Equity & Trusts – Compact Notes – All in One

EQUITY & TRUSTS REVISION

CONSTRUCTION

Good intro from my coursework!

The trust – the “greatest and most distinctive achievement performed by Englishmen in the field of jurisprudence” (Maitland, 1936) – undoubtedly imposes an onerous obligation on its trustees (failure to comply might result in breach of trust) and has the ability to deprive the recipient of what otherwise might have been an outright gift (the gift of an asset is prima facie a gift unless it is certain the donor intended a trust).  Therefore, the imposition of a trust obligation cannot be achieved lightly.

Administration of Estates Act 1925: estate will receive anything not already disposed of.

Definition of a trust

Scott on Trusts (4^th edition, 1989) created the clearest definition, which allows for a dissection of the requirements: A trust is a “fiduciary relationship with respect to property” which subjects the trustee to “equitable duties to deal with the property for the benefit of another person” which results from “a manifestation of an intention to create it”.

1. A trust is a relationship

              – of a fiduciary nature

              – with respect to property, not merely personal duties

2. That involves the imposition of equitable duties to deal with such property

– imposed on the trustee

– for the benefit of the beneficiary

3. Arising from a manifestation of an intention to create it.

Note: for a trust to be in existence, the legal and equitable interests of a property MUST be separate

Requirements for the creation of a trust

1. Capacity

2. The three Certainties

3. Formalities

4. Constitution

5. Perpetuity

6. Public policy

Capacity

Minors

Under-18s lack the capacity to hold the legal title to land, or create a trust of land (s.1(6) LPA).

Mental incapacity

Simpson v Simpson – rebuttable presumption that those with medical evidence that they are mentally incapacitated lack the capacity to make valid disposition of their property.

The Three Certainties

The three certainties are said to be a microcosm of the English law of trusts generally.

CERTAINTY OF INTENTION

Clear words that show the intention to split the legal and equitable ownership of the property.

Historically, mere expressions of hope or desire were held to show sufficient intention.  This went against the equitable maxim equity looks at the intention rather than the form

Disapproval to this approach can be seen as early as Wright v Atkyns (1823), as per Lord Eldon: ‘the words must be imperative’.

Precatory words: will / may / should / could

Imperative: Shall

Lamb v Eames (1871) marks the sea-change: ‘to be at her disposal in any way she may think best, for the benefit of herself and her family’ was held to be an absolute gift and not a trust.  The decision was made according to the testator’s actual intention rather than following precedent, as to have found a trust would have deprived an illegitimate grandchild of the testator.

In Re Adams and Kensington Vestry (1884) ‘unto and to the absolute use of my wife … in full confidence that she will do what is right as to the disposal thereof between my children’ was held to be an absolute gift to the wife rather than a trust – the reference to the children were held to merely highlight the moral obligations the testator had considered when making his decision.  The words ‘in full confidence’ were held to be precatory words – it was considered that only imperative words contain the requisite intention to create a trust obligation.  So, on a proper construction of the whole will, no trust had been intended.

In Re Hamilton (1895) Lindley J agreed that the courts must look at all the words of the testator to see if, on their true construction in the context of the particular gift, a trust was intended.

So the general rule is that imperative words create a trust obligation; precatory words do not and the courts must look at the document as a whole.

The requirements are further illustrated in the leading case in this area, Comisky v Bowring-Hanbury (1905), where it was held that, although precatory words were used similar to those in Re Adams, i.e. ‘in full confidence…’ imperative words were used later in reference to those precatory words (‘… shall at her death be equally divided…’) so, on a proper construction of the whole document, the intention to create a trust was found.

Note the following exception to the rule that only imperative words contain the requisite intention, although this decision was controversial and has been criticised:

In Re Steeles it was held that, although the words used were precatory, they were identical to words used in an earlier decision where precatory words were considered acceptable Shelley v Shelley (1868)

Certainty of intention in oral expressions

Jones v Lock (1865) – No trust was found in the words ‘I give this to baby and I am going to put it away from him’.  Lord Cranworth said it would be ‘… a very dangerous example if loose conversations of this kind, in important transactions of this kind, should have the effect of declarations of trust.’  Also, the fact that the cheque was not endorsed shows that there was no binding intention to create a trust.

Paul v Constance (1977) – controversially the court found there to be a trust in ‘loose conversations’ even where they could not pinpoint the exact time of the declaration of trust, but the court wanted to achieve a rough justice by giving effect to the testator’s intention.  Scarman LJ: “we are dealing with simple people, unaware of the subtleties of equity”.

This decision has been criticised for the danger of becoming too flexible. [LOOK AT ACADEMIC DISCUSSION ON THIS]

However, thought to be a ‘public policy’ decision, highlighting the court’s willingness for moral manoeuvrability in the 20^th century, reacting to the needs of society at the present time.

This also highlights that the law of trusts is moving full circle; heading towards the same degree of flexibility pre-Lamb and going back to core of equity which is to combat unconscionability.

Recent case of Rowe v Prance (1999) applied Paul v Constance.

CERTAINTY OF SUBJECT-MATTER

(i) the property

The early case of Palmer v Simmonds (1854) a testator attempted to leave the ‘bulk’ of her residuary estate on trust.  Kindersley V-C held that, since she was not expressing a ‘…definite, clear, certain part of her estate’, he was of the opinion that there was no trust.

Re London Wine (1975) – there was insufficient certainty of subject matter as the claimant’s wine had not been removed from the company stock.

Re Goldcorp Exchange (1995) – similar to above, claimants were investors in gold bullion, but no trust existed as the contracts were for ‘non-allocated’ property – there was no property which could be described with certainty as being the object of the trust.

Thought to be a policy decision behind the scenes re insolvency

Funds protected by trust –  If no trust, assets go to pool of creditors

Hunter & Moss was just a gift so not the same policy consideration, hence the different outcomes

However, in Hunter v Moss (1994) it was held that intangible property, such as shares, could be the subject matter of a trust as all of the shares were identical (here 10% issued share capital of the company).  The difference in the above cases where the proposed subject matter was tangible property, e.g. bottles of wine, was that such identical assets may have ‘characteristics which distinguish them from other assets in the class’, provided they all have the same class rights.

(ii) the beneficial entitlement

In Boyce v Boyce a testator devised two houses to trustees to convey one to Maria, whichever she should select and the other to Charlotte.  Maria died before making a choice and so the trust in favour of Charlotte failed as it was not certain which house Maria would have chosen.

CERTAINTY OF OBJECTS

Knight v Knight: “every trust must have certain objects”

Has been described as the most important of the certainty requirements (Emery, “The Most Hallowed Principle…”)

Why important?

* If not possible to ascertain beneficiaries, not possible for trustee to carry out his duty to administer trust

* Nobody will have the requisite locus standi to bring any action and nobody “in whose favour the court can decree specific performance” William Grant in Morice v Bishop of Durham

(i) What is an object (beneficiary)?

Morice v Bishop of Durham (1804) – created the ‘beneficiary principle’, all trusts must have identifiable beneficiaries.

A misunderstanding of this case allowed trusts to be created for anomalies… [as later described by McKay (1973): he said the above case ‘was often construed as indicating that the objects must be certain, rather than certain and human’.]

Changed by Re Astor’s case (1952) which highlighted the misunderstanding… held that beneficiaries must be either human or a legal person (e.g. a company).

(ii) Certainty of the object

The object must be identifiable, and the test varies with the type of express trust or power.

Fixed Trusts

Trustees have no discretion as to the objects, or how the trust fund is to be divided.  Therefore, the objects of a fixed trust have to satisfy the narrow Class Ascertainability Test (aka the Fixed List test) which makes it necessary to know who the beneficiaries are, and how many there are.  In other words, if it is not possible to draw up a list of all of the beneficiaries, the trust will fail.

Note: it is not necessary to find all the beneficiaries, only to know that they exist.  Re Benjamin (1902) even went as far as to distribute to funds belonging to the missing beneficiaries to those that had been located.

Historically, the Class Ascertainability Test was used for all types of express trusts and powers.  With regard to Discretionary Trusts and Powers, it is necessary to consider the approaches to both simultaneously, to appreciate the courts’ journey to achieving two separate tests.

