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Resulting trusts
1 Introduction to resulting trusts
(1) What are resulting trusts?^1
The previous two chapters have examined the circumstances in which a trust relation- ship may be created by the deliberate intention and act of the settlor. Such trusts are known as ‘express trusts’. However, in some situations property will be regarded as subject to a trust despite the absence of any express intention on the part of the settlor. In English law ‘resulting trusts’ are one of the two main categories of such informal trusts, the other being that of ‘constructive trusts’. The circumstances in which prop- erty will become subject to a resulting trust were recently examined by the House of Lords in Westdeutsche Landesbank Girozentrale v Islington London Borough Council.^2 Lord Browne-Wilkinson identified two circumstances in which a resulting trust would arise:
‘Under existing law a resulting trust arises in two sets of circumstances: (A) where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B; the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchaser by A and B in shares proportionate to their contributions. It is important to stress that this is only a presumption, which presumption is easily rebutted either by the counter presumption of advancement or by direct evidence of A’s intention to make an outright transfer... (B) Where A transfers property to B on express trusts , but the trusts declared do not exhaust the whole beneficial interest.’^3
Resulting trusts of the second type will be examined in Chapter 19, where it will be seen that they operate to ‘fill the gap’ in the beneficial ownership of property where an express trust fails. This chapter will be concerned largely with resulting trusts of the first type, commonly termed ‘presumed resulting trusts’.
(^1) See Chambers, Resulting Trusts (1997). 2 [1996] AC 669. See [1996] RLR 3 (Birks). (^3) [1996] AC 669 at 708.
(2) Distinguishing resulting and constructive trusts
In some cases, the House of Lords seem to have used ‘resulting’ and ‘constructive’ trusts as interchangeable terms, 4 suggesting that it is not necessary to distinguish between them. However it is submitted that they are fundamentally different, operating on different principles, and that they need to be strictly differentiated. Constructive trusts 5 are imposed by the court as a consequence of the conduct of the party who becomes a trustee. Resulting trusts are not imposed as a response to the conduct of the trustee, but to give effect to the implied intentions of the owner. Where a transfer of property has occurred and the legal title has been transferred, but the transferor has failed to show an intention to divest himself fully of all his interest in that property, the transferee will not be permitted to receive the property absolutely for his own benefit. Instead, he will hold it on trust for the transferor. The equitable interests is said to ‘result back’ to the transferor, thus ensuring that he retains his interest in the property. Practical imperatives may also demand that a distinction be drawn between beneficial entitlements taking effect under resulting and constructive trusts. Re Densham (A Bankrupt)^6 concerned a dispute as to the ownership of a matri- monial home. Whilst the husband was the sole legal owner of the house, his wife had contributed towards the purchase price and they had also agreed that the owner- ship should be jointly shared. Goff J held that, in consequence of the agreement, the wife was prima facie entitled to a beneficial half share in the ownership of the house by way of a constructive trust, and that through her direct financial contribution to the purchase price she was also entitled to a ninth share of the beneficial ownership by way of a resulting trust. However, because the husband was bankrupt, she was held unable to assert any entitlement by way of the constructive trust, because it was not a settlement made for ‘valuable consideration’ and therefore void against his trustee in bankruptcy. 7 Nevertheless, she was able to assert her entitlement by way of the resulting trust. Re Densham therefore illustrates the need to distinguish between the operation of resulting and constructive trusts. This need was reiterated by the Court of Appeal in Drake v Whipp ,^8 where the central issue was as to the proportion of the equitable interest that the plaintiff enjoyed in a barn owned by her erstwhile partner by virtue of her contributions to the purchase price and work done, where there was also a common intention that she was to enjoy a share of the ownership. Peter Gibson LJ remarked:
‘A potent source of confusion, to my mind, has been suggestions that it matters not whether the terminology used is that of the constructive trust, to which the intention, actual or imputed, of the parties is crucial, or that of the resulting trust which operates as a presumed intention of the contributing party in the absence of rebutting evidence of actual intention.’^9
(^4) Eg Gissing v Gissing [1971] AC 886 at 905, per Lord Diplock; Tinsley v Milligan [1993] 3 All ER 65 at 86 – 87, per Lord Browne-Wilkinson. (^5) See Chapter 9. 6 [1975] 1 WLR 1519. 7 Bankruptcy Act 1914, s 42. (^8) [1996] 1 FLR 826. 9 [1996] 1 FLR 826 at 827.
Introduction to resulting trusts
‘A resulting trust is essentially a property concept: any property that a man does not effectually dispose of remains his own.’
