Funds had been advanced for the sole purpose of purchasing equipment. The money was used to pay a deposit for the equipment but the company was placed into receivership before the equipment arrived.
Held: Since most of the deposit was returned to the company, the receiver could not retain the returned deposit money, which had to be returned to the lender.
Dillon LJ observed that: ‘On Quistclose principles, a resulting trust in favour of the provider of the money arises when money is provided for a particular purpose only, and that purpose fails.’
. . And that it was a long established principle of equity that, if a person who is a trustee receives money or property because of, or in respect of, trust property, he will hold what he receives as a constructive trustee on the trusts of the original trust property and that, by reason of that principle, the same trust must have attached to the repayment as attached to the original sum. However, his Lordship also observed that, if the equipment which was intended to be acquired had in fact been acquired, then ‘any trust attaching to that money because of that purpose, would indeed have been satisfied’ and ‘the company’s interest in that equipment would have been a general asset of the company held by the company free from any proprietary or equitable interest of the appellant by way of trust or otherwise’.
Bingham LJ said that: ‘Until the sums were paid out, the company plainly held them on trust to apply them for the stipulated purpose and no other. Had the purpose failed before payment, the case would have been indistinguishable from Quistclose. But that did not happen. The sums were applied for the stipulated purpose.
It would, I think, strike most people as very hard if the appellant were in this situation to be confined to a claim as an unsecured creditor of the company. While it is literally true that the fund which he provided was applied to the stipulated purpose, the object of the payment was not achieved and that was why the balance was repaid to the respondents. My doubt has been whether the law as it stands enables effect to be given to what I can see as the common fairness of the situation. Our attention has not, I think, been drawn to any case closely analogous to the present. But the company certainly held the fund on trust in the first instance. The purpose for which the fund was paid out partially failed. The repayment to the respondents was a direct result of the company’s original holding of the fund as trustee. The balance which was recovered may reasonably regarded as not having been paid out at all. I am happy to be persuaded that the sums repaid are to be treated as held on the same trusts as the original andpound;60,000 and, in the present circumstances, on a resulting trust for the appellant.’
Judges:
Diloin, Bingham LJ
Citations:
[1987] BCLC 646
Jurisdiction:
England and Wales
Insolvency
Updated: 08 May 2022; Ref: scu.556773