England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		14/03/2008

Mr Justice Evans-Lombe:

1. The issue in this case arises in the liquidation of PRG Powerhouse Limited ("the Company") which went into administration on 1^st August 2006 and into liquidation on 17^th May 2007. Before entering into administration the Company had been conducting a substantial business in the retail market selling electrical goods, with an annual turnover of £215 million, some 580 employees and 110 superstore outlets. Simon Cooper ("Mr Cooper") the Applicant, held, until his resignation on 28^th October 2005, the title of Managing Director. Although this was a senior managerial position it did not have the powers of a normal managing director. Mr Cooper reported to the Company's Chief Executive Officer, Mr Onslow.
2. The Company provided Mr Cooper with a motor car, a Mercedes, the registration number of which was BF55POV ("the Car"). In fact Mr Cooper purchased the Car himself from Godfrey Davis (Contract Hire) Limited ("Godfrey Davis") on credit in September 2005. On 20^th September 2005 he entered into a finance agreement with Godfrey Davis whereby he undertook to pay the purchase price by instalments. The Company discharged the instalment payments on his behalf as part of the salary which he received.
3. Mr Cooper filed a witness statement in support of his application dated 17^th September 2007. Although tendered, he was not cross-examined on this statement. At paragraphs 9 and 10 of his witness statement Mr Cooper said this:-

"9. At around the time of my aforesaid resignation and subsequently (in particular in around early May 2006) I reached an agreement with Godfrey Davis whereby I would make a lump-sum payment to discharge the credit agreement. At around the same time, I reached an agreement with the Company (as part of the agreed termination provisions in relation to my employment with the Company) that the Company would pay £3,000 towards the lump sum agreed with Godfrey Davis and that it would arrange to transmit the balance of the said lump sum (namely £34,239.00) on my behalf to Godfrey Davis.

10. The reason it was agreed that the Company (and not I) should pay the lump sum to Godfrey Davis was purely for convenience. As stated above, it was the Company that had hitherto made payments (on my behalf) under the financing agreement, and the Company was itself making a contribution of £3,000 to the overall sum. It made good sense for the Company to make the final balloon payment, even though I was personally paying £34,239.00 towards the overall sum. The arrangements agreed between the Company and me are reflected in a letter from Mr. Chris Onslow (the Company's CEO) to me dated 24 October 2005, a letter from Mr. Sean Hoskin (the Company's payroll manager) to me dated 12 May 2006, and a further letter from Mr. Hoskin to me dated 27 July 2006, copies of which are exhibited at pages 50, 51 and 52, respectively."

4. The material parts of the letter of 24^th October 2005 referred to by Mr Cooper read as follows: -

"I am writing to confirm the details regarding your departure from Powerhouse and severance payment in relation to this.

As agreed your employment will be terminated on 28^th October 2005. You will receive the following payments at this time:-

A Termination payment of £92,000 will be made to you within 14 days of leaving the Company. The first £30,000 of this payment will tax [sic] free and the remainder will be liable to lower rate tax and NI deductions. This termination payment includes payment in lieu of notice, 6 months Pension contribution and Healthcare cover.

You will be able to retain your Company mobile phone and all bills will become payable by yourself from the 28^th October 2005.

You will be able to retain your Company car for a period of 6 months from your leaving date along with your Company fuel card. You will have the opportunity to purchase the car at a reduced price and this will be agreed with you prior to the 28^th April 2006."

5. The material passage of the letter of 12^th May 2006 reads as follows:-

"With reference to your recent conversations with Chris concerning your vehicle, I can confirm the following.

The lease company have quoted a purchase price of £38,899.08. It has been agreed that the Company will fund £3,000 of the price and therefore we require a cheque from yourself for £35,899.08. Please note however that this price is only guaranteed until 31^st May 2006 and we will therefore require cleared funds by this date in order for the purchase to go through.

If you would like to make the funds direct into our account, the details are as follows:

S/C : 20-00-00

S/C : 00232815

If you have any queries please do not hesitate to contact me."

The Company's bank account no. 00232815 referred to in this letter was the payroll account of the Company. The material parts of the letter of 27^th July 2006 were as follows:-

"I write with reference to your purchase of your car ownership vehicle – BF55POV.

I confirm receipt of your payment for £34,239 and can confirm that this payment is now being forwarded to Godfrey Davis.

On receipt of the monies Godfrey Davis will make the necessary arrangements to have the ownership documentation forwarded to you."

