Glen Dimplex Home Applicances Ltd v Smith & Ors

Between 3 June 2005 and 13 October 2010, the First Defendant (“Mrs Smith”) stole £2,811,904.30 from her employer, the Claimant. She committed the fraud by manipulating BACS payments due to suppliers to divert funds, and she concealed it by falsifying creditor listings and forging bank statements. The fraud was discovered in October 2010 whilst she was away from work and unable to continue the cover up. She was summarily dismissed. On 20 June 2011, she submitted to judgment for £2,800,000 plus costs.

The Claimant now seeks summary judgment against the Second Defendant (“Mr Smith”), her husband, the Third Defendant (“Mrs Lewis”), their daughter, and the Fourth Defendant (“Mr Lewis”), her second husband. Judgment in default has been obtained against the Fifth Defendant, Mr and Mrs Smith’s son, and the Sixth Defendant, Mr and Mrs Smith’s grandson and the first husband of the Seventh Defendant. The claims against the Seventh Defendant, first wife of the Fifth Defendant, and the Eighth Defendant, second husband of the Seventh Defendant have been settled.

Thus, whatever the result of this application, it can be seen that Mrs Smith’s greed and dishonesty have brought disaster to her family.

Mrs Smith was employed by the Claimant from 8 September 1975. For 21 years she worked as a Purchase Ledger Supervisor. At the date of her summary dismissal on 18 November 2010, she was earning £25,423.58 gross p.a.

Mr Smith was also employed by the Claimant as an engineer. He retired on 31 March 2005 as a result of a serious back injury sustained in May 2003 whilst he was at work. At the time of his retirement, he was earning £30,540 gross p.a. In May 2005, he appears to have received a tax free lump sum payment of £53,710.75 and a company pension of £5,350 p.a.

Mrs Lewis their daughter lived with her husband Mr Lewis and their two surviving children in Anglesey. She worked for Asda Stores Ltd taking home about £800per month, although in some months her earnings were significantly less

The fraud started on 3 June 2005, some two months after Mr Smith’s retirement, when Mrs Smith arranged for £29,252.60 to be paid from the Claimant to Mr and Mrs Smith’s joint account at the St Helens branch of National Westminster Bank (“NatWest”). At the commencement of the fraud, Mr and Mrs Smith’s assets consisted of their home at 161 St Helens Road, Ecclestone Park, Prescot, Merseyside (“St Helens Road”), owned outright, and £19,032 in their joint account: the cash was the remains of £66,000 realised when they sold their previous home and downsized to St Helens Road and Mr Smith’s pension lump sum payment (Footnote: ¹).

As from 22 June 2005, Mrs Smith arranged for large payments to be made to Mrs Lewis’s account at the St Helens branch of Barclays Bank. The first payment was £39,091.57. Prior to the receipt of the first payment, Mrs Lewis’s assets consisted of 59 Upland Road, Grange Park, St Helens (Footnote: ²) and £944 held in the Barclays account. All payments received from the Claimant were recorded in Mrs Smith’s bank statements as having been made by Glen Dimplex SP. Sometimes there were additional narrative entries such as “Lewis Electrical”, “Lewis”, “Maritime Cargo Ser” and “Maritime”.

The total payments made by the Claimant to Mr and Mrs Smith’s accounts and Mrs Lewis’s account were as follows:

Split between calendar years the following sums were paid into Mr and Mrs Smith’s joint accounts:

I have already indicated that Mr Smith retired following a serious back injury sustained at work. This led to a claim against the Claimant which was settled in November 2007 by payment of £230,205; some £40,000 of this may have been received earlier. £86,000 of the compensation was used to purchase an Aviva joint life investment bond. Another £14,000 went into ISA investments. The balance (according to Mr Smith) was used to make modifications to St Helens Road to cater for his disability and in “nominal gifts and assistance to our family”.

The proceeds of the fraud received into Mr and Mrs Smith’s joint accounts were used in a number of significant capital purchases. These totalled £684,000 and included:

Richard Pughe, a chartered accountant and a partner in BTG Global Risk Partners LLP, has produced two reports which identify the following expenditure out of the joint accounts:

Mr Pughe has also analysed Mr Smith’s own expenditure after the fraud commenced as follows:

There was one other source of funds for Mr and Mrs Smith. In 2006 and 2007, they realised a net sum of £110,000 by equity release on their St Helens Road home. The sums realised were as follows:

Split between calendar years the following sums were paid directly from the Claimant’s accounts to Mrs Lewis’s account at Barclays:

The payments into Mrs Lewis’s account were irregular in timing and amount. As and when the Barclays account went into overdraft or was close to depletion, a further payment was procured from the Claimant by Mrs Smith. The following substantial transactions stand out:

Otherwise, Mrs Lewis appears to have spent the monies received from the Claimant on general expenses and substantial cash withdrawals. By 30 November 2010, her cash resources were only £5,000.

