England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
Norris J
HC09C03105

		Royal Courts of Justice Strand, London, WC2A 2LL
		14th November 2012

Lord Justice Patten :

1. The claimants in these proceedings were all investors in what were described as "The Take 3 TV Partnerships" and which I will refer to simply as "Take 3". These were a series of unregulated collective investment schemes promoted by Teather & Greenwood Limited ("Teathers") which were intended to take advantage of the tax reliefs available under s.42 of the Finance (No. 2) Act 1992 and s.48 of the Finance (No. 2) Act 1997.
2. Under this legislation a UK taxpayer was entitled to write down 100% of any expenditure on a film or TV production which was certified by the Department of Culture, Media and Sport as what is defined in the Films Act 1985 as a British Qualifying Film. Take 3 was set up to invest in TV productions. There was an initial fee equal to 9% of the investment so that 91% of the monies paid into the scheme potentially qualified for tax relief as an off-set against the investors' other income.
3. Investment in Take 3 was obtained through the issue by Teathers of an Information Memorandum which contained a summary of the scheme and its tax advantages as well as warnings about some of the risks involved. Applicants were required to complete a Subscription Agreement and power of attorney which were included at the end of the Information Memorandum. The amount of the subscription (which had to be a minimum of £25,000) was paid by cheque or banker's draft in favour of Teathers and placed into an account held by them at HSBC. It is common ground that this account was governed by the client money rules contained in regulations made under the Financial Services Act 1986 ("FSA 1986") and later the Financial Services and Markets Act 2000 ("FSMA 2000"). I shall come to the details of this later in this judgment.
4. The investment of these monies in TV productions was carried out through the medium of an unlimited partnership in which the investors were all general partners and Teathers acted as the managing partner. Under the terms of the Subscription Agreement Teathers was authorised to execute the Partnership Deed on the investors' behalf and it thereupon transferred the subscription monies from the HSBC account into a partnership account at Barclays. Teathers then used these monies to invest in productions which it selected from various proposals put forward by Baker Street Media Finance Limited ("BSMF"), a specialist film finance company, which Teathers engaged to review and identify proposals and programmes which were suitable for the partnership. The Information Memorandum indicated that the partnerships were intended to subsist for at least five years and would re-invest any net income in further productions during that period. At the end of five years re-investment of income was to cease and the partnerships would then dispose of their rights in current productions and in the library of previously completed programmes in which they retained an interest (described as "library sales"). The proceeds would then be distributed to the investors.
5. Take 3 has not proved to be successful. Many of the productions have been commercial failures and in a number of cases have not been certified as British Qualifying Films so as to obtain the tax relief on the investments which was the rationale behind the scheme. There are also complaints that although the Information Memorandum promised that monies would only be invested in productions where there was a pre-sale commitment for at least 60% of the funds contributed by the partnership, this has not in practice been adhered to.
6. Consequently a series of actions have been commenced against Teathers seeking damages for misrepresentation; negligent breach of duty both as the promoter of the scheme and as managing partner of the individual partnerships; regulatory breach of duty under the Financial Services Act 1986; and breach of trust. They relate not merely to Take 3 but also to similar schemes marketed by Teathers (Take 2, 4, 5 and 6). Teathers is now in liquidation and its only material asset is an insurance policy which provides cover against these claims up to an overall limit according to Teathers of £10m inclusive of the costs of Teathers' defence of the claims.
7. In order to maximise any possible recovery Take 3 has been chosen as the paradigm scheme for the purpose of testing liability under one of the heads of claim; namely breach of trust. The essence of this claim is that the subscription monies provided by each investor were held by Teathers both in the HSBC client account and in the Barclays partnership account on a Quistclose trust to apply the monies only for the purpose of an investment which satisfied what have been referred to as the Take Criteria. These are said to derive from the Information Memorandum and to set the limits of Teathers' authority to deal with any of the subscription monies in the partnership account.
8. As originally formulated in paragraph 54 of the Particulars of Claim, the Take Criteria are alleged to include the following:

"a) Funds would only be invested in British TV Productions which were so certified by the Department of Culture Media and Sport ("Take Criterion 1")….".

"b) No investment would be made unless a "pre-sale" or "guarantee" was in place for at least 60% of the funds committed by a Partnership which was payable in the immediately following year in time for it to be reinvested……("Take Criterion 2")".

"c) No investment would be made unless borrowing of up to 100% of the value of the presale or guarantees were to be put in place ("Take Criterion 3")…".

"d) Funds would only be invested in a production…capable of being completed by the end of the tax year in which the investment was made and… capable of producing an income to be invested in the immediately following year sufficiently to shelter the tax that would otherwise be payable that year on receipt of the presale or guarantee required by Take Criterion 2 ("Take Criterion 4")…".

"e) At the end of the period of each partnership (typically five years) such partnership had to own rights in each TV production so that the rights could be realised as Library Sale Value ("Take Criterion 5")."

9. An additional criterion (Take Criterion 1A) has been added to the list (by letter dated 21^st February 2011) that:

"Funds would only be invested so that the downside for investors (that is, the risk of loss) would be largely eliminated."

10. The legal effect of the Take Criteria is set out in the following paragraphs of the Particulars of Claim:

"116. The Claimants' subscriptions were collected for the purposes of investing in accordance with the Take Criteria and the IM and for no other purpose. In the premises T&G's duties owed to the Claimants in respect of Partnership property, including any cash held on behalf of the Claimants, were those of a trustee.

117. Further the Claimants subscribed to the Scheme on the basis that T&G would be the administrator of the Partnership and, in the premises, T&G held the claimants' subscriptions upon trust to use the same pursuant only to a validly created partnership deed and management agreement.

…

126. In breach of trust and in breach of the duties set out at Paragraphs 115 to 120 inclusive above, T&G wrongfully paid away monies of the Claimants from its client account at various times (full particulars of which the Claimants will be able to give only after disclosure) in the implementation of the Scheme when such monies should have been repaid to the Claimants once T&G knew or ought to have known:

126.1 the scheme being implemented was fundamentally different from the Scheme as described in the IM, and that accordingly no authority had been or could have been given for the expenditure of any funds whatsoever, or

126.2 the Scheme as implemented was certain to fail as a tax saving scheme and was overwhelmingly likely to be unsuccessful as an investment, or

126.3 the investments did not comply with the Take Criteria."

