Ipsofactoj.com: International Cases [2000] Part 3 Case 5 [NZCA]



Fortex Group Ltd

(In receivership and liquidation)

- vs -







30 MARCH 1998


Tipping J

(delivering the judgment of the court in which Gault J and Keith J join)


  1. This is an appeal from the judgment of Gallen J reported at [1997] 1 NZLR 711. It concerns the law of trusts; specifically the circumstances when express trusts and institutional constructive trusts come into existence and when remedial constructive trusts may be imposed. For present purposes, these three types of trust can be described as follows. An express trust is one which is deliberately established and which the trustee deliberately accepts. An institutional constructive trust is one which arises by operation of the principles of equity and whose existence the Court simply recognises in a declaratory way. A remedial constructive trust is one which is imposed by the Court as a remedy in circumstances where, before the order of the Court, no trust of any kind existed.

  2. The difference between the two types of constructive trust, institutional and remedial, is that an institutional constructive trust arises upon the happening of the events which bring it into being. Its existence is not dependent on any order of the Court. Such order simply recognises that it came into being at the earlier time and provides for its implementation in whatever way is appropriate. A remedial constructive trust depends for its very existence on the order of the Court; such order being creative rather than simply confirmatory. This description should not be regarded as definitive or as precluding further developments in this area of the law when greater refinement may be necessary. It is used to reflect the submissions in this case and is sufficient for present purposes.

  3. For reasons which will become apparent, this case does not call for any closer analysis of the underlying concepts or any final decision whether the distinction between institutional and remedial constructive trusts is a helpful one, or, indeed, whether the so-called remedial constructive trust should be confirmed as part of New Zealand law. For the purposes of this case we will assume that the distinction is valid and that both types of constructive trust exist.

  4. As Gallen J’s decision is reported, it is unnecessary to describe the circumstances of the case in any great detail. The following summary will suffice.


  5. The respondents, to whom we will refer as the plaintiffs, were employees of the Fortex group of companies. They were each voluntary members of a management superannuation scheme of which Fortex Group Ltd (Fortex) was the participating employer, and also the trustee of the fund established under the scheme. Colonial Mutual Life Assurance Society Ltd (CML) was the scheme manager. Contributions to the fund were made by all employee members. These were supplemented by Fortex. The employees’ contributions were deducted from their salary or wages. For about a year prior to the collapse of the Fortex group in March 1994 no payments were made to the fund by Fortex in respect of the deductions from the employees’ salaries or wages. Nor did Fortex make its own contributions as required.

  6. The deed which established the scheme required all contributions to be paid to the trustee monthly, but Fortex had developed the practice of paying the contributions to CML, as scheme manager, on an annual basis. While the evidence established that Fortex intended to make the annual payment for the 1993/94 year, receivers were appointed on 23 March 1994 before this was done. Their appointment was made by the second appellant, the Trustees Executors and Agency Company of New Zealand Limited (Trustees Executors) acting in its capacity as trustee for the group’s secured debenture stockholders. Prior to the intended annual payment, no separate fund had been set up in respect of the unpaid contributions. After setting off various Fortex bank accounts between themselves, Fortex was at all material times overdrawn with its bankers. Thus the moneys which should have been paid to the fund were simply retained by the company, pro tanto reducing (strictly not increasing) its overdraft.

  7. There was some argument before us seeking to challenge the Judge’s conclusions about the relationship between the various bank accounts and the proposition that the case should be approached on the basis that overall Fortex was always in overdraft. It is sufficient to say that we accept the Judge’s analysis on this aspect of the case. It would be unreal to treat Fortex as being in credit in the Head Office account in isolation of the debits in other accounts which more than exhausted the credit; in addition the several accounts were set off inter se on a daily basis for overdraft limit purposes. The position should therefore be looked at on a consolidated basis which clearly demonstrates a state of overdraft at all relevant times.


