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Cite as: 2001 SC 653, [2001] ScotCS 42

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OUTER HOUSE, COURT OF SESSION

CA10/98

OPINION OF LORD MACFADYEN

in the cause

COMPAGNIE COMMERCIALE ANDRE S.A.

Pursuers;

against

(FIRST) ARTIBELL SHIPPING COMPANY LIMITED and (SECOND THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND

Defenders:

________________

Pursuers: Glennie, Q.C.; Henderson Boyd Jackson, W.S.

Defenders: R. Smith, Q.C., Mure; Anderson Strathern, W.S.

21 February 2001

Introduction

[1] In this action the pursuers, a French company, seek to work out the remedies available to them in respect of the abandonment of a voyage by a vessel, the "Aliki A" ("the vessel"), which they had chartered from its owners, the first defenders, a Cypriot company, to carry a cargo of sugar from Rouen to Umm Qasr in Iraq. Decree has already been granted against the first defenders in terms of the first conclusion of the summons, a claim for damages for breach of contract on their part. The outstanding issues in the case relate to the claims which the pursuers make against the second defenders, the Bank of Scotland, who were the first defenders' bankers.

The Conclusions

[2] As matters now stand the pursuers maintain four claims against the second defenders. The first is made in the third conclusion, which is for payment of US$396,176.12 with interest. That is a claim for repetition of a sum of advance freight which was payable by the pursuers under the charterparty between them and the first defenders, and was paid to the credit of an account with the second defenders on 3 October 1997. The pursuers' second and third claims are made in the fourth and sixth conclusions. They are conclusions for declarator that certain sums standing to the credit of the first defenders in accounts with the second defenders are the property of the pursuers. The fourth conclusion relates to an account designated the Aliki A Earnings Account (see paragraph [6] below), and in the course of his submission Mr Glennie for the pursuers restricted the sum in respect of which he sought declarator to US$25,110.74. The sixth conclusion relates to an account designated the Retention Account (see paragraph [6] below), and the sum in respect of which declarator was sought in that conclusion was restricted by Mr Glennie to US$103,092.54. The pursuers' fourth claim is made in the eighth conclusion, and is for repayment of funds withdrawn by the second defenders from the Retention Account on 3 December 1997. That claim too was restricted by Mr Glennie, to the sum of US$29,584.08. The claims made in the fourth, sixth and eighth conclusions are alternative to the claim made in the third conclusion, but only in the event of that claim failing on a certain basis.

The Charterparty

[3] By voyage charterparty dated 12 September 1997 the pursuers chartered the vessel from the first defenders for the voyage from Rouen to Umm Qasr. In terms of paragraph 1 of the Joint Minute of Admissions between the pursuers and the second defenders (No. 47 of process) it is agreed that No. 6/3 of process is that charterparty (hereinafter "the charterparty"). The cargo was to be sugar in bags. The charterparty was in the Sugar Charter-Party 1969 (Revised 1977) form with various amendments and additional clauses. In accordance with Clause 9 of the charterparty the pursuers were obliged to pay 95% of the agreed freight to an account designated in Clause 46 within three days of the signing of bills of lading and the balance on right and true delivery of the cargo. Clause 46 provided that the freight was to be paid to the second defenders' international department in Edinburgh, the account being identified in the following terms:

"ACCOUNT : USD ACCOUNT No. 90949 USD 1

IN FAVOUR OF : ARTIBELL SHIPPING COMPANY LIMITED

REFERENCE : MV "ALIKI A" / ANDRE C/P 12.09.97".

The account referred to in Clause 46 was the account designated the Aliki A Earnings Account.

[4] It is agreed between the pursuers and the second defenders (paragraph 4 of the Joint Minute) that:

"the payment made by the pursuers of US$396,176.12 (referred to in Article 2 and in Answer 2 for the Second Defenders (US$396,166.98 after deduction of charges)) was a payment of advance freight required to be made by the pursuers in terms of clause 9 of the Charterparty."

That payment was made on or about 3 October 1997 to the Aliki A Earnings Account.

[5] It is further agreed between the pursuers and the second defenders (paragraph 11 of the Joint Minute) that:

"on a proper construction of the Charterparty no. 6/3 of process in accordance with English law,

freight is deemed earned upon the safe arrival of the ship and cargo at Umm Qasr; and
the advance freight paid by the Pursuers is recoverable by them if the vessel and her cargo do not arrive safely at Umm Qasr for any reason other than the vessel or her cargo are lost by an excepted peril as outlined in Article IV Rule 2 of the Hague-Visby Rules."

The Contractual Arrangements between the First and Second Defenders

[6] The contractual relationship between the first and second defenders was regulated by three documents, all dated 23 July 1997 and together referred to as "the Loan Documentation", namely:

a Loan Agreement,
a Mortgage and Deed of Covenants (together forming No. 6/9 of process) and
a General Assignment (No. 9/1 of process).

It is matter of agreement (paragraph 3 of the Joint Minute) that in pursuance of the Loan Agreement the second defenders made available to the first defenders a loan facility of US$2,075,000, which was drawn down on 23 July 1997. It is further agreed (paragraph 5 of the Joint Minute) that pursuant to the Loan Documentation three accounts in name of the first defenders were opened and operated with the second defenders. These accounts were:

account No. 90949USD01, "the Aliki A Earnings Account";
account No. 90949USD02, "the Anna Maria I Earnings Account"; and
account No. 90949USD03, "the Retention Account".

Only the first and the third of those accounts are relevant for the purpose of this action.

[7] The issues that remain outstanding between the pursuers and the second defenders depend in part upon a consideration of the detail of certain of the provisions of the Loan Documentation, and it is convenient to set them out at this stage. Clause 2.1 of the General Assignment provided:

"As security for the payment of the Outstanding Indebtedness, the Owner [the first defenders] as beneficial owner and with full title guarantee hereby assigns and agrees to assign to the Mortgagee [the second defenders] absolutely all its rights, title and interest, both present and future, in and to the Assigned Property all of which the Owner hereby warrants that it has not assigned, mortgaged, charged or otherwise encumbered or disposed of to any other person."

In Clause 1.2 Assigned Property was defined in such a way as to include earnings derived from the charter of the vessel to the pursuers, including the advance freight. Clause 2.3 provides:

"The Earnings, unless and until the Mortgagee shall otherwise direct, shall be paid to the Aliki Earnings Account and be applied in accordance with the provisions of Clause 12 of the [Loan] Agreement".

The reference in Clause 2.3 to the Aliki Earnings Account is a reference to the account with the second defenders which I have referred to as the Aliki A Earnings Account.

[8] Clause 12 of the Loan Agreement is too lengthy to quote here in full, but it provided inter alia as follows:

"12.1	The Borrowers shall establish and maintain with Lender the Aliki Earnings Account, ... and the Retention Account.
12.2	Each of the Borrowers shall procure that throughout the Security Period all Earnings of their respective Vessels shall be paid and credited to the relevant Earnings Account relating to that Vessel.
12.3	So long as no Event of Default or Potential Event of Default has occurred, any and all moneys credited to the Earnings Accounts will be applied by the Lender (which applications the Lender is hereby irrevocably and unconditionally authorised to make) as follows:
	FIRST:	in payment of any amounts due and owing under or pursuant to the Security Documents [subject to certain exception];
	SECONDLY:	by the Lender making the following transfers from the Earnings Accounts to the Retention Account:
		(i)	at successive monthly intervals from the Drawdown Date of the Loan [a fraction] of the amount of the Loan falling due for repayment to the Lender ... [at the next] Repayment Date ...; and
		(ii)	at successive monthly intervals from the start of each Interest Period ... an amount equal to [a fraction] of the amount falling due to the Lender by way of interest ... on the next succeeding Interest Date ...;
	THIRDLY:	subject always to the Lender's rights under Clause 12.5, the balance (if any) in the Earnings Account will be available to the Borrowers for the payment and/or reimbursement of the Operating Expenses ...
	FOURTHLY:	subject always to the Lender's rights under Clause 12.5, the balance (if any) in the Earnings Account will be available to the Borrowers for general working capital purposes.
12.5	Notwithstanding anything to the contrary contained in this Agreement, so long as the Borrowers remain under any liability ... in respect of the Outstanding Indebtedness, the Lender shall be entitled to withhold payment (up to the amount of such ... liability) of any moneys from time to time standing to the credit of the Earnings Accounts and the Retention Account... Provided always that the Lender shall not be entitled to exercise the provisions of this Clause 12.5 unless the Lender is satisfied that the happening of an Event of Default or Potential Event of Default is imminent.
12.7	On or at any time after the happening of an Event of Default or a Potential Event of Default, the Lender shall forthwith become entitled to direct that the Earnings be paid to such place and account as the Lender may think fit, and following such Event of Default or Potential Event of Default ... at any time and without notice to the Borrowers to appropriate all or any of the moneys standing to the credit of the Accounts and any Earnings which may thereafter be received by the Lender and apply the same in or towards the discharge of the Outstanding Indebtedness in accordance with Clause 11."

The Voyage

[9] It is agreed between the pursuers and the second defenders (paragraph 6 of the Joint Minute) that "a true and accurate record of circumstances of the voyage of the Aliki A from Rouen to Umm Qasr and the problems encountered thereon" is contained in the following averments in article 2 of the condescendence:

"Pursuant to the said charter party a cargo of bagged sugar was loaded on board the vessel at Rouen. ... The vessel duly sailed from Rouen bound for Umm Qasr. However, on 10 October, 1997 the vessel suffered a main engine breakdown associated with a defect in her turbo charger and had to be diverted to Cadiz for repairs. The vessel arrived at Cadiz at about midnight on 12 October. The repairs were finished by 16 October and the vessel resumed her voyage at about 2000 hours that day. On the voyage problems were experienced with the vessel's auxiliary boiler water consumption. Problems were also experienced with the main engine thrust bearing such that the engine had to be stopped at 2340 hours on 23 October. It was discovered that the thrust bearing had sustained major damage and that the vessel could not proceed by her own propulsion. The vessel was towed to Piraeus where she arrived at about 2040 hours on the 25 October. On 27 October she was taken to a repair berth. Repair work commenced on 29 October. Said repair work has been abandoned by the first defenders because, in their estimation, the likely cost of such repair work will exceed the sound repaired value of the vessel. The first defenders have abandoned the voyage and the pursuers have had to make arrangements to have their cargo transshipped."

The Repetition Claim

[10] The pursuers' claim for repetition of the advance freight depends in the first place on the proposition that the voyage failed for a reason other than an excepted peril in terms of Article IV Rule 2 of the Hague-Visby Rules. As recorded in paragraph [5] above, the parties are agreed in terms of paragraph 11 of the Joint Minute that in that event the advance freight is recoverable. Although evidence was led bearing on that issue, it is unnecessary to deal with it, because Mr Smith for the second defenders accepted in his submissions that the voyage had been abandoned, that the reason for the abandonment lay in mechanical difficulties which existed before the commencement of the voyage, and that accordingly the second defenders had not established that the voyage failed for a reason that fell within the excepted perils. Mr Smith therefore accepted that in the events which happened the advance freight became repayable in a question between the pursuers and the first defenders.

[11] In the second place, the claim for repetition from the second defenders depends, as Mr Glennie accepted, on its being established that the second defenders received the advance freight credited to the Aliki A Earnings Account for their own benefit. In their pleadings (in article 7 of the condescendence) the pursuers put that point in the following terms:

"In the circumstances condescended upon, the pursuers paid the advance freight to the second defenders and the second defenders received the same as principals pursuant to their rights as assignees thereof under the General Assignment and for their own account".

In order to address the question whether that has been established, it is necessary to look at the way in which the payment was treated in the books of the second defenders, and at the respective rights and liabilities of the first and second defenders under the contractual arrangements between them.

