Prickly Bay Waterside Ltd v British American Insurance Company Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lady Arden |
| Judgment Date | 21 March 2022 |
| Neutral Citation | [2022] UKPC 8 |
| Court | Privy Council |
| Docket Number | Privy Council Appeal No 0001 of 2020 |
[2022] UKPC 8
Lord Hodge
Lady Arden
Lord Leggatt
Lord Burrows
Lord Stephens
Privy Council Appeal No 0001 of 2020
Privy Council
Lord Davidson of Glen Clova QC (Instructed by Oury Clark Solicitors (London))
Sydney A Bennett QC James Bristol QC (Instructed by Blake Morgan LLP (Oxford))
Trusts for the transfer of money or other property for a specified purpose, in this appeal for the payment of debts, may arise where, for instance, one person, A, establishes a trust for the payment of the debts of A or another person by providing property (often money), whether by gift or loan, to a recipient, B, who has either a power or a duty to pay those debts. If the specified purpose is or becomes incapable of being carried out, the purpose is said to fail, and (subject to any contrary provision) A may bring proceedings to ensure the money is repaid to him or her, or as he or she directs. A trust for the payment of debts of this kind may be established by an express trust, but to the extent that it is not an express trust, but it is shown that a fiduciary relationship between A and B was intended and that a beneficial interest in the property remains in A, a resulting trust may arise by operation of law. These trusts are not new but have come before the courts in several important cases in the last 50 years or so. Trusts of this kind are known as “Quistclose” trusts after the case from which the modern development of these trusts stems.
That case was Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567, in which a bank lent money to a company in financial difficulty so that it could pay a dividend that had already been declared. The money was paid into a separate account appropriated to that purpose. The company went into liquidation before the dividend was paid. The Appellate Committee of the House of Lords held that the moneys were held on trust, as a primary trust in favour of the creditors (ie the shareholders entitled to the dividend) and secondly, on failure of the purpose, for the lender, and so did not form part of the general assets of the borrower. But the development of the law in this field has not been linear and the precise analysis has been refined in later authority.
The nub of the present appeal case is that Mrs Rosa Lee (“Mrs Lee”) paid to the respondent (“BAICO”) a sum of money (“the Moneys”) which on the case of the appellant (“Prickly Bay”) was intended to be used for the purpose of payment in two years' time of an amount which would then have become due and payable to a Mr Steele. BAICO had given a guarantee (“the Guarantee”) that this sum would be duly paid. Prickly Bay contends that, when the full context of the arrangements between the parties is considered, Mrs Lee retained the beneficial right and title to the Moneys and that BAICO, having failed to pay under the Guarantee, was liable to return the Moneys to her under the principles referred to above.
This case was tried by Henry J who accepted BAICO's argument that there was no Quistclose trust. Prickly Bay appealed to the Eastern Caribbean Court of Appeal (“the ECCA”) (Baptiste, Thom JJA and Webster JA (Ag)), but its appeal was unsuccessful. It now appeals to the Board. At the hearing before the Board Lord Davidson of Glen Clova QC, who did not appear below, made ably and succinctly every submission that could be made on Prickly Bay's behalf, but the Board, having read the written cases from both parties, did not find it necessary to call on counsel for BAICO to reply to Lord Davidson's submissions.
Prickly Bay was at all material times engaged in the development of houses and apartments at L'Ance Aux Epines, St George, Grenada (the “Development”). Its principal director was Mr Richard Lee, husband of Mrs Lee. The work commenced in 2004. At the material time, Mr Steele owned two properties adjacent to the Development (the “Adjacent Properties”). In 2005, Mr Steele alleged that the Development infringed certain rights in relation to the Adjacent Properties. He issued proceedings against Prickly Bay in April 2006. The dispute was initially settled by way of a consent order made by the High Court of Grenada on 18 May 2007 (the “Consent Order”).
Under the terms of the Consent Order, Prickly Bay agreed to purchase the Adjacent Properties from Mr Steele for US$5,000,000. The purchase was completed through PBW Ltd acting as a nominee for Prickly Bay. PBW Ltd plays no part in these proceedings, and so the Board will disregard its role. On the making of the Consent Order and signing of the sale agreements Prickly Bay had to pay the price of one of the properties of US$2,500,000, and a deposit of USD$250,000 for the other on the basis that completion of the second sale agreement was deferred until 19 May 2009, when the balance of the price of that property (US$2,250,000) with interest at 5% per annum (US$225,000) was to be paid.
