Barclays Bank v Quistclose

Barclays Bank v Quistclose [ 1970 ] AC567

Introduction

The undermentioned essay will analyze the instance ofBarclays bank V Quistclose[ 1 ] ( hereafter Quistclose ) . The instance of Barclays Bank Ltd v Quistclose Investments Ltd explained certain legal affairs that arise when a loaner lends money to a concern for a specific intent, but the company becomes bankrupt before they are able to refund the loan. When the company goes into insolvency a trust is implied on the money on the footing that the money can merely be used for the loaner and non for the belly-up individual.

The facts of the instance cast a uncertainty over certain countries of trust jurisprudence. Questions were raised asking about the nature and position of the trust. All Judgess do non hold the same sentiments on Quistclose trusts. It was viewed from a banking jurisprudence position because of farther instances. Furthermore it enabled Judgess to giver fairer opinions in instances associating to insolvency. [ 2 ]

The Quistclose trust merely allows the borrower to utilize the loan money for a “specific purpose” , the proviso is known as a trust because the borrower retains the legal rubric in the money borrowed but the just involvement remains with the loaner [ 3 ] . Furthermore Quistclose trusts have a important resemblance to Romalpa clauses.

Therefore instance survey will place the intent of Quistclose trusts and whom it may profit. Besides it will seek to place the proof of Quistclose trusts as there is a similar jurisprudence in topographic point already in the signifier of Romalpa clauses.

Facts

In July 1964 Quistclose had lent money to Rolls Razor ( afterlife RR ) a company who were already in great fiscal troubles at the clip. To run into a dividend payment of ?209,000 to its stockholders they had to borrow the money, upon having the sum, RR instructed Barclays Bank to set the money into a separate history with the status on the loan that the money should merely be used to pay dividend payments. RR went into insolvency before they payment was made ; furthermore they had exceeded their overdraft bound of ?250,000 with the bank. Barclays Bank argued that the money RR had borrowed from Quistclose should be used to pay off the overdraft. On the other manus Quistclose argued that the loan was held on trust for them as the money had non been used for the specific intent set out in the status. The House of Lords held that the money was held on trust for Quistclose as the loan which was granted had non been used to pay for the dividends ; hence Quistclose maintained the just involvement. The House of Lords ruled that the money can non be used to pay of unbarred creditors, who in this instance were Barclays Bank [ 4 ] .

Toovey V Milne[ 5 ]

The instance ofToovey V Milnewhich dates back to the twelvemonth 1819 had already addressed an issue refering bankruptcy and this kind of trust. [ 6 ] In this instance the insolvent had borrowed ?120 from his brother in jurisprudence to pay off creditors. However before he could refund all of his creditors he became bankrupt. He had paid of ?95 to some of his creditors. The suspect so sought to repossess the staying ?95. The counter statement was that the refund could non be protected. The taking justice Abbott CJ rejected the claim saying

“… The just intervention from the facts proved was that this money was advanced for a particular intent, and that being so clothed with a specific trust, no belongings in it passed to the assignee of the insolvent. Then the intent holding failed, there is an implied judicial admission, that the money shall be repaid. That has been done in the present instance ; and I am of the sentiment that the refund was lawful … [ 7 ] ”

This instance is really similar to the Quistclose as in both instances the cardinal point was that the insolvent companies had non carried out the specific intent of the loans. Conversely in both instances there was no express judicial admission that the insolvent was to refund the money unless the specific intent is carried out.

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However there becomes an implied status when the particular intent has non been carried out. Lord Wilberforce used this thought in his opinion for Quistclose ; nevertheless this opinion has created confusion and unfavorable judgment from attorneies. The division between the positions of faculty members is ill-famed [ 8 ] . It is a certain country of jurisprudence that splits sentiment.

