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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> China National Star Petroleum Company v. Tor Drilling (UK) Ltd [2002] ScotCS 86 (20th March, 2002) URL: http://www.bailii.org/scot/cases/ScotCS/2002/86.html Cite as: [2002] ScotCS 86

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China National Star Petroleum Company v. Tor Drilling (UK) Ltd [2002] ScotCS 86 (20th March, 2002)

OUTER HOUSE, COURT OF SESSION
CA95/00	OPINION OF LORD DRUMMOND YOUNG in the cause CHINA NATIONAL STAR PETROLEUM COMPANY Pursuer; against TOR DRILLING (UK) LIMITED Defender:   ________________

 

Pursuer: Brodie, Q.C.; Simpson & Marwick, W.S.

Defender: Davidson Q.C.; Henderson Boyd Jackson, W.S.

20 March 2002

1. This case comes before me on a motion by the pursuer for summary decree in terms of Rule of Court 21.2. The salient facts admitted by the defender are as follows.
2. The pursuer is a body corporate incorporated in the Peoples' Republic of China. It is the owner of a semi-submersible drilling vessel, the Kan Tan IV. On 14th June 1999 the pursuer entered into an agreement, known as the Management Agreement, with Tor Corporate AS, a Norwegian company which is the defender's parent company, for the management of the Kan Tan IV. In terms of that agreement, Tor Corporate AS, referred to as the Manager, was appointed exclusive manager of the Kan Tan IV. The Manager's duties included maintaining and repairing the vessel, providing sufficient crew, and negotiating contracts for employment of the vessel. In return for those services, the Manager was paid a management fee. Recital D of the Management Agreement provided that the Manager might perform its duties and obligations under the agreement through the defender. As part of the arrangements for the management of the Kan Tan IV the defender established various bank accounts with the Royal Bank of Scotland in Aberdeen. Four of these were significant for the purposes of the present action. Those accounts were as follows:
1. Tor Drilling (UK) Ltd China National Star Petroleum Corporation KTIV Fund Account -- Call Deposit A/c US Dollars -- A/c TDCNSPKT - USD1;
2. Tor Drilling (UK) Ltd China National Star Petroleum Corporation KTIV Fund Account -- A/c No TDCNSPKT -- USD1 - Fixed Weekly Deposit;
3. Tor Drilling (UK) Ltd Accrual Account -- Call Deposit A/c US Dollars -- A/c No TODRUK USD 1;
4. Tor Drilling (UK) Ltd Training Account -- Corporate Money Market Account -- A/c 00697770.

The relevant credit balances on those accounts as at 7th September 2001 were US $413,027 on account (a), US $3,544,064.66 on account (b), US $159,311.60 on account (c) and £103,441.17 (US $149,989.70) on account (d).

3. It is accepted by both parties that all of those accounts are in the name of the defender and that all of the credit balances in the accounts are beneficially owned by the pursuer. Accounts (a) and (b) are held in terms of an agreement between the parties known as the Bank Account Agreement. Under that agreement, the defender is entitled to make use of the funds in account (a) and (b) in connection with the operation of the vessel and any activity related thereto. The Bank Account Agreement does not apply to accounts (c) and (d). Account (b) is to be transferred to the joint control of the parties' solicitors in terms of an interlocutor of Lord Hamilton dated 31st January 2002.
4. Account (c) was set up by the defender pursuant to clause 3.7(e) of the Management Agreement. Under the Management Agreement the Manager, Tor Corporate AS, is obliged to meet the vessel's Operating Cost out of the income earned by her. The Operating Cost is defined as covering the costs incurred by the Manager in operating the vessel, including the cost of salaries, wages, materials, supplies, professional and technical services, repairs, periodic overhauling and maintenance, laying-up costs, insurance premiums and other similar expenses. Against that background, clause 3.7(e) provides as follows:

"As part of the Operating Cost, the Manager will include an additional Operating Cost Accrual of USD 3,000 per day. This money will, subject to the Manager first having recovered his operating expenses as provided for under Clause 3.7(c) above, be transferred to a separate bank account, Accrual Account, in the name of the Owner. Authorised personnel from the Manager may draw funds from this account to cover major repairs and investments/upgrading as further defined in Appendix A".