This clearly recognises that a resulting trust arises because of the failure of the transferor to make an absolute gift of his property. As Lord Reid observed in Vandervell v IRC :
‘... where it appears to have been the intention of the donor that the donee should not take beneficially, there will be a resulting trust in favour of the donor.’^17
A more nuanced understanding of the operation of resulting trusts was provided by the Privy Council in Air Jamaica Ltd v Charlton , where Lord Millet stated:
‘Like a constructive trust, a resulting trust arises by operation of law, although unlike a constructive trust it gives effect to intention. But it arises whether or not the transferor intended to retain a beneficial interest––he almost always does not––since it responds to the absence of any intention on his part to pass a beneficial interest to the recipient.’^18
2 Presumed resulting trusts^19
Presumed resulting trusts arise where it is presumed that the transferor of property did not intend to dispose of his entire ownership interest in the property transferred. Under English law there is a rebuttable presumption that a transferor of property does not intend to make a gift of it, and unless this presumption is rebutted the transferee will hold it on resulting trust for the donor. However, in some circumstances the nature of the relationship between the transferor and the transferee gives rise to an opposite presumption, namely that the transferor did intend to benefit the transferee, in which case unless the presumption of a gift is rebutted there will be no resulting trust. This counter-presumption is known as the ‘presumption of advancement’.
(1) The basic presumption of resulting trust
English law adopts two basic presumptions about the intentions of property owners, both of which are rebuttable by evidence of a contrary intention.
(a) A presumption against gifts
First, it is presumed that, outside of certain relationships, an owner of property never intends to make a gift. If an owner voluntarily transfers the legal title of his property to a third party without receiving any consideration in return, he is presumed to have intended to retain the equitable interest for himself. The transferee will therefore hold the property on resulting trust for him. This presumption was invented by equity to
(^17) [1967] 2 AC 291, HL. 18 [1999] 1 WLR 1399 at 1412. (^19) See Chambers, Resulting Trusts (1997), pp 11–39.
Presumed resulting trusts
defeat the misappropriation of property as a consequence of potentially fraudulent or improvident transactions.^20
(b) A presumption in favour of the provider of purchase money
By extension of this first presumption, it is also presumed that a person who provides the money required to purchase property intends to obtain the equitable interest in the property acquired. Therefore, when the property is purchased in the name of someone who did not provide the purchase money, he will be presumed to hold the legal title on trust for the provider thereof. This presumption is long established and was recognised in Dyer v Dyer , where Eyre CB stated:
‘... the trust of a legal estate... whether taken in the names of the purchasers and others jointly, or in the names of others without that of the purchaser; whether in one name of several; whether jointly or successive, results to the man who advances the purchase-money.’^21
Where a person has only contributed a part of the purchase price of property a resulting trust will be presumed in his favour of an equivalent proportion of the equitable interest. 22
(2) Voluntary transfers of property
Where an owner makes a voluntary transfer of property, either into the sole name of the transferee or into the joint names of himself and the transferee, without receiving any consideration in return, a resulting trust will be presumed in his favour unless rebutted by evidence that he intended to make a gift. The presumption of a resulting trust clearly operates in the context of voluntary transfers of personal property, but it is less certain whether it operates in respect to voluntary transfers of land.
(a) Operation of the presumption of resulting trust in the context of personal property
The operation of the presumption of a resulting trust is well illustrated by Re Vinogradoff.^23 Mrs Vindogradoff transferred a £800 War Loan into the joint names of herself and her infant granddaughter. Farwell J held that the stock was held on resulting trust for her,^24 and that therefore on her death it belonged in equity to her estate. In Thavorn v Bank of Credit and Commerce International SA^25 a resulting trust was found to exist where a woman opened a bank account in favour of her infant nephew. In 1981 Mrs Thavorn opened an account with some £20,000 in her nephew’s name. She had directed the bank that she alone was to operate the account. Lloyd J held that in these circumstances there was no evidence to rebut the presumption of a resulting trust:
(^20) Lynch v Burke [1995] 2 IR 159, per O’Flaherty J. 21 (1788) 2 Cox Eq Cas 92 at 93. (^22) Midland Bank plc v Cooke [1995] 4 All ER 562; Drake v Whipp [1996] 1 FLR 826. (^23) [1935] WN 68. See also Re Muller [1953] NZLR 879. (^24) The granddaughter was held to be a trustee of the resulting trust despite her minority. See Law of Property Act 1925, s 20. (^25) [1985] 1 Lloyd’s Rep 259. Compare also Re Howes (1905) 21 TLR 501.
