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Introduction
Facts of the Case
Issues
Judgment
Final Order
Related Cases
Significance
Case Critique Opinion

INTRODUCTION

In Re Goldcorp Exchange Ltd1 the Privy Council was faced with the insolvency of a New
Zealand company that dealt in gold and other precious metals. The company had sold ingots
and coins on either an allocated or non-allocated basis. The promotional literature promised
that metal stocks would be audited on a monthly basis to ensure that there were sufficient
stocks to meet all commitments. After the company went into receivership it became apparent
that there was a considerable shortfall in available bullion and that the stock of bullion had
not been managed in the manner promised by the promotional literature (I.e. there was
generally no earmarking of gold stocks for allocated Customers).
When the company got into difficulties, the Bank of New Zealand appointed Receivers under
the terms of a debenture issued by the company, at which point The banks floating charge
over the companys assets crystallized. The receivers applied to the New Zealand High Court
for directions concerning the disposal of the remaining stock of bullion. As Lord Mustill
acknowledged in Re Goldcorp Exchange Ltd, in complex proceedings at first instance Thorp
J skillfully managed to dispose of the claims of various diverse categories of customer and
only the claims of three categories of customers remained in dispute. First, the non allocated
claimants i.e. those customers who had purchased bullion for future delivery and where
there had not been any appropriation of specific and segregated parcels of bullion to the
individual purchase contracts by the time the banks floating charge crystallised. Secondly, a
single claimant Mr S P Liggettwhose claim differed in only minor respects from the
claims of the non-allocated claimants. Thirdly, the Walker & Hall claimants i.e.
customers who had made contracts for the purchase of bullion from Walker & Hall
Commodities Ltd before the business of that company was acquired by Goldcorp Exchange
Ltd in 1986.
Court- Judicial court of the privy Council
Full Name of the Case Re Goldcorp exchange Ltd
Decided- 1994
Citation- [1994] UKPC 3 [1995] 1 AC 74

Judges Sitting Lord Mustill, Lord Templeman, Lord Lloyd, Sir Thomas Eichelbaum

FACTS OF THE CASE

Goldcorp Exchange Ltd had a business of holding gold reserves in coins and ingots for
customers wishing to invest in gold. Some gold was held for customers, but the levels varied
from time to time. The company's employees also told customers that the company would
maintain a separate and sufficient stock of each type of bullion to meet their demands, but in
fact it did not. The Bank of New Zealandon 11 July 1988, being owed money by Goldcorp
Exchange Ltd, petitioned for the business to be wound up. It transpired that Goldcorp had not
held anywhere near enough money for the members of the public, around 1000 people, who
had supposedly bought gold with it, even though in their contracts they were entitled to
delivery of the gold (in 7 days, for a fee) if they wished. The company also lacked enough
assets to satisfy the debts to the bank. The members of the public alleged that the gold that
remained in stock was entrusted to them. The bank argued that because the gold stocks had
never been isolated, it did not, that all the gold customers were unsecured creditors and that
its security interest (a floating charge) took priority. Jonathan Sumption QC represented the
bank.

JUDGEMENT

The Privy Council advised that the customers had no property interest in the gold, and
therefore the bank could use it to satisfy its debts. The customers' purchase contracts did not
transfer title, because which gold specifically was to be sold was not yet certain. Although

Goldcorp's brochures had promised title, a trust did not arise because there was no declaration
of it. There was not enough gold to satisfy the claims, even though it was promised that the
gold would be set aside. It was contrary to policy to imply a fiduciary duty simply because
there was a breach of contract. It was also rejected that equity required any restitution of the
purchase money.
Lord Mustill gave the advice of the Board.

Their Lordships begin with the question whether the customer obtained an

the reasons for this answer are the same as those which stand in the way of

to be supplied from a fixed and a pre-determined source, from within whic

A more plausible version of the argument posits that the company, having

document signed by Maris addressed to the station master, directing him to

matter thus, at pages 655-666:-

"No doubt the law is that until an appropriation from a bulk is made, so tha

There may perhaps be a shadow over this decision, notwithstanding the hi

quoted.

On this view, the bulk was the whole of the stock in Wiffen' s warehouse. T

a claim in trover. The present case is quite different, for there was no exist

Let it be assumed. however, that the company could properly be described

they maintain should have been created on the non-existent stock, to wholl
For these reasons their Lordships reject, in company with all the judges in

The first is the Judgment of Oliver J. (as he then was) in In re London Wi

Jordan Construction Ltd v Brookmount Erostin Ltd [1992] BCLC 350 whi
Lordships are fortified in their conclusion by the fact that the reasoning of

Lord Templeman, Lord Lloyd and Sir Thomas Eichelbaum agreed.

Final Order
The Court of Appeal held, took priority over the contractual claim, expressly referred to the
contract under which the claim arose. Once again their Lordships are fortified in their
conclusion by the fact that the reasoning of Scott L.J. conforms entirely with the opinion at
which they have independently arrived.

