Analysis of Quistclose Trusts and Resulting Interests

The provided assignment is a detailed analysis of Quistclose trusts and resulting interests in English law. It examines various cases such as Re Compton, Oppenheim v Tobacco Securities Trust Co Ltd, Quistclose Investments Ltd. v Rolls Razor Ltd, and Twinsectra Ltd v Yardley, highlighting the different approaches to understanding these trust types. The assignment also discusses Lord Millett's four possible answers and contrasts it with Lord Hoffmann's approach, suggesting that the trust in question is express rather than resulting. It emphasizes the importance of considering the undertaking given by attorneys regarding the money being used for a single objective, which would create an express trust. This analysis is relevant to students studying trusts and equity in English law.

Equity &
Trust 2
Case 1
The case of Oppenheim v Tobacco Securities Trust Co Ltd1 was related to the trustees being
asked to apply some of the income in providing for the schooling of the children of former
workers or that of the workers of the British limited Company, its allied companies, or of any of
its subsidiary companies. Over 110,000 were eligible employees under this and a claim was
made for charitable status. The court came to the conclusion that the trust was not a charitable2.
Lord Simonds laid down two requirements for the further cases, where he stated that the
probable beneficiaries should not be insignificant in numerical manner; along with that the
quality distinguishing them from the other community members, in order for them to be deemed
as a section of it, has to be a quality which is not dependent on the relation to any specific
person. Lord Simonds considered the question of whether such individuals could be deemed
since such sections of the community, which could fulfill the public benefit test3.
Reference was made by Lord Simonds to the case of Re Compton4 and he stated that both the
cases had common quality in them regarding the employment of the specific employers. This
case was particularly referred to hold that there is a need for public benefit in order for an entity
to be qualified as an educational charity. In his view, a group of individuals could be a lot many.
However, where the nexus between them was their personal relations to several propositi or to
a single propositus, they were neither a section of community nor a community for the charitable
purposes. In this case, the company had sought to form a trust for paying school fee of children
1 Oppenheim v Tobacco Securities Trust Co Ltd [1950] UKHL 2
2 Swarb, ‘Oppenheim v Tobacco Securities Trust Co Ltd: HL 13 Dec 1950’ (26 February 2018)
<http://swarb.co.uk/oppenheim-v-tobacco-securities-trust-co-ltd-hl-13-dec-1950/> accessed 03 March
2018
3 Naomi Cubillo Barsi, ‘A critical analysis of the development of the public benefit requirement of
charitable purposes under English and Welsh charity law, from Re Compton [1945] 1 Ch 123 to R
(Independent School Council) v Charity Commission [2012] Ch 214’ (2016)
<http://eprints.hud.ac.uk/id/eprint/26725/1/216.pdf> accessed 03 March 2018
4 Re Compton [1945] Ch 123
(REGISTRATION NUMBER, MODULE NAME)

Equity &
Trust 3
of their employees, where Lord Simonds held that there was a lack of public benefit as there
was nexus between children who were to get the benefit of this arrangement and the company
which was creating the trust5.
The meaning of this was that any group which is defined by a being, for instance the
descendants of a person or the workers of a company, or members of a club, they cannot be
deemed as section of public, which could allow them to get benefit as being a charitable trust.
This view was deemed as artificial, illogical and difficult branch of law due to the criticism
surrounding personal nexus test. This is particularly because little account is taken in such
cases on the number of possible beneficiaries which had been involved, save for the criteria of
number not being negligible. There have been valid trusts with a lot lesser beneficiaries in
comparison to the present case. Again, it is absurd that a single group could be defined in
different manners, in order to avoid this rule from being offended. For instance, an education
trust working for benefit of children of workers consuming tobacco would be deemed as a valid
one. Thus, the benefits of the charitable trust can be limited to the inhabitants of a particular
class. Just to stop the benefit being given to the children for them to be the children of
employees is very harsh6.
In this case, the only dissenting judge was Lord MacDermott, where he pointed that the blind
and the poor were a part of the public and thus the status of charitable trust had to be given to
the newly formed entity. This matter was related to the relief of poverty; and due to these
reasons, the test was not required to be applied to such cases, particularly where they held the
same gravity. Here, there was a need to give supremacy to the needs of the poor employees. It
was also argued by Lord MacDermott that owing to the possible beneficiaries of the educational
5 Pearson Education, ‘Charitable trusts’ (2018)
<http://catalogue.pearsoned.co.uk/assets/hip/gb/hip_gb_pearsonhighered/samplechapter/
Edwards_C09.pdf> accessed 03 March 2018
6 Alastair Hudson, Equity & Trusts (5th edn, Routledge-Cavendish 2007)
(REGISTRATION NUMBER, MODULE NAME)