[12] The statement of the Aliki A Earnings Account contains the following entries:

entry date

our ref. your ref.

debits

credits

balance

30 sep 97

8 oct 97

14 oct 97

21 oct 97

23 oct 97

31 oct 97

Balance brought forward

... danielson marine

... compagnie commercial

... bal sept oct retent

... interest to 21/10/97

... oct retentions

balance carried forward

250,064.84

71,522.

60,953.72

396,166.98

337.41

11,485.22

157,587.36

86,064.46

86,401.87

25,448.15

31 oct 97

382,541.46

396,504.39

25,448.15

The credit entry dated 8 October against the name "Compagnie Commercial" (sic) records receipt of the payment of advance freight from the pursuers. The debit entry of the same date records a payment by the first defenders to their agents, Danielson Marine. It was accepted that notwithstanding the order of the entries, those were contemporaneous transactions, and the payment to Danielson Marine should be regarded as drawing to the extent necessary on the funds credited to the account on the same date rather than as temporarily overdrawing the account. The payment to Danielson Marine thus shows the first defenders exercising their power to use the funds at credit of the Aliki A Earnings Account to the extent permitted by Clause 12.3 THIRDLY or FOURTHLY of the Loan Agreement. The entries on 14 and 23 October reflect transfers from the Aliki A Earnings Account to the Retention Account effected by the second defenders in accordance with the provisions of Clause 12.3 SECONDLY of the Loan Agreement.

[13] So far as the contractual arrangements between the first and second defenders were concerned, Mr Glennie submitted that the critical provision was Clause 2.1 of the General Assignment (see paragraph [7] above). He submitted that that should be construed as an absolute assignation in favour of the second defenders of the right to the advance freight lodged in the Aliki A Earnings Account. There was, he recognised, a tension between the words "As security for the payment of the Outstanding Indebtedness ..." at the beginning of the Clause and the word "assign to the Mortgagee absolutely" a few lines later. He submitted that the word "absolutely" should be given full effect, and that content could be given to the word "security" by construing the opening phrase as meaning no more than that the purpose of the absolute assignation was to ensure or "secure" that the earnings and the other components of the assigned property were made available to repay the loan. On that view of the General Assignment, when the advance freight was paid in to the Aliki A Earnings Account, it was received by the second defenders for their own benefit as absolute assignees of the right to receive it. As I understood the pursuers' position, they maintained that that contention was not prejudiced by the provisions of Clause 12 of the Loan Agreement (see paragraph [8] above). Although under Clause 12.3 THIRDLY and FOURTHLY the first defenders were entitled in certain circumstances to make certain use of parts of the funds at credit of the Aliki A Earnings Account, those provisions could be regarded as conferring on the first defenders a contractual right to make limited use of funds which by virtue of the assignation belonged to the second defenders. Mr Glennie sought to rely on evidence given by Mr James Gardner, the Director of Corporate Banking in the second defenders' International Division, as support for the proposition that the advance freight was received by the second defenders for their own benefit, but it seemed to me that Mr Gardner, who said that he had no previous experience of advance freight becoming repayable, had not applied his mind to any very deep analysis of the effects of the Loan Documentation, and I do not find in his evidence anything that assists me in determining for whose benefit the advanced freight credited to the Aliki A Earnings Account was received.

[14] Mr Smith sought to advance the second defenders' contention as to the capacity in which they received the advance freight in the context of general submissions about the nature of the contractual relationship between banker and customer. He referred to the following two passages in the Stair Memorial Encyclopaedia, Vol 2, first at § 1168:

"In Scotland, the banker/customer relationship was described by Lord Mackay in Royal Bank of Scotland v Skinner [1931 SLT 382 at 384]:

'After some fluctuation of opinion, it is now well settled that the relationship of customer and banker is neither a relationship of principal and agent nor a relationship of a fiduciary nature, trust or the like, but a simple relation - it may be one-sided, or it may be two-sided - of creditor-debtor. The banker is not, in the general case, the custodian of money. When money is paid in, despite the popular belief, it is simply consumed by the banker, who gives an obligation of equivalent amount'";

and then, after further discussion in particular of Joachimson v Swiss Bank Corporation [1921] 3 KB 110, at § 1171:

"... each relationship has to be considered separately, and while in most instances there will be a debtor/creditor relationship in addition to which the banker undertakes a number of other tasks, it would not always be correct to describe the relationship as that of debtor and creditor. There will, however, be a contract between the parties even in the absence of a bank account, but the exact nature of the obligations will vary from customer to customer."

The questions to be addressed, Mr Smith said, were (i) what were the terms of the contract between the first and second defenders, and (ii) what entitlement did those terms give each party in relation to the funds in the account. The answer which he proposed to those questions was that on the face of the account, the money paid in by the pursuers to the Aliki A Earnings Account in respect of advance freight was a payment for the benefit of the first defenders, and that was reflected in the fact that the sum so paid in was credited to that account in name of the first defenders. The immediate payment out of the account to the first defenders' agents, Danielson Marine, also supported the inference that the money paid in had been for the benefit of the first defenders. The General Assignment, properly construed, effected an assignation of the advance freight in security only. Until the occurrence of default, the rights of the first and second defenders inter se in respect of the sum at credit of the Aliki A Earnings Account were regulated by Clause 12.3 of the Loan Agreement. In light of these contractual arrangements the second defenders were not "enriched" by receipt of the advanced freight. Alternatively, they could not be regarded as "enriched" by that part of the sum credited to the Aliki A Earnings Account that was immediately debited to the account in respect of the payment to Danielson Marine.

[15] In my opinion the second defenders did not receive the advance freight "for their own account" (to use the language adopted in the pursuers' pleadings), and were not "enriched" to any extent by receipt of that sum. It seems to me that the pursuers' case of unjust enrichment is periled on the assertion that the advance freight was received by the second defenders for themselves as absolute assignees of the right to receive the earnings of the vessel, and not merely as the first defenders' bankers for crediting to the first defenders' account. I therefore turn first to the task of interpreting the relevant provision of the General Assignment. The terms of Clause 2.1 are, at first sight, contradictory. The opening words appear to be a clear statement that the assignation was intended to operate in security of the first defenders' obligation to pay the outstanding indebtedness. The clause continues, however, to the effect that the first defenders thereby assign and agree to assign "absolutely" all their rights, title and interest in and to the assigned property. The General Assignment is, however, only part of a package of three documents (the Loan Documentation) by which the rights and obligations of the defenders inter se were regulated, and in my opinion the proper approach to construction requires Clause 2.1 of the General Assignment to be construed in the context of the Loan Documentation as a whole. When regard is had to the Loan Agreement, I am of opinion that it becomes clear that the assignation of the assigned property was not intended to take effect as an immediate absolute assignation to and in favour of the second defenders. Such an absolute assignation would have put the advance freight, when received by the second defenders, at their unrestricted disposal, to do with as they wished. That is, in my view, inconsistent with the terms of Clause 12 of the Loan Agreement. The terms of Clause 12.7, which entitle the second defenders, on the occurrence of an event of default or potential event of default, to appropriate the moneys standing at credit of the various accounts and to apply them in or towards discharge of the outstanding indebtedness, in my view make it clear that until the occurrence of such an event the second defenders have no absolute right to the moneys in the account. Similarly, Clause 12.3 bears to "authorise" the second defenders, so long as no event of default has occurred, to apply moneys standing at credit of the Aliki A Earnings Account, in certain limited and defined ways, to the Retention Account, but provides that, subject to certain other rights of the second defenders, the balance in the Earnings Account is to be available to the first defenders for certain purposes. No such authorisation would have been necessary if the General Assignment had been absolute. Those provisions, when considered as a whole, seem to me to be much more readily understood as the regulation of the extent to which and the events in which the second defenders may have recourse to funds assigned in security, than as relating to funds which have been assigned to them absolutely.

[16] There is, no doubt, a sense in which money paid to a bank to the credit of the account of one of its customers becomes, on receipt, the bank's money - as Lord Mackay said in Royal Bank of Scotland v Skinner, it is "simply consumed by the banker". But in that simple situation, the bank is not thereby enriched, because it grants an immediate obligation of corresponding amount to its customer. Receipt by the bank in that way would not, in my opinion afford the necessary foundation for an argument that in the event of the money becoming repayable by the customer to the payer, the bank had been unjustly enriched. I did not understand Mr Glennie to argue otherwise. The essential foundation for the case of unjust enrichment that the pursuers seek to make is the contention that the second defenders received the advance freight "as assignees and for their own account". It is not enough, in my opinion, that they received the advance freight "as assignees". The pursuers need to go a step further, and demonstrate that the assignation was absolute, rather than in security, and that for that reason they received the advance freight "for their own account". In my view, they are unable to take that further step. For the reasons which I have discussed in the preceding paragraph, I am of opinion that the General Assignment, properly construed as part of the Loan Documentation, effected only an assignation in security. If the advance freight had been assigned to the second defenders absolutely, it would not, it seems to me, have been credited to the Aliki A Earnings Account, an account in name of the first defenders. By crediting that sum to that account, the second defenders acknowledged that they were (so far at least as that account was concerned) indebted to the first defenders in that sum. The reality of that situation is, in my view, illustrated by the detailed provisions in Clause 12.3 authorising the second defenders in defined circumstances to draw on the account, and acknowledging that the funds otherwise remain at the disposal of the customer. It is also illustrated by the fact that the customer was able immediately to withdraw from the account a substantial proportion of the advance freight and pay it to their agents. It seems to me that, provided there would remain in the Aliki A Earnings Account a sufficient sum to enable the transfers authorised by Clause 12.3 SECONDLY to be made, and provided the circumstances are not such as are contemplated in Clause 12.5, the second defenders would have no ground for preventing the first defenders from utilising the funds at credit of the account in the manner contemplated in Clause 12.3 THIRDLY or FOURTHLY. My conclusion is that the sum of advance freight paid by the pursuers (in implement of their obligation under clauses 9 and 46 of the charterparty) to the credit of the Aliki A Earnings Account was received by the second defenders as the first defenders' bankers, and not for their own account. In my opinion that is sufficient to lead to decree of absolvitor in respect of the third conclusion.

[17] It is nevertheless appropriate that I should record the further submissions made by the parties in relation to the pursuers' unjust enrichment claim, and the conclusion which I have reached on those submissions. Mr Glennie's submission (which proceeded on the hypothesis that the second defenders received the advance freight for their own account) was that it was sufficient to entitle the pursuers to succeed in their unjust enrichment claim for them to show (i) that they made the payment to the second defenders in contemplation of a particular event, namely safe completion of the voyage to Umm Qasr, and (ii) that that event did not occur. Proof of those two facts showed prima facie that the second defenders had been unjustly enriched. It was then for the second defenders to show, if they could, that it was inequitable that they should be required to make repayment. That argument, Mr Glennie submitted, applied to the whole sum of advance freight. It was not affected by the fact that immediately on receipt of the advance freight the first defenders were able to make the payment of US$250,064.84 to Danielson Marine. Nor were the pursuers prevented from recovering from the second defenders on the ground of unjust enrichment by the fact that the first defenders were, in the events which happened, under a contractual obligation to repay the advance freight. The mere existence of a contractual remedy against the first defenders had no bearing on whether the pursuers could seek a remedy in unjust enrichment against the second defenders. In any event, the pursuers' claim for repetition against the first defenders was capable of being founded on unjust enrichment as well as on contract. Where more than the two contracting parties were involved, it was necessary to look to practical reality. The pursuers' practical inability to recover the advance freight from the first defenders was sufficient to open the way to a remedy in unjust enrichment against the second defenders.

