HAS THE CONSTRUCTIVE TRUST BECOME A GENERAL EQUITABLE REMEDY? A. J. OAKLEY *

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1 HAS THE CONSTRUCTIVE TRUST BECOME A GENERAL EQUITABLE REMEDY? A. J. OAKLEY * " THE English law of constructive trusts has not fired the imagination of judges or writers." So wrote Professor Waters in 1964 as the opening sentence of his monograph The Constructive Trust.' No such statement could be made today. The constructive trust has, in recent years, been taken up and used by the courts for a variety of purposes; so much so that there is a certain amount of truth in the recent judicial comment that a constructive trust " is a trust imposed by law whenever justice and good conscience require it.. It is an equitable remedy by which the court can enable an aggrieved party to obtain restitution." 2 How far do such statements accurately reflect the recent practice of the courts? How far are these recent developments desirable? This paper will attempt to suggest an answer to these questions. INTRODUCTION Some general discussion of the constructive trust may be useful by way of introduction. No clear view emerges from the deciled cases as to the nature of a constructive trust. It seems, however, to be generally accepted that a constructive trust arises irrespective of the intention of the parties, being imposed by the court because of the conduct of the parties. Thus, it is a creature of law, arising by operation of law. What is clear is that the attitude of English * Every student of the constructive trust owes a debt to Gareth Jones, Esq., Fellow of Trinity College, Cambridge, whose writings have opened up this area of the law in recent years. I am the more indebted in that I have also had the benefit of his tuition. Many of the ideas set out in this paper as to the place of the constructive trust in English law are derived from his and are gratefully acknowledged. My thanks are also due to J. D. R. Adams, Esq., Lecturer in English Law in the University of London, who read this paper at an early stage and whose criticism remedied many deficiencies bath of substance and of style. 1 D. W. M. Waters, The Constructive Trust (1964), p Per Lord Denning M.R. in Hussey v. Palmer [1972] 1 W.L.R. 1286, at p

2 18 Current Legal Problerns 1973 law towards the constructive trust is very different from that of the American jurisdictions. This difference has been expressed in a number of ways. Professor R. H. Maudsley has stated, in an oft-quoted passage, that "English law has always thought of the constructive trust as an institution, a type of trust." 3 The American jurisdictions, on the other hand, are said to regard the constructive trust as " purely a remedial institution." 4 This terminology, however, causes some difficulty since it creates the impression that English law does not, in any sense, regard the constructive trust as a remedy. While it may indeed be accurate to state that English law does not regard the constructive trust as a remedy in the sense that it regards the injunction as a remedy, it can hardly be said that a plaintiff who seeks the imposition of a constructive trust is not seeking a remedy. The effective distinction between the English and the American approaches may, perhaps, rather be expressed in this way. English law demands, as a prerequisite of the imposition of a constructive trust, that some legal wrong should have been committed by the party upon whom the trust is to be imposed. The American courts, on the other hand, will impose a constructive trust in order to enable a party to recover " that which is unfairly withheld from him to the benefit of the withholder." A plaintiff need show only that the defendant has been unjustly enriched at his expense. It has long been argued that the English courts should adopt the American approach and impose a constructive trust in order to prevent unjust enrichment. Certainly, in principle, there is no reason why the categories of situations in which English courts will impose a constructive trust should be regarded as closed. However, the effects of the imposition of a constructive trust are such as to render it an inappropriate instrument for dealing out justice inter partes. The imposition of a constructive trust places upon the trustee a considerable liability. He will be obliged to account, with interest, for the property of which he is declared to be a constructive 3 In 75 L.Q.R. (1959), 234, at p These are the words of Roscoe Pound in 33 Harv.L.R. (1920), 420, at p Waters, op. cit., p. 12. Many examples of the American courts imposing a constructive trust for this reason are cited by Professor Waters.

3 Constructive Trusts 19 trustee. In the event of his bankruptcy, the beneficiaries will be entitled to priority over his general creditors. Further, they will be able to trace the trust property or its product into the hands of any transferee, subject, if the product of the property has been mixed with other funds in a banking account, to the defence of bona fide purchase for value without notice. 6 The constructive trust, therefore, is a remedy which has far-reaching ramifications not only for the person on whom it is imposed but also for third parties. Its indiscriminate invocation and imposition is highly undesirable. The constructive trust should not be invoked by the courts as some sart of instant remedy to prevent what the court regards as an unjust result in an individual case. Therefore, it is submitted that the categories of situations in which English courts will impose a constructive trust should be extended only where the courts are prepared to lay down a new principle which will apply generally. Such a principle should not be established without the fullest consideration of the effects thus produced upon the general law and upon the interests of the general creditors of the trustee. In particular, such a principle should not be established by deciding an individual case on grounds applicable only to that particular case. It might be expected that some general principle, which would be of some guidance in determining when a constructive trust should be imposed, could be extracted from those situations which English law recognises as giving rise to a constructive trust. This is, unfortunately, not the case. No clear principle can be enunciated as the basis of the doctrine of constructive trusts. However, attempts, unquestionably contradictory and for the most part unsuccessful, have been made to elicit from the cases some consistent golden thread. It has been argued 7 that this golden thread is the principle of unjust enrichment, that a constructive trust is imposed in order to prevent the unjust enrichment of the trustee at the expense of the beneficiary. Another view, enunciated by Edmund 6 The rules of tracing property into its product are expounded and criticised in Chap. 2 of R. Goff and G. Jones, The Law of Restitution (1966). 7 By the authors of The Law of Restitution, who state their conception of the principle of unjust enrichment in Chap. 1 of that work.