  8. The plaintiffs sued Fortex, by now in receivership and liquidation, for a total of $257,592.45. This sum was the balance owing by Fortex to the fund after taking account of an amount paid by the receivers to the fund on the basis of the employees’ entitlement to priority under s308 of the Companies Act 1955. The total claimed was made up of unpaid employee contributions of $6,550.57 and unpaid employer contributions of $251,041.88.

  9. The plaintiffs relied on three causes of action. The first was a claim against Fortex for damages for breach of contract. The second was a claim for damages for breach of trust. The third sought declarations that Fortex held the moneys at issue on an express trust or a constructive trust, or that they were entitled to what they called a restitutionary proprietary interest. These three remedies equate to the three types of trust outlined at the beginning of this judgment, in that what the plaintiffs described as a restitutionary proprietary interest came to be described as a remedial constructive trust.

  10. The claims for damages against Fortex in personam were of no practical use to the plaintiffs, because there was not enough money in the hands of the receivers and liquidators to satisfy secured creditors, let alone unsecured creditors, which the plaintiffs would have become in respect of any judgment for damages. Indeed, the plaintiffs did obtain summary judgment on their first cause of action. For these reasons, the plaintiffs sought a proprietary remedy based on the concept of trust. Success on this basis would give them "priority" in the insolvency of Fortex over other creditors, both secured and unsecured.


  11. Gallen J rejected the claims based on express and institutional constructive trusts, but upheld the claim based on the remedial constructive trust. The result was that the Fortex group was declared to hold sufficient assets to satisfy the plaintiffs’ claim on trust for them; albeit the Judge described the situation as one of equitable charge in his second (unreported) judgment which dealt with the implementation of the relief to which he had held the plaintiffs entitled in his first judgment

  12. Fortex and the Trustees Executors have appealed from the Judge’s imposition of a remedial constructive trust and the consequential orders he made. The plaintiffs have cross-appealed from the Judge’s rejection of their claims for an express or an institutional constructive trust. We consider the Judge was right to reject the claims for express and institutional constructive trusts. In the circumstances, very little needs to be said about either.


  13. The fact, as Mr. Laurenson emphasised, that Fortex was an express trustee as regards the fund, proves nothing about its status as regards the moneys which never reached the fund. No act or conduct on its part can be regarded as constituting an agreement by Fortex to vest the retained moneys in itself as trustee, or to hold such moneys as trustee. Indeed, the retained moneys were never separately identifiable as a fund in themselves. For an express trust there must, among other things, be certainty of intention to establish the trust and certainty of subject-matter. When the retained moneys were effectively retained in, or paid into an overdrawn bank account, they either never had, or ceased to have, any separate identity. They simply served to reduce the debt owing by Fortex to its bank. Thus the supposed express trust never had any identifiable subject-matter. It is not surprising in these circumstances that there is a total absence of evidence of any intention on the part of Fortex to constitute itself trustee in relation to the retained moneys. For these reasons, which are essentially those upon which Gallen J based his judgment, the plaintiffs’ claim as beneficiaries of an express trust was rightly rejected.


  14. The Judge dismissed the claim for an institutional constructive trust on the same general basis, i.e. lack of certainty, indeed, non-existence of subject-matter. Again, this must be right. At no time was there any separately identifiable fund in respect of which Fortex can be regarded as having become a constructive trustee for the plaintiffs. We say that without prejudice to such other issues as would have arisen on this aspect of the case if this basic problem for the plaintiffs had not existed.


  15. The question of existence and certainty of subject-matter has to be viewed in a different light in the case of a suggested remedial constructive trust. As indicated at the outset, this kind of trust does not exist at all until the Court imposes it. Thus all that is necessary, from the point of view of subject-matter, is for there to be some asset or assets in the defendant’s hands in respect of which the Court considers it appropriate to impress a trust in favour of the plaintiffs. Clearly there are such assets in the present case. But before the Court can contemplate declaring that assets owned in law by A should, by way of remedy, be held by A in trust for B, there must be some principled basis for doing so, both vis-à-vis A and vis-à-vis any other person who has a proper interest in the subject-matter which would be affected by the imposition of the trust.