Discretionary Trusts   Using the Class Ascertainability Test become troublesome with the rise in popularity of large discretionary trusts with huge numbers of objects.  A number of trusts failed because a list could not be drawn up, and this often defeated the settlor’s intentions.	Powers   Similar to discretionary trusts in that Donee is given discretion to make decisions.  But importantly, a power is not an obligation, it is merely an option to exercise discretion – the donee may take no action with regard to the donor’s instructions.
	Re Gestetner (1953)   Groundbreaking case which created the ‘’any given postulant’ – quite simply: if any given postulant was capable of being in the class, the class was certain.
IRC v Broadway Cottages (1955) This was just two years after Re Gestetner, the groundbreaking decision of which was still fresh in peoples’ minds.  It was regarding a discretionary trust where it was not possible to list all of the beneficiaries, but it was possible with certainty to say whether a particular claimant was in the class or out of it.  CA held that the trust was void – uncertainty of objects.  This decision was not new ground, it was merely following cases before Re Gestetner and, after all, Re Gestetner was concerning a power not a trust.   Distaste for this decision in Re Hain (1961) and Re Saxone (1962).
	Re Gulbenkain (1970)   The test above was considered and approved.   Lord Upjohn: “a power is valid if it can be said… whether any given individual is or is not a member of the class” – so would not fail simply because it was impossible to ascertain every member of the class.   Referred to as ‘conceptual certainty’.   The assimilation of tests for trusts and powers was rejected.
McPhail v Doulton (1971) (Re Baden No. 1) Again, looked at what the test should be for certainty of objects in a discretionary trust.  Following IRC there must be a list of all beneficiaries, which in this case would be impossible and which would render the trust void.  The House of Lords therefore changed the test.    Lord Wilberforce: “it is striking how narrow and in a sense artificial is the distinction … between trusts … and powers”.   He therefore used the test laid down in Re Gulbenkain and said the test should be   “Can it be said with certainty that any given individual is or is not a member of the class?”  Now known as the is / is not test.  Note that this was a controversial decision – HL split 3:2.   Re Baden No. 2 (1972) same case, but back to CA for interpretation of the new test.  The 3 Lord Justices interpreted the test differently:

Court of Appeal interpretation in Re Baden No. 2

All three interpretations drew a distinction between ‘conceptual’ and ‘evidential’ certainty.

Conceptual: refers to the class

Evidential: refers to individuals within the class

Administrative Unworkability: (third category of uncertainty introduced by Lord Wilberforce in Baden 1) “where the meaning of the words is left clear but the definition of the beneficiaries is so hopelessly wide as not to form ‘anything like a class’ so that the trust is administratively unworkable”.

Sachs LJ

Only conceptual certainty needs to be established for the discretionary trust or power to be certain of object.  There is then a burden of proof on individual postulants to prove they are in the conceptually certain class.  If that cannot be proved, they are presumed to be outside of the class.  He argued that if it would be possible to prove whether any given postulant definitely is or definitely is not in the class in certain circumstances, e.g. ‘a relative of X’ – how do you prove that you are definitely not related to somebody?

Professor Oakley criticised this judgment as a ‘one person’ test, which was rejected in Re Baden No. 1.

Megaw LJ

Conceptual certainty is more important, although evidential certainty should be considered.  He said that there would be three groups of persons: those within, those not in, and those not sure.  So long as it could be proven that ‘a substantial number’ of individuals are within the class, then it has the sufficient certainty.

Oakley favoured this judgement, but had some doubts as to the certainty of ‘a substantial number’.

Stamp LJ

Says that both conceptual and evidential certainty needs to be established.  The test was interpreted as ‘definitely is or definitely is not’ – no middle ground.  With regard to the ‘relative’ point made by Sachs; Stamp says that ‘relative’ should be interpreted as ‘next of kin’, therefore it is possible to say with certainty whether somebody is or is not within that class.

This interpretation was also criticised by Oakley, who thinks this is a return to the List Test which was rejected by the House of Lords.  However I don’t agree, as Stamp is not saying that ‘every’ member of the class needs to be found.  Rather he is saying that, if somebody comes forward as a member of the class’ it needs to be established whether they definitely are or definitely are not within the class.

All three of these interpretations represent the law at the moment until such time as a clearer indication is given by the Court of Appeal or the House of Lords.

Oakley criticised this judgment as a return to the old fixed list test – he said that a whole trust would fail if there was uncertainty about one individual; leaving residual beneficiary free to claim whatever was intended to be disposed of in the trust, including any discretion that had already been made – this could cause chaos.

Formalities

1. Trustee must be invested with title to the trust property		2. Statutory formality requirements – LPA 1925
Settlor must have “done everything which… was necessary to be done in order to transfer the property and render the settlement binding upon him” – Milroy v Lord   Failure to fulfil renders trust incompletely constituted.   This can be done in one of two ways:   Self declaration of trust (where settlor makes himself trustee) No formality for this aspect of trust creation – simply an effective declaration that current holder is now trustee on behalf of another (Paul v Constance)   Transfer and declaration (where settlor wishes to divest himself of the property, by passing to trustees) Different requirements for each type of trust property; these would be the same for a gift of the property, the only difference with a trust is that the trustee is receiving on behalf of the trust:		INTER VIVOS   Designed to ensure creation of trust is not open to doubt and to minimise potential fraud by trustee.   Failure to fulfil these requirements renders t rust unenforceable even if title to property is correctly vested in trustee.   Declaration of a trust (not land):   An inter vivos trust of personalty can be created “without deed, without writing, without formality of any kind…” (Maitland, Equity, 1909)   Declaration of a trust of land:   Must be evidenced by some writing signed by some person who is able to declare such a trust or by his will – s.53(1)(b).   Note: the declaration need not be made in writing, the requirement is that it is proved in writing (by signature of settlor)   In the absence of signed written evidence: unenforceable, but not void – because may be enforceable when evidence obtained.   Disposition of a subsisting equitable interest (where donor doesn’t have legal title to property):   Must be in signed writing of person disposing, or lawfully authorised agent (authorised in writing or by will) – s.53(1)(c).   Resulting or constructing trusts:   Do not need to comply with s.53(1)(b), even if for land – s.53(2)   BY WILL   Must comply with the above AND formalities set out in s.9 Wills Act 1837 (as amended by the Administration of Justice Act 1982, s.17).   Declaration of a testamentary trust must be: (a) in writing, signed by the testator or some other person in his presence and by his direction (b) it appears that the testator intended his signature to give effect to the will (b) signature must be made or acknowledge in the presence of two witnesses present at the same time (c) each witness must attest and sign the will OR acknowledge their signature in testator’s presence.
Land:	s.25(1) LPA says it must be created by deed.  Deed is defined by s.1 LP(MP)A 1989: written; signed; witnessed by at least one independent witness; must describe itself as a deed; be delivered.
Shares:	s.1 Stock Transfer Act 1963 – sign a stock transfer form in favour of trustee Transfer of shares will only be complete once complete scf is sent with the existing share certificate to the company’s registrar; title passes with registration of transferee as new shareholder
Chattels:	Re Cole – actual delivery together with transferor’s intention to transfer.
Money:	Actual delivery
Bank accounts:	s.36 LPA – written notice to the debtor (bank) and the other party.
Copyright:	S.90(3) CDPA 1988 – signed writing (by or on behalf of assignor)
Cheque:	If payable to settlor/donor – endorse cheque by signing on back (Bills of Exchange Act 1882). If written by settlor/donor and drawn on his account – title passes when cheque clears.
EXCEPTIONS – general position: equity will not assist a volunteer   Every Best Effort Re Rose – where the settlor has done everything in his power to make a valid transfer of property, but the act of some third party is required to make the transfer legally binding, a trust will be imposed on the property in favour of the transferee until the transfer is made effective at law.   Unconscionability Choithram v Pagarani – where the settlor is one of the intended trustees, but his death occurs before vesting the property in the other trustees. Pennington v Waine – where settlor fulfils his part of the constitution requirements, but his death occurs before administration is carried out by a third party.  In the present case, his fulfilment was executing the Share Transfer Form; but his auditor has placed the form on file rather than sending the form for registration before settlor died.  Requirements: detrimental reliance and fulfilling all personal requirements (e.g. putting into hands of agent).  Note: this decision has been criticised because it conflicts with Re Rose and therefore leaves the law uncertain; and it gravitates against freedom to change one’s mind.   The Rule in Strong v Bird Where the settlor’s attempts to perfect a gift have failed, but intended donee subsequently becomes settlor’s administrator or executor the gift is said to have been perfected by the vesting of settlor’s property to the donee in his capacity as administrator or executor, provided the settlor’s intention remained unchanged until his death.   Donatio Mortis Causa Cain v Moon – A gift is deemed to be perfected where  * it is made in contemplation of imminent death (Wilkes – death need not be by intended means) * it is made under circumstances indicating that the subject matter of the gift is conditional upon death (this must be expressed – crucial requirement) * the donor has provided the property, or the means to get the property, to the donee, and * the property is capable of being the subject matter (gift of land can now fall within this exception – Senn v Hedley)    Proprietary Estoppel In certain circumstances would-be transferors may be prevented from denying the effect of incomplete gifts or even, rarely, forced to complete them, where a plaintiff has suffered some detriment in reliance on a promise that they would receive rights in a property (estoppel from denying the promise).  The idea behind this is that the intention is not to perfect the gift, but to prevent the unconscionable detriment to the plaintiff. Requirements: promise to give gift and detrimental reliance (Gillet v Holt)

