Ferrera v Hardy

JUDGE HODGE QC: This is my extemporary judgment in an appeal sought to be brought by Mr Dennis Philip Hardy against an order made by District Judge Wright, sitting in the Liverpool District Registry of the Chancery Division, on 12^th April 2013 in proceedings under case number 9LV90248 between Mr Cristobel Ferrera (as claimant) and Mr Dennis Philip Hardy (as defendant).

In the underlying proceedings, Mr Hardy has the benefit of a judgment against Mr Ferrera dating back as far as 20^th November 2005. On 24^th August 2011, Mr Hardy applied for a third party debt order founded upon that judgment debt. The respondent to his application was Liverpool City Council. An interim third party debt order was made by District Judge Smedley on 28^th February 2012. On 29^th May 2012, District Judge Smedley ordered the Liverpool City Council to pay to Mr Hardy, as judgment creditor, £7,281.20.

The Liverpool City Council applied in July 2012 to set aside that final third party debt order. In support of the application, a witness statement was made by Miss Eleanor King, a solicitor employed by the City Council, dated 7^th December 2012. She set out the background as understood by the City Council. In her witness statement, she explained that Mr Ferrera had been acting as an agent for the owners of a rented property in March Road, Liverpool, and Mr Ferrera collected the rent from the tenant of that property on the owners’ behalf.

Miss King explained that the tenants of a property can apply for assistance with the payment of their rent if they are in receipt of benefits. That assistance is paid in the form of housing benefit, and can be paid either directly to the tenant or, in certain circumstances, can be paid to the landlord, or owner, of the property, or to the agent of the landlord or owner. Miss King explained that the tenant of the March Road property had been in receipt of housing benefit which the City Council had paid directly to Mr Ferrera. Miss King explained to me that under the benefit regulations, monies could not be paid to a landlord resident outside the UK and, therefore, since the landlords of the March Road property were so resident, they had to appoint an agent to receive housing benefit on their behalf. Nevertheless, Miss King emphasised that the tenant herself could have received these monies and paid them on to the landlords direct.

The City Council’s application came on for hearing before District Judge Wright, ultimately on 12^th April 2013. By paragraph 1 of her order, she directed the City Council to pay £650 to Mr Hardy, and the balance of the sum the City Council held to the current agent for the landlords of 4 March Road. It is clear that in January of this year, Mr Ferrera was replaced as agent by a Mr Emmanuel-Ebikake; and he is now the agent for 4 March Road. However, the court is presently concerned with rent which was payable by the City Council, by way of housing benefit, at a time when it was Mr Ferrera, the judgment debtor, who was acting on behalf of the landlords of 4 March Road. I am told that the sum of £650 that was payable to Mr Hardy represented payments of rent that Mr Hardy was entitled to receive personally by way of his fees for, or expenses of, acting on behalf of the landlords of the property. The balance, which the district judge directed to be paid to the landlords’ current agent, represented those parts of the monies payable by Liverpool City Council that were actually due to the landlords, rather than to Mr Ferrera personally.

Mr Hardy appealed from the district judge’s decision. His appellant’s notice was filed on 1^st May 2013. On 26^th June, I directed that the application for permission to appeal, together with the appeal (subject to permission being granted) to follow, should be listed before me in Liverpool on 1^st August 2013. When the matter came on before me on that day, it was apparent that insufficient notice of the hearing had been given to the landlords of 4 March Road, and they had not had any opportunity to put in any evidence of the terms upon which Mr Ferrera had been appointed to act on their behalf in relation to the property. It was for that reason that I adjourned the hearing until today – Wednesday, 2^nd October.

At the hearing of the appeal today, I have heard from Mr Hardy, the appellant, as a litigant in person. I have heard from Mr Cristobal Ferrera, who is the judgment debtor; and I have heard from Mr Emmanuel-Ebikake, who acts as the current agent of the landlords of 4 March Road. Two of the landlords are present here in court today. Also present is Miss King on behalf of the respondent to the third party debt order application, the Liverpool City Council. Her position is entirely neutral, and she is here simply to assist the court.

No formal evidence has been filed since the last hearing, but the court has received copies of letters received by the City Council in or about February or March 2011. There are three landlords of the property – a father and his two sons. Each of them wrote to the City Council in February or March 2011, authorising the payment of rent to what was described as their agent, a Mr Christopher – although that is clearly a misnomer – Ferrera. The letter from the father, Mr DS Adjani, confirmed that all payments accruing as rent in respect of his property should be made direct into Mr Ferrera’s account. He further confirmed that Mr Ferrera would discharge all responsibilities and obligations on the writer’s behalf. The writer asked the City Council to accord Mr Ferrera all cooperation pertaining to his property. One of the sons, Mr AG Adjani, gave authorisation that all payments of rent should be made to the account of his agent, Mr Ferrera, and he gave him full authority to act on his behalf in any event of decision making. The third landlord, Mr OC Adjani, gave authorisation, with his father and his brother, that all payments of rent should be made to Mr Ferrera’s account, and he also gave him full authority to act on his behalf in any event of decision making. That is the extent of the written documentation regulating and governing the relationship between Mr Ferrera and the landlords of the property. There is no other formal written agency agreement.

