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A ResultingTrust is a trust that arises by the action of law, not by the express intention of the settlor, and has the effect that the benefit of the trust `results' back to the settlor. The situations in which the benefit of a trust results back to the settlor are many and various, whether or not they are labelled with the term `resulting trust'. For example, such a trust may arise where the settlor creates a valid purpose trust and the purpose comes to an end, or if one person advances money to another for an express purpose which cannot be carried out, or if one person advances money to another for the purchase of land. In order to predict whether a court will find a resulting trust on a particular set of facts, it is necessary to determine the theoretical or doctrinal basis of such a trust. If this cannot be done, then as a minimum we need to be able to identify the common features of resulting trusts. However, it is not necessarily easy to identify what theorectical basis is understood by the courts, if any; and even relatively common factors are not present in all cases.
The conventional view of a resulting trust is that it arose to fill the ``beneficial vacuum'' that would result if the beneficial interest did not belong to anybody. In VandervellVIRC1966, Lord Reid expressed this view as follows:
``The beneficial interest must belong to or be held for somebody; so if it was not to belong to the donee or be held in trust by him for somebody, it must remain with the donor.''
In short, everything must belong to somebody, and if the donor fails to divest himself of the beneficial interest, as a last resort it remains with him. The court will find a resulting trust where it is necessary to give effect to this last resort. The problem with the ``beneficial vacuum theory'' is that it fails to explain a large number of resulting trust cases. In particular, resulting trusts have been found in cases where it is debatable whether there is any beneficial vacuum at all. In a line of cases that goes back at least as far as DyerVDyer1788, it was recognized that a crucial factor in the existence of a resulting trust was the presumed intention of the donor. If, for example, person A advances money to person B in order for person B to purchase land, then a court may hold that B holds that land on resulting trust for A. But it is not clear that there is any `beneficial vacuum' here, beyond the uncertainty in the donor's intention where the beneficial interest should lie.
Consequently, in ReVandervellNo21974, Megarry J distinguished between these two types of resulting trust: an AutomaticResultingTrust (ART), which arose when there was an express intention to create a trust but the trust failed (or came to the end of its purpose), leaving a beneficial vacuum, and a PresumedIntentionResultingTrust (PIRT), which arose when the court gave effect to the presumed by unexpressed intentions of the donor/settlor. A crucial distinction between these types of trust was the the `presumed intention' of the PIRT was subject to rebuttal by contrary evidence, but an ART arose out of particular circumstances, and could never be rebutted by absence of intention. An ART could arise without the agreement, or even the knowledge, of the settlor or the `trustee'.
Although Megarry's decision in Vandervell 2 was overturned on different grounds by the CourtOfAppeal, his classification of resulting trusts into PIRTs and ARTs was not disturbed in that Court's judgement and, in fact, it stood unmolested for twenty years. In reality, however, the two Vandervell categories of resulting trust actually had very little in common beyond the mere fact of being resulting trusts. This led to considerable academic debate about the basis of resulting trusts, particularly about whether the resulting trust construct was the right way to give effect to restitutionary remedies. For example, if A advances funds to B to carry out some purpose, and that purpose later proves to be illegal or impossible, is imposing a resulting trust on B in favour of A the right way to ensure that A can reclaim his money and prevent B's unjust enrichment? Of course, in such circumstances person A might have access to the common-law remedy of resitution, but it would be advantageous for A to have an equitable remedy as well, not least because of the expanded ability to `trace' his money through mixed funds (e.g., through B's bank account).
Academics such a Swadling denied such a role for the resulting trust. According to Swadling, the key factor in the determination of a resulting trust is the presumed intention of the donor/settlor. On this analysis, the notion of a `beneficial vacuum' outside an express trust was misconceived because, when one person hands over property absolutely to another, he is not handing over separate equitable and legal title. Until the trust is conceived there is no distinction between equitable and legal title at all -- it is the expression of the trust that creates the distinction, Consequently, a `beneficial vacuum' can only arise after a trust had been expressed. If there is never any intention to create a trust, then there can be no trust. Under Swadling's analysis, the two Vandervell categories of resulting trust merge into one: the PIRT needs no further elaboration, while the ART is not automatic at all -- it arises because it can be presumed that the settlor intended the beneficial interest to come back to him if the trust failed. The settlor, after all, would not want the trust property to become ownerless or go to the trustee absolutely. In short, in Swadling's analysis there is only one type of resulting trust -- a PIRT --, and an ART is nothing more than a PIRT where the presumption is supplied by the facts of the case, not by evidence of the settlor's state of mind. The basis of a resulting trust is the (presumed) intention to create a trust.
