Quistclose Trusts Flashcards
How did Lord Millett in Twinsectra define the trust structure in Quistclose situations?
Rejected the notion in the Quistclose case that there are 2 trusts. There is one trust the whole time—a resulting trust that arises when money is advanced for a specific purpose. If the purpose is fulfilled, the trust ends.
Why did the court in Prickly Bay reject the existence of a Quistclose trust?
No intention to create a trust
Purpose was too broad/commercial
No segregation of funds
The transaction resembled a commercial investment, not a restricted loan
What were Lady Arden’s concerns in Prickly Bay?
Confusion between mutual intentions and transactional form
Unclear categorisation of Quistclose trusts
Lack of a clear policy justification
What did the court clarify about intention in China Life?
Intention for a Quistclose trust can be objectively inferred — no need for the transferor to retain beneficial interest if the funds were to be used exclusively for a specific purpose.
What are the key conditions for a Quistclose trust per China Life?
A pays B money
A intends the money for a specific purpose
B accepts or acquiesces in that purpose
Funds are not for B’s free disposal
If purpose fails, money results back to A
What are W. Swadling’s criticisms of Quistclose trust categorisation?
If lender is beneficiary → resulting trust, not a purpose trust
Identifying third-party creditors as beneficiaries raises certainty issues
Non-charitable purpose trusts with no clear beneficiary are generally invalid
What factors in Cooper v PRG Powerhouse initially suggested no trust?
Standard commercial debtor-creditor structure
No express trust declaration
No fund segregation
No control retained by payer
Why did Evans-Lombe J still find a trust in Cooper v PRG Powerhouse?
Money was for a specific purpose (settling a car debt)
Parties’ intention to use funds only for that purpose
Preventing unjust enrichment
Equity looks to substance over form
What were the key facts in Prickly Bay?
BAICO paid money to Prickly Bay for rights in a Grenada property project. The funds weren’t segregated and were treated as general business assets. BAICO later claimed a Quistclose trust, but the court found no mutual intention to create a trust and saw the arrangement as a commercial investment.
What were the key facts in China Life?
China Life transferred funds within a group company structure with the clear understanding that they be used only for a specific purpose. The court found this intention sufficient to establish a Quistclose trust, even without the payer retaining a beneficial interest.
What is a key criticism of prioritising repayment via Quistclose trusts over the insolvency regime?
It can unfairly elevate one creditor above others by allowing them to reclaim funds through a trust, bypassing the standard insolvency process and undermining the principle of pari passu distribution among unsecured creditors.
