1570

Resulting trust

Result comes from the Latin words resalire and resultare, which mean "to spring
back." In its simplest form, a resultant trust entails a transferee holding property in
trust for a beneficiary. A comprehensive analysis of the different sorts of resulting
trusts and the reasons for their emergence is required to grasp how such a trust
operates.

Mainly there are two types of resulting trust; PIRTs and ARTs. PIRTs are presumed
resulting trust whereas ARTs are automatic resulting trust. Two kinds of situations
where a resultant trust develops were identified by Lord Browne-Wilkinson in
Westdeutsche v Islington London Borough Council (1996). Everyone recognises that
the word "resulting" only refers to what the trust is for and doesn't say how or why
the trust came to be. Hence PIRTs are further divided into two categories; voluntary
conveyance and purchase money. This presumption is rebuttable upon strong
evidence. These trusts arise by the operation of intention that courts consider the
starting point whereas ARTs arise, due to breakdown of implicit trust.

The fact that there are two distinct types of RTs and that they occur for various
causes demonstrates the distinction between the PIRT and the ART. The Vandervell
v. IRC ruling, which demanded a distinction between ART and PIRT, only
strengthens this argument. The transferor's intentions are irrelevant in the context of
ARTs, Megarry J stated in Re Vandervell. In Vandervell v. IRC, Lord Upjohn
concurred, stating that regardless of the transferor's intentions, the beneficial
interest, which he had failed to sell, would be transferred by operation of law to the
transferor. Additionally, one may argue that an ART has an established trusteeship
and a PIRT does not. The direction of the benefit or equitable interest, however, is
what unites these two trusts. The transferor receives the fair interest on both types of
RTs. This may be the reason why some argue that PIRT and ART should be
equivalent.

This view was criticised by Lord Wilkinson who supported the notion that any
distinction between the two should be abolished. This notion would not survive in
case of ARTs but it can suffice to the extent of PIRTs. To say that an ART arises
because such a presumption operates is surely a misunderstanding, but this view
holds true with the first category of RT, namely PIRT, where it is such a presumption
that gives rise to voluntary conveyance resulting trusts and purchase money
resulting trusts. Assuming someone's motives is a violation of trust's very
foundations. Courts increasingly look to whether or not the parties' intentions were
manifested or communicated when deciding whether or not a trust exists. As the
House of Lords confirmed in Stack v. Dowden, courts are moving away from the
resultant trust concept because of the perceived artificiality of inferred intents.
However, in PIRT, we do assume such an intention, and although this category has
been questioned as being outdated (Pettit v. Pettit), it is still a valid category and
serves a critical function in many circumstances.

Swadling has also voiced his disagreement with Meggary's viewpoint. The term
"automatic" refers to a system in which the force of motion is left to the system itself.
According to Swadling, the application of law is not a given. Trusts stemming from
failed trusts arise only when the courts rule that they do. Only in the event of the
failure of an express trust would a resultant trust be created automatically. Trust
failure can occur at any point in time, but it is not caused by the mere fact that the
original intent of the settlor has been defeated. We know that when a charitable trust
fails, its proceeds are often used for Cy-pres.

However, ART and PIRT are not the same thing. After the failure of an explicit trust,
an ART is established in favour of the settlor, and the law suggests that returning the
interest to its original owner is the most suitable means to close the void in equitable
ownership caused by the failure of the trust.

According to Jill and Martin, "Like a constructive trust, a resulting trust arises by
operation of law, though unlike a constructive trust, it gives effect to intention." This
view is based on Lord Millett's argument that resulting trusts are always founded in
the absence of any intention by the transferor to pass a beneficial interest to the
transferee. Transfer to willing participants carries a rebuttable presumption of lack of
intent. Similarly, Lord WB has tried to prove, under Westdeutsche's authority, that a
trust will be created only if the transferee feels morally compelled to return the
property after learning it was never meant for him. He considered his thesis to be
"uncontroversial," yet as we shall see, it actually seems fairly troublesome and
unsupported by authority. Therefore, as LBW and Lord Millett argue, it would be a
difficult and risky departure from existing law to link the establishment of RT with the
conscience of the trustee. Chambers argues that "there is little to be gained from
such a move and much to be lost."

