EQUITY AND TRUSTS
RESULTING & CONSTRUCTIVE
TRUSTS:
(1)RESULTING TRUSTS
Types of trust
Important division:
• Express trusts: deliberately made by
the settlor
• Implied resulting and constructive
trusts: arise by operation of law.
Resulting trusts
These arise when property transferred to
another returns (“results back”) to the
transferor
After a valid transfer of property, an RT can
be used to impose on the transferee a duty to
hold the property on trust for the benefit of the
transferor.
Vandervell v IRC [1967] 2
AC 291
In this case, RTs were classified as:
• (a) Presumed
or
• (b) Automatic
(a) Presumed RTs
Where transfer by A to B is not made on
trusts there is a rebuttable presumption
that B holds on trust for A.
Absence of consideration or any
presumption of advancement B is
presumed to hold the beneficial interest
for A absolutely.
(b) Automatic RTs
Transfer made on trusts which leave some or
all of the beneficial interest undisposed of.
B automatically holds on RT for A to the
extent that the beneficial interest has not
carried. Automatic consequence of the failure
of A to dispose of his property. Effect is
merely to return to A the interest not
effectively disposed of.
Automatic RTs contd.
Classified by Megarry in Re Vandervell:
does not depend on any intentions or
presumptions but is merely automatic result
of failure to dispose of what is vested in him.
Westdeutsche Landesbank
Girozentrale v Islington BC
See also Westdeutsche Landesbank
Girozentrale v Islington BC [1996] AC 669
Lord Browne-Wilkinson: these RTs arise
when the trusts declared do not exhaust the
whole beneficial interest BUT – rather than
arising automatically BW states that it arises
because of the settlor’s presumed intention.
Presumed or automatic?
Whether automatic or presumed this
type of trust arises where there has
been incomplete disposal of the
beneficial interest.
In what circumstances might this
happen?
(i) Failure of the express
trust
Due to e.g. the trust being void or
because of lack of certainty
In Re Diplock [1948] Ch 465 money for
charitable or benevolent purposes. Not
valid as a charitable trust and so failed.
RT arose for testator’s estate.
(ii) Beneficial interest not
disposed of
Valid express trust but fails to dispose
exhaustively of the beneficial interest.
Common example: where there is surplus
after distribution. Property not disposed of
results back to settlor. See for e.g. Re Trusts
of Abbott Fund [1900] 2 Ch.326.
Realistic result?
Imposition of RT does not always provide a
realistic result.
Problem of what to do with surplus e.g where
there are many anonymous subscribers e.g.
to a disaster fund. See
Re Gillingham Bus Disaster Fund [1958] Ch
300. Inconveniently the case followed Abbott
– surplus were held on RT for the donors.
Other solutions to an RT?
Imposition of RT not always ideal. Can
be seen where trust established for
bens with settlor stating how fund to be
used – question then arises what
happens to surplus funds?
Re Sandersons [1961] 1 All
ER 25
Where a special purpose is assigned to
the gift the court regards the gift as
absolute and the purpose merely as the
motive.
Other solutions to an RT?
See for example Re Osoba [1979] 1
WLR 247 money for education left over
after girl completed university. Rather
than RT to the estate daughter was
allowed to keep surplus – education
was merely a motive of the testator.
Other solutions to an RT?
Gift regarded as absolute – purpose
simply a motive for the gift – so when
purpose ends rather than RT beneficiary
is entitled to it all. But a question of
fact.
Other solutions contd.
NB also Goff on surplus funds in Re West Sussex
Constabulary’s Widows Children and Benevolent
Fund Trusts [1971] Ch. 1.
What to do with surplus raised from various
sources?
(i) Raffles/sweepstakes: no RT/bona vacantia
(ii) Collection boxes: no RT – out and out gifts
(iii) Identifiable donations and legacies: RT for
donors.
Therefore: 2 cases to
consider
Gillingham and West Sussex
West Sussex makes more sense than an RT
for unknown donors in these situations and is
better authority
Thus, in Westdeutsche, BW considered this
type of RT to operate on presumed intention.
Three possible outcomes
(i) Property not exhausted is held on RT for
donors (e.g. Abbott and Gillingham)
(ii) Gift construed as absolute so no RT but
donee takes whole (Re Osoba)
(iii) Given outright so passes to Crown bona
vacantia
NB – charitable gifts where doctrine of cy
pres may apply to gifts that fail and they be
applied to purposes as near as possible.
Presumed RTs
Arise through presumed intention of settlor
where:
(i) property voluntarily transferred to third
party
or
(ii) where purchase of property is taken in
name of another
Voluntary conveyance
Property owned by A is transferred to B:
gives rise to RT in A’s favour where B is
trustee
NB distinction between personalty and
real property.
