Protected trust deed ended despite later PPI claim payout: Supreme Court

A protected trust deed which provided for its termination on a “final distribution” of the estate, came to an end when the trustee made what was stated to be a final dividend and was discharged, and assets which thereafter came to light had to go to the debtor rather than the trustee, the UK Supreme Court ruled today.

Five judges unanimously dismissed an appeal by David Mond, the trustee of Douglas Davidson, from a decision of the Second Division finding that Mr Davidson and his agent between them were entitled to a compensation payment of £56,000 which a bank agreed to pay Mr Davidson in 2015 in respect of mis-sold payment protection insurance. The protected trust deed was granted in 2006 and the trustee made what was said to be a “first and final distribution” of 22.41p in the pound in 2010. The debtor appointed agents to make the claim in January 2015. The mis-sold insurance covered loans taken out between 1998 and 2002.

Clause 11 of the deed provided for the deed’s termination on the occurrence of one of three events, one of which was a “final distribution” of the estate. The Lord Ordinary, Lord Jones, and the Inner House, held that the discharge had the effect of terminating the trust and reinvesting the truster in any unrealised estate, which included the PPI payment. The trustee appealed, arguing that the courts below had misinterpreted “final distribution”. Regardless of whether or not he knew of all of the assets, a “final distribution” could only occur when either all assets were distributed or enough assets were distributed so as to pay all creditors in full.

Lord Reed, with whom Lord Kerr, Lord Hodge, Lady Black and Lord Briggs agreed, said the trustee’s construction would have consequences which the debtor could not have intended when granting the deed. First, one could never be certain whether any distribution was in fact "final", so that the deed would potentially be of indeterminate duration. This would be particularly difficult to reconcile with other parts of the deed that vested in the trustee assets and income acquired by the debtor during the currency of the trust deed. Secondly, it would make it impossible for the debtor or anyone doing business with them to know whether or not the debtor had been finally discharged. Thirdly, it would undermine the purpose of the public Register of Insolvencies, where certificates were registered under the 1985 Act signifying that a final distribution had been made, as it could no longer be relied on as accurate.

However Lord Reed observed that the outcome of the case was "scarcely satisfactory”. The court had raised with the parties the question whether the relevant acts of the trustee might be reduced if they were the result of an error as to the extent of the trust estate. The parties declined to make submissions on this point, and it would accordingly not have been appropriate for the court to consider these matters on this occasion.

Click here to access the judgment.