CC Automotive Group Ltd, Re

Section 5 of the Mercantile Law Amendment Act 1856 gives a co-obligor who performs the obligation the benefit of an assignable judgment, specialty or security, and removes procedural obstacles to enforcing it. It does not give the co-obligor every cause of action held by the creditor.

A trust created to compensate customers for non-performance of services is not thereby security. Equitable subrogation requires a defeated expectation concerning a feature of the transaction for which the claimant bargained. A hypothetical expectation is insufficient. English law does not recognise a purely remedial constructive trust.

The liquidator of CC Automotive Group Ltd applied under section 112 of the Insolvency Act 1986 for directions concerning approximately £1.265 million held in a trust account. The account had been established under a declaration of trust to protect customers who had purchased long-term Drive Happy Packages.

Some third-party funders had provided alternative policies or reimbursed customers after Carcraft entered administration. They claimed entitlement to the customers’ beneficial interests by statute, equitable subrogation or constructive trust. The liquidator also claimed that sums credited for Premium Credit Ltd and All in One Finance Ltd customers resulted to Carcraft because the prescribed Customer Trust Account Schedule had never been completed.

1. Alternative policy funders. The alternative policy funders had no interest in, entitlement to, or claim against customers’ beneficial interests in the trust fund.
2. Section 5. Section 5 of the Mercantile Law Amendment Act 1856 does not create a broad right to take over every remedy available to a creditor. Its second right enables a co-obligor who has performed the obligation to enforce the judgment, specialty or security assigned under the first part of the section without the former procedural bar arising from payment or performance. The provision did not assist the funders because the declaration of trust created no security.
3. Security. The customers’ beneficial interests were not mortgages, charges, pledges or liens. The declaration of trust compensated customers for non-performance or threatened non-performance of the DHP services. It did not secure performance, and it contained no general right of redemption. The interests therefore lacked the features of security identified in Re Cosslett (Contractors) Ltd and Fisher & Lightwood.
4. Equitable subrogation. RateSetter had acted under a mistake and, for the purposes of the application, its customers had been unjustly enriched. Nevertheless, following the principles explained in Swynson Ltd v Lowick Rose LLP, subrogation required an actual defeated expectation concerning a feature of the transaction for which RateSetter had bargained. RateSetter’s proposed expectation of an assignment of the trust interests was hypothetical. There was no evidence that it had bargained for or expected anything from its customers. Lord Napier and Ettrick v Hunter concerned the distinct insurer’s right of subrogation and did not alter that conclusion.
5. Constructive trust. Hughes v Lloyd did not establish a general constructive trust in these circumstances. The trust in that case was anomalous and fact-specific. RateSetter’s case would require a purely remedial constructive trust, which English law does not recognise, as confirmed in FHR European Ventures LLP v Cedar Capital Partners LLC.
6. PCL and AIOF shares. Carcraft was entitled on resulting trust to the sums attributable to Premium Credit Ltd and All in One Finance Ltd customers. The Customer Trust Account Schedule had never been completed, so the Customer Proportions had not been effectively declared. The relevant beneficial interests therefore remained with Carcraft, consistently with Vandervell v IRC.

The court left practical arrangements for distribution and administration to be addressed after judgment.