Before: The Hon. Mr. Justice Aikens
 
 

B E T W E E N

JUDGMENT
 
DATED: 28 July 1999

Mr. Justice Aikens:

1. This judgment concerns two matters. First the application of the Claimants, Bank of America, for Summary Judgment against the First Defendant, Kevin Peter Arnell. Secondly the trial of the action against the Fourth Defendant, Sharon Jane Haddon. At the hearing on Monday 26 July the first defendant did not appear and was not represented. I heard the evidence of Miss Haddon and was taken through the affidavit evidence and the documents in connection with both the Summary judgment claim and the trial of the action against the Fourth Defendant. Having heard counsels' submissions I reserved judgment until today, Wednesday 28 July.

2. The Nature of the Action

The Parties: The Claimant is a bank that carries on business in Charlotte North Carolina USA. In 1997 the Claimant was called Nationsbank NA. That bank has now merged with Bank of America. The Claimant asked for leave to change the name on the writ. The Fourth Defendant did not object. I gave leave subject to the right of the First Defendant to object if he wished to do so. I will call the Claimant "the Bank" One of the Bank's customers is Signature Hospitality Resources Inc, which trades under the name of Radisson Hotel Atlanta, Georgia ("Radisson"). The First Defendant lives in Tonbridge Wells but little is known of him. In 1997 he maintained a current account at Lloyds Bank, Bexley Heath branch. On 5 August 1997 he incorporated Bluepark International Limited ("Bluepark") in Ireland. However Bluepark had a business address in the Isle of Man at Ramsey. Bluepark was not registered as a foreign corporation in either the Isle of Man or England Bluepark's principal activity was described in documents concerning its incorporation as being the purchase and sale of medical supplies. The beneficial owner in August and September 1997 was the First Defendant, "Mr Arnell". There were two directors of Bluepark, Miss Blew and Miss Sand. Bluepark opened a bank account with the Isle of Man Bank, in Douglas Isle of Man. The Isle of Man bank is the trading name of Nat West Offshore Limited. The Fourth Defendant, "Miss Haddon", is a single lady who lived in Folkstone in August and September 1997. At the time she had no job, and had no regular income. She did not own a house or flat. She lived with a man, Mr Nixon. She had a current account at the Midland Bank, Folkstone branch.

3. There are two other defendants, the Second and Third Defendant who are, respectively, the First and Fourth Defendants' banks. But there are no substantive claims against them. They were only joined in order to obtain disclosure of documents and information about the First and Fourth Defendants and Bluepark.

