Barclays Bank Ltd V Quistclose Investments Ltd by ukl15188

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									                           9.      RESULTING TRUSTS


Classification

Re Vandervell (No 2) [1974] Ch 269
Held: Megarry J identifies two categories:

   Presumed:          Where A transfers (or directs a trustee to transfer) the legal estate
    in property to B otherwise than for valuable consideration, and there is no
    presumption of advancement, and no evidence that A intended that B should take
    the property beneficially, then it is presumed that B holds the estate on trust for A

   Automatic:           Where A attempts to give away a beneficial interest and transfers
    the legal estate or bare ownership to trustees, but by some mistake or accident or
    failure to comply with formalities, A fails to effectively part with all or part of that
    beneficial interest, there will be a resulting trust for A of the beneficial interest which
    A failed effectively to dispose.


(A)     Non-Disposal of Beneficial Interest

“Automatic”: Non disposal of a beneficial interest

   This is where a settlor attempts to create an express trust, but fails to completely
    exhaust the trust property in favour of the beneficiaries, or alternatively, where a
    surplus arises after the original purpose of the trust has been achieved or no
    longer exists

Re Gillingham Bus Disaster Fund [1958] Ch 3000
Facts: This was a memorial fund raised from donations to pay funeral expenses and
assist disabled victims of a bus crash. The question was what should be done with the
surplus after all the charitable objects of the trust were satisfied? There were two
alternatives. It could either go back to the people who gave the money, or it could go to
the Crown as “bona vacantia” (money without an owner).

Held: The donors (even the anonymous donors of small change to street collectors) had
not been shown to have given the money “out-and-out”. The surplus was therefore to be
held upon a resulting trust for those donors. The trustees would just have to put an add in
the paper to find out who those donors were.

Re West Sussex Constabulary’s Widows, Children & Benevolent Trust Funds [1971] Ch 1
Facts: This was a fund for the widows and orphans of police killed in duties. The police
ran this fund, but they actually collected it from various sources:
        (a)     Members subscriptions


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        (b)    Police balls, raffles and football sweepstakes
        (c)    Collection boxes
        (d)    Other donations, including legacies
After the amalgamation of the constabulary in Sussex, the members sought to wind up
the fund and distribute the fund among members. The question was who owned the fund?
The court had to work out who had the beneficial interest in the money. They had to
decide whether any of it resulted back to the people who provided it.

Held:

(a)      Members subscriptions
         o These members had given these subscriptions on a contractual basis, not on
           trust. Any surviving members would have a claim in contract based on
           frustration or failure of consideration. These members could claim back
           reimbursement for the subscriptions
         o Former members have already received the benefit contracted for (i.e.
           payments to their widows and orphans)

(b)      Entertainments
         o Only the profit component of the price paid by participants went into the trust
            fund. The price was paid on a contract basis, and the participant received the
            entertainment bargained for, so there could be no resulting trust

(c)      Collection boxes
         o It is inconceivable that a person contributing a coin in a street collection
            should intend that it should be returned. Hence, there was no resulting trust

(d)      Donations and legacies
         o The proportion of the fund attributable to specific donations and legacies was
            held on resulting trust for donors or their estates. The remainder of the fund
            was bona vacantia

     A resulting trust arises when someone gives money and they have not effectively
      given it away, so it results back to them
     If they have effectively given it away, there is no resulting trust. If they have got
      consideration for it, there is no resulting trust
     Only if they have intended to give it to a particular source, and that fails, will they be
      able to get it back

Re British Red Cross Balkan Fund [1914] 2 Ch 419
Facts: This was a fund raised by the Red Cross from known subscribers to provide relief
during the Balkan War. Some subscribers agreed to allow the Red Cross to apply the
surplus to general funds, while other requested a refund. The question was how much of
their donation should be refunded, given that a large amount of the total donated money
had been spent on war relief?




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Held: The court held that the balance of the fund belonged to all subscribers on a
resulting trust in proportion of their subscriptions.


