Secretary of State for Trade and Industry v Imaghodor

This is an appeal by Mr Isoken Imaghodor against a judgment given against him on 8^th August 2006 by Deputy Master Lloyd. Mr Imaghodor is the first defendant in the proceedings. The second defendant is Scope UK Ltd (“Scope”), a company of which Mr Imaghodor is the sole director and shareholder. The claimant is The Secretary of State for Trade and Industry. The application before the Deputy Master was for summary judgment under CPR Part 24. The outcome was that the Master gave judgment against both defendants for the sum of £50,972.56, plus interest of £67,941.60, plus costs summarily assessed at £26,753.50. I will in due course explain how it came about that such a comparatively large figure for interest was ordered. The Master refused permission to appeal. Of the two defendants, only Mr Imaghodor renewed an application for permission and on 16^th February 2007 I granted him permission on the papers, there being two aspects of the Master’s judgment which appeared to me to enable an argument that he may in part have misdirected himself. The appeal has now come on before me. Mr Imaghodor has appeared in person. Mr Lopian has appeared for the claimant. I will hereafter refer to the Department of Trade and Industry as “the DTI”. The story is an unusual one, but ultimately the facts relevant for the purposes of the appeal fall within a small compass.

Mr Imaghodor is a former employee of the DTI. He was employed in what is known as the Innovation Group, which is in part concerned with the allocation of grants to regional agencies, one of which is called One North East and is based in Newcastle. One of his tasks was to put forward invoices for payment and to requisition the money needed for payment.

Over the years Mr Imaghodor had become deeply embittered towards the DTI. As I understand it, he considered that his skills and talents were not being appreciated in the way they should have been. He says he also became critical of the lax way in which the DTI, or at least the department in which he worked, applied the DTI’s prescribed standards and internal controls, but he says the DTI took no notice of the points he made. His case is that he accordingly decided to engage in what he claims was intended to be a type of whistle-blowing exercise, although the manner in which he went about it was disgraceful; and, whatever his confused intentions and expectations may have been, it led to enormous sums of public money being paid to Scope, being money to which neither Mr Imaghodor nor Scope had a shred of claim. Most of the money has since been recovered by the DTI, but the Master’s judgment for £50,972.56 was in respect of the balance which has not. Mr Imaghodor’s actions, when discovered, resulted in his dismissal from the DTI.

The course of action in which Mr Imaghodor engaged was as follows. He incorporated Scope on 16^th September 2005 and later opened a bank account for it at a branch of Barclays in London near Victoria. He then set about giving internal instructions within his department in the DTI relating to One North East, the Newcastle agency. To this end, on 23^rd November 2005 he sent an email reading “Please deal - to add bank details and grant supplier type” and attaching an instruction on form AP1, being an instruction which, by reference to particular boxes that he crossed, were to “Add a new Site” and “Add Bank Details”. On the face of the form, what he was asking to be done was to open a new file on the database in the name of One North East which was to include a new address for it (i.e. the site) and new bank details. In fact, the AP1 form that he attached included no new address, or site, but it did include new bank details, those being of Scope’s account at Barclays, which of course had precisely nothing to do with One North East.

Mrs Mason, a colleague, responded to that instruction on 24^th November. She pointed out that there were already bank details on the One North East site and asked Mr Imaghodor whether he wanted them to be changed or whether he wanted an additional site set up with the new bank details. His reply on the same day was that she was to “set up an additional site with the new bank details for grants supplier type”. I am not entirely clear what the intention behind that apparently somewhat imprecise instruction was (Mr Imaghodor had not yet provided details of any new address, or site, for One North East), but it may be that its sense was that Mrs Mason was being asked to leave the existing One North East details as they were and to open a separate and additional entry on the database in the name of One North East with the new bank details.

