Fitzalan-Howard (Norfolk) & Anor v Hibbert [2009] EWHC 2855 (QB)

[2009] EWHC 2855 (QB)Case No HQ08X04325
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 12 November 2009
Before
THE HON. MR JUSTICE TOMLINSON
Between
THE MOST NOBLE EDWARD FITZALAN-HOWARD DUKE OF NORFOLKClaimantNORFOLK TRUSTEES LIMITEDClaimantCRAIG MICHAEL HIBBERTDefendant
Tiffany Scott (instructed by Messrs Myers, Fletcher & Gordon) for ClaimantsMatthew Parker (instructed by Messrs DLA Piper UK LLP) for DefendantHearing Hearing dates: 12, 13, 14 October 2009
Judgment
[1]In these proceedings the Claimants seek restoration of £235,670.67 paid by mistake on 9 April 2008 into account No. 06105268 held by Erinaceous Consultancy Services Limited (“ECSL”) in the name of “Monaghans Limited” at Bank of Scotland, The Mound, Edinburgh.[2]The claim against the Defendant is for dishonest assistance in a breach of trust or fiduciary duty by ECSL. The Claimants also say that the Defendant is in breach of fiduciary duty. During the course of the trial the Claimants abandoned the allegation that the Defendant was yet further in breach of a duty of care in tort.

The facts

[3]The Claimants, between whom it is unnecessary to distinguish, own property in Sheffield and in 2007/2008 were undertaking a development of land at Queen’s Road. It was a retail development. Through their agent, Fowler Sandford, a firm of chartered surveyors, they employed Monaghans of Sheffield as quantity surveyors and project managers.[4]When first approached in this connection in February 2007 Monaghans was a trading name of Monaghans Limited. The Defendant, who became a chartered surveyor in 1985, joined what was then the firm of Monaghans as a senior surveyor in 1988. In 1995 he became a partner in the firm. In 1991 Monaghans was incorporated as Monaghans Limited and the Defendant became a director.[5]By 2006 Monaghans Limited had become a wholly owned subsidiary of Monaghans Holdings Limited (“MHL”). The Defendant and his business associate Peter Beard each owned 50% of the shares in MHL.[6]On 26 September 2006 Erinaceous Group plc (“Erinaceous”) purchased the entire issued share capital of MHL. The Defendant remained a director of MHL and Monaghans Limited. As from 26 September 2006 he had a contract of employment with Monaghans Limited which described his place of work as Wharf House, Victoria Quays, Sheffield.[7]On 30 March 2007 Monaghans Limited changed its name to Erinaceous Consulting Services Limited, ECSL, but continued to trade as “Monaghans”. It was merged into the “Building Consultancy” division of Erinaceous together with several other companies, each of which, like Monaghans Limited, continued to trade under its original name.[8]On 2 April 2007 the Defendant resigned as a director of ECSL. On 4 June 2007 he resigned as a director of MHL. He had become concerned about various investment decisions made by Erinaceous, poor management of the business and a failure to integrate various acquisitions. Following his resignation he continued to be employed by Monaghans Limited, essentially as manager of the Monaghans business which had offices in Sheffield, Manchester, Edinburgh and Kendal. The Sheffield office was the main office. The Defendant or more accurately his pension fund owned the freehold of the Sheffield office premises.[9]In September 2007 there was a Stock Exchange announcement that Erinaceous had breached its banking covenants.[10]On 17 December 2007, with an eye to the future after his three year tie to Erinaceous came to an end, the Defendant incorporated a new company called Monaghans Limited, a name which Erinaceous had allowed to lapse, albeit ECSL continued to trade as Monaghans.[11]On 18 March 2008 Monaghans sent an invoice to Fowler Sandford being their “Fee Request: 8” in respect of the Queen’s Road project. The project was nearing completion and this Fee Request claimed £14,000 out of the total agreed fee £15,000, of which £11,375 had already been claimed and paid. Hence this invoice was in the sum of £2,625.00 plus VAT at 17.5%, a total of £3,084.38. Payment of the invoice was said to be due within 14 days.[12]This invoice was laid out in the same manner as previous invoices. At the top the name was simply “Monaghans”. In a box towards the bottom of the invoice, which was on a single sheet of paper, there appeared the following:
“Payment may be made directly to our corporate headquarters: 11 Wellesley Road CROYDON CR0 2NW Or sent by BACS to our bank: Bank of Scotland, The Mound, EDINBURGH EN1 1YZ Account Name: Monaghans Limited Sort Code: 80-20-00 Account Number: 06105268”
Immediately underneath that was Monaghans’ address at Wharf House, Victoria Quays, Sheffield. Under the address there appeared, in small but legible print:
“Monaghans is a trading name of Erinaceous Consultancy Services Limited.”
Or sent by BACS to our bank: Bank of Scotland, The Mound, EDINBURGH EN1 1YZ Account Name: Monaghans Limited Sort Code: 80-20-00 Account Number: 06105268”

