Resulting Trusts Flashcards
Virgo General Considerations
Nature + Categories
- Nature of resulting trusts
o Definition: property transferred to D and a recognized trigger occurs at time of transfer or subsequently, so the property is then held by D for C
o Beneficial interest returns to person who transferred the property
o Significant because beneficiary can claim even if trustee wasn’t aware of existence of the trust and passed property onto third party, and if insolvent beneficiary’s claim is greater than creditors’
- Categories
o Presumed resulting trust – where C transfers property to D and doesn’t receive any consideration for the transfer, a presumption of resulting trust for C arises
o Automatic resulting trust – where property transferred to D to be held on express trust that fails
Where the courts have controversially recognised the significance of intention
- Westedeutsche
different kinds of intention:
- express
- inferred
- imputed
-negative
NB Air Jamaica & Twinsectra (COA)
- Westdeutsche: founded distinction between presumed and automatic RTs, and Lord Browne-Wilkinson said that both types re trusts giving effect to the common intention of the parties and the presumed intention of the trustee
- Transferer’s intention that trustee hold property on trust for transferer established in five ways:
o Express intention
o Inferred intention: inferred with regards to all the circumstances of the case and can be deduced from evidence
♣ Re Vandervell’s Trusts (II): Megarry J – existence of some unexpressed intention is not enough; there must be some expression of that intention
o Imputed intention: what transferer would have intended had he thought about the consequences of the transfer (eg. that it might fail). No need for this to be actual intention.
♣ Jones v Kernott: there is a conceptual difference between inference and imputation but practical difference is slight
o Presumed Intention: like an imputed intention but rebuttable, presumed because it reflects common experience and judicial consensus. Proof of a particular type of transfer (eg. voluntary transfer) sufficient for presumed intention.
♣ NB probably the best theory
o Absence of intention that the recipient benefit from receipt
♣ Air Jamaica v Charlton: Lord Millett – Resulting trusts arise whether or not transferer intended to retain a beneficial interest; it “responds to the absence of any intention on his part to pass a beneficial interest to the recipient”
♣ Twinsectra v Yardley (COA): Per Potter LJ – express trusts are fundamentally dependent on intention of parties, but role of intention in resulting trusts is negative (lack of intention to benefit recipient) - Millet also says this in the HL but no other Lord says this.
• NB absence of intention theory inconsistent with Lord Browne-Wilkinson and Goff’s analysis in Westdeutsche and Air Jamaica is a PC case while Potter LJ’s dictum is in the CoA (Millett in HL in same case referred to absence of intent theory but no other Lord did)
Presumed Resulting Trusts
Justification (Virgo)
equity presumes that people don’t act altruistically
o Easily rebutted by Te proving that he was intended to benefit (eg. proving intention of absolute gift), an intention that is automatically assumed where the relationship between Tr and Te is such that Tr bears responsibility over Te (presumption of advancement)
o Tr can rebut this by proving that no gift was intended
o Effect: allocation of proof
Presumed Resulting Trusts
Effect of voluntary transfer of property depends on type of property
difference between land and personalty
3 scenarios
Presumption rebutted:
- Arcos v Coutts
- Re Vinogradoff
o Land: no presumption of resulting trust per S60(3) LPA 1925 depending on the interpretation (some interpret it as a reminder to conveyancers but doesn’t apply to transfers from Tr to Te o Personalty (shares, money): can lead to a resulting trust – three principles 1. C asserts intention that D take property beneficially: no trust and presumption is not engaged 2. C doesn’t assert: presumed resulting trust unless relationship triggers presumption of advancement 3. Where presumption is engaged, D can rebut by adducing evidence that C intended D to take property beneficially a. Arcos v Coutts and Co: applied the three principles and acknowledged that presumption is easily rebutted. A father had allowed his children to withdraw money from his bank account but following argument withdrew all the money and put it in a joint account with his nephew. When father died children argued that the money had been on presumed resulting trust because nephew didn’t provide consideration but nephew was able to rebut it relying on the mandate form expressing an intention to confer beneficial interest b. Re Vinogradoff: Grandmother who transferred money into her own name and that of her granddaughter (4yo) held not to have rebutted presumption. Case difficult to defend because even if presumption applied she should be able to defend it on her youth (grandmother couldn’t have intended granddaughter to hold property on trust for her)
Presumed Resulting Trusts
Purchases in the name of C raises presumption of resulting trust for C; where C contributed to purchase in D’s name property presumed to be held on resulting trust for C in shares proportional to contribution
how to rebut?
