Key Facts and Key Cases

KEY FACTS KEY CASES

Equity & Trusts

25726.indb i 18/11/2013 10:40 KEY FACTS KEY CASES The Key Facts Key Cases revision series is designed to give you a clear understanding and concise overview of the fundamental principles of your law course. The books’ chapters reﬂ ect the most commonly taught topics, breaking the law down into bite-size sections with descriptive headings. Diagrams, tables and bullet points are used throughout to make the law easy to understand and memorise, and comprehensive case checklists are provided that show the principles and application of case law for your subject.

Titles in the series: Contract Law Criminal Law English Legal System Equity & Trusts EU Law Family Law Human Rights Land Law Tort Law

For a full listing of the Routledge Revision range of titles, visit www.routledge.com/law

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KEY FACTS KEY CASES

Equity & Trusts

Chris Turner and Judith Bray

Routledge Taylor & Francis Group

LONDON AND NEW YORK

25726.indb iii 18/11/2013 10:40 First edition published 2014 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2014 Chris Turner and Judith Bray The right of Chris Turner and Judith Bray to be identiﬁ ed as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice : Product or corporate names may be trademarks or registered trademarks, and are used only for identiﬁ cation and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested

ISBN: 978–0–415–83327–1 (pbk) ISBN: 978–1–315–85784–8 (ebk)

Typeset in Helvetica by Reﬁ neCatch Limited, Bungay, Suffolk

25726.indb iv 18/11/2013 10:40 Contents

PREFACE ix TABLE OF CASES xii

Chapter 1 INTRODUCTION TO EQUITY & TRUSTS 1 1.1 A brief history of equity 2 1.2 The basic character of a trust 8 Key Cases Checklist 12

Chapter 2 THE CREATION OF EXPRESS PRIVATE TRUSTS 15 2.1 Capacity and the creation of trusts 16 2.2 Formalities – general 16 2.3 Trusts of land 16 2.4 Dispositions of existing equitable interests 17 2.5 Formality and fraud 18 2.6 The three certainties 18 Key Cases Checklist 22

Chapter 3 PURPOSE TRUSTS 40 3.1 Non- charitable purpose trusts 41 3.2 The rules on unincorporated associations 44 Key Cases Checklist 47

Chapter 4 CONSTITUTION OF TRUSTS 56 4.1 General 57 4.2 Formalities 57 4.3 Declaration of self as trustee 58 4.4 Enforcement of trusts – volunteers and non- volunteers 58

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4.5 Exceptions to the rule that equity will not assist a volunteer 59 Key Cases Checklist 60

Chapter 5 SECRET TRUSTS 71 5.1 The background to secret trusts 72 5.2 The rules governing fully secret trusts 72 5.3 The rules governing half secret trusts 73 5.4 The theoretical basis of secret trusts 74 Key Cases Checklist 76

Chapter 6 PROTECTIVE AND DISCRETIONARY TRUSTS 82 6.1 Protective trusts 82 6.2 Discretionary trusts 82 Key Cases Checklist 84

Chapter 7 RESULTING TRUSTS AND CONSTRUCTIVE TRUSTS 86 7.1 Introduction 87 7.2 Resulting trusts 87 7.3 Constructive trusts 93 7.4 Trusts of the family home 98 Key Cases Checklist 103

Chapter 8 CHARITABLE TRUSTS 126 8.1 The history of the charitable trust 127 8.2 The difference between charitable trusts and other trusts 128 8.3 Essential requirements of charitable trusts 128 8.4 Charitable objects 129 8.5 The political element 135 8.6 The public beneﬁ t element 135 8.7 Exclusivity of charitable objects 136 8.8 The basis of the cy- près doctrine at common law 137 8.9 Initial failure 137 8.10 Subsequent failure 138 8.11 Non- charitable alternatives 139

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8.12 Statutory cy- près 140 Key Cases Checklist 142

Chapter 9 THE NATURE OF TRUSTEESHIP 157 9.1 Who can be a trustee? 158 9.2 The number of trustees 159 9.3 Appointment of trustees 159 9.4 Selection of trustees 160 9.5 The vesting of the trust property 160 9.6 Termination of trusteeship 160 9.7 Standard of conduct expected of trustees 161 Key Cases Checklist 163

Chapter 10 THE DUTIES OF THE TRUSTEES 165 10.1 The trustees’ duties to the trust property 166 10.2 The duty to invest 167 10.3 The trustees’ duties to the beneﬁ ciaries 172 10.4 The ﬁ duciary nature of trusteeship 174 Key Cases Checklist 177

Chapter 11 THE POWERS OF TRUSTEES 187 11.1 Introduction 188 11.2 Trustees of land under the Trusts of Land and Appointment of Trustees Act 1996 189 11.3 General powers 189 11.4 The power to delegate 191 11.5 Powers of maintenance and advancement 192 Key Cases Checklist 197

Chapter 12 VARIATION OF TRUSTS 198 12.1 The need for variation 199 12.2 Variation under the inherent jurisdiction of the courts 199 12.3 Variation under statutory provisions 199 12.4 Variation under the Variation of Trusts Act 1958 200 Key Cases Checklist 202

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Chapter 13 BREACH OF TRUST AND REMEDIES 208 13.1 Breach of trust and liability 209 13.2 Personal remedies and proprietary remedies 209 13.3 Equitable remedies – injunctions 213 13.4 Equitable remedies – speciﬁ c performance 216 13.5 Equitable remedies – rescission 218 13.6 Equitable remedies – rectiﬁ cation 218 Key Cases Checklist 219

INDEX 231

25726.indb viii 18/11/2013 10:40 Preface

This new series of Key Facts Key Cases is built on the two well- known series, Key Facts and Key Cases. Each title in the Key Facts series now incorporates a Key Cases section at the end of most chapters which is designed to give a clear understanding of important cases. This is useful when studying a new topic and invaluable as a revision aid. Each case is broken down into fact and law. In addition many cases are extended by the use of important extracts from the judgment, by a commentary or by highlighting problems. In some instances students are reminded that there is a link to other cases or material. If the link case is in another part of the book, the reference will be clearly shown. Some links will be to additional cases or materials that do not feature in the book. The basic Key Facts sections are a practical and complete revision aid that can be used by students of law courses at all levels from A Level to degree and beyond, and in professional and vocational courses. They are designed to give a clear view of each subject. This will be useful to students when tack- ling new topics and is invaluable as a revision aid. Most chapters open with an outline in diagram form of the points covered in that chapter. The points are then developed in a structured list form to make learning easier. Supporting cases are given throughout by name, and for some complex areas facts are given to reinforce the point being made. The most important cases are then given in more detail. The Key Facts Key Cases series aims to accommodate the syllabus content of most qualiﬁ cations in a subject area, using many visual learning aids. The topics covered for Equity and Trusts include all of those contained in mainstream syllabuses. Equity and Trusts is often seen as a fairly dry and dull area. In fact it is actually more relevant to most people’s lives than, for example, Criminal Law, which is a very popular area of study. Anyone who jointly owns a domestic home or who wants to leave property in a will to underage children, who has anything to do with charity work or who has a private pension, for instance, would be able to identify what a very practical and useful subject it is.

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In the Key Cases sections, in order to give a clear layout, symbols have been used at the start of each component of the case. The symbols are:

Key Facts – These are the basic facts of the case.

Key Law – This is the major principle of law in the case.

Key Judgment – This is an actual extract from a judgment made on the case.

Key Comment – Inﬂ uential or appropriate comments made on the case.

Key Problem – Apparent inconsistencies or difﬁ culties in the law.

Key Link – This indicates other cases which should be considered with this case.

The Key Link symbol alerts readers to links within the book and also to cases and other material, especially statutory provisions that are not included.

The court abbreviations used in the key case sections of this book are shown below.

Ass Assize Court CA Court of Appeal

CC County Court CCA Court of Criminal Appeal

CCR Crown Cases Reserved CH Court of Chancery

ChDiv Chancery Division CJEU Court of Justice of the European Union

C-MAC Court Martial Appeal CP Court of Probate Court

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DC Divisional Court EAT Employment Appeal Tribunal

ECHR European Court of ECJ European Court of Human Rights Justice

ET/IT Employment tribunal/ Exch Court of the Exchequer Industrial tribunal

HC High Court HL House of Lords

KBD King’s Bench Division NIRC National Industrial Relations Court

PC Privy Council QBD Queen’s Bench Division

RC Rolls Court SC Supreme Court

The law is as I believe it to be on 1 May 2013.

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Abbott Fund Trusts, Re [1900] 2 Ch 326 ...... 89, 103, 107 Abou-Rahmah v Abacha [2006] EWCA Civ 1492, [2006] All ER (D) 80, CA ...... 97, 122 Abrahams v Trustee in Bankruptcy of Abrahams HC [1999] BPIR 637 ...... 92, 112–13 Adams and Kensington Vestry, Re (1884) 27 Ch D 394 ...... 15, 19, 25–6, 29 Adekunle v Ritchie [2007] WTLR 1505, [2007] 2 P & CR DG20, [2007] BPIR 1177 ...... 102 Agip (Africa) Ltd v Jackson and others 1990] Ch 265, [1991] 3 WLR 116 ...... 212 Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 ...... 104 Allcard v Skinner (1887) LR 36 Ch D 145 ...... 4, 12, 13, 218 Allen, Re [1953] Ch 810 ...... 21, 37 Allhusen v Whittell (1867) LR 4 Eq 295 ...... 173 American Cyanamid Co v Ethicon Ltd [1975] AC 295, [1975] 2 WLR 316 ...... 208, 215, 228 Ames’ Settlement, Re [1946] Ch 217, HC ...... 88, 103, 106 Anthony v Donges [1998] 2 FLR 775 ...... 26 Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55, [1996] 1 All ER 779 ...... 8, 229 Armitage v Nurse [1998] Ch 241, [1997] 3 WLR 1046 ...... 162, 163, 208–10, 222 Ashman v Price and Williams [1942] Ch 219, [1942] 1 All ER 310 ...... 98 Astor’s Settlement Trust, Re [1952] Ch 534 ...... 41, 43, 47 Attorney-General v Charity Commission (2012) 156 SJ (No 8) 33 ...... 130 Attorney-General v National Provincial Bank of England [1924] AC 262, HL ...... 137 Attorney-General v Power (1809) 1 Ball & B 145 ...... 129 Attorney General for Hong Kong v Reid and Others [1994] 1 AC 324, [1993] 3 WLR 1143, PC ...... 186

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Attorney-General of the Bahamas v Royal Trust Co [1986] 1 WLR 1001, PC ...... 137

Baden’s Deed Trusts, Re (No 2) [1972] 2 All ER 81 ...... 21 Baden Delvaux, Re ; Baden Delvaux and Lecuit v Société Générale pour Favouriser le Développement de Commerce en France SA [1983] BCLC 325, HC ...... 122–3 Bahin v Hughes (1886) 31 Ch D 390 ...... 210, 220, 230 Baldry v Feintuck [1972] 2 All ER 81 ...... 131 Ball’s Settlement, Re [1968] 1 WLR 899 ...... 198, 201, 205 Bank of Credit and Commerce International (Overseas) Ltd and Another v Akindele [2001] Ch 437, [2000] 4 All ER 221, CA ...... 86, 97, 123 Bannister v Bannister [1948] 2 All ER 133 ...... 5, 12, 13–14 Banque Belge pour L’Etranger v Hambrouck [1921] 1 KB 321, CA ...... 208, 212, 222–3 Barclays Bank v OBrien [1994] 1 AC 180, [1993] 4 All ER 417, HL ...... 218 Barclays Bank v Quistclose Investments Ltd [1970] AC 567, [1968] 3 All ER 651,HL ...... 10, 12, 14, 26, 88, 89, 103, 108 Barlow Clowes International Ltd (in liquidation) v Eurotrust International Ltd and others [2006] 1 All ER 333, [2005] UKPC 37, Privy Council ...... 97, 121–2 Barlow Clowes International Ltd (in liquidation) and others v Vaughan [1992] 4 All ER 22, CA ...... 226–7 Barlow’s Will Trusts, Re [1979] 1 All ER 296 ...... 21 Barlow’s Will Trust, Re [1979] 1 WLR 278, [1979] 1 All ER 296 ...... 26, 38–9 Barnes v Addy (1874) LR 9 Ch App 244 ...... 96, 119 Barrett v Barrett [2008] EWHC 1061 (Ch), [2008] 2 P & CR 345 ...... 100 Bartlett v Barclays Bank Trust Co Ltd (No 1) [1980] Ch 515, [1980] 1 All ER 139, [1980] 2 WLR 430, Ch D . . . 171, 180–1 Beaney (deceased), Re [1978] 2 All ER 595 ...... 15, 16 Beatty’s Will Trusts, Re [1990] 1 WLR 1503, HC ...... 42 Bell’s Indenture, Re , Bell v Hickley [1980] 3 All ER 425, [1980] 1 WLR 1217 ...... 86, 98 Belmont Finance Corporation v Williams Furniture Ltd (No 2) [1980] 1 All ER 393, CA ...... 97 Beloved Wilkes Charity, Re (1851) 3 Mac & G 440 ...... 167, 177, 188 Benjamin, Re [1902] 1 Ch 723 ...... 20, 26, 35 Bennett, Re , Gibson v Attorney-General [1920] 1 Ch 305, 84 JP 78, 89 LJ Ch 269, [1920] All ER Rep 624 ...... 136

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Bennett v Bennett (1879) 10 Ch D 474, CA ...... 91, 104 Best, Re [1904] 2 Ch 354, HC ...... 126, 137 Besterman Wills Trusts, Re (1980) The Times , 21 January ...... 145 Binions v Evans [1972] 1 Ch 298 ...... 103 Birch v Treasury Solicitor [1951] 1 Ch 298, CA ...... 59, 70 Biscoe v Jackson (1887) 25 Ch D 460 ...... 130 Biss, Re [1903] Ch 40, CA ...... 94, 176 Blackwell v Blackwell [1929] AC 318 ...... 71, 73, 74, 76, 80 Blair v Duncan [1902] AC 37, HL ...... 136 Blyth v Fladgate [1891] 1 Ch 337 ...... 98 Boardman and Another v Phipps [1967] 2 AC 46, [1966] 3 All ER 721, HL ...... 86, 94, 165, 175, 177, 186 Bourne v Keane [1919] AC 815 ...... 40, 43, 50 Bowman v Secular Society [1917] AC 406 ...... 131, 147 Boyce v Boyce (1849) 16 Sim 476 ...... 20, 26, 34–5 Boyes, Re : Boyes v Carritt (1884) 26 Ch D 531 ...... 72, 76, 77 Bray v Ford [1896] AC 44, HL ...... 94, 165, 176, 182 British Museum v White (1826) 2 Sim & St 594 ...... 135 British School of Egyptian Archaeology, Re [1954] 1 All ER 887 ...... 131 Brogden, Re , Billing v Brogden (1888) 38 Ch D 546, 37 WR 84, CA...... 165, 166, 209 Brooks v Brooks [1996] AC 375, [1995] 3 All ER 257, HL ...... 198, 200 Brown v Gellatly (1867) 2 Ch App 751, 15 WR 1188 ...... 173 Bryant v Law Society [2007] EWHC 3043 (Admin), [2009] 1 WLR 163, DC ...... 97 Bucks Constabulary Widows’ and Orphans’ Fund Friendly Society (No 2), Re [1979] 1 WLR 936, HC ...... 90, 104, 109 Bull v Bull [1955] 1 QB 234, CA ...... 86, 92, 100 Burns v Burns [1984] 2 WLR 582 ...... 100 Burrough v Philcox (1840) 5 My & Gr 72 ...... 5 Bushnell, Re , Lloyds Bank Ltd v Murray [1975] 1 All ER 721, [1975] 1 WLR 1596 ...... 135 Buttle v Saunders [1950] 2 All ER 193 ...... 166, 187, 190

CL, Re [1969] 1 Ch 587, [1968] 1 All ER 1104 ...... 198, 202 Cain v Moon [1896] 2 QB 283 ...... 59, 68 Cameron (Deceased), Re : Phillips v Cameron and others [1999] 2 All ER 924 ...... 91 Cannon v Hartley [1949] Ch 213 ...... 56, 59, 65–6 Carl Zeiss Stiftung v Herbert Smith & Co [1969] 2 Ch 276, CA ...... 93 Cattley v Pollard [2006] EWHC 3130 (Ch), HC ...... 211

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Cavendish-Browne’s Settlement Trusts, Re , Horner v Rawle [1916] WN 341, (1916) 61 SJ 27, HC ...... 56, 59 Chapman v Chapman [1954] AC 429 ...... 199, 202–3 Chappell v Times Newspapers Ltd [1975] 1 WLR 482 ...... 5, 12, 13 Chase Manhattan Bank v Israel–British Bank (London) Ltd [1981] Ch 105, [1979] 3 All ER 1025 ...... 212 Cheese v Thomas [1994] 1 All ER 35 ...... 218 Chichester Diocesan Fund and Board of Finance Ltd v Simpson [1944] AC 341, [1944] 2 All ER 60, HL ...... 126, 136 Chillingworth v Chambers [1896] 1 Ch 685 ...... 210, 221 Chirkinian v Arnﬁ eld [2006] EWHC 1917 (Ch), HC ...... 188 Choithram (T) International SA and Others v Pagarani and Others [2001] 2 All ER 492, PC ...... 58, 63–4 Church of the New Faith v Commissioners of the Payroll Tax (Victoria) (1982) 154 CLR 120, 57 ALJR 785, (Aust HC) ...... 132 Churchill, Re , Hiscock v Lodder [1909] 2 Ch 431 ...... 187, 194 Clayton’s case: Devaynes v Noble (1816) 1 Mer 529 ...... 226 Cleaver, Re [1981] 2 All ER 1018, [1981] 1 WLR 939, HC ...... 94, 119 Clifford, Re [1912] 1 Ch 29 ...... 131 Clitheroe’s Settlement Trusts, Re (1959) ...... 201 Cobbetts v Hodge [2009] EWHC 786 (Ch) ...... 94 Comiskey and Others v Bowring-Hanbury and Another [1905] AC 84, HL ...... 15, 19, 26, 29–30 Compton, Re [1945] Ch 123, [1945] 1 All ER 198, CA ...... 135 Conservative and Unionist Central Ofﬁ ce v Burrell [1982] 1 WLR 522 ...... 40, 44, 50–1 Cook’s Settlement Trust, Re [1965] Ch 902, [1964] 3 All ER 898, HC ...... 59, 66 Cooper v PRG Powerhouse Ltd (in Liquidation) [2008] EWHC 498 (Ch), [2008] 2 All ER 964 ...... 89, 106–7 Cooper (Colin), Re [1939] Ch 811 ...... 73, 76, 78–9 Cottam’s Will Trusts, Re [1955] 1 WLR 1299 ...... 133 Coulthurst, Re [1951] Ch 661 ...... 126, 129, 143 Cowan v Scargill and others [1985] Ch 270, [1984] 3 WLR 501 ...... 168, 171, 178–9, 182 Coxen, Re [1948] Ch 747, [1948] 2 All ER 492 ...... 126, 136 Crabb v Arun UDC [1976] Ch 179 ...... 56, 60 Craddock v Piper (1850) 1 Mac & G 664 ...... 175 Crippen, Re [1911] P 108 ...... 86, 95 Cunnack v Edwards [1895] 1 Ch 489, [1896] 2 Ch 679, CA ...... 90 Curley v Parkes [2004] All ER (D) 344 (Oct) ...... 100

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D (a child) v O [2004] 3 All ER 780, HC ...... 202 Dale (Deceased), Re [1994] Ch 31, [1993] 3 WLR 652 . . . . . 86, 95, 124–5 Danish Bacon Co Staff Pension Fund Trusts, Re [1971] 1 WLR 248, HC ...... 17 Davis v Richards and Wallington Industries Ltd [1991] 2 All ER 563, [1990] 1 WLR 1511, HC ...... 104 Dean, Re (1889) 41 Ch D 552 ...... 40, 43, 49–50 Delamere’s Settlement Trusts, Re [1984] 1 WLR 813, CA ...... 194 Delius’ Will Trust, Re [1957] Ch 299, [1957] 1 All ER 854 ...... 126, 131, 133, 149 Denley’s Trust Deed, Re [1969] 1 Ch 373, [1968] 3 All ER 65, HC ...... 40, 41, 45, 46, 52–3, 128 Derby Co Ltd v Weldon [1990] Ch 48, [1989] 2 WLR 279 ...... 228 Dillwyn v LLewellyn (1862) 4 De GF & J 517 ...... 60 Dingle v Turner [1972] AC 601, HL ...... 126, 130, 135, 136, 153–4 Diplock, Re ; Diplock v Wintle [1948] Ch 465, CA, on appeal from [1947] Ch 716, Ch D ...... 86, 88, 166, 212, 227 Dolley v Ogunseitan [2009] EWHC 1601 (Ch), [2009] All ER (D) 66 (Jul) ...... 96 Dominion Students’ Hall Trust, Re [1947] 1 Ch 183, HC ...... 137 Dover Coalﬁ eld Extension, Re [1908] 1 Ch 65, CA ...... 176 Drake v Whipp [1996] 1 FLR 826, [1996] 2 FCR 296, (1995) Times , 19 December, CA ...... 86, 92, 98 Druce’s Settlement Trusts, Re [1962] 1 All ER 563, [1962] 1 WLR 363, Ch D ...... 201 Drummond, Re [1914] 2 Ch 90, [1914–1915] All ER 223, HC ...... 45 Dubai Aluminium v Salaam [2002] UKHL 48, [2003] 2 AC 366, HL, reversing [2001] QB 133, [2000] 3 WLR 910, CA, reversing in part [1999] 1 Lloyd’s Rep 415, QBD ...... 98 Dufour v Pereira (1769) 1 Dick 419, HL ...... 94 Dupree’s Deed Trusts, Re [1945] Ch 16, [1944] 2 All ER 443 ...... 131 Dyer v Dyer (1788) 2 Cox Eq Cas 92, HC ...... 92, 103

Eades, Re , Eades v Eades [1920] 2 Ch 353 ...... 137 Earl of Oxford’s case (1615) 1 Rep Ch 1 ...... 1, 3 Eastes (deceased), Re : Pain v Paxon [1948] 1 All ER 536 ...... 132 Eastgate, Re, ex parte Ward [1905] 1 KB 465, 74 LJKB 324 ...... 218 Elithorn v Poulter [2009] All ER (D) 22 (Jan)...... 92 Endacott (Decd), Re , Corpe v Endacott [1960] Ch 232, [1959] 3 All ER 562, CA ...... 15, 20, 40, 41, 43, 44, 47 Essery v Cowlard (1884) 26 Ch D 191 ...... 86, 88 Eves v Eves [1975] 1 WLR 1338, CA ...... 86, 98, 101, 115

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Ex parte Belchier; Ex parte Parsons; In the Matter of Parsons, Bankrupt (1754) Amb 218, (1754) 27 ER 144 ...... 191 Eykyn’s Trusts, Re (1877) 6 Ch D 115, 37 LT 261 ...... 86, 91

Factortame, see R v Secretary of State for Transport, ex parte Factortame— Faraker, Re [1912] 2 Ch 488 ...... 138, 139, 154 Farepak Foods and Gifts Ltd (in administration), Re [2008] 2 BCLC 1 ...... 19, 26, 31 Farley and Others v Westminster Bank Ltd and Others, Re Ashton’s Estate, Westminster Bank Ltd v Farley [1939] 3 All ER 491, HL ...... 132 Fellowes v Fisher [1976] QB 122, [1975] 2 All ER 829, CA ...... 215 Finger’s Will Trust, Re [1972] Ch 286 ...... 138, 156 Firstpost Homes v Johnson [1995] 4 All ER 355, [1995] 1 WLR 1567 ...... 15, 17 Fisher v Brooker and Others [2009] 1 WLR 1764, (2009) The Times , 12 August ...... 210 Fletcher v Fletcher (1844) 4 Hare 67 ...... 56, 59, 66–7 Flight v Bolland (1828) 38 ER 817 ...... 217 Foskett v McKeown [2001] 1 AC 102 ...... 213, 224–5 Foster v Spencer [1996] 2 All ER 672, (1995) The Times , 14 June, HC...... 175 Fowkes v Pascoe (1875) LR 10 Ch App 343 ...... 86, 92, 104, 113 Fowler v Barron [2008] EWCA Civ 377, [2008] All ER (D) 318 (Apr) ...... 102, 103, 118 Frederick E Rose Ltd v William Pim Jnr & Co [1953] 2 QB 450 ...... 218 Fry v Tapson (1884) 28 Ch D 268 ...... 187, 191

Gardner (No 1), Re , Huey v Cunnington [1920] 2 Ch 523, CA ...... 71, 73 Gardner (No 2), Re [1923] 2 Ch 230, HC ...... 71, 74, 76, 79 Gascoigne v Gascoigne [1918] 1 KB 223, CA ...... 91 Gibbs v Harding [2007] EWHC 3 (Ch), [2008] Ch 235, Ch D ...... 135 Gillingham Bus Disaster Fund, Re [1959] Ch 62, [1958] Ch 300, HC ...... 86, 89, 103, 107, 165, 166 Gilmour v Coats and Others [1949] AC 426, [1949] 1 All ER 848, HL ...... 126, 132, 136, 148 Girls’ Public Day School Trust, Re : Girls’ Public Day School Trust Ltd v Minister of Town and Country Planning [1951] Ch 400 ...... 130

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Gissing v Gissing [1969] 2 Ch 85, [1970] 2 All ER 780, [1971] AC 886, HL ...... 86, 92, 98 Golay (deceased), Re ; Morris v Bridgewater and Others [1965] 2 All ER 660 ...... 15 Golay’s Will Trusts, Re [1965] 2 All ER 660 ...... 20, 26, 34 Goldcorp Exchange Ltd, Re [1995] 1 AC 74, [1994] 3 WLR 199 ...... 19, 26, 32–3 Gonin (Decd), Re [1979] Ch 16, HC ...... 59, 67 Goodman v Carlton [2002] All ER (D) 284, CA...... 98 Goulding v James [1997] 2 All ER 239, CA ...... 205–6, 207 Gower’s Settlement, Re [1934] Ch 365, 103 LJ Ch 164 ...... 198, 200 Grant v Edwards [1986] Ch 638, CA, [1986] 2 All ER 426 ...... 101, 115 Grant’s Wills Trusts, Re [1980] 1 WLR 360, HC ...... 45, 53 Gravesham Borough Council v British Railways Board [1978] Ch 379, [1978] 3 All ER 853, Ch D ...... 215 Gray, Re , Todd v Taylor [1925] Ch 362, 94 LJ Ch 430 ...... 134 Green’s Will Trusts, Re , Fitzgerald-Hart v Attorney-General [1985] 3 All ER 455, Ch D ...... 166 Grey v Inland Revenue Commissioners [1960] AC 1, [1959] 3 All ER 603, HL, afﬁ rming [1958] Ch 690, [1958] 2 All ER 428, CA, reversing [1957] TR 293, 102 SJ 84, Ch D ...... 15, 17, 23 Grove-Grady, Re [1929] 1 Ch 557, CA ...... 134, 150 Guild v Inland Revenue Commissioners [1992] 2 AC 310, [1992] 2 All ER 10, HL ...... 135 Guinness v Saunders [1990] 2 WLR 324, HL ...... 175 Gulbenkian’s Settlement Trusts, Re , Whishaw v Stephens [1970] AC 508, [1968] Ch 126, HL ...... 20, 26, 37, 37–8 Gwyon, Re , Public Trustee Attorney General [1930] 1 Ch 255, HC ...... 126, 130

Hagger, Re [1930] 2 Ch 190, HC ...... 95 Halifax Building Society v Thomas [1996] Ch 217, [1995] 4 All ER 673, [1996] 2 WLR 63, CA ...... 94 Hallett’s Estate, Re (1880) 13 Ch D 696, CA ...... 208, 212, 223 Halton International Inc and another v Guernroy Ltd [2006] EWCA Civ 801, CA ...... 211 Hambro v Duke of Marlborough [1994] 3 WLR 341...... 198, 200 Hammond v Mitchell [1991] 1 WLR 1127, HC ...... 101 Hanchett-Stamford v Attorney-General [2009] Ch 173, [2008] EWHC 330 (Ch), [2008] All ER (D) 391 (Feb), Ch D ...... 46, 55 Harari’s Settlement Trusts, Re [1949] 1 All ER 430...... 169

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Harries and Others v Church Commissioners for England [1993] 2 All ER 300, [1992] 1 WLR 1241 ...... 172, 180 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 ...... 174 Harwood, Re Coleman v Innes [1936] Ch 285 ...... 138, 139, 155 Hazell v Hazell [1972] 1 All ER 923, [1972] 1 WLR 301, CA ...... 101 Head v Gould [1898] 2 Ch 250 ...... 209, 221 Heilbut Symons & Co v Buckleton [1913] AC 30, 82 LJKB 245, HL ...... 218 Hetherington (deceased), Re [1990] Ch 1, [1989] 2 All ER 129, HC ...... 43, 50, 126, 136 Hobourn Aero Components Air Raid Distress Fund, Re , Ryan v Forrest [1946] Ch 194, CA, [1946] Ch 86, Ch D ...... 90 Hodgson v Marks [1971] Ch 892, CA ...... 90, 100, 103, 109 Holder v Holder [1968] Ch 353, CA ...... 165, 176, 184 Holmes v Attorney-General (1981) ...... 132 Holt’s Settlement, Re [1969] 1 Ch 100, HC...... 202, 204 Hooper, Re [1932] 1 Ch 38, HC ...... 40, 43, 49 Hopkins’ Will Trusts Re [1965] Ch 669, [1964] 3 All ER 46, HC ...... 126, 130, 131 Hopkinson, Re [1949] 1 All ER 346 ...... 131 Horley Town Football Club, Re , Hunt and another v McLaren and others [2006] EWHC 2386, [2006] All ER (D) 34, HC ...... 46, 54, 134 Howe v Earl of Dartmouth (1802) 7 Ves Jun 137 ...... 5, 165, 172, 173 Hubbard v Pitt [1976] QB 142 ...... 215 Hussey v Palmer [1972] 1 WLR 1286, CA ...... 86 Hunt v McLaren, see Horley Town Football Club, Re , Hunt and another v McLaren and others— Hunter v Moss [1994] 1 WLR 452, CA afﬁ rming [1993] 1 WLR 934 ...... 15, 19, 26, 32–3, 57

Incorporated Council of Law Reporting for England and Wales v Attorney-General [1972] Ch 73, [1971] 3 All ER 1029, CA ...... 126, 130, 133 Independent Schools Council v Charity Commission for England and Wales [2011] UKUT 421 ...... 130, 144 Industrial Development Consultants v Cooley [1972] 1 WLR 443, HC ...... 165, 177, 183 Inland Revenue Commissioners v Baddeley [1955] AC 572, [1955] 2 WLR 552, HL ...... 126, 134–6, 152 Inland Revenue Commissioners v Broadway Cottages Trust [1955] Ch 20, [1954] 1 All ER 878 ...... 20, 26, 36

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Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] AC 380, [1953] 1 All ER 747, HL ...... 134, 149–50 Inland Revenue Commissioners v McMullen and Others [1981] AC 1, [1979] 1 WLR 130, [1978] 1 WLR 664, CA ...... 131, 134, 146–7, 149 Inland Revenue Commissioners v Pemsel [1891] AC 531 ...... 126, 127, 129, 142–3

Jackson, Re , Jackson v Talbot (1882) 21 Ch D 786 ...... 198, 199 James v Thomas [2007] EWCA Civ 1212, [2007] 3 FCR 696, [2008] 1 FLR 1598, CA ...... 101 Jenkins’ Will Trusts, Re , Public Trustee v British Union for the Abolition of Vivisection [1966] Ch 249, [1966] 1 All ER 926, Ch D ...... 138 Jones, Re , Richards v Jones [1898] 1 Ch 438, 67 LJ Ch 211, Ch D ...... 19 Jones v Kernott [2011] UKSC 53 ...... 102, 117–8 Jones v Lock (1865) LR 1 Ch App 25, CA...... 15, 19, 26, 28–9, 56, 60–1 Joscelyne v Nissen [1970] 1 All ER 1213, CA ...... 218

Kayford Ltd, Re [1975] 1 WLR 279, [1975] 1 All ER 604, HC ...... 18, 26 Kay’s Settlement, Re [1939] Ch 329, [1939] 1 All ER 245 ...... 56, 59 Keech v Sandford (1726) Sel Cas Ch 61, LC ...... 165, 176, 185 Keen, Re [1937] Ch 236, CA ...... 71, 76, 77–8 Kelly, Re (1932) 4 ABC 258 ...... 43 Kelsen v Imperial Tobacco Co (of Great Britain and Ireland) Ltd [1957] 2 All ER 343, QBD ...... 216 Kennaway v Thompson [1981] QB 88, [1980] 3 WLR 361, CA ...... 214 Keren Kayemeth Le Jisroel v IRC [1932] AC 650, HL afﬁ rming [1931] 2 KB 465,, CA ...... 132 King, Re , Kerr v Bradley [1923] 1 Ch 243, [1923] All ER Rep 688 ...... 132, 136, 138, 139 Klug v Klug [1918] 2 Ch 67 ...... 167, 178 Knight v Knight (1840) 3 Beav 148 ...... 18, 26, 27 Koeppler’s Wills Trust, Re [1986] Ch 423 ...... 131, 133, 135, 151

Laing (JW) Trust, Re [1984] Ch 143 ...... 139, 141 Lake v Bayliss [1974] 2 All ER 1114, [1974] 1 WLR 1073 ...... 95 Lambe v Eames (1871) 6 Ch App 597 ...... 19 Laskar v Laskar [2008] All ER (D) 104 (Feb) ...... 102, 103

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Law Society of England and Wales v Habitable Concepts Ltd [2010] EWHC 1449 (Ch), [2010] All ER (D) 156 (Jun) ...... 98 Le Cren Clarke, Re , Funnell v Stewart, sub nom Funnell v Stewart [1996] 1 All ER 715, [1996] 1 WLR 288, Ch D ...... 40, 43 Le Foe v Le Foe [2001] All ER (D) 325, HC ...... 101 Leaf v International Galleries HC [1950] 2 KB 86 ...... 4, 12 Leahy v Attorney General for New South Wales [1959] AC 457, PC ...... 42, 45, 51 Learoyd v Whiteley (1887) 12 App Cas 727, 57 LJ Ch 390, HL, afﬁ rming (1886) 33 Ch D 347, CA ...... 165, 171, 191 Lepton’s Charity, Re [1972] Ch 276 ...... 140 Lewis (deceased), Re [1955] Ch 104, [1954] 3 All ER 257 ...... 133 Lipinski’s Wills Trusts, Re [1976] Ch 235, [1977] 1 All ER 33, HC ...... 40, 46, 54 Lipkin Gorman (A Firm) v Karpnale Ltd [1991] 2 AC 548, [1991] 3 WLR 10, [1992] 4 All ER 512, HL, reversing in part [1992] 4 All ER 409, [1989] 1 WLR 1340, CA, reversing in part [1992] 4 All ER 331, QBD ...... 97, 124, 213 Lister and Co v Stubbs (1890) 45 Ch D 1 ...... 184, 186 Lloyds Bank plc v Carrick [1996] Conv 295 ...... 95 Lloyds Bank v Duker [1987] 3 All ER 193 ...... 165, 172 Lloyds Bank v Rosset [1991] 1 AC 107, [1990] 1 All ER 111, HL ...... 86, 98, 99, 101, 114 Lloyds TSB Bank plc v Markandan and Uddin [2012] EWCA Civ 65, [2012] 2 All ER 884, CA...... 210 Locker’s Settlement Trusts, Re [1977] 1 WLR 1323 ...... 83, 84–5 Londonderry’s Settlement, Re [1965] Ch 918, [1964] 3 All ER 855 ...... 174, 181 London Hospital Medical College v IRC [176] 1 WLR 613 ...... 136 London Wine Company (Shippers) Ltd, Re [1986] PCC 121, HC ...... 19, 26, 32, 33 Lucking’s Will Trusts, Re [1968] 1 WLR 866 ...... 185, 191 Lysaght (Decd), Re , Hill v Royal College of Surgeons [1966] 1 Ch 191, [1965] 2 All ER 888, HL ...... 138 Lysaght v Edwards (1876) 2 Ch D 499, CA ...... 86, 95, 103, 114 Lyus v Prowsa Developments [1982] 1 WLR 1044 ...... 103

Macadam, Re [1946] Ch 73, HC ...... 176, 185 McCaig v University of Glasgow 1907 SC 231 ...... 40, 43, 48 McCaig’s Trustees v Kirk Session of United Free Church of Lismore 1915 SC 426 ...... 40, 42, 48 McCormick v Grogan (1869) LR 4 HL 82, HL ...... 76

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McGovern v Attorney General [1982] Ch 321, [1981] 3 All ER 493, HC ...... 125, 128, 133, 135, 136, 151 McGrath v Wallis [1995] 2 FLR 114, (1995) The Times , 13 April, CA ...... 92 MacJordan Construction Ltd v Brookmount Brostin Ltd [1992] BCLC 350 ...... 26 McPhail v Doulton [1971] AC 424, HL ...... 15, 20, 21, 26, 36–7, 44 Manser, Re : Attorney-General v Lucas [1905] 1 Ch 68 ...... 132 Mareva Compania Naviera SA v International Bulk Carriers SA [1975] 2 Lloyds Rep 509 ...... 8, 228 Margulies v Margulies (2000) 2 ITELR 641, [2000] All ER (D) 344, CA ...... 72 Mariette, Re [1915] 2 Ch 284 ...... 131 Martin v City of Edinburgh District Council [1989] 1 PLR 9, 1988 SLT 329, 1988 SCLR 90, Ct of Sess ...... 172 Mason v Fairbrother [1983] 2 All ER 1078 ...... 198, 199 Medlock, Re , Rufﬂ e v Medlock (1886) 55 LJ Ch 738, 54 LT 828, Ch D ...... 187, 194 Midland Bank v Cooke [1995] 4 All ER 562 ...... 103, 116 Midland Bank v Wyatt [1995] 1 FLR 696 ...... 19, 26, 30–1 Miller v Jackson [1977] QB 966, [1977] 3 All ER 338, CA ...... 214 Miller’s Trust Deed, Re (1978) 75 LSG 454 ...... 208, 209 Mills v Haywood (1877) 6 Ch D 196 ...... 217 Milroy v Lord (1862) 31 LJ Ch 798 ...... 56, 57, 61, 62 Montagu’s Settlement Trusts, Re [1987] Ch 246, HC ...... 97, 123, 124 Moore v McGlynn (1894) 1 IR 74, (1874) LR 18 Eq 474 ...... 161 Morice v Bishop of Durham (1804) 9 Ves Jr 399, (1805) 10 Ves Jr 522 ...... 40, 42, 48 Morris v Morris [2008] EWCA Civ 257, [2008] Fam Law 521, CA ...... 101 Moss, Re [1949] 1 All ER 495 ...... 134 Moss v Cooper (1861) 1 J & H 352, HL ...... 71, 72, 76, 78 Mussett v Bingle [1876] WN 170, HC ...... 43, 48–9

Nant-y-glo and Blaina Ironworks Co v Grave (1878) 12 Ch D 738 ...... 209 National Anti-Vivisection Society v IRC [1948] AC 31, [1947] 2 All ER 217, HL ...... 133 Nestlé v National Westminster Bank [1993] 1 WLR 1260, CA ...... 172, 179 Neville v Wilson [1997] Ch 144, [1996] 3 All ER 171, [1996] 3 WLR 460, CA ...... 103

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Neville Estates Ltd v Madden and Others [1962] Ch 832, [1961] 3 All ER 769, HC ...... 40, 45, 52 Niyazi’s Will Trusts, Re [1978] 3 All ER 785, HC ...... 130 Nottage, Re [1895] 2 Ch 649 ...... 131, 134

OT Computers Ltd v First National Tricity Finance Ltd [2003] EWHC 1010, HC ...... 20 Oatway, Re [1903] 2 Ch 356 ...... 225 Olins v Walters [2009] Ch 212, [2008] EWCA Civ 782 ...... 95, 125 Oldham, Re [1925] Ch 75, HC ...... 94, 118 Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297, [1951] 1 TLR 118, [1951] 1 All ER 31, HL ...... 136, 153 Osoba, Re [1979] 1 WLR 247, CA ...... 89, 103, 108 Ottaway v Norman [1972] Ch 698, [1971] 3 All ER 1325, HC ...... 71, 73, 75, 76, 79, 86, 96 Oughtred v Inland Revenue Commissioners [1960] AC 206, HL [1958] Ch 383, CA ...... 15, 17, 25 Oxley v Hiscock [2004] EWCA Civ 546, [2005] Fam 211, CA ...... 102, 103, 116

Palmer v Simmonds (1854) 2 Drew 221, HC ...... 19, 26, 31 Paragon Finance v Thakerar [1999] 1 All ER 400, CA ...... 93 Paradise Motor Co, Re [1968] 1 WLR 1125, CA ...... 15, 17 Patel v Ali [1984] Ch 283, [1984] 1 All ER 978 ...... 217, 230 Paul v Constance [1977] 1 All ER 195, [1977] 1 WLR 527, CA ...... 19, 26, 28, 56, 58, 63 Pauling’s Settlement Trusts, Re [1964] Ch 303, CA ...... 187, 196, 197, 208, 210, 220 Pearson v Lehman Brothers Finance SA [2010] EWHC 2914 (Ch), [2010] All ER (D) 232 (Nov), Ch D ...... 19 Peggs v Lamb [1994] Ch 172, 195, [1994] 2 All ER 15, [1994] 2 WLR 1 ...... 139, 141 Pennington v Waine and Others [2002] 1 WLR 2075, [2002] All ER (D) 24, CA ...... 57, 62, 64 Pettingall v Pettingall (1842) 11 LJ Ch 176 ...... 40, 43, 49 Pettitt v Pettitt [1970] AC 777, [1969] 2 All ER 385, HL ...... 91, 92, 98, 100, 104, 111 Peyman v Lanjani [1985] Ch 457, [1984] 3 All ER 703, CA ...... 218 Phillips v Royal Society for the Protection of Birds [2012] EWHC 618 ...... 138, 155 Pilkington v IRC [1964] AC 612, [1962] 3 All ER 622 ...... 187, 195, 196 Pinion (Decd), Re , Westminster Bank Ltd v Pinion and Another [1965] 1 Ch 85, CA ...... 125, 131, 133, 145–6

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Pirbright v Salway [1896] WN 339, Ch D ...... 40, 43 Plumptre’s Marriage Settlement, Re , Underhill v Plumptre [1910] 1 Ch 609 ...... 58, 65 Polly Peck International plc (in administration) (No 2), Re : Marangos Hotel Co Ltd v Stone [1998] 3 All ER 812, CA ...... 94 Polly Peck International plc (in administration) (No 5), Re [1998] 3 All ER 812 ...... 103, 113–14 Posner v Scott-Lewis [1987] Ch 25 ...... 7, 217, 229 Power, Re [1947] Ch 572 ...... 198, 200 Price v Strange [1978] Ch 337, [1977] 3 All ER 371 ...... 217 Pride of Derby Angling Association v British Celanese and Others [1953] Ch 149 ...... 208, 215 Printers’ and Transferrers’ Amalgamated Trades Protection Society, Re [1899] 2 Ch 84, HC ...... 40, 46, 90 Protheroe v Protheroe [1968] 1 All ER 1111, [1968] 1 WLR 519, CA ...... 165, 176 Pryce, Re , Nevill v Pryce [1917] 1 Ch 234, HC ...... 59 Pullan v Koe [1913] 1 Ch 9, HC ...... 56, 58, 65

Quadrant Visual Communications Ltd v Hutchinson Telephone (UK) Ltd (1991) Times , 4 December, CA ...... 217 Queensland Mines v Hudson (1978) 18 ALR 1, (1979) 42 MLR 711 ...... 177, 183–4

R v District Auditor No 3 Audit District of West Yorkshire Metropolitan County Council ex parte West Yorkshire Metropolitan County Council (1986) 26 RVR 24, DC . . . 15, 21, 39, 41 R v Ghosh [1982] QB 1053 ...... 97 R v Secretary of State for Transport, ex parte Factortame Ltd, sub nom Factortame Ltd v Secretary of State for Transport [1990] 2 AC 85, [1989] 2 All ER 692, HL ...... 214 Ralli’s Will Trusts, Re [1964] Ch 288, HC ...... 58, 63 Reading v Attorney-General [1951] AC 507 ...... 176, 182 Recher’s Will Trusts, Re [1972] Ch 526, [1971] 3 All ER 401, HC ...... 45, 53 Redland Bricks Ltd v Morris [1970] AC 652 ...... 214 Rees Wills Trust, Re [1950] Ch 204, CA ...... 76 Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378, HL, [1967] 2 AC 134n ...... 165, 177, 182 Remnant’s Settlement Trusts, Re , [1970] Ch 560 ...... 198, 202, 207 Resch’s Will Trusts, Re [1969] 1 AC 514 ...... 133, 135, 149 Ridgwell v Ridgwell [2007] EWHC 2666 (Ch) ...... 201

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Roberts, Re [1946] Ch 1 ...... 104 Robinson (deceased), Re [1951] Ch 198 ...... 133 Rose, Re , Rose v IRC [1952[ Ch 499, [1952] 1 All ER 1217, CA ...... 56, 57, 61, 62 Rouchefoucauld v Boustead [1897] 1 Ch 196 ...... 18, 22 Rowntree (Josehp) Memorial Trust Housing Association Ltd v Attorney-General [1983] Ch 159, [1983] 1 All ER 288, Ch D ...... 133 Royal Brunei Airlines Sdn Bhd v Tan Ming [1995] 2 AC 378, [1995] 3 WLR 64, [1995] 3 All ER 97 ...... 86, 96, 119–20 Royal Choral Society v Inland Revenue Commissioners [1943] 2 All ER 101 ...... 130, 146, 149 Royal College of Surgeons of England v National Provincial Bank Ltd [1952] 1 All ER 984 ...... 130 Ryan v Mutual Tontine Westminster Chambers Association [1893] 1 Ch 116 ...... 7, 217, 229 Rymer, Re [1895] 1 Ch 19 ...... 138, 139, 154

Sacred Hands Spiritual Centre’s Application for Registration as a Charity [2006] WTLR 873 ...... 148 Salusbury v Denton (1857) 3 K & J 529, HC ...... 137 Sanders’ Will Trust, Re [1954] 1 Ch 265, ChD, [1954] 1 All ER 667, [1954] 2 WLR 487 ...... 125, 130, 144 Sanderson’s Trusts, Re (1857) 3 K & J 497, 26 LJ Ch 804 ...... 89 Satterthwaite’s Will Trusts, Re [1966] 1 WLR 277, CA...... 138 Saunders v Vautier [1835–42] All ER 58, (1841) Cr & Ph 240 ...... 198, 199, 202 Sayers v Collyer (1884) 28 Ch D 103, 54 LJ Ch 1, [1881–5] All ER Rep 385, CA ...... 216 Scarisbrick, Re , Scarisbrick’s Will Trusts [1951] Ch 622, CA ...... 125, 130, 135, 143 Schmidt v Rosewood Trust Ltd [2003] 2 WLR 1442, [2003] 3 All ER 76, PC ...... 174, 181–2 Scott v National Trust [1998] 2 All ER 705 ...... 167, 178 Scottish Burial Reform and Crematorium Society v Glasgow Corporation [1968] AC 138, HL ...... 127 Scowcroft, Re [1898] 2 Ch 638, HC ...... 131, 135 Seale’s Marriage Settlement, Re [1961] 3 All ER 136 ...... 202 Sen v Headley [1991] Ch 425, [1991] 2 WLR 1308, CA ...... 56, 59, 69 Series 5 Software v Clarke [1996] 1All ER 853 ...... 215 Sharpe (a Bankrupt), Re [1980] 1 WLR 219, [1980] 1 All ER 198, HC ...... 104

