UK: England and Wales: does a statutory trust arises in respect of segregated monies?

Judgment was given last Thursday by ICC Judge Burton in Re Allied Wallet Ltd [2022] EWHC 402 (Ch). The case concerned an application by liquidators for the directions of the court in respect of the interpretation and operation of the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. More specifically: did a statutory trust arise in respect of certain monies held by a company where the Regulations required their segregation?  Yes was the answer. 

Update (9 March): While ICC Judge Burton found that a trust arose, he noted at the end of his judgment that his view was in conflict with Ipagoo LLP, Re (Electronic Money Regulations 2011 and Insolvency Act 1986) [2021] EWHC 2163 (Ch), the judgment in which arose between hearing the application and the circulation of his draft judgment, and which was binding on him. The Court of Appeal has now expressed its position: no trust arises (see Baker v Financial Conduct Authority (Re Ipagoo LLP) [2022] EWCA Civ 302).

UK: England and Wales: the Court of Appeal on 'knowing receipt'

Judgment was delivered yesterday by the Court of Appeal in Byers v The Saudi National Bank [2022] EWCA Civ 43. The decision is an important one on constructive trustees and knowing receipt in which the court unanimously rejected the argument that liability could arise where an individual benefited from trust property regardless of whether he had actually received the property. Liability would not, therefore, arise (to use an example provided by counsel) where a trustee had wrongfully spent trust money on a holiday for the defendant and none of the money had ever passed through the defendant's hands.

UK: Expanding the Trust Registration Service

HM Treasury has published a document summarising the responses received in respect of its technical consultation on the Fifth Money Laundering Directive and, in particular, the expansion of the UK's Trust Registration Service (TRS) to include a wider range of express trusts (not just those with tax consequences, as is currently the case): see here. Draft Regulations - The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 - have also been published: see here.

The Government has set a registration deadline of 10 March 2002 for existing trusts to register (or update their records if they are already registered on the TRS).

UK: England and Wales: accessory liability for breach of trust or fiduciary duty

A quick note, a little late in the day. The Court of Appeal gave judgment earlier in LLB Verwaltung (Switzerland) AG v Group Seven Ltd & Ors [2019] EWCA Civ 614 and held, amongst other things, that "In the light of [Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67], it must in our view now be treated as settled law that the touchstone of accessory liability for breach of trust or fiduciary duty is indeed dishonesty, as Lord Nicholls so clearly explained in [Royal Brunei Airlines v Tan [1995] 2 AC 378], and that there is no room in the application of that test for the now discredited subjective second limb of the Ghosh test [[1982] QB 1053]" (para. [57]).

Update (15 April 2019) - the ICLR has published a summary: see here.

UK: PLSA discussion paper - 'Good governance - how to get there'

The Pensions and Lifetime Savings Association has published a discussion paper titled 'Good governance - how to get there': see here (pdf). The paper calls, amongst other things, for a rebalancing of the regulatory priorities of the Pensions Regulator, with a stronger emphasis on the scrutiny of board appointments and effectiveness.

UK: Law Commission project on technical issues in charity law - supplementary consultation paper

The Law Commission, as part of its technical issues in charity law project, today published a supplementary consultation paper seeking views on two areas - cy-près and trust corporation status - that have arisen from its initial consultation: see here (pdf). In particular, the Commission seeks views on proposals to (1) make consistent across all charity types the powers for changing a charity's purpose, and (2) simplify the process for seeking trust corporation status.

UK: Supreme Court decision on agency, constructive trusts and insolvency

The Supreme Court gave judgment earlier today in Bailey v Angove's PTY Ltd [2016] UKSC 47, on appeal from [2015] EWCA Civ 215. The court's opinion was delivered by Lord Sumption, with whom the other four justices agreed. A summary of the opinion is available here (pdf).

