Harris v Conway

[CHANCERY DIVISION]

In re BERKELEY APPLEGATE (INVESTMENT
CONSULTANTS) LTD. (IN LIQUIDATION)

HARRIS v. CONWAY AND OTHERS
[No. 4750 of 1987]

1987 July 23, 24, 27;
Nov. 27

Edward Nugee Q.C. sitting as a deputy High Court judge

Company — Winding up — Liquidator — Costs and remuneration — Assets held on trust by
company for investors — Voluntary liquidation — Work done by liquidator benefiting
investors — Whether liquidator to be remunerated from trust funds

The business of the company, now in voluntary liquidation, was to place funds on behalf of
individual investors on the security of first mortgages of freehold property which were taken in
the company's name. All investors were provided with an investment scheme which stated, inter
alia, that no costs whatsoever would be incurred by them. Apart from the free assets of the
company, moneys held in clients' accounts awaiting investment and the benefit of mortgages
were held on trust by the company for the investors. At the commencement of the winding up,
funds standing to the credit of clients' accounts amounted to about £1.2 million plus interest of

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£29,509 and the total loans made and secured by mortgages amounted to about £10.2 million.
The expenses and remuneration of the liquidator were very considerable and likely greatly to
exceed the company's free assets.

On the liquidator's application for the determination of the question whether any part of his
expenses and remuneration could be paid out of the trust assets either directly or by way of
payment to the company: —

Held, granting the application, that, although the liquidator was not in the position of a trustee
and the legal title to the mortgages and the clients' accounts remained vested in the company, the
court had jurisdiction to enforce the investors' equitable interests in that property and, in doing
so, it had a discretion to require an allowance to be made for costs incurred and skill and labour
expended in the administration of the property; that, since the work done by the liquidator had
been of substantial benefit to both the trust property and the investors and was work that would
have had to be done either by the investors themselves or by a receiver appointed by the court
whose fees would have had to be borne by the trust property, the court would exercise its
inherent jurisdiction to ensure that a proper allowance was made to the liquidator; and that,
notwithstanding that the investors were relieved from liability for further payments under the
investment scheme, the liquidator was to be compensated out of the trust funds to the extent that
the company's assets were insufficient to compensate him adequately for his costs, skill and
labour (post, pp. 50A–51B, H–53E).

Scott v. Nesbitt (1808) 14 Ves. Jun. 438; Neesom v. Clarkson (1845) 4 Hare 97; In re Marine
Mansions Co. (1867) L.R. 4 Eq. 601; Phipps v. Boardman [1964] 1 W.L.R. 993 and In re Duke
of Norfolk's Settlement Trusts [1982] Ch. 61, C.A. applied.

The following cases are referred to in the judgment:

Anglo-Austrian Printing and Publishing Union, In re [1895] 2 Ch. 891

Boynton (A.) Ltd., In re [1910] 1 Ch. 519

Bullock v. Lloyds Bank Ltd. [1955] Ch. 317; [1955] 2 W.L.R. 1; [1954] 3 All E.R. 726

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Downshire Settled Estates, In re [1953] Ch. 218; [1953] 2 W.L.R. 94; [1953] 1 All E.R. 103, C.A.

Exchange Securities & Commodities Ltd. (No. 2), In re [1985] B.C.L.C. 392

Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943] A.C. 32; [1942] 2 All
E.R. 122, H.L.(E.)

Falcke v. Scottish Imperial Insurance Co. (1886) 34 Ch.D. 234, C.A.

Glasdir Copper Mines Ltd., In re [1906] 1 Ch. 365

Introductions Ltd. (No. 2), In re (Note) [1969] 1 W.L.R. 1359; [1969] 3 All E.R. 697

Introductions Ltd. v. National Provincial Bank Ltd. [1968] 2 All E.R. 1221; [1970] Ch. 199;
[1969] 2 W.L.R. 791; [1969] 1 All E.R. 887, C.A.

Marine Mansions Co., In re (1867) L.R. 4 Eq. 601

Merry v. Pownall [1898] 1 Ch. 306

Morrison v. Morrison (1854) 2 Sm. & G. 564

Neesom v. Clarkson (1845) 4 Hare 97

Norfolk's (Duke of) Settlement Trusts, In re [1979] Ch. 37; [1978] 3 W.L.R. 655; [1978] 3 All E.R.
907; [1982] Ch. 61; [1981] 3 W.L.R. 455; [1981] 3 All E.R. 220, C.A.

Northern Milling Co., In re [1908] 1 I.R. 473

Oriental Hotels Co., In re (1871) L.R. 12 Eq. 126

Phipps v. Boardman [1964] 1 W.L.R. 993; [1964] 2 All E.R. 187; [1965] Ch. 992; [1965] 2 W.L.R.
839; [1965] 1 All E.R. 849, C.A.; [1967] 2 A.C. 46; [1966] 3 W.L.R. 1009; [1966] 3 All E.R.
721, H.L.(E.)

Regent's Canal Ironworks Co., In re (1875) 3 Ch.D. 411, C.A.

Scott v. Nesbitt (1808) 14 Ves. Jun. 438

Staffordshire Gas and Coke Co., In re [1893] 3 Ch. 523

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Aga Estate Agencies, In re [1986] B.C.L.C. 346

Bainbrigge v. Blair (1845) 8 Beav. 588

Bolton (R.) and Co., In re [1895] 1 Ch. 333, C.A.

Bonnelli's Electric Telegraph Co., In re (1874) L.R. 18 Eq. 656

Chapman v. Chapman [1954] A.C. 429; [1954] 2 W.L.R. 723; [1954] 1 All E.R. 798, H.L.(E.)

Henry v. Hammond [1913] 2 K.B. 515

Hibbert v. Cooke (1824) 1 S. & S. 552

Macadam, In re [1946] Ch. 73; [1945] 2 All E.R. 664

Neill v. Neill [1904] 1 I.R. 513

New, In re [1901] 2 Ch. 534, C.A.

Richards v. Collins (1912) 9 D.L.R. 249

S.C.F. Finance Co. Ltd. v. Masri (No. 2) [1986] 1 All E.R. 40; [1987] Q.B. 1002; [1987] 2 W.L.R.
58; [1987] 1 All E.R. 175, C.A.

Strapp v. Bull, Sons & Co., In re [1895] 2 Ch. 1, C.A.

Wise v. Perpetual Trustee Co. Ltd. [1903] A.C. 139, P.C.

