Twinsectra Ltd. v. Yardley et al., (2002) 287 N.R. 33 (HL)

• Case Date: March 21, 2002
• Jurisdiction: Canada (Federal)
• Citations: (2002), 287 N.R. 33 (HL)

Twinsectra Ltd. v. Yardley (2002), 287 N.R. 33 (HL)

MLB headnote and full text

Twinsectra Limited (respondents) v. Yardley and others (appellants)

([2002] UKHL 12)

Indexed As: Twinsectra Ltd. v. Yardley et al.

House of Lords

London, England

Lord Slynn of Hadley, Lord Steyn, Lord Hoffmann, Lord Hutton and Lord Millett

March 21, 2002.

Summary:

Leach, a solicitor, acted for Yardley in a transaction which included the negotiation of a £1,000,000 loan from Twinsectra Ltd. Leach did not deal directly with Twin­sectra, rather another firm of solicitors, Sims and Roper (Sims), represented them­selves as acting on behalf of Yardley. Sims received the money in return for an under­taking, inter alia, that the loan monies would be retained until they were applied in the acquisition of property on behalf of their client and be used only for that pur­pose. Contrary to the terms of the under­taking, Sims paid the money to Leach. Leach in turn did not take steps to ensure that the money was utilised to acquire prop­erty and paid the money to Yardley, who used £357,720.11 for other purposes. The loan was not repaid and Twinsectra sued Leach et al., claiming that he was liable as an accessory to Sims' breach of trust. The trial judge found that the monies received by Sims were not held in trust and, in any event, Leach had not acted dishonestly. Twinsectra appealed.

The Court of Appeal allowed the appeal, holding that the undertaking gave rise to a trust, that Leach had acted dishonestly and was liable as an accessory to Sims' breach of trust. Leach appealed.

The House of Lords, Lord Millett, dis­senting in part, allowed the appeal. The court held that the undertaking given by Sims to Twinsectra created a trust. The court, apply­ing a combined objec­tive/subjective test, held that Leach had not acted dishonestly and was therefore not liable as an accessory.

Trusts - Topic 375

Creation of trust - Purpose or object - “Quistclose” trust - The House of Lords, per Lord Millett, stated that "money advanced by way of loan normally becomes the property of the borrower. He is free to apply the money as he chooses, and save to the extent to which he may have taken security for repay­ment the lender takes the risk of the borrower's insolvency. But it is well established that a loan to a borrower for a specific purpose where the borrower is not free to apply the money for any other purpose gives rise to fiduciary obliga­tions on the part of the borrower which a court of equity will enforce. In the earlier cases the purpose was to enable the bor­rower to pay his creditors or some of them, but the prin­ciple is not limited to such cases. Such arrangements are com­monly described as creating 'a Quistclose trust', after the well-known decision of the House in Quistclose Investments Ltd. v. Rolls Razor Ltd., [1970] A.C. 567, in which Lord Wilber­force confirmed the validity of such ar­rangements and explained their legal con­sequences" - See paragraphs 68 and 69.

Trusts - Topic 375

Creation of trust - Purpose or object - “Quistclose” trust - [See second Trusts - Topic 6153 ].

Trusts - Topic 6153

The trustee - Breach of trust - Liability of stranger to trust (incl. accessory lia­bility principle) - The House of Lords applied a "combined test" for determining when a person was liable as an accessory to a breach of trust - The court described the "combined test" as "a standard which combines an objective test and a subjec­tive test, and which requires that before there can be a finding of dishonesty it must be established that the defendant's conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised that by those standards his conduct was dis­honest." - See paragraphs 25 to 38.