There were two issues before the court: when will the law regard the authority of an agent as irrevocable; and, does liability to account as a constructive trustee arise where money is received at a time when the recipient knows that imminent insolvency will prevent the performance of the corresponding obligation? With regard to the latter question, Lord Sumption held that no trust arose and declined to follow the authorities suggesting otherwise including Neste Oy v Lloyd’s Bank Plc [1983] 2 Lloyds Rep 658 and In re Japan Leasing Europe Plc [1999] BPIR 911. Lord Sumption stated (at paras. [26] and [28]):

It is inherent in the statutory scheme of distribution in an insolvency that apparently arbitrary results may follow from the adventitious timing of the commencement of the liquidation, especially in the case of deferred obligations. In principle, an advance payment to a company made before the commencement of the liquidation for an obligation performable afterwards will form part of the company’s estate, notwithstanding that its supervening insolvency means that the obligation will not be performed, at any rate in specie. The payer must prove in the liquidation for damages for the breach of contract. Likewise, a contractor providing goods or services on credit will have to prove in the liquidation for the price if the other party becomes insolvent before paying. The rule is the same for money received for his principal’s account by an agent who becomes insolvent before accounting for it, unless (contrary to the unchallenged finding of the judge in this case) the relations between the parties were such as to make the agent an express trustee of money in his hands. The money will form part of the agent’s insolvent estate, and the principal must prove in the liquidation. In the nature of things, these consequences involve a detriment for the payer, attributable to the timing of the company’s insolvency; and a windfall for the general creditors, since the estate available for distribution will be increased by the payment without being reduced by the cost of performance.

Bingham J’s point of departure in Neste Oy was that the recipient of money may be liable to account for it as a constructive trustee if he cannot in good conscience assert his own beneficial interest in the money as against some other person of whose rights he is aware. As a general proposition this is plainly right. But it is not a sufficient statement of the test, because it begs the question what good conscience requires. Property rights are fixed and ascertainable rights. Whether they exist in a given case depends on settled principles, even in equity. Good conscience therefore involves more than a judgment of the relative moral merits of the parties. For that reason it seems to me, with respect, that Bingham J’s observation in Neste Oy that any reasonable and honest director would have returned the sixth payment upon its receipt begs the essential question whether he should have returned it. It cannot be a sufficient answer to that question to say that it would be “contrary to any ordinary notion of fairness” for the general creditors to benefit by the payment. Reasoning of this kind might be relevant to the existence of a remedial constructive trust, but not an institutional one. The observation of the editors of Bowstead and Reynolds and of Nicholas Warren QC in Japan Leasing that a proprietary claim should be recognised whenever the claim is “sufficiently strong and differentiable from other claims” to warrant giving it priority over other claims in an insolvency, seems to me to be open to the same objection."

A video recording of Lord Sumption, delivering the court's opinion, is available below (and also here should the embedded video not work):

UK: Scotland: Law Commission trust law reform proposals published

The Scottish Law Commission published its Trust Law report today: see here. Major reforms are proposed, including placing the law within a single statute. A press release and impact assessment can be found here.

UK: Supreme Court judgment in FHR due next week

The Supreme Court will give judgment next week in FHR European Ventures LLP v Cedar Capital Partners LLC: see here. The principal issue before the court, to quote from its case summary, was this: does an agent who receives a secret commission hold the sum paid on constructive trust for his principal(s) giving rise to proprietary rights?

The appeal hearing took place last month before a panel of seven justices: Lord Neuberger, Lord Mance, Lord Sumption, Lord Carnwath, Lord Toulson, Lord Hodge and Lord Collins.

Jersey: Bribes held on constructive trust - Royal Court follows Reid in preference to Lister

In Sinclair Investments (UK) Ltd. v Versailles Trade Finance Ltd. [2011] EWCA Civ 347 the English Court of Appeal declined to follow AG for Hong Kong v Reid [1994] AC 324, an opinion of the Judicial Committee of the Privy Council, and instead applied one of its earlier decisions (Lister v Stubbs [1890] 45 Ch D 1). The effect was to limit the circumstances in which a proprietary claim could be made in respect of asset or money acquired by a fiduciary in breach of duty.

