resulting trusts

McDonald & Street: Equity and Trusts Concentrate, 3rd edition

Chapter Nine

Resulting Trusts

One issue that is often examined in essay form is the role of intention in the creation of resulting trusts. This will briefly summarise some of the issues which you can consider. There are differing academic views; to get the best essay marks you do not need to agree with any particular view but comment and appreciate the merits and weaknesses of their arguments.

Starting Place

A good place to begin is with the distinction made by Meggary J in Vandervell #2; The automatic and presumed intention resulting trust. A presumption is a matter of evidence/proof and on the proof of primary facts, e.g. a voluntary transfer of property to another then the burden shifts to other party to rebut the presumption on contrary evidence, secondary facts.

Automatic or ‘failed formalities’ resulting trusts . This will occur when there has been an intention to declare a valid charitable trust which is declared invalid; Morice v Bishop of Durham (1805) 10 Ves Jr 522 or where the objects are uncertain; Vandervell #2. In both these cases there was clear intention that the settlor or testator did not want to retain any beneficial interest in the property. Lord Wilberforce was clear that they arose regardless of intention in his decision in Vandervell v IRC, they arose automatically by consequence of failure.

Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington LBC, that all resulting trusts arise by intention (obiter).

There are problems with Lord Browne-Wilkinson’s view on this. The intention is a matter of evidence; as Megarry J said in Vandervell #2 an ‘unexpressed intention in breast of owner does nothing’. With the presumed resulting trust (below) the presumption takes the place of ‘manifest’ evidence and can be rebutted by contrary ‘manifest’ evidence. There is no such gap of evidence in the failed formalities, so it is unlikely that his view can be supported here. There is intention NOT to retain a beneficial interest and a clear intention to benefit another with that interest.

Birks & Chambers suggest that the trust arises because the settlor/testator never intended the transferee to be absolute owner but to only be trustee, and therefore the beneficial ownership is not transferred. This may have merit as to why there is a

© Oxford University Press, 2013. All rights reserved.


resulting trust but why it is held for the settlor is not clear. This shares the principles of Lord Browne-Wilkinson. As Hudson states the beneficial interest must be held by someone and it is (in Vandervell particularly) reluctantly held by the settlor.

Vandervell v IRC [1967] 2 AC 291 Lords Upjohn & Wilberforce base it on the notion of retaining a beneficial interest when the intended trust fails. This can be said to be flawed as there is no separate beneficial interest to be retained until a trust is declared. It may be justified as failed trusts clearly show an intention to create a trust, it is just not for the benefit of the ‘original’ intended object. Is this really a constructive trust?

Presumed resulting trust arise in two situations; a) when there is a voluntary transfer of property or b) when property is purchased in the name of another person. Both these are based on certain presumptions which can be seen dating back to the seventeenth century (Grey v Grey).

These presumptions can be rebutted on contrary evidence. We will not consider here the alternative presumption of advancement, which is based on similar principles of presumed intention and evidence.

Lord Browne-Wilkinson suggests that all resulting trusts operate because the presumption is that there is an intention to create a trust. In the absence of this intention then it is not a trust, which can be adduced on evidence. So in Twinsectra there was no evidence of trust, everything showed a clear intention to give absolutely. This is the reason there is a presumption, if there is lack of manifest evidence of intention then a trust will be presumed.

Birks & Chambers – that the fact which is proved by the presumption is that there was no intention to benefit the other person (i.e. not a presumption to retain a beneficial interest). This is to safeguard against unintended loss of assets and protect property rights (perhaps at the expense of security of transaction). For Birks this failure of intention can be based on mistake or a defect in judgement. However this was not the view taken by Lord Browne-Wilkinson in Westdeutsche where although there was a mistake in law there had been an intention to benefit the recipient, so no intention to retain an interest.

Vandervell v IRC [1967] 2 AC 291 the House of Lords felt that the trust arose to fill the evidential gap based on the presumptions in the voluntary transfer or purchase in the name of another. This really means there is no ‘manifest’ evidence of intention



but based on proof of primary facts. Lords Upjohn & Wilberforce base it on the notion of retaining a beneficial interest. As noted above with Lord Browne-Wilkinson this may be said to be flawed as there is no separate beneficial interest until a trust is declared.