Other substantial gifts of money were made to members of Mr and Mrs Smith’s family. Over £150,000 was given to the 5^th and 6^th Defendants, in addition to the contribution towards the costs of purchasing Baleek. Over £25,000 was given to the 7^th Defendant, in addition to the cost of purchasing Chisledon Close.

Mrs Smith left work with the Claimant on 15 October 2010 and fled to Edinburgh without telling her family, who were understandably extremely concerned. In his defence Mr Smith states that Mrs Smith returned home on around 22 October 2010. In his witness statement, he says he now believes she returned slightly earlier. She returned depressed and tearful, no longer in control of herself.

At 8 a.m. on 19 November 2010, the Claimant’s solicitors executed a search order at St Helen’s Road granted by Steel J. on 18 November 2010. According to Mr Smith and Mrs Lewis this was the first time that they became aware of the allegation that Mrs Smith had been involved in a fraud on the Claimant. Shortly afterwards, she attempted suicide by taking an overdose of pills. The following handwritten notes were found on her. I set them out, omitting personal messages, because they are relied upon by Mr Smith and Mrs Lewis:

In this context, it is relevant to record the following events which took place between 15 October and 19 November 2010:

The allegations against Mrs Smith are that she was liable to pay the £2,811,904.30 stolen from the Claimant. The claims were put in breach of contract, deceit, breach of fiduciary duty, as a constructive trustee of the misappropriated funds, money had and received and unlawful means conspiracy.

As against Mr Smith, the Claimant asserts that:

As against Mrs Lewis, the Claimant alleges that:

As against Mr and Mrs Lewis, the Claimant additionally maintains a tracing claim in respect of Twr Gwyn on the basis that it was purchased with sums misappropriated by Mrs Smith from the Claimant. The Claimant relies on the transfers recorded in paragraph 17(3) above and asserts that Twr Gwyn is held by Mr and Mrs Lewis on constructive or resulting trust for it. A claim is also made in unjust enrichment, on the basis that Mr and Mrs Lewis received monies to which they were not entitled (with which Twr Gwyn was purchased) and it is unconscionable that they should retain them.

In his defence, Mr Smith asserts that, like the Claimant, he has been duped by Mrs Smith. He relied on the contents of the suicide note addressed to him. Following the downsizing and the release of equity in about 2003, he believed that they were “cash rich” outside their incomes from employment. Following his accident, he has been on medication which has impaired his memory. As from shortly after the accident, Mrs Smith assumed total responsibility for and control of their finances, and he did not concern himself with them. He did not know that Mrs Smith had misappropriated funds from the Claimant, and did not know that the funds had been received into joint accounts. He was aware that they had purchased two investment properties in New Road but he understood them to have been purchased from the equity release from St Helens Road. He not aware of gifts to friends and family beyond nominal amounts, and certainly not of the level that would lead him to suspect that Mrs Smith was using misappropriated funds. He only came to know of the alleged fraud when the Search Order was executed on 19 November 2010.

In her defence, Mrs Lewis asserts that she was also duped by Mrs Smith. She was led to believe that Mr Smith’s claim against the Claimant had been settled for over £1 million and that the monies paid to her were gifts from her parents from this compensation. She relies on the terms of the letter addressed to her by her mother when she attempted suicide as supporting this. She makes no admission as to the tracing remedy claimed in respect of Twr Gwyn.

In his defence, Mr Lewis (who has been unrepresented throughout) denies he acted dishonestly or that he received any money or assisted anyone. He states that “the really worrying and distressing thing is I don’t even know what I am supposed to be defending myself against”.

The Claimant now applies for summary judgment against Mr Smith and Mr and Mrs Lewis. It does so in respect of the following causes of action:

In its evidence, consisting mainly of the reports of Mr Pughe and the witness statements of Mr James Laycock, a partner in Gordons LLP, the Claimant sets out the facts which I have summarised in paragraphs 4-22 above. There has been no attempt to controvert them.

