Challinor & Ors v Juliet Bellis & Co & Anor

An escrow arrangement outside the law of deeds depends on an enforceable contract or undertaking with sufficiently certain terms. Payment into a solicitor’s client account may nevertheless show that money is to be kept separate pending a defined event, instruction or finalisation of the transaction. Until the beneficiary, trust terms and authority for release are clear, the solicitor must retain the money and cannot treat it as belonging to the intended borrower.

Where investors did not intend an immediate transfer of beneficial ownership and the borrower lacked authority to receive the funds, an analogous resulting trust may arise. Subsequent uncertainty or ratification cannot justify an unauthorised payment away. A trusted commercial intermediary is not thereby a fiduciary, and personal liability for an employee’s statements requires assumption of responsibility and reliance.

Twenty-one investors paid approximately £2.28 million into the client account of Juliet Bellis & Co in connection with a proposed property investment in Fairoaks airport land. They claimed that the money was subject to contractual escrow conditions or, alternatively, a Quistclose-type or resulting trust, and that payment to RBS breached those obligations.

The claims also included restitution, negligent misrepresentation against Mr Egan, and a contingent contribution claim by the Defendant Firm against him. The principal issues were whether the money immediately became the property of Albermarle Fairoaks Limited, whether that company had authorised its borrowing and receipt, and whether the payments out of the client account were authorised.

1. Main claim. The contractual escrow claim failed. Although the circumstances objectively showed that the money was to be kept separate and retained pending a further event or instruction, the alleged release conditions, including the concept of the transaction being safe, were insufficiently certain to create an enforceable escrow contract.
2. Trust. The client account was a trust account. The investors had not intended their money immediately to belong to Albermarle Fairoaks Limited. The Defendant Firm therefore held the funds on trust for the payers pending agreement of the loan terms, completion of regulatory requirements, and a clear direction or defined event authorising release. Uncertainty did not defeat the trust; it prevented the trustee from applying the funds without unequivocal authority. The payments to RBS were breaches of trust. This reasoning was consistent with the principles in Twinsectra Ltd v Yardley [2002] 2 AC 164 and Bristol and West BS v May, May & Merrimans [1996] 2 All ER 801.
3. Authority and ratification. Albermarle Fairoaks Limited had not authorised the borrowing or receipt of the investors’ money through its proper constitutional organs. The supposed beneficial ownership of Mr Cummings and the administrative character of the corporate directors did not supply authority. Later conduct did not clearly ratify the transactions and could not divest proprietary rights which had arisen in favour of the investors.
4. Other claims. The restitutionary claim was unnecessary and was not finally determined. Relief under section 61 of the Trustee Act 1925 was unavailable because Mrs Bellis had not acted reasonably. Equitable compensation was to be assessed at the date of judgment; the later administration application did not cause the loss.
5. Mr Egan and final disposal. Mr Egan made no actionable representation that defined contractual escrow terms existed and had not assumed personal responsibility for the investors’ losses. He was not their fiduciary, had not dishonestly assisted the breaches, and had not procured tortious wrongdoing by ECS. The Claimants succeeded against the Defendant Firm on the Main Claim and alternative authority claim. Their claims against Mr Egan were unnecessary. The Part 20 claim was dismissed, with consequential matters left for a further hearing.