Sort Code: 80-20-00

[13]On 31 March 2008, under cover of a letter of that date, Monaghans sent to Fowler Sandford their Interim Valuation No. 5 in relation to works carried out on the Queen’s Road project. The valuation recited that the valuation date was 27 March 2008 and that the date of issue was 31 March 2008. It certified £200,570.78 as having become due. The valuation noted that all the amounts stated thereon were exclusive of VAT. The covering letter to Fowler Sandford stated:
“Please find enclosed a copy of our Valuation No. 5 in relation to works carried out on the above scheme. The overall value recommended for payment is £200,570.78 excluding VAT, based on the information and application submitted by T.G. Beighton Limited. We note that at this time we have not been instructed to deduct any monies from the valued figure, for any works not completed in accordance with the Contract. However should you decide to make any such deductions, you must inform the Contractor in writing advising of your intentions to deduct the value along with your reason for deduction. Your notification of the deduction must also be made in line with the Contract Conditions/Construction Act (1996) Requirements, i.e. ‘at least five days prior to the final due date for payment’.”
The letter was copied, or at any rate stated that it had been copied, to T.G Beighton Limited.[14]Also on 31 March 2008 T.G. Beighton Limited issued an invoice in the sum of £200,570.78 together with VAT in the sum of £35,099.89, a total of £235,670.67, addressed to The Most Noble Edward William Duke of Norfolk and Norfolk Trustees Limited care of Fowler Sandford, 8 St James Street, Sheffield, South Yorkshire. The evidence does not disclose when that invoice reached Fowler Sandford.[15]On 2 April 2008 Mr Jeremy Robinson of Fowler Sandford wrote to Mr David Mewis, at the Duke of Norfolk’s Estate Office in Arundel, West Sussex, in these terms:
“Victoria Works, Queen’s Road, Sheffield I am pleased to enclose the following invoices for you to deal with in the usual manner: TGB £200,570.78 Monaghans £3,084.38”
TGB £200,570.78 Monaghans £3,084.38”