Fowkes v Pascoe?
o Sometimes difficult to rebut (eg. investing in name of solicitor) but sometimes relationships insufficient to establish presumption of advancement will be enough to suggest gift more likely intended
♣ Fowkes v Pascoe: Mother purchased annuities in joint name of herself and daughter-in-law’s son. Presumption rebutted by fact that she was wealthy, he lived in her house and she provided for him financially
Presumed Resulting Trusts
Presumption of advancement: if Tr is husband, fiancé, father or person standing in loco parentis of recipient, a gift is presumed (but not when wife purchases for husband or mother for child)
♣ Shephard v Cartwright:
♣ Warren v Gurney:
♣ McGrath v Wallis
o Increasingly difficult to justify in general application and gender discrimination
o Abolished by S199 Equality Act 2010 (provision not yet in force)
o Can only be rebutted by declarations before, during or immediately after transfer, or acts (declarations after transfer can still be used but only against interests of the person making the declaration – otherwise would be easy to manufacture evidence)
♣ Shephard v Cartwright: Father purchased shares registered in names of children – presumption of advancement engaged. Five years later father got children to sign consent enabling him to withdraw money from the account and since this was after the fact (not of original transaction) it could only act against children (evidence that children admitted it wasn’t a gift). However it failed because the children weren’t aware of what they were signing.
♣ Warren v Gurney: Father purchased house and conveyed to daughter; presumption of advancement rebutted by contemporaneous declaration that it wasn’t a gift, and fact that father retained title deeds to property
♣ McGrath v Wallis: Father purchased home in name of son since son was the only eligible mortgager. At time of transfer a declaration of trust granting father 80% beneficial interest and son 20% had been drafted but not signed; this was enough to rebut presumption of advancement
Presumptions and illegal purposes
o Where property is transferred illegally (criminal activity, contrary to public policy, hide from creditors/ex-spouses, tax evasion, benefit fraud) the presumptions can be engaged but the other party cannot plead their illegal purpose to rebut it
o Thus husband transferring property to wife to hide from creditors will engage presumption of advancement and he can’t plead the illegal purpose to rebut; wife transferring property to husband for same reason will engage presumption of resulting trust and husband can’t rebut it
Presumptions and illegal purposes
Tinsley v Milligan
♣ recognizes the presumption of resulting trust will apply even if illegal transaction. D and C in lesbian relationship and both contributed to purchase of a house but registered under C solely with understanding that both had beneficial interest (intention was so D could be a lodger and claim benefits). Relationship ended and C claimed the house; held that D had beneficial interest because she didn’t need to rely on her illegal conduct to trigger presumption.
Presumptions and illegal purposes
Lowson v Coombes:
♣ C transferred property to mistress to hide it from wife (illegal). Could still rely on presumption of resulting trust.
Presumptions and illegal purposes
♣ Silverwood v Silverwood:
♣ can rely on illegal transaction to prevent an attempt at rebutting presumption. Grandmother transferred money to grandchildren engaging presumption of resulting trust but grandchildren sought to rebut it by arguing it was a gift. Grandmother was allowed to rebut this with purpose being to perpetrate fraud. (Can this be reconciled with Tinsley? Which is right?)
Presumptions and illegal purposes
♣ Tribe v Tribe:
C entitled to plead illegal purpose to rebut presumption of advancement if he has withdrawn from the illegal transaction before any part of the illegal purpose had been fulfilled. Father transferred shares to son to conceal them from creditors; once threat passed he demanded they be transferred back but son refused and argued PoA that couldn’t be rebutted by illegal activity. Held that father could rely on it because none of the creditors had been aware of transfer and were thus not deceived.
Automatic Resulting Trust
- Arises where a trust is made to B leaving some or all beneficial interest undisposed of, then B automatically holds property on resulting trust for A (basically an express trust failing)
Automatic Resulting Trust
Justification
LBW in Westdeutsche
Mee (hybrid-trust)
o Prevent unjust enrichment of trustee
o Settlor retains beneficial interest after failure to create express trust
♣ Westdeutsche v Islington: Lord Browne-Wilkinson – resulting trust arises because of the failure to exhaust C’s beneficial interest in the express trust
o Hybrid trust (Mee); where express trust fails eg. because of failure to identify beneficiaries, it won’t have completely failed because settlor will have successfully created a trust by transferring property to trustee. If no beneficiaries are identified, Equity defaults to trustee holding it on trust for settlor (like an implied term)
o Imputed/Presumed intention: if an express trust fails, it is appropriate for Equity to recognize that recipient of property was intended to be trustee
Automatic Resulting Trust
How an express trust might fail:
Initial failure (i.e. invalidity)
♣ Air Jamaica v Charlton:
♣ Hodgson v Marks:
♣ Vandervell v IRC:
subsequent failure
what happens?
