By Associate Professor Elise Bant
The elusive nature of the Quistclose trust has spawned much comment, analysis and speculation, by judges and scholars in equal measure, since its genesis in Barclays Bank Ltd v Quistclose Investments Ltd  UKHL 4;  AC 567. A Quistclose trust is a trust which may arise when a loan is made for a specific purpose (and is often asserted by a lender when the purpose of the loan fails) but its precise nature is highly debatable. In that context, those of us who had hoped for a definitive clarification, or even some in-depth discussion, of the doctrine in the much-awaited High Court decision of Legal Services Board v Gillespie-Jones  HCA 35 may be forgiven for feeling slightly disappointed. However, the Court’s circumvention of that debate (explicable in the light of its reasoning, discussed below) is offset by some very interesting observations about the interaction of judge-made law and statute, and in particular about the need for ‘coherence’ across the two sources of law, that merit attention in their own right.
How did the case arise? Lawyers stealing from other lawyers
A client facing criminal proceedings paid monies to his solicitor on to cover legal costs associated with his defence. A barrister was retained and performed a variety of services for the solicitor on the client’s behalf, but was not yet paid for those services. Pursuant to s 3.3.2 of the Legal Profession Act 2004 (Vic) (LPA) the monies constituted ‘trust money’ and were to be held for the benefit of the client. Under s 3.3.14, those monies could only be dealt with by the solicitor pursuant to and in accordance with the client’s direction. However, the solicitor stole most of the trust money, leaving the respondent barrister seriously out of pocket. The barrister made a claim for compensation for ‘pecuniary loss’ caused by the solicitor’s default under the Legal Practitioners Fidelity Fund, a fund maintained by the Legal Services Board (the appellant) under the LPA. A key question was whether the barrister had to show a proprietary interest to successful establish his claim, and if he did, whether he could make out a proprietary interest in the funds held by the solicitor. The appellant at first instance rejected his claim. The respondent successfully appealed to the County Court of Victoria, and won again on appeal to the Court of Appeal of the Supreme Court of Victoria. This run of success ended, however, before the High Court, which unanimously allowed the appellant Board’s appeal.
Did the barrister have to show that he had a proprietary interest in the stolen money?
The result in the case turned upon a wide-ranging analysis of the relevant statutory provisions and their application to unchallenged findings of fact by the primary judge. In a joint judgment, Chief Justice French and Justices Hayne, Crennan and Kiefel held that the purpose of pt 3.3 of the LPA is to regulate dealings with trust money (as defined under the statute), and to deter persons from dealings with that money contrary to, or without instructions and contrary to the interests of the persons on whose behalf the money was held: . The related purpose of pt 3.6 of the LPA is to compensate persons who suffer pecuniary loss as a result of some default. The plurality held that in order to qualify as a relevant ‘person’ under s 3.6.7, the barrister need not show that he held some pre-existing proprietary interest in the trust money, such as that which might arise under a Quistclose trust. For this reason, their Honours considered any Quistclose analysis ‘not to the point’: . Nor did the LPA require that the respondent hold a beneficial interest under the statutory trust as defined under s 3.3.2 of the statute. Adopting a generous approach to the remedial provision, their Honours considered that it only required that the respondent have suffered pecuniary loss which was caused by some default. That question in turn came down to whether there had been a ‘failure to pay or deliver’ trust money to the respondent so as to give rise to a relevant ‘default’ under s 3.6.2 of the Act. Given the solicitor was only entitled to make disbursements of trust money at the direction of his client, a default required that there had been some instruction given to him by the client that he had failed to follow. Ultimately, therefore, the case rested on the factual question of whether the client had ever instructed the solicitor to pay the barrister’s fees on receipt of his memoranda of fees. The plurality considered that the primary judge had made no finding of such an instruction, and her express findings on the nature of the arrangement between client and solicitor were inconsistent with such an instruction having been given. It followed that an essential factual element of the claim had not been established.
In a separate joint judgment, Justices Bell, Gageler and Keane agreed with the result, but adopted a different statutory analysis. Their Honours agreed with the majority that the monies were held on a statutory trust for an on behalf of the client. But their Honours considered that, in light of the statutory history of the remedial provisions, the compensatory purpose of pt 3.6 of the statute was limited to persons holding a beneficial interest in the trust money. As the beneficiary of the statutory trust in the instant case was the client, not the barrister, the latter’s claim necessarily failed.
The foregoing summary suggests that this case has little to say beyond its immediate, albeit important, statutory context. However, there are several points of broader interest and import.
To what extent should statutory provisions to be interpreted in light of common law doctrines?
The first is the emphasis by all members of the Court on the importance of having primary regard to the words of the statute in interpreting its provisions, and avoiding overlaying those words with unnecessary and irrelevant common law doctrines and concepts. The same refrain has been fairly consistently played in recent years by the Court (for example, in the context of the Trade Practices Act 1974 (Cth), now Australian Consumer Law, see Marks v GIO Australia Holdings Ltd  HCA 69,  (Gummow J).) However, it might be commented that the distinct approaches offered in the two joint judgments rather underlines the difficulty inherent in engaging in statutory interpretation in a vacuum. That some assistance beyond the words of the statute is required to give them meaning is confirmed in the court’s reasoning. The majority founded its interpretation of pt 3.6 on its ‘remedial and beneficial’ purpose, demanding ‘as generous a construction as the actual language of the provisions permits’. The minority’s more restrictive interpretation, by contrast, arose from the close historical analysis of the evolution of the statute and the view that the current Act was not intended to deviate from that course. Neither analysis is dictated or excluded by the simple words of the statute.
