Common Professional Examination Board Ex parte Sally Mealing-McCleod

Money borrowed for the sole purpose of providing security for costs may be held on a Quistclose-type trust. The trust does not necessarily end when the money is paid into court. If the security is no longer required, and the loan terms show that the money was not to become part of the borrower’s general assets, the borrower must seek its return to the lender. The court holding the money, having notice of the trust, must give effect to it rather than treat the money as available for set-off against the borrower’s other liabilities. Reasonable costs of providing security include arrangement fees and interest payable on the loan.

The applicant, pursuing qualification for the Bar, borrowed £6,000 from Lloyds Bank to comply with an order requiring security for the Common Professional Examination Board’s costs of her appeal. The appeal was later withdrawn after the Board reversed the decisions challenged by the applicant, and the Board was ordered to pay her costs for the relevant period.

Hidden J ordered the £6,000 and accrued interest to be paid to the Board towards earlier costs orders. He rejected the applicant’s reliance on Barclays Bank Ltd v Quistclose Investments Ltd and refused permission to appeal. The issues before the Court of Appeal were whether the applicant could pursue permission despite the earlier vexatious-litigant order and whether the money remained subject to the Bank’s interest.

1. Permission and appeal. Roch LJ considered the proposed appeal arguable and granted permission. The Board did not rely on the earlier undertaking under Supreme Court Act 1981. The appeal was allowed, Hidden J’s order was set aside, and the money was divided between the Bank and the Board in accordance with the applicant’s concession.
2. Continuing trust. The principles in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 applied. The loan agreement and surrounding circumstances showed that the money was advanced solely to provide security for costs. It was not intended to become part of the applicant’s general assets.
3. The trust therefore continued after payment into court. It would operate until the security purpose was exhausted or the appeal failed in circumstances entitling the Board to recover costs from the fund. Once the money was no longer required as security, the applicant was entitled and bound, as trustee, to seek its return to the Bank.
4. Notice to the court was not required when the money was paid in. The court had given no consideration for receiving it and was effectively a stakeholder. Once notified of the trust, it was bound to respect the Bank’s interest. London County Council v Monks [1959] 1 Ch 239 did not apply because the money was not part of the debtor’s general assets.
5. The order requiring the Board to pay the applicant’s reasonable costs of providing security included the bank arrangement fees and reasonable interest on the borrowed £6,000.

Sir Christopher Slade agreed with Roch LJ and added that the agreement’s wording had to be construed in its commercial context. He confirmed that the sole permissible use of the money had been exhausted when the security was no longer required.

• Court of Appeal (Civil Division): Appeal allowed. The order of Hidden J was set aside. £5,218.38 was directed to be paid to Lloyds TSB plc, the balance to the Board’s solicitors, and the interest paid by the applicant to the Bank was ordered to be deducted from the sums owed to the Board.
• High Court: Hidden J ordered the £6,000 paid into court as security, together with accrued interest, to be paid to the Board towards its costs orders and refused permission to appeal.