IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
(HIS HONOUR JUDGE COWELL)
Royal Courts of Justice
Thursday, 22nd June 2000
LORD JUSTICE MORRITT
SIR CHRISTOPHER STAUGHTON
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NADEEM AHMED KHAN
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MISS P J REED (instructed by Finers London W1N 6LS) appeared on behalf of the Applicant
MR S STEVENS (instructed by Messrs Arora Lodhi Heath London W3 6QZ) appeared on behalf of the Respondent
Thursday, 22nd June 2000
1. This is the appeal of the defendant, Mr Lovis Permayer, brought with the permission of Aldous LJ, from the order of His Honour Judge Cowell made on 24th March 1999 whereby he gave judgment for the claimant, Mr Nadeem Ahmed Khan, for £24,489.15 and costs on Scale 2. The basis of the judgment was that Mr Permayer had been unjustly enriched at the expense of Mr Khan. On this appeal Mr Permayer claims that he has not been enriched, let alone unjustly, but that even if he had been Mr Khan has no claim against him because he, Mr Khan, did not pay the money to Mr Permayer which is said unjustly to have enriched Mr Permayer.
2. The facts are relatively complicated and need some explanation. 65 Fairfax Road, London NW6 was demised by an underlease made in December 1985 for a term of 25 years from 25th December 1985 at an initial annual rent of £21,000 with five yearly upward only rent reviews. By 1989 at least, the demised premises were used as a restaurant called Peter’s Restaurant. The proprietor was Mr Peter Simonyi, who was the lessee under the underlease. Mr Khan and a Mr El-Mahdi were the employees of Mr Simonyi in the business of the restaurant.
3. On 29th September 1989 Mr Khan and Mr El-Mahdi bought the restaurant, its fixtures and fittings from Mr Simonyi for £317,500. This transaction was implemented by the grant to them by Mr Simonyi of a sub-underlease of the premises. Between them they paid £267,500 on completion of the transaction of which £150,000 had been borrowed from Barclays Bank Plc to whom they granted a first charge on the sub-underlease as security for repayment of that debt. The balance of £50,000 due to Mr Simonyi was left outstanding as a loan from Mr Simonyi to Mr Khan and Mr El-Mahdi. That loan was secured by a charge executed on 4th July 1990 whereby Mr Khan and Mr El-Mahdi charged the sub-underlease to Mr Simonyi as security for the £50,000 left outstanding but subject to the first charge in favour of Barclays Bank for £150,000. The charge granted to Mr Simonyi is specific to the sum of £50,000 left outstanding in respect of the purchase and was not an all monies charge as is frequently seen with securities given to banks.
4. On 26th March 1992 Mr Simonyi assigned the reversion to the sub-underlease and the benefit of the debt and second charge to Mr Permayer. It seems that the business of the restaurant did not prosper and by April 1993 Mr Khan and Mr El-Mahdi were in financial difficulties.
5. On 22nd April 1993 Mr Khan, and I believe also Mr El-Mahdi in the same terms, each proposed an individual voluntary arrangement under Part VIII of the Insolvency Act 1986. Their accountant, a Mr Wagner, was to be the supervisor. The proposal of Mr Khan described the debt due to Mr Permayer as half of the outstanding capital and interest due on the loan, and half of certain arrears of rent and service charges. I infer that Mr El-Mahdi’s proposal made similar provision for the other half. The figures involved were £43,038 being the outstanding capital and interest due on the loan, and £10,884 in respect of arrears of rent and service charge. Half that, being £26,961, was described as due by Mr Khan to Mr Permayer and as being unsecured. The description as unsecured is perhaps not surprising because the value of the sub-underlease was then substantially less than the amount of the debt due to Barclays and secured by the first charge.
6. Between the drafting of the proposal and the subsequent approval there were a number of conversations between solicitors acting for Mr Permayer and those acting for Mr Khan. It seems from an attendance note of the conversation on 4th May 1993 that Mr Permayer’s solicitors pointed out to those for Mr Khan that the debt due to Mr Permayer was secured though perhaps not for the full amount as shown in the proposal.
7. There was a second conversation on 6th May 1993 in which there was recorded an agreement between the solicitors that the clients had agreed that the arrears of both the loan and the rent were to be cleared by 25th May and on that basis Mr Permayer would not oppose the voluntary arrangement; that assurance was not implemented.
