Neutral Citation Number: [2015] EWCA Civ 59
Case No: A3/2013/1011
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
Mr Justice Hildyard
HC10C03729
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 05/02/2015
Before :

LORD JUSTICE MOORE-BICK, 
VICE PRESIDENT OF THE COURT OF APPEAL, CIVIL DIVISION
LORD JUSTICE UNDERHILL
and
LORD JUSTICE BRIGGS
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Between :

	BELLIS & ors	Appellant	
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	CHALLINOR & ors	Respondent	

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IAN CROXFORD QC and CLARE STANLEY 
(instructed by CLYDE & CO LLP) for the APPELLANTS
ANDREW SUTCLIFFE QC and ADAM KRAMER 
(instructed by HEWLETT SWANSON LLP) for the RESPONDENTS

Hearing dates : Tuesday 16th – Thursday 18th December 2014
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Judgment
Lord Justice Briggs : 
Introduction
1.	In late August and early September 2007, the Appellant solicitors’ firm Juliet Bellis & Co (“the Firm”) received into its client account payments from the Respondents, a group of 21 intending investors in a property investment scheme relating to land at and around an airport in Surrey known as Fairoaks.  The aggregate amount paid by the Respondents to the Firm was £2.28 million.  The amount paid by each investor ranged between £30,000 and £250,000.
2.	The bulk of that sum was shortly thereafter paid out by the Firm in two tranches to Royal Bank of Scotland, in reduction of short-term borrowing (“the RBS equity bridge”) of some £7 million incurred by a client of the Firm, Albemarle Fairoaks Limited (“AFL”), a single purpose Guernsey company which had been acquired off the shelf as the vehicle for the Fairoaks scheme, and which had acquired the airport land before the payments were made.  Much later, a further amount was transferred from its client account to its office account in settlement of a liability of AFL to the Firm for professional fees.
3.	The Fairoaks scheme did not prosper, and AFL was eventually placed in insolvent administration in 2010.  Although some of the Respondent investors lodged claims against AFL as creditors, there was, and remains, little prospect of any significant distribution on account of those claims.  
4.	In November 2010, the Respondents commenced proceedings (as co-claimants in a single claim) seeking to recover their losses in full from the Firm on the main basis that the Firm had paid the £2.28 million out of its client account to or for the benefit of AFL in breach of what was described as an escrow agreement that it should be held by the Firm pending satisfaction of conditions which were in the event never satisfied.  Alternatively (and partly by amendment), the Respondents claimed that the Firm received the £2.28 million upon trust for them, and disbursed it in breach of that trust.  Finally, the Respondents made a claim in restitution upon the alternative bases of payment by mistake and total failure of consideration.
5.	There were claims (under Part 20) by the Firm and, at a late stage, by the Respondents themselves, against an intermediary who played a central role in the Fairoaks scheme, a Mr. Geoffrey Egan.  The Respondents’ claims against him arose only in the event that they were unsuccessful against the Firm.  I need say nothing about the Firm’s claims against him, since they were dismissed, and no claim by anyone against Mr. Egan has been pursued by way of appeal.  
6.	After a 20 day trial, ending on 18th June 2012, and the handing down of a detailed reserved judgment running to 167 pages on 25th February 2013, Hildyard J gave judgment for the Respondents on their claim against the Firm, for the full amount of £2.28 million plus interest at 3% over base.  He rejected the Respondents’ claim that a contractual escrow had been agreed with the Firm.  The trust claim had been argued in three forms: first, a Barclays v Quistclose trust; secondly, an implied resulting trust analogous to a Barclays v Quistclose trust; and thirdly, a resulting trust arising from the fact that the Firm had received the Respondents’ money without authority from AFL.  The judge rejected the first but held in favour of the second and alternatively third bases for the existence of the trust.  
7.	Having regard to his findings in favour of the Respondents on their trust claims, the judge made no finding about restitution but indicated, had he been against the Respondents on their trust claims, that he probably would have upheld a restitutionary claim in the alternative.
8.	By this appeal the Firm challenges the judge’s conclusions on the trust claim.  By a Respondents’ notice the Respondents seek, if necessary, a judgment in their favour on their restitutionary claim.  No attempt has been made by the Respondents to challenge the judge’s rejection of the escrow claim.  

The issues
9.	This appeal raises one central issue, and a variety of subsidiary issues which arise only if the central issue is determined in a particular way.  The central issue is whether the Respondents advanced the money which they each paid to the Firm on trust for themselves pending the satisfaction of ill-defined conditions to which the judge gave the label “safety”, or whether the Respondents each made an immediate loan to AFL by paying the money, with no strings attached, to the Firm as AFL’s agents.  Since, as is common ground (on this appeal at least), none of the Respondents set out the basis upon which they were paying their money to the Firm, either orally or in writing, the answer to that question depends upon an intense focus upon the terms of the invitation to which they responded by making those payments, set in its proper context, which consists mainly of their participation in previous Albemarle investment schemes.
10.	If the judge was right in his answer to that question, then the second question is whether, as he found, the Firm knew (again, in the relevant sense) that the money which it received was trust money, before it disbursed it for AFL’s benefit.  This issue depends, of course, upon an intense focus upon the conduct of the Firm in relation to the Fairoaks scheme, and in particular the conduct of Mrs. Bellis, the proprietor of the Firm, who acted in all relevant respects on its behalf.  But if the judge was wrong in his answer to the first question, this issue does not arise at all. 
11.	The remaining issues arise only if the judge’s answers to the first and/or second questions were wrong.  The third question is whether the Firm had AFL’s authority to receive and disburse the Respondents’ money and, if they did not, whether the consequence was that the money was held by the Firm upon a resulting trust for the Respondents.  That general question raises a number of issues of mixed fact and law, and in particular the question, unresolved thus far in this court, whether the “own act” principle (by which 100% of the members of a solvent company may commit the company to an intra-vires decision without going though the requisite constitutional formalities) applies to something done by the single beneficial owner of the whole of the company’s shares.
12.	The final issue, which arises (as the judge himself recognised) only if his answers to the foregoing issues were wrong, is whether the Respondents had a restitutionary claim against the Firm in respect of the unjust enrichment constituted by its receipt of their money.  That question depends in part on the correct answer to the authority issue, but involves (if necessary) an analysis of the following additional questions.  The first is whether there was a relevant mistake, or total failure of consideration for the advance of the money.  The second is whether payments into a solicitors’ client account (which are inevitably held upon trust for someone) unjustly enriched the Firm.  The third is whether, on a detailed analysis of the Firm’s conduct, its payment of the Respondents’ money to or for the benefit of AFL constituted a change of position in good faith.

Summary of conclusions
13.	It may make this judgment more easily intelligible if I summarise my conclusions at the outset.  They are as follows:
(a)	The judge was, in my view, wrong to find that the Respondent investors paid the money to the Firm upon trust for themselves, pending fulfilment of the safety condition.  On the contrary, an objective review of the relevant primary facts leads me to the conclusion that they paid the money to AFL’s solicitors as immediate loans to AFL.
(b)	On that analysis, the issue whether the Firm knew of the alleged trust does not arise.
(c)	Again, contrary to the judge’s conclusion, I consider that regardless whether the Firm had AFL’s authority to receive the money on its behalf, the Firm nonetheless held it on trust solely for AFL and not on resulting trust for the Respondents.  Whether the Firm had AFL’s authority to disburse the money for AFL’s benefit in the way in which it did is also irrelevant to the legal consequences as between the Respondents and the Firm.  
(d)	Again, contrary to the judge’s provisional view, I consider that there can be no restitutionary claim by the Respondents against the Firm.  It was not unjustly enriched by receipt of the money into client account, on statutory trust for AFL. Regardless whether there was a relevant mistake or a total failure of consideration, the disbursement of the money by the Firm to or for the benefit of AFL was a sufficient change of position in good faith, vis a vis the Respondents, to bar any restitutionary claim.  It is in that context irrelevant whether the Firm acted in all respects with commercial probity in relation to their dealings with the money, vis a vis AFL. 
(e)	In the result, I consider that this appeal should be allowed.

The facts
14.	The judge set out the most comprehensive factual basis for his conclusions.  In the summary which follows I shall focus upon those of his findings of primary fact which I consider relevant for the determination of the issues which I have described.  Where convenient, I shall expand upon aspects of detailed fact when addressing the issues sequentially.  
15.	I make it clear that my analysis of the issues does not depend upon disagreeing with the judge about any of his findings of primary fact although, as will appear, I draw a different line between primary facts and matters of inference and deduction than did Mr. Andrew Sutcliffe QC for the Respondents, whose main submission was that this appeal was an illegitimate challenge to unassailable fact-finding by the judge.  Furthermore, the judge’s conclusion that the Respondents intended (in the relevant sense) to create a trust of the monies paid to the Firm in their favour was, in any event, a mixed question of fact and law, the outcome of which, in this case, depends to no significant extent upon the weight attributed by the judge to oral testimony, after cross-examination.

