Resulting Trusts Flashcards
Hodgson v Marks (1971) CA
resulting trusts - PRT - voluntary transfer of rights in land
Held:
- Russell LJ: “the evidence is clear that the transfer was not intended to operate as a gift, and, in those circumstances, I do not see why there was not a resulting trust which would not, of course, be affected by section 53(1)…”
Held = the transfer created a resting trust for the elderly lady and the AO can fence this right and protect it even though it is not on the register. Without the presumption of RT, she would have to bring evidence that a trust was intended s 53(2) LPA 1925.
Mrs Hodgson was in actual occupation and it was irrelevant that the Marks had assumed her to be Mr Evans’ wife. There was no requirement that occupation need be apparent.
Mrs Hodgson duped by her lodger and transferred her house to her lodger Mr Evans on the basis that she would remain the beneficial owner of the whole. They both continued to live in the house under the same arrangement with regard to rent and payment of bills. He held the legal title as bare trustee for her. He then in breach of trust sold the house to Mr and Mrs Marks. When the Marks came to view the property they saw Mrs Hodgson coming up the path but did not make any enquiry as to who she was or if she had any interest in the house, assuming she was Mr Evan’s wife. At trial, the judge found for the Marks and held that actual occupation required actual and apparent occupation and only protected those whose occupation was by an act recognisable to any person seeking to acquire an interest in land. Mrs Hodgson appealed.
WESTDEUTSCHE LANDESBANK GIROZENTRALE V. ISLINGTON LBC [1996] UKHL
resulting trusts - ART
Reasoning
In Westdeutsche Landesbank v Islington Borough Council, the House of Lords addressed the policy and principles surrounding resulting trusts and restitution.
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Resulting Trusts and Policy Concerns:
- Lord Goff differentiated between the justifications for compound interest (a “complete remedy” as it reflects commercial norms) and proprietary remedies.
- Lord Browne-Wilkinson highlighted adverse commercial effects, particularly prioritizing a payor over other creditors during insolvency, which could harm legitimate rights. He suggested the remedial constructive trust might better address such situations.
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Application of Resulting Trust Principles:
- An automatic resulting trust arises when an express trust fails to dispose of the full equitable interest, which was not applicable here.
- A presumed resulting trust arises when the transferor intends to create a trust rather than make an outright transfer. In this case, the bank intended to part with the money, rebutting the presumption of a resulting trust.
- The valid claim was in restitution for unjust enrichment (a personal claim), not a proprietary remedy.
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Birks’ Proposal:
- Birks proposed that resulting trusts should rest on a presumption of non-beneficial transfer rather than an intention to create a trust.
- The House rejected this, citing the need for specific trust property and the requirement for the recipient’s knowledge of the trust (affecting their conscience), making the proposal inconsistent with trust principles and commercially undesirable.
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Compound Interest:
- The majority (Lords Browne-Wilkinson, Slynn, and Lloyd) ruled against awarding compound interest for personal claims, citing statutory limitations and lack of precedent.
- Lord Goff and Lord Woolf dissented, arguing for compound interest as a realistic commercial remedy. However, the majority’s position prevailed, and only simple interest was awarded.
In summary, the court reaffirmed the principles underpinning resulting trusts and restitution, emphasizing commercial practicality and doctrinal consistency while limiting proprietary remedies and compound interest in personal claims.
Decided (majority): No ART because the transferor intended the transferee to become absolute owner. The bank could only recover its money with simple interest as it only has a personal claim. This is ultra vires (complete fail of considerations) = local authorities are not allowed to make these kind of transactions – non est factum – any transfer hat happened under this ultra vires – any money that was transferred has to go back (transaction reversed).
The House of Lords allowed the appeal. All five judges agreed that there could not be a resulting trust because trusteeship requires the conscience of the recipient to be affected. Since the council did not know of theultra viresproblem when they entered into the agreement, there could be no trust. Lords Browne-Wilkinson and Lloyd would have overruledSinclair v Broughamon this point (at 710, 737), Lord Slynn would have ‘departed’ from it (at 718), and Lords Goff and Woolf distinguished it (at 688, 720). As regards the later time when the council became aware of the problem, this came up against the requirement that trusts require a subject matter. Since the money had been spent by then, no trust could arise at this point either.
