David Sawtell’s article, ‘Constructive trusts: more than words?’ has been published in the July/August 2017 edition of the Trusts and Estates Law & Tax Journal.
In order to be enforceable, an agreement for the conveyance of land typically has to be in writing and must satisfy certain formalities. In certain circumstances, however, a court will impose a constructive trust or find a proprietary estoppel to effect an oral agreement. Special rules govern the situation where the land is held by trustees, however, so as to protect the beneficiaries’ interests. In his article, David explores the latest developments in this evolving field
Section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 provides that ‘A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each’. Section 2(5) qualifies this provision by stating that ‘nothing in this section affects the creation or operation of resulting, implied or constructive trusts.’ In Yaxley v Gotts  Ch 2000 162 the Court of Appeal acknowledged that section 2(5) created a limited exception ‘for those cases in which a supposed bargain has been so fully performed by one side, and the general circumstances of the matter are such, that it would be inequitable to disregard the claimant's expectations, and insufficient to grant him no more than a restitutionary remedy.’ (per Robert Walker LJ at p180). This relaxation of section 2(1) was checked, however, by Lord Scott in Cobbe v Yeoman’s Row Management  1 WLR 1752.
In Herbert v Doyle  EWCA Civ 1095, Arden LJ held at  that in respect of both proprietary estoppel and constructive trusts that (a) if the parties intend to make a formal agreement setting out the terms on which one or more of the parties is to acquire an interest in property, or (b) if further terms for that acquisition remain to be agreed between them so that the interest in property is not clearly identified or (c) if the parties did not expect their agreement to be immediately binding, so that their agreement is incomplete, neither party can make their agreement binding on the other party by virtue of section 2(5). In the subsequent case of Dowding v Matchmove  1 WLR 719 the Court of Appeal confirmed that this guidance should not be construed as if it were a statute. Even if significant sums have been paid over by an intended purchaser, a court might still refuse a proprietary remedy: see Pinisetty v Manikonda  EWHC 838 (QB), where David acted for the successful appellant.
In his article, David explores how this developing line of jurisprudence can affect property held by trustees. The courts have been concerned with the ‘unanimity principle’, namely that trustees typically have to act unanimously to bind the trust. A representation made by a single trustee may not be sufficient to give rise to an equity: Fielden v Christie-Miller  WTLR 1165. This was applied in the case of land held by trustees of a will trust in Preedy v Dunne  EWHC 2713 (Ch);  EWCA Civ 805. Even if the trustees were acting unanimously, such an equity could not overreach the beneficiaries’ interest.
This is an area that is likely to be litigated in the future as the relevant principles of law are still emerging; trustees would be wise to be wary of making representations that could form the basis of an argument for a constructive trust to be imposed or for a proprietary estoppel to be found.
Phil / 5th Jul 2017
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