Subsequent Impossibility

This arises when the charitable purpose is initially possible but subsequently impossible. For example, it would arise where a trust was established to eradicate a particular disease and then that disease subsequently disappears. The trust would fail for subsequent impossibility.

In the case of subsequent impossibility because the trust property has already effectively vested in equity in the beneficiaries, there is no need under the general law to show a general charitable intention. If the original purpose was initially possible, the subsequent failure of the purpose will mean that the money will be applied cy-pres.

CY-PRES EXTENDED BY: SECTION 105 TRUSTS ACT (CM P14-15)

CL position above has been preserved – s105 just adds to it.

The above is the general law. Cy-pres schemes have been modified by statute. Section 105(1) provides that subject to subsection (2), the circumstances in which the original purposes of a charitable trust can be altered to allow the property given or part of it to be applied cy-pres shall be as follows:

(a) where the original purposes, in whole or in part (i) have been as far as may be fulfilled; or (ii) can not be carried; or

(iii) can not be carried out according to the directions given and to the spirit of the trust:

(b) where the original purposes provide a use for part only of the property available by virtue of the trust;

(c) where the property available by virtue of the trust and other property applicable for similar purposes can be more effectively used in conjunction, and to that end can suitably, regard being had to the spirit of the trust, be made applicable to common purposes;

(d) where the original purposes were laid down by reference to an area which then was but has since ceased to be a unit for some other purpose, or by reference to a class of persons or to an area which was for any reason since ceased to be suitable, regard being had to the spirit of the trust, or to be practical in administering the trust;

(e) where the original purposes, in whole or in part, have, since they were laid down:

(i) been adequately provided for by other means; or

(ii) ceased, as being useless or harmful to the community or for other reasons, to be in law charitable; or (iii) ceased in any other way to provide a suitable and effective method of using the property available by

virtue of the trust, regard being had to the spirit of the trust.

Section 105(2) provides that subsection (1) shall not affect the conditions that must be satisfied in order that property given for a charitable purpose may be applied cy-pres except insofar as those conditions require a failure of the original purposes. Thus, if the conditions are met, the purpose may be applied cy-pres, even if there is no initial or

subsequent impossibility. Under the general law, where there is no initial impossibility, a charitable trust cannot be applied cy-pres but it can be applied cy-pres under section 105 . Where there is either initial or subsequent impossibility, the relevant property may also be applied cy-pres. Section 105 makes an essential change.

A charitable purpose may be applied cy-pres even where there is no initial impossibility.

The original purpose of a charitable trust where there is no initial impossibility may only be changed in limited circumstances. For example, section 105(1)(c) provides that where property is given to a trust and property is given by another trust for similar purposes, and the property can be effectively be used in conjunction with one another, this will occur. For example, such a situation will arise if there is one trust to eradicate influenza and another trust to eradicate tuberculosis. By virtue of section 105(2), the original purpose, where there is no initial impossibility cannot be applied cy-pres unless there is a paramount general charitable intention. For example, such an intention can be seen in the trusts to eradicate tuberculosis and influenza. If there is no general charitable intention in either trust, they cannot be combined. Where there is subsequent impossibility under the general law and under section 105 , the original property may be applied cy-pres.

WEEK 7/8

R

Arguably, there are two categories of resulting trusts:

• Automatic resulting trust

• Presumed resulting trust

Whereas some analysts say that there is no such thing as an automatic resulting trust, no one doubts whether there is such a thing as a presumed resulting trust.

The CREATION of a resulting trust does not have to be made or evidenced in writing by virtue of section 11(2) of the Property Law Act. However, once the equitable interest is created by the resulting trust, a disposition of that equitable interest will have to comply with section 11(1)(c) and if that equitable interest is respecting land, then a declaration of sub-trust over that interest will have to comply with section 11(1)(b).

Although there is an issue as to whether there is such a category of trust as an automatic resulting trust, it will be assumed that there is.

AUTOMATIC RESULTING TRUSTS – INCOMPLETE DISPOSITIONS

An automatic resulting trust arises by operation of law and is not created by the intention of parties whose conduct created the trust. The automatic resulting trust is created automatically (and can be contrary to the intention of the parties).

