Insolvency Law Update - Recovering “your” money when entities collapse – when can you successfully claim a Quistlose Trust?

Insolvency Law
Carrie Rome-Sievers Headshot

When a company collapses, those who had paid money to it for a particular purpose are, unsurprisingly, often keen to retrieve “their” funds. This is especially so for those who paid over money shortly prior to the collapse, or in any case where the money had not been applied for the intended purpose by the time of the collapse.

This article is about a way recovery may be achieved in equity, in some circumstances. These issues can of course arise in external administrations, hence it is also useful for administrators, receivers and liquidators to be across the principles governing Quistclose trusts.

Some of the introductory remarks below are of historical interest, as physical money has less relevance in commercial life in Australia in 2023. However as the law developed in part in that context, these remarks are instructive as to the current state of play as to property rights, the electronic recording of bank accounts and transfers of funds, and when a Quistclose trust may arise.

The first point to make is that physical money itself is capable of being the object of property rights, but is fungible. That is, one unit is identical to and interchangeable with any other unit. Once it is mixed with other money it cannot be separately identified in the same way, it has been said, that a raindrop cannot be separately identified once it has fallen into the ocean. At that point property in money is lost at common law.1

If physical money is paid into a bank account, it “passes into currency”2 and ownership of the money itself passes to the bank, which may use the money for its own lending and other purposes. The item in which any property rights may be held becomes the chose in action constituted by the debt owed by the bank to the account holder.

A bank account is nothing more or less than a chose in action, consisting “in the contractual right against the bank, ie in a debt, but a debt fluctuating in amount as moneys might be deposited and withdrawn”.3 “[T]hough in a popular sense it may be said that a depositor with a bank has “money in the bank”, in law he has but a chose in action, a right to recover from the bank the balance standing to his credit in account with the bank at the date of his demand, or the commencement of action. That recovery will be effected by an action for debt. But the money deposited becomes an asset of the bank which may use it as it pleases…”.4

Thus it is common, but a fallacy, to point to a bank account – yours or someone else’s to whom you had paid money – and say that it holds “your money”. In truth what is held is a chose in action – a debt owing by the bank to the account holder. (The reason bank accounts are so secure, particularly in Australia, is the Australian Government scheme guaranteeing deposits in banks, building societies and credit unions.)

For an entity or person who has paid money to a company for a particular purpose, the question becomes: when will equity respond to the circumstances of the payment by impressing the funds / chose in action with a trust?5

It can be an important question.

Principles – Quistclose Trusts

A Quistclose trust may arise where A pays money to B to be used for a particular purpose, and the circumstances of this transaction are such that equity regards B as holding that money – or rather, its value – on trust for A. That is, in equity, A retains a proprietary interest – not in the money itself of course, but rather in its traceable product (generally the chose in action which is the recipient’s bank account). Making a payment or a transfer for a purpose is not enough to give rise to a trust, even if that purpose is not effected and the money is subsequently misdirected or the company fails. Equity requires more before it will respond.

The prevailing view in Australia is that the Quistclose trust is explained on express trust principles, although this is not settled. Some judges continue to discuss a resulting trust analysis upon the failure of the purpose of the payment in line with the English position stemming from the early cases, including Lord Millett’s judgment in Twinsectra Ltd v Yardley6 (see below). It may be that when the position is settled here, both are embraced as the correct analysis, arising in different circumstances.

