Case No 5530 of 1998
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

IN THE MATTER OF JAPAN LEASING (EUROPE) PLC
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Date: 30/07/1999
Before:

Mr Nicholas Warren QC
(sitting as a deputy Judge of the High Court)
- - - - - - - - - - - - -
BETWEEN:

PHILIP WALLACE AND RICHARD HEIS
(THE JOINT ADMINISTRATORS OF
JAPAN LEASING (EUROPE) PLC)
Applicants

- and -

SHOA LEASING (SINGAPORE) PTE LTD
Respondent
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JUDGMENT
Mr Nicholas Warren QC:
Introduction
1.	This is an application for directions by the Joint Administrators of Japan Leasing (Europe) Plc (“the Company”) pursuant to section 14(3) of the Insolvency Act 1986 concerning receipt by the Company of an instalment (in four tranches) of the purchase price of a Boeing 747 aircraft purchased by Olympic Airways (“Olympic”) from the Company and three other Vendors (represented in this application by the Respondent) in December 1984.

2.	The issue before me is whether those four tranches are held by the Company as part of its general assets or whether they are held in trust for itself and the other three Vendors in proportion to their respective entitlements to the total purchase price; and if the answer to that is that those tranches are held by the Company as part of its general assets, whether the Joint Administrators ought nonetheless to be ordered to pay to the other three Vendors their respective shares as an expense of the administration.

Facts and documentation
3.	The aircraft was, in 1984, on a “dry lease” from Singapore Airlines to Olympic pursuant to which Olympic was obliged to purchase it.  In order to finance the purchase, that obligation was taken over by four companies - the Company, Showa Leasing (Singapore) Pte Ltd (the Respondent), YTB Leasing (Panama) SA and Diamond Lease (Hong Kong) Ltd.  The interest of YTB Leasing (Panama) SA has been assigned to YTB Leasing Company Ltd.  I shall refer to the four Vendors (with the substitution where appropriate of the assignee) as “the Vendors”.  There are two documents to which I need to refer.

	The Instalment Sale Agreement
4.	The first is an Instalment Sale Agreement (“the ISA”) dated 10th December 1984 made between (1) the Vendors (2) the Company (as “Representative Vendor”) and (3) Olympic.  The ISA provided for the sale by each of the Vendors of its interest in the aircraft.  Clause 3 provided for delivery and acceptance: Olympic was to execute an Acceptance Certificate which was to “evidence and constitute irrevocable and final acceptance of the Aircraft” by Olympic.  The Purchase Price (as defined) was to be payable in 24 instalments.  Each instalment was to be payable in four tranches in different currencies - the Dollar Tranche, the Deutsche Mark Tranche, the Sterling Tranche and the Yen Tranche.  The Acceptance Certificate (to be delivered to the Vendors acting by the Company) contained a Schedule which set out the dates and amounts of the 24 instalments and of each currency tranche: I have seen only a draft of this which does not contain the actual figures.  Each tranche was to be payable to a separate account in the name of the Company with “the Bank” that is to say The Long Term Credit Bank of Japan Limited.  In this regard Clauses 7.1.1 to 7.1.4 of the ISA make provision for payment in each currency to a branch of the Bank in the relevant country in New York, Frankfurt, London and Tokyo. I should set out the opening words of Clause 7.1:

“7.1	All payments to be made by the Purchaser [Olympic] under the Transactions Documents [ie including the purchase price under the ISA] or any of them shall be made:-

	7.1.1.	If Dollars, to the Bank (acting on behalf of the Representative Vendor)....”

	and identical introductory wording was included in relation to the Deutsche Mark, Sterling and Yen accounts.  The Company was the Representative Vendor in this context.

5.	Clause 7.1 went on to provide as follows:

“All payments made to an account of the Bank in accordance with the foregoing sub-clauses of this Clause shall discharge to the extent of such payment the obligations of the Purchaser under the Transaction Documents owed to the Vendors and the Representative Vendor.  The Purchaser shall issue all written instructions with regard to the said payments in accordance with a memorandum of “Remittance Procedure” which the Representative Vendor shall furnish to the Purchaser on or prior to the Delivery Date, the purpose of which shall be to ensure that the Representative Vendor receives in its account in London immediately available funds for distribution to the Vendors at or about 11.00 a.m. on the relevant Payment Date and/or Interest Payment Date as the case may be.”