  16. In the present case, the receivers and liquidators administer the assets of the Fortex group for those who in law are entitled to them i.e. the secured creditors. Those secured creditors, through their debenture trustee, have rights at law in the assets. They have rights both under their fixed charge and under their floating charge, which became fixed on the appointment of the receivers. By a combination of these two charges the secured creditors are now entitled at law to the rights and remedies which their security affords them in respect of all the assets of the Fortex group. Those rights and remedies exhaust the assets and leave no room for a share in them being available to anyone else.

  17. How then is it said that the plaintiffs by means of the equitable remedy of remedial constructive trust can prevail, pro tanto, over the legal rights of the secured creditors? Equity intervenes to prevent those with rights at law from enforcing those rights when in the eyes of equity it would be unconscionable for them to do so. Equity acts in this respect as a court of conscience. In order to defeat, pro tanto, the secured creditors’ rights at law under their security by the imposition of a remedial constructive trust, the plaintiffs must be able to point to something which can be said to make it unconscionable - contrary to good conscience - for the secured creditors to rely on their rights at law. If such can be shown, equity may restrain the exercise of those rights to the extent necessary to afford the plaintiffs appropriate relief.

  18. A succinct and authoritative statement of the way equity views rights at law can be found in the following passage from the judgment of the Privy Council delivered by Lord Brightman in O’Connor v Hart [1985] 1 NZLR 159, 171:

    In the opinion of their Lordships it is perfectly plain that historically a Court of equity did not restrain a suit at law on the ground of "unfairness" unless the conscience of the plaintiff was in some way affected. This might be because of .... [and his Lordship then gave several examples including constructive fraud, which his Lordship described as conduct falling below the standard demanded by equity.]

  19. Lord Brightman used the word "historically" because he was speaking of times before the systems of common law and equity became united. No longer is it necessary for a separate suit in equity to be commenced to restrain proceedings at law. The appropriate result can be achieved in the one proceeding. His Lordship’s reference to the conscience of the plaintiff arose because it was the plaintiff in the suit at law who became the defendant in the suit in equity, and whose conscience had to be affected before equity would intervene.

  20. In the present case, the secured creditors would be the plaintiffs in the suit at law to enforce their security and the defendants in the suit in equity to prevent them from doing so. Hence, it is their conscience which is in issue.

  21. Gallen J, when addressing this question, discussed the decision of the Privy Council in Re Goldcorp Exchange Ltd (In Receivership): Kensington v Liggett [1994] 3 NZLR 385, and correctly observed that the real contest in this case was between the plaintiff employees and the debenture holders. He then said (at 721):

    Looked at overall, Fortex clearly gained an advantage because it did not carry out the obligations which were imposed upon it. That involves a degree of unjust enrichment. I am satisfied that Fortex gained an advantage sufficient to justify the intervention of the Courts if in other respects that intervention is appropriate. I am satisfied also that the necessary grounds of conscience which justify equitable intervention, have been established and arise substantially because of the nature of the relationship between the parties, the nature of the obligation which existed, the recognition and part performance of it and the effect on the plaintiffs. It seems to me in the end that this is an appropriate case to recognise a restitutionary proprietary interest by way of a remedial constructive trust.

  22. Leaving aside for the moment questions of unjust enrichment and other issues, it is apparent that the Judge regarded what he called "the necessary grounds of conscience" as established. He did not say whose conscience he was referring to. It is, of course, the conscience of the secured creditors which is crucial in this case. The Judge spoke of the relationship between the parties. Again, he did not say which parties, and he seems to have been referring to Fortex and its employees, rather than to the employees and the secured creditors.

  23. The Judge’s reference to the nature of the obligation which existed was presumably a reference to the obligation of Fortex, but this does not touch on whether the conscience of the secured creditors was so affected that they should be prevented from relying on their legal rights.

  24. Lastly the Judge referred to the recognition (presumably by Fortex) and past performance of the obligation and the effect on the plaintiffs. Again, it is hard to see how these matters touch the essential question.