ORIGINATING SUMMONS

By a summons dated 12 March 1987 the applicant, Roger John Harris, the liquidator of Berkeley
Applegate (Investment Consultants) Ltd., sought, inter alia, determination of the questions: (1)
whether the company held the legal estates of various legal mortgages (a) on trust for those
persons who had currently contributed to the principal sums lent under those legal charges (b)
on trust for those who had provided funds to the company for investment and who had not at the
commencement of the winding up received payment in full of their funds (c) as part of the assets
of the company available for application in the course of the winding up; (3) whether the
company held sums standing to the credit of certain of its accounts at the Torquay branch of

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Royal Bank of Scotland, designated “clients' accounts” (a) on trust for those shown as having
sums standing to their credit on clients' account (b) on trust for all those who had provided funds
to the company for investment and who had not at the commencement of the winding up
received payment in full of their funds (c) as part of the assets of the company available for
application in the course of the winding up; (6) whether the sum of £29,509 interest currently
held in clients' accounts (a) was held on trust for those having balances in the clients' accounts
(b) was held on trust for all those who had provided funds to the company for investment and
who had not at the commencement of the winding up received payment in full of their funds (c)
formed part of the assets of the company available for application in the course of the winding up.
The applicant also sought further relief: (8) in so far as it might be necessary an order for
payment to the liquidator as remuneration and/or fees, expenses, costs, disbursements and
liabilities in such sum as the court deemed just out of the assets of the company and (in so far as
they did not form part of those assets) out of the funds in the clients' accounts and the sums
realised from the legal charges or (if and to the extent that the legal charges were not realised)
from the beneficial owners; (8A) in so far as any of the property was held to be trust property an
order that the company was entitled to be paid and to retain such sum or sums as the court
thought fit by way of remuneration as trustee of the property.

The first respondent, Beryl Jessie Mary Conway, represented those persons who had supplied
funds to the company for investment and who were recorded as having moneys outstanding
secured by mortgages. The second respondents, John Leslie Applegate and Sandra Elspeth
Phyllis Applegate (the executors of the estate of Albert Leslie Applegate), represented those who
had supplied funds to the company which were recorded as standing to the credit of the clients'
accounts. The third respondent, Victor C. F. Clark, represented the unsecured creditors.

In an interim judgment dated 24 July 1987 Mr. Edward Nugee Q.C. held that the assets referred
to in questions (1), (3) and (6) of the summons were held on trust. In that judgment, he stated the
following facts:

“The principal business of the company was described by its directors as being to act as agent to
place funds on behalf of individual investors and obtain first mortgages over freehold property.
In outline the way in which it operated was as follows. Individual investors would pay the sum
which they wished to invest to the company. The company would then lend the money it received

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to approved borrowers on mortgage, the mortgage being taken in the name of the company. The
sums advanced to borrowers were generally in excess of the sums received from any one investor,
so that money advanced to any one borrower was generally derived from the investments of a
number of distinct investors. The company kept records which showed the source from which
each advance was derived, and the borrower paid interest direct to the investors whose
investments had been applied in making the particular advance to him. Between the time when
the investors paid their money to the company and the time when the company applied it in
making an advance, the money was held in one of four clients' accounts operated by the company
where it earned interest. When the money was applied in making an advance, the company would
pay to the investor the amount of interest his money had earned while it was in the clients'
account, less interest at the rate of 2 per cent. on the principal which it kept for itself. When a
borrower repaid an advance, the money would be placed in one of the clients' accounts and in due
course applied in making another advance on mortgage. The interest earned in the meanwhile
would be paid to the investor, unless he instructed the company to reinvest the interest as well as
the principal. The investors were entitled to withdraw all or part of their capital at any time on 30
days notice. If they did so at a time when it was invested in an advance to a borrower, the
company would substitute another investor's money by means of book entries, so that it was not
necessary to call in the mortgage advance to which the original investor's money had been
applied. At the commencement of the winding up there were about 1085 investors who had
placed money with the company, and the company had made about 125 advances on mortgage,
the total amount of the loans being about £10.2m. The money in the clients' accounts awaiting
investment on mortgage was about £1.2m, which was held for about 275 investors.”

Further facts are set out in the judgment.

Anthony Mann for the applicant liquidator. The liquidator's remuneration is provided for by
rules 4.127 and 4.218 of the Insolvency Rules 1986 . It is clear that remuneration and expenses
cannot be paid out of assets not the property of the company under these rules. It is essential that
a liquidator acts in relation to trust assets held by the company in circumstances such as these so
as to preserve them for the benefit of the investors. A liquidator has been allowed fees out of trust

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assets in In re Introductions Ltd. (No. 2) (Note) [1969] 1 W.L.R. 1359 (in that case without any
argument) and in In re Exchange Securities & Commodities Ltd. (No. 2) [1985] B.C.L.C. 392 by
concession.

The cases relied on in the latter case do not fully support the concession: In re Anglo-Austrian
Printing and Publishing Union [1895] 2 Ch. 891 is a manifestation of a jurisdiction to allow a
receiver remuneration. The improvement in value of the asset there achieved was not a benefit
officially conferred. In re A. Boynton Ltd. [1910] 1 Ch. 519 was a debenture holders' action in
which the dispute was between a bank which had made advances and the receiver who had used
the advances in carrying on the company's business: it was held that as the bank had not relied
on the receiver's personal credit it must be postponed to the receiver's claim for remuneration. In
In re Glasdir Copper Mines Ltd. [1906] 1 Ch. 365 all those interested in the assets were parties to
the carrying on of the company's business by the receiver and manager. The case nevertheless
illustrates that there is jurisdiction to ensure that the liquidator does not suffer a loss. In In re
Marine Mansions Co. (1867) L.R. 4 Eq. 601 a liquidator was allowed only the costs of realisation
of assets in priority to the claims of debenture holders. In re Oriental Hotels Co. (1871) L.R. 12
Eq. 126 and In re Regent's Canal Ironworks Co. (1875) 3 Ch.D. 411 are to the same effect: see
especially per James L.J. in the latter case at 426; litigation costs were allowed out of the fund
(see the order, 3 Ch.D. 411 , 428).

Apart from these cases, the jurisdiction to allow the liquidator remuneration can be based on the
general jurisdiction of the court over trusts and trustees and on settled equitable principles. The
principles are (a) that “he who seeks equity must do equity” and (b) that the court exercises its
jurisdiction over trusts so as to promote their administration.

The following are examples of the operation of these principles: (1) Trustees can be allowed
remuneration in the absence of an express power contained in the trust instrument: In re Duke of
Norfolk's Settlement Trusts [1982] Ch. 61. This does not depend on an implied contract, or on a
beneficial interest in the fund, but on the promotion of the administration of the trust. A
liquidator is not a trustee, but he is a fiduciary. (2) A person who becomes chargeable with a
profit as a constructive trustee (even though this intervention was unauthorised) is entitled to an
allowance: Phipps v. Boardman [1964] 1 W.L.R. 993. (3) A tenant for life who completes the
principal mansion house is recompensed: Hibbert v. Cooke (1824) 1 S. & S. 552. A receiver

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appointed by the court is allowed remuneration. (4) Where a litigant requires the assistance of a
court of equity to enforce his claim, he can be made to submit to conditions: In re Northern
Milling Co. [1908] 1 I.R. 473; Falcke v. Scottish Imperial Insurance Co. (1886) 34 Ch.D. 234, 251,
per Bowen L.J. So an allowance was made to the defendant in Phipps v. Boardman [1964] 1
W.L.R. 993, and consignees have been remunerated for the expense of managing estates:
Morrison v. Morrison (1854) 2 Sm. & G. 564 and Scott v. Nesbitt (1808) 14 Ves. Jun. 438. This is
the jurisdiction exercised in Richards v. Collins (1912) 9 D.L.R. 249. (5) The remuneration sought
ought to be allowed under the jurisdiction of the court to see that trusts are properly
administered: see In re Duke of Norfolk's Settlement Trusts [1979] Ch. 37, 59, per Walton J.
Unexpected expenditure of trustees is allowed under this jurisdiction: In re New [1901] 2 Ch. 534,
544, per Romer L.J. This is an aspect of the “salvage” jurisdiction: Chapman v. Chapman [1954]
A.C. 429, 445, per Viscount Simonds L.C., per Lord Morton at p. 452.

