Analysis of Equitable Interests in the Apartment: Emma's Claims and Legal Principles

Two issues are raised in this scenario. The first is whether Emma has any equitable interest in the Apartment. The second pertains to the extent of her interest in the apartment. Expressed trust is created intentionally by the act of the settlor and is manifested through a written deed [LPA 1925, s 53 (1) (b)]. Emma does not have an interest as per expressed trust Because there is no written documentation of her having the legal title to the property. As the property is in the name of Frank, Emma has to establish beneficial interest in the apartment, which can be done through resulting trust or constructive trust. Resulting trust is not expressly created as per LPA 1925, s 53(1) but is allowed in failed trusts or apparent gifts. In Hodgson v Marks, equitable interest in home of which they remained in actual occupation throughout the transactions was protected. Resulting trust can also be created through a direct contribution towards the purchase price (Curly v Parks; Tinsley v Milligan). In the present case, the house was purchased by paying a deposit of £50,000 by Frank from an inheritance from his uncle and the remaining £100,000 was funded by a mortgage. Therefore, resulting trust cannot be established by Emma.

The only option for Emma is to establish constructive trust for beneficial interest. Constructive trust arises where a claimant has been acted upon unconscionably by the legal owner or where claimant has acted to their detriment. Lloyds Bank v Rosset is a leading case on constructive trust, wherein the court held that an expressed common intention is established and the claimant has acted on reliance of the expression to their detriment, a constructive trust is established. Lord Bridge explained this by noting that if at any time prior to acquisition, or at some later date, there is any agreement, arrangement or understanding that the property is to be shared beneficially, such understanding creates a constructive trust. In Rosset, it was held that common intention can be inferred the conduct of the parties with reference to inferred intention and detrimental conduct; if there is an agreement to share mortgage and other household expenses, then inferred intention is made out (Rosset). Detrimental reliance can be assessed from the extent that the claimant caused a detriment to themselves based on the inferred intention. In Le Foe v Le Foe, the wife’s payments towards the domestic expenditures was held to constitute inferred common intention. Based on the discussion above, it is clear that the beneficial interest in the property under constructive trust is made out for Emma. The facts show that they set up a bank account to pay the mortgage and household expenses, and they paid equal amounts into the Account for the first year. For the next two years, only Emma paid into the account. Emma continued to pay all her salary into the account till 2008. The facts indicate that the majority of the mortgage payments have been made by Emma.

These facts are important not only to establish Emma’s beneficial interest in the apartment but also for the quantification of her interest. In Oxly v Hiscook, Chadwick LJ has observed that in absence of evidence of expressed intention on division of shares, each party is entitled to the share that is fair having regard to the whole course of their dealing with respect to the property. In this case, the quantification can be done based on this principle by considering the contributions made by both parties for the purchase of the property. The facts show that while one third of the purchase price was paid outright by Frank, the remainder was largely borne by Emma in addition to the household expenses. Based on this information, Emma’s interest in the apartment will be quantified based on the payments of mortgage for the better part of the mortgage tenure. This may come to be more than half share of the property proceeds.

In Milroy v Lord, the court held that equity recognises the trust when the settler does everything necessary that needs to be done for the constitution of the trust. The court hel that equity will not save a gift where the donor fails to do effectively confer the gift using a particular method. The principle laid down in Milroy v Lord was that equity will not perfect an imperfect gift. The court considered that gift will be said to be effectively conferred when the donor had done everything necessary to constitute the trust. Over a period of time however, the rationale used in Milroy was watered down as exceptions to the rule in Milroy v Lord were created by the courts in Re Rose and Pennington v Wayne, with the latter being more problematic for its wide reading of when equity can perfect an imperfect gift. In Re Rose, the court made an important change in the principle laid down in Milroy, where it held that the donor should have done everything in their power to constitute the trust as opposed to having to do everything necessary (per Milroy). This meant that even if the donor failed to comply with all the formalities, the trust would be constituted so long as the donor had done everything in their power. The rationale behind the watering down of the Milroy principle was that the intention of the settlor should be allowed to take effect where the settlor has done everything in their power. This is the ‘every effort’ which allows the trust even in the absence of all legal formalities on the ground that mere legal technicality should not come in the way of constituting the trust.

