#2534 - Implied Trusts - Trusts and Equity

Implied Trusts

‘Implied Trusts’: Arise without the express declaration of trust by the settlor. Implied trusts fall outside the requirement for formalities required by s.53 LPA 1925.

S.53(2) LPA 1925: ‘This section does not affect the creation or operation of resulting, implied or constructive trusts’.

There are two types of implied trusts:

1. Resulting trusts – automatic or presumed

2. Constructive trusts

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1. Resulting Trusts

‘Resulting Trusts’: Operate independently of the intention of the party, but this is not an absolute. The ‘settlor’ may not intend to create a trust but they may still intend to benefit another person with the property. The courts look at the intention to benefit another person rather than the intention to create a trust (Twinsectra v. Yardley [2002]).

Traditional Analysis: Two types of resulting trust

- Vandervell v. IRC [1967]; Per Lord Upjohn at pp. 312-313:

“Where A transfers, or directs a trustee for him to transfer, the legal estate in property to B otherwise than for valuable consideration it is a question of the intention of A in making the transfer whether B is to take beneficially or on trust and, if the latter, on what trusts. If, as a matter of construction of the document transferring the legal estate, it is possible to discern A’s intentions, that is the end of the matter…If, however, the document is silent, then there is said to arise a resulting trust in favour of A; but this is only a presumption and is easily rebutted...”

“The doctrine of resulting trust, however, plays another very important part in our law... If A intends to give away all his beneficial interest in a piece of property and thinks that he has done so, but, by some mistake or accident or failure to comply with the requirements of the law, has failed to do so, either wholly or partially, there will, by operation of law, be a resulting trust for him of the beneficial interest which he has failed effectively to dispose of.”

Per Megarry J at p.64:

“The distinction between the two categories of resulting trusts is important because they operate in different ways. Putting it shortly, in the first category, subject to any provisions in the instrument, the matter is one of intention, with the rebuttable presumption of a resulting trust applying if the intention is not made manifest. For the second category, there is no mention of any expression of intention in any instrument, or of any presumption of a resulting trust: the resulting trust takes effect by operation of law, and so appears to be automatic. What a man fails effectively to dispose of remains vested in him, and no question of any mere presumption can arise. The two categories are thus of presumed resulting trusts and automatic resulting trusts.”

Issue: Megarry J’s description of the second category of resulting trust as ‘automatic’, and independent of the intention of the parties, has been questioned by Lord Browne-Wilkinson in Westdeutsche Landesbank v Islington LBC [1996].

(a) ‘Automatic’ resulting trusts –

Traditional basis for the rule

• Vandervell v. IRC; Per Lord Reid: “The basis for the rule is, I think, that the beneficial interest must belong to or be held for somebody; so, if it was not to belong to the donee or be held by him in trust for somebody, it must remain with the donor”.

• Twinsectra v Yardley [2002]; the automatic resulting trust arises despite the intentions of the parties.

Situations where automatic resulting trusts arise:

‘Gap’ and ‘complete failure’ resulting trusts - Automatic resulting trusts arise either where there is a gap in the beneficial ownership (e.g. Vandervell v IRC), or where there is a complete failure of the trusts upon which the donee was to hold the property (e.g. Re Leek [1969] 1 Ch 563; Re Astor's Settlement Trusts [1952] Ch 534).

However, there must always be a primary trust, which either fails for uncertainty of objects or under which there is a gap in the beneficial ownership. (In cases of uncertainty of intention or of subject-matter, there is no primary trust at all, and there can be no resulting trust.)

An automatic resulting trust also arises where a primary trust, which was hitherto perfectly valid, comes to an end or fails (e.g. its purpose has been completed). An example of this is Re Abbott [1900] 2 Ch 326. Sometimes, however, a stated purpose is interpreted as an expression of motive only, so that once it is completed the property belongs to the beneficiaries absolutely, and there is no room for a resulting trust (e.g. Re Andrew's Trust [1905] 2 Ch 48; Re Osoba [1979] 2 All ER 393). The difference is really just a matter of construction in each individual case.

