Re Kayford Ltd
Re Kayford Ltd (in liquidation) [1975] 1 WLR 279 is a UK insolvency law and English trusts law case, concerning the creation of a trust over payments made by consumers, in an insolvent company.
| Re Kayford Ltd | |
|---|---|
| Court | High Court |
| Citation(s) | [1975] 1 WLR 279 [1975] 1 All ER 604 |
| Court membership | |
| Judge(s) sitting | Megarry J |
| Keywords | |
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Facts edit
The directors of Kayford Ltd, a mail order business, were concerned about insolvency. They were receiving pre-payments for goods from their customers, and were concerned about this being taken by other creditors. They got advice from their solicitors who said that they should open another account and deposit money from customers into that account. Suppliers of Kayford Ltd became insolvent, and soon Kayford Ltd also found it could not survive. It went into insolvent liquidation and the creditors claimed that the money in the accounts was part of the company’s assets. It was contended that instead the money was held on trust for Kayford’s customers.
Judgment edit
Megarry J held that the money was subject to a trust. It fulfilled all the requirements for creation of a trust, including certainty of intention, beneficiaries and subject matter. Although he said different considerations could apply for trade creditors, he was ‘concerned only with members of the public, some of whom can ill afford to exchange their money for a claim to a dividend in the liquidation, and all of whom are likely to be anxious to avoid this.’
The question for me is whether the money in the bank account (apart from the dormant amount of £47.80 and interest on it) is held on trust for those who paid it, or whether it forms part of the general assets of the company. Mr. Heyman appears for the joint liquidators, one of whom is in fact Mr. Wainwright: and he has contended that there is no trust, so that the money forms part of the general assets of the company and thus will be available for the creditors generally. On the other hand, Mr. Kennedy appears for a Mr. Joels, who on December 12 paid the company £32.20 for goods which have not been delivered; and a representation order is sought on behalf of all others whose moneys have been paid into the bank account, some 700 or 800 in number. I make that order. Mr. Kennedy, of course, argued for the existence of an effective trust. I may say at the outset that on the facts of the case Mr. Heyman was unable to contend that any question of a fraudulent preference arose. If one leaves on one side any case in which an insolvent company seeks to declare a trust in favour of creditors, one is concerned here with the question not of preferring creditors but of preventing those who pay money from becoming creditors, by making them beneficiaries under a trust. I should add that I had some initial doubts about whether Mr. Joels was the most suitable representative beneficiary, in view of the date when he paid his money, and whether Mr. Heyman, in representing Mr. Wainwright (as well as the other joint liquidator), was not to some degree committed to arguing against the efficacy of the course that Mr. Wainwright had advised: but discussion has allayed these doubts.
Now there are clearly some loose ends in the case. Mr. Kay, advised to establish a “Customers' Trust Deposit Account,” seems to have thought that it did not matter what the account was called so long as there was a separate account; and so the dormant deposit account suggested by the bank manager was used. The bank statement for this account is before me, and on the first page, for which the title is simply “Deposit account Kayford Ltd.,” nearly £26,000 is credited. The second and third pages have the words “Customer Trust Deposit Account” added after the previous title of the account; and Mr. Joels' payment was made after these words had been added. Mr. Kay also left matters resting on a telephone conversation with the bank manager until he wrote his letter of December 12 to the bank. That letter reads: “We confirm our instructions regarding the opening of the deposit account for customer deposits for new orders”; and he then makes some mention of other accounts with the bank. The letter goes on: “Please ensure the reopened deposit account is titled ‘Customer Trust Deposit Account’.” Then he gives the reference number and asks for confirmation that this has been done. Nevertheless, despite the loose ends, when I take as a whole the affidavits of Mr. Wainwright, Mr. Kay and Mr. Hall (the bank manager) I feel no doubt that the intention was that there should be a trust. There are no formal difficulties. The property concerned is pure personalty, and so writing, though desirable, *282 is not an essential. There is no doubt about the so-called “three certainties” of a trust. The subject-matter to be held on trust is clear, and so are the beneficial interests therein, as well as the beneficiaries. As for the requisite certainty of words, it is well settled that a trust can be created without using the words “trust” or “confidence” or the like: the question is whether in substance a sufficient intention to create a trust has been manifested.
In In re Nanwa Gold Mines Ltd [1955] 1 W.L.R. 1080 the money was sent on the faith of a promise to keep it in a separate account, but there is nothing in that case or in any other authority that I know of to suggest that this is essential. I feel no doubt that here a trust was created. From the outset the advice (which was accepted) was to establish a trust account at the bank. The whole purpose of what was done was to ensure that the moneys remained in the beneficial ownership of those who sent them, and a trust is the obvious means of achieving this. No doubt the general rule is that if you send money to a company for goods which are not delivered, you are merely a creditor of the company unless a trust has been created. The sender may create a trust by using appropriate words when he sends the money (though I wonder how many do this, even if they are equity lawyers), or the company may do it by taking suitable steps on or before receiving the money. If either is done, the obligations in respect of the money are transformed from contract to property, from debt to trust. Payment into a separate bank account is a useful (though by no means conclusive) indication of an intention to create a trust, but of course there is nothing to prevent the company from binding itself by a trust even if there are no effective banking arrangements.
Accordingly, of the alternative declarations sought by the summons, the second, to the effect that the money is held in trust for those who paid it, is in my judgment the declaration that should be made. I understand that questions may be raised as to resorting to the interest on the moneys as a means of discharging the costs of the summons; on that I will, of course, hear argument. I should, however, add one thing. Different considerations may perhaps arise in relation to trade creditors; but here I am concerned only with members of the public, some of whom can ill afford to exchange their money for a claim to a dividend in the liquidation, and all of whom are likely to be anxious to avoid this. In cases concerning the public, it seems to me that where money in advance is being paid to a company in return for the future supply of goods or services, it is an entirely proper and honourable thing for a company to do what this company did, upon skilled advice, namely, to start to pay the money into a trust account as soon as there begin to be doubts as to the company's ability to fulfil its obligations to deliver the goods or provide the services. I wish that, sitting in this court, I had heard of this occurring more frequently; and I can only hope that I shall hear more of it in the future.