• In the case of Foskett v Mckeown 2001 1 ac 102, it was held, concerning proprietary rights, that the purchasers had a proprietary right to receive a proportion of the policy fund.

Facts of the Case

  • McKeown (M) controlled a company that obtained money from several prospective purchasers to acquired and develop land in the Algarve in Portugal.
  • Although the land was purchased, the development did not commence, and the funds were found to have been dissipated.
  • In the meantime, M had insured his life for £1 million and subsequently committed suicide.
  •  F and 219 other investors in the Portuguese land development discovered that M had used GBP 20,440 of their investment monies to pay 40 per cent of the insurance premiums on his life policy and claimed a proportionate share of the policy’s proceeds.
  • F appealed against a decision that the purchasers were entitled only to the refund of the premiums together with interest. 
  • The beneficiaries, M’s children, cross appealed claiming that the insurance policy would have paid out the whole sum as a result of the first two premiums that M had paid from his own resources and therefore the disputed premium payments had not affected the insurance policy, and the purchasers had already been recompensed by obtaining the land, shares in the company, and a settlement of GBP 600,000 from the bank from which the moneys had been dissipated.

Issues in Foskett v Mckeown 2001 1 ac 102

  • Can the investors prove they are entitled to trace their funds into the insurance payout sum.

Held by House of Lords

  • Appeal allowed, cross appeal dismissed.

Lord Millett

  • Held that the purchasers had a proprietary right to receive 40% of the policy fund.
  • The equitable interest of the purchasers was directly traceable into the policy moneys and the court had no discretion in this matter.
  • No question of constructive or resulting trust, nor fairness and reasonableness, just the straightforward enforcement of property rights.
  • “In my opinion the correct method of apportioning the sum assured between the parties is to deal separately with its two components. The investment element (which amounted to £39,347 at the date of death in the present case) should be divided between the parties by reference to the value at maturity of the units allocated in respect of each premium and not cancelled. The balance of the sum assured should be divided between the parties rateably in the proportions in which they contributed to the internal premiums. This is not to treat the allocated units as a real investment separate from the life cover when it was not. Nor is it to treat the method by which the benefits payable under the policy is calculated as determinative or even relevant. It is to recognise the true nature of the policy, and to give effect to the fact that the sum assured had two components, to one of which the parties made their contributions in units and to the other of which they made their contributions in the sterling proceeds of realised units.” [calculating the claimants share]

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