Classifications

ABSOLUTE GIFT	TRUST				POWER OF APPOINTMENT
	EXPRESS TRUSTS		IMPLIED TRUSTS
	FIXED	DISCRETIONARY	RESULTING	CONSTRUCTIVE
A gift to a person who can do as they please with the donated property. No consideration by the donee The intention must be construed from the settlor’s words. Examples of intention to  create an absolute gift: “… to my sister to be used as she pleases” Good indicators: If person is not named, but rather the person’s office, e.g. the Vicar of St Mary’s Parish, then this suggests the property is not intended for that person individually but in virtue of her official capacity (so intended to be a purpose trust or a charitable trust)	The trust instrument specifies the share which each beneficiary is to take. Beneficiary entitled to equitable title. Examples of intention to create a fixed trust: “… on trust to be divided equally between my children” “… on trust to each of my brothers contingent on them reaching age 23” “… on trust to A for life, remainder to B absolutely”	Trustees are “under a duty to select from among a class of beneficiaries those who are to receive, and the proportions in which they are to receive, income or capital of the trust property”, Mettoy v Evans Individual beneficiaries have no identifiable interest until an advance an advance is made in their favour. Beneficiaries have a right to (a) have the trust managed in accordance with the trust instrument and (b) be considered as a potential recipient of the trust fund. Examples of intention to create a discretionary trust: “… on trust for my children as my trustees shall in their absolute discretion decide” Sometimes a power can be referred to in a trust instrument, when in fact it is a trust – called a power in the nature of a trust: “…a fund to such members of a class as A shall select” Good indicator is where there appears a general intention in favour of a class.  Court will carry into effect the intention – Burrough v Philcox	Automatic – arises by law where an express trust fails.  There is a gap in beneficial ownership, so the automatic trust makes the settlor the beneficiary.  Settlor’s intention usually considered. Presumed – based on the intention of both parties, usually in purchase of land.  If A accepts a contribution from B in the absence of intention that it was to be a gift, then equity presumes that B holds a beneficial equitable interest in the property.	A trust imposed by the law in certain circumstances, such as a remedy for breach of trust e.g. (a) Where an improper profit is made by a fiduciary (b) Where a person knowingly assists a fiduciary in a fraudulent undertaking (c) Where a stranger intermeddles in trust property	Seemingly similar to discretionary trusts in that they give authority to another to decide on the distribution or destination of property.  However, they are actually quite different concepts. A trust imposes a DUTY on trustees to dispose of the property, whereas a power is merely a DISCRETION to deal with property in a particular way The donee of a power is under no obligation to exercise it, but the trustee of a trust is absolutely obligated to comply with the trust instrument, with serious repercussions upon failure to perform. Difficulties arise when trustees are given powers with a trust instrument.  As they are in a fiduciary relationship with the donee of the power, they have a DUTY to consider, from time to time, whether to exercise it – Re Hays Examples of intention to create a power: “… to X with power to appoint A, B or C”  “… on trust to X for life with remainder to such of his children as he should appoint” “… to A for life with remainder to whomsoever he shall appoint” A good indicator of a power is a gift over in default of the exercise of the power: “… remainder to A, B or C or, if none appointed, to all of my nieces and nephews equally” – Re Hays

EQUITY & TRUSTS REVISION

TYPES OF TRUST

PRIVATE FAMILY TRUSTS	PURPOSE TRUSTS
	PRIVATE PURPOSE TRUSTS	COMMERCIAL PURPOSE TRUSTS	CHARITABLE TRUSTS	UNINCORPORATED ASSOCIATIONS
Accumulation & Maintenance for tax avoidance Protective to protect capital of fund from creditors	MAINLY VOID but some exceptions 1. The Anomolies 2. Re Denley	eg QUISTCLOSE	[old law or new law?]	Not really a trust, an alternative way to make a gift for a purpose which is not charitable (although may become defunct as a result of reform of charitable trusts)

PRIVATE FAMILY TRUSTS

Tax avoidance or “estate planning” as it is more subtly named has become a “national habit” according to Sir William Pile, Chairman of the Inland Revenue in 1975.

Discretionary Trusts

Two distinct advantages to creating a DT

To protect the trust fund:

Example: “… to X, Y and Z in such amounts as the trustees shall determine”

If one of the beneficiaries goes bankrupt, so long as discretion had not already been exercised in favour of that beneficiary, the trust fund is safe from trustee-in-bankruptcy.  This is because in a DT only XYZ collectively have an interest in the trust fund (unless and until discretion has been exercised).

Limiting inheritance tax

• Transfers between spouses or civil partners are exempt from IHT.
• From 6 April 2007 the Nil Rate Band is £300,000 (amount you can leave as inheritance without being liable for IHT)
• Rate of IHT for inheritance over £300,000 is 40%
• This discretionary trust utilises both partners’ Nil Rate Band

Example: Husband and Wife, with assets of £600,000 between them, create exact same testamentary discretionary trusts as follows:

“Amount of Nil Rate Band on discretionary trust

to Child 1, Child 2, Child 3 and Spouse,

with remainder to Spouse”

• So no IHT to pay there, as only given amount of NRB to kids and spouse, and rest is to Spouse (no IHT between spouses and civil partners).
• So when spouse 1 dies: beneficiaries will be collectively entitled to £300,000, and spouse 2 will own £300,000
• Spouse 2 then leaves the remaining £300,000 to kids utilising her NRB allowance, no IHT to pay when she dies.

If spouse 1 had left everything to spouse 2 then spouse 2 left everything to kids, 40% IHT would have been payable on £300,000 (the remaining amount after spouse 2’s NRB) so a saving of £120,000 IHT.

Can also be used to save IHT on family home passing to children:

• Husband and wife joint tenants of house worth £600,000
• The survivorship principle states that upon death of one joint tenant, the property passes by survivorship to the other
• So when spouse 1 dies, house passes to spouse 2
• When spouse 2 dies, £300,000 liable for 40% IHT

However, spouses can sever joint tenancy and make a NRB trust (as above) by putting a charge over the house (similar to a mortgage).   So when spouse 1 dies, there will be a charge on the house to the value stipulated (the value of the NRB – £300,000), with the beneficiaries collectively entitled.  In other words the DT will be ‘owed’ the amount – and this will be paid upon death of spouse 2.

When spouse 2 dies, leaving the house to the kids.  The assets of the £600,000 house will look like this:

£600,000 house

–  300,000 debt payable to DT

              £300,000 remaining to leave to kids

Utilising spouse 2’s NRB, no IHT to pay.  Again, this has saved £120,000.

Accumulation & Maintenance Trusts

Advantages:

• Large amounts of capital kept away from minors
• Tax advantages (although dramatically reduced by most recent budget)

Requirements specified by the Inheritance Tax Act 1984 (IHTA), s.71(1):

• No interest in possession of settled property
• One or more persons will become beneficially entitled to property, or to an interest in possession in it, by the age of 25
• Any income which is not applied for the maintenance, education or benefit of a qualifying beneficiary is to be accumulated.

Example: “… to X and Y contingent on them reaching 25”.

Settlor gives future contingent interest in capital, usually to issue, contingent on attaining a specified age, with provision for the beneficiary to be maintained out of the income, and also for capital to be made available at the trustee’s discretion.  These provisions can be made by way of express powers of advancement and/or maintenance.

The following statutory powers under the Trustee Act 1925 are additional to any powers contained in the trust instrument; and are subject to the general provision in s.69(2) that statutory powers only apply in the absence of contrary intention (e.g. express provision to the contrary in the trust instrument).

Section 31: Power to apply income for maintenance and to accumulate surplus income during a minority

(1)   A proportionate part of the income of a trust, whether vested or contingent, and subject to any prior interest, can be paid or applied;

(i)    towards the maintenance, education, or benefit of an infant, the whole or part of the income of the trust as may as may be reasonable in all the circumstances, Providing:

• the trustees have regard to the age of the infant and his requirements generally in the circumstances of the case, particularly what other income, if any, is applicable
• where income from another fund is available, then as far as practical, a proportionate part of the income of each fund should be paid or applied,

 (ii)  on attaining the age of 18 where the income is still contingent (e.g. on reaching age 25), the income of the trust and any accretion under subsection (2), until a vested interest is attained or has failed.

(2)   During the infancy, the residue of the income shall accumulate by way of authorised investments, and shall be held as follows:

(i)    on trust absolutely for beneficiaries

(a)   who have a vested interest and reach 18 years or get married, whichever is earlier; and

(b)   who become absolutely entitled upon reaching 18 years or getting married, whichever is earlier.

Section 32: Power to make an advancement of capital from the fund to a beneficiary for their advancement or benefit.

Advancement means setting up the beneficiary in life, and benefit has been defined as: “any use of the money that will improve the material situation of the beneficiary” -.Pilkington v IRC

Limitations:

(1) only up to one half of beneficiaries presumed share

(2) beneficiary must account for any advancement made

(3) if there is a beneficiary with a prior interest, that beneficiary must give their consent in writing, and can only do so if they are sui juris.

