England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE MEDWAY COUNTY COURT
(HIS HONOUR JUDGE DONALD CRYAN)

		Royal Courts of Justice Strand, London, WC2A 2LL
		13th June 2008

Lady Justice Arden:

1. The issue in this appeal is whether the appellant, Mrs Staden, has any right to enforce an arrangement, arrived at solely between her parents following their divorce, that her late father, Mr Jones, would ensure that her mother's half-interest in the former matrimonial home, which was to be transferred to Mr Jones, would be Mrs Staden's in due course. I shall need to describe the details of the arrangement and consider its meaning, but Mrs Staden's case is that the legal mechanism which enables her to enforce this arrangement is a constructive trust.

Background.

2. On 12 March 1955, Mr Jones married Ms Kathleen Rose McNulty, now a Mrs Davis; and their daughter, Mrs Staden, was born on 4 February 1956. On 7 February 1962 Mr Jones and Mrs Davis purchased 88 Farm Road, Morden, Surrey in their joint names. Mrs Davis was, of course, never entitled to more than a half-share. I will call that half-share "the property".
3. In 1971, Mr Jones petitioned for divorce; a decree nisi was declared on 19 July 1971; and the decree absolute is thought to have followed in about August 1971. Mrs Staden was at that time about nine years old, and she continued to live with her father after the divorce. There were negotiations about the matrimonial home; Mrs Davis was not separately advised. It was presumably agreed that Mr Jones should have the home, as he would be providing a home for their daughter. The judge, HHJ Cryan, sitting in the Medway County Court, found as follows:

"5…In February 1971, a meeting took place at the offices of Mr Jones's solicitors, Stone and Stone. They saw both the claimants' parents and while they advised her mother that she could get independent legal advice, they certainly did not insist upon it.

6. According to the undisputed evidence of Mrs Davis, they advised her that Mr Jones wanted her to transfer the former matrimonial home to him. She declined, but then it was suggested that she should transfer the property to Mr Jones on the basis that her share would pass to the claimant in due course. That solution appealed, subject to it being guaranteed that it would happen. The solicitor said it would be put in writing.

On the day that Mrs Davis attended the solicitors' office, they wrote to her by letter dated 23 February 1971 in the following terms,

'Further to your call upon us today, we confirm that we are acting on behalf of your Husband in connection with his matrimonial affairs and it was agreed by you that, provided you were satisfied that your Husband would ensure that Susan Ann received your half interest in the property, 88 Farm Road, Morden, jointly owned by you and Mr Jones, or alternatively, that she had one half of the net proceeds of sale after allowing for the outstanding mortgage as at today's date of £3,000 you would transfer your interest to your husband and renounce your interest under the Matrimonial Homes Act.'

A Memorandum of Agreement signed by Mr Jones was enclosed. It read,

'TO Mrs Kathleen Rose Jones

Re: 88 Farm Road, Morden

In consideration of your conveying your one-half interest in the above freehold property to me, I agree and undertake to ensure that this one half beneficial interest devolves to our daughter Susan Ann and that, in the event of my selling the property at any future time, then I undertake to pay to her one half of the net proceeds of sale, after taking into account the outstanding mortgage of £3,000."

Although the judge does not set out the letter from the solicitor in full, it would appear that the solicitor had put forward the Memorandum of Agreement as a document which reflected the terms of the parties' agreement. There can be no other basis on which the solicitor could have done so. It appears that Mrs Davis transferred her interest in the property to Mr Jones on 25 March 1971. There was no consideration stated in the transfer, and therefore the only consideration for the transfer by her of her interest in the property was the promise given to her in the document signed by Mr Jones. I will refer to that document referred to by the judge as a Memorandum of Agreement as "the writing", as that was the way it was referred to in some of the submissions to us. I will refer to the letter from Stone and Stone dated 23 February 1971 as "the solicitor's letter".

