Brazzill and Others v Willoughby and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Thomas,Lord Justice Sedley,Lord Justice Lloyd |
| Judgment Date | 27 May 2010 |
| Neutral Citation | [2010] EWCA Civ 561 |
| Docket Number | Case Nos: A2/2009/1673, 1676, 1679, 1686 and 1687 |
| Court | Court of Appeal (Civil Division) |
| Date | 27 May 2010 |
[2010] EWCA Civ 561
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
MR JUSTICE PETER SMITH
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Sedley
Lord Justice Thomas
and
Lord Justice Lloyd
In the Matter of Kaupthing Singer & Friedlander Limited
(in administration)
Case Nos: A2/2009/1673, 1676, 1679, 1686 and 1687
Richard Snowden Q.C. and Ben Shaw (instructed by Freshfields Bruckhaus Deringer LLP) for the Administrators
Stuart Isaacs Q.C. and Marcus Haywood (instructed by Pinsent Masons LLP) for Bernadette Willoughby
Lloyd Tamlyn (instructed by Nabarro LLP) for Kaupthing Singer & Friedlander (Isle of Man) Ltd
Richard Gillis Q.C. and Sam O'Leary (instructed by Herbert Smith LLP) for Transport for London
Robin Dicker Q.C. and Andreas Gledhill (instructed by Slaughter and May) for HM Treasury and (instructed by Denton Wilde Sapte LLP) for the Financial Services Compensation Scheme
Hearing dates: 23 and 24 March 2010
Lord Justice Lloyd
Introduction
The collapse of the Icelandic bank Kaupthing hf (Kaupthing) in October 2008, and the consequences for its UK-based indirect wholly-owned subsidiary Kaupthing Singer & Friedlander Ltd (KSF), have kept lawyers busy. Already this court has considered an appeal from a decision of Norris J on a question of set-off: [2010] EWCA Civ 518, the Chancellor has had to rule on issues concerning the rule in Cherry v Boultbee: [2009] EWHC 3377 (Ch), and an appeal from that decision is on its way directly to the Supreme Court of the United Kingdom. Now we have to decide five appeals from an order of Peter Smith J, following a judgment given on 10 July 2009: [2009] EWHC 1633 (Ch).
KSF was an authorised institution under the Financial Services and Markets Act 2000 ( FSMA). Pursuant to that authorisation by the Financial Services Authority (FSA), it carried on business in England including the taking of deposits. KSF had a variety of customers holding different types of account, including members of the general public, corporations (including members of the Kaupthing group) and local authorities. Among these different accounts KSF offered savings accounts operated only online called Edge Accounts; these were available either as a savings account or as a fixed term deposit account. The interest rates offered on Edge Accounts were high compared to similar products offered by other financial institutions.
Following the collapse of Lehman Brothers in September 2008 and the general disruption in global credit markets at that time, compounded by difficulties facing the Icelandic economy and banking system in general and Kaupthing in particular, KSF faced extremely difficult trading conditions, a sudden deterioration in its liquidity situation and a general loss in public confidence at the beginning of October 2008.
In those circumstances the FSA took steps under its regulatory powers under FSMA, in particular by issuing a First Supervisory Notice (the Notice) to KSF on 3 October 2008. By the Notice KSF was required to open a segregated trust account on terms specified in the Notice, to credit the account with a cash amount at least as great as the aggregate value of deposits accepted by KSF from its customers during 2 and 3 October, and thereafter to credit it with a cash amount at least as great as the value of subsequent deposits accepted by KSF from its customers from time to time. In accordance with the Notice KSF opened an account (the Account) with the Bank of England (the Bank) and paid certain amounts into the Account on 6 and 7 October 2008. The issues in the present proceedings concern the claims to beneficial entitlement to the money in the Account on the part of various competing interests.