  25. A little later in his judgment Gallen J said at 722:

    ..., neither secured nor unsecured creditors could have complained if Fortex had made the payments which it was required and obliged to make and which it could have made within its overdraft accommodation during most if not all of the period in respect of which the plaintiffs’ claims arise. Had it done so, then there would have been that much less available for distribution, although of course the available overdraft facility might have been used up earlier than was the case here.

    Looked at in that light, it does not seem to me that anything has happened here which in the ordinary commercial course of events ought not to have been anticipated. I am satisfied therefore that there are grounds in this case for the recognition of a restitutionary remedial trust and that looked at overall, the plaintiffs are entitled to the declarations which they seek.

  26. With respect to the Judge, if that argument is taken to its logical conclusion, ordinary trade creditors and others with unsecured debts would, by means of a remedial constructive trust, be able to obtain priority over those with secured debts on the basis that the secured creditors could not have complained if those others had been paid in the ordinary course, as they should have been. That cannot be correct in principle; nor does this line of reasoning impinge on the conscience of the secured creditors who are simply relying, as they are entitled, on their rights at law in the events which have happened.


  27. Facing these difficulties, Mr. Laurenson urged upon us the view that the genius of equity was its flexibility. That is all very well if the rationale for intervention by equity is present. But appeals to flexibility can hardly cure the total absence of any justification for equitable intervention. This, too, is the answer to Mr. Laurenson’s argument that the conscience of the secured creditors was irrelevant in the sense that there was no need for the plaintiffs to say that their conscience was in any way affected. We cannot accept that proposition, which flies in the face of the whole basis upon which equity intervenes to restrain reliance on rights at law.

  28. Mr. Laurenson argued that if it was necessary to show that the conscience of the secured creditors was affected, that could be done. He suggested that there was an element of unjust enrichment on their part which should affect their conscience. To rely on one’s rights at law can hardly be regarded as constituting unjust enrichment, and certainly not in the circumstances of this case. Most, if not all, doctrines of unjust enrichment require that there be no juridical basis for the so - called enrichment. Here there clearly is such a basis - the advancing of money, and an entitlement to rely on a security to get it back. In any event, it seems quite inappropriate to regard the secured creditors as having been enriched, let alone unjustly so. They are simply entitled to their money back and rely on their security to achieve that end.

  29. Next Mr. Laurenson contended that the secured creditors were aware of what counsel called a conflict of interest on the part of Fortex, because it was both employer and trustee of the fund. Whether one calls that a conflict of interest or not, the situation is far from uncommon and the dual status can hardly affect the conscience of the secured creditors.

  30. Mr. Laurenson suggested that they had the ability to find out what was going on i.e. the non-payment of both the employee and employer contributions to the fund. Even if they did have that ability under their security documents, nothing is shown which ought reasonably to have put them on enquiry. They certainly had no actual notice of Fortex’s default.

  31. On a broader basis, Mr. Laurenson sought assistance from the decision of the Privy Council in Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] 3 All ER 75. Counsel argued that the value of the moneys retained was "latent" in the general assets of the Fortex group.

  32. In Space Investments, a bank, which also acted as trustee, was insolvent. Money entrusted to the bank as trustee had been wrongly treated as simply on deposit with the bank. It was held that the trust money ought to be repaid out of the bank’s general assets in priority to ordinary customers’ deposits and unsecured debts. Two points should be noted;

    • first, the money was clearly trust money from the outset, and

    • second, no question of priority over secured creditors arose.

    As the moneys in question were trust property from the beginning, the case was clearly covered by the rule enunciated by Sir George Jessel MR. in Re Hallett’s Estate, Knatchbull v Hallett (1880) 13 Ch D 696, 719 - "if a man mixes trust funds with his own, the whole will be treated as the trust property". On that basis, an equitable charge over the whole of the bank’s assets was the appropriate form of relief.