5. Thus the monies in account (c) are derived from the vessel's income. They may be used by the Manager for the purpose of "major repairs and investments/upgrading", as defined in Appendix A. The material part of Appendix A provides as follows:

"Major repairs as referred to above are repairs that are planned/budgeted for as a consequence of a review/analysis of the basic condition of any equipment and/or systems and repairs that are a result of scheduled classification or certification surveys. These will be reimbursed by the Owner".

6. It follows that the monies in account (c) are due to the pursuer as Owner subject only to the possibility that they may be expended on major repairs. Clause 3.7(e) contemplated that the relevant account should be in the name of the Owner. Nevertheless, I did not understand it to be disputed that account (c) is in the name of the defender.
7. Account (d), the Training Account, was set up by the defender to obtain a higher rate of interest on monies held in an earlier Training Account; it follows that account (d) is subject to the same terms as the earlier Training Account. Those terms are found in Appendix B to the Management Agreement. Appendix B contains an agreement, known as the Training Agreement, between the pursuer and the defender whereby the defender agreed to train offshore personnel of the pursuer aboard the Kan Tan IV. As part of the agreement, the defender was obliged to make arrangements for reasonable transport and living expenses for the trainees. Clause 9 of the Training Agreement provided that, in lieu of the defender's paying for those arrangements itself, it might pay the pursuer a lump sum of US $200,000 per year to cover the whole of the expenses during periods when the vessel was earning a satisfactory charter rate. The defender was to transfer the sums so due on a quarterly basis to a bank account designated by the pursuer. Account (d) is that bank account. Its purpose is accordingly to hold monies provided by the defender which are payable to the pursuer in order to discharge the defender's obligations to the pursuer under the Training Agreement.
8. Tor Corporate AS has raised an action against the pursuer in which it makes various financial claims based upon alleged repudiation of the Management Agreement by the pursuer and breach of that contract by the pursuer. The sums claimed by Tor Corporate AS in that action total US $27 million. Arrestments were laid on the dependence of that action by Tor Corporate AS. These included an arrestment in the hands of the defender, which attached the defender's obligation to account to the pursuer for funds held in accounts (a)-(d). On 27th July 2000 Lord Hamilton held that the amount of security required by Tor Corporate AS in respect of its claims was US $15 million. As to US $11.3 million of that sum, caution has been obtained from an appropriate cautioner. The remaining US $3.7 million of security is provided through the existing arrestments in the hands of the defender. Both the pursuer and Tor Corporate AS reclaimed against Lord Hamilton's interlocutor; the pursuer subsequently withdrew its reclaiming motion, and on 24th October 2000 Tor Corporate's reclaiming motion was refused.
9. On 2nd April 2001, Tor Corporate AS sent a letter to the defender in the following terms:

"Tor Corporate AS hereby releases from arrest funds belonging to CNSPC over and above USD 3.7 million. Please await proper instructions from CNSPC before initiating any transfers or payments. The amount of USD 3.7 million remains subject to the arrestments originally executed on you on 24th May 2000".

On 12th April 2001 the agents acting for the defender wrote to the agents acting for the pursuer as follows:

"I have now received instructions from Tor Drilling (UK) Ltd concerning the position with the Bank Accounts.

Tor Drilling (UK) Ltd ('TDUK') have ascertained the balance in the various Bank Accounts as at 2nd April 2001, the date of the release by Tor Corporate AS, of some funds under the arrestments, namely those above US $3.7 million.... After converting the three Accounts maintained in Sterling to US Dollars... the total balance is the sum of US $4,201,067.38.

