衡平法和信托法简明案例s Briefcase on and Trust

Third Edition Gary Watt , MA ( Oxon), Solicitor

武 汉 大 学 出 版 社

本 书 导 读

信托制度起源于中世纪英国的 衡平 法 , 因为 当时英 国普 通法院 不承 认 受益人依赖于受托人获得的权利 , 而衡 平法 院则 总是通 过对 受托人 施加 衡 平法上的义务来支持这种权利的。 它是 英美 法系一 个独 特的制 度 , 在大 陆 法系中几乎找不到一个与之相对应的制度。又由于信托制度是建立在双重 所有权观念基础之上的 , 即受托 人享有 普通 法上 的所有 权而 受益人 享有 衡 平法上的所有权 , 所以坚持一物 一权主 义的 大陆 法国家 在接 受和移 植该 制 度的时候难免与英美法中该制度有所差异。对于学习信托法的人来说有必 要参考一下英美法学者有关信 托法的 论著。 本书就 是这 样一 本案例 教材 , 作者在理论和实务的基础上运用各 种案 例讲 述了信 托法 的基本 制度 , 这 对 于我们这些长期接受大陆法系理论教育的人来说的确是一种很新颖的教学 方式。 本书既介绍了衡平法与信托法 的历 史沿 革 , 也介绍 了它 们最近 的一 些 最新发展。全书分为六个部分 , 第一部分主要是介绍衡平法和信托法 ; 第二 部分则叙述了明示信托的设立 , 该部分又分了 8 节 , 逐一介绍了设立明示信 托行为能力与要式的要求 , 确定 性的 要求 , 赠 与的完 成与 信托的 设立 , 永 久 权与信托设立时的公共政策限制 , 目 的信托 , 公益信 托和 特殊种 类信 托 ; 第 三部分探讨了明示信托变更 的各 种方 式以及 1958 年信 托变 更法中 对于 变 更的要求 ; 第四部分则分析了受托人的地位和职责 , 同时也分析了类似于受 托人的人的地位和义务 , 该部分 又分 6 节 , 逐 一介绍 了受 托人 的职的 任命 , 受托人的职的履行 , 受托人的义 务 , 受托 人投 资的权 利及 义务 , 抚养 与预 付 以及信托违约的抗辩与免除 ; 第 五部分 则把 重点 放在拟 制信 托与回 归信 托 之上 , 讲解了推定的回归信托 , 自动的回归信托 , 地产的拟制信托 , 拟制信托 受托人的义务 , 陌生人作为拟制信托的受托人等许多内容 ; 最后作者谈到了 追及与衡平法上的救济 , 在讲到追及的时候既谈到了普通法上的追及 , 又谈 到了衡平法上的追击 , 在讲衡平 法上的 救济 的时 候则讲 到了 衡平法 上对 于 实际履行的救济和衡平法上的禁令。 本书作 为介 绍 英国 信托 法律 制度 的 基本 读物 , 内容 简明 扼要 , 通俗 易 懂。作者理论联系实际 , 借助丰富翔实的案例 , 深入浅出地勾勒出了英国信 托法的基本框架制度。这对于我们 开展 比较 研究 , 理解 和掌 握英国 美法 系

1 相关法律知识 , 借鉴和学习英美法系相对成熟的法律制度是大有裨益的。 本书中文目录、法规一览表、术语及索引部分由武汉大学民商法博士研 究生王茂祺翻译并整理 , 纰漏之处在所难免 , 希望广大读者多提宝贵意见。

译 者 2004 年 4 月

2 Glos sar y 术 语

Abbot t Fund, Re: Two old ladies 两个老年妇女 � Abergavenny’s ( Marquess of) , Re : Advancement used up 预付已用完 Abrahams, Re: 25 year old infant ? 25 岁的婴儿 ? Abrahams v Trustee in Bankruptcy of Abrahams: Lottery result 彩票获奖了 Adams, Re: Accidental residue 意外的剩余遗产 Adams and the Kensington Vestry, Re: Confidence in wife 信任妻子 Adam & Co Ltd v Theodore Goddard: Adam and God: two needed 亚当与上 帝 : 两者都需要 Agip v Jackson: Tunisian bank 突尼斯银行 Air Jamaica Ltd v Charlton: Perpetual pension 永久的养老金 Andrews v Partington: Close class gift 对亲近群体的赠与 Andrew’s Trust, Re: Educate bishop’s children 教育主教的孩子 Anker-Petersen v Anker-Petersen: 57 variation 按 照信 托 法 ( 1925 年 ) 第 57 条所作的遗嘱变更 Astor , Re: Observer newspaper 观察者报 Armitage v Nurse : Exclusion clause 排除条款 AG v Blake: Secret memoirs 秘密论文集 AG v Cocke: No limitation for charity 慈善机构不受时效限制 AG for Hong Kong v Reid: Bribe 贿赂

BCCI , Re : Worldwide Mareva 国际马勒瓦禁令 Baden’s DT , Re (No 1) : Discretionary trust test made 自由裁量信托要求的 满足 Baden’s DT , Re ( No 2) : Discretionary trust test used 自由裁量信托要求 的 使用 : Knowledge by degrees 因为社会地位而明知 Bahin v Hughes: No sleeping trustees 不能有睡着不管事的受托人 Balfour’s Settlement, Re:‘Bal-forfeiture’of protection 保护性信托被剥夺 Bali’s Settlement , Re : Substratum test 信托基础的检验标准

213 Banner Homes v Luff Developments: Bent joint venture 扭曲的合资企业 Bannister v Bannister: Undervalued cottage 估价过低的房子 Banque Belge v Hambrouck: Thieving cashier 出纳盗走雇主的钱 Banque Financèi re v Parc: Subrogation remedy 代为清偿救济 Barclays Bank v Quistclose: Debt become trust 债务转变成信托 Barings ST , Re : Protection lost abroad 潜逃国外而导致保护性信托的丧失 Barlow Clowes v Vaughan: Pari passu preferred 根据 原始 投资 的多 寡按 比 例分配资金的办法更受欢迎 Barlow’s W T , Re : Painting friends 画友“( 朋友”的定义) Barnes v Addy: Assistant and receipt 协助与接受 Barralet v AG: Ethical society 道德团体 Bartlet t v Barclays Bank: Guildford and Old Bailey 吉尔 德 福德 与 欧德 贝 里 (两处的公司) Bateman’s W T , Re : Sealed envelope 密封盖章的信封 Beckett’s Settlement , Re: Discretion is only hope 自由裁量是惟一的希望 Bell’s Indenture, Re: Toll at judgment day 在审判日鸣钟 (对赔偿的估定 � 应在法庭裁判之日决定) Belmont Finance v Williams Furniture: Know no evil 无过错 Berkeley Applegate, Re: Do equity 按照衡平法行事 Best , Re : Charitable and benevolent 慈善(机构) Beswick v Beswick: Coal black widow 煤矿商的寡妇 Bishop v Bonham: Mortgagee thinks fit 抵押权人认为合适 Bishopsgate Investment v Homan: Tracing overdrawn 透支追及 Bishopsgate Investment v Maxwell (No 2 ) : Joint breach 共同违约 Blackwell v Blackwell: The half secret five 半秘密信托中的五人 Boardman v Phipps: Shrewd solicitor stung 精明的律师被敲诈 Boles and the British Land Company’s Contract , Re : Sale after 12 years � 12 年后的地产出卖 Borden v Scottish Products: Nothing to trace 无法追及 Boscawen v Bajwa: Subrogation 代位清偿 Bowes, Re: No trees please 请不要种树 Bowman v Secular Society: No political charity 无政治性的慈善机构 Boyes, Re : Fully secret letters 完全保密的信件 Bray v Ford: Inflexible profits rule 弹性利润规则

214 Brink’s v Abu-Saleh (No 3) : Bullion heist to Zurich 被劫掠到苏黎世的金条 Bristol and West v Mothew : defined 受托人的含义 British Coal v British Coal Staff Superannuation Scheme: Trustee of own pen- sion 自己养老金的受托人 Brogden, Re: ￡18 ,000 in 1888 1888 年的一万八千英镑 Bucks Constabulary Widows and Orphans Fund, Re: Police widows and or- phans 警察遗孀与孤儿 Butterworth, Re : Defraud creditors 欺诈债权人 Buttle v Smmders: Gazumped 房价谈妥后又抬价改售(抬价敲诈)

Cannon v Hartley: A party in deed 合同中的一方当事人 Carl Zeiss v Herbert Smith: Claim no knowledge 声明不知晓 Carreras Rothmans v Freeman Mathews Treasure: Cigarette advertising 香 烟 广告 Chapman v Chapman: Compromise dispute 争议的妥协 Chase Manhattan Bank v Israel-British Bank : Bankers’expensive mistake 给 银行带来巨大损失的错误 Chichester Diocesan Fund v Simpson: Charitable or benevolent 慈善(机构) Churchill, Re: Maintain intention 抚养的意图 Clayton’s Case: First in, first out 首先转入 , 首先转出 Clifford’s ST , Re: Class in perpetuity 永久权群体 Clore’s ST , Re: Dad’s charity 父亲的慈善机构 Cohen, Re: Poor relations 贫困的亲戚 Cohen’s ST , Re: No unborn variation 不允许为未出生的人而作出变更 Cole, Re: Husband’s furnished flat 丈夫装饰好的公寓 Collard’s WT , Re : Capital circular 资本循环 Columbia Picture v Robinson:‘ Star wars’pirate“s 星球大战”被盗版 Comiskev v Bowring-Hanbury: Full confidence in wife 对妻子完全信任 Commissioners for Spedal Purposes of the Income Tax v Pemsel: Four heads of charity 慈善机构之四要件 Conservative and Unionist Central Office v Burrell: Tory party club 保守党俱 乐部 Cook’s ST , Re: Rembrandt re-sold 转卖的伦勃朗的油画 Cotdthurst, Re: Bankers’widows 银行家们的遗孀

215 Cowan v Scargill: Arthur’s argument 阿瑟的理由 Cowan de Groot v Eagle Trust: High bird, low price 好东西 , 低价格 Coxen, Re: Aldermen’s dinner 阿德曼的晚餐 Cradock v Piper: Solicitor-trustee fees 律师受托人的费用 Cunnack v Edwards: Widows all dead 寡妇全部死亡

Dale, Re: Mutual will for others 相互遗嘱 D’Angibau, Re: Volunteer’s indirect benefit 无偿受让人的间接利益 Danish Bacon, Re : Pension nomination 养老金提名 Davis v Richards and Wallington: Surplus to employer 剩余分配给雇主 Dawson, Re: Sixty year old mum 60 岁的母亲 Dean, Re: The horse and hounds 马与猎狗 Delamere’s ST , Re : Indefeasible decision 不可抗拒的决定 Delius, Re: Composed charity 作曲家财产的公益依托 Denley’s TD, Re: Employees’sports club 雇员体育俱乐部 Derby v Weldon ( Nos 3 and 4 ) : Panamanian Luxembourg 起诉 巴拿 马和 卢 森堡的两家公司 Diggles, Re: Desire of daughter 女儿的要求 Dimes v Scott : No set off 不许抵销 Dingle v Turner Poor employees 贫困的雇员 Diplock, Re: Recover from charity 从慈善机构取回无效遗赠 Douglas, Re: Churchyard maintenance 教堂庭院的维护 Dover Coalfield, Re : Director’s profit authorised 得到授权的主管的利润 Downshire , Re : No remoulding benefit 不能改变信托的利益 Drexel Burnham Lambert, Re: Trustee-beneficiaries approved 被认 可的受 托 人的受益人 Druce’s ST , Re : Beneficiaries should apply 受益人应适用 Duke of Norfolk’s ST , Re: Court authorised remuneration 经 过 法院 授权 了 的报酬 Dupree’s DT , Re: Chess tournament 象棋比赛 Duxbury’s Settlement Trusts, Re: Has to be public trustee 必须 是公共受 托 人

EVTR, Re: Premium bond winner 以资金代息储蓄债券的获奖者

216 Eagle Trust v SBC: Need knowledge 需要明知 Edge v Pensions Ombudsman: Impartial pension 公平的养老金 Edwards v Carter: Infancy incapacity 无缔约能力的未成年人 Endacott , Re: Some useful memorial 一些有用的纪念物

Faraker , Re: Mrs Bailey’s Charity 贝利夫人的慈善机构 Finger’s W T , Re: Charitable purpose or person ? 为慈善目的还是为特定 人 之利益 ? Foskett v McKeown: Suicidal policy 自杀者的保险单 Foster v Spencer: That’s cricket 那是公正的行为 Fowkes v Pascoe: Paxo stock 帕科索股票 Frawley v Neill: Proceeds without delay 马上进行 Fry, Re : Treasury consent 财政部的同意 Fry v Tapson: Londoner in Liverpool 在利物浦的伦敦人

GKN Bolts and Nuts Sports and Social Club, Re: A wind up 停止清理 ; 破产 Gaite’s WT , Re: Illegitimate child, legitimate gift 私生子 , 合法的馈赠 Gascoigne v Gascoigne: Improper use of wife 妻子对预付推定的不当利用 Geering, Re: Deferred contingent bequest 延迟的期待性遗赠 Gibbon v Mitchell: Surrender forgiven 因错误而让与财产的契约法院宣布无 效 Gillingham Bus Disaster Fund, Re: Cadets killed 死亡的军官学校学生 Gillott’s Settlement , Re : Appoint a new husband 任命一个新丈夫 Gilmour v Coats: Cloistered nuns 隐居的修女 Gisborne v Gisborne : Absolute discretion 完全的自由裁量 Goodchild v Goodchild: Son claims mutual wills 儿子主张相互遗嘱的权利 Golay’s WT , Re: A‘reasonable’decision 一个合理的决定 Goldcorp Exchange , Re : Bullion customers 金条消费者 Goulding v James: Benefits of variation 变更的利益 Grant’s WT , Re : Labour party club 劳动党俱乐部 Grey v IRC: Six settlements 六个遗赠契约 Grove-Grady, Re: Animal refuge 动物庇护 Guild, Re: Recreational charity 娱乐性慈善机构 Guinness v Saunders: Guinness cost ￡5 .2 m 吉尼斯花了 520 万英镑

217 Gulbenkian’s Settlements, Re: Individual ascertainability 个人的确定性 Gwyon, Re: Knickers for boys 男孩子穿的短裤

HRT v Alsford Pension Trustees: Pension 养老金欺诈 Hadden, Re: Recreation of Vancouver and Nottingham 温哥华与诺丁汉的娱 乐 Hallett’s Estate, Re: Trustee’s monies used first 先使用受托人的钱 Halifax Building Society v Thomas: Doubtful Thomas 疑心的托马斯 Hamilton, Re : Precedent not conclusive 先例并不是决定性的 Hancock v Watson: Trust engrafted onto gift 信托转换成赠与 Harari’s ST , Re: Construction of investment clause 投资条款的解释 Hardoon v Belilios: Expenses claim 费用索赔 Hardy v Shaw: Wide advancement 广泛的预付 Hargreaves, Re: Remote appointment fails 间接指定无效 Harmer v Armstrong: Copyright contract or trust ? 版权合同还是信托 ? Harries v Church Commissioners for England: Ethical investment 道德投资 Harwood, Re: Peace Society of Belfast 贝尔法斯特的和平团体 Hastings’Bass, Re : Three discretionary questions 三个自由裁量的问题 Hay’s ST , Re: Powers 权力 Hayim v Citibank: American lost property 美国人损失财产 Haynes WT , Re : Marriage covenant forfeiture 婚姻契约扣押 Head v Gould: Retiring disgracefully 有失体面地卸职 Henderson, Re: Out of retirement 不卸职 Henley v Wardell: Will power and consent 遗嘱权利与同意 Hetherington, Re: Left for dead 为死者保留的 Holder v Holder: Trustee tenant holds on 受托共有人继续占有 Holt’s Settlement, Re: Unborn risk taker 将来风险的承受人 Hooper , Re: Vault through window 窗户上的拱顶 Hooper v Rogers: Bulldozing in farm 在农场里挖深坑( 影响了别人农舍的地 基) Hopkins’WT Re : Shakespeare’s Bacon 为资助对培根有关论述 莎士比亚 戏 剧的手稿进行研究所作的公益信托 Hopkinson, Re: Educate Labour Party 捐赠给劳动党的教育基金 Howlett , Re: Infant to let 对于租金有利益的未成年人

218 Hunter v Moss: Share and share alike 股份与类似股份 Hutton v Wafting: Seven year hitch 七年的障碍

Incorporated Council of Law Reporting AG: Law reports 法律报告 IRC v Baddeley: West Ham methodist 西汉姆的卫理公会派教徒 IRC v Bernstein: No advance on accumulation 积累之上无预付 IRC v Broadway Cottages Trust: Fixed list 混合名单 IRC v Hohnden: Bound by consent 因同意而受限制 IRC v McMullen: FA youth 足协青年信托

Jackson, Re: Estate of disrepair 失修的不动产 Jaffa v Taylor Galleries: Copy of painting 绘画复制品 James, Re : Strong v Bird administration Strong 诉 Bird 案规则的适用 Jobson v Palmer: Paid for same job 由于相同的工作受的报酬 Johnson v Agnew: Election precedent(不一致救济的)选择的先例 Jones, Re: Maintain up to 25 抚养到 25 岁 Jones v Jones: Potato futures 土豆期货 Jones v Lock: Bouncing baby cheque 对于未成年人开出的支票的退票 Joseph Rowntree Memorial Trust v AG : Old folks’homes 老年人之家

Kay’s Set tlement , Re: Don’t sue 不要起诉 Kayford, Re: Mail order 邮购 Keech v Sandford: Trustee of freehold 不动产受托人 Keen, Re: Delivered too early 过早交付 Kershaw v Whelan ( No 2) : Solicitor fraud laches 由于律 师欺诈而 造成的 延 迟 Khoo Tek Keong v Ch’ng Joo Tuan Neoh: Personal jewellery 个人珠宝 King, Re: Stained surplus 为安装彩色窗户而使用的剩余财产 Kinloch v Secretary of State for India: Spoils of war 战争的破坏 Knight v Knight : Two knights, three certainties 两 个 骑 士 ( 两 个 叫 Knight 的人) , 三个确定性 Knocker v Youle : Youle have interest Youle 有利益 Koeppler’s WT , Re: German project 德国项目

219 Laing’s Set tlement , Re: Authoried personal loan 授权的个人贷款 Lambe v Eames: Illegitimate of Lambe 立嘱人 Lambe 亲生子的私生子 Last, Re: Last wish to Crown 对国王最后的希望 Leahy v AG for New South Wales: Nuns and monks 修女和修士 Lemann’s Trusts, Re : Court to Lemann’s aid 法院对于 Lemann 的帮助 Letterstedt v Broers: Hostility in Broers’war 受益人之间的敌意 Lipinski’s WT , Re: Anglo-Jewish youth 英国犹太青年 Lipkin Gorman v Karpnale: Playboy club 花花公子俱乐部 Llewellin’s WT , Re: Trustee directors’salaries 受托人主管的报酬 Lloyds Bank v Rosset : Lord Bridge’s home loan Bridge 勋爵的家庭贷款 Locker’s ST , Re: Tardy distribution 迟延的分配 London Wine Co, Re: Which bottles ? 那一瓶 ? Londonderry’s Settlement , Re : Can’t see reason 没有理由 Lonrho v Fayed ( No 2 ) : Undertaking to minister 对部长的保证 Lord and Fullerton’s Contract , Re: Partial disclaimer 部分拒绝 Lucking’s WT , Re: No deposit 无储蓄 Lysaght , Re: Royal College of Surgeons 皇家外科医生学院

