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||Neutral Citation Number:  EWHC 758 (Ch)
||Case No: HC04C00859
IN THE HIGH COURT OF JUSTICE
||Royal Courts of Justice
Strand, London, WC2A 2LL
||3 April 2007
B e f o r e :
MR JUSTICE LEWISON
|| BEVERLEY PAINTER
||- and -
CI LAW TRUSTEES LIMITED
Mr Tim Cowen and Mr David Peters (instructed by Messrs. Isadore Goldman) for the Claimant and Part 20 Defendants
Miss Barbara Rich (instructed by Barrea & Co.) for the First Defendant and Part 20 Claimant
The Second Defendant did not appear and was not represented
Hearing dates: 7,8,9,12,13,14,15,20 March 2007
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice Lewison:
|The beginnings of the sofa business
|27 Cross Lances Road Hounslow
|25A Hardman Road Kingston-upon-Thames
|Station Road Hayes
|The Willows Woodland Avenue Windsor
|The Gemini Trust
|Refurbishment of 25A Hardman Road
|Sale of The Willows and its aftermath
| Sale of The Willows and payment into Gemini Trust
| Closure of the Hayes sofa business
| The Rolls Royce
| The Inland Revenue investigate
|Sale of 25A Hardman Road
|84 Deanway Chalfont St Giles
|The outcome of the tax investigation
|Mr Hutchison's calculations
|The Pine Furniture business
|Mr Painter's bankruptcy
|The effect of the declaration of trust
| According to its terms
| Was the declaration of trust a sham?
|Should an account be taken?
| The claim for an account
| The effect of Mr Painter's bankruptcy and discharge
- Mr Ron Painter and Mr Brian Hutchison became friends in the 1960s when they were working together as car salesmen. They were friendly enough to share a flat for a few months at that time. Many years later, after Mr Painter had married and moved to London, he and his wife and Mr Hutchison became very close indeed. However, they have now fallen out. The aftermath is a series of disputes about the ownership of property and a dispute whether some or all of many business activities were joint ventures in respect of which an account should be taken. Most of these business dealings are undocumented, and there are many conflicts of fact. The immediate trigger for the litigation was the registration by Mr Hutchison on 17 October 2001 of a caution against the title of 84 Deanway, Chalfont St Giles, which is Mr and Mrs Painter's current matrimonial home, and of which Mrs Painter alone is the registered proprietor.
- The essential issues are:
i) Who is the beneficial owner of 84 Deanway?
ii) Did Mr Painter and Mr Hutchison enter into a joint venture agreement in relation to a sofa business run by Mr Painter?
iii) Did Mr Painter and Mr Hutchison enter into joint venture agreements relating to the purchase and sale of properties and cars, and if so, which and on what terms?
- Because the documents are so sparse, much turns on the credibility of witnesses; and of the two principal witnesses, Mr Painter and Mr Hutchison, in particular. Mr Painter gave his evidence firmly and clearly. He has been guilty of duplicitous conduct in the past, notably in his dealings with the Inland Revenue. He was prepared to concede this immediately; and indeed said so in his witness statement. But the fact that he has been guilty of duplicity in the past does not necessarily lead to the conclusion that he gave dishonest or unreliable evidence under oath. His account of events has been consistent throughout the progress of this litigation. Mr Hutchison has also been guilty of dishonesty in the past. During the course of the events with which I am concerned he was convicted in the USA of mortgage fraud. This resulted in (amongst other things) the impounding of his passport. It was released to him from time to time by permission of the US judge, and enables dates of Mr Hutchison's visits to the UK to be established with some accuracy. However, in addition to having been convicted of dishonesty in the past, Mr Hutchison was also a very unsatisfactory witness. Even Miss Rich did not suggest that his evidence was reliable. I will give detailed examples later, but for now I summarise my general impression. He was evasive and argumentative. He would launch into tangential speeches when confronted by questions that he could not answer consistently with his case. He attempted to place the most strained readings on the plain words of his pleaded case and his principal witness statement. He was free with allegations that his previous solicitors and counsel had made mistakes in accurately recording his instructions. At times he gave self-contradictory answers within the space of a few minutes of his evidence. New allegations emerged in the course of his cross-examination which had not previously formed part of his pleaded case or his written evidence. It was impossible not to conclude that they had been made up on the spot. In the course of his cross-examination of Mr Hutchison Mr Cowen convincingly demonstrated to my mind that Mr Hutchison's case had shifted in important respects either in response to evidence given by Mr Painter or in response to documents that had emerged on disclosure. It changed again and again in the witness box itself. His disclosure of documents has been lamentable and highly selective. In my judgment he has deliberately and dishonestly fabricated evidence in order to try to accommodate what was indisputable within the overall framework of his story.
- In my judgment Mr Hutchison has also tampered with highly important documents. I mention one now. Mr Hutchison disclosed what he called his "account statements" from an account held offshore in Jersey. In fact they were the inside of his cheque book in which he had entered in manuscript details of cheques drawn on the account. His then solicitors Blakemores sent photocopies of these documents to Isadore Goldman, Mr and Mrs Painter's solicitors. Mr Painter inspected the photocopies. His suspicions were aroused, because it looked as though some of the entries had been altered by the use of liquid correction fluid. This was most apparent where some of the pre-printed wording of the cheque book appeared to have been obliterated in white. But there were other clues as well. So he asked to inspect the original; and did so at the offices of Blakemores. It is important to note that Mr Painter inspected the original and that it was physically present in Blakemores' offices. Mr Painter says, and I accept, that when he inspected the original he did indeed see that some entries had correction fluid superimposed on them or parts of them. He reported this to Ms Cary of Isadore Goldman. Ms Cary therefore wrote to Blakemores on 11 May 2005 asking for the originals to be made available for forensic examination. Chasing letters were sent on 1 June, 9 June, 2 August and 11 August. They produced little by way of constructive reply. On 12 August Blakemores replied that their client was "in no position to provide access to [the] documents as he has been ordered by his doctor to take a break from the matter". This caused some surprise to Isadore Goldman who replied on the following day that they were under the impression that the original had been retained by Blakemores. In September 2005 the two firms corresponded about the detailed arrangements for the transport of the documents. By February 2006 the original had still not been produced, but on 6 February Blakemores wrote to say that the document "is being sent to us by Special Delivery by our client. We expect to receive the same by Tuesday 7th February 2006." However, on 23 February 2006 Blakemores wrote to say:
"Our client has confirmed that, regrettably, the originals of the documents which you have copied have been mislaid."
- It was not therefore possible for a forensic examination to take place. In the witness box Mr Hutchison said that the originals were retained by Blakemores and that it was they who lost them. As the contemporaneous correspondence demonstrates, that was patently untrue. Mr Hutchison also suggested in the witness box that Mr Painter himself might have applied the correction fluid during the course of his inspection of the original. This preposterous suggestion is falsified by the fact that the photocopies disclosed by Blakemores before any physical inspection took place themselves reveal the traces of the application of correction fluid. Despite Mr Hutchison's vehement denials, the conclusion that he tampered with documents, and then refused to allow them to be forensically examined, is inescapable.
- In short, Mr Hutchison's evidence cannot be relied on unless it is corroborated by indisputable and contemporaneous documents. Where it conflicts with the evidence of Mr Painter, I have no hesitation in preferring Mr Painter's evidence.
- I should mention briefly some of the other witnesses I heard:
i) Mrs Beverley Painter. Mrs Painter is the claimant, although she was not party to the relevant discussions between her husband and Mr Hutchison. She gave her evidence clearly and directly. In my judgment she was a truthful and reliable witness.
ii) Mr Steven Painter. Mr Steven Painter is Mr and Mrs Painter's son. He was a truthful and reliable witness.
iii) Mr John Moore, Mr Gerard ("Ben") McCormack, Mr Patrick O'Neill, Mr Michael Jackson, Mr Maserati Meli, Mr Steven Shurey, and Mr John Green. These gentlemen all had walk-on parts in the drama. Each of them was an independent witness with no axe to grind. Their evidence was truthful and reliable.
iv) Ms Jane Cary. Ms Cary is the partner in the firm of Isadore Goldman, Mrs Painter's solicitors. She was called to explain the provenance of certain questioned documents, and what happened to them while in her custody. Her evidence was barely challenged, and I accept it.
v) Mr Malcolm McCulloch. Mr McCulloch was the solicitor who acted on the purchase of 84 Deanway. His oral evidence was truthful and reliable.
vi) Mr Thomas ("Mark") Hilliard. Mr Hilliard's evidence was, as he himself described it, largely hearsay and supposition. While I do not doubt that he was doing his best to help, I cannot place any weight on his evidence.
vii) Mr Brian Withers. Mr Withers' oral evidence about what he knew from his own knowledge was reliable. However, it did vary from his witness statement, which is less reliable.
viii) Mr Raymond Hutchison. Mr Raymond Hutchison is Mr Hutchison's elder brother, a relationship by which he sets great store and which clearly inspires him with loyalty. Much of his statement is also hearsay derived from what he had been told by his brother. For one who professed to know in detail all his brother's dealings, there were surprising gaps in his knowledge. I do not regard him as a reliable witness.
- Mr Painter married Beverley Bennett in 1965. Their first matrimonial home was in Earley in Buckinghamshire, where their two children, Steven and Nicola were born in 1966 and 1969 respectively. In 1970 they moved to Nottingham, and lived in a succession of houses there for the next ten years.
- In 1979 Mr Hutchison moved to the USA; and he became permanently resident there in 1983.
- In 1981 Mr Painter bought a car sales business, which came with a house (Elizabethan House) and a car showroom in Coningsby, Lincolnshire. The purchase was in part financed by a loan from the National Westminster Bank. At first the business was successful. The main clientele consisted of the service personnel at a nearby RAF base. But following the conclusion of the Falklands War in 1982 the squadrons were transferred and the business ran into difficulty. Elizabethan House was put on the market in order to try to pay off the debts. Eventually the Bank foreclosed. Mr Painter owed money to the Bank; but the Bank either recouped itself out of the proceeds of sale of the property or wrote off the shortfall.
- Mr Painter's next business venture was trading in flat pack furniture from a rented shop in Nottingham. He traded as "R Painter" and the business was a cash business. The business grew; and Mr and Mrs Painter and their children moved to a shop and flat in Beeston, Nottingham. The profits of the business were sufficient to pay for the private education of the two children; in Steven's case at boarding school. One reason for this was that Mr Painter did not file any income tax returns and therefore paid no tax. By 1985 both the children had left school and Mr and Mrs Painter decided to move back to southern England. Part of the reason for this was that Steven had been accepted at the Chelsea School of Art and Nicola at Lucie Clayton College, both in London. They found a house; but the purchase fell through, because Mr Painter was unable to obtain a mortgage as a result of the Bank's judgment against him. In consequence the family stayed temporarily in the Master Brewer Hotel in Hillingdon. The move took place in the summer of 1985.
- It is now common ground that in 1984 or 1985 Mr Hutchison made two payments of £4,000 each to Mr Painter. However, the reasons for the payments are in dispute. Mr Painter says that the first payment was made for the supply of bedroom furniture to Mr Hutchison's then wife, Dorothy, who was living in Chalfont St Giles; and the second was for the supply of a low mileage second-hand FIAT Uno motor car. In his pleaded case Mr Hutchison said that he made a single payment of £4,000 to assist Mr Painter in setting up a new business in Station Road, Hayes selling sofas. In his witness statement Mr Hutchison said he made two payments of £4,000 each, at least one of which was to assist Mr Painter in setting up the new business in Station Road, Hayes selling sofas. In return for the provision of funds, Mr Hutchison was to be entitled to 50 per cent of the profits of the new business, as well as the eventual return of his capital. Mr Hutchison said in his statement that Mr Painter was unable to find premises for his proposed new business, and that it was he who introduced Mr Painter to the premises in Station Road Hayes. He said that he did not play a very active part in running the business "having provided initially finance and help with premises towards it", but he did go into the shop from time to time when Mr Painter was out. He would answer the telephone, talk to customers and keep the premises safe. He said that he and Mr Painter had discussions at the outset of the business to the effect that they would have a final reckoning later about who owed money to whom; and they expressly agreed that the division of profits would be 50:50 and that the reckoning needed to include interest.
- So far as the first payment is concerned, Mr Painter's account is supported by that of his wife. She says that Mr Hutchison visited them in the shop in Beeston, and that shortly afterwards the Hutchisons contacted them to say that they wanted some bedroom furniture. What they wanted was more upmarket than the flat pack furniture that Mr Painter sold, and through his contacts Mr Painter was able to source it at a good price.
- So far as the second payment is concerned, Mr Painter's account is supported by Mr Patrick O'Neill. He was a supplier of motor cars to Mr Painter when he was running the business at Coningsby. Mr O'Neill says that he continued to supply Mr Painter with cars from time to time after he moved to London and remembers supplying a low mileage FIAT Uno for £4,000 shortly after the move. One reason why he remembers it is that it had a state of the art automatic gearbox which required repair more than once. He says that he remembers that the car was for Mr Hutchison who wanted the car for his "girlfriend" who could not manage a manual gearbox. His evidence was unshaken in cross-examination. He is an independent witness. Although Mr Hutchison says that in 1984 or 1985 a second-hand FIAT Uno could not have been worth anything like £4,000, Mr Painter produced a contemporaneous advertisement from Autocar which carried an advertisement for a second-hand FIAT Uno with an asking price in excess of £4,000. I accept that in 1984 or 1985 a second-hand FIAT Uno could have been worth in excess of £4,000.
