Tradegro (UK) Ltd v Wigmore Street Investments Ltd & Anor

This judgment arises out of an adjourned application to determine to whom should be paid the sum of approximately £650,000 which is in the client account of Olswang and being held pursuant to an undertaking given by them.

The application is made in the context of the Administration of the First Respondent (“WSI”) but is effectively being treated as an interpleader. The applicant (“Tradegro”) contends that the money should be paid to it. The Second Respondent (“Mr Price”) contends that the money should be paid to WSI (in administration). It does not appear on the application because Mr Price is advancing its argument to the monies having been joined as a Second Respondent for this purpose. There is a doubt whether Mr Price is actually a creditor in WSI but no point is taken on that.

The application came first before me on 10th February 2010 at which Tradegro was given permission to amend the application. Further there were difficulties about the arguments which led me to conclude it was appropriate that Olswang be joined to intervene and make submissions. This they have done.

Tradegro and Mr Price and other companies have been (and apparently still are) in dispute over a number of matters. The root cause is a share purchase agreement (“SPA”) whereby WSI (then called Real Estate Property Corporation Ltd) acquired from Tradegro the majority shareholding in a company called Progress Property Company Ltd. Two provisions of the SPA are relevant whereby:-

WSI brought a claim against Tradegro in respect of the tax indemnity and after a trial Tradegro was found liable to WSI in the sum of £647,098.31 (inclusive of a payment on account of costs). When judgment was delivered on 15th October 2008 it was envisaged that that judgment and the result of other actions would be netted off but Tradegro’s solicitors (Eversheds) wrote on 3rd November 2008 stating that “each order must be strictly complied with”. So Tradegro had to satisfy the judgment (and costs) in favour of WSI in the above sum (“the sum”).

On 12th November 2008 Eversheds then threatened a freezing injunction in respect of this sum once it had been paid to WSI because of an alleged risk of dissipation on WSI’s part and because the Additonal Consideration which would be payable by WSI to Tradegro in due course pursuant to the SPA which they believed would exceed the sum.

Olswang (then acting for WSI) wrote on 14th November 2008 denying that its clients had any intention of dissipating the sum to be paid by Tradegro to it stating “it has no objection to that sum being paid in to the Firm’s client account on the basis of an undertaking (the precise terms of which we will need to agree) to hold the monies to your order pending the determination of the amount of the Additional Consideration due to your client.”

The proposal was stated to be conditional on Tradegro not applying for a freezing injunction and the exchange of monies taking place as set out in their earlier letter. Eversheds replied on 14th November 2008 accepting the proposal. Olswang prepared a form of undertaking in their letter of 17th November 2008 which was accepted by Eversheds on 19th November 2008.

The undertaking is set out in Olswang’s letter on its headed notepaper dated 19th November 2008 and is signed by Olswang. It provides (after antecedent arrangements for the transfer of funds) as follows:-

“Undertaking to hold received funds

Upon receipt in cleared funds of £647,098.31 from Eversheds LLP on behalf of Tradegro (“the Monies”), we undertake that we will:-

(a)

hold the Monies upon deposit in this firm’s client account with Lloyds TSB Bank Plc; and

(b)

not take any steps to transfer or otherwise deal with the Monies (save for the purposes of the ordinary operation of our client account);

Without the consent in writing of Tradegro, or order of the court, until the satisfaction in full of any Additional Consideration determined to be payable by WSI to Tradegro under the terms of the [SPA] (or other agreement between the parties regarding that Additional Consideration) provided that this undertaking will be immediately discharged by the payment of the sum to Tradegro, whether in full or partial settlement of the Additional Consideration, and whether following a final determination of that Additional Consideration or on an interim basis.”

It is clear that the word “sum” was meant to be the same as “the Monies”. It is clear that the words following (b) in the subsequent paragraph are intended to cover undertaking (b) only.

Tradegro paid the monies to Olswang who placed it in their Client Account and it has remained there since.

Tradegro sought an interim payment in respect of the Additional Consideration but that was resisted. It then sought permission to serve a new claim on WSI in respect of the Additional Consideration but that was refused by Morgan J on 11th September 2009.

WSI went in to administration pursuant to an order made on 17th September 2009.