o Initial failure
o Invalidity (eg. charitable trust might fail because purpose is not entirely charitable
♣ Air Jamaica v Charlton: Pension fund express trust failed because it infringed the perpetuity rule; resulting trust for contributors formed
♣ Hodgson v Marks: Resulting trust forms where express trust fails through failure to comply with formalities. Widow transferred house to lodger under unenforceable oral agreement that she would retain beneficial interest and received no consideration. Held that widow hadn’t intended to transfer house as gift so it was held on resulting trust. Difficult because a presumed resulting trust could have arisen (no consideration) but PRTs for land could have been removed by statute. Also the trust was valid just unenforceable, so to justify decision would have to hold that ART includes not only invalid but also unenforceable trusts
♣ Vandervell v IRC: ART arises when ET fails because title has been transferred to trustee but no beneficiaries identified. C made a gift to Royal College of Surgeons but in a tax-efficient way so went through complicated steps…
o Subsequent failure (becomes impossible to continue to perform, usually trust for NCP – CPTs will be applied cy-pres) but not always – exceptions:
♣ Absolute gifts (Re Osoba)
♣ Bona vacantia (Re West Sussex Constabulary’s Fund Trusts)
♣ Contract holding
♣ Pension fund trusts (where it is not possible to impute an intention to be held on resulting trust)
Mee, ‘“Automatic” Resulting Trusts: Retention, Restitution or Reposing Trust?’;
Examines ARTs focusing on alternative conceptualizations of their creation process – beneficial interest under RT retained by settlor is criticized for lack of theoretical basis. Alternative: vision of RT as instrument of restitution involving legal interest passing onto trustee and then RT attaches to his legal interest to reverse unjust enrichment (Birks). Rejects both and advances a new interpretation – that ARTs arise because settlor intended to make recipient of property a trustee (if for nobody else than for settlor himself). Conclusion is that by reposing trust analysis ARTs don’t ‘defy legal analysis’ but is defensible as matter of principle.
- Retention thesis (though supported by history and authorities) fails theoretically on principle because the interest of a beneficiary under a trust is “not carved out of a legal estate but impressed upon it” (beneficiary under RT acquires new entitlements and loses pre-existing entitlements so doesn’t merely ‘retain’ rights)
o Also Chambers argues that A retains nothing after creating RT because prior to creation he had no separate equitable title, but after creating it he had an interest under a trust which is different from legal title - Restitution (Chambers argues that it underlies all RTs because transferer didn’t intend to benefit receiver (‘lack of intention to benefit’) so receiver was unjustly enriched) fails because the phrase ‘lack of intention to benefit’ implies that RTs will be recognized based on absence of intention alone, while case law suggests that mainstream categories of RT turn on a positive intention to create a trust (not all RTs should be regarded as based on unjust enrichment)
- Alternative: reposing trust (based on equity’s principle that once property has been conveyed to trustee, it will not fail even where there is a failure in the particular trusts declared or failure to declare any trusts. Thus once a trust has been brought into existence someone must be entitled to beneficial interest, and settlor is the most logical)
Penner, ‘Resulting Trusts and Unjust Enrichment: Three Controversies’;
- what C needs to show in evidence before the presumption is raised
- How the presumption operates
- What C needs to show in evidence before presumption is raised
o Swadling: transfer of property to B only (preferred by authority)
♣ The Venture, Mehta Estate v Mehta Estate and especially Tinsley v Milligan (where if C had to show that recipient provided no consideration, she may well have had to reveal the circumstances of transaction (illegality))
o Chambers: also that B provided no consideration - How the presumption operates
o Swadling: presumption is evidentiary (supplies ‘substitute proof’ where evidence is scarce)
o Chambers: presumption is one of law (arises by operation of law)
♣ Taking Westdeutsche probably right in that it turns on absence of intention to confer a beneficial interest, but doesn’t account for mistaken payment (where A does intend to confer such an interest)
o Millett: agrees with Chambers that it arises by operation of law but denies that they arise in response of unjust enrichment but rather because A fails to dispose of their beneficial interest - Even if Chambers is correct, do they arise as response to receiver’s unjust enrichment?
Dyer v Dyer (1788)
Where a purchaser buys property in the name of a third party, it is presumed subject to the relationship between the parties that it is held on resulting trust for purchaser. Presumption can be rebutted by evidence of intention to create gift.
Eyre CB: the trust of a legal estate whether freehold, copyhold or leasehold, whether in name of purchasers and others jointly or others without the purchaser, whether in one name or several, whether jointly or successive, results to he who advances the purchase money.