The beginnings of the sofa business
- Mr Painter says that when he first set up his furniture business in London, he did not do so in Station Road Hayes at all. Rather, he began by renting a shop in Coldharbour Lane Brixton (or Camberwell), from Mr Peter Robinson. He was introduced by a business contact of his, Mr Maserati Meli, to Mr Ben McCormack, who in turn introduced him to Mr Robinson. Mr Meli confirms that he introduced Mr Painter to Mr McCormack. Mr McCormack confirms that Mr Meli introduced him to Mr and Mrs Painter and that he in turn introduced them to Mr Robinson from whom Mr Painter rented the shop in Coldharbour Lane. Mr Blackwell took over the shop in Mansfield Road Nottingham after Mr Painter left it. He too sold flat pack furniture. He recalls that he and Mr Painter used to make joint purchases of furniture which they stored in a warehouse in Nottingham. He says that when Mr Painter moved to London he opened a shop in Coldharbour Lane and that his initial stock came from the Nottingham warehouse. He also says that he and Mr Painter used to visit a supplier together in Walthamstow where they would buy stock for their respective businesses. He recalls delivering Mr Painter's stock to the shop in Coldharbour Lane before returning to Nottingham with his own stock. He says that this arrangement lasted for at least a year. Mr John Moore traded as Furniture Express. He says that he supplied Mr Painter at his shop in Coldharbour Lane from August 1986 until he moved to his new shop in Station Road Hayes in 1987. He produced invoices addressed to Mr Painter at Coldharbour Lane for the months of August and September 1986 and invoices addressed to Mr Painter at Station Road, Hayes from February 1987. Mr Steven Painter said that when he started at Chelsea College of Art in September 1985 he used to help his father in the shop at Coldharbour Lane at weekends. Mr Steven Painter's evidence of this was not challenged. Mr Painter's account of setting up the business in Coldharbour Lane is thus supported not only by two apparently independent witnesses but also by contemporaneous documents. It is also supported by his wife and son.
- Neither Mr Hutchison's pleaded case nor his witness statement mentioned Coldharbour Lane at all. His witness statement clearly said that the business began in Station Road Hayes; that Mr Hutchison provided the capital for that business and found the premises for it; and that the agreement for an equal profit share and a final reckoning was made in the context of that start up. Despite what he said in his witness statement Mr Hutchison accepted in cross-examination that Mr Painter did indeed begin his new business in Coldharbour Lane. The concession was inevitable given the strength of the evidence on Mr Painter's behalf. But the acceptance of Mr Painter's version of events casts considerable doubt on the reliability of Mr Hutchison's apparent recollection. Mr Raymond Hutchison said in his witness statement that his brother helped Mr Painter set up his business in the Greater London area. He clarified in his oral evidence that he meant Hayes, and said that he had been unaware that (for some eighteen months) Mr Painter ran a shop in Coldharbour Lane.
- I accept Mr Painter's account. Having reached this conclusion it throws out the timings of the two payments of £4,000 each if, as Mr Hutchison said both in his pleaded case and in his witness statement, they were loans to help Mr Painter get started in the furniture business in London, and more particularly at Station Road, Hayes. It is common ground that these payments were made in 1984 or 1985 and it is now common ground that Mr Painter did not move to Station Road Hayes until about eighteen months after he began trading in Coldharbour Lane. So the payments cannot have been injections of capital to enable the business to get started at Station Road Hayes. Mr Hutchison attempted to bolster his account by saying in his oral evidence that the first of these payments was made to assist Mr Painter in setting up the flat pack furniture business in Nottingham. He gave a graphic account of a conversation that, he said, took place in his office in Hayes in 1983. Mr Painter told him that he was buying flat pack furniture for £1 per pack and selling it for £60. Mr Hutchison said "I'll have some of that" and wrote out a cheque for £4,000 there and then. This conversation had all the hallmarks of having been made up on the spur of the moment. It had found no place in the pleaded case or in Mr Hutchison's two witness statements. Nor was it put to Mr Painter. In addition, Mr Raymond Hutchison said in his oral evidence that the payments his brother made were to help to set up Mr Painter's business in Hayes. As mentioned, Mr Raymond Hutchison said that he knew nothing about a shop in Coldharbour Lane; and specifically denied that his brother had made any payment to Mr Painter while the latter was still trading in Nottingham. Bearing in mind also that Mr Painter's account of the supply of the FIAT is supported by the independent evidence of Mr O'Neill, I find that this was the reason for the making of the second payment of £4,000. This conclusion also undermines Mr Hutchison's account of the reason for the first payment. Mr Hutchison's evidence was that he did have furniture supplied by Mr Painter in 1984 or 1985. But he said that it was cheap flat pack furniture which he used in the refurbishment of his house in Gerrards Cross, and it was given to him by Mr Painter. I find it incredible that Mr Hutchison, who had just made a personal profit of £1,000,000 on the sale of a development at Air Freight House in early 1984, would have refurbished his own home using cheap flat pack furniture. I reject his evidence. I find that the first payment was made for the supply of good quality furniture supplied by Mr Painter.
- Mr Hutchison alleged that the agreement between him and Mr Painter was that in return for the advance of £8,000 (in two tranches) he would be entitled to:
i) A fifty per cent share in the profits of the business;
ii) A fifty per cent share in whatever asset was bought with the profits of the business;
iii) The return of his capital with interest;
iv) That the account between Mr Painter and Mr Hutchison would be the subject to a final reckoning. The final reckoning would take place either "when Mr Painter got back on his feet" or at some other unspecified time in the future.
- This agreement, according to his witness statement, was made just before the start of the business at Station Road Hayes. In his oral evidence he said that the agreement was made while Mr Painter was trading in Nottingham; it was reaffirmed when Mr Painter moved his business to Coldharbour Lane; and reaffirmed yet again when Mr Painter moved the business to Station Road Hayes. Despite having been made or affirmed at least three times, there is not a scrap of paper that records the agreement. Nor is there any record or account of what monies came into or went out of the joint venture sofa business. Mr Hutchison protested that he lived by the maxim that his word was his bond. But as Mr Cowen pointed out to him, if the final reckoning was not due to happen for some years after continuous trading, it would be impossible (or at least very difficult) to have the final reckoning unless records of inflows and outflows had been kept. Mr Hutchison had no coherent answer to this point. Nor did he explain how Mr Painter was to have paid for the ordinary expenses of living. Moreover, having concluded that the two payments of £4,000 each had nothing to do with setting Mr Painter up in business, there is no reason for Mr Painter to have agreed to share the profits of his business with Mr Hutchison. It is also implausible that Mr Painter would have agreed to accord Mr Hutchison a fifty per cent share of any asset (for example a matrimonial home) that might be bought with the profits of the business which, after all, was Mr Painter's sole source of income and which Mr Painter ran single handed. I reject Mr Hutchison's account of the alleged agreement.
- I conclude that Mr Painter's furniture business at Coldharbour Lane was not a joint venture but was Mr Painter's independent business.
27 Cross Lances Road Hounslow
- At about the same time that Mr Painter was setting up business in Coldharbour Lane (and thus eighteen months before the business moved to Hayes) he and his wife were looking for somewhere to live. Mr McCormack introduced them to an estate agent, Mr Vic Hayter, who had an empty house on his books at 27 Cross Lances Road, Hounslow. He allowed the Painters to move in before the legal paperwork was complete. The Painters were installed at 27 Cross Lances Road by September 1985 (since there is a letter from Lucie Clayton College addressed to the Painters' daughter Nicola at that address dated 3 September 1985). The purchase price was financed by a mortgage for £52,000. Once again the parties have sharply different accounts of how this transaction came to be arranged and what its effect was.
- It is common ground that the mortgage was taken out not in Mr Ron Painter's own name but in the name "Stephen Painter". Mr Painter says that he explained to Mr Hayter that he had been turned down for a mortgage in his own name; and that Mr Hayter told him that it was probably because of the failure of the Coningsby business. It was Mr Hayter who suggested that he apply for credit in a different name and, after discussing the matter with his family, Mr Painter felt that he had no choice but to go along with the suggestion. The name "Stephen Painter" was chosen because it was similar to the name of his son "Steven" Painter and the latter would be over 18 and living at the house. Mrs Painter supports his account. Mr Steven Painter also says that his father explained to him that the mortgage would be put into the name of "Stephen Painter" but that it would not be him to whom the name referred.
- Mr Hutchison, on the other hand gives a different account. He says that Mr Painter approached him because he was worried about putting the property in his own name for fear of the National Westminster Bank who, he thought, might already have made him bankrupt. It was Mr Hutchison who suggested that he could place the property in the name of his son to be held as a nominee; and Mr Painter accepted that advice. He says that Mr Painter discussed it with his son, who agreed to the proposal, and that Mr Painter commented to him that it would give Steven a good credit rating for the future. Mr Hutchison continued that the agreement was that the beneficial interest in the house would be held between Mr Painter and himself, Mr Hutchison's interest "being on the basis that I had helped him set up the business and that there were monies that had to be taken into account in the reckoning between us". So apart from the allegation that he had helped Mr Painter set up in business (an allegation that I have rejected) Mr Hutchison does not allege that he provided anything else in return for a half share in 27 Cross Lances Road. Mr Hutchison goes on to say that he helped Mr Painter arrange banking facilities with Lloyds Bank, East Avenue, Hayes, and that he and Mr Painter opened a joint account there in the names of Mr Hutchison and Mr Painter's son Steven. Mr Painter agrees that it was Mr Hutchison's suggestion that he open an account at Lloyds Bank in Hayes, but denies that Mr Hutchison played any part in arranging the banking facilities.
- There is one particular issue relating to the banking arrangements that I need to resolve. Mr Hutchison says that he and Mr Painter maintained a joint account (in the names of B Hutchison and S Painter) at Lloyds Bank in Hayes. Mr Painter denies this. Lloyds Bank produced a computerised screen shot which appeared to reveal the existence of a bank account which at some stage (and the Bank could not tell when) was a joint account in those names. The screen shot did not reveal an account number for any joint account. However, further investigation by the Bank revealed a number of accounts all in the sole name of Mr Painter, and no trace of an account number for a joint account. Mr Hutchison said that the joint account had originally been his sole account but that he added Mr Painter's name to it. That, he said, was what he meant in his witness statement when he said that he had "set up" a joint account. This is a very implausible reading of what he said. It does not stop there. In order to fit with his account of the joint account having been set up at the start of the joint venture (which according to his revised evidence was the flat pack furniture business in Nottingham) he pushed back the date of inception of the joint account to the period when Mr Painter was trading first in Nottingham and later in Coldharbour Lane. Throughout the life of the account bank statements were sent to Mr Hutchison's address in Gerrards Cross. In response to the question: how Mr Painter could have run the business through the joint account when he did not know what the balance was at any given time, Mr Hutchison replied that Mr Painter could go and ask at the Bank which was only 50 yards away. This answer plainly gave the lie to his suggestion that a joint bank account in Hayes existed while Mr Painter was trading either in Nottingham or in Coldharbour Lane. In addition when an account number was identified as the alleged joint account, the bank statements that Mr Painter produced showed clearly that it had been opened as an account in the name of "Mr S Painter" alone. Nor was there any trace of payments made by Mr Hutchison having been received into the alleged joint account; nor any trace of its having been used for the business of the alleged joint venture. I reject Mr Hutchison's evidence that there ever was a joint account. I also reject Mr Hutchison's account of how it came about that Mr Painter acquired 27 Cross Lances Road in the name of "S Painter". Since I have concluded that Mr Painter's furniture business was not a joint venture, I also reject Mr Hutchison's suggestion that the purchase of 27 Cross Lances Road was any part of a joint venture.
- It is common ground that 27 Cross Lances Road needed work. The work included the extension of the kitchen, the installation of central heating, and the purchase of a second hand boiler. It is also common ground that Mr Brian Withers was one of those who carried out the building work. Mr Painter says that the plumbing work was carried out by Mr Steven Shurey who lived across the road. Mr Shurey confirms this. He recalls being asked to do the plumbing work in August or September 1986. He recalls that two or three radiators came from a site at Feltham that Mr Hutchison was redeveloping. Mr Shurey says that he was paid by Mr Painter and no one else. Mr Painter agrees that some surplus radiators came from one of Mr Hutchison's sites, but says that otherwise he provided the materials himself. Mr Withers also says that he cannot recall any building materials being supplied by Mr Hutchison. He was working with another man called Gary. Gary would go to a "proper" builder's merchant and buy the necessary materials. Gary would be reimbursed, but Mr Withers was unable to say by whom.
