Chapter 6: Constructive Trust
As we saw in the previous section, section 53(1)(b) of the Law of Property Act 1925, requires a trust to be manifested and proved in writing. However, equity will not allow a statute to be used as an "engine of fraud". If an owner of property has entered into an informal arrangement or understanding that another is to enjoy some interest in their land, equity will impose a constructive trust where a denial of the arrangement or understanding would be unconscionable, or even fraudulent. Constructive trusts do not need to be in writing as they are exempted from the operation of section 53(1)(b), by section 53(2). Mere denial of an informal arrangement or understanding is of itself generally insufficient, since equity will not assist a volunteer. Either the owner must be unjustly enriched or the claimant must have acted to their detriment.
The difficulty of finding the correct balance between certainty and fairness, has led to the circumstances in which a constructive trust will be imposed being ill defined.
Particular difficulties have arisen in establishing what will constitute:
1. A sufficient arrangement or understanding;
2. Sufficient detriment; and
3. The necessary link between detriment and the understanding.
It is clear that a constructive trust does not arise merely because this is a convenient way of achieving a fairer result. If such a trust is to be established, there must be some sort of understanding that the owner's enjoyment of the property is not unfettered, but is subject to the rights of another. This understanding may be express, or it may be inferred from the parties conduct but it cannot be conveniently imputed to provide a remedy against unconscionable conduct.
Detriment
We have seen that different degrees of detriment are required depending on whether or not an express or inferred arrangement between the parties exists.
Indeed in the case of an arrangement inferred from conduct, the issue of whether sufficient detriment exists and whether the parties had come to an understanding is really the same question!
Which of the following forms of detriment do you think would be sufficient to justify the inference of an arrangement?
1. Renovating the property
Answer: NO.
The recent ruling of the House of Lords in Lloyds Bank Plc v Rosset [1991] 1 AC 107 made it clear that much more rigorous requirements would be applied to cases where no express agreement could be shown. Lord Bridge acknowledged that direct monetary contributions to the cost of a property would be relevant i.e. paying the mortgage or contributing to the initial cost, but suggested that nothing else was likely to be enough.
This is a very unpredictable area of the law however and previous cases seem to have been rather less draconian at least as regards option 4 - see for example comments in Gissing v Gissing [1971] AC 886.
If the parties were married a share in the property could be acquired under section 37 Matrimonial Proceedings and Property Act 1970, which enables a spouse to claim a share in the beneficially ownership of property held in the name of the other spouse (or in their joint names) when they have made substantial improvements.
2. Performing general household chores
Answer: NO
3. Paying off a substantial proportion of the mortgage
Answer: YES
The recent ruling of the House of Lords in Lloyds Bank Plc v Rosset [1991] 1 AC 107 made it clear that much more rigorous requirements would be applied to cases where no express agreement could be shown. Lord Bridge acknowledged that direct monetary contributions to the cost of a property would be relevant, i.e. paying the mortgage or contributing to the initial cost, but suggested that nothing else was likely to be enough.
This is a very unpredictable area of the law however and previous cases seem to have been rather less draconian at least as regards option 4 - see for example comments in Gissing v Gissing [1971] AC 886.
If the parties were married a share in the property could be acquired under section 37 Matrimonial Proceedings and Property Act 1970, which enables a spouse to claim a share in the beneficially ownership of property held in the name of the other spouse (or in their joint names) when they have made substantial improvements.
4. Meeting general household expenses to enable the owner to pay the mortgage instalments
Answer: NO
There appears to have been some tightening of judicial attitudes as to what financial contributions are sufficient to establish an inferred common intention. There is little doubt that the contributions must be financial in nature but there is uncertainty over whether they must be direct ie actual payments to the initial price or to the mortgage repayments or whether they can be indirect ie relieving the owner from other expenses that they would have had to meet so that they can fund the price or mortgage repayments. Lord Diplock in Gissing v Gissing [1970] 2 All ER 780 seemed to suggest that these more indirect financial contributions should not be ignored. But more recent comments by Lord Bridge in Lloyds Bank Plc v Rosset [1991] 1 AC 107 have ruled out anything but direct financial contributions.
It is not unusual for couples in a close personal relationship to fail to record their understanding on financial matters clearly. They may find it difficult to discuss money or assume that everything will be shared or it may simply not occur to them. The partner claiming a beneficial interest will then have to establish an inferred intention but to do so they must have some source of income or capital from which to make the necessary financial contribution. Where the partner is unable to work because of family commitments that may be impossible!
The Link Between Detriment and Common Intention
Where an arrangement is inferred from the detriment suffered by the claimant, the link between the two must be close and obvious. It was perhaps for this reason that Lord Bridge made it clear in Lloyds Bank v Rosset [1991] 1 AC 107, that detriment in such cases should be financial in nature and directly linked to the acquisition of the property.