The reasons that the district judge gave for making the order that she did, and which (save as to £650) Mr Hardy now seeks permission to appeal, were outlined briefly in the course of the hearing on 12^th April. On that occasion, both Mr Ferrera and Mr Hardy had appeared in person, and Miss King had appeared for the City Council. The district judge indicated that the balance appeared to be due to Mr Ferrera as agent for the landlord, and she said that therefore it was not his money, and it was similar to trust money. She referred to a note in the White Book which she said was clear that if both parties – and then there was a passage that was inaudible; but she went on:

“If the money that is due to the debtor as trustee [and then there are two inaudible passages] it is sufficiently similar that I should not make a third party debtor.”

Then again it is inaudible.

Mr Hardy tells me that the passage in the current (2013) edition of Civil Procedure to which he had taken the district judge was the passage headed “Trust funds”, at paragraph 72.2.16, at page 2105. That passage is of limited assistance. It merely states that only rarely can trust funds be attached through a third party debt order. It then goes on to elaborate upon that situation. There is nothing, apparently, in Civil Procedure that relates to the position of an agent. It is against that background that Mr Hardy seeks permission to appeal the district judge’s order. His grounds of appeal are three in number.

First, Mr Hardy says that in respect of the third party debt order, the district judge erred in law by indicating that the rental payments being made by the Liverpool City Council to the judgment debtor, Mr Ferrera, as agent, were monies paid to the judgment debtor not as agent but as trustee. Secondly, it is said that the district judge erred in law in deciding that, as the rental payments were paid to the judgment debtor as a trustee for the owners of the properties, they were not subject to the third party debt order. Thirdly, it is said that the district judge erred in law by deciding that only a portion of the rental payments were subject to the third party debt order. She then, nevertheless, erred in law by deciding that the balance of the rental payments were not subject to the third party debt order.

Mr Hardy has elaborated upon those grounds of appeal in his written skeleton argument dated 4^th June 2013. The thrust of his appeal is that the district judge erred in law in deciding, as a matter of law, that monies being held by the judgment debtor in his capacity as agent were monies being held, not as a contractual agent, but rather as a trustee. He contends that the relationship here was a common law relationship between principal and agent, and that that gives rise to a relationship of creditor and debtor, giving rise to a personal, rather than a proprietary, claim. He therefore submits that all money received by the judgment debtor in his contractual capacity as agent is subject to the third party debt order. In support of that contention, Mr Hardy has taken me to paragraph 6-041 of the 19^th edition of Bowstead & Reynolds on Agency.

The competing contentions of the landlords of the property to whom, as a result of District Judge Wright’s order, the sum in question was directed to be paid are as follows: First, it is said that the district judge was right as a matter of law when she decided that the monies being held on a monthly basis by the judgment debtor in his capacity as representative of the landlord were monies held not as a contractual agent but rather as a trustee. Secondly, the test for determining whether the judgment debtor was a contractual agent or a trustee of monies held for the owners of 4 March Road would depend on the true circumstances of the case, and, in particular, on the parties’ expressed or inferred intentions. Thirdly, in the absence of express agreement, the usual approach is to consider whether it is appropriate to superimpose a trust relationship onto the supposed commercial relationship which exists between the parties, or whether it was contemplated that the judgment debtor should be free to treat the money as his own, in which case no trust relationship is created. Fourthly, it is said that even in a contract between principal and agent, the existence of a contractual relationship of debtor and creditor between the parties does not prevent the existence of a simultaneous trust relationship, or a fiduciary relationship of a less onerous nature, involving, nevertheless, that certain money or property is held on trust. Fifthly, it is said that the rent monies for 4 March Road were held in trust for the owners of the property as the circumstances were such that it would be unconscionable for the judgment debtor to assert his own interest in the rent monies and deny the beneficial interest of the owners of 4 March Road. Sixthly, it is said that the trust property is sufficiently identifiable, as monies from rent for 4 March Road. There is no uncertainty as to the identity of the beneficiaries. Seventhly, it is said that, in the circumstances, the Liverpool City Council are fiduciaries, and hold the outstanding balance of the rent monies on a resulting trust for the owners of 4 March Road, which should now be returned and paid to the owners of 4 March Road. On that basis, they seek to uphold the decision of the district judge.

In the course of his oral submissions, Mr Hardy submitted that it is now clear that there was nothing more than an oral agency relationship between Mr Ferrera and the owners of 4 March Road. He submitted that it was stretching the imagination to suggest that Mr Ferrera’s appointment as agent created any sort of trust relationship. Rather, there was merely a contractual relationship, which had been forced upon the landlords by the City Council’s requirement, as a result of the benefit regulations, that there should be appointed an agent for the landlords within the United Kingdom as a precondition to the payment to the landlords, on behalf of the tenant, of housing benefit.

