Wednesday, 4 December 2013

Dissenting Thoughts about Quistclose Trust

If we compare those two cases, Quistclose and Twinsectra, carefully, we will find that the concept of ‘primary trust’ maybe problematic. The loan in Quistclose is for the purpose of paying dividend to shareholder. However, in Twinsectra, the loan is used for the purpose of buying some property.So, looking at these two loans from the perspective of commercial practice. There should not be any substantial difference.

Nevertheless, if we want to apply the ‘primary trust’ concept, we can’t apply in a consistent way.
In the Quistclose scenario, the shareholders are the beneficiaries. But in the Twinsectra scenario, the two-tier analysis is incapable to be applied, because we can’t find any beneficiary other than the Lender. Thus, according to Lord Millett, only one resulting trust is enough, there is no need to split into a primary one and a secondary one.

Besides, there is another problem. Lets look at this situation, where a lender said “I lend $100 to B to do its business. The purpose that I lend the money to B is that B promised to me that I will get 10% interests. So, in total, I can get $110. Otherwise, I wouldn’t lend the money to B.”

Then, the question is that should a Quistclose trust be imposed in this situation when the lender says he has a purpose? If YES, I believe every commercial loan has some purposes. If NO, wouldn’t there be a risk to cause unfair preference?