Quistclose Trusts

The main facts – money was lent to RR by Q for a particular purpose (paying dividends to shareholders). RR went in liquidation before the purpose could be carried out. BB claimed the money in the bank was theirs, to meet debts owed to it by RR.

The Issues

A loan agreement is a contractual arrangement, and if not repaid then the remedy is personal. This would place Q as an unsecured creditor of RR. If however they could prove that the money lent was theirs they had a proprietary claim, which would that property from any claim be creditors.

Lord Wilberforce in the leading judgment said that the fact that there was a loan agreement did not mean that there could not be a trust. The liability to pay interest would arise when the money was used to pay dividends (the purpose) and the relationship would be only contractual, but if there was a failure then it was a resulting trust (see Chapter Nine) for the lender. He talked of two trusts, one for the paying of dividends (the primary trust) and a second, in suspense, until the purpose fails.

As a matter of trusts you could use your knowledge to criticise this reasoning. All trusts need the three certainties;

The subject matter of the trust is the money lent for the purpose, which is usually not an issue. Although it was difficult to identify in Farepak Foods & Gifts Limited [2006] EWHC 3272.

The intention to create a trust was not evident on the facts. Although there is no need to use the word trust it is not clear on what facts there could be one found, as there was in Paul v Constance (see Chapter Five). One way that later cases have considered the intention to be evident is the separation of the money into a separate account (see Re Kayford[1975] 1 All ER 604).

The issue of intention in a Quistclose trust has been considered by many academics and could be usefully used to illustrate an argument in an essay on this topic.



Lord Wilberforce in Quistclose considered that BB had notice of the ‘common intention of [Q] and [RR] that …the sum advanced was not to become part of the assets of RR’. This could be compared to the intention arguments raised in cases such as Re Andrews and Re Osaba. However, in these cases the purpose was carried out and Lord Millett has said that commercial situations need more certainty.

Lord Millett in Twinsectra Ltd v Yardley and Others [2002] UKHL 12, considered that there was a loan, with the benefit held on resulting trust (although this is not certain) for the lender, with the borrower having a power to use (apply) for a particular purpose. This may show you that later in the course you will see that the simplified identification of trusts and powers we begin our studies with it more complicated as we progress.

Millett has talked of them being resulting trusts but his article (referenced below) has focussed on the role of intention at the outset, favouring Chambers view that the resulting trust arose because of the absence of intention to benefit the borrower, rather than the intention to retain a benefit for himself, see the discussion in Air Jamaica v Charlton [1999] 1 WLR 1399. There was a good deal of such evidence in the actual case

James Penner has rejected that it is based on an intention not to benefit, as there was a clear intention to retain an interest so perhaps more in line with the arguments of Lord Browne-Wilkinson in Westdeutsche. There is no resulting trust as the lender has intended to retain a beneficial interest until the purpose is carried out, that it is not for the free use of the borrower. This would suggest that it is an express trust.

The objects of the trust are also problematic see the on-line materials for Chapter Seven.

Swadling, W., ‘Orthodoxy’ in Swadling, W. (ed.) The Quistclose Trust – Critical Essays (Oxford: Hart Publishing, 2004) [ISBN 978741134120] and J. Penner, ‘Lord Millett’s Analysis’, ibid.

My notes on resulting trusts



A good place to begin is with the distinction made by Meggary J in Vandervell #2; The automatic and presumed intention resulting trust.

What fundamentally distinguishes cases is the difference in what needs to be proved. In the case of the PRT unless rebutted the presumption establishes that the recipient B holds on trust for the contributor while in the case of purchase PRT holds the extent of A’s interest i.e 40% then 40%.

In the case of an ART the trustee is known to be a trustee. The only thing we need to consider is for whom he holds the property for. We need to show that the disposition by the transferor failed.

Concerning voluntary conveyance PRTs of land and in Lohia case it was that LPA 1925 s (60) abolished this kind of trusts for LAND. The CA refused to endorse this view but it was later adopted in Ali Khan case. These cases propably represent the law.