Of that sum TDUK retains US $3.7 million under the terms of the arrestments. They advise those funds consist of all balances in the Training Accounts, Operating Accounts and the Accruals Account, totalling US $306,939.23, together with US $3,393,060.77 of the monies in the fixed weekly deposit of the Fund Account.

The remaining funds, US $501,067.38, are all held within the Fund Account, being the balance of the fixed weekly deposit and all of the call deposit components of the Fund Account".

10. The "Training Accounts" refers to account (d), the "Accruals Account" refers to account (c), the "Fund Account" refers to accounts (a) and (b), the "fixed weekly deposit of the Fund Account" refers to account (b) and the "call deposit components of the Fund Account" refers to account (a). Thus the defender's agents' letter asserts that the continuing arrestments affect the funds in accounts (c) and (d) and part of the funds in account (b).
11. The most recent development occurred on 31st January 2002, when Lord Hamilton ordained the defender to instruct the Royal Bank to transfer as soon as practicable the credit balance in account (b) and any interest accrued thereon into a US dollar account to be established at the Royal Bank in the joint names of the parties' agents, to be held in trust pending final determination or agreement of the parties' entitlement thereto. It was conceded by the pursuer that the transfer of the funds in account (b) into the account to be set up in terms of that interlocutor will be subject to Tor Corporate's arrestment on the dependence of the action raised by it against the present pursuer. Thus the arrestment will confer a valid security in respect of those funds.
12. In the present summons, the pursuer's first conclusion is for declarator that the credit balances on accounts (a)-(d) are beneficially owned by it and are held by the defender as trustee for it. The pursuer's third conclusion is for decree ordaining the defender to transfer or to instruct the Royal Bank of Scotland to transfer the credit balances on each of the accounts to a designated account at the Royal Bank's branch at Queens Cross, Aberdeen. In its defences the defender relies on the arrestment of the funds in the four accounts as a defence to the pursuer's claim to be entitled to the transfer of those funds. It avers that accounts (b), (c) and (d) are subject to arrestment at the instance of Tor Corporate AS, that arrestment being limited to US $3.7 million. It further avers that the arrestments laid on the dependence of the action at the instance of Tor Corporate AS, so far as attaching the bank accounts, were not recalled and continue in place.
13. The pursuer now moves for summary decree in terms of its third conclusion, but restricted to accounts (c) and (d) only. In arguing the case, counsel for the pursuer accepted that the test for summary decree was a high one, that there was no defence to the pursuer's claim. He submitted that the court could nevertheless determine any matters of law that arose, and could have regard to the documents lodged in process. I did not understand that approach to be disputed by counsel for the defender. Counsel for the pursuer submitted that, in relation to both accounts (c) and (d), the defender apparently accepted that the origin of the monies lodged in the accounts was the pursuer; account (c) was an account that should, in terms of clause 3.7(e) of the Management Agreement, have been in the name of the pursuer, and account (d) was an account designated by the pursuer. Thus the pursuer would normally be entitled to transfer of the credit balance in each account, unless a valid defence were put forward by the defender. The only defence now put forward in the pleadings in relation to these two accounts is the arrestment effected by Tor Corporate AS. Counsel referred to the schedule of arrestment and the partial release granted by the defender on 2nd April 2001, the terms of which are quoted above. He submitted, under reference to Graham Stewart on Diligence at 711 and Simpson v. Fleming, 1857, 20 D. 77, that the effect of the release was that there was no need for judicial recall of the arrestment; an informal release by the arresting creditor was just as effective. In the present case, sums in excess of US $3.7 million were held in account (a) and the new account in joint names to which the credit balance in account (b) was to be transferred; the defender's obligation to account to the pursuer for the sums in both of these accounts would be subject to the arrestment. The terms of the release were not specific as to the