Re Vinogradoff [1935] WN 68
Facts: grandmother had bonds that she voluntarily transferred into names of herself and granddaughter (4yo). When grandmother died question was whether daughter owned the bonds outright or held it on trust for estate.
Held: PRT applies (voluntary conveyance). Thus grandmother and granddaughter were trustees under resulting trust as tenants in common, so estate inherited her beneficial share of the bonds.
Vandervell v IRC [1967]
A resulting trust arises when T transfers title to trustee but without specifying beneficiaries. This apparently contravenes the positive intention theory because C obviously didn’t intend to hold the property on trust for himself, as the whole purpose was to avoid taxes which he could only do if it wasn’t held on trust for himself.
On S53(1)(c) and need for written declaration Court concluded that it applied only where beneficial title only is transferred, whereas here both legal and beneficial title are transferred so oral declaration is enough.
Facts: C wanted to make a gift to Royal College of Surgeons but didn’t want to pay tax; the College was a charity so had to pay tax for donations but not for income. Thus C instructed his shares to be transferred to the College with option of C buying them back after the College earned enough revenue. Problem was that in his oral instruction he didn’t specify who the trust to buy shares back was to be held for. IRC demanded taxes arguing that C retained equitable interest in the shares.
Held: Resulting trust – in cases where C creates a trust without specifying the beneficiary, a resulting trust is formed in favour of C. This conflicts with the positive intention theory because the last person C wanted to hold the trust for was himself, as the whole purpose of the whole endeavour was to avoid taxes.
IRC’s arguments:
- C remained beneficial owner of the shares so the dividend was payable to him, and formed part of his taxable income.
o Transaction involved C disposing equitable interest in shares to the College but it could only be made using signed writing (S53(1)(c) LPA 1925). Therefore C only transferred legal title and C remained entitled to them in equity
o Argument REJECTED by HL
- C beneficially entitled to option to repurchase the shares and S415 Income Tax Act 1952 said that a person who gave away property but retained some interest in it, were to be treated for the purpose of taxation as entitled to income arising from the property
o Since C retained right to repurchase he retained interest
o Argument ACCEPTED by HL
Lord Wilberforce:
- At once clear that C’s contention that it was a trust of the children’s settlement must fail because it wasn’t C’s intention at the time the option was exercised
- Also clear that trustee company didn’t hold beneficially for its business (had no business except as a trustee – no assets etc.)
- Thus the best interpretation seems to be that the option was held by the trustee company on trusts that were undefined (‘in the air’)
- However equitable interest cannot remain in the air; legal consequence is that it remains with the settlor
Re Vandervell’s Trust (No 2) [1974]
Megarry J came up with a second theory as to why resulting trusts arise on the failure of a trust – automatic resulting trusts arise irrespective of the intention of the person setting up the trust, because where A transfers legal interest to B but fails to transfer equitable interest to C, then A keeps equitable interest (you keep what you don’t give away). CoA overturned the judgment
Megarry J (High Court): distinguishes between presumed resulting trusts (presumption based on parties’ intention) and automatic resulting trusts (assets passed to trustee on express trusts but surplus remains)
Lord Denning (CoA):
- Before the option was exercised:
o The terms of the trusts were stated in two ways in Vandervell v IRC:
♣ Upjohn: trustee held upon such trusts as C or the trust company should from time to time declare
♣ Wilberforce: option was held by trustee company on trusts not at time determined but to be decided on a later date
o Problem: no certain beneficiaries therefore resulting trust (as Upjohn said ‘until these trusts should be declared there was a resulting trust for C’)
o Therefore option was held on resulting trust for C
Lord Stephenson (concurring but with reserve):
- Problem is that law of equity gave C an equitable interest that he didn’t want and would have thought he had disposed of if he ever knew it existed
- Difficult to infer intention to dispose of something that he didn’t even know he had until the decision in Vandervell v IRC
Westdeutsche Landesbank Girozentrale v Islington LBC [1996]
- Summary
- Facts
- Held
LBW:
- Issues
- Practical consequences
- Relevant principles of trust law
Currently resulting trusts arise in 2 circumstances
- What does Birks argue?
- Which case is overruled?
Illustrates the positive intention theory of resulting trusts, where they would only arise if transferer intended to create a trust. There can be no resulting trust if trustee is not aware that he is supposed to hold property for another. Otherwise, it would lead to injustice in that it would give T a claim over those who have not been unjustly enriched (third parties receiving the property, creditors in case of insolvency)
Facts: D and C entered into an interest rate swaps agreement (essentially a gambling agreement on which company’s interest rate would increase more). In separate proceedings HL held that local authorities couldn’t make such contracts and they were therefore ultra vires and void. C had paid more to D and sought restitution of net difference.