- Mr Hutchison says that he and his business associates, Messrs Harvey and Smith, agreed that Mr Painter could have some materials from a development site in Brentford, because the materials were surplus to requirements. Mr Hutchison says that the materials included the boiler, radiators, pipes, fittings, sand, cement, block, timber and plywood and had a value of at least £5,000. Since Mr Hutchison was in the USA throughout this period, he cannot have had any personal knowledge of what materials (if any) were supplied from his development sites. I reject Mr Hutchison's evidence and prefer that of Mr Painter, supported as it is by Mr Shurey and Mr Withers.
- Mr Hutchison also says that he paid Mr Withers, "the contractor". Although Mr Withers appeared to confirm this in his witness statement, his oral evidence presented a different picture. He said that he was paid by the other man on site, Gary, and that he was paid in cash on a Friday. So Mr Withers was not "the contractor" at all; and he was not paid by Mr Hutchison. He did not know who paid Gary, but he assumed that it must have been either Mr Painter or Mr Hutchison, as there was no one else from whom Gary could have got the money as he was "working on Ron's house". Since Mr Hutchison was living in the USA at the time, it is very improbable that Gary could have been paid in cash every Friday by Mr Hutchison. I reject Mr Hutchison's account. I find that Mr Painter paid for the work carried out at 27 Cross Lances Road.
- It is, I think, common ground that the mortgage was paid out of the profits of the sofa business. The profits of the business represented Mr Painter's sole income, and the mortgage was therefore paid out of the profits of that business. Mr Hutchison concludes from this:
"It was therefore expressly agreed that my half of the Sofa Shop income was being used to pay the mortgage and along with my time and materials it was agreed that it would be a 50/50 Joint Venture. And therefore it was agreed and understood between myself and Mr R Painter that I would have a beneficial interest in the property …"
- He continues:
"The intention between me and Mr Painter was that after the Hounslow property had been improved it might be appropriate in the future to sell the property. He was happy to go along with this and we both agreed that any profits on sale would have to be divided up between us according to our beneficial interests and contribution taking into account also Mr R Painter owed me money from the income stream for the Sofa business, which he had not accounted for."
- Given my conclusion that the sofa business was Mr Painter's independent business, the fact that the mortgage was paid out of the profits of that business does not support Mr Hutchison's claim to a beneficial entitlement in Cross Lances Road. I reject it. I reject also his claim to have supplied building materials (apart from the surplus radiators, which I regard as insignificant). I find that 27 Cross Lances Road belonged beneficially to Mr Painter alone.
25A Hardman Road Kingston-upon-Thames
- Mr Hutchison had owned 25 Hardman Road, Kingston-upon-Thames since the 1970s. It consisted of four flats. The history of the title is not fully documented in the case papers, but appears to be as follows. Title was originally held by Mr Hutchison personally. He transferred ownership of that property to Hekla Property Corporation in 1989. It appears as an asset in Hekla's accounts in 1991, 1992 and 1993. Hekla was owned by Scotiabank as a nominee company. It appears to have had a board of directors (who do not include Mr Hutchison) and to have taken decisions at board meetings which are minuted. By 1989 three of the flats had been sold on long lease. The remaining flat, 25A, was let to a sitting tenant. Mr Hutchison says in his witness statement that he arranged for the property to be transferred back into his own name, so that he could apply to the local authority for an improvement grant (which was in fact paid in two instalments in March 1991 and March 1992). It seems very unlikely that this claim is true, because not only was the property shown as an asset in Hekla's accounts for the year ending 30 April 1993, but its subsequent sale to Karen Senior was approved by a board resolution of Hekla on 14 July 1993; the completion statement on the sale was made out in the name of Hekla; and later on in 1997 the Royal Borough of Kingston-upon-Thames sued Mr Hutchison for return of the grant monies on the ground that Mr Hutchison was not the owner of the property. According to a letter of 19 January 2001 written by Mr Hutchison's solicitors, Mr Hutchison had himself written to the Borough on 14 November 1993 (in a letter that he has not disclosed) alleging that Hekla held the property on trust for himself and Mr and Mrs Painter. The case was eventually settled. In fairness, however, it should be said that there is a letter dated 20 September 1993 from Mr McCulloch of Peter Fraser & Co, who were the solicitors acting on the sale, recording instructions to transfer the property from Hekla to Mr Hutchison. But these instructions do not appear to have been implemented; otherwise the completion statement would have been addressed to Mr Hutchison. Moreover, this was long after the local authority grant had been applied for and paid.
- Mr Painter says that in 1986 Mr Hutchison agreed to sell him and his wife the upstairs flat for £15,000. The original price that he asked was £17,000 but they agreed a reduced price. They paid the £15,000 with money made available to them by Mrs Painter's mother, Mrs Bennett following the sale of her own house. Mr Painter says that although legal title to the property remained with Mr Hutchison and was later transferred to one of his companies "there was never any doubt that thereafter … this property was ours."
- Mr Hutchison agrees that Mr Painter paid £15,000. He denies that Mrs Painter had anything to do with it; and says that his agreement was with Mr Painter alone. However, he says that the payment was not for the whole of the flat, but for a half interest in it. He says that the flat was worth much more than £15,000 and that he would not have agreed to sell it for that sum.
- No solicitor was involved in this transaction (whatever it was) between Mr Hutchison and the Painters which remained undocumented. Mr and Mrs Painter did not investigate title.
Station Road Hayes
- In 1987 Mr Robinson and Mr Painter agreed that Mr Robinson would take back the shops from which Mr Painter ran his business in Coldharbour Lane. Mr Robinson also agreed to buy Mr Painter's stock. This gave Mr Painter the money with which to fund the establishment of the new business in Station Road Hayes.
- Mr Hutchison had an office in Station Road. Mr Painter says that while he was paying a social call on Mr Hutchison that he saw that there were empty shops. They belonged to British Rail. Mr Painter says one of the shops was not locked and that he simply moved in his stock in early 1987, in effect as a squatter. He then contacted British Rail about the possibility of renting the shop. In a draft report which Mr Painter's accountants compiled in July 1993 on Mr Painter's instructions it was said that:
"… due to insufficient working capital Mr Painter took over a derelict shop in Hayes, Middlesex which was owned by British Rail and which had no utilities – ie electricity, gas, water, telephone, etc. This venture did prove successful as there were no overheads such as rent to pay."
- Mr Hutchison, on the other hand, says in his witness statement that he spoke to British Rail and they said that they would be willing to take on a tenant in one of their empty shops. It was then that he told Mr Painter about this, and they agreed that Mr Hutchison would be entitled to 50 per cent of the profits of the business. In his witness statement Mr Hutchison also said that he paid the legal fees "on the acquisition of the leasehold interest" at Station Road.
- The first of Mr Moore's invoices addressed to Mr Painter's business at Station Road Hayes is dated 6 February 1987, so it is a fair inference, and I find, that Mr Painter had moved in by February 1987. The business in Station Road Hayes was the sale of relatively down-market sofas and three piece suites. However, it was profitable, and Mr Painter extended into neighbouring shops in the same parade. Mr Hutchison said in his witness statement that he arranged this too with the British Rail agent on site. He retracted this in the course of his cross-examination, and said that it was a mistake in his witness statement. He also modified his evidence about the initial manner in which Mr Painter took up occupation. In the witness box he said (for the first time) that British Rail granted a monthly licence or tenancy to a company called Setstar Ltd, which was a company that carried out some joint ventures for Mr Hutchison and Mr Harvey. There is no trace of that company in any of the case papers. Its name had never been mentioned before Mr Hutchison went into the witness box. Mr Hutchison has disclosed no documents relating to Setstar Ltd. If Setstar had paid any rent or licence fee one would have expected the payment to have been recorded in its accounts. No accounts were disclosed. The grant of a licence or tenancy to Setstar also contradicts the strong impression given by Mr Hutchison's witness statement (although he does not actually say so in terms) that he arranged with British Rail the grant of a tenancy to Mr Painter personally. If British Rail had granted a monthly licence or tenancy to Setstar Ltd, there is no rational explanation for British Rail having begun negotiations with Mr Painter personally as they did. Nor is there any evidence that a monthly arrangement was ever terminated by notice. Mr Hutchison's suggestion that it just "fell away" was not credible. Mr Painter's account is also, to some extent, supported by the draft report of July 1993, made before any dispute arose between him and Mr Hutchison. Once again Mr Hutchison's evidence had all the hallmarks of having been made up on the spot in order to overcome the difficulty of the letter from British Rail to which I now turn.
- At some stage British Rail became aware of Mr Painter's occupation. A letter from British Rail dated 6 July 1992 demanded payment for Mr Painter's occupation of 87 and 91 Station Road between 29 September 1990 and 12 March 1992. It said that no formal tenancy agreement had been entered into, but that Mr Painter had been sent a draft agreement, before he took up possession, which quoted a rent of £10,000 per annum. No lease has been produced; and the letter from British Rail strongly suggests that no lease was ever entered into. In my judgment it was the letter from British Rail saying that no lease had ever been entered into with Mr Painter that caused Mr Hutchison to invent the story of the monthly licence or tenancy granted to Setstar Ltd in order to support his assertion that he had paid solicitors' fees on the acquisition of a leasehold interest. I reject Mr Hutchison's account.
- What seems clear, however, is that from September 1990 onwards Mr Painter paid no rent to British Rail, because he was sued for rent for the period from September 1990 to March 1992; and judgment was given against him in October 1994. He was the sole defendant to the action; and there is no evidence that Mr Hutchison acknowledged any responsibility for that business outgoing.
The Willows Woodland Avenue Windsor
- Mr Painter says that he sold 27 Cross Lances Road, Hounslow, in June or July 1987. Mr Hutchison agrees that the house was sold, but says that it was sold by agreement between himself and Mr Painter. The sale price was about £79,500 (figures vary). I have already concluded that 27 Cross Lances Road belonged to Mr Painter. I reject Mr Hutchison's evidence that he had anything to do with the decision to sell it.
- Mr Painter then acquired title to a bungalow called "The Willows" in Woodland Avenue, Windsor (again in the name of "Stephen Painter"). The purchase price was £125,000. It is common ground that the purchase of that property was funded with a deposit of £25,000 and a mortgage of £100,000. The loan secured by the mortgage came from the Midland Bank in Staines. It is common ground that Mr Hutchison introduced Mr Painter (still calling himself Stephen Painter) to the manager, Mr Strevens. Mr Hutchison alleged in his witness statement, and Mr Painter denies, that the loan was conditional on a personal guarantee from Mr Hutchison. In his witness statement Mr Hutchison described this incident as follows:
"Mr Strevens said that he would be prepared to advance the money to Mr S Painter only if I gave a personal guarantee which I did. I arranged all this over the telephone. Mr R Painter only went it to see Mr Strevens to sign papers when the mortgage had been concluded after which Mr Strevens telephoned confirmation of this to me."
- It is immediately striking that this account alleges the provision of an oral (and therefore invalid) guarantee, and that only Mr Painter signed papers. There is no suggestion in the witness statement that Mr Hutchison ever signed anything; and indeed no written guarantee was disclosed either as a document that was in Mr Hutchison's possession or as a document that had once been in his possession. In the course of his oral evidence Mr Hutchison modified his account. He said that he had given a bond to the Bank to secure all his outstanding liabilities; and that he agreed that the Bank could have recourse to the bond in the event that Mr Painter defaulted on the mortgage. He then said that he had signed a written undertaking to that effect in Mr Strevens' office; and that Mr Strevens gave him a copy of the undertaking which he filed in a "Midland Trust" file. This file passed from trustee to trustee before eventually being returned to Mr Hutchison. However, he could not find the undertaking in the file, and had not asked the Bank for a copy of it. It is possible that Mr Hutchison did give a bond to the Bank to cover his own liabilities when he left for the USA some years earlier. But in my judgment the evidence about a written undertaking that the Bank could have recourse to the bond in relation to the mortgage of The Willows was a dishonest fabrication by Mr Hutchison in an attempt to salvage his claim to have given an oral guarantee.
- Mr Hutchison says that he and Mr Painter agreed that the £25,000 which represented part of the net proceeds of sale of 27 Cross Lances Road would be "rolled forward" into the Willows. I reject this evidence of an agreement.
- It is common ground that improvements were carried out to The Willows. It is common ground that plans for the improvements were drawn up by Mr Graham Lake, who was an architect who did work for Mr Hutchison or his companies. The plans that were submitted to the local authority show the client as "R Painter". Mr Painter says that that Mr Lake made no charge for his work and that this was because Mr Lake was willing to do him a favour because he had helped Mr Lake obtain payment of his fees from Mr Hutchison. Mr Hutchison says that Mr Lake charged no fee as a goodwill gesture to him, because he gave Mr Lake a lot of work. He also suggested (in contradiction to his first account) that Mr Lake might indeed have charged for his work at The Willows by including an additional charge when rendering bills to one or more of Mr Hutchison's development companies. That sounded to me very like an allegation that Mr Lake would have defrauded the companies, and I reject it. In yet further contradiction of his previous evidence Mr Hutchison also suggested that Mr Painter had indeed paid Mr Lake, but out of the proceeds of the sofa business (in which, of course, Mr Hutchison claims a half share). I prefer Mr Painter's account which is consistent with the documents.