Facts: The bank sued the local authority for the return of over £1million that it had paid under an interest rate swap agreement with the council. Such agreements had been declared by the House of Lords to be ultra vires and void.
- The dispute: what sort of interest is to be paid, simple (Common Law) or compound (Equity)?
VANDERVELL V IRC (1) [1967]
resulting trust - ART
Held:
1) V retained the beneficial interests in the shares.
2) An oral direction to a bare trustee to transfer the trust property to a third party absolutely is valid.
- Possible rationale: The trustees must be involved in the transaction so no risk arises for which you need writing. And, the transaction also brought the trust to an end, so, again, no risk for which you need writing.
Facts: V directs T to convey shares to Royal College of Surgeon, with an option for VT to buy the shares back (in order to pay less tax). Has V divested himself of beneficial interest?
The problem with V was the option to rebuy the shares. It was not clear who was the beneficiary of this option – uncertainty of objects – trusts fail – automatic RT on the option – V ended with the beneficial interest in the option meant that he had to pay loads of taxes.
VANDERVELL NO 2 [1974]:
resulting trust - ART
Full Reasoning:
The Court of Appeal unanimously allowed the appeal. All three judges fixed on Lord Upjohn’s statement in Vandervell v IRC (at 317), that VTL would hold as trustee upon such trusts either Vandervell or VTL should from time to time declare. Lord Wilberforce had made a similar statement (at 325).
Giving the leading judgment, Lord Denning MR noted that VTL gained legal title to the shares after the transfer from the college. For Lord Denning, the beneficial ownership was indisputable: £5,000 of the children’s money was used; a letter was sent to the Revenue setting out the position; and the dividends had been paid to the children’s settlement. This amounted to an express declaration of trust in favour of the children, which s 53(1)(c) does not cover.
Lord Denning disposed of the executors’ ‘two-stage’ argument, which only appears to have been raised on appeal. This was that the transfer occurred in two distinct steps: first, legal title to VTL and beneficial title to Vandervell (on resulting trust, as operation of law); and second, the transfer of beneficial title to the children’s settlement (a transfer directed by Vandervell), which would have required signed writing and thus have been void: s 53(1)(c). For Lord Denning, this was a ‘complete fallacy’ (at 320). Automatic resulting trusts, such as the trust over the option, arose and collapsed without writing and filled in a gap in beneficial ownership. Before the option was exercised there was a gap, but on its exercise a valid trust was created in favour of the children’s settlement, and no formalities are required to create a trust of personal property.
Held: The RT for V terminated once the option was exercised. The trust for the children (created by V following the ART for him) is valid. As it is not a disposition of V’s subsisting equitable interest. The RT for V expired when the gap was filled by clear intention to benefit the children
= at the moment that the option was exercised the gap in the beneficiary interest closed, there is no more RT but a normal trust and the beneficiary interest is exactly where V wanted it to be in the V trust.
Vandervell No 2 concerned the exercise of the repurchase option. The option deed said nothing to indicate, once exercised, whether the shares would be held by VTL absolutely or on trust, and, if on trust, on what terms and for whom.
Facts: IRS and V’s heir argued that he still held the beneficial interest under the RT. Dividends on his share to provide for her children.
Tinsley v. Milligan (HL 1994):
illegality - PRT
Decided: the claimant is not relying on illegality but merely on the presumption.
Facts: T and N were a cohabiting couple
The property was in the sole name of T although M also contributed to the purchase so that more social security payments could be fraudulently claimed by M, with T being in the know
The couple fell out and T sought sole possession
M argued that she should have equal beneficial share by way of presumed resulting trust
Patel v Mirza
illegality
Decided: the reliance test of Tinsley is unanimously rejected. The transferor’s claim can succeed in spite of the illegality if a “range of factors” point out to a public interest that his claim should be heard in spite of the illegality:
- The purpose behind the infringed law and whether that would be furthered by denying the claim before the court.