4. The Facts

1. On 9 August 1997 a cheque No 030671 was drawn, on a form used by Radisson, in the sum of US$ 96,723.00 on Radisson's account with the Bank. It was made in favour of Bluepark and was apparently signed by an employee of Radisson. In fact the cheque was a counterfeit. The cheque was met upon presentation at the Bank on 28 August 1997 and Radisson's account was then debited with the sum of $96,723. Funds were cleared through Banker's Trust New York and the sum of $96,723 was credited to the account of Bluepark at the Isle of Man Bank on 19 September 1997. The bank statement of Bluepark shows that it had no funds in that account prior to the credit of the proceeds of the cheque.
2. The First Defendant swore an affidavit on 3 June 1998 in which he deposed that on 19 September 1997 he "instructed" Eugene Lantry and Sandra Shand, who were authorised signatories of Bluepark's account with the Isle of Man Bank, to arrange for the sum of $90,000 to be converted into Sterling and the sterling equivalent to be transferred by CHAPS from the Isle of Man account to his personal bank account at Lloyds Bank in Bexley Heath. This was duly done. The modern CHAPS system, of course, involves settlement across CHAPS members' accounts held at the Bank of England. As a result Mr Arnell's account with Lloyds bank in Bexley Heath was credited with £55,779.36 on 19 September 1997.
3. The Fourth Defendant had met Mr Arnell at a social occasion in May 1997. She was introduced to him by her friend, Mr Ian Wilford, who ran a Grand Prix Side Car racing team. Mr Arnell was introduced as the sponsor of the team. The Fourth Defendant was told (either by Mr Wilford or by Mr Arnell himself) that Mr Arnell was a businessman who was a partner in an engineering firm called ADF Engineering Limited, based in South London. Miss Haddon met him on a number of social occasions subsequently, perhaps four of five times, but she never knew him well. The occasions were all concerned with the side car team and Mr Wilford. She did no business with him. Although she exchanged telephone numbers with him she never knew where he lived and she did not know any details of his personal or business circumstances.
4. In about mid August Miss Haddon received a telephone call from Mr Arnell. He asked her to assist him with "a transaction". He mentioned a deal concerning the purchase of machinery. He asked her if she would be willing to assist him by "clearing" a sum through her bank account. He proposed that if she was agreeable to doing so then she would receive a commission of £750. She did not agree immediately. There was a subsequent telephone conversation, probably also in August 1997. Mr Arnell asked Miss Haddon again if she would help him by clearing a sum through her bank account. On this occasion he said that the sum would be £25,750. Her evidence was that she had no reason to doubt that he was other than a legitimate businessman and, as he was a friend of Mr Wilford and the sponsor of the sidecar team, she agreed. She gave him details of her account at the Midland in Folkestone. He told her that he would contact her again once the money had been paid through her account.
5. On 19 September 1997 Miss Haddon received a further telephone call from Mr Arnell. He stated that he had received confirmation from his bank that the sum was to be cleared through her account that day. Miss Haddon was thus aware by 19 September if no earlier, that the sum was to come from the First Defendants' bank account and was to be transferred from his account to her account. Mr Arnell deposed in his affidavit of 3 June 1998 that he had gone to his bank on 19 September 1997 and asked to withdraw £55,000 in cash. He was told that there was insufficient credit to his account to do so. He withdrew £29,500 in cash. His evidence is that, having spoken to Miss Haddon, he instructed his bank to transfer by CHAPS the sum of £25,750 to Miss Haddon's account at the Folkstone branch of the Midland Bank. That is what was done.
6. Mr Arnell and Miss Haddon agreed to meet in Folkstone. Once they had met they went to her bank at Sandgate Road, Folkstone. In Mr Arnell's presence Miss Haddon presented a cheque for "cash" in the sum of £25,000. Having received the money at the counter, she gave the money to Mr Arnell and he gave her a receipt for it. They then parted and have not met since, although they have subsequently spoken once by telephone.
7. Miss Haddon gave evidence that she subsequently spent the £750 on various items as part of her general living expenses. At that time she continued to be unemployed, with no regular income and did not own her own house or flat.
8. Mr Arnell states in his affidavit that he held onto the £54,500 cash until 21 September when he says that he gave it to a man called Goldman, who, he says, took it on behalf of Mr Yakier Rosenthall, who Mr Arnell said was an Israeli resident in Jerusalem. Mr Arnell has stated on affidavit that the basis on which he received all the money that had originated in Bluepark's account was that it would be forwarded to Mr Rosenthall. There is no other evidence to confirm the existence of Mr Goldman or Mr Rosenthall or that either man received any sum from Mr Arnell.
9. On 10 October 1997 Radisson informed the Claimant bank that the cheque was not issued by it and that it did not bear the signature of any authorised signatory. On 10 October 1997 the Claimant bank recredited Radisson's account in the sum of US$96,723.
10. On 20 February 1998 Radisson confirmed in a letter to the Claimant bank's solicitors that it had never traded with Bluepark.