TGB £200,570.78

[16]Mr Mewis is and has for forty-eight years been a chartered accountant. He has worked for Arundel Services Limited for twenty years. Arundel Services Limited provides estate management, financial and accounting services to the Duke of Norfolk and to his Family Trusts. Before working for the Duke Mr Mewis was for twenty-two years in private practice as a partner in a firm of chartered accountants. Before that he had been the Chief Accountant and Secretary of a national building society.[17]Notwithstanding the terms of his letter of 2 April, Mr Robinson enclosed therewith only one invoice, the Monaghans Invoice of 18 March 2008 to which I have referred at paragraph 12 above. What was in fact also enclosed was the Monaghans Valuation Certificate, in the sum, as Mr Robinson’s letter states, of £200,570.78, which is, as his letter does not state, the certified sum exclusive of VAT.[18]Mr Mewis said in evidence that the Duke, as the developer, and therefore he Mr Mewis was under some pressure to make an immediate payment as the proposed retail tenant, Screwfix, was waiting to complete a lease for a warehouse which formed part of the development, and that completion could not take place until practical completion of the works had been achieved, which was in turn contingent upon payment. Whatever pressures the Duke or Mr Mewis were under, they were neither caused by nor contributed to by Monaghans.[19]On Monday 7 April 2008 Mr Mewis arranged for two payments to be made by way of BACS bank transfer. In accordance with Monaghans’ invoice, he arranged for a payment of £3,084.38 to be made to the account indicated on the invoice. He calculated the VAT which required to be added to the Monaghans’ valuation in order to reach the total amount payable, and annotated the valuation accordingly, noting that the VAT was £35,099.88 and the total therefore £235,670.66. He also annotated the valuation “Pay EIF II” indicating that the sum was to be paid out of the Trust Fund “Earl’s Issue II”. Then he arranged for this amount also to be transferred by BACS transfer to the account identified on Monaghans’ invoice. This was a mistake. The amount was payable to T.G. Beighton Limited, not to Monaghans. There was no system in place whereby money due to Beightons was first paid to Monaghans. Monaghans had not asked for the money to be paid to them. As quantity surveyors, Monaghans did not handle clients’ money and had no systems in place so to do. Monaghans neither caused nor contributed to the mistake made by Mr Mewis.[20]The two amounts were debited from the Earl’s Issue II account on the morning of Monday 7 April 2008 and credited to the nominated account at Bank of Scotland on Wednesday 9 April 2008. I note from the relevant Bank of Scotland statement of account that the name of that account is in fact “Erinaceous CS Limited T/A Monaghans” and not Monaghans Limited as stated on the Monaghans’ invoice, but nothing turns on that. The accounting function for Monaghans was conducted from the ECSL (and Erinaceous) head office in Croydon.[21]Although there is no direct evidence about this, it seems likely that on either the afternoon of Wednesday 9 April 2008 or on the morning of Thursday 10 April 2008 Marsha Richards at the ECSL head office in Croydon contacted Mr Akers at Fowler Sandford who understood that he was being called by Monaghans and asked whether Fowler Sandford had made a large payment direct to the ECSL bank account. Mr Akers knew that Fowler Sandford had made no such payment, but he knew also that Monaghans to whom he was speaking were involved in the Queen’s Road project and that there were large amounts of money involved. He surmised that the payment might have come from the Norfolk Estate office in Arundel and suggested that his caller telephone Lin Allen or David Mewis at that office, supplying the telephone number. Mrs Allen worked in the same room as Mr Mewis. There must then have been a telephone conversation between Marsha Richards and Lin Allen, because at 13.54 on Thursday 10 April 2008 Lin Allen faxed to Marsha Richards in Croydon a copy of T.G Beighton Limited’s invoice to the Duke and the Trustees which must by then have found its way from Fowler Sandford to ECSL in Croydon.[22]The subject of the unsolicited large payment must also have been discussed in the Croydon office of ECSL between Marsha Richards and Joe Patel. Mr Patel of the Erinaceous Finance Department carried out the bookkeeping function for Monaghans’ Sheffield business at the Erinaceous (and ECSL) head office in Croydon. However there was also a Monaghans bookkeeper and Management Accountant at Sheffield, Andrew Hinchliffe. Although Monaghans’ invoices were issued in Sheffield, payments by cheque were to be sent to Croydon, as the box on the Monaghans’ invoice which I have set out above dictated. BACS payments went to the Bank of Scotland bank account which was administered from Croydon.[23]At 15.08 on 10 April 2008 Marsha Richards sent an e-mail to Joe Patel. It read:
“Subject: £235,670.67 payment Hi Joe Information as discussed. Regards Marsha”
Although there is no direct evidence about this, it is an inevitable inference that this e-mail enclosed a scanned copy of the T.G. Beighton invoice which Marsha Richards had obtained by fax from Lin Allen. Hi Joe Regards Marsha”

Hi Joe

[24]At 15.24 on 10 April 2008 Joe Patel sent an e-mail to Andrew Hinchliffe which he copied to the Defendant at his Monaghans’ e-mail address, and copied also to Simon Turner of Monaghans, Marsha Richards and Tracey Cox. Tracey Cox was the Monaghans credit controller in Sheffield. The subject of the e-mail was “£235,670.67 payment”. The e-mail read:
“Andrew, Or (Craig/Simon/Tracey), Yesterday we received a big payment, £235,670.67 in our HBOS Bank A/c, stating the sender as EARLS ISSUES. Nobody here in Croydon can identify this as there is no invoice(s) in Monaghans books for such a sum. Could someone kindly confirm if this is one of ours and what the payment relates to, unless there is an error somewhere along the line. Regards, Joe.”
The e-mail was sent in continuation from Marsha Richards’ earlier e-mail to Mr Patel. It passed that on too, together with its enclosure. Joe.”[25]At 15.38 on 10 April 2008 Mr Hinchliffe replied to Mr Patel. On the subject “Re: £235,670.67 payment” he said this:
“Joe, Surely this belongs to T.G. Beighton Limited as per the attached scanned invoice or maybe this is just too obvious. Cheers Andrew.”
Mr Hinchliffe did not copy this e-mail to anyone else. Cheers Andrew.”

