Tradegro (UK) Ltd & Wigmore Street Investments Ltd v Charles Price (2011)
The court construed an undertaking whereby the solicitors of a company held money another party had paid under a judgment, after the company had become insolvent and another judgment against the company had been given in the other party's favour.
The appellant creditor (P) of the second respondent insolvent company (W) appealed against a decision ((2010) EWHC 1693 (Ch)) that monies held in the client account of W's solicitors (O), the interveners, should be paid to the first respondent company (T). Pursuant to a share purchase agreement, T had given W a tax indemnity and W had agreed to pay T certain additional consideration. W claimed against T in respect of the indemnity, while T claimed against W for the additional consideration. In its claim, W was awarded monies totalling £650,000. Although it had been envisaged that that would be netted off against any judgment in T's claim for the additional consideration, T insisted that the award had to be complied with. It threatened to seek a freezing injunction in respect of the monies as soon as they had been paid to W because of an alleged risk of dissipation. Instead of a freezing injunction, O agreed to the monies being paid into its client account pursuant to an undertaking, pending determination of the amount of the additional consideration. The undertaking provided, in para.2, that O would not transfer the monies without T's consent or a court order until the additional consideration had been fully satisfied, and, in para.3, that it would be discharged by the payment of the monies to T, either in full or partial settlement of the additional consideration. W later went into administration. T obtained judgment for £2.4 million in respect of the additional consideration. It sought repayment of the monies from O. The judge held that because the undertaking was silent as to what would happen if W failed to pay T the additional consideration after it had been determined, a term should be implied requiring O to pay it to T. P argued that the monies should be paid to W's administrators, as the effect of the undertaking was that the monies belonged to W, not that T should treat itself as a secured creditor of W.
(1) If T had been paid the additional consideration, O would have been obliged to pay the monies to W. It followed that T had paid the monies to O to be held for W, albeit with conditions. The following factors supported that analysis: the monies had been paid to W's solicitors, not T's; the parties had intended the judgments to be enforced separately; the purpose of the undertaking was to give T similar protection to that which it would have enjoyed with a freezing order; the analysis was consistent with para.3, in that para.3 appeared to permit, but not require, the monies to be used to pay the additional consideration once it had been determined, meaning that it was for W, not O, to decide to use the monies to pay the additional consideration. Paragraph 3 did not mean that if W did not pay the additional consideration as soon as it was determined, O should pay the monies to T as partial satisfaction of the additional consideration (see paras 25-32 of judgment). (2) Since W was insolvent, it would be wrong to treat the undertaking as effectively giving T's claim for the additional consideration a special secured status as against W's other creditors. Clear words were needed before a court would hold that, where one party's money was held in a specific account to protect a second party's prospective claim, the money was intended to be treated as being held on trust for the second party or as security for its claim, Palmer v Carey (1926) AC 703 PC (Aus) considered and Flightline Ltd v Edwards (2003) EWCA Civ 63, (2003) 1 WLR 1200 applied. One could not spell such an intention out of the terms of the undertaking unless one implied a term such as that implied by the judge. The implication of such a term was unnecessary in the light of the express terms of the undertaking: para.2 gave the court power to decide what should happen to the monies if T did not agree and the additional consideration was not paid, while para.3 envisaged W being able to choose to instruct O to use the monies to pay T. The proper application of the undertaking in the light of W's insolvency was that, as T did not agree to the release of the monies to the administrators and the additional consideration could not be paid, the court had to make the appropriate order. That was that, as the monies were held for W, and the purpose of the undertaking had been to avoid the risk of dissipation, the monies were to be paid to W's administrators for distribution among its creditors (paras 33, 36-40).