8. The court made the usual interim order on 17th May 1993 in the light of Mr Wagner’s report as Nominee dated 11th May. Then on 1st June 1993 Mr Permayer’s solicitor pointed out to a partner or employee of Mr Wagner that the second charge was not mentioned in the proposal which still described the debt due to Mr Permayer as being unsecured.
9. The meeting of creditors took place on 9th June 1993. It was attended by, amongst others, Mr Permayer and his accountant. The creditors approved the proposals with certain modifications but those modifications did not affect the debt due to Mr Permayer. No reference was made in the proposals as approved to the debt due to Mr Permayer being secured. Mr Permayer voted, through his accountant, in favour of the voluntary arrangement in respect of the full amount of the debt of £26,961-odd.
10. Thereafter, Mr Permayer settled his claim for arrears of rent and service charge by some transaction with which we are not concerned involving some bill of sale. It had the effect of reducing the amount due to him in respect of the loan to some £43,000-odd and as a result the proposal that Mr Khan made to his creditors was amended so as to reduce the debt due to Mr Permayer still shown as being unsecured as being in the sum of £21,519.
11. On 30th June 1993 the voluntary arrangement was duly approved by the court. Under its terms 12% of the debt due to Mr Permayer (or £2,941.50) was to be paid by Mr Khan at the rate of £49.025 per month for five years from 1st August 1993 to 31st July 1998. As a matter of history, that obligation was fully performed.
12. The restaurant still did not profit under the management of Mr Khan and Mr El-Mahdi. In October 1994 there was a transaction involving a Mr Eaves, whereby Mr Eaves agreed to buy the sub-underlease and the restaurant business from Mr Khan and Mr El-Mahdi for £50,000. That £50,000 was paid to Barclays Bank being the amount of the secured part of their debt for the purposes of the Individual Voluntary Arrangement. Mr Eaves agreed to employ Mr Khan and Mr El-Mahdi in the restaurant business. Mr Eaves then applied to Mr Permayer for his consent to an assignment of the sub-underlease by Mr Khan and Mr El-Mahdi to Mr Eaves. Mr Permayer made it plain that his consent was conditional upon being paid the sums outstanding in respect of the loan then taken to be £40,000. Mr Eaves agreed to pay it but stipulated that as Mr Khan and Mr El-Mahdi agreed, they, Mr Khan and Mr El-Mahdi, should pay him, that is to say Mr Eaves, originally £20,000, later increased to the full amount of £40,000 from the salary and bonuses payable to them by Mr Eaves against his liability to Mr Permayer.
13. This was implemented in November 1994. On the 1st of that month there was an agreement between Mr Permayer and Mr Eaves for the latter to pay the former £40,000 by instalments in exchange for the release of the second charge; and on 2nd November 1994 Mr Permayer gave his consent to the assignment of the sub-underlease. Completion of these transactions took place on 1st March 1995. On that date there was a deed entered into between Mr Eaves and Mr Permayer, whereby it was agreed that Mr Eaves should pay the sums said to be then due under the mortgage amounting to £41,746 by the instalments set out in the deed in exchange for a form 53 being handed over by Mr Permayer to Mr Eaves acknowledging the discharge of the mortgage dated 4th July 1990.
14. Thereafter, as the judge found, Mr Eaves duly paid the £40,000 to Mr Permayer and Mr Khan and Mr El-Mahdi duly paid the £40,000 due to Mr Eaves pursuant to the agreement they had made with him. The writ in this action was issued in November 1996. After amendment the claim sought from Mr Permayer restitution of half the sums paid to Mr Permayer to Mr Eaves, leaving Mr El-Mahdi to sue separately, if he wished, for the other half.
15. The action came before his Honour Judge Cowell who gave judgment on 24th March 1999. He held that Mr Permayer, by voting in favour of the Individual Voluntary Arrangement had thereby concurred, for the purposes of section 258(4) Insolvency Act 1986, in his debt being treated as subject to the Individual Voluntary Arrangement and as being unsecured. He found that all sums due to Mr Permayer under the Individual Voluntary Arrangement were duly paid to him by Mr Khan. He concluded that there was no further debt due by Mr Khan and Mr El-Mahdi to Mr Permayer on satisfying the payments due under the Individual Voluntary Arrangement. He found as fact that Mr Eaves, Mr Khan and Mr El-Mahdi were all labouring under the mistaken belief that the balance of the loan was due by Mr Khan and El-Mahdi to Mr Permayer. He considered that in those circumstances Mr Khan was entitled to restitution of the sum of £20,000 and half of an associated solicitor’s bill.
