Carreras Rothmans v Freeman Mathews Treasure [1985]
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Carreras Rothmans v Freeman Mathews Treasure [1985] Ch 207 is a legal case that discusses the nature of the Quistclose trust, suggesting that it is a type of purpose trust akin to the Denley model. The case involves a situation where money was transferred to a special bank account for a specific purpose.
Carreras hired an advertising firm and transferred money to a special bank account held by the firm. This transfer aimed to assist the firm in settling its debts to creditors. Carreras's concern was that if the firm became insolvent, he might be held accountable for the firm's debts. When the firm went into liquidation, Carreras claimed the money from the special bank account.
The court held that a Quistclose trust was created. Peter Gibson J, in his judgment, asserted that if the common intention is for property to be transferred for a specific purpose and not to become the property of the transferee, the transferee cannot retain the property if, for any reason, that purpose cannot be fulfilled.
Peter Gibson J further stated that the primary trust in this case is a purpose trust. This aligns with the Denley-type purpose trust model. The analysis was later adopted by Sir Robert Megarry V-C in Re Northern Developments, where it was held that the primary trust was a purpose trust enforceable by the subsidiaries’ creditors.
According to Sir Robert Megarry's analysis, the beneficial interest in the trust remains in suspense until the stated purpose is fulfilled or fails. Only when the primary purpose trust concludes is the beneficial interest vested in the settlor.
The purpose trust analysis, particularly the notion that the beneficial interest is in suspense until the purpose is fulfilled or fails, was criticised by Lord Millet in Twinsectra. Lord Millet argued that the trust might be for abstract purposes without specific individuals benefiting and that the purpose was not to benefit third-party creditors but to protect the lender advancing the money.
Carreras hired an advertising firm and transferred money to a special bank account held by the firm. This transfer aimed to assist the firm in settling its debts to creditors. Carreras's concern was that if the firm became insolvent, he might be held accountable for the firm's debts. When the firm went into liquidation, Carreras claimed the money from the special bank account.
The court held that a Quistclose trust was created. Peter Gibson J, in his judgment, asserted that if the common intention is for property to be transferred for a specific purpose and not to become the property of the transferee, the transferee cannot retain the property if, for any reason, that purpose cannot be fulfilled.
Peter Gibson J further stated that the primary trust in this case is a purpose trust. This aligns with the Denley-type purpose trust model. The analysis was later adopted by Sir Robert Megarry V-C in Re Northern Developments, where it was held that the primary trust was a purpose trust enforceable by the subsidiaries’ creditors.
According to Sir Robert Megarry's analysis, the beneficial interest in the trust remains in suspense until the stated purpose is fulfilled or fails. Only when the primary purpose trust concludes is the beneficial interest vested in the settlor.
The purpose trust analysis, particularly the notion that the beneficial interest is in suspense until the purpose is fulfilled or fails, was criticised by Lord Millet in Twinsectra. Lord Millet argued that the trust might be for abstract purposes without specific individuals benefiting and that the purpose was not to benefit third-party creditors but to protect the lender advancing the money.
