A3/2004/2176 
Neutral Citation Number: [2005] EWCA Civ 722
IN THE SUPREME COURT OF JUDICATURE 
IN THE COURT OF APPEAL (CIVIL DIVISION) 
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
(NICHOLAS STRAUSS QC)
Royal Courts of Justice 
Strand 
London, WC2 

Thursday, 12 May 2005
 
B E F O R E:

LORD JUSTICE BUXTON 
 
LORD JUSTICE CLARKE 
 
LADY JUSTICE ARDEN 
 
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SINCLAIR INVESTMENT HOLDINGS SA
Claimant/Respondent
-v-
 
(1) VERSAILLES TRADE FINANCE LIMITED
(2) AV LOMAS 
(3) ROBERT W BIRCHALL 
Defendants/Appellants 
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(Computer-Aided Transcript of the Stenograph Notes of
Smith Bernal Wordwave Limited
190 Fleet Street, London EC4A 2AG
Tel No:  020 7404 1400 Fax No: 020 7831 8838
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MR MATTHEW COLLINGS (instructed by Messrs Denton Wilde Sapte) appeared on behalf of the Appellants
LORD DAN BRENNAN QC AND MR TONY OAKLEY (instructed by Liam Hemmings of Sinclair Investments Ltd) appeared on behalf of the Respondent
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J U D G M E N T
1.	LADY JUSTICE ARDEN:  This is an appeal, with permission of Peter Gibson LJ, of Versailles Trade Finance Limited ("VTFL") against the order of Mr Nicholas Strauss QC (sitting as a Deputy Judge of the Chancery Division) dated 28 September 2004 allowing, in part, an appeal against the order of Master Bowman dated 16 March 2004, refusing to strike out the claim in this case and giving permission to amend the particulars of claim.  
2.	On this appeal Mr Matthew Collings appears for VTFL, and he seeks to establish that there is no reasonable prospect of success on two of the pleaded claims.  If he is successful on both of these points, the claim would have to be struck out.  
3.	The background can be summarised as follows.  VGTL and TPL, formerly Versailles Trade Limited, were associated companies which formed part of an informal group known as "the Versailles Group".  VGTL was a subsidiary of a listed company (Versailles Group PLC).  A major shareholder in that company was Marrlist Limited, owned by a Mr Cushnie.  According to the parties, Mr Cushnie and Mr Clough were the main directors of the companies in the Versailles Group, although it appears that Mr Cushnie denies that he was a de jure director, at least of TPL, in separate proceedings brought by Sinclair against him.  
4.	The business of the Versailles Group was in accelerated discounted trading.  The details of this business are not important for present purposes, save that it involved raising money from third party investors called "traders", and investing that money on their behalf in manufactured goods purchased from the manufacturer and sold on to purchasers.  One such trader was the respondent ("Sinclair"), for whom Lord Brennan QC appears.  
5.	On about 9 April 1997, Sinclair entered into a trader's agreement, replacing earlier agreements which we are told were, so far as material, in like terms.  I can then take the matter up from the pleadings.  The amended particulars of claim are at page 30 of the appeal bundle: 
"7) The Terms of the Agreement, included amongst other things:
a) A statement that the Claimant thereby would provided[sic] TPL with the sum of £2.35 million (the "Funds") for the purposes of buying and selling goods for the Claimant subject to the conditions contained in the Agreement.
b) A condition that if any part of the Funds were not used in the purchase of goods then they would be deposited by TPL in trust for the Claimant in a money bank account.
c) A condition that unless the Claimant directed otherwise TPL would account to the Claimant for the sale and purchase of all goods and the profit therein on a quarterly basis and would pay the net profit to the Claimant with quarterly reports if so requested and in the absence of any specific direction any profit would be deposited by TPL in trust for the Claimant in a money bank account.
8) The Claimant had already duly paid the sum of £2.35 million to TPL by means of the four transfers referred to in paragraph 6 above pursuant to and on the terms of the four earlier agreements which the Agreement replaced."  
6.	It is alleged that Sinclair's monies were not dealt with in accordance with the agreement ("the trader's agreement").  Indeed, we are told that the monies were part of monies used by the Versailles Group to inflate its turnover, with the result that Marrlist was able to sell its shares in Versailles Group PLC at a profit.  This profit was used in part to repay a mortgage on a substantial property in Kensington owned by Mr Cushnie, who in consequence received some £8.6 million on its sale.  There have been criminal proceedings, but for the purposes of this appeal I need not refer to them.  I can return to the pleadings: 
"13A) Mr Cushnie personally dealt ON HIS OWN BEHALF with the representatives of the Claimant and presumably also with the other persons who had provided TPL with funds on the same or similar basis ("the Traders") IN THE FOLLOWING WAYS: 
 (i) Mr Cushnie persuaded the principal adviser of the Claimant to advise the Claimant to invest in TPL in the course of a series of meetings over a number of years, at which Mr Cushnie explained in detail how funds provided to TPL would be dealt with, particularly emphasising that any funds which were not being used in the purchase of goods would be held on trust.  Further, on 14 February 1996, immediately prior to the first transfer of funds by the Claimant to TPL, Mr Cushnie had personally written to the company secretary of the Claimant setting out the basis on which any funds transferred would be used and managed. 