Finally to allow this claim is desirable as a matter of policy. Liquidators would not undertake
cases of this kind unless they know that their time and expense will be compensated.

Richard de Lacy for the first respondent. The assumption of jurisdiction to allow remuneration
to the official receiver in the cases of In re Introductions Ltd. (No. 2) (Note) [1969] 1 W.L.R. 1359
and In re Exchange Securities & Commodities Ltd. (No. 2) [1985] B.C.L.C. 392 is distinguishable,
as the liquidator here took office voluntarily. In both cases the jurisdiction was accepted without
argument. The cases cited in support of the jurisdiction in In re Exchange Securities &
Commodities Ltd. (No. 2) [1985] B.C.L.C. 392 do not support the argument of the liquidator, as is
shown by the analysis put forward on the liquidator's behalf. The authorities relating to the
priority of claims of debenture holders and liquidators are against the claim of the liquidator in
this case. This was the result in In re Marine Mansions Co., L.R. 4 Eq. 601 and it was treated as
clear law in In re Oriental Hotels Co., L.R. 12 Eq. 126 , that the claims of the secured creditors
were paramount to the costs of the winding up. There is no material distinction between the
claim of a chargee and the claims of an absolute owner of the property vested in the company for
this purpose. In In re Regent's Canal Ironworks Co., 3 Ch.D. 411 , an express distinction was
drawn between the costs of carrying on the business (which must have been in part for the
benefit of creditors whose debts were secured on it) and the costs of realisation of the property.

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Trustees are not entitled to recover expenditure on the trust property, even where the trust
property is improved, if there are contractual terms between them and the beneficiaries
excluding such claims: see Wise v. Perpetual Trustee Co. Ltd. [1903] A.C. 139. The terms of the
investment in this case excluded all right in the company to remuneration: the liquidator cannot
be in a better position.

The claim made in this case is not for expenses and remuneration to be paid to the trustee. The
liquidator is a stranger to the trust, and has administered only the internal management of the
trust itself. The case therefore falls within the principle in Falcke v. Scottish Imperial Insurance
Co., 34 Ch.D. 234 , and not within the possible exceptions mentioned by Bowen L.J. The
conferment of a benefit (if any) on the investors does not by itself give rise to a claim for
remuneration or reimbursement. For the same reason, the jurisdiction in In re Duke of Norfolk's
Settlement Trusts [1982] Ch. 61 cannot be exercised in this case.

The only positive authority for the jurisdiction argued for is the Canadian case of Richards v.
Collins, 9 D.L.R. 249 , but that decision was really an example of equitable estoppel.

The cases relating to consignees: Morrison v. Morrison, 2 Sm. & G. 564 ; Scott v. Nesbitt, 14 Ves.
Jun. 438 , and that relating to the profit of a fiduciary (Phipps v. Boardman [1964] 1 W.L.R. 993)
involved affirmation by the beneficiaries of transactions generating profit at the expense of the
claimant: the investors in this case need not adopt or affirm any of the acts of the liquidator in
order to assert their right to the trust assets. As a matter of discretion the claim should be refused
so far as it seeks to augment the assets of the company in order to provide for the remuneration:
(a) the company contracted not to be remunerated for its services as trustee (b) the business of
the company was an unlawful deposit-taking business and contravened the provisions of the
Banking Act 1979 .

Kevin Garnett for the second respondents adopted the argument of the first respondent.

Peter Griffiths for the third respondent adopted the argument of the liquidator.

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It is accepted that the jurisdiction requires more support than is to be found in the cases cited in
In re Exchange Securities & Commodities Ltd. (No. 2) [1985] B.C.L.C. 392. In re Anglo-Austrian
Printing and Publishing Union [1895] 2 Ch. 891 is directed apparently at the costs of proceedings
and is not a reliable analogy. In re Bonnelli's Electric Telegraph Co., L.R. 18 Eq. 656 was a case of
a solvent company. Wise v. Perpetual Trustee Co. Ltd. [1903] A.C. 139 demonstrates that a
contract may impose a limit on the amount which a beneficiary is required to contribute, but the
equitable jurisdiction was not resorted to. Civil liability is not affected by the Banking Act 1979 :
see S.C.F. Finance Co. Ltd. v. Masri (No. 2) [1986] 1 All E.R. 40, 53. It is not clear from the
evidence that the business was unlawful.

Cur. adv. vult.

27 November. EDWARD NUGEE Q.C. read the following judgment. In answer to questions 1, 3
and 6 of this summons I have held that certain assets standing in the name of the company are
held on trust for the investors who paid money to the company for investment. At the
commencement of the winding up these assets consisted of the benefit of about 125 loans made to
borrowers from the company and secured by mortgages, the total amount of the loans being
about £10.2 million; the money standing to the credit of the company's clients' accounts
amounting to about £1.2 million; and a sum of £29,508.92 representing interest on moneys in
the clients' accounts. The assets of the company which are not subject to any trust are of
uncertain value. They consist of cash at the bank amounting at the commencement of the
liquidation to about £34,000; the proceeds of sale of the company's motor vehicles, which have
realised about £11,000; a substantial sum said to be due in respect of interest, of which only
about £2,000 has been recovered to date; and the uncertain proceeds of a number of actions for
negligence which the company has commenced against valuers who acted for it in connection
with the making of loans on security which has proved to be insufficient. Since the company
made good to the investors the shortfall which arose on the realisation of the relevant securities,
the benefit of these actions should accrue for the benefit of the company.

The remaining questions of the summons concern the expenses and remuneration of the
liquidator. These have been very considerable, and are likely greatly to exceed the free assets of
the company.

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The work undertaken by the liquidator and his solicitors can be summarised under five heads.

(1) Preliminary investigation. This was carried out in the month before the decision to wind up
was taken, to see whether a liquidation was appropriate or necessary and to identify some of the
potential problems. The work involved a general investigation into the company's affairs and a
preliminary identification of potential claimants and the classes into which they fell. Most of it
was useful in the liquidation and would have had to be done anyway. It was at this stage that an
assessment of the nature of the proprietary claims of the investors first had to be formed, and the
liquidator obtained counsel's opinion which was to the effect that, on a preliminary view of the
facts, the company's clients' accounts and secured lendings were trust assets and that the
investors were accordingly not entitled to vote at the creditors' meeting.

