Neutral Citation Number: [2001]
EWCA CIV 66
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE MAYOR'S AND CITY OF LONDON COUNTY COURT
(HIS HONOUR JUDGE SIMPSON)
Royal Courts of
Justice
Strand, London, WC2A 2LL
Tuesday 26th January 2001
B e f o r e :
and
Iain Hughes QC and G. Chapman (instructed by Messrs Browne Jacobson for the
Appellants)
Augustus Ullstein QC and S. Hornett (instructed by Philip Ross & Co for
the Respondent)
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1. This is an appeal with the permission of Mantell LJ against an order of HH Judge Simpson made on 12 July 1999 whereby (in short) he ordered that an account be taken by a District Judge of the true amount of the proceeds of two properties in Leicester, 1 Churchill Street and 56 Barclay Street, (the Houses) and all interest and profits thereon earned by the Appellants (the Defendants in the proceedings).
2. The Appellants were partners in a firm of solicitors. That firm (the Firm) acted on the sales of the two Houses.
3. On 2 January 1990 the Respondent to the appeal and the Claimant in the proceedings (the Claimant) pleaded guilty to 37 specimen charges relating to obtaining mortgages by deception. Some of those counts related to the Houses. He was sentenced to 18 months imprisonment.
4. The Claimant had applied for a number of mortgages in different false names. The mortgages in respect of the two Houses were applied for by the Claimant using the names "Michael Smith" and " James Stanley" who did not exist. The specimen charges include charges based on the allegation that the Claimant and both Michael Smith and James Stanley are one and the same person.
5. In 1988 the Claimant instructed the Firm in connection with the sale of the Houses. The first Defendant in the proceedings (Mr Myerson) was the person who acted for the Claimant on behalf of the Firm. I shall return to the basis of those retainers and the means by which the Houses were sold. They form the main bases of the Appellants' argument of this appeal.
6. The first sale was completed in August 1988 and the second in December 1988.
7. By mid 1988 the criminal investigation in respect of the Claimant was well advanced and in September 1988 the Chief Constable of Leicestershire sought an interlocutory order to restrain him from dealing with assets that were the subject of the indictment. The judgment of Hoffmann J (as he then was) in respect of that application is reported as Chief Constable of Leicestershire v M & Another [1989] 1 WLR 20. Hoffmann J set out the background at pages 21E to 22A of his judgment.
8. It is apparent from the background as set out by Hoffmann J that the Claimant's solicitor (Mr Myerson) was a party to those proceedings. Accordingly it is clear that by the time of the sale of the second of the Houses the Firm (through Mr Myerson) were well aware that it was being asserted by the police that the Houses had been bought and registered in false names and thus that "Mr Smith" and "Mr Stanley" did not exist and were aliases for the Claimant. The trial bundle shows that the solicitors who acted for the purchasers of the second House to be sold namely 56 Barclay Street (which was registered in the name of " James Stanley") were also aware of this point.
9. After deduction of only the sums due to discharge the mortgages the net proceeds of sale of the two Houses were approximately £13,200 and £8,700. Those figures do not take account of costs and other deductions that might have been properly made by the Firm from those net proceeds of sale.
10. No confiscation order was made by the criminal court.
11. The claim was made by the Claimant on the basis that he had instructed the Firm and the Firm held the proceeds of sale of the Houses on trust solely for the Claimant.
12. It was admitted
on the face of the pleadings that:
(a) the Firm acted for the Claimant as his solicitors on the sale of two Houses
and that (amongst other things) it was an implied term of the retainer between
the Firm and the Claimant that the Firm would account to the Claimant for the
net proceeds of sale of the two Houses,
(b) both of the Houses had been sold, and
(c) the proceeds of sale of one of the Houses (1 Churchill street) had been
paid to the Firm.
13. No admission was made that the proceeds of sale of the other House (56 Barclay Street) had been paid to the Firm albeit that one of the defences was that the net proceeds of sale of both Houses (less deduction of fees) had been paid over by the Firm to the Claimant.
