Secretary of State for Trade and Industry v Imaghodor

On an appeal concerning discretionary interest, the appellate court should interfere only where the lower court materially misdirected itself or reached an obviously wrong conclusion. Money paid under a mistake of fact is recoverable, even where it was paid to a company used as the defendant’s collection device. The court may treat the company’s receipts as the defendant’s receipts where the relevant circumstances justify that approach. Interest may be awarded on unrecovered money where the defendant’s conduct caused the claimant to be kept out of it. Interest under section 35 A of the Supreme Court Act 1981 cannot be awarded on money paid before proceedings were issued. Such interest cannot be recovered as deceit damages where the payments were not induced by deceit.

The claimant sued the defendant, a former employee, and his wholly owned company after public money was mistakenly paid into the company’s bank account following false invoices and altered supplier details. Most of the money was recovered before proceedings, but £50,972.56 remained unpaid. The Deputy Master entered summary judgment under CPR Part 24 for that sum, interest and costs, and also awarded interest on the money recovered before proceedings.

The defendant appealed. The central issues were whether he was personally liable for the unrecovered money, whether interest was properly awarded on that sum, and whether interest could be recovered on the money recovered before proceedings.

1. Appeal partly allowed. The order requiring payment of £50,972.56 with interest was upheld. The order awarding interest on the sums recovered before proceedings was set aside.
2. The appeal involved review of the Deputy Master’s exercise of discretion. The court should interfere with the interest decision only if there had been a material misdirection or the decision was obviously wrong. Even if the matter had to be considered afresh, the same conclusion would follow.
3. The payments to the company were made under an obvious mistake of fact and were recoverable. The defendant’s possible ability to show that proper observance of the claimant’s internal controls would have prevented payment did not defeat recovery. His own instructions changing the supplier details and his submission of false invoices had initiated the events and involved breaches of his duty of fidelity.
4. Although the money was paid to the company, the defendant was personally liable. The company was wholly owned and controlled by him, was not trading, and was used as a device for collecting money which he promptly treated as his own. The court was entitled to regard the company’s receipts as his receipts, applying the approach illustrated by Trustor AB v Smallbone & Others [2001] 2 BCLC 436.
5. Interest on the unrecovered sum was justified as proper compensation. The defendant had retained money to which he had no right and should have repaid it immediately. The claimant’s possible shortcomings in internal controls did not make it just to deprive it of compensation.
6. Section 35 A of the Supreme Court Act 1981 did not permit interest on money paid before proceedings. The principle in I.M. Properties Plc v Cape & Dalgleish (a firm) [1999] QB 297 applied. The claimant could not recast that interest as deceit damages because the payments had not been induced by any relevant deceit.

• High Court (Chancery Division): Allowed the appeal only to the extent of setting aside interest awarded on sums recovered before proceedings. Upheld judgment for £50,972.56 with interest. Costs were left for further consideration.
• Deputy Master Lloyd: Granted summary judgment under CPR Part 24 for £50,972.56, interest and costs, including interest on money recovered before proceedings.