11. As Mr Tregear QC for the claimants explained, the claim for breach of trust has the advantage of imposing liability on Teathers for the misapplication of the partnership monies simply upon proof that they knew or ought to have known that the investments did not comply with the Take Criteria. Indeed, in argument, the case was put in even stricter terms than those pleaded in paragraph 126 on the basis that Teathers had no authority to make any use of the monies for investment in a TV production which did not meet these criteria so that non-compliance itself created an immediate liability to account for the monies and to restore the fund. Whichever way the case is put, it obviates the need for the claimants to prove reliance by the investors on any alleged misrepresentations contained in the Information Memorandum or to demonstrate that in its stewardship of the scheme as administrative partner Teathers was negligent in its acceptance of BSMF's recommendations and the subsequent choice of productions in which to invest.
12. It was therefore agreed that there would be considerable savings in costs if the Court were to determine that Teathers held the monies in the partnership account on a trust on the terms I have described. The pleaded basis of such a trust is confined to the terms of the Information Memorandum and other limited documentation which the claimants were presented with as the basis for their investment decision. It is not alleged to have arisen as a result of any communications outside the subscription machinery contained and explained in the Information Memorandum. Accordingly Norris J. ordered a trial of various preliminary issues which he re-formulated in his judgment as follows:

"(a) Was money that was paid by a Claimant to Teathers for the purposes of investment in a Take scheme at the free disposal of Teathers?

(b) If not, in what respects was Teathers' freedom to dispose of the money excluded or restricted? In particular was it excluded or restricted by the Take Criteria?

(c) For what purpose or purposes was Teathers entitled to apply the Claimants' money?

(d) Was Teathers authorised to invest Take 3 partnerships' funds or otherwise apply the Claimants' money only in accordance with the purpose identified in (c)? Or only in accordance with the Take Criteria?

(e) What regulatory duty or duties were imposed upon Teathers in the creation and promotion of the Take 3 scheme as regards dealing with client monies?"

13. It is convenient at this stage to summarise the necessary conditions for the imposition of a Quistclose type trust of the kind alleged. The name is of course derived from the decision of the House of Lords in Barclays Bank Ltd v Quistclose Investments [1970] AC 567 where a company in serious financial difficulties negotiated a loan from Barclays of some £209,000 in order to meet an ordinary share dividend. The payment of the dividend was a pre-requisite to the company obtaining a much larger loan from another third party. The bank agreed to provide the dividend loan on the express terms (imposed in a letter from the bank) that the money should only be used to meet the dividend due. The bank credited a specific dividend account with the amount of the loan but, before the dividend was paid, the company was placed into voluntary liquidation. The bank sought repayment of the money in the account on the basis that it had been held on a trust which had failed and was, as a consequence, now held on a resulting trust in the bank's favour. The House of Lords (applying a number of earlier authorities) held that money advanced for a specific purpose (such as the payment of a particular debt) was impressed with a trust for that purpose and did not become part of the debtor's estate. The trust continued to subsist until the monies had been applied in accordance with the purpose for which they were lent.
14. These principles were reviewed by the House of Lords in Twinsectra Ltd v Yardley [2002] AC 164 and the judge directed himself in accordance with the following summary of the law:

"16. First, the question in every case is whether the payer and the recipient intended that the money passing between them was to be at the free disposal of the recipient: Re Goldcorp Exchange [1995] 1 AC 74 and Twinsectra at [74].

17. Second, the mere fact that the payer has paid the money to the recipient for the recipient to use it in a particular way is not of itself enough. The recipient may have represented or warranted that he intends to use it in a particular way or have promised to use it in a particular way. Such an arrangement would give rise to personal obligations but would not of itself necessarily create fiduciary obligations or a trust: Twinsectra at [73].

18. So, thirdly, it must be clear from the express terms of the transaction (properly construed) or must be objectively ascertained from the circumstances of the transaction that the mutual intention of payer and recipient (and the essence of their bargain) is that the funds transferred should not be part of the general assets of the recipient but should be used exclusively to effect particular identified payments, so that if the money cannot be so used then it is to be returned to the payer: Toovey v Milne (1819) 2 B&A 683 and Quistclose Investments at 580B.

19. Fourth, the mechanism by which this is achieved is a trust giving rise to fiduciary obligations on the part of the recipient which a court of equity will enforce: Twinsectra at [69]. Equity intervenes because it is unconscionable for the recipient to obtain money on terms as to its application and then to disregard the terms on which he received it from a payer who had placed trust and confidence in the recipient to ensure the proper application of the money paid: Twinsectra at [76].

20. Fifth, such a trust is akin to a "retention of title" clause, enabling the recipient to have recourse to the payer's money for the particular purpose specified but without entrenching on the payer's property rights more than necessary to enable the purpose to be achieved. It is not as such a "purpose" trust of which the recipient is a trustee, the beneficial interest in the money reverting to the payer if the purpose is incapable of achievement. It is a resulting trust in favour of the payer with a mandate granted to the recipient to apply the money paid for the purpose stated. The key feature of the arrangement is that the recipient is precluded from misapplying the money paid to him. The recipient has no beneficial interest in the money: generally the beneficial interest remains vested in the payer subject only to the recipient's power to apply the money in accordance with the stated purpose. If the stated purpose cannot be achieved then the mandate ceases to be effective, the recipient simply holds the money paid on resulting trust for the payer, and the recipient must repay it: Twinsectra at [81], [87], [92] and [100].

21. Sixth, the subjective intentions of payer and recipient as to the creation of a trust are irrelevant. If the properly construed terms upon which (or the objectively ascertained circumstances in which) payer and recipient enter into an arrangement have the effect of creating a trust, then it is not necessary that either payer or recipient should intend to create a trust: it is sufficient that they intend to enter into the relevant arrangement: Twinsectra at [71].

22. Seventh, the particular purpose must be specified in terms which enable a court to say whether a given application of the money does or does not fall within its terms: Twinsectra at [16].

23. It is in my judgment implicit in the doctrine so described in the authorities that the specified purpose is fulfilled by and at the time of the application of the money. The payer, the recipient and the ultimate beneficiary of the payment (that is, the person who benefits from the application by the recipient of the money for the particular purpose) need to know whether property has passed."