The contextual background
17.	Both the judge and Mr. Sutcliffe rightly emphasised that the context in which the Respondents were invited to, and did, make payments by way of investment in the Fairoaks scheme forms a vital part of the factual matrix against which the issue whether they created a trust in their favour falls to be addressed.  As will appear, the invitations to invest to which they responded were couched in terms which assumed a general understanding of the essential structure of Albemarle schemes, of which the Fairoaks scheme was the last in a substantial series.  Every one of the Respondents had invested in one or more of those earlier schemes.  It was because they were Albemarle scheme investors that they were targeted with the invitation to make early investments in the Fairoaks scheme.  In fact, 15 out of the 21 Respondents had invested in the immediately preceding scheme, known (by the location of the underlying investment property) as Albemarle Shoreham.  All except one had invested either in Shoreham or in a slightly earlier scheme called Albemarle Croydon.  I am content to assume in the Respondents’ favour (although this was not, I think, specifically found as a fact by the judge) that all the Respondents had been invited to invest in Albemarle Shoreham, and were therefore sent application forms for investment in that scheme in the terms which I shall shortly describe.
18.	The essential features of the Albemarle schemes, prior to the Fairoaks scheme, may be summarised as follows:
(a)	They were unregulated collective investment schemes promoted, in every case, by Mr. Egan’s firm Egan Lawson, later re-named ECS after its takeover by the Erinaceous Group PLC (“Erinaceous”) in late 2006.  
(b)	All the schemes involved investment through a single purpose vehicle (“SPV”), being either a limited company or a limited liability partnership.  The underlying subject matter of each scheme consisted either of commercial or development property, or a mixture of both.  
(c)	The schemes sought to achieve tax advantages for the investors via a combination of loan and equity which the judge aptly described as:
“horse and carriage: put another way, they were intended to be stapled together or at least matched and coupled.”
The loans consisted usually of unsecured interest-free loans and therefore subordinated in priority to any secured bank lending.  The equity investment consisted of a share in the SPV proportionate to the amount of each investor’s loan, with loan and equity typically having the ratio 9,999:1.
(d)	The effect of the equity part of the investment was that the investors would control the SPV.  
(e)	The tax advantage was that investors’ return would consist, first, of the tax-free repayment of their loans in full (rather than dividends) and secondly, a distribution of the profit from the scheme at the end of its natural life, taxed as a capital gain, at rates usually lower than income tax.
19.	The manner in which investments were solicited and handled at the commencement of each scheme does not appear to have been wholly uniform.  For this purpose, the relevant contextual background is to be ascertained mainly from the Shoreham scheme, although reference to the Croydon scheme and an abortive scheme known as Albemarle Brighton is sufficient to demonstrate the lack of uniformity.
20.	Taking the Shoreham scheme first (although it was the last in time) the scheme was described to potential investors in an information memorandum, which was accompanied by an application form addressed to Albemarle (Shoreham) LLP c/o Juliet Bellis & Co.  The material terms of the application form were as follows:
“Dear Sirs
Subscription in Albemarle (Shoreham) LLP (“LLP”)
I wish to invest £        in the LLP and confirm that I have arranged for this money to be sent to the client account of Juliet Bellis & Co.
[bank details then specified for the Firm’s client account]
to arrive no later than 28 February 2007.
…
I understand and agree as follows.
1.	Funding from investors under the proposal contained in the information memorandum with which this application letter was sent to me (the “Information Memorandum”) is to be applied in subscription for Units in the proportions of 1 Unit of £1 for every £9,999 of Member’s Loan, subject to compliance with the conditions set out below. The number of Units issued will be rounded to the nearest whole number and the balance of my investment will be by way of subscription of loan notes.
Pending the satisfaction of the first condition set out below I understand that such sums will be held by Juliet Bellis & Co. on the escrow terms attached to this letter. The second condition set out below is a condition subsequent to the release of the money and I understand that if it is not satisfied within the time scale set out in it I will be entitled to return of the money. However, for the avoidance of doubt, my rights in respect thereof will be against the LLP and Juliet Bellis & Co., as escrow agent shall not be liable to me in respect thereof other than as is expressly set out in the escrow terms.
2.	I will take Units subject to the Membership Agreement from time to time and the loan notes subject to the relative Loan Note Instrument and the risk factors and other matters set out in the Information Memorandum.
3.	[English law and jurisdiction clause]
4.	If the aggregate value of applications received from all intending investors exceeds the required amount, my application may be reduced pro rata.
…
The conditions referred to above are as follows:
1.	That the aggregate amount received from all investors who have received a copy of the Information Memorandum when aggregated with the subscription for Units by Egan Lawson, and the unit trust investment, is not less than £9,000,000.
[Space for signature and address of investor]”
21.	The attached escrow terms contained the following material provisions:
“These terms apply to all sums paid to Juliet Bellis & Co. as escrow agents unless otherwise agreed by a partner of Juliet Bellis & Co. in writing (the “Escrow Sums”).
The Escrow Sums are to be held by Juliet Bellis & Co. pursuant to the terms of an offer for shares and loan notes in Albemarle (Shoreham) LLP to which these terms are scheduled (“the Offer”). Juliet Bellis & Co. will hold the Escrow Sums in their client account with their bankers.
The Escrow Sums will continue to belong to the payer unless and until released to Albemarle (Shoreham) LLP on issue of Offer Shares as provided for in the Offer. The Escrow Sums will not be returned to the payer or transferred to the payer unless and until the Offer lapses without Offer Shares having been issued as provided for in the Offer. Juliet Bellis & Co. will be entitled to retain any interest accruing on the Escrow Sums. …
[various liability exclusions]
Juliet Bellis & Co. will have no obligations except as expressly set out in these terms and are not responsible for any sums which are not effectively transmitted to them, notwithstanding any prior notification of intended transmission, nor for any delay or failure in the transmission of any sums by their bankers once when they have given instructions in correct form to those bankers to do so.
…”
22.	It was common ground that the reference in the application form to the “second condition” was a drafting error, since no second condition was in fact included or imposed.  Apart from that, the effect of the application form with its attached escrow terms was plainly to give rise to a trust of monies paid by investors for those investors pending satisfaction of the first condition, but they clearly disclaimed any other or wider duty of Juliet Bellis & Co. to act in the interests of, or as solicitors for, the investors.  The Firm was plainly identified as solicitors to the SPV, namely Albemarle (Shoreham) LLP.
23.	Most of the investors in the Shoreham scheme paid their money pursuant to application forms and escrow terms as I have described.  Nonetheless a small inner core of investors responded to informal invitations to invest, earlier than the sending out of any information memorandum or application form, and their payments were used to pay down existing borrowing by the LLP prior to the sending out of any investment memorandum or application form.  Nonetheless those early informal investments were later, retrospectively, made the subject of application forms so as to give rise to the allocation of equity and loan notes in respect of them.
24.	The Croydon scheme concerned the sale to the SPV and leaseback of the headquarters building of Erinaceous.  In that case the Firm acted for Erinaceous and Boodle Hatfield for the SPV, through its partner Helen Streeton.  Monies were paid by investors to Boodle Hatfield on similar escrow terms to those used in relation to Shoreham, although the judge recorded that part of those monies were disbursed prior to the formal satisfaction of the escrow condition, namely the issue and certification of Units for the investors.  Nonetheless he found that investor control of the SPV had by then, at least informally, been secured for the investors.  
25.	The Brighton scheme can be more briefly described.  It never reached the stage of an information memorandum or application form.  Mr. Egan emailed an inner circle of  investors to provide “some initial Capital to push the project forward”.  No escrow account or escrow terms were provided.  The money was paid to an account at Coutts in the name of the relevant SPV and, when the scheme did not proceed, was returned to the investors.  So far as I can ascertain, the Firm was not involved in the Brighton scheme in any way that was visible to the investors in it.  

Erinaceous, Mrs. Bellis and the Cummings
26.	The judge devoted considerable time and effort to a detailed description, as part of the background, of the takeover of Egan Lawson by Erinaceous, the interests therein of Mrs. Bellis, her brother Mr. Cummings, her sister Ms. Cummings and her husband, and the status of the Firm as Erinaceous’s solicitors, from which the Firm derived, in a typical year, some 70% of its fee income.  He did so in order to explain his later conclusion that Mrs. Bellis had abdicated her responsibility to the Respondent investors in the single-minded pursuit of the interests of her family and Erinaceous (and another family-owned company, Longmint, which had an interest in the Fairoaks development) over those of the investors or even AFL.  Those findings enabled him to ascribe a motive for her apparent breach of trust in favour of the Respondents by disbursement of their monies in her Firm’s client account, of which trusts he found that she was aware, and in order to explain his conclusion that those disbursements did not constitute a change of position by the Firm in good faith, for the purposes of a defence to a claim in restitution. 
27.	It is unnecessary for me to describe or even summarise those parts of the background in any detail, since I have concluded, for reasons entirely unconnected with the conduct of Mrs. Bellis, that the Respondents created no trust of their payments to her Firm’s client account, of which she would have been in breach.  I have also concluded that she owed no other duties or responsibilities to the Respondents which she could have abdicated.  It is common ground that the Firm were retained as AFL’s solicitors in connection with the Fairoaks scheme.  Her brother, Mr. Cummings, was at (almost) all material times the beneficial owner of the shares in AFL, albeit that this was not what anyone had intended should endure, if the Fairoaks scheme had been fully funded and control in AFL accordingly conferred upon its investors.
28.	Nonetheless I shall proceed on the assumption that Mrs. Bellis was indeed motivated by her perception of the best interests of her family, of Erinaceous and Longmint and that, to the extent that there was any conflict between those interests and the interests of AFL, she acted so as to prefer the former. 
29.	It is not at all clear from the judgment how far the Respondents were aware of that aspect of the background.  Erinaceous was, during 2007, becoming mired in a financial crisis which in due course led to its insolvent demise in April 2008.  It is clear that some of the Respondents were aware of adverse publicity about Erinaceous’s financial position during the latter part of 2007, and it was plain to all of them that Mr. Egan’s firm had by then been taken over by Erinaceous.

