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Constructive trusts

 
Constructive trusts are trusts that may be implied in the absence of a declaration of trust, where the trustee has induced another to act to their detriment in the belief that if they do so act to their detriment they would acquire a beneficial interest in the land (Gissing v Gissing [1971] AC 881 Case summary). There is an overlap with resulting and constructive trusts since both generally involve a contribution to the purchase price, however, the two types of trusts are distinct. Whilst under resulting trusts the beneficial entitlement is calculated mathematically in proportion to the contribution to the purchase price, the shares in constructive trusts are determined by a number of factors that may result in the share being much greater than the amount contributed. There is also an overlap with constructive trusts and proprietary estoppel since both require detriment and work on the basis that it would be unconscionable for the legal owner to deny the existence of the beneficial interest.
 
The foundations of constructive trusts come from Gissing v Gissing [1971] AC 881 Case summary which set out a two stage process:

1. Inducement
 
It must be shown that the legal owner of the land induced the claimant to believe they would be entitled to a share in the ownership. There are two ways of demonstrating this:

i) Express agreement
ii) Contribution to the acquisition


2. Claimant must act to their detriment 

eg by contribution to purchase price.


The principles were later restated in Lloyds Bank v Rosset [1991] 1 AC 107 (case summary) after a flirtation with a more flexible approach to constructive trusts advocated by Lord Denning:

Hussey v Palmer [1972] 1 WLR 1286   Case summary


Eves v Eves [1975] 1 WLR 1338   Case summary

This approach to constructive trusts was criticised in

Grant v Edwards [1986] Ch 638   Case summary


Cowcher v Cowcher [1972] WLR 425
 
 
Springette v Defoe [1992] 2 FLR 388  Case summary

 

Restatement of principles underpinning constructive trusts
 

Lloyds Bank v Rosset [1991] 1 AC 107 (case summary) reaffirmed the approach adopted in Gissing v Gissing [1971] AC 881 Case summary, however the House of Lords made the central issue that of common intention.
 
 
Lord Bridge:
 
 

"The first and fundamental question which must always be resolved is whether, independently of any inference to be drawn from the conduct of the parties in the course of sharing the house as their home and managing their joint affairs, there has at any time prior to acquisition, or exceptionally at some later date, been any agreement, arrangement or understanding reached between them that the property is to be shared beneficially. The finding of an agreement or arrangement to share in this sense can only, I think, be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been. Once a finding to this effect is made it will only be necessary for the partner asserting a claim to a beneficial interest against the partner entitled to the legal estate to show that he or she has acted to his or her detriment or significantly altered his or her position in reliance on the agreement in order to give rise to a constructive trust or a proprietary estoppel.

In sharp contrast with this situation is the very different one where there is no evidence to support a finding of an agreement or arrangement to share, however reasonable it might have been for the parties to reach such an arrangement if they had applied their minds to the question, and where the court must rely entirely on the conduct of the parties both as the basis from which to infer a common intention to share the property beneficially and as the conduct relied on to give rise to a constructive trust. In this situation direct contributions to the purchase price by the partner who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether anything less will do"

 

Requirements:

 

1. Common intention

2. Detriment

 

1. Common intention


In Lloyds Bank v Rosset [1991] 1 AC 107 (case summary) the House of Lords drew a distinction between an express common intention and an inferred common intention


Express common intention
 
An express common intention requires evidence of express discussions between the parties which demonstrates that the property is to be shared beneficially:
 
 
HSBC Bank Plc v Dyche [2009] EWHC 2954  Case summary
 
 
An intention can not be inferred from the parties' expectations arising form their relationship:
 
 
 
James v Thomas [2007] EWCA Civ 1212  Case summary
 
 
 
Difficulty arises with 'excuse' cases
 
Lloyds Bank v Rosset [1991] 1 AC 107 (case summary)  - Title registered in Husband's name because required by family trust fund - held no common intention
 
 
Eves v Eves [1975] 1 WLR 1338 (Case summary) - Title registered in the man's name as she was too young - Lord Bridge  in Lloyds Bank v Rosset stated there would have been an express common intention
 