  33. As earlier demonstrated, the retained moneys in this case were not, and never became, trust money. In addition, and even more fundamentally, reference should be made to the way the Privy Council viewed Space Investments in Re Goldcorp Exchange Ltd (supra). Lord Mustill said, at 405:

    Their Lordships should, however, say that they find it difficult to understand how the judgment of the Board in Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] 1 WLR 1072, on which the claimants leaned heavily in argument, would enable them to overcome the difficulty that the moneys said to be impressed with the trust were paid into an overdrawn account and thereupon ceased to exist: see, for example, Re Diplock [1948] Ch 465. The observations of the Board in Space Investments were concerned with a mixed, not a non-existent, fund.

  34. For these reasons, we do not consider the decision in Space Investments assists the plaintiff. Mr. Laurenson also relied, for the same general argument of latent value, on what can conveniently be called the Gillies v Keogh [1989] 2 NZLR 327 (CA) line of cases. The constructive trust which arises in de facto matrimonial property cases is of an institutional, rather than a remedial kind. That is an immediate point of distinction. Furthermore, the constructive trust which arises in such cases is itself conscience based. The party with legal title to the asset or assets in question is required to yield to the claimant party a beneficial interest because it would be unconscionable for the first party to deny the claimant such interest. Hence, equity intervenes: see for example Lankow v Rose [1995] 1 NZLR 277, 294.

  35. Thus the Gillies v Keogh line of cases serves to confirm the need for the conscience of the secured creditors in the present case to be affected. This line of authority certainly does not support the kind of general discretion for which Mr. Laurenson contended to depart from legal title and legal rights on some general ground of fairness.


  36. In the end, for the reasons given, we find all Mr. Laurenson’s arguments unpersuasive. The reality is that nothing has been shown which affects the conscience of the secured creditors at all, let alone to the extent that they should be deprived, pro tanto, of their contractual rights to exercise their security and realise it for their benefit.

  37. With respect, we cannot accept the basis upon which Gallen J found that the "necessary grounds of conscience" had been satisfied. His conclusion must have been arrived at by focusing on the conscience of the wrong party, i.e. Fortex, as opposed to the secured creditors. Clearly the conscience of Fortex was relevant at one level of the enquiry, but the Judge’s order, whose effect was pro tanto to deprive the secured creditors of their security, cannot have been made, all other issues aside, unless their conscience was also affected. That was not established.

  38. This conclusion is sufficient to determine the appeal. It is, therefore, unnecessary to discuss the several other points which were raised in argument, or to consider further the Court’s power to impose a remedial constructive trust. Whether such power exists in New Zealand and if so, on what basis and in what circumstances, can await another case in which those issues necessarily arise. When the claim is for a money sum, the need for the plaintiff to seek a proprietary remedy will usually arise only when the defendant is insolvent. In such circumstances the rights of parties other than the defendant are likely to be affected. If the plaintiff wishes to gain priority over those who would otherwise be entitled to the defendant’s assets, the Court must be careful not to vary settled insolvency rules on too loose a basis. That said, there may be occasions, in the present field or others, when a proprietary remedy, such as the so-called remedial constructive trust, would be a useful weapon in equity’s armoury.


  39. For the reasons given, the cross-appeal is dismissed and the appeal is allowed. As a consequence, the orders made in the High Court are set aside and in their place judgment is entered for the defendants on the plaintiffs’ claims for proprietary relief. All questions of costs in the High Court are to be decided in that Court. For costs in this Court, the appellants are to have the sum of $10,000 plus reasonable disbursements, including the costs of preparing the case to be fixed if necessary by the Registrar.

    Henry J

  40. The relevant background to this appeal has been succinctly set out in the judgment being delivered by Tipping J, which I have read in draft. I am in full agreement with the conclusions and reasons concerning the claims of an express trust and an institutional constructive trust. I also agree that the appeal should be allowed, but as my approach to the remaining primary issue is slightly different, I wish to express my own reasons briefly.