 (ii) Mr Cushnie repeatedly stated to the principal adviser of the Claimant that he dealt personally with the relationship between TPL and the Traders and he PERSONALLY MONITORED EACH TRADER'S INVESTMENT, BEING ABLE TO IDENTIFY AT ANY TIME THE TRADES IN WHICH EACH TRADERS' FUNDS WERE INVESTED.  FOR THESE REASONS THE PRINCIPAL ADVISER FELT THAT MR CUSHNIE WAS A PERSON UPON WHOM HE AND THEREFORE THE CLAIMANT COULD RELY.  MR CUSHNIE personally signed all five of the agreements between the Claimant and TPL, including the Agreement. 
 (iii) Once the Claimant had invested with TPL, Mr Cushnie met the principal adviser of the Claimant two or three times a year and also organised annual meetings between himself and all the Traders?  At these meetings Mr Cushnie invariably gave assurances that the funds invested with TPL, and therefore the Funds, were being used AND WOULD CONTINUE TO BE USED in accordance with the terms of the agreements which they had signed with TPL, and therefore in accordance with the terms of the Agreement, and that those funds were ring-fenced and kept separate from the funds utilised by the VTFL.  IT WAS THESE ASSURANCES WHICH INDUCED THE PRINCIPAL ADVISER TO ADVISE THE CLAIMANT TO LEAVE ITS FUNDS PLACED WITH TPL. 
 (iv) The last of these annual meetings was held at the Lanesborough Hotel, London, in December 1999 and took place a few days after trading in the shares of Versailles Group plc had been suspended.  At this meeting, at which the principal adviser of the Claimant was present, Mr Cushnie personally assured the Traders that their funds were safe and ring-fenced and that those funds were invested in a diversified portfolio of receivables, each of which was individually insured. 
 (v) Mr Cushnie's own solicitor, Keith Edward Oliver of Messrs Peters & Peters, has deposed in an Affidavit filed in the proceedings in the British Virgin Islands relating to the liquidation of the TPL that Mr Cushnie had in January 2000 personally made, on behalf of Marrlist Limited, a loan of £1.75 million to TPL to enable TPL to meet its then profit distribution obligations to existing Traders.  THEREAFTER MR CUSHNIE, WHO WAS CERTAINLY BY THEN NOT A DIRECTOR OR OFFICER OF TPL, OFFERED THOSE FUNDS TO THE TRADERS AS PART OF A SCHEME OF ARRANGEMENT WHICH HE WAS PROPOSING AS AN ALTERNATIVE TO THE LIQUIDATION OF TPL. 
13B) As a result of the personal relationship which Mr Cushnie developed with the principal adviser of the Claimant, and therefore with the Claimant, individually as well as with the traders in general, and the specific representations which he personally repeatedly made to the principal adviser of the Claimant and to the traders as a whole, Mr Cushnie owed fiduciary duties to the Claimant similar to those which he owed to TPL and VTFL and in particular: 
 (i) A duty not to make personal profit or benefit by reason of his fiduciary position, save as disclosed to and properly authorised by the Claimant. 
 (ii) A duty to account to the Claimant for any secret profit received in connection with TPL's affairs and/or received by virtue of his position with TPL and VTFL and/or obtained by virtue of any use of the funds which was not permitted by the Agreement. 
 (iii) A duty not to act so as to place his personal interest in conflict with any duty owed by him to TPL, to VTFL and to the Claimant and/or not to misuse his fiduciary position for his own advantage." 
7.	The words underlined, except those in capitals in paragraphs 13A and 13B represent amendments permitted by the judge.  The words in capitals represent draft amendments   which Lord Brennan has placed before us but which he says are not essential to be pleaded, but which could be pleaded if necessary.  It will be seen from paragraphs 13A and 13B that it is alleged that there was a fiduciary relationship between Mr Cushnie personally and Sinclair.  
8.	There is a further claim in the pleadings in paragraph 15A which proceeds on the basis that no fiduciary relationship is established:  
"Alternatively, Mr Cushnie made these profits on the sale by Marrlist limited of shares of Versailles Group PLC as a result of the fact that TPL and VTFL had fraudulently used the Funds in order to bring about the artificial increase in the value of the turnover and subsequently the share price of Versailles Group plc.  Because these profits were made through the fraudulent use of the Claimant's property, Mr Cushnie held such profits on constructive trust for the Claimant and/or had to account to the Claimant for such profits."
