by Mr Lanzante of the engine hours and the adjustment of payment and the provision of a Bill of sale from JMPC to Mr Smith”.[90]This draft contract included the following provisions:
“1.1 The vehicle sold is the 1996 McLaren F1 GTR competition car, Chassis No: 19R (“the Car”), which as a racing car is not titled or registered in any state; after Richard Edwards had paid off Peter Regis, who then released his security over the Car, the Car was acquired outright by Seller from Richard Edwards (trading as “Eurotrading”) by a bill of sale dated [ ] November 2010, as shown by the copy documents attached as Annex 1; 1.2 The Car was brought into the UK on a temporary basis at least two years ago, and in that period had been held under customs bond or IPR by CARS UK; Seller has now obtained through CARS UK a Binding Tariff Information from HM Revenue & Customs to permit permanent import of the Car into the UK under Tariff Heading 97.05, as a collector’s piece of historical interest, copy attached at Annex 2; 1.3 Seller has paid the VAT due to CARS UK for transmittal to HMRC and will shortly sign and forward the Form C&E 389 as proof that all EU import taxes are paid on the Car; … 1.5 To the best of the Seller’s knowledge the ownership history of the Car is McLaren Factory to [Japanese?] to [USA?] to [ ] to Eurotrading, and then by bill of sale to Seller, and no other person anywhere claims to own a McLaren F1 GTR with chassis identity 19R.”
[91]The information which appears in this draft appears to have come from Mr Macari to Mr Emmison and, on Mr Macari’s evidence, came to him from Mr Edwards. It reflected Mr Macari’s state of knowledge at the time and what Mr Regis had learned from Mr Noon, but without any mention of Symbolic by name.[92]Mr Macari’s response that afternoon was to ask for the removal of the names of Edwards and Regis and their replacement with “Eurotrust and Banker or something like that – I would rather not have Edwards anywhere near the history”. No doubt the reference to “Eurotrust” was intended to be to “Eurotrading”. Mr Emmison responded by saying that if Mr Macari would send him the documents that he had asked for and confirm the name under which Mr Edwards was trading, he would make suitable changes, if Mr Smith approved. Mr Smith responded to Mr Emmison’s query by stating that “From what I can gather, having Edwards nowhere near the title sounds very sensible”. This was followed by Mr Emmison sending Mr Smith copies of the invoice from Mr Edwards which had been supplied by Mr Macari (with the deletion of the purchase price, by agreement with Mr Emmison) and material from Cars UK about their activity relating to the formal importation of the vehicle. Mr Emmison said he would alter clause 1.1 to remove the names of Edwards and Regis but would ask for a copy of the Regis release, the ownership history and a copy of the BTI (which was intended to establish the 5% basis for import duty).[93]Mr Emmison then emailed Mr Macari saying he would delete the names Edwards and Regis from clause 1.1 and asking for Mr Macari to fill in the gaps about known ownership, to provide a copy of Regis’ release of security addressed to Cars UK and stating: “I don’t trust RE and part of my due diligence is to see that any known lender has given a release of his interest over the car”.[94]On the same day, 8th December 2010, Mr Edwards sent Mr Barker a document stating that he had sold the McLaren to Joe Macari of JMPC Sales and asking him to pass on to him “all relevant documents including clearance letter from Peter Regis.” The same day, Mr Macari, for JMPC Sales, sent Cars UK a document stating that he wished to pay the import VAT on the McLaren at a C&F value of $1 million, the figure which he had been given by Mr Edwards as the value at which the car had been imported. The import entry acceptance advice of 9th December 2010 on Cars UK’s files show the acceptance by the Revenue of this figure on the basis of the information received. Cars UK also invoiced JMPC Sales for the customs clearance to home use and cancellation of the IPR temporary import, in sums of £350 and £31,553.29. Mr Macari paid the following day, together with the transit costs. Mr Macari informed Mr Emmison that he was waiting for the “Regis release paperwork” but was not “au fait with the history of the car”. The BTI would be forthcoming in the morning.[95]On 9th December 2010, Mr Emmison informed Mr Smith that Mr Macari had told him that he did not know the history of the car and therefore clause 1.5 would be taken out of the draft contract and clause 1.1 modified. Mr Smith said that he was content to sign the contract as long as the Regis document was obtained. This resulted in a yet further draft of the agreement with modifications in clauses 1.1 and 1.5 but requiring a copy of the Regis release and a copy of the document showing that 5% VAT/duty was payable.[96]Mr Barker, of Cars UK, sent an email to Mr Regis on 9th December stating that he appeared to have mislaid “your release of this car to Richard and would ask that you re-send me a copy for our records”. At almost the same time, Mr Macari sent Mr Regis an email seeking his confirmation that he had no further financial interest in the McLaren, stating that it was the car that he had released from Cars UK on 19th November. Shortly afterwards Mr Regis emailed Mr Macari stating that “We have no further financial interest in the McLaren … and informed Cars UK to that fact.” Mr Regis also emailed Mr Barker asking him to release the car and spares.[97]Cars UK then informed HMRC that the car had been “cleared to Home Use” and received an email the following day saying that the entry had now been discharged. Cars UK confirmed to Mr Emmison that the appropriate form would be sent to him. HMRC thus accepted the declaration of the C&F value of $1 million for the car and spares in discharging the IPR and allowing import into the country for home use.[98]On 10th December Mr Emmison emailed Mr Smith attaching the email exchange between Mr Macari and Mr Regis and stating that he knew, from dealings with other clients that Mr Regis had been, and was still, he thought, the financial backer/lender to the disorganised Richard Edwards, trading as Eurotrading. He said he would also send a copy of Mr Regis’s email to Mr Barker confirming release of his security. He told Mr Smith that he knew Mr Barker very well and planned to ask him if, to his knowledge, there was any other person believed to have lent money to Mr Edwards/Eurotrading against the car. He hesitated however to get too deeply involved at Mr Smith’s cost in digging into the business affairs of Mr Edwards, “whom everyone describes as a nightmare”. He concluded by saying that, since the money had been paid to JMPC Sales, since Mr Smith had the car, the aim should now be to get the contract signed with its warranty of good title from JMPC Sales which would enable him to rely upon Mr Macari sorting out any possible future claims from any other quarter. Mr Smith agreed to this, asking Mr Emmison to check the position verbally with Mr Barker but agreeing that he was not concerned about “the other financial affairs of Mr Edwards” and that no time should be wasted upon him.[99]By this time, Mr Emmison had a copy of the invoice from Mr Edwards/Eurotrading of 4th December to JMPC Sales, signed by Mr Edwards but told Mr Smith that he did not have “proof of payment of the price in that transaction or the passing of title” and suggested he should “ask Joe politely what proof could be shown.” A couple of hours later he told Mr Smith that he had called Mr Barker who was not aware of anyone being a lender against or having any claim over the McLaren and was waiting to hear further from Mr Macari.[100]It is clear from these exchanges that Mr Emmison’s prime concern was over the possibility that Mr Edwards might have borrowed money on the security of the McLaren and it was that which motivated him to seek reassurance from Mr Barker in addition to the written confirmation obtained from Mr Regis. There was no suspicion in the mind of any of those involved at the time, Mr Macari, Mr Smith, Mr Emmison, Mr Barker or Mr Regis that Mr Edwards did not have title to the car. All thought that Mr Regis had obtained good title under the pledge arrangements and would have checked the position out with the transferor in the USA, as he in fact had done, when obtaining information from Mr Noon which did not give rise to any suggestion that Mr Gray or anyone else was the beneficial owner of the car.[101]The final form of written contract appears to have been signed by Mr Smith on 13th December, after the weekend. The recitals differed from those drafted earlier in the following respects:
“1.1 The vehicle sold is the 1996 McLaren F1 GTR competition car, Chassis No: 19R (“the Car”), which as a racing car is not titled or registered in any state; after Eurotrading had paid off its lender, who had then released his security over the Car, the Car was acquired outright, and paid in full by Seller from Eurotrading by a bill of sale dated 4 November 2010, as shown by the copy documents attached as Annex 1; … 1.5 To the best of Seller’s knowledge no other person anywhere claims to own a McLaren F1 GTR with chassis identity 19R.”
Annexed to the contract were the emails from Mr Regis on behalf of Asphaltic confirming that they had no further financial interest in the McLaren and that the car and spares should be released by Cars UK. Also annexed was a copy of the 4th December sales invoice signed by “Richard Edwards trading as Eurotrading” to JMPC Sales, with the price blanked out but including a warranty of clear and unencumbered title. A bill of sale from JMPC Sales to Richard Smith with confirmation of full payment was also attached. On 17th December, following Mr Lanzante’s determination of the engine hours, JMPC Sales invoiced Mr Smith for the full sum of £1.2 million and on 20th December Mr Smith paid the balance of £50,000.[102]Mr Macari’s evidence was that, prior to obtaining the written confirmation from Mr Regis that he did, he had checked with Mr Regis orally as to the position. He asked Mr Regis if Mr Edwards had title to sell the car and if Mr Regis was out of the deal or words to that effect. He could not remember exactly what words he had used but he was clear that Mr Edwards told him that he had been involved from the start. He understood that the car had been purchased in 2008 and that it had come over to the United Kingdom straight away. Mr Regis told him that he had lent money to Mr Edwards to buy the McLaren and other cars and that was why the car had been kept to his order by Cars UK, for which he/Asphaltic had paid the storage bill.[103]It was suggested to him that, on the basis of Mr Regis’ evidence, the latter did not say anything to Mr Macari about the ownership of the McLaren but it was clear from the latter’s cross-examination that Mr Regis had stated that there was no outstanding money owed to him. He agreed that he did not say anything to put him on enquiry about the provenance of the car. He did not give him any reason to believe there was anything wrong with it or that Mr Edwards did not have any title to it. He said that he thought that Mr Macari could have checked matters for himself but agreed that, from what he himself had said, he could have presumed that everything was in order. He himself had checked with Mr Noon and been given the history of the car in the emails of 17 July and 10 August after the McLaren had arrived and after receipt of the Bill of sale from Symbolic. He made no other check as to whether Mr Edwards had purchased the car with anyone else’s money and self-evidently had no notion of Mr Gray’s interest. It was suggested to Mr Macari that he specifically limited his enquiry to asking if Mr Regis no longer had an interest in the car because he suspected that Mr Edwards did not have good title to it which was in the circumstances wholly unrealistic, since Mr Macari wished to get good title and everyone was working on the basis that Mr Edwards was doing what he was entitled to do, including Mr Regis. Mr Macari’s evidence was that he asked Mr Regis if he owned the car and Mr Regis said that he did but had released it to Mr Edwards as he no longer owed him any money on it. Mr Macari assumed that Mr Regis would have satisfied himself as to title to the car when taking it as security and becoming legal owner. There was no suggestion that Mr Edwards was not now the owner of the car and entitled to sell it.