Jersey's Royal Court (Samedi division), at the end of October in Lloyds Trust Company (Channel Islands) Ltd. v Fragoso [2013] JRC 211, considered whether it should follow Lister in preference to Reid. It declined to do so and ordered that a trust fund with a bank, into which the proceeds of bribes had been paid, was held on constructive trust. Commissioner Clyde-Smith stated: "...  there are important reasons of policy for this Court to follow Reid, namely the need to deter fraud and corruption and to have the ability to strip fiduciaries who have channelled their illicit funds through this jurisdiction of all benefits" (para. 28).

New Zealand: Law Commission proposes new Trusts Act

Last week the Law Commission published its report Review of the Law of Trusts: A Trusts Act for New Zealand: see here. The Commission recommends that the Trustee Act 1956 should be replaced by a new Trusts Act in order to modernise the law. Over fifty recommendations are made, including placing on a statutory footing the duties of trustees and the circumstances in which they can be avoided. A summary of the Commission's recommendations is available here (pdf).

UK: England and Wales: properties were held on resulting trust

Judgment was given earlier this week in M v M [2013] EWHC 2534 (Fam). The case concerned a wife's application for an order for financial relief under Part III of the Matrimonial and Family Proceedings Act 1984. At issue was whether a husband had a beneficial interest in properties the legal title of which was vested in companies. The trial judge found that the husband at all times intended to retain the beneficial interest in the properties and that they were held on resulting trust. The properties were therefore capable of being the subject of an order for relief under Part III. Permission to commence the Part III proceedings was given three years ago but the hearing was delayed until after the Supreme Court gave judgment in Prest v Petrodel Resources Ltd. [2013] UKSC 34.

UK: England and Wales: client money distribution and the jurisdiction of the court

The ICLR, as part of its free case summary service, has provided a summary for the recent High Court decision Re MF Global UK Ltd (in special administration) [2013] EWHC 1655 (Ch): see here. The headnote reads: "The court had an inherent jurisdiction to give such directions as would enable the administrators of a regulated investment firm, holding client money under rules imposing a statutory trust, to put in place a client money distribution procedure for dealing with rejected claims and unknown claims which could provide a degree of certainty and protection and ensure a timely return of client money."

UK: Supreme Court gives judgment in Petrodel - appeal allowed - corporate veil not pierced but resulting trust found

The Supreme Court gave judgment today in Prest v Petrodel Resources Limited & Others [2013] UKSC 34, one of the most important recent company law cases. A copy of the judgment is available here or here (pdf). A summary is available here (pdf).

The court unanimously held, in the context of proceedings for financial remedies following a divorce, that there were three possible legal bases on which company assets might be available to satisfy a lump sum order against the husband: (1) where, exceptionally, the court may disregard the corporate veil in order to give effective relief; (2) that section 24 of the Matrimonial Causes Act 1973 confers a distinct power to disregard the corporate veil in matrimonial cases; or (3) that the companies hold the properties on trust for the husband, not because of his status as sole shareholder and controller of the company, but in the particular circumstances of the case.

The court held that the facts before it fell into the third category, finding that the properties were held on a resulting trust by the company for the husband. Nevertheless, the judgment contains much discussion of the boundaries of the first category. Lord Sumption, delivering the leading opinion, stated (at paras.[27] and [28]):

.... the principle that the court may be justified in piercing the corporate veil if a company’s separate legal personality is being abused for the purpose of some relevant wrongdoing is well established in the authorities. It is true that most of the statements of principle in the authorities are obiter, because the corporate veil was not pierced. It is also true that most cases in which the corporate veil was pierced could have been decided on other grounds. But the consensus that there are circumstances in which the court may pierce the corporate veil is impressive. I would not for my part be willing to explain that consensus out of existence. This is because I think that the recognition of a limited power to pierce the corporate veil in carefully defined circumstances is necessary if the law is not to be disarmed in the face of abuse. I also think that provided the limits are recognised and respected, it is consistent with the general approach of English law to the problems raised by the use of legal concepts to defeat mandatory rules of law.