16. On this appeal Miss Reed, on behalf of Mr Permayer, contends that the judge was wrong. She makes two points. The first is that the judge was wrong in considering that Mr Permayer had lost the benefit of his security for the loan as a result of Mr Khan’s Individual Voluntary Arrangement and his conduct in relation to it. Secondly, that in any event, Mr Khan had no cause of action against Mr Permayer in that he had neither paid, nor was he under any obligation to pay Mr Eaves, the money Mr Eaves paid to Mr Permayer.
17. I will deal with each of those points in turn. The first is the effect of the Individual Voluntary Arrangement. At the outset it is necessary to describe the nature and effect of an Individual Voluntary Arrangement as permitted under Part VIII Insolvency Act 1986. It enables a person who is unable to pay his debts to make proposals to his creditors for some composition. The formalities require him to apply to the court for an interim order which prevents executions or other legal proceedings so as to get the time within which to formulate his proposals. If such an order is made then the court directs a meeting of creditors for them to consider the proposal. If the proposal is approved by 75% majority of the creditors then it takes effect. There are four provisions to which I should specifically refer. First, the proposal should specify, whether and the extent to which, an asset of the debtor is charged in favour of a creditor: see Insolvency Rule 5.3(2)(a)(ii).
18. Second, the rights of a secured creditor to enforce his security are not to be affected without his concurrence: see section 258(4) Insolvency Act 1986. Third, a secured creditor may vote in favour of the proposal but his vote is to be left out of account in so far as his debt is secured: see Insolvency Rule 5.18(3) Calor Gas v. Piercy & Others  BCC 69. Fourth, when approved by the requisite 75% majority, the arrangement takes effect is if made by the debtor at the meeting and binds every person who in accordance with the rules had notice of, and was entitled to vote at, the meeting (whether or not he was present or represented at it) as if he were a party to the arrangement. S.260(2) Insolvency Act.
19. Decided cases have also made it plain that an Individual Voluntary Arrangement does not affect the proprietary rights of the creditor: see, for example, Re Naeem  1 WLR 48. In addition they show that the rights of creditors after the approval of the proposals depend upon the true construction of the arrangement, but that usually it must be inferred in the absence of an express term dealing with the matter that as long as the debtor is observing or has fully observed the terms of the arrangement the prior rights of the creditor are in abeyance or unenforceable: see for example, the decision of this court in Johnson v. Davies  Ch 117.
20. Miss Reed for Mr Permayer submits that the effect of this Individual Voluntary Arrangement is not that which the judge found because it did not affect the rights of Mr Permayer to his security. She accepts that voting for the arrangement would be sufficient concurrence for the purpose of section 258(4) but disputes that the proposals were intended to, or did, affect the rights of Mr Permayer in any relevant sense.
21. I do not agree. The question is primarily one of the proper construction and effect of the arrangement. It appears to me that the salient features are the following. First, the joint debts of Mr Khan and Mr El-Mahdi were divided in two. Half was treated as the several liability of each partner. Thus the debt of £50,000 due to Mr Permayer by the two of them jointly was divided into two several debts of £25,000 each. Second, the secured creditors were dealt with differently from unsecured creditors. Thus, separate provision was made for payment to Barclays Bank Plc in respect of its secured debt, based on the value of the restaurant at that time of £50,000, and the unsecured balance of £110,000 in respect of which Barclays was to be paid £30,000 by monthly instalments over 10 years.
22. The third salient feature is the treatment of the unsecured creditors who were to receive between them £7,500 over 5 years by six monthly instalments. This represented 12% of the face value of their debts. The debt due to Mr Permayer was specifically included amongst the unsecured debts.
23. Fourth, the sums due to Barclays in respect of its unsecured debt (that is to say £30,000), and due to the unsecured creditors as a group (that is the £7,500), as well as the costs incurred in implementing the arrangement were to be found from the profits of the restaurant.
24. It was necessarily implicit in that proposal that during the periods of payment, and thereafter if payment was made in full, the previous rights of the creditors were novated into the rights conferred on them by the arrangement. Thus, for example, it would not have been open to the bank to appoint a receiver during the currency of the arrangement and take for itself the entire income of the restaurant while it was still receiving the instalments of the £30,000 to which it was due under the arrangement.