6. On 7^th July 2006 Mr Cooper had paid £34,239 ("the Payment") to the Company into its payroll account no. 00232815. The Company had agreed with Mr Cooper to contribute £3,000 to the purchase of his car as part of his severance agreement. Whereas the outstanding amount payable for the Car to Godfrey Davis had previously been fixed at the sum of £38,899.08, it was subsequently reduced by agreement to £37,239 which sum was to be paid by the Company to Godfrey Davis of which £34,239 was to be contributed by Mr Cooper. In fact, and notwithstanding what was said by Mr Hoskin, the Company's payroll manager, to Mr Cooper in the letter of 27^th July, it was not until 31^st July that the Company made the anticipated onward payment to Godfrey Davis which, as it turned out, was by a cheque for the by then incorrect figure of £38,899.08. The Company entered into Administration on 1^st August with the result that the cheque was dishonoured.
7. At paragraph 13 of his witness statement Mr Cooper said this in relation to the Payment:-

"13. I made this payment on the clear understanding with the Company, reached both with Mr Onslow and Mr Hoskin on its behalf and reflected in the terms of Mr Hoskin's aforementioned letter of 27^th July 2006, that the Company would forward the monies on to Godfrey Davis (together with an additional £3,000 contributed by the Company itself) in full and final settlement of the sums due under the credit agreement between myself and Godfrey Davis."

8. Then at paragraph 24.2 Mr Cooper says with relation to the Payment:-

"…When the sum of £34,239 was paid by me to the Company on 7^th July 2006, it was – as stated above – paid for the specific purpose of paying a debt to a third party, Godfrey Davis. That was the basis (and the only basis) upon which it was paid by me and upon which the Company agreed to receive it, a matter which cannot be seriously disputed. There was no intention on either side's part that the sums transferred should be available to the Company's general creditors."

9. Mr Cooper's application, dated 17^th September 2007 is made pursuant to Sections 112 and 167(3) of the Insolvency Act 1986 asking for the following orders:-

"1. A Declaration that the monies paid by the Applicant to the First Respondent on or around 7^th July 2006 in the sum of £34,239 were held on trust for the Applicant for the purpose of paying them to Godfrey Davies (Contract Hire) Limited in connection with the completion of his purchase of a Mercedes Benz CLK Cabriolet with registration number BF55POV and, if that purpose failed for any reason, repayment to the Claimant.

2. Further, a Declaration that the purpose for which the said monies were paid to the First Respondent failed when the First Respondent entered into administration on 1^st August 2006, such monies by that date had not yet been paid to Godfrey Davis (Contract Hire) Limited.

3. Further, or in the alternative, a Direction that the Second to Fourth Defendants [the Liquidators] do cause the First Respondent to repay to the Applicant to the sum of £34,239 plus interest (or equitable compensation in lieu thereof), alternatively that the Second to Fourth Respondents do cause the First Respondent to pay such sum or sums to Godfrey Davies (Contract Hire) Limited on behalf of the Applicant."

Was the Payment subject to a purpose trust?

10. It is Miss Hilliard's submission that Mr Cooper's claim should be treated like any other unsecured claim against the Company, in particular, like any of the Company's creditors whose claims are for money paid by them in advance for the delivery of goods which they have not received. While accepting that whether or not a payment was subject to a purpose trust was a question of fact, she submitted that the evidence before the court was insufficient to justify a finding of such a trust. She submitted that, whereas the Payment was self-evidently for the purpose of partly discharging the balance due on Mr Cooper's loan agreement, there was no evidence that both the parties to the Payment intended that the monies, when paid, should not be at the free disposal of the Company. On the contrary, the evidence pointed to an arrangement whereby the monies comprising the Payment were to be at the free disposal of the Company which was subject only to a contractual obligation to pay £37,239 to Godfrey Davis.
11. Miss Hilliard submitted that the authorities on this question pointed to the absence of any attempt to separate the payment in question from the general funds of the payee, as a strong factor against an intention to create a purpose trust. Thus she submitted that the fact that Mr Cooper paid his money into an account, which he must have known was the Company's payroll account, with no attempt being made to segregate the amount of the Payment from the Company's other money, and a delay until 31^st July 2006 before an attempt was made to pay Godfrey Davis, militates against the creation of a trust. She submitted that the arrangement amounted to Mr Cooper procuring the Company to make a payment on his behalf as his agent to Godfrey Davis and she drew my attention to a passage in Bowstead on Agency 18^th edition at paragraph 6-040 to the effect that an agent does not necessarily hold on trust monies transferred to him by his principal.

