Lender? Borrower? Contemplated beneficiary? In
suspension?
52
Where is beneficial interest?
Millett’s
LQR
article – beneficial interest remained throughout
in lender.
It is plain that the beneficial interest is not vested
unconditionally in the borrower so as to leave the money at
his free disposal – this would defeat purpose of arrangements
– to prevent passing on insolvency.
Contemplated beneficiary – the most serious objection – In
several cases the primary trust was for an abstract purpose
with no one but the lender to enforce performance or retrain
misapplication of the money.
53
Purpose trust?
There is no reason to make an arbitrary
distinction b/w money paid for an abstract
purpose & money paid for a purpose which
can be said to benefit an ascertained class of
beneficiaries, & the cases rightly draw no such
distinction.
Any analysis of the Q trust must be able to
accommodate gifts & loans for an abstract
purpose.
54
Failure of primary trust
Why shouldn’t creditor pay intended beneficiaries?
If the borrower is treated as holding the money on
resulting trust for the lender but with power (duty?)
to carry out lender’s revocable mandate, & lender’s
object in giving the mandate is frustrated, he is
entitled to revoke the mandate & demand return of
money which never ceased to be his beneficially.
55
Millett’s one-trust analysis
Quistclose trust is orthodox resulting trust.
Lender pays money to borrower by way of loan.
Lender does not part with entire beneficial interest – held on resulting
trust for lender.
Borrower has no beneficial interest – remains in lender subject to
borrower’s power or duty to apply money in accordance with lender’s
instructions.
When purpose fails – money returnable to lender because resulting trust
in his favour no longer subject to any power on part of borrower to make
use of money.
Whether borrower obliged to apply money for stated purpose - & whether
lender can countermand borrower’s mandate – depends on
circumstances.
56
Millett’s one-trust analysis
The only trust is the resulting trust for the lender.
The borrower is authorised to apply the money for a
stated purpose, but this is a mere power & does not
constitute a purpose trust.
Like all resulting trusts, the trust in favour of the
lender arises when the lender parts with the money
on terms which do not exhaust the beneficial
interest.
It is not a contingent reversionary or future interest.
57
Salvo v New Tel Ltd
New Tel entered arrangement to acquire Digiplus.
$2m raised by convertible notes issued to Salvo & ors.
Prior to acquisition, notes held by NT’s solicitors in separate account.
$1.15m transferred to account (NT already owed $850,000 to Salvo & ors
– ‘set off’).
$750,000 paid from NT a/c as deposit.
Acquisition of Digiplus did not go ahead & money returned to NT.
NT into liquidation. $400,000 repaid to S & ors.
