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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Clark v Cutland [2003] EWCA Civ 810 (18 June 2003) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2003/810.html Cite as: [2004] 1 WLR 783, [2004] WLR 783, [2003] 2 BCLC 393, [2003] Pens LR 179, [2004] WTLR 629, [2004] BCC 27, [2003] 4 All ER 733, [2003] EWCA Civ 810, [2003] WTLR 1413, [2003] OPLR 343 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIS HONOUR JUDGE
NORRIS QC
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE POTTER
and
LADY JUSTICE ARDEN
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George T Clark |
Appellant |
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- and - |
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(1) Roger John Charles Cutland |
Respondent |
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Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Thomas Seymour (instructed by the Bar Pro Bono Unit) for the first Respondent
The other respondents were not represented and did not appear.
____________________
AS APPROVED BY THE COURT
Crown Copyright ©
Lady Justice Arden :
"… [T]o say that, because Mr Clark did not carry out that calculation he is bound by his 'approval', would be to substitute a test of non–objection to the test of positive approval which Re Duomatic lays down and I decline to do so.
This is all the more the case where, not only was the attention of the shareholders not drawn to the remuneration being paid to Mr Cutland, but their attention was specifically diverted away by the clear statement that he was not making any drawings. I am satisfied that taking money in pension contributions whilst not disclosing that he was doing so, and indeed asserting that he was not doing so, amounts to 'unfair prejudice' as well as being unlawful. It may well be that if Mr Clark had been asked, he would have approved some level of remuneration related to his own. However, that does not stop the fact that the money was taken without his being asked as 'unfair prejudice'" (judgment, page 17).
Preliminary Issue
"3.10 The company has, it is submitted, a straightforward case for recovery of the unauthorised pension contributions in the sum of £145,000. Clearly these funds remain in the pension scheme.
3.11 They should be used to offset the loan liability …"
The appellant's submissions
The respondent's submissions
Conclusions
"A person solely entitled to the full beneficial ownership of money or property, both at law and in equity, does not enjoy an equitable interest in that property. The legal title carries with it all rights. Unless and until there is a separation of the legal and equitable estates, there is no separate equitable title. Therefore, to talk about the bank 'retaining' its equitable interest is meaningless. The only question is whether the circumstances under which the money was paid were such as, in equity, to impose a trust on the local authority. If so, an equitable interest arose for the first time under that trust."
"Establishing a proprietary claim
T[A70.229B]
Regardless of whether the company seeks a personal or proprietary restitutionary remedy, whenever its claim is founded on the defendant's interference with the company's property rights it is necessary for the company to establish that the defendant has, at the very least, received property in which the company has a property interest. This property interest may arise either at law or in equity. The recognition of proprietary interests is a matter of law and does not involve the discretion of the court.
T[A70.229C]
(1) Retention of a legal property interest: Generally, where property is transferred from one party to another legal title in the property will also pass because this is what the parties intended. However, in certain limited circumstances title will not pass because the transferor's intention was vitiated in some way. For example, where the company's property has been stolen, it will not have intended title to pass and so it will retain title to the property, at least as long as the property can still be identified. … In other circumstances title may have passed but it will be revested in the company, as will occur where a transaction is voidable at law and has been rescinded. In certain circumstances title will pass even though the nature of the transfer may be suspect for some reason. For example, if property has been transferred pursuant to a void transaction, then title will pass despite the invalidity of the transaction. Similarly, where property has been transferred pursuant to an illegal transaction then title will pass despite the invalidity of the transaction itself.
T[A70.229D]
(2) Creation of an equitable proprietary interest : An equitable proprietary interest cannot be created unless there is some event which enables the equitable title to be separated from the legal title. This can happen in three different circumstances. (1) Where an express trust has been constituted so that the trustee holds the legal title to property and the beneficiary will have an equitable interest in the same property. (2) Where property is held on resulting trust … (3) Where property is held on a constructive trust. A constructive trust arises by operation of law in a number of different circumstances. Two of the most important are where a defendant receives property in breach of a fiduciary duty and where the defendant has acted unconscionably, which will especially be the case where the defendant receives property knowing that it had been stolen or had been transferred by mistake." (Footnotes omitted).
"The bank contended that where, under a pre-existing trust, B is entitled to an equitable interest in the trust property, if the trust property comes into the hands of a third party, X, (not being a purchaser of the value of the legal estate without notice), B is entitled to enforce his equitable interest against the property in the hands of X because X is the trustee for B. In my view the third party, X, is not necessarily a trustee for B; B's equitable right is enforceable against the property in just the same way as any other specifically enforceable right can be enforced against the third party. Even if the third party, X, is not aware that what he has received is trust property B is entitled to assert his title in that property. If X has the necessary degree of knowledge, X may himself become a trustee for B on the basis of knowing receipt. But unless he has the requisite degree of knowledge he is not personally liable to account as a trustee; in Re Diplock, Diplock v Wintle [1948] Ch. 465, 478 …" (emphasis added in original).
The contribution of £50,000 in 2000
"I propose to allow this deduction to Mr Cutland. My reason is that the £50,000 pension contribution which he seeks to offset here as having been loaned to the company and paid out again is also the subject of the express remuneration claim, being the £50,000 paid in respect of the pension contribution for the year ending 31 December 2000. It would in my judgment be double counting if I were to refuse payment here and allow the excess remuneration claim …"
In effect, the judge treated the £50,000 as having been lent to the company when it was paid to the pension fund trustees and accordingly it must be treated on the same basis for the purpose of the tracing remedy sought.
Interest
Disposition
i) a declaration that the company is entitled to a charge over the assets of Mr Cutland's pension fund to secure the sum of £145,000 (being the aggregate of the contributions which Mr Cutland caused to be made to the company in breach of duty) together with interest thereon;
ii) an order that pursuant to such charge the said sum is thereby set against the sum of £100,000 owed by the company to the trustees of Mr Cutland's pension fund, and interest thereon;
iii) an order that the balance of the monies secured by the charge shall stand charged on the cash reserves of Mr Cutland's pension fund until payment in full;
iv) an order that such balance shall be paid within 28 days of the date of the service of this order on the pension fund trustees with interest calculated down to the date of payment;
v) an order that, forthwith upon such payment being made in full, Mr Cutland is to be given credit in the said sum of £145,000 and interest against the sum of £1,150,753, which by virtue of the judge's order he is liable to pay to the company.
Lord Justice Potter:
Lord Justice Schiemann:
i) the question of the entitlement of the company to a tracing remedy can properly be raised in this court,
ii) Mr Cutland made the payments of £145,000 without having any authority from the company to do so,
iii) in making those payments he acted in breach of his fiduciary duty to the company,
iv) the trustees have received notice of the company's claim
v) in those circumstances the company is entitled to trace the payments and that
vi) set off is a convenient and permissible way of doing so.