Cheers

[26]In the early evening of Thursday 10 April 2008 the Defendant caught up with those e-mails which had been copied to him, as opposed to addressed to him, during the day. At 18.15 he passed on to his solicitor Duncan Shepherd of Messrs Wake Smith & Tofields Joe Patel’s e-mail of 15.24, together with its enclosure, the Beighton invoice. His message to Mr Shepherd read:
“Duncan see what I mean, nothing to do with Monaghans Craig.”
I will in due course explain the significance of this observation and explain why the Defendant sent this e-mail to his solicitor.[27]There was produced at trial a copy of the Earl’s Issue Fund II Payment Analysis showing the payment of £235,670.67 to Monaghans Limited initiated on 7 April 2008 and made on 9 April 2008. On the copy produced is written in Lin Allen’s handwriting:
“THIS IS BEING PAID BACK TO EIF TODAY 11/4/08. WE HAVE TO PAY IT TO T.G. BEIGHTON LIMITED.”
It seems likely that Lin Allen obtained this information over the telephone from someone at ECSL in Croydon, in all probability Marsha Richards. There is no evidence that anyone in the Arundel Estate office had by this stage actually asked for repayment of the money, and although they may have done I think that it is unlikely. Mr Mewis was the only witness called to give evidence for the Claimants and he had made no such call. Mr Mewis was an utterly straightforward and honest witness but his recollection of what telephone calls had been made or received by Lin Allen was uncertain and confused, and his account inconsistent. It is even unclear when first he saw Lin Allen’s note of 11 April 2008 recording what she had been told on that day. In subsequent correspondence initiated on 18 April 2008 and conducted on behalf of the Estate Office by the Duke’s solicitors, Messrs Nabarro, no mention was made until 20 June 2008 that it had been said by ECSL on 11 April that the money was being repaid – and even then it was wrongly suggested that it was Mr Mewis who was called and given this information. No-one at the Estate Office was aware on 9, 10 or 11 April of any urgency and matters were in any event taking their course. If Lin Allen was called by Marsha Richards on the afternoon of 9 April, as Mr Mewis thought and as seems likely, she did not fax a copy of the invoice until the following afternoon, 10 April. Confirmation that the money was being repaid came the next day. Although it was in the public domain that Erinaceous was and had for some time been in financial difficulties Mr Mewis did not know this and in any event he did not appreciate that Monaghans was a part of the Erinaceous Group.[28]On Monday 14 April 2008 Mr Mewis wrote to ECSL in these terms: “For the attention of Sheetal Monaghans, Sheffield and work at Queen’s Road Sheffield I enclose a copy of a direct payment made to Monaghans on 7th April which passed through our account on 9th April. This was in respect of work carried out by T.G. Beighton limited at premises owned by the Estate at Queen’s Road, Sheffield. Will you please refund the amount £235,670.67 directly to our account at the following reference: (and then there were given details of the Earl’s Issue Fund II account at the Royal Bank of Scotland plc which it is unnecessary to reproduce here) In the meantime please hold these funds on clients account as agent for the Estate, to our order.” “Sheetal” was, Mr Mewis said, a member of the ECSL staff to whom either he had spoken on Friday 11 April 2008 or to whom he had been asked to write. Mr Mewis could not actually remember if he had spoken to anyone at ECSL on 11 April although he thought that he had done. The terms of his letter of 14 April suggest to me that Mr Mewis had not by then seen Lin Allen’s note of 11 April or been told that the money was being repaid that day, although if he had seen the note or been told of the conversation to which it referred he would I think in all likelihood have been content to let matters take their course. It may be that Mr Mewis thought it a good idea to write since the payment had not been received. His letter of 14 April does not however suggest that Mr Mewis necessarily at that stage expected that the repayment would already have been made – on the contrary it suggests a recognition that in a large organisation such payments once instigated are not ordinarily made instantaneously.