Grant v Edwards [1986] Ch 638 (Case summary) - Title registered in the man's name so as not to prejudice her divorce - Lord Bridge  in Lloyds Bank v Rosset stated there would have been an express common intention

 
The illegality principle applies to constructive trusts:
 
 
Barrett v Barrett [2008] EWHC1061    Case summary
 
 
 
The extent of the share does not have to be agreed:
 
 
 
Drake v Whipp [1996] 1 FLR 826  Case summary

Midland Bank v Cooke [1995] 2 FLR 915   Case summary

 
Inferred common intention


In the absence of an express agreement, a common intention may be inferred from the conduct of the parties. In Lloyds Bank v Rosset Lord Bridge was of the opinion that only a substantial contribution to the purchase price would suffice.
 

 
 
Where a party qualifies for a discounted purchase price, this is treated as a contribution to the purchase price:
 
 
Oxley v Hiscock [2004] EWCA Civ 546
 
 
A direct contribution to the purchase price by way of a gift or loan will not infer a common intention:
 
 
 
Re Sharpe (A bankrupt) [1980] 1 WLR 219
 
 
No common intention can be inferred where the legal owner was unaware of the contribution
 
 
Lightfoot v Lightfoot-Brown [2005] EWCA 201
 
 
 
Where the property was acquired before the relationship began, it is more difficult to establish an inferred common intention:
 
 
James v Thomas [2007] EWCA Civ 1212  Case summary

 
Morris v Morris [2008] EWCA Civ 257
 
 
Aspden v Elvy [2012] EWHC1387


In the context of unregistered land and the interest arises from an estate contract see:
 
 
 
Lloyds Bank v Carrick [1996] 4 All ER 630   Case summary
 
 
 
2. Detriment

Once it has been established that there was a common intention, it then needs to be established that the person seeking to assert a beneficial interest acted to their detriment. Where a common intention is inferred rather than express, the conduct leading to the inference will generally suffice to demonstrate detriment. The issue of detriment therefore has more significance in relation to express common intention. The level of detriment required is less in express common intention than that required to infer a common intention as statements made by Lord Bridge in Lloyds Bank v Rosset indicate. A direct contribution to the purchase price will count as detriment but so will other factors including:
 
Home improvements:
 

Eves v Eves  [1975] 1 WLR 1338   Case summary
 
 
Financial contribution to house hold expenses:
 
 
Grant v Edwards  [1986] Ch 638  Case summary

 
 
 
Quantifying the beneficial interest where legal title is in single name


Where there is an express common intention, the claimant should be entitled to share of the equitable ownership based on what share was intended. However, this did not seem to apply in:
 
 

Eves v Eves  [1975] 1 WLR 1338  Case summary
 
 
Where the common intention is inferred, the court is required to make an assessment by undertaking a survey of the whole course of dealing between the parties:
 
 

Midland Bank v Cooke [1995] 2 FLR 915   Case summary
 
 
Le Foe v Le Foe [2001] 2 FLR 970
 
 
Oxley v Hiscock [2004] EWCA Civ 546
 
 
Quantifying the beneficial interest where legal title is in joint names

 
A distinction is drawn between cases where the house was purchased in one name and those where the house was purchased in joint names:

 
Stack v Dowden [2007] 2 AC 432  Case summary
 
 
The starting point in such cases is that where there is joint legal ownership this raises a strong presumption of joint beneficial ownership. The presumption may be rebutted by evidence that beneficial ownership is different to the legal ownership:
 

Stack v Dowden [2007] 2 AC 432   Case summary
 
 
Adekunle v Ritchie [2007] 2 P & CR DG 20  Case summary
 
 
Where it can not be established what the parties actual intentions were, it is possible to infer intentions as to the share holding:
 
 
Jones v Kernott [2011] UKSC 53
 
 
The approach in Stack v Dowden applies primarily to cohabiting couples rather than to other familial relationships, investments or commercial property:
 
 
Laskar v Laskar [2008] EWCA Civ 347
 
 
Amin v Amin [2009] EWHC 3358
 
 
 
 

Constructive trusts