  41. The requirements and the limits of the doctrine giving rise to what is described as the remedial constructive trust have yet to be determined. The concept has not been sufficiently developed since its uncertainties were referred to by the Privy Council in Re Goldcorp Exchange Ltd (In Receivership): Kensington v Liggett [1994] 3 NZLR 385 to enable its application to be addressed with any degree of precision. Goldcorp did however make it clear that the intervention of a new equity to put matters right merely because there was an imbalance between parties, but without recourse to proper rationalisation, was not an available approach. The matter must therefore be looked at as a matter of principle, to see whether there is in this case a sound juristic basis for the Court retrospectively imposing an equitable title to some of the company’s assets, or some part or parts of those assets, in favour of the trustees of the superannuation fund. It is important to keep in mind, as Tipping J stresses, that to do so is to create a backdated proprietary interest which will be superior to the security created by the charges over all the company’s assets which were either fixed or crystallised on receivership.

  42. In my view there are three main stumbling blocks to invoking the remedy in this case, which demonstrate that the principle behind it should have no application. First, there has been no transfer to the company of funds made available to it by or on behalf of the employees, nor has there been any identifiable allocation by it of funds. The contractual obligation which is the basis of the claim was for the company to pay from its own funds monthly certain moneys to the scheme manager. This was not done over a period preceding receivership, and in fact no funds were either paid or allocated by the company for that purpose. Therefore at no time was there any identifiable fund which could be said to represent the employees’ entitlement. The company simply continued to trade without meeting this obligation. The absence of any separate and identifiable property to which the employees could lay claim as at the date an obligation to pay arose seems to me to disclose a fundamental objection to the imposition of a trust.

  43. I interpolate to note that it does not in my view assist the plaintiffs to allege that the company was in breach of a fiduciary duty in failing to pay, even assuming that to be the case. There is still no separate and identifiable property which could have been the subject of a trust. I would also observe in this context that the term fiduciary duty seems frequently to be used in litigation without due regard to what is really meant by it in legal terms, and I have serious reservations whether the contractual breach here is in legal terms anything more than simply that. It is not transparently clear that the employer’s general duty of good faith can properly be used in this situation somehow to create the status of a fiduciary.

  44. That apparent difficulty aside, Mr. Laurenson endeavoured to meet the main point by relying on Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1996] 1 WLR 1072. In that case money received by a bank as trust money had been improperly mixed by it with general deposit funds. It was held that on the bank’s insolvency the trust moneys could be repaid by way of exercising an equitable charge, created by the misapplication, which would take priority over unsecured debts. It was a case of wrongfully mixing trust funds with other funds. I do not see Space Investments as assisting the present plaintiffs. There was here no mixing of trust property with other assets - on the contrary no "trust" property even came into existence.

  45. If the doctrine does not depend upon the initial existence of some identifiable property which can form the basis for imposing a trust, it seems that it must at least be based on the concept of unjust enrichment. This is the approach in Canada (Soulos v Korkontzilas 1997 146 DLR (4th) 214), and was that adopted in the High Court and supported by the respondents in this appeal. In my judgment the basis for it is not to be found in the present case. Two "enrichments" were relied upon in argument. The first was said to be retention of money which belonged to the employees (or the fund). That cannot be right. There is no discernible basis upon which the employees could claim a proprietary interest in moneys held by the company. Mr. Laurenson’s reliance on Elders Pastoral Ltd v Bank of New Zealand [1989] 2 NZLR 180 is in my view misplaced - it is in no way analagous to the present situation. The alternative argument that the company’s liquidity was enhanced is difficult to follow. The company was operating in overdraft, and in fact its true indebtedness and overall financial position was hidden from its bankers. It is impossible to say that the non-payment of contributions month by month resulted in the amount of those contributions being utilised for other purposes. In fact the evidence obtained following Gallen J’s interim judgment established that the bank would have honoured cheques drawn for contributions to an extent which would have covered the bulk of the default. The benefit, or enrichment, is in my view illusory - nothing has been unjustly retained.

  46. The second matter relied on was the saving of interest which would have been payable on the resulting increased overdraft had the payments been made. That benefit is at best confined to the amount of the interest saved, and cannot sensibly be converted into a benefit represented by the capital sums to which the interest may have related. I do not see how it can form the basis of an entitlement to the capital.