On 13th October 2009 an expert appointed by the parties under the provisions of the SPA concerning the formula for the calculation of the Additional Consideration determined the “y (ii)” component of that formula. Initially it was not accepted by Mr Price that the Additional Consideration itself was at that point agreed in accordance with clause 6 of the SPA. That stance was maintained in his further information provided in response to a request by Tradegro (without illumination). It was initially maintained by Mr Matthew Collings QC who appears for Mr Price before me. However I indicated that if that was an objection because the matter appeared to be purely arithmetical I would adjourn the present application and give Tradegro permission (because of the Administration Order) to seek a determination of the Additional Consideration from an expert. If that turned out to be purely an arithmetical exercise I expressed the view there might be some serious costs consequences. In the light of that Mr Collings QC sensibly accepted on behalf of Mr Price that the Additional Consideration has actually been determined by reason of the determination of the expert. The Additional Consideration is £2,417,820 and became due from WSI to Tradegro on 20th October 2009 (as set out in paragraph 21 of Mr Hyndman’s witness statement on behalf of Tradegro dated 18th November 2009). Unsurprisingly Tradegro has not been paid any of that Sum.

I do not know whether there will be any recovery in the administration for Tradegro.

Although it contends that WSI is not entitled to the sum because Tradegro is entitled to a larger set off that seems to me to be misconceived. Tradegro has already parted with ownership of the sum when it was transferred to Olswang who received it on behalf of WSI. If it had not paid the sum then I accept it would have been entitled to set its obligation to pay the sum off against the sums due to it from WSI. It is surprising that the result of the payment and the undertaking would make Tradegro worse off than if it had not made the payment at all. That is in effect what Mr Collings QC submits. In my view that is not the correct view as I will set out in this judgment. There is no set off as such however.

Tradegro’s other arguments are that Olswang holds the Sum as a stakeholder and in the events as have happened are obliged to pay it to Tradegro. Alternatively it submits that Olswang hold the Sum as Trustee to give effect to the undertaking and to pay the Sum out to person entitled to the same by virtue of the undertaking.

Mr Collings QC submits that when one looks at the earlier correspondence the undertaking was offered in exchange for Tradegro not applying for a freezing injunction. Given that one should therefore look at the undertaking as providing for the equivalent of a freezing injunction. On that basis he submits that the granting of a freezing injunction confers no security. Thus the undertaking creates no proprietary rights and accordingly as there is no chance of dissipation on the part of WSI as it is in the hands of insolvency practitioners the undertaking should be discharged and the monies repaid to their true owner WSI. This is in line with it is submitted the authorities of Flightline Ltd v Edwards [2003] 1 BCLC 427 (CA) and Capital Cameras Ltd v Harold Lines Ltd [1991] 1 WLR 54.

The third basis put forward by Tradegro is that Olswang’s undertaking is a solicitor’s undertaking which it is entitled to ask the court to enforce by compelling Olswang to pay the sum to it.

Thus Tradegro’s arguments involve a personal claim against Olswang as stakeholder, a claim against them as Trustee and a claim against them requiring them to honour their solicitor’s undertaking. On any one of those analyses the rights will not be affected by WSI’s administration because they are brought against Olswang where the liability of Olswang is either personal (stakeholder or solicitor’s undertaking) or as a Trustee. None of the funds therefore fall in to the assets of WSI in administration.

Olswang initially adopted a neutral stance in that they considered the fight was between Tradegro and WSI and they were merely “disinterested parties” holding funds while others fought over it. However as the argument developed at the first hearing it was clear that there were possibilities that that was not a full picture.

Thus for example it was capable of being argued that Olswang would have to comply with their undertaking but could not have recourse to the monies that belonged to WSI. This arose partly because on the evidence before me on 10th February 2010 the monies were transferred to Olswang’s client account. This seemed to be an odd place to put monies which are either held on trust or (assuming the stakeholder analysis was correct) belonged to Olswang personally.

Nevertheless the eighth witness statement of Mr Hyndman dated 7th May 2010 makes the position clear. Rule 13 (a) of the Solicitor’s Accounts Rules 1998 (as amended on 31st March 2009) states that stakeholder money is client money and thus must be held in client account.

It also seems that if the correct analysis is that Olswang hold the property on trust that too would be client money and thus to be paid in to the client account (Rule 13 note (VII)).

That of course was but one of the problems; the other is as to the consequences of the determination of the status of the money i.e. whether it belonged to WSI or not.

Olswang’s stance remained essentially neutral. They stated at the adjourned hearing before me that the undertaking was intended to be a standard solicitor’s undertaking to hold specified monies in the firm’s client account until asked by both parties to pay the money to one or the other or ordered to do so by the court (Bamforth paragraph 13).

