[2025] EWHC 2830 (Ch)

The following is a summary of the various claimants asserting an economic interest in the funds :-

Mr Augousti does not directly assert an economic interest, but asserts that he has an interest as an unsecured creditor of the Orex Companies as well as being the sole director and ultimate beneficial owner. He maintains that the Orex Companies were expected to have a surplus after paying their secured liabilities to Cyan. He supports the position that Cyan has the economic interest. His position as an unsecured creditor does not need to be dealt with separately in that his ‘interest’ arises effectively from Cyan being successful in its claim.

Mr Nuttall’s position is therefore that he asserts the economic interest in the Funds belongs to the beneficiaries. He spent a lot of his submissions as well as in his evidence criticising what has occurred to date in the various insolvency processes and inviting me to appoint another office holder to deal with the interest of the beneficiaries in the Fund. As I stated during the hearing, the only matter listed for hearing before me was the preliminary issue. I do not propose to deal with othes issues raised. As is clear, the determination of the preliminary issue relates to a consideration of the claims of the parties identified above. None of those claims arise or are affected by criticism of the conduct of the various office holders. The evidence of Mr Loizou as well to a large extent, the evidence of Mr Barnett and the other insolvency office holders is also not relevant, save for any references by both Mr Kubik and Mr Andronikou, to the transfers in and out of HPL from the Wilton Group accounts.

Effectively, unless either the GM Companies or HPL/the beneficiaries establish their economic interest, Cyan will have the economic interest. No one suggested or submitted that the security held by Cyan was invalid or ineffective in any way.

On behalf of the GM Companies, Ms Chaffin-Laird submits that Cyan acted as their agent in entering into the various loan and security agreements, asserting that Cyan was essentially ‘a SPV nominee’ to enter into the lending transaction with the underlying borrower as the GM companies are not named in the loan agreements or the security documentation, reliance is placed on Cyan acting for them as agent for an undisclosed principal.

A useful summary of the general principles is located in Bowstead & Reynolds on Agency (23^rd Edn) at ¶8-068:-

“(1)

An undisclosed principal may sue or be sued on a contract made on the principal’s behalf, or in respect of money paid or received on his or her behalf, by an agent acting within the scope of the agent’s actual authority. Where a contract is involved, the agent on entering into it must have intended to act on the principal’s behalf.

(2)

(Perhaps), an undisclosed principal may also be sued on any contract made, or in respect of money received, on the principal’s behalf, by an agent acting within the authority usually confided to an agent of that character, notwithstanding limitations put upon that authority as between principal and agent.

(3)

Where an agent enters into a contract, oral or written, without reference to agency, evidence is admissible to show who is the real principal, in order to charge the principal or entitle the principal to sue on the contract.

(4)

The terms of the contract may, expressly or impliedly, exclude the principal’s right to sue and the principal’s liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.”

Cyan submits that the clear wording of the security documentation effectively excludes the principle of undisclosed principal applying. The evidence relied upon by the GM Companies in support of their case in relation to the agency/principal assertion is challenged by all the other parties with the exception of Mr Barnett who remains neutral in these proceedings. Ms Chaffin- Laird submits that, on the evidence, the GM Companies case is established. It is therefore necessary to deal with the evidence relied upon before dealing further with the legal principles of principal and agent.

According to Mr Kubik, he is still investigating the transfers to and from HPL in order to be able to assess whether repayment in full of sums taken from the HPL members accounts has been returned. There is also an issue as to the provenance of certain sums which the GM Companies assert have been paid to HPL. With these reservations, Ms King provided in her supplementary skeleton a useful summary in relation to the relevant general trust principles which apply to the HPL potential claim.

Snell’s Equity ( 35 th edition ) at paragraphs 26-011-26-012 states the general principles as follows:-

“(a)

No universal test.

It has been said that there is a:

“jurisdiction by which a court of equity, proceeding on the ground of fraud, converts the party who has committed it into a trustee for the party who is injured by that fraud.”

