Understanding Resulting and Quist-Close Trusts

So where did we get to? Okay, we've been making our way then through the failing trust cases within the topic of resulting trusts. And we finished last week partway through our discussion of quiz-closed trusts, where... We will recall that Lord Millett described the Quist-Close Trust as an orthodox example of the kind of default trust known as the resulting trust. So he identified Quist-Close as falling squarely into one of those categories. categories that we're discussing, Lord Brown Wilkinson had placed the Quist Close Trust into his category B. And that's why we were thinking of it alongside those other examples of express trusts that fail or other failing trusts or cases of surplus property. So this was the final one that fell into that category. Just by way of a reminder then, we noted looking at the key cases of QuizClose itself and the Twin Sectra decision, that QuizClose trusts involved a loan for a specified purpose. That's the first kind of indicator that you might be dealing with a QuizClose trust. So it's a type of trust that involves a loan for a specified purpose, but where the recipient of the money isn't free. to apply that money for any other purpose than the specified one. And having that restriction then on the use of the money places fiduciary obligations on the shoulder of the recipient, and those are obligations that equity will enforce. So this is just going over some of the things that we said a number of times when we met last week. It's only when the purpose is carried out and the trust comes to an end in effect, that the parties assume a regular kind of creditor-debtor relationship. But whilst the recipient has the property, he has that power to apply it for the specified purpose, right? And whilst he has that power, unexercised, he holds fiduciary obligations in respect of it that equity will enforce. And those things are really at the heart of the quiz-closed trust. So we finished with a couple of illustrative cases, but the quotes on the screen really capture what it is that we need to say about quiz-closed trusts. So let's just reiterate, a loan by A to B for a specific purpose where B is not free to apply the money for any other purpose, that prevents B from obtaining any beneficial interest in the money, at least while the purpose is achievable, and when it is carried out, the trust comes to an end. A becomes a loan creditor for B with the usual remedies that a creditor would have in debt. We finished with a couple of nice illustrative cases, and then I think we were here with the recent-ish Privy Council case of Prickly Bay Waterside and British American Insurance Co. This was a case that I wanted to flag up with you because it probably is the leading decision at the minute, rethinking quiz-closed trusts. And it's a case where Lady Arden sets out what she feels are really important elements of the quiz-closed style relationship between the parties. The facts of this case of Prickly Bay, it's a really complex financial transaction. between the parties. But at the heart of it, Prickly Bay are seeking to make the argument in the face of the liquidation of a British American insurance company that the property that it transferred to it was held under some kind of trust arrangement. So the case, Prickly Bay, then did concern this annuity agreement between the parties. where Prickly Bay was expecting that at the end of this two-year agreement between the parties, the capital sum available at the end of it would be used for a specified purpose. I don't think we need to delve into the facts any more than to understand that it's the transfer of money from A to B. B runs into financial difficulties, and as is the case with a lot of these quiz-closed decisions, the argument is then advanced that that money was somehow ring-fenced, that it was somehow subject to a quiz-closed style trust. Now, Prickly Bay failed in its attempts to argue that a quiz-closed trust... had arisen and there were a number of reasons for that. At the heart of the arrangement, as is the case with a lot of these financial transactions between parties, between companies, there is always an underlying purpose for the financial arrangement. There's always a reason why A is advancing money to B by way of a loan to do. There's always something there by way of a purpose. And that's the case here as well. But Lord Arden had to look at the detail of the transaction between the parties to see if there was anything in there that suggested that the property was not just part of the contractual relationship between Prickly Bay and the company, but that somehow it was held subject to a trust. So that's where we were with this case. There are a couple of reasons why she was not convinced. that the money in this case was held in trust. And the first one of those was that on the facts of the case, what Prickly Bay had done, or the director of the company, what the lender had done here was really buy into a kind of investment product or vehicle in paying the money across to the company. And the... British American Insurance Company actually had a great deal of flexibility in terms of how they utilized that money. At the end of the day, what was anticipated was that there would be regular interest payments coming back to Prickly Bay, and that at the end of the two-year period, there would be a capital sum to be paid on elsewhere. But in the course of that two-year period, British American Insurance Co. had a great deal of flexibility as to how they invested, as to what they did with the money. The money was kind of at their free disposal in a way. Coupled with that, there was nothing that Lady Arden could point to that would require British American Insurance Co. to keep that money segregated. And that, she says, is a key indicator of a quiz-closed trust. That sense in which the property when loaned from A to B, when transferred from A to B, it's restricted in that way and there's clarity around that. It doesn't become part of the recipient's general assets. It's not at the free disposal of the recipient. So there was a lack of requirement here that the money be kept separate. And that was a key indicator that no such quiz-closed style trust arrangement had arisen. So there are a series of key points made, if you look at the decision, a series of key points that Lady Arden makes about the nature of quiz-closed trusts. And one of those really is a point about the importance of segregation, segregation of the funds, that they're kept distinct, that they're ring-fenced from the recipient's other monies. And she says, in a quiz-closed style arrangement, segregation is not always required. but it is conspicuous by its absence. And that was very true of what she was looking at in the context of the case before her. Now, we've seen that in a case like Twin Cetra, where there was no segregation of the funds, the recipient entered into a very clear guarantee that they would hold the money separately, and that in a sense that was the recognition of it being ring-fenced. So segregation isn't always required, but it's conspicuous by her absence, she says, and the absence of the need for it here pointed away from a finding of a quiz-closed trust. That segregation then is a really important indicator that the lender has retained some of the beneficial interest. It's not just a regular loan. arrangement whereby the property is at the free disposal of the recipient. Some of the beneficial interest remains with the lender. She also makes a series of points that I think are really helpful at this point in time around around the kinds of relationships that the court is examining, these kind of complex commercial arrangements between the parties. And she makes the point that, you know, the court is looking for something that moves it beyond what it would expect in normal commercial practice. So it had become quite commonplace for the argument to be made that ah, you know, I did this because of this underlying