Olswang quite properly declined to become involved in any arguments as to the merits of either side’s contentions as to the monies. However they did offer some observations as to the status on which they believe they held the monies. At the hearing Mr Harrison who appeared for Olswang supported the view that Olswang were in reality stakeholders and obliged by a stakeholder contract to pay the money to the persons entitled to the Sum in the events which happened. This was in reliance upon a decision of the Court of Appeal in Manzanilla Ltd v Corton Property and Investment Ltd (unreported 13/11/1996). Subsequent to the hearing Mr Harrison helpfully provided a note where he retreated somewhat from that and referred me to authorities which suggested that a solicitor who acted as stakeholder held the funds as trustee and not in a personal capacity.

In reality there is no serious dispute between the parties as to the legal effect once the legal status of the undertaking is determined. Thus if Tradegro establish by one or other of its contentions that the Sum is not available for the general creditors, Mr Collings QC acknowledges that the mere fact of administration does not entitle WSI to be paid the monies. Conversely Mr McGhee QC who with Mr Fowler appears for Tradegro accepted that if he had no claim against Olswang outwith WSI or had no proprietary right then the monies would be available for the general creditors and Tradegro would have to prove for its Additional Consideration in the administration as unsecured creditor.

It seems to me that Mr Collings QC is correct as to the initial analysis. Tradegro had a judgment debt liability which it had to satisfy. It was satisfied by paying money to WSI. That reflects Tradegro’s own solicitor’s observation that each separate judgment must be dealt with independently of the other. It did not seek to set off its claim for Additional Consideration against the judgment debt liability. Quite the contrary; it paid it over to Olswang. As the undertaking says in terms Olswang “upon receipt [of the sum] from Eversheds on behalf of Tradegro…..” Thus it seems to me that I accept Mr Collings QC’s submissions that the sum became the property of WSI when it was received in the hands of Olswang.

I equally accept that the arrangement of the undertaking was against the backcloth of a threatened freezing injunction. However I do not accept that the undertaking therefore has to be approached as being freezing injunction like and not intended to give any security. It seems to me plain that the undertaking went beyond a provision whereby WSI gave an undertaking (as would happen in a freezing application) not to dispose of any of its funds.

This is where the case is distinguishable from Flightline. It will be seen from paragraph [18] of the judgment in that case that the relevant undertaking was given by the Defendant in the case. It was not given by the solicitor.

This is by way of contrast in my view to the undertaking in Olswang’s letter. Adopting Mr Bamforth’s observation in his evidence this seems to me to be a standard form solicitor’s undertaking given when it holds funds to dispose of in accordance with the undertaking. The best analogy in my view is when a firm of solicitors act for a vendor on completion of a property transaction. Often there are mortgages outstanding which have to be discharged out of the proceeds of sale received by the vendor. Solicitors regularly give purchasers undertakings to discharge mortgages and to deliver the appropriate release, vacation or discharge form. In order to be entirely safe a careful solicitor will discover the amount required to discharge all the mortgages (and will even search to ensure that there are no second mortgages of which he is unaware) and retain sufficient monies out of the purchase monies to honour the undertaking. Sometimes errors occur. In that eventuality the solicitor is then liable on the undertaking personally because he has given an undertaking as a solicitor of the Supreme Court; see for example John Fox v Bannister & Ors [1988] QB 925 and Udall v Capri Lighting Ltd [1988] QB 907.

It seems to me plain that the undertaking is a solicitor’s undertaking given both on behalf of its client (WSI) and in a solicitorial capacity by Olwang as solicitors of the Supreme Court to deal with monies with that undertaking. WSI agrees because it allows its monies which it has received from Tradegro to be held and retained by Olswang until their undertaking is discharged. The subsequent administration of WSI cannot in my view affect that relationship between Olswang and WSI. Olswang gave the undertaking and they are entitled to retain the monies until the undertaking is either discharged or satisfied. No such separate undertaking is to be found in the Flightline case. It is therefore in my view distinguishable because the arrangement goes beyond a mere undertaking by a party to a freezing injunction. As I have said above I accept Mr Collings QC’s submissions that the undertaking came in to being as a result of a threatened freezing injunction. However I reject his submission that one looks at the form of the undertaking as being intended to be to the similar effect. Further the argument in Flightline was as to whether or not the monies put in to a joint account were by virtue of the undertaking subject to a charge in favour of the plaintiff in that action. In that case the Defendant was putting up its own monies in exchange for a discharge of a pre-existing freezing injunction. In the present case WSI is not actually putting up its own monies; it is putting up monies which the instant before the creation of the undertaking had been provided by Tradegro. This was against a backcloth of the Additional Consideration in due course being liable to exceed the amount that Tradegro was paying under the judgment against it. The Court of Appeal concluded in Flightline that the Judge at first instance ought to have concluded that there was no charge given the fact that he concluded the monies were paid in to the joint account effectively in substitution for or to discharge the freezing order. This was the reason why the Court of Appeal allowed the appeal (in paragraph [49]).

