Summary

A judge had been correct to find that a house and the proceeds of its sale were held on a discretionary trust. Although the trust deed did not refer to the house, there was sufficient in the background circumstances to lead a reasonable person to believe that the settlor had made a valid declaration of trust in respect of it.

Facts

The appellant appealed against a declaration that a house and the proceeds of its sale were held on trusts declared by his mother in favour of the second, third and fourth respondents, his nephews and nieces.

The mother, who died in 2009, had bought the house in 1986 to provide the respondents with a home. She had at all material times been domiciled outside the UK, and a firm of solicitors had acted for her on the purchase. Contracts had been exchanged on 14 December 1985, when the mother expressed an intention to establish a trust of the house for the benefit of the second, third and fourth respondents, on terms to be decided. The purchase was completed in January 1986 and the mother was registered as sole proprietor. Shortly thereafter, her solicitor advised her that she had purchased the house as the trustee of a trust established on 14 December 1985. It was common ground that that was incorrect and that no trust had been established on that date. The solicitor sent a draft trust deed to the mother in February 1986. Its sole recital was that she wished to make an irrevocable settlement of the property "specified in Sch.1". Schedule 1 described the settled property as "the sum of [blank] pounds", and the house was not referred to. Following an exchange of correspondence, the mother sent a signed copy of the trust deed to her solicitor on 14 April. Although she had been told to enter the amount of the gift in Sch.1 she did not do so. On the face of it, therefore, the signed trust deed declared trusts in respect of nothing. In May 1988 she wrote to her solicitor indicating that she wished to cancel the trust, and in 2006 she sold the house. After her death, the respondents obtained a declaration that the mother had declared a trust of the house in April 1986 and that the proceeds of sale were held on the same trust. The judge found that it was the mother's expressed wish that she would hold the house on the basis of a trust; that on 14 December 1985 there was clarity as to the intended beneficiaries; that the terms of the trust became defined on 14 April 1986; and that although Sch.1 defined no trust property, the mother had executed the deed intending the trust property to be the house.

Held

Had the mother made a valid declaration of trust in respect of the house? - Yes. Although she had made no express oral declaration of trust, such an utterance was not essential for the creation of a trust by way of a declaration. There simply had to be clear evidence of an intention to create a trust from what was said or done, Paul v Constance [1977] 1 W.L.R. 527 followed. The question was whether a reasonable person would infer that, by signing the trust deed, the mother was declaring a trust of the house. If the deed and the mother's accompanying letter were considered in isolation, it might be that no such inference could be drawn: on the face of the deed there was no trust property. However, the reasonable person would be entitled to consider the background circumstances, including the correspondence leading up to the signing of the deed. That correspondence showed that the mother's aim had always been to subject the house to a trust for the benefit of her grandchildren, and she could not be taken to have intended to create a settlement with elaborate trusts that applied to nothing. The irresistible inference was that, although something appeared to have gone wrong with the drafting of the settlement, she intended the house to be held on its trusts. Given her solicitors advice, she would have understood that a trust of the house had been established and would be governed by the deed, even though it did not mention it. Having read the correspondence, a reasonable person would have no difficulty in understanding how she might have reached that view. Her solicitor knew that the house was the only contemplated trust asset, and he had produced a deed which, he told her, would govern the trust created on 14 December 1985. Although he must have seen that the signed deed did not refer to the house, he did not advise her that anything more had to be done and did not explain why she should refer to a sum of money in Sch.1. A reasonable person would infer that she had not done so because she wanted to execute a deed that would result in the house becoming a trust asset, and they would find it unremarkable that she should think that the house would automatically become subject to the trusts when she signed the deed (see paras 40-42, 49-59 of judgment).

Was the declaration of trust manifested and proved by writing signed by the mother within the meaning of the Law of Property Act 1925 s.53(1)(b)? - Yes. While the covering letter enclosing the signed trust deed might not be sufficient to satisfy s.53(1)(b), the mother's letter of May 1988 was, because it expressly linked the house with the trust (paras 60-63).

Appeal dismissed