#6858 - In Re Farepack Food And Gifts - Restitution of Unjust Enrichment BCL

In Re Farepack Food and Gifts

Facts

The company, “Farepak”, operated a Christmas savings scheme under which customers could spread their Christmas savings over a year by making small contributions month by month so that enough had accumulated by the beginning of November to buy a shopping voucher, a hamper or other goods. The scheme operated through a system of “agents”, who were typically work colleagues, friends or members of the same family as the customers. The agents collected the money and forwarded it to Farepak.

October 11, 2006, the directors decided to cease trading and Farepak went into administration on October 13, 2006. It was heavily insolvent so that any dividend would be only a few pence in the pound and it could not fulfil its Christmas 2006 orders with the result that a lot of people who relied on Farepak's scheme to provide them with their Christmas food or presents would suffer real hardship. In the three days leading up to the administration the directors sought to ring-fence the moneys received from customers in that period so that it could be returned to customers if necessary.

The directors executed a trust deed that read as follows:

(1) Farepak holds the Farepak Food and Gifts Limited Savings Club Account, account number 50114239 at sorting code 011001, with the Royal Bank of Scotland plc ('the Farepak Account'). Moneys are paid into this account by Farepak's customers.

(2) Farepak ceased trading as from close of business on 10 October 2006

(3) Farepak has entered into this deed to ensure that, in the event of insolvency, money paid into the Farepak Account on or after 11 October 2006 is held on trust for the relevant payors and can be returned to them in due course.

Holding

The agents were agents of the company, not consumers

On the material that I have seen it seems apparent that the agents are agents of the company, and they are not agents of customers (or at least not in any material respect). The agents' terms and conditions specify that they are agents of the company (see above) and the trade association provisions (admittedly not strictly contractual for these purposes) indicate the same thing.

Once money is passed to the agent it is being passed to the shop just as much as money paid over a counter and placed into a till in a conventional shop becomes the shop's money.

Quitclose Trust

Mr Trace argued this point. He argued that an analysis of the facts and the customer conditions showed that there was a payment for a specific purpose, and that since that purpose had not been fulfilled the customer money was held on resulting trust.

Unfortunately, on the material that I have had the argument fails. I have already held that the money is taken by the agents as agent for Farepak. That of itself does not militate against the existence of a Quistclose trust. However, there is no suggestion that the agent was expected to keep the money separate from other money (or indeed his or her own), and it is indeed known that it was mixed with the money of others and paid over to Farepak with the money of others. Again, that of itself it not inconsistent with a Quistclose trust, but it does not help. But crucially, there is no suggestion that the money ought to have been put on one side by Farepak pending the transmutation from credited money to goods or vouchers. If there were a Quistclose trust then that obligation would have been inherent in it, but the business model would have made no sense. It would have required Farepak to have kept all the customer moneys in a separate account from January until November, untouched until the time when the goods or vouchers were acquired and then sent out. That is completely implausible. It would turn Farepak into a very odd savings organisation. Even banks do not have to do that.

Constructive Trust

Reliance on Neste OY: Their starting point was the decision in Neste Oy v Lloyds Bank Plc [1983] 2 Lloyds Rep. 658 at 666. In that case a company decided that it should cease trading on February 22. On the same date a payment was made to it of moneys to enable it to discharge its function as shipowner's agent by discharging certain liabilities. The payment was made by inter-bank transfer on that day. It was found that this money was paid and received at a time when the recipient company had resolved to cease trading immediately, when it had not itself paid for the services which it was entitled to discharge with the remitted moneys and when there was no chance it would pay for those services. In those circumstances Bingham J. held there was a constructive trusteeship of the moneys.

So far as the law is concerned, the reasoning of Bingham J. has been criticised by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington LBC [1996] A.C. 669 as apparently being premised on reasoning which smacks of a remedial constructive trust which is not recognised by English law; contrast “...