obligations that were to be released from the arrestment, and in those circumstances the defender as arrestee had no interest in maintaining any construction of the release other than that most favourable to the pursuer. The defender was in the position of a nominee or trustee; the pursuer was accepted to be the beneficial owner of the funds in the accounts. Thus the defender was obliged to do what was in the interests of the pursuer as beneficial owner. In those circumstances, the pursuer could elect to apply the release to the accounts other than accounts (a) and (b) as those two accounts contain sufficient funds to provide security of US $3.7 million. The pursuer had so elected, and thus the arrestment no longer applied to accounts (c) and (d).
14. Counsel for the pursuer advanced a second argument based on a number of features of the law of arrestment. First, he submitted that all personal debts due to the common debtor may be arrested if they are in the hands of an independent third party; authority was found in Graham Stewart on Diligence at p. 44. Second, an arrestment must be used in the hands of an arrestee who is directly the debtor of the common debtor, not one who is indirectly indebted to the common debtor; authority was found in Graham Stewart on Diligence at 113. Third, in general, for an arrestment to be valid, the arrestee must be actually possessed of the funds to which the common debtor is entitled; it is sufficient, however, that the arrestee has an obligation to account to the common debtor, when he does not have the funds in his possession; Graham Stewart at 71 was cited as authority. Fourth, if there is to be an obligation to account, there must be a direct personal obligation to pay or deliver on the part of the arrestee; authority was found in Heron v. Winfields, 1894, 22 R. 182. Fifth, a trustee properly so called may be under an obligation to account to a beneficiary, with the result that an arrestment can be used against him in respect of his obligation to account to the beneficiary, but the position of a mere nominee is different. In the latter case, if the relationship between nominee and beneficiary is revocable by the beneficiary, it is ignored for the purposes of the law of arrestment. Consequently the nominee's obligations to the beneficiary may not be arrested, and funds in the name of the nominee may be arrested in the hands of the beneficiary. Authority for these propositions is found in Graham Stewart on Diligence at 116-119, and in Rigby v. Fletcher, 1833 11 S 256, and Lindsay v. LNWR, 1860, 22 D. 571.
15. Counsel submitted that the foregoing principles apply to accounts (c) and (d) in the following manner. Account (c) was governed by clause 3.7(e) of the Management Agreement, which provided that the account should be in the name of the pursuer as owner of the Kan Tan IV. Although the defender had its name on the account, that could only be as a mere nominee for the pursuer. Thus the arrestment in the hands of the defender of the obligation to account to the pursuer in respect of account (c) was ineffectual, on the basis of the fifth of the foregoing principles. Moreover, the defender's obligation to account in respect of account (c) was owed to Tor Corporate AS, which was the other party to the Management Agreement and hence to clause 3.7(e); the defender was only the agent of Tor Corporate for the purposes of that contract. It followed that the defender had no direct personal obligation to pay or deliver or account to the pursuer; its obligations were rather owed to Tor Corporate. On the basis of the fourth of the principles, therefore, the arrestment was ineffectual to attach any obligation on the defender's part to account to the pursuer for funds held in account (c).
16. Account (d) was in the name of the defender but was the account designated by the pursuer for the purposes of the Training Agreement. It followed that the defender was a mere nominee for the pursuer, with the same result as with account (c). In addition, as in the case of account (c), there was no obligation on the defender's part to account for funds held in the account to the pursuer; that was a further reason for holding the arrestment ineffectual. For these reasons counsel for the pursuer submitted that was no defence to the present action as regards the pursuer's right to the whole of funds in accounts (c) and (d). Accordingly summary decree should be granted in terms of the third conclusion of the summons. In the event that I did not grant summary decree, counsel submitted that I should make an order in relation to accounts (c) and (d) similar to that made by Lord Hamilton on 31st January 2002 in relation to account (b). Such an order was designed to protect the funds in the account from the creditors of the defender.
