Reality Ltd v Euro Bank Corporation
| Jurisdiction | Cayman Islands |
| Judge | (Murphy, J.) |
| Judgment Date | 05 November 1999 |
| Date | 05 November 1999 |
| Court | Grand Court (Cayman Islands) |
(Murphy, J.)
A.J. Walters for the plaintiff;
N.F.R.C. Timms and Ms. M.B. Polances for the defendant.
(1) Barclays Bank Ltd. v. Quistclose Invs. Ltd., [1970] A.C. 567; [1968] 3 All E.R. 651, considered.
(2) Carreras Rothmans Ltd. v. Freeman Mathews Treasure Ltd., [1985] Ch. 207; [1985] 1 All E.R. 155, dicta of Peter Gibson J. applied.
(3) Chelsea Cloisters Ltd., Re(1980), 41 P. & C.R. 98, considered.
(4) Henry v. Hammond, [1913] 2 K.B. 515; (1913), 82 L.J.K.B. 575, dicta of Channell J. applied.
(5) Holiday Promotions (Europe) Ltd., Re, [1996] 2 BCLC 618; [1996] BCC 671, dicta of Timothy Lloyd, Q.C. applied.
(6) Kayford Ltd., In re, [1975] 1 W.L.R. 279; [1975] 1 All E.R. 604, considered.
(7) Nanwa Gold Mines Ltd., In re, Ballantyne v. Nanwa Gold Mines Ltd., [1955] 1 W.L.R. 1080; [1955] 3 All E.R. 219, considered.
(8) Space Invs. Ltd. v. Canadian Imperial Bank of Commerce Trust Co. (Bahamas) Ltd., [1986] 1 W.L.R. 1072; [1986] 3 All E.R. 75, distinguished.
Companies Law (1998 Revision) (Laws of the Cayman Islands, 1963, cap. 22, revised 1998), s.101:
‘When an order has been made for winding up a company no suit, action or other proceeding shall be proceeded with or commenced against the company except with the leave of the Court and subject to such terms as the Court may impose.’
Banking-banker and customer-fiduciary relationship-customer is mere creditor in winding up of bank unless trust created by agreement to set aside identifiable fund for specified purpose-segregation of moneys and communication to bank of purpose insufficient without mutual intention to create trust
The plaintiff company applied for a declaration that moneys held in an account with the defendant bank (in liquidation) were held on trust for it.
The plaintiff was a managed company, the shareholders and directors of which were subsidiary companies of the defendant bank. Its beneficial owner, R, held several accounts with the bank and was a beneficiary of a family trust of which the bank was trustee and banker. B, the bank”s officer responsible for managing the various accounts connected with R, habitually moved funds from one account to another to ensure the best rates of interest for his client.
R obtained a loan from the bank on behalf of the plaintiff to assist in the purchase of a property. The loan was agreed on condition that the bank would take a first charge over the property, and the final instalment of the loan would not be paid over unless sufficient funds were available in the various accounts at the relevant time to meet the difference between the sum loaned and the purchase price, so as to ensure the bank”s first charge.
The first instalment of the loan was paid to the plaintiff upon the execution of the purchase agreement. B was later requested to arrange for
the liquidation of investments made by the bank on behalf of the trust. A proportion of that money was paid by B into a series of fixed-term deposit accounts of the trust, then into the trust”s current account, and finally into the plaintiff”s credit card account. Before the balance of the purchase moneys could be paid, the bank went into liquidation.
The plaintiff obtained leave to pursue its action against the bank under s.101 of the Companies Law (1998 Revision).
The plaintiff submitted that (a) R had agreed with B that the purchase moneys required in addition to the loan facility would be deposited with the bank and held for the specific and sole purpose of ensuring that sufficient funds would be available to complete the purchase; (b) shortly before the bank”s liquidation, R instructed B to transfer all funds other than the additional moneys out of the bank and did not authorize the transfer of the moneys to the credit card account; (c) since the bank”s subsidiaries were the officers and shareholders of the plaintiff, the bank had a clear interest in ensuring that it did not breach its contract with the vendor of the property; and (d) accordingly, the additional moneys were impressed with a trust for its benefit and did not form part of the bank”s assets on liquidation.
The bank submitted in reply that (a) the loan agreement did not specify that the bank would arrange to set aside sufficient of the plaintiff”s funds to meet the shortfall between the loan facility and the purchase price; (b) whatever R”s intention was, B (acting independently, as he had been accustomed to doing) had been concerned as much to maintain the balances on the various accounts as to preserve a specific sum; (c) although he had placed some of the proceeds of the investment in the credit card account as an interest-paying, easy access account, he had not specifically ear-marked those funds from which to complete the purchase, and drawdowns had continued to be made on the account; and (d) accordingly, there was no express or implied trust in respect of the moneys.