(2) Inquiries from investors and borrowers. The investors were given notice of the creditors'
meeting, which was held on 15 January 1987, and this precipitated an avalanche of inquiries from
anxious investors and borrowers, both to the liquidator and to his solicitors. The liquidator
estimated that immediately before the creditors' meeting inquiries were being made at the rate of
up to 100 telephone calls and up to 50 letters a day, and that they continued at this level for a
month after the meeting before beginning to reduce.

(3) Ascertainment of assets. In addition to the ascertainment of the company's free assets, this
has involved matching the sums paid to the company by the investors with the sums advanced by
the company to the borrowers, checking the company's records and the investors' certificates of
investment, reconciling the company's clients' accounts with the associated records, and
compiling a schedule of mortgage advances showing the investors whose money has been applied
to each advance, and a schedule of those interested in the clients' accounts.

(4) Management of investments. Although interest was normally paid direct by the borrowers to
the investors, on occasions the borrowers fell behind and the investors asked the liquidator or his
solicitors to take steps to recover the arrears. The liquidator felt that these requests could not be
ignored, and in 9 cases recovery proceedings have been commenced. There have also been 31
redemptions where loans totalling about £2.3 million have been repaid, and the liquidator's staff

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and solicitors have had to deal with those redemptions. The liquidator has also had to supply
certificates of interest paid and received for tax purposes. In short the liquidator has continued to
carry on the company's mortgage business, though without lending moneys afresh.

(5) General liquidation affairs. The liquidator has also, of course, had a certain amount of work in
relation to pure liquidation matters. He estimates, however, that up to the end of May 1987 only
about 250 man-hours were spent on this work, whereas about 3,300 man-hours were spent on
matters relating to the investors' proprietary claims; and time is still being spent at the rate of
650 man-hours per month, the great majority of it in connection with the trust assets and the
investors' interests in them. The liquidator's disbursements include substantial sums paid out for
insurance cover on the mortgaged properties, and solicitors' costs of more than £30,000 a large
part of which was incurred in dealing with inquiries from investors.

It is common ground that there is no statutory authority for the payment of any part of the
liquidator's expenses or remuneration out of the trust assets. Rule 4.127 of the Insolvency Rules
1986 provides that “The liquidator is entitled to receive remuneration for his services as such,”
and specifies how that remuneration is to be fixed. Section 115 of the Insolvency Act 1986
provides:

“All expenses properly incurred in the winding up, including the remuneration of the liquidator,
are payable out of the company's assets in priority to all other claims.”

Rule 4.218 sets out the order of priority in which the expenses of the liquidation are payable out
of the assets, subject to any order of the court to the contrary; and the remuneration of the
liquidator is included as one of the expenses there mentioned. It is clear, however, that the
company's assets do not, for the purposes of these provisions, include assets held by it in trust for
others. This is so notwithstanding that the duty of the liquidator under section 100 of the
Insolvency Act 1986 to wind up the company's affairs necessarily involves dealing to some extent
with the assets which it holds as trustee.

It is clear also that if a receiver of the trust assets had been appointed by the court, the court
would have had jurisdiction under R.S.C., Ord. 30, r. 3 to authorise the payment of remuneration
out of the trust assets or their income. The appointment of a receiver would have presented

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difficulties in the present case, however, because until the liquidator had done a good deal of
work the necessary basis of fact for such an appointment had not been established; and moreover
each mortgage was held on a distinct trust for a distinct investor or group of investors.

It appears that there has been an increase in recent years in the number of companies going into
liquidation which hold part of their assets on trust for their clients or customers. In a significant
number of these cases the free assets of the company are not sufficient to cover the costs of
establishing and verifying the facts. The difficulty which faces a liquidator in a case of this kind
was well put by Mr. Harris, the liquidator in the present case, in the evidence which he gave in
support of this application:

“If the legal charges or client account balances are held not to be assets of the company, and if I
cannot obtain remuneration out of that property, then I, and any other liquidator approaching
the liquidation of companies where there may be proprietary claims to the apparent assets, will
be in an impossible situation. Often one cannot tell whether there can be a proprietary claim, or
whether an individual asset is one to which such a claim may relate, without carrying out
considerable investigative work in the first place. It is unrealistic to expect some sort of
application to be made to the court in advance of doing any work, because without an
investigation it will not be possible to present an intelligible case on such an application. At the
end of the day the work has to be done by someone, and it is usually (and certainly in the present
case) best done by the liquidator.”

The order which the liquidator now seeks is an order for the payment to him as remuneration
and/or fees, expenses, costs, disbursements and liabilities in such sum as to the court shall seem
just, out of the assets of the company and out of the funds in the clients' accounts and the sums
realised from the mortgages or from the investors if and to the extent that the mortgages are not
realised; and as a less satisfactory alternative, an order that the company be entitled to be paid
and retain such sums as the court shall think fit by way of remuneration as trustee of the trust
assets. The question which I am now asked to determine is the question of principle, namely,
whether any part of the liquidator's expenses or remuneration can be paid out of the trust assets,
either directly or by way of payment to the company. If the answer to that question is yes, I am
not asked at this stage to decide how the expenses and remuneration should be borne as between

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the company's assets and the trust assets, nor am I asked to determine whether any particular
item of expenses or remuneration claimed by the liquidator should be allowed. Both these
questions will require consideration in due course if payment can properly be made out of the
trust assets, but there is not sufficient evidence to enable them to be decided at present. The
liquidator is, however, entitled to know before he incurs further expense whether his proper
expenses and proper remuneration for his work will be met from the trust assets in the event of
the company's own assets proving insufficient.

There is no reported authority directly in point. I was referred to two cases in which the official
receiver was acting as liquidator of a company which was in course of being wound up by the
court. In In re Introductions Ltd. (No. 2) (Note) [1969] 1 W.L.R. 1359, the company had been
incorporated for the purpose of giving services and information to overseas visitors.
Subsequently it embarked on the business of pig-farming. Members of the public were invited to
purchase sows, and the company undertook to maintain the sows and sell the progeny for the
benefit of their owners. The scheme was not financially successful, and was held by Buckley J.
and the Court of Appeal to be ultra vires: see Introductions Ltd. v. National Provincial Bank Ltd.
[1968] 2 All E.R. 1221; [1970] Ch. 199. The official receiver as liquidator collected the assets of the
company, which consisted of a number of freehold farms and the company's pigs and were
derived wholly from the pig-breeding business, and sought directions as to the payment of his
costs and the costs of the liquidation generally. He pointed out that there was no provision in the
Board of Trade Fees Order 1929 for him to charge fees for his services in an “ultra vires case,”
although in similar circumstances it had been the practice of the official receiver to do so. He
further stated that in his opinion the statement of affairs which he had prepared would materially
assist in the distribution of the assets irrespective of their eventual disposition; and that he was
unable to proceed with his duties as liquidator unless and until the court should have given
directions with regard to the costs of the liquidation in that the company had no assets available
other than those obtained by it in the course of its ultra vires trading. Stamp J., in a four-line
judgment, said [1969] 1 W.L.R. 1359, 1361:

“A labourer is worthy of his hire. It is quite plain that I must direct payment of the official
receiver's costs, charges and expenses out of the assets in hand, without prejudice as to how any
of the costs, charges and expenses ought ultimately to be borne.”

