Prickly Bay Waterside Ltd v British American Insurance Company Ltd (Grenada)

A Quistclose trust requires more than payment of money for a specified purpose. The arrangements must show that the provider retained a beneficial interest in the funds, or that the recipient accepted such a retained interest. The inquiry is objective and considers the transaction as a whole, including relevant contractual arrangements and later documents forming part of that transaction. Segregation is not essential, but its absence is a powerful indication against a trust. A resulting trust is a default trust and is subject to the parties’ agreed arrangements. An investment product allowing the recipient to use the funds at its discretion, coupled with an obligation to repay a fixed maturity sum, is ordinarily inconsistent with a Quistclose trust where there is no restriction on use or requirement to segregate the funds.

Prickly Bay Waterside Ltd had to pay a deferred balance owed to Mr Steele under a settlement concerning adjoining properties. British American Insurance Company Ltd gave a guarantee supported by a deposit of US$2,475,000. The deposit was used as the premium for an annuity in Mrs Rosa Lee’s name, and she later assigned the annuity to Mr Steele if the guaranteed payment was not made.

BAICO became insolvent and failed to pay under the guarantee. The High Court of Grenada rejected the claim that the money was held on a Quistclose trust, and the Court of Appeal of the Eastern Caribbean Supreme Court dismissed the appeal. The issue before the Board was whether the transaction, viewed in its full context, showed that Mrs Lee or Prickly Bay retained a beneficial interest in the money.

1. Appeal dismissed. The arrangements did not create a Quistclose trust. The Board would advise Her Majesty accordingly.
2. A Quistclose trust may be express or may arise as a resulting trust. Its essential feature is that the provider does not dispose of the entire beneficial interest in the transferred property. The mere fact that money is provided for a purpose is insufficient. The question is whether the intention, objectively gathered from the terms of the arrangement and its circumstances, shows that the provider retained a beneficial interest or that the recipient’s use of the money was restricted.
3. The inquiry is not confined to the date of transfer or to the limits applicable when construing a written contract. The court may consider later events and documents, including an assignment forming part of the overall transaction, although it may give them little weight. The assignment here was equivocal because it was equally consistent with collateral securing the guarantee and with protection against double payment.
4. The annuity was an investment product under which BAICO could invest the premium at its discretion and was obliged to pay a fixed sum at maturity. There was no requirement to segregate the premium and no restriction on its use. Although segregation is not invariably required, its absence was a powerful factor against a Quistclose trust. The tailoring of the annuity and the assignment did not establish retained beneficial ownership.
5. A Quistclose trust is a default trust. It may be moulded or excluded by the parties’ contractual arrangements. Contractual and trust remedies may coexist, but the parties’ commercial investment and guarantee arrangement did not impose fiduciary obligations or require BAICO to keep the money separate.

• Privy Council: The appeal was dismissed on 21 March 2022. The Board would advise Her Majesty accordingly.
• Court of Appeal of the Eastern Caribbean Supreme Court: The appeal from Henry J was dismissed on 31 October 2018.
• High Court of Grenada: Henry J rejected the claim that the money was held on a Quistclose trust in a judgment dated 26 August 2015.