Incomplete express trusts
Also called type B resulting trusts.
When do they arise? Is also known as arising in 'failure of express trust' cases. Here there has been an attempt to create a trust but somehow the beneficial interest (or part of it) remains undisposed of and then this 'jumps back' to the settlor (in this way the settlor is also the beneficiary).
Four situations have been said to give rise to this type-
- failure to declare beneficial interest
- failure of the trust
- failure of a specific purpose
- unexhausted beneficial interest/surplus funds.
Failure to declare beneficial interest- where a settlor conveys property on trust but fails to declare how all the beneficial interest is to be held, the unaccounted property is held on resulting trust for the grantor.
Re Boyes 1884- Kay- 'if it had been expressed on the face of the will that the defendant...
Incomplete express trusts
was a trustee, but the trusts were not thereby declared, it is quite clear that no trust afterwards declared by the paper not executed as a will could be binding.'
Vandervell v IRC 1967- who had equitable title on option to repurchase? Hadnt divested himself completely, it was held on resulting trust for V. Wilberforce- 'no need or room to invoke a presumption. The conclusion, on the facts found, is simply that the option was vested in the trustee company as a trustee on trusts, not defined at the time, possibly to be defined later. But the equitable interest or beneficial interest cannot remain in the air, the consequence in law must be that it remains in the settlor.'
Failure of trust- trusts can fail for a variety of reasons eg lack of certainty of subject matter, object, illegality, failure to comply with perpetuity rules. Where such a failure occurs then- provided the settlor intended a trust- the putative trustee does not take as an absolute gift. Instead the property is held on resulting trust for the settlor.
Essery v Cowlard 1884- held that the condition precedent (that the couple be married) had not been fulfilled so the property went back to the settlor on resulting trust.
Incomplete express trusts
Re Ames Settlement 1946- held that the marriage being void, there was a total failure of consideration and the fund was held on resulting trust for the settlors executors.
Failure of a specific purpose- arises in situations where property is given for a specific purpose and that purpose fails. Here the transferor has intended that the property be used for a specific purpose and if it isnt, that it goes back to them. The main case is Quistclose. Normally arises in loan cases.
i) the Quistclose case- Barclays Bank v Quistclose Investments 1970- Wilberforce- 'there is no doubt that the loan was made specifically in order to enable RR to pay the dividend. The mutual intention of the respondents and RR and the essence of the bargain was that the sum advanced should not become part of the assets of RR but should be used exclusively for the payment of a particular class of its creditors. A necessary consequence from this, must be that, if for any reason the dividend could not be paid, the money was to be returned to the respondents. The word 'only' or 'exclusively' can have no other meaning or effect.'
'That arrangements of this character for the payment of a persons creditors by a third person, gives rise to a relationship of a fiduciary character or trust in favour, as a primary trust, of the creditors, and secondarily, if the primary trust fails, of the third person, has been recognised...
Incomplete express trusts
in a series of cases over some 150 years. In the present case the intention to create a secondary trust for the benefit of the lender, to arise if the primary trust to pay the dividend could not be carried out, is clear and I can find no reason why the law should not give effect to it.'
Reasoning is complicated, isnt it just a private purpose trust?
ii) examples- Re Kayford 1975- Inferred a trust from what company did. Put money in a separate account so clearly a trust. Looks like an express trust. Megarry- 'From the outset the advice was to establish a trust account at the bank. The sender may create a trust by using appropriate words when he sends the money or the company may do it by taking suitable steps on or before recieving the money. If either is done, the obligations in respect of the money are transformed from contract to property, from debt to trust. Payment into a separate bank account is useful (but by no means conclusive) indication of an intention to create a trust, but of course there is nothing to prevent the company from binding itself by a trust even if there are no effective banking arrangements.'
Re EVTR 1987- Dillon- 'on Quistclose principles a resulting trust in favour of the provider of the money arises when money is provided for a particular purpose only and that purpose fails. In the present case the purpose for which the £60'000 was provided was buying new equipment.