Attornment

[104]Mr Gee QC relied upon the concept of attornment as supporting Mr Gray’s title and right to possession of the McLaren. He submitted that Mr Edwards was bailee of the car for Mr Gray and attorned to him in a number of different ways when the car was in the United Kingdom. This proposition is, to my mind, untenable because Mr Edwards was never a bailee of the McLaren at any time.[105]Following purchase by “Peter Williams”, Symbolic had held the car as bailee for the purchaser which was Mr Edwards who, as I have already found, had (voidable) legal title to the McLaren and the right to possession, whilst Mr Gray had a beneficial interest. When the car was flown to the UK, it was consigned to Cars UK Ltd who held it to the order of Mr Regis/Asphaltic with a commercial invoice and Bill of sale from Symbolic to Mr Regis dated 15th June 2009. Mr Edwards was not in possession nor did he have any right to possession of it whilst it was in the UK until Mr Regis informed Cars UK that it could release the McLaren to Mr Edwards, which was in November 2010, on the evidence of Mr Barker. Cars UK released the car on the orders of Mr Regis and then, on the orders of Mr Edwards, to Mr Macari.[106]At no time did Mr Edwards become a bailee of the car at all. As legal owner, prior to delivery to Mr Regis/Asphaltic or to its order and after release by them, he had the right to possession of it, whilst Mr Gray retained his equitable interest unless and until it was lost in an on-sale to Mr Macari or Mr Smith. No question of bailment or attornment ever arose, regardless of any statements or acts by Mr Edwards which recognised Mr Gray’s interest in the car. Mr Edwards continued in his fraud of Mr Gray when recognising that interest in the following ways: i) Requesting the transfer of £150,000 as VAT payable in respect of the purchase of the McLaren in December 2009 when no VAT was due. Those funds doubtless were utilised by Mr Edwards for his own purposes. ii) Setting out, in an email to Mr Gray dated 25th January 2010, a list of cars and values in which he referred to the McLaren as one of “your cars”. iii) In response to requests by Mr Gray’s secretary to him as to documentation and storage location of cars purchased, saying he would drop off the paperwork two days later and referring to “a secure storage facility near Petersfield” in September 2009 and to storage in Gaydon in March 2010, neither of which was true.[107]None of these actions can amount to an attornment nor assist Mr Gray’s case.

