Resulting Trusts and Constructive Trusts

Like a constructive trust, a resulting trust arises by operation of law, although unlike a constructive trust, it gives effect to intention - Justin Santiago

Both constructive and resulting trusts differentiate themselves from express trust which arises because a right-holder has manifested an intention that a trust come into existence. In the case of constructive and resulting trusts the intentions are not expressly stated.

This statement in this question is derived from Lord Browne-Wilkinson's judgement in Westdeustsche Landesbank Girozentrale v Islington LBC (1996) where his view was that all resulting trusts arise because of a presumption that the transferor intended to create a trust for himself. This statement supports the argument that resulting trusts are the result of an intention not to create a trust. This thinking is also reflected in the Privy Council case of Air Jamaica v Charlton 1999, where Lord Millet said: “But [a resulting trust] 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.”

This argument was put forward in the recent theses of Birks-Chambers that the the key to the resulting trust was not the intention to create a trust, but the intention of the donor not to benefit the recipient.

The statement by Lord Browne-Wilkinson however shows a flawed approach at looking at intention by means of deducing a presumed intention. To presume an intention would be going against the fundamentals of trust. To create a trust the intention must be manifested or expressed and the the courts have placed increasing importance on the intention of the parties when determining whether there is a trust or not. The perceived artificiality of presumed intentions in the resulting trust doctrine has led courts to move away from it affirmed by the House of Lords in Stack v Dowden [2007] UKHL 17; [2007] A.C. 432.

The use of the term "resulting trust" in such a case is a misnomer in itself. The orthodox theory of resulting trusts contained in Vandervell v IRC states that where it was said that the beneficial interest must belong to or be held for somebody; so if there was an evidential gap in this respect it was not to belong to the donee or be held in trust by him for somebody, it must remain with the donor. However such a notion is false as an equitable interest arises only at the point where the trust arises. It must be questioned whether there is such a thing as a beneficial interest that can be retained. Beneficial interests are created in the hands of the beneficiary who holds the trustee to account for his exercise of those rights : DKLR Holding Co (No 2) Ltd v Commissioner of Stamp Duties. There is therefore no retention of anything.

The argument of Birks and Chambers, that the fact “presumed” in such circumstances is that the transferor did not intend to benefit the transferee, was shown to be based on a number of misunderstandings. First, gratuitous transfers outside the relationships of advancement are not “apparent gifts”, only ambiguous transfers. Secondly, suspicions are not the same things as presumptions, and in any case, equity is not “suspicious” of gifts. Thirdly, it is not possible for equity to “presume” that “apparent” gifts are not gifts, for “not-gift” is at best a legal conclusion from proved facts, not a fact in itself. Fourthly, a “presumption” of “not-gift” cannot be a “presumption” of “non-beneficial transfer” for the law does not recognise a notion of non-beneficial ransfer distinct from transfers on declared trusts or as security. And fifthly, no satisfactory explanation was given as to why, assuming there is such a thing as a “non-beneficial transfer”, the law should respond to its “proof” by the raising of a trust for the transferor. For these reasons, the argument that there should, by a logical extension of the traditional resulting trusts, be resulting trusts in the generality of cases of unjust enrichment is unsustainable.

Constructive trusts on the other hand might be regarded as an approach based on outcomes and result rather than principle or sound theory, as indicated by the statement of Sir Peter Millett (in (1995) Trust Law International, 35) that ‘... the language of constructive trust has become such a fertile source of confusion that it would be better if it were abandoned’. While not all reaction has been so extreme, much academic and judicial commentary has advocated restraint in the employment of the constructive trusts as a panacea for lack of a clear intention to establish a trust and the need for certainty.

Constructive trusts arise by operation of law and is imposed by the court as a result of the conduct of the trustee and therefore arises quite independently of the intention of any of the parties. The types of constructive trust :-

a. Constructive trusts arising on a specifically enforeceable contract for the sale of a title to land or known as Vendor – Purchaser Constructive Trust by William Swadling

The moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold and the beneficial ownership passes to the purchaser. There must be a valid contract of sale and and the contract must be one of which a court of equity will grant specific performance.

b. Constructive trusts arising when equity perfects an imperfect gift – donor done everything within his power to make the gift of perfect.