Where a persons transfers property to another in trust, but does not completely dispose of the entire equitable interest created thereby, the remaining equitable interest, namely that part of the equitable interest which the express trust has failed to dispose of, automatically results to the transferor so that it vests in the transferor, simply because the express trust has not dealt with the entire equitable interest.

According to those who prescribe to the view that there is such a thing as an automatic resulting trust, they insist that this automatic resulting trust will exist whether the transferor intends it to exist or not.

Thus, a automatic resulting trust arises where there is an incomplete disposition, namely where the settlor transfers property but does not effectively dispose of his beneficial interest or in the case of a purpose trust, a surplus arises after the original purpose has been satisfied or ceases to exist.

Transfer in trust of FS

A B (as trustee only – ie. No beneficial interest)

C (For life)

One view: even if A says I do not want any reversionary interest – the resulting trust still exists. This view may be seen as contradictory and his wishes should be disregarded.

For example, A, the absolute owner, transfers a block of land to B, the trustee, to be held in trust for C for C’s life.

B is the trustee and C has a beneficial life interest by the express terms of the trust. There is a resulting trust of the equitable remainder in fee simple for A, because A has only disposed of an equitable life interest to C. The equitable remainder in fee simple which A has failed to dispose of, cannot vest in B, because B has taken the land as trustee and he cannot take any beneficial interest. The equitable fee simple remainder cannot vest in C because C is intended to take a life interest only. Therefore, as that equitable remainder cannot vest in B or C, it therefore automatically

Auto Resulting Trust

Trust Eq reversion in FS

(trust)

= Auto resulting trust

Although this analysis is popular, particularly in England, and it is gained currency, it is not unassailable. It is arguable that when A transfers the land to B in trust for C for life, A intended C to have an equitable life interest and therefore necessarily intended himself to retain the equitable remainder in fee simply. Thus, it could be argued that the so-called automatic resulting trust is based on the intention of the parties. This is because a person who intends only to dispose of part of any equitable interest, it could be argued, intends necessarily to retain the remainder for himself. This is not generally accepted.

PRESUMED RESULTING TRUST

A B

Conditions that must be satisfied:

- B gives no consideration (ie. A voluntarily transfers to B) - No presumption of advancement in favour for B (ie. not a gift) - A does not say expressly whether B takes as trustee or beneficiary .

= presumption of resulting trust for A (B Trustee), rebuttable presumption. If rebutted – B takes absolutely.

Occurs also in another situation:

Vendor Purchaser ‘A’

Transfer

B

= presumption of resulting trust for purchaser, if rebutted B takes absolutely. If not rebutted B holds a presumed resulting trust for A.

A presumed resulting trust is based on the presumed intention of the relevant person , namely the persons whose conduct created the trust. A presumed resulting trust arises where (1) A gratuitously or voluntarily transfers property to B in circumstances where (2) no presumption of advancement operates in favour of B and (3) where A is silent as to whether he intends B to take the property as trustee or beneficiary.

There is a presumed resulting trust if there is a presumption of a resulting trust that is not rebutted by contrary evidence. For a presumption of a resulting trust to arise, there must be no presumption of advancement or gift.

Where this occurs, there is a rebuttable presumption that A intends B to hold the equitable title on a resulting trust for A as B has the legal title. A is presumed to intend such a resulting trust. The presumption is rebuttable. If B can show that A has intended to make a gift of the property to him, B carries the burden of rebutting the presumption of a resulting trust for A. It is said that in the case of a presumed resulting trust, the intention of the transferor is mandatory.

For example, where A gratuitously transfer part of the title to his land to B. Where there is no presumption of advancement in favour of B and A is silent as to whether he intends B to take the property as trustee or beneficiary, a resulting trust arises.

Another example of a presumed resulting trust is where A pays for property and directs the vendor to transfer it to B where B has not provided consideration to A and the presumption of advancement does not operate in B’s favour.

To rebut the presumption of a resulting trust, B may adduce evidence. For example, B may suggest that the other circumstance’s indicate that a gift to B from A was intended. If this is proved, the trust is rebutted and the property was transferred as a gift. If B is unable to prove this, B holds the property on a presumed resulting trust for A.