14. However it is now accepted that the proceeds of sale of both Houses were paid into the Firm's client account. In any event (and notwithstanding the non admission in the defence) the point that the Firm had credited the net proceeds of sale of both Houses to their client account was never in dispute before the Judge because it accords with the report before the Judge of an accountant instructed by the Appellants who had carried out an investigation of the books and ledgers of the Firm. From that report it seems that in one case the mortgage debt was discharged by the Firm from moneys in their client account and in the other the proceeds were paid to the Firm less the amount required to discharge the mortgage.
15. Having regard, amongst other things, to that report the Judge found as a fact that the Appellants (as solicitors) had not accounted to the Claimant as their former client.
16. In addition to the defence that payment had been made the Appellants also raised defences of limitation and laches. Those defences were rejected by the Judge and permission to appeal in respect of them has not been granted.
17. The permission to appeal was limited to the Appellants' defence based on illegality.
18. Before turning to consider that I pause to record that during his submissions Leading Counsel for the Appellants seemed at one stage to be suggesting that the finding of the Judge that the Appellants had not accounted to the Claimant was a finding that they had not provided him with a statement of account rather than a finding that the Appellants had not paid the Claimant the net proceeds of sale of the two Houses less proper deductions. In my judgment that suggestion is wrong and the Judge found that the Appellants had not paid the Claimant the net proceeds of sale of the two Houses less proper deductions and accordingly if this appeal is dismissed it is not open to the Appellants on the taking of the account ordered by the Judge to allege that they have paid all or part of such sum to the Claimant.
19. This was in paragraph 16 of the re-amended defence and was as follows:
"16.1 The Plaintiff's claim is founded on a series of illegal transactions, so that the Defendant is entitled to rely on the maxim ex turpi causa non oritur actio.
16.2 The Plaintiff's claim is tainted by illegality, so that the Defendant is entitled to rely on the maxim ex turpi causa non oritur actio.
16.3 The Plaintiff does not approach the Court with clean hands and the grant of equitable relief to the Plaintiff would amount to an affront to the public conscience, so that the Plaintiff is not entitled to any form of equitable relief.
PARTICULARS
The Plaintiff's acquisition of 1 Churchill Street, 56 Barclay Street and 97 Jarrom Street was fraudulent and illegal, and formed part of a large-scale scheme whereby he obtained mortgage advances from building societies and other mortgage lenders in false names, supported by false references. On 3rd January 1990, the Plaintiff was convicted at Birmingham Crown Court of 37 specimen charges arising out of the said scheme, which included 10 charges of obtaining property by deception, 8 charges of forgery, 9 charges of defrauding the Inland Revenue, 1 charge of perjury, 4 charges of procuring a false entry on the Land Register and 4 charges of suppressing fact before a Land Registrar. The said charges included (i) a charge of obtaining property by deception, in the case of 56 Barclay Street; (ii) a charge of doing acts tending to and intended to pervert the course of justice, in the case of 1 Churchill Street, 56 Barclay Street and 97 Jarrom Street; and (iii) a charge of perjury, in the case of 1 Churchill Street, 56 Barclay Street and 97 Jarrom Street. In the premises, the Plaintiff's claim in this action is for monies which he obtained by deception."
I pause to add that, following amendment of the Particulars of Claim, 97 Jarrom Street (and its proceeds of sale) were not part of the subject matter of the proceedings.
20. These are as follows:
"1. The Learned Judge was wrong in law in holding that the defence of illegality could not be sustained, and in particular
A that the Claimant did not rely on his unlawful acts to found his cause of action;
B that all the Claimant had to do in order to found his cause of action was to show that the money claimed was his, notwithstanding that it had been derived from illegal transactions; and
C that the fact that the money claimed by the Claimant was derived from transactions which were tainted by illegality did not prevent recovery.