Purpose

The first point of unfavorable judgment to see is the purpose of the parties involved. In his address Lord Wilberforce raised a point on the affair of purpose:

“The common purpose of the respondents and of Rolls Razor Ltd. , and the kernel of the deal, was that the amount advanced should non go portion of the assets of Rolls Razor Ltd. , but should be used entirely for payment of a peculiar category of its creditors, viz. those entitled to the dividend.”

Furthermore he stated that if for any ground the dividend could non be paid, so the money should be returned to the respondents” [ 9 ]

This quotation mark highlights the importance of purpose when analyzing Quistclose trusts.

This was reaffirmed in the instance ofRe Multi Guarantee[ 10 ] [ 11 ] where it was held that the colonist must hold purpose to make a trust. In this instance no “permanent intention” had of all time reached. [ 12 ] The instance ofRe Kayford[ 13 ] considered the job of purpose to make a trust [ 14 ] . It was held that the gap of a separate bank history for money deposited by clients was plenty to demo there was purpose. Lord Millet in his analysis besides suggests that the difference between and traditional cubic decimeter loan construction and a trust construction must depend upon the parties intention” [ 15 ] nevertheless Hudson disagrees with this point and believes “due respect must be given to substance every bit good as form” , it argues at what point of clip is the trust made. If the primary trust fails, so there is a clip spread between primary and secondary, it asks where the good involvement lays at this point. [ 16 ] .

In Quistclose there was no express purpose between the parties, as to ; if the specific intent failed the money should be repaid back to Quistclose ; this consequently inquiries where the parties purposes came from.

Nature of the trust – when is it a trust and non a bank contract

The first unfavorable judgment that arises in relation to Quistclose trusts is ; whom is the trust created for. The statement from Barclays prohibition was that there was a loan contract between Quistclose and RR and that contracts for Bankss do non make a trust [ 17 ] . The instance of Foley V Hill besides states that one time money is deposited into a bank, the bank becomes the proprietor of the money and you become a creditor [ 18 ] . Lord Wilberforce said there would be a trust where the contract contained a specific intent for which the money should be used for, this was backed up by the old instance of Re Rogers. [ 19 ] This was the instance in Quistclose so it is a trust.

For who is a trust created for and what type of trust is created

The following factor of uncertainness in Quistclose trusts is finding what nature of trust a Quistclose trust signifiers. Lord Wilberforce introduced the dual-trust construction in his statement. This construction suggests that ab initio a party other than the loaner or borrower has the good involvement, but when the specific intent of the trust is non carried out, the secondary trust comes into consequence and the loaner so holds the good involvement. [ 20 ] This two-tier standard has created confusion and it has become difficult to measure which trust has arisen. The first trust to analyze is express trust ; this is created when it is clearly stated on a written papers, it is created when the colonist declares the specific intent of the trust and who the donees of the trust are. Following are ensuing trusts, ensuing trusts are created by the tribunal and in instances where they can non be fulfilled ; they revert back to the colonist. Third constructive trusts are created by the tribunals to profit a party that has been wrongfully denied off its rights.

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In the instance of Quistclose, the dual-trust construction was applied, ab initio there was a primary trust, and this was the loan that was paid to pay off the dividends. The following limb was the secondary trust ; it had reverted back to its colonist. There is a difference of sentiment on the secondary trust that arises:

Kelry loi in his diary provinces that

“If the contract unambiguously indicates an effort to make a trust in substance, the agreement

may even be decently classified as an express trust” [ 21 ]

This is of import as unlike ensuing trusts express trust requires the purpose to happen a positive donee. This helps the loaner avoid the parri passu regulation which is translated as “ranked equally” or “have an equal footing.” This regulations states when a concern becomes insolvent all the creditors must be treated every bit. However Quistclose gives creditors a higher signifier of security. [ 22 ]

on the other manus, Robert Chamberss argues that Quistclose trusts are non trusts at all but instead the borrower receives good ownership of the financess capable merely to a contractual right from the loaner that when enforced will forestall the loan being used for anything other than the specified intent. [ 23 ] Then there is Jamie Glister who argues that before sorting the trust, an analysis has to be carried out on the understanding between the parties [ 24 ] . This emphasises the earlier point I had made on faculty members holding a disconnected sentiment on this country of jurisprudence.