The passing of title to JMPC Sales and/or Mr Smith

[108]In circumstances where Mr Edwards had the legal title to the McLaren but transferred it to Mr Regis and/or Asphaltic by way of pledge, legal title reverted to him on the payment of sums owing and release by Mr Regis/Asphaltic. He was then in a position to pass legal title to others but the question arises as to whether any purchaser would take the car subject to Mr Gray’s equitable interest or not.[109]There are, it is recognised, three ways in which Mr Macari or Mr Smith might acquire clear title, both in law and equity: i) Under section 2(1) of the Factors Act of 1889 which provides: “(1) Where a mercantile agent is, with the consent of the owner, in possession of goods or of the documents of title to goods, any sale, pledge, or other disposition of the goods, made by him when acting in the ordinary course of business of a mercantile agent, shall, subject to the provisions of this Act, be as valid as if he were expressly authorised by the owner of the goods to make the same; provided that the person taking under the disposition acts in good faith, and has not at the time of the disposition notice that the person making the disposition has not authority to make the same.” ii) Under section 23 of the Sale of Goods Act 1979 which provides: “When the seller of goods has a voidable title to them, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect in title.” iii) As a bona fide purchaser for value without notice of Mr Gray’s equitable interest.[110]The requirements which a buyer has to satisfy, since the burden of proof is upon him, all include a requirement of good faith and the absence of notice. In the case of the Factors Act, he must not have notice that the person making the disposition lacked authority to make it. In the case of section 23 of the Sale of Goods Act, he must be without notice of the seller’s defect in title. In the last case, in order to acquire good title, free of an equitable interest, a purchaser must be without notice of the equitable interest.[111]Mr Gray’s case was that the circumstances in which Mr Macari purchased the McLaren from Mr Edwards and in which Mr Smith purchased the McLaren from Mr Macari were such as to put them on notice as to a defect in title. The two main elements of this case were as follows: i) Any reasonably prudent purchaser of a car of this kind would, since the car was not registered in any way or capable of being registered, require a chain of title to be shown by means of Bills of Sale from the original owner to the immediate seller. In particular, it was put to Mr Macari that he should have required more than simply an invoice from Mr Edwards to himself. ii) Mr Edwards was known to be untrustworthy and any reasonably prudent purchaser of the car would have carried out investigations to ensure that he was entitled to sell the car.[112]The evidence does not support Mr Gray’s case, as put by Mr Gee QC, on the first point. Mr Macari’s evidence was that, as between dealers, it was normal to make an oral contract which was later recorded in writing in an invoice. It was not normal to investigate a chain of title. When he or any other reputable garage sold a car, all they ever did in the ordinary way was to produce an invoice or bill of sale to the purchaser. All dealers in the UK and Europe operated in the same way, making deals by handshake or on the telephone and confirming them in an invoice. The only document that changed hands on sale was ordinarily an invoice and that was all he ordinarily supplied to his purchasers. That happened every other day in his experience for the last few hundred cars he had sold. Other well known and reputable garages did the same, giving their warranty of title to the purchaser. I accept this evidence, which in any event is supported by: i) Mr Noon’s approach in selling the car to “Peter Williams” on an invoice only and Mr Edward’s approach in purchasing the car on that basis. ii) Mr Regis’ own approach in taking the title to the McLaren on pledge on an Invoice/Bill of sale from Symbolic dated 15th June, after the car’s arrival at Cars UK earlier in June. Only later did he, somewhat casually, ask Mr Noon for the history of the car on 29th July, receiving responses on 4th August and 10th August. He plainly relied on Mr Edwards who was, in Mr Macari’s parlance, a trader rather than a dealer. iii) Mr Emmison’s approach, as a lawyer who wanted to investigate as fully as possible the past history, in accepting JMPC Sales’ Bills of Sale and the warranty of title given by it, with an invoice from Mr Edwards to JMPC Sales and the email exchanges between Mr Regis, Mr Barker and Mr Macari.[113]It was most unusual for a solicitor to be involved in a purchase transaction of this kind. Mr Macari said that he had come across it once since, in the course of the last two years, but this was a rarity. Mr Emmison no doubt wished to obtain the best evidence of ownership that was available but it is clear that he was satisfied with what ultimately appeared in the contract of sale, since he did not suggest to Mr Smith that the purchase should be aborted on the basis of inadequate information. His main concern was the possibility that Mr Edwards owed money elsewhere, but he was prepared to accept the information given and allow his client to proceed on the basis of it and not to seek to dig further into Mr Edwards’ financial affairs. Mr Emmison was satisfied with a Bill of sale from JMPC Sales to Mr Smith and a copy invoice (with the price deleted) from Mr Edwards, trading as Eurotrading, to JMPC Sales, with confirmation from Mr Regis that he no longer had any interest in the car and had authorised its release by Cars UK. Although he would have liked further history, that was not available to him.[114]Mr Macari himself did not have a copy of any earlier bill of sale but considered that he did not need it because the car had been held by Cars UK to Mr Regis’ order for eighteen months (although he thought, on the basis of information supplied by Mr Edwards, that it had been held by Cars UK for two years) and Mr Regis had confirmed that he was no longer the owner of the car and Mr Edwards was. He was confident that Mr Regis had legal title to the car and would have satisfied himself of the position. Generally, Mr Macari said in evidence, in a sale of this kind you would look simply to the seller of the car but in this case he had checked with the person he regarded as the previous owner, namely Mr Regis, the financer who had released the car to Mr Edwards.[115]As to the second issue, it is clear on the evidence that no one considered Mr Edwards dishonest in 2010 or that he would sell a car which he was not entitled to sell. He had been involved in the sale of tens of millions of pounds worth of cars over the years and his integrity had not been questioned. Mr Macari said that on his own purchases, the extent of any investigation depended upon the identity of the seller. When buying from another dealer, he would accept an invoice. If it was a road car, he would check HPI to make sure it was clear of finance. If it was a classic car, he would simply look at who the car was coming from and decide whether and how deeply to look into its history. As soon as he found a good strong person in the history, he would cease looking. Mr Regis was, in his view, such a person, though he had no reason to doubt Mr Edwards either. Mr Regis owned cars of this value and was known to him to do so and he had dealt with him over several years. In fact the deal with Mr Edwards was made orally and confirmed by the signed invoice. He did not look for anything more, having previously spoken to Mr Regis on the telephone.[116]It was certainly not normal practice to check back on the chain of title or to check any bill of sale prior to the transfer to the immediate seller. In this case Mr Macari did not ask Mr Edwards for a copy of the bill of sale in his favour. Mr Edwards had taken the car from Mr Regis and Mr Macari had Mr Regis’ confirmation that he had no further interest in the car. As Mr Regis had told him, he had been the owner of the car for an extended period before that during which it had been held to his order by Cars UK. He was therefore confident in buying from Mr Edwards.[117]It is interesting to consider what would have happened if any further inquiries had been made by Mr Macari. If he had asked for a bill of sale in Mr Regis’ favour, he would have been supplied with the invoice/bill of sale from Symbolic dated 15th June in favour of Mr Regis. As the existence of Mr Gray’s interest was not known to Mr Regis (nor indeed to Mr Noon) any defect in Mr Edwards’ title because of Mr Gray’s interest would not have come to light. He could have gained nothing from further enquiries of Mr Edwards who had already told him of Mr Regis’ ownership of and interest in the car. Self-evidently he would not have revealed Mr Gray’s interest.