- I conclude therefore that the provenance of the money invested in The Willows was:
i) The net proceeds of sale of 27 Cross Lances Road, which belonged beneficially to Mr Painter;
ii) The mortgage for which Mr Painter was solely responsible; and
iii) The profits of the sofa business, which was Mr Painter's alone.
- The improvement works consisted of building an extension, and putting on a new roof. It is common ground that the building work was carried out or supervised by a building contractor called Michael Jackson. Mr Hutchison says that, in effect, one of his companies called Brutus Investments Ltd provided the building materials. He says that Mr Jackson was working for Brutus Investments at a site in Arundel Road, Uxbridge; and that he told Mr Jackson to take whatever materials he needed from that site; and, if necessary to buy more on the account of Brutus Investments at the local builders' merchants. Mr Painter says that he paid for the materials out of his earnings from the sofa business. Mr Jackson says that he carried out all the building work at The Willows in 1988, 1989 and 1990. He says that all the building costs, both materials and labour, were paid to him direct by Mr and Mrs Painter. He confirms that he knew Mr Hutchison, but says that Mr Hutchison did not contribute anything towards the refurbishment either by way of materials or financially. Mr Jackson is an independent witness with no axe to grind. I accept the evidence of Mr Painter and Mr Jackson.
- At about this time the relationship between Mr Hutchison and the Painters became close. Mr Hutchison had by now separated from his wife Dorothy. He was still living in the USA; and on his visits to the UK stayed with the Painters in Windsor, on one occasion for as long as four months.
The Gemini Trust
- On 1 May 1990 Mr Hutchison and the Bank of Nova Scotia Trust Company Channels Islands Ltd executed a deed of settlement. Mr Hutchison was the settlor and Nova Scotia Trust Company Channels Islands Ltd the trustee. Nova Scotia Trust Company Channels Islands Ltd is also known as "Scotiatrust" and its parent bank as "Scotiabank". The initial amount of the trust fund was £5. However, the definition of "Trust Fund" extended to:
"all money investments or other property hereafter paid or transferred by any person or persons to or so as to be under the control of (and in either case) accepted by the Trustee as additions to the Trust Fund"
- The only specified beneficiary was the RSPCA, but the Trustees had power to add beneficiaries. Any addition to the class of beneficiaries was required to be made by declaration in writing signed by the Trustees. The trusts declared by clause 4 of the trust deed were discretionary trusts for the beneficiaries "in such shares and proportions if more than one and generally in such manner as the Trustees shall in their absolute discretion think fit."
- The Trustees' powers under the settlement included wide powers of appointment and advancement. They also included wide powers of investment. One specific power that the Trustees had was a power to permit a beneficiary to reside in a dwelling-house subject to the trusts on such terms as they thought fit. Those terms need not include a term as to payment.
- The personnel at Scotiatrust who managed the trust included Mr CJ Dukes who, I was told, was amongst other things a qualified barrister. Mr Dukes did not give evidence. Scotiabank also owned a number of nominee companies which held assets subject to trusts that it administered. Each of these companies appears to have had a properly constituted board, and to have recorded decisions in board resolutions.
- At a later date Scotiatrust were replaced as trustees by CI Law Trustees Ltd, who are the Second Defendant. But the trust has since been revoked; and so CI Law Trustees have played no part in the litigation.
- It is common ground that Mr Painter and Mr Hutchison did engage in a joint venture consisting of the import and sale of four American cars: a Ford Mustang; a 1980 MGB convertible; an Alfa Romeo and a Pontiac Sunbird. Mr Painter dates this to the period between 1989 and 1995. Mr Hutchison dates it to the period from 1992 to 1994. It is common ground that the arrangement was that Mr Hutchison was to buy the cars in the USA and ship them to the UK. He was also to pay import and customs duties. Mr Painter was to arrange any necessary repairs and storage costs; and then advertise and sell them. Any profit was to be split equally. Mr Hutchison's evidence about the agreement by which this joint venture came into being does not link it either with any other alleged joint venture, or with the purchase of any property. Nor does Mr Painter's. I find that although there was a joint venture, it was an independent joint venture.
- Mr Painter says that he accounted to Mr Hutchison for his share of the profits, although the venture made a loss overall. Mr Hutchison says that he has not been paid his full share. It is agreed that this is not an issue that I should resolve. It is to be resolved on an account, if an account takes place. Although Mr Hutchison's counterclaim for an account was not made until 2005, no limitation defence has been asserted.
Refurbishment of 25A Hardman Road
- The sitting tenant of 25A Hardman Road died or moved out in 1990. Mr Hutchison says that he and Mr Painter discussed what to do and decided to refurbish the property with a view to putting it on the market. He says that they agreed that they would deal with the profit, but that they did not agree precise shares. That would be decided later. Mr Painter on the other hand says that the decision to refurbish was one that he took with his wife. He says that it was they who instructed Mr Lake to apply for a grant. It is common ground that the application was made in the name of Mr Hutchison. Mr Hutchison says that the grant was awarded to him as the beneficial owner and proprietor. Mr Painter says that the reason why the grant was applied for in Mr Hutchison's name was because he was the registered proprietor. Neither can be true, because at that time the registered proprietor was Hekla. But it may well be that Mr Hutchison told Mr Painter that he was the registered proprietor; and, as I have said, Mr Painter did not investigate title. It is common ground that the grant was made available in two tranches: one of £6,000 and the other of £6,675. The first payment was made to Mr Hutchison in March 1991. The second was made to him in March 1992. The cheque for the second payment was also made out to Mr Hutchison; but it was sent to Mr Painter, who paid it into Mr Hutchison's bank account in Jersey. Mr Painter says that Mr Hutchison made payments to him of £12,000 all of which were used in the refurbishment. Mr Hutchison says that his payments totalled £13,750.
- The refurbishment work continued throughout 1991. Mr Painter kept a note of the cost of the work, which came to some £35,000. Of that sum, £12,675 was financed by the grant, and the remaining £22,400 was paid for by Mr and Mrs Painter. Mr Painter says that the source of the funds for this was mainly the proceeds of sale of The Willows, and partly the profits from a second hand car business that he was running as a sideline. It was not in dispute at the time that Mr Painter laid out £22,400 over and above the grant monies in the refurbishment of Hardman Road. Mr Hutchison wishes to dispute it now.
Sale of The Willows and its aftermath
Sale of The Willows and payment into Gemini Trust
- The Willows was sold in early 1991. The sale price was £245,000. £100,000 was paid to redeem the mortgage with Midland Bank. £15,000 was repaid to Mrs Bennett to reimburse her for the money she had made available for the transaction at Hardman Road and Mr and Mrs Painter kept £30,000 for living expenses and to help finance the refurbishment of Hardman Road. According to the paperwork the balance of £100,000 was paid to Mr Hutchison's account with the Bank of Nova Scotia in Jersey on 11 March 1991. Mr Painter says that Mr Hutchison then transferred the money from his own account to that of the Gemini Trust. However, Mr Hutchison said in evidence that although his name appeared as the recipient account holder on the instructions for the telegraphic transfer, the account number was not in fact his; but rather it was the account of the Gemini Trust itself. Mr Hutchison did not disclose any documents that supported this explanation. This very issue was raised in a letter of 2 August 2005 from Isadore Goldman to Blakemores in which they asked for disclosure of the statements relating to this account. The request for disclosure was refused by Blakemores on 22 September 2005. The inference I draw is that disclosure would not have supported Mr Hutchison's evidence. When asked how it could be that a stranger to the trust could pay money into the trust account, he said that in the course of industrial development projects that he carried out purchasers of developed units would make payments directly into the Gemini Trust account. Thus the trustees would be accustomed to seeing payments originating from Mr Smith, Mr Jones and so on. The reason for this explanation was to attempt to show that the Trustees would have known that the payment of £100,000 originated from Mr and Mrs Painter. This explanation is belied by the selection of bank statements relating to Brutus Investments that Mr Hutchison did produce, which show credits as attributable to sale proceeds of various units, but without naming the purchasers. But even if this explanation is true (which I very much doubt), it is inadequate. Purchasers of developed units would have exchanged cash for property. Thus any payment by them into the Gemini Trust account would have been consideration for a sale. The cash would have belonged beneficially to the seller. But the money transferred by Mr and Mrs Painter was not consideration for anything coming from Mr Hutchison or his companies. It represented the balance of the proceeds of sale of The Willows. It belonged beneficially either to Mr and Mrs Painter (as they say) or jointly to them and Mr Hutchison (as he says). Either way, even if Mr Hutchison's explanation were true, there was nothing that would have alerted the Bank or the Trustees that the money transferred to the Gemini Trust belonged beneficially to anyone other than Mr Hutchison. Be that as it may, I reject Mr Hutchison's account. I find that, as the contemporaneous paperwork suggests, the money was transferred to Mr Hutchison's own account in Jersey and made its way from there into the Gemini Trust. In my judgment Scotiatrust, as trustee of the Gemini Trust, had no knowledge of Mr and Mrs Painter's beneficial interest. Likewise, Scotiabank, as bankers both to Mr Hutchison and the Gemini Trust, had no knowledge of Mr and Mrs Painter's beneficial interest.
- Mr Painter explains the reason for the payment into the Gemini Trust as follows. He says that he had not filed any income tax returns since 1981, and was concerned that the Inland Revenue might catch up with him. He believed that offshore assets were safe from the Inland Revenue. He also wanted to secure a higher rate of interest than was available at a high street bank. He knew that Mr Hutchison had an offshore account, and that it paid a high rate of interest. He wanted to invest some of the sale proceeds from The Willows at a high rate of interest. Mr Hutchison suggested that he should "invest this money with the Gemini Trust"; and that is how the payment came to be made. Mr Hutchison says that the £100,000 was paid into the Gemini Trust by Mr Painter on their joint behalves. He says that he notionally attributed £30,000 to Mr Painter and £70,000 to himself, although there was no actual agreement about this division. He says that Mr Painter asked him to put his share of the profit into the Gemini Trust and to keep the profits intact. Thus the money was transferred by mutual consent into the Gemini Trust.
- What, therefore, is common ground is that Mr Painter had some beneficial interest in the money that was paid into the Gemini Trust. What is in dispute is the extent of that beneficial interest. Since I have concluded that The Willows belonged solely to Mr Painter, I conclude that Mr Hutchison had no beneficial interest in the money that Mr Painter paid into the Gemini Trust. I do not need to resolve the position as between Mr Painter and Mrs Painter.
Closure of the Hayes sofa business
- The sofa business at Hayes was closed in January 1992. Trade had been declining partly as a result of the pedestrianisation of Hayes town centre. Mr Painter says that although he continued to deal in second hand cars, he did not make enough to live on. He therefore withdrew money from the Gemini Trust. Mr Hutchison says that the business did not close down but, with his agreement, moved to new premises in Kilburn High Road. He did not say in his witness statement how long that business lasted; but at one point in his oral evidence said that it lasted for two years, between late 1992 and 1994. At another point in his oral evidence he said that it began in 1993. It is common ground that Mr Painter did run a business in a location variously described as Edgware Road, Kilburn High Road and Cricklewood. But Mr Painter says that this was in 1995.The premises were originally a car showroom; and were found by Mr Meli. The business ran for about six months and was not a success. Much of Mr Hutchison's evidence was derived from what he said Mr Meli had told him in 2000 (or perhaps later). But when Mr Meli came to give evidence he said that Mr Hutchison had twisted what he had said.
- Mrs Painter said that Mr Painter was "out of work" during 1994 and that in the autumn of that year she took on a cleaning job for three days a week in Kingston-upon-Thames. This evidence was not challenged. It is more consistent with Mr Painter's account that the sofa business closed down than with Mr Hutchison's account that it moved and traded in Kilburn for two years. Mr Meli's evidence was that he and Mr Painter ran a business together in the Edgware Road for about six months. Curiously, however, his evidence was that it was a car dealing business rather than a furniture business. No one else suggests that Mr Painter ran a car dealing business in the Edgware Road. Mr Meli was frank about his inability to remember dates; but his account of running a business for six months is again more consistent with Mr Painter's case than Mr Hutchison's. The reference to car dealing is puzzling, but I think that it is probable that this was simply a mistake on Mr Meli's part. Mr Painter's account (and in particular the dating of the opening of the Cricklewood shop) is also supported by his bank statements. These show "Cricklewood" as a place where cash was deposited beginning in late January 1995 and not before. Apart from one or two isolated credits in September 1995 credits at Cricklewood cease in June 1995. This is substantial evidence in favour of the correct date for the opening of the Cricklewood business as having been in 1995 and for it having lasted for six months, as Mr Painter said.
- I pause at this point to comment on another document that Mr Hutchison produced. It was produced to support Mr Hutchison's claim that the Hayes sofa business was moved to Cricklewood rather than closed down in 1992.
