Dilip Desai & Anor v Paul David Wood & Anor

The Court of Appeal dismissed the appellants' appeal that insurance monies paid by the professional indemnity insurer to the insured company were held on trust for the appellants. The appellants had argued (i) that an implied contractual term required the insured to ringfence insurance proceeds for clients when the insured had reasonable grounds to believe it might be unable to meet the clients' claims, and (ii) that a constructive trust arose because it would be unconscionable for the insured to retain the funds. The court held that the applicable policy power (Claims Condition 7) to pay the limit of indemnity to the insured relieved the insurer of further liability, and that established authorities (in particular Re Harrington Motor Co Ltd (ex parte Chaplin)) and the statutory scheme meant third parties do not obtain proprietary rights in proceeds simply because they relate to their claim. The court rejected implication of any term because of the requirements of necessity and certainty and held there was no intention or subject-matter certainty sufficient to create a trust.

This appeal concerned £250,000 paid by the insurer (Royal & Sun Alliance Ltd) to Boscolo Ltd (in liquidation) under Claims Condition 7 of a professional indemnity policy, thereby relinquishing the insurer's control and further liability. The appellants (clients of Boscolo) alleged negligence/breach of contract and sought a declaration that the insurance proceeds, or the remaining £246,000 in the liquidator's hands, were held on trust for them.

Background and procedural posture:

• Parties: Appellants, Dilip Desai and Paresh Shah (clients); Respondents, Paul David Wood and Neil Frank Vinnicombe (liquidators of Boscolo Ltd).
• Contractual framework: a Design Contract incorporating BIID model conditions required the designer to maintain professional indemnity insurance and capped liability to the insurance limit; the Memorandum defaulted to a six year insurance maintenance period and the Company had represented a £250,000 limit.
• Procedure: Proceedings issued against the company and the insurer; the company went into voluntary liquidation after the insurer had paid the limit to the company. The High Court below (HHJ Paul Matthews, [2024] EWHC 1893 (Ch)) declared the insurance monies belonged beneficially to the company; the appellants appealed to the Court of Appeal.

Relief sought and issues before the court:

• The appellants sought a proprietary interest in the insurance proceeds, relying alternately on an express or implied contractual trust, on implied terms that would require ring‑fencing of proceeds when the company had reasonable grounds to believe it could not meet claims from other resources, and on a constructive trust/unconscionability or unjust enrichment.
• The court framed the issues as whether any term should be implied into the Design Contract or the Policy sufficient to give rise to a trust, and whether equitable principles could impose a constructive trust on the circumstances of payment.

Reasoning and disposition:

• The court applied established tests for implication of terms (necessity and obviousness, citing Ali v Petroleum Company of Trinidad and Tobago) and emphasised the need for sufficient certainty as to when an obligation to ringfence would arise and what state of mind of directors would trigger it.
• The court held that, as a matter of law and commercial context, clients have no proprietary right in an insured's policy or its proceeds absent express provision; Re Harrington Motor Co Ltd remained determinative that proceeds paid to an insured do not become subject to a third party's proprietary right merely because they relate to that third party's claim when the insurer pays the insured before insolvency proceedings transfer statutory rights.
• The proposed implied terms failed the tests of necessity and certainty: the court identified multiple plausible trigger thresholds (balance‑sheet or cash‑flow insolvency, likelihood of inability to pay, different states of mind) and different consequences, such that no single, necessary and sufficiently precise term could be identified.
• Even if an implied term were found, it would not demonstrate the requisite intention or subject‑matter certainty to create a trust; the company was not required to segregate funds and, as accepted by the appellants, could use the proceeds to fund its defence. Constructive trust arguments (including analogies to Twinsectra and Neste) were rejected, and reliance on earlier authorities recognising remedial or unconscionability‑based trusts was disapproved in later authority (Angove’s v Bailey).

The court therefore dismissed the appeal and affirmed that, in the absence of express contractual protection, parties remain able to provide for proprietary protection by express terms or security arrangements.

Appeal dismissed. The Court of Appeal held that the appellants had no proprietary interest in the insurance proceeds. The insurer’s exercise of Claims Condition 7 to pay the limit to the insured discharged the insurer and there was no basis to imply a term into the Design Contract or Policy which would give rise to a trust: implication failed for lack of necessity and certainty; there was no intention, subject‑matter segregation or other basis for an express or constructive trust, and established authority (notably Re Harrington) and the statutory scheme governed the outcome.

Appeal from HHJ Paul Matthews (sitting as a Judge of the High Court), Business and Property Courts in Bristol, Insolvency and Companies List (ChD), [2024] EWHC 1893 (Ch). The High Court had made an order dated 8 August 2024 following a reserved judgment dated 24 July 2024; the order below declared the insurance proceeds belonged beneficially to the company.