Words and Phrases - "Quistclose trust"


Markou v. The Queen, 2016 TCC 137

TCC had jurisdiction to determine that no lender equitable remedy (under Quistclose trust doctrine) attached to leveraged donation advances

In connection with a leveraged donation arrangement, the taxpayers in the lending agreement directed the lender (“Capital”) to deliver the funds to a charity on their behalf. This was accomplished by Capital delivering the funds to its parent’s law firm (“FMC”) subject to a direction to deliver them to the charity’s law firm, whereupon in accordance with the lending agreement a debt relationship between Capital and the taxpayers was triggered.

In finding that he had the jurisdiction to make a determination under Rule 58(1) as to whether the proceeds that the taxpayers obtained from Capital were subject to a Quistclose trust, C. Miller J stated (at paras 19 & 21):

… The Tax Court of Canada can look at a taxpayer’s circumstances and make a determination as to what facts are true and what legal and equitable rights are available to the taxpayer where such findings will assist the court deciding the correctness of the assessment. The Tax Court of Canada cannot order what a court of equity can order as a result of finding an equitable trust exists. … It can, however, analyze the correctness of an assessment acknowledging any and all rights a taxpayer may have. …

In going on to conclude that there was not a Quistclose trust, he stated (at paras 23, 29, 34 & 35):

… the Quistclose trust… provides a right to a lender to an equitable remedy in situations where the lender has loaned funds to a borrower for a specific purpose, and where the lender is exposed to the risk of other creditors swooping in and snatching those funds from the borrower before the borrower uses them for the intended purpose. …

… With the Quistclose trust, the property is vested with the borrower who has a fiduciary obligation to use funds for a specific purpose or return the funds to the lender. …

… The Appellants, in granting an irrevocable authority to Capital to deliver monies to the charity, had exhausted any power they might have had while the funds were held by FMC. Capital, and only Capital, could direct FMC: the Appellants could not, once the funds were delivered to FMC, direct otherwise. …

… I have concluded that until the funds were delivered to the charity’s lawyers, the Appellants had no legal or beneficial interest in the funds. Once delivered to the charity’s lawyers, the Appellants had a debtor/creditor relationship with Capital. That is all.

Words and Phrases
Quistclose trust
Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Act - Section 8.1 TCC has jurisdiction to determine existence of equitable remedy 90
Tax Topics - General Concepts - Payment & Receipt funds in leveraged donation scheme essentially advanced by lender directly to charity 102