Trustees have a duty of care when making an advancement:

Re Pauling – money paid to parents of minor who used the money to pay of their debts; trustee had to account for the money as he didn’t take care when distributing funds.

Protective Trust

“… a protective trust shows the furthest extent to which English law will permit property to be denied to creditors”, Maudsley & Burn’s Trusts and Trustees (5th edition, 1996)  

Fixed trust with a life interest, determinable on a specified event; so that when event occurs, trust evolves into a discretionary trust.

Can arise expressly, but usually by placing the words “on protected/protective trust” in the trust instrument, a protective trust will arise automatically upon a determining event, e.g. bankruptcy.

The terms of the discretionary trust will be presumed to be those set out in s.33 Trustee Act 1925, unless otherwise specified.  The presumption is that on the occurrence of the determining event, the original beneficiary will become a potential beneficiary together with members of his close family (or if he has none, those who would have been entitled to the original trust in the even of the original beneficiary’s death).

Can receive advances in capital under s.32 (note that income will be reduced).

Where terms are specified by the settlor, those terms will apply – Re Balfour

Examples of intention to create a protective trust:

“… to X on protective trust until his bankruptcy, then to X and his issue as my trustees shall decide”

“… to X on protective trust” [here the discretionary trust would be that presumed in TA]

PRIVATE PURPOSE TRUSTS

The general rule is that private purpose trusts are invalid, subject to exceptions, for a number of reasons:

The rules against perpetuity (common law)

If a trust purports to go beyond perpetuity, it will be void.

• Remoteness of vesting – a trust must be certain to vest within the common law perpetuity period (“a life / lives in being plus 21 years”).  If no perpetuity period mentioned, then trust will fail, e.g. Re Astor.  Can be life of any person – Hong Kong case: descendants of Queen Victoria; but person must be alive.  Can state “so long as the law allows” – Re Hooper
• Inalienability – the trust capital must be freely alienable within the common law perpetuity period.
• Interest accumulation – Law Commission Report 251 says interest can only accumulate for a maximum of 125 years.

Note: the ‘wait and see’ approach introduced by the Perpetuity and Accumulations Act 1964 DOES NOT apply to the anomalies but can apply to Re Denley exception.

The beneficiary principle – Morice v Bishop of Durham

There must be somebody who has the requisite locus standi to bring any action to enforce the trust and “…in whose favour the court can decree specific performance” – William Grant MR

Capriciousness

Characterised by the playful whim or eccentricity of the settlor.  Caper is latin for goat, so a capricious settlor is one who is ‘acting the goat’ or ‘kidding around’!  Brown v Burdett – a trust to keep windows and doors of a house blocked for 20 years was considered capricious, and therefore void.  This has also been described as the ‘public policy’ objection – it was said that the trust in above case would serve no useful purpose.

Also Re Pinion: just a load of junk, and McCaig: monuments of himself.

EXCEPTIONS

1. Anomalies, a miscellaneous category (aka gifts of imperfect obligation):

They offend the rules, but have been allowed as ‘concessions to human weakness or sentiment’ Re Endacott (1960)

1. Graves and monuments

Musset v Bingle – monument for testator’s wife’s former husband was allowed

• Masses

Re Hetherington – had a charitable nature but failed as a charitable trust as it wasn’t open to the public, but ok under this heading.

• Particular animals

Trusts for animals are usually categorised as charitable, e.g. Re Wedgwood, but the requirements of charitable trusts are that they are in general.  Trusts for particular animal(s) can come under this head, e.g. Pettingall v Pettingall.  Re Dean was for horses and meres; Re Haines was for cats.

Court usually requires undertaking from a human to say they will maintain pet.

This is now a closed class – Re Endacott (1960) held that these ‘troublesome, anomalous and aberrant cases’ must not be followed except where one is exactly like another, i.e. within the precedents above]

To come within this limited section, a trust must:

• follow one of the precedents above

BUT: strange decision – Re Thompson trust to promote foxhunting.  Didn’t come within the anomalies but court allowed because it wasn’t challenged.  Bad decision; never been overturned

• follow the rules of perpetuity: Re Hooper (an otherwise ok gift to build and maintain a monument failed for not specifying perpetuity period)

BUT: strange decision – Re Dean stated 50 year period, so perpetuity rules ignored; and Re Haines perpetuity period not specified but judge said ok because cats don’t live beyond 21 years.  But this has since been held to be a bad decision as ‘life in being’ must be a human life (Re Kelly)

• The Re Denley exception

A trust for “…a recreation or sports ground primarily for the benefit of employees…” was held to be “…outside the mischief of the beneficiary principle” as per Goff J.

Draws a distinct line between individuals and a purpose.

The problem with private trusts such as Re Astor was that there was no-one to enforce the trust – but Re Denley doesn’t have that problem.  Note, no beneficiaries – instead ‘specified individuals’.  No equitable interest and Saunders & Vautier principle not valid.  The equity is in suspense.

Must be an inward looking association; must satisfy perpetuity rules.  (Note: political association is outward looking).

Certainty: uncertain which certainty test applies to a Re Denley trust, but suggested that even if conceptually certain and not capricious, the class of beneficiaries must not be too wide: West Yorkshire Police case.

Only followed once so far: Re Lipinski, which also held that beneficiary could use funds for purposes other than the specified purpose. Queried: Re Grant.  Uncertain if this exception is legally sound.  Criticised by Prof. Oakley re Saunders v Vautier.

Non-private purpose trusts, e.g. commercial/charitable are alternative ways to make a trust for a purpose.

Unincorporated association – not trusts at all, an alternative way to give money using the common law

Good structure for problem question

• Start with Maurice v Bishop of Durham – the beneficiary principle
• Then exceptions: anomalies
• State must be within perpetuity period
• Then Re Denley
• Perpetuity period / common law and PAA
• Inward looking
• Criticism
• Alternatives – commercial / charitable / UA

CHARITABLE TRUSTS

Current law must be contrasted with the new law, provided by the Charities Act 2006.  Has received Royal Assent, but most provisions not in force until early 2008.