Conveyance of pure personalty
If transfer of ownership was to make a gift RT will
arise. Transferee will hold for transferor
Donative intent not normally presumed so
presumption of RT must be negatived by donee to
show there was an intended gift
Certain relationships give rise to the reverse
reverse presumption (see advancement below).
Conveyance of real
property
Section 60 subsection (3) of the LPA 1925
presumption that any gratuitous transfer of
land is made with donative intent
Prevents RT from arising. Transferee must
prove absence of intent to make a gift. See
Hodgson v Marks [1971] Ch 892.
Lavelle v Lavelle LTL
11/2/2004
CA considered ownership of flat that
daughter claimed was given to her by
father.
On appeal, court held that evidence was
against presumption that father was
giving daughter a flat.
Other situations where PT may
arise
Where A provides part of purchase price of
property put into Bs name
May give rise to a “purchase money RT” (PMRT)
Presumed RT in favour of contributor not party to
transfer. Can be negatived by transferee if gift or
loan intended. If not neg. then beneficial interest
in proportion to purchase price provided.
PMRT
Must be contrib to purchase in money or money’s worth
Wachtel V Wachtel [1973] 2 WLR 366
See also CA dec Curley v Parks RT of property purchased
in name of another arose at date property acquired.
Springette v Defoe [1992] 2 FLR 388 & Ash v Mumford
The Times 15/11/2000 qualifying contribution can amount
to a discount obtained by tenant under right to buy and
also sums undertaken on mortgage – see Huntingford v
Hobbs [1993] 1 FLR 736 and Goodman v Carlton [2002]
EXCA Civ. 45.
PRTs and the family home
PRTS relevant where property put into
name of B when A has contributed to
purchase price. A is entitled to share
proportionate to contribution. Can
overlap with imposition of constructive
trust (CT).
Other evidence of intention
NB presumption of RT rebuttable with evidence of
actual intention
No RT if:
• evidence of intention to make a gift
• or other evid of real intent
• or presumption of advancement operates
See: Aroso v Coutts & Co [2002] 1AER 241
Re Sharpe [1980] 1 WLR 219 [loan does not =
contribution to purchase price]
Vajpeyi v Yusaf (2003) NPC 108 (Ch.D)
Presumption of advancement
This presumption operates instead of an RT in
certain circumstances
i.e. when voluntary conveyance made to child or
wife or someone to whom the donor is in loco
parentis. Does not apply from wife to husband
Can be easily rebutted – see:
Pettitt v Pettitt [1970] AC 777
McGrath v Wallis (The Times 13/4/1995)
Lavelle v Lavelle supra
Automatic v Presumed RTs
Is this distinction still recognised today?
ARTs are meant to arise independently of
intention. But in Westdeutsche BW doubted
this classification arguing for a PRT
But it is still possible to show in what
situations ARTs and “proper” PRTs will arise.
Constructive Trusts
As with RTs CTs arise by operation of
law
Can arise irrespective of intention of
parties. But is possible to bring them
about by creating situation in which they
arise
CTs
CTs very difficult to define and therefore
difficult area of law.
Carl Zeiss Stiftung v Herbert Smith [1969] 2
Ch 276 CA: see speech of Edmund Davies
CTs found in wide variety of circumstances
Circumstances for a CT?
Must appreciate that there are no defined
circumstances in which court will determine CT
But there are common circs in which CTs have
been found.
Difficult to say there is unifying factor to all circs –
except for conduct of the legal owner: has the
legal owner so conducted himself that it would be
inequitable to deny the claimant an interest in the
property.
Paragon Finance PLC v D B
Thakerar & Co [1999] 1 All ER
400
See LJ Millet: a CT arises by operation
of law when ever the circumstances are
such that it would be unconscionable for
the owner of property to assert his own
beneficial interest in the property and
deny the beneficial interest of another.
Thus
CTs arise whenever it is inequitable or
unconscionable for the owner to retain the
property and not to recognise interest of
another
Scope therefore for doctrine to develop as in
second lecture in case of Pennington v Waine
where principle of unconscionability was
basis for perfecting gift
Unconscionability
NB: Not limited to CTs - trust was created to
prevent unconscionable behaviour
In Westdeutsche Landesbank Girozentrale v
Islington BC [1996] AC 669
Lord Browne-Wilkinson stated that equity acts
on the conscious of the owner of the legal
interest. In trust conscience require him to carry
out purposes of trust or which law imposes by
reason if his u unconscionable conduct
Classification of CTs
Not easy to define but also overlap RTs.
