Mirza (t/a Hamza Travel) v Dayman

The claimants seek permission to appeal the order made on 22 April 2015 by HHJ Yelton sitting as a deputy High Court judge. He dismissed the claim against the defendant who had been acting as receiver under a restraint order. This is a renewed oral application for permission to appeal, permission having been refused on paper by Arden LJ. As below, the claimants are represented by Mr Pennock.

There are ten grounds of appeal supported by three skeleton arguments running in total to 40 pages. I have read these and the other papers and I have listened to Mr Pennock’s submissions carefully. I have also received comprehensive written submissions provided on behalf of the respondent/defendant. I have taken all the matters raised by Mr Pennock into account when determining this application but, given the nature of the hearing, I only propose to refer to some of them in this judgment.

The claimants were customers of a money or value transfer agent, Mr Iqbal, who traded as Madina Express. The claimants were themselves also money or value transfer agents engaged in the same system called hawala. On 23 September 2004 the defendant was appointed receiver of Madina’s assets pursuant to a restraint order. The claimants assert that this order caught monies totalling £86,776 which were their assets, being monies they had paid to Madina and which were held by Madina pursuant either to a resulting trust or, a form of resulting trust, known as a Quistclose trust.

In 2006 the receiver was discharged. I had understood that this was after a number of orders had been made approving her remuneration but it appears that this might have been subject to some other form of court approval. In any event, pursuant to the conventional lien, the receiver recovered her costs and other expenses from the assets subject to the receivership order.

The claimants’ case is that the receiver was not entitled to recover her costs and expenses from “their” monies. They had paid them to Madina in circumstances under which, or as a result of which, Madina held those monies on trust for them either, as I have said, on a resulting trust or on a specific purpose or Quistclose trust. Consequentially, the defendant held the monies as trustee for the claimants. It is also argued that the defendant’s actions constituted a breach of Article 1 of the First Protocol of the European Convention on Human Rights.

In simplified terms, under the hawala system money is given to an individual in country A who agrees to arrange for a sum, at an agreed rate of exchange, to be provided to another person in country B. It does not involve the direct transfer of any sum of money and there might be a number of transactions conducted between the receipt of the money in country A and the provision of the agreed amount to the person in country B. The provider of this service makes money on the transaction by giving one exchange rate to their customer and seeking to obtain a better exchange rate for themselves, typically by conducting larger volume trades. In the present case the claimants gave evidence, as recorded in the judgment, that Madina was able to obtain a better exchange rate because of the very large scale of the trades which Madina could undertake by aggregating the monies it held.

The claimants’ case, as repeated by Mr Pennock today, is (a) that the monies paid by them to Madina were held on resulting trust. He relies on the principle arising when a purchase is made in the name of another. He submits that, in this case, a resulting trust arose by reference to this principle because the purchase by Madina of foreign currency was for the claimants. As a result, they were making a purchase in the name of another. (b) The second or alternative ground is that Madina held the monies as trustee on the basis that they would be used for the specific purpose of being transferred abroad. When that purpose was frustrated, a resulting trust arose under which Madina held those monies for the claimants.

HHJ Yelton rejected the claim. He decided that the circumstances in which the monies had been paid to Mr Iqbal or to Madina were not such as to give rise to any form of trust. He held that the concept of a resulting trust was “inapplicable” to the facts of the case. In paragraph 22 he says:

“It seems to me, having thought about it with care, that the concept of a resulting trust is quite inapplicable to the facts that I have set out. A resulting trust arises when A pays for property which is put in the name of B.”

Mr Pennock argues that the judge did not address the principle of resulting trust in the form in which he was advancing it. In my view, the judge did address the concept of resulting trust in the form in which he was advancing it. The judge said, I repeat: “A resulting trust arises when A pays for property which is put in the name of B”. Continuing with paragraph 22:

“In this case A pays B (in other words, the hawaladar) to change and remit his money at an agreed rate to C. A resulting trust is not usually applied, though it can in certain circumstances, to a commercial transaction, but in the circumstances that I have just set out I am satisfied that neither B nor indeed C, the ultimate recipient in Pakistan, are trustees for A.”

The judge then quotes from Lewin on Trusts, referring to the issue of gratuitous transfer. In paragraph 24 he says:

“It is a transfer for consideration. In other words, as I have said, he or she handed the money over to the hawaladar, the consideration being that the money would be changed into rupees and delivered or remitted to the ultimate recipient in Pakistan.”

After referring to, and agreeing with, the analysis contained in two earlier decisions the judge says:

“I am satisfied and, in my judgment it is clear, that the claimants are not beneficiaries under a trust but were rather unsecured creditors of Mr Iqbal.”