purpose, and therefore a kind of trust has come into being. That property is held on resulting trust. But she's making very clearly the point in this case that something more than that is needed, something more than what you would expect to see in the context of a regular commercial agreement, something to convince the court that the intention is there that the property be held on trust. that the beneficial interest has not been relinquished by the lender. She also touches on a point that I think, again, is quite interesting. Often it's said in relation to quiz-closed trusts that they have this sense that there's been a common intention that the parties share that the property will be segregated. that the property is not at the recipient's free disposal. So in a lot of the cases, you'll see that language of common intention of the parties utilized. And she wants, in a sense, to move away from that, that what we don't need to find is some shared sense of that between the parties. She says in respect of this idea of the intention, that it's enough that one party is imposing it, that arrangement, on the other. It's enough that they're saying that you've got to do that and the other, in a sense, acquiesces. We're not looking for something which is fully complete in terms of mutual shared reciprocity. It's enough that in the context of the case, it's made clear that the property is, in some sense, the beneficial interest of it is, in some sense, retained. It's not. you know, it's not at the free disposal of the recipient. So in addition then there's lots of other bits and pieces that you can pick up on in this case but it is the latest restatement as it were of the relevant principles governing quiz-closed trusts. It's one of those cases where Lady Arden tackles head-on the difficulties that the court has in establishing that that is what the parties have created. not some kind of regular loan between the parties that you would see in an agreement around, like an agency agreement, for example, not some kind of express trust that's been declared, but the genuine elements of a quiz-closed style resulting trust. So a good case to look at if you're interested in exploring that further. So in terms of our discussion of quiz-closed trusts, Then let's finish with some final illustrations that are commonly cited in the textbooks and indeed the cases. And this is one that we really can't miss. It's a very well-known case dealing with with Quizclose style trusts. It's the case of Juby and Her Majesty's Revenue and Customs. otherwise known as Ray Fairpack. So if you see it referred to in that alternative, then you'll know it's the same case. And it's a case where the issues at the heart of it made the news some 20 years ago, so in 2006. And it concerned the collapse of a company called Fairpack. And Fairpack had... scheme that it operated. You might be familiar with similar style schemes, but the point of this one is that it was a way to help families, hardworking families, spread the cost of saving for Christmas throughout the whole of the calendar year. Now, the way that it worked is that the contributors would pay some money each month from... their wages to the agents of Fairpack. And the agents would hold the customers' money, as it were, and then each month what they had contributed would build up in the run-up to Christmas. And in return for those contributions, those payments, the customers would be issued with vouchers that you could take and spend in high street stores like Argos. So it's kind of a savings scheme that helps hard-working families save up through the calendar year and then have vouchers that they can go into the high street stores and spend and buy their Christmas presents. The problem with Fairpack was that it collapsed and the families lost their savings and hence you see the headline in the picture in the corner of your screen then about the collapse of the Christmas hamper firm and how... thousands of families had lost their annual savings. The question arose in the context of the collapse of Fairpac as to whether any of the monies that the customers had contributed were actually held on quiz-closed style trusts. Now you can see why you might advance that argument if you were responding to the facts of the case. because you have the payments made by the customers, held by the agents, and then the money distributed in the form of the vouchers at the end of the year. However, that argument was destined to fail. There was no quiz-closed trust created through this arrangement with Fairpac and its agents. At the heart of the... The objections then to a quiz-closed style trust that might have ring-fenced their contributions. We have an absence of segregation. That's a really, really important point. There was no segregation of the customer's property, their money, and no real expectation that their contributions would sit in a separate bank account throughout the course of the calendar year. It simply wouldn't be realistic to expect that the company make no use of it in the intervening period. The essence of the arrangement with Fairpac was one where the property would be at their free disposal, but at the end of the calendar year, then they pay out as they were contractually obliged to do so. The quote on screen really is the key passage from the decision. And I think it gives a really good sense of why there could be no quiz-closed style obligation imposed on Fairpac. And Mann, the judge said, and again, it's just reading through it because we're reiterating the points that we've already made. If it were to be a quiz-closed style trust. The business model would have made no sense. It would have required Fairpac to keep all the customer monies in a separate account from January until November, untouched, until such time as the goods and vouchers were acquired and then sent out. The judge felt this was just not plausible, right? It wasn't plausible. And it would make Fairpac a very odd savings organisation. And he points out that even banks don't have to do that with their customer monies. So no Quizclos-style trust in the context of Fairpac, no segregation of the money, no sense in which a beneficial interest was retained by the customers, the money was at the free disposal of the recipient. but with that contractual obligation to satisfy the contributors' orders at the end of the year and in the run-up to Christmas. Okay, so I hope that one's clear. Just a few more cases then that you may well encounter in your reading. It's not important that you remember every single one of these. But these are a series of examples of where the argument that a quid scos trust had arisen was destined to fail. And I'll touch on them very, very briefly. There's no need to do any more than that. Bieber and Tethers then is a case that's frequently cited. Indeed, there is some time spent on Bieber and Tethers in the Prickly Bay decision. This is one where money was held. in a client account for the purposes of making investments. So sums paid into the recipient's client account for the purposes of making investments, and in the initial stages of holding the property, the court accepted that it held it under a quiz-close-style trust. What happened though in Bieber and Tethers was that the parties had agreed that the monies would be paid then into a partnership and the money at the behest of the parties became partnership property. And at that point there was no scope to invoke a resulting trust. You had two stages referred to there, but by the time... the partners were responsible for the funds. It was partnership property precluding the invocation of a close trust. Fairly clear from the information that you have on screen, the terms of the agreement and the partnership deed did not indicate in any sense that Bieber retained a beneficial interest in the property. We'll do First City Monument and Zoomax. next because that's another case given a lot of discussion in Prickly Bay, but another recent case involving arguments