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A new role for resulting trusts?

Published online by Cambridge University Press:  02 January 2018

William Swadling
William Swadling*
Affiliation:
University College London
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Extract

As Millett LJ recently remarked, there can be no doubt that ‘the most difficult question’ to be solved in the law of restitution is the exact circumstances in which a proprietary restitutionary remedy will be available to a restitutionary claimant. The boundary between restitution and property is still largely unmapped and continues to generate controversy. What is needed is a comprehensive and systematic enquiry into the effects that the various restitutionary factors (mistake, duress, failure of consideration and so on) have on the passing of property between plaintiff and defendant. That, however, would require a whole book, or, at the very least, a series of articles. This article takes a modest step in that direction by concentrating on one specific topic within the area of restitution and property, viz, the inter-relationship between the law of restitution and resulting trusts.

Type
Research Article
Information
Legal Studies , Volume 16 , Issue 1 , March 1996 , pp. 110 - 131
Copyright
Copyright © Society of Legal Scholars 1996

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References

1. (1995) 111 LQR 517, reviewing A S Burrows The Law of Restitution (London: 1993).

2. See, for example, A-G for Hong Kong v Reid [1994] 1 AC 324; Goldcorp Exchange Ltd (in receivership) [1995] 1 AC 14; Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1995] 1 WLR 978 (Millett J), (1995) Times 7 November, CA; Westdeutsche Landesbank Girozentrale v Islington LBC [1994] 1 WLR 938 (presently on appeal to the House of Lords).

3. [1994] 1 AC 324.

4. [1981] Ch 105.

5. A similar argument appears, though in a less developed form, in P B H Birks An Introduction to the Law of Restitution (Rev edn, 1989) p 156.

6. S Goldstein (ed) Equity and Contemporary Legal Developments (Oxford: 1992).

7. The term ‘autonomous unjust enrichment’ refers to that part of the law of restitution in which recovery is not dependent on the breach of a duty found in some other area of the law: See P B H Birks ‘The Independence of Restitutionary Causes of Action’ (1990) 16 QULJ I. So, for example, a mistaken payment would fall within the category of autonomous unjust enrichment because its recovery is possible despite the lack of any breach of duty found in some other area of the law (eg, tort, contract, equity) on the part of the defendant, while the recovery of the profits of a breach of confidence, for example, is dependent on the plaintiff first showing a breach of duty as defined in an area of law other than the law of restitution. That part of the law of restitution which is dependent on the plaintiff showing the breach of some duty defined elsewhere is known as restitution for wrongs’.

8. There is no doubt that a payment of money under a mistake of fact as to a liability to pay will, subject to defences, generate a right to restitution at common law: Aiken v Short (1856) I H & N 210, 215, per Bramwell B.

9. Op cit n 6, pp 370–371.

10. Op cit n 6, pp 356–359.

11. Op cit n 6, p 373.

12. As the plaintiff found to his cost in Aiken v Short (1856) 1 H & N 210.

13. Op cit n 6, pp 339–340.

14. [1909] 1 Ch 476.

15. High Ct of the Isle of Man (His Honour the Deemster Corrin) 4 May 1989.

16. Op cit n 6, p 342.

17. Op cit n 6, p 343.

18. [1974] Ch 269; reversed on appeal ([1974] 3 WLR 256) but on grounds not affecting the analysis of resulting trusts.

19. See generally, A W B Simpson A History of the Common Law of Contract (London: 1975) pp 334–357; J L Barton ‘The Medieval Use’ (1965) 81 LQR 562, 571–572.

20. T F T Plucknett A Concise History of the Common Law (London: 5th edn, 1956) p 582.

21. Y B Mich 15 Hen VII 13 pl I.

22. As the preamble to the Statute of Uses demonstrates, it was precisely because so much land was held in use that the statute, which executed the use and put the legal estate in the hands of the cestui que use, was passed. The preamble reads: ‘Scarcely any person can be certainly assured of lands by them purchased nor know surely against whom they shall use these actions or executions for these rights, titles and duties.’.

23. Doctor and Student, ii, c 21.

24. It is not without significance that these trusts were known in former times as ‘implied’ trusts.

25. As Stone has noted, ‘Since it was always open to the defendant to prove purchase or otherwise disprove intent to create a use resulting to the feoffor, an adjudication that a use resulted to the feoffor was necessarily an adjudication on the proof that the trust was an express trust flowing from intention of the feoffor’: Stone ‘Resulting Trusts and the Statute of Uses’ (1906) 6 Columbia LR 326,330.

