The court concluded that the hundred thousand dollar deposit was returnable to the plaintiff on a resulting trust when the financing company released the letter of credit. As can be seen, the Quistclose trust, in the event of disputes, may be an additional and powerful avenue to recover monies advanced. The question was whether Barclays was entitled to do this, which in turn depended upon whether these were trust monies. Where it is established, the funds given by A to B must be used to pay C. Goff said Beneficiary principle from Endacott only applied to T involving abstract purposes, but confuses factual and legal benefit. In the event that the debtor uses the money for any other purpose, it is held on T for the creditor. Parker and Mellows: The Modern Law of Trusts 8th ed.
Recent cases have suggested the answer may be no. A Quistclose trust only arises where there is an express or implied agreement between the parties that the money is to be kept separate from the recipients other funds. However, circumstances may arise resulting in trust obligations between the parties and not mere debt. In a case of this kind the essential question for the insolvency administrator is whether under principles of trust law see below the company holds funds subject to a trust; or whether those funds form part of the general assets of the company so as to be available for normal insolvency processes, usually for the benefit of unsecured creditors. The second is that use of the monies advanced must be contractually restricted and ideally deposited in a separate and special account not mixed with general funds. Subsequently, Rolls Razor filed for bankruptcy and went into liquidation. This question was answered by the Court of Appeal in Challinor.
When the subscribers donate money to fight the proposed new road, they intend that the councillor will hold the money on a purpose trust, under which he will be required to use the money for fighting the road proposal. Suggestions have been made to the effect that the general law in relation to powers would apply such that if the purpose is sufficiently well defined to be a power, a Quistclose trust may arise , but others have argued that to take tests from one branch of the law and apply it to another may not be appropriate. It is suggested that the real question in such cases is whether, as a matter of contractual interpretation, the parties intended their bargain to include a fiduciary element. Only the first question is relevant for present purposes. The Court opted instead to restrict itself to a strict technical interpretation which would see the protection of third party creditors over government grantors.
In the event, the deal did not proceed. The Origins of the Quistclose Trust The trust derives its name from the case of. However, and depending on the terms of the loan, there may be room for a claim in tort for procuring a breach of contract. What about the Quistclose trust argument? However, Quistclose trusts have also been held to exist in cases where the initiative for setting aside the fund for a particular purpose has come from the donee, B. Considering that the use of a Quistclose trust is a construct of equity, and that legal and equitable rights can co-exist concurrently, it was open to the Court to look past the technical expression of the grant being a debt.
Barclay and Twinsectra clearly dealt with agreements which were loans giving rise to debts. The borrower may already have spent the money, or already be insolvent and the subject of claims by creditors. He points out that in Barclays Bank v Quistclose Investments Ltd itself there was no real evidence that A and B intended that the money lent by A to B should be held on trust for A. The presumption may be rebutted, or partially rebutted, by proof of some other intention at the time of the transfer, such as a clear intention to make a gift of the property and instead of the expectation of having any interest in the property. Its decision in this case serves more as a warning to those drafting agreements in the future than as a guide to parties trying to anticipate whether funds are impressed with an equitable trust. Quistclose claimed that the moneys had to be returned to them, as the purpose for which they had been lent had now failed and were incapable of being fulfilled as Rolls Razor was now in liquidation. His subjective intentions are, as Lord Millett said, irrelevant.
It is a powerful anti-insolvency legal mechanism that provides quasi-security over a loan advanced for a specific purpose yet few businesses know enough to take advantage of it. Some protection and a very powerful one at that — even if it lacks certainty — is better than none at all. This meant that, despite being transferred, the trust property was still held by the lender and could be retained since the whole of the beneficial interest had not been transferred. The Partnership applied to the Northern Training Partnership Fund, recently established by the respondent Ministry to support project-based skills training for northern Ontario residents, for a grant to provide skills training for Aboriginal and non-Aboriginal residents of northern Ontario in its two proposed plants. The Law of Trusts Oxford: 2004 , §§ 25. Should the purpose of the trust fail, that is C no longer requires the funds are they no longer required for their original purpose by C, B may not make use of the funds for any other purpose, and the funds was then be returned to a on a resulting trust. Its decision in this case serves more as a warning to those drafting agreements in the future than as a guide to parties trying to anticipate whether funds are impressed with an equitable trust.
There has been much academic debate over the classification of Quistclose trusts in existing trusts law: whether they are , , or, as said in , illusory trusts. The Quistclose Trust Basic principle: Where A pays money to B for a specified purpose such as the payment of B's debts to a third party, C , the money does not become part of the general property of B, but is clothed with a primary trust, to be used for that purpose and no other. When A lends B the money, he intends that B should hold that money on a purpose trust, to apply the money for the purpose for which A lent it to B. The House of Lords with the leading judgment being given by Lord Wilberforce unanimously held that the money was held by Rolls Razor on trust for the payment of the dividends; that purpose having failed, the money was held on trust for Quistclose. What does the decision mean for you? He stated that the Quistclose trust was an orthodox example of a resulting trust.
Here, Twinsectra Ltd lent money to a solicitor, Sims, on behalf of an entrepreneur, Yardley, who had made arrangements to borrow the money. This approach was subject to criticism by Lord Millett in Twinsectra who maintained that the loan in Quistclose was for a purpose: to ensure the provision of dividends. Oxford: 2009 , §§ 10. The idea of a primary and secondary trust comes from Toovey v Milne, where money was lent by A to B, to pay off his debts. In order to be established as such a trust, the intention must include that should the object of the trust fail, that the funds would return to A. Law of Trusts 6th ed. Given further force by Lord Millett in Twinsectra.
This purpose trust — not being charitable in nature — is invalid. The money remains the property of the lender unless and until it is applied in accordance with his directions, and insofar as it is not applied it must be returned to him. The map shows the line running straight through a thriving neighbourhood. I do not really see why such a gift, which specifies a purpose which is within the powers of the association and of which the members of the association are the Bs, should fail. How have the courts interpreted Quistclose trusts since then? The judgment The Full Court agreed with the Deputy Commissioner that there had been no transfer of property by Ms Alex. This has great advantages in the context of lending: where a lender successfully establishes a Quistclose trust, they will acquire a proprietary interest in the property that elevates an otherwise unsecured debt to one with priority over other creditors.
Instead, the trust arises because when A transferred the money to B he intended that it be held on a purpose trust that was invalid because non-charitable and it is the invalidity of that trust that gives rise to the resulting trust. Quistclose trusts have variously been considered resulting, express or constructive in nature. The fact that the funds were kept separately is legally significant. If for any reason the purpose cannot be carried out, for example, the company proceeds into an insolvency administration, it is intended that the monies are to be returned to the lender. Yardley; Facts: Money was loaned to buy land. Quistclose Investments disputed this, arguing that their agreement with Rolls Razor meant that the money was held on trust.