15. Both sides accepted this as an accurate statement of the relevant principles. I would only add by way of emphasis that in deciding whether particular arrangements involve the creation of a trust and with it the retention by the paying party of beneficial control of the monies, proper account needs to be taken of the structure of the arrangements and the contractual mechanisms involved. As Lord Millett stressed in Twinsectra (at [73]) and the judge repeated in [17] of his own judgment, payments are routinely made in advance for particular goods and services but do not constitute trust monies in the recipient's hands. It is therefore necessary to be satisfied not merely that the money when paid was not at the free disposal of the payee but that, objectively examined, the contractual or other arrangements properly construed were intended to provide for the preservation of the payor's rights and the control of the use of the money through the medium of a trust. Critically this involves the court being satisfied that the intention of the parties was that the monies transferred by the investors should not become the absolute property of Teathers (subject only to a contractual restraint on their disposal) but should continue to belong beneficially to the investors unless and until the conditions attached to their release were complied with. Although directed to a slightly different context, it is worth recalling what Mason J said in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 97:

"That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."

16. My other reservation is simply to record that we are not concerned on this appeal to express any view about the issues of causation or quantum which will arise if the claimants succeed in establishing that the monies in the partnership account were held on trust for them on the terms alleged. This judgment should not therefore be treated as an endorsement of the claimants' view that proof of a breach of trust will necessarily create a direct path to the re-constitution of the fund.
17. I can turn now to the relevant documents on which this issue turns. The first is the Information Memorandum which, as explained earlier, formed the basis of the investment decision. It begins with a summary of the investment scheme, although the reader is told that what follows must be read in the context of the whole memorandum including the risk warnings.
18. The summary contains the following passages which are relied on to support the Take 3 criteria:

(i)	"Objective of Take 3"	"It will be a series of partnerships established to co-produce and exploit a spread portfolio of British TV productions providing both tax and income benefits to individual partners. Partners' funds will be used to co-produce a broad variety of TV material with emphasis on the long term potential sales and realisation of the rights".
(ii)	"Low Risk Profile"	"Take 3 will only fund a production if a presale or guarantee is in place from a broadcaster or distributor for at least 60% of the partnership funds committed. This initial 60%, when combined with individual higher rate tax relief, has the effect of largely eliminating any "downside" for investors. Potential upside may be delivered by way of international sales and through the realisation of rights in the programmes after five years".
(iii)	"Potential Returns"	"Take 3 intends to spend all monies raised, net of issue costs in the first accounting period in order to provide the maximum tax benefit for Partners. In the following four years, Take 3 intends to reinvest all income in further productions, resulting in a growing portfolio of titles. At the end of the five year cycle, unless otherwise determined by the Partners all accrued income will be distributed to Partners and a realisation of programme rights will be sought in order to produce a further cash sum. On the basis of the financial illustrations [in the Information Memorandum] an overall post tax return of around 159% [later amended to 171%] on the initial contribution could be achievable".
(iv)	"Tax Relief"	"Take 3 intends to deliver a high degree of tax relief relative to the value of a Partner's contribution. Take 3 should provide tax relief of some 91% of the value of a partner's contribution. Partner's cash flow can be enhanced by taking out a personal loan. For instance, a personal loan of 50% of a partner's contribution should provide a cash surplus of up to 41% of a partners contribution… prior to any loan interest payments".

19. This is followed by a list of definitions which include:

(i)	"Pre-sale commitment"	"An agreement by which, prior to completion of a production, an entity (e.g. a broadcaster) agrees to acquire/licence certain rights to that production (e.g. UK TV rights for three years) for consideration subject to receipt of delivery of the completed production."
(ii)	"Take 3" or the "Take 3 TV Partnerships" or "Partnership" or "Partnerships"	"The Partnership or Partnerships which are the subject of this Information Memorandum, which are one or more unlimited liability UK partnerships governed by the Partnership Act 1890."

20. These defined terms are important because they govern not merely the narrative parts of the Information Memorandum but also the Subscription Agreement and power of attorney which form part of the same document.
21. There is then a much fuller description of the Take 3 scheme. Like the judge, I do not propose to quote from it in extenso nor is it necessary to do so. The passages which are material to the preliminary issues are as follows:

"The Objective of Take 3

The objective of Take 3 is to continue the business concept of Take 2 by providing Partners with the opportunity to take advantage of the tax relief and income available from participating in British TV Productions. Take 3 aims to co-produce and exploit a broad variety of British TV Productions including drama, TV movies, music, factual and children's productions. It is the intention to participate in as broad a range of material as possible in order to diversify and spread risk.

60% of Partnership Funds "underwritten"

Take 3 will only co-produce British productions where there is a Pre-sale commitment for at least 60% of the funds contributed by the Partnership. In addition, the production must have strong international sales potential evidenced by a written sales projection from a reputable distributor. The 60% Pre-sale commitment, when combined with higher rate individual tax relief, should have the effect of largely eliminating any "downside".

Sources of Income

Take 3 will derive income from three potential sources: the pre-sale rights in the UK or overseas; ongoing international television exploitation, including any income from ancillary rights such as home video/dvd, merchandising or publishing; and lastly, the realisation of the long-term rights. Take 3 intends to realise all its rights as soon as possible after the expiry of five years. These disposals could yield significant amounts in the case of successful programmes with long-term appeal.

Exit Route

It is intended that the Take 3 TV Partnerships will operate for a period of no less than five years. After the fifth anniversary of formation, each Partnership will be terminated unless the Partners are in favour of extending the life of the Partnership. Any Partnership can be dissolved earlier if the Partners so wish.

…

Innovative Geared Structure

The Take 3 concept offers two elements of gearing in order to maximise returns to Partners. The first is for those Partners who wish to borrow in order to finance part of their Partnership contribution. This gearing could be by way of a personal loan, interest on which is tax deductible as it is for a qualifying purpose. The Take 3 TV Partnerships are structured as general partnerships and the amount of tax relief per Partner is therefore in proportion to his or her total contribution (including that financed by personal loan).

The second element of gearing relates to the Pre-sale commitment on each of the productions Take 3 will undertake. Take 3 will usually provide 100% of the finance required for each production and thus should be entitled to 100% of the tax relief relating thereto. However, 60% of the finance may be provided by way of a loan taken out by Take 3, for the short period until production is complete, which will be secured against the Pre-sale commitment. These loans will be obtained on the basis that they will be non-recourse to the Partners, being secured against the pre-sale contracts only, on a programme by programme basis and will be re-paid from the proceeds of the pre-sale on completion of the production.

..."