Bona fide purchaser

[118]It was Mr Gray’s case that Mr Macari was dishonest and was therefore not a bona fide purchaser. It is also suggested that he bought at an undervalue and that he had notice of Mr Edwards’ defect in title. Whilst it was accepted that Mr Edwards was a mercantile agent, within the meaning of the Factors Act, for the purpose of purchase of the McLaren, it was denied that he was acting in the ordinary course of business when selling the McLaren and it was not accepted that Mr Macari was not on notice as to his want of authority to do so. It is accepted that Mr Smith was honest and therefore a bona fide purchaser. It is nonetheless said that he was on notice as to a potential defect in Mr Macari’s and Mr Edwards’ title to the McLaren and took a chance. There is no basis for any finding that he was not a bona fide purchaser who considered that Mr Edwards and Mr Regis before him had good title to the McLaren. Mr Edwards had legal title and there was nothing to suggest that Mr Gray or anyone else had an equitable interest. Mr Macari had no reason to be suspicious and trusted Mr Edwards and Mr Regis.[119]I find that Mr Macari was honest and did not consider at the time of purchase from Mr Edwards that he was not the owner of the car nor suspect that Mr Gray or anyone else had an equitable interest in it. For the reasons which appear later, the VAT/Duty position does not affect this conclusion.

Mercantile Agent

[120]In the re-amended reply, it was admitted that Mr Edwards was a mercantile agent for the purpose of the purchase of the McLaren from Symbolic but it was not accepted that he was in possession of the McLaren with Mr Gray’s consent for the purpose of a sale in November/December 2010. The nature of the requirement was put in this way by Willmer LJ in Stadium Finance v Robbins [1962] 2 QB 664 at 674:
“To come within the section [the agent’s] possession of the car must be possession, with the consent of the defendant, in his capacity as mercantile agent – that is to say, as one clothed with apparent authority to sell.”
In Pearson v Rose & Young [1951] 1 KB 275, Lord Denning said, at p. 288:
“The owner must consent to the agent having them for a purpose which is in some way or other connected with his business as a mercantile agent. It may not actually be for sale. It may be for display or to get offers, or merely to put in his showroom; but there must be a consent to something of that kind before the owner can be deprived of his goods.”
[121]Under section 1(2) of the Factors Act, a person is deemed to be in possession of goods or of the documents of title to the goods “where the goods or documents are in his actual custody or are held by any other person subject to his control or for him or on his behalf.” Mr Edwards was therefore in possession of the McLaren once Mr Regis released Cars UK from their obligations to hold the McLaren to his order and held it to his order. The question arises however as to whether he was in possession in a way which was connected in some way with the sale of the McLaren, with apparent authority to sell as a mercantile agent. Because Mr Edwards had legal title to the McLaren he had apparent authority to sell.[122]In Mr Gray’s witness statement, he refers to subsequent dealings between himself and Mr Edwards following the purchase of the McLaren in the USA. At paragraph 35 he refers to Mr Edwards treating him as the owner and regarding himself as Mr Gray’s agent in performing services including exploring the opportunity for a short-term gain by selling the McLaren and looking for a buyer in Europe. Later in the statement he referred to the possibility of selling to someone whom he understood to be a client of Mr Brokaw but this came to nothing. He left Mr Edwards to deal with transportation arrangements to the UK and understood that it was imported into the country in 2009. In the summer of 2009 he knew that Mr Edwards was exploring whether he could find a buyer for him at a good price and heard of potential buyers who had put in cash offers of $2.25 million and $2.5 million. In connection with an offer which was made, subject to inspection, the McLaren was moved to a car dealer in Cheshire (the movement referred to by Mr Barker between June and November 2009).[123]At paragraph 40 of his witness statement however, Mr Gray refers to his decision not to entertain bids for the McLaren but to keep it as a long-term part of his collection. He stated that he instructed Mr Edwards that the McLaren was no longer available for sale and he should keep it in storage. At paragraph 42 of his witness statement, Mr Gray states that there was no question of Mr Edwards having possession and control of the McLaren for the purpose of selling it on his behalf or inviting bids to purchase it. He says that he expressly told him, and he agreed, that the McLaren was in his custody and care for the purpose of storage only and not open to any offers. If this evidence is taken at face value, Mr Edwards would not be in possession of the McLaren as a mercantile agent in connection with any potential sale of the McLaren, whether for display or the obtaining of offers or anything of that kind. In such circumstances the Factors Act could not apply.[124]There is however, a more fundamental objection to the passing of title under the Factors Act, since I have already found that Mr Edwards did not hold the McLaren as agent to Mr Gray at all. He did not acquire the McLaren as agent for Mr Gray and never held it for him in that capacity. He was the legal owner of the McLaren and Mr Gray, whose money had been used for the purpose of the purchase was the owner in equity. This is therefore, not a Factors Act case.