Held: D liable to make restitution by virtue of unjust enrichment (failure of consideration) but there was no resulting trust as there would have to be intention to create a trust.
Lord Browne-Wilkinson:
- Issue: whether a contract void for mistake gives rise to a resulting trust even though recipient had no knowledge that the contract was void
- If so two consequences:
o Recipient liable regardless of fault for payment away of the money to third parties even though ignorant of existence of any trust
o Transferer would have equitable proprietary interest in the money as long as they are traceable, and would affect third party rights (except in purchasers of value without notice)
- Practical consequences:
o If recipient becomes insolvent transferer can claim over creditors
o Proprietary interest enforceable against third parties
♣ No moral or legal justification for T’s claim against third parties who weren’t unjustly enriched at T’s expense
♣ If contract were valid, then T would only have personal rights against R; why should he be better off because contract is void?
o Judges have often warned against importing equitable principles inconsistent with certainty and speed necessary for commercial law - Relevant principles of trust law:
o Equity operates on conscience of owner of legal interest: therefore he cannot be trustee if ignorant of the facts alleged to affect his conscience (eg. unaware that he is supposed to hold property on trust for someone else)
o There must be identifiable trust property
♣ These are inconsistent with the Bank’s arguments; property ceased to be identifiable when it was paid into the mixed account - Currently resulting trusts arise in two circumstances: 1) A makes voluntary payment to B (PRT) and 2) A transfers property to B on express trusts but declared not to exhaust the whole beneficial interest (ART)
o Bank’s claim must fail applying these principles; type 2 fails since there was no express trust, and type 1 fails because there was intention that R receive the property absolutely (misapprehension as to payment in pursuance to a contract doesn’t change actual intentions) - Birks argues that the definition should be extended to cover the case where C transferred property under a mistake/contract whose consideration totally fails. Rejects this argument:
o Distorts trust principles by confounding rights in property with rights in ‘value transferred’ while trusts require defined trust property (cannot be trustee of undefined property)
o Assumes that R is trustee from date of receipt which is incompatible with premise that conscience of trustee be affected
o Necessitates artificial exclusion where trust wouldn’t arise for failure to perform a contract (only total failure of consideration) – casts doubt on validity - Overrule Sinclair v Brougham (money deposited with a building society where it didn’t have the capacity to borrow the money was held on trust for depositors)
- Those wanting to develop law of restitution want to ensure that C would have right to recover property unjustly lost. However resulting trusts isn’t the correct avenue as it would lead to injustice, particularly in third parties who weren’t unjustly enriched
Fowkes v Pascoe (1875)
facts
what evidence suggests that a gift was intended?
points against the son being able to claim?
Rebutting the presumption
Facts: Woman made purchases in joint names of herself and son of daughter-in-law and in her will gave residuary estate to the daughter-in-law for life and after her death to the son and his sister in equal shares. Son claimed to be entitled to both capital and dividends.
Held: Son was only entitled to capital.
Mellish LJ:
- Different cases lead to different weight of presumptions:
o Strong when a man invests in name of himself and solicitor (overwhelming evidence would be needed to show that it was a gift)
o Weak when someone invests in name of himself and some other person though not wife or child but in a position to make it probable that it was a gift (then evidence can rebut more easily)
- In this case, evidence suggests gift:
o Woman was wealthy
o Had no nearer connections than the son
o Son was living in her house
o She was providing for him
o She invested 250 pounds each in her name and his, and her name and another lady’s (if trust then why not put these two under same name?)
- Thus the account was opened as a gift which raises strong presumptions that anything subsequently put into it was also a gift
- Points against son being able to claim gift:
o He kept the matter secret for many years and never revealed it (rejected because many people are private about their affairs)
o His not accounting for the dividend which was due at the death of testator (he could have honestly believed that that was his)
Shephard v Cartwright [1955]
Facts: In 1929 D divided shares of his private company among three children (Cs) one of whom was an infant (one reason was tax advantage). Later he formed a public company taking over the private company and paid a sum in shares. The children signed the necessary documents without knowing what they were signing, which gave D control of the shares. When D died children sued estate.
Held: Estate was liable; shares and money were owned beneficially by the children and the conduct of the father subsequent to transfer inadmissible in his favour.