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Shaw, Re [1958] 1 All ER 245n, CA, on appeal from [1957] 1 All ER 745, Ch D ...... 126, 130, 145 Shaw’s Will Trust, Re [1952] 1 All ER 712 ...... 130 Shelfer v City of London Electric Lighting Co [1895] 1 Ch 287 ...... 208, 216 Shephard v Cartwright [1955] AC 431, [1954] 3 All ER 649 ...... 86, 91 Shepherd Homes v Sandham [1971] 1 Ch 340 ...... 216 Shipwrecked Fishermen’s and Mariners’ Royal Benevolent Society, Re [1959] Ch 220 ...... 200 Sick and Funeral Society of St John’s Sunday School Golcar, Re [1973] Ch 51, [1972] 2 All ER 439, Ch D ...... 40, 46, 90 Siffert, Re (1961) ...... 198, 201 Sinclair Investments (UK) Ltd Holding SA v Versailles Trade Finance Ltd [2011] EWCA Civ 722, CA ...... 176, 184 Sky Petroleum Ltd v VIP Petroleum Ltd [1974] 1 WLR 576 ...... 214 Slevin, Re , Slevin v Hepburn [1891] 2 Ch 236, CA ...... 138, 139 Smith, Re , Public Trustee v Aspinall [1928] Ch 915, HC ...... 83, 85 Snowden, Re , Smith v Spowage and Others [1979] Ch 528, [1979] Conv 448, HC ...... 71, 73, 74, 76, 80 Solle v Butcher [1950] 1 KB 671 ...... 218 South Carolina Insurance Co v Assurantie Maatschappij de Zeven Provincien NV [1987] AC 24, [1986] 3 All ER 487, HL ...... 213 South Place Ethical Society, Re [1980] 1 WLR 1565, HC ...... 132, 147 Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] 1 WLR 1072 ...... 213 Speight v Gaunt (1883) 9 App Cas 1 ...... 157, 161, 187, 191 Spiller v Bolton (1947) ...... 217 Sprange v Barnard (1789) 2 Bro CC 585, CA ...... 15, 19, 20, 26, 32 Stack v Dowden [2007] UKHL 17, [2007] 2 AC 432, HL ...... 99–102, 110, 116 Staden v Jones [2008] 2 FLR 1931 ...... 18, 26, 27 Standford, Re (1924) ...... 138 Starglade Properties Ltd v Nash [2010] EWCA Civ 1314, [2011] Lloyd’s Rep FC 102, CA ...... 97 Stead, Re , Witham v Andrew [1900] 1 Ch 237, HC ...... 76 Steed’s Will Trust, Re , Sandford v Stevenson [1960] Ch 407, [1960] 1 All ER 487 ...... 201, 206 Steel’s Will Trusts, Re , National Provincial Bank Ltd v Steele [1948] Ch 603, HCM ...... 19, 26, 30, 198

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Stock v McAvoy (1872) LR 15 Eq 55 ...... 100 Strakosch, Re [1949] Ch 529, 539, [1949] 2 All ER 6, [1949] LJR 1477 ...... 133 Stratton, Re , Knapman v Attorney-General [1931] 1 Ch 197, 100 LJ Ch 62, [1930] All ER Rep 255, CA ...... 132 Strickland’s Will Trusts, Re , National Guarantee and Suretyship Association Ltd v Maidment [1936] 3 All ER 1027, Ch D ...... 132 Strong v Bird (1874) LR 18 Eq 315, CA ...... 56, 59, 67, 68 Suffert’s Settlement, Re [1961] Ch 1, HC ...... 203 Sutton, Re : Stone v Attorney-General (1885) 28 Ch D 464 ...... 126, 137 Swain v The Law Society [1983] 1 AC 598, [1982] 2 All ER 827, HL ...... 176

TB, Re [1967] Ch 247, [1966] 3 All ER 509 ...... 16 T’s Settlement Trusts, Re [1964] Ch 158, [1963] 3 All ER 759, Ch D ...... 82, 84, 198, 202, 204 Target Holdings Ltd v Redferns (A Firm) [1996] AC 421, [1995] 3 All ER 785 ...... 208–10, 219 Taylor v Plumer (1815) 3 M & S 562 ...... 208, 211, 212, 222 Taylor v Taylor (1875) LR 20 Eq 155, Ch D ...... 195 Templeton Insurance Ltd v Penningtons Solicitors [2006] All ER (D) 191, HC ...... 89 Thomas v Howell (1874) LR 18 Eq 198, 43 LJ Ch 511 ...... 135 Thomas v Time Books [1966] 1 WLR 911...... 56, 57, 60 Thompson v Thompson (1844) 13 LJ Ch 455 ...... 126, 129 Thomson, Re , Thomson v Allen [1930] 1 Ch 203 ...... 176, 185 Thorner v Major, sub nom Thorner v Curtis [2009] UKHL 18, [2009] 3 All ER 945, HL ...... 60 Thornton v Howe (1862) 31 Beav 14 ...... 132 Tilley’s Will Trust, Re [1967] Ch 1179 ...... 208, 212, 225–6 Tinker v Tinker [1970] 1 All ER 540, [1970] P 136, CA ...... 91 Tinker’s Settlement Trusts, Re [1960] 3 All ER 85n, [1960] 1 WLR 1011, Ch D ...... 198, 202 Tinsley v Milligan [1994] 1 AC 340, [1993] 3 All ER 65, [1993] 3 WLR 126, HL, afﬁ rming [1992] Ch 310, [1992] 2 All ER 391, CA ...... 91, 100, 104, 111, 112 Tito v Waddell (Ocean Island No 2) [1977] Ch 106, [1977] 2 WLR 496 ...... 176 Town Investments Ltd v Department of the Environment [1978] AC 359, [1977] 1 All ER 813, HL ...... 158 Tribe v Tribe [1996] Ch 107, [1995] 3 WLR 913, CA ...... 91, 104, 112

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Trustee of the Property of FC Jones and Sons (a ﬁ rm) v Jones [1997] Ch 159, [1996] 4 All ER 721, [1996] 3 WLR 703, CA ...... 212, 223 Tuck’s Settlement Trusts, Re [1978] Ch 49, HC ...... 26 Turner, Re , Barker v Ivimey [1897] 1 Ch 536, Ch D ...... 210 Turner v Turner [1984] Ch 100, [1983] 2 All ER 745, Ch D ...... 167 Turner’s Will Trusts [1937] Ch 15 ...... 187, 193 Twinsectra v Yardley [2002] 2 All ER 377, [2002] UKHL 12, HL ...... 88, 97, 120, 121

United Grand Lodge of Ancient Free and Accepted Masons v Holborn Borough Council [1957] 1 WLR 1090, HC ...... 132

Vandervell v Inland Revenue Commissioners [1967] 2 AC 291, HL, afﬁ rming [1966] Ch 261, CA, on appeal from [1966] Ch 261, Ch D ...... 15, 17, 24, 87, 89, 103 Vandervell’s Trusts, Re (No 2) [1974] Ch 269, [1974] 1 All ER 47, CA ...... 26–7, 86, 105–6 Varsani v Jesani [1999] Ch 219, [1998] 3 All ER 273, CA ...... 132 Verge v Somerville [1924] AC 650 ...... 136 Vernon’s Will Trusts, Re [1972] Ch 300 ...... 138, 139 Vickery, Re : Vickery, Vickery v Stephens [1931] 1 Ch 572 ...... 187, 191, 209 Vinogradoff, Re [1935] WN 68, HC ...... 86, 90, 103, 110, 158

Walker v Stones [2000] 4 All ER 412, [2000] Lloyds Rep PN 877, CA ...... 162, 163–4, 210, 222 Wallgrave v Tebbs (1855) 2 K & J 313, HC ...... 71, 72, 76, 77 Warren v Gurney [1944] 2 All ER 472, CA ...... 92 Waterman’s Will Trusts, Re , Lloyds Bank Ltd v Sutton [1952] 2 All ER 1054, Ch D ...... 157, 162 Webster v Cecil (1861) 30 Beav 62 ...... 5, 7, 217, 230 Wedgwood, Re , Allen v Wedgwood [1915] 1 Ch 113, CA...... 133, 150 West Sussex Constabulary’s Widows, Children and Benevolent (1930) Fund Trusts, Re [1971] Ch 1, HC . . . . . 90, 104, 108 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, [1996] 2 All ER 961, HL ...... 93, 104, 106 Weston’s Settlement Trust, Re [1969] 1 Ch 223, CA ...... 198, 201, 203–4 Whitehead’s Will Trusts, Re , Burke v Burke [1971] 2 All ER 1334, [1971] 1 WLR 833, Ch D ...... 202 Wilkes v Allington [1931] 2 Ch 104 ...... 56, 59, 68–9

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Williams (1942), see Ashman v Price and Williams— Williams v Parris [2008] EWCA Civ 1147, [2009] 1 P & CR 169, CA ...... 101 Williams’ Trustees v IRC [1947] AC 447, HL ...... 133, 135 Wilson, Re [1913] 1 Ch 314 ...... 138 Windeatt’s Will Trusts, Re [1969] 1 WLR 692 ...... 202 Woodard v Woodard [1995] 3 All ER 980, [1992] RTR 35, (1991) The Times , 18 March, CA ...... 59, 69–70 Woodham Deceased, Re [1981] 1 All ER 202, HC ...... 138, 139 Wragg, Re [1918–19] All ER 233 ...... 165, 167 Wright, Re , Blizard v Lockhart [1954] Ch 347, [1954] 2 All ER 98, CA ...... 138, 139, 155 Wright v Atkyns (1823) 37 ER 1051 ...... 15, 18 Wrotham Park Estates Ltd v Parkside Homes Ltd [1974] 1 WLR 798, [1974] 3 All ER 321 ...... 215, 227 Wyndham v Egremont [2009] EWHC 2076 (Ch) ...... 201, 205

Yeoman’s Row Management Ltd v Cobbe [2008] UKHL 55, [2008] 4 All ER 713, HL ...... 60 Young, Re [1951] Ch 344, HC ...... 74, 76, 81, 126, 129

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25726.indb xxx 18/11/2013 10:40 Introduction to 1 Equity & Trusts

History of equity Equitable maxims

• Defects in common law writ system • Equity acts in personam . and inadequate remedies. • Equity looks to intention, not the • Petitioning of King for fair solution as form. ‘fountain of justice’. • Delay defeats equity. • Delegation of task to Lord • Equity regards that which should Chancellor. be done as being done. • Creation of separate Court of • Equity is equality. Chancery – staffed by clerics. • He who comes to equity must • Solutions based on discretion of come with clean hands. court. • Equity will not assist a volunteer. • Conﬂ ict in Earl of Oxford’s case – in • First in time prevails. conﬂ ict, equity prevails. • Equity will not suffer a wrong to be • Merged with common law in without a remedy. Judicature Acts 1873 and 1875. • Equity will not allow statute to be • Still developing, e.g. search orders used as an engine of fraud. and freezing injunctions. • Equity follows the law.

Equitable remedies Deﬁ nition/classiﬁ cation of trusts

• Injunctions – to prevent occurrences • Settlor/donor transfers real or such as a breach of trust. personal property to trustee to • Specifi c performance – to ensure a use for benefi t of benefi ciaries or contract is carried out. for purposes (charity). • Rescission – to return parties to a • Can be expressed by settlor, pre- contractual position. implied by law or statutory. • Rectifi cation – to change a • Can be private (human document to refl ect an actual benefi ciaries) or public, e.g. agreement. charitable purposes. • Can be fi xed (settlor’s terms) or discretionary (decided by trustee).

25726.indb 1 18/11/2013 10:40 2 Introduction to Equity & Trusts

Equitable interests Context of trusts

• Equitable redemption of a mortgage • Pension funds. – to allow larger loans with security • Investment – unit trusts. for lender, based on legal title. • Security for loans. • Lien – to hold property until a debt • Voluntary arrangements with paid. creditors. • Restrictive covenants – to retain • NHS trusts. control over use of land sold. • Trade union funds. • Easements – to enable legitimate • Co-ownership. use of another person’s land. • Clubs and unincorporated • The trust itself – a means of splitting associations. legal and beneﬁ cial ownership to • Charities. protect beneﬁ cial owner by allowing • Non-charitable purposes. him to enforce terms of trust. • Protection of minors. • Nominees in property transfers. • Protective trusts. • Secret trusts. • Preserving wealth. • Disputes over property ownership. • Tax saving.

Z 1.1 A brief history of equity 1.1.1 The origins of equity 1 Following the Norman Conquest, law was at fi rst administered by the King’s Council, the Curia Regis . 2 Later, a system of courts was developed with specifi c jurisdiction. 3 Henry II played a major role in developing the legal system and created a professional judiciary, administering courts that dispensed justice on ‘circuits’ travelling around the country, and in a settled bench at Westminster. 4 But the common law was formal, slow- moving and highly technical. 5 A variety of signifi cant defects – it was out of the need to inject fairness and justice into the legal system that equity grew. Defects included: O the writ system developed so that judges could reach decisions based on established legal reasoning; O but became very formalised; the maxim ‘no remedy without a writ’; O writ system also depended on ‘oral pleading’ – which had defi ciencies – a mistake in reciting the Latin could lose the action;

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O with growth in number of writs to respond to new ‘original’ types of action, law became bulky for lawyers who were bound to remember writs for oral pleadings; O because of this, Provisions of Oxford 1258 and Statute of Westmin- ster 1285 restricted introduction of new writs – with consequent injustice to potential claimants without a formal claim; O use of juries unpredictable as jurors (in trial by presentiment, in effect a type of witness) could be bribed or intimidated; O common law courts provided only one remedy – damages, or money compensation – often an ineffective remedy, particularly in the case of interference in a person’s property rights; O common law preoccupied with form – e.g. parol evidence rule. 6 Equity developed to combat defi ciencies – initially from disgruntled liti- gants petitioning the king for fairer answer as ‘fountain of all justice’. 7 But extent to which people petitioned him led to delegation of responsibility to the Lord Chancellor – who was a cleric (churchman), and considered to be ‘keeper of the king’s conscience’. 8 Extent of petitioning led to creation of separate court – Court of Chancery, staffed by clerks of Chancellor – independent court in 1474. 9 Court not bound by writ system – based decisions on fact, not law – and cases heard in English, not Latin. 10 New procedures introduced included: O an order for disclosure of documents; O a subpoena to compel attendance in court for examination. 11 Because Chancery overruled decisions of the common law courts, confl ict developed between the two. 12 That decisions were based on discretion was a source of contempt in the common law courts – hence John Sedden’s criticism that ‘if the measure of equity was the Chancellor ‘s own conscience, one might as well make the standard measure of one foot the Chancellor’s foot’. 13 Confl ict came to a head in the Earl of Oxford’s Case (1616). Ellesmere incensed Chief Justice Coke of Common Pleas by issuing writs of habeas corpus, and the king decided that in confl ict, equity would prevail. 14 Eventually, equity became just as formalised as common law and subject to its own technicalities and was heavily criticised in the nineteenth century for excessive delays. In the Judicature Acts 1873 and 1875, the Court of Chancery became a division of the new High Court and

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equitable remedies could be awarded in any court alongside the common law remedy of damages. 15 As a result of potential confl ict when administering both types of remedies, s 25 Judicature Act 1873 provided that in the event of a confl ict of principles, equitable principle should prevail. 16 So equity is defi ned as ‘that body of legal principles built up by the old Court of Chancery, supplemental and superior to the common law’. 17 And equity has been responsible for creating a variety of interests and remedies otherwise unavailable at common law, and is still capable of expanding, e.g. search orders, freezing injunctions.

1.1.2 The equitable maxims 1 The basic character of equity and its key purpose was to introduce fairness and justice into law – on which basis a system of determining the outcome of disputes also evolved, based on reaching a fair solution. 2 These principles guiding judges in a court of equity developed and are known as the maxims of equity – all have to do with fairness. 3 They are guiding principles and so are only followed subject to the discretion of the court – they include: O equity acts in personam : O an equitable dispute is between the parties; O so it will not pass onto a third party. O equity looks to the intention not the form: O the classic example is equitable redemption of a mortgage; O the purpose of the mortgage is to secure a higher loan than would otherwise be possible; O and the mortgagee is protected by being granted beneﬁ cial rights in the property by the mortgagor. O delay defeats equity: O the equitable equivalent of limitation; O if a person seeking an equitable solution to a legal problem fails to bring an action in a reasonable time, he may lose remedy ( Allcard v Skinner (1887); Leaf v International Galleries (1950) (both contract law cases)).

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O equity regards that which should be done as being done: O the remedy of specifi c performance is an obvious example; O as is the rule in Howe v Earl of Dartmouth (1802) on the duty to act fairly between benefi ciaries. O equity is equality: O equity tends towards an equal division of property unless the contrary is shown ( Burrough v Philcox (1840)). O he who comes to equity must come with clean hands – and he who seeks equity must do equity: O both involve the unwillingness of equity to produce a remedy for a party who himself behaves unconscionably; O fi rst refers to past conduct – denial of specifi c performance for trying to take advantage of a mistake in a document of transfer ( Webster v Cecil (1861)); O second demands a basic standard for future conduct – person seeking an injunction to prevent a breach of contract must be prepared to perform his side of the bargain (Chappell v Times Newspapers (1975)). O equity will not assist a volunteer: O where there is a covenant to settle property by trust, the trust is only enforceable by those who have provided consideration; O however, the rule has some well- established exceptions. O where equities are equal, the fi rst in time prevails: O whenever trying to assert any equitable right against the owner of an existing equitable right. O equity will not suffer a wrong to be without a remedy: O includes remedies such as specifi c performance and injunctions – because damages are inadequate; O and the trust itself – which allows the benefi cial owner to enforce the trust against the legal owner, the trustee. O equity will not allow statute to be used as an engine of fraud: O commonly used where to allow a party to rely on a statutory provision is to another’s detriment, e.g. the requirement of writing in s 53 Law of Property Act 1925 ( Bannister v Bannister (1948)); O also the basis of the secret trust – trust enforceable despite not conforming to the Wills Act.

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O equity follows the law: O equity acts in personam by seeking to prevent injustice, not by replacing or overruling common law; O so restrictive covenants enforced to avoid unconscionable behaviour by parties subject to them (and genuine interests of legal owner of land are not interfered with); O but positive covenants are not enforced because this would inter- fere with the common law doctrine of privity (the person trying to enforce the covenant not being a party to it).

1.1.3 Equitable interests (beside the trust) 1 Equitable redemption of a mortgage: O equitable redemption of a mortgage allows wider land ownership; O involves conveyance of equitable interests in property with provision for redemption, i.e. upon repayment of the loan but will usually now be a legal mortgage; O mortgagor can use land purchased as collateral for loan; O mortgagee holds legal interest in land so loan is protected if mortgagor defaults on loan. 2 Lien: O a device of commercial law that again splits proprietary interests; O creditor of a debt can legally hold property that is subject to the debt until the debt is paid. 3 Restrictive covenants: O a way of retaining proprietary interest over land that has been sold; O vendor inserts a covenant with initial purchaser, e.g. preventing use of land for business purposes; O all subsequent owners of the land are bound – and all subsequent owners of the vendor’s land can enforce the covenant. 4 Easements: O a means of securing rights over another person’s property; O could be, e.g. rights of way – and are enforceable; O easements can also be legal.

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1.1.4 Equitable remedies 1 Injunctions: O an enforceable order of the court to prevent unjust behaviour, e.g. breach of contract, breach of trust; O usually prohibitory rather than mandatory because of the diffi culty of overseeing them otherwise; O can be fi nal (include all necessary relief), or interim (in advance of trial of the issue). 2 Specifi c performance: O enforceable order of court for contract be carried out, e.g. transfer of land; O because of diffi culty of enforcing, only available where subject of contract is unique, e.g. land; and damages would be inadequate – compare Ryan v Mutual Tontine (Westminster Chambers) Association (1893) with Posner v Scott-Lewis (1987). 3 Rescission: O more of relevance to contracts; O where a vitiating factor would make the contract voidable by one party, rescission is a remedy putting the parties back to their pre- contractual position if that is possible to achieve. 4 Rectifi cation: O appropriate where a written contract is inaccurate as to the actual terms of the contract; O where equitable, court will order a written document to be changed to refl ect actual agreement – outcome in Webster v Cecil (1861). 5 Account: O a trustee must account for all profi ts made from the position as trustee or for any losses caused to the trust; O this is part of the trustee’s personal liability. 6 Tracing: O tracing is a proprietary remedy; O and is a basic means of recovering property belonging to the trust.

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1.1.5 The scope for expansion and development 1 Lord Denning in particular thought that there was scope to use equity to continue to add fairness and justice to the law. 2 The ‘fair and equitable’ cases in implied co- ownership illustrate this, with resulting and constructive trusts used interchangeably. 3 Developments of speciﬁ c uses for injunctions also show expansion: O search orders – originally Anton Piller orders – originated in Anton Piller KG v Manufacturing Processes Ltd (1976) to permit entry to defendant’s premises to search for documents that may incriminate the defendant – so subject to strict constraints; O freezing injunctions – originally Mareva injunctions – originated in Mareva Compania Naviera SA v International Bulk Carriers SA (1975) as means of preventing defendant from disposing of assets to defeat a judgment – so only awarded subject to strict controls, otherwise may force defendant out of business.

Z 1.2 The basic character of a trust 1.2.1 The nature of the trust 1 The trust is an instrument originally devised by equity. 2 It helps to distinguish between legal and benefi cial ownership of property and also to protect benefi cial interests. 3 Legal title vests in trustees while benefi cial entitlement is with benefi ciaries (in certain cases, e.g. express co- ownership, these may be the same people). 4 Trustees must carry out requirements of trust according to what is in the trust instrument or according to law. 5 Courts will uphold wishes of settlor/testator and protect legitimate interests of all benefi ciaries. 6 Mechanism preserves the justice (equity) of the situation.

1.2.2 Deﬁ nition of a trust 1 A trust is: O a legal (equitable) arrangement by which:

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O one person, called settlor/donor (inter vivos) or testator (on death); O transfers title in property (whether realty or personalty); O to another person(s) called the trustee(s) (the person(s) responsible for administering the trust). O in doing this the settlor/testator, through the trust instrument, (or the courts in certain instances): O directs the trustee(s) to hold or use the property; O for the benefi t of certain persons (donees under an inter vivos gift – benefi ciaries in inheritance on death); O or for the promotion of certain purposes (and with few exceptions these purposes must be charitable). 2 If the trustee(s) undertake(s) to carry out directions of settlor/testator (or of court) then they become subject to a binding legal obligation which equity will enforce. 3 A trust imposes a duty on a trustee. By contrast a settlor may impose a power on another person which allows a donee of a power a discretion whether or not to act. 4 An example of a power is where a settlor grants a power to his surviving widow to appoint one of their children to money from his estate. The widow has a choice whether or not to appoint. 5 Trusts always impose imperative duties on the trustee whereas powers are discretionary. 6 Where a power is imposed on a trustee it is regarded as a fi duciary power. It means the trustee does not have to exercise the power but the trustee must consider whether or not to act.

1.2.3 Classiﬁ cations of trusts 1 Trusts can be classiﬁ ed in different ways according to context. 2 These include: O classifcation according to method of creation : O express trusts – created by settlor/testator; O implied trusts – created usually by operation of law; O statutory trusts – ‘trusts of land’ under Trusts of Land and Appointment of Trustees Act 1996.

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O classifi cation according to type of benefi ciary : O private trusts – for individual benefi ciaries or classes of benefi ciary; O public trusts – usually for a purpose, e.g. charities. O classifi cation according to the character of the interest : O fxed trusts – an exact sum identifi ed by the settlor/testator or the residuary estate; O discretionary trusts – the interest and the exact distribution of the property is identifi ed by the trustee.

1.2.4 The context in which trusts operate 1 Trusts originated to protect the family interests of absent knights. 2 The simple mechanism of splitting legal and benefi cial interests in property has allowed trusts to expand and gain a context in the modern world as a means of responding fl exibly to most problems thrown up by property ownership. 3 Different uses of the trust include: O pension funds: O trust used to protect the fund; O and for tax concessions advantage. O investment – unit trusts: O safer way to invest in shares; O because the fund is managed by trustees. O security for loans: O copying traditional mechanism of mortgage in real property; O trusts can be attached to loans generally to protect the loan ( Barclays Bank v Quistclose Investments Ltd (1968)). O voluntary arrangements with creditors: O creditors subject to the arrangement can be protected as against other creditors, e.g. during liquidation. O NHS trusts: O users of services are not quite in same position as benefi ciaries of a trust; O but management and administration of facilities are handled in the same way;

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O created by National Health Service and Community Care Act 1990. O trade union funds: O s 2 Trade Union and Labour Relations Act 1974; O means funds held on trust for benefi t of Union (not members). O co- ownership of land: O trust is the accepted method of joint ownership of property; O before 1996 as a trust for sale; O since the Trusts of Land and Appointment of Trustees Act (TOLATA) 1996 as a trust of land. O clubs and other unincorporated associations: O only incorporation creates a separate legal personality; O so if unincorporated, then a trust is a means of holding property for the benefi t of members. O charities: O the most common purpose trust; O but subject to various requirements. O non- charitable purpose trusts: O can be trusts for monuments or tombs; O and specifi c animals. O Protection of minors’ interests: O Law of Property Act 1925 prevents minors from holding the legal estate of land; O originally any gift of land to a minor would create a settlement under Settled Land Act 1925; O now it would create a trust of land under TOLATA 1996. O use of nominees in property transfers: O common in larger purchases of shares; O used to hide identity of real purchaser. O protective trusts: O devised to allow a fi nancially inept benefi ciary to have some control over the property; O while trustees will ensure that the trust fund does not suffer.

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O secret trusts: O can be fully secret or half secret; O but in either case trust hides identity of the beneﬁ ciary. O preserving wealth: O trusts can be used to keep intact a body of wealth that otherwise may be dissipated. O disputes over property ownership: O courts may intervene using implied trusts; O to distribute ownership fairly. O tax saving: O placing property in trust is a common tax- saving device; O an example is avoiding inheritance tax.

Key Cases Checklist

ґ The contexts іin which trusts > Equitable Maxims operate Delay defeats equity Barclays Bank v Ouistclose Leaf V International Galleries (1950) Investments Ltd (1968) Allcard V Skinner(1887) Security for loans He who conies to equity must do equity Chappell V Times Newspapers Ltd (1975) Equity will not allow a statute to be used as an instrument of fraud Equity Bannister V Bannister (1948)

Delay defeats equity 1.1.2 Leaf v International Galleries [1950] 2 KB 86 HC Key Facts

A contract for the sale of a painting, innocently misrepre- sented as painted by Constable, could not be set aside after the plaintiff had delayed in bringing an action for ﬁ ve years.

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1.1.2 Allcard v Skinner (1887) LR 36 Ch D 145 CA

Key Facts

The claimant sought to rescind gifts of her property which she had made to a religious order on the basis of undue inﬂ uence. The court held that she could not do so because of her delay in bringing the action.

Key Law

In cases of undue inﬂ uence, actions must be brought within a reasonable time after the removal of the inﬂ uence.

He who comes to equity must do equity/He who comes to equity must come with clean hands 1.1.2 Chappell v Times Newspapers Ltd [1975] 1 WLR 482 CA Key Facts

Employees who had been on strike sought an injunction to restrain their dismissal.

Key Law

The court refused to grant an injunction because the employees refused to sign an undertaking not to become involved in strike action in the future in strike action.

Equity will not allow a statute to be used as an instrument of fraud

1.1.2 Bannister v Bannister [1948] 2 All ER 133 CA

Key Facts

Mrs Bannister sold two cottages to her brother- in-law at undervalue on an oral undertaking that she would be allowed to live in one of the cottages rent-free for the rest of her life. Later he tried to evict her.

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Key Law

At common law the promise was not enforceable because it had not been recorded in writing according to s 40 LPA 1925 (now s 2 LP(MP) Act 1989). The court upheld her right to remain in the cottage on the basis of the maxim that equity would not allow the statute to be used as an instrument of fraud.

1.2.4 Barclays Bank v Quistclose Investments Ltd [1970] AC 567 HL Key Facts

Quistclose lent money to Rolls Razor, a fi rm in severe fi nancial diffi culties, in order to pay out dividends which had been declared on its shares. Before the dividend had been declared Rolls Razor went into liquidation. Quistclose claimed that the money lent was held on trust for them, and since the express purpose was not carried out then it should be returned to them in full. Barclays Bank claimed that the money was part of the assets of the fi rm.

Key Law

It was held unanimously that the money was held on resulting trust for Quistclose.

Key Link

See 2.6.2 Certainty of intention . There was some doubt as to whether Quistclose had the intention that the money lent to Rolls Razor should be held on trust but the courts found that there was an express trust.

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f ' Capacity: Trusts of land: • children - settlements are • testamentary requirements of Wills Act voidable - cannot hold land • words used must be capable of forming trust other than behind a trust • s 53 LPA 1925 requires proof in writing • mentally incapacitated • s 2 Law of Property (Miscellaneous Provisions) - protected by Court of Act 1989 requires actual written document Protection under s 95 Mental incorporating all of terms {Firstpost Homes v Health Act 1983 - and can Johnson). create trusts (Re Веапеў).

The three certainties: Trust must be expressed in such a way that the testator’s instructions can be carried out. Certainty of intention: CREATION OF j • words should express an imperative obligation EXPRESS (Wright vAtkyns) • so if words demonstrate a different obligation no PRIVATE TRUSTS i. / trust is created (Jones v Lock) • precatory words, e.g. ‘hope’, ‘desire’ may be too uncertain for trust to succeed (Re Adams and the Kensington Vestry} - but see Comisky v Ґ ------N Bowring-Hanbury. Disposition of existing equitable Certainty of subject matter: interests: • gift must be precisely identified - so ‘remaining part of what is left’ would fail (Sprange v Barnard) • by s 53(1 )(c) must be in • position on shares is different {Hunter v Moss writing or disposition void (1994)) • problem is what amounts to • court may use objective standard in deciding what a disposition - most likely comes within gift (Re Golay’s). given natural meaning (Greyv Certainty of objects: IRQ • the beneficiaries should be clearly identified - or if • some actions do not count as part of a class ‘list principle' applies (Re Endacott) dispositions, e.g. disclaimer • trustees may use ‘Benjamin orders' for protection of a beneficial interest (Re when distributing funds Paradise Motor Co) • in discretionary trusts ‘any given postulant’ test is • where sole owner disposes used - based on conceptual and evidential of legal and equitable title certainty (McPhail v Doulton) together no written • unless class is too large then uses ‘administrative disposition needed workability’ test (R v District Auditor ex parte West (Vandervell V IRQ Yorkshire County Council). • position of specifically ч______- performable contracts is more problematic (Oughtred ^vIRQ.______

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Z 2.1 Capacity and the creation of trusts 1 Capacity to create a trust usually goes hand in hand with the ability to hold or dispose of legal or equitable interests. 2 So two speciﬁ c instances of parties lacking capacity to create a trust: O children – minors under age 18: O any settlement is voidable; O children cannot hold a legal estate in land – so any land comes to a child behind a trust. O mentally incapacitated: O ability to create a trust is limited by the size of the gift and relationship with assets owned ( Re Beaney (1978)); O Court of Protection can produce settlement for a mentally incapacitated person by virtue of s 95 Mental Health Act 1983 – guiding principle being what would the person him/herself do if not incapacitated (Re T.B. (1967)).

Z 2.2 Formalities – general 1 To create a lifetime gift of land – must conform to s 53 Law of Property Act 1925 and the ‘three certainties’. 2 Section 53 requires written evidence for land – no requirement for personalty. 3 If gift is testamentary, additional requirements in Wills Act 1837, as amended, must be followed – written form, signing, witnessing etc. 4 Words used must also always be capable of creating a trust. 5 All the above applies to express trusts but not resulting or constructive.

Z 2.3 Trusts of land 1 Land inevitably requires special formalities – as it does in law of real property. 2 In the case of trusts of land, two speciﬁ c provisions are signiﬁ cant: O by s 53(1)(b) LPA 1925 ‘A declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by the person who is able to declare such a trust or by his will’;

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O by s 2 Law of Property (Miscellaneous Provisions) Act 1989 contracts for disposition of land ‘can only be made in writing and only by incorporating all of the terms which the parties have expressly agreed in one document’ – so dispositions of land, including trust, are void if not written ( Firstpost Homes v Johnson (1995)).

Z 2.4 Dispositions of existing equitable interests 1 By s 53(1)(c) LPA 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 thereto lawfully authorised in writing or by will.’ 2 So failure to comply means disposition is void. 3 Key question is what amounts to a ‘disposition’. 4 Most cases on meaning of disposition involve tax avoidance schemes – so not surprising that courts take a tough line. 5 Case law suggests that the word ‘disposition’ is to be given its natural meaning ( Grey v IRC (1957)) – so oral instructions will count as a failed disposition for lack of written form. 6 However, where a sole owner disposes of both legal and equitable title simultaneously there may be no need for a written disposition of the equitable interest as long as the formalities for the legal estate are complied with ( Vandervell v IRC (1967) ). 7 An assignment of an equitable interest is straightforwardly a disposition and will be void unless in writing. 8 However, certain actions appear not to be dispositions, e.g.: Dispositions of existing equitable interests O a disclaimer of a benefi cial interest ( Re Paradise Motor Co (1968)); O nominations under a staff pension scheme (Re Danish Bacon Co Staff Pension Fund Trusts (1971)); O a declaration by a benefi ciary that he holds his benefi cial interest for someone else. 9 The much more diffi cult question concerns the position of specifi cally enforceable contracts for sale – here the main emphasis may be on preventing tax avoidance rather than following technicalities absolutely ( Oughtred v IRC (1960)).

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Z 2.5 Formality and fraud 1 One further key issue is whether or not a trust can be set aside to avoid sanctioning fraud. 2 Two equitable maxims may apply: O equity looks to the intention and not the form; O equity will not allow statute to be used as a cloak of fraud. 3 It has been held possible to set aside operation of s 53(1)(b) in order to avoid obvious fraud ( Rochefoucauld v Boustead (1897)). 4 A further example of equity acting to prevent a fraud is the secret trust.

Z 2.6 The three certainties 2.6.1 Introduction 1 For a trust to be formed, settlor must make intentions absolutely clear. 2 So the trust must be sufﬁ ciently clear for trustee to carry out all instructions and for court to be able to enforce it against trustee. 3 So, besides statutory formalities, creation of an express private trust depends on the presence of the ‘three certainties’ test laid down by Lord Langdale in Knight v Knight (1840): O certainty of intention – the words creating a binding obligation; O certainty of subject matter – the property subject to the trust; O certainty of objects – the beneﬁ ciaries. 4 But certainty has entirely different meaning in relation to purpose trusts. 5 In all cases there is interrelationship between the three and certainty is a question of construction for the courts.

2.6.2 Certainty of intention 1 The most signiﬁ cant point is that the ‘words must be imperative’: Lord Eldon in Wright v Atkyns (1823). 2 The words must make clear that trustee is under a binding obligation. 3 The best words are clearly ‘to hold upon trust for’ – but the word ‘trust’ is not vital – Megarry J in Re Kayford (1975) – and it may not even be necessary to use the word ‘trustee’ ( Staden v Jones (2008) ).

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4 Only suffi cient intention to create a trust must be shown (Paul v Constance (1977)). 5 If the words demonstrate a different intention then there is no trust created ( Jones v Lock (1865)). 6 A further diffi culty concerns use of ‘precatory’ words, e.g. ‘hope’, ‘desire’. 7 Traditionally, it was accepted that these could still create a trust – but a turning point came in Lambe v Eames (1871). 8 And they are generally now taken to be too uncertain to create a trust ( Re Adams and the Kensington Vestry (1884)). 9 But context is all- important and it is still possible to construe a trust from precatory words if suffi cient intention can be found (Comiskey v Bowring-Hanbury (1905) ). 10 Specifi c words accepted in the past as creating or not creating a trust can act as precedents ( Re Steele’s Will Trusts (1948)). 11 But courts only accept trust intended to be acted upon – and reject a sham covering an ulterior purpose ( Midland Bank plc v Wyatt (1995) ). 12 A court will accept evidence of conduct as suffi cient to show an intention to create a trust ( Re Farepak Foods and Gifts Ltd (2008)).

2.6.3 Certainty of subject matter 1 Almost anything can form the subject matter of a trust – but the property settled must be identifi ed precisely. 2 So there are many examples of choice of words that failed to create a trust: O ‘the bulk of my estate’ ( Palmer v Simmonds (1854)); O ‘such parts of my estate as she shall not have sold’ ( Re Jones (1898)); O ‘the remaining part of what is left’ (Sprange v Barnard (1789)). 3 In the case of chattels if the specifi c property is not identifi ed then, as is the case with commercial law where property will not pass, neither will a trust be created (Re Goldcorp Exchange Ltd (1994)). 4 Although quite different problems are created where the property is shares ( Hunter v Moss (1994) ) or other fi nancial securities (Pearson v Lehman Brothers Finance SA (2010)). 5 So the position is different ( Re London Wine Co (Shippers) (1986) ). 6 Absence of certainty of subject matter can have two possible results:

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O the gift goes absolutely to the fi rst donee; O the gift fails and falls on resulting trust back to the settlor’s estate ( Sprange v Barnard (1789)). 7 One further problem, besides identifying what property comes within the trust, is how it is distributed between benefi ciaries – in which the court might use an objective standard ( Re Golay’s Will Trusts (1965)). 8 But if division of property is left to the discretion of a specifi c individual who can no longer exercise discretion then the gift fails ( Boyce v Boyce (1849) ).

2.6.4 Certainty of objects 1 In fi xed trusts (i.e. where obligation is to named benefi ciaries or to all members of a named class), trustees must know the precise identities of the objects – known as the ‘list principle’ (Re Endacott (1959)): O in fi xed trusts the restrictive principle still applies so where a class of benefi ciaries is named in an inconclusive way the gift fails and property returns to the settlor under a resulting trust ( OT Computers Ltd v First National Tricity Finance Ltd (2003)). 2 The general rule is that the description of the benefi ciaries should be neither conceptually nor evidentially uncertain – otherwise the gift will fail. 3 To avoid unfairness when the class is certain but individual members cannot be found the courts have developed the ‘Benjamin order ‘ from Re Benjamin (1902) – this authorises distribution to known benefi ciaries, and missing benefi ciaries then claim against existing benefi ciaries rather than against the trustees. 4 The rule on certainty of objects should be no wider than necessary to allow the trustees to undertake their duties properly. 5 Traditionally, with discretionary trusts, the same rule applied – benefi ciaries must all be identifi able (IRC v Broadway Cottage Trust (1955)). 6 In McPhail v Doulton (1971) the position was examined in detail since with the size of the apparent class of benefi ciaries equal distribution would have been completely impracticable: O the court adopted the ‘any given postulant test’ derived from rules on powers in Re Gulbenkian (1968): ‘power is valid if it can be said with certainty whether any given individual is or is not a member of the class and does not fail simply because it is impossible to ascertain every member of the class’;

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O in analysing test CA (in Re Baden’s Deed Trusts (No 2) (1972)) distinguished between conceptual and evidential certainty: O ‘conceptual’ means precise defi nition of class settlor wishes to benefi t – without which gift fails; O ‘evidential’ means extent to which evidentially a person can be included in the class – complete certainty virtually impossible; O court accepted that some people would defi nitely come within the class and some would defi nitely fall outside it – in the case of others they would fall outside the class unless they could prove they were within it; O it is of course possible for a class to be so wide that it could not be upheld even though both conceptual and evidential certainty tests from McPhail v Doulton are possible – then the court suggested a further test of ‘administrative workability’ – since applied in R v District Auditor ex parte West Yorkshire County Council (1986); O sometimes a testator will not create a trust but instead leave individual gifts of property to a group of people who must satisfy a condition (a condition precedent or a condition subsequent) before being able to claim the gift; O the test of certainty of objects in a gift subject to a condition precedent is the Re Allen test. The gift will be valid if it is possible to say of one or more persons that he or they undoubtedly qualify even though it may be diffi cult to say of others whether or not they qualify; O the test was applied in Re Barlow’s Wills Trusts (1979) where a gift of paintings allowing my family and friends to purchase them at a price below market value was upheld.

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Is the gift land or personalty?

LAND PERSONALTY

Is s 53 LPA 25 complied I -NO GIFT IS with? - Gift is in writing! INVALID V V YES

ґ Does gift comply with the ‘three certainties’? • Intention is clear from words (certainty of intention). • The gift is plainly stated or is residue (certainty of subject). ■ The identity of beneficiaries are known - and if a class, the class is not v too wide (certainty of objects).______

YES

VALID EXPRESS PRIVATE TRUST IS FORMED

Diagram illustrating the major requirements for valid formation of express

Key Cases Checklist

2.5.3 Rochefoucauld v Boustead [1897] 1 Ch 196 HC

Key Facts

Land had been sold by a mortgagee to a purchaser who had taken the title expressly on trust for the claimant. The claimant sought a declaration that the defendant had acquired the land on trust for her. The defendant claimed that there could be no trust because there was no written evidence in support of her claim.

Key Law

It was held that although the legal formalities had not been complied with, the defendant held the property on trust for the claimant.

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Key Judgment

Lindley LJ: ‘It is a fraud on the part of a person to whom land is conveyed as a trustee, and who knows it was so conveyed, to deny the trust and claim the land for himself.’

Key Comment

The following cases all concern attempts to avoid the payment of stamp duty, which at the time was payable on deeds of gift. The tax was payable on the deed rather than the transaction. If the transaction was made orally then no tax would be paid, but it needed to satisfy s 53(1)(c) Law of Property Act to be a valid disposition, which requires a disposition of an equitable interest to be made in writing.

2.4.5 Grey v IRC [1960] AC 1 HL

Key Facts

In 1949 the settlor Mr Hunter transferred shares of nominal amounts to trustees on trust for his six grandchildren. In 1955 the settlor transferred 18,000 £1 shares to the same trustees upon trust for himself. In order to avoid paying stamp duty he orally directed his trustees to hold the property upon the trusts of the six settlements. A few weeks later, Hunter executed a declaration of trust in writing. If the interest passed on the oral instruction to the trustees, then stamp duty would not be payable, but if there was a transfer when the declaration of trust was put in writing, then that would attract tax.

Key Law

The House of Lords held that the transfer of the equitable interest only took place when the written document was executed, and the oral instructions by Hunter to the trustees were ineffective and no interest passed.

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2.5.6 Vandervell v IRC [1967] 2 AC 291 HL

Key Facts

Mr Vandervell wanted to found a Chair in Pharmacology at the Royal College of Surgeons. He decided to do so by transferring some shares in his company, Vandervell Products, which were held by nominee trustees, to the College. He retained an option to repurchase the shares for £5,000 when the College had sufﬁ cient capital to found the chair. The College received dividends worth over £250,000. The Inland Revenue wanted to tax Vandervell on the amount. They argued that at all times Mr Vandervell retained an equitable interest in the shares because he did not comply with s 53(1)(c) Law of Property Act 1925. This section required the disposition of an equitable interest to be evidenced in writing. If it was not evidenced in writing then the disposition would be void. If both the legal interest and the equitable interest are transferred at the same time, then s 53(1)(c) does not apply.

Key Law

It was held that as Mr Vandervell was the beneﬁ ciary of a bare trust, he did not have to comply with s 53(1)(c) and was entitled simply to direct the trustees to transfer the legal title to the trust property. There would be no separate disposition of the equitable title. Transfer of both the legal and equitable interest at the same time does not require writing.

Key Judgment

Lord Upjohn: ‘. . . when the benefi cial owner owns the whole benefi cial estate and is in a position to give directions to his bare trustee with regard to the legal as well as the equitable estate there can be no possible ground for invoking the section where the benefi cial owner wants to deal with the legal estate as well as the equitable estate.’

2.4.9 Oughtred v IRC [1960] AC 206 HL

Key Facts

Mrs Oughtred owned 72,000 shares in a company and she was also tenant for life in a settlement containing a large

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number of shares, in which her son Peter was entitled to the property in remainder. As a tax- saving device Mrs Oughtred and her son decided to transfer shareholdings, so Peter gave up his remainder in the estate to his mother and she agreed to transfer her 72,000 shares to him. A deed of release was executed. The Inland Revenue argued that stamp duty was payable, as there had been a contract for sale which would attract duty. However, as the shares were in a private company the contract could be speciﬁ cally enforced. The Oughtreds argued that the equitable interest had already passed by reason of the right to speciﬁ cally enforce the contract.

Key Law

Where a contract is speciﬁ cally enforceable, a constructive trust will arise as soon as the contract is effective because the equitable interest passes to the purchaser. A constructive trust is outside s 53(1)(c) and so the agreement did not need to be in writing. The majority in the House of Lords thought that there had been a transfer of sale for the purposes of the Stamp Act, and stamp duty was payable.

Key Judgment

Lord Radcliffe (dissenting judgment): ‘There was, in fact, no equity in the shares that could be asserted against her, and it was open to her, if she so wished, to let the matter rest without calling for a written assignment, from her son . . . It follows that . . . this transfer cannot be treated as a conveyance of the son’s equitable reversion at all . . .’.

Key Comment

Lord Radcliffe gave a dissenting judgment in this case, arguing that ownership in equity had passed as soon as the agreement became speciﬁ cally enforceable, in which case there was no conveyance of interest.

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ґ N Definition of Certainty Knight V Knight (1840) A trust can only exist if the words are imperative; the subject matter is certain and the objects of . the trust are certain 4______^

The Three Certainties

ґ" \ Certainty of Objects Certainty of Intention Certainty of Subject Fixed trusts Jones V Lock (1865) Matter IRC V Broadway Cottages Loose conversation does not Palmer v Simmonds (1854) Trz/sf (1954) show the intention to create A gift of the bulk of an estate A trustee must be able to a trust will fail for uncertainty of draw up a complete list of all Paul V Constance (1977) subject matter the beneficiaries Intention to create a trust can Sprange v Barnard (1789) Discretionary trusts be shown without using the A gift of the remaining McPhail V Doulton (1971) word trust so long as there is part of an estate failed for The trustee must be able to intention to be bound uncertainty of subject matter say whether a single Re Kayford (1975) Re London Wine Co beneficiary ‘is or is not’ within Barclays Bank v Quistclose (Shippers) (1986) the class (1970) Re Goldcorp (1995) Gifts subject to a condition Precatory words Unsegregated tangible precedent Re Adams and Kensington assets could not form the Re Barlow’s Will Trusts Vestry (1884) subject matter of a trust (1979) Ae Steele’s Will Trusts Hunter V Moss (1994) The test for certainty of (1948) Unsegregated intangible objects in a gift subject to Precatory words may create assets (shares) were capable a condition precedent is a trust if intention was of forming the subject matter whether one person comes shown from surrounding of a trust within the class circumstances Anthony V Donges (1998) A fixed trust can only be Comiskey V Bowring- A trust of an unspecified part upheld if it has conceptual Hanbury{1905) of an estate will be void for and evidential certainty Precatory words do not show uncertainty Re Gulbenkian’s intention to create a trust Re Golay (1965) settlement (1970) Midland Bank v Wyatt A reasonable income could Missing beneficiaries (1995) be sufficiently certain Re Benjamin (1902) If the intention is a sham Boyce V Boyce (1849) A Benjamin order protects there is no trust A gift dependent on selection a trustee from an action for Staden V Jones (2008) by another beneficiary will breach of trust if the proceeds On the creation of a trust it be void of an estate are distributed was not necessary to use the MacJordan Construction and one or more of the word trustee Ltd V Brookmount (1992) beneficiaries are missing Ae Farepack etc (2008) No trust created of a builders’ Resolving uncertainty by Moneys in an account retainer held as percentage appointing a third party expressly intended to be kept of a general fund Re Tuck’s Settlement in trust could be claimed by Trusts {1978) customers after a company went into administration V У

Re Vandervell’s Trusts (No 2) [1974] Ch 269 CA Key Facts

There was further litigation in relation to the interest in the shares that had resulted back to the Vandervell estate.

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Both the trustees of the children’s settlement and the executors of the estate claimed the shares.

Key Law

At ﬁ rst instance Megarry J upheld the claim of the executors to the shares, but this was reversed by the Court of Appeal. The executors had argued that the shares could only pass to the trustees if there was a declaration in writing, but the court rejected this, saying that there was no need for a written instrument. There were several reasons for this but the most important reason was that s 53(1)(c) does not apply to the declaration of new trusts. The law would not regard this as a disposition within the section.

2.6.1.3 Knight v Knight (1840) 3 Beav 148 CA

Key Judgment

Lord Langdale MR: ‘First, if the words were so used, that upon the whole, they ought to be construed as imperative; secondly, if the subject of the recommendation or wish be certain; and thirdly, if the objects of persons intended to have the beneﬁ t of the recommendation or wish be also certain.’