CURRENT LAW	CHARITIES ACT 2006
No statutory definition, but Morice v Bishop of Durham said that the preamble to the Charitable Uses Act 1601 contained the ‘spirit and intendment’ of a charity. The preamble contained a list of charitable uses which was ‘varied and comprehensive’ – Lord McNaughton in Pemsel, but the Charitable Uses Act 1601 was repealed. However, the spirit of the preamble’s definition remains, providing definition by analogy.  The definition was rationalised and refined by Lord McNaughton in Pemsel which is now referred to as the ‘Pemsel Heads’: 1. Relief of poverty 2. Advancement of education 3. Advancement of religion 4. Other purposes beneficial to the community If a gift falls under one of these heads it will be charitable, so long as it satisfies the following requirements: 1. It is wholly and exclusively charitable 2. It is for the benefit of the public at large Wholly and Exclusively Charitable Chichester v Simpson (1944) – ‘charitable or benevolent objects’ was not held to be charitable as a benevolent object is not necessarily a charitable object and the gift only stipulated charitable OR benevolent. Contrast with: Re Best (1904) – ‘charitable and benevolent’ purposes was held to be charitable.  It was a matter of construction – the court held the word ‘and’ instructed a requirement of both elements, therefore only a charitable purpose would come under the benefit of the trust.     Public Benefit There are two elements to this – (1) a tangible benefit; and (2) of benefit to the public at large or a sufficient section of it. (1) There is no need to establish the benefit requirement in the first three heads below, as they are clearly beneficial – ‘public benefit’ automatically presumed.  However ‘public benefit’ must be established under the fourth head of ‘other purposes’. (2) A trust for the benefit of a select few is not charitable; it must be for the benefit of the public.  The problems arise when trying to establish the proper test for the identification of the public, and the test varies from head to head (not necessary under the first head, relief of poverty). The Personal Nexus Test (PNT) created in Oppenheim v Tobacco Securities Trust (1951), a case concerning a trust for the advancement of education, [is thought to be the leading test].  In the particular facts of that case, the income of a trust fund was directed to be applied for the education of children of employees or former employees.  It was held that the trust was void because the qualification to benefit was based upon a personal nexus – the class of beneficiaries was not a section of the public. Relief of Poverty The preamble to the CUA referred to “the relief of aged, impotent and poor people”. Lord Evershed in Re Coulthurst (1951) said that poverty does not mean destitution – it may be persons who have to ‘go short’, taking into account their ‘status in life’. The following have all been held to come under this head: “ladies of limited means” – Re Gardom (1914) “distressed gentlefolk” – Re Young (1951) Needy relations Re Scarisbrick (1951) – a trust for relations ‘in needy circumstances’ was held to be charitable because [xxx]. Working classes Re Sutton (1901): “the poor need not necessarily be poor of the class known as the working class, and many of the working class… are not poor”, Lord Wrenbury. Followed by Re Sanders Will Trusts (1954) – a trust for the establishment of dwellings for the working classes was not held to be a valid charitable trust – the working classes are not necessarily poor. Re Niyazi’s Will Trusts (1978) – a trust to pay capital and income to a local authority in a needy part of Cyprus, on condition that the money would be used to for the construction of a working men’s hostel.  It was held to be a trust – Megarry V-C said it was ‘desperately near the borderline’ but concluded that only poor persons would likely to live in a hostel, and a hostel can be distinguished with a dwelling as in Re Sanders (above). Public benefit requirement (1) There is a presumption that the relief of poverty confers a tangible benefit. (2) The PNT does not apply to poverty trusts – Dingle v Turner (1972).  So, a trust for the relief of poverty will be charitable even if it benefits a class of persons who are identified by reference to a particular person or employer (note rule in Re Coulthard).  However, if it were to name specific individuals, it would not be a charitable trust. Dingle v Turner (1972) – a testator wanted to invest £10,000 to supply an income to pay ‘pensions to poor employees of E Dingle & Co’.  This was held to be a valid charitable trust under the ‘relief of poverty’ head because, as a matter of construction, it was to reliever poverty amongst a particular description of poor persons.  If it was to benefit named persons, it would have been deemed to be a private trust. Re Cohen (1973) – a trust was created ‘for or towards the maintenance and benefit of any relatives of mine whom my trustees shall consider to be in special need’. Advancement of Education The preamble refers to ‘schools of learning, free schools and scholars in universities’.  The class of educational charitable trusts now includes museums, nursery schools, scholarly societies, trusts for industrial and technical training and trusts for the promotion of the arts. Re Shaw (1957) – Harman J took a narrow view of education.  He said that a mere increase in public knowledge in one area without an element of teaching was insufficient. Research Re Hopkins (1965) – Wilberforce J said that research would be charitable if either: (1) of educational value to the individual researcher, OR (2) it was so directed as to lead to something to pass into the store of educational material, OR (3) it improved the sum of communicable knowledge in an area of education. McGovern v A-G (1982) (Amnesty International case) – Slade J said that ‘a trust for research will ordinarily qualify as a charitable trust, if but only if, (a) the subject matter of the research is a useful subject of study, AND (b) it is contemplated that knowledge acquired [thereby] will be disseminated to others, AND (c) the trust is for the benefit of the public, or a sufficiently important section of the public… it is not necessary either (a) a teacher/student relationship should be in contemplation, OR (b) that the persons to benefit from the knowledge to be acquired be [students] in the conventional sense…’  Art Royal Choral Society v A-G (1943) – Lord Green MR said that ‘the education of artistic taste is one of the most important things in the development of a civilised human being’. Re Pinion (1965) – a trust for a museum of the testator’s paintings and some antique furniture, china and silver was held not to be a valid trust for the advancement of education.  Harman J could ‘conceive no useful object to be served in foisting on the public this mass of junk.’  In making its decision, the court was able to avoid making a subjective judgment on the value or art by using expert evidence, which concluded that the collection had no value as a means of education. Re Delius (1957) – a trust for the advancement of musical works by a particular composer was held to be valid.  It was not disputed that the standard of the works was very high, although the Judge did say that he may have no option to give effect to such a trust even if it was by an inadequate composer – the important point was that the residuary legatee was held to have no possibility of profiting personally from the trusts. Sport [TBC] Public benefit requirement The key case is Oppenheim above, which created the personal nexus test: the beneficiaries must not be distinguishable from other members of the public by reason of a relationship to a particular individual. Advancement of religion The preamble referred to ‘repair of bridges, ports, havens, causeways, churches…’  By analogy of that definition, the following have been held to be charitable trusts: A trust for the benefit of a monument inside a church – Hoare v Osborne (1866) A trust for the maintenance of a churchyard – Re Douglas (1905) A trust for the erection of a stained glass window in a parish church – Re King (1923) [TBC] Other purposes beneficial to the community [TBC]	Section 1 – meaning of ‘charity’ (1) For the purposes of the law of England and Wales, “charity” means an institution which- (a) is established for charitable purposes only (b) falls to be subject to the control of the High Court in the exercise of its jurisdiction with respect to charities (2) … (3) A reference in any enactment or document to a charity within the meaning of the Charitable Uses Act 1601 or the preamble to it is to be construed as a reference to a charity as defined by subsection (1). Section 2 – meaning of ‘charitable purpose’ (1) For the purposes of the law of England and Wales, a charitable purpose is a purpose which- (a) falls within subsection (2), and (b) is for the public benefit (see section 3). (2) A purpose falls within this subsection if it falls within any of the following descriptions of purposes- (a) the prevention or relief of poverty (b) the advancement of education (c) the advancement of religion (d) the advancement of health or the saving of lives (e) the advancement of citizenship or community development (f) the advancement of the arts, culture, heritage or science (g) the advancement of amateur sport (h) the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity (i) the advancement of environmental protection or improvement (j) the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage (k) the advancement of animal welfare (l) the promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services (m) any other purposes within subsection (4) … (4) The purposes within this subsection (see subsection (2)(m)) are- (a) any purposes not within paragraphs (a) to (l) of subsection (2) but recognised as charitable purposes under existing charity law or by virtue of section 1 of the Recreational Charities Act 1958 (c. 17); (b) any purposes that may reasonably be regarded as analogous to, or within the spirit of, any purposes falling within any of those paragraphs or paragraph (a) above; and (c) any purposes that may reasonably be regarded as analogous to, or within the spirit of, any purposes which have been recognised under charity law as falling within paragraph (b) above or this paragraph. … Section 3 – the ‘public benefit’ test (1) This section applies in connection with the requirement in section 2(1)(b) that a purpose falling within section 2(2) must be for the public benefit if it is to be a charitable purpose. (2) In determining whether that requirement is satisfied in relation to any such purpose, it is not to be presumed that a purpose of a particular description is for the public benefit. (3) In this Part any reference to the public benefit is a reference to the public benefit as that term is understood for the purposes of the law relating to charities in England and Wales.
Doctrine of Cy-pres This doctrine enables the Court (or the Charity Commissioners) to make a scheme to apply to gift for the purposes as near as possible (cy-près) to the donor’s original intention. Only possible provided: (i)    the donor showed a general charitable intention: *If the intention was to make a gift for a particular purpose only and the purpose cannot be carried out from the outset, an automatic resulting trust will be applied. *If the gift was for a charity generally and expressed a particular method simply as a means of carrying out the gift – it may be applied cy-pres. (ii)   the gift failed within the meaning of s.13 Charities Act 1993

UNINCORPORATED ASSOCIATION

Note: this topic usually comes up in the exam as a problem question.

What is an unincorporated association?

An alternative way of giving a gift to an ‘entity’ for a purpose.

Dissection of Lawton LJ’s definition in Conservative and Unionist v Burrell:

• Two or more persons
• with one or more common purposes (not being business purposes)
• with mutual undertakings, duties and obligations
• forming an organisation (e.g. a club or society)
• must be a contractual bond of union and rules which identify who has control of the of the organisation, where the funds rest and the terms for joining/leaving

This relationship is governed by contract law, not trusts

The contract is the club-rules which identify:

who has control over the ‘entity’ and its funds and on what terms

UA contrasts with a corporation, which has legal personality (and would therefore satisfy the beneficiary principle) and is complex and relatively expensive to run; and a partnership, which has business purposes with a view of profit. 

Important that the relationship cannot be seen by the courts to be a partnership, e.g. business purpose, as this would import statutory obligations and a relationship based upon agency of one partner for all co-partners.

Note: s.45 Partnership Act 1890 defines business to include ‘every trade, occupation, or profession’, but considered unsatisfactory (too literal) – Town Investments v Dept Environment: “the word ‘business’ is an etymological chameleon; it suits its meaning to the context in which it is found”, Lord Diplock.

Why?

The purpose of a UA is to avoid the law of trusts (which does not generally allow gifts for purposes) instead utilising the law of contract, which is the basis of the UA.

Gifts to UAs

Since a UA has no legal personality, and so cannot hold property, a gift cannot be made to it per se.  Therefore if such a gift is made, the courts have tended to consider the intention of the donor to get around the problem.

The possible interpretations:

1. Neville Estates v Madden – “a gift to the members of the association … as joint tenants, so that any member can sever his share and claim it whether or not he continues to be a member”, Cross J

• This would very rarely fulfil the intention of the donor, as a gift to a UA usually has the intention of benefiting the purpose of the UA – e.g. where a gift of land is made, say, to a rugby club, it is almost certain that the intention of the donor of the gift was not for each member of the club to take allotments in that land.

• Vincelot J in Re Grant’s WT suggested that in this interpretation, “… the association is used in effect as a convenient label or definition of the class which it is intended to take: but the class being ascertained, each member takes a joint tenant free from any contractual fetter”.