Viscount Simonds:
- Law is clear that where D purchases shares in name of stranger it is presumed to be resulting trust but if purchased for child or in locus parentis presumption of advancement arises
- Law is clear that acts and declarations of parties before/at the time of purchase/immediately after as to constitute part of the transaction are admissible evidence to rebut presumption, but subsequent declarations are only admissible against the party making them
- Application is not clear: room for argument whether a subsequent act is part of the same transaction as original transfer
o No universal criterion for linking one event to another, but in this case there is no link:
♣ Time factor (nearly 5 years between registering shares and forming public company)
♣ Two events seem wholly unconnected (the second event probably only happened because the business prospered)
♣ Can’t accept argument that D was an honourable man and if he intended gift in 1929 he wouldn’t have subsequently withdrawn it
- If inadmissible as part of transaction is it admissible subsequently?
o One necessary condition for admissions going against person making it is that he should have knowledge of the material facts (here children signed without being told what they were signing)
Since D didn’t rebut presumption of advancement Cs don’t need reinforcement from subsequent events.
*Tinsley v Milligan [1994]
Facts:
Two women purchased a house jointly but registered it under A’s name only to facilitate fraudulent claims to housing benefits. Parties fell out and A sought possession of the house and R counterclaimed for declaration that A held the house on trust for both parties equally (presumption of resulting trust).
*Tinsley v Milligan [1994]
Held
Held: Majority upheld the presumption (Keith, Goff dissenting) because a claim is entitled to succeed if he could establish his title without relying on his illegality.
Jauncey:
- Distinguish between enforcement of executor provisions arising under illegal contract, and enforcement of rights already acquired under such a contract
o Trite law that the first is unenforceable
o Also a party is not entitled to rely on his own fraud/illegality to assist a claim or rebut a presumption
- HOWEVER a completely executed transfer in pursuance of an unlawful agreement is VALID and court will protect transferee’s interest provided he doesn’t require to found on the unlawful agreement
- Question: whether R is seeking to enforce unperformed provisions of an unlawful transaction or simply relying on an equitable proprietary interest she already acquired
- The agreement was that they would both provide funds for the house but it would be registered under A’s name only to deceive the Department of Social Security. If agreement hasn’t been performed, neither party could enforce it; however, as soon as it was performed (sale of house) A became trustee and R could rely on equitable proprietary interest
Browne-Wilkinson:
- Where presumption of resulting trust is engaged, C claiming under the resulting trust does NOT have to rely on the underlying illegality
- Contrast: where presumption of advancement engaged and C has to rebut it, then he usually has to plead and give evidence of underlying illegal purpose (most authorities involve PoA and C hasn’t been allowed to plead illegal purpose)
- Reason why we depart from the resolute rule against pleading illegal purposes is that court will enforce the Bowmakers rule: A party to an illegality can recover by virtue of a legal or equitable property interest if, and only if, he can establish his title without relying on his own illegality
Keith (dissenting):
- Public conscience test raised by majority is undesirable because it replaces the strict but clear rules governing present law with a balancing exercise
- The principle argued by A (that if A transfers property to B in order to disguise A’s interest in it, then he shouldn’t profit from the illegal act) has been applied for two centuries and the Court shouldn’t depart from it now
- Indeed this rule causes much hardship for R but there is no evidence that the public conscience test is more desirable
*Tinsley v Milligan [1994]
Law Commission Consultation Paper No. 153 (1999)
recommended replacing Tinsley v Milligan with a statutory discretion taking into account:
- Seriousness of illegality
- Knowledge and intention of party seeking to recover benefits
- Whether refusing to allow standard rights and remedies would:
o Deter illegality
o Further the purpose of the rule rendering the transaction illegal
o Be proportionate to the illegality involve
Tribe v Tribe [1996]
Summary
In a clear attempt to limit the application of Tinsley because it is seen as contrary to public policy (PoA is falling into disfavour and shouldn’t be elevated to a decisive status; the distinction shouldn’t rest on arbitrary factors like whether it’s a father or uncle or mother), what the CoA did here was introduce even more arbitrary distinctions into the law of illegality – now title depends on whether, out of the control of the defendant, the illegal purpose has been achieved (perhaps change it to repentance?)
Tribe v Tribe [1996]
Facts
Father transferred shares to son to conceal them from creditors (illegal purpose); once threat passed he demanded the shares back but son refused arguing PoA irrebuttable by evidence of illegal purpose.
Tribe v Tribe [1996]
Held
Held: Since the creditors weren’t aware of the transfer no part of the illegal purpose had been carried into effect so father could rely on his purpose to rebut presumption.
