Barclays Bank Ltd -v- Quistclose Investments Ltd; etc; HL 31 Oct 1968

References: [1970] AC 567, [1968] UKHL 4
Links: Bailii
Coram: Lord Wilberforce, Reid, Morris, Guest, Pearce LL
R Ltd were in serious financial difficulties. The company’s overdraft with the appellant bank was almost twice its permitted limit. The company sought a loan of £1 million from a financier, who was willing to lend the company that sum provided the company found the money necessary to pay the ordinary share dividend, a sum of £209,719-8s-6d. The company succeeded in obtaining a loan in that sum and for that purpose from the respondents. The respondents cheque was paid into a special account opened by the company with the appellants which was to be used only for the purpose of paying the dividend. The company went into voluntary liquidation, before the dividend was paid. The respondents brought an action against the company and the appellants claiming the money in the special account.
Held: This gave rise to a trust in favour of the creditors and if the trust failed, in favour of the third person. When the money was advanced, the lender acquired a right, enforceable in equity, to prevent its application for any other purpose. This prevents the borrower from obtaining any beneficial interest in the money while the designated purpose is still capable of being carried out. Once the purpose has been carried out, the lender has his normal remedy in debt. If the purpose cannot be carried out, the question arises whether the money falls within the general fund of the borrower’s assets, in which case it passes to his trustee-in-bankruptcy in the event of his insolvency and the lender is merely a loan creditor; or whether it is held on a resulting trust for the lender. This is determined by the particular facts.
Lord Wilberforce observed: ‘The mutual intention of the respondents and of Rolls Razor Ltd, and the essence of the bargain, was that the sum advanced should not become part of the assets of Rolls Razor Ltd, but should be used exclusively for payment of a particular class of its creditors, namely those entitled to the dividend. A necessary consequence from this, by process simply of interpretation, must be that if, for any reason, the dividend could not be paid, the money was to be returned to the respondent: the word ‘only’ or ‘exclusively’ can have no other meaning or effect.’
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