The law of trusts is often a subject that lurks in the back of the mind. Vague memories of reading Denning MR cases where he appeared to create a modern law of constructive trusts based merely upon his sympathies for or against the plaintiff/claimant, for example finding a constructive trust on being impressed by a young woman's DIY with a sledgehammer may be all that is left (she needn't have bothered - the Google Street View of 39 Broadhurst Avenue, Romford shows the front garden is paved over again—Eves v Eves [1975] 3 All ER 768). However, two recent cases have shown that trusts continue to have relevance for commercial lawyers.
In Relfo Ltd (in liquidation) v Varsani [2012] All ER (D) 12 (Aug) the High Court had to consider the proprietary status of payments made to the defendant by a director of the claimant company, prior to that company being put into creditors' voluntary liquidation. The liquidator was successful in an application on the grounds that payments made by the director through a money laundering intermediary to the defendants were received by the defendant with notice of the facts and matters 'such that he is to be treated as a constructive trustee'. It was important for the liquidator to plead the constructive trust, as their had been a break in any possible tracing, with possible mixing, to make a direct property claim over any funds held by the defendant impossible. Following the reasoning given in cases such as Westdeutsche Landesbank Girozentrale v Islington Borough Council [1996] 2 All ER 961 and Re Montagu's Settlement Trusts [1992] 4 All ER 308, the court found that there was sufficient evidence that the defendant had notice of the relevant facts, so that it would be unconscionable for him to retain the benefit of receipt of funds paid to him, so that the defendant became a constructive trustee of those funds. Having established the constructive trust, the liquidator could trace the payment made by the claimant company to the defendant, who then had to account for the full amount of the funds received. It was made clear in the judgement that fraud did not have to be pleaded or proved for the defendant to be found to have sufficient notice upon which to establish the constructive trust.
Quick Draw LP v Global Live Events LLP and others [2012] All ER (D) 36 (Aug) involved a dispute between a claimant company that specialises in bridging finance in the media sector, and the LLP staging a Michael Jackson tribute concert, held in Cardiff's Millennium Stadium on 8 October 2011. The concert got into financial difficulties, partly because the band the Black Eyed Peas withdrew from the concert. There was a dispute about whether the intellectual property rights in the film and sound recording of the concert had vested in a production company commissioned by the concert staging LLP, or whether the rights had been properly assigned to the finance company under a debenture. The key part of the case for our purposes was what happened to the refund of the deposit paid to the Black Eyed Peas for their booking, and the tickets sales revenue. These had been used by one of the designated members of the LLP to finance the completion of the creation of an edit of the film footage—the designated member, a solicitor, was also in control of the film and sound recording production company. The High Court had no difficulty in finding that future debts of the LLP had been assigned in equity under the debenture to the finance company, which was in practice a mortgage, and were held on trust by the LLP for the finance company, interpreting the debenture using the approach to construction set out in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 (having regard for the documents commercial purpose, interpret in a way favouring a commercially sensible constructions). The designated member knew, or at the least must have strongly suspected, that any funds received by the LLP were being held on trust by it for the finance company, so that in diverting the funds to the production company without the consent of the finance company, he was assisting in a breach of trust by the LLP. In addition, his knowledge could be imputed to the production company, so that it would be in knowing receipt of trust funds (so itself a constructive trustee).
These cases act as a useful reminder of elements of equity and trust law:
where a person with sufficient knowledge of relevant facts or matters is in receipt of funds over which a third party has a prior right, that person holds them as a constructive trustee, and
a legal mortgage of intellectual property rights is a mortgage in a chose in action; it is a covenant to pay and an assignment of rights with a proviso for redemption (re-assignment back to the assignor). Any assignment of future rights is effective in that on their coming into existence, they rights vest in the assignee without any need for further assurance (Copyright, Designs and Patents Act 1988, s 91). The assignment of a future chose in action, when if comes into existence, takes effect as a contract in equity. An assignor in receipt of future intellectual property or future debts is therefore a trustee of them for the assignee. Any dealing of them without the consent or authority of the assignee is then a breach of trust
The law of trusts is often a subject that lurks in the back of the mind. Vague memories of reading Denning MR cases where he appeared to create a modern law of constructive trusts based merely upon his sympathies for or against the plaintiff/claimant, for example finding a constructive trust on being impressed by a young woman's DIY with a sledgehammer may be all that is left (she needn't have bothered - the Google Street View of 39 Broadhurst Avenue, Romford shows the front garden is paved over again—Eves v Eves [1975] 3 All ER 768). However, two recent cases have shown that trusts continue to have relevance for commercial lawyers.
