Essay Proper: Are resulting trusts restitutionary

Question: Are resulting trusts restitutionary?

IntroductionThe nature of the resulting trust is the subject of much jurisprudential debate. Authorities and academics are divided over how and why they arise. The essay seeks to show that resulting trusts in existing categories are best explained as restitutionary. They arise because there is a receipt of property where the provider did not intend to benefit the recipient, and always operate to reverse unjust enrichment. While recognising that resulting trusts are restitutionary in principle, my view is that extension beyond the existing categories requires a balancing of factors besides the need to do restitution in the particular case.Absence of intention to benefit

It is submitted that resulting trusts are imposed by operation of law where there is an absence of intention on the part of the provider of property to benefit the recipient absolutely. Lord Millett expressed support for this rationalisation in Twinsectra Ltd v Yardley, as well as in Air Jamaica Ltd v Charlton. It is important to stress that the relevant state of mind is framed negatively. This is wider than an intention to create a trust, and explains resulting trusts that arose in situations where the provider of property could not have intended to retain the beneficial interest: where the provider manifested an intention to create a trust for a third party, or where the provider was ignorant of the transfer of property, or where the intention to create a trust was unenforceable for failure to comply with formalities. If the resulting trust gives effect to the settlors positive intention to create a trust for himself, a resulting trust should not have arisen in those cases. This suggests that resulting trusts cases must be explained on a wider principle.

Further, where the intention to create a trust for oneself is unenforceable for failure to comply with formalities, as in Hodgson v Marks, it is difficult to see how the resulting trust arises gives effect to the intention to create a trust. Resulting trusts do not give effect to the settlors intention, in spite of certainty and formality requirements. Instead, resulting trusts should be explained as an equitable response to facts other than an intention to create a trust. In Vandervell v Inland Revenue Commissioners, a resulting trust was imposed in favour of the settlor, even though he had wanted to rid himself of his interest in the property. Evidence of an unenforceable intention to create a trust for third parties was proof that the provider did not intend to benefit the recipient. This demonstrates that resulting trusts respond to an absence of intention to benefit the recipient, rather than a positive intention to create a trust.A coherent doctrine of resulting trusts is only possible if it is recognised that the resulting trust responds to the absence of intention to benefit the recipient of property, rather than an intention to create a trust. Resulting trusts do not give effect to a trust intention. The settlors presumed intention to create a trust cannot be effective to create a resulting trust. It would circumvent the well-established requirement of certainty of intention if the law were to find a resulting trust in favour of the settlor, even where he has not expressed a clear and certain intention to create a trust for himself. Certainty of intention in is a legal requirement, and not merely a question of construction, and the orthodox view fails to explain why the presumed intention should be given the force of law.

Evidentiary presumptionsThe use of presumptions can obscure the nature of the resulting trust. My view is that there is a unified doctrine of resulting trusts, whether or not a presumption is used. This section seeks to highlight that where presumptions of resulting trust apply, the lack of intention to benefit the recipient is the fact being inferred. The presumed resulting trust does not suggest a resulting trust operating on a different principle. Instead, I maintain the distinction between the legal presumption and the resulting trust itself. The resulting trust is not created by the presumption, but by a rule of law that applies to the inference of fact raised by the presumption. Very often, the distinction is blurred because the presumption is effective to create the resulting trust where there is no evidence of contrary intention.

Resulting trusts are accepted as arising in two categories of situations: where there has been an apparent gift of property, and where an express trust has failed to dispose of all the trust property. Both categories rely on legal presumptions, to get around evidentiary difficulties in proving the absence of intention. In the apparent gift scenario, when a property owner makes a voluntary conveyance for no consideration, or where someone pays the purchase money for a transfer of property to another, there is a presumption that the provider of property did not intend to benefit the recipient. When an express trust fails to exhaust trust property and there is a surplus, there is a presumption that the settlor does not intend for the trustees to hold the surplus for their own benefit. In both cases, the inference applies where there is no further evidence of intention beyond the primary facts that raise the presumption. Looking behind the presumptions in both categories of resulting trust, the facts being inferred are the same: the absence of intention to benefit the recipient of property.Behind the presumption

A presumption is a consensus of judicial opinion as to the most likely inference of fact to be drawn in the absence of evidence to the contrary. An inference is justified by a rationalisation of human behaviour derived from community experience and societal norms.

