Power & Anor v HM Revenue and Customs & Anor

Where a savings-scheme agent acts for the scheme operator, payment by a customer to the agent is legally payment to the operator. A customer cannot establish a trust claim by relying on the later payment of those monies into the operator’s bank account. Monies received after the operator had decided to cease trading and had indicated that payments should not be received may be held on constructive trust. A trust declaration may be rectified where it refers mistakenly to the wrong account. Representatives appointed to protect a class may accept weak claims and agree a proportionate distribution where further investigation would impose disproportionate costs. Individual factual questions falling outside the represented common issue must be determined by the individual claimant.

Farepak Food and Gifts Ltd entered administration on 13 October 2006 and was subsequently wound up. Its joint liquidators sought authority to distribute monies paid into Farepak’s bank accounts shortly before and shortly after it ceased trading. Customers had made payments through agents operating the company’s Christmas savings scheme.

An earlier judgment by Mann J had provisionally concluded that the agents acted for Farepak, that no trust arose over monies paid before cessation of trading, that monies received after Farepak had decided to cease trading could be held on constructive trust, and that a trust declaration referring to the wrong bank account could be rectified. The present application concerned the final distribution categories, including customers for whom the date of payment to the agent remained uncertain.

1. Disposition. The court authorised distribution to customers in Categories One, Two, Three, Four, Five and Five A, subject to limits based on the sums paid into Farepak’s accounts and the aggregate sums claimed. The court also approved a procedure for the Residual Class, subject to the relevant consents, and the order subsequently became unconditional.
2. Agency and timing of payment. The customer payment card and the surrounding arrangements confirmed that an agent was Farepak’s representative, not the customer’s agent. Payment by a customer to the agent was therefore legally payment to Farepak. No customer could rely on a later payment into, or crediting of, a Farepak bank account to establish a trust claim where the payment to the agent had occurred earlier.
3. Trust principles. The court agreed with Mann J that no trust, including a Quistclose-type trust, arose over monies paid to agents before Farepak ceased trading. There was a strong basis for treating monies received after Farepak had decided to cease trading and had indicated that payments should not be received as held on constructive trust from receipt. The declaration of trust was properly rectified so that it covered the account into which the customer monies were actually paid.
4. Residual Class. The representation order required the liquidators to establish the common legal principles, but did not require them to determine the individual factual question whether each customer had paid an agent on or after 11 October 2006. Those customers were not represented on that factual issue and had to provide their own evidence.
5. In the unusual circumstances, a neutral letter seeking the last payment date, treating a qualifying response at face value, and treating non-response as failure to establish a trust claim achieved a fair and proportionate balance between the Residual Class and unsecured creditors while controlling costs.

The application followed an earlier representation order made by Briggs J and a provisional judgment delivered by Mann J on 18 December 2006. The present court considered the final distribution arrangements and made the order sought, as subsequently modified and rendered unconditional.