17. In reply, counsel for the defender submitted that the defender's obligation to account in respect of the monies in accounts (c) and (d) remained subject to the arrestment by Tor Corporate AS. The restriction of the arrestment to US $3.7 million on 2nd April 2001 had been followed, on 12th April 2001, by the fax from the defender's agents to the pursuer's agents referred to in paragraph [9] above. By means of that document the continuing, restricted, arrestment had been ascribed by the defender to certain of the bank accounts; the defender had ascribed the arrestment to the training and accrual accounts (accounts (d) and (c) respectively), together with US $3,393,060.77 of the monies in the fund account (account (b)). Counsel submitted that an arrestee had power to ascribe an arrestment in this way; otherwise an outside party could determine which sums were or were not due by the arrestee to his creditor.
18. On the pursuer's second argument, counsel for the defender submitted that it was averred by the defender that the sums in accounts (c) and (d) were beneficially owned by the pursuer; if that was so, there would be a direct obligation on the defender to make payment to the pursuer. That was sufficient to establish a direct personal obligation between the parties to the present action. Thus the fourth of the principles founded on by counsel for the pursuer was satisfied, and arrestment was not incompetent on that ground.
19. In relation to the fifth principle, counsel for the defender submitted that it was recognised by the pursuer that account (d) was operated by the pursuer as well as the defender; that was clear from clause 9 of the Training Agreement. Thus the defender was not a mere shadow or nominee for Tor Corporate or the pursuer. In the case of account (c), counsel submitted that once again the defender was not a mere shadow for Tor Corporate or the pursuer. The defender's position was no different from that of a bank; a bank is obliged to carry out the instructions of the account holder in the same way as the defender was obliged to carry out the pursuer's instructions, or the instructions of Tor Corporate. Thus the fact that the defender was a nominee was not enough for the fifth principle to apply.
20. Finally, counsel submitted that, in considering the pursuer's motion for summary decree, I should exercise my discretion under Rule of Court 21.2(4) to refuse the motion. Tor Corporate was entitled to US $3.7 million of security from the arrested funds; payment to the pursuer of the amounts in accounts (c) and (d) would have an effect on that security. In particular, the funds paid to the pursuer could be taken out of the United Kingdom and would therefore not be available to provide any security to Tor Corporate. In relation to the pursuer's alternative motion for an order under section 47(2) of the Court of Session Act 1988, counsel for the defender submitted that there was no urgent need to protect the funds from the defender's creditors; urgency was essential if such an order were to be pronounced. He accepted, however, that it was difficult for this purpose to differentiate accounts (c) and (d) from account (b), where Lord Hamilton had pronounced a similar interlocutor on 31st January 2002.
21. The pursuer claims to be entitled to the transfer of the funds in accounts (c) and (d) on three distinct grounds.
1. The arrestment has been released by Tor Corporate to the extent that it exceeds US $3.7 million, and the pursuer as beneficial owner of the funds in the accounts is entitled to determine how that release is ascribed among the accounts; the pursuer has effectively ascribed the release to accounts (c) and (d).
2. Under the contractual arrangements governing the parties' relationship, the defender was under no direct personal obligation to the pursuer, but rather to Tor Corporate; consequently the defender had no obligation to account to the pursuer that was capable of arrestment by Tor Corporate.
3. The defender's right to payment of the sums in the two accounts was held as a mere nominee for the pursuer; consequently the defender's obligation to account to the pursuer for that right was not capable of arrestment.
22. I will deal with each of these arguments in turn, and then with the question of the security totalling US $3.7 million that must be provided to maintain the level of security contemplated by Lord Hamilton's interlocutor of 27th July 2000.