Whether that is right or not perhaps does not matter because that is anyway not what happened. It appears that there was then a conversation between Mr Imaghodor and Mrs Mason, which Mr Imaghodor followed up with an email on 28^th November reading “We spoke - please add additional site as discussed. The old site should be left as it was.” There is no evidence as to what was said in the course of that conversation, but what is important is that Mr Imaghodor accompanied his email with a further attachment in the shape of a revised AP1 instruction. On this revised instruction he had merely crossed the “Add a new Site” box, and on this form he did include a new site address for One North East, namely Suite 31 Newton Point, Clarkson Road, London. He had left uncrossed the “Add Bank Details” box although the form nevertheless included the same bank details as had its predecessor, namely the details of Scope’s bank account. The new site address was again nothing to do with One North East. Another company that Mr Imaghodor had recently chosen to incorporate was one called One North East UK Limited, and it was purportedly the address of that company, being a company which was also nothing to do with what I might call the real One North East. I might add that another agency that the DTI dealt with was called Scope Limited, which was no doubt the inspiration for the choice of the name of the Scope company that Mr Imaghodor had formed.

Mr Imaghodor told me that the sense of the final instruction that he had there given was that the additional and new site address for One North East should have been entered on the database, but that its current bank details should be left unchanged. One wonders why, therefore, he had included the new and false bank details on his amended AP1 form; and he had of course earlier made it clear that he did want those new bank details to be included on the database. Mr Imaghodor’s confused and changing instructions with regard to One North East, coupled with his inclusion of (so he now claims) irrelevant new bank details on his revised AP1, were a recipe for trouble; and trouble is of course what happened.

The first thing that happened was that the purported implementation of Mr Imaghodor’s instruction resulted in the overriding of the existing details relating to One North East and their substitution by the inclusion of the new 31 Newton Point address and the new bank details, being those of Scope’s bank account. Mr Imaghodor says that should not have happened had his instructions been correctly executed, and that it all goes to show how right he was as to the incompetence of those in his department as regards compliance with internal controls and procedures. He told me he did not actually know what changes to the database had been made as a result of his instruction.

The next event that happened is that Mr Imaghodor commissioned a printer to create false invoices in the name of One North East. He then filled in one of these invoices and addressed it to the DTI. It gave the false Newton Point address. It gave the VAT number of the genuine One North East. It was in the sum of £50,000 and was described as being for “DTI Support for the ONE NORTH EAST ICT project – DTI/14032526”. It requested payment, either by a cheque to the Newton Point address or by payment direct to the bank account of which it gave details, being the Scope account. The invoice was put forward, and was authorised, for payment. The result was that on 23^rd December 2005 the DTI paid £50,000 direct to Scope’s Barclays account. Mr Imaghodor says that should not have happened at all and that it only happened because the department had been negligent in carrying out his earlier instructions in relation to the addition of the new One North East site. He says this invoice should have been ignored.

The next event was perhaps unexpected. On 23^rd November 2005 the real One North East had submitted to the DTI a genuine invoice for £200,000. It gave their correct Newcastle address and sort code and bank account details. But on 3^rd January 2006 the DTI purported to pay that invoice by crediting the £200,000 direct to the Scope bank account. Mr Imaghodor again says that, had the DTI applied the basic checks it should have done before making that payment, it would not have made it to the Scope account since the details on the One North East invoice did not match the details on the current One North East site. There is a curious note on the invoice apparently recording that a “2 way match” was verified on 18^th January 2006, over two weeks after the payment was made, at a time by which I understand it is likely that the details relating to One North East on the database had been reversed, although any check carried out at that stage was a pointless one.

The evidence includes a witness statement made on 7^th August 2006 by Alan Hugo, an operations manager in the DTI’s Financial Services team. He says that this invoice “was processed correctly but the bank details contained in the invoice description do not appear to have been checked against those against the supplier site. Such checks are normally made but it is very rare to find bank account details contained within the body of an invoice description. Normally such details are printed at the top or bottom of an invoice.” It is not entirely clear to me whether Mr Hugo is there saying that the invoice was in fact processed correctly. If he is, his evidence is at least a little qualified. By contrast, Mr Imaghodor asserts that the correct practice was not followed in fundamental respects. The DTI’s position on this appeal is that the processing of this invoice was in fact quite normal and that the reason the money went to the Scope account was entirely as a consequence of the instructions that Mr Imaghodor had improperly given with regard to changing the database entries relating to One North East. That factual difference between the parties, which essentially goes to an issue of causation, is one which I am in no position to resolve on this appeal and I make no attempt to do so.

