The scope of Quitsclos eanalysis is not defined. Quitsclose itself is an attempted financial rescue, does this mean that the analysis can only apply in such cases? Beneficial ownership in C – Trust for the 3 rd party If A transfers money to B subject to the condition that it only be used to pay C, it could be that a trust for C is created whereby B is the trustee. That is, A’s direction that B should use the money for C may go beyond a vague intention to benefit and become an intention that C has the right to use and enjoy the benefit of that money. There is some support for this view that the beneficial interest vests in the 3 rd party. E.g. in Quistclose , Lord Wilberforce The identity of the settlor is irrelevant: as long as the beneficial interest is vested in C it does not matter whether A created the trust or B declared himself trustee of money received from A. C is the beneficial owner while B holds legal title. B will owe fiduciary duties to C as trustee and may also owe contractual duties to A, both in terms of repayment of the loan and of fulfilling the purpose for which the loan was made. Therefore B has a power to benefit C when C is the beneficial owner. As regards A, B may have a contractual duty to pay C. As regards C, B will susceptible to C terminating the trust Problems and Classification: is this a Quistclose trust? It is argued that such a transaction should not properly be termed a Quistclose trust. The very essence of such a device is that it protects A’s interests in the vent of B’s insolvency. The HoL in Quistclose held that the lender actually has “an equitable right to see that the funds are applied for the primary designated purpose.” But how strong is this equitable right when facing the directions of an absolutely - entitled beneficiary? If C’s interest is subject to A’s equitable right then it is difficult to see how C’s beneficial interest outweighs any equitable right of A then A’s security is again limited Most importantly, though if B becomes insolvent, how does A get the money back? This is necessary for A to have any security, and thus necessary for this “trust for C” construction to be a “true” Quisclose trust. This is the “secondary” trust that Lord Wilberforce spoke about in Quistclose. A cannot unilaterally remove C’s beneficial interest in the money, and neither can B. Therefore the only way is to impute an unlikely intention to C that he transfers his equitable interest in the remaining funds back to A, or to consider that C keeping the interest in the remaining funds back to A.
Lord Millet’s extra-judicial writing, asserts that “if A’s object would be frustrated if he were to retain a power of revocation, the transaction will create an irrevocable trust in favor of C” A trust for 3 rd parties of the kind that Lord Millett envisaged, is not a true Quistclose-type trust.
- Fall '15
- Trust law