5. The Proceedings

The writ was issued on 15 March 1998. The Bank made substantive claims against the First and Fourth Defendants to recover the money paid away upon presentation of the counterfeit cheque. A statement of claim was served on 23 April 1998. On 26 May 1998 judgment was entered against the Fourth Defendant in default of service of a defence. That judgment has since been set aside by agreement. There is a draft defence of the Fourth Defendant in the trial bundle and Miss Haddon has confirmed in evidence that the factual content of it is true. The First Defendant served a defence on 3 July 1998. In that he admitted the key facts of (i) the incorporation of Bluepark by him; (ii) the payment by the Claimants of the cheque on 28 August 1997 into the account of Bluepark; (iii) the transfer of the $96,723 from Bluepark's account pursuant to the orders of the authorised signatories of Bluepark; (iv) the withdrawal of £29,500 in cash by him from that account; (v) the transfer of £25,750 to Miss Haddon's account upon his instructions; (vi) the withdrawal of £25,000 from Miss Haddon's account in cash and the return of the £25,000 cash to him by Miss Haddon.

6. The Issues

(1) The Summary Judgment Application in the case against the first defendant

As the First Defendant did appear and was not represented I must keep carefully in mind that the application is for Summary judgment. It should only succeed if I am satisfied that the First Defendant has no reasonably arguable defence to the action, either on the law or the facts. In respect of the latter there must be credible evidence supporting any assertion of Mr Arnell that he has a good defence. Mr McGrath says that there is no defence, either in fact or law, to a claim against the First Defendant for the full amount of the sum received by Mr Arnell, ie £55,779.36. Mr McGrath says that there are, effectively, two ways that the claim can be put:

(a) the payment that was made under a mistake of fact by the Claimants impresses a constructive trust on the money, so that it can be recovered from any recipient, (unless the recipient can raise a recognised defence), whether or not the recipient knew of the mistake. In this case Mr McGrath says that Mr Arnell must, in fact, have known of the mistake by the Claimant bank in paying the cheque in favour of Bluepark;

(b) alternatively, Mr Arnell was in "knowing receipt" of the sum paid by the Bank and received by him, which sum Mr McGrath says was held subject to a constructive trust in the hands of Bluepark. Mr McGrath says that the First Defendant received the sum in the knowledge that it was or must have been paid over in breach of Bluepark's obligations to return the sum to the Bank.

Mr McGrath said that no claim of "knowing assistance" was made against the First Defendant.

(2) The Claim against the Fourth Defendant

Mr McGrath says that the Claimant can recover the sum of £25,720 paid into Miss Haddon's account in two ways, although these were further elaborated:

(a) First because she was in "knowing receipt" of the sum and was thus a constructive trustee of it;

(b) secondly because the Bank can recover from her by virtue of the simple fact that the cheque was originally honoured by the Bank under a mistake of fact, whether or not Miss Haddon knew of this mistake.

Mr McGrath emphasised that there was no claim of "knowing assistance" against Miss Haddon.

7. Mr Parfitt for Miss Haddon submitted that Miss Haddon is not liable to the Claimant bank for the following reasons:

(1) she never "received" £25,000 of the Bank's money or if she did it was only as the agent of Mr Arnell;

(2) she was never in "knowing receipt" of the money because she received the £25,750 in her bank account innocently.

8. The Law

In this case the claim is for the return of either the whole value of the money paid away and received (as against Mr Arnell) or the value of the money which came into the account of Miss Haddon. In both cases the claim is not brought against the person who is the direct recipient of funds paid away as a consequence of a mistake by the payer. The two defendants are the subsequent recipients of some or nearly all of the value of the funds paid away by mistake. In such cases there are, broadly, two legal bases on which the original payer of the money can recover from subsequent recipients the value of the money paid away by mistake. (I emphasise again that this case is not concerned with a "knowing assistance claim" in any form).