Monaghans, Sheffield and work at Queen’s Road Sheffield

[29]There is no evidence what action if any was taken by the Erinaceous Finance Department on 11 April 2008 in order to cause the repayment to be made.[30]At lunchtime on Friday 11 April 2008 the Bank of Scotland told the Chief Executive Officer of Erinaceous that it was withdrawing its support for the Group. Later that day the Erinaceous Board was briefed by Mr James Tucker, a partner of KPMG, as to their plans in the event that appointment of administrators occurred on the following Monday.[31]On Monday 14 April 2008 Mr Tucker and his partner Mr Richard Hill were appointed as joint administrator of a number of subsidiary companies within the Erinaceous Group including ECSL and MHL. The business of “Monaghans” was as already recorded a trading division of ECSL. The Group had a deficiency of over £42 million.[32]Immediately prior to the appointment of administrators the Bank of Scotland exercised rights of set-off which it enjoyed under a Working Capital Facility Agreement concluded with Erinaceous on 26 July 2006. On the acquisition of Monaghans Limited and MHL by Erinaceous Monaghans Limited and MHL on 26 September 2006 became parties (“Acceding Borrowers”) to the Facility Agreement. The Accession Agreement was not signed by the Defendant, and his evidence was that he was unaware of it or of the associated Facility Agreement until it emerged in this litigation. I accept his evidence, but I should emphasise that it would make no difference to my ultimate conclusion if I thought that Mr Hibbert had become aware of this agreement and of its terms at some earlier stage. I am quite satisfied that in the critical period between 2 and 14 April 2008 the Facility Agreement and its terms were neither uppermost in his mind nor even present to his mind at all. There is no reason why it or they should have been. Pursuant to the Facility Agreement the Bank of Scotland was entitled to and did apply the credit balance in account number 06105268 in partial satisfaction of ECSL’s liabilities to the Bank. The Bank of Scotland took the entire credit balance, less 51 pence, being £470,325.00.[33]The Bank of Scotland had no knowledge of the mistaken payment made by the Duke. It was not notified thereof until it received Nabarro’s letter of 18 April 2008 which asserted that the money was held on constructive trust for the Duke. The Bank of Scotland did not accept that the Duke enjoyed an equitable interest. However even if he did the credit balance in the account and thus the trust property was eliminated before the Bank of Scotland had notice thereof. Unsurprisingly, the Bank of Scotland declined to return the money. It also rejected a speculative allegation of impropriety made by Messrs Nabarro on the Duke’s behalf.[34]It is against this background that the Defendant is said to be personally liable to the Duke, either on the basis that he has dishonestly assisted in a breach of trust or fiduciary duty by ECSL or because he has acted in breach of a fiduciary duty owed to the Duke. A further allegation that the Defendant is liable in tort was abandoned by Ms Scott for the Duke in her closing submissions. Similarly, Ms Scott did not attempt to identify any legal basis for the contention that the Defendant personally owed any fiduciary duty to the Claimants.[35]In order to explain how these at first sight surprising allegations come to be made I must next describe the efforts which Mr Hibbert was at this time making to acquire the Monaghans business. Whilst these activities provide the backdrop to and possibly the pretext for the allegations, they also demonstrate that for Mr Hibbert in Sheffield a mistaken payment which it was the task of the Erinaceous Finance Department in Croydon to sort out was not uppermost in his mind. The Defendant’s negotiations to acquire the Monaghans business.[36]On 2 April 2008 the Defendant was approached by John Nolan. In 2006 John Nolan had sold his civil and structural engineering business, Nolan Associates, to Erinaceous. Part of the purchase price was deferred in the shape of Loan Notes payable by Erinaceous at the end of March 2008. Erinaceous defaulted on payment, thereby entitling John Nolan to acquire ownership of the entire Building Consultancy division of Erinaceous, which of course included the Monaghans business. Mr Nolan immediately made contact with the previous owners of the constituent businesses with a view to reaching agreement with them to sell their businesses back to them.[37]A deal was soon agreed in principle between Mr Nolan and the Defendant for the latter to acquire the Monaghans business for £200,000. Although this was potentially an attractive deal for the Defendant, I accept that he was also motivated by a desire to save the Monaghans business and to secure the jobs of the 60 or so staff, many of whom were personal friends who had worked with him for up to twenty years, in some case for all of their working lives. The deal discussed was a purchase of goodwill, contracts, lease interests, equipment, intellectual property, work in progress and debt outstanding as at 31 March 2008. It was never envisaged that cash at the bank would form part of the sale. Over the days following the initial approach on 2 April the Defendant worked towards completion of the agreement, which it was envisaged would be accomplished by 11 April.