Ali Tabari successfully represents Joint Administrators in High Court dispute concerning alleged trust monies

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Ali Tabari successfully represents Joint Administrators in dispute concerning alleged trust monies (Lowe and Jones v Lloyds Bank Commercial Finance Ltd and another [2020] EWHC 946 (Ch)).

In a recent High Court decision of Lowe and Jones v Lloyds Bank Commercial Finance Ltd and another [2020] EWHC 946 (Ch), the Joint Administrators applied for a declaration that monies held in a bank account in the company’s name pursuant to a commercial invoice discount facility are assets of the administration estate. A purported creditor, MUFG Bank Ltd, argued that the funds within that account were, in fact, held on a constructive trust in its favour, which arose as a result of certain payments having been made to the company shortly before its insolvency.

At a fully contested hearing before Deputy ICCJ Frith at the Rolls Building, Ali Tabari (instructed by the Nottingham office of Freeths LLP) successfully argued that the funds belonged to the Administration estate and ought to be repaid to the office-holders, subject to any claim which the facility provider might have for its own costs.

The decision reviewed the principles concerning constructive trusts within an insolvency context, including a useful summary of the guidance in previous cases of Chase Manhattan, Neste Oy, Westdeutsche Landesbank, Re D&D Wines, Farepak, and Stones v FCA, and reaffirmed the following key points at [44] onwards:

• The starting point is always to examine the contracts between the parties. Did those reveal the usual clues of a trust arrangement (e.g. a separate bank account, express declarations of trust or duty, etc)? In this case, the answer was ‘no’.

• If a trust exists, it must exist as at the date of the insolvency; otherwise it would threaten the parri passu principle which, in this context, is paramount. Here, the bank argued for the creation of a trust after the company had entered administration.

• The fact that a payment was made by mistake is not by itself sufficient to give rise to a constructive trust; that would require the receiving party to retain the money even after learning of the mistake. Here, the Court did not accept that the Bank paid any money by mistake.

• A suggestion that the bank would gain nothing, in reality, from claiming as an unsecured creditor in the Administration was no different from any other insolvency scenario, and was no reason to impose a constructive trust. In these circumstances, the Court did not think fit to impose a constructive trust, and found for the Joint Administrators.

The decision is a helpful reminder of the relevant principles when seeking to establish a constructive trust, and a demonstration of how fact-sensitive that enquiry will often end up being.

The full judgment can be found here.