Page 15 of 27

However the application was unopposed, none of the investors being represented; and no
distinction appears to have been made between the farms, which, subject to the consequences of
the business being ultra vires, were the property of the company, and the pigs, some at least of
which may have been held on a constructive trust for the investors, although it appears from the
report that, despite the system of marking, it was not possible to identify them as belonging to
any particular individual.

In In re Exchange Securities & Commodities Ltd. (No. 2) [1985] B.C.L.C. 392, the facts were
nearer to those of the present case. Orders were made for the compulsory winding up of 12
associated companies, and the official receiver became the provisional liquidator of each
company. Four of the companies invited deposits from the public for investment in commodities,
commodity futures, unit trusts, insurance bonds and the like; and the investors claimed that
moneys they had deposited were impressed with a trust. The official receiver issued applications
under section 246(3) of the Companies Act 1948 to determine the issues raised by these claims,
joining representative investors as respondents. In July 1984 Vinelott J. directed that the
respondents be entitled until further order to be paid their costs out of the assets reputedly
belonging to the companies. In March 1985 the matter came back before him on the official
receiver's application that his proper fees and expenses should rank as a first charge on the assets
reputedly belonging to the companies in priority to the trust claims. At that point of time the
extent and validity of the trust claims had not been finally established.

Counsel for the official receiver submitted that the court had an inherent jurisdiction to direct the
payment to the official receiver of a just allowance for his services, and in addition to direct the
payment or reimbursement of all costs and expenses reasonably incurred by him in getting in and
protecting and in taking steps necessary to ascertain the true ownership of the assets held by the
companies. Counsel for the representative investors accepted, in Vinelott J.'s view rightly, that
the court had jurisdiction to authorise the payment of a just allowance to the official receiver for
his services and in reimbursement of costs and expenses reasonably so incurred. A number of
authorities were referred to, but it appears that he limited his argument to a submission that, as
the difficulties which had confronted the official receiver arose from the failure of each company
to keep trust assets distinct from other assets, all costs and expenses in connection with the
unravelling of the accounts (other than the costs of the section 246(3) applications) should be
borne by the assets other than the trust assets so far as sufficient, save only that expenses directly

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related to the realisation and preservation of the trust assets, such as insurance premiums,
should fall exclusively on the trust assets: see p. 403A–B. Vinelott J. considered it premature to
endeavour to formulate principles which would govern the incidence of costs and expenses
incurred by or on behalf of the official receiver until after the questions relating to the trust
claims and other questions had been determined. He accordingly made a declaration, inter alia,
that the fees and proper expenses of the official receiver as provisional liquidator would rank as a
charge on the assets held by or reputedly belonging to the companies in priority to any trust
claims, but without prejudice to the ultimate incidence thereof as between trust and other assets.

In the present case Mr. de Lacy, counsel for the investors whose moneys have been applied in
making mortgage advances, supported by Mr. Garnett, counsel for the investors whose moneys
are still in the company's clients' accounts, challenges the right of the liquidator to be paid
anything out of the trust assets in excess of the amounts which the company itself could have
recovered under the terms on which deposits were invited from the public. Mr. de Lacy points out
that the two cases to which I have referred were both cases of compulsory winding up, in which
the official receiver, by virtue of his office, automatically becomes the liquidator until another
liquidator is appointed: see section 136(2) of the Insolvency Act 1986 . In the present case the
company is in voluntary liquidation, and Mr. Harris had an opportunity of considering the
position before accepting office as liquidator. He submits that what the liquidator has done
amounts to the officious conferment of a benefit and that, in the words of Bowen L.J. in Falcke v.
Scottish Imperial Insurance Co. (1886) 34 Ch.D. 234, 248: “Liabilities are not to be forced upon
people behind their backs any more than you can confer a benefit upon a man against his will.”

A liquidator is not a trustee for anyone: he is a substitute for the board of directors. He is only the
agent of the company, and is more akin to the board than is a trustee in bankruptcy; and even a
trustee in bankruptcy acquires no title to trust assets vested in the bankrupt. Mr. de Lacy's
submissions go to the root of what was accepted in In re Exchange Securities & Commodities Ltd.
(No. 2) [1985] B.C.L.C. 392, and I have heard a full argument on the question whether the court
has jurisdiction to make any such order as is sought by the liquidator.

In support of his submission that such a jurisdiction exists, Mr. Mann, counsel for the liquidator,
referred me first to the cases which were referred to by Vinelott J. In a number of them the
contest was between the liquidator and a secured creditor. In In re Marine Mansions Co. (1867)

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L.R. 4 Eq. 601, a debenture holder had a specific charge on the leasehold land and buildings of
the company. The liquidator sold two properties for a sum in excess of the amount owing on the
debentures. Sir W. Page Wood V.-C. held that the debenture holder was entitled to be paid his
principal, interest and costs out of the proceeds of sale, after deducting only the liquidator's costs
of realising the property together with certain expenses incurred by the liquidator in rendering
the property fit for sale and rent paid by him to the landlord, to which the debenture holder made
no objection. The other costs incurred by the liquidator in the winding up and any remuneration
payable to him were postponed to the rights of the debenture holder. A similar conclusion was
reached by Wickens V.-C. in In re Oriental Hotels Co. (1871) L.R. 12 Eq. 126: the expenses of the
realisation of the property by the liquidator took priority over any claim of the mortgagee, but the
mortgagee's claim was paramount to the general costs of the winding up. I do not find these two
cases of very much assistance. In both of them the mortgagee could have sold regardless of the
winding up and the liquidator was in effect selling on his behalf. The expenses which he incurred
for the purpose of selling to the best advantage were of a different character from the expenses
incurred by the liquidator in the present case. Nevertheless they recognise that where a
mortgagee permits a liquidator to sell the company's property which is subject to his mortgage,
he cannot claim the entire proceeds of sale without allowing the liquidator the costs which he has
properly incurred in connection with the sale.

In In re Regent's Canal Ironworks Co. (1875) 3 Ch.D. 411, liquidators appointed by the court in a
voluntary winding up under the supervision of the court carried on the business of the company
for nine years under a number of orders of the court which were expressed to be without
prejudice to the claims of the debenture holders. Eventually, under a further order of the court,
they realised the property which was subject to the debenture, which consisted of certain
leaseholds, machinery and plant. The liquidators claimed to be allowed the costs of carrying on
the business in priority to the debenture holders. The Court of Appeal held that the costs properly
incurred in realising the properties comprised in the security were payable out of the proceeds of
sale, and subject thereto the proceeds belonged to the debenture holders. James L.J. said, at p.
426:

“I am of opinion that the claim on behalf of the liquidators cannot be sustained. No doubt it is a
very hard case for them that they have had to deal with an insolvent company, but they ought to
have looked into that matter before they incurred expenses and made themselves liable. Those

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who render services to an insolvent company, or an insolvent person, frequently find they have to
go without payment, and the liquidators should not have incurred disbursements which they had
no means of being reimbursed.”

