Tribe v Tribe: illegal purposes and rebutting the presumption of advancement

In Tribe v Tribe ([1996] Ch. 107, CA (Eng)) a father was worried that he would have to sell the shares in his business to meet the claims of creditors (landlords alleging substantial dilapidations for which the father would be liable as tenant). To put the shares out of their reach (and to give them the impression that he was less wealthy than he was in reality) he transferred his shares to his son on the understanding that they would be transferred back to him when the danger had passed. In fact, however, no creditor ever knew of the transfer so there had been no actual deception. The father was able to resolve the difficulties with the creditors. He then asked his son to transfer the shares back to him but the son refused. The father sought a declaration to the effect that he was entitled to the entire beneficial interest and succeeded. He was able to show that a resulting trust had arisen.

He had to rebut the presumption of advancement and, to do so, had to give evidence of the unlawful purpose (putting assets beyond the reach of creditors) that underlay the scheme. Normally, this would not be possible but there is an exception where the unlawful purpose has not been carried into effect (where no attempt has been made to deceive any actual creditor). The exception applies even though the reason for not carrying out the unlawful purpose is that the danger has passed. The policy underlying the exception is to encourage people to pull back from fraudulent schemes even though they have put the foundations in place. Once the unlawful purpose has been implemented (an attempt has been made to deceive a creditor) then it is too late to invoke the exception.

Millett L.J. pointed out that even where the presumption of advancement does not apply transferors should not be lulled into a false sense of security by Tinsley v Milligan. Where there is no presumption of advancement a presumption of resulting trust will arise:

‘But the transferee cannot be prevented from rebutting the presumption by leading evidence of the transferor’s subsequent conduct to show that it was inconsistent with any intention to retain a beneficial interest. Suppose, for example, that a man transfers property to his nephew in order to conceal it from his creditors, and suppose that he afterwards settles with his creditors on the footing that he has no interest in the property. Is it seriously suggested that he can recover the property? I think not. The transferor’s own conduct would be inconsistent with the retention of any beneficial interest in the property. I can see no reason why the nephew should not give evidence of the transferor’s dealings with his creditors to rebut the presumption of a resulting trust and show that a gift was intended. He would not be relying on any illegal arrangement but implicitly denying it. The transferor would have to give positive evidence of his intention to retain a beneficial interest and dishonestly conceal it from his creditors, evidence which he would not be allowed to give once the illegal purpose had been carried out.’ (129)

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One Response to “Tribe v Tribe: illegal purposes and rebutting the presumption of advancement”

  1. redshylock Says:

    Serve him right! Instead of arguing resulting trust, he should have try to just come clean at an early stage and state there is no legal intention to assign the property and have the assignment void. Just my 2 cents, I got a feeling that the court would be much happier to void an assignment made for illegal purpose than to acknowledge a resulting trust made for illegal purpose.

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