Twinsectra v Yardley [2002]


-          Leach a solicitor in sole practice, instructed Yardley in relation to the purchase of some land at Bradford. Funding was through Barclays Bank, but fell through and Yardley obtained short-term alternative funding from Twinsectra. Twinsectra made load on basis that repayment was secured by a solicitor’s undertaking, Leach refused to give this undertaking, but Sims who owed Yardley some money agreed to give the undertaking. The undertaking stated that Twinsectra load would be used solely for acquisition of property on behalf of Yardley and no other purpose. By then Barclays had agreed to provide finance and Twinsectra loan was no longer required. However Yardley and Sims went ahead, with Sims using the loan to repay the moneys owed to Yardley. Sims undertaking to repay then would be as principal debtor rather than guarantor. Twinsectra was not told.

-          Trial judge found that Sims letter was fundamentally untrue, as Sims was not acting for any client or as solicitor. Before giving his undertaking, Sims discussed matters with Leach and became concerned that if the monies were not used for the acquisition of property, Sims would be in breach of his undertaking. Leach acknowledged but noted that money had to be disbursed in accordance with Yardley’s instructions. Leach was told by Yardley that monies would be in fact used for various property acquisitions and bulk of the fund received from Sims was applied in this way. However some sums retained for Leach’s cost and paid to Yardley for non-property purposes were the subject of claims for knowing receipt and dishonest assistance

-          Issue: whether Sims undertaking created a Quistclose trust?

-          Arguments

o   Sims undertaking created a Quistclose trust, Leach denied on basis that Twinsectra lacked intention to create a trust and looked solely to Sims undertaking, also argued that commercial life would be impossible if trusts were lightly inferred from slight purpose, loan for a specific purpose not enough to create a trust, there must be something more such as requirement to be held in a separate account. Also argued objects were too uncertain

-          Lord Millett

o   While loan money normally became property of the borrower, money advanced for specific purpose where the borrower was not free to apply it to any other purpose gave rise to fiduciary obligations on part of borrower. Lender was entitled to prevent money being applied to anything other than the stated purpose

o   Settlor must intend to create a trust, but that subjective intentions were irrelevant

o   Arrangement that had the effect of creating a trust bound a party that intended to enter into them, whether or not a trust was intended

o   Quistclose trust does not arise merely because money is paid for particular purpose

o   Key question was whether the monies, would be at free disposal of the borrower? Loan monies would be used for acquisition of property and for no other purpose, would retain so until so applied. This was not simply the case with a solicitor’s undertaking – it was an essential principle of equity and this was a classic situation in which a fiduciary relationship arose

o   Uncertain objects did nothing to help the borrower, id the objects of the trust were uncertain, then the trust failed and the borrower was obliged to return the monies to the lender

o   Sims undertaking created a Quistclose trust, the monies advanced belonged to Twinsectra, subject only to Yardley’s right to apply it to the acquisition of property, and was never at Yardley or Sims free disposal, Sims actions in paying the monies to Leach were a breach of trust but did not prevent the monies being applied to objects

o   Majority found that Leach had not been dishonest, he believed money was at Yardley’s disposal, that a breach of Sims undertaking was not his concern. If based on honest belief, it was no dishonest

Ganus’Value:Lawyers are guardian angels rather than business partners.

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