4 20 Current Legal Problems 1973 Davies L.J. in Carl-Zeiss Stiftung v. Herbert Smith (Na. 2), 8 is that the golden thread is a " want of probity " in the trustee. However, as the law now stands, it is impossible to state that any general application of either of these concepts has occurred. Such concepts, therefore, can only be of initial assistance in determining when a constructive trust should be imposed; they should in no way detract from or impinge upon the fundamental principle that a constructive trust should only be imposed where the courts are prepared to lay down a new principle which will apply generally. The recent developments in the law will now be examined with this principle borne in mind. THE EFFECT OF RECENT DECISIONS There is little unanimity as to precisely which trusts may properly be described as constructive trusts. Widely diverging views have been expressed as to whether certain types of trusts (secret trusts, for example) are or are not constructive trusts. There are, however, certain types of situations which are generally recognised as giving rise to a constructive trust; one of these categories of accepted constructive trusts is where a trust is imposed to frustrate fraudulent or unconscionable conduct. It is this category which the courts have extended to enable the constructive trust to be used as a general equitable remedy. What situations fall within this category of constructive trusts? Since the eighteenth century, it has been a rule of equity that a person who obtains property from another through undue influence will be held to be a constructive trustee of that property for the person from whom he has obtained it. This equitable doctrine of undue influence, 9 which applies only to inter vivos transactions, is concerned with two distinct situations." First, the doctrine may be invoked where the parties to a transaction are in 8 [1969] 2 Ch. 276, at p This doctrine is generally thought to have been evolved by Lord Hardwicke L.C. in Morris v. Burroughs (1737) 1 Atk A full discussion of the rules relating to the recovery of benefits conferred under undue influence is contained in Chap. 9 of Goff and Jones (op. cit.). lo The cases were reviewed by Cotton L.J. in Allcard v. Skinner (1887) 36 Ch.D His lordship adopted this classification at p. 171.

5 Constructive Trusts 21 such a relationship as to raise doubt whether the transferor was able to exercise an independent will. Where property is transferred by, inter alla, a child to his parent, a client to his solicitor, a patient to his doctor, or a beneficiary to his trustee, the court will presume that undue influence has been exerted to bring about the transfer. In such situations, the transferee will be held to hold the property upon a constructive trust for the transferor unless he can rebut the presumption of undue influence by proving affirmatively that no undue influence in fact occurred. This may most easily be done by showing that the transferor received independent legal advice." Secondly, the doctrine may also be invoked where the parties to a transaction do not fall within one of these relationships. In this situation, however, the courts will impose a constructive trust only where the transferor can affirmatively prove that he entered into the transaction as a result of the undue influence of the transferee." In the same way, the courts will impose a constructive trust in accordance with the principle enunciated in Cleaver v. Mutual Reserve." This principle was expressed in simple terms by Fry L.J. : " It is," he said," " against public policy to allow a criminal to claim any benefit by virtue of his crime." In accordance with this principle, the courts will impose a constructive trust upon a criminal who has received the property of his victim. Such a trust will be imposed for the benefit of the persons otherwise entitled to the property. Usually, however, the criminal or his representatives are prevented from ever obtaining the property. This occurred in In the Estate of Crippen." Crippen murdered his wife, who died intestate. He was indicted for her murder, convicted, and hanged. The question now arose as to whether the beneficiary under his will was entitled to Mrs. Crippen's estate. Sir Samuel Evans P. held that Crippen could not take under his wife's intestacy; her estate, therefore, passed to her next-of-kin. It is clear that, had the property already reached the hands of 11 This was stated by Lord Hailsham in Inche Noriah v. Shaik Aiie Bin Omar [1929] A.C. 127, at p This burden of proof was successfully discharged in Smith v. Kay (1859) 7 H.L.C [1892] 1 Q.B /bid. at p [ ] P. 108.

6 22 Current Legal Problems 1973 Crippen's representatives, the court would have imposed upon them a constructive trust in favour of Mrs. Crippen's next-of-kin." These are the two classic situations in which the courts will impose a constructive trust upon a person whose conduct has been fraudulent or unconscionable. Conduct of a similar kind was the basis of the imposition of a constructive trust in Bannister v. Bannister." The defendant owned two adjacent cottages which she was negotiating to seal to the plaintiff, her brother-in-law. They agreed orally that she could continue to live in one of the two cottages rent-free for as long as she wished. However, the conveyance following the sale was a plain conveyance upon sale without any mention of the right of the defendant to so reside. Subsequently, the plaintiff gave the defendant notice to guit and brought an action claiming possession of the cottage. The defendant counterclaimed for a declaration that the plaintiff held the cottage on trust for her for her life. The plaintiff sought to rely on the absence of the writing which the Law of Property Act requires for the creation of the interest claimed by the defendant. However, the Court of Appeal (Scott, Asquith L.JJ. and Jenkins J.) had no hesitation in rejecting the plaintiff's attempts to claim possession by this means. The judgment of the court, which was delivered by Scott L.J., was based fairly and squarely on the fraudulent conduct of the plaintiff. " The fraud, which brings the principle on which a constructive trust is raised into play, arises as soon as the absolute character of the conveyance is set up for the purpose of 16 This apparently straightforward rule can create some nice problems. Suppose property was settled on A for life, remainder to B, and B murdered A. Clearly B or his representatives should not immediately obtain his interest in remainder, for, otherwise, he would profit from his crime. But when is A deemed to have died naturally and what happens to the life interest meanwhile? Again, what would happen if A and B were joint tenants and B murdered A? Further, does the principle extend to such crimes as causing death by dangerous driving? If so, a husband convicted of that offence as the result of an accident in which his wife died would be prevented from obtaining any benefit under her will or intestacy. None of these problems has ever had to be considered by the courts. 17 [1948] 2 All E.R S. 54 (1) of the Law of Property Act 1925 establishes that " All interests in land created by parol and not put in writing and signed by the persons so creating the same, or by their agents thereunto lawfully authorised in writing, have notwithstanding any consideration having been given for the same, the force and effect of interests at will only."