Equity &
Trust 4
trust being poor individuals’ kids, it was obviously public in nature, till the same could be shown
as otherwise. This is the reason why the trust had to be deemed as charitable one. The
Compton test could not be held as a generally conclusive or applicable one. However, owing to
the majority founding these reasons as not substantial ones, the trust was deemed as non-
charitable one.
Thus, from the analysis of the speeches made by Lord Simonds and Lord MacDermott in the
quoted case, it can be concluded that the view of Lord MacDermott, even though was not
supported by the other judges, was the correct one. As a result of this, the educational trust
should have been declared as charitable trust due to the high number of individuals who could
have been benefitted from it.
Case 2
Another leading case in the English trust law is the case of Twinsectra Ltd v Yardley7. The
matter before the court was on two issues, which was the nature of Quistclose trust and the test
of dishonesty8; though, this discussion is focused on the former aspect of this case only. In this
matter, the solicitors had acted in loan where they had given an undertaking to the application of
it. When the undertaking was breached, the same was released to the borrower. An appeal was
made on finding liability as the contributors of such contravention. It was held by the court that
the loan from the company, i.e., Twinsectra was held on trust by the attorneys9. It was held by
Lords Hutton, Hoffmann, Steyn and Slynn that they money had been held in express trust,
which had been created owing to the terms between Sims and Twinsectra.
7 Twinsectra Ltd v Yardley [2002] UKHL 12
8 TACT, ‘Twinsectra Ltd. v Yardley’ (2002) <http://www.tact.uk.net/review-index/twinsectra-v-yardley/>
accessed 03 March 2018
9 Swarb, ‘Twinsectra Ltd v Yardley and Others: HL 21 Mar 2002’ (02 November 2017)
<http://swarb.co.uk/twinsectra-ltd-v-yardley-and-others-hl-21-mar-2002/> 03 March 2018
(REGISTRATION NUMBER, MODULE NAME)

Equity &
Trust 5
It was unanimously held by the House of Lords that the undertaking which was formed in this
case, resulted in the Quistclose trust, established through Quistclose Investments Ltd. v Rolls
Razor Ltd10. In this matter, Lord Wilberforce provided that the measures of this nature for
payment of an individual’s creditors by third party resulted in a relation of trust or fiduciary
character as primary trust in favour of creditors. Justice Carnwath rejected trust in Twinsectra as
he did not take into consideration, the terms of undertaking being adequately clear for creating a
trust and also because the company did not have the intention of creating a trust. As the Court
of Appeal had rejected these arguments, so did all the law lords. It was made clear by the
undertaking that the money paid to Sims was only meant to be used for particular purposes.
Further, it was not relevant that the ones controlling the company had dependent on formation
of undertaking as a trust being created or not11.
The rejection went further in case of Lord Millett, particularly based on the reasons for the trust
not being created and detailed on the nature of Quistclose trust. He had made a suggestion that
there were four possibilities, i.e., of lender, borrower, contemplated beneficiary and in suspense.
In the very initial option, he plumped the second option involving borrower having the freedom of
disposing the money as he wished would actually be a defeat of the entire understanding, which
had been intended for making certain that the money had been used for specified reasons. The
third option was such that it meant that the trusts for specified abstract objectives, in place of
being for identified individuals would not be within the rule, lacking good reasons for the
distinction. The fourth option elucidated the entire consequence as being unconventional and
required looking under the law of the resultant trust for filling the gaps. All in all, the equity did
not require the beneficial interest to actually be in suspense and would impose a resultant trust
to lender12.
10 Quistclose Investments Ltd. v Rolls Razor Ltd [1970] AC 567
11 William Swadling, The Quistclose Trust: Critical Essays (Hart Publishing 2004)
12 Gary Watt, Trusts and Equity (7th edn, Oxford University Press 2016)
(REGISTRATION NUMBER, MODULE NAME)