22. This explanation of Take 3 is followed by some financial illustrations. There is a warning that the returns shown in the tables are not guaranteed but the text states:

"Take 3 will be a five year business. Take 3 will aim to invest fully all funds in its first accounting period and therefore file nil accounts for the period. It is this "loss" which technically provides the tax relief. It is intended that all income received in years two to five will be reinvested in an expanding portfolio of TV programmes, so that the Partnerships continue to report nil or minimal tax profits for the full five year period. Over the life of the partnerships this will mean that a growing number of productions will have been funded, resulting in a broad library of programmes owned or part owned by the Partnerships".

23. Consistently with this the tables are all based on an investment of £100,000 (with and without a loan) on the assumption that there will be pre-sales of 60% of the partnership contribution and that all net income will be re-invested in further productions up to year five with tax relief on 100% of costs until July 2002 and 33% thereafter. The tax regime applicable to Take 3 is described in the next section of the memorandum which includes an explanation of the reliefs available for British Qualifying Films and the conditions which must be satisfied in order for such a film or TV production to be certified under the Films Act 1985. Importantly the memorandum states that:

"It should be noted that there is no method of obtaining such certification prior to completion of the film."

24. The point is repeated in the following section of the memorandum headed "Risk Warnings" which states that:

"4.4 Whether a particular production will qualify as a British Qualifying Film must be certified by the Department of Culture Media and Sport and the amount of reliefs needs to be agreed with the Inland Revenue. Certification and the amount of reliefs are not guaranteed. The Inland Revenue is not obliged to give advance indication as to the reliefs that will be received by Partners and it has not done so in the case of the Partnerships. There may be delays in reaching agreement, and reliefs could be less than the amounts indicated."

25. One of the most important sections of the Information Memorandum is the one dealing with partnerships. This includes both general information about the legal obligations of the members of an unlimited partnership and a summary of the Partnership Deed . The reader is told that:

"General

Under an unlimited general partnership, all Partners will be liable for all the debts and obligations of the Partnership in the event that they cannot be met by the Partnership. An advantage of the partnership structure is that it is transparent for tax purposes i.e. it affords the opportunity to use tax reliefs and allowances against other income.

Indebtedness

It is likely that the Take 3 TV Partnerships will from time to time resort to borrowing in order to achieve the optimum tax relief for Partners. However, any borrowing will be secured against pre-sales and it is the intention that there will not be any recourse to Partners in respect of such loans."

26. A copy of the Partnership Deed is not included as part of the memorandum but is stated to be:

"available on request from Teathers & Greenwood. The terms of the Partnership Deed may only be changed with the consent of Partners"

27. The summary informs a would-be investor that the duration of the partnership will be five years unless extended; that the general partners will be responsible for contributing all the capital of the partnership and that Teathers will make no financial contribution; that the management of the partnership business will be vested in Teathers under the terms of a management agreement; and that Teathers will be responsible for managing the assets of the partnership and have full power and authority to acquire and dispose of assets and to borrow money. The summary also deals with profits and losses, the distribution of proceeds of sale; and the termination of the partnership. But potential partners are warned that this is a summary only of the principal terms of the deed and that they should read the Partnership Deed for all its terms.
28. An investor who decided to proceed did so by executing the form of Subscription Agreement and power of attorney attached to the Information Memorandum. Clause 1 of the Subscription Agreement provides that:

"The subscriber offers to contribute the sum specified above to become a Partner in the Take 3 TV Partnerships on the terms of the Partnership Deed … The subscriber undertakes that [Teathers] may rely on this offer and accordingly that this offer may not be cancelled, rescinded or otherwise revoked. By the execution hereof, and of a Power of Attorney of even date, the subscriber hereby agrees to the execution on his or her behalf of the Partnership Deed in respect of the Partnership to which [Teathers] allocates the subscriber.."

29. In the agreement the investor also warrants that he has read the risk warnings; has taken professional advice; and has read and understood the terms of the Information Memorandum.
30. That brings me to the Partnership Deed . It provides for an unlimited partnership with a maximum number of twenty partners including the investors as General Partners and the Founding Partner which is Teathers. The "Partners" (who include both the Founding Partner and the General Partners) agree in clause 2.1 to carry on the Partnership Business until the partnership is dissolved. This is defined as:

"the development, production, acquisition and exploitation of rights in British television productions and programmes which qualify as British Qualifying Films as provided under the Films Act 1985;"

31. The capital of the partnership is provided by the General Partners in the amounts shown and the Take 3 schemes were operated with capital of at least £475,000. Clause 6 provides that:

"6.1.1 the Founding Partner shall not make nor shall it be required to make at any time during the subsistence of the Partnership any contribution to the capital of the Partnership; and

6.1.2 upon termination of the Partnership the Funding Partner shall not be required to make any contribution to the capital of the Partnership in connection with the restoration of the negative capital account of any General Partner.

6.2 No Partner shall be entitled to any interest on the amount of any capital standing to its credit in the books of the Partnership.

6.3 Except as provided, no Partner may withdraw capital from the partnership."

32. The profits and losses of the partnership were divisible between the General Partners in their respective partnership shares but subject to restrictions on any distribution of profits in the first five years of the partnership. Clause 7.1 required all profits (after payment to the Managing Partner (Teathers) of its costs and expenses) to be re-invested in the partnership. After the first five years net profits were to be allocated to the General Partners pro rata to their contributions to partnership capital and became available for distribution subject to payment to Teathers of a priority profit share (as defined): see clause 8.2 and 8.3. But the General Partners were not entitled to draw out their respective share of profits unless there was a surplus available after providing for all anticipated further liabilities and claims against the Partnership apart from tax: clause 8.5. Nor was any partner entitled to interest on the amount of profit standing to his credit in the books of the partnership: see clause 8.6.
33. Teathers' powers and duties as Managing Partner were set out in clause 14. It acted in this capacity "subject to the control and direction of the Partners and subject thereto was given full power and authority":

(i) to open, maintain and close bank accounts for the partnership and to draw cheques and other orders for the payment of monies: see clause 14.2.1;

(ii) to receive contributions and loans made by Partners: clause 14.2.3;

(iii) to repay loans and make distributions to Partners in accordance with the terms of the deed: clause 14.2.4;

(iv) to enter into any contracts, agreements, and other undertakings in respect of the Partnership business: clause 14.2.5;

(v) to identify, evaluate and negotiate investment opportunities: clause 14.2.6; and

(vi) to acquire and dispose of investments and other Partnership assets for the account of the Partnership including borrowing money: clause 14.2.7.

