Key Point

Court finds equity to rescind a contract does not mean sums paid by relevant counterparties are held on constructive trust.

The Facts

Two currency exchange companies (the "Companies") were placed in creditors' voluntary liquidation, holding sums in their bank accounts with Barclays, and in their own counting houses. The liquidators made applications to determine whether the Companies held such monies on trust for their customers.

The Decision

At the time of the liquidation, sums paid by the customers were sums to which the Companies had full legal and beneficial title. The customers' equity to rescind as the result of fraudulent misrepresentation was a personal right against the Companies, and did not encumber the sums which had been paid as against the general body of its creditors.

The Court found though that there was a constructive trust arising from unconscionable receipt of monies, in relation to monies received after the time in which Barclays decided to prevent payments being made out of the Companies' bank accounts, which the Court found created an inevitable failure of consideration.

Comment

This case will prove useful for liquidators seeking to discredit any argument that sums paid under a contract are held only legally by the payee, and not beneficially, in circumstances where the payor is entitled to rescind the contract. 

In the Matter of Crown Holdings (London) Ltd (In Liq) and Crown Currency Exchange Ltd (In Liq) [2015] EWHC 1876 (CH)