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Resulting Trusts (4.1) - Coggle Diagram

- - - - Recipient:
        
        The recipient becomes a trustee
      - Beneficial interest 'results' back to the original owner
- - - - (1) Land:
        
        The situation regarding the transfer of land is less clear:
        S.60(3) LPA 1925: "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 of benefit of the grantee"
        
        According to the HC in Lahia v Lahia [2001] and the CA in Ali v Khan [2002] - PRTs in the context of voluntary transfers of land have been abolished
        
        But in Prest v Petrodel Resources Ltd [2013] Lord Sumption said: - said you can have a presumed resulting trust following a voluntary transfer of land, though he did not mention S.60(3).
        
        2) Purchase in the name of another:
        
        Where A purchases property that is in the name of B; or where A contributes towards the purchase price of property which is in B's name, a PRT will arise (see Dyer v Dyer [1788]) 'The clear result of cases... is that... the trust of a legal estate... results to the man who advances the purchase money'
        
        If A pays the whole purchase price, B will hold the property on trust for A
        
        If A pays part of the purchase price, and B pays the rest, B will hold the property on trust for herself and A in shares proportionate to their contributions
        
        The presumption applies regardless of the nature of the property (so S.60(3) irrelevant)
        
        e.g. see Abrahams v Trustee in Bankruptcy of Abrahams [2000]
  - - - (1) Evidence of a contrary intention
        
        A PRT is a presumption that a gift was not intended
        
        ...so, it follows that if there is evidence that a gift was intended, then this will rebut the presumption of a resulting trust, and the recipient will take the property as a gift
        
        e.g.
        
        Jim voluntarily transfers personal property for no consideration to Dwight
        
        There is a voluntary transfer of personal property which gives rise to a PRT (Dwight holds the property on a resulting trust for Jim)
        
        Beneficial interest will return to the original owner
        
        If there is evidence that Jim intended to make a gift of the property to Dwight, Dight will take the property absolutely (i.e. not subject to any trust obligations
      - (2) Presumption of advancement:
        
        Presumption that due to the family relationship between parties, a transfer of property from A to B is intended to be a gift
        
        Only applies for transfers from father-children, husband-wife, male fiancee-female fiancee. Seems sexist today, but made sense historically
        
        Some indication in the case law that the presumption may apply to transfers from mother to children
        
        POA never applies in the context of any other family relationship including wife-husband; transfers between same-sex partners; transfers between cohabitating couples
        
        POA is incompatible with ECHR - S.199 of the Equality Act 2010 abolishes the presumption, but this has not been brought into force, so it continues to apply
        
        The presumption of advancement can be rebutted with evidence that the transferor did not intend to make a gift
        
        Evidence of the parties' acts, or declarations can be used to rebut the presumption
        
        When dealing with declarations, they must be made before, during or immediately after the transfer/purchase
        
        If the declaration is made later, it can only be relied on if its against the interests of the transferor/person who put forward the purchase money
        
        It's worth noting that the presumption may be 'readily rebutted by comparitively slight evidence': Petit v Petit [1970] (Lord Upjohn)
        
        e.g.
        
        Jim voluntarily transfers personal property to Pam with no consideration
        
        Usually this transfer would give rise to a PRT
        
        But if Jim (he/him) and Pam (she/her) are married to each other, the presumption of advancement applies, so Pam takes the property absolutely
        
        But the POA can be rebutted with evidence that Jim did not intend to make a gift to Pam
        
        If the POA is rebutted, the PRT applies instead, meaning Pam holds the property on resulting trust for him
      - PRT vs POA
        
        Presumption of resulting trust:
        
        A presumption that the transferor did not intend to make a gift
        
        Can be rebutted with evidence that the transferor intended to make a gift
        
        Presumption of advancement
        
        A presumption that the transferor intended to make a gift
        
        Can be rebutted with evidence that the transferor did not intend to make a gift
        
        If presumption of advancement:
        
        Can we rebut the POA? Is there evidence that a gift was not intended?
        
        YES - POA rebutted - PRT applies
        
        NO - POA applies
        
        If presumption of resulting trust:
        
        Can we rebut the PRT? Is there evidence that a gift was intended?
        