25. Mr Permayer concurred in this arrangement by voting in favour of it at the meeting held on 9th November. Its necessary effect was as I have described. It is not disputed that Mr Khan and Mr El-Mahdi did pay to Mr Permayer all that was due to him under the arrangement.
26. In these circumstances it seems to me that Mr Permayer agreed to be treated as an unsecured creditor. In that capacity he was to receive, and did receive 12%, of the face value of his debt. It would have been quite inconsistent with that treatment that he should, after the arrangement had been fully performed, seek to recover the original debt by the enforcement of the security for it. In my view on completion of the implementation of the arrangement the original debt was discharged and the legal charge entered into in July 1990, not being an all monies charge, was thereby satisfied.
27. Accordingly, I agree with the judge’s conclusion that the secured debt had been discharged by the combined effect of the arrangement and its performance. It follows that while the arrangement was being implemented Mr Permayer was not in a position to enforce his original rights in respect of the loan of £50,000 for that would have been to act contrary to the term necessarily implied in the arrangement. It is on that basis that I turn to the second issue of restitution.
28. In dealing with this issue the judge made a number of important findings of fact. With regard to the payment to Mr Eaves by Mr Khan and Mr El-Mahdi of £40,000 in connection with the comparable payment by Mr Eaves to Mr Permayer. He found:
"Mr Eaves’ evidence was that, whatever Mr Lynch may have arranged with the partners, initially he expected the partners to pay him half that sum, but later on when he learnt, as a result of these proceedings, of the potential invalidity of the charge he was adamant that the partners should pay the full £40,000. In fact, in the event the partners have paid in full the £40,000 and it seems to me, whatever may have been said between them, that, to be perfectly clear, Mr Eaves was paying their debt and was entitled to be indemnified by the partners in law, whatever his chances of being indemnified, and in the result he has been fully indemnified by them."
29. With regard to all the payments, that is to say those made by Mr Khan and Mr El-Mahdi to Mr Eaves, and by Mr Eaves to Mr Permayer, the judge said:
"It seems to me that both the partners and Mr Eaves laboured under a very fundamental mistake. The mistake was to believe that there was anything owing to the defendant. As I have found, nothing whatever was owed. Insofar as the partners had any qualms about it, it seems to me those qualms would undoubtedly have been removed by the attitude their solicitors were driven to take, namely that there was a valid charge. At any rate, I am quite satisfied that both the partners and Mr Eaves laboured under that mistake. They thought that money was owed by the partners to the defendant.
It is undoubtedly the case that that debt mistakenly thought to exist, had it existed, was the debt of the partners and not of Mr Eaves. It seems to me - in fact this is not in dispute - that Mr Eaves, by either paying it off or agreeing to pay it off, was entitled to recoupment or indemnity from the partners. As I have said, he received repayment."
30. Having made those findings of fact the judge’s conclusion was:
"In my judgment, the plaintiff can recover because it was the supposed debt of the plaintiff which was paid to the defendant, Mr Eaves effectively paying it on his behalf, both the plaintiff and Mr Eaves believing that the defendant was entitled to demand it. It seems to me that that mistake vitiated the whole basis of the arrangement, whichever of Mr Eaves or the partners would be the person liable to pay the defendant. In fact, it was, as I have indicated, Mr Eaves who undertook the obligation by the deed of 1st March. The fact that Mr Eaves made himself responsible does not alter the fact that he did so in the belief that the defendant was owed a debt by the partners. Indeed, he was extremely cross, as he said, to find out later that the situation was otherwise than he had believed it to be. In his words, he said, ‘if I write off a debt, I do not seek to reinstate it.’ That was what on finding out he considered the defendant to have done. In short, the vitiating factor that no debt was in fact owed was there whoever paid the defendant and under whatever agreement the defendant might have made with Mr Eaves or the partners."
31. For Mr Permayer it is submitted that the judge was wrong. It is pointed out that the payments to Mr Permayer were made by Mr Eaves, not by Mr Khan, and that Mr Khan was under no liability to either Mr Eaves or Mr Permayer himself to make them. However, it is not disputed that if Mr Eaves had been a party, and if both Mr Khan and Mr Eaves had been labouring under a mistake then the sums could have been recovered by Mr Khan from Mr Permayer. Counsel did not concede that Mr Khan was labouring under the mistake that the charge was valid and the secured debt due. But in my view the judge made a clear finding to that effect in the passages I have quoted and there is no basis on which this court would be entitled to take a different view on that primary fact. Thus the objection, as it appears to me, is largely procedural.
