Quist Close Trust: An Equitable Safety Net For Lenders

In addition to instituting a common law claim for a repudiatory breach of the underlying loan agreement, where the moneys advanced are applied by the borrower for a purpose other than that contemplated by the parties, the lender may safeguard his position by harnessing, by way of an equitable device termed a Quistclose trust, an enforceable security in the form of an interest in the borrowed funds (Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 HL). This may be accomplished by the lender in circumstances where the operative agreement is capable of being construed in a manner whereby the borrower shall effectively be restricted to applying the loan moneys for no purpose other than that which has been duly prescribed. The implication of any such arrangement is that should the borrower utilise the loan amount in a way which deviates therefrom, this may conceivably culminate in the formation of a trust. A legal occurrence of this nature has a consequential