Intention and the Resulting Trust – A Critical Response to Lord Browne-Wilkinson’s 1996 statement

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Introduction

In Westdeutsche Landesbank v Islington, Lord Browne-Wilkinson weighed in on the debate as to the theoretical basis of the resulting trust:

‘Both types of resulting trust are traditionally regarded as examples of trusts giving effect to the common intention of the parties. A resulting trust is not imposed by law against the intentions of the trustee (as is a constructive trust) but gives effect to his presumed intention.’[1]

Whilst it is clear his Lordship contends that resulting trusts are underpinned by intention, the obiter is confused and erroneous. Contrary to his assertion, it is not the common intentions of the parties, or the trustee’s presumed intention, which should bear any relevance to a resulting trust; it is the intention of the settlor themselves.[2] If this were the basis of the resulting trust they would never arise contrary to the settlor’s intention. However, this is not the case. Whilst the intention of the settlor is important in the presumed resulting trust, the automatic resulting trust instead arises as an operation of law, irrespective of the settlor’s actual intentions.

To assess the role of intention in resulting trusts, the presumed resulting trust and automatic resulting trust will be analysed. In particular, it will be demonstrated that, whilst the presumed resulting trust follows settlor intention, the function of the automatic resulting trust is incoherent and its operation can be contrary to the settlor’s intention.

Part I: ‘Presumed’ Resulting Trust

Under the presumed resulting trust, a rebuttable presumption is utilised. Where an individual has transferred property to another there is a presumption that the transferor intends it to be held on resulting trust for themselves.[3] Similarly, where an individual contributes towards the purchase price of property which is subsequently bought and owned by another, there is a presumption that the purchased property will be held on resulting trust for them both, with the contributors beneficial interest proportionate to their contribution.[4]

Chambers and Birks argue resulting trusts arise in these circumstances, as the settlor does not intend to transfer beneficial title.[5] By not intending to transfer the beneficial title, the settlor instead retains it. Swadling counters, contending that the ‘transferor declared a trust in his own favour’ during the transfer.[6] Mee is critical of these distinctions. He argues that it does not matter whether the question is framed in a negative ‘lack of intention to transfer beneficial ownership’ or a positive ‘intention to retain beneficial interest’ manner, the resulting trust merely gives effect to the underlying purpose of the settlor’s intention; to either be a trust or to be a gift.[7] However, the distinction is important when determining the validity of the presumptions adopted. Swadling’s analysis is most appealing as his approach demonstrates that the transferor intends an ‘active right’, namely, to declare an interest in the property, instead of maintaining a passive ‘retention’ right.

The overall purpose of the presumed resulting trust is to give effect, where possible, to the actual intentions of the transferor since the presumption is rebuttable.[8] It is only when there is an absence of any evidence that the presumption becomes important, as something must fill the void. The presumption that the transferor intends an ‘active right’ is a reasonable one to make in such a situation, as common sense would suggest that people are often self-serving and unlikely to be acting to their detriment. This is also why the presumption is flipped in the case of advancement,[9] as it is recognisable that transfers to a wife or children are more likely to be unconditional and selfless than transfers to others and therefore no ‘active rights’ intended.

Part II: ‘Automatic’ Resulting Trusts

Where an attempted express trust fails, and property has been transferred to an intended trustee, a resulting trust will arise.[10] In Vandervell, Megarry J recognises that this type of resulting trust ‘takes effect by operation of law’ and is ‘automatic’.[11]

Where an individual receives legal title of property when an equitable interest was never created, such as through failing to create a trust, the recipient has received the property absolutely, meaning there is ‘no separate equitable title’.[12] Therefore, contrary to Chambers and Birks’ ‘retention’ model, the equitable interest of the property cannot be retained by the transferor since it doesn’t exist. The property is instead transferred unencumbered as a result  of the mistaken belief that the equitable interest was created and conferred to the beneficiaries. Notwithstanding this, the law is triggered, returning the equitable interest to the transferor, despite never being separated from the legal title. As Swadling concludes, it ‘defies legal analysis’.[13]

A substantial problem with this is that there is no possibility of a rebuttal, since the application of the resulting trust is formulated by law and therefore is not dependent on intention. In Re Gillingham Bus Disaster Fund, donations to a fund which subsequently failed its purpose were held on resulting trust for each of the donors.[14] Justice Harmon recognised that the donors ‘would not expect to see the money again’ once they had donated.[15] It seems peculiar that, in a charity-based situation, the donation is held on resulting trust for the donor, despite the fact that many would likely want the money to be used anyway for other charitable purposes of the donee’s choosing. This provides evidence that resulting trusts are imposed by law, and this happens irrespective of what the intentions of the settlors may be.

Conclusion

Of the two types of resulting trust, only the presumed resulting trust gives effect to the intention of the settlor. In transferring money for no value, or contributing towards the purchase price of property, there is a rebuttable presumption that the transferor intended for the property to be held on trust for them. In addressing the presumptions, it is important that the courts seek to give effect to the positive intentions of the settlor and not simply attribute passive ‘retention’ rights. However, under the automatic resulting trusts intention is completely disregarded, with the trust arising out of an obscure operation of law. In circumstances where property has been transferred for a trust which has failed, the courts have no discretionary powers as the trust ‘automatically’ arises, irrespective of the settlor’s intention. Consequently, settlors can be held against their intentions, contrary to Lord Browne-Wilkinson’s obiter in Westdeutsche Landesbank.


[1] Westdeutsche Landesbank v Islington LBC [1996] A.C. 669, 708 (Lord Browne-Wilkinson).

[2] Academics have questioned the inclusion of ‘common intention’. Swadling describes it as ‘odd’ (William Swadling, ‘Explaining Resulting Trusts’ [2008] 124 LQR 72) and Mee describes it as ‘less orthodox’ (John Mee, ‘Presumed Resulting Trusts, Intention and Declaration [2014] 73 Cambridge Law Journal 86).

[3] Re Vandervell’s Trust (No. 2) [1974] Ch. 269.

[4] Dyer v Dyer (1788) 2 Cox Eq. Cas. 92.

[5] Robert Chambers, Resulting Trusts (OUP, 1997) 21.

[6] William Swadling (n 2), 86.

[7] John Mee, ‘Presumed Resulting Trusts, Intention and declaration’ [2014] Cambridge Law Journal 86.

[8] Fowkes v Pascoe (1875) 10 Ch App 343.

[9] Tribe v Tribe [1996] Ch. 107; Gascoigne v Gascoigne (1919) 1 KB 223.

[10] Westdeutsche Landesbank (n 1)..

[11] Re Vandervell’s Trust (n 3), 289.

[12] Westdeutsche Landesbank (n 1), 706.

[13] William Swadling (n 2), 102.

[14] Re Gillingham Bus Disaster Fund [1958] 1 Ch 300.

[15] ibid, 310.

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