EQUITY AND TRUSTS

EQUITY AND TRUSTS RESULTING & CONSTRUCTIVE TRUSTS: • 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 SussexConstabulary’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 669Lord 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 • 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

EQUITY AND TRUSTS