But in common with all other situations where a trust may be imposed by operation of law, it would be incorrect to interpret such a statement as a general test for when a constructive trust will be imposed. While the cases recognise many instances of fraud where a trust has been imposed, there is no “universal principle that wherever there is personal fraud the fraudster will become a trustee for the party injured by the fraud”. The cases where the defendant fraudulently relies on the informality of a transaction to deny the beneficial interest of the claimant have been considered elsewhere. Some of the remaining instances are considered in this section.

(b)

Fraudulent taking.

A distinction must be drawn between fraud consisting in the outright taking of a person’s property, wholly without his consent, and a transaction induced by a fraudulent misrepresentation. In the first case, it has been said that a thief who steals the property of another holds it on constructive trust for the claimant. The thief’s possessory title is subject to the claimant’s equitable entitlement to have the property specifically restored to him so that he holds it as a constructive trustee. Where the thief steals money from the claimant’s bank account, the resulting credit in the thief’s account is held on trust for the victim. The victim becomes beneficially entitled to thief’s contractual right to draw against the bank. In each case, the consequence is that the claimant can rely on the equitable rules of tracing to recover his money rather than the less convenient common law rules of recovery.”

The imposition of a constructive trust is not a discretionary remedy but institutional rather than remedial. Accordingly, the factual circumstances will govern whether at law a constructive trust is imposed. It requires certainty of of subject matter and of the beneficial object of the trust. The defendant may still retain the property or the property can be traced into the hands of another party.

In Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 Lord Browne-Wilkinson discussed the legal consequences of a theft on title to stolen goods by using the example of a stolen bag of coins:

“The argument for a resulting trust was said to be supported by the case of a thief who steals a bag of coins. At law those coins remain traceable only so long as they are kept separate: as soon as they are mixed with other coins or paid into a mixed bank account they cease to be traceable at law. Can it really be the case, it is asked, that in such circumstances the thief cannot be required to disgorge the property which, in equity, represents the stolen coins? Moneys can only be traced in equity if there has at some stage been a breach of fiduciary duty, i.e. if either before the theft there was an equitable proprietary interest (eg. the coins were stolen trust moneys) or such interest arises under a resulting trust at the time of the theft or the mixing of the moneys. Therefore, it is said, a resulting trust must arise either at the time of the theft or when the moneys are subsequently mixed. Unless this is the law, there will be no right to recover the assets representing the stolen moneys once the moneys have become mixed.

I agree that the stolen moneys are traceable in equity. But the proprietary interest which equity is enforcing in such circumstances arises – under a constructive, not a resulting, trust.”

In Foskett v McKeown [2000] 3 All ER 97 a property developer (Mr Murphy) held monies on trust to carry out a development. He instead mixed those monies with his own in his bank account and subsequently used the mixed monies to pay premiums on a life assurance policy on his own life, vested in trusts for his children. After his death, the life assurance company paid out on the policy. The beneficiaries of the development monies trust made a proprietary claim to a share in the monies paid out by the life assurance company. Lord Millett explained at 120 that:

Lord Neuberger in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2012] Ch 453 stated that:

“I do not doubt the general principle, reiterated by Lord Millett in Foskett v McKeown [2001] 1 AC 102, that if a proprietary claim is to be made good by tracing, there must be a clear link between the claimant's funds and the asset or money into which he seeks to trace. However, I do not see why this should mean that a proprietary claim is lost simply because the defaulting fiduciary, while still holding much of the money, has acted particularly dishonestly or cunningly by creating a maelstrom. Where he has mixed the funds held on trust with his own funds, the onus should be on the fiduciary to establish that part, and what part, of the mixed fund is his property. Unless constrained by authority, I should therefore be very reluctant to accede to the defendants' case on this point. In fact, it seems to me that authority actually supports my view.” (§ 138)

Where a defendant claims to be a bona fide purchaser, he has the burden of proving that: Barclays Bank Plc v Boulter [1998] 1 WLR 1:

“It is well established at this level of decision that the doctrine of bona fide purchaser for value without actual or constructive notice is a defence which can be raised to defeat a claim of an equitable right or interest and that the burden is on the person raising that defence to plead and prove all its elements: it is a “single defence.”” (8F-9A per Mummery LJ).

