Implied Trusts

Where the courts may imply a trust –

1.     Where a person comes to live in the property; and/or

2.     Make a contribution to the purchase price.

Here the courts imply a resulting trust or a constructive trust

Structure of implied trusts –

1.     An implied trust is found;

2.     the claimant gains an equitable interest in the property; and

3.     trust of land automatically comes into existence,

4.     the sole owner now holds the trust for themselves and the claimant.

Implied trusts and overreaching –

·        Sole trustee = overreaching is not available (sch.3 LRA 2002)

o   So 3^rd parties will be bound by B’s interest

·        Two legal title holders = overreaching is applicable.

How to establish an equitable interest –

·        Implied trusts arise through the application of legal rules.

·        Implied trusts can arise in domestic relationships and business relationships

·        Implied trusts arise on the relationship of the parties, to the property.

·        Courts are becoming more diverse in their approach deciding whether a trust should be implied.

The Resulting Trust –

The courts have shifted from a traditional approach to a more holistic approach.

Traditional approach –

·        Monies paid to the purchase price creates a resulting trust proportionate to their contribution.

o   20% contribution = 20% beneficial share

·        The legal title holder is not the trustee holding on trust for themselves (80%) and the beneficiary (20%) – as tenants in common.

NB Monies must be to the purchase of the property and not anything else (i.e. repairs) (Halifax Building Society v Brown (1995)).

If there is positive evidence that there is a lack of intention for the contributor to acquire an interest, then a resulting trust will not be implied (Mumford v Ashe (2002)).

The Issue –

Can a resulting trust be found only when a contribution is made to the purchase price and not to contributions to the post-purchase mortgage payments?

·        Traditionally mortgage payments were key to a Constructive Trust and not a resulting Trust.

·        Technically, mortgage payments could be treated as payments to the mortgage company rather than the purchase price, so a resulting trust would not be applicable and a constructive trust will be found – Curley v Parker (2004) adopted this traditional approach.

The traditional approach has been called into question in recent years.

·        The shift in the courts approach is evidenced through their willingness to look at the nature of the relationship (to the property) and looking at the intention of the parties in a more holistic context.

·        Facts will determine how the courts will apply the legal rules.

New Approach:

Laskar v Laskar

·        Mortgage payments sufficed for the purposes of a resulting trust – but the property was bought for investment purposes rather than a home.

Wodzicki v Wodzicki (2017) and Tahir v Faizi (2019) – both domestic cases

·        Followed Laksar so doubtful that Curley (traditional approach) is still good law.

·        For a while the new approach was confined to domestic cases because the traditional approach had a strict focus on money that was too narrow for domestic cases and did not reflect the complex nature of domestic relations.

·        The division between domestic and business context left the law in a state of uncertainty.

New Approach Decided:

·        Issue resolved in Marr v Collie (2017) Privy Council

o   This was a variation case, not an acquisition case, but was still deemed applicable to resolve the issue.

Marr v Collie (2017)

·        Lord Kerr sought to over come the family/business distinction (holistic approach only applying to domestic cases).

·        Kerr sought to overcome a strict division between resulting trust and constructive trust. he focussed his attention on context.

Resolved:

·        The new approach allows the courts to look at the intentions of the parties to decide the relevant legal concept.

·        Context was key as the court was looking at the intention of the parties (intention of how the property was to be owned) at the time of the purchase and as time passed.

·        In some cases, the intention found was the property at both times was limited to monies paid (price and mortgage payments; or, intention was found in more holistic, flexible factors in relation to the property, so more than money was to be taken into account.

Resulting trusts and impact on constructive trusts:

·        Resulting trusts = courts will carry out detailed examination of the facts to find what the parties intended throughout the relationship (beyond the time of purchase).

o   If the intention was only to own land in proportion to monies paid (purchase or mortgage payments) – resulting trust.

o   If the intention was something beyond money (not a purely financial relationship) – constructive trust.

No longer limited to the moment land was purchased, courts now recognised interests in land change over time.