26. For a discussion of the evidentiary effects of factual presumptions, see Morgan ‘Presumptions’ (1937) 12 Washington LR 255.

27. Reading on the Statute of Uses (1642) pp 409–410.

28. Grey v Grey (1677) 2 Swans 594. Nottingham LC has been described by Holdsworth as the father of modern equity: History of English Law, vi, 547.

29. (1677) 2 Swans 594,598. Contra Stone, op cit, n 25, at p 331.

30. Lloyd v Spillet (1740) 2 Atk 148, 150. See also Audley's Case (1558) Dyer 166a; Duke of Norfolk v Brown (1697) Prec Ch 80; Hayes v Kingdome (1681) 1 Vernon 33; Sculthorp v Burgess (1790) 1 Vesey Jr 92.

31. [1908] P 218. See also Fowkes v Pascoe (1875) 10 Ch App 343.

32. Ibid 230.

33. [1970] AC 777.

34. Ibid at 823H (emphasis supplied).

35. (1985) 160 CLR 583, 612.

36. As Lindley LJ explained in Standing v Bowring (1885) 31 Ch D, 282,289: ‘Trusts are neither created nor implied by law to defeat the intentions of donors or settlers; they are created or implied, or are held to result in favour of donors or settlers, in order to carry out and give effect to their true intentions, expressed or implied.’.

37. [1909] I Ch 476.

38. ‘a resulting trust only arises where there is no other explanation of the transaction’ per Lord Cairns LC in Barstone v Salter (1875) LR 10 Ch App 431,433.

39. (1985) 160 CLR 583, 612. See also the comment of Lamm J in the American case of Mackowik v Kansas City (1906) 94 SW 256,262–3, that ‘presumptions may be looked on as the bats of the law, flitting in the twilight but disappearing in the sunshine of actual facts … To give place to presumptions, on the facts of [the] case, is but to play with shadows and reject substance.‘

40. [1986] Fam 106.

41. Ibid at 110–111.

42. Antrobus v Smith (1806) 12 Ves 39; Milroy v Lord (1862) 4 De G F & J 264, Richards v Delbridge (1874) LR 18 Eq 11.

43. Op cit n 6,350. Professor Birks also posits the case of Customer who under a contract pays Builder £ 1000 in advance for work which Builder later refuses to do. He compares it to the case of Villager and finds difficulty in saying that a resulting trust should not also apply in that case, although he does eventually manage to avoid that conclusion. Since it is my contention that a resulting trust should not apply even to the case of Villager, the case of Customer will not be further discussed.

44. [1969] 1 Ch 373.

45. Villager will also have a claim under the Law Reform (Frustrated Contracts) Act 1943.

46. Op cit n 6, p 350.

47. Citing Essary v Cowlard (1884) 26 Ch D 191; Bond v Walford (1886) 32 Ch D 238; Re Abbott [1900] 2 Ch 326; Re Garnett (1905) 93 LT 117; P v P [1916] 2 IR 400; Re Ames'Settlement [1946] Ch 217. Re Abbott seems to have been cited in error since it did not involve a transfer in contemplation of marriage.

48. Citing Re Abbott [1900] 2 Ch 326; Re West Sussex Constabulary's Widows, Children and Benevolent Fund [1971] Ch 1.

49. Op cit n 6, p 350.

50. (1884) 26 Ch D 191.

51. (1886) 32 Ch D 238.

52. [1916] 2 IR 400.

53. It is true that Ronan LJ said that the money was paid ‘on trust’ but this is contrary to the facts of the case and forms no part of the reasoning of the other two judges who heard the appeal. In any event, the beneficiary of this initial trust was, according to Ronan LJ, the plaintiff herself, so that the money was hers from the start. It could not, therefore, be an example of a resulting trust which arises on the failure of the purpose.

54. (1905) 93 LT 117.

55. ‘But the money was paid under a mistake of fact, and the trustees still hold it, and it is the obvious duty of the court to see that justice is done as between the parties seeing that assent was given to the claim in ignorance of the real state of affairs’: per Kekewich J (1905) 93 LT 117, 119.