1. Uncertainty of objects – Failure to specify Bs means that the trust fails because equity abhors a vacuum. The beneficial interest must be owned by someone and not exist in suspension. So the property is held on resulting trust for the settlor (Vandervell v IRC [1967]).

Poor drafting may also result in failure. Where a purported charitable purpose trust is actually construed as a purpose which does not fall within one of the accepted anomalous exceptions, then the property will result back to the settlor or his estate (Re Diplock [1948]).

2. Failure of a contingency – A person with a contingent interest has not vested interest in the property; if he cannot or does not meet the contingency then the trustee must hold the property for someone. This problem is resolved by an automatic resulting trust for the settlor (Re Ames Settlement [1946]).

3. Failure to dispose of whole beneficial interest – A failure to specify who owns the whole beneficial interest will mean that it is held for the settlor (Re West [1900]).

   • E.g. A leaves her shares to B for his lifetime. The trustee is clear that it is for B whilst he lives, but who gets the property when he dies? Property will result back to A’s estate.

4. Surplus of funds after a valid purpose trust has completed its purpose – What to do with the trust property and/or any donations?

   • Non-charitable purpose trust with human objects – There are two views of this situation:

     • A pure purpose which is valid and complete, or there is money left at the end of the perpetuity period with no gift over, then the money is returned to the donors/settlors (Re the Trust of the Abbott Fund [1900]).

     • The money is given to the objects of the trust as an outright gift. The purported purpose is seen as no more than a motive for the donation (Re Osaba [1978]).

   • Purpose trust with no human objects – If the purpose has no human Bs but is one of the anomalous exceptions then the property would result back to the estate of the settlor after the completion of the task or the end of the perpetuity period. Different rules apply to charitable trusts.

   • Unincorporated associations – A trust for an unincorporated association can be seen as a purpose trust. When the association ceases to exist there are two main interpretations of how to deal with the property held by the association:

     • Re Printers and Transferrers’ Amalgamated Trades Protection Society [1899]; The property held by the association is held on resulting trust by the association for the individual members and will be divided between the in proportion to their contributions. Problem: Members and contributors may not be identifiable so it only works where they are ascertainable.

     • Re Bucks (No. 2) [1979]; The property held by the association is held for the members of the association according to the contractual obligations in the association rules. The advantage of this is the ascertainability of the people entitled to the funds.

     • Alternative view – Re West Sussex Constabulary’s Widows [1971]; Goff J differentiated between contributions made by members and funds raised by donations and fundraising raffles. Suggested that those who donate to street collections have no intention of retaining an interest.

5. Money given for a stated purpose which can no longer be carried out – When money is paid to a person on the understanding that it will be used for a certain purpose then if that purpose cannot be carried out the money will be held on resulting trust for the donor (Barclays Bank v Quistclose [1970]). It must be clear that the transfer was made only for that purpose and with the intention that should that purpose fail then the money will be returned.

The court will look at the settlor’s intention in giving the money; such things as

holding the money in a separate bank account from the general funds of the

recipient. Re EVTR Ltd [1987] said that this is strong evidence but not essential.

The courts will also look at the agreement between the parties to ascertain the

intention. In Twinsectra v Yardley [2002] Millet LJ said that as agreement

indicated that the money was not at the free disposal of the recipient it was held

on resulting trust for the settlor if not used for the specified purpose.

Identifying the settlor - The resulting trust will always be in favour of the ‘true’ transferor (i.e. the previous beneficial owner of the property).

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2. Presumed resulting trusts – Can be rebutted. Situations where automatic resulting trusts arise:

1. The voluntary conveyance of property to another -

‘Voluntary conveyance’: Lord Upjohn in Vandervell v. IRC described a presumed resulting trust...