4. In 1972 Mr Jones remarried. In 1980 Mrs Davis also remarried. In 1991, Mr Jones transferred the property, together with his own interest in 88 Farm Road, into the joint names of himself and his new wife, Mrs Kathryn Anne Jones "in consideration of natural love and affection." There was no tenancy in common restriction entered upon the register. It is common ground that 88 Farm Road was held by Mr Jones and Mrs Kathryn Anne Jones as beneficial joint tenants, but joint tenancy was not severed before Mr Jones died in 1994. In January 1994 Mr Jones died intestate, and it is said that Mrs Kathryn Anne Jones acquired the whole beneficial interest in the property by survivorship. We are told that the house is now worth in excess of £250,000.
5. The judge gave a careful judgment, and it is not necessary for me to read it, other than certain extracts. At paragraph 29 he held that Mrs Staden's interest was only to be in the proceeds of sale in the event of Mr Jones' death. The judge added:

"She [that is, Mrs Staden] was not intended to have the rights of a tenant in common to occupy the property, or to call for an account of any rents or to call for the sale of the property. The timing of events precluded the documents of February 1971 being a binding declaration of trust. The agreement remained executory and, in the event, unexecuted."

At paragraph 30, the judge referred to paragraph 10-59 of Gray and Gray, Elements of Land Law. He held that no common intention trust was proved which Mrs Staden could enforce. I should point out that Mrs Staden's case was put differently in the court below from the way it has been put before us. At paragraph 33, the judge held:

"The difficulty faced by the claimant is that she and not her mother is bringing this action, and her mother has not chosen to do so. If it was her mother bringing it the picture would have been much clearer. In the nineteenth century it was thought that children would be able to enforce a marriage settlement in Chancery, though not parties to the original agreement. What happened here was an agreement to benefit a child on divorce. Is it so very different in kind? I doubt it, but there is no authority directly to point, and I would be slow to say that the boundaries of equitable intervention in terms of specific performance or constructive trust have been pushed so far without further being sure of the presence of those twin stepping stones of precedent and principle to pass over. I am conscious that there is a well established line of relatively modern authority (at least in Chancery terms) referred to in Gray and Gray which says that the court ought not to give voluntary beneficiaries by indirect means what they cannot obtain directly."

And there the judge refers to paragraph 10-26 of Gray & Gray. The judge, therefore, concluded that the present proceedings had been brought by the wrong party, and that the writing could not be enforced by a mere volunteer, and by his order of 18 October 2007 the judge dismissed the claim.

6. I now turn to the appellant's submissions. Mr Le Grice, for the appellant, does not rely on an express trust or a common intention constructive trust. His argument in this court is that there was a constructive trust. He submits that a constructive trust is easily imposed when a person relies on an absolute conveyance to avoid obligations under a collateral agreement. By the terms of the transaction between Mr Jones and Mrs Davis, Mr Jones was under an obligation to his daughter which he did not fulfil, in consequence of which she, Mrs Staden, the daughter, can seek to recover that which she would have recovered if her father had complied with his obligations.
7. Mr Le Grice particularly relies on the decision of this court in Neale v Willis [1968] 19 P&CR 836. There the dispute arose between a husband and wife. They had agreed to acquire a house in joint names but it had been transferred by the husband, on acquisition, into his name alone. The wife sought a declaration that the husband held the house on trust for them both. The judge found that, before the house was acquired, the husband had borrowed £50 from his mother-in-law, telling her, on her enquiry, that the house was going to be in joint names.
8. This court, Lord Denning MR, and Diplock and Sachs LJJ, held that following the earlier decision of this court in Bannister v Bannister [1948] 2 AER 133 the husband could not go back on the agreement he had made with his mother-in-law and that the effect of the contract was to give rise to a constructive trust enforceable by his wife. This court held that the decision in Bannister shows that if a person who takes a conveyance to himself which is absolute in form nevertheless had made a bargain that he will not give a beneficial interest to another, he will be held to a constructive trust for the benefit of that other.
9. Mr LeGrice submits that the transaction was not an executory agreement as found by the judge. He submits that there was a breach of trust by Mr Jones when he transferred the property into the joint names of himself and Mrs Kathryn Anne Jones as joint tenants, and thereupon the claimant became the proper claimant. Mr Le Grice also relies on the following passage from the judgment of Scott LJ, giving the judgment of the court in Bannister v Bannister [1948] 2 ALL ER 133:

"There was of course no question of a resulting trust, as there might have been if the occupant of the house had been a former owner who had sold the freehold on the faith of a similar promise. In the present case, the defendant did on the facts found sell and convey the property on the faith of the oral undertaking, and would not otherwise have done so, and the undertaking must be assumed to have been regarded as reserving to her benefit worth at least £150 or three-eights of the contemporary market value of the property, without vacant possession."

I interpose that the value of the property at the date of sale was £400, but the consideration for the transaction was £250.

"We therefore see no reason why the words of the undertaking should not be given the most favourable construction, from the defendant's point of view, of which they are properly capable. Similar words in deeds and wills have frequently been held to create a life interest determinable, apart from the special considerations introduced by the Settled Land Act (1925) on the beneficiary ceasing to occupy the premises (see for example Re Carne's Settled Estates, Re Boyers' Settled Estates). In our view, that is the meaning which should, in the circumstances of the present case, be placed on the words of the oral undertaking found by the county court to have been given by the plaintiff."

10. Mr Le Grice submits that Stephenson LJ similarly gave a generous construction to the document that fell to be considered in Binion & Anr v Evans 1972 1 Ch 359. I need not go to the facts of this case, save to state that the issue was whether or not there was a tenancy at will, or whether or not the appellant should be able to live for the remainder of her life in the property in question. Stephenson LJ said at 373:

"The introduction of the words 'as tenant at will of them' in the old doctrine set out in Coke on Littleton, 55A, that a tenancy at will expressed to be at the will of one party only is by implication of law to be at the will of the other party also create a difficulty in the defendant's way; but all the rest of the agreement is inconsistent with the defendant being a tenant at the will of the landlords. If those six words are inconsistent with the rest of the document, I agree we should disregard them. If they make the document ambiguous, then any ambiguity in the language of the agreement resulting from the attempt of the landlords' lawyers to have the best of different worlds ought clearly to be resolved against those who drew up the agreement and put it forward. To give it the meaning for which Mr Pugh persuasively contends would be to turn it into a trap for the defendant. The successors in title to the owners who put forward this agreement, took the cottage subject to the agreement, and ought to be in no better position to turn her out than her predecessors who agreed not to."

I should add that the respondent to this appeal has not suggested that, if the appellants were to succeed, the declaration would not be binding upon her.