7 Constructive Trusts 23 defeating the beneficial interest, and that is the fraud to cover which the Statute of Frauds, or the corresponding provisions of the Law of Property Act, 1925, cannot be called in aid in cases in which no written evidence of the real bargain is available." 19 The Court of Appeal, therefore, imposed a constructive trust upon the plaintiff and made the following declaration : 4t the plaintiff holds [the cottage] in trust during the life of the defendant to permit the defendant to occupy the same for so long as she may desire to do so and subject thereto in trust for the plaintiff. A trust in this form has the effect of making the beneficiary a tenant for life within the meaning of the Settled Land Act, 1925, and consequently, there is very little practical difference between such a trust and a trust for life simp/iciter." 20 This decision has been generally regarded as establishing the proposition that a constructive trust will be imposed to erevent a person unconscionably relying on the absence of written evidence to defeat the interest of another. Such a proposition is entirely consistent with the earlier authorities. However, some difficulties have been created by the statement that the imposition of this trust had the effect of making the defendant a life tenant under the Settled Land Act That statute provides such a tenant with very considerable powers. He is, inter alia, entitled to have the legal estate conveyed to him by vesting deed 21 and to sell it 22 while the trustees have no power of sale. How can the existence of such rights be consistent with the position that the parties in Bannister v. Bannister had originally intended to create? The defendant had originally sold and conveyed the cottage to the plaintiff. It seems absurd to interpret this sale as creating a settlement and thus entitling the defendant to call for the reconveyance of the cottage to herself. Does such a trust indeed create a settlement 19 [1948] 2 All E.R. 133, at p 'bid. at p Settled Land Act 1925, s. 4 (2). 22 Ibid. s. 38 (1).

8 24 Current Legal Problems 1973 within the Settled Land Act 1925? Such a settlement is created when land is "limited in trust for any persons by way of succession." 23 Lord Denning M.R. has suggested, in a subsequent decision " that the type of situation which arose in Bannister v. Bannister is outside this definition for two reasons : first, the Master of the Rails argued that the land was not limited in trust because " limited in trust " means " expressly limited in trust." This argument is unconvincing. " Limited in trust " cannot mean " expressly limited in trust " because a limitation of an entail, which, since 1925, can only take place behind a trust 25 creates a settlement within the meaning of the Settled Land Act whether or not there is an express limitation in trust." Secondly, the Master of the Rails argued that there was no trace of a succession of one beneficiary after another. At first sight, this argument also seems to be unconvincing since there appears to be a limitation of the land by way of succession in that there is a succession of the beneficial right to absolute possession of the land. There may, however, be some analogy between this situation and the grant of an equitable lease." Where a tenant in fee simple grants a purely equitable lease of his land, the lessee undoubtedly obtains a right to occupy the land (subject to the terms of the lease); it has never been suggested that such a grant creates a settlement within the Settled Land Act; this can only be because there is no limitation by way of succession. What is the essential difference between this situation and the result of the order made in Bannister v. Bannister? In the latter situation, the tenant in fee simple is a trustee rather than a lessor and the right of the accupier is for an indeterminate period (her lifetim.e) rather than for a fixed term. These differences may well be crucial. However, it is only if they are not that the statement of the Master of the Rolls can be justified. If indeed his view is correct, then the trust imposed in Bannister v. Bannister does not create a settle- 23 This is the wording of s. 1 (1) of the Settled Land Act In Binions v. Evans [1972] Ch. 359, at p Law of Property Act 1925, s. 1 (1). 26 See Megarry and Wade, Law of Real Property (3rd ed.), p The author is indebted for this suggested analogy and argument to J. D. R. Adams, Esq., Lecturer in English Law in the University of London.