around quiz-closed trusts. And again, this one failed. It concerned various transfers of money into a Nigerian bank. There was no segregation of that money at any point. no evidence that the money was not at the bank's free disposal. And here again, rather like the tenor of Lady Arden's comments in Prickly Bay, just because there are payments made and there is a reason underpinning those payments or a purpose behind those payments, That is not enough to create a trust in the transferor's favour. More is needed, as is emphasised in this case and in Prickly Bay, much more is needed to take that beyond the confines of a contractual relationship. So no quiz-closed style trust. The only duties that existed between the parties were the typical banker-customer duties born out of the contractual relationship between them. There was no sense in which the property needed to be... fenced, no sense in which it needed to be segregated, nothing alerting the court that the money might not be at the free disposal of the Nigerian bank. So no trust in First City Monument. Finally then, and this is a really straightforward one, Bellis and Chaloner, but it's quite commonly cited, here we had money paid into another client account, a solicitor's client account. in anticipation that there would be a development project that would come to fruition and that the funds would be used for that. No development ever occurred and the court decided that this looked like no more than an immediate loan made by A to B with the usual set of remedies. available to A where B falls into financial difficulties. So three separate cases there are failed attempts to argue that there could be a quiz-closed style trust arrangement. And I think the important thing to take away from these is that, you know, you will always see some kind of purpose underpinning a payment made. to the recipient. But we're looking really very closely at the intention of the parties to see the nature of the relationship is. And to the extent that they don't make that express, we're looking for a need for the property to be segregated from the recipient's other assets. And we're looking for any evidence that suggests that the property is not at the free are for the free use of the recipient at their free disposal. Okay. So where are we then? Well, what have we covered? Well, we started off with the different ways in which resulting trusts have been classified. We'll talk a little bit more about that in our seminars this week. And we have concluded our discussion of the failed trust cases or automatic resulting trust cases in old language, including Quizclose-style trusts. So to complete our discussion of resulting trusts, we've got that other large category that we now need to think about, and that is the apparent gift cases. So we're moving now to something quite different. It's the second of the two categories, however you want to look at them, that we outlined right at the beginning. So we're moving now to think about what we may term presumed resulting trusts or presumed intention resulting trusts. Okay, so this section then is the apparent gift cases, the kind of case where you tend to see the invocation of resulting trusts. Now, we have already identified two scenarios where looking at these from the outside, they look like apparent gifts, two scenarios where a resulting trust becomes relevant. Because equity assumes bargains and not gifts. What are those scenarios? Well, just to recap then, the first one is where we find a contribution to the purchase price of property, but the property is held in the name of someone else. That can also extend to cases of joint names. The thing that we're looking at here is that there has been a contribution to the purchase price of the property, but it is held in the name of another. The second scenario, which could look like from the outside that someone is making an apparent gift, concerns the voluntary transfer of property into the name of another. Both of these transactions have the outward appearance of a gift, but the actual value of the gift is not known. Equity adopts a sense of realism, if we can put it like that, and assumes that bargains have been entered into rather than gifts. We're dealing here with a presumption of resulting trust, a presumption that may or may not be rebutted when one looks closely at the facts of a given case. But it's a presumption that the transferor did not intend to benefit the transferee in the absence of evidence to the contrary. Presumption... The transferor did not intend to benefit the transferee. It's something that looks like a gift has been made, but equity assumes bargains, not gifts. And so we're in inevitable territory of the presumption of resulting trust. Just a quote on the bottom of the screen. which I think is a frequently invoked one from Bagnell, where a person acquires a legal estate but has not provided the consideration for its acquisition, a resulting trust arises unless a contrary intention is proved. Just a nice way of explaining how resulting trusts are operating in this context. Please remember that what is happening in the apparent gift style cases is that we are dealing with no more than a presumption. It's a starting point. It's a presumption of resulting trust. Lord Diplock reminds us that we're dealing with a presumption, a presumption that can be rebutted. When he said that... This type of presumption is no more than a consensus of judicial opinion, no more than a consensus of judicial opinion as disclosed by the reported cases as to the most likely inference to be drawn in the absence of evidence to the contrary. It's creating a starting point for the courts. It's no more than a presumption of resulting trust. It doesn't mean that that is indeed what the court will find, but there's a presumption of resulting trust, which can be rebutted by evidence to the contrary, which can be displaced in some way, perhaps, as we'll see, by some counter-presumption of equity. It's a presumption of resulting trust. We're going to talk a lot about the family home in the coming weeks. We're going to look at a lot of cases that have involved. sole name purchases and joint name purchases. And we're going to be thinking a lot about the rules that apply. I wanted to pick out just one apparent gift-style case so that we could think about those inferences that the court is drawing when there's an absence of evidence of intention in cases. So the one that I picked out really to draw your attention to now as a case we'll talk about again in the coming weeks. It's Lasker and Lasker. And it gives you a flavour of the inferences that need to be drawn from things like what the party said and what the party did in the absence of any kind of express declaration. So in Lasker and Lasker, the parties were a mother and a daughter, and they purchased some property together, not in order to live in it, like as if it were their home, but more as a kind of investment. So in this scenario... where there was an absence of clarity as to how they owned the property and there was a falling out between the pair, the court was really guided by the commercial context in which their decisions had been made. So rather than invoke the presumption that equity follows the law in this case and presume from their joint, purchase of the property that they were jointly entitled to it, a resulting trust analysis prevailed in Lasker and Lasker that enabled the parties to recover in proportion to their contributions, so that they were able to say, as for the daughter, that she contributed X, so she'd receive proportionately that out. of any sale of this property. They didn't set out at the beginning how they were going to hold their shares. They didn't expressly say what they were doing. So the court is doing no more than drawing inferences as to what it felt the parties intended. And here a resulting trust analysis prevailed because the court was influenced by the commercial nature of the transaction that they'd entered into. And