The receivers of Barlow Clowes, a failed investment management firm, applied to determine in what order they should distribute assets to the creditors in Portfolios 28 and 68. Contributors to these managed investment plan accounts had advanced money, and were aware the money was to be invested as a collective fund. Specific investments were not earmarked for specific investors. In the event, the assets were misapplied and mostly dissipated.
Peter Gibson J held that the first in first out rule applied. The early investors appealed, represented by Mr Walker QC.
Judgmentedit
The Court of Appeal held that contributors could not have intended that withdrawals from the account, and investments then purchased, could be allocated by reference to the order the contributions were made. So the first in first out rule is more of a default rule. It would not be applied if the result would be ‘impracticable or result in injustice’. It was not intended that only a small number of investors would get the most out of the fund. They would share rateably, pari passu.
The proceedings were brought in England by leave of the Gibraltar Court, since it is accepted that — except for the moneys in the two bank accounts specified in Schedule C to the order of Peter Gibson J, as to which no issue arises — the assets and moneys in question are trust moneys held on trust for all or some of the would-be investors ( “the investors” ) who paid moneys to BCI or associated bodies for investment, and are not general assets of BCI. Some 95 per cent of the investors are UK residents and a substantial majority of them are resident within the jurisdiction of the English Court.
The complexities of this method would, however, in a case where there are as many depositors as in the present case and even with the benefits of modern computer technology, and the cost would be so high, that no one has sought to urge the court to adopt it, and I would reject it as impracticable in the present case.
Dillon LJ also noted that in The Mecca[1] Lord Halsbury LC said, ‘the circumstances of a case may afford ground for inferring that transactions of the parties were not so intended as to come under this general rule’ of Clayton's Case.
Woolf LJ said (1) the first in first out rule would apply prima facie, but would not be applied if ‘impracticable or would result in injustice’ and (2) the rule would not be applied if contrary to the parties’ presumed intention (3) then the alternative basis for distribution would depend on which practical alternative is most satisfactory in the circumstances (4) all solutions must depend on the ability to trace money.
Leggatt LJ said that the rolling charge approach is fairer and more coherent, however it is more difficult to apply, than simple pari passu, and so this (pari) was applied.
Russell-Cooke Trust Co v Prentis [2002] EWHC 2227 (Ch), [2003] 2 All ER 478, Lindsay J, ‘in terms of its actual application between beneficiaries who have in any sense met a shared misfortune, it might be more accurate to refer to the exception that is, rather than the rule in, Clayton's Case.’
Commerzbank Aktiengesellschaft v IMB Morgan plc [2004] EWHC 2771 (Ch), [2005] 2 All ER (Comm) 564, Lawrence Collins J, endorsed Woolf LJ, and rejected it on the facts, that ‘it would be both impracticable and unjust to apply it.’
Shalson v Russo [2003] EWHC 1637, [2005] Ch 281, Rimer J approved of the Barlow Clowes rolling charge approach. A ‘cherry picking’ exercise is allowed so the wrongdoing trustee is not ‘left with all the cherries and the victim nothing’.
vaughan, barlow, clowes, international, 1991, ewca, english, trusts, case, concerning, tracing, courtcourt, appealcitation, 1991, ewca, 1992, 22court, membershipjudge, sittingdillon, woolf, leggatt, ljkeywordstracing, contents, facts, judgment, also, notesfact. Vaughan v Barlow Clowes International Ltd 1991 EWCA Civ 11 is an English trusts law case concerning tracing Vaughan v Barlow Clowes International LtdCourtCourt of AppealCitation s 1991 EWCA Civ 11 1992 4 All ER 22Court membershipJudge s sittingDillon LJ Woolf LJ Leggatt LJKeywordsTracing Contents 1 Facts 2 Judgment 3 See also 4 NotesFacts editThe receivers of Barlow Clowes a failed investment management firm applied to determine in what order they should distribute assets to the creditors in Portfolios 28 and 68 Contributors to these managed investment plan accounts had advanced money and were aware the money was to be invested as a collective fund Specific investments were not earmarked for specific investors In the event the assets were misapplied and mostly dissipated Peter Gibson J held that the first in first out rule applied The early investors appealed represented by Mr Walker QC Judgment editThe Court of Appeal held that contributors could not have intended that withdrawals from the account and investments then purchased could be allocated by reference to the order the contributions were made So the first in first out rule is more of a default rule It would not be applied if the result would be impracticable or result in injustice It was not intended that only a small number of investors would get the most out of the fund They would share rateably pari passu Dillon LJ said the following The proceedings were brought in England by leave of the Gibraltar Court since it is accepted that except for the moneys in the two bank accounts specified in Schedule C to the order of Peter Gibson J as to which no issue arises the assets and moneys in question are trust moneys held on trust for all or some of the would be investors the investors who paid moneys to BCI or associated bodies for investment and are not general assets of BCI Some 95 per cent of the investors are UK residents and a substantial majority of them are resident within the jurisdiction of the English Court His Lordship noted Re Ontario Securities Commission and continued The complexities of this method would however in a case where there are as many depositors as in the present case and even with the benefits of modern computer technology and the cost would be so high that no one has sought to urge the court to adopt it and I would reject it as impracticable in the present case Dillon LJ also noted that in The Mecca 1 Lord Halsbury LC said the circumstances of a case may afford ground for inferring that transactions of the parties were not so intended as to come under this general rule of Clayton s Case Woolf LJ said 1 the first in first out rule would apply prima facie but would not be applied if impracticable or would result in injustice and 2 the rule would not be applied if contrary to the parties presumed intention 3 then the alternative basis for distribution would depend on which practical alternative is most satisfactory in the circumstances 4 all solutions must depend on the ability to trace money Leggatt LJ said that the rolling charge approach is fairer and more coherent however it is more difficult to apply than simple pari passu and so this pari was applied See also editEnglish trusts law Russell Cooke Trust Co v Prentis 2002 EWHC 2227 Ch 2003 2 All ER 478 Lindsay J in terms of its actual application between beneficiaries who have in any sense met a shared misfortune it might be more accurate to refer to the exception that is rather than the rule in Clayton s Case Commerzbank Aktiengesellschaft v IMB Morgan plc 2004 EWHC 2771 Ch 2005 2 All ER Comm 564 Lawrence Collins J endorsed Woolf LJ and rejected it on the facts that it would be both impracticable and unjust to apply it Shalson v Russo 2003 EWHC 1637 2005 Ch 281 Rimer J approved of the Barlow Clowes rolling charge approach A cherry picking exercise is allowed so the wrongdoing trustee is not left with all the cherries and the victim nothing Sinclair v Brougham 1914 AC 398 Ministry of Health v Simpson 1948 Ch 465 followed Re British Red Cross Balkan Fund 1914 2 Ch 419 Re Hobourn Aero Components Ltds Trusts 1945 2 All ER 711 applied Clayton s Case 1814 23 All ER Rep 1 considered Notes edit 1897 AC 286 290 1 Retrieved from https en wikipedia org w index php title Vaughan v Barlow Clowes International Ltd amp oldid 1148933030, wikipedia, wiki, book, books, library,