56. Although Vaisey J described the case as involving a ‘failure of consideration’, this would seem to be based on a misunderstanding of the effect of the decree of nullity in the case of a voidable marriage, which at that date (the law was changed by the Nullity of Marriages Act 1971) operated retrospectively to render the marriage ‘to have been and to be absolutely null and void to all intents and purposes whatsoever’: De Reneville v De Reneville [1948] P 100,111. In Re Ames the payment made was not conditional on the solemnisation of some future marriage; so far as the settlor was concerned the marriage had already taken place. The effect of the decree of nullity, in rendering the marriage void ab initio, meant that this was not in fact the case. It was therefore a classic case of a mistaken liability payment.

57. See Dorme R v Ward [1901] P 20.

58. [1900] 2 Ch 326.

59. [1971] Ch 1.

60. Re Astor's Settlement Trusts [1952] Ch 534; Leahy v A-G for New South Wales [1959] AC 457; Re Endacott [1960] Ch 232. The trust could not have been saved under the dubious doctrine enunciated by Goff J in Re Denley's Trust Deed [1968] Ch 373 (see the criticism of J M Evans (1969) 32 MLR 96) because it had not at that time been invented.

61. [1971] Ch 1.

62. Although Goff J's reasoning was trenchantly criticised by Walton J in Re Bucks Constabulary Widow's and Orphan Fund (No 2) [1979] 1 WLR 936, this particular part of his judgment was not discussed.

63. A less likely scenario is that it was the intention of Villager that the very notes themselves should be spent on the purpose concerned. On the basis that this is not a giving on trust, it will arguably result in a bailment, with legal title remaining in Villager until spent: see generally Palmer Bailment (London: 2nd edn, 1991) pp 178–182. In the event of the failure of the purpose Villager would have no need to rely on an equitable title to the money, unless some mixing had taken place so as to destroy his legal rights. But even where it was an equitable title to a substitute asset or a charge that was being asserted, this would be something very different from the resulting trust envisaged by Professor Birks.

64. [1970] AC 567.

65. Op cit n 6, p 351.

66. [1970] AC 567, 581–582.

67. Meagher & Gummow Jacob's Law of Trusts in Australia (5th edn, 1986) p 171.

68. The fact that consideration was given for the transfer of the money will preclude the operation of any presumption of a resulting trust arising at the outset.

69. West v Houghton (1879) 4 CPD 197; Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70; Re Schebsman [1944] Ch 83. As this last case shows, an interesting contrast can here be made with the reluctance of the courts to find trusts of the benefit of covenants to settle.

70. (1819) 2 B & A 683.

71. (1859) 2 E & E 29.

72. (1891) 8 Morr 243.

73. [1902] 2 KB 237.

74. [1915] HBR 181.

75. [1970] AC 567, 580.

76. Other cases in the same line are Moore v Bathrop (1822) 1 B & C 5; Gibe R v Gonard (1884) LJ Ch 439; Re Watson (1912) 107 LT 783. They are discussed by Millett QC at (1819) 2 B & A 683.

77. (1819) 2 B & A 683.

78. Since this was a common law court, one explanation of this passage might be that the ‘specific trust’ to which Abbott CJ refers is in fact a bailment. Many of the older cases define a bailment as a ‘delivery of goods on trust’. So, for example, in Coggs v Barnard (1703) 3 Ld Raym 909, at 913, Holt CJ, in his famous description of the different types of bailment, concluded with the following words: ‘I mention these things, not so much that they are all of them so necessary in order to maintain the proposition which is to be proved, as to clear the reason of the obligation which is upon persons in cases of trust’. And Blackstone (Commentaries, 11,451) says likewise that bailment was: ‘a delivery of goods in trust upon a contract expressed or implied, that the trust shall be faithfully executed on the part of the bailee’. But it is more likely that equitable principles were in play here, for it was the usual course in bankruptcy actions for the common law courts to take cognisance of the equitable rules so as to avoid any circuity of action: Scott v Surman (1742) Willes 400 See generally Smith ‘Tracing in TayloR v Plumer: Equity in the Court of King's Bench’ [1995] LMCLQ 240.

79. (1859) 2 E & E 29.

80. (1819) 2 B & A 683.

81. Lord Campbell CJ did say however that though he did not find it applicable on the facts, he did not dissent from the principle laid down in Toovey v Milne.

82. (1859) 2 E & E 29, 49.

