Staden v Jones

A constructive trust may arise where property is conveyed on the faith of an arrangement that the transferee will preserve a defined beneficial interest for another person, and the transferee later relies on the conveyance’s absolute form to defeat that arrangement. Contract and trust are not mutually exclusive. The court must interpret the relevant writing against its factual matrix. A present trust may exist even though transfer of the beneficial interest is postponed until death or sale, and express trust language is unnecessary. An accompanying solicitor’s letter recording the agreement may assist interpretation. The intended beneficiary may enforce the trust even where the original contracting party also has a contractual remedy.

Following her parents’ divorce, the appellant’s mother transferred her half-interest in the former matrimonial home to the appellant’s father on the basis of a written undertaking that the interest would ultimately pass to the appellant or that she would receive half the net sale proceeds. The father later transferred the property into joint names with his second wife, who acquired the whole beneficial interest by survivorship on his death.

The Medway County Court dismissed the appellant’s claim, holding that the writing was an executory agreement, that no enforceable trust had been established, and that the claim had been brought by the wrong party because the mother was the contracting party. The central issue on appeal was whether the arrangement created only contractual obligations or also a constructive trust enforceable by the appellant, and whether the accompanying solicitor’s letter could be considered in interpreting the writing.

1. Disposition. Lady Justice Arden delivered the leading judgment. Lord Justice Wall and Lord Justice Lawrence Collins agreed. The appeal was allowed.
2. The distinction between contract and trust required a principled interpretation of the writing. The documents had to be read against the factual matrix. Applying Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 898, the court held that the solicitor’s letter was admissible. It purported to record the parties’ agreement, accompanied the writing, and was presented as implementing that agreement. The writing would prevail in the event of conflict, but it had first to be interpreted in the light of the letter. The reasoning was consistent with Proforce Recruit Ltd v Rugby Group Limited [2005] EWCA 698 and De Tchihatchef v The ‘Salerni’ Coupling Ltd [1932] 1 Ch 330.
3. Read as a whole, the arrangement required the property to be kept for the appellant. Her beneficial interest was present, although transfer was postponed until the father’s death or a sale. The father retained a right to occupy the property but no right to dispose of it for his own benefit. The word devolve was not confined to inheritance under a will and could mean ultimate transfer in the context of the documents.
4. Following Bannister v Bannister [1948] 2 ALL ER 133, an arrangement on the basis of which an interest in property was conveyed could generate a constructive trust where the transferee relied on the absolute character of the conveyance to defeat the agreed beneficial interest. No express stipulation that the transferee was to hold as trustee was required. The undertaking was also entitled to the most favourable construction of which it was properly capable. Richards v Delbridge (1874) LR 18 Eq 11 confirmed that express trust terminology was unnecessary if there was an equivalent expression of intention.
5. The fact that the mother could enforce the contractual arrangement did not prevent the appellant from enforcing the constructive trust. Limiting enforcement to the contracting party would leave the intended beneficiary dependent on that party’s willingness to sue and could provide only nominal damages. The Contract (Rights of Third Party) Act 1999 did not apply because the writing pre-dated its commencement. The formal order was: appeal allowed.

• Court of Appeal (Civil Division): In [2008] EWCA Civ 936, the court allowed the appeal.
• Medway County Court: His Honour Judge Donald Cryan dismissed the claim by order dated 18 October 2007, holding that the writing was executory and that the appellant was not the proper claimant.