Was sufﬁ cient certainty of intention shown?

2.6.2.3 Staden v Jones [2008] 2 FLR 1931 CA

Key Law

The Court of Appeal emphasised that on the creation of a trust it was not necessary to refer expressly to the word ‘trustee’, but according to Arden LJ the words said or acts done by the settlor must have been intended to have had that meaning.

Key Link

See cases on the constitution of a trust. See Chapter 4 .

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2.6.2.4 Paul v Constance [1977] 1 WLR 527 CA

Key Facts

Mr Constance and Ms Paul lived together as man and wife. Mr C received a sum in compensation for an industrial injury and he put the money in a deposit account in his own name. He told Ms Paul on a number of occasions that the money in the account was as much hers as it was his. Later joint winnings from bingo were paid into the account and a subsequent withdrawal was regarded as a withdrawal of joint money. After his death Ms P claimed the fund from the administratrix Mrs Constance, his surviving wife.

Key Law

It was held that Mr C had declared himself to be trustee of the fund by his words and by his actions, and so 50 per cent of the fund was held for Ms P. The evidence for the necessary intention to create a trust was gathered from Mr C’s assurance that ‘the money is as much yours as mine’, although at no time did he use the word trust.

2.6.2.5 Jones v Lock (1865) LR 1 Ch App 25 CA

Key Facts

Robert Jones, responding to criticism that he had not given his child a gift, placed a cheque for £900 in the hand of the baby, aged nine months. He said ‘I give this to baby and I am going to put this away for him.’ He took the cheque away and put it into his safe. A few days later he died. The issue before the courts was whether the cheque was held on trust for the son or whether it could be claimed by the residuary legatees under the will.

Key Law

The court held that there had been no declaration of trust.

Key Judgment

Lord Cranworth LC: ‘The case turns on the very short question whether Jones intended to make a declaration that he

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held the property in trust for the child; and I cannot come to any other conclusion than that he did not. I think it would be a very dangerous example if loose conversations of this sort, in important transactions of this kind, should have the effect of declarations of trust.’ Precatory words Precatory words are words such as ‘hope’ or ‘wish’. They do not generally create a trust and the fund can be kept absolutely by the recipient.

2.6.2.8 Re Adams and Kensington Vestry (1884) 27 Ch D 394 CA Key Facts

A testator left property on the following terms: ‘unto and to the absolute use of my wife Harriet, in full conﬁ dence 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.’

Key Law

It was held that the words did not create a trust and the wife was able to claim the property absolutely for herself.

2.6.2.9 Comiskey and Others v Bowring-Hanbury and Another [1905] AC 84 HL Key Facts

The testator left his property to his wife in full confi dence that ‘. . . at her death she will devise it to such one or more of my nieces as she may think fi t’. He added a gift over in default of appointment. A majority in the House of Lords held that the testator’s will created a gift to his wife during her life but subject to a trust over the remaining part in favour of the surviving nieces to be shared in accordance with the wife’s will or otherwise equally. This was in spite of the use of the words ‘in full confi dence’.

Key Law

If the will as a whole and surrounding circumstances are sufﬁ ciently clear for the court to conclude that a trust was

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intended by the testator, then a trust will be found in spite of the use of precatory words. If there is evidence that the testator intended a trust to arise but the precatory words used were based on words from an earlier trust instrument, the court may also conclude that there is a trust.

2.6.2.10 Re Steele’s Will Trusts [1948] Ch 603 HC

Key Facts

A testatrix left a diamond necklace to her son by will. The will contained the following clause: ‘I request the said son to do all in his power by his will or otherwise to give effect to this my wish.’ The words had been included because the testatrix wanted her son to make the necklace a family heirloom.

Key Law

The words used appeared to be precatory but evidence was given that the form of words had been expressly taken from another earlier case where a trust had been created. This indicated that there was an intention to create a trust.

‘Sham’ intention

2.6.2.11 Midland Bank plc v Wyatt [1995] 1 FLR 696 HC

Key Facts

A husband and wife executed a declaration of trust over the jointly owned family home, in favour of the wife and daughters. The document was put into a safe but was not acted on. The couple continued to act as joint owners of the property. When the husband’s business failed, the bank successfully obtained a charging order against the house. The husband relied on the trust in order to prevent the bank from enforcing the order against the property. It was held that the purported declaration of trust in favour of the wife and children was a sham and therefore he retained the entire beneﬁ cial interest in the property.

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Key Law

The intention to create a trust must be genuine and not a sham, so that the settlor does not really intend the trust to be acted on except in certain circumstances.

2.6.2.12 Re Farepak Foods and Gifts Ltd (in administration) [2008] 2 BCLC 1 HC

Key Facts

A court will accept conduct as sufﬁ cient evidence of intention to create a trust. Farepak operated a Christmas savings scheme where customers were able to save for Christmas over a year. The money received from the customers was not kept in a separate account. When the company went into liquidation they were unable to claim that their money was held in trust.

Key Law

However, the court did decide money deposited by customers three days before the company went into liquidation was held on trust because the company had executed a deed that the money belonging to the customers was to be put into a separate account

The testator must identify the subject matter clearly

2.6.3.2 Palmer v Simmonds (1854) 2 Drew 221 HC

Key Facts

A testatrix left the residue of her estate to a named beneﬁ - ciary, subject to a provision that if he died without children, he should leave ‘the bulk of his residuary estate’ for the beneﬁ t of four named individuals.

Key Law

It was held that there was no trust because there was no identiﬁ able property which was capable of becoming the subject matter of a trust.

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2.6.3.2 Sprange v Barnard (1789) 2 Bro CC 585 HC

Key Facts

A testatrix left her property to her husband with instructions that he should divide up equally the remaining part of what was left and what he did not want for his own use between her brother and sister. Key Law

The law draws a distinction between unascertained property where it involves tangible goods such as personal property and intangible goods such as money and shares.

Tangible property

2.6.3.3 Re Goldcorp Exchange [1995] 1 AC 74 PC

Key Facts

Suppliers of gold bullion went into liquidation and a number of purchasers claimed proprietary rights in the bullion, arguing it had been held in trust for them. It was held that the bullion could not be held in trust for the purchasers, because there was no identiﬁ able property.

Key Law

Only those purchasers who could show that their bullion had been segregated could claim their order in full. Until segregation, the property could not be said to be held in trust because the subject matter was uncertain.

Intangible property

2.6.3.4 Hunter v Moss [1994] 1 WLR 452 CA

Key Facts

The defendant held a large shareholding and declared himself to be trustee in respect of a 5 per cent holding of the shares for the beneﬁ t of the claimant. Since the

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defendant held 950 shares, it represented about 50 shares. The shares had not been segregated from the whole. It was held that a trust was created in favour of the claimant.

Key Law

The law treats intangible property differently from tangible property when considering whether the subject matter of a trust is certain. Intangible property such as money and shares does not have to be segregated from the whole in order for a trust to arise.

Key Problem

Not everyone agrees that tangible assets such as wine and intangible assets such as shares can be distinguished in this way. In particular, there will be a difference between an inter vivos transfer of shares and a gift on death. If a shareholder declares himself to be trustee of shares from a larger shareholding then it will not be enforceable by the beneﬁ - ciary until he has divested himself of the ownership of those shares otherwise he could continue to claim them for himself.

Key Comment

Re London Wine (see below) was distinguished in Hunter v Moss because in the former case the property was tangible property and individual bottles of wine could be distinguished by year and type, whereas the shares were intangible property and no single share was distinguishable from another. It would make no difference if the shares had been segregated.

2.6.3.5 Re London Wine Co (Shippers) Ltd [1986] PCC 121 HC Key Facts

Purchasers of wine claimed bottles of wine were held in trust for them after the suppliers went into liquidation, and could not be claimed by the trustee in bankruptcy. The wine was held in large warehouses but had not been segregated for the individual purchasers from the whole.

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Key Law

It was held there was no express trust for the purchasers because there was no certainty of subject matter.

Key Judgment

Oliver J: ‘It seems to me that in order to create a trust it must be possible to ascertain with certainty not only what the interest of the beneﬁ ciary is to be, but to what property it is to attach . . .’.

2.6.3.7 Re Golay and others [1965] 2 All ER 660 HC

Key Facts

A testator instructed his trustees to allow the beneﬁ ciary to enjoy one of his ﬂ ats during her lifetime and also to receive a ‘reasonable income’ from other properties.

Key Law

It was held that this was sufﬁ ciently certain because the words ‘reasonable income’ could be construed objectively and it was possible for the court to apply this determinant.

Key Judgment

Ungoed-Thomas J: ‘In this case the yardstick indicated by the testator is not what he or any other specifi ed person subjectively considers to be reasonable but what he identifi es 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 infl uences can never be wholly excluded . . .’.

2.6.3.8 Boyce v Boyce (1849) 16 Sim 476 HC

Key Facts

The settlor left two houses on trust for his two daughters. One of the daughters was required to make a selection from the two houses, and the remaining house would pass

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to the other daughter. When the ﬁ rst daughter failed to make a selection before she died, the second daughter claimed one of the houses for herself.

Key Law

The trust failed for uncertainty of subject matter.

Key Comment

This suggests that the claim of the second sister was dependent on the claim by the ﬁ rst sister. It could not exist independently of the ﬁ rst claim. Key Problem

A trust will only be valid if it exists for the benefi t of identifi ed legal persons. The test for certainty of objects varies according to whether it is a fi xed trust or a discretionary trust, or a gift subject to a condition precedent.

Fixed trusts Missing beneﬁ ciaries

2.6.4.3 Re Benjamin [1902] 1 Ch 723 HC

Key Facts

The testator left his estate to his children in equal shares. He had 12 children. All but one could be traced, but one had disappeared when on holiday in France while the testator was still alive. It was held that he could be presumed dead and his share could be shared out between the other brothers and sisters. If it turned out that he was still alive then the other beneﬁ ciaries would be liable for the return of his share and the trustee would not be liable for breach of trust.

Key Law

A ‘Benjamin Order’ allows the trustees to distribute the proceeds of an estate without fearing an action for breach of trust from a beneﬁ ciary who was presumed dead and who suddenly returns and claims a share. The order can only be made after all practicable inquiries have been made. The test for certainty of objects in a ﬁ xed trust

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2.6.4.5 IRC v Broadway Cottages Trust [1954] 1 All ER 878 HC Key Law

In a ﬁ xed trust, the class must be capable of ascertainment, which means that the trustee must be able to draw up a complete list of all the beneﬁ ciaries of the trust. The trust will fail if such a list cannot for some reason be drawn up.

Discretionary trusts

2.6.4.6 McPhail v Doulton [1971] AC 424 HL

Key Facts

A settlement was executed by Mr Baden in favour of a large class of persons who were employees of Matthew Hall & Co or were connected with the employees in some way. They included offi cers and employees or ex-offi cers or ex-employees of the company as well as ‘any of their relatives or dependents of any such persons in such amounts at such times and on such conditions . . . as they think fi t.’ One of the issues before the court was whether this created a mere power or a trust power .

Key Law

The test to be applied for certainty of objects in a discretionary trust is the same as the test for certainty of objects for a power, namely the ‘given postulant test’ or ‘is or is not’ test. Under this test it must be possible to say of any given individual that he is or is not within the class. The trustees do not need to have a complete list of all the beneﬁ ciaries before exercising their discretion.

Key Judgment

Lord Wilberforce: ‘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 . . .’. Sachs LJ: ‘. . . the court is never defeated by evidential uncertainty, and it is in my judgment clear that it is conceptual certainty to which reference was made when the “is or is not a member of the class” test was enunciated . . . the

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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.’

Conceptual certainty 2.6.4.6 Re Gulbenkian’s Settlement Trusts [1970] AC 508 HL Key Facts

A special power of appointment was granted to the trustees to appoint in favour of Nubar Gulbenkian ‘. . . and any wife and his children or remoter issue . . . and any person . . . in whose house or apartment or in whose company or under whose care or control or by or with whom [he] may from time to time be employed or residing’. There were trusts over in default of appointment. The power was upheld because it could be said with certainty whether any given individual was or was not a member of the class, so the power was valid.

Key Law

A trust to divide a fund equally between ‘my old friends’ would be void for uncertainty because the class is conceptually uncertain. No court could deﬁ ne what ‘an old friend’ means. The same problem would arise if the gift were to my ‘best friends’.

Key Judgment

Lord Upjohn: ‘Suppose the donor directs that a fund be divided equally between “my old friends” then unless there is some admissible evidence that the donor has given some special “dictionary meaning” to that phrase which enables the trustees to identify that class with sufﬁ cient certainty, it is plainly bad as being too uncertain . . .’.

See 2.6.4.5 Certainty of objects in discretionary trusts .

Evidential certainty 2.6.4.6 Re Gulbenkian’s Settlement Trusts (above)

Key Judgment

Lord Upjohn: ‘If a donor directs . . . trustees to make . . . provision for “John Smith”, then gives legal effect to that

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provision it must be possible to identify “John Smith”. If the donor knows three John Smiths then by the most elemen- tary principles of law neither the trustees nor the court in their place can give effect to that provision; neither the trustees nor the court can guess at it. It must fail for uncertainty unless of course admissible evidence is available to point to a particular John Smith as the object of the donor’s bounty.’

Key Comment

A fi xed trust will not fail if it is conceptually and evidentially certain even though the trustees may not be able to physi- cally locate every benefi ciary on the list. If the settlor left his estate to be divided equally between ‘all my children’, a ‘child’ is conceptually clear and the trustees may know that the settlor had fi ve children but one went to America 10 years ago and has not been heard of since. That benefi ciary is said to be unascertainable.

Gifts subject to a condition precedent

2.6.4.6 Re Barlow’s Will Trusts [1979] 1 WLR 278 HC

Key Facts

The testatrix left a number of valuable paintings with instructions that ‘any member of my family and any friends of mine’ could, when she died, buy any of the paintings at the prices contained in a catalogue of valuations made ﬁ ve years before her death. These prices were well below the market value of the paintings.

Key Law

It was held that although the class of ‘any friends of mine’ would be conceptually uncertain, this was not a gift to a class but a series of gifts to the testatrix’s friends. Therefore anyone who could prove that he/she was a friend of the testatrix could claim the right to buy a painting. The test for certainty of objects for gifts subject to a condition precedent is whether it can be said with sufﬁ cient certainty that one person qualiﬁ es within the class. The fact that there may be residual uncertainty about others will not defeat the gift. It is up to the claimant to prove that he/she comes within the class. The Re Allen test was applied as discussed above (in 2.6.4.6).

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Key Judgment

Lord Browne-Wilkinson: ‘In my judgment, Lord Upjohn was considering only cases where it was necessary to establish all the members of the class. He made it clear that the reason for the rule is that in a gift which requires one to establish all the members of the class . . . you cannot hold the gift good in part, since the quantum of each friend’s share depends on how many friends there are . . .’.

Administrative unworkability 2.6.4.6 R v District Auditor No 3 Audit District of West Yorkshire MCC ex p West Yorkshire MCC [1986] (above, Chap X) DC

Key Facts

A discretionary trust in favour of the inhabitants of the County of West Yorkshire failed because although the class was conceptually certain, the range of objects, which comprised over 2.5 million people, was so wide as to be ‘incapable of forming anything like a class’.

Key Law

It was thus administratively unworkable and void.

25726.indb 39 18/11/2013 10:40 3 Purpose trusts

r λ Objections to purpose Accepted non-charitable purpose trusts: treats: Upkeep of tombs and monuments: • Lack of certainty (Morice v • e.g. for a family enclosure (Pirbright v Bishop of Durham). Salway) • Lack of ascertainable • if involves moderate expenditure (McCaig)·, beneficiaries - so needs certain (Re Endacott)·, and satisfies residuary beneficiary. perpetuity rule (Re Hooper). • Offends perpetuity - so Maintenance of specific animals: only valid if expressed to • will fail test for charitable purpose (Pettingall fall inside period. V Pettingall) • Policy reasons, e.g. • valid if perpetuity rule met (Re Dean). should not involve Saying of masses: capricious expenditure • private masses fail charity tests (Re Le Cren (McCaig’s Trustees). Clarke) • but upheld here (Bourne v Keane).

PURPOSE TRUSTS

The rules on unincorporated associations: • Two or more people joined for ‘common purposes ... each having mutual duties ... in an organisation [with] rules which identify in whom control of it and its funds’ (Conservative and Unionist Central Office v Burrell). • Question of what happens to gifts to such associations decided in Neville Estates VM adden- gift is to existing members ... subject to their respective contractual rights and liabilities towards one another. • But gift fails if rules offend perpetuity period or rules prevent members from ending association and dividing fund (Re Lipinski’s Will Trusts). • So each member has contractual obligations to prevent misapplication of gift - and committee members are also bound by rules which may be enforced against them. • Alternative is that gift is purely for members but difficulty is that members must be ascertainable (Re Denley’s Trust Deed). • Distribution originally based on resulting trust (Re Printers’ and Transferrers’ Amalgamated Trades Protection Society) but now on contract basis above (Re The Sick and Funeral Society of St John’s Sunday School ΘοΙοβή.

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Z 3.1 Non- charitable purpose trusts 3.1.1 General 1 A private trust is a trust in favour of ascertainable benefi ciaries. 2 A charitable trust, on the other hand, is a trust for purposes which according to established tests is accepted as charitable and thus exempt from certain requirements of express private trusts. 3 Non- charitable purpose trusts fall outside of either category above. 4 They do not get the benefi ts accorded to charitable trusts – but in certain cases may be upheld as valid. 5 One logic of accepting such categories of trusts is that, while they are expressed as being for purposes, they can still possibly be construed as being for the benefi t of individuals affected by the purpose (Re Denley’s Trust Deed (1969)). 6 But the same logic cannot be applied where the class of benefi ciaries is too wide and therefore makes the trust ‘administratively unworkable’ ( R v District Auditor ex parte West Yorkshire Metropolitan County Council (1986)).

3.1.2 The objections to having purpose trusts 1 Traditionally there was no absolute prohibition on the creation of non-charitable purposes – but a rule was developed in Re Endacott (1960). 2 Traditionally such trusts failed because of defects in their creation, e.g.: O lack of certainty; O lack of an ascertainable benefi ciary; O offending the perpetuity period; O excess delegation of testamentary powers. 3 Certainty: O all trusts need certainty – and a non- charitable purpose trust is no exception; O so the purpose must be ‘stated in phrases which embody defi nite concepts and the means by which the trustees are to try to attain them must also be prescribed with a suffi cient degree of certainty’ (Roxburgh J in Re Astor (1952) );

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O the trust is only valid if expressed with suffi cient certainty for court to control performance (Morice v Bishop of Durham (1804) ). So a trust will fail for lack of ascertainable benefi ciaries. 4 Ascertainable benefi ciaries: O many purpose trusts may indirectly benefi t individuals – but unless these rank as ascertainable benefi ciaries then the trust fails – as Grant MR identifi es in Morice ; O it follows that there can be no obligation on the trustees without a corresponding right enjoyed by an identifi able benefi ciary; O in the case of private trusts these are named benefi ciaries – and in charitable trusts the Attorney-General. 5 The perpetuity rule: O the rule has two aspects: i ) no gift should fall outside the perpetuity period; ii) no gift should last for longer than the perpetuity period. O the point of the rule at common law was originally to avoid tying up land for excessive periods and the uncertainty such gifts could create; O the original perpetuity period at common law was – the life in being plus 21 years (the life in being was some person alive at the time of the gift – and the gift would fail if it could vest outside of the 21-year period, e.g. ‘To the fi rst child of A to reach the age of 25’); O so non- charitable purpose trusts failed if could fall outside the period; O common law rule is modifi ed by Perpetuities and Accumulations Act 1964 – this Act allows the settlor to specify a period of no more than 80 years, and introduces the principle of ‘wait and see’ (i.e. wait to see if gift vests outside of period before invalidating it). 6 Policy: O the courts may invalidate a gift which they feel is capricious or an inappropriate way of spending the money (McCaig’s Trustees v The Kirk Session of the United Free Church of Lismore (1915) ); O delegation of testamentary power has also been challenged in Leahy v A-G for New South Wales but accepted in Re Beatty’s Will Trusts (1990).

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3.1.3 Exceptions to the rule against non- charitable purpose trusts 1 Despite valid objections to purpose trusts some exceptions exist. 2 They are generally referred to as ‘trusts of imperfect obligation’ – are anomalous, and fall into a limited range of speciﬁ c exceptions. 3 Trusts for tombs and monuments: O it is valid to provide a gift for creation and upkeep of a family enclosure ( Pirbright v Salway (1896) ); O a gift may also succeed in respect of monuments to persons other than the testator (Mussett v Bingle (1876)); O but the courts will only usually accept the use of quite moderate sums of money for such gifts (McCaig ); O as usual, a gift fails for any lack of certainty (Re Endacott (1960) ); O and in any case a gift is only valid if falling inside the perpetuity period ( Re Hooper (1932)). 4 Trusts for the maintenance of speciﬁ c animals: O a trust for animals generally can succeed as charitable if certain conditions are met; O a trust for an individual animal must necessarily fail as a charitable gift – but might still be upheld as a non- charitable purpose trust ( Pettingall v Pettingall (1842)); O but not if such a gift offends perpetuity (Re Dean (1889)); O the perpetuity period must refer to human lives ( Re Kelly (1932)). 5 Trusts for the saying of masses: O a mass said in public place will generally be upheld as charitable (Re Hetherington (1989) ); O but a gift for purely private religious ceremonies cannot be classed as charitable ( Re Le Cren Clarke (1996)); O but this does not always matter since trusts for the saying of purely private masses have been upheld as valid purpose trusts ( Bourne v Keane (1919)) .

3.1.4 The modern position 1 In Re Astor’s Settlement Trusts (1952) it was suggested that all the exceptions are merely ‘concessions to human weakness or sentiment’.

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2 In Re Endacott (1960) it was also noted that they are ‘troublesome, anomalous and aberrant’. 3 It is thus unlikely that they will be extended in any way. 4 However, the development of the discretionary trust in McPhail v Doulton (1971) has been said to have ‘broken the stranglehold imposed on the development of trusts’.

Z 3.2 The rules on unincorporated associations 3.2.1 The nature of unincorporated associations 1 An unincorporated association is a joining together of two or more people for ‘common 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 may be joined or left at will’ (Conservative and Unionist Central Offi ce v Burrell (1982)). 2 Such associations lack the formal creation of incorporation so have no separate legal personality so cannot hold property in their own right or be the subject of rights and obligations in their own names. 3 The common classes of such groups include sports and social clubs, cultural groups and certain charitable bodies. 4 Such groups can still be the benefi ciaries of gifts and also are required to handle funds – so a number of signifi cant problems arise: O what happens to gifts made to these associations? O how do these associations hold funds or property? O what happens to funds on dissolution of the association?

3.2.2 Gifts made to unincorporated associations 1 If an association is charitable and a gift is for the association’s purposes then it is taken as prima facie for charitable purposes – the usual rules on certainty do not apply and even when the association ceases to exist the gift can be saved by the cy- près doctrine. 2 If the association is not charitable then the gift is void as a purpose trust unless falling under the very limited exceptions.

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3 If a gift cannot take effect as a gift on trust for the purposes of the association then the question arises how such gifts can take effect and whether or not they can take effect as gifts to the members. 4 Originally it was thought that there was no need to identify who would be the benefi ciaries – as long as persons holding the gift as trustees had the power to spend any money ( Re Drummond (1914)). 5 The different possible outcomes were considered in Neville Estates v Madden (1961 ) where Cross J identifi ed three possible categories: O ‘a gift to the members . . . at the relevant date . . . so that any . . . can sever his share and claim it’ (a gift to present members); O ‘a gift to the existing members . . . subject to their respective contractual rights and liabilities towards one another’ (a gift to members subject to the constitutional rules of the association as to members’ rights and liabilities); O ‘a gift . . . at the disposal of the members for the time being . . . held in trust’ (a gift on trust for members). 6 Where the trust instrument only states that the gift is to the association then prima facie it may be construed as a gift for the members (Leahy v A-G for New South Wales (1959)). 7 It is easier to see the fi rst of Cross J’s three categories as acceptable if the gift identifi es clearly a limited class of persons who may benefi t from it (Re Denley’s Trust Deed (1969) ). 8 The third of Cross J’s three categories throws up a number of other points of note: O that the trust mechanism is inappropriate if it is clear that the members are not intended to benefi t from the gift; O that the gift, unless charitable, will fail unless limited by the perpetuity period; O also that the gift cannot be to members if rules of association actually prescribe against that eventuality (Re Grant’s Will Trusts (1980)). 9 The most plausible of the three alternatives is the second, that the gift takes effect as a gift to the members of the association subject to their contractual rights and liabilities to one another – and it is this solution that causes the least problems ( Re Recher’s Will Trusts (1971)). 10 On this basis, the question as to whether or not the gift is subject to any restrictions on its use depends on the intentions of the association as to the relationship of its members rather than on the explicit intention of the settlor. The gift will fail if rules of the association offend the

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perpetuity period or if members are prevented by rules from ending the association and dividing the funds amongst themselves (Re Lipinski’s Will Trusts (1976)).

3.2.3 Funds held by unincorporated associations 1 The problems are exactly the same as those identiﬁ ed above. 2 Again, the ‘contractual solution’ is the best. 3 Each member, therefore, has contractual obligations to prevent the misapplication of the gift – and committee members are also bound by the rules of the association which may be enforced against them. 4 The alternative based on trust poses the obvious problem that a trust cannot generally be held for purposes unless charitable. 5 The alternative that the gift is purely for the members again has the difﬁ culty that the members must be ascertainable, as in Re Denley’s . 6 Other problems, of course, still exist – e.g. if the gift is one of land rather than chattels.

3.2.4 Distribution of the fund 1 A ﬁ nal problem is what happens to the fund if the association is wound up. 2 Many of the used solutions appear at odds with the reasoning above. 3 The general rule traditionally was that funds were held on resulting trust for members according to their contribution ( Re Printers’ and Transfer- rers’ Amalgamated Trades Protection Society (1899)). 4 The more modern approach is to follow the contract argument – the logic of using resulting trusts is at odds with the argument that a gift is an outright gift to members subject to the rules of the association (Re The Sick and Funeral Society of St John’s Sunday School Golcar (1972)). 5 So where there are surplus funds, the court can imply a term that these can be divided amongst the existing members on a per capita basis (Hunt v McLaren (2006)). 6 And funds can be passed to a sole surviving member of the association ( Hanchett-Stamford v A.G. (2009)).

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Key Cases Checklist

3.1.3.3 Re Endacott [1960] Ch 232 CA

Key Facts

Money was left by Albert Endacott to the North Tawton Parish Council ‘for the purpose of providing some useful memorial to myself’. The gift failed because it offended the beneﬁ ciary principle and did not come within any of the exceptions, because it was unclear what was meant by ‘some useful memorial’.

Key Law

A purpose trust within the exceptional cases will fail if it is too vague in its terms or it does not comply with the perpetuity period.

3.1.2.3 Re Astor’s Settlement Trusts [1952] Ch 534 HC Key Facts

The terms of a trust made by Viscount Astor were ‘. . . that the income was to be applied for the maintenance of good understanding between nations’ and ‘. . . the preservation of the independence and integrity of the newspapers’.

Key Law

These purposes were not charitable. The trust could not be upheld as a private express trust because: i) it offended against the beneﬁ ciary principle and ii) the objects of the trust were uncertain.

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3.1.2.3 Morice v Bishop of Durham (1805) 10 Ves Jr 522 CA Key Judgment

Sir William Grant: ‘Every trust must have a deﬁ nite object. There must be somebody in whose favour the court can decree speciﬁ c performance.’

Capricious purposes 3.1.2.6 M’Caig v University of Glasgow 1907 SC 231/ M’Caig’s Trustees v Kirk Session of United Free Church of Lismore 1915 SC 426 SC Key Facts

In the ﬁ rst case a trust was set up for the purpose of erecting statues of the testator and ‘artistic towers’ around his estate. The second case concerned a similar trust to erect bronze statues of the testatrix’s parents and their children.

Key Law

Both trusts were set aside on public policy grounds. The judge described them as a ‘sheer waste of money’.

Key Comment

The court appears to have been interfering with a testator’s complete freedom to deal in his property as he wishes after his death subject to certain statutory controls such as the Inheritance (Provision for Family and Dependants) Act 1975. Note that changes to the perpetuity period made by the Perpetuities and Accumulations Act 2009 do not affect non- charitable purpose trusts.

Tombs and monuments

3.1.3.3 Mussett v Bingle [1876] WN 170 HC

Key Facts

This is a case about a testator who wished his wife’s ﬁ rst husband to be remembered in a special memorial, which he

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agreed to pay for. A gift of £300 to erect a monument was upheld as an exception to the purpose trust cases but a second gift for the upkeep of the monuments failed, being void for perpetuity. No limit had been placed on the length of time the trust was to last.

3.1.3.3 Re Hooper [1932] 1 Ch 38 HC

Key Facts

A sum of money was left for the purpose of the upkeep and care of certain family graves and monuments as well as a tablet in a window in the church for as long as the trustees could legally do so. This was upheld for a period of 21 years.

Key Comment

Even where a purpose trust is upheld within the exceptional cases, it must still comply with the perpetuity period.

Animals

Pettingall v Pettingall (1842) 11 LJ Ch 176 HC

Key Facts

A gift by the testator of £50 per annum for the upkeep of his favourite mare was upheld.

3.1.3.4 Re Dean (1889) 41 Ch D 552 HC

Key Facts

A gift of £750 per annum for 50 years was left by William Dean to his trustees for the upkeep of his eight horses and his hounds. The judge held that this was a valid private purpose trust.

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Key Law

The court upheld the gift, although it offended the perpetuity period. The case can be justiﬁ ed on the basis that the judge considered lives as including the life of an animal. However, later cases have held that lives must be human lives.

Trusts for saying masses for the dead

3.1.3.5 Re Hetherington [1990] Ch 1 HC

Key Law

In this case the saying of masses was held in public and so could be a valid charitable trust as it satisﬁ ed the public beneﬁ t test.

Key Comment

However, it was held in Bourne v Keen [1919] AC 815 that the saying of masses for the dead will still be valid as a private purpose trust even if it is held in private.

The deﬁ nition of an unincorporated association 3.2.1.1 Conservative and Unionist Central Ofﬁ ce v Burrell [1982] 1 WLR 522 CA Key Facts

The case concerned the status in law of the Conservative Association. The Inland Revenue wanted to assess it for corporation tax, which was payable only if it was an unincorporated association. It was held that it was not an unincorporated association because it lacked some of the key characteristics. In particular, the people joining the party did not have a set of mutual rights and duties arising from a contract between them and there were no rules determining who controlled the body and its funds. The local branches of the Conservative Party had these rules, but not Central Ofﬁ ce.

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Key Law

1 An unincorporated association is composed of two or more people bound together for a common purpose. 2 The people are bound by mutual undertakings arising from a contract between them. 3 The body has rules which identify a) who controls the body and its funds and b) the terms on which such control is exercisable. 4 The body can be joined at will.

Constructions of gifts to unincorporated associations 3.2.2.6 Leahy v A-G for New South Wales [1959] AC 457 PC Key Facts

A testator left land of over 730 acres of land to be held on trust ‘for such an order of nuns of the Catholic Church or the Christian Brothers as my executors and trustees shall select’.

Key Law

The gift failed as a charitable trust because some orders are purely contemplative whose activities were not recognised as charitable purposes in law. It also failed as a private trust. If it were held to be a gift for the purposes of the group then it would fail for perpetuity and it would fail as a gift to the members to enjoy jointly as the numbers of all the orders were too extensive to enforce this for their beneﬁ t.

Key Comment

The gift in Leahy v New South Wales was upheld under a special statute passed by the New South Wales government permitting it to have charitable status even though contemplative orders could beneﬁ t.

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3.2.2.5 Neville Estates v Madden [1962] Ch 832 HC

Key Law

Cross J held that gifts to the members of an unincorporated association fell into three categories: 1 A gift to members at the relevant date as joint tenants, each having the right to sever a share; 2 A gift subject to the contractual rights and liabilities of the members towards each other. There would be no right to sever a share and a member’s interest will on his death or resignation accrue to the remaining members; 3 A gift to present or future members which will fail unless it is expressly within the perpetuity period.

3.2.2.7 Re Denley’s Trust Deed [1969] 1 Ch 373 HC

Key Facts

Land was transferred by Charles Denley to trustees with the purpose of providing a sports fi eld for employees of his company. The transfer was limited for a period of 21 years. There were no named benefi ciaries so it appeared to fail under the benefi ciary principle.

Key Law

The court held that although the trust appeared to be expressed for a purpose it was for the benefi t of individuals and so it did not offend the benefi ciary principle because they had suffi cient interest to enforce.

Key Judgment

Goff J: ‘I think there may be a purpose or object trust, the carrying out of which would benefi t an individual or individuals, where the benefi t is so indirect or intangible or which is otherwise so framed as not to give this person any locus standi to apply to the court to enforce the trust, in which cases the benefi ciary principle would, as it seems to me, apply to invalidate the trust, quite apart from any question of uncertainty or perpetuity. Such cases can be considered if and when they arise. The present is not, in my judgment of that character . . .’.

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Key Problem

Re Denley raises problems because it is diffi cult to decide whether it was upheld as a purpose trust or as a private purpose trust. The wording of the trust was for the use of recreation facilities of employees so it was a non-charitable purpose trust. However, Goff J suggests that as there were ascertainable benefi ciaries it could be upheld. The diffi cult problem is that in a conventional private trust a benefi ciary will own an equitable interest, but in this trust the employees merely had a right to use the land for a limited period of time. They did not have an interest in the land.

The contract holding theory

3.2.2.8 Re Grant’s Wills Trusts [1980] 1 WLR 360 HC

Key Facts

A gift was made to the Chertsey Labour Party. The nature of the Labour Party was such that a local branch of the Labour Party could not be an unincorporated association because it did not have its own rules; the local branches of the Labour Party do not have separate rules, therefore the gift failed.

3.2.2.9 Re Recher’s Will Trusts [1972] Ch 526 HC

Key Facts

Funds left to the London and Provincial Anti-Vivisection Society were held for the Society as part of its assets and would be owned by the members according to the rules of the Society.

Key Law

On the facts of the case the gift failed because the Society had been dissolved before the date of the gift.

Key Judgment

Brightman J: ‘. . . The legacy in the present case to the London & Provincial Society ought to be construed as a

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legacy of that type, that is to say, a legacy to the members beneﬁ cially as an accretion to the funds subject to the contract which they had made inter se .’

3.2.2.10 Re Lipinski’s Wills Trusts [1976] Ch 235 HL

Key Facts

Harry Lipinski left his residuary estate to an association called the Hull Judaeans (Maccabi) Association, an unincorporated association ‘in memory of my late wife to be used solely in the work of constructing new buildings for the association and/or improvements to the said buildings’. The next of kin challenged the gift, arguing that it was invalid because it was a gift for a purpose and the purpose could last indeﬁ nitely, so making it void for perpetuity.

Key Law

It was held that the gift could be construed as a gift to the members and it would be possible for the members to use it for any purpose according to their rules. If it was a gift for a purpose it could still be upheld because the purpose was one that could be carried out immediately and under Re Denley there were speciﬁ c beneﬁ ciaries who could enforce.

Re Horley Town FC Hunt and Another v McLaren and others [2006] EWHC 2386 HC

Key Facts

Members of this football club ranged from full to associate and temporary members. The trustees applied to the court to ask how different types of membership might effect distribution of the funds.

Key Law

Lawrence Collins J concluded that where membership prevented a member from deciding on whether the club should be wound up or not, in this case the associate and temporary members should not have a right to a share in the funds if the club was wound up.

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3.2.4.6 Hanchett-Stamford v Attorney-General [2009] Ch 173 HC Key Law

Lewison J applied the contract- holding theory which holds that the fund is owned by the members according to their contract. However, where there is a sole surviving member of an unincorporated association all remaining funds could be claimed by the surviving member as it then ceased to be an unincorporated association.

25726.indb 55 18/11/2013 10:40 Constitution of 4 trusts

ґ Formalities: Declaration of self as • Trust complete if settlor is also trustee - but if trustee: other trustees then incomplete until property • Must be evidence of passed to them. intention to create trust. • Transfer and formalities must be by prescribed • For land would need written method. evidence. • Chattels = delivery (Thomas v Times Books). • Otherwise no particular • Cheques = endorsement (Jones v Lock). words needed (Jones v • Land by conveyance. Lock). • Copyright = written transfer. • May show intention to hold • Shares = share transfer form and registration for benefit of third party (Milroy V Lord- but see also Re Rose). (Paul V Constance). V

CONSTITUTION OF TRUSTS

Enforcement of trusts: Exceptions to the rule that equity will not assist Enforcement of trusts: a volunteer: • Gratutious statement of intention not binding. The rule in Strong v Bird·. • If more formal - then depends on • Incomplete gift made during whether volunteer or non-volunteer. settlor's lifetime and donee made • Equity will not assist a volunteer, i.e. executor then gift complete - one not giving valuable consideration. beneficiaries have no claim. • Includes person covered by marriage Donatio mortis causa (death-bed settlement (Pullan v Koe). • If beneficiary is party to covenant in a gift): • Must be made in contemplation of deed then common law action for death (Wilkes vAllington)·, and damages possible (Cannon vHartiefl. • Subject matter passed to donee • Or Contracts (Rights of Third Parties) (Sen V Headley)·, and Act 1999 possible. • Gift made in circumstances that • Generally felt that trustees cannot show it will revert to donor if he enforce covenant on behalf of recovers. volunteers (Re Kay's Settlement). • If trustee seeks damages instead of Proprietary estoppel: specific performance then may • A person led to act in reliance on succeed (Re Cavendish-Browne). promise made by other person - • And also argued that promise may then person making promise create trust (Fletcher v Fletcher). cannot go back on it. • So sometimes creates a proprietary interest in favour of a v volunteer (Crabb vArun UPC).

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Z 4.1 General 1 If the settlor creates a trust by declaring himself as trustee then: O trust is complete and benefi ciaries may acquire rights in property; O providing both formalities and certainty is satisfi ed; O because property will already be vested in the trustees. 2 But if settlor intends to create trust by transferring property to other trustees then: O the trust is incomplete until he does so; O and the trust is unenforceable by benefi ciaries until he does so.

Z 4.2 Formalities 1 Turner LJ in Milroy v Lord (1862): ‘to render a voluntary settlement effectual the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary in order to transfer the property and render the settlement binding’. 2 Formalities and transfer must be according to prescribed method. 3 With chattels delivery is sufﬁ cient ( Thomas v Times Books (1966)). 4 With cheques, endorsement is needed ( Jones v Lock (1865)). 5 Deed of gift is the surest way. 6 Land needs conveyance in form of a deed (LPA 1925 and LP(MP)A 1989). 7 Copyright needs transfer in writing. 8 Shares need completion of share transfer forms and registration (Milroy v Lord (1862) ): O though a contradictory position was taken in Re Rose (1952) because the transferor had done everything in his power to transfer the shares; O followed in trust context in Hunter v Moss (1994); O and a broader approach may be taken where it is unconscionable for the donor to deny that a transfer occurred (Pennington v Waine (2002)) .

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Z 4.3 Declaration of self as trustee 1 While settlor must transfer property to trustees by appropriate method there must also be evident an intention to create a trust. 2 This need only be a clear intention (but for land would require writing). 3 Specifi c words declaring the trust are unnecessary if intention that one party holds as trustee for another’s benefi t is shown ( Jones v Lock ). 4 In contrast to above is situation where owner has not transferred property to third-party but has shown that he intends to hold it for benefi t of the third party (Paul v Constance (1977) ). 5 Where the settlor expressly states an intention to transfer property to third-party trustees but before transfer is complete he declares himself as trustee, the trust is only completed if the property is transferred to them during his lifetime ( Re Ralli’s Will Trust (1964)). 6 But if settlor appoints multiple trustees including himself and then fails to transfer property gift need not fail ( Choithram International v Pagarani (2001)).

Z 4.4 Enforcement of trusts – volunteers and non-volunteers 1 If a settlor merely makes a gratuitous oral statement of intention to create a trust then this is not binding. 2 If, however, settlor’s intention is demonstrated by more formal means, e.g. written covenant to transfer property, then enforceability may depend on whether intended benefi ciary is volunteer or non-volunteer. 3 Equity will generally not assist a volunteer. 4 A volunteer in this context is one not providing valuable consideration. 5 But in equity this can include a person covered by a marriage settlement ( Pullan v Koe (1913)). 6 A marriage settlement includes spouses, children (who are said to be coated with consideration) and sometimes also e.g. stepchildren – if there is a suffi ciently close relationship – but it will not cover next of kin generally (Re Plumptre’s Marriage Settlement (1910)). 7 Since enforcement depends on specifi c performance of the covenant then the property must also be of a type to which specifi c performance can apply ( Pullan v Koe (1913)).

25726.indb 58 18/11/2013 10:40 Exceptions to the rule that equity will not assist a volunteer 59

8 But if one of the intended benefi ciaries is a party to a covenant in a deed then whether that person is a volunteer or not, common law may provide an action for damages for breach of covenant even though specifi c performance is unavailable ( Cannon v Hartley (1949)). 9 Now Contracts (Rights of Third Parties) Act 1999 is available sometimes. 10 But for enforcement of covenants made before Act another issue is whether trustees can enforce covenant on behalf of volunteers – courts have been unwilling to accept this possibility ( Re Pryce (1917)). 11 But have suggested that trustees cannot pursue such a course of action ( Re Kay’s Settlement (1939)). 12 And trustees ‘could not and should not seek to enforce covenants on behalf of volunteers’ ( Re Cook’s Settlement Trusts (1964)). 13 But if a trustee seeks damages instead of enforcement then they may succeed ( Re Cavendish-Browne’s Settlement Trusts (1916)). 14 A fi nal way of a trustee assisting a volunteer in unique circumstances is to argue that, once a promise has been made to settle property this itself is the subject of an enforceable trust ( Fletcher v Fletcher (1844)).

Z 4.5 Exceptions to the rule that equity will not assist a volunteer 1 The rule in Strong v Bird (1874): O if incomplete gift made during donor’s lifetime, and donee then made executor to donor’s will, gift is completed and beneﬁ ciaries have no claim on property; O but vagueness of intention defeats the rule ( Re Gonin (1979) ). 2 Donatio mortis causa (gift made in contemplation of death): O In Cain v Moon (1896) Lord Russell CJ set basic requirements: Lc the gift must have been made in contemplation of death ( Wilkes v Allington (1931) ); LLc subject matter must have been passed to done, e.g. freehold land ( Sen v Headley (1991)); chattels – delivery ( Woodward v Woodward (1992)); choses in action – necessary documents ( Birch v Treasury Solicitor (1951)); iii) the gift must be made in such circumstances that show that the property will revert to the donor should he recover.

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3 Proprietary estoppel: O if one person has been led to act on a statement of another, he may in some circumstances prevent the other from going back on the promise; O but the promise must be unequivocal – so a gentlemen’s agreement in a commercial agreement is unenforceable ( Yeoman’s Row v Cobbe (2008)) – but possible in a domestic situation ( Thorner v Major (2009)) – although it has been suggested that the better remedy would be a remedial constructive trust; O but sometimes the doctrine has the effect of creating a proprietary interest in favour of a volunteer – see Dillwyn v Llewellyn (1862) and Crabb v Arun UDC (1976).

Key Cases Checklist

Chattels

4.2.3 Thomas v Times Books [1966] 1 WLR 911 HC

Key Facts

The widow of Dylan Thomas claimed ownership of the manuscript of his play Under Milk Wood from a third party. He had received it from the author in a taxi during a night of heavy drinking. It was held that the property had passed and the wife could not claim the property back.

Key Law

Where chattels are the subject matter of a trust or a gift, evidence of an intention to give and delivery of the subject matter of the gift or trust will fully constitute the trust or perfect the gift.

4.2.4 Jones v Lock (1865) (see above, Chap 2) CA

Key Law

The court held that he had not created a trust of the property as he did not show sufﬁ cient intention to create a trust.

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Alternatively the cheque had not been properly transferred as an outright gift to the baby because it had not been endorsed on the back.

4.2.8 Milroy v Lord (1862) 31 LJ Ch 798 HC

Key Judgment

Turner LJ: ‘. . . 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 . . . he may do this if he transfers the property to a trustee . . . or declares that he himself holds it in trust for those purposes . . . but in order to render the settlement binding, one or other of these modes must . . . be resorted to.’

Transfer of property requiring an act of a third party to perfect the title

4.2.8 Re Rose [1952] Ch 499 CA

Key Facts

Mr Rose had transferred 10,000 shares to his wife, completing the transfer in March 1943. The transfer was completed by the company in June 1943 when his wife was registered as legal owner. The settlor died and his estate was assessed for estate duty. Key Law

The shares would escape duty if they had been transferred before April 1943. It was held that the property had passed in March 1943 because the transferor had done everything in his power to transfer the shares and the ﬁ nal act was one that had to be carried out by a third party.

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Unconscionability

4.2.8 Pennington v Waine [2002] 1 WLR 2075 CA

Key Facts

Ada Crampton owned a 75 per cent shareholding in a private company of which she was one of the directors. She told her nephew that she was giving him 400 of her shares and that she wanted him to become a director. She repeated this to one of the company’s auditors. She signed a stock transfer form, but instead of transferring it to her nephew she gave the form to the auditors who put it on ﬁ le. When she died, the form was still with the auditors and she had not made any provision for the 400 shares in her will. The court decided that although she had not done everything that was necessary to be done under Re Rose , the transfer could still be upheld on the principle of unconscionability. She had told him that she was transferring the shares to him and that she wanted him to become a director, and he could not do this without a shareholding of his own.

Key Law

The court may uphold a transfer even where there are further steps to be carried out by the transferor, where it would be unconscionable for the transferor to revoke the transfer.

4.2.8 Milroy v Lord (above) CA

Key Facts

An attempt was made to create a trust consisting of 50 shares in the Bank of Louisiana in favour of the claimant by transferring them on trust to Lord. The Bank required that the shares be registered in the name of the transferee at the Bank for title to pass. This was never done although a deed of assignment had been executed and the share certiﬁ cates had been delivered.

Key Law

Although the transferor had intended to create a trust no trust had been created because the trust was incompletely constituted.

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4.3.4 Paul v Constance (1977) (above, Chap 2) CA

Key Facts

Money was placed in a deposit account in the name of Mr Constance. He told Ms Paul on many occasions that the money was as much hers as his.

Key Law

This was sufﬁ cient declaration of trust although the speciﬁ c moment when the trust was declared was not clear.

4.3.5 Re Ralli’s Will Trusts [1964] Ch 288 HC

Key Facts

A testator left property on trust for his widow for life and the remainder for his two daughters. One daughter, H, had promised as part of a marriage settlement that she would settle after-acquired property in favour of volunteers. She died before her mother but had not transferred her interest under the trust to the marriage settlement. Her executor was trustee of H’s marriage settlement as well as her mother ‘s will. The court held that as he was trustee of both the trust and the marriage settlement, the property within the trust came to him in his capacity as trustee of the settlement and so the trust was fully constituted.

Key Law

A trust may be fully constituted where the trustee receives trust property in some other capacity in purely fortuitous circumstances.

Choithram (T) International SA v Pagarani [2001] 2 All ER 492 PC

Key Facts

A very wealthy man from the British Virgin Islands wished to set up a charitable foundation, to which he intended

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to transfer most of his property including company shares. He became gravely ill, but before he died he signed a trust deed establishing the foundation. There were to be seven trustees including himself, and after he signed the deed he stated that he was giving all his wealth to the foundation. His health deteriorated further and he died before he had formally transferred the property to the foundation. The claimants were the man’s ﬁ rst wife and her children, who argued that the gifts he had made to the foundation were ineffective because of a failure of transfer.

Key Law

Both the trial judge and the Court of Appeal in the British Virgin Isles found that a trust had been created in spite of the failure of the settlor to vest the properties in the foundation. On appeal to the Privy Council by the defendants, who were the executors of the settlor, it was also held that there was a completely constituted trust.