Resulting trusts
Coutts^26 it was held that the presumption of resulting trusts operated when Sr Aroso transferred money into a joint account opened in the names of himself and his nephew, although the presumption was held to have been rebutted by evidence that a gift had been intended.
(b) Operation of the presumption of resulting trust in the context of land
Whilst the presumption of resulting trust clearly operates in respect of voluntary trans- fers of personal property, a more difficult question is whether the presumption against gifts continues to apply in the context of voluntary transfer of land. Section 60(3) of the Law of Property Act 1925 provides:
‘In a voluntary conveyance a resulting trust for the grantor shall not be implied merely by reason that the property is not expressed to be conveyed for the use or benefit of the grantee.’
There has been much debate as to whether this provision was enacted to remove the presumption of resulting trust where land is conveyed voluntarily, 27 or whether it was merely intended to remove a conveyancing inconvenience. Prior to the enactment of s 60(3), it was necessary to declare in a voluntary conveyance that land was granted ‘unto and to the use of ’ the grantee to ensure an effective transfer. It has therefore been argued that s 60(3) was intended to render such a declaration unnecessary, so that the mere absence of it will not alone lead to a resulting trust, whilst leaving the operation of the presumption intact. 28 The true effect of s 60(3) has not fallen for determination by the higher courts. In Tinsley v Milligan^29 Lord Browne-Wilkinson commented that it was ‘arguable that the position has been altered by the 1925 property legislation’,^30 and in Hodgson v Marks^31 the Court of Appeal held that a resulting trust arose in favour of an elderly lady who had transferred the legal title to her house to her lodger on the basis of an oral understanding that he would look after her affairs. However in Lohia v Lohia^32 Nicholas Strauss QC recently held that although both proposed inter- pretations of s 60(3) could reasonably be adopted by the court, on a ‘plain reading’ the presumption of resulting trust had been abolished in respect of a voluntary conveyance of land. Thus a presumption of resulting trust will only arise if there is some fact in addition to the lack of consideration, such as that the parties are strangers. In the light of this interpretation, he held that no resulting trust had arisen where a son had conveyed his share in the family home to his father. The mere fact that there was no evidence of any sensible reason why he had so conveyed his share in the house to his father, and that he had continued to share mortgage payments and rental income, was not sufficient to lead to the inference of a resulting trust. It remains to be seen whether this interpretation is supported by the higher courts. It is submitted, however, that the alternative interpretation is preferable. As Nicholas
(^26) [2002] 1 All ER (Comm) 241. 27 Chambers, Resulting Trusts (1997), pp 18–19. (^28) See Cheshire and Burn, Modern Law of Real Property (15th edn, 1994), p 161. (^29) [1993] 3 All ER 65, HL. (^30) See also Hodgson v Marks [1971] Ch 892, where Russell LJ described the proposition that s 60(3) has put an end to the presumption resulting trusts of land as ‘debatable’. (^31) [1971] Ch 892. 32 [2001] WTLR 101.
Resulting trusts
Strauss QC himself indicated, it is doubtful whether the differences between land and personalty, and between methods of making apparent gifts, provide meaningful bases for distinction. The presumptions of resulting trust and advancement operate in practice primarily to allocate the burden of proof where property has been transferred and there is a dispute as to the effect of the transfer. To eliminate the presumption of resulting trust in relation to land is, in effect, to introduce something akin to the presumption of advancement where land has been voluntarily conveyed. The transferor will therefore have to bring forward evidence to show that the beneficial interest was not intended to be transferred. The facts of Lohia v Lohia demonstrate that it may prove difficult to discharge such a burden.
(3) Purchase money resulting trusts
The presumption of a resulting trust in favour of a contributor to the purchase price of property applies to both personal property and land.
