Cayman Islands: Cayman Update: Return Of Mistaken Payments Held On Constructive Trust

On 26 April 2022, Chief Justice Smellie QC in Re Premier Assurance Group SPC Ltd. (in Official Liquidation) sanctioned a decision by the joint official liquidators ("JOLs") of Premier Assurance Group SPC Ltd (in Official Liquidation) (the "Company") to return (or procure the return of) certain payments held by or on behalf of the Company referable to one of its segregated portfolios, Premier Assurance Segregated Portfolio ("PASP"), to the respective payors on the basis that such sums were paid by mistake. The Court held that such payments received after the presentation of the winding up petition against the Company on 26 October 2020 (the "Winding Up Petition") are held by the Company (referable to PASP) as constructive trustee from the moment that such funds were received.

In summary, the JOLs sought Court sanction to return (or procure the return of) over 6,000 premium payments held by or on behalf of the Company referable to PASP, which had been received from participants who hold or have held insurance policies referable to PASP (the "Participants"). Such payments (which were referred to collectively as the "Mistaken Payments") were made after the deemed commencement date of the winding up of the Company on 26 October 2020 and generally represented direct debits which had not been cancelled by the Participants.

By analogy with Re Caledonian Bank Limited (in Official Liquidation) [2015 (2) CILR 8] (which concerned mistaken payments by depositors to an insolvent bank after that bank had suspended its operations), the Court found that the Mistaken Payments were made by Participants following the presentation of the Winding Up Petition when the Company's operations had effectively been suspended. The Court accepted that no benefit could have accrued to a payor in respect of a Mistaken Payment and that the Company would have been fixed with this knowledge at the time of receipt. Accordingly, the Court held that a constructive trust had been imposed in respect of those premium payments received by the Company (or on its behalf) on or after the presentation of the Winding Up Petition in favour of the respective payor.

Further or alternatively, the Court determined (as in Caledonian) that it was, or must have been obvious to the Company that premium payments made after the presentation of the Winding Up Petition were by fundamental mistake, in that it would have been inconceivable that a Participant would have made such payment had he or she have been aware that a Winding Up Petition had been presented against the Company. In the circumstances, the Court held that it would be unconscionable for the Company to retain these monies as against the Participants.

The judgment provides helpful guidance to practitioners in respect of the principles on which a constructive trust may be imposed on the grounds of a payment made by mistake, which gives rise to a proprietary claim against an insolvent estate.