9 Constructive Trusts 25 ment within the Settled Land Act. 1f, on the other hand, the analogy with an equitable leasehold is false, then the imposition of a constructive trust in Bannister v. Bannister must, as the Court of Appeal held, create a settlement within the Settled Land Act. Such a result, despite its consequences, may well not be completely undesirable in view of the unconscionable conduct of the plaintiff in that case. Nevertheless, it is one more reason why such constructive trusts should not be imposed lightly. Unfortunately, Bannister v. Bannister has since been cited 28 as authority for a much wider proposition, namely, that the courts will impose a constructive trust wherever the result would, otherwise, be inequitable. This broad principle has also been based upon a remark by Lord Diplock in Gissing v. Gissing." His lordship said this : " A resulting, implied or constructive trust and it is unnecessary for present purposes to distinguish between these three classes of trust is created by a transaction between the trustee and the cestui que trust in connection with the acquisition by the trustee of a legal estate in land, whenever the trustee has so conducted himself that it would be inequitable to deny to the cestui que trust a beneficial interest in the land acquired." This statement, when thus isolated from its context, does indeed appear to support the proposition for which it has been cited as authority in several subsequent decisions," namely, that the courts will impose a constructive trust in order to do justice inter partes wherever the result would, otherwise, be inequitable. That Lord 28 By Lord Denning M.R. in Binions v. Evans [1972] Ch. 359, at p [1971] A.C. 886, at p Lord Diplock's dictum was expressly cited in support of this proposition by the Court of Appeal in Heseltine v. Heseltine [1971] 1 All E.R. 952 per Lord Denning M.R. at p. 955 and in Binions v. Evans [1972] Ch. 359 per Lord Denning M.R. at p The Court of Appeal has adopted this broad principle in seven other cases: Falconer v. Falconer [1970] 3 All E.R. 449 per Lord Denning M.R. at p. 452; Davis v. Vale [1971] 2 All E.R per Lord Denning M.R. at p. 1026; Re Cummins [1972] Ch. 62 per Lord Denning M.R. at p. 68; Hargrave v. Newton [1971] 3 All E.R. 866 per Lord Denning M.R. at p. 869; Hazell v. Hazell [1972] 1 All E.R. 923 per Lord Denning M.R. at p. 927, per Megaw L.J. at p. 928; Cooke v. Head [1972] 2 All E.R. 38 per Lord Denning M.R. at p. 42; and Hussey v. Palmer [1972] 3 All E.R. 744 per Lord Denning M.R. at p C.L.P.-2

10 26 Current Legal Problems 1973 Diplock placed an immediate limitation on his statement in the following sentence has, generally, been ignored. His lordship continued : " 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." Gissing v. Gissing was a case in which the House of Lords reviewed and restated the law relating to the acquisition by spouses of beneficial interests over matrimonial property. One of the fundamental propositions which was laid down by the House of Lords in this decision (and in the earlier decision of the House in Pettitt v. Pettitt 31) was that rights of property are not to be determined according to what is reasonable and fair or just in all the circumstances. This proposition was expressly asserted by four of the members of the House in Pettitt v. Pettitt" and is also fundamental to the decision in Gissing v. Gissing. The fundamental nature of this principle was emphatically stated by Bagnall J. in Cowcher v. Cowcher" where he said : " In any individual case the application of [Pettitt v. Pettitt and Gissing v. Gissing] may produce a result. which appears unfair. So be it; in my view that is not an injustice. I am convinced that in determining rights, particularly property rights, the only justice that can be attained by mortals, who are fallible and are not omniscient, is justice according to law; the justice that flows from the application" of sure and settled principles to proved or admitted facts. So in the field of equity the length of the Chancellor's foot has been measured or is capable of measurement. This does not mean that equity is past childbearing; simply that its progeny must be legitimateby precedent out of principle. It is well that this should be 31 [1970] A.C By Lord Reid at p. 793, by Lord Morris of Borth-y-Gest at pp. 801, 803 and 805, by Lord Hodson at p. 809, and by Lord Diplock at p The principle is also implicit in the judgment of Lord Upjohn. 33 [1972] 1 All E.R. 943, at p. 948.

11 Constructive Trusts 27 so; otherwise no lawyer could safely advise on his client's title and every quarrel would lead to a law suit." This principle, which is crucial for the maintenance of that certainty which should be the hallmark of every system of laws, has, however, been ignored in subsequent cases in favour of the interpretation placed on the remarks of Lord Diplock, to which previous reference has been made. This has occurred in five decisions of the Court of Appeal relating to matrimonial property, the field of law with which Pettitt v. Pettitt and Gissing v. Gissing were principally concerned. 34 Further, the Court of Appeal has extended the principle that a constructive trust will be imposed wherever the result would, otherwise, be inequitable into other fields. 35 Heseltine v. Heseltine 36 is an illustration of the attitude of the Court of Appeal towards the determination of the beneficial interests in matrimonial property. In this case, the plaintiff wife had very considerable means of her own. She had contributed four-fifths of the purchase price of the matrimonial home, which had been conveyed into the name of the husband. She had, at various times, transferred to the husband out of her own capital sums totalling 40,000, relying entirely on his advice that this would save estate duty if she predeceased him. She also transferred to him a further 20,000 for the sole purpose of enabling him to raise the securities necessary to become a " name " at Lloyd's. During the marriage, the parties had purchased four houses, all of which had been conveyed into the name of the husband. What were the beneficial interests in these assets? The case came before the Court of Appeal (Lord Denning M.R., Karminski and Megaw L.JJ.). The principal judgment was delivered by the Master of the Rolls. He considered first the matrimonial home and said this " : 34 In Falconer v. Falconer [1970] 3 All E.R. 449; Heseltine v. Heseltine [1971] 1 All E.R. 952; Davis v. Vale [1971] 2 All E.R. 1021; Re Cummins [1972] Ch. 62; Hargrave v. Newton [1971] 3 All E.R. 866 and Hazell v. Hazell [1972] 1 All E.R In Cooke v. Head [1972] 2 All E.R. 38; Binions v. Evans [1g72] Ch. 359, and Hussey v. Palmer [1972] 3 All E.R [1971] 1 W.L.R 'bid. at p. 345.

