Introduction to Trusts and Gifts
The first part of this module is concerned, in the main, with the trust. However, there are other concepts with which you will need to be familiar throughout this part. These are the gift and powers.
A trust is an equitable obligation where legal title is given to the trustee which he must hold for the benefit of the beneficiary. Traditionally, there are three parties to a trust. The settlor creates the trust, the trustee holds the legal title, while the beneficiary has the beneficial (equitable) title. This is the classic form of settlement on trust. If it were a self-declaration of trust, the settlor would also be the trustee; so called because the settlor declares himself to be the trustee.
Once a trust is established, the settlor drops out of the picture (unless it’s a self-declaration).
In a self-declaration of trust, the settlor makes himself the trustee. However, a trustee might also make himself a beneficiary of a trust. For example, Simon (settlor) transfers property to Trevor (trustee) to hold on trust for himself (beneficiary) and Brian (beneficiary). There might be many reasons why the settlor chooses to do this, but the important point to note is that a trust is a flexible device which allows the conferment of a benefit on a number of people.
Thus, a trust creates a separation between legal and equitable title. It is important to note that they are both forms of property and can be dealt with (to a degree) as one would deal with property. Thus, the equitable title can be transferred to a third party as a gift, for consideration (ie, sold), and so on.
Types of Trust
There are two basic types of trust: express and implied trusts. Within these categories, there are sub-categories:
For the purposes of this module, express trusts fall into the following categories:
a) Private people trusts;
b) Private purpose trusts;
c) Public purpose trusts (charities).
The following are implied trusts:
a) Resulting Trusts:
i) Automatic Resulting Trust
ii) Presumed Resulting Trust
b) Constructive Trusts:
i) Institutional Constructive Trust
ii) Remedial Constructive Trust
The express trust is the subject of the first part of this module, and especially private people trusts. We will explore implied trusts in part two of the module.
Fixed Trusts – This is a trust where the settlor has ‘fixed’ the beneficial interests which each beneficiary is to receive. Consider the following examples:
a) ‘to A and B equally’
It should be clear in this example that A and B each have a fixed interest, namely an equal interest in the trust property. The interests are concurrent, ie, exist at the same time.
b) ‘to A for life, remainder to B’
In this example, A has an interest for their life. This interest will, of course, expire when A dies. B’s interest is in the remainder and they will enjoy their interest when A dies. Again, as in example a), the interests are fixed at the date the trust is created. Where one interest follows another as here, the interests are known as successive.
Discretionary Trusts – With this type of trust, the trustees are given a discretion under the terms of the trust which they should exercise for the class of beneficiaries. Thus, the discretion is two-fold. First, they have discretion as to whether the income of the trust should be paid out and, if so, to whom it should be paid. A discretionary trust might be drafted as follows:
a) ‘£1,000,000 to my trustees such that they should distribute it at their discretion between such of my brothers and sisters as they, in their absolute discretion, shall determine’
Discretionary trusts such as this provide the trustees with the flexibility to respond to the needs of the beneficiaries which may vary from time to time. They have a discretionary class of beneficiaries (ie, the brothers and sisters of the settlor).
Discretionary trusts may be exhaustive or non-exhaustive.
A discretionary trust is exhaustive if the trustees are obliged to pay out all of the income each year within a reasonable time of its arising and have only two discretions –(i) to whom to pay the income and (ii) in what amounts (if more than one recipient). The trustees must consider the claims of the members of the class and they must make a selection from among the members and they must distribute the income.
A non-exhaustive discretionary trust arises where a trust is qualified by a power to accumulate income. The trustees now have three discretions – (i) whether to accumulate the income or to distribute it and, if they decide to distribute it, (ii) to whom to pay the income and (iii) in what amounts.
Discretionary trusts are sometimes referred to as trust powers. Lord Wilberforce uses this term in the leading case on discretionary trusts, McPhail v Doulton.
Protective Trusts – Section 33, Trustee Act 1925 will apply if a settlor or testator leaves property ‘on protective trusts’. The reasons for choosing to create a protective trust may vary, but the underlying purpose of such a trust is to protect the trust fund and “the principal beneficiary” (ie, the beneficiary with the life interest). It may be that the settlor fears the principal beneficiary may go bankrupt.
The effect of having a protective trust is that, at least initially, the principal beneficiary has a life interest. If he becomes bankrupt or attempts to assign (ie dispose of) his life interest, in whole or in part, the life interest automatically ends and is replaced by a discretionary trust of the income for the rest of the principal beneficiary’s life (called “the trust period” in s33).
The beneficiaries of the discretionary trust are the principal beneficiary, his or her spouse, and the children and remoter issue of the principal beneficiary. If the principal beneficiary has no spouse or issue, the beneficiaries are the principal beneficiary and those who would be entitled to the trust fund if the principal beneficiary were dead. So, in a trust “for A for life on protective trusts, remainder for B, C and D equally”, B, C and D would be potential beneficiaries of the income, along with A.
There is much terminology respecting trusts which you will encounter throughout the module. You must familiarise yourself with this terminology. The following are the key terms: ‘income’; ‘capital’; ‘life interest’; ‘remainder interest’; ‘life tenant’; ‘remainderman’; ‘vested interest’; ‘contingent interest’.
‘Income’ – income is the sum which is generated from the trust fund. Thus, if the trust fund consists of a house, the income generated by it might be rent which is charged. Alternatively, if the trust fund consists of shares, then the income would be a dividend declared on those shares.
‘Capital’ – the capital is whatever comprises the trust fund. It might be a sum of money deposited with a bank, or a house, or a block of shares.
‘Life interest’ – a life interest, as its name suggests, is an interest which the beneficiary enjoys for their life. When they die, the interest dies with them; they cannot leave it under their will.
‘Remainder interest’ – the remainder interest is the interest which follows the life interest. After the person with the life interest dies, the beneficiary entitled then takes the ‘remainder interest’.
Life tenant’ – the beneficiary who holds the ‘life interest’. In this example, A is the life tenant (with a life interest), and a right to the income:
a) ‘to A for life, remainder to B’
‘Remainderman’ – the beneficiary who holds the ‘remainder interest’. In this example, B is the remainderman, with an interest in the capital:
a) ‘to A for life, remainder to B’
‘Vested interest’ – A vested interest is one which is enjoys without conditions attached to it. For example:
a) ‘to A for life, remainder to B’
In this example, A has a vested interest which they enjoy without having first to satisfy a condition. As they enjoy the right now, it is an interest vested in possession. It is a present right, to present enjoyment.
B also has a vested interest which they enjoy without having to satisfy a condition. However, B’s situation differs from A in that B has to wait for A to die before they can enjoy their interest. Thus, B’s interest exists now, but their enjoyment has to wait for A to die, therefore it is an interest vested in interest. It is a present right, to future enjoyment.
‘Contingent interest’ – A contingent interest is one which will only be enjoyed once a condition is satisfied. For example:
a) ‘to A for life, if they marry’
In this example, A has a contingent life interest, the contingency being that they should marry before they enjoy the benefit of the life interest.
If A marries, the interest then vests.
b) ‘to A for life then to B, if B qualifies as a solicitor’
In this example, A has a vested life interest, vested in possession. B has a contingent remainder interest, the contingency being that they should qualify as a solicitor before they enjoy the interest.
If B qualifies as a solicitor, the interest then vests. If A is still alive, the interest is vested in interest. If A has already died, the interest is vested in possession.
The Rule in Saunders v Vautier
The rule in Saunders v Vautier(1841) Cr & Ph 240 permits the beneficiary, or beneficiaries, to bring a trust to an end. Where the beneficiaries are together absolutely entitled, they can call for legal title to be transferred to them.
This applies, irrespective of the wishes of the settlor. The trust is brought to an end because legal and equitable title are with the same person(s). A trust cannot exist in such circumstances.
The rule does not apply to powers.
A gift is an outright transfer of ownership of property (legal and equitable ownership, though they have never been separated) from the person making the gift (the donor), to the recipient (the donee). The difference between a gift and a trust is found in the intention.
A power may be described as an authority to deal with somebody else’s property. The essence of a power is the holder’s complete discretion. First, discretion as to the class of potential beneficiaries and, secondly, how much of the property subject to the power should be appointed.
Powers may be categorised according to the identity of the donee of the power (the person exercising the power). They may be either personal or fiduciary.
A personal power is given to someone who is not a trustee. For example:
a) ‘I give my shares to my trustees to hold on trust for A for life and subject thereto for such of my children and remoter issue as A selects and in default of selection for my children equally’
In this example, A is the donee of a personal power. A need not exercise it, nor even consider exercising it.A’s only obligation as donee is that, if he decides to exercise the power, hemay do so only in favour of the class of potential beneficiaries.
A fiduciary power is given to a trustee. For example:
a) ‘I give my shares to my trustees to hold on trust for A for life and subject thereto for such of my children and remoter issue as my trustees selectand in default equally’
In this example, the trustees are donees of a fiduciary power. Although they need not exercise it, they must bona fide consider exercising it. If they exercise the power, they must do so only in favour of members of the class of potential beneficiaries.
Powers may also be categorised according to the class of potential beneficiaries: (a) general, (b) special, and (c) hybrid (or intermediate).
A general power may be exercised in favour of anybody in the world.
A special power may be exercised in favour of a limited class.
A hybrid (intermediate) power may be exercised in favour of anybody in the world, but it is subject to exceptions.
Trusts and Powers compared
Trusts and powers have caused difficulties for the judiciary. A comparison of the two is valuable.
A trust is an obligation, so its exercise is mandatory. A power is a permission conferring a complete discretion; its exercise optional, not mandatory.
A trust might be enforced by a court, whereas the court cannot compel the performance of a power.
The rule in Saunders v Vautier applies to trusts; it does not apply to powers.
Law of Succession
The law of succession is an important part of the law of property. It concerns the distribution of an estate on death. It is a significant topic and this is a large chapter. The following is, in outline, what will be covered in this chapter:
a) Formalities of Wills and Codicils
b) Capacity to make a Will or Codicil
c) Legal Principles of Legacies and Devises
d) Revocation of Wills
f) Principles of Construction of Wills
h) Grant of Representation
i) Personal Representatives’ Grant of Representation
j) Powers and Duties of Personal Representatives
k) Payment of Debts during Administration of Estate
l) Restrictions on Testamentary Freedom
Formalities of Wills and Codicils
Section 9, Wills Act 1837 (substituted by s17, Administration of Justice Act 1982), provides:
“9. Signing and attestation of wills.
No will shall be valid unless—
(a) it is in writing, and signed by the testator, or by some other person in his presence and by his direction; and
(b) it appears that the testator intended by his signature to give effect to the will; and
(c) the signature is made or acknowledged by the testator in the presence of two or more witnesses present at the same time; and
(d) each witness either—
(i) attests and signs the will; or
(ii) acknowledges his signature, in the presence of the testator (but not necessarily in the presence of any other witness),
but no form of attestation shall be necessary.
Halsbury’s Laws of England, volume 102, para 5 (2010, 5th edition):
“While the desirability and advantages of a professionally drawn will are obvious, testamentary form is not necessary to constitute a valid will, provided that the document is executed in accordance with the requirements of English law and with the requisite intention.”
The law places no restrictions as to the material on which a will might be written. Therefore, a will written on an eggshell was valid in Re Barnes, Hodson v Barnes (1926) 43 TLR 71. A will may be made or altered in pencil or ink, but pencil alterations to an ink will are open to debate (Rymes v Clarkson (1809) 1 Phillim 22), but if pencil is used to fill in blanks, the will may be admitted to probate (Kell v Charmer (1856) 23 Beav 195).
The will of a soldier in active military service, a sailor (ie, a member of the Royal Navy or marine forces), or an airman, need not conform with the requirements of the Wills Act 1837 (Re Limond, Limond v Cunliffe  2 Ch 240.
Active military service is the necessary requirement on the part of the service person (Re Gossage, Wood v Gossage  P 194). It includes operations against terrorists, and allied persons (Re Anderson (1958) 75 WNNSW 334). Service personnel who are not deployed are not deemed to be in active military service.
Capacity to make a Will or Codicil
A person aged 18 years or over and of sound mind may make a valid will. Soundness of mind means, “a sound mind, memory and understanding” so as to be able to understand the dispositive effect of a will.
In Banks v Goodfellow(1870) LR 5 QB 549, Cockburn CJ gave a broad summary of the constituents of testamentary capacity:
“It is unnecessary to consider whether the principle of the foreign law or that of our own is the wiser. It is obvious, in either case, that to the due exercise of a power thus involving moral responsibility, the possession of the intellectual and moral faculties common to our nature should be insisted on as an indispensable condition. It is essential to the exercise of such a power that a testator shall understand the nature of the act and its effects; shall understand the extent of the property of which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and, with a view to the latter object, that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties – that no insane delusion shall influence his will in disposing of his property and bring about a disposal of it which, if the mind had been sound, would not have been made.
Here, then, we have the measure of the degree of mental power which should be insisted on. If the human instincts and affections, or the moral sense, become perverted by mental disease; if insane suspicion, or aversion, take the place of natural affection; if reason and judgment are lost, and the mind becomes a prey to insane delusions calculated to interfere with and disturb its functions, and to lead to a testamentary disposition, due only to their baneful influence – in such a case it is obvious that the condition of the testamentary power fails, and that a will made under such circumstances ought not to stand. But what if the mind, though possessing sufficient power, undisturbed by frenzy or delusion, to take into account all the considerations necessary to the proper making of a will, should be subject to some delusion, but such delusion neither exercises nor is calculated to exercise any influence on the particular disposition, and a rational and proper will is the result; ought we, in such case, to deny to the testator the capacity to dispose of his property by will?
It must be borne in mind that the absolute and uncontrolled power of testamentary disposition conceded by the law is founded on the assumption that a rational will is a better disposition than any that can be made by the law itself. If therefore, though mental disease may exist, it presents itself in such a degree and form as not to interfere with the capacity to make a rational disposalof property, why, it may be asked, should it be held to take away the right? It cannot be the object of the legislator to aggravate an affliction in itself so great by the deprivation of a right the value of which is universally felt and acknowledged. If it be conceded, as we think it must be, that the only legitimate or rational ground for denying testamentary capacity to persons of unsound mind is the inability to take into account and give due effect to the considerations which ought to be present to the mind of a testator in making his will, and to influence his decision as to the disposal of his property, it follows that a degree or form of unsoundness which neither disturbs the exercise of the faculties necessary for such an act, nor is capable of influencing the result, ought not to take away the power of making a will, or place a person so circumstanced in a less advantageous position than others with regard to this right.”(at pages 565 – 566).
Mental Capacity Act 2005:
“Section 1 The principles
(1) The following principles apply for the purposes of this Act.
(2) A person must be assumed to have capacity unless it is established that he lacks capacity.
(3) A person is not to be treated as unable to make a decision unless all practicable steps to help him to do so have been taken without success.
(4) A person is not to be treated as unable to make a decision merely because he makes an unwise decision.
(5) An act done, or decision made, under this Act for or on behalf of a person who lacks capacity must be done, or made, in his best interests.
(6) Before the act is done, or the decision is made, regard must be had to whether the purpose for which it is needed can be as effectively achieved in a way that is less restrictive of the person’s rights and freedom of action.”
“Section 2 People who lack capacity
(1) For the purposes of this Act, a person lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain.
(2) It does not matter whether the impairment or disturbance is permanent or temporary.
(3) A lack of capacity cannot be established merely by reference to—
(a) a person’s age or appearance, or
(b) a condition of his, or an aspect of his behaviour, which might lead others to make unjustified assumptions about his capacity.”
The sound disposing mind and memory must exist at the actual moment of execution of the will (Wood v Wood (1811) 1 Phillim 357). If the will is drawn when the testator has a sound mind, a perfect understanding of all the terms of the will at the time of execution may not be necessary(Parker v Felgate (1883) 8 PD 171).
In the absence of fraud, the law operates a presumption of the testator’s knowledge of the will (Guardhouse v Blackburn (1866) LR 1 P & D 109), which, of course, may be rebutted (Gregson v Taylor  P 256).
A will or part of it may be set aside because of force, undue influence or fraud. The party alleging the wrong has the burden of proof (Craig v Lamoureux  AC 349). It must be demonstrated that, eg, the undue influence actually occurred, rather than as an hypothetical occurrence (Bur Singh v Uttam Singh (1911) LR 38 Ind App 13).
To constitute undue influence there must be coercion(Wingrove v Wingrove (1885) 11 PD 81), so as to overpower the free will of the testator (Hall v Hall (1868) LR 1 P & D 481).
Legal Principles of Legacies and Devises
Legacies are divided into two classes: specific legacies and general legacies. A specific legacy must be of some thing or of some legal or equitable interest (Re Sherman, Re Walters, Trevenen v Pearce  Ch 653). It must be given a sufficiently clear description.
A third form of legacy is the demonstrative legacy, which is a pecuniary legacy payable out of a particular fund, eg, an insurance fund (Dawson v Reid (1915) 113 LT 52).
Where after payment of the deceased’s debts and liabilities there are insufficient funds to pay all the legacies in full they have to be abated.
Legacies are paid in the following order: (1) specific; (2) general; (3) residuary. If the estate has insufficient funds to meet its debts, the legacies abate in reverse order.
If the subject matter of a specific gift no longer forms part of the testator or testatrix’s property at his death, the gift fails by ademption.
A testamentary gift is said to lapse the devisee or legatee predeceases the testator, whether before or after the date of the will.
The doctrine of lapse does not applywhere the legacy is given with the intention of discharging a moral obligationwhich is recognised by the testator and is existing at his death (Williamson v Naylor (1838) 3 Y & C Ex 208).
Section 33, Wills Act 1837, as substituted by s19, Administration of Justice Act 1982:
[33 Gifts to children or other issue who leave issue living at the testator’s death shall not lapse]
(a) a will contains a devise or bequest to a child or remoter descendant of the testator; and
(b) the intended beneficiary dies before the testator, leaving issue; and
(c) issue of the intended beneficiary are living at the testator’s death,
then, unless a contrary intention appears by the will, the devise or bequest shall take effect as a devise or bequest to the issue living at the testator’s death.
(a) a will contains a devise or bequest to a class of person consisting of children or remoter descendants of the testator; and
(b) a member of the class dies before the testator, leaving issue, and
(c) issue of that member are living at the testator’s death,
then, unless a contrary intention appears by the will, the devise or bequest shall take effect as if the class included the issue of its deceased member living at the testator’s death.
(3) Issue shall take under this section through all degrees, according to their stock, in equal shares if more than one, any gift or share which their parent would have taken and so that [(subject to section 33A)] no issue shall take whose parent is living at the testator’s death and so capable of taking.
(4) For the purposes of this section—
(a) the illegitimacy of any person is to be disregarded; and
(b) a person conceived before the testator’s death and born living thereafter is to be taken to have been living at the testator’s death.]
Section 18A, Wills Act 1837, as substituted by s18(2), Administration of Justice Act 1982:
“[18A Effect of dissolution or annulment of marriage on wills]
[(1) Where, after a testator has made a will, a decree [an order or decree] of a court [of civil jurisdiction in England and Wales] dissolves or annuls his marriages [or his marriage is dissolved or annulled and the divorce or annulment is entitled to recognition in England and Wales by virtue of Part II of the Family Law Act 1986],—
[(a) provisions of the will appointing executors or trustees or conferring a power of appointment, if they appoint or confer the power on the former spouse, shall take effect as if the former spouse had died on the date on which the marriage is dissolved or annulled, and
(b) any property which, or an interest in which, is devised or bequeathed to the former spouse shall pass as if the former spouse had died on that date,]
except in so far as a contrary intention appears by the will.
(2) Subsection (1)(b) above is without prejudice to any right of the former spouse to apply for financial provision under the Inheritance (Provision for Family and Dependants) Act 1975.”
Section 15, Wills Act 1837 ((amended by virtue of the Civil Partnership Act 2004 s 71, Sch 4 para 3)):
“Gifts to an attesting witness, or his or her wife or husband, to be void… if any person shall attest the execution of any will to whom or to whose wife or husband any beneficial devise, legacy, estate, interest, gift, or appointment, of or affecting any real or personal estate (other than and except charges and directions for the payment of any debt or debts), shall be thereby given or made, such devise, legacy, estate, interest, gift, or appointment shall, so far only as concerns such person attesting the execution of such will, or the wife or husband of such person, or any person claiming under such person or wife or husband, be utterly null and void, and such person so attesting shall be admitted as a witness to prove the execution of such will, or to prove the validity or invalidity thereof, notwithstanding such devise, legacy, estate, interest, gift, or appointment mentioned in such will.”
Section 1, Wills Act 1968:
“(1) For the purposes of section 15 of the Wills Act 1837 (avoidance of gifts to attesting witnesses and their spouses) the attestation of a will by a person to whom or to whose spouse there is given or made any such disposition as is described in that section shall be disregarded if the will is duly executed without his attestation and without that of any other such person.”
There are exceptions to section 15:
a) Where there is a secret trust (Re Young, Young v Young  Ch 344), and the dehors the will theory operates;
b) Marriage of a donee to an attesting witness after attestation does not affect the validity of the gift (Thorpe v Bestwick (1881) 6 QBD 311);
c) If the gift could not be predicted at the time of the attestation (Re Royce’s Will Trusts, Tildesley v Tildesley  Ch 626).
A person may not benefit as a result of their crime. Where a donee who is guilty of the murder or manslaughter of the testator, or of any other serious criminal act which resulted in the testator’s death, they cannot benefit under the testator’s will (Gray v Barr  2 QB 626).
The Forfeiture Act 1982 confers on the court a discretionary power in a case of manslaughter or other criminal act resulting in death (but not where the donee stands convicted of murder) to modify the public policy against that person receiving a benefit (Re K  Ch 85).
Revocation of Wills
Section 18(1) of the Wills Act 1837 provides that a will is revoked by the testator’s marriage.
However, a will is not revoked by marriage where the will is made in expectation of marriage (Re Coleman  1 All ER 675), and where the disposition is in exercise of a power of appointment.
A testator may revoke a will or codicil wholly or partially by expresswords in a later will or codicil or by ‘some writing’ executed like awill (s20, Wills Act 1837).
A will usually contains a revocation clause, reading something like:
“I revoke any previous wills and codicils.”
There must be an intention to revoke (s20, Wills Act 1837). Even the destruction of the will, if it does not have the requisite intention, will not have effect (Cheese v Lovejoy (1877) 2 PD 251 at 253).
Section 21, Wills Act 1837:
“21 No alteration in a will after execution except in certain cases, shall have any effect unless executed as a will
… no obliteration, interlineation, or other alteration made in any will after the execution thereof shall be valid or have any effect, except so far as the words or effect of the will before such alteration shall not be apparent, unless such alteration shall be executed in like manner as herein-before is required for the execution of the will; but the will, with such alteration as part thereof, shall be deemed to be duly executed if the signature of the testator and the subscription of the witnesses be made in the margin or on some other part of the will opposite or near to such alteration, or at the foot or end of or opposite to a memorandum referring to such alteration, and written at the end of some other part of the will.”
Principles of Construction of Wills
The basic rule respecting intention is that it is to be taken as it is in the will. Ordinary meaning for ordinary words, while technical words are given their technical meaning.
Halsbury’s Laws of England, volume 102, para 223 (2010, 5th edition):
“In the 1990s there was a change in the approach to the construction of legal documents. The decisions which introduced this change concerned the construction of commercial agreements but they affect the approach to the construction of legal documents generally. The principles as they apply to wills may be briefly stated as follows:
(1) interpretation is the ascertainment of the meaning which a document would convey to a reasonable person having all the background knowledge which would reasonably have been available at the time the will was made;
(2) the admissible background knowledge includes ‘absolutely anything which would have affected the way in which the language of the will would have been understood by a reasonable man’, provided that it is relevant;
(3) the law excludes from the admissible background declarations of subjective intent;
(4) the meaning which a will would convey to a reasonable man is not the same thing as the meaning of its words: the meaning of words is a matter of dictionaries and grammars; the meaning of the will is what having regard to the relevant background the testator would reasonably have been understood to mean; the background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even to conclude that the testator must, for whatever reason, have used the wrong words or syntax;
(5) the ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents; on the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the testator an intention which he plainly could not have had.
Many of the more technical rules formerly applied in the construction of wills may need to be re-examined in the light of the new approach.”
Section 24, Wills Act 1837:
“Wills shall be construed, as to the estate comprised, to speak from the death of the testator
… every will shall be construed, with reference to the real estate and personal estate comprised in it, to speak and take effect as if it had been executed immediately before the death of the testator, unless a contrary intention shall appear by the will.”
The rule in Lassence v Tierney (1849) 1 Mac & G 551 is that where a will contains an absolute gift to a donee in the first instance, and trusts are imposed on the absolute interest which fail for whatever reason, then the absolute gift takes effect as an outright gift to the person named.
The Administration of Estates Act 1925 is the governing statute respecting the estates of individuals who do not leave a last will and testament.
The 1925 Act gives priority to thesurviving spouse. The detailed scheme of those entitled to succeed to the intestate’s estate are set down in s46, Administration of Estates Act 1925.
There are two forms of intestacy: Total intestacyand partial intestacy.
Total intestacy is when the deceased dies without leaving avalid will. The personal representatives of the estate hold it on trust with the power to sell (s33, Administration of Estates Act 1925).
The PRs must pay all the funeral, testamentary and administration expenses,debts and other liabilities of the intestate. The residuary estate isthen distributed according to the order of entitlement specified in s46, Administration of Estates Act 1925.
Partial intestacy occurs when there is a valid will, but it onlydisposes of part of the testator’s estate. The part of the estate over which there is a will are distributed in accordance with its terms, and the intestacy rules apply to that part of the estate which is undisposed (s49(1), Administration of Estates Act 1925).
Grant of Representation
As a rule, the will appoints executors to administer the estate of the deceased by letters of administration.
Appointment is according to the tenor of the office.
An individual may be appointed under the will to nominate an executor.
The number of executors is limited to four (s114(1) Senior Courts Act 1981). The court also has the power to appoint an additional PR to act alongside a sole executor.
Powers and Duties of Personal Representatives
PRs are given broad powers under the Administration of Estates Act 1925, the Trustee Act 1925, and the Trustee Act 2000. They have the power to:
a) power to postpone distribution;
b) power to sell, mortgage and lease land;
c) power of investment;
d) power to purchase land;
e) power to insure;
f) power to run a business;
g) power to maintain minors;
h) power to advance capital;
i) power to delegate.
These powers might be extended and varied by the will. The extent of these powers, duties and protections under the will and s61, Trustee Act 1925, are explored in detail elsewhere in this module.
Payment of Debts during Administration of Estate
Generally, an estate might be either solvent or insolvent. It is solvent where the assets are sufficient to pay all funeral, testamentary and administration expenses, debts and liabilities. It is irrelevant that it cannot pay all legacies.
An estate is insolvent where the assets are insufficient to pay all liabilities. The beneficiaries will receive nothing, and creditors will not be paid in full.
Part II of Schedule I, Administration of Estates Act 1925 sets down the order of priority in which assets are to be used to pay debts.
PRs must follow order of priority which cannot be varied.
Restrictions on Testamentary Freedom
Generally, a testator has testamentary freedom in England and Wales; they may make whatever provisions they wish in their will, subject to any mutual will, or other arrangement. However, in some circumstances, the law imposes restrictions where it is felt that the testator ought to have made reasonable financial provision for a particular class of person.
Here, the statute dealing with this area is the Inheritance (Provision for Family and Dependants) Act 1975.
Under the 1975 Act, the court might make an order where it feels reasonable provision has not been made for a surviving spouse, civil partner, cohabitee, child or dependant.
Section 3, Inheritance (Provision for Family and Dependants) Act 1975:
“Matters to which court is to have regard in exercising [its discretion]
(1) Where an application is made for an order under section 2 of this Act, the court shall, in determining whether the disposition of the deceased’s estate effected by his will or the law relating to intestacy, or the combination of his will and that law, is such as to make reasonable financial provision for the applicant and, if the court considers that reasonable financial provision has not been made, in determining whether and in what manner it shall exercise its powers under that section, have regard to the following matters, that is to say—
(a) the financial resources and financial needs which the applicant has or is likely to have in the foreseeable future;
(b) the financial resources and financial needs which any other applicant for an order under section 2 of this Act has or is likely to have in the foreseeable future;
(c) the financial resources and financial needs which any beneficiary of the estate of the deceased has or is likely to have in the foreseeable future;
(d) any obligations and responsibilities which the deceased had towards any applicant for an order under the said section 2 or towards any beneficiary of the estate of the deceased;
(e) the size and nature of the net estate of the deceased;
(f) any physical or mental disability of any applicant for an order under the said section 2 or any beneficiary of the estate of the deceased;
(g) any other matter, including the conduct of the applicant or any other person, which in the circumstances of the case the court may consider relevant.
(2) [This subsection applies, without prejudice to the generality of paragraph (g) of subsection (1) above, where an application for an order under section 2 of this Act is made by virtue of section 1(1)(a) or (b) of this Act.]
The court shall, in addition to the matters specifically mentioned in paragraphs (a) to (f) of that subsection, have regard to—
(a) the age of the applicant and the duration of the marriage [or civil partnership];
(b) the contribution made by the applicant to the welfare of the family of the deceased, including any contribution made by looking after the home or caring for the family.”
KBL 2.Three Certainties
Certainty is essential in order for an express trust to be valid in English law. In English trusts law, we speak of the ‘three certainties’: (i) intention, (ii) subject-matter, and (iii) objects. The case which is often cited as authority for the three certainties is the nineteenth century case of Knight v Knight(1840) 3 Beav 172, but its origins appear in the earlier case of Wright v Atkyns (1823) Turn & R 143, where the Lord Chancellor, Lord Eldon said:
“…first…the words must be imperative…; secondly…the subject must be certain…; and thirdly…the object must be as certain as the subject” (at p 157).
There are several reasons why the courts look for the three certainties. First, the trustee needs to know what is required of them in carrying out the terms of the trust. Secondly, if the court is called upon to intervene in a trusts dispute, it must be able to act with clarity and with a sensible understanding of what the settlor has attempted.
Certainty of Intention
The first of the three certainties is certainty of intention. This requires that the words or actions of the settlor must be sufficiently clear in order to create the trust. It is said that the words or actions must be imperative in order to create a trust. Words or actions which express a hope or wish (precatory words) will not. The courts aren’t looking for technical words, as Maitland remarked at the end of the nineteenth century, trusts can be created with the most untechnical of words, and it seems that the word ‘trust’ may not even be necessary to create one (Paul v Constance  1 WLR 527). Indeed, all this is summed up neatly in the maxim equity looks at the intention not the form.
A good starting point on the imperative / precatory dichotomy is offered by two contrasting cases.InRe Adams and the Kensington Vestry (1884) 27 ChD 394, the Court of Appeal was required to determine the issue of certainty of intention where a testator left all his property, “…to the absolute use of [his] wife, … in full confidence that she will do what is right as to the disposal thereof between my children, either in her lifetime or by will after her decease”. It was held that the attempt to create a trust failed and that the wife took the property absolutely, ie, it was regarded as an outright gift to her rather than an attempt to create a trust. As Cotton LJ stated:
“I have no hesitation in saying myself, that I think some of the older authorities went a great deal too far in holding that some particular words appearing in a will were sufficient to create a trust. Undoubtedly confidence, if the rest of the context shews that a trust is intended, may make a trust, but what we have to look at is the whole of the will which we have to construe, and if the confidence is that she will do what is right as regards the disposal of the property, I cannot say that that is, on the true construction of the will, a trust imposed upon her. Having regard to the later decisions, we must not extend the old cases in any way, or rely upon the mere use of any particular words, but, considering all the words which are used, we have to see what is their true effect, and what was the intention of the testator as expressed in his will. In my opinion, here he has expressed his will in such a way as not to shew an intention of imposing a trust on the wife, but on the contrary, in my opinion, he has shewn an intention to leave the property, as he says he does, to her absolutely.”(at page 409).
In the course of his judgment Cotton LJ referred to ‘older cases’ which treated the issue of certainty of intention with rather more flexibility than is now the case. The reason for the more benevolent treatment of intention in the older cases might have something to do with the Executors’ Act 1830 which removed the rule that the undisposed part of the testator’s estate passed to his executors. Thus freed from this rule of law by the 1830 statute, the courts were free to take a less liberal, and frankly more realistic approach to the issue of certainty of intention, the change in judicial attitude being evident in the cases of Lambe v Eames(1871) LR 6 Ch 597 38,In re Hutchinson and Tenant8 ChD 540 and Mussoorie Bank v Raynor 7 AppCas 21, in the latter case the Privy Council commenting that, “current of decisions now prevalent for many years in the Court of Chancery shews that the doctrine of precatory trusts is not to be extended.”
The case often contrasted with Re Adams is Comiskey v Bowring-Hanbury  AC 84. This time, the House of Lords was asked to determine the following: “the whole of my real and personal estate [to my wife] in full confidence that she will make such use of it as I should have made myself and that at her death she will devise it to such one or more of my nieces as she may think fit and in default of any disposition by her thereof by her will I hereby direct that all my estate and property acquired by her under this my will shall at her death be divided equally among the surviving said nieces”. The House held that the wording created a trust; the wife was to have a life interest with the remainder to pass to the nieces either by her will or to them equally if she did not so bequeath it.
It is to be noted that both the clause in Re Adams and the clause in Comiskey contained the same phrase, in full confidence. However, the prominence to be given to such phrases, even though followed in previous cases, was to be lessened. The most important thing is to determine the context of words used, not to give inflated importance to particular phrases. As Lindley LJ commented in the case of Re Hamilton  2 Ch 370:
“You must take the [document] which you have to construe and see what it means, and if you come to the conclusion that no trust was intended, you say so, although previous judges have said the contrary on some wills more or less similar to the one which you have to construe.”(at page 373).
Where the court seeks to evince the settlor’s intention it is a relatively straightforward matter where there is a document to interpret, whether it is a trust deed or a will. However, matters assume greater complexity where there is no document purporting to create a trust. In such circumstances, the courts might infer intention from the spoken words of conduct of the parties; this happened in the case of Paul v Constance 1 WLR 527 and the facts are straightforward. Mr Constance was married but started a relationship with Ms Paul, without divorcing his wife. He moved in with Paul and they attempted to open a joint bank account, but this failed due to the bank manager’s disapproval of their unmarried status. Therefore, the account was opened in Mr Constance’s name only. Two notable facts are worth mentioning at this stage. Mr Constance assured Ms Paul on a number of occasions that the ‘money in the bank account’ was as much her money as his. Further, they deposited joint bingo winnings into the account, and made certain withdrawals for joint purchases. Matters became complicated on Mr Constance’s death. Since he had never divorced, and he died without having made a will, his wife (Mrs Constance) stood to inherit the whole of his estate, including the bank account deposit, via the statutory scheme under the Administration of Estates Act 1925. Naturally, Ms Paul was less than happy with this situation and challenged it, principally respecting the bank account.
The matter went to the Court of Appeal which held (endorsing the first instance) that a trust had been created which split the contents of the bank account 50-50 between Mr Constance and Ms Paul. This meant that Ms Paul received half the contents of the bank account, while Mrs Constance was entitled to her late husband’s half. As well as the moral tale that one should sort out one’s affairs rather than leave them to the technical statutory rules of intestacy, this case raises many other interesting legal questions.
The court indicated that the absence of the word ‘trust’ was not fatal to finding a trust exists. The deceased was an, “unsophisticated character” and together they were, “simple people” to whom the law should exercise some benevolence. Additionally, Scarman LJ drew attention to other matters which permitted the court to conclude that a trust existed:
“Mr. Wilson [counsel for Ms Paul] submits that the words that he did use on more than one occasion, “This money is as much yours as mine,” convey clearly a present declaration that the existing fund was as much the plaintiff’s as his own. The judge accepted that conclusion. I think that he was well justified in doing so and, indeed, I think that he was right to do so. There are, as Mr. Wilson reminded us, other features in the history of the relationship between the plaintiff and the deceased which support the interpretation of those words as an express declaration of trust. I have already described the interview with the bank manager when the account was opened. I have mentioned also the putting of the “bingo” winnings into the account and the one withdrawal for the benefit of both of them.