Nourse LJ:
- In both this case and Tinsley A transferred property to B with mutual purpose being to conceal his interest in the property for fraudulent/illegal purpose
- Before Tinsley principle that A couldn’t recover property was consistently applied regardless of whether PoA arose
- But now there is a distinction: if PoA doesn’t arise then the general rule doesn’t apply; if PoA does arise then D won’t be allowed to plead illegal purpose
- Criticism: Judge Weeks QC – this distinction shouldn’t depend to such a great extent on arbitrary factors, such as whether the claim was brought by a father against son, or mother against son
- Nourse agrees – also at this time the PoA for other purposes is falling into disfavour, and in illegality shouldn’t be elevated to a decisive status
- However we are bound by Tinsley which decided that if PoA is engaged the general rule applies, but it didn’t decide that there wasn’t an exception where the illegal purpose had not been carried out
Millett LJ:
- Authorities support view that someone can plead his dishonest intentions as long as he has withdrawn from the transaction before the illegal purpose has been carried out.
- This is a question of policy – refusing to lend assistance to those who found their cause of action on illegal or immoral acts often leads to a denial of justice (justification is that it’s not a matter of justice but rather one of policy)
- Thus locus poenitentiae serves to mitigate the harshness of the primary rule by enabling C to give evidence of his own dishonest intent, but only if he withdrew from the transaction while his dishonesty still lay in intention only
- One must hesitate before introducing an exception to a primary rule but the one in Tinsley isn’t one based on any discernible moral principle but is rather procedural in nature and depends on the adventitious location of the burden of proof in any case
“Genuine repentance is not required. Justice is not a reward for merit; restitution should not be confined to the penitent. Voluntary withdrawal from an illegal transaction when it has ceased to be needed is sufficient
Effect of a RT?
A resulting trust is where the transferee holds property on trust for the transferor. A conveys to B, who holds the trust property for A.
The beneficial interest results (comes back) to the transferor (or the party who provided the purchase money). NB: the metaphor of ‘springing back’ associated with RTs is misleading. In truth, the RT is a new interest which is created.
What are the 2 main debates in RTs?
• The role of intention. When does an RT arise? While an express trust gives effect to intention and CTs respond to unjust enrichment / wrongs, RTs only tell you about the structure of the trust, not the reasons.
• Whether the beneficial interest remains with the transferor, or is returned to him. Two views here:
o View 1: the transferor starts with both legal and beneficial interest, the beneficial interest remains with him when he passes the legal interest to the transferee. Lord Reid in Vandervell: “the beneficial interest must belong to or be held by someone. So, if it is not to belong to the donee/trustee, then it must remain with the donor.”
o View 2: the transferor starts with absolute ownership, rather than a title consisting of legal and beneficial interest. Beneficial interest is then created when he tries to pass legal title to the transferee, and the RT returns the beneficial interest to him (i.e. he gains a new interest). Lord B-W in Wesdeutche and Birks take this view.
Why is the division between presumed and Automatic RTs false?
How do RTs fit into the overall taxonomy?
The division is false for two reasons (Swadling)
- Presumed and automatic are not opposing terms: they are each answering questions. ‘presumed’ tells us how the fact triggering the trust is proved in litigation (procedure), while ‘automatic’ tells us that the fact triggering the trust is not a declaration of trust (substance). As a matter of logic, therefore, a RT can be both presumed and automatic.
- RTs do not fit into the overall taxonomy of trusts: if a declaration of trust is proved, then presumptive trusts are express, if not they are constrictive. Automatic RTs are constructive.
What is a presumption?
it is a method of proof. Saying there is a presumption only tells us how the fact is proved, not what it is. Yet, it is the substance (what is presumed) that is important. An evidential presumption is the most likely inference we can draw from the evidence of the primary fact.
What are the 2 main situations in which a PRT arises?
There are two main situations in which a presumed RT arises: (i) voluntary conveyance of property to another; (ii) the purchase of property in the name of another.
Voluntary conveyance of land
- STATUTE
- broad interpretation
- narrow interpretation
The presumption of resulting trust used to apply to land in the same manner as personality, but s60(3) LPA now governs the presumption of resulting trust on voluntary conveyance of land.
• 60(3): “In a voluntary conveyance a resulting trust for the grantor shall not be implied merely by reason that the property is not expressed to be conveyed for the use or benefit of the grantee”
o Broad interpretation: Virgo: s60(3) means that a voluntary conveyance of land takes effect as expressed, unless there’s evidence of contrary intention. I.e. s.60(3) abolishes the presumed RT for voluntary conveyances of land.
o Narrow interpretation: Swadling: s.60(3) is merely a word saving provision that did not alter substantive law—under the Statute of Uses 1536 it had been necessary to use the words ‘unto and for the use of’, but this section is simply a reminder to conveyancers that such words are no longer needed. s.60(3) does not prevent a presumed RT arising in cases of gratuitous transfer of land, it just means an RT will not arise merely because the words are absent.
