Quistclose Trust
A resulting trust arising where money is lent for a specific purpose. If the purpose fails, the money is held on trust for the lender rather than forming part of the borrower's general assets. Named after Barclays Bank v Quistclose Investments [1970].
Independent editorial summary — not the official statute text. Read the official version on legislation.gov.uk.
A Quistclose trust arises where money or other property is transferred to a recipient for a specified purpose, on terms that leave the provider retaining a beneficial interest in it. The Privy Council, in Prickly Bay Waterside Ltd v British American Insurance Company Ltd (Grenada) [2022] UKPC 8, explained the underlying mechanism: 'If the specified purpose is or becomes incapable of being carried out, the purpose is said to fail, and (subject to any contrary provision) A may bring proceedings to ensure the money is repaid to him or her ... Trusts of this kind are known as "Quistclose" trusts after the case from which the modern development of these trusts stems.'
The doctrine's origin lies in Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567, where a bank lent a company money specifically to pay a dividend already declared to shareholders, paid into a segregated account for that purpose. When the company went into liquidation before the dividend was paid, the House of Lords held that the money was held 'as a primary trust in favour of the creditors ... and secondly, on failure of the purpose, for the lender, and so did not form part of the general assets of the borrower' — meaning the lender could recover the money in full ahead of the company's other, unsecured creditors.
The doctrine was later refined by the House of Lords in Twinsectra Ltd v Yardley [2002] 2 AC 164, where Lord Millett's analysis — described by the Privy Council in Prickly Bay as having 'become accepted as the core analysis of Quistclose trusts' — placed the Quistclose trust firmly within the category of resulting trusts: the lender retains a beneficial interest in the money throughout, from the moment it is advanced, rather than that interest springing into existence only once the purpose fails. Whether a Quistclose trust arises in any given case turns on whether it can be shown that the parties intended the funds transferred not to form part of the recipient's general assets but to be used exclusively for the identified purpose, with segregation of the funds (though not always essential) being a significant indicator of that intention.
Example
A lender who advances money to a company specifically and exclusively to pay off a named creditor, with the funds kept in a separate account for that purpose, may be able to recover the money in full ahead of the company's other creditors if the company becomes insolvent before the payment is made — because the money is impressed with a Quistclose trust rather than simply forming part of the company's general assets.
Related terms
Official sources
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