In his submissions for the Claimant, Derek Sweeting QC relied particularly on the following points:

In his witness statement made in March 2011, Mr Smith confirms the statements made in his defence. He states that at no time had anything been purchased, and at no time were any gifts made to any person or financial assistance provided, which led him to believe, suspect or even consider that funds were being used outside their resources. He further adds that what may appear to be personal spending needs further investigation. For example, on occasion he went to Costco to purchase stationery-type materials for the Claimant for which Mrs Smith obtained a refund. He had no idea of the vast sums paid out and was shocked by the evidence produced by the Claimant. He indicated that he would seek to obtain further evidence dealing with the detailed points made by Mr Pughe, but in the event none has been produced.

In her witness statement also made in March 2011, Mrs Lewis confirms the statements made in her defence. She did not know or even suspect that her mother was fraudulently taking and using funds from the Claimant. She did not open her bank statements, which she threw away, so she did not know that the moneys were coming from the Claimant. Even if she had, it would not follow that she would have appreciated that this was fraud. She did not appreciate how much money had been given to her in total.

As to the purchase of Twr Gwyn, she deposes that she and Mr Lewis had put the Old Police Station on the market, but a sale fell through. She goes on to state:

“That’s when [Mrs Smith] stepped in and offered to buy it. She said it would be her “retirement nest egg” for her and [Mr Smith] but asked me to keep it in my name until they eventually moved there. I again thought that the funds came from [Mr Smith’s] compensation and their own resources.”

She asserts that the funds regarding the sale of the Old Police Station were transferred to her Barclay’s account in April 2007

In his submissions on behalf of Mr Smith and Mrs Lewis, Mark Harper submitted that, at trial, there needed to be cogent evidence of dishonesty: see Secretary of State for the Home Department v. Rehman [2003] 1 AC 153 at §55. His clients are people of good character. There was a strong presumption that the innocent explanation for the activities alleged to be dishonest is the correct explanation. Summary judgment should only be granted where it is plain and obvious that there has been dishonesty. His clients had a real prospect of success at trial and should be given the opportunity of giving oral evidence in support of their defence that they had no knowledge of Mrs Smith’s fraud. In particular Mrs Smith’s flight to Scotland and the suicide notes supported their fundamental case – that she duped them. Mr Sweeting had made good points, but his clients should have the opportunity of answering them in the witness box.

Mr and Mrs Lewis had an answer to the tracing claim on Twr Gwyn in that she gave good consideration for it by the agreement to sell the Old Police House to Mrs Smith for which £190,000 was paid. It was inappropriate to decide whether Mrs Lewis’s evidence is true at this stage. There should be a trial of the facts.

Mr Lewis did not put in a witness statement. That is not a matter for criticism. In his oral submission to me he said that he felt he could not sign the proposed settlement agreement with the Claimant because his children would suffer.

In reply, Mr Sweeting criticised Mr Smith for being unwilling to deal with the case against him based on his own spending. There had been a spending spree and he made no attempt to deal with the cogent points made. He also criticised his failure to deal with the transactions after Mrs Smith’s disappearance.

He also criticised Mrs Lewis for her failure to engage with the evidence deployed. Her answers consisted of generalities. As regards Twr Gwyn, there was not the slightest evidence to support the case that Mrs Smith had paid £190,000 to buy the Old Police Station. There was nothing in writing as would be required for a sale of land. The property remained in the sole name of Mrs Lewis. There had been no payment of £190,000 to Mrs Lewis. The entire payment for Twr Gwyn had been provided by the Claimant. There was no reason not to declare now that Twr Gwyn was held in trust for the Claimant.

The claims against Mr Smith and Mrs Lewis in dishonest assistance and knowing receipt depend on establishing that they knew that the monies being received were as a result of the breaches of trust – i.e. the fraud – committed by Mrs Smith. The claim for knowing receipt does not require proof of dishonesty, but it does require proof of a sufficient knowledge of the breach of trust that it would be unconscionable for them to retain the monies or their traceable proceeds. Both are serious allegations.