        YES - PRT rebutted
        
        NO - PRT applies
      - (3) Illegality
        
        For the PRT and the POA, a difficult question is what should happen when the property was transferred for an illegal purpose
        
        Will equity allow a transferor to enforce their Equitable rights under a PRT when they transferred the property for an illegal purpose?
        
        Will Equity allow a person to rely on evidence of their illegal conduct to rebut the POA?
- - - - Example 2
        
        Michael voluntarily transfers money to Holly.
        
        What if Michael transferred the money to his wife Carol as part of an illegal scheme to hide property from creditors int he event of insolvency?
        
        Should Michael be able to rely on evidence of his illegality to rebut the POA?
    - - The historical position
        
        Homan v Johnson (1775):
        
        Per Mansfield 343: 'No court will lend its aid to man who founds his cause of action upon an immoral or illegal act.'
        
        Gascoigne v Gascoigne [1918]:
        
        Illustrates the long-established principle:
        
        Husband transferred the title in the family home into his wife's name to hide from creditors
        
        Held: He could not rely on his illegal purpose to rebut the presumption
        
        Summary: historical position was straighforward
        
        Example 1:
        
        Stanley voluntarily transfers money to Phyllis
        
        Historically, Equity would not have allowed Stanely to rely on his rights under PRT due to his illegal conduct. Phyllis would take the property absolutely
        
        Example 2:
        
        Michael voluntarily transfers money to Holly
        
        Historically, Michael would not be able to rely on evidence of his illegal conduct to rebut the POA, so the POA would stand, and Holly would take the property absolutely
        
        Redrawing the principles?
        
        The 'reliance' principle - Tinsley v Milligan [1994]:
        
        Facts: T and M both contributed towards the purchase price of a house. The house was put in T's some name os M could fraudulently claim benefits. On relationship breakdown, T claimed that the house was hers, but M claimed she had a beneficial interest in the house arising under a presumed resulting trust
        
        Who should get the property?
        
        Principle:
        
        Principle: even if the transaction is "tainted" with illegality, the claimant can rely on that transaction to establish a beneficial interest in the property, so long as they don't plead guilty to the illegality
        
        The majority of the HoL held that M had a claim to the property
        
        The minority thought that M should not be able to rely on her rights under the PRT
        
        Criticisms:
        
        Do you prefer the majority or minority position? Are both problematic?
        
        Is the reliance principle a blunt tool? The application of the principle could not consider the seriousness of the conduct (see Lord Goff)
        
        The application of the principle led to arbitrary results:
        
        If you were dealing with a presumption of resulting trust - the person seeking to rebut the presumption was the one who had to plead to the illegal purpose, not the transferor
        
        But if you were dealing with the presumption of advancement - the transferor had other plead to the illegal purpose to rebut the presumption that a gift was intended, and Equity did not allow that
        
        The withdrawal principle - Tribe v Tribe [1996]:
        
        Father transferred shares to his son to hide them from creditors - presumption of advancement. After the threat had passed, the son refused to refund the shares
        
        CA: the creditors were not aware the shares had been transferred, so the illegal purpose had not been carried out so the presumption of advancement could not be rebutted:
        
        Per Lord Millet: "It is however, also settled both at law and in equity that a person who had transferred property for an illegal purpose can nevertheless recover his property provided that he withdraws from the transaction before the illegal purpose has been wholly or partly performed
        
        Summary
        
        Prior to 2016, it was not possible to plead to an illegal purpose
        
        For PRT: the transferor of the property could rely on their rights under the PRT only if they did not need to rely on evidence of their illegality to give rise to the PRT (the reliance principle)
        
        For POA: the transferor of property could not rely on evidence of their illegal conduct to rebut the POA (the reliance principle)
        
        But if the illegal purpose had not been carried out, then it could be relied on by the transferor (the withdrawal principle)
        
        Example 1 - PRT:
        
        Stanley voluntarily transfers money to Phyllis (PRT)
        