Is coherence in the law of overriding importance?
The second and most striking feature of the decision of Justices Bell, Gageler and Keane is their treatment of the Quistclose trust analysis. Rather than simply dismissing the doctrine as irrelevant, in the manner of the majority, their Honours did consider whether an express trust (which might attract the Quistclose label, discussed further below) arose on the facts, and concluded that it did. However, they considered that any such trust potentially gave rise to rights or obligations inconsistent with those conferred or imposed under the scheme. To that extent, it necessarily undermined the statutory scheme and for that reason must not be recognised, enforced or inferred (at –). This reflects an application of the overriding principle of ‘coherence’ or (viewed from the other side) ‘stultification’ recently and repeatedly emphasised by the High Court (see, eg, Miller v Miller  HCA 9; Equuscorp Pty Ltd v Haxton  HCA 7). This principle dictates that a plaintiff must be permitted or denied recovery where to do otherwise would undermine or stultify some overriding principle or policy of the law. The principle aims to avoid incoherence or incongruity in the law. It is a general principle applicable throughout the law rather than a particular aspect of the law of trusts.
The High Court’s promotion of the principle of coherence raises some important and hitherto under-examined issues that go to the heart of our legal system. For reasons of space, only two are noted here. The first is that it arguably provides fresh impetus to those scholars who seek principled ‘fusion’ or convergence between the judge-made rules of common law and equity. Any principle of coherence should surely support rationalisation of doctrines differentiated by historical origin alone. The differing requirements of common law and equitable rescission, approaches to tracing at common law and in equity, and separate evolution and indicia of common law and equitable wrongs triggered by common factual patterns are only some of the areas that reflect an arguably unwarranted inconsistency in approach, and that would arguably benefit from rigorous application of the coherence principle. The second question is far more contentious and relates to the broader and ongoing interplay between judge-made law (comprising rights arising both at common law and in equity) and statutory provisions that reflect some consistent and overriding public policy. The statutory Leviathans of our time (such as the Torrens regime, Corporations Act 2001 (Cth) and Australian Consumer Law) spring to mind in this context. To what extent must or should those statutes exert ‘gravitational force’ on the development of related common law areas pursuant to the principle of coherence? The ongoing tensions, for example, between the individualistic underpinnings of the common law of contract and the protective approach reflected in the Australian Consumer Law reflect two largely conflicting visions of the abilities and obligations of contracting parties. The extent to which the High Court can and should develop one set of rules governing contractual dealings without reference to the other, in the light of its own emphasis on developing a coherent legal system, remains to be determined. To date, the High Court’s approach (perhaps best exemplified in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd  HCA 52) has been to ‘silo’ evolution of judge-made and statutory principle unless their interaction is squarely in issue. However, it is arguable that under a system of law in which coherence is an overriding requirement, this approach can and should no longer be accepted.
And what of the Quistclose Trust?
The third and final general observation regarding this case brings us back to Quistclose trusts. In determining that, but for the principle of coherence, an express trust under general equitable principles would have arisen on the facts, Justices Bell, Gageler and Keane somewhat testily observed, at :
The terminology of a ‘Quistclose trust’ is helpful as a reminder that legal and equitable remedies may co-exist. The terminology is not helpful if taken to suggest the possibility apart from statute of a non-express trust for non-charitable purposes.
This might be thought to suggest that unless an arrangement conforms to orthodox express trust principles, it cannot be saved through the application of some other ‘Quistclose’-based analysis.
One can wholeheartedly agree with their Honours’ subsequent observation that an arrangement whereby a solicitor holds money received from his client for or on behalf of that client ‘archetypally’ answers the description of an express trust. To give that trust the ‘Quistclose’ nomenclature adds nothing of value to the analysis. The problem is, of course, that not all examples of the Quistclose trust are so readily amenable to express trust analysis: the case bearing its name is a striking example. It is for this reason that scholars have searched for alternative legal analyses that will explain and justify the award of a non-express (‘constructive’) trust in Quistclose-style scenarios, together with all the beneficial baggage that comes with the award of such a ‘trust’ (immunity from the consequences of the trustee’s insolvency is the best known attraction, but other statutory benefits also often hinge on the characterisation as a trust, as was argued in this case — albeit unsuccessfully in the final result. For a seminal example of the significant practical attractions of a finding of a trust in a legislative context, see Daly v Sydney Stock Exchange Ltd  HCA 25.)
It remains to be seen whether a consequence of the High Court’s decision is that courts are less ready to find constructive trusts (whether labelled Quistclose or otherwise) where money has been transferred for a non-charitable purpose that fails and the indicia of an express private trust are not established. What is clear is that the continuing uncertainty over the nature and legitimacy of Quistclose arrangements highlights the broader need for a comprehensive and coherent framework of the principles of constructive trusts. On this final point, and for the author’s perspective, see E Bant and M Bryan, ‘A Model of Proprietary Remedies’ in E Bant and M Bryan (eds), The Principles of Proprietary Remedies (Thomson Reuters, forthcoming September 2013) ch 12.
AGLC3 Citation: Elise Bant, ‘Thieving Lawyers: Trust and Fidelity in the High Court: Legal Services Board v Gillespie-Jones’ on Opinions on High (16 August 2013) <http://blogs.unimelb.edu.au/opinionsonhigh/2013/08/16/bant-gillespie-jones/>.
Elise Bant is an Associate Professor at Melbourne Law School.