Defining Resulting Trusts:
Resulting in Pattern:
The label ‘resulting’ describes the pattern that these trusts arise in:
A transfers some asset to B, and then B ends up holding it on trust for A.
This means that the property 'results' in the sense that the beneficial interest in the property is being sent back to the transferor. The name ‘resulting’ comes from the fact that the property ‘jumps back’ (‘results’) to the person who had it at the start.
Not all trusts with this pattern are resulting:
A transfers some asset to B, with the express intention that B hold it on trust for A. B holds the asset on trust for A under an express trust, not a resulting trust.
When Resulting Trusts Arise:
Two situations when resulting trusts arise (traditionally): [1]
Gratuitous transfers (presumed resulting trusts).
Failed express trusts (automatic resulting trusts).
Presumed Resulting Trusts (for Gratuitous Transfers):
Where an asset is transferred gratuitously, the law presumes a resulting trust. This means that it is presumed that gifts are held on trust for the benefit of the gift-giver.
EG: A gives a car to B.
EG: A makes a contribution to the purchase price of B’s land.
This applies to transfers in the strict sense (A transfers title to B), and purchases made in another’s name (A pays C to transfer some asset of Cs to B).
Exception:
s60(3) LPA 1925 – no presumption of resulting trust for transfers of title to land.
Rebutting the Presumption:
Gratuitous transfers give rise to resulting trusts only if there is no contrary intention on the part of the transferor. Evidence inconsistent with the default presumption may rebut the presumption.
EG: asset given on birthday.
In Fowkes v Pascoe, F transfered some shares to be in joint names with herself and P. No other express evidence that F was merely making a gift.
The court held that F intended the shares to be a gift, as there was no other plausible explanation for their actions, so the presumption of the resulting trust is rebutted.
In Vinogradoff, a substantial sum of stock is transferred into the joint names of the transferor and a child. No evidence supplied to rebut the presumption.
The court upholds presumption of resulting trust, so the child held the property on trust for her grandmother (the transferor).
Presumption of advancement: the law will not presume that a resulting trust should arise between certain relationships (spouses and children). This effectively reverses the presumption.
Law traditionally only recognised transfers from husband-to-wife and fathers-to-children under this presumption, but not transfers from wives to husbands or mothers to their children. This has been a source of criticism.
Automatic Resulting Trusts (for Failed Express Trusts):
When an express trust fails, or it fails in part as it does not allocate the entirety of the trust asset, an automatic resulting trust arises.
EG: lack of certainty or beneficiary principle undermined, so the express trust fails.
EG: a trust of £1000 which distributes £300 to A and £200 to B fails in part because it fails to allocate the remaining £500. This £500 will be held on trust for the settlor.
Provisioning for Trust Failure:
If the settlor has effectively declared what they want to happen with the beneficial interest in the event of the trust failing, this will be decisive.
If the settlor has made no provision for if the trust fails, the beneficial interest comes back to the settlor on resulting trust automatically. This occurs regardless of whether the parties intended (or even wanted) this to happen – mere intention to not create a resulting trust does not prevent its creation.
In Vandervell v IRC, V sought to fund a chair (professorship) at the RCS. V transfers some shares to RCS to avoid additional tax burdens associated with outright transfers. V orally declares the dividends on the shares in favour of RCS (who do not have to pay tax). V also establishes that a trust company (that they establish and control) will be granted an option to buy back the shares once RCS is done with them. IRC questions V’s tax liability.
The HL hold that, when the trustee company gets the option to buy back the shares, this property right is held on trust for V (since he had not completely divested himself of legal or equitable ownership). The creation of a resulting trust doesn’t depend on intention (V did not want the beneficial interest back as this would make him liable to pay tax). This resulting trust came to an end when the option was exercised, terminating tax liability at that point.
In Westdeutsche v Islington LBC, money was paid under a contract between W and I. The contract was later found to be void, [2] although the parties didn’t know the contract was void until after the money was paid. W could’ve sought restitution to get the money back, but instead argued that the money was being held on resulting trust since W did not intend to make a gift. This had the advantage of a higher rate of interest available in equity and better protection against insolvency. I accepted the money should be returned, but argued it should only pay simple interest.