[18] In support of his submissions on unjust enrichment, Mr Glennie referred to the recent Scottish cases on the subject, as well as to some older Scottish cases and one English case dealing with circumstances somewhat similar to those of the present case. He began with Shilladay v Smith 1998 SC 725, a case in which the pursuer sought reimbursement of expenditure which she had incurred on repairs to the defender's cottage in contemplation of marriage to him which did not take place. He relied on it as deciding inter alia that the basis of liability to reverse unjust enrichment was not contractual, but a separate duty imposed by the law, so that there was no need to point to any kind of contract under which the pursuer paid the sums on condition of the marriage taking place. That point is dealt with in the opinion of Lord President Rodger at 729G-730C, where his Lordship, after quoting Stair, Institutions, I vii 7, said:

"The passage concerns two situations. The first (described by Stair as sine causa) is where property comes into someone's hands on a particular basis which then ceases to exist. The second (described as 'causa data, causa non secuta') is where property comes into the person's hands on the basis of some future event which fails to materialise. In either case the property must be restored. The important thing to notice is that in both cases the duty to restore is said to be based not on agreement (paction), but on a natural ground, i.e., it is a duty imposed by law. This is a useful reminder that, even if in Cantiere San Rocco SA v Clyde Shipbuilding and Engineering Co Ltd [1923 SC (HL) 105] the House of Lords included certain situations relating to non-performance of a contract under the heading of the condictio causa data, the basis of liability to reverse unjust enrichment is not contractual but rests on this separate duty imposed by law."

Mr Glennie also referred to an earlier passage in the Lord President's opinion (at 727D-G):

"As the law has developed, it has identified various situations where persons are to be regarded as having been unjustly enriched at another's expense and where the other person may accordingly seek to have the enrichment reversed. The authorities show that some of these situations fall into recognisable groups or categories. ... It is unnecessary in this case to examine all the groups and it is sufficient to note that the term condictio causa data, causa non secuta covers situations where A is enriched because B has paid him money or transferred property to him in the expectation of receiving a consideration from A, but A does not provide that consideration. The relevant situations in this group also include cases where B paid the money or transferred the property to A on a particular basis which fails to materialise ...".

From that latter passage, Mr Glennie drew the proposition that it was not essential that the contemplated event, failure of which gave rise to B's claim for reversal of unjust enrichment, should be the provision of some form of consideration by A to B. It was enough in the present case that the first defenders had (a) assigned their right to payment of the advance freight to the second defenders, and (b) contracted with the pursuers that payment of the advance freight should be made to the second defenders. In that situation, the payment of advance freight was made by the pursuers to the second defenders in contemplation of the successful completion of the voyage, and was returnable by the second defenders to the pursuers in the event that the voyage was not successfully concluded. Mr Glennie also cited the passage in the opinion of the Lord President dealing with payments in suo (at 730G-731D), and submitted that the payment of advanced freight could not be regarded as having been made by the pursuers in suo, because the foundation of the pursuers' case was not simply that the second defenders had benefited from the payment of advance freight, but in addition that the payment had been made in contemplation of an event which had failed to materialise, namely the successful completion of the voyage. Finally, Mr Glennie referred to a passage in the opinion of Lord Caplan (at 734F) where stress was placed on the need to regard the equitable basis of a remedy for unjust enrichment as the paramount consideration.

[19] Mr Glennie turned then to Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd 1998 SC (HL) 90. He noted, first, the observation in the speech of Lord Jauncey of Tullichettle (at 93G) that it was impossible to regard as unjust a result for which the parties or their predecessors had specifically and willingly contracted. He then referred to the following passage in which Lord Hope of Craighead (at 98F-I) reiterated the non-contractual nature of the obligation to redress unjust enrichment:

"It is an important part of this reasoning to recognise that the obligation to redress the enrichment arises not from contract, but from the separate duty which arises in law from the absence of a legal ground to justify its retention ... The event which gives rise to the granting of the remedy is the enrichment. In general terms it may be said that the remedy is available where the enrichment lacks a legal ground to justify retention of the benefit. In such circumstances it is held to be unjust."

He referred also to a later passage in the same speech, where Lord Hope said (at 99E):

"I think that Lord Rodger stated the matter correctly in the present case [1996 SC 331] at p. 353D when he said that the pursuers must show that the defenders have been enriched at their expense, that there is no legal justification for the enrichment and that it would be equitable to compel the defenders to redress the enrichment."

Mr Glennie submitted that in that passage Lord Hope was merely stating the ingredients of a case of unjust enrichment, and not purporting to lay down where the onus of proof lay. The question of onus had been dealt with in Morgan Guaranty Trust Company of New York v Lothian Regional Council 1995 SC 151. In that case repetition was sought under the condictio indebiti. Lord President Hope said (at 165D-166B):

"In my opinion the essentials of the condictio indebiti are that the sum which the pursuer paid was not due and that he made the payment in error. These matters must be the subject of averment by the pursuer to show that prima facie he is entitled to the remedy. It is the fact that the sum was not due that provides the ground for repetition on the principle of unjustified enrichment. An averment that the payment was made through error is needed in order to show that this is not a case of donation. It is appropriate to place the onus of demonstrating this point on the pursuer, as he is the party who can best explain why the payment was made although it was not due. There remain the questions whether an order for repetition should be granted, which must depend on the circumstances of each case and on considerations of equity, and whether it is for the pursuer or for the defender to make the averments which are required on this point.

There has been no decision in the Scottish cases on the question whether it is for the pursuer to demonstrate that the equities are in his favour or whether it is for the defender to show that, although he has been enriched, it would be unjust for him to be ordered to return the sum paid to him by mistake. ... I consider, however, that once the pursuer has averred the necessary ingredients to show that prima facie he is entitled to the remedy, it is for the defender to raise the issue which may lead to a decision that the remedy should be refused on the grounds of equity."

(See also per Lord Clyde at 172H-173E, and Lord Cullen at 175E-176B). Adapting those dicta to a case under the condictio causa data, causa non secuta, Mr Glennie submitted that it was for the pursuers to prove that the payment which benefited the second defenders was made in contemplation of the occurrence of a particular event, and that that event did not materialise. That the pursuers had done. It was then for the second defenders to demonstrate, if they could, the existence of equitable grounds for not ordering repayment. They had not done so. In particular, the fact that the pursuers had a contractual right to repayment from the first defenders did not make it inequitable that they should obtain reimbursement from the second defenders, given that that contractual remedy was in the circumstances worthless.

[20] The English case to which Mr Glennie made reference was Pan Ocean Shipping Co Ltd v Creditcorp Ltd, The "Trident Beauty" [1994] 1 Lloyd's Rep 365 (also reported at [1994] 1 WLR 161, but since throughout the proof reference was made to the Lloyd's Law Reports report, I shall cite the case in that form). His purpose in doing so was to submit that certain dicta of Lord Goff of Chieveley as to the unavailability of a restitutionary remedy in circumstances broadly similar to those of the present case did not represent the law of Scotland. In order to examine these dicta in context, it is necessary to summarise the circumstances of the case. Trident were the owners of a fleet of cargo vessels including the Trident Beauty. Creditcorp gave Trident a loan facility to enable them to finance freight transactions and time charterparties for their fleet. In return, Trident agreed to provide security by inter alia the assignment of freight receivables. By time charter the Trident Beauty was let to Pan Ocean for one voyage, the hire being payable fifteen days in advance. In the event of the loss of the vessel, hire paid in advance and not earned was returnable. Payments of hire were made, initially to Trident, and later directly to Creditcorp. Thereafter the vessel went off hire for repairs. Pan Ocean eventually treated the charter as repudiated, and claimed from Creditcorp return of the hire paid to them, as being money paid for a consideration that had wholly failed. The House of Lords held inter alia that although the benefit of the contract debt had been assigned to Creditcorp, the burden of the contract remained on Trident. Trident remained, despite the assignment, contractually bound to repay the unearned hire to Pan Ocean notwithstanding that the hire had been paid to Creditcorp as assignees. Pan Ocean had, however, no remedy against Trident in restitution on the ground of failure of consideration; their only remedy against Trident was under contract. The assignment to Creditcorp did not carry with it any obligation on Creditcorp to repay unearned hire on the ground of failure of consideration. Lord Goff dealt with the restitutionary claim against Creditcorp in inter alia the followings terms (at 368, col. 2 to 369 col. 2):

"[Counsel] for Pan Ocean ... maintained that Pan Ocean had alternative courses of action open to it - either to proceed against Trident in contract, or to proceed against Creditcorp in restitution. His argument proceeded on the basis that, in ordinary circumstances, a charterer has alternative remedies against the shipowner for the recovery of overpaid hire, either in contract or in restitution; and that here, since the hire had been paid to Creditcorp as assignee, Pan Ocean's remedy in restitution lay against Creditcorp in place of Trident. However ... I am unable to accept this argument. This is because, in my opinion, Pan Ocean never had any remedy against Trident in restitution on the ground of failure of consideration in the present case, its only remedy against Trident lying under the contract.

... Under the charter there were two separate contractual obligations - an obligation on Pan Ocean to pay instalments of hire in advance, and an obligation on Trident to repay any hire which was unearned. The assignment to Creditcorp of Trident's right to receive advance hire payments left undisturbed Trident's obligation to repay any hire which was unearned; and I cannot see that in those circumstances the assignment to Creditcorp can have carried with it any obligation upon Creditcorp, additional to the contractual obligation imposed upon Trident, to repay unearned hire on the ground of failure of consideration. ...

I am of course well aware that writers on the law of restitution have been exploring the possibility that, in exceptional circumstances, a plaintiff may have a claim in restitution when he has conferred a benefit on the defendant in the course of performing an obligation to a third party ... But, quite apart from the fact that the existence of a remedy in restitution in such circumstances must still be regarded as a matter of debate, it is always recognised that serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract. Moreover, it would in any event be unjust to do so in a case such as the present where the defendant, Creditcorp, is not the mere recipient of a windfall but is an assignee who has purchased from Trident the right to receive the contractual debt which the plaintiff, Pan Ocean, is now seeking to recover from Creditcorp in restitution despite the facts that the relevant contract imposes on the assignor (Trident) an obligation of repayment in the circumstances in question, and that there is nothing in the assignment which even contemplates, still less imposes, any additional obligation on the assignee (Creditcorp) to repay."

Mr Glennie submitted that it was not necessary for the pursuers to show that that they would, but for the assignation, have had a restitutionary claim against the first defenders, in order to make a restitutionary claim against the second defenders as assignees. Lord Goff's analysis to the contrary was inconsistent with the law of Scotland as explained in the cases referred to in paragraphs [18] and [19] above.

[21] Mr Smith, in dealing with this stage of the pursuers' argument which proceeded on the hypothesis that the second defenders had received the advance freight for their own benefit, drew a distinction between the burden and the benefit of the contract contained in the charterparty. In terms of the charterparty, the burden of performance of the obligation to complete the voyage was placed on the first defenders. So too was the burden of the obligation to repay the advance freight in the event that the voyage was not safely completed. The first defenders' obligation to repay the advance freight was contractual, not equitable. That was how the pursuers had presented the matter in their pleadings in article 5 of the condescendence:

"Explained further that according to English law the question of whether and in what circumstances advance freight is recoverable depends upon the intention of the parties as expressed in the Charter Party. In English law the intention of parties that advance freight is not to be recoverable even if the voyage is not accomplished is inferred from wording to the effect that freight is 'deemed earned' upon the happening of some prior event to completion of the voyage, such as on signing of bills of lading; or from wording to the effect that freight is 'discountless' and/or 'non returnable', 'ship and/ or cargo lost or not lost'. In the absence of that wording or wording to that effect, English law recognises the right of the charterer to recover advance freight. In English law the expression 'full freight deemed earned upon safe arrival of the vessel and cargo at destination' will be taken to express the intention of the parties that, subject to other provisions of the Charter Party, advance freight will be repayable if the voyage is not accomplished. The remainder of the second paragraph of cl. 46 of the Charter Party would, in English law, be taken as defining the limited circumstances in which the advance freight is not recoverable even though the vessel be lost."