83. Ibid at 50.

84. (1891) 8 Morr 243.

85. Ibid at 248.

86. [1926] AC 108. For discussion see WJ Swadling ‘The Proprietary Effect of a Hire of Goods’, in Palmer & McKendrick (eds), Interests in Goods (London: 1993) pp 10–13.

80. (1819) 2 B & A 683.

81. Lord Campbell CJ did say however that though he did not find it applicable on the facts, he did not dissent from the principle laid down in Toovey v Milne.

82. (1859) 2 E & E 29, 49.

83. Ibid at 50.

84. (1891) 8 Morr 243.

85. Ibid at 248.

86. [1926] AC 108. For discussion see WJ Swadling ‘The Proprietary Effect of a Hire of Goods’, in Palmer & McKendrick (eds) Interests in Goods (London: 1993) pp 10–13.

87. [1958] 2 KB 146.

88. [1943] 2 All ER 234, 239.

89. (1859) 2 E & E 29.

90. [1902] 2 KB 237.

91. [1915] HBR 181.

92. [1902] 2 KB 55, 57.

93. [1970] AC 567, 582.

94. (1991) 102 ALR 681,691.

95. P B H Birks An Introduction to the Law of Restitution (Rev edn, 1989) p 54.

96. [1914] AC 398.

97. Op cit n 6, p 353.

98. [1914] AC 398,406,407–408. The possibility of a proprietary claim had only been canvassed by Viscount Haldane in the course of argument: p 404. It had not been raised in any of the courts below.

99. (1871) LR 3 PC 548.

100. Ibid at 559. For further discussion of the passing of property under void contracts, see Swadling [1994] RLR 73, 80–84.

101. [1914] AC 398, 452. A claim at law might, of course, now be met by the defence of incapacity, but that would not operate as a bar to a claim in the second measure (value surviving), which is essentially what the claimants in Sinclair v Brougham got.

102. Lord Goff of Chieveley & Gareth Jones The Law of Restitution (London 4th edn, 1993) p 84.

103. The phrase is that of Birks, albeit used in the context of a discussion of the remedies available for restitution for the wrong of breach of fiduciary duty: [1988] LMCLQ 128, 132.

104. For example, Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105, where the rules as to the effect of mistakes on the passing of property were not properly examined. See further below.

105. Goode ‘Ownership and Obligation in Commercial Transactions’ (1987) 103 LQR 433, 440–445.

106. See the cases cited by Williams (1977) 36 CLJ 62.

107. It is not enough to suggest that third parties will be protected by good faith purchase exceptions to the nemo dat principle. The good faith purchase exception of equity, for example, is not concerned with the protection of security of receipt but results simply from a lack of jurisdiction: see Pilcher v Rawlins (1872) 7 Ch App 259,268–269, per James LJ. For that reason, it does not protect the good faith purchaser of a purely equitable (as opposed to a legal) interest in property even though such a purchaser will have an equally compelling claim to the security of his receipt: Phillips v Phillips (1862) 4 De G F & J 208; Cave v Cave (1880) 15 Ch D 639.

108. [1994] I WLR 938 (presently on appeal to the House of Lords). Discussion in Burrows ‘Swaps and the Friction Between Common Law and Equity’ [1995] RLR 15.

109. For a criticism of this reasoning, see Swadling ‘Restitution for No Consideration’ [1994] RLR 73.

110. Supreme Court Act 1981, s 35A(1). See generally Burrows [1995] RLR 15.

111. [1995] RLR 15, 27 (emphasis in original).

112. See, eg, Bell v Lever Bros [1932] AC 161; Associated Japanese Bank International Ltd v Credit du Nord SA [1989] 1 WLR 255.

113. (1813) 5 Taunt 143.

114. Universe Tankships Inc of Monravia v International Transport Workers' Federation [1982] 2 WLR 803.

115. [1994] 4 All ER 714.

116. (1813) 5 Taunt 143.

117. Westdeutsche Lundesbank Girozentrale v Islington LBC [1994] 4 All ER 890 (Hobhouse J and CA).

118. P B H Birks ‘No Consideration: Restitution After Void Contracts’ (1993) 23 UWALR 195.

119. Ibid at 207.

120. Westdeutsche Landesbank Girozentrale v Islington LBC [1994] 4 All ER 890, 969.

121. (1993) 23 UWALR 195,231 et seq.