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Developments in case law over the past half century have shown that equity is now more flexible when assessing whether the three certainties have been satisfied. It is now possible to give effect to informal trusts of personal property, if not those of land.’
Discuss this statement.
This essay discusses the developments in the law concerning the creation of a valid trust over the past half a century. The essay seeks to identify how the law of equity has become more flexible in relation to establishing a valid trust over the years. Traditionally, the case law in this area highlights that certain formal requirements must be met before the courts shall recognise a trust. For example, for a trust to be ruled valid it must normally comply with the ‘three certainties’. This essay considers if the law relating to the assessment of the three certainties has become more relaxed over the past half a century in order to deduce whether a valid trust can now be created without the need of proving that the normal formal requirements have been met.
Section 2 of the essay examines the ‘Developments in the Case Law in relation to the Creation of a Valid Trust’. This section examines the case law in relation to the creation of a valid trust, and discusses the requirements necessary for establishing a trust, such as the ‘three certainties’. The next section (section 3) shall discuss the developments in the case law in relation to the creation of valid trusts without the need of proving that the usual formal requirements have been met. This section discusses the development of the law over the past half a century. The section shall focus on considering the law in relation to resulting and constructive trusts, particularly in the context of matrimonial cases (section 3.1.) and commercial dealings (section 3.2.). The conclusion shall sum up the findings by arguing that the law relating to resulting and constructive trusts permits the courts to find that a valid trust has been created without the need of proving the existence of the normal requirements.
Historically the case law relating to the creation of a valid trust clarified that certain requirements had to be met before a court would find that a valid trust has been established. The landmark case of Knight v Knight emphasises that the use of clear wording when creating a valid trust is of paramount importance for the recognition of the trust by the courts. The case law highlights that specific formal requirements must be met before the courts shall acknowledge a trust. Further requirements must normally be met before the courts shall recognise that a valid trust has been created, such as the ‘three certainties’.
Contrary to the traditional approach adopted to recognising a valid trust, the courts have in more recent times shown a willingness to recognise the existence of a trust without a written document or even a settlor explicitly using the term ‘trust’, particularly in the context of commercial dealings. Decisions handed down by the courts in more recent times have provided assistance in clarifying the position regarding the creation of a trust by intention, especially in relation to commercial dealings. In the case of Re EVTR, the settlor wanted to protect money from the receiver. The money was given for a specific purpose which failed. When the company became insolvent and went into liquidation the court found that the money was held on resulting trust for the original owner and was therefore returned to him. In Carreras Rothman v Freeman Matthews Treasure the claimant paid money into an account held by another company it had a contract with in order for the company to pay its staff, because the other company was experiencing financial difficulties. When the company went into liquidation the claimant tried to recover the money. The court held that albeit the money had been held on trust, the trust’s purpose had not failed so the money could not be recovered. This decision highlights the importance of the failure of the purpose for a resulting trust to be established.
The nature of such trusts was again considered in Twinsectra Ltd v Yardley. In this case Lord Millett clarified the rationale behind the establishment of such trusts when he stated that it is not necessary that a person intends to create a trust only that they enter “into arrangements which have the effect of creating a trust….; it is sufficient that he intends to enter into them”. Therefore, according to this reasoning, the intention of the settlor is irrelevant. There is only a requirement that the settlor enters into certain types of arrangements that give effect to the establishment of a trust. However, the more recent case law has not helped to clarifying the position regarding these types of trusts. For instance, in Wise v Jimenes the cases of Barclays and Twinsectra discussed above were referred to but no indication was given which one is correct.
The case law discussed above highlights that the existence of the traditional requirements for creating a trust are not always necessary. The courts may recognise that intention inferred from conduct can be sufficient to prove that a valid trust has been created, especially in relation to matrimonial cases and in commercial dealings. The following section of the essay discusses the developments in the law in this area over the past half a century.
In the case of McPhail v Doulton it was noted by the courts that the ultimate test of whether or not a trust is valid “is whether the trust can be executed by the court”. It is implicit from this finding that a valid trust can be recognised without any need of proving that the formal requirements have been met. This section discusses instance where the courts have recognised trusts irrespective of the fact that there was no evidence that the trusts complied with the usual formal requirements.
Over the past half a century there have been significant developments in relation to the courts creating “new ‘equitable’ rights or remedies, or expanded existing principles to such a degree that a virtually new right has emerged”. In particular, the courts have “reworked” the principles of constructive and resulting trusts in order to address some concerns which have arisen in relation to property rights between couples where no formal agreement was entered into but both parties contributed to the acquisition of the property.
Some matrimonial cases that arose during the 1960s resulted in developments in the case law in relation to trusts. Women were especially affected by property rights at this time because they were “at a disadvantage because the property of a married couple …….was in the name of the man”. Arguments were presented that an intention existed that a husband and wife should own the property they had accumulated during the marriage equally in the event that the relationship ended. This was categorised as a resulting trust. During the 1970s the law eventually recognised that people do have a legitimate claim to property in certain circumstances, notwithstanding a lack of evidence that they met the formal requirements. Trusts in land can now be created in the following three circumstances: (1) under s. 53(1)(b) of the Law of Property Act 1925 (LPA 1925); (2) as a resulting trust; or (3) as a constructive trust.
