#6829 - Foskett V. Mckeown - Restitution of Unjust Enrichment BCL

Foskett v. Mckeown

Facts

Nature of the policy: On 6 November 1986, Mr Murphy effected a whole-life policy ("the policy") with Barclays Life Assurance Co Ltd ("the insurers") in the sum of 1m at an annual premium of 10,220. The policy (which was issued on 27 January 1987) provided that on the death of Mr Murphy a specified death benefit became payable, such benefit being the greater of (1) the sum assured (1m) and (2) the aggregate value of units notionally allocated under the terms of the policy to the policy at their bid price on the day of the receipt by the insurers of a written notice of death. The policy stated that "in consideration of the first premium already paid and of the further premiums payable and subject to the conditions of this policy the company will on the death of the life assured pay to the policy holder or his successors in title ('the policy holder') the benefits specified".

Although primarily a whole-life policy assuring the sum assured of 1m, the policy had an additional feature, viz, a notional investment content which served three purposes.

Five premiums were paid, in November 1986, 1987, 1988, 1989 and 1990. The 1986 and 1987 premiums were paid by Mr Murphy out of his own resources. The 1989 and 1990 premiums were paid out of moneys misappropriated by Mr Murphy from the plaintiffs. The source of the 1988 premium is disputed: unconditional leave to defend on issues relating to this premium has been granted.

Breach of fiduciary duty: In 1988 Mr Murphy, together with an associate of his, Mr Deasy, acquired control of an English company which itself owned and controlled a Portuguese company. Those two companies between them marketed plots of land forming part of a site in the Algarve in Portugal to be developed and sold by them to purchasers. Each prospective purchaser entered into a contract with one of the companies for the purchase of his plot. The contract required each purchaser to pay the purchase price to Mr Deasy, to be held by him upon the trusts of a trust deed ("the purchasers trust deed") under which the purchasers' money was to be held in a separate bank account until either the plot of land was transferred to him or a period of two years had expired, whichever first happened. If after two years the plot had not been transferred to the purchaser the money was to be repaid with interest. Some 220 prospective purchasers entered into transactions to acquire plots on the building estate and paid some 2,645,000 to Mr Deasy to be held by him on the terms of the purchasers trust deed. However, the land in Portugal was never developed. When the time came for the money to be refunded to the purchasers it was found that it had been dissipated and that 20,440 of those funds had been used to pay the fourth and fifth premiums due under the policy.

Claim in this case: Mr Murphy committed suicide on 9 March 1991. On 6 June 1991 the insurers paid 1,000,580.04 to the two surviving trustees of the policy. Mrs Murphy has been paid her one-tenth share. The dispute, for the rest, lies between Mr Murphy's three children (as beneficiaries under the policy trust) and the purchasers of the plots in Portugal, from whose money 20,440 has been applied in breach of the trusts of the purchasers trust deed in paying the fourth and fifth premiums.

Holding

Lord Browne Wilkinson

Claim not in unjust enrichment, but proprietary in nature

The crucial factor in this case is to appreciate that the purchasers are claiming a proprietary interest in the policy moneys and that such proprietary interest is not dependent on any discretion vested in the court. Nor is the purchasers' claim based on unjust enrichment. It is based on the assertion by the purchasers of their equitable proprietary interest in identified property.

Can the payment be traced into proceedings of the policy?

Can then the sums improperly used from the purchaser's moneys be traced into the policy moneys? Tracing is a process whereby assets are identified. I do not now want to enter into the dispute whether the legal and equitable rules of tracing are the same or differ. The question does not arise in this case. The question of tracing which does arise is whether the rules of tracing are those regulating tracing through a mixed fund or those regulating the position when moneys of one person have been innocently expended on the property of another. In the former case (mixing of funds) it is established law that the mixed fund belongs proportionately to those whose moneys were mixed. In the latter case it is equally clear that money expended on maintaining or improving the property of another normally gives rise, at the most, to a proprietary lien to recover the moneys so expended.

Similar to a mixed claim – rule of rateable distribution

Immediately before the payment of the fourth premium, the trust property held in trust for the children was a chose in action, ie the bundle of rights enforceable under the policy against the insurers. The trustee, by paying the fourth premium out of the moneys subject to the purchasers trust deed, wrongly mixed the value of the premium with the value of the policy. Thereafter, the trustee for the children held the same chose in action (ie the policy) but it reflected the value of both contributions. The case, therefore, is wholly analogous to that where moneys are mixed in a bank account. It follows that, in my judgment, both the policy and the policy moneys belong to the children and the trust fund subject to the purchasers trust deed rateably according to their respective contributions to the premiums paid.

The contrary view appears to be based primarily on the ground that to give the purchasers a rateable share of the policy moneys is not to reverse an unjust enrichment but to give the purchasers a wholly unwarranted windfall. I do not myself quibble at the description of it being "a windfall" on the facts of this case. But this windfall is enjoyed because of the rights which the purchasers enjoy under the law of property. A man under whose land oil is discovered enjoys a very valuable windfall but no one suggests that he, as owner of the property, is not entitled to the windfall which goes with his property right. We are not dealing with a claim in unjust enrichment.

What is the effect of the fourth and fifth premiums?

It is true that, in the events which have happened, the fourth and fifth premiums were not required to keep the policy on foot until the death of Mr Murphy. But at the times the fourth and fifth premiums were paid (which must be the dates at which the beneficial interests in the policy were established) it was wholly uncertain what the future would bring. What if Mr Murphy had not died when he did? Say he had survived for another five years? The premiums paid in the fourth and fifth years would in those events have been directly responsible for keeping the policy in force until his death since the first and second premiums would long since have been exhausted in keeping the policy on foot. In those circumstances, would it be said that the purchasers were entitled to 100% of the policy moneys? In my judgment, the beneficial ownership of the policy, and therefore the policy moneys, cannot depend upon how events turn out. The rights of the parties in the policy, one way or another, were fixed when the relevant premiums were paid when the future was unknown.

For these reasons and the much fuller reasons given by Lord Millett, I would allow the appeal and declare that the policy moneys were held in trust for the children and the purchasers in proportion to the contributions which they respectively made to the five premiums paid.

Lord Steyn

Claim in Unjust enrichment would not have been maintainable

Thirdly, the purchasers have no claim in unjust enrichment in a substantive sense against the children because the payment of the 1989 and 1990 premiums conferred no additional benefit on the children.

What is the effect of the fourth and fifth installments?

There is in principle no difficulty about allowing a proprietary claim in respect of the proceeds of an insurance policy. If in the circumstances of the present case the stolen moneys had been wholly or partly causative of the production of the death benefit received by the children there would have been no obstacle to admitting such a proprietary claim. But those are not the material facts of the case. I am not influenced by hindsight. The fact is that the rights of the children had crystallised by 1989 before any money was stolen and used to pay the 1989 and 1990 premiums. Indeed Morritt LJ expressly accepts, at p 302F, that "in the event, the policy moneys would have been the same if the later premiums had not been paid". Counsel for the purchasers accepted that as a matter of primary fact this was a correct statement. But he argued that there was nevertheless a causal link between the premiums paid with stolen moneys and the death benefit. I cannot accept this argument. It would be artificial to say that all five premiums produced the policy moneys. The purchasers' money did not "buy" any part of the death benefit. On the contrary, the stolen moneys were not causally relevant to any benefit received by the children. The 1989 and 1990 premiums did not contribute to a mixed fund in which the purchasers have an equitable interest entitling them to a rateable division. It would be an innovation to create a proprietary remedy in respect of an asset (the death benefit) which had already been acquired at the date of the use of the stolen moneys.

Lord Hoffmann...