34. The Managing Partner could be removed and replaced by unanimous resolution at a general meeting but, subject to that:

"The Founding Partner and the Managing Partner shall not be liable, responsible or otherwise accountable in damages to the Partnership or any Partner … for any action taken or failure to act... unless such action or omission constituted gross negligence, wilful misconduct, bad faith or reckless disregard for its obligations and duties…".

35. The other important provisions in the Partnership Deed concern the retirement of the general partners and the termination of the partnership. The Deed contains elaborate provisions governing the death or retirement of a general partner, the effect of which is that the partnership will continue and the interest of the retiring partner will be transferred to whichever of the continuing partners purchases it under the sale machinery contained in clause 24. The outgoing partner is required under clause 25.5 to:

"sign and execute all documents and do all such deeds, acts and things as the Managing Partner may reasonably request for the purpose of enabling the Managing Partner to recover and get in the book debts and other assets of the Partnership or for the purpose of appointing a new trustee of any of the Partnership property or for the purpose of conveying, assigning or transferring to the Continuing Partners any of the Partnership property which immediately prior to the Succession Date is vested in the Outgoing Partner as one of the Partners or in trust of the Partnership."

36. The partnership terminated after five years (unless extended) or on the earlier happening of one or more events including the sale or disposition of all of the assets of the partnership or the agreement to termination by the holders of at least 51% of the contributions attributable to all of the then existing partners: see clause 26. In that event the partnership was to be dissolved and its affairs wound up in accordance with the provisions of the Partnership Act 1890: see clause 27.1. On dissolution the assets of the partnership were to be applied first in discharging the costs and expenses of the partnership and any liabilities to third parties. The balance was then distributable between the General Partners pro rata in accordance with the amount standing to their credit in the consolidated accounts of the partnership: see clause 28.
37. The other categories of documents which featured in the hearing before the judge are what are referred to as the Technical Notes and the Verification Notes. The Technical Notes seem to have been prepared primarily for the benefit of financial advisers who wished to introduce Take 3 to investors. They were intended to be read in conjunction with the Information Memorandum and, like it, they contain statements that Take 3 will only invest in productions where there is a pre-sale commitment for at least 60% of the total production cost and that Teathers:

"as a properly regulated firm have a duty to carry out their obligations as set out in the Partnership Deed and to invest and manage only under the specific parameters as set out in the Information Memorandum."

38. The Verification Notes were prepared by Teathers, BSMF and other advisers as a form of due diligence in respect of the statements contained in the Information Memorandum. They were intended to provide some assurance that proper steps had been taken to verify the factual basis for the information which it contained. They were however, on the judge's findings, confidential and were not disclosed to would-be investors.
39. The claimants accept that the Verification Notes were not shown to investors and rely upon them only as an indication of what Teathers was actually saying about Take 3 and of how it intended the statements in the Information Memorandum should be understood. But the judge held that they were not admissible as an aid to the construction of the Information Memorandum or the contractual documents which the parties entered into because they had never, as he put it, crossed the line between Teathers and the investors so as to be capable of forming part of the factual matrix against which the relevant documents fall to be construed. Similarly he found that the Technical Notes were not provided to retail investors or even to all financial advisers. Moreover even had they been in circulation they would at most have formed part of the pre-contractual negotiations and so have been inadmissible on those grounds.
40. There is no real challenge to the judge's findings of fact in relation to these documents. Mr Tregear sought to place some reliance on the fact that some of the Technical Notes appeared at some stage in the claimants' list of documents but this provides no evidence in itself of when they came into their possession or control. He also questioned the judge's assumption that the Technical Notes were part of the pre-contractual negotiations. Properly understood they were, he says, aids to the interpretation of the Information Memorandum and had been designed and written specifically for that purpose.
41. I think the judge was entitled to approach the questions of construction which he faced without regard to either set of notes. The Verification Notes serve a different purpose and are clearly irrelevant to the issue of how any investor would read the Information Memorandum and the other documentation. The Technical Notes could be said to provide a re-inforcement of the passages in the Information Memorandum dealing with the type of TV projects which would be selected for investment but their primary target was the financial adviser who might be asked to explain aspects of the Information Memorandum to a client and it is not suggested that what he may have said could be relevant to the construction of the documents or that the claimants were provided with the text of the Technical Notes to assist them in their own reading of the memorandum. It is also far from clear to me what difference that would have made. The Technical Notes stated that Teathers would manage the partnership investments only under the specific parameters set out in the Information Memorandum (including presumably the requirement for 60% pre-sales) but that is no more than they were told by the Information Memorandum itself. The real question is not so much what was said in the Memorandum but rather whether the investment parameters outlined in that document limited the authority of Teathers as Managing Partner in such a way as to make any unauthorised investment a breach of trust.
42. The judge rejected the argument that a Quistclose trust on the terms of the Take 3 criteria subsisted up to and including the moment when Teathers as Managing Partner released the monies in the partnership account for the purposes of a particular investment. In part this was based on the judge's view that it was impossible for Teathers to know with certainty at the moment when they had to release the money whether the conditions set out in the criteria in their pleaded form were satisfied. He said:

"67. First, because at the time of the investment it cannot in principle be objectively ascertained whether the purpose has been achieved or not. At the time of the investment in a TV production it cannot be known whether the production would be certified as a British Qualifying Film in satisfaction of Take Criterion 1 because the certification only takes place when the production is completed (a risk to which the Information Memorandum drew attention). Nor can it be known (in satisfaction of Take Criterion 2) whether the pre-sale or guarantee will be payable in the immediately following year, because the TV production is obviously not complete at the time of the investment. Nor can it be known (in satisfaction of Take Criterion 5) whether at the end of the Partnership the partners will then own sufficient rights to enable a realisation of Library Sale Value to occur.

68. Second, I consider that some of the Take Criteria are too loosely expressed to qualify as "directions" or to define a mandate in terms such that a court can say whether a given application does or does not fall within its terms. Take Criterion 3 requires that no investment be made unless borrowing of up to 100% were to be put in place. Take Criterion 1A requires an investment only to be made if the "downside" is largely eliminated. These are imprecise and highly subjective matters quite different from the usually encountered directions to use the money to acquire property, or to obtain a good marketable title or a first charge, or to pay a dividend or to pay the balance outstanding on a loan agreement for a car or to pay a publicity agent.

69. As terms of a mandate or direction to be applied at the time when a partnership invests money in a TV production the Take Criteria represent "lengthy, complex and multifaceted purposes" (per Mr Onslow QC) the fulfilment of which cannot be objectively ascertained at the time of the investment, and are far removed from the straightforward designated purposes found in all the previous Quistclose cases."