“The question, therefore, is whether, in all the circumstances, the use of those words on numerous occasions as between the deceased and the plaintiff constituted an express declaration of trust. The judge found that they did. For myself, I think that he was right so to find.”(at page 532).
The case of Paul v Constance is not an easy one. First, it is difficult to see, since it was regarded as an express declaration of trust, when that declaration of trust was actually made, something which Scarman LJ admitted was difficult to “pin-point”. In a sense, therefore, the declaration was ambulatory which might have caused difficulties for the trustee, Mr Constance (since his name was on the bank account), as the point at which he had the extensive range of trustees’ duties imposed on him was not, at any stage, known to him. Secondly, Moffat (2009) suggests that the court gave a rather too benevolent construction to Mr Constance’s words. While there was certainly a general intention to benefit, this ought not to have translated into a specific intention to create a trust. The case does, Moffat concludes, blur the distinction between trusts and gifts.
Thirdly, there are problems of reconciling Paul v Constance with the earlier case of Jones v Lock(1865) 1 Ch App 25. In Jones v Lock, a father placed a £900 cheque in his child’s cot stating, “I give this to baby. It is for himself.” However, the father died before indorsing the cheque to the son (which is what he ought to have done). The court rejected the argument that ownership of the cheque had passed to the son. The statement made was a ‘one-off’ and, as a consequence, insufficient to manifest a clear intention the father was to give the money to the son. The problem is that the words used in Jones v Lock were as generic as those used in Paul v Constance, and the suggestion is therefore that in neither case was the intention sufficiently specific. However, there are distinguishable elements between the cases, specifically the independent and corroborative evidence of the bank manager in Paul v Constance, the fact that the statement was repeated (even though a repeated statement, even if generic, remains so), and that their conduct was mutual. Ultimately, therefore, their actions probably spoke louder than their words. The final word on this goes to Gardner (2011) who suggests that the difference between the two cases is merely a reflection of changing judicial attitudes.
Certainty of subject-matter
The subject-matter is the property over which the trust is declared. This might be property of any form, including land, shares, bank deposit accounts and so on. It is split into two parts: (a) certainty as to the property itself and, second, (b) how much of the property each beneficiary is to receive.
Insofar as the property itself is concerned, a useful starting point is the case of Sprange v Barnard (1789) 2 Bro CC 585. In that case, a testatrix made the following provision in her will:
“…for my husband Thomas Sprange, to bewill to him the sum of £300 … for his sole use; and at his death, the remaining part of what is left, that he does not want for his own want and use, to be divided between [other named legatees].”(my emphasis)
The issue turned on whether the clause created a trust and, if so, whether it was certain. In finding that the husband was absolutely entitled, and therefore that there was no trust, the court said that the trust needed to be certain from the outset, and that the remaining part of what is left would not become certain when the husband died. Indeed, it could not be said that there would be any property left after the husband’s death. Likewise, in Palmer v Simmonds (1854) 2 Drew 221, a clause which purported to leave the “bulk” of the testatrix’s estate to named individuals was void and that the purported trustee took the gift absolutely.
Recently, the courts have seemed concerned to create a somewhat artificial distinction between tangible and intangible property. Where the property in question is tangible, if the property is not identified, the trust will fail. In Re London Wine Co (Shippers) Ltd  PCC 121, buyers of wine were unable to establish that a trust of wine had been declared in their favour as the wine had not been segregated before the wine supplier went into liquidation. Consequently, they lost their money and became unsecured creditors as they sought to recover the money they had paid for the wine. If they had established a trust, they would have taken priority as creditors ahead of the unsecured creditors and been able to claim their wine. Of course, if this had happened it would have reduced the funds available for the unsecured creditors. However, there is a more tangible argument in that no two bottles of wine are alike, especially where closed with a natural cork. Such a form of storage also raises the prospect that the wine could be corked, ie, oxidised by the ingress of air reacting with the wine and turning it bad. Consequently, wine from the same vineyard, with grapes of the same vintage, from the same appellation could not necessarily be said to be the same as any other bottle. However, this becomes a little more difficult to sustain when considering the case of Re Goldcorp Exchange Ltd  AC 74.
In Goldcorp, a company sold gold bullion to investors. The investors has not taken delivery of the bullion when it went into insolvency. Naturally, like the investors in London Wine, the bullion investors sought to assert their rights to bullion for which they had paid but not yet taken delivery. The claimants whose bullion had been segregated were successful, but those whose bullion had not been segregated failed in their claim.
Where the property is intangible (chose in action), the approach seems somewhat different. In Hunter v Moss  1 WLR 934, the holder of 950 shares in a private company with an issued share capital of 1,000 shares made an oral self-declaration of trust of five per cent of the company’s issued share capital in favour of the claimant. After a falling out, it was suggested that the trust was void for certainty of subject-matter, since it was not know which 50 shares should be held on trust for the claimant. Judgment was ordered in favour of the claimant. Where a declaration of trust is made over intangible property, segregation (as with tangible property), was not a necessary requirement. This was or appropriation of the specific property which was to form the subject matter of the trust; that, since the shares were of such a nature as to be indistinguishable one from another and were therefore all equally capable of satisfying the trust, it was unnecessary to identify any particular 50 shares; and that, accordingly, the trust was not void for uncertainty of subject matter. Colin Rimer, QC, sitting as a Deputy High Court Judge placed significant emphasis on the tangible / intangible distintinction. He stated:
“Even tangible assets which are regarded as forming part of a homogeneous mass are physically separate, and so distinguishable, from other assets comprised within the same mass. Further, certain of the assets in a group of ostensibly similar or identical assets may in fact have characteristics which distinguish them from other assets in the class. Consignments of wine provide a good example. Some of the cases in it may contain wine that is corked, or may have been stored badly and have deteriorated or may have other inherent defects. Oliver J. [in Re London Wine] held that, before any trust could be said to attach to any tangible assets comprised within a class of assets, the particular assets have to be identified. I do not, however, consider that the principle which he applied with regard to the certainties requisite for the purposes of a trust relating to tangible assets is one which is necessarily also applicable by analogy to trusts of intangible assets, for example, to a purported trust of a specific sum of money forming part of a larger credit balance in a particular bank account. The latter trust will of course only be valid if its subject matter is certain. But the determination of whether the requisite degree of certainty has been achieved is, in my judgment, not necessarily governed by principles analogous to those which apply in the case of tangible assets.”(at page 940).
The decision was affirmed by the Court of Appeal ( 1 WLR 452), but Dillon LJ, who delivered the judgment of the court, did not place the same emphasis on the tangible / intangible distinction, rather emphasising the sameness of the shares; they were indistinguishable from one another being all shares of the same class. This would seem a more important point. However, there may be something to take for future cases in the lack of emphasis in the Court of Appeal on the tangible / intangible distinction and whether, if a case such as Goldcorp were to come about in the future, whether it would be appropriate to decided it differently. After all, are not gold bars indistinguishable from one another?
In the case of Re Harvard Securities Ltd BCC 567, Neuberger J reluctantly followed the decision of Hunter v Moss, considering it binding upon him. Echoing counsel for the liquidator who cited the criticism of Hunter v Moss in the leading practitioner text, Underhill and Hayton,Law of Trusts and Trustees (15th edn, 1995, Butterworths) that the reasoning was weak, and that, “there is no sound reasoning for distinguishing trusts of goods from trusts of intangibles.” Nevertheless, Hunter v Moss remains good law, at least for now.
Two final cases are worth noting. The first, Boyce v Boyce (1849) 16 Sim 476, concerned a gift from a father to his daughters. One daughter was to choose one of his three houses, which the other daughter was to have the remaining two. Rather simple, unless, of course, the first daughter pre-deceases the father without choosing. This is precisely what happened. The court held the whole gift was invalid on the basis that it was impossible to determine which house the first daughter would have chosen.
The second case is Re Golay’s Will Trusts  2 All ER 660. In this case, the testator directed his executors to allow the beneficiary to “enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties.” The court held that the trustees might choose a flat for the beneficiary to live in, and that the clause purporting to provide a reasonable income was valid on the basis that it was an objective yardstick. Ungoed-Thomas J, said:
“Another question that arises is whether this gift of reasonable income fails for uncertainty…. The question … comes to this: whether the testator by the words “reasonable income” has given a sufficient indication of his intention to provide an effective determinant of what he intends so that the court in applying that determinant can give effect to the testator’s intention.”
“Whether the yardstick of “reasonable income” were applied by trustees under a discretion given to them by a testator or applied by a court in course of interpreting and applying the words “reasonable income” in a will, the yardstick sought to be applied by the trustees in the one case and the court in the other case would be identical. The trustees might be other than the original trustees named by the testator and the trustees could even surrender their discretion to the court. It would seem to me to be drawing too fine a distinction to conclude that an objective yardstick which different persons sought to apply would be too uncertain, not because of uncertainty in the yardstick but as between those who seek to apply it.”
“In this case, however, the yardstick indicated by the testator is not what he or any other specified person subjectively considers to be reasonable but what he identifies objectively as “reasonable income“. The court is constantly involved in making such objective assessments of what is reasonable and it is not to be deterred from doing so because subjective influences can never be wholly excluded. In my view the testator intended by “reasonable income” the yardstick which the court could and would apply in quantifying the amount so that the direction in the will is not in my view defeated by uncertainty.”(at pages 661 – 662).
Thus, the courts appear comfortable with the concept of reasonableness since they are dealing with this concept a great deal of the time, not least in the law of crime and tort. Indeed, this might neatly be contrasted with the case of Palmer v Simmonds, above, where the court was unwilling to sanction a trust for the “bulk” of someone’s estate; a subjective criterion being at the mercy of the person making the decision.
One final point to note: Where a clause in a will leaves the ‘residue’ of someone’s estate, this is valid, and should be distinguished from those cases such as Palmer v Simmonds (the bulk of my estate) and Sprange v Barnard (the remaining part of what is left). The residue of a person’s estate is valid and made be made as a specific bequest to a named person, of settled on trust. Equally, there will be no uncertainty where the trustees are provided with discretion as to the extent of each beneficiary’s beneficial interest.
Certainty of objects
The third of the three certainties is certainty of objects, or beneficiary. All trusts must have identifiable beneficiaries able to take the beneficial interest. If they do not, the trust will fail. The beneficiary must, as a general rule, be a human being (Morice v Bishop of Durham (1804) 9 Ves 399), for only a human has the standing to bring an action against the trustee if necessary.
In most cases, identifying the beneficiary will be relatively straightforward as, for example, where they are named specifically in the trust deed: My shares in ICI plc to Andrew and Belinda. This will be valid, so long as it is known who Andrew and Belinda happen to be. Alternatively, the beneficiaries might be identified by reference to a ‘concept’, eg, my shares in ICI plc to my nephews. This would also be valid so long as it was possible to identify the settlor’s nephews, ie, so that the trustees could create a list. These relatively straightforward trusts caused little in the way of difficulties for the “list test” which was the test for identifying beneficiaries under a trust. In the words of Jenkins LJ in Inland Revenue Commissioners v Broadway Cottages Trust Ch. 20, “the trustee should know, or be able to ascertain, all the objects from which he was enjoined to select by the terms of the trust.”(at page 31) The rationale appears to be:
“…the validity of the trust must be tested by considering its terms and asking oneself whether the court would be able to control and execute the trust if called upon to do so. That question must be answered by reference to what might happen, and not merely by reference to what would be likely to happen. That is to say, the charge of invalidity cannot be met by making the assumption (in itself reasonable enough) that trustees undertaking a trust such as this would, in all probability, carry it out, by distributing the income amongst persons falling within the class of beneficiaries as defined by the settlement. On the contrary, it must be assumed that the trustees for some reason or other might fail or refuse to make any distribution, and see whether the court could execute the trust in that event. Consideration of the case on that assumption shows that the most the court could do would be to remove the inert or recalcitrant trustees and appoint others in their place. That, however, would not be execution of the trust by the court, but a mere substitution for one set of trustees invested with an uncontrollable discretion of another set of trustees similarly invested, who might be equally inert or recalcitrant.”(at page 31).
It must be possible to identify all the beneficiaries and choose from them in order for the trust to be valid. However, this view came somewhat more difficult to rationalise given a pressing social phenomenon which developed in post-WWII England and Wales, namely philanthropic employers using tax advantages to establish large discretionary trusts for the benefit of their employees and their families. This issue came to a head in the House of Lords case of McPhail v Doulton AC 424. In this case, Bertram Baden set up a trust, “to establish a fund for providing benefits for the staff of [his] company and their relatives and dependants…” The income of the fund was to be used to make grants for, “to or for the benefit of any of the officers and employees or ex-officers or ex-employees of the company or to any relatives or dependants of any such persons…”
At first instance, Goff J interpreted the clause as a power and held that it was valid. The Court of Appeal upheld the interpretation of Goff J, stating that the correct test for certainty in respect of powers was that set down by the House of Lords in Re Gulbenkian’s Settlements  AC 508. In Gulbenkian, the House stated that a power is valid if it could be said with certainty whether any given individual was or was not a member of the class, and that it did not fail simply because it was impossible to ascertain every member of the class. In doing so, the House followed and endorsed the cases of Re Park  1 Ch 580 and Re Gestetner Settlement  Ch 672. In McPhail, the settlor’s executors appealed to the House of Lords on the basis that the whole clause was void as it was not possible to identify all the beneficiaries who could benefit from the trust, following the Court of Appeal in IRC v Broadway Cottages.
The House of Lords rejected the appeal (Lords Wilberforce, Reid and Viscount Dilhorne; Lords Hodson and Guest dissenting), finding that the clause in fact created a discretionary trust and not a power of appointment. In doing so, the House assimilated the tests of certainty of objects for discretionary trusts and powers. Lord Wilberforce stated:
“…I think that we are free to review the Broadway Cottages case …. The conclusion which I would reach, implicit in the previous discussion, is that the wide distinction between the validity test for powers and that for trust powers is unfortunate and wrong, that the rule recently fastened upon the courts byInland Revenue Commissioners v Broadway Cottages Trust ought to be discarded, and that the test for the validity of trust powers ought to be similar to that accepted by this House in In re Gulbenkian’s Settlements  AC 508 for powers, namely, that the trust is valid if it can be said with certainty that any given individual is or is not a member of the class.”(at page 456B – C; note that the House use the regrettable and somewhat confusing term ‘trust powers’ to refer to ‘trusts’).
Lord Wilberforce appears to base his reasoning on the “narrow” and “artificial” distinction between trusts and powers. A layman, he suggests, would find it difficult to see the difference between the two and that, therefore, the validity of a clause should not depend on such “delicate shading”. He goes on, “…a trustee with a duty to distribute, particularly among a potentially very large class, would surely never require the preparation of a complete list of names, which anyhow would tell him little that he needs to know.”(at page 449D). Lord Wilberforce, in the course of his speech calls in aid the words of Harman J (as he then was) in Re Gestetner Settlement Ch 672:
“The settlor had good reason, I have no doubt, to trust the persons whom he appointed trustees; but I cannot see here that there is such a duty as makes it essential for these trustees, before parting with any income or capital, to survey the whole field, and to consider whether A is more deserving of bounty than B. That is a task which was and which must have been known to the settlor to be impossible, having regard to the ramifications of the persons who might become members of this class.”
If, therefore, there be no duty to distribute, but only a duty to consider, it does not seem to me that there is any authority binding on me to say that this whole trust is bad. In fact, there is no difficulty, as has been admitted, in ascertaining whether any given postulant is a member of the specified class. Of course, if that could not be ascertained the matter would be quite different, but of John Doe or Richard Roe it can be postulated easily enough whether he is or is not eligible to receive the settlor’s bounty. There being no uncertainty in that sense, I am reluctant to introduce a notion of uncertainty in the other sense, by saying that the trustees must worry their heads to survey the world from China to Peru, when there are perfectly good objects of the class in England.”(at pages 688 – 689).
Lord Wilberforce then turns his attention to the speech of Lord Upjohn in Re Gulbenkian, commenting that the decision of that case respecting powers was that it:
“…was valid if it could be said with certainty whether any given individual was or was not a member of the class, and did not fail simply because it was impossible to ascertain every member of the class.”(at page 454D)
“…in the case of a trust, the trustees must select from the class. [They need not] have before them, or be able to get, a complete list of all possible objects.”(at page 456A – B).
Where the court was called upon to execute such a trust, it would, “do so in the manner best calculated to give effect to the settlor’s or testator’s intentions.”(at page 457A).
Therefore, following the majority decision in McPhail, it would seem that though trusts may be defeated for linguistic or semantic uncertainty, ie, where the concept which defines the class of beneficiaries is uncertain, evidential uncertainty will not defeat the claim since an application might be made to court for directions. The final matter on which Lord Wilberforce comments is administrative unworkability, where a trust is so hopelessly wide that it does not form anything like a class. Regrettably, his Lordship provides an example of “all the residents of Greater London”, which was followed in a later case of R v District Auditor, ex p, West Yorkshire Metropolitan County Council  26 RVR 24 where a trust fund for, “all or some of the inhabitants of West Yorkshire” was deemed void for uncertainty of objects as being administratively unworkable.
The case of McPhail rejects the list test for discretionary trusts, replacing it with the ‘any given postulant’ test, or the ‘is/is not’. This test requires that the concept which defines the class of beneficiaries to be certain, ie, conceptual certainty, whereas since a complete list is not needed, it does not require evidential certainty. This is in contrast to the ‘list test’ which requires both conceptual and evidential certainty. Notwithstanding the rejection of the ‘list test’ for discretionary trusts, it remains to be seen whether this test will be extended to the fixed trust, since Broadway Cottages concerned a discretionary trust and can now no longer be regarded as good law in this context.
The case was remitted to the Chancery Division of the High Court for consideration, so McPhail was not the end of the matter, as the case ended up back in the Court of Appeal as Re Baden’s Deed Trusts (No. 2)  Ch 9. The court applied the test of validity set down in McPhail and determined the meaning of “relatives” used in the trust deed. The three judgments in the case are notable for their divergence of opinion.
Sachs LJ stated (at page 20):
“…it is conceptual certainty to which reference was made when the “is or is not a member of the class” test was enunciated….Once the class of persons to be benefited is conceptually certain it then becomes a question of fact to be determined on evidence whether any postulant has on inquiry been proved to be within it: if he is not so proved, then he is not in it. That position remains the same whether the class to be benefited happens to be small (such as “first cousins”) or large (such as “members of the X Trade Union” or “those who have served in the Royal Navy”). The suggestion that such trusts could be invalid because it might be impossible to prove of a given individual that he was not in the relevant class is wholly fallacious.”
Megaw LJ stated (at page 22):
“To my mind, the test is satisfied if, as regards at least a substantial number of objects, it can be said with certainty that they fall within the trust; even though, as regards a substantial number of other persons, if they ever for some fanciful reason fell to be considered, the answer would have to be, not “they are outside the trust,” but “it is not proven whether they are in or out.” What is a “substantial number” may well be a question of common sense and of degree in relation to the particular trust: particularly where, as here, it would be fantasy, to use a mild word, to suggest that any practical difficulty would arise in the fair, proper and sensible administration of this trust in respect of relatives and dependants.”
Stamp LJ stated (at page 28):
“Validity or invalidity is to depend upon whether you can say of any individual – and the accent must be upon that word “any,” for it is not simply the individual whose claim you are considering who is spoken of – “is or is not a member of the class,” for only thus can you make a survey of the range of objects or possible beneficiaries.”
Of the three judgments in Re Baden (No 2), that of Sachs LJ is probably more closely allied to the words of Lord Wilberforce in McPhail. Megaw LJ, in adopting the idea of ‘substantial number’ seems to generate further problems in one really has no real understanding of what a ‘substantial number’ is, or likely to be, let alone where the line might be drawn in any one case. Finally, Stamp LJ, in indicating that it is only possible to determine whether someone is / is not a member of the class of beneficiaries if one is able to survey the whole class seems to reintroduce the list test by the backdoor.
To summarise, for the is / is not test, the concept which defines the class must be certain, whether someone is / is not within the class is a matter of evidence. Evidence alone will not defeat the claim. In Re Baden (No 2), the majority (Sachs and Megaw LJJ) held that “relatives” was a certain concept, giving it the broad definition of descent from a common ancestor. Stamp LJ, while holding it to be a certain concept, adopted the rather more restrictive definition of ‘next of kin’. Other concepts, such as employees, or ex-employees are certain, but ‘friends’ is in the somewhat more questionable category in that one cannot really state, objectively, who one’s friends might be. Indeed, in the context of the discretionary trust it was doubted, albeit obiter, by Browne-Wilkinson J in Re Barlow’s Will Trusts 1 WLR 278 since it has a, “great range of meanings”.
So, what happens if the trust is void for uncertainty? Well, the answer rather depends on which certainty is found to be lacking. If it is certainty of intention, then the person who would have been trustee takes the property as an outright gift; they are free of the trust obligation. If it is certainty of subject-matter, the disposition is regarded as one which was never attempted. However, if there is failure of objects, then there is an automatic resulting trust of the beneficial interest back to the settlor, or to his estate if it is a testamentary trust.
KBL 3.Beneficiary Principle
English law permits trusts for the benefit of certain objects, but that those objects must be human. This is known as the beneficiary principle (Morice v Bishop of Durham (1804) 9 Ves 399). A notable exception to this rule is the creation of trusts for public, ie, charitable purposes. However, in addition, there are anomalies to the principle that a trust must have human beneficiaries and these are known as private purpose trusts; the trusts are for a purpose, not a person, which is not charitable.
The Beneficiary principle
This is the idea that if there are problems with the trustee, the trust might be enforced against them. Naturally, the person to enforce the trust is the person with the benefit, ie, an ascertainable individual. Thus, not only must be beneficiary be certain (certainty of object), but the beneficiary must also be human. This simple idea was, however, misunderstood in a series of cases where emphasis was placed on certainty only. Consequently, there are a number of exceptions to the beneficiary principle. These are: (a) trusts for the maintenance of particular animals; (b) trusts for the erection and maintenance of monuments and graves; (c) trusts for the saying of a private mass for the soul of the departed; (d) trusts for the promotion of fox-hunting. This list is now closed (Re Astor’s Settlement Trusts  Ch 534).
Trusts for the maintenance of particular animals
A trust for the maintenance of a particular animal will be valid as a private purpose trust. Thus, in Pettingall v Pettingall (1842) 11 LJ Ch 176, a trust leaving £50 per year for the upkeep of the testator’s favourite black mare was held to be valid, despite the fact that there little prospect of the horse enforcing the trust if it came to it.
9-004 Note, trusts for the maintenance of animals generally are more likely to be charitable.
Trusts for the erection and maintenance of monuments and graves
Should the settlor wish to have erected a monument or grave to himself after he has passed, English law does permit this indulgence. In Mussett v Bingle  WN 170, the testator established a trust of £300 to erect a monument to his wife’s first husband. This was valid. If the monument or grave is attached to the church, then it will be charitable. Thus, in Re Hooper  1 Ch 38, a tablet and stained glass window to the memory of the settlor was deemed to be valid as a charitable trust.
If the person to whose memory the statue is erected is a notable and historic figure, then it might be that the trust is charitable. In Earl Mountbatten of Burma Statue Appeal Trust (1981), The Charity Commission registered as charitable a trust to erect a statue to the memory of Mountbatten on the basis that it might encourage patriotism and inspire the public to noble and heroic deeds.
Under section 1, Parish Councils and Burial Authorities (Miscellaneous Provisions) Act 1970, a settlor may, under agreement with the burial authority and on payment of a sum of money, arrange for a grave or monument to be maintained for a period not exceeding 99 years.
Trusts for the saying of a private mass
The saying of a private mass for the soul of the departed is valid as a private purpose trust (Bourne v Keane  AC 815). If the mass is said in public, the trust will be charitable.
Trusts for the promotion of fox-hunting
This was permitted in the case of Re Thompson Ch 342. However, since the Hunting Act 2004, hunting foxes with hounds has been illegal. Therefore, trusts for this private purpose in the future may be void as being contrary to public policy.
It is the case in English law that money should not be tied up under a trust for too long. Therefore, all trusts (charitable trusts are exempt) are subject to what is known as a perpetuity period. The relevant perpetuity rule for the purposes of private purpose trusts is the rule against inalienability (excessive duration).
This means that a private purpose trust will be void if, at the outset, it cannotbe said with absolute certainty that the trust will definitely come to an endbefore the perpetuity period expires.
At common law, the perpetuity period is the lifetime of anyrelevant human life in being (or lives in being) plus 21 years. Thus, if the ‘human life’ is 20 at the date of the testator’s death, and goes on to live to the age of 90, the trust would last for 91 years. Where multiple lives are used, the 21 year period begins to count down at the death of the last of the human lives in being.
The human life might be any human life (whether in being on in the womb (en ventre sa mere)).
In Mussett v Bingle (1876) WN 170, £300 was left to erect a monument and £200 to maintain the monument. A perpetuity period was not specified in either case. In respect of the monument’s erection, it was assumed the monument would be erected within 21 years, while the £200 was void for perpetuity. It does, however, seem permissible to establish a private purpose trust for “so long as the law allows” (Re Hooper  1 Ch 38).
It is clear that the lives of animals may not be used (Re Kelly  IR 255).
The Re Denley-style of trust
An interesting modern twist on the private purpose trust is the case of Re Denley’s Trust Deed 1 Ch 373. In this case a settlement gave trustees land to be held on trust as a sports ground,primarily for the benefit of employees of a named company, and for anyoneelse whom the trustees permitted to use the ground. The use of the landwas limited to the perpetuity period, with a gift over to charity.
Goff J said that where a trust was directly or indirectly for the benefit ofascertained or ascertainable individuals, that trust fell outside the mischief ofthe beneficiary principle. He said that the beneficiary principlewas confined to purpose trusts that were abstractor impersonal.
Goff J said that the ascertainable individuals had sufficient standing to enforce the trust, or restrain improper exercise by the trustees. This would be done by injunction.
It is clear in the case that Goff J was at pains to avoid giving the employees full beneficial status, with the equitable proprietary interests which go with it.
In Re Grant’s WT 1 WLR 360, Vinelott J suggested that Denley was nothing more than anordinary discretionary trust for the employees as a class of beneficiaries.This view was echoed by Collins J in Re Horley Town Football Club EWHC 2386 (Ch). If this is so, then the is/is not test of certainty of objects (from McPhail v Doulton) in discretionary trusts would apply.
Re Denley was applied in the case of Re Lipinski’s Will Trusts Ch 235.
KBL 4.Unincorporated Associations
One of the problems with the English law of trusts, and its dislike of the trust for private purposes is that it rather leaves those wishing to pursue non-charitable activities, eg, like running a sports club with few options for their creation and management. They could set up as private companies, but this would bring with it the issues of running a company. Therefore, an alternative would be to run as an ‘unincorporated association’, though these, as will be seen, do not represent without problems.
Unincorporated associationswere defined in Conservative and Unionist CentralOffice v Burrell  1 WLR 522 by Lawton LJ as an organisation comprising of “two or more persons bound together for one or more common purposes, not being business purposes, by mutual undertakings each having mutual duties and obligations, in an organisation which has rules which identify in whom control of it and its funds rests and on what terms and which can be joined or left at will.”
Therefore, unincorporated associations are organisations recognisable only by the fact that they have members. They have no identity of their own, and are unable to sue or be sued in their name, unlike companies.
This causes problems for unincorporated associations in that they cannot take ownership of property; they are only able to take property as members.
Crucial, therefore, to the validity of gifts to an unincorporated association are the possible interpretations which have been developed over the years by the courts to attempt to give legitimacy and validity to gifts made to unincorporated associations.
The possible interpretations are:
a) Gift to the members beneficially;
b) Gift to the members, subject to the club rules;
c) Trust for present and future members;
d) Trust for the purposes of the association;
e) Re Denley-style of trust.
Gift to the members beneficially
Under this interpretation, the gift is treated as a gift to the individualmembers of the association. They are able to take their share, and enjoy it as if the testator had made an outright gift to the member concerned. Under this interpretation, the member can take their money and run, spending it on whatever they so choose.
Crucially, the court will embark on an investigation as to whether this was an appropriate reflection of the testator’s intention(Leahy v Attorney-General for New South Wales  2 WLR 722).
The club’s name could be being used as a convenient label, as was suggested by Vinelott J in Re Grant’s WT  1 WLR 360, giving the example of a supper club, where the club name isused as a shorthand method of identifying the individual members, rather than list their names in full.
This interpretation is the least likely interpretation, and the one which is reasonably rare in cases of gifts to unincorporated associations (Re Grant’s WT  1 WLR 360).
Gift to the members, subject to the club rules
This interpretation, which is variously known as the ‘contractual analysis’ or the ‘contract-holding theory’ is the “the prevailing view” of making a gift to an unincorporated association (ArtisticUpholstery Ltd v Art Forma (Furniture) Ltd  4 All ER 277).
This takes effect, like the first interpretation, as a gift to the members. However, unlike the first interpretation, it is not treated as an outright gift to the members, rather they take the property subject to the rules of the club, and might only use it in accordance with the terms of the club’s rules.
In order for the contractual analysis to have effect, the members of the club must have complete control over their assets; so called, ‘internal control’.
In Re Grant  1 WLR 360 a gift was made to a local constituencybranch of the Labour party. Under the rules of that local branch, propertydealings and rule alterations were subject to approval by the national Labourparty’s National Executive Committee (‘NEC’; its ruling body). This meant that the local branchdidnot have control over its assets, so the contractual analysis could notbe used.
Because of the potential for external interference from the NEC of the Labour Party, the local constituency could not be said to have control over its assets.
Recently, however, it seems that the courts are willing to entertain some degree of external control, so long as it is only limited. In Re Horley Town Football Club  EWHC 2386 (Ch) voting rightswere given to other football clubs who wereaffiliated to Horley Town FC. The affiliated clubs had one vote each at Horley Town FC’s annual general meeting. It was held that though there was some outside (external) control, it was only limited, and that decisions affecting the football club would, in the main, be taken by the members of the football club, and any external impact would be minimal.
Finally, since the club must have complete control over its assets, there must be nothing in the gift stipulating what the gift is to be used for. However, even if there is, it seems this might be dismissed as a mere motive for the gift, as in the case of Re Lipinski’s Will Trusts  Ch 235.
Trust for present and future members
Provided the class of beneficiaries is“ascertained or ascertainable” at the date of the testator’s death, it is possible to have a valid gift or trust for thepresent and future members of the association.
However, as the membership of theassociation is likely to fluctuate over time, potentially infringing the ruleagainst perpetuities, the interpretation may not be valid as offending the rule against remoteness of vesting.This rule is designed to ensure that future interests cannot vest at tooremote a date in the future.
Whether it is possible to use the ‘wait and see’ provisions of the Perpetuities and Accumulations Act 1964 (retained by the Perpetuities and Accumulations Act 2009) remains untested.
Trust for the purposes of the association
Trusts for the purposes of the association are void in English law.
Re Denley-style of trust
One possible final interpretation is the Re Denley-style of trust. This was considered in detail in the previous chapter. Where a trust appears to be for a purpose, but it actually operates in favour of identifiable individuals who have the standing to enforce the trust, then it will be valid.
The principle was extended to apply (admittedly, somewhat dubiously) to unincorporated associations in the case of Re Lipinski’s Will Trusts  Ch 235.
There are some interesting comparisons between the Re Denley-style trust and the ‘prevailing view’ of the contractual analysis which bear mention.
A Re Denley-style trust will last for as long as the perpetuity period, then the property must be turned to its default purpose (in Re Denley, this was a gift to charity). However, the Re Denley-style trust can be enforced, as Goff J said, by injunctions.
The contractual analysis, on the other hand, requires that the members of the association, according to their rules, have freedom as to the use of the gift. Consequently, the testator has no guarantee that the property will be turned to the use stipulated (if any). In other words, it cannot be enforced. However, the property could, potentially, be used for perpetuity. The property vests in the members, and so long as the club has members, the property could be used by the club in furtherance of its purposes.
Dissolution of unincorporated associations
When an unincorporated association is dissolved, the issue of what to do with its surplus assets arises. There are three possible alternatives:
a) the ‘resulting trust’ analysis;
b) the ‘contract rights’ distribution;
c) bona vacantia.
The ‘resulting trust’ analysis
Under this analysis, the property is returned to its owner. In Re Hobourn Aero Components Air Raid Distress Fund Ch 194, employees of a munitions company contributed to anemergency fund which was used to relieve the damage and distress causedby air raids in the Second World War. When the war ended, the court wasasked what should be done with the surplus.
The court applied a resulting trust analysis, holding that surplus funds shouldbe returned to the original contributors, whether those contributors were pastor present members of the fund. Each contributor received a share of thesurplus in proportion to the contributions that he made, less a deduction forany benefits received.
However, where there are practical difficulties of locating former members, the courts will divide surplus assets between existing members in proportion to their contributions (Re Printers’ and Transferrers’ Amalgamated Trades Protection Society 2 Ch 84).
The ‘contract rights’ distribution
Given that the contractual analysis is the prevailing method of making a gift to an unincorporated association, the courts will tend to authorise distribution in accordance with the rules of the club, rather than appeal to the resulting trust analysis. InRe Bucks Constabulary Widows and Orphans FundFriendly Society (No.2)  1 WLR 936, a fund was established to provide, through voluntary contributions, for therelief of widows and orphans of deceased constabulary members. The fundwas formally registered as a “friendly society”, which meant that understatute the society’s property was vested in the trustees for the benefit of thesociety and its members.
Walton J said that theexisting members could agree to divide up the property amongst themselveswhenever they wished. Unless a gift was clearly made subject to a trust,property that had been gifted to an association belonged to its members. Therefore, surplus assets should be distributed equallybetween current members at the date of dissolution.
This applies to all assets, whether derived from members’ subscriptions ordonations from outsiders.The contractual analysis is the correct one to use, whatever the purposes of the association.
Some clubs have grades of membership. Where this is the case, distribution may differ. For example, in Re GKNBolts and Nuts Ltd  2 All ER 855, where the association had “full”,“associate”, “temporary” and “honorary” members, the court held that only “full” members, who were entitled to fulluse of the sports and social facilities and full voting rights, would receiveequal shares (irrespective of their length of membership). This was followed in Re Horley Town Football Club  EWHC 2386(Ch), where the judge said that club rules should be interpreted with fairnessand common sense.
However, in Re Sick and Funeral Society of St. John’s Sunday School,Golcar  Ch 51, Megarry J held that, where the contractual burdensand benefits differed as between different classes of member, that inequalityought to be recognised when the court came to divide the surplus.The society provided sickness and death benefits. Members aged 12 andunder paid subscriptions and received benefits at half the rate of oldermembers. The judge therefore ordered distribution of assets on the basisthat each young member got half of a full member’s share.
Where an association is dissolved, in some circumstances, the courts will hold that the funds will be passed, bona vacantia, to the Crown. For example, in Re West Sussex Constabulary’s Widows, Children and Benevolent(1930) Fund Trusts  Ch 1, a fund to provide benefits to widows anddependants of the West Sussex police force was wound up with surplusassets.
The surplus funds consisted of various donations and money fromoutsiders, in addition to members’ contributions. Goff J held that money fromidentifiable donors should be returned on a resulting trust analysis, while all othermoney, including member contributions, did not belong to members butpassed to the Crown as bona vacantia.
The case of Re West Sussexis regarded as something of an oddity and not one which represents the modern view of the law.
However, the principle of bona vacantia will continue to apply where an association has no members left, ie, it is moribund. Where there is one member remaining, the court said in Hanchett-Stamford v HM Attorney General EWHC 330 (Ch), the sole surviving member could claim the association’s surplus assets.