Payments into the Account did not continue beyond 7 October because on 8 October, on the one hand, KSF went into administration, on the application of the FSA and, on the other hand, shortly before the administration order was made, the Treasury (HMT) exercised powers under the Banking (Special Provisions) Act 2008 (the 2008 Act) to make an Order (the Order) by which, in effect, all Edge Accounts were transferred, indirectly, to ING Direct NV (ING). In this way, all holders of Edge Accounts became entitled to exactly similar accounts with a reliable institution. Value was given for the assumption of liability by ING for these liabilities by HMT and by the Financial Services Compensation Scheme (FSCS, or sometimes "the Scheme") in a way which I will describe, and which itself gives rise to questions raised in these proceedings.
The proceedings and the parties
The proceedings themselves were commenced by the administrators of KSF, to obtain the court's assistance as regards the entitlement to the money in the Account. Several parties were identified to represent the interests of a number of relevant classes of claimant. Not all classes are still relevant, and I will not mention those who are not.
i) The first appellant, Bernadette Willoughby, who is (and is a party as) a trustee of the Singer & Friedlander Ltd Pension and Assurance Scheme, represents:
a) KSF account holders in respect of whom money was transferred to the Account corresponding to their deposits during the relevant period (2–8 October), whose accounts were not transferred to ING and who are not entitled to claim compensation under FSCS;
b) KSF account holders in respect of whom money was transferred to the Account corresponding to their deposits during the relevant period, whose accounts were not transferred to ING and who are entitled to claim compensation under FSCS (whether or not they have done so);
c) KSF account holders in respect of whom money was transferred to the Account corresponding to their deposit in the relevant period but whose accounts (arguably) should not have been treated as customer accounts or whose deposits (arguably) should not have been treated as deposits.
It is in the interests of these classes to argue that a valid trust was created over the money in the Account, but only for the benefit of those customers in respect of whose accounts with KSF money was paid into the Account. The issue as to deposits and customers arises because the Notice did not define either customer or deposit. Some contend that deposit has the same meaning as it bears for the purposes of FSMA, which was then set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the RAO); I will refer to this as the regulatory meaning. Others contend that it has a wider meaning.
ii) Transport for London (TFL) represents trade creditors of KSF and any account holders who did not make deposits during the relevant period and in respect of whose accounts KSF made no payment into the Account. This class has no possible claim to money in the Account as such and their interest is in maximising any recovery of KSF from the Account.
iii) A sister company of KSF, Kaupthing Singer & Friedlander (Isle of Man) Ltd (KSFIOM), represents KSF account holders in respect of whom, on the true construction of the Notice, KSF ought to have transferred money into the Account but it did not do so. The interest of this class is to argue that a valid trust was created over the money in the Account and that the beneficiaries of that trust are the account holders in respect of whom money ought to have been transferred to the Account, whether or not it was and whether or not the amount transferred was correct. This class included those who made deposits in foreign currencies. At trial, the sub-category of creditors which included foreign currency depositors was separately represented from KSFIOM itself. That was not perceived as necessary on the appeal, although, as I will mention later, a point did arise for decision concerning the foreign currency deposits.
iv) HMT and FSCS were joined as parties because of their having provided funding for the transfer of Edge Accounts to ING under the Order and because of their claim that, by virtue of the terms of the Order, or of their having provided such funding in any event, they are entitled to corresponding sums to the exclusion of KSF.
The proceedings came on for trial before Peter Smith J in May 2009. In his reserved judgment, he held (a) that a valid trust had been created over the money in the Account, (b) that the beneficiaries were not limited to those in respect of whose accounts money had been transferred into the Account, but extended to all those who had made payments during the relevant period such that, on the correct construction of the Notice, KSF should have made payments into the Account, and (c) that the correct interpretation of the Notice was that "deposit" meant a sum of money paid on terms that it would be repayable, and that it was not limited to the regulatory meaning. He also held (d) that deposits in foreign currency were included within the obligation to make transfers under the Notice. The latter point is not challenged on appeal, though a point affecting the interests of the foreign currency creditors did arise before us. The...
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