HT-2024-000379 - [2025] EWHC 2769 (TCC)

The Claimant contends that Clause 4 of its Terms and Conditions creates a bare express trust in its favour in respect of its products which had been on-sold to a third party whilst not having been paid for as between the Claimant and the Defendant. Snell’s Equity (35^th ed) at Paragraph 22/019 provides:

“An express trust is created by the actual intention of the person in whom the property is vested as where A declares himself a trustee of Y for B or conveys it to C on trust for B. The intention may be apparent from the express use of the words ‘trust’ in the relevant instrument or gathered by inference from A’s words or conduct.”

At Paragraph 21/027Snell’s Equity states:

“A bare (or simple) trust is one where property is vested in one person on trust for another but where the trustee owes no active duties arising from his status as trustee. His sole duty is to convey the trust property as the beneficiary directs him. An example is where property is transferred to T ‘on trust for B absolutely’. In such case T’s sole duty is to allow B to enjoy the property and to obey any direction he may give as to how the property should be disposed of.”

In respect of the proper interpretation of Clause 4, the UK Supreme Court’s decision in Wood v. Capital Insurance Services Ltd [2007] UKSC 24 at para.11 provides the now well-known test which does not require repetition in this Judgment.

It is accepted that to create a valid express trust there must be certainty of intention, object and of subject (see Knight v. Knight [1843] Beav 148 at 172).

The Defendant suggests that because the effect of the trust is to entitle the Claimant to immediately require payment of a sum higher than the contract price including the Defendant’s profit margin, that cannot objectively have been the intention of the parties and the creation of such a trust does not “make legal commercial or logical sense.”

I accept that Clause 4 is on its face incomplete and that the sentence within Clause 4 which is said to create a bare express trust is just one sentence, but the words relied upon in Clause 4 are clearly expressed, unambiguous and are sufficiently clear and unambiguous to admit of only one proper interpretation, namely that where goods are sold on without having been paid for in full, any monies paid by the third party to the Defendant are held on trust for the Claimant. That is the “price” of selling on the Claimants’ products before they have been paid for. That makes commercial sense. The Defendant did not suggest any further facts or matters which might come to light in disclosure which would influence the Court’s role of interpreting the meaning of Clause 4 as an exercise in construction/interpretation.

It also seems to me that it is perfectly clear what the object of the trust is from the words “Buyer shall be trustee for Seller”. Likewise, the subject of the trust is clear, namely the monies received by the Defendant from third party purchasers in respect of goods which were supplied by the Claimant but not paid for as at the date of the onward purchase.

In my judgment, therefore, on its clear interpretation, Clause 4 does create a valid express bare trust as contended for by the Claimant.

However, the issue for determination by me is not simply whether there is a valid trust but whether there is a reasonably arguable defence to a claim for breach of that trust. As to that, and as I noted during the course of oral submissions, there is no evidence before me that a request was made for trust monies to be paid to the Claimant ( the email from Ms Booth set out at paragraph 28 and requesting “payment” is on an objective reading not such a request), nor is there any evidence (as opposed to some speculative comments by the Claimant) that the monies which represent the funds received from third parties in respect of the Claimant’s unpaid goods have not been retained by the Defendant in its bank account.

In other words, there is no evidence before me that there has been a failure to comply with the terms of the bare express trust contended for by the Claimant and therefore no basis at this stage for a finding of breach of trust.

It does, however, seem to me that there is an even more fundamental problem with the Claimant’s contention that there is an unarguable claim for breach of trust. There is a dispute between the parties, which is accepted to be reasonably arguable, as to whether the unpaid goods complied with the express terms of the Contracts between the parties. On the basis of that alleged non-compliance, the Defendant says that it is not obliged to pay for the goods at all. If that is correct, then there would be no price to be paid for these goods, and to the extent that the price of those goods was not payable, there could also not be any room to impose a trust over monies received in respect of the onward sale of those goods, or at the very least it is arguable that the trust cannot apply to goods where the price was not payable in the first place. Since there is a live issue, which it is agreed has to go to trial as to whether the goods did or did not comply with the express terms of the contract, it is my view that there cannot be a summary determination that there is an unanswerable claim for breach of trust relating to those same goods.

Putting the matter another way, the trust could only apply for as long as the underlying debt exists. So once the underlying debt is paid, the trust comes to an end. If there is at least arguably no underlying debt then there cannot be an unarguable claim for breach of trust because it is at least arguable that no trust is imposed over monies for non-compliant products where the price is not due.

It follows that I do not need to deal with the Defendant’s alternative argument that the trust should be rescinded on grounds of mistake and/or that the Defendant is entitled to invoke the principle that he who comes to equity must come with clean hands so far as the Claimant’s conduct is concerned and/or that the Defendant is entitled to rely on Section 61 of the Trustee Act 1925.

However in case this matter goes further and for the future conduct of this matter it may help if I set out briefly my views.

I indicated during the course of the hearing that I was unimpressed by the arguments put forward in respect of mistake and I remain of that view. It does not seem to me to be a “mistake” properly so-called that a party does not believe a trust exists. That is to say, if the party is wrong in its belief and a trust does exist, that cannot be a ground for saying that the existence of the trust can be rescinded on the basis of mistake. That is a wholly circular argument.

So far as coming to equity with clean hands is concerned, the main complaint made by the Defendant is as to the Claimant’s conduct in terminating the Additional Contracts. It seems to me that that defence would not in my view have been strong enough to amount to a defence to a claim for breach of trust had the breach been made out before me. I note in particular Snell at para.5-0011 and the decision of Hildyard J in CF Partners (UK) LLP v. Barclays Bank plc [2014] EWHC 3049 (Ch) at 1134:

“The maxim does not in my view enforce manners or require apology; it is reserved for exceptional case where those seeking to invoke [equity] put themselves beyond the pale by reason of serious immoral and deliberate misconduct such that the overall result of equitable intervention would not be an exercise but a denial of equity.”

I agree with the Claimant’s submissions that the lack of an allegation of dishonesty or deliberateness in its conduct is very likely to be fatal to this defence.

In respect of Section 61 of the Trustee Act 1925, again it seems to me that if breach of trust is made out at trial, the burden is then on the Defendant to demonstrate that its conduct has been honest and reasonable and that it ought fairly to be excused for breach of trust. It seems hard to square the Defendant’s contention that there was no trust at all, with its entitlement to rely on Section 61 of the Act, and whilst that may be an issue for trial it does seem to me, even at this stage, that the Defendant may well struggle to make that contention good and certainly for the purposes of this application, had I been satisfied that there was a breach of trust made out, I would not have found that reliance on Section 61 of the 1925 Act amounts to a defence with a reasonable prospect of success.

It follows that the answer to Issue 1 is that the Defendant does have a real prospect of defending the claim for breach of trust, although there is on the proper construction of clause 4, a valid bare express trust as contended for by the Claimant.