despite the relationship that existed between them of mother and daughter. That's an interesting case that we'll come back to. We'll see whether you think it would be decided similarly today. But it does give you a sense of the court searching for some sense of what the parties intended when it looks like. A contribution has been made to the property and there is disagreement between the parties as to how they hold it. We're going to look at these family home cases in due course. We're not quite there yet, but flagging that one up for some discussion at a later stage. I'm going to focus for a moment or two on the cases that involve... a voluntary conveyance or a transfer of property. So it's that sense of putting the property in the name of someone else and they don't give consideration for it, or making a gratuitous transfer of property. That's where we are just now. And if we look at the case law on this, which you might think should be reasonably straightforward, Actually, we need to make a distinction between the approach that applies where we're dealing with land and the approach that applies when we're dealing with personality, so items of personal property. If we start with land, we need to be mindful of the effect of a particular section of the Law of Property Act that deals with voluntary conveyances of land. And that section is section 60, subsection 3 of the 1925 Act. And this has actually got the courts into all sorts of difficulties. And it's maybe quite surprising that that is the case, but we'll look at some of those difficulties in a moment. Section 60 in itself was a provision of the 1925 Act that was concerned with... getting rid of lots of technicalities in relation to conveyancing and deeds and so on. It's eliminating these technical things from our property law in an effort to make transactions more achievable, readily understandable, etc. And to rid it of lots of old-fashioned language that you know from your studies of land law, make it difficult for the layperson to understand. Prior to the enactment of the provision, it was normal practice for conveyancers. So if you wanted to voluntarily convey or transfer your property to another, it was common for conveyancers to draft that in a particular way. And you needed to kind of make clear that you were granting the property to them or it's an odd phrasing, but onto and to the use of the grantee. That's what used to be tagged on the end of these drafted clauses. So there was a commonplace way of drafting that, that conveyancers would use, a precedent, as it were, that would indicate that you were making this voluntary conveyance of the property into another person's hands. And section 60 subsection 3 deals with that. The wording of it has led to some confusion in the courts, but it says that in a voluntary conveyance, a resulting trust for the grantor, this is where it starts to get kind of difficult to think about in your mind, a resulting trust for the grantor shall not be implied merely by reason that the property is not expressed. to be conveyed for the use or benefit of the grantee. There's a kind of technical provision hidden in the Law of Property Act designed to deal with archaic language and forms of words. But it fell to the courts then to construe where this provision, what impact this provision would have on the presumption of resulting trust that would arise from you transferring your property voluntarily into the hands of someone else for no consideration. There were two possible interpretations of this provision. The first is that it is no more than a word-saving... provision designed to tidy up this aspect, this technical aspect of conveyancing. On the one hand, you could construe it as no more than a word-saving provision, tidying up our conveyancing protocols and practices. The other possibility was that the effect of the provision was to remove the presumption of resulting trust in these cases. So that there would be no presumption of resulting trust in the case of a voluntary conveyance of land from A to B for no consideration. So two possible readings, right? Is it merely a word-saving device that we don't need to worry about and we apply on regardless? Or is it doing something more fundamental in removing the presumption of resulting trust? that would ordinarily be the starting point for the court in the case of a voluntary conveyance. Note though at the wording, because we've got the reference to conveyance in section 60 subsection 3, we don't apply this or think about this at all in relation to personal property. It's merely to do with land and I think that much is clear. So this is, and we'll look quickly at this and finish there for today, but this is a sense of the case law that you might encounter on Section 60, subsection 3, when you do your textbook reading. So when you come to think more about the voluntary conveyance and the apparent gift cases and the presumption of resulting trust, these are the cases that have construed Section 60, subsection 3, and analysed. really what its impact should be. At first instance, in that first case, Loewe and Loewe, Nicholas Strauss QC said that on a plain reading of section 60 subsection 3, the presumption of resulting trust has been abolished. This is his view. On a plain reading, the presumption of resulting trust has been abolished. What you need, he says, is some additional evidence to push you in that direction. It doesn't mean there isn't a resulting trust, but you need to produce or reduce some additional evidence. So the presumption is gone for the court to find a resulting trust. We need some further evidence. In the case, a son had conveyed his interest in the family home to his father. He simply transferred his interest in the family home to his dad. There was nothing else to indicate why he might have done that. Nothing to indicate what he was thinking, nothing to indicate what possible motive there was for that. Indeed, the family carried on in a pretty harmonious fashion, but there was nothing to explain that transaction. Why had the son done this? So is there a presumption of resulting trust in this case? Well, Nicholas Strauss said, no, okay, section 60 subsection 3, we're not starting with that presumption. You know, if we were going to say that this property was held on resulting trust, we'd be looking for something else, something else that might push us in that direction. Like, for example, if the parties were strangers to each other. That would be something that you would look at and think, ah, that could be evidence that the property was held on resulting trust. Different story in the Court of Appeal, although they're happy with the outcome in the Court of Appeal, you'll see a lot more reticence from the Court of Appeal level judges in Lohia. A lot more reticence because they just don't know what to make of the provision. So they're very cautious about coming to a clear conclusion about what it means without a lot more argument and discussion that hasn't been had. And in Alley and Cannes then, and this is where we will leave it for today, there was some agreement in that case. Morat was the judge in Alley and Cannes. And there was some agreement with Nicholas Strauss at first instance that the presumption had probably been abolished in a voluntary conveyance and that the court must then look for additional evidence to take it there. Something on the facts that would confirm the existence of the resulting trust. But Nicholas Strauss, he says, is probably right. What makes that less convincing, and no, Ali and Khan is a court of appeal level case, is that Morrick didn't seem to be cognizant of those other court of appeal judges in the earlier case. They seemed to focus purely on the first instance decision. So what can we take from this? Well, we've got some support for the idea that the presumption has been abolished, but we'll pick up tomorrow with those final few cases, and that might lead you to think something slightly different. Hello again. So cold.