Mac-Jordan Construction v Brookmount Erostin: Property development con- tract 房地产开发合同 McArdle, Re: ’Ard luck sibling 麦克· 阿德幸运的兄弟 McCormick v Grogan: No malus animus 无恶意 McGeorge, Re: Deferred residuary realty 迟延的剩余不动产 McGovern v AG: Amnesty International 国际特赦 McPhail v Doulton ( Re Baden’s Deed Trusts ( No 1 ) ) : Discretionary trust test made 自由裁量信托要求的满足 Mallot v Wilson: Disclaimer after constitution 设立后的拒绝 Mara v Browne: Trustee de son tort 因侵权而成的拟制受托人 Mareva Compania Naviera v International Bulk Carriers: Mareva injunction 国际马勒瓦禁令 Marsden v Regan: Ought fairly to be excused 应被合理地免除 Massingberd’s Settlement , Re: Replace original investments 取代 原 来 的 投 资 May’s WT , Re: War in Belgium 比利时的战争

220 Mead’s TD, Re: Printers’union 印刷工人工会 Medlock, Re : Maintain separate fund 保持独立基金 Mercedes-Benz v Leiduck: Worldwide Mareva 国际马勒瓦禁令 Metall und Rohstoff v Donaldson Lit-kin and Jenret te Inc: Tort of assisting breach 协助违约造成的侵权 Mettoy v Evans: Dinky toys 小汽车玩具 Meux’s WT , Re: Infant of 53 受 53 条保护的未成年人 Milroy v Lord: Declare self or transfer 自己主张或者主张转让 Molyneux v Fletcher: Advance debt to trustee 受托人的预先债务 Moncrieff’s ST , Re : Adopted son 养子 Montagu’s ST , Re : Duke of Manchester 曼彻斯特公爵 Moore , Re : Zambesi tomb(维护 )远在非洲赞比西河边的坟墓 Mussoorie Bank v Raynor: Act justly 公正行事 Morice v Bishop of Durham: Objects of benevolence 慈善的对象 Moss, Re: Cats and kittens 猫与小动物 Mulholland’s WT , Re: Bank sells to itself 银行的自己交易 Multi Guarantee, Re: Electrical appliances 电子仪器

National Anti-Vivisection Society v IRC: Can’t change law 不能改变法律 Nelson v Rye: Pop star accounts 流行歌手的账户 Nestle v National Westminster Bank : Complacent bank 未尽注意的银行 Neville Estates v Madden: Synagogue 犹太教会堂 Neville v Wilson: Trust in wind up 终止的信托 New, Re: Emergency reorganisaton 紧急重组 Niyazi’s WT , Re : Cypriot hostel 塞浦路斯人旅店

Oatwas, Re : Charge on shares 股票的税收 Oliver , Re: Deferred residuary bequest 迟延的剩余遗产 Oppenheim v Tobacco Securities: Teach toddlers tobacco 对英美烟 草公司 职 员子女教育(的捐赠) O’Rourke v DarbJshire: Professional privilege 职业特权 Osoba , Re : Daughter’s university grade 女儿的大学教育 O’Sullivan v Management Agency: Gilbert O’Sullivan 艺 术 家吉 尔 伯 特· 奥 素丽文

221 Ottaway v Norman: Housekeeper bungles bungalow 女 管家没有 按协议移 交 房屋 Oughtred v IRC: Shares stamp duty 股票印花税 Oxford Group v Inland Revenue Commissioners: Religious bodily functions 宗 教实体功能(而申请所得税的免除)

Palmer v Emerson: Butcher’s mortgage 屠户的抵押 Parsons, Re: Infant to appoint 待指定的未成年人 Partington, Re: Trustee under influence 受影响的受托人 Paragon Finance plc v DB Thakerar & Co (A Firm ) : No trust if right to mix 如果权利混合则无信托 Paul v Constance : She Paul, he Constance 夫妻共同的银行账户 Pauling’s S T , Re: Advancement by Coutts 库茨银行所为的预付 Pearkes v Moselev: Define class 群体的定义 Peczenik’s ST , Re: No use and enjoyment 不允许使用和享乐 Peffer v Rigg: Register in trust 信托中的房产注册 Pilkington v IRC: Advancement by resettlement 通 过 重 新 设 定遗 嘱 而 为 的 预付 Piller (Anton ) v Manufacturing Processes: Anton Piller injunction Anton Piller 禁令 Pinion, Re: Atrocious artist 画艺不精的画家 Plumtre , Re : Voluntary marriage covenant 自愿的婚姻协议 Polly Peck v Nadir (No 2 ) : Cypriot bank 塞浦路斯的银行 Power’s ST , Re : Power to fill vacancy 填补空缺的权利 Protheroe v Protheroe: Freehold from lease 因租赁而产生的完全保有地产 Pryce, Re: No indirect constitution 不允许间接地设立信托 Putlan v Koe : Party to contract 合同当事人

R v District Auditor ex p West Yorkshire Metropolitan County Council: Ad- ministrative unworkability 信托管理的不可执行 Rabin v Gerson: Irrelevant opinion 不相关的看法 Raine, Re: Income on pecuniary legacies 金钱遗产所产生的收益 Ralli’s WT , Re: I’s husband is two I 的丈夫有双重受托人身份 Ransome’s W T , Re: Contrary intention 相反的意图

222 Reading v AG: Uniform profits 因服役而得的收益 Recher’s WT , Re: Contract anti-vivisection 反活体解剖合同 Redland Bricks v Morris: Pit excavation 挖坑( 导致泥土流失) Remnant’s ST , Re: Anti-Roman Catholic 反对 (孙子)信奉罗马公教 Resch’s WT , Re: Private hospital 私人医院 Richards v Delbridge: Endorsement on deed 契约背书 Robinson, Re: Insurance 保险 Roper’s Trusts, Re: Fanny Keech 芬尼· 凯奇 Rose , Re : Mad March transfer 三月份所做的疯狂的股权移转 Rosenthal, Re : Where loss falls 损失由谁承担 Rowntree ( Joseph ) Memorial Trust v AG : Old folks’homes 老年人之家 Royal Brunei Airlines v Tan Kok Ming: Tricky travel agent 狡猾的旅游代理 商 Rymer , Re: St Thomas’Seminary 圣托马斯神学院

Salusbury v Denton: Objects severed 分割的对象 Sander’s WT , Re : Welsh working class 威尔士的劳工阶级 Sargeant v National Westminster Bank: Trustee tenants’triumph 受托 共 有 人的胜利 Saunders v Vautier: Majority rules 多数规则 Scarisbrick’s WT , Re : Needy relations 贫困的亲戚 Scottish Burial Reform and Cremation Society v Glasgow Corporation: Charity fourth head for dead 为死者设立慈善机构的四要件 Selangor United Rubber v Cradock : Cheque bounces bank 支票退票银行 Sen v Headley: Dead lock 僵局 Sharpe, Re: Stale demand 过实效的请求 Sharpe, Re: No remedial trust 无救济的信托 Shaw , Re: Forty letter alphabet 有四十个字母的字母表 Simpson v Simpson: Mental incapacity 精神上无缔约能力 Sinclair v Brougham: Clayton’s case swept aside 在克 雷 顿 案中 设 立的 规 则 被推翻 Somerset v Earl Poulett: Consent to authorised investment 对已 取 得授 权 的 投资的同意 South Tyneside Metropolitan Borough Council v Svenska: Interest swap en-

223 richment 利息换得富裕生活 Speight v Gaunt: Stuff manufacturer 原料生产商 Steele’s W T , Re: Exact precedent 准确的先例 Stephenson ( Inspector of Taxes) v Barclays Bank: Saunders v Vautier applied 在 Saunders 诉 Vautier 案中设立的规则被适用 Stewart, Re: Strong bonds 因 Strong 案之规则而取得的债券 Strakosch, Re: Dutch South Africa 荷属南非 Strong v Bird: Release of debt 债务免除 Suffert’s Settlement , Re : Spinster aged 61 61 岁的未婚女士 Swain v The Law Society: Solicitors indemnity fund 律师赔偿基金 Swindle v Harrison: Solicitors loan for hotel 律师对于旅店的借贷

T’s ST , Re: Immature daughter 未成年的女儿 Tang Man Sit v Capacious Investments: Election 选择 Target Holdings v Redferns: Common sense causation 常识中的因果关系 Tempest, Re: Court appointment 法院指定 Thompson, Re: Fox hunting 猎狐 Thompson’s Settlement , Re : Self and fair dealing 自我公平交易 Thomson v Eastwood: Time bar versus express trust 时间限制对明示信托 Thomson’s Estate , Re : Anything remaining 剩余物 Thorne v Heard: Tale of two mortgagees 两个受押人的故事 Thornton v Howe: Joanna Southcote 乔安娜· 索思科特 Tiger v Barclays Bank : Cat-a-log 信托管理目录 Tilley’s WT , Re : Profit from mix 混合的利润 Tinker’s Settlement , Re: Settlor tried to tinker 遗嘱人试图改变遗嘱 Towndrow, Re: Trustee legatee glee 受托的遗产受赠人受保护 Tribe v Tribe : Father won with son 父亲对儿子的胜诉 Turkington, Re : Trustee club members 受托人俱乐部成员 Tylel . Re: Highgate cemetery 海格特墓地

United Mizrahi Bank Ltd v Doherty: Solicitor takes risk 律师承担风险

Vandervell’s Trusts ( No 2 ) , Re: Option for children 为孩子而作的选择 Vandervell v I RC: Chair in the air 悬而未决的教授职位

224 Vinogradoff , Re: Result of stock gift 股票赠与的结果

Walker v Stones Independent : Genuinely dishonest 完全不诚实 Wallersteiner v Moir: A case of interest 一个关于权益的案子 Wassell v Leggatt: Husband deprives wife 丈夫剥夺妻子的钱财 Waterman’s WT . Re: Bank’s special duty 银行的特殊义务 Watson, Re: Religious tracts 教会土地 West , Re : Other funds maintain 用其他基金维持抚养和教育的费用 Westdeutsche Landesbank Girozentrale v Islington LBC: No result of interest 利息无结果 West Sussex Constabulary’s Widows, Children’s and Benevolent Fund, Re: Raffles 抽彩 Weston’s Settlement , Re: Sad Jersey 悲伤的泽西 Wheeler and De Rochow , Re: Replace bankrupt trustee 替换破产的受托人 Whiteley, Re: Moral obligation 道德义务 Wilkes v Allington: Mortgage mortis 临终前所作的抵押 Williams, Re: Will wishes of wife 为妻子设立的遗嘱 Williams v Barton: Commissioned trustee 受委托的受托人 Williams v Scot t: Rescind purchase off trustee 废 除基 于 作 为受 托 人而 从 信 托财产中取得所有权而作的买卖 Wills’W T , Re: Twin benefits 双胞胎的利益 Wilmer’s Trusts, Re : Tail short enough 男性后代太少 Wilson, Re : No school today 今天不上学 Wilson v Law Debenture Trust : Pension without reason 没有理由的养老金 Wilson v Turner: Thoughtless decision 欠考虑的决定 Wright v Morgan: What might be done 可能已经做过的

Yeap Cheah Neo v Ong Chen Neo: Ancestor worship 祖先崇拜 Young, Re: Distressed gentlefolk 变得贫困的上流人士

225 T able of S tatutes 法 规 一 览 表

Appointment Act 1870 指定法 (1870 年) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 153

Charitable Trusts ( Validation) Act 1954 慈善信托( 确认)法( 1954 年 ) � s 1 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 61 Charitable Uses Act 1601 慈善用途法( 1601 年) ⋯⋯⋯⋯ 61 - 63 , 69, 75 Charities Act 1960 慈善机构法 (1960 年) ⋯⋯⋯⋯⋯⋯⋯⋯⋯ 65 , 66, 81 � s 4 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 67 s 38 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 61 Charities Act 1993 慈善法( 1993 年 ) � s 13 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 81 s 13 (1 ) ( d) , ( e) , ( 2) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 82 s 14 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 81 Civil Liability (Contribution) Act 1978 民事责任(归责 )法 � ( 1978 年 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 171 Contracts ( Rights of Third Parties) Act 1999 合同法(第三人权利) � ( 1999 年) s 1( 1) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 183 Cruelty to Animals Act 1876 虐待动物法( 1876 年) ⋯⋯⋯⋯⋯⋯⋯⋯⋯ 77 Family Law Reform Act 1969 家庭法改革法(1969 年) s 1 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 8, 12 , 151 Finance Act 1910 金融法 (1910 年) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 9

Hague Convention on the Law Applicable to Trusts and on Their � Recognition 海牙信托确认及法律适用公约 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 2 Income and Corporation Taxes Act 1970 收入及公司税收法 � (1970 年) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 54 s 526 (5 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 54 Inheritance (Provision for Family and Dependants) Act 1975 遗产法 � (家庭及被扶养人条款) (1975 年) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 16

25 Land Registration Act 1925 土地登记法 (1925 年) � s 19( 1) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 32 Law of Property Act 1925 财产法(1925 年) � s 1 (6 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 8 s 52( 1) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 32 s 53 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 8, 16 s 53( 1) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 10 s 53( 1) b ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 34 s 33( 1) (c) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 9 - 12, 33 ,178 , 179 s 53( 2) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 10 s 60( 3) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 176 s 136 (1 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 33 s 164 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 47 s 164 (1 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 46 s 165 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 47 s 175 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 148 - 51 s 175 (1 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 148 Limitation Act 1939 时效法( 1939 年 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 167 Limitation Act 1980 时效法( 1980 年 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 166 - 168 � s 21 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 165 s 21 (1 ) ( a) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 166 s 21 (1 ) ( b) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ I67 s 21 (3 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 168 s 28 (1 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 165 s 32 (1 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 166 s 36 (1 ) 第 36 条(1 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 168

Marriage Act 1929 婚姻法( 1929 年 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 42 Married Women’s Property Act 1882 已婚妇女财产法 (1882 年) ⋯⋯ 134 �

Official Secrets Act 官方秘密法 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 128

Perpetuities and Accumulations Act 1964 永久权及积累法 � ( 1964 年) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 43, 47

26 s 1 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 43, 44 s 2 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 44 s 3 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 44, 45 s 4 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 45, 46 s 5 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 46 Public Trustee Act 1906 公共受托人法 (1906 年) � s 1 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 105 Recognition of Trusts Act 1987 信托确认法 (1987 年) ⋯⋯⋯⋯⋯⋯⋯⋯ 2 � Recreational Charities Act 1958 娱乐性慈善机构法( 1958 年) ⋯⋯⋯⋯ 68 � s 1 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 75 s 1 (1 ) , (2 ) (a) , (3 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 76

Set tled Land Act 1925 土地遗产法 (1925 年) � s 64 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 90 Solicitors Act 1974 律师法( 1974 年) � s 37 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 3 ,4 Solicitor’s Indemnity Rules 1975 律师赔偿规则 (1975 年) ⋯⋯⋯⋯⋯⋯ 3 � Stamp Act 1891 印花税票法( 1891 年) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 9 Supreme Court Act 1981 最高法院法 (1981 年) s 37 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 208

Trustee Act 1893 受托人法(1893 年) � s 10 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 102 Trustee Act 1925 受托人法( 1925 年) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 106 � ss 8, 9( 1) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 142 s 31 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 147 , 159 s 31( 1) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 149 , 152 , 160 s 31( 1) (ii) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 149 , 150 , 160 s 31( 3) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 148 , 151 s 32 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 154 , 155 , 159 s 32( 1) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 153 , 154 s 32( 1) (c) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 157 s 33 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 83 s 36( 1) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 101 - 04 , 106

27 s 36( 6) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 102 , 105 ss 37 , 39( 1) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 106 s 41 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 108 s 41( 1) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 103 s 53 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 90, 91 , 147 s 57 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 90 s 61 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 142 , 159 , 172 , 173 s 62( 1) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 173 s 68( 17 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 2 s 69( 2) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 149 , 159 , 160 Trustee Act 2000 受托人法(2000 年) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 115 � s 1 (1 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 119 ss 3 - 6 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 140 ss 3, 7( 3) (a) , 8, 9 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 14I s 11 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 130 ss 12 , 14 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 131 s 15 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 131 , 132 ss 16 , 17 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 131 ss 19 , 22, 23 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 132 ss 24 , 26 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 133 ss 28 , 29 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 124 s 29( 6) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 125 s 31 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 123 Sched 1 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 119 Trustee Investment Act 1961 受托人投资法( 1961 年 ) � s 3 (1 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 143 Trusts of Land and Appointment of Trustees Act 1996 土地信托及 � 受托人指定法 1996 年 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 143 s 6 (4 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 142 s 19 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 104 , 107 s 19( 2) (a) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 107 ss 19 (2 ) ( b) , 20 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 104

Variation of Trusts Act 1958 信托变更法 �

28 (1958 年) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 84, 90 , 92, 93 , 95, 96 s 1 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 92, 97 s 1 (1 ) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 94 s 1 (1 ) ( a) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 94 s 1 (1 ) ( b) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 94, 95 s 1 (1 ) (c) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 95 Wills Act 1837 遗嘱法 (1837 年) ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 12 � s 9 ⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯⋯ 11, 12

29 Preface

In spite of its medieval origins, the trust concept boasts a multiplicity of modern uses. Accordingly, the aim of this book has been to focus upon a number of recent developments within the law of equity and trusts, while not neglecting their historical (mostly Victorian) background. This book is divided into six parts. Part 1 is an introduction to equity and trusts. Part 2 considers the setting up of express trusts. Part 3 details the ways in which an express trust may be varied. Part 4 examines the role of trustees, and of fiduciaries whose positions are analogous to those of trustees. Part 5 looks at resulting and constructive trusts and Part 6 considers tracing and equitable remedies. Each part is further subdivided into chapters, which reflect headings found in larger textbooks and typical subject areas in modern law degrees. Each chapter contains subheadings within which the case summaries are arranged in chronological order, the most recent cases appearing last. Although this book is primarily a collection of case summaries, it has been necessary to include extracts of certain crucial statutes. Where possible, these extracts have been included in paraphrased form, in which case they will appear in square brackets. This edition has been fully updated to include the Trustee Act 2000 and a number of significant recent cases including Foskett v McKeown; T Choithram International SA v Pagarani; Air Jamaica Ltd v Charlton; and Banner Homes Group plc v Luff Developments Ltd (No 1). Terminology has also been updated to reflect the changes introduced by the Civil Procedure Rules 1998. So, for example, ‘plaintiff’ becomes ‘claimant’ where appropriate. The reader will also note that the text is interspersed with guidance notes and questions, with a view to prompting reflective thought upon the materials. A book of this size cannot, however, hope to cover everything that might be covered in a larger book. As to which, my personal favourites are Graham Moffat’s Trusts Law: Text and Materials and Parker and Mellows’ The Modern Law of Trusts. I hope, therefore, that the reader will find this book not only a useful aid to understanding this area of law, but also an inspiration to undertake further study. You might even conclude, as I have done, that the flexibility and utility of equity goes beyond that of any other area of the law. After all, in which other area could the reader find Shakespeare and ‘Star Wars’, the composer Delius and the pop star Gilbert O’Sullivan, Arthur Scargill

iii BRIEFCASE on Equity and Trusts and Robert Maxwell, all within the covers of a single book? They are all to be found within the pages that follow, so pick up your briefcase and go to work!

