The claimant (Mr Patel) became friends with Mr Georgiou in 2004. Mr Patel was introduced to the defendant (Mr Mirza) at the end of 2008 or the beginning of 2009 by Mr Georgiou, probably at one of the poker games Mr Georgiou hosted every Friday evening.
Mr Mirza was and is employed as a foreign exchange broker and also had a personal spread-betting account.
In August 2009 Mr Patel stated that he was approached by Mr Georgiou with a deal he had been offered by Mr Mirza – Mr Mirza would use his spread-betting account to bet on the movement of RBS shares and that Mr Mirza knew people who would be present in meetings between RBS and the government and could advise him of the outcome of the meetings prior to any announcement by the Chancellor that would affect the share price. Mr Mirza had offered to include Mr Georgiou’s money in the bets.
On a poker evening in September 2009 Mr Patel stated that Mr Mirza explained the scheme to him and gave him his current account details so that Mr Patel could transfer money to him. In September 2009 Mr Patel sent him £220,000 and then in December 2009 £400,000. Most of the money he sent was not his own but his cousin’s, Chiraq Patel. Mr Mirza’s bank statements detailed that the three transactions came from a Natwest account but the payee of the last stated C Patel.
In January or February 2010 Mr Mirza told him that there was to be no announcement from the Chancellor and therefore he would be returning the money by March 2010. Then Mr Mirza told him that due to an error by his bank the funds had been returned to Mr Georgiou. Mr Patel’s efforts to recover the money from Mr Georgiou failed and in May 2010 Mr Georgiou was declared bankrupt.
Mr Patel argued that he had contracted with Mr Mirza who had agreed to use the monies transferred only for the purposes of a bet on the RBS share price based on insider information as to what the Chancellor would say. Therefore the monies were recoverable as money paid for a consideration that had wholly failed and also because the monies were held by Mr Mirza on trust (either a Quistclose trust or a resulting trust). In addition Mr Mirza had breached an express terms of their agreement by paying funds to Mr Georgiou.
Mr Mirza defence was that in August 2009 he had mentioned to Mr Georgiou he was thinking of trading in UK bank shares and as a good friend he was prepared to allow Mr Georgiou (and only Mr Georgiou) to participate. Between September-December 2009 Mr Georgiou would telephone him to tell him that he had transferred money to his account and Mr Mirza would confirm this with his bank manager. He did not check his bank statements and never gave his bank details to Mr Patel. After his initial forays into share dealing proved unsuccessful Mr Mirza decided to return the money to Mr Georgiou and over time he made a series of payments at Mr Georgiou direction to return the money to him. He also argued that if his primary defence failed then the claim must fail for illegality due to the insider information.
Mr Georgiou was not called as a witness although Mr Mirza had been expected to do so.
Held (dismissing the claim):
- 1) The question of illegality must be considered first. The case as advanced by Mr Patel falls squarely within the prohibition of the Criminal Justice Act 1993.
- 2) The money was not advanced for general trading in shares as suggested by Mr Mirza – Mr Mirza’s oral testimony was entirely unconvincing on why he decided to return the money to Mr Georgiou.
- 3) Although not every part of Mr Patel’s account is accepted his explanation of the purpose for the payments is an unlikely candidate for invention.
- 4) Mr Mirza’s suggestion that he never discussed these matters with Mr Patel is implausible given they met every Friday. Therefore Mr Mirza knew the source of the funds and the use for which they were intended.
- 5) The court will refuse relief based on an agreement with an illegal object but will through the grant of a locus poenitentiae permit recovery if the transferor withdraws voluntarily before the agreement has been performed.
- 6) This is not a case of failed consideration or unjust enrichment but rather where money has been paid by a principal to an agent for a specified purpose.
- 7) The monies had been entrusted to an agent to be applied in an illegal bet with a third party.
- 8) It was not intended to create a trust given that the monies were sent to Mr Mirza’s current account and mixed with money in that account.
- 9) No bet was placed but Mr Patel did not volunatarily withdraw – Mr Mirza told him that the bet would not be placed because the contemplated insider information was no longer available.
- 10) If Mr Patel had been entitled to rely on the exemption of locus poenitentiae Mr Mirza would have been required to return the money. Mr Mirza produced no evidence to be able to rely on change of position as a defence.