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Sharing the beneficial interest in property

Before the twin cases of Pettit v Pettit[1] and Gissing v Gissing, in cases where there was no legal agreement that both spouses would share the beneficial interest of the property, the wife’s interest in the property was only recognized by the law when she had made direct payments towards the purchase price of the family home. In such cases the law would presume, from the contribution, a common intention of the parties that the legal owner would hold on trust for himself and his/her cohabitee as beneficiaries. This is what is known as a presumed resulting trust. The presumption of a common intention, which may be rebutted, arises by law; not on the facts.

Lord Diplock’s judgment in Gissing effectively created what is now referred to as a common intention constructive trust. Essentially Lord Diplock held that where the legal title to a property was owned by one person, cohabitees would be held to share a beneficial interest in the property even if they had not contributed directly to the purchase price (thus falling beyond the protection of the resulting trust) as long as they could provide evidence that both cohabitees had a common intention that the beneficial interest would be shared, and that the legal owner had induced the beneficiary to act to his own detriment in reliance of this agreement. Crucially, however, he saw no need to properly establish the boundaries of this principle, or to distinguish common intention constructive trusts from implied or presumed resulting trusts.

A resulting, implied or constructive trust – and it is unnecessary for present purposes to distinguish between these three classes of trust – is created whenever the trustee has so conducted himself that it would be inequitable to deny the cestui que trust a beneficial interest in the land acquired. And he will be held so to have conducted himself if by his words or conduct he has induced the cestui que trust to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land.[2]

With common intention constructive trusts the common intention as to the beneficial ownership of the property must be proven, on a balance of probabilities, on the facts. Therefore, a spouse would have to provide some evidence for the courts to infer that an intention had in fact existed. This can be distinguished - and it is submitted that the distinction is crucial - from a presumed resulting trust where the presumption as to a common intention arises by operation of law by virtue of a monetary contribution to the purchase price. A presumed resulting trust and a common intention constructive trust therefore arise in very different ways. Moreover, not only the nature but also the consequences of each are crucially different. With a presumed resulting trust, the presumption is that there was an intention that both parties would hold a share proportionate to their direct contribution to the purchase price whereas with a common intention constructive trust the courts adopt a ‘broad brush’ approach when determining how the parties intended the beneficial interest to be divided. For this reason I believe that the distinction which Lord Diplock felt was unnecessary, could not, in reality, have been more crucial. It is submitted that in order for these principles to operate properly, they must do so separately. Lord Diplock’s failure to properly distinguish between resulting and constructive trusts has led to a very dangerous ambiguity and uncertainty in this area of law, which has ever since threatened to defeat precisely what Lord Diplock’s set out to achieve: the protection of the cohabitee with no legal title.

The repercussions of this were most clearly manifested in the Court of Appeal case of Midland Bank v Cooke[3]. In fact, Waite J’s judgement in that case can be seen as a celebration of the fusion of both types of trust in this area of the law, and the flexibility that this provides.

Here, Waite J held, in essence, that the mere existence of a direct contribution to the purchase price opens the door to an interest proportionally greater than the original payments, even when, as was the present case, there is in fact positive evidence that no agreement as to a common intention was ever reached. It is hard to find any rationale for this conclusion. Waite J seems to have held not only that a common intention trust can ride on the back of a resulting trust, but all the more worryingly, than an interest created by a direct contribution can be increased on the basis of an intention that, in fact, never existed. In the words of Martin Dixon:

Surely it cannot be the case that whereas the court is prepared to find a constructive trust only on the back of an express agreement or promise (Rosset route 1) it will at the same time be prepared to quantify an interest generated by purchase payments on the back of a completely fictitious one?[4]

Waite J’s judgement exemplifies the inherent dangers of failing to establish fixed principles of law. Lord Diplock’s failure to properly frame the principles he had developed in Gissing allows, and even encourages judges to approach the area with a ‘free hand’ attitude. In other words, a person other than a legal owner is held to be entitled to a ‘fair’ share of the property as long as he can show that the legal owner holds the property on either an implied, resulting or constructive trust. The added fact that the three examples fall within s. 53(2) LPA 1925 has led judges to believe that all formalities or formal principles may, as a result, be dispensed with.

Having no clear guiding restrictions, Waite J brought together the common intention constructive trust and the resulting trust in a very dangerous way, and then, moreover, extended their principles:

Positive evidence that the parties neither discussed nor intended any agreement as to the proportions of their beneficial interest does not preclude the court, on general equitable principles, from inferring one[5].

I would submit that the courts are indeed precluded from finding such an intention. Again in the words of Martin Dixon, ‘the courts have no business engaging in fictions’, and therefore when there is unquestionable evidence that no agreement exists, the courts are quite clearly departing from their judicial role if they hold that one does exist. For this reason I would respectfully submit that the reasoning in Cooke is flawed. I would submit that it was an inevitable consequence of the courts’ failure to qualify Lord Diplock’s judgement in Gissing, and the confusion that this has created.

The solution, then, that should be favoured should be to keep both principles separate. One has to accept that flexibility is one of the most essential and defining qualities of equity, and nowhere is this more clearly manifested than with constructive trusts. But no matter how flexible the principles, it is submitted that they must be clearly distinguished and established within a clear framework if they are to be capable of consistent application and enforcement. We have seen that the lack of such a framework can lead to a blurring of principles and confusion as to what the law is. This, in turn, produces an inconsistent and arbitrary system of law incapable of protecting the individual.

Word Count: 1046 (excluding quotes)

BIBIOGRAPHY

ARTICLES

  1. D Burrows, ‘Resulting or constructive trusts: propriety estoppel’ [1995] SJ 5 March 332
  2. M Dixon, ‘A Case Too Far’ [1997] Conv Jan /Feb 66 - 73

BOOKS

  1. N Stockwell and R Edwards, ‘Trusts and Equity’ (2002), Longman: Dorset.
  1. Gissing v Gissing [1970] 2 All ER 780
  2. Midland Bank v Cooke [1995] 4 All ER 562
  3. Pettitt v Pettitt[1969] 2 All ER 385

Footnotes

[1] [1969] 2 All ER 385

[2] [1970] 2 All ER 780

[3][1995] 4 All ER 562

[4] Conv. 1997, Jan / Feb 66-73

[5] [1995] 4 All ER 562


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