In Relfo Ltd (in liquidation) v Varsani [2012] All ER (D) 12 (Aug) the High Court had to consider the proprietary status of payments made to the defendant by a director of the claimant company, prior to that company being put into creditors' voluntary liquidation. The liquidator was successful in an application on the grounds that payments made by the director through a money laundering intermediary to the defendants were received by the defendant with notice of the facts and matters 'such that he is to be treated as a constructive trustee'. It was important for the liquidator to plead the constructive trust, as their had been a break in any possible tracing, with possible mixing, to make a direct property claim over any funds held by the defendant impossible. Following the reasoning given in cases such as Westdeutsche Landesbank Girozentrale v Islington Borough Council [1996] 2 All ER 961 and Re Montagu's Settlement Trusts [1992] 4 All ER 308, the court found that there was sufficient evidence that the defendant had notice of the relevant facts, so that it would be unconscionable for him to retain the benefit of receipt of funds paid to him, so that the defendant became a constructive trustee of those funds. Having established the constructive trust, the liquidator could trace the payment made by the claimant company to the defendant, who then had to account for the full amount of the funds received. It was made clear in the judgement that fraud did not have to be pleaded or proved for the defendant to be found to have sufficient notice upon which to establish the constructive trust.
Quick Draw LP v Global Live Events LLP and others [2012] All ER (D) 36 (Aug) involved a dispute between a claimant company that specialises in bridging finance in the media sector, and the LLP staging a Michael Jackson tribute concert, held in Cardiff's Millennium Stadium on 8 October 2011. The concert got into financial difficulties, partly because the band the Black Eyed Peas withdrew from the concert. There was a dispute about whether the intellectual property rights in the film and sound recording of the concert had vested in a production company commissioned by the concert staging LLP, or whether the rights had been properly assigned to the finance company under a debenture. The key part of the case for our purposes was what happened to the refund of the deposit paid to the Black Eyed Peas for their booking, and the tickets sales revenue. These had been used by one of the designated members of the LLP to finance the completion of the creation of an edit of the film footage—the designated member, a solicitor, was also in control of the film and sound recording production company. The High Court had no difficulty in finding that future debts of the LLP had been assigned in equity under the debenture to the finance company, which was in practice a mortgage, and were held on trust by the LLP for the finance company, interpreting the debenture using the approach to construction set out in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 (having regard for the documents commercial purpose, interpret in a way favouring a commercially sensible constructions). The designated member knew, or at the least must have strongly suspected, that any funds received by the LLP were being held on trust by it for the finance company, so that in diverting the funds to the production company without the consent of the finance company, he was assisting in a breach of trust by the LLP. In addition, his knowledge could be imputed to the production company, so that it would be in knowing receipt of trust funds (so itself a constructive trustee).
These cases act as a useful reminder of elements of equity and trust law:
where a person with sufficient knowledge of relevant facts or matters is in receipt of funds over which a third party has a prior right, that person holds them as a constructive trustee, and
a legal mortgage of intellectual property rights is a mortgage in a chose in action; it is a covenant to pay and an assignment of rights with a proviso for redemption (re-assignment back to the assignor). Any assignment of future rights is effective in that on their coming into existence, they rights vest in the assignee without any need for further assurance (Copyright, Designs and Patents Act 1988, s 91). The assignment of a future chose in action, when if comes into existence, takes effect as a contract in equity. An assignor in receipt of future intellectual property or future debts is therefore a trustee of them for the assignee. Any dealing of them without the consent or authority of the assignee is then a breach of trust
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