He would have allowed costs properly incurred in preserving the property, such as the cost of
repairs, the payment of rates and taxes necessary to prevent a forfeiture or putting a person in to
take care of the property (but not payments made as part of the current outgoings of the
business); but the liquidators had not paid anything of that kind. Mr. de Lacy relied on this case
as authority for the proposition that the inherent jurisdiction for which Mr. Mann contended
does not exist. I do not think it provides any guidance either way. It was in essence quite a
straightforward case in which the liquidator and the contributories thought it was for their own
benefit that the business should be carried on, and the debenture holders were content to rely on
their security: see per James L.J. at pp. 420–421. When the business failed and the security was
realised, only the costs of realisation could properly be charged against the debenture holders.
The position was no different in principle from that which existed in In re Marine Mansions Co.,
L.R. 4 Eq. 601 and In re Oriental Hotels Co., L.R. 12 Eq. 126 . In re Northern Milling Co. [1908] 1
I.R. 473 was a case in the High Court of Ireland to the same effect.

Similar reasoning was adopted by Kekewich J. in In re Staffordshire Gas and Coke Co. [1893] 3
Ch. 523, where the question was whether the costs of persons who successfully applied to be
struck off the list of contributories were payable in priority to the costs of the liquidation. The
liquidator was allowed the costs of realising the assets of the company, and would have been
allowed “expenditure, if any there had been, in the preservation of the property coming under the
head of ‘salvage’”: see p. 528. The costs of the applicants took priority over the liquidator's costs
of resisting the application.

In In re Anglo-Austrian Printing and Publishing Union [1895] 2 Ch. 891, misfeasance
proceedings were brought by the liquidator against certain officers of the company, under section
10 of the Companies (Winding-Up) Act 1890 , and a sum of £7,000 was recovered. The sum
recovered was subject to a debenture. It was not disputed that the liquidator was entitled to
deduct the costs incurred by him in the misfeasance proceedings; but the petitioning creditor
claimed that his costs too should have priority as they were essential to the salvage of the fund,

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because the particular proceedings under the Act of 1890 could not have been taken unless there
had been a winding up order, and there could not have been a winding up order unless there had
first been a petition. Vaughan Williams J. held that these costs could not be brought within the
doctrine of salvage, and therefore, with some regret, that they could not be given priority. Mr. de
Lacy says that if there had been any such inherent jurisdiction as is claimed by Mr. Mann the
court could have allowed the petitioner his costs in priority to the debenture holders. There is
some force in this, but the petitioning creditor stands on a rather different footing from the
liquidator; and it does not appear that the wider question of inherent jurisdiction, of which
salvage is only one aspect, was really argued.

In two further cases, In re Glasdir Copper Mines Ltd. [1906] 1 Ch. 365 and In re A. Boynton Ltd.
[1910] 1 Ch. 519, the court had appointed a receiver in a debenture holder's action, in order to
preserve and realise the company's property, and authorised him to borrow money for that
purpose. In both cases it was held that the receiver's costs and remuneration took priority over
the claims of the persons from whom he borrowed the money. In In re A. Boynton Ltd.
Warrington J. pointed out that the receiver was an officer of the court, and summarised the
position of the lenders, at p. 525:

“They come in and take a charge upon the assets of a business which is in the course of realization
by the court, and in my opinion they can take in satisfaction of their charge no more than that
which is actually realized. The plaintiff has incurred his costs of the action, and the receiver has
given his services, in the endeavour to realize as large a fund as possible for the benefit of the
several persons having charges on it, and I think they are both entitled to be indemnified before
the fund is applied in payment of these charges.”

These cases are clearly distinguishable from the present case. Mr. Mann suggested that they
illustrated a general principle that work carried on for the benefit of others should be paid for at
the expense of those others, and that the position of the debenture holders was very similar to
that of the investors in the present case, in that the assets subject to the debentures were no
longer the assets of the company; but I do not think that there is a very close analogy between a

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liquidator in a voluntary winding up who has incurred expense in dealing with assets which never
belonged beneficially to the company, and a receiver acting on the directions of the court who has
incurred expense in realising assets of the company which were subject to a debenture.

Having referred me to all the cases which were cited in In re Exchange Securities & Commodities
Ltd. (No. 2) [1985] B.C.L.C. 392 Mr. Mann accepted that Vinelott J. did not have a line of cases
before him which established the jurisdiction on which he relied; but nevertheless Vinelott J. was
satisfied that there was jurisdiction, at all events where the official receiver was acting as
liquidator. Mr. Mann submitted that the source of the jurisdiction was to be found first in the
maxim that he who seeks equity must do equity, and secondly in the inherent jurisdiction to
promote the proper administration of trusts, which includes the doctrine of salvage; and he
submitted that these two sources are not distinct but overlap. In re Marine Mansions Co., L.R. 4
Eq. 601 and subsequent cases in which the liquidator had been allowed the costs incurred in
preserving mortgaged property, might be seen as based on the maxim or on the jurisdiction to
promote the proper administration of trusts; but reimbursement of expenses was not enough for
his purposes: what he sought was an order authorising reasonable remuneration for the
liquidator. He submitted that the court's jurisdiction to award compensation for services
rendered was supported by two comparatively recent cases, Phipps v. Boardman [1964] 1 W.L.R.
993 and In re Duke of Norfolk's Settlement Trusts [1982] Ch. 61.

In Phipps v. Boardman [1964] 1 W.L.R. 993 trustees of a will held shares in a company. Mr.
Boardman, who was the solicitor to the trustees, and Mr. Phipps, who was a beneficiary, obtained
confidential information about the company by acting as self-appointed agents for the trustees.
With the aid of that information they made a take-over bid on their own behalf for the
outstanding shares in the company, so as to obtain control and, by a liquidation of assets, make a
repayment of capital to the shareholders. The assets of the company proved to be worth far more
than the amount paid for the shares. The trustees made a handsome profit on their shares, and
Mr. Boardman and Mr. Phipps an even larger one on theirs. Wilberforce J. held that they must
account to the beneficiaries for the profit they had made, less their expenditure incurred to
enable it to be realised. He continued, at p. 1018:

Page 21 of 27

Wilberforce J.'s decision was affirmed in the Court of Appeal [1965] Ch. 992, where Lord
Denning M.R. equated the case to an action for restitution of the kind described in Fibrosa
Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943] A.C. 32, 61, and said that the
claim for restitution should not be allowed to extend further than the justice of the case
demanded, and that generous remuneration should be allowed to the agents; and in the House of
Lords [1967] 2 A.C. 46, where Lord Cohen and Lord Hodson, at pp. 104 and 112 respectively,
agreed with Wilberforce J. that payment should be allowed on a liberal scale in respect of the
work and skill employed in obtaining the shares and the profits therefrom.