  47. The second difficulty arises from the fact that the company was at all relevant times probably insolvent, but more importantly operating on overdraft. The Judge’s recognition of a remedial trust was expressed as being dependent upon the availability of sufficient overdraft accommodation to enable the payments in question to be made. But moneys paid into an overdrawn account cease to exist (Re Diplock [1948] Ch 465; Re Goldcorp at p405). This is the other side of the same coin, and therefore I do not understand how an overdraft facility, which was not in fact used to meet an obligation to pay, can somehow create a proprietary right in some undefined asset which the company was never obligated to use for that purpose.

  48. The third difficulty is the question of unconscionability, and its relevance to the intervention of equity to interfere with legal rights. It must be relevant when the Court is being asked to impose a trust retrospectively - i.e. to deem that one had come into existence - that there will be a resulting interference with the existing rights of others. Tipping J has addressed this issue in some detail, and I need do no more than concur with the general terms of his treatment of it. The need for equitable intervention by granting proprietary relief is not established.

  49. I would therefore allow the appeal.

    Blanchard J

  50. I am in agreement with the judgment of Tipping J and the orders contained in it. I also agree with Henry J’s observations.

  51. Fortex was both the employer and the trustee in relation to the superannuation fund. The fact that it happened to be a trustee - indeed, the sole trustee - does not mean that it had the duties of a trustee or fiduciary in relation to its contractual obligation to pay its employer’s contributions from its general bank account into the separate account of the fund when required to do so by the trust deed. If Fortex had not been a trustee it could not have been suggested with any conviction that the beneficiaries of the fund were anything more than unsecured creditors of a defaulting and insolvent employer, as they would have been in respect of unpaid salary and wages.

  52. Therefore, even if the company’s bank account had been in credit at relevant times I doubt whether the respondents could have claimed any priority for unpaid employer’s contributions. I see no proper basis on which such claims of employees can rank ahead of the claims of other unsecured creditors once the employees have exhausted the advantage of their preferential status under the Companies Act, as has already happened. The other creditors of Fortex are equally entitled to say that they have supplied goods or services and have not been paid.

  53. There has been no unjust enrichment. The trustee for the debenture holders was unaware of Fortex’s default in making contributions. If the bank had honoured cheques drawn by Fortex to meet its obligations to the fund, that would simply have increased the amount secured under the debenture trust deed. Unsecured creditors, including debenture holders to the extent their security might in that circumstance have been inadequate, could then have complained, with as much or as little justification as the employees now have, that an injustice had been done to them because Fortex failed to pay their debts when they fell due and chose instead to pay the employees.

  54. If the company’s bank account had been in credit the employees may possibly have been able to establish priority for any identifiable moneys withheld from their salaries as employee contributions. Only some $6,550.57 of such contributions are now unpaid. But there is no need to determine that question, which arose only on the cross-appeal. The account was in overdraft, so that there was no fund to which a claim could be made.

  55. Like Tipping J, I prefer to leave the question of the place of the remedial constructive trust in New Zealand law to another day and like him I counsel caution in proceeding to do anything which would disturb the settled pattern of distribution in an insolvency.


O’Connor v Hart [1985] 1 NZLR 159; Re Goldcorp Exchange Ltd (In Receivership): Kensington v Liggett [1994] 3 NZLR 385; Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] 3 All ER 75 (dist); Re Hallett’s Estate, Knatchbull v Hallett (1880) 13 Ch D 696; Gillies v Keogh [1989] 2 NZLR 327 (CA); Lankow v Rose [1995] 1 NZLR 277; Soulos v Korkontzilas 1997 146 DLR (4th) 214; Re Diplock [1948] Ch 465; Elders Pastoral Ltd v Bank of New Zealand [1989] 2 NZLR 180


P J Andrews and D J Friar for First Appellant (instructed by Kensington Swan, Wellington)
M D O’Brien for Second Appellant (instructed by Bell Gully Buddle Weir, Wellington)
R C Laurenson and S J Peacock for Respondents (instructed by Gilbert Swan Reeves, Wellington)

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