Seller with voidable title

[125]In order to establish good title under section 23 of the Sale of Goods Act, Mr Smith must show that Mr Edwards had voidable title and that Mr Macari purchased the car without notice of the seller’s defect of title.[126]Mr Gee QC contended that, in order to fall within this section, the bona fide purchaser had to establish that the seller had a voidable title within the meaning of English law and that establishing voidable title under the law of California was insufficient. In Benjamin’s Sale of Goods, 8th Edition at paragraph 7-021, the paradigm case of the operation of this section is set out. The paradigm case involves A, the true owner of the goods being induced by the fraud of B, the seller, to sell the goods to him which he then on-sells to C, an innocent buyer. The effect of the fraud is not absolutely to avoid the contract of sale between A and B but to render it voidable at the option of A. The property in the goods passes to B though B’s title is subject to A’s right to avoid it. Provided that A has not effectively exercised this right at the time of the sale of the goods by B to C, C will acquire an indefeasible title to the goods notwithstanding the fact that B has only a voidable title to them. This is exactly the position under the law of California so that, even if “voidable title” within the meaning of section 23 is confined to the understanding of that concept in English law, this section is satisfied, as I have found that the sale to “Peter Williams” was voidable at the instance of Symbolic, although it had no interest in avoidance, once it had been fully paid.[127]Whether or not therefore this section could apply depends in part upon the question whether JMPC Sales in the person of Mr Macari had “notice of the seller’s defect of title”. If it did not, it could acquire good title as against the original owner, Symbolic. That however does not meet the point about Mr Gray’s equitable interest. In my judgment, the real issue in this action is whether or not JMPC Sales (Mr Macari) and/or Mr Smith acquired legal title to the McLaren subject to Mr Gray’s equitable interest or not. It is the general doctrine of bona fide purchaser for value without notice which comes into play here and, again, it is the question of notice which is of critical importance here. Was JMPC Sales and/or Mr Smith such a purchaser for value without notice?

Notice

[128]For the reasons given above, the question of notice does not arise in the context of section 2 of the Factors Act or in the context of the Sale of Goods Act. In the case of the general bona fide purchaser for value doctrine the question of notice arises as notice of the equitable interest in question.[129]On the authorities, the critical point at which it matters whether the purchaser has such notice is the time at which title passed or valuable considerable was given, whichever is later, in the case of the general bona fide purchaser for value doctrine.[130]In my judgment it is clear that both the contract between Mr Edwards and JMPC Sales on the one hand and the contract between JMPC Sales and Mr Smith on the other were both concluded by 4th December 2010 over the telephone even though detailed terms remained to be negotiated and agreed between Mr Macari and Mr Smith thereafter for the contract in writing which was not envisaged until Mr Emmison was engaged on 7th December. At 4th December JMPC Sales was in possession of the car and title must have passed to it since Mr Edwards knew that the purchase had been “called on” by Mr Macari in the light of a pending sale or as a result of the conclusion of an on-sale to Mr Smith. The date of the invoice from Mr Edwards, trading as Eurotrading, confirms this. As between JMPC Sales and Mr Smith, however, the written contract provided that title and risk passed after payment of £1.15 million, “when the car was delivered into Buyer’s control at Lanzante Motor Sport on 7th December 2010”, which was early that evening.[131]If JMPC Sales in the person of Mr Macari had no “notice of the seller’s defect of title” as at 4th December 2010, he acquired good title, as against the original seller, who could still avoid the sale but the issue arises as to whether he took it free of Mr Gray’s equitable interest. Valuable consideration passed from JMPC Sales to Mr Edwards on payment on 6th December and as title had already passed, this is the critical date so far as JMPC Sales is concerned. So far as concerns Mr Smith, it is the 7th December which matters, since it was at that point that title and risk passed to him, having furnished valuable consideration the previous day. The crucial questions are therefore: i) As of 6th December did JMPC Sales in the person of Mr Macari have notice of Mr Gray’s equitable interest? ii) As of 7th December did Mr Smith have notice of Mr Gray’s equitable interest?