(a) Operation of the presumption of resulting trust in the context of personal property
The presumption of a resulting trust of personal property was raised in Fowkes v Pascoe.^33 John Pascoe was the son of Elizabeth Anne Pascoe, the widow of the only son of Sarah Baker. Over a period of some five years, Sarah Baker purchased annuities totalling £7,000 in the joint names of herself and John Pascoe. The Court of Appeal accepted that there was thus a presumption of a resulting trust in favour of Sarah Baker, but held the evidence rebutted this presumption and demonstrated that a gift had been intended. In The Venture^34 a resulting trust was held to have arisen in favour of a contributor to the purchase price of a yacht. In Abrahams v Trustee in Bankruptcy of Abrahams^35 it was held that a presumption of resulting trust operated where a wife, who was separated from her husband, contributed to a syndicate purchasing National Lottery tickets in the names of her husband. Since the presumption was not rebutted the husband held his share of the winnings, some £242,000, on resulting trust for his wife. The recent case of Foskett v McKeown^36 concerned the question whether a contributor to the premiums of a life insurance policy thereby gained a proportionate share of the proceeds of the policy. A Mr Murphy had taken out a life insurance policy in 1986 which would provide a death benefit of £1 million. He paid the annual premiums for the first two years using his own money, but paid subsequent premiums using misappropriated trust money. He committed suicide in 1991, at which point at least 40% of the premiums had been paid using trust money. The question was whether the beneficiaries were entitled to a proportionate share of the proceeds of the policy. Whilst there was no doubt that the trust money had been used to pay premiums, under the terms of the policy the death benefit would still have been payable even if they had not been made, due to the payment of the earlier premiums. In Re Policy No 6402 of the
(^33) (1875) 10 Ch App 343. 34 [1908] P 218. 35 [1999] BPIR 637. (^36) [2000] 3 All ER 97.
Presumed resulting trusts
‘... in the absence of evidence to the contrary effect, a contributor to the purchase-price will acquire a beneficial interest in the property.’^44
This was reiterated by Lord Pearson in Gissing v Gissing , where the issue was whether a wife was entitled to a share of the ownership of her matrimonial home, which had been purchased in the sole name of her husband:
‘If [the wife] did make contribution of a substantial amount towards the purchase of the house, there would be a resulting trust in her favour. That would be the presumption as to the intention of the parties at the time or times when she made and he accepted the contributions. The presumption is a rebuttable presumption: it can be rebutted by evidence showing some other intention.. .’^45
These cases clearly show that a contribution to the purchase price of land will give rise to a presumption of a resulting trust. The major area of controversy has concerned the nature of ‘contributions’ sufficient to give rise to the presumption. Whilst ‘indirect’ contributions may constitute sufficient detriment to call for the imposition of a con- structive trust if there was an express common intention to share the ownership of the land, 46 only ‘direct’ contributions to the purchase price will give rise to a presumption of resulting trust in favour of the contributor. In Ivin v Blake^47 the Court of Appeal therefore held that a daughter who had helped her mother to run a pub, drawing only weekly pocket money from the business, had not acquired any interest in a house purchased by her mother by way of a resulting trust because she had not made a direct contribution to the purchase price.
(i) Contribution to the purchase price. A direct contribution to the purchase price of the land will give rise to a presumed resulting trust, normally in proportion to the amount of the contribution. In Tinsley v Milligan^48 a lesbian couple purchased a house in the sole name of Tinsley. The purchase price of £29,000 was raised by way of a mortgage of £24,000, with the remainder derived from the sale of a car that they owned jointly. The House of Lords held that this direct contribution gave rise to a presumption of a resulting trust in favour of Milligan of a half share in the house. 49 In Midland Bank plc v Cooke^50 a house was purchased in the sole name of a husband for £8,500. Whilst the majority of the purchase price was raised by way of a mortgage, the deposit was provided largely by a wedding gift of £1,100 from the husband’s parents. As this gift had been made to the husband and wife jointly, it was held that she had contributed £ to the purchase price, and that this gave rise to a presumption of a resulting trust in her favour. Where such a direct contribution has been made to the purchaser price, the contributor will be entitled to a proportionate share of the beneficial interest mathematically equivalent to the proportion of her contribution. In Midland Bank plc v Cooke it was held that Mrs Cooke’s contribution of £550 to the purchase price entitled her to a 6.74% share of the beneficial interest of the house by way of a presumed
(^44) [1970] AC 777 at 794. 45 [1971] AC 886. 46 See Chapter 29. (^47) (1994) 67 P & CR 263. 48 [1994] 1 AC 340. (^49) The mortgage was repaid from the proceeds of their joint business. (^50) [1995] 4 All ER 562; (1997) 60 MLR 420 (O’Hagan); [1997] Conv 66 (Dixon). See also McHardy and Sons (A firm) v Warren [1994] 2 FLR 338.
Presumed resulting trusts
resulting trust. A contributor will only be able to demonstrate an entitlement to a share of the beneficial interest greater than the exact mathematical equivalent of her contri- bution if she can demonstrate that the land was held on constructive trust.^51 The Court of Appeal subsequently held that there was sufficient evidence to conclude that Mrs Cooke was entitled to a 50% share of the property by way of a constructive trust. This aspect of the case is discussed in the following chapter.