- Other public policy interests that would be affected by the denial or grant of relief = what will be the effects on the community
- Proportionality - if the two above factors are satisfied - infringement vs damage.
Two judges – since it was UE, even if there was a contract with a killer. You can take back the money you paid the killer (this is so unjust that we are going to allow claims of UE for severely illegal contracts)
Conclusion: the claim is in unjust enrichment and the public interest test is satisfied. Henderson v Dorset Healthcare [2020] UKSC: Patel provides guidance on the proper approach to the common law illegality defence across civil law generally
Facts: claim in unjust enrichment following a payment for inside information (info that otehr players in the market don’t have – white collar offense) that was never obtained. If the contract fiails – unjust enrichment – but need to show the contract which is illegal. Patel wanted money repaid to him under UE.
Stoffel & Co v Grondona [2020] UKSC 42:
illegallity
Decided: The focus of the illegality defence is to disallow recovery where to do so would result in an incoherent contradiction damaging to the integrity of the legal system ( to avoid the court to bbe in a state on contradiction – integrity argument).
- Applying Mirza:
- Policy considerations I: Denying recovery will not promote the purpose of preventing mortgage fraud (deterrence is very flimsy here)
- Policy considerations II: allowing recovery will promote the policy of protecting victims of solicitors’ negligence
- Proportionality need only be analysed where the defence survived Lord Toulson’s first two considerations
- Conclusion: the negligent solicitors cannot use the illegality defence to fend off the claim against them + note that note closely connected
Facts: claim in negligence following a mortgage fraud. The buyer and the seller were colluding to cheat on the mortgage company.
Majid Ali v. HSF Logistics Polska SP.Z.O.O. CA [2024] :
illegality
Decided: ‘this is the staff of ex turpi causa not causation’ (Stuart-Smith LJ [54]). The car driver deserves to be compensated, applying the following considerations:
- Harm to integrity very minor
- Disproportionate result (loss much bigger than potential fine)
- Public policy - accepting the ‘causation defence’ would skew the market in favour of insurance companies – will want to show that something slightly wrong with the car that was damaged
Facts: the defendant’s lorry negligently drove into the claimant’s parked car. The MOT over the car expired, and so driving it around was an offence with a max. fine of £ 1,000 (regulatory offence). The lorry driver argued that the car owner suffered no loss because he did not have a vehicle which he could lawfully use on the roads ( not a roadworthy vehicle so did not deprive you form the amenity of driving the car).
McGrath v Wallis[1995]
presumption of avdancement - PRT
This was evidence to rebut the presumption of advancement.
Prinicple: In certain relationships the presumption of a resulting trust is reversed by the presumption of advancement. Where the presumption arises, on a voluntary transfer or purchase in the name of another, the burden of rebuttal will be on the person claiming that there wasno advancement
Father and son purchased property - father with largest contribution
Property put in son’s sole name
Unsigned declaration of trust detailing the respective shares
Re Gillingham Bus Disaster Fund* [1958] Ch 300
resulting trusts - ART
Held: Instead the money was held on resulting trust for the donors, and ordered an inquiry to identify the donors
Facts: Funds were raised for funeral and hospital expenses of marine cadets after a bus drove into them. £6,600 was left over. The money could not be applied cy-pres as it was not an exclusively charitable cause.
NCA v Dong & Ors [2017] EWHC 3116 (Ch)
resulting trust - prsumption of resulting trust
Held: Dong retained beneficial interest in the home under a presumed resulting trust
Principle: The presumption of resulting trust is not abolished by s60(3) LPA 1925
Facts: NCA sued to claim unpaid taxes from Dong
Dong had transferred his home to his friend Feng’s name but continued living in the home with his family
NCA argued that the home was held for Dong on a presumed resulting trust and sought a charging order on the home
It was argued by counsel for Dong that the presumed resulting trust had been abolished by s60(3) Law of Property Act 1925