The Learned Judge ought to have held that illegality provided a complete defence to the claim, in that
A the Defendants' retainer was itself made with a corrupt and unlawful purpose, being the necessary, final stage in the Claimant's criminal enterprise;
B it was essential for the Claimant, in order to found his cause of action, to rely on his own unlawful acts, in that:
(i) the Claimant purported to instruct the Defendants as attorney for non-existent persons (namely "Mr Michael Smith" in the case of 1 Churchill Street and "Mr James Stanley" in the case of 56 Barclay Street) pursuant to bogus powers of attorney which he had forged;
(ii) the Claimant committed perjury by making a solemn declaration, in his statutory declaration dated 2 December 1988, to the effect that "Mr James Stanley" existed, and to the effect that he and "Mr James Stanley" were "not one and the same person" when in fact they were;
(iii) were it not for the bogus powers of attorney and statutory declaration, the Defendants could not have acted in the sales of the said properties and the Claimant could not have executed the transfers of the said properties (which he purported to execute as attorney for "Mr Michael Smith" and "Mr James Stanley") with the result that the net proceeds of those sales could not have been realised.
2. Further, the Learned Judge was wrong in law in holding that it was not open to the Defendants to make the submissions set out in paragraph 1 above on the ground that the illegal acts set out in paragraph 1 above (and in particular the fact that the Claimant had to proffer false transfers in order to effect the sales) had not been pleaded. The Learned Judge ought to have held that illegality amounted to a complete defence to the claim, by reason of the fact that the Claimant was relying on his own unlawful acts to found his cause of action, notwithstanding the fact that those acts had not been pleaded."
21. I agree with the Judge that the illegality asserted in respect of the retainer of the Appellants in respect of the sales of the two Houses and the completion of those sales was not pleaded.
22. However it was not disputed, and I accept, that evidence of such matters was before the Judge and that having regard to In re Mahmoud and Ispahani [1921] 2 KB 716 (in particular at 729) and Birkett v Acorn Business Machines Ltd (The Times 15 August 1999) the failure to plead the illegality specifically relied on in the Notice of Appeal is not fatal to the Appellants' defence and the Judge was wrong to reject this aspect of the defence of illegality on the basis that it was not pleaded. Indeed it was not urged before us on behalf of the Claimant that the Judge was justified in taking this course. Rather it was argued (i) that this aspect of the alleged illegality gave rise to no additional or free standing point and was irrelevant, and therefore (ii) that the Judge was right to hold that the defence of illegality (including that aspect of it) could not be sustained.
23. Unsurprisingly the Claimant has not sought to deny in these proceedings that the two Houses were acquired as part of the scheme in respect of which he was convicted and that they were transferred into the names of people who did not exist. Further (and again unsurprisingly) the Claimant has not sought to deny that (i) he instructed, or purported to instruct, the Firm as an attorney for non-existent persons, (ii) the two Houses were transferred pursuant to bogus powers of attorney because the grantors thereof did not exist and (iii) in making his statutory declaration to the effect that "Mr Stanley" and he were not one and the same person he lied.
24. It follows that
the Claimant accepts (or does not dispute) that:
(a) the Houses were acquired as part of the mortgage fraud for which he was
convicted, and
(b) the powers of attorney and statutory declaration referred to by the Appellants
in the Notice of Appeal were a product of that mortgage fraud and part of the
means used by the Claimant to obtain the profits resulting from it and thus
(as Hoffmann J put it in Chief Constable of Leicesterhire v M & Another
[1989] 1 WLR at 23E) profits that he would not have been able to make except
by the use of moneys obtained from another in breach of the criminal law.
25. However the Claimant asserts that he acquired the freehold of the two Houses and that he was (and is) the person entitled to the proceeds of sale thereof after the sums due under the mortgages obtained as part of his mortgage fraud had been discharged therefrom.
