Tinsley v Milligan

The House of Lords considered whether a claimant's equitable interest in land is defeated by the claimant's participation in illegality (fraudulent claims to the Department of Social Security). The majority held that a person who claims an equitable proprietary interest need not be denied relief merely because the transaction which gave rise to that interest involved illegality, provided that the claimant can establish the proprietary right without relying on the illegality. The court rejected the expansive "public conscience" balancing test as a replacement for the established rule that property can pass under an illegal transaction and for the rule in Bowmakers that relief is denied only where the claimant must rely upon his own illegality to make out his title.

Applying that principle, the majority held that the respondent (Milligan) had established a resulting trust in her favour and did not have to rely on the illegality to prove it, so the claimant (Tinsley) could not obtain possession.

The parties cohabited and ran a lodging-house business together. Properties and bank accounts were held in the sole legal name of the appellant (Tinsley) but were funded and operated jointly. The respondent (Milligan) and the appellant had both participated in false claims to the Department of Social Security to conceal Milligan's interest. After they fell out, Tinsley sought possession and ownership of 141 Thomas Street; Milligan counterclaimed for a declaration that the property was held on trust for them in equal shares.

Procedural history:

• County Court (Judge Hywed Ap Robert): dismissed Tinsley’s claim for possession and held that Tinsley held the property on trust for both in equal shares.
• Court of Appeal ([1992] Ch. 310): dismissed Tinsley’s appeal by a majority, holding that Milligan was entitled to an equitable interest.
• House of Lords ([1993] UKHL 3): by majority dismissed Tinsley’s appeal, affirming that Milligan held an equitable interest in the property.

Nature of the issues: (i) whether illegality (fraud on the Department of Social Security) defeated Milligan’s claim to an equitable interest; (ii) whether the Court should apply a discretionary "public conscience" balancing test when illegality is pleaded; and (iii) the application of the long-standing equitable principles concerning resulting trusts, the maxim ex turpi causa non oritur actio and the rule in Bowmakers.

Court’s reasoning in brief:

• The House of Lords reviewed historic and modern authorities and distinguished two approaches: an absolute bar where a claimant to an equitable interest is a party to the illegality (as in older authorities associated with Lord Eldon) and the modern approach that allows recovery where the claimant can establish title without relying on the illegality (the Bowmakers line and related authorities).
• The majority concluded that the correct rule is that a claimant may enforce a proprietary interest acquired under an illegal transaction provided the claimant does not need to plead or rely on the illegality to establish that interest. The court declined to adopt the broader "public conscience" balancing test as displacing established authority.
• Applying that rule, Milligan had a resulting trust because she provided funds and there was the requisite common intention; she could establish that interest without relying on the illegal purpose, so she prevailed.

The judgments also acknowledge that the rule can produce harsh results and that reform by legislation (or by a detailed Law Commission inquiry) might be preferable to judicially-created discretionary relief.

Appeal dismissed. The majority held that the respondent had an equitable proprietary interest (a resulting trust) which she could establish without relying on the illegality; the court rejected the adoption of a broad "public conscience" balancing test and applied the principle that property can pass under an illegal transaction provided the claimant need not rely on his own illegality to make out title.

Caerphilly County Court (Judge Hywed Ap Robert): appellant's claim for possession dismissed and a declaration of trust awarded to respondent; Court of Appeal [1992] Ch. 310 (30 July 1991): appellant's appeal dismissed by majority (Lloyd and Nicholls L.JJ., Ralph Gibson L.J. dissenting); House of Lords [1993] UKHL 3 (24 June 1993): appeal dismissed (majority), Court of Appeal order affirmed.