Barclays Bank Ltd v Quistclose Investments Ltd

Barclays Bank Ltd v Quistclose Investments Ltd
Court House of Lords
Decided 31 October 1968
Citation(s) [1968] UKHL 4, [1970] AC 567
Case opinions
Lord Wilberforce
Court membership
Judge(s) sitting Lord Reid, Lord Morris of Borth-Y-Gest, Lord Guest, Lord Pearce and Lord Wilberforce
Quistclose trust, resulting trust

Barclays Bank Ltd v Quistclose Investments Ltd [1968] UKHL 4 (sub nom Quistclose Investments Ltd v Rolls Razor Ltd) is a leading property, unjust enrichment and trusts case, which invented a new species of proprietary interest in English law. A "Quistclose trust" arises when an asset is given to somebody for a specific purpose and if for whatever reason the purpose for the transfer fails, the transferor may take back the asset.

If a debtor undertakes to use the loan in a particular way, and segregates the creditor's money from his general assets, and if the debtor becomes insolvent, the creditor's money is refundable, and not available to pay the debtor's other creditors. If the trust fails (because the purpose is not, or cannot be, fulfilled), then the sums become subject to a resulting trust in favour of the person who originally advanced the credit, and the person to whom the sums were advanced holds them as trustee.


Rolls Razor Ltd owed £484,000 to Barclays Bank Ltd. It still needed more money to pay a dividend which it had declared to its shareholders on 2 July 1964. Quistclose Investments Ltd agreed to a loan of £209,719 8s 6d on the condition that the dividend would be paid with it, and the money would be put in a separate account (also with Barclays Bank). The money was paid into the account, but before the dividend was distributed, Rolls Razor Ltd went into voluntary liquidation. Quistclose sought to recover the money, contending that its agreement meant Rolls Razor Ltd held the money on trust. Barclays contended that the account was part of the general assets of the company and that they were entitled to exercise a set-off of the money in the account against the debts that Rolls Razor owed with respect of Barclays.[1]


The House of Lords (with the leading judgment being given by Lord Wilberforce) unanimously held that the money was held by Rolls Razor on trust for the payment of the dividends; that purpose having failed, the money was held on trust for Quistclose. The fact that the transaction was a loan did not exclude the implication of a trust. The legal rights (to call for repayment) and equitable rights (to claim title) could co-exist. Barclays, having notice of the trust, could not retain the money as against Quistclose. Similarly, the liquidator of Rolls Razor could not claim title to the money, as the assets did not form part the beneficial estate of Rolls Razor. Lord Reid, Lord Morris of Borth-Y-Gest, Lord Guest and Lord Pearce all agreed with the judgment that Lord Wilberforce gave.[2]

That arrangements of this character for the payment of a person's creditors by a third person, give rise to a relationship of a fiduciary character or trust, in favour, as a primary trust, of the creditors, and secondarily, if the primary trust fails, of the third person, has been recognised in a series of cases over some 150 years.

In Toovey v. Milne (1819) 2 B. & A. 683part of the money advanced was, on the failure of the purpose for which it was lent (viz, to pay certain debts), repaid by the bankrupt to the person who had advanced it. On action being brought by the assignee of the bankrupt to recover it, the plaintiff was non suited and the non suit was upheld on a motion for a retrial. In his judgment Abbott C.J. said, at p. 684:

"I thought at the trial, and still think, that the fair inference from the facts proved was that this money was advanced for a special purpose, and that being so clothed with a specific trust, no property in it passed to the assignee of the bankrupt. Then the purpose having failed, there is an implied stipulation that the money shall be repaid. That has been done in the present case; and I am of opinion that that repayment was lawful, and that the non suit was right."

The basis for the decision was thus clearly stated, viz., that the money advanced for the specific purpose did not become part of the bankrupt's estate. This case has been repeatedly followed and applied: see Edwards v. Glynn (1859) 2 E. & E. 29 ; In re Rogers, Ex parte Holland and Hannen (1891) 8 Morr. 243; In re Drucker (No. 1) [1902] 2 K.B. 237 ; In re Hooley, Ex parte Trustee [1915] H.B.R. 181. In re Rogers, 8 Morr. 243 was a decision of a strong Court of Appeal. In that case, the money provided by the third party had been paid to the creditors before the bankruptcy. Afterwards the trustee in bankruptcy sought to recover it. It was held that the money was advanced to the bankrupt for the special purpose of enabling his creditors to be paid, was impressed with a trust for the purpose and never became the property of the bankrupt. Lindley L.J. decided the case on principle but said (at p. 248) that if authority was needed it would be found in Toovey v. Milne, 2 B. & A. 683and other cases. Bowen L.J. said (8 Morr. 243, 248) that the money came to the bankrupt's hands impressed with a trust and did not become the property of the bankrupt divisible amongst his creditors, and the judgment of Kay L.J., at p. 249, was to a similar effect.