Implied Trusts:

Implied Trusts - General Approach –

The courts willingness to look at the intention of the parties in resulting trusts is also present in its treatment of constructive trust (reflects developments in the law of constructive trusts).

Reflects a shift to a holistic approach where the courts take account of how people arrange their lives in relation to the property in deciding who should or should not have a beneficial interest in that property.

Courts look at all circumstances and arrangements into account before deciding whether to imply a trust and if they do whether it is a constructive trust or a resulting trust.

Intentions of the parties:

Relationship in relation to the property. How the relationship is related to the property.

Constructive Trusts

Acquisition case – where somebody is not on the legal title and not a formal beneficiary but they are seeking to acquire a beneficial interest.

Variation case = situations where the courts make decisions to modify or vary the legal interest of co-owners.

Constructive trust is broader – looks beyond finance.

Structure:

Legal title holder and claimant must share…

a)     An express or inferred common intention that the claimant should have a beneficial interest in the land, and,

b)     The claimant relied on that intention to their detriment

Statute:

·        For all implied trusts:

o   S.53(2) LPA 1925

·        S1 says all dealings in land must be in writing

·        S2 this section does not affect the creation or operation of resulting, implied or constructive trusts.

·        The courts recognise that some relationships to the land cannot be covered by writing. The whole point of implied trusts is that there is no formalities.

·        An exception that all dealings in land (i.e. a trust of land) must be in writing.

Stern rules mean there are usually exceptions. English land law is pragmatic and driven how people own property, they want to formalise but aware oft the intricacies of land ownership.

Lloyds Bank v Rossett (1990): led to the courts changing the nature of constructive trusts.

·        H & W arranged to buy a derelict farmhouse. Conveyed solely to H. Renovation was a joint venture.

·        The property was later mortgaged to Mr Rossett (H). There was a default in repayments. Bank sued for possession.

·        W claimed an equitable interest by way of constructive trust (giving W an overriding interest and, as a sole owned property, overreaching was not available, so her interest would be good against the bank and so, potentially, block a repossession). If she could gain a beneficial interest, she would be able to ward off the possession by the bank.

·        Held: no constructive trust. the only way to gain a constructive trust is if there is an express agreement between the parties if the beneficiary should have an interest in land no matter how imperfectly remembered then a constructive trust would arise. In the absence of an express agreement the court will look for evidence of a common intention the evidence would be money to purchase price or mortgage nothing else would do.

Comments –

o   Heavily criticised – such a strict formal rule ignores the way people arrange their lives in relation to property.

o   Ineffective of how people arrange their lives in relation to property.

o   Gender relations – the husband was breadwinner who would go and make money and pay mortgage – gender discrimination.

o   Reassessed Stack and Kernott but does not affect the structure of the constructive trust.

-        Common intention – Stack refined the idea of common intention.

-        Detriment

-        Reliance.

Common intention (acquisition cases):

Three routes to find common intention –

Martin Dickson modern land law book…

a)     Express discussions – remembered conversation (what is said)

b)     Inferred common intention from payments – look at who pays the mortgage or purchase price.

c)     Inferred common intention from the parties’ entire course of conduct – new route ameliorates the harshness of Rossett – looking at the entire relationship how they behave with each other in relation to the land.

Common concerns regarding constructive trusts in acquisition and variation cases:

·        Allocating shares in both acquisition cases and variation cases

·        Allocating the actual amount of shares.

a)     Express Discussions as finding common intention =

·        Was there an agreement, arrangement, or understanding between the parties indicating common intention to share the property beneficially?

·        Rossett – Lord Bridge:

o   Either based on discussions held and/or words used, however imperfectly remembered or however imprecise the terms may have been.

o   This is just a guide the words need to be interpreted.

·        Eves v Eves (1975)

o   Lies are no defence to a beneficial interest – Mr Eves told Mrs Eves she was too young to go on the legal title.

o   The agreement can be in any form even if after the date of the legal title holder acquiring the property.

o   Finding a common intention is to be decided from what the claimant reasonably understood.

b)     Inferred common intention from payments

·        Rossett – Lord Bridge:

o   In the absence of any express discussions and agreement

o   Common intention inferred from financial contribution to the purchase price or mortgage repayments

§  ‘the solid tug of money, nothing else will do’.

o   Rossett says if there is no express agreement ,did not pay for the mortgage payments then there is no constructive trust.