        The operation of the reliance principle would have meant that Stanley could rely on his rights under the PRT, because he did not to rely on evidence of his illegality to establish his rights
        
        Example 2 - POA:
        
        Michael voluntarily transfers money to Holly (POA)
        
        The operation of the reliance principle meant that Michael would not be able to rely on evidence of his illegality to rebut the presumption of advancement, so Holly would take the property absolutely
        
        Example 2 - PRT:
        Michael voluntarily transfers money to Holly (PRT)
        
        Unless the illegal conduct never actually happened
        
        If Michael never entered insolvency, so no creditors were involved, then he could rely on evidence of his illegal intentions to rebut the POA, so a PRT would apply instead
        
        Criticism of the old law:
        
        The law was heavily criticised!
        
        See the Law Commission, The Illegality Defence (Law Com No.320, 2010): proposal to ablish the arbitrary reliance principle and to replace it with a statutory system based on discretion
        
        Such reform took place in 2016 following a SC decision
      - Current position
        
        (1) Patel v Mirza - the facts:
        
        P transferred £620,000 to M to bet on the price of RBS shares. M expected to obtain insider information from RBS contacts about a government announcement affecting the price of the shares - this is insider dealing - a criminal offence
        
        The announcement was never made, and M did not bet on any shares. P asked for the money to be returned, and M refused because the money had been transferred to him for an illegal purpose (insider dealing), so he did not need to return it
        
        All judges agreed P should get his money back: but they disagreed as to why he should get the money back. They disagreed over the correct test to apply in cases of illegality: should it be flexible and discreitonary or principled and certain? 6:3 opted for a flexible approach
        
        The majority:
        
        "The essential rationale of the illegality doctrine is that it would be contrary to the public interest to enforce a claim of to do so would be harmful to the integrity of the legal system..."
        
        This requires us to consider Lord Toulson's 'trio of considerations' (or 'range of factors test'):
        
        (1) Why the conduct was illegal; and,
        
        (2) The policies that would be affected by denying the claim; and
        
        (3) The proportionality in denying relief x
        [what is the purpose of making something illegal, would that purpose be furthered]
        
        Stage 1: why is the conduct illegal?
        
        To protect the interest of creditors, prevent fraud
        
        This seems to require consideration of 'the underlying purpose of the prohibition which has been transgressed' [101] and consideration of 'whether that purpose will be enhanced by denial of the claim'
        
        According to Lord Toulson 'the relevance of taking into account the purpose of the relevant prohibition is self-evident' [102]
        
        But is it self-evident?
        
        Stage 2: public policies
        
        Why should we say yes to the claimant at a general policy level
        
        Per Lord Toulson, the 2nd consideration requires us to think about 'any other relevant public policies which may be rendered ineffective or less effective by denial of the claim' [101]
        
        Lord Toulson does not clearly explain which public policy considerations we should consider here
        
        Lord Kerr mentions the need to preserve the integrity of the legal system [125]
        
        Possible relevant policies: must come to Equity with 'clean hands'? Unjust enrichment / unjustified windfall?
        
        Stage 3: proportionality
        
        According Lord Toulson, this requires us to '[keep] in mind the possibility of overkill unless the law is applied with a due sense of proportionality' [101]
        
        Possible considerations:
        
        'Potentially relevant factors include the seriousness of the conduct, it's centrality to the contract, whether it was intentional and whether there was a marked disparity in the parties' respective culpability'. [107]
        
        'Punishment for wrongdoing is the responsibility of the criminal courts... the civil courts... should [not] impose what would amount in substance to an additional penalty disproportionate to the nature and seriousness of the wrongdoing.' [108]
        
        (2) Applying Patel;
        
        Patel v Mirza has been applied in several cases e.g. Singularis Holdings v Daiwa Capital Markets [2019]; Kitover v Galmarley Ltd [2021]
        
        We'll be focusing on 2 SC decisions, neither of which are about trusts law but nevertheless help us understand how we should apply the trio of considerations:
        
        Stoffel v Grondona [2020] (claim allowed despite illegality)
        
        Henderson v Dorset Healthcare University NHS Foundation Trust [2020] (claim denied due to illegality)
        
