[2013] 1 P. & C.R.

DG11 D23

BIEBER v TEATHERS LTD

Court of Appeal

Arden, Sullivan & Patten L.JJ.: November 14, 2012

[2012] EWCA Civ 1466; [2013] 1 P. & C.R. DG11

Breach of trust; Client accounts; Collective investment schemes; Investments;

Partnership capital; Quistclose trusts

The claimants in these proceedings were investors in what were described as

“The Take 3 TV Partnerships”, which were a series of unregulated collective
investment schemes promoted by Teathers. The schemes were devised to take
advantage of certain tax reliefs which allowed taxpayers to write down 100 per
cent of expenditure on a film or TV production certified as a British Qualifying
Film. Take 3 was set up to invest in TV productions. There was an initial fee equal
to 9 per cent so that 91 per cent of the investment monies paid into the schemes
potentially qualified for tax relief as an off-set against the investors’ other income.
The account into which the monies were paid was held at HSBC and was governed
by the client money rules. The investment of these monies was carried out through
the medium of an unlimited partnership in which the investors were all general
partners and Teathers acted as the managing partner. Teathers had the authority to
transfer monies into another account at Barclays Bank and then invest those sums
in productions selected by a specialist film finance company. Take 3 proved to be
an unsuccessful venture. Many of the productions were commercial failures and
some were never certified as British Qualifying Films. Consequently a series of
actions were commenced against Teathers seeking damages for misrepresentation,
negligent breach of duty, regulatory breach of duty under the Financial Services
Act 1986 and breach of trust. Teathers was now in liquidation and its only material
asset was an insurance policy which provided cover up to 10 million pounds against
these claims.
Take 3 was chosen as the paradigm scheme for the purpose of testing liability
under the breach of trust head. The essence of this claim was that the subscription
monies were held by Teathers both in the HSBC and Barclays Bank accounts on
a Quistclose trust to apply the monies only for the making of an investment which
satisfied what was called the “Take criteria”. These were, first, that the monies
were to be invested only in TV productions certified by the Department of Culture,
Media and Sport. Secondly, that no investment would be made unless a “pre-sale”
or “guarantee” was in place for at least 60 per cent of the funds committed by a
Partnership which was payable in the immediately following year in time for it to
be reinvested. Thirdly, that no investment would be made unless borrowing of up
to 100 per cent of the value of the pre-sale or guarantees was to be put in place.
Fourthly, that funds would be invested only in a production capable of being

[2013] 1 P. & C.R., Part 2 © 2013 Thomson Reuters (Professional) UK Limited

D24 Bieber v Teathers Ltd
completed by the end of the tax year in which the investment was made and capable
of producing an income to be invested in the immediately following year. Fifthly,
that at the end of the period of each partnership (typically five years) the partnership
had to own rights in each TV production so that the rights could be realised as
Library Sale Value. Finally, that the funds were to be invested so as to largely
eliminate the risk of loss for investors. The lower court rejected the argument that
a Quistclose type of trust arose. This was, in part, because it was impossible for
Teathers to know with certainty, at the moment when it had to release the money,
whether the above conditions were satisfied. In addition, the existence of a
Quistclose trust was denied because it was inconsistent with the express terms of
the Subscription Agreement that they signed. The lower court concluded that the
money could not be both partnership capital and trust money.
Patten L.J. analysed the trust which arose in Barclays Bank Ltd v Quistclose
Investments [1970] A.C. 567. He accepted that money advanced for a specified
purpose is impressed with a trust for that purpose and would not become the
recipient’s property. As Patten L.J. noted:
“The trust continues to subsist until the monies had been applied in accordance
with the purpose for which they were lent.”
These principles were further examined in Twinsectra Ltd v Yardley [2002] A.C.
164, where the House of Lords regarded such a trust as akin to a retention of title
clause so that the payer’s property rights are preserved to enable the purpose to be
achieved. If the purpose is not achieved, the money is held on resulting trust for
the payer. The key feature of this type of arrangement is that the recipient is
precluded from misapplying the money. Hence, proper account needs to be taken
of the structure of the arrangements and the contractual mechanisms involved. As
Patten L.J. now observed:
“It is therefore necessary to be satisfied not merely that the money when paid
was not at the free disposal of the payee but that, objectively examined, the
contractual or other arrangements properly construed were intended to provide
for the preservation of the payer’s rights and the control of the use of the
money through the medium of a trust.”
The critical issue, therefore, was whether the intention of the parties was that the
monies transferred by the investors should not become the absolute property of
Teathers (subject only to a contractual restraint on their disposal), “but should
continue to belong beneficially to the investors unless and until the conditions
attached to their release were complied with.” Patten L.J. emphasised that the
investors must be taken to have read and understood the documentation which they
signed. This was not a case where the investors alleged that assurances were made
outside the terms of the documentation. In Teather’s hands, the funds were
undeniably trust monies at the point of receipt. They were client monies paid to
Teathers not beneficially, but for the specific purpose of being used as an investment
in a Take 3 partnership. As Patten L.J. noted, “Teathers could make no other use
of them.” Until the scheme had sufficient funds to proceed, Teathers would have
been obliged to return the money to the investors. Once the scheme went ahead,
however, Teathers had authority in the form of the Subscription Agreement, and
a power of attorney, to execute the Partnership Deed on the investor’s behalf and
use the money in accordance with that Deed. Following the authorised payment

[2013] 1 P. & C.R., Part 2 © 2013 Thomson Reuters (Professional) UK Limited

 [2013] 1 P. & C.R. DG11 D25
into the partnership account at Barclays Bank, the funds ceased to be trust money.
The rights of the investors thenceforth became regulated by the Partnership Deed.
It was impossible to imply into the professionally drafted Partnership Deed some
additional limitations on the authority of Teathers as managing partner, which were
not spelt out in the contractual documentation. Although Teathers owed both
contractual and fiduciary duties in respect of the partnership business, they were
not the duties of a trustee owed separately to each individual investor in respect of
the monies contributed to the scheme. Once the partnership was in existence and
the money transferred into the Barclays account, those monies vested in the general
partners as joint legal owners. As Patten L.J. commented, “[t]here is nothing in the
Partnership Deed to contradict the operation of the normal principles of partnership
law.” Each investor’s beneficial ownership of the subscription paid ceased and
was replaced with a right to participate in the profits of the partnership. The claim
based on a Quistclose trust could not, therefore, be maintained.
The appeal was dismissed.

[2013] 1 P. & C.R., Part 2 © 2013 Thomson Reuters (Professional) UK Limited