(ii) Contribution to mortgage repayments. In the majority of cases land is not purchased outright but with the help of a mortgage. In such circumstances it might be thought that a person who contributes to the mortgage repayments should be treated as having contributed to the purchase price, thus raising a presumption of resulting trust in his or her favour in proportion to his contributions. However a distinction must be drawn between contributions made to the repayment of a mortgage on the basis of an agreement made when the mortgage is taken out, and subsequent payments of mort- gage installments. In the former case the payment of mortgage installments will be taken to give rise to a resulting trust. This was explained in Cowcher v Cowcher where Bagnall J considered the consequences of a conveyance of a house to A for £24,000, where A had provided £8,000 of his own money and the remainder was provided by a mortgage taken out in the name of B:
‘... suppose that at the time A says that as between himself and B he, A, will be responsible for half the mortgage repayments... Though as between A and B and the vendor A has provided £8,000 and B £16,000, as between A and B themselves A had provided £8,000 and made himself liable for the repayment of half the £16,000 mortgage namely a further £8,000, a total of £16,000; the resulting trust will therefore be as to two-thirds for A and one-third for B.’^52
Applying this principle, Bagnall J held that a resulting trust was presumed in favour of a wife who had made some of the repayments on a mortgage taken out by her husband.^53 Similarly in Tinsley v Milligan^54 the House of Lords held that there was a resulting trust where the parties had agreed that the mortgage repayments would be made form an account containing the proceeds of their joint business operation, even though this was in the sole name of Tinsley. However, in the absence of any such prior agreement, the payment of mortgage instalments subsequent to the initial acquisition of the property will not give rise to any interest by way of a resulting trust, since they are not regarded as being contributions to the purchase price of the property. This was so held by the Court of Appeal in Curley v Parkes. 55 In this case Mr Curley and Miss Parkes were living together. A house was purchased in 2001 in the sole name of Parkes. The purchase was funded exclusively by the proceeds of sale of her previous solely-owned house, cash she provided and a
(^51) See Drake v Whipp [1996] 1 FLR 826. 52 [1972] 1 WLR 425. (^53) In McQuillan v Maguire [1996] 1 ILRM 394 a wife was held entitled to a 50% share of a matrimonial home purchased in the name of her husband because she had contributed indirectly towards the discharge of the mortgage. In Cowcher v Cowcher Bagnall J’s analysis was based upon the intention of the parties at the date of purchase. Where there is no clear intention at that date, and a share of the ownership arises from contributions to repaying a mortgage, backward tracing appears to be operating: see Chapter 31, pp 771–772. (^54) [1994] 1 AC 340. 55 [2004] EWCA Civ 1515.
Resulting trusts
contribution to the purchase price in assessing their respective interests under a resulting trust. In Springette v Defoe^60 a discount of 41% of the market value of a council flat obtained because the plaintiff had been a tenant for more than eleven years was counted as a contribution to the purchase price by the Court of Appeal.
(iv) Contributions to the cost of repairs or renovation. Where the property is repaired or renovated, and its value is thereby increased, a person who contributes towards the cost of such repairs or renovations will be entitled to an interest in the land by way of a resulting trust proportionate to the extent to which the increase was attributable to their contribution.^61 Improvements made much later than the date of purchase may give rise to a constructive trust.
(v) Contributions to general household expenses. In contrast to indirect contribu- tions to the purchase price of land, it seems that contributions made to general house- hold expenses will not give rise to a presumption of resulting trust in favour of the contributor because they are not sufficiently referable to the purchase price. In Burns v Burns^62 Mr and Mrs Burns began living together as man and wife in 1961. In 1963 a house was purchased in the sole name of Mr Burns, who financed the purchase by way of a mortgage. Mrs Burns began to work in 1975. She used part of her earnings to pay the rates and telephone bills and to buy various domestic chattels for the house. When they split up in 1980, she claimed to be entitled to an equitable interest in the house by reason of her contributions. The Court of Appeal held that she was not entitled to an interest by way of resulting trust because she had ‘made no direct contribution to the purchase price’.^63 It should be noted that although such contributions to family expenses will not give rise to a presumption of resulting trust, they may, if substantial, constitute sufficient detriment to lead to the imposition of a constructive trust. 64
(vi) Contributions to removal expenses. In Curley v Parkes^65 the Court of Appeal held that neither the payment of solicitor’s fees and expenses, nor the payment of removal costs, were capable of giving rise to a resulting trust. Although such costs might be substantial they do not form any part of the purchase price of the property itself, and hence do not give rise to a presumption of resulting trust. They may, however, be relevant for the purposes of a constructive trust. 66
(4) Rebutting the presumption of resulting trust
In Pettitt v Pettitt Lord Diplock observed that the presumptions of resulting trust and advancement are:
‘... 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.’^67
It therefore follows that they can be rebutted by evidence that in a specific situation the ‘most likely inference’ was not, in fact, intended. The presumption of a resulting trust,
(^60) [1992] 2 FLR 388. 61 Drake v Whipp [1996] 1 FLR 826. 62 [1984] Ch 317. (^63) [1984] Ch 317 at 326, per Fox LJ. 64 See Chapter 10. 65 [2004] EWCA Civ 1515. (^66) See Chapter 10. 67 [1970] AC 777 at 823.