32. Miss Reed relied on passages from the 5th Edition of Goff & Jones on Restitution. Thus at page 38 it is pointed out that:
"Where the payment to the defendant was made by a third party it cannot normally be recovered by the claimant."
33. The authors added on page 39:
"The conclusion that P has no claim against D is, as a general rule, a wise one. At one time it was held that P’s claim failed because there was no ‘privity’ between P and D. As Professor Dawson said, the invocation of the fiction of privity reflected a ‘dimly felt situation that it was a mistake to become involved in these multi-party confusions when quasi-contract would short circuit a series of interconnected transactions, without joinder of the parties at intermediate stages."
34. Later on the same page the authors recognised that:
"There are situations where P has successfully recovered from D the sum which T paid to D and where D’s gain was commensurate with P’s loss."
35. The examples given in the succeeding pages of Goff & Jones are usurpation of office, attornment, mistaken bequests, secret trusts and bribes paid to a fiduciary. As Miss Reed pointed out none of these cases of exception would appear to cover this case.
36. However, in a recent decision of the House of Lords, it is recognised, if not first established, that subrogation is an equitable remedy available in cases of unjust enrichment: see Banque Financiere de la Cite v. Parc (Battersea) Ltd  1 AC 221. The facts of the case are complicated but in essence, Parc charged its property as security for a loan from RTB and, as a second charge, from OOL. The appellant, Banque Financiere, lent money which was used by the intermediate borrower to repay part of the money due by Parc to RTB. Parc became insolvent and the issue was whether the charge in favour of OOL took priority over any right of BFC. The loan by BFC had been on terms that the borrowings of Parc from other companies in the same group, which included OOL, should be postponed to the rights of BFC but was otherwise unsecured. The House of Lords decided that the remedy of subrogation was available to BFC as against OOL notwithstanding the interposition of the intermediate borrower, the continued existence of the first charge in favour of RTB and the fact that the letter of postponement was not known to either Parc or OOL. The form the remedy took was to entitle BFC to be treated as against OOL as if it had the benefit of the first charge granted to RTB. Lord Hoffman, with whom Lords Steyn, Griffiths and Clyde agreed, at 236 said:
"It is important to remember that, as Millett LJ pointed out in Boscawen v. Bajwa  1 WLR 38, 335, subrogation is not a right or a cause of action but an equitable remedy against a party who would otherwise be unjustly enriched. It is a means by which the court regulates the legal relationships between a plaintiff and a defendant or defendants in order to prevent unjust enrichment. When judges say that the charge is ‘kept alive’ for the benefit of the plaintiff, what they mean is that his legal relations with a defendant who would otherwise be unjustly enriched are regulated as if the benefit of the charge had been assigned to him. It does not by any means follow that the plaintiff must for all purposes be treated as an actual assignee of the benefit the charge and, in particular, that he would be so treated in relation to someone who would not be unjustly enriched. This, I interpose, is the real reason why there is no ‘conceptual problem’ about treating BFC as subrogated to part of the RTB secured debt. The equitable remedy is available only against OOL, which is the only party which would be unjustly enriched. As between RTB and BFC, subrogation has no part to play. RTB is entitled to its security and BFC is no more than an unsecured creditor. The same is true as between BFC and any secured or unsecured creditor of Parc other than the members of the Omni Group. The transaction contemplated that as against non-group creditors, BFC would incur no more than an unsecured liability, evidenced by the promissory note issued to Mr Herzig and assigned by him to BFC. As against such creditors, therefore, the remedy of subrogation is not available. Nor is it available against Parc itself so as to give BFC the rights of sale, foreclosure etc. which would normally follow..."
37. At an earlier stage, on page 234, Lord Hoffmann had also said:
"In this case, I think that in the absence of subrogation OOL would be enriched at BFC’s expense and that prima facie such enrichment would be unjust. The bank advanced the DM30m upon the mistaken assumption that it was obtaining a postponement letter which would be effective to give it priority over any intra-group indebtedness. It would not otherwise have done so. On the construction of the letter adopted by Robert Walker J, namely that Holdings was purporting to contract on behalf of all companies in the Omni Group, the payment was made under a mistake as to Holdings’ authority. On the construction adopted by the Court of Appeal the mistake was as to the power of Holdings to ensure that other group companies would postpone their claims. For my part, I prefer the construction adopted by the judge. But I do not think that for present purposes it matters which view one takes. In either case, BFC failed to obtain that priority over intra-group indebtedness which was an essential part of the transaction under which it paid the money."