We will recall that Lord Millett described the Quist-Close Trust as an orthodox example of the kind of default trust known as the resulting trust. So he identified Quist-Close as falling squarely into one of those categories. categories that we're discussing, Lord Brown Wilkinson had placed the Quist Close Trust into his category B.

And that's why we were thinking of it alongside those other examples of express trusts that fail or other failing trusts or cases of surplus property. So this was the final one that fell into that category. Just by way of a reminder then, we noted looking at the key cases of QuizClose itself and the Twin Sectra decision, that QuizClose trusts involved a loan for a specified purpose.

That's the first kind of indicator that you might be dealing with a QuizClose trust. So it's a type of trust that involves a loan for a specified purpose, but where the recipient of the money isn't free. to apply that money for any other purpose than the specified one. And having that restriction then on the use of the money places fiduciary obligations on the shoulder of the recipient, and those are obligations that equity will enforce. So this is just going over some of the things that we said a number of times when we met last week.

It's only when the purpose is carried out and the trust comes to an end in effect, that the parties assume a regular kind of creditor-debtor relationship. But whilst the recipient has the property, he has that power to apply it for the specified purpose, right? And whilst he has that power, unexercised, he holds fiduciary obligations in respect of it that equity will enforce.

And those things are really at the heart of the quiz-closed trust. So we finished with a couple of illustrative cases, but the quotes on the screen really capture what it is that we need to say about quiz-closed trusts. So let's just reiterate, a loan by A to B for a specific purpose where B is not free to apply the money for any other purpose, that prevents B from obtaining any beneficial interest in the money, at least while the purpose is achievable, and when it is carried out, the trust comes to an end. A becomes a loan creditor for B with the usual remedies that a creditor would have in debt. We finished with a couple of nice illustrative cases, and then I think we were here with the recent-ish Privy Council case of Prickly Bay Waterside and British American Insurance Co.

This was a case that I wanted to flag up with you because it probably is the leading decision at the minute, rethinking quiz-closed trusts. And it's a case where Lady Arden sets out what she feels are really important elements of the quiz-closed style relationship between the parties. The facts of this case of Prickly Bay, it's a really complex financial transaction.

between the parties. But at the heart of it, Prickly Bay are seeking to make the argument in the face of the liquidation of a British American insurance company that the property that it transferred to it was held under some kind of trust arrangement. So the case, Prickly Bay, then did concern this annuity agreement between the parties.

where Prickly Bay was expecting that at the end of this two-year agreement between the parties, the capital sum available at the end of it would be used for a specified purpose. I don't think we need to delve into the facts any more than to understand that it's the transfer of money from A to B. B runs into financial difficulties, and as is the case with a lot of these quiz-closed decisions, the argument is then advanced that that money was somehow ring-fenced, that it was somehow subject to a quiz-closed style trust. Now, Prickly Bay failed in its attempts to argue that a quiz-closed trust... had arisen and there were a number of reasons for that.

At the heart of the arrangement, as is the case with a lot of these financial transactions between parties, between companies, there is always an underlying purpose for the financial arrangement. There's always a reason why A is advancing money to B by way of a loan to do. There's always something there by way of a purpose. And that's the case here as well.

But Lord Arden had to look at the detail of the transaction between the parties to see if there was anything in there that suggested that the property was not just part of the contractual relationship between Prickly Bay and the company, but that somehow it was held subject to a trust. So that's where we were with this case. There are a couple of reasons why she was not convinced.

that the money in this case was held in trust. And the first one of those was that on the facts of the case, what Prickly Bay had done, or the director of the company, what the lender had done here was really buy into a kind of investment product or vehicle in paying the money across to the company. And the... British American Insurance Company actually had a great deal of flexibility in terms of how they utilized that money. At the end of the day, what was anticipated was that there would be regular interest payments coming back to Prickly Bay, and that at the end of the two-year period, there would be a capital sum to be paid on elsewhere.

But in the course of that two-year period, British American Insurance Co. had a great deal of flexibility as to how they invested, as to what they did with the money. The money was kind of at their free disposal in a way. Coupled with that, there was nothing that Lady Arden could point to that would require British American Insurance Co. to keep that money segregated.

And that, she says, is a key indicator of a quiz-closed trust. That sense in which the property when loaned from A to B, when transferred from A to B, it's restricted in that way and there's clarity around that. It doesn't become part of the recipient's general assets.

It's not at the free disposal of the recipient. So there was a lack of requirement here that the money be kept separate. And that was a key indicator that no such quiz-closed style trust arrangement had arisen. So there are a series of key points made, if you look at the decision, a series of key points that Lady Arden makes about the nature of quiz-closed trusts.

And one of those really is a point about the importance of segregation, segregation of the funds, that they're kept distinct, that they're ring-fenced from the recipient's other monies. And she says, in a quiz-closed style arrangement, segregation is not always required. but it is conspicuous by its absence. And that was very true of what she was looking at in the context of the case before her. Now, we've seen that in a case like Twin Cetra, where there was no segregation of the funds, the recipient entered into a very clear guarantee that they would hold the money separately, and that in a sense that was the recognition of it being ring-fenced.

So segregation isn't always required, but it's conspicuous by her absence, she says, and the absence of the need for it here pointed away from a finding of a quiz-closed trust. That segregation then is a really important indicator that the lender has retained some of the beneficial interest. It's not just a regular loan. arrangement whereby the property is at the free disposal of the recipient. Some of the beneficial interest remains with the lender.

She also makes a series of points that I think are really helpful at this point in time around around the kinds of relationships that the court is examining, these kind of complex commercial arrangements between the parties. And she makes the point that, you know, the court is looking for something that moves it beyond what it would expect in normal commercial practice. So it had become quite commonplace for the argument to be made that ah, you know, I did this because of this underlying purpose, and therefore a kind of trust has come into being. That property is held on resulting trust.