9.	The judge, in his judgment, held that the issue whether there was a fiduciary relationship should be resolved at trial.  He held that Mr Cushnie was not alleged to have agreed to act for Sinclair generally as a fiduciary, but that that was not an objection to his being a fiduciary for Sinclair.  He cited a passage from Finn on Fiduciary Obligations.  He noted that the Master had said that the facts as pleaded did not approach the situation where the court would hold that the relationship was fiduciary in nature:  The judge continued:  
"26. I do not think that the position is so clear. Much may depend upon how the evidence turns out, but it seems to me to be at least arguable on the facts pleaded that Mr Cushnie (who may not have been a director of TPL at any of the relevant times and was not formally a director after January 1998) was giving personal undertakings which were sufficient to give rise to fiduciary duties to Sinclair and possibly to other Traders, and to an obligation to account for profits made by him in consequence of the breach of those duties.  Mr Collings referred me to Shalson v Russo [2003] EWHC 1637 (Ch.), [2003] WTLR 1165 at 1210-1 paras. 131-2, in which Rimer J held that the defendant owed fiduciary duties only to the company which was entrusted with the claimant's money, and not to the claimant, even though he was not a director of the company. But that was a decision on the facts of the case reached after hearing all the evidence. Whilst it is in some cases possible to proceed on assumed facts, in the present case the issue may be not so much what Mr Cushnie said, but whether in the context of the relevant conversations he undertook personal responsibilities. This is not easily resolved on the basis of an assumption that the pleaded facts are correct. In my view, the issue as to whether Mr Cushnie owed a fiduciary duty should be resolved at trial; on this ground alone I would allow the appeal."
10.	Likewise, the judge held that the alternative claim in constructive trust, though novel, should proceed to trial:  
"30. The Master rejected this part of Sinclair's argument, on the basis that there was 'overwhelming difficulty' in tracing or following since the only identifiable fund was that resulting from the sale of shares in VGPLC. Clearly, that is right, but it does not seem to me to be dispositive of the claim. In my view, it is arguable that in circumstances in which, even though there is no question of tracing, the defendant has been party to the fraudulent misuse of the claimant's funds in such a way as to enable him to profit from illegitimate share dealings, it would be unconscionable for him to retain them and the law should impose a trust.  The law is not settled on the issue as to how far a constructive trust is to be imposed on profits resulting from fraudulent transactions, there is no authority in a case involving the same or similar facts and I do not think that it would have been appropriate for me, even if I had considered the case based on fiduciary duty unarguable, to determine this issue summarily on an application of this kind."
11.	I now turn to the submissions on this appeal.  I start with the submissions of Mr Collings on the fiduciary relationship issue.  Mr Collings submits that directors can be personally liable in negligent misstatement and deceit.  But the claim in the present case is most unusual.  He accepts, however, it is possible in principle for a director to owe a parallel fiduciary duty to that of his company which has agreed to act as trustee.  As to what would have had to have been alleged, he accepts that there is no definition of a fiduciary, but he relied upon Snell's Equity, 31st Edition, at paragraphs 7-08 and 7-09: 
"7-08  There is, however, growing judicial support for the view that 'a fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence'."  
12.	In paragraph 7-09, Snell states that it is possible for there to be a fiduciary relationship other than in the normal established situation: 
" ... provided those circumstances are such that it is reasonable to expect that the fiduciary will subordinate his interests and act solely in the interests of the principal."  
13.	Mr Collings relies on the decision of the Privy Council in Arklow Investments Limited v Maclean [2000] 1 WLR 594, and in particular on a passage at page 599 to 600.  At this  point, Henry J, giving the advice of the Privy Council, states as follows: 
"In these circumstances did FAR owe a duty of loyalty to Arklow? The dictum of Millett LJ in Bristol and West Building Society v Mothew [1998] Ch. 1, 18 is apposite:  
'A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. As Dr. Finn pointed out in his classic work Fiduciary Obligations (1977), p. 2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary'.
Their Lordships are unable to see an evidential basis for finding that a relationship of trust and confidence, in this sense of undertaking an obligation of loyalty, arose in these circumstances. In considering this question it is essential not to confuse the claimed duty with the separate duty to respect confidential information. This distinction does not appear to have been made sufficiently clear in the High Court, and has probably led to what was described as Temm J.'s conflation of the two issues. Here FAR did not undertake any obligation, either expressly or impliedly, to act on behalf of Arklow. It had made an offer to do so, which from its receipt was effectively treated by Arklow as unacceptable. FAR had no authority, actual or ostensible, to act on behalf of Arklow. Arklow never accepted the existence of a relationship, the benefits of which it now claims for itself. Neither had the stage been reached whereby it could be said that either an informal arrangement had come into existence or a continuing course of conduct between the parties had been undertaken which could give rise to the fiduciary relationship. Put shortly, there was no mutuality giving rise to the undertaking or imposition of a duty of loyalty. The relationship of these parties never extended beyond one created by and limited to the giving and receipt of confidential information." 