KBL 5.Constitution of Property Transfers
For a trust to be valid in English law it must have the three certainties, but the settlor must also ensure that where it is a settlement on trust, ie, someone else is the trustee, the legal title to the property must be transferred to that trustee. This is known as constituting the trust. The same is true if a donor is making a gift to a donee; the gift must be completed by constitution. Where a trust / gift is completely constituted, it is binding on the settlor and they may not go back on their word. However, where it is incompletely constituted, equity will not intervene – equity will not assist a volunteer – unless consideration has been provided, then the contract would be specifically enforceable – equity looks on as done, that which ought to be done.
The General Rule
The seminal case on the issue of constitution is Milroy v Lord(1862) 4 DeG F & J 264 where Turner LJ said the following:
“Under the circumstances of this case it would be difficult not to feel a strong disposition to give effect to this settlement to the fullest extent, and certainly I have spared no pains to find the means of doing so, consistently with what I apprehend to be the law of the Court; but, after full and anxious consideration, I find myself unable to do so. I take the law of this Court to be well settled, that, in order to render a voluntary settlement valid and effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him. He may of course do this by actually transferring the property to the persons for whom he intends to provide, and the provision will then be effectual, and it will be equally effectual if he transfers the property to a trustee for the purposes of the settlement, or declares that he himself holds it in trust for those purposes; and if the property be personal, the trust may, as I apprehend, be declared either in writing or by parol; but, in order to render the settlement binding, one or other of these modes must, as I understand the law of this Court, be resorted to, for there is no equity in this Court to perfect an imperfect gift. The cases I think go further to this extent, that if the settlement is intended to be effectuated by one of the modes to which I have referred, the Court will not give effect to it by applying another of those modes. If it is intended to take effect by transfer, the Court will not hold the intended transfer to operate as a declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust.”(at pages 274 – 275).
Here, Turner LJ indicates that the settlor / donor must have done to render the transfer binding upon him. This, he states, depends upon the nature of the property, ie, what type of property is being transferred. Let us consider the various forms of property that might be made the subject of a transfer:
(a) Land – Title to land should be conveyed by deed (s52, Law of Property Act 1925). A deed is defined in s1, Law of Property (Miscellaneous Provisions) Act 1989. Where title to the land is registered, title will not pass until it is registered in the transferee’s name at HM Land Registry.
(b) Shares – Under the Stock Transfer Act 1963, title to shares should be transferred by a ‘stock transfer form’. It should be passed (together with the old share certificate) to the company for registration. A private limited company may, by its articles of association, have the power to decline to register the transferee as the new owner of the shares. A public limited company does not have this power.
(c) Chattels – These include paintings, cars, etc. These might be transferred formally by a ‘deed of gift’, but this is rare. The informal method is by evidence of an immediate intention to give, coupled with delivery of the item in question (Re Cole  Ch 175).
(d) Cash – If the settlor / donor has a bag of money, then delivery is effected in the same method as for ‘chattels’. However, this is rare.
(e) Bank account – It is quite common for the trust property to be funds deposited with a bank. When we deposit funds with a bank, they become the property of the bank; we as customers have the right to demand repayment. Consequently, a bank account is a debt (a chose in action). To transfer legal title to a bank account, the settlor / donor must comply with s136, Law of Property Act 1925 by giving written notice to the debtor (ie, the bank) of the transfer.
(f) Equitable interest – This should be transferred in writing signed by the transferor or their agent (s53(1)(c), Law of Property Act 1925).
So, the type of property will determine the method of transfer. However, this will only ever be an issue where the donor is seeking to make an outright gift of his property (‘gift’), or where he is setting up a trust with a third party as a trustee (‘settlement on trust’). If the settlor declares himself trustee of his property (‘self-declaration’), there is no need to transfer property because legal title is already vested in the trustee, ie, himself as settlor.
If the settlor / donor follows the correct procedure to transfer legal title, then the trust / gift is complete and they need do nothing more. Fail to comply with the processes set down by law and equity will not assist a volunteer to perfect an imperfect gift. In other words, they are a volunteer because of the absence of consideration, and the gift is imperfect because legal title has not been transferred to the correct person in time, ie, usually before the death of the settlor / donor. Equally, equity will not save the gift by construing it as a declaration of trust. This is the general rule, but if I said there were exceptions to it, you would probably be unsurprised.
Obviously, a system of ‘justice’ based upon the principle of unconscionability would be pretty harsh if it did not operate some exceptions to the rule that equity will not assist a volunteer, and so it is with equity. The fact seems to be, that law (well, equity) must adopt a posture reflective of the way in which people manage their affairs. We don’t always get round to completing the precise formalities in order to make a gift effective, or to ensure a trust is completely constituted, and this is the rationale around which the courts have developed exceptions.
Settlor has done all in their power. This exception is the high water mark exception. In this circumstance, equity will intervene because the donor / settlor has done everything they can, and they await the actions of a third party. In Re Rose  Ch 499, Mr Rose executed two transfers of shares on the 30thMarch 1943. The transfers and share certificates were delivered to the transferee but the directors did not register the transfers until 30thJune 1943. The litigation arose because in the intervening period the transferor died and the issue was one of whether his estate was liable to pay death duties because he still owned the shares at the date of his death. Though legal title did not pass until registration of the shares in the name of the new owner, the Court of Appeal held that the transfer was effective in equity once Mr Rose had done everything in his power to effect the transfer. Mr Rose could not be responsible for the delay caused by the directors. This might be contrasted with the case of Re Fry  Ch 312 where the transferor was domiciled abroad and had not obtained the necessary Treasury consent before his death. Since he had not done everything in his power, the transfer was ineffective.
A case which places a subtle gloss on Re Rose is the more recent case of Mascall v Mascall (1985) 50 P & CR 119 where a father agreed to transfer a house to his son. A transfer was executed and handed to the son together with the land certificate. Before the transfer could be effected, ie, before it was sent to the Land Registry, the father and son quarrelled and fell out. The father sought to take back the house, but the son challenged the decision. The Court of Appeal, upholding the first instance decision, held that since the means of obtaining title had been given to the transferee, the son, the transfer was complete in equity, and the son was right to apply to the Land Registry to be registered as the new owner.
The rule in Strong v Bird. By this exception, the property vests in the donee / trustee where they become executor / executrix of the settlor’s estate. In Strong v Bird (1874) LR 18 Eq 315, Bird borrowed £1,100. His stepmother, who was living with him at the time, was paying £212 rent per quarter. The loan was to be repaid, over 11 quarters, by the stepmother deducting £100 per quarter from the rent paid to Bird. She made the deductions for two quarters but then expressly forgave the debt and insisted on paying the full rent per quarter up until her death. Bird was appointed her executor of his stepmother’s estate, and the residuary legatee sought an account of the £900 balance of the debt on the basis that the oral release of the debt was ineffective. Lord Jessel MR held that the debt was released at common law by Bird’s appointment as executor. Although in equity Bird would normally have been liable to account, this was displaced by proof of the stepmother’s unchanged intention (up until her death) to forgive the debt, followed by Bird becoming her executor.
The rule in Strong v Bird was extended in the case of Re Stewart  2 Ch 251, the rule was extended to perfect an imperfect gift, and also applies where there is no will, ie, the donor is intestate (Re James  Ch 449), and the donee becomes administrator of the intestate’s estate. However, this was doubted, obiter, in Re Gonin  Ch 16. Of slightly greater controversy is the case of Re Ralli’s Will Trusts Ch 288 where Buckley J argued an analogy with the rule in Strong v Birdin applying a similar principle to constituting a trust. However, this is a stand-alone authority and not one which is even four-squarely with Strong v Bird since the judge does not make reference to the need for a continuing intention, something highlighted in Strong v Bird itself.
The Donatio Mortis Causa – the death-bed gift. You’re lying on your death-bed, contemplating your imminent meeting with your maker when, suddenly, you have an attack of generosity and decide to make a gift to a person at your bedside – but how? Well, Cain v Moon  2 QB 283 provides guidance for it sets down the requirements to make a valid gift on your death-bed.
(a) the gift must be made in contemplation of imminent death;
(b) thegift must be conditional on death;
(c) theregift must be delivered
First, there must be contemplation, not expectation, of imminent death. Thus, death need not be on the horizon, but something which is merely contemplated by reference to the context in which it occurs, eg, on hospital where the donor has been diagnosed with a terminal illness. Further, it does not matter if the donor dies from some cause other than the one originally contemplated. For example, in Wilkes v Allington  2 Ch 104, where the donor died of pneumonia rather than the cancer that had been the contemplated cause of death. Secondly, the circumstances of the gift should indicate that it only has effect should the donor die. If the donor does not die, the gift will be recoverable. Thirdly, there must be delivery of dominion of the property from the donor to the done. Given the circumstances in which a gift mortis causa might occur, ie, in a hospital ward, some property is easier to contemplate as a gift more than others. So, for example, a watch, or similarly small item could be a valid gift mortis causa. This would be completed by handing the item to the done. However, a greater challenge would face the donor where they wished to make a gift mortis causa of a car. Clearly it is not possible physically to deliver the car. However, handing over the keys to the car will be sufficient delivery, it being constructive delivery in such circumstances (Woodward v Woodward  RTR 35). In Birch v Treasury Solicitor  Ch 298, delivery of some essential indicia or evidence of title will be sufficient, eg, a bank account deposit book. However, delivery may not be symbolic, eg, a photograph of the car which is intended to be the gift.
There are two controversies respecting the donatio mortis causa. The first relates to whether land might be the subject of a valid gift mortis causa. It had until recently been held that land could not be the subject of a donatio mortis causa. However, the Court of Appeal in Sen v Headley  Ch 425 held that this should change. In Sen, it was deemed to be sufficient to hand keys to a box containing the deeds to the intended done. It is to be noted in Sen that title to the property was unregistered. It is difficult to see how this same system would operate where title to the land is registered, a point which is as yet untested in the courts.
The second controversy relates to whether suicide fits within the scheme of gifts mortis causa. At first sight, it is easy to see that it does. However, if one contemplates suicide, then the point of departure is at the control of the donor, whereas someone with a terminal illness does not necessarily have the same degree of control. Consequently, it might be thought that the donor should make a will, or amend an existing one. Historically, the courts showed little sympathy where the donor had committed suicide, especially since suicide was a crime and, consequently, to find a gift mortis causa valid on the back of a suicide would be contrary to public policy (Agnew v Belfast Banking Co  2 IR 204). However, given that suicide is no longer a crime (s1, Suicide Act 1961), this may no longer be the view of the courts, but it is, as yet, untested and there are some positive indications in favour of suicide being brought within gifts mortis causa. Halsbury’s Laws of England (Volume 52, Gifts, (2009, 5th edition), para 271, fn 2) identifies that the Chief Registrar of Friendly Societies has held valid a gift made in contemplation of suicide, citing (Report of the Chief Registrar of Friendly Societies 1965, pages 13–14). Note this post-dates the passing into law of the Suicide Act 1961.
There is, of course, the thorny issue of evidence. It is not unusual in such cases for the evidence to be the evidence of the donee alone, the only other person being present at the material time being now dead. Generally, the court should not take the uncorroborated evidence of the donee alone, since they will obviously speak in their own favour. It is the position, however, that the rule is not an absolute one and that the judge may take the uncorroborated evidence of the donee, but must do so with the utmost care and attention. As Cotton LJ said in the case of Re Dillon (1890) 44 Ch D 76:
“Where a claimant’s case depends entirely on his own evidence the Judge ought to sift that evidence very carefully; but if the claimant gives evidence which is not shewn to be inaccurate in any material point, and which satisfies the Judge of its truthfulness, he ought, I think, to act upon it though it be not corroborated.”(at pages 80 – 81).
To have a rule which is otherwise, would be to render the prospects of proof for the donee almost impossible in the case of an alleged gift mortis causa. A balance must be struck between the apparent wishes of the deceased and the other competing claims on his estate. Some further food for thought from James Schouler, Oral Wills and Death-Bed Gifts(1886) 2 LQR 444, 449:
“A man of easy fortune lies at the point of death. His will has already been deliberately and solemnly executed, his legatees carefully designated, his executors names. The bulk of this property consists of money in the funds, bank deposits, bonds and mortgage securities, and promissory notes; all personal property of one description or another. The papers or securities are all contained in a box properly hidden away. Some relative or friend, having free access to the sick chamber, knows where the box and key are kept, and, seizing his opportunity, takes possession while the testator is unconscious and dying … this relative or friend who has yielded to temptation claims the box of securities as his own. He pretends that it was given to him causa mortis in due form at such a date by the dying owner. Perhaps he induces some nurse or attendant, by a share of the spoils, to confirm his story, or that other circumstances may be adroitly turned to corroborate it. Unless the executor and beneficiaries can shake this statement by cross-examination, their situation is helpless indeed; the claimant, under many codes, needs no other witnesses, and the only one who could have directly disputed his story has passed away.”
It is, of course, appropriate to end with the oddity in the recognition of the donatio mortis causa, namely that it takes effect on death, but is not contained in a will, rather it is treated as a lifetime gift. It was described thus in Re Beaumont  1 Ch 889: “A donatio mortis causa is a singular form of gift. It may be said to be of an amphibious nature, being a gift which is neither entirely inter vivos nor testamentary. It is an act inter vivos by which the donee is to have the absolute title to the subject of the gift not at once but if the donor dies.”(per Buckley J, at page 892).
Those settled exceptions (from Re Rose, Strong v Bird and the donatio mortis causa) to the maxim that equity will not assist a volunteer were the limited options available to the disappointed donee. Recently, however, Milroy v Lord was revisited by the Privy Council and, subsequently, by the Court of Appeal raising a new set of challenges.
In T Choithram International SA and others v Pagarani and others  1 WLR 1, the Privy Council was asked to consider the validity of a purported disposition. The donor had terminal cancer. In the presence of a number of witnesses, he executed a trust deed establishing a charitable foundation, appointing himself as one of the trustees. He then stated orally that he gave all his wealth to the foundation, including his deposit balances with some banks, and shares in the companies registered in the British Virgin Island. He told the accountant to those companies that he was to transfer the deposit balances and shares to the foundation. Some of the other trustees signed the trust deed that day and the others subsequently did so. At board meetings of the companies later the same day the donor reported orally that he had established the foundation and had gifted all his wealth to it, and resolutions were passed confirming that the trustees of the foundation were the holders of the deposit balances and shares gifted to the foundation by the donor. The accountant deleted the donor as creditor in the books one of the banks, substituting the new charitable foundation, but the books of another were not altered until after the death of the donor. Also, the shares in the companies were not registered with the charitable foundation until after his death, the companies issuing new share certificates. The High Court of the British Virgin Islands held that the claimant has not made a complete gift of the account and the shares by his death, therefore they passed to the plaintiffs under the principles of intestacy. The Court of Appeal of the British Virgin Islands upheld that decision.
Clearly, the Privy Council was faced with some fairly tricky obstacles in attempting to find in favour of the charitable foundation. First, the gift had not been completely constituted by his death, ie, the donor was still the legal owner. Consequently, in the absence of a will, the property passed to those entitled under his estate. However, if equity could intervene, the property would be regarded as beneficially belonging to the foundation, therefore the family would have no claim. At this point, the second problem arises: the facts did not seem to fit the exceptions. It was some way short of Re Rose in that the donor had not done everything in his power. There was an attempted argument on the basis of the rule in Strong v Bird but this failed, and the prospects of an argument based on the donatio mortis causa very unlikely to succeed.
Nevertheless, in the face of such apparently insurmountable difficulties, the Privy Council found in favour of the foundation. The advice was delivered by Lord Browne-Wilkinson:
“Their Lordships then turn to the central and most important question: on the basis that [the donor] intended to make an immediate absolute gift “to the foundation” but had not vested the gifted property in all the trustees of the foundation, are the trusts of the foundation trust deed enforceable against the deposits and the shares or is this … a case where there has been an imperfect gift which cannot be enforced against [the donor]’s estate whatever [his] intentions.”
The judge and the Court of Appeal understandably took the view that a perfect gift could only be made in one of two ways, viz (a) by a transfer of the gifted asset to the donee, accompanied by an intention in the donor to make a gift; or (b) by the donor declaring himself to be a trustee of the gifted property for the donee. In case (a), the donor has to have done everything necessary to be done which is within his own power to do in order to transfer the gifted asset to the donee. If the donor has not done so, the gift is incomplete since the donee has no equity to perfect an imperfect gift….Moreover, the court will not give a benevolent construction so as to treat ineffective words of outright gift as taking effect as if the donor had declared himself a trustee for the donee….”
“Though it is understandable that the courts below should have reached this conclusion since the case does not fall squarely within either of the methods normally stated as being the only possible ways of making a gift, their Lordships do not agree with that conclusion. The facts of this case are novel and raise a new point…. Although equity will not aid a volunteer, it will not strive officiously to defeat a gift. This case falls between the two common form situations mentioned above. Although the words used by [the donor] are those normally appropriate to an outright gift—“I give to X”—in the present context there is no breach of the principle in Milroy v Lord if the words of [the donor]’s gift (ie to the foundation) are given their only possible meaning in this context. The foundation has no legal existence apart from the trust declared by the foundation trust deed. Therefore the words “I give to the foundation” can only mean “I give to the trustees of the foundation trust deed to be held by them on the trusts of foundation trust deed”. Although the words are apparently words of outright gift they are essentially words of gift on trust.”
“But, it is said, [the donor] vested the properties not in all the trustees of the foundation but only in one, ie [the donor]. Since equity will not aid a volunteer, how can a court order be obtained vesting the gifted property in the whole body of trustees on the trusts of the foundation. Again, this represents an over-simplified view of the rules of equity….”
“What then is the position here where the trust property is vested in one of the body of trustees, viz [the donor]? In their Lordship’s view there should be no question. [The donor] has, in the most solemn circumstances, declared that he is giving (and later that he has given) property to a trust which he himself has established and of which he has appointed himself to be a trustee…. There can in principle be no distinction between the case where the donor declares himself to be sole trustee for a donee or a purpose and the case where he declares himself to be one of the trustees for that donee or purpose. In both cases his conscience is affected and it would be unconscionable and contrary to the principles of equity to allow such a donor to resile from his gift. Say, in the present case, that [the donor] had survived and tried to change his mind by denying the gift. In their Lordship’s view it is impossible to believe that he could validly deny that he was a trustee for the purposes of the foundation in the light of all the steps that he had taken to assert that position and to assert his trusteeship. In their Lordship’s judgment in the absence of special factors where one out of a larger body of trustees has the trust property vested in him he is bound by the trust and must give effect to it by transferring the trust property into the name of all the trustees.”(at pages 11 – 12).
The case of Choithram raises some interesting questions, probably because it is not at all clear what the donor was trying to do. Was is a self-declaration of trust? Alternatively, was it a settlement on trust? Or, which is less likely, given Lord Browne-Wilkinson’s words, was it intended to be a gift? Halliwell suggests that this “relatively stable” area of law, “might be thrown into complete disarray” by the decision in Choithram (Perfecting imperfect gifts and trusts:have we reached the end of the Chancellor’s foot? Conv 192). However, her most strident criticism is reserved for the case which followed Choithram, namely Pennington v Waine  EWCA Civ 227.
In Pennington v Waine, the donor wished to gift 400 shares in a company to her nephew, also making him a director of that company. The donor signed a stock transfer form and the company’s auditors wrote to the donee inform him of the share transfer and asking that he complete the prescribed form of consent to act as a director. He signed the form and it was countersigned by the donor. The signed share transfer form was retained by the auditors and was not sent to the donee. The donor died, and under the terms of her will made specific gifts, but no mention was made of the 400 shares. An action was brought by the residuary legatees seeking a determination of whether there had been a valid equitable transfer of the shares. At first instance, the judge held that the gift of 400 shares became effective when the donor signed the stock transfer form. There was no requirement that the stock transfer form be delivered either to the donee or the company in order to make the gift complete. Consequently, the shares did not form part of the donor’s estate.
In somewhat controversially finding for the donee, the court appeared to place significant reliance on the conscience as set down in the advice of the Privy Council in Choithram. Arden LJ stated:
“If one proceeds on the basis that a principle which animates the answer to the question whether an apparently incomplete gift is to be treated as completely constituted is that a donor will not be permitted to change his or her mind if it would be unconscionable, in the eyes of equity, vis-a-vis the donee to do so, what is the position here? There can be no comprehensive list of factors which makes it unconscionable for the donor to change his or her mind: it must depend on the court’s evaluation of all the relevant considerations. What then are the relevant facts here?[The donor] made the gift of her own free will: there is no finding that she was not competent to do this. She not only told [the donee] about the gift and signed a form of transfer which she delivered to [the company’s auditor] for him to secure registration: her agent also told [the donee] that he need take no action. In addition [the donee] agreed to become a director of the company without limit of time, which he could not do without shares being transferred to him. If [the donor] had changed her mind…, in my judgment the court could properly have concluded that it was too late [because the donee had signed the directorship consent form].”(para 64).
“…a stage was reached when it would have been unconscionable for [the donor] to recall the gift. It follows that it would also have been unconscionable for her personal representatives to refuse to hand over the share transfer to [the donee] after [the donor’s] death.”(para 66).
According to Halliwell in the article already cited, Pennington v Waine, “appears to give courts of equity an unfettered discretion as to whether a voluntary gift or trust should take effect.”(at page 193). She contends that it is not possible to reconcile Pennington with earlier authorities, especially where Clarke and Arden LJJ concluded that it was not necessary for the donor to hand the share certificate and stock transfer form to the company for registration. She argues, as she says, not for the unfettered discretion of Pennington v Waine, rather for a more principled approach to unconscionability along the lines of that which is suggested by Walker LJ in Jennings v Rice EWCA Civ 159 in the context of proprietary estoppel (see below). She elaborates on her position in Halliwell, Equity and Good Conscience (Old Bailey Press, 2004).
Notwithstanding its chilly reception, Pennington v Waine was recently applied in the case of Curtis v Pulbrook  EWHC 167 (Ch) which, elucidating a point already made in Pennington, stated that unless the intended donee relies on the purported gift, it is unlikely that the transaction would be regarded as complete in equity under the principle in Pennington v Waine. As the donee had not so relied in Curtis v Pulbrook, the gift failed. Remember, in Pennington, the act of reliance by the donee involved him becoming a director.
Whether the decisions in Choithram and Pennington have a dramatic impact on this area of law remains to be seen. I would tend to the view that Choithram, on its very narrow facts, would come up only very rarely and, being a decision of the Privy Council, would not be binding on a decision of the courts of England and Wales. Insofar as Pennington is concerned, this was a remarkably courageous decision from the Court of Appeal. Not only is it inconsistent with existing authorities, but it does appear to place undue emphasis on an obiter part of Lord Browne-Wilkinson’s advice in Choithram. It remains open to question whether conscience, at least to the extent that it is heavily fact-reliant as suggested by the Court of Appeal in Pennington, is a sound basis on which to build a principled approach to this area of law. For, to leave it so, and with the echo of the rather unhelpful comments of the Court of Appeal ringing out, does tend to leave it at the mercy of the judiciary without providing much in the way of guidance to the disappointed donee.
It will be recalled that Halliwell gave preference to unconscionability based on the principled approach of proprietary estoppel. The principles to which she referred have been consolidated and refined by the House of Lords in the case of Thorner v Major  UKHL 18, where Lord Walker gave the requirements for a proprietary estoppel.
(a) A representation or assurance made to the claimant (ie, the donee);
(b) Reasonable reliance on the representation or assurance by the claimant (ie, the donee);
(c) Detriment to the claimant (ie, the donee) in consequence of the reliance.
Where the disappointed donee has acted to their detriment in reliance on a representation or assurance that they will receive an interest in some property, then they may receive that interest by estoppel. Consequently, estoppel could operate as an exception to the rule in Milroy v Lord. Though it is based on the unifying notion of unconscionability, this alone will not be the guiding criterion – the requirements from Thorner are the key to a successful claim. Once the requirements are satisfied, this gives rise to an “inchoate equity” which is satisfied by the court awarding a remedy sufficient to satisfy the equity. The remedy is at the discretion of the judge and it may not be that the donee will get what they were promised. As an alternative they might, for example, receive a sum of money in compensation for any losses which might have been sustained by acting to their detriment in reliance on the representation or assurance.
KBL 6.Formalities of Property Transfers
In order to create a trust in English law, certain formalities are required, but first we should be clear what we mean by formalities. It might be said that requiring the three certainties is a formality and, indeed, it is a formality, but only in a very broad sense. When we speak and write of formalities in the law of trusts, we use it in the narrower sense of meaning ‘statutory formalities’.
The principle statutory formalities are those contained in the Wills Act 1837 and the Law of Property Act 1925.
A testamentary trust is a trust which is found in a will. In order for such a trust to be valid, it must not only satisfy the three certainties, but it must also comply with the statutory formalities under s9, Wills Act 1837. This provides:
“No will shall be valid unless—
(a) it is in writing, and signed by the testator, or by some other person in his presence and by his direction; and
(b) it appears that the testator intended by his signature to give effect to the will; and
(c) the signature is made or acknowledged by the testator in the presence of two or more witnesses present at the same time; and
(d) each witness either—
(i) attests and signs the will; or
(ii) acknowledges his signature, in the presence of the testator (but not necessarily in the presence of any other witness),
but no form of attestation shall be necessary.”
Express Trust of Land
English law has traditionally singled out land for special treatment when it comes to its disposition. A declaration of a trust of land must comply with s53(1)(b), Law of Property Act 1925. It provides:
“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.”
Thus, if one wishes to create a trust of land, s53(1)(b), LPA 1925 requires that the trust be evidenced (manifested and proved) by some writing, and signed. It is not clear from the statute whether it requires the settlor’s signature only, or whether the signature of the settlor’s agent will suffice. Failure to comply with s53(1)(b), renders the purported declaration ineffective, not void. For example, where an individual makes an oral self-declaration of a trust of land, this will be ineffective because it does not comply with the provision. However, if the settlor later provides written evidence, signed by him, this will make the declaration effective, and a valid express trust of land, as apparently occurred in the case of Gardner v Rowe (1828) 2 Sim & S 346. The provision relates to any interest in land, therefore interests such as a mortgage are included, as was recently stated by the Court of Appeal in Helden v Strathmore Ltd  EWCA Civ 542.
The statute does, however, make provision for those circumstances where no formality has been complied with, but a trust could be said to exist. Section 53(2), Law of Property Act 1925:
“This section does not affect the creation or operation of resulting, implied or constructive trusts.”
The interaction between ss53(1)(b) and 53(2) is amply demonstrated by the case of Hodgson v Marks Ch 892. In this case, Hodgson owned and lived in a house, and from time to time she would let a room in the house to a lodger. One such lodger took up residence and quickly began to gain the confidence of Mrs Hodgson, so much so that he convinced her to make a voluntary conveyance of the house into his name. When the house was conveyed, it was orally agreed that Mrs Hodgson would retain beneficial ownership of it, the lodger merely having legal title. It should come as no surprise at this stage to learn that the lodger sold the house to the defendant, and made off with the proceeds of sale. Naturally, Mrs Hodgson was left to deal with the competing claim of Marks, the person to whom the house was sold.
There was no written express declaration of trust to comply with s53(1)(b), Law of Property Act 1925. However, this did not prevent the Court of Appeal that Mrs Hodgson’s interested was protected under the presumption of a resulting trust, s53(2), Law of Property 1925 operating to suspend the formalities required by s53(1)(b).
Disposition of a subsisting equitable interest
Where the trust has been established, the law requires a formality in respect of dealings with the equitable interest. However, this is one of the more complex areas of the law of trusts and the application of the relevant statutory provision is by no means a straightforward matter. The provision is section 53(1)(c), Law of Property Act 1925:
“a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will.”
“Disposition” is a very wide term and includes any act by which a person ceases to own the item of property in question. It could include a sale, a gift, an assignment, and a declaration of trust. In the case of Timpson’s Executors v Yerbury  20 TC 155, the Court of Appeal identified a number of possible dealings with the equitable interest:
“Now the equitable interest in property in the hands of a trustee can be disposed of by the person entitled to it in favour of a third party in any one of four different ways. The person entitled to it:
1. can assign it to the third party directly;
2. can direct the trustees to hold the property in trust for the third party (see per Sargant J in Re Chrimes  Ch 30 at 36);
3. can contract for valuable consideration to assign the equitable interest to him; or
4. can declare himself to be a trustee for him of such interest.” (perRomer LJ at page 182).
Assignment to a third party
This situation will inevitably be caught by s53(1)(c), LPA 1925. The beneficiary divests himself of the entire beneficial interest and, therefore, it would need to be assigned in writing and signed by the beneficiary, or the beneficiary’s agent, otherwise it will be a void disposition.
Direction trustees should hold property for a third party
This dealing identified in Timpson’s Executors v Yerbury is one of the more complex of the situations engaging s53(1)(c), LPA 1925. It raises interesting technical questions about the interpretation of the provision.
The first case to consider is Grey v Inland Revenue Commissioners AC 1. Before considering the facts of the case, it is worth understanding the motivation behind Mr Hunter’s complex of instructions. His motivation was the avoidance of stamp duty; a duty levied on transfers of property. This was the cause of the complex of facts in the case. First, Hunter created six settlements (which attracted no stamp duty). He then transferred 18,000 shares to the trustees to hold as nominees for Hunter. Hunter held the equitable interest in the shares. Hunter then orally directed the trustees to hold the shares according to the terms of the six nominal settlements. His intention was that the shares should be held on trust for Mr Hunter’s grandchildren under his six original settlements and not on trust for Mr Hunter himself. Finally, Hunter and the trustees executed a deed confirming what had occurred.
The House of Lords held that the oral instruction was a purported disposition of a subsisting equitable interests and was ineffective since (being oral) it did not comply with s53(1)(c) LPA 1925. Accordingly, the disposition of the subsisting equitable interests had been made by virtue of the deed executed by Hunter and the trustees. As this was the document which transferred the value, stamp duty was due on it.
Lord Radcliffe said that the word “disposition” in s53(1)(c) covered all means and devices whereby an equitable owner effectively transfers an interest to someone else.
Thus, where an absolutely entitled beneficiary instructs his trustee to hold property for a third party, ie, for a new beneficiary, this is a disposition of a subsisting equitable interest and should be in writing and signed by the transferor (or their agent) otherwise the disposition is void.
The second case is Vandervell v IRC  2 AC 291. Vandervell was the owner of an engineering company and became very wealthy as a consequence. Looking for outlets for his wealth, he became involved in motor racing, establishing a motor racing team called Vanwall. After initial successes in motor racing, injuries to his drivers caused him to reconsider the use of his wealth, such that in 1958, he determined to institute a Chair of Pharmacology at the Royal College of Surgeons. The scheme was complex, but the following is a distilled version of the facts.
Vandervell wished to give the RCS the benefit of certain shares of which he was the beneficial owner. First, he declared a trust in his favour, with his bank as the trustee. Vandervell then instructed his bank to transfer title to the shares to the RCS, which the bank duly did. In the meantime, Vandervell was advised not to lose control of the shares so, as a condition of the transfer, the RCS granted an option to purchase to the Vandervell Trust Company Ltd. The option meant that the shares could be repurchased at a nominal amount.
For a number of years, dividends were declared while the RCS held the shares. After the RCS has sufficient funds to establish the Chair, the option was exercised. This is where Vandervell’s problems started. Vandervell was somewhat indecisive as to who should have the benefit of the shares after the RCS had taken their interest: Should it be his grandchildren, or the employees of his company? This indecision meant that when the option was exercised, the trust was void for uncertainty of object with the consequence that there was an automatic resulting trust of the beneficial interest back to Vandervell.
There were two points for the House in Vandervell. First, there was the question of the transfer to the RCS. Secondly, there was the issue of the option.
The IRC argued that since the bank held only the bare legal estate in the shares and Vandervell held the entire equitable interest, when Vandervell instructed the bank to transfer the shares to the College, the bank transferred only the bare legal title. The equitable interest remained with Vandervell. For Vandervell to divest himself of the equitable interest in the shares, he would have had to comply with s53(1)(c), LPA 1925. Since there was no compliance with s53(1)(c), LPA 1925, equitable interest remained with Vandervell who was liable for the tax on the dividends.
The House of Lords rejected this argument. Where the absolute beneficial owner (Vandervell) orally instructs the bare legal owner (bank) to transfer the property (the shares) to a third party (RCS) with the intention that beneficial interest should also pass, the transfer of the legal title takes the equitable title with it. Since s53(1)(c), LPA 1925 respects only the equitable title, and Vandervell was transferring the equitable title, s53(1)(c), LPA 1925 was not engaged and Vandervell’s oral instruction to the bank was sufficient. This is an exception to the provision.
The IRC’s second bite of the cherry related to the option. Since the beneficiaries of the option had never been declared there was an automatic resulting trust of the beneficial interest to Vandervell so he was liable to the tax. Under s415, Income Tax Act 1952 (repealed by the Finance Act 1985) the settlor would be liable for surtax (since abolished) unless he had divested himself of all interest in any income arising under, or property comprised in, the settlement. Vandervell had not, so he was liable.
Contract for valuable consideration
In Neville v Wilson  3 All ER 171, the Court of Appeal held that a contract for valuable consideration to assign an equitable interest in shares in a private company operated to transfer the interest, despite the absence of writing required by s53(1)(c) LPA 1925. The making of a specifically enforceable contract creates a constructive trust in favour of the transferee, so s53(2) applies and dispenses with the requirement for writing under s53(1)(c), LPA 1925.
Where the beneficiary wishes to declare a sub-trust of his beneficial interest, there is some doubt about whether s53(1)(c), LPA 1925 applies. If the sub-trust is a bare trust, with the beneficiary retaining no active duties, then the beneficiary will drop out of the picture and the transfer would appear to be a disposition of a subsisting equitable interest and require compliance with s53(1)(c), LPA 1925 (Grainge v Wilberforce (1889) 5 TLR 436 and Re Lashmar  1 Ch 258).
If, however, the beneficiary were to declare an entirely new trust, ie, retaining a life interest and disposing of the remainder, there is an argument to say that since it is a declaration of a new trust and not (technically) a disposition of a subsisting equitable interest, this would require no formalities (Paul v Constance  1 WLR 527), unless a new trust of land (s53(1)(b), LPA 1925). The alternative argument is that the disposition of the equitable interest cannot be ignored and that as such, s53(1)(c), LPA 1925 ought to be satisfied (Green, Grey, Oughtred and Vandervell – A Contextual Reappraisal(1984) 37 MLR 385).
KBL 7.Constructive and Resulting Trusts
Thus far, the module has been concerned with express trusts and their formation and administration. Now, we concern ourselves with implied trusts, of which there are two main types: the constructive trust, and the resulting trust.
The constructive trust arises by operation of law, and not because of the intention of the parties. It has been applied to certain, set, factual scenarios, though the categories in which a constructive trust will arise are not closed.
The constructive trust is described as an “institution” because in its manner of operation it is like an express trust, ie, one individual holds property on trust for another with the obligation to convey it to the person beneficially entitled. In other jurisdictions, notably in the USA and Canada, the constructive trust is recognised as a remedy, ie, a form of redistributive constructive trust, redistributing property rights on the basis of what might be regarded as fair on the facts of the case. However, this is not currently the position in England and Wales.
In Westdeutsche Bank v Islington LBC  A.C.669, the two forms of constructive trust were described as follows:
“Under an institutional constructive trust, the trust arises by operation of law as from the date of the circumstances which give rise to it: the function of the court is merely to declare that such trust has arisen in the past. The consequences that flow from such trust having arisen (including the possibly unfair consequences to third parties who in the interim have received the trust property) are also to be determined by rules of law, not under discretion. A remedial constructive trust, as I understand it, is different. It is a judicial remedy giving rise to an enforceable equitable obligation: the extent to which it operates retrospectively to the prejudice of third parties lies in the discretion of the court.”(per Lord Browne-Wilkinson, pp 714G – 715A)
In Metall and Rohstoff AG v Donaldson Lufkin & Jenerette Inc 1 QB 391, Slade LJ stated:
‘…the court imposes a constructive trust de novo on assets which are not subject to anypre-existing trust as a means of granting equitable relief in a case where it considers it justthat restitution should be made.’ (p 478).
