Quistclose Investments Ltd v Rolls Razor Ltd ((in Liquidation))
| Jurisdiction | England & Wales |
| Judgment Date | 15 December 1967 |
| Judgment citation (vLex) | [1967] EWCA Civ J1215-1 |
| Docket Number | 1964 Q. No. 2725. |
| Court | Court of Appeal (Civil Division) |
| Date | 15 December 1967 |
In the Matter of The Trusts of a Sum of, 2209,719.8s.6d. Paid by Quiestclose Investments Limited to the Credit of a Special No. 4 Dividend Account in the Name of Rolls Razor Limited with Barclays Bank
[1967] EWCA Civ J1215-1
Lord Justice Harman
Lord Justice Russell And
Lord Justice Sachs
In The Supreme Court of Judicature
Court of Appeal
On Appeal from Mr. Justice Plowman
Mr. Arthur Bagnall, Q. C., and Mr. Michael Sherrard (instructed by Messrs. D. J. Freeman & Co.) appeared on behalf of the Appellants.
Mr. Muir Hunter, Q. C., and Mr. David Grahan (instructed by Messrs. Ashurst Borris Crisp & Co.) appeared on behalf of Rolls Razor, Ltd, the first Respondent.
Mr. John Arnold, Q. C., and Mr. Allan Heyman (instructed by Messrs. Durant Cooper & Humbling) appeared on behalf of Barclays Bank Ltd., the second Respondent.
The third Respondents, Investors Inter-Continental Fund Ltd., were not represented.
This appeal arises out of a loan of a sum of over £200,000 made by the Plintiff (Apellant) company to the first Respondents (Rolls Razor Ltd.) to enable that company to pay a dividend declared in June 1964 and intended to be paid on the 24th July following. The money was deposited with the respondent bank and accepted on the footing that it should only be used for payment of the dividend. That purpose was, however, frustrated by the liquidation of Rolls Razor on the following 27th August before the dividend had been paid, to us making its payment illegal. It is the bank's claim in this case, and it succeeded in the Court below, that this event released it from its promise not to allow the dividend to be used for any purpose but payment of the dividend, and entitled the bank to retain the money by way of set-off against Rolls Razor's indebtedness to itself.
If this be is right it is a surprising result. The last thing contemplated by either the plaintiff or Rolls Razor when the loan was made was that the money should pass into the hands of the bank and the latter has in effect acquired a windfall which it can never have expected. It is, however, I think to be taken that if this money was at the relevant time the beneficial property of Rolls Razor, the back is Justified, having regard to the decision of this Court in Rolls Razor Ltd. v. Cox (1967 1 Q. 3. 552); but it is otherwise if the Money was not at that time the beneficial property of Rolls Razor, but was to the knowledge of the bank money impressed with a trusts for it is trite law that only that part of the property of the bankrupt passes to his assignee in which he has both the legal and the beneficial interest at the time of the bankruptcy. See Baron Parka's observation in Mogg v. Baker (3 M. & W. 195, at page 197).
The facts of the case are as follows. In the spring of 1964 Rolls Razor was in Queer Street. It had achieved a very large trading profit in the year 1963 and was contemplating the payment for that period of a dividend amounting with an interim already paid of 2005; but it had no liquid assets out of which to pay the dividend. Since the beginning of 1964 to road been a catastrophic change in the fortunes of Rolls Razor. Its business, chiefly in washing machines on hire purchase, had lost the favor of the market and it was being outsold by competitors. By the 4th June 1964 it appears from a letter sent by the bank to Rolls Razor that its overdraft was £484,000, against a limit of £250,000, and one at least of its subsidiaries, By lock Electric Ltd., was in as parlous a state. The bank threatened to refuse to continue business unless there was an amendment by the end of the month, or to increase the overdraft. This meant that the bank would not agree to the payment of the dividend which the directors had recommended at a meeting on the previous 14th May. This had already been intimated to Mr. Bloom, the chairman, on the previous day.
At a General Meeting of Rolls Razor held on the 2nd July the recommended dividend was approved and it was to be payable on the 24th July; but at a Board Meeting on the next day, the 3rd July, Mr. Bloom told the Board that a permanent advance of £1½ million was required to make the company financially secure and that he had so far failed to make arrangements to underwrite an issue of such a size. Liquidation was at that meeting suggested as a possibility. Mr. Bloom was at this time in negotiation with a well-known financier and it appears from a memorandum of the bank dated the 9th July that the suggestion then was that Mr. "X" should provide £1 million on certain conditions one of which was that Mr. Bloom would put in £200,000 and "find the money" for the proposed dividend.