The test for notice

[132]There is a perceived tension between notice as understood by commercial lawyers and equity lawyers. It is commonly said that the doctrine of constructive notice has no place in “commercial transactions”, a proposition rejected by Millett J (as he then was) in Macmillan Inc v Bishopsgate (No. 3) [1995] 1 WLR 978 atpp. 1000-1001. Whilst, at paragraph 7-047 of Benjamin’s Sale of Goods (8th Edition) the authors submit that in the context of the Factors Act and of the Sale of Goods Act, “notice” of a fact prima facie means actual knowledge of that fact, reference is made to the dictum of Lord Tenterden in Evans v Trueman (1830) 1 Moody & R 10 at p. 12 to the following effect:
“A person may have knowledge of a fact either by direct communication, or by being aware of the circumstances which must lead a reasonable man applying his mind to them, and judging from them, to the conclusion that the fact is so. Knowledge acquired in either of these ways is enough, I think, to exclude a party from the benefit of the provisions of this statute: a slight suspicion, I think, will not.”
This dictum has subsequently been judicially approved but it is now established that suspicion in the mind of a person, and the means of knowledge in his power wilfully disregarded, would amount to notice. The main problem, as explained in Benjamin, is the extent to which the courts will adopt an objective approach to the question of notice by reference to the “reasonable man”. The paragraph goes on to say that the doctrine of constructive notice does not normally apply to commercial transactions and there is no general duty on the buyer of goods in an ordinary commercial transaction to make enquiries as to the right of the seller to dispose of the goods. Nevertheless, it is appropriate that the court should apply an objective test to determine whether, in the circumstances of the sale, the buyer as a reasonable man, must have known of the agent’s want of authority (or defect in title) or must have had suspicions and wilfully shut his eyes to the means of knowledge available to him. It is a question of fact and degree.[133]I was referred to the decision of the Court of Appeal in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2012] CH 453 where the concept of notice is discussed, in particular at paragraphs 97-101. There, in the judgment of the Master of the Rolls, Lord Browne-Wilkinson’s dictum in Barclays Bank Plc v O’Brien [1994] 1 AC 180 at 195-196 was cited with approval:
“The doctrine of notice lies at the heart of equity. Given that there are two innocent parties, each enjoying rights, the earlier right prevails against the later right if the acquirer of the later right knows of the earlier right (actual notice) or would have discovered it had he taken proper steps (constructive notice). In particular, if the party asserting that he takes free of the earlier rights of another knows of certain facts which put him on inquiry as to the possible existence of the rights of that other and he fails to make such inquiry or take such other steps as are reasonable to verify whether such earlier right does or does not exist, he will have constructive notice of the earlier right and take subject to it.”
[134]The Master of the Rolls further cited Millett J in an addendum to his judgment in Macmillan where he said that unless and until someone was alerted to the possibility of wrong doing, he was entitled to proceed on the assumption that he was dealing with an honest man. “In order to establish constructive notice it is necessary to prove that the facts known to the defendant made it imperative for him to seek an explanation, because in the absence of an explanation it was obvious that the transaction was probably improper.”[135]The supposed tension between commercial and equity lawyers is, in my judgment, essentially put to rest in Snell’s Equity (32nd edition) at paragraph 4-035 where the following passage appears under the sub-heading “COMMERCIAL TRANSACTIONS NOT INVOLVING LAND.” “It is commonly said that the doctrine of constructive notice has no place in “commercial transactions”. … But the question whether a recipient of property is fixed with constructive notice of an equitable interest should not depend simply on whether the transaction may be characterised as “commercial”. The better approach may be to ask if there is a recognised practice of making inquires as to the transferor’s title in transactions of this sort. In many transactions that may broadly be called “commercial” that practice may be non-existent or minimal. The overriding need is for speed and finality. It would be inappropriate to introduce the demanding standard of inquiry expected of a purchaser buying unregistered land. It would be difficult to fix a person in such a transaction with constructive notice because the threshold of knowledge necessary to raise an obligation of inquiry is set so high. The person might not be put on enquiry unless he knew facts which pointed so clearly to the equitable interest affecting the payment that he would have actual notice of it at any event.”[136]Lindley LJ in Manchester Trust (ibid) at p. 545 stated that “in commercial transactions possession is everything and there is no time to investigate title”. This is a key feature of many commercial transactions and in the present case, the ordinary practice of dealers and customers in purchase of cars of this kind must be borne in mind. Investigation of title to the car is not common on the evidence before me, where purchasers accept delivery from a dealer in possession of the car with the delivery of the car and transfer of possession with a bill of sale or invoice as the norm.[137]The authors of that textbook also state that it has long been settled that in the actual or constructive notice which an agent has (e.g. a purchaser’s solicitor) is normally imputed to his principal if obtained by the agent in the same transaction and coming to him as agent.[138]I was also referred to the decision of the Court of Appeal in BCCI (Overseas) Ltd v Akindele [2001] CH 347, where Nourse LJ referred to the judgments of Lindley LJ in Manchester Trust v Furness [1895] 2 QB 539 at 545 and of Richardson Jin the New Zealand Court of Appeal decision in Westpac Banking Corporation v Savin [1995] 2 NZR 41 at page 53. In both these decisions, caution was expressed in relation to the application of the doctrine of constructive notice in commercial transactions. In Akindele the test was laid down for “knowing receipt” of trust property which had been received in breach of trust. Whereas dishonesty was a prerequisite for a case of knowing assistance, the state of knowledge required for imposition of a constructive trust on the basis of “knowing receipt” was only such as made it unconscionable for him to obtain the benefit of the receipt.

The application of the test

[139]In my judgment, given the ordinary way in which cars of this kind are purchased, neither Mr Macari nor Mr Smith were on notice as to any equitable interest of Mr Gray in the McLaren. Neither had actual notice of any such interest. Nor did either of them have constructive notice because there was no failure on the part of either to “take proper steps” to investigate Mr Edwards’ entitlement to sell in the context of the usual practice for the sale of such cars. There were no facts known to either which put them on inquiry as to the possible existence of his rights which would require an investigation to be effected to verify whether such rights did or did not exist. There were no facts known to them which made it imperative for either of them to seek an explanation, without which it would be obvious that the transaction was probably improper. There is moreover nothing unconscionable about their receipt of the car, with each paying good and valuable consideration for it, as bona fide purchasers. In the context of a sale of a car, commonly effected orally and supported only by an invoice or bill of sale, Mr Macari was entitled to rely upon Mr Edwards’ title and Mr Regis’ prior title, which had been confirmed to him in circumstances where the car had been held in this country to the latter’s order for a period of some eighteen months. Equally, Mr Emmison and Mr Smith were entitled to rely upon Mr Macari’s bill of sale, the invoice from Mr Edwards to him and the assurances obtained from Mr Regis as to the release of his interest, combined with the additional information from Mr Barker of no other known financial interest in the car in circumstances where it had been in Cars UK’s custody held to Mr Regis’ order for that period of eighteen months or so. Mr Gray’s interest remained hidden throughout, nothing alerted the purchasers to its possible existence and enquiries of Mr Edwards, Mr Regis and Mr Noon would not have revealed it.[140]It was, in any event, only after 7th December, by which time payment and delivery had been made and title had passed that the involvement of Mr Edwards and Mr Regis appears to have become known to Mr Emmison and Mr Smith. Mr Emmison’s concerns, made known to Mr Smith centred on the possibility that Mr Edwards owed money to other people but even then there was nothing to put them on notice that Mr Edwards had legal title only and that equitable ownership rested elsewhere, whether in Mr Gray or anybody else. There was nothing in the circumstances of the sales to Mr Macari or to Mr Smith which could have led them to suspect that Mr Edwards had only legal title to the car or that Mr Gray was the equitable owner of it.