(B)     The Quistclose Trust

Commercial applications: The Quistclose trust

   Quistclose trust – a special purpose trust by which it is recognised that money held by
    one person is held on trust for a special purpose
       o If the money is paid for the special purpose, the person becomes a debtor of
           the settlor
       o If the purpose fails, a resulting trust arises in favour of the settlor

   Where money is advanced upon a condition that it will be used for a certain purpose,
    and that purpose becomes impossible to fulfill, the money loaned will be held on a
    resulting trust for the lender and will not be treated as part of the general assets of the
    borrower: Barclays Bank Ltd v Quistclose Investments

Barclays Bank Ltd v Quistclose Investments [1970] AC 567
Facts: Rolls Razor Ltd owed the bank a large sum of money. Rolls was in financial
trouble and wanted to issue shares to existing shareholders to raise money. Before doing
so, the company declared a dividend to shareholders (which constitutes a debt to
shareholders), but had not paid it yet. Quistclose was a private company which had an
interest in Rolls surviving. Quistclose provided funds to Rolls for the dividend payment
only. Rolls went into voluntary liquidation prior to paying out the dividend. The question
was who owned the dividend fund?

The bank argued that Quistclose had lent money to Rolls, and so Quistclose was just
another unsecured creditor. As an unsecured creditor, it would rank behind the bank’s
secured charge. Quistclose argued that the money never belonged to Rolls. It was held on
trust for a purpose (to pay the dividend to shareholders), and when that purpose failed,
the money resulted back to Quistclose.

Held: The court found in favour of Quistclose. The loan funds were held on trust to pay
the dividend. When that trust became impossible, there was a resulting trust back to the
lender (Quistclose).

Here, the money held by Rolls is held on trust for a special purpose (to pay the dividend
to shareholders). If that purpose is fulfilled, the trust no longer exists, and Rolls simply
becomes a debtor of Quistclose. If that purpose fails, there is a resulting trust in favour of
Quistclose.

The conceptual problem with Quistclose’s arrangement was that this was a trust for a
purpose which was not charitable. This problem was solved in the Carreras Rothmans
case.


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Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd [1985] 1 All ER 155
Facts: Rothmans was an advertiser. FMT was a media agent. Rothmans gave money to
FMT, and FMT paid Rothman’s media creditors (e.g. TV stations, for the space that
Rothmans would be advertising in). To avoid problems arising from FMT’s potential
insolvency, Rothmans paid money to FMT on the basis that those payments would be
held in a dedicated bank account. The question was who was entitled to the money paid
by Rothmans to FMT, but not yet forwarded to Rothman’s creditors, when FMT became
insolvent? (i.e. Should Rothmans get their money back? Or should it be paid to creditors
of the media agent?)

Held: This solved the problem of a non-charitable purpose trust in Quistclose. We say
that instead of there being a trust for a purpose, there is a private trust instead. The money
paid (by Quistclose or Rothmans) is to be held on trust for a class of beneficiaries who
are sufficiently certain. In Quistclose, the shareholders entitled to the dividend payout are
the class of beneficiaries of the private trust. In Rothmans, the TV stations who were
owed money by Rothmans for the space they had provided are the class of beneficiaries
of the private trust. The trust exists until such time as the purpose is fulfilled. Once it is
fulfilled, the trust disappears.

This analysis raises its own problems. The shareholders (in Quistclose) and TV stations
(in Rothmans) will also claim that they have an interest (as beneficiaries).

Re Australian Elizabethan Theatre Trust (1991) 102 ALR 681
Facts: Here, there was a charitable trust arrangement with a complication. The AETT
was a charity. However, the AETT was accepting donations indicating a preference for
nominated arts organisations. The question was whether these donations were held by the
AETT on trust for those nominated organisations. In order to get a tax deduction from
your donation, you had to give the funds absolutely and outrightly (you could not get
them back on any resulting trust).

Held: The court held that there was no trust.

See Gummow’s J analysis of the “Quistclose” trust. Is it in fact a “resulting” trust? Or is
it an express trust with two limbs?

Gummow J: He deals directly with the problem of a purpose trust. He says there cannot
be a trust for a purpose which is not charitable. Hence, we have to understand a
Quistclose trust as an express trust with two limbs.

The first trust is an express trust (where money is given to be held on trust for a
sufficiently certain class of beneficiaries whom the lender nominates as the necessary
recipients). The second trust arises when the first trust fails, and usually results in money
going back to the lender.




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How to create a Quistclose type trust?