Thus, the “remedial” constructive trust re-shapes property rights to meet the justice of a particular case. Though not expressly doing so, it appears the Supreme Court may have been doing this in the recent case of Jones v Kernott UKSC 53 by imputing and intention to share a house, rather than basing it on what the parties agreed, or what could be inferred from their conduct. This case and its approach is too new to be tested, but certainly seems to be what the court was doing in the case, even if some of the judges did not expressly state it.
The main difference between the constructive trust as an “institution” and as a “remedy” is that the former declares that the constructive trust is already said to exist, whereas the latter is said to operate from the date of the judgment. Consequently, it does not provide priority over other, competing, interests.
Categories of constructive trust
As you will have noted when we looked at trustees’ unauthorised profits, they will be liable to account in such a position under a constructive trust (Keech v Sandford (1726) Sel Cas Ch 61)
Further, a constructive trust may also be imposed where the contract is specifically enforceable. This happens in land contracts where, between the exchange of contracts and completion, a constructive trust is imposed with the purchaser as the beneficiary and the vendor as the trustee. We also saw this in relation to contracts for the sale / purchase of a unique item, eg, shares in a private limited company: Neville v Wilson  3 All ER 171.
A constructive trust will also be imposed to prevent a statute being used as an instrument of fraud, as in the case of secret trusts; at least, this is one of the theories advanced. This also the position in mutual wills.
Finally, we have recently seen how a strangers’ liability is to account as a constructive trustee.
There are two types of resulting trust in English law: the presumed resulting trust, and the automatic resulting trust. In Re Vandervell’s Trusts (No. 2)  Ch 269, Megarry J suggested that the presumed resulting trusts depended on the presumed intention of the settlor, an automatic resulting trust does not depend on intention; it operates irrespective of intention, although this view is not universally held.
“Presumed” Resulting Trust
The presumption of a resulting trust arises where there has been a voluntary conveyance of property into the name of another. Equity presumes that the absence of consideration means that the beneficial interest must be with the transferor. However, since it is a presumption, it might be rebutted by evidence that a gift or loan was intended, or the presumption of advancement operates. Note, the presumption of advancement will be abolished once s199, Equality Act 2010 comes into force.
“Automatic” Resulting Trust
An automatic resulting trust arises where there has been a failure to dispose of the entire beneficial interest. This occurred in the case of Vandervell v IRC  2 AC 291 where the objects of the trust were not nominated. There are many other circumstances in which they might arise, ie, where there is a surplus on the dissolution of an unincorporated association.
Equitable Estoppel and Unconscionability
You have encountered estoppel thus far in your studies, namely promissory estoppel; this module looks at the broader basis for what is known as equitable estoppel. It will also examine the links between it and the resurrected notion of unconscionability.
An estoppel is equity?s response to an individual seeking to assert something, the contrary of which they have previously asserted. So, in promissory estoppel, it operates as a defence against a party to a contract seeking to assert their strict contractual rights which they had previously sought to waive.
However, in the context of proprietary estoppel, it is of much more significant impact since it might permit a party to claim an interest in property by informal means.
In the recent House of Lords case of Thorner v Major  1 WLR 776, Lord Walker, while recognising the significant controversy in this area, set down the following essential principles of proprietary estoppel:
(a) a representation or assurance made to the claimant;
(b) reliance on it by the claimant;
(c) detriment to the claimant in consequence of his (reasonable) reliance.
By giving these principles, Lord Walker was operating within the consistent confines of cases such as Taylor Fashions Ltd v Victoria Trustee Co Ltd  QB 133 and Gillett v Holt  Ch 210.
Thus, it is clear that what is needed is some form of representation. The representation might either take the form of:
(a) an express promise; or
(b) encouragement to A that he will obtain such an interest by words or conduct; or
(c) encouragement to A?s belief passively and by remaining silent.
The promise may be vague or equivocal. However, its essence must show that it was intended that it should be relied upon or that the promisee was reasonable in so relying upon it.
A must have acted in the belief that he either has or would acquire a sufficient interest in the property. For example, in Wakeham v MacKenzie  1 WLR 1175, the son stayed on the farm because he was promised he would inherit it.
Additionally, there must be detriment by the representee. As Walker LJ said in Gillett v Holt:
“The overwhelming weight of authority shows that detriment is required. But the authorities also show that it is not a narrow or technical concept. The detriment need not consist of the expenditure or money or other quantifiable financial detriment, so long as it is something substantial. The requirement must be approached as part of a broad inquiry as to whether repudiation of an assurance is or is not unconscionable in all the circumstances.”
Balcombe LJ in Wayling v Jones amplified on what amounts to detriment:
“(1) There must be a sufficient link between the promises relied upon and the conduct which constitutes the detriment….
(2) The promises relied upon do not have to be the sole inducement for the conduct: it is sufficient if they are an inducement – Amalgamated Property Co v Texas Bank  QB 84, 104-105.
(3) Once it has been established that promises were made, and that there had been conduct by the plaintiff of such a nature that inducement may be inferred then the burden of proof shifts to the defendants to establish that he did not rely on the promises – Greasley v Cooke  1 WLR 1306; Grant v Edwards  Ch 638, 657.”
Broadly, detriment might be divided between expenditure, and non-expenditure (ie, other less obviously quantifiable detriment). In Dillwyn v. Llewellyn (1862) 4 De G F & J 517, the representee was encouraged to build a house on the representor?s land on the understanding of receiving an interest in it. In Jiggins v Brisley  EWHC 841, a contribution to the purchase price and the provision of cash for the undertaking of repairs was deemed to be sufficient detriment.
Alternatively, detriment might also be giving up opportunities elsewhere in order to stay and assist a business or on a farm (Re Basham and Gillett v Holt).
Satisfying the Equity
The court must do the minimum that is necessary to satisfy the equity. In doing so, the starting point is to establish the representee?s expectation, but this is only the beginning. The modern approach seems to be to consider (also) the representee?s conduct, the quality of the representor?s assurance, the nature and extent of the assets in question and the extent of the representee?s reliance.
Thus, the outcome will not be certain, even where the elements of the claim have been met. Examples of what the court has done to satisfy the equity include transferring the property over which the representation was made (Re Basham; Gillett v Holt); or, providing monetary compensation in recognition of the losses suffered by the representee (Dodsworth v Dodsworth; Jennings v Rice). However, in some circumstances the court may award both the transfer of the property and compensation (Gillett v Holt).
In essence the doctrine of estoppel is concerned with the checking of unconscionable conduct and, to some extent, reflective of the nature of equitable jurisdiction itself. However, it is unconscionable conduct in the narrow confines of the cause of action. Of interest is the extent to which the resurrected notion of unconscionability from the case of Pennington v Waine. There are similarities between the language used in Pennington and the language used in the threads of the estoppel cases. For example, detriment features in both and, to a degree, therefore, there are some similarities. It remains yet to be seen whether there will be a wholehearted embrace of the concept of unconscionability as an overarching concept to cover cases of what equity already regards as unconscionable conduct.
The Quistclose Trust
The Quistclose trust takes its name from a House of Lords decision (Barclays Bank Ltd v Quistclose Investments Ltd  AC 567).
In outline, where a company borrows money with a particular purpose in mind for that money, then this gives rise to a ‘Quistclose trust’. The trust operates as a form of security for the lender where the borrower would otherwise not have the collateral available for a secured loan.
The Quistclose trust has given rise to a significant amount of controversy as to its juridical basis. These will be examined briefly here, but for a fuller discussion you should read Swadling (ed), The Quistclose Trust: Critica Essays (Hart, 2004). It is available in the LRC and as an ebook.
A Quistclose trust generally requires a loan agreement. Principally, these will be commercial loans (Barclays Bank Ltd v Quistclose Investments Ltd; Twinsectra v Yardley). However, this is not always the case (Carreras Rothmans v Freeman Mathews Treasure). Note, a standard form loan agreement will have a ‘purpose clause’ outlining the purpose for which loan monies will be used. As a matter of modern banking practice, many banks will not advance the funds to the borrower, rather they will apply the funds directly to the purpose identified by the borrower. This would avoid the problems of a possible breach of trust.
It is a broad requirement that the agreement details that the money is to be used solely for a particular purpose. In Quistclose, the money was to be used to pay a company’s share dividend, while in Carreras Rothmans, money was to be used only for the purposes of meeting accounts with third parties. However, it will appear to be sufficient, “for the payer to show that the arrangement pursuant to which the payment was made defined the purpose for which it was made in such a way that it was understood by the recipient that it was not at his free disposal” (per Evans-Lombe J in Cooper v PRG Powerhouse. Further, in Twinsectra, the precise purpose had not been explicitly defined, but this did not appear to affect the outcome of the case.
As to whether the money, if paid over by the lender, should be segregated by the borrower, this does not appear a necessary criterion. Obviously, it offers a keen indication that the money was intended for a purpose unrelated to the day-to-day business expenses of the borrower, but it appears non-essential. In Re EVTR, the loan monies were paid into the borrower’s general account, while in Cooper v PRG Powerhouse, the monies were paid into the company’s payroll account which, once again, did not affect the outcome of the case.
As indicated, there is a little controversy over the juridical basis of the Quistclose trust. In Quistclose, Lord Wilberforce suggested that a Quistclose trust was, in fact, two trusts. There was a primary trust to pay a dividend, and if that primary trust failed, then a secondary trust arose in favour of the lender.
Lord Wilberforce’s analysis is not without its criticism. First, where is the origin of the two trust analysis? Where does this come from? Second, does it seem to suggest that the primary trust is a purpose trust? If so, why is it not automatically void (as private purposes trusts are in English law)?
In the later case of Twinsectra v Yardley, Lord Millett revisited the issue of the Quistclose trust and sought to reassess its juridical basis. His Lordship suggests that rather than there being two trusts, there is in fact one trust, namely a trust in favour of the lender, subject to a power given to the borrower to use the money for any specified purpose in the loan document.
Though it might be the final high judicial word (for now), the academic debate is extensive and combative. There is criticism of Lord Millett’s analysis, and several academics have offered alternative legal bases for the Quistclose trust.
Therefore, there are alternatives which you would need to consider. For example, rather than consider it a resulting trust, could it be a constructive trust (Rickett, 1991), or an express trust (Hudson, 2009). Further, it might not be a trust at all, and this view is put forward by Birks (2004). He suggested that it was a contract and that it was an autonomous unjust enrichment action which triggered the return of the monies.
KBL 8.Secret Trusts
It is the case that some settlor’s do not wish the terms of a trust to be widely known. It is said that John Lennon, the musician and former Beatle, managed to obtain the benefit of trust secrecy by disposing of the residue of his estate to a trust which had been declared inter vivos, the terms of which were not publicly known.
It is common for secret trusts to be established under a will in England and Wales. It will be remembered that a valid will must comply with s9, Wills Act 1837, and that goes for any trust which is established under the will. However, a secret trust will, as its name suggests, not always be evident from the will. A fully secret trust certainly will not, since it will appear on the face of the will as an outright gift to the individual named (with secret instructions having been passed to the person named). A half secret trust, on the other hand, will appear as a trust on the face of the will, but the terms of the trust will not.
Fully secret trusts
As already stated, a fully secret trust (FST) will appear on the face of the will as an outright gift to the person the testator wishes to be trustee of the secret trust. Therefore, the clause in the will might look something like, eg, ‘£100,000 to Clive’. This looks to the world like a gift to Clive, but what the world will not know is that Clive will have been given separate instructions from the testator as to the terms on which the £100,000 is to be held.
The requirements for a FST are that, during the testator’s lifetime:
(a) the trust must be fully communication to the intended trustee; and,
(b) the trustee must accept the trust; and,
(c) the testator must act in reliance on that acceptance by making a will, leaving one unrevoked or unchanged, or not make a will at all (so the secret trustee takes on intestacy.
Fully secret trusts – Communication
The communication may take place at any point before the testator’s death (Wallgrave v Tebbs (1855) 2 K & J 313. The matter to be communicated includes, obviously, the trust’s existence, its terms (Re Boyes (1884) 26 Ch D 531), and the property which is to be made the subject of the trust (Re Colin Cooper  Ch 580).
Communication of the information outlined in 7-005 might be made orally or in writing. In Re Keen Ch 236, Lord Wright MR, memorably referred to a ship sailing under sealed orders, the exact terms being unascertained later.
One of the trickier issues in relation to communication is whether communication should be made to all trustees. The general rule with respect to trusts is that communication must be made to all the trustees. If communication is not made to all trustees, then those to whom the terms are not communicated are not bound; their conscience is not affected.
However, there is an exception where the transfer is made to joint tenants, in contrast to tenants in common. Where communication takes place before the will is executed, the case of Re Stead  1 Ch 237, operates as authority to mean that communication to all joint tenants need not occur in order to be bound. Note, however, the timing: Communication must be before the will is executed, in contrast to the usual position in respect of fully secret trusts.
Fully secret trusts – Acceptance
The secret trustee must accept the trust. Acceptance may be express or inferred, and silence may be sufficient (Moss v Cooper (1861) 1 J & H 352. So long as the testator reasonably believes the trust has been accepted, that will suffice.
Fully secret trusts – Reliance
Once acceptance is made by the secret trustee, the testator must rely on that acceptance by making a will consistent with the secret trust, or leave a will unrevoked, or unchanged, or refrain from making a will. Note that the final circumstance will only operate where the secret trustee will take on the intestacy of the settlor.
In contrast to a fully secret trust, a half-secret trust (HST) will appear on the face of the will as a trust, but the terms of it will not. So, for example, a HST might appear on a will in the following terms, ‘£100,000 to Clive, on the terms which I have communicated to him’. The reader of this will sees there is a trust, but does not know the terms of the trust or who its beneficiaries might be.
The requirements for HSTs differ from FSTs in two important respects. First, is the timing of the communication to the secret trustee. Secondly, there must be consistency with the will.
Half-secret trusts – Communication
Communication of the necessary information relevant to the trust must take place either before, or contemporaneously with the making of the will, but may not take place after the will has been executed. The rationale for this is explained in Re Keen  Ch 236 by Lord Wright, MR, for to do so:
“…would involve a power to change a testamentary disposition by an unexecuted codicil and would violate s. 9 of the Wills Act.”(at page 247).
Secondly, the will must be consistent with the trust. In Re Keen  Ch 236, property was left to two people to dispose of, “as may be notified by me to them” or either of them “during my lifetime”. A sealed envelope containing the terms of the trust was given to one of the trustees before the will was executed. The Court of Appeal held that the trust failed becausethe will referred to a future communication, which was inconsistent with a communication already made.
Secret trusts and s15, Wills Act 1837
Section 15, Wills Act 1837 provides that a witness to a will cannot benefit under it. If a half-secret trustee were to witness the will, that should not defeat the trust as the will shows that he is a trustee and s15 provides that any benefit to a witness is void.
The matter might not be treated in the same way if a fully secret trust. If a trustee under a fully secret trust were to witness a will, there is the possibility that the secret trust may be rendered void as a consequence of this fact. However, it would be a better view if the secret trustee were to ‘out’ himself and declare that a trust over that property exists and that section 15 should not operate to defeat it. Such a claim would be one of strict proof for the trustee as the court would need to be satisfied of the truth of the secret trustee’s statement.
Disclaiming secret trusteeship
As a general rule, a donee of a gift under a will may disclaim it, ie, state that they do not wish to take the gift. However, this creates problems for a secret trust since were the secret trustee to disclaim the gift, they would not only disclaim the trusteeship, but in effect defeat the secret beneficiary. It was said obiter in the Court of Appeal in Re Maddock  2 Ch 220 that the trust will fail if the secret trustee predeceases the testator or disclaims the gift. However, in Blackwell v Blackwell AC 318, again obiter, the House of Lords said that the trustee of a half-secret trust will not be allowed to defeat the testator’s purpose by renouncing the legacy. Instinct would suggest that the House of Lords has the more likely outcome, but this is by no means a certainty.
Predecease of the secret beneficiary
Where the beneficiary under a will predeceases the testator, the position is that the gift lapses and falls into residue. However, secret trusts treat the matter in a slightly different way. In Re Gardner (No 2)  2 Ch 230, the secret beneficiary predeceased the testator. The court held that the beneficiary’s interest arose as soon as the secret trust was communicated and accepted. The interest was created by the ‘agreement’ and not the will. Accordingly, the secret beneficiary’s interest did not lapse, rather it formed part of his estate on his death.
However, the case of Re Gardner (No 2) must be treated with some caution. First, until the death of the testator, the trust cannot be constituted, and it would certainly seem odd to regard the interest as having arisen even though the trust was not yet constituted. Secondly, the case would seem to be one where it renders the disposition relating to the secret beneficiary is one which cannot be altered, contrary to the idea that a will is a revocable document. Thirdly, it does not adequately address the issue of what would happen if the property to be the subject of the secret trust were destroyed or in some way interfered with in the testator’s lifetime – would his estate be personally liable for the losses as an intermeddling stranger?
Why enforce secret trusts?
There are said to be two reasons for enforcing secret trusts. The first is the fraud theory, and the second is the ‘dehors’ the will theory.
The ‘fraud theory’ comes from the relationship between the Wills Act 1837 and secret trusts. Technically, where secret trusts are included in a will, they do not comply with the Wills Act 1837 since the trust should appear in the will for all to see (a will being a public document). However, secret trusts are enforced on the basis that equity will not permit a statute to be used as an instrument for fraud. The prevention of fraud is in allowing the secret trustee to keep the disposition because of failure to comply with the Wills Act 1837. This theory is, however, unable to stand up to scrutiny when considering half-secret trusts, since they appear on the face of the will as a trust.
Thus, the second justification often put forward for enforcing secret trusts is the ‘dehors’ the will theory. This theory has it that such trusts operate outside (‘dehors’) the will, and, as such, require no compliance with the Wills Act 1837. This theory put forward for justifying secret trusts comes from the House of Lords in Blackwell v Blackwell  AC 318. Communication of the secret trust, and acceptance of that by the secret trustee create what is, in effect, an inter vivos trust, while the will merely constitutes the trust after the settlor’s death. The trust is, therefore, outside the will. The cases of Re Gardner (No 2)  2 Ch 230 (above), and Re Young  Ch 344 support the application of this theory in the cases. In Re Young, a secret trust benefited the testator’s chauffeur, but he had also witnessed the will. Normally, section 15, Wills Act 1837 would operate to defeat the interest, but the court said that since the trust was declared inter vivos, the provisions of the Wills Act 1837 were not engaged. As Danckwerts, J said:
“The interest of [the secret beneficiary] does not arise under the will, but by virtue of the trusts imposed on the [secret trustee] outside the will. The signature of the witness is only evidence of the contents of the will, and not of the trusts which are proved by other evidence.(at page 347).
“… [A] beneficiary under a secret trust does not take under the will,… he is not, therefore, affected by s15 of the Wills Act 1837.”(at page 351).
Juridical basis of secret trusts
So, what type of trust is the secret trust? Is it a form of express trust? Or, might it a constructive trust?
This might seem like something of an indulgent question, but not when considering the statutory formalities which were the subject of chapter 6. It will be remembered that s53(1)(b), LPA 1925 requires that a declaration of a trust of land must be manifested and proved by some writing and signed by the person able to declare it. Thus, if express trusts, secret trusts of land would need to comply with this provision.
If, on the other hand, secret trusts are regarded as constructive, a secret trust of land would be excused the formalities of s53(1)(b), LPA 1925 because of the operation of s53(2), LPA 1925 which does not prevent the creation of implied, resulting or constructive trusts.
The case law is, regrettably, unhelpful in providing clarification. The case of Ottaway v Norman Ch 698, concerning a valid fully secret trust of land was decided without reference to s53(1)(b), LPA 1925 and, thus, may be regarded in future cases as per incuriam. In contrast, the case of Re Baillie (1886) 2 TLR 660 suggested that a half secret trust of land was not enforceable without written evidence. However, this was decided some time before half-secret trusts received the stamp of approval from the House of Lords in Blackwell v Blackwell.
The answer might lie in the justifications for the enforcement of the trusts discussed above. If secret trusts are enforced because of the need to prevent fraud, then secret trusts are arguably constructive, this receiving recent support from the Court of Appeal in Kasperbauer v Griffith WTLR 333. However, the ‘dehors’ the will theory would seem to point to the express creation of trusts outside the solemn testament of the settlor.
There is the obvious problem of proving a secret trust, since the whole idea is to keep the trust secret. Nevertheless, in the event of problems, the Law Society does provide advice. It suggests that the secret beneficiary be told of the secret trust, and that documents confirming the trust are lodged with the testator’s solicitor such that there can be post-mortem verification of the existence of the trust should a dispute arise.
In the absence of this corroborative evidence, the courts are willing to hear evidence respecting an alleged secret trust, but the evidence must be “clear and cogent” (Day v Day  EWHC 1455 (Ch)).
Motivations behind their use and the future
Though secret trusts have their origins in religious persecution in seventeenth century England, in the nineteenth century their use was turned to making provision for illegitimate offspring. The social stigma which could come from being the father of illegitimate children was significant in mid-Victorian England, but fortunately English law provided a mechanism so that money could be made available for their care. The conflict was simple: Fathers felt a moral obligation to their illegitimate offspring, but did not want to be associated with them!
One might, however, begin to question the continued use of secret trusts in a society which is less concerned about the rights and wrongs of illegitimate offspring. Thus, the issue for the 21st century is: Do secret trusts have a modern use?
Meager has conducted some qualitative research into secret trusts (Secret trusts – do they have a future?  Conv 203), concluding that their use is more widespread than was previously thought to be the case. However, in contrast, Challinor argues (Debunking the myth of secret trusts?  Conv 492) that they have a very limited social function and that the justifications advanced for their continued recognition are by no means sufficient.
The absolute owner of property has the right to deal with their property in any manner they so choose. This includes (relatively) unrestricted rights as to the distribution of their property during life (inter vivos), provided any statutory or other formalities have been complied with, and also a (relatively) unrestricted right to deal with their property on death by will, provided the formalities of the Wills Act 1837 have been met. It will also be remembered that a will is a revocable document, capable of being amended or revoked by a competent testator at any point before their death.
However, the doctrine of mutual wills appears to place something of a restriction on that freedom.
Mutual wills arise when two persons, usually (but not always) husband and wife, make an agreement as to the disposal of their property, making wills in the same terms. The agreement is to the effect that on the death of the first, their property will generally pass to the survivor, then enjoyed after the death of the second, by certain specified beneficiaries.
Crucially, there must be an agreement between the parties, by which they intend to be bound. Without an agreement, the doctrine cannot operate. The doctrine has been applied where wills are made on exactly the same terms (Dufour v Pereira (1769) Dick 419), but the more modern trend is that this is not sufficient (Re Oldham  Ch 75; Re Cleaver  1 WLR 939).
The contract must reveal an agreement not to revoke a will after the first death. The contract must also be legally enforceable (Re Goodchild  3 All ER 63):
“…There must be established evidence that of a specific agreement… not just some loose understanding or sense of moral obligation…”(per Carnwath J in Re Cleaver  1 WLR 939).
That contract must have consideration. In Re Dale  Ch 31, Morritt J said:
“There is no doubt that for the doctrine to apply there must be a contract at law. It is apparent from all the cases to which I shall refer later, but in particular from Gray v. Perpetual Trustee Co Ltd  AC 391, that it is necessary to establish an agreement to make and not revoke mutual wills, some understanding or arrangement being insufficient – “without such a definite agreement there can no more be a trust in equity than a right to damages at law:” see perViscount Haldane, at p. 400. Thus, as the defendant submitted, it is necessary to find consideration sufficient to support a contract at law. The defendant accepted that such consideration may be executory if the promise when performed would confer a benefit on the promisee or constitute a detriment to the promisor. But, it was submitted, the promise to make and not revoke a mutual will could not constitute a detriment to the first testator because he would be leaving his property in the way that he wished and because he would be able, on giving notice to the second testator, to revoke his will and make another if he changed his mind. Accordingly, it was argued, consideration for the contract had to take the form of a benefit to the second testator.
“I do not accept this submission. It is to be assumed that the first testator and the second testator had agreed to make and not to revoke the mutual wills in question. The performance of that promise by the execution of the will by the first testator is in my judgment sufficient consideration by itself. But, in addition, to determine whether a promise can constitute consideration it is necessary to consider whether its performance would have been so regarded…. Thus it is to be assumed that the first testator did not revoke the mutual will notwithstanding his legal right to do so. In my judgment, this too is sufficient detriment to the first testator to constitute consideration.”(at page 38)
Once a binding agreement and mutual wills have been made, a constructive trust is created so that disclaimer by the survivor in no way operates to defeat the interests of the mutual beneficiaries. The beneficiary’s interest is said to vest on the first death and does not lapse on the predecease of the beneficiaries (Re Hagger  2 Ch 190).
The survivor of the two deals with the property during their lifetime as an absolute owner, and on death the property is bequeathed to the beneficiary. This is understood to be the floating trust theory and comes from the judgement of Dixon J in Birmingham v Renfrew57 CLR 666, a decision of the High Court of Australia:
“…The object of the transaction is to put the survivor in a position to enjoy for his own benefit the full proceeds if he chooses. But when he dies he is to bequeath what is left in the manner agreed upon. It is only by the special doctrines of equity that such a floating obligation, suspended, so to speak, during the lifetime of the survivor can descend upon the assets at his death and crystallize into a trust. No doubt, gifts and settlements inter vivos, if calculated to defeat the intention of the compact, could not be made by the survivor and his right of disposition, inter vivos, is, therefore, not unqualified. But, substantially, the purpose of the arrangement will often be to allow full enjoyment for the survivor’s own benefit and advantage upon condition that at his death the residue shall pass as arranged….”(at page 689 – 690).
The parties may mutually release the obligations imposed upon them, either jointly or singly, by providing notice to the other (Dufour v Pereira (1769) 1 Dick 419).
The Contracts (Rights of Third Parties)Act 1999
Under section 1 of the Act, “a person who is not a party to a contract” may enforce the contract if the contract expressly provides that he may; or if a term of the contract purports to confer a benefit on him, unless it appears from the contract that it was intended that the term should not be enforceable by him.
If the mutual wills stated that the beneficiary or beneficiaries could enforce the contract between them the beneficiary need not rely on the court imposing a constructive trust but could simply enforce in his own right.
Proving mutual wills can be difficult. Any evidence must be “certain and unequivocal’ (Re Oldham  Ch 75 at 87). In Birmingham v Renfrew (1937) 57 CLR 666 it was said:
”Those who undertake to establish such an agreement assume a heavy burden of proof.”(at page 674).
The standard of proof is, this being a civil matter, the balance of probabilities. The court will have in mind the inherent probability or improbability of the event sought to be proved when deciding whether, on balance, that event occurred.In the case of mutual wills the evidence must be cogent because the parties to the agreement are invariably dead, those bringing the proceedings usually have a financial interest, the events often occurred many years before the issue of proceedings, the evidence is sparse and often based on oral testimony and inherent improbability of a testator being prepared to give up the possibility of changing his or her will in the future, whatever the change of circumstances.
KBL 9.Equitable Remedies – Injunctions, Specific Performance and Account
There are, broadly speaking, five equitable remedies: (1) Specific Performance; (2) Injunction; (3) Account of Profits; (4) Rescission; (5) Rectification.
Equitable remedies are discretionary, ie, not available as a right. The claimant seeking an equitable remedy has to demonstrate they have a case for the remedy. Therefore, while the victim of a breach of contract has the right to damages, they must prove to the court that they would like the remedy of specific performance.
Note, because the remedies are equitable remedies, they are subject to the equitable maxims, where applicable, and the pervasive concepts of equity, eg, whether the remedy might cause undue hardship, etc.
This is a court order requiring a party to carry out the positive obligations under a contract. It is a full trial remedy, and will only be awarded where damages are shown to be an inadequate remedy.
It is generally available for land contracts, but contracts for the purchase of personalty cause particular problems, especially where the item is a normal commercial item. Generally, in order to obtain specific performance of an item of personalty, the item should have a quality of uniqueness about it, eg, a Ming vase (Falcke v Gray (1859) 4 Drew 651), and not be an ordinary article of commerce. Shares in a private company have been held capable of being made subject to an order for specific performance (Neville v Wilson  3 All ER 171).
A contract of employment is one which cannot be made the subject to an order for specific performance (s236, Trade Union and Labour Relations (Consolidation) Act 1992), whereas a contract for services is somewhat less clear cut.
If a contract requires a significant degree of supervision in order to ensure performance, then the courts will not generally grant specific performance (Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd  3 All ER 297).
An order for specific performance may also be the subject of the defences of clean hands or laches. Further, it would not be appropriate to make an order for specific performance if to do so would cause a party undue hardship (Patel v Ali  Ch 283).
An injunction is a court order which either compels a person to act (mandatory), or stops a persona from doing something (prohibitory).
An injunction might be either final (perpetual) or interim (temporary). A perpetual injunction will be granted at the final hearing, whereas an interim injunction is awarded at an early stage of proceedings in order to preserve a position before the full trial.
Additionally, an injunction might be awarded with or without notice. An injunction will be “with” notice, where it is awarded after a hearing of both sides of the argument. In contrast, an injunction without notice will be awarded where only the applicant is present.
There are specific considerations which apply to the award of interim injunctions. There are, broadly, four main type of interim injunction: (1) Interim Prohibitory Injunction; (2) Interim Mandatory Injunction; (3) Freezing Order; (4) Search Order.
Interim Prohibitory Injunction
An interim prohibitory injunction is awarded by reference to the “American Cyanamid guidelines”. The guidelines are:
1. The court must be satisfied that the claimant’s case is not frivolous or vexatious and that there is a serious question to be tried.
2. If the above threshold is reached, the court then goes ‘on to consider whether the balance of convenience lies in favour of granting or refusing’ the interim injunction. In effect, the court engages in a balancing exercise to minimise the risk of doing injustice.
The court considers whether either party could be adequately compensated by an award of damages.
a) adequacy of damages:
i) on the one hand, the court will consider whether, if it refuses an injunction and the claimant wins at trial, he or she could be adequately compensated by damages for any loss caused by the defendant’s actions prior to trial;
ii) if so, and the defendant would be in a financial position to pay, an interim injunction would usually be refused;
iii) on the other hand, the court will consider whether, if the injunction is granted and the claimant loses at trial, the defendant could be adequately compensated by the claimant’s undertaking in damages for any loss caused by the granting of the interim injunction. (The court will generally require the party applying for an injunction to give an undertaking in damages to compensate the other party for losses suffered as a consequence of the injunction if it is later held to have been wrongly granted – see below);
iv) if so, and the claimant would be in a financial position to pay, there would be no reason to refuse an interim injunction;
b) other factors:
The court may also consider other relevant matters affecting the balance of convenience in deciding whether to grant the injunction. Lord Diplock stated that ‘it would be unwise to attempt even to list all the various matters which may be taken in to consideration’ but matters which the courts have found important include:
– loss of employment –Fellows and Son v Fisher  QB 122
– damage to the goodwill of a business –Associated Newspapers plc v Insert Media Ltd  1 WLR 571
– the closing down of a business –Potters-Ballotini Ltd v Weston-Baker  RPC 202
– preserving a substantial investment –Catnic Components Ltd v Stressline Ltd  FSR 157;
c) There may also be special factors to be taken in to consideration in the balance of convenience in the particular circumstances of the individual case.
3. Where the balance of convenience does not clearly favour one party or the other, the deciding factor will be the preservation of the status quo ante.
This is generally the state of affairs before the last change and would thus generally favour the granting of the injunction as the ‘last change’ is usually the commencement or commission of the alleged wrong (Garden Cottage Foods Ltd v Milk Marketing Board  AC 130). However, this is not conclusive.
The “American Cyanamid Guidelines” do not apply in all situations.
Interim Mandatory Injunction
In Locabail International Finance Ltd v Agroexport  1 WLR 657, it was stated that the court must feel a high degree of assurance that at the trial it will appear that the injunction was rightly granted. In Locabail, the Court of Appeal stated that this test was not affected by the decision in American Cyanamid, and that interim mandatory injunctions were one of the special categories of interim injunctions where American Cyanamid would not apply.
An interim mandatory injunction might be granted in preference to an order for specific performance where the remedy is needed more quickly than specific performance.
A freezing order is an order which prevents an individual from dealing with their assets before trial. Note, the order does not freeze the assets of the individual, and it does not give the claimant a priority creditor status.
In order to obtain a freezing order, the claimant must demonstrate:
1. he has a good arguable case;
2. the defendant has assets within the jurisdiction (or without, where an extra-territorial order is sought); and
3. there is a real risk that they will be removed or dissipated.
The claimant must make a full and frank disclosure of all material matters and, in a ‘without notice’ application, he should fairly state the points made by the defendant against his claim (Third Chandris Shipping Corpn v Unimarine SA  QB 645).
As ancillary to the order, the court may grant an order requiring disclosure of the defendant’s assets and their whereabouts; a “Shapira Order”.
A freezing order might also have extra-territorial effect (Re BCCI SA (No 9)  3 All ER 764).
A search order is a mandatory injunction compelling an individual to give another access to their property to search for documentation, and other evidence which is at risk of destruction.
Failure to comply with the order is a contempt of court.
The order tends to be used in cases of piracy and for breaches of intellectual property rights.
The three conditions for granting such an order are:
1. an extremely strong prima facie case (this is a much higher standard than for ordinary mandatory interim injunctions);
2. very serious damage, potential or actual to the claimant;
3. clear evidence that the defendant has incriminating documents or items in his possession and that there is a real possibility that he may destroy them (a ‘fishing’ expedition to find out what the defendant has will not be allowed).
Because of the draconian nature of the remedy, there are certain safeguards. These are:
1. order to be served and carried out in presence of a ‘supervising solicitor’ who is experienced in such matters, is not a member of the firm representing the claimant and who must explain things to the defendant in a fair and accurate manner;
2. entry must generally take place between 9.30 am and 5.30 pm so the defendant can seek legal advice;
3. search must take place in the presence of the defendant or a responsible employee;
4. a list must be made of any items to be removed and the defendant given an opportunity to check it;
5. if the premises are likely to be occupied by a woman alone, one member of the party should be a woman.
The orders might be said to breach the European Convention on Human Rights.
Account of Profits
The remedy of an account of profits is used to make an individual to give up profits which they have made at the expense of another. For example, it was used in Boardman v Phipps  2 AC 46 to force Boardman and Phipps give up the profit they made by their breach of fiduciary duty.
Rescission is the right to have a contract set aside, usually where a misrepresentation has been committed.
This remedy permits a written contract to be modified where it does not reflect the agreement reached between the parties.
KBL 10.Appointment and Removal of Trustees
The appointment and removal of trustees is an important matter. Issues to consider:
a) capacity to be a trustee;
b) number of trustees required;
c) appointment of trustees;
d) retirement and removal of trustees.
If the trust deed does not deal with these matters, the Trustee Act 1925 fills the gaps.
In principle, anyone who has the capacity to hold the property may be atrustee. A minor cannot beappointed a trustee, even of personal property (s20, Law of Property Act 1925).
Number of Trustees
There is no restriction on the number of initial trustees of a trust of personalty. However, having too many trustees may make its administration difficult. If the trust property is land, the number of trustees is limited to four (s34, Trustee Act 1925).
As a rule, a trust only needs one trustee, but two will be required to effect overreaching.
Appointment of Trustees
The original trustees under a trust are generally appointed by the trust deed. A person might be nominated under the terms of the trust to appoint trustees. Otherwise, an application can be made to the court for the appointmentof trustees (under the court’s inherent jurisdiction and/or the JudicialTrustees Act 1896 or the Trustee Act 1925).
A person cannot become an express trustee unless he has notice of thetrust and has expressly or impliedly accepted the office of trustee(Robinson v Pett (1734) 3 P Wms 249).
Under s36(6), Trustee Act 1925, additional trustees may be appointed ifdesired, provided the number of trustees is not increased beyond four.
