Bishopsgate Investment Management Ltd v Homan

JurisdictionEngland & Wales
Judgment Date12 July 1994
Judgment citation (vLex)[1994] EWCA Civ J0712-9
Docket NumberNo. CHANI 94/0038/B
CourtCourt of Appeal (Civil Division)
Date12 July 1994
Bishopsgate Investment Management Ltd.
Homan & Others

[1994] EWCA Civ J0712-9

(Mr. Justice Vinelott)

Before: Lord Justice Dillon Lord Justice Leggatt and Lord Justice Henry

No. CHANI 94/0038/B





MR. P. HESLOP QC and MR. J. BRISBY (instructed by Messrs. Stephenson Harwood, London) appeared on behalf of the Appellants.

MR. L. KOSMIN QC (instructed by Messrs. Norton Rose, London) appeared on behalf of the Respondents.



DILLON L.J.:— This is an appeal, by leave of the Judge, by Bishopsgate Investment Management Ltd ("B.I.M.") against an Order of Vinelott J made on the 21st December 1993. B.I.M., which is now in liquidation, is the trustee of certain of the assets of various pensions schemes for employees of companies with which the late Robert Maxwell was associated.


The respondents to the appeal, Mr Homan and three colleagues who are partners in Price Waterhouse & Company, are the Court-appointed Administrators of Maxwell Communication Corporation plc ("M.C.C."). The Judge's order was made on an application by the Administrators under the Insolvency Act 1986 for directions. M.C.C., which was known at an earlier stage as the British Printing Corporation Ltd, was a publicly quoted company and the most prominent of a large number of companies, for which it was the holding company. There is a second group of companies, which have been referred to as the Maxwell private sector companies; essentially they were companies the share capitals of which were beneficially owned, directly or indirectly, by Robert Maxwell and members of his family or trusts established by him.


On the unexpected death of Robert Maxwell on the 5th November 1991, it was discovered that very large amounts of pension fund moneys of B.I.M. had been improperly paid, during his lifetime, directly or indirectly into various bank accounts of the private side companies and of M.C.C. with National Westminster Bank. At the time of each wrongful payment of B.I.M.'s pension fund moneys into that M.C.C's accounts those accounts were overdrawn, or later became overdrawn. It was also found that M.C.C. was hopelessly insolvent. Consequently on the 20th December 1991 the Administrators were appointed by the Companies Court in England. Also, because M.C.C. had substantial assets in the USA, on the 16th December 1991 M.C.C. was placed in Chapter XI protection under the U.S. Bankruptcy Code in the United States Bankruptcy Court, Southern District of New York.


To simplify administration and avoid difficulties because of differences between the statutory provisions in the two jurisdictions, in July 1993 a Scheme of Arrangement was approved by the Companies Court under the Companies Act 1985 and a Plan for Reorganisation was approved by the U.S. Court under Chapter XI so that, in effect, the funds in both jurisdictions could be dealt with as a single fund.


Naturally, therefore, the Administrators, who have realised a substantial amount of M.C.C.'s assets although the administration is far from complete, wanted to make an interim distribution among the creditors of M.C.C.. But the liquidators claimed that B.I.M. was entitled to an equitable charge, in priority to all other unsecured creditors of M.C.C., on all the assets of M.C.C. for the full amount of the pension moneys of B.I.M. wrongly paid to M.C.C. Accordingly the Administrators applied to the Companies Court for directions.


Vinelott J approached the application on the basis that if the claims of B.I.M. were plainly not maintainable in law the Court ought to make a declaration to that effect, in order that an interim distribution could be made without regard to unfounded claims. But, if it was possible that on a further investigation of the facts there might be a claim, valid in law, by B.I.M. to an equitable charge on a particular asset, the proceeds of that asset ought not to be distributed until the particular facts had been investigated.