The next relevant event was that an email was received from One North East inviting payment of no less than £9 million, being a part payment of its annual budget. The DTI purported to make that payment to One North East, but this too went direct to the Scope account on 13^th January 2006. Again, there is a factual issue, which I cannot resolve, as to whether the making of this payment to the Scope account can be said to have been an error by the DTI which should not have happened even given Mr Imaghodor’s earlier instructions with regard to the One North East entries on the database; or whether it was effectively caused by the giving of those instructions.

The next event was the creation by Mr Imaghodor of a further false invoice purporting to come from One North East, this one being in the like form as the earlier one he had created but for the more modest sum of £31,222. It was dated 9^th January 2006 and was paid by the DTI direct to the Scope bank account on 17^th January 2006.

The receipt of the £9 million by Scope, a modest newly incorporated company which was not carrying on any trade, led unsurprisingly to suspicion and concern on the part of Barclays; and in the meantime One North East had been asking the DTI where their £9 million was. One imagines that there were some pretty worried people at the DTI. On 17^th January 2006, by which time the DTI had learned about Scope, Barclays transferred into a so-called “mirror account” the entire balance then standing to the credit of the Scope account and also the balance standing to the credit of two accounts in the personal name of Mr Imaghodor. On 13^th February 2006, and against the giving of an indemnity, Barclays remitted all the money in that mirror account to the DTI but without interest. That account was not an interest-earning account, perhaps because it sought to mirror the terms of the accounts from which the moneys in it were transferred, those accounts also not being interest-earning accounts. The net result was that on 13^th February 2006 the DTI received back all the money paid to Scope under the four transfers I have summarised, apart from the sum of £50,972.56. That had already been applied elsewhere by Mr Imaghodor for his own purposes.

There is no need to go into great detail about that. The Scope bank statements show what happened to the money in its account. On 7^th November 2005 it had a balance of £275.39. On 15^th November 2005 Mr Imaghodor transferred £1,000 to it from his personal account. The statements then record various payments out which were plainly for the personal purposes of Mr Imaghodor since Scope was not carrying on any trade. They included payments to a restaurant, to B & Q, a payment for a shirt, £232-odd for the purchase of dollars, and some cash withdrawals. By 23^rd December 2005 the credit balance was something over £200 and at that point the £50,000 from the DTI was credited. That was followed by various further payments out down to and including 3^rd January 2006. They included £10,000 to Mr Imaghodor’s personal account, further payments for shirts and further cash withdrawals. On 3^rd January 2006 the credit balance was £35,640, so that just under £15,000 of the £50,000 had been paid away for Mr Imaghodor’s benefit. On that day the £200,000 from the DTI was credited, taking the balance to £235,640. Whether or not he was surprised by the receipt of the £200,000, Mr Imaghodor had no qualms about drawing on it. The bank statements showed further payments out which were similarly for his benefit, including two payments to Barclaycard. By 12^th January 2006 the balance on the Scope account had reduced to £159,674, the account therefore showing that Mr Imaghodor had drawn on the £200,000 to the extent of at least some £40,000. On 13^th January 2006 the £9 million was credited to the account, following which there were just two cash withdrawals of £200 each. On 17^th January 2006 the £31,222 payment was credited, and on the same day Barclays transferred the entire balance on the account to the mirror account. As for Mr Imaghodor’s personal account, held at another branch of Barclays, all credits to it after 30^th December 2005 were from the Scope account. On 17^th January 2006 the balance of £24,752.50 was also transferred to the mirror account.

The DTI started its claim against Mr Imaghodor on 28^th April 2006. It had by then received back all but £50,972.56 of the money wrongly paid to Scope. The claim was for money received, alternatively money paid under a mistake of fact, further or alternatively damages for deceit, and interest. Interest was claimed not just on the outstanding £50,972.56 but on the balance of the total sum wrongly paid to Scope and subsequently recovered. The claim in that respect was for interest from the time of payment until the recovery on 13^th February 2006. Bearing in mind the amounts involved, the interest so claimed was large even though the period in question was short. The DTI followed up its claim with applications for freezing orders against Mr Imaghodor which were granted and which I presume remain in force.

I come to the summary judgment application. The Master’s decision was that Mr Imaghodor must repay the outstanding £50,972.56 with interest. He also held him liable to pay interest on the already recovered balance between the time of payment and the time of its recovery by the DTI. That represented the bulk of the interest of £67,941.61 that the Master ordered, although I am not clear as to the precise breakdown.