Under s36(1), Trustee Act 1925 new trustees may be appointed inplace of a trustee (original or substituted) who:
a) is dead;
b) remains outside the UK for a continuous period of more than 12 months;
c) desires to be discharged;
d) refuses to act in the trusts;
e) is unfit to act (eg convicted of crimes involving dishonesty, or somecases of bankruptcy);
f) is incapable of acting (eg illness or mental disorder); or
g) is an infant.
Section 37(1)(c), Trustee Act 1925 provides that “a trustee shall not be discharged from histrust unless there will be either a trust corporation or at least two [persons] toact as trustees” (except where only one trustee was originally appointed anda sole trustee will be able to give a valid receipt for capital money).
Appointment of new trustees
Appointments should be made in writing and preferably by deed. They aremade by the person, if any, given power to appoint trustees by the trustinstrument. It is unusual for such power to be given and, if there is no suchperson, the appointment will be made by the surviving or continuing trusteesfor the time being or the personal representatives of the last surviving orcontinuing trustee.
They are made by the trustees jointly, but concurrence of a trustee who isnot competent or willing to act is not needed. Under s11(2)(c), Trustee Act 2000 the power to appoint newtrustees may not be delegated.
Appointment by the court
Section 41, Trustee Act 1925 provides:
“The court may, whenever it is expedient to appoint a new trustee or newtrustees, and it is found inexpedient difficult or impracticable so to do withoutthe assistance of the court, make an order appointing a new trustee or newtrustees.”
If new trustees can be appointed under s36, then the court should not becalled upon to make the appointment under s41.
Retirement of trustees
If a trustee wishes to retire without any new trustee being appointed in hisplace, he may do so by deed under s39(1), Trustee Act 1925, with theconsent of his co-trustees, as long as, after his discharge, “there will beeither a trust corporation or at least two [persons] to act as trustees”.If a trustee wishes to retire and be replaced by a new trustee, he may do sounder s36(1), Trustee Act 1925.
Removal of trustees
A trustee may be removed from office under s36(1), Trustee Act 1925.
Appointment and removal of trustees by direction of the beneficiaries
Under the Trusts of Land and Appointment of Trustees Act 1996, a newpower is given which applies to trusts of land or of personalty (unlessexcluded by the settlor in the trust instrument or in a deed). Under this, thebeneficiaries may in writing direct a trustee or trustees to retire and/or directthe trustee or trustees for the time being to appoint specified person/s astrustee/s.
For this to happen:
a) all the beneficiaries must be sui juris and together absolutely entitled tothe trust fund (s19(1)(b));
b) there must be no person nominated by the trust instrument to appointtrustees (s19(1)(a)); and
c) the beneficiaries must be unanimous.
Trustees hold title to trust property as joint tenants
a) the right of survivorship applies;
b) the office and trust property devolve on survivors;
c) new trustees retain the same powers/duties as the original trustees;
d) on the death of the last trustee, the property vests in his personalrepresentatives, who act until the appointment of new trustees.
KBL 11.Trustees’ Powers and Duties
In order that ensure that trusts are easier to administer, certain powers and duties are imposed on trustees by a combination of statute, common law, and the trust instrument.
Some of these powers and duties are of greater or lesser significance, thus those which are more significant are provided a chapter of their own, eg, the duty to invest. It is those more minor, but nevertheless important, powers and duties which are dealt with in this chapter.
Power to Purchase and Sell Land
Section 8 of the Trustee Act 2000 confers on trustees the power to purchase land for investment, the occupation of the beneficiary, or for any other purpose.
Section 6, Trusts of Land and Appointment of Trustees Act 1996 confers on trustees of a trust of land, all the powers of an absolute owner. However, the powers may only be exercised within certain restrictions, eg, the statutory duty of care under s1, Trustee Act 2000.
Power to Sell Chattels
Trustees have the power to well chattels where such power is conferred on them by the trust instrument. If the power does not exist in the trust instrument, an application might be made to court under s57, Trustee Act 1925 for this power to be conferred on trustees. Should the court confer the power, it might impose restrictions on the trustees exercise of the power.
Power to Insure
Under s19, Trustee Act 1925, trustees have the power to insure trust property. Payment of the premiums may be made out of the trust fund.
When exercising powers, trustees should act unanimously (Luke v South Kensington Hotel Co (1879) 11 ChD 121), though there are some limited exceptions to this requirement.
Duty to Secure Trust Assets
The trustee must call in any outstanding debts (Re Brogden (1888) 38 Ch D 546).
Duty to Act Impartially
A trustee must act impartially between the beneficiaries in dealing with the trust property.
Duty to Maintain Accounts and Records
It is the duty of trustees to maintain accounts and to keep records relating to the administration of the trust.
If a charitable trust, the accounts must be audited, but otherwise there is only a power, and not a duty to audit the accounts.
The beneficiary has the right to inspect accounts and records.
However, beneficiaries are not entitled to see any documents which include deliberations by trustees as to the exercise of their discretionary powers (Re Londonderry’s Settlement  Ch 918).
Where trustees provide reasons for their decision, the courts will consider whether or not these reasons are adequate. In one very unusual case the court reviewed the trustee’s reason for refusing to exercise discretion to advance money in favour of the beneficiary. Despite general judicial reluctance to interfere with the exercise by a trustee of a dispositive power, on this occasion the court held that the trustee had failed to give proper consideration to the question of whether or not to exercise the power (Klug v Klug  2 Ch 67).
Duty not to profit
A trustee should not profit from his office. This includes the idea that a trustee is not permitted to take remuneration from his office. However, this is now subject to exceptions.
A trustee may, of course, claim expenses incurred in administering the trust (s31, Trustee Act 2000).
An agent may be paid out of trust funds.
A lack of remuneration in positions operates as an obvious disincentive to professionals. Therefore, some trusts make provision for trustee payment in the form of a charging clause. In practice, a professional trustee will not act in the absence of a charging clause. Traditionally, such clauses were construed narrowly with the consequence that the law was changed.
Under s28, Trustee Act 2000, where a trustee is a trust corporation or an individual acting in a professional capacity, where there is a charging clause, he is entitled to receive remuneration for services, even where those services are non-professional.
This duty is discussed further, and in detail, in chapter 16.
Duty to Avoid a Conflict of Interest
The trustee should not permit himself into a position where his self-interest and his duty to the beneficiaries conflict.
This duty is discussed further, and in detail, in chapter 16.
Duty to Distribute Property to Those Entitled
It stands to reason that where the trustees are required to distribute the trust property, then distribution should be to those entitled. It follows that distribution to those not entitled is a breach of trust (Eaves v Hickson (1861) 30 Beav 136).
However, there are possible problems. Where, for example, the trust provides that the property be divided equally between “my children living at my death”, and that after the trustee distributes property, another child turns up, seeking their interest, the trustee is potentially liable to that disappointed beneficiary. This is also problematic since children, includes illegitimate children.
There are ways in which the trustee can avoid the pitfalls of an incomplete distribution. These are:
a) Application for directions;
b) s27, Trustee Act 1925;
c) Benjamin order;
Where a trust clause is ambiguous, or the trustees are unclear as to the meaning of a clause, they might apply to the court for directions which, if followed, should excuse them from liability.
Under s27, Trustee Act 1925, the trustees are permitted to advertise for claimants. The advertisement must state that the trustees are intending to distribute and, further, that any statement of claim be issued within two months of the date of the notice.
Where the notices are placed, and the trustees wait the required period, they will not be liable if a beneficiary later turns up to claim an interest.
Where the court is satisfied the trustees have made all required investigations, it may grant an order, known as a ‘Benjamin order’ after the case of Re Benjamin  1 Ch 723. This order permits the trustees to distribute the property on the basis that the missing beneficiary is dead. The effect of the order is to protect the trustees against claims by a missing beneficiary.
The final option is for the trustees to take out missing beneficiary insurance; something which was endorsed in Evans v Westcombe  2 All ER 777.
Accumulation and Maintenance Trusts
In the main, powers are conferred on the trustees by the trust deed. On occasion, however, these powers are supplemented by statutory powers.
By s69(2), Trustee Act 1925, the powers conferred by the 1925 Act are in addition to thoseconferred by the instrument creating the trust and apply if and only so far asa contrary intention is not expressed in the instrument.
The powers which are the concern of this chapter are contained in ss31 and 32, Trustee Act 1925. These powers may be extended or varied by the trust deed.
The powers in ss31 and 32 relate to theapplication of income and capital respectively.
Section 31, Trustee Act 1925
s31 Trustee Act 1925 relates to the income generated by the trust. It confers on the trustee the power to use the income for a minor beneficiary (ie, one below the age of 18), or accumulate it during minority.
As already explained, a minor beneficiary is one under the age of 18. A minor beneficiary has no right to receive income during minority. However, s31, gives the trustees the power to pay income for the ‘maintenance, education or benefit’ of a minor beneficiary. This power may be exercised whether the interest is vested or contingent. Note, however, that a minor cannot give a valid receipt, so money should not be paid directly to a minor. It should be applied directly to the purpose, or paid to a parent or guardian.
Any income not paid or applied as above must be accumulated, that isreinvested as capital to produce further income (s31(2), TA 1925). During minority, accumulations may be used for the beneficiary’s maintenance. So, for example, if the income is not needed and accumulated in 2009 and 2010, the ‘accumulated income’ could be used (in addition to that year’s income) in 2011.
There is no obligation to make payments for maintenance, education or benefit. Thetrustees are required by s31 to have regard to the beneficiary’s age andrequirements and to circumstances generally. They should consider theexercise of the power and must not make automatic payments (Wilson v Turner (1883) 22 Ch D 521). The power should be exercised in the best interests of the minor beneficiary (Fuller v Evans  2 FLR 134).
Beneficiary of majority
Once the beneficiary reaches 18, he becomes entitled to the income. Thisapplies whether the interest is vested or contingent.
At 18, the beneficiary has no automatic right to any accumulated income. This will depend on the circumstances of the case.
If the beneficiary had a vested interest in the income during his minority,he is entitled to the accumulations at 18.
If on reaching 18 the beneficiary acquires an absolute interest in capital,he is entitled to the accumulations.
In all other cases, accumulations follow the capital.
Section 32, Trustee Act 1925
Under s32, TA 1925, trustees have the power to “pay or apply any capital” in a trust“for the advancement or benefit” of any beneficiary entitled to the trustcapital (whether absolutely or contingently, in possession, remainder orreversion, etc).
This provision applies to beneficiaries of any age, provided they have an interest in capital.
The power of advancement is subject to three limitations.
First, no more than half the beneficiary’s presumptive share may be advanced. Thus, if the beneficiary’s presumptive share is £100,000, the most that might be advanced under s32 is £50,000. Once half has been advanced, no more may be advanced even if the value of the fund doubles or trebles in value (Marquess ofAbergavenny v Ram  1 WLR 843).Note, however, the recent decision of CD (a minor) v O  EWHC Ch 1036 Ch D, where the court used the Variation of Trusts Act 1958 to permit more than one half to be advanced.
Secondly, any advanced amounts should be taken into account when the beneficiary becomes absolutely entitled.
The power under s32, TA 1925 cannot be used where there is a prior life interest, unless that person gives their signed written consent (s32(1)(c), TA 1925).
Advancement or benefit
‘Advancement’ means to set the beneficiary up in life. An example might be to purchase them a house, or to pay university tuition fees.
Other examples from the cases include:
a) Buying the beneficiary an Army commission (Lawrie v Bankes (1858) 4 K&J 142);
b) Purchasing premises for a doctor-beneficiary (Re Williams’ WT  Ch 138);
c) Paying-off the beneficiary’s debts (Lowther v Bentinck(1874) LR 19 Exch Ch 166);
d) Assisting the beneficiary to start a career at the Bar (Roper-Curzon v Roper-Curzon (1871) LR 11 Eq 452);
e) Establishing a person in business (Re Kershaw’s Trusts (1868) LR 6 Eq 322).
Section 32 probably permits resettlement to create a new trust, as states obiter by the House of Lords in Pilkington v IRC  AC 612.
‘Benefit’ means to improve the beneficiary’s materials situation. The power of advancement has beenheld to apply where an advancement was made from a trust at the requestof a wealthy beneficiary, to make a donation to a charity, thereby relievingthe beneficiary of the moral obligation to make the donation from his ownfunds (Re Clore’s ST  1 WLR 955).
It is the duty of the trustees to invest the trust fund, though the power to invest may vary. The power to invest is often found in a well-drafted trust instrument, but where it is not, there are statutory controls on investment.
Problems with the Trustee Investment Act 1961
The principal criticism of the old law was that it provided a narrow range of investments, and the procedures through which the trustees had to pass in order to exercise those powers were complex and outdated. Consequently, the Law Commission proposed reform of the law in 1997, which was implemented as the Trustee Act 2000 (“TA 2000”).
Trustee Act 2000
The TA 2000 came into force on 1stFebruary 2001. It introduces wide-ranging reforms to the law of investment.
Statutory Duty of Care – section 1
Section 1 of the TA 2000 provides:
“s1(1) …a trustee…must exercise such care and skill as is reasonable in allthe circumstances, having regard in particular –
(a) to any special knowledge or experience he has or holds himself out ashaving, (subjective); and
(b) if he acts as trustee in the course of a business or profession, to anyspecial knowledge or experience that it is reasonable to expect of aperson acting in the course of that kind of business or profession(objective).”
The test is overwhelmingly objective, but there are subjective elements in s1(1)(a). Where a trustee holds himself out as being an expert on investment, he will be judged by a higherstandard. Section 1(1)(b) is wholly objective test, applying to professional trustees.
The statutory duty of care applies to those functions listed in schedule 1 of the TA 2000. The main ones for this module are:
a) when exercising powers of investment or review of investments;
b) when exercising a power of acquiring or managing land;
c) when appointing an agent or reviewing the appointment;
d) when insuring property.
The statutory duty of care applies to all such powers whether conferred byTA2000 or by the trust instrument. It also applies to trusts whenever created,whether before or after TA2000 came into force.
Under Schedule 1 paragraph 7, TA 2000, the duty of care can be partly or completelyexcluded by the trust instrument.
General power of investment – section 3
Under s3(1), a trustee may make any kind of investment he could make if he wereabsolutely entitled to the assets of the trust. In a conflict between the trust instrument and the trust instrument, the trust instrument will prevail.
Section 3 may be excluded or restricted bycontrary intention in the trust instrument (s6, TA 2000).
Under s8, TA 2000, land may be acquired in the United Kingdom either as an investment or to provide accommodation for the beneficiary, or for any other reason.
The provision makes explicit reference to the legal estate in freehold or leasehold title. This would, therefore, appear to exclude equitable title to land. Investment in land overseas is not permitted by the provision.
Under s9, TA 2000, the power to invest in land can be expressly excluded or restricted by the trust instrument.
The investment powers in the TA 2000 are subject to the statutory duty of care (s1, TA 2000). Further, investments must be regularly reviewed (s4(2), TA 2000), and investment decisions must be made in accordance with the standard investment criteria (s4, TA 2000). It is also the case that the trustee must obtain and consider proper advice (s5, TA 2000), unless he considers it in appropriate to do so. Finally, the investment powers must be used to reflect common law duties, especially where a trust has successive interests.
What is an investment?
‘Investment’ is given a narrow meaning by the courts. In Re Wragg  2 Ch58, it was interpreted to mean that it was something held for the sake of the income which it will yield. Thus, something which had capital appreciation was no regarded as an ‘investment’. However, it must be that this is regarded as something of an narrow and outdated view of investment. Given the provisions of the TA 2000 (in which investment is not defined), and the current theory of investment set down in Nestle v National Westminster Bank plc  1 WLR 1260, property which only appreciates in value, without generating an income, might still be regarded as an investment. This is certainly the view taken by Reed and Wilson, The Trustee Act 2000: A Practical Guide (2001).
Standard Investment Criteria – section 4
When considering an investment, the trustee must consider its suitability and whether it is appropriate to diversify the trust fund. These are the standard investment criteria (SIC). The SIC are to be considered before exercising any power of investment,whether in the trust instrument or in the statute.It cannot be excluded. They are to be used when considering an initial investment or when reviewing investment.
Standard Investment Criteria – suitability
The ‘suitability’ of an investment should be considered in two stages. First, he trustee must consider the suitability of the type of investmentunder consideration. If it is suitable, then the trustee must consider if the particular investment is suitable. If both questions are answered in the affirmative, then the investment might, in principle, be made.
Standard Investment Criteria – diversity
Once an investment is regarded as suitable, the trustee must consider the need for diversification. First, the trustee must considerwhether diversification is appropriate. Generally, the larger the fund, the more appropriate it will be to diversify. See, below, discussion of the modern portfolio theory.
Duty to take advice – section 5
Before exercising any power of investment, and also when reviewinginvestments, the trustee must obtain and consider advice. However, under s5(3), TA 2000, the trustee need not obtain advice if they reasonablyconcludes it is unnecessary.
If they decided to take advice, it must be the advice of a person reasonably believed by the trustee to be qualified to give it by reason of hisability in and practical experience of financial and other matters relating to the proposed investment (s5(4), TA 2000).
This is both a subjective and objective test. Thebelief must be genuinely held by the trustee, but it must also be reasonable.
The trust fund should be invested to bring the best possible return (subject to investments in property with capital accrual). Moral and ethical considerations, are generally not permitted (Cowan v Scargill  Ch 270). However, ethical considerations may be permissible if it would bring the same return or if to invest in a certain ethical manner would be consistent with the aims of the trust, if it were, for example, charitable (Bishop of Oxford v Church Commissioners for England  1 WLR1241).
Modern portfolio theory
The modern, or current, approach to investment adopted and preferred by the courts is the ‘modern portfolio theory’. This theory places the risk in the whole fund, rather than in one particular investment. The theory suggests that the risk of investment should be spread throughout a range of investments. For example, some low yield, relatively safe investments such as government bonds will at least place the risk of capital at a lower level, should be balanced against some higher risk, higher yield investments, such as shares in a private limited company, or an internet venture.
Where a trust has as one of its investments shares in a company which amount to a majority shareholding, then there are two approaches to protecting that interest.
According toBartlett v Barclays Bank Trust Co Ltd  Ch 515, the trustees shouldensure they (or one of their number)receive an adequate flow of information in time to enable the trustees to makeuse of their controlling interest should this be necessary for the protection oftheir trust asset, namely the shareholding.
In Re Lucking’s WT  1 WLR 866, the court argued that the best means of protecting the majority holding was by an appointment to the company’s board which could be achieved by use of the majority shareholding.
Under the common law, trustees were not permitted to delegate their functions; they were appointed, so they should undertake the tasks required of them. This is no longer an absolute rule.
Under s11, TA 2000, trustees can delegate delegable functions to an agent.
‘Delegable functions’ include all functions, except:
a) distributive functions;
b) power to decide if expenditure comes out of capital or income;
c) power to appoint a trustee.
Thus, the powers under ss31 and 32, Trustee Act 1925 cannot be delegated, not can decisions respecting distribution under a discretionary trust.
However, investment decisions can be delegated.
The trustee may delegate to anothertrustee, but not to a beneficiary.
The agent is subject to the duties and restrictions in respect of what has been delegated to them.
The terms of the agency are to be determined by the trustee (s14, TA 2000), but certainterms cannot be included unless it is reasonably necessary to do so:
a) appointing a substitute agent;
b) restricting an agent’s liability;
c) allowing an agent to act even if there is a possible conflict of interest.
The trustee must regularly review the arrangement with the agent (s22, TA 2000).
The trustee is not liable for the agent’s defaultunless the trustee failedto comply with the statutory duty of care in appointing the agent or reviewing thearrangements with the agent (s23, TA 2000).
Given the breadth of powers contained in the Trustee Act 2000 respecting investment, it is unlikely that a trustee will make unauthorised investments.
Under the old law, the trustee was not liable for the retention of an authorised investment unless there was ‘wilful default’ (Re Chapman  2 Ch 763). However, the law is now represented in the duty to review under the Trustee Act 2000 and it is those provisions which will determine the liability of the defendant trustee.
Failure to Invest
Under the old law, the trustee was not liable for the retention of an authorised investment unless there was ‘wilful default’ (Re Chapman  2 Ch 763). However, the law is now represented in the duty to review under the Trustee Act 2000 and it is those provisions which will determine the liability of the defendant trustee.
A trustee must not leave trust money uninvested for an unreasonable period(AG v Alford (1855) 4 De GM&G 843). Where he does so, liability may attach to the trustee for that failure.
If a trustee is in breach of trust, but makes both a profit and a loss across his range of investments, it may be that the losses could be offset against the profit.
In Bartlett v Barclays Bank Trust Co Ltd  Ch 515, the directors of the company (the shares of which were held by the trustees) embarked on a hazardous policy of property development. As a result of the policy decision, they embarked on two projects, one of which was a financial success, the other was not. As the two “stemmed from exactly the same policy”, Brightman J thought “it would be unjust to deprive the [trustees] of this element of salvage in the course of assessing the cost of the shipwreck” and allowed the gain in the successful transaction to be set off against the loss in the other transaction.
Variation of Trusts
Once a trust has been created, it should be carried out to the letter. The terms of the trust deed are binding on the trustee, and may not be altered by the settlor after it has been executed, even if he has a change of heart.
However, there is no certainty in this world, and a trust set up in circumstances 20 years ago, might have quite different needs today. For this reason, the law does permit trusts to be varied, even after they have been solemnly executed.
The power to vary the terms of the trust may be included in the trust deed. Further, according to Pilkington v IRC AC 612, s32, Trustee Act 1925 supports the power to resettle on terms different to those in the original trust deed. For more on this, see chapter 13.
Saunders v Vautier
Under the principle in Saunders v Vautier, if all the beneficiaries are sui juris and together absolutely entitled and all agree to a variation, the trustees maydepart from the terms of the trust. If the trustees are unwilling to do this, thebeneficiaries could bring the trust to an end. Alternatively, they could seek to appoint different trustees.
The Variation of Trusts Act 1958 permits the court the power to approve a scheme of variation. In a sense, therefore, the title of the statute is somewhat misleading. The court does not vary the trust, it approves a variation.
The court might consent on behalf of any of the following categories of beneficiary:
a) minors and others incapable of consenting; or
b) persons who may become entitled to an interest under the trusts at afuture date; or
c) unborn beneficiaries; or
d) discretionary beneficiaries under a protective trust.
The court will not consent on behalf of ascertained sui jurisbeneficiaries, as they are capable of giving (orwithholding) consent themselves. If the court gives approval, it must be satisfied the variation is for the benefit of those for whom it isconsenting in categories (a), (b)and (c) above.
Court’s inherent jurisdiction
The court has the power under its inherent jurisdiction to approve variationsto the terms of the trust in a number of situations.
KBL 12.Fiduciary Duties
Trustees are subject to a significant number of duties. In addition to these duties, trustees are also subject to fiduciary duties. However, many other relationships may be of a fiduciary character as fiduciary status is not limited to trustees alone.
What is a fiduciary?
Millett LJ (as he then was) providesthe modern formulation of fiduciary duties in Bristol and West Building Society v Mothew  Ch1. He identified the core obligation as being one of ‘loyalty’. He said:
“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. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets: a fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977), p. 2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary.” (at page 18)
From this definition it is perhaps easy to see which types of relationship will be of a fiduciary character, and which will not. Thus, the relationship of trustee-beneficiary is clearly a fiduciary relationship. Indeed, Moffat (2009) describes it as the fiduciary relationship par excellence. Other fiduciary relationships include, but are not limited to, solicitor-client, company director-company, business partners in a partnership, etc.
It should be remembered, however, that all cases will be judged on their merits and it may be that the facts of a particular case create a fiduciary relationship. A good example of this is the case of Woods v Martins Bank Ltd  1 QB 55.
In Woods, the claimant wished to open a bank account and met with the bank manager of the defendant bank, executing the mandate. At the same meeting, the claimant sought advice from the bank manager respecting the investment of a sum of money which he had. The bank manager advised an investment in a particular company, without disclosing to the claimant that the company had a significant overdraft with the bank, and was in a generally poor financial condition. The claimant lost a significant sum of money on the investment.
The main problem for the claimant to overcome was the cause of action under which the claimant should sue. Contract was not an option, for though the claimant had signed a mandate, the account was not yet open. A possible claim in tort was not likely because the case pre-dated the House of Lords case of Hedley Byrne & Co Ltd v Heller & Partners Ltd  AC 465 by a number of years. Therefore, the claimant needed to establish a fiduciary relationship.
This was done by demonstrating that the bank manager had put himself into a position where his interest and his duty fell into conflict. As bank manager, his interest was to the bank and to see that the company which had an overdraft with it reduced or discharged that overdraft. However, as an adviser to the customer, his duty was to provide impartial and proper advice to the claimant. As he was in breach of this obligation of loyalty which had been imposed on him, the bank was liable to make good the claimant’s losses on the investment.
Duty not to profit
The fiduciary is under a duty not to profit from his position. This is a far-reaching concept and subject, of course, to exceptions. The starting point might be said to be the House of Lords decision in Bray v Ford  AC 44. Lord Herschell stated:
“It is an inflexible rule of a Court of Equity that a person in a fiduciary position …is not, unless expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and his duty conflict. It does not appear that this rule is founded on principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger … of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule. But I am satisfied that it might be departed from in many cases, without any breach of morality, without any wrong being inflicted, and without any consciousness of wrong-doing. Indeed, it is obvious that it might sometimes be to the advantage of the beneficiaries that their trustee should act for them professionally rather than a stranger, even though the trustee were paid for his services.” (at pages 51 – 52)
This is quite a wide rule, and includes the remuneration of trustees. Trustees accept the office of trustee without the expectation of remuneration (Barnett v Hartley (1866) LR 2 Eq 789). However, a trustee may be compensated for expenses incurred on trust business (s31(1), Trustee Act 2000).
As stated, it is subject to exceptions. The first is where the court authorises payment to the trustees under its inherent jurisdiction (Re Duke of Norfolk’s ST  Ch 61). This inherent jurisdiction also extends to other fiduciaries (Boardman v Phipps  2 AC 46). Remuneration was awarded under this head in the recent case of Murad v Al-Saraj  EWCA Civ 959, despite the fiduciary’s dishonesty.
Secondly, the beneficiaries might authorise payment to the trustees, provided the beneficiaries are sui juris.
Thirdly, where a solicitor-trustee is involved in litigation on behalf of the trust, he may be remunerated (Cradock v Piper (1850) 1 Mac & G 664).
Fourthly, a trustee may be remunerated where the trust deed contains a charging clause. Further, the Trustee Act 2000 also provides a scheme by which remuneration might be provided to trustees.
Part V of the 2000 Act contains new provisions relating to remuneration of professional trustees. Section 28, Trustee Act 2000 provides that a professional trustee who is entitled under the trust instrument to receive payment in respect of services will be so entitled even if they are services which are capable of being provided by a lay trustee.
Section 29 of the 2000 Act permits reasonable remuneration for professional trustees where the trust deed contains no express charging clause, even if the services are capable of being provided by a lay trustee.
Duty not to profit – ‘Self-dealing’
Thetrustee should not purchase property from the trust of which he is a trustee. This is a strict rule and applies no matter how “fair” the price (ex p James (1803) 8 Ves 337; ex p Lacey (1802) 6 Ves 623).
Where the trustee has a controlling interest in a purchaser company, the court applies the self-dealing rule (Re Thompson’s Settlement  Ch 99), but not where the trustee does not have a controlling interest in the purchaser company (Farrars v Farrars Ltd (1888) 40 ChD 395). The onus is on the company to show that the trustee has taken all reasonable steps to obtain the best price.
The transaction is voidable at the instance of any beneficiary. If the trustee has already resold the property, he must account to the trusts for his profits. If he has not resold, the property will be ordered to make restitution of the property.
The self-dealing rule does not apply if (i) the trust instrument authorises it; (ii) if all the beneficiaries, sui juris, authorise it; (iii) if the purchase is pursuant to a contract or option agreed or granted before the trusteeship arose.
In addition, the court has discretion to approve the purchase of trust property by a trustee in advance or retrospectively (Holder v Holder  Ch 353).
The self-dealing rule cannot be avoided bya trustee retiring so as to make the purchase (Wright v Morgan  AC 788), or by using a nominee of the trustee to purchase the property on their behalf (Re Postlethwaite (1888) 60 LT 514).
Duty not to profit – ‘Fair-dealing’
The fair dealing rule is that a trustee can purchase the beneficial interest of a beneficiary if the trustee can prove he acted fairly, there was no undue influence, and he gave full value (Coles v Trescothick (1804) 9 Ves 234; Thompson v Eastwood (1877) 2 App Cas 215).
Duty not to profit – Incidental profits
Personal profit which comes to a trustee by virtue of his trusteeship must be handed over to the beneficiaries. The rule applies where the trustee made the profit because of his position as trustee, or by using information which came to him as trustee. It is a strict rule, with no bad faith requirement, and there is some doubt over the need to demonstrate a conflict of interest.
In Keech v Sandford (1726) Sel. Cas. Ch 61, a trustee held a lease on trust for an infant. The trustee applied to renew the lease on behalf of the infant but the landlord refused. The trustee then took a grant of the lease to himself beneficially but the court strictly upheld the trustee’s duty not to profit from the trust. It was held that the lease should be assigned to the infant, with an account of the profits received by the trustee. The trustee was made constructive trustee of the lease for the infant.
Rather like the position in Keech, the trustee is also barred from the purchase of the freehold reversion of trust property (Protheroe v Protheroe  1WLR 519).
Duty not to profit – Competing with the trust
A trustee must not compete with the trust as this would be a conflict of interest (Re Thompson  1 Ch 203).
A trustee must not take a commission from their office (Williams v Barton  2 Ch 9).
Where a trustee gains a directorship of a company because he is a trustee, he must hand over those fees to the beneficiaries (Re Macadam  Ch 73). However, if the trustee could have acquired the directorship with their own shareholding, they may be able to retain the fee (Re Gee  Ch 284).
A trustee may retain remuneration he receives as a director if he was appointed director before he became a trustee, and where the trust instrument authorises it (Re Llewellin’s Will Trusts  Ch 225).
Duty not to profit – Opportunities
A fiduciary is not entitled to keep a profit himself where he has only obtained the opportunity to make the profit through his position as fiduciary. This is a strict rule, and applies where the benefits from the opportunity’s exploitation come not only to the fiduciary, but also to the beneficiaries.
The leading and somewhat controversial case in this area is the House of Lords decision of Boardman v Phipps  2 AC 46.
In Boardman, a trust was established under an estate. It created a life interest for the deceased’s wife, and an interest in remainder for their three children. The trustees were the daughter (also a beneficiary), the widow, and Fox, an accountant. The subject-matter of the trust consisted in a 27 per cent shareholding in a private textile company, Lester & Harris Ltd.
On one occasion, Boardman, solicitor to the trust, and Thomas Phipps (one of the beneficiaries) attended the annual general meeting of Lester & Harris Ltd as representatives of the trust. When there, the felt the board of directors was hostile to the questions being put to them by Boardman and Phipps, and that the company was not performing as it might.
It was resolved that the trust should purchase the majority of the shares in Lester & Harris Ltd. The trust did not purchase the shares. First, the trust did not have the funds to purchase the majority of the shares. Secondly, the trust instrument did not have the power to purchase the shares. Thirdly, the trustees would not have gone to court to seek a variation of the powers so as to enable them to purchase the shares. Consequently, Boardman and Thomas Phipps purchased the shares with their private funds.
After acquiring the shares, Boardman and Thomas Phipps set about restructuring the company and transforming its fortunes such that the shares increased significantly in value. This brought profits not only to the trust, but also to Boardman and Thomas Phipps personally.
After a disagreement, John Phipps, brother of Thomas and the other beneficiary, sued Boardman and his brother arguing that they should be required to disgorge the profits made in the purchase of the shares in Lester & Harris Ltd, and that the shares should be held on constructive trust for the trust.
At first instance, Wilberforce J held that the plaintiffs had not been given complete information about the proposed purchase and that Boardman and Thomas Phipps had to account for their profits. The Court of Appeal (Lord Denning MR, Pearson, Russell LJJ) upheld the first instance decision. The decision of the House of Lords ( 2 AC 46) was marked by the divergence of views which ultimately led to a 3-2 split in favour of the trust fund.
The majority (Lords Cohen, Hodson and Guest) view was:
“…The proposition of law involved in this case is that no person standing in a fiduciary position, when a demand is made on him by the person to whom he stands in the fiduciary relationship to account for profits acquired by him by reason of his fiduciary position and by reason of the opportunity and the knowledge or either, resulting from it, is entitled to defeat the claim on any ground save that he made the profits with the knowledge and assent of the other person….” (per Lord Hodson, at page 105).
Thus, Boardman and Thomas Phipps were liable to account for the profits they had made out of their fiduciary position. They were not entitled to purchase shares on their own behalf without the informed consent of the beneficiaries, and they did not obtain such consent (partly due to the senility of the widow (who was both a trustee and a beneficiary). The House of Lords did, however, endorse the exercise by Wilberforce J of his inherent jurisdiction to award remuneration to Boardman and Thomas Phipps on the liberal scale in recognition of the efforts they had expended in turning round the fortunes of the company, Lester & Harris Ltd.
The minority (Lords Upjohn and Viscount Dilhorne), thought that Boardman and Thomas Phipps would only be liable to account if there was a conflict of interest, and they found no real sensible possibility of a conflict on the facts.
After Boardmanit seems that fiduciaries who use information which has come to them because of their fiduciary position, in order to make a profit, they will be liable to account to the beneficiaries of the trust (or principal or fellow partner, etc.) for the profits, unless that other party gave an informed consent to the activities of the fiduciary.
Duty not to profit – Opportunities (Company Directors)
As already stated, directors owe fiduciary duties to the company, and as such, all the obligations imposed on fiduciaries, ie, loyalty (to avoid a conflict), etc, apply to them. If they breach their duties, they are required to account for profits made.
The modern expression of the law in this area (as it relates to company directors) is now found in ss175 and 176, Companies Act 2006.
Section 175 provides:
“(1)A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.
(2)This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity).
(3)This duty does not apply to a conflict of interest arising in relation to a transaction or arrangement with the company.
(4)This duty is not infringed—
(a)if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest; or
(b)if the matter has been authorised by the directors.
(5)Authorisation may be given by the directors—
(a)where the company is a private company and nothing in the company’s constitution invalidates such authorisation, by the matter being proposed to and authorised by the directors; or
(b)where the company is a public company and its constitution includes provision enabling the directors to authorise the matter, by the matter being proposed to and authorised by them in accordance with the constitution.
(6)The authorisation is effective only if—
(a)any requirement as to the quorum at the meeting at which the matter is considered is met without counting the director in question or any other interested director, and
(b)the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.
(7)Any reference in this section to a conflict of interest includes a conflict of interest and duty and a conflict of duties.
Section 176 provides:
(1)A director of a company must not accept a benefit from a third party conferred by reason of—
(a)his being a director, or
(b)his doing (or not doing) anything as director.
(2)A “third party” means a person other than the company, an associated body corporate or a person acting on behalf of the company or an associated body corporate.
(3)Benefits received by a director from a person by whom his services (as a director or otherwise) are provided to the company are not regarded as conferred by a third party.
(4)This duty is not infringed if the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.
(5)Any reference in this section to a conflict of interest includes a conflict of interest and duty and a conflict of duties.
The cases which precede the 2006 Act are instructive as to the approach taken to the profits made by directors operating in a conflict of interest position.
In Regal (Hastings) Ltd v Gulliver  2 AC 134, the company, Regal (Hastings) Ltd, owned a cinema in Hastings and its directors wished to buy two additional local cinemas in order to help the sale of the whole undertaking. They formed a subsidiary company in order to take a lease of the other two cinemas. However, the landlord was not prepared to grant the subsidiary company a lease on the two cinemas without a personal guarantee by the directors, unless the paid-up share capital of the subsidiary was £5,000. The company was unable to inject more than £2,000, so it was decided that Regal would subscribe for 2,000 shares in the subsidiary and the other 3,000 shares would be taken up by the directors and their associates. Then the whole undertaking (Regal and its subsidiary) was sold and the directors made a profit on their shareholdings. The company took legal action against the former directors claiming that they must account for the profit they had made on the sale of their shares in the subsidiary. The House of Lords found in favour of Regal as the opportunity and special knowledge to obtain the shares came to the directors because they were directors (and fiduciaries). This was so despite the fact that the directors had acted bona fide throughout and that Regal would have lost the opportunity to take the leases because it did not have sufficient funds to purchase the shares in the subsidiary.
