Trustee of the Property of F C Jones & Sons v Jones

JurisdictionEngland & Wales
JudgeLORD JUSTICE NOURSE,LORD JUSTICE MILLETT,LORD JUSTICE BELDAM
Judgment Date25 April 1996
Judgment citation (vLex)[1996] EWCA Civ J0425-8
Docket NumberCHBKF 95/0591/C
CourtCourt of Appeal (Civil Division)
Date25 April 1996
The Trustee of the Property of F.c. Jones & Sons (a Firm)
Plaintiff/Respondent
and
Anne Jones (Married Woman)
Defendant/Appellant

[1996] EWCA Civ J0425-8

Before:

Lord Justice Nourse

Lord Justice Beldam

Lord Justice Millett

CHBKF 95/0591/C

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CARDIFF DISTRICT REGISTRY CHANCERY DIVISION

(His Honour Judge Cherryman QC)

Royal Courts of Justice

Strand

London WC2

MR. J. QUIRKE (instructed by Messrs. Thursfields, Kidderminster) appeared on behalf of the Appellant Defendant.

MR. S. DAVIES (instructed by Messrs. Eversheds Phillips & Buck, Cardiff) appeared on behalf of the Respondent Plaintiff.

1

Thursday, 25th April 1996

LORD JUSTICE NOURSE
2

I have asked Lord Justice Millett to deliver the first judgment.

LORD JUSTICE MILLETT
3

The firm of F.C. Jones & Sons carried on business as potato growers. There were three partners, Messrs. F.C. Jones, F.W.J. Jones and A.C. Jones. In 1984 the firm got into financial difficulties. A supplier obtained judgment against it. The judgment was not satisfied and a bankruptcy notice was issued. The partners failed to comply with the notice and thereby committed an act of bankruptcy. The judgment creditor presented a bankruptcy petition, a receiving order was made and in due course the partners were adjudicated bankrupt.

4

In the meantime, that is to say after the act of bankruptcy and before the adjudication, Mrs. Jones, the wife of Mr. F.W.J. Jones, opened an account with a firm of commodity brokers in order to deal on the London Potato Futures Market. Into this account she paid the proceeds of three cheques totalling £11,700. The cheques were all drawn by Mrs. Jones' husband, Mr. F.W.J. Jones, on the joint account of himself and Mr. A.C. Jones at the local branch of Midland Bank.

5

Mrs. Jones' dealings in potato futures proved to be highly profitable. She received two cheques totalling £50,760 from the commodity brokers and paid them into a call deposit account which she opened at R. Raphael & Sons Plc ("Raphaels"). She allowed Mr. F.W.J. Jones to withdraw £900 from the account, leaving a balance of £49,860. Shortly afterwards the Official Receiver informed Raphaels of his claim to the money in the account. Mrs. Jones immediately demanded the release of the money and Raphaels interpleaded.

6

Pursuant to an order made on the interpleader summons the money held by Raphaels was paid into court and issues between the rival claimants were directed to be tried with the trustee in bankruptcy as plaintiff and Mrs. Jones as defendant. In 1986 the proceedings were transferred to the Chancery Division where, after an unexplained lapse of nine years, they came on for hearing before Mr. Cherryman QC, sitting as a deputy judge of that Division. He found in favour of the trustee and ordered that the money in court be paid out to him. Mrs. Jones now appeals from his decision.

7

The trustee's case, as presently formulated, is simplicity itself. The money in court represents the proceeds of Mrs. Jones' successful speculation with the £11,700 which she received from her husband. The £11,700, in turn, was paid to her out of the joint account of two of the partners, who were afterwards adjudicated bankrupt. The money was drawn from the joint account after the date of the act of bankruptcy on which the receiving order was made. All this is undisputed. But, says the trustee, the money in the joint account had already vested in him, for under section 37 of the Bankruptcy Act 1914 his title to the assets of the bankrupts related back to the date of the act of bankruptcy. Accordingly, Mrs. Jones never acquired any title to the money. The money which she received from her husband belonged to the trustee, and the money in court represents the proceeds of her successful speculation with his money.