By way of contrast as I have set out above there are a number of distinct features which distinguish the present case from the Flightline case.

I therefore reject Mr Collings QC’s submissions that this is merely an undertaking in exchange for not obtaining a freezing injunction and that the monies therefore and the sum belong to WSI and are now payable because the undertaking ought to be discharged because there is no risk of dissipation.

I have already determined that in my view Tradegro’s third submission namely that there is a solicitor’s undertaking which it can enforce is correct. That is sufficient to resolve that argument as to the status of the undertaking in its favour.

I will however consider the other two arguments put forward by Tradegro.

The difficulty with the stakeholder argument to my mind is demonstrated by the case actually relied upon by Mr McGhee QC of Gribbon v Lutton & Anr [2002] QB 902 (C.A.). In that case a prospective purchaser wrote out a cheque for a “non refundable deposit” of £21,600 to be held by the vendor’s solicitor as stakeholder on the basis that it would be treated as a deposit if a binding contract was concluded that would otherwise be forfeited. Ultimately no contract was concluded and both vendor and purchaser claimed the deposit. The solicitor issued interpleader proceedings to determine which of the two was entitled. In the interpleader proceedings the Recorder found that the buyer had paid the deposit on the basis it would be non refundable if he failed to sign the conditional contract but he rejected the seller’s assertion that he had undertaken not to deal elsewhere during the time and accordingly ordered the deposit to be repaid because there was no consideration for the payment. The seller then brought proceedings against his solicitors on the basis they should have ensured that the deposit was non refundable or advised that it was not. In these proceedings the solicitors did not challenge the Recorder’s findings but asserted that contrary to his decision the seller and not the buyer was entitled to be paid the deposit and therefore they could not have been negligent. The seller argued the Recorder had rightly decided that the buyer was entitled to the deposit. The Judge found for the solicitors i.e. that the seller had been entitled to the deposit.

The seller appealed and his appeal was allowed.

The Court of Appeal held that the question of the entitlement to a deposit fell to be determined by the bilateral agreement between vendor and purchaser and not by the tripartite contract between them and the stakeholder which merely provided the stakeholder should hold the deposit pending a triggering event. Where there was no bilateral contract the prospective vendor had no legal entitlement to it and the potential purchaser could demand its return at any time before an enforceable contract was put in place even if it had been paid to a stakeholder.

In coming to that conclusion the Court of Appeal held that the stakeholder was not an agent for the prospective vendor or the prospective purchaser nor did he hold the money on trust but under contract or quasi contract. The Court of Appeal followed the unreported decision of Manzanilla where Millett LJ analysed the relationship of vendor/purchaser in the context of a deposit held by a stakeholder. He did so as follows:-

“26.

Where a stakeholder is involved, there are normally two separate contracts to be considered. There is first the bilateral contract between the two principals which contemplates two possible alternative future events and by which the parties agree to pay a sum of money to a stakeholder to abide the happening of one or other of them. In the present case it consisted of a series of written contracts for the sale of land, and the relevant events were the failure of the contracts by the repudiatory breach of one party or the other. The second contract is the tripartite contract which results from the deposit of the money with the stakeholder on terms that he is to keep it until one or other of the relevant events happens and then pay it to one or other of the parties accordingly. The stakeholder is a party to the second contract but not the first. His rights and obligations are not normally expressly spelled out. They are implicit in the transaction itself, and must be discovered, not by implying terms, but by analysing the relationship of the parties which arises from the deposit of the money."

They also accepted Millett LJ’s determination that the relationship between stakeholder and depositor was contractual not fiduciary. The money was not trust money; the stakeholder is not a trustee or an agent; he is a principal who owes contractual obligations to the depositors.

Since the hearing as I have said Mr Harrison provided a further authority which appears to contradict that. The case is said to be Alimand Computer Systems v Radcliffes & Co Times 6th November 1991. It is only reported in the Times Law Reports and there is no judgment that provides any analysis. So far as I can discern anything from the judgment Judge Rice appears to have accepted that stakeholder funds held by a solicitor are the same as monies deposited by a client generally. With respect I do not see that that is a correct analysis. I am unpersuaded that this case has any relevance. If it has I would decline to follow it and unhesitatingly follow the Court of Appeal decisions of Gribbon and Manzilla. They seem to be correct and I am bound to follow them.