Regarding personalty the presumption still applies.

In Fowkes case the surrounding facts were examined to find that the woman did not intent the son of her brother in law to hold on trust for her but rather that it was a gift. Thus the presumption was rebutted.



In contrast in Re Vinogradoff the woman transferred 800$ in the joint names of herself and her four year old granddaughter. It was claimed that the child held on trust because there were no evidence of an intention to make a gift. The resulting trust was upheld. The decision is an atrocity because it is only logical to assume that the grand mother did not intend to make her 4 year old grand daughter a trustee on the one hand and on the other hand even if she tried to make her a trustee she would have failed because under LPA 1925 an infant cannot be a trustee. Thus we can see the contested nature and functioning of the resulting trusts and the differences that arise among the judicial decisions.

The presumption has been applied regurarly in purchase PRTs and it is important to examine those concerning land. Why? Under 53 (1) (b) it is difficult to establish an informal express trust of land due to the written evidence needed. The PRT allows for a more straightforward claim than a constructive one. It need only to be proved that is that the claimer made contributions and thus the onus is on the other party. However since Stack V Dowden the purchase PRT no longer applies in family home context.

The presumption of resulting trust



In the absence of sufficient evidences of the circumstances of the transfer or of the contribution to the purchase price of property the presumption of resulting trust will come to the aid of resolving the problem. In a simple example where A transfers his painting to B it will be presumed if A can show that the transaction was made that B will hold the painting on resulting trust for A unless B can provide contrary evidence showing for example that he paid for it or provided consideration. The onus of proof as Sir Francis Bacon stated is on the alleged purchaser to prove and not on the transferor to prove that it was not a gratuitous gift. ( The Venture )

What is the content of the presumption of resulting trust and what evidence is therefore sufficient to rebut it?



There are four alternatives. Firstly the one adopted by Swadling that it is presumed that the contributor made an express trust over the property which failed.

Secondly the one adopted by Mee that A intended B to hold on trust for A.

Thirdly, the one adopted by Penner that A did not intend B to take the property beneficially.

Fourthly, the one adopted by Chambers and Birks that there is no legal basis for which B can claim that A intended to B to receive the property for his own benefit.

The first alternative ( Swadling ) presents some problems. On the one hand the decision in Vinogradoff cannot be sustained through the express trust theory and one the other hand the court’s understanding of the way the presumption operated in family home case where it could not be inferred fron the evidences that there was intention to create an express trust and most importantly one which needed writing under 53 (1) (b). In Springette although there was no discussion between the parties and therefore no declaration of trust. Nevertheless this did not rebut the presumption which it would have done if an actual trust was created.

Midland case Oxley and Stack found a resulting or its cousin constructive despite the fact that an express trust was not found. Thus Swadling’s view presents



Alternative 3 and 4 are quite similar.

Alternative 4 is an extension of 3 to encompass a broader range of cases. Chambers regards all resulting trusts as examples of the avoidance of the concept of unjust enrichment. Unjust enrichment means that if the resulting trust did not arose then B would the property for him which would lead to the unjust enrichment of B. Chambers argues that the presumption arises are just cases where there is no legal basis for the transaction. (Chase Manhattan)

The unjust enrichment thesis has not been adopted by the courts. In Westdeutsche case the court adopted Swadling’s view.

Under the present law the presumption and thus the trust will be defeated by actual evidence of any intention which is inconsistent with the presumption.i.e that the money to B was to discharge a contractual obligation ( Westdeutsche )

Presumption of advancement



There are three situations under which a presumption of advancement can be found. Firstly, when A transfers property to his wife. Secondly, to his child. Thirdly to someone who is in loco parentis (Re Paradise Motors). No presumption from a mother to child unless the mother is a widow and therefore stands in loco parentis (Sekhon).