For the landlords, Mr Emmanuel-Ebikake submitted that where there was no formal written relationship governing the dealings between the landlords and Mr Ferrera, equity should fill a gap in the common law. He submitted that it would be wrong for the court to assume that there was an agency relationship alone between Mr Ferrera and the property owners. Absent any express written agreement between the parties, the only way to salvage the situation was said to be to look to see what the parties intended. Performing that exercise, the court should allow equity to salvage the situation by the imposition of some form of trust. In the course of his submissions, Mr Ferrera emphasised that there was no agreement that he should be a trustee, although he then went on to say that all money that he received belonged to the landlords. In his reply, Mr Hardy emphasised the fact that Mr Ferrera obviously considered himself as a managing agent rather than as a trustee. He submitted that it was clear that no trust was intended, and therefore a third party debt order might attach to the monies held by way of housing benefit to be paid to the landlords of 4 March Road by the City Council. Those were the submissions.

When the matter came before me to consider whether permission to appeal should be granted, I drew the attention of the parties, and of all persons to whom notice of the hearing was to be given, to the decision of Mr Justice Briggs in the case of Re Lehman Brothers International (Europe), Pearson & Ors v Lehman Brothers Finance SA [2010] EWHC 2914 (Ch). In particular, I drew attention to the legal principles outlined at paragraph 225 of the judgment, and to the discussion of those principles, in so far as they apply to an agency relationship, at paragraphs 250 to 253. In the course of his oral submissions, Mr Hardy drew attention in particular to principles (ix) and (x); but I think it is appropriate to start with principle (vii):

“The identification of a relationship in which A is B’s agent or broker is not conclusive of a conclusion that A is, in relation to the property, B’s trustee, although it may be a pointer towards that conclusion.”

Mr Hardy is then right to draw attention to (ix):

“Special care is needed in a business or commercial context. Thus:

(a)

The law should not confine the recognition and operation of a trust to circumstances which resemble a traditional family trust where the fulfilment of the parties’ commercial objective calls for the recognition of a proprietary interest in B.

(b)

The law should not unthinkingly impose a trust where purely personal rights between A and B sufficiently achieve their commercial objective.”

It is also right to bear in mind all that is said at (x):

“There is, at least at the margin, an element of policy. For example, what appears to be A’s property should not lightly be made unavailable for distribution to its unsecured creditors in its insolvency, by the recognition of a proprietary interest in favour of B. Conversely, the clients of intermediaries which acquire property for them should be appropriately protected from the intermediary’s insolvency.”

At paragraph 253, Mr Justice Briggs set out certain of the observations at paragraph 6-041 of Bowstead & Reynolds on Agency, although Mr Hardy took me to a rather fuller statement of those principles. In particular, he drew my attention to the statement that sometimes the answer turns on the contract between principal and agent; and to the statement that it is possible that a person may be appointed agent to collect monies owed a principal, such as rent, but then have the express right to have recourse to those funds for discharge of obligations owed by the principal to the agent (whether or not those obligations relate to the agency relationship). Later he drew my attention to the passage which states that it may be relevant to ask whether it is appropriate that money or property should be, or whether it was, held separately, or whether it was contemplated that the agent should use the money, property or proceeds of the property as part of his normal cash flow in such a way that the relationship of creditor and debtor is more appropriate.

I have borne all of the submissions of both competing parties to the appeal firmly in mind. The difficulty here, as was pointed out by the agent for the landlords, is that there is no detailed formal written agreement regulating the relationship between themselves and Mr Ferrera. The proper approach is to consider whether it is appropriate to superimpose any form of trust relationship onto the undoubted commercial relationship of agency which existed between Mr Ferrera and the owners of the property. In my judgment, and notwithstanding Mr Hardy’s able submissions, it does seem to me appropriate to superimpose such a trust relationship onto the relationship of agency which existed between the landlords of the property and Mr Ferrera. Mr Ferrera was only interposed between the City Council, in its role as payer of housing benefit, and the landlords of the property because of the requirement that, due to the landlord’s non-UK residence, there should be someone within the UK to whom the housing benefit should be paid at the direction of the tenant. It does seem to me that, even though Mr Ferrera may have had the right to resort to those monies for payment of legitimate property outgoings and expenses, nevertheless it would be wrong for the court to treat those monies, to which such recourse was not had, as belonging to Mr Ferrera rather than to the landlords of the property. The monies were derived from rents payable in respect of a property owned by them; and it seems to me appropriate to treat those monies as, effectively, the subject of a trust relationship between Mr Ferrera, as agent, and the owners of the property, as its landlords.

Clearly, there are respectable arguments to the contrary, as Mr Hardy has formulated them and advanced them to me. In those circumstances, it is clear, it seems to me, that there was a real prospect of an appeal succeeding, and therefore I should give permission for the appeal. However, having considered the matter, it seems to me, for the reasons I have given, that the appeal should be dismissed. What I propose to do is to make an order (1) for permission to appeal, and (2) that the appeal is dismissed. I then have to deal with any costs issues that arise.