Five years before he died, Mr Murphy effected a unit-linked life insurance policy. In breach of trust he used the purchasers’ money to pay the fourth and fifth annual premiums on the policy. At about the same time he made a deed of appointment which settled the policy and all monies payable under it on trust for his mother and children. When Mr Murphy died the insurers paid the proceeds to the trustees of the settlement.

The dispute was between the purchasers under the trust and the children under the settlement.2 On the assumption that two out of the five premium payments derived from misapplied trust money, the purchasers claimed a 40% beneficial share in the insurance proceeds. These were worth in total over £1 million. The children’s main counter-argument was that the purchasers were at best entitled to a lien on the proceeds of the policy for the amount of their money that had been paid as premiums. This would have yielded them a charge worth only £20,440.

The Court of Appeal had confined the purchasers to the lien.3 By a majority of three to two the House of Lords disagreed.4 Lord Millett delivered the leading speech. The majority held that the purchasers had an unrestricted election to assert either a lien or a beneficial share in the proceeds of the policy proportionate to their contributions to the premium payments. The court would not prevent them from claiming whichever remedy was more advantageous. It was no objection that the purchasers took a windfall out of all proportion to their loss. It was justifiably theirs “because of the rights which [they enjoyed] under the law of property”.5

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