Resulting trusts
whether arising from a voluntary transfer or a contribution to the purchase price of property, will be rebutted by evidence that the transferor or contributor had no inten- tion to retain any beneficial interest in the property. The strength of the evidence required to rebut the presumption of a resulting trust will depend upon the strength of the presumption, which will in turn depend upon the facts and circumstances which gave rise to it.^68
(a) Circumstances rebutting the presumption of resulting trust
(i) Evidence a gift was intended.^69 It was noted above that in Fowkes v Pascoe^70 a presumption of a resulting trust was raised when Sarah Baker purchased annuities in the joint names of herself and John Pascoe. However, this presumption was rebutted by evidence indicating that a gift had been intended. Two initial purchases of stock were made by Sarah, one of £250 in the joint names of herself and John Pascoe, and another of £250 in the joint names of herself and her companion. She also held large quantities of the same stock in her own name, besides other property. The court considered this ‘absolutely conclusive’ that a gift was intended. As James LJ said:
‘Is it possible to reconcile with mental sanity the theory that she put £250 into the names of herself and her companion, and £250 into the names of herself and [John Pascoe], as trustees upon trust for herself? What..... object is there conceivable in doing this?’^71
In Re Young^72 it was similarly held that the presumption of a resulting trust had been rebutted. Colonel and Mrs Young had a joint bank account, which contained money derived from Mrs Young’s separate income. The account was used to pay for household expenses, and Colonel Young, with his wife’s consent, withdrew money to purchase investments in his own name. Pearson J held that the evidence showed that the money in the account was intended to be joint, and that the investments purchased in his own name were his own property, and were not held on resulting trust for his wife. In the recent case of Arosos v Coutt’s & Co^73 Collins J held that the presumption of resulting trust was rebutted where a wealthy Portuguese gentleman had transferred money into a joint account in the names of himself and his nephew. The evidence, primarily the mandate establishing the account which clearly stated that the beneficial interest was to be held jointly and the evidence of the bank client relationship officer who had explained the effect of the account, established that he had intended the nephew to take the property beneficially. It appears that a presumption of resulting trust may be rebutted even where money has been paid into a joint bank account with the intention that the transferee is not allowed to draw on the account until the death of the transferor. This approach was adopted in Russell v Scott , 74 where an aunt had opened a joint account in the names of herself and her nephew, but did not intend her nephew to benefit during her lifetime.
(^68) Vajpeyi v Yijsaf [2003] EWHC 2339, per Peter Prescott QC at [71]. (^69) See Sekhon v Alissa [1989] 2 FLR 94, where there was insufficient evidence of a gift to rebut the presumption of a resulting trust. (^70) (1875) LR 10 Ch App 343. 71 (1875) LR 10 Ch App 343 at 349. 72 (1885) 28 Ch D 705. (^73) [2002] 1 All ER (Comm) 241. 74 (1936) 55 CLR 440.
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anything about her alleged interest in the house when it was mortgaged by the defendant to enable him to purchase her matrimonial home some years previously.