In In re Duke of Norfolk's Settlement Trusts [1982] Ch. 61, a settlement authorised one of the
plaintiffs, a trustee company, to charge remuneration in accordance with its usual scale of fees in
force at the date of the settlement. The substantial redevelopment of the settled estates involved
the trustees in work entirely outside anything which could reasonably have been foreseen when
they accepted office. The plaintiffs sought an order under the inherent jurisdiction authorising
increased remuneration for the plaintiff company. In the High Court Walton J. [1979] Ch. 37 held
that he had jurisdiction to authorise additional remuneration in respect of past work, but that he
had no inherent jurisdiction to authorise for the future any general increases in the remuneration
provided for the trustee company under the settlement. The Court of Appeal [1982] Ch. 61 held
that there was an inherent jurisdiction to increase the remuneration of a trustee, on the basis that
in doing so the court was “exercising its ancient jurisdiction to secure the competent
administration of trust property:” per Fox L.J., at p. 78E. Fox L.J. continued, at p. 79:

“I appreciate that the ambit of the court's inherent jurisdiction in any sphere may, for historical
reasons, be irrational and that logical extensions are not necessarily permissible. But I think that
it is the basis of the jurisdiction that one has to consider. The basis, in my view, in relation to a
trustee's remuneration is the good administration of trusts. The fact that in earlier times, with
more stable currencies and with a plenitude of persons with the leisure and resources to take on
unremunerated trusteeships, the particular problem of increasing remuneration may not have
arisen, does not, in my view, prevent us from concluding that a logical extension of admitted law

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and which is wholly consistent with the apparent purpose of the jurisdiction is permissible. If the
increase of remuneration be beneficial to the trust administration, I do not see any objection to
that in principle.”

Having established that the court has jurisdiction in certain cases to authorise remuneration to
be paid out of trust funds to trustees or others acting in a fiduciary relationship to the trust, Mr.
Mann referred me to a number of cases in which, he submitted, the court had applied the
principle that he who seeks equity must do equity. In Scott v. Nesbitt

(1808) 14 Ves. Jun. 438, consignees (or managers) of a West Indian estate who had been
appointed out of court claimed a lien on the estate for expenses incurred in managing it in
priority to mortgagees of the estate. The master's report stated that he did not find that there was
any law or usage in the West Indies under which the consignee was entitled to such a lien; but
Lord Eldon upheld his claim on ordinary principles of equity as applied to estates in this country.
He said, at p. 444:

“the concerns of the estate could not be carried on without consignees; and all moral justice
requires, that for what in the fair discharge of their duty they become liable to in respect of the
management of the estate they should be indemnified, with priority to the claim of those, who
have interests in the estate, to be so managed, before any person can have any benefit from it. If
any probable cause had been laid before the court, when the decree was made, in 1783, a receiver,
or consignee and manager, would have been granted; whose fair expences would have been paid
in the first instance, before this court would have permitted anything to be taken by the parties
entitled; and it may be represented rather as the effect of accident, that this question arises now,
than that a consignee might not have been appointed; who would have been immediately entitled
to the benefit, which is now claimed.”

A similar decision was given by Stuart V.-C. in Morrison v. Morrison (1854) 2 Sm. & G. 564,
where consignees of an estate in Tobago were appointed by the court in proceedings to which a
mortgagee was not party. Questions arose concerning priority of title to a fund in court, being the
amount of the compensation money awarded to the owner of the estate in respect of slaves of the
estate upon their emancipation. Stuart V.-C. said, at p. 576:

Page 23 of 27

“To permit the mortgagee to take this compensation money, or any other part of the proceeds of
this estate, or any fund in this cause belonging to the mortgagee or other owners of the estate,
without reimbursing the consignee the debt found due to him for the management on behalf of
all the owners, would be a violation of those principles of natural justice on which Lord Eldon
said he proceeded in the case of Scott v. Nesbitt, 14 Ves. Jun. 438 .”

Mr. de Lacy submitted that these two cases could be distinguished because the outlay by the
consignee was for the purpose of producing income, and the party who had not consented to the
consignee's appointment could not make the consignee account for the income without
reimbursing him his expenditure. In the present case, on the other hand, the liquidator's
expenditure was incurred in the internal management of the company, and the investors are not
seeking any form of relief against him. He sought to distinguish Phipps v. Boardman [1964] 1
W.L.R. 993 on similar grounds: the beneficiaries, he submitted, had an election either to affirm
the transaction in which Mr. Boardman and Mr. Phipps assumed to act as agents for the trust, in
which case they were obliged to pay their expenses and compensation for their skill and labour;
or to refuse to treat them as agents, when they would not have been entitled to any payment (but
could have kept the profits for themselves). In the present case the liquidator's work has not
added to the assets of the investors, and the investors are not obliged to pay him anything.

In my judgment Mr. de Lacy's submissions are based on too narrow a view of the principles on
which the court acts. It is true that the legal title to the mortgages and to the clients' accounts is
not vested in the liquidator but remains in the company; but the investors still need the
assistance of a court of equity to secure their rights. In this respect their position is different from
that of the claimant in Falcke v. Scottish Imperial Insurance Co., 34 Ch. D. 234 , where Bowen
L.J. said, at p. 251: “It is not even a case where the owner of the saved property requires the
assistance of a court of equity … to get the property back.” As a condition of giving effect to their
equitable rights, the court has in my judgment a discretion to ensure that a proper allowance is
made to the liquidator. His skill and labour may not have added directly to the value of the
underlying assets in which the investors have equitable interests but he has added to the estate in
the sense of carrying out work which was necessary before the estate could be realised for the
benefit of the investors. As was the case in Scott v. Nesbitt, 14 Ves. Jun. 438 , if the liquidator had
not done this work, it is inevitable that the work, or at all events a great deal of it, would have had

Page 24 of 27

to be done by someone else, and on an application to the court a receiver would have been
appointed whose expenses and fees would necessarily have had to be borne by the trust assets.
On the evidence before me, the beneficial interests of the investors could not have been
established without some such investigation as has been carried out by the liquidator.

The allowance of fair compensation to the liquidator is in my judgment a proper application of
the rule that he who seeks equity must do equity.

“That … is a rule of unquestionable justice, but which decides nothing in itself; for you must first
inquire what are the equities which the defendant must do, and what the plaintiff ought to have:”

Neesom v. Clarkson (1845) 4 Hare 97, 101 per Wigram V.-C.

“The rule means that a man who comes to seek the aid of a court of equity to enforce a claim must
be prepared to submit in such proceedings to any directions which the known principles of a
court of equity may make it proper to give; he must do justice as to the matters in respect of
which the assistance of equity is asked:”

Halsbury's Laws of England, 4th ed., vol. 16 (1976), p. 874, para. 1303, which in my judgment
correctly states the law.

