Resulting and Constructive Trusts

RTs
1. Background
  1. Stems from Latin 'resalite' or 'resultare', which means to spring back - if the trust fails, it goes back to the testator.
  2. RTs (like CTs) arise and operate without any formality requirements
    1. s.53(2) Law of Property Act 1925
  3. Essentially means that the transferee, or trustee, holds the ben. int. in the property on trust for the transferor, or settlor - or, if he is dead, for his estate.
    1. Note that a failed trust of residue will result in a partial intestacy.
2. Classification
  1. Distinct from CTs, although sometimes blurred.
  2. Debate over correct classification of RTs.
  3. Re Vandervell (No 2) [1974]
    1. Definition received general (but not universal) acceptance.
    2. Presumed RTs
      1. Voluntary conveyance
      2. Contribution to purchase price
    3. Automatic RTs
  4. Theoretical foundations of RTs:
    1. Why (and when) RTs arise
    2. What is the nature of the presumption operating in PRTs?
    3. Whether, or to what extent, RTs are based on intention (imputed or presumed, or the absence of intention)
      1. Express intention = express T.
    4. Whether the ben. int. is retained (there all along) by the transferor or created (goes then comes back?) as a new interest
    5. Westdeutsche Landesbank Girozentrale v Islington LBC [1996]
      1. Bank paid money to local authority - interest swap agreement. Was void from the beginning. Local auth. had no power to enter into such a contract (ultra vires). Both parties knew this. Money no longer identifiable when contract discovered void. HoL - money not held on trust. Cannot have trust if conscience affected.
3. Presumed RTs
  1. Two categories of PRTs. In these two scenarios, there is a presumption which determines that the transferee or title holder (the defendant) - who paid no consideration - should hold the property on a RT for the transferor or contributing party (the claimant).
    1. 1. Voluntary conveyance - where the transferor voluntarily conveys property to the transferee
      1. Cases involving land
        Hodgson v Marks [1971]
        Was voluntary coveyance of land. H (widow) transferred house to lodger, Evans. Oral understanding - trust. She was to still receive benefits, but legal title would be held by him (E). FORMALITIES. Unenforceable. CoA overturned at first instance. Constituted as RT. Not a gift.
        Note - s.60(3) LPA 1925
        Lohia v Lohia [2001]
        Ali v Khan [2002]
        s.60(3) didn't abolish PRT on land.
      2. Personalty - no s60(3) LPA of formalities
        Re Vinogradoff [1935]
        Transferred £800 stock investment into joint names of herself and 4 year old granddaughter. After her death, held that GD held on trust.
    2. 2. Purchase-money - purchase in the name of another, or the contributing party and another
      1. Land
        Dyer v Dyer (1788)
        Note - common intention CT has replaced the RT in the context of SHARED HOMES (Satck v Downden, Jones v Kernott etc.)
        RT may still apply if land is for commercial use or for investment.
      2. Personalty
        Abrahams v Trustee in Bankruptcy of Abrahams [1999]
        Woman paid £1/week for National Lottery in name of husband. They separated. Won a big payout. SHE won payout despite it being in the name of her husband. Pre-RT.
        Established at the time of acquisition. Any 'late joiners' not included.
  2. What is the nature of the presumption in a PRT?
    1. The presumption is rebuttable. It can be rebutted by evidence to the contrary.
      1. Actual evidence or by counter presumption of advancement.
      2. Fowkes v Pascoe (1875)
        Mother bought annuities in her name and her daughter-in-law's son. Presumption rebutted. Intended he should have them beneficially, not on RT.
    2. Where the 'presumption of advancement' applies, the pres. of RT is said not to apply or to be rebutted by it.
      1. The pres. of advancement operates in respect of a transfer of property from one to another in certain relationships, including from husband to wife, father to child, and fiance to fiancee (but not wife to husband or mother to child, DA FUQ.) The pres. had become considerably weakened and difficult to defend (and therefore, increasingly easy to rebut)
      2. Judicial instrument of last resort - Nourse LJ, McGrath v Wallis
      3. S.199 Equality Act 2010 abolishes this but not come into force yet.
  3. What is it that is being presumed?
    1. Presumed declaration of trust.
    2. Is it that it is intended that the property should be held on T?
    3. Or is it (now) the absence of an intention that the transferee should have the benefit of the property transferred by way of gift?
4. Automatic (or failed) RTs
  1. A RT is said to arise 'automatically', or 'by operation of law' where a (non-charitable) trust fails for some reason.
  2. Examples;
    1. Initial failure of a charitable trust where there is no GCI
      1. Re Rymer [1895]
    2. Failed attempt to create a trust for exclusively charitable purposes
      1. Morice v Bishop of Durham (1805)
      2. Chichester Diocesan Board of Finance v Simpson [1944]
    3. Express trust which is void for offending the perpetuity rule
      1. Air Jamaica v Charlton [1999]
        Surplus of pension funds. RT for airline employees.
