TABOL talk

Tuesday, 01 February 2011
No, this is not a spelling mistake, but a rather uncommon acronym for Trusts Arising By Operation of Law.

They are very unlike express trusts, which are those set up intentionally by the settlor, by virtue of his powers of ownership, either inter vivos or by will. TABOLs or constructive trusts arise on the basis of particular facts but generally unintentionally. There are Automatic Resulting Trusts (ARTS) and Presumed Intention Resulting Trusts (PIRTs).

The first type usually occurs when a trust fails. The cause will be the absence of one of the so-called ‘3 Cs’ – certainty of intention, certainty (or lack of) subjects or certainty (or lack of) of objects. In this case the assets (if there are any) result back on the settlor (or his estate).

A PIRT, however, is what the settlor wants and so is labelled an intentional resulting trust. For instance, if two people contribute to the cost of a piece of property, equity will rule that notwithstanding how the title is held (in one of the parties names, both of them or in the name of a third party), the title holder holds the property on bare trust for them both in their equitable proportionate shares. In Paul v Constance (1977) the two lived together, but were not legally married. Mr Constance opened a bank account with money received from an injury at work compensation case. On several occasions, Mr Constance said to Mrs Paul ‘the money is as much yours as mine’. The Court held him to have declared a trust of the property in equal shares for himself and Mrs Paul.

By contrast, if A transfers property to B for no consideration, the law will presume (in the absence of evidence to the contrary) that B is now holding the assets on bare trust for A.

There are, however, other types of ‘accidental’ trusts. A constructive trust also occurs when a person gives dishonest assistance to another who has breached his fiduciary duty and a loss has occurred. In Agip (Africa) Ltd v Jackson (1992) the directors of Agip breached their fiduciary duty by stealing from the company. The defendant claimed that he had not been dishonest. He thought the scheme that he had been party to was simply to avoid exchange controls in Tunisia. Millett J said: ‘If a man does not draw the obvious inferences or make the obvious enquiries, the question is: why not? If it is because, however foolishly, he did not suspect wrongdoing or, having suspected it, had his suspicions allayed, however unreasonably, that is one thing. But if he did suspect wrongdoing yet failed to make enquiries because “he did not want to know”… or because he regarded it as “none of his business”… that is quite another. Such conduct is dishonest, and those who are guilty of it cannot complain if, for the purpose of civil liability, they are treated as if they had actual knowledge.’ Jackson was therefore deemed to be a trustee of a constructive trust for the wronged party Agip and accordingly had to account to Agip for the lost funds (even if he no longer had possession of them).

Finally, there is an interesting case that demonstrates another type of TABOL and which has given its name to a trust so created –the Quistclose Trust (Barclays Bank Ltd v Quistclose Investments Ltd. (1970)). In 1964 a cheque drawn on the account of Quistclose for GBP209,000 was sent by Rolls Razor Ltd to its bank with a note saying that the funds should be paid into a separate account for the purpose of Rolls Razor paying an already declared dividend. Within days, however, proceedings to have Rolls Razor wound up had commenced as the company was found to be hopelessly insolvent. Barclays transferred the ‘dividend money’ to another account that was overdrawn. The House of Lords ruled that the money was held by Rolls Razor on trust for the payment of the dividend; that purpose having failed, the money was held on trust for Quistclose. The fact that the transaction was a loan did not exclude the implication of a trust. The legal rights (to call for repayment) and equitable rights (to claim title) could co-exist. Barclays, having notice of the trust, could not retain the money. Similarly, the liquidator of Rolls Razor could not claim title to the money, as the assets did not form part the beneficial estate of Rolls Razor. It is interesting to note that had the dividend been paid as was intended, then Quistclose would just have been one of many unsecured creditors of Rolls Razor.

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John Harper

John Harper TEP is a part-time lecturer, delivering face-to-face courses for the STEP international diploma examinations all around the world.

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