With a lack of certainty for debtors and trustees resulting from the earlier cases, the judgment of the Supreme Court in Dooneen Ltd (t/a McGinness Associates) and another v Mond on this point was eagerly awaited following the appeal being heard by five Supreme Court Justices on 3 July 2018.
The judgment (https://www.supremecourt.uk/cases/docs/uksc-2016-0218-judgment.pdf ) has now been issued and confirms that a trustee is not entitled to assets discovered after a final distribution has been made in terms of a trust deed and a trustee discharged, and that any such assets belong to the debtor.
Mr Davidson entered into a trust deed on 29 September 2006 and Mr Mond was appointed as trustee. The creditor claims exceeded the known estate and creditors were ultimately paid a divided of 22.41 pence in the pound. The trustee was discharged in November 2010.
What was unknown to the trustee, and to Mr Davidson, during the period of the trust deed was that prior to entering into the trust deed Mr Davidson had been mis-sold PPI in connection with various loans. Following his discharge, Mr Davidson became aware that he may be entitled to claim compensation for the mis-selling of PPI. He appointed Dooneen Ltd to pursue his claim and assigned 30% of the value of any compensation he may receive to them. Mr Davidson was awarded compensation of around £56,000.
The trustee claimed that the right to compensation had vested in him as part of the estate subject to the trust deed and remained vested in him as trustee. Dooneen and Mr Davidson disagreed and claimed that as both Mr Davidson and the trustee had been discharged, the compensation belonged to Mr Davidson with 30% going to Dooneen.
The Court of Session found in favour of Dooneen and Mr Davidson in deciding that the trustee was not entitled to the compensation payment. This decision was upheld by the Inner House of the Court of Session on appeal. The trustee appealed to the Supreme Court.
Decision of the Supreme Court
Dooneen and Mr Davidson accepted that the right to the compensation formed part of the estate transferred to the trustee but that the trustee’s right to it ended when the final distribution was made by the trustee and the trust deed came to an end. The trustee argued that there was no final distribution as the distribution could only be final when either all assets are distributed or enough assets are distributed to pay all creditors in full.
The Supreme Court’s judgment was delivered by Lord Reed with whom the other four justices agreed. The Supreme Court upheld the decision of the Inner House as to the construction of the trust deed and finding that the trustee was not entitled to the compensation but rather that Mr Davidson and Dooneen were entitled to the compensation.
The court held that, in terms of the trust deed, the ‘final distribution’ and ‘final dividend’ are determined by the trustee and that if a final distribution could not be relied on as being final, this could have various unintended consequences including that:
- there would be no clarity as to when a final distribution has been paid meaning that the trust deed could effectively last indefinitely;
- there would be no certainty as to whether the trust deed had terminated or not meaning that the debtor would not know whether they had been discharged from their debts which could also pose problems for anyone wishing to do business with the debtor; and
- the Register of Insolvencies could be inaccurate if certificates confirming that a final distribution has been made are lodged by trustees but cannot be considered accurate as the distribution is only final subject to no further assets coming to light.
Interestingly, Lord Reed commented that the fact that an asset which vested in the trustee and should have been paid to creditors will in fact be paid to the debtor ‘is scarcely a satisfactory outcome’ and questioned whether the acts of the trustee in making the final distribution could be reduced if they were the result of an error as to the extent of the trust estate. However, despite the court requesting submissions on this point, no submissions were made by the parties and the court did not consider this question further.
Undoubtedly this judgment offers welcome clarity for debtors and trustees where assets are discovered following the discharge of a trustee. However, given that the question of whether the acts of the trustee in making the final distribution could be reduced has been raised by the court, it may be that it's just a matter of time before this point comes before the courts.