Although the Claimant needs only to prove its case to the civil standard, the more serious the allegation, the less likely it is to be true – see Lord Nicholls of Birkenhead in In Re H & ors (Minors) [1996] AC 563, 586C-H:

This is a summary judgment application. Summary judgment is possible in fraud cases, but should only be granted where it is plain and obvious that there has been dishonesty: see Wrexham Associated Football Club Ltd v. Crucialmove Limited [2006] EWCA Civ 237 §§51 and 57-60 (per Sir Igor Judge, President) in which he observed inter alia:

More recently, in Antonio Gramsci Shipping Corporation v. Recoletos Ltd [2010] EWHC (Comm.) 1134, Gross J. put the matter this way:

In the light of these principles, I have considered very carefully the cases in dishonest assistance/knowing receipt against Mr Smith and Mrs Lewis.

I should start by recording that I find it established beyond doubt that Mrs Smith engaged in a fraud on the Claimant starting on 3 June 2005 and that she stole a total of at least £2,811,904.30. She is a constructive trustee of the monies she stole. That was not admitted by Mr Smith and Mr and Mrs Lewis, but the evidence is overwhelming and, of course, she has submitted to judgment for £2.8 million.

As regards Mrs Lewis, I accept Mr Harper’s submission that it is not sufficiently clearly established at this stage that she knew that the monies she received (in fact) from the Claimant were the result of a fraud committed by Mrs Smith. She has a great deal to answer for – not least the sheer scale of the monies she received and the contents of her bank statements – but she may not have known the true state of her parents’ financial affairs and may have been misled by her mother as to the extent of the compensation received by Mr Smith. In those circumstances it would be inappropriate to enter summary judgment on the dishonest assistance/knowing receipt claims, which must go to trial.

I have reached the opposite conclusion in relation to Mr Smith. Although it is a strong finding to make at an interlocutory stage, I am sure that he must at the very least have strongly suspected that Mrs Smith was stealing from her employer, and deliberately closed his eyes and ears and deliberately did not ask questions in case he learned something he would rather not know. I think it highly likely that actually he was fully aware of what Mrs Smith was doing, but a deliberate closing eyes and ears and a deliberate failure to ask blatantly obvious questions for fear of what he would learn amounts to dishonesty: see Lord Nicholls of Birkenhead in Royal Brunei Airlines v. Tan [1995] 2 AC 378, 389 E-G.

The following matters have driven me to reach that clear conclusion:

For these reasons I have concluded that it is clearly established against Mr Smith that he knew of Mrs Smith’s fraud from the outset. In my judgment, Mr Smith has no real prospect of succeeding in his defence of the claims in relation to the joint accounts. There are limits to the credulity of the Court, even at a summary judgment stage. I find:

It is quite clearly established that the entire purchase monies for Twr Gwyn derived from the Claimant as a direct consequence of Mrs Smith’s fraud. There were paid in three tranches into Mrs Lewis’s Barclays account. She almost immediately transferred most of the money received into a savings account, in which there was only a nominal existing credit. On 2 July 2007, £228,587.48 was transferred on Mrs Lewis’s instruction to her solicitors. That was sufficient to pay the purchase price of £225,000 plus, I expect, the legal and conveyancing costs.

Thus there is no difficulty in tracing the Claimant’s monies, misappropriated by Mrs Smith, into Twr Gwyn. It is clear that the Claimant’s funds were used to pay the entire purchase price. On normal principles, the Claimant is prima facie entitled to trace its funds into that assets and to contend that Twr Gyyn is held in trust for it: see Foskett v. McKeown [2001] 1 AC 102, 130 C-E, per Lord Millett.

Mrs Lewis’s answer, in her witness statement, but not her defence, is that she gave consideration for the monies by agreeing to sell the Old Police Station to her mother for £190,000. There is not the slightest contemporary evidence to support this assertion. There is no signed written agreement as required by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which requires:

In those circumstances, even if I were to accept Mrs Lewis’s evidence (as to which I entertain considerable reservations) I do not see how it can be said that Mrs Lewis gave consideration for the monies paid by the Claimant. There is no contract for the sale of the Old Police Station and Mrs Lewis still owns it absolutely. No other defence of change of position was advanced (even if it were available).

Mr Lewis was anxious to emphasise that he denied that he had been in any way dishonest. It is right that I should record that no allegation of dishonesty is made against him. The tracing remedy does not depend on any dishonesty being proved against Mr or Mrs Lewis.

In my judgment, Mr and Mrs Lewis have no real prospect of succeeding in their defence of the tracing claim in relation to Twr Gwyn. I shall therefore declare that Twr Gwyn is held by Mr and Mrs Lewis on trust for the Claimant absolutely. I will hear the parties as to what other relief should be granted.