Tradegro (UK) Ltd v Wigmore Street Investments Ltd & Ors

A commercial arrangement governing money held by solicitors must be interpreted from its words, factual matrix and commercial purpose. Its legal character follows from that interpretation.

An agreement restricting the use of a fund does not, without clear words imposing an obligation to discharge a debt from that fund, give the creditor a proprietary interest or security. Where the fund belongs beneficially to an insolvent debtor, a court must not use a power to direct payment so as to confer an unintended preference. The fund remains available for distribution under the general insolvency law.

Under a share purchase agreement, Tradegro owed WSI £647,098.31, while WSI might later owe Tradegro additional consideration. To avoid an application for a freezing injunction, the sum was paid to WSI's solicitors, Olswang LLP, under an undertaking restricting its transfer or use.

After the additional consideration was determined at £2,417,820, WSI entered administration and could not pay it. Peter Smith J held in [2010] EWHC 1693 (Ch) that an implied term required the fund to be paid to Tradegro. The intervening appellant, a creditor of WSI, appealed. The central issue was whether the undertaking entitled Tradegro to the fund or required its payment to WSI's administrators.

1. Appeal allowed unanimously. The undertaking meant that Olswang held the sum for WSI's benefit, although subject to the restrictions it imposed. The payment to WSI's solicitors, the parties' correspondence, the separate treatment of the underlying judgments and the commercial purpose of avoiding dissipation all supported that construction.
2. Paragraph (iii) permitted the sum to be used towards the additional consideration but did not require that use. Its mandatory language concerned discharge of the undertaking if payment occurred. It did not authorise Olswang to pay Tradegro against WSI's wishes merely because the additional consideration had been determined and remained unpaid.
3. There was no need to imply a term governing the fund. Paragraph (ii) expressly empowered the court to direct what should happen where Tradegro withheld consent and the additional consideration remained unpaid. Any order had to give Tradegro neither more nor less than the undertaking conferred.
4. A restriction preventing misapplication of a fund does not itself create an equitable assignment, trust or security. Clear words must impose an obligation in favour of the creditor to discharge the debt from the fund. That principle was applied from Palmer v Cary [1926] AC 703 and Flightline Ltd v Edwards [2003] EWHC 1648 (Ch).
5. If WSI had remained solvent and refused payment without good reason, the court could ordinarily have directed that the sum be applied towards its liability. Insolvency altered the proper exercise of that power. Ordering payment to Tradegro would confer a secured status which the undertaking neither expressed nor intended.
6. The sum was therefore to be paid to WSI's administrators for distribution among its creditors, including Tradegro, according to the general insolvency law. Laws LJ and Arden LJ agreed with the Master of the Rolls.

1. Court of Appeal (Civil Division): The court allowed the appeal unanimously and held that the fund should be paid to WSI's administrators for distribution under the general insolvency law: [2011] EWCA Civ 268.
2. High Court, Chancery Division: Peter Smith J held that an implied term required the fund to be paid to Tradegro: [2010] EWHC 1693 (Ch).