    4. Subsequent failure or surplus in a NCPT
      1. Re Trustees of Abbotts Fund [1900]
      2. Re Gillingham Bus Disaster Fund [1958]
      3. Re West Sussex Constabulary's Widows' etc Benevolent Trust [1971]
    5. Failure to identify the beneficiaries? (If you set up T but don't identify who has ben. ints OR ben. int not exhausted...RT)
      1. Vandervell v IRC [1967
        Wanted to found a professor's chair in Pharmacology in the Royal College of Surgeons. Tax efficient manner. Had ben. int. in shares of his own company. Intention to transfer shares to college and would arrange dividends to be paid on the shares. Divs would be paid to college. Divs and tax reclaim would cover £250k to found chair. Important for V to not retain any ben. int. under law - would have high tax rate. Accountant = needed more, and college to be out of the picture if public flotation occurred. Should have option to purchase the shares. Option to buy for £5000. Option given to trustee co. Didn't say for whose benefit the trustee co. was holding the option for. Intended for children's thing or trust declared at later date. Wasn't declared and option given. HoL - option given on trust, not beneficially but for whom? RT for Vandervell. Had the interest. MASSIVE tax liability for V (whoops).Option given for no consideration. No room for presumption.
        Nothing to do with presumed intention. Automatic consequence. Law's response.
  3. What is the theoretical basis for this type of RT or does it 'defy legal analysis'?
    1. Does the transferor retain a ben. int?
    2. Does equity simply act to fill any gap in the ben. int? (Convenience or intention?)
    3. Does a RT arise on the basis of an imputed or presumed intention of the transferor?
  4. What about the termination of a RT?
    1. Re Vandervell's Trusts (No 2) [1974]
      1. CoA. When optin exercised, was intended for children's settlement. Used £5000 from settlement for new trusts. Ben. int. now with children. s.53(1)(c) - writing. No writing, so how could this be? RTs don't require formalities - creation and formation of RTs. Termination??
5. The 'Quistclose' T
  1. Mr X would lend RR £1m but didn't like dividends or shares - money to borrow elsewhere. Then went to QC who said would lend dividend money to RR. Q gave money to Rolls Razor to pay dividends to shareholders. Money was put into Barclays Bank. Dividends were never paid. Exercised right to merge accounts - deficit of £4m. End of RR. Employees did badly from deal. Unsecured creditors got a lot of money. QC saying that trusts are involved - wants money back!
  2. What are the key elements of the facts in the case, which might be required for any QT to arise?
    1. Transfer of money to be used exclusively for a particular purpose
    2. Separation of property?
    3. Failure of the particular purpose.
  3. How could the facts be interpreted?
    1. No trust at all
    2. Ownership in RR, with QC having the right to restrain misuse
    3. OR is there a primary T followed by a secondary T?
      1. If so, is the PT for C (shareholders)?
      2. Or is the ben. int. in suspense?
      3. Or is it a T for non-charitable purpose?
        Paying dividends - real purpose to keep RR afloat. Abstract purpose - not allowed.
    4. Trust for QC throughout, with RR having a power/duty to pay C. (Lord Millet said T for QC all along)
      1. Twinsectra v Yardley [2002]
  4. If we accept a trusts analysis...
    1. If there is one T, it is express or RT?
    2. If an express, what can be said about certainty of intention and certainty of objects?
    3. When does the trust (or do the trusts) arise?
    4. Where is the ben. int. in any trust before/after the failure of any purpose?
    5. Is the ben. int. is with QC, did it ever leave?
  5. How hard should we try to fit QC into established trust law? Can it be reconciled with it or is it quite distinct?
  6. Cases where QCTs are said to apply.
    1. Re EVTR Ltd [1987]
      1. Someone lent £60k to EVTR (who was going under) for the purpose of buying equipment. EVTR took money and paid supplier. Before equip was delivered, EVTR went into liquidation. Supplier paid £48k. Went to receiver. Held that receiver held repaid money on CT for EVTR. Trust attached to money due to there being a purpose, and so RT. CT because of receiver. Why didn't trust end when supplier was paid?
    2. Cooper v PRG Powerhouse Ltd [2008]
      1. Is QC only to be allowed to apply to failing companies cases? Cooper resigned from PRGP. Condition that he could keep Merc company car on resignation. Co. had bought car on credit. On retirement, he would make final payment of £34k towards outstanding payment. Paid, and went to supplier. Immediately went into liquidation. Held - payment to co. from C was to settle account money for car. C allowed to trace money into account and could recover due to there being a QC trust. Actually a long way from a QCT ha.