The Fairoaks scheme
30.	Like the Croydon scheme, the Fairoaks scheme involved a property purchase from Erinaceous.  The land to be acquired by the SPV comprised most but not all of a larger parcel, including the Fairoaks airport, which Erinaceous had agreed to buy.  Both Erinaceous’ purchase of the whole, and AFL’s sub-purchase of its part, were completed on 26th July 2007.  Thus AFL had acquired and paid in full the £44 million purchase price for the property the subject of the scheme before any attempt was made to raise funding from private investors.  The purchase was at that stage funded by secured lending by RBS, by an unsecured loan of £15 million from Erinaceous, and by the RBS equity bridge, which was a short-term bridging loan of £7 million, repayable in two instalments on 26th October 2007 and 26th January 2008.
31.	The fact that the SPV (here AFL) had already completed the acquisition of the scheme property was a factor distancing the Fairoaks scheme from the majority (though not all) of the previous Albemarle schemes.  Further, the fact that the amount to be raised from private investors (sufficient to pay the RBS equity bridge and the Erinaceous loan) was £22 million made this much the biggest funding exercise undertaken by Mr. Egan in relation to any of the Albemarle schemes. 
32.	An important pending tax change led to various other significant differences between the Fairoaks scheme and any of its predecessors.  In April 2007 (when the Fairoaks scheme was already in contemplation), Mr. Egan’s company was advised by Boodle Hatfield that proposed changes to Stamp Duty Land Tax (“SDLT”) in the 2007 Finance Bill would render the current Albemarle structure seriously tax-inefficient, because of a probable second charge to SDLT (separate from the SPV’s purchase of the land) when the investors acquired equity in the SPV.  Accordingly, Mr. Egan and his associates (including Mrs. Bellis) set about devising an alternative structure whereby:
(a)	An offshore company would be used as the SPV, and
(b)	The investors would acquire equity not in the SPV itself, but in an offshore unit trust which would be set up to acquire the SPV. It was also envisaged that, in due course, the same unit trust could be interposed between the investors and the Shoreham SPV, so as to create what the judge described as “some sort of umbrella/super-fund” which could own more than one Albemarle scheme.
33.	As the judge noted, this alternative cross-border structure was untested and complicated by comparison with the existing Albemarle model, and would take time to develop and establish.  In the meantime the commercial momentum behind the acquisition by Erinaceous of the airport land was gathering pace, such that it could not await the perfection of that new structure.  The result was that the promoters (essentially Erinaceous but for practical purposes Mr. Egan and his colleagues, including Mrs. Bellis) decided to press ahead with the acquisition of a suitable Guernsey company as the SPV in time for completion, while leaving over the perfection of the Albemarle structure, and in particular the formation of the unit trust, until a later date.  
34.	Practical steps to establish that structure began in earnest at the beginning of July 2007, when it was envisaged that the completion of the structure by the setting up of the unit trust would be likely to take about two months.  Furthermore, the structure then envisaged would, for the first time in the history of the Albemarle schemes, fall within FSA regulatory requirements, adding an additional layer of complexity.  In addition, the raising of money would require Control of Borrowing Order consent (COBO consent) from the Guernsey Financial Services Commission.
35.	Matters moved into top gear on Friday 13th July, by which time it had been recognised that it would take too long to incorporate a new Guernsey company from scratch.  On that day, AFL (then called Shelco Twenty Two Limited) was acquired off the shelf from the Guernsey lawyers Ozannes.  Its nominee shareholders (holding on bare trust for Ozannes) were First Ovalap Limited and Second Ovalap Limited (“the Ovalaps”), and it was decided by Erinaceous that Mr. Cummings should become the beneficial owner of those shares, pending the setting up of a unit trust designed in due course to confer indirect ownership and control of AFL upon investors under an Albemarle scheme.  Corporate administration services (including nominee directors) were to be provided by Legis Trust & Corporate Administration Limited (“Legis”).
36.	On 13th July Ozannes submitted a formal notification of change of beneficial ownership in the shares of AFL to the Guernsey authorities, identifying Mr. Cummings as beneficial owner.  This consent was provided on the same day by the States of Guernsey Policy Council under the Control of Borrowing (Bailiwick of Guernsey) Ordinances 1959-1989, and certification of non-objection to the change in beneficial ownership was provided by HM Procureur on 17th July.
37.	On 19th July the Ovalaps each made identical declarations of trust in relation to their single shares in AFL whereby each acknowledged and declared that it held its share for Mr. Cummings.
38.	Like Ozannes, both Mrs. Bellis for the Firm and Mr. Cummings himself regarded him as having become the beneficial owner of the shares on 13th July, since on that day she prepared, and he signed, a detailed engagement letter setting out the basis upon which the Firm was to act for AFL in connection with the Fairoaks airport transaction (“the Engagement Letter”).  This letter set out the conveyancing work which the Firm undertook to conduct in connection with AFL’s acquisition of its part of the airport land, including searches, enquiries, reporting on title both to the company and to RBS, and the drafting of all relevant documents.
39.	The Engagement Letter referred to the fact that recent SDLT changes had necessitated a departure from the use of an LLP as the vehicle for an Albemarle scheme, and continued:
“I understand that Geoff (Mr. Egan) is taking his own advice as to the structure which will be adopted for the fundraising but that, until that structure is in place, investors will be making loans to Shelco Twenty Two Limited in order, first of all, to repay the equity bridge of £7m and secondly to repay the loan which will be made by Erinaceous Group PLC of the balance needed to complete (likely to be £15m). This firm is not instructed in any taxation or other aspects which arise from the implementation of any future structure although I will be happy to give practical assistance as specifically requested.
… This firm does not have the expertise to advise on the structure which should be adopted in future as a vehicle for investors. As indicated above, Geoff is taking his own advice on this (initially from Ric Berman) and I understand that Lucy (Cummings) is also assisting in liaising with Ozannes in Guernsey. Following my discussion with Geoff and Michael (Pearson), however, I can confirm that I am agreeable to receiving the monies from investors upon the basis that these monies are remitted either by way of loan to Shelco Twenty Two Limited or as an investment in whatever structure is put in place for the project and that these monies will be immediately utilised to repay monies owed to the Royal Bank of Scotland. I can supply a standard form of loan note if that would assist but I must emphasise that any such document will need to be approved by Ozannes in Guernsey as the legal requirements in Guernsey may be different. If any other documentation is required (for example, a unit in a fund) then this will have to come from Ozannes as it is outside the scope of my firm’s expertise. You, Geoff and Lucy will also be responsible for ensuring that any regulatory requirements in Guernsey are complied with in conjunction with Ozannes and Legis, the company’s administrator.
I have already verified your identity. I understand that most of the initial investors are likely to be those who have also invested in Shoreham. I therefore already have proof of identity on file. If there are other investors who I do not know, then I will need proof of identity (a passport or similar together with an utility bill/bank statement showing an address). This firm is not authorised by the Financial Services Authority to carry out investment business. It is Geoff’s responsibility to ensure that any information memorandum which is sent out to investors is compliant with any regulatory requirement. I will, however, need to see a copy of any documentation which goes out to investors. So far, all that I have seen is a “Teaser” which was prepared at the end of last month.”
The Engagement Letter concluded by noting that the Firm’s costs were to be borne by Erinaceous and added to the amount of its loan to AFL.  
40.	Completion of the purchase by AFL of its part of the airport land occurred on 26th July.  The Firm acted as contemplated by the Engagement Letter in connection with the purchase and its financing, both from RBS and from Erinaceous, and the judge found that Legis, which provided AFL’s corporate directors, knew of and acquiesced in the Firm’s role as AFL’s solicitors. 
41.	Following completion, Mr. Egan immediately set about preparing for what, in communications between him and Ms. Cummings (also employed by Erinaceous), was called “early round fundraising”.  By this, they plainly envisaged the raising of money from a first round of investors by way of immediate loan to AFL, and the use of that money to repay (at least) the RBS equity bridge, before the setting up of the unit trust structure, and on terms that, as a quid pro quo for these early loans, investors would receive interest, and be given loan notes from AFL.
42.	The first communication to potential investors in relation to Fairoaks took the form of an email sent by Mr. Egan on 8th August 2007 to potential investors, including all the Respondents (“the Teaser email”).  The Teaser itself, sent as an attachment to the email, consisted of a brief description of the development opportunity represented by the Fairoaks Airport land, together with photographs, Excel spreadsheets and a development appraisal, running to some twenty pages, and identifying a projected Internal Rate of Return of a conservative 14.6% and 19.9% for different parts of the land with a possible maximum IRR for the whole of 33.99%.  
43.	Nothing turns on the detailed contents of the Teaser, but the email to which it was attached is, in my view, one of the two most important documents in the case.  It provided as follows:
“ALBEMARLE FAIROAKS
We have just completed the purchase of Fairoaks Airport and the income producing element 160,000 sq. ft. on 16 acres plus 20 acres of development land has been transferred into Albemarle Fairoaks and we are now aiming to raise the equity, it has been banked by RBS.
I attach a brief summary of the transaction and figures from which you can see that the IRR projections are 15-32% depending on how much pre-let development we undertake over the next 5 years. The property has been acquired in a Guernsey Limited Company and we intend to create Guernsey Close Ended Fund above it controlled by the investors. This will enable:
1)	SIPP investors to invest in Fairoaks
2)	Fairoaks to be merged is due course with Abermarle Shoreham
3)	Ultimately  a listing in the Guernsey or maybe Irish Stock Exchange which will give liquidity to the investments and Inheritance Tax and Capital Gains Tax advantages
Prior to formal fund raising in September, I am keen to offer the opportunity to invest straight away to some of our regular investors as Shoreham was oversubscribed.
If it is possible to transfer money in the next week, I can immediately issue loan notes and ensure that a paid return of 1% above base rate can commence immediately. If you let me know how much to earmark for you, I will send you the bank details.
Kind regards
Geoff Egan FRICS
Director
Albemarle Investment Syndicates”
44.	It was not proved to the judge’s satisfaction that Mrs. Bellis was shown the Teaser email or its contents, either before or after it was sent, although she had seen an earlier draft of the Teaser itself.  The judge understandably regarded this as surprising, not least because Mrs. Bellis had in the Engagement Letter asked to be shown any such documentation sent to investors.  But his conclusion that she was not shown it was not challenged by either side on this appeal.
45.	Each of the Respondents responded to Mr. Egan’s invitation in the last sentence of the Teaser email to let him know how much they wished to be earmarked for them, during the period between 8th and 20th August. At Mr. Egan’s request, Mrs. Bellis prepared a draft loan note for his use in collecting early round fundraising.  On 20th August Mr. Egan sent an email (identical save for the amount which each Respondent wished to invest) to each of the Respondents , in the following terms:
“Dear [respondent]
Thank you for your interest in investing £[amount specified] in Albemarle Fairoaks.
Could you now forward the money to Juliet Bellis – I have attached the relevant Bank Details.
I have also attached the loan note (with interest) which we will be issuing pending completion of the Unit Trust.
The remainder of the terms of transaction will be fairly similar to Shoreham LLP.
Please do not hesitate to contact me if you have any queries
Kind regards
Geoff Egan
Director
Erinaceous Investment (Egan Lawson)”
The email (“the Loan Note email”) attached a note of the Firm’s client account bank details together with a form of loan note certificate (“the draft Loan Note”).  It was entitled “Albemarle Fairoaks Limited 1% Above Base Unsecured Redeemable Loan Notes 2007”.  The loan notes were to accrue interest at 1% above base, and to be repayable on the later of one year from the date of issue or when the senior debt should have been repaid in full.  The certificate was in blank as to the date of the requisite board meeting of AFL, as to the name of the holders, the amount of the note, the number of the certificate and as to execution.  The scheduled terms identified the senior debt as being held by RBS pursuant to a loan agreement of 26th July 2007.  The interest was to be payable quarterly in arrears (although this remained in square brackets in the draft, with a question mark attached).  The notes were to be redeemable by AFL on 20 days’ notice.  As will appear, I regard the Loan Note email as the second of the two most important documents in the case.  The judge labelled the Teaser email and the Loan Note email as “the offering documents” and I shall do likewise.
46.	Again, the judge was not satisfied that Mrs. Bellis knew of the precise terms of the Loan Note email, but he found, and this is not challenged on appeal, that she knew, having drafted it, that a draft loan note substantially in the terms of her draft was likely to be sent to investors in connection with early round fundraising and that investors were likely to be asked to make payments for that purpose into the Firm’s client account.
47.	Beginning on about 21st August, the Respondents then individually (or, occasionally, in husband and wife pairs) remitted their investments to the Firm’s client account.  On some occasions the payment was accompanied by a sufficient written indication that it was made in connection with AFL.  On others the money was simply identified by the Firm as early round funding for AFL by the amounts and timings of payments received, there being no other substantial amounts coming into the Firm’s client account at that time.
48.	Pursuant to requests from Mr. Egan, and in accordance with the general tenor of the Engagement Letter, Mrs. Bellis then arranged for the bulk of the Respondents’ monies to be paid in two tranches to RBS, which used them to reduce the amounts owing by AFL under the RBS equity bridge.  
49.	The Firm’s receipts and payments of the Respondents’ money were in one respect otherwise than as contemplated by the Engagement Letter.  It noted that Guernsey regulatory requirements would need to be complied with in connection with fundraising from investors (for which the Firm did not assume responsibility) and that proof of identity would be needed for investors who had not also invested in Shoreham.  None of these steps (labelled during the proceedings KYC – know your customer – and COBO, already explained) appear to have been carried out at the time when the Respondents’ payments were received and disbursed.  
50.	Attempts to move these processes forward so as to enable loan notes to be issued in accordance with the draft,  the unit trust structure to be set up and all regulatory requirements satisfied, continued during the rest of 2007, but without success.  Furthermore, Mr. Egan got nowhere near raising the amount of private investment necessary to repay the RBS equity bridge, let alone the Erinaceous loan.  The judge’s summary of those events suggests that an important factor contributing to Mr. Egan’s difficulties was that a number of potential investors were reluctant to advance their money otherwise than in exchange for immediate equity investment via the unit trust.  In the meantime a warning from Erinaceous’s tax advisors that the government might be about to re-think its proposed reforms to SDLT caused further delay in the setting up of any equity structure.  
51.	The end result was that loan notes were never issued, no unit trust was ever set up, beneficial ownership of AFL never passed from Mr. Cummings to investors and, as progress towards any of those objectives stalled early in 2008, the Respondents began demanding a return of their money.  Despite requests (and unsurprisingly) RBS declined to assist, and AFL lacked resources of its own with which to do so.