26. In support of that assertion the Claimant relied on Chief Constable of Leicesterhire v M & Another [1989] 1 WLR 20 (in particular at 23 E/H), Webb v Chief Constable of Merseyside Police [2000] QB 427 (in particular at 444B and 446E to 447B), Gordon v Chief Commissioner of Metropolitan Police [1910] 1080 (in particular at 1095/6) and Halifax Building Society v Thomas [1996] Ch 217 (in particular at 223B, 224H to 225C, 226 B/C, 228C, 229G and 230E).
27. In my judgment those cases support the Claimant's assertion and show that the view and approach taken by the courts is that it is for Parliament to determine and, if it thinks appropriate, strengthen the statutory provisions for civil confiscation and the courts should not seek to provide solutions in this respect by judicial creativity.
28. The facts of
Halifax Building Society v Thomas [1996] Ch 217 are analogous to the
facts of this case because in that case:
(a) the mortgage advance had been obtained on the basis of a fraudulent misrepresentation
as to the identity of the purchaser (the mortgagor) and the property had been
transferred into, and the mortgage granted, in the false name used by the maker
of that misrepresentation (see p 223A),
(b) the Court of Appeal considered the issue whether the C.P.S. were entitled
to the net proceeds of sale after discharge of the mortgage and costs by considering
the position of Mr Thomas (the person who had made the fraudulent misrepresentation
and thus the person in the same position as the Claimant in this case) (see
p 224H),
(c) the Court of Appeal concluded that Mr Thomas was the "person entitled to
the mortgaged property or authorised to give receipts for the proceeds of sale
thereof" under s. 105 Law of Property Act 1925 notwithstanding that neither
the property nor the mortgage was in his name (see 225A/B and 226 B/C and 228C,
and
(d) the Court of Appeal concluded that Mr Thomas had title to the surplus (i.e.
the net proceeds after discharging the mortgage debt and costs) immediately
before the confiscation and charging orders made by the C.P.S. (see 229G).
29. In the Halifax case the C.P.S. had obtained its confiscation order and its charging order after the sale by the Halifax as mortgagees. It follows that the charging order was over Mr Thomas' interest in the suspense account opened by the Halifax which represented the proceeds of sale after deduction of sale costs and the mortgage debt (see p 223 D/E).
30. In my judgment no part of the essential reasoning of the Court of Appeal in the Halifax case was based on the fact that the surplus was held by the Halifax, or the fact that the Halifax sold as mortgagees. The relevance to the reasoning of the Court of Appeal of the fact that the Halifax sold as mortgagees is that (i) it meant that s. 105 Law of Property Act 1925 applied, and (ii) it demonstrated that the Halifax affirmed the mortgage and received full benefit under it (see p 227D).
31. In this case the mortgagees of the two Houses did not seek to set aside the mortgages and received payment in full. As I understood him Leading Counsel for the Appellant argued that the application of s. 105 Law of Property Act 1925 in the Halifax case distinguished it from this one. I do not agree because that section did not give Mr Thomas his interest or title in the surplus or, in the words of the section, make him "the person entitled to the mortgaged property, or authorised to give receipts for the proceeds of sale thereof".
32. In my judgment
it follows from the reasoning and decision in the Halifax case that:
(a) if in that case the property had been sold on the instructions of Mr Thomas
as an attorney (or on his own behalf after acknowledging the fraudulent misrepresentation
as to his identity and the name in which the property was bought and mortgaged)
and the surplus had been held by his solicitors the result would have been the
same, and
(b) it is authority for the proposition that the Claimant was the owner of the
Houses and was (and is) beneficially entitled to the net proceeds of sale of
the Houses after discharge therefrom of the mortgage debt.