(b) Evidence required to rebut the presumption of resulting trust
Fowkes v Pascoe^82 makes clear that the quality of evidence required to rebut a presump- tion of a resulting trust will vary depending on the circumstances in question, because the presumption of resulting trust will be given varying weight depending upon the context. As Mellish LJ stated:
‘... the presumption must... be of very different weight in different cases. In some cases it would be very strong indeed. If, for instance, a man invested a sum of stock in the name of himself and his solicitor, the inference would be very strong indeed that it was intended solely for the purpose of a trust, and the court would require very strong evidence on the part of the solicitor to prove that it was intended as a gift; and certainly his own evidence would not be sufficient. On the other hand, a man may make an investment of stock in the name of himself and some person, although not a child or wife,^83 yet in such a position to him as to make it extremely probable that the investment was intended as a gift. In such a case, although the rule of law, if there was no evidence at all, would compel the Court to say that the presumption of trust must prevail, even if the court might not believe that the fact was in accordance with the presumption, yet, if there is evidence to rebut the presumption, then, in my opinion, the court must go into the actual facts.’^84
One situation where the presumption of resulting trust is weak and easily rebutted is where a wife conveys property into the name of her husband, or when property is purchased in the name of the husband with money provided by the wife. As no pre- sumption of advancement arises between a wife and a husband, there will be a prima facie presumption of resulting trust. However, this will be rebutted by the slightest evidence that a gift was intended. As Lord Upjohn observed in Pettitt v Pettitt :
‘If a wife puts property into her husband’s name it may be that in the absence of all other evidence he is a trustee for her, but in practice there will in almost every case be some explanation (however slight) of this (today) rather unusual course. If a wife puts property into their joint names I would myself think that a joint tenancy was intended, for I can see no other reason for it.’^85
In Knightly v Knightly^86 the Court of Appeal went so far as to say there is no room for the presumption of a resulting trust in favour of a wife unless ‘a wife advances money to her husband for the purchase of either realty or personality and there is no evidence of any agreement or understanding between them as to who is to own the property and no evidence from conduct and circumstances going to show what their intentions as to rights and interests were’. 87
(^82) (1875) LR 10 Ch App 343. (^83) Where the presumption of advancement would apply. See below, p 253. (^84) (1875) LR 10 Ch App 343 at 352–353. 85 [1970] AC 777 at 815. 86 (1981) 11 Fam Law 122. (^87) (1981) 11 Fam Law 122 at 123, per Lawton LJ.
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(c) Admissibility of evidence to rebut a presumption of resulting trust
Any acts or declarations by the parties forming part of the transaction to which the presumption of a resulting trust relates will be admissible in favour of, or against, the parties performing them. However, in Shephard v Cartwright^88 the House of Lords held, in the context of the rebuttal of a presumption of advancement, that subsequent acts and declarations are admissible only as evidence against the party who made them, and not in his favour.
(5) Presumed resulting trust arising in the context of an
illegal purpose^89
In Tinsley v Milligan^90 the House of Lords was faced with the question whether a plaintiff was entitled to rely on a presumption of resulting trust arising in the context of a transaction entered to facilitate an illegal purpose. As was mentioned above, a house had been purchased in the sole name of Tinsley, using the joint money of Tinsley and Milligan. The reason for this was to enable Milligan to appear to be a mere lodger in the property, rather than a co-owner, so that she could make false claims for various state social welfare benefits. After the breakdown of their relationship, Milligan claimed that Tinsley held the house on trust for them in equal shares. Tinsley claimed that the court should not enforce Milligan’s claim because of the illegal purpose for which the transaction had taken place, demanding a strict application of the maxim that ‘he who comes to equity must come with clean hands’. This would obviously have the consequence that Tinsley was solely entitled to the house, despite the fact that she had been as much party to the illegality as Milligan. Whilst this might have seemed a harsh result between the specific parties, especially given that the falsely claimed social security money had been repaid, the strict rule was intended to operate as a deterrent to those who might be tempted to involve themselves in illegal transactions. The majority of the Court of Appeal rejected the application of such a strict principle in favour of the adoption of a ‘public conscience test’, which would vest the court with a discretion to balance the consequences of either granting or refusing relief to the person seeking to claim an interest.^91 The House of Lords in turn rejected this discretionary approach, favouring the application of a strict rule to determine when a plaintiff could assert an interest. However it was divided as to the appropriate rule. Lord Goff and Lord Keith held that the equitable maxim requiring clean hands should be strictly applied. Lord Goff explained how this would operate:
‘... once it comes to the attention of a court of equity that the claimant has not come to the court with clean hands, the court will refuse to assist the claimant, even though the claimant can prima facie establish his claim without recourse to underlying fraudulent or illegal purpose.’^92
(^88) [1955] AC 431. (^89) See J D Davies, ‘Presumptions and Illegality’ in Oakley, Trends in Contemporary Trust Law (1996); Halliwell, ‘Equitable Property Rights, Discretionary Remedies and Unclean Hands’, [2004] Conv 439 (^90) [1994] 1 AC 340. 91 [1992] 2 All ER 391. 92 [1993] 3 All ER 65 at 75.