12 28 Current Legal Problems 1973 " This is a typical case where the matrimonial home was acquired by the joint resources of each, but was taken in the name of one only, i.e., the husband. In the usual way the court imputes a trust under which the husband is to hold it for them both jointly in equal shares. But half-and-half is not an invariable division. If some other division is more fair, the court will adopt it : see Gissing v. Gissing." 38 His lordship then held that the division of the proceeds of sale should be as to three-quarters to the wife and one-quarter to the husband. It is difficult to see how the approach taken by his lordship (though not, perhaps, the result reached) can be justified under the principles enunciated in Gissing v. Gissing. The House of Lords held " that if, under section 17 of the Married Women's Property Act 1882, a person claims an interest in property other than that of an absolute legal and beneficial owner, the claim must be determined in accordance with equitable principles relating to trusts. In particular, rights of property are not to be determined according to what is reasonable and fair or just in all the circumstances. Surely, therefore, the Court of Appeal should have decided this Matter by considering the principles of resulting trusts, not by " imputing a trust in the usual way." It is well established that, where property is voluntarily transferred into the name of another, there is a presumption that the transferee holds the property upon a resulting trust for the transferor." Equally, where property is conveyed to a person other than the purchaser or to some only of the purchasers, there is a presumption that the property is held upon a resulting trust for the purchaser(s)." Application of the principles of resulting trusts to the facts of Heseltine v. Heseltine would have led to a division of the proceeds of sale of the matrimonial home as to four-fifths to the wife and one-fifth to the husband 41-a result admittedly not very different from that reached by the Court of Appeal. The advantage of such an approach, 38 [1971] A.C Per Lord Reid at p. 8%, per Viscount Dilhorne at p. 900, per Lord Pearson at p. 902, and per Lord Diplock at pp. 904, See Re Vinogradofi [1935] W.N See Dyer v. Dyer (1788) 2 Cox Eq.Cas. 92.

13 Constructive Trusts 29 apart from the fact that the House of Lords has decided that it alone should be used, is that it is certain parties can be safely advised as to their position, something which is totally impossible when the courts impute trusts according to their view of what is fair or just. His lordship then considered the 40, He cited the dictum of Lord Diplock " to which reference has already been made and continued : " What Lord Diplock said about land applies also to shares, money or chattels. If the conduct of the husband is such that it would be inequitable for him to claim the property beneficially as his own, then, although it is transferred into his name, the court will impose on him a trust to hold it for them bath jointly, or for her alone, as the circumstances of the case may require. Applying this principle, it would plainly be inequitable that the husband should hold this 40,000 beneficially as his own." His lordship, therefore, held that the husband held the 40,000 on trust for the wife. He then considered the 20,000 and the four houses and held that the same principles applied. The husband held the property on trust for his wife." It is clear that the application of the principles of resulting trusts to the four houses would have produced the same result." But the principles of resulting trusts have no, application to either the 40,000 or the 20,000. The wife clearly intended to transfer the 40,000 to the husband absolutely how, otherwise, could estate duty be avoided? Similarly, the beneficial interest in the 20,000 must have been transferred to the husband absolutely. How could the husband have been assisted to become a " name " at Lloyd's by holding securities in which he had no beneficial interest? By imposing a trust for the benefit of the wife the court must, therefore, have been imposing a constructive trust in order to prevent a result which would, otherwise, have been inequitable. The imposition 42 [1971] 1 W.L.R. 342, at p In Gissing v. Gissing [1971] A.C. 886, at p [1971] 1 W.L.R. 342, at p See Dyer v. Dyer (1788) 2 Cox Eq.Cas. 92.

14 30 Current Legal Problems 1973 of such a trust cannot be justified either upon precedent or upon principle. Precedent can only justify such a result if the wife could have brought her case within the doctrine of undue influence." This was not attempted. Principle cannot justify the wife thus being given an advantage over the general creditors of her busband " and being permitted (as the court expressly held 48) to trace the 40,000 into its products. It is submitted, therefore, that the imposition of a constructive trust in Heseltine v. Heseltine is unjustifiable. Subsequently, the Court of Appeal extended the principles enunciated in Heseltine v. Heseltine outside the area of matrimonial property to an analogous situation involving a man and his mistress. This occurred in Cooke v. Head." The plaintiff was the mistress of the defendant. They decided to acquire some land on which to build a bungalow. The defendant paid all the outgoings save for a small amount, but the plaintiff helped him greatly in the actual task of building the bungalow, doing, in the words of the Master of the Rolls," " quite an unusual amount of work for a woman." In fact, the parties never occupied the bungalow because they split up before it was completed. Subsequently, the defendant sold the bungalow. The plaintiff brought an action claiming a share in the proceeds. Plowman J. applied the principles of resulting trusts and, since the plaintiff had contributed one-twelfth of the outgoings, awarded her a one-twelfth interest in the proceeds. However, the Court of Appeal (Lord Denning M.R., Karminski and Orr adopted a different approach. In the words of the Master of the Rolls " : It is now held that, whenever two parties by their joint efforts acquire property to be used for their joint benefit, the courts may impose or impute a constructive or resulting trust. 4 Supra, p The court, on the principles enunciated, would presumably have reached the same decision had the busband been bankrupt and liable to produce the securities to settle an insurance claim. 48 [ W.L.R. 342, per Lord Denning M.R. at p. 348, per Megaw L.j. at p [1972] 1 W.L.R Ibid. at p Ibid. at p. 520.