The principles governing when a Quistclose trust will be held to have been created may be distilled as follows7

  1. The question whether a Quistclose trust has been created will be answered by reference to the intention of the parties and the ‘essence’ of their bargain.8 The intention not to part with the beneficial ownership of the funds must be sufficiently indicated.9.
  2. The relevant intention is to be inferred from the language used by the parties in question, having regard to the nature of the transaction and the relevant circumstances of the relationship between them. It is ascertained by reference to the objective intention of the parties,10 outwardly manifested.11
  3. In determining the intention of the parties at the time, the Court can take into account events and documents which postdate the date on which the trust is said to have been created, although little weight may be given to what the parties say was the nature of the transaction at a subsequent point in time.12
  4. In a commercial setting there must be clear evidence that the parties intended a trust to arise in circumstances where a trust would not normally exist.13
  5. A Quistclose trust does not arise simply because money is paid for a particular purpose. The mere provision of money or property for a purpose is not enough.14 ‘An expectation or general understanding falls short of the necessary mutual intention that funds have been provided on the express condition that they will be earmarked for use exclusively in accordance with an agreed purpose’.15
  6. The parties must intend that the money not be used at the free disposal of the recipient.16 The transferee must be subject to restrictions on the use of the money for any other purpose.17
  7. Payment of the money into a separate account may be indicative, but not determinative, of the existence of a Quistclose trust.18 However a lack of evidence of an express requirement to keep money separate is a powerful indicator of an absence of an intention that the money was to be held on trust,19
  8. The onus of proof lies on those who assert that a trust was created.20
  9. If there was a trust, but it was created for an illegal purpose (such as the purpose of avoiding tax obligations), then the trust must fail as a matter of public policy.21
  10. Trust obligations arise where equity operates on the conscience of the holder of the legal interest. A person cannot be a trustee of property if that person is ignorant of the facts alleged to affect their conscience. That is, unless a putative trustee is aware that they are intended to hold the property for the benefit of others, their conscience will not be affected in a relevant way.22

It is clear from the authorities that the two key requirements are those at principles (5) and (6) above. As the New South Wales Supreme Court observed last year, in order for a transfer of funds or assets to be characterised as held on a Quistclose trust, the Court will look to whether the parties outwardly manifested a mutual intention that –

  1. The money was provided for a specific purpose, and
  2. The recipient was to be subject to restrictions on the use of the money for any other purpose.23

Precedents – When the Courts will and will not uphold a Quistclose Trust claim

The most useful way to gain an understanding of how the principles are applied and where the Courts tend to draw the line as to when a Quistclose trust has and has not been created is to read cases. It is worth making sure to have regard to the most recent iterations of the Courts’ application of the principles, to see the current approach. You can then consider the facts of the case before you, and the picture will generally become clearer as to on which side of the line it likely falls.

Here, then, is a selection of 11 Quistclose trust cases, falling variously either side of the line. These are in chronological order and are mostly Australian, though I have included several English decisions. The frequency with which the issue continues to arise recently is eloquent as to how important a potential claim the Quistclose trust continues to be.

(1) Barkleys Bank v Quistclose Investments [1970] AC 567

In the original Quistclose decision, Rolls Razor was seeking financing, and turned to the company of a significant shareholder. Quistclose Investments agreed to provide finance but as a precondition, Rolls Razor was required to pay all pre-declared dividends. The evidence was that the mutual intention of Quistclose and Rolls Razor, and indeed the essence of their bargain, was that the sum advanced by cheque should not become part of the assets of Rolls Razor but should be used exclusively for the payment of the particular class of creditors. The cheque drawn by Quistclose in favour of Rolls Razor, which represented the moneys borrowed by Rolls Razor, had been paid into a special account with Barclays who, importantly, had been informed that the account was to be used only to pay the dividend to those creditors. Rolls Razor subsequently went into liquidation. The findings as to the parties’ mutual intention was held to give rise to a primary trust in favour of those entitled to a dividend, and that if the purpose could not be carried out, the money was then held on a secondary trust to be returned to Quistclose. Quistclose trust found.