The point had been resolved for this case, without the leading of evidence of English law, by paragraph 11 of the Joint Minute (see paragraph [5] above), in which the pursuers' right to recover the advance freight, in the event that the vessel and cargo did not arrive safely in Umm Qasr for any reason other than an excepted peril under Article IV Rule 2 of the Hague-Visby Rules, is agreed to arise "on a proper construction of the Charterparty ... in accordance with English law." The General Assignment (on the hypothesis that it conferred on the second defenders an entitlement to receive the advance freight for their own benefit) transferred from the first defenders to the second defenders part of the benefit of the charterparty, namely the right to receive the advance freight. But it did not transfer to the second defenders the burden of the obligation to repay the advance freight in the event of its becoming repayable under the charterparty. That was clear from the terms of Clause 2.1 of the General Assignment (see paragraph [7] above) and Clause 7.1 which provided inter alia as follows:

	"It is agreed and declared that, notwithstanding the assignment contained in Clause 2: ...
	7.1.2	the Owner shall remain liable to perform all the obligations assumed by it in relation to the Assigned Property and the Mortgagee shall not be under any obligation of any kind whatsoever in relation thereto or be under any liability whatsoever in the event of any failure by the Owner to perform its obligations in respect of the Assigned Property."

In terms of Clause 6.1.2 of the General Assignment, the first defenders were obliged to give notice of assignment to the other party to any charterparty, and complied with that obligation in relation to the pursuers by the terms of their answer to question 12 in the pursuers' questionnaire (see No. 6/3 of process, page 14). The pursuers were thus aware of the fact of the assignation of earnings to the second defenders and were in a position to recognise and assess for themselves the commercial risk involved in entering into a charterparty in terms of which advance freight might turn out to be returnable by the first defenders but would have been paid under the assignation to the second defenders.

[22] Mr Smith further submitted that (on the hypothesis that the advance freight was received by the second defenders for their own benefit) the second defenders did not thereby receive the sort of windfall benefit that was contemplated in the authorities on unjust enrichment. The second defenders had given value for what they received. Their right to receive the advance freight derived from the contract which they made with the first defenders to finance their shipping operations. Their receipt of the advance freight was in accordance with their rights under an onerous bilateral contract. That was part of the context in which the question whether it was equitable that the second defenders should be obliged to return the advance freight to the pursuers should be answered. Mr Smith submitted that in the circumstances the equities favoured the second defenders. In making that submission he cited a number of cases. He referred first to a dictum of Lord Eldon in Redfearn v Ferrier (1813) 1 Dow 50 at 72, to the effect that a latent equity could not prevail against an intimated assignation, and then to Thomson, Jackson, Gourlay & Taylor v Lochhead (1889) 16 R 373. In Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd he referred to the passage from the speech of Lord Hope of Craighead at 99E quoted in paragraph [19] above, and to two passages in the opinions of the judges in the Inner House (1996 SC 331), namely (i) Lord Sutherland (at 344D-F):

"The basic principle of recompense is that where one party has been put to expense or disadvantage by reason of which a benefit has been created to the other party the first party is in equity entitled to be recompensed. It is, however, well established that if the benefit or windfall is created because of the operation of a contractual term, the terms of the contract must be allowed to override equitable considerations, as it is assumed that when the parties contracted in the terms which they did they accepted that they must be bound by the strict terms of the contract. This is so when the parties in the contract have made provision for what is to happen in the event of such occurrence. This is in distinction to the case of a simple breach of contract where no provision has been made for that eventuality, in which case there may be room for equitable adjustment even in favour of the party in breach";

and (ii) Lord Cullen (at 350G):

"A person cannot be said to be lucratus if he obtains no more than what results from his entitlement".

Mr Smith also relied on two passages in the speech of Lord Goff of Chieveley in The "Trident Beauty", first where his Lordship held (at 368, col. 1) that:

"as between shipowner and charterer there is a contractual regime which legislates for the recovery of overpaid hire. It follows that, as a general rule, the law of restitution has no part to play in the matter; the existence of the agreed regime renders the imposition by the law of a remedy in restitution both unnecessary and inappropriate";

and secondly the passage (at 369, col. 2) quoted in paragraph [20] above in which his Lordship commented on the injustice of giving a remedy in restitution against the assignee who had purchased the right to receive the contractual debt. In essence, Mr Smith's submission was that there was no equitable case for ordering the second defenders to make restitution to the pursuers when (1) the pursuers had made the payment of advance freight to the second defenders knowing that in the event of failure of the voyage it was the first defenders who would come under a contractual obligation to make repayment, and (2) the second defenders had received the advance freight not as a windfall benefit but in accordance with their contractual rights under the Loan Documentation.

[23] I approach this aspect of the case on the basis that for the pursuers' case of unjust enrichment to succeed, it must be shown (1) that the second defenders have been enriched at the pursuers' expense, (2) that there is no legal ground justifying the enrichment and (3) that it would be equitable to compel the second defenders to redress the enrichment by repaying the advance freight to the pursuers (Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd, in particular per Lord Hope of Craighead at 98F-I and 99E). Of those three factors, I have already decided that the first has not been established (see paragraph [16] above). I now turn to consider whether, if I am wrong in that conclusion, and the second defenders should be regarded as having received the advance freight for their own benefit, and therefore as having been enriched thereby, the pursuers have succeeded in making out the other elements of the case. I accept Mr Glennie's submission that in Dollar Land at 99E Lord Hope was not dealing with the onus of proof, and that once a prima facie case of enrichment and of lack of justification for it has been made out, it is for the defender to raise any factor on which he wishes to found as pointing to the inequity of ordering him to redress the enrichment (Morgan Guaranty, in the passages cited in paragraph [19] above), but I take the view that, as is commonly said in cases decided after proof, matters of onus are seldom significant at that stage. The issues as to whether any enrichment was unjustified and as to where the equities lie must in my view be decided by reference to the totality of the circumstances before the court.

[24] I accept that the passage in the opinion of Lord President Rodger in Shilladay at 727F-G shows that a remedy for unjust enrichment on the basis of the condictio causa data, causa non secuta may be available in circumstances in which the pursuer has paid money to the defender on a particular basis that has failed to materialise. I accept that the contemplated event need not be the provision of some form of consideration by the defender to the pursuer. It does not, however, in my view follow that in every case that can be fitted into that category a restitutionary remedy will be available. The pursuers' contention is that the advance freight was paid by the pursuers to the second defenders (as the first defenders' assignees) in contemplation of the successful completion of the voyage to Umm Qasr, and that the failure of the voyage removes the legal ground for the second defenders' retention of it, thus making out a prima facie case for repetition. In my view that involves an oversimplification of the situation, and a concentration on the pursuers' point of view to the exclusion of that of the second defenders. The present case does not involve a single bilateral transaction. It involves two separate but related bilateral transactions. In considering whether there is justification for retention by the second defenders of the advance freight, and whether there are any circumstances that would render it inequitable to order repayment by them, it is in my opinion necessary to examine and take into account the whole circumstances including not only the shipping transaction between the pursuers and the first defenders, but also the financing transaction between the second defenders and the first defenders.

[25] I propose therefore to attempt to analyse the factors which seem to me to have a bearing on the issues that remain to be determined.

In terms of Clause 9 of the charterparty the pursuers came under a contractual obligation to the first defenders to pay the advance freight. No doubt in order to comply with the first defenders' obligations to the second defenders under the Loan Documentation, Clause 46 stipulated that payment should be made to the second defenders to account of the Aliki A Earnings Account. In making that payment, however, irrespective of whether the second defenders received it as absolute assignees for their own account or as the first defenders' bankers for their customers' account, the pursuers were discharging a contractual obligation which they owed originally to the first defenders. That obligation was the counterpart (or at least part of the counterpart) of the first defenders' obligation to complete the voyage.
It is a matter of admission that in terms of the charterparty the first defenders came under a contractual obligation to the pursuers, in the event that the voyage failed for reasons outwith the excepted perils, to repay the advance freight. That being so, I am of opinion that Mr Glennie was incorrect in his submission that the pursuers' right to repayment from the first defenders might be advanced as a restitutionary claim. The equitable remedies available to reverse unjust enrichment do not ordinarily, in my view, arise where there is a contractual remedy which would achieve the same result (cf. Lord Goff in The "Trident Beauty" at 368, col. 2).
When the pursuers paid the advance freight to the second defenders they were aware that the right to receive the advance freight had been assigned by the first defenders to the second defenders (either absolutely or in security). They either knew (if they were aware of the terms of Clause 7.1.2 of the General Assignment) that the second defenders had not assumed the obligation to repay the advance freight if it became repayable, or at least (if they were not so aware) had no reason to suppose that the second defenders had assumed that obligation. It was for them to assess the commercial risk involved in making payment to an assignee when the obligation to repay, if it arose, would remain with the first defenders. They were free to decline (but did not decline) to contract with the first defenders on that basis.
If (contrary to my finding) the second defenders received the advance freight for their own benefit, they did not do so by way of unexpected or fortuitous windfall, but in accordance with their contractual entitlement under the Loan Documentation. The second defenders provided finance for the first defenders' shipping operations in accordance with complex and carefully framed contractual provisions. The Loan Agreement contained complex provisions regulating the machinery by which repayment of the loan was to be achieved. Parts of that machinery were the payment of the vessel's earnings into the Aliki A Earnings Account, the entitlement of the second defenders to make regular transfers from that account to the Retention Account, and the entitlement of the second defenders to have recourse to the sums at credit of those accounts to satisfy the first defenders' indebtedness upon the occurrence of an event of default. They had, to adopt the language used by Lord Goff in The "Trident Beauty", "purchased" the right to receive the advance freight.

[26] When all of those factors are taken into account, it cannot, in my view, be affirmed that (if the effect of the General Assignment was that the second defenders received the advanced freight for their own account as absolute assignees) there is no legal justification for their retention of it. On the contrary, viewed in the context of the contract between the first and the second defenders, receipt and retention of the advance freight is part of the second defenders' entitlement. In terms of that contract, the risk that the advance freight might have to be repaid remained with the first defenders. Viewed in the context of the contract between the pursuers and the defenders, the position in my view remains the same. The pursuers paid the advance freight to the Aliki A Earnings Account in implement of their contractual obligation under the charterparty. Their remedy for recovery of it, if it became repayable, lay in contract against the first defenders. They acquired no contractual right to repayment from the second defenders. In these circumstances, although the contractual relationships are more complex in the present case, the reasoning that led the judges in Dollar Land to point out that the covenanted outcome of a contract could not be said to yield unjust enrichment (see, in the House of Lords, per Lord Jauncey at 93G and, in the Inner House, per Lord Sutherland at 344D-F and Lord Cullen at 350G) can in my opinion nevertheless be applied. I conclude that any benefit that the second defenders obtained through receipt of the advanced freight does not fall to be characterised as unjust enrichment. On that basis the question of whether there are equitable considerations precluding a restitutionary remedy does not arise. If it did, the considerations which have led me to conclude that any enrichment was not unjust would have led me to the conclusion that the equities were against ordering restitution.

[27] In summary, therefore, I am of opinion that the repetition claim fails because on a sound construction of the Loan Documentation the second defenders did not receive the advance freight as absolute assignees for their own benefit. They received it for the first defenders' account and credited it to that account, where it was drawn on to a very substantial extent by the first defenders. Their rights over the sum at credit of the account were security rights only. In these circumstances, I am of opinion that the second defenders were not "enriched" by the advance freight. Alternatively, if I am wrong about that, and the second defenders ought to be regarded as enriched by the advanced freight, I am of opinion that, when proper regard is paid to the whole circumstances of the related shipping and finance transactions, any enrichment obtained by the second defenders cannot properly be characterised as unjustified. Moreover, in all the circumstances, I am of opinion that as between the pursuers and the second defenders equity does not support holding the second defenders liable to make repayment of the advance freight to the pursuers. I shall therefore assoilzie the second defenders from the third conclusion of the summons.

