ABSTRACT
A Quistclose trust enables a party to a commercial contract to retain their equitable interest in money advanced as part of a loan agreement. The principle in Quistclose derives from the earlier decision in Hassall v Smither (1806). In short, where a lender transfers loan moneys subject to a contractual provision that the transferee is entitled only to use that money for specified purposes, the transferee will hold those moneys on trust for the transferor if they are used for some purpose other than that set out in the loan contract. Significantly, in the event that the transferee purports to transfer rights to some third party in breach of that contractual provision the transferor will be deemed to have retained its rights under a trust which will preclude the transferee from acquiring rights in that property. At present the Quistclose arrangement has been applied only to loan moneys but, as Worthington suggests, there is no reason in principle why it should apply only to money and not to other forms of property (Worthington, 1996, p 63). The following discussion will examine the Quistclose decision and the various explanations for the nature of the trust created.