The Master’s reasoning for his decision is not explained totally comprehensively, but I infer from paragraph 26 of his judgment that he was making a finding that Mr Imaghodor’s conduct involved a deceit upon the DTI, and it was on that basis that he concluded that he could order him to pay interest on the recovered balance. As for the judgment of £50,972.56, he appears to have proceeded on the basis that Mr Imaghodor was responsible for setting up the circumstances in which the payments came to be made to him, he had subsequently misapplied those moneys resulting in the overall shortfall, and therefore there was no answer to the claim for payment.

As regards the £50,972.56, Mr Imaghodor has made it plain in open court that, as he puts it, Scope “stands ready” to repay that money, but that is an unimpressive stance as he also accepts that Scope has no assets. Whilst he denies any personal liability to repay the £50,972.56, I also understood him to say that he similarly stands willing to repay it, although he makes it plain that he is, and has always been, only prepared to repay it on terms that he is excused from any liability for interest or costs. His stance is that the entirety of the DTI’s problem and loss has been caused by its own negligence. He says that if the DTI had correctly carried out his original instructions with regard to the addition of the One North East site to the database and had then correctly processed each of his two false invoices and the genuine One North East payments, no money at all would have been paid to the Scope account. Therefore, he says, whilst it may be reasonable for the DTI to want, and for it to have, its money back, it certainly should not have any interest. Mr Imaghodor disclaims all responsibility for what happened. He says that in doing what he did he was engaging in a public-spirited act of bringing to the DTI’s notice the deficiencies in its internal controls, an act for which he appears to regard himself as deserving congratulation and thanks rather than condemnation. The fact that in the event his exercise proved the point to the extent that over £9.2 million of public money was wrongly paid into the Scope account, part of which he then chose to use for his own private purposes and has failed to repay, is, as I understand it, said by him to be irrelevant to the consideration of whether he should be liable to pay any interest on the £50,972.56.

The first question on this appeal is whether the Master was right to order Mr Imaghodor to repay the £50,792.56. I have no doubt that he was. The payments to Scope were payments to which it had no right at all and which were made under an obvious mistake of fact. I am prepared for present purposes to assume, but specifically without deciding, that Mr Imaghodor might be able to prove at any trial that had the DTI processed all four payments in accordance with proper practice none of them would have been made. On the other hand, the conclusion is also inescapable that the whole sorry story was originated by Mr Imaghodor’s instructions with regard to changing the details of One North East on the database, being instructions which I have earlier described as “confused” and “changing” and which, whatever their strict interpretation, were ultimately contained in an AP1 which included new and false bank details for One North East. It may be, and again I specifically do not decide, that those instructions were incorrectly implemented, but it is elementary that they should not have been given in the first place and their giving involved a manifest breach of the duty of fidelity that Mr Imaghodor owed his employer. So did the submission of the subsequent false invoices.

Ultimately, however, these considerations are immaterial to the question of whether Mr Imaghodor should repay the money. The money was paid to Scope under a mistake of fact and the DTI must be entitled to its recovery. There is, of course, the point that the payments were made to Scope rather than to Mr Imaghodor personally. The Master plainly took the view that this made no difference to Mr Imaghodor’s personal liability and so do I. Scope was a company which, so Mr Imaghodor tells me, had one issued share which he owned. He was also its sole director. It was not trading and during the material period it was being used simply as a device for the collection by Mr Imaghodor of the money which, if his theories about the DTI’s internal controls proved well founded, the DTI would be paying out to it. Once that happened and Scope received the first two payments, he promptly started using the money as his own. This is a plain case in which the court can properly regard the receipts by Scope as receipts by Mr Imaghodor and, like the Master, I am prepared to do so. See, for example, Trustor AB v Smallbone & Others [2001] 2 BCLC 436, at paragraph 14 and following.

The second question is whether the Master was right to award interest on the £50,972.56. I have referred above to the main point which Mr Imaghodor repeatedly stressed, namely that the making of the payments was all entirely the DTI’s fault, and he relies on this for saying that no interest should be payable. I have also sought to redress the balance of the picture so painted by pointing out how his conduct involved from the outset obvious and manifest breaches of duty by him. But ultimately the question as to whether the Master was right to award interest is a fairly narrow one. This is because the nature of this appeal is confined to a review of the Master’s decision and his view was that interest was payable. His jurisdiction to award interest arose under section 35A of the Supreme Court Act 1981 and whether to award interest was essentially a matter for his discretion. I ought only to consider reversing his decision in that respect if I were satisfied that he had materially misdirected himself in the exercise of his discretion or if I regarded his decision with regard to interest on the £50,972.56 as obviously wrong.

