Challinor & Ors v Juliet Bellis & Co (A Firm)

Summary judgment is inappropriate where the pleaded case raises real disputes of fact, credibility or knowledge that require disclosure and cross-examination. An alleged escrow arrangement may be characterised contractually as an escrow or equitably as a purpose or Quistclose trust. Where the payment is made for a specific purpose and the recipient knows that purpose, the recipient may owe fiduciary obligations concerning the money. Evidence of previous dealings and the surrounding circumstances may be relevant where no complete written agreement exists. The court should assess the evidence in the round and should not determine contested credibility summarily.

The claimants, investors in a property development scheme, alleged that money paid into the defendant solicitors’ client account was to remain theirs pending specified escrow conditions. The defendant contended that the money was advanced as unsecured loans and was properly paid to the investment vehicle. It applied for reverse summary judgment under CPR 24 and alternatively sought strike-out under CPR 3.4(2).

The central issues were whether the alleged escrow terms or purpose trust had a realistic prospect of being established, whether the defendant was bound by or subject to them, and whether the pleadings should be struck out.

1. Application dismissed. The claimants’ case had a realistic, rather than fanciful, prospect of success. The defendant’s applications for summary judgment and strike-out were therefore refused.
2. An escrow arrangement in a commercial context may provide that ownership of transferred funds does not pass until an agreed event occurs. Its essence is an undertaking not to treat the funds as the recipient’s property before that event. A purpose or Quistclose trust may arise where money is paid for a specific purpose and the recipient knows that purpose. The contractual and fiduciary obligations may coexist, and subtle distinctions between different forms of Quistclose trust are unnecessary: the judge relied on Twinsectra Ltd v Yardley [2002] 2 AC 164.
3. The alleged agreement was sufficiently arguable. The draft loan notes were never issued and did not conclusively define the parties’ arrangements. The teaser and engagement letter also required assessment in context.
4. Because there was no complete written agreement, evidence of previous dealings, the earlier investment model and the surrounding circumstances was admissible and relevant to determining the agreement and the defendant’s obligations.
5. The evidence raised substantial factual issues, including the defendant solicitor’s knowledge, the authenticity and meaning of the engagement letter, the alleged telephone conversation, and witness credibility. Those issues required disclosure and cross-examination.
6. Applying the approach in Easyair Ltd (trading as Openair) v Opal Telecom Ltd [2009] EWHC 339 (Ch), the court held that the first limb of CPR 24.2 was not satisfied. In any event, the direct factual contradictions and the need for fuller documentation constituted compelling reasons for a trial under CPR 24.2(b).
7. No present inconsistency in the amended reply justified striking it out. Further argument could be heard concerning pleading form, privilege and case management.