This case seems a straightforward situation, and very similar to the position taken by the majority in the case of Boardman. The indication from the case is that the rule is, indeed, a strict one.
In Industrial Development Consultants Ltd v Cooley  2 All ER 162, Cooley was managing director of IDC Ltd. C tried to obtain work on behalf of IDC Ltd with the Eastern Gas Board (EGB). As a policy, the EGB did not offer business to companies such as IDC Ltd, but instead offered Cooley a contract personally. Cooley accepted the offer without first informing the company. He subsequently, resigned from IDC Ltd on grounds of ill-health (this was untrue), and took up the contract with EGB. Cooley was liable to account to the company for the profits which he had made on the contract.
It might be suggested that it was Cooley’s deception which was his ultimate undoing and, as such, the court really had no option other than to force him to disgorge the profit made by bringing himself into conflict with the duties he owed as a director to IDC Ltd.
By way of interesting contrast, the Australian case of Queensland Mines v Hudson (1977) 16 ALR 1 offers an interesting alternative method by which conflicts cases might be managed. The plaintiff company was formed to develop certain mining operations. The defendant, Hudson, who was managing director, succeeded in obtaining government exploration licences, in his own name but on behalf of the company. The company’s funds dried up and it could not exploit the licences. Hudson was faced with enormous personal liabilities as he had obtained the licences. The board of Queensland Mines, with full knowledge of all the facts, renounced all interest in the licences and assented to Hudson proceeding with them for his own benefit. Hudson resigned as managing director but remained as a director and used all his energies to try to raise funds to exploit the licences.
Hudson eventually succeeded in establishing the value of the mines and granted a mining contract to an American company under which he received royalties on the ore mined. The company then claimed to be entitled to the royalties. The Privy Council rejected the company’s claim. Although Hudson had made his profits by reason of his position as managing director of the company, the decision of the board amounted to a ratification of his actions, so Hudson was liable to account for the profits.
Two recent cases in this area indicate a future of possible development in the law: Murad v Al-Saraj  EWCA Civ 959 and Foster Bryant Surverying Ltd v Bryant  EWCA Civ 200.
In Murad v Al-Saraj  EWCA Civ 959, Al-Saraj persuaded Aysha and Layla Murad to enter into a joint venture, in which they would buy and run a hotel. He persuaded them by fraudulently representing to them that he would contribute £500,000 in cash towards the purchase. In fact, his contribution mainly consisted of setting-off a secret commission that the hotel vendor agreed to pay him. The court held that there was a fiduciary relationship between the Murads and Al –Saraj in relation to the joint venture and that he was in breach of that in failing to disclose the true extent of his contribution to them.
Consequently, the majority (Arden and Jonathan Parker LJJ), held that Al-Saraj was not permitted to share in the fruits of the venture. Of wider interest is what they said about the extent of a fiduciary’s liability to disgorge.
In some circumstances, a more flexible rule might operate than one which forces disgorgement. Arden LJ commented:
“It may be that the time has come when the court should revisit the operation of the inflexible rule of equity in harsh circumstances, as where the trustee has acted in perfect good faith and without any deception or concealment, and in the belief that he was acting in the best interests of the beneficiary. I need only say this: it would not be in the least impossible for a court in a future case, to determine as a question of fact whether the beneficiary would not have wanted to exploit the profit himself, or would have wanted the trustee to have acted other than in the way that the trustee in fact did act. Moreover, it would not be impossible for a modern court to conclude as a matter of policy that, without losing the deterrent effect of the rule, the harshness of it should be tempered in some circumstances. In addition, in such cases, the courts can provide a significant measure of protection for the beneficiaries by imposing on the defaulting trustee the affirmative burden of showing that those circumstances prevailed.” (at para 82)
And, Jonathan Parker LJ:
“….[There] can be little doubt that the inflexibility of the ‘no conflict’ rule may, depending on the facts of any given case, work harshly so far as the fiduciary is concerned. It may be said with force that that is the inevitable and intended consequence of the deterrent nature of the rule. On the other hand, it may be said that commercial conduct which … was thought to imperil the safety of mankind may not necessarily be regarded nowadays with the same depth of concern. … I can envisage the possibility that at some time in the future the House of Lords may consider that the time has come to relax the severity of the ‘no conflict’ rule to some extent in appropriate cases.”
“In my judgment, however, that day has not yet arrived. Nor, in any event, would I regard the instant case as being an appropriate case for any such relaxation. In the instant case, after all, Mr Al-Saraj acted in bad faith. It follows, in my judgment, that in contrast to cases such as Regal and Boardman v Phipps, where the fiduciaries acted out of the best of motives, the instant case would not be a candidate for any relaxation of the ‘no conflict’ rule….” (at paras 121 – 122)
While it is possible for critics of Boardman v Phipps to find some succour in these comments, they should be noted as comments, only. They amount to little more than the obiter comments of two Appeal judges with little in terms of substantive guidance for future cases, save for the hint of a measure based on ‘bad faith’.
In the minority, Clarke LJ dissented. He held that it was open to the fiduciary to argue for a share in profits, even where they had acted in breach of duty. He relied, in his judgment, on the Australian case of Warman International v Dwyer (1994-5) 182 CLR 544 where a split in the profits on a venture was permitted, to “meet the justice of the case” (at para 156).
In Foster Bryant Surverying Ltd v Bryant  EWCA Civ 200, the defendant director of a company was effectively forced to resign by his co-director (who was also the majority shareholder of the company). The defendantresigned from the company after his co-director made the defendant’s wife redundant. The defendant was found to have been excluded from the operation of the business. One of the company’s principal clients wanted to retain the services of both directors. Before the defendant’s resignation came into effect (i.e. while he was still technically a director but after he had tendered his resignation)the client began to talk to the defendant about the way in which the defendant could work with this client. Importantly, the defendant had resigned at this stage. When the defendant’s resignation took effect, he began to work for the client.
The company sued the defendant on the basis that he had been a director of the company when the business opportunity came to light and therefore it was argued that any profits earned from that opportunity should be subject to an account in favour of the company.
RixLJ sought to distinguish the decided cases on the basis that they concerned a misuseof the company’s property, that many of them concerned “faithless fiduciaries” who tookwrongful or deceitful advantage of their employers (as in Cooley), or that they were diversions of maturing business opportunities by the fiduciary.
Rix LJ did not doubt that a director needed to deal in good faith with the company nor that a fiduciary could not earn profits in secret from his office from an opportunity which belonged to the company or for which the company was negotiating. However, those principles must be applied in a “factsensitive” way – considering the ripeness of the business opportunity, the specificity of theopportunity, and thus whether the director had diverted the specific opportunity open to the company. It was held that the position changed in this company after the defendant’sresignation such that he was excluded from the business and thus had only to act honestly in his role as director, and therefore that he was not required to account for his subsequent profits.
The case of Foster v Bryant has different facts to those of the “traditional” cases in this area. There was a significant degree of oppressive / bad faith behaviour on behalf of the other company director and, as a consequence, it is easy to see the court’s sympathy given the predicament into which Bryant was placed.
It might be better to view Foster v Bryant as a case on its facts and one which might only be followed if a case on closely allied facts occurred.
Remedies against a fiduciary
A fiduciary who makes an unauthorised profit will be required to disgorge it. This is achieved by the personal remedy of an account of profits, or the proprietary remedy of the imposition of a constructive trust.
The personal remedy is known as the equitable duty to account or the remedy of account. Under the equitable duty to account, the fiduciary is required to pay his or her principal an amount of money equivalent to the profit received from the fiduciary’s own assets.
Under the proprietary remedy, the fiduciary holds the profit on constructive trust for the principal. One advantage of a proprietary remedy is that it can be used to claim the profit or, if the profit has been substituted into some other type of property (eg if the profit is money and it is used to buy shares), to claim that substitute property. If the substitute property is worth more than the original profit, the principal gets the increase in value. A proprietary claim also gives priority on insolvency; a personal claim does not.
KBL 13.Breach of Trust
The beneficiary has the right to see the trust administered in his interests, and his alone. Failure on the trustee’s part to do so may constitute a breach of trust.
Breaches of trust fall into two categories: (i) misapplication of trust property; (ii) failure to administer the trust with due care and skill.
The trustee’s liability for breach of trust is personal. This means that the trustee is liable to the full extent of their estate; liability attaches to them.
The trustee’s liability is also strict. This means that the trustee’s state of mind is not relevant to a consideration of whether a breach has occurred.
The remedy available to the beneficiary against a trustee is compensation for the breach. Where it is a misapplication of trust property, the remedy is to restore the lost funds. Where it is failure to administer, it is the difference in value between the trust fund if it had been correctly administered, and the trust fund as it was actually administered. Obviously, this latter claim can be difficult to prove (Nestle v National Westminster Bank plc  1 WLR 1260).
The trustee will be liable for all losses which flow from the breach. Thus, the principles of causation at law (ie, remoteness of loss) which apply to claims in contract and tort are not applicable.
The test of causation for a breach of trust appears to be the ‘but for’ applied in other private law claims (Target Holdings Ltd v Redferns (a firm)  AC 421).
In Target Holdings, a finance company instructed a firm of solicitors to act for it in relation to a mortgage deal over which it was providing the finance. It also acted for the purchase of the property over which the mortgage was to be granted. The loan sum, approx £1.5m was paid to the solicitors and held on trust for Target Holdings. It was to be paid to the mortgagor once the property had been purchased and the charge secured. In breach, the solicitors paid the mortgage money before sale was completed and before the charges had been secured. The charge was secured about one month later.
The claimant sold the property for some £500,000, a sum significantly less than the mortgage amount, and claimed the balance of the funds from the solicitors because of their breach of trust. The defendant argued that the claimant received what they had bargain for, ie, a charge over the property, and the fact that the property was worth less than what they had bargained for was not something for which they could be liable.
The Court of Appeal found for the mortgagee on the basis that causation was not relevant. The trustees acted in breach, and therefore they should be liable for all losses. The House of Lords allowed the appeal.
Lord Browne-Wilkinson said that the solicitor was, in effect, being held liable for losses which did not result from its breach of trust. The losses arose from a fraudulent design by a third party. As such, the losses could not be recovered from the solicitor. There must be a causal connection between the breach and the loss.
The case of Target Holdings received an uneven reception after it was handed down, so it would be by no means the last word on the subject.
However, where the trustee is liable, they would have to put the trust / beneficiary into the position they would have had no breach occurred (Target Holdings Ltd v Redferns (a firm)  1 AC 421).
In Wallersteiner v Moir (No 2)  QB 373, the rate was set at one per cent above the London clearing banks’ base rate. However, where there is fraud, etc, compound interest may be charged (Westdeutsche Landesbank Girozentrale v Islington LBC  3 WLR 802).
Joint and Several Liability
Trustees are jointly and severally liable, but a trustee will only be liable for their own faults, and not those of his fellow trustees. However, where a trustee has acted passively, they may be jointly liable for the activity of their fellow trustee (Bahin v Hughes (1886) 31 Ch D 390).
Where on trustee is sued for the losses sustained by the trust, it may be that he can claim a contribution from his fellow trustees.
Under the Civil Liability (Contribution) Act 1978, the court has a discretion to determine the contributions each defendant must make according to what the court finds “to be just and equitable having regard to the extent of that person’s responsibility for the damage in question”.
Alternatively, one trustee may seek an indemnity from the other trustees because they do not feel they should be burdened with liability.
It is a relatively straightforward matter where one trustee is fraudulent; they must bear the losses alone.
Equally, where one trustee has been a controlling influence over another trustee, that other trustee might be indemnified by the controlling trustee. In Re Partington (1887) 57 LT 654), P was a trustee entitled to claim an indemnity for her co-trustee’s investment decisions. The co-trustee was a professional trustee who had a controlling influence over P who was a lay trustee. The crucial issue is whether the party claiming the indemnity is controlled by the other trustee.
Where a trustee-beneficiaryhas participated in a breach of trust, he must indemnify the co-trustee to the extent of his beneficial interest.
Defences to a Breach of Trust
There are a number of methods by which a trustee may be able to defend any claim made against them. These are:
a) Beneficiary involvement;
b) Court relieves the trustee of liability (s61, Trustee Act 1925);
d) Exclusion / limitation clause in the trust instrument.
a) Beneficiary involvement
Where the beneficiary has consented to a breach of trust, they cannot claim against the trustee for breach of trust (Re Pauling’s ST  Ch 303).
The consent must be by a sui juris beneficiary, but he does not need to know that what is proposed would amount to a breach of trust (Holder v Holder  Ch 353). However, if there is undue influence, this can vitiate consent (Re Pauling’s ST  Ch 303).
After a breach, the beneficiaries could release the trustees from liability either by deed or such release might be inferred (Holder v Holder  Ch 353).
A beneficiary who has instigated a breach of trust might have their beneficial interest impounded. The has an inherent power to impound a beneficiary’s interest where the beneficiary has consented to, requested or instigated a breach of trust, or a power to do so under s62, Trustee Act 1925.
Section 62 provides that, where the trustee commits a breach of trust at the instigation or request or with the consent in writing of the beneficiary, the court may, if it thinks fit, make an order impounding all or any part of the interest of the beneficiary in order to indemnify the trustee or anyone claiming through the trustee (eg other beneficiaries).
b) Court relieves the trustee of liability under s61, Trustee Act 1925
Section 61, Trustee Act 1925 provides:
“If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach, then the court may relieve him either wholly or partly from personal liability for the same.”
This section permits the court to take a view on the trustee’s conduct. The burden of establishing honesty and reasonableness rests on the trustee(Re Stuart  2 Ch 583), and reasonableness is judged by the standard of the prudent man of business (Shaw v Cates  1 Ch 389). Each application under s61 turns on its facts.
In Perrins v Bellamy  2 Ch 521, trustees sold leaseholds belonging to the trust because they had been incorrectly advised by their solicitors that they had power to do so. The court relieved the trustees of liability under s61.However, in Re Pauling’s ST, the fact that the trustee bank was given incorrect legal advice was not sufficient to relieve it of liability under s61 Trustee Act 1925.
Professional trustees are held to a higher standard of care than unpaid trustees (Bartlett v Barclays Bank). See also the Trustee Act 2000, which specifies that, if a trustee is acting in the course of a business or profession, regard should be had to any special knowledge or experience that it is reasonable to expect of such a person. Professional trustees are, therefore, less likely than lay trustees to escape liability under s61.
As a general rule, a civil action must be brought within a certain period of time. This is known as the limitation period. Section 21(3), Limitation Act 1980 provides a six-year limitation period. The right to proceed shall not be treated as accruing until the beneficiary has an interest in possession.
However, a life tenant cannot benefit from the fact that the remaindermen can still sue(s21(4), Limitation Act 1980).
Under s21(1), Limitation Act 1980, there is no limitation period if either (a) the trustee was party to fraud, or (b) the action is to recover trust property (or its proceeds) from the trustee.
Section 22, Limitation Act 1980 provides that actions in respect of the estates of deceased persons are subject to a 12-year limitation period.
d) Exclusion / limitation clause in the trust instrument
It is common for modern trust instruments to contain a clause exempting or restricting trustees from certain liabilities, eg, for negligence.
Two recent cases on trustee exemption clauses provided valuable guidance: Armitage v Nurse  Ch 241 and Walker v Stones  QB 902.
In Armitage, the Court of Appeal held that an exemption clause in an instrument which protected the trustees from liability for any,“loss or damage…unless such loss or damage shall be caused by his own fraud…” was valid.
Thus, it appears that trustees may be relieved of liability for any loss caused by their negligence, even gross negligence, so long as they have not acted dishonestly. In focussing on dishonesty, Millett LJ said, obiter, that an exemption clause would relieve a trustee from liability, even for a deliberate breach of trust, if the trustee honestly believed that it would benefit the beneficiaries (a so-called ‘judicious breach’). This dictum was doubted in Walker v Stones, which held that a solicitor-trustee could not rely on an exemption clause where his belief was so unreasonable that no reasonable solicitor-trustee could have held it.
In many common law jurisdictions (such as New Zealand and Canada) such clauses are controlled (often allowing exclusion for ordinary negligence but not for worse conduct), just as English law controls such clauses in contract law. However, Millett LJ in Armitageconsidered that it was for Parliament to deny such clauses effect.
KBL 14.Tracing Trust Property
Where trust property has been taken by the trustee, equity permits the beneficiary the ability to claim that property (or its substitute back) by what are known as the tracing rules. Ordinarily, the trustee would be personally liable for a breach of trust, but where the trustee is impecunious, tracing the trust property is often the only viable alternative. However, note the content of chapter 19 where a third party assists the trustee or receives trust property.
Requirements of equitable proprietary tracing
There are two requirements for a claimant to trace in equity:
a) an equitable proprietary interest in the property being traced; and,
b) a fiduciary relationship.
(Re Diplock  Ch 465).
The equitable proprietary interest is relatively straightforward in that a beneficial interest under a trust, or an interest under an estate will qualify.
Insofar as the fiduciary relationship is concerned, obviously the relationship of trustee-beneficiary will qualify, but executor-legatee and executor-next of kin, too (Re Diplock  Ch 465). It might also be a relationship of solicitor-client (Re Hallett’s Estate (1880) 13 ChD 696). In Lipkin Gorman v Karpnale Ltd  2 AC 548, the House of Lords extended the idea obiter to the relationship between a thief and the thief’s victim.
What follows are the tracing rules. These rules relate, principally, to activity in respect of a bank account.
Tracing into unmixed funds
Unmixed funds are those funds which have not been mixed with the funds of others, whether they be the trustee’s or other third parties’.
Obviously, the starting point is that the money or item taken can simply be reclaimed.
If, however, either the item taken has been sold, then the beneficiary is limited to claiming the money if the purchaser of the item is a bona fide purchaser. If not, the property can be traced into that person’s hands.
If money is taken and it is used to purchase an item of property, then the beneficiary can take the benefit of that property, including any increase in its value. Obviously, if the property decreases in value, then this is a risk which the beneficiary bears. The balance would be made up by suing the trustee personally. As an alternative, the beneficiary might elect to take a charge over the property. This is advisable where the property has decreased in value.
Tracing into mixed funds
Where trust money or property has been mixed with other funds, the beneficiary has the right to an equitable charge (or lien) over the mixture (Re Hallett’s Estate (1880) 13 Ch D 696), or the right to claim a proportion of the property corresponding to his own contribution to its purchase (Re Tilley’s WT  Ch 1179). This approach was recently affirmed by the House of Lords in Foskett v McKeown  1 AC 102, by Lord Millett.
Trustee’s funds mixed with beneficiary’s funds
Where the trustee has taken the beneficiary’s funds and mixed them with his own, a number of rules operate.
The first is the presumption of honesty. This comes from the case of Re Hallett’s Estate (1880) 13 Ch D 696. It states that when the trustee spends from the mixed funds, he is presumed to spend his money first. This means that the money left belongs to the beneficiary.
The presumption of honesty can, however, be rebutted where, for example, the trustee purchases an asset out of the mixed funds, dissipating the remaining funds (Re Oatway  2 Ch 356). This way, the trustee is taken to be dissipating his own funds. The presumption should not operate to the detriment of the beneficiary.
If the trustee spends trust money, then pays in money of his own, this is not presumed to be a repayment to the trust fund unless the trustee shows a clear intention to do so (Roscoe v Winder  1 Ch 62).If the account is exhausted during the intermediate period, the beneficiaries cannot trace at all (Bishopsgate Investment Management Ltd v Homan  Ch 211).
Trustee’s funds mixed with beneficiary 1’s funds and beneficiary 2’s funds
Where the trustee has mixed the funds of two or more trusts, they must share the funds rateably (or pari passu, as it is sometimes called). This means in proportion to their contributions.
Trust money used on property of an innocent recipient
Where an innocent person spends trust money improving an asset which they already own, their contribution to the mixture is the asset. In that situation, Lord Browne-Wilkinson said,obiter, in Foskett v McKeown that the trust would not be entitled to a proportion of the value of the asset but ‘at most a proprietary lien’ over the asset.
So, let’s say that an innocent person spends trust money improving their house by building a conservatory on the back, the most the beneficiary could claim over the house is an equitable lien. However, according to Re Diplock, that in itself would not be permitted where it would be inequitable.
It is important to note the type of bank account under consideration since different rules apply to different types of account.
Bank current account
According to Clayton’s Case (1816) 1 Mer 572, where money is paid into and out of a current account, the first payment in, is matched by the first payment out.
However, Clayton’s Case does not have universal approval, and has been confined by the case of Barlow Clowes International Ltd v Vaughan  4 All ER 22 within the following parameters:
a) it was contrary to the express or implied intentions of the claimants; or
b) it was impractical; or
c) it would cause injustice.
The approach of the Court of Appeal in Barlow Clowes was endorsed in Russell-Cooke Trust Co v Prentis  EWHC 2227. Note, Clayton’s Case will only apply, if at all,in a claim between two (or more) beneficiaries.
When will the right to trace be lost?
The right is lost in a number of circumstances.
First, the right to trace is lost where the property is sold to a bona fide purchaser for value without notice. This is someone who gives consideration and who does not know of the wrongdoing in respect of the property purchased.
Secondly, the right to trace will also be lost where the property has been dissipated. Where, for example, the money is taken and the taker spends it on a holiday.
Thirdly, the right to trace will be lost where the court considers that to permit the claim would be inequitable (Re Diplock).
Fourthly, there is the possibility of the change of position defence. The defence was recognised in Lipkin Gorman v Karpnale Ltd 2 AC 548, where Lord Goff said:
“…while recognising the different functions of property at law and in equity, there may also in due course develop a more consistent approach to tracing claims, in which common defences are recognised as available to such claims, whether advanced at law or in equity”.
This defence has not yet been recognised in equity, but it may be recognised in the future.
The Diplock personal action
There is a special form of action available to the individual who takes their benefit under an estate, ie, a will or on intestacy. They enjoy the right to sue any overpaid recipient of estate property even where the money no longer exists and has been dissipated. This is because the action is a personal one, and not dependent on the existence of the property. There is no defence to this claim, but it is thought that in the future the defence of change of position might operate to defeat the claim, whether fully or in part.
KBL 15.Liability of Strangers
In English law, a stranger is someone who is not appointed a trustee. Instead, they in some way become concerned in trust affairs, when it should be no concern to them.
For present purposes, there are two forms of strangers liability:
a) knowing receipt;
b) dishonest assistance.
In each case, the liability of the recipient or the accessory is personal, ie, it attaches to them personally, and is not dependent on the existence of the property which they either received or helped the trustee transfer.
Trustee de son tort
In Mara v Browne  2 Ch 69, AL Smith LJ said:
“If one, not being a trustee and not having authority from a trustee, takes upon himself to intermeddle with trust matters or to do acts characteristic of the office of trustee he may thereby make himself a trustee of his own wrong, ie, a trustee de son tort, or as it is also termed, a constructive trustee.”
In contrast with strangers made liable for knowing receipt or dishonest assistance (discussed below), the trustee de son tort assumes the office of trustee to act on behalf of beneficiaries. He does not purport to act on his own behalf in relation to the trust property. His intermeddling with the trust property or other acts characteristic of a trustee do not, in themselves, amount to a breach of trust. The trustee de son tort, however, will be personally liable for any subsequent breach of trust in the same way as an expressly appointed trustee.
Thelocus classicus of liability in knowing receipt and dishonest assistance is from Barnes v Addy (1874) LR 9 Ch App 244 at 251 – 252, where Lord Selborne LC said:
“[S]trangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions,perhaps, of which a court of equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.”(at pages 251 – 252).
Liability as ‘constructive trustee’
Whether liable as a recipient, or an accessory, the defendant is said to be liable as a constructive trustee; they are not trustees at all, but they are liable as if they were trustees. This means that the liability which attaches to them is personal.
You should not worry too much about what is, in essence, a mere ‘label’ attached to the defendant to denote that he is liable. What is of more importance, and what will be discussed over the following pages, is what makes the ‘stranger’liable.
The cause of action in knowing receipt was set down in El Ajou v Dollar Land Holdings plc  2 All ER 685 by Hoffmann, LJ stating:
a) a disposal of the claimant’s assets in breach of fiduciary duty;
b) the beneficial receipt by the defendant of assets which are traceable as representing the claimant’s assets;
c) knowledge on the part of the defendant that the assets he received are traceable to a breach of fiduciary duty.
The requirement of knowledge was something of a difficulty with the consequence that the third limb was reconsidered by the Court of Appeal inBank of Credit and Commerce International (Overseas) Ltd and another v Akindele  4 All ER 221.
The recipient’s state of knowledge had to be such as to make it unconscionable for him to retain the benefit of the receipt, rejecting the third part of the test set out in Dollar Holdings.
The unconscionability test was recently confirmed by the Court of Appeal in City Index v Gawler  EWCA Civ 1382.
Knowing receipt – the future
At present, the test for liability in knowing receipt is fault-based, requiring the conscience of the recipient to be affected in order to trigger liability. However, Lord Nicholls, writing extra-judicially (Nicholls, Knowing Receipt: The Need for a New Landmark, in, Jones and Cornish (eds), Restitution: Past, Present and Future) argues for a restitutionary approach to recipient claims. Liability is triggered by the mere act of receipt, subject to a change of position defence.
This is a resulting trust approach, rather than one based on the constructive trust. It is also supported by Birks, An Introduction to the Law of Restitution. Its merit is in its need to drop the attachment to issues of knowledge, dishonesty and conscience.
However, Nourse, LJ, in Akindele doubted its utility.
This is an area which has been in and out of the courts, and one which his switched its approach from one extreme to another in the search for settled principle.
The requirements of the cause of action in ‘dishonest assistance’ come from the case of Baden Delvaux BCLC 325:
a) There must be a trust obligation or some other form of fiduciary relationship;
b) There must be a breach of trust or fiduciary duty;
c) The defendant accessory must have assisted in that breach of trust or fiduciary duty;
d) The defendant accessory must have been dishonest.
The starting point, and what most regarded as a sensible summary of the law, was the Privy Council case of Royal Brunei Airlines v Philip Tan Kok Ming  2 AC 378.
In the advice of the Privy Council, Lord Nicholls provided much needed clarification, ridding the law of many of its uncertainties.
Knowledge, he began, was not the appropriate criterion. Dishonesty, (or its synonym, lack of probity), was the necessary and sufficient ingredient for accessory liability. Liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation.
The trustee’s state of mind is irrelevant. What is crucial is the state of mine of the third party accessory.
Lord Nicholls stated that the accessory was to be judged by the standards of reasonable and honest men, acting with the attributes of the defendant. This is an objective test. The fact that the court permits account to be taken of the characteristics of the defendant, eg, his experience, his qualifications, etc, does not render the test subjective. The yardstick is the reasonable man.
However, this was not the end for dishonest assistance. When the House of Lords was called on to reconsider the dishonesty element of liability, in Twinsectra Ltd v Yardley  2 AC 164 it appeared to change the law.
Yardley was purchasing land with the help of a loan from Barclays Bank plc. However, difficulties over this loan caused him to turn to a niche loan provider, Twinsectra Ltd. They were reluctant to loan the money, some £1 million, without receipt of an undertaking that the money would be turned to the sole purpose of the land purchase. Sims & Roper (“Sims”), a firm of solicitors representing themselves as acting on behalf of Yardley were willing to provide an undertaking to see that the money was applied for its stated purpose in the following terms:
“1. The loan moneys will be retained by us until such time as they are applied in the acquisition of property on behalf of our client. 2. The loan moneys will be utilised solely for the acquisition of property on behalf of our client and for no other purpose.”
In breach of this undertaking, Sims paid the money to another solicitor acting for Yardley, namely one Leach. Leach, in turn, paid the money directly to Yardley when instructed to do so, without taking steps to ensure that the money was used solely for the acquisition of property. In total, some £350,000 of the loan moneys was used otherwise than in accordance with the undertaking. Twinsectra Ltd sought to recover this money from Leach on the basis that they alleged he had dishonestly assisted Sims.
Twinsectra was a majority decision.
The majority deferred to the reasoning in the speeches of Lords Hutton and Hoffmann which are worth discussion because though essentially the same point, they are expressed in slightly nuanced terms. Lord Hutton’s analysis begins with the often drawn distinction between objective dishonesty and subjective dishonesty. This dichotomy provides, “three possible standards” for determining dishonesty. The first is the purely subjective standard:
“…a person is only regarded as dishonest if he transgresses his own standard of honesty, even if that standard is contrary to that of reasonable and honest people. This has been termed the “Robin Hood test” and has been rejected by the courts.”
The second is a purely objective standard:
“…a person acts dishonestly if his conduct is dishonest by the ordinary standards of reasonable and honest people, even if he does not realise this.”
The third standard, and that which was adopted by the majority, was the “combined test”:
“…a standard which combines an objective test and a subjective test, and which requires that before there can be a finding of dishonesty it must be established that the defendant’s conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised that by those standards his conduct was dishonest.”
Lord Hutton adopted the combined test, ie, the Ghosh test of dishonesty used in criminal matters (R v Ghosh  3 WLR 110). The defendant is to be judged against the standard of the reasonable and honest man, and then whether he knew he fell below those standards. The first limb is objective, but the second limb is subjective.
Lord Millett gives a powerful dissent in Twinsectra, rejecting the majority stating that Tan sets down an objective test in such civil claims.
There appears to have been a return to Tan subsequent to Twinsectra. In Barlow Clowes International Ltd v Eurotrust International Ltd UKPC 37, the Privy Council seemed to adopt the Tan test of dishonesty, as have other cases subsequent to Twinsectra (Statek Corporation v Alford  EWHC 32; Pulvers (A Firm) v Chan  EWHC 2406).
KBL 16.Charitable Trusts
It will be recalled that in English law, trusts should have a human beneficiary able to enforce the trust. However, the law does, in some limited circumstances, permit purpose trusts. Some of these are private purpose trusts, but these fall within narrow categories and these categories are closed. Of greater interest are those trusts which manifest a public benefit and are better known as charitable trusts.
The law of charities has undergone a significant degree of reform in recent years. The process, which started in 2002, was part-completed with the passing of the Charities Act 2006. The Act was then implemented and the Charity Commission charged with providing guidance on various aspects of the new law.
The Charity Commission is a non-ministerial government department charged with responsibility for oversight of the charitable sector. It is responsible for the maintenance of the register of charities and responsible for ensuring compliance with the law on charities. It provides advice and guidance to charities to help them run as effectively as possible.
Definition of ‘charity’
Under section 1(1) of the Charities Act 2006 (‘the 2006 Act’), a charity is defined as an institution which (a) is established for charitable purposes only, and(b) falls to be subject to the control of the High Court in the exercise of its jurisdiction with respect to charities.
Meaning of ‘charitable purposes’
Section 2(1) of the 2006 Act defines charitable purposes as those which fall within subsection (2) of the Act and which is for the public benefit.
Subsection (2) sets out thirteen charitable heads. They are:
(a) prevention or relief of poverty;
(b) advancement of education;
(c) advancement of religion;
(d) advancement of health or the saving of lives;
(e) advancement of citizenship or community development;
(f) advancement of the arts, culture, heritage or science;
(g) advancement of amateur sport;
(h) advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;
(i) advancement of environmental protection or improvement;
(j) relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage;
(k) 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).
Section 2(4) states that the purposes in s2(2)(m) are any purposes recognised as charitable purposes under the existing case law. Thus, the old law is incorporated into the new, save to the extent that it conflicts with the new.
‘Old law’ on charities
Before the Charities Act 2006, charitable status was established by the purpose falling within the ‘spirit and intendment’ of the preamble to the Charitable Uses Act 1601(Morice v Bishop of Durham (1805) 10 Ves Jr 522). This provided:
“The relief of aged, impotent and poor people; the maintenance of sick and maimed soldiers and mariners, schools of learning, free schools, and scholars in universities; the repair of bridges, ports, havens, causeways, churches, sea banks and highways; the education and preferment of orphans; the relief, stock, or maintenance of houses of correction; the marriage of poor maids; the supportation, aid and help of young tradesmen, handicraftsmen and persons decayed; the relief or redemption of prisoners or captives; the aid or ease of any poor inhabitants concerning payment of fifteens, setting out of soldiers and other taxes.”
This charitable heads were consolidated into four categories in the case of Commissioners for Special Purposes of Income Tax v Pemsel  AC 531:
(a)trusts for the relief of poverty;
(b) trusts for the advancement of education;
(c)trusts for the advancement of religion;
(d)trusts for other purposes beneficial to the community.
Section 2(4) of the 2006 Act also provides that s2(2)(m) includes a purpose can be considered charitable by analogy with a purpose in the Act or by analogy with an analogous purpose.
‘Prevention or relief of poverty’
The relief of poverty is a well-established charitable head. It has been defined in various cases.
In Re Coulthurst  Ch 661, a trust was established to benefit widows and orphans of a company’s employees and ex-employees who by reason of their financial circumstances were most deserving of assistance. The Court of Appeal held that the trust was charitable. Lord Evershed MR said that poverty does not mean ‘destitution’. It means people who have to ‘go short’ in the ordinary meaning of that term, having due regard to their ‘status in life’. Poverty is, therefore, a relative concept.
Consequently, a trust for ‘ladies of limited means’ (Re Gardom  1 Ch 662), and for ‘distressed gentlefolk’ (Re Young  Ch 344) was also valid. On the other hand, a trust which built dwellings ‘for the working classes and their families’ was not charitable as the working class are not necessarily poor (Re Sanders’ WT  Ch 265). Re Sanders was distinguished in Re Niyazi’s WT  1 WLR 910, where a trust provided for the establishment of a working men’s hostel in Cyprus. Megarry J said that any person compelled by circumstances to live in the hostel was likely to be poor.
One thing is certain, however, and that is that the rich must not benefit. In Re Gwyon  1 Ch 255, money was left to provide short trousers for teenage boys in the Farnham area. The gift was not charitable as it did not exclude the well-off boys of Farnham.
To relieve poverty, the trust must relieve a need (Joseph Rowntree Memorial Trusts Housing Association Ltd v AG  Ch 159).
The 2006 Act makes an important amendment to the existing law in that a charitable object might also prevent as well as relieve poverty.
‘Advancement of education’
The advancement of education has always been a charitable purpose. Obviously it includes such as schools and universities, but also museums, scholarly societies, industrial and technical training, music, and fine arts. However, it also has a broader interpretation. For example, in Re Lopes  2 Ch 130 Farwell J said a ride on an elephant may be as educational as reading of one in a book.
Professional bodies might also be charitable. The test is whether the main object of the institution is the promotion and advancement of a science, or the protection and advantage of those practising a particular profession (Royal College of Surgeons v National Provincial Bank  AC 631).
It is also the case the research can be charitable. The requirements are that:
(i) the subject matter of the proposed research is a useful subject of study;
(ii) it is contemplated that knowledge acquired as a result of the research will be disseminated to others (this will be presumed unless there is evidence to the contrary);
(iii) the trust is for the benefit of the public or a sufficiently important section of the public.
‘Advancement of religion’
Section 2(3)(a) of the 2006 Act provides that religion includesa religion which involves belief in more than one god, anda religion which does not involve belief in a god. This changes the law to the extent that worship of a God is no longer an absolute requirement.
The law ‘stands neutral’ as between religions (Neville Estates Ltd v Madden  Ch 832), preferring not to judge their merits. Thus, in Thornton v Howe (1862) 31 Beav 14, works described as ‘foolish’ and their author an ‘ignorant woman’ were held to be charitable. Also, inRe Watson  1 WLR 1472, a retired builder’s religious sect was permitted because of the genuineness of the sect’s beliefs.
