Bentley v Hansen 2018 BCSC 1844 discusses Quistclose trusts that arise by implication and where so found, create a resulting trust.
Quistclose is named after the leadidng case from the House of Lords in 1970- Barclays Bank v Quistclose Trust 1970 AC 567.
The court concluded that the plaintiff had made out his claim for the existence of a Quistclose trust with respect to $100,000 that he deposited with the company for the specific purpose of securing inventory financing.
The funds were impressed with the trust for that purpose.
The plaintiff’s intent at the time of advancing the funds was that the funds would be returned to the plaintiff personally upon the letter of credit no longer being required by the financing company for this purpose.
The court found that the funds were kept separate from the companies operating funds from the time they were there were advanced by the plaintiff. The funds were never drawn down or spent for the original purpose. The fact that the funds were kept separately is legally significant.
The court concluded that the hundred thousand dollar deposit was returnable to the plaintiff on a resulting trust when the financing company released the letter of credit.
The Law
A Quistclose trust arises by implication.
Where it is established, the funds given by A to B must be used to pay C. Should the purpose of the trust fail, that is C no longer requires the funds are they no longer required for their original purpose by C, B may not make use of the funds for any other purpose, and the funds was then be returned to a on a resulting trust.
As with all trusts, and intention of the donor :
a) Must be established with certainty. In order to be established as such a trust, the intention must include that should the object of the trust fail, that the funds would return to A.
b) A, B, and C must be different persons.
c) There must also be the three requirements of certainty of intention, subject and object, as required of trust generally.
A Quistclose is an automatic resulting trust which arises by implication, for which no trust documentation would typically exist.
Its elements were described as follows by the BC Court of Appeal in Bank of Montréal v Milk Marketing Board (1994) 94 BCLR at paragraph 12 as follows:
“12. Where A gives money to B for the specific purpose of paying C, that money is impressed with the trust that may not be appropriated by B. I certainly do not doubt this principle, which — is supported by longevity, authority, consistency and good sense.”
In that case the Court of Appeal found that no such implied trust existed on the basis that the funds at issue were not kept separately from other funds held by the milk marketing board.
The existence of a Quistclose trust was most recently used in BC in Alta West Mortgage Capital Corp. v Strege 2016 BC SC 127:
“Barclays bank LTD v Quistclose Trust (1970) AC 567 stands for the proposition that were a party transfers money to another for the specific purpose of paying a third-party, the money is impressed with the trust and cannot be used by the recipient for another purpose. A Quistclose trust only arises where there is an express or implied agreement between the parties that the money is to be kept separate from the recipients other funds.
