PPI claim belongs to debtor in closed trust deed says Court of Session
A recent Court of Session appeal has considered the issue of trust deed termination and the subsequent rights to a PPI claim. Find out what the Court decided and the implications for former trustees in trust deeds.
The Inner House of the Court of Session has recently issued its opinion in the appeal of Dooneen Ltd & Others v Mond  CSIH 59. The decision brings a degree of clarity to when a trust deed terminates and the effect of that termination on previously unknown assets. While the decision is based on the specific wording of the trust deed in questionand therefore cannot be universally applied, it does set out some helpful and likely persuasive application for most trust deeds.
On 26 September 2006, the Debtor granted a Trust Deed in favour of his creditors. Mr Mond was appointed as his Trustee in terms of the Trust Deed ('the Trustee'). In November 2010, the Trustee made a 'first and final distribution' to creditors under the Trust Deed.
In 2015 the Debtor appointed Dooneen Ltd, a claims management company, to pursue a claim for mis-selling of PPI. It was accepted by all parties that the PPI claim was an asset which vested in the Trustee at the date of execution of the Trust Deed. The mis-selling claim had only come to light after the 'first and final distribution' was made. The Debtor received compensation of £55,000 for the mis-selling claim ('the PPI monies').
The dispute arose over who was entitled to receive the PPI monies. The Debtor argued that the Trust Deed had come to an end when the Trustee had made the 'first and final distribution' of 22.4p in the £ in November 2010, which meant that the Debtor was entitled to receive the PPI monies. The Trustee argued that the Trust Deed had not come to an end on the making of the 'first and final distribution', which meant that he was entitled to receive the PPI monies for the benefit of creditors.
Lord Jones in the original Court of Session decision, held that, after analyzing the terms of the Trust Deed, on the making of the 'final distribution' to creditors the Trust Deed had terminated. The effect of the Trust Deed terminating was to re-invest the Debtor in all assets conveyed to the Trustee under the Trust Deed, including the mis-selling claim. The Debtor was therefore entitled to receive the PPI monies.
The Trustee appealed the decision of Lord Jones to the Inner House. The question that the Inner House was asked was: 'whether the Lord Ordinary was correct to find that, in terms of the trust deed, the making by the trustee of a distribution to creditors brought the trust to an end, with the result that neither the trustee nor the creditors have any claim on the compensation?'
The Inner House has confirmed that the original opinion given by Lord Jones was correct and that the making of the 'final distribution' did bring the Trust Deed to an end. The Debtor is therefore entitled to receive the PPI monies.
Numerous conflicting decisions have been given by Scottish Courts in recent months on whether trustees can be re-appointed on closed trust deeds to deal with PPI claim monies which have subsequently been identified.
Whilst this decision is given on the specific wording within the individual Trust Deed granted by the Debtor, the Court did make some helpful general comments and brings some clarity to the question of who has the right to assets that vested in the trustee on termination of the trust deed.
The Court considered that a ‘final dividend’ was the dividend made by the trustee designated as such and not one carried out when all the assets that would vest under the provisions of the trust deed have been distributed by the trustee.
The termination of the Trust has the effect of re-investing in the Debtor any assets which have not been realized by the Trustee. Specific consideration is therefore required of the termination provisions within the trust deed to determine whether the trust has or has not terminated. If an asset comes to light after the Trust Deed has terminated, such as a PPI claim, then it is the Debtor who will have the right to that asset.
Former trustees will have no interest in such assets and as a result it is therefore expected that former trustees will no longer be seeking re-appointment in such circumstances.
Questions in connection with PPI claims after a trust deed has been concluded will no doubt still remain notwithstanding this decision.
It is worth noting that an appeal is due to be heard shortly by the Sheriff Appeal Court in relation to the decision of Sheriff Reid in the case of Donnelly v The Royal Bank of Scotland  SC GLA 13.
That case considers whether a lender is able to apply set-off of any PPI claim monies against any balance of lending which remained unsettled following conclusion of the trust deed. It will be of interest to consider the outcome of that appeal in due course.