The HL held that all resulting trusts give effect to the presumed common intention of the parties involved. W got their money back, but only with simple interest since they only had a personal claim for recovery.
No resulting trust arose because it was necessary that I’s conscience was affected when it received the money by knowledge that the agreement was void, which consequently would create an intention for the money to be held on trust – this did not happen since I did not know the agreement was void until later.
There has been criticism of why the receiving parties intention is relevant, and how this argument seems to suggest that Vandervell was decided wrongly.
Quistclose Trusts:
A Quistclose trust is a trust usually created where a creditor has lent money to a debtor for a particular purpose.
EG: A loans B money on the condition that B will use the money only for their education.
It has also been applied in cases where sums are advanced for specific undertakings.
EG: advance payments made on credit for the purchase of specific goods.
To the extent that the money is not used, or cannot be used, for this purpose, the borrower holds the money on trust for the lender. For this to occur, the creditors money must be segregated from the debtor’s general assets.
In Quistclose, Q lends money to a financially struggling company (RR) for the purpose of paying the shareholders the dividend amount they are owed. RR also owes B. The money was paid into a separate bank account (with bank B) specifically set up for this purpose. RR goes insolvent before this money is paid out to the shareholders. Q sought to recover the money in the account; B claimed set offs (to retain the money).
The court held that, as the money was not used for the intended purpose, it was held on trust for Q and existed outside of RR’s beneficial estate, giving them priority over the other creditors (B and others).
Typically in the context of loans, a lender would be an unsecured creditor. A Quistclose trust provides a mechanism of security against the borrower’s insolvency by giving the lender an equitable interest in the money once lent.
Quistclose Trusts as Resulting Trusts: [3]
It remains unclear whether these are a type of resulting trust at all, although Quistclose trusts are generally seen as resulting.
They result in pattern but trusts which result in pattern needn’t be resulting trusts. As they give effect to express intentions, it is arguable that they should be seen as express trusts.
If a loan is advanced for the borrower to use as they will, no Quistclose trust arises. [4]
Arguments over Why Resulting Trusts Arise:
There are different justifications as to why a (presumed or automatic) resulting trust arises. The intention approach is the one adopted by the courts.
Unjust Enrichment Trusts: [5]
Trusts can be used as a mechanism to fix situations where money or assets have been incorrectly or wrongly transferred. In such situations, the person receiving the asset would have been unjustly enriched. The (automatic) resulting trust arguably arises to reverse this unjust enrichment.
This approach presumes that the benefactor doesn’t intend for the recipient to keep the benefit of the property, confirming the laws presumption on the facts. Although the recipient receives the legal title, the resulting trust allows the benefactor to recover it.
Intention: [6]
The traditional view is that presumed resulting trusts arise because it was intended for one party to hold the property on trust for the benefit of the other. This presumption is rebutted when there is no such intention.
In Westdeutsche v Islington LBC, (see above) the court held that all resulting trusts must be intended or give effect to the presumed common intention of the parties involved.
Browne-Wilkinson LJ: reaffirming intention view, rejecting (Birks’) unjust enrichment argument.
Resources:
References:
[1] Westdeutsche Landesbank Girozentrale v Islington London BC [1996] AC 669, 708 (Browne-Wilkinson LJ) [2] Ultra vires under Hazell v Hammersmith and Fulham London Borough Council [1992] 2 AC 1 [3] Twinsectra Ltd v Yardley [2002] UKHL 12 (Cf. Millett LJ and Hoffmann LJ) [4] Twinsectra Ltd v Yardley [2002] UKHL 12 [5] see Birks; Chambers, ‘Resulting trusts in Canada’ (2000) 38 Alberta Law Review 378 [6] see Swadling, ‘Explaining resulting trusts’ (2008) 124 LQR 72
Cases Mentioned:
Fowkes v Pascoe (1875) LR 10 Ch App 343
Re Vinogradoff [1935] WN 68
Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 (HL); White v Vandervell Trustees [1974] Ch 269 (‘Vandervell’s Trust (No 2)’)
Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 (HL)
Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 (HL)
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