11. Mr Le Grice points out that it was Mr Jones's lawyers who drew up the document which Mr Jones signed and in those circumstances he submits that the writing should be interpreted so as to create a trust, and thus in a manner favourable to the appellant's claim. Mr Le Grice therefore submitted that there was an immediate constructive trust because he submits that any day could be the last day of a person's life and thus the obligation to ensure that the property was vested in Mrs Staden became a binding obligation from the date of the transfer to ensure that she would receive one-half of Mr Jones's share. Mr Le Grice submitted that, by the terms of the transaction between Mr Jones and Mrs Davis, Mr Jones was under an obligation to transfer the property to his daughter. Mr LeGrice submits that this was not a contract to make a will; the writing at all material times imposed an obligation to take such steps as were necessary to ensure that Mrs Staden would receive one-half of the property, subject only to the mortgage of £3,000 and subject to that mortgage alone.
12. There was another obligation imposed by the agreement: not to charge the property. That was not broken but if it had been broken, it would have constituted a wrong both in contract and in trust, on his submission the conception of trust and contract are not mutually exclusive. There was no reason why there should not be a trust as well as a contract between Mr Jones and Mrs Davis. He submits there was a clear fiduciary duty to Mrs Staden; the fact that she was only a minor when the arrangement was made reinforced the nature of that duty.
13. I now turn to the respondent's submissions. Mr Peter Crampin QC for Mrs Jones submits that the first task is to interpret the writing. He submits that, on its true interpretation, there was merely a contract to create a trust, and not a contract which actually created a trust. He referred to Re: D'Angibau [1880] 15 Ch 228. In that case, a woman had agreed to assign property to trustees in trust to pay the income after her death to her husband and, in the events which happened, to pay the capital to such person as she should appoint. She made the necessary appointment, but it was held that her husband could not claim under the settlement, because he was only a volunteer. The property had never been transferred to trustees as contemplated by the agreement. Therefore the agreement was merely an agreement to create a trust, and not enforceable by a volunteer.
14. Mr Crampin submits that the writing cannot be interpreted in the light of the solicitor's letter; that was simply part of the negotiation between the parties. Mr Crampin submits that the writing indicates that Mrs Staden was not to get an interest in the property until Mr Jones died, except in the event that there was a sale. Accordingly there would only be a breach of contract if Mr Jones failed to make a will to enable her to receive this half-share. During his lifetime he could mortgage the property though it might be a breach of the agreement for him to give her, on death, a share with little or no value. The intention of the writing was that Mr Jones should be free to deal with the property in his lifetime as he thought fit; although Mr Crampin accepted that any dealing should not incapacitate him from being able to transfer the half interest to Mrs Staden on his death. Accordingly there was no breach of the writing to transfer the property plus his own half-share into the joint names of himself and Mrs Kathryn Anne Jones. He could have severed his interest in 88 Farm Road at any time up to the moment before his death and bequeathed the property to Mrs Staden.
15. He submits that a deed of transfer was contemplated by the writing; if there was any conflict between the solicitors' letter and the writing, on his submission the writing must prevail. Furthermore, on his submission, even if a beneficent interpretation was adopted, the writing could still not fairly be interpreted as creating a trust. Mr Crampin relies on the decision of the Privy Council in Central Trust and Safe Deposit Company v Snider [1916] 1 AC 266. In that case, one Mabel Carlton agreed with her uncle that she would receive one-half of the rental of a property during her lifetime and that on her death her uncle would transfer her interest to her heirs. It was on that basis that she agreed to transfer her half-share in the building for a nominal consideration to her husband. The uncle did not fulfil this obligation. At page 270 to 271, Lord Parker of Waddington, delivering the judgment of the Privy Council, held as follows:

"In their Lordships' opinion, the intention of the parties must be gathered from the conveyance and Mr Irwin's letter. The intention, as manifested by the conveyance, is clear enough. All the interest of the defendant, Mabel Carleton, whether legal or equitable, is intended to pass. The letter contains nothing inconsistent with and a good deal to confirm this. The testator was evidently intending to be put in a position to grant a lease or leases of the property on such terms as he might think desirable, which could not be properly done if the defendant Mabel Carleton remained equitable owner of a moiety of the property. Further, the testator's promise to devise a moiety of the property in her favour is inconsistent with her being intended to remain in equity the owner of such a moiety, whether the testator did or did not make such a device. A contract to devise a beneficial interest assumes an estate in the person who contracts sufficient to enable the contract to be performed, and it would be contrary to ordinary equitable principles to construe a promise to settle as a present declaration of trust. With great deference, their Lordships think that the trial judge, in holding that the letter created a trust, did not give sufficient weight to these considerations. In their opinion, it is impossible to impute to the parties any intention of creating a trust in praesenti.

Mr Crampin submits that the doctrine that equity looks on as done that which ought to be done does not apply in favour of a volunteer; see Re Anstis [1886] 31 Ch D 596 at 605-6.