Gary Watt 1 March 2001

iv Contents

Preface iii Table of Cases ix Table of Statutes xxi

Part 1 Introduction to Equity and Trusts

1 Defining Equity and Trusts 1 1.1 Understanding equity 1 1.2 Defining a trust 1

Part 2 Setting up a Trust

2 Capacity and Formality Requirements 7 2.1 Capacity 7 2.2 Formalities 8

3 Certainty Requirements 17 3.1 General 17 3.2 Certainty of intention 17 3.3 Certainty of subject matter 21 3.4 Uncertain subject matter may indicate uncertain intention 22 3.5 Certainty of object 23

4 Perfecting Gifts and Constituting Trusts 27 4.1 Perfecting a gift 27 4.2 Constitution of a trust 29 4.3 Constitution by transfer of legal title to trustees 29 4.4 Constitution by transfer where the subject of the gift or trust is an equitable interest 33 4.5 Constitution of a trust by declaration 34 4.6 Constitution of a trust by contract 34

v BRIEFCASE on Equity and Trusts

5 Perpetuities and Public Policy Limitations on the Formation of Trusts 39 5.1 The rules against perpetuities 39 5.2 The rule against remoteness of vesting 39 5.3 The rule against excessive accumulation of income 46 5.4 The rule against inalienability of capital 47 5.5 The rules against perpetuity and charities 47 5.6 The rules against perpetuity and pensions 48 5.7 Public policy 48

6 Purpose Trusts 49 6.1 Pure purpose trusts 49 6.2 Anomalous purpose trusts 50 6.3 A device for avoiding the rule against pure purpose trusts 50 6.4 Purpose trusts with indirect human beneficiaries 51 6.5 Gifts to unincorporated non-profit associations 53 6.6 Distribution of surplus donations 55 6.7 When is an unincorporated association wound up? 57

7 Charitable Trusts 59 7.1 The exclusivity requirement 59 7.2 The definition of charity 61 7.3 Recreational trusts 74 7.4 Trusts for political purposes 76 7.5 Cy près 79

8 Special Categories of Trust 83 8.1 Protective trusts 83 8.2 Asset-protection trusts 84 8.3 Pension fund trusts 87

Part 3 Varying a Trust

9 Variation of Trusts 89 9.1 Modes of variation 89 9.2 Variation under the Variation of Trusts Act 1958 92

Part 4 Filling and Fulfilling the Office of Trustee

10 Filling the Office of Trustee 101 10.1 General 101 10.2 The appointment of trustees 101 10.3 Disclaimer of the trust 105 10.4 Retirement from the trust 106 10.5 Removal of trustees 108 vi Contents

11 Fulfilling the Role of Trustee 111 11.1 Upon appointment 111 11.2 The fiduciary nature of trusteeship 111

12 Duties of Trusteeship 123 12.1 Duty to act gratuitously 123 12.2 The duty to provide personal service to the trust 130 12.3 The duty to exercise a sound discretion 134

13 The Trustees’ Powers and Duties of Investment 139 13.1 The judicial definition of investment 139 13.2 Trustee Act 2000 140 13.3 Investment in mortgages 141 13.4 Investment in land other than mortgages and long leases 142 13.5 Construction of trust instruments 143 13.6 Over-cautious investment? 143 13.7 Political and ethical investment 144

14 Maintenance and Advancement 147 14.1 Maintenance 147 14.2 Advancement 154

15 Breach of Trust: Defences and Relief 161 15.1 Trustees’ liability for breaches of trust 161 15.2 Defences 165 15.3 Relief from liability 170

Part 5 Resulting and Constructive Trusts

16 Resulting Trusts 175 16.1 General 175 16.2 Presumed resulting trusts 175 16.3 Automatic resulting trusts 178 16.4 A new orthodoxy for resulting trusts? 180

17 Constructive Trusts 183 17.1 Constructive trusts of land 183 17.2 Constructive trusts: rights or remedies? 184 17.3 The obligations of a constructive trustee 186 17.4 Strangers as constructive trustees 187

vii BRIEFCASE on Equity and Trusts

Part 6 Tracing and Equitable Remedies

18 Tracing 197 18.1 Tracing at 197 18.2 Equitable tracing 200

19 Equitable Remedies 207 19.1 The equitable remedy of specific performance 207 19.2 Equitable injunctions 208

Glossary 213

Index 227

viii Table of Cases

Abbott Fund, Trusts of the, Re [1900] 2 Ch 32 ...... 5, 19, 20, 51, 55, 180 Abergavenny’s (Marquess of) Estate Trusts, Re [1981] 2 All ER 643 ...... 158 Abrahams v Trustee in Bankruptcy of Abrahams [1999] BPIR 637 ...... 176 Abrahams, Re [1911] 1 Ch 108 ...... 151 Adam & Co International Trustees Ltd v Theodore Goddard (A Firm) (2000) 97(13) Law Soc Gazette 44 ...... 106 Adams and the Kensington Vestry, Re (1884) 27 Ch D 394, CA ...... 18 Adams, Re [1893] 1 Ch 329...... 148, 149 Agip (Africa) Ltd v Jackson and Others [1989] 3 WLR 1367...... 190, 197 Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 ...... 48, 87, 182 Andrews v Partington (1791) 3 Bro CC 401 ...... 42, 43, 45 Andrew’s Trust, Re [1905] 2 Ch 48...... 20, 51, 55, 176 Anker-Petersen v Anker-Petersen (1991) 16 LS Gaz R 32...... 90 Armitage v Nurse [1997] 2 All ER 705, CA ...... 120 Astor, Re [1952] Ch 534...... 49 Attorney General for Hong Kong v Reid [1994] 1 All ER 1, PC ...... 130 Attorney General v Blake [1998] 2 WLR 805, CA ...... 128 Attorney General v Cocke [1988] 1 Ch 414...... 167

Baden, Delvaux and Lecuit v Société Generale pour Favoriser le Dèvèloppement du Commerce et de l’Industrie en France [1983] BCLC 325 ...... 189 Baden’s Deed Trusts, Re (No 2) [1973] Ch 9, CA...... 25 Bahin v Hughes (1886) 31 Ch D 390 ...... 171 Balfour’s Settlement, Re [1938] Ch 928 ...... 83 Ball’s Settlement, Re [1968] 1 WLR 899...... 98 Banner Homes Group plc v Luff Developments Ltd (No 1) [2000] Ch 372, CA ...... 185 Bannister v Bannister [1948] 2 All ER 133, CA...... 183

ix BRIEFCASE on Equity and Trusts

Banque Belge pour L’Etranger v Hambrouck [1921] 1 KB 321, CA ...... 197 Banque Financière v Parc [1998] 2 WLR 475 ...... 202 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, HL...... 48, 84 Barings Settlement Trust, Re [1940] Ch 737 ...... 83 Barlow Clowes International Ltd (In Liquidation) v Vaughan [1992] 4 All ER 22, CA...... 204 Barlow’s Will Trust, Re [1979] 1 WLR 278 ...... 25 Barnes v Addy [1874] 9 Ch App 244 ...... 188, 193, 195 Barralet v Attorney General [1980] 3 All ER 918 ...... 66, 70, 72 Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515 ...... 118, 163, 170 Bateman’s Will Trust, Re [1970] 1 WLR 1463 ...... 15 BCCI (Bank of Credit and Commerce International) SA, Re [1994] 3 All ER 764, CA ...... 210 Beckett’s Settlement, Re [1940] Ch 279 ...... 157 Bell’s Indenture, Re [1980] 1 WLR 1217 ...... 163 Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250, CA ...... 189 Berkeley Applegate (Investment Consultants) Ltd, Re [1989] Ch 32 ...... 129 Best, Re [1904] 2 Ch 354 ...... 60 Beswick v Beswick [1968] AC 58, HL ...... 3, 10, 207 Bishop v Bonham [1988] 1 WLR 742, CA ...... 120, 143 Bishopsgate Investment Management (In Liquidation) v Homan [1995] All ER 347, CA ...... 204 Bishopsgate Investment Management v Maxwell (No 2) [1994] 1 All ER 261, CA ...... 171 Blackwell v Blackwell [1929] AC 318, HL ...... 14 Boardman and Another v Phipps [1967] 2 AC 56, HL ...... 127, 164 Boles and the British Land Company’s Contract, Re [1902] 1 Ch 244 ...... 107 Borden UK Ltd v Scottish Products Timber [1981] Ch 25, CA ...... 202 Boscawen v Bajwa [1995] 4 All ER 769, CA ...... 201, 202 Bowes, Re [1896] 1 Ch 507 ...... 51, 52, 55 Bowman v Secular Society Ltd [1917] AC 406 ...... 76 Boyes, Re [1884] 26 Ch D 531...... 13 Bray v Ford [1896] AC 44, HL ...... 123 Brinks Ltd v Abu-Saleh and Others (No 3) (1995) The Times, 23 October...... 193

x Table of Cases

Bristol and West Building Society v Mothew [1997] 1 Ch 1, CA ...... 112 British Coal Corp v British Coal Staff Superannuation Scheme Trustees Ltd [1995] 1 All ER 912 ...... 88 Brogden, Re (1888) 38 Ch D 546...... 111 Bucks Constabulary Widows and Orphans Fund Friendly Society, Re [1979] 1 WLR 936 ...... 56 Butterworth, Re (1882) 19 Ch D 588, CA ...... 48 Buttle v Saunders [1950] 2 All ER 193...... 117

Cannon v Hartley [1949] Ch 213 ...... 37 Carl Zeiss Stiftung v Herbert Smith & Co [1969] 2 Ch 276, CA...... 188, 189 Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd [1985] Ch 207...... 85 Chapman v Chapman [1954] AC 429, HL ...... 92 Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105 ...... 202 Chichester Diocesan Fund and Board of Finance (Inc) v Simpson [1944] AC 341, HL ...... 59, 200 Chillingworth v Chambers [1896] 1 Ch 685, CA ...... 172 Choithram (T) International SA v Pagarani [2001] 1 WLR 1...... 31 Churchill, Re [1909] 2 Ch 431...... 152 Clayton’s Case (1816) 1 Mer 572 ...... 203, 204 Clifford’s Settlement Trust, Re [1981] Ch 63...... 42, 43 Clore’s Settlement Trust, Re [1966] 1 WLR 955 ...... 155 Cohen, Re [1973] 1 WLR 415 ...... 64 Cohen’s Settlement Trust, Re [1965] 1 WLR 865 ...... 97, 98 Cole, Re [1964] Ch 175, CA ...... 32 Collard’s Will Trust, Re [1961] Ch 293...... 155 Columbia Picture Industries Inc v Robinson [1986] 3 All ER 338 ...... 212 Comiskey v Bowring-Hanbury [1905] AC 84, HL...... 18 Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531, HL ...... 62 Conservative and Unionist Central Office v Burrell [1982] 1 WLR 522, CA...... 54 Cook’s Settlement Trust, Re [1965] Ch 902 ...... 38 Coulthurst, Re [1951] Ch 661, CA ...... 62

xi BRIEFCASE on Equity and Trusts

Cowan de Groot Properties Ltd v Eagle Trust plc [1992] 4 All ER 700 ...... 192, 194 Cowan v Scargill [1985] Ch 270 ...... 88, 144 Coxen, Re [1948] Ch 747...... 60 Cunnack v Edwards (1896) 2 Ch 679, CA...... 55, 56

D’Angibau, Re (1880) 15 Ch D 228 ...... 35 Dale, Re [1993] Ch 31 ...... 16 Danish Bacon Co Ltd Staff Pension Fund Trusts, Re [1971] 1 WLR 248...... 11 Davis v Richards and Wallington Industries Ltd [1990] 1 WLR 1511...... 87 Dawson, Re (1888) 39 Ch D 155...... 40 Dean, Re (1889) 41 Ch D 552 ...... 50 Delamere’s Settlement Trust, Re [1984] 1 All ER 584, CA...... 153 Delius, Re [1957] Ch 299...... 67 Denley’s Trust Deed, Re [1969] 1 Ch 373 ...... 51–53 Derby & Co Ltd v Weldon and Others (Nos 3 and 4) [1990] Ch 65, CA ...... 210 Diggles, Re (1888) 39 Ch D 253, CA ...... 5 Dimes v Scott (1828) 4 Russ 195...... 170, 171 Dingle v Turner [1972] AC 601, HL...... 64 Diplock, Re [1948] Ch 465...... 49, 60, 200–02 Douglas, Re [1905] 1 Ch 279...... 69 Dover Coalfield Extension Ltd, Re [1908] 1 Ch 65, CA...... 125 Downshire SE, Re [1953] Ch 218 ...... 89, 90 Drexel Burnham Lambert UK Pension Plan, Re [1995] 1 WLR 32...... 115 Druce’s Settlement Trust, Re [1962] 1 WLR 363...... 93 Duke of Norfolk’s Settlement Trust, Re [1981] 3 All ER 220, CA ...... 126, 127 Dupree’s Deed Trusts, Re [1944] 2 All ER 443 ...... 68, 74

Eagle Trust plc v SBC Securities Ltd [1992] 4 All ER 488 ...... 191 Edge v Pensions Ombudsman [1998] 2 All ER 547 ...... 88 Edwards v Carter [1893] AC 360, HL ...... 7 Endacott, Re [1960] Ch 232, CA...... 21, 50 EVTR Ltd, Re [1987] BCLC 646, CA ...... 86

Faraker, Re [1912] 2 Ch 488, CA ...... 80 Finger’s Will Trust, Re [1972] Ch 286 ...... 81

xii Table of Cases

Foskett v McKeown [2000] 2 WLR 1299 ...... 205 Foster v Spencer, (1995) The Times, 14 June...... 126 Fowkes v Pascoe (1875) 10 Ch App 343, CA ...... 176 Frawley v Neill [2000] CP Rep 20 ...... 169 Fry, Re [1946] Ch 312...... 30 Fry v Tapson (1884) 28 Ch D 268...... 133

Gaite’s Will Trust, Re [1949] 1 All ER 459...... 41 Gascoigne v Gascoigne [1918] 1 KB 223 ...... 177 Geering, Re [1962] 3 All ER 1043 ...... 150 Gibbon v Mitchell [1990] 1 WLR 1304 ...... 84 Gillingham Bus Disaster Fund, Re [1958] Ch 300, CA ...... 55, 180 Gillott’s Settlement, Re [1934] Ch 97 ...... 36, 37 Gilmour v Coats [1949] AC 426, HL ...... 70–72 Gisborne v Gisborne (1877) 2 App Cas 300, HL ...... 134, 135 GKN Bolts and Nuts Sports and Social Club, Re [1982] 2 All ER 855 ...... 57 Golay’s Will Trust, Re [1965] 1 WLR 969 ...... 21 Goodchild v Goodchild (1998) The Times, 12 May, CA ...... 16 Goulding v James [1997] 2 All ER 239, CA ...... 95 Grant’s Will Trust, Re [1980] 1 WLR 360...... 53, 54 Grey v Inland Revenue Commissioners [1960] AC 1, HL ...... 9 Grove-Grady, Re [1929] 1 Ch 557, CA...... 72 Guild, Re [1992] 2 All ER 10, HL ...... 61, 76 Guinness v Saunders [1990] 2 WLR 324 ...... 164 Gulbenkian’s Settlements, Re [1970] AC 508 ...... 24 Gwyon, Re [1930] 1 Ch 225 ...... 62

Hadden, Re [1932] 1 Ch 133...... 75 Halifax Building Society v Thomas [1995] 4 All ER 673, CA ...... 185 Hallett’s Estate, Re (1880) 13 Ch D 696, CA ...... 203, 204 Hamilton, Re (1895) 2 Ch 370, CA...... 20, 21 Hancock v Watson [1902] AC 14 ...... 5 Harari’s Settlement Trusts, Re [1949] 1 All ER 430 ...... 143 Hardoon v Belilios [1901] AC 118 PC ...... 124 Hardy v Shaw [1975] 2 All ER 1052 ...... 155 Hargreaves, Re (1889) 43 Ch D 401 ...... 40, 41 Harmer v Armstrong [1934] 1 Ch 65...... 3 Harries v Church Commissioners for England [1992] 1 WLR 1241...... 145

xiii BRIEFCASE on Equity and Trusts

Harwood, Re [1936] Ch 285 ...... 80, 81 Hastings’ Bass, Re [1975] Ch 25, CA ...... 134–37, 154 Hay’s Settlement Trust, Re [1981] 3 All ER 786 ...... 4 Hayim v Citibank NA [1987] AC 730, PC...... 119 Haynes Will Trust, Re [1949] Ch 5...... 36 Head v Gould [1898] 2 Ch 250 ...... 107, 172 Heinl v Jyske Bank (Gibraltar) Ltd [1999] Lloyd’s Rep Bank 511 CA ...... 194 Henderson, Re [1940] Ch 764...... 108 Henley v Wardell (1988) The Times, 29 January ...... 157 Hetherington, Re [1990] Ch 1...... 72 Holder v Holder [1968] Ch 353, CA...... 113, 114, 170 Holt’s Settlement, Re [1968] 1 Ch 100 ...... 98, 99 Hooper v Rogers [1974] 3 WLR 329, CA ...... 209 Hooper, Re [1932] 1 Ch 38 ...... 50, 69 Hopkins’ Will Trust, Re [1965] Ch 669 ...... 65, 66 Hopkinson, Re [1949] 1 All ER 346 ...... 77 Howlett, Re [1949] Ch 767 ...... 167 HRT Ltd and Others v J Alsford Pension Trustees Ltd and Others (1997) 11(2) TLI 48...... 194 Hunter v Moss [1994] 3 All ER 215, CA ...... 22 Hutton v Watling [1948] Ch 26 (affirmed [1948] Ch 398, CA) ...... 207

Incorporated Council of Law Reporting for England and Wales (The) v Attorney General [1972] Ch 73, CA ...... 66 Inland Revenue Commissioners v Baddeley [1955] AC 572, HL ...... 75 Inland Revenue Commissioners v Bernstein [1961] Ch 399, CA ...... 160 Inland Revenue Commissioners v Broadway Cottages Trust [1955] Ch 20, CA ...... 23, 24 Inland Revenue Commissioners v Holmden [1968] AC 685 ...... 93 Inland Revenue Commissioners v McMullen [1980] 1 All ER 884, HL ...... 68, 74 Inland Revenue Commissioners v Oldham Training and Enterprise Council [1996] STC 1218 ...... 73

xiv Table of Cases

Jackson, Re (1882) 21 Ch D 786 ...... 91 Jaffa v Taylor Galleries Ltd (1990) The Times, 21 March ...... 33 James, Re [1935] Ch 449 ...... 28 Jobson v Palmer [1893] 1 Ch 71 ...... 117, 118 Joel’s Will Trust, Re [1967] Ch 14 ...... 153 Johnson v Agnew [1979] 2 WLR 487...... 165 Jones and Sons (A Firm) (Trustee of the Property of) v Jones [1996] 3 WLR 703, CA ...... 199 Jones v Lock (1865) 1 Ch App 25, CA ...... 17, 19, 34 Jones, Re [1932] 1 Ch 642 ...... 147, 151 Joseph Rowntree Memorial Trust Housing Association Ltd v Attorney General [1983] 2 WLR 284...... 72

Kay’s Settlement, Re [1939] Ch 329 ...... 36 Kayford Ltd, Re [1975] 1 WLR 279 ...... 48, 85 Keech v Sandford (1726) Sel Cas Ch 61 ...... 183 Keen, Re [1937] Ch 236, CA ...... 14 Khoo Tek Keong v Ch’ng Joo Tuan Neoh [1934] AC 529, PC ...... 139 King, Re [1923] 1 Ch 243...... 69 Kinloch v Secretary of State for India (1882) 7 App Cas 619, HL ...... 1 Knight v Knight (1840) 3 Beav 148 ...... 17 Knocker v Youle [1986] 2 All ER 914...... 94 Koeppler’s Will Trust, Re [1985] 2 All ER 869, CA ...... 78

