Quistclose trusts in English law

"Quistclose-type trusts are a species of resulting trust which arise where property (usually money) is transferred on terms which do not leave it at the free disposal of the transferee. That restriction upon its use is usually created by an arrangement that the money should be used exclusively for a stated purpose or purposes.

There must be an intention to create a trust on the part of the transferor. This is an objective question. It means that the transferor must have intended to enter into arrangements which, viewed objectively, have the effect in law of creating a trust."

Bellis v Challinor [2015] EWCA Civ 59 at 56–57, per Briggs LJ

A Quistclose trust is a trust created where a creditor has lent money to a debtor for a particular purpose. If the debtor uses the money for any other purpose, then it is held on trust for the creditor. Any inappropriately spent money can then be traced, and returned to the creditors. The name and trust comes from the House of Lords decision in Barclays Bank Ltd v Quistclose Investments Ltd (1970), although the underlying principles can be traced back further.

There has been much academic debate over the classification of Quistclose trusts in existing trusts law: whether they are resulting trusts, express trusts, constructive trusts or, as Lord Millett said in Twinsectra Ltd v Yardley, illusory trusts. At least one textbook has been written dedicated solely to exploring issues around the true nature and classification of Quistclose trusts.^[1]

Lord Millett, writing extra-judicially, has called the Quistclose trust "probably ... the single most important application of equitable principles in commercial life", and further noting that despite 200 years of existence "it has resisted attempts by academic lawyers to analyse it in terms of conventional equitable doctrine".^[2]

^ Swadling (2004)
^ Swadling (2004), p. vii

[1] Swadling (2004)

[2] Swadling (2004), p. vii

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