Summary

A company in administration recovered sums paid to third parties by its driving force, who appeared to have been a con-man. Its administrators' applications for orders under the Insolvency Act 1986 s.238 in respect of those sums, made on the basis that the payments were transactions at an undervalue, failed because there had not been "transactions" between the company and the third parties.

Facts

A company in administration sought repayment of various sums paid to the first defendant company (E) and the third defendant (K). The administrators also applied for orders under the Insolvency Act 1986 s.238 in respect of those sums on the basis that the payments were transactions at an undervalue.

The company's driving force (M) appeared to have been a con-man. M had offered a property developer funding. The developer paid fees but the funding was not provided. The developer found that the company had made payments to third parties. It caused administrators to be appointed. E was one of the third parties. It had received £335,000 from the company in a series of payments effected by a director on M's instructions. M had also caused the company to pay K £282,000: a first payment of £125,000 with a series of payments thereafter. K had agreed that on receipt of funds he would pay the same sum to a casino for M's benefit. He gave evidence that he had not known that the first payment had come from the company until he saw his bank statement; he had accepted the further payments having been told by M that the company belonged to M and the payments had been authorised.

E was not represented at trial; its defence had been struck out. K argued that he was a bona fide purchaser without notice; he had only received the money as M's agent, giving him a defence of ministerial receipt; and that by paying money to the casino he had in good faith changed his position, making it inequitable for him to repay the money.

Held

HELD: (1) There had been no contract with E; the money had been stolen from the company. E had not made out a change of position defence. It had been unjustly enriched at the company's expense and should repay the £335,000 (see paras 30-31 of judgment). (2) The director had not intended to make a gift to E within s.238 when he effected the payments. If M's intention was relevant, the likely inference to be drawn was that he intended to misappropriate the money and had some arrangement with E to help him. If the payments were not gifts, to fall within s.238 they would have to be "transactions with" E. However, the administrators' case was that the company had never dealt with E; the director had had no contact with E beyond causing the money to be remitted. The mere transmission of money, without any dealing between the parties, could not constitute the entering into of a transaction. The language of s.238(4) required some engagement, or at least communication, between the parties (paras 36-39). (3) K was not a bona fide purchaser without notice. He had not purchased anything and had not entered into any transactions with the company. The ministerial receipt and change of position defences were considered together. A ministerial receipt defence would allow an agent to argue for a change of position defence in respect of a payment made for his principal under a mistake of fact. K could contend that his receipt of the payments had been for M's benefit, in receiving them he had acted for M, and to that extent he had received the payments in a ministerial capacity. However, it did not matter whether K's receipt had been ministerial. What was relevant was whether the payments he made were causally linked with his receipts from the company, that causal link being essential in any change of position defence. K would not have made payments for M had he not first received payments, and he would not have received payments had he not told M that he was willing to make the payments. The only remaining question was whether K was unable to show that it would be unjust to allow restitution. The company had accepted that K had not known that the money had been wrongfully paid to him and could not be applied for M. It followed that he had not had constructive knowledge that the money was stolen. The court considered, as in the constructive trust case of Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch. 437, whether what K had known made it unconscionable for him to refuse to repay the company, Akindele applied. He had paid the £125,000 to the casino for M's benefit before knowing that the money had not come from M. The company was not entitled to restitution of that sum: what K did was in good faith. Regarding the subsequent payments, K had known that he had received the company's money. He had known enough to have reasonable grounds for suspecting the money to be stolen. That disqualified him from his change of position defence as to the subsequent payments, it not being inequitable for him to be ordered to repay the amount of those payments (paras 57-72). (4) The administrators' s.238 claim against K failed. The company had not dealt with him in relation to the payments made to him. There had been no transaction entered into by the company with K and no evidence that the company had made him a gift (para.73).

Judgment for claimant in part; applications refused