43. But his principal reason for rejecting the existence of a Quistclose trust up to and including the moment of investment was that this would be inconsistent with the express terms of the Subscription Agreement which they signed:

"71. The suggested formulation of the mandate or direction requires me to consider whether it was the mutual intention of Teathers and a Claimant, at the time when the Subscription Agreement and its accompanying cheque was received by Teathers, that the funds transferred upon presentation of the cheque should be used exclusively to make investments in British TV Productions capable of satisfying the Take Criteria, so that if it could not be so used then it was to be returned to that Claimant.

72. It is in my judgment clear from the express terms of the transaction that this was not their mutual intention.

73. The document under which this money was paid was the Subscription Agreement. This contained an irrevocable offer by a Claimant to contribute the sum enclosed in order to become a partner on the terms of the Partnership Deed. The Partnership Deed says that that money is "capital" of the Partnership. Because it is capital of the Partnership it is at risk in the partnership business. The Partnership Deed says that as such capital it cannot be withdrawn and does not bear interest. This is not consistent with the money continuing to be the equitable property of an individual subscriber/partner. It cannot be both partnership capital and trust money.

74. This contribution of capital is a pure book keeping entry which would normally only figure again in the dealings between partners on dissolution (where in the settlement of accounts the provisions of section 44 (b) Partnership Act 1890 would normally apply). In fact under the Partnership Deed it loses its identity as capital, because on dissolution the Partners accounts are "consolidated" so that loans, contributions of capital and undrawn profit shares are treated without distinction. This process of "consolidation" underlines the fact that the initial capital is not to be treated in some special way (e.g. because it is held on trust). It simply goes into the pot along with all other partnership money.

75. The classification of the payment as "capital" is the arrangement the parties set out in the documents recording the transaction they entered. Those terms are (under clause 33.6 of the Partnership Deed) not to be modified by any prior statement, conduct or act of any Partner (including Teathers). The classification is inconsistent with an intention that after the constitution of the partnership it should not be part of the general assets of the partnership, but should remain in the equitable ownership of that claimant.

……

84. I am clear in my conclusion that once a partnership was constituted no partner could claim that the sum he contributed to the partnership was held by the partners on resulting trust for him pending its application in an investment that either did satisfy the Take Criteria or that was capable of satisfying the Take Criteria. In reaching that conclusion I have not treated a trust relationship and a contractual relationship as mutually exclusive; but it seems to me that the inferred resulting trust cannot contradict the express terms of the contract, and also that the Take Criteria are not suitable conditions for the purpose of identifying when property will pass."

44. Mr Tregear has sought to meet the judge's criticisms of the lack of definition in the pleaded Take Criteria by refining them down to three conditions. His reformulated case is that Teathers only had authority to invest partnership money:

(1) in a production where there was a pre-sale agreement in place for at least 60% of the funds committed by the partnership;

(2) in a TV production capable of being a British Qualifying TV production, i.e. a TV production which would be eligible for a certificate from the Department of Culture Media and Sport on completion; and

(3) where the partnership would acquire sufficient rights in the relevant TV production to enable a sale of library rights at the end of the partnership.