So far so good, but what link must there be between arrangement and detriment, where there is an express arrangement between the parties? Some guidance on this matter appears in the judgements of the Court of Appeal in Grant v Edwards [1986] 1 Ch 638, although the judges did not express a common view. Relevant remarks can be found in the opinions of:
1. NOURSE LJ; and
2. BROWNE-WILKINSON V.C.
Views of Nourse L.J. at 648:
"It seems therefore, on the authorities as they stand, that a distinction is to be made between conduct from which the common intention can be inferred on the one hand and conduct which amounts to acting upon it on the other. There remains this difficult question: what is the quality of conduct required for the latter purpose? The difficulty is caused, I think because although the common intention has been made plain, everything else remains a matter of inference. Let me illustrate it in this way. It would be possible to take the view that the mere moving into the house by the woman amounted to an acting upon the common intention. But that was evidently not the view of the majority in Eves v Eves [1975] 1 WLR 1338. And the reason for that may be that, in the absence of evidence, the law is not so cynical as to infer that a woman will only go to live with a man to whom she is not married if she understands that she is to have an interest in their home. So what sort of conduct is required? In my judgement it must be conduct on which the woman could not reasonably have been expected to embark unless she was to have an interest in the house. If she was not to have such an interest, she could reasonably be expected to go and live with her lover, but not, for example, to wield a 14-lb sledge hammer in the front garden. In adopting the latter kind of conduct she is seen to act to her detriment on the faith of the common intention."
Views of Browne-Wilkinson V.C.at 656 & 657:
"There is little guidance in the authorities on constructive trusts as to what is necessary to prove that the claimant so acted to her detriment. What "link" has to be shown between the common intention and the actions relied on? Does there have to be positive evidence that the claimant did the acts in conscious reliance on the common intention? Does the court have to be satisfied that she would not have done the acts relied on but for the common intention, e.g. would not the claimant have contributed to household expenses out of affection for the legal owner and as part of their joint life together even if she had no interest in the house? Do the acts relied on as a detriment have to be inherently referable to the house, e.g. contribution to the purchase or physical labour on the house?"
AND
"In many cases of the present sort, it is impossible to say whether or not the claimant would have done the acts relied on as a detriment even if she thought she had no interest in the house. Setting up house together, having a baby, making payments to general housekeeping expenses (not strictly necessary to enable the mortgage to be paid) may all be referable to the mutual love and affection of the parties and not specifically referable to the claimant's belief that she has an interest in the house. As at present advised, once it has been shown that there was a common intention that the claimant should have an interest in the house, any act done by her to her detriment relating to the joint lives of the parties is, in my judgement, sufficient detriment to qualify. The acts do not have to be inherently referable to the house:"
The difficulty of finding the correct balance between certainty and fairness, has led to the circumstances in which a constructive trust will be imposed being ill defined.
Particular difficulties have arisen in establishing what will constitute:
1. A sufficient arrangement or understanding;
2. Sufficient detriment; and
3. The necessary link between detriment and the understanding.
It is clear that a constructive trust does not arise merely because this is a convenient way of achieving a fairer result. If such a trust is to be established, there must be some sort of understanding that the owner's enjoyment of the property is not unfettered, but is subject to the rights of another. This understanding may be express, or it may be inferred from the parties conduct but it cannot be conveniently imputed to provide a remedy against unconscionable conduct.
Detriment
We have seen that different degrees of detriment are required depending on whether or not an express or inferred arrangement between the parties exists.
Indeed in the case of an arrangement inferred from conduct, the issue of whether sufficient detriment exists and whether the parties had come to an understanding is really the same question!
Which of the following forms of detriment do you think would be sufficient to justify the inference of an arrangement?
1. Renovating the property
Answer: NO.
The recent ruling of the House of Lords in Lloyds Bank Plc v Rosset [1991] 1 AC 107 made it clear that much more rigorous requirements would be applied to cases where no express agreement could be shown. Lord Bridge acknowledged that direct monetary contributions to the cost of a property would be relevant i.e. paying the mortgage or contributing to the initial cost, but suggested that nothing else was likely to be enough.
This is a very unpredictable area of the law however and previous cases seem to have been rather less draconian at least as regards option 4 - see for example comments in Gissing v Gissing [1971] AC 886.
If the parties were married a share in the property could be acquired under section 37 Matrimonial Proceedings and Property Act 1970, which enables a spouse to claim a share in the beneficially ownership of property held in the name of the other spouse (or in their joint names) when they have made substantial improvements.