(2) Twinsectra v Yardley [2002] UKHL 12; [2002] 2 AC 164

In this case, Yardley obtained a loan from Twinsectra to buy a property. Twinsectra asked for a solicitor’s undertaking to secure the loan; the undertaking was to ensure that they moneys lent were not disbursed pending the acquisition of property and would only be used to acquire property. The solicitor S gave the undertaking. The moneys lent were applied in breach of the undertaking. It was argued that given Twinsectra was a commercial lender, it was difficult to conclude that it intended to retain beneficial title or create a trust over the money advanced, but failed to make this explicit in the loan agreement; that instead, all indicia pointed to an unsecured loan protected by a high interest rate and a solicitor’s personal undertaking. However, the Appellate Committee held that the solicitor’s undertaking, which was given as a condition of payment, gave rise to a Quistclose trust. Clauses 1 and 2 of the undertaking made it clear that the money was not to be at the free disposal of Mr Yardley.24 Lord Millet observed at [73] that it was not enough that the money was lent for a particular purpose because money so lent without more is at the free disposition of the borrower. Quistclose trust found.

(3) David Alan Thomson v Golden Destiny Investments Pty Ltd (No 2) [2015] NSWSC 1929

This case in 2015 involved a property development that had failed. NGI had contributed $6 million on behalf of investors. NGI argued that the $6 million was at all times impressed with a Quistclose trust. The Court however held that it was not. There was no evidence of such a mutual intention nor did the plaintiffs ever constitute themselves as trustees, nor did GDI. Once the monies were paid away to the plaintiffs, without it being impressed with a trust, it became the plaintiffs’. It was no longer NGI’s money or the investors’. Upon rescission of the original contracts, the plaintiffs were obliged to repay the $6 million to GDI. There existed a chose in action. GDI was indebted to NGI. But there was no trust. No Quistclose trust.

(4) First City Monument Bank PLC v Zumax Nigeria Ltd Ltd [2019] EWCA Civ 294

The issue in this case was whether a financial institution (IMB) held on trust for Zumax moneys credited to IMB’s bank account with Commerzbank by a nominee for Zumax from its account with a different bank, and transmitted with instructions that the credits were for onward transmission to Zumax. The Court of Appeal of England and Wales held that a trust was not established because, per Newey LJ (Lewison and Males LLJ agreeing) –

  1. In so far as it was said that the trust was an express trust, there had to be certainty of intention, objects and subject matter (which was not shown), and
  2. In so far as a resulting trust was relied upon, it was not enough to show that the moneys were paid for a purpose. More had to be shown. This could be demonstrated by showing that the money was not at the free disposition of the recipient. However that could not be shown here because there was no segregated bank account for these credits and the parties would expect the moneys held by a bank to be used by the bank for its own purposes. No Quistclose trust.

(5) Nikitins (Liquidator) v EncoreFX (Australia) Pty Ltd (in liq) No 2) [2021] FCA 27

In this case in 2021, the company EncoreFX operated a business providing foreign exchange services to businesses. On a particular day two customers deposited about $800,000 to be exchanged into USD. However before the funds could be exchanged, EncoreFX was placed into external administration. The Court found that the moneys were held under a statutory trust established by Australian financial services legislation (s 981H of the Corporations Act 2001 (Cth), although the alternative claim to a statutory trust under s 1017E failed). In obiter, it went on to find that the funds were not held on a Quistclose trust. Colvin J observed –

  1. The fact that before the payment of one of the customers, its CEO expressed the need to feel his company’s money would be safe. An employee of the recipient company said his company’s funds would be held in a trust bank account pending completion of the transactions. The Court attributed no weight to this oral conversation, as there was no evidence as to what authority (if any) that employee had to make representations on behalf of EncoreFX. Instead the correct approach was to focus upon the nature of the transaction and the objective intention.
  2. The Court examined the PDS and found the language was equivocal as to whether funds paid would be held separately. This was not enough to establish a trust. No Quistclose trust.

