Anthony Morris (Mr Morris) orchestrated a series of frauds between August 2007 and April 2008 by which £52m was misappropriated from various occupational pension schemes by their trustees, GP Noble Trustees Ltd and BDC Trustees Ltd. The appellant was Independent Trustee Services Ltd (ITS), which had been appointed as trustee of the 1653 pension schemes by the Pensions Regulator in July 2008. Mr Morris was found liable in dishonest assistance for £52m and in knowing receipt for £4.89m by Peter Smith J in July 2010 ( EWHC 1653 (Ch)) (the chancery action).
Mr Morris had married the respondent, Susan Morris (Mrs Morris), in September 1988. They separated in December 2003 and a decree nisi was pronounced on 10 February 2005. Ancillary relief proceedings were compromised and embodied in an order of district judge Black on 11 February 2007. Mr Morris was required to pay Mrs Morris a lump sum and periodical payments. On 1 February 2008, Mrs Morris issued an application to set aside DJ Black’s order on the basis that Mr Morris had failed to make full disclosure of his assets. By now (unbeknown to Mrs Morris), the misappropriation from the pension funds had begun. On 14 July 2008, Mr Morris paid Mrs Morris £1,481,920.
Moylan J set aside the ancillary relief order of DJ Black on 28 April 2009 ( EWHC 2156 (Fam)). A fresh ancillary relief order was made on 19 January 2010 ( EWHC 575 (Fam)).
In May 2010, the chancery action was heard and Peter Smith J held that the £1.481m received by Mrs Morris represented the traceable proceeds of the £52m extracted from the pension funds. ITS subsequently sought to claim the £1.481m held by Mrs Morris on the basis that the effect of Moylan J’s decision to set aside DJ Black’s ancillary relief order was that Mrs Morris could no longer rely on the defence that she was a bona fide purchaser for value without notice. Peter Smith J dismissed the claim in December 2010. ITS appealed.
It was argued on behalf of Mrs Morris that once the £1.481m had been paid under the order of DJ Black, any subsisting equitable title of ITS was extinguished permanently. The position was said to be analogous to a subsequent failure of consideration.
Held (allowing the appeal)
(1) Mr Morris never acquired title to the £1.481m free of the beneficial title of ITS (para ) (per Patten LJ). However, Mrs Morris had no notice of the breach of trust at the time her solicitors received the money on her behalf and, because the payment was made in satisfaction of the liability of Mr Morris under the order of DJ Black, Mrs Morris was a purchaser for value. If the matter rested there, the title of Mrs Morris would be unassailable (para 74) (per Lloyd LJ).
(2) Giving of value is normally determined at the moment of acquisition of legal title. Normally, once value is given, it is not subsequently taken away (para ) (per Lloyd LJ). Subsequent failure of consideration is an inapt analogy. Rescission of a contract of sale for fraud is most relevant so far as contractual analogy is concerned. If the contract is avoided ab initio, the asset is taken back subject to the prior equities (para ) (per Patten LJ).
(3) The court is not faced with issues about whether a trust (whether resulting or constructive) has arisen in favour of ITS but with the simpler issue of whether Mrs Morris can rely on the bona fide purchaser defence (para ) (per Patten LJ). The decisions in Twinsectra Ltd v Yardley  WTLR 527 and Westdeutsche Landesbank Girozentrale v Islington BC  AC 699 (where there was no proprietary remedy when subsequent transactions were impugned) are different from this case because in those cases each party had the entire legal and beneficial title to the assets, which passed under the transactions, and the entire title did pass (paras  and ). That is not so in the present case, because there was no authorised disposition of money under the trusts and the beneficial interest of the beneficiaries under the pension trusts was unaffected until the assets came into the hands of a bona fide purchaser for value without notice (para ) (per Lloyd LJ).
(4) A trustee acting in breach of trust cannot vest the beneficial interest in the property in a bona fide purchaser, since he does not own the title and is not acting in a way that enables him to overreach the beneficiaries’ equitable interest. However, the bona fide purchaser defence is as effective as if the trustee could vest the beneficial title in the purchaser (para ). It is not correct to talk of the beneficiares’ equitable title being revived or re vested. The title has continued to subsist in the meantime and it is no longer capable of being defeated by the bona fide purchaser defence (para ) (per Lloyd LJ).
(5) The ability of ITS to trace the £1.481m into the hands of Mrs Morris on the basis of a subsisting beneficial interest may not be sufficient in itself to impose on her a personal liability. If ITS intends to pursue a personal claim, this will require subsequent proceedings (para ).JUDGMENT LORD JUSTICE PATTEN Introduction  Each of the parties to this appeal is the victim of a fraud. Between August 2007 and April 2008 a total of some £52m was misappropriated from various occupational pension schemes by their UK corporate trustees, GP Noble Trustees Ltd (GPN) and BDC Trustees Ltd (BDC). Following a trial …