Resulting Trust

Question:

Is it correct to say that all resulting trusts reflect the common intention of the parties?

Suggested Answer:

1) Discuss what is the meaning of resulting trust.

2) What is the controversy in the subject matter.

3) The 2 Common Scenarios of Resulting Trusts.

4) Vandervell Trust (No. 2) - Meggary J.'s view

5) Westdeutsche Case and Lord Browne-Wilkinson's view

6) Critical Analysis by Academicians

7) Conclusion.

Answer Solution:

At it's most basic, resulting trust is any trust in which the equitable rights in property held by the transferee is held for the transferor. The word resulting is derived from the Latin word 'resalire' which means to jump back, because it returns the beneficial interest whence it came.

The great controversy in the subject matter is the question 'why resulting trust arises. Some says it is because the law reacts to the presumed intention of the transferor. Others says the law responds to the presumption that a transferor did not intend to benefit a transferee. Others still say there is no unitary explanation and that instead there are two distinct reasons why resulting trust arises.

There are two common scenarios which a resulting trust will arise: firstly, Equity presumes that 'no one intents to make a voluntary gift to another unless there is a special relationship between them. Therefore, if there is a voluntary conveyance of a property to a third party, this property will result back to the donor. This type of resulting trust is rebuttable if there is a contrary intention that can be proved.

Secondly, Equity abhors a vacuum and Equity does not allows a person to abandon the property. If an equitable interest is not fully disposed off or transferred, this undisposed interest will result back to the donor. This type of resulting trust cannot be rebuttable by evidence of any contrary intention.

In Vandervell Trust (No. 2), Meggary J. identified two types of resulting trust: Presumed resulting trust and automatic resulting trust.

Presumed resulting trust arises where there is a voluntary conveyance from A to B, or where there is direct financial contribution to the purchase price of the property.

Automatic resulting trust arises where there is a transfer of an equitable interest under a trust, but this transfer fails to dispose off all or some of the interest.

However, Megarry J.'s analysis was doubted by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentral v Islington London Borough Council. According to Meggary J, an automatic resulting trust does not depend on intention but operates automatically. Browne-Wilkinson disagreed. According to Lord Browne-Wilkinson, a resulting trust is not imposed by law against the intention of the trustee (as opposed to constructive trust) but gives effect to his common intention. In Lord Browne-Wilkinson's view, the settlor has expressly, or by necessary implication, abandoned any beneficial interest in the trust property, there is no resulting trust; the undisposed equitable interest vests in the Crown, as Bona Vacantia.

According to Lord Browne-Wilkinson, there is no difference between the two classes of resulting trust as opined by Meggary J. Both are traditionally regarded as 'trust giving effect to the common intention of the parties'.

Lord Browne-Wilkinson had sought to establish that resulting trust will only take effect when the conscience of the transferee is affect by his becoming aware that he has received property which was not intended for his benefit.

Lord Browne-Wilkinson regard his theory as 'uncontroversial'; but somehow, it appears problematic and unsupported by authority. It is said that a resulting trust gives effect to the presumed common intention of the parties. In this, however, Lord Browne-Wilkinson could be confusing resulting trust with common intention constructive trust. Browne-Wilkinson's view runs counter to the views expressed by the House of Lords in Vandervell v IRC, where resulting trust arises here when the trust fails for lack of objectr, which has nothing to do with presumed intention.


Browne-Wilkinson's view seems inconsistent with cases where resulting trust were imposed on property held by transferee who had no intention of becoming trustees. In re Vinogradoff, the transferor could not have intended that the transferee be a trustee for her because the transferee was only seven-year-old.

There are many theories that had been forwarded by Law Lords and academicians that allows more than one explanation. Originally, it was thought that resulting trust arose because of presumed intention to create a trust. This view was amended by the judgment of the House of Lords in Vandervell v IRC and in Vandervell Trust (No.2), only the first type of resulting trust is created because of presumed intention. The second one, automatic resulting trust arises by operation of law, regardless of intention.

Professor Peter Birks submitted that, if a person who transferred property to another, did not in fact, intend to benefit the transferee, this lack of intention to benefit, does not have to be proved as a matter of fact; it will be presumed.

Lord Browne-Wilkinson in Westdeutsche case rejected Birks' argument. According to Lord Browne-Wilkinson, resulting trust will arise because of proof of a fact, but this fact is not 'no intention to benefit'; it is presumed intention to create a trust.

Swadling is of the opinion that Lord Browne-Wilkinson is wrong and that Megarry J.'s argument is right. According to Swadling, if a settlor who is attempting to create a trust was asked 'what he would like to happen if the trust fails, most settlor would say they want the property back. However, the problem with this argument is the fact that majority of settlors do not contemplate that the trust would fail. So, what Lord Browne-Wilkinson is doing is not presuming the intention but imputing it to the parties; he is imputing something that had never existed.

There is a great deal of controversy what intention is being presumed when the presumption of resulting trust is applied. None of these can be explained satisfactorily by the thwories of implied intention to create a trust.

In conclusion, it is submitted that it is impossible to reconcile all the above theories into some underlying theory which unifies resulting trust. However, it is generally accepted that the reason why resulting trust arises is only of academic interest and does not present practical problem to the court.