But on thinking more about it I am not so sure. Segregation normally focuses on what the borrower does or should do with the money, but obviously the Quistclose trust can only exist when the money is segregated from the lender’s assets. If this is achieved by direct transfer to a borrower’s charged account then the lender’s equitable interest in the money may not exist before the money is paid into the charged account: the two would appear to happen at the same time.

The issue of whether Quistclose lender/beneficiaries obtain or retain an equitable interest might then be relevant. If the equitable interest is retained then in our example no interest is ever available to the charge. If the interest is obtained then it is obtained from the borrower, which means that the charge interest will have 'bitten' the property first.

On the one hand there is generally no retainable equitable interest in full legal ownership – see Vandervell v IRC [1967] 2 AC 291 at 311 (Lord Upjohn), Re Bond Worth [1980] 1 Ch 228 at 253 (Slade J), Westdeutsche [1996] AC 669 at 702 (Lord Browne-Wilkinson), RM Goode, Legal Problems of Credit and Security (3rd ed 2003) p 21.

On the other hand Abbey National BS v Cann [1991] 1 AC 56 seems to suggest that legal title alone can be transferred away, and it just seems odd to me that Quistclose trust property could ever be construed as being even for an instant fully owned by the borrower. Since Quistclose trusts commonly arise (or are found later to have arisen) in insolvency situations, there is at least a risk that a declaration of trust over assets wholly-owned by the borrowing company may be construed as a voidable preference (see note 15 in the article).

Best wishes,
Jamie

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Lecturer, Faculty of Law
The University of Sydney
+61 (0)2 9351 0277

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Date: Sat, 19 Jul 2008 23:46:37 +0000
Subject: [RDG] Priority of Quistclose Trust

I would be grateful for any thoughts on the priority between a Quistclose trust and a security interest where a bank account containing monies subject to a Quistclose trust is already subject to a security interest in favour of the account bank. Let's use Cooper v PRG Powerhouse [2008] EWHC 498 (Ch) as a hypothetical. There it was held that the account of PRG Powerhouse with Barclays Bank contained monies subject to a Quistclose trust in favour of the claimant. If the account were already subject to an existing charge in favour of Barclays Bank, would the claimant's interest under the Quistclose trust trump Barclays Bank's charge?