33. The relevant principles (with my emphasis to identify passages that are of particular relevance in this case) are confirmed and set out in the speeches of the majority in Tinsley v Milligan [1994] AC 340 and in particular by:
(a) Lord Jauncey at 366B/H and 367B/D where he said:
At the outset it seems to me to be important to distinguish between the enforcement of executory provisions arising under an illegal contract or other transaction and the enforcement of rights already acquired under the completed provisions of such a contract or transaction. Your Lordships were referred to a very considerable number of authorities, both ancient and modern, from which certain propositions may be derived.
First, it is trite law that the court will not give its assistance to the enforcement of executory provisions of an unlawful contract whether the illegality is apparent ex facie the document or whether the illegality of purpose of what would otherwise be a lawful contract emerges during the course of the trial: Holman v. Johnson, 1 Cowp. 341, 343, per Lord Mansfield C.J.; Pearce v. Brooks (1866) L.R. 1 Ex. 213, 217-218, per Pollock C.B.; Alexander v. Rayson [1936] 1 K.B. 169, 182; Bowmakers Ltd. v. Barnet Instruments Ltd. [1945] K.B. 65, 70.
Second, it is well established that a party is not entitled to rely on his own fraud or illegality in order to assist a claim or rebut a presumption. Thus when money or property has been transferred by a man to his wife or children for the purpose of defrauding creditors and the transferee resists his claim for recovery he cannot be heard to rely on his illegal purpose in order to rebut the presumption of advancement: Gascoigne v. Gascoigne [1918] 1 K.B. 223, 226; Palaniappa Chettiar v. Arunasalam Chettiar [1962] A.C. 294, 302; Tinker v. Tinker [1970] P. 136, 143, per Salmon L.J.
Third, it has, however, for some years been recognised that a completely executed transfer of property or of an interest in property made in pursuance of an unlawful agreement is valid and the court will assist the transferee in the protection of his interest provided that he does not require to found on the unlawful agreement: Ayerst v. Jenkins, L.R. 16 Eq. 275, 283; Alexander v. Rayson [1936] 1 K.B. 169, 184-185; Bowmakers Ltd. v. Barnet Instruments Ltd. [1945] K.B. 65 and Singh v. Ali [1960] A.C. 167, 176. To the extent, at least, of this third proposition it would appear that there has been some modification over the years of Lord Eldon's principles.
The ultimate question in this appeal is, in my view, whether the respondent in claiming the existence of a resulting trust in her favour is seeking to enforce unperformed provisions of an unlawful transaction or whether she is simply relying on an equitable proprietary interest that she has already acquired under such a transaction.............
I find this a very narrow question but I have come to the conclusion that the transaction whereby the claimed resulting trust in favour of the respondent was created was the agreement between the parties that although funds were to be provided by both of them, nevertheless the title to the house was to be in the sole name of the appellant for the unlawful purpose of defrauding the D.S.S. So long as that agreement remained unperformed neither party could have enforced it against the other. However, as soon as the agreement was implemented by the sale to the appellant alone she became trustee for the respondent who can now rely on the equitable proprietary interest which has thereby been presumed to have been created in her favour and has no need to rely on the illegal transaction which led to its creation.
(b) Lord Lowry at 368 G/H where he said:
The foregoing considerations render me all the more convinced that the right view is that a party cannot rely on his own illegality in order to prove his equitable right, and not that a party cannot recover if his illegality is proved as a defence to his claim..............
and
(c) Lord Browne Wilkinson at 370 C/D and 376B to 377C where he said:
From these authorities the following propositions emerge: (1) property in chattels and land can pass under a contract which is illegal and therefore would have been unenforceable as a contract; (2) a plaintiff can at law enforce property rights so acquired provided that he does not need to rely on the illegal contract for any purpose other than providing the basis of his claim to a property right; (3) it is irrelevant that the illegality of the underlying agreement was either pleaded or emerged in evidence: if the plaintiff has acquired legal title under the illegal contract that is enough.........