Trust or Immediate Loan
52.	This is, in my view, the decisive issue in this appeal.  It is immediately decisive of the main way in which the Respondents succeeded before the judge, but it also has important consequences for their alternative cases based on lack of authority and unjust enrichment.  
53.	A remarkable feature of the case (viewed as one in which a Quistclose type of trust was found to have been established) is that, apart from the payment of money, there were no dealings of any kind between the Respondents as alleged settlors and the Firm as alleged trustee with regard to the subject matter of the trust.  Restrictions as to the use to which the money could be put were neither imposed by the Respondents nor proffered by the Firm.  In such a case it is, I think, important to identify and then apply the basic principles applicable to the creation of Quistclose-type trusts, rather than to treat the unusual facts as justification for engaging in some kind of equitable free-for-all.  In the summary which follows, I use the phrase “Quistclose-type trust” as a label not only for what the Judge called Quistclose trusts in the strict sense, but also to accommodate analogous trusts which share the same essential characteristics.
Quistclose-type trusts – the Basic Principles 
54.	Following the decision of the House of Lords in Barclays Bank v Quistclose Investments Limited [1970] AC 567, from which the Quistclose-type trust takes its name, its jurisprudential analysis remained rather uncertain for many years.  On the particular facts of the Quistclose case itself, Lord Wilberforce identified a primary purpose trust of the money (namely to use it for payment of a dividend), and a secondary trust for the transferor in the event that the primary purpose could not be carried out.  The difficulty with that analysis was that it left uncertain the ownership of the beneficial interest in the money during the period between its transfer and the failure of the primary purpose.
55.	Those difficulties of analysis were authoritatively resolved by Lord Millett in Twinsectra v Yardley [2002] 2 AC 164.  I say ‘authoritatively’ because, although he gave a dissenting speech, two of his colleagues (Lords Hutton and Steyn) agreed with his legal analysis of the question whether a trust was created, while Lord Hoffmann (with whom Lord Slynn agreed) reached the same essential conclusion in more abbreviated terms: see paragraphs 25 (Lord Hutton), 7 (Lord Steyn), 13 (Lord Hoffmann) and 2 (Lord Slynn).  The summary which follows therefore draws heavily upon Lord Millett’s compelling analysis.  I dwell upon those aspects of it which I regard as being central to the issues in this appeal.
56.	Quistclose-type trusts are a species of resulting trust which arise where property (usually money) is transferred on terms which do not leave it at the free disposal of the transferee.  That restriction upon its use is usually created by an arrangement that the money should be used exclusively for a stated purpose or purposes: see Twinsectra at paragraph 74.  
57.	There must be an intention to create a trust on the part of the transferor.  This is an objective question.  It means that the transferor must have intended to enter into arrangements which, viewed objectively, have the effect in law of creating a trust: see Twinsectra at paragraph 71.
58.	In this respect, Quistclose-type trusts are no different from any other trusts.  In particular, they are not presumed to exist unless a contrary intention be proved, as in the case of the traditional type of resulting trust where a person makes a gratuitous transfer of property to an apparent stranger.
59.	A person creates a trust by his words or conduct, not by his innermost thoughts.  His subjective intentions are, as Lord Millett said, irrelevant.  In the Twinsectra case, a Quistclose trust was established despite the transferor having no subjective intention to create a trust.  But the objectivity principle works both ways.  A person who does subjectively intend to create a trust may fail to do so if his words and conduct, viewed objectively, fall short of what is required.  As with the interpretation of contracts, this process of interpretation is often called the ascertainment of objective intention.  In the contractual context the court is looking for the objective common intention, whereas in the trust context the search is for the objective intention of the alleged settlor.
60.	Usually, the question whether the essential restrictions upon the transferee’s use of the property have been imposed (so as to create a trust) turns upon the true construction of the words used by the transferor.  But where, as in Twinsectra and indeed the present case, the transferor says or writes nothing but responds to an invitation to transfer the property on terms, then it is the true construction of the invitation which is likely to be decisive.
61.	In such cases the invitation usually comes from the transferee.  In Twinsectra it took the form of a solicitor’s written undertaking, the terms of which, as Lord Millett put it, were “crystal clear” in restricting the use of the money transferred for the specified purpose of the acquisition of property.  
62.	But I am content to assume, as the judge did in the present case, that the invitation may come from someone other than the transferee.  A may say to B:
“If you transfer money to C, it will be used solely for a specified purpose.”
The proper interpretation of B’s conduct in transferring money to C pursuant to that invitation is that he thereby created a Quistclose-type trust.  Whether C will be liable for breach of that trust by using the money for some other purpose will then depend on whether C knew of the terms of A’s invitation before disposing of the money.
63.	Where property is transferred on terms that do not leave it at the free disposal of the transferee then the Quistclose-type trust thereby established is one under which the beneficial interest in the property remains in the transferor unless and until the purposes for which it has been transferred have been fulfilled: see Twinsectra at paragraph 100.  That beneficial interest ceases to exist if and to the extent that the property is used for the stated purposes, but not otherwise.  The application of the property for the stated purpose is a power vested in the transferee, not (usually at least) a primary purpose trust.
64.	It follows from that analysis (as Mr. Sutcliffe was at pains to point out) that if the property cannot be applied for its stated purpose due to some lack of clarity in the identification of purpose, then the transferor’s beneficial interest continues in existence.  As Lord Millett put it, in Twinsectra at paragraph 101:
“Uncertainty works in favour of the lender, not the borrower…”
But Lord Millett did not mean thereby that uncertainty whether the property was to be at the free disposal of the transferee also worked in favour of the transferor.  In Twinsectra, the denial of any such freedom to the transferee was crystal clear.  Nor indeed was the power to dispose of the money within the confines of the transferee’s undertaking in Twinsectra uncertain in the relevant sense: see per Lord Hoffmann in paragraph 16.
65.	Finally, where it is not demonstrated that money apparently advanced by way of loan is not to be at the free disposal of the transferee, the ordinary consequence is that the money becomes the property of the transferee, who is free to apply it as he chooses, leaving the lender at risk of his insolvency: see Twinsectra at paragraph 68.  This is the true default position, in which the transfer of the legal title carries with it the beneficial interest.  Although Lord Millett speaks of the Quistclose-type trust as one under which the transferor “does not part with the entire beneficial interest in the money” (Twinsectra, paragraph 100), he was not, I am sure, intending thereby to depart from the following well-known dictum of Lord Browne-Wilkinson in Westdeutsche Landesbank v Islington Borough Council [1996] AC 669, at 706 E-F:
“A person solely entitled to the full beneficial ownership of money or property, both at law and in equity, does not enjoy an equitable interest in that property. The legal title carries with it all rights. Unless and until there is a separation of the legal and equitable estate, there is no separate equitable title. Therefore to talk about the bank “retaining” its equitable interest is meaningless. The only question is whether the circumstances under which the money was paid were such as, in equity, to impose a trust on the local authority. If so, an equitable interest arose for the first time under that trust.”
66.	We were referred by counsel to a number of other first-instance authorities in which Quistclose-type trusts had been recognised in circumstances said to be analogous to the present case.  They were Re Nanwa Goldmines Limited [1955] 1WLR 1080; Kingate Global Fund v Knightsbridge (19.11.09, Bermuda Court of Appeal); Bieber v Teathers Limited [2012] 2 BCLC 585, [2013] 1 BCLC 248 (CA) and Brown v InnovatorOne PLC [2012] EWHC 1321 (Comm).  For my part, I found that they added little to an understanding of the basic principles which I have summarised.  Each of them concerned the true construction of the detailed terms of the invitation to invest and, in every case (although the language of the earliest of them is of course different), the Court’s concern was to ascertain whether the money transferred was at the free disposal of the transferee.  