(1) The first basis is by asserting a common law right to the return of the equivalent value of the money paid by mistake on the basis that the value was "had and received" by the defendant "for the use of" the claimant. This claim is not a proprietorial claim to a "trust fund". But it is dependent on the Claimant being able to demonstrate that it can "trace" the sum paid away by mistake to the defendant recipient. The analysis is that the legal title in money paid by mistake does not pass to the payee: see Lipkin Gorman v Karpnale Ltd [1991] 2 AC 547 at 572C per Lord Goff of Chieveley. Hence if the Claimant can show that the money the subsequent recipient obtains is "the product of or the substitute for the original money paid away" then it will still represent the money that he paid away and a common law claim can be made: Agip (Africa) Ltd v Jackson [1991] Ch 547 at 565F per Fox LJ. However, because money is a fungible, it is not always easy to demonstrate that the funds in the hands of the subsequent recipient are the product of or the substitute for the original money paid away: see: Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 572D per Lord Goff of Chieveley. In particular if the funds paid away are mixed with other funds before they reach the subsequent recipient who is sued, then the original payer will not retain his title to the fund, the common law right to trace will be lost and the common law claim for money "had and received to the use of the claimant" must fail. That is why the claim at common law failed in Agip (Africa) Ltd v Jackson [1991] Ch 547. In the present case the Claimant Bank must demonstrate that Mr Arnell cannot credibly argue, on the facts, that the funds he received in his bank account at Lloyds Bank Bexley Heath were not "the product of, or substitute for, the original" funds paid away by mistake by the Bank.

(2) The second legal basis is to assert that the fund in the hands of the subsequent recipient is the subject of a proprietary claim. There will only be a proprietary claim over the funds of the subsequent recipient if, in the circumstances in which the fund is paid to the subsequent recipient, the equitable powers of the court can be invoked. Mr McGrath argues that the equitable powers of the court can be invoked on two bases in the present case. First if money has been paid away by mistake and it is retained by a recipient when he knows of the mistake; then his conscience will be affected and will make him a trustee of the money. For this proposition he relied on the statement of Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 69 at 715B. Secondly, if a person (or corporation) has breached a fiduciary obligation towards the fund before it is paid to the recipient that is sued. See: Agip (Africa) Ltd v Jackson [1991] Ch 547 at 566 H per Fox LJ. One example of a fund being the subject of a fiduciary obligation is where funds stand to the credit of a company, eg. in a bank account. The company's directors or senior employees will owe fiduciary obligations towards the company in relation to those funds standing to the credit of the company. They must deal with those funds consistently with the interests of the company. If they do not then they are in breach of fiduciary duty to the company. Once funds are paid away in breach of a fiduciary duty then the equitable jurisdiction of the court can be invoked to enable the rightful owner to make a proprietary claim for the return of the funds if two further conditions are satisfied to demonstrate "knowing receipt". First there must be a receipt by the defendant of assets which are traceable as representing the assets of the claimant. Secondly there must be knowledge on the part of the defendant that the assets received are traceable to a breach of fiduciary duty: see El Ajou v Dollar Land Holdings PLC [1994] 2 All ER 685 at 700g per Hoffman LJ. Such a claim is subject to various defences, eg "change of position" by the recipient (see: Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 580B per Lord Goff of Chieveley) or that the subsequent recipient is the bona fide purchaser of the legal estate of the fund without notice of the breach of fiduciary duty.