Laing’s Settlement, Re [1899] 1 Ch 593 ...... 139 Lambe v Eames (1871) 6 Ch 597, CA ...... 18 Last, Re [1958] 1 All ER 316 ...... 22 Leahy v Attorney General for New South Wales [1959] AC 457, PC ...... 51 Lemann’s Trusts, Re (1883) 22 Ch D 633...... 108 Letterstedt v Broers (1884) 9 App Cas 371, PC...... 108 Lipinski’s Will Trust, Re [1976] Ch 235 ...... 52, 53 Lipkin Gorman (a firm) v Karpnale Ltd [1992] 4 All ER 409, CA ...... 191, 198 Llewellin’s Will Trust, Re [1949] Ch 225 ...... 125 Lloyds Bank plc v Rosset [1991] 1 AC 107, HL ...... 177 Locker’s Settlement Trust, Re [1977] 1 WLR 1323 ...... 136 London Wine Co (Shippers) Ltd, Re (1975) [1986] PCC 121...... 21, 22 Londonderry’s Settlement, Re [1964] 3 All ER 855 ...... 137

xv BRIEFCASE on Equity and Trusts

Lonrho plc v Fayed (No 2) [1992] 1 WLR 1 ...... 183, 186 Lord and Fullerton’s Contract, Re [1896] 1 Ch 228, CA ...... 105 Lysaght, Re [1966] Ch 191...... 80, 105, 106

McArdle, Re [1951] Ch 288, CA...... 33 McCormick v Grogan (1869) LR 4, HL ...... 12 McGeorge, Re [1963] Ch 544 ...... 149 McGovern v Attorney General [1981] 3 All ER 493...... 66, 76, 78 Mac-Jordan Construction Ltd v Brookmount Erostin Ltd [1992] BCLC 350 ...... 86 McPhail v Doulton (Re Baden’s Deed Trusts (No 1)) [1970] 2 All ER 228, HL ...... 24, 25 Mallot v Wilson [1901] All ER Rep 326...... 105 Mara v Browne [1896] 1 Ch 199...... 187 Mareva Compania Naviera SA v International Bulk Carriers SA (1975) [1980] 1 All ER 2 Bn, CA ...... 209–11 Marsden v Regan [1954] 1 WLR 423, CA ...... 172 Massingberd’s Settlement, Re (1890) 63 LT 296, CA ...... 163 May’s Will Trust, Re [1941] Ch 109 ...... 103 Mead’s Trust Deed, Re [1961] 1 WLR 1244 ...... 74 Medlock, Re (1886) 55 LJ Ch 738 ...... 152 Mercedes-Benz AG v Leiduck [1995] 3 All ER 929 ...... 211 Metall und Rohstoff AG v Donaldson Lifkin and Jenrette Inc [1989] 3 All ER 14, CA ...... 195 Mettoy Pension Trustees Ltd v Evans [1991] 2 All ER 513 ...... 88, 135, 154 Meux’s Will Trusts, Re [1957] 2 All ER 630 ...... 91 Milroy v Lord (1862) 4 De GF & J 264...... 29, 31, 179 Molyneux v Fletcher [1898] 1 QB 648 ...... 154 Moncrieff’s Settlement Trust, Re [1962] 1 WLR 1344 ...... 94 Montagu’s Settlement Trust, Re [1987] Ch 264...... 190 Moore, Re [1901] 1 Ch 936 ...... 41 Morice v Bishop of Durham (1804) 9 Ves 399, CA...... 49, 180 Moss, Re [1949] 1 All ER 415 ...... 73 Mulholland’s Will Trust, Re [1949] 1 All ER 460 ...... 112 Multi Guarantee Co Ltd, Re [1987] BCLC 257, CA ...... 86 Mussoorie Bank Ltd v Raynor (1882) 7 App Cas 321 PC ...... 22

National Anti-Vivisection Society v Inland Revenue Commissioners [1947] 2 All ER 217, HL...... 77 Nestle v National Westminster Bank plc [1993] 1 WLR 1260, CA...... 144

xvi Table of Cases

Neville Estates Ltd v Madden [1962] Ch 832 ...... 72 Neville v Wilson [1996] 3 All ER 171, CA...... 10 New, Re [1901] 2 Ch 534...... 91 Niyazi’s Will Trust, Re [1978] 1 WLR 910...... 64

O’Rourke v Darbishire [1920] AC 581, HL...... 137 O’Sullivan v Management Agency Music Ltd [1985] 3 All ER 351, CA...... 128, 129, 164 Oatway, Re [1903] 2 Ch 356 ...... 205 Oliver, Re [1947] 2 All ER 162 ...... 149 Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297, HL ...... 64, 71, 74 Osoba, Re [1979] 1 WLR 247, CA...... 5, 20, 51, 55, 180 Ottaway v Norman [1972] Ch 698...... 13 Oughtred v Inland Revenue Commissioners [1960] AC 206, HL ...... 9, 11 Oxford Group v Inland Revenue Commissioners [1949] 2 All ER 537, CA ...... 60

Pallant v Morgan [1952] 2 All ER 951 ...... 186 Palmer v Emerson [1911] 1 Ch 758 ...... 142 Paragon Finance plc v DB Thakerar & Co (A Firm) [1999] 1 All ER 400 ...... 186 Parsons, Re [1940] Ch 973...... 102 Partington, Re (1887) 57 LT 654 ...... 171 Paul v Constance [1977] 1 WLR 527, CA ...... 19, 34 Pauling’s Settlement Trust, Re [1963] 3 All ER 1, CA ...... 158 Pearkes v Moseley (1880) 5 App Cas 714 ...... 42 Peczenik’s Settlement Trust, Re [1964] 1 WLR 720 ...... 139 Peffer v Rigg [1977] 1 WLR 285 ...... 184 Pilkington v Inland Revenue Commissioners [1964] AC 612, HL ...... 130, 156 Piller (Anton) KG v Manufacturing Processes Ltd [1976] Ch 55, CA ...... 211, 212 Pinion, Re [1964] 1 All ER 890, CA ...... 67 Plumtre, Re [1910] 1 Ch 609 ...... 34, 35 Polly Peck International plc v Nadir (No 2) [1992] 4 All ER 469, CA ...... 192 Power’s Settlement Trust, Re [1951] Ch 1074, CA ...... 102 Protheroe v Protheroe [1968] 1 WLR 519, CA ...... 183 Pryce, Re [1917] 1 Ch 234 ...... 35, 36 Pullan v Koe [1913] 1 Ch 9 ...... 35 xvii BRIEFCASE on Equity and Trusts

R v District Auditor ex p West Yorkshire Metropolitan County Council [1986] RVR 24 ...... 25 Rabin v Gerson [1986] 1 WLR 526, CA...... 17 Raine, Re [1929] 1 Ch 716 ...... 151 Ralli’s Will Trust, Re [1963] 3 All ER 940 ...... 37 Ransome’s Will Trust, Re [1957] Ch 348 ...... 160 Reading v Attorney General [1951] AC 507 ...... 130 Recher’s Will Trust, Re [1972] Ch 526 ...... 52, 53 Redland Bricks Ltd v Morris [1970] AC 652, HL...... 209 Remnant’s Settlement Trust, Re [1970] Ch 560...... 96 Resch’s Will Trust, Re [1969] 1 AC 514, PC ...... 74 Richards v Delbridge (1874) 18 Eq 11 ...... 31 Robinson’s Settlement Trust, Re [1976] 3 All ER 61...... 98 Roper’s Trusts, Re [1879] 11 Ch D 272 ...... 134 Rose, Re [1952] Ch 499, CA ...... 30 Rosenthal, Re [1972] 1 WLR 1273 ...... 117 Rowntree (Joseph) Memorial Trust Housing Association Ltd v Attorney General [1983] 2 WLR 284 ...... 65 Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming [1995] 3 WLR 64, PC ...... 187, 192, 194, 195 Rymer, Re [1895] 1 Ch 19 ...... 80

Salusbury v Denton (1857) 3 K & J 529...... 59 Sander’s Will Trust, Re [1954] Ch 265 ...... 64 Sargeant and Another v National Westminster Bank plc (1990) 61 P & CR 518, CA...... 115 Saunders v Vautier (1841) Cr & Ph 240...... 52, 89, 93, 95 Scarisbrick’s Will Trust, Re [1951] Ch 622, CA ...... 63, 64 Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation [1968] AC 138, HL ...... 62, 72 Segelman, Re [1995] 2 All ER 676 ...... 63 Selangor United Rubber Estates Ltd v Cradock [1968] 1 WLR 1555 ...... 188 Sen v Headley [1991] Ch 425, CA ...... 29 Sharpe (a Bankrupt), Re [1980] 1 WLR 219...... 183, 184 Sharpe, Re [1892] 1 Ch 154, CA ...... 168 Shaw, Re [1957] 1 WLR 729 ...... 49, 65 Simpson v Simpson [1992] 1 FLR 601 ...... 7, 34 Sinclair v Brougham [1914] AC 398...... 202, 203 Snowden, Re [1979] Ch 528 ...... 14

xviii Table of Cases

Somerset v Earl Poulett [1894] 1 Ch 231, CA ...... 169 South Tyneside Metropolitan Borough Council v Svenska International plc [1995] 1 All ER 545 ...... 199 Speight v Gaunt (1883) 9 App Cas 1, HL ...... 116, 117, 121 Steele’s Will Trust, Re [1948] Ch 603 ...... 20, 21 Stephenson (Inspector of Taxes) v Barclays Bank Trust Co Ltd [1975] 1 All ER 625...... 89 Stewart, Re [1908] 2 Ch 251 ...... 27 Strakosch, Re [1949] Ch 529, CA ...... 77, 78 Strong v Bird (1874) LR 18 Eq 315 ...... 27, 28 Suffert’s Settlement, Re [1960] 3 All ER 561 ...... 93 Swain v The Law Society [1982] 2 All ER 827, HL ...... 3 Swindle v Harrison [1997] 4 All ER 705, CA ...... 162

T’s Settlement Trust, Re [1964] Ch 158 ...... 97 Tang Man Sit (Decd) (Personal Representative) v Capacious Investments Ltd [1996] 1 All ER 193, PC ...... 164 Target Holdings Ltd v Redferns (A Firm) [1995] 3 All ER 785, HL...... 161, 162 Tempest, Re (1866) 1 Ch App 485, CA ...... 103 Thompson, Re [1934] Ch 342 ...... 50 Thompson’s Settlement, Re [1986] Ch 99 ...... 112, 114 Thomson v Eastwood (1877) 2 App Cas 215, HL ...... 168 Thomson’s Estate, Re (1879) 13 Ch D 144...... 21 Thorne v Heard [1895] AC 495, HL...... 166 Thornton v Howe (1862) 31 Beav 14 ...... 69, 70 Tiger v Barclays Bank Ltd [1951] 2 KB 556, CA ...... 137 Tilley’s Will Trust, Re [1967] Ch 1179 ...... 205 Tinker’s Settlement, Re [1960] 1 WLR 1011 ...... 96 Towndrow, Re [1911] 1 Ch 662...... 172 Tribe v Tribe [1995] 4 All ER 236 ...... 178 Turkington, Re [1937] 4 All ER 501 ...... 52 Tyler, Re [1891] 3 Ch 252, CA...... 47, 50

United Mizrahi Bank Ltd v Doherty (1997) The Times, 15 December...... 189

Vandervell v Inland Revenue Commissioners [1967] 2 AC 291, HL ...... 11, 178–80 Vandervell’s Trusts (No 2), Re [1974] Ch 269, CA ...... 11, 179 Vinogradoff, Re [1935] WN 68 ...... 176

xix BRIEFCASE on Equity and Trusts

Wakeman, Re [1945] Ch 177...... 142 Walker v Stones Independent (2000) unreported, 27 July, CA...... 120 Wallersteiner v Moir [1975] QB 373, CA...... 164 Wassell v Leggatt [1896] 1 Ch 554 ...... 167 Waterman’s Will Trust, Re [1952] 2 All ER 1054 ...... 117, 121, 144 Watson, Re [1973] 1 WLR 1472 ...... 70 West Sussex Constabulary’s Widows, Children’s and Benevolent Fund Trusts, Re [1971] Ch 1 ...... 56, 87, 180 West, Re [1913] 2 Ch 245...... 152 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] 2 WLR 802, HL ...... 164, 176, 180 Weston’s Settlement, Re [1968] 1 All ER 720, CA ...... 95 Wheeler and De Rochow, Re [1896] 1 Ch 315...... 102, 104 Whiteley, Re (1886) 33 Ch D 347, CA ...... 116 Wilkes v Allington [1931] 2 Ch 104 ...... 28 Williams v Barton [1927] 2 Ch 9 ...... 125 Williams v Scott [1900] AC 499, PC...... 112 Williams, Re [1897] 2 Ch 12, CA ...... 2 Wills’ Will Trust, Re [1958] 2 All ER 472 ...... 156 Wilmer’s Trusts, Re [1903] 2 Ch 411, CA ...... 41 Wilson v Law Debenture Trust Corporation plc [1995] 2 All ER 337 ...... 88, 136 Wilson v Turner (1883) 22 Ch D 521, CA ...... 136 Wilson, Re [1913] 1 Ch 314 ...... 80 Wright v Morgan [1926] AC 788, PC ...... 113, 114

Yeap Cheah Neo v Ong Chen Neo (1875) LR 381, PC ...... 69, 71 Young, Re [1951] Ch 344...... 12, 63

xx Table of Statutes

Appointment Act 1870 ...... 153 Income and Corporation Taxes Act 1970...... 54 Charitable Trusts (Validation) s 526(5)...... 54 Act 1954— Inheritance (Provision for s 1 ...... 61 Family and Dependants) Charitable Uses Act 1975 ...... 16 Act 1601 ...... 61–63, 69, 75 Charities Act 1960 ...... 65, 66, 81 Land Registration Act 1925— s 4 ...... 67 s 19(1)...... 32 s 38 ...... 61 Law of Property Act 1925— Charities Act 1993— s 1(6)...... 8 s 13 ...... 81 s 52(1)...... 32 s 13(1)(d), (e), (2) ...... 82 s 53 ...... 8, 16 s 14 ...... 81 s 53(1)...... 10 Civil Liability (Contribution) s 53(1)(b) ...... 34 Act 1978 ...... 171 s 53(1)(c) ...... 9–12, 33, 178, 179 Contracts (Rights of Third s 53(2)...... 10 Parties) Act 1999— s 60(3)...... 176 s 1(1)...... 183 s 136(1)...... 33 Cruelty to Animals s 164 ...... 47 Act 1876 ...... 77 s 164(1)...... 46 s 165 ...... 47 s 175 ...... 148–51 Family Law Reform s 175(1)...... 148 Act 1969— Limitation Act 1939...... 167 s 1 ...... 8, 12, 151 Limitation Act 1980...... 166–68 Finance Act 1910 ...... 9 s 21 ...... 165 s 21(1)(a) ...... 166 Hague Convention on the s 21(1)(b) ...... 167 Law Applicable to Trusts s 21(3)...... 168 and on their Recognition ...... 2 s 28(1)...... 165 s 32(1)...... 166 s 36(1)...... 168

xxi BRIEFCASE on Equity and Trusts

Marriage Act 1929...... 42 Trustee Act 1925 (Contd)— Married Women’s Property s 32 ...... 154, 155, 159 Act 1882 ...... 134 s 32(1) ...... 153, 154 Official Secrets Act ...... 128 s 32(1)(c)...... 157 s 33 ...... 83 s 36(1) ...... 101–04, 106 Perpetuities and s 36(6) ...... 102, 105 Accumulations Act 1964 ...... 43, 47 ss 37, 39(1) ...... 106 s 1 ...... 43, 44 s 41 ...... 108 s 2 ...... 44 s 41(1)...... 103 s 3 ...... 44, 45 s 53 ...... 90, 91, 147 s 4 ...... 45, 46 s 57 ...... 90 s 5 ...... 46 s 61 ...... 142, 159, 172, 173 Public Trustee Act 1906— s 62(1)...... 173 s 1 ...... 105 s 68(17)...... 2 s 69(2) ...... 149, 159, 160 Recognition of Trusts Trustee Act 2000 ...... 115 Act 1987 ...... 2 s 1(1) ...... 119 Recreational Charities ss 3–6 ...... 140 Act 1958 ...... 68 ss 3, 7(3)(a), 8, 9...... 141 s 1 ...... 75 s 11 ...... 130 s 1(1), (2)(a), (3) ...... 76 ss 12, 14 ...... 131 s 15 ...... 131, 132 Settled Land Act 1925— ss 16, 17 ...... 131 s 64 ...... 90 ss 19, 22, 23 ...... 132 Solicitors Act 1974— ss 24, 26 ...... 133 s 37 ...... 3, 4 ss 28, 29 ...... 124 Solicitor’s Indemnity s 29(6)...... 125 Rules 1975 ...... 3 s 31 ...... 123 Sched 1...... 119 Stamp Act 1891 ...... 9 Trustee Investment Supreme Court Act 1981— Act 1961— s 37 ...... 208 s 3(1)...... 143 Trusts of Land and Trustee Act 1893 — Appointment of Trustees s 10 ...... 102 Act 1996 ...... 143 Trustee Act 1925 ...... 106 s 6(4)...... 142 ss 8, 9(1) ...... 142 s 19 ...... 104, 107 s 31 ...... 147, 159 s 19(2)(a) ...... 107 s 31(1) ...... 149, 152, 160 ss 19(2)(b), 20...... 104 s 31(1)(ii)...... 149, 150, 160 s 31(3) ...... 148, 151

xxii Table of Statutes

Variation of Trusts Wills Act 1837 ...... 12 Act 1958 ...... 84, 90, 92, 93, 95, 96 s 9 ...... 11, 12 s 1 ...... 92, 97 s 1(1)...... 94 s 1(1)(a) ...... 94 s 1(1)(b) ...... 94, 95 s 1(1)(c)...... 95

xxiii Part 1 Introduction to Equity and Trusts

1 Defining Equity and Trusts

1.1 Understanding equity

Note Equity will not suffer a wrong without a remedy, so where the common law does not provide a remedy, equity will. Thus it is said that equity is a ‘gloss’ on the common law. Equity is not, however, a mere ‘gloss’, for equity looks to substance rather than form, thus enabling it to give effect to the true intentions of parties to a transaction where the strict legal position does not reflect those intentions.

Equity is said to act between persons (in personam), so that it will award a remedy to party B against party A. The classic instance of this is the trust, where equity will require A to hold property for the benefit of party B, even where A is the legal owner of the property. However, the fact that trusts have always existed in relation to property added (to B’s rights against A personally) certain property rights (rights in rem) against the assets held by A. These rights in the property could be enforced against any third party, C, who came into possession of the property, except where C had purchased the legal title in good faith and without notice of B’s claim, for in such a case no wrong had been committed and equity would grant no remedy.

1.2 Defining a trust Kinloch v Secretary of State for India (1882) HL By Royal Warrant, Queen Victoria ‘granted’ certain spoils of war to the defendant ‘in trust’ for specified members of her armed forces, to be divided amongst them. The plaintiff brought this action on behalf of himself and other persons entitled under the Royal Warrant, claiming that the defendant should be made to distribute the property to those entitled. Held Lord O’Hagan stated that ‘there is no magic in the word “trust”’. Here, although the defendant might properly be said to be a ‘trustee’ for the Crown, he could not be said to be a trustee for the persons entitled

1 BRIEFCASE on Equity and Trusts under the Royal Warrant. There had been no transfer of the ‘booty’ from the Crown to independent trustees, merely a transfer from the Queen to one of her servants. Only the defendant, as agent of the Queen, could actually divest the Crown of the property. This he had not done, and a court of equity would not require him to do so. Re Williams (1897) CA W, a testator, left his residuary estate to his wife under the terms of his will, ‘in the fullest trust and confidence’ that she would carry out his detailed ‘wishes’ with regard to certain monies. These ‘wishes’ included W’s desire that his wife, on her death, would leave the proceeds of W’s life insurance policy to their daughter. W appointed his wife as one of the executors of his estate. W’s wife sought a declaration that she held W’s residuary estate absolutely, unfettered by a trust. Held a person is entitled to leave their property to another subject to imperative, binding conditions which would be enforced by a court of equity, but the words used by W in this case were merely ‘precatory’ in nature (that is, ‘by way of request’) and did not subject his wife’s inheritance to a trust. The fact that W had not indicated any duties that his wife should perform as a trustee was further evidence that a trust had not been intended. Section 68(17) of the Trustee Act 1925 The expressions ‘trust’ and ‘trustee’ extend to implied and constructive trusts, and to cases where the trustee has a beneficial interest in the trust property, and to the duties incident to the office of personal representative, and ‘trustee’, where the context admits, includes a personal representative. Note The following is a modern definition of an express trust (that is, a trust which has been expressly created, as opposed to one which has come about automatically, or by order of a court).