It is submitted , as in Pettit , that there is no real presumption , but rather it can be said that the evidential circumstances rebut the so called presumption. The example of the father giving to child or wife indicates the fact that this relationship counts as sufficient evidence to rebut the presumption. In these line of cases if the father wants to show that no intention to make a gift existed the onus of proof is on him to show evidence rebutting the presusmption. Therefore it is submitted that the presumption of advancement is evidential.

Two ways of understanding the relationship between the two presumptions.

Firstly , historically and conceptually they are dependent. It serves as a second step exception to the general presumption of resulting trusts.

Secondly , it means that there is no presumption of resulting trusts where it applies.



Sexist approach as to whom the presumption operates for



It is submitted nowadays that the presumption is somehow sexist as to the relationship of a mother to child or wife to husband. Glister shows that if we are to consider that the presumption reflects a moral or legal duty to provide then , historically this would make sense given the fact that assets within the family were distributed likewise. On the other hand if the presumption is to be seen as to reflect family affection of one member to another then it is clear that the distinction is at least anachronistic and out of date (Pettit). Similar opinion in Jones V Kernott (2011).

While opinions in Pettit signify the need for reform the presumption has not yet been abolished despite the fact that cases such as Laskar expanded the presumption.(Nelson, Antoni).

Despite the fact that the Equality Act 2010 signifies the abolition of the presumption there are nevertheless criticisms as to that. By abolishing the presumption of advancement the presumption of resulting trusts will operate. This can be a step backwards to the thinking that when evidences are unsatisfactory the interfamiliar transfers will be considered to be trusts. This is an odd thinking like the one which in Vinogradoff found a resulting trust.



In McGrath V Wallis the father and son both contributed to the purchase price of the house. The presumption was rebutted on the basis that firstly , the fact that the father put the property in the son’s name alone could be explained on the fact that the purchase would be assisted with a mortgage. Secondly , at one stage the father had drew an express trust which was never executed which counted as sufficient evidence. Thirdly , as the father was only 63 years old there was no reason to give the house he would live to the son. The court did not declare a purchase PRT as the contributions. It looked at the actual intentions of the parties.

Automatic resulting trusts



Arts arise by operation of law independently of the settlor’s intention. (Vandervell2). This view was contrasted in Westdeustche where It was stated that the assets would go on bona vacantia in the absence of an express or implied intention.

Lord Brown Wilkinson expands the characterization by Megarry that the ART is not wholly ‘intention – independent’ but also it may be displaced by a settlor’s actual intention to abandon to the Crown.

The way in which ART arise is very complicated as shown by the Vandervell saga.In that case Mr Vandervell tried to discharge his title in order not to attract taxation. It was held that the option granted by the RCS to the trustee company in fact was held on resulting trust for Mr Vandervell because he did not discharged successfully his beneficial interest. The result was an ART. Vandervell had the intention to create a trust for someone else , but not himself , but the court found it to be an imprecise trust. Thus the express trust failed since the objects were noit adequately ascertained and therefore the beneficial interest remained with Vandervell.



One rule of law that comes out of the Vandervell case is that a positive intention not to retain the beneficial ownership will not prevent the transferor from winding up with the property on ART , since if the transferor has not only the intention but has the intention that the tranferree is to hold on trust then the only possible result is an undefined express trust which leads to an ART.

Why do ARTs arise?

The traditional reason for why ARTs arise is that what the settlor fails to discharge he keeps.

The alternative theory of why ARTs arise is the one that Chambers suggests , that of the the unjust enrichment , which Swadling finds it wrong on the basis that if ART gives A an interest which is regarded as different from the initial one then it does not effect restitution because A is not getting the same interest. On the other hand if he gets the same interest then it is just like the traditional view.



Resulting Trusts and Constructive Trusts


http://justin-santiago.blogspot.gr/2009/05/resulting-trusts-and-constructive.html


Like a constructive trust, a resulting trust arises by operation of law, although unlike a constructive trust, it gives effect to intention - Justin Santiago

Both constructive and resulting trusts differentiate themselves from express trust which arises because a right-holder has manifested an intention that a trust come into existence. In the case of constructive and resulting trusts the intentions are not expressly stated.