Mr McGrath also argued for the Claimants that the decision of Goulding J in Chase Manhattan Bank NA v Israel - British Bank (London) Ltd [1981] Ch 105 provided another means by which the Claimant bank could assert a proprietary right over funds in the hands of subsequent recipients. Mr McGrath submitted that the case established that if a Claimant paid away money by mistaken then any recipient (subject to defences) held the money or its product or substitute on trust, whether or not he knew of the mistake at the time that he received it: see page 119 of the report. This point is important in the present case because there is no direct evidence that Mr Arnell knew that the Bank had paid the money pursuant to the counterfeit cheque by mistake. The Chase Manhattan case has been the subject of much academic criticism, although it was followed recently by Tuckey J in Bank Tejarat v HK & SBC [1995] 1 Lloyd's Rep 239. However, after the Bank Tejarat case, in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, the Chase Manhattan decision was subjected to a sustained and critical analysis by Lord Browne-Wilkinson. He concluded that Goulding J's statement that a recipient of money paid under a mistake of fact was a trustee of the fund, even if he did not know of the mistake, was an incorrect statement of the law: see 714C to 715C. Other members of the House of Lords did not expressly join Lord Browne-Wilkinson in criticising Goulding J's reasoning. Lord Goff stated, after he had concluded that a recipient of money paid under a void contract was not, for that reason alone, a trustee of the funds received, that he did not need to review Chase Manhattan. But the general view since the House of Lords' decision in the Westdeutsche Landesbank case is that the Chase Manhattan case is, at least, doubtful law: see eg. the comment in the leading text book on banking law: Paget on Banking 11 Ed (1997) at page 373. On a Summary judgment application where I have not had argument from the first defendant, who might well have submitted that Chase Manhattan was wrongly decided, I am not prepared to accept, in the light of Lord Browne-Wilkinson's critique, that it is still good law. Therefore I cannot accept that, in law, there is a basis for holding that the money paid away by the Bank is subject to a trust in Mr Arnell's hands, if I have to conclude that he did not know that it was paid by the Bank under a mistake.

9. Application of the law to the Summary Judgment Application

The first question is whether the Claimant bank can satisfy the court that there is no arguable defence to a common law claim for "money had and received" by Mr Arnell. I have concluded that it has not. This is because I am satisfied that Mr Arnell would be able to argue, on the facts, that the bank's "money" or, perhaps more accurately, its right to a credit (see per Millet J in the Agip case at 290 A), became mixed with other funds before it reached Mr Arnell's account at Lloyds in Bexley Heath. It arguably became mixed at two points: first when the cheque was cleared through Bankers' Trust in New York, en route for the Bluepark account in the Isle of Man bank; secondly when funds were transmitted from Bluepark's account to Mr Arnell's account through the CHAPS system in London. It was this mixing of funds that defeated the common law claim in the Agip case: see per Fox LJ at 566A-B. In my view the same argument might well apply here. For the purposes of this summary judgment application the point is perfectly arguable.

10. The second question is whether the Bank can succeed on the basis that there is no arguable defence to the proprietary claim. As I have already noted that was put two ways by Mr McGrath, apart from the Chase Manhattan argument, which I have held should not succeed on a Summary judgment claim.

(1) First he said that Mr Arnell must have known of the mistake of the Bank in paying the money to Bluepark at the latest when his own account was credited with £55,779.36. Therefore the sum became impressed with a trust and can be the subject of a proprietary claim by the Bank. Mr McGrath relies on the statement of Lord Browne-Wilkinson in the Westdeutsche Landesbank case [1996] AC 669 at 715C. He submits that the only inference that the court can draw from the circumstances in which Mr Ansell obtained the funds is that the money was paid to Bluepark by a mistake by the payer. He relies upon the fact that Mr Arnell was the beneficial owner of Bluepark; that he obviously knew something about banking mechanisms, eg. he knew how to use the CHAPS system; that Mr Arnell was involved in the incorporation of Bluepark only 4 days before the cheque was drawn in favour of Bluepark; that Mr Arnell must have realised that Bluepark had had no time to do business deals with any one, let alone a hotel in Atlanta Georgia, such as the Radisson, and that there were no funds in the Isle of Man Accounts before the funds were received from the Claimant bank via the New York clearing system. As against this there is no direct evidence that Mr Arnell knew of the cheque or how it came to be written; nor that there was any mistake on the part of the Bank in paying on its presentation. Nor is there direct evidence of how the Bluepark bank account was set up, in particular whether it was set up by Mr Arnell in order to receive the proceeds of this cheque.

