London Allied Holdings Ltd. v Lee & Ors

A transaction induced by fraudulent misrepresentation is voidable and may be rescinded, restoring the claimant’s equitable title sufficiently to support tracing. Where fraudulently obtained money has been mixed with other funds, common-law tracing is unavailable, but equitable tracing may proceed through a constructive trust or notional charge. A volunteer who receives traceable proceeds, or property acquired with them, cannot retain the benefit. Fraudulent misrepresentation and unlawful-means conspiracy may both found liability, subject to avoiding double recovery through proprietary relief.

London Allied Holdings Ltd. paid £1 million to Anthony Lee after representations that he and Patrick Dolan could procure and resell the Ritz Hotel, London, and that the payment would secure the relevant contracts and paperwork. No contracts were provided and the money was distributed among Lee, Dolan and others. The claimant sued Lee, Dolan, Margaret Dolan and Jennifer Hodgson for fraudulent misrepresentation, conspiracy, contractual repayment, restitution, tracing and related proprietary relief. The defendants were unrepresented at trial. The central issues were the purpose and repayment terms of the payment, the defendants’ responsibility for the representations, and the availability and scope of equitable proprietary remedies.

1. Purpose and repayment. The £1 million was paid in connection with the Ritz transaction, not Flaxby or compensation for the failed St Neots transaction. Lee promised that the money would be repaid if the Ritz papers and contract were not supplied within a reasonable time, in any event by the end of January 2007. That promise was contractual.
2. Misrepresentation and conspiracy. Lee made the pleaded representations dishonestly, knowing them to be false or being reckless as to their truth. LAH relied on them in making the payment and suffered loss. Dolan was a partner of Lee, alternatively principal of Lee and Farrell as agents, and was also personally party to and aware of the dishonest scheme. Lee and Dolan were therefore liable for fraudulent misrepresentation and unlawful-means conspiracy. The conspiracy involved an agreement or combination to injure LAH by unlawful means, causing loss: [2002] 2 All ER (Comm) 271.
3. Tracing and constructive trust. Common-law tracing was unavailable because the payment had passed through the banking system and had been mixed with other money. Equity nevertheless permitted tracing where the circumstances gave rise to a fiduciary or constructive trust and treated the mixed fund as subject to a notional charge. The court did not need to decide the wider controversies concerning remedial constructive trusts.
4. Rescission. Fraud made the transaction voidable. LAH rescinded it by issuing and serving the proceedings, without having unequivocally affirmed the repayment contract. Rescission restored the equitable title sufficiently to support an equitable tracing claim.
5. Relief. Lee held the retained money and his interest in the Land Rover on trust for LAH. Dolan held the retained traceable money and Mercedes on trust for LAH. LAH could trace into the hands of Margaret Dolan, a volunteer, and was subrogated to the redeemed Barclays charge. Any remaining tortious damages were subject to the proprietary claims and avoidance of double recovery. The court deferred determination of the validity of the transfer of the house to Margaret Dolan.

First-instance judgment. The judgment does not state any prior appellate decision.