The law

12. The leading case in this area of the law is the decision of the House of Lords in Barclays Bank Limited v Quistclose Investments Limited [1970] AC 567. In that case the House of Lords was considering a company, Rolls Razor Limited, which was in serious financial difficulties but which had declared a dividend payable to its shareholders. A loan was made to the company upon terms that it would only be used to pay the declared dividend. The amount of the loan was paid into an account specially opened to receive it and not into any of the company's bank accounts, and in respect of which it had been agreed that it would only be used for the purpose of paying the dividend. The company was placed in voluntary liquidation before the dividend could be distributed and the lender sought to recover the amount of the loan. It was held that the arrangement for the making of the loan for the purpose of paying the dividend gave rise to a relationship of a fiduciary character for the purpose of ensuring that it was used only for the purpose of paying the dividend and, that purpose having failed, it was repayable in full to the lender and did not form part of the company's assets distributable amongst its creditors.
13. The House of Lords returned to the subject more recently in the case of Twinsectra Limited v Yardley [2002] 2 AC 164. In that case a lender had lent money to an agent for the purpose of investing it in property. The loan was actually paid to a solicitor purporting to act for the agent upon written conditions which included the following express undertaking:-

"1. The loan monies will be retained by us until such time as they are applied in the acquisition of property on behalf of our client.

2. The loan monies will be used solely for the acquisition of property on behalf of our client and for no other purpose."

14. The facts of the case are somewhat complicated and it is sufficient for the purpose of this judgment to say that an issue arose as to whether those facts imposed on the loan monies a Quistclose or purpose trust. Lord Millett deals with the question of how such trusts come into existence between paragraphs 68 and 76 of the report. Because it seems to me that this passage from Lord Millett's speech deals conclusively with the issue in this case, I will set it out in full as follows:-

"(3) Was there a Quistclose trust?

68 Money advanced by way of loan normally becomes the property of the borrower. He is free to apply the money as he chooses, and save to the extent to which he may have taken security for repayment the lender takes the risk of the borrower's insolvency. But it is well established that a loan to a borrower for a specific purpose where the borrower is not free to apply the money for any other purpose gives rise to fiduciary obligations on the part of the borrower which a court of equity will enforce. In the earlier cases the purpose was to enable the borrower to pay his creditors or some of them, but the principle is not limited to such cases.

69 Such arrangements are commonly described as creating "a Quistclose trust", after the well known decision of the House in Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567 in which Lord Wilberforce confirmed the validity of such arrangements and explained their legal consequences. When the money is advanced, the lender acquires a right, enforceable in equity, to see that it is applied for the stated purpose, or more accurately to prevent its application for any other purpose. This prevents the borrower from obtaining any beneficial interest in the money, at least while the designated purpose is still capable of being carried out. Once the purpose has been carried out, the lender has his normal remedy in debt. If for any reason the purpose cannot be carried out, the question arises whether the money falls within the general fund of the borrower's assets, in which case it passes to his trustee in bankruptcy in the event of his insolvency and the lender is merely a loan creditor; or whether it is held on a resulting trust for the lender. This depends on the intention of the parties collected from the terms of the arrangement and the circumstances of the case.

70 In the present case Twinsectra contends that paragraphs 1 and 2 of the undertaking which Mr Sims signed on 24 December created a Quistclose trust. Mr Leach denies this and advances a number of objections to the existence of a trust. He says that Twinsectra lacked the necessary intention to create a trust, and relies on evidence that Twinsectra looked exclusively to Mr Sims' personal undertaking to repay the loan as its security for repayment. He says that commercial life would be impossible if trusts were lightly inferred from slight material, and that it is not enough to agree that a loan is to be made for a particular purpose. There must be something more, for example, a requirement that the money be paid into a segregated account, before it is appropriate to infer that a trust has been created. In the present case the money was paid into Mr Sims' client account, but that is sufficiently explained by the fact that it was not Mr Sims' money but his client's; it provides no basis for an inference that the money was held in trust for anyone other than Mr Yardley. Then it is said that a trust requires certainty of objects and this was lacking, for the stated purpose "to be applied in the purchase of property" is too uncertain to be enforced. Finally it is said that no trust in favour of Twinsectra could arise prior to the failure of the stated purpose, and this did not occur until the money was misapplied by Mr Yardley's companies.