14.	Mr Collings submits that Mr Cushnie would have been in a position of hopeless conflict since he also owed fiduciary duties to TPL.  He further submits, forcefully, that the assurances pleaded look more like warranties or representations actionable at common law than the assumption of personal responsibility as a fiduciary.  
15.	Lord Brennan has reminded the court of the correct approach on an application such as the present, and among other authorities has referred us to Three Rivers District Council v the Bank of England [2003] 2 AC at page 1, in particular to the speech of Lord Hope, and to the following passage at paragraph 95 of his judgment.  This appears under a passage whether the claim should be summarily struck out.  Lord Hope said: 
"I would approach that further question in this way. The method by which issues of fact are tried in our courts is well settled. After the normal processes of discovery and interrogatories have been completed, the parties are allowed to lead their evidence so that the trial judge can determine where the truth lies in the light of that evidence. To that rule there are some well-recognised exceptions. For example, it may be clear as a matter of law at the outset that even if a party were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks. In that event a trial of the facts would be a waste of time and money, and it is proper that the action should be taken out of court as soon as possible. In other cases it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based. The simpler the case the easier it is likely to be to take that view and resort to what is properly called summary judgment. But more complex cases are unlikely to be capable of being resolved in that way without conducting a mini-trial on the documents without discovery and without oral evidence. As Lord Woolf said in Swain v Hillman, at p 95, that is not the object of the rule. It is designed to deal with cases that are not fit for trial at all." 
Thus, Lord Brennan urges caution in the exercise of the court's powers of striking out, and particularly so where an area of law is a developing area or uncertain.  
16.	Lord Brennan relies on the assurances as summarised by the judge in paragraph 21 of the judgment.  The judge there noted that the essence of the assurances was to "ensure the proper use of Sinclair's funds". 
17.	Lord Brennan submits that the judge was correct to say that a trust could be for a limited purpose only, in this case, for the use of the funds as defined in the amended particulars of claim.  Accordingly, Lord Brennan submits that when Snell speaks of a fiduciary having to agree to act solely in the interests of his principal, that must be read as solely in the interests of the principal with respect to the matter the subject of the fiduciary relationship.  Lord Brennan stresses that there were repeated assurances in this case, and that they led Sinclair to maintain its investment with TPL.  Sinclair acted by a manager, Mr Hill, who understood that Mr Cushnie was taking personal responsibility.  Lord Brennan submits that although reliance is not an essential element of the claim, Mr Hill relied on the assurance.  
18.	I must in a moment examine the pleadings in some detail, but first I propose to deal with the question of principle as to whether or not, subject to detailed examination of the pleadings, the allegation of a fiduciary relationship discloses a cause of action in law.  There is clearly an allegation of a personal undertaking by Mr Cushnie.  That allegation is in paragraph 13A.  The only question is what that undertaking amounted to in law.  It is not enough, as Mr Collings has submitted, for it to be merely a representation that the funds were safe, although representations sufficed in Fairline Shipping Corporation v Adamson [1975] QB 180 and Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830.  So the question is: are the facts as pleaded sufficient, as the judge held, to amount to an allegation of a fiduciary relationship?  
19.	Normally, of course, the court is dealing with the relationship which it is well-established constitutes a fiduciary relationship, such as the relation between the trustee and beneficiary or between a director and his company.  Fiduciary relationships are not of course confined to situations where there is a relationship of trustee and bankruptcy: company directions for instance are not, properly speaking, trustees.  This appeal sends us back to first principles as to what characterises a fiduciary relationship. 
20.	We have, however, been referred to the judgment of Millett LJ in Bristol & West v Mothew, and I have already read out the relevant passage, and indeed it was cited by the judge.  That authority very helpfully shows that the defining feature of a fiduciary relationship in a case like this is the assumption of a duty of loyalty.  Applying that in the present case, in my judgment if it is alleged that a person who does not fall within the usual categories of a fiduciary relationship, such as a trustee and director, made manifest his intention into enter into a fiduciary relationship -- that is, to undertake to the other a duty of loyalty -- there would be a sufficient pleading of fiduciary relationship.  
21.	Neither Millett LJ, nor Professor Finn (now Justice Finn of the Federal Court of Australia) in the extracts cited by the judge, refers to the need for the person in question to have any particular relationship with any item of property.  There is obviously no difficulty with the classic trustee under a family trust, since he will hold the legal title to the trust assets, or be entitled to that legal title.  In a case such as this, it seems to me to be necessary that the fiduciary relationship should be with respect to an item of property, and that requirement explains why a fiduciary relationship may be specific and govern only part of a party's relationship with another. 
22.	This is not, however, a case where it can be said that Mr Cushnie had any legal title to the monies which Sinclair advanced or to any debt representing those monies.  But he was a director of TPL (or was alleged so to have been), and Sinclair's pleaded case in paragraph 13A is, as I see it, that he effectively epitomised TPL so far as the management of its relationship with the traders is concerned.  From that it can be deduced that he in practice controlled the exercise, or was in a position to control the exercise, by TPL of its powers over Sinclair's money.  In my judgment, it is sufficiently arguable that this is enough for the creation of a fiduciary relationship, and Mr Collings has not suggested otherwise.  