This statement in this question is derived from Lord Browne-Wilkinson's judgement inWestdeustsche Landesbank Girozentrale v Islington LBC (1996) where his view was that all resulting trusts arise because of a presumption that the transferor intended to create a trust for himself. This statement supports the argument that resulting trusts are the result of an intention not to create a trust. This thinking is also reflected in the Privy Council case of Air Jamaica v Charlton 1999, where Lord Millet said: “But [a resulting trust] arises whether or not the transferor intended to retain a beneficial interest - he almost always does not - since it responds to the absence of any intention on his part to pass a beneficial interest to the recipient.”

This argument was put forward in the recent theses of Birks-Chambers that the the key to the resulting trust was not the intention to create a trust, but the intention of the donor not to benefit the recipient.



The statement by Lord Browne-Wilkinson however shows a flawed approach at looking at intention by means of deducing a presumed intention. To presume an intention would be going against the fundamentals of trust. To create a trust the intention must be manifested or expressed and the the courts have placed increasing importance on the intention of the parties when determining whether there is a trust or not. The perceived artificiality of presumed intentions in the resulting trust doctrine has led courts to move away from it affirmed by the House of Lords in Stack v Dowden [2007] UKHL 17; [2007] A.C. 432.

The use of the term "resulting trust" in such a case is a misnomer in itself. The orthodox theory of resulting trusts contained in Vandervell v IRC states that where it was said that the beneficial interest must belong to or be held for somebody; so if there was an evidential gap in this respect it was not to belong to the donee or be held in trust by him for somebody, it must remain with the donor. However such a notion is false as an equitable interest arises only at the point where the trust arises. It must be questioned whether there is such a thing as a beneficial interest that can be retained. Beneficial interests are created in the hands of the beneficiary who holds the trustee to account for his exercise of those rights : DKLR Holding Co (No 2) Ltd v Commissioner of Stamp Duties. There is therefore



no retention of anything.

The argument of Birks and Chambers, that the fact “presumed” in such circumstances is that the transferor did not intend to benefit the transferee, was shown to be based on a number of misunderstandings. First, gratuitous transfers outside the relationships of advancement are not “apparent gifts”, only ambiguous transfers. Secondly, suspicions are not the same things as presumptions, and in any case, equity is not “suspicious” of gifts. Thirdly, it is not possible for equity to “presume” that “apparent” gifts are not gifts, for “not-gift” is at best a legal conclusion from proved facts, not a fact in itself. Fourthly, a “presumption” of “not-gift” cannot be a “presumption” of “non-beneficial transfer” for the law does not recognise a notion of non-beneficial ransfer distinct from transfers on declared trusts or as security. And fifthly, no satisfactory explanation was given as to why, assuming there is such a thing as a “non-beneficial transfer”, the law should respond to its “proof” by the raising of a trust for the transferor. For these reasons, the argument that there should, by a logical extension of the traditional resulting trusts, be resulting trusts in the generality of cases of unjust enrichment is unsustainable.

Constructive trusts on the other hand might be regarded as an approach based on outcomes and result



rather than principle or sound theory, as indicated by the statement of Sir Peter Millett (in (1995) Trust Law International, 35) that ‘... the language of constructive trust has become such a fertile source of confusion that it would be better if it were abandoned’. While not all reaction has been so extreme, much academic and judicial commentary has advocated restraint in the employment of the constructive trusts as a panacea for lack of a clear intention to establish a trust and the need for certainty.

Constructive trusts arise by operation of law and is imposed by the court as a result of the conduct of the trustee and therefore arises quite independently of the intention of any of the parties. The types of constructive trust :-

a. Constructive trusts arising on a specifically enforeceable contract for the sale of a title to land or known as Vendor – Purchaser Constructive Trust by William Swadling

The moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold and the beneficial ownership passes to the purchaser. There must be a valid contract of sale and and the contract must be one of which a court of equity will grant specific performance.



b. Constructive trusts arising when equity perfects an imperfect gift – donor done everything within his power to make the gift of perfect.


resulting trusts

Documents

clear intention

presumed intention

presumed resulting trust

intended trust

role of intention

unexpressed intention

intention obiter

creation of resulting