(6) Krejci, in the matter of Union Standard International Group Pty Ltd (in liq) [2021] FCA 1483

In this case in 2021, Union Standard had provided financial services to various customers, including a class known as “investing clients”. When it went into liquidation, there were insufficient funds to pay all creditors. The investing clients claimed a priority over funds in a particular account, on the basis those funds were held on trust for the investing clients. The Court held that a statutory trust was established by Australian financial services legislation. It went on to consider, in obiter, whether a Quistclose trust was established. It found that it was, on the basis that –

  1. everything the investing clients were told indicated to them that their funds were held and used by Union Standard as a trustee, on trust for those clients. They were told this directly by Union Standard’s agents. They were told this throughout the documentation.
  2. a Quistclose trust arose as moneys were paid by investing clients to Union Standard not to become part of Union Standard’s general assets but only to be used for the purpose of Union Standard using the moneys to generate leverage in trading transactions on behalf of the investing clients. Quistclose trust found.

(7) Re BBY Limited (Receivers and Managers Appointed)(in liq) [2022] NSWSC 29

This was a case last year where money was transferred for a purpose (payment of a margin call). The payer imposed no restrictions or conditions on BBY as to its treatment of the funds, other than its repayment within a short-time frame. Relevantly, no request was made for BBY to segregate the $3m from its general assets. The payer was not told that the funds would be deposited into a trust account of BBY, nor was an undertaking given by anyone on behalf of BBY that the $3 million advance would be used solely for paying margin calls in relation to the Aquila trade and for no other purpose, and was to be retained by BBY until so applied. The payer could have, but did not, place any conditions or restrictions on the use of the funds by BBY, or the ability of BBY to mix the funds with other monies. The payer’s submissions “conflated an expectation or general understanding that funds would be used for a specific purpose with the mutual intentions of the parties. The question [was] whether the objective intention of the parties was that the funds advanced would remain the beneficial property of the lender (even if not an exclusive beneficial interest) until the borrower applied those funds in the manner required by the stipulated purpose.” The Court held that the payment was not of moneys impressed with a trust, the payer became a creditor of BBY, and the payment was an unfair preference. No Quistclose trust.

(8) Prickly BayWaterside Ltd v British American Insurance Company Ltd (Grenada) [2022] UKPC 8

In this Privy Council decision last year, a Mrs Lee had paid the respondent Baico a sum of money which the appellant Prickly Bay asserted was intended to be used for the purpose of payment in two years’ time of an amount which would then have become due and payable to a Mr Steele. Baico had given a guarantee that this sum would be duly paid. Prickly Bay contended that in this context Mrs Lee retained the beneficial right and title to the moneys and that Baico, having failed to pay under the guarantee, was liable to return the moneys to her. Prickly Bay failed both at first instance in Grenada, on appeal to the Eastern Carribean Court of Appeal, and in the Privy Council. In dismissing the appeal, the Board of the Privy Council observed, inter alia

  1. It was critical that there was no requirement that the funds be segregated, so long as money to the same amount was then paid as intended pursuant to the contractual obligations assumed. (at [42])
  2. There was nothing to indicate that Prickly Bay (or Mrs Lee on its behalf) retained any beneficial interest in the money or that it did not form part of the general assets of Baico once paid over to it. What was created was a contractual arrangement, not a trust. (at [44])
  3. Mrs Lee had remedies in contract against Baico, but did not require Baico to act as a fiduciary or to keep her subscription moneys separate from any of its own moneys. Those aspects of the parties’ arrangements were inconsistent with the retention by Prickly Bay (or Mrs Lee) of any partial beneficial interest under a Quistclose trust to enforce the performance of the purpose of the trust or alternatively the return of the moneys. (at [46]) No Quistclose trust.

