Bellis & Ors v Challinor & Ors

A Quistclose-type trust arises only where a transferor objectively intends to restrict the transferee’s use of property so that it is not at the transferee’s free disposal. Where money is advanced as an unrestricted loan, legal title carries the beneficial interest and the lender assumes the risk of the borrower’s insolvency.

Payment to a solicitor’s client account does not itself preserve the payer’s beneficial ownership. Money paid there for the benefit of the solicitor’s client is ordinarily held on trust for that client, even if the client did not authorise receipt. The payer therefore has no resulting trust.

A solicitor is not unjustly enriched by money held on client-account trust for a client. Disbursement for that client’s benefit may also constitute a good-faith change of position.

Twenty-one investors paid £2.28 million into a solicitors’ client account in response to invitations to invest early in a property scheme. Most of the money was used to reduce borrowing owed by the scheme company. The scheme failed and the company entered insolvent administration.

After rejecting a contractual escrow claim, Hildyard J held that the investors’ money was held for them under an implied trust analogous to a Quistclose trust or, alternatively, a resulting trust arising from the company’s alleged failure to authorise its receipt. He provisionally favoured restitution if the trust claims failed.

The solicitors appealed. The investors sought to uphold recovery through restitution if necessary. The central issue was whether the payments created trusts pending satisfaction of conditions or were immediate loans to the company without restrictions on their use.

1. Appeal allowed. The investors made immediate loans to the scheme company. They did not create a trust for themselves. The offering documents objectively invited investment by immediate unsecured loans before the proposed equity vehicle was established. They imposed no restriction preventing the company or its solicitors from using the money immediately: per Briggs LJ, with whom Underhill and Moore-Bick LJJ agreed.

2. A Quistclose-type trust is a species of resulting trust. It requires an objectively ascertained intention that the transferred property should not be at the transferee’s free disposal, usually because it may be used only for a stated purpose. Where the transferor responds without further words to an invitation to transfer on particular terms, the invitation is likely to determine the transferor’s objective intention. Uncertainty about the permitted purpose preserves an established trust, but uncertainty about whether any restriction was imposed does not favour the transferor.

3. Payment into a solicitor’s client account is not, without more, evidence of a trust for the payer. Where one party pays money at another party’s request to that party’s solicitor, the default position is that payment to the solicitor is payment to the client. The solicitor holds the money on trust for the client. The earlier use of detailed escrow terms in another investment scheme strengthened the conclusion that the conspicuous absence of such terms here left the company freely entitled to the loans.

4. The alternative resulting-trust claim also failed. A solicitor who accepts money intended for an existing client holds it for that client even if the client did not authorise receipt. The client may subsequently repudiate the payment and direct its return, but until then the beneficial interest belongs to the client. Because the payments were intended as immediate loans, there was no unallocated beneficial interest capable of returning to the investors under a resulting trust.

5. The restitutionary claim failed for two independent reasons. First, the solicitors were not enriched by receiving money held on client-account trust for the company. Transfers made to discharge the company’s debts likewise conferred no unjust enrichment on the solicitors. Secondly, disbursement to or for the company’s benefit was a good-faith change of position. Conduct cannot be commercially unacceptable against a claimant where that claimant has no basis for complaint about it.

1. Court of Appeal (Civil Division): The solicitors’ appeal was allowed. The investors’ trust and restitutionary claims failed.
2. Chancery Division: Hildyard J awarded the investors £2.28 million plus interest. He rejected contractual escrow and strict Quistclose claims, but upheld two alternative resulting-trust analyses and provisionally favoured restitution.