15 Constructive Trusts 31 The legai owner is bound to bold the property on trust for them both. This trust... applies to husband and wife, to engaged couples, and to man and mistress, and maybe to other relationships too." 52 His lordship then went on to consider the contribution made by the plaintiff and held that she was entitled to a one-third interest in the proceeds." It is clear that, on the principles of resulting trusts, the plaintiff was, as Plowman J. held, entitled to a onetwelfth interest in the proceeds. Had this been a case between husband and wife, the plaintiff could also have invoked section 37 of the Matrimonial Proceedings and Property Act 1970 " to claim an enlarged interest by virtue of her contribution in money's worth to the improvement of the property. Be that as it may, it cannot be denied that the court once again reached their decision by imposing a constructive trust in order to present a result which would, otherwise, in the view of the court, have been unjust. Apart from the fact that this approach renders the operation of the law uncertain and unpredictable, why should the plaintiff obtain an advantage over the general creditors of the defendant? It is submitted that in Cooke v. Head the imposition of a constructive trust in order to do justice inter partes is unjustifiable. The principle that a constructive trust will be imposed in order to prevent a result which would, otherwise, be inequitable was extended still further in Binions and Another v. Evans." The husband of the defendant, Mrs. Evans, had been employed throughout his working life by the Tredegar Estate, who had permitted him to live rent-free in a cottage. After his death, the Estate entered into an agreement with Mrs. Evans under which, in return for keeping the property in good order, she was permitted to live there rent-free for the rest of her life. In 1970, the Estate sold the 52 It is unclear what other relationships the Master of the Rolls had in mind. 53 [1972] 1 W.L.R. 518, at pp S. 37 provides that, where a spouse contributes in money or money's worth to the improvement of real or personal property in which either or both of the spouses have a beneficial interest, the spouse shail be treated as having acquired a share or an enlarged share in the beneficial interest of such an extent as may seem in all the circumstances just to any court hearing proceedings concerning the beneficial interest. [1972] Ch. 359.

16 32 Current Legal Problems 1973 cottage to the plaintiffs, Mr. and Mrs. Binions. The property was sold " subject to the tenancy... in favour of Mrs. Evans," and it was found as a fact that the plaintiffs for this reason paid a lower price. Nevertheless, six months later, they gave Mrs. Evans notice to quit and subsequently claimed possession in the county court. This action reached the Court of Appeal (Lord Denning M.R., Megaw and Stephenson L.JJ.). Megaw and Stephenson L.JJ. found that the effect of the agreement between the Tredegar Estate and Mrs. Evans was the same as the effect of the agreement considered by the Court of Appeal in Bannister v. Bannister." Mrs. Evans was thus a tenant for life within the meaning of the Settled Land Act In the words of Megaw L.J." : " I realise that the application of the Settled Land Act 1925 may produce some odd consequences, but no adder than those which were inherent in the decision in Bannister v. Bannister. I do not find anything in the possible, theoretical, consequences to lead me to the conclusion that Bannister' s case should not be followed. The plaintiffs took with express notice of the agreement which constitutes, or gives rise to, the trust. They cannot turn [Mrs. Evans] out of the house against her will; for that would be a breach of the trust which binds them." Their lordships, therefore, imposed a constructive trust in accordance with Bannister v.. Bannister. The Master of the Rolls disagreed. He argued, for the reasons already expounded and discussed, 58 that Mrs. Evans was not a life tenant under the Settled Land Act. He held that the agreement had created a licence in favour of Mrs. Evans." It is clear from Foster v. Robinson," where the Court of Appeal had to consider the effect of a similar agreement, that such a licence could be enforced as against the Tredegar Estate. Until 1952, however, it was clear that a licence bound no purchaser for value, even a purchaser with full notice of the licence." But in that year, in 56 [1948] 2 All E.R. 133, supra, p [1972] Ch. 359, at p Sec Stephenson L.J. to the same effect at p Supra, p [1972] Ch. 359, at p [1951] 1 K.B Thomas v. Sorrell (1673) Vaughan 351 per Vaughan C.J.; King v. David Allen & Sons, Billposting [1916] 2 A.C. 54, per Lord Buckmaster L.C. at p. 61.