(9) Goo v Sim [2022] NSWSC 420

In this case last year, the plaintiffs and Mr Sim had entered into a business venture to create an online remittance portal for the real-time transfer of money between individuals in Australia and South Korea. Mr Sim set up a South Koren company global HR for the new business. A sum of $110,000 ($109,000 cash and $1,000 transfer) was given to Mr Sim by one of the plaintiff companies, just before Global HR was incorporated, and a second cash amount of $50,000 was given to Mr Sim two months later by another plaintiff. It was alleged Mr Sim had then used the money for his own benefit rather than for the business venture, although Mr Sim said it was used for his salary and business expenses. A range of claims were brought, including a contention that the $110,000 was held on a Quistclose trust. The plaintiffs claimed the $110,000 did not become Global HR’s property or part of its assets because of the specific purpose for which the money was paid, which Global HR knew. The Court accepted that objectively, it must have been the purpose of the parties that the $110,000 was to be transferred to Global HR and to be used only for its establishment and ordinary business operations in connection with the establishment of the online remittance business in Korea. However it was not sufficient to show the money was advanced for such a purpose. There had to be other objective indicators of an intention to create a trust, and an intention that the money not become part of the general assets of Global HR. There was no evidence that Mr Goo and Mr Sim discussed a requirement to keep the money in an account separate from any other money Global HR might receive, a powerful indicator of an absence of intention that the money was intended to be held on trust. The plaintiffs did not point to any language used by the parties that was suggestive of the $110,000 being held on trust. No Quistclose trust.

(10) Eumeralla Estate Pty Ltd v Chen [2022] VSCA 78

I regard this case as probably the low water mark of Quistclose trust cases, in that at first blush it looks like a case where money was paid into a company’s bank account for a purpose, as is always the case, but with no explicit restrictions. However there was more to it than that. This was a joint venture case, with a JV agreement governing the parties’ dealings. The defendants had paid $430,000 into the JV vehicle Eumeralla’s bank account for the future development of a particular property. Ultimately the sale did not proceed. One of the plaintiffs moved the money out of the account inconsistently with the intended purpose. The Court of Appeal held that Eumeralla held the money on trust for the defendants, on the basis that the money was paid into Eumeralla’s account for a particular purpose known to all parties. It was significant that: Eumerella was incorporated to further the mutually agreed purpose of the parties, being the corporate vehicle for the property purchase and development, it conducted no other business and had that single purpose, the payment occurred pursuant to a joint venture agreement, it was not open to the plaintiffs to withdraw the money from the account as they did. Quistclose trust found.

(11) Jieyun International Investments Pty Ltd v Toorak Development Group Pty Ltd [2022] VSC 387

In this case last year, loan money was advanced by Jieyun under a loan deed pursuant to which the moneys advanced “must only be used for the Approved Purpose”, which was the purchase by Toorak Development of certain Toorak properties, and the payment of development and construction expenses. The deed repeated that the parties acknowledged and agreed that the loan must only be used for the Approved Purpose. The Court held that the moneys were held on a Quistclose trust, inferring the intention to create a trust from –

  1. Both Jieyun and Toorak Development expressly acknowledged and agreed that the advances must only be used for the Approved Purposes. This was intended to make clear that the advances were not intended to become the beneficial property of Toorak Development
  2. There was an express restriction on the manner in which the trustee Toorak Development could deal with trust assets
  3. The fact that Toorak Development was an SPV to be trustee of the TDG Unit Trust, established for the purpose of carrying on the business of real estate, in developing the particular properties. Quistclose trust found.


Quistclose trusts can be a useful tool for recovery in equity, if the circumstances of the relevant transaction/s support them. They become more acutely important when the recipient subsequently collapses. If a trust arose and the payor retains a proprietary interest in the funds paid, it may be traceable into the recipient’s bank account / chose in action and potentially – subject to matters like the tracing rules – recovered. So – when will that be the case?

The principles distilled above should be read in full. However it is clear from the authorities that the two key requirements are those at principles (5) and (6) above. As the New South Wales Supreme Court concluded last year in Re BBY Ltd, in order for a transfer of funds or assets to be characterised as held on a Quistclose trust, the Court will look to whether the parties outwardly manifested a mutual intention that –

  1. The money was provided for a specific purpose, and
  2. The recipient was to be subject to restrictions on the use of the money for any other purpose

If equity would so respond, this can be a valuable claim.