• Would only be valid if stipulated for ‘present’ members, otherwise void for perpetuity.

2. Neville Estates v Madden – “a gift to the existing members not as joint tenants, but subject to their respective contractual rights and liabilities towards one another as members of the association”. 

• This interpretation was used in Re Recher’s WT – non-charitable purpose gift which, if held to have been a trust, would have been void.  Held that the UA’s existing funds formed the basis of a contractual relationship between the members, and the gift was ‘an accretion to the society’s general funds’ and therefore an absolute gift to existing persons subject to the contractual rules.

• In this interpretation, individual members cannot sever their respective shares even on death – their share simply stays ‘in the pot’ for the other members, even those that join after the gift was made.

• Not entirely satisfactory regarding the donor’s intention as, providing the club rules allow, the members can simply wind-up the UA and divide the assets when they (collectively) wish.  If the club rules do not allow for such winding-up, the gift would be void for perpetuity: Re Grant’s WT.

• Note: arrangements of this nature rarely comply with the formality requirements of s.53(1)(C) LPA which require all dispositions of property to be evidence in writing.

• Re Recher approved the 3-category approach in Neville Estates but said category 2 should be available for inward and outward looking associations – so now irrelevant whether inward or outward looking.

3. A gift on trust “for the general purposes of the association” (a non-charitable purpose trust), which will fail because “a trust may be created for the benefit of persons as cestuis que trust but not for a purpose or object unless the purpose or object be charitable”. – Leahy v AG for NSW. 

• Exception 1: Re Denley’s WT – trust may be saved if somebody has locus standi and the association is inward looking.  Uncertain if this rule is still legally sound as queried in Re Grant’s WT.  Must also satisfy rule against perpetuities.

• Exception 2: if the purpose of the association falls within one of the anomalies (graves and monuments; masses; particular animals) AND satisfies the rule against perpetuity (this exception unlikely to be useful for UAs)

Presumption

The HL in Universe Sentinel has indicated that courts should uphold gifts to UAs wherever possible by presuming that they are meant to be No. 2 above UNLESS the words ‘on trust for the purposes of the association’ are used, in which case a purpose trust was obviously intended.

Further, Re Lipinski held that where a particular purpose is specified, if the words “on trust” do not appear, it will still be presumed to be No. 2 above.

Reform

New ‘twelve heads’ of charitable status likely to have a huge impact on the use of UAs as most of the instances in which they have been used are now covered within the new heads of charity.

Dissolution of Unincorporated Associations

Generally, the rules of the association should provide both the procedure for winding-up and the rights of the members in respect of the distribution of assets.

Q1 – WHEN IS AN ASSOCIATION WOUND UP?

Re GKN Bolts and Nuts, Sir Robert Megarry V-C held:

• Mere inactivity did not dissolve a club unless the only reasonable inferenceis that the club had ceased to exist: “… short activity coupled with strong circumstances, or long activity coupled with weaker circumstances may equally suffice.  The question is whether, put together, the facts carry sufficient conviction that the society is at an end and not merely dormant”.

• Approved Brightman J in Re William Denby & Sons who gave examples of four situations where a UA could be considered dissolved:

(1) in accordance with the rules

(2) by agreement of all persons interested

(3) by order of the court in the exercise of its inherent jurisdiction

(4) when the ‘substratum on which the society or fund was founded had gone, so that the society or fund no longer had any effective purpose, and the assets become distributable without any order of the court’.

Q2 – WHAT HAPPENS TO THE SURPLUS FUNDS?

“The bond of union between the members of an unincorporated association has to be contractual…”

However, problems when the rules are silent as to the destination of assets.

The 3 possibilities

1. Donations “on trust” should pass on a resulting trust to the donor or settlor

The general rule stated by Harman j in Re Gillingham Bus Disaster Fund:

“…where money is held on trust and the trusts declared do not exhaust the fund it will revert to the donor or settlor under what is called a resulting trust”.

He went on to say that the donor did not part with his money absolutely, but only to the intent that his wishes should be carried into effect and “any surplus still belongs to him”.

2. Where donations were given for consideration

Re West Sussex Constabulary said surplus funds

• given for consideration –  should pass bona vacantia
• out and out donations – should pass bona vacantia
• donations on trust – resulting trust back to donors following Gillingham

Therefore, surplus funds were distributed as follows:

(1) members’ subscriptions	The members had received consideration for their subs by way of the benefits of membership, so they had already received everything they had bargained for.
(2) receipts from entertainments, raffles and sweepstakes	These donations were also in exchange for consideration; and secondly they were not direct donations to the fund but merely donations of net profits after payments of prizes etc.
(3) donations to collection boxes	Donors presumed to have intended to part with monies out and out.
(4) donations and legacies	On resulting trust to the donors, following Gillingham

HOWEVER: Re Bucks Constabulary (which involved a ‘friendly society’ rather than a simple unincorporated association as in West Sussex) distinguished West Sussex.  Walton J held that, as there were members in existence at the time of the dissolution, the surplus would be held for them according to a term that could be implied into the contract between the members.

With regard to distribution, in the absence of any express provision in the ‘contract’ it should be distributed to the surviving members in equal shares.

Obiter, Walton J also drew upon Brightman J’s obiter in Re Recher’s WT that it made no difference whether an association was inward or outward looking.

3. Where a resulting trust or contractual solution is inappropriate, the money will revert bona vacantia.

Cunnack v Edwards: fund by members’ subscriptions to provide annuities for widows of deceased members.  Surplus remained after all members and all widows were deceased.

Members estates applied for the surplus funds, but it was held that the widows were indeed the beneficiaries so no resulting trust for the benefit of the members’ estates.  Moreover, the widows were only beneficiaries ‘during their widowhood’, so their estates not entitled either.

EQUITY & TRUSTS REVISION
MAKING THE TRUST WORK

VARIATION OF TRUSTS

Starting point: “A court will not re-write a trust”, Lord Evershed MR in Re Downshire Settled Estates

Beneficiary’s power to remove the trustees

A: Trust Instrument, this would be the best way.

B: Trustee Act 1925, s.36

In one of the following circumstances, a beneficiary can validly remove a trustee
• Out of the UK for 12 months
• Refusing to act
• Unfit to act (financially e.g. bankrupt)
• Incapable of acting (mentally e.g. insane)

C: TOLATA, s.19

Beneficiaries who are sui juris and collectively entitled may remove a trustee for “any reason”.

D: By application to the court, although this is extremely time-consuming and expensive.

Beneficiary’s power to vary the trust

A: Saunders v Vautier (1841)

• An adult beneficiary of a ‘bare trust’ (solely entitled to the trust property) may deal with his equitable interest as he wishes.

• Where there are several beneficiaries sui juris (adult and of sound mind) and together absolutely entitled, they may unanimously agree to terminate the trust and demand that the trust property be handed over to them.

Principles on the application of the rule

• Where persons being sui juris and collectively hold the entirely of the beneficial interest, they can direct the trustees as to how to deal with the property.

• They cannot override the existing trusts by taking control but still keep them in existence; they must either keep the old trusts ‘on foot’ and not interfere with the management of them, or bring the old trust to an end and divide the trust property between them or resettle new trusts. It is the latter example that illustrates how Saunders might be used to effect a genuine variation, rather than a mere revocation.

• They cannot instruct the trustees to make particular investments, nor prevent the trustees from being indemnified for expenses

Walton J in Stephenson v Barclays Bank

Limitations on the rule

• Not where trustees have a discretion: “for the whole trust has not been given to him but only so much as the trustees think fit”, Romer J in Re Smith

• Where some beneficiaries are unidentified, unborn or under age: “The rule has no operation unless the persons who have any present or contingent interest in the property are sui juris and consent” Lord Maugham in Berry v Green

Summary – Saunders allows beneficiaries to end the trust, but not to instruct the trustees how to act. In effect it is a revocation option rather than a variation.

Described as “an extreme instance of the variation of a trust” Gary Watt (“Trusts”, 2006)

B: ‘Post Death Variation’

Inheritance Act 1984, s.142(1) allows beneficiaries of a gift under a will to vary that gift within 2 years of testator’s death (e.g. if parent has not utilised his nil rate band option).

C: Protecting the Principle Beneficiary (from himself!)

Trustee Act 1925, s.33 allows variation to create a protective trust

D: To Widen Administrative Powers

Trustee Act 1925, s.57 allows variation of a poorly drafted trust if an investment clause is too restrictive, in line with the General Power of Investment in Trustee Act 2000, s.3.

Does not allow variation of the beneficial interest.

E: Matrimonial Causes Act 1973 allows variation of ante-nuptial or post-nuptial settlement.

F: Mental Health Act 1983 allows variation of property settled on behalf of mental patients.

G: Common Law Variation

The courts will vary trust for the ‘general interest of the beneficiaries’, even if this is contrary to Settlor’s wishes.