Overall I have decided that there are only two conclusions that can safely be drawn from the evidence about Mr Arnell's state of mind concerning the origin of the funds paid into the Bluepark account in the Isle of Man Bank. Either he knew perfectly well that they were the proceeds of a fraud; or he did not care where the funds in Bluepark's account came from. Given the way in which Mr Arnell subsequently dealt with the funds I have concluded that he knew that they had arrived in Bluepark's account as a result of a fraud. At the least I am satisfied on the evidence that Mr Arnell would not be able to put up a credible defence that he honestly believed that the funds in Bluepark's account had a legitimate origin. Therefore I concluded that his conscience, as the beneficial owner of Bluepark, should have been affected in relation to the sums received first by Bluepark then by him in his Lloyds account.

(2) But there is a second way that Mr McGrath puts the case for a proprietary claim. He says that even if Mr Arnell honestly believed that the funds in Bluepark's account were honestly and regularly obtained, he, as the beneficial owner of Bluepark, owed a fiduciary duty to Bluepark to deal with those funds in a manner consistent with Bluepark's rights over them. But in fact Mr Arnell dealt with the funds in breach of that fiduciary duty, because he instructed the authorised signatories of Bluepark to arrange the conversion of the funds to sterling and for a CHAPS transfer to be made to his own personal account at Lloyd's bank in Bexley Heath. I am satisfied that there is no credible defence to this argument. Mr Arnell has stated on affidavit that this exercise was done on behalf of Mr Rosenthall. But this evidence is not credible. There is nothing to confirm the existence of Mr Rosenthall (or his alleged agent Mr Goldman) or to suggest that Mr Arnell was acting with the approval of the directors of Bluepark. Accordingly I have concluded that even if I had to assume that Mr Arnell was unaware of any irregularity in how the funds came into the Bluepark account, there is no defence to a claim by the Bank's proprietary claim against him on this second basis. Mr Arnell owed a fiduciary claim towards Bluepark in relation to the funds held in its account; he was in breach when he instructed the signatories to arrange for its transfer to his own personal account; therefore the equitable powers of the court can be invoked to make a proprietary claim over the funds received by Mr Arnell if he knew that the assets he received in his account were traceable to a breach of fiduciary duty. At that stage he must have known that what he was doing was in breach of his fiduciary duties or else he wilfully shut his eyes to the obvious.

11. The Claim against Miss Haddon

As elaborated, Mr McGrath advances four bases for the claim against Miss Haddon. The first is that she is a constructive trustee of the £25,750 paid into her bank account because she is the recipient of money paid away by the Bank under a mistake. He relies on the Chase Manhattan case. I am not prepared to follow that part of Goulding J's decision and hold that any recipient of funds that have been paid away by mistake is, by virtue of receipt alone, in the position of a trustee of the funds received. I do not see how the conscience of a recipient can be affected if he is ignorant of the facts that are alleged to affect his conscience, as Lord Browne-Wilkinson stated in the Westdeutsche Landesbank case at 714F.

12. Secondly he says that she received the money as a constructive trustee because she must have had enough knowledge about the doubtful origin of the funds so that her conscience must have been affected. For this proposition Mr McGrath relies again on the remarks of Lord Browne-Wilkinson at 715C in the Westdeutsche Landesbank case. I think that those remarks cannot be taken too broadly. What he actually said is that a recipient may be in the position of a trustee of funds received if, after receipt, but before dissipation, he learns of the original mistaken payment. In this case, on the facts, Miss Haddon had no idea about the mistaken payment by the Bank to Bluepark. Nor is there any way that she could have found out except by a full scale interrogation of Mr Arnell and even then she might not have found out anything useful. So I reject this basis of the claim against Miss Haddon on the facts.

13. Thirdly Mr McGrath submits that there is a common law claim for "money had and received" against Miss Haddon. (This must assume that there is only a common law claim against Mr Ansell. If there is a good "knowing receipt" or constructive trust claim then the fund in his hands will be traceable in equity and the only issue will be Miss Haddon's state of knowledge when she received the funds). To establish a common law claim against Miss Haddon, however, Mr McGrath must demonstrate that the fund received by her was the product of or substitute for the original thing, ie. the money paid away by the Bank. In my view he cannot show this. The original funds had become mixed with other funds at three or four stages before they reached Miss Haddon's account. First in the clearing system in New York; secondly in the CHAPS system en route from Bluepark's account to Mr Arnell's; thirdly with other funds in his account and fourthly in the CHAPS system en route to Miss Haddon's account.