17 Constructive Trusts 33 Errington v. Errington and Woods," the Court of Appeal held that a contractual licence binds all successors to the land other than a bona fide purchaser for value without notice. The reasoning of this decision has been criticised considerably botte in the courts and elsewhere. 63 The Master of the Rolls, since he was a party to the decision in Errington v. Errington, was of the opinion that that case accurately stated the effect cf a contractual licence." It is clear that the combined effect of Errington v. Errington and the earlier cases on the effect of a contractual licence between the parties to the contract 65 prevents the plaintiff purchasers from evicting Mrs. Evans and enables her to obtain an injunction against them to enforce her interest. The Master of the Rolls, however, did not consider the possibility of an injunction, which would surely have been sufficient to protect Mrs. Evans against any act of the plaintiff purchasers or their successors. He imposed upon the plaintiffs a constructive trust " for the simple reason that it would be utterly inequitable for the purchaser to turn the defendant out contrary to the stipulation subject to which he took the premises." 66 Can the imposition of such a constructive trust be justified? The Master of the Rolls cited Bannister v. Bannister as authority for his decision. It is, however, difficult to see how that case can be authoritative on this point in view of the fact that his lordship had earlier held that the agreement in Binions v. Evans did not create a life tenancy under the Settled Land Act. In addition, his lordship relied on two dicta, that statement of Lord Diplock 67 to which reference has already been made and a statement by 62 [1952] 1 K.B In National Provincial Bank v. Hastings Car Mart [1968] A.C. 1175, Lord Upjohn and Lord Wilberforce expressly left open for future consideration whether a contractual licence binds all successors to the land other than a purchaser for value without notice (per Lord Upjohn at p. 1239, per Lord Wilberforce at p. 1251). Goff j. in Re Solomon, a Bankrupt, ex p. The Trustee of the Bankrupt v. Solomon [1967] Ch. 573, 583, preferred the contrary view expressed by Russell L.J. in National Provincial Bank v. Hastings Car Mart [1964] Ch. 665, 699 (C.A.). Professor H. W. R. Wade forcefully criticised Errington v. Errington in 68 L.Q.R. (1952), 337 (although compare Professor G. C. Cheshire in 16 M.L.R. (1952), 1). 64 See [1972] Ch. 359, at p Such as Winter Garden Theatre (London) v. Millennium Productions [1948] A.C. 173 and Foster v. Robinson [1951] 1 K.B [1972] Ch. 359, at p In Gissing v. Gissing [1971] A.C. 886, at p. 905.

18 34 Current Legal Problems 1973 Cardozo J. in Beatty v. Guggenheim Exploration Co." that a " constructive trust is the formula through which the conscience of equity finds expression." It has already been shown that this statement of Lord Diplock has been taken out of its context and that the American and English attitudes to the constructive trust are very different. Can the imposition of a constructive trust to enforce a contractual licence be justified on policy grounds? It is clear, if the implications of the imposition of such a constructive trust are carried through to their logical conclusions, that such a result is contrary to some of the most fundamental principles of English land law. 1f the mere statement in the contract of sale of an interest in the land 69 creates an interest enforceable by a constructive trust, to what effect are the rules relating to the annexation and assignment of restrictive covenants? Under such a constructive trust, an otherwise unenforceable positive covenant might well be enforceable. Further, in relation to registered land, the enforcement of (say) an, equitable easement (which is not an overriding interest under section 70 of the Land Registration Act 1925) might well be possible under such a constructive trust in direct contravention of section 20 of the Land Registration Act 1925, which states that a purchaser of registered land takes subject only to entries on the Register and overriding interests. Fundamental rules of English land law should not thus be overridden by a side wind. For these reasons, it is submitted that the imposition of a constructive trust to enforce a contractual licence cannot be justified by all the policy considerations. The contractual licence could have received complete protection (on the view that Errington v. Errington was rightly decided and therefore that it should be protected at all) by the use of an injunction. What of the approach taken by Megaw and Stephenson L.JJ., who imposed a constructive trust in accordance with Bannister v. Bannister? Since their lordships imposed a constructive trust having made a finding of unconscionable conduct on the part of the plaintiffs, this result seems to be in accordance with authority N.Y. 380, at p. 395 (1919). 69 This was the only statement in the formal documents of sale that the purchase was subject to Mrs. Evans' interest.

19 Constructive Trusts 35 It was suggested earlier 70 that the imposition of this trust might not create a settlement within the Setded Land Act. If this is indeed the case, then the approach taken by the two Lords Justices is perhaps justifiable." If, however, the imposition of the trust does create such a settlement, then there are indeed the somewhat " odd consequences " already considered. It is submitted, therefore, that the imposition of a constructive trust in Binions v. Evans is only justifiable on the approach taken by Megaw and Stephenson L.JJ. The imposition of such a trust to protect a contractual licence cannot be justified. In the most recent decision, Hussey v. Palmer," it is even more apparent that the court is invoking the constructive trust as an equitable remedy to do justice inter partes. The plaintiff, Mrs. Hussey, sold her condemned house and was invited by her son-inlaw and daughter to live with them. Because their house was rather small, they had an extension built for which Mrs. Hussey paid. Differences arose and, after some fifteen months, Mrs. Hussey left. Subsequently, she became very short of money and asked her son-in-law to repay to her the sum spent on the extension. When he refused, she brought an action against him. Initially, she claimed for money lent. However, the county court registrar, bef are whom the case came by consent, intimated a strong opinion that this was not a laan. Mrs. Hussey therefore submitted to a nonsuit and started a fresh action claiming the sum under a resulting trust. This action failed before the county court judge who felt that there was, on the evidence, a Joan, not a resulting trust. Mrs. Hussey appealed to the Court of Appeal (Lord Denning M.R., Phillimore and Cairns L.JJ.). The court held, by a majority, that there was a trust in respect of the house in favour of the plaintiff. The majority, the Master of the Rolls and Phillimore L.J., reached this result by invoking the doctrine of constructive trusts. The Master of the Rolls reviewed the facts and held that there was no laan. He then continued 73 : 70 Supra, p It might be argued that it is illogical to prejudice the interests of third parties in this situation and not elsewhere. However, the finding of unconscionable conduct in Binions v. Evans makes such a result not only inevitable but in accordance with authority. 72 [1972] 1 W.L.R [1972] 1 W.L.R. 1286, at p