[38]It was suggested to Mr Hibbert that he knew throughout this period, or at any rate by 9 or 10 April 2008, that the Erinaceous group would go into administration on 14 April. It is true that on 4 April Duncan Shepherd’s secretary Julie Boswell e-mailed him after speaking to Mr Hibbert to the effect that he, Mr Hibbert, needed to get two deals done before 11 April “before the business goes into administration”. Indeed on Monday 7 April Mr Shepherd met Mr Hibbert and noted that Erinaceous was not doing well and that the Building Consultancy division (not, be it noted, the Erinaceous Group) would go into administration “this Friday”. However I think that these references are to Mr Nolan’s intention, not to the intention of the Bank of Scotland. Mr Nolan wanted a quick deal. Any Building Consultancy businesses which he could not sell by his own deadline would be placed into administration. Mr Hibbert cannot have known or at any rate is most unlikely to have known that the Bank of Scotland intended to place the Erinaceous Group into administration before that decision was communicated by the Bank to the CEO at lunchtime on 11 April. I accept his evidence that in fact he did not learn about the Bank’s decision until Sunday 13 April when he was called by ECSL’s remaining director, Nigel Davis. However I should again emphasise that even if I had concluded that Mr Hibbert knew of the Bank’s plans before even the CEO of the Group, which I regard as unlikely if not fanciful, still it would make no difference to my ultimate conclusion. At no time did it occur to Mr Hibbert that, if the Bank put the Group into administration, it would be likely to exercise its right of set-off contained in the Facility Agreement with the consequence that, if the Bank had not first been notified of the mistaken payment by the Duke, the Duke would be likely to lose his money. I have already recorded my finding that Mr Hibbert did not in fact know about the Facility Agreement. He did not himself use bank borrowing, and even if he was aware that such borrowing would ordinarily have associated with it a right of set-off, it does not surprise me that this train of thought did not occur to him at a time when he was heavily engaged on other matters, when he had simply been copied in on Mr Patel’s e-mail enquiring about the origin of the payment and when sorting out the problem was the responsibility of the Finance Department in Croydon.[39]It is true that Mr Hibbert described the financial management and record keeping carried out by Erinaceous at Croydon as chaotic. In consequence he was finding it difficult to obtain accurate information in relation to debtors and creditors. Ironically the mistaken payment by Earl’s Issues II seems to have been picked up and investigated very promptly. However his perception of the shortcomings at Croydon led him on 7 April to instruct the Monaghans Credit Controller to write to Monaghans’ outstanding debtors and clients requesting that payments and remittances be sent to Sheffield. Mr Hibbert was anxious to ensure that ECSL accounted accurately for any cheques received from clients of Monaghans relating to the book debts as at 31 March 2008 which he was proposing to purchase. He also needed to set up bank accounts for the new business. One such letter sent by Tracey Cox to David Akers at Fowler Sandford read:
“Dear David, With regards to all Monaghans payments, would you kindly forward all payments and remittances to the Sheffield address listed below. We are currently in the process of changing our Bank Account and I will advise the new Bank details shortly for your reference. If you have any queries or require any further assistance, please do not hesitate to contact me. Thanking you in anticipation.”
[40]I should interpose at this point that what Mr Hibbert said about his perception of and concern about the Croydon accounting function was corroborated by the terms of his e-mail to Duncan Shepherd on the evening of 10 April 2008 when he said “see what I mean, nothing to do with Monaghans”. He was, as he thought, supplying an example of the chaotic system about which he had been expressing concern, although in truth it was a bad example. Receipt of a payment to which Monaghans was not entitled was hardly the fault of the accounting staff at Croydon.[41]At the time when Mr Hibbert caused Tracey Cox to send the message of 7 April he confidently expected to complete by Friday 11 April a deal with Mr Nolan pursuant to which he would be entitled to Monaghans’ debt outstanding as at 31 March 2008. This was overtaken by events. The final draft of the contract with Mr Nolan provided rather that Mr Hibbert’s entitlement was to “Receivables” which were defined to include any debtors as at the Completion Date. A contemporary note suggests that this altered structure emerged late on 10 April 2008.[42]In fact the deal with Mr Nolan did not proceed. Mr Hibbert learned from his own solicitors at about 8.30 p.m. on Friday 11 April that their opposite numbers, Messrs Shoosmith, who acted for Mr Nolan, had ceased working towards completion of the contract. Mr Hibbert did not at that stage know why. It was only on the morning of Sunday 13 April that Mr Hibbert learned from Nigel Davis, the sole remaining Director of MHL and ECSL, that those companies would be going into administration the next day. He was told that if he wanted to buy back the Monaghans business he needed to reach an agreement in principle with the proposed administrators KPMG before Monday. Through Mr Davis Mr Hibbert had discussions with the proposed administrators that afternoon and evening. Again the proposal discussed involved acquisition of the Monaghans business – goodwill, fixtures and fittings, debtors and work in progress. At no stage was it proposed that Mr Hibbert should become entitled to cash at the bank. This agreement crystallised on the morning of Monday 14 April. I need not go into the details. Under the agreement finally reached with the administrators Mr Hibbert was entitled to debtors as at 1 April 2008. If any cheques were therefore received at Monaghans Sheffield between 7 and 11 April 2008 pursuant to the request by Tracey Cox Mr Hibbert was in fact entitled to retain them. The evidence did not demonstrate whether there were any such cheques received at Sheffield. As it happens after completion the administrators of ECSL retained all sums paid by debtors of Monaghans between 1 April and completion, which took place on 16 April. Correspondence was entered into between Wake Smith for Hibbert and Ashursts for the administrators. The nub of the dispute was that whereas Mr Hibbert was entitled to debtors as at 1 April 2008, “cash in hand or at the bank” was excluded from the sale. Mr Hibbert did not consider it worth his while litigating the point against what he saw as the big battalions – the administrators KPMG and their solicitors, Ashursts.