Analysis
67.	In the present case, the Respondent investors transferred their money to the Firm pursuant to written invitations to do so in common form, consisting of the two emails from Mr. Egan attaching respectively the Teaser  and the draft Loan Note, i.e. the offering documents.  Although some of the Respondents said there had been conversations with Mr. Egan about the Fairoaks project, none of them could recall in any sufficient detail what had been said, so that the judge had no alternative than to treat the offering documents as constituting all that was provable about the invitations which they had received.
68.	Similarly, although one Respondent had apparently recalled a conversation with Mrs. Bellis about the terms upon which she was to hold his money, the judge preferred Mrs. Bellis’ evidence that no such conversation had occurred.  The result was, again, that the judge proceeded on the basis that no relevant conversations or exchanges took place between any of the Respondents and the Firm in relation to the payments which they made in connection with the Fairoaks project (at least until after the relevant monies had been disbursed).  As I have said, the judge found that the Firm was not aware of the precise terms of the offering documents.
69.	The judge’s conclusion that the Firm had limited knowledge of the terms of the offering documents led him to treat them with some caution in his objective analysis of the intentions both of the Respondents and of the Firm.  This is because he carried out his analysis of objective intention mainly in relation to the question whether a contractual escrow relationship had been established between each of the Respondents and the Firm.  In that context, the search is for objective common intention and depends upon documents and aspects of the factual matrix known to both parties, rather than to one side alone.  The result was that he analysed objective intention first, without reference to the offering documents and second, taking them into account.  I rather think that, by the time he addressed the offering documents at the second stage of his analysis, his view that a trust for the investors was intended had already become unshakeable.  Furthermore his later analysis of the question whether a trust was created was powerfully influenced by his conclusions at the earlier contractual stage of his analysis.
70.	The demise of the contractual claim (not revived by Respondents’ Notice) makes it easier for this court to focus strictly on the question of objective intention in the trust context.  For that purpose, for the reasons which I have given, I consider it not merely legitimate but essential to address the issue as to the Respondents’ objective intention by reference to the offering documents, regardless what the Firm knew about them.  Since they constitute the whole of the invitation material to which the Respondents each responded by making their payments they must in my view lie at the heart of the analysis of what, if any, restrictions the Respondents sought to place, when paying the Firm, upon the use that could be made of their money.  The offering  documents need of course to be read in their context, which consists of each Respondent’s participation in one or more previous Albemarle schemes, but that context must be used as a tool for the proper interpretation of the invitations to which they responded, rather than as a means of subverting their meaning.
71.	On their face, the two emails read together (and with their attachments), seem to me clearly to invite the making of an investment by way of immediate loan to AFL, with no restrictions upon the use which AFL or the Firm can make of the loan monies.  It is plain from the Teaser email that investment contributions are being sought “straight away”, “prior to formal fundraising” and at a stage when the Guernsey Closed Ended Fund through which investors were ultimately to be enabled to control AFL had yet to be created.  Interest was offered so as to “commence immediately” and loan notes were promised to be issued “immediately” after money transfers by investors in the following week.
72.	By the same token, the Loan Note email again makes it clear that loan money is being requested immediately, with loan notes to be issued straightaway thereafter, and all prior to completion of the Unit Trust.  The attached draft Loan Note makes it crystal clear that the obligations arising from the payment of the money are to fall on AFL rather than the Firm, both as to repayment of principal and payment of interest.  The method of payment to the client account of the Firm is, on the face of the Loan Note email, not specified so as to give the investors some protection, or a continued beneficial interest, but simply as a means of enabling willing investors to make immediate transfers of loan money, pursuant to their wish to do so generated by the Teaser.
73.	The context in which those invitations to invest were received was that most of the Respondents had invested in Albemarle Shoreham (and I shall assume that all had been invited to invest in that project).  Some had invested or been invited to invest in projects which, unlike Albemarle Shoreham, did not offer an escrow arrangement for their investments pending the receipt of sufficient funding to enable the project to proceed, with the investors controlling the SPV.  But against that background of the clear and specific offer of escrow arrangements in some, or even most, previous Albemarle schemes, the invitation to make early investment in Fairoaks conspicuously lacked any such offer.  On the contrary, it was an invitation to make immediate investments by way of loan, ahead of formal fundraising. 
74.	Had I been considering this issue afresh, on the judge’s findings of primary fact, I would have said that it turned upon a relatively straightforward question of construction of the offering documents, which plainly did not invite investment of money on terms that it was not to be at the immediate free disposal of AFL, and that the background, consisting of the Respondents’ participation in other Albemarle schemes on very different terms, did not lead to a contrary conclusion.  A fortiori I would have concluded that no restriction was placed upon the Firm such as would prevent the immediate payment of the money to AFL, or for AFL’s benefit.
75.	It must however be acknowledged that the judge, after a much greater immersion in the detail of this matter than has been possible in three days in the Court of Appeal, came to the opposite conclusion.  Although he was analysing the same facts (so that his decision does not depend upon his privilege of having seen and heard the witnesses give evidence) his conclusion was nonetheless one of those multi-factorial exercises which command the respect of an appellate court, so that it is necessary to address his detailed reasoning in order to see whether it justifies a different conclusion than that which I have just set out.  
76.	The judge concluded that payments by each of the Respondents into the Firm’s client account in response to the offering documents, set against the background of their previous involvement in Albemarle schemes, connoted (paragraph 561 of the judgment):
(a)	that the monies paid by the Respondents into the Firm’s client account were not thereupon immediately to belong to or be subject to the directions of AFL;
(b)	that until the final agreement on the terms of any loan and the finalisation of KYC and regulatory consents the monies were to be retained in the Firm’s client account, at least
(c)	pending agreement, some future instruction by or on behalf of the Respondents, or the happening of a pre-stipulated event (the achievement of “safety”).
At paragraph 562 he concluded in addition that:
“It is to be inferred from the same circumstances that if, for whatever reason, the scheme failed, or no definitive agreement (whether or not documented) could be reached as to the terms of the loan, then the money should be remitted back to the payers, and not to AFL.”
77.	Adopting submissions from Mr. Sutcliffe for the Respondents at trial, the judge identified nine factors about the circumstances in which the Respondents’ payments had been made which led him to those conclusions.  They are (at paragraph 560) as follows:
“1)	the lack of any sensible explanation in all the circumstances for the requirement for payment into a client account other than (a) to prevent its being available to the ultimate intended recipient pending some further event or instructions and (b) to provide that in the meantime it is to be held under the control of a solicitor for the benefit of the payer;
(2) 	the marketed and obvious characterisation of the transaction as an Albermarle investment scheme with the basic characteristics common to such schemes, in none of which had the investors ever made unsecured loans without an immediate right to a matched equity investment element;
(3) 	the Claimants' familiarity with those basic characteristics, and their expectations accordingly that what they would obtain by subscribing money was a combination of a loan and 'equity' participation (albeit that the documents to evidence that right might follow after the application of the monies invested);
(4) 	the arrangements in Albermarle Shoreham, which took place only a few months before, and in which the Defendant Firm was both adviser and escrow agent, and where monies were required to be remitted to the same client account with the Defendant Firm acting as escrow agent on terms set out in a document attached to the Information Memorandum for that transaction and expressly agreed between the investor and the Albermarle Shoreham vehicle, Albermarle (Shoreham) LLP, as a term of the application form required to be subscribed; 
(5)	the inherent unlikelihood that the Claimants would ever have agreed to lend monies without any security, on terms that were not finalised, without control of the SPV (AFL) and so without any identified right to, or ability to require to be made available to them, some form of 'equity investment' in AFL or in a fund above it;
(6) 	the fact that at the time of the transfer of the Claimants' monies, Mrs Bellis knew that no formal and final documentation had been provided to them, still less agreed by them;
(7)	the fact that in this case (unlike what might be thought the more standard case) the monies to be remitted to the client account came from a number of persons;
(8) 	all giving rise to the inference that, at the very least pending the agreement of formal documentation and the completion of any steps necessary to ensure there was no impediment to its issue and signature, the monies transferred should be held to the order of the payers;
