HKR Middle East Architects Engineering LC v English

• Jurisdiction: Ireland
• Judge: Mr. Justice Denis McDonald
• Judgment Date: 10 May 2019
• Neutral Citation: [2019] IEHC 306
• Court: High Court
• Docket Number: [2017 No. 6277 P.]
• Date: 10 May 2019

BETWEEN

HKR MIDDLE EAST ARCHITECTS ENGINEERING LC, JEREMIAH RYAN

AND

PATRICK STAFFORD

PLAINTIFFS

AND

BARRY ENGLISH

DEFENDANT

[2019] IEHC 306

McDonald J.

[2017 No. 6277 P.]

THE HIGH COURT

COMMERCIAL

Beneficial interest – Liabilities – Unjust enrichment – Plaintiffs seeking the return of $8,094,873 from the defendant – Whether the money in question was held by the defendant on trust for the benefit of the first plaintiff with the balance held on behalf of a trust which the second plaintiff said he established for the benefit of his children

Facts: The plaintiffs, HKR Middle East Architects Engineering LC (HKRME), Mr Ryan and Mr Stafford, sought the return of $8,094,873 from the defendant, Mr English, together with damages and other relief. There were a number of different bases on which the plaintiffs advanced their claim but the principal ground was that the money in question was held by the defendant on trust for the benefit of the first plaintiff (to the extent necessary to meet its obligations) with the balance (i.e. after discharge of the obligations of HKRME) held on behalf of a trust which the second plaintiff said he established for the benefit of his children.

Held by the High Court (McDonald J) that the claim made by Mr Ryan and Mr Stafford as trustees of the Ryan Childrens’ Trust (RCT) must be dismissed. McDonald J was not satisfied that the RCT had any beneficial interest in the shares in HKRME and accordingly he held that the claim made on behalf of the RCT must fail. McDonald J noted that the true nature of the agreement between Mr Ryan and Mr English was that Mr English would act as a caretaker on behalf of Mr Ryan personally and not as a caretaker on behalf of the RCT. As Mr Ryan had made no personal claim in these proceedings to ownership of the monies, McDonald J held that this finding was of no avail to Mr Ryan in these proceedings. In so far as the claim of HKRME was concerned, McDonald J could not see any basis upon which HKRME could succeed based on the terms of the agreement between Mr English and Mr Ryan. Nor could he see any basis on which HKRME could succeed based on any element of United Arab Emirates company law. However, he was of the view that HKRME was entitled to succeed against Mr English in relation to its claim for unjust enrichment but only to the extent of its claim in relation to unpaid and lawful liabilities.

McDonald J noted that since the trial which took place in late 2018 and early 2019 was confined to issues of liability, the court had yet to hear any evidence in relation to the liabilities of HKRME. In those circumstances, McDonald J held that he would direct the holding of an account and enquiry as to the nature and extent of those liabilities. In the event that any of the liabilities were said to be owed to Mr Ryan or potentially to persons connected with Mr Ryan, McDonald J held that he would reserve to a later time any decision as to whether those liabilities were properly recoverable or whether they should be regarded as irrecoverable on the grounds of illegality or on other public policy grounds. On the conclusion of the account and enquiry directed, McDonald J held that there would be an order directing Mr English to pay to HKRME the amount found to be due in respect of its unpaid liabilities. McDonald J held that the claim brought by HKRME for damages in respect of fees left unpaid on the Aldar Properties (Aldar) contract, the loss of the Aldar contract and the loss of a chance to secure the follow-on contract must all be dismissed as there was no evidential basis for any of those claims.

Claims dismissed in part.

JUDGMENT of Mr. Justice Denis McDonald delivered on 10 May, 2019

Introduction

1 In these proceedings, the plaintiffs seek the return of $8,094,873 from the defendant together with damages and other relief (as described below). There are a number of different bases on which the plaintiffs advance their claim but the principal ground is that the money in question is held by the defendant on trust for the benefit of the first named plaintiff (‘ HKRME’) (to the extent necessary to meet its obligations) with the balance (i.e. after discharge of the obligations of HKRME) held on behalf of a trust which the plaintiff says he established for the benefit of his children.