Key Judgment

Lord Browne-Wilkinson: ‘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 the foundation trust deed.” Although the words are apparently words of outright gift they are essentially words of gift on trust . . .’.

Key Comment

The trust property was only vested in one of the trustees, but once the property was vested in one trustee this would be sufﬁ cient to constitute the trust. The court held that there could be no distinction between the case where one of the trustees simply declared himself as sole trustee and a case where the donor declares himself to be one of the trustees. The court were anxious to uphold the gift on the principle of unconscionability. (See the later case of Pennington v Waine , 4.2.8 below.)

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Beneﬁ .ciaries who are deemed to have given consideration

4.4.7 Pullan v Koe [1913] 1 Ch 9 HC

Key Facts

A wife covenanted to settle after-acquired property in excess of £100. She received the sum of £285 but did not settle this sum as agreed, and paid it into a separate account.

Key Law

The children were able to enforce her promise as they were parties to the marriage settlement and were not volunteers, as they were deemed to have given consideration.

4.4.6 Re Plumptre’s Marriage Settlement [1910] 1 Ch 609 HC Key Facts

A husband and wife had agreed to settle any property they received exceeding £500 and to pay the income to any issue, and if there were none to the wife’s next of kin. The wife did not pay the agreed sums and the next of kin sought to enforce the covenant, as there were no children to the marriage. They were not entitled to enforce.

Key Law

The beneﬁ ciaries of a covenant to settle after-acquired property within a marriage settlement could not force the parties to the covenant to settle property because they had not provided consideration.

4.4.8 Cannon v Hartley [1949] Ch 213 HC

Key Facts

A daughter was able to sue on a deed of separation which had been drawn up between her parents and herself when

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her father did not pay her an agreed sum of money received from his parents.

Key Law

Although she was a volunteer she had the right to claim damages for breach of the covenant to settle property because she was a party to the deed of separation.

Beneﬁ ciaries who have failed to give consideration 4.4.12 Re Cook’s Settlement Trusts [1965] Ch 902 HC Key Facts

Sir Francis Cook covenanted that he would settle the proceeds of sale of certain property, including a valuable painting, on trust for his family. He gave this to his wife and the court considered whether the beneﬁ ciaries could enforce the covenant in relation to the proceeds of sale of this picture.

Key Law

It was held that the beneﬁ ciaries were volunteers and could not enforce an incompletely constituted trust and recover the painting from his wife.

Trusts of the beneﬁ t of a covenant

4.4.14 Fletcher v Fletcher (1844) 4 Hare 67 HC

Key Facts

Fletcher covenanted with trustees that if either or both of his illegitimate sons Jacob and John should survive him and attain the age of 21, his executors would pay to the covenantees £60,000 within 12 months of his death to be held on trust for the relevant natural issue. Jacob survived and he sued the executors of his father’s estate.

Key Law

It was held that he had the right to sue because the trustees held the beneﬁ t of the covenant on trust for him.

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Key Comment

The important point about this case is that the court found that the beneﬁ t of the covenant formed the subject matter of a trust. So the claimant based the claim not on the covenant itself, but on a trust of the covenant. However, there is some doubt about the validity of this approach since a trust requires intention, and there is no evidence that Fletcher intended to create a trust of the beneﬁ t of the covenant.

4.5.1 Strong v Bird (1874) LR 18 Eq 315 CA

Key Facts

The defendant’s stepmother lived in his house and paid him for her board and lodging. The stepson owed her £1,100 and they agreed that she would pay a reduced amount to cover the loan. After two quarters she resumed paying at the full amount, and she told him she did not want the debt repaid. She should have put this into writing if she wanted to formally release him from the debt. She died some years later, appointing her stepson as executor.

Key Law

It was held that his appointment perfected the imperfect release of the debt, and the stepson was not required to repay the sum to the estate. There are several conditions that must ﬁ rst be satisﬁ ed for the rule to apply: 1 The donor must have intended to make an inter vivos gift or release a debt. 2 The intention must continue until the date of death. 3 The donee must have been appointed an executor or an administrator must have been appointed.

4.5.1 Re Gonin [1979] Ch 16 HC

Key Facts

A mother wanted to give her house to her daughter, but she wrongly thought that the daughter could not inherit the

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house because she was illegitimate. Instead she wrote the daughter a cheque for £33,000, which was found after the mother’s death. The daughter could not cash the cheque, as a personal cheque cannot be cashed after death. The daughter was administratrix of her mother’s estate and claimed the house under the rule in Strong v Bird . It was held that she could not claim the house, because the mother did not show a continuing intention to beneﬁ t the daughter up until her death. Once she signed the cheque, she no longer intended the daughter to have her house.

Key Law

The rule in Strong v Bird will only apply if there is a continuing intention to beneﬁ ft the claimant until death.

Donatio mortis causa

4.5.2 Cain v Moon [1896] 2 QB 283 HC

Key Law

There are three essentials for a valid donatio mortis causa : 1 The gift must have been made in contemplation, though not necessarily in the expectation of death. 2 The subject matter of the gift must have been delivered to the donee. 3 The gift must have been made under such circumstances as to show that the property is to revert to the donor if he should recover. Contemplation of death

4.5.2 Wilkes v Allington [1931] 2 Ch 104 HC

Key Facts

The donor had been diagnosed with cancer and as a consequence he made a number of incomplete gifts. He later caught pneumonia and died. It was held that he had made a valid donatio mortis causa .

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Key Law

A donatio mortis causa may still be valid even though the donor has contemplated death from one cause but died from another. There must be delivery of the subject matter of the gift

4.5.2 Sen v Headley [1991] Ch 425 CA

Key Facts

The claimant had lived for many years with the deceased, but they never married. On his deathbed in hospital he said to her that the house and contents were hers. The title to the house was unregistered and he gave her a key to a box where the deeds were kept. She had a set of house keys and he kept a set for himself. It was held that the transfer of the key to the strong box containing the title deeds was sufﬁ cient delivery.

Key Law

Land can be the subject matter of a donatio mortis causa , and in unregistered land, transfer of the title deeds is evidence of delivery.

Key Comment

It is difﬁ cult to see how there can be delivery in registered land today, since under the LRA 2002, land certiﬁ cates are no longer issued on registration of title at the Land Registry.

4.5.2 Woodard v Woodard , The Times , 18 March 1991 CA Key Facts

A son claimed the right to sell a car given to him by his late father. The father, who had become seriously ill, had given him a set of keys to the car but had retained a set for himself.

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Key Law

The court held that there was no outright gift but there was evidence to support a valid donatio mortis causa .

4.5.2 Birch v Treasury Solicitor [1951] 1 Ch 298 CA

Key Facts

Before going into hospital Mrs Birch, who was seriously ill, told her nephew and his wife that she wanted them to have the money she had in three separate accounts and her post offce account and she gave them the passbooks.

Key Law

Delivery of the passbooks was sufﬁ cient evidence of a donatio mortis causa because the books had to be produced in order to withdraw funds from any of the accounts.

25726.indb 70 18/11/2013 10:41 5 Secret trusts

Λ General: • Idea is to create trust without Fully secret trusts: revealing identity of beneficiaries - because of moral obligations. • Ostensible beneficiary must be • Courts accept them if: i) intention to told of trust and agree to be create trust and three certainties bound before testator’s death - satisfied; ii) trust communicated to or ostensible beneficiary takes legatee; iii) trust accepted by legatee. absolutely ( Wallgrave v Tebbs). • Fully secret = apparent gift to • Acquiescence is sufficient for ostensible beneficiary. acceptance (Moss v Cooper). • Half secret apparent on face of will. • They cannot be changed so are clearly inconsistent with the Wills Act (Ottaway v Norman). • Reason they are enforced is to prevent fraud on the beneficiary. SECRET TRUSTS

ґ Half secret trusts: Theoretical basis of secret trusts: • Traditionally not enforced • Both secret and half secret fail to comply - because fraud on with Wills Act requirements. beneficiary not possible. • So testator is ‘opting out’. • But were accepted in • Fraud argument cannot apply to half Blackwell V Blackwell. secret. • But to be valid must be • So ‘independent trust’ theory has been communicated before applied to both (Re Snowden). making of will - not • But has caused anomalies (Re Gardner before death of testator and Ottaway v Norman). as in fully secret (Re • And uncertain whether they are express or Keen). constructive.

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Z 5.1 The background to secret trusts 1 A will is a public document – so can be read by anyone. 2 This can cause problems for testators who wish to keep the identity of certain benefi ciaries secret, e.g. because of moral obligations to them. 3 One traditional answer was to make an absolute gift to an ‘ostensible benefi ciary’ who was instructed as to the real purpose of the gift (the fully secret trust) – and equity would prevent the ostensible benefi ciary’s unjust enrichment and enforce the trust. 4 A further way is to identify that person as a trustee in the will but still not reveal the identity of the secret benefi ciary, i.e. ‘to X for purposes which I have made known to him’ (the half secret trust) – the gift being immediately enforceable after the testator ‘s death as there is no question of the trustee taking it. 5 Secret trusts are potentially problematic because their exact nature is unclear and because they do not meet the requirements of certain formalities – s 9 Will Act 1837. 6 But courts do still approve of secret trusts if there is ‘i) an intention by the testator to create a trust, satisfying the traditional requirements of the three certainties; ii) communication of the trust to the legatees; iii) acceptance of the trust by the legatees . . . which . . . can take the form of silent acquiescence. . .’ (Nourse LJ in Margulies v Margulies (2000)).

Z 5.2 The rules governing fully secret trusts 1 The ostensible benefi ciary must be informed of the trust and agree to be bound by it before the testator’s death – so the trust must be communicated or the ostensible benefi ciary will take absolutely ( Wallgrave v Tebbs (1855)). 2 The ostensible benefi ciary must be told of the terms of the trust as well as of the existence of the trust ( Re Boyes (1884)). 3 The trust can be communicated orally or in writing, and could be in sealed instructions to be opened after death ( Re Keen (1937)). 4 Acceptance of the trust does not have to be formal – silence or acquiescence is suffi cient ( Moss v Cooper (1861)). 5 The ostensible benefi ciary must be informed of changes or additions to the trust or (s)he will take them absolutely. Communication and

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acceptance reached in an earlier will is not to be taken as communication and acceptance for a secret trust in a later will (Re Colin Cooper (1939)). 6 It has also proved possible for a testator to use a secret trust to create an obligation on the ostensible benefi ciary to make provision on the death of the secret trustee for the secret benefi ciary ( Re Gardner (No 2) (1923)). 7 This creates a clear inconsistency with the normal rules on wills since a secret trust cannot be altered once made while a will can ( Ottaway v Norman (1972)). 8 The original justifi cation for secret trusts was preventing any fraud by the ostensible benefi ciary – in which case the standard of proof should be high as for fraud (Ottaway v Norman) – but Megarry V-C suggested that either oral or written proof is suffi cient and that the standard of proof is only the normal civil measure ( Re Snowden (1979)).

Z 5.3 The rules governing half secret trusts 1 Courts traditionally had greater diffi culty in accepting half secret trusts. 2 The rationale for fully secret trusts – prevention of fraud by the ostensible benefi ciary – clearly cannot apply since a trust is created on the face of the will and there would never be any question of the trustee taking the property absolutely. 3 Traditionally, then, it was argued that there was no reason not to demand compliance with the requirements of the Wills Act 1837 – so half secret trusts were commonly not enforced and returned instead on resulting trust to the testators’ estate. 4 But half secret trusts were eventually accepted as valid in Blackwell v Blackwell (1929), where Lord Sumner stated that ‘it is communication of the purpose to the legatee coupled with acquiescence or promise on his part that removes the matter from the provisions of the Wills Act and brings it within the law of trusts’. 5 However, as Lord Sumner also identifi ed obiter: ‘. . . a testator cannot reserve to himself a power to make future unwitnessed dispositions by merely naming a trust and leaving the purposes of the trust to be supplied afterwards’. 6 So there is clear inconsistency in the relative positions on communication in fully secret trusts and half secret trusts – the former communication need only be before the testator ‘s death – but with the latter it must be at or before the making of the will ( Re Keen (1937)).

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Z 5.4 The theoretical basis of secret trusts 1 While there are good reasons why testators use secret trusts and why courts will enforce them they are still problematic. 2 Both fully secret and half secret trusts fail to comply with necessary formalities in the Wills Act. 3 The traditional justifi cation for allowing secret trusts to disregard statutory requirements is the equitable maxim – equity will not allow statute to be used as an engine of fraud. 4 This fraud theory obviously applies in the case of fully secret trusts but cannot apply to half secret trusts where a trust is apparent on the face of the will and there is no possibility of the trustee keeping the property. 5 Also the view of Lord Sumner in Blackwell v Blackwell that secret trusts are based on ‘intention, communication, and acquiescence’ is insuffi - cient justifi cation on its own because this has the effect of allowing a testator to ‘contract out’ of the provisions of the Wills Act – to choose to avoid statutory provision. 6 The more modern view is that both fully secret and half secret trusts operate outside of the will so have no need to comply with the provisions of the Wills Act – as Megarry V-C points out in Re Snowden : ‘The whole basis of secret trusts . . . is that they operate outside of the will, changing nothing that is written in it, and allowing it to operate according to its tenor, but then fastening a trust onto the property in the hands of the recipient.’ 7 So a major justifi cation for the ‘independent trust theory’ is still based on the personal obligation accepted by the ostensible benefi ciary (Re Young (1951)). 8 But the principle has led to some dramatic and controversial results ( Re Gardner (No 2) (1923)). 9 One fi nal point is whether the secret trust operates as a constructive trust or as an express trust: O in the case of half secret trusts, they can only ever be express as the trust is apparent on the face of the will; O in the case of fully secret trusts, either could apply; O if they are a means of avoiding formal requirements of the Wills Act to prevent fraud by the ostensible benefi ciary, then they would operate as constructive trusts;

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O if they operate independently of the will, then they must be regarded as express trusts; O the signiﬁ cance is in whether or not s 53(1)(b) must be complied with in the case of a trust of land – it need not be in a constructive trust – but in Ottaway v Norman an oral fully secret trust of land was upheld without the issue being discussed.

Fully secret trusts Half secret trusts

Are created to benefi t a ‘secret’ Are created to benefi t a ‘secret’ benefi ciary. benefi ciary. Are not apparent on the face of the Are apparent on the face of the will. will. Do not fulfi l certain requirements of Do not fulfi l certain requirements the Wills Act. of the Wills Act. Secret trustee (ostensible benefi ciary) Secret trustee is identifi ed on face must be informed before testator’s of will – and must be informed death of existence and terms of trust before will is made – and accept – and must accept. or acquiesce. If trust fails then ostensible benefi ciary If trust fails then gift returns to takes gift absolutely. testator’s estate as a resulting trust. Justifi ed originally on basis that they There never could be a fraud on avoid fraud on the secret benefi ciary. the secret benefi ciary – because the trust is apparent on the face of the will. Are based on intention, Are based on intention, communication – and operate communication – and operate outside the Wills Act. outside the Wills Act. Could exist as either an express trust Can only ever operate as an or as a constructive trust. express trust – because trust apparent on face of will.

Diagram illustrating the similarities and differences between fully secret trusts and half secret trusts

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Key Cases Checklist

McCormick V Grogan (1869) The basis of secret trusts was originally the prevention of fraud. If a testator tells the secret trustee that a trust is to be established then it would be a fraud on the part of the trustee to deny it.

The fully secret trust Ottaway V Norman (1972) A fully secret trust must satisfy THREE requirements: intention; communication any time up until the death of the testator; and acceptance by the secret trustee Re Snowden (1979) A secret trust will only arise if the words used impose a trust rather than a moral obligation (intention) Wallgrave v Tebba (1855) A letter found amongst papers after the testator’s death is not proper communication of a secret trust to a secret trustee Re Stead (1900) Where secret trustees hold the trust property as joint tenants communication of the trust to one of the joint tenants will be sufficient ReBoyes (1884) There is no communication if there is a suggestion that communication will be made after the execution of the will and it is not made until after the death of the testator Яе Cooper (1939) Where a codicil adds further property to the trust then this too must be communicated to the secret trustee Moss V Cooper (1861) Silence can constitute acceptance of a secret trust by a secret trustee

The half secret trust Issues arising from secret Blackwell V Blackwell (1929) trusts A half secret trust must satisfy Re Gardner (No 2) (1923) THREE requirements: intention, The estate of a beneficiary who communication before or at the time predeceased the testator could keep of execution and acceptance the gift promised in the secret trust Re Keen (1937) although it is usually regarded as There will be sufficient communica tion where the testator hands a taking effect only on the death of the sealed envelope to the trustee testator containing the names of the Re Young(1951) beneficiaries if the settlor shows A witness to a will could still claim a that he intends to create a trust gift under a secret trust contained in Re Rees Wills Trust (1950) the will in spite of the operation of s Trustees of a half secret trust are 15 Wills Act 1837 because the gift unable to keep payments promised takes effect outside the will to them where a will imposes a trust 4______' over the whole sum

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Communication

5.2.1 Wallgrave v Tebbs (1855) 2 K & J 313 CA

Key Facts

Property was left under a will to the defendants absolutely. A letter was found after the testator’s death which showed an intention that the defendants should apply the property to a charitable purpose connected with the church.

Key Law

As this intention was not communicated until after the death of the testator, the defendants were entitled to take the property absolutely.

5.2.2 Re Boyes (1884) LR 26 Ch D 531 HC

Key Facts

The testator, George Boyes, left his entire estate to his solicitor. He told him he would communicate the terms of the trust by letter. There was no communication whilst the testator was alive, but papers were discovered after his death which made provision for the solicitor to hold the property for the testator’s mistress and illegitimate child.

Key Law

There could be no enforceable secret trust because the terms had not been communicated during the testator’s lifetime. The property could not be claimed by the solicitor because he was aware that it was held for another, so it reverted back to the testator’s next of kin.

5.3.2 Re Keen [1937] Ch 236 CA

Key Facts

The testator gave a sum of money to trustees ‘to be held on trust and disposed of by them among such person or

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persons or charities as may be notiﬁ ed by me to them or either of them during my lifetime’. He handed a sealed envelope to the trustees which contained the names of the beneﬁ ciaries of the intended trust.

Key Law

It was held that this could be a valid communication of the terms of the secret trust, but in this case it was inconsistent with the terms of the will.

Key Judgment

Lord Wright MR: ‘To take a parallel, a ship which sails under sealed orders is sailing under orders though the exact terms are not ascribed by the Captain till later.’ Acceptance

5.2.4 Moss v Cooper (1861) 1 J&H 352 HC

Key Facts

Property was left jointly between three trustees. The testator told all three of them the terms of the bequest, which was that they should transfer the property to named charities after his death. Only two of the three trustees accepted the trust; the third did not refuse the trust but remained silent.

Key Law

It was held that silence can constitute acceptance of a trust.

5.2.5 Re Colin Cooper [1939] Ch 811 CA

Key Facts

A testator left £5,000 by will to two trustees. He had communicated the existence of the trust to them both. Later he added a codicil which increased the amount to £10,000 but he did not communicate the alteration to them both.

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Key Law

It was held that only the £5,000 was subject to the trust.

Re Gardner (No 2) [1923] 2 Ch 230 HC

Key Facts

A testatrix had left her estate to her husband for life and then to her nieces under a secret trust. One of the nieces predeceased her.

Key Law

It was held that the gift to the niece took effect when the will was executed and her estate could beneﬁ t.

Key Comment

This decision has been criticised as it undermines the main principle of the secret trust, which is that it is a trust which becomes fully constituted on the death of the testator.

5.2.7 Ottaway v Norman [1972] Ch 698 HC

Key Facts

Miss Hodges lived with Harry Ottaway in his house and he left it to her in his will. She in turn left it to Mr and Mrs Norman. Harry Ottaway’s son claimed that she held the house for him under a secret trust and so she had no right to leave it to others on her death. The judge held that a fully secret trust had been created and so the son had a valid claim.

Key Law

A fully secret trust must satisfy three requirements: i) intention; ii) communication; and iii) acceptance.

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Intention

5.2.8 Re Snowden [1979] Ch 528 CA

Key Facts

The testatrix left her estate to her brother because she was not certain how to distribute it among her relatives. Some days before her death she announced that her brother ‘would know what to do’. She died and a few days later the brother died. He had made a will in favour of his son. The question before the court was whether the son could inherit the estate, or whether it was held on secret trust for all the nephews and nieces.

Key Law

It was held that the words only imposed a moral obligation on him and did not show an intention to create a trust.

5.3.4 Blackwell v Blackwell [1929] AC 318 HL

Key Facts

The testator left a legacy to trustees to apply the income ‘for the purposes indicated by me to them. . .’. This was enforced as a half secret trust.

Key Law

In a half secret trust there must be intention, communication and acceptance of the trust. The communication must either be before the will is executed, or at the same time.

Key Judgment

Lord Sumner: ‘A testator cannot reserve himself a power of making future unwitnessed dispositions by merely naming a trustee and leaving the purposes of the trust to be supplied afterwards . . .’.

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5.4.7 Re Young [1951] Ch 344 HC

Key Facts

A chauffeur had witnessed the will of his employer. He left his entire estate to his wife. He had privately told her to hold a sum for the chauffeur on his death.

Key Law

It was held that this gift should be upheld in spite of s 15 Wills Act 1837, which prevents a witness from beneﬁ ting from a will that he/she witnesses.

25726.indb 81 18/11/2013 10:41 Protective and 6 discretionary trusts

Z 6.1 Protective trusts 1 This is a simple device that ensures that a benefi ciary who is likely to dissipate the fund through inexperience, immaturity or irresponsibility is prevented from doing so ( Re T’s Settlement Trusts (1964)). 2 It will arise where the settlor/testator knows that the trust property could be sold or mortgaged resulting in the effective waste of the assets with possible detriment to the benefi ciary’s spouse and children. 3 Such a trust could be drafted individually or incorporating the provisions of s 33 TA 1925. 4 The benefi ciary in effect receives a life interest in the property determinable in the event of e.g. bankruptcy of the benefi ciary or attempts to dispose of the assets of the trust by the benefi ciary. 5 In that case a discretionary trust will usually arise. 6 Trustees can then use the property to benefi t the benefi ciary and his/her dependants by whatever method they select. 7 While this type of trust is useful in guarding against irresponsible use of the trust property, it can also be seen as unfair to creditors.

Z 6.2 Discretionary trusts 6.2.1 The purpose of discretionary trusts 1 By defi nition, a discretionary trust is one where the trustee has a power to select from a number of potential benefi ciaries to whom (s)he will distribute the assets under the trust. 2 The mechanism has the advantage that benefi ciaries have no rights in the interest until selected – and formerly there were also specifi c tax-saving advantages but these have now gone. 3 Discretionary trust then may be used:

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O in conjunction with protective trusts to protect the fund from benefi - ciaries who are irresponsible or spendthrift; O to protect a benefi ciary against a creditor in bankruptcy; O to allow fl exibility to take account of changing circumstances of benefi ciaries.

6.2.2 How discretionary trusts operate 1 Property is normally conveyed to the trustees to be held on trust to apply either the income or the capital or both for the benefi t of members of a class of benefi ciaries in such proportions as the trustees in their absolute discretion think fi t. 2 The trust lasts for any designated period that is not in excess of the perpetuity period, i.e. since the Perpetuities and Accumulations Act 1964 for a maximum of 80 years, but see Perpetuities and Accumula- tions Act 2009 for wills and trusts taking effect after April 2010. 3 There may well be a power to accumulate – although this is subject to various statutory restrictions. 4 Distinction is made between ‘exhaustive’ discretionary trusts (where trustees are required to distribute the whole income) and ‘non- exhaustive’ discretionary trusts (where in relation to income the income does not have to be distributed each year, or to capital where the whole capital would not have to be distributed during the currency of the discretionary trust) ( Re Locker’s Settlement (1977)). 5 Powers may be given to add to, or to exclude benefi ciaries and for a resettlement on new trusts.

6.2.3 The interests of the benefi ciaries 1 Unlike in fi xed trusts, benefi ciaries under a discretionary trust have no proprietary interest in the trust – but depend on selection by trustees. 2 If the trust is exhaustive then the class of benefi ciaries as a whole if adult and not suffering any disability may terminate the trust and enforce distribution ( Re Smith (1928)). 3 Otherwise the duty of the trustee is only to exercise the discretion. 4 In the case of a non-exhaustive discretionary trust this duty may be satisfi ed merely by exercising a power to accumulate.

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Key Cases Checklist

6.1.1 Re T’s Settlement Trusts [1964] Ch 158 HC

Key Facts

A beneﬁ ciary had an interest in a trust subject to attaining her majority (i.e. at that time reaching the age of 21). She was immature and irresponsible and the trustees sought an order allowing them to vary the terms so that the trust became a protected life interest.

Key Law

The court held that although this was not strictly within the court’s powers, because it was not obviously for her beneﬁ t in its own right, an order would be made postponing the vesting of the capital until a speciﬁ ed age and holding the property on protective trusts.

Key Comment

A protective trust can be used as a way to protect a benefi - ciary who is likely to dissipate the fund. The benefi ciary of a protective trust receives a life interest in the property, which is determinable in the event of a certain event such as bankruptcy. When the trust has determined a discretionary trust will arise and the benefi ciary of the protective trust becomes just one of the class of benefi ciaries entitled under the discretionary trust.

Types of discretionary trusts Exhaustive discretionary trusts 6.2.2.4 Re Locker’s Settlement Trusts [1977] 1 WLR 1323 HC Key Facts

The terms of a trust of an exhaustive discretionary trust required the trustees to pay, divide and apply the income for charitable purposes or among the class of beneﬁ ciaries as the trustees ‘shall in their discretion determine’. The trustees

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did not distribute for a period between 1965 and 1968. The court held that the surplus fund should be distributed and could not be accumulated.

Key Law

The court can intervene in an exhaustive discretionary trust and either appoint new trustees where the trustees have failed to distribute or direct the trustees to distribute. In an exhaustive discretionary trust the trustees are under a duty to distribute and have no discretion whether or not to act.

6.2.3.2 Re Smith [1928] Ch 915 HC

Key Facts

Property was held on a discretionary trust for a mother and her three children.

Key Law

The court held that the beneﬁ ciaries in a discretionary trust had sufﬁ cient interest in the trust to combine together and claim the legal title.

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f Constructive trusts: Resulting trusts: Arise by operation of law - and some overlap Based on return of trust fund to settlor’s with resulting - and basic duty is to return estate: fund to rightful owner - but uncertain whether • can be automatic (where settlor fails to a trust or a remedy. dispose of entire beneficial interest) Can occur in the case of: • or presumed (from presumed intent of • secret profit made by a fiduciary settlor). {Boardman v Phipps) Failure of express trust e.g.: • mutual wills - agreement between two • charitable рифове not properly identified parties on identity of beneficiary when both (Яе Diplock) die - avoids fraud on first to die • failure to meet contingency in a contingent (Re Dale) interest (Essery V Cowlard) • vendor of land once contract is concluded Failure to dispose of entire beneficial interest: (Lysaght v Edwards) • settlor must keep what he has not disposed • property acquired by killing (Re Crippen) - of (Re Vandervell) subject to other rules in Forfeiture Act • can involve surpluses (Re Gillingham Bus • fully secret trusts - but not half secret Disaster Fund) (which are on face of will) - but see • or dissolution of unincorporated associations. Ottaway V Norman Presumption in voluntary conveyance: • strangers who dishonestly assist in abreach • does not apply to personality (Re of trust (Royal Brunei Airlines v Tan) Vinagradoff) • strangers who knowingly receive trust • can be rebutted by presumption of property when it is unconscionable to do sc advancement (Re Eykyn’s) (Bank of Credit Commerce • or either by evidence to contrary (Shephard International (Overseas) Ltd vAkindele) V Cartwright). • agents and partners where they act Purchase in name of others: dishonestly (Re Bell's Indenture) • unless indication that actual purchaser does • ‘new model’ trusts where it is just and not intend to keep beneficial interest, then V equitable (Hussey v Palmer).______. presumption of resulting trust in his favour (Fowkes V Pascoe) RESULTING AND • if many contributions then based on actual CONSTRUCTIVE TRUSTS contribution (Bull V Bull).

^Trusts of the family home: ^ • used as ways of dealing with implied co-ownership • judges have confused implied, resulting, and constructive trusts - now re-classified in Drake V Whipp • resulting based on implied co-owner's contribution (Bull vB ull) • constructive based on evidence of legal owner’s intention to share and actual detriment suffered by implied co-owner (Eves v Eves) • but constructive cannot be based on work alone (Lloyds Bank v Rosset) • in many cases in 1970s CA used ‘new model’ constructive trust based on what was just and equitable (Gissing v Gissing); but HL took different view.

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Z 7.1 Introduction 1 These groups of trusts can defy simple defi nition because even within themselves they include many different types or arise in quite different situations. 2 The essential feature linking them all is that they are not expressly stated in a trust instrument but are implied from the circumstances in which they arise. 3 Although resulting trusts have been defi ned in various ways they are in essence used as the basis of an action for return of one’s own property; the modern view is that they arise because of the absence of any intention by the transferor to pass any benefi cial interest to the transferee. 4 Even then, while some resulting trusts are implied from the presumed intention of the settlor not all are – so the area is far from straightforward. 5 Constructive trusts, as resulting trusts do not meet formality requirements for express trusts – but the two are still distinct. 6 The distinction is that while resulting trusts involve the real equitable owner of property asserting a continuing interest in the property, the constructive trust is imposed by the court in order to redress a breach of a fi duciary relationship. 7 It has been said that the constructive trust is a residual category which is used by the court in circumstances where it wishes to impose a trust and no other category is appropriate. 8 Extra confusion has been added at times by the application of the principles to shared ownership of domestic property.

Z 7.2 Resulting trusts 7.2.1 General 1 A resulting trust is one that comes about through operation of law as would a constructive trust, only for different reasons. 2 In effect it occurs where a settlor retains beneﬁ cial interest in trust property – or there are indications that settlor did not intend to part with beneﬁ cial ownership of the property. 3 So often said to be based on presumed intention of settlor – though that will not always seem to be case – e.g. Vandervell v IRC (1967) where effect of resulting trust was to impose an extra tax burden on a settlor who was trying to avoid tax.

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4 Resulting comes from the Latin ‘resultare ’ meaning ‘to spring back’ – in essence, what happens to the benefi cial entitlement. 5 Although it could be argued that the benefi cial entitlement is actually never disposed of. 6 Resulting trusts are sometimes referred to as: O presumed – where they are said to arise from the presumed intent of the settlor; O automatic – where settlor merely fails to dispose of all of the benefi - cial interest. 7 There are many different situations where such trusts arise: O property is transferred to the trustees but the trust fails to take effect as the settlor intended it to; O the settlor fails to dispose of the entire interest; O property bought by one person but in name of another; O property which is already owned is transferred into the name of someone else.

7.2.2 Failure of an express trust 1 An express trust may fail for numerous reasons: O the settlor fails to identify the property that passes; or O fails to identify some or all of the benefi ciaries; or O fails to properly identify what the interests are. 2 Or a gift may fail where a settlor fails to properly identify the specifi c purpose in a charitable gift – property then returns to the settlor’s estate on resulting trust ( Re Diplock (1947)). 3 If a gift fails for becoming void then again a resulting trust is created ( Re Ames’ Settlement (1946)). 4 And if any contingent requirement is not met, again, the trust fails and a resulting trust will arise ( Essery v Cowlard (1884)). 5 A resulting trust has been accepted in respect of a loan made for a specifi c purpose when the purpose was not then carried out (Barclays Bank v Quistclose (1970)), Lord Wilberforce stating that a secondary trust arose from the failure to carry out the primary trust: O Lord Millet in Twinsectra v Yardley (2002) suggested this was wrong since ‘the primary trust was for an abstract purpose with no one but the lender to enforce performance’;

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O the High Court has stated that a resulting trust is created in favour of the payer but subject to a power exercised by the recipient to use the fund for the stated purpose (Templeton Insurance Ltd v Penning- tons Solicitors (2006)); O the effect of a Quistclose trust is that the payee is the ﬁ duciary of the payer so that on bankruptcy of the payee the payer can trace his funds ( Cooper v PRG Powerhouse Ltd (2008)) .

7.2.3 Failure to dispose of the entire benefi cial interest 1 Arguably the most common reason why resulting trusts occur – it certainly leads to the most case law. 2 Can occur quite accidentally, e.g. as a result of poor drafting, or by a failure to provide for a particular eventuality. 3 There are four possible outcomes – not just a resulting trust: O if fund for charitable purposes may be redirected cy-près ; O or court might construe outright gift to one benefciary; O in the absence of benefciaries on intestacy the property may be redirected to the Crown by bona vacantia ; O but there may indeed be a resulting trust. 4 General rationale of applying resulting trust in such situations is argument that settlor must keep what he has not parted with – and courts must construe whether or not he has disposed of entire interest ( Vandervell v IRC (1967)). 5 Where gifts are made to specifi c persons for specifi c purposes then generally the ‘court always regards the gift as absolute, and the purpose merely as the motive for the gift’ (Page-Wood V-C in Re Sanderson’s Trusts (1857)). 6 So surplus after purpose achieved may still pass absolutely to benefi ciary rather than resulting trust ( Re Osoba (1979)). 7 In rare situations, if it can be shown that there was no intention to provide absolute benefi t then a resulting trust of surplus property is possible ( Re Abbot Fund Trusts (1900)). 8 Resulting trusts may often occur on surplus from, e.g. a disaster fund ( Re Gillingham Bus Disaster Fund (1958)). 9 Surplus funds on dissolution of unincorporated associations can lead to a number of possible outcomes – although in general what happens

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depends on rules of association which acts as a contract between the members: O in certain situations if a trust is accepted surplus is distributed amongst existing members on resulting trust ( Re Printers’ and Trans- ferrors’ Society (1899)); O although applying resulting trusts is more problematic if not limited to existing members (Re Hobourn Aero Components Air Raid Distress Fund (1946)); O if members are said to be receiving contractual beneﬁ t then no resulting trust ( Cunnack v Edwards (1896)); O usually no resulting trust possible where fund arose from variety of sources not just subscriptions of members ( Re West Sussex Constabu- lary’s Widows, Children and Benevolent (1930) Fund Trust (1971)); O more modern solution is that (even if fund held on trust) it is distributed to members if constitution of association permits ( Re Bucks Constabulary Fund (No 2) (1979)); O where entitlement is by resulting trusts then distribution of surplus is to all members past and present according to their contribution ( Re Sick and Funeral Society of St John’s Sunday School Golcar (1973)) .

7.2.4 Voluntary conveyances and presumption of resulting trust 1 In land, prior to 1925 in order to prevent a resulting trust from arising in a voluntary conveyance it was necessary to insert an express statement that beneﬁ cial interest also transferred: O s 60(3) Law of Property Act 1925 then provided that a resulting trust would not arise merely because an express statement to the contrary was not included; O however, if an outright gift is intended then it is still best to expressly state so – to prevent a resulting trust being construed as settlor’s intention ( Hodgson v Marks (1971)). 2 Section 60(3) does not apply to pure personalty – transfer governed by general principles of equity – in voluntary transfer of personalty a resulting trust arises and transferee holds on trust for transferor (the presumption of a resulting trust) – based on idea that transferor would not wish to part with beneﬁ cial interest where there is only a voluntary transfer (although it is hard to see why they cannot be construed as outright gifts) (Re Vinogradoff (1935)).

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3 The presumption of a resulting trust can of course be rebutted by evidence of a contrary intention – this may also be the case where the presumption of advancement applies: O presumption is based on relationship between settlor and beneﬁ ciary – so in certain cases outright gift presumed, e.g. husband/wife, father/ children, father/any person for whom he is in loco parentis (Re Eykyn’s Trusts (1877)); O s 199 Equality Act 2010 has abolished the presumption of advancement but this section has not yet been brought into force; O while presumption derives from moral obligation – Lord Diplock in Pettitt v Pettitt (1970) said it is ‘based upon inferences of fact which an earlier generation of judges drew as the most likely intentions of earlier generations of spouses belonging to the propertied classes of a different social era’; O presumption will not apply to a mother’s gift to her child ( Bennett v Bennett (1879)), or a father ‘s gift to his illegitimate child (though in practice both should now be covered by loco parentis ), nor to voluntary transfer from a wife to her husband, or from a man to his mistress – although in all these it is suggested that a more modern approach should be taken (Re Cameron (Deceased) (1999)). 4 Both presumptions of a resulting trust and of advancement can be rebutted by evidence to the contrary – though there are limitations on what evidence is available to rebut the presumption (Shephard v Cartwright (1954)). 5 Traditionally, courts were reluctant to let a party introduce evidence of an improper motive in order to rebut a presumption ( Gascoigne v Gascoigne (1918)): O as Lord Denning put it in Tinker v Tinker (1970) it may leave the judge ‘on the horns of a dilemma’; O the whole area of improper motive was reviewed by both CA and HL – with HL determining that interests under illegal transactions can be enforced only if the party seeking to can establish their title without relying on their own illegality – and rejecting CA’s idea that the answer should be based on what does or does not offend public conscience ( Tinsley v Milligan (1993)); O one further point established is that presumption of advancement can be rebutted by evidence of unlawful or improper motive when purpose not actually carried out – the so-called ‘repentance’ principle ( Tribe v Tribe (1996));

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O the Law Commission has been critical of courts’ handling of these issues and has suggested reforms.

7.2.5 Purchase in the name of others and the presumption of resulting trust 1 As Chief Baron Eyre said in Dyer v Dyer (1788), ‘the trust of a legal estate . . . results to the man who advances the purchase money’. 2 So whenever a person has bought property in another’s name, unless there is some indication that he does not intend to keep beneﬁ cial interest, there is a presumption of a resulting trust in his favour (Fowkes v Pascoe (1875)). 3 As with voluntary transfers of property, the presumption of advancement can rebut the presumption of a resulting trust and the same rules apply as to admissibility of evidence (Warren v Gurney (1944)). 4 Where a purchase by several parties is made in name of one then title is held on resulting trust in proportion to which each contributed to purchase: O and this is particularly appropriate to implied co-ownership cases – Bull v Bull (1955), Pettitt v Pettitt (1970) and Gissing v Gissing (1971); O and criticisms of earlier cases were aired and precise difference between application of resulting trust and constructive trust was identiﬁ ed in Drake v Whipp (1995); O and members of a lottery syndicate who have contributed their share can enforce their rights to the winnings through a resulting trust ( Abrahams v Abrahams (1999)); O and where parties have bought property with one paying their share and lending the other, even though the debt is not paid off, the debtor still gains an interest in the property ( Elithorn v Poulter (2009)). 5 If a joint purchase is put in name of one person who is wife or child of the other party then presumption of advancement arises in any case as a last resort and can be rebutted by very comparatively slight evidence ( McGrath v Wallis (1995)). 6 Law Commission has been critical and suggested reforms.

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Z 7.3 Constructive trusts 7.3.1 General 1 A constructive trust is a form of implied trust which arises only by operation of law. 2 According to Edmund Davies LJ in Carl Zeiss Stiftung v Herbert Smith & Co (1969), ‘English law provides no clear and all-embracing defi nition . . . Its boundaries have been left perhaps deliberately vague, so as not to restrict the court by technicalities in deciding what the justice of a particular case may demand’: O Lord Millet in Paragon Finance v Thakerar (1999) identifi es two different interpretations: i ) where constructive trustee is really a trustee because of an arrangement with benefi cial owner meaning that using property for his own benefi t would be unconscionable; ii) where defendant is implicated in a fraud and, though not in fact a trustee, is bound to account in the same way. 3 However, the mechanism has been crucial to the development of real property rights in English law. 4 There are certain overlaps with resulting trusts, e.g. that neither conform to the formality requirements, but, though they have been, the two should not be confused. 5 Another major questions to follow the constructive trust is whether it exists as a type of trust or is in fact a remedy: O Lord Browne-Wilkinson described the distinction in Westdeutsche Landesbank Girozentrale v Islington BC (1996) – in ‘institutional’ the consequences for third parties are determined by law, in ‘remedial’ third-party rights are set at the court’s discretion.

7.3.2 Duties of the constructive trustee 1 Duties and liabilities of a constructive trustee are generally different to those of an express trustee. 2 This is because the trust arises by operation of law. 3 So, e.g. duties to invest and general duty of care will not apply. 4 And duties will probably vary according to circumstances in which the trust arises.

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5 Certainly in many instances the most signiﬁ cant duty of the constructive trustee will be to return the property (or to account for it) to the actual beneﬁ ciary. 6 This is why in certain jurisdictions, e.g. USA, the trust is seen as being essentially remedial, has to do with restitution, and is a means of preventing unjust enrichment. 7 But the English courts have generally tended to reject this approach – e.g. in the case of mortgage arrears ( Halifax Building Society v Thomas (1996)) and in the case of the assets of an insolvent company ( Re Polly Peck International plc (in administration) (No 2) (1998)).

7.3.3 Traditional categories of constructive trust 1 Where a fi duciary obtains an unauthorised (secret) profi t as a result of his/her connection with the trust: O the basic principle is that from Lord Herschell’s judgment in Bray v Ford (1896) ‘a person in a fi duciary position . . . is not, unless otherwise expressly provided, entitled to make a profi t; he is not allowed to put himself in a position where his interest and his duty confl ict’; O and the fi duciary will be prevented from keeping any advantage gained directly or indirectly from the position as fi duciary (Re Biss (1903)); O and in such circumstances the fi duciary holds property gained on constructive trust for benefi ciaries under the trust ( Boardman v Phipps (1967)); O and while employment is not generally a fi duciary relationship, it can give rise to one ( Cobbetts v Hodge (2009)). 2 Mutual wills: O where two people, usually husband and wife, leave property to each other, but also agree that on the death of survivor of two property should go to named benefi ciaries; O there must be a clear and binding agreement between the parties not to revoke the will – compare Re Oldham (1925) with Re Cleaver (1981); O to maintain rule that wills should always be revocable but still allow agreement to be enforceable, equity imposes a trust on personal representatives of second of two parties to agreement to die in favour of ultimate benefi ciary identifi ed in agreement ( Dufour v Pereira (1769));

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O one argument used to justify enforcing mutual will is that survivor of two parties to agreement is receiving some benefi t – and it is this that makes it inequitable for that party to go back on the agreement; O disputed by Morritt J in Re Dale (Deceased) (1994) – where it was stated that the theoretical basis of the trust is to prevent fraud against the other party to an agreement that was intended by both to be binding; O it is likely that the trust arises on the death of the fi rst party – but there are then diffi culties in determining to what property the trust applies (Re Hagger (1930)); O area is full of diffi culties and has been said ‘is a clumsy and inadequate way of dealing with a complicated problem’ (Martin, see also Mummery LJ in Olins v Walters (2008)). 3 The vendor of land: O not an ordinary trusteeship – because a contract for land is specifi - cally enforceable – once contract is concluded purchaser becomes effective owner of land and vendor in that sense is trustee of it (Lysaght v Edwards (1876)); O uncertain at which precise point vendor becomes trustee; O but it is possible that where after exchange of contracts vendor then sells on to a different purchaser (s)he may be constructive trustee of the purchase monies for benefi t of purchaser ( Lake v Bayliss (1974)); O on completion once the price is paid property must be conveyed because at this stage vendor has only a bare legal estate while purchaser owns entire benefi cial interest (Lloyds Bank plc v Carrick (1996)); O this is an example of the maxim that equity treats as done that which ought to be done. 4 Acquisition of property by killing: O English courts have established rules to ensure that benefi ciaries who kill the testator (or someone they would inherit from in intestacy) should not profi t from the killing ( Re Crippen (1911)); O in certain circumstances the killer is said to hold on a constructive trust for the person who would be next entitled under the deceased’s will or by intestacy rules; O but the area is not without diffi culty and is complicated, e.g. by the Forfeiture Act 1982.

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5 Secret trusts: O there is debate as to whether secret trusts are constructive trusts or express trusts; O half secret trusts can only ever be express because the trust is clear in the will; O but with fully secret, if they operate to prevent fraud by the ostensible beneﬁ ciary they could be constructive; O the signiﬁ cance is that for express trusts of land s 53(1)(b) Law of Property Act 1925 must be complied with but not in a constructive trust; O in Ottaway v Norman an oral fully secret trust of land was upheld without the issue being discussed.

7.3.4 Constructive trusts involving strangers to the trust 1 Strangers to the trust are people who are not themselves express trustees but intermeddle in the trust: O they may be made personally liable for their dishonest involvement in a breach of trust; or O they may come into possession of trust property and then be obliged to hold it on trust for the benefi ciaries. 2 Dishonest assistance: O now more correctly described as ‘accessory liability’; O on the basis of Lord Selborne’s judgment in Barnes v Addy (1874) it was originally taken that the accessory was not liable unless the breach of trust arose from the dishonesty of the trustee, and there is no dishonest assistance unless the accessory was aware that the fund had been obtained dishonestly ( Dolley v Ogunseitan (2009)); O now it is accepted that it is the accessory’s dishonesty that is critical regardless of whether the trustee has been dishonest – otherwise the accessory could get away with unconscionable behaviour merely because the trustee acted honestly (Royal Brunei Airlines v Tan (1995)); O on this basis the liability of the accessory is really personal but it has been suggested that using the label of constructive trust is to avoid the diffi culty of a benefi ciary not being able to sue anybody but a trustee;

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O where an accessory is not dishonest and there is a breach of trust still then the action is against the trustees ( Lipkin Gorman v Karpnale Ltd (1989)); O the test for dishonesty is the criminal test from Ghosh (1982) the defendant was dishonest according to standards of reasonable honest people and realised he was dishonest by those standards ( Twinsectra v Yardley (2002)); O it has been suggested that there is an element of ambiguity in the Twinsectra judgment – but that the best view is that the defendant’s knowledge of the transaction must not make his participation in the transaction contrary to the normal accepted standards of honest conduct ( Barlow Clowes International Ltd (in liquidation) v Euro- trust International and others (2006)); O and it has been suggested that there is a strong reason to use the Ghosh test in the case of professionals (Bryant v Law Society (2007)) – so there is an objective and a subjective element to the test ( Abou-Rahmah [2006] All ER (D) 80) but the preference is for an objective test; O and there is no sliding scale of dishonesty ( Starglade Properties Ltd v Nash (2011)). 3 Knowing receipt and dealing: O now more appropriately called ‘recipient liability’; O a person in actual receipt of trust property has always been bound to return the property unless (s)he is a bona fi de purchaser for value without notice – and so long as (s)he retains the property tracing is possible; O formerly, constructive notice was suffi cient for the person in the receipt of the property to take subject to the trust ( Belmont Finance Corporation v Williams Furniture Ltd (No 2) (1980)); O however, a different view was taken by Megarry V-C in Re Montagu’s Settlement Trusts (1987) – where it was suggested that only actual knowledge is suffi cient; O reviewing the authorities, Nourse LJ in Bank of Credit and Commerce International (Overseas) Ltd v Akindele (2000): considered that for recipient liability: ‘The recipient’s state of knowledge must be such as to make it unconscionable for him to retain the benefi t of the receipt’ – although accepting that this strict liability may be inappropriate to commercial transactions; O receiving trust property without entitlement in any case places a burden on the recipient to enquire and a failure to do so amounts to

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knowingly receiving (Law Society of England and Wales v Habitable Concepts Ltd (2010)). 4 An agent who knowingly receives trust property will not be liable ‘so long as he acts honestly . . . unless he intermeddles in the trust by doing acts . . . outside the duties of an agent’ (Williams – Ashman v Price and Williams (1942)). 5 Liability of partners of a constructive trustee: O since partners are jointly and severally liable a partner may be equally liable for his partner ‘s misapplication of trust monies; O but this will not be the case where the partner has acted honestly throughout and has not received funds as a trustee but only as an agent ( Re Bell’s Indenture (1980)); O in Blyth v Fladgate (1891) solicitors who were partners became trustees because there were no trustees at the time that the money was paid into their account; O but it has also been held that a partnership can be vicariously liable under s 10 Partnership Act 1890 for torts and also as constructive trustee ( Dubai Aluminum v Salaam (1999)).

7.3.5 The ‘new model’ constructive trust 1 Term ‘new model’ adopted by Denning in Eves v Eves (1975). So applied by Lord Denning in cases involving share of family home (spouses or cohabitants) based on work done etc ( Gissing v Gissing (1971); Eves v Eves; Petitt v Petitt (1970)). 2 But the common feature was that the party would have failed under traditional trust or land law principles 3 New principles were introduced by Lord Bridge in Lloyds Bank plc v Rosset (1991); and applied in Drake v Whipp (1996)).