The Hague Convention on the Law Applicable to Trusts and on their Recognition (incorporated into English law by the Recognition of Trusts Act 1987) For the purposes of this Convention, the term ‘trust’ refers to the legal relationship created – inter vivos or on death – by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose. A trust has the following characteristics – (a) the assets constitute a separate fund and are not part of the trustee’s estate; (b) title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee; (c) the trustee has the power and the duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed

2 Defining Equity and Trusts

upon him by law. The reservation by the settlor of certain rights and powers, and the fact that the trustee may himself have rights as a beneficiary, are not necessarily inconsistent with the existence of a trust.

Note The trustee nearly always holds the legal title to the property, although it is theoretically possible for a trustee to hold merely an equitable title.

1.2.1 Trusts compared to contracts Harmer v Armstrong (1934) CA The defendant, A, agreed to purchase the copyright to certain publications from V Co. The plaintiff, H, asserted, inter alia, that A had entered this agreement as trustee for H, which A denied. V Co, with notice of the plaintiffs’ claim, purported to rescind the contract with A. H brought an action for a declaration that A held the benefit of the agreement as trustee for H. H also sought an order for specific performance of the agreement, which is a form of order which would oblige V Co to complete the sale to A for the benefit of H (see 19.1). Held A had acted in the capacity of trustee for H. Therefore, specific performance of the contract was ordered, with the result that A would hold the benefit of the contract on trust for H. Under contract law, H would be unable to claim the benefit of the contract because he had not been privy to it, but because H was the beneficiary of a trust of which A was the trustee, H would be able to claim the benefit of the contract made between A and V Co. Note Whereas a contract is a private relationship between the parties to the contract, it is of the essence of a trust that a settlor can give property to his trustee on trust for a third party (see Beswick v Beswick (1968), 19.1).

Swain v The Law Society (1982) HL By a document circulated in 1975, the Society detailed proposals for a professional indemnity insurance scheme to which all solicitors would be obliged to subscribe under s 37 of the Solicitors Act 1974. By a subsequent letter, all solicitors were asked whether they approved of the scheme in its proposed form. Most solicitors who replied were in favour of the scheme and, in due course, the Society drew up the Solicitor’s Indemnity Rules 1975. According to the Rules, the insurers would agree to indemnify all solicitors participating in the scheme. In May 1976, the Society contracted with insurance brokers to obtain insurance for the scheme, the brokers agreeing to pay part of their commission (received from the insurers) to the Society. From September 1976, solicitors’ participation in the scheme was compulsory. The plaintiffs, two practising solicitors, were unhappy

3 BRIEFCASE on Equity and Trusts with the scheme and communicated their displeasure to the Society in January 1979. In October 1979, they took out an originating summons seeking a declaration that the Rules were void as being ultra vires (‘outside the scope of’) s 37 of the Act. They also asked whether the Society was entitled to keep the commission it had already received from the brokers, or whether it was obliged to account to individual solicitors under an express or implied trust. Held, in exercising its powers under s 37 of the Act, the Society was carrying out a public function for which there could be no equitable liability to account. Further, the Society had not, by express or implied trust, constituted itself a trustee of the 1975 contract, nor had it constituted itself a constructive trustee of the commissions received under the contract. Accordingly, there would be no liability to account for the commissions received. The Society had entered a contract, not a trust. The courts will generally be slow to imply a trust where the facts can be analysed as giving rise to a contract, and especially reluctant to imply a trust in the present case, for if any persons could be expected to make clear their intentions to set up a trust, such persons must include ‘a society of lawyers’.

1.2.2 Trust compared to debt

Note See 8.2 on asset-protection trusts.

1.2.3 Trusts compared with powers Re Hay’s Settlement Trusts (1981) Trustees of a settlement made in 1958 held the trust fund subject to a power to allocate it for the benefit of ‘such persons or purposes’ as they should in their discretion appoint. If they made no such appointment, the trust fund would pass to the settlor’s nieces and nephews. Only the settlor, her husband and the trustees could not be appointed to benefit from the fund. Questions arose as to how the court should supervise the exercise of such a wide discretionary power and how such a power differed from a trustee’s duties under a trust. Held whereas a trustee is bound to carry out the obligations of a trust and, if the trustee fails to do so, the court will intervene to ensure that the trust is fulfilled, a mere power is very different. A trustee does not have to exercise a mere power, and will not be compelled to do so by the court, but the trustee must periodically consider whether or not to exercise the power. If the power is actually exercised, the trustee must ensure that he or she acts in accordance with the terms of the power, and must consider both the range of potential beneficiaries and whether each individual appointment is appropriate.

4 Defining Equity and Trusts

1.2.4 Trusts compared with absolute gifts

Note Gifts ‘in trust’, which place strict temporal or conditional limitations on the donee’s ownership of the subject matter of the gift, must be contrasted with absolute gifts. The donee of an absolute gift will, in general terms, be free to use the subject matter of the gift as they wish.

Re Diggles (1888) CA A testatrix left all her real and personal property to her daughter whilst expressing her ‘desire’ that her daughter should pay an annuity of £25 to a named relative and allow that relative to use whatever household furniture her daughter did not need. For a number of years, the annuity was paid, but was eventually discontinued. Thereafter the annuitant applied to court claiming that the daughter had been constituted a trustee by the wording of the will, and was therefore obliged to pay the annuity. Held there was no trust imposed upon the daughter requiring her to pay the annuity to her relative. The expression of the testatrix’s ‘desire’ was merely precatory, that is, in the nature of a request. Construing the will as a whole it could not be said that she had intended to create a trust of the annuity. Re Osoba (1979) CA A testator, O, made a bequest to his wife of the rents from certain leasehold properties for her maintenance and for the training of his daughter ‘up to University grade’. O’s wife died and shortly thereafter his daughter completed her university education. O’s son claimed a share of the residue which had not been used for the daughter’s education. Held the gift of residue was an absolute gift to the wife and daughter in equal shares, the expression of the purposes for which the gift was to be used being merely an indication of O’s motive for making the gift. Further, as there had been no words of severance of the gift as between the wife and her daughter, they were deemed to hold the residue as joint tenants. Accordingly, ever since her mother’s death, the daughter had held the whole of the fund absolutely for her own benefit. Note Contrast the above case with the case of Re Abbott (1900), 3.2.1.

1.2.5 Trusts engrafted onto gifts Hancock v Watson (1902) The testator left his residuary estate on trust for his wife for her life, directing that after her death a gift of two-fifths of the estate should be made to SD, a married woman, for her own use during her lifetime. After

5 BRIEFCASE on Equity and Trusts the death of SD, the two-fifths were to pass to her children and, if she had none, to the children of C. In the event, SD died without having had a child. The appellants in the case represented the children of C, the respondents represented SD’s personal representatives, each claimed to be entitled to the two-fifths portion of the testator’s estate. Held the gift of the two-fifths to SD would take effect as an absolute gift to her, and judgment was therefore awarded in favour of her personal representatives. The trust which had been engrafted onto the gift in favour of the children of SD had failed outright for lack of issue, and the trust which had been engrafted in favour of C’s children failed for perpetuity (see 5.1). Where engrafted trusts failed, the original absolute gift would take effect.

1.2.6 Trusts compared with agency

Note An agent owes fiduciary duties (duties of good faith) to their principal, and will often have some degree of managerial control of the principal’s property. Crucially, however, a trustee’s holding or control of the trust property is more fundamental than that of an agent, and is in the nature of entitlement, albeit merely legal entitlement. Further, whereas an agency is founded upon agreement between the agent and principal, there is generally no agreement between trustee and beneficiary.

6 Part 2 Setting up a Trust

2 Capacity and Formality Requirements

2.1 Capacity

2.1.1 Mental incapacity Simpson v Simpson (1992) The testator’s mental well being had become increasingly impaired after an operation to remove a tumour from his brain. After the operation, he transferred 70% of his estate into the joint names of himself and his wife, and sent a letter to his solicitor expressing his intention to sell his cottage in due course and to make a gift to his wife of half the proceeds. After the testator’s death, his children by an earlier marriage sued his widow. They questioned, inter alia, whether the testator had possessed sufficient capacity to transfer his beneficial interests into his and his wife’s joint names, and whether the letter to his solicitor could have amounted to a declaration of trust in favour of his wife. Held, on the basis of the evidence, including that of medical experts, it was clear that a patient with the testator’s medical complaint would deteriorate to a point where a lack of mental capacity must be presumed. In the absence of evidence to rebut the presumption, the purported dispositions to the testator’s wife were ineffective to transfer his beneficial interests in the various properties. In particular, he had not had capacity to declare a trust by the letter to his solicitor. In any event, the letter had not shown an intention to make an immediate gift to his wife and consequently could not take effect as a declaration of trust.

2.1.2 Infancy Edwards v Carter (1893) HL A husband agreed, one month before attaining his majority, that he would vest his future inheritance, upon his father’s death, in a trust set up by his father. The trust was expressed in terms to benefit the husband, his wife

7 BRIEFCASE on Equity and Trusts and their future issue. The husband’s father died four years later, and a further year later the husband purported to repudiate the settlement. The Court of Appeal held that he was bound by the settlement he had entered into as a minor. Certain of his creditors appealed to the House of Lords, the respondents were the trustees of the settlement. Held the decision of the Court of Appeal was affirmed. The husband’s settlement was not void. It was voidable, on account of his infancy at the time that the settlement was made, but he had failed to repudiate the settlement within a reasonable time and it would therefore stand. Section 1 of the Family Law Reform Act 1969 A person shall attain full age (majority) at the age of 18, instead of the previous age of 21. Before attaining the age of 18, a person shall be an ‘infant’ and ‘minor’ for the purposes of any rule of law which uses those terms. Section 1(6) of the Law of Property Act 1925 A legal estate is not capable of subsisting or of being created in an undivided share in land or of being held by an infant.

2.2 Formalities

Note A trust may be declared inter vivos of pure personalty (not land) without the need to satisfy any formal requirements. So, for example, X could declare ‘see this pen of mine, I henceforth hold it on trust for the benefit of Y’. Assuming that X had intended to create a trust, these words would be sufficient to move the beneficial (equitable) ownership of the pen from X to Y. X would be a trustee of the pen for Y.

2.2.1 Statutory formality requirements of an express trust Section 53 of the Law of Property Act 1925 (1) ... (b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will; (c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will. (2) This section does not affect the creation or operation of resulting, implied or constructive trusts.

8 Capacity and Formality Requirements

2.2.2 Inter vivos trusts

Note An inter vivos trust is one which is effective during the lifetime of the settlor.

Grey v Inland Revenue Commissioners (1960) HL Between 1949 and 1950, H executed six settlements in favour of his grandchildren. Grey was one of the trustees of those settlements. On 1 February 1955, H transferred 18,000 £1 shares to the trustees. On 18 February, H orally and irrevocably directed that the shares should be held on the trusts of the six settlements, 3,000 shares to each settlement. On 25 March, the trustees made written declarations of trust in accordance with H’s directions. The instruments declaring the trusts were assessed to ad valorem stamp duty (a tax charged ‘according to the value’ of an instrument) as voluntary dispositions, in accordance with the Finance Act 1910. The trustees appealed against the assessment. Held H’s oral direction would have constituted a ‘disposition’ of his equitable interest in the shares, but was ineffective for failing to satisfy the requirement of writing within s 53(1)(c) of the Law of Property Act 1925. Accordingly, only the later formal declarations by the trustees were effective to transfer H’s equitable interest in the shares. Those formal declarations constituted ‘instruments’ for the purposes of the Stamp Act 1891 and had been rightly assessed to ad valorem stamp duty. Oughtred v Inland Revenue Commissioners (1960) HL Two hundred thousand shares in WJ & Son Ltd were held upon trust for Mrs O for life, thereafter to her son, P, absolutely. Mrs O also owned 72,700 shares absolutely. By an oral agreement, and in order to avoid estate duty payable on the shares in the event of Mrs O’s death, the parties determined to exchange their interests. Mrs O promised to transfer the 72,200 to P, and P promised to transfer his remainder interest in the 200,000 shares to Mrs O. Written documents of transfer were later executed in accordance with the terms of the oral agreement. The Inland Revenue brought the present action claiming ad valorem stamp duty on the document which recorded the transfer of the legal title in the 200,000 shares. Mrs O argued that no value had passed by virtue of the later documents, the equitable interest having been transferred by the earlier oral agreement, and accordingly that there was no basis on which to charge ad valorem stamp duty on the later document. Held (Viscount Radcliffe and Lord Cohen dissenting) Mrs O did not have a beneficial interest in the 200,000 shares until the execution of the later documents. It followed, therefore, that the later document was an instrument transferring value, and that it should be subject to ad valorem stamp duty at £663. Mrs O had argued that, inasmuch as the oral

9 BRIEFCASE on Equity and Trusts agreement was an agreement of sale and purchase, it gave rise in equity to a of the remainder interest in her favour, subject only to Mrs O performing her side of the agreement to transfer the 72,700 shares to P (as to the equitable requirement of mutuality of performance, see Beswick v Beswick, 19.1). She argued, in other words, that the oral agreement had transferred the equitable ownership of the 200,000 shares to her, and that P had thereafter held those shares as constructive trustee for her. The formality requirements laid down in s 53(1)(c) did not enter into the case, she argued, because of the provision in s 53(2) that constructive trusts were not subject to any formality requirements. The majority of their lordships rejected this submission. By analogy with the ‘simple case of a contract for sale of land’, they pointed out that the deed which comes after the contract and completes the sale has never been regarded as ‘not stampable ad valorem’. It followed, on this reasoning, that the later instrument of transfer to Mrs O had transferred real value and was stampable ad valorem as the Inland Revenue had contended. Dissenting, Viscount Radcliffe, observed that Mrs O need never have called for the subsequent written instrument of transfer, and that she could have simply called upon the trustees of the settlement of the 200,000 shares to transfer the bare legal title to her. For Viscount Radcliffe, the subsequent written transfer by P was nothing more than a transfer of the bare legal title to Mrs O. It did not transfer any equitable interest at all and should not have been assessed to ad valorem stamp duty. Neville v Wilson (1996) CA Neville carried on business through N Ltd. Shortly before his death, N Ltd acquired all the issued share capital in U Ltd, 120 shares in U Ltd being held by nominees of N Ltd, the remaining shares in U Ltd being held by N Ltd as registered owner. In 1969, N Ltd was informally liquidated by shareholder agreement, its liabilities discharged and its assets divided between the shareholders. N Ltd was later struck off the register and formally dissolved. Some years later, after profitable business by U Ltd and after U Ltd’s assets had been reduced to cash, Neville’s children (who had been shareholders in N Ltd) commenced proceedings against ex- shareholders in N Ltd to determine, inter alia, the beneficial ownership of the 120 shares in U Ltd held by nominees. Held the informal 1969 agreement had made the shareholders in N Ltd implied or constructive trustees for each other of the assets of N Ltd, the equitable interest of each shareholder under the constructive trust being of a size proportional to his shareholding in N Ltd. Accordingly, s 53(2) of the Law of Property Act 1925 saved the 1969 agreement from being rendered ineffectual by the formality requirements contained in s 53(1). Consequently, the money representing the shares did not pass to the Crown as bona vacantia (ownerless property), but was divided between the

10 Capacity and Formality Requirements shareholders as they had agreed. It appears from the reasoning in this case that Mrs Oughtred’s mistake (see Oughtred v IRC, above) was to execute a deed subsequent to her oral agreement. Although intended by her merely to confirm that the disposition of her equitable interest had already been effected orally, it gave an apparently irresistible opportunity to the House of Lords to decide, albeit by a bare majority, that ad valorem stamp duty should be paid on the deed. Note It is important, here, to read the summaries of Vandervell v IRC (1967) and Re Vandervell’s Trusts (No 2) (1974) (see 16.3). Having completed the reading for this section, consider the following questions.

Q Is it necessary to comply with s 53(1)(c) where a new equitable interest is being created, or only where an existing equitable interest is being disposed of? Q What are the formality requirements where a beneficiary, B, directs their trustee, A, to hold B’s equitable interest on trust for C?

2.2.3 ‘Testamentary’ or ‘will’ trusts Section 9 of the Wills Act 1837 No will shall be valid unless: (a) it is in writing, and signed by the testator, or by some other person in his presence and by his direction; and (b) it appears that the testator intended by his signature to give effect to the will; and (c) the signature is made or acknowledged by the testator in the presence of two or more witnesses present at the same time; and (d) each witness either: (i) attests and signs the will; or (ii) acknowledges his signature, in the presence of the testator (but not necessarily in the presence of any other witness), but no form of attestation shall be necessary.

Re Danish Bacon Co Ltd Staff Pension Fund Trusts (1971) An employee of the Danish Bacon Co Ltd nominated (by signed writing) his wife to receive his pension entitlement in the event of his death. Later, he sent a letter to the pension fund trustees amending his nomination in favour of another relative. After his death, the question arose whether the original or the subsequent nomination was valid. It was argued on behalf of the wife that the amended nomination could not be valid, either because

11 BRIEFCASE on Equity and Trusts it failed the requirements of s 53(1)(c) of the Law of Property Act, the amended form of nomination having never been signed, or because it failed to satisfy s 9 of the Wills Act 1837 governing testamentary dispositions. Held no statutory rule of formality applied directly to nominations of this sort, they were sui generis (‘in a class of their own’) and governed by the rules of the pension fund. Section 53(1)(c) would not apply because even the amended nomination was revocable up until the testator’s death. However, even if s 53(1)(c) had been applicable, the original form of nomination and the letter to the trustees could be read together as satisfying the formality requirements of that section. The Wills Act 1837 had no application to this case. The pension entitlements had never entered the deceased’s estate and the nomination of them in favour of another could not, therefore, be seen as a testamentary disposition. Despite certain testamentary characteristics, the nomination took effect under the rules and trust of the pension fund, the nominee claimed through those rules and not through the deceased. The wife’s arguments failed, the later nomination was valid.

2.2.4 Secret trusts

Note Secret trusts are a means by which a testator is able to by-pass the formality requirements laid down in the Wills Act. As Dankwerts J put it in Re Young (1951), ‘the whole theory of the formation of a secret trust is that the Wills Act has nothing to do with the matter’. Typically, though largely historically, the reason for wanting secrecy arose where the testator wished to make a testamentary gift to a mistress or illegitimate child (the latter concept does not now exist, see s 1 of the Family Law Reform Act 1987).

2.2.5 Fully secret trusts

Note This is where X formally leaves property by his will to Y in circumstances where Y is informally made aware by X during X’s lifetime (and Y expressly or impliedly accepts) that Y is to hold the property as trustee for the benefit of Z. On the face of the will, Y will appear to be the beneficial owner of the property.