Re Remnant – court granted a variation of a trust that did not allow beneficiaries to marry into the Roman Catholic religion “in the interest of family unity”.

Re Seal – court allowed a trust to be moved to Canada where all the beneficiaries lived.

Re CL – mother with life interest, daughter with remainder. Mother incapacitated, so court varied trust to allow daughter to get residual interest before mother’s death, in order that she may care for her mother.

THE ISSUE OF CONSENT

The Variation of Trusts Act 1958, s.1(1) gives the court power, on behalf of certain classes of persons, to approve any arrangement “varying or revoking any of the trusts” which allows variations in beneficial interests to be sanctioned.

Applies to trusts arising under “any will, settlement or other disposition”.

The certain classes of persons are:

(a) infants (under 18s) and mentally incapacitated persons

(b) persons who may become entitled, directly or indirectly, to an interest at a future date or on the happening of a future event but not if the person whom the court is being asked to consent on behalf of would have been entitled to benefit if the future date or event had happened, on the date of the application to the court.

“…may become entitled”

doesn’t include those who definitely have an interest (even if contingent). ONLY those persons having a mere hope or expectation, e.g. the future spouse of a beneficiary.

Knocker v Youle – large number of cousins who had a remote contingent interest, difficult to locate. Court would not give consent on their behalf as they did have an interest, albeit remote.

“…future date or event has happened” [in other words, the principle beneficiary dead]

means that if those persons would then be a ‘definite’ beneficiary rather than a ‘possible’ beneficiary, court will not consent on their behalf.

This is called the ‘two contingencies away’ rule.

Re Suffert – spinster in her 60s with no issue, only ‘ascertainable’ relations were three adult cousins, two of which could not be located. Settlor and one cousin applied for the court to give consent on their behalf. On the date of the application, missing cousins merely considered to be ‘possible’ beneficiaries. This is because next-of-kin is a class of persons which can continually change, hence they were not ‘definite’ beneficiaries. However, the “…future date or event” [i.e. Suffert’s death] would in effect make the cousins ‘definite’ next-of-kin, as they would know on that date for sure that they were her next of kin.

Re Moncrieff – court consented on behalf of second-in-kin (principal beneficiary’s aunt’s grandchildren) because, on the “…future date or event” they would not have become entitled because there were next-of-kin ahead of them.

(c) the unborn, even those not conceived yet [e.g. a trust might be for “my children” which might include any unborn].

(d) those who would have a discretionary trust under a protective trust where the protective trust has not yet failed.

Requirements for consent to vary

• Variation must be beneficial to those on whose behalf consent is being given

Financial

Re Weston – All in UK but parents wanted to move to Jersey (and move the trust). Lord Denning said no as education of children would be better in the UK.

Contrast with Re Seal where court allowed variation to move trust to Canada as whole family would benefit financially.

Morally and socially

Re Tinker – a badly drafted trust, which meant that some children were not able to benefit despite the obvious intentions of the Settlor. But variation would provide no benefit to those on whose behalf consent was sought (e.g. current beneficiaries) so court wouldn’t consent.

• What about the Settlor’s intentions?

Re Remnant’s ST – held that defeat of the testator’s intentions was a “serious but by no means conclusive consideration”.

Re Stead’s WT – refused to vary a protective trust because of Settlor’s “very specific intentions”.

Goulding v James (1997) – latest position. Court consented on behalf of children and the unborn. Court of Appeal said Settlor’s intention carries very little weight. Contrary to Re Stead which is arguably old law now, although will possibly be followed with regard to protective trust cases and the present case for consent on behalf of all others.

FIDUCIARIES & CONFLICT

Revision for a potential essay question

The fiduciary duty is based on trust, loyalty and confidence:

“A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence”, Millet LJ in Bristol & West Building Society v Mothew (1997)

One of the fiduciary obligations identified by Millet in that case: the duty of the fiduciary not to put himself into a position where his own interest conflicts with the duty he owes to his principal.

One of the most inflexible forms of this duty is where it is used to prevent the trustee from profiting personally from his trust:

“It is an inflexible rule… that a fiduciary… is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict”, Lord Herschell in Bray v Ford (1896)

• Trustee must not receive any benefit unless expressly authorised
• Trustee must not allow his personal interests to conflict with those of the beneficiaries
• Trustee is liable to account for any unauthorised profits made and will hold those profits as constructive trustee

The rule in Keech v Sandford

Lease of Romford Market was held on trust for infant beneficiary; landlord refused to renew lease with infant. LL did eventually renew lease to trustee of the trust in his personal capacity. Court held that trustee not allowed to have the lease so ordered benefit of the lease to be transferred to infant beneficiary.

Strict principle but intended to prevent possible conflict between trustee and beneficiary

Misuse of opportunity / misuse of information:

Boardman v Phipps – v. important House of Lords decision

Boardman – solicitor (fiduciary)
Trust had small shareholding in company that wasn’t doing well.
Trust didn’t have funds to purchase more shares; nor the power to do so.
Boardman purchased shares in his personal capacity, and became majority shareholder.
Made huge profits for himself and the trust. But because he didn’t disclose what he was doing to ALL of the beneficiaries (he had to some) the court ordered him to account for all his profits.

Case is harsh because Boardman was acting bona fide in the best interests of the trust.
But the rule is strict liability – no bad faith necessary.

So the general rule is that the office of Trustee is non-gratuitous (don’t get paid).

EXCEPTIONS:

1. Authority of trust instrument

There may be a “charging clause” in the trust instrument allowing for remuneration. Trustee Act 2000

s.28 Trustee’s entitlement to payment under trust instrument

(1) charging clauses are no longer regarded as gifts, they are a debt on the estate (invalidates Re Trotter (1889))

(2) professional trustees can charge for what a lay-person could have done (invalidates Re Chapple (1884))

2. Authority of statute – Trustee Act 2000

s.29(2) Remuneration of certain trustees

Allows professional trustees to charge ‘reasonable remuneration’ if each other trustee has agreed in writing, where there is no express provision in the trust instrument.

3. Authority of the court

Inherent jurisdiction of the court, usually where there is no express clause in the trust instrument

Can even apply for authorisation by the court for a higher amount than in trust instrument – Re Duke of Norfolk’s Settlement Trusts – Trustee’s work was over and above what they were originally expected to do because powers were added to trust at a later date.

