Resulting trusts

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  • Created by: Nikki
  • Created on: 13-04-16 10:58

Basics

All resulting trusts have following form:
(1) A transfers property to B
(2) B then holds that property on trust for A

Resulting = beneficial interest jumps back to initial transferor

Do no arise because of any express declaration of trust --> express trusts where settlor intends beneficial interest to be left with him is not a resulting trust 

2 categories:
(1) Presumed resulting trusts --> arising where A transfers property to B gratuitously 
(2) Aumtomatic resulting trusts --> arising where A transfers property to B for B to hold on (express) trusts, but intended trust fails 

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Presumed resulting trusts

Where A trasnfers property to B gratuitously, B is presumed to hold that property on trust for A

Applies in 2 principle situations:
(1) where A gives an asset to B
(2) where A pays for an asset which is transferred into B's name (and where he pays fo rit in part, B's equtiable interest is proportioante to his contribution)

Presumption can be rebutted in two ways:
(1) presumption of advancement 
(2) proof that A intended to benefit B 

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Presumption of advancement

Counter-presumption that A intneded to make a gift to B --> depends on relationship that exists between A and B
- applies to husbands to wives; fathers to children; possibly mother to child
- doesn't apply to wives to husbands
- can be rebutted by contrary evdience 

Parliament has recently passed legislation which will abolish the premption 
- not yet in force; now doubtful if it ever will be
- will only operate prospectively 

Criticism
- does not apply in other situations where a gift also seems most likely explanatoin of trasnfer, e.g. wife to husband 
- decision to abolish it = mixed blessing -->
----- end to arbitrary divergent treatment e.g equality of sexes
----- but extends ambit of presumption of resulting trust whcih is unliley to mirror actual                               intentions of vast majority of those who make gratuituous trasnfers of property 
----- perhaps better option would have been to abolsih presumption of resulting trust, not presumption of advancement 

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Criticisms of presumptions

Problems with presumption of advancement

Lack of clarity in relation to transfers of land by virtue of s60(3) LPA 1925
- CA in Ali v Khan stated that HC in Lohia established that presumption of resulting trusts had been abolished in relation to conveyances of land

Presumption of resulting trust now appears to have been abandone in cases where A and B contribute to purchase price of land, which is to be hteir home and which is registered in their joint name

Storng argument that presupmtions are simply unreal
- e.g. divergent tratement of transfers between spouses and parents and their childen 
- more fundamentally may think that whatever relationship between parties, most probable explanation for gratuitous transfer is that A intended a gift to B

Prominence of presumption in relation to illegality

Sometimes courts have clung too much to presumption e.g. Re Vinogradoff

BUT content and justifiability only really matters to extent that presumptions are determinative of cases in whch they apply --> only determinative where there is no other info for courts to go on (rare situation) 

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Resulting trusts and illegality

Where A trasnfers property to B in pursuit of some illegal purpose, the courts will usually not allow either party to claim that they were intended to have an interest int he rpoeprty if proving such an intention would require them to bring evidence of the unlawful scheme

In such cases, evidence of what was actually intended is inadmissible and so beneficial interests are determined by presumptions --> Tinsley v Milligan 

Outcome therefore depends on whether presumption of resulting trust applies of presumption of advancement 

Exception --> doctrine of locus poenitentiae -->
- applies where parties never actually carry out their illegan plan
- where A trasnfers property to B in order to effect some unlawful scheme, but parties withdraw from it before their illegal purpose has been wholly or partly carried into effect, A is not precluded from bringin evidence of his actual (dishonest) intentions in making the transfer in a claim to recover the property 
- applies regardless of wehther parties withdrew from plan because they have ahd a change of heart of simply because it turned out they did not need to put it into action
- Tribe v Tribe 

Is it legitimate to use these presumptions in such cases to resolve cases? 
How else could we deal with problem of unlawful pruporses? --> give courts greater discretion so that they could determine right os parties to property either
(1) on basis of value judgment as to desriability of claim
(2) by reference to policy which renders their plan unlawful 

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Content of the presumption

2 schools of thought:
(1) presumption that A intended B to hold property on trust for A
(2) presumption of lack of intent to benefit B 

When first developed the presumption applied to gratuitous transfers was that A intended B to hold property on trust for him --> law has since found various formulations of intention

Argument cleared up following HL decision in Westdeutsche -->
- HL unanimously chose view (1) 