The fundamental question is whether the settlor has given away everything in terms of the beneficiary interest in the property and has that intended gift been completely constituted? If the answer is no, there is a resulting trust and the property results back to the settlor.

Directs vendor to transfer to B called a transfer by direction (as Purchaser doesn’t take title)

Megarry J in Re Vandervell’s Trusts (No 2) Book p 378 first drew the distinction between the two types of resulting trusts. Although his comments were obiter dicta, and were not legally binding, they seem to have prevailed. In that case Megarry J first identified the existence of the automatic resulting trust. The Court of Appeal with approving or disapproving of the obiter dicta in question reversed his decision.

Now there is a higher authority. In Westdeutsche Ladnsebank v Islington London Borough Council, Book p 338 Lord Browne-Wilkinson with Lord Slyn and Lord Lloyd concurring, said he was not convinced that the observations of Megarry J were correct in suggesting the concept of an automatic resulting trust (ie. Doesn’t exist ). Lord Browne-Wilkinson said that all resulting trusts are created by the intention of the persons whose conduct regarding the property created the trust. If this is correct and there is no automatic resulting trust (Dongs view), the crucial distinction between express trust and resulting trust is that the express trust is created by express intention and the resulting trust is created by implied intention.

In DKLR Holding Company (No 2) v Commissioner of Stamp Duties, Book p382 a majority of the High Court was of the opinion that that it was impossible for someone to transfer a bare legal estate, namely an empty legal title, to another person. The three judges who expressed this view were Gibbs CJ, Aickin and Brennan JJ. The two judges who said that it was possible to transfer a bare legal estate were Stephen and Mason JJ. An equitable interest can be transferred in trust, namely a sub-trust, and absolute title can be transferred in trust, namely a trust but the bare legal estate cannot be transferred.

Re the Trusts of the Abbott Fund: Smith v Abbott is an example of the so-called presumed resulting trust. In that case, subscribers contributed to a fund held on a discretionary trust for two handicapped women. The sisters used the money to supplement their income. After their deaths, there was a dispute concerning the money remaining in the fund, namely the surplus. There was an issue as to the ownership of the surplus in the fund after the death of the women. The next of kin argued that he was entitled to the money and that the money was intended to be a gift. The question for the Court to determine was whether there was a resulting trust of the balance of the funds in favour of the donor. Stirling J held that the surplus was on a resulting trust for the subscribers to the fund (but did not say there was an automatic resulting trust). There was no intention that the women were to become absolute owners of the money. It was given with the intention of support for life and that limited purpose was fulfilled upon their death, Therefore, a resulting trust arose in favour of the donors. This trust should not be regarded as an automatic resulting trust because the subscribers intended that the surplus should be returned to them.

The distinction between a resulting trust and a constructive trust is less clearly established in the UK because of the decision in Hodgson v Marks which is an example of a doubtful resulting trust. It is of doubtful validity. In that case, a widow gratuitously transferred her house and land to her lodger under an oral agreement that she would retain the beneficial ownership thereto (lodger wanted to swindle her). The lodger relied on his legal title to dispute the widow’s interest. The Court of Appeal held that the lodger held the property under a resulting trust for the widow.

Thus, the lodger took the house as trustee.

(would be a constructive trust in Australia)

W L (agreed orally to take as trustee only)

Resulting trust

Express Oral Agreement to receive Property as Trustee = Constructive Trust (NOT Resulting Trust)

This is an anomalous conclusion because the property was transferred to the lodger under an express oral agreement (therefore an express trust). It is not immediately clear how an express agreement to take something on trust can produce a resulting trust. Except for the fact that the agreement was not evidenced in writing, it would have been an express trust.

Constructive Trust vs Resulting Trust

An express trust of land that is not evidenced in writing but where the intended trustee or transferee has

Bannister v Bannister. This is good law in Australia because it was applied by the High Court in Bahr v Nicolay (No 2). If the facts of Hodgson v Marks occurred in Australia today, a constructive trust would be said to exist rather than a resulting trust because the property transferred under the express agreement that provided that the lodger receives the property in trust for the widow. The oral agreement did not mean that there was no express agreement. The trust created was express (but failed for writing requirements) and it cannot be a resulting trust because a resulting trust is an implied trust = constructive trust in Australia.

