Twinsectra Ltd v Yardley

JurisdictionUK Non-devolved
JudgeLORD SLYNN OF HADLEY,LORD STEYN,LORD HOFFMANN,LORD HUTTON,LORD MILLETT
Judgment Date21 March 2002
Neutral Citation[2002] UKHL 12
CourtHouse of Lords
Date21 March 2002
Twinsectra Limited
(Respondents)
and
Yardley

And Others

(Appellants)

[2002] UKHL 12

Lord Slynn of Hadley

Lord Steyn

Lord Hoffmann

Lord Hutton

Lord Millett

HOUSE OF LORDS

LORD SLYNN OF HADLEY

My Lords,

1

My noble and learned friend Lord Hoffmann has referred to the facts relevant to the issues which arise on this appeal and I gratefully adopt them.

2

The first main issue is whether the monies received by Sims and Roper were held in trust. The judge found that they were not; the Court of Appeal held that they were. For the reasons given by Lord Hoffmann I agree firmly with the Court of Appeal.

3

The second issue I have found more difficult. The judge found that Mr Leach had shut his eyes to the problems or the implications of what happened, yet he acquitted him of dishonesty. The Court of Appeal in a careful analysis by Potter LJ concluded that deliberately shutting his eyes in this way was dishonesty within the valuable analysis by Lord Nicholls of Birkenhead in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378.

4

There are conflicting arguments. Prima facie shutting one's eyes to problems or implications and not following them up may well indicate dishonesty; on the other hand prima facie it needs a strong case to justify the Court of Appeal reversing the finding as to dishonesty of the trial judge who has heard the witness and gone in detail into all the facts.

5

The real difficulty it seems to me is whether in view of these two conflicting arguments the case should go for a retrial with all the disadvantages that entails or whether one of the arguments was sufficiently strong for your Lordships to accept it and to conclude the question. In the end I am not satisfied that the Court of Appeal were entitled to substitute their assessment for that of the trial judge. Despite my doubts as to the implications to be drawn on a finding of "shutting one's eyes" it seems to me clear that the judge was very conscious of Lord Nicholls' analysis and I do not think he can possibly have left out of account the question whether Mr Leach knew or realised that what he was doing fell below the required standards when he deliberately shut his eyes eg to the implications of the undertaking given by Mr Sims. Mr Leach may have been na=EFve or misguided but I accept that the judge after hearing lengthy evidence from Mr Leach was entitled to conclude that he had not been dishonest.

6

Accordingly it would be wrong to send the matter for retrial and for these brief reasons and the reasons given by Lord Hutton I would allow the appeal.

LORD STEYN

My Lords,

7

I agree that the law is as stated in the judgments of my noble and learned friends Lord Hoffmann and Lord Hutton. In particular I agree with their interpretation of the decision in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378. In other words, I agree that a finding of accessory liability against Mr Leach was only permissible if, applying what Lord Hutton has called the combined test, it were established on the evidence that Mr Leach had been dishonest.

8

After a trial Carnwath J was not satisfied that Mr Leach had been dishonest. I agree with Lord Hutton's reasons for concluding that the Court of Appeal was not entitled to reverse the judge on the central issue of dishonesty. I too would allow the appeal.

LORD HOFFMANN

My Lords,

9

Paul Leach is a solicitor practising in Godalming under the name Paul Leach & Co. Towards the end of 1992 he acted for a Mr Yardley in a transaction which included the negotiation of a loan of =A31m from Twinsectra Limited. Mr Leach did not deal directly with Twinsectra. Another firm of solicitors, Sims and Roper of Dorset ("Sims"), represented themselves as acting on behalf of Mr Yardley. They received the money in return for the following undertaking:

"1. The loan monies will be retained by us until such time as they are applied in the acquisition of property on behalf of our client.

2. The loan monies will be utilised solely for the acquisition of property on behalf of our client and for no other purposes.

3. We will repay to you the said sum of =A31,000,000 together with interest calculated at the rate of =A3657.53 such payment to be made within four calendar months after receipt of the loan monies by us."

10

Contrary to the terms of the undertaking, Sims did not retain the money until it was applied in the acquisition of property by Mr Yardley. On being given an assurance by Mr Yardley that it would be so applied, they paid it to Mr Leach. He in turn did not take steps to ensure that it was utilised solely for the acquisition of property on behalf of Mr Yardley. He simply paid it out upon Mr Yardley's instructions. The result was that £357.720.11 was used by Mr Yardley for purposes other than the acquisition of property.