Z 7.4 Trusts of the family home 7.4.1 The nature of implied co-ownership 1 Whenever land is conveyed at law to two or more people they are both entitled as beneﬁ cial as well as legal owners – express co-ownership: O unless this is contrary to the intentions of the parties (Goodman v Carlton (2002)).

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2 Implied co-ownership is also possible – where there is only one legal owner, e.g. where a wife or cohabitant contributes towards purchase of matrimonial home. 3 In implied co-ownership the legal owner now holds the property on a trust of land the benefi cial title for himself and all other benefi cial owners. 4 Certain problems are created by this situation: O with only one legal title holder, there is only one trustee creating complications for the overreaching mechanism in land transfers; O the problem of protecting the benefi cial owner’s interest, particularly rights of occupation; O disputes over sales of the property. 5 There are generally two ways in which the benefi cial interest can arise to become an implied co-ownership: O where there is a resulting trust – requiring a contribution to the acquisition of the property; O where there is a constructive trust – based on common intention that the implied co-owner is to own a benefi cial share (Lloyd’s Bank v Rosset (1991)). 6 Since the decision in Stack v Dowden (2007) it is now questioned whether the criteria laid down by Lord Bridge in Lloyd’s Bank v Rosset should be used by the courts in deciding whether a constructive trust arises in sole ownership cases. 7 In Stack v Dowden Baroness Hale suggested that ‘the law has moved on’ and today the court must fi nd the intention of the parties whether express, inferred or imputed and should not be confi ned to fi nding a common intention either through an express agreement or impliedly because the claimant contributed towards the purchase of the property.

7.4.2 Implied co-ownership under a resulting trust 1 The basis of the resulting trust is that the person claiming implied co-ownership has made a contribution towards the acquisition of the property. 2 The resulting trust has many applications in diverse areas of law, e.g. company law – a traditional example of a resulting trust in land

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ownership is where a person made a grant of property with an express trust which failed to dispose of the whole benefi cial interest, then trustees would hold the residue on a resulting trust for the settlor. 3 Originally the obvious example of a resulting trust is where two or more people jointly contributed (in whatever proportions) to the purchase of land but the legal estate was in one name only – the legal owner held on resulting trust for both his/her own and the other party’s benefi cial interest (Bull v Bull (1955)). But now in Stack v Dowden (2007) HL has suggested that the resulting trust was inappropriate for deciding shares in the family home. 4 Another classic example is a bare trust where the conveyance of legal title was to a ‘volunteer’ who gave no consideration, unless it can be shown that the property was transferred as a gift (Hodgson v Marks (1971)). 5 Where there is a gift of land no trust exists – the whole benefi cial ownership is transferred ( Tinsley v Milligan (1992)). 6 A presumption of trust is rebuttable by raising the presumption of advancement – that a gift is made in specifi c relationships, e.g. father and daughter where one is bound to materially support the other ( Stock v McAvoy (1872) and see also Barrett v Barrett (2008) but note provisions of Equality Act 2010 discussed above. 7 In family law, ‘property adjustment orders’ may now give entitlement in land to spouses on divorce – fi rst introduced in Matrimonial Proceedings and Property Act 1970, and now contained in Matrimonial Causes Act 1973, as amended by Family Law Act 1996 – clearly, before these provisions were introduced, the need to prove a trust was greater. 8 Direct fi nancial contribution to purchase of property creates a resulting trust of those contributions made at the time of the purchase in favour of contributor (although this is more doubtful since the decision in Curley v Parkes (2004)) but contributions in another form are more problematic. 9 So the courts have had to consider claims based on minor contributions to household expenses and work done – accepted as creating a resulting trust by the Court of Appeal but rejected by the House of Lords (Pettitt v Pettitt (1970); Burns v Burns (1984)). 10 And it is possible that a contribution to regular domestic expenses may create an interest but where it is only by this that the legal owner can actually make the purchase of the property. 11 So share under resulting trust is directly proportional to contribution.

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7.4.3 Implied co-ownership under a constructive trust 1 A constructive trust arises by operation of law and is imposed on owner of legal title usually as result of his conduct. 2 So may be imposed as result of fraudulent, unconscionable or inequitable conduct on part of the legal title holder. 3 There are essentially three elements: O a common intention expressed by the parties (not necessarily in writing); O reliance on this promise made by legal title owner by party claiming an interest evidenced by sufferance of some detriment on their part, which involves altering one’s position in reliance (Williams v Parris (2008)); O unconscionable behaviour by legal title owner. 4 So fi rst job for court is to identify a common intention. According to Lord Bridge in Lloyds Bank v Rosset this must either be express or implied: O express, e.g. a simple promise of title holder (Eves v Eves (1975)); O or where title holder has negatively explained the reason that the benefi cial owner is excluded from the title ( Grant v Edwards (1986) or Hammond v Mitchell (1991)); O implied must be based on direct fi nancial contributions ( Le Foe v Le Foe (2001)); O and the common intention can be formed after the acquisition but only where there is a post-acquisition agreement ( James v Thomas (2008) where no such intention was formed) and no interest is acquired based on conduct where there is no express intention ( Morris v Morris (2008)). 5 Features identifi able as a detriment have included fi nancial expenditure, e.g. household expenses ( Hazell v Hazell (1972)) and care for children ( Grant v Edwards (1986)). 6 The courts have recently developed a more sensible and more modern test for establishing the quantifi cation of the benefi cial interests in a constructive trust. In Stack v Dowden (2007) it was held that primarily ‘equity follows the law’ so that where the legal estate is held jointly the benefi cial estate should also be held as a joint tenancy. This presumption can be rebutted by exceptional circumstances, which Baroness Hale held included a range of factors more appropriate than merely concen- trating on fi nancial contributions in determining the issue including:

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O any advice or discussions at the time of the transfer; O the reason why the home was acquired in joint names; O the purpose for which the home was acquired; O the relationship of the parties; O the presence of children; O how the purchase was fi nanced and how the parties arranged their joint fi nances; O the character and personality of the parties. 7 This followed the fair apportionment principle from Oxley v Hiscock (2004), although rather than the ‘fair apportionment principle’ which is the subjective view of the court, the court determined share objectively from conduct of parties: O so e.g. where a house was brought jointly by a son who fi nanced it and his mother who had nine other children the presumption ‘equity follows the law’ was rebutted and it was held that her intention could not have been that the son would eventually gain sole ownership ( Adekunle v Ritchie (2007)); O and in a relationship where the woman contributed nothing to the acquisition but she fi nanced the upkeep of the house and their two children, there was a presumption of joint ownership so upholding the presumption that ‘equity follows the law’ ( Fowler v Barron (2008)); O but it has been stated that the Stack v Dowden principles do not extend to investment properties (Laskar v Laskar (2008)). 8 More recently in Jones v Kernott (2011) it was held that the intention of the parties can change during the ownership of property: O a couple had purchased property jointly but one party (Mr Kernott) left and the other party (Ms Jones) remained in the property for nearly 15 years. The House of Lords held that Mr Kernott could only claim a 10 per cent share in the property as the parties’ intentions about the ownership of the property had changed; O the House of Lords held that where the intention of the parties has not been expressly stated it is possible to either infer or impute that intention.

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Key Cases Checklist

Automatic Presumed ' Constructive Resulting Trusts Resulting Trusts Trusts Re Ames Settlement Dyer V Dyer (1788) Binions V Evans (1972) (1946) A trust of a legal estate Property will be held on Where a valid trust falls will result to the man constructive trust where it for any reason the who advances the has been purchased remaining property will purchase money expressly subject to the be held on resulting trust unless the rights of another and for the settlor presumption Is equity will not allow such Vandervell V IRC rebutted rights to be denied (1967) The remedial Where a trust fails the constructive trust surplus assets will be Re Polly Peck (No 5) held on resulting trust (1998) for the settlor even if the This is not recognised in transferor did not intend the UK a trust to arise The institutional Barclays Bank v constructive trust Quistclose (1970) Traditionally recognised by the UK courts

Trust fund not fully Land The use of the exhausted Hodgson V Marks Constructive Trust Re Gillingham Bus (1971) Lysaght v Edwards Disaster Fund (1958) Where no written (1876) Where unknown declaration of trust has The vendor becomes a contributors had been made to conform constructive trustee in a contributed for a named with s 53(1 )(b) the contract for sale of land purpose which failed the interest can still be held Neville V Wilson (1997) fund will be held on under an implied trust Lyus V Prowsa resulting trust for the which does not need to Developments (1982) contributors comply with written A constructive trust will Re Abbott Fund Trusts formalities arise where a purchaser (1900) Laskar v Laskar (2008) purchases expressly Money collected for the subject to the rights of a Personalty care of two elderly third party inhabitants of a village Re Vinogradoff (1935) ч______' was held on resulting A minor could hold trust after their death personalty on resulting Constructive Re Osoba (1979) trust for another but Trusts of the A fund left for the never land family home education of the settlor’s Oxley V Hiscock daughter could be (2004) claimed absolutely by Midland Bank v her after she had Cooke (1995) completed her university Stack V Dowden education (2007) Fowler V Barron (2008) V______

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ґ > r The dissolution of an Surplus funds in a pension unincorporated association fund Re West Sussex Constabulary’s Davis V Richards and Wellington Widows (1971) Industries Ltd(t 991) The surviving members had no claim A surplus in a pension fund was held over a fund that had been established to pass to the Crown after the for widows of members of the employers had been able to claim constabulary in West Sussex. The fund overpayments to the fund went bona vacantia to the Crown Air Jamaica v Charlton (1999) Re Bucks Constabulary Widows and A pension fund surplus could be Orphans Fund Friendly Society claimed by the employers as well as (No 2) (1979) the members Surplus funds left after the dissolution of a friendly society were held to pass to the members alive at the date of Vdissolution______■

Presumption of Rebuttal of a resulting trust advancement and rebuttal of Fowkes V Pascoe (1875) presumption of resulting Property purchased in joint names of the trust transferor and the transferee were not held on resulting trust for the transferor if Яе Roberts (1946) evidence suggests they were to be a gift There was a presumption of advancement from father to son Re Sharpe (a Bankrupt) (1980) Where there is evidence of a loan there Bennett V Bennett (1879) is no presumption of a resulting trust There was no presumption of advancement from mother to child Transfers for illegal purposes Petti If V Pettitt (1970) Lord Diplock criticised the Tinsley V Milligan (1994) presumption of advancement Where an illegal purpose exists but does between husband and wife in this not have to be relied on by the claimant case, but in spite of attempts to it will not affect a finding of a resulting introduce legislation to reform this, trust the presumption remains Tribe V Tribe (1996)

7.3.1.5 Westdeutsche & Landesbank Girozentrale v Islington LBC [1996] 2 All ER 961 HL Key Facts

Money was lent by Westdeutsche, a German bank, to the Borough of Islington in ‘an interest swap agreement’ which was later found to be a void agreement. The bank brought a claim for compound interest, rather than simple interest which could only be paid if the money had been held on trust by the local authority.

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Key Law

The liability of the local authority to repay the loan from Westdeutsche under the ultra vires agreement was subject only to a personal liability to repay because the bank had intended the local authority to become absolute owners of the fund. Their liability to repay lay in common law and not in equity, therefore since the claim lay in common law only simple interest could be claimed. Compound interest is only payable under equity.

Key Judgment

Lord Browne-Wilkinson: ‘The local authority had no knowledge of the invalidity of the contract but regarded the money as its own to spend as it thought fi t. There was never a time at which both (a) there was defi ned trust property, and (b) the conscience of the local authority in relation to such defi ned trust property was affected. The basic requirements of a trust were never satisfi ed . . .’ He identifi ed the following two sets of circumstances when a resulting trust will arise: 1 Where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in joint names of A and B, there is a presumption that A did not intend to make a gift to B. 2 Where A transfers property to B on express trusts but the trust declared does not exhaust the whole benefi - cial interest.

Re Vandervell’s Trusts (No 2) [1974] 1 All ER 47 (see facts of earlier case above) HL Key Facts

This case concerned the issues arising about ownership of the shares transferred to the Royal College of Pharmacology by Mr Vandervell. It was held that he had retained sufﬁ cient interest for the shares to be held on resulting trust for him. Since the court held the shares were held on resulting trust for Mr Vandervell, the transfer of his interest by the trustees to a trust for his children did not require writing. Implied trusts are excluded from the operation of s 53(1)(c).

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Key Law

Resulting trusts can be classiﬁ ed into two categories: ‘automatic’ and ‘presumed’. Automatic resulting trusts arise where there is a gap in the ownership, and presumed resulting trusts arise where property is purchased in the name of another and the title is held on presumed resulting trust for the party providing the purchase money.

Key Link

Formalities Chapter 4 .

Automatic resulting trusts An automatic resulting trust arises ‘. . . where A transfers property to B on express trusts , but the trusts declared do not exhaust the whole of the beneﬁ cial interest’: Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council (1996).

7.2.2.3 Re Ames Settlement [1946] Ch 217 HC

Key Facts

A marriage settlement was created by a father in favour of his son. The marriage was later declared void due to the husband’s incapacity to consummate the marriage and as a result there was total failure of consideration of the marriage settlement. The property was held to result back to the father ‘s estate.

Key Law

If a valid trust is created and then later fails, any property remaining in the fund will be held on resulting trust for the settlor.

7.2.2.5 Cooper v PRG Powerhouse Ltd (in Liquidation) [2008] All ER 964 HC Key Facts

Mr Cooper was employed by a company and was provided with a car, for which he made payments. After he resigned

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he paid a sum for the outstanding amount for the car but before it could be transferred to the car manufacturers, the company went into liquidation.

Key Law

The employee successfully argued that the money paid was held for a purpose and was therefore held on trust by the company and since the purpose had failed it should be returned to him.

7.2.3.8 Re Gillingham Bus Disaster Fund [1958] Ch 300 HC Key Facts

A number of marine cadets were killed or seriously injured in an accident and a large sum of money was collected for the care of the survivors and also for ‘worthy causes’. There was a surplus after the injured had been cared for. The secondary cause was not charitable. The court found the surplus funds were held on resulting trust for the contributors.

Key Law

The subscribers had intended to contribute to a speciﬁ c purpose and that had now failed, so each donor retained an interest, which resulted back to them.

7.2.3.7 Re Abbott Fund Trusts [1900] 2 Ch 326 HC

Key Facts

A sum of money was collected in a village for two deaf and dumb old ladies. On their death there was a surplus in the fund.

Key Law

The surplus could not be claimed by the next of kin but was held on resulting trust for the subscribers on the basis that the contributors had transferred their fund on express trust for the care of the two old ladies and that purpose had now failed.

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7.2.3.6 Re Osoba [1979] 1 WLR 247 CA

Key Facts

Property was left on trust for the testator’s widow, the maintenance and training of his daughter up to university grade, and for the maintenance of his aged mother. Both the widow and the testator’s mother had died and the daughter had completed her university education.

Key Law

The court held that the gifts were intended to be absolute and the reference to maintenance and education were words of motive. The daughter was therefore entitled to keep the surplus.

Key Link

Compare Barclays Bank v Quistclose Investments Ltd (1970), where a resulting trust arose when the primary trust had failed.

7.2.3.9 Re West Sussex Constabulary’s Widows, Children and Benevolent (1930) Fund Trusts [1971] Ch 1 HC Key Facts

A fund was established to provide beneﬁ ts for widows and dependants of members of the West Sussex Constabulary. The money was collected from a number of sources including rafﬂ es, subscriptions, entertainments, sweepstakes and collecting boxes as well as legacies. The West Sussex Constabulary was combined with other police forces, leaving a surplus in this fund.

Key Law

It was held that the surviving members had no claim at all because they had received all that they had contracted for and the money was paid on the basis of contract and not of trust. A similar view was taken over the rafﬂ es, subscriptions, entertainments and sweepstakes. The funds from outside legacies were held on resulting trust for the

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subscribers and the remainder went bona vacantia to the Crown.

7.2.3.9 Re Bucks Constabulary Widows and Orphans Fund Friendly Society (No 2) [1979] 1 WLR 936 HC Key Facts

A fund was set up to provide beneﬁ ts for the widows and orphans of deceased police ofﬁ cers and the provision of payments on the death of a member or during sickness. When the Bucks Constabulary wound up there was a surplus in the fund. The court held that the fund would be held for the members alive at the date of dissolution and would be split between them.

Key Law

This is a contractual solution to the problem of surplus funds in an unincorporated association. Walton J suggested that there would be only one circumstance when the property would be held bona vacantia to the Crown, and that would be where the association was reduced to only one member.

Key Problem

There are inherent problems with surplus funds on the dissolution of an unincorporated association. There are a number of solutions: there could be a resulting trust for those who had contributed for a purpose, there could be distribution between the members of the association, or the money could pass bona vacantia to the Crown. It could be argued that where it is held bona vacantia for the Crown, the Crown has made an unexpected gain in the circumstances and the members always have a stronger claim to any surplus funds.

Land

7.2.4.1 Hodgson v Marks [1971] Ch 892 CA

Key Facts

Mrs Hodgson transferred her house to her lodger on the oral understanding that she would be able to remain there and that he would look after her affairs. There was no

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written agreement complying with s 53(1)(b) LPA 1925, which holds that an express trust of land must be made in writing in order to be enforceable. The lodger sold the house to a bona ﬁ de purchaser, Mr Marks.

Key Law

The court held that Mrs Hodgson retained an interest in the property in equity as the lodger had held the property on resulting trust after the transfer to him, and Mrs Hodgson’s interest remained binding on the purchaser.

Key Comment

Recently it appears that courts no longer regard resulting trusts as an appropriate way of discovering common intention between the parties in the context of land held between family members (see Stack v Dowden below). However, Lord Neuberger in a dissenting judgment in Stack v Dowden suggested that the resulting trust may still be useful in this context. The appropriate situation identiﬁ ed in recent cases is where property is purchased as an investment. Even between family members this will be regarded as held under a resulting trust. Key Link

Note that the formalities for the creation of a trust in land had not been complied with but under s 53(2) a resulting trust does not require any formalities.

Personalty

7.2.4.2 Re Vinogradoff [1935] WN 68 HC

Key Facts

A grandmother transferred by way of gift £800 worth of war loan stock into the joint names of herself and her granddaughter, who was aged four. The grandmother continued to receive the dividends.

Key Law

Under her will the stock passed to another and it was held that the granddaughter held it on resulting trust for the grandmother ‘s estate.

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Husband to wife

Pettitt v Pettitt [1970] AC 777 HL

Key Facts

A husband made contributions in kind towards the matrimonial home, which was registered in the name of his wife.

Key Law

The court held that the wife did not hold the property on resulting trust for him and he had no share in the property based on his contributions in kind.

Key Judgment

Lord Diplock: ‘It would . . . be an abuse of the legal tech- nique for ascertaining or imputing intention to apply to transactions between the post-war generation of married couples “presumptions” which are based upon inferences of fact which an earlier generation of judges drew as the most likely intentions of earlier generations of spouses belonging to the propertied classes of a different social era . . .’.

Key Comment

The presumption of advancement from husband to wife has been abolished by s199 Equality Act 2010 but it has not yet been brought into force. It has prospective effect only so does not affect existing transfers.

Transfers for illegal purposes

7.2.4.5 Tinsley v Milligan [1994] 1 AC 340 HL

Key Comment

The claimant relied on a presumption of a resulting trust and did not need to base her claim on the illegal purpose, so the court was able to ﬁ nd in favour of the claimant.

Key Link

See 1.1 A brief history of equity .

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7.2.4.5 Tribe v Tribe [1996] Ch 107 CA

Key Facts

A father transferred shares into the name of his son with the express purpose of minimising his assets to prevent his landlord from recovering a contribution towards essential repairs on the property which he rented. The repairs were carried out without the father having to pay for them, so he tried to recover the shares from his son, who refused to return them.

Key Law

The court held that they must be returned in spite of the illegal motive. Although the presumption of advancement may have applied, the father could rely on the presumption of a resulting trust. Although the reasons for the transfer were illegal, i.e. to defraud the creditors, the illegal purpose had not been carried out. Key Comment

In 2009 the Law Commission recommended that the law on illegality should be replaced with a statutory discretion for the court to declare the trust to be illegal or invalid. This would have allowed the House of Lords to declare the trust in Tinsley v Milligan invalid as it would not depend on whether or not the parties had relied on the illegality. However, the Law Commission has recommended that the illegality should only have an effect on the beneﬁ cial entitlement where there are exceptional circumstances.

Purchase in the name of others and the presumption of resulting trust 7.2.5.4 Abrahams v Trustee in Bankruptcy of Abrahams [1999] BPIR 637 HC Key Facts

A wife contributed to a syndicate for the purchase of lottery tickets in the name of herself and her husband.

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Key Law

The syndicate won and it was held that the presumption of advancement did not operate in favour of the husband. As a result, the wife could claim both shares because the husband held his share of the winnings on resulting trust for his wife.

Rebuttal of the presumption of a resulting trust

7.2.5.2 Fowkes v Pascoe (1875) 10 Ch App 343 CA

Key Facts

Annuities were purchased by Sarah Baker in the joint names of herself and John Pascoe, raising a presumption of a resulting trust. This was rebutted by evidence that a gift was intended. She had purchased some of the stock in her sole name and some in joint names of herself and another.

Key Law

The court found that as she held the shares in separate shareholdings, this was evidence that a gift was intended.

The remedial constructive trust

7.3.2.7 Polly Peck (No 5) A [1998] 3 All ER 812 CA

Key Facts

The claimants owned land in Cyprus and they claimed the right to proceed against the administrators of Polly Peck International. They claimed that they were entitled to a share of the proﬁ ts that Polly Peck had made by exploiting their land after it had been misappropriated by the Turkish republic of Northern Cyprus. They based their claim on a remedial constructive trust. This would allow them to gain priority over the creditors. Key Law

The claim was rejected and it was commented by Nourse LJ in the case that the remedial constructive trust could only be introduced into English law by Act of Parliament.

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Key Comment

English law traditionally only recognises the institutional constructive trust. This is brought into being on the occurrence of speciﬁ ed events without the need for the intervention of the courts.

Speciﬁ cally enforceable contract to sell property

7.3.3.3 Lysaght v Edwards (1876) 2 Ch D 499 HC

Key Judgment

Jessel MR: ‘. . . the moment you have a valid contract for sale the vendor becomes a trustee in equity for the purchaser of the estate sold, and the beneﬁ cial ownership passes to the purchaser . . .’.

Where the legal title of the land is in a sole name

7.3.5.3 Lloyds Bank v Rosset [1991] 1 AC 107 HL

Key Facts

A married couple purchased a house. It was registered in the husband’s sole name and he provided the purchase money. The wife contributed towards the renovation of the property and claimed a share in equity. It was held that she did not have a share because she could not prove that there was a common intention to share the property.

Key Law

A common intention to share must either be expressly agreed, in which case contributions in kind can be evidence of detriment, or it can be inferred, in which case only contributions to the purchase money will be sufﬁ cient evidence of intention. Where one party claims a share in property based on rights in equity there must be proof of a common intention to share the property. A common intention to share can either be express or implied but in each case there must be evidence of detriment. Where the common intention is expressly agreed then contributions in kind will qualify as detriment. In cases of implied common intention only

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ﬁ nancial contributions towards the purchase price will be sufﬁ cient evidence of common intention.

Key Problem

Common intention can often be difﬁ cult to prove because people do not always discuss shares in property but make assumptions about ownership.

7.4.3.4 Grant v Edwards [1986] Ch 638 CA

Key Facts

A couple set up home together. The woman was married to another man. A house was purchased and registered in the sole name of the man, because he thought it would prejudice her entitlement on divorce if the house was registered in joint names. Key Law

The court held that this was sufﬁ cient evidence of a common intention to share ownership. Key Link

Eves v Eves [1975] 1 WLR 1338

7.4.3.4 Eves v Eves [1975] 1 WLR 1338 CA

Key Facts

An unmarried couple moved in together in property owned by Mr Eves. He told the woman that he had intended to put her name on the title but he thought (wrongly) that she was too young because she was only 18.

Key Law

The court held that there was sufﬁ cient proof of an intention to share the title and she was awarded a quarter share.

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Quantiﬁ cation of the shares under a constructive trust Midland Bank plc v Cooke [1995] 4 All ER 562 CA

Key Facts

A common intention to share was found here because the wife had made a ﬁ nancial contribution (albeit very small) to the purchase of the property.

Key Law

When quantifying the shares the court held that it was entitled to look at ‘the whole course of dealing’ between the parties and as it was clear the parties shared both income and expenditure equally the beneﬁ cial interest in the property was split equally between them.

7.4.3.7 Oxley v Hiscock [2005] Fam 211 CA

Key Law

Where shares under a constructive trust are being quanti- ﬁ ed and the courts cannot identify an assumed intention between the parties as to how the shares are to be divided, the courts have a broad discretion to award what share they feel is ‘fair ‘ in all the circumstances. This principle was disapproved of in the case of Stack v Dowden .

Where legal title is in joint names

7.4.1.6 Stack v Dowden [2007] 2 AC 432 HL

Key Facts

This case concerned quantifying shares in a family home jointly owned by an unmarried couple with four children and who had been together for 25 years. The ﬁ rst house of the couple had been purchased and funded by Ms Dowden. However, the property in question was partly funded by Mr Stack, who contributed 35 per cent whilst Ms Dowden contributed the rest.

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Key Law

The House of Lords, disapproving of the ‘fairness’ principle from Oxley v Hiscock , held that the general rule should be that ‘equity should follow the law’, so in most cases where the legal title is jointly owned the beneﬁ cial interests should be split equally unless there were exceptional circumstances. In this case circumstances were exceptional because the parties had kept their ﬁ nances separate throughout their relationship and the equitable interest was shared 65/35 per cent with Ms Dowden entitled to 65%.

Key Judgment

Lady Hale: ‘. . . cases in which the joint legal owners are to be taken to have intended that their beneﬁ cial interest should be different from their legal interests will be very unusual . . .’

Jones v Kernott [2011] UKSC 53

Key Facts

Ms Jones and Mr Kernott purchased property in joint names in 1985. They fi nanced the purchase with a joint mortgage and also paid the outgoings from a joint fund. Mr Kernott left in 1993 and made no further contributions towards the property. He then purchased another property in his sole name. After 15 years, when both properties had increased in value, he claimed a 50 per cent share in the fi rst property. At fi rst instance the court held the shares to be 10 per cent and 90 per cent. This was reversed by the Court of Appeal, where the shares were held to be in equal shares on the basis that they were joint owners at law and in equity. The Supreme Court reinstated the decision of the fi rst instance judge. The parties had not agreed the shares; instead the court drew inferences from the conduct of the parties, in particular the fact that Mr Kernott had purchased his own house after he left in 1993 and had ceased to contribute towards the outgoings of the property.

Key Law

Where a couple purchase property in joint names but without an express declaration of their beneﬁ cial interests the presumption that the beneﬁ cial interests will be held

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jointly can be rebutted by evidence of a contrary intention. If there is no evidence of what the parties intended with regard to the shares then it is for the court to decide what shares were either intended or fair. Where that intention has not been expressly stated the court can infer or impute that intention.

Key Judgment

Lord Walker: ‘The time has come to make it clear . . . that in the case of the purchase of a house or ﬂ at in joint names for joint occupation by a married or unmarried couple where both are responsible for the mortgage there is no presumption of a resulting trust arising from their having contributed to the deposit . . . in unequal shares.’

Fowler v Barron [2008] EWCA Civ 377 CA

Key Facts

The family home was owned jointly by this couple but whereas Mr Barron paid all the expenses on the property, Ms Fowler paid ancillary expenses such as clothes for the family. Key Law

However, there was nothing to rebut the presumption that equity follows the law .

Agreement to be bound

7.3.3.2 Re Oldham [1925] Ch 75 HC

Key Facts

The parties had made wills in similar form leaving their property to each other absolutely. After the death of the husband the wife married and made a new will on different terms. Key Law

It was held that the original wills were identical but not intended to take effect as mutual wills because she had always intended to be bound by the terms of the will.

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7.3.3.2 Re Cleaver [1981] 2 All ER 1018 HC

Key Facts

Mr and Mrs Cleaver married when they were both in their seventies. They executed identical wills leaving their estates to the survivor absolutely and in default to the three children of the husband’s frst marriage. On her husband’s death the wife executed a new will leaving her estate to only one of the children. Key Law

It was held that the wife’s estate was held on the terms of the mutual wills because she had always intended to be bound by the terms of the will.

7.3.4.2 Barnes v Addy (1874) 9 Ch App 244 CA

Key Judgment

Lord Selbourne: ‘Strangers are not to be made constructive trustees merely because they act as agents of trustees in transactions within their legal powers, transactions, perhaps of which the 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 . . .’.

Strangers who assist in a breach of trust 7.3.4.2 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 PC Key Facts

The claimants were an airline who used a fi rm to act as agents in ticket sales. In breach of trust the fi rm used money from the ticket sales for its own business. The fi rm became insolvent and Tan, who was the director and principal shareholder, was sued for the proceeds of the sales. The claimants argued that he was an accessory to the breach of trust committed by the now insolvent fi rm. Tan

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claimed that he was not liable because, although the ﬁ rm had misused the money, it had acted neither fraudulently nor dishonestly. The court held that he was personally liable for dishonestly assisting in the ﬁ rm’s breach of trust.

Key Law

A stranger can be held to be liable for dishonest assistance in a breach of trust where the breach of trust was neither fraudulent nor dishonest. A stranger can be held liable even where the breach of trust by the trustee is innocent or negligent. The liability of the stranger depends on his personal fault and his fraud or dishonesty.

Key Judgment

Lord Nicholls: ‘If the liability of the third party is fault-based, what matters is the nature of the fault, not that of the trustee. In this regard dishonesty on the part of the third party would seem to be a sufﬁ cient basis for his liability, irrespective of the state of mind of the trustee who is in breach of trust . . .’.

Key Comment

In this case Lord Nicholls emphasised that dishonesty would be judged on an objective standard although there were subjective elements because dishonesty had to be judged in the light of what the defendant knew at the time. However, he emphasised that individuals were not free to set their own standards.

7.2.2.5 Twinsectra v Yardley [2002] 2 All ER 377 HL

Key Facts

Twinsectra agreed to lend money on certain terms to Mr Yardley, a businessman. They advanced the money to Sims, solicitors acting on behalf of Mr Yardley, on an undertaking that the fund would be applied solely in the acquisition of speciﬁ ed property. Mr Leach, an independent solicitor also acting for Mr Yardley, received the money from Sims. Contrary to the undertaking the money was advanced to Yardley without ensuring it was used to purchase property. It was used for other purposes by Yardley and never repaid. Twinsectra claimed the money had been held on trust for

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them by the ﬁ rst set of solicitors and Mr Leach had dishonestly assisted them in a breach of trust and was personally liable for the loss. The House of Lords held that he was not liable for dishonestly assisting in the breach of trust. Key Law

The judge at ﬁ rst instance (Carnwath J) held that the money had not been held on trust and Mr Leach had not acted dishonestly. The Court of Appeal held there was a trust and he had acted dishonestly. The House of Lords held that there was a trust, but by a majority they held that Mr Leach had not acted dishonestly. Key Judgment

Lord Hutton: ‘There is a purely subjective standard, whereby 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 . . . there is a purely objective standard whereby 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; thirdly there is a standard which combines an objective and a subjective test, and which requires that before there can be a ﬁ nding of dishonesty it must be established that the defendant’s conduct was dishonest by the standards of reasonable and honest people and that he himself realised that by those standards his conduct was dishonest. I will call this “the combined test”.’ Twinsectra v Yardley held that the standard of dishonesty necessary for the imposition of accessory liability is the combined test.

7.3.4.2 Barlow Clowes International Ltd (in liquidation) v Eurotrust International Ltd and others [2006] 1 All ER 33 PC Key Facts

The defendant was a Director of Eurotrust, a company operating in the Isle of Man providing offshore services. Money misappropriated from investors was placed with the company. The Director of Eurotrust strongly suspected that the money had been stolen but had not made inquiries. He argued that he was not dishonest on the basis of the test from Twinsectra because he had not been aware that his actions were dishonest by ordinary standards.

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Key Law

The court held that the defendant was liable. It was not necessary for the claimants to prove that he had actually considered what normally acceptable standards of honest conduct might be.

7.3.4.2 Abou-Rahmah v Abacha [2006] EWCA Civ 1492 CA Key Facts

This case concerned money laundering. The claimant was a lawyer practising in Kuwait. He had been the victim of a fraud. He sought to recover some money which he had transferred to a bank on instruction from the fraudsters. He argued that the bank had dishonestly assisted in the breach of trust and was liable. The local bank manager admitted that he was suspicious that the fraudsters were involved in money laundering but there was nothing in the transaction itself to make him unduly suspicious.

Key Law

The Court of Appeal held that the bank was not liable.

Strangers who receive trust property in breach of trust Re Baden Delvaux v Société General [1983] BCLC 325 HC Key Facts

The defendant bank was not held liable as constructive trustees for the transfer of moneys to an account which was not designated as a trust account, which had then been dissipated.

Key Law

There are ﬁ ve classes of knowledge: i) actual knowledge; ii) wilfully shutting one’s eyes to the obvious;

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iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; and v) knowledge of circumstances which would put an honest and reasonable man on inquiry.

Key Comment

Recent cases (see Re Montagu below) suggest that classes (i)–(iii) will generally give rise to liability, but classes (iv)–(v) derive from negligence and will not generally give rise to liability as a constructive trustee.

7.3.4.2 BCCI Ltd v Akindele [2000] 4 All ER 221 CA

Key Facts

The defendant received money as a return on an invalid loan. The liquidators claimed this sum on the basis that he had dishonestly received it and therefore held it as a constructive trustee. He did not know that the loan was fraudulent, nor of the other frauds that were being perpe- trated within the group.

Key Law

He was not held liable to account as constructive trustee of the monies, since he had not acted unconscionably.

Key Judgment

Nourse LJ: ‘I have come to the view that, just as there is now a single test of dishonesty for knowing assistance, so ought there to be a single test of knowledge for knowing receipt. The recipient’s state of knowledge must be such as to make it unconscionable for him to retain the beneﬁ t of the receipt . . .’.

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Re Montagu’s Settlement Trusts [1987] Ch 264 HC Key Facts

The 10th Duke of Manchester received a large number of chattels from a family trust. He sold a number of them believing them to be his own. On his death it was found that he had sold items that should have passed to the 11th Duke of Manchester, who claimed that the 10th Duke had held them as constructive trustee and his estate should have to personally account for these items to him.

Key Law

It was held that he was not personally liable as a constructive trustee for the items because he did not have subjective knowledge of the breach, he had simply made an honest mistake.

7.3.4.2 Lipkin Gorman (a ﬁ rm) v Karpnale Ltd [1991] 3 WLR 10 HL Key Facts

A solicitor used money from his fi rm’s client account to gamble at the Playboy Club. The fi rm later tried to recover this money, alleging the club were constructive trustees of the money received. The money had ceased to be identifi - able under the rules of tracing.

Key Law

The court held that the club had not received the money with sufﬁ cient knowledge in order to make it accountable as a constructive trustee.

Consideration

Re Dale [1994] Ch 31 HC

Key Facts

A husband and wife both agreed to execute wills leaving each other’s estates to their son and daughter equally. The

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husband died ﬁ rst and the wife made a new will leaving her estate to her son, with a small gift to her daughter.

Key Law

It was held that the estate was held on trust for both the children in equal shares. The consideration in a mutual will was not of beneﬁ t to the surviving spouse but was the fact that the ﬁ rst party had executed a mutual will and then had not taken advantage of his right to revoke it in his/her lifetime.

7.3.3.2 Olins v Walters [2009] Ch 212 CA

Key Facts

A husband and wife made mutual wills in 1988 and later in 1998 the husband and wife executed similar codicils agreeing not to revoke their existing wills. The wife died in 2006 and the husband argued that he was not bound by the mutual wills.

Key Law

The Court of Appeal found that the husband was bound because there was evidence of a contract between the parties which was binding on the death of the wife, and the husband then held the estate as a constructive trustee.

Key Judgment

Mummery LJ: ‘it is a legally necessary condition of mutual wills that there is clear and satisfactory evidence of a contract between two testators’.

25726.indb 125 18/11/2013 10:41 8 Charitable trusts

Charitable objects: Public benefit: Originally had to confonm to ‘spirit and intendment of • used to be different for preamble to 1601 statute and MacNaghten’s four each head categories from IRC v Pemsel. • with poverty a public Relief of poverty: benefit was generally • no general definition - but not destitution (Re presumed. Coutthurst) Now under the Charities • includes widows and orphans (Re Young), and Act 2006 2 tests: distressed gentlefolk (Thompson v Thompson) • is there a public benefit? • not working class (Re Sander's W T) or if rich can • is there a sufficient class receive (Re Gwyon) of people? • can include poor relatives (Re Scarisbrick) and poor · employees (Dingle v Tumefy CHARITABLE Advancement of education: TRUSTS • includes any fonm of worthwhile instruction or cultural pursuit (Incorporated Council of Law Reporting v f \ A-G for England & Wales) ] Wholly and exclusively • and useful research - compare Re Hopkins and Re charitable: Shaw, • and aesthetics, e.g. literature (Re Hopkins), music • usually political motive fails (Re Delius)·, (McGovern vA-G) • but must have value (Re Pinion). • gift succeeds if other Advancement of religion: purposes are only ancillary • under 2006 Act broad definition (Re Coxen) • but needs public involvement - compare Re • problems if trust drafted too Hetherington and Gilmour v Coates. widely (IRC V Baddelerf Other purposes beneficial to the community: • or if linked to other Now under Charities Act includes first three, plus: purposes by disjunctive a) the advancement of health or the saving of lives words (Chichester b) the advancement of citizenship or community Diocesan Fund and Board development of Finance Ltd V Simpson) c) the advancement of the arts, culture, heritage or • more likely to succeed with science conjunctives link words, d) the advancement of amateur sport e.g. Re Sutton ‘charitable e) the advancement of human rights, conflict and deserving’ and Re resolution or reconciliation or the promotion of Best ‘charitable and religious or racial harmony or equality and benevolent1 diversity • can save by severance or f) the advancement of environmental protection or Charitable Trusts improvement (Validation) Act.______g) the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or any other disadvantage h) the advancement of animal welfare i) 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 j) any other purpose within subsection (4) (this latter basically refers to all other analogous purposes).

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Z 8.1 The history of the charitable trust 1 Medieval society upheld charitable gifts wherever possible – pre- eminence of religion – benefi t to church – but disliked by Parliament – ‘ mortmain ’ (inalienability). 2 Changed by reformation and seizure of church lands – loss of charitable activities carried out by church – so burden on parish – or disorder resulted. 3 Parliament changed attitudes with Statute of Charitable Uses 1601 (the Elizabethan statute) – commissioners appointed to oversee administration of charitable gifts. 4 Preamble defi ned charitable: ‘relief of aged, impotent, and poor people; maintenance of sick and maimed soldiers and mariners; schools of learning, free schools, and scholars in universities; repair of bridges, ports, havens, causeways, churches, seabanks and highways; education and preferment of orphans; the relief, stock or maintenance of houses of correction; marriage of poor maids; 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 the payment of ffteens, setting out of soldiers, and other taxes’. 5 Subsequent statutory intervention: O 1601 statute, repealed in Mortmain and Charitable Uses Act 1888 – but expressly preserved preamble; O Charities Act 1960 – preamble repealed in s 38(4); O Charities Act 1993 – repealed 1960 Act preserved s 38(4); O Charities Act 2006 – redefi ned categories; O Charities Act 2011 – has consolidated the law. 6 So ‘spirit and intendment’ preserved in case law. Lord MacNaghten in Commissioners of IRC v Pemsel – ‘no doubt the popular meaning of the words “charity” and “charitable” does not coincide with their legal meaning . . . “charity” in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes benefi cial to the community, not . . . under any of the preceding heads’. 7 Scottish Burial Reform and Crematorium Society v Glasgow Corporation (1968) – Lord Wilberforce: ‘It is now accepted that what must be regarded as charitable is not the wording of the preamble itself, but the effect of the decisions given by the court as to its scope . . . which have

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endeavoured to keep the law . . . moving according as new social need arises or old ones become obsolete and satisﬁ ed’. 8 So can use appropriate wording but gift fails because real purpose not charitable (McGovern v A-G (1982)). 9 Now categories of charitable trust and rules on public beneﬁ t are in Charities Act 2011

Z 8.2 The difference between charitable trusts and other trusts 1 Private trusts benefi t individuals – charitable trusts benefi t society in general as well as individuals. 2 Charitable trusts for purposes, so no human benefi ciaries. 3 There is no requirement for certainty. 4 Charitable trusts may be perpetual. 5 They also gain signifi cant tax exemptions: O income tax – s 505 Income and Corporation Tax Act 1988; O exempt from capital gains tax and inheritance tax; O also from stamp duty on conveyancing; O and from national insurance surcharge; O and also 80 per cent exemption from non- domestic rates; O in 1997 tax exemption amounted to £1.75 billion – so not surprising so many cases brought by IRC. 6 Sometimes attempts are made to validate failed charitable gifts under the rule in Re Denley .

Z 8.3 Essential requirements of charitable trusts 1 For a gift to be charitable there are three principal requirements: O traditionally a gift was one where the purpose falls ‘within the spirit and intendment’ of preamble to Statute of Elizabeth. Since 2006, a gift must be one that falls within the categories identiﬁ ed in the Charities Act 2006 and now in s 3 Charities Act 2011; O trust must promote public beneﬁ t accepted by courts; O purposes must be wholly and exclusively charitable.

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2 What is charitable is a question of law, not settlor’s intentions. 3 The categories under the 2011 Act are in s 3(1): a ) the prevention or relief of poverty; b) the advancement of education; c) the advancement of religion; d) the advancement of health or the saving of lives; e) the advancement of citizenship or community development; f) the advancement of the arts, culture, heritage or science; g) the advancement of amateur sport; h) the advancement of human rights, confl ict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity; i) the advancement of environmental protection or improvement; j) the relief of those in need by reason of youth, age, ill health, disability, fi nancial hardship or any other disadvantage; k) the advancement of animal welfare; l) the promotion of the effi ciency of the armed forces of the Crown, or of the effi ciency of the police, fi re and rescue services or ambulance services; m) any other purpose (this last category basically refers to all other analogous purposes). 4 Traditionally under Lord MacNaghten’s test from Pemsel there were only four categories: the relief of poverty, the advancement of education, the advancement of religion, and for other purposes (this last was a general head now represented by (d) to (m) from s 3(1)).

Z 8.4 Charitable objects 8.4.1 Trusts for the relief of poverty (s 3(1)(a) and also s 3(1)(j)) 1 Poverty is not generally deﬁ ned – but it need not mean destitution (Re Coulthurst (1951)). 2 Need not be for poor – A-G v Power (1809) widows and orphans; Re Young (1951) distressed gentlefolk; Thompson v Thompson (1844) unsuccessful writers.

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3 ‘Working class’ need not be poor; compare Re Sanders’ Will Trusts (1954) and Re Niyazi’s Will Trusts (1978). 4 So failure to avoid wealthy recipients will cause a gift to fail ( Re Gwyon (1930)). 5 Gift to poor relations upheld in Re Scarisbrick (1951). 6 And for poor employees in Dingle v Turner (1972). 7 Trusts for poverty succeed whenever presumed to benefi t people in need ( Biscoe v Jackson (1887)). 8 They more easily satisfy the public benefi t requirement since they only need to satisfy the fi rst test for public benefi t (Independent Schools Council v Charity Commission (2011)). And Attorney General for England and Wales v Charity Commission (2012) – so the courts suggest that the 2006 and 2011 Acts have not altered the original position.

8.4.2 Trusts for the advancement of education (s 3(1)(b)) 1 Described in preamble as ‘maintenance of schools of learning, free schools, and scholars in universities’. 2 Modern cases have widened to include ‘any form of worthwhile instruction or cultural advancement except for purely professional courses’ (Incorporated Council of Law Reporting for England & Wales v A-G (1972)). 3 Originally gift often valid when attached to educational institution ( Re Shaw’s Will Trust (1952)). 4 But if primary purpose of institution is proﬁ t making, gift may fail ( Re Girls’ Public Day School Trust (1951)). 5 Professional bodies not usually seen as charitable but can be if charitable purpose identiﬁ ed ( Royal College of Surgeons of England v National Provincial Bank Ltd (1952)). 6 Research can be charitable because can beneft public: O so must be of educational value to researcher or add to store of public knowledge ( Re Hopkins’ Will Trust (1965)); O but must involve useful knowledge ( Re Shaw (1957)). 7 Courts will also accept art and aesthetics as charitable ( Royal Choral Society v IRC (1943)) including:

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O music (Re Delius (1957)); O artefacts and antiquities ( Re British School of Egyptian Archaeology (1954)); O literature (Re Hopkins’ Will Trusts (1965)); O but if no artistic merit gift will fail (Re Pinion (1965)). 8 Sport and recreation attached to educational institutions: O may succeed where it beneﬁ ts young people but fail otherwise ( Re Mariette (1915)); O and facilities need not be restricted to particular school or university (IRC v McMullen (1981)); O but gifts for bodies outside of education will usually fail (Re Nottage (1895) and Re Clifford (1912)); O courts impose limits to avoid ‘a slippery slope from chess to draughts to bridge to whist to stamp collecting to acquiring birds’ eggs’ (Re Dupree’s Deed Trusts (1945)). 9 Question of political educational is much more confused: O generally, political purposes are not charitable (Re Hopkinson (1949)); O though gifts with political objects can succeed if not party political ( Re Koeppler’s Will Trusts (1986)); O contradicted by some cases (Re Scowcroft (1898)); O where a body attached to education is identiﬁ ably charitable it may still be prevented from using funds for political purposes ( Baldry v Feintuck (1972)).

8.4.3 Trusts for the advancement of religion (s 3(1)(c)) 1 Reference in preamble merely to ‘repair of churches’. 2 Modern deﬁ nition of religion has developed – and numerous ‘sects’ have beneﬁ ted from charitable status. 3 Originally meaning of religion quite narrow – but change to a multicul- tural society has meant a wider meaning must be adopted ( Bowman v Secular Society (1917)). The Charities Act 2011 includes belief in more than one god and belief in no god.

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4 Relationship between religion and charity tested against two criteria and ﬁ ve indicia (Church of the New Faith v Commissioners of the Payroll Tax (Victoria) (1982)).

Criteria:

O a belief in a supernatural being; O acceptance of code of behaviour to effect belief.

Indicia:

O collection of ideas involves belief in the supernatural, i.e. beyond the senses; O ideas relate to man’s nature and place in universe; O ideas are accepted by adherents as requiring conforming to a code of behaviour; O adherents form identiﬁ able group, even if disparate; O adherents see their ideas and practices as religion. 5 So ethics alone will not be religion ( Re South Place Ethical Society (1980)). 6 Bodies with similar objectives to religions may still be classed as not charitable ( Keren Kayemeth Le Jisroel v IRC (1931)). 7 And merely requiring belief in God will not make a body charitable ( United Grand Lodge of Ancient Free and Accepted Masons v Holborn Borough Council (1957)). 8 Advancement requires public involvement – compare Holmes v A-G (1981) with Gilmour v Coats (1949). 9 Gifts for related purposes can be upheld (Re King (1923)). 10 Gifts to non- standard Christian groups upheld (Re Manser (1905) and Re Strickland’s Will Trusts (1936)). 11 Also to non-Christian religions (Varsani v Jesani (1999)). 12 But courts are conscious that it is an area that can be subject to ‘crankish views’ ( Thornton v Howe (1862)). 13 If the gift is ‘for God’s work’ or at discretion of clergy, wording is vital – compare Farley v Westminster Bank (1939), Re Eastes (1948) and Re Stratton (1931).