1. Ascription of release of arrestments

23. It is clear that Tor Corporate, by its letter dated 2nd April 2001, released the arrestment in the hands of the defender to the extent that they exceeded US $3.7 million. The competency of that release is not in doubt; Simpson v. Fleming, supra, and Graham Stewart on Diligence at 711 provide clear authority to that effect. The critical question is how that release is allocated among the different accounts, or strictly speaking how it is allocated among the defender's obligations to account to the pursuer in respect of the different accounts. By the fax of 12th April 2001 quoted in paragraph [9] above the defender's agents claimed to ascribe that release to accounts (a) and (b), with the result that accounts (c) and (d) remained subject to the arrestment. The pursuer, on the other hand, claims that any such ascription must be made by it as a party beneficially entitled to the funds in the accounts.
24. So far as I am able to discover, there is no authority that deals with the ascription of a release of arrestments. There are, of course, well-established rules relating to the ascription of payments made by a debtor to a creditor: see Gloag, Contract, 711-712. In that situation, the debtor making the payment can decide to which debts the payment is to be ascribed. If he fails to do so, the creditor who receives the payment can ascribe it to particular debts. If neither party makes such an ascription, at least where the parties maintain a current account the rule in Clayton's Case is followed, and the payment is ascribed to the earliest debts in order of date. The reasoning underlying this approach would appear to be as follows. First, a person who undertakes a voluntary legal act, such as paying a debt, can determine the conditions on which he does so; that is why in the first instance the person making the payment can ascribe it to particular debts. Second, a person who receives from a debtor a payment which covers some but not all of the debts owed to him must know which debts are satisfied and which debts remain due, so that he knows the extent of his obligations; if the debtor has said nothing about the matter, he is therefore entitled to decide which of the debts owed to him he regards as extinguished. The rule in Clayton's Case simply reflects the commonest way in which debts are in practice likely to be ascribed.
25. The same reasoning applies in my opinion to the ascription of a release of arrestments. The arresting creditor who releases arrestments may determine the conditions on which he does so. Thus he may, if he wants, ascribe the release to particular debts, perhaps those of whose existence he is more confident. If he does not do so, the arrestee is clearly entitled to know which of the debts owed by him are still frozen in his hands, and which have once again become payable. For this reason, the arrestee may ascribe the release to particular debts, and in that way determine the extent of his obligations to his creditor.
26. In the present case, however, one further factor must be taken into account. It is accepted by both parties that the credit balances in accounts (c) and (d) are beneficially owned by the pursuer. That is a shorthand way of expressing the legal relationship among the Royal Bank, the defender, which is the customer of the Royal Bank, and the pursuer. What it means it is that the defender holds its right to the balance at credit of each account on trust for the pursuer; consequently the defender is under an obligation to account to the pursuer for its rights in the accounts, and it is that obligation to account that has been arrested by Tor Corporate. The trust relationship is accepted by both parties, and it is accordingly not strictly necessary to consider how it arises. Nevertheless, it appears that the trust relationship in respect of the defender's rights in account (c) arises because, in terms of clause 3.7(e) of the Management Agreement, the Accrual Account is intended to be in the name of the Owner. Account (c) was opened in the name of the defender, but the defender has accepted that, in doing so, it holds its rights in the account as nominee for the Owner. That obviously implies a trust relationship; a nominee necessarily holds in trust. In respect of account (d), clause 9 of the Training Agreement contemplates the setting up of an account "designated by" the pursuer, and the monies paid into that account are monies that are due to the pursuer. The purpose of the account is, therefore, clearly to place such monies under the control of the pursuer. Once again, that implies a nominee relationship, which necessarily involves a trust.
27. Once a trust comes into existence, the relationship between the defender and the pursuer becomes fiduciary in nature. That means that the fiduciary, the defender, cannot place itself in a position where its own interest and its duty to the pursuer as beneficiary may conflict: Aberdeen Railway Co v. Blaikie Brothers, 1854, 1 Macq 461; Huntington Copper and Sulphur Co Limited v. Henderson, 1877 4 R. 294; Regal (Hastings) Limited v. Gulliver, (1942) [1967] 2 AC 134n. In the event of such a conflict, the fiduciary must invariably yield to the instructions of the beneficiary. That is clearly illustrated in a case such as the present where the trustee holds property under a nominee relationship or bare trust; in such a case the beneficiary can invariably call upon the trustee to make over the trust property, subject only to satisfying the trustee's expenses: Miller's Trustees v. Miller, 1890, 18 R. 301; Yuill's Trustees v. Thomson, 1902, 4 F. 815. Because the beneficiary has a right to call for payment or delivery of the trust property, it can direct the trustee to deal with that property in such a way that its right cannot be defeated; that is clearly implicit in the fiduciary relationship. In the present case, accordingly, the pursuer can give such directions to the defender as are necessary to ensure that the trust property, the right to payment of the credit balance in accounts (c) and (d), can be effectively made available for the pursuer's benefit. For that reason I am of opinion that the pursuer has power to ascribe the release of arrestments among the various accounts in whatever way it wants, and the defender as fiduciary is obliged to give effect to such ascription. I am accordingly in agreement with the pursuer's first argument.