Matters connected with religious buildings and churchyards will also be religious. Thus, the provision of a stained glass window in a church was valid (Re King  1 Ch 243), while a trust to maintain the entire churchyard was valid (Re Douglas  1 Ch 279). It is also the case that ancillary matters will be valid religious charities, so a gift to a church choir in Re Royce  Ch 514 was held to be valid as a charitable bequest.
‘Advancement of health or the saving of lives’
Historically, this was charitable under the fourth Pemsel head. Provision for the benefit of hospitals is charitable (Smith’s WT  2 All ER 563), as well as for faith healing (Funnell v Stewart  1WLR 288). It is also charitable to provide accommodation for nurses (Re White’s WT  1 All ER 520) and accommodation for relatives of the critically ill (Re Dean’s WT  1 All ER 882).
Saving lives has also always been charitable as with permitting the Royal National Lifeboat Institute (RNLI) charitable status (Re David (1889) 43 Ch D 27).
The advancement of health also includes the prevention or relief of sickness, disease or human suffering (s2(3)(b)).
‘Advancement of citizenship or community development’
Section 2(3)(c) of the 2006 Act states that this includes rural or urban regeneration, andthe promotion of civil responsibility, volunteering, the voluntary sector or the effectiveness or efficiency of charities.
‘Advancement of the arts, culture, heritage or science’
Under the old law, these purposes had to be allied to an educational purpose in order for them to be charitable (Royal Choral Society v IRC  2 ALL ER 101). Whether a purpose is for the advancement of the arts, culture, heritage or science may depend on the judge’s evaluation of its quality (Re Delius  Ch 299; Re Pinion  Ch 85).
‘Advancement of amateur sport’
Rather like the advancement of arts, culture, heritage or science, the advancement of amateur sport could only be charitable if allied to education (IRC v McMullen  AC 1). However, the 2006 Act marks a separation with the old law. Latterly the Charity Commission had recognised that certain sports could be charitable on the grounds of the promotion of health.
Unders2(3)(d), ‘sport’ means ‘sports or games which promote health by involving physical or mental skill or exertion’. Thus, games which involve no physical skill or exertion could now be included if they could be found to promote health.
‘Advancement of human rights, conflict resolution and equality’
This is a new head of charity, and one which is not without controversy. Consequently, the Charity Commission has issued guidance, RR12 The Promotion of Human Rights. This is the relevant extract relating to what might be classed as promoting human rights.
“Promoting human rights at home and abroad
15. Generally, for an organisation set up to operate abroad to be a charity under the law of England and Wales, it must be the case that the objects of the organisation would be charitable according to English law if its purposes were to be carried out in England and Wales.
16. The following list of various ways in which a charity might promote human rights is not exhaustive.
Monitoring abuses of human rights
17. A charity concerned with promoting human rights may engage in monitoring and reporting breaches of a country’s human rights obligations, whether those obligations arise under domestic legislation or international standards.
Obtaining redress for victims of human rights abuse
18. A human rights charity may bring pressure to bear in individual cases (including through the mobilisation of public opinion) to encourage a government to respect its own human rights legislation. A charity may provide support for attempts to obtain redress through the courts of the country concerned, whether by way of specialist legal advice and representation or by less direct means. The availability of that option will, of course, depend upon whether or not the country’s legal code enables the victims of human rights abuse to obtain redress. Even if the legal code of the country in which the abuse takes place does not expressly provide redress, it may still be possible to attempt to obtain compensation or a public inquiry or an acknowledgement of responsibility. A human rights charity may also support the investigation and prosecution before international tribunals of individuals and organisations accused of human rights abuse.
Relieving need among the victims of human rights abuse
19. It is charitable to relieve needy ‘prisoners of conscience’ or their dependants. Assistance can include financial, educational and rehabilitational help. We have registered as charities bodies concerned with relieving the suffering and distress of individuals who have suffered human rights abuses. We have also accepted that it is charitable to provide financial assistance to victims of torture who are in financial need to enable them to obtain compensation or redress.
Research into human rights issues
20. Human rights are an appropriate subject for research. The Court has held that promoting and commissioning research into the maintenance and observation of human rights is a subject of study which is capable of adding usefully to the store of human knowledge.
Educating the public about human rights
21. Human rights is an established subject of study in schools and colleges. A human rights charity may advance education in human rights through support for such studies or through less formal types of education.
Technical advice to governments and others on human rights matters
22. A human rights charity may provide technical advice to governments, NGOs and other relevant bodies on the creation, improvement and implementation of legal, regulatory and administrative systems for the not-for-profit sector in countries abroad. A charity with appropriately-worded objects may also provide technical advice to governments and to domestic and foreign public authorities on the adoption and implementation of human rights legislation, including training for administrators in the application of that legislation.
Contributing to the sound administration of human rights law
23. A wide range of activities revolves around contributing to the sound administration of human rights law. This includes providing the essential material for the study of a country’s human rights law (such as reports of judicial decisions). It also includes acquiring and passing on knowledge about what the law is at any given time, how it is developing and how it is being administered and applied.
Commenting on proposed human rights legislation
24. A charity for the promotion of human rights may participate in government consultations about changes in the law. It may also recommend improvements in human rights law and provide objective comment on the adequacy of legislation to implement human rights (whether or not it is invited by government to do so). A charity can campaign for particular changes in a country’s laws provided that [it is not political activity].
Raising awareness of human rights issues
25. A charity may raise awareness of human rights issues by facilitating debate and discussion. However, a charity established to promote human rights does not need to limit itself to balanced, educational activities. It can promote awareness of human rights issues by distributing material which does not present both sides of the argument but simply promotes its own point of view.
Promoting popular support for human rights
26. Cultivation of particular opinions or sentiments among the public is charitable where the reason for doing so is to promote mental or moral improvement. It is on this basis that we have accepted as charitable “the promotion of ethical standards of conduct”. And on this basis promoting popular support for human rights is charitable.
27. In the last century, in the United States, the promotion of a “public sentiment that will put an end to Negro slavery” was held to be charitable. The Court took the view that the bequest would not have been charitable had it been directed towards political agitation and attempts to alter the law. In fact, however, the method specified in the gift was to apply pressure not to government, but to private individuals with a view to obtaining voluntary manumission. That purpose was charitable by analogy with a line of cases that showed that the peaceable redemption or manumission of slaves in any manner not prohibited by law was charitable.
28. In this country, the Court has accepted that the exercise of moral influence and the cultivation of public sentiment in ways which do not involve seeking to change the law or government policy can be legitimate means of pursuing recognised charitable objects.
Promoting respect for human rights by individuals and corporations
29. Although human rights are defined primarily by reference to the appropriate treatment of individuals by the State, the concept of human rights also has implications for the way that individuals treat each other. Discrimination on grounds of race or religion, for example, may be combated by legislation or by trying to influence the way in which individuals treat each other. There seems to be no reason therefore why an organisation set up to promote human rights should not encourage individuals to respect each other’s human rights.
30. The absence of effective human rights legislation in a country can be exploited by individuals and corporations for their own economic advantage. It is open to a human rights charity to address this issue and to challenge such exploitation, for example by campaigning.
International advocacy of human rights
31. Promoting human rights includes advocating adoption of, and compliance with, international and regional codes of human rights, the incorporation of human rights into domestic law is a legitimate objective of a charity promoting human rights. Advocacy of this kind is conducted primarily in international fora and depends on well-researched material for its effectiveness. It extends also to contributing to international and State-sponsored conferences and seminars concerned with the adoption and implementation of human rights. A political campaign to press the government of a particular country to adopt particular human rights legislation (or particular policies) would be open to a charity provided that [was not political activity].
Eliminating infringements of human rights
32. A charity may seek to eliminate infringements of human rights. Some of the means that may be available for doing so have been mentioned in this guidance, such as monitoring and raising awareness of abuse, obtaining redress, and promoting respect for human rights among individuals and corporations. We have accepted that it is charitable “to procure the abolition of torture by all lawful means” and to procure the abolition of torture, extra-judicial killing and ‘disappearance’. We have also registered as charities organisations concerned with the elimination of slavery, the slave trade and other forms of unlawful forced labour. Infringements of human rights of this kind are, almost by definition, contrary to the domestic law of the country in which they take place (particularly when considered in the context of its international treaty obligations) and hence trying to eliminate them will not generally involve trying to change domestic law. However, even where a country’s domestic law is inconsistent with international standards, a charity may campaign for legislation or changes in government policy provided that it [is not political activity].”
‘Advancement of environmental protection or improvement’
This has always been a charitable head, eg, the National Trust was recognised as charitable early in the twentieth century (Re Verrall  1 Ch 100).
‘Relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage’
Section 2(3)(e) of the Act states that this paragraph ‘includes relief given by the provision of accommodation or care to the persons mentioned’. There is an obvious overlap here with the relief of poverty and the advancement of health.
‘Advancement of animal welfare’
This is a long-established charitable head (Re Wedgewood  1 Ch 113; Re Moss  1 All ER 495). Although under the old law it was the case that charitable trusts for animal welfare had to bring tangible benefits to humans, this would appear no longer to be the case.
‘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’
These purposes were charitable under the old law. In Re Gray  Ch 362 a gift to promote sport in a regiment was calculated to improve the physical efficiency of the army and was charitable.
‘Recreational Charities Act 1958’
Section 2(4)(a) includes the Recreational Charities Act 1958. The RCA 1958 states that it is charitable to provide facilities for recreation or other leisure-time occupation if:
a) the trust is for the public benefit, and
b) the facilities are provided “in the interests of social welfare” (s1(1), RCA 1958).
Section 1(2) of the 1958 Act, amended by the Charities Act 2006, explains that ‘social welfare’ means that the facilities must aim to improve the conditions of life of those for whom the facilities were mainly intended and:
that either –
(i) those persons have need of the facilities by reason of their youth, age, infirmity or disability, poverty or social and economic circumstances, or
(ii) the facilities are to be available to members of the public at large or to male, or to female, members of the public at large.
These amendments are intended to ensure that s1(2) of 1958 Act is compatible with the European Convention on Human Rights. The Act previously specified that the facilities should be available to the members or female members of the public at large.
Section 1(3) of the 1958 Act goes on to say that the section in particular applies to the provision of facilities at village halls, community centres and Women’s Institutes.
Although the scope of the 1958 Act appears wide, in IRC v McMullen  AC 1, both at first instance and in the Court of Appeal, the court refused to extend the Act to the trust to provide football facilities at schools and universities because, it was said, an element of deprivation was needed. The House of Lords expressly left the point open. However, Lord Keith inGuild v IRC  2 AC 310 expressly stated that an element of deprivation was not needed and that ‘persons in all walks of life and all sorts of social circumstances may have their conditions of life improved by the provision of recreational facilities of a suitable character.’
In addition to the heads of charity, the proposed charitable trust must also demonstrate a public benefit. It is this which distinguishes charitable trusts from trusts for private purposes.
The requirement for public benefit is given in s2(1)(b) CA 2006 and the test is given in s3 CA 2006.
Section 3(2) states that there is to be no presumption of public benefit. Under the old law there was a rebuttable presumption that trusts for the relief of poverty, the advancement of education and the advancement of religion were for the public benefit. As against all other charitable trusts, public benefit had to be proved.
Otherwise public benefit is defined by reference to the existing law (s3(3), CA 2006).
For the purposes of providing clarity on the public benefit, the charity commission has published guidance on the public benefit (Charities and Public Benefit – The Charity Commission’s general guidance on public benefit). It is noted that the guidance is general guidance. Specific guidance is produced on some heads of charity and these are referred to where necessary.
There are two principles of public benefit:
1) There must be an identifiable benefit or benefits
2) Benefit must be to the public,
Principle 1 – ‘There must be an identifiable benefit or benefits’
Under principle 1, there are three sub-principles:
a) It must be clear what the benefits are;
b) The benefits must be related to the aims;
c) Benefits must be balanced against any detriment or harm.
Sub-principle (a) – ‘It must be clear what the benefits are’
It must be clear what benefits to the public arise from carrying out a charity’s aims. Different charitable aims will involve different sorts of benefits.
Helpfully, the Charity Commission give examples of the sort of things which they mean. So, a charity which gives grants or provides clothing to the poor. Or, the provision of medical care to those who are sick. Or, giving public access (whether paid or free) to an historic building.
The benefits to the public should be capable of being identified, defined or described, but that does not mean they should be capable of being quantified. Thus, where the National Trust protects an area of natural beauty, there are benefits which come from the appreciation of that landscape, but the tangible nature of the benefits cannot necessarily be measured.
In some cases, the public benefit will be more tangible, but in others it may be open to debate and that questions of public benefit will need more evidence. For example, demonstrating the artistic merit of a work of art or an art collection. This is consistent with the old law on demonstrating public benefit.
Sub-principle (b) – ‘The benefits must be related to the aims’
All charities must act within their charitable aims. In assessing the public benefit, the Charity Commission takes account of benefits which arise out of those aims. Where a charity has more than one aim, all those aims must be charitable. The example given is of an opera society which is based in an important historic building. The first aim is an artistic charitable aim, but the second must also be, and in this example it would be the preservation of an historic building.
If a charity has a non-charitable element which is merely incidental to its main aims, this will, however, be permitted. This is consistent with the old law (Re Coxen  Ch 747).
Accidental or unplanned public benefit will not be permitted in the assessment of the charity’s aim as meeting the public benefit. Thus, where a charity whose aim is the preservation of an historic building places an ice risk in its grounds to raise funds, it might increase appreciation of the historic building, but the health benefits of ice skating would not form part of the public benefit assessment.
Sub-principle (c) – ‘Benefits must be balanced against any detriment or harm’
‘Benefit’ means the overall or net benefit to the public. The benefits will be measured against any detriment or harm which is caused by the charity’s pursuit of its aims. This does not mean, however, that simply because a charity causes detriment or harm by its activity, that it cannot be charitable.
A good example is the provision of motorised transport for the elderly. While there is an undoubted public benefit from such provision, there might be an impact on the environment from such provision. The benefit to the elderly may outweigh the harm to the environment. Likewise, under the old law, an anti-vivisection society was denied charitable status on the basis that the harm to humankind outweighed the harm to the animals by experimentation (National Anti-Vivisection Society v IRC  AC 31).
Principle 2 – ‘Benefit must be to the public, or a section of the public’
Within the second principle, the guidance indicates that there are four sub-principles in determining whether an organisation’s aims meet the ‘public’ principle of the public benefit requirement. These are:
a) Beneficiaries must be appropriate to the aims;
b) Where benefit is restricted to a section of the public, it must not be unreasonably restricted either by geographical location or the fact fees are charged;
c) People in poverty must not be excluded;
d) Private benefits should be incidental.
Sub-principle (a) – ‘Beneficiaries must be appropriate to the aims’
Who constitutes ‘the public, or a section of the public’ is based on those whom the organisation’s aims are primarily intended to benefit. Some charities will be directed towards the whole of the public, and some towards a section of the public. It stands to reason that who benefits, and in what way, varies depending on the organisation’s aims.
Thus, a medical research charity may be valid, even though only a narrow body of people benefit from its research.
The measure is not reduced to something as crude as simply the number of people who can benefit. The key factor is who could benefit as well as who does; anyone who is eligible should be able to apply for the charity’s benevolence and not excluded.
Sub-principle (b) – ‘Where benefit is restricted to a section of the public, it must not be unreasonably restricted either by geographical location or the fact fees are charged’
When the benefit is to a section of the public, the restriction must be reasonable. As a general rule, the greater the needs of the beneficiaries, or the more limited are the resources of the charity, the more reasonable it will be to restrict the class of beneficiaries.
‘Reasonable’ means that the restrictions are legitimate, proportionate, rational and justifiable given the nature of the organisation’s charitable aims.
Thus, a charity established with the aim of preserving an endangered species of animal may be permitted.
Restrictions may take many forms:
a) restrictions based on geographical location.
b) restrictions based on charitable need, eg, ill-health, poverty, etc.
c) restrictions based on personal characteristics, eg, gender, ethnicity, sexual orientation, etc
Geographical restrictions, ie, those charities restricted to a particular town or region are permitted in English law. However, the more narrow the restriction, the less likely it is to be a valid geographical restriction. For example, a trust to benefit the poor in Smith Street, Whitechapel, London, is not likely to be valid due to the class of possible beneficiaries being unduly narrow, without any reasonable justification for the restriction.
Restrictions based on charitable need are valid, eg, the disabled or children and the very young. It is reasonable to so restrict because of a particular charitable need is being relieved or addressed.
Restrictions based on personal characteristics, eg, gender, ethnicity, sexual orientation, etc, may not be reasonable, and ultimately it depends on what charitable aims are being carried out. So, a restriction to men would be reasonable if it were to relieve a particular health issue associated with men’s health, eg, testicular cancer.
Insofar as cases of ‘blood or contract’ are concerned, ie, cases where there is a blood like between the settlor and the beneficiaries, or a contractual relationship between the settlor and the beneficiaries, would generally be invalid. However, where they are to relieve the poverty of relations or employees, this will be charitable.
This somewhat anomalous situation is an example of the Charity Commission retaining the old law on the ‘personal nexus test’.
This personal nexus test was set down in Re Compton  Ch 123, and approved by the House of Lords in Oppenheim v Tobacco Securities Trust Co Ltd  AC 297. In order to constitute a section of the public, the quality which distinguishes the possible beneficiaries from other members of the public, so they form by themselves a section of it, must be a quality which does not depend on their relationship to a particular individual. In Re Compton, a trust for the education of the descendants of three named persons was held not to be for a section of the public. In Oppenheim, a trust for the advancement of education where the potential beneficiaries were the children of employees and former employees of a group of companies was held not to constitute a section of the public, notwithstanding that the number of employees was over 110,000.
There is an exception for trusts for the relief of poverty. In Re Scarisbrick  Ch 622, a testatrix left half her residue for such relations of her children as should be in needy circumstances in such proportions as the survivor of her children should appoint. In holding this to be charitable, the Court of Appeal stated that, to be a charitable trust, the gift must be for the relief of poverty among a particular description of poor people and not merely a gift to particular poor persons, the relief of poverty among them being the motive for the gift.
The House of Lords extended the poor relations exception to poor employees in Dingle v Turner  AC 601. A testator provided a fund upon trust ‘to apply the income thereof in paying pensions to poor employees of E Dingle and Co Ltd who are of the age of 60 years at least or who being of the age of 5 years at least are incapacitated from earning their own living by reason of some physical or mental infirmity.’ At the date of the testator’s death the company employed over 600 persons, and there were a substantial number of ex-employees. It was held that all forms of trusts for the relief of poverty should be treated the same, and there was no need to introduce into the poverty cases the stricter requirements of public benefit applicable to other forms of charitable trusts. Lord Cross suggested that one reason for the different treatment of poverty trusts is that there is for a settlor a ‘temptation to enlist the assistance of the law of charity in private endeavours in order to gain the tax benefits, but the danger is not so great in the field of relief of poverty.’
However, the personal nexus test has been strongly challenged in the courts. It was opposed by Lord MacDermott, dissenting in Oppenheim, who said there was no fundamental distinction between those who are employed in a particular industry before it is nationalised (impersonal nexus) and those employed once it has been nationalised and one employer has taken the place of many.All the Law Lords in Dingle v Turner, obiter, agreed with Lord MacDermott, Lord Cross saying that the distinction between personal and impersonal relationships is unsatisfactory.As a result, the state of the law is uncertain.
Sub-principle (c) – ‘People in poverty must not be excluded’
No matter what restrictions might exist, the charity must ensure that those in poverty are not excluded. Some charities charge fees, whether it is a school charging tuition fees, or a museum charging an entrance fee. It is unlikely that most people would be excluded, but those in poverty certainly should not. In the case of museums charging an entrance fee, there will usually be some form of concession, eg, a reduced entrance fee for students, OAPs, etc.
Sub-principle (d) – ‘Private benefits should be incidental’
A charity’s aims will be incidental if they are a necessary result or by-product of carrying out those aims. For example, an educational charity which provides funds to an individual student in carrying out its aims provides an incidental (private) benefit to the student in receipt of the support.
Reporting on public benefit
Charities should report to the Charity Commission on the extent to which they meet the public benefit requirements of the CA 2006. Where it is a large charity, the obligations are more onerous, including strategies for meeting the public benefit requirement.
It has long been the case that charities are unable to pursue political purposes (McGovern v AG  Ch 321). This includes:
a) furthering the interests of a political party;
b) attempting to bring about changes in the law in this country or abroad; or
c) attempting to influence government policy or particular decisions of governmental authorities in this country or abroad.
It also stands to reason that support for a political party cannot be charitable (Bonar Law Memorial Trust v IRC (1933) 49 TLR 220 – the Conservative party; Re Hopkinson  1 All ER 346 – the Labour party).
However, charities might carry out political lobbying, provided it is ancillary to the charity’s main purposes. The Charity Commission has issued advice in its paper Campaigning and Political Activities by Charities. This states that the political activities must be an effective means of furthering the purposes of the charity. The political activity must not be the dominant means by which the charity carries out its objectives. The paper states that within these parameters charities are allowed to seek to influence the government, to publish comments on possible or proposed changes in the law or government policy, and to advocate a change in the law or public policy.
KBL 17.Charitable Trusts – Cy-Près
The cy-près doctrine
Once money is given to charity, it is given for all time. This is in contrast to private trusts where the law operates, as a general rule, where there is a failure to send the property back to the settlor or, if he is dead, to his estate.
Where there is failure in a charitable trust, English law doesn’t take the same approach and, instead, seeks to turn the moneys to an allied charitable purpose. This is known as the cy-près doctrine.
Broadly, the rules on whether the cy-près doctrine operates depend on whether the purported charitable trust fails either initially or subsequently.
The cy-près doctrine – Initial failure
Where the charitable trust fails initially, the court of Charity Commission will seek to devise a cy-près where there is a general charitable intention in the settlor’s failed bequest. This is a matter of construing the settlor’s words to see what they mean. If, on construing the settlor’s words, it was clear a particular purpose was intended, the doctrine will not operate. If, on the other hand, the court thinks the settlor intended a gift for charity generally, it can be applied cy-près.
As a general rule, it easier to say there is a general charitable intention where the gift is to a body which never existed, rather than where it was to a body which had existed, but at the time the gift came to be given, the body had ceased to exist.
In Re Harwood  Ch 285, the testator left £200 to the Wisbech Peace Society and £300 to the Peace Society in Belfast. The Wisbech Peace Society ceased to exist before his death, so the gift failed. However, the gift to the Peace Society in Belfast, which had never existed, was applied cy-près.
In Re Rymer  1 Ch 19, a testator left £5,000 in his will to the Rector of St Thomas’s Seminary for the education of priests for the diocese of Westminster. This institution had closed by the time the testator died and the students had been transferred to another seminary in Birmingham. The Court of Appeal held that it was a gift to that particular institution, rather than a general gift for the education of priests, and so the gift failed and could not be applied cy-près.
Section 18 of the CA 2006 amendsthe doctrine. It allows either a court or the Charity Commission to devise a scheme providing for the distribution of the property.
Section 18(3)(a)-(c), CA 2006 states that the circumstances to be taken into account by the court or Charity Commission when considering an alternative scheme for the distribution of the property are:
a) the spirit of the original gift;
b) the desirability of securing that the property is applied for charitable purposes; and
c) the need for the relevant charity to have purposes which are suitable and effective in the light of current social and economic circumstances.
These amendments to the doctrine are radical since the principles embodied in the above amendments differ from the older, more traditional view of the doctrine. Historically, as all the cases above illustrate, it was seen as improper to divert funds away from the original intended purpose of the donor. Now, although the spirit of the original gift will be considered, the criteria seem much broader, enabling the inclusion of current social and economic circumstances in deciding how the ‘failed’ gift should be applied.
The cy-près doctrine – Subsequent failure
Where the gift fails subsequently, then the funds will be applied cy-près.
The cy-près doctrine cannot be used for administrative purposes. However, the Charity Commissioners have concurrent jurisdiction with the High Court to establish schemes for the better administration of a charity (Re J W Laing Trust  Ch 143).
Benefits of charitable status
There are many benefits which come from charitable status, principal among these being exemptions from taxation, though there are many others.
The objects of a charitable trust need not be certain, in the sense usually required by law. It will suffice, in some cases,that general charitable purposes are set down.
Charities are exempt from the rules against perpetuities meaning that there is no technical end date to a charity.
Of the many advantages charities enjoy, the most prominent of all are the tax exemptions given to charities. They are exempt from most taxes, save for non-domestic rates, where the basic exemption is 80 per cent, but there is discretion to provide up to 100 per cent.
Below are the workshops for the 2013 – 2014 presentation of equity and the law of trusts. These workshops will operate on a fortnightly basis. They are two hours in length. Their function is to provide an opportunity to discuss and analyse the law which you have taken from the KBLs and your narrower and wider reading. The emphasis is unmistakeably on you.
Each workshop consists of either a practical problem, or an academic discussion where you must read the articles and other materials set for you, as not only do they form the substance of the discussion, but they could form part of one of the assessments. Additionally, you may be required to contribute to group work, or prepare presentations for the next workshop. The workshops also provide an opportunity for you to sit timed mock examinations which will then be considered as a class. Please consult the ‘Student Code of Conduct’.Additionally, there will be opportunities for you to:
• Clarify matters from the KBLs (staff may recap points from the KBLs);
• Draw connections with other areas of law;
• Explore the application of legal principles to exam-style questions;
• Seek guidance on legal research relevant to the module and wider study;
• Obtain clarification on grading criteria.
Workshop 1 The ‘Three Certainties’ – The Hallmark of the Express Trust
Workshop 2 Private Purpose Trusts and Unincorporated Associations
Workshop 3 Constitution & Formalities of Express Trusts
Workshop 4 Implied Trusts, Equitable Estoppel &Quistclose
Workshop 5 Secret Trusts
Workshop 6 Trustees’ Powers and Duties
Workshop 7 Fiduciary Duties – Deconstructing Boardman v Phipps
Workshop 8 Proprietary Actions for Breach of Trust
Workshop 9 Liability of Strangers
Workshop 10 Charities
Workshop 11 Consolidation and Revision
Workshop 1.‘The Three Certainties’ – The Hallmark of the Express Trust
Cases to read:
– McPhail v Doulton AC 424 (HL)
– Paul v Constance  1 WLR 527 (CA)
– Davies & Virgo, Equity & Trusts, pp 65 – 110.
Article to read:
– Yuri Grbich, Baden: Awakening the Conceptually Moribund Trust (1974) 37(6) Modern Law Review 643 – 656.
1. What are the “three certainties”?
2. What is the rationale for the “three certainties”?
3. In relation to certainty of intention, answer the following questions:
a) When the courts assess intention, what are they looking for?
b) It is often noted that the case of Lambe v Eames(1870) LR 6 Ch App 597 marked a change in the attitude of the judiciary to certainty of intention. Why do you think the judicial attitude changed?
c) Assess the contribution of the case of Paul v Constance to certainty of intention in express trusts. Compare the facts and outcome of Paul v Constance with the case of Jones v Lock. Do the cases compare favourably?
4. In relation to certainty of objects, answer the following questions:
a) Explain the development of the tests for certainty of objects in the law of trusts.
b) Explain the test for certainty of objects in fixed trusts. What is the case authority?
c) Explain the test for certainty of objects in discretionary trusts. There can be little doubt that the case of McPhail v Doulton made a dramatic change to the law. Do you think there was a policy reason behind the decision of the House of Lords in McPhail?
Past examination questions over the page
2008/2009 examination question:
“It is received wisdom that the objects of a trust must be defined with sufficient certainty or it will fail.” (IM Hardcastle, ‘Administrative unworkability – a reassessment of an abiding problem’  Conv 24, 24).
Critically evaluate this statement with particular reference to the development of the test of certainty of objects in discretionary trusts.
2009/2010 examination question:
Advise Amos as to the validity of the following dispositions contained in his will:
a) £20,000 on trust to my cousin, Bertrand, feeling fully assured that the money will be turned to the support of my sister, Christina;
b) £100,000 to my trustees such that they, in their absolute discretion, might divide the money between such of my nephews and nieces and old friends who should be in need of financial support;
c) My antiquarian law books should be made available to such of my friends who desire to take one at 40 per cent of its independently assessed value.
Workshop 2.Private Purpose Trusts and Unincorporated Associations
Cases to read:
– Re Recher’s Will Trusts Ch 526
– Re Denley ‘s Trust Deed  Ch 373
– Davies & Virgo, Equity & Trusts, pp 110-117.
Article to read:
– Brian Green, ‘”Love’s Labours Lost”: A Note on Re Grant’s Will Trusts’ (1980) 43(4) MLR 459
1. What is the “beneficiary principle”?
2. There are exceptions to the “beneficiary principle”, what are they?
3. The exceptions to the “beneficiary principle” known as private purpose trusts arose for what reason?
4. The categories of private purpose trusts are now closed. Why are such categories closed?
5. What is the status of those private purpose trusts?
6. How are these exceptions affected by the perpetuity rules?
7. Define the unincorporated association.
8. If we did not have unincorporated associations, would it have been necessary for the courts to create them?
9. What difficulties does the legal status of unincorporated associations present when gifts and legacies are left to them?
10. Explain the three categories of gift in Neville Estates v Madden.
11. In Artistic Upholstery Ltd v Art Forma (Furniture) Ltd  FSR 311, Lawrence Collins, QC,described the ‘contract holding theory’ as the, “prevailing view”(para 33) of making a gift to an unincorporated association. Explain the contract holding theory, and why it has developed into the “prevailing view”.
12. On page 460 of the article by Green cited above, when referring to the contract holding theory, he states that, “For the donor, the price of validity is unenforceability”. In the contract holding theory context, explain the meaning of this comment.
13. Why can it be said that unincorporated associations frequently break the rules on formalities?
Past examination questions appear over the page
2012/2013 Resit examination question:
“No principle perhaps has greater sanction of authority behind it than the general proposition that a trust … not being a charitable trust, in order to be effective, must have ascertained or ascertainable beneficiaries.”
Discuss this statement by Lord Evershed M.R. in Re Endacott  Ch 232 in relation to the beneficiary principle.
2012/2013 examination question:
Consider the validity and effect of the following dispositions contained in the will of Daniel who died earlier this year:
1. “I leave £5,000 on trust to my son Robert to look after Flynn, my ten year old giant Galapagos tortoise.”
2. “I leave £10,000 to the Galapagos Tortoise Club to further its purposes.” The Galapagos Tortoise Club is a non-charitable unincorporated association set up by the owners and fans of giant Galapagos tortoises. Daniel was one of the founder members of the Club and acted as the Club Treasurer for the last five years.
3. “I leave the residue of my estate on trust to my nephew Charles to establish a successful colony of Galapagos tortoises in Hertfordshire.”
Workshop 3.Constitution of Express Trusts
Case to read:
– T Choithram International SA v Pagarani and Others  2 All ER 492 (PC)
– Pennington v Waine  EWCA Civ 227, 1 WLR 2075
– Davies & Virgo, Equity & Trusts, Chapter 4
Article to read:
– Margaret Halliwell,Perfecting imperfect gifts and trusts: have we reached the end of the Chancellor’s foot?  Conv 192
1. What is the “constitution” of express trusts and gifts?
2. Explain the maxim equity will not assist a volunteer to perfect an imperfect gift? What is a volunteer?
3. There are exceptions to the maxim equity will not assist a volunteer…. what are those exceptions?
4. At each stage, explain the impact of each action both at law and in equity:
a) Fred tells Ginger he is going to give her some shares;
b) Fred executes a stock transfer form;
c) Fred places the completed stock transfer form in an envelope, writing “For Ginger” on the envelope;
d) Fred places the share certificate in the same envelope;
e) Fred hands the envelope to his accountant, Harry;
f) Harry checks the documentation for accuracy;
g) Harry sends the documentation to the company;
h) The company registers Ginger as the new owner, issuing a new share certificate.
5. Can you think of a rationale for the development of the exceptions?
6. Do you consider the cumulative contributions of Choithram and Pennington have had a dramatic impact on the law of constitution?
Past examination questions over the page
2012/2013 Resit examination question:
“Although equity will not aid a volunteer, it will not strive officiously to defeat a gift.” (per Lord Browne-Wilkinson in Choithram (T) International SA v Pagarani  1 WLR 1 (PC) 11)
Critically evaluate this statement.
2009/2010 examination question:
Angela, a wealthy business woman, decided she wanted to give away all her property and begin a new life as a nun. She invites family and friends to dinner and makes the following announcements:
1. “I declare that from this moment forward I am holding Cunningham Manor on trust for my son Derek.”
2. “I instruct my trustees to transfer my beneficial interest in 50,000 shares in OK Ltd on trust for my grandson Eric.”
3. “I give my 10,000 shares in Balloon Adventures Ltd to my friend Frank.” Frank, an executor of the estate, is not present at the dinner, so Angela gives the completed share transfer form, together with the share certificate, to her solicitor Simon.
4. “I hold my Rock Bank account, which has a balance of some £50,000 on trust for my granddaughter Gretel.” Gretel, on hearing this, enrols on an LLM course that she did not otherwise think she could have afforded.
The next morning Angela wakes up and decides that she has made a terrible mistake by deciding to become a nun. She seeks your advice as to whether she can recover any of the above property.
Workshop 4.Implied Trusts
Cases to read:
– Pallant v Morgan  Ch 43
– Re Vandervell’s Trusts (No. 2)  Ch 269, 288–299
– Westdeutsche Landesbank Girozentrale v Islington LBC  AC 669, 707–708
– Barclays Bank Ltd v Quistclose Investments Ltd  AC 567
– Twinsectra Ltd v Yardley  2 AC 164 (speech of Lord Millett, paragraphs 68 – 103)
– Davies & Virgo, Equity & Trusts, Chapters 7-9
Article to read:
– Nield, ‘Constructive trusts and estoppel’ (2003) 23(2) Legal Studies 311
– Powell, ‘Cardozo’s Foot: The Chancellor’s Conscience and Constructive Trusts’(1993) 56 Law & Contemporary Problems 7
– Millett QC,The Quistclose Trust: Who Can Enforce It? (1985) 101 LQR 269
– Penner, Lord Millett’s Analysis, in, The Quistclose Trust: Critical Essays (Hart, 2004) pp 41 – 66. (A copy is available at: http://www.ucl.ac.uk/laws/academics/profiles/docs/penner_07.pdf)
1. What are implied trusts?
2. What is the difference between express trusts and implied trusts?
3. In relation to resulting trusts:
a) Define automatic resulting trusts, using an example from case law;
b) Define presumed resulting trusts, using an example from case law;
c) Is it correct to speak of two types of resulting trust?
4. In relation to constructive trusts:
a) Define the institutional constructive trust and describe the circumstances in which one might arise;
b) Define the remedial constructive trust;
c) At present, the remedial constructive trust does not exist in English law. If English law were reformed to utilise the remedial constructive trust, would this represent a valuable addition to English law?
5. What is the function of estoppel?
6. How does the doctrine of estoppel relate to the doctrine of implied trusts?
7. Is estoppel English law’s answer to the remedial constructive trust?
8. Explain the facts and outcome of the case of Barclays Bank Ltd v Quistclose Investments Ltd  AC 567.
9. Critically evaluate the speech of Lord Wilberforce in Barclays Bank Ltd v Quistclose Investments Ltd.
10. Given the level of disagreement between academics and the judiciary as to the juridical nature of the Quistclose trust, is it more accurate to suggest that the Quistclose trust is less about categories of trust, and more about practical convenience?
2008/2009 examination question:
“In relation to a Quistclose trust a number of complex legal questions arise. First, it will be important to identify precisely what sort of “security interest” the lender acquires. Secondly, it will be important to know whether the lender “retains” a right in the original loan moneys throughout the life of the loan contract….Thirdly, it will be important to know what form of trust – express trust, resulting trust, constructive trust, or some other construct – best explains the Quistclose trust.” (Alastair Hudson, Equity and Trusts 5th Edition)
Critically evaluate this comment.