Lohia v Lohia
• first instance judge adopted the broad interpretation, but Mummery LJ in the CA seemed to adopt the narrow interpretation —he did not, however, come to a clear conclusion as to which was correct.
o Mummery LJ: from the language of s.60(3), it is clear that: (i) there can be no presumption of RT “merely from the absence of the words ‘unto and the use of’”; (ii) nothing in the subsection “precludes the implication of a trust … [in] circumstances other than the omission of the words ‘unto and to the use of’.”
Stack v Dowden
• suggests that there is no presumption of a RT in the family home context in cases of conveyance in joint names. Instead, the presumption is that the registered owner owns the property – the non-owner is required to produce evidence that the parties intended differently, creating a constructive trust.
When does a purchase money RT arise?
2 example cases
When a purchaser buys property in the name of a third party, it is presumed that the property is held on RT for the purchaser, proportionate to the purchaser’s contribution to the purchase price. This applies to both land and personal property.
- Dyer v Dyer [1788] H&W purchased land in their joint names. The purchase money was provided entirely by H. Eyre CJ: “The trust of a legal estate…results to the man who advances the purchase money.” Unless contrary evidence rebuts this presumption.
- Fowkes v Pascoe [1875]: A purchased an annuity in B’s name. A presumption of RT arose on A’s favour.
Does s. 60(3) apply to purchase money PRT?
NB: s.60(3) does not apply because the conveyance is not voluntary.
What fact is proved by the presumption?
Primary facts: (i) A conveys to B (voluntary conveyance); (ii) A pays C to covey to B (purchase money).
We know that primary fact + secondary fact = B holds on trust for A. What is the secondary fact?
What fact is proved by the presumption?
(1) Declaration of trust by transferor in his own favour
E.g. Swadling
- Used by Lord Nottingham in Cook v Fountain [1676]. He notes that there are two types of trust: (i) express; and (ii) constructive. Express trusts can either be declared by direct and manifest proof, or violent and necessary presumption.” These ‘presumptive trusts’ arise when “the Court, upon consideration of all circumstances presumes there was a declaration, either by word or writing, though the plain and direct proof thereof be not extant.”
- Thus the ‘presumed secondary fact’ is the transferor’s declaration of trust.
What fact is proved by the presumption?
- Unexpressed intention to create a trust
E.g. Mee
- Different from the above, as the intention is unexpressed.
- Vandervell (No. 2): “In the first category, subject to any provisions in the instrument, the matter is one of intention, with the rebuttable presumption of a RT applying if the intention is not made manifest.”
- However, this seems at odds with the operation of presumptions. Presumptions operate to draw the most likely inference from primary facts. This is not the most likely inference —people do not transfer rights without expressing intention to do so.
What fact is proved by the presumption?
- Transferor did not intend to benefit the transferee
• Birks and Chambers: “equity tends to be suspicious of gifts and often asks the recipient of an apparent gift to prove that it was intended as a gift. The failure to do so means that it will be held on trust for the apparent donor.” In other words, equity is suspicious of gifts, so presumes that there is no gift, leading to a presumption of non-beneficial transfer (a trust) in favour of transferor. • Birks’ theory was rejected in Westdeutsche [1996]: o Facts: Local Authority entered into an ultra-vires agreement with Westdeutche to bet on interest rate fluctuations. Under the agreement W had paid out money to the LA in the mistaken belief that the agreement was valid (i.e. that the LA had authority to enter into it). W sought resolution from the HL that money was held on RT (so LA would owe fiduciary duties as a trustee and W could claim compound interest). o HL (Lord B-W): no RT arose (LA just had to make restitution for unjust enrichment —only simple interest). The fact presumed in presumed RT cases is the transferor’s positive intention to create a trust, not the absence of intention to benefit the transferee. In reaching his decision, Lord B-W relied upon Swadling’s statement that: “the presumption of resulting trust is rebutted by evidence of any intention inconsistent with such a trust, not only by evidence of an intention to make a gift. In other words, such trusts are based on intention.” ♣ Inconsistent with Birks’ theory: if the fact presumed were a lack of intention to benefit, then it could only be rebutted by evidence that the transferor intended to confer a benefit. • However, Chambers argues that the lack of intention to benefit theory gains support from Air Jamaica v Charlton: o Millett (obiter): “a RT arises by operation of law, though unlike a CT it gives effect to intention. But it arises whether or not the transferor intended to retain a beneficial interest —he almost always does not —since it responds to the absence of intention on his part to pass a beneficial interest to the recipient. It may arise even where the transferor positively wished to part with the beneficial interest, as in Vandervell v IRC.” o Swadling: Air Jamaica does not really support Chambers’ view. The case concerned an automatic (incomplete disposal) RT and involved an unremarkable application of Vandervell v IRC; it did not intend to say anything new about presumed RTs.