14. The last basis on which Mr McGrath puts his claim, and the most promising, is that Miss Haddon was in "knowing receipt" of the £25,750. Here he can rely upon the conclusion I have reached that the funds in Bluepark's account were paid away into Mr Ansell's account in breach of fiduciary duty by him towards Bluepark. Secondly he can trace the funds through into Miss Haddon's account at the Midland Bank. So the third and last issue is: what was her state of knowledge when she received those funds? Mr McGrath accepted in argument that the test in this case is: did Miss Haddon have actual or implicit knowledge (by direct or indirect means) that the funds in Mr Arnell's account which he wanted to pass on to her account had been obtained by an illegitimate transaction in which he was implicated?

15. There was some debate about the "level" of knowledge that had to be demonstrated. Mr McGrath referred me to the celebrated passage in the judgment of Peter Gibson J in Baden Delveux v Societe Generale [1993] 1 WLR 509 (Note) at 575. Mr McGrath said that proof of any one of the five "levels" of knowledge Peter Gibson J referred to would be enough in this case to make Miss Haddon in "knowing receipt" of the £25,750. I do not accept that submission. The case law has moved on since that decision. The latest consideration of the point by the Court of Appeal is in Twinsectra Ltd v Yardley and others: (Potter LJ; Sir Iain Glidewell and Sir David Hirst: 28 April 1999). I think that it is clear from the judgment of Potter LJ in that case (see particularly at paras 105-108) that the fundamental question that the court has to ask now is: was the recipient acting honestly when he received the funds? If he knows that the funds originated from a dishonest transaction or as a result of a breach of fiduciary duty, then no question arises. He is dishonest. Alternatively, the recipient may wilfully shut his eyes to the obvious facts (what Potter LJ calls, perhaps unfortunately, "Nelsonian dishonesty" see para 105(2)). Alternatively, it may be that the recipient, given his background knowledge and experience, would be bound to ask questions of the person who wished to pass on the funds and if he does not, either wilfully or recklessly, then he will be judged as having acted dishonestly. Potter LJ makes it clear that although the question of honesty must be viewed objectively, the issue must be judged by reference to the character, background, profession and likely experience of the alleged "knowing recipient" (see para 107).

16. How does that apply in this case. Mr McGrath relies on the following facts: (i) that Miss Haddon did not bother to enquire about the source of the funds; (ii) that she did not know anything about Mr Arnell's background; (iii) that she did not enquire about it and she could have done; (iv) her admission that she was naïve in taking Mr Arnell's word that he needed help with a transaction; (v) that she did not accept the proposition straight away but only in a second telephone call; and (v) that the sum received (£750) for the service provided, was large. I have considered all these factors. I listened very carefully to her evidence in the witness box. In my judgment she was not acting dishonestly. She was naïve, and was duped, but she was innocent. I have reached this conclusion because (i) she was not a businesswoman and would not have thought as one; (ii) she knew Mr Arnell socially and he appeared to be honest; (iii) she had no reason to doubt his honesty from what she knew; (iv) although she understood the concept of "money laundering", she had no reason to suspect that Mr Arnell was involved in it; (v) she simply regarded him as an acquaintance that wanted some help; (vi) she would not have had any idea what a "proper" fee for the service she provided would have been.

17. Accordingly Miss Haddon cannot be regarded as being in "knowing receipt" of funds which were traceable to a breach of fiduciary duty. That makes it unnecessary for me to consider the other defences that Mr Parfitt raised.

18. Conclusion

(1) The claim succeeds against Mr Arnell in full.

(2) The case against Miss Haddon fails.

I will hear counsel on the form of orders that need to be made.