HCS (North East) Limited v Mehmet Tahir

The claimant sought recovery of monies it says were misappropriated by Mr Mehmet Tahir while acting as its bookkeeper and financial director and, in the alternative, a charge over a property (Ray Mill) improved with sums said to be misapplied. The court found that Mr Tahir acted as an agent/fiduciary in relation to the company’s funds and so had the burden to account for monies received. Applying the equitable rules on mixed funds (Re Hallett and Re Oatway), sums spent on improvement and furnishing of Ray Mill were deemed to have come from the company where Mr Tahir had not discharged the burden of proof. The judge accepted the claimant’s forensic accounting evidence and found that £1,774,416.13 was recoverable from Mr Tahir; the pleaded case against Mrs Tahir failed and was dismissed. Limitation defences were rejected because (a) the funds were received and converted by a quasi‑trustee and (b) the claimant’s knowledge was postponed until HMRC’s 2016 enquiries.

The claimant, a commercial supplier to local authorities, alleged that its long‑standing bookkeeper and financial director, Mr Mehmet Tahir, had diverted company funds between 2011 and 2016 into his own accounts and companies and then into payments and improvements to a family home (Ray Mill). It sought an account and recovery of sums misapplied and, in relation to Ray Mill, either a charge or other equitable relief. The second defendant was Mrs Hazel Tahir, the occupier and beneficiary in respect of whose interest a tracing claim was pursued insofar as improvements to Ray Mill were said to be funded by the misapplied money.

Procedural posture: First instance trial in the High Court (Commercial Court, Newcastle). The defendants represented themselves at trial. A related tracing claim against the estate of Mrs Tahir’s father could not be determined in the present hearing because the estate had not been joined; the judge set out how that tracing issue should be dealt with subsequently.

Issues before the court:

• Whether Mr Tahir was a fiduciary in relation to the claimant’s funds;
• On whom the burden lay to account for sums passing through Mr Tahir and his companies;
• The effect of mixed funds being used to improve Ray Mill and whether the claimant could trace or claim against the property (in whole or part);
• Whether the claimant’s claim was statute‑barred under the Limitation Act 1980.

Reasoning and outcome: The judge held that Mr Tahir occupied a position of trust and confidence, was an agent/fiduciary for the company and therefore had the burden to account for monies he received. The claimant’s forensic accountant (Mr Cottier) produced unchallenged documentary analyses showing receipts and payments. Applying authorities on mixed funds and tracing (notably Re Hallett and Re Oatway), the court treated payments for improvements to Ray Mill as paid out of trust monies where the defendant had not shown otherwise. The judge rejected Mr Tahir’s explanations about bribes, an alleged VAT ruse and loans, found parts of his evidence implausible or unreliable, and accepted the claimant’s calculations that left a balance of trust monies for which Mr Tahir had to account. Limitation defences failed because the claimant’s cause of action fell within Limitation Act exceptions for actions to recover converted trust property and because relevant facts were, in any event, discovered only in 2016. Judgment was entered for the claimant against the first defendant in the sum of £1,774,416.13; the claim against the second defendant was dismissed.

At first instance the court entered judgment for the claimant against the first defendant in the sum of £1,774,416.13. The court held that Mr Tahir was a fiduciary/agent in relation to the claimant’s funds, that the burden lay on him to account for the monies he received, and that, applying the law on mixed funds and tracing, £758,009.17 spent on Ray Mill was trust money for which he was liable. The claim against the second defendant was dismissed because the pleaded case against her was not made out.