2009 ZB Q1

This classification between ‘automatic’ and ‘presumed’ resulting trusts was originally
drawn by Megarry J in Re Vandervell (No. 2) when he referred to the explanation
given by Lord Upjohn for categories of resulting trusts in Vandervell v IRC. Presumed
resulting trusts arise if A inter vivos gratuitously transfers assets to B (‘voluntary
conveyance’) or pays for assets to be transferred to B (‘purchase money’), and there
is no evidence that A intended to make a gift to B. Such presumption that a resulting
trust arises can however be rebutted by admissible evidence of A’s intention to make
a gift to B.

On the other hand, if it is unclear whether A intended to make a gift to B, but A is B’s
father or husband or stands in loco parentis to B or, in some other common law
jurisdictions, though the position in English law is still unclear, A is B’s mother, then
the law will presume that A made a gift to B (“presumption of advancement”).
However, it should be noted that in the view of Professor William Swadling the
presumption of advancement is not a true presumption at all but simply a situation
in which the presumption of resulting trust does not apply.

Automatic resulting trusts arise when an express trust fails (‘failed trust’) and they
are not based on presumption because the fact that there has been a trust provides
evidence of the settlor’s intention not to make a gift to the trustee and hence there is
no room for a presumption to operate.

The first question that we have to ask is whether the meaning of those two terms
describes what happens in the trusts.

Do automatic resulting trusts arise automatically?

The difficulty in answering this question arises from the word ‘automatic’ itself.
According to Megarry J, this kind of trust appears to arise ‘automatically’ by the
operation of law irrespective of intention. The beneficial interest that the transferor
intends to dispose of, but has failed to do so, remains automatically vested in him.
This explanation was opposed by Lord Browne-Wilkinson in Westdeutsche
Landesbank, who said all resulting trusts arise because of the presumption that the
transferor intended to create a trust for himself. Therefore, in his lordship’s view, the
word ‘automatic’ does not describe exactly what happens in the kind of trust.

But his analysis ironically cannot explain Vandervell v IRC, the predecessor case of Re
Vandervell (No. 2), where the House of Lords held that the options were held by the
trust company on resulting trust for Mr. Vandervell himself. In that case, Vandervell
wanted to endow a chair of pharmacology in the Royal College of Surgeons in a tax
efficient way. So he had his shares of his company transferred to the RCS and then he
used his control over the company to declare dividends on those shares so that RCS
could use the dividend to fund the chair. RCS then granted an option to the trust
company that administered two separate trusts for his own children and his
employees. Therefore, when the dividend was paid, the trust company exercised the
option to retrieve the shares from RCS.

The crucial point is that Mr. Vandervell did not intend to create any trust for himself
at any time because the arrangement was to dispose of his beneficial interest in
those shares and the option was granted to the trust company not to Mr. Vandervell
himself. But the majority of the House of Lords held that it was inconceivable for
Vandervell to intend the trust company to take the option beneficially given the
evidence they had. Even though he did not intend the trust company to hold the
shares retrieved by the option on trust for him, he must have intended that those
shares be held for somebody. But since this person cannot be ascertained, the
express trust failed for uncertainty of objects, and the beneficial interest of the
shares resulted back to Vandervell under automatic resulting trust as Megarry J later
called it. The reasoning also rejected Lord Browne-Wilkinson’s proposition that if the
settlor has expressly, or by necessary implication abandoned any beneficial interest
in the trust property, there is no resulting trust because the undisposed equitable
interest vests in the Crown as bona vacantia. The reason is that in the Vandervell
case itself, even though Vandervell himself expressly abandoned the beneficial
interest in the shares, an automatic resulting trust still arose in his favour irrespective
of his intention because the House of Lords held that he must have intended that the
shares be held on trust by the trust company (because it was part of his plan for the
trust company to buy back the shares) and the uncertainty of objects will render the
trust void. So in a sense, an automatic resulting trust did arise ‘automatically’ against
Vandervell’s intention. This argument can also find judicial support in an article
written by Lord Millett extra-judicially, which also provided the basis for the
decision in Air Jamaica v Charlton. He said a resulting trust arises even where the
transferor positively wished to part with the beneficial interest because such trust
responds to the absence of any intention on part of the transferor to pass a
beneficial interest to the recipient. In fact, when the case was still at first instance,
Plowman J also said when a man expressly abandons his property, this does not
mean that he ceases to own it. The question is whether he has succeeded in
abandoning it, and this proposition was approved by Lord Upjohn in the same case.
So we can conclude that Lord Browne-Wilkinson’s proposition is untenable in view of
the relevant case law.

Are presumed resulting trusts really presumed to exist?

This question concerns the other kind of resulting trust, which is called presumed
resulting trust. A presumption is an inference that a fact exists. Upon proof by
evidence of the existence of relevant facts (e.g. A transfers his property inter vivos
and gratuitously to B and is not B’s father or husband), the court assumes that an
additional fact exists that will have legal significance (i.e. a resulting trust arises).

But Lord Browne-Wilkinson understood such presumption differently as he said in

Westdeutsche that this kind of trust arises from the presumption that the transferor
did not intend to make a gift to the transferee and if this presumption is not
rebutted, then there is a presumption that the transferor intends to create a trust for
himself.

But this thesis cannot explain a case like Re Vinogradoff in which a four-year old girl
was held by the court to hold the shares for her grandmother’s estate on resulting
trust because there was no evidence to establish an intention of the grandmother to
make a gift. So according to Lord Browne-Wilkinson, the explanation for the
emergence of the resulting trust is that when the grandmother inter vivos,
gratuitously transferred her shares to the little girl, she was already presumed not to
have intended to make a gift to the girl unless this presumption was rebutted by
evidence that she indeed intended to make a gift, and because there was no
evidence to establish an intention to make a gift, this presumption was not rebutted
and the resulting trust arose to give effect to the presumed intention of the
transferor to create a trust for herself (the grandmother). But this explanation is
problematic because the absence of evidence to make a gift does not necessarily
mean that there was a presumed intention of the grandmother to create a
resulting trust for herself. Given the age of the girl, it is improbable, if not
impossible, that the grandmother had intended her granddaughter hold the shares
on trust for her estate after she died, not to mention the fact that under s. 20 of the
Law of Property Act 1925, an infant cannot be a trustee, and resulting trusts are not
excluded. Therefore, there is not enough evidence to justify that a trust is presumed
to exist, and classifying this kind of resulting trust as presumed seems untenable. In
fact, it has also been argued by Professor Robert Chambers that the presumption of
resulting trust is not a true presumption, but simply a situation in which the
presumption of advancement does not apply, in which case a resulting trust arises
because there is no explanation for the transaction. So on this understanding,
presumed resulting trusts do not arise from any presumption at all. Even if we adopt
Professor William Swadling’s thesis that the presumption is a declaration of trust, the
case Re Vinogradoff is still not explicable because it is improbable for the
grandmother to have intended to declare a trust of the shares for her estate after she
died.