(9) 	the fact that, as a solicitor, and in light of her previous experience in respect of the Albermarle Shoreham transaction, Mrs Bellis could be expected to know, and did know, all the above and that (a) it was necessary for AFL's directors formally to approve borrowing in accordance with specified and formal documentation before accepting money from investors (and the concomitant repayment obligation to them) and (b) it was not permissible for her to accept and apply monies received from investors unless and until 'know your customer' and Consent to Borrowing ("COBO") and any other regulatory requirements in Guernsey had been completed.”
78.	Taking those in turn, it is evident both from paragraph 560 and elsewhere in the judgment that the judge regarded the invitation to the Respondents to make their payments into a solicitor’s client account as being of fundamental importance in support of their case.  He began by quoting the following dictum from Lord Hoffmann’s speech in the Twinsectra case, at paragraph 12:
“Money in a solicitor’s client account is held on trust. The only question is the terms of that trust.”
79.	To my mind, the fact that the Loan Note email requested interested investors to make payments into the Firm’s client account is, at best, neutral, if not positively adverse to the Respondents’ case.  Of course, money paid into a solicitors’ client account is held on trust, but where a party to a transaction pays money at the other party’s request to that other party’s solicitor, then the default position is, and has been for over a century, that payment to the solicitor is equivalent to payment to the solicitor’s client, so that the money is held on trust for the client: see Ellis v Goulton [1893] 1QB 350.  By ‘the default position’, I mean the position in the absence of any agreement or arrangement to the contrary.
80.	In the present case, the offering documents invited interested investors to make immediate payments by way of loan to AFL, in return for promised loan notes in which AFL acknowledged its immediate obligations as borrower, and to do so by making those payments into the Firm’s client account.  In my view the clear implication from those two emails, read together, is that the Firm was being identified by Mr. Egan as AFL’s agent for the receipt of loan monies, and AFL as the Firm’s client for that purpose.  The identification of a client account of the Firm (rather than, for example, an office account) is no more than an ordinary incident of an arrangement to pay a commercial counter-party through a solicitor agent.  
81.	I am, with respect, wholly unpersuaded by the notion that the only sensible explanation for the identification of the Firm’s client account as the receptacle for investments was that the money should be held to the investors’ order pending further events.  AFL was a recently formed Guernsey company which a reader of the emails and their attachments would understand had just made a major property acquisition in England and which might perfectly sensibly be understood to be using English solicitors for the handling of incoming payments designed to assist in the funding of the transaction.  For Mr. Egan to direct that investors’ payments should be made to those English solicitors called for no explanation at all. 
82.	The judge’s second, third and fourth factors may all be described as part of the Albemarle background.  As to point (2), it does not seem to me that the judge’s detailed findings of fact about the Croydon, Shoreham and Brighton schemes entirely bear out his observation that investors had never made unsecured loans without an immediate right to a matched equity investment element, although that matching was a general characteristic.  But the important point about the offering documents in relation to Fairoaks was precisely that investors wishing to invest early were indeed being invited to make unsecured loans ahead of the formation of the Unit Trust in which, in due course, they no doubt expected to receive equity, and through which they would, together with all other investors, eventually control AFL.
83.	I disagree with the judge’s third point for the same reason. Assuming the Respondents’ familiarity with the typical Albemarle linkage of loan and equity, the two emails plainly presented an opportunity to lend before obtaining equity, rather than at the same time, again because both emails emphasised that the equity vehicle had yet to be set up.
84.	As for point (4), it is true that the same client account of the Firm was used to hold monies upon an escrow agreement for the Shoreham investors, but this was pursuant to detailed written terms which formed part of the invitation pursuant to which they invested.  In sharp contrast, no such protection was offered to early round investors in the Fairoaks scheme.  It is, to my mind, the contrast between the offering documents in Shoreham and Fairoaks, rather than the similarities between the two schemes, which points to a conclusion that no restrictions upon the use of the investors’ monies were imposed in the latter scheme.
85.	Turning to point (5), the judge was evidently much impressed by the submission (backed by a number of the Respondents when giving oral evidence) that to lend at 1% over base on unsecured subordinated loan notes with no attached equity giving control of the SPV was so uncommercial that it could not have been what the investors objectively intended to do.  At paragraph 345 he said:
“It simply makes no commercial sense at all to be locked into a five-year unsecured, subordinated loan that could not be repaid before RBS was repaid in full, with an interest rate of 1% over base rate.”
86.	If the making of a loan in accordance with the terms of the draft Loan Note is viewed strictly on its own, it is, as the Judge said (and even Mrs. Bellis agreed in evidence), an unattractive investment.  So, viewed on their own, were the usually interest-free unsecured personal loans made as part of the typical Albemarle scheme.  In relation to Fairoaks, the investors were invited to assume that, once formal fundraising began and the equity vehicle had been established, they would in due course receive equity shares proportionate to their loans, as in other Albemarle schemes.  But in being invited to make loans on those terms ahead of the establishment of the equity vehicle, they were plainly taking the risk that it might never be set up.  The reward which the Teaser email offered for taking that risk was not merely the interest on the loan but also the opportunity to subscribe early, and thereby avoid the consequences of over-subscription about which warnings had been given in the application form for the Shoreham scheme.  
87.	As I see it, the real risk being taken by investors making early loans in response to Mr. Egan’s two emails was that the scheme might prove to be seriously undersubscribed, and then dissolved without them ever obtaining control through an equity share.  The fact that AFL might in due course prove to be insolvent was a risk which investors would take even if they did obtain proportionate equity shares and control of the Unit Trust.   It was a risk taken by investors in relation to all the Albemarle schemes.  The first two typical classes of victims of insolvency are equity investors and unsecured lenders, because they stand last in the queue for distribution.  Absent insolvency, the making of early loans followed by a failure of the scheme to be fully subscribed would lead to the investors being paid in full by AFL, albeit no doubt after a considerable delay, but compensated for that delay by interest.  
88.	The Judge did not assess the commerciality of making early loans to AFL in the way which I have described.  But the fact that in so doing the investors took the risk of the scheme not being fully subscribed is not a matter which, in my judgment, permits the offering documents to be interpreted as proffering something completely different from that which they describe.  
89.	Points (6) and (8) can be taken together, since they dwell on the absence of formal documentation at the time of the payment of the Respondents’ monies.  Again, they do not seem to me to be significant elements favouring a conclusion that no immediate loans were being invited.  There was nothing in the offering documents to suggest to potential investors that there were some potentially insuperable impediments to the issue and signature of loan notes in accordance with the draft Loan Note, and both Mr. Egan’s emails promised, without reservation, the immediate issue of loan notes to those investors who advanced money early in accordance with his invitation.  In lending against the draft Loan Note the Respondents were, in my judgment, plainly agreeing to make loans in accordance with the terms set out in the draft, regardless  whether they received formally issued loan notes thereafter, and AFL would have been bound by the terms of the draft as well, subject only to issues as to Mr. Egan’s authority, which were completely invisible to the investors.  
90.	I have been unable to understand why the judge’s point (7) supports his conclusion.  It seems to me to be entirely neutral.  
91.	Finally, the judge’s observations about Mrs. Bellis’s knowledge in point (9) are irrelevant to an analysis of the question whether by their words or conduct the Respondents imposed restrictions upon the use to be made of their monies sufficient to give rise to a Quistclose-type trust.  Furthermore, whatever Mrs. Bellis may have known about the requisite formalities within AFL and the requirement to obtain regulatory consent in Guernsey, all these were entirely unknown to the Respondents, and therefore irrelevant to an interpretation of terms upon which they made their payments.
92.	I have not therefore been persuaded by the judge’s reasons for treating the Respondents’ payments as made to the Firm on terms that they were not to be at the immediate disposal of its client AFL.  On the contrary, I consider that, on the judge’s findings of primary fact, the Respondents made their payments to the Firm as immediate loans to AFL, paying into the Firm’s client account at what they understood to be AFL’s direction, and therefore lending to AFL by payment to the Firm as its agent.  Subject to the agency issue, to which I shall shortly come, the Firm received those payments into its client account as trustee for AFL and committed no breach of any obligation owed to the Respondents when it disbursed them for AFL’s benefit.  