The authorities establish, in my judgment, a general principle that where a person seeks to
enforce a claim to an equitable interest in property, the court has a discretion to require as a
condition of giving effect to that equitable interest that an allowance be made for costs incurred
and for skill and labour expended in connection with the administration of the property. It is a
discretion which will be sparingly exercised; but factors which will operate in favour of its being
exercised include the fact that, if the work had not been done by the person to whom the
allowance is sought to be made, it would have had to be done either by the person entitled to the
equitable interest (as in In re Marine Mansions Co., L.R. 4 Eq. 601 and similar cases) or by a
receiver appointed by the court whose fees would have been borne by the trust property (as in
Scott v. Nesbitt, 14 Ves. Jun. 438 ); and the fact that the work has been of substantial benefit to
the trust property and to the persons interested in it in equity (as in Phipps v. Boardman [1964] 1
W.L.R. 993). In my judgment this is a case in which the jurisdiction can properly be exercised.

Page 25 of 27

It seems to me that this principle is entirely consistent with the basis upon which the Court of
Appeal acted in In re Duke of Norfolk's Settlement Trusts [1982] Ch. 61. What the Court of
Appeal held in that case was that, if the increase of the trustees' remuneration was beneficial to
the trust administration, there was an inherent jurisdiction to require the beneficiaries to accept,
as a condition of effect being given to their equitable interests, that such an increase in
remuneration should be authorised. The court there was concerned with the good administration
of a settlement of a conventional kind; but the jurisdiction which was held to be exercisable in
that case is in my judgment equally exercisable in other cases in which a person seeks to enforce
an interest in property to which he is entitled in equity. The principles on which a court of equity
acts are not divided into watertight compartments but form a seamless whole, however necessary
it may be for the purposes of exposition to attempt to set them out under distinct headings. I have
already referred to the way in which Kekewich J. in In re Staffordshire Gas and Coke Co. [1893] 3
Ch. 523 treated expenditure on the preservation of trust property as coming under the head of
“salvage,” and the petitioning creditor in In re Anglo-Austrian Printing and Publishing Union
[1895] 2 Ch. 891 sought to persuade Vaughan Williams J. to do the same. It is of interest that in
In re Duke of Norfolk's Settlement Trusts [1979] Ch. 37, 59B–C, Walton J. regarded the cases in
which the court authorises additional remuneration in order to secure the services of a particular
trustee as also being “closely analogous to ‘salvage’.” I think this can fairly be regarded as
confirmation of the underlying unity of the inherent jurisdiction which is exercised in such
diverse circumstances as those which existed in In re Marine Mansions Co., L.R. 4 Eq. 601 ; Scott
v. Nesbitt, 14 Ves. Jun. 438 ; Phipps v. Boardman [1964] 1 W.L.R. 993 and In re Duke of
Norfolk's Settlement Trusts [1982] Ch. 61.

Another example of the exercise of the inherent jurisdiction which seems to me to fall within the
same principle occurs when the court sets aside a settlement for undue influence or on the
bankruptcy of the settlor. Although there is no longer any property subject to the settlement, the
court has a discretion to allow the trustees to take their costs out of the fund before handing it
over to the successful litigant: see Merry v. Pownall [1898] 1 Ch. 306, 310–311 and Bullock v.
Lloyds Bank Ltd. [1955] Ch. 317, 327.

The particular aspect of the inherent jurisdiction which is sometimes referred to as “salvage” was
said by Evershed M.R. and Romer L.J. in In re Downshire Settled Estates [1953] Ch. 218, 235, to
be exercisable

Page 26 of 27

“where a situation has arisen in regard to the [trust] property (particularly a situation not
originally foreseen) creating what may be fairly called an ‘emergency’ — that is a state of affairs
which has to be presently dealt with, by which we do not imply that immediate action then and
there is necessarily required — and such that it is for the benefit of everyone interested under the
trusts that the situation should be dealt with by the exercise of the administrative powers
proposed to be conferred for the purpose.”

The situation which existed in the present case immediately before the commencement of the
winding up could similarly fairly be called an emergency; and although the observations of
Evershed M.R. and Romer L.J. were directed to the court's jurisdiction to confer administrative
powers upon trustees, the cases to which I have referred show that the inherent jurisdiction is
wider than this and extends to making an allowance for costs incurred and skill and labour
expended by those who have acted without obtaining the prior authority of the court.

I should notice three particular objections which were made to the existence of the jurisdiction in
the present case. First it was said that the liquidator was not in the position of a trustee, in that
the legal interest in the trust assets remained throughout in the company and did not vest in him.
In my judgment this does not preclude the court from making an allowance to him out of the
trust assets in respect of his expenses and remuneration, although it is no doubt a factor to
consider when determining to what extent compensation for his expenditure of money, skill and
labour should be borne by the trust assets rather than the company's own assets. In several of the
cases to which I have referred the person to whom the court made an allowance was not in the
ordinary sense a trustee, although like the liquidator he was subject to fiduciary obligations; and
the fact that he was not a trustee did not prevent the court from making a payment to him out of
the trust assets. The salvage jurisdiction referred to in In re Downshire Settled Estates [1953] Ch.
218 was described in terms which were restricted to the conferment of powers on trustees; but
Evershed M.R. and Romer L.J. recognised that salvage was only one aspect of the inherent
jurisdiction, and the court's powers are clearly not exercisable only in favour of those who hold
office as express trustees.

Page 27 of 27

Thirdly, it was said that the business carried on by the company was contrary to section 1 of the
Banking Act 1979 , and that this is a ground for declining to exercise the inherent jurisdiction. It
is not necessary for me to express any view on the legality of the company's business, which
appears to be a question of some difficulty. I am satisfied that even if it was illegal, this does not
preclude the court from exercising the jurisdiction in favour of the liquidator, whose own conduct
is blameless in this respect.

Accordingly I propose to declare that the liquidator is entitled to be paid his proper expenses and
remuneration out of the trust assets if the assets of the company are insufficient. I am not
deciding how such expenses and remuneration should be borne as between the company's assets
and the trust assets, nor as between the different classes of trust assets, nor whether any part of
them should be borne by the trust assets if the company's own assets should in the end prove
sufficient to meet them. It is premature to determine questions of incidence when the full extent
of the liquidator's claims to expenses and remuneration are not yet known and the assets of the
company may yet be swelled as a result of the litigation in which it is engaged. But the liquidator
is entitled to know at this stage that his proper expenses and remuneration will be paid if
necessary out of the trust assets, and that he will not be left at the end of the winding up with the
possibility of receiving no recompense for his work or of having to bear part of the expenses out
of his own pocket.

Declaration accordingly.

Solicitors: Bond Pearce, Plymouth; Boyce Hatton, Torquay; Fynmores, Bexhill-on-Sea;
Fairchild Greig & Wells.

[Reported by IAN SAXTON, ESQ., Barrister-at-Law]