The Constructive Trust Claims

[28] In the fourth and sixth conclusions of the summons the pursuers conclude for declarator that sums standing to the credit of the Aliki A Earnings Account and the Retention Account respectively are their property. Both of those conclusions are supported by averments and pleas-in-law to the effect that the sums in question were held by the first defenders on constructive trust for the pursuers. The constructive trust cases are pled as arising only if, contrary to the pursuers' primary contention, the advance freight was received by the second defenders not for their own account as assignees, but as the first defenders' bankers for the first defenders' account. Since I have held (in paragraph [16] above) that the advance freight was received by the second defenders on the latter basis, the constructive trust cases require to be considered.

[29] As I have recorded in paragraph [2] above, in his submissions at the close of the proof, Mr Glennie restricted the sums in respect of which he sought declarator to US$25,110.74 in respect of the fourth conclusion and US$103,092.54 in respect of the sixth conclusion. The arithmetic of the calculations justifying those corrected figures was not, as I understood matters, disputed by Mr Smith, and therefore need not be set out here in detail.

[30] The averments in support of the contention that those sums are held on constructive trust for the pursuers are contained principally in article 9 of the condescendence:

"Separatim esto the payment of advance freight into the [Aliki A Earnings Account] was a payment not to the second defenders as principals but to the first defenders, said advance freight became repayable by the first defenders to the pursuers upon the abandonment of the voyage, in the event no later than 21 November 1997 as hereinbefore condescended upon. Thereafter the first defenders held the advance freight on constructive trust for the pursuers. The law governing the creation and existence of such trust is the law of England, that being the law with which it has its closest connection. English law governs the contractual relations between the pursuers and the first defenders in terms of which the payment of the advance freight was made and under which in the events which happened it became repayable. Under English law a constructive trust may arise in circumstances where money has been paid by one party to another under an agreement which is ineffectual, for example for initial invalidity or mistake or where the consideration for the payment has failed. Said constructive trust arises not from the date of the original payment but from the date when the recipient of the money knows of the circumstances giving rise to the obligation to repay, since only then is his conscience affected. Alternatively the constructive trust arises as a matter of Scots law. By 21 November 1997 at the latest the first defenders had made the decision to abandon the voyage and they knew that the vessel and her cargo would not arrive safely at their destination. In the circumstances they then knew of the circumstances giving rise to the obligation to repay the advance freight."

There then follow averments narrating the sums which, as at 21 November 1997 were (a) at credit of the Aliki A Earnings Account and (b) at credit of the Retention Account and attributable to transfers from the Aliki A Earnings Account. The averments continue:

"The pursuers are entitled to trace the payments of advance freight into said sums in the Retention Account. The first defenders as from said date were constructive trustees for the pursuers of [certain sums in the Aliki A Earnings Account and the Retention Account]. The first defenders owe the pursuers a fiduciary duty to account to them for such sums."

In article 10 of the condescendence the pursuers aver:

"In the circumstances hereinbefore condescended upon said sums belong to the pursuers and the second defenders are under an obligation to make payment to the pursuers of the said sums."

[31] Although the pursuers make a brief averment in article 9 of the condescendence that a constructive trust arises as a matter of Scots law, Mr Glennie did not develop that contention. He accepted that if his case of constructive trust failed as a matter of English law, it could not succeed as a matter of Scots law.

[32] The pursuers and the second defenders each led the evidence of an expert witness on English law in relation to the constructive trust case. The witness for the pursuers was Mark Havelock-Allan QC. His curriculum vitae is No. 48 of process, and his Opinion is No. 6/34 of process. The witness for the second defenders was Robin Potts QC. His curriculum vitae is No. 7/3 of process and his Opinion is No. 7/2 of process. Each of these witnesses made reference in the course of his evidence to a number of reported decisions of the English courts. I propose to attempt to incorporate in my summary of the witnesses' evidence reference to the authorities on which they relied.

[33] Mr Havelock-Allan dealt with two separate matters in his Opinion. The first was whether on a proper construction of the charterparty and in the events which happened the pursuers were entitled to recover the advance freight from the first defenders. He answered that question in the affirmative but, in view of the agreement expressed in paragraph 11 of the Joint Minute, that matter is no longer in issue. The part of Mr Havelock-Allan's Opinion that I require to consider is the second part, in which he addressed the question which he formulated (in paragraph 3(2)) in the following terms:

"whether, after deciding or giving notice of their decision to abandon the voyage [the first defenders] held the advance freight, or such of it as remained identifiable in accounts with [the second defenders], on constructive trust for [the pursuers]".

[34] Mr Havelock Allan began by identifying four propositions formulated in the speech of Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 705C-G, and described as "fundamental to the [English] law of trusts":

"(i) Equity operates on the conscience of the owner of the legal interest. In the case of a trust, the conscience of the legal owner requires him to carry out the purposes for which the property was vested in him (express or implied trust) or which the law imposes on him by reason of his unconscionable conduct (constructive trust).

(ii) Since the equitable jurisdiction to enforce trusts depends upon the conscience of the holder of the legal interest being affected, he cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience, i.e. until he is aware that he is intended to hold the property for the benefit of others in the case of an express or implied trust, or, in the case of a constructive trust, of the factors which are alleged to affect his conscience.

(iii) In order to establish a trust there must be identifiable trust property. The only apparent exception to this rule is a constructive trust imposed on a person who dishonestly assists in a breach of trust who may come under fiduciary duties even if he does not receive identifiable trust property.

(iv) Once a trust is established, as from the date of its establishment the beneficiary has, in equity, a proprietary interest in the trust property, which proprietary interest will be enforceable in equity against any subsequent holder of the property (whether the original property or substituted property into which it can be traced) other than a purchaser for value of the legal interest without notice."

A constructive trust is one imposed by law (Snell's Equity, 29^th Edition, 192). Mr Havelock-Allan identified three categories of constructive trust recognised by English courts, namely where a person:

receives trust property with actual or constructive notice that it is trust property and that the transfer to him is a breach of trust (a "receipt of property constructive trust");
receives trust property and, after receiving it otherwise than as a purchaser for value without notice of the trust, acquires notice of the trust and thereafter deals with it in a manner inconsistent with the trust (a "wrongful dealing constructive trust"); and
does not actually himself receive the trust property, but assists with knowledge a fraudulent design on the part of the trustee (a "knowing assistance constructive trust").

Each of these categories presupposes a pre-existing trust or fiduciary relationship. Mr Havelock-Allan expressed the opinion, however, that they described too narrowly the circumstances in which a constructive trust may arise. He cited, as an example of a case in which a claim based on constructive trust succeeded where the property in question was not the subject of a pre-existing trust, Chase Manhattan Bank v Israel-British Bank [1981] Ch 105. In that case the plaintiffs made two payments on the same day of just over US$2 million each to Mellon Bank International for the account of the defendants. The second payment was a mistake. The defendants realised about two days later that the second payment had been made in error. Several months later a winding-up order was made in respect of the defendants. Two years later the plaintiffs began proceedings seeking to trace and recover in equity the amount of the mistaken payment. Because the defendants were in liquidation, it was important to the plaintiffs to establish a proprietary interest in the money. The plaintiffs sought a declaration that the mistaken payment was impressed with a trust for their benefit. The court was invited to assume that the money remained traceable in the assets of the defendants. Goulding J found for the plaintiffs, holding (at 119E) that:

"a person who pays money to another under a factual mistake retains an equitable property in it and the conscience of that other is subjected to a fiduciary duty to respect his proprietary right".

Mr Havelock-Allan went on to say that Chase Manhattan had been cited as authority for the proposition that, where money is paid under mistake, the receipt of such money without more constitutes the recipient a trustee, and that that proposition had been regarded as arguable in Friends Provident Life Office v Hillier Parker May & Rowden [1997] QB 85. In that case, the plaintiffs agreed to make funds available for the building of a shopping mall. The defendants were engaged by the plaintiffs as development consultants. One of the defendants' responsibilities was to approve payments to the developers. They approved a number of payments which included notional interest to which the developers were not entitled. The plaintiffs initially sought to recover those sums as paid under mistake. However they did not proceed with that claim, and instead sued the defendants in negligence, and the defendants claimed contribution from the developers on the ground that the plaintiffs had a good claim against the developers as constructive trustees of the mistaken payments. Auld LJ said (at 106A-B):

"In my view, if it is arguable that the developers knew at the time of receipt that they were not entitled to all or part of the notional interest, it is arguable that such receipt made them trustees of one sort or another: see Neste Oy v Lloyds Bank plc [1983] 2 Lloyds Rep 658, per Bingham J. Even without such knowledge, I would hold that Hillier Parker's claim that mere receipt made the developers trustees is arguable ...".

Mr Havelock-Allan expressed the opinion, however, that that last sentence almost certainly went too far; an essential element of any constructive trust in respect of a payment made under mistake was that the recipient should be aware of the mistake and his conscience be affected by knowledge that the money was not his to retain. Chase Manhattan was examined by Lord Browne-Wilkinson in Westdeutsche Landesbank. In observations which Mr Havelock-Allan accepted were probably obiter, his Lordship indicated (at 714E-F) that he could not agree with the reasoning of Goulding J, inter alia because:

"it is based on a concept of retaining an equitable property in money where, prior to the payment to the recipient bank, there was no existing equitable interest",

and because he could not:

"understand how the recipient's 'conscience' can be affected at a time when he is not aware of any mistake".

Nevertheless, his Lordship went on (at 715A-B) to express the view that Chase Manhattan may well have been rightly decided:

"The defendant bank knew of the mistake made by the paying bank within two days of the receipt of the moneys ... The judge treated this fact as irrelevant ... but in my judgment it may well provide a proper foundation for the decision. Although the mere receipt of moneys, in ignorance of the mistake, gives rise to no trust, the retention of the money after the recipient learned of the mistake may well have given rise to a constructive trust."

[35] Against that background of authority, Mr Havelock-Allan turned to the circumstances of the present case. It is convenient simply to quote the relevant paragraphs of his Opinion.

	"30.	The facts of the present case are different only inasmuch as the advance freight payment was not made under a mistake. When the money was paid to [the first defenders] on or about 3 October 1997, [they] were entitled to receive it and to acquire the legal and beneficial interest in it. But their entitlement was a contingent one. It was contingent on the voyage not being abandoned due to [the first defenders'] fault. [They] knew that if the voyage was not completed, the freight would never become earned and that if the reason why the voyage was not completed was something for which they were liable, the advance freight would have to be repaid.
	31.	When [the first defenders] gave notice to [the pursuers] on 21 November 1997 that they were abandoning the voyage, they must have known that the advance freight was liable to be repaid by them. The vessel had suffered a series of major mechanical failures for which [the first defenders] must have known that there was no excuse under Article IV.2 of the Hague or Hague-Visby Rules. [The first defenders] could not therefore, in all conscience, retain the advance freight payment insofar as it still remained in their possession in identifiable form. In fact at that point, a substantial amount of the advance freight payment remained in [the first defenders'] bank accounts [with the second defenders]. They constituted an identifiable trust fund.
	32.	Applying the decision in Chase Manhattan, as rationalised by Lord Browne-Wilkinson in the Westdeutsche Landesbank case, I am of opinion that the funds remaining in [the first defenders'] bank accounts on 21 November 1997 out of the advance freight payment, became the subject of a constructive trust in favour of [the pursuers] as soon as the voyage was abandoned. In my view this is the conclusion that an English Court would be likely to reach on the facts assumed in this Opinion.
	33.	It follows that in my opinion an affirmative answer should also be given to the second issue of English law."

