A concise, accurate and detailed essay plan describing the enigma of Quistclose Trusts, how and why they are enforced, and whether they should exist at all. A critical comparison of the alternatives. Analysed and criticised using established and heavy-weight academics to support the argument. Achie...
Critically discuss whether the Quistclose trust should be regarded as a species of resulting trust.
‘There is no single theory which adequately explains why equity recognises and enforces Quistclose
trusts’. Critically discuss.
1. Introduction
A QT arises where a creditor lends money to a borrower for a specific purpose and if the borrower
fails to use the money for that purpose, then the money is held on trust for the lender
Established by Lord Wilberforce in Barclays Bank v Quistclose
o Described by Chan as a ‘peculiar creature’ & has not yet been reconciled with established
trust principles
LW’s failure to categorise QTs within established trust models has led academics and judges to
speculate whether Quistclose arrangements can be viewed as express, resulting, or constructive
trusts.
This essay analyses these theories and argues that none of them adequately explain how and why
QTs are enforced.
2. BB v Quistclose
Quistclose:
o The lender, Quistclose, lent money to the borrower, Rolls Razor, for the specified purpose of
paying dividends to its preferred shareholders. The borrower became insolvent before they
could use the money for this purpose and instead used the money for their overdraft with
Barclays Bank.
o Quistclose sought to supersede the borrower’s other creditors by establishing an equitable
proprietary interest in the loan money, arguing that it was held on trust for them.
o Lord Wilberforce held that the money was held on trust for Quistclose
Wilberforce justified his decision using a “dual trust” model, unique to this area of the law:
o A primary trust arose when title passed away from the lender to the borrower for use for
the specified purpose
o Upon breach of this trust, a secondary trust arose in favour of the lender
Although this model seems straightforward, it is difficult to reconcile with established trust
principles & has been extensively criticised
o As highlighted by A Hudson, “the judgment is open and vague as to conceptual detail”
The question of how QTs can be categorised requires analysis of the different theories.
3. QT as an express trust?
Wilberforce was silent as to whether the primary trust was express, but academic consensus
generally regards that he viewed it as an EPT (E Hudson)
o Gummow J: LW’s reasoning was ‘indicative of an express trust with two limbs’
Swadling identifies jurisprudential difficulties with this; mainly that, if seen as an express trust, it
should fail because of uncertainty of intention
Argues that at no point do the parties in a QT intend to create a trust; they are merely establishing
a loan contract
o Whilst the express trust model offers the best protection for the lender as it does not rely
on the borrower’s breach, to assume they intend to create a trust would be ‘economically
outrageous’
Hudson agrees and argues a further problem with the ‘disturbing gap’ between LW’s primary and
secondary trusts is that at several points, the location of the beneficial interest is uncertain
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