What is the distinction between Quistclose and Twinsectra?

Question

What is the distinction between Quistclose and Twinsectra?

Answer

The decision in Quistclose [1970] established that Quistclose trusts could amount to an automatic resulting trust on loan monies that are for a specific use and purpose, thus protecting the lender. This has more or less been undisputed. However, Lord Millett’s discussion in Twinsectra v Yardley [2002] provides an alternative analysis of a Quistclose trust.

Whilst it is accepted that a lender of a Quistclose trust has the property held for them on trust until the purpose has been completed; Millett in Twinsectra makes the submission that the Quistclose is a resulting trust, however it works as a retention of title (ROT). Thus the entire property completely belongs to the lender until it is used for its specific purpose. This has bought some debate amongst academics, as a Romalpa clause as a ROT clause means that title does not pass at all until the contractual obligations are fulfilled. Yet, it is not possible to have a trust if there has been no title passed. Thus it is to be accepted that Millett’s reasoning is that the lender retains the equitable interest in the loan until the contract is complete.

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