The judge also rejected the claim under the European Convention because of his finding that the claimants had no beneficial interest in the monies held by Madina. It was not their money. In the course of his submissions today Mr Pennock accepts that, if he were to fail to establish that the monies were held on trust, then his claim under the Convention would likewise fail.

The two earlier decisions to which the judge referred, and which are challenged by Mr Pennock, both address the hawala system. The first is Re H [2003] EWHC 3551 (Admin), and the second is Azam v Iqbal [2008] Bus. L.R. 168. The latter decision concerned the same defendant as in this case and arose out of the same receivership. The judge agrees with the analysis of Moses J (as he then was) in the former case and of Sullivan J (as he then was) in the latter.

In Re H it was argued that sums provided by the claimants to the person subject to the receiving order were impressed with a trust or subject to a floating charge. Moses J decided that the salient features of the system were “totally inconsistent with any trust”: para 19. The person to whom the money was paid was not required to use it in any particular way; nor was he under any obligation to keep the money segregated. In fact the money was paid into a single account.

Moses J referred to earlier decisions including Foley v Hill (1848) 2 HLC 28 and Paragon Finance Plc v D.B. Thakerer & Co [1999] 1 All ER 400. In his view, the description in the former case (that is, Foley) of a customer’s relationship with a bank was far more analogous to the hawala system than that of any trust. He then says:

“21.

In Paragon Finance PLC v DB Thakerer & Co [1999] 1 All ER 400, May LJ (at page 416) considered the case of Nelson v Rye, the case of the solo musician who appointed the defendant manager to collect his fees and royalty and pay him annually in relation to a case concerning mortgage lenders and borrowers in relation to purchase and mortgage of a number of flats. Millett LJ (as he then was) said of the manager of Nelson and Rye as follows:

'Whether he was in fact a trustee of the money may be open to doubt. Unless I have misunderstood the facts or they were very unusual it would appear that the defendant was entitled to pay receipts into his own account, mix them with his own money, use them for his own cash-flow, deduct his own commission, and account for the balance to the plaintiff only at the end of the year. It is fundamental to the existence of a trust that the trustee is bound to keep the trust property separate from his own and apply it exclusively for the benefit of his beneficiary. Any right on the part of the defendant to mix the money which he received with his own and use it for his own cash flow would be inconsistent with the existence of a trust. So would a liability to account annually, for a trustee is obliged to account to his beneficiary and pay over the trust property on demand.'

This brief citation of the principles, pursuant to which a trust may be

identified, demonstrate how far removed any suggestion can be that the money which Mr Akhtar received in return for the obligation to make available for collection Pakistan rupees is impressed with a trust. The money was mixed with his own. He was free to deal with it how he wished. His only obligation, as I have said, was to make available an agreed sum for collection in a foreign currency.

22.

In those circumstances, and having regard to the features of the system which I have already identified, not least of which was the fact that there was no obligation to transfer any particular sum of money to any particular person, and indeed the opportunity to earn a turn by varying exchange rates demonstrates to my complete satisfaction that none of the claimants could possibly have had any priority interest in any of those sums.”

In Azam v Iqbal Sullivan J applied Re H and rejected the claimants’ submission that it was wrongly decided. It was submitted on behalf of the claimants that Moses J had failed to appreciate the difference between the relationship between a bank and its customer and the relationship in a hawala system. Against a background of mutual trust the customer gives the hawaladar a specific sum of money for a specific purpose, namely to transfer the equivalent value as agreed. It was submitted that it does not become the money of the hawaladar to do with as he pleases.

Sullivan J rejected those arguments. He agreed with Moses J that the hawala system, as practised in those cases and as practised by Madina, was “totally inconsistent” with the existence of a trust. To quote his conclusions, starting at paragraph 27:

“28.

In these circumstances, I endorse Moses J's view that the hawala system, as practised both by Mr Hussain in Re H and by the claimant in the present case, is totally inconsistent with the existence of a trust. It is unnecessary to repeat the authorities cited by Moses J, but I should mention Re Chelsea Cloisters Ltd (1980) 41 P&CR 98, which was an additional authority referred to by Mr Cunningham. A company managing a block of flats had got into financial difficulties. Wishing to protect the tenants' deposits, the supervisor of the company opened a separate bank account for their deposits. The company subsequently went into liquidation and the liquidator asked the court for a determination whether the deposits should be divided among the

company's creditors, or whether they were held on trust for the tenants. The Court of Appeal held that there was a trust. Lord Denning MR cited Channell J in Henry v Hammond:

‘It is clear that if the terms upon which the person receives the money are that he is bound to keep it separate, either in a bank or elsewhere, and to hand that money so kept as a separate fund to the person entitled to it, then he is a trustee of that money and must hand it over to the person who is his cestui que trust.’

29.