After the instance of Quistclose, farther instances arose that required the analysis of Quistclose trusts. InRe Northern Developments Holdings ltd[ 25 ] money was paid into a separate history for the express intent of

“ Supplying money for the subordinate ‘s unbarred creditors over the ensuing hebdomads ” and for no other intent. The Bankss ‘ object was to enable the subordinate to go on trading”

Sir Robert Megarry V-C held that the primary trust was a purpose trial and was enforceable [ 26 ] . Lord Millet agreed with the determination but non with the logical thinking, he argued that normally under a Quistclose primary trust the donee is the loaner. But communications of the agreement to the creditors from Northern Developments was a characteristic that made this instance different from others ; in his position.

The following account of the nature of trusts is that Quistclose trusts could be seen as a constructive trust. This rule was stated in the instance ofCarreras Rothmans ltd 5 Freeman Mathews Treasure Ltd[ 27 ] Peter J Gibson stated:

“ … equity fastens of thescruplesof the individual who receives from another belongings transferred for a particular

intent merely and non hence for the recipient’s ain purposes.” [ 28 ]

The word “conscience” immediately associates itself to a constructive trial. However Hudson states that the some academic observers may non give importance to the look as the opinion was given instantly at the terminal of the test, where as it is more usual to

“to retire to reflect on the opinion at the terminal of a complex trial” [ 29 ]

However Lord Brown-Wilkinson besides considered the factor of a constructive trust in the instance ofWestdeutsche Landesbank v Islington LBC[ 30 ] . He stated that the tribunals will see a trust to be constructive where the behavior of the borrower is conscienceless. He believed that a resulting trust would be unjust and a constructive trust should be the manner frontward. [ 31 ] This position nevertheless contradicts with Quistclose, Quistclose is when a trust fails and does non depend on the conscienceless behavior of the follower. Hudson besides argues with this attack as it believes that it will give the feeling that the trust is created on the conscienceless behavior of the borrower. [ 32 ] The two different sentiments show the old account of a Quistclose trust by Peter Gibson J was unsuccessful.

Lord Millet [ 33 ] nevertheless believed that Quistclose trusts are structured to be an “illusory trust” . [ 34 ] In the instance ofTwinsectra V Yardley[ 35 ] the specific intent was non carried out in full consequence, [ 36 ] some of the money was used for other intents. A Quistclose trust was formed when it was settled that the money would be used for a “specific purpose” . His Lordship stated that a trust had been created after the failure of the primary trust. His Lordship stated:

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“Insofar as the transportation does non wash up the full good involvement, the ensuing trust is a default trust which fills the spread and leaves no room for any portion to be in suspense. An analysis of theQuistclosetrust as a resulting trust for the transferor with a authorization to the transferee to use the money for the stated intentsits comfortably with Dr Chambers ‘ thesis, and it might be thought surprising that he does non follow it.”

This attack suggests ensuing trusts arise when primary trusts fail. The tribunals will seek to connote a trust when the primary trust fails. Michael Smolyanski stated that Quistclose applications need to be more narrow hence construing them as constructive trusts [ 37 ] [ 38 ] .

Romalpa Clauses and Quistclose trusts

Although the two may non be indistinguishable, there is a singular resemblance between the two. Hudson explains that in common jurisprudence they are so similar that the legal rubric is able to retain the rights in belongings [ 39 ] . But the cardinal difference is that in Romalpa the absolute rubric remains, whereas in Quistclose it is the just rubric that remains.