	The Remittance Procedure memorandum provided for remittance to the relevant accounts of the payment tranches.  It set out the times when the payments must be made and the forms of the tested telexes which Olympic was obliged to send when it made the remittances.  The account into which payments were made prior to the commencement of the administration was not a designated trust account although the account has not been used for any other purpose.  It appears that all earlier receipts were in fact dealt with in accordance with the Vendors Agreement.

6.	Clause 18 of the ISA provided so far as material as follows:
	
	“18.	REPRESENTATIVE VENDOR
	
In performing its functions and duties hereunder, the Representative Vendor shall act solely as the agent of the Vendors (and each Vendor hereby appoints the Representative Vendor so to act) and the Representative Vendor does not assume nor shall it be deemed to have assumed any obligation towards or relationship of agency or trust with the Purchaser or any relationship of trust with either Vendor.  This Agreement shall not, and shall not be construed so as to, constitute a partnership or unincorporated association between the parties hereto or any of them.  The Representative Vendor shall not have any duties or responsibilities except those expressly set forth in this Agreement......”

	and went on to give very wide authority for the Company to act on behalf of the vendors in relation to the ISA and matters arising under it.

7.	Before turning to the provisions of the Vendors Agreement, I should mention one definition in the ISA:

“Transaction Documents” means collectively this Agreement, the Aircraft Purchase Agreement Assignment, the Consent Agreement and any document, instrument or agreement required hereunder or thereunder

	It does not, therefore, include the Vendors Agreement itself.

	The Vendors Agreement
8.	The second document to which I need to refer is “the Vendors Agreement” dated 24th March 1985 (some months after the ISA) and made between (1) the Vendors and (2) the Company.  This regulated the relationship between the parties and the responsibilities of the Company as agent for the Vendors vis a vis the Purchaser.  As explained in Recital (E)

“The parties hereto are desirous of setting out the terms on which, as between themselves, they entered into the Transaction”.

9.	Clause 2 provided for the Vendors’ obligations to be several in proportion to their various commitments in relation to the transaction; the proportions were set out at Clause 7.1 of another document, the Aircraft Purchase Agreement, to which I do not otherwise need to refer.  The proportions were effectively the Company 3/8ths, Showa 1/4, YTB 1/4 and Diamond Lease 1/8th.

10.	Under Clause 3, each of the Vendors ratified the appointment of the Company “to act as Representative Vendor as specified in the Transaction Document [ie including the ISA]”.  It went on to provide

“The Vendors hereby agree that any act done by the Representative Vendor thereunder [the Transaction Documents] shall be conclusive and binding as between the Vendors and the Purchaser.”

and

“In performing its functions and duties thereunder, the Representative Vendor shall act solely as the agent of the Vendor and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with, for or towards the Purchaser.  This Agreement shall not, and shall not be construed so as to, constitute a partnership or unincorporated association between the Vendors or any of them.”

11.	Clause 4 is of considerable importance and excluded - or purported to exclude - any fiduciary relationship between the Vendors and the Company.  It provided 

“The Representative Vendor shall not have any duties or responsibilities except those expressly set forth in the Transaction Documents.  The duties of the Representative Vendor shall be mechanical and administrative in nature.  The Representative Vendor shall not have by reason of this Agreement or the Transaction Documents a fiduciary relationship in respect of any Vendor and nothing herein or therein, express or implied, is intended to, or shall, or shall be so construed as to, impose on the Representative Vendor any obligation in respect of this Agreement or the Transaction Documents save as expressly set forth herein or therein.  Each Vendor shall make its own independent investigation of the financial affairs of the Purchaser in connection with the entering into of the Transaction Documents, the performance of the transactions contemplated therein and the credit worthiness of the Purchaser.  The Representative Vendor shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Vendor with any credit or other information with respect thereto.”

12.	Clause 5 provided for the distribution of receipts by the Company, something notable for its absence in the ISA itself.  It provided

“The Representative Vendor shall promptly distribute to each of the Vendors to the respective accounts notified to the Representative Vendor from time to time their due proportion of all amounts (if any) received by it as agent for the Vendors under any of the Transaction Documents...”

13.	Finally, Clause 6 provided an adjustment mechanism should any Vendor receive (by reason of set-off, benefit of security or otherwise) a greater share of the Purchase Price than other Vendors.  I have not found this (complex) provision of assistance in helping to resolve the issues which I have to decide.