2. Defender's obligation to pursuer

28. On this issue, the pursuer's argument is that, under the contractual arrangements entered into by it, any obligation to account is that of Tor Corporate, and not that of the defender. Account (d), however, is set up in terms of the Training Agreement, rather than the Management Agreement. The parties to the Training Agreement are the pursuer and the defender. It follows that, in relation to that account, there must be a direct obligation to account between the defender and the pursuer. Such an obligation is capable of arrestment in the defender's hands.
29. In relation to account (c), the relevant contractual provision is clause 3.7(e) of the Management Agreement. The parties to that agreement are the pursuer and Tor Corporate AS. Clause 3.7(e), however, contemplates that the relevant account will be set up in the name of the pursuer as Owner, whereas account (c) has been opened in the name of the defender. It follows that the parties to the Management Agreement must have innovated upon its terms. The precise way in which this was achieved is probably not relevant; nevertheless, it seems likely that the defender opened the account in question, and the pursuer either authorised it to do so or acquiesced in its doing so. The result, in my opinion, is that the parties must have agreed, expressly or impliedly, that the defender would open the account as nominee for, and consequently in trust for, the pursuer. That necessarily involves a direct fiduciary relationship between the pursuer and the defender. An essential feature of such a relationship is a duty to account on the part of the fiduciary. Once again, therefore, that is an obligation owned by the defender to the pursuer which is capable of arrestment in the defender's hands. I am accordingly of opinion that the pursuer's second argument is not well founded.
30. The authority founded on by the pursuer for this part of the argument, Heron v. Winfields, supra, is in my opinion distinguishable from the present case. In that case an agent for an English company held certain goods on behalf of his principal, and had a lien for commission over those goods. He deposited the goods with a third party, and then purported to arrest them in the hands of that third party to found jurisdiction against his principal. The arrestment was held incompetent because the depositary was under no obligation to deliver the goods to the principal. There was clearly no contractual relationship between the depositary and the principal, because the contract of deposit had been concluded by the agent. The critical point, however, was that the agent had a lien for commission. That meant that the depositary was not under any obligation to hand over the goods to the agent's principal by virtue of the latter's ownership of the goods, because the depositary had as good a right as the depositor to resist any demand by the owner to make over the goods. In the present case, however, there is a trust relationship between the defender and the pursuer. No such relationship was present in Heron. Such a relationship necessarily involves a direct obligation to account by the trustee to the beneficiary, and that obligation can be arrested.

3. Existence of nominee relationship between defender and pursuer

31. The authorities founded on by the pursuer for its third argument were Rigby v. Fletcher, supra, and Lindsay v. LNWR, supra. The principle underlying these cases is in my opinion accurately stated in Graham Stewart on Diligence at 116:

"Where the trust is revocable, and is constituted solely for the purposes of the truster, and amounts merely to a transfer of the management of his estate, he having full power to control and direct trustees or to remove them, the trustees are considered a mere name or shadow and the existence of the trust makes no change in the mode by which the estate is to be attached. In such a case the arrestments should be used in the hands of the trust debtors and not in the hands of the trustees. The latter being a mere shadow or name the arrestee is directly indebted to the truster".