Mr. Bloom did succeed in finding this money in the shape of a loan from the plaintiffs who it seems itself borrowed the sum; the source is immaterial. On the 15th July there was a Board Meeting of the plaintiff company at which it resolved that a loan of £209,719. 8s.6d. (The net amount required to pay thedividend) should be lent to Rolls Razor "for the purpose of that company paying the final dividend due on the 24th July next", and to draw a cherub for that sum payable to Rolls Razor, and send it to the bank with a covering letter to both confirming that the loan be made on the following conditions; (1) that it is used to pay the forthcoming dividend: That this dividend will be paid subject to the further finance required by Rolls Razor being forthcoming. The resolution adds that the letter should further state that in the event of the conditions not being fulfilled by the 24th July (the day when the dividend was due to be paid), and then the money is to be repaid to the plaintiffs.
On the same day a cherub was drawn in favor of Rolls Razor, who sent it to the bank with a covering letter. This followed a meeting between Mr. Goldberg, a director of Rolls Razor, and a bank representative, I read the letter.
It is headed "Rolls Razor Ltd., and it is addressed to "G. H. Parker, Esq. Barclays Bank Ltd, City Office. Dear Mr. Parker, Confirming our telephone conversation of today's date, will you please open a No. 4 Ordinary Dividend Share Account. I enclose herewith a cherub valued £209, 719. 8. 6. Being the total amount of dividend due on the 24th July 1964. Will you please credit this to the above mentioned account? We would like to confirm the agreement reached with you this morning that this amount will only be used to meet the dividend due on the 24th July 1964. Yours sincerely L. Goldberg, Director
Another letter was sent bearing the same date by the plaintiff is to Rolls Razor, and a copy to the bank, but it does not appear that this latter letter reached either party until two days later. This letter is in these terms: it is addressed to "The Secretary, Rolls Razor Ltd. Dear Sir, We are today forwarding a cherub for £209, 719. 3s. 6d. to Barclays Bank Ltd., City Office, for the credit of a special dividend account number 5. This loan is being made to Rolls Razor Ltd, on the following conditions: (1) that it is used to pay the forthcoming dividend due on the 24th July next. (2) That this dividend will be paid subject to the further finance required by Rolls Razor Ltd. being forthcoming by that time. In the event of these conditions not being fulfilled on or before the 24th July the amount of £209,719. 8s.6d, is immediately returnable to us. Yours faithfully, H. G. Cass, Director."
The second condition there made and the last stipulation was not agreed by Rolls Razor, as appeal by a minute on the 17th July. At the same meeting the Rolls Razor Board resolved that the company should petition for winning up.
It appears from a resolution of a meeting of the Board on the 20th July that the Board agreed that the money on deposit was paid on these terms. I read at page 33:
"In particular with regard to the statement that Condition (2) and the last paragraph of the letter dated 15th July 1964 from Quest close Investments Limited had not been agreed by the Board. There was considerable discussion as to the basis upon which the sum of £209,71.8.6d. had been made available.
"Mr. Wright stated that the Board at its meeting on Friday was clear that the sum was to be used only for the purpose of paying the dividend but was not clear as to the other terms and had, therefore, reserved the matter in the Minutes.
"It was, however, accepted by the Board that this payment to the Company was made as part of a continuing negotiation with no intention that the Company should retain the moneys if the relevant conditions were not satisfied and the negotiations did not fructify."
A special No, 4 dividend account had already been opened on the 8th July and the cherub was specially cleared and the proceeds lodged in this account.
On the 20th July the bank informed the Board that it was exercising its statutory right to combine all the company's accounts "except for the time being the No. 4 Ordinary Dividend Share Account". The reason for this no doubt was that the bank recognized its obligation to retain the money until the company went into liquidations and it appears from a bank memorandum on the 24th July that the bank anticipated that its right to amalgamate the No. 4 account would arise on liquidation. On the 5th August the plaintiffs' solicitors wrote to Bolls Razor demanding repayment of the money, but this was never done,
Rolls Razor went into liquidation on the 27th August and the bank next day, in exercise of its claim, set off the sum on the No. 4 dividend account against other indebtedness of Rolls Razor. The writ was issued on the 1st October following claiming a declaration that the plaintiffs were the absolute...
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