RELATED CASES:
Re London Wine Co (Shippers) Ltd [1986]
The facts of this case are that there is unsecured creditors of a bankrupt wine trading
company, London Wine Co (Shippers) Ltd, argued that they should be able to claim the
bottles of wine they had paid for. The fine wine company had gone into receivership, and the
remaining wine stock was a valuable asset. The bottles that the customers had bought had not
yet been individually identified. The company had not even promised to provide wine from
its current stocks. Oliver J held that even if the company had said the wine was to come from
current stocks, the trust would in any event have been uncertain. There could be no award
for specific performance because the Sale of Goods Act required similarly that any goods be
ascertained.

Re Lehman Brothers International (Europe) [2012]

The facts of this case are that Lehman Brothers International (Europe) was the UK subsidiary
of Lehman Brothers Holdings Inc, the US parent that had gone inChapter 11 bankruptcy
proceedings. It had held money on behalf of many clients, some affiliates of Lehman. The
client money rules of Financial Services Authority were in the Client Assets Sourcebook,
chapter 7, issued under the FSMA 2000 section 138. FSMA 2000 section 139 permitted FSA
rulemaking for clients money being held on trust in accordance with the rules, and
accordingly CASS 7.7.2R said that client money was to be held on trust for the purpose of the
client money rules. If a firm failed, the client money distribution rules in CASS 7.9 applied.
But under CASS 7.4, a firm could either (1) pay money into a segregated account or (2) put
the money into the firms own house accounts and then segregate it into client accounts at the

close of the preceding days business. Lehman had done the alternative approach in (2). On
15 September 2008, Lehman went into administration, a primary pooling event under CASS
7, so the funds in each client money account were to be treated as pooled and then
distributed so that each client received a sum rateable to their client money entitlement. The
administrators asked the High Court for directions under the Insolvency Act 1986 Schedule
B1, about how to apply CASS 7 to the client money that Lehman held. There was a lot of
unsegregated client money in the firms house accounts because of the operation of the
alternative approach, and also significant non-compliance of Lehman with CASS 7 over a
long time.
Lord Clarke, Lord Dyson and Lord Collins held that, dismissing the appeal, CASS 7 was to
be construed according to the purpose of the MiFiD 2004/39/EC and 2006/73/EC, to achieve
a high level of protection for client money, with the prompt and scrupulous segregation of
funds. The statutory trust created by CASS 7.7.2R arose on receipt of the client money, and
the fiduciary duties imposed by CASS 7 were owed by LBIE in respect of all client money,
not just balances standing to credit in client accounts. The decision that fiduciary duties were
owed by a firm in respect of all client money was relevant to construe CASS 7. If there was a
choice of interpretations, then the one chosen should be the highest level of protection.
Although CASS 7 used trust concepts, it was not meant to limit trust law. CASS 7.9.6R(2)
referred to a clients contractual entitlement when it said client money entitlement to have
money segregated.

SIGNIFICANCE
The outcome of the advice of the Board was not mirrored by the Supreme Court in In re
Lehman Brothers International (Europe),[1] which concerned consumers who were held to
have had a trust of assets under the Markets in Financial Instruments Directive that was
designed to protect their savings.

CASE CRITIQUE OPINION

The Privy Council, per Lord Mustill, relying on the New Zealand equivalent of section 16 of
the Sale of Goods Act 1979 held that, as the contract was for the sale of unascertained generic
goods that were not sold ex-bulk, no property in the goods could be transferred to the
buyers unless and until the goods were ascertained. Although Lord Mustill declined to
examine in detail the decision of the Court of Appeal in Re Wait on the grounds that the sale
in that case was exbulk, he stated that the reasoning contained in the judgment of Atkin L.J.,
which their Lordships venture to find irresistible, points unequivocally to the conclusion that
under a simple contract for the sale of unascertained goods no equitable title can pass merely
by virtue of the sale. moneys paid to the company. Cooke P, relying on the judgment of
Goulding J in Chase Manhattan Bank NA v Israel-British Bank (London) Ltd,10 held that the
non-allocated customers retained a property interest in the monies paid to the company giving
rise to a constructive trust on orthodox lines and a right to trace the proceeds. Cooke P sought
to distinguish the Privy Councils decision in Space Investments Ltd v Canadian Imperial
Bank of Commerce Trust Co (Bahamas) Ltd11 and stated that the bank as debenture holder
had taken the risk of insolvency in relation to the assets over which they had no fixed charge
but that the non-allocated purchasers did not understand that they were taking any risk of
insolvency.12 Gault J agreed with the conclusions reached by Cooke P and the
consequences13 but in Gault Js view the remedy was best classified as a remedial
constructive trust. In a long and carefully argued dissenting judgment,14 McKay J held that
the contact between the company and its non-allocated customers was a commercial contact
for the purchase and storage of bullion that did not give rise to a fiduciary relationship per se
and that any representations made by the company were no different in character from the
normal advertising of any trader selling goods to the public and thus they did not give rise to
a fiduciary relationship. Rejecting the arguments that the non-allocated claimants were to be
regarded as the beneficiaries of either an express or a constructive trust, McKay J held that
their remedy was an action in damages for breach of contract and that they were not entitled
to priority against other creditors whether secured or unsecured.