Discussion and conclusions

[43]Mr Hibbert was much pressed with his instruction to Tracey Cox and her subsequent letter and in particular with the question what he would have done about cheques received pursuant to her letter had any such been received and the deal with Mr Nolan had not gone ahead and not been superseded by the agreement with the administrators. As I have already recorded the evidence did not demonstrate whether there were any such cheques. It is true that Mr Hibbert gave some inconsistent answers about how those cheques would have been dealt with had they been received and whether they would have been held or banked. This is however of very little consequence. He was being asked about a hypothetical situation in circumstances where it was unclear whether any cheques were in fact received. It is obvious that whatever had been done with any such cheques, had the deal with Mr Nolan not proceeded and not been overtaken by the subsequent deal with the administrators, Mr Hibbert would have returned the cheques or accounted for their proceeds. Not to have done so would have amounted to theft and it was not suggested that Mr Hibbert was about that. When he caused the request to be made by Tracey Cox he honestly believed that the agreement with Mr Nolan entitling him to those payments would be finalised, and he honestly believed that he was simply safeguarding his position in the light of accounting shortcomings at ECSL. It is obvious that until such time as Mr Hibbert had opened a new bank account any BACS payments would either be made as usual to the ECSL account at Bank of Scotland or not at all.[44]I would agree that it is questionable whether in causing Tracey Cox to send the message which she did Mr Hibbert was acting consistently with his contractual duties owed to his employers. The incident does not however cause me to reject Mr Hibbert’s evidence as unreliable and it is of little if any relevance to an evaluation of whether, in relation to the Duke’s mistaken payment, Mr Hibbert did not act as an honest person would have done in the circumstances. It was suggested that the episode at the least shows the extent of the control of Mr Hibbert over payments to or by Monaghans. However it does not. In giving the instruction Mr Hibbert did something which probably he was not entitled to do. Looking at the other side of the coin, once he had ceased to be a director of ECSL he had no power or ability to authorise payments to be made. He was at no time a signatory to any ECSL account and he could not write cheques or arrange payments. All ECSL finances were handled centrally in Croydon. Had it occurred to him to do so he could no doubt have attempted to inject some urgency into the process of repaying the Duke once it had been ascertained that a mistaken payment had been made. Whether he would have been successful in that endeavour is another matter. In the event it did not occur to him to do so and I can see no basis upon which it can be asserted that he was under a duty to ensure that repayment to the Duke was made. Whatever his misgivings concerning the efficiency of the ECSL Finance Division, it was hardly his responsibility personally to ensure that payments or even repayments were made within a reasonable time. Indeed, as I note hereafter, I doubt if it can be said that ECSL failed to make repayment within a reasonable time of discovering that a mistaken payment had been made to it.[45]Not only in the ordinary course of events would it have been no part of Mr Hibbert’s responsibility to process the repayment, so in the particular circumstances which prevailed it is in my judgment impossible to regard Mr Hibbert as having failed to act as an honest person would have done. Mr Hibbert had no personal interest in the mistaken payment in the sense that whether it remained in the account or was repaid had no bearing on the price which he had to pay for the Monaghans business or on the assets which he would in consequence receive. It is therefore unsurprising that he gave it no thought.[46]It was put against Mr Hibbert variously that: i) he negotiated and participated in a deal to purchase the business of Monaghans under which the cash in the bank account would be retained by the Bank of Scotland or the Administrators and lost to the Claimants; ii) he was prepared to allow John Nolan and/or the Administrators to walk away with cash in the bank to which they were not entitled, and iii) that he ought to have known that a review of the Bank’s support for Erinaceous was forthcoming, that a consequence of that would be administration and that in turn the Duke might lose his money.[47]The classic formulation of what constitutes dishonest assistance on which both parties relied is to be found in the speech of Lord Nicholls of Birkenhead in Royal Brunei Airlines v Tan [1995] 2 AC 378 at 389:
“… Acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as a honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a persona actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.”