McCormick v Grogan (1869) HL The testator, M, left all his estate to G by a will in the briefest of terms. On his death bed, M instructed G that his will and a letter were to be found in his desk. The letter named various intended beneficiaries and the intended gifts to them, and concluded with the words: ‘I do not wish you to act

12 Capacity and Formality Requirements strictly on the foregoing instructions, but leave it entirely to your own good judgment to do as you think I would, if living, and as the parties are deserving.’ G accepted the secret trust. Later, an intended beneficiary, whom G thought it right to exclude, sued. Held their Lordships did not doubt that in an appropriate case they could enforce the terms of a secret trust against the alleged trustee. However, it had not been shown on the facts of the present case that G should be held to any trust. The jurisdiction to enforce a secret trust was aimed at preventing equitable fraud on the part of the alleged trustee. No malus animus (bad conscience) was shown on G’s part in the present case, and the secret trust would not be enforced against him. Re Boyes (1884) B made an absolute gift to his executor by his will. The executor accepted that he was to hold the gift on trust for other persons, but the names of those persons were not communicated to the executor during B’s lifetime. Only after B’s death were informal letters found which detailed the intended objects of the gift. Held this was not a valid fully secret trust. To be valid, the precise objects of the trust must have been communicated, and the trust accepted, during the testator’s lifetime. However, if B had placed a sealed envelope of detailed instructions into the executor’s hands before B’s death, this would have constituted constructive notice of the trusts to the executor, and the executor would have been deemed to have accepted the trusts as detailed in the letter. Ottaway v Norman (1972) By his will, H left his bungalow to his housekeeper together with a legacy of £1,500 and half the residue of his estate. On her death, the housekeeper left her property to strangers. O sued her executor, N, alleging that the housekeeper had orally agreed with H to leave the various assets to O in her will. Held there had been an arrangement between H and the housekeeper under which the latter had agreed to pass on the bungalow, furnishings and fixtures to O. It followed that N now held the bungalow under a constructive trust for the benefit of O. The essential elements which had to be proved were (1) the intention of H to subject the housekeeper to an obligation in favour of O; (2) communication of that intention to the housekeeper; and (3) the acceptance of that obligation by her either expressly or by acquiescence. It was immaterial whether the informal agreement had come before or after the execution of the will. Nor was it necessary to show that the housekeeper had committed a deliberate and conscious wrong. However, Brightman J did hold that clear evidence would be needed before the court would assume that the testator had not meant what he said in his will and that the standard of proof was

13 BRIEFCASE on Equity and Trusts analogous to that required before a court would rectify a written instrument. (But, see the following note.) Note In Re Snowden (1979), Sir Robert Megarry VC expressed some doubt about how far rectification was a fair analogy to secret trusts when determining the appropriate standard of proof. Apart from in cases where fraud had been alleged against the trustee, he preferred to apply the ordinary civil standard of proof, namely, proof ‘on a balance of probabilities’.

2.2.6 Half secret trusts This is where X formally leaves property by his will to Y expressly ‘on trust’ for another, but where Y is only informally made aware of the identity of that other. It will be clear on the face of the will that Y is not the beneficial owner of the property. It is clear, then, that with a half secret trust there is not the risk of fraud which is found in the case of a fully secret trust. It would seem to follow that the prevention of equitable fraud is an inadequate rationale for the enforcement of half secret trusts, and that some other justification is required. Blackwell v Blackwell (1929) HL The testator, B, left a legacy of £12,000 to five persons by a codicil to his will, and directed them to apply the income ‘for the purposes indicated by me to them’, with power to apply two-thirds of the capital ‘to such person or persons indicated by me to them’. The beneficiaries of the trusts (a mistress and her illegitimate son) were communicated orally by B to the intended trustees, with detailed instructions being given to one of the intended trustees. The intended trustees accepted the trusts before the execution of the codicil. B’s widow challenged the validity of the half secret trust and claimed the £12,000 for herself. Held the evidence of the oral arrangement was admissible and proved a valid half secret trust in favour of B’s mistress and illegitimate son. Viscount Sumner saw no relevant distinction between fully secret and half secret trusts. ‘In both cases’, he observed, ‘the testator’s wishes are incompletely expressed in his will. Why should equity, over a mere matter of words, give effect to them in one case and frustrate them in the other?’ For his Lordship the ‘fraud’ to be prevented was the same in both cases. Re Keen (1937) CA K, the testator, left £10,000 in his will to his friends, H and E, ‘to be held upon trust and disposed of by them among such person, persons or charities as may be notified by me to them ... during my lifetime’. In advance of the execution of his will, K handed a sealed envelope to E. The envelope contained the name of a lady to whom K had not been married.

14 Capacity and Formality Requirements

E was aware of the contents of the envelope but did not actually open it until after K’s death. Held this was not a valid half secret trust. The communication via the envelope had preceded the execution of the will and was inconsistent with the terms of the will, the will would therefore take effect as read and the legacy would fall into residue. Further, the clause in K’s will purported to reserve to K the power to make future testamentary dispositions by simply notifying the trustees during his lifetime of his intentions. The intended effect of the clause, therefore, was to exclude the requirement of the Wills Act that a duly executed codicil be used to amend a will. The clause would not be permitted to have that effect and must fail. Re Bateman’s Will Trust (1970) The testator, B, directed his trustees to set aside £24,000 from his estate and to pay the income thereof ‘to such persons and in such proportions as shall be stated by me in a sealed letter in my own handwriting addressed to my trustees’. The trustees received a sealed letter after B’s will was executed, but before B’s death. There was no evidence to show that the letter had been written before the execution of the will. Held the direction to the trustees was invalid. Pennycuik VC held that ‘once one must construe the direction as admitting of a future letter then the direction is invalid, as an attempt to dispose of the estate by a non- testamentary instrument’. Note A rationale for half secret trusts appears to be emerging from these cases, which is quite distinct from the policy of fraud prevention which underpins the cases on fully secret trusts. The rationale is that directions to trustees in the nature of a half secret trust take effect only when they precede the execution of the will and can be treated as having been incorporated in the will by reference. Inconsistency with the later will renders the half secret trust invalid.

Q Does the distinction made in modern cases between the rationales underlying fully secret and half secret trusts appear to you to be a logical one? Q Are the modern cases on half secret trusts consistent with the statement, with which we started this topic, that ‘the whole theory of the formation of a secret trust is that the Wills Act has nothing to do with the matter’?

15 BRIEFCASE on Equity and Trusts

2.2.7 Mutual wills Goodchild v Goodchild (1997) CA A husband and wife executed their wills simultaneously, and in identical form, in favour of the survivor of them and thereafter to their son. The wife died in 1991 and, in accordance with their wills, the husband received her estate. The husband remarried in 1992 and executed a new will leaving everything to his new wife. The husband died in 1993. The son and wife claimed for financial provision from the estate. At first instance, it was decided that the will executed by the husband and wife were not mutual wills because there has been no clear agreement on that point. However, the judge granted the son reasonable financial provision under the Inheritance (Provision for Family and Dependants) Act 1975. This was on the ground that the wife’s mistaken belief that the wills which they had executed were mutually binding imposed a moral obligation on the husband thereby justifying the order for the reasonable financial provision under the Act. Held the Court of Appeal affirmed the trial judge’s decision. The Court of Appeal agreed that, following Re Dale (1993), there must be a contract in law between the parties for the doctrine of mutual wills to apply. This contract binds the conscience of the parties to the mutual wills, giving rise to a constructive trust binding on the survivor of them, requiring that the survivor should leave his property upon his death according to the terms of the mutual wills. Note The Law Commission intends to publish a Consultation Paper in the near future as the first stage of a review of the formalities required for the creation of trusts and for the disposition of equitable interests under s 53 of the Law of Property Act 1925. The Commissioners hope that ‘there may be ways of dealing with the principal practical defects in the present law without the need for primary legislation’.

16 3 Certainty Requirements

3.1 General

Note According to Lord Langdale MR in Knight v Knight (1840), the courts will not acknowledge that an express trust has been created unless the ‘three certainties’ are shown. These are (1) a certain intention to create a trust; (2) certainty as to the object (beneficiaries or purposes) of the trust; and (3) certainty as to the subject (property) of the trust. When construing an instrument to discover whether these certainty requirements have been satisfied, the trust must be given its natural construction.

Rabin v Gerson (1986) CA The plaintiffs took out a summons for the court’s directions as to the proper construction of a charitable trust deed. During the proceedings, the plaintiffs sought to refer to the written opinions of the barristers who had originally drafted the trust deed. The opinions having being written before the drafting of the deed, the plaintiffs hoped that they might provide evidence of the settlor’s intentions in setting up the trust. Held it had not been disputed that the words used in the trust deed had been the words the testator had intended to use. Accordingly, the deed fell to be construed according to the natural meaning of the words used. Counsel’s written opinions could not be admitted as evidence that the settlor had intended to achieve a specific legal effect, when such an effect did not otherwise flow from a natural reading of the deed.

3.2 Certainty of intention Jones v Lock (1865) CA J, an ironmonger, returned home from conducting some business in Birmingham. When criticised by his family for failing to bring a present for his nine month old son, he produced a cheque in the sum of £900 made payable to himself, said, ‘I give this to baby for himself’ and placed the cheque in the baby’s hand. He then took the cheque and said, ‘I am going to put it away for him’. Six days afterwards, J died, and the cheque was

17 BRIEFCASE on Equity and Trusts found among his possessions. At issue was whether the baby was entitled to the cheque. Held there had been no gift or valid declaration of trust. Accordingly, the baby was not entitled to the cheque. The refused to find an intention to declare a trust in ‘loose conversations of this sort’. He observed that, had the father not died, he would have been very surprised to discover that he was not able to use the £900, but was bound to hold it in trust for his baby son. Lambe v Eames (1871) CA The testator, L, left his entire estate to his widow ‘to be at her disposal in any way she may think best, for the benefit of herself and her family’. On her death, she left part of the testator’s estate to an illegitimate son of one of the testator’s own sons. Held the gift was valid. Whereas words similar to those of the testator’s will might, in previous cases, have been held to create a trust, the will fell to be construed, not by precedent, but according to the testator’s actual intention on a true construction of the will. In the present case, the court held that the testator had not intended to impose a trust upon his widow’s inheritance. Such a construction would have made invalid a gift to illegitimate ‘family’ members. Re Adams and the Kensington Vestry (1884) CA The testator provided by his will that all his property real and personal should pass to his wife, her heirs, personal representatives and assigns, ‘in full confidence that she would do what was right as to the disposal thereof between his children, either in her lifetime or by will after her decease’. The question arose whether this amounted to an absolute gift in favour of the wife, or whether the words of the will had imposed a trust in favour of her children. Held the words created an absolute gift in favour of the widow, unfettered by any trust. The reference to the children had been made merely to call to his widow’s attention the moral obligations which had weighed upon the testator in making an absolute gift to her. His intention was merely to make express his motivation for making the gift. A testator’s ‘confidence’ in his donee might suggest a trust in some contexts, but in the present case, on a proper construction of the whole will, no trust had been intended. Comiskey v Bowring-Hanbury (1905) HL H, the testator, left to his wife, by his will, ‘the whole of my real and personal estate and property absolutely in full confidence that she will make such use of it as I should have made myself and that at her death she will devise it to such one or more of my nieces as she may think fit and in default of any disposition by her thereof by her will or testament I hereby

18 Certainty Requirements direct that all my estate and property acquired by her under this my will shall at her death be equally divided among the surviving said nieces’. Held, upon a true construction of the words of the will, the disposition took effect as a trust in favour of the wife subject to a gift over in favour of the nieces should the wife not provide for them in her will. Paul v Constance (1977) CA Mrs P and Mr C lived together as man and wife. C received £950 in settlement of an action for personal injuries, which they decided to deposit in a bank account. The account was opened in C’s sole name so as to avoid any embarrassment in view of the fact that C and P were unmarried. C frequently assured P that the money in the account was as much hers as his and that she could make withdrawals with C’s written authority. In fact, only one withdrawal was ever made from the account, the sum withdrawn being then divided equally between C and P. On the other hand, further monies were paid into the account, notably their joint winnings from playing ‘bingo’. C eventually died intestate and his executors closed the bank account, the balance being then roughly equivalent to the original deposit of £950. P claimed that the money in the account had been held by C in trust for P and C. Held the words frequently used by C to assure P of her joint entitlement to the monies in the account were sufficient to constitute a declaration of trust. The absence of the word ‘trust’ was not fatal to the finding of an express declaration of trust, taking into account the ‘unsophisticated character of the deceased and his relationship with the plaintiff’. The Court of Appeal acknowledged that this was a ‘borderline’ case, but found a trust on the facts. The plaintiff’s claim succeeded. Q Was this case decided on the right side of the borderline? Was it correct to find an express trust on the basis of ‘loose conversations’ (compare Jones v Lock, above). If C had intended to declare a trust, at which precise point in time did he declare it?

3.2.1 Intention to create a trust or a gift? Re The Trusts of the Abbott Fund (1900) Dr Fawcett of Cambridge collected £500, from various subscribers, for the maintenance and support of two elderly, deaf sisters. No arrangement was made as to the disposal of any sums surplus to their needs. In the event, they died leaving a surplus of £367. Held the surplus in the ‘Abbot Fund’ account was held on a resulting trust for the subscribers to the fund in proportion to their contributions thereto. The money had never been the property, absolutely, of the ladies ‘so that they should be in a position to demand a transfer of it to themselves, or so that if they became bankrupt the trustee in bankruptcy

19 BRIEFCASE on Equity and Trusts should be able to claim it’. Rather, the monies in the fund had been held to benefit the ladies in a particular way, that purpose having failed, a resulting trust arose. Re Andrew’s Trust (1905) The Bishop of Jerusalem had died and a fund was set up to finance the education of his children. When all the children had grown up and their education had been completed, there remained a surplus of monies in the fund. Held the surplus should be divided equally between the Bishop’s children. It should not be held on resulting trust for the subscribers to the fund. The donations were treated as a gift to the children, albeit for the primary purpose of their education. Q How can the decision in Re Andrew’s be reconciled with the decision in Re Abbott? Is it enough to point to the fact that the beneficiaries in Re Abbott had died? What if the beneficiaries in Re Andrew’s had died before completing their education, what would have happened then? (See, also, Re Osoba, 1.2.4.)

3.2.2 The effect of precedent Re Hamilton (1895) CA H, a testatrix, left certain legacies to her nieces ‘for their sole and separate use’, adding, ‘I wish them to bequeath the same equally between the families [of certain named individuals]’. The question was whether the additional words imposed a trust on the gift to the nieces. Held the legacies belonged to the nieces absolutely and were not impressed with any trusts. Lindley LJ determined that in each case the wording of the will should be construed to find its proper meaning ‘and if you come to the conclusion that no trust is intended, you say so, although previous judges have said the contrary on some wills more or less similar to the one which you have to construe’. Precedent should not be conclusive of the question of construction. Re Steele’s Will Trusts (1948) S, the testatrix, left an heirloom to her son, to be held by him for his eldest son and so on ‘as far as the rules of law and equity will permit’, adding ‘I request my said son to do all in his power by his will or otherwise to give effect to this my wish’. The phrasing of the gift exactly reproduced the wording of a similar gift in a previous reported case. In that case, the trust had been held to be effective. Held, in choosing to adopt the precise wording used in a previous reported case, the testatrix had made clear her intention to achieve the result which was achieved in that previous case, namely a trust binding on

20 Certainty Requirements the son. Accordingly, the wording of the present gift would take effect as a valid trust of the heirloom. Q How can the decisions in Re Hamilton and Re Steele’s Will Trusts be reconciled? Re Endacott (1960) CA E, a testator, left his residuary estate to his local parish council ‘for the purpose of providing some useful memorial to myself’. Held the gift failed. It could not be construed as an absolute gift to the parish council for its own use. The words ‘for the purpose of providing some useful memorial’ showed E’s imperative intention to create a trust. Such a trust, being a trust for a purpose, and not for a human beneficiary, must fail. The only exceptions to this rule were charitable purpose trusts (see Chapter 7) and certain recognised ‘anomalous’ purpose trusts (see 6.2). The trust in the present case was not saved as being within these exceptions and no new exception would be created.

3.3 Certainty of subject matter Re Thomson’s Estate (1879) The testator, T, left realty and personalty to his wife by his will ‘for the term of her natural life to be disposed of as she may think proper for her own use and benefit’, providing further that, ‘in the event of her decease should there be anything remaining of the said property or any part thereof’, the said remainder should pass to certain named persons. Held the widow took a life interest with a power to dispose of the property during her lifetime, but the provision as to the testamentary gift of the remainder would be void for uncertainty of subject matter. Re Golay (1965) The testator directed his executors ‘to let Tossy ... enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties ...’. The issue was whether the direction to allow a ‘reasonable’ income was void for uncertainty. Held the words ‘reasonable income’ invited an objective determination by the court, which the court was quite capable of carrying out. As the judge said, ‘the court is constantly involved in making such objective assessments of what is reasonable’. Re London Wine Co (Shippers) Ltd (1975) LW Ltd was a wine merchant which ran its business on the basis that wine ordered by customers was held on trust by the company from the date of each customer’s order and until delivery to the customers. However, the bottles representing each order were not physically separated from the company’s stocks until delivery. So, supposing the customer had ordered

21 BRIEFCASE on Equity and Trusts

20 bottles of Lafite 1970 out of the company’s 80 bottle holding, the question would arise whether the subject matter was sufficiently certain for the company to be treated as trustee of the customer’s order. Held there would be no trust of the 20 bottles. An express trust had certainly been intended by the company but the subject matter had not been removed from the company’s general stock and there was therefore insufficient certainty of subject matter. To have achieved certainty of the trust of 20 bottles the company could have declared itself trustee of ‘one- quarter’ of the general stock of 80 bottles. Hunter v Moss (1994) CA The defendant was the registered owner of 95% of the issued share capital of a limited company. The trial judge held that the defendant had orally declared a valid trust of 50 of his shares (being 5% of the total issued share capital of the company). The defendant applied by motion to have the judgment set aside, on the ground, inter alia, that there could not have been a valid declaration of trust because the subject matter of the trust was uncertain. The deputy judge dismissed the motion whereupon the defendant appealed. Held the appeal was dismissed. All the shares in the company were identical in nature, it was therefore quite valid to declare a trust of 50 shares without specifying which 50 shares were intended to form the subject matter of the trust. Re London Wine Co (Shippers) Ltd (1975) was distinguished.

3.4 Uncertain subject matter may indicate uncertain intention The Mussoorie Bank Ltd v Raynor (1882) PC A testator left the whole of his estate to his widow by his will stating that he felt ‘confident’ that she would ‘act justly to our children in dividing the same when no longer required by her’. The question was whether his widow was obliged to hold the estate on trust for their children. Held uncertainty of subject matter was one factor which suggested that a trust had not been intended. Thus, certainty of intention and certainty of subject matter being absent the widow took the estate absolutely, free from any trust. Re Last (1958) The testatrix, L, left all her property to her brother, directing that upon his death ‘anything that is left’ should pass to her late husband’s grandchildren. When L’s brother died intestate, and without issue or relations, the grandchildren applied to court claiming the residue of L’s estate. The Treasury Solicitor argued in response that on a true

22 Certainty Requirements construction of her will L had made an absolute gift of her property to her brother and that the Crown was therefore entitled now to the residue as bona vacantia. Held on a proper construction of the will, L’s brother had been entitled only to a life interest in the property and, accordingly, the applicants would be entitled to equal shares of the residue of L’s estate. The judge was impressed by the absence of any words indicating the absolute nature of the gift to L’s brother. Note The decision in Re Last can be criticised as an instance of a judge finding a trust because the words of the will did not suggest sufficient certainty of intention to make an absolute gift of the estate. The orthodox approach, as we have seen, is just the opposite. Namely, to presume an absolute gift in the absence of certainty of intention to create a trust. However, can the decision be justified because the last thing the testatrix would have intended was that the property should have passed to the Crown?

3.5 Certainty of object

Note See, generally, Chapter 6 on purpose trusts and Chapter 7 on charitable trusts.