Incomplete express trusts
But in any realistic sense of the words that purpose has failed in that the company has never acquired any new equipment. True it is that the £60k was paid out by the company with a view to the acquisition of new equipment, but that was only at half time, and I do not see why the final whistle should be blown at half time. There is now, no question of the money being applied in the purchase of new equipment for the company, and accordinly it is now held on resulting trust for the appellant.'
iii) best analysis? Twinsectra v Yardley 2002- Millett- 'a Quistclose style trust is a simple commercial arrangment which enables the borrower to have recourse to the lenders money for a particular purpose without entrenching on the lenders property rights more than necessary to enable the purpose to be achieved. The money remains the property of the lender unless and until it is applied in accordance with his directions, and in so far as it is not applied it must be returned to him. I am disposed, perhaps pre disposed, to think that this is the only analysis which is consistent both with orthodox trust law and commercial reality.'
'If the borrower is treated as holding the money on a resulting trust for the lender but with power to carry out the lenders revocable mandate, and the lenders object in giving the mandate is frustrated, he is entitled to revoke the mandate and demand the return of the money which never ceased to be his beneficially.'
Incomplete express trusts
'The lender pays the money to the borrower by way of loan, but does not part with the entire beneficial interest in the money, and in so far as he does not it is held on a resulting trust for the lender from the outset. It is the borrower who has very limited use of the money, being obliged to apply it for the stated purpose or return it. He has no beneficial interest in the money, which remains throughout in the lender subject only to the borrowers power to apply the money in accordance with the lenders instructions. When the purpose fails, the money is returnable to the lender, not under some new trust in his favour which only comes from the failure of the purpose, but because the resulting trust in his favour is no longer subject to any power on the part of the borrower. Whether the borrower is obliged to apply the money for the stated purpose, or merely at liberty to do so, and whether the lender can countermand the borrowers mandate while it is still capable of being carried out, must depend on the circumstances of the particular case.'
Cooper v PRG Powerhouse 2008- issue- was money at free disposal of company? No so cant pay creditors. Evans Lombe- 'it seems to me what emerges from this passage in Lord Millets speech is that whether or not money has been paid subject to a purpose trust is a question of fact. If a purpose trust is to be established it is necessary for the payer to show that the arrangement pursuant to which the payment was made defined the purpose for which it was made in such a way that it was understood by the recipient that it was not at his free disposal...
Incomplete express trusts
Millett says 'the question in every case is whether the parties intended the money to be at the free disposal of the recipient.'
Pearson v Lehman Brothers Finance 2010- Briggs- 'the gist of Milletts analysis was that if A transfers money to B to be used only for a specific purpose, then B obtains no beneficial interest in the property but holds it as a fiduciary, first to use it if possible for that purpose, and if not on resulting trust for A.'
Insolvency Act 1986 s340.
Unexhausted beneficial interest/surplus funds- situations where the purpose of the fund has been achieved but there is still money left over. Does a resulting trust arise in favour of the settlor? What happens to the property is highly dependent on the context and manner in which the trust is created or the property transferred. As many of these decisions are highly fact specific it can be difficult discerning a common thread.
Re Abbott Fund Trusts 1900 (maintenance of individuals, resulting trust)- Stirling- 'the ladies are both dead and the question is whether so far as this fund as not been applied to their benefit there is a resulting trust of it for the subscribers. I cannot believe it was ever intended....
to become the absolute property of the ladies. I think that the trustees were intended to have a wide discretion as to whether any of the fund should be applied for the benefit of the ladies and how the application should be made. In the result there must be a declaration that there is a resulting trust of the moneys remaining unapplied for the benefit of the subscribers to the Abbott fund.'
Re Andrews Trust 1905 (maintenance of individuals- outright gift)- Kekewich- (discusses Re Abbott) I am certaintly not the slightest degree bound by the authority of the case. If a gross sum be given and a special purpose be assigned for that gift this Court always regards the gift as absolute and the purpose merely as the motive of the gift, and therefore holds that the gift takes effect as to the whole sum. Here the only specified object was the education of the children. But I deem myself entitled to construe 'education' in the broadest possible sense and not to consider the purpose exhausted because the children have attained ages that education in the vulgar sense is no longer necessary.'
