R Ltd were in serious financial difficulties. The company’s overdraft with the appellant bank was almost twice its permitted limit. The company sought a loan of 1 million pounds from a financier, who was willing to lend the company that sum provided the company found the money necessary to pay the ordinary share dividend, a sum of pounds 209,719-8s-6d. The company succeeded in obtaining a loan in that sum and for that purpose from the respondents. The respondents cheque was paid into a special account opened by the company with the appellants which was to be used only for the purpose of paying the dividend. The company went into voluntary liquidation, before the dividend was paid. The respondents brought an action against the company and the appellants claiming the money in the special account.
Held: This gave rise to a trust in favour of the creditors and if the trust failed, in favour of the third person. When the money was advanced, the lender acquired a right, enforceable in equity, to prevent its application for any other purpose. This prevents the borrower from obtaining any beneficial interest in the money while the designated purpose is still capable of being carried out. Once the purpose has been carried out, the lender has his normal remedy in debt. If the purpose cannot be carried out, the question arises whether the money falls within the general fund of the borrower’s assets, in which case it passes to his trustee-in-bankruptcy in the event of his insolvency and the lender is merely a loan creditor; or whether it is held on a resulting trust for the lender. This is determined by the particular facts.
Lord Wilberforce observed: ‘The mutual intention of the respondents and of Rolls Razor Ltd, and the essence of the bargain, was that the sum advanced should not become part of the assets of Rolls Razor Ltd, but should be used exclusively for payment of a particular class of its creditors, namely those entitled to the dividend. A necessary consequence from this, by process simply of interpretation, must be that if, for any reason, the dividend could not be paid, the money was to be returned to the respondent: the word ‘only’ or ‘exclusively’ can have no other meaning or effect.’
Lord Wilberforce, Reid, Morris, Guest, Pearce LL
[1970] AC 567, [1968] UKHL 4
Bailii
England and Wales
Cited by:
Cited – Sir Graham Stanley Latimer and others – Trustees for the Crown Forestry Rental Trust v The Commissioner of Inland Revenue PC 25-Feb-2004
PC (New Zealand) The Crown created a charitable trust for certain Maori people. Upon exhaustion of the purpose, the fund was to revert to the Crown. The trustees appealed a finding of liability to income tax.
Cited – Potter v Potter PC 22-Jul-2004
PC (New Zealand) The parties’ relationship failed. They had bought a house together and entered into a trust deed.
Held: ‘Defeasible interests in land are certainly conceptually possible. In England such . .
Cited – AbouRahmah and Another v Abacha and others QBD 28-Nov-2005
Claims were made as to an alleged fraud by some of the respondents. . .
Cited – Leisure Employment Services Ltd v Revenue and Customs CA 16-Feb-2007
The company appealed a finding that it had been paying workers at less than the minimum hourly rate. Its workers resided at their places of work, and deductions were made toward the cost of providing accomodation etc. The company claimed that the . .
Cited – Annabel’s (Berkeley Square) Ltd and Others v Revenue and Customs CA 7-May-2009
The court considered whether tips paid at a restaurant by means of a credit card or cheque thus becoming the employer’s money could properly count toward the minimum wage when paid on to the employee. The revenue contended that the money received . .
Cited – Power and Another v HM Revenue and Customs and Another ChD 23-Oct-2009
The company had collected savings from consumers toward ‘christmas packs’. It went into liquidation. The revenue asserted claims for unsecured creditors saying that no trust had been created in favour of the savers.
Held: No Quistclose type . .
Cited – Regina v Common Professional Examination Board, Ex Parte Mealing-Mcclead CA 19-Apr-2000
A party was required to pay money into court before pursuing an appeal. She borrowed money for this purpose but on the express condition that it should be used for this purpose only and was not to become part of her general assets. The money was . .
Cited – Regina v Common Professional Examination Board, Ex Parte Mealing-Mcclead CA 19-Apr-2000
A party was required to pay money into court before pursuing an appeal. She borrowed money for this purpose but on the express condition that it should be used for this purpose only and was not to become part of her general assets. The money was . .
Cited – Neste Oy v Lloyd’s Bank Plc ChD 1983
A shipping agent (PSL), a client of the defendant, had become insolvent. The defendant sought to combine the accounts. PSL settled on behalf of their shipowner clients bills payable to harbour authorities, pilots, fuel merchants, and other providers . .
Cited – Bailey and Another v Angove’s Pty Ltd SC 27-Jul-2016
The defendant had agreed to act as the claimant’s agent and distributor of the claimant’s wines in the UK. It acted both as agent and also bought wines on its own account. When the defendant went into litigation the parties disputed the right of the . .
Cited – Revenue and Customs v The Investment Trust Companies SC 11-Apr-2017
Certain investment trust companies (ITCs) sought refunds of VAT paid on the supply of investment management services. EU law however clarified that they were not due. Refunds were restricted by the Commissioners both as to the amounts and limitation . .
Cited – LB Holdings Intermediate 2 Ltd, The Joint Administrators of v Lehman Brothers International (Europe), The Joint Administrators of and Others SC 17-May-2017
In the course of the insolvent administration of the bank, substantial additional sums were received. Parties appealed against some orders made on the application to court for directions as to what was to be done with the surplus.
Held: The . .
Lists of cited by and citing cases may be incomplete.
Company, Trusts
Leading Case
Updated: 10 November 2021; Ref: scu.194638