In Australia, where land is transferred expressly in trust but not in writing, the trust arising is a constructive trust because it would be dishonest for the trustee to rely on the lack of writing to claim to be the equitable owner of the property. In Bannister v Bannister, it was held that the trust thus created is a constructive trust.

E

F

– R

T

/ C

T

1. PURCHASE STAGE

• Presumption of Advancement? (Brown v Brown and Nelson v Nelson) – Precludes Presumption of Resulting Trust

• Rebutting the Presumption?

Not Rebutted Rebutted apply Calverley v Green

Transferor = 0 Resulting Trust

Others = Initial Interest + Div of Transferors Interest Equitable TiC in shares Prop to Contributions

Note: Nelson v Nelson – If reason for transfer of title was ‘to intentionally defraud’ then this rebuts the Presumption of Advancement

2. ‘RECOGNISE INCREASE’ LOOK FOR PROPRIETARY ESTOPPEL

• Explain INDUCEMENT / DETRIMENT (Detriment is not getting Benefit Promised) Agnew Case

• Where Proprietary Estoppel = constructive trust, therefore S59 PLA (in writing) therefore does NOT apply see Last v Rosenfeld per Hope J.

• Therefore person ‘induced’ has there interest increased by a constructive trust through Proprietary Estoppel.

(Interest acquired at purchase can be varied subsequent by way of a Constructive Trust (eg. Renovation – as it was not part of purchase price)

• The others hold there interest on a resulting trust

• Does a right to Charge apply? – see Calverley v Green

• Does Guimelli apply? Note: not the norm – equitable compensation only in special circumstances

3. AFTER FRAUD ON THE CTH

• Note: always consider Fraud last as repayment not decided until Court Order made.

• Nelson v Nelson

If Repaid – No Change in Interest If not repaid within specified time

Deduct defrauded amount from defrauder’s interest

Allocated defrauded amount to others in proportion to their interest

• Insert considerations as to why no windfall at expense of Cth (3 points later)

• Finish argument by stating: the trust will be enforced provided that the person enforcing it is made to surrender the illegally obtained benefit (and there is no statute that prohibits enforcement of trust.)

4. WHAT IF APPLY PRINCIPLE OF JV? – DOES INTEREST CHANGE

• Note: If find Proprietary Estoppel – Don’t need JV

• Buamgartner Principle = intention is crucial. Criticised for finding JV too easily

• Difference: JV interest based on contributions, PE depends on nature of promised amount

Defacto Relationship Case (Presumed Resulting Trust)

Stat provisions to allow courts to adjust property of defacto couples = PLA PART 19, s285, s286(1), s260(1) (not considered in this course)

Calverley v Green is an example of a presumed resulting trust.

House $27,500 (M & W legal JTs) Had intended to share ownership at time of purchase.

Deposit $9,500 (paid by M)

Balance $18,000 (paid by joint loan to M & W but M paid the mortgage instalments to lender (not vendor)) Dispute arose because couple broke up.

In that case, a man and a woman in a de facto relationship purchased a house that was transferred to them as legal joint tenants at law under the Real Property Act (NSW). The purchase price was $27,500. The man paid the deposit of $9,500. The balance of $18,000 was raised by means of a loan secured by a mortgage of the house for which they made themselves jointly and severally liable. This means that the man and the woman equally owed $18,000. The man made the repayments on the mortgage only. The parties subsequently terminated the relationship.

There was a dispute as to the ownership of the property. The woman claimed that she owned one half of the property.

She claimed that the property should be sold and the proceeds should be divided equally between the parties.

The man claimed that he was the sole owner of the property in equity because the legal title must yield to contrary equitable title. Legal title is not conclusive. He argued that the woman had made no financial contribution to the purchase price. The High Court disagreed.

The man claimed that he was the sole owner of the property in equity because the legal title must yield to contrary equitable title. Legal title is not conclusive. He argued that the woman had made no financial contribution to the purchase price. The High Court disagreed.