These cases have the support of longevity, authority, consistency and, I would add, good sense. But they are not binding on your Lordships and it is necessary to consider such arguments as have been put why they should be departed from or distinguished.

It is said, first, that the line of authorities mentioned above stands on its own and is inconsistent with other, more modern, decisions. Those are cases in which money has been paid to a company for the purpose of obtaining an allotment of shares (see Moseley v. Cressey's Co. (1865) L.R. 1 Eq. 405; Stewart v. Austin (1866) L.R. 3 Eq. 299 ; In re Nanwa Gold Mines Ltd [1955] 1 W.L.R. 1080). I do not think it necessary to examine these cases in detail, nor to comment on them, for I am satisfied that they do not affect the principle on which this appeal should be decided. They are merely examples which show that, in the absence of some special arrangement creating a trust (as was shown to exist in In re Nanwa Gold Mines Ltd.), payments of this kind are made upon the basis that they are to be included in the company's assets. They do not negative the proposition that a trust may exist where the mutual intention is that they should not.

The second, and main, argument for the appellant was of a more sophisticated character. The transaction, it was said, between the respondents and Rolls Razor Ltd., was one of loan, giving rise to a legal action of debt. This necessarily excluded the implication of any trust, enforceable in equity, in the respondents' favour: a transaction may attract one action or the other, it could not admit of both.

My Lords, I must say that I find this argument unattractive. Let us see what it involves. It means that the law does not permit an arrangement to be made by which one person agrees to advance money to another, on terms that the money is to be used exclusively to pay debts of the latter, and if, and so far as not so used, rather than becoming a general asset of the latter available to his creditors at large, is to be returned to the lender. The lender is obliged, in such a case, because he is a lender, to accept, whatever the mutual wishes of lender and borrower may be, that the money he was willing to make available for one purpose only shall be freely available for others of the borrower's creditors for whom he has not the slightest desire to provide.

I should be surprised if an argument of this kind - so conceptualist in character - had ever been accepted. In truth it has plainly been rejected by the eminent judges who from 1819 onwards have permitted arrangements of this type to be enforced, and have approved them as being for the benefit of creditors and all concerned. There is surely no difficulty in recognising the co-existence in one transaction of legal and equitable rights and remedies: when the money is advanced, the lender acquires an equitable right to see that it is applied for the primary designated purpose (see In re Rogers, 8 Morr. 243 where both Lindley L.J. and Kay L.J. recognised this): when the purpose has been carried out (i.e., the debt paid) the lender has his remedy against the borrower in debt: if the primary purpose cannot be carried out, the question arises if a secondary purpose (i.e., repayment to the lender) has been agreed, expressly or by implication: if it has, the remedies of equity may be invoked to give effect to it, if it has not (and the money is intended to fall within the general fund of the debtor's assets) then there is the appropriate remedy for recovery of a loan. I can appreciate no reason why the flexible interplay of law and equity cannot let in these practical arrangements, and other variations if desired: it would be to the discredit of both systems if they could not. In the present case the intention to create a secondary trust for the benefit of the lender, to arise if the primary trust, to pay the dividend, could not be carried out, is clear and I can find no reason why the law should not give effect to it.

I pass to the second question, that of notice. I can deal with this briefly because I am in agreement with the manner in which it has been disposed of by all three members of the Court of Appeal. I am prepared, for this purpose, to accept, by way of assumption, the position most favorable to the bank, i.e., that it is necessary to show that the bank had notice of the trust or of the circumstances giving rise to the trust, at the time when they received the money, viz., on July 15, 1964, and that notice on a later date, even though they had not in any real sense given value when they received the money or thereafter changed their position, will not do. It is common ground, and I think right, that a mere request to put the money into a separate account is not sufficient to constitute notice. But on July 15, 1964, the bank, when it received the cheque, also received the covering letter of that date which I have set out above: previously there had been the telephone conversation between Mr. Goldbart and Mr. Parker, to which I have also referred. From these there is no doubt that the bank was told that the money had been provided on loan by a third person and was to be used only for the purpose of paying the dividend. This was sufficient to give them notice that it was trust money and not assets of Rolls Razor Ltd.: the fact, if it be so, that they were unaware of the lender's identity (though the respondent's name as drawer was on the cheque) is of no significance. I may add to this, as having some bearing on the merits of the case, that it is quite apparent from earlier documents that the bank were aware that Rolls Razor Ltd. could not provide the money for the dividend and that this would have to come from an outside source and that they never contemplated that the money so provided could be used to reduce the existing overdraft. They were in fact insisting that other or additional arrangements should be made for that purpose. As was appropriately said by Russell L.J., ([1968] Ch. 540, 563F) it would be giving a complete windfall to the bank if they had established a right to retain the money.

In my opinion, the decision of the Court of Appeal was correct on all points and the appeal should be dismissed.