- It is a letter bearing the date 8 January 1992. It is addressed to Mr Painter and reads:
"Re our telephone conversation of today. Please find enclosed my cheque in the sum of £5000 (five thousand pounds) representing an additional loan for the furniture business.
Please sign this letter as our agreement and keep a copy for your records and return."
- Mr Painter has apparently countersigned receipt of a cheque for £5,000, but his counter-signature is not itself dated. There are a number of discrepancies about this letter if it was genuinely written on the date it bears:
i) It is not a pleaded payment;
ii) It is not recorded as a payment in any of Mr Hutchinson's contemporaneous calculations of the state of the account as between him and Mr Painter;
iii) If, as Mr Painter says, the furniture business was in the process of being closed down in January 1992, there would have been no occasion for Mr Painter to borrow any money at that stage for the furniture business;
iv) If, as Mr Hutchison said in his oral evidence, the business did not begin in Cricklewood until late 1992 or 1993, a payment in January 1992 is all but inexplicable; and Mr Hutchison did not explain the gap between payment and the start of the business;
v) Although there is an undated entry in Mr Hutchison's manuscript account record which appears from its position in the record to have been in either late December 1991 or early January 1992 and which records a cheque for £5,000 drawn in favour of Mr Painter, it is an entry which appears to have been altered by the application of correction fluid;
vi) There is no indication of a payment of this amount having been paid by Mr Painter into either of his own bank accounts at about this time;
vii) Mr Painter accepts that he received two cheques for £5,000 each towards the purchase by Mr Hutchison of a half share in a furniture business, but that was not until 1996. He accepts also that the counter-signature looks like his; but suggests that the date borne by the letter has been added subsequently.
- Mr Hutchison attempted to explain the lack of any record of this payment in Mr Painter's bank account by saying that the cheque was encashed at the Hayes branch of Lloyds Bank rather than having been honoured through the clearing system. If this is correct then it was a unique occasion. No reason was suggested for this departure from the method of previous payments. Mr Hutchison produced a letter addressed to him by Lloyds Bank which suggested that he had an arrangement for encashing cheques at that branch in 1996. That letter establishes nothing. The most cogent corroboration of Mr Painter's account is the evidence of his bank statements. I accept Mr Painter's account; and I do not accept Mr Hutchison's account either of the timing of the start up of the business in Kilburn High Road/Edgware Road/Cricklewood or his account of a payment in January 1992. The letter dated 8 January 1992, in the form in which Mr Hutchison produced it, is in my judgment not an authentic letter. Moreover, since the Cricklewood business does not appear to have made any profit, it cannot anyway help Mr Hutchison establish an interest in Deanway.
- Between September 1991 and August 1993 payments made to Mr Painter out of the Gemini Trust amounted to some £58,000. Since the whole of the £100,000 paid into the Trust following the sale of The Willows belonged to him beneficially, this would have reduced his capital to £42,000, although it would have been increased by interest. Mr Hutchison produced a calculation in March 1993 which included interest. I deal with Mr Hutchison's calculations later.
- Following the sale of The Willows the Painters went to live at "Nilgiris", a house in Gerrards Cross which was owned by Bennett Investments Ltd, another of Mr Hutchison's companies. (It will be recalled that "Bennett" was Mrs Painter's maiden name.) It was a large house (six bedrooms and six reception rooms with the usual offices). It was in very poor condition and was intended for demolition as soon as planning permission could be obtained for redevelopment. Mr Hutchison described the house as "a piece of shit"; and confirmed in evidence that he would not have wanted to live there.
- The issue for me is whether, as Mr and Mrs Painter say, they were permitted to live in the property rent free, subject to their paying the outgoings; or whether, as Mr Hutchison says, they were permitted to live there on the understanding that they would pay a reasonable rent, to be taken into account when the reckoning of accounts eventually took place. It is common ground that before Mr and Mrs Painter moved in the property was occupied by their son Steven and a friend of his. Steven Painter and his friend in effect acted as caretakers; and did not pay and were not expected to pay rent. There is no obvious reason why the arrangement with Mr and Mrs Painter should have been any different. The property was a large house awaiting redevelopment once planning permission could be obtained. It was too large for the Painters to have agreed to have paid a market rent for it. It suited Mr Hutchison to have someone living there who would deter vandals and squatters. Moreover, as Mrs Painter said in the course of her oral evidence, why would the Painters have agreed to rent somewhere, when they had the wherewithal to buy? Although the mortgage instalment payments on The Willows were burdensome at a time of high interest rates and falling house prices, the preferable option for the Painters would have been to downsize into a smaller house rather than pay rent for a large house that they did not need. In addition, while Mr and Mrs Painter were living in Nilgiris they were reimbursed for expenses they incurred in carrying out minor works of maintenance, which in my judgment is more consistent with a caretaking role. I conclude that Mr and Mrs Painter were permitted to live in Nilgiris free of charge, on the basis that they acted as caretakers.
The Rolls Royce
- Mr Hutchison had the use of a Rolls Royce. It is common ground that Mr Painter was allowed to use it while Mr Hutchison was in the USA. It is not entirely clear who owned the car. It is shown as an asset in the accounts of Hekla Property Corporation in the year to 30 April 1993; but Bennett Investments entered into a written licence agreement with Mr Painter relating to the car on 17 December 1994. Again, the issue for me is whether the arrangement was that Mr Painter would be allowed to use the Rolls Royce without charge, on terms that he was responsible for outgoings (as he says) or whether he was required to pay a hire fee (as Mr Hutchison says). The written licence agreement is backdated to 19 October 1993. It permits Mr Painter the use of the Rolls Royce. Mr Painter was obliged to insure the car and to discharge all incidental expenses. It did not require him to pay a fee. Mr Hutchison says that, nevertheless, he had a side agreement with Mr Painter (which was known to and approved by Mr Dukes of Scotiatrust) that Mr Painter would pay Mr Hutchison personally for the use of the car. Given that the car was a corporate asset (belonging either to Hekla or to Bennett Investments), it is not credible that Mr Dukes would have sanctioned an arrangement under which hire for a corporate asset was paid, not to the corporation, but to a stranger, even if that stranger was associated with the company; still less that it would have been sanctioned without a resolution of the board, or a single piece of paper recording the arrangement. This is yet another piece of evidence that Mr Hutchison has simply invented.
The Inland Revenue investigate
- While the Painters were living at Nilgiris, Mr Lee of the Inland Revenue Special Compliance Unit came knocking. He was looking for Mr Hutchison. However, Mr Painter was concerned about his own position, and indeed Mr Lee began to ask him awkward questions about his own affairs. Mr Painter went to a firm of accountants, Cole & Co, to help him deal with Mr Lee. A draft report was prepared on his instructions in July 1993. This draft report was in part misleading. But it is not clear whether the report in that form was ever sent to Mr Lee. However, it is right to record that Mr Painter readily accepted that he had "downplayed" his income in the report. In August 1993 Mr Painter and Mr Lee had a meeting at the offices of Cole & Co. Mr Painter says that he explained his past business dealings, the nature of the relationship between himself and Mr Hutchison "and also of the investment which Beverley and I had made in the Gemini Trust." Thus, according to Mr Painter, the Inland Revenue knew all about the offshore monies to which Mr and Mrs Painter were beneficially entitled. This is confirmed by Mr Lee who said, in a letter of 21 November 1994, that he had been told by Mr Painter in August 1993 that "he had invested approximately £125,000 in the Channel Islands through his friend Mr Hutchison." There is no other written record of the meeting of August 1993, but to judge from subsequent correspondence both from Mr Lee and Mr Cole, Mr Lee mentioned at that meeting, as a serious possibility, that the Revenue might assess Mr Painter to tax on Mr Hutchison's income, on the basis that he was Mr Hutchison's UK agent. This was particularly alarming to Mr Painter. At some stage (not later than October 1993) Mr Painter had agreed to make a full disclosure of assets to the Inland Revenue; although, as will be seen, this did not actually happen until 1997.
Sale of 25A Hardman Road
- 25A Hardman Road was sold in September 1993 for £71,000. Mr Painter says that when the property was sold he was surprised to find that Mr Hutchison claimed a fifty per cent entitlement to the sale proceeds. He said that he was made "furious by this ludicrous claim" but as he was desperate for the money to buy 84 Deanway, which I deal with next, he did not argue; and split the profit with Mr Hutchison. Mr McCulloch of Peter Fraser & Co acted on the sale. He transferred the whole of the net proceeds of sale to The Bank of Nova Scotia's branch at Finsbury Square in London. The Bank credited the amount to sub-account C614. Mr Hutchison has disclosed no documents relating to that account. Mr Hutchinson, of course, says that he was entitled to half the profit from the outset, because he only sold Mr Painter a half share in the flat. I do not think that I need to resolve this conflict, because it is agreed that whatever might have been the position at the outset, the parties agreed on an equal division of the profit at the time of the sale of 25A Hardman Road.
- What is important, however, is that as early as 14 November 1993 Mr Hutchison was asserting in a letter to Kingston Borough Council (who were trying to reclaim the grant) that Hekla held the property on trust for himself and Mr and Mrs Painter. Mr Hutchison did not produce his own letter but he did produce a later letter from his solicitors which summarised it. Thus Mr Hutchison's insistence in the witness box that Mrs Painter had nothing to do with 25A Hardman Road can be seen to be untrue.
84 Deanway Chalfont St Giles
- In the summer of 1993 Mrs Painter saw a bungalow for sale at 84 Deanway Chalfont St Giles. In mid-August 1993 Mr and Mrs Painter made an offer of £93,000, which was accepted. The estate agent dealing with the sale was Mr Green of Colman & Green. His evidence was that Mr Painter had come into his office in January 1993 to register his property details. He was accompanied by Mr Hutchison who introduced him to Mr Green. Mr Green's impression was that Mr Hutchison was there as a friend, and had no interest in any property that Mr Painter might buy. Mr Hutchison at first denied having visited Mr Green's office in January 1993 and said that he was not in the UK at all at that time. However, when confronted with the records of the US court that showed that he was given back his passport in order to visit the UK between Christmas 1992 and mid-January 1993 he was compelled to accept that he was in the UK at the time when Mr Green said that he visited his office. He then said that when he and Mr Painter visited Mr Green's offices it was he rather than Mr Painter who did all the talking. He asked Mr Green to look out for a property that he could look at, although he did not mention a joint venture. Mr Green, he agreed, would have got the impression that he, Mr Hutchison, was the active one, and that Mr Painter was the one who was there for the ride. This was, of course, the direct opposite of what Mr Green had said; and, needless to say, was not put to him in cross-examination. It is yet another example of the way that Mr Hutchison's evidence changed when confronted by an incontrovertible fact.
- Mr and Mrs Painter instructed Mr McCulloch of Peter Fraser & Co to deal with the conveyancing. He had previously been retained by Mr Hutchison on various matters. Initially Mr McCulloch took his instructions from Mr Painter. He did not know about the beneficial interests in the property, and he did not regard it as his business to know. His role, as he saw it, was to carry out the conveyancing on an "execution only" basis. But he did know that the money was to come from Jersey. At an early stage the question arose: in whose name was the purchase to proceed? Mr McCulloch first asked the question in a letter of 19 August 1993. He repeated the question several times after that, but it was not until 30 September that he got an answer. The purchase was to go ahead in the name of Mrs Painter alone. Mr McCulloch's attendance note of his conversation with Mr Painter records him as having said that he must have written instructions from Mr Hutchison or Jersey. On 2 October 1993 Mr McCulloch spoke to Ms Syvret of Scotiatrust (then called Ms Bree), and made a note of that call. She told him that she had spoken to Mr Hutchison and that the property would be bought in Mrs Painter's name. There would be a trust deed in favour of the Gemini Trust, but the deed would provide for Mrs Painter to be able to live in the house until she died. Mr McCulloch advised that the tax implications of the life interest ought to be considered. Ms Bree said that any questions should be raised with her or Mr Hutchison. On the same day Mr McCulloch spoke to Mr Painter. Mr Painter told him that the purchase could go ahead "without awaiting the sorting out of the particular terms of the trust deed".
- On 5 October 1993 Mr McCulloch sent Scotiatrust a report on title. There was no report on title addressed to either Mr or Mrs Painter, although a draft report had been sent to Mr Painter some days earlier. By 7 October Mr Painter was keen to exchange contracts and said that the trust deed could be left to completion. Contracts were exchanged on 8 October 1993 with Mrs Painter named as the sole purchaser. The deposit of £9,300 was transferred by CHAPS from Scotiatrust. On 12 October 1993 Mr McCulloch had a conversation with Mr Dukes of Scotiatrust. The idea that was floated in that conversation was that an interest free loan be made to Mrs Painter secured by a charge on the house (an idea that Mr Hutchison had himself suggested in a letter of 6 October to Ms Syvret). The Painters would have to take advice on tax; and Mr Dukes would draw up a loan agreement. Mr Dukes said that he would confirm instructions in writing and would fax a facility letter to the Painters. In the meantime the purchase could complete on the basis of a declaration of trust, and the matter would be sorted out after completion. On the same day Mr McCulloch wrote to Mr Painter enclosing a deed of trust for Mrs Painter to sign. In his letter he said:
"This document is required simply to protect Brian's interest pending the sorting out of an appropriate Trust Deed containing more detailed provisions."