But she's making very clearly the point in this case that something more than that is needed, something more than what you would expect to see in the context of a regular commercial agreement, something to convince the court that the intention is there that the property be held on trust. that the beneficial interest has not been relinquished by the lender. She also touches on a point that I think, again, is quite interesting.

Often it's said in relation to quiz-closed trusts that they have this sense that there's been a common intention that the parties share that the property will be segregated. that the property is not at the recipient's free disposal. So in a lot of the cases, you'll see that language of common intention of the parties utilized. And she wants, in a sense, to move away from that, that what we don't need to find is some shared sense of that between the parties.

She says in respect of this idea of the intention, that it's enough that one party is imposing it, that arrangement, on the other. It's enough that they're saying that you've got to do that and the other, in a sense, acquiesces. We're not looking for something which is fully complete in terms of mutual shared reciprocity. It's enough that in the context of the case, it's made clear that the property is, in some sense, the beneficial interest of it is, in some sense, retained.

It's not. you know, it's not at the free disposal of the recipient. So in addition then there's lots of other bits and pieces that you can pick up on in this case but it is the latest restatement as it were of the relevant principles governing quiz-closed trusts.

It's one of those cases where Lady Arden tackles head-on the difficulties that the court has in establishing that that is what the parties have created. not some kind of regular loan between the parties that you would see in an agreement around, like an agency agreement, for example, not some kind of express trust that's been declared, but the genuine elements of a quiz-closed style resulting trust. So a good case to look at if you're interested in exploring that further.

So in terms of our discussion of quiz-closed trusts, Then let's finish with some final illustrations that are commonly cited in the textbooks and indeed the cases. And this is one that we really can't miss. It's a very well-known case dealing with with Quizclose style trusts. It's the case of Juby and Her Majesty's Revenue and Customs.

otherwise known as Ray Fairpack. So if you see it referred to in that alternative, then you'll know it's the same case. And it's a case where the issues at the heart of it made the news some 20 years ago, so in 2006. And it concerned the collapse of a company called Fairpack. And Fairpack had... scheme that it operated.

You might be familiar with similar style schemes, but the point of this one is that it was a way to help families, hardworking families, spread the cost of saving for Christmas throughout the whole of the calendar year. Now, the way that it worked is that the contributors would pay some money each month from... their wages to the agents of Fairpack. And the agents would hold the customers' money, as it were, and then each month what they had contributed would build up in the run-up to Christmas.

And in return for those contributions, those payments, the customers would be issued with vouchers that you could take and spend in high street stores like Argos. So it's kind of a savings scheme that helps hard-working families save up through the calendar year and then have vouchers that they can go into the high street stores and spend and buy their Christmas presents. The problem with Fairpack was that it collapsed and the families lost their savings and hence you see the headline in the picture in the corner of your screen then about the collapse of the Christmas hamper firm and how... thousands of families had lost their annual savings. The question arose in the context of the collapse of Fairpac as to whether any of the monies that the customers had contributed were actually held on quiz-closed style trusts.

Now you can see why you might advance that argument if you were responding to the facts of the case. because you have the payments made by the customers, held by the agents, and then the money distributed in the form of the vouchers at the end of the year. However, that argument was destined to fail. There was no quiz-closed trust created through this arrangement with Fairpac and its agents. At the heart of the...

The objections then to a quiz-closed style trust that might have ring-fenced their contributions. We have an absence of segregation. That's a really, really important point.

There was no segregation of the customer's property, their money, and no real expectation that their contributions would sit in a separate bank account throughout the course of the calendar year. It simply wouldn't be realistic to expect that the company make no use of it in the intervening period. The essence of the arrangement with Fairpac was one where the property would be at their free disposal, but at the end of the calendar year, then they pay out as they were contractually obliged to do so. The quote on screen really is the key passage from the decision. And I think it gives a really good sense of why there could be no quiz-closed style obligation imposed on Fairpac.

And Mann, the judge said, and again, it's just reading through it because we're reiterating the points that we've already made. If it were to be a quiz-closed style trust. The business model would have made no sense. It would have required Fairpac to keep all the customer monies in a separate account from January until November, untouched, until such time as the goods and vouchers were acquired and then sent out.

The judge felt this was just not plausible, right? It wasn't plausible. And it would make Fairpac a very odd savings organisation. And he points out that even banks don't have to do that with their customer monies. So no Quizclos-style trust in the context of Fairpac, no segregation of the money, no sense in which a beneficial interest was retained by the customers, the money was at the free disposal of the recipient.

but with that contractual obligation to satisfy the contributors' orders at the end of the year and in the run-up to Christmas. Okay, so I hope that one's clear. Just a few more cases then that you may well encounter in your reading.

It's not important that you remember every single one of these. But these are a series of examples of where the argument that a quid scos trust had arisen was destined to fail. And I'll touch on them very, very briefly. There's no need to do any more than that.

Bieber and Tethers then is a case that's frequently cited. Indeed, there is some time spent on Bieber and Tethers in the Prickly Bay decision. This is one where money was held.

in a client account for the purposes of making investments. So sums paid into the recipient's client account for the purposes of making investments, and in the initial stages of holding the property, the court accepted that it held it under a quiz-close-style trust. What happened though in Bieber and Tethers was that the parties had agreed that the monies would be paid then into a partnership and the money at the behest of the parties became partnership property. And at that point there was no scope to invoke a resulting trust. You had two stages referred to there, but by the time...

the partners were responsible for the funds. It was partnership property precluding the invocation of a close trust. Fairly clear from the information that you have on screen, the terms of the agreement and the partnership deed did not indicate in any sense that Bieber retained a beneficial interest in the property.

We'll do First City Monument and Zoomax. next because that's another case given a lot of discussion in Prickly Bay, but another recent case involving arguments around quiz-closed trusts. And again, this one failed. It concerned various transfers of money into a Nigerian bank.