  1. As to the last point, see Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 (Lipkin Gorman), 572 per Lord Goff of Chieveley.
  2. There is no property in currency: Lipkin Gorman at 563 per Lord Templeman. It is said that when money passes into currency property goes with possession: Ilich v The Queen (1987) 162 CLR 110, 128 per Wilson and Dawson JJ, 138-139 per Brennan J.
  3. Russell v Scott (1936) 55 CLR 440, 450-451 per Dixon and Evatt JJ.
  4. Croton v The Queen [1967] HCA 48; (1967) 117 CLR 326, 330 per Barwick CJ.
  5. Note that in some cases, a statutory trust may arise under Australian financial services legislation, such as s 981H or s 1017E of the Corporations Act 2001 (Cth). That is a topic for another paper.
  6. See eg Salvo v New Tel Limited [2005] NSWCA 281 (Salvo) at [32]-[53] per Spigelman CJ; Legal Services Board v Gillespie-Jones (2013) 249 CLR 493 at [112]-[127] per Bell, Gageler and Keane JJ; Raulfs v Fishy Bite [2012] NSWCA 135, [44]-[55] per Campbell JA; See also Abandoning the Quistclose Trust in Insolvency, Balani R, (2021) 42(1) Adelaide Law Review 259, 263. Cf Salvo at [76]-[78] per Handley JA, McManus RE Pty Ltd v Ward (2009) 74 NSWLR 662 at [25] per Palmer J, Adam v Hasabo [2019] NSWSC 1167 at [252] per Robb J; Eumeralla Estate Pty Ltd v Chen [2022] VSCA 78.
  7. The original decision is Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.
  8. Nikitins (Liquidator) v EncoreFX (Australia) Pty Ltd (in liq)(No 2) [2021] FCA 27 (Nikitins v EncoreFX) at [100], citing Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 (Re Australian Elizabethan Theatre Trust), 502-503 per Gummow J.
  9. Prickly Bay Waterside Ltd v British American Insurance Company Ltd [2022] UKPC 8; [2022] 1 WLR 2087 (Prickly Bay) at [32] per Lady Arden, delivering the judgment of the Privy Council.
  10. Nikitins v EncoreFX at [100], citing Re Australian Elizabethan Theatre Trust at 503, Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 at [53]-[59] per Gummow and Hayne JJ.
  11. Re BBY Limited (Receivers and Managers Appointed)(in liq) [2022] NSWSC 29 (Re BBY Limited).
  12. Prickly Bay at [37].
  13. Prickly Bay at [47].
  14. Prickly Bay at [34]; Twinsectra Ltd v Yardley [2002] 2 AC 164 (Twinsectra v Yardley) at [73].
  15. Nikitins v EncoreFX at [101], citing Legal Services Commissioner v Brereton [2011] VSCA 241; (2011) 33 VR 126 at [96] per Tate JA, Nettle and Ashley JJA agreeing.
  16. Nikitins v EncoreFX at [101], citing George v Webb [2011] NSWSC 1608 at [211] per Ward J, and Twinsectra Ltd v Yardley at 185.
  17. See Re BBY Limited.
  18. Nikitins v EncoreFX at [102], citing Walker v Corboy (1990) 19 NSWLR 382, 397-398 per Meagher JA.
  19. Raulfs v Fishy Bite [2012] NSWCA 135 at [61] per Campbell JA, Meagher and Barrett JJA agreeing.
  20. Nikitins v EncoreFX at [103], citing Peter Cox Investments Pty Ltd (in liq) v International Air Transport Association [1999] FCA 27; 161 ALR 105 at [49] O’Loughlin J.
  21. Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) [2021] NSWSC 966 at [2686] per Ward CJ in Eq. Note this principle applies to all express trusts, not only Quistclose trusts.
  22. Eumeralla Estate Pty Ltd v Chen [2022] VSCA 78 at [83(g)] per the plurality. This trust law principle is not exclusive to Quistclose trusts, however this was a Quistclose trust case.
  23. See Re BBY Limited.
  24. See Prickly Bay at [23].
Carrie Rome-Sievers Headshot

Carrie is a commercial law barrister practising with a focus on insolvency and corporations law, equity and trusts, fraud, contract and restitution.

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