- On 14 October, Mr Dukes spoke again to Mr McCulloch. Mr McCulloch had no recollection of the telephone call, but there is no reason to doubt the accuracy of Mr Dukes' contemporaneous note of it. He said that after due consideration of the proposal made by Mr Hutchison the Trustee had no alternative but to treat the monies already remitted to Peter Fraser & Co as a distribution of funds to be held to the order of Mr Hutchison. He noted that Mr McCulloch fully understood the Trustee's position. He confirmed that the Trustee would be remitting the balance of the funds payable by Mr and Mrs Painter, subject to confirmation from Mr Hutchison that the payment was to be regarded as (and acknowledged to be) a distribution of capital in favour of Mr Hutchison. He said that he would speak to Mr Hutchison that evening. A resolution of the trustees resolving to make a capital distribution of £93,835.76 was passed, although the date it purports to bear is 8 October 1993. In view of the discussions between Mr Dukes and Mr McCulloch it is more probable than not that the resolution was back-dated to coincide with the date on which contracts were exchanged.
- On 18 October 1993 Ms Syvret of Scotiatrust sent a fax to Mr McCulloch in which she confirmed that £85,535.76 had been transferred to his account with Barclays Bank "to be held to the order of Mr Brian Hutchison". On the same day Mrs Painter signed the declaration of trust. It was expressed to be made between Mrs Painter (described as "the Trustee") and the Bank of Nova Scotia Trust Company Channel Islands Ltd (described as "the Beneficial Owner") "as trustee of the Gemini Trust". It recited that the purchase price for the property had been provided by the Beneficial Owner and continued:
"The Trustee HEREBY DECLARES that she holds the Property in trust for the Beneficial Owner absolutely and HEREBY AGREES that she will at the request and cost of the Beneficial Owner convey or transfer the Property to such person or persons at such time and in such manner or otherwise deal with the same as the Beneficial Owner shall direct or appoint."
- The attestation clause stated:
"IN WITNESS whereof the Trustee has signed this instrument as a deed…"
- Thus the draft made no provision for its execution by the Bank; and so Mrs Painter was the sole signatory to the declaration (apart from a witness). There is no indication that the form of the declaration of trust was approved by Scotiatrust; and they were not signatories to it.
- Completion was due on 18 October but it was in fact late. There was therefore a small amount of interest to pay, which left Mr McCulloch short of funds for stamp duty. He wrote to Ms Syvret to ask her to send the required amount, £68.79. On 7 December 1993 he wrote to Mr Painter to say that he had had no reply. However, he said that:
"I recollect a telephone conversation in which she indicated that since the purchase was not a trust matter, she would not be forwarding any further sums to us."
- Mr McCulloch therefore asked Mr Painter to arrange payment. He concluded:
"I would remind you that the question of the Trust Deed, or arrangements for hold the property, remain to be finalised."
- Because stamping was late, a penalty of £10 became payable and on 13 December 1993 Mr McCulloch asked Mr Painter for the money. On 6 January 1994 Mr McCulloch applied for Mrs Painter to be registered as proprietor of 84 Deanway. The application form described her as "the sole beneficial owner of the land". However, on the same day Mr McCulloch wrote to Mr Hutchison. He enclosed a copy of the declaration of trust with his letter and commented:
"The trust deed was signed by [Mrs Painter] really as a stop gap to enable an early completion to take place.
It is not really satisfactory, because Mrs Painter confirms that she is really holding the property on trust for the Bank of Nova Scotia … as trustee of the Gemini Trust.
However, as you are aware, they have indicated to me that they have treated payment of the purchase price as a distribution out of the Gemini Trust, and not the acquisition of a property on behalf of the trust.
The Gemini Trust is not therefore the true "beneficial owner" of the property, and the deed should probably be amended to show you as the true beneficial owner, unless of course some other trust document [supersedes] the deed."
The outcome of the tax investigation
- I will next describe the outcome of Mr Painter's dealings with Mr Lee and the Special Compliance Unit. Mr Lee met Cole & Co on 18 January 1994. On 25 February 1994 Mr Lee wrote to Cole & Co. The gist of his letter was that he was not satisfied that he had been given a completely accurate account of Mr Painter's dealings with Mr Hutchison; the level of profitability of the furniture business in Hayes; the purchase and subsequent sale of "The Willows" which, Mr Lee thought, bore the hallmarks of trading; the placement of funds in the Channel Islands without supporting documentation and the denial of any connection with Bennett Investments. He asked for another meeting. On 9 March 1994 Mr Cole wrote to Mr Painter expressing concern that he might be assessed on the basis that his affairs and those of Mr Hutchison were intertwined. In July 1994 Mr Bettinson of Cole & Co asked Mr Painter for details of "interest received by yourself and Mrs Painter from the Trust" for the years ended 5 April 1993 and 1994. Mr Painter wrote to Mr Hutchison asking him to calculate the interest in £125,000 between February 1992 and April 1993 and on £100,000 from April 1993 to March 1994. On 21 November 1994 Mr Lee demanded full details of the amounts invested in the Channel Islands, including the relevant returns, and a signed and certified statement of Mr Painter's worldwide assets. On 6 January 1995 Mr Cole urged Mr Painter to make a full disclosure. It was not until March 1997 that this finally happened. Mr Painter completed a declaration of his assets, which he put at nil. Mrs Painter also completed a declaration of her assets. The only significant asset which she disclosed was 84 Deanway. This satisfied Mr Lee and the file was closed.
Mr Hutchison's calculations
- Mr Hutchison has prepared manuscript calculations at various times. Mr Hutchison relies on them as demonstrating the existence of the joint ventures. Mr Painter says that they demonstrate the opposite, namely that the money he transferred to the Gemini Trust belonged to him beneficially.
- On 3 March 1993 Mr Hutchison prepared a hand-written schedule of cash and cheque payments that had been made to Mr Painter. They came to £18,745. After adjustments for the debit and credit of interest, Mr Hutchison arrived at a debit of £35,000. He deducted this from £100,000, leaving a balance of £65,000. On 14 April 1993 Mr Hutchison wrote to Mr Painter. His letter included a schedule of interest calculations in Mr Hutchison's handwriting. The first was headed "RP Interest on 100k 1991" and the second was headed "RP Interest on 100k 1992". The covering letter explained that Mr Hutchison had calculated interest for both years on the whole of the £100,000, but pointed out that there would have been a deduction from the calculated amounts to take account of payments that had in fact already been made to Mr Painter. Mr Hutchison also said that he had given himself a credit for money he owed Mr Painter. He concluded that the result of his calculations left "a nice round figure of £65k accruing as from March '93". The heading of the interest calculations, on a straightforward reading, attributes the interest to Mr Painter. This is consistent with the £100,000 belonging beneficially to Mr Painter. The treatment of money that Mr Painter owed Mr Hutchison points in the same direction. In his witness statement Mr Hutchison said that the heading to the interest calculation was an error. But in oral evidence he proffered a tortuous and unconvincing explanation of why he might have headed the calculation as he did, before reverting to the position that he had taken in his witness statement; namely that it was an error. In my judgment this was yet another instance of Mr Hutchison desperately bending his evidence in order to try to fit it to the documents. It was an example of deliberately dishonest evidence. This calculation, and in particular the attribution to Mr Painter of interest on the whole of the £100,000 is, in my judgment, inconsistent with Mr Hutchison's evidence that the £100,000 represented joint monies. The sum of £65,000 is the same figure as had appeared in Mr Hutchison's March calculation. It, too, in my judgment represents Mr Painter's beneficial entitlement.
- In October 1993 Mr Hutchison had been contacted by Cole & Co, who were his accountants too. They passed on questions that had been raised by the Inland Revenue. They mentioned that Mr Painter had agreed to make a full disclosure of assets. Mr Hutchison replied:
"I am not sure what you are asking me in this question. But Mr Painter's affairs have absolutely nothing to do with me "now or ever" so please explain. We are just good, good friends."
- On the face of it, this letter to Mr Hutchison's own accountant is inconsistent with the notion of a series of joint ventures. Mr Hutchison suggested in evidence that because of the context in which the letter was written the word "tax" should be read in before the word "affairs". But even if that is done, it is still inconsistent with a pre-existing series of joint ventures, in which the tax affairs of both Mr Painter and Mr Hutchison might well still be interlinked. Moreover, whatever is read in before the word "affairs", the statement that "we are just good, good friends" is inconsistent with Mr Hutchison's current case.
- In December 1993 Mr Hutchison drew up a note of the costs incurred in relation to Hardman Road and division of the proceeds. This was predicated on an equal division between him and Mr Painter. The calculations were as follows. He took the net sale price (£71,000) and deducted the refurbishment expenses incurred by Mr Painter over and above the grant (£22,400). This gave a gross profit of £48,600 which he divided half and half. Thus Mr Painter was credited with profit of £24,300. His outlay on refurbishment expenses (£22,400) was added to his profit, giving him a credit of £46,700. Mr Hutchison's note then adds £60,000 described as "Capital in trust" making a total of £106,700. The fact that the components of this calculation include only half the profit show convincingly that this calculation was intended to be a calculation of Mr Painter's share and not a calculation of joint monies. Had it been a calculation of joint monies available for another joint venture, the whole of the profit would have been included in the calculation. In addition the treatment of the monies laid out by Mr Painter on refurbishment expenses is consistent with the calculation being a calculation of his personal share. The amount shown as "trust capital" is £60,000 as opposed to £65,000 shown in the March calculations. However, it is common ground that Mr Painter had withdrawn £5,000 from the Gemini Trust between March and December, so that difference is easily explained.
- Mr Hutchison prepared another sheet of calculations dated 12 December 1993. Three different versions of this document exist. Mr Painter's case is that the first of these versions was sent to him by Mr Hutchison, subsequently annotated by Mr Painter, and later still sent to Mr Hutchison attached to the letter before action; the second was disclosed by Mr Hutchison's solicitors in his list of documents, and the third was exhibited to Mr Hutchison's witness statement served in January 2007. The differences between the first and second versions are relatively minor. The most significant difference is that the second version has the numeral "9" in the top right hand corner which identifies it as document 9 in Mr Hutchinson's list of documents. The third version does not contain any of Mr Painter's annotations, but does contain a number of other differences from the first two versions. It does not contain a disclosure number. Mr Hutchison produced, during the course of his cross-examination, an original which corresponded to the third version (minus the identification of it as an exhibit to his witness statement). He says that the third version is the only authentic version, and that the first two versions have been tampered with. Mr Cowen, to the contrary, suggested that it was Mr Hutchison himself who tampered with the original, thus producing the third version, and that he did so at some time after disclosure had taken place and before he made his witness statement. Mr Hutchison denied this. He said that the tampering with the first two versions was carried out either by Mr Painter or by Isadore Goldman, Mrs Painter's solicitors. That he should make such a serious allegation for the first time in the witness box was symptomatic of his evidence. Needless to say no such allegation was put either to Mr Painter or Mrs Painter. Nor was it put to Ms Cary when she gave her evidence; which she did after Mr Hutchison had finished giving his. Mr Hutchison called no evidence from his former solicitors who carried out the disclosure exercise to say that what they disclosed was the third version. The fact that the second version bore the number "9" shows that it was that version that had been disclosed. Ms Cary's evidence too was that the second version was that which was disclosed in Mr Hutchison's list. I accept her evidence. I find that the annotations on the third version were added by Mr Hutchison at some time after he sent a copy of the first version to Mr Painter.