I therefore reach the conclusion that, although there is no case overruling the wide principle stated by Lord Eldon, as the law has developed the equitable principle has become elided into the common law rule. In my judgment the time has come to decide clearly that the rule is the same whether a plaintiff founds himself on a legal or equitable title: he is entitled to recover if he is not forced to plead or rely on the illegality, even if it emerges that the title on which he relied was acquired in the course of carrying through an illegal transaction.
As applied in the present case, that principle would operate as follows. Miss Milligan established a resulting trust by showing that she had contributed to the purchase price of the house and that there was common understanding between her and Miss Tinsley that they owned the house equally. She had no need to allege or prove why the house was conveyed into the name of Miss Tinsley alone, since that fact was irrelevant to her claim: it was enough to show that the house was in fact vested in Miss Tinsley alone. The illegality only emerged at all because Miss Tinsley sought to raise it. Having proved these facts, Miss Milligan had raised a presumption of resulting trust. There was no evidence to rebut that presumption. Therefore Miss Milligan should succeed. This is exactly the process of reasoning adopted by the Ontario Court of Appeal in Gorog v. Kiss (1977) 78 D.L.R. (3d) 690 which in my judgment was rightly decided.
Finally, I should mention a further point which was relied on by Miss Tinsley. It is said that once the illegality of the transaction emerges, the court must refuse to enforce the transaction and all claims under it whether pleaded or not: see Scott v. Brown, Doering, McNab & Co. [1892] 2 Q.B. 724. Therefore, it is said, it does not matter whether a plaintiff relies on or gives evidence of the illegality: the court will not enforce the plaintiff's rights. In my judgment, this submission is plainly ill founded. There are many cases where a plaintiff has succeeded, notwithstanding that the illegality of the transaction under which she acquired the property has emerged: see, for example, Bowmakers Ltd. v. Barnet Instruments Ltd. [1945] K.B. 65 and Singh v. Ali [1960] A.C. 167. In my judgment the court is only entitled and bound to dismiss a claim on the basis that it is founded on an illegality in those cases where the illegality is of a kind which would have provided a good defence if raised by the defendant. In a case where the plaintiff is not seeking to enforce an unlawful contract but founds his case on collateral rights acquired under the contract (such as a right of property) the court is neither bound nor entitled to reject the claim unless the illegality of necessity forms part of the plaintiff's case.
34. In my judgment these passages accord with and support the conclusion I have reached based on Halifax Building Society v Thomas and the cases referred to in paragraph 26 above that the Claimant was (and is) beneficially entitled to the proceeds of sale.
35. In addition to the above citations from Tinsley v Milligan I add the following from two recent decisions of the Court of Appeal where that case was considered:
(a) in SCB v PNSC [2000] 1 Lloyd's Law Reports 218 at paragraph 7 on page 232 Aldous LJ said:
There is in my view but one principle that is applicable to all actions based on contract tort or recovery of property. It is, that public policy requires that the Courts will not lend their aid to a man who founds his action upon an immoral or illegal act. The action will not be founded upon an immoral or illegal act, if it can be pleaded and proved without reliance upon such an act.
(b) in Webb v Chief Constable of Merseyside Police [2000] QB 427 at 444 A/B May LJ said:
The main principle in Tinsley v Milligan is expressed by reference to an underlying agreement to which both the claimant and the defendant are parties. In the present appeals there is no such underlying agreement. The Chief Constable claims no title to the money. If it is supposed for the sake of illustration only, that Roy Webb acquired the money in issue in his appeal in one or more unlawful transactions consisting of the sale by him of controlled drugs, possession of the money passed to him and there is no question of him seeking to enforce unlawful transactions. The hypothetical transactions are complete and he was in possession of the money notwithstanding the illegality. He does not have to rely anything more than his right to possession as against the Chief Constable. It is irrelevant that illegality surrounding his acquisition of the money was pleaded in defence or emerged in evidence. He is not seeking to enforce an illegal contract.