Issue 2: The Firm’s Knowledge 
93.	My conclusion that the Respondents did not by their conduct impose a Quistclose-type trust (or any trust) in relation to the payments which they made to the Firm means, if my Lords agree, that this issue does not arise.  Whatever may have been Mrs Bellis’s incomplete knowledge about the terms of the offering documents, and about the relevant background, the Firm cannot, by her, have known of the imposition of terms as to the use of their  money sufficient to create a  Quistclose-type trust when none were in fact imposed.
94.	The judge made serious findings about Mrs Bellis’s state of mind, including abdication of her responsibilities towards the Respondents while in a position of conflict between her duties to them and her, and her family’s interest in connection with the Fairoaks project scheme.  They were, much later in the judgment, relied upon by the judge in reaching his provisional conclusion that the Firm had no change of position defence to an alternative claim in restitution, on the ground that Mrs Bellis acted with a want of commercial probity.  I will therefore deal with those findings, to the extent necessary, when addressing the alternative restitution claim, pursued by Respondents’ Notice.  

Issue 3: Resulting Trust due to Lack of Authority
95.	The Respondents succeeded at trial on the alternative basis that, if there was no Quistclose-type trust, there was nonetheless an immediate resulting trust of the monies deposited by the Respondents in the Firm’s client account, because AFL had neither authorised borrowings from the Respondents, nor authorised the Firm to receive their money as its agent.  
96.	The Judge’s analysis contained the following three main stages:
i)	Mr Cummings was not authorised by AFL to retain the Firm in accordance with the terms of the Engagement Letter because (a) he did not become the beneficial owner of AFL’s shares until some days after the date of the letter (13th July 2007); (b) he could not as a mere beneficial owner of 100% of AFL’s shares commit the company to anything, since the ‘own acts’ principle did not apply to beneficial owners of a company’s shares, at least in the circumstances of this case.  Nothing other than the Engagement Letter was put forward as authorising the Firm to receive loans from the Respondents.
ii)	There being no such authority when the payments were made, the consequence of them being made into the Firm’s client account was that an immediate trust arose in favour of the Respondents.
iii)	There was no subsequent ratification by AFL of the receipt of the money pursuant to the authority purportedly contained in the Engagement Letter, and any supposed ratification would have come too late to defeat the third party interest in favour of the Respondents constituted by the immediate resulting trust in their favour.  
97.	I have, from start to finish, encountered a sense of unreality about this debate.  Its necessary starting point is, as I have concluded (and the judge needed to assume, contrary to his own conclusion, when dealing with this issue), that the Respondents paid their monies into the Firm’s client account as a means of making immediate loans to AFL.  In the relevant objective sense, they must be taken to have intended that the money should belong beneficially to AFL from the moment when it reached that client account, in exactly the same way as it would have, if they had paid AFL direct.  
98.	Regardless of Mr Cummings’ alleged lack of authority to sign the Engagement Letter, the Respondents have always accepted (at least on this appeal) that by the time that the payments were made the Firm had become AFL’s solicitors for the purposes of handling its purchase of its part of the Fairoaks Airport site, which completed in July 2007.   This was a purchase based upon funding from RBS and Erinaceous, including the RBS equity bridge which had to be repaid from monies advanced by private investors.  
99.	Shortly after the payments were received, almost all of them were indeed used by the Firm to reduce AFL’s liability under the RBS equity bridge.  Although at a much later stage an attempt was made to persuade RBS to repay that money, so that AFL could repay the Respondents, that was not done.  The position at the beginning of the trial was that AFL (by then in administration) regarded RBS as a creditor by an amount reduced by those payments, and regarded the Respondents as creditors in the amounts which they had each paid.   Save for relatively small amounts later disbursed by the Firm on account of AFL’s alleged liabilities for professional fees (both to the Firm and to other solicitors and Legis) the Respondents’ payments had all been disbursed for AFL’s benefit long before any request was made by any of the Respondents to have their money back.  
100.	On those relatively straightforward facts, it would cause me grave misgivings if the law compelled a conclusion that the Respondents’ monies were, from the moment of receipt by the Firm, held on immediate resulting trust for the Respondents, such that the Firm’s application of them at Mr Egan’s direction, for the purpose, beneficial to AFL, for which Mr Egan had sought to raise the money in the first place, constituted a breach of that trust.  
101.	Mr Ian Croxford QC for the Firm attacked every stage of the judge’s analysis and at some length.  As to stage (i), he said that the better view on the facts was that Mr Cummings became the beneficial owner of AFL’s shares on 13 July, rather than a few days later, and that the ‘own acts’ doctrine should be treated as applicable to decisions taken for a company by a beneficial owner of all its shares.  He added that, in any event, since the Firm had become AFL’s solicitors for the purposes of the completion and funding of the Fairoaks transaction by the end of July 2007, receipt of investors’ monies with which to repay bridging finance was within the Firm’s usual authority.  
102.	As to stage (ii), he submitted that where a person transfers money or other property to a trustee to be held on trust for a named beneficiary, it is irrelevant whether the beneficiary has authorised the trustee to receive the money on its behalf.  The court will enforce that trust regardless of the beneficiary’s authority. 
103.	As to stage (iii), Mr Croxford submitted that the judge was wrong to have rejected the Firm’s case of ratification, for detailed reasons which I need not describe.  
104.	For my part, I would not wish to burden an already long judgment with a detailed analysis of the judge’s stages (i) and (iii). I consider that the essential flaw in his reasoning lay at stage (ii).  The resulting trust argument adopted by the judge is in my view wrong for substantially the same reasons as those given by Lord Browne-Wilkinson, giving the leading speech in the House of Lords in the Westdeutsche case.  There, the bank made payments to the local authority believing itself to be contractually obliged to do so pursuant to swap contracts which, unbeknown to the bank, were void as being ultra vires the local authority.  The local authority admitted that the money was repayable, but the question whether the payments gave rise to a resulting trust arose because of a dispute about whether the bank should be awarded compound interest in equity.  The Court of Appeal had concluded that the payments, made under void contracts, did give rise to a “resulting trust not of an active character”, following Sinclair v Brougham [1914] AC 398.  Overruling that case, the House of Lords held that the bank’s payments to the local authority passed the whole of the legal and beneficial title to the Local Authority, leaving the bank only with a personal claim for its recovery.
105.	In the present case, both the Respondents and the judge acknowledged that, if the Respondents had paid AFL direct without imposing restrictions giving rise to a Quistclose-type trust, then the Westdeutsche case would have applied so as to rule out any claim for recovery by the Respondents as beneficial owners under a resulting trust: see paragraph 625.  In that event, it would have availed the Respondents nothing if (as the judge found) the borrowing from them was not authorised by AFL. The Respondents would have had a claim for their money back in debt, and possibly in restitution, but not in trust.  In my judgment that concession was correctly made and accepted.  
106.	But the judge accepted the Respondents’ submission that payment of the money into the Firm’s client account made all the difference.  This was because, he said, a client account: 
“Is necessarily a trust account, with legal ownership and beneficial ownership being divided.”  (paragraph 626) 
He continued, at paragraph 627:
“Put another way, … the problem for the Defendant Firm is that if it did not have authority to receive money for AFL, the beneficial title did not vest in AFL, but cannot have been intended to vest in the Defendant firm, and therefore must have remained in the Claimants (as the only remaining candidates) given that “the equitable, or beneficial interest, cannot remain in the air…” (per Lord Wilberforce in Vandervell v IRC [1967] 2AC 291 at 1412 (in fact 329)”
Later, the judge cited this passage from Lord Upjohn’s speech in the Vandervell case, at page 313:
“If A intends to give away all his beneficial interest in a piece of property and thinks he has done so but, by some mistake or accident or failure to comply with the requirements of the law, he has failed to do so, either wholly or partially, there will, by operation of law be a resulting trust to him of the beneficial interest of which he has failed effectually to dispose.  If the beneficial interest was in A and he fails to give it away effectively to another or others or on charitable trusts it must remain in him.”
Finally, at paragraphs 633-4, the judge concluded:
“Now, of course, the present case is not a case of gift; nor is it one where there is a pre-existing equitable interest in specific property. However, as it seems to me, the like principles apply, since the payment was not intended for the recipient and the recipient had no authority to receive it for anyone else. The money, like the wrongly addressed letter, must be returned to sender, address (as it were) unknown.
I should stress that this is an unusual case. As the Claimants accepted, as indicated above, failure of consideration would not lead to the transferor retaining its equitable interest; it is doubtful whether mistake would either; and property may pass even in a transaction induced by fraud. It is the combination of the receipt into a trust account of borrowed monies where the borrower had not authorised the borrowing or such receipt, that, in my judgment, makes the case exceptional.”
107.	In my judgment the flaw in that analysis lies in the judge’s unexplained assumption that a payment made by A to a solicitor’s client account for the benefit of the solicitor’s existing client B is not sufficient to confer the beneficial ownership upon B where B has not authorised the solicitor to receive it.  I consider that if the solicitor accepts A’s payment on those terms then he holds it on trust for B.  If, upon learning of his solicitor’s receipt of the payment, B declines to receive it, then B may direct the solicitor thenceforth to hold the money for A or to A’s order.  But until then (and this did not happen in the present case) the solicitor holds the money for B.  
108.	There is in those circumstances no lacuna in the beneficial interest which, applying the Vandervell case, needs to be filled by a resulting trust in favour of the transferor.  The Respondents paid their money to the Firm in some cases expressly earmarked “AFL” but in all cases by conduct which, objectively interpreted, was intended to confer the whole beneficial interest upon AFL, even whilst legal title remained in the Firm (or, strictly, in its bankers).  AFL might in theory have repudiated the payments on grounds of lack of authority, and directed the Firm thenceforth to hold them for the Respondents.  But it did not, and could not have done so once the payments had been applied for AFL’s benefit. AFL might perhaps have done so in relation to the modest residue left after the payments to RBS, at the same time as Mr Dickinson sought to persuade RBS to repay what it had received, in December 2007.  But nothing was done to transfer that residue back to investors, or even to transfer beneficial ownership of it.
109.	A useful way of testing the judge’s thesis that payment into a client account made all the difference is to ask what if any difference to the outcome in the Westdeutsche case would have ensued if the swap arrangements had provided for the bank to make payments into a trust account held by a solicitor or other professional trustee for onward transmission to the local authority.  The local authority’s lack of vires to enter into the transaction would have meant that the trustees were not duly authorised to receive the bank’s payments.  But the outcome would have been the same. Transfer of the bank’s money to the trustees would have transferred both legal and beneficial title, and the beneficial title would, from the moment of transfer, have been held by the trustees for the local authority.  Using Lord Browne-Wilkinson’s classification of resulting trusts in the Westdeutsche case at [1996] AC 669, at 708, a type A presumed resulting trust would have been rebutted by the intention of the bank to make an outright transfer, and a type B resulting trust would have been impossible because of the immediate vesting of the entire beneficial interest in the local authority.  By parity of reasoning, there could be no presumed resulting trust in the present case because the objective interpretation of the Respondents’ conduct was that they intended to make an immediate loan.  There could be no Vandervell type resulting trust because the making of a loan necessarily carries with it an intention to transfer the whole beneficial interest in the subject matter to the borrower, even if the money is paid to the borrower’s solicitor to be held on a statutory client account trust for the borrower.  I would add that at no time has there been any suggestion in this appeal that the Respondents could rely upon a presumed resulting trust.
110.	My conclusion about stage (ii) of the judge’s analysis is sufficient to lead me to the view that this alternative basis of the Respondents’ case must fail.  It is with some relief that I find it unnecessary to decide the detailed questions going to the issues whether in fact the Firm had AFL’s authority to receive the Respondents’ money by way of loan.  In particular, the question whether a single beneficial owner of all the shares in the company can direct the conduct of its affairs without going through any of the formalities required by the company’s constitution is a difficult and contentious one about which there are a number of conflicting first instance authorities from distinguished judges.  I would prefer to leave that question unresolved until a case in which it has to be decided.  

