Kirill Ace Stein v Eugene Jaffe

An express bare trust requires an objectively manifested intention to create a trust. The court must identify the settlor’s intention from words and conduct, assessed in their commercial and factual context. Payment of money for a particular purpose does not itself create a trust. The critical question is whether the recipient was intended to have the money at its free disposal. Where payment was made to facilitate work but remained subject to further negotiation, conditions or the creation of a future structure, immediate beneficial ownership may not have passed to the intended recipient. On the facts, the payment was not held on trust because the alleged settlor’s intention to create an immediate trust had not been established.

The claimant alleged that the defendant held USD2 million on an express bare trust for him. The money had been paid by or on behalf of a Russian businessman to a company connected with the defendant after meetings concerning the claimant’s proposed litigation and advisory services. The claimant sought equitable compensation or an account on the basis that the defendant had used trust money for his own purposes.

The defendant contended that the payment was made in connection with a wider project, that the claimant’s entitlement depended on further agreement and the creation of an appropriate structure, and that the money was ultimately his or the company’s to use. The central issue was whether the payer objectively intended to create an express bare trust for the claimant when the payment was made.

1. Claim dismissed. The claimant did not establish that an express bare trust had been constituted over the USD2 million payment.
2. The applicable inquiry was whether the alleged settlor’s words and conduct demonstrated, objectively and on the balance of probabilities, a sufficiently clear intention to create a trust. An uncommunicated or merely private intention was insufficient. The subject matter and beneficiary were sufficiently identifiable, but certainty of intention remained decisive, applying the approach in Williams v Central Bank of Nigeria [2013] EWCA Civ 785, Challinor v Juliet Bellis & Co [2015] EWCA Civ 59 and Gill v Thind [2023] 1 WLR 2837.
3. The payment was made to enable the claimant’s work to begin, but the evidence indicated that payment of his fee remained subject to further discussion, negotiation and an appropriate structure. The proposed structure was intended to be the conduit for payment and a pre-condition to the claimant’s receipt of fees. The payment was therefore not shown to have conferred immediate beneficial ownership on the claimant.
4. The court considered the commercial significance of whether the money was at the recipient’s free disposal. A payment for a particular purpose does not necessarily create a Quistclose trust. If the recipient may use the money as part of its own cash flow, a trust is inconsistent with that arrangement. The defendant’s later use of the money and the payer’s continuing involvement supported the absence of an immediate bare trust, although the court did not need finally to determine any Quistclose trust issue.
5. The court rejected the claimant’s reliance on the defendant’s later communications and evidence. The circumstances showed uncertainty about the purpose and deployment of the payment, and did not establish the payer’s intention at the material time.
6. Alternative defences were considered but did not determine the result. The court observed that the six-year limitation provisions in section 21 of the Limitation Act 1980 would have required an account or inquiry if the claim had succeeded. It also accepted that, under section 24 of the Trustee Act 2000, breach of the statutory limits on appointing a nominee would not necessarily invalidate an otherwise constituted trust. Sections 16 and 19 regulated trustees’ powers in existing trusts and were not directed to trust formation.