Ecclestone v Khyami

In a conversion claim, illegality in the way property was initially obtained does not necessarily defeat a later claim based on a lawful transfer of title and possession. The court asks what transaction gave the claimant its title and immediate right to possession, and whether reliance on the illegal conduct is necessary. A claimant may recover for a defendant’s later conversion even where the claimant itself engaged in earlier wrongdoing, provided the claim rests on an independent lawful transaction. An interim injunction obtained on materially false evidence may itself constitute conversion and will ordinarily engage the cross-undertaking in damages. The court may refuse an inquiry for a party whose serious wrongdoing materially contributed to the injunction, where that party will suffer no substantive loss because it can recover damages for conversion.

The claimant sought delivery up of, and damages for conversion of, a Lamborghini Aventador. She had originally claimed that the car was not a gift to her former partner, the first defendant, but later withdrew that position and compromised her claims against him. The remaining dispute concerned whether the first defendant had transferred title to the second defendant, whether the second defendant had transferred title to the third defendant, and whether the claimant’s interim injunctions had wrongfully interfered with their rights.

The second defendant had obtained possession after arranging for a court bailiff to execute an unrelated warrant. The first defendant then obtained the car from the court and voluntarily surrendered it to the second defendant in reduction of his debt. The central issues were the effect of that surrender, the relevance of the earlier unlawful seizure, the claimant’s conversion by obtaining the injunctions, and the availability of inquiries under the cross-undertakings in damages.

1. Ownership and transfer. The car was a gift to the first defendant. He therefore owned it and was entitled to raise money on its security. Although the claimant retained physical possession after the relationship ended, she had no right to possession as against him.
2. The first defendant voluntarily surrendered the car to the second defendant on 5 April 2013 in part satisfaction of his debt. No particular form of words was required. The surrender transferred possession and title, irrespective of whether the underlying security arrangements were legally enforceable. The second defendant later sold the car to the third defendant, which thereby acquired title.
3. Illegality. The second defendant had participated in serious wrongdoing by arranging the car’s seizure under an unrelated warrant. That wrongdoing did not defeat its conversion claim. The claim depended on the subsequent lawful surrender by the owner, not on the unlawful seizure. The second defendant did not need to rely on the illegal conduct to establish title or possession. The principles discussed in Gray v Thames Trains [2009] UKHL 33, Tinsley v Milligan [1994] 1 AC 340, Bowmakers Limited v Barnet Instruments Limited [1945] KB 65 and Costello v Chief Constable of Derbyshire [2001] EWCA Civ 381; [2001] 1 WLR 1437 supported that conclusion.
4. The claimant’s injunctions were obtained on false evidence that the car had not been a gift. The grant of the injunctions interfered with the second defendant’s and third defendant’s rights and constituted conversion. The claimant had no defence based on her own or the first defendant’s alleged superior title.
5. An inquiry under the cross-undertaking in damages was ordered for the third defendant. It was refused for the second defendant because its serious wrongdoing had materially contributed to the injunction, it would not lose the car or its value, and it could recover damages for conversion in any event. The general principles in Lunn Poly Limited v Liverpool & Lancashire Properties Limited [2006] EWCA Civ 430 were applied subject to the equitable, fact-specific exception.
6. The claimant’s conversion claim was dismissed. The second defendant recovered £7,500. The third defendant was entitled to delivery up, £15,000 damages, and interest on the car’s value and its losses.