Quistclose or not

The requirements for Quistclose trusts were recently considered in two English court cases in Bellis & Ors v Challinor & Ors [2015] EWCA Civ 59 and Gore & Ors v Mishcon de Reya [2015] EWHC 164 (Ch) but in the most recent decision to address this issue from a Jersey perspective, Nolan v Minerva [2014] JRC078A, the court was perhaps more inclined to impose trust structures on professional trustees.

The case concerned a wealthy Irish family (the Nolan family) who employed Mr Walsh and his group of companies to provide investment advice. Between 2002 and 2009, the Nolan family entrusted in the region of £10,000,000 to investments recommended by Mr Walsh, which subsequently failed.

It is acknowledged in the judgement that by 2005 Mr Walsh was a fraudster and his business empire collapsed in 2009. The Nolan family sought recovery for losses from Minerva Trust Company Limited, on the basis that Professional Trust Company Limited (a business Minerva had purchased) had dishonestly assisted Mr Walsh in breaches of trusts including breaches of Quistclose trusts.

The Royal Court found, and it was accepted by the Nolan family, if the arrangements with Mr Walsh constituted no more than simple bipartite contracts for sale and purchase, then there could be no Quistclose trust.

The Nolan family argued that a breach of trust occurred when any part of the moneys transferred to the Buchanan Group was used other than for the purpose agreed with Mr Walsh. The Royal Court considered eight transactions and in each, gave judgment as to whether a Quistclose trust existed. They can be broadly divided into three categories.

In the first, moneys were transferred by the Nolan family to buy specific shares with provisions attached, e.g. they were bought at cost price, they received all rights in the shares or the purchase price would be used for a particular use.

The court found these conditions on purchase constituted more than a simple contract and although the Nolan family did receive shares, to the extent any of the conditions attached to them were not met, a Quistclose trust existed.

The second category followed similar lines but concerned moneys being paid over as investments. Again, conditions were attached to these investments, examples being Mr Walsh agreeing to invest the same sum of money, the investment would be enhanced by bank borrowings in order to achieve a particular aim or the moneys would be applied to a particular purpose. Again the court found, to the extent the conditions were not met, a Quistclose trust existed.

Finally, there were contracts for the purchase of shares where it was questionable as to whether the shares existed or not, and while the court found it was possible there were Halley trusts, they were simple sale and purpose contracts, thus not Quistclose trusts.

Given the nature of the business of the island of Jersey, it is perhaps unsurprising that the court here took this stance and was more inclined to hold professional trustees to a higher standard of care.

It is worth noting that Minerva, as the successor practice to Professional Trust Company Limited, were found guilty of dishonest assistance in respect of the various breaches of trust brought about by the existence of the Quistclose and Halley trusts.

Katherine Neal is a managing associate at Ogier