Recent events
14.	On 2nd October 1998, the Company went into administration and Mr Wallace and Mr Heis were appointed Joint Administrators.  On 29th December 1998, the Company, as Representative Vendor, received an instalment payment (in four tranches) from Olympic under the ISA.  The Joint Administrators felt unable to make onward distribution to the other Vendors in the light of the provisions of the ISA and the Vendors Agreement apparently negativing any trust over what they have received and accordingly apply to the Court for directions.  The instalment has been paid by the Joint Administrators into separate accounts with Midland Bank in order to ensure that the funds would not be subject to set-off or other claims.  In other words, the position is preserved so that the Joint Administrators will be able to give effect to the decision of the Court.

15.	Evidence has been sworn on behalf of the Respondents to show that the Vendors were all part of the Japanese leasing industry and that the transaction was essentially a Japanese financing operation.  The corporate entities concerned were not, however, Japanese and the documentation is governed by English Law.  It is, of course, appropriate to take full account of the commercial background in which a transaction takes place (see Investors Compensation Scheme v West Bromwich Building Society1): this evidence, however, does not to my mind take the matter any further.

16.	The issues which may arise for decision appear to me to reduce to these:

	a.	Prior to the commencement of the administration, were the instalments of the purchase price received by the Company held by it subject to a trust to pay to the other Vendors their respective shares?  If Yes, then it follows that the instalment received in December 1998 was subject to the same trust.
	
	b.	If No, was the instalment received in December 1998 subject to a constructive trust arising out of the circumstances of the payment - that is to say receipt pursuant to an agency agreement by an agent who would be unable to meet his own obligation to transmit it on to its principal?
	
	c.	If no such trust arises, does the Court have power to order payment to the other Vendors as an expense of the administration and, if so, should it do so?

Construction of the ISA and the Vendors Agreement
17.	The first of the issues identified in paragraph 16 above concerns the relationship between a principal and his agent and the circumstances when money coming into the hands of the agent is trust property and when there is simply a creditor/debtor relationship.  The answer to the question whether a trust exists turns, essentially, on the intention of the parties to be established from all the circumstances including, of course, the agreements which they have entered into.  Subject to the express terms of any agreement, the current approach is identified by Lord Goff in Lord Napier and Ettrick v Hunter2 as follows:

“If I search for a parallel, the closest analogy is perhaps to be found in the law of agency in which, although the relationship between principal and agent is governed by a contract, nevertheless the agent may be held in certain circumstances to hold money, which he has received from a third party in his capacity as agent, as trustee for his principal.  It is by no means easy to ascertain the circumstances in which a trusteeship exists; but, in a valuable discussion in Bowstead on Agency, 15th ed. (1985), pp. 162-163, Professor Francis Reynolds suggests that it is right to inquire
	
	“whether the trust relationship is appropriate to the commercial relationship in which the parties find themselves; whether it was appropriate that money or property should be, and 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 debtor and creditor is more appropriate.”

He also suggests that
	
	“a central question, perhaps too often overlooked (because not directly an issue), is whether the rights of the principal are sufficiently strong, and differentiable from other claims, for him to be entitled to a prior position in respect of them on the agent’s bankruptcy.”

18.	I have been cited a number of cases to show the sort of circumstances where a commercial agency agreement can nonetheless result in a relationship of trustee/beneficiary in respect of moneys received by the agent.  I should refer to some of them.

19.	In Henry v Hammond3, a shipping agent sold cargo salved from a wreck.  He failed to account for some of the proceeds of sale.  In the course of his judgment (where he held that the agent was simply carrying out an ordinary commercial transaction and was not obliged to keep separate from his own monies the monies coming into his hands in the course of that transaction ) Channell J, at  521, said this:

“It is clear that if the terms upon which the person received the money are that he is bound to keep it separate, either in a bank or elsewhere, and to hand that money so kept as a separate fund to the person entitled to it, then he is a trustee of that money and must hand it over to the person who is his cestui que trust.  If on the other hand he is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it as he pleases, and when called upon to hand over an equivalent sum of money, then, in my opinion, he is not a trustee of the money, but merely a debtor.”

	A requirement to keep moneys separate and to hand them over when requested is thus clearly a strong indication that a trust is intended.  But it must be questionable whether that would be so where the agreement governing the agency expressly negatives a trust or fiduciary relationship.