[36] Having expressed his opinion in those terms, Mr Havelock-Allan made reference by way of postscript to the decision of Bingham J in Neste Oy, suggesting that it provided a useful illustration of the imposition of a constructive trust in a commercial context not dissimilar from that in the present case. In that case the plaintiffs owned three vessels which regularly called at UK ports. They employed UK agents (PSL) who were responsible for discharging the vessels' liabilities in respect of berth fees, pilotage etc. and for advancing cash to the Masters when required. On six occasions in January and February 1980 the plaintiffs remitted money to PSL to cover vessels' disbursements. These sums were credited to PSL's account with the defendant bank. The last such sum was received by PSL between 22 and 25 February. Meanwhile the affairs of the group of companies of which PSL was a member were becoming embarrassed. On the morning of 22 February the group's directors met and agreed that they could not honestly believe that the group and its companies could meet their liabilities as they fell due, and decided that the group should therefore cease trading immediately. On learning of that decision the defendants, in implement of a right of set-off which the group had given them, set sums standing to the credit of PSL's account (including unused moneys remitted by the plaintiffs) against indebtedness of other group companies. The plaintiffs contended that their payments to PSL had been impressed with a trust to pay the moneys to creditors of the vessels, and that since that purpose had failed, the unexpended balance was held on resulting trust for them (the plaintiffs). In the alternative they submitted that the last payment, received after the directors had decided that PSL should cease trading, was subject to a constructive trust in their (the plaintiffs') favour. The primary argument failed, but the alternative one succeeded. Bingham J said (at 666, col. 1):

"Given the situation of PSL when the last payment was received, any reasonable and honest directors of that company (or the actual directors had they known of it) would, I feel sure, have arranged for the repayment of that sum to the plaintiffs without hesitation or delay. It would have seemed little short of sharp practice for PSL to take any benefit from the payment, and it would have seemed contrary to any ordinary notion of fairness that the general body of creditors should profit from the accident of a payment made at a time when there was bound to be a total failure of consideration. Of course it is true that insolvency always causes loss and perfect fairness is unattainable. The bank, and other creditors, have their legitimate claims. It nonetheless seems to me that at the time of its receipt PSL could not in good conscience retain this payment and accordingly that a constructive trust is to be inferred."

Bingham J went on to hold (at 667, col. 1) that the defendants had sufficient notice of the trust to preclude them from exercising their right of set-off. Mr Havelock-Allan anticipated a possible objection that Bingham J's decision amounted to the imposition of a remedial constructive trust (a concept developed by courts in New York and Canada and explained by Lord Browne-Wilkinson in Westdeutsche Landesbank at 714H-715A but not yet, according to Mr Havelock-Allan, adopted in English law), but pointed out that it had been cited with approval by Auld LJ in Friends Provident and had never been criticised on that ground. He suggested that Bingham J's decision in Neste Oy could be justified in the same way as Lord Browne-Wilkinson justified the decision in Chase Manhattan. He therefore expressed the opinion that Neste Oy should be regarded as supporting the conclusion which he expressed in paragraph 32 of his Opinion.

[37] In his oral evidence Mr Havelock-Allan expanded on his written opinion in various ways, and commented on the opinion expressed by Mr Potts. Before recording those aspects of Mr Havelock-Allan's evidence, however, it is convenient to record the main thrust of Mr Potts' evidence.

[38] When writing his Opinion, Mr Potts had sight of Mr Havelock-Allan's Opinion, and was aware that he had expressed the opinion that the pursuers were entitled to recover sums at credit of the relevant accounts on the basis that the first defenders held those sums as constructive trustees for the pursuers. Mr Potts expressed himself as "wholly unable to agree with that conclusion". He proceeded on the hypothesis (which was not at the time of writing, but is now, admitted by the second defenders) that the pursuers have a right to recover from the first defenders an amount equal to the advance freight by reason of the abandonment of the voyage, before the freight was earned, for reasons for which the first defenders were liable. He expressed the opinion that the right of the pursuers to recover from the first defenders "is simply an unsecured right to repayment and not a proprietary claim." He added the further view that the pursuers have no valid claim against the second defenders whether by way of personal or proprietary claim.

[39] Mr Potts expressed the view that in England equity has been hostile to allowing the court a discretion to adjust property rights. As an example he cited the refusal of the Court of Appeal to contemplate the recognition of a remedial constructive trust in Re Polly Peck International plc (in administration) (No. 2) [1998] 3 All ER 812, and in particular the following passage in the judgment of Nourse LJ (at 830j-831b):

"Although ... this court ... in Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391, Lord Mustill in Re Goldcorp Exchange Ltd (in receivership) [1995] 1 AC 74 and Lord Browne-Wilkinson in Westdeutsche Landesbank ... have accepted the possibility that the remedial constructive trust may become part of English law, such observations, being both obiter and tentative, can only be of limited assistance when the question has to be decided, as it does here. There being no earlier decision, we must turn to principle. In doing so, we must recognise that the remedial constructive trust gives the court a discretion to vary proprietary rights. You cannot grant a proprietary right to A, who has not had one beforehand, without taking some proprietary right away from B. No English court has ever had the power to do that, except with the authority of Parliament".

Mr Potts then referred to Westdeutsche Landesbank, which concerned an interest rate swap agreement under which a bank advanced money to a local authority. It transpired that the agreement was ultra vires. The bank sought repayment. Mr Potts referred in particular to the following passage from the speech of Lord Goff of Chieveley (at 683H-684B):

"I have already stated that restitution in these cases can be achieved by means of a personal claim in restitution. The question has however arisen whether the bank should also have the benefit of an equitable proprietary claim in the form of a resulting trust. The immediate reaction must be - why should it? Take the present case. The parties have entered into a commercial transaction. The transaction has, for technical reasons, been held to be void from the beginning. Each party is entitled to recover its money, with the result that the balance must be repaid. But why should the plaintiff bank be given the additional benefits which flow from a proprietory claim, for example the benefit of obtaining priority in the event of the defendant's insolvency? After all, it has entered into a commercial transaction, and so taken the risk of the defendant's insolvency, just like the defendant's other creditors who have contracted with it, not to mention other creditors to whom the defendant may be liable to pay damages in tort."

Mr Potts pointed out that in that case it was held that the fact that the parties mistakenly thought that the payments were made under a valid contract did not alter their intention at the date when the payment was made. The position was, Mr Potts argued, a fortiori in the present case where there was no mistake whatsoever in the payment of advance freight. The payment was intentionally made pursuant to a valid contract. There was no provision in the charterparty obliging the first defenders to segregate the advance freight, or hold it available for return in the event that the freight was not earned. The first defenders were free (in a question with the pursuers) to spend the money received. Their only obligation was to repay an equivalent sum upon the occurrence of a particular chain of events. The position, Mr Potts suggested, was very similar to that in Re Goldcorp Exchange Ltd [1995] AC 74. In that case the plaintiffs had bought gold bullion which constituted unascertained generic goods. The seller became insolvent. The Privy Council refused to impose a constructive trust over such part of the bullion as remained or the general assets of the defendant. The insolvent defendant was simply in breach of its contractual obligation to deliver goods ordered and paid for before it became insolvent. Similarly, in the present case, Mr Potts suggested, the first defenders were simply in breach of a contractual obligation to repay a sum of money on the occurrence of a contingency.

[40] In response to Mr Havelock-Allan's reliance on Chase Manhattan, Friends Provident and Neste Oy, Mr Potts expressed the opinion that those cases are irrelevant. He pointed out that in Chase Manhattan and Friends Provident the payments in question were made under mistake. That fact, he said, was critical to the imposition of a constructive trust. No equitable ownership of the money passed, because the mistake preceded the receipt of the money and indeed brought about the receipt. He argued that the reasoning in paragraph 30 of Mr Havelock-Allan's Opinion was unacceptable. There Mr Havelock-Allan accepted that when the advance freight was paid to the first defenders they were "entitled to acquire the legal and beneficial interest in it", but then suggested that the entitlement was "a contingent one". He did not, Mr Potts suggested, explain whether the entitlement (i) was defeasible on the occurrence of a subsequent event, or (ii) only vested on the non-occurrence of a subsequent event. He did not, and could not, point to any term of the charterparty requiring retention of the advance freight or prohibiting drawing from the account into which it was directed to be paid. In those circumstances, Mr Potts contended, the first defenders did indeed acquire both the legal and the beneficial interests in the money, and there was no basis for imposing any trust upon the legal (or beneficial) ownership, either at the time of receipt of the money or at the time of the occurrence of any subsequent event. Neste Oy was also irrelevant, because the decision rested on the conclusion that at the time of the receipt of the money the defendant could not in good conscience retain the payment.

[41] Mr Potts also sought to rely on The "Trident Beauty", which he characterised as involving a specific refusal on the part of the House of Lords to impose any proprietary liability on a person in the position of the first defenders in the present case or to impose liability, whether proprietary or personal, on a person in the position of the second defenders. He referred to the various points made by Lord Goff in the passages from his speech which have already been quoted, and added reference to his approval of a passage in the judgment of Neill LJ in the Court of Appeal ([1993] 1 Lloyd's Rep 443 at 449):

"In the present case ... by the terms of the assignment Creditcorp were assured that the receivables were not subject to any set off or any counterclaim. The debts assigned were not of trust moneys or subject to any form of quasi-trust. ... In these circumstances I am unable to see ... any basis for a claim in equity or on the principle of unjust enrichment. Creditcorp were in a position analogous to that of a bona fide purchaser for value."

Mr Potts suggested that it was impossible to distinguish The "Trident Beauty" from the present case. Placing the label "constructive trust" on the facts of the present case was an attempt to give rise to a proprietary remedy in circumstances in which the House of Lords has concluded, as a matter of law and policy, that it is illegitimate to do so. All that the pursuers possess is an unsecured in personam claim against the first defenders.

[42] I turn now to the additional evidence given orally by Mr Havelock-Allan, including his comments on Mr Potts's evidence. In relation to Mr Potts's reliance on Westdeutsche Landesbank, he pointed out that that case was concerned with an allegation of resultant trust and that no issue of constructive trust was argued (see 703B and 707G). He noted that Mr Potts sought to distinguish Chase Manhattan and Friends Provident on the ground that in those cases the payment was made under mistake, while there was no mistake in the present case. He submitted, however, that the role of mistake in those cases was as the factor which, when it came to the knowledge of the recipient, affected his conscience against retention of the benefit of the payment. Facts other than mistake might fulfil that role. Here the equivalent fact was the abandonment of the voyage in circumstances which gave rise to an obligation to repay the advance freight. In response to Mr Potts's question as to whether, in describing the first defenders' entitlement to the advance freight as "contingent", he meant that the entitlement was subject to defeasance or that it vested only on purification of the contingency by safe completion of the voyage, he indicated that his analysis was that the entitlement was defeasible in the event of abandonment of the voyage in circumstances for which the first defenders were liable. The recipient was entitled to use the money while the voyage was continuing, and it was only such sum as remained unused and identifiable when the voyage was abandoned that was affected by the constructive trust. It was not critical that the charterparty did not require the money to be segregated and kept unexpended until the voyage was concluded. Nor, he suggested, did the fact that a claim for repayment lay in contract preclude the existence of a constructive trust. Re Goldcorp was distinguishable on the ground, first, that the bullion was unascertained generic goods, whereas here there was an identified fund that could be made the subject of a constructive trust, and secondly, that there the payment was unconditional when made. Neste Oy, on the other hand, although different from the present case in the respect identified by Mr Potts, namely that the recipient's conscience was touched at the time of receipt rather than at a latter date, was not truly distinguishable, because there was no reason to confine constructive trust to cases where the factor affecting the recipient's conscience existed at the date when payment was received. He accepted that on payment of the advance freight all rights to it passed to the first defenders - there was no separation of the beneficial interest at that stage (c.f. Westdeutsche Landesbank per Lord Brown-Wilkinson at 706E), but argued that a beneficial interest could revert to the pursuers on the concurrence of the abandonment of the voyage and the first defenders' knowledge of that event. It made no difference that in the present case the event giving rise to the obligation to repay, and the first defenders' knowledge of that event, came after the receipt by them of the payment of advance freight. So far as The "Trident Beauty" was concerned, Mr Havelock-Allan made two points. First, he pointed out that, notwithstanding the passing reference to trust and quasi-trust in the judgment of Neill LJ, the case was argued on the basis of restitution, not constructive trust. Secondly, he expressed the view that there was a distinction between advance hire under a time charter and advance freight under the charterparty in the present case. The latter was conditional in a way that the former was not. In a time charter, the failure of consideration would normally be only partial. He did not accept that the view expressed in The "Trident Beauty" that the existence of a contractual basis for repayment generally ruled out a r