Twinsectra v Yardley [2002] 2 AC 164
Facts: A solicitor was given money for a transaction. He provided an undertaking (which
was breached) as follows:

“Dear Sirs,
In consideration of your providing a loan in the sum of $1 million to a client of this firm
for the purpose of temporary bridging finance in the acquisition of property to be
acquired by such client, we hereby personally and irrevocably undertake that:
    1)      The loan monies will be retained by us until such time as they are applied in
            the acquisition of property on behalf of our client
    2)      The loan monies will be utilised solely for the acquisition of property on
            behalf of our client and for no other purpose”

Held: There was clearly an express intention that the money was being handed over to
the solicitor as a trustee, and that there was a particular purpose as to how to spend the
money (and for no other purpose).

Hence, if you want to create a Quistclose type trust, you need to use these kinds of very
clear words to separate it from other commercial arrangements.

Lord Millett:

“A Quistclose trust does not necessarily arise merely because money is paid for a
particular purpose. A lender will often inquire into the purpose for which a loan is sought
in order to decide whether he would be justified in making it. He may be said to lend the
money for the purpose in question, but this is not enough to create a trust; once lent, the
money is at the free disposal of the borrower. Similarly, payments in advance for goods
or services are paid for a particular purpose, but such payments do not ordinarily create a
trust. The money is intended to be at the free disposal of the supplier and may be used as
part of his cash flow. Commercial life would be impossible if this were not the case.

“The question in every case is whether the parties intended the money to be at the
free disposal of the recipient. His freedom to dispose of the money is necessarily
excluded by an arrangement that the money shall be used exclusively for the stated
purpose”

A Quistclose trust is a trust for the lender, subject to a power in the trustee to do
something limited with the money. The money is never handed over beneficially to the
trustee. The trustee has a power, limited because they cannot commit a fraud on it. They
can only do certain things (i.e. pay certain people).

This is not a purpose trust at all. It is a consent-based resulting trust, allowing the trustee
to disperse funds according to a set of instructions. Here, it is still Twinsectra’s money.
They gave it to someone else (the solicitor) to hold on trust for them. Twinsectra has a


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beneficial interest in the property. Here, the beneficiaries themselves created the trust
(contracting away their own Saunders v Vautier rights). They cannot call for the money
to be reconveyed to them if the purpose is fulfilled. This avoids the problem of the
purpose trust in Quistclose.


(C)    Presumed Resulting Trusts

“Presumed” Resulting Trusts

The Presumption of Resulting Trust v the Presumption of Advancement

   The presumption of resulting trust refers to an assumption that a person who pays for
    property intends to own that property beneficially, even if they authorise another
    person to take legal title to the property

   The presumption of advancement refers to an assumption that fathers and husbands
    intend to make outright gifts to their children and wives when they provide the money
    for the purchase of property

   Both presumptions can be rebutted by evidence

   The presumption of advancement overrides the presumption of resulting trust


   Do these presumptions apply today?

Consider:

Calverley v Green (1984) 155 CLR 242
Facts: A de facto couple bought a house in joint names. He paid a deposit. The
remainder of the purchase price was borrowed on a mortgage, also in joint names. He
alone made repayments of the loan. They spit up. Legally, it is a jointly owned house
(50:50 split). What conclusion will equity reach regarding who owns the property?

If they were married, there would be a presumption of advancement, so the wife would
have had a half interest in the house. However, there is no presumption here, as they are
de facto.

Held: The man does not get the whole house.

First, the presumption of resulting trust says that he who pays owns. He has paid a
deposit (say 10%). The balance is paid by both of them, because the loan itself is in both
names (and she was jointly liable for that). He would get the proportion of property
equating to the deposit plus half the remaining balance (55%), and she would get 45%.



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The fact that he had made the repayments was a matter of accounting between them
separately, and did not go to who owned the property (he would have to claim
restitutionary damages for unjust enrichment or find that it was a partnership).The
resulting trust reasoning does not resolve these problems. It only looks at who paid the
money up front on day one.

Russell v Scott (1936) 55 CLR 440
Facts: An aunt and nephew held a joint bank account, which she alone operated during
her life (she alone deposited funds into the account, and she alone withdrew funds). She
intended the nephew to have the account by right of survivorship on her death. When she
died, her estate claimed that fund belonged to the her on a resulting trust.

There is no presumption of advancement between an aunt and nephew. Hence, the
nephew had to prove his case, even though he was the legal owner.

Held: There is a presumption of a resulting trust. However, here, that presumption was
overridden by clear implications of her behaviour all the way through. It was clear
that she intended that she should have the benefit of the money while she lived, but that
he should have it when she died.

Hence, you can disprove the presumption of resulting trust on the facts of the case.