11

The loan was not repaid. Twinsectra sued all the parties involved including Mr Leach. The claim against him was for the £357,720.11 which had not been used to buy property. The basis of the claim was that the payment by Sims to Mr Leach in breach of the undertaking was a breach of trust and that he was liable for dishonestly assisting in that breach of trust in accordance with the principles stated by Lord Nicholls of Birkenhead in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378.

12

The trial judge (Carnwath J) did not accept that the monies were "subject to any form of trust in Sims and Roper's hands". I do not imagine that the judge could have meant this to be taken literally. Money in a solicitor's client account is held on trust. The only question is the terms of that trust. I should think that what Carnwath J meant was that Sims held the money on trust for Mr Yardley absolutely. That is the way it was put by Mr Oliver QC, who appeared for Mr Leach. But, like the Court of Appeal, I must respectfully disagree. The terms of the trust upon which Sims held the money must be found in the undertaking which they gave to Twinsectra as a condition of payment. Clauses 1 and 2 of that undertaking made it clear that the money was not to be at the free disposal of Mr Yardley. Sims were not to part with the money to Mr Yardley or anyone else except for the purpose of enabling him to acquire property.

13

In my opinion the effect of the undertaking was to provide that the money in the Sims client account should remain Twinsectra's money until such time as it was applied for the acquisition of property in accordance with the undertaking. For example, if Mr Yardley went bankrupt before the money had been so applied, it would not have formed part of his estate, as it would have done if Sims had held it in trust for him absolutely. The undertaking would have ensured that Twinsectra could get it back. It follows that Sims held the money in trust for Twinsectra, but subject to a power to apply it by way of loan to Mr Yardley in accordance with the undertaking. No doubt Sims also owed fiduciary obligations to Mr Yardley in respect of the exercise of the power, but we need not concern ourselves with those obligations because in fact the money was applied wholly for Mr Yardley's benefit.

14

The judge gave two reasons for rejecting a trust. The first was that the terms of the undertaking were too vague. It did not specify any particular property for which the money was to be used. The second was that Mr Ackerman, the moving spirit behind Twinsectra, did not intend to create a trust. He set no store by clauses 1 and 2 of the undertaking and was content to rely on the guarantee in clause 3 as Twinsectra's security for repayment.

15

I agree that the terms of the undertaking are very unusual. Solicitors acting for both lender and borrower (for example, a building society and a house buyer) commonly give an undertaking to the lender that they will not part with the money save in exchange for a duly executed charge over the property which the money is being used to purchase. The undertaking protects the lender against finding himself unsecured. But Twinsectra was not asking for any security over the property. Its security was clause 3 of the Sims undertaking. So the purpose of the undertaking was unclear. There was nothing to prevent Mr Yardley, having acquired a property in accordance with the undertaking, from mortgaging it to the hilt and spending the proceeds on something else. So it is hard to see why it should have mattered to Twinsectra whether the immediate use of the money was to acquire property. The judge thought it might have been intended to give some protective colour to a claim against the Solicitors Indemnity Fund if Sims failed to repay the loan in accordance with the undertaking. A claim against the fund would depend upon showing that the undertaking was given in the context of an underlying transaction within the usual business of a solicitor: United Bank of Kuwait Ltd v Hammoud [1988] 1 WLR 1051. Nothing is more usual than for solicitors to act on behalf of clients in the acquisition of property. On the other hand, an undertaking to repay a straightforward unsecured loan might be more problematic.

16

However, the fact that the undertaking was unusual does not mean that it was void for uncertainty. The charge of uncertainty is levelled against the terms of the power to apply the funds. "The acquisition of property" was said to be too vague. But a power is sufficiently certain to be valid if the court can say that a given application of the money does or does not fall within its terms: see In re Baden's Deed Trusts [1971] AC 424. And there is no dispute that the £357,720.11 was not applied for the acquisition of property.

17

As for Mr Ackerman's understanding of the matter, that seem to me irrelevant. Whether a trust was created and what were its terms must depend upon the construction of the undertaking. Clauses 1 and 2 cannot be ignored just because Mr Ackerman...