The factors relied on by Mr Gray

[141]A number of factors were relied on Mr Gee QC as establishing both notice to Mr Macari (and a want of good faith on his part).[142]The purchase price of £950,000. This was said to be a purchase at an undervalue, particularly when seen in the light of the price paid by Mr Smith to Mr Macari of £1.2 million. The sale to Mr Macari included the spares whereas the sale to Mr Smith did not. There is nothing in this point. The price of £950,000 was, on the evidence, the highest price ever paid for a long tail McLaren of which there are only eight in the world. The only comparable McLaren had sold a few months earlier for about £800,000. The spares were worth very little indeed and contribute nothing to the argument. As Mr Macari pointed out, with the unknown factor of the engine running hours, and taking into account the duty he had to pay, his guaranteed profit was just under £180,000 but the profit margin in itself does not indicate a known purchase at an undervalue. It is not so great as to suggest that the purchaser was aware of a problem or should have been suspicious. With cars of this kind, the question of valuation is self-evidently subjective and it appears that Mr David Clarke was a purchaser in the offing at the time. There is no reason to think that Mr Edwards was looking to sell cheaply and none whatsoever for thinking that Mr Macari did anything other than make a good bargain. The price that Mr Smith was prepared to pay was influenced by the advice he received from Mr Lanzante and it may well be that Mr Edwards was keen to make a quick sale in order to purchase the Californian Spyder which he mentioned to Mr Macari in an email on the Monday. That would not have justified suspicion.[143]Mr Macari’s awareness that Mr Edwards was an untrustworthy character. I reject the submission that Mr Macari, at the time of purchase, considered that Mr Edwards was a man who would sell cars which he was not entitled to sell. Mr Edwards had a reputation for disorganisation and lack of funds and it was Mr Macari who suggested that his name should not appear in the written contract, as opposed to the name of Eurotrading under which he operated. He explained that he did not want individual’s names appearing in the contract and Mr Edwards was not a name which would improve the car’s standing because he was considered “unreliable” in the sense of being “all over the place”. There was no attempt to hide from Mr Smith or Mr Emmison the fact that Mr Edwards was the prior owner of the car and the invoice from him, signed by him, was annexed to the written contract. For presentational purposes however, it was better that neither his name nor that of Mr Regis, who was associated with him, should expressly appear in clause 1.1. It was only in 2011, as the evidence and reactions of Mr Gray, Mr Broadhurst, Mr Regis and Mr Macari all show, that Mr Edwards’ dishonesty came to light.[144]The sale was agreed on the telephone with no documents and no investigation of title. Again, I reject this as a basis for suspicion. In the ordinary way, sales of cars of this kind are effected orally between traders and dealers, and dealers and customers and confirmed by an invoice/bill of sale, as this purchase was. On occasion Mr Macari would make enquiries if he was not confident about his seller’s integrity and would look for an earlier seller of good standing.[145]In the present case, he was entitled to be satisfied of Mr Edwards’ title. The evidence showed that, in the ordinary way, it would soon become common knowledge in the trade if a car had been stolen or an individual did not have good title. The McLaren, purchased in December 2008, had been in the country since June 2009 for a period of some 17-18 months by the time of the December sale. It was in the possession of Cars UK and held to the order of Mr Regis, who was someone whom Mr Macari knew and respected and whose integrity was not in doubt. He knew also of Mr Regis’ and Mr Edwards’ co-involvement in the purchase of cars and was entitled to rely on Mr Regis’ assurance that he no longer had an interest in the car in the circumstances described earlier in this judgment. As Mr Macari said in his witness statement, it would not have been normal for him to have enquired into the antecedents prior to Mr Regis and he considered that the latter would not have bought the car if he had not been satisfied as to its provenance. Mr Macari had no reason to suspect that Mr Edwards was not the owner of the car which he was selling and no reason to suspect that there was any other person who had an interest in the car. Mr Gray’s interest remained totally hidden where Mr Regis and Mr Edwards appeared to have had the car for one and a half to two years, following purchase from the United States without any suggestion that anyone else had an interest in the car at all.[146]In relying upon the approach of Mr Emmison, when acting for Mr Smith and seeking more than simply an invoice/bill of sale from the seller, Mr Gee QC ignores the ordinary practice of the market and the basis of all trading, namely trust, unless there are grounds for suspicion. Mr Macari had no such grounds and could reasonably trust both Mr Edwards and Mr Regis in the context of the sale of the car.[147]It is not, to my mind, credible that Mr Macari would have been prepared to spend £950,000 to purchase a car where he considered the title in doubt and I consider that he was a shrewd businessman. Had he had any inkling that there was a problem, he would not have bought the car and displayed it for sale in the open manner in which he did. As he said, it was not a back street purchase or sale. Everything was done above board in the ordinary way of business and there was nothing to indicate to him that there was a person in the position of Mr Gray who had funded the original purchase and was the equitable owner of the car. If Mr Regis had any doubts about the position he would not have lent money against the security of the McLaren and he had seen nothing to indicate any interest on the part of Mr Gray whose name appeared nowhere in the papers which came from Symbolic and who had taken almost no steps to ascertain where the car was or to secure possession of it. If Mr Regis had no inkling of a problem and was not suspicious, there was no reason for Mr Macari to harbour any doubts.[148]JMPC Sales was a dormant company and not one of Mr Macari’s usual trading companies. This is a point which on the evidence, is not made good. JMPC Sales was formed for the specific purpose of buying a site opposite the garage which never became available, but the company became Mr Macari’s sales company with a turnover in millions in 2008-2010. The agreement to dissolve the company was made on 10th April 2012 and although the last accounts filed at Companies House were for the year ending 31st December 2009, there were draft accounts for 2010 showing a turnover of £17 million, albeit small profit and small assets. The company was dissolved because the site opposite the showroom never became available. Mr Macari did not know why the 2010 accounts had not been finalised or filed. He left such matters to his accountants. I reject the suggestion that this company was used by Mr Macari in order to give a worthless warranty of title to Mr Smith.