It is recognised that the presumption of resulting trust historically developed by strict analogy to the presumption of resulting use. Although the presumption of resulting use was a presumption that the transferee should hold on express trust for the transferor, this understanding is irrelevant to the modern context. The practice of putting land into use was made redundant by modern inheritance laws, and the presumption of resulting use bears little relevance to property practices in the modern context.

The correct view is that the presumption of resulting trust as currently applied has evolved. Where property is transferred for no consideration provided by the recipient, the relevant inference of fact is an absence of intention to benefit the recipient. The presumption is therefore against an intention to give to the recipient absolutely, unless it can be shown that the intention of the provider of property was to benefit the recipient. The basis for the presumption is the philosophical assumption that persons will act in their self-interest. Modern ideas of property places definitional emphasis on rights exigible against third parties, and ownership is a presumptively selfish concept. This explains a presumption against altruism, in the absence of further evidence. Property is of special value and significance to the individual, and the owner is presumed not to intend to benefit a stranger without receiving value in return. This explains Equitys suspicion of gifts. There is an exception only for established relationships of proximity and dependency, where it is recognised that considerations of love and affection negate the assumption of self-interest.

The Principle of Resulting Trusts Resulting trusts arise as an equitable response to the receipt of property by someone who is not intended to have the benefit of the property. The state of mind of the provider of property is relevant as a fact, which along with other facts, calls for the imposition of a resulting trust by operation of law.

If we recognise that all resulting trusts arise where the transferor of property did not intend to benefit the transferee, then the principle that justifies the implication of resulting trusts is restitutionary. All resulting trusts effect restitution because they arise by operation of law and always operate to reverse the enrichment one person has received at the expense of another. By definition, the resulting trust always operates to restore property that has been subtracted from another, and therefore responds to subtractive unjust enrichment. The trust obligations created by resulting trusts always operate to disgorge an enrichment which is not intended by the person who provided the enrichment. It should therefore be recognised that resulting trusts within the existing categories of application already are already restitutionary

Beyond the Traditional Categories

Academics such as Professor Birks and Dr. Chambers argue for a greater role for resulting trusts as a restitutionary remedy. They argue for the application of resulting trusts in the cases of mistaken gifts, payments under duress and where there is failure of consideration.

However, the weight of authority appears to be against an extended role for resulting trusts. While the rationalisation of resulting trusts based on an absence of intention to benefit the recipient of property has received some judicial acceptance, the resulting trust has not been applied outside the traditional categories. In Westdeutsche, Lord Browne-Wilkinson rejected an application of resulting trust law beyond the traditional categories and found that moneys paid under an ultra vires transfer were not held on resulting trust. The objection to restitutionary resulting trusts is primarily directed at the potentially wide application of the restitutionary principle. Swadling fears that it would undermine the whole structure of the law of restitution and argues that Birks resulting trust thesis is capable of proprietary overkill, elevating many restitutionary in personam claims to equitable claims in rem. It is feared that this would prejudice innocent third parties, especially the unsecured creditors of the recipient. This was the concern in Westdeutsche as well, where Lord Browne-Wilkinson warns against producing unjust results to third parties.To my mind, these concerns highlight that a balance is involved when applying the resulting trust. Resulting trusts necessarily deal with the creation of equitable property rights. The interaction with the law of property means that third party rights are involved and there is the risk of potential prejudice to third parties. A balance is required to be struck between the need to reverse the unjust enrichment of a undeserving recipient, the transferees legitimate claim to the security of his receipt and the potential undue hardship caused to third parties.

A balance appears to be struck where resulting trusts are applied within the traditional categories, where the risk of third party prejudice appears to be low and little hardship is caused to the recipient who is disgorged of his unjust enrichment. Take the failed express trust resulting trust as an example. Third party creditors of the trustee have no legitimate expectation to the surplus that arises when the trust fails to exhaust the trust property. Further, in preferring the settlor in a failed trust to a trustee, no hardship is caused to the trustee. The trustee has no legitimate claim to the security of the receipt where the settlor does not intend to benefit him in the event of a surplus.

