Tinsley v Milligan

A party to an illegal transaction may enforce a legal or equitable proprietary interest if the party can establish the interest without pleading or relying on the illegality. Property rights may arise despite the illegality. The illegality affects their enforcement rather than their existence.

A contributor to property held in another's name may therefore rely on the presumption of a resulting trust. The claim fails where a presumption of advancement requires the contributor to rely on the illegal purpose to prove that no gift was intended. The court does not replace these rules with a discretionary assessment of whether granting relief would affront the public conscience.

The appellant and respondent jointly operated lodging houses and contributed to the purchase of a house conveyed into the appellant's sole name. They intended the property to belong to them equally, but used sole legal ownership to conceal the respondent's interest while making fraudulent social-security claims.

After the relationship ended, the appellant sought possession. The respondent counterclaimed for a declaration that the house was held for them in equal shares. The county court upheld the counterclaim. The Court of Appeal, by a majority, dismissed the appellant's appeal: [1992] Ch. 310.

The central issue was whether the respondent's participation in the fraud prevented her from asserting the resulting trust, although she could prove her contribution and beneficial interest without relying on the illegal purpose.

1. Appeal dismissed by a majority of three to two. Lord Browne-Wilkinson delivered the principal majority reasoning. Lord Jauncey of Tullichettle and Lord Lowry agreed that the respondent could enforce her existing equitable proprietary interest without relying on the illegality. Lord Keith of Kinkel and Lord Goff of Chieveley dissented and would have allowed the appeal.

2. Per Lord Browne-Wilkinson, the same rule governs legal and equitable property rights acquired through an illegal transaction. Property may pass, and an equitable interest may arise, even though the underlying contract or purpose is unlawful. A party can enforce that interest if, but only if, the party can establish the title without pleading or relying on the illegality. The effect of illegality in this context is procedural rather than a forfeiture of the proprietary interest.

3. The respondent established a resulting trust by proving her contribution to the purchase price and the parties' common understanding that they owned the house equally. No presumption of advancement applied. She therefore had no need to explain why title had been placed in the appellant's sole name. The appellant introduced the fraudulent purpose, and its appearance in the evidence did not itself defeat the claim.

4. Where a presumption of advancement applies, a transferor may be unable to establish a resulting trust without relying on the illegal purpose to rebut the presumed gift. Such a claimant fails under the same reliance rule. The advancement authorities did not establish a wider rule that equity invariably refuses to recognise an interest whenever illegality is proved by the opposing party.

5. Lord Browne-Wilkinson agreed with Lord Goff that the Court of Appeal's broad “public conscience” approach was unacceptable. Enforcement does not depend on an imponderable balancing of the consequences of granting or refusing relief. The established reliance rules govern.

6. Lord Goff, dissenting with Lord Keith, considered that equity should refuse assistance whenever property had been placed in another's name to conceal the claimant's interest for an implemented illegal purpose. He regarded the clean-hands principle as wider than the reliance rule and considered any discretionary reform a matter for legislation.

1. House of Lords: By a majority of three to two, dismissed the appellant's appeal and affirmed the Court of Appeal's order.
2. Court of Appeal: By a majority, Lloyd and Nicholls LJJ, Ralph Gibson LJ dissenting, dismissed the appeal from the county court: [1992] Ch. 310.
3. Caerphilly County Court: Judge Hywel Ap Robert dismissed the claim for possession and declared that the appellant held the house for herself and the respondent in equal shares.