Space Investments Ltd v Canadian Imperial Bank of Commerce et Al

JurisdictionUK Non-devolved
JudgeLord Keith of Kinkel,Lord Templeman,Lord Oliver of Aylmerton,Lord Goff of Chieveley,Sir Robin Cooke
Judgment Date07 July 1986
Docket NumberPrivy Council Appeal No. 36 of 1984
CourtPrivy Council
Date07 July 1986
Space Investments Ltd.
and
Canadian Imperial Bank of Commerce et al

Lord Keith of Kinkel; Lord Templeman; Lord Oliver of Aylmerton; Lord Goff of Chieveley; Sir Robin Cooke

Privy Council Appeal No. 36 of 1984

Privy Council

Trust and trustee - Bank trustee — Whether in the winding up of an insolvent bank trustee, the liquidator must pay the trust deposit accounts maintained by the bank trustee in priority to payment of customer's deposit accounts and the debts owed by the trustee bank to other unsecured creditors — Court held that the trust creditors claiming in respect of trust money lawfully treated as on deposit rank pari passu with the unsecured creditors in the distribution of assets in liquidation.

1

The question is whether in the winding up of an insolvent bank trustee the liquidator must pay the trust deposit accounts lawfully maintained by the bank trustee in priority to payment of the customers' deposit accounts and the debts owed by the trustee bank to other unsecured creditors.

2

A customer who deposits money with a bank authorises the bank to use that money for the benefit of the bank in any manner the bank pleases. The customer does not acquire any interest in or charge over any asset of the bank or over all the assets of the bank. The deposit account is an acknowledgment and record by the bank of the amount from time to time deposited and withdrawn and of the interest earned. The customer acquires a chose in action, namely the right on request to payment by the bank of the whole or any part of the aggregate amount of principal and interest which has been credited or ought to be credited to the account. If the bunk becomes insolvent the customer can only prove in the liquidation of the bank as unsecured creditor for the amount which was, or ought to have been, credited to the account at the date when the bank went into liquidation.

3

On the other hand a trustee has no power to use trust money for his own benefit unless the trust instrument expressly authorises him so to do. A bank trustee, like any other trustee, may only apply trust money in the manner authorised by the trust instrument, or by law, for the sole benefit of the beneficiaries and to the exclusion of any benefit to the bank trustee unless the trust instrument other-wise provides. A bank trustee misappropriating trust money for its own use and benefit without authority commits a breach of trust and cannot justify that breach of trust by maintaining a trust deposit account which records the amount which the bank has misappropriated and credits interest which the bank considers appropriate. The beneficiaries have a chose in action, namely, an action against the trustee bank for damages for breach of trust and in addition they possess the equitable remedy of tracing the trust money to any property into which it has been converted directly or indirectly.

4

A bank in fact uses all deposit moneys for the general purposes of the bank. Whether a bank trustee lawfully receives deposits or wrongly treats trust money as on deposit from trusts, all the moneys are in fact dealt with and expended by the bank for the general purposes of the bank. 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 its place of an insolvent bank trustee to protect the interests of the beneficiaries, 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. Where an insolvent bank goes into liquidation that equitable charge secures for the beneficiaries and the trust priority over the claims of the customers in respect of their deposits and over the claims of all other unsecured creditors. This priority is conferred because the customers and other unsecured creditors voluntarily accept the risk that the trustee bank might become insolvent and unable to discharge its obligations in full. On the other hand, the...

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42 cases
  • Bishopsgate Investment Management Ltd v Homan
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 12 July 1994
    ...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 imp......
  • Algosaibi v Saad Invs
    • Cayman Islands
    • Grand Court (Cayman Islands)
    • 2 December 2011
    ...Bus. L.R. 647; [2008] EWCA Crim 1443, applied. (10) Space Invs. Ltd. v. Canadian Imperial Bank of Commerce Trust Co. (Bahamas) Ltd., [1986] 1 W.L.R. 1072; [1986] 3 All E.R. 75; [1986] BCLC 485; (1986), 2 BCC 99302, not followed. (11) TMSF v. Wisteria Bay Ltd., 2008 CILR 231, applied. (12) W......
  • Reality Ltd v Euro Bank Corporation
    • Cayman Islands
    • Grand Court (Cayman Islands)
    • 5 November 1999
    ...1 W.L.R. 1080; [1955] 3 All E.R. 219, considered. (8) Space Invs. Ltd. v. Canadian Imperial Bank of Commerce Trust Co. (Bahamas) Ltd., [1986] 1 W.L.R. 1072; [1986] 3 All E.R. 75, distinguished. Legislation construed: Companies Law (1998 Revision) (Laws of the Cayman Islands, 1963, cap. 22, ......
  • Commissioners of Customs and Excise v Richmond Theatre Management Ltd
    • United Kingdom
    • Queen's Bench Division
    • 30 January 1995
    ...Bank (London) LtdELR[1981] Ch 105 Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd & Ors WLR[1986] 1 WLR 1072 Webb v Emo Air Cargo (UK) Ltd WLR[1993] 1 WLR 49 Value added tax - Time of supply - Advance payment for theatre tickets - Terms of sale stated that ......
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11 books & journal articles
  • Bank and Customer Relationships
    • Canada
    • Irwin Books Archive Bank and Customer Law in Canada
    • 8 September 2007
    ...from other loans insofar 14 (1848), 2 H.L. Cas. 28, 9 E.R. 1002. See also Space Investments Ltd . v. CIBC Trust Co. (Bahamas) Ltd ., [1986] 3 All E.R. 75 (P.C.). 15 Joachimson v. Swiss Bank Corp ., [1921] 3 K.B. 110 (C.A.) [ Joachimson ]. See also Walton v. Mascall (1844), 13 M. & W. 72, 47......
  • Table of cases
    • Canada
    • Irwin Books Bank and Customer Law in Canada. Second Edition
    • 19 June 2013
    ...280 Bank and Customer Law in Canada 488 Space Investments Ltd. v. Canadian Imperial Bank of Commerce Trust Co. (Bahamas) Ltd., [1986] 3 All E.R. 75 (P.C.) ......... 187 Sparkle Wash v. Saskatoon Credit Union Ltd., [1979] 2 W.W.R. 320 (Sask. Dist. Ct.) .............................................
  • Equity, Trust and Restitution
    • Singapore
    • Singapore Academy of Law Annual Review No. 2001, December 2001
    • 1 December 2001
    ...theory is by way of obiter dicta by Lord Templeman in Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd[1986] 1 WLR 1072. However, this dicta has been strongly criticised in Re Goldcorp Exchange Ltd[1994] 2 All ER 806 and Bishopsgate Investment Management Ltd......
  • Scottish Trusts in the Common Law
    • United Kingdom
    • Edinburgh University Press Edinburgh Law Review No. , September 2013
    • 1 September 2013
    ...to acquire trust assets beneficially (see for example Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] 1 WLR 1072), this is by the elimination of the beneficiary's interest, not by any transfer from one patrimony to another. A common law trustee canno......
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