- It is not easy to reproduce the document, but the gist of it (without the additions) is as follows:
|RP & BH
|ROLLOVER TO 84 DEANWAY
||NETT TO RP
|RP TRUST CAPITAL
|TO PURCHASE DEANWAY
|PLUS ADDITIONAL FOR REFURB
||= £4385 O/D
- Like the other December calculation it began with the net proceeds of sale of Hardman Road (£71,000). There was then a deduction of £24,300, sidelined "Share retained (BH)" and the resulting balance was £46,700, sidelined "nett to RP". These figures correspond with the calculations relating to Hardman Road in which Mr Hutchison calculated Mr Painter's expenses on refurbishment as £22,400, which left £48,600 as the profit on the sale to be equally divided. This net sum was described as "rollover to 84 Deanway". It was suggested by Mr Hutchison that the description of the balance as "rollover to 84 Deanway" demonstrated the existence of a joint venture. I disagree. The figures show that Mr Hutchison's share of the profit from Hardman Road was not rolled over into Deanway, but on the contrary was retained by him. Mr Hutchison said in the witness box that there had been an express agreement between him and Mr Painter that he could withdraw £22,400 from the joint venture. This was not an allegation that he had made in his witness statement, and it was not put to Mr Painter. It was dishonestly fabricated in the witness box. What was rolled over into Deanway was the net sum due to Mr Painter. Mr Hutchison attempted to explain in the witness box first that "nett to RP" was simply a reminder to himself of how the proceeds of sale of the Kingston property were to be attributable if the joint venture had credit for the next joint venture. Then he said that it was an indication that Mr Painter would hold the sum attributed as "nett to RP" for the joint venture. But that explanation overlooked the fact that by the time the calculation was prepared, the money had already been spent on Deanway, and that Deanway was held by Mrs Painter, not Mr Painter. So Mr Hutchison next said that Mr Painter was going to hold the money notionally for the joint venture, as a nominee. When asked what he meant by "nominee" he launched into a long speech about the nature of partnership. In so far as his explanations were intelligible, they were a farrago of nonsense. Mr Hutchison's calculation then added £60,000 described as "RP Trust Capital". This item can only be sensibly read as a reference to the balance of the £100,000 that Mr Painter had transferred to Gemini Trust back in 1991. The clear inference is that it was Mr Painter's money, and not the proceeds of a joint venture. Mr Hutchison said that the reference to "RP Trust Capital" was no more than a reminder that The Willows (which he said was part of the joint venture) was the source of the original capital. But he was unable to explain in any rational way why the designation "RP Trust Capital" should have meant that. The total came to £106,700, which Mr Hutchison rounded up to £107,000. This he described as "credit". He then made a series of deductions, consisting of the cost of buying and refurbishing Deanway. This came to £111,835. There was thus a negative balance of £4,835, which Mr Hutchison described as overdrawn or overdraft. In my judgment this balance can only be interpreted as an amount which Mr Hutchison calculated as being owed by Mr Painter; and it is calculated on the basis that the whole of the costs attributable to the purchase and refurbishment of Deanway were debited to Mr Painter's account and not to a joint venture.
- On the basis of these calculations, I conclude that:
i) No part of Mr Hutchison's share of the proceeds of sale of Hardman Road was "rolled over" into the purchase of Deanway;
ii) Although the money used to acquire Deanway came out of the Gemini Trust account, it belonged beneficially to Mr Painter and/or Mrs Painter.
- As I have said, Mr Painter's dealings with the Inland Revenue were ongoing. He had a meeting with Mr Bettinson of Cole & Co in July 1994. Mr Bettinson asked him to provide details of the interest that he and Mrs Painter had received from the Trust for the years ended 5 April 1993 and 1994. Mr Painter wrote to Mr Hutchison shortly afterwards. He said:
"In order that we do not alert Lee to purchase of the bungalow Bettinson wishes to show interest on bungalow money as if still invested. Therefore (and these need only be approx) could you please work out for me interest as would have been on the following:
Based on capital of £125,000
Feb 1992 - April 1993
Based on capital of £100,000
April 1993 – March 1994"
- The fact that Mr Painter was asking for calculations of interest on the whole of the capital for the purpose of making a tax return intended to show him as liable for the whole of the interest is, in my judgment, corroboration of the joint perception of both Mr Hutchison and Mr Painter that the monies were beneficially Mr Painter's. However, it is not clear whether Mr Painter actually returned receipts of interest on his tax returns, not least because Mr Lee complained, subsequently to Mr Painter's request to Mr Hutchison, that he had not.
The Pine Furniture business
- It is common ground that Mr Hutchison invested in a business selling pine furniture that Mr Painter ran between 1996 and 2000. It is common ground that Mr Hutchison made three payments in connection with that business: two of £5,000 each and one of £6,000. It is also common ground that it was agreed that Mr Hutchison would be entitled to half the profits. Mr Painter says that when the business closed down in 2000 he presented accounts to Mr Hutchison and paid him what he was owed. Mr Hutchison says that he has been underpaid. It is agreed that in principle Mr Hutchison is entitled to an account.
Mr Painter's bankruptcy
- At some time in 1997 judgment was given against Mr Painter at the suit of British Rail for £23,293 plus costs. The judgment sum represented compensation for use and occupation in relation to Station Road Hayes. British Rail served a statutory demand on 23 June 1997 and in due course presented a bankruptcy petition. Mr Painter was adjudicated bankrupt on 5 January 1998. The Official Receiver was appointed as trustee in bankruptcy. Mr Hutchison was told by Mr Painter about his bankruptcy some time in 1998; but did not prove in the bankruptcy. The papers do not reveal whether any dividend was paid to creditors, although it seems unlikely. In due course, on 5 January 2001 Mr Painter was discharged from his bankruptcy.
The effect of the declaration of trust
According to its terms
- In Pettitt v. Pettitt  AC 777, 813, Lord Upjohn said:
"In the first place, the beneficial ownership of the property in question must depend upon the agreement of the parties determined at the time of its acquisition. If the property in question is land there must be some lease or conveyance which shows how it was acquired. If that document declares not merely in whom the legal title is to vest but in whom the beneficial title is to vest that necessarily concludes the question of title as between the spouses for all time, and in the absence of fraud or mistake at the time of the transaction the parties cannot go behind it at any time thereafter even on death or the break-up of the marriage."
- This might be thought to deal only with the case of bilateral agreements between the rival claimants to an interest in the property, and to be conclusive only as between them. However, in Gissing v. Gissing  AC 886, 905, Lord Diplock put the matter more generally. He said:
"where the trust is expressly declared in the instrument by which the legal estate is transferred to the trustee or by a written declaration of trust by the trustee, the court must give effect to it." (Emphasis added)
- This statement was treated by the Court of Appeal as a correct statement of principle in Goodman v Gallant  Fam 106; and it applies both to bilateral agreements and also to a declaration of trust by the trustee. All that is required for a valid declaration of trust is writing signed by the person able to declare the trust: Law of Property Act 1925 s. 53 (1) (b). In Goodman v Gallant itself the Court of Appeal formulated the principle as follows (at 110):
"If, however, the relevant conveyance contains an express declaration of trust which comprehensively declares the beneficial interests in the property or its proceeds of sale, there is no room for the application of the doctrine of resulting implied or constructive trusts unless and until the conveyance is set aside or rectified; until that event the declaration contained in the document speaks for itself."
- I will therefore look at the declaration of trust according to its terms, and in the light of subsequent events, before considering whether, as Mrs Painter argues, there are any grounds upon which it can be set aside ab initio.
- Although the declaration of trust declares Mrs Painter to be a trustee for the Bank of Nova Scotia Trust Company Channel Islands Ltd, the bank was itself described as trustee of the Gemini Trust. It follows, in my judgment, that the beneficial interest was intended by the declaration itself to be held on trust. However, the Bank itself did not execute the instrument declaring the trust; nor did it approve the draft. In addition the Bank did not accept the property as trust property to be held under the terms of the Gemini Trust. On the contrary, the position of the Bank was that the money used to buy 84 Deanway was, in their eyes, a distribution to Mr Hutchison. The Bank made this position clear to Mr McCulloch before the declaration of trust was executed by Mrs Painter, and the Bank's resolution, even if not passed on the date it purported to have been passed, was passed before the money for completion was sent. The character of the money was also made clear to Mr McCulloch in Ms Syvret's fax of 18 October 1993.
- In Townson v. Tickell (1819) 3 B. & Ald. 31, 36, 37 Abbott C.J. said:
"The law certainly is not so absurd as to force a man to take an estate against his will. Prima facie, every estate, whether given by will or otherwise, is supposed to be beneficial to the party to whom it is so given. Of that, however, he is the best judge, and if it turn out that the party to whom the gift is made does not consider it beneficial, the law will certainly, by some mode or other, allow him to renounce or refuse the gift."
- Under the trust declared by Mrs Painter the Bank was a beneficiary, albeit a beneficiary who was to hold its beneficial interest on the trusts of the Gemini Trust. Where a beneficiary disclaims a beneficial interest which a lifetime settlement purports to confer upon him, there is, in general, a resulting trust in favour of the settlor: Lewin on Trusts 17th ed para 8-11 and 8-18; Vandervell v IRC  2 AC 291, 313 E-G. In terms of the paperwork (i.e. the declaration of trust itself) Mrs Painter was the settlor. Since the Bank refused to accept (or disclaimed) the purported gift, it follows, in my judgment, that as between the Bank and Mrs Painter there was a resulting trust in favour of Mrs Painter. That is not to say that as between Mr Hutchison and Mrs Painter Mrs Painter is necessarily entitled to the whole of the beneficial interest in 84 Deanway. If Mr Hutchison could have established that he provided the purchase money (or part of it) then in the absence of any other agreement a further resulting trust would have been implied in his favour to the extent of his contribution to the purchase. But he cannot; so no resulting trust arises in his favour.
- As between the Bank and Mr Hutchison the Bank clearly regarded the money as his. But the Bank knew nothing about the arrangements between Mr Hutchison and Mr Painter. It follows, in my judgment, that the fact that the Bank treated the money as a distribution to Mr Hutchison cannot conclude the question as between Mr Hutchison and the Painters.
- Mr Painter does not assert any beneficial interest in the property. If and so far as the money used to buy the property was his money, the presumption of advancement in favour of Mrs Painter would apply; and Mr Painter does not seek to rebut the presumption.
- As between Mrs Painter and Mr Hutchison, the money used to buy Deanway was plainly not Mr Hutchison's. Even on his own case the money represented the rolled over proceeds of a number of joint ventures to which he and Mr Painter were equally entitled. So he cannot, in my judgment, rely on the mere fact that the monies were credited to the Gemini Trust account as demonstrating that the money was beneficially his. It must therefore be a factual enquiry: what was the provenance of the money? For the reasons I have given I have no doubt that the provenance of the money was the proceeds of sale of The Willows, which belonged beneficially to the Painters (or to Mr Painter alone); and the Painters' share in the proceeds of sale of 25A Hardman Road.
- It follows, in my judgment, that even without setting aside the declaration of trust, Mrs Painter is entitled to a declaration that 84 Deanway belongs beneficially to her alone.
Was the declaration of trust a sham?
- Mrs Painter's case is that 84 Deanway belongs to her beneficially. Mr Hutchison's case is that it belongs to him and Mr Painter as an asset of the joint venture. Mr Painter is not and never has been a beneficiary of the Gemini Trust and may be outside the class of potential beneficiaries (the relevant definition was missing from the copy deed produced by Mr Hutchison). The same is true of Mrs Painter. In any event the Gemini Trust is, on its face, only a discretionary trust. It follows that a declaration of trust in favour of the Bank as trustee of the Gemini Trust cannot have been what anyone really intended. Two questions therefore arise:
i) Was the declaration of trust a sham; and
ii) If so, can Mrs Painter be heard to say that?
- The classic definition of a "sham" is that of Diplock LJ in Snook v London and West Riding Investments Ltd  2 QB 786, 802:
"As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a "sham," it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the "sham " which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create."
- In Lewin on Trusts (17th ed para 4-23) the editors state:
"Where a trust is unilaterally declared, then there is no difficulty, as only the settlor's intention can conceivably be relevant."
- I agree with this statement. The editors go on to say later in the same paragraph that:
"It is not inconceivable that a shamming settlor might seek to assert the trust's invalidity against the trustees, and in such circumstances it would appear that as a practical matter he will only be able to do so where the trustees are themselves implicated in the sham."
- This observation seems to me to be directed to a case in which the trustees are parties to and execute the deed of trust, rather than to a unilateral declaration which the editors dealt with in the first of the quoted passages. In Shalson v Russo  Ch 281 Rimer J was concerned with a deed of trust that had originally been executed both by the settlor and by the trustee. His observations at paragraph  of his judgment make that clear. He said:
"When a settlor creates a settlement he purports to divest himself of assets in favour of the trustee, and the trustee accepts them on the basis of the trusts of the settlement. The settlor may have an unspoken intention that the assets are in fact to be treated as his own and that the trustee will accede to his every request on demand. But unless that intention is from the outset shared by the trustee (or later becomes so shared), I fail to see how the settlement can be regarded as a sham. Once the assets are vested in the trustee, they will be held on the declared trusts, and he is entitled to regard them as so held and to ignore any demands from the settlor as to how to deal with them. I cannot understand on what basis a third party could claim, merely by reference to the unilateral intentions of the settlor, that the settlement was a sham and that the assets in fact remained the settlor's property. One might as well say that an apparently outright gift made by a donor can subsequently be held to be a sham on the basis of some unspoken intention by the donor not to part with the property in it. But if the donee accepted the gift on the footing that it was a genuine gift, the donor's undeclared intentions cannot turn an ostensibly valid disposition of his property into no disposition at all. To set that sort of case up the donee must also be shown to be a party to the alleged sham. In my judgment, in the case of a settlement executed by a settlor and a trustee, it is insufficient in considering whether or not it is a sham to look merely at the intentions of the settlor. It is essential also to look at those of the trustee."
- When he went on to consider the effect of a unilateral declaration of trust in paragraph , he pointed out that it was a declaration executed by the trustee alone, and that the trustee intended it to be a genuine document. Thus in the case of a unilateral declaration of trust Rimer J concentrated on the intention of the declarant, which is exactly what the first quotation from Lewin suggests. It is true that Rimer J referred to a gift by a donor to a donee, but his observations on that topic were only concerned with a case in which the donor had accepted the gift. I do not consider that Rimer J was dealing with a case of a unilateral declaration of trust where the intended beneficiary was not party to the deed and had not accepted the gift.