20.	In Re Kayford Ltd4 money was received by a mail-order company from customers.  The company’s accountants advised that, in order to protect customers’ interests in the event of liquidation, receipts should be paid into a new separately designated account.  In fact, an existing account was used and was only designated “Customer Trust Deposit account” shortly before the Company went into liquidation.  Megarry V-C, in holding that the funds in the separate account were subject to a trust said this:

“I feel no doubt that here a trust was created.  From the outset the advice (which was accepted) was to establish a trust account at the bank.  The whole purpose of what was done was to ensure that the moneys remained in the beneficial ownership of those who sent them, and a trust is the obvious means of achieving this.  No doubt the general rule is that if you send money to a company for goods which are not delivered, you are merely a creditor of the company unless a trust has been created.  The sender may create a trust by using appropriate words when he sends the money (though I wonder how many do this, even if they are equity lawyers), or the company may do it by taking suitable steps on or before receiving the money.  If either is done, the obligations in respect of the money are transformed from contract to property, from debt to trust.  Payment into a separate bank account is a useful (though by no means conclusive) indication of an intention to create a trust, but of course there is nothing to prevent the company from binding itself by a trust even if there are no effective banking arrangements.”

21.	The decision of Bingham J in Neste Oy v Lloyds Bank plc5 concerned six payments made by the plaintiff ship owners to their agent, PSL, for the purpose of discharging various liabilities in relation to the plaintiffs’ ships, such as jetty and harbour dues.  The question arose whether any of these payments were held by PSL as trustee for the plaintiffs a question which

“Depends on all the circumstances including the intention of the parties, express or to be inferred” [see at p 663 col 2]

	I shall return to this case in the context of the second issue identified at paragraph 16 above since the approach of Bingham J to the sixth payment is of great relevance.  But in holding that there was no trust relation to the first five payments, he also referred to the matter of separate accounts.  After quoting a lengthier passage from Henry v Hammond (including the passage set out above, Bingham J at p 664 col 1 says this:

“The case was important not because it happened to concern shipping agents but because it showed the proper approach to be followed by the Court in a commercial context such as this, The importance of a separate account as reflecting the terms upon which money was paid was underlined further in such cases as In re Nanwa Gold Mines Ltd [1955] 1 WLR 1080, Quistclose sup; and In re Kayford Ltd. [1975] 1 WLR 279.  The Wilsons and Furness-Leyland Line Ltd v The British and Continental Shipping CO Ltd and Others (1907) 23 TLR 397, showed that where money was with the consent of the principal paid by agents into a general account containing their own funds the proper inference was that the relationship was one of debtor and creditor, not trustee and beneficiary...”

22.	Re Multi Guarantee Company Ltd6 was a case where the fact of a separate designated account into which certain insurance premiums were paid was insufficient to create a trust.  The Court of Appeal held that no trust was established. Nourse LJ at p 268 said
	
“In my judgment, Mr Meddes never did manifest a sufficient intention to create a trust and the requisite certainty of words was simply not there.”

	The Court was thus seeking to establish the intention of the Company (through Mr Meddes) and, in all the circumstances the separate account was an insufficient indication of an intention to create a trust.

23.	In Re English & American Insurance Co Ltd7 the insurance company had entered into an agreement with an association to provide its members with insurance.  It was agreed that the company would keep all sums received in respect of that particular business segregated and these were to be provided solely for the purpose of that business.  Harman J held that a trust was created and, at p 653e-f, said this:

“Equity has never been bothered by the absence of words and has always looked at the substance rather than the form of any transaction...”

	The substance, of course, must be established from all the surrounding circumstances including the express terms of any relevant agreement.

24.	The importance of intention is again expressed by Lightman J in Re Fleet Disposal Service Ltd8.  The question was whether Nortel had a proprietary interest in assets held by the liquidator of Fleet Disposal representing the proceeds of sale of cars sold by Fleet Disposal as agent of Nortel.  Payments were made in and out of a single account, although there was no provision in the agency agreement for a separate account for use in respect of the Nortel business.  At p 608G, Lightman J said this:

“The question whether Nortel had a proprietary interest in the proceeds of sale of its cars on receipt of the same by the company is one of construction of the agency agreement in the light of the surrounding circumstances at the time when it was made, and these circumstances include the intentions of the parties express or to be inferred: see Neste Oy v Lloyds Bank plc [1983] 2 Ll R 658 at p.663.”