It was a term of the Consent Order that Prickly Bay would provide a bank guarantee for the balance of US$2,250,000. BAICO had agreed to give such a guarantee on 10 May 2007 on the basis that a deposit of US$2,475,000 would be placed with it. BAICO had no pre-existing relationship with Prickly Bay or the Lees. BAICO duly executed its guarantee (“the Guarantee”).
The arrangements for completion of the settlement included a licence for Mr Steele to occupy the second property pending completion.
The sale agreements, the Guarantee and licence were all duly signed and delivered after the Consent Order was made.
Mr and Mrs Lee and Prickly Bay took the following additional steps in anticipation of the Consent Order or to implement its terms:
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(i) Mr and Mrs Lee and Prickly Bay entered into a Loan Agreement dated 10 May 2007 under which Mr and Mrs Lee agreed to lend Prickly Bay the sum of US$5,475,000. Part of this sum was to be provided by a guarantee and so under the Loan Agreement Mrs Lee agreed to “provide a guarantee or procure that a guarantee is provided in suitable terms such that there will be funds available to settle a further payment of US$2,475,000 due on 18 May 2009 …”.
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(ii) On 15 May 2007, Mr Eleazer of BAICO in Grenada spoke to Mrs Lee in London by telephone and based on that conversation, he completed a standard annuity form. This was emailed to Mrs Lee in London, and then signed and emailed back by her. As a result, the sum of US$2,475,000 deposited by Prickly Bay with BAICO was used as the premium to take up an annuity policy (the “Annuity”) in Mrs Lee's name. The Annuity was described on the first page as “an investment product … which basically follows the traditional format of an annuity plan”. It was “offered in one and two-year bands, which can be renewed at the option of the investor”. So, it gave Mrs Lee the option to take either an annuity on retirement (stated to be 18 May 2012) or repayment of the whole of the accumulated amount invested at the end of a two-year period. It is common ground that there was no intention to make any annuity payments during the two-year period. Mrs Lee was concerned to maximise the payment of interest. Mrs Lee's evidence did not support the creation of a trust of any kind and she understood that the transaction was structured as it was so that she would get interest (Henry J, judgment, para 40). The Annuity gave her monthly interest during that period at 8.42% per annum, which would exceed the amount that Prickly Bay had to pay to Mr Steele under the second sale agreement and would terminate immediately prior to the payment date for the completion moneys due under the second sale agreement.
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(iii) On 17 May 2007, Prickly Bay's lawyers, Wilkinson, Wilkinson and Wilkinson confirmed payments under the arrangements as follows (1) US$2,750,000 to Mr Steele, (2) US$250,000 to Mr Steele's lawyers and (3) US$2,475,000 to BAICO (a total of US$5,475,000). The Lees and Prickly Bay undertook that “the parties will not file the Guarantee until the moneys are deposited into the account of [BAICO]”.
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(iv) In return, on 18 May 2007, BAICO provided a receipt for the sum of US$2,475,000 “being the sum to be held under the Deed of Guarantee made between [BAICO] and [Mr Steele]”.
On 18 May 2007, there was an internal memorandum of BAICO expressing concern that “we do not pay out before verifying that Derrick Steele has received his funds …”. The internal memorandum proposed that the benefit of the deposited amount should be assigned to Mr Steele. A draft was attached to the memorandum which is not available to the Board but certainly the assignment as signed was of the Annuity, rather than the Moneys or anything else.
On 22 August 2007, further to BAICO's request that she should sign an assignment prepared by it in favour of Mr Steele, Mrs Lee assigned to Mr Steele “right and title to the annuity … Such right and title shall be to the value of US$2,475,000 commencing 18 May 2007.” The assignment provided that it would become “effectual” [effective] on 19 May 2009, the day following the date for payment of the completion moneys due to Mr Steele in certain events: viz “should [Mr Steele] remain without receipt of US$2,475,000 representing the balance of the purchase price by 18 May 2009 in accordance with the terms of [the Consent Order] and [the Guarantee].”
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