2. Performing general household chores
Answer: NO
3. Paying off a substantial proportion of the mortgage
Answer: YES
The recent ruling of the House of Lords in Lloyds Bank Plc v Rosset [1991] 1 AC 107 made it clear that much more rigorous requirements would be applied to cases where no express agreement could be shown. Lord Bridge acknowledged that direct monetary contributions to the cost of a property would be relevant, i.e. paying the mortgage or contributing to the initial cost, but suggested that nothing else was likely to be enough.
This is a very unpredictable area of the law however and previous cases seem to have been rather less draconian at least as regards option 4 - see for example comments in Gissing v Gissing [1971] AC 886.
If the parties were married a share in the property could be acquired under section 37 Matrimonial Proceedings and Property Act 1970, which enables a spouse to claim a share in the beneficially ownership of property held in the name of the other spouse (or in their joint names) when they have made substantial improvements.
4. Meeting general household expenses to enable the owner to pay the mortgage instalments
Answer: NO
There appears to have been some tightening of judicial attitudes as to what financial contributions are sufficient to establish an inferred common intention. There is little doubt that the contributions must be financial in nature but there is uncertainty over whether they must be direct ie actual payments to the initial price or to the mortgage repayments or whether they can be indirect ie relieving the owner from other expenses that they would have had to meet so that they can fund the price or mortgage repayments. Lord Diplock in Gissing v Gissing [1970] 2 All ER 780 seemed to suggest that these more indirect financial contributions should not be ignored. But more recent comments by Lord Bridge in Lloyds Bank Plc v Rosset [1991] 1 AC 107 have ruled out anything but direct financial contributions.
It is not unusual for couples in a close personal relationship to fail to record their understanding on financial matters clearly. They may find it difficult to discuss money or assume that everything will be shared or it may simply not occur to them. The partner claiming a beneficial interest will then have to establish an inferred intention but to do so they must have some source of income or capital from which to make the necessary financial contribution. Where the partner is unable to work because of family commitments that may be impossible!
The Link Between Detriment and Common Intention
Where an arrangement is inferred from the detriment suffered by the claimant, the link between the two must be close and obvious. It was perhaps for this reason that Lord Bridge made it clear in Lloyds Bank v Rosset [1991] 1 AC 107, that detriment in such cases should be financial in nature and directly linked to the acquisition of the property.
So far so good, but what link must there be between arrangement and detriment, where there is an express arrangement between the parties? Some guidance on this matter appears in the judgements of the Court of Appeal in Grant v Edwards [1986] 1 Ch 638, although the judges did not express a common view. Relevant remarks can be found in the opinions of:
1. NOURSE LJ; and
2. BROWNE-WILKINSON V.C.
Views of Nourse L.J. at 648:
"It seems therefore, on the authorities as they stand, that a distinction is to be made between conduct from which the common intention can be inferred on the one hand and conduct which amounts to acting upon it on the other. There remains this difficult question: what is the quality of conduct required for the latter purpose? The difficulty is caused, I think because although the common intention has been made plain, everything else remains a matter of inference. Let me illustrate it in this way. It would be possible to take the view that the mere moving into the house by the woman amounted to an acting upon the common intention. But that was evidently not the view of the majority in Eves v Eves [1975] 1 WLR 1338. And the reason for that may be that, in the absence of evidence, the law is not so cynical as to infer that a woman will only go to live with a man to whom she is not married if she understands that she is to have an interest in their home. So what sort of conduct is required? In my judgement it must be conduct on which the woman could not reasonably have been expected to embark unless she was to have an interest in the house. If she was not to have such an interest, she could reasonably be expected to go and live with her lover, but not, for example, to wield a 14-lb sledge hammer in the front garden. In adopting the latter kind of conduct she is seen to act to her detriment on the faith of the common intention."
Views of Browne-Wilkinson V.C.at 656 & 657:
"There is little guidance in the authorities on constructive trusts as to what is necessary to prove that the claimant so acted to her detriment. What "link" has to be shown between the common intention and the actions relied on? Does there have to be positive evidence that the claimant did the acts in conscious reliance on the common intention? Does the court have to be satisfied that she would not have done the acts relied on but for the common intention, e.g. would not the claimant have contributed to household expenses out of affection for the legal owner and as part of their joint life together even if she had no interest in the house? Do the acts relied on as a detriment have to be inherently referable to the house, e.g. contribution to the purchase or physical labour on the house?"
AND
"In many cases of the present sort, it is impossible to say whether or not the claimant would have done the acts relied on as a detriment even if she thought she had no interest in the house. Setting up house together, having a baby, making payments to general housekeeping expenses (not strictly necessary to enable the mortgage to be paid) may all be referable to the mutual love and affection of the parties and not specifically referable to the claimant's belief that she has an interest in the house. As at present advised, once it has been shown that there was a common intention that the claimant should have an interest in the house, any act done by her to her detriment relating to the joint lives of the parties is, in my judgement, sufficient detriment to qualify. The acts do not have to be inherently referable to the house:"
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