25.	I have also been referred to the Quistclose9 line of authority.  The principle which can be derived from those cases is that where money is paid by A to B for a specific purpose known to B, that money is clothed with a trust.  In relation to arrangements for the payment of persons’ creditors by a third person, the payment gives rise to

“a relationship of a fiduciary character or trust, in favour, as a primary trust, of the creditors, and secondarily, of the primary trust fails, of the third person.” [see Lord Wilberforce at [1970] AC p 580C)

	That line of authority does not really throw light on the circumstance in which receipts by an agent are subject to a trust and when they simply give rise to a debtor/creditor relationship.  In the present case, the instalment payment was made by Olympic to the Company for the purpose of onward transmission to the other Vendors.  No doubt, in the absence of other provisions, that would be capable of giving rise to a trust of the payment in the hands of the Company.  But the issue is whether the express terms of the ISA and the Vendors Agreement negative such a trust: the Quistclose line of cases gives no help on that issue.

26.	As the question is put by Lightman J in the Fleet Disposal case, so too in the present case, the question is one of construction - of the ISA and the Vendors Agreement - in the light of the surrounding circumstances.  In answering that question, and in applying the functional approach indicated in the Napier case, I must, of course, attach the greatest importance to the express provisions of those agreements.

27.	Mr Phillips submits that the provisions of Claus 18 of the ISA and Clause 4 of the Vendors Agreement are clear: they expressly exclude a trust relationship or a fiduciary relationship between the Company and the other Vendors and the parties expressly agreed that the Company had only those duties set out in the Transaction Documents.  The implication or deeming of obligations more extensive that those set out was also expressly excluded.  Further, it is a reasonable assumption - and this is not really disputed - that the possible insolvency of the Company was never considered since it would not have been conceived in 1984/5 that the Company would have been allowed by the Japanese authorities to collapse.  There is nothing surprising, therefore, in the obligations of the Company resting in debt/contract or in the absence of any trust of the instalments received by the Company.

28.	Mr Collings, on behalf of the respondent as representative of the other Vendors, draws attention to other provisions.  In particular,

	a.	the Company is described as the Representative Vendor, the suggestion being that the appointment as such is simply to enable the Purchaser to deal with one body: there is no suggestion that the substantive rights of the parties are to be affected by that appointment.
	
	b.	Clause 4 of the Vendors Agreement stresses the “mechanical and administrative” nature of the arrangements.  In negativing a trust or fiduciary relationship, the ISA and the Vendors Agreement are doing no more than to limit the administrative obligations conferred on the Company by the Transaction Documents and the obligations with which a person holding money (in a bank account) for another person might owe (for instance investment).  Further, those documents are concerned to exclude any liability to advise the other Vendors which the Company might otherwise be treated as taking responsibility for as a result of accepting office as Representative Vendor.

	Mr Collings points out that, in construing the documents, what is important is to ascertain the true contract irrespective of the labels attached to it, and relies on Welsh Development Agency v Export Finance Co Ltd10 as well as the ICF case.  That is true, but that approach does not entitle the Court to reject, not a label or description, but a substantive provision of a document for instance the provision excluding any trust or fiduciary relationship.  The effect of such an exclusion has to be ascertained applying ordinary canons of construction.

29.	I have reached the conclusion that on a true construction of the ISA and the Vendors Agreement, the instalment payments were not subject to a trust in the hands of the Company to pay the proportionate parts to the other Vendors.  The reason for that conclusion, shortly stated, is that the express exclusions of a trust relationship and a fiduciary relationship by Clause 18 of the ISA and Clause 4 of the Vendors Agreement are drafted in a very wide way and cannot, in my view, be construed restrictively in such a way that they do not apply to the duties of the Company in relation to money which it actually receives as agent. I now consider this in more detail.