45. The second of these amended criteria is intended to meet one of the points raised by the judge that, because certification necessarily post-dates the completion of the film or TV project and therefore any investment in that project, certification as a pre-requisite to investment would have made the Take 3 schemes unworkable. Mr Tregear is content to argue that partnership money could properly be released once Teathers (with the assistance of BSMF) had identified a project which, looked at objectively at the time, was capable of satisfying the conditions for certification described in the Information Memorandum. The reduction in the number of Take Criteria has also excluded from consideration numbers 1A, 3 and 4 but still leaves it open to argument as to whether it will be possible to ascertain pre-investment whether at the end of the Partnership the parties will have sufficient rights to enable a sale of library rights to take place. Mr Onslow has therefore maintained his stance that the Take Criteria remain (at least in part), as the judge accepted, too uncertain to be capable of constituting the terms of a trust which govern the release of the investment monies.
46. I prefer, however, to begin with the judge's main reason for rejecting the existence of a trust beyond the initial stage at which the investors' monies remained in the HSBC client account. Norris J was, in my view, correct about this largely for the reasons which he gave and what follows is no more than a re-statement of particular points.
47. An investor who decided to participate in Take 3 has to be assumed to have read and understood the Information Memorandum and to have agreed to invest on those terms. This is not a case where (for the purposes of the trust claim) the investors allege that they were persuaded or misled by any representations or assurances made outside the terms of the documents.
48. They were told in the Information Memorandum that Partnership monies would only be used to invest in productions where there was a pre-sale commitment for at least 60% of the funds contributed by the Partnership and that the productions would be ones which qualified for certification as British Qualifying Films under the Films Act 1985 so as to attract the tax relief which formed the basis of the scheme. The position about library rights may have been expressed in less clear terms but I am prepared to assume for the purposes of this appeal that the third of the modified Take Criteria can be spelt out in that form from the Information Memorandum.
49. In Teathers' hands the investors' funds were undeniably trust monies at the point of receipt. They were client monies paid to Teathers not beneficially but for the specific purpose of being used as an investment in a Take 3 partnership. Teathers could make no other use of them. Until the minimum subscription level of £475,000 was reached the scheme could not proceed and in the event of it being under-subscribed Teathers would have been obliged to return the money to the investors with any interest. But assuming that the scheme went ahead then Teathers had authority in the form of the Subscription Agreement and the power of attorney to execute the Partnership Deed on the investor's behalf and to use the money subscribed in the client account as that person's contribution to capital in accordance with clause 6.1 of the Partnership Deed .
50. The status of the monies in Teathers' HSBC account was governed by the regulations made under the Financial Services Act 1986 and latterly the Conduct of Business Handbook. There is no material difference between the two sets of rules and it is enough to refer to rule 9 of the Conduct of Business Handbook (which replaced the SFA Rule Book). Subject to certain exceptions (which do not apply in this case), a firm holds client money on trust for the purposes of and on the terms of the client money rules unless the money is properly due and payable to the firm for its own account: see rule 9.3.31 and 9.3.19. Teathers had no entitlement under the Subscription Agreement to any part of the investment monies for their own account and were therefore required to hold the subscription monies in a separate client account at an approved bank until it ceased to be client money. This occurred if the money was repaid to the client or its authorised representative; to a third party on the instructions of the client; to a bank account of the client (not being an account in the name of Teathers); or to the firm itself when it was due and payable to the firm: see rule 9.3.133.
51. There is an issue which I will come to later as to whether Teathers released the monies to the partnership account in breach of these rules so as to be accountable as trustees of the client account under the regulatory trust for their unauthorised disbursement. But I want to concentrate for the moment on the relevance of the subscriptions being trust monies at this stage of the transaction to the question whether they remained trust monies following their authorised payment into the partnership account.
52. The answer to that question is that there is no necessary correlation between their status as trust money at stage 1 (their receipt in the HSBC client account) and how they fell to be treated at stages 2 and 3 (payment into the partnership account and investment in a TV production). Mr Tregear accepts (as he must) that any Quistclose trust of the kind alleged must have existed at stage 1 when the monies were paid to Teathers for onward investment in Take 3. The existence of such a trust is not necessarily inconsistent with the trust expressly imposed by the client money regulations but it is not identical in terms. Under the regulations the monies ceased to be client and therefore trust money once paid out either to or in accordance with the client's instructions. On the assumption that their payment into the partnership account was authorised, they were not therefore trust monies once they reached the Barclays account. But in relation to the alleged Quistclose trust, no allegation of lack of authority can be made in relation to the payment to Barclays. Paragraph 126 of the particulars of claim (see paragraph 10 above) suggests that the breach of trust occurred when the subscription monies were paid out of the HSBC client account and into the partnership but in argument Mr Tregear, I think, accepted that this was unrealistic. In practice the amended Take Criteria which are relied on as constituting the limits of Teathers' authority as trustee to disburse the monies to third parties can only come into operation in relation to stage 3 when the choice of investment falls to be made. In the light of the Subscription Agreement, the claimants cannot and do not contend in such cases that their payment as partnership capital was unauthorised.
53. The critical issue therefore is whether the monies remained trust monies in the partnership account notwithstanding that their payment into that account was authorised and that the regulatory trust had by then ceased. The judge answered this question in the negative on the basis that the stage 1 trust (even expressed in Quistclose terms) could not consistently with the Subscription Agreement have required Teathers to do more than use the monies as partnership capital. At that point the rights of the investors in relation to their subscriptions and to Teathers as managing partner became regulated by the Partnership Deed. This seems to me to be right.
54. Mr Tregear contended that there was no incompatibility between the existence of a Quistclose trust and the formation of the partnership. The scheme of the partnership arrangements as set out in the deed contemplated that Teathers as managing partner would have complete control of the partnership account and be responsible for selecting the projects to invest in during the course of the partnership business. The general partners by contrast had no right to withdraw capital from the partnership or to a distribution of profits until after the first five years of the partnership or its dissolution if earlier. In administrative terms, the structure of the partnership arrangements was not therefore incompatible with the operation of a Quistclose-type trust which would simply govern the authority of the managing partner in its selection of investments.
55. There is some truth in this. Looked at simply in structural terms, it would be possible for Teathers' clause 14 investment powers to have been circumscribed by reference to the Take Criteria and the status of the partnership account as trust money would not have prevented them from having recourse to the funds to meet any administrative and other legitimate expenses of the partnership or to meet any other liabilities they were authorised to pay out of the account. But this argument seems to me to miss the point. For a trust to exist the investors must demonstrate that Teathers held the partnership account as trustees (i.e. as legal owners of the chose in action) subject to the continuing beneficial interests of the investors in that property. Both parts of that formulation were under challenge in these proceedings. Teathers' case is that although the mandated signatory on the partnership account, the firm was never the legal owner of any credit balance. It also contends that its powers over the account (and any restrictions on them) derived not from what amounts to an implied trust derived from the terms of the Information Memorandum but rather from the terms of the Partnership Deed which have legal effect as a contract between the parties. The imposition of a trust on the terms alleged is inconsistent with the express terms of clause 14.2 which entitle Teathers to enter into any contracts in respect of the Partnership Business and to draw cheques and other orders on the partnership account for that purpose. "Partnership Business" (see paragraph 30 above) means the development and production of TV programmes which qualify as British Qualifying Films but contains no requirement that there should be 60% pre-sales or a guarantee of library rights.
56. It seems to me that these objections are well-founded. The Information Memorandum was not contractual in itself and the fact that it shares various definitions with the Subscription Agreement which forms part of the same document does not advance the claimants' case very much further. Mr Tregear submitted that the reference in clause 1 of the Subscription Agreement to the subscriber becoming a Partner in the "Take 3 Partnerships under the terms of the Partnership Deed" takes one to the definition of "Take 3 Partnerships" (see paragraph 19 above) as "Partnerships which are the subject of this Information Memorandum". On this basis the Subscription Agreement (and perhaps the Partnership Deed itself) should be read as incorporating the Take Criteria derived from the Information Memorandum. But that seems to me to overstate both the meaning and effect of the defined term. The full definition refers to one or more unlimited liability partnerships governed by the Partnership Act 1890 which are the subject of the Information Memorandum. As explained earlier, the Information Memorandum contains a section which summarises the main provisions of the Partnership Deed without reference to the Take Criteria and it seems to me that this is all that the definition was intended to describe. Moreover, the Subscription Agreement makes it clear that the investor agrees to join a Take 3 TV Partnership under the terms of the Partnership Deed and not on any other terms. Looking at the matter more broadly, it also seems to me impossible to imply into the Partnership Deed itself, a professionally drawn instrument, some additional limitations on the authority of Teathers as managing partner which are not spelt out in any contractual document (beyond the use in the Subscription Agreement of a defined term) and which are in fact inconsistent with the express terms of clause 14. In Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 at page 609 Lord Pearson said that:

"the court does not make a contract for the parties. The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be. The court's function is to interpret and apply the contract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings: the clear terms must be applied even if the court thinks some other terms would have been more suitable. An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves."

