Claim No: CL-2023-000687 - [2025] EWHC 1157 (Comm)

There are a number of authorities which have considered the legal relationships generally brought into being when one party acts as stakeholder or escrow agent in the context of a transaction (or sometimes a dispute) between two other parties. The general thrust of these authorities is to analyse the relationships of the parties in contractual rather than trust terms.

In Potters v Loppert [1973] Ch 399, 406, Sir John Pennycuick V-C stated:

“Turning now to authority, it is to my mind conclusive that, apart from agreement to the contrary, a contract deposit paid to a stakeholder is not paid to him as trustee, but upon a contractual or quasi-contractual liability with the consequence that the stakeholder is not accountable for profit upon it.”

The words “apart from agreement to the contrary” make it clear that the case and the authorities it cites are addressing a legal default position from which the involved parties are free to depart, rather than a mandatory rule of law. The issue in that case was an entitlement to interest on the period between receipt and repayment of the deposit (an issue which appears to have heavily influenced the analysis of stakeholder relationships under English law when this was the means by which the stakeholder was remunerated). The Vice-Chancellor noted at p.406 that:

“One might at first sight rather expect that where any property is placed in medio in the hands of a third party to await an event as between two other parties the third party receives that property as trustee, and that the property and the investments for the time being representing it represent the trust estate. Where the property is something other than money - for example, an investment - that must, in the nature of things, almost certainly be the position. But where the property is money - that is, cash or a cheque resulting in a bank credit - this is by no means necessarily so. Certainly the money may be paid to the third party as trustee, but equally it may be paid to him as principal upon a contractual or quasi-contractual obligation to pay the like sum to one or other of the parties according to the event.

It must depend upon the intention of the parties, to be derived from all the circumstances, including any written documents, in which capacity the third party receives the money.”

The same approach was adopted in relation to a contractual deposit held by solicitors which the parties had agreed should be paid into a “special designated deposit account” in Hastingwood Property Ltd v Saunders Bearman Anselm [1991] Ch 114. In that case, the solicitor-stakeholder had applied the funds to meet certain expenses, and closed the account. The claimant sought an order requiring the solicitors to reconstitute the account in the manner of a trust fund. Mr Edward Nugee QC rejected the suggestion that, once the condition for payment has occurred, but there is a dispute as to whom the amount is payable, the solicitor was bound to maintain the deposit in the account until the dispute had been determined. At pp.124-24, he stated:

“It seems clear to me that, in the common case of a deposit paid to a stakeholder on the signing of a contract for the sale of land, if the stakeholder repays the deposit to the purchaser in the belief that the contract is at an end the remedy of the vendor who claims to be entitled to forfeit the deposit is, so far as the stakeholder is concerned, limited to an action to recover the amount of the deposit, which will be an action in contract or, more usually, an action for money had and received … I do not consider that the vendor would be entitled to an interlocutory order requiring the stakeholder to replace the amount of the deposit in a designated account or to pay it into court.”

In Manzanilla Limited v Corton Property and Investments Limited [1996] Lexis Citation 3767, deposits for four contracts of sale were paid to the vendor’s solicitors as stakeholders. The contract failed, each side blaming the other. It is not clear from the report whether the sale contract provided for the escrow amount to be paid into the solicitor’s client account, but that is what happened. Prior to the commencement of proceedings, the solicitors transferred the deposit from their client account to their office account, and set it off against amounts said to be due from the vendors to the solicitors. The vendor and purchaser reached a settlement accepting the purchaser’s entitlement to the deposit, and the purchaser sought summary judgment against the solicitors. In the course of addressing whether there was an arguable defence to the claim, Millett LJ reviewed the legal obligations assumed by a stakeholder, which he summarised as follows:

“(1)

The relationship between the stakeholder and the depositors is contractual, not fiduciary. The money is not trust money; the stakeholder is not a trustee or agent; he is a principal who owes contractual obligations to the depositors … The underlying relationship is that of debtor and creditor, and is closely analogous to the relationship between a banker and his customer.

(2)

Until the specified event occurs, the stakeholder is entitled to retain the interest on the money. This is usually described as his reward for holding the money …This right may be excluded by special arrangement, and was excluded in the present case.

(3)

Until the event happens the stakeholder holds the money to the order of both depositors and is bound to pay it (strictly speaking an equivalent sum) to them or as they may jointly direct: Rockeagle v Alsop Wilkinson [1992] Ch. 47, [1991] 4 All ER 659.

(4)

Subject to the above, the stakeholder is bound to await the happening of the event and then to pay the money to one or other of the parties according to the event. The money is payable to the party entitled on demand, and if the stakeholder fails to pay in accordance with a proper demand he is liable for interest from the date of the demand …

(5)

If the occurrence of the event is disputed, the stakeholder cannot safely pay either party, for if he mistakenly pays the party not entitled the payment will not discharge his liability to the other. In these circumstances he may (i) interplead and pay the money into Court; (ii) retain the money pending the resolution of the dispute; or (iii) take the risk of paying one party. The choice is entirely his.

