Court Appeal overturns ruling that law firm wrongly paid out £2.3m from client account

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20 February 2015


RCJ

Briggs LJ: Money held “on trust solely for AFL”

The Court of Appeal has overturned a High Court decision that a Sussex law firm wrongly paid out £2.28m it had received from a group of investors in what turned out to be a doomed airport investment scheme.

Lord Justice Briggs said that in early September 2007, Juliet Bellis & Co received into its client account payments from 21 investors relating to land “at and around” a Surrey airport called Fairoaks.

The court heard that the aggregate amount paid by the investors was £2.28m, with the amount paid by each of them ranging between £30,000 and £250,000.

The bulk of the money was used to pay to the Royal Bank of Scotland to reduce the short-term borrowing of around £7m incurred by a client of Juliet Bellis & Co – a single-purpose Guernsey company known as Albemarle Fairoaks Limited (AFL).

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AFL had been acquired off the shelf as the vehicle for the Fairoaks scheme, and had bought the airport land before the disputed payments were made.

Briggs LJ said that much later, a further amount was transferred from the client account of Juliet Bellis & Co to the office account “in settlement of a liability of AFL to the firm for professional fees”.

Delivering judgment in Bellis and others v Challinor and others [2015] EWCA Civ 59, Briggs LJ went on: “The Fairoaks scheme did not prosper, and AFL was eventually placed in insolvent administration in 2010.

“Although some of the respondent investors lodged claims against AFL as creditors, there was, and remains, little prospect of any significant distribution on account of those claims.”

He said the investors commenced proceedings in November 2010 “seeking to recover their losses in full from the firm on the main basis that the firm had paid the £2.28m out of its client account to or for the benefit of AFL, in breach of what was described as an escrow agreement that it should be held by the firm pending satisfaction of conditions which were in the event never satisfied.”

Alternatively the respondents claimed that the firm had received the £2.28m upon trust for them, and disbursed it in breach of that trust.

The High Court ruled in favour of the investors in February 2013, awarding them the full amount claimed plus interest.

Lord Justice Briggs said the “central issue” was whether the investors advanced the money on trust for themselves “pending the satisfaction of ill-defined conditions”, or whether they had each made an immediate loan to AFL by paying the money, “with no strings attached”, to the firm as AFL’s agents.

He said it was common ground that none of them had set out the basis upon which they were paying their money to the firm, either orally or in writing, so the answer to the question depended upon “an intense focus” on the terms of the invitation.

Briggs LJ said an “objective review of the relevant primary facts” led him to the conclusion that the investors “paid the money to AFL’s solicitors as immediate loans to AFL”.

He said that regardless of whether Juliet Bellis & Co had AFL’s authority to receive the money on its behalf, the firm “nonetheless held it on trust solely for AFL and not on resulting trust” for the investors.

Though critical in some respects of the firm’s conduct, he allowed its appeal. Lord Justices Underhill and Moore-Bick agreed.

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