Workshop 5.Secret Trusts
Cases to read:
– Re Colin Cooper  Ch 580
– Re Keen Ch 236
– Blackwell v Blackwell AC 318
– Re Young  Ch 344
– Kasperbauer v Griffith WTLR 333
– Davies & Virgo, Equity & Trusts, 127-145
Article to read:
– Meager, ‘Secret trusts – do they have a future?’  Conv 203
– Challinor,‘Debunking the myth of secret trusts?’  Conv 492
– Kincaid, ‘The tangled web: the relationship between a secret trust and the will’  Conv420
1. John’s will dated 12th May 2009 contains a legacy of £25,000 to Gerard.
In 2008, John discussed his will with Gerard and explained that he wanted Gerard to use the legacy to benefit Shirley, then aged 5 years, the only child of Alice. Alice was also informed of this.
Gerard agreed to this.
John died last week. He was unmarried. His estate amounts to £240,000.
2. Would your answer be different if by codicil John had increased the legacy to Gerard to £40,000?
3. What if the will had stated that the gift to Gerard “is to be used for purposes which I have communicated to him”? Does this change your answer to 1 or 2?
4. Would your answer to 3 be different if instead of discussing his wishes with Gerard, John had given him a sealed envelope, saying that it contained instructions for the use of the legacy?
5. Would your answer to 3 be different if the words used in the 2009 will had been “to be used for purposes I will communicate to him” but the conversation took place in 2008?
6. Answer 5 of the basis that John first spoke to Gerard about the legacy in 2010.
7. In 3 above, what if John never told Gerard of the trust but a letter to Gerard is found after John’s death?
8. “The law of succession, by its very nature, necessarily demands stringent rules.” (Challinor, ‘Debunking the myth of secret trusts?’  Conv 492, 493)
Critically evaluate the theoretical justifications for permitting secret trusts in English law.
Workshop 6.Trustees Power and Duties
Case to read:
– Nestle v National Westminster Bank plc 1 WLR 1260
– Davies & Virgo, Equity & Trusts, Chapters 11-13.
Article to read:
– Stephen Lofthouse, ‘Nestle v National Westminster Bank plc: flawed reasoning?’  Private Client Business 232
1. What are the general duties of trustees with regard to the trust property? What rights do beneficiaries have to see documents relating to the trust?
2. What is an investment?
3. How has the Trustee Act 2000 reformed trustees’ powers of investment?
4. What powers do trustees have to purchase land?
5. Explain how the General Power of investment is subject to:
a) The trust instrument;
b) The Standard Investment Criteria;
c) The Statutory Duty of Care;
d) Duty to obtain proper advice;
e) Duty to review;
f) Relevant common law duties.
6. According to Armitage v Nurse to what extent might a trustee’s liability for breach of trust be excluded or modified in the trust instrument? Has the Trustee Act 2000 altered this at all with regard to the statutory duty of care?
7. A trust instrument allows investment “at the trustee’s sole discretion”. May the trustees:
a) Invest in their own business?
b) Invest entirely in the shares of one public company?
c) Invest in paintings and antiques?
d) Buy a house for a beneficiary to live in?
e) Refuse to invest in companies which have contracts with the armed forces?
8. How has the Trustee Act 2000 reformed the body of trustees power of delegation? What obligations are the trustees bound to fulfil when appointing an agent after the appointment? Will the trustees be liable for the acts of the agent?
9. By his will, Rodney, who died two years ago, appointed his solicitor, Hamida, and his friend Bob, trustees of a discretionary trust. The beneficiaries were Rodney’s children, Sheila and Tom, and their children. Hamida and Bob were given power to add to the class any other of Rodney’s relatives whom they considered to be worthy and in financial need. Hamida and Bob believe that Sheila and Tom are very comfortably off, and that the grandchildren are spoilt. Recently, they claimed to have used their power to add Cyril, Rodney’s elderly cousin, to the class and have written to Sheila and Tom stating that they will be paying all future income from the trust to Cyril during his lifetime, declaring that they will use some of the trust capital to purchase a house for Cyril to live in.
Sheila and Tom are very shocked by these developments. They are also alarmed because they have heard that Rex, the investment adviser used by the trustees to manage all the trust property, has been investigated in the past by the police on suspicion of money laundering. Sheila and Tom also believe that the trust investments are not producing enough income and that this is due, in large part, to the investment policy having been influenced by Hamida and Bob’s very strong views on political and ecological issues. Hamida and Bob have refused all requests by Sheila and Tom to discuss the trust affairs, or to allow them to see any trust papers.
Rodney, who was very fond of Hamida and Bob, inserted a clause in the trust instrument that the trustees would not be liable in negligence in the exercise of their obligations and powers.
Advise Sheila and Tom.
Maintenance and Advancement
10. What conditions are necessary for trustees to exercise the power of maintenance; how does the law differ between maintenance for a child and that of an adult?
11. What is the situation with accumulated income when a minor reaches the age of majority?
12. What conditions are necessary for trustees to exercise the power of advancement?
13. When will the courts intervene with regard to the trustees‘ exercise of their powers?
14. ‘My residue to Herman for his life with remainder to Aristophanes’. Does section 31, Trustee Act 1925 allow Aristophanes to claim any income from the trust whilst Herman is alive? Does section 32, Trustee Act 1925allow Herman to claim any capital from the trust? What would trustees who acceded to such requests risk?
15. Robin died last year. A clause in his will provides for his residuary estate to be held by trustees on trust to divide the proceeds of sale equally between such of Robin’s children as should reach the age of 25. At his death, Robin had two children, Basil (aged 12) and Lucy (aged 17). The trustees seek your advice as to whether they can now make available capital and/or income from the trust fund to:
(a) pay for Basil’s skiing lessons;
(b) advance Lucy up 50% of her presumptive share to enable her and her boyfriend Daz (of whom Lucy’s mother strongly disapproves) to set up in a waffle making business in partnership;
(c) to pay the rent on Lucy’s flat.
Advise the trustees.
Change and Control of Trustees
16. Explain the circumstances in which trustees can
a) Be appointed;
b) Be removed;
c) Retire from the trust.
17. Explain the operation of the protective trust. What is actually “protected”?
18. What are the particular advantages of:
a) accumulation and maintenance trusts?
b) protective trusts?
c) discretionary trusts?
19. You are consulted by Angela, a wealthy widow who intends to marry Steve, an impoverished playboy with a gambling addiction. Once married, they wish to live abroad, mainly in St Tropez. Angela has two children, aged 20 and 23. Advise her on the following points:
(a) She is trustee of several substantial trusts, one of which is for the benefit of her children. She wonders whether she can/should stay involved in them once she is based in St Tropez. What options are available to her regarding her continuation as trustee?
(b) She wishes to set up a trust leaving money on trust for Steve for life, remainder to her children. Explain fully the type of trust you would recommend.
20. A fund is held for Clarissa on a protective trust for life, with remainder to Harold. Clarissa who is aged 22 years and unmarried with no children, has recently been declared bankrupt. Advise the trustees who should receive the income from the trust.
Can the trustees assist Clarissa in the payment of her rent and/or buy her a new Porsche?
Past examination questions appear over the page
2008/2009 examination question:
Gerrard died last summer and was survived by his two children, Ella, who is now 22 years old and Simone who is 15, both of whom live in the family home in St Albans. His valid will left his real and personal estate to his trustees Mortimer and Jeeves ‘on trust for such of my children who are living at the date of my death and reach the age of 25, if more than one in equal shares.’ Mortimer is a solicitor and Jeeves operates an investment advisory company. The will permits the trustees to invest in shares in public companies.
Ella and Simone are becoming increasingly concerned about the way the trust is being run. Two months ago, the trustees made a substantial investment of the trust funds in a newly formed internet-based company ‘Nosebook’ that allows subscribers to share their views on alternative medicines. This company is now in severe financial difficulty and its directors are being investigated by the police for fraud. Recently the trustees purchased a small house in Blackpool with the trust funds to use as a holiday home without consulting either Ella or Simone. The trustees have also informed Ella and Simone that they have now transferred all their responsibilities to their friend Surrinder and henceforth will not be involved any further with the trust.
Advise Ella and Simone as to their concerns and the legal effect of Surrinder’s responsibilities.
Workshop 7.Fiduciary Duties – Deconstructing Boardman v Phipps
Case to read:
– Boardman v Phipps  2 AC 46 (HL)
– Davies & Virgo, Equity & Trusts, Chapter 14
Article to read:
– Matthew Conaglen, In Defence of the Strictness of Fiduciary Accountability (Paper delivered at a seminar of the Chancery Bar Association, Lincoln’s Inn, 24th May 2010, available at: http://www.chba.org.uk/library/?a=89439)
– JH Langbein, Questioning the Trust Law Duty of Loyalty (2005) 114 Yale Law Journal 929 – 990
1. Explain what is meant by the concept of the fiduciary. What are the contents of the fiduciary obligation?
2. No conflict / secret profits – Separate rules, or is one a sub-rule of the other?
3. Lau describes the fiduciary rules as “over-inclusive”. What do you think she means by this, and, do you think she is correct? Be prepared to justify your stance.
4. Explain the reasoning of the majority in Boardman.
5. Explain the reasoning of the minority in Boardman.
6. From wider reading you have undertaken, are you able to detect where modern judicial attitudes to the fiduciary rule(s) rest? If judicial attitudes are moving towards a change in the law, is this likely to occur?
7. Defend the strictness of the fiduciary rules.
8. Explain the rules against self-dealing and fair-dealing. Are they absolutes or qualified?
Past examination questions over the page
2008/2009 examination question:
“The real rule is, in my view, that knowledge learnt by a trustee in the course of his duties as such is not … property of the trust and in general may be used by him for his own benefit… unless it is confidential information which is given him …. in a fiduciary capacity, and its use by him would place him in a position where his duty and his interest might possibly conflict.” (Per Lord Upjohn (dissenting) in Boardman v Phipps  2 AC 46 (HL)).
Critically evaluate this statement.
2009/2010 examination question:
“Many forms of conduct permissible… for those acting at arms’ length are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place.” (Per Cardozo C.J. in Meinhard v Salmon 164 NE 545)
Critically evaluate this view of the fiduciary relationship.
Workshop 8.Proprietary Actions for Breach
Cases to read:
– Re Hallett’s Estate (1880) 13 Ch D 696 (CA)
– Re Oatway  2 Ch 356
– Re Diplock  Ch 465
– Foskett v McKeown 1 AC 102
– Davies & Virgo, Equity & Trusts, Chapter 18
1. What is a personal claim?
2. What is a proprietary claim?
3. What are the advantages of a proprietary claim in equity?
4. What are the prerequisites for a claim to equitable proprietary tracing? Is there consistency of opinion as to the necessary requirements?
5. Is there an underlying policy to the principles and rules of equitable proprietary tracing and, if so, what is it?
Question nine over the page
2008/2009 examination question:
“Equity lawyers habitually use the expressions ‘the tracing claim’ and ‘the tracing remedy’ to describe the proprietary claim and the proprietary remedy which equity makes available to the beneficial owner who seeks to recover his property in specie from those into whose hands it has come. Tracing properly so-called, however, is neither a claim nor a remedy but a process… It is the process by which the plaintiff traces what has happened to his property, identifies the persons who have handled or received it, and justifies his claim that the money which they handled or received (and, if necessary, which they still retain) can properly be regarded as representing his property.
In such a case the defendant will either challenge the plaintiff’s claim that the property in question represents his property (i.e. he will challenge the validity of the tracing exercise) or he will raise a priority dispute (e.g. by claiming to be a bona fide purchaser without notice). If all else fails he will raise the defence of innocent, change of position.” (Millett LJ in Boscawen v Bajwa  1 WLR 328,  4 All ER 769 at 776)
From your knowledge of proprietary claims in equity critically evaluate the comments made by Millett LJ.
2012/2013 examination question:
Harry is the sole trustee of certain assets settled on trust for Lydia. At the time of the settlement, the trust assets comprised £40,000 and a collection of vintage cars.
Harry was a keen supporter of Rostrevor Rugby Club, an amateur team which was struggling in the Hertfordshire league. Harry decided to raise some funds to help the club develop its recruitment and coaching programme. Contrary to the terms of the trust instrument, he sold the collection of vintage cars to Louis for £60,000. Harry gave this money to the club treasurer who lodged it to the club’s current account, which immediately before the transfer showed a credit balance of £20,000. The next day the officers of the club withdrew £40,000 from the account and cleared a secured loan which had been used to pay the costs of constructing a new stand at the rugby ground.
Harry also wanted to buy shares in the rugby club. He had savings in a deposit account totalling £20,000, but he decided this was not enough. Contrary to the terms of the trust he transferred £20,000 of the trust fund to his deposit account. The next day he paid £30,000 for shares in the club. As a result of the purchase he also received a £5,000 “share registration bonus”, which he received in cash, and immediately spent on rare collectors’ memorabilia at the club store. Later that week he won £4000 in the lottery and he placed the money in his deposit account.
Last month, the club reached the final of a prestigious international cup competition, and Harry travelled to support the team. The day before the final, in breach of trust he transferred £2,000 of the trust fund to his current account, which immediately before the transfer showed a credit balance of £300. Harry spent £300 from this account on match memorabilia, including £20 on a programme for the cup final. The day after the final, he used the remaining £2,000 balance to pay his bill at a luxury hotel.
Unfortunately for Harry, the club was thrashed 40-nil in the final by Warrenpoint Utd. It was the largest defeat in the history of the competition. Consequently shares in Rostrevor Rugby Club have decreased in value by 50%, but programmes from the historic match are selling for upwards of £400 on an online auction website.
Advise Lydia on what potential actions she might take to recover her property.
Workshop 9.Liability of Strangers
Cases to read:
– Royal Brunei Airlines v Tan  2 AC 378 (PC)
– Twinsectra Ltd v Yardley  2 AC 164
– Barlow Clowes International Ltd (In Liquidation) v Eurotrust International Ltd  1 WLR 1476
– Davies & Virgo, Equity & Trusts, Chapter 19.
Article to read:
– Robert Hunter, ‘The honest truth about dishonesty’ Private Client Business 390
– Lord Nicholls, ‘Knowing Receipt: The Need for a New Landmark’ in W Cornish et al(eds),Restitution Past, Present and Future (Oxford Hart 1998), at p238
1. What are the claims which might be made against a stranger to the trust? Outline the requirements for each cause of action to be established.
2. In relation to dishonest assistance, how have the courts grappled with the concept of “dishonesty”?
3. Do you agree with Lord Nicholls’ view of liability for knowing receipt as expressed in his paper?
4. “The law relating to knowing assistance/accessory liability has at least developed, albeit through tectonic shifts, towards a coherent concept of liability based on dishonesty, even if the application of that test has at times proved difficult in practice .… Such coherence is utterly lacking in the case law dealing with knowing receipt.” (John Breslin, ‘Unbundling Constructive Trusteeship’, in Liber Memorialis: Professor James C. Brady (Round Hall, 2001), pp. 94-114, at p. 104.
Do you agree? Give reasons for your answer. In light of cases decided after Twinsectra, do you consider that the defendant solicitor, Leach, should in fact have been held liable as an accessory to breach of trust?
5. “…it is the fact that large-scale commercial fraud has become a growth industry that makes it imperative for the law to make intelligible and efficient its weapons of restitution.” (Birks, ‘The Recovery of Misapplied Assets’, in, McKendrick (ed), Commercial Aspects of Trusts and Fiduciary Obligations (OUP 1992), at page 150).
Critically evaluate this statement by reference to the modern law of the liability of strangers and whether it has responded appropriately to the growth in large-scale commercial fraud.
Case to read:
– The Independent Schools Council v The Charity Commission and others  UKUT 421 (TCC)
– Dingle v Turner  2 WLR 523
– Oppenheim v Tobacco Securities Trust Co. Ltd  AC 297
– Davies & Virgo, Equity & Trusts, Chapter 5.
1. What is the legal definition of a charity?
2. Explain how charitable status was established under the old law (ie, the law which operated before 2006).
3. What was the rationale for reforming charities law?
4. Explain the principal changes effected to charities law by the Charities Act 2006.
5. Critically assess whether, and if so to what extent, the reform of charities law impacted on the old law of charities.
6. What is the status of the public benefit guidance issued by the Charity Commission?
7. How does the public benefit guidance relate to the old law of the public benefit?
8. Critically assess the impact of the decision of the Upper Tribunal Tax and Chancery Chamber in the case of The Independent Schools Council v The Charity Commission and others on the public benefit guidance.
Past examination questions over the page
2012/2013 examination questions:
By his will Thurston, formally a professor of Law at the Old University, left the following gifts:
(i) £2 million to establish a fund for the children of employees and ex-employees of Old University who wished to study Law at the Old University; and
(ii) £50,000 to promote the sport of basketball among Methodist Church Youth Groups in Hertfordshire;
(iii) £20,000 to the Fleetville Housing Action Group. The Group provided help towards the cost of accommodation for any graduate undertaking an unpaid legal internship in Greater London. The Fleetville Housing Action Group was wound up before Thurston’s death but its work is now carried on by the Marshalswick Housing Action Group.
The executors seek your advice as to whether the gifts are charitable and as to what they should do with the money given to Fleetville Housing Action Group.
‘The public benefit requirement for charities has undergone a number of changes as a result of the enactment of the Charities Act 2006 (now consolidated into the Charities Act 2011). One such change arises out of the statutory duty of the Charity Commission to provide guidance on public benefit. There are, however, serious concerns about this guidance’.
In the light of the above statement, discuss critically the requirement of public benefit.
(a) Tilda died in September 2012. Her will, dated 2000, contained the following bequest: “I bequeath the sum of £25,000 to Blackhall Library”. The library, which had been supported entirely by members’ subscriptions, donations and legacies, closed in October 2012. Advise her executors. Would your answer be any different if the Blackhall Library had merged in 2010 with the Belfast Readers’ Circle (an educational charity), to form the Blackhall Free Library and Readers’ Society, which remains open?
(b) Tilda also left £2,000 each to the Sweet Chariot Gospel Hall and the Rock of Ages Gospel Hall. The Rock of Ages Gospel Hall ceased to exist two years before her death. Advise her executors.
(c) Max and Noreen are trustees of a charity established in the late 1940s, the Belfast Fresh Air Fund, which was set up by a local linen mill owner to provide holidays for the children of Belfast mill-workers. The fund now stands at £31,375, but no payments have been made out of the fund for over 20 years. Advise Max and Noreen.
Workshop 11.Revision Session
You will be guided by your tutor as to which questions they will cover in this session.
These skills-based sessions (SBLs) will operate on a fortnightly basis; they are one hour in length. Their function is to explore the skills necessary for work, and for life as a lawyer. Each SBL consists of a task for which you must prepare fully beforehand. Please consult the ‘Student Code of Conduct’ which is provided in this document. Additionally, there will be opportunities for you to:
• Clarify matters from the KBLs (staff may recap points from the KBLs);
• Draw connections with other areas of law;
• Explore the application of legal principles to exam-style questions;
• Seek guidance on legal research relevant to the module and wider study;
• Obtain clarification on grading criteria.
SBL 1 Legal Citations
SBL 2 How to answer an essay question
SBL3 How to answer a problem-based question
SBL 4 Marking exercise
SBL5 Analysing case law – the interpretation of McPhail v Doulton
SBL 6 Legal writing – Drafting a discretionary trust
SBL 7 Equitable Remedies
SBL8 Statutory Interpretation – s53(1)(c), LPA 1925
SBL9 Legal Theory – Economic Analysis of trusts law
SBL 10 Charities – Timed Essay
SBL 11 Revision session
SBL 1.Legal Citations
Using the OSCOLA conventions for legal citations please give the proper citations for the following:
1. The GCHQ case in the House of Lords, brought by the Council for Civil Service Unions against the Minister for the Civil Service, reported in the third volume of the 1984 All England Reports at page 935; and in the 1985 Appeal Cases reports at page 374.
2. Rose Gentle’s judicial review case against the Prime Minister, being the 20th case decided by the House of Lords Judicial Committee in 2008, found in the second volume of the Weekly Law Reports for 2008 at page 879.
3. How would you refer to page 388 of the GCHQ case?
4. How would you refer to paragraph 20 of the Gentle case?
5. The case between Bellinger and Bellinger, being the 21st case decided by the House of Lords in 2003, found at page 467 of the second volume of the Appeal Cases Reports.
6. How would you refer to paragraph 20 of the Bellinger case?
7. The House of Lords case between Burmah Oil Company and the Lord Advocate, reported in the second volume of the Weekly Law Report for 1964 at page 1231, and the Appeal Cases for 1965 at page 75.
8. How would you refer to page 95 of the Burmah Oil case?
9. The Act of the Northern Ireland Assembly, 2008, providing for a Commission for victims and Survivors.
10. How would you cite Section 1, sub section 4, paragraph A of this Act?
11. How would you refer to Schedule 1 of this Act?
12. The statutory rule for Northern Ireland made under the Equality Act 2006, providing for Sexual Orientation regulations in NI, being the 439th of that year.
13. The Act of the UK Parliament, known as the Human Rights Act, passed in 1998.
14. How would you cite section 6, subsection 3, paragraph b of this Act?
15. How would you refer to schedule 1 of this Act?
16. How would you cite the Report by the Justice Committee of the House of Commons, on Constitutional Reform and Renewal, being the 923rdHouse of Commons publication for that session (2008-2009).
17. How would you cite the Equity textbook in the footnotes?
18. How would you cite the Equity textbook in a bibliography?
19. How would you cite an article written by Elizabeth Challinor called Debunking the myth of secret trusts? which was published in Conveyancer and Property Lawyer in 2005, starting on page 492.
Common neutral citations:
UKSC UK Supreme Court
UKHL: UK House of Lords;
EWCA Civ: Court of Appeal of England and Wales hearing a civil case;
EWHC: High Court of England and Wales; Append Admin after the page number to indicate it is the Administrative court.
NICA: Northern Ireland Court of Appeal
See the Cardiff Index to Legal Abbreviations at http://www.legalabbrevs.cardiff.ac.uk/search_abbrev.jsp
SBL 2.How to answer an essay question
For the examination / coursework, you may be expected to answer an essay question. This skills session will consider the best strategy for answering such questions using the topic of certainty of object as an example.
– Davies & Virgo, Equity & Trusts, pp 65 – 110.
Cases to read:
– McPhail v Doulton AC 424 (HL)
“Once the class of persons to be benefited is conceptually certain it then becomes a question of fact to be determined on evidence whether any postulant has on inquiry been proved to be within it: if he is not so proved, then he is not in it.” Per Sachs LJ in Re Baden No. 2  Ch. 9 at 20B
Critically evaluate the application of the any given postulant test to discretionary trusts, and in light of the differing views in the above case, assess which of the judges had the better view of what is required for a class of objects of a discretionary trust to be sufficiently certain.
SBL 3.How to Answer a Problem-Based Question
For the examination / coursework, you may be expected to answer a problem-based question. This skills session will consider the best strategy for answering such questions using a question on the three certainties, as an example.
– Davies & Virgo, Equity & Trusts, pp 65 – 110.
Consider the validity and effect of the following dispositions made by will. The testatrix, Tanya, was an avid book collector who died in late 2007.
(1) “I leave my collection of first editions to my sister Angela, in complete confidence that she will carry out my wish that she should pass on the most important of them to my two nephews.”
(2) “I leave the sum of £250,000 to Belinda and Charles on trust to provide benefits for such of the employees and ex-employees of Bookworm Ltd. and the close relatives and dependants of employees and ex-employees of the company, in such shares and on such conditions as the trustees may in their discretion decide.” Bookworm is an independent bookselling business established in the 1950s by Tanya’s parents. The original shop and all the business records were destroyed in a fire in 1965, but it has flourished since the business was rebuilt. It now has branches in Belfast, Lisburn and Newry, and currently employs 20 full-time staff and 35 part-time staff.
SBL 4.Marking Exercise
It is important that you have some awareness of what we are looking for when we are marking your work. In this SBL, there will be a marking exercise. You will be shown marking criteria, and three separate answers to the same question. You will then be asked to grade the work and give reasons for your grading.
In the week before this SBL, three answers to the same question will be posted to Studynet. You will be required to bring them along to the SBL, together with the marking criteria which will also be uploaded.
SBL 5.Analysing Case Law – the interpretation(s) of McPhail v Doulton
The case of McPhail v Doulton broke new ground in determining the test for certainty of objects in a discretionary trust. This skills session analyses the interpretation put on Lord Wilberforce’s speech by the three judges in the Court of Appeal case of Re Baden (No2).
Cases to read:
– McPhail v Doulton AC 424
– Re Baden’s Deed Trusts (No 2)  Ch 9
– Davies & Virgo, Equity & Trusts, pp 65 – 110.
1. Three judgments are given in Re Baden (No 2). Summarise each judge’s interpretation of the test of certainty of objects handed down by Lord Wilberforce in McPhail v Doulton.
2. Do the judges reach a consensus as to the application of the test?
3. What is the ratio of the case?
4. Does the approach of the judges in the case of Re Baden (No 2) suggest any difficulties with Lord Wilberforce’s test as his lordship formulated it?
SBL 6.Legal Writing – Drafting a Discretionary Trust
It is important as much to understand and advise on the law, as it is to be able to draft professional documentation. In this session, we will draft an inter vivos discretionary trust for a client.
– Real the Trusts section of the Lexis PSL website.
Given the following facts, you should consider:
i) what questions you would ask the client;
ii) how you would draft the discretionary trust to meet the client’s needs?
Lurvach Singh is a self-made man. He made his money from banking and property development. He wishes to provide funds to benefit the people he has been acquainted with, employed, worked alongside, or otherwise, throughout his life. He has significant funds available for the trust, ie, £5m. He would like to give the trustees as much flexibility as possible in the distribution of the funds.
SBL 7.Equitable Remedies
Instructions for this session will be posted on studynet the week before the Skills session.
– Davies & Virgo, Equity & Trusts, Chapter 20.
SBL 8.Statutory Interpretation – s53(1)(c), Law of Property Act 1925
This session considers the difficult provision of s53(1)(c), Law of Property Act 1925, and the decisions of the senior courts on the interpretation of the provision. Statutory interpretation is a key skill the lawyer should learn, especially here when the matter is complicated by tax considerations.
Cases to read:
– Grey v Inland Revenue Commissioners  AC 1
– Vandervell v Inland Revenue Commissioners  2 AC 291
– Read Appendix One of this module guide
Article to read:
– Green, Grey, ‘Oughtred and Vandervell: a contextual reappraisal’  47 MLR 385
Statute to read:
– Section 53(1)(c), Law of Property Act 1925
1. Explain the rules of statutory interpretation.
2. Explain the effect of section 53(1)(c), Law of Property Act 1925.
3. What legislative enactment did section 53(1)(c) replace?
4. What was the transaction in Grey v IRC? What is the ratio of the case, and what rule of interpretation was employed by the House of Lords?
5. What was the transaction in Vandervell v IRC? What is the ratio of the case, and what rule of interpretation was employed by the House of Lords?
6. Consider whether s53(1)(c), Law of Property Act 1925 would apply in the following scenario:
Robert is beneficiary of a trust of which Simon is the trustee. Robert contracts to sell his beneficial interest to Tania.
SBL 9.Legal Theory – Theory of Trusts and Economic Analysis of trusts law
In your studies to date, focus has been placed on the black letter law. In this SBL, we consider some of the broader reasons for the existence of trusts, and the economic theories which attach to their use. We will consider various theories of property, and consider the paper by Hansmann and Mattei, The Functions of Trust Law: A Comparative Legal and Economic Analysis (1998) 73 New York University Law Review 434.
Articles to read:
– Hansmann and Mattei, ‘The Functions of Trust Law: A Comparative Legal and Economic Analysis’ (1998) 73 New York University Law Review 434
– Wei, ‘The irreducible core content of modern trust law’ (2009) 15(6) Trusts & Trustees 477
1. What is the function of property law?
2. What is the function of the law of trusts?
3. From your knowledge of all aspects of trusts which you have studied so far, are you able to draw any conclusions about the trust and its utility in English private law. For example, you might like to consider the development of the trust device.
4. How and why do you consider the trust has changed in the last 50 years?
5. Is there a uniform economic rationale for the existence of the trust?
SBL 10.Charities – Timed Essay
Case to read:
– The Independent Schools Council v The Charity Commission and others  UKUT 421 (TCC)
– Dingle v Turner  2 WLR 523
– Oppenheim v Tobacco Securities Trust Co. Ltd  AC 297
– Davies & Virgo, Equity & Trusts, Chapter 5.
‘The public benefit requirement for charities has undergone a number of changes as a result of the enactment of the Charities Act 2006 (now consolidated into the Charities Act 2011). One such change arises out of the statutory duty of the Charity Commission to provide guidance on public benefit. There are, however, serious concerns about this guidance’.
In the light of the above statement, discuss critically the requirement of public benefit.
SBL 11.Revision Session
You will be guided by your tutor as to which questions they will cover in this session.
Appendix One – Statutory Interpretation
This information below is taken from PLC:
Rules and presumptions of statutoryinterpretation
Whenever a statute is under consideration in connection with any area of practice there is an obvious need to interpret that law correctly. In most situations the answer is clear and not in dispute and the matter is not given a second thought. However, there are occasions when the interpretation or construction of the legislation will be a key issue in the client’s matter and although counsel’s opinion is likely to be sought, the solicitor needs to have some idea of how the court would ultimately interpret the statute or the client’s behaviour. Tax lawyers must do this every year after the Budget: they consider how the Finance Bill will be interpreted and constructed and whether it fits with the Chancellor’s speech and the HM Revenue & Custom’s press releases.
Interpretation and construction
Interpretation involves giving the words of statute a meaning and construction is the process of resolving uncertainties or ambiguities in the wording of the statute. The courts have developed a number of rules and presumptions to assist both in the interpretation and construction of statute. These include:
• The literal rule.
• The golden rule.
• The mischief rule.
• The purposive approach.
Additionally, the courts must consider the Human Rights Act 1998 (HRA 1998) and any relevant EU obligations each time they interpret legislation (see Rules on interpretation). There are also a number of presumptions and aids to interpretation that are considered below. These rules have been misnamed and confused in the past and they form but part of a mass of criteria used by the courts over the years to help interpret the intentions of Parliament in drafting legislation. For information on the common law rules that are used to resolve ambiguity, see Practice note, Resolving ambiguities in legislation (www.practicallaw.com/5-384-0370) and Checklist, Resolving ambiguities in legislation: how to find supporting evidence: checklist (www.practicallaw.com/2-384-0526).
Rules on interpretation
The starting point for the courts in interpreting a statute is the literal rule: that Parliament’s intentions are found by giving words their ordinary and natural meaning in context. In theory, if the court can apply the literal rule, it should do so.
The House of Lords has held, that in applying the literal rule, words should be given their common or ordinary meaning if they apply generally to people, but if the word has a technical meaning (for example, in a business context), it should be interpreted with that meaning in that context. In all cases, the meaning to be applied to a word is the meaning which it bore at the time of the enactment of the relevant statute.
It is frequently suggested that the courts are now moving away from the literal rule towards a more purposive approach (the European method of interpretation) (see Purposive approach). The reality, however, is that the so-called literal approach of construction has always involved considering the statute in its legal, social and political context, and that the purposive approach in the UK courts has never approached the kind of teleology more common in the ECJ (see Mykoliw v Botterill  ScotCSCSOH 84 Lord Pentland at paragraph 28).
If the use of the literal rule produces an absurd result, or one that is repugnant to or inconsistent with the rest of the statute, it may be ignored and the golden rule applied. The golden rule simply allows the grammatical and ordinary sense of a word to be modified to avoid the absurdity and inconsistency created by an application of the literal rule, but no farther. The subjectivity of the golden rule is sometimes criticised as taking the courts beyond their judicial function and into a more legislative role but the reality is simply that it involves giving the words of a statute a construction that reflects its context.
In the case of ambiguity in the wording of a statute, it becomes more difficult to use either the literal or golden rules. In that situation, it is open to the courts to apply the mischief rule. Formulated in 1584, this rule enables the court to look to the rationale of the legislation to interpret the ambiguity (Heydon’s Case  EWHC Exch J36 (01 January 1584)). The judge will consider the:
• Law prior to the legislation.
• Defect in that law.
• Remedy Parliament implemented.
• Purpose behind the remedy.
Human Rights Act 1998
Under section 3 of the Human Rights Act 1998, which came into force on 2 October 2000, the courts must now interpret all legislation (whenever it was enacted) in a way which, as far as possible, is compatible with the rights under the European Convention on Human Rights (ECHR). For further details, see Practice note, Interpreting legislation under section 3 of the Human Rights Act 1998 (www.practicallaw.com/2-504-4998).
The modern method of interpreting legislation in the light of its purpose is increasingly described as purposive, although as explained above it is not essentially different from the contextual approach always applied by the UK courts.
Tax statutes must be interpreted in a particularly purposive way following the Court of Appeal decision in WT Ramsay Ltd v Inland Revenue Commissioners  UKHL 1 (12 March 1981).
Aids to interpretation
In addition to the rules of interpretation, there are also a number of aids that the courts may have recourse to in the event of uncertainty or ambiguity.
So-called intrinsic aids can be used for guidance only if the wording is unclear or ambiguous. Intrinsic aids include:
• Purpose and overview provisions to the statute although the statute prevails if they conflict with the substantive provisions of the statute.
• The statute’s long and short titles.
• Headings and marginal notes. These may help in cases of ambiguity but are not determinative and can be misleading.
The courts can have recourse to materials outside the legislation itself to assist in the interpretation of legislation but again these aids will not be conclusive, they are no more than an aid to construction or interpretation. Extrinsic aids include:
• The Interpretation Act 1978. This Act sets out some general rules of interpretation, such as:
o the masculine including the feminine;
o the singular including the plural; and
o the fact that ‘person’ includes bodies corporate and unincorporate.
The rules are subject to any contrary intention in the legislation, either express or implied. (Interpretation Act 1978)
• Hansard. The House of Lords allowed Hansard to be used as an aid to statutoryinterpretation formally for the first time in 1992 in Pepper v Hart  UKHL 3 (www.practicallaw.com/3-385-1425), a case concerning the interpretation of the Finance Act 1976. For information on the rule in Pepper v Hart, see Practice note, Resolving ambiguities in legislation (www.practicallaw.com/5-384-0370). The use of Hansard as an aid is restricted to cases where the enactment is ambiguous, obscure or where a literal interpretation leads to an absurdity.
• Committees. The courts frequently refer to reports of committees and other bodies (such as the Law Commission) as an aid to discover the context, and therefore intention, of a piece of legislation.
Other aids to construction and interpretation
Canons of construction
The following rules are also used in the interpretation of contractual terms:
• Noscitur a sociis.Words are known by the company they keep and so must be read in context. Each word is considered in the context of the section it is in and each section within the context of the Act as a whole.
• Ejusdem generis. General words such as ‘or other asset’ that follow from specific words such as a list of say, office equipment, must be interpreted in a restrictive way and limited to meanings similar to those of the preceding specific words. For example, other assets may be restricted to other pieces of office equipment, rather than a more literal and far wider definition.
• Expressio unius est exclusio alterius. The express mention of one person or thing implicitly excludes other persons or things. In the same way a list of things emphasises the absence of other things, inclusion emphasises exclusion.
Subject to express exclusion or public policy, the following presumptions apply to legislation, but are rebuttable by express provision or (more usually) necessary implication:
• It does not alter the common law position.
• Statute will not impose liability without fault.
• The liberty of individuals will not be restricted nor will property rights be interfered with (without compensation). Compliance with the ECHRs, as required by the HRA 1998, has largely occupied the field of this presumption.
• The Crown will not be bound.
• The jurisdiction of the courts will not be ousted.
• The legislation will have prospective effect only and not retrospective effect (contrast this with the EU law position).
• The legislation will apply to the whole of the UK but not outside the UK (although the devolution of legislative power acts as an increasing limitation on the presumption).
• International law will not be infringed by the legislation.
• Statutes imposing criminal liability or tax obligations are construed narrowly against the Crown. Therefore, any ambiguities will be resolved in favour of the subject. However, if the meaning is clear, the literal rule prevails.
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