57. Lord Hoffmann referred to this in A-G of Belize v Belize Telecom Ltd [2009] UKPC 10 as one aspect of the wider question of what the instrument, read as a whole against the relevant background, would reasonably be understood to mean: see [21]. But even on this formulation it is not possible in my view to contradict the parties' express agreement that the Take 3 partnerships should be on the terms contained in the Partnership Deed.
58. If, therefore, the Take Criteria are not to be treated as terms of the partnership the claimants are faced with the obvious difficulty that, on their case, Teathers, as managing partner, continued to be subject to two quite different regimes in respect of its power to invest the partnership capital in TV productions. It was given full power under clause 14 of the Partnership Deed to enter into any contracts provided they were in respect of the Partnership Business (as defined) yet its authority to exercise this power, even in relation to a production that was capable of being verified as a British Qualifying Film, was dependent on there being the 60% pre-sale requirement and the future acquisition of library rights.
59. Like the judge, I am not persuaded that these two regimes were intended to co-exist in this case. The essentially contractual framework of the Partnership Deed was what each of the investors signed up to as the governing instrument. This provided a complete code for the conduct of partnership business and undoubtedly imposed upon Teathers as managing partner both contractual and possibly fiduciary duties in respect thereof. But those duties were owed to the general partners in respect of Teather's stewardship of the partnership capital as a whole. They were not the duties of a trustee owed separately to each individual investor in respect of the monies which he or she had contributed to the scheme. Once the partnership was in existence and their subscriptions had been paid into the partnership account the monies belonged to the firm and vested in the general partners as joint legal owners. There is nothing in the Partnership Deed to contradict the operation of the normal principles of partnership law. As a consequence, each investor's beneficial ownership of his or her individual subscription ceased and was replaced with a right to participate in the profits of the partnership and in its net assets on dissolution in the proportions specified in the schedule to the deed.
60. Mr Tregear sought to counter this by relying on the fact that Teathers as managing partner was the only authorised signatory with drawing rights on the partnership account. This, of course, accords with the provisions of clause 14 but it does not of itself alter the legal ownership of the chose in action represented by the credit balance in the account. This remained the property of the partnership comprising the general partners. The managing partner had contributed no capital and had no right to the net assets of the partnership on dissolution. The general partners were the only creditors of the bank just as they would have been the only debtors had the account become overdrawn.
61. The claim based on a Quistclose trust is not therefore maintainable and the judge was right in my view to dismiss it. As he recognised, this does not of course mean that the claimants have no equitable claim against Teathers in respect of their choice of investments. A person in the position of a managing partner commonly owes fiduciary duties to the other partners generally in respect of his use of partnership money. But any claim will require proof that Teathers acted in breach of its duty to be honest and faithful in the exercise of its powers as managing partner. Although the Take Criteria may be relevant in general terms to a consideration of whether Teathers properly discharged that duty just as they will be relevant to the allegations of negligence, they did not (for the reasons given) operate as strict limits on the Teathers' authority to invest. Breach of fiduciary duty arising from the partnership itself is therefore a different cause of action and not the issue which the judge or this Court has to determine in the context of the preliminary issue.
62. I would therefore dismiss the appeal against the judge's treatment of the Quistclose issue. That leaves the more discrete question of whether Teathers acted in breach of the statutory trust imposed by the regulatory framework when it transferred the subscription monies from the HSBC client account to the partnership account with Barclays.
63. As mentioned earlier, the period covered by Take 3 spans both the client money rules in force under the SFA Rule Book and the successor provisions contained in Section 9.3 of the Conduct of Business Handbook made under the powers contained in ss. 138 and 139 of FSMA 2000. Although I summarised these provisions earlier and although it is not suggested that there is any difference in substance between them, for completeness I set out both.
64. Rule 4.59 of the SFA Rule Book stated:

"4.59 Discharge of fiduciary duty

(1) Money ceases to be client money if it is paid-

(a) to the customer;

(b) to a third party on the instructions of the customer;

(c) into a bank account in the name of the customer (not being an account which is also in the name of the firm); or

(d) to the firm itself, where it is due and payable to the firm.

(2) Where a firm draws a cheque or other payable order under (1) above, the money does not cease to be client money until the cheque or order is presented and paid by the bank.

Guidance [Deleted]

(3) Where a firm makes a payment to a customer, or to a third party on the instructions of the customer, from an account other than a client bank account, the sum of money in the client bank account equivalent to the amount of that payment will not become due and payable to the firm for the purposes of rule 4.52(3) until the customer or other party has received that payment in cleared funds."

65. The equivalent rule in the Conduct of Business Handbook is rule 9.3.133 which provides:

"Money ceases to be client money if it is paid:

(1) to the client, or a duly authorised representative of the client; or

(2) to a third party on the instruction of the client, unless it is transferred to a third party in the course of effecting a transaction, in accordance with COB 9.3.64R; or

(3) into a bank account of the client (not being an account which is also in the name of the firm); or

(4) to the firm itself, when it is due and payable to the firm in accordance with COB 9.3.19R to COB 9.3.24R; or

(5) to the firm itself, when it is an excess of the client bank account as set out in COB 9.3.100R(2)(b)."

66. The claimants' case is that the Barclays partnership account was an account under the control of Teathers as Managing Partner. It was not a bank account in the name of the customer nor (under the later rules) an account of the client because, although the account was in the name of the partnership, it was not an account of the partners. Teathers retained exclusive drawing rights on the account and it remained in its control. For it to be the client's own account it must be controlled by the client and must also be a sole account. Here the same account was used for all the partners.
67. It would, I think, be a strange result if the transfer of the subscriptions from the client account to the partnership account on the express instructions of the client somehow rendered Teathers in breach of trust. But even on the basis that the trust is not extinguished except upon payment of the money into one of the safe harbours designated under the rules, the claimants' case seems to me to involve a gloss on the regulations. The partnership account was an account of the client. Along with the other partners, each investor was the joint legal owner of all of the monies standing to the credit of the account. There is nothing in the rules which requires the account to be in the sole name of the client and I can see no policy reason for attempting to construe them in that way.
68. True it is that Teathers (with the client's consent) has sole drawing rights on the account and I can see the argument for saying that a firm could not avoid its obligations to the client as trustee simply by transferring investment monies to an account in the client's name whilst retaining exclusive control of any withdrawals from the account . The difference, however, between that and the present case is that the monies are no longer held or controlled by Teathers for its client. They are held in an account belonging to the client (with others) over which the client qua partner has given Teathers drawing rights as managing partner under the terms of the partnership contract. If it is right to characterise Teathers' control of the account (in that capacity) as sufficient to make the partnership account not an account of the client, it must, I think, follow that the situation is covered by rule 9.3.133(2): i.e. as a payment to a third party on the instructions of the client. It is common ground that the exception in this sub-rule does not apply.
69. I think the judge was therefore right to reject a case of breach of trust based on the unauthorised transfer of monies from the HSBC client account. I would therefore also dismiss this part of the appeal.

Lord Justice Sullivan :

70. I agree.

Lady Justice Arden :

71. I also agree.