Re Osoba 1979- (maintenance of individuals- outright gift)- Buckley- 'if a testator has given the whole of a fund, to a beneficiary, he is regarded as having manifested an intention to benefit that person to the full extent of the subject matter, notwithstanding that he may have expressly....
stated that the gift is made of a particular purpose, which may prove impossible of performance or which may not exhaust the subject matter.'
Cunnack v Edwards 1896- (unincorporated association- to the crown)- Smith- 'as the member paid his money to the society, so he divested himself of all interest in this money forever, with this one reservation, that if the member left a widow she was to be provided for during widowhood. Except as to this he abandoned and gave up the money forever.'
Re Gillingham Bus Disaster Fund 1958- (disaster appeal- resulting trust)- Harman- 'there arises the question now whether the surplus should be paid to the crown or whether there is a resulting trust to the subscribers. The general principle is that where money is held upon trust and the trusts do not exhaust the fund it will revert to a resulting trust. The reasoning behind this is that the settlor did not part with his money absolutely but only sub modo to the intent that his wishes as declared by the declaration of trust should be carried into effect. This doctrine does not rest on any evidence of state of mind of the settlor for in the vast majority of cases he does not expect to see his money back: he has created a trust which so far as he can see will absorb the whole of it. The resulting trust arises where the expectation is for some unforseen reason created of frutition and is an inference of law based on the after knowledge of the event.
This reasoning is impractical as there is no distinction given between those who gave money for entertainment and those who just donated.
Re West Sussex Constabularys Trusts 1971 (unincorporated association- bona vacantia)- Goff- 'it appears to me to be impossible to apply the doctrine of resulting trust to the proceeds of entertainment and sweepstakes for two reasons: first the relationship is one of contract and not trust, he pays his money as the price of what is offered and what he recieves and secondly, there is in such cases no direct contribution to the fund at all, it is ony the profit which is ultimately recieved and there may be none.'
Re Bucks Constabulary Widows 1979- (unincorporated associations- contract holding approach)- 'the conclusion is that, as on dissolution there were members of the society here in question in existence, its assets were held on trust for such members to the total exclusion of any claim on behalf of the Crown. The remaining question is whether they simply held per capita, or as suggested in some cases, in proportion to the contributions made by each.'
Davis v Richards and Wallington Industries 1992 (pension- mixed approach)- Scott- 'the circumstances of teh case seem to me to point firmly to the conclusion that a resulting trust in favour of the employees is excluded. i) each employee paid his or her contributions...
in return for specific financial benefits from the fun ii) the scheme was established to take advantage of the legislation relevant to an exempt approved scheme and contracted out scheme. The legislative requirements placed a maximum on the financial return from the fund to which each employee would become entitled.'
Air Jamaica v Charlton 1999- (pension)- Millet- 'in the present case however the surplus does not arise from overfunding but from the failure of some of the trusts. It is impossible to say that the members 'have recieved all that they bargained for.' One of the benefits they bargained for was that the trustees should be obliged to pay them additional benefits in the event of the schemes discontinuance. It was the invalidity of the trust which gave rise to the surplus. Their Lordships consider it would be more accurate to say that the members claim such part of the surplus as it attributable to their contributions because they have not recieved all that they bargained for.'
Is complicated and not entirely clear. On what basis is the recipient of the property required to hold it on resulting trust for the transferor? And what role does intention play in justifying the imposition of a resulting trust?
i) Birks/Chambers- Absense of intention to benefit recipient? 'One of the conclusions reached here is that all resulting trusts operate on precisely the same principles regardless of the situations in which they arise. They do not depend on implied intention to create a trust, but neither do they arise completely independently of intention. All resulting trusts come into being because the provider of property did not intend to benefit the recipient. The resulting trust is not limited to the two situations described above but may be possible whenever the recipient of property was not intended to take it beneficially. Resulting trusts are restitutionary because they arise by operation of law to cause a person who has recieved enrichment at the expense of another to give that enrichment up to that other.'