In Re Gillingham, Harman J. said, "This doctrine does not depend on any evidence
of the settlor's state of mind, because in the vast majority of cases, the settlor doesn't
expect to get his money back." This merely indicates that the person who set up the
trust couldn't know that it would fail, but he also wouldn't expect to get his property
back. So, a big difference between the two types of resulting trust is that one is
based on the transferor's intentions and the other is not. Lord Browne was against
making trust based on something other than purpose to avoid these kinds of
problems. If his point of view is taken into account, it will be easier to see that the
settlor's plan to give away the property will always disprove the idea that the settlor
made the trust to help himself.

Recently, Birks and Chambers have developed a new theory also known as the law
of restitution. This function is predicated on a reformulation of the theory governing
resulting trusts, which incorporates presumed purpose resulting trusts and automatic
resulting trusts. Chambers has stated, like Birks, that all cases of resulting trust are
the consequence of the operation of the law when someone gives someone else
property without intending to assist the recipient. It depends on the intention to not
assist the recipient of the property. According to him, the trust that resulted from this
is a just method to address the lack of purpose, as it actively undoes unjust
enrichment. It is irrelevant that the transferee was unaware of the transferor's
intentions at the time of the transfer with the exception of in Quistclose cases, in
which the transferee (the debtor) must have been aware of the constraints that the
transferor (the creditor) placed on how the money could be used; in joint purchases,
both parties' intentions are relevant).

However this theory has also been criticised. Despite the fact that unifying the PIRTS
& ARTS is an appealing prospect, the Birks/Chambers theory has been met with the
following critiques. While "resulting trust" is used interchangeably between PIRTs
and ARTs, doing so would provide no practical benefit. It seems like they operate
totally distinct objectives. Swadling and argue that trust cannot be said to exist when
the giver has no intention of benefiting the receiver. There is no precedent in English
law for such a transfer. Swadling has argued against this view by pointing out that
the presumption of resulting trust is overturned by evidence of any intention contrary
to the intention to create a trust, not just evidence of an absence of intent to make a
gift. Swalding classifies transfers into three types: outright holding, trust holding, and
security holding; he adds that there is no fourth type. A response in the form of a
personal claim for the value obtained is appropriate if our goal is to reverse the
transferee's unfair enrichment.

Although ensuing trusts are more flexible under the Birks/Chambers hypothesis. The
only common law remedy for a mistaken payment is personal claim.Even though the
model included both presumed and automatic resulting trusts and had judicial
support (especially from Lord Millett), the House of Lords rejected the resulting trust
approach in Westdeutsche. The Birks/Chambers thesis raises the personal
restitutionary claim to an equitable proprietary right by making any recipient who gets
the transferor's property without payment and cannot prove the transferor intended a
gift a trustee. This happened in Chase Manhattan Bank v. Israel-British Bank (1981) .
However as mentioned above the HOLs in Westdeutsche Landesbank Girozentrale
v. Islington Borough Council, sided with William Swadling's critical perspective. If the
payer's purpose in an improper payment is to give the money to the transferee, there
is no consequent trust. A contract that is null and void due to a lack of consideration
has no fiduciary duty, according to the House of Lords' Westdeutsche ruling. Only a
common law personal reparation suit can recover this money. Sinclair v. Brougham
and Chase Manhattan Bank v. Israel-British Bank (1981) were overturned.

As a result, it's clear that ART and PIRT are two distinct approaches. The reason for
their discrepancies and the validity of those differences, however, remain open
questions. The Courts have ruled that the current ART category should be replaced
with constructive trusts since it is difficult to prove or explain the distinction between
ART and PIRT.