Soutzos v Asombang & Ors

A lender claiming deceit must identify a false representation, prove that it was made knowingly or recklessly with an intention that it be acted upon, and establish reliance and loss. A representation that loan money will initially be used for a stated purpose does not, without more, create a Quistclose trust. That requires an intention that the money is not at the borrower’s free disposal and may be used only for the stated purpose. A sham requires a common intention among all parties to create a false appearance of legal rights. A claim under Insolvency Act 1986, section 423 requires proof of an undervalue transaction, the statutory purpose and prejudice or potential prejudice to the claimant. Declarations of trust were therefore effective, but the claimant’s deceit, conspiracy, accessory liability and section 423 claims failed.

The claimant lent £620,000 in 2005 to the first defendant, who was later made bankrupt and discharged. The claimant alleged that the fourth and fifth loans had been induced by fraudulent misrepresentations and were debts falling outside the bankruptcy release provisions. He also claimed unlawful means conspiracy against all three defendants, dishonest assistance and knowing receipt against the second and third defendants, and challenged declarations of trust and later property transfers under section 423 of the Insolvency Act 1986.

The court determined whether the alleged representations were made, whether the claimant relied on them, whether the loans were subject to Quistclose trusts, whether the trust declarations were shams or undervalue transactions, and what debt declarations could properly be made despite the first defendant’s discharge.

1. Deceit. The claimant did not prove that the fourth or fifth loan was induced by fraudulent misrepresentation. Although the first defendant probably referred to the proposed properties, the evidence did not establish an exclusive-use representation, a representation concerning control, or reliance on any such representation. The claimant lent because he trusted the first defendant, not because of the alleged purpose of the loans. The deceit claims therefore failed.
2. Conspiracy. Unlawful means conspiracy requires unlawful action pursuant to a combination or agreement, together with loss caused by that conduct. A common intention may be inferred from conduct, but assistance alone does not establish conspiracy. Even assuming deceit, there were no sufficient overt acts showing that the second or third defendant knew of, or intended, deception, and injury was not proved to have been intended. The conspiracy claim failed.
3. Dishonest assistance and knowing receipt. A Quistclose trust arises only where the parties intend that money advanced for a specific purpose is not at the borrower’s free disposal and must be used exclusively for that purpose. The fourth and fifth loans were not shown to have been subject to that restriction. The accessory claims consequently failed. In any event, money applied towards the stated property purposes would not have been misapplied, and dishonesty or unconscionability was not proved.
4. Declarations of trust and section 423. The declarations of trust were intended to be effective. Inaccuracies, artificiality, delayed disclosure and the absence of Land Registry restrictions did not establish a sham, particularly since a sham requires a common intention to create different rights from those appearing on the documents. The claimant did not prove the statutory purpose, undervalue or prejudice required by section 423, and obtained no relief under that section.
5. Orders. No relief was granted against the second or third defendants, and no inquiry or declarations concerning the properties were ordered. Declarations were made that, but for bankruptcy discharge, the first defendant would have owed £600,000 plus 1% monthly interest from 1 January 2006 until bankruptcy in respect of the fourth loan, and £165,000 in respect of the fifth loan. Those liabilities were unenforceable by reason of the discharge.

First-instance decision. No prior appellate decision is stated in the judgment.