Equity &
Trust 6
Though, this is a very interesting issue regarding whether the trust which would result could
really be formed when the beneficial interest never would leave the lender, or whether it was
perhaps a better option to describe this as an express bare trust where the borrower was given
specified rights for using the monies for the specified reasons. Where this view is presented
however, it would initiate “rose by any other name argument”. And as a result of this, it is not
likely to be of any significance in practice.
The analysis of Quistclose by Lord Millett resembled the approach which he had adopted in one
of his articles written twenty years back. He suggested four possible answers of the nature of
Quistclose trust. Due to the various reasons highlighted earlier, it was concluded by Lord Millett
that beneficial interest had to remain with lender, till the time the objective with which such funds
had been lent complied with the “resulting trust”. However, this approach is a major error. This is
particularly due to the fact that it is not consistent with the orthodox equitable principle, along
with representing unwarranted rearrangement by the court of true bargain of the parties13. Lord
Hoffmann had contrasted the approach of Lord Millett by stating that the trust was express in
place of being resulting trust. Even though there may not be words used for giving effect to this
the undertaking of the attorneys regarding the money should only be made use for a single
objective. This would allow for the money to not be at the free disposal of the borrower and
would be sufficient intention for creation of a trust14.
13 Michael Smolyansky, ‘Reining in the Quistclose Trust: a Response to Twinsectra v Yardley’ (2010)
16(7) Trusts & Trustees 558.
14 Puneet Verma, ‘Twinsectra Ltd v Yardley’ (2018) <https://alchetron.com/Twinsectra-Ltd-v-Yardley>
accessed 03 March 2018
(REGISTRATION NUMBER, MODULE NAME)

Equity &
Trust 7
Bibliography
Primary Sources
Cases
.Re Compton [1945] Ch 123
Oppenheim v Tobacco Securities Trust Co Ltd [1950] UKHL 2
Quistclose Investments Ltd. v Rolls Razor Ltd [1970] AC 567
Twinsectra Ltd v Yardley [2002] UKHL 12
Secondary Sources
Books
Hudson A, Equity & Trusts (5th edn, Routledge-Cavendish 2007)
Swadling W, The Quistclose Trust: Critical Essays (Hart Publishing 2004)
Watt G, Trusts and Equity (7th edn, Oxford University Press 2016)
Journal Articles
Smolyansky M, ‘Reining in the Quistclose Trust: a Response to Twinsectra v Yardley’ (2010)
16(7) Trusts & Trustees 558.
Websites & Blogs
Barsi NC, ‘A critical analysis of the development of the public benefit requirement of charitable
purposes under English and Welsh charity law, from Re Compton [1945] 1 Ch 123 to R
(REGISTRATION NUMBER, MODULE NAME)

Equity &
Trust 8
(Independent School Council) v Charity Commission [2012] Ch 214’ (2016)
<http://eprints.hud.ac.uk/id/eprint/26725/1/216.pdf> accessed 03 March 2018
Pearson Education, ‘Charitable trusts’ (2018)
<http://catalogue.pearsoned.co.uk/assets/hip/gb/hip_gb_pearsonhighered/samplechapter/
Edwards_C09.pdf> accessed 03 March 2018
Swarb, ‘Oppenheim v Tobacco Securities Trust Co Ltd: HL 13 Dec 1950’ (26 February 2018)
<http://swarb.co.uk/oppenheim-v-tobacco-securities-trust-co-ltd-hl-13-dec-1950/> accessed 03
March 2018
Swarb, ‘Twinsectra Ltd v Yardley and Others: HL 21 Mar 2002’ (02 November 2017)
<http://swarb.co.uk/twinsectra-ltd-v-yardley-and-others-hl-21-mar-2002/> 03 March 2018
TACT, ‘Twinsectra Ltd. v Yardley’ (2002) <http://www.tact.uk.net/review-index/twinsectra-v-
yardley/> accessed 03 March 2018
Verma P, ‘Twinsectra Ltd v Yardley’ (2018) <https://alchetron.com/Twinsectra-Ltd-v-Yardley>
accessed 03 March 2018
(REGISTRATION NUMBER, MODULE NAME)