Ferrera v Hardy

Money received by an agent for a principal is not automatically held on trust, but an agency relationship does not prevent a trust from arising. The court must examine the true circumstances and decide whether it is appropriate to superimpose a trust on the commercial relationship. Relevant considerations include the parties’ arrangements, the purpose for which the agent received the money, any right of recourse for legitimate expenses, and whether the money was to be kept separately or used as part of the agent’s ordinary cash flow. In a commercial setting, the court should neither impose a trust unthinkingly nor deny proprietary protection where the parties’ objective requires it. Rent received by an agent for landlords resident outside the United Kingdom was held on trust for the landlords, subject to the agent’s legitimate recourse to the funds.

The appeal concerned a third party debt order obtained by Dennis Philip Hardy against Cristobal Ferrera, a judgment debtor. Liverpool City Council had paid housing benefit rent for a Liverpool property to Ferrera, who acted as agent for landlords resident outside the United Kingdom. District Judge Wright ordered the Council to pay £650 to Hardy and the balance to the landlords’ current agent, treating the balance as money held for the landlords and similar to trust money.

Hardy contended that Ferrera was only a contractual agent and that all money paid to him was personally recoverable under the third party debt order. The landlords contended that the circumstances justified a trust. The central issue was whether the rent monies were Ferrera’s personal property or were held for the landlords.

The court granted permission to appeal but dismissed the appeal.

1. The proper approach was to consider whether it was appropriate to superimpose a trust relationship on the undoubted commercial agency relationship between Ferrera and the landlords. The existence of an agency relationship was not conclusive either way.
2. The court applied the principles identified by Briggs J in Re Lehman Brothers International (Europe), Pearson & Ors v Lehman Brothers Finance SA [2010] EWHC 2914 (Ch). In particular, commercial circumstances require care: the law should not impose a trust where personal rights sufficiently achieve the parties’ objective, but should recognise a proprietary interest where that objective requires it.
3. The circumstances supported a trust. Ferrera had been interposed solely because the landlords’ non-United Kingdom residence prevented housing benefit being paid directly to them. The monies derived from rents payable for the landlords’ property and were not properly to be treated as Ferrera’s own money.
4. Ferrera might have had a right to resort to the monies for legitimate property outgoings and expenses. That did not alter the character of the balance to which no such recourse had been made. That balance was effectively held on trust for the landlords.
5. Accordingly, the district judge was entitled to direct payment of the balance to the landlords’ current agent. The order for £650 payable to Hardy was unaffected. The final order was permission to appeal, followed by dismissal of the appeal.

1. High Court (Chancery Division): District Judge Wright ordered Liverpool City Council to pay £650 to Hardy and the balance of the relevant housing benefit monies to the landlords’ current agent. On appeal, permission was granted but the appeal was dismissed.