Intention

71 The first two objections are soon disposed of. A settlor must, of course, possess the necessary intention to create a trust, but his subjective intentions are irrelevant. If he enters into arrangements which have the effect of creating a trust, it is not necessary that he should appreciate that they do so; it is sufficient that he intends to enter into them. Whether paragraphs 1 and 2 of the undertaking created a Quistclose trust turns on the true construction of those paragraphs.

72 The fact that Twinsectra relied for its security exclusively on Mr Sims's personal liability to repay goes to Twinsecrra's subjective intention and is not relevant to the construction of the undertaking, but it is in any case not inconsistent with the trust alleged. Arrangements of this kind are not intended to provide security for repayment of the loan, but to prevent the money from being applied otherwise than in accordance with the lender's wishes. If the money is properly applied the loan is unsecured. This was true of all the decided cases, including the Quistclose case itself.

The effect of the undertaking

73 A Quistclose trust does not necessarily arise merely because money is paid for a particular purpose. A lender will often inquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust; once lent the money is at the free disposal of the borrower. Similarly payments in advance for goods or services are paid for a particular purpose, but such payments do not ordinarily create a trust. The money is intended to be at the free disposal of the supplier and may be used as part of his cashflow. Commercial life would be impossible if this were not the case.

74 The question in every case is whether the parties intended the money to be at the free disposal of the recipient: In re Goldcorp Exchange Ltd [1995] 1 AC 74, 100 per Lord Mustill. His freedom to dispose of the money is necessarily excluded by an arrangement that the money shall be used exclusively for the stated purpose, for as Lord Wilberforce observed in the Quistclose case [1970] AC 567, 580:

"A necessary consequence from this, by a process simply of interpretation, must be that if, for any reason, [the purpose could not be carried out,] the money was to be returned to [the lender]: the word 'only' or 'exclusively' can have no other meaning or effect."

In the Quistclose case a public quoted company in financial difficulties had declared a final dividend. Failure to pay the dividend, which had been approved by the shareholders, would cause a loss of confidence and almost certainly drive the company into liquidation. Accordingly the company arranged to borrow a sum of money "on condition that it is used to pay the forthcoming dividend". The money was paid into a special account at the company's bank, with which the company had an overdraft. The bank confirmed that the money "will only be used for the purpose of paying the dividend due on 24 ]uly 1964". The House held that the circumstances were sufficient to create a trust of which the bank had notice, and that when the company went into liquidation without having paid the dividend the money was repayable to the lender.

75 In the present case paragraphs 1 and 2 of the undertaking are crystal clear. Mr Sims undertook that the money would be used solely for the acquisition of property and for no other purpose; and was to be retained by his firm until so applied. It would not be held by Mr Sims simply to Mr Yardley's order; and it would not be at Mr Yardley's free disposition. Any payment by Mr Sims of the money, whether to Mr Yardley or anyone else, otherwise than for the acquisition of property would constitute a breach of trust.

76 Mr Leach insisted that such a payment would, no doubt, constitute a breach of contract, but there was no reason to invoke equitable principles merely because Mr Sims was a solicitor. But Mr Sims's status as a solicitor has nothing to do with it. Equity's intervention is more principled than this. It is unconscionable for a man to obtain money on terms as to its application and then disregard the terms on which he received it. Such conduct goes beyond a mere breach of contract. As North J explained in Gibert v Gonard (1884) 54 LJ Ch 439, 440:

"It is very well known law that if one person makes a payment to another for a certain purpose, and that person takes the money knowing that it is for that purpose, he must apply it to the purpose for which it was given. He may decline to take it if he likes; but if he chooses to accept the money tendered for a particular purpose, it is his duty, and there is a legal obligation on him, to apply it for that purpose."

The duty is not contractual but fiduciary. It may exist despite the absence of any contract at all between the parties, as in Rose v Rose (1986) 7 NSWLR 679; and it binds third parties as in the Quistclose case itself. The duty is fiduciary in character because a person who makes money available on terms that it is to be used for a particular purpose only and not for any other purpose thereby places his trust and confidence in the recipient to ensure that it is properly applied. This is a classic situation in which a fiduciary relationship arises, and since it arises in respect of a specific fund it gives rise to a trust."