- The point can also be put another way, as Mr Cowen submitted. Where there is a simple unilateral declaration of trust, the settlor and the trustee are one and the same person. So even if it is necessary to consider the intention of both the settlor and the trustee, in practice that amounts to the same thing as considering the intention of the settlor alone. This is perhaps a theoretical justification for the first of the two quoted statements in Lewin, but it is not necessary to over-refine it in this way. Either way, in the case of a unilateral declaration of trust, where the beneficiary has not accepted the gift, I consider that it is the intention of the settlor alone that is decisive.
- However, although it is, in my judgment, Mrs Painter's intention that is decisive, I will nevertheless consider the intentions of the others involved.
- The first strand in the argument is Mr Cowen's submission on the facts that it was plain that the declaration of trust purporting to declare an absolute trust of the beneficial interest was no more than a temporary arrangement not intended to have long term effect; and was not an integral part of the purchase. The indications to this effect are:
i) Ms Bree's statement to Mr McCulloch that the intended deed of trust would contain a life interest in favour of Mrs Painter;
ii) Mr Painter's statement to Mr McCulloch on 2 October that the purchase could go ahead "without awaiting the sorting out of the particular terms of the trust deed";
iii) Mr Painter's statement to Mr McCulloch on 7 October that the trust deed "could be left until after completion";
iv) Mr Dukes' statement to Mr McCulloch that the matter could complete on the basis of a declaration of trust "until the matter is fully sorted after completion";
v) Mr McCulloch's covering letter to Mr Painter of 12 October saying that the declaration of trust was required "pending the sorting out of more detailed provisions";
vi) Mr McCulloch's letter to Mr Painter of 7 December in which he said that "the question of the Trust Deed, or arrangements for hold the property remain to be finalised";
vii) The application for registration which described Mrs Painter as the sole beneficial owner;
viii) Mr McCulloch's letter to Mr Hutchison of 6 January 1994 which described the declaration of trust as a "stop gap to enable an early completion to take place."
- In my judgment there is considerable substance in this submission. Next he points to the conversation between Mr Dukes and Mr McCulloch on 14 October and Mrs Syvret's letter of 18 October, each of which shows that the money coming from the Gemini Trust was not intended to purchase a trust asset. Thus the position of the Gemini Trust, before the declaration of trust was executed, contradicted its express terms.
- On the basis of my findings of fact thus far, Mr Hutchison cannot honestly have intended that 84 Deanway should have become an asset of the Gemini Trust. He knew that the money used in its purchase was credited to Mr Painter; and that its provenance was the net proceeds of sale of The Willows, and Mr and Mrs Painter's share of the profits realised on the sale of 25A Hardman Road. Even on the basis on which he currently advances his case, the beneficial interest in 84 Deanway belonged, at least potentially, both to him and Mr Painter in shares yet to be determined. It is inconsistent with that understanding for the beneficial interest to be transferred to a discretionary trust under which Mr Painter was not within the class of beneficiaries. Some reliance was placed on Mr Hutchison's professed ability to direct the trustees how to exercise their powers. But unless it is suggested that the Gemini Trust is itself a sham (and it is not suggested), this does not avail Mr Hutchison. In addition, Mr Painter's evidence, which I accept, was that Mr Hutchison told him that "God willing, we will never have to rely upon this document" and that "It need not be registered". It was not in fact registered against the title.
- Turning next to the intention of the trustees of the Gemini Trust, it was not their intention that 84 Deanway should become an asset of the Gemini Trust. They made that clear even before the declaration of trust was executed. In addition Mr Brierley, the managing director of Scotiatrust, said in a letter of 14 June 2001 that the Bank would not have real estate beneficially owned directly in the name of the trust company itself. This is consistent with what happened in other cases, for example the holding of property by Hekla, Bennett Investments and other companies.
- Lastly considering Mrs Painter's intention, it was plainly not her intention that 84 Deanway should become an asset of the Gemini Trust under which she was not a beneficiary. The same is true, so far as relevant, of Mr Painter. Even Mr McCulloch recognised that the Gemini Trust was not the true beneficial owner, although he thought that the true beneficial owner was Mr Hutchison himself. What is clear, therefore, is that none of the participants actually intended that 84 Deanway should become an asset of the Gemini Trust.
- Why, then, was the property conveyed to Mrs Painter alone and why was the declaration of trust executed? Mr Painter said without challenge that he and his wife "agreed that the new property would be hers entirely and that it would be purchased solely in her name." I take this to mean (and I find) that it was Mr Painter's intention that whatever his entitlement was to the monies in the Gemini Trust would be a gift from him to his wife; and that Mrs Painter accepted the gift. Both Mr and Mrs Painter said that the reason behind the execution of the declaration of trust was to distance 84 Deanway from the Inland Revenue. As an explanation it is puzzling, because in August 1993 Mr Painter had already told Mr Lee of the Special Compliance Unit all about the offshore money that he had invested through Mr Hutchison. So by the time that the declaration of trust came to be executed, that money was not hidden from the Revenue. It would not have been difficult, if the question had ever arisen, for the Revenue to have discovered that the money invested offshore had been used to buy 84 Deanway. Thus it would not have been difficult for the Revenue to have discovered that 84 Deanway belonged beneficially to Mrs Painter. If need be they could have applied to set aside the gift. However, what Mr Painter says is that the purpose of a deed of trust was explained to him by Mr Hutchison. Mr Hutchison said that simply putting the property into the name of Mrs Painter would not be enough to deter the Revenue, but that if there were a deed of trust suggesting that an offshore entity owned the property that would be enough to keep the asset out of the hands of the Revenue. He gave Mr Painter to understand that assets held offshore were out of reach of the Inland Revenue. Having listened to other half-baked explanations of legal and financial matters given with great confidence by Mr Hutchison in the witness box, I have no difficulty in accepting that Mr Hutchison did say something of the sort to Mr Painter with equal confidence and that Mr Painter believed it. Mr Painter passed on the gist of this to Mrs Painter; and that was the basis on which she signed the declaration of trust.
- Mr Hutchison on the other hand said that the property was conveyed into the name of Mrs Painter because there was no other way of holding title. He suggested that the terms of the trust deed which constituted the Gemini Trust prohibited him, as a non-resident, from holding property in the UK. Not only is this nonsense, it was also inconsistent with Mr Hutchison's evidence that the purchase of 84 Deanway was part of the joint venture arrangement outside the scope of the Gemini Trust. But even that evidence was inconsistent with his further evidence that the property belonged beneficially to the Gemini Trust. In addition, when asked why the property could not have been held as a nominee by one of the companies (such as Hekla) which had previously held property beneficially owned by the trust, Mr Hutchison launched into a disquisition about why the Bank would not have been happy if one of their companies had been jointly owned by Mr Painter. This, of course, entirely misses the point; and in my judgment this was deliberate evasion on the part of Mr Hutchison in the face of a question to which he had no rational answer.
- In my judgment the declaration of trust was indeed a sham.
- Miss Rich submits, however, that Mrs Painter cannot be heard to say this because the purpose underlying the declaration of trust, on the basis of the Painters' own case, was to conceal assets from the Inland Revenue. The Painters cannot therefore assert that the declaration of trust was a sham, because in order to do so they have to rely on their own illegal act. This submission is based on the decision of the House of Lords in Tinsley v Milligan  1 AC 340.
- However, in Tribe v Tribe  Ch 107, 134 Millett LJ (with whom Otton LJ agreed) said:
"In my opinion the following propositions represent the present state of the law. (1) Title to property passes both at law and in equity even if the transfer is made for an illegal purpose. The fact that title has passed to the transferee does not preclude the transferor from bringing an action for restitution. (2) The transferor's action will fail if it would be illegal for him to retain any interest in the property. (3) Subject to (2) the transferor can recover the property if he can do so without relying on the illegal purpose. This will normally be the case where the property was transferred without consideration in circumstances where the transferor can rely on an express declaration of trust or a resulting trust in his favour. (4) It will almost invariably be so where the illegal purpose has not been carried out. It may be otherwise where the illegal purpose has been carried out and the transferee can rely on the transferor's conduct as inconsistent with his retention of a beneficial interest. (5) The transferor can lead evidence of the illegal purpose whenever it is necessary for him to do so provided that he has withdrawn from the transaction before the illegal purpose has been wholly or partly carried into effect. It will be necessary for him to do so (i) if he brings an action at law or (ii) if he brings proceedings in equity and needs to rebut the presumption of advancement. (6) The only way in which a man can protect his property from his creditors is by divesting himself of all beneficial interest in it. Evidence that he transferred the property in order to protect it from his creditors, therefore, does nothing by itself to rebut the presumption of advancement; it reinforces it. To rebut the presumption it is necessary to show that he intended to retain a beneficial interest and conceal it from his creditors. (7) The court should not conclude that this was his intention without compelling circumstantial evidence to this effect. The identity of the transferee and the circumstances in which the transfer was made would be highly relevant. It is unlikely that the court would reach such a conclusion where the transfer was made in the absence of an imminent and perceived threat from known creditors."
- He added:
"But I would hold that genuine repentance is not required. Justice is not a reward for merit; restitution should not be confined to the penitent. I would also hold that voluntary withdrawal from an illegal transaction when it has ceased to be needed is sufficient."
- That passage and proposition (5) are pertinent to the present case. In the present case:
i) Mr Painter informed Mr Lee of the existence of the offshore funds before the declaration of trust was executed;
ii) In so far as the presumption of advancement applies as between Mr Painter and Mrs Painter, Mr Painter makes no attempt to rebut it;
iii) Mrs Painter is not guilty of any illegality in declaring the trust in favour of Gemini Trust and was not avoiding any liability of her own as against the Inland Revenue;
iv) In any event, when she declared her assets to the Inland Revenue, she included 84 Deanway among them;
v) The declaration of trust was never shown to the Inland Revenue;
vi) Consequently if and in so far as there was any illegal intention underpinning the declaration of trust, the illegal intention was never carried into effect.
- It follows, in my judgment, that Tinsley v Milligan is no bar to the allegation that the declaration of trust was a sham. I hold that it was. On that basis also Mrs Painter is entitled to a declaration that she is the sole beneficial owner of 84 Deanway.
Should an account be taken?
The claim for an account
- Mr Hutchison's claim for an account relates to dealings between him and Mr Painter stretching from 1985 to 1998, with the exception of the claim relating to a business selling Pine Furniture. This latter business, which is agreed to have been a joint venture, ran from August 1996 until late 1999.
The effect of Mr Painter's bankruptcy and discharge
- However, Mr Painter's bankruptcy intervened in 1998; and he has now been discharged from that bankruptcy. Section 281 (1) of the Insolvency Act 1986 says:
"(1) Subject as follows, where a bankrupt is discharged, the discharge releases him from all the bankruptcy debts, but has no effect—
(a) on the functions (so far as they remain to be carried out) of the trustee of his estate, or
(b) on the operation, for the purposes of the carrying out of those functions, of the provisions of this Part;
and, in particular, discharge does not affect the right of any creditor of the bankrupt to prove in the bankruptcy for any debt from which the bankrupt is released."
- Bankruptcy debts are defined in section 382 which, so far as relevant, says:
""Bankruptcy debt", in relation to a bankrupt, means (subject to the next subsection) any of the following—
(a) any debt or liability to which he is subject at the commencement of the bankruptcy,
(b) any debt or liability to which he may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy…"
- So far as dealings between Mr Hutchison and Mr Painter that precede the bankruptcy are concerned Mr Hutchison's remedy is to prove in the bankruptcy. Since there are, at the moment, no assets available for realisation or distribution in the bankruptcy, there is little prospect of a successful proof resulting in a dividend. In addition, it is now more than six years since Mr Painter's discharge from bankruptcy. There appears to be no limitation period which operates as an absolute bar to the proof of bankruptcy debts even after the discharge of the bankrupt. But under the rules, the trustee in bankruptcy is not required to accept a late proof of debt: it is within his discretion: see Insolvency Rules 1986 r. 11.2; r. 11.3 (2).
- The Pine Furniture business presents rather greater difficulty, since Mr Painter continued to run it both before and after he had been declared bankrupt. On the face of it, if it was a partnership at will, it would have been terminated by the bankruptcy. To the extent that it continued after the bankruptcy, it may be that a new partnership was constituted. But these aspects of the case were not explored at trial. If that business generated profits after the date of the bankruptcy, it may be that Mr Painter's trustee in bankruptcy will wish to make a claim to them.
- I will declare that Mrs Painter is the sole beneficial owner of 84 Deanway and will order the caution to be vacated. I will invite counsel to address me on what order (if any) I should make in relation to the taking of an account. My provisional view, having heard brief submissions on the question at trial, is that I should order an account to be taken of the mutual dealings between Mr Hutchison and Mr Painter from the date of the bankruptcy until the closure of the Pine Furniture business; but that in relation to earlier dealings, Mr Hutchison should attempt to prove in the bankruptcy. If the trustee is unwilling to accept a late proof of debt, it would be pointless to incur the expense of an account.
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