[149]The existence of four different invoices. Mr Gee QC relied on four invoices from Mr Edwards trading as Eurotrading to Mr Macari’s companies. The first is the invoice dated 4th December addressed to Mr Macari’s service company with the £1 million price. Mr Edwards appears to have got the company’s name from Mr Macari’s website and no doubt was seeking to make more from the transaction. Mr Macari put him right on this. There is secondly the invoice of 4th December which was signed by Mr Edwards trading as Eurotrading which Mr Macari relied on as evidencing the contract between them. A third copy of the invoice is simply the same document with the purchase price deleted for supply to Mr Emmison. This is the document annexed to the written contract with Mr Smith. There is then a further invoice in the bundle dated 10th December 2010 from Eurotrading to Joe Macari Service which provides for a purchase price of £950,000 but without any reference to EEC tax or to clear and unencumbered title. Mr Macari said he had never seen this document before and, as it was disclosed by the claimant, it probably represents a document produced by Mr Edwards at a late stage in the proceedings to Mr Gray, on admitting that he had sold the car.[150]There are said to be VAT irregularities in relation to the importation of the McLaren. I am unable to see how these could impact upon anything other than Mr Macari’s credibility and I do not find that he deliberately under-declared the value of the car. Doing so, as he pointed out would result in little gain for him in any event. The declarations of value to HMRC and the use of the IPR scheme do not in themselves raise any question as to the bona fides of Mr Macari as a purchaser nor give rise to any notice of Mr Gray’s equitable interest or any defect in Mr Edwards’ title. If a wrong value was declared, that was the result of Mr Edwards’ deception of Mr Macari as to the value at which it had been brought into the country. If the car was not properly the subject of IPR, because of the absence of any intention to export or to carry out “processing operations within the meaning of the Customs Code”, this did not impact upon the validity of the sale from Mr Edwards to JMPC Sales. It could have no effect on the title of Mr Edwards to sell.[151]Mr Barker did not see anything unusual in the arrangements that were made and it appears that Mr Edwards had taken the car out of bond into IPR in mid-2009 with a view to a potential sale and export to Germany. Whilst IPR was a temporary regime to allow vehicles to be processed with the intention of re-export, Mr Barker’s evidence was that HMRC would allow the IPR to be discharged against payment of taxes, which is what took place. Mr Macari thought that what he was doing was a qualifying IPR process and when he informed Cars UK of his desire to import the car for mechanical repair on a temporary basis, there was a possibility of re-export and work to do on the car. Whilst this was no doubt a liberal interpretation of the IPR regime, duty was paid and accepted by HMRC in discharge of the bond, regardless of the differential between the declared value at the time of entry into the bond (made by Mr Edwards) and the value declared by Mr Macari eighteen months later. This does not cast doubt on Mr Macari’s honesty in purchasing the car from Mr Edwards nor give grounds for suspicion about anyone else having an equitable interest in the car.[152]The real thrust of Mr Gray’s case on notice was that Mr Macari, and in due course Mr Smith and Mr Emmison, should have made further enquiries about title because Mr Edwards was known to be unreliable. Reliance was placed upon the email exchanges between Mr Macari and Mr Emmison in particular in this regard but the key enquiries and exchanges in which Mr Emmison was involved and which related to Mr Edwards and Mr Regis all post-dated the payment of valuable consideration (£1.15 million) and the passing of title to Mr Smith. The issue on which Mr Emmison satisfied himself and Mr Smith was whether Mr Edwards had paid off Mr Regis, so that he could give good title. What is revealed by the exchanges however is Mr Emmison seeking information beyond the usual requirements but accepting that good title had been established within the usual limits for cars of this kind. Otherwise he would have been bound to advise Mr Smith not to go ahead with the purchase, which he did not. The matters recorded in the written contract were, self- evidently, in his view, as much protection as was reasonably possible or necessary in the circumstances. Further enquiries into Mr Edwards’ finances were not worthwhile, and, as can be seen now, would not have resulted in anything other than deception. There was no proper or reasonable enquiry to be made of Mr Edwards or Mr Regis that would have brought Mr Gray’s equitable interest to light.[153]Mr Smith’s position is even stronger than that of JMPC Sales as a bona fide purchaser for value without notice. He took advice from Mr Lanzante who was satisfied that JMPC Sales had the right to sell, whether by reference to an IPR form or otherwise. Mr Smith’s evidence was that Mr Lanzante told him that the car had been in bond and sought to explain the IPR system to him and JMPC Sales’ responsibility under it, although he had no recollection of Mr Macari swivelling the computer screen to show him a document. He took advice from a specialist lawyer, Mr Emmison, who was satisfied also. He had no reason, buying the car as he did, from a reputable garage with a Ferrari franchise and an excellent reputation, with which he had previously dealt and which had displayed the car openly in its showroom for 2 weeks, to doubt that JMPC Sales had good title. Mr Macari’s companies effected £25-30 million worth of business in any year with additional commissions running into the millions also.

Conclusion

[154]JMPC Sales was a bona fide purchaser of the McLaren without notice of Mr Gray’s equitable ownership of it. It took title clear of that interest. Mr Smith thereby also gained good title. Moreover, even if JMPC Sales had not been a bona fide purchaser for value because in some way it had constructive notice of Mr Gray’s interest, Mr Smith was certainly such a purchaser.[155]Mr Gray has been duped and swindled by Mr Edwards and has lost a substantial amount of money on the McLaren and on others, it would appear. That is unfortunate but I am satisfied that Mr Smith has established that both he and JMPC Sales fall within the bona fide purchaser exception to the “nemo dat” principle, having paid substantial sums of money for the car, without actual knowledge or constructive notice of his interest in the car.[156]In the absence of any special circumstances, costs must follow the event and the parties should be able to agree the form of order that the court should make.

Cited in 3 later judgments