In part 3.1.3 we have seen that where A transfers land to B in order to facilitate an illegal activity, the illegal purpose cannot be invoked to rebut the presumption of resulting trust or of gift. However, we have noted that an exception was recognised in Tribe v Tribe [1996] Ch 107 for situations in which the illegal purpose has not been carried out. The scope of this exception arose for consideration in Q v Q [2008] EWHC 1974 Fam which is annotated by Pawlowski “Constructive Trusts, Illegal Purpose and the Locus Poenitentiae [2009] Conv 145. In Q v Q, to avoid inheritance tax, a father had transferred a house to his sons. For this to be a legitimate transaction it was necessary for the transfer to be absolute so that the sons alone benefited from the property. In fact, the sons had agreed with their father that they would return the property to him at any time on his request. This meant that the purpose of the transfer was illegal. The house subsequently became the matrimonial home of one of the sons, H and his wife, and ownership of the home fell to be decided on the breakdown of their marriage.  The father argued either that the house had been held on trust for him from the time of the transfer, or that a trust had arisen at a later date when he had sought to revoke the gift. The father argued, relying on the exception in Tribe v Tribe, that he could invoke the terms of the transfer to establish the trust as the illegal purpose had not been carried out. On his analysis, the illegality lay in the evasion of inheritance tax and this purpose would not be carried out until his death. This argument was rejected by Black J. She considered that the illegality in fact lay more broadly in the deception of the Inland Revenue.  Such deception had already occurred as the father had made false representations on his tax returns by omitting to declare that he retained an interest in the house. The court concluded that on the basis of a common intention constructive trust or proprietary estoppel (on which see chapters 18 and 13 respectively) the house was beneficially owned by H alone.

As the book went to press, the Law Commission published a consultative document on the effect of illegality, including discussion of its effect on trusts: Law Commission Consultation Paper No 189, The Illegality Defence: A Consultative Report (2009), part 6, which we note briefly in this chapter.  The Law Commission has provisionally retained a previous recommendation that the effect of illegality should be determined by the courts through a statutory discretion, in place of the current equitable rules. We have noted in part 3.1.3 the criticism directed at the current position derived from Tinsley v Milligan [1994] 1 AC 340 (extracted in part 3.1.3). Judicial change is considered unlikely in light of this House of Lords authority. The proposed statute will be narrow in its scope, to avoid the risk of casting the net of illegality too broadly. It is proposed to apply where a trust is used to conceal the true arrangement between the parties for an unlawful purpose; such as the social security fraud exemplified in Tinsley v Milligan and tax evasion illustrated by Q v Q. In such cases, the courts will have a statutory discretion to decide the effect of illegality. The scope of this statue will become clear on publication of the Law Commission’s final report which is due in autumn 2009.

In part 4.1 we have explored the difference between institutional and remedial constructive trusts. In Thorner v Majors [2009] UKHL 18, Lord Scott advocated the development of the remedial constructive trust to deal with a specific category of case.  He considered that the remedial constructive trust should be used in place of proprietary estoppel in claims concerning representations of future property interests; in particular, promises of an inheritance.  Lord Scott’s concern is that promises as to the future do not readily fit with the idea of a representor being estopped from denying that the claimant has a property interest that has been promised. Representations as to future rights lack certainty as the identity of the land may change (where land is brought and sold between the representation and death) and the circumstances of the parties may change. However, the other members of the House of Lords did not consider these factors to cause difficulties within proprietary estoppel doctrine. Indeed, testamentary promises have provided a boom area for its application. The doctrine of proprietary estoppel is discussed in chapter 13.