|Unlawful Transaction Does Not Preclude Constructive Trust Claim|
In general, equity would not come to the aid of a party who had to rely on his unlawful purpose, but if his right to an equitable interest in property could be identified without the need to rely on his unlawful purpose it might be enforced. In particular, notwithstanding an unlawful purpose between a couple in purchasing property, where the couple later separated it was possible, in the case of a constructive trust just as in the case of a resulting trust, to find, where one of the parties was advancing a claim to his beneficial interest in the relevant property, that he had no need to rely on the unlawful purpose and could therefore advance his claim.
The Court of Appeal so stated, inter alia, when in a reserved judgment dismissing the appeal of the defendant, Jeanette O’Kelly, from a decision of Judge Vosper QC, sitting in the Swansea Civil Justice Centre on 14 March 2013, making a declaration that the defendant held the freehold property at 74 Lon Olchfa, Sketty, Swansea on trust for herself and the claimant, Kenneth Dylan Davies, in equal shares. The defendant appealed on the grounds that: the judge had erred in inferring a common intention to share the beneficial interest in the property; and in order to make good his claim to a beneficial interest in the property, whose legal title was at all times held by the defendant alone, the claimant was required by the judge’s findings of fact to assert an unlawful agreement, and public policy in such a case did not permit the claimant to enforce any equitable interest he might have had in the property.
The parties, a couple, bought property (and sold and bought property again) on an unlawful basis. A time came when the parties disagreed as to their respective entitlements to the equity in the property. Before the judge, the parties made no mention of illegality in their pleadings and, in their evidence, they both denied any unlawful purpose for the transfer of the legal estate. On appeal, however, the defendant relied on the judge’s finding of illegality in order to advance her ground.
Pitchford Li said that it was necessary to consider whether there was a distinction either in principle or in the context of the facts of the present case between a resulting trust and a constructive trust sufficient to render the one enforceable in the face of an illegal purpose and the other not. Equity would not come to the aid of a party who had to rely on his unlawful purpose but if his right to an equitable interest in property could be identified without the need to rely on his unlawful purpose it could be enforced. In Tinsley v Milligan  1 AC 340 the House of Lords applied the concept of a resulting trust in aid of a defendant beneficiary who otherwise might have had to rely on a fraudulent purpose of the conveyance of the legal estate in the relevant property to the plaintiff trustee. At p 366 Lord Jauncey of Tullicehettle said: “The ultimate question in this appeal is ... whether the [defendant] in claiming the existence of a resulting trust in her favour is seeking to enforce unperformed provisions of an unlawful transaction or whether she is simply relying on an equitable proprietary interest that she has already acquired under such a transaction.” The House of Lords held that the latter was the case and the claim was permitted to proceed. In the present case, however, there was not a resulting but a constructive trust, and it was also true that the judge had not analysed the consequences to enforceability of a finding of a constructive rather than a resulting trust. However, applying Tinsley v Milligan, one came to the same result in the present case involving a constructive trust, viz that the claimant was entitled to bring his claim without relying on an illegal purpose. The judge had been entitled to find that the claimant did not need to rely on an illegal purpose and to infer a common intention that the parties were to share the beneficial interest in the relevant property equally. In another case, of course, it was possible that the facts might lead to a finding that a party was not able to advance his claim without reliance on an illegal purpose.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on Jan.06, 2015