15. It seems to me that what emerges from this passage in Lord Millett's speech is that whether or not money has been paid subject to a purpose trust is a question of fact. If a purpose trust is to be established, it is necessary for the payer to show that the arrangement pursuant to which the payment was made defined the purpose for which it was made in such a way that it was understood by the recipient that it was not at his free disposal; see paragraph 74 where Lord Millett says, "The question in every case is whether the parties intended the money to be at the free disposal of the recipient."
16. At paragraph 70 and following Lord Millett deals with a number of objections to the creation of a purpose trust which reflect some of the submissions made to me by Miss Hilliard. One such objection was the absence of a requirement that the money when paid should be kept in a separate and identifiable fund such as happened in the Quistclose case itself and some other cases. Lord Millett rejected this as a necessary requirement of the creation of such a trust. He also found that a payer "if he enters into arrangements which have the effect of creating a trust, it is not necessary that he should appreciate that they do so; it is sufficient that he intends to enter into them."
17. At paragraph 73 Lord Millett deals with another point which Miss Hilliard raised, namely the similarity between the position of customers who had paid money in advance to the company for goods and services and that of Mr Cooper paying money to be paid on to Godfrey Davis in reduction of the loan for the purchase price of the car. In both cases, as a result of the administration order, the purpose of the payment failed. Lord Millett differentiates between these two circumstances of payment by saying that in the former the payer generally accepts that his payment will be available to the recipient for free disposal as part of his cash flow and so no trust arises, whereas in the latter case, if the arrangement does not contemplate that the payment is at the free disposal of the recipient, a purpose trust can arise.
18. The essence of a purpose trust is summarised at paragraph 76 of Lord Millett's speech where he says:-

"The duty is fiduciary in character because a person who makes money available on terms that it is to be used for a particular purpose only and not for any other purpose thereby places his trust and confidence in the recipient to ensure that it is properly applied."

19. Miss Hilliard relied on a number of other authorities. In particular R v Clowes & anr (No2) [1994] 2 AER 316, Re Niagara Mechanical Services International Limited [2000]2 BCLC 425 and Shalson & ors v Russo [2005] 1 Ch 281.
20. In the Clowes case the Court of Appeal were considering an appeal from criminal convictions including theft in the course of which it was necessary to consider whether the defendants were trustees of monies passed to their company for the purpose of investment in a particular fund. Miss Hilliard cited the case for the reliance by Lord Justice Watkins on an extract from the judgments of Channell J in Henry v Hammond [1913] 2 KB 521 and of Bingham J in Neste Oy v Lloyds Bank plc [1983] 2 Lloyd's Law Rep 658, drawing attention to the "unwillingness by the courts to construe a relationship of trust in commercial transactions, and, second that it is unusual for there to be a trust of funds where the transaction in question does not require segregation of such funds."
21. It does not seem to me that this case much assists Miss Hilliard. In the result the Court of Appeal found that there was a purpose trust and on page 325 of the report Lord Justice Watkins is recorded as saying:-

"As to segregation of funds the effect of the authorities seems to be that a requirement to keep money separate is normally an indicator that they are impressed with a trust, and that the absence of such a requirement, if there are no other indicators of a trust, normally negatives it. The fact that a transaction contemplates the mingling of funds is, therefore, not necessarily fatal to a trust."

22. The decision of Mr Justice Ferris in Re Niagara seems to turn on its own facts but the result of the case was that it was found that a special payment made by the claimant to a building contract company in administration, to be passed to a sub-contractor whose presence on site was fundamental to the completion of the building work, was impressed with a purpose trust.
23. At page 324 of the report of the Shalson case Mr Justice Rimer points out at paragraph 128 that whether or not a purpose trust exists is "primarily a question of fact", and at paragraph 129, dealing shortly with the evidence, finds that "there was no agreement between them that the money lent by Mr Mimran could only be used for property investment purposes and that, subject to being so used, it would be held on trust for him personally. …There was no express agreement to this effect, and nor is there any basis for regarding the parties as having impliedly so agreed." These findings led quickly to a conclusion that Mr Mimran was not entitled to the benefit of any purpose trust in respect of the payment which he had made.
24. In my judgment, notwithstanding that it may have been contemplated by Mr Cooper that his payment, when made, might become mingled with the Company's funds, and, notwithstanding that there may not have been an express direction by him, either to Mr Onslow or to Mr Hoskin, that the money paid was only to be used for the purposes of paying off his loan from Godfrey Davis, from the arrangement which is described in the unchallenged evidence of Mr Cooper in the passages from his witness statement, which I have set out above, when read with the text of the three letters of 24^th October 2005, 12^th May 2006 and 27^th July 2006, which I have also set out above, it has been clearly established by Mr Cooper that his payment of £34,239 to the Company on 7^th July 2006 was impressed with a purpose trust to pay that sum to Godfrey Davis in reduction of his loan. That payment having been aborted by the entry into administration by the Company on 1^st August 2006, it is repayable by the Company to Mr Cooper if it, or any part of it, is traceable into the assets which passed to the administrators on the making of that administration order and which they in turn have passed to the liquidator. If not express there was clearly to be implied into the arrangement that neither Mr Cooper nor the Company regarded the amount of the payment as part of the assets of the company at its "free disposal" and available, in particular, as working capital or for payment of its creditors.

