Jurisdiction(s):
United Kingdom

Lowe v Lloyds Bank CF Ltd: EWHC rejects constructive trust over mistaken payments; contract primacy and pari passu rule require creditor to prove in administration (England and Wales)

Published on: 28 April 2020

Published by a LexisNexis Restructuring & Insolvency expert

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Article summary

Lowe and another (as joint administrators of Benedict Cole Ltd (in administration)) v Lloyds Bank Commercial Finance Ltd and another company [2020] EWHC 946 (Ch)

What are the practical implications of this case?

The court examined the principles governing constructive trusts within an insolvency setting, providing a helpful overview of earlier guidance, and confirmed from para [44] onwards that, for those aiming to establish constructive trusts, the following propositions hold:

The first place to look is the parties’ contracts. Do they show the usual indicators of a trust arrangement—e.g. a separate account, express statements of trust or duty, and similar features?
If a trust arises, it must exist at the point of insolvency; otherwise, it would jeopardise the pari passu principle which, in this context, is of overriding importance.
A mistaken payment, by itself, is insufficient to create a constructive trust; there is, at minimum, the further requirement that the recipient keeps the money after becoming aware of the mistake.
A contention that the creditor would, in practice, obtain nothing from...

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