Summary

In interpleader proceedings it was determined that the obvious intention of the parties was that monies held pursuant to an undertaking in the client account of a firm of solicitors were held by the solicitors as trustee, to pay the monies out in accordance with the terms of the undertaking. Further, the undertaking constituted a solicitor's undertaking to hold the monies and apply them in accordance with that undertaking.

Facts

In interpleader proceedings, in the context of the administration of the first respondent (W), the applicant company (T) sought payment out of monies held in the client account of the intervening firm of solicitors (O). T and W had entered into an agreement for the sale by T to W of shares in a third party company. Under the agreement, T was to provide W with a tax indemnity and W was to pay T certain additional consideration. W brought a claim against T for the tax indemnity and, after a trial, T was found liable to W in the sum of £647,098 (the monies). T then threatened a freezing injunction in respect of the monies once it had been paid to W, because of the alleged risk of dissipation on W's part and because it believed the additional consideration which would be payable by W to T in due course pursuant to the agreement would exceed it. Following discussion, T paid the monies to O, who were acting for W, on the basis of an undertaking given by O to hold it in its client account and not to deal with it until satisfaction in full of any additional consideration determined to be payable by W to T. Further the undertaking would be discharged by the payment of the monies to T, whether in full or partial settlement of the additional consideration. W subsequently went into administration. In 2009 the additional consideration was calculated to be approximately £2.5 million and became due from W to T. T contended that (1) O had given a solicitor's undertaking which it was entitled to ask the court to enforce by compelling O to pay the monies to it; (2) O held the monies as a stakeholder and in the events as had happened were obliged to pay it to T; (3) in the alternative, O was a trustee to give effect to the undertaking by paying the monies out to persons entitled to the same. The second respondent creditor (P) submitted that the monies became the property of W when received by O, the undertaking was merely in exchange for not obtaining a freezing injunction, the monies therefore belonged to, and were now payable to W because the undertaking ought to be discharged as there was no risk of dissipation by W.

Held

(1) T had a judgment debt liability which it had to satisfy. T did not seek to set off its claim for additional consideration against that judgment debt liability. On the contrary it paid the monies over to O. Thus the monies became the property of W when it was received in the hands of O. However, although the undertaking was given against the backdrop of a threatened freezing injunction, it was not to be approached as being the equivalent of a freezing injunction and thus conferring no security or proprietary rights. It was plain that the undertaking went beyond an undertaking not to dispose of any funds, as would happen in a freezing application. O gave a standard form solicitor's undertaking to hold funds and dispose of them in accordance with that undertaking and O was entitled to hold the monies until the undertaking was either discharged or satisfied, Flightline Ltd v Edwards (2003) EWCA Civ 63, (2003) 1 WLR 1200 distinguished. (2) A stakeholder relationship was contractual not fiduciary, a stakeholder owing contractual obligations to the depositors. Such a relationship normally involved two contracts, the first between two principals agreeing to pay money to a stakeholder and a second tripartite contract with the stakeholder agreeing terms. It was difficult to see that there was such a first contract between W and T, and the payment of the monies to O was made outside any contractual obligation, Gribbon v Lutton (2001) EWCA Civ 1956, (2002) QB 902 applied. (3) It seemed much more obvious that the undertaking created a trust whereby O held the monies to pay it in accordance with the terms of the undertaking. That seemed more credible than a suggestion of a stakeholder arrangement where O would be beneficially entitled to the monies and under a purely personal obligation to pay the monies. (4) Although unfortunately drafted, it was implicit in the undertaking that O should pay the monies to T once the additional consideration was determined, in full or partial settlement of that additional consideration. Upon payment, O's undertaking would be discharged. O would make the payment in accordance with the trust created by the undertaking and in accordance with its separate solicitor's undertaking. The monies were therefore payable to T.