EQUITY & TRUSTS REVISION

CLAIMS

COMMON LAW CLAIMS (for Legal Title Claimant)				EQUITABLE CLAIMS (for Beneficial Title Claimant)
USUALLY a claim in rem is better for the claimant, summarised as follows (four Is): Insolvency is no bar to claim; Increase in value can be claimed e.g. FC Jones (shares owed to liquidator significantly increased in value – liquidator got new value of shares) and if value has decreased, claimant can then make a claim in personam for the difference; Interest accrues from the date the defendant acquired property; Injunction can prevent disposition of the property. Also: claim takes precedence over any other creditors because they were always the legal/beneficial owner of the property.
“Common law tracing” Possible where defendant has received claimant’s property and that property still exists in an identifiable form – even if precise form has changed. Requirements for a claim: 1. Claimant holds legal title (and this hasn’t been transferred to a bona fide purchaser). 2. Property must be identifiable as belonging to Claimant (ok to be swapped, as long as it is clear that it is the Claimant’s property is still identifiable) – Taylor v Plummer (bag of coins swapped for chattel). 3. Right to trace must not have been lost by mixing. Where money is mixed: General rule is that where money is mixed, it cannot be traced.  However: Banque Belge pour L’Etranger v Hambrouk – Claimant’s money paid into a dormant account, then transferred into a deposit account with little activity – as it was possible to follow the money and identify it at all times, the proprietary common law claim was allowed. But with telegraphic transfer: Agip v Jackson Lord Millet stated that in modern claims where money was electronically transferred, the claim fails because the claimant is unable to identify his money in the intermediate stage after it has left one account and before it reaches the destination account.  Decision inconsistent with original case of Taylor v Plummer where Lord Ellenborough say a right to claim only ceases “when the means of ascertainment fail”.  Criticised by Gary Watt (“Trusts” 2005): “…inability to deal with the technological realities of the commercial world”. Summary re mixed funds: Money can be traced where (a) money is used to purchase shares of an exact amount because “exchange product” is clearly identifiable and (b) money is paid into a bank account, and then transferred to another bank account, because amount is clearly identifiable. Money cannot be traced where (a) money is transferred electronically because it is not possible to identify the money in the intermediate stage (Millet J in Agip: “nothing passed between Tunisia and London but a stream of electrons”) and (b) where money ‘to be transferred’ is paid out to the recipient by the receiving bank before monies received by receiving bank (e.g. in Agip where the New York ‘sending’ bank had not opened for business when Lloyds paid the recipient – called a ‘delivery risk’), because money paid out by receiving bank are clearly not the funds being sent, as they have not yet been received.     Where chattels are mixed: Depends on motive of person who mixed – [contrast with personal claim which ignores motive] * deliberate fraud to make more funds on part of one owner, court can give entire property to other owner – Indian Oil v Greenstone * accidental mixing then tenants in common of respective interests – Spence v Union Marine Insurance REMEDY – usually damages as the common law will not force the defendant to give back ‘property’ where damages are volunteered, so the outcome will usually appear the same as in personam Note: Charging is the ‘procedure’ not the ‘remedy’.		CLAIMS IN REM		“Equitable tracing” Requirements for a claim: 1. Claimant holds equitable title 2. Not inequitable to trace e.g. not transferred to a bona fide purchaser or an innocent volunteer [ask Simon if there goes here, or as a defence] 3. Breach of a fiduciary relationship (Chase Manhattan Bank) although this is a controversial requirement.  This can be ‘discovered’ by the court’s imposition of a constructive trust (Neste Oy v Lloyds Bank: “…the receiving of money which consistently with conscience cannot be retained is, in equity, sufficient to raise a trust”, Bingham J). 4. The equitable property must still be identifiable e.g. not dissipated or destroyed (Borden v Scottish Timber) Funds into a bank account: If bank account is empty – no problem as property is identifiable Funds into a bank account, but mixed: * Where Defendant has mixed his own funds with Claimant’s funds, but some money has dissipated (although there is enough to refund Claimant), Court will presume that Defendant spent his own money and not the Claimant’s, so Claimant gets the full refund – Re Hallet’s Case.  This is on the basis that the trustee is culpable in mixing the fund so he should be the one to suffer the loss. * In the above situation, but where there is more than one Claimant and there is not enough money to refund all the Claimants, the starting point is the rule in Clayton’s Case: the first payment into the account corresponds to the first payment out of it.  This has the effect of making the balance of an account belong to the last person who made a deposit into it. Controversial as it is merely a ‘rule of convenience’ and goes against the equitable maxim where the equities are equal, the first in time prevails.  Gary Watt (“Trusts” 2005) describes it as ‘dispute-resolution at its crudest’. Modern support for a more equitable solution, e.g. CA in Barlow Clowes International said the rule should not be applied if it was contrary to the intentions of the parties; or if it would produce an unjust result (the latter confirmed in Commerzbank v Morgan). Now more or less emasculated, and will only be applied to resolve irreducible accounting difficulties, and only then to current accounts.  Lindsay J in Prentis even went as far as to say it should now be called the exception in Clayton’s Case.   [summary of position for mixed funds in a bank account: first apply Hallets; then if more than one beneficiary: Barlow Clowes (pari passu) unless impractical or contrary intentions, in which case Clayton (last in, first out)] * Where funds have been mixed – then Defendant dissipated funds – then got more funds, Court will not allow Claimant to have the new funds as this is not a claim for damages, it is a claim for what was his all along, and his funds were dissipated – EXCEPT if assets were purchased with funds (see next). Assets purchased with mixed funds: * Re Oatway – mixed funds were used to purchase assets, but enough funds remained in the account to cover the beneficiaries’ share.  However, those funds were later dissipated.  Held that the beneficiaries were entitled to a charge over the assets, even though Re Hallets laid down the presumption that the trustee spends his own money first (therefore the presumption would have been that the assets were purchased with the trustee’s own funds). * Ungoed-Thomas J in Re Tilley’s agreed: “if a trustee mixes trust assets with his own, the onus is on the trustee to distinguish the separate assets and, to the extent that he fails to do so, they belong to the trust”. Assets purchased with claimant’s funds: Foskett v McKeown: The claimant can assert his beneficial ownership to (a) fix the trustee with a personal liability for the amount of the trust fund (personal claim, see below) or (b) assert his beneficial ownership over the acquired assets (constructive trust).  Obviously, claimant should consider whether acquired assets are worth more than trust fund.  If decided to go for personal claim, can place an equitable charge (lien) over the acquired assets until such time as he receives monies via personal claim.   If wants to go for acquired assets – implied constructive trust. Lord Steyn in Foskett (2000) observed that “tracing is a process of identifying assets: it belongs to the realm of evidence.  It tells us nothing about legal or equitable rights to the assets traced”.  Gary Watt (“Trusts” 2005) therefore hopes that the artificial distinction between legal and equitable rules for tracing will, in the future, be put aside.
DEFENCES: If a defence is successful the ‘ultimate’ property holder will not have to make restitution to the ‘original’ property holder, even if property successfully traced Lipkin Gorman (‘Playboy Club’) defendant casino argued (a) that it had provided consideration for money received therefore not unjustly enriched.  This would usually be a valid defence, but not here because a contract for gambling services is not a legally enforceable contract; and (b) that it had paid winnings to naughty solicitor so restitution should be made net of that amount – ‘change of position’ defence.  Court agreed with (b) so club had to make restitution for amount received minus amount paid out in winnings. In future, in line with other jurisdictions, likely that this defence will only succeed where the ‘change of position’ act would not have been undertaken if it had not been for the receipt of the traceable funds.				DEFENCES: An equitable remedy will only occur when it is not inequitable to do so. Bona fide purchaser for value (consideration) without notice Innocent volunteer who hold the property, even though they have received no consideration, can be said to have been unjustly enriched.  The dilemma is choosing between two innocent parties (the claimant and the innocent volunteer). Change of position
“Money had and received” Leading case – Lipkin Gorman: A personal claim of restitution – claimant seeks defendant’s money which was received by the defendant as an unjust enrichment. Requirements for a claim: 1. defendant unjustly enriched [STRICT LIABILITY so no bad intention required]; 2. at the expense of the claimant; 3. in unjust circumstances where there was no legitimate grounds for the defendant’s enrichment (e.g. not bona fide purchaser) [DEFENCE]; and 4. there has been no ‘change of position’ by the defendant justifying refusal to make restitution in full or in part [DEFENCE]. Only entitled to claim money received by the defendant (in contrast with proprietary claim where you can get more).		CLAIMS IN PERSONAM		“Account” Easiest claim against Trustee only (unless he is a man of straw).
				“Dishonest assistance” This defendant never received the trust property; but assisted principal defendant to get it. Requirements for a claim: 1. the principle defendant breached a trust or fiduciary duty; and 2. the present defendant assisted in the breach; and 3. the present defendant acted ‘dishonestly’ [this is a policy reason – makes harder to prove claim to protect banks, otherwise would be too many instances] The test for ‘dishonesty’ – Twinsectra: subjective and objective test (but Millet dissenting said should just be objective). Tan case says only the defendant has to be found ‘dishonest’ not the fiduciary (although only a privy council decision). 4. which resulted in a loss.
				“Knowing receipt” A claim against someone other than the principle defendant or a dishonest assistant, who is not a bona fide purchaser (equity’s darling). Requirements for a claim: 1. property is disposed of in breach of a fiduciary duty arising from either an express or constructive trust; 2. the equitable title of said property (or its traceable product) has been received by the defendant; and 3. the nature of the recipient’s knowledge concerning the receipt makes it unconscionable for him to retain the property or its proceeds.  The test: objective “actual knowledge” (reasonable man) – BCCI v Akendale

Equity’s Darling

This is the significance of the proprietary interest being equitable.

So, if Mike owns the legal title his car, he holds that legal title until he himself sells it on.  So if it is, say, stolen or fraudulently sold, the car will still belong to Mike IN LAW regardless of whether the purchaser acted in good faith.  (Note one exception – adverse possession)

But in equity, if Mike owns the legal title to the car on trust for me (the beneficiary), but regardless sells the car, my proprietary interest in the car may be lost if the purchaser acts in good faith for value without notice of the equitable interest.  (Note I may still have a claim against Mike for Breach of Trust)  The bona fide purchaser now holds legal title to the car, and although my equitable interest in the car may not be disputed, it has been overreached by equity’s darling (as in MCC Proceeds Inc v Lehman Bros International, The Times, 1998).

For Value

Simply means it was not a gift; that the purchaser provided valuable consideration.  (Note, in equity, ‘marriage consideration’ is recognised as valid consideration)

Notice

Lord Browne-Wilkinson in Barclays v O’Brien (1994) said the Doctrine of Notice ‘lies at the heart of equity’.  Can be:   

Actual Notice – knowledge by the purchaser (as in Barclays v Quistclose (1970))

Constructive Notice – purchaser would have had actual knowledge had s/he made reasonable inquiries which a prudent purchaser would have made (so ought to have known)

Imputed Notice – where agent (e.g. solicitor) of purchaser had actual/constructive notice

(constructive notice and imputed notice illustrated in Kingsnorth Trust v Tizard (1986))

Note, equity’s darling mirrors the equitable maxim ‘where there is equal equity, the law prevails’ – since the beneficiary and the bona fide purchaser both have valid equitable claims, equity follows the law and therefore the purchaser’s claim prevails over the beneficiary’s.