30.	It has not been suggested to me that I should not construe the ISA and the Vendors Agreement as part of a single transaction notwithstanding that they are separated in time by some months.  The Vendors Agreement is clearly intended to supplement the provisions governing the relations between the Company and the other Vendors under the ISA: the purpose of the Vendors Agreement is explained in Recital (E).  I do, however, note that the ISA itself does not expressly impose any duty on the Company to distribute any part or parts the payment it receives from Olympic on to the other Vendors.  That obligation is only expressly imposed by Clause 5 of the Vendors Agreement even though it is contemplated by the closing words of Clause 7.l of the ISA that such distribution would occur.  Clause 18 not only expressly negatives any relationship of trust: it also negatives any duty whatsoever save those expressly set out in the ISA itself.  Read literally, that would mean (ignoring for the moment the Vendors Agreement) that there would be no obligation (in trust or in contract) at all on the Company to make onward distribution of the money it receives from Olympic.  That cannot, in my judgment, be correct: and it is not correct because a total absence of such obligation would be inconsistent with there being an agency.  It is not possible both to purport to create an agency and at the same time negative all of its essential elements.  But that is not to say that the duty to make payment to the other Vendors must be treated as a trust obligation.  The existence of the agency does not require that result: it only requires the lesser contractual obligation to account - an obligation which is subsequently confirmed in the Vendors Agreement.

31.	In the absence of an express obligation on the Company to account to the other Vendors is dealt with by the Vendors Agreement: this expressly provides in Clause 5 for distribution.  What the Company is obliged to do is

“To distribute to each of the Vendors...their due proportion of all amounts (if any) received by it as agent for the Vendors...”

	That provision read by itself would seem to be focusing on the actual amounts received.  It talks of distribution of amounts received which, viewed in the context of the closing words of Clause 7.1 of the ISA, might suggest that what is envisaged is the distribution of funds actually received from Olympic.  Further, the reference in Clause 4 of the Vendors Agreement to the Company’s duties being mechanical and administrative in nature is more consonant, I think, with the view that the function of the Company is simply to pass on to the other Vendors the actual money it receives rather than take that money into its own general assets with a corresponding obligation to account for the same amount: a change of beneficial ownership between the right to payment (immediately before actual payment) and the actual payment once made can be said to go beyond the mechanical and administrative.

32.	However, other parts of Clause 4 of the Vendors Agreement have an impact on that approach, as does Clause 18 of the ISA.  Clauses 4 and 5 are, it must be said, not wholly internally consistent.  In particular, Clause 4 states that the Company shall not have “any duties or responsibilities except those expressly set forth in the Transaction Documents” (which do not include the Vendors Agreement itself, a matter emphasised by the later use in Clause 4 of the phrases “this Agreement or the Transaction Documents”), whereas Clause 5 expressly provides for distribution of payments received by the Company and must therefore override the words I have just quoted from Clause 4.  That suggests that Clause 4 is not focusing on the distribution obligation at all but is concerned only with duties such as the administrative obligations which Mr Collings has identified and to negative duties such as those referred to in the second half of Clause 4 (beginning “Each Vendor shall make...”).  So far as Clause 18 of the ISA is concerned, the exclusion of any trust relates only to the functions and duties under the ISA - that is the effect of the opening words “In performing its functions and duties hereunder...”.  It might be said that the obligation under Clause 5 of the Vendors Agreement is not an obligation under the ISA; so that if, on a true construction of the Vendors Agreement, a trust relationship arises as a result of Clause 5, then Clause 18 can be taken to negative that relationship.

33.	In my judgement, however, those arguments are to be rejected.   The exclusion by Clause 18 of any relationship of trust must, I think, be intended to relate, among other matters, to the receipt by the Company of instalments of the purchase price.  Such receipt is, after all, the main function of the Company.  The exclusion of such a trust relationship is not inconsistent with the agency.  Nor do I consider that the Vendors Agreement is apposite to create a trust relationship where none existed without it: and that is the case whether one reads the two documents as one or whether one reads the Vendors Agreement as subsequently superimposed on the ISA.  Indeed, the Vendors Agreement really emphasises the absence of a trust relation by negativing the existence of any fiduciary relationship.

Alternative considerations
34.	It is then necessary to deal with the second and third issues identified in paragraph 16 above.

	Constructive trust of December 1998 instalment
35.	By the time the December 1998 instalment was paid, the Joint Administrators had been appointed.  The financial problems of the Company were well known and it was apparent that, if the instalment fell into the general assets of the Company, the other Vendors would not receive the payments to which they were contractually entitled.  The Joint Administrators have sensibly segregated the December 1998 payment from the general assets of the Company.