Beneficiary Principle

The last point of consideration is the beneficiary rule. The intent of the rule is that for a trust to be valid there must be a beneficiary in favor of the trust for the trust to be valid. [ 40 ] The instance ofMorice V Bishop of Durham[ 41 ] added that every trust must hold a definite obje Nutmeg State. In Quistclose the stockholders were the initial donees but as the specific intent had failed, the amount was returned to the loaners as a resulting trust. This demonstrates the fact that the Quistclose trust has non followed the opinion of the beneficiary rule. This raises a inquiry on the cogency of the Quistclose trust.

Decision

It can be concluded that Quistclose supply a peculiar signifier of security for loaners and put borrowers to a little disadvantage in a commercial scene. It is highly difficult to depict the exact nature of the Quistclose trust. However the range of Quistclose trust has been tested, as the jurisprudence has been systematically looked for developments to seek and place a sensible definition of the trust. It could be suggested that the jurisprudence needs a reform though as it merely acts when the specific intent is non carried out. Besides the facet of purpose demands to be given more importance, this has non been the instance in the yesteryear.

Bibliography

Cases

  • Aluminium Industrie Vassen BV V Romalpa Aluminium Ltd ( 1976 ) 1 WLR 676
  • Barclays Bank V Quistclose ( 1970 ) AC 567
  • Carreras Rothmans Ltd V Freeman Matthews Treasure Ltd [ 1985 ] Ch 207, 223
  • Morice v. Bishop of Durham ( 1804 ) 9 Ves. 399
  • Re Denley’s Trust Deed [ 1969 ] 1 Ch 373
  • Re Multi Guarantee Co [ 1987 ] BCLC 257
  • Re Northern Developments Holdings Ltd ( unreported ) 6 October 1978
  • Re Kayford [ 1975 ] 1 WLR 279
  • Toovey V Milne ( 1819 ) 2.B. & A ; Ald. 683.
  • Twinsectra V Yardley [ 2002 ] 2 AC 164
  • Westdeutsche Landesbank Girpcentrale v Islington Borough Council [ 1996 ] AC 669

Diaries

  • * Glister, J. A. ‘the nature of Quistclose trusts: categorization and reconciliation.’ Cambridge jurisprudence diary. ( 2004 ) 63 ( 3 ) . pp. 632-655.
  • * Smolyansky M, ‘Reining in the Quistclose Trust: a Response to Twinsectra V Yardley’ , ( 2010 ) 16 ( 7 ) Trusts & A ; Trustees 558–568
  • * Millett P, ‘the Quistclose Trust: Who Can Enforce It? ’ ( 1985 ) 101 LQR 269
  • * Chambers R, Resulting Trusts ( Oxford 1997 ) , ch. 3.
  • * Parmer D, The uncertainness environing the Quistclose trust: Part 1. Int. C.R. 2012, 9 ( 2 ) , 137-144.
  • * Thomas G, Hudson AS. The Law of Trusts.Oxford University Press ( Oxford ) ( 2004 )

Books

  • hypertext transfer protocol: //www.ucl.ac.uk/laws/commercial/docs/ICR_Uncertainty_Quistclose1.pdf
  • J. .Duddington,Law Express ; Equity and Trust, ( 3rdEDN OUP )

Web sites

  • hypertext transfer protocol: //www.trustees.org.uk/review-index/Trustees-Twinsectra-v-Yardley.php
  • hypertext transfer protocol: //definitions.uslegal.com/i/illusory-trust
  • hypertext transfer protocol: //pntodd.users.netlink.co.uk/cases/cases_w/westd_bw.htm
  • hypertext transfer protocol: //www.investopedia.com/terms/p/pari-passu.asp
  • ttp: //www.publications.parliament.uk/pa/ld200102/ldjudgmt/jd020321/yardle-3.htm
  • hypertext transfer protocol: //dro.dur.ac.uk/3232/1/3232.pdf
  • hypertext transfer protocol: //www.austlii.edu.au/au/journals/MonashULawRw/1992/7.pdf

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