2 qualifications that show law isn't fully settled, even simply as a matter of authority 
(1) in Westdeutsche, L B-W held that it was not simply A' sintention that was important in creation of resulting trusts but also B's
(2) view of presumption in W appears to be challenged by a statement by Lord Millett in PC decision in Air Jamaica Ltd v Charlton --> resulting trust arises wehther or not transferor intended to retain beneficial interest in it since it responds to absence of anyintention on his part to pass a beneficial interest to recipient 
------> dictum in this case in no way qualifies authority of Westdeutsche but suggests law is not yet settled

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Automatic resulting trusts

Where a settlor, A, trasnfers property to B to hold on trust, and the trusts declared are invalid or otherwise fail to allocate the entirety of the beneficial interst in the property 

Traditioanl view is that they arise irrespective of whether A intended beneficial interst in property to revert to him in event of trust failing 

Vandervell v IRC --> significance that resulting trust arose in V's favour even though he clearly did not intend this 

Basis of automatic resulting trusts?
- L B-W account --> cannot stand as explanation of ARTs because Vandervell cannot be squared with it and there is no suggestion that Vandervell was wrongly decided on this point
- proprietary arithmetic argument --> automatic resulting trusts arise on basis that A necessarily retains what he has failed effectively to dispose of 
- to prevent or reverse B's unjust enrichment --> rejected in Westdeutsche but argument has some merit 

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Resulting trusts and unjust enrichment (1)

Unjust enrichment = deals with cases of non-consensual (or less than fully consensual) transfers of assets -->
- claim for restitution of enrichment -->
- liability is strict --> but harshness of this canb e tempered by defence of change of position
- claim to restitution is normally personal, but one suggstion has been that unjust enrichment claimants should, at least on occasion, have proprietary claims and that resulting trusts are one instance where law is already doing this 

Argument
- Birks/Chambers 
- resulting trusts take same form and seem to have same baiss as unjust enrichment claims
- in PRTs, the law is presuming that A didn't intend to make a gift of property to B
- in ARTs, trust reflects fact taht A did not intend B, as a trustee, to benefit fromt eh trust property in the event of the trust failing
- if this is right then not only do resuling trusts provide examples of unjust enrichment being remedied through prprietary rather than personal claims, but this provides a basis for grantin proprietary claims to unjust enrichment claimants more generally
- treat like cases alike - if unjust enrichment supports a proprietary remedy here, it should do so elsewhere 

Response
- Swadling
- this view misreads PRT cases --> in fact what court is presuming is not that A had no intent to benefit B but, specifically, that he intended to create a trust in his own favour
- presumption of resulting trust is a presumption of express trust for settlor/transferor 

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Resulting trusts and unjust enrichment (2)

Leading authority on resulting trusts (Westdeutsche) rejects unjust enrichment argument --> trusts are directed to giving effect to a settlor's intentions 

Authority of Westdeutsche can be questioned

But aside froma uthrity is there a good argument in principle for using trusts to remedy unjust enrichment?

Arguments against unjust enrichment trusts:

(1) trusts impose stringent oblgiations on trustee, therefore it would be unreasonable to impose a trust ont he recipient unless and until he knew of the mistake, since until then he would have no reason to know of the trust
- BUT --> trusts needn't be accompanied by these duties --> recognising C as having proprietary claim to asset doesn't require us to also treat D as owing fid duties to C

(2) A trust would create problems for TP delaing with recipient, who may end up acquiring assets burdened by trusts 

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Resulting trusts and unjust enrichment (3)

(3) giving unjust enrichment claimants proprietary claism would mean giving them priority in event of D's insovlency, meaning botht that they reocver ina dvance of D's tother creditors and that those creditors are left with fewer assets from which their claims are to be satisfied
- BUT --> TP who receive mistakenly transferred asset will take subject to trust only if they aren't bona fide purchasers for value without notice --> and if they aren't then it seems there is little injustice if they are bound
- AND --> while a trust would give unjust enrichment C's priority over other creditors, disadvanataging them, it is not clear that the priority is unfair 

Justifying the priority -->
- B's creditors would themselves be unjustly enriched if they were allowed to have access to asset A mistakenly transferred to B to satisfy their claims against B