36.	It is clear in my view that if the circumstances of the payment in December 1998 would otherwise give rise to a constructive trust in favour of the other Vendors, the terms of the ISA and the Vendors Agreement would not be effective to negative such a trust.  Those documents are concerned only with duties arising as a result of the terms of those documents themselves in the commercial context in which they were made: they are not concerned with the imposition of a constructive trust arising out the special circumstances in which a particular payment - the 1998 instalment - was made.

37.	In Neste Oy, the sixth and final payment was made to PSL by the plaintiffs at a time when the PSL group had already resolved the PSL and its group companies should cease trading, at a time when PSL had not paid for the services for which the sums had been remitted and at a time when in all the circumstances there was no chance that PSL could pay for the services in question.  It was held that PSL could not, in good conscience, at the time of the receipt of the payment retain it and accordingly a constructive trust was to be inferred.  As it is put by Bingham J at p 666 in explaining the difference between this payment and the previous five payments:

“Given the situation of PSL when the last payment was received, any reasonable and honest directors of that company (or the actual directors had they known of it) would, I feel sure, have arranged for the repayment of that sum to the plaintiffs without hesitation or delay.  It would have seemed little short of sharp practice for PSL to take any benefit from the payment, and it would have seemed contrary to any ordinary notion of fairness that the general body of creditors should profit from the accident of a payment made at a time when there was bound to be a total failure of consideration.  Of course, it is true that insolvency always causes loss and perfect fairness is unattainable.  The bank, and other creditors, have their legitimate claims. It nonetheless seems to me that at the time of its receipt, PSL could not in good conscience retain this payment and that accordingly a constructive trust is to be inferred.”

38.	Mr Phillips quite rightly points out material differences in that situation as compared with the present case.  He submits that the obligation of the agent in Neste Oy was to pay the providers of services who were not beneficiaries under the trust, whereas in the present case, the obligation is to pay the Vendors.  Thus, whereas in Neste Oy the agent would not have performed any services for the shipowner, in the present case, a debt due from the Company to the Vendors does arise and the obligation is performed albeit subject to the insolvency regime.  There is no total failure of consideration.

39.	I do not think that that distinction is material for present purposes.  The constructive trust is imposed because it would be unconscionable for the Company, as agent, to receive money as agent knowing that it could not account for it to its principal.  In this context, the passage from Bowstead quoted in Napier (see paragraph 17 above) is relevant and in my judgement the only answer which could be given to the question there posed is that the rights of the Vendors are sufficiently strong, and differentiable from other claims, for the Vendors to be entitled to a prior position in respect of them on the Company’s insolvency (whether the question arises in an administration, a voluntary arrangement or a liquidation).  The Joint Administrators have not, of course, acted unconscionably: they have, quite properly, brought the matter before the Court.  But it would, in my judgment, be unconscionable for them to continue to assert any claim to the monies.  In my judgement, Mr Collings is correct in asserting that a constructive trust arises in relation to the December 1998 (and any subsequent) instalment of the purchase price.

	Payment as an Expense of Administration
40.	If I am wrong in that conclusion, then Mr Collings says that the same result can and should be achieved by the Court directing payment of the relevant amounts as an expense of the administration.  There is no dispute that the Joint Administrators are officers of the court and subject to the control of the Court: see in particular Re Atlantic Computer Systems plc11.  In that case, Atlantic acquired computer equipment on head-lease or hire purchase from funders under head-leases which it then let to end-users.  The administrators, following the commencement of the administration of Atlantic, directed end users to continue to make payments to Atlantic.  At first instance, Ferris J held that Atlantic’s obligations under the head-leases should be paid in full as an expense of the administration.  But the Court of Appeal, allowing the administrators’ appeal in part, directed the administrators to pay to the funders as expenses of the administration all sums received by them (which were less than the amounts due under the head-leases) during the period when the computer equipment had been used.  In explaining the relevant principles, Nicholls LJ at p522 said this:

“However, the matter stands differently if the debt, in respect of which the creditor is seeking to exercise a remedy against the company’s property, was a new debt incurred by the liquidator for the purposes of the liquidation.  In such a case the grant of leave would not be inconsistent with the purpose of the legislation.  In such a case it is just and equitable that the burden of the debt should be borne by those for whose benefit the insolvent estate is being administered.  The court should exercise its discretion accordingly. The creditor should be at liberty to enforce his rights against the company’s property if his debt is not paid in full.  Further, and by way of corollary, since the debt was incurred for the purposes of the liquidation, it is properly to be regarded as an expense of the liquidation and it ought to be paid as such.  The court will direct the liquidator accordingly.
	
