In Rochefoucauld v Boustead (1897), Lindley LJ said ‘that the Statute of Frauds does not prevent the proof of a fraud; and that it is a fraud on the part of the person to whom the land is conveyed as a trustee, and who knows it was so conveyed, to deny the trust and claim the land himself’.
Section 53(1)(b) of the Law of Property Act 1925 provides that ‘a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will’. S53(1)(b) indicates that in cases where there is a purported oral declaration of trust, it is not void without the element of writing, but merely unenforceable against the trustee. This requirement of formality can be traced to the forerunner of s53(1)(b); s7 of the Statute of Frauds 1677. It is a ‘proof’, not a ‘validity’ formality; so the declaration renders the express trust into existence and binds parties to it, however, since the beneficiary cannot prove that the trust exists, there is no way for them to force the trustee to carry it out (Penner, Law of Trusts).
However, in Rochefoucauld v Boustead, an oral express trust was enforced against the trustee without fulfilling the writing requirement. The Court of Appeal upheld that ‘equity will not allow a statute enacted to prevent fraud to be used as an instrument of fraud’. Therefore, in order to prove the express trust, parole evidence was included, despite the statutory requirement of written evidence in s53(1)(b) (Penner, Law of Trusts). This is known as the ‘doctrine of Rochefoucauld v Boustead and it is reflected in this quote given by Lindley LJ. He is essentially declaring that equity abhors the use of statute as an instrument of fraud. The core function of the statutory formality rule is to prevent fraud being practised upon a trustee by those who fabricate allegations of trust. But, as Lindley LJ points out in this case, the insistence on formality is not pursued to the degree that reliance upon the lack of writing is allowed to facilitate fraud by the trustee himself. Therefore, by making an express oral declaration that from the moment of acquisition Mr. Boustead will hold the land on trust for Mrs. Rochefoucauld; it would be fraud in equity if he were to rely on the absence of writing in order to deny the trust, which allowed him to acquire title in the first place. Thus it was decided in this case, that Mrs. Rochefoucauld was beneficially entitled to the surplus of the proceeds from the sale of the land, after the deduction of the purchase price and expenses incurred by the trustee (as per their agreed condition when the express trust was declared) (Gray & Gray, Land Law). S53(2) of the Law of Property Act provides that the documentary formality requirement does not affect the creation or operation of resulting, implied or constructive trusts. I will now discuss how the imposition of these trusts uphold the doctrine of Rochefoucauld v Boustead (that statute will not be used as an instrument of fraud) and prevent fraud without contravening statute by enforcing a declaration of express trust. In Hodgson v Marks, a resultin3g trust was imposed where the intentions of the transferor were not upheld.
The court held that although Mrs. Hodgson could not have claimed an oral express trust due to s53(1)(b), the oral agreement did prove that she did not intend to transfer the whole of her equitable interest and therefore formed a resulting trust of the beneficial interest to her, which would not be affected by s53(1). However, Hodgson does not fit comfortably with the categories of the resulting trust. Swadling argues that Russell LJ’s statement about resulting trusts is obiter and contends that Hodgson is based on the doctrine of Rochefoucauld v Boustead, and since Rochefoucauld upheld the oral express trust despite s 53(1)(b), Swadling argues that Hodgson v Marks should have followed suit.
A more convincing argument is that Hodgson v Marks should be covered by a constructive trust since the case fits more comfortably with a constructive trust; there is no non-compliance of any statutory requirements (s53(2) LPA 1925) (although many commentators agree with this point, it is regarded as fallacious in Penner’s ‘Law of Trusts’ which claims that it is not possible to give effect to an express declaration of trust for the reason that not to do so would give rise to a fraud, and then say that the trust is constructive arising by operation of law); and it would benefit from the underlying aim of the constructive trust to do justice on a broad scale (Hudson, Equity & Trusts). Equity enforces a constructive trust where someone has conducted themselves in such a way that it would be inequitable to allow the to deny the other party a beneficial interest in the land (Gissing v Gissing). The imposition of a constructive trust requires: a bargain or common intention; a change of position or detrimental reliance and equitable fraud or an unconscionable denial of rights. The rise of the constructive trust has obscured the principle of enforcing the oral express trust despite the statutory formality provision (Penner, Law of Trusts). This can be seen clearly in the case of Bannister v Bannister, which is similar to Rochefoucauld as the fraud consisted of relying upon the lack of writing.
However, Scott LJ described the trust as a constructive trust rather than the oral express trust, which he was clearly enforcing despite s53(1)(b). Although he does not give a reason for doing so, academics believe that it is because constructive trusts do not disregard statutory formalities. However, this is deemed fallacious reasoning in Penner’s ‘Law of Trusts’ which claims that it is not possible to give effect to an express declaration of trust for the reason that not to do so would give rise to a fraud, and then say that the trust is constructive arising by operation of law. The possibility of a constructive trust arsing in Rochefoucauld v Boustead is commonly debated as this would prevent the use of the statute as an instrument of fraud as well.
In Yaxley v Gotts, fraudulent behaviour relating to the reliance on s2 of the Law of Property (Miscellaneous Provisions) Act 1989 to avoid an oral agreement being effective led to the determination that the claimant was entitled to relief under the doctrine of proprietary estoppel, which was not necessarily invalidated by s2 of the 1989 Act. The appellants argued that the doctrine could not validate an agreement rendered void by s3 of the 1989 Act. The principle in Halsbury’s laws, which essentially states that the doctrine could not validate an agreement rendered void by s2 of the 1989 Act, was relied on. It was held, however, that the doctrine was not invalidated by the Act, because it would be absurd if a constructive trust, which is very similar to the doctrine of proprietary estoppel, could provide a proprietary remedy and the doctrine could not. Additionally, it was held that since Parliament did not view a constructive trust as undermining any policy that led to the creation of the Act; the same should be true of the doctrine of proprietary estoppel where the facts could equally support a constructive trust.
Therefore, there is scope for the application of the doctrine of proprietary estoppel in preventing statute from being used as an instrument of fraud. In three-party cases, where A transfers land to B upon trust for C; the constructive trust approach may be used in ways which most justify the circumstances. For example, in some cases the constructive trust could be a bare trust for A which prevents B’s unjust enrichment; in others it could carry out A’s intention by including the terms of the unenforceable express trust. The former is preferable because as well as the bare trust complying with statute, it does not enforce the express trust and B’s fraud is prevented. A constructive trust in favour of C can be found when C has relied to his detriment either because of a representation by A or because B has acted to carry out the trust. This is particularly relevant where A makes a self-declaration of trust for C, because A cannot defraud himself.
This justifies Rochefoucauld, which itself is a self-declaration case. By gratuitously promising to buy the estates for Rochefoucauld, Boustead could be held a settlor of the trust; and the cautionary purpose would allow him the finding of a non-existent trust, because it would not be fraud upon Rochefoucauld if a gratuitous promise had not been fulfilled. However, the courts finding that Boustead had been giving effect to the express trust which Rochefoucauld had relied upon in some way, shows that the decision made to enforce the declaration of express trust and the doctrine resulting from it are correct. (Penner,Law of Trusts).