2 It will be necessary, in due course, to consider, in more detail, the precise basis on which this trust claim is said to arise. In summary, on the basis of the evidence given at the trial, the case made by the plaintiffs was that, in 2011, at a time when the second named plaintiff (Mr. Ryan) was imminently facing bankruptcy, he transferred his shares (which he says were, by that time, held on trust for his children) in HKRME to the defendant (Mr. English) on terms that the shares would be held by Mr. English as ‘ caretaker’ pending a resolution of Mr. Ryan's financial difficulties (i.e. until after he emerged either from bankruptcy or from an arrangement with his creditors). In his evidence at the trial, Mr. Ryan contended that it was part of the agreement that, once he emerged from either bankruptcy or an arrangement with creditors, Mr. English was to return the shares in HKRME to Mr. Ryan. For completeness, it should be noted that, as explained in more detail in paras. 50 – 51 below, this case is somewhat different to the case pleaded in the statement of claim and it may be necessary, at an appropriate point in this judgment, to consider the manner in which the claim is pleaded.

3 Mr Ryan was subsequently adjudicated a bankrupt on his own application to the courts of England & Wales (where the duration of a bankruptcy is limited to one year). Following his discharge from bankruptcy, the shares in HKRME were ultimately returned to Mr. Ryan on foot of a transaction which took the form of a sale of shares with Mr. English as vendor. However, in the meantime (i.e. while the shares in HKRME were still in the legal ownership of Mr. English), sums equating to $8,094,873 were transferred from the bank account of HKRME to a bank account in Guernsey held by Sunvit International Ltd (‘ Sunvit’), a company incorporated in the British Virgin Islands (‘ BVI’). It is important to note that the transfers in question took place with the active encouragement of Mr. Ryan who (as noted above) contended in para. 28 of the statement of claim that the shares were to be held, in the first instance, on trust for the obligations of HKRME, with the balance being held on trust for the benefit of the trust for his children. In his defence, Mr. English claims that the transferred monies were validly and properly paid by HKRME to Sunvit and that Sunvit was controlled by a Guernsey trust which was established for the benefit of Mr English himself and his family.

4 Mr. English also says that there was never any caretaker arrangement in relation to the shares in HKRME. His case is that, as the terms of the relevant share purchase and sale agreements respectively provide, there was a straightforward purchase of the shares by him in 2011 from Mr. Ryan and subsequently a straightforward sale by him of the shares back to Mr. Ryan after the latter came out of bankruptcy. Mr. English says that not only is this reflected in the terms of the share purchase and sale agreements themselves but it is also entirely consistent with the terms of the correspondence that passed between him and Mr. Ryan over a lengthy period of time from 2011 onwards. Mr. English also says that, for as long as he remained as owner of the shares in HKRME, he was entitled to all of the benefits of ownership of those shares and was accordingly entitled to direct the transfer of monies from HKRME to Sunvit. Mr. English also contends that he had, in any event, earned that money through the services he provided to HKRME while it was in his ownership.

5 The position taken by Mr. English is strenuously contested by Mr. Ryan. While Mr. Ryan accepts that the formal legal documents and the correspondence are consistent with the case made by Mr. English, Mr. Ryan contends that both the legal documents and the correspondence in question were (and were always intended to be) ‘ shams’. Furthermore, Mr. Ryan contends that the consideration ostensibly paid by Mr. English for the shares in HKRME was, in fact, made available to him by HKRME itself (albeit by a deliberately circuitous route) and was known by both parties to be an under value (having been arrived at on the basis of accounts that had been deliberately manipulated so as to falsely maximise the level of debt of HKRME and falsely minimise the extent and value of its profits and assets). According to the evidence given by Mr. Ryan at the trial, the documents and correspondence were deliberately put in place to create the impression of a straightforward sale at market value. Mr. Ryan admits that this was done in order to deceive his creditors and any trustee in bankruptcy who might be appointed.

6 In the course of his evidence at the trial, Mr. Ryan freely acknowledged that this was the intention. For example, on Day 7 at p. 41 he said that the purpose of creating these documents was to throw creditors ‘ off the scent’. In the course of his evidence, Mr. Ryan repeatedly insisted that the documents were created for the purposes of ‘ look back’ by creditors or a bankruptcy trustee. This is clear, for example, from his examination in chief on Day 4 of the hearing at p.p. 100-101. In the course of his cross examination, his explanation for most of the documents that were inconsistent with his case was also that they were generated for ‘ look back’. For example, in the course of his cross examination on Day 8, there were as many as 37 references by Mr. Ryan to ‘look back’. Mr. Ryan acknowledged that the purpose of creating sham documents in this way was to give the impression to his creditors and any bankruptcy trustee that the sale was genuine. For...