Held, dismissing the application:
In the absence of an agreement taking the status of the funds in question outside of the usual banker-customer relationship, no intention to create a trust could be inferred. Such an intention was more likely to exist if (i) express words were used, (ii) a separate account had been established to receive the moneys, and (iii) the moneys had been transferred for the specific purpose alleged. In practice this usually occurred when the account was in the name of a third party with whom the alleged beneficiary of the trust had a business relationship, rather than in the beneficiary”s own name. However, without such a mutual intention, the mere segregation of funds together with communication to the bank of the purpose for which they were to be used would not operate to impress them with a trust. Here the parties had not agreed to set aside a specific and identifiable fund of money for completion of the purchase, but only to ensure that sufficient moneys for that purpose were reserved,
in the various accounts, as the bank saw fit. The moneys in the credit card account were not deposited there specifically to this end, but were merely the residue of the investments liquidated earlier. Accordingly, the relationship between the parties was purely contractual, and the plaintiff was simply a creditor of the bank (page 481, lines 2–20; page 483, lines 33–42; page 484, line 19 – page 485, line 37).
| 35 | MURPHY, J.: This is the trial of an issue in which the plaintiff claims |
| declaratory relief as follows: | |
| ‘A declaration that the sum of US$400,343.56 (along with | |
| accrued interest) is held on trust by the defendant to enable the | |
| plaintiff to complete the purchase on October, 27th, 1999 of | |
| 40 | Apartment No. 29, The Pinnacle, Grand Cayman (“the property”), |
| pursuant to the sale and purchase agreement entered into on | |
| February 8th, 1998 between the plaintiff and Cayman Overseas | |
| (Pinnacle) Ltd. | |
| Alternatively, a declaration that the defendant holds the sum of | |
| 45 | US$400,343.56 (along with accrued interest) on trust for the |
| plaintiff, and that the said sum must be repaid to the plaintiff on or | |
| before October 27th, 1999 being the date which the purchase of the | |
| property is to be completed.’ | |
| The contention of the plaintiff is that the moneys referred to, held in an | |
| 5 | account at the defendant bank in the name of the plaintiff or a related |
| family trust, are impressed with a trust in the plaintiff”s favour so as to | |
| create a proprietary interest in the plaintiff that survives the liquidation of | |
| the bank. On May 11th, 1999 controllers of the bank were appointed | |
| pursuant to s.14(1)(v) of the Banks and Trust Companies Law (1995 | |
| 10 | Revision) and on June 16th, 1999 joint liquidators were appointed by a |
| special resolution of the members of the bank. | |
| This issue was tried in a highly expedited fashion. What was originally | |
| listed before me for October 29th was an application by the plaintiff for | |
| leave to proceed pursuant to the provisions of s.101 of the Companies | |
| 15 | Law (1998 Revision), coupled with an application for a mandatory |
| injunction to compel the liquidators of the bank to pay the | |
| US$400,343.56, with interest, to the vendor of the Pinnacle condominium | |
| referred to above. The position of the plaintiff was that without this | |
| amount being made available for (what was represented to me as) an | |
| 20 | October 29th, 1999 completion date, i.e. the very return date of the |
| application, the Pinnacle deal (involving a total purchase price of | |
| US$1,545,000) would be lost, a large deposit forfeited and other | |
| substantial damages incurred. | |
| I am bound to say that from the outset I was sceptical that the plaintiff | |
| 25 | would have allowed that dire consequence to result, for the want of some |
| US$400,000. I am even more dubious now having seen evidence of the | |
| terms of the sale and of the assets and affairs of the plaintiff and its | |
| principals, and in particular having heard the cross-examination of Dr. | |
| George Robbins, the main principal behind the plaintiff, a man of some | |
| 30 | considerable substance, who ultimately admitted that the sale could be |
| completed with short-term finance. | |
| In any case, when I reviewed the papers a few days before the return | |
| date of the application for leave to proceed and for injunctive relief, it | |
| occurred to me that (i) the proposed application could lead to scenarios | |
| 35 | that would be unsatisfactory from a practical standpoint, and inconclusive, |
| and (ii) an expedited trial of the rather narrow issue would probably not | |
| take much more court time. I thereupon offered the attorneys the | |
| opportunity of having the case tried on the return date of the application | |
| instead. To their credit, they managed to prepare for this on short notice, | |
| 40 | and have |
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