Issue 4: Unjust Enrichment  
111.	The restitutionary claim was advanced at trial on the alternative bases of mistake and failure of consideration.  As to the first, the alleged mistake (as recorded in paragraph 29 of the judgment) was that the Respondents believed that their money was to be held by the Firm on escrow terms and to remain beneficially theirs until the escrow conditions were satisfied.  As to the second, (advanced against the risk that the judge might find that an immediate loan was intended) the case was that no loan relationship was established because of the absence of authority to borrow on the part of AFL.
112.	Against the obvious question why solicitors holding money in client account (and therefore in trust for others) could be said to be unjustly enriched, the judge recorded the Respondents’ concession that the restitutionary claim would lie only:
“If and to the extent that the monies paid into its client account were not held by it on trust either for the Claimants or for AFL” (paragraph 658).
113.	In pursuing the restitutionary claim on appeal, Mr Sutcliffe sought to broaden the case on mistake by submitting that the operative mistake consisted of, or included, a mistaken assumption that the Firm was authorised by AFL to receive the loan monies.  
114.	There are in my judgment two insuperable obstacles to the restitutionary claim.  The first is, as I have already concluded, that from the moment of receipt the Firm held the Respondents’ monies on client account trust for AFL.  The Firm was, therefore, not enriched at all by the receipts.   Even the transfers to office account of a small part of those monies on account of fees was not an enrichment, because it was a transfer of money belonging at that stage beneficially to AFL for the purpose of discharging a debt owed by AFL to the Firm.  The absence of unjust enrichment where the recipient holds the money on trust was effectively conceded by the Respondents at trial, as the judge recorded in the passage to which I have just referred.
115.	The second obstacle is that, in my view, the Firm would have had a change of position defence if a restitutionary claim had otherwise been available.  The judge provisionally rejected a change of position defence on the ground that, by disbursing the money without sufficient certainty as to the basis upon which the payments had been made by the Respondents into her Firm’s client account, or as to the Firm’s authority to receive such payments, Mrs. Bellis failed to act in a commercially acceptable way, within the meaning of that phrase set out by Moore-Bick J (as he then was) in Niru Battery Manufacturing Co v Milestone Trading Limited [2002] EWHC 1425 (Comm).  It is evident from elsewhere in the judgment that the judge regarded Mrs. Bellis as having abdicated her responsibilities toward the Respondents, and as having allowed herself to do so because of a serious conflict between their interests and those of herself and her family.
116.	The difficulty with that (albeit provisional) analysis is that, in my view, Mrs. Bellis owed no duties or responsibilities to the Respondents at all, because they advanced their monies by way of immediate loan to her client AFL. 
117.	There is real force in the judge’s criticism of Mrs. Bellis, namely that she received and disbursed the Respondents’ monies without checking the precise terms upon which Mr. Egan had solicited them, relying merely upon his assertion that the incoming monies were loan monies which could immediately be disbursed to pay down the RBS equity bridge.  But since more diligent enquiry as to the terms of Mr. Egan’s two emails would (or ought) in my view to have confirmed her understanding that the payments were proffered by way of immediate loan, her lack of diligence in this respect can hardly be treated as commercially unacceptable conduct vis a vis the Respondents.
118.	Similarly, Mrs. Bellis may well have been less than properly cautious about the questions whether either Mr. Egan or Mr. Cummings had formal authority to commit AFL, but again, her omission to consider the question of their authority more thoroughly was a matter about which, in the event, only AFL rather than the Respondents could complain.
119.	For my part, whatever may be the confines of the concept of commercially unacceptable conduct in the consequence of a change of position defence, it cannot include conduct about which the person seeking restitution has no basis for complaint.
120.	For those reasons, the Respondents’ restitutionary claim is in my judgment misplaced.  Since in my view the judge was also wrong to accede to either of the Respondents’ alternative claims based in trust, this appeal should therefore be allowed.
Lord Justice Underhill
121.	I agree.
Lord Justice Moore-Bick
122.	I also agree.