Is Mr Cooper's payment traceable in the hands of the administrators/ liquidators?

25. I have found that Mr Cooper's payment was made to the Company subject to a purpose trust and that accordingly the Company owed him fiduciary duties in respect of it. It follows that rules of equitable tracing apply.
26. Bank statements in respect of the Company's payroll account for 7^th July 2006 show receipt from Mr Cooper of his payment of £34, 239. On that day there were two debits to the account amounting to £3,020.18 leaving a balance of £31,218.82. It was the practice of the Company to sweep this account (and other accounts) into the Company's current account at the end of every day. Accordingly £31,218.82 is shown, in the relevant statement of the Company's current account, as being credited on 7^th July leaving a credit balance in that account at the end of that day of £268,326.16. Thereafter on every day until 26^th July there was a closing credit balance on current account exceeding £31,218.82.
27. Statements of the Company's current account do not appear to show debits and credits in the order in which they were made to the account. It seems to me that in those circumstances I am entitled to assume that the balance on any day on the account did not fall below the final balance for the day shown on the account.
28. On 26^th July the closing balance in the current account was £19,779.75. But that was after a debit of £400,000 in respect of "new treasury deposit 49073244", which deposit was returned to the account the following day, 27^th July. The closing balances on current account remained more than £31,218.82 on each day thereafter until 31^st July when the closing balance was £26,143.58. That balance, however, was after a further new treasury deposit payment of £250,000 numbered 45462055. That deposit was re-credited to the current account on the following day 1^st August, which was the date of the administration, on which the closing balance of the current account was £61,761.53. The closing balance on current account on 2^nd August was overdrawn £1,259,890.62. This balance was after a transfer of £2,936,201.25 to the Company's stock account no. 70414921. A statement of that account shows that sum being received on 2^nd August discharging the debit balance in that account and leaving a nil balance. However, the following day, 3^rd August, it appears that, by reason of the administration avoiding that payment to the extent of £2,611,228.08, that sum was re-credited to the current account. The administrators were notified of Mr Cooper's claim by letter of 5^th September 2006. There is no evidence as to what happened in the Company's current account between 3^rd August 2006 and that date, but it was not contended by Miss Hilliard that the balance on current account fell below £31,218.82 during that period.
29. In "The Law of Tracing" by Lionel D. Smith at page 266 the following passage appears:-

"The other point is that not all bank account transactions are final; some are provisional. It might be that the balance on a given day is £500, and the claimant is in the position to assert that £500 of value traceably exists in the account. On the next day a cheque might be drawn on the account for £600, leading to a provisional balance of £100 overdrawn. If that cheque were dishonoured, the balance would return to £500. The claimant's ability to trace would not be affected. The cheque having been dishonoured, the value never actually left the account. Provisional transactions which are reversed should therefore simply be ignored."

30. In my judgment, on conventional principles of equitable tracing Mr Cooper is entitled to trace his payment into the Company's current account to the extent of £31,218.82.
31. It is accepted that all the Company's bank accounts were with Barclays Bank. It is also accepted that, at the date of the administration order, the Company had net cash at bank amounting to £1,306,153.85. Again it is to be assumed that that balance did not fall below £34,239.00 before 5^th September 2006. It was submitted by Mr Boeddinghaus for Mr Cooper, and I accept, that, on the material before me, I am entitled to assume that the net balance after consolidation of all accounts between the Company and the bank never fell below £34,239. There is no evidence that any other claimant is making a claim to trace money into the Company's accounts with Barclays Bank.
32. It is Mr Boeddinghaus' submission that an alternative approach to tracing his client's payment is by taking the asset into which it can be traced as the net balance due from Barclays Bank to the Company at all material times since 7^th July 2006 until Mr Cooper's claim was notified on 5^th September 2006. On this basis, he submits, his client's claim has always been traceable into an asset of the Company, notwithstanding the shifting balances between the various accounts. He was not able to adduce any direct authority on the point. Equally no authority against this contention in principle was adduced and I know of none. I propose to accept it.
33. It follows that, in my judgment, Mr Cooper can trace his payment to its full amount of £34,239.