Case for proprietary restitution
- might then say that same argument as justifies B's liiability to A - that A didnt intend B to benefit from asset he mistakenly transferred - also justifies why claim we give A should be proprietary rather than merely persona, since A no more intended anyone claiming through B to benefit from asset than he did B himself

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Classification of trusts

At least some resulting trusts arise to give effect to A's intention that B hold property on trust for him --> should these not be classified as express trusts?
- where presumption is raised and not rebutted, court proceeds on basis that presumed facts exist --> so if presumption of resulting trust is presumption that A intneded to create a trust in his own favour, then the trust which arises where presumption is not rebutted arises because this is waht we consider A intended
- by conrast if court accept unjust enrichment view there is good reason to allocate them to distinct category of trusts
- indefensible discrepancies in way we treat these trusts -->
---> s53 LPA 1925 imposes formality requirements for effect creation fo tru tof land and disposition of equitable interests --> s53(2) these rquireemnts do not need to be satisfied in relation to implied, resulting and constructive trusts --> intneded trust proved by presumption are exempted from requirements which apply to intended trusts proved by other means --> arbitrary 

Classification of trusts should reflect genuine material differences that exist among various trusts recognised in law 

Principled classification of trust would categorise trusts be ref to their bais, the various reasons which support recognition of trusts --> such a classification would be far more informative than current one as express and resulting or constructive

But as long as s53 remains good law it seems that we will be compelled to make do with present classificatory scheme 

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Quistclose trusts (1)

Often viewed as one instance of automatic resulting trusts, though they may now be better viewed as a third category of resulting trust

Arise where A loans money to B on condition that:
(1) the money is kept separate from B's other funds
(2) money is used only for a stiuplated purpose 
In these circumstances, at least if money is not so used, it is held on trust for A

Suggestion that (1) should be viwed in that segregation fo loan money is relevant only in so far as it sheds light on parties' true intentions and, in particular, whether they reall intended taht B use the money for th stipulated purpose 

Barclays Bank v Quistclose Investments 

Analysis of Quistclose trusts
- initially though to involve 2 trusts: primary trust for purpose for whcih the money was loaned and secondary trust in favour of lender when this purpose failed
- further confusion in later cases --> Northern Developments; Re EVTR
- in Twinsectra Ltd v Yardley Lord Milley argued that this must be wrong since the primary trust looks like a purpose trust which would contravene beneficiary principle
- he proposed alternative analysis whereby B held money on trust for A throughout, subject only to a power in B to apply the money for the stipulated purpose 

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Quistclose trusts (2)

Millet approach -->
- borrower holds money on trust for lender thorughout, although borrower has power to apply that money for stipulated purpose
- as benefciiary of trust lender can restrain borrower from using money for anothe rothe rpurpose
- seems lender can revoke power to use money for that purpose and so reclaim money, even where money could still be so used, as was the case in Quistclose, where the shareholders could still have been paid
- if borrower does use money for stiuplated purpose, lender left with contractual right to repayment
- if borrower misapplies money then lender can follow and claim money from TP, provided they are not bona fide purhcasers for value without notice

Unusual and possible improper applicaiton of these principles --> Re EVTR 
- but decision seems fair and can be justified on unjust enrichment argument 

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Quistclose trusts (3)

Quistclose trusts as resulting trusts

  • in Quistclose itself, Lord Wilberforce made no reference to resulting trusts
  • in Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd, Gibson J preferred to categorise trust as constructive
  • now commonplace to describe Quistclose trusts as example of resulting trusts 
    • made some sense when W 2 trust analysis held --> secondary trust in favour of lender arose upon failure of primary trust
    • but once we reject this analysis, status as resulting trusts becomes more doubtful
      • cannot deny resulting patter
      • but does not follow that they should be categorised as a resulting trust
      • nonetheless, Millet continued to refer to them as resulting trusts despite his rejection of 2 trust approach
      • Hoffmann's analysis of same trust in Twinsectra strongly suggests that he consdiered it to be express

Answer to classificatory quesiton should turn on reason we recognise trust 
- if we consdier that A, when lendeing money to B, intended that B should hold money on trust fo rhim, then we should treat this as express trust
- if it appears that, although A did not intend B to obtain beneficial interest inthe monye, nor did he form the positive intention to keep the beneficial interest for himself, then we have reaosn to class it as resulting trust

Seems plausible that cases of both kinds exist and hence that some Q trusts should be express and others resulting 

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