3.5.1 Class ascertainability Inland Revenue Commissioners v Broadway Cottages (1955) CA A settlor settled £80,000 on trust to apply the income therefrom for the benefit of the members of a class of beneficiaries in such shares as the trustees in their absolute discretion saw fit. It was not possible to list all the members of the class at any one time, but it was possible to say with certainty whether any particular claimant was or was not a member of the class. Two charities who had received monies from the trustees under the terms of the trust claimed to be exempt from income tax thereon. Held the trusts of the income were void for uncertainty of object and, accordingly, the monies which the charities had received could not qualify as income of the charities for which they could claim exemption from income tax. A trust for members of a specified class was void for uncertainty, unless every individual member of the class could be listed at a given time. This is the so called ‘class ascertainability’ text. The reason given for the fixed list rule was that there are circumstances when a trust might fall to be carried out by the courts, and the courts, according to the

23 BRIEFCASE on Equity and Trusts orthodox view, must effect an equal division of the fund on the basis that ‘equality is equity’. Equal division obviously necessitates a complete fixed list of the members of the class of potential beneficiaries.

3.5.2 Individual ascertainability McPhail v Doulton (Re Baden’s Deed Trusts (No 1) (1970) HL Mr B settled a trust for the benefit of certain persons connected with a company controlled by him. The deed granted the trustees an absolute discretion to apply the net income ‘to or for the benefit of any officers and employees or ex-officers or ex-employees of the company or to any relatives or dependants of any such persons in such amounts at such times and on such conditions (if any) as they think fit ...’. The first question was whether the deed had (1) granted the trustees a power of appointment among the class, or (2) had subjected them to a discretionary trust. The second question, which flowed from the first, was ‘is the gift void for uncertainty’? If the gift was in the form of a power, the trustees would have been able to appoint (distribute part of the fund to) any applicant of whom it could be said with certainty that they were or were not within the class of ‘staff, relatives or dependants’. If, on the other hand, the gift was in the nature of a trust, the trustees would only have been able to appoint beneficiaries if every member of the class had been identified (see IRC v Broadway Cottages, 3.5.1). Held the deed created a trust, not a power. However, the trust would not fail for uncertainty of object, even though it would not be possible to draw up a complete fixed list of every potential beneficiary within the class. Lord Wilberforce rejected what he considered to be a narrow and artificial distinction between discretionary trusts and powers of appointment in the context of gifts of this sort. According to his Lordship, ‘such distinction as there is would seem to lie in the extent of the survey which the trustee is required to carry out ... a wider and more comprehensive range of inquiry is called for in the case of trust powers than in the case of powers’. Nor did his Lordship find himself compelled by the orthodox argument that a fixed list was required in order that the court could make a distribution in the event that the trust might fall to be carried out by the courts: ‘Equal division is surely the last thing the settlor ever intended: equal division among all may, probably would, produce a result beneficial to none. Why suppose that the court would lend itself to a whimsical execution?’ Rather, ‘the court if called upon to execute the trust power, will do so in the manner best calculated to give effect to the settlor’s or testator’s intentions’. In a move away from the orthodox approach, his Lordship held that the test of certainty of object which had hitherto been applied to powers (laid down by the House of Lords in Re Gulbenkian’s Settlements (1970)) should henceforth apply to discretionary trusts. That test, known as the

24 Certainty Requirements

‘individual ascertainability test’ is whether it can be said with certainty that any individual potential beneficiary is or is not a member of the class of potential beneficiaries. ‘Certainty’ here was of two types: ‘linguistic uncertainty’ (where the class of beneficiary is not susceptible of legal definition) would render the gift void, whereas ‘evidential uncertainty’ (which is uncertainty as to the practical identification of individual beneficiaries) would not render the gift void. His Lordship also referred to a third case where the meaning of the words is clear but the definition of beneficiaries is so hopelessly wide as not to form ‘anything like a class’ so that the trust is ‘administratively unworkable’. Note An example of administrative unworkability is illustrated on the facts of R v District Auditor ex p West Yorkshire Metropolitan County Council (1986), where the council, before its abolition, purported to set up a trust ‘for the benefit of any or all or some of the inhabitants of the county of West Yorkshire’.

Re Baden’s Deed Trusts (No 2) (1973) CA Having considered the Baden’s Deed Trusts in McPhail v Doulton (see above), the House of Lords remitted the case to the High Court to apply the individual ascertainability test to the deed, to determine, inter alia, whether the class ‘relatives’ was sufficiently certain. The judgment of the High Court was appealed. Held the term ‘relatives’ was conceptually certain and the trust was therefore valid. However, their Lordships did differ in their conception of ‘relatives’. Sachs LJ took ‘relatives’ to mean any persons who could ‘trace legal descent from a common ancestor’, whereas Stamp LJ took it to mean ‘legal next of kin’ of the employees. Q Do you agree that the term ‘relatives’ is conceptually certain?

3.5.3 Absolute gift subject to a condition precedent Re Barlow’s Will Trusts (1979) A testatrix died leaving a collection of paintings in her will. Having made some specific bequests, she gave the remainder of the paintings to her executor on a trust for sale but subject to a direction that ‘any members of my family and any friends of mine who may wish to do so’ should be allowed to purchase any of the paintings at far below their market values. The executor took out a summons for a declaration as to whether the gift to the ‘friends’ was void for uncertainty. He also sought a direction as to the proper meaning of ‘family’ in the context of this gift. Held the direction did not fail for uncertainty. If it could be said with certainty that a particular claimant qualified as a ‘friend’, a sale of paintings to that person would be valid under the terms of the will. This

25 BRIEFCASE on Equity and Trusts was because uncertainty as to whether other persons may or may not be ‘friends’ could have no effect on the quantum of the gift to those persons who clearly qualified as ‘friends’. In the same way that it was unnecessary to establish a precise definition of ‘friend’ for the gift to be effective, it was also unnecessary to restrict the meaning of family to ‘statutory next of kin’. For the purposes of the present gift, it was sufficient to define family as ‘blood relations’.

26 4 Perfecting Gifts and Constituting Trusts

4.1 Perfecting a gift

Note An absolute gift to X from Y is perfected by effecting a transfer of the property to X, being careful to use the mode of transfer required by law for that particular type of property (as to which see 4.3), or by Y’s execution of a valid legal deed of gift in favour of X. The rule in Strong v Bird, and the rules governing a donatio mortis causa, are notable equitable exceptions to these legal rules.

4.1.1 The rule in Strong v Bird Strong v Bird (1874) B borrowed the sum of £1,100 from his stepmother. She lived in his house and paid rent quarterly and so it was agreed that B would repay the loan by deducting £100 from each quarter’s rental payment. The deduction was made on two consecutive quarter days but on the third quarter day the stepmother insisted upon paying her full rent without deduction. She continued to make full payments of rent on every quarter day until her death, four years later. B was appointed as his stepmother’s sole executor. This action was brought by S, the stepmother’s next of kin, alleging that B should be charged with a debt of £900, representing the unpaid portion of the loan. Held B owed no debt to the stepmother’s estate. The appointment of B as executor released the debt at law, while the stepmother’s continuing intention (up until her death) to make a gift of the £900 to B released the debt in equity. Her continuing intention to make such a gift was amply evidenced by her making nine quarterly payments of the full rent without deduction. Re Stewart (1908) The testator, S, by a codicil to his will, left all the monies in a certain bank account to his widow. The will appointed the widow to be one of his

27 BRIEFCASE on Equity and Trusts executors. A few days before S’s death, he purchased, through agents, some valuable ‘bearer bonds’. In the event, the bonds were not delivered until after his death, at which time they were delivered to S’s executors. S’s widow brought this action against the other executors to determine whether she was entitled to the bonds in addition to the monies in the bank account. Held the rule in Strong v Bird was not restricted to the release of a debt and it was irrelevant that the intended donee might not be the sole executor, but one of many. The widow was entitled to claim the bonds under the rule because S had expressed an inter vivos intention to make a gift to his widow of his personal estate and that intention had continued until his death. Re James (1935) J senior, the deceased, died intestate in 1924. His son, J junior, died intestate in 1933. Mrs J had been employed by J senior as a housekeeper. She had received no payment for her services, but had been regularly assured By J senior that his house and furniture would be hers upon his death. After the death of J senior, J junior had left the house taking only a few small articles with him. He left Mrs J in occupation of the house and left the deeds to the house in her possession. After the death of J junior, letters of administration were granted to Mrs J, constituting her administratrix of the estate of J junior. The question arose whether the rule in Strong v Bird should be extended to perfect an otherwise imperfect gift to a donee who had not been appointed by the testator to be his executor, but had only fortuitously been appointed his administratrix by the court. Held the otherwise imperfect gift to the housekeeper was perfected by her appointment as administratrix to the estate of J junior. She had thereby acquired the legal estate to the property, while the equitable estate was hers by virtue of J junior’s intention to give the property to her, which intention continued up until his death. Q Does the decision in Re James represent an extension too far of the rule in Strong v Bird?

4.1.2 Donatio mortis causa Wilkes v Allington (1931) A widow mortgaged a farm, in which she held a life interest, to her late husband’s brother, A. After the widow’s death, he passed the deeds to the farm, apart from the mortgage deed, to the widow’s executors (his nieces). It later transpired that A was dying of an incurable disease and so, in anticipation of his death, he passed a sealed envelope to his nieces, which turned out to contain the mortgage deed. Some short time later, A caught a chill and died of pneumonia. This action was brought by his executors,

28 Perfecting Gifts and Constituting Trusts claiming that the mortgage was a subsisting security which could be enforced against the nieces. Held the mortgage could not be enforced. The otherwise imperfect gift of the mortgage to the nieces was made perfect by a valid donatio mortis causa (DMC). A DMC is a gift made in contemplation of death where part of the means of acquiring the subject matter of the gift has been passed to the donee in circumstances where it was clear that the gift was only to become binding on the donor’s death. In order for a DMC to take effect, it was not necessary for the donor to have died from the same disorder as that from which he had been suffering when contemplating death. Sen v Headley (1991) CA Mrs S had lived with a man for several years. On his death-bed, he gave her the keys to a box containing the deeds to his house and told her that the house was hers. Held this was a valid DMC. The court rejected the orthodox assumption that DMC could not apply to gifts of land.

4.2 Constitution of a trust

Note A valid will automatically constitutes any will trust contained within it. Inter vivos trusts, however, must satisfy certain constitutional requirements. Thus, an inter vivos trust may be constituted where the owner of property, X, declares himself, or herself, to be a trustee of it for the benefit of Y (a declaration of trust) or where X transfers the trust property to Z for the benefit of Y (a trust by transfer).

4.3 Constitution by transfer of legal title to trustees

4.3.1 Where the trust property consists of shares Milroy v Lord (1862) A settlor owned shares in a bank which he purported to transfer to L by deed, to be held by L on trust for M. The settlor later passed the share certificates to L. L was the settlor’s attorney and was therefore authorised to transfer the shares to M, but ultimately there could only be a valid transfer of the shares by registration, at the bank, of M as owner of the shares. This registration was never carried out. The issue was whether M could claim the shares under a trust created by the settlor. Held, on the facts, no valid trust had been created. M had not provided consideration for the shares, he was therefore a mere ‘volunteer’. Applying the maxim that ‘equity does not assist a volunteer’, it followed

29 BRIEFCASE on Equity and Trusts that the settlement would not be binding on the settlor (even if he had wished it to be so) unless the settlor had ‘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’. The settlor could have transferred the property to M by way of gift, or transferred the property to L upon trust for M, but neither method of constituting the settlement had been effective on the facts of the present case, because there could be no valid transfer of the shares without registration. Further, if the settlement was intended to take place by transfer the court would not give effect to it by finding a valid declaration of trust. The court will, on a proper reading of the facts, construe every settlement as either an attempted outright gift, an attempted trust by transfer to trustees or an attempted declaration of trust constituting the settlor trustee. If the settlor’s chosen mode of donation fails, the court will not perfect the donation by allowing it to take effect by another of the modes. Note The effect of valid constitution of a trust is to transfer beneficial ownership of the trust property from the settlor to the beneficiaries of the trust. Until the trust is validly constituted, it will not bind the settlor, after it is validly constituted the settlor will no longer be able to claim the trust property as his own.

Re Fry (1946) F, a resident of the United States, owned shares in an English company which he transferred by way of gift in favour of his son. By reason of war- time restrictions imposed upon the transfer of securities, the English company was prohibited from registering, and refused to register, the transfer without Treasury consent. The forms necessary to obtain consent were sent to the donor to sign, which he duly did and he returned them to the company. F died, however, before consent was obtained from the Treasury. Held, the transfer being ineffective, the intended gift was incomplete. The shares passed into F’s residuary estate. Re Rose (1952) CA In March 1943, R transferred 10,000 shares in an unlimited company to his wife and on the same day transferred a further 10,000 shares in the same company to trustees to hold upon the terms of a settlement. The transfers were in an authorised form. In the event, the transfers were not registered by the company until June 1943. R died in 1947 after which, in accordance with certain tax regulations, the Inland Revenue claimed estate duty on the shares because the gift had not been completed before April 1943.

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Held R had done everything in his power to transfer his legal and equitable interest in the shares on the date of the transfer in March 1943. The factors which delayed the registration of the legal title until after April 1943 were beyond R’s control. Counsel for the Inland Revenue had argued that the purported transfer must have been entirely ineffective according to Milroy v Lord, but the court held that Milroy v Lord would not invalidate a transfer in a case such as the present where the donor, after the purported transfer, would not be permitted to assert any beneficial ownership in the shares at all. R had divested himself entirely of his equitable interest in the shares and, accordingly, his estate would not be liable to pay tax thereon. This result was not affected by the fact that, between March 1943 and the date when the legal title was registered with the company, R continued to hold the legal title as a nominal trustee. T Choithram International SA v Pagarani (2001) PC TCP was a successful businessman who had been diagnosed as having terminal cancer. He executed a trust deed at his bedside in order to establish a foundation as an umbrella organisation for a number of charities he had established during his life. Immediately after signing the deed, he stated that all his wealth would now belong to the foundation. TCP was a trustee of the foundation and the other trustees signed the deed the same day or shortly thereafter. Later, the directors of four companies controlled by TCP passed resolutions confirming that the companies’ shares and assets would henceforth be held by the trustees of the foundation. TCP didn’t actually transfer any shares during his lifetime. After TCP’s death the companies registered the trustees of the foundation as shareholders. Held, although equity will not aid a volunteer, neither would it strive officiously to defeat a gift. The words ‘I give to the foundation’ could have meant only one thing in the context of the case, namely ‘I give to the trustees of the foundation’ (for the foundation had no identity apart from its trustees). Although the words appeared to be words of outright gift, they really constituted a gift on trust. The fact that there had been no valid transfer to all the trustees was no obstacle to finding a trust on these facts, because TCP was one of the trustees and therefore all the trust property had already vested in one of the trustees.

4.3.2 Where trust property comprises land Richards v Delbridge (1874) D, the tenant of certain premises and the owner of a business which he carried on at those premises, purported to make a gift of his lease and business to his grandson R. R was an infant at the time. In order to give effect to the gift, D endorsed and signed the following memorandum on

31 BRIEFCASE on Equity and Trusts the lease: ‘This deed and all thereto belonging I give to R from this time forth, with all the stock-in-trade.’ He then delivered the deed to R’s mother to hold for R. D later died, making no reference to the gift in his will. At issue was whether the lease and the business should pass to R, by gift or trust, or whether the property should pass to other persons under D’s will. Held, the property passed under the will, there being no valid gift or declaration of trust in favour of R. R had not given any consideration for the property and was, therefore, a mere ‘volunteer’, whom equity would not assist. Accordingly, R would only be entitled to take the property if there was evidence of a valid gift or a trust of the property. On the facts, there had not been a perfect gift because there had not been a formal legal conveyance to R. There could not be a validly constituted trust imposed upon R’s mother because there had not been a formal legal conveyance to R’s mother. Further, there could not be a validly constituted trust binding on D, because D had not expressed with sufficient certainty his intention to constitute himself a trustee by declaration of trust. The court would not spell out a trust from a failed gift. Milroy v Lord followed. Section 52(1) of the Law of Property Act 1925 All conveyances of land or of any interest therein are void for the purpose of conveying or creating a legal estate unless made by deed.

Section 19(1) of the Land Registration Act 1925 Transfer of the registered estate in land shall be completed by the registrar entering the transferee on the register as the new proprietor of the estate.

4.3.3 Where the trust property is an ordinary chattel Re Cole (1964) CA A husband bought a house in London while his wife and family were living elsewhere. Some time later, his wife came to London and he took her to the house and showed her round. The wife was particularly impressed by certain chattels, namely a silk carpet and a card table. After the tour of the house, the husband announced to her ‘it’s all yours’. Some 16 years later, the husband was declared bankrupt. In the year after the bankruptcy, the wife sold the moveable contents of the house. This action was brought by the trustee in bankruptcy to recover from the wife the proceeds of sale of the chattels. Held words of gift were not in themselves enough to perfect a gift of chattels. In order to assert title to the chattels, the wife must also prove some act of delivery as would unequivocally show the husband’s intention to transfer title to the wife. In the absence of evidence of such an act, legal

32 Perfecting Gifts and Constituting Trusts title to the chattels must be said to have remained with the husband and to have vested in his trustee in bankruptcy. Judgment accordingly for the trustee in bankruptcy. Note In Jaffa v Taylor Galleries Ltd (1990), it was held that a trust of a painting had been validly constituted where the trust had been declared formally in a document, of which the trustees each had a copy, even though the painting had not been physically transferred to the trustees (one of whom lived abroad).

4.3.4 Where the trust property is a chose in action Section 136(1) of the Law of Property Act 1925 Any absolute assignment by writing under hand of the assignor ... of any debt or other legal thing in action, of which express notice has been given to the debtor ... or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law ... to pass and transfer from the date of such notice ... the legal right to such debt or thing in action ...

4.4 Constitution by transfer where the subject of the gift or trust is an equitable interest

Note See s 53(1)(c) of the Law of Property Act 1925 (2.2.1).

Re McArdle (1951) CA The testator, M, left his residuary estate upon trust for his widow for life remainder to his five children in equal shares. During the lifetime of M’s widow, one of the children, MM, carried out improvements to a property forming part of the testator’s residuary estate. The testator’s other children signed a document in these terms: ‘To MM ... in consideration of your carrying out certain alterations and improvements to the property ... at present occupied by you, we the beneficiaries under the will of M hereby agree that the executors ... shall repay to you from the said estate when so distributed the sum of £488 in settlement of the amount spent on such improvements’. Accordingly, when the widow died MM claimed the £488. However, the other children of M objected to the claim. The questions which arose for consideration were, first, whether the signed document could take effect as a binding contract, and secondly, in the alternative, if it failed as a contract could the document constitute an effective assignment of an equitable interest to MM?

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Held the document did not constitute an enforceable contract, because the works of improvement had been completed before the execution of the document and therefore the consideration for the agreement was wholly past. Nor could the document constitute a perfect gift of the equitable interest. The document had been expressed in the form of a contract for valuable consideration and it would therefore be artificial to construe it as being a valid equitable assignment. Accordingly, MM had no entitlement in law or equity to receive the £488. To remedy this, the beneficiaries would have had to have authorised the executors to pay the £488. Until this had been done, the beneficiaries had not done all within their power to dispose of their interest in the £488. Note The above case is authority for the proposition that a transfer of an equitable interest is not complete until the trustees of the trust have been given notice of the transfer.

4.5 Constitution of a trust by declaration

Note See s 53(1)(b) of the Law of Property Act 1925 (2.2.1); Jones v Lock (3.2); Paul v Constance (3.2); Simpson v Simpson (2.1.1).