36. The Appellants' argument on this appeal focused on the points made in the Notice of Appeal and Leading Counsel placed particular emphasis on the bogus powers of attorney. The argument was that they were a product, or part, of the illegal scheme and the means by which the Claimant completed that illegal scheme by instructing the Firm and completing the sales.
37. It was argued therefrom that to found his cause of action against the Appellants the Claimant had to rely on his own unlawful acts and in particular the powers of attorney.
38. In my judgment the underlying fallacy of the Appellants' arguments is that it seeks to maintain that to succeed the Claimant has to either (i) enforce executory provisions of the retainers based on the powers of attorney and thus of an illegal contract, or (ii) otherwise rely on his illegal acts. In my judgment this is not the case.
39. Firstly leaving aside the retainer once the sales of the Houses were completed the Claimant could rely on his proprietary interest in the proceeds of sale and did not have to rely on (i) any part of the conveyancing transactions relating to the purchases or sales of the Houses, all of which had been completed, or (ii) the background thereto.
40. The contractual relationship between the Appellants and the Claimant was created by the retainers which were based on the powers of attorney. However in my judgment to establish his claim against the Appellants the Claimant did not need to rely on that contract for any purpose other than providing the basis of, or background to, his proprietary rights as against the Appellants to the net proceeds of sale credited by the Appellants to their client account.
41. This is demonstrated by the pleadings and the admitted or accepted facts, namely that the Appellants were retained by the Claimant and the net proceeds of sale were credited to the Appellants' client account. These facts have the result that the Claimant can, as he did, base his claim on his proprietary interest to those moneys. On this analysis it matters not whether the Claimant was acting, or was purporting to act as, an attorney or on his own account, what matters is that he was the client and moneys representing the net proceeds of sale were held to his credit on the Appellants' client account. As the client he had a proprietary interest in those moneys.
42. There was therefore no need for the Claimant to assert or plead (and he did not do so) that he instructed the Appellants pursuant to the powers of attorney, or to claim performance of an express or implied terms of the contract of retainer.
43. It was argued before us on behalf of the Appellants that to show that they are liable to account to him the Claimant must prove that he is entitled to receive the net proceeds of sale of the Houses and to do so he had to show either (i) that despite the powers of attorney and statutory declaration that he was the true owner of the two Houses, or (ii) that he had the authority of the true owners to receive the proceeds of sale. As appears above I do not agree. In my judgment all the Claimant had to establish was that he was the client and moneys representing the net proceeds of sale paid as a result of the performance of his instructions were held to the credit of the Appellants' client account.
44. However in my
judgment this argument of the Appellants and the extension thereof that unless
the Appellants required the Claimant to prove his entitlement they might be
liable as constructive trustees to the true owners further demonstrates the
flaws in the Appellants' arguments because:
(a) it demonstrates that it is the Appellants (as Defendants) who seek or need
to raise the illegality to support this argument (see in particular the passage
cited above from the speech of Lord Lowry in Tinsley v Milligan),
(b) if and when the argument is raised the Claimant can show that he was beneficially
entitled to the net proceeds of sale and therefore the argument is self defeating,
and
(c) the defence is one that alleges that the Claimant has to establish a proprietary
interest in the proceeds of sale rather than one which alleges that he is seeking
to enforce performance of an illegal contract.
45. The proceedings were brought in 1997 and therefore after the Claimant had been convicted. Accordingly the accepted background to the claim was that the two Houses had been acquired as part of the mortgage fraud and registered in false names (indeed this was pleaded by the Appellants in their Defence).
46. As I understand them in their re-amended form the Particulars of Claim assert that the Claimant acquired the freehold of the Houses. This allegation is admitted. In my judgment that admission is effectively a correct admission of the Claimant's ownership of both Houses and his beneficial entitlement to the net proceeds of sale thereof albeit that in the Defence the allegation that the Appellants held the net proceeds of sale on trust solely for the Claimant was denied. However if one assumes that the beneficial entitlement to the net proceeds of sale of both Houses was in issue in my judgment for the reasons I have given the Claimant could establish that he was beneficially entitled to them. Further in my judgment he could do that without seeking to enforce the performance of an illegal contract because he could do so by relying on the completely executed transfers of the two Houses.