Under s 53(1)(b) of the LPA 1925, a trust can only be created where the trust instrument has been expressed in writing. However, a resulting trust can be found where the law finds that a person should be entitled to a share in land as a result of a contribution made to the purchase price or the mortgage deposit. However, the trust would not arise as a result of a contribution made after the property was acquired. Such claims were also upheld where the consent of the property owner was not given. In particular, the role played by resulting and constructive trusts in this regard is significant. The ‘resulting’ trust arises where “both spouses contribute to the acquisition of a property…..This is the result of an application of the presumption of resulting trust”. The ‘constructive’ trust arises on the other hand by law:
“whenever the facts are such that it would be unconscionable for an owner to deny that another person has acquired a beneficial interest in the property”.
Such trusts are able to overcome the normal formal requirements because they do not need the existence of such requirements to be valid. They have been reconigsed in a series of cases concerning the proprietary rights of a spouse as a result of a contribution made during the relationship. There were numerous decisions handed down by the courts during the “1970s and 1980s ….on the family home and judges had different approaches to the law: some based on resulting trust, some on estoppel, and some on constructive trust”.
A constructive or resulting trust is only likely to be found where a spouse has contributed towards the purchase price or the mortgage deposit. Once it has been determined that such a trust exists, the determination of the shares to be divided to each party shall be determined in accordance with the formula set out by the House of Lord’s in Stack v Dowden  2 All ER 929. To a certain extent, the position at common law has now been reinforced by statute. Pursuant to s 37 of the Matrimonial Proceedings and Property Act 1970, where a spouse contributes money to the house, even in the case of improving a property, a court is entitled to recognise that an equitable right exists. Furthermore, under s 24 of the Matrimonial Causes Act 1973, a court has the power to vary property right following a divorce in order to benefit the children of the marriage.
Trusts in relation to land shall be covered by the Trusts of Land and Appointment of Trustees Act 1996. This Act applies irrespective of the fact of whether the trust is express, resulting, or constructive. In the event that a potential beneficiary wishes to know if he has a beneficial interest, and the extent of such an interest, he can apply to the court pursuant to s 14 of the 1996 Act to request a declaration to that effect.
In a commercial setting, the courts have also held that trusts can be created by mere evidence of intention inferred by conduct alone. This point was highlighted in the case of Re Kayford, where it was found that the courts can be flexible in terms of recognising a trust in commercial dealings by finding intention is sufficient for creating a trust, notwithstanding the fact that this had not been expressed in writing. In Re Kayford, a mail order company tried to protect its customers’ money because it was experiencing financial difficulties and the company’s directors were fearful that the company may become insolvent. In order to protect the customer’s money, the company intended to open a separate bank account to hold the money of those customers who had placed orders. However, the bank instead advised the company to use an existing bank account of the company’s that had become dormant. The company did eventually succumb to the financial difficulties it was experiencing and become insolvent. The company was subsequently wound up. The court found that the money held in the previously dormant bank account was held on trust for the company’s customers, aside from a small credit balance that had already been deposited in the account. The result of this decision was that the money was protected from the company’s creditors. This is due to the fact that the money had been held on trust in the bank account, which meant that the customers did not have to wait in line with ordinary creditors to claim what they were owed following the company’s liquidation. This is because the customers were regarded as the beneficial owners of the money instead of normal creditors. The Re Kayford case, albeit highlighting that there shall not be an automatic finding that a trust has been created as a result of financial distress, shows that a trust can be created without the need to prove the existence of the usual formalities.
It is also noteworthy that in the case of Barclays Bank Ltd v Quitclose Investments Ltd, the court held that a loan by a creditor to a debtor can give rise to a valid trust as a consequence of a creditor’s intention that the money given was to be used for a specific purpose only. Notwithstanding the fact that the creditor shall lose legal title to the funds, the creditor shall retain the equitable title to the money which allows him to make a claim to the money in the event that the debtor becomes insolvent. It is difficult to understand the reasoning of the courts in these cases because it was found in the case of Barclays that a separate bank account is not determinative of the establishment of a valid trust. However, the existence of evidence that the money was provided for a specific purpose is of paramount importance to such a determination. In the event that the intended purpose fails, a resulting trust shall have the effect of returning the money – the property – to the settlor. In this eventuality, the settlor will be given priority over other creditors where the company becomes insolvent and goes into liquidation.
It is also noted however that it was found in the case of Carreras Rothman v Freeman Matthews Treasure that the failure of the purpose is paramount for the determination that a resulting trust has been created. In Carreras, it was held that if the purpose does not fail a resulting trust shall not arise and therefore the money shall not be returned to the settlor. The rationale for this is that a court can hold that the money can still be used for the intended purpose, thereby illustrating the importance that there is a specific purpose that fails before a resulting trust shall be formed.