The Judge declared by his Order that the Administrators were entitled to deal with specified notices of claim as if they do not give rise to any proprietary claims, and he declared also that B.I.M. was not entitled to any equitable charge over the assets of M.C.C. in respect of proprietary claims notified to the Administrators to the extent that such assets were acquired before any moneys or assets misappropriated from B.I.M. were paid or transferred to or so as to be under the control of M.C.C. and were not acquired in anticipation of or otherwise in connection with the misappropriation of such assets or moneys. In essence the Judge held that B.I.M. could only claim an equitable charge on any assets of M.C.C. in accordance with the recognised principles of equitable tracing and these principles do not permit tracing through an overdrawn bank account —whether an account which was already overdrawn at the time the relevant moneys were paid into it or an account which was then in credit, but subsequently became overdrawn by subsequent drawings.


The Judge reserved, however, the position if it were shown that there was a connection between a particular misappropriation of B.I.M's moneys and the acquisition by M.C.C. of a particular asset. The Judge gave as an instance of such a case what he called "backward tracing" —where an asset was acquired by M.C.C. with moneys borrowed from an overdrawn or loan account and there was an inference that when the borrowing was incurred it was the intention that it should be repaid by misappropriations


of B.I.M.'s moneys. Another possibility was that moneys misappropriated from B.I.M. were paid into an overdrawn account of M.C.C. in order to reduce the overdraft and so make finance available within the overdraft limits for M.C.C. to purchase some particular asset.


By a respondent's notice by way of cross-appeal, the Administrators ask us to overrule these reservations of the Judge, and hold that even if the possible facts which the Judge envisages were clearly proved that could not in law give B.I.M. any equitable charge on the particular asset acquired. For my part I would not interfere at all with this aspect of the Judge's exercise of his discretion. In my judgment, if the connection he postulates between a particular misappropriation of B.I.M's money and the acquisition by M.C.C. of a particular asset is sufficiently clearly proved, it is at least arguable, depending on the facts, that there ought to be an equitable charge in favour of B.I.M. on the asset in question of M.C.C..


But the main claims of B.I.M. are put much more widely as claims to an equitable charge on all the assets of M.C.C. These claims are not founded on proving any particular intention of Robert Maxwell or others in charge of M.C.C. but on general principles which it is said that the Court ought to apply. They are founded primarily on certain observations of Lord Templeman in giving the judgment of the Privy Council in Space Investments v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1987] 1 WLR 1072. In particular, in that case Lord Templeman said at 1074 C-D:-

"In these circumstances it is impossible for the beneficiaries interested in trust money misappropriated from their trust to trace their money to any particular asset belonging to the trustee bank. But equity allows the beneficiaries or a new trustee appointed in place of an insolvent bank trustee … to trace the trust money to all the assets of the bank and to recover the trust money by the exercise of an equitable charge over all the assets of the bank…. that equitable charge secures for the beneficiaries and the trust priority over the claims of customers and all other unsecured creditors."


What Lord Templeman there said was strictly obiter, in that on the facts the Privy Council held that the bank trustee was authorised by the trust instruments to deposit trust money with itself as banker and so there had been no misappropriation. The beneficiaries or their new trustee therefore could merely prove with the other general creditors of the insolvent bank trustee for a dividend in respect of the moneys so deposited.


Vinelott J rejected the submissions of B.I.M. founded on Space Investments. He considered that Lord Templeman could not have intended to effect such a fundamental change to the well-understood limitations to equitable tracing; Lord Templeman was only considering the position of an insolvent bank which had been taking deposits and lending money.


In the Notice of Appeal to this Court, B.I.M's first ground of appeal relies on Space Investments and it is said that the Judge erred in his interpretation of what Lord Templeman had said. There is a second, and alternative, ground of appeal to which I will refer later.


The appeal was, for obvious reasons, expedited, and we heard full argument on the 7th and 8th March 1994. By the end of the argument, however, it was clear that there were complicating factors that precluded us from giving judgment on the appeal then.


One of the other members of the Board in the Privy Council which decided Space Investments was Sir Robin Cooke, the President of the Court of Appeal in New Zealand. In a later case in New Zealand, Liggett v Kensington [1993] 1 NZLR 257, which was concerned with deposits of gold coins and bullion, Sir Robin Cooke, as one of the majority in the Court of Appeal in New Zealand, treated the statements by Lord Templeman in Space Investments which I have quoted as...

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