As to that, I regard the Master’s decision as vitiated by neither such consideration. He was, I consider, plainly influenced in his decision about interest generally by the consideration that Mr Imaghodor had been ultimately responsible for setting up the scheme that led to the payments being made to Scope and, subject to one qualification, I would not question that as being a sound basis for concluding that the DTI should not just be entitled to recover its still unrecovered principal, but also interest on that sum. It is usual for orders for the payment of money to include orders for the payment of interest, and whilst of course there will be cases where it would not be appropriate to award interest either for the whole or part of the relevant period that the claimant has been kept out of his money, the Master’s view was plainly to the effect that the general justice of this case required interest to be paid.

The qualification which I would add to that is that the Master does not appear to have had regard, or at any rate express regard, to Mr Imaghodor’s point (which I have no doubt he made to the Master as repeatedly as he has made it to me) that the real cause of the payments being made was not he, Mr Imaghodor, but the deficiencies within the DTI with regard to the observance of its internal controls. I have already indicated that I am prepared to assume that Mr Imaghodor could prove at a trial that, had those controls been properly observed, the payments would not have been made. It can, therefore, perhaps be said that the Master may not have taken this into account in deciding whether to award interest; and if his failure to do so was a material omission then the question of interest is something that I ought to consider afresh myself on this appeal.

As to that, if that consideration does require me to consider the matter of interest afresh, I would come to exactly the same decision as the Master with regard to interest on the £50,972.56. Even accepting that there may perhaps be something in Mr Imaghodor’s point about the DTI’s shortcomings with regard to its observance of internal controls, the fact remains that he was the ultimate cause of the story which unfolded, with the result that money was paid to him to which he had not a shred of right and which he has failed to return. Had he not decided to engage in his breach of his duty of fidelity to the DTI, none of this would have happened. That breach led to the payment to and retention by him of £50,972.56 of DTI money which he should never have had. There is absolutely no reason why, in those circumstances, the DTI should be deprived of proper compensation for being kept out of its money for all these months. Mr Imaghodor’s duty was to repay it at once, not to spend it. He says he did not repay it because the DTI did not ask him to. That is absurd. They sued him for it and he has still not paid it. If the decision were mine to make afresh, I too would order interest on the £56,972.56. I therefore uphold the Master’s decision to order Mr Imaghodor to pay that sum to the DTI with interest.

There remains the Master’s decision to award interest on the balance of the total paid to Scope, being the balance recovered on 13^th February 2006. The Master also ordered interest on that balance, purporting also to rely on Section 35A of the Supreme Court Act 1981. Mr Lopian has conceded before me that it was not open to the Master to make that order, since interest under that section is not recoverable on money paid prior to the issue of proceedings: see I.M. Properties Plc v Cape & Dalgleish (a firm) [1999] QB 297. In order to meet that problem, Mr Lopian was disposed to propose an amendment to the Particulars of Claim to seek recovery of that interest by way of special damages. Although, however, those Particulars include a claim in respect of deceit, Mr Lopian also conceded that the payment of the £9.2 million could not be said to have been induced by any relevant deceit. That concession meant in turn that the lost interest could not be claimed as special damages for any alleged deceit. No other cause of action has been advanced by the DTI on the basis of which it might be said to be arguable that this head of interest might be recoverable as special damages. The outcome was that Mr Lopian did not press me to uphold the Master’s decision in this respect.

The result is that I will allow Mr Imaghodor’s appeal to the extent that I will set aside that part of the Master’s order awarding interest on any sum other than the £50,972.56. I uphold the Master’s order to the extent that he ordered Mr Imaghodor to pay the £50,972.56 with interest. I will hear the parties as to the precise form of the order I should now make. The Master also ordered Mr Imaghodor to pay the DTI’s costs, which he assessed at £26,753.50. In the light of the outcome of the appeal, I will also hear the parties as to whether that order should stand in whole or in part.