To continue reading

Request your trial
764 cases
12 firm's commentaries
  • Hedge Fund Fraud: An English Law Perspective On The Potential Exposure Of Prime Brokers
    • United Kingdom
    • Mondaq United Kingdom
    • 8 August 2007
    ...Stearns ordered to return $125m', White. 4 Cromer Finance Ltd and others v Berger and others, 137 F Supp 2d 452. 5 [1995] 2 AC 378. 6 [2002] 2 AC 164. 7 [2006] 1 WLR 8 [2006] EWCA Civ 1492. 9 Belmont Finance Corp v Williams Furniture Limited (No 2) [1980] 1 All ER 393. 10 Lonrho Plc v Fayed......
  • Dishonest Assistance – Understanding The Risks: Guidance Note
    • Jersey
    • Mondaq Jersey
    • 5 May 2015
    ...irrelevant as is his belief (however genuine) that he was acting honestly. See Royal Brunei v Tan [1995] 2 AC 378, Twinsectra v Yardley [2002] UKHL12 and Barlow Clowes v Eurotust [2005] UKPC In the case of Royal Brunei, the following conclusion was drawn concerning the limits of subjectivit......
  • Constructive Trusts: The Lurking Danger
    • United Kingdom
    • Mondaq United Kingdom
    • 25 March 2009
    ...knew, were its actions dishonest according to normally acceptable standards of honest conduct? (Twinsectra Ltd v Yardley [2002] UK HL12; [2002] 2 AC 164) No easy way In a recent case that did not reach the court, a bank confronted its customer who, in effect, confirmed that monies in its ac......
  • A Guide To Secondary Liability ' Part One: Dishonest Assistance
    • United Kingdom
    • Mondaq UK
    • 28 September 2023
    ...In part two of this series, we will consider the availability of knowing receipt against third parties. Footnotes 1. Twinsectra v Yardley [2002] UKHL 12 at [107] 2. [2019] EWCA Civ 614 3. Ivey v Genting Casinos (UK) t/a Crockfords [2017] UKSC 67 at [74] 4. Manifest Shipping & Co Ltd v Uni-P......
  • Request a trial to view additional results
58 books & journal articles
  • 'The receipt of what?': Questions concerning third party recipient liability in equity and unjust enrichment.
    • Australia
    • Melbourne University Law Review Vol. 31 No. 1, April 2007
    • 1 April 2007
    ...See also Robins v Incentive Dynamics Pty Ltd (in liq) (2003) 175 FLR 286, 298 (Mason P) ('Robins'). (6) See, eg, Twinsectra Ltdv Yardley [2002] 2 AC 164, 194 (Lord MilleR); Criterion Properties plc v Stratford UK Properties LLC [2004] 1 WLR 1846, 1849 (Lord (7) See, eg, Lord Nicholls, 'Know......
  • Restitution
    • Singapore
    • Singapore Academy of Law Annual Review No. 2007, December 2007
    • 1 December 2007
    ...is some obiter support from English cases (Dubai Aluminium Co Ltd v Salaam[2002] 3 WLR 1913; [2002] UKHL 48 at [87]; Twinsectra v Yardley[2002] 2 AC 164; [2002] UKHL 12 at [105]; Royal Brunei Airlines Sdn Bhd v Tan[1995] 2 AC 378 at 386). On the approach of the court in the present case, th......
  • Restitution
    • Singapore
    • Singapore Academy of Law Annual Review No. 2008, December 2008
    • 1 December 2008
    ...Credit and Commerce (International) Ltd v Akindele[2001] Ch 437; Tang Hsiu Lan v Pua Ai Seok[2000] SGHC 163 at [12]; Twinsectra v Yardley[2002] 2 AC 164 at [105]; Dubai Aluminium Co Ltd v Salaam[2002] 3 WLR 1913 at [87]; El Ajou v Dollar Land Holdings Plc[1993] 3 All ER 717 at 738—740. Howe......
  • Placing bankers in the front line: the secondary liability of bankers for their customers’ regulatory contravent
    • United Kingdom
    • Emerald Journal of Financial Crime No. 12-3, July 2005
    • 1 July 2005
    ...to ensure their companycomplies with the listing rules.(65) See nn. 48 and 64 above.(66) See text accompanying ref. 45, above.(67) [2002] UKHL 12, considered further below.(68) At para. 107. None of the other judgments consider this point.(69) See ref. 49, above.(70) And it should be noted ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT