Express and Implied Trusts Lecture

EXPRESS TRUSTS

Express trusts are a device of disposition which, in land, creates a purely nominal (‘legal’) title that vests in the person named by the testator as the trustee. The title is purely nominal in that the property vested in them is not for their benefit, but is instead for the benefit of another, namely the beneficiary. These terms of trusteeship are made explicit in the testamentary disposition of the land in question, and so the trustee must act according to those terms. A breach of those terms is regarded as an affront to the conscience of the court of equity, and therefore a trustee can be required by the court to comply with the express terms of the trust.

Such a trust does not have to be articulated in any particular form, so long as the words plainly express and evidence an intention. Speaking clearly such that the words give rise to an objective intention ‘create a trust…without knowing it’ (Re Schebsman, deceased [1944] Ch. 83). Examples of trusts of land include A granting B the right to live rent-free for life on A’s land (Bannister v Bannister [1948] 2 All ER 133, CA). In the case of a matrimonial home, for example, one spouse expressing to the other that the first spouse regards the second spouse as having equal rights may inadvertently give rise to the existence of such rights (Hammond v Mitchell [1991] 1 W.L.R. 1127 per Waite J).

Formalities for creating equitable rights

Given that a trust can therefore be (potentially) created so easily, the recognition of equitable rights in trusts of land is coupled with a requirement for formality. The requirement of formality stems from the Statute of Frauds 1677 and two related policy considerations. The first is that it reduces the likelihood of controversy arising from allegations of fraud or mistake; the second is it is consistent with the English legal system’s preference for formal methods of creations of interests in land.

With such rights, a central rule is that a declaration of trust relating to land is enforceable only if it is ‘manifested and proved’ by some writing signed by the declarant (Law of Property Act 1925, s.53(1)(b)). The failure of documentary formality, as a consequence, results in a ‘merely voluntary declaration of trust… unenforceable for want of writing’ (Gissing v Gissing [1971] A.C. 886 per Lord Diplock). Without the evidence of a trust being in writing, a trust ‘does not come into being merely from a gratuitous intention to transfer or create a beneficial interest’ (Austin v Keele(1987) 10 NSWLR 283, PC per Lord Oliver of Aylmerton).

Formalities and equity

That being said, there are limited situations in which the statutory requirement for formality is circumvented by the court exercising its equitable jurisdiction. The court will exercise that jurisdiction where there is a concern about the statute being used in a manner that is contrary to the intentions of the testator. This, as you will recall from your revision in Equity and Trusts, is a reference to ‘secret trusts.’ The court when faced with these situations intends to avoid allowing statute being used as an instrument for committing or abetting a fraud. The Law of Property Act 1925 was not intended to replace one form of fraud (i.e. the alleged beneficiary claiming the existence of a trust) with another (i.e. the reliance by the trustee themselves on a technical fault in the trust to avoid being rendered as the trustee).

Hence, in Rochefoucauld v Boustead [1897] 1 Ch. 196,the statutory requirement for writing was held not to apply in a situation where A has acquired a title in land from X, on terms expressed orally to A by X that the land is to be held by A on trust for B. If B were able to renege on these terms by reliance on the statutory formalities, that would offend the equitable conscience of the court. Note that this rule has no application where the declaration is made after the date of A’s acquisition of title, because the passing of title would have had to be decided entirely according to the requirements of s.53(1)(b) of the Law of Property Act 1925.

Nevertheless, those situations where an express declaration of trust can be made without evidence of writing are limited to secret trusts. Where the alleged beneficiary claims a secret trust for their benefit, they cannot rely on the technical significance of a declaration of trust being incomprehensible to a layperson (Pink v Lawrence (1978) 36 P. & C.R. 98). Rarer still is the invocation of rectification, according to which a court may rectify a declaration of trust so that it is in accord with the testator’s intentions which had hitherto been expressed imperfectly or not at all in the declared trust (Wilson v Wilson [1969] 1 WLR 1740, ChD).By and large, an express declaration of trust, evidenced and signed for in writing, will be conclusive of the testator’s intention as it is stated in the written form. The declaration, so far as it concerns the persons named in it, ‘necessarily concludes the question of title… for all time’ (Pettitt v Pettitt [1970] A.C. 777 per Lord Upjohn).

Examination Consideration: Express trusts typically require to be put in writing, though there are exceptional circumstances in which that requirement can be avoided. Can you remember which case, mentioned above, had prescribed the principle for avoiding the requirement of putting an express trust in writing? And what is the principle in question?

IMPLIED TRUSTS

Although there is an insistence on the need to uphold formalities and avoid complications following informal creation of trusts of land, nevertheless there are exceptions to the need to comply in an unyielding manner to ensuring all trusts are put in writing. Hence, unlike with express trusts of land, implied trusts of land are not required to be evidenced in writing and do not require the signature of the settlor (Law of Property Act 1925, s.53(2)).

In the context of implied trusts, there are two types of trusts: resulting trusts and constructive trusts.

Resulting Trusts

Dealing first with resulting trusts, the presumption at the heart of such trusts is ‘no more than a consensus of judicial opinion disclosed by reported cases as to the most likely inference of fact to be drawn in the absence of any evidence to the contrary’ (Pettitt v Pettitt [1970] per Lord Upjohn). According to this doctrine, the “nominal”purchaser (A) of some land, where they purchase the land using money provided by another (B), is deemed by equity to be holding the land on a trust that ‘results’ back to B, the “real” purchaser. This is an application of the principle as stated by Eyre CB: ‘A trust of a legal estate… results to the man who advances the purchase-money’ (Dyer v Dyer(1788) 2 Cox Eq. Cas. 92).

This rule serves to displace the usual rule, namely that equitable ownership follows legal title. According to this rationale, given that A is the named purchaser of the land, they must also be the beneficial owner of the land. With resulting trusts, equity is recognising a truism that if B advances a large portion of money to A for the purpose of purchasing land, the advance of money is more likely to be part of a bargain, and not a gift; the so-called ‘solid tug of money’ (Hofman v Hofman [1965] NZLR 795 per Woodhouse J). Resulting trusts recognise that B had anticipated, and A had agreed to, there being something given to B in return.

Resulting trusts will recognise in B, the party which provided the purchase-money to the person with the paper title (A), a degree of ownership over the land which coheres in its degree to the size of the contribution made by B to the purchase. If B provided the entirety of the purchase money, then B is absolutely the equitable owner. In this manner, equity serves to give ‘the force of law to moral obligations’ (Sekhon v Alissa [1989] 2 F.L.R. 94 per Hoffmann J).

Resulting Trusts and Inequity

Controversially, a resulting trust is still held to apply, and the moral obligation owed by A to B, is no less diminished even where B has acted according to motives that would otherwise offend the conscience of the court of equity. In the case of Tinsley v Milligan [1994] 1 AC 340, the House of Lords held that A was subject to a resulting trust for the benefit of B, even though B’s contribution was made because of their intent to defraud the Department of Social Security.

This case was examined in 2016 by the UK Supreme Court in Patel v Mirza [2016] UKSC 42, and the Court decided not to follow the case of Tinsley only insofar that the case of Tinsley had created a “reliance test”: if B had to prove the illegality of their actions in order to benefit from a resulting trust, they would not be able to benefit from such a trust. But the Supreme Court in Patel v Mirza went even farther. The Supreme Court held that a reliance test should not have been imposed, and therefore even if a person had to prove unlawful behaviour on their part to establish their title, they would still be entitled under a resulting trust.

Date of acquisition

It is said that resulting trusts come into being at the date of acquisition of the property by A: the exact distribution of beneficial entitlement between A and B (i.e. the respective beneficial share of each party over the land) is said to ‘crystallise’ at the date of acquisition (Bernard v Josephs [1982] Ch. 391). In other words, according to the classic idea of resulting trusts, the only intentions which are relevant are those which existed at the time of the taking of title by A (Gissing v Gissing [1971]).Therefore, per this classic condition of resulting trusts, any contributions that are subsequent to the date of purchase ought not to be declared relevant for the purposes of a trust (Curley v Parkes [2005] 1 P. & C.R. DG15).

The problem with this notion is that it fails to take into account the idea of instalment-based mortgages. If B does not contribute anything to the deposit for a mortgage, for example, yet once the mortgage has commenced makes significant - or even the only - contributions to the mortgage, according to resulting trust doctrine they still do not hold any beneficial entitlement to the land. This is what gave rise to the idea of constructive trusts (Abbott v Abbott [2007] UKPC 53 per Baroness Hale of Richmond). Further discussion of constructive trusts is found below.

Examination Consideration: As a recap, by what time must a contribution be made in order to constitute a resulting trust? It should also be noted that the idea of a resulting trust being valid, if the circumstances which gave rise to it are inequitable, is academically controversial. Although there are plenty of articles discussing the subject, two suggested ones are ‘Illegality in the Supreme Court’ by R.A. Buckley (2015, L.Q.R. 341) and ‘Dirty Hands Reach Further’ by Steve Evans (2015, N.L.J. 165).

Presumptions

Resulting trusts, as mentioned, depend on a presumption: namely, that because B has advanced some or all of the purchase-money for the land by the date of acquisition, B is presumed to hold a beneficial interest via resulting trust. But this presumption is rebuttable: if evidence can be provided which definitively demonstrates that B never intended to hold a beneficial interest over the land, then a resulting trust will not apply. Again, it is the default position that the advance of purchase money from B to A, so that A may purchase the land, will establish a resulting trust in favour of B.

Further, although resulting trusts depend on a truism that an advance of significant portions of money for purchase of land is a bargain and not a gift, there are occasions in which equity will recognise that portions of money alleged to be gifts are exactly that: gifts. For example, where a father announces at his son’s wedding reception that he, the father, intends to provide the married couple with money to buy a marital home, that is a gift and does not give rise to a resulting trust (Walker v Walker, unreported, 12 April, 1984, CA). The evidence required to rebut the presumption of resulting trusts and to establish it is a gift must be compelling. As with the case of Walker v Walker, the alleged gift will usually be found in the family context.

Statute also recognises that provisions of money reflect an intent to donate, rather than to be part of a bargain. The doctrine of resulting trusts cannot apply merely because B, the current owner of the legal estate, transfers that estate voluntarily to A (Law of Property Act 1925, s.60(3), and also Ali v Khan [2002] 2 P. & C.R. DG19).

Presumption of Advancement

Resulting trusts can also be displaced by another, contrary presumption: the ‘presumption of advancement.’ Under this latter presumption, an inference arises of intent to donate money towards the purchase of a legal estate: the donor wished to ‘advance’ (that is, make a gift to) the nominal purchaser of the legal estate. This presumption has tended to operate in the family context where, contrary to the centrality of bargains over altruism, instead there may be altruistic motives on the part of the donor towards the donee. There is a ‘moral obligation to give’ (Bennet v Bennet (1879) 10 Ch. D. 474 per Jessel MR).

Conversely to the former presumption, compelling evidence can be rendered to show there was no such altruistic motive; but otherwise the default presumption of advancement will apply. This presumption reiterates ‘the prima facie position… that the equitable interest is presumed to follow the legal estate and to be at home with the legal title’ (Calverley v Green(1984) 155 CLR 242 (HC of Australia) per Deane J). Expressed differently, if a father provides their son with purchase money for purchasing a new home, the presumption of advancement applies, because the bond of familial ties and affection is sufficient to give rise to an ‘obligation in conscience to provide’ (Scott v Pauly(1917) 24 CLR 274 (HC of Australia)).

Oddly, these ties of familial obligation have been held not to apply to mother and daughter relationships (Sekhon v Alissa [1989]). Further, the ties seem only to go one way: unless there is absolute evidence to the contrary, money contributions made by the donor to their parent (rather than their child) is actually a resulting trust and is not displaced by the presumption of advancement (Binmatt v Ali (1981) unreported, 6 October, CA).

It has been suggested that such notions are outdated; indeed, that the whole doctrine of presumed advancement is outdated. It has been said that the presumption of advancement has now become relegated to a ‘judicial instrument of last resort’ (Ali v Khan [2002] per Morritt V-C), as opposed to a presumption of entirely equal standing when set against the presumption of a bargain that ordinarily applies with resulting trusts. In particular, the presumption when applied from husbands towards wives has received significant judicial criticism. In Pettitt v Pettitt, Lord Diplock said the presumption was ‘an abuse of legal technique… to apply to transactions between the post-war generation of married couples presumptions which are based upon inferences of fact which an earlier generation of judges drew as to the most likely intentions of earlier generations of spouses belonging to the propertied classes of a different social era.’ Similar criticisms have been made elsewhere (Lowson v Coombes [1999] Ch. 373 per Robert Walker LJ).

Examination Consideration: Can you recall what the differences are between the usual presumption, and the presumption of advancement? Would you be able to come up with a scenario in which one of the presumptions and not the other applies?

There may be other ways in which the presumption of a bargain can be rebutted. For example, the provision of money by B to A can simply be intended to constitute contributions towards living expenses and shared outgoings (Mehra v Shah [2004] EWCA Civ 632).

Case in focus: Hannaford v Selby(1976) 239 E.G. 811

A couple bought a house in their own names and were able to buy the house by using a mortgage loan. The wife’s parents move in with the couple, and the parents paid a weekly sum each week towards the family outgoings over a significant period of time. When relations between the parents and the couple fractured, the court had to consider the respective interests of the parents and the couple over the house. Goulding J rejected the parents’ claim to a beneficial interest in the home; Goulding J determined that the regular payments towards the shared outgoings of the household gave the parents nothing more than an occupational licence, which itself was revocable upon reasonable notice.

Key Points:

  • The parties with the legal title purchase the land by way of loan.
  • The parties claiming a beneficial entitlement stake their claim on financial contributions towards the expenses and outgoings of the household of the land.
  • Those contributions, having not been made towards the purchase price of the property, could not constitute a financial contribution.
  • NOTE: This case is from 1976 and therefore prior to the case law surrounding constructive trusts. It should therefore not be relied on to suggest parties in place of the parents would only be entitled to an occupational licence. It is simply presented here to indicate how the timing and size of financial contributions will be relevant to the question of whether there is a resulting trust.

Loans

Loans are of a different nature: a lender does not advance money in the same manner as B does in the scenario described above. The lender does not therefore take on any beneficial entitlement under a resulting trust. Otherwise, lenders and building societies would be able to take almost absolute beneficial entitlement to all properties for which they provide loans. Instead, the lender’s entitlement to the property rests solely on their contractual entitlement to payment of the capital plus interest. Breach of that entitlement gives rise to powers of sale and repossession, otherwise the lender has no beneficial entitlement to the property. In exceptional circumstances, a private lender (more likely an individual rather than a lending company) might derive greater rights than the lender might usually obtain where the family arrangements are such that the parties involved deem it appropriate to give the lender some degree of property ownership.

Case in focus: Re Sharpe (A Bankrupt) [1980] 1 W.L.R. 219

Sharpe (S) acquired an interest in a shop and maisonette (“the property”), and a great portion of the purchase money was provided by S’s 77-year-old aunt (A). A had sold her existing home and moved into the maisonette with both S and S’s wife. This was done on the understanding that A would be able to stay in the property for as long as she wished. Acting on legal advice, A obtained from S a promissory note in respect of this right of occupation given her financial contribution. S later became bankrupt, and the court had to consider the respective interests of the property in order to determine how much of the sale of proceeds of the property ought to go to the other beneficial owners of the property. Browne-Wilkinson J held that A had no interest in the land via resulting trust, because A had acted in the capacity of a lender; the money was paid by way of a loan. However, given the promise of occupation, the court considered that A had acquired a right, which was enforceable against S’s trustee in bankruptcy, ‘to stay on in the premises until the money she provided indirectly to acquire them has been repaid.’ There was no resulting trust; instead, the court considered there might be a ‘contractual licence or an equitable licence or an interest under a constructive trust.’

Key Points:

  • The person providing the purchase money was an ancestral relative of the nominal purchaser of the property.
  • The receipt of the purchase money was followed by a promise to allow the provider of that purchase money to live in the property as an absolute right.
  • The relative had acted ‘in the capacity of a lender’, and therefore had no resulting interest.

Further difficulties

One persistent difficulty within resulting trusts is the ability to ascertain the contours of “purchase money”: in other words, it has been a problem for resulting trusts doctrine to identify which financial contributions are contributions towards the purchase and those which are not, meaning which contributions are ‘referable’ to A’s acquisition of title (Burns v Burns [1984] Ch 317, CA per Fox LJ). This problem is especially pertinent to those contributions which may have been made after the date of the acquisition of the land, and yet relate to the land. These can be, for example, payments for improvements of the land, or even full satisfaction of the purchase price (Winkworth v Edward Baron Development Co Ltd [1986] 1 W.L.R. 1512).

It would seem that the most straightforward kind of contribution would be a direct cash contribution towards the purchase price of the property up to the date of acquisition. The fraction of their contribution towards the purchase price also defines their share: for example, where the legal owner contributes two thirds of the purchase price, and the hopeful beneficiary contributes the final third, that final beneficiary is entitled to a one-third share of the property (Cowcher v Cowcher [1972] 1 W.L.R. 425 per Bagnall J). Contributions towards the family household, however, are less likely to constitute money which are referable; Lord Diplock has said that the mere sharing of family living expenses does not necessarily indicate such pooling of resources will constitute a contribution towards the acquisition of family property (Gissing v Gissing [1971]).

Given the advent of constructive trusts, resulting trusts are now usually reserved for straightforward, though now atypical, cases where contributions towards the purchase money are made prior to the date of acquisition (Curley v Parkes [2005]). More broadly, the law on trusts of land has ‘moved on’ from the rigid and limited application of resulting trusts to the wider doctrine of constructive trusts (Stack v Dowden [2007] per Lord Walker and Baroness Hale).

Constructive Trusts

The starting point is that, as mentioned already, land law tends not to recognise rights creation where simply done orally; land law will usually require the creation of rights to be done by written instruments (Law of Property Act 1925, s.53(1)(b)-(c)). However, equity may be prepared to impose a trust where it sees that an estate owner has behaved unconscionably within the context of a bargain. Where an owner of a legal enters into a bargain with another person to allocate or share beneficial ownership of the land with the other person, and that bargain has been acted upon in some manner, equity will prevent the estate owner from avoiding that agreement; the court acts to ‘construct a trust’ to give effect to that bargain (Grant v Edwards [1986] Ch. 638 per Nourse LJ).

The constructive trust provides ‘the formula through which the conscience of equity finds expression’ (Beatty v Guggenheim Exploration Co.225 NY 380 (1919). The court seeks to construct the trust on the basis of a given bargain which renders the legal owner’s subsequent assertion of an absolute beneficial title unconscionable (Banner Home Groups plc v Luff Developments Ltd [2000] Ch 372, CA).

Definition

The classis definition of a constructive trust was posited by Lord Diplock, in which His Lordship stated that equity enforces or ‘constructs’ a trust in circumstances where ‘[The legal owner] has so conducted himself that it would be inequitable to allow him to deny to [the alleged beneficial owner] a beneficial interest in the land.’ Lord Diplock sought to limit the reach and breadth of this statement by a qualifying statement: an inequitable outcome will be prevented only if ‘[the legal owner] by his words or conduct has induced [the alleged beneficial owner] to act to [the alleged beneficial owner’s] own detriment in the reasonable belief that by so acting [the alleged beneficial owner] was acquiring a beneficial interest in the land.’ As mentioned at the outset regarding implied trusts, a constructive trust is fully enforceable because it is not required to be in writing (Law of Property Act 1925 s.53(2)). When enforced, the constructive trust takes effect as a ‘trust of land’ as per the Trusts of Land and Appointment of Trustees Act 1996.

As seen, the conscience of the legal owner in their words and conduct is crucial: the court cannot impose a constructive trust unless, save the other requirements, ‘it is satisfied that the conscience of the estate owner is affected’ (Ashburn Anstalt v Arnold [1989] Ch. 1 per Fox LJ). A legal owner’s conscience is ‘affected’ if they disclaim an obligation of conscience that was based on some prior bargain. This disclaimer of obligation amounts to a ‘breach of faith’ and thus gives rise to the constructive trust (Gissing v Gissing [1971] per Viscount Dilhorne).

Elements

There are three essential elements, according to the Diplock formula:

  1. The bargain,
  2. Change of position (the so-called ‘acting to their detriment’), and
  3. Equitable fraud (the unconscionable disclaiming of the bargain).
  1. Bargain

The Court of Appeal in Oxley v Hiscock [2005] Fam. 211 identified as the first issue in any constructive trust claim to be whether there was any common intention on the part of A and B that each should have a beneficial interest in the land. So long as there was some manner of agreement of shared beneficial entitlement to the estate, such an agreement can give rise to a constructive trust. In short, Oxley asks whether there was a bargain. The second issue is a matter of how much; that is, the amount of the beneficial entitlements as they are shared between A and B. The House of Lords in Stack v Dowden [2007] 2 A.C. 432 said the court can settle this question of how much by reference to what the parties ‘must, in the light of their conduct, be taken to have intended.’ The timing of the bargain, unlike with resulting trusts, is a much less critical question (James v Thomas [2007] EWCA Civ 1212 per Sir John Chadwick).

The problem is that the parties may not necessarily agree that a bargain they enter into is necessarily of a proprietary nature (Binion v Evans [1972] Ch. 359 per Lord Denning). The current basis in equity is that the emphasis lies with the conscientiousness of the legal owner rather than on the intrinsic rights they seek to enforce against the alleged beneficial owner (Banner Homes Group plc v Luff Development Ltd [2000] Ch. 372).

  1. Change of position

It is essential that the person claiming a beneficial entitlement under a constructive trust must show they have ‘altered her position in reliance on the agreement’, thereby acquiring ‘an enforceable interest… by way either of a constructive trust or of a proprietary estoppel’ (Lloyds Bank v Rosset [1991] 1 A.C. 107 per Lord Bridge). There must exist a causal link between the agreement and the detriment taken on by the alleged beneficial owner. As put by Lord Hope of Craighead, there must be ‘a sufficient link between the common intention and the conduct which is relied upon to show that the claimant has acted on the common intention to their detriment’ (Green v Green [2003] UKPC 39).

As to what facts might constitute a change of position, this can include contributions of finance and the attention of one’s labour to a joint venture between themselves and the legal owner (Chan Pui Chun v Leung Kam Ho [2003] 1 P. & C.R. DG2 per Jonathan Parker LJ).

  1. Equitable fraud

According to this final element, what constitutes the equitable fraud is the legal owner’s disclaimer of the bargain between themselves and the alleged beneficial owner. The legal owner’s attempt to deny the existence and application of the agreement amounts to a form of cheating, and thus the legal owner is penalised by the imposition of the constructive trust.

Case in focus: Bannister v Bannister [1948] 2 All ER 133, CA

B conveyed their freehold interest in two cottages to A, B’s brother-in-law, at a value much less than the market value. This was done on the understanding, communicated orally, that B would be allowed to live rent-free in one of the two cottages for the remainder of B’s life. The conveyance made no reference to this oral promise. A later sought to evict B from the cottage despite the oral promise. The Court of Appeal held that A’s legal title was bound by constructive trust to give effect to the bargain between A and B. Scott LJ indicated a constructive trust is imposed where ‘a person… insists on the absolute character of a conveyance to himself for the purpose of defeating a beneficial interest, which, according to the true bargain, was to belong to another.’ Even where ‘no written evidence of the real bargain is available’, the equitable fraud should displace this requirement.

Key Points:

  • The property exchanged hands at a lower than market value.
  • The parties were related.
  • A upon becoming the legal owner had promised that B would live rent-free for the remainder of their life.
  • B had acted to their detriment by conveying the property to A. They acted according to the bargain.
  • The promise was made orally and was not recorded in the conveyance.
  • A later sought to resile from their promise.

Examination Consideration: Implied trusts offer a means of avoiding the usual requirement for trusts of land to be put in writing on the basis of specific criteria and circumstances. Do you recall the types of implied trusts which are relevant to trusts of land? Further, what are the relevant tests for each type of implied trust, in particular the Lord Diplock formula


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