RTs and CTs formed by operation of law – not bound
by formality requirements of s53(1)(b) LPA 1925
and can arise on same facts (see cohabitation)
Courts not always distinguished them – have treated
them as synonymous – e.g. in Gissing v Gissing
[1969] 2 Ch 85 and in Hussey v Palmer [1972] 1
WLR 1286 Denning: label immaterial. Confusing
since distinction is important in ascertaining
ownership of the family home
Implications of CT?
Example: Eric is a trustee of a trust which
has a majority shareholding in a company
Using his voting rights attached to the shares
he appoints himself director and receives
directors fees.
A person who holds or who acquires property
after CT imposed holds it for others not
himself – in the example Eric holds fees on
CT for beneficiaries of the trust – will be
under obligation to transfer to bens.
CT and equitable interests
Ct will give rise to equitable interests –
• the ben will have an interest in the trust property
• Gains and losses become the property of the ben
• priority over general creditors of the constructive
trustee
See Re Sharpe: loan did not give rise to presumed
RT – but interest found under CT and this bound
the CT in bankruptcy
Equitable remedies such as tracing and account
will be available to the beneficiary
Institutional and Remedial
ICT arises on events which bring it into
being – not impose simply recognises
CT as in being: order merely declaratory
Compare with RCT which is imposed
Remedial CT
Discretionary remedy imposed to
prevent unjust enrichment – where
person unjustly enriched at expense of
another court can impose restitution by
imposing CT which acts as
discretionary mechanism to confer
proprietary rights
Utilised in other jurisdictions
Remedial CT?
In England CT a substantive
mechanism not a remedy. In 1970’s
attempts made to develop CT as
remedial device – “new model CT” to be
imposed wherever justice and good
conscience required it – particularly in
cases of cohabitation claims and in
context of licenses it was rejected.
Remedial CT?
Again in 1990’s moves towards RCT.
See Lipman Gorman v Karpnale &
Westdeutsche Landesbank suggested
that RCT could provide basis for
proprietary restitutionary remedies.
Remedial CT?
RCT subsequently rejected in UK.
Halifax BS v Thomas CA did not allow
use of CT in case of defendant who had
been unjustly enriched through a
fraudulent mortgage loan.
Polly Peck International v
Nadir 4 All Er 769
The CA held no prospect of CT on
assets of insolvent company RCT could
only be introduced by Act of P.
Why so reluctant? It is the discretionary
nature of the remedy that English courts
find difficult – possible effect on third
party rights.
Extent of grounds for CTs
Despite definitions of CTs as arising in
circumstances of unconscionability they
actually arise in a wide variety of
circumstances.
Common circumstances giving
rise to CTs
•
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•
•
•
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Where unauthorised profit made by fiduciary
Liability of third party (strangers to trust)
Mutual wills
Secret trusts (depending on view taken)
Property acquired through killing
Conveyance by fraud
Specifically enforceable contracts for sale
Imperfect gifts
Contested interests in family homes
Fiduciaries and CTs
Fiduciaries are CT’ees of any
unauthorised property they gain
see Boardman v Phipps [1967] 2 AC 46
HL: fiduciary held shares on CT
because opportunity and information to
acquire them came to him by virtue of
position.
AG for Hong Kong v Reid
[1994] 1All ER 1
Reid was public prosecutor took bribes to
throw out prosecutions
Bribes invested in properties in NZ
Properties held on CT for Crown
(See lecture on fiduciary duties for more
detail on nature duties and liabilities)
Third Parties
For more detail on liability of “strangers to the
trust” see later lectures on breach.
Third party may be liable if intermeddles with
trust property. Two categories:
(i) Dishonest assistance
(ii) Knowing receipt
Dishonest assistance
Defendant has not received trust property otherwise would
be knowing receipt.
Therefore no CT possible. Personal remedies only. This
is area of “secondary liability” rendering third parties liable
for breach of trust
See Royal Brunei Airlines v Tan [1995] 2 AC 378
Lord Nichols: liability in equity to make good resulting loss
attaches to a person who dishonestly procures or assists
in breach of a fiduciary obligation.Constructive trustee?
Probably not because no trust property.
Knowing receipt
Any person taking trust property takes it
subject to trust so must be returned.
Where recipient has no property or traceable
proceeds beneficiaries must rely on personal
remedies. If no CT then account. Recipients
liability is personal even where liable to
account as “constructive trustee” since held
property originally.
Liability to account
Only imposed if third party knowingly
received property subject to trust
But: how much knowledge for liability?
See Baden Delvaux v Societe Generale
[1983] BCLC 325: five states of knowledge
Ranging from actual knowledge to knowledge
derived from negligence of recipient. But not
precise measures.
Next lecture
Remaining situations will be considered
in next lecture.