The conceptual analysis underpinning Quistclose trusts was the source of some debate. Shortly after the decision, an article appeared in the Law Quarterly Review[3] written by Peter Millett QC suggesting how the traditional trust need for certainty of objects (beneficiary) could be squared with the decision of the House of Lords, and the refusal to accept new categories of purpose trust in equity. In Twinsectra Ltd v Yardley[4] the House of Lords reviewed the law and the leading judgment was given by Lord Millett, whose judicial analysis, unsurprisingly, closely mirrored that which he suggested twenty years previously.

The key issue, according to Lord Millett, in upholding the trust concept is ascertaining where the beneficial interest in the money lies. Lord Millett suggests that there are four possible answers: (1) the lender, (2) the borrower, (3) the ultimate purpose, and (4) no-one, in the sense that the beneficial interest remains "in suspense". Lord Millett then analysed all of the foregoing, and determined that the beneficial interest remains with the lender, until the purpose for which the funds are lent is fulfilled. The only other reasoned decision was Lord Hoffmann, who agreed with Lord Millett, though disagreed as to whether it was an express or resulting trust.

Some have suggested that this means a Quistclose trust, whilst it is indubitably a trust, it would not be a resulting trust as the beneficial interest never 'results back' to the lender; it was with him all the time. However, others point out that there are many resulting trusts where the beneficial interest never leaves the donor: the classic example of a trust failing for uncertain objects, for example.


It is sometimes argued that Quistclose trusts are not a separate species of trust at all, but merely a simple trust, which has certain characteristics. However, Quistclose trusts are often regarded as somewhat special and distinct. The English Court of Appeal in Twinsectra Ltd v Yardley [1999] Lloyd's Rep 438 suggested, obiter dictum, that it was in fact a 'quasi-trust' which is not required to satisfy "the usually strict requirements for a valid trust so far as 'certainty of object[s]' is concerned. However, the House of Lords, on appeal, declined to endorse those comments.


However, what differentiates the Quistclose trust from other trusts, is the existence of the specific purpose for which the sums on credit must be applied, and the failure of which gives rise to the trust. It must also be clear that, if that specific purpose fails, the sums will revert to the person who originally advanced them.

The situations in which Quistclose trusts have been upheld are varied. They have been upheld in cases of:

One issue that has escaped notice in the judicial consideration of Quistclose trusts to date is how narrowly the purpose has to be defined. Suggestions have been made to the effect that the general law in relation to powers would apply (such that if the purpose is sufficiently well defined to be a power, a Quistclose trust may arise), but others have argued that to take tests from one branch of the law and apply it to another may not be appropriate. The lower courts in Twinsectra suggested that the purpose must be sufficiently well defined, but Lord Millett distanced himself from that position, claiming that "uncertainty works in favour of the lender, not the borrower."[9]

Certainty of intention

In Twinsectra v Yardley, Lord Millett spent some time considering the necessary intention. It has long been settled law that a person need not have a specific intention to create an express trust, so long as the court can determine from the person's intention that a beneficial entitlement should be conferred which the law (or equity) will enforce.[10] So in Twinsectra where there was a solicitor's undertaking that the money should only be used for one purpose, this was held to be sufficient intent. In Quistclose itself and in Carreras Rothmans v Freeman Mathews Treasure where loans were made for a specific purpose, this may also amount to sufficient intention.[11] Where a loan is advanced for the borrower to use as he will, no Quistclose trust can arise.


In the early stages of development of the Quistclose trust, it was suggested that the concept was unambiguously good. In Re Kayford it was suggested that a segregated account for customers' money to be placed in to guard against the insolvency of the company was a proper and responsible thing to do.

However, more recently criticism has been mounted that giving a proprietary claim to a lender which enables the lender to reclaim the loan ahead of unsecured creditors has the effect of putting the lender in the position of a secured creditor, but without the need to register any security interest against the borrower (and thus meaning that other creditors would not be aware of the preferential status of the lender's claim).

Quistclose trusts still remain relatively uncommon, and as yet there has been no clamour for legislation or regulation (Quistclose trusts were not even addressed under English law when the insolvency law was last revised in the Enterprise Act 2002). However, should the courts start finding them with increasing frequency,[12] it may be that regulation, or judicial revision, follows.

See also


  1. [1970] AC 567, 568
  2. [1970] AC 567, 580-582
  3. (1985) 101 LQR 269
  4. [2002] UKHL 12
  5. Barclays Bank v Quistclose Investments
  6. Carreras Rothmans v Freeman Mathews Treasure [1985] Ch 207
  7. Twinsectra v Yardley
  8. Re Kayford (in liquidation) [1975] 1 WLR 279 and Re EVTR Ltd. [1987] BCLC 647
  9. Implying that a lack of certainty over the purpose makes it more likely that a trust will be found in favour of the lender.
  10. The most commonly cited example is Paul v Constance [1977] 1 WLR 527, where one party said "this money is as much yours as mine", and this was held to amount to a trust at law.
  11. Not by coincidence, shortly after Quistclose bank loan documents in England began to include clauses covenanted to use the loan for a stated purpose.
  12. For example, in the way that judicial findings of undue influence became prevalent in mortgage lending.


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