23.	As to the question whether there was any particular property in this case, I refer to the Trader's Agreement.  It is common ground that the execution of that agreement and the lending of money pursuant to it gave rise to a resulting trust of the monies advanced and not used for the purposes set out in the Trader's Agreement.  It is no objection, as I see it, that the fiduciary relationship only extended to the Funds as defined in the amended particulars of claim, or to the Funds to the extent only that such funds were held on trust by TPL: see paragraph 10 of the amended particulars of claim.  So the question to which I must now turn is whether there is a sufficient manifestation of an intention to enter into a fiduciary relationship in the pleadings.  
24.	Mr Collings has made some forceful submissions on this  point.  He submits that the original pleadings are inadequate.  In paragraph 13A it is said that Mr Cushnie acted personally in making representations and promises at meetings.  But this, Mr Collings submits, should be examined with scepticism.  Where documents are referred to, such as letters, it can be seen that Mr Cushnie was acting merely in his capacity as a director of TPL.  
25.	Mr Collings also submits that the original pleading does not make it clear that a fiduciary duty is pleaded.  He submits that it does no more than assert that Mr Cushnie made representations, and therefore that Mr Cushnie owed a duty of care.  He submits that the pleading does no more than plead a representation or promise by Mr Cushnie that he would see that TPL fulfilled its contractual obligations.  Indeed, he would go so far as to say it is difficult to read into the pleading any allegation of a parallel duty of care (that is, a duty of care owed by Mr Cushnie in addition to that owed by TPL), but if there is one, that is the extent of it.  Mr Collings also submits, as I have mentioned, that a fiduciary duty to Sinclair would involve a conflict between Mr Cushnie's duties to his own company and the alleged duty to Sinclair.  
26.	I now wish to set out my conclusions on the pleadings.  As I see it, the original pleadings are inadequate.  I do not read the word "personally" as restricted as Mr Collings would wish me to do.  It seems to me that the word "personally" in the paragraph 13A is being used to allege that it was Mr Cushnie rather than some other official of TPL who attended to the matters pleaded in paragraph 13A.  
27.	My more fundamental objection to paragraph 13A, as it stood before we were shown the draft amended pleading, is that the representations are really of a historic nature, namely that the funds had been invested: see for instance in paragraph 13A(ii) -- the funds were being used in accordance with the agreements and the funds were re-invested and kept separate from the funds utilised by VTFL.  As I see it, an allegation of an assumption of a personal fiduciary responsibility would entail a promise to act in the interests of Sinclair, and for and on its behalf, for the future in maintaining vigilance over the funds.  However, looking at the pleading as proposed to be amended, there seems to me to be a vital allegation introduced into paragraph 13A(ii) that Mr Cushnie repeatedly stated to the principal adviser of the claimant that he dealt personally with the relationship between TPL and the traders, and that he personally monitored each trader's investment, being able to identify at the time the trades in which each trader's funds were invested.  The pleader goes on to say that for those reasons the principal adviser felt that Mr Cushnie was a person upon whom he and therefore the company could rely.  It seems to me that, arguably, there was no obligation under the Trader's Agreement to monitor any investment on behalf of a trader, and that the word "monitor" denotes an intention to look after the trader's money, ie for that trader.  
28.	I turn to Mr Collings' other submissions.  Mr Collings makes the point that the nature of fiduciary relationship is not made clear.  There is no reference, for example, to the duty of loyalty or any of its aspects, particularly the principal aspects identified by Millett LJ.  But Lord Brennan accepts that he has to show that there was a fiduciary relationship and that it is insufficient to show a duty of care.  In my judgment, one has to read paragraph 13A with 13B, where it is pleaded that the result of the relationship between the parties and the representations pleaded in paragraph 13A that Mr Cushnie owed fiduciary duties to the claimant, and that that is enough to meet the potential objection that there is an absence of reference to the duty of loyalty as such.  
29.	Mr Collings has, as I mentioned, submitted that the pleading does no more than plead that Mr Cushnie agreed to see that TPL fulfilled its duty.  But as I read the pleading, the pleading does go further on that point, since it alleges that Mr Cushnie accepted a personal responsibility in that respect.  
30.	As to the point that if Sinclair is correct, Mr Cushnie would owe to it duties which conflicted with those he owed to TPL, the position is that it would be in the interests of TPL to perform the Trader's Agreement, and thus the duties which would be imposed on Mr Cushnie personally would not automatically involve a conflict with those of his company.  Indeed, in any event, there are situations in our law where fiduciaries have accepted personal liabilities: see, for example, Williams v Natural Life Health Foods Ltd.  That said, however, I accept Mr Collings' point that the existence of such a conflict would be a contraindication.  Accordingly, on the pleadings, in my judgment if they were to be amended in accordance with the draft pleadings shown to us, there would be a sufficient prospect of success on the fiduciary relationship claim for that claim to stand in the pleading, and accordingly, on that point, I would be minded to dismiss the appeal.  