This essay discussed the developments in case law over the past half century in relation to the creation of trusts. The purpose of the essay was to discern if the law has become more flexible in relation to assessing if the requirements of a valid trust have been established. The essay found that it is now possible to give effect to informal trusts of personal property in a commercial context by intention inferred by conduct alone. The essay also found that it is also possible for a trust to be established over land without the need of proving that the usual formal requirements, such as those set out at s 53(1)(b) of the LPA 1925 have been met. In both of the above scenarios, a valid trust can be implied following a finding by a court that a resulting or constructive trust has been created. A resulting or constructive trust can arise where the class of objects is uncertain or even where there is uncertainty in relation to beneficial interest. However, some commentators argue that the “law of presumed resulting trust reflects a very old rule”. What is clear is that the case law recognising such trusts in the context of the ownership of land only really took root during the past half century. These types of trusts are not bound by the strict rules traditionally established for the creation of a trust. On the whole, therefore, this essay has found that as a result of developments in the case law over the past half a century it is now possible to give effect to informal trusts of not only personal property, but also of land.
Word Count: 2616 (Footnotes and bibliography not included)
Alastair Hudson, Equity & Trusts (Third Edn., Cavendish Publishing Ltd, USA, 2003)
Graham Virgo, The Principles of Equity & Trusts (OUP, UK, 2012)
Jonathan Garton, Graham Moffat, Gerry Bean and Rebecca Probert, Moffat’s Trusts Law: Text and Materials (Sixth Edn., Cambridge University Press, UK, 2015)
Richard Clements and Ademola Abass, Equity & Trusts: Text, Cases, and Materials (Fourth Edn, OUP, USA, 2015)
Robert Pearce, John Stevens, and Warren Barr, The Law of Trusts and Equitable Obligations (Fifth Edn, OUP, 2010)
Scott Atkins, Equity and Trusts, (Routledge, Oxon, 2013)
Articles / Journals:
Donovan Waters QC, ‘The Trust: Continual Evolution of a Centuries-Old Idea’, Journal of International Trust and Corporate Planning, Vol. 14, No. 4 (2007), 207 – 256
John Mee, ‘Presumed Resulting Trusts, Intention and Declaration’, The Cambridge Law Journal, Vol. 73, Iss 1 (2014), pp 86-112
Table of Cases:
Barclays Bank Ltd v Quitclose Investments Ltd  AC 567
Carreras Rothman v Freeman Matthews Treasure  Ch 207
Harrison v Gibson  EWHC 2957 (Ch)
IRC v Broadway Cottages Trust  Ch. 20
Knight v Knight (1840) 3 Beav 148
McPhail v Doulton  AC 424
Milroy v Lord  EWHC Ch J78
Paragon Finance plc v DB Thakerar & Co (a firm)  1 All ER 401
Paul v Constance  1 All ER 195
Pettit v Pettit  AC 777
Re EVTR  BCLC 646
Re Kayford  1 All ER 604
Richards v Delbridge (1874) LR 18 Eq 11
Stack v Dowden  2 All ER 929
Twinsectra Ltd v Yardley  AC 164
Wise v Jimenes  All ER (D) 123
Table of Statutes:
Civil Partnership Act 2004
Law of Property Act 1925
Matrimonial Causes Act 1973
Matrimonial Proceedings and Property Act 1970
Trusts of Land and Appointment of Trustees Act 1996
 Richards v Delbridge (1874) LR 18 Eq 11.
 Knight v Knight (1840) 3 Beav 148, 173, per Lord Langdale MR.
 Paul v Constance  1 All ER 195.
 (1840) 3 Beav 148.
 Richards v Delbridge (1874) LR 18 Eq 11.
 Knight v Knight (1840) 3 Beav 148, 173, per Lord Langdale MR.
 Harrison v Gibson  EWHC 2957 (Ch).
 Paul v Constance  1 All ER 195.
  BCLC 646.
  Ch 207.
  AC 164.
 Ibid, at 185, per Lord Millett.
  All ER (D) 123.
  AC 424.
 McPhail v Doulton  AC 424, at 451.
 Robert Pearce, John Stevens, and Warren Barr, The Law of Trusts and Equitable Obligations (Fifth Edn, OUP, 2010), 40.
 Donovan Waters QC, ‘The Trust: Continual Evolution of a Centuries-Old Idea’, Journal of International Trust and Corporate Planning, Vol. 14, No. 4 (2007), 207 – 256, 230.
 Pettit v Pettit  AC 777, at 815G, per Lord Upjohn.
 Paragon Finance plc v DB Thakerar & Co (a firm)  1 All ER 401, at 409, per Millett LJ.
 Richard Clements and Ademola Abass, Equity & Trusts: Text, Cases, and Materials (Fourth Edn, OUP, USA, 2015), 519.
 Also see Civil Partnership Act 2004, ss 65 to 72.
 Trusts of Land and Appointment of Trustees Act 1996, s 1(2)(a).
  1 All ER 604.
  AC 567.
  Ch 20.
 Re Kayford  1 All ER 604.
 Pettit v Pettit  AC 777.
 John Mee, ‘Presumed Resulting Trusts, Intention and Declaration’, The Cambridge Law Journal, Vol 73, Iss 1 (2014), 86-112, 86.
 Knight v Knight (1840) 3 Beav 148.