Solicitors firm Juliet Bellis & Co has triumphed in an appeal against a ruling that it holds more than £2m on trust for investors in an abandoned development project near a Surrey airport.
The Court of Appeal overturned Hildyard J’s February 2013 decision in which he ruled that a payment out of the £2.28m invested from the firm’s client account to special-purpose vehicle Albemarle Fairoaks Ltd (AFL), which later went into administration after the scheme was abandoned, constituted a breach of trust for which the firm was liable. Hildyard had awarded the investors in the Albemarle Fairoaks scheme the full amount of £2.28m plus interest.
However, allowing the firm’s appeal today, Briggs LJ ruled that the judge had been wrong to find that the investors paid the money in upon trust for themselves. In fact, he said, they paid the money to AFL’s solicitors as “immediate loans to AFL”.
He said he was not persuaded by the judge’s reasons for treating the investors’ payments as made to the firm on terms that they were not to be at the immediate disposal of its client AFL, continuing: “On the contrary, I consider that, on the judge’s findings of primary fact, the respondents made their payments to the firm as immediate loans to AFL, paying into the firm’s client account at what they understood to be AFL’s direction, and therefore lending to AFL by payment to the firm as its agent.”
He added: “Contrary to the judge’s conclusion, I consider that regardless whether the firm had AFL’s authority to receive the money on its behalf, the firm nonetheless held it on trust solely for AFL and not on resulting trust for the respondents. Whether the firm had AFL’s authority to disburse the money for AFL’s benefit in the way in which it did is also irrelevant to the legal consequences as between the respondents and the firm.
He rejected an alternative restitutionary claim against the firm, finding that it was not unjustly enriched by receipt of the money into the client account, on statutory trust for AFL.
Setting the background to the dispute, he said: “In late August and early September 2007, the appellant solicitors’ firm Juliet Bellis & Co received into its client account payments from the respondents, a group of 21 intending investors in a property investment scheme relating to land at and around an airport in Surrey known as Fairoaks. The aggregate amount paid by the respondents to the firm was £2.28m. The amount paid by each investor ranged between £30,000 and £250,000.
“The bulk of that sum was shortly thereafter paid out by the firm in two tranches to Royal Bank of Scotland, in reduction of short-term borrowing of some £7m incurred by a client of the fFirm, Albemarle Fairoaks Limited (“AFL”), a single purpose Guernsey company which had been acquired off the shelf as the vehicle for the Fairoaks scheme, and which had acquired the airport land before the payments were made.
“The Fairoaks scheme did not prosper, and AFL was eventually placed in insolvent administration in 2010. Although some of the respondent investors lodged claims against AFL as creditors, there was, and remains, little prospect of any significant distribution on account of those claims.”
In the High Court ruling, Hildyard J rejected an additional claim by the investors against Geoffrey Egan, a chartered surveyor employed by Erinaceous Commercial Services who introduced the investors to the Albemarle Fairoaks scheme, as well as a part 20 claim by the solicitors for an indemnity from Mr Egan. However, no claim against Egan was pursued on appeal.
Challinors and others v Juliet Bellis & Co Court of Appeal (Moore-Bick, Underhill and Briggs LJJ) 5 February 2015
Ian Croxford QC and Clare Stanley (instructed by Clyde & Co LLP) for the defendant/appellants
Andrew Sutcliffe QC and Adam Kramer (instructed by Hewlett Swanson LLP) for the claimants/respondents