Furthermore, as Lord Nicholls emphasised in his speech at page 387, dishonest assistance normally involves positive assistance – “deliberate intervention”, “intentional intru[sion]” or “interfere[nce] with the due performance by the trustee”.[48]Except on the first formulation of the allegation against him the complaint is that Mr Hibbert failed to act, rather than that he acted. Even on the first formulation it is difficult to describe his conduct as intervention, intrusion or interference. Furthermore he simply gave the matter no thought. Had he not been negotiating to buy the business, he would in my judgment have been under no duty to ensure that repayment of the Duke was made before the financial difficulties of Erinaceous crystallised into administration, and his failure to act in those circumstances could certainly not have been castigated as falling short of what an honest person would in the circumstances have done. The fact that he was engaged in negotiations to purchase the Monaghans business makes no difference to that analysis. The mistaken payment had no relevance to the matters under discussion which were occupying Mr Hibbert’s mind and his time. If anything, the fact that Mr Hibbert was so tied up in the possible acquisition of the Monaghans business simply renders it even less surprising that he gave no thought to a matter which was not his immediate responsibility and was of no relevance to the deal which he was seeking to achieve. In my judgment the facts of this case do not come within hailing distance of dishonest assistance.[49]In those circumstances I do not need to address the logically anterior question whether there was in fact a breach of trust or fiduciary duty to which Mr Hibbert could have given his dishonest assistance. Whether the recipient of money paid under a mistake of fact holds the money on trust for the payee is currently unclear. In Chase Manhattan Bank v Israel-British Bank [1981] Ch 105, Goulding J held, at page 120A, that he does. This was doubted, however, by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at pages 704A-706A and 714C-715C. Goff and Jones comment, in The Law of Restitution (7th Edition, 2007) at paragraph 4-038, that:
“It is not at all clear whether Chase Manhattan Bank will be followed. Although the payer paid under a mistake, nevertheless he did intend to pass both the legal and equitable title to the transferee and his mistake was not sufficiently fundamental to vitiate that intention. The fact that he knew or subsequently came to know of the mistake should not impugn this conclusion.”
The learned authors conclude however that they are persuaded “that Goulding J was correct to hold in Chase Manhattan Bank that the payee was a constructive trustee of the money, if identifiable, paid under a mistake”. This gives rise to the further difficulty of identifying the point of time at which such a trust would arise. If a constructive trust does arise, it can only be from the point at which the conscience of the recipient is affected – see per Lord Browne-Wilkinson in the Westdeutsche case at page 715BC and per Goulding J in Chase Manhattan at page 120H. The point at which conscience is affected would not necessarily be the point at which the recipient suspected, or even learned of, the mistaken payment, but might be the point at which he could reasonably be required to have acted. Even that formulation begs a question, since instructions to a bank do not usually result in instantaneous transmission of payment to the intended payee. If the supposed trust in question is a remedial constructive trust, it would not obviously be equitable to impose it in circumstances where a restitutionary claim would be met by a successful defence of change of position. There is, if I may respectfully say so, an illuminating discussion of these problems in the judgment of Etherton J, as he then was, in London Allied Holdings Limited v Lee [2007] EWHC 2061 (Ch). I was also referred to an interesting discussion of the relationship between the proprietary remedy and the potential for a trust in the judgment of Judge Chambers QC in Papamichael v National Westminster Bank [2003] EWHC 164 (Comm) at paragraphs 221-231.[50]In the present case there was no evidence of what if anything was done by ECSL after it had become clear that a mistaken payment had been made. It would be difficult to conclude that ECSL could reasonably be required to have taken steps to reverse the mistaken payment before Friday 11 April, and difficult without more to conclude that it would have acted unreasonably simply in failing to take the necessary steps on that day. No person involved had any reason to believe that the situation was one of any urgency, other than the normal urgency involved consistent with reasonable business practices and fair dealing. There is no evidence whether, had ECSL on Friday 11 April given to the Bank of Scotland an instruction for a BACS transfer to Earl’s Issues II, this would have been effective to remove the money from the Bank’s grasp on the morning of Monday 14 April 2008. These are difficult issues and since a conclusion on them is unnecessary to my decision I need say no more about them save only to observe, perhaps redundantly, that it is by no means obvious that ECSL was in breach of constructive trust or fiduciary duty.[51]There is no basis for the suggestion that Mr Hibbert personally owed to the Claimants a fiduciary duty to protect their interests and none was suggested.[52]For all these reasons the claim fails and is dismissed. There must be judgment for the Defendant.

Cited in 3 later judgments