Resulting trusts
However it has also been subjected to criticism. In Silverwood v Silverwood^97 Nouse LJ described the principle adopted in Tinsley v Milligan as a ‘straightjacket’ and indicated that he would have preferred a more flexible approach. In particular the approach adopted by the House of Lords arbitrarily differentiates between situations where a presumption of resulting trust and a presumption of advancement are operative. Whilst Milligan was held able to assert her interest by way of a presumed resulting trust without the need to rely on the fact of her illegal conduct, a more difficult problem would have arisen if the countervailing presumption of advancement had applied between Tinsley and herself. In such circumstances she would only have been entitled to assert her interest if she could rebut the presumption, which would require evidence of the illegal purpose of the transaction. The Court of Appeal was forced to grapple with such a difficulty in Tribe v Tribe ,^98 where a presumption of advancement did arise between the parties. As Nourse LJ observed in Silverwood v Silverwood :
‘It is not at all easy to understand or to see any public or other policy or advantage behind a rule which regulates the claimant’s right of recovery solely according to whether the other party to the transaction is his wife, child or fiancée on the one hand or his brother, grand- child or anyone else on the other.’^99
Lord Goff, in his dissenting judgment, also pointed to the arbitrary consequences which might follow from the application of the principle adopted by the majority in Tinsley v Milligan :
‘But it is not to be forgotten that other cases in this category will not evoke the same sympathy on the part of the court. There may be cases in which the fraud is far more serious than that in the present case, and is uncovered not as a result of a confession but only after a length police investigation and a prolonged criminal trial. Again there may be cases in which a group of terrorists, or armed robbers, secure a base for their criminal activities by buying a house in the name of a third party not directly implicated in those activities. In cases such as these there will almost certainly be no presumption of advance- ment. Is it really to be said that criminals such as these, or their personal representatives, are entitled to invoke the assistance of a court of equity in order to establish an equitable interest in property?’^100
In the light of such criticisms the law regarding illegality has recently been reviewed by the Law Commission, which has recommended the abandonment of the ‘reli- ance principle’ adopted in Tinsley v Milligan in favour of granting the court a discretion to declare a trust illegal or invalid. 101 The operation of this proposed discretion is discussed in more detail below in the context of the operation of the presumption of advancement, since this has provided the context for the more serious difficulties.
(^97) (1997) 74 P & CR 453. 98 [1996] Ch 107. 99 (1997) 74 P & CR 453 at 458. (^100) [1993] 3 All ER 65 at 79. (^101) ‘Illegal Transactions: The Effect of Illegality on Contracts and Trusts’ (1999), Law Comm CP No 154.
Resulting trusts
3 The presumption of advancement
(1) Nature of the presumption
In some circumstances where a person voluntarily transfers property into the name of another, or contributes to its purchase, the law presumes that a gift was intended and that the transferor/contributor did not intend to retain any interest in the property concerned. This presumption, known as the ‘presumption of advancement’, displaces the presumption of resulting trust. The presumption of advancement arises as a con- sequence of a pre-existing relationship between the parties to the transfer or acquisi- tion, where the transferor/contributor is regarded as morally obliged to provide for the person benefiting. As Lord Eldon stated in Murless v Franklin :
‘The general rule that on a purchase by one man in the name of another, the nominee is a trustee for the purchaser, is subject to exception where the purchaser is under a species of natural obligation to provide for the nominee.’^102
The range of relationships where equity recognises a presumption of advancement reflects a nineteenth-century understanding of family responsibility, and it is clear that, today, the strengths of the presumptions vary to reflect differing social circumstances. However, the state of the law in this area remains far from satisfactory.
(2) Relationships giving rise to a presumption of advancement
(a) Father and child
Traditionally, there was a strong presumption of advancement between a father and his child.^103 In Re Roberts (Decd)^104 Evershed J held that the presumption of advancement applied where a father had made payments on a policy of assurance taken out on his son’s life. He said that:
‘... It is well established that a father making payments on behalf of his son prima facie, and in the absence of contrary evidence, is to be taken to be making and intending an advance in favour of the son and for his benefit.’^105
In B v B^106 a Canadian court held that the presumption of advancement applied where a father had purchased a winning lottery ticket in the name of his 12-year-old daughter. She was therefore entitled to the winnings absolutely. The rationale for the presumption of advancement between a father and child is that a father, by the very nature of his position, is under a duty to provide for his child. 107 This may include the child’s mother
(^102) (1818) 1 Swan 13 at 17. (^103) See Shephard v Cartwright [1955] AC 431. In Oliveri v Oliveri (1995) 38 NSWLR 665 Powell J suggested that a presumption of advancement could operate between a step-father and step-child. (^104) [1946] Ch 1. 105 [1946] Ch 1 at 5. 106 (1976) 65 DLR (3d) 460. (^107) Bennet v Bennet (1879) LR 10 Ch D 474 at 476, per Jessel MR.
The presumption of advancement