20 36 Current Legal Problems 1973 " If there was no laan, was there a resulting trust? and, if so, what were the terms of the trust? Although the plaintiff alleged that there was a resulting trust, I should have thought that the trust in this case, if there was one, was more in the nature of a constructive trust; but this is more a matter of words than anything else. The two run together." His lordship, in that passage, equates resulting and constructive trusts. This seems somewhat strange, since a resulting trust arises out of the presumed intentions of the parties, whereas a constructive trust is imposed by the court quite irrespective of the intentions of the parties. His lordship then continued (referring to what is generally regarded as a constructive trust): " By whatever name it is described, it is a trust imposed by law whenever justice and good conscience require it. It is a liberal process, founded on large principles of equity, to be applied in cases where the defendant cannot conscientiously keep the property for himself alone, but ought to allow another to have the property or a share in it. The trust may arise at the outset when the property is acquired, or later on, as the circumstances may require. It is an equitable remedy by which the courts can enable an aggrieved party to obtain restitution." His lordship then considered such decisions as Heseltine v. Heseltine," Cooke v. Head " and Binions v. Evans" and decided that " the present case is well within the principles of those cases." " His lordship therefore held that : " The court should, and will, impose or impute a trust by which [the son-in-law] is to hold the property on terms under which, in the circumstances which have happened, [Mrs.. Hussey] has an interest in the property proportionate to the 607 she put into it." " Phillimore L.J. agreed." Cairns L.J., however, dissented, hold- 74 [1971] 1. W.L.R [1972] 1 W.L.R [1972] Ch [1972] 1 W.L.R. 1286, at p Ibid.

21 Constructive Trusts 37 ing that the transaction was one of laan, not of resulting trust." Such a view, of course, would have necessitated Mrs. Hussey starting yet another action. Nevertheless, such a result would have been preferable to the imposition of a constructive trust. Apart from the fact that all the evidence points towards the relationship being one of laan, why should a constructive trust be imposed upon the defendant in this case? Such a result gives Mrs. Hussey a right to call for the sale of the house to obtain her interest. Further, the Master of the Rolls stated that the payment of the sum expended would suffice. But, on the terms of his order, Mrs. Hussey could claim not the sum expended but the value of an interest in the house proportionate to the relative expenditure of herself and her son-in-law an interest which, in present conditions, would be considerably larger. Would the court have imposed a constructive trust if Mrs. Hussey had claimed in the alternative for money Tent and under a resulting trust? The Master of the Rolls also placed some reliance on the equitable doctrine of acquiesence," under which, as Lord Cranworth L.C. explained in Ramsden v. Dyson," " If a stranger begins to build on my land supposing it to be his own, and I, perceiving his mistake, abstain from setting him right, and leave him to persevere in his error, a court of equity will not allow me afterwards to assert my title to the land on which he has expended money on the supposition that the land was his own." It is by no means clear that this doctrine is available bath as a sword and as a shield, since Danckwerts L.J., in the most recent case, Inwards v. Baker, 82 took the view that the doctrine gave the improver no distinct cause of action against the owner. This view is, however, not entirely borne out by the older authorities and there is much to be said for the view that the improver should have a distinct cause of action. Even upon this assumption, however, it is doubtful whether the equitable doctrine of acquiescence 79 Ibid. at p , This doctrine is expounded in Goff and Jones, op. cit., pp (1866) L.R. 1 H.L. 129, at p [1965] 2 Q.B. 29.

22 38 Current Legal Problems 1973 can apply to the facts of Hussey v. Palmer. The doctrine only applies if the improver has made a mistake as to his own legal rights and if the owner of the land encouraged the improver in this mistake either directly or by a failure to assert his own legal right. It is doubtful whether Mrs. Hussey was mistaken as to her legal rights at the time the extension was built and, even if she was, her son-in-law does not appear to have encouraged her either directly or by inactivity. Further, even if the doctrine does apply to the facts, it is difficult to justify the imposition of a constructive trust. An equitable Tien or charge would surely have sufficed. It is submitted, therefore, that there is no justification for the imposition of a constructive trust in Hussey v. Palmer. THE RECENT DECISIONS ASSESSED In each of the recent decisions which have been considered, the Court of Appeal has imposed a constructive trust in order to prevent a result which would, otherwise, have been inequitable. It is clear that, in the field of matrimonial property, such practice is contrary to the most recent decisions of the House of Lords. This apart, the practice has, in principle, little to commend it; it makes the operation of the law totally uncertain and enables one spouse to acquire rights over property which could never have been obtained under existing equitable principles." Outside the field of matrimonial property, the practice is even more undesirable, since the implications of the imposition of constructive trusts to do justice inter partes may well seriously undermine established principles of property law." Recent developments in the field of constructive trusts in English law have been towards imposing a constructive trust only where there is some conscious unconscionable act by the trustee. Among the many examples of this approach are Holder v. Holder," where an executor who purchased trust property was held not liable to account for it to the trust in the absence of actual abuse of position, and Carl-Zeiss Stiftung v. Herbert Smith 83 See Heseltine v. Heseltine (supra). 84 See Binions v. Evans (supra). 85 [1968] Ch. 353.