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8.4.4 Other purposes benefi cial to the community (now represented by (d) to (m) from s 2(2)) 1 Was originally a residual head – public benefi t being critical. 2 Followed from preamble – so new categories developed by analogy to preamble and subsequent case law. 3 And public benefi t must be in a way that is recognised as charitable ( Williams’ Trustees v IRC (1947)). 4 Gift may fail for political character (Re Strakosch (1949)). 5 Whether gift is of public benefi t is measured objectively (National Anti- Vivisection Society v IRC (1948)). 6 Modern method is to identify if any reasons for not upholding gift ( Incor- porated Council of Law Reporting v A-G (1972)). 7 The additional categories now under s 3(1) Charities Act 2011 are: d ) the advancement of health or the saving of lives (Re Resch (1969)); e) the advancement of citizenship or community development; f) the advancement of the arts, culture, heritage or science – contrast Re Delius (1957) with Re Pinion (1965); g) the advancement of amateur sport; h) the advancement of human rights, confl ict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity – contrast Re Koeppler (1986) with McGovern v A-G (1982); i) the advancement of environmental protection or improvement; j) the relief of those in need by reason of youth, age, ill- health, disability, fi nancial hardship or any other disadvantage: O would include trusts for old and disabled: O in preamble, poverty referred to as ‘aged, impotent, and poor ’ – three categories can be seen disjunctively (Re Robinson (1951)); O no precise age (Re Cottam’s Will Trusts (1955)); O gift might stand even though aged person can profi t from it ( Rowntree Housing Association v A-G (1983)); O ‘impotent’ referred to disability (Re Lewis (1955)). k) the advancement of animal welfare: O improving man’s humanity ( Re Wedgwood (1915));

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O so animal welfare can be charitable (Re Moss (1949)); O but not if public excluded ( Re Grove-Grady (1929)). l) the promotion of the effi ciency of the armed forces of the Crown, or of the effi ciency of the police, fi re and rescue services or ambulance services ( IRC v City of Glasgow Police Athletic Association (1953)); m) any other purpose (this latter basically refers to all other analogous purposes and might traditionally have included). O trusts for sporting and recreational facilities now under s 3(1)f) or s 3(1)(g); O sport alone is not charitable ( Re Nottage (1895)); O but can be if for advancement of education ( IRC v McMullen (1981)); O and can be charitable if incidental to provision of education (Re Gray (1925)); O but wording of gift is critical ( IRC v City of Glasgow Police Athletics Association (1953)); O and inclusion of purely social purposes may cause gift to fail ( IRC v Baddeley (1955)); O the case cast doubt on many charitable institutions – so led to Recreational Charities Act 1958; O and surplus funds can be divided between the existing members per capita when the club is dissolved ( Re Horley Town Football Club (2006)); O the Recreational Charities Act 1958 was passed to ensure charitable status for boys clubs, womens’ institutes, the National Playing Fields Association, and other bodies affected potentially by Baddeley – but possibly creates as many problems as it solves: O s 1(1) stated that charitable status shall be presumed for recreational facilities that are provided in interest of welfare, and public benefi t is evident; O s 1(2) defi ned social welfare: a ) facilities improve condition of life of those persons for whom they are provided; b) i) those persons need facility because of age, youth or infrmity; or ii) they are available to public generally;

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O s 1(3) applied s 1(1) particularly to village halls, community centres, women’s’ institutes; but Act appears to have little effect on cases such as Williams and Baddeley ; although a gift with object of promoting physical wellbeing of public in general has succeeded ( Guild v IRC (1992)). O now the Act incorporates these provisions and sets out the same conditions in s 5(3) and s 5(4). O miscellaneous trusts beneﬁ cial to the community: O gift to RNLI (Thomas v Howell (1874)); O gift to museum (British Museum v White (1826)); O hospital/medical facilities ( Re Resch’s Will Trusts (1969)); O a gift for ‘the black community’ of a particular London borough has also been accepted as charitable (Gibbs v Harding (2008)).

Z 8.5 The political element 1 Usually, political purposes are not charitable ( Re Bushnell (1975)). 2 Reasons to deny charitable status include: no means of ensuring that change in law would beneﬁ t public; court must decide in light of current law; court might be seen as not acting impartially ( McGovern v A-G (1982)). 3 But there is apparent inconsistency in approach – compare Re Koeppler and Re Scowcroft. 4 Charity Commission has given revised guidelines.

Z 8.6 The public benefi t element 1 All charitable gifts have different public benefi t requirements (now under s 4 Charities Act 2011) and relief of poverty is simpler to show. 2 Here public benefi t is presumed but a key issue is how narrow the class benefi ted can be for the gift still to survive – see Re Scarisbrick and Dingle v Turner . 3 In educational trusts, public benefi t is more diffi cult to fi nd: O must distinguish between personal (not charitable) and impersonal relationships (charitable) ( Re Compton (1945)); O test is now that:

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i ) class is not numerically negligible; and ii) quality that distinguishes them from rest of community does not depend on relationship with a specifi c individual ( Oppenheim v Tobacco Securities Trust Co (1951)); O a further problem is determining what is and is not a personal relationship (Dingle v Turner (1972)). 4 In religious trusts, public benefi t problem is usually whether or not public have access – compare Gilmour v Coates with Re Hetherington Deceased (1989). 5 With all heads except poverty, public benefi t is particularly important: O a distinction has been drawn between a gift for a section of the public and a gift for ‘a fl uctuating body of private individuals’ (Verge v Somerville (1924)); O but has been argued against in Dingle v Turner ; O better test is between ‘a form of relief extended to the whole community yet by its very nature advantaged only to a few and a form of relief accorded to a select few out of a large number equally willing to take advantage of it’ ( IRC v Baddeley (1955)) .

Z 8.7 Exclusivity of charitable objects 1 Trust may be invalid if for other than charitable purposes – and similarly can be invalid if charitable part cannot be separated from other purposes. 2 If other purposes merely subsidiary to main charitable purpose, then gift may succeed ( Re Coxen (1948)). 3 Mere fact that another person beneﬁ ts will not defeat it (London Hospital Medical College v IRC (1976)). 4 And motive of donor is irrelevant ( Re King (1923)). 5 But problems can arise where trust drafted too widely (McGovern v A-G (1982) and IRC v Baddeley (1955)). 6 One further problem occurs where word ‘charitable’ linked with other words in gift – to succeed, these may need to be linked by disjunctive rather than conjunctive words (Chichester Diocesan Fund and Board of Finance Ltd v Simpson (1944)): O if disjunctive words used, question of construction whether gift succeeds – compare Blair v Duncan (1902) with Re Bennett (1920) (disjunctive words succeed because of use of ‘other objects’ throughout – meaning that by ejusdem generis the ‘or’ was not actually disjunctive);

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O with conjunctive words, gift more likely to succeed – Re Sutton (1885): ‘charitable and deserving’ and Re Best (1904): ‘charitable and benevolent’; O though this is not always possible ( A-G of the Bahamas v Royal Trust Co (1986)); O gift may fail if extra words used (Re Eades (1920)); O again, because other words can be seen as other than charitable – so again construction is vital (A-G v National Provincial Bank of England (1924)). 7 There are two potential ways round the problem: O doctrine of severance (Salusbury v Denton (1857)) – remove offending words on construction; O the Charitable Trusts (Validation) Act 1954 – read the gift as being only for charitable purposes.

Z 8.8 The basis of the cy- près doctrine at common law 1 Ancient doctrine designed to save charitable gifts that fail for whatever reason. 2 Usual effect of failure would be a resulting trust, which may be against the settlor’s express wishes – so cy- près tries to ensure gift redirected to similar charitable purpose if possible. 3 Before Charities Act 1960, doctrine was narrow and only applied if gift failed for impossibility or impracticability – but reformed in ss 13 and 14 which moved away from such rigidity. 4 The widest example of common law was Re Dominion Students’ Hall Trust (1947). 5 Where cy- près applies, distinction drawn between initial failure and subsequent failure – latter easier as gift already vested.

Z 8.9 Initial failure 1 If gift cannot take effect on date of gift, e.g. because body that is object of gift no longer exists, there are two possibilities: O the gift fails and falls into residue; O the property can be reapplied cy- près .

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2 Court must fi nd wider charitable intent (Re Rymer (1895)). 3 So if intent of donor is wide enough to include general charitable intent then gift may succeed ( Re Lysaght (1966)). 4 And this will often be because of impossible or impracticable conditions imposed in gift ( Re Woodham Deceased (1981)). 5 And a gift that fails because a project cannot be carried out can still be rescued by cy-près (Re Wilson (1913)). 6 A gift to a specifi c charity will not fail because it has ceased if it is shown to continue in another form ( Re Faraker (1912)). 7 But if a gift is to a named body, distinction is drawn between unincorporated associations and charitable corporations – a gift to an unincorporated charity must be charitable because no individual can identify a claim to a share – where a gift to a corporation is a gift simply to the corporation in its own name ( Re Vernon’s Will Trusts (1972)). O so a gift to a defunct charitable corporation fails and falls into residue and cy- près possible only if wider charitable intent can be found (Re Finger’s Will Trusts (1972)); O possible confl ict of reasoning in Faraker and Vernon’s . 8 If a gift is made to a body that has never existed it is said to be easier to apply cy- près than one to a body that has ceased to exist ( Re Harwood (1936)). 9 If a settlor makes a number of gifts that are all charitable except one then it may be possible to see a general charitable intent ( Re Satter- thwaite’s Will Trusts (1966)). 10 But if disputed part of gift is to known non-charitable body, there is no cy- près and gift falls into residue (Re Jenkins’ Will Trusts (1966)).

Z 8.10 Subsequent failure 1 If gift fails after it is vested then no lapse of gift and no need to ﬁ nd a wider charitable intent ( Re Wright (1954)). 2 This is because the property has transferred at the moment of the settlor’s death – so cy-près can apply (Re Slevin (1891) and Phillips v Royal Society for the Protection of Birds (2012)). 3 But less consistency where failure is because of surplus fund – compare Re King (1923) with Re Standford (1924).

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Z 8.11 Non- charitable alternatives 1 Settlor can decide what is to be done in event of a failure – which of course may be charitable or non-charitable. 2 So in an inter vivos gift failed gift might return to settlor, or on death or in life it might pass to a named third party. 3 Prior to the Perpetuities and Accumulations Act 1964 if resulting trust followed a determinable interest it was immune from perpetuity rule (though any express gift over was subject to it). 4 So a determinable charitable gift could terminate at a future point and result to settlor – no possibility of cy- près as no outright gift to charity. 5 Section 12 introduced a ‘wait and see’ rule – so in a determinable charitable gift a gift over or resulting trust operates and excludes cy- près providing it falls within perpetuity period – if not, gift is absolute and cy- près applies on subsequent failure.

ґ N Initial failure: Statutory cy-pres: • court must find wider charitable • S 13 CA 1993 - cy-pres intent (Re Ηγιτιβή applies if gift a) fulfilled or • usually gift fails for impossibility or cannot be carried out; b) impracticability (Re Woodham) purpose uses only part of • gift to specific charity saved if fund; c) gift can be more continued in new form (Re Fara/rer) effectively used in other • must distinguish between ways; d) original purpose corporation and unincorporated has ceased; e) original association (Re Vernon) purpose adequately provided • easier if body never existed (Re for by other means, ceased Harwood). to be charitable, or ceased to be suitable way of using gift • cannot be used for purely CY-PRES administrative changes (Re JW Laing Trust) • but possible for inappropriate distribution (Peggs v Lamb) Subsequent failure: • S 14 for donations, e.g. to • if gift fails after testator's disaster funds and donors death no need to find wider cannot be found after proper charitable intent (Re Wright) advertising etc • because property transfers • Ss 74 and 75 contain rules to on death (Re Sleviri) redistribute really small • surplus not so easy (Re funds. King).

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Z 8.12 Statutory cy- près 1 Before the Charities Act 1960, cy- près possible only if a gift failed for impossibility or impracticability of the purpose. 2 So cy- près could not be used to save a trust that had become uneco- nomic or outdated. 3 Section 13 passed to avoid this and was re- enacted in the 1993 Act. 4 Section 13(1) provides fi ve circumstances where the purposes of a charitable gift can be altered to allow property to be reapplied under a cy- près scheme – these are now in s 62 Charities Act 2011: a ) where the original purposes in whole or in part: i ) have been as far as may be fufi fl led; or ii) cannot be carried out or not according to the dictates or spirit of the gift; or b) where the original purposes provide a use for part only of the property available by virtue of the gift; or c) where the property available by virtue of the gift and other property available for similar purposes can be more effectively used in conjunction and can suitably be made applicable to common purposes; or d) where the original purposes were laid down by reference to an area which then was but has since ceased to be suitable regard being had to the spirit of the gift or to practicality in administering the gift; or e) where the original purposes in whole or in part have, since they were laid down: i ) been adequately provided for by other means; or ii) ceased as being useless or harmful to the community or for other reasons in law to be charitable; or iii) ceased in any other way to provide a suitable and effective method of using the property available by virtue of the gift regard being had to the spirit of the gift. 5 So s 13(2) provides that conditions other than impossibility have not been affected. 6 Width of charitable intent in case of subsequent failure is not signifi cant – but Commissioners do try to adhere to settlor’s intention, bearing in mind realities of current conditions. 7 First use of Act was to increase size of a gift where there was a surplus of funds ( Re Lepton’s Charity (1972)).

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8 But s 13 cannot be used for purely administrative changes ( Re J W Laing Trust (1984)). 9 But may be used where current distribution of fund is inappropriate ( Peggs v Lamb (1994)). 10 Section 14 overcomes diffi culties where money is collected for a particular purpose that then proves to be unattainable and donors are then untraceable, e.g. fl ag days. 11 So cy- près shall be applied where the property belongs to: a ) a donor who after – i ) the prescribed advertisements and inquiries have been published and made; and ii) the prescribed period beginning with the publication of the advertisements has expired – cannot be identifi ed or cannot be found; or b) a donor who has executed a disclaimer in the prescribed form for his right to have the property returned. 12 The Act also makes certain provisions for small charities: O charities with under £5,000 gross income and no land on trust may with agreement of two-thirds of trustees transfer property to other charities if better use of resources – s 74; O charities with a permanent endowment but no land and an income of under £1,000 may with agreement of two-thirds of trustees remove restrictions on spending capital if income is too small to fulfi l their purposes – s 75. 13 The rules on cy- près are now in ss 61–68 Charities Act 2011.

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Key Cases Checklist

8.1.6 IRC v Pemsel [1891] AC 531 HL

Key Law

Charitable purposes can only be upheld if they fall within four categories: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneﬁ cial to the community.

Key Comment

Traditionally there was no statutory defi nition of charitable purposes. Before the enactment of the Charities Act 2006 the defi nition of a charity was largely derived from the preamble of the Statute of Charitable Uses 1601 and the common law in particular IRC v Pemsel . The Charities Act 2006 s 2(2) defi nes and lists charitable purposes: a) the prevention of poverty; b) the advancement of education; c) the advancement of religion; d) the advancement of health or the saving of lives; e) the advancement of citizenship or community development; f) the advancement of the arts, culture, heritage or science; g) the advancement of amateur sport; h) the advancement of human rights, confl ict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity; i) the advancement of environmental protection or improvement; j) the relief of those in need by reason of youth, age, ill- health, disability, fi nancial hardship or other disadvantage; k) the advancement of animal welfare; i) the promotion of the effi ciency of the armed forces of the Crown, or the effi ciency of the police, fi re and rescue or ambulance services; m) any other purposes . . . [recognised by existing charity law].

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Previously charitable purposes under the ﬁ rst three heads of charity under IRC v Pemsel were presumed to be charitable.

Trusts for the relief of poverty Poverty is not deﬁ ned in the Charities Act. It has traditionally been regarded as a relative concept.

8.4.1.5 Re Scarisbrick [1951] Ch 622 CA

Key Facts

A gift for such relations of my son and daughter who ‘shall be in needy circumstances’ was upheld.

Key Judgment

Jenkins LJ: ‘ “Poverty” is necessarily to some extent a relative matter, a matter of opinion.’

8.4.1.1 Re Coulthurst [1951] Ch 661 CA

Key Facts

The testator transferred a fund of £20,000 to be paid to widows and orphans of ofﬁ cers of Coutts & Co who the trustees decided were ‘the most deserving of such assistance having regard to their ﬁ nancial circumstances’. This was held to be a charitable bequest.

Key Judgment

Lord Evershed MR: ‘It is quite clearly established that poverty does not mean destitution: it is a word of wide and somewhat indeﬁ nite import; . . . meaning persons who have to “go short” in the ordinary acceptance of that term, due regard being had to their status in life.’

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8.4.1.3 Re Sanders Will Trusts [1954] Ch 265 HC

Key Facts

A testator transferred one-third of his residuary estate ‘to provide or assist in providing dwellings for the working classes and their families resident in the area of Pembroke Dock’.

Key Law

This was not a charitable gift as the expression ‘working classes’ was not necessarily a gift to alleviate poverty.

8.4.1.8 Independent Schools Council v Charity Commission for England and Wales [2011] UKUT 421 TCC Key Facts

The ISC challenged the guidance issued by the Charity Commission after the Charities Act 2006 came into force. The ISC argued that the guidance placed too much emphasis on the extent to which independent schools offered bursaries to poor children.

Key Judgment

The Upper Tier Tax Tribunal held that ‘it was for the charity trustees of the school concerned to address and assess how their obligations might best be fulfi lled in the context of their own particular circumstances . . . Provided that the operation of the school is seen overall as being for the public benefi t, with an appropriate level of benefi t for the poor, a subsidy to the not-so-well- off is to be taken account of in the public benefi t . . .’.

Trusts for the advancement of education

Traditionally education has been given a broad meaning and is not conﬁ ned to teaching in schools.

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Research as education Re Besterman Wills Trusts, The Times , 21 January 1980 HC Key Facts

A fund to research the works of Voltaire and Rousseau was upheld as charitable because the research met certain criteria.

Key Law

A trust for research will only be charitable if: 1 the subject matter of the research is a useful subject of study; 2 the knowledge acquired by the research will be dissem- inated to others; 3 the trust will be for the beneft of the public, or a suffciently important section of the public.

8.4.2.6 Re Shaw [1958] 1 All ER 245 HC

Key Facts

A gift of money left by George Bernard Shaw for research into a 40-letter alphabet and for the translation of one of his plays into the new alphabet was not charitable.

Key Problem

Compare Re Shaw and Re Besterman Wills Trusts . It is difﬁ - cult to see the distinction and it is doubtful whether a court today would refuse charitable status to the research proposed in Re Shaw .

Trusts for the promotion of culture as education

8.4.4.7 Re Pinion [1965] 1 Ch 85 CA

Key Facts

A testator left his studio and the contents to be maintained as a collection to the National Trust. They refused to accept

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it, although they were willing to accept some items for display.

Key Law

It was held that the collection was not charitable because it lacked any artistic merit.

Key Comment

Such a trust today would be considered under the separate head of ‘the advancement of the arts’.

Key Judgment

Harman LJ: ‘I can conceive of no useful purpose to be served in foisting upon the public this mass of junk. It has neither public utility nor educative value . . .’

8.4.2.7 Royal Choral Society v IRC [1943] 2 All ER 101 CA Key law

A trust to promote the practice and performance of choral works was upheld as charitable.

Key Judgment

Lord Greene: ‘I protest against that narrow conception of education when one is dealing with aesthetic education. In my opinion, a body of persons established for the purpose of raising the artistic state of the country . . . is established for educational purposes.’

8.4.2.8 IRC v McMullen [1981] AC 1 HL

Key Facts

A trust to provide facilities for pupils at schools and universities in the United Kingdom to play association football or other games or sports was held to be valid by the House of Lords. It was upheld because it was connected with education.

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Key Comment

Lord Hailsham said in this case that the playing of sport was not charitable per se , nor necessarily educational. However, the Charities Act includes the advancement of amateur sport as a separate head of charity.

What is religion? Under s 2(3) of the Charities Act, religion includes a religion which involves belief in more than one god, and a religion which does not involve belief in a god. This represents a change in the law.

8.4.3.3 Bowman v Secular Society [1917] AC 406 HL

Key law

It was held by Lord Parker that only monotheistic faiths could qualify as a religion.

Key Comment

Lord Parker’s very restricted view of what constitutes religion would not be acceptable today under the Charities Act 2006.

8.4.3.5 Re South Place Ethical Society [1980] 1 WLR 1565 HC Key Facts

The society had as one of its aims the ‘study and dissemi- nation of ethical principles and the cultivation of a rational religious sentiment’.

Key law

This was held not to be a charitable purpose because it did not advance religion.

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Key Judgment

Dillon J: ‘Religion as I see it, is concerned with man’s relations with God, and ethics are concerned with man’s relations with man. The two are not the same . . .’

Sacred Hands Spiritual Centre’s Application for Registration as a Charity [2006] WTLR 873 HC

Key Law

The Charity Commission registered an organisation as a charity which was involved with spiritual healing because it considered that a belief in spiritualists in the spirit world could itself be seen as a faith. Public beneﬁ t in religion

8.4.3.8 Gilmour v Coats [1949] AC 426 HL

Key Facts

A gift was left to a Carmelite priory. The priory consisted of about 20 nuns who lived a cloistered life of prayer and contemplation. They did not involve themselves in work in the community.

Key Law

This failed as a charitable trust because it lacked the necessary public beneﬁ t. It was held that the value of prayer was not susceptible to proof in a court of law. The advancement of health or saving lives

Key Comment

Although this appears to be a new category, the purposes have been recognised as charitable before and reﬂ ect the preamble to the Statute of Charitable Uses which referred to ‘the relief of the aged, impotent and the poor’.

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8.4.4.7 Re Resch’s Will Trusts [1969] 1 AC 514 PC

Key Law

A private hospital was held to be charitable although the patients were fee paying because of the beneﬁ t provided to the community resulting from the beds and medical staff, nursing etc., which was held to supplement the care provided by the general hospital.

The advancement of the arts Key Law

Although trusts which promote art and culture have been recognised for many years, under the advancement of education, the Charities Act now recognises this as a separate heading.

8.4.2.7 Re Delius (Dec’d) [1957] Ch 299 PC

Key Law

A trust to promote the music of the composer Frederick Delius was upheld.

Key Comment

To uphold the works of a composer or an artist or a sculptor depends on a value judgement on the artistic merit of a work. In some cases, e.g. a composer such as Delius, there would be no challenge but it would be open to any court to seek expert evidence about the artistic merit in any work.

8.4.4.7 IRC v City of Glasgow Police Athletic Association [1953] AC 380 HL Key Facts

An association whose object was ‘to encourage and promote all forms of athletic sport and general pastimes’

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was held not to be charitable. It was held that the promotion of the efﬁ ciency of the police force would have been charitable but that was held to be incidental to the provision of recreation, which was not a charitable purpose, and so it failed to gain charitable status.

The advancement of amateur sport Key Law

It was originally thought that a trust encouraging the playing of sport would not be considered charitable but sport is now included as a separate charitable purpose under the Charities Act.

The advancement of animal welfare

8.4.4.7 Re Wedgwood [1915] 1 Ch 113 CA

Key Facts

Property was left on trust for the protection and beneﬁ t of animals.

Key Law

This was held to be charitable because of the beneﬁ cial effect it would have on people, stimulating humane and generous sentiments and promoting feelings of humanity and morality generally

8.4.4.7 Re Grove-Grady [1929] 1 Ch 557 CA

Key Law

A gift to an animal refuge where animal life of all kinds might be completely undisturbed by man was held not to be charitable, because the public derived no beneﬁ t from such a refuge.

Key Comment

This case was decided in 1929 and might be treated differently today.

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8.4.4.7 McGovern v Att-Gen [1982] Ch 321 HC

Key Facts

Amnesty International wanted to set up a charitable trust for part of its activities. There were four main aspects of its work: 1 Relief of needy persons who were prisoners of conscience and their dependents; 2 Attempting to secure the release of prisoners of conscience; 3 Abolition of torture or inhuman or degrading treatment or punishment; 4 Research into human rights and disseminating the results of research. Although the ﬁ rst and last purposes were charitable, the others were political in nature and the trust was not charitable.

Key Law

A trust cannot be charitable if its main purpose is to secure a change in the law of the United Kingdom or of foreign countries.

8.5.3 Re Koeppler’s Wills Trust [1986] Ch 423 CA

Key Law

A gift of money to Wilton Park was upheld as charitable because it promoted greater co- operation in Europe and was not allied to any political party.

Key Comment

The Charity Commission now takes a slightly more relaxed approach to what may be regarded as political purposes, holding that if a charity is not engaging in campaigning or political activity as its sole purpose but merely in order to support its charitable purposes it can carry out some political activity.

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What constitutes public beneﬁ t? S 3 Charities Act 2006 Key Law

A charitable purpose under the Act must be demonstrated that it is for the public benefi t. The benefi t must be to the public as a whole or a section of the public. Public benefi t is defi ned as having the same meaning as under previous law, i.e. there must be an identifi able benefi t which must be clear and related to the aims of the charity and must be balanced against any detriment or harm. Where the benefi t is restricted to a section of the public there must be no geographical or fi nancial restrictions. Private benefi ts must be incidental and people in poverty must not be excluded from benefi ting.

The restrictions placed must not be arbitrary

8.6.5 IRC v Baddeley [1955] AC 572 HL

Key Facts

A gift to the Methodist mission in London for the promotion of the religious, social and physical training of persons resident in West Ham and Leyton ‘who were or were likely to become members of the Methodist Church’ was held to be non-charitable. This was because there was a recreational purpose, but the court also decided that the public benefi t test was not satisfi ed because the benefi ciaries did not constitute a section of the public.

The personal nexus rule Key Law

A charity will not satisfy the public benefi t test if it benefi ts a ‘class within a class’. Traditionally a trust has not been upheld as charitable if the class to benefi t are dependent on a personal nexus with the settlor.

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8.6.3 Oppenheim v Tobacco Securites Trust Co Ltd [1951] AC 297 HL Key Facts

A testator left a sum of money on his death to be held on trust and the income to be applied for the education of the children of the employees of British American Tobacco. The trust failed because it did not satisfy the public beneﬁ t test. Key Law

In order for a trust for education to succeed as a charitable trust the beneﬁ ciaries must not be numerically negligible and must not be deﬁ ned by means of a personal nexus to the settlor. Key Judgment

Lord Simmonds: ‘. . . a group may be numerous but, if the nexus between them is their personal relationship to a single propositus or to several propositi, they are neither the community nor a section of the community for charitable purposes.’ Lord Macdermott (dissenting judgment): ‘But can any really fundamental distinction, as respects the personal or impersonal nature of the common link, be drawn between those employed, for example by a particular university and those whom the same university has put in a certain category as the result of individual examination and assessment? Again if the bond between those employed by a particular railway is purely personal, why should the bond between those who are employed as railwaymen be so essentially different?’

8.6.3 Dingle v Turner [1972] AC 601 HL

Key Facts

The testator left his estate to trustees directing them to use the income to provide pensions for poor employees of a company which he jointly owned.

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Key Law

It was held to be a valid charitable trust because the personal nexus test does not apply to the relief of poverty. There were some anomalous exceptions pre-2006. No failure of the charity

8.9.6 Re Faraker [1912] 2 Ch 488 CA

Key Facts

A testatrix left money to Hannah Bayly’s Charity. The charity had been founded for poor widows of Rotherhithe but had ceased to exist as a separate charity when it amalgamated with other charities in 1905. Key Law

The court held that it had not failed but continued in another form, and the funds could be transferred to the amalgamated charities.

8.9.2 Re Rymer [1895] 1 Ch 19 CA

Key Facts

A legacy was left for St Thomas’s Seminary in Westminster, which had closed down before the testator’s death. There was no evidence of a general charitable intent. The gift had speciﬁ cally been left to the named institution. Key Law

Where a charitable gift fails because it ceases to exist or the charitable purpose becomes impossible to implement between the death of the testator and the administration of the estate by the executors it can be applied cy- près without the need to show a general charitable intent.

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8.10.1 Re Wright [1954] Ch 347 CA

Key Facts

A testatrix left her residuary estate to a named person for life and then to be used to provide a convalescent home for impecunious gentlewomen. On the death of the tenant for life it was impracticable to provide a convalescent home.

Key Law

The court held it had already been dedicated to charity on the death of the settlor as it would then have been possible to set up the home and the property could be directed to another similar purpose.

8.10.2 Phillips v Royal Society for the Protection of Birds [2012] EWCH 618 Ch Key Facts

A testatrix left her residuary estate to a charity which dissolved after the will had been executed.

Key Law

The court applied the gift cy- près so that it was directed to a charity with similar purposes and which had acquired assets from the charity prior to its dissolution.

Charities that have never existed

8.9.8 Re Harwood [1936] Ch 285 HC

Key Facts

Funds were left for a list of charitable societies, including the Wisbech Peace Society, which had ceased to exist before the testator’s death, and the Peace Society of Belfast, which had never existed.

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Key Law

The gift to the institution which had ceased to exist failed, but the gift to the society which had never existed showed a general charitable intent and could be transferred under the cy- près doctrine.

Unincorporated charitable associations

8.9.7 Re Finger’s Will Trusts [1972] Ch 286 HC

Key Facts

The testatrix left a share of her estate to a number of charitable institutions, including the National Radium Commission, which was an unincorporated charity, and the National Council for Maternity and Child Welfare, which was an incorporated charity; both had ceased to exist.

Key Law

It was held that the gift to the unincorporated association could succeed because it was a gift for the purposes of the association, but the gift to the incorporated charity failed

25726.indb 156 18/11/2013 10:42 The nature of 9 trusteeship

Ґ N Who can be a trustee: Selection, appointment, vesting: • anyone who has capacity to • court selection must acknowledge wishes of hold property settlor; interests of all beneficiaries; efficient • certain difficult ones which administration of trust; and avoid possible include - children (cannot own conflict of interests land); Crown (rarely); judicial • new trustees can be appointed by trust trustees (where existing trust instrument; court under s 36 ТА 25 when breaks down); Public Trustee proposed or existing trustees discharged, (on intestacy); custodians (hold refuse, outside UK, incapable or unfit, die etc; property only); trust be beneficiaries under TOLATA 96; by court corporations (e.g. solicitors) under s 41 ТА 25 when trustee incapacitated • no maximum or minimum by Mental Health Act 1983, or sole trustee numbers except in land - but dies, or is otherwise expedient should remember receipt rules. • trustees cannot act until property is vested in them - can be automatic (s 40 LPA 25).

NATURE OF TRUSTEESHIP ґ 4 Termination of trusteeship: Disclaimer: Standard of care: • possible any time before act of acceptance • originally was standard or • usual by deed. ‘ordinary prudent Death: businessman managing • automatically terminates his own affairs’ (Speight v • property vests in other trustees and Gaunt) personal representatives on death of last • professionals owed a trustee. higher standard of care Retirement: (Re Waterman’s) • discharges liability unless used to facilitate a • now by s 1 ТА 2000: ‘must breach exercise such skill and • can use express power in instrument, care as it reasonable in all or court using s 36 ТА 25 (appointing the circumstances’ - and replacement), or s 39 (with no must have proper regard to replacement), or s 41 (where proper to allow special skills and whether retirement), or by beneficiaries under s 19 acting professionally TOLATA 96. • duty applies to investment, acquiring property, Removal: appointing nominees and • court has inherent jurisdiction where trustee custodians, and insuring - goes abroad, becomes unfit, bankrupt, or but not maintenance and acts improperly advancement. • no need to show actual misconduct.

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Z 9.1 Who can be a trustee 1 In principle, anyone with capacity to own/hold property can be a trustee. 2 But certain classes of people require further consideration: O minors: O by Law of Property Act 1925 no minor can hold a legal estate in land – so cannot be a trustee of land; O but a minor may possibly act as trustee of personalty – or can be a resulting trustee ( Re Vinagradoff (1935)). O the Crown: O can be a trustee in certain very rare circumstances; O but would need to state specifi cally that it acted as a trustee in private law – Lord Diplock in Town Investments Ltd v Department of the Environment (1978). O judicial trustees: O rare but possible under Judicial Trustee Rules 1983 – in absence of any fi t and proper person; O i.e. where administration by existing trustees breaks down. O the Public Trustee: O these have a variety of possible roles; O including holding property of intestate deceased prior to the appointment of an administrator to the estate. O custodian trustees: O Public Trustee, Custodian for Charities, or a trust corporation; O can charge a fee – but not in excess of the proper fee charged by the Public Trustee; O hold property and documents – but leave day- to-day administration to the management trustees. O trust corporations: O a common features of administrative trusts; O banks, insurance companies, Public Trustee, Offi cial Solicitor; O capable of acting alone – where normal trustees could not, e.g. the overreaching mechanism; O by TA 2000 now have general power to charge – before they would have relied on insertion of a charging clause in the trust instrument.

25726.indb 158 18/11/2013 10:42 Appointment of trustees 159

3 Nobody can be forced to act as trustee – though a resulting trustee is created by operation of law. 4 An intended trustee can always disclaim: O safest method is by deed; O but can be implied by acquiescence – to satisfaction of court; O any attempt to deal with estate classed as acceptance of role.

Z 9.2 The number of trustees 1 There is no general maximum or minimum for personalty. 2 Usually taken to be no more than four in land (except in charities or pension funds) – because legal estate only vests in ﬁ rst four names. 3 By s 14(2) TA 1925, impossible for sole trustee to give receipt for proceeds of sale arising from a trust of land or land under the Settled Land Act 1925.

Z 9.3 Appointment of trustees 1 First trustees can be appointed by settlor in trust instrument (though they do not have to accept offi ce): O the gift will not fail merely because there is none; O the court will appoint trustees in that case. 2 Trustees hold as joint tenants – until retire or removed – when property vests in survivors: ss 1–3 Administration of Estates Act 1925. 3 New trustees can be appointed through express powers in trust instrument – where such a power is expressly given to a specifi c person over and above the statutory powers. 4 New trustees can also be appointed by s 36(1) and s 36(2) TA 1925: O s 36(1) lists circumstances where the power is required: O existing trustee is dead; O trustee remains outside of UK for 12 months or more; O trustee wishes to be discharged or refuses to take on role; O trustee is unfi t to act or incapable of acting; O trustee is a minor. O then lists persons responsible for nominating trustees – if none available then surviving trustees or personal representatives can.

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5 Beneﬁ ciaries can also appoint trustees under s 19 TOLATA 96: O if all are of full age; and O all are absolutely entitled; and O all agree to the appointment. 6 The court can also appoint under s 41 TA 1925: O when it is expedient to appoint only with help of court; O to replace trustee incapacitated by Mental Health Act 1983 order; O when sole trustee dies intestate or trustees predecease testator.

Z 9.4 Selection of trustees 1 Court appointing under s 41 TA 1925 should take into account: O wishes of the settlor; O interests of all benefi ciaries (and these may be confl icting); O the effi cient administration of the trust. 2 Important for trustees to act together – but no veto for existing trustees. 3 Court should avoid appointment that would lead to confl ict of interests, e.g. relative of a benefi ciary, solicitor of trust (latter is not uncommon). 4 Offshore (foreign) trustees now rare – no longer same tax advantages.

Z 9.5 The vesting of the trust property 1 Trustees cannot act until the property is vested in them. 2 S 40 Law of Property Act 1925 saves need for formal transfer – property automatically vested whenever appointment is made by deed. 3 Exceptions in s 40(4): mortgage of land to secure loan of trust money; land held on lease with covenant against assignment without consent; stocks and shares. 4 Vesting orders also available to courts by ss 44–56 LPA 1925.

Z 9.6 Termination of trusteeship 1 Can occur by: disclaimer, death, retirement, or removal. 2 Disclaimer:

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O any trustee can disclaim any time up to indicating acceptance; O but it is normal to disclaim by deed. 3 Death: O this automatically terminates trusteeship; O property vests in surviving trustees and personal representatives on last death. 4 Retirement: O discharges further responsibility and liability – unless retirement is used to facilitate a breach of trust in which case liability continues; O retirement can be achieved by various methods: O by an express power in the trust instrument; O by s 36 TA 1925 when new trustee appointed for retiring one; O by s 39 TA 1925, can retire even without a new appointment if: – does so in deed; – obtains consent of co- trustees by deed; – and two trustees or a trust corporation remains in place; – by an order of the court where it replaces a trustee under s 41 TA 1925, or where it is proper to allow the trustee to retire; – by direction of the benefi ciaries under s 19 TOLATA 1996. 5 Removal: O the court has inherent jurisdiction to remove a trustee who: O takes up residence abroad; O refuses to act or is unfi t to act or is incapable of acting; O becomes bankrupt; O behaves improperly although not in breach of trust. O no need to show actual misconduct – court must be satisfi ed continuing as trustee prejudices trust ( Moore v McGlynn (1894)).

Z 9.7 Standard of conduct expected of trustees 1 Traditionally, the appropriate standard was that of the ’ ordinary prudent businessman managing his own affairs’ (Speight v Gaunt (1883)). 2 But now there is a statutory standard set in s 1 Trustee Act 2000.

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3 Even before 2000 Act, courts recognised that the standard must be higher for professional trustees (Re Waterman’s Will Trusts (1952)). 4 Distinction maintained in s 1 TA 2000: ‘ must exercise such skill and care as is reasonable in all the circumstances, having regard in particular (a) to any special knowledge or experience that he has or holds himself out as having, and (b) if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession’. 5 The standard applies to various functions exercised by the trustee: O investment; O acquiring land; O appointing nominees and custodians; O insuring property. 6 But not to e.g. exercise powers of maintenance and advancement. 7 So duty concerns way power exercised not whether discretion used. 8 On the contrary, a failure to exercise a duty leads to a breach of trust. 9 Trustees not liable by s 61 TA 1925 if acted ‘honestly and reasonably’. 10 TA 2000 does not speciﬁ cally deal with trustee exemption clauses but the statutory duty will only not apply ‘if or insofar as it appears from the trust instrument that the duty is not meant to apply’. 11 Even express exemption will not protect a trustee in cases of bad faith, recklessness, or deliberate breach of a duty – because to allow exemption in such cases would offend public policy. 12 But a trustee might be protected against a claim of gross negligence under an express clause ( Armitage v Nurse (1998) and see Walker v Stones (2000)). 13 However, must still comply with s 2(3) Unfair Contract Terms Act 1977. 14 Trustees can make contracts with third parties – but these are generally not enforceable by the third parties against the trust assets.

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Key Cases Checklist

9.7.12 Armitage v Nurse [1998] Ch 241 CA

Key Facts

A clause inserted into a trust deed which exempted the trustees from liability for any loss whatsoever ‘unless such loss or damage shall be caused by his own actual fraud’ was upheld.

Key Law

An exemption clause will exempt trustees from liability for any breach unless it arises through dishonesty. Dishonesty was defi ned as when a trustee acts in a way which he does not honestly believe is in the benefi ciaries’ interests and it is nonetheless dishonest even though he does not intend to benefi t himself.

Key Judgment

Millett LJ: ‘I accept . . . that there is an irreducible core of obligations owed by the trustees to the benefi ciaries and enforceable by them which is fundamental to the concept of a trust. If the benefi ciaries have no rights enforceable against the trustees there are no trusts. But I do not accept the further submission that these core obligations include the duties of skill and care, prudence and diligence. The duty of trustees to perform the trusts honestly and in good faith for the benefi t of the benefi ciaries is the minimum necessary to give substance to the trusts, but in my opinion it is suffi cient . . .’

9.7.12 Walker v Stones [2000] 4 All ER 412 CA

Key Facts

A trust instrument had included an exclusion clause which purported to exempt a solicitor–trustee from liability for wilful fraud or dishonesty. The issue was how far this clause would exempt a trustee from a breach of trust.

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Key Law

It was held that there must be an objective standard in assessing what the trustee could have genuinely believed. They could not be exempt from something that no reasonable solicitor trustee could have thought that what he did or agreed to do was for the beneﬁ t of the trust.

Key Judgment

Sir Christopher Slade: ‘That clause in my judgment would not exempt the trustee from liability for breaches of trust, even if committed in the genuine belief that the course taken was in the best interests of the beneﬁ ciaries, if such belief was so unreasonable that no reasonable solicitor trustee could have held that belief.’

Key Comment

A recent Law Commission report on exemption clauses rejects a total prohibition on their use but suggests that there should be greater control over the content of such clauses. There should also be a distinction between the use of exemption clauses by professional and lay trustees. However, it recommended that control should come from a Code of Practice rather than through legislation.

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f > r ' General duties to the The duty to invest: trust property: • investment is ‘anything from which interest or profit is To collect assets: expected’ (Re Wragg) • new trustee must check state of • complex history of rules through 1925 Act and 1961 investments and ensure all Trustee Investment Act because of speculative property is vested in trustees nature of equities and land • to safeguard trust (Яе • now rules are in Part II ТА 2000 - can make any Brogden). investment as if absolute owner of fund To distribute fund correctly: • general power in s 3 additional to any express power • must pay income or capital as it in trust instrument becomes due to beneficiaries; • power to provide mortgages of land or invest in land • or make payment into court if in ss 3 and 8 beneficiaries cannot be found • must follow ‘standard investment criteria in s 4 - and (Re Gillingham Bus Disaster be aware of need for diversification - ‘portfolio Fund)] theory’ • or distribute after seeking • should take advice by s 5 - need not be written Benjamin Orders. • can delegate investment powers - and use \ A custodians s 16, and nominees s 17 • original standard of care - that in Learoyd v Whiteley - reasonable prudent businessman test - now in s 1 - what is reasonable in all circumstances - and standard is more stringent if a professional trustee. ( t r u s t e e d u t ie s Fiduciary nature of trusteeship: • basic principle in Bray v Ford-trustee must not allow interest and duty to conflict General duties to the • so remuneration only possible if authorised, e.g. in beneficiaries: trust instrument (charging clauses) or by court, statutory authorisation or by beneficiaries Duty to convert: • must not buy trust property - except if independent of • must maintain equality between trust (Holder V ΗοΙάβή beneficiaries (Lloyds Bank v • must not make a secret or incidental profit Duker)\ (Boardman v Phipps) • so must take equal view of • rule strict - so applies even though does not harm income for life tenant and trust and even benefits it capital for remainderman; • only significant point is that fiduciary gained • and sell unauthorised or personal benefit from his position as fiduciary wasting assets to ‘convert’ to • can be liable to account for renewing lease owned by authorised - rule in Howe v trust in own name (Keech v Sandford) Dartmouth unless stated • or for taking freehold reversion in own name contrary in will. (Protheroe vProtheroe) Duty to apportion: • applies equally to directors coming by benefits (Regal • builds on conversion to (Hastings) v Gulliver) apportion funds appropriately • even when knowledge came in personal capacity but is between income and capital. useful to company (IDC v Cooley) Duty to provide accounts. • but Upjohn J in Boardman felt it unfairly decided.

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Z 10.1 The trustees’ duties to the trust property 10.1.1 The duty to collect assets 1 On ﬁ rst appointment a trustee must: O familiarise himself with the terms of the trust; O check the state of the investments; O ensure that all property is vested in his and other trustees’ names; O if a replacement trustee, check nothing amounting to breach of trust remains from the previous trustee. 2 One purpose of checks is to ensure trust is safeguarded – a continuing and stringent obligation ( Re Brogden (1888)). 3 Duty is so strict that a trustee might be bound to break his word in order to protect trust ( Buttle v Saunders (1950)). 4 So trustees may have to use litigation to protect trust. 5 But can take costs from fund unless: litigation arose from trustee’s breach; litigation was speculative and unsuccessful; or trustee acted in a hostile way towards beneﬁ ciaries.

10.1.2 The duty to distribute 1 Trustee must pay income and capital as they become due – failure to do so is breach and trustee is personally liable. 2 If trustee overpays a benefi ciary, this can be adjusted in later payments. 3 If trustee pays a person not entitled, remedy is in quasi- contract – so benefi ciary can proceed against that person as well as trustee – subject to the doctrine of notice ( Re Diplock ). 4 If trustee is in doubt about a benefi ciary’s claim, then he can seek directions from court. 5 If benefi ciaries cannot be found then trustees can make payment into court to discharge themselves ( Gillingham Bus Disaster Fund (1959)). 6 Courts may also make ‘Benjamin orders’ – so that fund can be distributed and later claims would be against those over-endowed, not the trustees (Re Green’s Will Trusts (1985)). 7 Trustees may advertise for claimants by s 27 TA 1925 following certain formalities.

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8 Trustee may be protected by s 61 TA 1925 if he acted honestly and reasonably. 9 Best way for trustees to discharge themselves is to obtain a release deed from beneﬁ ciaries after providing ﬁ nal account.

10.1.3 Duty to exercise discretion 1 In a discretionary trust the trustees have a duty to exercise their discretion in favour of one or more of the beneﬁ ciaries. 2 The trustees cannot be forced to give their reasons for the exercise of their discretion ( Re Beloved Wilkes Charity (1851)). 3 The court can intervene in the decision making of trustees in the following circumstances: O where the trustees have failed to consider whether or not to exercise their discretion at all ( Turner v Turner (1983)); or O whenever there is evidence that the selection has been made improperly (Klug v Klug (1918)); or O where trustees have failed to give reasons where the beneﬁ ciaries have a legitimate expectation ( Scott v National Trust (1998)) .

Z 10.2 The duty to invest

10.2.1 The basis of the duty 1 Duty to invest is part of trustee’s duty to safeguard and protect trust. 2 Investment is not defi ned in Trustee Act 2000 – nor in Law Commission Report No 260 (1999) Trustees’ Powers and Duties that preceded it – but Lawrence J in Re Wragg defi ned it as ‘to employ money in the purchase of anything from which interest or profi t is expected’. 3 Report No 260 identifi ed investment as ‘an evolving concept’ that could be ‘capital appreciation rather than income yield’. 4 Investment inevitably affects life tenants (interest is in income) and remaindermen (interest is in capital) – so trustee must be careful not to advantage one at expense of other. 5 Trustees must operate within powers of investment granted either in the trust instrument or by the courts, or from statute. 6 Trustees are also bound by the duty of care, originally at common law, but now in s 1 TA 2000.

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10.2.2 The types of investment 1 Basically two different types which incorporate all others: O a loan at a rate of interest; O a profi t- making activity, an equity. 2 In general, though, there is a confusing array of potential investments – some relatively safe with low interest rates, some more speculative with higher interest. 3 Loans at a rate – can include: O bank and building society deposit accounts – with variable interest rates; O government/local authority stock – usually fi xed interest; O debentures – loans to companies, supported by a fl oating charge on assets of company (leaving company free to deal with assets) – value depends on current commercial viability of company; O preference shares – have preference over ordinary shares in relation to payment of dividends. 4 Equities can include: O ordinary shares in a company – return may be good if company performs well, but disastrous if it performs badly – the reason why they were prohibited under the Trustee Investments Act 1971; O unit trusts – investment spread over range of companies, managed by investment experts as a single fund divided into units; O investment trusts – a company in which shares are bought which then invests in shares in other companies itself – return being dividend from investment trust. 5 Pension funds sometimes take advantage of ‘derivatives’ (made up of ‘futures’ and ‘options’ – so potentially very high yield but very risky) – but most trusts could not invest in them. 6 Trustees’ only real consideration when deciding on a particular investment is that the fi nancial benefi ts should be maximised – they must not be infl uenced by others (Cowan v Scargill (1985)).

10.2.3 Express investment powers 1 In the past, wide investment powers were commonly drafted into trust instrument by testator.

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2 This would be essentially for two reasons: O investment powers prior to and included in the 1961 Act were felt to be very narrow and restrictive; O procedures required by the 1961 Act were felt to be overcomplicated and expensive to comply with. 3 Wider powers of investment in Part II TA 2000 (to make any investment as if absolutely entitled to fund) may make express clauses unnecessary, except to restrict or exclude statutory power. 4 At one time, express clauses were construed very strictly – so as only to allow trustees to invest in those securities authorised by general law. 5 But relaxed in Re Harari’s Settlement Trusts (1949) – where words ‘in or upon such investments as to them may seem ﬁ t’ were held to include equities.

10.2.4 Development of statutory powers of investment 1 Originally rules on investment were aimed at avoiding all risk to capital of fund – and founded on idea that there would be little infl ation – only investment in fi xed government securities was originally permitted. 2 The 1925 Act liberalised this to an extent – but still only allowed investment in ‘narrow range’ – with no power to invest in equities or in land. 3 Trustee Investment Act 1961 passed to modernise law and allow limited scope to invest in equities and land – and to give more fl exibility to trustees: O trustees could originally invest half of fund in equities; O later increased to three-quarters by Trustee Investments (Division of Trust Fund) Order 1996; O but Act was complicated to apply – fund literally had to be divided before trustees were safe to invest – and complex rules regarding when withdrawing funds from trust – and out of date with general investment practice. 4 Law Commission recognised the limitations and need for reform – as did Treasury consultation paper: Investment Powers of Trustees 1996 – so expanding investment powers was a major purpose of the 2000 Act.