This latter principle is not confined to new debts incurred by the liquidator.  It applies also to continuing obligations under existing contracts such as leases which the liquidator chooses to continue for the benefit of the winding up.  Thus, the principle is applicable in respect of rent accruing due while a liquidator retains leasehold land for the purpose of the winding up.  The lessor should be paid in full, or be allowed to distrain.  The principle is equally applicable in the case of other liabilities incurred in the course of winding up; for example, where rates become due in respect of land occupied by a liquidator for the purpose of the winding up: see In re International Marine Hydropathic Co. (1884) 28 Ch.D. 470.  Indeed, the principle is of general application to the outgoings on property the possession of which is retained for the purpose of more advantageously winding up the affairs of the company: see per Baggallay L.J. in In re National Arms and Ammunition Co. (1885) 28 Ch.D. 474, 478.”

	The principle applies to obligations under existing contracts which a liquidator - and similarly an administrator - elects to continue for the benefit of the winding-up - or administration.

41.	Ferris J reasoned12 that the funders’ contractual claims were the “proper price” for the use or realisation of the funders’ property.  That was rejected by the Court of Appeal which looked rather to the benefit received in respect of the property used by the administrators rather than the contractual cost of the property.  In the present case, this distinction does not have an economic consequence since the amounts received from Olympic (in excess of the Company’s own share of the instalment) - the benefit received - and the amount which it ought, pursuant to the ISA and the Vendors Agreement, pay to the Vendors - its contractual obligation - are the same.

42.	The real question here is whether the facts bring the case within the expenses principle at all.  On one view, it can be said that in receiving the December 1998 instalment, the Joint Administrators have asserted the continuing relationship of agency between the Company and the other Vendors, and by doing so chose to continue with the ISA and the Vendors Agreement.  To retain the benefit under those contracts - beneficial receipt of the entire instalment - the Joint Administrators must account for the benefit which they have received: they cannot take the benefit without the burden at least to the extent that the benefit does not exceed the burden.

43.	On another view, the Company simply received the instalment of the purchase price when it fell due and in so doing, the Joint Administrators were not using any property which belonged to the Vendors in order to realise a benefit under the ISA and the Vendors Agreement.  The Atlantic Computers approach has never been applied to a contract of this sort before.

44.	In my judgment, the case does fall within the expenses principle.  It is accepted by Mr Phillips, quite correctly, that prior to the payment of an instalment, the chose in action representing each Vendor’s right as against Olympic to its share of the purchaser price belonged to that Vendor: it did not belong beneficially to the Company and there had been no assignment by each Vendor to the Company of its rights.  Accordingly, when the Company accepted payment of an instalment as agent of the Vendors, it could do so only on the hypothesis that there was a valid agency agreement.  In receiving an instalment of the purchase price, the Joint Administrators were making beneficial use of the property of the other Vendors that is to say their respective shares of the purchase price.  If the Joint Administrators chose to take the benefit of that continuing agency relationship, and thereby make use of the other Vendors’ property, they must, I consider, meet the obligations of the Company pursuant to the agency agreements by allowing the Vendors to recover to the extent of the benefit received by the Joint Administrators.  This approach conforms with the approach adopted in Ex parte James13: in effect, an officer of the Court should behave in a high-minded and honourable way which would not be the case, in my judgment, if I were to allow the Joint Administrators to retain the instalment payment for the benefit of general creditors of the Company: it would be dishonourable for the Joint Administrators to seek to retain this windfall.

Conclusion
45.	I accordingly hold that the Joint Administrators should account to each of the Vendors other than the Company for their respective shares of the instalments received since the commencement of the Administration.

Endnotes

1	[1998] 1 WLR 896
2	[1993] AC 713 at p 744
3	[1913] 2 KB 515
4	[1975] 1 WLR 279
5	[1983] 2 Ll R 658
6	[1987] BCLC 257
7	[1994] 1 BCLC 649
8	[1995] BCC 605
9	Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; and Carreras Rothmans Ltd v Freeman Matthews Trustees Ltd [1985] Ch 207
10	[1992] BCC 270
11	[1992] Ch 505
12	see as set out at p 519 of the Court of Appeal judgment
13	(1864) 9 Ch App 609