None of the parties disputed these general principles of law in relation to constructive trusts. On the facts of this case, Ms Chaffin-Laird disputed that a trust claim arose because on the GM Companies case, the sums which had been removed from the HPL members accounts had been repaid. Mr Shaw on behalf of Cyan raised the issue that the tracing exercise may not be possible because whilst tracing from HPL to Cyan was clearly possible, the tracing to the Orex Companies may not be possible in so far as the Orex Companies were bona fide purchasers for value. There was no evidence before me relating to the knowledge or otherwise of the Orex Companies on this issue. When this issue was raised before me during the hearing, Mr Augousti submitted a lack of knowledge on behalf of the Orex Companies, but this is, in my judgment, simply not evidence directed at the issue with the burden firmly on the recipient of the relevant property subject to the constructive trust. A further difficult legal issue arose in so far as the funds are due to be paid under the security documentation to Cyan, that party will hold the funds on trust for the HPL members. Despite these issues which were not really developed before me, the starting point is to evaluate the evidence presented before me and to make findings.

I will set out the factual background and consider the evidence provided by the factual witnesses, being Mr Flanagan, Mr Garwood and Mr Rossier on behalf of the GM Companies which relate to the preliminary issue. This will include considering the documentation included in the evidence before me.

The background to the Wilton group of Companies is provided by Mr Flanagan in certain of his witness statements. The administrators of Cyan and HPL make no specific comments in relation to the background provided by Mr Flanagan, but do dispute his assertions relating to the lending operations and in particular the Cyan transaction.

According to the fourth witness statement of Mr Flanagan dated 10 October 2024, he established the Wilton Group of companies ( the Wilton Group) about 23 years ago. He states that the companies initially offered accountancy and tax advice but then the Wilton Group business expanded into additional sectors, being professional services, investments, pensions and insurance. He asserts that the overall group business was successful responsible for over £4 billion of assets.

Mr Flanagan’s mother, Margaret Flanagan and his partner Nicole Hewson, are the persons with significant control of the Wilton Group.

Mr Flanagan states that he has always played a leading role in the Group’s business, taking the title of Chief Executive Officer in around 2016. According to him, the Group operated in four different places, being the UK, Ireland, the Isle of Man and United Arab Emirates. The UK business was held by Wilton UK. He states that having set up how the overall structure of the Group’s business and in particular the way in which lending would be structured, he then delegated the day to day running of the Group’s different divisions to others. From 2016, he remained a member of the ‘Wilton Lending Committee’ and had, he asserts, knowledge of most pending transactions arranged by the Wilton Group.

Mr James Robson was in charge of what Mr Flanagan called ‘the Investments Division’ until his resignation effective on 31 December 2022. Mr Flanagan then took over the running of what he called ‘the secured lending business’ which it appears was in the investments division. The UK holding entity was Wilton UK which, according to Mr Flanagan was the UK holding entity and which also carried on business as an accountant and tax advisor. According to Mr Flanagan, Wilton UK held the shares in the subsidiaries which included, HPL.

Alongside other businesses, the Wilton UK carried out what he described as a loan management business which brokered bridging finance as between lenders and borrowers. Mr Flanagan states that these loans were funded by the raising of funds from the Group’s existing clients. According to him, in 2022, the Group’s management decided to spin off its lending and loan management business into the GM companies. According to him, the loan management business was then rebranded as Guiness Mahon.

According to Mr Flanagan, he sourced investment for businesses by presenting various ‘syndicated’ lending opportunities to groups of private investors. He states that most of these lending opportunities were property development loans. He states in his fourth witness statement that he considered that these might be both lucrative and not excessively risky as they had the benefit of security over the property in question. He states that some of these investors were pension scheme investments which came through HPL.

He explains as follows at paragraph 22 of his fourth witness statement :-

He describes how the investment opportunities operated in paragraphs 24 and 25:-

At paragraph 26, Mr Flanagan states, ‘The commercial purpose of the syndicates was simply to enable the syndicate members to invest in secured lending transactions for a profit’. At paragraph 27, he states as follows in relation to the existing documentation :-

The SPV which Mr Flanagan asserted was set up for the sole purpose of being a nominee in a lending transaction and for holding the benefit of any underlying asset or security didn’t have a bank account. It used the bank account of other Wilton Group companies. As stated by Mr Flanagan at paragraphs 37 and 38,