Courtwood Holdings S.A. v Woodley Properties Ltd & Ors

Where a proprietary injunction restrains assets claimed as trust property, the court may permit payment from those assets of expenses properly incurred in protecting, acquiring or realising them. The relevant question is whether there is a serious issue to be tried as to the expense’s propriety, honesty or reasonableness. This differs from the ordinary case, where a defendant seeks to use allegedly proprietary assets to meet personal expenses or commercial debts and must satisfy the applicable balance-of-justice test. A trustee cannot use trust property for personal liabilities, but may be indemnified from the trust fund for expenses reasonably and honestly incurred. The remedy in a knowing-receipt claim is an account of profits, rather than an account of gross receipts.

Courtwood Holdings S.A., having acquired Sandford Properties’ rights of action, claimed that property and profits held by Woodley Properties Ltd and others represented assets obtained through breaches of fiduciary duty. A proprietary injunction restrained dealings with overage payments arising from the development of land formerly owned by Sandford Properties.

Woodley applied to vary the injunction so that it could pay Knight Frank’s invoice for work negotiating an accelerated overage payment. Courtwood argued that the gross receipts were subject to the injunction and that the invoice was merely Woodley’s commercial debt. The central issue was whether an expense incurred in obtaining or protecting allegedly trust property could properly be paid from that property before the account was taken.

1. Application granted in part. The injunction was varied to permit payment from the restrained overage receipts of Knight Frank’s commission-based fee relating to the accelerated overage payment. The separate balancing payment of £14,500, relating to an earlier overage payment already distributed to Woodley’s participators, was excluded.
2. The principles in Marino v FM Capital Partners Limited [2016] EWCA Civ 1301 were accepted and loyally applied so far as they concerned the ordinary case. Ordinarily, a defendant with unaffected resources must use those resources for legal expenses, living expenses and ordinary commercial debts. Where the restrained funds are the defendant’s only available resources, the court applies a four-stage inquiry: whether the claimant has an arguable proprietary claim; whether the defendant has arguable grounds to resist it; whether release is necessary for the defendant’s legitimate purposes; and where the balance of justice lies.
3. The present case required refinement because the payment was not a personal expense or ordinary commercial debt. It was an expense incurred in relation to property alleged to be trust property. A claimant seeking equitable relief must make proper allowance for reasonable costs of protecting or acquiring the asset. More narrowly, although a trustee cannot use trust money for personal expenses, the trustee may be indemnified from the trust property for expenses reasonably and honestly incurred.
4. The proper interim question was whether there was a serious issue to be tried as to whether Knight Frank’s fees were improper trust expenses, dishonestly incurred or unreasonable in amount. The fee for negotiating a complex accelerated overage payment was not shown to be so disproportionate that it plainly could not be allowed on the taking of the account. The payment could therefore be made from the gross receipts, subject to later accounting and potential personal liability if it proved not to be a legitimate trust expense.