16. As to a constructive trust, Mr Crampin adopts the judge's judgment at paragraphs 30-34. He submits that there was never any intention that Mrs Staden should have any beneficial interest in the property if it was not sold except through the deceased's will and that upon his death the property on which the constructive trust could fasten was vested in Mrs Kathryn Anne Jones. Mr Crampin submits that the authorities on which Mr LeGrice relies depend on, first, the transferor was really going back on arrangement with someone else; and secondly, on the arrangement not being legally enforceable without a constructive trust because of informality. Here there is no need for a constructive trust because the arrangement was fully enforceable by Mrs Davis.
17. I now turn to my conclusions. The road on which we have to travel to decide this appeal forks at the point where the question is asked: was there in this case, following the transfer of the property to Mr Jones, a trust or just a contract? I would emphasise that taking the trust route does not, as Mr LeGrice points out, mean that there was no contract. As he points out, trust and contract are not mutually exclusive concepts. But if we take the contract route, that means there is no trust. As Mr Crampin submits, very different consequences flow if we take the contract route. Only Mrs Davis can enforce the contract; Mrs Staden cannot do so. Moreover, given that the property has now passed to Mrs Jones by survivorship, Mrs Davis's remedy would only be for nominal damages. The contract could also have been varied or be varied by the parties to it without any reference to Mrs Staden. But the decision as to which road to take requires a principled decision as to the meaning of the writing. The writing has to be interpreted against the matrix of fact, excluding evidence prior negotiations. Was the solicitors' letter admissible, or does it fall within the rule which precludes the admission of prior negotiations as an aid to interpretation of an agreement?
18. In Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 898 at 912-3, Lord Hoffmann, with whom the remainder of the House agreed, set out the principles for the interpretation of written documents. In the course of doing so, he specifically dealt with the admissibility for the purpose of interpreting an agreement of what the parties said in the course of negotiating that agreement. The relevant passage is as follows:

"(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the 'matrix of fact', but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them."

So Lord Hoffmann accepted that the limits of the exclusionary rule are uncertain.

19. In this particular case, the solicitors' letter was a document which purported to set out what the parties had agreed, and which stated that that was what it was setting out; and it was put forward as the covering document for the writing, which was delivered at the same time. In those circumstances it would, in my judgment, be artificial to exclude the letter from any consideration of the writing. In Proforce Recruit Ltd v Rugby Group Limited [2005] EWCA 698, Mummery LJ pointed out that, as stated in Chitty on Contracts, paragraph 12.119, evidence of facts about which the parties were negotiating is admissible to explain what really was intended, and evidence of what the parties said in negotiations is admissible to show that the parties negotiated on an agreed basis that the words used bore a particular meaning. In my judgment I drew attention to another line of authority. At paragraph 53 I said:

"It has been held that where a party makes an oral representation as to the effect of a document for the purpose of its being acted upon, and it is acted upon, and there is no qualification in the representation suggesting that the document is not to govern the relationship of the parties, the representor cannot afterwards be heard to say that the representation is not true: see De Tchihatchef v The 'Salerni' Coupling Ltd [1932] 1 Ch 330, [1931] All ER Rep 233. In that case the representation was made after the agreement had been executed, but in my judgment the position would have been the same if the representation had been made before the agreement was executed."

20. In the present case, as I have said, while we do not have the full text of the solicitors' letter, it did accompany the writing and it was put forward to Mrs Davis as expressing the agreement of the parties. In those circumstances it must be admissible for the purposes of interpreting the writing, and that the writing should be interpreted on the basis that that letter set out what the parties had agreed and on the basis that the writing was to implement what the parties agreed. I accept Mr Crampin's submission that, if there is a conflict between the two documents, the writing must prevail; but the starting point has to be to interpret the writing in the light of the solicitors' letter. Only if that cannot be done does any question of a conflict arise.
21. So the next question is whether the writing creates only an obligation in contract on Mrs Jones, or whether it also gives rise to an obligation which satisfies the requirements of a trust. The next question then is: what is necessary to show a trust? Much of this has been taken for granted in argument but it would be useful, I think, to refer to Jessel MR in Richards v Delbridge (1874) LR 18 Eq 11. Jessel MR said that a person may transfer his property without valuable consideration in one of two ways. He then referred to the fact that there could be a declaration of trust or an intermediate gift. He then considered the requirements for a valid declaration of trust. Jessel MR went on:

"It is true that he need not use the words, 'I declare myself a trustee', but he must do something which is equivalent to it, and use expressions which have the equivalent meaning…The court…is not at liberty to construe words otherwise than according to their proper meaning. …for a man to make himself a trustee there must be an expression of intention to become a trustee, whereas words of present gift show an intention to give over property to another, and not to retain it in the donor's own hands for any purpose, fiduciary or otherwise."