However, other academics took a different view. The most prominent was Chambers, who based his analysis in part on the work of Birk -- which was little known at the time. According to Chambers, 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. Now, these principles seem very similar at first sight -- surely an intention to create a trust almost by definition denies an intention to benefit the recipient? Not so -- because Chambers' theory allows a restitutionary role for the resulting trust, while Swadling's denies it. If a resulting trust arises where person A advances money to person B for some purpose, and that purpose fails, then Chambers' analysis allows a resulting trust to be imposed on B for the benefit of A, because A did not intend to benefit B in person. Overall, the Birks/Chambers model of the resulting trust is a much more expansive one.
So the academic differences of opinion about the theoretical basis of the resulting trust followed from, and were intimately bound up with, an argument whether a resulting trust should be used to prevent unjust enrichment. Doctrinal arguments could be advanced to support or refute either theory. For example, Swadling's model of a resulting trust has a certain purity, but it cannot easily be reconciled with a number of leading cases, in particular Vandervell itself. The essence of Swadling's analysis is a (presumed) intention to create a trust, but a presumption must be rebuttable, or it not really a presumption at all. If it is rebuttable, it must surely be rebuttable on the facts of the cas; and if there is one thing that is certain about the highly uncertain Vandervell case, it is that a resulting trust is the last_ thing that Mr Vandervell would have wanted. His entire purpose in creating the trust in the first place was to shed his beneficial interest in his company's shares. That the courts imposed a resulting trust on his trustees in his favour proved to be hugely costly to him.
On the other hand, the Birks/Chambers view better fits many cases, but has the disadvantage of blurring the distinction between the resulting trust and the ConstructiveTrust more than is aleady the case.
However, those who favoured one view or the other did not necessarily do so because of the theoretical merits of these different models, but because they either supported, or refuted, the notion that a restitutionary role for equity was appropriate. Those who favoured Swadling's analysis may have done so in order to prevent such a use of the trust construct, while those who took the opposing view may have done so because they favoured an expanded use of equitable principles in restitution.
The matter finally came before the courts in WestdeutscheVIslington1996. In that case, the claimant bank had loaned mony to a local authority under a contract which was susequently ruled unlawful. The bank could have got its money back under the principles of common-law restitution but (and it's worth bearing in mind that the sums involved were enormous) there was no common-law power to award compound interest on the funds recovered, while under equitable principles compound interest could have been recovered. So the bank was keen to show that a trust arose in its favour. There is no doubt that, had the contract been lawful, the authority would have had to pay out compound interest, so on balance it seems that the authority had been unjustly enriched by the amount of the unpaid compound interest. So, much as it pains me to say it, justice was on the side of the bank.
There was clearly no express intention by either party to create a trust, and there was no question that the authority had behaved unconscionably. So there was little or no scope for the imposition of a ConstructiveTrust. However, the bank argued, following the principles expressed by Birks, that it had never intended to divest itself of its equitable interest in the money it advanced to the authority. Consequently, an ART arose in its favour.
The HouseOfLords preferred Swadlings' view of a resulting trust -- that such a trust only arose by the intention of the parties. To be fair, Birks' work was relatively unknown, and Chambers' theory as yet unpublished, so this outcome was not a great surprise. In fact, the Lords' decision was based in part on theoretical arguments, and in part on policy. The main theoretical argument was that separation of equitable and beneficial title does not automatically give rise to a trust. There is, in short, no need to fill the beneficial vacuum. In ProprietaryEstoppel, for example, the courts recognize an equitable priority over a legal title-holder without imposing any kind of trust on the legal title-holder. Therefore, there is no such thing as an `automatic' resulting trust, as defined by Megarry in Vandervell. According to Lord Browne-Wilkinson, the policy argument was that it would be lead to injustice (and absurdity) if a trust were imposed on the recipient of property for purposes which could not be carried out. In such circumstances the recipient `trustee' who have a fiduciary obligation to the donor -- not only would he had to repay the funds to the donor, but in the meantime he would be obliged to invest the funds on the donor's behalf. In addition, if the `trustee' paid the funds to another party in the course of business, the funds would remain impressed with the trust, and the entirely innocent third party would be subject to a tracing action by the donor.
