Dubey & Thompson (Administrators Of Farepak Foods & Gifts Ltd) v Revenue & Customs (2006)
The administrators of an insolvent company had not made out a sufficient case for the distribution to the company's former customers of certain funds held by them. A deed of trust executed by the administrators was treated as rectified to cover the relevant bank account and moneys it was intended to cover; however, the deed apparently gave a preference to those customers who had already paid sums to the company through its agents, which was an obstacle at the practical level to any sums being paid out under the deed.
The applicant administrators (D) of an insolvent company (F) applied for directions as to whether and how they should distribute certain funds held by them. F operated a Christmas savings scheme under which customers could spread their Christmas savings over a year. The scheme operated through a system of agents. The agents collected money from the customers and forwarded it to F. On October 11, 2006 F's directors decided to cease trading and F went into administration on October 13. The moneys paid to F by the customers had largely gone. However, in the three days leading up to the administration the directors sought to ring-fence moneys received by customers in that period so that it could be returned to them if necessary. A deed of trust was executed, though there was a mistake as to the bank account identified in it. D submitted that the moneys received in the administration period and the period from October 11 to October 16 were held on trust for the customers. D submitted that the trust arose from three possible sources: a Quistclose resulting trust; a constructive trust arising out of the unconscionability of retaining customer moneys received after the decision to stop trading; the express declaration of trust, or an implied declaration arising out of the related facts.
(1) The agents were agents of F, not of the customers. Therefore, money paid by the customers to the agents was money paid to the agents and taken by them as agents of F. (2) There was no suggestion that when an agent received money from a customer he was expected to keep it separate from other money. It was, in fact, known that the money was mixed with the money of other customers and paid over to F. While that was not inconsistent with a Quistclose trust, it did not help to establish such a trust. It was crucial that there was no suggestion that the money ought to have been put on one side by F pending the transmutation from credited money to goods or vouchers. If there were a Quistclose trust then that obligation would have been inherent in it. It was not relevant that F described its scheme as a "savings" scheme. The concept of a trust was not inherent in the use of the word "savings". The relationship between F and its customers was a contractual relationship. There was no Quistclose trust. (3) If and insofar as it could be established that moneys were paid to F by customers at a time when F had decided that it had ceased trading, and indeed at a time when it had indicated that payments should not be received, then there was a strong argument for saying that those moneys would be held by F as constructive trustee from the moment they were received, Neste Oy v Lloyds Bank Ltd (1983) NLJ 597 applied and Westdeutsche Landesbank Girozentrale v Islington LBC 95 LGR 1 considered. However, it could not be determined that all the moneys in relation to which the court was asked to make a decision fell within that line of argument. If the principles in Neste Oy were to be applied, then they should be applied by reference to the time at which the moneys should be taken to have been paid to and received by F. That was not necessarily the same date as the credit appeared in F's current account. Problems arose because some items credited had a three-day clearing cycle, and all the money credited was money that had already been paid, by some mechanism or other, to agents. Since the agents were agents of F, receipts by those agents fell to be treated as receipts by F. The overall position was of sufficient uncertainty that the court was unwilling to determine the issues on the basis of the material before it. Even allowing for the desirability of distributing moneys immediately, if at all possible, the material did not exist that made it sufficiently clear that the sums, which were said to come within the constructive trust, did in fact come within it. (4) There was no evidence of any other act of the directors of F going beyond a mere declaration of intention, apart from the execution of the trust deed. Therefore there was an express trust or no trust at all. The mistake in the declaration of trust was rectifiable. The deed could be treated as rectified to cover the account and moneys it was intended to cover. However, where money had already been paid to F, via the agents, the relevant customers were already creditors of F. By declaring the trust those customers were apparently given a preference. That was an obstacle, at the practical level, to any sums being paid out on the footing of the rectified deed of trust. (5) It might well be that the scope for returning funds to customers was limited. However, the findings made in the instant proceedings should be dealt with as if it were a summary judgment application. Although a proper case for distributions had not been made out in the instant proceedings, there was nothing to say that it could not be made out in the future and that the obstacles could not be investigated further. D would be free to apply again for permission to distribute.
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18 Dec 2006
 2 BCLC 1