(6)

If he takes the second course, he may notify the parties that he is content to abide the outcome of the dispute. There is then no need to join him in any proceedings which are taken to resolve it. If he is not joined, the Court cannot order the money to be paid to the successful party. All it can do is to declare that the successful party is entitled to give a good receipt for the money …

(7)

If the stakeholder is not content to abide the outcome of the proceedings, he may be joined in order to bind him. This was done in the present case, albeit on the application of the stakeholder.”

Millett LJ distinguished between the position when the relevant event determining how the deposit should be applied had yet to occur (“pre-contingency”), and, where it had occurred (“post-contingency”). In the former case, the other parties were in principle authorised to revoke the mandate and demand payment as they directed, and the stakeholder was not able to exercise rights of set-off or lien against the payment of the deposit. Once the event had happened, the stakeholder came under a debt to the party to whom the payment was due, and was permitted “to exercise any rights of lien or set-off against him.”

In Bristol Alliance Nominee No1 Limited v Bennett [2013] EWCA Civ 1626 a lessor and lessee entered into an agreement by which the landlord agreed to accept the surrender of the lease in return for a cash payment, which sum was paid into escrow pending completion of the surrender lease, and held in the solicitor’s client account. At [24], Rimer LJ held that the solicitors held the escrow amount as stakeholders and not as trustees. In that paragraph, Rimer LJ referred to the payment obligation post-contingency as being to “pay an equivalent sum”, as Millett LJ had in Manzanilla. Those comments make it difficult to argue that, whatever the position pre-contingency, the solicitor-stakeholder in these cases held the amount in the escrow or client account on trust for the party entitled to payment post-contingency.

Finally, in PDVSA Servicios S.A. v Clyde & Co LLP, Petrosaudi Oil Services (Venezuela) Limited [2020] EWHC 2819 (Ch), Sir Alistair Norris considered an application for an injunction in respect of amounts held in escrow by solicitors, to be paid out under the escrow agreement in accordance with the decision of an arbitral tribunal in a reference between PDVSA and POSVL. The tribunal having found in POSVL’s favour, PDVSA brought a challenge to the arbitral award in the courts of the arbitral seat (France), and sought an injunction to prevent the solicitors paying the escrow amount to POSVL pending the determination of that challenge. On PDVSA’s case, this was a pre-contingency case, its entitlement to payment being contingent on success in the proceedings before the curial court to challenge the award. The terms of the escrow agreement bore some similarities to those in this case, but there are or may be material differences.

The injunction proceedings were brought by PDVSA under CPR 64.2, which concerns the court's inherent jurisdiction to determine any question arising in the execution of a trust. Sir Alistair Norris held that this was “an entirely conventional escrow arrangement” and that “it is well established that such arrangements do not of themselves create a trust of the monies so received” ([26]), such an agreement not customarily creating “property rights in a segregated fund” ([29]). At [32], Sir Alistair suggested that “the wording of the Tripartite Agreement points away from the creation of a trust of the escrow account”, pointing to the provision that the solicitors’ duties were ‘administrative only’ and limited to instructing the bank “to hold and deal with the escrow monies in accordance with the orders of the Tribunal”.

This line of cases would suggest that the rights as between the Claimants and RSUK are essentially a matter of contract: certainly in the pre-contingency scenario, and also in the post-contingency scenario, save possibly where the effect of realisation of the contingency is to oblige a solicitor-stakeholder to pay money to its client with whom is it already in a fiduciary relationship (which may explain why it was common ground in Petrosaudi Oil Services (Venezuela) Limited v Clyde & Co LLP [2021] EWHC 444 (Ch) that the solicitors holding the escrow at issue in PDVSA Servicios S.A. v Clyde & Co LLP, Petrosaudi Oil Services (Venezuela) Limited held the monies on trust for POSVL, in whose favour the arbitral tribunal had ordered the payment should be made, and for whom the solicitor-stakeholder was acting in the arbitration).

Ultimately, however, that is a matter of construction of the Escrow Agreement at trial. I note that in Tradegro UK Ltd v Wigmore Street Investments Ltd [2011] EWCA Civ 268, [16], Sir David Neuberger observed that the undertaking in that case could be “interpreted in such a way as to give rise to a trust, a stakeholder arrangement, a solicitor's undertaking, or a personal contract (and not all of these are by any means mutually exclusive), but that is merely a result of the interpretation exercise.” Further:

On this basis, if RSUK successfully defends the Claimants’ claim, this might be because:

It is clear that RSUK denies that either Claimant has any form of equitable interest in the Balance. It was not clear at the hearing whether it contended that no debt had arisen in respect of the Balance, or whether it was said that the debt was not yet payable.