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10.2.5 Powers of investment under Trustee Act 2000 1 Basic investment power is in s 3(1): ‘a trustee may make any kind of investment that he could make if he were absolutely entitled to the assets of the trust’: O described in s 3(2) as the ‘general power of investment’ – appropriate to any trust; O general power is in addition to any express power; O but does not apply to trusts of pension funds, unit trusts or charities; O by s 3(4) limited power to provide mortgages of land under 1925 and 1961 Acts is replaced by general power to invest in land by way of loans secured against the land by legal mortgage. 2 Trustees could not formerly invest in land without express power: O and purchasing a house for a benefi ciary to live in not originally possible as an investment ( Re Power (1947)); O s 6(3) Trusts of Land and Appointment of Trustees Act 1996 gave trustees powers to purchase legal estate in land – under s 6(4) this was for: investment; occupation by a benefi ciary; or any other purpose; O now widened by s 8 TA 2000 – subject to any exclusion or restriction in trust, trustees may acquire freehold or leasehold land in UK for same purposes as above – and trustee for this purpose has all powers of absolute owner. 3 Section 4 sets out the ‘standard investment criteria’: O must be followed when exercising investment powers: a ) the suitability to the trust of investments of same kind as any particular investments proposed to be made or retained and of that particular investment of that kind; and b) the need for diversifi cation of investments of the trust, insofar as is appropriate to the circumstances of the trust; O trustees should review investments from time to time – and in light of standard investment criteria, consider whether or not are appropriate or should be varied; O trustees should also take into account ‘portfolio theory’ – investments should not be seen in isolation but as part of an overall strategy of investment.

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4 Advice may still be needed as it formerly was: O by s 5, trustee should when reviewing investments or exercising investment powers obtain and consider ‘proper advice’; O ‘proper advice’ is that believed by trustees to be from those qualifi ed to give it, having regard to investments; O unlike 1961 Act, no need for advice to be in writing; O by s 3, trustee need not seek advice where in all the circumstances he believes it unnecessary/inappropriate. 5 Delegation of trustee powers not originally possible (except with express permission – as involved delegating discretion): O trustees had to apply to court for extension of powers or could delegate by power of attorney under s 25 TA 1925; O now TA 2000 permits delegation by listing in s 11 all those functions that may not be delegated; O s 16 allows for nominees to be appointed; O s 17 allows for custodians to be appointed; O whenever trustees delegate to nominees, custodians or agents they must keep the arrangement under review; O statutory duty applies to appointment and functions. 6 Duty of care owed by trustees formerly set by common law: O in Learoyd v Whiteley (1886) Lord Lindley MR said: ‘The duty is not to take such care only as a prudent man of business would take if he only had himself to consider; the duty rather is to take such care as an ordinary prudent man of business would take if he were minded to make an investment for the benefi t of other people for whom he felt morally bound to provide’; O and the duty is also to act fairly between all benefi ciaries ( Bartlett v Barclays Bank plc (1980)); O and also to do the best fi nancially that can be done for the benefi ciaries ( Cowan v Scargill (1984)); O now under s 1 2000 Act trustee ‘must exercise such care and skill as is reasonable in the circumstances, having regard in particular (a) to any special knowledge or experience that he has or holds himself out as having, and (b) if he acts as a trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession’.

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10.2.6 Choice of investment 1 Following 2000 Act, the trustee must still avoid investments ‘which are attended with hazard’. 2 Trustee who commits an error of judgement is not likely to be held in breach of trust ( Nestlé v National Westminster Bank plc (1993)). 3 So trustees may pursue an ‘ethical’ investment policy as long as it is also as ﬁ nancially sound as any alternatives (Martin v City of Edinburgh District Council (1989)). 4 And in charitable trusts trustees may in any case need to be satisﬁ ed that investment is in line with objectives of charity (Harries v Church Commissioners for England (1992)). 5 The trust instrument may also provide for ‘ethical’ investment.

Z 10.3 The trustees’ duties to the beneﬁ ciaries

10.3.1 The duty to convert 1 The fi rst duty of the trustee to the benefi ciaries is to maintain equality between them ( Lloyds Bank plc v Duker (1987)). 2 The duty to convert arises where benefi ciaries are entitled in succession: O life tenant has immediate use of property plus income; O the remainderman is entitled to the capital only after the life tenant’s death; O so injustice would result unless investment is balanced – too speculative and fund might be dissipated at expense of remainderman, too cautious and fund might be preserved at expense of life tenant’s income. 3 The duty to convert is to sell certain unauthorised assets to buy authorised ones. 4 Called rule in Howe v Dartmouth (1802) – that, unless there is a contrary provision made in the will, where residual personalty is settled in succession, trustees must ‘convert’: O any asset of a wasting nature; O any asset of a reversionary nature; O any unauthorised investments.

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5 Rule has limited application as does not apply to: O lifetime settlements; O speciﬁ c or general bequests rather than a residuary gift; O leasehold land; O where the rule is expressly or impliedly excluded, e.g. a provision that nothing in the estate should be sold.

10.3.2 The duty to apportion 1 This duty arises also when there is a duty to convert. 2 Reason is to ensure income derived from unauthorised investments is then fairly distributed between capital and income – so both life tenant and remainderman fairly treated. 3 In case of wasting, hazardous or unauthorised investments assumption is that these unfairly favour the life tenant: O so apportionment ensures life tenant receives an income representing the current yield on authorised investments; O currently 4 per cent – but out of line with accurate yield; O if there is no power to postpone then trustees should convert within one year (the time expected for full administration) – assets sold within a year are valued at time of sale, otherwise value after one year is taken; O if there is a power to postpone then value is taken as from the testator’s death (Brown v Gellatly (1867)). 4 For future, reversionary or other non-income producing property apportionment necessary to protect life tenant who otherwise gains no beneﬁ t. 5 Possible to avoid rules if contrary intention shown by testator. 6 Also solicitors on making wills usually exclude the rule in Howe v Dartmouth . 7 Law Reform Committee 23rd Report 1982 suggested a statutory rule rather than replacing rule altogether – would place duty on trustee to hold fair balance between life tenant and remainderman. 8 Other rules also deal with apportionment: O the Apportionment Act 1870 concerns dividing income, proﬁ t, rents etc unpaid at time of testator’s death; O the rule in Allhusen v Whittell (1867) – because the life tenant should only take an income net of testator’s debts, then he is obliged to make a contribution.

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10.3.3 The duty to provide accounts and information 1 Trustees owe duty to keep accurate and up- to-date accounts. 2 Benefi ciary entitled to inspect accounts but no right to a copy. 3 Remainderman only entitled to capital accounts relating to his reversion – life tenant entitled to full accounts. 4 Discretionary benefi ciary may see accounts – but not a potential discretionary benefi ciary. 5 Charitable trusts and pension funds require proper audited accounts. 6 Other trusts usually do not – but trustees may have them audited and charge fund – but only occasionally not annually. 7 Benefi ciaries are also entitled to be informed of matters currently affecting the trust (for charities there is a statutory list) – with private trusts this might generally include: O documents in possession of trustees acting as trustees; O documents containing information on the trust that benefi ciaries are entitled to know about. 8 Re Londonderry’s Settlement (1965) – identifi ed that benefi ciaries have a proprietary interest in these documents. But PC in Schmidt v Rosewood Trust Ltd (2003) suggested that it is a part of the trustee’s fi duciary duties and that disclosure is within the court’s inherent jurisdiction to decide after balancing interests of benefi ciaries, trustees and third parties. 9 Benefi ciary may be denied access to testator’s confi dential wishes ( Hartigan Nominees Pty Ltd v Rydge (1992)).

Z 10.4 The ﬁ duciary nature of trusteeship

10.4.1 Remuneration and reimbursement of trustees 1 Basic principle trustee is volunteer – so no payment. 2 So can only receive remuneration if speciﬁ cally entitled. 3 But trustee can use lien over trust fund to recover out- of-pocket expenses, e.g. agent’s fees, proper costs of litigation. 4 The right to reimbursement is statutory – s 31 TA 2000. 5 Numerous ways that remuneration may be authorised:

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O in the trust instrument itself: O commonly in ‘charging clauses’ before the 2000 Act; O now by s 28 an express clause will be upheld even if it is possible to use a lay (and thus free) trustee. O under TA 2000: O Part V gives professional trustees right to take remuneration even if not expressly provided for; O by s 29 they may take ‘a reasonable remuneration’; O but sole trustees excluded as no scrutiny possible. O other statutory authorisation: O Public Trustees entitled under s 9 Public Trustees Act 1906; O judicial trustees are entitled under s 1 Judicial Trustees Act 1898; O corporations appointed as Custodian Trustees are entitled by s 4 Public Trustees Act 1906. O authorisation by the court: O court has inherent jurisdiction exercisable retrospectively or prospectively when work of trustee (fi duciary) (even one in breach of trust) has been of signifi cant value to trust ( Boardman v Phipps (1967)); O can also use this jurisdiction if trustee has used specialist skills and would not have if aware there would be no remuneration (Foster v Spencer (1996)); O courts do not usually use inherent jurisdiction in respect of directors because of likelihood of confl ict of interest and duty ( Guinness v Saunders (1990)). O remuneration for litigious work by solicitor trustees: O the so- called rule in (Craddock v Piper (1850)); O whereby a solicitor may charge costs where he has acted for a co-trustee as well as himself. O contracts with sui juris benefi ciaries for payment possible.

10.4.2 Trustees as purchasers of trust property 1 Trustees should not become owners or lessees of trust property – this is to avoid any potential conﬂ ict of interest – and it is irrelevant that a fair price is paid.

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2 Though the rule has been somewhat relaxed – where there is clearly no confl ict of interest (Holder v Holder (1968)). 3 Should not even buy property a long time after retiring. 4 But possible for trustee to buy benefi cial interest providing that there is no undue infl uence (Tito v Waddell (No 2) (1977)).

10.4.3 Trustees and incidental (secret) profi ts 1 According to Lord Herschell in Bray v Ford (1896), ‘it is an infl exible rule of equity that a person in a fi duciary position . . . is not, unless otherwise expressly provided, entitled to make a profi t; he is not allowed to put himself in a position where his interest and his duty confl ict.’ 2 So this is the logic behind the twin rule that trustee must not: O be paid for his services without express authorisation; O make any kind of secret profi t from the trust. 3 Rule in Keech v Sanford (1726) prevents trustee renewing in his own name a lease he held formerly as a trustee. 4 But applies only to fi duciaries (Re Biss (1903)). 5 If trustee acquires freehold reversion then may be liable if used his position as trustee to gain personal benefi t (Protheroe v Protheroe (1968)). 6 Where directors have received their positions as result of their being trustees then they may be liable to the trust for money they receive (Re Macadam (1946)). 7 But they may keep remuneration if they were directors before being trustees ( Re Dover Coalfi eld Extension Ltd (1908)). 8 Basic rule is – however trustee comes by profi t, if made as result of position as trustee then must account to trust for it – and benefi ciary has only a personal remedy not a proprietary interest ( Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (2011)). 9 Trustee must never compete with trust ( Re Thomson (1930)). 10 Bray v Ford (1896) applies to fi duciaries generally, not just trustees. 11 One major problem is identifying fi duciary relationship – some obvious ones such as solicitor and client, agents and their principals, directors and shareholders, partners: O but list not fi xed and courts do label someone a fi duciary merely for desired result ( Reading v A-G (1951)); O or deny relationship (Swain v The Law Society (1983)).

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12 Company directors are identifi ed as fi duciaries – so are prevented from using knowledge gained in offi ce for private gain ( Regal (Hastings) Ltd v Gulliver (1967)). 13 This point has been extended so that directors have even been held liable for profi t made using knowledge gained in a personal capacity if it could have been used by the company ( Industrial Development Consult- ants Ltd v Cooley (1972)). 14 Leading case, demonstrating how rigidly principle applies, is Boardman v Phipps (1967): O the case involved one benefi ciary and the trust solicitor; O latter held to account as fi duciary, not as trustee – though Lords were split on whether he acted in a private capacity; O the fact that the trust lost nothing and actually gained was held to be irrelevant; O Lord Upjohn (dissenting) felt principle of preventing confl ict of interest and duty wrongly applied – called it ‘unreasonable and inequitable application of such doctrines’; O other problem was who fi duciary owes duty to, trust or benefi ciaries (consent obtained from two active trustees) – position now modifi ed by TA 2000 which authorises confl icts of interests if necessary for benefi t of trust. 15 In comparison to Boardman, Commonwealth courts are less hostile to fi duciaries (Queensland Mines Ltd v Hudson (1978)) – similar to dissenting judgments of Lords Upjohn and Dilhorne in Boardman .

Key Cases Checklist

10.1.3.2 Re Beloved Wilkes Charity (1851) 3 Mac & G 440 CA Key Facts

Trustees had the power to select a boy to be educated as a priest in the Church of England with a preference within a certain area. They chose a boy from outside the area.

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Key Law

It was held that it was a proper choice and the trustees did not have to give reasons for their decision.

10.1.3.3 Scott v National Trust [1998] 2 All ER 705 HC

Key Facts

The trustees of the National Trust without notice decided to withdraw the right to hunt over National Trust land. The court considered whether the trustees had to give reasons for the decision [this was at a time when hunting was legal].

Key Law

Trustees could not be compelled to give reasons for the exercise of a discretion but where the beneﬁ ciaries had a legitimate expectation which had arisen over time then trustees had a duty to give them a reason for a change in policy.

10.1.3.3 Klug v Klug [1918] 2 Ch 67 HC

Key Facts

A mother who was trustee of a settlement under which her daughter was a beneﬁ ciary refused to exercise her discretionary power to advance capital to her daughter because she had married without her mother’s consent.

Key Law

The court held that where reasons were given for the exercise of a trustee’s discretion and those reasons were improper then the court had power to intervene.

10.2.2.6 Cowan v Scargill [1985] Ch 270 CA

Key Facts

Union trustees of the Pension Fund for the National Union of Mineworkers challenged the investment policy of the pension

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fund, which included investments in overseas industries in direct competition with the United Kingdom coal industry.

Key Law

It was held that the duty of trustees is to optimise the benefi ts which the benefi ciaries are to receive, and in general, fi nancial considerations would prevail over ethical considerations.

Key Judgment

Sir Robert Megarry: ‘Trustees may have strongly held social or political views. They may be fi rmly opposed to any investments in South Africa or other countries or they may object to any form of investment in companies concerned with alcohol, tobacco, armaments or other controversial products. . . . if investments of this kind would be more benefi cial to the benefi ciaries than other investments, the trustees must not refrain from making the investments by reason of the views that they hold.’

10.2.6.2 Nestlé v National Westminister Bank plc [1993] 1 WLR 1260 CA Key Facts

The NatWest Bank acted as trustees to a settlement of the Nestlé family. One of the beneﬁ ciaries claimed that if the bank had invested the fund properly it would have increased in value by four times.

Key Law

The court held that although they had made errors of judgment, there had not been a breach of trust. They had failed to fully understand the extent of their investment powers and they had failed to review the investments, but these failures could not be directly linked to the loss to the beneﬁ ciary.

Key Comment

This decision suggests that it is very difﬁ cult for a beneﬁ - ciary to successfully sue trustees for breach on the basis of investment decisions. However, under the Trustee Act 2000 they would have been liable for a breach of their statutory duty of care and in particular their failure to review the investments, which is now a statutory duty.

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10.2.6.4 Harries v Church Commissioners for England [1993] 2 All ER 300 CA Key Facts

The Church Commissioners’ investment policy was based on ethical considerations, which meant they chose not to invest in some high-proft-yielding investments such as gambling and the tobacco industry. This policy was upheld by the courts, since it could be justiﬁ ed for a religious charity whose members were likely to support such a policy.

Key Law

Trustees are under a duty to maximise their investments for their beneﬁ ciaries but some charitable institutions were entitled to operate an ethical investment policy.

Key Comment

The Trustee Act 2000 lays down statutory duties with regard to investment including the standard investment criteria which impose a duty on trustees to consider the suitability of investments and to ensure that they are sufﬁ ciently diver- siﬁ ed. They also have a duty to review the investments from time to time and a duty to take advice where appropriate.

10.2.5.6 Bartlett v Barclays Bank Trust Co. Ltd (No 1) [1980] Ch 515 HC Key Facts

The trust property of a trust consisted largely of shares in a private property company and the trustees were professional trustees. The company decided that it would invest in some speculative property deals. One, called the Guildford project, was a success, but the second, called the Old Bailey project, was a disaster and resulted in a loss. It was held that the losses in the Old Bailey project could be set off against the gains made in the Guildford project.

Key Law

Generally where the trustees in breach of trust make a profi t on one transaction and a loss on another they are not allowed to set off the loss against the profi t, unless the profi t and the loss are treated as part of a single transaction.

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Key Judgment

Brightman J: ‘I think it would be unjust to deprive the bank of the element of salvage in the course of assessing the cost of the shipwreck.’

10.3.3.8 Re Londonderry’s Settlement [1965] Ch 918 CA

Key Law

A beneﬁ ciary is entitled to see trust documents. These include any documentation concerning the administration of the trust but not documentation revealing the reasons for the trustees’ decisions.

10.3.3.8 Schmidt v Rosewood [2003] 2 WLR 1442 PC

Key Facts

An object of a power of appointment sought disclosure of certain trust documents including letters written by his father about the exercise of power.

Key Law

The Privy Council held that he may have the right to disclosure of documents in the same way as the object of a discretionary trust, but it was a matter for the court’s discretion as to whether disclosure would be exercised. They held that no beneﬁ ciary has a right to see any trust document, and it is always a matter for the court’s discretion. This will depend on such issues as the likelihood of the claimant’s beneﬁ ting under the trust or power.

Key Judgment

Lord Walker: ‘Their lordships consider that the more princi- pled and correct approach is to regard the right to seek disclosure of trust documents as one aspect of the court’s inherent jurisdiction to supervise, and if necessary intervene in, the administration of trusts. The right to seek the court’s intervention does not depend on entitlement to a ﬁ xed and transmissible beneﬁ cial interest . . .’

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Key Link

See also Cowan v Scargill (above).

10.4.3.1 Bray v Ford [1896] AC 44 HL

Key Judgment

Lord Herschell: ‘It is an infl exible rule of a Court of Equity that a person in a fi duciary position . . . is not, unless otherwise expressly provided, entitled to make a profi t; he is not allowed to put himself into a position where his interest and his duty confl ict . . .’

Types of ﬁ duciary relationships

10.4.3.11 Reading v Att-Gen [1951] AC 507 HC

Key Facts

A sergeant in the British army used his position to enable civilians to pass through checkpoints with smuggled goods.

Key Law

It was held that he was in a ﬁ duciary relationship and must account to the Crown the proﬁ ts that he had wrongly made through the misuse of his position.

Company directors and ﬁ duciary duties in the commercial context 10.4.3.12 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n HL Key Facts

Four company directors of R Ltd personally subscribed for shares in a subsidiary company because R Ltd did not have the requisite money available. The directors were held liable to account to the company for the proﬁ ts made from their personal shareholding.

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Key Law

A fi duciary must account for any profi t made through his position although he has acted bona fi de throughout.

10.4.3.13 Industrial Developments Consultants Ltd v Cooley [1972] 1 WLR 443 HC Key Facts

The defendant was employed by the claimant company, which offered construction consultancy services. He entered into negotiations with the Gas Board on their behalf but the negotiations broke down. He then left the company, having told them that he was ill, and went to work for the Gas Board himself. It was held that he had to account for the profts he gained to his employers. His employers would not have released him if they had been aware of the full facts.

Key Law

A ﬁ duciary must not place himself in a position where his duty and his interest conﬂ ict.

10.4.3.15 Queensland Mines Ltd v Hudson (1978) 18 ALR 1 PC Key Facts

The defendant, who was the managing director of a company, successfully obtained mining licences on its behalf. When the company did not proceed he resigned as managing director and proceeded, several years later, with the full knowledge of the company with the mining venture himself. It was held that he did not have to account for the proﬁ ts to the company.

Key Law

Where a fi duciary acts with the full knowledge and consent of his principal, then the fi duciary is entitled to retain profi ts made through his position.

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Key Problem

In this case, could it be argued that consent should have come from the shareholders and not from the board?

10.4.3.8 Sinclair Investments (UK) Ltd Holding SA v Versailles Trade Finance Ltd [2011] EWCA Civ 722 CA Key Facts

Versailles Trade Finance was part of a larger group in which the defendant had a substantial interest. He was able to make a large profi t and thereby repay a mortgage on a property which he sold for £8.6 million because the group falsely infl ated its turnover through some dishonest dealings. The claimant argued the defendant owed him a fi duciary duty which had been breached and claimed this profi t.

Key Law

The court held that any proﬁ t made through his position as trustee must be returned to the claimant but the defendant was accountable for the proﬁ t under a personal claim and rather than a proprietary claim thereby upholding the principle in Lister v Stubbs (1890).

10.4.2.2 Holder v Holder [1968] Ch 353 CA

Key Facts

An executor, the son of the deceased, purchased trust property at a public auction after renouncing his executor- ship. Unknown to him, he was technically regarded as an executor because he had undertaken some executor duties. The sale was not set aside, because he had never assumed the duties of an executor and there was no conﬂ ict of interest.

Key Law

The self- dealing rule applies when a trustee purchases trust property from the trust. It prevents a trustee from purchasing trust property even where it is at public auction and at a fair price. The transaction is voidable by a beneﬁ ciary.

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Purchase of a lease

10.4.3.3 Keech v Sandford (1726) Sel Cas Ch 61 HC

Key Facts

A trustee held the proﬁ ts of a lease of Romford market on trust for a child. He asked the landlord to renew the lease and he refused to grant the lease to the child, because he felt he had no rights of enforcement against a child because he was a minor. The trustee then renewed the lease in his own name. It was held that the trustee must hold the lease on trust for the child, and account for any proﬁ ts he made.

Key Law

A trustee cannot keep for his own beneﬁ t a renewal of a lease which he was able to obtain for himself by reason of his being the trustee of the original lease.

Re Macadam [1946] Ch 73 HC Key Facts

Trustees had the power to appoint two directors of a company, and they chose to appoint themselves. It was held that they must account to the trust for the remuneration that they received.

Key Law

If trustees acquire their position as directors through the trust, then they are accountable to the trust for any remuneration that they receive.

Competition with trust

Re Thomson [1930] 1 Ch 203 HC Key Facts

A trustee of a yacht- broking business set up independently as a yacht broker. It was held that he had to account for any proﬁ ts he received to the trust, because he was in breach of his ﬁ duciary duty.

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Key Law

If the trustee forms a business which is similar but not in direct competition with the trust then the trustee does not have to account for any proﬁ ts he receives.

10.4.1.5 Boardman v Phipps [1967] 2 AC 46 HL

Key Facts

Boardman was a solicitor to a trust which held a shareholding in a private company. Boardman and a benefi ciary were dissatisfi ed with the way the company was run and its poor performance which yielded a poor return to the trust. Boardman personally acquired a majority shareholding using knowledge he had gained from the trust in order to gain control of the company. Some of the benefi ciaries were informed of his actions but the elderly widow was unable to give consent as she was senile. The company became profi table and both Boardman and the trust prof- ited. It was held that any personal profi t made by Boardman was held on constructive trust for the benefi ciaries. Unusually the court held that he should be rewarded by the payment of a quantum meruit because at all times he had acted bona fi des and in the best interests of the trust.

Key Law

A fi duciary will be held strictly liable to account for any profi ts made, wherever it can be said that his duty and interest confl ict. The law does not distinguish between the dishonest and the honest trustee; both must account for any profi t made by virtue of their position. Until Att-Gen for Hong Kong v Reid , the law seemed to favour the dishonest fi duciary making a profi t from his position. Reconsider the decision in Lister v Stubbs above.

25726.indb 186 18/11/2013 10:42 The powers of 11 trustees

Trusts of land: General powers: • by s 6 TOLATA trustee of land All powers are discretionary - general powers include: has all rights of absolute owner • to sell trust property - s 6 TOLATA for land - or s 12 • applies to express or implied ТА 25 - but must obtain best price (Buttle v trusts Saunders) • further powers include - to • to give receipts - s 14 ТА 25, e.g. for overreaching transfer property, or to partition • to insure - s 19 ТА 2000 - money recovered must - in either case with consent of be treated as capital and applied accordingly adult beneficiaries all in • to compound liabilities. agreement.

C POWERS OF TRUSTEES

Power to delegate: Maintenance and advancement: • originally possible only if necessary and conforms with Discretionary powers not subject to ТА duty of care. standard business practice Maintenance = s 31 ТА 25 beneficiary with vested or (Speight V Gaunt) contingent interest - either before 18 or after if • must be careful in selection contingency not yet met - trustee can apply income for, (Fry V Tapson) e.g. support, education, etc. • S 23 ТА 25 gave indemnity to • Only possible if not prior claim, e.g. life interest. trustee who delegated in • Can be expressly denied in trust instrument (Re good faith Turner's Will Trusts). • S 30 protected trustee against • Only applies to gifts carrying with them the loss caused other than by his intermediate income - vested gifts; contingent wilful default residuary personalty; but not contingent pecuniary - • scope of protection uncertain unless settlor is father of child, intention shown in - compare Re Vickery and instrument (Re Churchill) or separate sum set aside Re Lucklngs (Re Medlock). Advancement = s 32 ТА 25 • now ТА 2000 gives wider beneficiary with unmet contingent interest - trustee power to delegate can apply capital; to ‘set beneficiary up in life’ - • can delegate functions other examples in Pilklngton v IRQ. than those in s 11: • only half of presumptive share can be applied distribution of fund, • share advanced is set off against entitlement maintenance and • must not disadvantage person with prior interest advancement, appointment unless adult and consents in writing of new trustees • contrary intention can be shown in instrument • by s 16 trustees can appoint • provision for accumulation precludes advancement nominees and bys 17 • must ensure that advance is supervised (Re custodians Pauling's Settlement Trusts). • some delegation of discretion possible, e.g. s 9 TOLATA.

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Z 11.1 Introduction 1 Powers must be distinguished from duties – because there are signifi cant consequences depending on whether something is one rather than the other: O duties are obligatory – and failure to comply can lead to breach of trust actions; O powers are discretionary – so there is no compulsion other than to exercise the discretion; O but trustees must act impartially towards benefi ciaries where they exercise discretion – and would not be impartial if the discretion were exercised to achieve an unlawful purpose ( Chirkinian v Arnfi eld (2006)). O trustees need not give reasons for their the exercise of their discretion ( Re Beloved Wilkes Charity (1851)); O where the trustees give reasons for a decision and the reasons are not bona fi de then the court can intervene in the exercise of a discretion. 2 Powers of trustee were originally identifi ed in trust instrument: O but TA 1925 gave detail on powers needed by all trustees; O but the Act became outdated with regard to powers of delegation, insurance, remuneration, investment, appointing nominees and custodians; O so most of these areas are now updated in Trustee Act 2000. 3 Certain signifi cant powers are enjoyed by trustees: O to sell the property to use the fund in different ways; O to give receipts to purchasers to enable overreaching mechanism; O powers in respect of liability to the trust or by the trust; O powers in relation to reversionary interests. 4 But the two major powers are: O delegation; O maintenance and advancement.

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Z 11.2 Trustees of land under the Trusts of Land and Appointment of Trustees Act 1996 1 By s 6(1) TOLATA trustees of land are given ‘all of the powers of an absolute owner’ (formerly trustees of a trust for sale had a duty to sell with only a power to postpone). 2 So trustee now has greater fl exibility – but must still: O give proper regard to rights of benefi ciaries and there is a duty to consult adult benefi ciaries in possession of the land; O maintain all general duties and all statutory restrictions. 3 Section 6 applies to any trust of land whether express or implied – though an express trust of land may be excluded by the settlor. 4 Two further major powers within the Act: O trustees have power to transfer trust property where adult benefi ciaries of full capacity acting together call for a transfer; O trustees can partition lands when consented to by benefi ciaries and they are all adult and absolutely entitled as tenants in common.

Z 11.3 General powers

11.3.1 The power to sell trust property 1 By s 6(1) TOLATA trustees of a trust of land (or post-1996 settlement) are vested with the legal estate and thus have power to sell. 2 For pre-1996 settlements the legal estate is vested in the tenant for life who thus has the power of sale. 3 For overreaching to occur the receipt of two trustees or a trust corporation must be obtained by purchasers. 4 Power of sale exists for chattels and receipt of only a single trustee is needed. 5 Power of sale often implied in case of unauthorised investments which are not suitable for trust – and should be sold and replaced in more permanent form: O Trustee Act 2000 puts this into statutory form; O trustees may also mortgage property to raise money for authorised purposes.

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6 Rules on sale of trust property are in s 12 TA 1925: O can sell all or any of trust property by public auction or private sale; O can subject any sale to conditions; O but have duty to obtain best possible price ( Buttle v Saunders ) – beneﬁ ciary can restrain by injunction a sale that does not do this.

11.3.2 The power to give receipts 1 By s 14 TA 1926 trustees may give receipts for money, securities, investments etc sold. 2 Receipt protects purchaser from liability to beneﬁ ciaries for misapplication of fund. 3 Applies irrespective of any contrary statement in trust instrument and can apply to sole trustees. 4 Section 14 applies other than to proceeds of sale of a trust of land or settled land under SLA 1925 when receipt of two trustees or trust corporation is needed to evoke overreaching mechanism to protect purchaser.

11.3.3 The power to insure 1 At common law there is a power to insure – which in any case is one way of safeguarding the trust property. 2 By s 19 TA 1925 trustees were also given limited powers to insure – now under s 19 Trustee Act 2000: O the trustee may insure against any risks; O and may pay the premiums from capital. 3 The statutory duty of care from s 1 TA 2000 applies. 4 Money recovered from policies must be treated as capital and applied accordingly.

11.3.4 The power to compound liabilities 1 By s 15 TA 1925 settlement can be made with any person claiming to be a beneﬁ ciary. 2 And trustee can adjust interests between competing beneﬁ ciaries – to reach a sensible compromise instead of facing litigation in every competing claim.

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3 Providing they comply with the statutory duty of care, trustees will not be liable for loss caused by exercising their powers under s 15.

Z 11.4 The power to delegate 1 The original common law rule is that a trustee will not be liable for the faults of another to whom he has delegated functions. 2 In practice, trustees need to delegate all manner of functions – recognised as early as ex parte Belchier (1754). 3 Trustees traditionally could delegate only where necessary and when delegation conforms with standard business practice (Speight v Gaunt (1883)) and where they act as reasonable prudent businessmen (Learoyd v Whiteley (1887)). 4 Trustees must also employ the ‘agent’ in the course of their business and must take care in selecting them – and originally could not delegate discretionary powers ( Fry v Tapson (1884)). 5 So in nineteenth century commonplace to insert express delegation powers with exemption for trustees from anything except their wilful default. 6 Wide powers of delegation powers were granted in s 23(1) TA 1925: ‘trustees . . . may instead of acting personally employ . . . an agent whether a solicitor, banker, stockbroker or other person to . . . do any act . . . in the execution of the trust or the administration of an estate . . . and shall not be liable for the default of any such agent if employed in good faith.’ 7 Similarly, s 30 TA 1925 created an indemnity for acts and defaults of agents unless loss caused through trustees’ ‘wilful default’. 8 Exact scope of provisions was uncertain and case law contradictory – compare Re Vickery (1931), where there was said to be no liability unless trustee acted with wilful default, with Re Lucking’s Will Trusts (1968), where court said trustee was allowed to delegate but had a corresponding duty to supervise. 9 Where s 23 did not permit delegation of discretions this was permissible by power of attorney under s 25. 10 Trustee Act 2000 passed to repeal these and provide clear framework. 11 The Act widens powers of delegation but can still be subject to restrictions in the trust instrument. 12 In effect trustees can delegate all or any delegable functions other than those in s 11:

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O those relating to how assets should be distributed; O decisions on whether payments should be from income or capital; O power to appoint new trustees; O any power conferred by other enactment permitting trustees to delegate functions or to appoint custodians or nominees. 13 So signiﬁ cantly allows for delegation of investment powers to experts. 14 Functions delegable in charitable trusts are also listed. 15 By s 16 trustees can appoint nominees and by s 17 custodians – so prevents delays in transferring shares. 16 Trustee must maintain statutory duty of care under s 1 when delegating – which applies to supervision as well as appointing. 17 Under s 23 TA 2000 trustee is not liable for acts of agent, nominee or custodian unless he has failed to comply with the duty of care both in appointing and supervision. 18 Some delegation of discretion is permitted: O by s 9 TOLATA 1996 trustee of trust of land can delegate any functions relating to land, including sale to beneﬁ ciaries of full age; O under s 1 Trustee Delegation Act 1999 trustee of trust of land can delegate all functions, including discretions, by power of attorney; O s 25 TA 1925 in any case allowed for delegation of powers and discretions either by deed or by power of attorney.

Z 11.5 Powers of maintenance and advancement

11.5.1 Introduction 1 Maintenance and advancement covers situations where a benefi ciary will not receive until a set date in the future but wants support now. 2 Maintenance is when trustees allow a benefi ciary money from income. 3 Advancement is when trustees allow a contingent benefi ciary money from capital. 4 There are a variety of reasons for doing so: O commonly for tax saving; O for contingent interests no use is made of the intermediate income so it is a way of using it for the immediate benefi t of the benefi ciary; O it can also help children with vested interests.

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5 Neither power is signiﬁ cantly subject to the statutory duty of care. 6 Both should result from conscious exercise of trustees’ discretion – not automatic right – and it does not matter that other parties are beneﬁ ted.

11.5.2 Maintenance 1 The power derives from the trust instrument or from s 31 TA 1925: ‘Where any property is held by trustees in trust for any person for any interest whatsoever, whether vested or contingent, then, subject to any prior interests or charges affecting that property – (i) during the infancy of any such person, if his interest so long continues, the trustees may, at their sole discretion, pay to his parent or guardian, if any, or otherwise apply for or towards his maintenance or education or benefi t, the whole or such part, if any, of the income of that property as may, in all the circumstances, be reasonable whether or not there is – a) any other fund applicable for the same purposes; or b) any person bound by law to provide for his maintenance or education; and (ii) if such person attaining the age of [18] years has not a vested interest in such income, the trustees shall thenceforth pay the income of that property and of any accretion thereto under subsection (2) of this section to him until he either attains a vested interest or dies, or until failure of his interest . . .’. 2 So trustees can use their discretion to support a minor benefi ciary with either a vested or contingent interest. 3 And even after the minor reaches 18 the income can still be used to support him if he has a contingent interest. 4 Decision to grant should result from conscious exercise of discretion – so not a right – and will not matter that someone else benefi ts. 5 Once benefi ciary meets the contingency he is also entitled to the capital. 6 By s 53 TA 1925 application can be made to the court where the trust instrument does not provide for maintenance. 7 Maintenance only possible where no prior interest, e.g. a life interest. 8 A contrary intent can always be expressed in the trust instrument – and may be construed, e.g. from a direction to accumulate (Re Turner’s Will Trusts (1937)). 9 By s 31(2) surplus income is accumulated for child benefi ciaries until they reach majority:

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O child is entitled to accumulations if he has a vested interest before reaching majority – because then he is in any case entitled to the income; O but principle may not apply if there is an express contrary intention in trust instrument (Re Delamere’s Settlement Trusts (1984)). 10 Section 31 only applies to gifts that carry with them entitlement to the intermediate income – though it is not absolutely clear which gifts do and which do not: O vested gifts always carry the intermediate income unless contrary intent is shown; O with contingent residuary gifts of personalty, intermediate income is said to attach to benefi ciary unless a contrary intention is shown; O with a contingent pecuniary legacy this will not usually carry with it intermediate income on basis that a bequest of a fi xed amount means testator only intended that amount to pass to benefi ciary – but there are three exceptions: i ) where the settlor is the father of the child; ii) where intention to maintain is shown ( Re Churchill (1909)); iii) where testator has set aside the legacy as distinct and separate fund for benefi ciary (Re Medlock (1886)). 11 In a contingent gift for a class of benefi ciaries maintenance can still be given to those benefi ciaries who do not yet have a vested interest even though some of the class have met their contingency. 12 If a member of a class dies before his interest is vested, accumulation of interests representing his contingent interest is added to the capital.

11.5.3 Advancement 1 Where maintenance concerns application of income to support a child benefi ciary’s needs advancement is application of capital before the minor is actually entitled. 2 Advancement is authorised in the trust instrument or in s 32 TA 1925: ‘Trustees may at any time or times pay or apply any capital money subject to a trust, for the advancement or benefi t, in such manner as they may, in their absolute discretion, think fi t, of any person entitled to the capital of the trust property or of any share thereof, whether absolutely or contingently on his attaining any specifi ed

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age or on the occurrence of any other event, and whether in possession or in remainder or reversion, and such payment or application may be made notwithstanding that the interest of such person is liable to be defeated by the exercise of a power of appointment or revocation, or to be diminished by the increase of the class to which he belongs: Provided that – a) the money so paid or applied for the advancement or benefi t of any person shall not exceed altogether in amount one half of the presumptive or vested share or interest of that person in the trust property; and b) if that person is or becomes absolutely and indefeasibly entitled to a share in the trust property the money so paid or applied shall be brought into account as part of such share; and c) no such payment or application shall be made so as to prejudice any person entitled to any prior life or other interest, whether vested or contingent, in the money paid or applied unless such person is in existence and of full, age and consents in writing to such payment or application’. 3 As with maintenance a major purpose of applying the money is tax saving but generally the purpose is ‘the establishment in life of the benefi ciary . . . or some step that will contribute to the furtherance of his establishment’: Jessel MR in Taylor v Taylor (1875). 4 Traditional examples of advancement were: O buying an apprenticeship for a young person; O buying a commission in the armed forces; O buying a young person a share in a business, company or partnership; O helping a person to get started at the Bar; O enabling a woman to marry. 5 More modern examples include: O paying off debts; O providing for a charity; O providing the means of supporting a wife or children or both. 6 Many of these were discussed in Pilkington v IRC (1964), in which it was also identifi ed that any other way of improving the material situation of the benefi ciary is acceptable.

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7 The scope of express powers of advancement was traditionally construed quite narrowly – so it was practice in drafting such clauses to include words to widen the scope, e.g. ‘for the advancement of or otherwise for his benefi t’. 8 In practice since TA 1925 any express provision would only add to the whole of the benefi ciary’s presumptive share. 9 Section 32 TA 1925 is the major process for advancement – with many important features: O it obviously means money can be applied from capital regardless of whether benefi ciary’s interest is vested or contingent; O decision to apply capital for advancement is at trustees’ discretion; O only half of the presumptive share can be applied; O share advanced is set off against entitlement when received; O advancement must not disadvantage a person with a prior interest unless that person is adult and consents in writing; O but a contrary intention to the last three points can be shown in the trust instrument; O it is assumed a provision for accumulation precludes the possibility of advancement. 10 Many problems arise from defi nition of advancement in s 32 and were considered in Pilkington v IRC (1964) – including: O it was immaterial that the minor would not receive the property until much later because advancement is not necessarily about getting the property early but about the benefi ciary being set up in life; O it does not matter that other people benefi t from the advance; O it is not a problem that arrangement is by creation of a new trust; O necessity to delegate trustee powers was not a problem either; O but offending the perpetuity period will invalidate the advance. 11 Trustees in making an advancement must bear in mind the need to supervise the transaction and the use of the advance ( Re Pauling’s Settlement Trusts (1964)).

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Key Cases Checklist

11.5.3.11 Re Pauling’s Settlement Trusts [1964] Ch 303 CA Key Facts

A marriage settlement created in 1919 included an express provision that the trustees could advance up to one- half of the benefi ciaries’ presumptive share under the trust for their advancement or absolute use. Advances had been made by the trustees, who were the bank Coutts & Co. The benefi ciaries sued the trustees for breach of trust in advancing the shares to the benefi ciaries when the money had generally been paid not to them but into their mother ‘s bank account. The court held that the trustees were not liable because the benefi ciaries were all of age and had consented to the advances.

Key Law

A beneﬁ ciary can only consent if he/she is of full age and is not under any other incapacity.

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f Purpose of variation: Court’s inherent jurisdiction: • allows terms of trusts to • can vary where necessary to protect trust be varied to achieve property (Re Jackson) other beneficial purpose • or to reach compromise between competing • adult beneficiaries acting beneficiaries (Mason v Fairbrother). V , together can terminate trust and demand distribution of fund (Saunders V Vautier) • so variation usually for people lacking capacity. Statutory powers to vary: • s 57 ТА 25 in management or administration of trust when expedient (Re Power) • s 64 Settled Land Act 25 for settled land (Hambro v Duke of Marlborough) • s 53 ТА 25 for maintenance or education of child (Re Gower) VARIATION OF TRUSTS • ss 23-25 Matrimonial Causes Act 1925 for domestic settlements (Brooks V Brooks) • s 96 Mental Health Act 1983 for mental patients.

r Variation of Trusts Act 1958: • applies to those: a) with vested or contingent interests lacking capacity through e.g. age; b) who may fulfil a condition; c) who are unborn; d) with a discretionary interest under a protected trust as yet not determined • so can only apply to beneficiaries who cannot consent themselves (Re Siffert) • wide powers but not to alter purposes (Re Ball’s Settlement) • must consider settlor’s intentions (Re Steele’s Will Trusts) • usual reason for variation is tax savings (Re Weston’s ST) • but could be moral or social benefit (Re CL) • postponed vesting possible to protect beneficiary from his own immaturity or irresponsibility (Re Ts Settlement Trusts) • family benefit should also be considered - compare Re Remnant’s ST with Re Тткеґв ST. V

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Z 12.1 The need for variation 1 The basic concept of variation is simple – to allow the terms of the trust to be altered to achieve some benefi cial purpose. 2 Trustees alone cannot alter the trust – this would be a breach of trust. 3 An adult benefi ciary who is sui juris would be able to deal with his/her own benefi cial interest as (s)he saw fi t. 4 Similarly, all the benefi ciaries, if adult and absolutely entitled, may act together to terminate the trust and demand distribution of fund (Saunders v Vautier (1841)). 5 People lacking capacity, e.g. children, cannot deal with their interest in this way. 6 Variation is often, but not always, for tax saving. 7 The courts can use various devices to vary the trust: O by using their inherent jurisdiction; O by certain specifi c statutory provisions; O by application of Variation of Trusts Act 1958 – but only for certain benefi ciaries who could not consent to variation themselves.

Z 12.2 Variation under the inherent jurisdiction of the courts 1 The court can use inherent jurisdiction to vary a trust where it is absolutely necessary in an emergency to protect the trust, i.e. to use fund to prevent collapse of a building owned by trust ( Re Jackson (1882)). 2 It can also use inherent jurisdiction to reach a compromise in a dispute between beneﬁ ciaries (Mason v Farbrother (1983)). 3 Providing that the dispute is genuine ( Chapman v Chapman (1954)).

Z 12.3 Variation under statutory provisions 1 By s 57(1) Trustee Act 1925 court may grant variation ‘Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, expenditure or other transaction is, in the opinion of the court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the

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trustees by the trust instrument, if any, or by law, the court may by order confer upon the trustees . . . the necessary power . . .’: O so ‘expedient’ is signifi cantly broader than ‘emergency’ which is used in the inherent jurisdiction; O but the power is only available for ‘management or administration’; O so s 57 has been used e.g. to buy a house for tenant for life to live in Re Power (1947) and to widen a charity’s investment powers to make it more effi cient ( Re Shipwrecked Fishermen and Mariners’ Royal Benevolent Society (1959)). 2 Variation is also possible under s 64(1) Settled Land Act 1925 where it is ‘for the benefi t of the settled land . . . or the person interested under the settlement’ if change is one that ‘could have validly been effected by an absolute owner’ ( Hambro v Duke of Marlborough (1994)). 3 By s 53 TA 1925 the court can authorise various dealings with property held on trust for a child for ‘the maintenance, education, or benefi t’ of the child – though this is an overlap with s 57 it can be used e.g. to bar entails ( Re Gower’s Settlement (1934)). 4 Sections 23–25 Matrimonial Causes Act 1973 give the court wide powers to make orders in matrimonial proceedings in respect of both spouses and children ( Brooks v Brooks (1996)). 5 By s 96(1)(d) Mental Health Act 1983 the Court of Protection may vary a settlement in favour of a mental patient.

Z 12.4 Variation under the Variation of Trusts Act 1958 1 Contains the widest powers for the courts to allow variation of trusts. 2 However, the Act only applies to a restrictive range of people – basis of the courts’ power being to consent to variations on behalf of people who could not consent for themselves – so s 1 includes: ‘Where property, whether real or personal, is held on trusts arising under any will, settlement, or other disposition, the court may, if it thinks ﬁ t, by order approve . . . any arrangement (by whomsoever proposed) varying or revoking all or any of the trusts, or enlarging the powers of the trustees. The court has the power to give approval on behalf of the following categories: a) any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts, who by reason of infancy or other incapacity is incapable of assenting;

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b) any person (whether ascertained or not) who may become entitled in future – on a future date, fulfi lling a condition, happening of a future event, prospective member of a class; c) any person unborn; d) any person who has a discretionary interest under a protective trust and the interest of the principal benefi ciary has not failed or determined.’ 3 So the courts will not use 1958 Act in respect of benefi ciaries who could consent to the variation themselves (Re Siffert (1961)). 4 In applications under the Act all parties should be represented – in the case of those who cannot be represented, such as the unborn, their interests at least should be represented. 5 While court has wide powers to vary trust, it will not agree to variation that alters original purposes of trust (Re Ball’s Settlement (1969)). In Wyndham v Egremont (2009) the court distinguished between a variation and a resettlement. 6 And the court will of course in ordering a variation keep in mind the settlor’s intentions (Re Steed’s Will Trusts (1960)). 7 In approving a variation the court must also consider whether or not it will benefi t those people for whom it gives its approval if they fall under (a), (b) or (c) of s 1 – and ‘benefi t’ can be interpreted in different ways: O fi nancial benefi t: O the classic example of which is tax saving ( Re Weston’s Settlements (1969)); O which could be avoiding inheritance tax or estate duty (Re Druce’s Settlement Trusts (1962)); O or capital gains text (Ridgwell v Ridgwell (2007)); O or income tax (Re Clitheroe’s Settlement Trusts (1959)). O moral and social benefi t: O the court should consider the wider benefi t and general welfare on whose behalf it is asked to approve a variation ( Re Weston’s Settlements (1969)); O and Weston shows that the court may be reluctant to allow a variation that will take the trust into a foreign jurisdiction if it is felt not to be a permanent move;

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O though there is contradictory case law (Re Seale’s Marriage Settle- ment (1961); Re Windeatt’s Will Trusts (1969); Re Whitehead’s Will Trusts (1971)); O and social benefi t might involve doing something for another person that the benefi ciary would want if in a position to make the decision ( Re CL (1969)). O postponed vesting: O the courts will happily delay the date at which an interest vests if this will benefi t the benefi ciary ( Re Holt’s Settlement (1969)); O and this may be to protect the benefi ciary against their own irresponsibility or immaturity ( Re T’s Settlement Trusts (1964)). O family benefi t: O the court may consider whether the existing trust may damage family relations (Re Remnant’s Settlement Trusts (1970)); O but may also take a narrower view of family benefi ts to focus on fi nancial benefi ts (Re Tinker’s Settlement Trusts (1960)). 8 No need to show benefi t under s 1(1)(d) but court must weigh all advantages and disadvantages when deciding on a variation ( D (a child) v O (2004)).

Key Cases Checklist

12.1.4 Saunders v Vautier (1841) Cr & Ph 240 HC

Key Facts

If all the beneﬁ ciaries are sui juris and in agreement and together have absolute entitlement, they have power to terminate the trust and demand that the fund be handed over to them.

12.2.3 Chapman v Chapman [1954] AC 429 CA

Key Law

There are four situations where the court has the power to vary the terms of a trust:

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1 conversion of personalty to realty; 2 emergency jurisdiction, where the court can authorise transactions not included in the trust instrument but cannot vary the interests of the benefi ciaries; 3 maintenance jurisdiction allowing the court power to advance income to the benefi ciaries for their maintenance; 4 compromise jurisdiction allowing variation in the benefi - cial interests of the benefi ciaries where there is a dispute about the extent of the rights of the benefi ciaries.