31.	I now turn to the alternative claim, being the claim in paragraph 15A of the amended particulars of claim.  Mr Collings submits that Sinclair seeks to rely on the dictum of Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 715:  
"The 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 been at some stage a breach of fiduciary duty, i.e. if either before the theft there was an equitable proprietary interest (e.g. 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. Although it is difficult to find clear authority for the proposition, when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity. Thus, an infant who has obtained property by fraud is bound in equity to restore it: Stocks v Wilson [1913] 2 K.B. 235, 244; R Leslie Ltd v Sheill [1914] 3 K.B. 607. Moneys stolen from a bank account can be traced in equity: Bankers Trust Co v Shapira [1980] 1 W.L.R. 1274, 1282C-E: see also McCormick v Grogan (1869) L.R. 4 H.L. 82, 97."  
32.	The critical sentence in that passage -- it must of course read as whole -- is: 
"Although it is difficult to find clear authority for the proposition, when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity."
33.	That particular passage has given rise to difficulty and has been doubted in some cases.  In particular, Mr Collings has referred us to the decision of Rimer J in Shalson v Russo [2003] WTLR 1165, where Rimer J pointed out that ordinarily a thief acquires no property in what he steals, and therefore it is difficult to say that an equitable title has been vested in him so that he can hold the property on constructive trust.  There would need to be some mechanism to transfer legal and/or beneficial title to him for such a trust to be upheld. 
34.	Mr Collings submits that this passage cannot support a universal right to proprietary claim to recover stolen  monies where there is no right to trace those monies as a matter of general law.  He relies heavily on the decision of this court in Halifax Building Society v Thomas [1996] Ch 217.  In that case, a building society sought to recover a surplus obtained following the sale of property over which it had a mortgage, which had been fraudulently obtained by the wrongdoer.  The actual ratio of the decision is at 227D.  The claim of the building society was rejected.  At 227D, Gibson LJ, with whom Simon Brown and Glidewell LJJ agreed, held that he was unpersuaded that, in the circumstances of that case, the law should accord a restitutionary remedy to a secured creditor who has elected not to avoid the mortgage, but to affirm it and has received full satisfaction thereunder.  
35.	Peter Gibson LJ went on to examine the proposition that a fraudster held property wrongly obtained on constructive trust.  He referred to a dictum of Lord Westbury in McCormick v Grogan, which is The authority relied on by Lord Browne-Wilkinson from the passage cited from the Westdeutsche case.  Lord Westbury said: 
" ... the jurisdiction which is invoked here by the Appellant is founded altogether on personal fraud. It 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." 
36.	Peter Gibson LJ held: 
"But that statement must be read in the context in which it was made, namely the jurisdiction where a secret trust is alleged. It cannot be elevated into a universal principle that wherever there is personal fraud the fraudster will become a trustee for the party injured by the fraud." 
That is of course a very powerful dictum.  But nonetheless, we must bear in mind that that was an obiter dictum.  
37.	The further authority relied on by Mr Collings is in Paragon Finance v DB Thakerar [1999] 1 All ER 400, again a decision of this court.  Mr Collings relies particularly on the passage at page 408 to 409, and to the distinction drawn by Millett LJ in that passage between constructive trusts where the constructive trustee's title derives from a lawful transaction preceding the breach of trust, and constructive trusts where the trust obligation arises as a result of an unlawful transaction impeached by the claimant.  A purely remedial constructive trust, in the sense of a proprietary remedy for unjust enrichment, is not recognised in English law, as Peter Gibson LJ held in the Thomas case (at page 229C). 
38.	Mr Collings also lays great stress on a passage at page 414 to 415 under the heading "Breach of fiduciary duty", which I will set out in its entirety:
"In my judgment the application for leave to amend to plead breach of fiduciary duty fails for a similar reason. It is clear from the authorities already cited that the Court of Chancery drew the same distinction between those whose fiduciary obligations preceded the acts complained of and those whose liability in equity was occasioned by the acts of which complaint was made. In pleading breach of fiduciary duty the Plaintiffs concentrate on the information which the Defendants possessed but concealed from them rather than on the money, but the position is essentially the same. On the Plaintiffs' case the Defendants did not obtain the information from the Plaintiffs or by reason of their fiduciary relationship; they obtained it from the borrowers and because of their complicity in the fraud. The fraud was committed when the borrowers submitted their fictitious application forms to the Plaintiffs, and this must have been before the Plaintiffs retained the Defendants as their solicitors. On the Plaintiffs' case the Defendants did not take advantage of their fiduciary relationship to misappropriate moneys entrusted to them; the borrowers obtained the money by fraud and procured it to be channelled to them through the Defendants' client account. It would be absurd if the borrowers were deprived of the protection of the Limitation Act because of the route by which the money reached them; and equally absurd if they were entitled to it and the Defendants were not. The Defendants' fiduciary relationship only came into being in the course of the fraud and was incidental to the means by which the fraud was perpetrated. The Plaintiffs' case cannot sensibly be described as based on breach of fiduciary duty. Their case is that they were swindled." 