Trusts - Topic 6153

The trustee - Breach of trust - Liability of stranger to trust (incl. accessory lia­bility principle) - Leach, a solicitor, acted for Yardley in a transaction which included the negotiation of a £1,000,000 loan from Twinsectra Ltd. - Leach did not deal directly with Twinsectra, rather another firm of solicitors, Sims and Roper (Sims), represented themselves as acting on behalf of Yardley - Sims received the money in return for an un­dertaking, inter alia, that the loan monies would be retained until they were applied in the acquisition of property on behalf of their client and would be used for no other purpose - Contrary to the terms of the undertaking, Sims paid the money to Leach - Leach in turn did not take steps to ensure that the money was utilised to acquire property and paid the money to Yardley, who used £357,720.11 for other purposes - The loan was not repaid and Twinsectra sued Leach et al., claiming that he was liable as an accessory to Sims' breach of trust - The House of Lords held that the undertaking given by Sims to Twinsectra created a "Quistclose" trust - The court, applying a combined objective/subjective test, held that Leach had not acted dishonestly and was there­fore not liable as an accessory to Sims breach of trust.

Cases Noticed:

Royal Brunei Airlines Sdn. Bhd. v. Tan, [1995] 2 A.C. 378; 185 N.R. 136 (P.C.), refd to. [paras. 3, 7, 9, 25, 105].

United Bank of Kuwait v. Hammoud, [1988] 1 W.L.R. 1051 (C.A.), refd to. [paras. 15, 57].

In re Baden's Deed Trusts, [1971] A.C. 424, refd to. [para. 16].

Manifest Shipping Co. v. Uni-Polaris Ship­ping Co. et al., [2001] 2 W.L.R. 170; 266 N.R. 50 (H.L.), refd to. [para. 22].

Walker v. Stones, [2000] Lloyd's Rep. PN 864, refd to. [para. 27].

R. v. Ghosh, [1982] Q.B. 1053; [1982] 2 All E.R. 689 (C.A.), refd to. [para. 31, 115].

Abbey National plc v. Solicitors Indemnity Fund Ltd., [1997] P.N.L.R. 306, refd to. [para. 37].

Mortgage Express Ltd. v. Newman & Co., [2000] Lloyds Rep. PN 745 (C.A.), refd to. [para. 44].

Mortgage Express Ltd. v. Newman & Co., [2000] P.N.L.R. 298 (H.C.), refd to. [para. 44].

Automatic Wood-Turning Co. v. Stringer, [1957] A.C. 544, refd to. [para. 50].

Quistclose Investments Ltd. v. Rolls Razor Ltd. (In Liquidation), [1970] A.C. 567, refd to. [para. 69].

Goldcorp Exchange Ltd. (Receivership), Re, [1995] 1 A.C. 74; 170 N.R. 241 (P.C.), refd to. [para. 74].

Gibert v. Gonard (1884), 54 L.J. Ch. 439, refd to. [para. 76].

Rose v. Rose (1986), 7 N.S.W.L.R. 679, refd to. [para. 76].

General Communications Ltd. v. Development Finance Corp. of New Zealand, [1990] 3 N.Z.L.R. 406 (C.A.), refd to. [para. 80].

Australian Elizabethan Theatre Trust, Re (1991), 102 A.L.R. 681 (Fed. Ct.), refd to. [para. 80].

Toovey v. Milne (1819), 2 B & A 683, refd to. [para. 82].

Rogers, Re; Ex parte Holland and Hannen (1891), 8 Morr. 243, refd to. [para. 82].

Grant's Will Trusts, Re; Harris v. Anderson, [1980] 1 W.L.R. 360; [1979] 3 All E.R. 359, refd to. [para. 88].

Denley's Trust Deed, Re, [1969] 1 Ch. 373, refd to. [para. 88].

Edwards v. Glyn (1859), 2 E. & E. 29, refd to. [para. 89].

EVTR, Re; Gilbert v. Barber, [1987] B.C.L.C. 646, refd to. [para. 89].

Carreras Rothmans Ltd. v. Freeman Matthews Treasure Ltd., [1985] Ch. 207, refd to. [para. 90].

