Re Nanwa Gold Mines Ltd

The case came before Harman J. He summed up the issue concisely:

The point is a short one: Is the relationship of the subscriber and the company that of creditor and debtor, or has the subscriber a lien on this fund or an equity against it so as to be able to attach it for the payment of his debt without allowing other creditors of the company to share with him?

The judge admitted this was a novel point, and that there seemed to be no authority directly in point. He also admitted, frankly, that "it occurred to [him] quite early in the argument that if the persons who sent their money on the faith of this document had no lien on the separate account there was something very wrong with the law on this subject."

He then discussed the paucity of authorities directly on point, and reviewed certain academic commentary which he pronounced to be unhelpful. He further reviewed section 51(3) of the Companies Act 1948 which imposes an obligation on companies to maintain subscriber funds in a separate account (as the company had done here).

Then, without being explicit as to whether he was holding that the subscribers had a lien or the benefit of a trust, he held that they would be entitled to return of the subscription monies. The paragraphs which precede that determination refer only to the possibility of a trust and do not mention the word lien, and so the inference taken by subsequent authorities is that the ruling was in favour of a trust. But some academics prefer the view that the judgment held an equitable charge arose.^[4]

In the judgment Harman J noted the conceptual difficulties with holding that a trust existed, and these issues would also cause varying degrees of consternation in other cases involving Quistclose trusts. It is noteworthy that the case of Toovey v Milne (1819) 2 B&A 683, which was heavily relied upon by Lord Wilberforce in Quistclose itself, was not cited in argument to Harman J.

Despite being a short ex tempore first instance decision, Re Nanwa Gold Mines has never seriously been doubted.^[2] The case was commented upon briefly in Barclays Bank v Quistclose Investments where Lord Wilberforce said: "I do not think it necessary to examine these cases in detail, nor to comment on them, for I am satisfied that they do not affect the principle on which this appeal should be decided. They are merely examples which show that, in the absence of some special arrangement creating a trust (as was shown to exist in Re Nanwa Gold Mines Ltd.), payments of this kind are made upon the basis that they are to be included in the company's assets."

The case was also cited with approval in Swiss Bank Corporation v Lloyds Bank Limited [1982] AC 584,^[5] in Re Kayford Ltd [1975] 1 WLR 279 and in Bellis v Challinor [2015] EWCA Civ 59.^[6]