Inner House finds resulting trust created by failure of investment scheme involving care home bought with fraud money

About this case:

• Citation:
  [2026] CSIH 26
• Judgment:
  External link
• Court:
  Court of Session Inner House
• Judge:
  Lord Tyre

Harper Macleod LLP, which held funds deposited by a number of investors for the purpose of the development, was originally prevented from distributing the funds by a Northern Ireland court order after it was discovered that the property had been bought with the proceeds of fraud. However, the petitioner was later granted permission to distribute the funds subject to obtaining directions from the Court of Session on how the funds should be distributed.

The petition was considered by Lord Malcolm, Lord Tyre, and Lord Clark, with D Welsh, advocate, appearing for the petitioners. The court was content to deal with the latter in the absence of a contradictor and without the appointment of a reporter or an amicus curiae.

Trust purpose failed

In 2016 a Gibraltar incorporated company named Abbeytown Associates Limited acquired Speirsfield House, a former nursing home in Paisley. Abbeytown intended to renovate the property and create individual en-suite rooms. These were to be sold to investors with a view to renting them to international students. The funding model envisaged each investor purchasing an individual room by staged payments and proved to be popular with investors from both the UK and overseas.

Each investor paid a reservation fee of £3,000 plus a deposit in advance for their room, and the petitioner would then send missives in a standard form for the sale and leaseback arrangement to the investors’ solicitors, inclusive of a draft Declaration of Trust to be executed in due course by Abbeytown. Half the deposit was then transferred into a single designated client bank account to be held by the petitioner in accordance with the Declaration, with the remainder paid over to Abbeytown less the fee payable to the financial advisor who introduced the scheme to the investor.

During the first half of 2018, missives were entered into for a large number of the proposed rooms, with the deposits paid into an “Escrow Account” as per the Declaration. However, in June 2018 the petitioner discovered that the funds used by Abbeytown to buy Speirsfield were likely derived from a fraudulent scheme promoted by another company owned by the same two individuals who controlled Abbeytown. Abbeytown subsequently entered administration and in August 2021 Speirsfield was sold to a third party on terms which imposed no obligation to carry on the renovation scheme.
On 20 November 2023, the High Court of Justice for Northern Ireland granted a variation of a court order under the Proceeds of Crime Act 2002 preventing the petitioner from distributing the funds in the Escrow Account, with the precise terms of distribution to be determined by an action in the Court of Session. It was submitted by the petitioners that, as the trust purpose had failed, a resulting trust had arisen in favour of the investors in proportion to their respective contributions to the Escrow Account.

No need for quasi-trust

Delivering the opinion of the court, Lord Tyre said of the operation of resulting trusts: “A resulting trust commonly arises where the purpose of the trust has been fulfilled, leaving a surplus of funds in the hands of the trustee which is not required for the trust purposes: see eg abrdn (SLSPS) Pension Trustee Co Ltd, Petitioner (2023). It may, however, also arise where the trust purpose has failed. Where a resulting trust comes into force, the beneficiary of that trust will normally be the truster or, if he has died, his legal representatives. That, however, is merely the most common application of the principle that the provider of the trust funds retains a radical beneficial interest in them.”

He then quoted an observation from Lord Deas in Connelll v Ferguson (1857), in which he said: “Where parties join in a subscription to effect a particular object, and place the money subscribed in the hands of certain persons to carry out that object, I think the quasi-trust, thereby created, is for the alternative purpose of either carrying out the object of the subscription, or, if that cannot be done, of paying back the money.”

Considering whether further procedure was required, Lord Tyre said: “In the present case there is no need to resort to the concept of a quasi-trust because there is in existence an express trust whose terms direct the application of the funds in the event of the trust purposes being fulfilled but are silent as to their application in the event of failure of those purposes. The radical beneficial interest in the latter situation rests with the providers of the funds, namely the investors, part of whose deposits were paid into the Escrow Account. The resulting trust arising out of the failure of the trust purposes accordingly emerges in their favour.”

He concluded: “As to the proportion of the funds due to each contributor, we note from the schedule lodged by the petitioner that the sums lodged in the Escrow Account on behalf of each investor (consisting of 50 per cent of the deposits) remain intact and available for repayment in full, subject only to deduction of the expenses of this application. We assume that the funds in the account have been earning interest as provided for in the Declaration of Trust. There is accordingly no competition of claims and, in contrast to the circumstances of Connell v Ferguson, no need for a multiplepoinding to fix the entitlement of each investor.”

The court accordingly concluded that a resulting trust had arisen in favour of the investors in proportion to their contributions, and that the petitioners were entitled to the expenses of the petition, to be paid out of the assets held in the trust account.