38. On behalf of Mr Permayer it is submitted by Miss Reed that the case of Banque Financiere v. (Battersea) Ltd is of little help. She submits that it has always been recognised that subrogation exists as a remedy and that that case was a classic example of subrogation to the rights of the creditor who had been partially repaid. She pointed to the statement of Lord Edmund-Davies in the case of Orakpo v. Manson Investments Ltd  AC 95 at 112 to the effect that though the right of subrogation is a flexible remedy it must not be loosely applied. She points out (which is undoubtedly the case) that unlike Parc (Battersea) it would not be possible here to follow or trace the money from Mr Khan through Mr Eaves into the hands of Mr Permayer. She submits that - and this is where I disagree - in this case the transactions between Mr Khan and Mr El-Mahdi on the one hand and Mr Eaves on the other were separate and independent from the transactions between Mr Eaves on the one hand and Mr Permayer on the other.
39. It appears to me that Mr Khan, Mr El-Mahdi and Mr Eaves were severally liable for the same debt they mistakenly thought was due to Mr Permayer. They agreed between them that the debt would be paid by Mr Eaves, but the cost of it would be borne by Mr Khan and Mr El-Mahdi.
40. It appears to me that Parc Battersea does establish that a payment made by a third party under a mistaken belief which gives rise to unjust enrichment of the defendant may be recoverable by the person at whose ultimate expense it was paid if that person is also acting under the same mistake as the third party. In this case Mr Khan and Mr El-Mahdi bore the ultimate expense of the payment Mr Eaves made to Mr Permayer. On the judge’s findings, all three of them, that is to say Mr Khan, Mr El-Mahdi and Mr Eaves, were acting under the same mistaken belief that there was a debt due to Mr Permayer from Mr Khan and Mr El-Mahdi secured on the sub-underlease. The loss to Mr Khan and Mr El-Mahdi is precisely commensurate with the payment by Mr Eaves to Mr Permayer and there are no intermediate rights in favour of third parties capable of giving rise to the multi-party confusions to which Professor Dawson referred in the passage quoted in Goff & Jones to which I have referred earlier.
41. The judge considered the limits to the restitutionary remedy relied on, but not, I think, the decision of the House of Lords in Parc (Battersea). He said:
"There was, in my judgment, first of all a wrongful demand; secondly, there were the two elements of mistake and, I think, a degree of compulsion, but certainly mistake; thirdly the debt was not paid voluntarily; fourthly, in my judgment there was unjust enrichment in that it is unconscionable for the defendant to keep what he was never entitled to demand in the first place; fifthly, the money was obtained at the plaintiff’s expense. In case it is necessary, I add that it is the plaintiff’s money that ultimately has gone to the defendant."
42. For my part I agree. In my view the judge was right on the question of restitution as on the effect of the Individual Voluntary Arrangement and I would dismiss this appeal.
43. I agree that this appeal fails. Under the Individual Voluntary Arrangement Mr Permayer, by claiming as an unsecured creditor, derived an immediate benefit. He became entitled to a percentage of his debt over the ensuing five years. If he had, instead, sought to enforce his security at that time he would have received nothing at all. Nor for that matter would the other creditors have received anything, unless they were secured like Barclays Bank. It seems a plain inference that the security was abandoned as part of the arrangement.
44. As to the second point it seems clear to me that Mr Permayer was unjustly enriched. He was paid £40,000 by Mr Eaves, which, as a consequence of the first point, was not due to him. It is also plain that the losers were Mr Khan and Mr El-Mahdi, as they reimbursed Mr Eaves by deduction from their wages to that extent.
45. If the £40,000 had been due to Mr Permayer it was a liability and it ought to have been discharged by Mr Khan and Mr El-Mahdi; with their concurrence, as it seems to me, it was discharged by Mr Eaves.
46. In those circumstances I agree with the conclusion and the reasoning of Morritt LJ that, by reason of subrogation, Mr Khan, and for that matter, Mr El-Mahdi is entitled to recover. I would dismiss this appeal.
Appeal dismissed; detailed assessment for legal aid costs; appeal to the House of Lords refused.