Where money is lent for a specific purpose a quistclose trust in favour of the paying party arises when the funds are advanced. If the specific purpose cannot be met or fails the receiving party must return the funds.
The High Court has considered whether such a trust existed in Mustafa Erdem Baldudak v Mark Matteo [2024] EWHC 167 (Ch).
The parties were former business partners in a 50/50 joint venture. The case concerned the beneficial ownership of freehold commercial property, known as Gregson Building, in Howden, North Shields, the trading premises of HTS, a company which supplied boiler parts. HTS was previously jointly owned by the parties but, following earlier proceedings between them, was now solely owned by Baldudak.
In May 2016, Baldudak paid £750,000 into a bank account held by another company, PCB. He claimed the payment was to acquire a third company, OEM. Matteo argued that it was paid to be used exclusively for business investments in the UK to be owned jointly by them both.
The parties subsequently decided to acquire the property instead of OEM. The property was acquired in their joint names in November 2016 for just over £464,000, including transactional costs. Before and after the purchase, more than £285,000 was paid out from the PCB account to settle HTS business expenses. There was no evidence that PCB traded for its own purpose and it was dissolved in April 2017. HTS’s 2016 accounts showed a loan of £750,000 from Baldudak to the company and the 2017 accounts showed over £811,000 being owed to him.
The judge found that Baldudak never intended to forgive any part of the debt owed to him by PCB, and subsequently HTS, that it was never the parties’ intention that either company should purchase the property for them in equal shares or that it would be owned by them beneficially in equal shares.
The £750,000 was a loan not an investment but it was not only paid for the purpose of purchasing OEM. There was nothing to suggest the funds would need to be returned to Baldudak if the OEM purchase did not proceed and the settlement of business expenses was inconsistent with a quistclose trust.
However, since Baldudak’s money was used to purchase the property, which vested in them jointly, a presumption arose that he did not intend to make a gift to Matteo and that the property was held on trust for Baldudak as the sole provider of the purchase monies. Matteo had not come close to rebutting that presumption.
Louise Clark is a property law consultant and mediator
