We recently acted for the UK and German subsidiaries of the Euler Hermes Group on a contested application for directions during a dispute over sums held in two deposit accounts. The case involved an analysis of interesting legal issues including those relating to trusts and estoppel.
The facts
Euler Hermes Group is the global leader in credit insurance. In late 2005/early 2006, its UK and German subsidiaries Euler Hermes UK Plc (EHUK) and Euler Hermes Kreditversicherungs AG (EHD) were considering the reduction, suspension or withdrawal of trade credit insurance cover which it had provided to some of PRG Powerhouse Limited's (Powerhouse) suppliers. Powerhouse was a retailer of electrical and other household goods with Wall Holdings Limited (Holdings) as its immediate parent company and Wall Group Limited (Wall) the ultimate parent of the group. Discussions between the parties resulted in Holdings agreeing to execute a guarantee in favour of EHUK and EHD in order to indemnify them over the insureds' obligations. As security, Holdings would deposit sums into two specially designated accounts with Barclays Bank Plc and assign them in favour of EHUK/EHD. This arrangement yielded a practical and real benefit to Powerhouse in that it needed trade credit insurance to enable it to purchase stock and continue to trade.
Powerhouse instructed Barclays to set up the two accounts in light of the impending assignments. The intention was that Holdings would provide the funds. Powerhouse subsequently paid a total of £1.4 million into the accounts. On 1 August 2006 Powerhouse entered into administration. EHUK and EHD then wrote to Barclays confirming their intention to enforce their rights over the deposits. On 17 May Powerhouse entered into voluntary liquidation and liquidators were appointed. At that stage it became apparent that the deposit accounts had been opened in Powerhouse's (as opposed to Holdings') name and that the funds paid into the accounts had been received from Wall's current account.
The legal argument
It was in this context that the liquidators applied to the court for directions under section 112 of the Insolvency Act 1986. The dispute was whether EHUK/EHD could draw on the sums held in the accounts (totalling £1,151,413) and whether Holdings/Wall were entitled to the surplus.
The liquidators adopted what they asserted to be a strictly neutral position although their evidence suggested otherwise.
Holdings and Wall contended that an estoppel by convention arose which prevented the liquidators from denying that the deposits were beneficially owned by Holdings. Powerhouse and Holdings had acted on the assumption that the deposits were owned by Holdings, based on the contractual documents and the evidence of their staff. It would be unfair for Powerhouse to go back on this now that it was in liquidation and Holdings had relied on the assumption in giving guarantees to EHUK/EHD and in paying £2.4 million into the accounts.
EHUK/EHD also raised a proprietary estoppel argument that an equity arose in favour of EHUK/EHD because they were encouraged by Powerhouse to enter into the assignments and had been told by the then finance director of Powerhouse that the funds were coming from Holdings. EHUK/EHD had also been given the impression that the sums assigned would fall outside the assets of Powerhouse. Once it could be shown that assurances were given to EHUK/EHD and that they suffered detriment, the evidential burden then switched to the liquidators to demonstrate that the assurances were not relied upon. EHUK/EHD were only willing to extend insurance cover in return for the assignment of the deposits. They had acted to their detriment by providing cover and incurring liabilities which they now sought to reclaim from the deposits.
The outcome
On the eve of the hearing, the parties managed to agree terms of settlement. The liquidators then sought and obtained sanction from Mr Justice Briggs. In summary, EHUK and EHD were paid the amounts they were claiming from the deposits in full. They also recovered the bulk of their costs.
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