Outside of the traditional categories, my view is that the resulting trust is not available simply because the recipient of property has been unjustly enriched. A balancing exercise is in order, striking the balance between the need to reverse unjust enrichment, the recipients claim to the property, and potential hardship to third parties. I would add another factor context. Lord Browne-Wilkinson warns against the importation of equitable principles inconsistent with the need for certainty and speed in commercial affairs, and this should be taken into account in any balancing exercise. Notably, the traditional categories of resulting trust rarely apply in the commercial context.

Conclusion: the Suggested Way Forward

As explained earlier in the essay, the focus on an absence of intention to benefit best explains the existing case law and accords with principle. The reluctance to see resulting trusts as restitutionary is motivated by the fear of creating an unprincipled explosion of proprietary remedies. My view is that this fear should be put to rest once we understand that recognising resulting trusts as restitutionary does not ipso facto lead to an extended application of the resulting trust outside the existing categories.

The restitutionary resulting trust is capable of more nuance than is thought by its orthodox objectors. Take the facts of Westdeutsche for example. The practical consequences feared of the banks argument, of adverse effects on creditors and third parties, were more imagined than real in that case. Even if the restitutionary thesis was adopted, a resulting trust would not have arisen on the facts. Lord Browne-Wilkinson found as a fact that the payment was made with the intention that moneys so paid should become the absolute property of the local authority. The finding of fact that the transferor of property intended to benefit the transferee absolutely would preclude a resulting trust interest from arising.Recognising existing resulting trusts as restitutionary is the first step towards engaging in a proper balancing exercise. The law of restitution is concerned with drawing fine lines, in order to guard against too much restitution, and to protect against the transferees legitimate interest in the security of his receipt. Such fine-tuning is only possible when it is recognised that the true nature of resulting trusts is restitutionary, and one balances the need to effect restitution against the transferees legitimate interest, while taking into possible prejudice to third parties. This aids a principled development of the law of resulting trusts, balancing remedies against rights.

Robert Chambers, Resulting Trusts (1997) [Chambers]; Peter Birks, Restitution and Resulting Trusts (Equity: Contemporary Legal Developments, p 335 [Birks]

[2002] All ER 323

[1999] 1 W.L.R. 1399

Vandervell v Inland Revenue Commissioners [1967] 2 A.C. 291

Ryall v Ryall (1739) 1 Atk. 59, Williams v Williams (1863) 32 Beav. 370

Hodgson v Marks [1971] 1 Ch. 892

Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] 2 W.L.R 802 [Westdeutsche]

Supra note 6

Chambers at p 35

Chambers at p 35

I am not persuaded by Swadlings argument that Chambers confuses the requirement of certainty with the question of construction. Swadling, Explaining Resulting Trusts (2008) 124 LQR 72.

Chambers at p 32

Swadling argues that presumed resulting trusts operate on a different principle from the resulting trust that is proved without the use of presumptions. Swadling, Explaining Resulting Trusts (2008) 124 LQR 72;

VK Rajah JA in Lau Siew Kim v Yeo Guan Chye Terence [2007] SGCA 54 at para 35

If the settlor evidences a clear intention to benefit the trustee, or to abandon the property, the presumption is rebutted and no resulting trust arises. Re West [1900] 1 Ch. 84, Westdeutsche at p 708

Lord Diplock in Pettitt v Pettitt [1970] A.C. 777 at 823

VK Rajah JA in Lau Siew Kim v Yeo Guan Chye Terence [2007] SGCA 54 at para 37

Eyre C.B. in Dyer v Dyre (1788) 2 Cox Eq. 92, 93

Supra note 17 at para 40

Cite

National Provincial Bank Ltd v Ainworth [1965] AC 1175

Focusing on the individual and his bundle of property rights. Gray and Gray, The Idea of Property in Land, in S Bright and JK (ed), Land Law: Themes and Perspectives (OUP 1998)

The presumption of advancement

Peter Birks, An Introduction to the Law of Restitution (1989) pp 54 64

Chambers at pp 94 95, see ibid

Supra notes 2, 3

Westdeutsche at p 704

Westdeutsche at p 708

Swadling, A new role for resulting trusts? (1996) 16 LS 110 at p 128