8

The trustee submits that his title to the money in court is clear and unimpeachable unless Mrs. Jones can take advantage of section 45 of the Bankruptcy Act 1914 by proving (a) that she was paid the £11,700 as a creditor of the firm and (b) that at the time she received the money she had no notice of any available act of bankruptcy. Counsel for Mrs. Jones has disclaimed any contention that she was a creditor of the firm, and he concedes that the trustee's claim is bound to succeed in relation to the original sum of £11,700 with interest thereon. But, he submits, the trustee cannot recover the profits which Mrs. Jones made by the use of the money because he cannot maintain a proprietary claim in equity, and he cannot maintain a proprietary claim in equity because he cannot establish the existence of a fiduciary relationship between Mrs. Jones and the trustee.

9

Counsel for Mrs. Jones submits that all claims by a trustee or liquidator to recover payments to third parties, whether as fraudulent preferences (which are voidable) or as dispositions by a company made after the commencement of the winding up (which are void), must be made by way of an action for money had and received; that this, being an action at law, is a personal claim; that it does not matter whether the transaction which is impugned was void or merely voidable; and that, in the absence of a constructive trust or fiduciary relationship which would justify the intervention of equity, the trustee cannot recover the proceeds of the profitable investment by the recipient of the money which he received.

10

The judge thought that Mrs. Jones was a constructive trustee. He said:

"… the trustee really has no problem in establishing a fiduciary relationship. In my view where, as here (due to the effect of the doctrine of relation back), A pays B's money to C, B retains the beneficial title to the money and C becomes a bare trustee (see Chase Manhattan Bank v. Israel-British Bank [1981] 1 Ch. 105, 119."

11

Founding himself on that reasoning, the deputy judge applied the equitable rules of tracing.

12

It is, however, in my view plain that Mrs. Jones did not receive the money in a fiduciary capacity and that she did not become a constructive trustee. The deputy judge's conclusion presupposes that A (who in this case is the bankrupts) had a legal title to transfer. In the present case, however, the bankrupts had been divested of all title by statute. Mr. F.W.J. Jones had no title at all in law or equity to the money in the joint account at Midland Bank, and could confer no title on Mrs. Jones.

13

While, however, I accept the submissions of counsel for Mrs. Jones that she did not become a constructive trustee, I do not accept the proposition that the trustee in bankruptcy is unable to recover the profits which Mrs. Jones made by the use of his money unless she can be shown to have received it in one or other of the two capacities mentioned; nor do I consider it necessary for him to invoke the assistance of equity in order to maintain his claim. In short, I do not accept the main submission of counsel that the only action at law which was available to the trustee was an action against Mrs. Jones for money had and received.

14

It is, in my view, unhelpful to categorise the payment of the £11,700 to Mrs. Jones as either "void" or "voidable". Neither term is strictly accurate. In order to see why this is so it is necessary to consider the effect of the doctrine of relation back under the old bankruptcy law. I recently had occasion to examine this in detail in In re Dennis [1995] 3 WLR 367. At p.387 I said:

"It is clear from the authorities that the relation back of the trustee's title did not merely make the title of the debtor himself or any person claiming through the debtor defeasible in the event of adjudication. If the debtor was adjudicated bankrupt, then as from the date of the act of bankruptcy neither the debtor nor any such person claiming under him who could not bring himself within the protective provisions of the Bankruptcy Acts had any title at all; as from that date title was vested in the trustee. The position of the debtor and persons who claimed under him during the intermediate period was extremely curious. They did not possess a defeasible title, but either an indefeasible title if the act of bankruptcy was not followed by adjudication or no title at all if it was. Outside the law of bankruptcy no similar ambulatory title was known to the law."

15

In saying this I was summarising the law expounded by this Court in In re Gunsbourg [1920] 2 KB 426. In that case the debtor transferred his assets to a company which he had formed. He afterwards committed an act of bankruptcy on which he was adjudicated bankrupt. The company had sold some of the assets which it had acquired from the debtor to a bona fide purchaser without notice of the act of bankruptcy. The trustee impugned the transfer to the company, which was held to be fraudulent and void and to constitute an act of bankruptcy. The trustee then sought to recover from the purchaser the assets which he had acquired from the company after the act of bankruptcy. The court held that the title of the trustee related back to the earlier act of bankruptcy, which consisted of the transfer to the company, and that neither the company nor any subsequent purchaser could establish any title against the trustee. It was a hard case, because the defendant was a bona fide purchaser without notice of the act of bankruptcy; but he was unable to bring himself within the protective provisions of section 45 of the Act of 1914, which were limited to persons who had dealt directly with the bankrupt.

16

At p.438 Lord Sterndale MR explained the way in which the doctrine of relation back operated as follows:

"If this be correct the position...

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