Restitution Discussion Group Archives
| Sender: |
Eoin O'Dell |
| Date: |
Wed, 25 Jul 2001 08:31:21 +0100 |
| Re: |
Restitution from an insolvent fiduciary stockbroker |
Hello all
The collapse of the Irish stockbrokers Money Markets
International continues to generate interesting caselaw. In the most recent
instalment in the saga, In
re Money Markets International [2000] 3 IR 437 (HC), Laffoy J referred
to it as "a winding up of unparalleled complications" ([2000] IR 437,
452). It's hardly on a par with Maxwell or BCCI, or even with PMPA (an
Irish combination of the last two) but it is very interesting. This instalment
concerns the principle that a fiduciary will be taken to have acted lawfully
applied in the statutory context of investment protection.
MMI was wound up 15 March 1999. Its clients were owed
at least £2.35m; there was only £1.2m or so in the client account made
up of a mixture of clients' funds lodged there and funds which MMI would
have been entitled to withdraw as commissions which it allowed to remain
lodged there.
S52 of the Stock Exchange Act, 1995 requires brokers
to lodge client funds to client accounts, and s52(5)(a) (as amended by
s78 of the Investor Compensation Act, 1998) provides that "[n]o liquidator
... shall have or obtain any recourse or right against a client's money
... until all proper claims of the client ... against the client's money ...
have been satisfied in full".
Laffoy J held that "... the effect of s52(5)(a) is to
ring-fence the funds in the client money bank account and preserve them
for the client creditors who provided them. It is only if there is a surplus
after the 'proper claims' of those creditors have been satisfied in full
that any question of a third party, such as the liquidator of the member
firm, having any recourse or right arises. Therefore, in theory as well
as in practice, so much of the client's funds as are required to satisfy
in full those clients' proper claims are trust funds and are held by the
member firm in a fiduciary capacity. Each client creditor has a right
in rem or a property claim against the client funds, and also a right
in personam or a money claim against the trustee who holds the funds.
... In this case, the funds of £1.2m is 'client's money' within the meaning
of s52(5)(a), notwithstanding that the evolution of the final credit balance
on the money bank account involved the lodgement [sic] of monies provided
by clients and the lodgement [sic] and retention of monies provided by
MMI - an admixture of funds. As regards such monies as were in the past
put up by MMI, whether being commissions which were not drawn down from[,]
or funds actually lodged to[,] the client money bank account, they became
and remained client funds because they were put up to meet the obligations
of MMI under the requirements and could not have been put up for any other
purpose. The entire fund of £1.2m is impressed with a trust in favour
of the client creditors of MMI and the plaintiff has and will have no
recourse or right against any part of that fund, save in the unlikely
eventuality that there is a surplus after satisfaction in full of all
proper claims of the client creditors." ([2000] 3 IR 437, 447-448; see
also 454).
This holding seems to have has two justifications: first,
it is an application of the principle that a fiduciary must be taken to
acted consistently with fiduciary duties; and, second, the statutory consideration
that the "clear and unambiguous meaning of s52(5)(a) of the Act of 1995
is that the beneficial claims of client creditors have to be satisfied
in full before anybody else, even a contributor to the ultimate balance,
has a call on the funds" ([2000] 3 IR 437, 449-450). She left for another
day the question of these creditors' claims inter se, whether on the basis
of Clayton's Case, pari passu, or some other basis (see [2000] 3 IR 437,
452) though in an earlier phase of the litigation she had cast significant
doubt on Clayton's case.
Eoin.
PS If anyone is working on this area and would like a
copy of the case (which does not yet seem to be available electronically)
don't hesitate to ask.
EOIN O'DELL BCL(NUI) BCL(Oxon)
Editor, Dublin University Law Journal.
Barrister, Lecturer in Law, Trinity College, Dublin 2, Ireland.
(353/0 1) 608 1178 (w) 677 0449 (fx); (353/0 86) 286 0739 (m)
(All opinions are personal. No legal responsibility whatsoever is accepted.)
http://www.jokes.com/detail.asp?cat=-1&id=5915&sql=1
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