Criticism of Rossett:

·        Excludes all other contributions to the property (bills, décor, renovation).

·        Excludes how people arrange their family/domestic agreements in relation to the property.

·        Gendered – the gender gap in employment and pay. Embeds gender inequality in the law.

·        Could be countered by express agreement – no matter how imperfectly remembered.

·        These criticisms led to the re-evaluation of Rossett (i.e. Oxley v Hiscock 2004) – to look at all the facts and circumstances of the case.

c)     Inferred common intention from the parties’ course of conduct

·        Inferring common intention from the parties’ course of conduct.

·        Stack v Dowden and Kernott v Jones – leading cases.

·        Courts can now infer a common intention to share the property beneficially; via,

o   the party’s entire relationship with each other towards the property. Holistic attitude towards the way people relate to each other in terms of the property.

·        Goes beyond Rossett (express discussions and/or ‘solid tug of money’)

·        Context is everything – looking at the nitty gritty of the circumstances.

·        Takes into account various ways in which people arrange their lives in relation to the property.

 Meaning of inference –

Inferring or imputing a common interest?

Inferring = look at the facts – infer from the facts.

Imputing = the courts say this is what should have happened – they put their own interpretation of the facts.

·        Capehorn v Harris [2015] (CA)

o   The court can only infer a common intention from the facts of the case.

o   They cannot impute a common intention (i.e. impose their own view of the matter regardless of the facts of the case).

Detriment and Reliance:

·        Along with common intention, there must be…

o   Detriment

o   Reliance

§  The claimant relied on the common intention to their detriment. In some way suffered a harm that could be traced back to the belief of getting a share of the property.

·        Hudson v Hathaway (2022) restated the relevance of these components of the constructive trust.

Detriment and Reliance today:

·        What counts as detriment and reliance depends on what route is taken,

·        Express discussions of common intention – conduct of the claimant, i.e.

o   ‘Extraordinary work’ on the property (Eves v Eves).

o   Paying bills providing it arises from the express promise.

·        Detriment need not to be harmful per se

o   i.e. giving up cheaper accommodation on reliance of an express agreement

o   buying a sports car after being told, ‘you will never need to buy another home again’.

·        Key – the detriment need not to relate to the property but must relate to the promise of a beneficial share

Route 2: Inferred Common Intention from Direct Contributions

·        The payments to the purchase price or mortgage repayments will be evidence of themselves of detriment and reliance.

·        No other conditions necessary.

·        See later proprietary estoppel.

Route 3: Inferred Common Intention from the Parties’ Course of Dealing

·        Payment and Conduct are integral to the finding of this way of inferring a beneficial interest in the property, so,

·        Cannot include detriment and reliance in the initial finding.

·        If there is no express agreement or mortgage payments but you pay for décor and other things, these expenses are considered detriment and reliance.

How to allocate shares:

·        Issue

o   After a resulting trust or constructive trust is implied by the court, next question,

o   How to allocate the beneficial shares between the parties?

·        Here the difference between acquisition cases and variation cases become more relevant.

Resulting Trust: Share Allocation:

·        Relatively easy to calculate

·        The share is equal to the money contributed

o   i.e. 25% to the purchase price means 25% interest in the value of the property.

Constructive Trust: Share Allocation –

Route 1: Express Discussion (Acquisition Cases)

·        Route 1: Express Discussions

o   Where an express agreement is clear as to both existence and share, then the court treats that agreement as definitive of the shares to be allocated.