        Stoffel v Grondona:
        
        Facts: G sued S (solicitors) for negligence. S accepted negligence, but argued G's claim should be barred for illegality (G was engaged in mortgage fraud)
        
        Held: SC found in favour of G - claim allowed despite illegality
        
        Application in Stoffel:
        
        Stage 1: why is the conduct illegal? Reasons why mortgage fraud is a criminal offence: 1) prevention and deterrence [29], 2) protect mortgagee [31-1]
        
        Stage 2: public policies
        
        Solicitors should perform their duties diligently, not negligently [32], denial of claim would create inconsistency in the law [33-4]
        
        Stages 1 and 2 make clear that G's claim should be allowed, but the court considered stage 3
        
        Stage 3: proportionality:
        
        Illegality not central to the claim [40]; continuing significance of the reliance principle [43]; G did not profit from her wrongdoing by allowing the claim [46]
        
        Henderson v Dorset:
        
        Facts: H claimed damages against D, following a conviction for manslaughter. D accepted they had been negligent, but argued that H's claims should be barred for illegality
        
        Held: SC found in favour of D - claim denied due to illegalty
        
        Application in Henderson:
        
        Stage 1:
        
        Consider why the conduct was illegal, and consider other factors such as the gravity of the criminal offence (see [127-9]), also close connection between the illegality and the claims [128]
        
        Broad deterrent effect - unlawful killing never pays [130-1]
        
        Stage 2:
        
        Though there are policies that the NHS should care for the vulnerable and public bodies should pay compensation etc... the policies in support of denying H's claim were clearly the strongest [137]
        
        Stage 3:
        
        Dealing with a very serious offence, illegal act central to the claim; different positions of the parties
        
        Denying H's claims for damages not a disproportionate response to the illegality (see [138-144])
        
        The overarching question:
        
        Whether allowing a claim tainted by illegality wuld cause inconsistency in the law that would damage the integrity of the legal system
        
        Per Lord Lloyd-Jones in Stoffel [26] -
        
        "It's important to bear in mind when applying the "trio of necessary considerations"... that they are relevant not because it may be considered desirable that a given policy should be promoted but because of their bearing on determining whether to allow a claim would damage the integrity of the law by permitting incoherent contradictions, while necessarily structured, must not be permitted to become another mechanistic process".
        
        Answering the overarching question:
        
        Stages 1 and 2 of the trio are policy questions to be considered in general terms
        
        Lord Hamblen - Stage 1 = policies that support denying the claim; Stage 2 = policies that support allowing the claim
        
        According to Lord Hamblen, relevant policies include, should not profit from crime ([119], [121-2]), closeness of the connection between the claim and the illegal act ([120])
        
        Stage 3 requires the court to consider the individual circumstances of the case and is only relevant if consideration of the policies makes it clear that a claim should be denied because of the illegality
        
        Reflecting on Patel
        
        Decisions now made on the basis of the test from Patel v Mirza, not the reliance/withdrawal principles
        
        The reliance principle from Tinsley v Milligan has been overruled (see Lord Toulson, [110], Lord Clarke [221]; Stoffel & Co v Grondona [2018]
        
        ...but whether the transferor needs to rely on evidence of their illegality to bring a claim seems to be a factor that can be considered (see Stoffel)
        
        Unclear whether the withdrawal principle continues to apply: likely to be part of the trio of considerations?
        
        The Patel test leads to uncertainty, which Lord Toulson acknowledged in his judgement
        
        Illegality (PRT) - Example 1:
        
        Stanley voluntarily transfers money to Phyllis (PRT)
        
        Following Patel, it is not clear whether Stanley would be able to rely on his rights under the PRT. It all depends on the application of the Patel test
        
        Illegality (POA) - Example 2:
        
        Michael voluntarily transfers money to Holly (POA)
        
        Following Patel, its not clear whether Holly would be able to rely on her rights under the POA. It all depends on the application of the Patel test
    - - The overarching question:
        
        Quote Lloyd James in Stoffel describing the overarching question
        
        Then quote Lord Toulson and his 3 stages that help answer the overarching question