22. So I now turn to consider the terms of this document. It is clear that the house was to be transferred into Mr Jones's name. He was to hold it and to deal with it in a particular way, namely to transfer it to Mrs Staden, or to account to her for half the proceeds of sale. There may also have been implied terms in this arrangement, including an obligation that he should not dispose of it otherwise than by way of a sale. The document uses the words "agree" and "undertake", confirming that Mr Jones was assuming a binding obligation. Mr Jones was clearly intended to live in the property and to occupy it. It also appears that the parties intended that it should not be further mortgaged. There was a clear intention that Mrs Staden should get the property at some point in time or, if it was sold, she should receive not compensation, but a half-share of the proceeds of sale.
23. Emphasis has been placed on the fact that the writing states that Mr Jones would ensure that the beneficial interest transferred by Mrs Davis "devolves to our daughter, Susan Anne", Mr Crampin submits that that indicates that the obligation was only to take effect as a contract to create a will and as an obligation to transfer the property on his death.
24. In my judgment, the fact that the writing refers only to the devolution of one half to Mrs Staden, and not to its being held for her in the meantime, is not necessarily an indication that the property was not being held upon trust. As I have said in my judgment, the court is entitled to look at the solicitors' letter which states that the parties' agreement was that Mrs Staden should receive a half interest in the property, without stating that she should receive it at any particular point in time. Mr Crampin fairly accepted in argument that, if regard was had to the agreement as set out in the letter, then a transfer to her in the lifetime of Mr Jones would also be encompassed by the terms of the parties' arrangement.
25. So in my judgment it is important to read the document as a whole; and when it is read as a whole, in my judgment, it is clear that the parties' intention was that the property should be kept for Mrs Staden, and that was so even though the only time it was to be transferred to her was in the event of Mr Jones's death. In other words she was to have a beneficial interest, albeit that it was subject to his right to continue to occupy the premises should he wish to do so, but he had no right to dispose of the property for his own benefit. His only right was to occupy it. I bear in mind that a trust is a matter which is difficult to define, but which essentially imposes an obligation to deal with property in a particular way on behalf of another person. It does not, as Jessel MR said, involve using express words of creating a trust.
26. Another way of reaching this same conclusion, as Lawrence Collins LJ, pointed out in argument, is to look at the word "devolve". The word "devolve" on Mr Crampin's submission refers to a situation in which Mrs Staden acquires the beneficial interest under a will. That is the normal meaning of the word "devolve"; namely, inherit by a Will. But of course, as at 1971, the daughter stood also in the position whereby, on an intestacy, she would inherit this asset.
27. In my judgment, if the two documents, the solicitors' letter and the writing, are read together, the writing can fairly be interpreted as using the word "devolve" in a less technical sense of simply "transfer" in the sense of an ultimate transfer of property to Mrs Staden. I bear in mind that, as Mr LeGrice has submitted, the court has made it clear in Bannister v Bannister  that, in circumstances such as the present, the court should give a generous interpretation to the words in question. The circumstances which give rise to this approach are that a party (here Mrs Davis) conveyed property to another on the faith of an oral undertaking -- that is, in our case, the written undertaking -- and that she did so in this case for no other consideration than the promise. In these circumstances, as Scott LJ said, there is no reason why the undertaking should not be given the most favourable construction of which it is properly capable; and in my judgment, it is properly capable of that interpretation.
28. Mr Crampin has placed reliance on Snider, but in my judgment there is nothing in the decision of the Privy Council which prevents the conclusion to which I have come. In that case the Privy Council had before it a document, and the decision is actually a decision on the interpretation of the documents in that case. But it is also important to point out that no reliance had been placed on the principle in Bannister v Bannister to which I must come, and it was a decision of the Privy Council which is not binding on this court, as is the decision in Bannister v Bannister.
29. I would also add that no party took any point that a present trust could not be created even though the transfer to Mrs Staden was not to come into effect until a date subsequent to 1971 that is, on the death of Mr Jones or in the event of sale, in which event the undertaking would require transfer of one half of the proceeds of sale.
30. I should now briefly summarise the decision in Bannister v Bannister. That was a case in which the defendant received an oral undertaking from the plaintiff that she could live in a cottage rent-free for as long as she desired, and, on the faith of that undertaking, she agreed to sell to the plaintiff the cottage and an adjacent cottage. She moved into the premises, but about a year later the defendant brought an action to recover possession of that part of the property which she occupied and claimed that she was occupying it as a tenant at will. The defendant counterclaimed for a declaration that the plaintiff held the cottage in which she had agreed that she should live in trust for her for life. It was held that the undertaking given by the plaintiff created a life interest in the cottage in favour of the defendant determinable on the defendant ceasing to live in it, and that there was an equitable principle in these circumstances -- and here I am reading at page 136, where Scott LJ deals which an objection that the principle of a constructive trust could only apply where a party was seeking to use a statue as an engine of fraud, or was seeking to act in a fraudulent way. Scott LJ said:

"It is, we think, clearly a mistake to suppose that the equitable principle on which a constructive trust is raised against a person who insists on the absolute character of a conveyance to himself for the purpose of defeating a beneficial interest, which, according to the true bargain, was to belong to another, is confined to cases in which the conveyance itself was fraudulently obtained. The fraud which brings the principle into play arises as soon as the absolute character of the conveyance is set up for the purpose of defeating the beneficial interest, and that is the fraud to cover the Statute of Frauds or the corresponding provisions of the Law of Property Act, 1925, cannot be called in aid in cases in which no written evidence of a real bargain is available. Nor is it, in our opinion, necessary that the bargain on which the absolute conveyance is made should include any express stipulation that the grantee is in so many words to hold as trustee. It is enough that the bargain should have included a stipulation under which some sufficiently defined beneficial interest in the property was to be taken by another."

31. As I see it, the ratio of the decision turns on the fact that there has been an arrangement on the basis of which an interest in the property has been conveyed, and that the party, against whom the constructive trust is sought to be enforced, has relied on the absolute nature of that conveyance and denied the arrangement into which the parties have come. That, in my judgment, is, on the interpretation which I have given to the writing, what occurred in the present case.
32. There remains a final point: does the principle in Bannister apply where the arrangement is not one which is underpinned by, or which arises out of, a contractual arrangement which could, on the fact of it, be enforced by someone else? In the present case there is a contractual arrangement which, Mr Crampin submits, is enforceable, and has always been enforceable, by Mrs Davis. In my judgment that restriction on the principle would not be consistent with the principle itself, which is to give effect to the arrangement informally made. Here it would not give true effect to that arrangement simply by allowing Mrs Davis alone to sue. She would never have shown anything other than nominal damages. In any event it would put the intended beneficiary at the mercy of the party to the contract being able and willing to enforce the arrangement, and that may not always be so.
33. Finally, I would point out that it is common ground that the Contract (Rights of Third Party) Act 1999, which was enacted pursuant to a report of the Law Commission, Privity of Contract: contracts for the benefit of Third Parties (Law Com No 242), does not apply in this case because the writing was entered into before the commencement date of the statute.
34. In the circumstances, I would allow this appeal.

Lord Justice Wall:

35. I find myself in complete agreement with my Lady, Lady Justice Arden's judgment. She has covered the ground fully and, for the reasons she gives, I too would allow this appeal. It follows that, although we are reaching a different decision from that arrived at by the judge and despite Mr Crampin's able submissions, there is nothing I can usefully add.

Lord Justice Lawrence Collins:

36. I also agree.

Order: Appeal allowed.