47. This answers the Appellants' defence of illegality based on the assertion that the Claimant had to show his entitlement to the net proceeds of sale rather than merely establish that he was the client and the Appellants had credited the net proceeds of sale to their client account.
48. Leading Counsel for the Appellants was at pains to point out (i) that if a confiscation order was applied for (as to which there is some uncertainty) its refusal could have been, and probably was, fully justified, and (ii) that the Appellants could not identify a fund now held by them which represented the net proceeds of sale and that there could be a number of reasons for that (e.g. bad accounting or mistake). I accept both those points. I can also understand the reluctance of the insurers of the Appellants to pay to the Claimant the profits he would not have been able to make except by the use of moneys obtained from others in breach of the criminal law.
49. However in my judgment if the Appellants had held a fund representing the net proceeds of sale it would be clear that, in the absence of a confiscation order, they should not be entitled to retain that fund as against the Claimant. The reason for this is that the Claimant would be beneficially entitled to that fund. Further in my judgment, and in line with the authorities mentioned in paragraph 26 hereof, if that proprietary interest is to be confiscated it should be done by Parliament and not the courts through judicial creativity.
50. The fact that at present there is no such fund held by the Appellants, although on the finding made by the Judge that the Claimant had not been paid there should be, does not provide a defence.
51. In my judgment this appeal should be dismissed.
52. I agree that this appeal fails. I have had the benefit of reading the judgment delivered by Charles J in draft. I agree with his analysis of the true nature and basis of the claim in paragraphs 39 to 43 of his judgment, and that the Claimant is accordingly entitled to require the Appellants to account to him in respect of the proceeds of the two sales, on the simple ground that the Appellants were retained by him and received such proceeds into their client account for his account. That he instructed the Appellants pursuant to powers of attorney which were forged is not a matter that the Claimant has to assert or prove in order to succeed on this claim.
53. Although it is not in these circumstances critical, I share the view that the Claimant could, if necessary, also have succeeded by asserting and proving that he was the owner of the two houses and entitled on that basis to the proceeds of sale. True, he would then have been obliged to assert that - despite his creation and use of forged powers of attorney from two non-existent persons, his sale purportedly as such attorney accompanied, in the case of the second sale, by a perjured statutory declaration to the effect that he was only attorney - he was in reality acting for himself as the true owner; and that Messrs. "Michael Smith" and "Stanley" were, as Charles J has said, no more than aliases for himself, the Claimant. There is, however, no doubt that title to property may be acquired under an illegal contract and may thereafter be used to found a cause of action: see Bowmaker Ltd. v Barnet Instruments Ltd. [1945] KB 65; and per Lord Browne-Wilkinson in Tinsley v Milligan [1994] 1 AC 340, 369E-370D. Here, the only person who can have acquired title to the two houses, or can have parted with title to the two purchasers in August and December 1988, was the Claimant. On that basis, if it were necessary to look further than his entitlement to an account of the monies received that arose from his retainer of the Appellants, all that would appear would be that the Claimant was the only person to whom the properties, or after their sale their net proceeds in the Appellants' client account, ultimately belonged. The Appellants sold as agents and cannot themselves have, or have had, any rival claim to either. In such circumstances (in contrast to those under scrutiny in Tinsley v Milligan itself), no question would arise of the Claimant having to assert any equitable interest in either properties or proceeds against some other potential claimant entitled in law. The Claimant would simply be pursuing a proprietary claim against his agent solicitors for his monies received for his account on the disposal of his properties.
54. I agree with the judgment of Charles J.
ORDER: Appeal Dismissed with costs; order for legal aid assessment of the Claimant's costs.