Re Kayford Ltd [1975] 1 WLR 279 is a significant case on certainty of intention and the use of trusts to protect funds in a commercial insolvency setting.

Facts of the Case

A mail-order company, realising it was in financial difficulty, sought advice on protecting pre-payments made by customers for undelivered goods. On its accountants’ advice, the directors opened a separate bank account to ring-fence the deposits. They instructed the bank to call it the “Customer Trust Deposit Account”, though the bank credited the funds to a separate account lacking “Trust” or “Customer” in its title. When the company entered liquidation, the court had to decide whether these funds were held on trust for the customers or formed part of the general assets available to creditors.

The Decision

Megarry J held that a valid express trust had been created over the money:

  • Certainty of intention from conduct: the word “trust” need not be used to create one. Intention was inferred from the company’s conduct — paying the money into a separate account on professional advice to keep it the beneficial property of the customers.
  • Certainty of subject matter: the trust property was certain because the customers’ money was physically segregated into a distinct account.
  • Insolvency policy: the arrangement was not an unlawful preference. The trust did not “prefer” existing creditors; it prevented the customers from becoming creditors at all by ensuring they retained their equitable interest.

Authority and Legal Significance

Re Kayford is a leading authority on establishing certainty of intention.

  • Consumer protection: Megarry J distinguished trade creditors, generally aware of insolvency risks, from “commercially naïve” consumers whom equity is more inclined to protect.
  • Commercial precedent: a company can unilaterally declare a trust over customer pre-payments through its actions, provided there is clear evidence of an intention to keep the funds separate.
  • Contrast with other cases: frequently contrasted with Re London Wine and Re Goldcorp Exchange, where purported trusts failed because the assets were not segregated from general stock.