There was no segregation of that money at any point. no evidence that the money was not at the bank's free disposal. And here again, rather like the tenor of Lady Arden's comments in Prickly Bay, just because there are payments made and there is a reason underpinning those payments or a purpose behind those payments, That is not enough to create a trust in the transferor's favour.

More is needed, as is emphasised in this case and in Prickly Bay, much more is needed to take that beyond the confines of a contractual relationship. So no quiz-closed style trust. The only duties that existed between the parties were the typical banker-customer duties born out of the contractual relationship between them.

There was no sense in which the property needed to be... fenced, no sense in which it needed to be segregated, nothing alerting the court that the money might not be at the free disposal of the Nigerian bank. So no trust in First City Monument. Finally then, and this is a really straightforward one, Bellis and Chaloner, but it's quite commonly cited, here we had money paid into another client account, a solicitor's client account.

in anticipation that there would be a development project that would come to fruition and that the funds would be used for that. No development ever occurred and the court decided that this looked like no more than an immediate loan made by A to B with the usual set of remedies. available to A where B falls into financial difficulties.

So three separate cases there are failed attempts to argue that there could be a quiz-closed style trust arrangement. And I think the important thing to take away from these is that, you know, you will always see some kind of purpose underpinning a payment made. to the recipient.

But we're looking really very closely at the intention of the parties to see the nature of the relationship is. And to the extent that they don't make that express, we're looking for a need for the property to be segregated from the recipient's other assets. And we're looking for any evidence that suggests that the property is not at the free are for the free use of the recipient at their free disposal. Okay.

So where are we then? Well, what have we covered? Well, we started off with the different ways in which resulting trusts have been classified. We'll talk a little bit more about that in our seminars this week.

And we have concluded our discussion of the failed trust cases or automatic resulting trust cases in old language, including Quizclose-style trusts. So to complete our discussion of resulting trusts, we've got that other large category that we now need to think about, and that is the apparent gift cases. So we're moving now to something quite different.

It's the second of the two categories, however you want to look at them, that we outlined right at the beginning. So we're moving now to think about what we may term presumed resulting trusts or presumed intention resulting trusts. Okay, so this section then is the apparent gift cases, the kind of case where you tend to see the invocation of resulting trusts.

Now, we have already identified two scenarios where looking at these from the outside, they look like apparent gifts, two scenarios where a resulting trust becomes relevant. Because equity assumes bargains and not gifts. What are those scenarios? Well, just to recap then, the first one is where we find a contribution to the purchase price of property, but the property is held in the name of someone else.

That can also extend to cases of joint names. The thing that we're looking at here is that there has been a contribution to the purchase price of the property, but it is held in the name of another. The second scenario, which could look like from the outside that someone is making an apparent gift, concerns the voluntary transfer of property into the name of another. Both of these transactions have the outward appearance of a gift, but the actual value of the gift is not known.

Equity adopts a sense of realism, if we can put it like that, and assumes that bargains have been entered into rather than gifts. We're dealing here with a presumption of resulting trust, a presumption that may or may not be rebutted when one looks closely at the facts of a given case. But it's a presumption that the transferor did not intend to benefit the transferee in the absence of evidence to the contrary.

Presumption... The transferor did not intend to benefit the transferee. It's something that looks like a gift has been made, but equity assumes bargains, not gifts. And so we're in inevitable territory of the presumption of resulting trust.

Just a quote on the bottom of the screen. which I think is a frequently invoked one from Bagnell, where a person acquires a legal estate but has not provided the consideration for its acquisition, a resulting trust arises unless a contrary intention is proved. Just a nice way of explaining how resulting trusts are operating in this context.

Please remember that what is happening in the apparent gift style cases is that we are dealing with no more than a presumption. It's a starting point. It's a presumption of resulting trust.

Lord Diplock reminds us that we're dealing with a presumption, a presumption that can be rebutted. When he said that... This type of presumption is no more than a consensus of judicial opinion, no more than a consensus of judicial opinion as disclosed by the reported cases as to the most likely inference to be drawn in the absence of evidence to the contrary. It's creating a starting point for the courts.

It's no more than a presumption of resulting trust. It doesn't mean that that is indeed what the court will find, but there's a presumption of resulting trust, which can be rebutted by evidence to the contrary, which can be displaced in some way, perhaps, as we'll see, by some counter-presumption of equity. It's a presumption of resulting trust.

We're going to talk a lot about the family home in the coming weeks. We're going to look at a lot of cases that have involved. sole name purchases and joint name purchases.

And we're going to be thinking a lot about the rules that apply. I wanted to pick out just one apparent gift-style case so that we could think about those inferences that the court is drawing when there's an absence of evidence of intention in cases. So the one that I picked out really to draw your attention to now as a case we'll talk about again in the coming weeks. It's Lasker and Lasker. And it gives you a flavour of the inferences that need to be drawn from things like what the party said and what the party did in the absence of any kind of express declaration.

So in Lasker and Lasker, the parties were a mother and a daughter, and they purchased some property together, not in order to live in it, like as if it were their home, but more as a kind of investment. So in this scenario... where there was an absence of clarity as to how they owned the property and there was a falling out between the pair, the court was really guided by the commercial context in which their decisions had been made. So rather than invoke the presumption that equity follows the law in this case and presume from their joint, purchase of the property that they were jointly entitled to it, a resulting trust analysis prevailed in Lasker and Lasker that enabled the parties to recover in proportion to their contributions, so that they were able to say, as for the daughter, that she contributed X, so she'd receive proportionately that out.

of any sale of this property. They didn't set out at the beginning how they were going to hold their shares. They didn't expressly say what they were doing. So the court is doing no more than drawing inferences as to what it felt the parties intended. And here a resulting trust analysis prevailed because the court was influenced by the commercial nature of the transaction that they'd entered into.

And despite the relationship that existed between them of mother and daughter. That's an interesting case that we'll come back to. We'll see whether you think it would be decided similarly today.

