Universal Investment Bank v Chung et Al

 
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Supreme Court

Ellis, J.

C.L. U-005 of 1996

Universal Investment Bank
and
Chung et al
Appearances:

Mr. Gordon Robinson and Miss S. Moss instructed by Nunes, Scholefield, DeLeon and Company for applicant.

Mr. R. Henriques Q.C., and P. Bailey for first respondent.

Mr. R. Henriques Q.C., and Miss D. Gentles for second and third respondent.

Miss Hillary Phillips and L. Pusey for fourth respondent.

Mr. J. Vassell and Miss C. Aina for fifth respondent.

Trusts and trustees - Applicant operated a business of accepting funds from clients for investment — Respondents 1 – 4 stated that an investment management agreement made the applicant a trustee of the funds and was thereby charged with the obligation of investing the trust funds for the benefit of investors — How did the investment management agreement affect the funds of the clients — Judgment that the investment management agreement affected the clients' funds by impressing them with trusts to invest those funds accruing to the agreement and for the benefit of the clients — Liquidator directed to realize any available trust property wherever situate and to distribute such property in keeping with the trust.

Ellis, J.
1

By an Originating Summons of 3rd May, 1996 the applicant (in liquidation) seeks the court's directions on and the determination of the questions set out below.

2

It is not necessary to set out the questions 1, 2, 3, 9 and 12 they having been settled by prior orders. I am required to consider paragraphs 4, 5, 6, 7, 8, 10 and 11 of the Originating Summon's listed below.

  • 4. Determination of the respective rights and interest of the creditors, investor clients in the available assets available for distribution.

  • 5. Directions for the resolution of any proprietary claims against any available assets or any part or parts thereof by the creditors, investor clients or by any other parties.

  • 6. Directions as to the status and effect on the liquidation of the following orders made in Suit No. C.L.078/1995.

    Godfrey Kawass v. Universal Investment Bank Limited

    • (i) The Mareva injunction granted on the 7th December, 1995.

    • (ii) The judgment entered on the 29th December, 1995 in the sum of $34,398,747 with interest.

    • (iii) The Order for Sale of Lands made on the 5th February, 1996 in respect of 25 Hopefield Avenue, registered at Volume 1282 Folio 471 and premises known as Strata Lot numbered 27 registered at Volume 1285 Folio 569.

    • (iv) The Writ of Attachment issued against Eagle Commercial Bank Limited on the 26th March, 1996.

    • (v) The Writ of Attachment issued against Glen Abbey Limited on the 26th March, 1996.

  • 7. Directions for the distribution of any assets available for distribution after the expenses of liquidation and of this application.

  • 8. If so and so far as necessary, administration of any trusts affecting any available assets available for distribution.

  • 10. That the following questions be determined:-

    • (i) Whether the available assets are held on trust for the investors and unsecured creditors or any and (if so) what trusts;

    • (ii) Whether the available assets are held on trusts for the benefit of the general body of creditors of the applicant.

    • (iii) Whether the available assets are held on trust for any and (if so) what other person or persons, and on what terms.

  • 11. That there be direction for the realisation and distribution of the available assets in accordance with any trusts determined herein.

3

Mr. Henriques Q.C., on behalf of the first, second and third respondents in his submissions invited the court to consider the legal aspects of the relationship concerning the rights and interest of creditors and investor client. One of two situations can be concluded from such a consideration. It may be a relationship of banker and customer or that of a manager of clients' funds.

4

If a situation of banker and customer is concluded, the investors moneys would become the assets of the company and would be available to creditors in case of liquidation. In a situation of manager of clients' funds the moneys of those investors would not be assets of the company and would not be available to creditors upon a liquidation.

5

Mr. Henriques for the respondents whom he represents argues for the second situation. The 4th respondent supports the arguments advanced by Mr. Henriques Q.C.

6

The 5th respondent through Mr. Vassell contends that he is a creditor of the bank (in

7

The applicant operated a business of accepting funds from clients for investment. It had no licence to operate neither under the Banking Act nor under the Financial Institutions Act. It was therefore not an institution which took deposits. The relationship between the applicant and its clients was governed by an Investment Management Agreement.

8

How did the Investment Management Agreement affect the funds of the clients?

9

The respondents 1-4 say that the Investment Management Agreement made the applicant a trustee of the funds and was thereby charged with the obligation of investing the trust funds for the benefit of the investors.

10

They cite in support of their argument the cases of Barclays Bank Ltd. v. Quistclose Investments Ltd. [1968] 3 W.L.R. 1097 and Carreras Rothmans Ltd. v. Freeman Matthews Treasure Ltd. (in Liquidation) 1 All E.R. 155. In the Barclays case, a loan was made to a company for the specific purpose of paying dividends. The loan was paid into a special account in the bank which had full knowledge as to the purpose of the loan. Before the purpose of the loan was effected the company went into voluntary liquidation. The bank and the debtor company were sued by the lender who claimed that the amount loaned was held on trust for the purpose of paying dividends. That trust having failed, the funds were held on a resulting trust on behalf of the lender.

11

The lender's claim was upheld in the House of Lords.

12

The Carreras case, although factually different from the Barclay's case, was decided on the principle that the money being held for a specific purpose it was held on trust and not for the defendant beneficially.

13

Each of the clients, those who placed money with the applicant simply said to the applicant here is my money to be invested according to the Investment Management Agreement.

14

I find that the investment of the...

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