(D)     Resulting Trusts and Illegality

Illegality

   The question is whether you can you plead the existence of a resulting trust, if to do
    so, you must confess to some illegality (equity demands “clean hands”)

Nelson v Nelson (1995) 184 CLR 538
Facts: A mother paid the purchase price for a house, but registered it in the names of her
son and daughter to take advantage of a benefit she was not entitled to (a subsidised loan
under the Defence Service Homes Act 1918 to buy another home). She received a
subsidised loan on the basis of an application in which she declared that she did not own
or have a financial interest in any other house.

The first house was sold. The daughter claimed her share of the deal. The mother
(supported by the son) claimed the whole price on the basis of a resulting trust. The
daughter argued for a presumption of advancement, and also that her mother committed
an illegality


Held:
        (1)    There is a presumption of advancement in gifts from mothers (and not
               only fathers) to children.


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               However, the presumption was rebutted by evidence in this case that the
               mother only registered the house in the names of her son and daughter to
               take advantage of the subsidised loan

       (2)     Equity does NOT let the loss lie where it falls in a case involving illegality
               (Tinsley v Milligan was not followed)

               To prove what the mother’s intentions were, the mother had to plead an
               illegal purpose. The court said that this did not matter. The mother could
               still plead her case

       (3)     The mother was declared to have a beneficial interest in the proceeds of
               sale. Three of the five judges held that this declaration should be subject to
               a requirement that she restore the subsidy to the Commonwealth.

   This case demonstrates how illegality will be treated in an Australian court. You can
    plead the existence of a resulting trust, even if you have to confess to some illegal act

Note: Tinsley v Milligan involved two women who formed a joint venture to run a
boarding house. They purchased a house in the plaintiff’s name, so that the defendant
could receive social security payments, which went into their joint household kitty.
Subsequently, they quarreled, the plaintiff moved out, and then served notice on the
defendant to quit the house, and brought an action for possession, claiming that she (the
plaintiff) was the sole legal owner.
The defendant counter-claimed for a sale of the property and sharing of the proceeds, on
the basis that it was held on a resulting trust.
The defendant succeeded on all levels. By majority, the HOL held that the illegality did
not defeat the defendant’s claim, because she did not have to bring evidence of the illegal
purpose to succeed.

Problem 15
Start with nature of real relationship between them and what they intended
Intention at outset was derrida be a bare trustee
But the requirement of writing has not been met
How does the
Resulting trust reasoning will only give foucoult 1/9th share using Calverly v Green
strictly (legal realist, rigid view).

Could try common intention const trust (Green v Green)
Need to establish detriment which can be done. Under common intention F gets what is
initially intended, which is whole interest in the house and D gets declared bare trustee.

Problem 15A
Start with the $1m




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The purchaser’s solicitors would believe they should draw the cheque in D’s name
because they would first discharge the mortgage (400K). They wouldn’t buy the house
with a mortgage.

Apply The const trustr cases of domestic nature
Muschinski and Baumgartner.
This is more like Muschinski
There is a conscious project here to purchase the house (similar to the art house)
They draw their minds early on how they are to share the project. One gives money the
other gives labour and skill. The intent in the joint venture is that the result will be a
50/50 split. Equity is equality  if people say they should by house together,
presumption is 50/50 absent any other agreement (can assume here that parties share
50/50 in the project so long as project succeeds)
In Muschinski there was a return of contributions first (joint vent failed prematurely) then
they divided the surplus according to original intention on how they would share the
proceeds. 400K goes to creditors first. 600K left. D gets 100K deposit and F gets 20K
(but this 20K doesn’t take into account intangibles that F has contributed and this could
be a weakness in the Muschinski reasoning). F contributed skill through contacts etc. Do
we value the improvements he made to the house and the value of his work. D says to F
you can contribute your share by improving the house and that is what he did.
If F only gets 20K and half the surplus he gets less than D by 80K. This creates inequity
because the value of F’s work has not been taken into account. Using parridge case, can
take into account the work.

According to Musch, we treat this like a partnership etc
Unlike Musch case, F did the work here whereas Dodds did not. We don’t treat this as a
failed venture. This partnership here has succeeded in the commercial aspects (although
relationship failed). In muschinski one person gave share and dodds didn’t contribute his
part (it is unconscionable) and then the venture failed. Deane J in Musch used partnership
law (joint ventures) to solve the prob of a failed venture, it can be used here for a
successful commercial joint venture.




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