Air Jamaica v Charlton 1999- Millett- 'a resulting trust arises by operation of law, and it gives effect to intention. But it arises whether or not the transferor intended to retain beneficial interest- he almost always does not- since it responds to the absense of intention on his part to pass a beneficial interest to the recipient. It may arise even where the transferor positively wished....
to part with the beneficial interest as in Vandervell.'
Twinsectra v Yardley- Millett- 'The Quistclose trust to be an entirely orthodox example of the kind of default trust known as a resulting trust. The lender pays the money to the borrower by way of loan, but he does not part with the entire beneficial interest in the money and in so far as he does not it is held on a resulting trust for the lender from the outset.'
ii) presumption of common intention?-
Westdeutsche Landesbank v Islington BC- Browne Wilkinson- 'both types of resulting trust are traditionally regarded as examples of trusts giving effect to the common intention of the parties.' (unconvincing not evidenced). 'A resulting trust is imposed by law against the intentions of the trustee but gives effect to his presumed intention.' 'To recognise a resulting trust where a contract has failed would be incompatible with the basic premise on which all trust law is built. That the conscience of the trustee is affected. Unless and until the trustee is aware of the factors which give rise to the supposed trust, there is nothing which can affect his conscience.'
Gardner- An introduction to the law of trusts- 'Lord Browne Wilkinson does not explain the basis for presuming the necessary common intention... If the courts have infact found resulting...
trusts where the transferor and or transferee would not have wanted them, the basis for these trusts cannot lie in presumed common intention of the trustee and Lord gives no explanation for taking the contrary view here.'
iii) presumed declaration of trust? Swadling 'Explaining Resulting Trusts' 2008- 'we say that voluntary conveyance and purchase money resulting trusts arose becasue of the operation of a true presumption, the fact proved by presumption being that the transferor declared trust in his own favour. This was the position in the 17th C and nothing has changed since. Thus though we have a convincing though anachronistic explanation for the presumed resulting trust the automatic resulting trust still defies legal analysis.'
Piska 'Two recent reflections on the resulting trust' 2008- 'the point is that nearly all cases where the presumed resulting trust arises there exists sufficient evidence to prove that there was no declaration of trust. Swadling may argue that this only shows that the resulting trust is applied wrongly in these cases, but it is case law on which the analysis must be based. Secondly, in the family themed context the presumption of trust is no longer the most likely inference from common experience. If the presumption is anachronistic ie outdated and inaccurate, then why does the presumption still operate? The real question is whether any of the resulting trusts...
discussed by Swadling serve any continuing social or pragmatic function. If so, the basis for the resulting trust needs to be clearly explained either in terms of intention or in terms of some more general principle such as the return on an investment of property ought to recieve proprietary protection.'
iv) Postscript- Chase Manhattan and response to void contracts-
Chase Manhattan Bank v Israeli British Bank 1981- Held that a person who paid money to another under a factual mistake retained an equitable property interest in it, and the conscience of the other was subjected to a fiduciary duty to respect his proprietary right, that the plaintiff had a right to trace the money founded on a persistent equitable proprietary interest, that on the prime question there was no relevant difference in the law of NY and England, that accordinly the plaintiff had more than a creditors right in the defendants winding up since any assets in its hands representing the plaintiffs money did not belong to the D beneficially.
Westdeutsche Landesbank- Browne Wilkinson (Chase Manhattan said that the payer 'retains an equitable property in it and the conscience of the recipient is subjected to a fiduciary duty to respect his proprietary right' It will be apparent from what I have already said that I cannot agree with this reasoning. First it is based on a concept of retaining an equitable interest in money...
where prior to the payment to the recipient bank, there was no equitable interest. Further I cannot understand how the recipients conscience can be affected at a time when he is not aware of any mistake. Finally the judge found that the law of England and NY were in substance the same. I find this surprising. Chase Manhattan may have been rightly decided. Althought the mere reciept of the moneys, in ignorance of the mistake, gives rise to no trust, the retention of the moneys after the recipient bank learned of the mistake may well hav given rise to a constructive trust.'