Creating Trusts in Commercial Settings

Equity and Trusts - Chapter 5

How is certainty of intention satisfied?

intention can be determined by an analysis of words or conduct (no requirement for any declaration to be in writing)

What is a Quistclose Trust?

The use of a trust to safeguard against a corporate insolvency.

If money is held to pay dividends, but that purpose could not be carried out - it is held on trust for the lender

As a beneficiary under a trust, the lender would be able to bring a proprietary action which would enable it to recover the money in full ahead of the creditors (return the money essentially)

*however, if the purpose is fulfilled and the borrower then becomes insolvent - would lose status as a beneficiary under a trust and would have become an ordinary unsecured creditor with only a contractual claim against RR.

How did the Quistclose trust satisfy certainty of intention?

The House of Lords (Lord Wilberforce) was satisfied that Quistclose intended to create a trust because it did not intend the loan money to be at the free disposal of the borrower.

When is a Quistclose trust created?

When a lender intends to create a trust of the loan monies because the monies were not to be regarded as part of the borrower’s general assets and could not be spent in any way the borrower wished.

*NEEDS TO BE PAID INTO A SEPARATE ACCOUNT - clear evidence the money was intended for a specified purpose (therefore subject to trust) - can be kay if expressly lent for a purpose (Re EVTR)

INTENTION MUST BE CLEAR

Who is the beneficiary of a QT trust?

The lender - until the purpose for which the funds are lent is fulfilled (which ends the trust and only a contractual right to repayment remains)

Therefore, a QT will arise where money is transferred to be held on trust subject to a power for the transferee (as trustee) to apply it for a stated specific and sole purpose.

The lender is best placed to enforce the trust

*PURPOSE MUST BE SPECIFIC - so that the court would know whether or not money had been misapplied or the purpose remained capable of being carried out.

What is a retention of title clause?

Helps a seller retain a proprietary interest (that is ownership, or ‘title’), then

On a buyer’s insolvency, the seller can reclaim any goods which they still own

Essentially, title to the goods will not pass until they have been paid for in full - if insolvent, can reclaim goods - ranking above others in the insolvency.

Effective retention of title can only be achieved with express, well-drafted contractual provisions.