§  Clough v Killey (1996)

§  Oxley v Hiscock (2004)

Routes 2 and 3: Inferred Common Intention (Acquisition cases)

·        It may be the case that in inferring a trust initially, then…

o   Shares inherent in that finding (Oxley v Hiscock)

·        More recently,

o   Capehorn v Harris (2015)

·        Unlike at the initial finding of a share, courts can impute the share, (I.e. what the parties decided, had they thought of it)

Allocating shares: Variation Cases –

·        Issue

o   Where 2 or more legal title holders are joint tenants at equity?

o   If there is an express agreement and the ‘share’ is stated in the documents, so tenants in common, then that is definitive (Goodman v Gallant)

Variation in absence of Express Agreement:

·        Traditionally – in absence of a stated share among tenants in common, or beneficial joint tenants, then…

o   When the trust is dissolved there was a 50/50 share in the value of the property.

§  However, recently and in keeping with the law’s contextual approach, this presumption is now rebuttable

·        (see Stack v Dowden and Kernott v Jones and Marr v Collie)

New rules on variation of shares: in absence of express agreement:

·        In absence of express (written) agreement, the general rule is…

o   Equity follows the law, so…

o   At law can only be joint tenants – so can only be 50/50 share when trust is dissolved or served.

o   But now, this general rule is now rebuttable and has become the starting point for a decision as to share.

Inferring shares via the common intention of the parties:

·        Courts can now, by using the more fluid concepts of finding a resulting trust, or constructive trust and applying them to the question of shares…

·        Can vary a pre-existing beneficial share providing a common intention can be found.

Shares and Common Intention of the Parties:

·        The 50/50 presumption can be replaced by consideration of a difference in financial contributions.

·        This new approach is in line with the recent shifts in the law relating to Resulting Trusts (Marr v Collie) and so is no longer limited to only contributions to the purchase price, but also mortgage payments and other relevant costs; and

·        The share can change across the time the trust is in existence according the change in the relationship between the parties in relation to the property.

Other means of inferring shares for existing beneficiaries:

·        Stack v Dowden and inference from a course of conduct.

·        Inference from a course of conduct may lead to a rebuttable of the 50/50 share for beneficiaries.

·        (NB – in this exercise, the courts can only infer, but not impute, the share to be allocated, by looking at the facts of the case, i.e. the (changing) relationship of the parties as to the property.

Rationale for the new rules:

·        The courts now recognise that the relationship between parties in relation to the property can change over the lifetime of the Trust of Land.

·        What would be equitable (i.e. 50/50 for joint tenants) at the start of the trust may not be equitable as between the parties as the years pass, and so,

·        An exception to the maxim of equity follows the law

o   i.e. Stack v Dowden – where one of the beneficial joint tenants left the family home and had nothing more to do with the property for many years.

Rational for the new rules: potential problem:

·        Potential problem – certainty/uncertainty

o   If the share can change, this could lead to uncertainty in the law and uncertainty among the parties, but,

§  Lady Hale in Stack v Dowden made it clear that the change in share for beneficial joint tenants (either at the dissolution of the trust or on severance),

§  Will be an exception and that the starting point will remain at 50/50 share unless there is strong evidence to the contrary.

Deciding on the amount of share:

·        Generally, once the court decides that the evidence infers a rebuttal of the 50/50 starting point, then,

o   How do the courts decide the actual share to be allocated?

·        As with the acquisition case, so too, variation cases,

·        The finding of the relevant common intention (i.e. finding a trust initially based on the common intention of the parties via a course of conduct),

·        Will give rise to a decision of what actual share should be allocated. In other words, the two findings take place at the same time and in the same process of finding whether a common intention (via course of dealings of the parties) exists in the first place.

·        There is an exception to the general approach:

o   Where, on the facts and inference from the facts, the general approach could be deemed inappropriate,

o   The courts can impute a share by deciding on the basis of fairness or, on the facts, what would be a fair share. But such imputation is likely to be highly unlikely (Barnes v Phillips (2015),

o   NB The initial decision to ‘vary’ the share can only be inferred on the facts; only the share may be imputed by the court.

Conclusion:

·        The cases following Lloyds Bank v Rosset have addressed the criticisms aimed at that case.

·        More generally, the new approaches to implied trusts is further evidence that the courts are now willing to look at the diverse ways people live their lives in relationship to the property and to adapt legal concepts to that reality while, at the same time, still working within the meaning of those concepts. This last point is clear with the recent developments in both the resulting trust and the constructive trust.