CTs
1. Background
  1. Arises by operation of law, generally speaking without regard to the intentions of the parties (the 'common intention CT' being an exception).
  2. A C trustee holds property for the benefit of the bens., as in any trust, but the powers and duties of that C trustee are not necessarily the same as those of an express trustee.
  3. CTs arise and operate without any formality requirements
    1. s.53(2) LPA 1925
  4. CTs arise in many situations and some have sought to suggest that there is one unifying theme or principle which explains all of these, for example...
    1. Unjust enrichment
    2. The demands of justice and good conscience
    3. Unconscionability
  5. Necessary to find one principle for them? Or is it better simply to recognise all established categories?
  6. Arises wherever 'it would be unconscionable for one party to deny the other's ben. int. in a particular and identified property'. MIllet LJ in Paragon Finance v Thakerar [1999]
2. Institutional and remedial CTs
  1. ICTs arise by operation of law in recognised situations.
  2. RCTs are declared as a matter of judicial discretion and provide a remedy wherever the court considers it appropriate. However, THIS DOESN'T EXIST IN OUR JURISDICTION.
    1. Re Polly Peck International plc (no 2) [1998] - no to RCTs in the UK.
    2. Should E&W recognise them?
      1. Hussey v Palmer [1972]; Westdeutsche Landesbank Girozentrale v Islington LBC [1996]; London Allied Holdings v Lee [2007]
3. CT as remedy? (Not the same as RCT!)
  1. May be a mechanism for providing a remedy, where the C already has an equitable proprietary int.
  2. RCT creates an equitable prop. int. which had not previously existed.
4. Liability to account as a constructive trustee
  1. Note also that a 3rd party might be described as a constructive trustee or as having a liability to account as a CT.
  2. Better view - liability is a personal liability to account and that the language of constructive trusteeship is unhelpful and inappropriate, since the D does not hold property on T.
5. Categories of ICTs; there is no set list, but here are some of the recognised instances in which CTs may arise.
  1. 1. Common intention CTs (shared homes) (RT in commercial area)
    1. Stack v Dowden [2007] (extended to other relationships)
    2. Adekunle v Ritchie [2007]
  2. 2. Specifically enforceable contracts, eg contracts for the sale of land
    1. Shaw v Foster (1872)
    2. Neville v Wilson [1997] - formalities. No writing etc. but court said 'okay' because agreement was 'whole web of CTs'. Mutually enforceable.
  3. 3. Unconscionable retention of money paid by mistake (just receiving money by mistake - not enough to create trust. Once mistake realised, then unconscionable to keep money. CT then imposed. Still has to be trust property.)
    1. Westdeutsche Landesbank Girozentrale v Islington LBC [1996]
    2. Guinness plc v Saunders [1990]
  4. 4. Recission of contract
    1. R or C?
    2. Lonhro plc v Fayed (No 2) [1992] - CT
    3. El Ajou v Dollar Land Holdings plc [1993] - IRT
  5. 5. Setting aside of a voluntary transaction made by mistake (where property purchased and money set aside - prop on CT)
    1. Pitt v Holt [2012]
  6. 6. Proceeds of fraud (and other crime?) - does property remain vic's or thief's?
    1. Re Sigsworth [1935]
    2. Does the thief (trustee) hold possessory title on trust for vic?
  7. 7. Breach of undertaking - undertaking by purchaser
    1. Ashburn Anstalt v Arnold [1989]
      1. Obiter; CT where purchaser buys land expressly subject to contractual license. Not prop. int so won't bind 3rd party purchaser. Reduced price.
  8. 8. (Fully) secret trusts? (LOL 30 CREDS)
    1. Ottaway v Norman [1972]
  9. 9. Mutual wills (when trust arises - death of first or second spouse?)
    1. Re Cleaver [1981]
  10. 10. Imperfect gifts and trusts
    1. Re Rose [1952]
    2. Pennington v Waine [2001]
  11. 11. Fiduciaries de son tort (people who behave as Ts who are, in fact, not)
    1. James v Williams [2000]
      1. Intestacy. 3 adult children. No letters of admin granted. One of them moved into house as if he owned it against the other two. 24 years later, he died. One other of children - proceedings against successor who took house. Held on CT for other two siblings.
  12. 12. Breach of trust and fid. duty where fid. profits from the use of the principal's property or exploits an opportunity which belonged to the principal
    1. Keech v Sandford (1726)
      1. T held lease for ben. Landlord would not renew lease for ben but would for T. T then held lease on CT for ben. Strict.
    2. AG for Hong Kong v Reid [1994]
    3. Sinclair Investments v Versailles Trade Finance [2011]

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Resulting and Constructive Trusts

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	Created by Laura Phillips over 10 years ago