Home Information Cases London Allied Holdings Ltd v Lee (2007)

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London Allied Holdings Ltd v Lee (2007)

Summary

A property development company was entitled to various heads of relief arising out of the payment of £1 million to the first defendant as a result of his fraudulent misrepresentations that it was a deposit that he would return if he did not procure for the company a contract for the purchase of the Ritz hotel, which he falsely claimed he could do through his close contact with the hotel's owners.

Facts

The claimant property development company (H) claimed various heads of relief arising out of its payment of £1 million to the first defendant (L) pursuant to what H alleged was a fraudulent scam by L and the second defendant (D). L had claimed to have an exclusive oral agreement with the owners of the Ritz hotel to purchase it at a price of £200 million. H alleged that L had agreed to provide a contract to sell the Ritz to H for £250 million, with the £50 million difference being split between them. L subsequently informed H that a third party was willing to pay a larger sum, and allegedly stated that if H failed to provide him with a deposit of £1 million he would proceed to sell to the third party, who had offered a non-refundable deposit of £2 million. L allegedly told H that if the £1 million was provided, then the contract would be issued to H; if the contract was not issued, the £1 million would be returned. H paid the sum to L, and he immediately made a number of payments out of it, including the purchase of a Land Rover for his partner, the fourth defendant, and a payment to D. From that sum D purchased a car and transferred a sum to his wife, the third defendant (M), who used some of it to discharge the mortgage on their house; at the same time D transferred his share in their house to her for no consideration. Sums derived from the £1 million remained in the bank accounts of L and D. L subsequently informed H that the owners of the Ritz were selling an enlarged portfolio accompanying the Ritz, so the sale price had increased to £470 million. No contracts or paperwork for the sale of the Ritz were ever sent to H and the £1 million was not returned. H claimed that it was entitled to be repaid by L pursuant to a contractual obligation, or on the ground of a total failure of consideration, or in restitution or as a constructive trustee. It also claimed damages against L in respect of the payment of the £1 million and its non-return, for breach of contract, for fraudulent or negligent misrepresentation or pursuant to the Misrepresentation Act 1967 s.2, and for conspiracy to defraud. It further contended that D was liable, either as constructive trustee or as L's co-conspirator or principal or partner. L and D denied any wrongdoing.

Held

(1) There was no evidence that any third party interested in purchasing the Ritz had ever existed. L and D never intended to repay the deposit; nor did they have the connection with the owners of the Ritz or the contract that they claimed to have. L was liable in damages for fraudulent misrepresentation as he had made the alleged misrepresentations knowing they were untrue, intending H to rely upon them, with the consequence that H had relied upon them in making the £1 million payment to L, as a result of which it suffered loss. Damages for misrepresentation were recoverable only to the extent that H's losses were not fully recouped by its claims as equitable owner under a constructive trust. L held on trust for H such of the £1 million as was retained by him, and all his interest in the Land Rover, which was purchased with money derived from the £1 million. (2) D had known of and had been a party to L's course of conduct designed to induce H by false misrepresentations to pay £1 million, and was liable for damages for fraudulent misrepresentations made by him directly, and indirectly through L as his partner or agent. D was also liable for conspiracy to defraud, for the same reasons as L, although, again, those claims to damages were subject to H's claims as equitable owner under a constructive trust. D held on constructive trust for H such of the sum paid to him by L as had been retained by him. He had received that amount in the full knowledge that it was derived from the £1 million payment to L as a result of his and L's fraudulent misrepresentations. In those circumstances, H was entitled to trace into D's hands such of the £1 million as was paid to him. D also held the car on constructive trust for H since it had been purchased out of the funds. (3) H was entitled to be subrogated to the charge over M's property. The money used to pay the lender had been derived from D's bank account into which the sum paid by L had been transferred. H was entitled to trace into the hands of M, who had provided no consideration for the payment to her and was a volunteer. However, at H's request, the court did not determine at this stage any question as to the validity of the transfer of D's legal and beneficial interest in the house to M. (4) If and in so far as L's partner had any interest in the Land Rover, she held it on trust for H. She had acquired it without consideration and as a volunteer, and could be in no better position than L. Although she might not be personally liable to account for breach of trust, she had to deliver to H the trust property she held.

Judgment for claimant

Chancery Division
Etherton J
Judgment date
26 September 2007
References

​2007 EWHC 2061