CL-2018-000297, CL-2018-000404, CL-2018-000590, - [2025] EWHC 2364 (Comm)

SKAT claimed that if, as it alleged, it was induced by fraud to pay tax refund claims it had no liability to pay, then the traceable proceeds of that fraud were impressed with a constructive trust if, and then from when, they came into the hands of any party that had been privy to the fraud. SKAT relied inter alia on a well-known dictum of Lord Browne-Wilkinson in Westdeutsche Landesbank v Islington LBC [1996] AC 669, at 716C, that “when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient”, which it said had been applied frequently at first instance, for example in Commerzbank v IMB Bank [2004] EWHC 2117 (Ch) at [36], [49], Bank of Ireland v Pexxnet Ltd [2010] EWHC 1872 (Comm) at [57], [61], and Armstrong v Winnington [2013] Ch 156 (Ch) at [127]-[128]. SKAT submitted that such a trust will arise, or re-arise, even if funds have been received in the interim by a party acting in good faith and providing consideration for the receipt, before coming into, or coming back into, the hands of a fraudster, citing Wilkes v Spooner [1911] 2 KB 473, per Vaughan Williams LJ at 483.

I did not understand SKAT’s analysis to be contentious at trial, except for an important objection of principle raised by at least the Shah Ds and the DWF Ds to the effect that for a constructive trust over proceeds to have arisen, SKAT needed to have rescinded its decision to pay the claims in question, or the payments themselves.

SKAT argued that the objection misapplied a doctrine known to contract cases, where it is said that a constructive trust can only arise over assets obtained from the performance of a contract procured by fraud if, and then when, the contract is rescinded. Mr Hoyle, who took this part of the argument for SKAT, submitted that the basis for that doctrine was that in contract cases, the existence of the contract provides a legal basis justifying the receipt and retention of what may have been obtained under the contract. That was why, he argued, the contract in such cases has to be rescinded if the claimant wishes to lay proprietary claim to such benefits; it was not (as at least the Shah Ds argued) that in such cases the intention when the benefit was transferred under the contract was anything other than to transfer full and unconditional legal and beneficial title.