39.	Pill and May LJJ agreed with Millett LJ, and Pill LJ also delivered a short concurring judgment on another issue in the case.
40.	In the Paragon case, lenders sought to make solicitors liable for breach of a fiduciary relationship.  The lenders wished to amend their pleadings to allege that the solicitors had acted fraudulently and intentionally in breach of fiduciary duty.  They relied on a constructive trust of the second kind identified by Millett LJ, namely a constructive trust arising as a result of an unlawful transaction impeached by the lenders.  This court held that, as it was arguable that this kind of constructive trust did not fall within section 21 of the Limitation Act 1980, the solicitors had an arguable limitation defence of which they should not be deprived by reason of amendment, and accordingly that the lenders should not be permitted to amend their pleadings.  But, as the passage just cited from the judgment of Millett LJ states, the breach of the fiduciary relationship was also not relevant to the loss which the lenders suffered.  Accordingly, the issues in the Paragon case were very different from those which arise in this aspect of the present case.   
41.	The passage relied particularly upon by Mr Collings is the last two sentences.  He submits that this case could not go forward on fraud alone.  The case would have to go forward, if at all, on fiduciary duty.  
42.	I now turn to Lord Brennan's submissions.  He recognises it is not open to him in this court to rely on the remedial constructive trust, though he reserves the right to do so if the appeal goes further.  He submits that it is sufficient for the claimants to allege unconscionable conduct on the part of Mr Cushnie in this case, making a personal profit out of the use of Sinclair's monies.  He accepts that there is no authority on this point, but he submits that it would appear odd to a layman if there was no proprietary claim in those circumstances.  He submits that, in such circumstances, a claim should lie and that Sinclair wants the opportunity to argue accordingly at the trial of this action.
43.	I now state my conclusions on this part of the appeal.  This is not the usual situation where monies are stolen, and in that situation, as Rimer J pointed out, the normal position is that title to the stolen monies does not vest in the thief.  This is a more refined situation where (on the pleaded case) the alleged wrongdoer made a profit out of monies vested in TPL as a trustee for Sinclair.  Mr Cushnie was, on this part of the case, a stranger to the trust, and indeed the trustee (TPL) was a stranger to the profit.  Moreover, this is not a case of what one might call constructive unconscionability.  This is a case where actual fraud on the part of Mr Cushnie is alleged, and it is alleged that fraud commenced before the profit was made; not after it was received.  In those circumstances, it may well be that the dictum of Peter Gibson LJ in the Thomas case is distinguishable.  In my judgment, it is in any event not binding.  Moreover, the passages relied on from the Paragon case are not, in my judgment, authority for the proposition that there is no arguable course of action on this alternative claim.  It is not desirable, as it seems to me, that I should say more than that it seems to me that there is an arguable cause of action here.  
44.	I have considered whether the claim could be dealt with as a question of law at this stage.  In my judgment, that would not be the appropriate course, and it would only be appropriate to reach a decision as a matter of law on whether a claim can be sustained on this alternative basis when the findings of fact have been made.  Accordingly, for those reasons, I would dismiss the appeal on this aspect of the appeal too.  
45.	LORD JUSTICE CLARKE:  I agree and wish to add very few words of my own.  I am not persuaded that paragraph 13A of the amended particulars of claim, in the form in which it was before the judge, sufficiently pleaded a fiduciary duty owed by Mr Cushnie to the respondent, Sinclair.  That is for the simple reason that, to my mind, it does not sufficiently distinguish between Mr Cushnie's personal position and that of TPL, and does not support a duty of loyalty owed by Mr Cushnie to Sinclair.  However, the position seems to me to be different now that Sinclair has produced a proposed amendment to paragraph 13A.  That proposed pleading is still open to some criticism, but I agree with Arden LJ that it sufficiently alleges a fiduciary relationship so as to make it just to allow the case to proceed to trial.  
46.	Does it plead the assumption by Mr Cushnie of a duty of loyalty owed to Sinclair?  I agree with Arden LJ that the answer is yes, even though, somewhat surprisingly, it does not expressly refer to a duty of loyalty.  In summary, the present draft seems to me to allege that Mr Cushnie personally promised to Sinclair that he would ensure that TPL invested its monies in accordance with the Quist close trust upon which it received them.  It is at least arguably implicit in the pleading that Cushnie agreed to represent Sinclair's interests in ensuring that its funds were properly invested, and that, in doing so, it owed Sinclair a duty of loyalty.  In short, the new draft just passes muster.  On the footing that permission to amend is given to include the new amendments, for these reasons and those given by Arden LJ, I would dismiss the appeal on the fiduciary relationship point.  