[43] Finally, I must record the additional evidence given orally by Mr Potts. He summarised Mr Havelock-Allan's position as being that the essential factors that required to be present to give rise to a constructive trust were (i) that the property in question should remain, after receipt, identifiable in the hands of the recipient; (ii) that there should exist circumstances which are such as to affect the conscience of the recipient so as to render it appropriate that he should hold the beneficial interest in the property for another; and (iii) that the recipient should be aware of those circumstances. So long as those factors were present, it did not matter, according to Mr Havelock-Allan, if the circumstances affecting the conscience of the recipient did not arise until some time after his receipt of the property. A constructive trust could therefore arise in the circumstances of the present case because, although the pursuers did not retain any proprietary interest in it after it was paid, on the failure of the voyage the freight was not earned and was therefore returnable, and could not be retained by the first defenders in good conscience. Implicit in that reasoning was an acceptance of the proposition that on the failure of the voyage the beneficial interest in the advance freight passed back to the pursuers. That proposition was essential to Mr Havelock-Allan's conclusion that the unexpended funds derived from the advance freight were, after the abandonment of the voyage, held by the first defenders on constructive trust for the pursuers. It was that proposition that Mr Potts could not accept as sound. He expressed the opinion that constructive trust depends on the continuance of the beneficial ownership of the payer. There must exist, at the time at which the payment was received, the circumstances which when known to the recipient would affect his conscience and prevent his acquisition of the beneficial interest. All substantive forms of constructive trust shared the feature that beneficial ownership never passed to the recipient. The notion of carving the beneficial interest out of ownership which had passed to the recipient at a later date and passing it back to the payer involved the concept of remedial constructive trust, which had not hitherto been recognised as part of English law. Chase Manhattan involved a mistake at the time of payment although, as reinterpreted by Lord Brown-Wilkinson, there was a gap before the recipient became aware of the mistake. That was acceptable, but there was no authority for holding a constructive trust to have arisen when there was a gap in time between receipt and the occurrence of the event said to affect the recipient's conscience. In relation to The "Trident Beauty", Mr Potts accepted that constructive trust had not been argued. He rejected, however, the proposition that the distinction argued by Mr Havelock-Allan between hire under a time charter and advance freight under the charterparty rendered the reasoning in that case irrelevant. The ground on which a restitutionary claim was there rejected also led to the rejection of a constructive trust, where the relationship was adequately explicable in terms of a personal contractual obligation to make repayment. Reference was also made to Re Goldcorp at 97H-98F - "the essence of a fiduciary relationship is that it creates obligations of a different character from those deriving from the contract itself". The essential point was that in the cases founded on by Mr Havelock-Allan the mistake (or in the case of Neste Oy the decision to cease trading) was contemporaneous with the payment, and operated to prevent the passing of the beneficial interest. Equity intervened to prevent the recipient from getting something that in the circumstances he ought not to get. The situation in the present case was fundamentally different. Nothing had prevented the passing of

[44] Mr Potts accepted that the position would have been different if the first defenders' intention had been fraudulent at the time when the payment of advance freight was made. If the situation was that (i) the charterparty provided for payment of advance freight, and for repayment in the event of failure of the voyage through the first defenders' fault, and (ii) at the time of receipt of the advance freight the first defenders already had no expectation or intention of completing the voyage, then a constructive trust would arise, because at the time of payment the first defenders' conscience would be affected by their knowledge that the voyage would not be completed. On the other hand, if the first defenders' expectation (albeit mistaken) at the time of payment was that the vessel would be able to complete the voyage, no constructive trust would arise.

[45] I turn now to the submissions made by counsel in respect of the expert evidence. Mr Glennie invited me to accept Mr Havelock-Allan's evidence, reject that of Mr Potts, and conclude that the first defenders held the unexpended advance freight on constructive trust for the pursuers. He identified the main point of Mr Potts's criticism of Mr Havelock-Allan's opinion as being the contention that there could be no constructive trust where there was no mistake or other vitiating factor present at the time of the payment and operating on the conscience of the recipient so as to prevent the beneficial interest passing to him. That criticism, he submitted, was wrong. The basis for holding that Mr Potts's view was erroneous could be found in the speech of Lord Brown-Wilkinson in Westdeutsche Landesbank at 715A-B where, having rejected the reasoning of Goulding J in Chase Manhattan, he went on to express the opinion that that case may well have been rightly decided. He held that, whereas mere receipt of the moneys in ignorance of the mistake could give rise to no trust, retention of the moneys by the bank after subsequently learning of the mistake may well have given rise to a constructive trust. That, according to Mr Glennie's submission, undermined any analysis that required the vitiating factor to exist at the time of payment. Lord Browne-Wilkinson's approach recognised the possibility of a constructive trust arising on the subsequent conjunction of the elements necessary to affect the conscience of the recipient, namely (i) the existence of the vitiating factor and (ii) the recipient's knowledge of it, even although at the time of payment those elements were not both present and there was therefore nothing to prevent the passing of the beneficial interest to the recipient on payment. It was implicit in that approach that the recipient's conscience did not have to be affected at the time of payment.

[46] The second branch of Mr Glennie's submissions on constructive trust was to the effect that, on the facts of the present case as established in evidence, there could be identified an event which occurred before the payment of the advance freight and which should be held to have operated on the first defenders' conscience so as to prevent the beneficial interest in the advance freight passing to them, so that from the outset the advance freight was held on constructive trust for the pursuers. In other words, on this view of the evidence, the event which touched the conscience of the first defenders was not the abandonment of the voyage, but something that happened earlier, at a date before the advance freight was paid. If the matter were approached in this way, there ceased to be any practical significance in the difference of opinion between Mr Havelock-Allan and Mr Potts. The circumstances on which Mr Glennie founded were these. The payment of advance freight was received by the first defenders on 8 October 1997. Prior to that, on 4 October 1997, the vessel had set sail from Rouen. Prior to the vessel's departure Bureau Veritas (BV), the classification authority, had attached to the vessel's certificate of classification (machinery) Visa No. 2 dated 3 October 1997. In that document it was noted that there had been further damage to the cylinder liner No. 2 of the main engine. The text of the Visa continued:

"Rec 1 Main engine with five cylinders only should run strictly as per instructions from MAN attached to certificate LD 02.11.97.

Rec 2 Cylinder liner nr 2 to be repaired or re-examined at end of present voyage ROUEN-PIRAEUS - LD 02.11.97."

The pursuers' marine surveyor expert witness, Mr Raymond Luukas of Brookes Bell Jarrett Kirman, in paragraph 6.10 of his report (No. 6/35 of process) which he adopted in his evidence, concluded that:

"it is clear from Visa No. 2 of the BV Machinery Certificate, dated 3^rd October, 1997, that owners [the first defenders] had planned to divert to Piraeus prior to departure from Rouen."

Mr Glennie acknowledged that he could not go so far as to suggest that the first defenders commenced the voyage with the fraudulent intent of not completing it at all. He submitted, however, that it was clear that at the commencement of the voyage it was their intention that the vessel should deviate to Piraeus for repairs. It was thus from the outset their intention that there should be a fundamental breach of contract. Why, he asked rhetorically, were these circumstances, prevailing as they did before the voyage began and before the advance freight was received, not sufficient to affect the conscience of the first defenders so as to ensure that they could not take the beneficial interest in the advance freight for themselves, but must hold it on constructive trust for the pursuers?

[47] Mr Smith submitted that I should prefer the evidence of Mr Potts. The proper starting point was to inquire why the pursuers should have the additional benefit of an equitable proprietary claim. Ultimately there was no dispute between the expert witnesses that when the first defenders received the advance freight the pursuers did not retain the beneficial interest in it. The pursuers, when they paid the advance freight, disposed of their whole proprietary interest in it. Their right to repayment was a separate contractual right under the terms of the charterparty. The first defenders' obligation to repay, when the events occurred which obliged them to repay, was a personal obligation. In these circumstances there was no occasion for equity to intervene to confer on the pursuers an additional proprietary remedy founded on constructive trust over and above their contractual remedy. The sound view of English law on the subject was the one expressed by Mr Potts: that if there was nothing to touch the conscience of the recipient at the time of receipt, there was nothing to prevent the passing of the beneficial interest to the recipient; and if the beneficial interest passed at that stage, English law did not recognise any form of remedial constructive trust that would strip the recipient of the beneficial interest on the occurrence of a subsequent event. The abandonment of the voyage after the advance freight had been received thus could not give rise to a constructive trust under which the first defenders held the unexpended portion of it for the pursuers.

[48] So far as Mr Glennie's alternative argument (see paragraph [46] above) was concerned, Mr Smith's submission was that the circumstances founded on did not yield the inference that the first defenders embarked on the voyage with no intention of completing it. At worst, it might be inferred that they intended to complete it after a deviation to Piraeus for repairs. If that was the proper inference, it was insufficient to make it unconscionable for the first defenders to accept payment of the advance freight for their own benefit.

[49] I propose to leave aside for the time being the issue raised in Mr Glennie's alternative argument. Virtually the whole of the expert evidence proceeded on the basis that it was the abandonment of the voyage that gave rise to the obligation on the part of the first defenders to repay the advance freight, and that the issue was whether the occurrence of that subsequent event could give rise to a constructive trust under which the first defenders held the unexpended advance freight for the benefit of the pursuers. It therefore seems to me that it is necessary for me to make findings of fact as to the applicable English law relating to constructive trusts. I approach that task with diffidence, given that the issue is one on which, as the evidence shows, it is possible for eminent counsel of very considerable experience to hold diametrically opposite views. I must resist the temptation to treat the views expressed by the expert witnesses in evidence as if they were submissions by counsel. I must come to a conclusion as matter of fact, guided by the expert evidence, as to the view which an English court, faced with the circumstances of the present case, would take. I consider, however, that I am entitled, in coming to my conclusion on English law as a matter of fact, to weigh, as a lawyer, the cogency of the competing opinions expressed by the expert witnesses as to the effect of the authorities on which they rely.

[50] As I understood their evidence it was common ground between Mr Havelock-Allan and Mr Potts that in English law if, when money was paid or property transferred by A to B, (a) there existed circumstances which were such as to make it unconscionable for B, if he knew of them, to accept the payment or transfer for his own benefit, and (b) B did in fact at that stage know of the existence of the relevant circumstances, equity would intervene to impose on B a constructive trust to hold the money or property for A. The focus of the disagreement between the expert witnesses was on whether a constructive trust could come into existence at a date subsequent to the original receipt of the money or property by B, on the emergence of an obligation on B to repay the money or return the property to A. It seemed to me that Mr Potts's evidence that English law would not recognise a constructive trust in that case was cogently argued in light of the authorities to which reference was made. There seemed to me to be two complementary strands to his reasoning. The first was founded on examination of the principle of the mechanism by which a constructive trust comes into existence. As I understand it, equity intervenes to separate the legal and beneficial interests in the money or property when at the time of receipt circumstances exist, and are known by the recipient to exist, which would render it unconscionable that he should receive the beneficial interest, and in those circumstances the beneficial interest remains with the transferor, so that the money or property is held by the recipient in trust for the transferor. That analysis cannot be applied when there is, at the time of the transfer, nothing to cause a separation of the beneficial from the legal interest, and the recipient thus acquires the beneficial interest along with the legal interest. As Mr Havelock-Allan accepted, at the time when the advance freight was paid all rights to the sum paid passed to the first defenders. Notwithstanding his contention that the right to the advance freight was contingent - defeasible in the event of its not becoming earned by the successful completion of the voyage - he did not argue that there was a separation and retention of the beneficial interest at the stage of payment. It seems to me, therefore, that Mr Potts was right in identifying that Mr Havelock-Allan's analysis involved the acquisition by the first defenders of the full undivided right to the advance freight when it was paid, then the reversion of the beneficial interest to the pursuers on abandonment of the voyage. That analysis requires a different theoretical basis for the emergence of the constructive trust. That basis cannot be that equity intervenes to prevent the transmission of the beneficial interest because it would be unconscionable for the recipient to receive it for himself. It must be that equity is invoked to effect retrocession of the beneficial interest from the recipient to the transferor. The question must therefore be whether the creation of a constructive trust by that retrocessive process is recognised by English law. On that question, I prefer the interpretation of the authorities offered by Mr Potts. I do not see how Mr Havelock-Allan's analysis can stand with his acknowledgement that hitherto the remedial constructive trust has not been accepted as part of English law. In Re Polly Peck International plc (No. 2) Nourse LJ said (at 831b):

"You cannot grant a proprietary right to A, who has not had one beforehand, without taking some proprietary right away from B. No English court has ever had the power to do that ...".

