When Is A Quistclose Trust Not A Quistclose Trust? When You Call It A 'Debt'

In Ontario (Training, Colleges and Universities) v. Two Feathers Forest Products LP, 2013 ONCA 598, the Ontario Court of Appeal granted the appeal of an interim receiver, Pricewaterhousecoopers Inc., from a Superior Court of Justice decision where grant funds that were advanced by the respondent, Ontario's Minister of Training Colleges and Universities (the "Ministry"), to a First Nations limited partnership in northern Ontario, but not spent before the partnership sought to dissolve and appoint the interim receiver, were held to be subject to a "Quistclose trust" for the benefit of the Ministry.

Background

Two Feathers Forest Products was a limited partnership, consisting of three First Nations limited partners and a general partner, created to develop and operate a planer mill and manufacturing plant and saw mill in Ontario (the "Partnership"). The Partnership applied to the Northern Training Partnership Fund, recently established by the respondent Ministry to support project-based skills training for northern Ontario residents, for a grant to provide skills training for Aboriginal and non-Aboriginal residents of northern Ontario in its two proposed plants.

The parties executed a detailed written agreement for the advance of the funds which provided, among other things, that:

the funds were to be used only for the purpose of carrying out the project (as defined in the agreement), which included the implementation of on-the-job training; the funds were to be advanced and used in three categories: (i) on-the job training; (ii) classroom training; and (iii) other (further defined as "classroom and equipment lease"); the funds were to be used only in accordance with the agreement, did not have to be advanced by the Ministry, and had to be segregated in an interest-bearing account if not immediately used (thereafter, any interest generated would be deducted from future advances from the Ministry); and, unused funds were to be returned on 30 days' notice of termination and demand from the Ministry. The agreement, as would be highlighted by the Court of Appeal, also provided that monies owing to the Ministry "shall be deemed to be a debt due and owing to" the Ministry.

Ultimately, the Ministry advanced $1,895,870 under the funding agreement before two limited partners took steps to dissolve the partnership. At the Superior Court of Justice, the Application Judge held the unused funds advanced by the Ministry were subject to a Quistclose trust in favour of the Ministry as there was no intention that the Partnership would be able to freely dispose of the advanced funds. Rather, the funds were to be used only for the specific purpose of carrying out the project. The three certainties of a trust—certainty of intention, certainty of subject-matter and certainty of object—had been established.

The Decision: The Court avoids expanding the use of Quistclose trusts

As Feldman J.A. noted, this decision was the Court of Appeal's first substantive foray into the Quistclose trust concept. Before addressing the case at hand, the Court reviewed the history of the Quistclosetrust, from the concept's genesis in Barclays Bank v. Quistclose Investments Ltd. [1968] UKHL 4 through its significant broadening in Twinsectra Limited v Yardley and Others [2002] UKHL 12 to capture those...