Equity and Trust
Prompt: Discuss, “Resulting trusts arise from the implied intentions of the parties. In sharp contrast, constructive trusts are imposed by the courts in response to a wrongdoer’s criminal conduct.”
Introduction
In making decisions of equity and ownership, the Courts of England and Wales apply the resulting and constructive trust concepts to decide whether a party has a share in a property where the legal title is registered to another party. According to research, trust and fiduciary duties are essential where a person owns the properties on behalf of another’s benefits, mainly in cases of the family will settlements or business ventures. In attempts to resolve investment and ownership cases, the House of Lords and the courts have tried to submerge the rising controversies and confusions held on the resulting and constructive trusts.
As exhibited in previous landmark cases such as the Westdeutsche Landesbank Girozentralev Islington London Borough Council of 1996, the resulting trust and the constructive doctrines are similar, bearing only a slight difference which the courts have not yet developed a clear drawing line. Mitchell (2010) indicates that a distinction exists between the two, where resulting trust arises where a transfer of property is carried out on a person who has not contributed to the same. On the other hand, constructive trusts exist where it would be indefensible if a party holds onto a property in terms of an equitable solution. In this light, a distinction exists between the two concepts, as I will explain hereafter.
Resulting Trust
Basing on the Westdeutsche Landesbank Girozentrale v Islington LBC of 1996 case, resulting trust arises where one party contributes to the purchase price. The incident reflected the failure of Islington LBC to return compound interest to the Westdeutschedue to the amount it had advanced in terms of an interest rate swap agreement. It was based following an earlier declaration by the House of Lords in a landmark case on Hazel v Hammersmith and Fulham LBC (Chambers 1996). The argument conveyed by the Westdeutsche illuminated that money was paid over to the Islington, which was a clear indication of a resulting trust since the bank did not intend to make a gift out of the amount (Chambers 1996). In a cross argument, the Islington council denied the existence of a resulting trust reflecting on the stance that the traditional trust laws and principles did not view the contract as void thereby, no compound interest or property right prevailed (Chambers 1996).
Further, the council argued that a resulting trust required to be associated with an intention made by the parties for the amount advanced to be held in confidence. However, in the prevailing case, the bank had opted for the money to be held on a swap agreement. The judgment honored Islington’s argument indicating that there was no resulting trust in the contract; therefore, only a simple interest would be reimbursed to the Westdeutsche bank.
According to Leung (2019), resulting trusts are imposed where there is no gift intended during the gratuitous transfer of property from the transferor to the transferee. Often, presumptions are held in favor of the transferor that the transferee should own property on their behalf under a trust. The author focuses on the Stack v Dowden (2007) case law, which concerned the sharing of property interests after a family breakdown in the case of a cohabitation relationship. Leung (2019) explains that the case involved a property that the two partners-Mr. Stack and Mrs. Dowden- had registered under their names but did not recommend the terms of interest sharing. Leung (2019) notes that a presumption was made that the two partners would share the home equally even though the contributions were made 35% and 65% respectively between Mr. Stack and Mrs. Dowden. After a judgment by the high court for the two partners to share the property in equal terms, which indicated the existence of a resulting trust, Mrs. Dowden sought an appeal. The Court of Appeal advocated for sharing according to the percentage of contribution. Due to dissatisfaction, Mr. Stack appealed to the House of Lords. A similar judgment was made reflecting on the contribution ratio and the resulting prior trust it constituted.
Constructive Trust
Mitchell (2010) indicates that a constructive trust may arise at the same time with the resulting trust in the case where the direct contribution satisfies the existing interest burden. Further, Gravells (2013) highlights that constructive trust is usually imposed on properties to confide the intention of both parties where they intend to share the beneficial interests. The situation is apprehended when a property is registered under joint names where the parties hold the premise as joint tenants, as stipulated by the laws on equity (Mitchell 2010). Leung (2019) establishes that the Jones v Kernott (2011) case, the court ruled that despite the notion that the couple owned the property equally, Mr. Jones was only entitled to a 10% benefit. In a dissention ruling, the Court of Appeal maintained the stand on equal share while reflecting on the note that there was an absence of evidence stating a contrary agreement to the prior one held (Sloan 2015). In this note, the Court of Appeal focused on the case of Stack v Dowden (2007). More so, the judgment indicated that since the home was jointly owned under joint names, and no proof to disregard the similar intentions on an equal share, then the presumption had to remain. However, Leung (2019) uncovers that the Supreme Court overruled the Appellate decision by establishing a Common Intention Constructive Trust (CICT) to help resolve the issue. The CICT decision would be applied under the consideration of the parties’ financial contributions, the nature of the relationship as well as their personalities. In the same context, the Supreme Court ruled in favor of Mrs. Jones at a 90/10 share proportion in the notion that collective intentions always had to be inferred in dealings between partners.
Leung (2019) notes that other significant differences may exist where the resulting trust approach provides a default position where it is presumed that the transferor has not given out the property gratuitously, preferably by a trust to the transferee. Additionally, the resulting trust is seemingly well established in trust, which makes it less complex in solving issues. In contrast, constructive trust does not contain the indefensible factor, which is essential in justification. More so, Leung (2019) explores the probability of recognizing separation of powers in resulting trusts hence providing consistency and flexibility during presumptions made on gratuitous transfers. On the other hand, constructive trusts prompt judges to conclude from several factors to arrive at a holistic decision, hence undermining the adjudication transparency. At the same time, constructive trust has been attributed to increased uncertainty and unpredictability of decisions.
Conclusion
A distinctive contrast exists between resulting and constructive trusts, as indicated by various case laws. The resulting trust exists where a transferor commits a property gratuitously to a transferee under a trust with no intended gift. In contrast, the constructive trust entails confiding parties’ intentions of sharing beneficial interests on a property where a collective contribution satisfies the interest burden. In this light, the resulting trust ensures that the gratuitous transfer is under a trust, therefore, providing a default presumption. However, a constructive trust offers a range of factors to determine the decision which hinders transparency and consistency of judgments.
References
Chambers, R., 1996.Restitution, Trusts, and Compound Interest. Melbourne University Law Review, 20, pp. 1192-1200.
Gravells, N. ed., 2013. Landmark Cases in Land Law. Bloomsbury Publishing.
Hazell v Hammersmith and Fulham LBC [1992] 2 AC 1
Jones v Kernott [2011] UKSC 53
Leung, Y.C., 2019. Rethinking the Common Intention Constructive Trusts in Stack v Dowden [2007] UKHL 17 and Jones v Kernott [2011] UKSC 53-Should the Resulting Trusts Be Preferred. ISLRev, 6, p.26.
Mitchell, C. ed., 2010. Constructive and Resulting Trusts. Bloomsbury Publishing.
Sloan, B., 2010. Constructive and Resulting Trusts. Edited by Charles Mitchell. [Oxford: Hart Publishing. 2010. xxxii, and 368 pp. Hardback£ 65.00. ISBN: 9781841139272.]. The Cambridge Law Journal, 69(3), pp.680-682.
Sloan, B., 2015. Keeping up with the Jones case: establishing constructive trusts in ‘sole legal owner’s scenarios. Legal Studies, 35(2), pp.226-251.
Stack v Dowden [2007] UKHL 17
Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12 (22 May 1996)