The risk that the Engineer might opine that road works were necessary as required under 5.1 when in fact this was not the case also seems to me to be inherent in the terms of the agreement, and not to be a problem created by the V-C's order.

On a (vaguely) connected point, the Charity Commission has just issued a report on the misappropriation of charity funds, available on-line at:

http://www.charity-commission.gov.uk/investigations/inquiryreports/misap.asp

Various points of interest emerge: where a charity officer nicks charity money the Commissioners expect the charity trustees to inform the police, and also to recover the money by whatever means possible (e.g. action against thief, claim under fidelity policy, claim against bank to recredit account if it has paid out on forged cheques, etc). If the trustees fail to do the necessary, then the Commissioners will use their powers under s 18 of the Charity Act 1993 to make them do so or to replace them. Where restitution is possible from a solvent thief, compound interest should be recovered on top of the capital sum taken.

Charles

Date: Thu, 26 Feb 2004 11:54:18 +0000
Sender: Enrichment - Restitution & Unjust Enrichment Legal Issues
From: Oliver Radley-gardner
Subject: [RDG:]

This might be of interest to Quistclose fans:

Patel and others are trustees of a Hindu Charity, who had acquired a plot of land ("the new site") for the construction of a temple. They eventually built on their old site. They intended to sell the new site with planning permission. Such planning permission was granted by Brent, conditional upon entering into a section 106 agreement. This involved money (550 K) being paid into a fund which was to be used for road improvements ("the road works"). The money was conceded by Brent to be held on trust, and found by the Vice Chancellor to be a Quistclose Trust (paras 25 - 28). Amongst other terms, the agreement required

(1) That the money paid by the Charity be kept in a segregated, interest-bearing bank account;

(2) That the money was to be spent on road works, with any excess to be returned to the Charity

In fact, no account (as required by (1)) was ever set up. Instead, the Council speculated with the money on overnight money markets, along with its other accounts, and the Council turned a 300K profit. Only later, and without the knowledge of the Charity, did they restore the 550K, and the interest which would have been earned on that amount, being roughly 160K. The Council said they therefore only owed the "net" profit, being 140K. The Charity argued that this did not sufficiently observe the principle that a trustee must not profit from his own wrong, and that the full 300K had to be disgorged. The Charity argued that the 160K should not be viewed as being disgorged by being paid into the section 106 account. That money was still available to the Council under the terms of the agreement to defray the costs of the traffic works, and accordingly they were still "profiting" in this sense - particularly because there was an incentive to spend the whole fund rather than return the surplus, so that there was a risk of unnecessary road works being carried out.

The Vice-Chancellor found that the correct approach was to apportion the secret profit between the "purpose" under the Quistclose trust on the one hand and the Charity as the residual beneficiary on the other. This meant that the 160K went into the section 106 account, and the balance of the profits, 140 K, passing to the Charity. The V-C found that this did not involve the Council profiting from their wrong, as the 160K was available to them not due to a wrong, but under an agreement.

I think this is one of the first cases where a Quistclose trustee has turned a secret profit. I can see the practical logic of what the V-C says, but the outcome still rankles a bit, in particular there seems to be something to be said for the Charity's argument that, on the facts, there is still a chance of a profit on the part of Brent. Is that too puritanical?