Background
Cronus Finance Limited received £6,370,878 under transaction documents with MFS (Market Financial Solutions Ltd) to fund mortgage loan origination. Sriharans Solicitors received the funds in their client account and held them on Quistclose trust—meaning if the mortgage origination failed, the funds were to be returned. When the transactions did not proceed, the funds should have been returned to Cronus. Instead, on 23 December 2025, Sriharans paid them directly to MFS’s bridging bank account in breach of trust.
The same day, MFS made onward payments totalling £9,070,220 to 15 defendants comprising 12 individuals and entities. The defendants claimed these were repayments of loans they had made to MFS and investments with MFS, paid without notice of the trust. Cronus and its Security Agent, Ocorian Trustee (UK) Limited, sought an interim proprietary injunction to preserve the funds pending trial, alleging they were traceable proceeds of the Cronus Funds.
The underlying facts were not disputed. MFS had been placed in administration on 25 February 2026, and administrators discovered evidence of massive fraud with a £1.3 billion shortfall in MFS’s accounts. The question for the court was whether the defendants could successfully rely on the defence of bona fide purchaser for value without notice.
The Court’s Holding
The court dismissed the injunction against most defendants (D1, D2, D9, D10, D13, D15), holding that the claimants had failed to establish a serious issue to be tried. The central issue turned on the timing of notice under the bona fide purchaser doctrine and whether the defendants had given value through acceptance of payment.
The court clarified that the critical time for determining whether a purchaser has notice of a trust is when valuable consideration is given or legal title passes, whichever is later—not when money is originally received subject to a trust. Where no contractual right to repayment existed, the defendants who accepted full payment of principal and interest gave up their right to sue for the debt (recognized as valuable consideration under Taylor v Blakelock). By retaining the payments without protest over 3.5 months before notice of the injunction, the defendants satisfied the requirement for “accord and satisfaction,” treating the repayment as accepted. The Quistclose trust did not freeze the position at the moment of receipt; once the defendants gave value and obtained no notice of the trust, they acquired the funds free of the trust.
One exception: the court continued the interim injunction against the Third Defendant (Rihan Dewan), Mr Raja’s stepson, because his close relationship to the MFS director raised unresolved issues about notice that must be determined at trial. The balance of convenience also favored continuation against him given the nature of the remedy and the claimants’ cross-undertaking in damages.
Key Takeaways
- The bona fide purchaser defence is determined by the timing of notice relative to when valuable consideration is given, not when the money was first received subject to a trust.
- Acceptance of full payment through retention without objection amounts to accord and satisfaction, extinguishing the creditor’s right to sue and providing valuable consideration for bona fide purchaser status.
- Quistclose trusts do not prevent recipients from acquiring funds free of the trust if they give value and lack notice before accepting the payment.
- A close relationship between a defendant and the source of the funds (the wrongdoer) raises genuine questions about notice that may defeat bona fide purchaser status.
Why It Matters
This decision significantly narrows the reach of proprietary remedies in trust breach cases. By holding that notice is the critical factor and that it is determined at the time valuable consideration is given (not when money is received on trust), the court has clarified that innocent recipients of trust money can acquire it free of the trust even if the original transfer was a breach. This reflects a balance between protecting beneficiaries’ interests and protecting the legitimate expectations of innocent parties who act on reasonable commercial assumptions—particularly where full payment is made and accepted without dispute over substantial periods.
The judgment also underscores the importance of promptly notifying potential recipients of trust claims. A 3.5-month delay between the receipt of funds and service of an injunction worked against the claimants. For practitioners, the case illustrates that tracing claims, even where facts are undisputed, can be defeated by the bona fide purchaser defence if recipients can show they gave value without notice—and that acceptance of payment through inaction may constitute that value.