The difficulty is to identify what is a relevant wrongdoing. References to a “facade” or “sham” beg too many questions to provide a satisfactory answer. It seems to me that two distinct principles lie behind these protean terms, and that much confusion has been caused by failing to distinguish between them. They can conveniently be called the concealment principle and the evasion principle. The concealment principle is legally banal and does not involve piercing the corporate veil at all. It is that the interposition of a company or perhaps several companies so as to conceal the identity of the real actors will not deter the courts from identifying them, assuming that their identity is legally relevant. In these cases the court is not disregarding the “facade”, but only looking behind it to discover the facts which the corporate structure is concealing. The evasion principle is different. It is that the court may disregard the corporate veil if there is a legal right against the person in control of it which exists independently of the company’s involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement. Many cases will fall into both categories, but in some circumstances the difference between them may be critical. This may be illustrated by reference to those cases in which the court has been thought, rightly or wrongly, to have pierced the corporate veil."

Lord Sumption also stated (at para. [52]):

Whether assets legally vested in a company are beneficially owned by its controller is a highly fact-specific issue. It is not possible to give general guidance going beyond the ordinary principles and presumptions of equity, especially those relating to gifts and resulting trusts. But I venture to suggest, however tentatively, that in the case of the matrimonial home, the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company. In many, perhaps most cases, the occupation of the company’s property as the matrimonial home of its controller will not be easily justified in the company’s interest, especially if it is gratuitous. The intention will normally be that the spouse in control of the company intends to retain a degree of control over the matrimonial home which is not consistent with the company’s beneficial ownership. Of course, structures can be devised which give a different impression, and some of them will be entirely genuine. But where, say, the terms of acquisition and occupation of the matrimonial home are arranged between the husband in his personal capacity and the husband in his capacity as the sole effective agent of the company (or someone else acting at his direction), judges exercising family jurisdiction are entitled to be sceptical about whether the terms of occupation are really what they are said to be, or are simply a sham to conceal the reality of the husband’s beneficial ownership.

A recording of Lord Sumption, delivering the court's opinion this morning, is available below:

Australia: CAMAC publishes Administration of Charitable Trusts report

The Corporations and Markets Advisory Committee has published its report Administration of charitable trusts: see here (pdf). A press release is available here. The report is concerned with charitable trusts managed by licensed trustee companies (LTCs) and recommends, amongst other things, that the Australian Charities and Not-for-profits Commission conduct, or coordinate, stewardship audits of a cross-section of charitable trusts administered by LTCs. The purpose of the audits would be to obtain a clearer picture of the administration of charitable trusts, including the extent to which each trustee has assumed its responsibilities and exercised its powers for the purpose of achieving the primary intent of the donor.

Jersey: Royal Court gives directions under article 46 of the Foundations (Jersey) Law 2009

The Royal Court (Samedi Division) has, for the first time, given directions under a power given to it by article 46 the Foundations (Jersey) Law 2009: see A Ltd. v B Ltd and others [2013] JRC075. In doing so it has provided some important analysis of the scope and operation of article 46 and of the differences between trusts and foundations.

UK: Scotland: trust law - Law Commission consultation

As part of its review of trust law, the Scottish Law Commission has published a short consultation paper in which it asks, amongst other things, whether it would be desirable to permit two type of charitable investment funds - Collective Investment Funds (CIFs) and Collective Deposit Funds (CDFs) - to be set up under Scots law: see here (pdf).

New Zealand: trust law review - Law Com publishes issues paper

As part of its review of the law of trusts, the New Zealand Law Commission has published a fourth issues paper titled The Duties, Office and Powers of a Trustee: see here (pdf). The paper considers, amongst other things, which duties should be considered part of the irreducible core of the trust (and therefore incapable of exclusion) and whether limits should be set on what can be achieved through the use of exemption clauses.