What Mr Havelock-Allan proposed involves acceptance that, although the undivided right to the advance freight passed to the first defenders when it was paid, on the abandonment of the voyage the beneficial interest in it should be held to pass back to the pursuers. That involves taking away a proprietary right from the first defenders and granting it to the pursuers. As the emphasis of Mr Glennie's primary submission suggested, the closest that the authorities come to providing a basis for Mr Havelock-Allan's opinion appears to be in Lord Browne-Wilkinson's gloss upon Chase Manhattan in Westdeutsche Landebank at 715B. There is, it seems to me, some logical force in the contention that if Lord Browne-Wilkinson regarded Chase Manhattan as rightly decided, he must be taken to have been willing to accept the possibility of a constructive trust arising on the occurrence of another event subsequent to receipt of the property in question. In Chase Manhattan the recipient did not become aware of the mistake until two days after receipt. It was therefore only two days after receipt that the two elements necessary to support a constructive trust, namely (i) a factor rendering retention of the beneficial interest unconscionable, and (ii) the recipient's knowledge of that factor, came together. There was therefore nothing to prevent the undivided beneficial and legal interest passing to the recipient on receipt. If a constructive trust could arise when the recipient later learned of the mistake, as Lord Brown Wilkinson appeared to accept, that constructive trust would remove from the recipient the beneficial interest that had already passed to him. It would therefore not be illogical to accept that a constructive trust might also arise on the post-receipt emergence of the other necessary factor, namely the circumstances rendering retention unconscionable. That reasoning seems to me, however, to place too much reliance on a passing observation which, so construed, is at odds with what Lord Brown-Wilkinson said earlier about remedial constructive trusts. I am persuaded that Mr Potts's evidence that English law does not recognise remedial constructive trusts, and that therefore a constructive trust cannot be founded on circumstances which arise after receipt of the property by the recipient, is in accordance with the weight of authority and should be accepted.

[51] The other strand in Mr Potts's reasoning related to the proper role of equity. It was acknowledged by Mr Havelock-Allan that the pursuers had a personal claim against the first defenders in contract for repayment of the advance freight following abandonment of the voyage. Mr Potts's evidence was that, since the personal claim was available to the pursuers, there was no reason for equity to intervene to give a proprietary remedy as well (Westdeutsche Landesbank per Lord Goff at 683H-684B; Re Goldcorp at 98E; The "Trident Beauty"). That point appears to me, in a general way, to be supported by the authorities relied upon. I accept that, as Mr Havelock-Allan pointed out, each of these cases is distinguishable. The argument in Westdeutsche Landesbank was based on resulting trust, and it is specifically recorded that constructive trust was not argued (703B and 707G). In The "Trident Beauty" the case argued and the basis of the decision was that in face of the contractual remedies there could be no room for a restitutionary remedy. Notwithstanding Neill LJ's reference to trust (at 449), no argument based on constructive trust was advanced. It nevertheless seems to me that the approach evinced in those cases lends support to the broad proposition that Mr Potts relied upon, to the effect that there was no good reason to impose an equitable proprietary remedy in addition to the personal remedy in contract.

[52] I am persuaded that the view expressed by Mr Potts is preferable to that expressed by Mr Havelock-Allan, and is better supported by authority. I am persuaded that I should find, as matter of fact, that in the circumstances of the present case English law would not hold that, after and by virtue of the abandonment of the voyage, the first defenders held the unexpended balance of the advance freight on constructive trust for the pursuers.

[53] There remains for consideration Mr Glennie's alternative argument (see paragraph [46] above). I accept the evidence of Mr Luukas that Visa No. 2 shows that before the vessel set sail from Rouen (and thus before payment of the advance freight) the first defenders had in contemplation that the vessel would deviate to Piraeus for repairs, and that their obligations under the charterparty would therefore not be fulfilled strictly according to their terms. I do not consider, however, that it follows that the first defenders must be held to have received the advance freight on constructive trust for the pursuers. Mr Glennie was at pains to acknowledge that he could not say that in accepting the advance freight the first defenders acted fraudulently. He nevertheless asked rhetorically why the circumstances should not be sufficient to affect the conscience of the first defenders so as to prevent them from taking the advance freight for their own benefit. The answer which I give to that question is that there is no evidence that English law would regard those circumstances as sufficient to give rise to a constructive trust. Mr Potts accepted that if the first defenders' actings reached the pitch of fraud, a constructive trust might be regarded as arising. But neither he nor Mr Havelock-Allan was asked to consider or express an opinion on what the conclusion of English law would be on the particular view of the facts that was put forward in Mr Glennie's submissions. It is not for me to form a view of my own as to whether a particular set of circumstances would have been regarded as rendering it unconscionable for the first defenders to take the advance freight for their own benefit. If it were, however, I would be inclined to take the view that, since I cannot hold that they had already decided not to complete the voyage at all, and since they were in any event under a personal obligation to repay the advance freight in the event of abandonment of the voyage, the first defenders were not acting unconscionably in accepting the advance freight. For these reasons I reject Mr Glennie's alternative submission.

The Tracing Claim

[54] In the eighth conclusion of the summons the pursuers seek payment by the second defenders of the sum of US$79,968.62. That is the sum which on 3 December 1997 the second defenders debited to the Retention Account in respect of interest due to them by the first defenders under the Loan Agreement. As I have recorded in paragraph [2] above, Mr Glennie restricted that conclusion to US$29,584.08. The reason for the restriction was that, of the sum debited to the Retention Account on 3 December, US$50,384.54 represented the balance at credit of the account before any sums derived from the advance freight were transferred to it, and only US$29,584.08 therefore derived from the advance freight.

[55] The basis of this claim is set out in article 11 of the condescendence. The contention, in summary, is that by 3 December the second defenders were aware that the voyage had been abandoned, they therefore knew of the circumstances giving rise to the constructive trust under which (according to the pursuers' contention) the unexpended portion of the advance freight was held by the first defenders on constructive trust for the pursuers, and that in debiting the Retention Account in respect of interest due to them when they knew that the money derived from the advanced freight belonged beneficially to the pursuers the second defenders did something that they knew they were not entitled to do. In these circumstances, according to the pursuers' averments, the second defenders became liable to repay to the pursuers such sum deriving from the advance freight as they had taken for their own benefit.

[56] Since the contention that the unexpended advance freight standing at credit of the Retention Account as at 3 December 1997 was held by the first defenders on constructive trust for the pursuers is an essential part of the foundation of this claim, the fact that I have held that there was no such constructive trust is sufficient to result in the failure of the claim. It is, however, appropriate that I should record the other aspects of the submissions made in support of it, and indicate how I would have dealt with it if I had decided the question of constructive trust differently.

[57] Mr Glennie's primary submission, notwithstanding the terms of the pursuers' pleadings, was that this was essentially a restitutionary claim. The sum at credit of the Retention Account, in so far as derived from the advance freight, was beneficially the pursuers' money. The second defenders had taken that money from the pursuers without giving any consideration for it. They were therefore liable to repay it to the pursuers. Alternatively, the second defenders could be held liable as constructive trustees on the ground that they had knowingly received trust moneys otherwise than in accordance with the trust (Paget, The Law of Banking, 429). The evidence showed that by the material date the second defenders knew that the voyage had been abandoned. They knew that in the events which had happened the advance freight was repayable to the pursuers. They knew the circumstances which, according to the pursuers' contention, gave rise to the constructive trust on which the first defenders held the unexpended advance freight for the pursuers. They could not be heard to say that they did not know that in English law these circumstances gave rise to a constructive trust - their contract with the first defenders was an English contract. They therefore must be taken to have known that to the extent now claimed the money in the Retention Account was trust money that belonged beneficially to the pursuers. They therefore had the knowledge necessary to make their receipt of the sum debited to the Retention Account dishonest in the requisite sense (Royal Brunei Airlines v Tan [1995] 2 AC 378 per Lord Nicholls at 392; Bank of Scotland v Macleod Paxton Woolard & Co 1998 SLT 258 per Lord Coulsfield at 275H-276D). Mr Glennie's position was that proof of the second defenders' knowledge of the constructive trust was not necessary; but if proof of knowledge was necessary, that requirement was in the circumstances satisfied.

[58] Mr Smith's position on this aspect of the case was, of course, primarily that it could not succeed because the advance freight was not held by the first defenders on constructive trust. Beyond that point, however, he submitted that the pursuers could only succeed if it could be held that the second defenders knew, before they debited the interest due to them to the Retention Account on 3 December, that the unexpended advance freight was held by the first defenders on constructive trust for the pursuers. They could only know that if they knew not only that the voyage had been abandoned, but also the cause of the failure of the voyage and in particular that it not due to an excepted peril in terms of Article IV Rule 2 of the Hague-Visby Rules. Mr Smith drew attention to certain passages in Mr Gardner's evidence which suggested that the second defenders did not know unequivocally that the voyage had been abandoned until after 3 December. In any event, there was no evidence that by that date they knew the cause of the failure of the voyage.

[59] The evidence about the development between 21 November and 3 December of the second defenders' knowledge of the circumstances surrounding the abandonment of the voyage was not in my view particularly satisfactory. I prefer, however, that part of Mr Gardner's evidence in which he acknowledged that by not long after 21 November he knew that in practical terms the voyage could not be completed. I accept Mr Smith's submission, however, that that was not by itself enough. I accept that there was no satisfactory evidence that before 3 December the second defenders knew enough about the circumstances to conclude that the voyage had been abandoned in circumstances that made the advance freight repayable. Assuming, contrary to my decision, that in the circumstances a constructive trust in favour of the pursuers had arisen before 3 December, I would not have held that the second defenders were aware of it, and therefore acted dishonestly to the extent that their interest claim was satisfied out of money derived from the advance freight. Nor would I have accepted Mr Glennie's submission that the claim could succeed as a claim for restitution, without proof of such knowledge. The difficulty which I have with that submission is again that, while the second defenders gave no consideration to the pursuers for the benefit of drawing on the Retention Account to satisfy their claim for interest under the Loan Agreement, in so doing they were acting in accordance with their rights under their onerous contract with the first defenders. In the event, however, my reason for rejecting this claim is that I have held (in paragraphs [49] to [53] above) that at the material date the balance in the Retention Account, so far as attributable to the advance freight, was not held by the first defenders on constructive trust for the pursuers.

Result

[60] For the reasons which I have set out, I have reached the conclusion that the claims maintained by the pursuers against the second defenders all fail. I shall accordingly sustain the second defenders' second and third pleas-in-law, repel the pursuers' fifth to eleventh pleas-in-law, and assoilzie the second defenders from the third, fourth, sixth, and eighth conclusions. Mr Glennie did not move for decree in terms of the fifth and seventh conclusions, but on the view I have taken I consider that the second defenders are entitled to have a decision on those conclusions as well, and I shall accordingly grant decree of absolvitor in respect of them.