12.4.3 Re Suffert [1961] Ch 1 HC

Key Facts

A trust was established giving a lifetime interest for Elaine Suffert and remainder to such of those issue as she should appoint. If she died intestate then the property would pass to those entitled on her intestacy. She was a spinster and had no children but had three adult cousins. She wanted to vary the settlement, but only one cousin consented. The court held that they had no jurisdiction to vary on their behalf as they were not persons who ‘would become entitled at a future date’.

Key Law

Consent from the court cannot be sought on behalf of persons who are not within s 1 Variation of Trusts Act; if they do not give their consent or cannot be found then the trust cannot be varied.

Interpretation of beneﬁ ts

12.4.7 Re Weston’s Settlement [1969] 1 Ch 223 CA

Key Facts

A variation was sought for infant beneﬁ ciaries of a settlement which would transfer the whole of the trust to Jersey.

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Key Law

There was a considerable fi nancial benefi t to be gained by doing so, but the court thought that the social benefi ts for the children in remaining in England far outweighed these fi nancial benefi ts.

12.4.7 Re Holt’s Settlement [1969] 1 Ch 100 HC

Key Facts

A variation was approved where the interests of the beneﬁ - ciaries were postponed until they attained the age of 30. It was felt that it was important that they should not receive the income until they were reasonably advanced in their careers and settled in life.

Key Law

Benefi t under the Variation of Trusts Act 1958 should be given a wide defi nition. It is not merely confi ned to fi nancial benefi t, but may extend to ‘moral or social benefi t’.

Key Link

Consider the formalities necessary under the Variation of Trusts Act. Megarry J held in Re Holt’s Settlement that s 53(1)(c) did not apply on a variation leading to a disposition of an existing beneﬁ cial interest.

Variation or resettlement?

12.4.7 Re T’s Settlement Trusts [1964] Ch 158 HC

Key Facts

Mr Justice Wilberforce refused an application for a variation of a trust preventing an infant from receiving a quarter of the income on attaining her majority.

Key Law

Although there was evidence that the child was irresponsible and immature because he believed the variation amounted to a complete resettlement of the trust.

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Key Comment

The court took a different view in Re Holt (see above), where the children’s entitlements were postponed until they attained the age of 30.

12.4.5 Re Balls’ Settlement Trusts [1968] 1 WLR 899 HC Key Law

A test was laid down intended to guide the judiciary in applications under the VTA. It was held that an arrangement changing the whole substratum of the trust would not be regarded as a variation but if the substratum was unaffected the court could give consent.

12.4.5 Wyndham v Egremont [2009] EWHC 2076 (Ch) HC Key Facts

A variation of a family trust was drawn up to defer tax liability. It was intended to maintain the original purpose of the trust, which was to ensure that the Petworth estate continued to pass to male heirs of a family.

Key Law

The court concluded that this was not a resettlement and could therefore be approved. The statement in Re Ball’s Settlement was criticised because it did not give sufﬁ cient guidance on the difference between a variation and a resettlement.

Relevance of the settlor’s intention to the variation?

Goulding v James [1997] 2 All ER 239 CA Key Facts

An estate was left by the testatrix for her daughter for life, with the remainder to her grandson on his attaining the age

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of 40. If he failed to attain the age of 40 then it was provided that the estate should pass to such of his children as were living at the date of his death. The testatrix did not trust her son- in- law and thought her grandson needed to settle down before he inherited the capital. The trust was varied, allowing the daughter to receive some capital and the grandson to become entitled before the age of 40. This was clearly contrary to the wishes of the settlor.

Key Law

The settlor’s intentions in the variation of a trust on behalf of unborn beneﬁ ciaries are not relevant to the decision of the court.

Key Judgment

Ralph Gibson LJ: ‘The fact that a testator would not have approved or would have disapproved very strongly does not alter the fact that the beneﬁ ciaries are entitled in law to do it and, if it can be proved, that the arrangement is for the beneﬁ t of the unborn . . .’

12.4.6 Re Steed’s Will Trusts [1960] Ch 407 CA

Key Facts

A farm had been left on trust for the testator’s faithful house- keeper for her life on protective trusts and on her death to whoever she should appoint. The trustees had the power to pay capital monies to her as they should think ft. The testator had left a protective trust believing that her family might take advantage of her. She exercised her power of appointment to herself but under the protective trust she could not resist decisions of the trustees. She sought an order to vary the arrangement after the trustees decided to sell a farm rented by one of her brothers. The variation would give her absolute entitlement to the property.

Key Law

The court refused to vary the trust taking into account the wishes of the settlor.

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Key Judgment

Lord Evershed: ‘The court must, in performing its duty under the Variation of Trusts Act 1958, regard the proposal in the light of the purpose of the trust as shown by the evidence of the will or settlement itself and any other relevant evidence available. . .’

Key Problem

Compare the decisions in Re Steed and Goulding v James . The court was guided by the settlor’s wishes in Re Steed. Perhaps the reason for this was as the Court of Appeal said: it is the arrangement that has to be approved, not just the interest of the person on whose behalf the court’s duty is to consider it.

12.4.7 Re Remnant’s Settlement Trusts [1970] Ch 560 HC Key Facts

A variation was sought to a settlement which contained a forfeiture clause forfeiting interests of members of the family who became or who married Roman Catholics.

Key Law

The variation removing this clause was approved by the court. There was a beneﬁ t to the children and retention of the clause was undesirable.

Key Comment

This variation defeated the settlor ‘s intention, but although that was a serious matter, the beneﬁ t to the trust outweighed this.

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f ^ Personal liability: Tracing: • beneficiary entitled to have trust • common law tracing possible if administered according to funds unmixed and still identifiable provisions of trust (Target ( Taylor V Plumer) Holdings V Redfems) • even if transferred to third party • trustee is liable to account for all (Banque Beige pour L'Etranger v profits made from trust position Hambrouk) and any losses caused to trust • three basic conditions for tracing to (Re Miller’s) apply in equity: • by s ЗО ТА 25 trustee not liable • claim must be founded on an unless in wilful default (Armitage initial fiduciary relationship; V Nurse) • property is in a traceable form; • beneficiary cannot sue if • must be equitable to trace. participates in breach (Re • unmixed funds or property used to Pauling's) - and s 61 ТА 25 buy other things then can still trace protects trustee who acts (Re Hailet’s Estate) honestly and reasonably • if in mixed funds can still trace if still • trust instrument may exempt identifiable (Re Tilley’s Will Trust) trustee from liability • unless reduced below level of trust • breach of trust action must be • if property transferred to third party within 6 years (s 21 Limitation - then cannot trace against bona Act 1980). fide purchaser - volunteer is bound by trust.

BREACH AND REMEDIES

Other equitable remedies: Injunctions: Specific performance: • usually only enforceable if prohibitory • only if: contract already exists; • perpetual - settle claim: interim - for requirement yet to be where claimant would suffer if forced performed; damages to wait for full claim - quia tim et- no inadequate; property is unique; loss but used to prevent infringements order can be overseen by the • granted subject to ‘balance of courts convenience’ test from American • not possible if: would cause Cyanamld v Ethicon hardship; claimant’s conduct • can grant perpetual injunction but unconscionable, delay, suspend operation so defendant can property misdescribed; policy comply (Pride of Derby Angling dictates. Association V British Celanese) Rescission: • not granted if claimant delays or • possible for mistake, undue acquiesces, order will harm defendant influence, misrepresentation or claimant behaves inequitably • but lost if restitutio in integrum • by s 50 Supreme Court Act 1980 can not possible, delay, affirmation. give damages in lieu if: injury to claimant small, or capable of Rectification: assessment in monetary terms, or • to correct inaccurate oppressive to grant injunction (Shelter document. V City of London Electric Lighting Co).

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Z 13.1 Breach of trust and liability 1 Lord Browne-Wilkinson in Target Holdings Ltd v Redferns (1996): ‘Basic right of . . . benefi ciary is to have . . . trust duly administered in accordance with . . . provisions of . . . trust, if any, and . . . general law.’ 2 So if trustee fails in duty he is personally liable for loss even if acted in belief that what he did was in best interests of trust (Re Brogden (1888)). 3 Trustee must account for any profi t made from trust and make good any loss ( Nant- y-glo and Blaina Ironworks Co v Grave (1878)). 4 Benefi ciary must show both breach of trust and loss caused by the breach ( Re Miller’s Trust Deed (1978)). 5 In Target Holdings Ltd v Redferns (1996) Lord Browne-Wilkinson said damages should be measured at date of judgment not breach (so not like common law damages) – loss here was after breach.

Z 13.2 Personal remedies and proprietary remedies

13.2.1 The personal remedy against trustees 1 The trustee is personally liable to benefi ciaries for incidental profi t gained from a breach of trust or loss caused to the trust. 2 Section 30 TA 1925: ‘trustee shall not unless guilty of wilful default be liable for the acts and defaults of other trustees’ – so liable for own breaches: O in Re Vickery (1931) wilful default was described as consciousness or recklessness by the trustee; O in Armitage v Nurse (1998) it was reaffi rmed as when trustee ‘consciously takes a risk that loss will result or is recklessly indifferent as to whether it will or not’. 3 Liability may also arise where a trustee does nothing about a breach of trust by other trustees of which he is aware. 4 An incoming trustee is generally not liable for past breaches – but has a duty to take action, even legal action, against a trustee in breach. 5 A retired trustee is only liable for the breaches of other trustees if he retired in order to make the breach possible ( Head v Gould (1898)). 6 Trustees are jointly and severally liable if all responsible for breach or those in breach are assisted by wilful default of others – but by Civil Liability (Contribution) Act 1981 court can decide what is fair for each.

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7 One trustee may be obliged to indemnify another, e.g. solicitor trustee exercising control over lay trustee (Chillingworth v Chambers ( 1896)) – or trustee is fraudulent in procuring breach (Bahin v Hughes (1886)). 8 Personal liability is set against proﬁ t made by trustee or loss suffered by trust ( Target Holdings Ltd v Redferns (1996)).

13.2.2 Defences to an action for personal liability 1 A benefi ciary who participates in a breach of trust cannot sue on the breach (Re Paulings Settlement Trust (1964)): O benefi ciary must have been aware of the breach; O and must have freely agreed to it with no undue infl uence; O and must have fully understood what he was agreeing to; O there is no need to show benefi ciary gained from breach. 2 Where the benefi ciary acquiesces or releases the trustee from liability this has same effect as if benefi ciary agreed to breach from start but a defence that there has been an unreasonable delay will not succeed where the defendant has suffered no detriment and has gained by the delay ( Fisher v Brooker (2009)). 3 Section 62 TA 1925 allows court to impound the interests of a benefi - ciary who has instigated or consented to a breach of trust. 4 Section 61 TA 1925 allows court discretion to relieve a trustee of liability: O where the trustee acted honestly and reasonably (Lloyds TSB Bank plc v Markandan & Uddin (2012)); and O where it would be fair to excuse him from liability; O trustee must show he has acted prudently – what relieves trustee from liability is a question of fact in each case ( Re Turner (1897)).

13.2.3 Excluding liability 1 Sometimes the trust instrument expressly states that the trustee is not liable for acts or omissions that would otherwise be a breach of trust. 2 This may then give the trustee a good defence to a claim of breach of trust by the beneﬁ ciaries (Armitage v Nurse (1997); Walker v Stones (2000)).

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13.2.4 Limitation 1 By s 21(3) Limitation Act 1980 ‘action by a benefi ciary to recover trust property or in respect of any breach’ must be brought within six years. 2 There are certain exceptions: O where the benefi ciary’s interest is in the future e.g. Cattley v Pollard (2006); O where the benefi ciary lacked capacity to bring the action earlier; O where the action by the benefi ciary involves fraud by the trustee but this exception does not apply where the dispute does not involve proprietary rights ( Halton International Inc and another v Guernroy Ltd (2006)); O where the action involves trust property converted to trustee’s use.

13.2.5 Tracing as a proprietary remedy 1 Applies where e.g. a trustee has insuffi cient funds to make good a loss arising from a breach of trust, or intermingled the fund with his own: O and personal remedy against trustee is no good where trustee has insuffi cient funds, or against insolvent trustee. Or where fund is intermingled, or where benefi ciary has no right to profi ts, because claimant has no greater rights than other creditors. 2 So it involves tracing the trust property into its changed form. 3 Because remedy is in rem rather than in personam, right to trace is not lost merely because of trustee’s insolvency – the right taking priority over unsecured creditors: O and allows property to be traced even where form of property has changed; O and can take advantage of increases in value of property; O and interest is from date property came into the defendant’s hands where in personal action is from date of judgment.

13.2.6 Tracing in common law 1 At common law a beneﬁ ciary may trace trust property as long as it is still identiﬁ able and unmixed with other funds (Taylor v Plumer (1815)) – and common law tracing applies to chattels particularly.

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2 And this applies even where the property has been transferred to a third party (Banque Belge v Hambrouk (1921)) or has been used to purchase other property ( Taylor v Plumer ). 3 And where trustee has invested property at a proﬁ t, tracing extends to proﬁ t as well as original property ( Trustees of the Property of FC Jones v Jones (1997)). 4 But unlike in equity, common law tracing not allowed where trust property has become mixed and is therefore unascertainable (Agip (Africa) Ltd v Jackson (1990)).

13.2.7 Tracing in equity 1 Usually by benefi ciaries against trustees because in common law benefi - ciaries have no interest in trust property as against the trustees. 2 Three basic conditions for tracing to apply in equity: O claim must be founded on an initial fi duciary relationship; O there must be property in a traceable form; O it must be equitable to trace. 3 What is a ‘fi duciary relationship’ has been widely drawn by courts, e.g.: O executors of a will and residual benefciaries (Re Diplock (1948)); O a bank receiving money from another bank under a mistake of fact ( Chase Manhattan Bank v Israel–British Bank (1981)). 4 Unless property is in a ‘traceable form’ remedy is unavailable because ‘equity does nothing in vain’ – see Re Diplock (1948). 5 If the fund remains unmixed the claimant can trace it: O and if it has been sold then the claimant may take the proceeds; O and if proceeds are used to buy other property can take that or use it as security for amount of trust fund (Re Hallett’s Estate (1880)). 6 If fund has become mixed, still can trace if property remains identifi able: O ‘If a trustee amalgamated trust property with his own, the benefi ciary will be entitled to every portion of the property which the trustee cannot prove to be his own’: Ungoed-Thomas J in Re Tilley’s Will Trust (1967); O so if the mixed fund is reduced below the amount of the trust fund then that part of the trust fund must have been spent; O later payments in are not treated as repayments by trustee – so to trace must ascertain what is the ‘lowest intermediate balance’;

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O if trustee becomes bankrupt after wrongly mixing trust funds with own funds tracing benefi ciaries can trace to gain priority over other creditors – but if funds lawfully mixed then cannot ( Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd (1986)); O where property is purchased with a mixed fund, part the trust’s and part the trustee’s, the benefciary can claim a proportionate share of the property or claim a lien upon it prior to a personal claim (Foskett v McKeown (2000)). 7 Where trustee in breach of trust has transferred property to third party whether tracing can apply depends on who third party is: O cannot trace against bona fi de purchaser for value without notice; O if third party is an innocent volunteer then tracing possible because (s)he takes subject to trust, provided benefi ciary shows a proprietary interest and property is in traceable form; O but if full restitution inequitable doctrine of ‘change of position’ may provide defence to tracing (Lipkin Gorman v Karpnale Ltd (1991)). 8 In Foskett v McKeown (2000) Lord Millet in obiter condemned the need for proving a fduciary relationship for equitable tracing, and suggested that tracing is in fact a process not a remedy so that ‘one set of tracing rules is enough’.

Z 13.3 Equitable remedies – injunctions

13.3.1 Introduction 1 As an equitable remedy, injunctions: O arise from the power to act in personam ; O can result in contempt of court if not complied with; O are at the discretion of the court. 2 They may be perpetual, interim or ancillary. 3 Granted by High Court by s 37(1) Supreme Court Act 1981 ‘in all cases in which it appears just and convenient to do so’. 4 County Court has similar powers but cannot issue search orders or freezing injunctions. 5 In South Carolina Insurance v Assurantie Lord Brandon identiﬁ ed where to grant injunction:

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i ) where one party has invaded or intends to invade an enforceable legal or equitable right; ii) where behaviour of party against whom injunction is sought is unconscionable.

13.3.2 Types of injunctions 1 Prohibitory injunctions must be distinguished from mandatory: O prohibitory – prevent breach of a legal or equitable right; O mandatory – rarely granted as impose positive obligations and hard to enforce – but prohibitory with positive effect has been granted ( Sky Petroleum Ltd v VIP Petroleum Ltd (1974)). 2 Perpetual injunctions (ﬁ nal relief) should be distinguished from interim (interlocutory – before Woolf reforms): O perpetual would settle the dispute – so only granted where damages is an inadequate remedy; O interim are granted where claimant might suffer irreparable harm if forced to wait for main action. 3 Quia timet injunctions – granted when no harm has yet been caused but claimant is trying to prevent future infringements of his rights: O can be both prohibitory and mandatory; O and perpetual or interim; O claimant must show very strong probability of future infringement of rights – Lord Upjohn in Redland Bricks Ltd v Morris (1970).

13.3.3 General rules in granting injunctions 1 Discretionary remedy – so only awarded where damages inadequate. 2 It is argued whether or not public interest should be considered – compare Miller v Jackson (1977) and Kennaway v Thompson (1981). 3 Failure to comply is contempt of court. 4 Will not usually be granted against the Crown (Crown Proceedings Act 1947) – but see Factortame (1990).

13.3.4 Perpetual injunctions 1 Not granted if damages is an adequate remedy. 2 With mandatory injunctions enforcement is the main problem:

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O two types: i ) remedy to restore claimant to position prior to damage – and prohibitory could have been granted if sought before wrongful act; ii) order is for defendant to carry out a positive act; O not granted if involve performing continuing positive obligations ( Gravesham Borough Council v British Railways Board (1978)); O extent of damage – and possible harm to defendant may be considered (Wrotham Park Estate v Parkside Homes Ltd (1974)). 3 Can grant injunction but suspend operation so defendant can comply with terms (Pride of Derby Angling Association v British Celanese and Others (1953)).

13.3.5 Interim injunctions 1 Can be prohibitory, mandatory or quia timet . 2 Granted subject to rule that nothing should be done that may prejudice fi nal outcome at trial or permanently damage position of either party. 3 Formerly based on showing – strong prima facie case of infringement of rights, damages inadequate, balance of convenience favoured grant. 4 Rules generally now in Lord Diplock’s test in American Cyanamid Co v Ethicon Ltd (1975): O court is satisfi ed claim is neither frivolous or vexatious; and O court is satisfi ed that there is a serious issue to try; O so test of whether injunction is granted is based on balance of convenience test; O as last resort only – court may consider relative strength of each party’s case. 5 Although Lord Denning preferred previous prima facie case approach ( Fellowes v Fisher (1975) and Hubbard v Pitt (1976)). 6 Generally, courts use balance of convenience test with no reference to merits of either party’s case ( Series 5 Software v Clarke (1996)).

13.3.6 Defences to claims for injunctions 1 Delay in seeking order by claimant: O so will not be granted if delay is unreasonable; O an acceptable delay is less for interim than for permanent relief;

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O but grant also depends on facts – compare Shepherd Homes v Sandham (1971) with Kelsen v Imperial Tobacco Co Ltd (1957). 2 Acquiescence: O the inference is that claimant has accepted interference with his rights ( Sayers v Collyer (1885)); O modern approach: i ) was defendant encouraged to believe he was entitled to act as he did? ii) if so, did this cause him detriment? iii) if so was it unconscionable for claimant then to assert his right? 3 Hardship to defendant: O can be taken into account, particularly with mandatory injunctions; O hardship can be avoided by granting injunction but suspending it. 4 Conduct of claimant: O all equitable maxims apply as remedy is discretionary; O so, e.g. claimant must come to court with clean hands.

13.3.7 Damages in lieu of injunctions 1 Now under s 50 Supreme Court Act 1981 court can award damages where none are available in law, e.g. quia timet . 2 So main requirement is that court has jurisdiction to grant injunctions. 3 Damages awarded according to conditions in Shelfer v City of London Electric Lighting Co (1895): O injury to claimant is only small; O injury is capable of assessment in monetary terms; O injury would be adequately compensated by a small payment; O case is one where it would be oppressive to grant an injunction.

Z 13.4 Equitable remedies – speciﬁ c performance

13.4.1 General principles 1 Equitable order of court that defendant should carry out terms of a contractual agreement.

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2 Granted at the discretion of court – so it is only allowed where: O contract already exists – because equity will not assist a volunteer; O some requirement in contract is yet to be performed; O damages inadequate – damages normally considered appropriate remedy so must be special circumstances; O the property under the agreement is unique; O the order can be overseen by the courts – compare Ryan v Mutual Tontine (Westminster Chambers) Association (1893) with Posner v Scott-Lewis (1987); O person seeking order must comply with equitable maxims and have performed or be ready to perform his side of the bargain; O must not cause hardship to other party ( Spiller v Bolton (1947)). 3 One signiﬁ cant restriction is order will not be granted without mutuality: O i.e. it will not be granted against one party unless it could also be awarded against the other (Price v Strange (1977)); O so this rule will be applied e.g. where the party seeking the order lacks capacity ( Flight v Bolland (1828)).

13.4.2 Defences 1 The court may exercise discretion to refuse speciﬁ c performance. 2 It may do so where: O order would cause real hardship ( Patel v Ali (1984)) or injustice as in mistake or misrepresentation (Webster v Cecil (1861)); O where claimant’s conduct is inequitable ( Quadrant Visual Communi- cations Ltd v Hutchinson Telephone (UK) Ltd (1991)); O in the case of laches or unreasonable delay ( Mills v Haywood (1877)) – although there is no statutory limitation period to bar a claim, time is generally not of the essence in equity, and there is no hard and fast deﬁ nition of what is an unreasonable delay; O property is misdescribed; O public policy dictates.

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Z 13.5 Equitable remedies – rescission 1 Rescission is possible where an agreement is based on: O a mistake not void by common law (Solle v Butcher (1950)); O a misrepresentation (Heilbut Symons & Co v Buckleton (1913)); O undue infl uence (Barclays Bank v O’Brien (1993)). 2 But bars to rescission include: O that restitutio in integrum is impossible ( Cheese v Thomas (1994)); O laches or unreasonable delay ( Allcard v Skinner (1887)); O acquisition of rights by innocent third party ( Re Eastgate (1905)); O affi rmation, e.g. by taking benefi ts (Peyman v Lanjani (1985)).

Z 13.6 Equitable remedies – rectiﬁ cation 1 This is an order of the court to correct an inaccurate document. 2 So it applies where ‘the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly’: Lord Denning in Frederick E Rose Ltd v William Pim Jnr & Co (1953). 3 So party seeking order needs convincing proof that document does not represent each party’s intentions ( Joscelyne v Nissen (1970)).

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Key Cases Checklist

13.1.5 Target Holdings v Redferns [1995] 3 All ER 785 HL Key Facts

An amount of £1.525 million was lent by the claimant mortgagees Target Holdings to a company to be secured on property which had been fraudulently made to appear to be worth £2 million, but in reality was worth £775,000. The defendants Redferns were a ﬁ rm of solicitors and were not party to the fraud but acted for both the purchasers and the mortgagees. The purchasers became insolvent and the property was repossessed by the mortgagees, the claimants. The claimants sued the solicitors for the shortfall between the money lent and the actual value of the property. It was held that although the solicitors had acted in breach of trust by paying out the mortgage funds without authority, they were not liable for the loss because it was not caused by the defendants. If the claimants had advanced the same amount of money they would have got the same security with or without the breach of trust by the defendants.

Key Law

Lord Browne-Wilkinson was concerned that the rules developed from traditional trusts should not be applied in the setting of a commercial trust. However, where the claimant can show that the loss would not have occurred but for the breach then the trustee would be liable for the total loss irrespective if the immediate cause of the loss was connected with a third party. This is because the common law rules of remoteness and causation do not apply.

Key Judgment

Lord Browne-Wilkinson: ‘. . . there does have to be some causal link between the breach of trust and the loss to the trust estate for which compensation is recoverable, viz the fact that the loss would not have occurred but for the breach.’

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13.2.2.1 Re Pauling’s Settlement Trusts [1964] Ch 303 CA Key Facts

A marriage settlement created in 1919 included an express provision that the trustees could advance up to one- half of the benefi ciaries’ presumptive share under the trust for their advancement or absolute use. Advances had been made by the trustees, who were the bank Coutts & Co. The benefi ciaries sued the trustees for breach of trust in advancing the shares to the benefi ciaries when the money had generally been paid not to them but into their mother’s bank account. The court held that the trustees were not liable because the benefi ciaries were all of age and had consented to the advances.

Key Law

A beneﬁ ciary can only consent if he/she is of full age and is not under any other incapacity and has full knowledge of the facts and consents freely.

13.2.1.7 Bahin v Hughes (1886) 31 Ch D 390 CA

Key Facts

A passive trustee sought an indemnity against a fellow trustee, who had invested funds in an unauthorised investment.

Key Law

Trustees are jointly and severally liable for a breach of trust and cannot claim to be indemniﬁ ed because they have not taken an active role in the breach of trust.

Key Judgment

Cotton LJ: ‘Miss Hughes was the active trustee and Mr Edwards did nothing and in my opinion it would be laying down a wrong rule that where one trustee acts honestly though erroneously the other trustee is to be held entitled to indemnity who by doing nothing neglects his duty more than the acting trustee . . .’

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13.2.1.5 Head v Gould [1898] 2 Ch 250 HC

Key Facts

A solicitor and a beneﬁ ciary were appointed as trustees of a trust. A number of breaches of trust occurred and the lay trustee claimed to be indemniﬁ ed by her co-trustee. The court found that she was aware of the circumstances of the breaches of trust and had actively encouraged her co- trustee to commit the breach of trust. They held that she could not claim an indemnity from her co-trustee.

Key Law

A lay trustee can claim to be indemniﬁ ed where one trustee is a solicitor and has exercised such a degree of inﬂ uence over the other trustee that the other trustee has been unable to exercise an independent judgment.

Key Judgment

Kekewich J: ‘A man is not bound to indemnify his co-trustee against loss merely because he was a solicitor, when that co- trustee was an active participator in the breach of trust complained of, and is not proved to have participated merely in consequence of the advice and control of the solicitor.’

Key Comment

The rule in Chillingworth v Chambers lays down that where a trustee who is also a benefi ciary participates in a breach of trust, he may not claim a share in the trust estate until he has made good his liability as trustee. The benefi ciary trustee must indemnify his co-trustee to the extent of his benefi cial interest. However, if the loss exceeds the benefi - cial interest, the trustees will share the excess loss equally between them.

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13.2.1.2 Armitage v Nurse [1998] Ch 241 (see above, Chap 9) CA

13.2.3.2 Walker v Stones [2000] 4 All ER 412 (see above, Chap 9) CA

13.2.6.1 Taylor v Plumer (1815) 3 M & S 562 CA

Key Facts

Sir Thomas Plumer gave a sum of money to Walsh, his stockbroker, expressly to be invested in Exchequer bonds. Walsh used the money to purchase American bonds and bullion. Ownership in the American bonds and the bullion was disputed between Plumer and Walsh’s trustee in bankruptcy. The property was held to belong to Plumer.

Key Law

Property can be traced at common law where there has been a clean substitution of the property and it has not been mixed with any other property.

Key Judgment

Lord Ellenborough: ‘It makes no difference in reason or law into what other form, different from the original, the change may have been made . . . for the product or the substitute for the original thing still follows the nature of the thing itself . . .’

13.2.6.2 Banque Belge pour L’Etranger v Hambrouck [1921] 1 KB 321 CA Key Facts

A man unlawfully obtained cheques from his employer and paid them into his bank account. The money was then passed to his mistress, who in turn paid it into her own bank account. It was held that the money could be traced at common law into her account.

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Key Law

There was nothing to prevent tracing at common law into a bank account if the funds had not been mixed with other moneys.

13.2.6.3 Trustee of the Property of FC Jones and Son (a ﬁ rm) v Jones [1996] 3 WLR 703 CA Key Facts

One partner in a ﬁ rm of potato growers took £11,700 from the partnership and transferred it to his wife, who used it to purchase potato futures, which increased in value to £50,760. The partnership was adjudicated bankrupt and the trustee in bankruptcy claimed he was entitled to both the sum taken from the partnership account as well as the proﬁ t generated. The trustee in bankruptcy could trace the whole sum at common law. There had been no mixing of the fund in the bank account.

Key Law

Once the claimant could show he/she was entitled to the property at common law then he/she would be entitled not only to trace the property into any exchange product, but also to trace any proﬁ t made from it.

Key Problem

If Mrs Jones had had £1 of her own money in the account, then there would have been no right to trace at common law. There would have been no right to trace in equity either, because there was no ﬁ duciary relationship between the trustee in bankruptcy and Mrs Jones.

13.2.7.5 Re Hallett’s Estate (1880) 13 Ch D 696 CA

Key Facts

Mr Hallett was a solicitor. He mixed funds from a trust with his own personal money in a money account. On his death there was insufﬁ cient money in his account to pay his debts and to return the money in full to the trust.

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Key Law

Where a trustee or fi duciary has mixed his funds with that of the benefi ciary, or has purchased further property with a mixed fund the following principles apply: i) the benefi ciaries are entitled to a charge on the fund in order to satisfy their claim; ii) if a trustee withdraws money for his own purposes he is deemed to draw out his own money fi rst, so that the benefi ciaries can claim the fund as against the general creditors.

13.2.7.6 Foskett v McKeown [2001] 1 AC 102 HL

Key Facts

Mr Murphy held over £2.7 million as trustee for various investors in a property development scheme in Portugal but the land was purchased and never developed. The funds of the investors were dissipated and were used partly to pay premiums towards a life insurance policy for £1 million taken out on Mr Murphy’s life in 1986. He paid the ﬁ rst three premiums but in breach of trust the investor’s funds were used to pay the remaining two premiums in 1989 and 1990. Mr Murphy committed suicide in 1991 and the insurance company paid out £1 million. Mr McKeown acted on behalf of the investors, who claimed that they should be able to claim a share in the monies from the life insurance policy.

Key Law

At ﬁ rst instance Laddie J held that the claimants were entitled to a lien on the proceeds equivalent to their contribution, which was 54.46 per cent. The Court of Appeal held the claimants were only entitled to recover the premiums paid with their money, amounting to approximately £20,000. The House of Lords, reinstating the decision of the court at ﬁ rst instance, held that the depositors could trace into the premiums paid as the money had been used to purchase an asset (the policy) and then into the chose in action which was the policy and then into the proceeds of the insurance policy.

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Key Judgment

Lord Millett: ‘Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneﬁ ciary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money. It does not matter whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments out of the differently owned funds to acquire a single asset.’

Key Problem

It was assumed that the reason why the investors were successful was because the proceeds could not be paid unless all the premiums were paid, but this was not true since the money was payable on the receipt of one premium only. However, if Mr McKeown had failed to pay all the premiums then the insurance company would not have been bound to honour the policy.

Re Oatway [1903] 2 Ch 356 HC Key Facts

A trustee withdrew funds from a mixed bank account and invested it. He then withdrew the remaining funds in the account and dissipated it. The beneﬁ ciaries could claim rights in the asset purchased by the trustee.

Key Law

The benefi ciaries’ claim must fi rst be satisfi ed from any identifi able part of the mixed fund before the trustee could claim any part of it for him/herself.

13.2.7.6 Re Tilley’s Wills Trust [1967] Ch 1179 HC

Key Facts

Small sums from a trust fund had been paid into a bank account by an executrix of an estate. The executrix herself

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had a life interest. She had used these funds, along with an overdraft facility at the bank, to purchase property, which had increased in value. On her death the increase in value of the properties was claimed by those entitled to the estate. The court held that the trust money had not been used for the purchase of the property but instead it had been used towards the reduction of the overdraft. The beneﬁ ciaries were only entitled to the return of their money with interest.

Key Law

Where a trustee uses trust monies to purchase an asset then the beneﬁ ciaries are entitled to choose either to claim a charge over the asset or to a claim for the proportional increase in the value of the asset.

Key Comment

This case clearly states that it is not possible to trace into an overdrawn bank account because the payment merely goes towards a reduction in the overdraft, which is itself a debt owed to the bank. Where property is used to discharge a debt the law holds it has been dissipated as there is no asset remaining that could constitute the beneﬁ ciaries’ property.

Barlow Clowes International Ltd (In Liquidation) and Others v Vaughan and Others [1992] 4 All ER 22 CA Key Facts

After the Barlow Clowes investment company collapsed the company owed over £115 million. The court decided not to apply Clayton’s Case but to share the assets pari passu .

Key Law

The court held that they were at liberty to depart from the rule when they felt that it would work injustice. In this case the investment fund was regarded by the investors as a common pool and so it was fairer to apply pari passu , allowing them all to recover some of their money back.

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Key Judgment

Woolf LJ: ‘The rule need only be applied when it is convenient to do so . . . it is not applied if this is the intention or presumed intention of the beneﬁ ciaries. The rule is sensibly not applied when the cost of applying it is likely to exhaust the fund available for the beneﬁ ciaries.’

13.2.7.4 Re Diplock [1948] Ch 465 CA

Key Facts

A large trust fund was left by Caleb Diplock for various charitable causes. The fund was distributed to the charities but when challenged by the next of kin, the beneﬁ ciaries under the estate, it was found to fail as a charitable trust on strict construction of the wording of the trust document. The next of kin could recover the property through tracing since the charities were in the position of innocent volunteers.

Key Law

The charities were held strictly liable to account as constructive trustees for the amounts even though they had acted entirely innocently. However, the beneﬁ ciaries had ﬁ rst to exhaust all their personal remedies against the executors who had wrongly paid the funds to the charities

13.3.4.2 Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798 HC Key Facts

A number of houses had been built in contravention of a restrictive covenant. An application was made for a mandatory injunction.

Key Law

This was not granted by the court because they felt it would be ‘a waste of much needed houses’. Instead, damages were granted which were substantially more than that which would have been granted at common law, because the actual loss to the claimant was purely nominal, as the value of his own house had not been reduced.

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13.3.5.4 American Cyanamid Co v Ethicon Ltd [1975] AC 295 HL Key Facts

The case concerned an application for an injunction to restrain the infringement of a patent. It was held that there was no rule which required the claimant to prove a prima facie case.

Key Law

A number of factors must be taken into account before a court will grant an interlocutory injunction: i) Is there a serious issue to be tried? The claim must not be frivolous or vexatious. ii) The balance of convenience. The court must weigh the balance of convenience between granting and refusing an injunction. iii) Other factors to be taken into account.

Mareva Compania Naviera SA v International Bulk Carriers SA [1975] 2 Lloyd’s Rep 509 CA Key Comment

It was ﬁ rst introduced as a ‘Mareva injunction’ after the decision in the above case; now it has been renamed a freezing order under the Civil Procedure Rules. The order freezes assets, preventing the defendant from dissipating or removing them from the jurisdiction.

Derby & Co v Weldon [1990] Ch 48 CA

Key Law

The courts are prepared to grant a world- wide order under very strict conditions. The claimant must show that any English assets are insufﬁ cient and that there are foreign assets and there is real risk of dissipation if the foreign assets are not frozen.

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Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55 CA Key Law

This is an order requiring the defendant to permit the claimant to enter the defendant’s premises for speciﬁ ed purposes. This is usually for the preservation of evidence. There are three conditions for granting such an order: i) strong prima facie case; ii) serious potential damage; iii) real possibility evidence will be destroyed. A further condition was added later that an order would do no real harm to the defendant.

13.4.1.2 Ryan v Mutual Tontine Westminster Chambers Association [1893] 1 Ch 116 CA Key Facts

The defendants had agreed to provide a porter for a block of residential ﬂ ats which they owned.

Key Law

A decree of speciﬁ c performance was refused, because it would involve constant supervision by the court.

13.4.1.2 Posner v Scott-Lewis [1987] Ch 25 HC

Key Facts

The defendants had covenanted to provide a residential porter purely for maintenance and cleaning of the property.

Key Law

This was enforceable by a decree of speciﬁ c performance because it did not require constant supervision in order to be enforced and it was felt that the remedy of damages was inadequate.

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Mistake

13.4.2.2 Webster v Cecil (1861) 30 Beav 62 HC

Key Facts

A offered to sell B some property for £1,250. This was a mistake as he had intended to sell at £2,250. B agreed to buy at £1,250.

Key Law

The court refused to grant an order for speciﬁ c performance and A was not compelled to sell at that price because there had been a genuine mistake, known to the claimant.

Hardship

13.4.2.2 Patel v Ali [1984] Ch 283 HC

Key Facts

Mr and Mrs Ali had exchanged contracts with Mr and Mrs Patel, agreeing to sell them their house. A series of events, including the bankruptcy of Mr Ali and his subsequent imprisonment, Mrs Ali then contracting cancer leading to the amputation of a leg just before the birth of their second child and followed by the birth of a third child, meant they could not complete.

Key Law

The court did not grant an order for speciﬁ c performance because of the hardship that it would cause them.

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acceptance: secret trusts 78–9 secret trusts 72–3 accessory liability 96–7 see also child benefi ciaries accounts, trustee duties to provide Benjamin orders 20, 35, 166 7, 174 breach of trust 208–37 Administration of Estates Act 1925 159 capacity to creat trust 15, 16 administrative unworkability 21, 39 certainty 15, 18–21 advancement defi nition of 26, 27 and maintenance, trustee of intention 18–19, 26, 26–7 powers of 187, 192–6, objections to non-charitable 197 purpose trusts 41–2 presumption of, and rebuttal of objects 20–1, 26, 35–40 104, 110–11 of subject matter 19–20, 26, amateur sports trusts 150 31–5 animal maintenance trusts 43, 49–50 charitable trusts 11 animal welfare trusts 133–4, 150 audited accounts 174 Anton Piller orders 8 charitable objects 126, 129–35, apportion, trustee duty to 173 143–51 armed forces/emergency services exclusivity of 136–7 trusts 134 essential requirements 128–9 arts trusts 149–50 failure see cy-près ascertainable benefi ciaries 42 history of 127–8, 142–3 asset collection, trustee duty to 166 and other trusts, difference between 128 benefi ciaries political element 135, 150–1 deemed to have given public benefi t 126, 135–6, considerations 65–6 148–9, 152–4 discretionary trusts 83 trustee choice of investment 172 express private trusts 15 wholly and exclusively charitable failure to give consideration 66 126 general duties of trustees to 165, Charities Act 2011 129, 133, 140, 172–4 141 missing: fi xed trusts 26, 35–6 chattels 19, 57, 59, 60 purpose trusts 42 tracing 211

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trustee power to sell 189 restrictive 6 child benefi ciaries trusts of benefi t of 66–7 maintenance duty of trustee Crown, as trustee 158 193–4 custodian trustee 158 variation of trusts 200 cy-près children/minors cases 153–4 protection of interests 11 common law 137–9 trusteeship 158 initial failure 137–8, 139 capacity 16 non-chariable alternatives 139 clean hands 5, 12, 13 statutory 139, 140–1 clubs see unincorporated subsequent failure 139, 140 associations co-ownership of land 11 damages 216 see also family home, trusts of death communication: secret trusts 77–8 donatio mortis causa 59, 68–9 community, purposes benefi cial to termination of trusteeship 161 133–5 trusts for saying masses 43, 50 constitution of trusts debentures 168 declaration of self as trustee 56, delay defeats equity 4, 12 58, 63–4 delegation of trustee powers 171, enforcement 56, 58–9, 65–6 187, 191–2 exceptions to rule that equity disclaimer: termination of will not assist volunteer trusteeship 160–1 56, 59–60, 66–9 discretionary trusts 20–1, 26, formalities 56, 57, 60–2 36, 44 general 57 administrative unworkability constructive trusts 85, 93–8, 103, 21, 39 113–14 exhaustive 84–5 general 93 interests of benefi ciaries 83 implied co-ownership under operation of 83 101–2, 103, 115–16, 118 purpose of 82–3 involving strangers 96–8, discretions, trustee duty to exercise 109–10 167, 177 new model 98 dishonest assistance/accessory remedial 103, 113 liability 96–7, 120–1 traditional categories 94–6 dispositions of existing equitable trustee duties 93–4 interests 15, 17, Contracts (Rights of Third Parties) 23–5 Act 1999 59 distribution convert, trustee duty to 172–3 of funds, unincorporated copyright transfer 57 associations 46 Court of Chancery 3–4 trustee duty 166–7 covenant donatio mortis causa 59, 68–9

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easements 6 Family Law Act 1996 100 educational trusts 130–1, 134, fi duciary duties 165, 174–7, 135–6, 146–8 182–6 and personal nexus rule 152–3 constructive trusts 94 emergency services/armed forces incidental (secret) profi ts 176–7, trusts 134 181–2 enforcement of trusts 56, 58–9, as purchasers of trust property 64–6 175–6 equality, equity is 5 remuneration and Equality Act 2010 91 reimbursement of equitable interests 2, 6 trustees 174–5 dispositions of existing 15, 17, fi xed trusts 20, 34–6 23–5 fraud, prevention of 5, 12, 13–14, equitable maxims 1, 4–6, 12–13, 18 18, 22–3, 73, 76 equitable remedies 1, 7 freezing injunctions 8 see also specifi c remedies equitable right, existing 5 gifts equity certainty of objects test 21, defi nitions of 4 37–9 history of 1, 2–8, 12 formalities 16 investment 168 of land vs personalty 22 , 103, scope for expansion and 109–10 development 8 made to unincorporated ethical investments 172 associations 44–6 exhaustive discretionary trusts 84–5 health/life-saving trusts 148 express (private) trusts human rights trusts 150–1 capacity 15, 16 disposition of existing equitable improper motive 91–2 interests 15, 17, 23–5 in personam 4 failure of 88–9 information, trustee duty to provide formalities 16 accounts and 7, 174, and prevention of fraud 18, 180–1 22–3 injunctions land trusts 16–17 damages in lieu of 216 valid formation 22 defences to claims for see also certainty 215–16 freezing (Mareva ) 8 fair apportionment principle 102 general rules in granting 214 family home, trusts of 86, 98–9 interim 214, 215 implied co-ownership 98–9 perpetual 214–15 constructive trust 101–2, types of 214 103, 115–16, 118 insure, trustee powers to 190 resulting trust 99–100 intangible property 32–4

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intention power of trustees to compound certainty of 18–19, 26, 27–31 190–1 not form, equity looks to 4, 12, lien 6 18 loans 168 secret trusts 79–80 security for 10 interim injunctions 214, 215 Lord Chancellor 3 investment 165, 167–2, 178–81 basis of trustee’s duty 167 maintenance and advancement, choice of 172 trustee powers of 187, express powers 168–9 192–6, 197 statutory powers Mareva injunctions 8 development of 169 marriage settlement 58, 64–5 Trustee Act 2000 170–1 mental incapacity 16 types of 168 minors see children/minors unauthorised 172, 173 missing benefi ciaries: fi xed trusts 26, investment trusts 10, 168 34–5 mortgage redemption 6 judicial trustees 158 multiple trustees 58 mutual wills 94–5 killing, acquisition of property by 95 knowing receipt and dealing/ NHS trusts 10–11 recipient liability 97–8 nominees in property transfers 11 non-charitable purpose trusts 11, land 40, 47–50 co-ownership of 11 exceptions to rule against 43 conveyance 57 general 41 investment 170 modern position 43–4 protection of minor’s interests objections to 41–2 11 vendor 95 objects, certainty of 20–1, 26, 36–40 vs personalty 22 , 103, 109–10 old and disabled, trusts for 133 land trusts 15, 16–17 ostensible benefi ciary 72–3 resulting 90 trustee powers 187, 189 partners of constructive trustee, law, equity follows 6 liability of 98 Law of Property Act (LPA) 1925 16, pension funds 10 17, 90, 96, 158, 160 surplus funds 104 liability trustee duties 168, 174 for breach of trust 208, 209 perpetual injunctions 214–15 defences 210 Perpetuities and Accummulations exclusions 210 Act 1964 139 constructive trusts involving perpetuity rule 42 strangers 96–8, 109–10 personal liability see liability

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personal nexus rule 153–4 restrictive covenants 6 personalty, land vs 22 , 103, 109–10 resulting trusts 86, 87–92 policy: purpose trusts 42 automatic 88, 103, 105–6 political element: charitable trusts failure of express trust 88–9 135, 150–1 failure to dispose of entire poverty relief trusts 129–30, 143–4 benefi cial interest 89–90, property 103, 107–8 intangible 32–4 general 87–8 ownership disputes 12 implied co-ownership under tangible 32–3 99–100 trustee duties/powers 166–7, presumed 88, 103 177–8 presumption of purchasing 175–6 advancement and rebuttal of selling 189–90 104, 111–12 vesting 157, 160 purchase in name of others proprietary estoppel 60 92, 112–13 protective trusts 11, 82, 84 rebuttal of 91–2, 104, 113 public benefi t: charitable trusts 126, voluntary conveyances 135–6, 148–9, 152–3 90–2 Public Trustee 158 retirement of trustee 161 purpose trusts objections to 40, 41–2 saying masses, trusts for 43, 50 see also non-charitable purpose search orders 8 trusts; unincorporated secret (incidental) profi ts 176–7, associations 182 secret trusts 12 Quistclose case/trust 14, 88, 89 background 72 as constructive or express trusts rebuttal of presumption see under 96 resulting trust fully 71, 72–3, 75, 76, 77, 78, 79, receipts, trustee power to give 190 80, 81 recipient liability 97–8 general 71 recission 7, 218 half 71, 73, 75, 76, 77, 78, 80 Recreational Charities Act 1958 theoretical basis 71, 74–5 134–5 security for loans 10 rectifi cation 7, 218 sham intention 30 religious trusts 131–2, 136, 147–8 shares 57, 62, 168 remedial constructive trusts 103, small charities 141 113 specifi c performance 7 remedy, no wrong without 5 principles and defences removal of trustee 161 216–17 remuneration/reimbursement of sports/recreational facilities trusts trustees 174–5 134, 149–50

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strangers, constructive trusts maintenance and advancement involving 96–8, 109–10 187, 192–6, 197 subject matter, certainty of 19–20, trustees 26, 31–5 appointment 157, 159–60 declaration of self as 56, 58, tangible property 32–3 63–4 tax exemptions 128 eligibility 157, 158–9 tax saving 12 number of 158 third party trustees 58, 61 personal remedy against tombs and monuments, trusts for 209–10 43, 48 selection of 157, 160 tracing 7, 208 standard of care/conduct 157, in common law 211–12 161–2, 163–4 in equity 212–13 termination of 157, 160–1 as proprietary remedy 211 vesting of trust property 157, trade union funds 11 160 trust corporations 158 trusts Trustee Act 2000 170–1 classifi cation 1, 9–10 trustee duties context of 2, 10–12 to benefi ciaries 165, 172–4 defi nition of 1, 8–9 to apportion 173 nature of 8 to convert 172–3 Trusts of Land and Appointment to provide accounts and of Trustees Act 1996 information 7, 174, (TOLATA) 189 180–1 to property unauthorised investment 172, 173 asset collection 166 unconscionability 62 distribution 166–7 unincorporated associations 11, 40 exercise discretions 167, charitable 156 177–8 distribution of funds 46 see also fi duciary duties; funds held by 46 investment gifts made to 44–6 trustee powers 188 nature of 44 delegation 171, 187, 191–2 surplus funds 89–90 and duties, difference between unit trusts 10, 168 188 general 187, 189–91 variation of trusts to compound liabilities court’s jurisdiction 198, 199, 203 190–1 need for 199, 202 to give receipts 190 purpose of 198 to insure 190 statutory powers 198, 199–200 to sell trust property 189–90 Variation of Trusts Act 1958 199, land trusts 187, 189 200–1, 202–8

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vesting of trust property 157, 160 and non-volunteers, voluntary arrangements with enforcement of trusts 56, creditors 10 58–9, 65–7 volunteer(s) equity will not assist 5 wealth preservation 12 exceptions 56, 59–60, 66–9 Wills Act 1837 16, 72, 73, 74

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