However the question is whether or not there is a relationship of the nature of a stakeholder. As the Gribbon case shows there needs to be two contracts. It is difficult to see what the contract is as between Tradegro and WSI. There were contracts and disputes under those contracts. However the sum was not created as a payment due under those contracts to be held by a stakeholder pending the determination of those contracts and the consequential determination of who was entitled to the stakeholder funds. The payment of the Sum was made outside any contractual obligation.

Thus if a stakeholder argument is persisted in it seems to me that as there is no overriding bipartite contract there is nothing to stop WSI claiming back what are its undoubted monies.

It seems to me that this is the obvious intention of the parties. WSI received the monies and it then authorised Olswang to declare that they held the monies to be distributed to the person who was entitled to it under the terms of the undertaking. That to my mind creates a trust of the terms of the undertaking and Olswang is a trustee. It seems to me more credible than a suggestion of a stakeholder arrangement for these monies where Olswang would be beneficially entitled to the monies and under a purely personal obligation to pay those monies.

I therefore conclude that the arrangement by the undertaking created a trust whereby Olswang held the monies to pay it in accordance with the terms of the undertaking.

In addition I am of the view that the undertaking letter by its tenor, being on headed notepaper of a firm of solicitors and its wording separately constituted a solicitor’s undertaking to hold the monies and apply them in accordance with the terms of that undertaking.

The determination of two of the issues in favour of Tradegro does not necessarily lead to the conclusion that it is now entitled to the Sum.

It is interesting to note what the undertaking does notsay. It could have said “once the Additional Consideration is finally determined the Sum shall be payable to Tradegro in full or part satisfaction of the Additional Consideration and the balance if any shall be repaid to WSI”.

Unfortunately it does not say so. It provides that the funds should not be dealt with until the satisfaction in full of any Additional Consideration determined to be payable by WSI.

The Additional Consideration has been determined but it has not been satisfied in full (I reject Mr Collings QC’s argument advanced at the earlier hearing that it could be said to be satisfied in “full” even though nothing is paid because Tradegro’s rights are converted into a right to prove in administration of WSI. I cannot believe that is what the parties intended).

The undertaking goes on to say that the undertaking will be immediately discharged by the payment of the Sum to Tradegro “whether in full or partial settlement of the Additional Consideration” and whether following a final determination of that Additional Consideration or on an interim basis.

I should also deal with another point. The monies cannot be released unless Tradegro consent in writing or there is order of the court. The parties accepted that that latter provision did not give the court a complete discretion to decide where the Sum should go. It is accepted that it is necessary for a party to establish a legal entitlement to the Sum; the words “or the court” are to provide a mechanism whereby if there is a dispute as to entitlement the parties can apply to the court for that determination and no more.

If the correct position is that there is no obligation on the part of Olswang to make a payment of the Sum or equivalent to Tradegro (as Mr Collings QC contends) the Additional Consideration will never be satisfied and the monies will therefore remain on the trust forever. Mr McGhee’s argument to the contrary is that the proviso applies as follows:-

“provided always that this undertaking will be immediately discharged by the payment of the Sum to Tradegro whether in full or partial settlement of the Additional Consideration ……..”

Mr Collings QC’s analysis is that simply provides for the terms upon which the undertaking will be discharged; it does not he submits mean there is an obligation to pay to Tradegro on the part of Olswang nor an entitlement on the part of Tradegro to receive the Sum. I cannot believe that that is what the parties contemplated. The result is that the Sum will remain there forever because it is to be held until satisfaction in full which can never occur but nevertheless cannot be paid out to Tradegro. That to my mind makes commercial nonsense.

It seems to me clear that it is implicit in the undertaking (which is unfortunately drafted because of the omission that I have set out above) that Olswang should pay the monies to Tradegro once the Additional Consideration is determined in full or partial settlement of the Additional Consideration. Upon that payment their undertaking is discharged. That seems to me to make sense and in my view that is the correct result.

That would then have the effect of Olswang making the payment in accordance with the trust created by the undertaking and in accordance with their separate solicitor’s undertaking.

Further in my view I could have entertained an application by Olswang to discharge their undertaking. Given the circumstances as set out in this judgment it would have been perfectly appropriate in my view for me to discharge Olswang from their undertaking by ordering them to pay the monies to Tradegro following the final determination of the Additional Consideration. It would not have been appropriate in my view to order payment to WSI because that would have enabled WSI to escape from the consequences of the undertaking which Olswang freely gave on its behalf.

I therefore determine that the Sum is payable to Tradegro.