Bridge LJ said that the opening of the separate bank account:

‘... was a practical step, designed to ensure that the deposits would not be spent as part of the company's general cash flow.' That is entirely consistent with an intention to keep these funds from the general funds of the company in order that they should not be swallowed up by the general funds of the company." (page 108)

30.

Mr Wilby pointed out that the separate account contained the deposits of a number of tenants. Thus, it was not necessary for the existence of a trust for the claimant's £12,000 to have been kept, on its own, in a separate account apart from the sums paid by the other customers of Madina Express. I agree. In theory, one could envisage a

business with a separate account into which all of the customers’ payments were made, which account was kept distinct from ‘the general funds of the company’. However, arrangements that might theoretically be possible in the case of a hypothetical business do not overcome the fundamental obstacle to the existence of a trust in this and other hawala cases: it is inherent in the hawala system, as described by Dr Ballard, that the sums paid by customers wishing to transfer money are not kept in a separate account distinct from ‘the general funds of the company". On the contrary, they are "the general funds of the company’, out of which business expenses are paid and from which the hawaladar makes his profit by manipulating exchange rates at various stages of the transfer process. While it may not be strictly accurate to describe the hawaladar as a banker, as a ‘value transfer agent’ he is a trader (in currency, using his customers’ money for the purposes of his trade) and not a trustee of his customers' money. It follows that the second question does not arise and it is unnecessary to consider whether the necessary fiduciary relationship existed between the claimant and the second defendant, and whether the second defendant had notice of the facts which might have given rise to a resulting trust.”

The system as described in the judgments referred to above, and in particular the latter, is the same as the system described in the present case. For example, the judge said in paragraph 20:

“The claimants’ case in those cases now was that the hawaladar, whether Iqbal or the claimants, was not free to do what he wanted with the money handed over, but as the evidence in this case shows, the claimants did not know what was going to happen to the money once it got into the hands of Mr Iqbal. In fact, of course, as the claimants accepted, the system works because of the ability of money traders to consolidate. In other words, the claimants got better rates than their customers would have done and Madina, who were trading and remitting millions of pounds to Pakistan, had access to even better rates.”

The submissions advanced on behalf of the proposed appellants are comprehensive and on occasion (as Mr Pennock accepted during the course of this hearing) advanced in emotive and inappropriate (that is my word) terms, and I referred him in particular to one paragraph in his submissions.

Mr Pennock’s core submission is that the judge failed to deal adequately or at all with the contention that a resulting trust arose. In my view this submission is unsustainable. It is manifest from the judgment that the judge did address whether or not a resulting trust arose in general terms as well as by reference to whether there had been a gratuitous transfer. In my view the argument was sufficiently addressed.

I also note that the Quistclose case was cited in argument in Azam. Further, in paragraph 20 of Azam Sullivan J refers to the argument again advanced on behalf of the claimants in this case.

In my judgment there is no real prospect of the Court of Appeal being persuaded that the judge’s conclusion, that the concept of a resulting trust is inapplicable to the facts of this case, was wrong. Madina agreed to provide a service, namely the payment of the agreed amount in country B. As the judge indicates, there was consideration for the receipt of the money, namely the provision of this service.

In addition, in my view, there is no real prospect of the Court of Appeal being persuaded that the judge’s conclusion that the monies were not otherwise impressed with a trust was wrong. This is whether the claim is advanced as a Quistclose trust or otherwise. Quistclose type trusts are a species of resulting trust which arise when property is transferred on terms which do not leave it at the free disposal of the recipient. The judge addresses this issue. It is sufficiently clear that he found there was no such term or terms and that Madina was free to do with the monies what they wanted. This is a finding which it was open to him to make and I see no possibility of this being undermined on an appeal. The absence of any such term is, as the judge rightly concluded, inconsistent with the creation of a trust.

Accordingly, in my judgment, HHJ Yelton’s conclusions, that the concept of a resulting trust was inapplicable on the facts of the case and that the claimants are not beneficiaries under any other type of trust, have not been shown even to be arguably wrong. Business transactions based upon trust are not transactions which create a trust.

In the light of my conclusions in respect of the claimants’ trust arguments, there is clearly no real prospect of persuading the Court of Appeal that the judge was wrong to conclude that Article 1 of the First Protocol does not apply. The claimants’ case has always been based on the contention that the monies seized by the receiver belonged beneficially to them. There is no real prospect of this being established on an appeal.

The final argument is that the judge failed to address the application for an order under CPR Rule 69.7(2). I fail to see how this provision applies in the circumstances of this case. In my view it applies to orders made in the receivership proceedings. I do not see how I, in these separate proceedings, could make an order or a different order in respect of the costs of the receiver in the receivership proceedings. This ground has no prospect of success.

In conclusion, in my view this appeal has no real prospect of success and there is no other compelling reason why permission to appeal should be granted. I refuse the application for permission to appeal.