47.	As to the fraud claim, there appear to me to be significant difficulties in Sinclair's way for the reasons given by Mr Collings in argument.  But there is, so far as I am aware, no decided case binding on this court which requires us to hold that Sinclair's claim will fail.  I cannot say that Sinclair has no real, as opposed to fanciful, prospect of success.  In these circumstances, like Arden LJ, I would allow this claim too to proceed.  
48.	In summary, while I see the force of the appellant's case on the underlying merits, I would dismiss the appeal on both points.  
49.	LORD JUSTICE BUXTON:  I agree with the judgement delivered by my Lady, Arden LJ.  I also would add three very short points.  First, I agree with my Lord and my Lady that the pleading in its original form was inadequate to assert the trust relationship that is relied upon.  I do not add to the points in that respect made by my Lord, save to emphasise that it was necessary to plead, and is now pleaded, albeit in short form, that Mr Cushnie himself, and quite distinct from his company, undertook obligations towards Sinclair.  I consider -- although I do not regard this observation as binding those who actually try the case -- but for my own part I consider that it will be necessary for Sinclair to prove all of that which it alleges in the revised pleading in order to succeed in this point.  
50.	In that connection, I should make plain that I do not accept the argument advanced by Lord Brennan at an early stage of the appeal that any defects in the pleading could be made good or might be made good by evidence adduced at the trial.  This is not a case such as Three Rivers where the evidence might be adduced by the opposite party.  All the evidence so far as the interchange between Mr Cushnie and the representative of Sinclair is concerned is or should be already in the hands of Sinclair.  They already know what happened.  When they pleaded they were in a position to know exactly what evidence would be adduced at the trial.  It is that evidence, I assume, that will be given to support the amended pleading.  
51.	Secondly, it was necessary, in my judgement, for the amended pleading to say specifically, as it now does, that the representative of Sinclair relied on, and acted in response to, Mr Cushnie's own assurances to him.  Lord Brennan was minded to argue that that was not a necessary part of this pleading, but I think that it must be, for two reasons.  The first is that the constitution of this sort of particular trust that depends upon the interaction between the alleged trustee and the alleged beneficiary cannot sensibly be said to have given rise to a fiduciary relationship that can be enforced by the beneficiary unless the benefit indeed did rely upon the personal assurances of the person who is said to have offered to make himself a trustee.  
52.	Also, and more by way of comment, it would be extremely surprising if reliance by the beneficiary were not required, bearing in mind that, if one was concerned with what one would expect to be the less demanding criteria required to establish merely an obligation on Mr Cushnie in the tort of negligence, it would undoubtedly be the case that Sinclair would have to establish that their representative reasonably relied upon what Mr Cushnie said.  Citation for that proposition is, I hope, otiose.  
53.	Third, so far as the fraud claim is concerned, Lord Brennan, if I may say so, showed good judgement in saying that there was no authority specifically supporting this claim.  I would as present advised respectfully agree.  The passage in the Westdeutsche case, much relied on earlier in these proceedings, seems to me not to be of general application at all.  It occurs at a stage where Lord Browne-Wilkinson was dealing with the theoretical explanation of the doctrine of tracing.  That is why he said at page 716C: 
" ... when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity."  
54.	Now, it is accepted in this case that a tracing relationship does not exist.  That, in my judgement, is not fatal to the claim for the reasons my Lady has set out.  But it very much undermines any possibility of relying directly upon what Lord Browne-Wilkinson said.  
55.	The strongest and most forceful objection taken to the trust relationship by Mr Collings was based on the case of the Halifax Building Society v Thomas, which my Lady has referred to.  I do not think that the general observations in that case, powerful though they are and authoritative though the source is from which they come, can be said to lay down any general principles, and certainly not general principles that bind this court.  Not only was Halifax decided on the basis that the secured creditor had indeed received full satisfaction under his security, thereby rendering the rest of the observations obiter; but also that fact meant that what was being sought to be asserted in Halifax was a claim far different from and, if I may be permitted to say so, less attractive than that asserted by Sinclair.  Halifax did not, unlike Sinclair, simply want its money back; it wanted a surplus over that amount drawn from the security into which the money had passed.  
56.	It is also worth noting that the fraud perpetrated by Mr Thomas was a fraud to acquire the mortgage in the first place.  Fraud or no, restitutory obligation or no, if the building society has in fact got its money back -- a position that building societies in those circumstances rarely find themselves in -- a further attempt to create a constructive trust over and above that recovery was understandably greeted with some scepticism, both by the very experienced trial judge in Halifax, and by the Lords Justices who adopted the same view.  As I say, there are dicta in Halifax which will have to be confronted when this matter is tried, but they do not prevent this court permitting this action to go forward at this stage.  
57.	For those reasons, therefore, and particularly those given in the leading judgment of Arden LJ, these appeals are dismissed.
Order: appeals dismissed.  No order as to costs.