In Pennington v Wayne, the court went further to lay down the exception to the principle that equity will not perfect an imperfect gift. The question whether the gift of shares to the donor’s nephew was constituted when the donor’s agent did not submit the requisite form to the company was answered by the court in the affirmative. The difference from the Re Rose case was that the donor had not done everything in their power to constitute a valid gift. The court went further from the Milroy principle by using the ground of conscionability to decide that even if the donor had not done everything in their power, the gift was valid because it would be unconscionable to decide otherwise. The difficulty with this rationale is that if courts were to use the element of conscionability to decide in favour of imperfect gifts then matter becomes subjective and moves further away from the objective criteria laid down in Milroy. Another problem is that in Milroy, the judges were concered with the wishes of the donor, whereas Pennington shifted the focus to what is conscionable to the donee. It can be said that the broadening of the scope of equity perfecting an imperfect gift is problematic if one considers the decision in Pennington and its implications. For one, it leads to further uncertainty in the law because judges will use their subjective satisfaction to decide whether it is conscionable or not to deny the gift from the point of view of the donee. Second, the question of formalities involved in constituting valid trusts cannot completely give way to notions of conscionability because that hollows out the procedural requirements of constituting a valid trust. In Pennington for example, the right of the private company to refuse an invalid transfer has not been adequately considered by the court. Finally, the question of formalities has not been gone into adequately in Pennington and by focusing on unconscionability, the court has not given a convincing exception to the rule in Milroy. This is clearly seen in the subsequent decision in Zeital v Kaye where the court refused to validate a gift of shares where all necessary formalities were not completed by the donor.

The beneficiary principle provides that in order for there to be a valid trust, there must be a beneficiary of the trust and that a trust without a beneficiary would be considered void. This is one of the three certainties in a valid trust. The Re Astor’s Settlement Trusts principle is that trust made for a purpose but not made with a certain beneficiary in mind is void. The beneficiary principle is important because it ensures that beneficiaries with locus standi can bring proceedings against a trustee for non-performance of the trust. However, equity has allowed an exception to this general rule in that under the law of charities, even a trust without a beneficiary would be valid so long as the purpose is charitable. This has been extended although in a limited sense to private purpose trusts as well. Private purpose trusts, as opposed to charitable trusts, are generally invalid if there is no human beneficiary involved. However, even in the case of private purpose trusts, courts have allowed the trust in exceptional cases even where there is no beneficiary. Such private purpose trusts include trusts for erection and maintenance of monuments, tombs and graves, and trusts for the maintenance of specific animals.

AThe private purpose trust exceptions to the beneficiary principle recognised in Re Endacott were related to trusts for animals, graves, saying private masses, and hunting foxes. These trusts were recognised despite the lack of a beneficiary because of the established case law in trusts which already recognised these private purpose trusts. However, Re Endacott did limit the scope of development of private purpose trust categories by holding that barring these exceptions, there were no other private trusts that could be held valid sans human beneficiary. The gist of Re Endacott is that the extending of categories of private purpose trusts would be troublesome and anomalous. Therefore, the trust in Re Endacott was not allowed because it was not specific about the nature of the construction, and the purpose and the benefit arising out of it. Re Endacott notes that a private purpose trust even under the exceptional cases that allow trust without beneficiary, would still be invalid in those cases if it is vague and broad. However, the court has broadened the scope from Re Endocott in Re Denley in a way that is not justified. In Re Denley, the settlor conveyed a plot of land to the trustees for two purposes: first, for the establishment of a sports ground; second, for the benefit of the employees of the company and such other persons who may be identified by the trustees. As the trust was private purpose in nature, the question of beneficiary is essential for the second purpose where the beneficiaries are not identified in the trust. The court held that if the trust was directly or indirectly for the benefit of an individual or individuals, then it would be valid.

This viewpoint is problematic because the interpretation of the settlor’s words was not accurate. Moreover, the reasoning that the purpose of the beneficiary principle to invalidate abstract or impersonal trusts was not correct as per the understanding of the beneficiary principle. The purpose of the beneficiary principle is to ensure that beneficiaries with locus standi can bring proceedings against a trustee for non-performance of the trust (Re Astor’s Settlement Trusts). Moreover, the trust was for a purpose and was expressed as a purpose, but it was interpreted in Re Denley that purpose was secondary and the trust was directly or indirectly for the benefit employees. This seems to be an unjustified broadening of the scope of the trust in the manner not acceptable under the beneficiary principle. Being a private purpose trust, it ought not to have been allowed if the trust was too broadly or vaguely framed (Re Endacott). In Re Denley, the trust was certainly wide and broad. Considering the settlor’s intention of benefitting employees of the company and such other persons who may be identified by the trustees can be said to be vague. Applying Re Endacott rationale, the decision in Re Denley is not justified.

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