The decision in Westdeutsche makes it clear that a resulting trust can only arise if the `conscience of the recipient is affected'. In fact, this seems to be the RatioDicidendi of the case -- it is not entirely clear whether the various comments on the categories of resulting trust are nececssary to decide the case. For the conscience to be affected, the recipient must either be acting unconscionably, or at least be aware that he is collaborating in the creation of a trust. Although the speeches generally approve Swadling's view, this ratio goes, perhaps, further than Swadling himself would. While his model of a resulting trust requires that the donor/settlor has a (real or presumed) intention to create a trust, it is not entirely clear that he would require an intention on the part of the recipient to become a trustee.
At present it has to be taken that the decision in Westdeutsche represents the law: a resulting trust will arise where an express trust fails or comes to the end of its purpose, or money is advanced for a specific purpose which fails, in circumstances in which the recipient's conscience is affected. Although the case has been mentioned in subsequent cases, it is not clear that it has actually been followed. In fact, in the PrivyCouncil case of AirJamaicaVCharlton1999, 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 formulation of a resulting trust owes a great deal more to the Birks/Chambers model than it does to Swadling's analysis.
Assuming that Westdeutsche is followed, where does that leave previous authorities?
Undoubtedly the decision in ReGillinghamBusDisasterFund1958, that money raised by street collections, etc., can be held on resulting trust for the donors when the purpose of the collection is fulfilled, is incompatible. However, this part of the the Gillingham decision had already been thrown into doubt by ReWestSussexConstabularyWidowsFund1971. However, what of the facts of West Sussex itself? In that case some of the money raised -- by individual legacies in particular -- was deemed to be capable of giving rise to a resulting trust in favour of the donors (or their estates). Since there was no express trust, and since the managers of the fund had no reason to think they were undertaking a trusteeship, probably this decision also would have to be considered incorrect.
Similarly, in the case of a QuistcloseTrust, unless the funds advanced are expressed to be held on trust, or at least it is the clear intention of the parties that the lender will recover his money if the purpose is unfulfilled, most likely a resulting trust can no longer be implied.
But most likely the biggest problem caused by Westdeutsche is that casts doubt on the decision in LloydsBankVRosset1991, which was believed to be a strong authority, summarising a long line of authorities. In Rosset, the House of Lords held that a trust would arise in favour of a person who contributed directly to the cost of purchase of a shared home, to which legal title was held by another person, whether or not it was ever intended that the contributor would receive a share by way of a trust. In Rosset there was no suggestion that the conscience of the legal owner need be engaged at all -- if the contributor believes he or she is contributing in order to acquire a share of the home, surely it should not matter one jot whether the legal owner agrees or disagrees? However, if Westdeutsche is correct, if the legal owner believes that the contributor is advancing him a loan (or, less likely, making a gift), that belief would be sufficient to destroy the contributor's beneficial interest.
Now, this can hardly be a welcome conclusion. It could be argued that the contributor would have a common-law cause of action to recover his or her contribution (on the basis that it is a debt against the legal owner), but this may be small comfort. The reason for this is that, when cases like this come before the courts at all, it is usually because the legal title holder has defaulted on a secured loan (e.g., a Mortgage loan), and the lender wants to enforce his rights to take possession. Now, if the contributor has an equitable interest in the home and is in ActualOccupation, it is unlikely that the lender will be able to enforce against the contributor. However, if the contributor is taken to be, in effect, an unsecured creditor, this is a different matter entirely -- he or she is likely to be kicked out onto the street.
So what are we to make of all this? Westdeutsche has come in for a lot of criticism, but has to be taken as representing the law at present. This means that there is no longer such a thing as an ART, and any case that says that a resulting trust can come into existence without the recipient of the legal title being aware of the trust obligation now has to be regarded as wrongly decided. There are a large number of such cases, many of which were regarded as strong decisions.
But if Westdeutsche is a bad decision, would a decision based on the Birks/Chambers model of resulting trusts be any better? It is far from clear that it would -- the scope of this model is wide, and has the effect that fiduciary relationships can be imposed against the wishes, or even knowledge, of the trustee. Perhaps a better solution would be to abolish the resulting trust altogether, and replace it with a more flexible model of constructive trust. In many cases, after all, these two types of trust are difficult to distinguish.
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