32. In the present case I am of opinion that the trust relationship between the defender and the pursuer is of that nature. Account (c) contains funds that are due to the pursuer as Owner; indeed, in terms of clause 3.7(e), the account should strictly have been in the pursuer's name. The only qualification on the pursuer's absolute right to the funds is the right to use those funds for what are described in clause 3.7(e) as "major repairs and investment/upgrading" as defined in Appendix A. Appendix A makes it clear, however, that such major repairs must be planned and budgeted for, and are to be at the expense of the Owner. It follows that all of the purposes for which the funds in account (c) can be used involve benefit to the pursuer, either by payment of those funds directly to the pursuer or by the application of those funds to meet expenses for which the pursuer is liable. In those circumstances I am of opinion that the trust applicable to account (c) is properly characterised as a bare trust, set up to hold funds to which the pursuer is ultimately absolutely entitled. Thus the pursuer would be entitled to terminate the trust relationship at any time, in accordance with the principle laid down in Miller's Trustees v. Miller, supra, and Yuill's Trustees v. Thomson, supra. That in my opinion amounts to a revocable trust constituted solely for the purposes of the pursuer. The pursuer is the truster in that trust relationship, since the trust arises under a clause in the Management Agreement that is clearly conceived in the pursuer's favour. Thus the principle stated in the last paragraph is applicable, and it is not competent to arrest the defender's liability to account to the pursuer.
33. Account (d) contains funds to which the pursuer is entitled by virtue of clause 9 of the Training Agreement. It is clear that the funds in the account are payable to the pursuer and no one else, and that the account is set up solely as a payment mechanism to facilitate the transfer of such funds. In those circumstances, therefore, there is once again a bare trust in favour of the pursuer. Once again, the trust is clearly conceived in the pursuer's favour, and the pursuer must be regarded as the truster. Consequently arrestment of the defender's liability to account to the pursuer is not competent.
34. I am accordingly of opinion that the pursuer's third argument is correct. In reply to that argument, counsel for the defender submitted that the present case could not be distinguished from the position of a bank, which must pay funds to its customer whenever it is called upon to do so. In my opinion the two cases are distinguishable. A bank owes a debt to its customer. It cannot properly be regarded as holding funds on behalf of its customer; it is rather the outright owner of the funds, and the customer's only right is to payment of the debt owed by the bank. In the case of a trust or nominee relationship, however, the beneficiary's right is not a mere right to payment of a debt, but is rather a right to have the trustee account to him for the trust property. Likewise, the trustee cannot be regarded as the outright owner of the funds held by him; his ownership is qualified by the trust relationship. Thus the rights of the beneficiary of a trust, including the beneficiary of a nominee relationship, are very different from those of a customer of a bank. In the case of a bare trust, the trustee can be regarded as "a mere shadow or name", because his duty is to hold the assets for the beneficiary and subject to the beneficiary's directions. A bank, on the other hand, exercises its own rights in its own interest.
35. The remaining question relates to the security totalling US $ 3.7 million that must be provided to maintain the level of security contemplated by Lord Hamilton's interlocutor of 27th July 2000. The pursuer has indicated that it requires the release of the arrestment to be ascribed to accounts (c) and (d). I have held that it is entitled to ascribe the release of the arrestment in this way. The result must be that the arrestment remains effective against a corresponding sum at credit of account (b). The pursuer has further conceded that the arrestment effected by Tor Corporate will be effective against the funds transferred into the account set up pursuant to Lord Hamilton's interlocutor of 31st January 2002 to replace account (b). The result of that will be that Tor Corporate's arrestment remains effective for the full amount of US $3.7 million. Thus the need for that security is not a barrier to the Court's pronouncing summary decree in terms of the third conclusion of the summons in respect of accounts (c) and (d).
36. In the foregoing circumstances, I am of opinion that there is no defence to the pursuer's claim for transfer of the funds at credit of accounts (c) and (d) in the manner described in the third conclusion of the summons. I will accordingly pronounce summary decree in those terms.