But it does give you a sense of the court searching for some sense of what the parties intended when it looks like. A contribution has been made to the property and there is disagreement between the parties as to how they hold it. We're going to look at these family home cases in due course. We're not quite there yet, but flagging that one up for some discussion at a later stage.

I'm going to focus for a moment or two on the cases that involve... a voluntary conveyance or a transfer of property. So it's that sense of putting the property in the name of someone else and they don't give consideration for it, or making a gratuitous transfer of property. That's where we are just now.

And if we look at the case law on this, which you might think should be reasonably straightforward, Actually, we need to make a distinction between the approach that applies where we're dealing with land and the approach that applies when we're dealing with personality, so items of personal property. If we start with land, we need to be mindful of the effect of a particular section of the Law of Property Act that deals with voluntary conveyances of land. And that section is section 60, subsection 3 of the 1925 Act.

And this has actually got the courts into all sorts of difficulties. And it's maybe quite surprising that that is the case, but we'll look at some of those difficulties in a moment. Section 60 in itself was a provision of the 1925 Act that was concerned with... getting rid of lots of technicalities in relation to conveyancing and deeds and so on.

It's eliminating these technical things from our property law in an effort to make transactions more achievable, readily understandable, etc. And to rid it of lots of old-fashioned language that you know from your studies of land law, make it difficult for the layperson to understand. Prior to the enactment of the provision, it was normal practice for conveyancers.

So if you wanted to voluntarily convey or transfer your property to another, it was common for conveyancers to draft that in a particular way. And you needed to kind of make clear that you were granting the property to them or it's an odd phrasing, but onto and to the use of the grantee. That's what used to be tagged on the end of these drafted clauses. So there was a commonplace way of drafting that, that conveyancers would use, a precedent, as it were, that would indicate that you were making this voluntary conveyance of the property into another person's hands. And section 60 subsection 3 deals with that.

The wording of it has led to some confusion in the courts, but it says that in a voluntary conveyance, a resulting trust for the grantor, this is where it starts to get kind of difficult to think about in your mind, a resulting trust for the grantor shall not be implied merely by reason that the property is not expressed. to be conveyed for the use or benefit of the grantee. There's a kind of technical provision hidden in the Law of Property Act designed to deal with archaic language and forms of words. But it fell to the courts then to construe where this provision, what impact this provision would have on the presumption of resulting trust that would arise from you transferring your property voluntarily into the hands of someone else for no consideration.

There were two possible interpretations of this provision. The first is that it is no more than a word-saving... provision designed to tidy up this aspect, this technical aspect of conveyancing. On the one hand, you could construe it as no more than a word-saving provision, tidying up our conveyancing protocols and practices. The other possibility was that the effect of the provision was to remove the presumption of resulting trust in these cases.

So that there would be no presumption of resulting trust in the case of a voluntary conveyance of land from A to B for no consideration. So two possible readings, right? Is it merely a word-saving device that we don't need to worry about and we apply on regardless?

Or is it doing something more fundamental in removing the presumption of resulting trust? that would ordinarily be the starting point for the court in the case of a voluntary conveyance. Note though at the wording, because we've got the reference to conveyance in section 60 subsection 3, we don't apply this or think about this at all in relation to personal property. It's merely to do with land and I think that much is clear. So this is, and we'll look quickly at this and finish there for today, but this is a sense of the case law that you might encounter on Section 60, subsection 3, when you do your textbook reading.

So when you come to think more about the voluntary conveyance and the apparent gift cases and the presumption of resulting trust, these are the cases that have construed Section 60, subsection 3, and analysed. really what its impact should be. At first instance, in that first case, Loewe and Loewe, Nicholas Strauss QC said that on a plain reading of section 60 subsection 3, the presumption of resulting trust has been abolished. This is his view. On a plain reading, the presumption of resulting trust has been abolished.

What you need, he says, is some additional evidence to push you in that direction. It doesn't mean there isn't a resulting trust, but you need to produce or reduce some additional evidence. So the presumption is gone for the court to find a resulting trust. We need some further evidence. In the case, a son had conveyed his interest in the family home to his father.

He simply transferred his interest in the family home to his dad. There was nothing else to indicate why he might have done that. Nothing to indicate what he was thinking, nothing to indicate what possible motive there was for that.

Indeed, the family carried on in a pretty harmonious fashion, but there was nothing to explain that transaction. Why had the son done this? So is there a presumption of resulting trust in this case? Well, Nicholas Strauss said, no, okay, section 60 subsection 3, we're not starting with that presumption.

You know, if we were going to say that this property was held on resulting trust, we'd be looking for something else, something else that might push us in that direction. Like, for example, if the parties were strangers to each other. That would be something that you would look at and think, ah, that could be evidence that the property was held on resulting trust. Different story in the Court of Appeal, although they're happy with the outcome in the Court of Appeal, you'll see a lot more reticence from the Court of Appeal level judges in Lohia.

A lot more reticence because they just don't know what to make of the provision. So they're very cautious about coming to a clear conclusion about what it means without a lot more argument and discussion that hasn't been had. And in Alley and Cannes then, and this is where we will leave it for today, there was some agreement in that case.

Morat was the judge in Alley and Cannes. And there was some agreement with Nicholas Strauss at first instance that the presumption had probably been abolished in a voluntary conveyance and that the court must then look for additional evidence to take it there. Something on the facts that would confirm the existence of the resulting trust.

But Nicholas Strauss, he says, is probably right. What makes that less convincing, and no, Ali and Khan is a court of appeal level case, is that Morrick didn't seem to be cognizant of those other court of appeal judges in the earlier case. They seemed to focus purely on the first instance decision. So what can we take from this?

Well, we've got some support for the idea that the presumption has been abolished, but we'll pick up tomorrow with those final few cases, and that might lead you to think something slightly different. Hello again. So cold.

Transcript for:Understanding Resulting and Quist-Close Trusts

Transcript for:
Understanding Resulting and Quist-Close Trusts