Westdeutsche Landesbank Girozentrale v. London Borough of Islington, [1996] A.C. 669; 198 N.R. 241 (H.L.), refd to. [para. 91].

Bristol and West Building Society v. Mothew, [1998] 1 Ch. 1, refd to. [para. 99].

Boscawen v. Bajwa, [1996] 1 W.L.R. 328, refd to. [para. 99].

Barclays Bank Plc v. Weeks Legg and Dean, [1999] Q.B. 309, refd to. [para. 99].

Agip (Africa) Ltd. v. Jackson, [1990] Ch. 265, refd to. [para. 105].

Barnes v. Addy (1874), LR. 9 Ch. App. 244, refd to. [para. 108].

Baden v. Société Générale pour Favoriser le Developpement du Commerce et de l'Industrie en France S.A., [1993] 1 W.L.R. 509, refd to. [para. 113].

Aktieselskabet Dansk Skibsfinansiering v. Bothers, [2001] 2 B.C.L.R. 324, refd to. [para. 116].

Cowan de Groot Properties Ltd. v. Eagle Trust plc, [1992] 4 All E.R. 700 (Ch.), refd to. [para. 118].

Grupo Torras SA v. Al-Sabah, [1999] C.L.C. 1469, refd to. [para. 122].

Beaman v. A.R.T.S. Ltd., [1949] 1 K.B. 550 (C.A.), refd to. [para. 123].

Thomson (D.C.) and Co. v. Deakin, [1952] Ch. 646 (C.A.), refd to. [para. 128].

Sefton v. Tophams Ltd., [1965] Ch. 1140, refd to. [para. 128].

British Motor Trade Association v. Salvadori, [1949] Ch. 556, refd to. [para. 129].

Authors and Works Noticed:

Blair, William, Secondary Liability of Financial Institutions for the Fraud of Third Parties (2000), 30 Hong Kong L.J. 283, generally [para. 122].

Bridge, M., The Quistclose Trust in a World of Secured Transactions (1992), 12 O.J.L.S. 333, p. 352 [para. 80].

Chan, Jeremy, Dishonesty and Knowledge (2001), 31 Hong Kong L.J. 283, generally [para. 122].

Finn, Equity and Commercial Transactions (1987), pp. 217, 237 [para. 80].

Ho, Lusina, and Smart, P. St. J., Reinterpreting the Quistclose Trust: A Critique of Chambers Analysis (2001), 21 O.J.L.S. 267, generally [para. 95].

Millett, The Quistclose Trust: Who Can Enforce It? (1985), 101 L.Q.R. 269, generally [para. 80].

Priestly, J., The Romalpa Clause and the Quistclose Trust, in Finn, Equity and Commercial Transactions (1987), pp. 217, 237 [para. 80].

Stafford, Andrew, Solicitors' liability for knowing receipt and dishonest assistance in breach of trust (2001), 17 Professional Negligence 3, generally [para. 37]; p. 14 [para. 122].

United Kingdom, Law Commission, Report on Limitation of Actions, Law Comm. No. 270, para. 3.137 [para. 124].

Counsel:

David Oliver, Q.C., and Sue Carr, for the appellant, Yardley;

J. Fenwick, Q.C., for the appellant, Leach;

Romie Tager, Q.C., and T. Oakley, for the respondents.

Agents:

Goldsmiths, for the appellants;

Wallace and Partners, for the respon­dents.

This appeal was heard on October 15-18, 2001, before Lord Slynn of Hadley, Lord Steyn, Lord Hoffmann, Lord Hutton and Lord Millett of the House of Lords. The decision of the House was given on March 21, 2002, when the following speeches were delivered:

Lord Slynn of Hadley - see paragraphs 1 to 6;

Lord Steyn - see paragraphs 7 and 8;

Lord Hoffmann - see paragraphs 9 to 24;

Lord Hutton - see paragraphs 25 to 51;

Lord Millett, dissenting in part - see paragraphs 52 to 146.