4.6 Constitution of a trust by contract Re Plumtre (1910) P and his wife executed a marriage settlement to which the trustees were also parties. In the deed, the wife covenanted to settle her after-acquired property on trust for herself, her husband, their prospective children and ultimately for her next of kin. Some years later, the husband made a gift to his wife of certain valuable stock. The wife sold this and re-invested the proceeds in other stock which remained registered in her sole name right up until her death. She died not having had children. After her death, letters of administration were granted to her husband and the stock was, accordingly, placed in his name. This action was brought by the deceased’s next of kin, claiming to be entitled to the stock under the terms of the marriage settlement. Held the next of kin did not fall within the marriage consideration and therefore were mere volunteers. As such they were not entitled to enforce the contract to settle. A voluntary contract to create a trust under which the next of kin might get an interest must be distinguished from a declaration

34 Perfecting Gifts and Constituting Trusts of trust in favour of the next of kin. The next of kin were not beneficiaries under the settlement and in the result the husband could keep the stock. Note The result in Re Plumtre may have been different if there had been children of the marriage. Such children would have fallen within the marriage consideration and, accordingly, would not have been mere volunteers. They would have been entitled to enforce the covenant to settle, with resulting benefit, not only for themselves, but also for prospective beneficiaries such as the next of kin in that case. The judgment of the Court of Appeal in the 1880 case, Re D’Angibau, acknowledged the possibility that volunteers might benefit indirectly in this way.

Pullan v Koe (1913) By a marriage settlement of 1859, a husband and wife covenanted to settle the wife’s after-acquired property upon trusts for the benefit of the husband, the wife and their future children. In 1879, the wife’s mother made a gift to her of £285 which the wife paid into her husband’s bank account. A portion of this money was later invested in two bearer bonds which remained at the bank (gathering interest) until the husband’s death in 1909. The trustees of the marriage settlement brought the present action against the husband’s estate, claiming that the bonds should be held for the benefit of the beneficiaries of the marriage settlement. Held, under the Statute of Limitations, the trustees were far too late to sue at common law for damages on the covenant. However, the husband had received the bonds with notice of the trusts of the marriage settlement and had given no valuable consideration for the bonds. Being, therefore, a mere volunteer, he took the bonds subject to the trusts of the marriage settlement. Accordingly, even though their legal action had been time- barred, the trustees were able to claim the bonds in equity on behalf of the beneficiaries. A person can covenant to assign property which is to come into existence in the future, and when it comes into existence, equity treats as done that which ought to be done and will insist upon the specific performance of the covenant. It is true that the court will not assist a volunteer, but here the plaintiffs (the trustees) were parties to the contract and were acting on behalf of persons within the marriage consideration. Re Pryce (1917) On facts in other respects similar to those in Re Plumtre (above), trustees sought directions as to whether they should take proceedings to enforce, for the benefit of statutory next of kin, a covenant to settle after-acquired property. Held the trustees were directed not to take steps to enforce the covenant for the benefit of the next of kin. The next of kin, being mere volunteers,

35 BRIEFCASE on Equity and Trusts had no direct means of enforcing the covenant, either by an action at law for damages for breach of contract, or as beneficiaries under a trust declared in their favour. As they could not enforce the covenant by direct means, the court would not permit them to enforce it by indirect means. Note In Re Kay’s Settlement (1939), which applied Re Pryce, the judge directed the trustees not to take steps to enforce a covenant on behalf of volunteers, but added a further direction that the trustees should not sue for damages for breach of the covenant.

Re Gillott’s Settlement (1934) G executed a marriage settlement under which property was settled upon his wife if she survived him. By the terms of the settlement, the wife had the power to appoint the settled property in favour of any new husband she might marry, but the new husband would forfeit any entitlement to the property if he assigned it to a third party. After G’s death, his widow remarried. An agreement for a loan was made between the widow, the new husband and a lender. The agreement provided that the husband and wife should apply income received under the marriage settlement in discharge of the loan, any surplus income to be handed to the husband and wife. A further agreement in similar terms provided that any surplus should be held by the lender in trust for the husband and wife and certain other named parties. The wife died and by her will appointed an interest in the income of the settlement in favour of her husband until he should assign it. Held, although not intended to have that effect, the loan agreements constituted an equitable assignment of the income by the husband, and, accordingly, the husband had forfeited his equitable interest. A contract for consideration to convey future property to a person upon trust was valid. After the wife’s death, her husband became a trustee of the settlement income for the benefit of those persons with interests under the loan agreements. Re Haynes Will Trust (1949) The testator, H, by his will directed his trustees to hold his residuary estate on protective trusts for his sons. The trusts provided, inter alia, that the sons’ interests should vest in possession when the sons reached 21, but only if at that time the sons’ interests had not already been committed to pay some other person. Before reaching 21, one of the sons executed a marriage settlement in which he covenanted to settle, when he became entitled to it, one-third of his interest in his father’s residuary estate in favour of his wife.

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Held the covenant to settle after acquired property upon the terms of the marriage settlement constituted an equitable assignment of part of the son’s interest under his father’s will. Accordingly, the son had forfeited his interest in the residue under his father’s will. Re Gillott’s Settlement followed. Cannon v Hartley (1949) H and his wife, their marriage having broken down, executed a deed of separation. Their daughter, C, was also a party to the settlement. By the terms of the deed H covenanted to settle after-acquired property in the following terms: ‘If and whenever during the lifetime of the wife or [C] ... [H] shall become entitled ... under the will ... of either of his parents to any money exceeding in net amount or value £1,000 he will forthwith ... settle one-half of such money or property upon trust for himself for life and for the wife for life after his death and subject thereto in trust for the daughter absolutely.’ In due course, H became entitled to a valuable share of his mother’s estate. Shortly thereafter, H’s wife died. H refused to execute a settlement in accordance with his covenant to settle. C brought this action claiming damages for breach of the covenant. Held, because C had been a party to the deed and a direct covenantee of the covenant to settle, she was entitled to a significant award of compensatory damages at common law. Although equity will not assist a mere volunteer, in the present case, C did not require the assistance of equity, she was entitled, as a party to the covenant, to enforce directly her common law right to the benefits of that covenant. When a person executes a deed, any covenants within the deed are deemed, at common law, to have been made for legal consideration. Accordingly, as valid consideration had been given at common law the problems associated with C being a mere volunteer in equity did not arise. Re Ralli’s Will Trusts (1963) The testator, R, left his residuary estate to trustees on trust for his wife for life, remainder to his daughters H and I. H, by a marriage settlement, covenanted to settle her share on trustees for the benefit of her own children and ultimately for the children of I. A clause of the marriage settlement declared that all property within the terms of the covenant should be subject to the terms of the trusts pending assignment to the trustees. H died childless. Later, a trustee, who had been a party to H’s marriage settlement, was additionally appointed trustee under the will of R. That trustee, who happened also to be I’s husband, brought the present action, seeking directions as to whether H’s share of her father’s residuary estate should be held by him on the trusts of the marriage settlement, or under the terms of H’s will. He claimed that the property should be held on the trusts of the marriage settlement. H’s personal representatives claimed that H’s estate should be entitled, in accordance with H’s will.

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Held the plaintiff held H’s share of R’s estate on the trusts of the marriage settlement. Those trusts had become fully constituted when the legal title to the property had vested in the plaintiff in his capacity as trustee of R’s will trusts. The fact that the constitution had been purely fortuitous did not matter. In the alternative, assuming the remainder interest under R’s will to be ‘vested’ and not ‘after-acquired’ property, H held that property as trustee, because the execution of the marriage settlement had constituted a declaration of trust binding upon her pending transfer to the trustees of the settlement. According to either view, the property must be held upon the trusts of the marriage settlement. If it had been necessary to enforce performance of the covenant, equity would not have done so at the request of the beneficiaries under the settlement, as they were mere volunteers. In the present case, however, there had been no need to invoke the assistance of equity to enforce performance of the covenant. On the contrary, it had been for the defendants to invoke equity to show that it would be unconscientious for the plaintiff to perform the covenant. In the present case, it had not been unconscientious for the plaintiff to exercise his legal authority to perform the covenant and to carry out the settlement trusts. Re Cook’s Settlement Trusts (1965) In 1934, HC and his son FC (great grandchild of Sir Francis Cook) executed a settlement which provided that FC’s reversionary interest under a will should be exchanged for other property of equal value. The settlement also provided that some of the new property should be settled by FC on trust for certain named beneficiaries. That part of the new property which was not required to be so settled (primarily comprising valuable paintings) was to be held by FC for his own benefit, but it was agreed that the proceeds of the sale of any of the paintings, if sold during FC’s lifetime, should be paid to the trustees of the settlement to be held by them on the trusts of the settlement. FC later made a gift of one of the paintings (a Rembrandt) to his wife and she later expressed her intention to sell it. The trustees took out a summons for directions from the court as to what action the trustees should take if the painting were sold during FC’s lifetime and the proceeds not paid to them. Held the covenant to settle constituted a contract to settle after-acquired monies which did not exist at the time of the settlement and might never come into existence. The beneficiaries under the settlement had not been parties to the contract and accordingly they would not be permitted to sue on it. Nor had the beneficiaries provided consideration for the covenant to settle, either by providing valuable consideration or by falling within marriage consideration, therefore, being mere volunteers, equity would not assist them. Nor would the beneficiaries be entitled to require the trustees to enforce the covenant on their behalf.

38 5 Perpetuities and Public Policy Limitations on the Formation of Trusts

5.1 The rules against perpetuities

Note The law has always resisted attempts by persons to keep property tied up indefinitely for private purposes. There are a number of reasons for this. One reason is the desire to keep societal wealth in the open market, where it can assist in financial enterprise to the greater public good. Another is the perceived need to restrict the aggrandisement, over generations, of families and other private institutions. Whether such policy considerations are thwarted by the immortal modern corporation is a moot point, but they are certainly not defeated by the trust institution. A number of rules against perpetuity have seen to this. We will be considering the content of each of these rules throughout the remainder of this section.

5.2 The rule against remoteness of vesting

Note This rule provides that, where a gift is made to X subject to a contingency (a condition which may or may not be met, such as ‘upon X attaining a university degree’ or ‘reaching the age of 25’), the gift must vest in the donee of the gift (that is, the contingency must be met) within the ‘perpetuity period’. The perpetuity period for the purpose of this rule ends 21 years after the death of all ‘lives in being’. ‘Lives in being’ are any persons alive or in their mother’s womb at the effective date of the gift, the duration of whose lives might effect the date of the vesting of the gift. Inter vivos deeds of gift or trust are effective at the date of their execution. Testamentary gifts or trusts are effective, not at the date of the execution of the will, but at the date of the testator’s/testatrix’s death. If there are no ‘lives in being’, the perpetuity period will be a straightforward 21 years from the effective date of the gift.

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5.2.1 Common law rules

Note At common law, the rule has always been strictly applied. Because the property must vest within the perpetuity period, a gift will be declared void for perpetuity if it might vest outside the perpetuity period, no matter how improbable the likelihood of it so doing. The common law rule against remoteness of vesting is said to be concerned with possibilities, not probabilities.

Re Dawson (1888) The testator, D, left all his estate to trustees upon trust to pay an annuity to his daughter, M, for her life, and directing that after his daughter’s death the trustees should hold the estate for those of M’s children and thereafter for those of M’s grandchildren who should attain 21 or (in the case of females) should marry under that age. When D died, M was over 60 years of age and had one son and five daughters living. Held the gift in favour of the grandchildren was subject to a contingency and subject therefore to the rule against remoteness of vesting. At common law, the rule must be applied strictly and would render void any gift which might vest outside the perpetuity period, no matter how remote the possibility might be of it vesting so late. Accordingly, evidence was not admissible to show that at D’s death M had passed the age of childbearing and was, as a result, highly unlikely to produce any further children. Because there was a remote possibility of later born children of M (who would not, of course, have been lives in being at D’s death), there was a remote possibility that a later-born child of M might produce grandchildren of M outside the perpetuity period. (The perpetuity period being 21 years after the death of the last survivor of the lives in being, that is, M, M’s son and M’s five daughters living at D’s death.) Re Hargreaves (1889) CA H, a testatrix, left certain freehold properties to trustees for their own use but upon trusts to pay the rents therefrom to her sister, M, for life, then to M’s children successively for their lives, then to her sister, E, for life, then to E’s children successively for their lives. Finally, the rents were directed to be paid to whoever might be appointed by the last survivor of M, E and their children. The last survivor (the LS) eventually executed a will in which she purported to appoint the property in favour of a certain person. H’s heir at law claimed to be entitled to the property. Held the power of appointment could not be exercised by the LS because it fell foul of the rule against remoteness of vesting. This was because at the time of H’s death, which was the effective date of the gift, it could not be said with certainty that the LS would be ascertainable within the perpetuity period.

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Note Lives in being in the case of Re Hargreaves would have been those persons living at H’s death whose life-spans could have a bearing on the date at which the power of appointment would ultimately vest in the LS. Therefore, M, E and their children would all have been lives in being.

Re Moore (1901) The testatrix, M, bequeathed £500 to trustees upon trust to apply the income thereof towards the maintenance and repair of her brother’s tomb in Zambesi, Africa, ‘for the longest period allowed by law, that is to say, until the period of 21 years from the death of the last survivor of all persons who shall be living at my death’. Held it would be impossible to state with certainty when the last life in being had died, therefore the gift must fail for perpetuity. Re Wilmer’s Trusts (1903) CA W, a testatrix, devised her residuary real estate on trustees upon trust to pay the income therefrom to M for life and thereafter to M’s sons successively in tail male (which means that the land must pass from male heir to male heir). W died in October 1880 at which time M had not given birth to any sons who could qualify as beneficiaries under the trust. She was, however, pregnant with a son, S, who was born in February 1881. The question was whether S could take the property absolutely, or whether he merely held a life interest in accordance with the limitations specified in the trust. Held the limitations coming into effect after S’s life estate did not infringe the rule against remoteness of vesting. A child en ventre sa mere (in its mother’s womb) at the effective date of the gift, who is subsequently born, must be treated as having been a life in being at the effective date of the gift. Accordingly, S, who had been alive at the testatrix’s death, was a life in being. Because the tail male limitations would certainly have been satisfied within 21 years of S’s death (in fact, they would have come into effect immediately upon S’s death), those limitations fell within the perpetuity period and did not infringe the rule against remoteness of vesting. Re Gaite’s Will Trusts (1949) A testatrix, G, gave £5,000 to trustees upon trust to pay the income to HG for her life, and thereafter to pay the income and capital to such of HG’s grandchildren as should be living at G’s death or within five years of it, provided that such grandchildren reached 21 or (in the case of females) married earlier. At the death of the testatrix, HG was 67 and had two children and one grandchild. On the question whether the gift to HG’s grandchildren infringed, the rule against remoteness of vesting because of the possibility that HG might produce children more than 21 years after G’s death. 41 BRIEFCASE on Equity and Trusts

Held, quite apart from any question of physical impossibility, it would be a legal impossibility for HG to produce a child who could produce legal issue after the end of the perpetuity period. This is because the Marriage Act 1929 provided that a child under the age of 16 could not lawfully marry. Accordingly, the gifts to the grandchildren were valid.

5.2.2 Class gifts

Note Gifts and trusts are often made to a class, an example would be a gift or trust ‘to all my nephews who reach the age of 25’. A ‘class’ for this purpose comprises persons who ‘come within a certain category or description defined by a general or collective formula, and who, if they take at all, are to take one divisible subject in certain proportionate shares’ – per Lord Selborne LC in Pearkes v Moseley (1880). The basic common law position is that the gift or trust will be void unless all potential members of the class must satisfy the contingency within the perpetuity period. Thus, if (taking the example given at the beginning of this note and assuming that the gift has become effective today) there are three nephews in being and a fourth nephew is born a year from now, none of the nephews will take under the gift. The lives in being might all die tomorrow, in which event the fourth nephew will not reach 25 within the remaining 21 years of the perpetuity period.

Note The rule in Andrews v Partington (1791) was created to address the clear hardship of the basic common law treatment of class gifts. The rule allows a member of the class to take their share if they have already satisfied the contingency at the effective date of the gift. And if members of the class living at the effective date of the gift have not at that time already met the contingency, the rule permits the trustees to wait until the first member of the class satisfies the contingency, and to give that beneficiary their share at that time. Shares are worked out by closing the class of potential beneficiaries to include all members of the class living at the date when the first member of the class satisfies the contingency. Any later born members of the class will be excluded from taking any part of the fund.

Re Clifford’s Settlement Trusts (1981) C settled a fund on trustees for the benefit of his son’s children ‘born in C’s lifetime or after his death who before the expiration of the period of 21 years from the death of the survivor of C and the said son shall attain the age of 25 years and the other children of the said son living at the

42 Perpetuities and Public Policy Limitations on the Formation of Trusts expiration of such period’. At the date of the settlement, his son was 32 and had two children of his own. At the hearing of this case, those two children had attained 25. However, since C’s death the son had fathered another two children who had not yet attained 25. The question arising for consideration was whether the son’s eldest child had become entitled to a quarter share of the fund when he attained 25 or whether the gift was void for perpetuity. Held the rule in Andrews v Partington (1791) applied to save the gift. In the present case, the rule applied to allow a gift of a quarter of the fund to the eldest child. Also, the other three members of the class living when the eldest child reached 25 would be entitled to a quarter share upon satisfying the contingency. Any later born members of the class would be excluded from the gift. It was held that in order to exclude the effect of the rule, the words of the gift must be inescapably incompatible with the application of the rule. The fact that in the present case the rule could not apply to save the gift to part of the compound class of beneficiaries (namely those ‘other children of the said son living at the expiration of such period’) did not suffice to show an intention to exclude the effect of the Rule upon the gift to the principal beneficiaries. Note If any of the members of the closed class in Re Clifford’s had died before satisfying the contingent age of 25, their shares would have been distributed amongst the members of the class who had satisfied the contingency.

5.2.3 The Perpetuities and Accumulations Act 1964

Note The 1964 Act has the effect of saving a number of gifts which would otherwise have been void for perpetuity under the strict common law rules. It applies only to gifts coming into effect after 15 July 1964. Unfortunately, however, even after 1964, the common law rules must be applied first, and only if a gift is void for perpetuity at common law will it be permissible to apply the more generous provisions of the Act. If the gift is valid at common law, the gift will be subject to the common law rules, and not to the rules under the Act. A notable exception to this ‘double jurisdiction’ is the statutory perpetuity period contained in s 1 of the Act. Where a statutory period is specified in an instrument, the common law perpetuity period will have no application.

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Section 1 of the Perpetuities and Accumulations Act 1964 Where the instrument by which any disposition is made so provides, the perpetuity period ... shall be of a duration equal to such number of years not exceeding 80 as is specified ... in the instrument.

Section 2 of the Perpetuities and Accumulations Act 1964 (1) Where in any proceedings there arises on the rule against perpetuities a question which turns on the ability of a person to have a child at some future time, then: (a) ... it shall be presumed that a male can have a child at the age of 14 years or over, but not under that age, and that a female can have a child at the age of 12 years or over, but not under that age or over the age of 55; but (b) in the case of a living person evidence may be given to show that he or she will or will not be able to have a child at the time in question. (4) ... these provisions (except sub-s (1)(b)) shall apply in relation to the possibility that a person will at any time have a child by adoption, legitimation or other means.

Note The next section contains the so called ‘wait and see’ principle. Where a gift would have been automatically void at common law because of the possibility that it might vest outside the perpetuity period, the Act treats the gift as valid until such time as it is clear that their is no possibility of it vesting within the perpetuity period. So, the Act will not save a gift where, at the very end of the perpetuity period, the contingency has still not been met. In most cases, it vastly decreases the likelihood that a gift will be void for perpetuity.

Section 3 of the Perpetuities and Accumulations Act 1964 (1) Where ... a disposition would be void on the ground that the interest disposed of might not become vested until too remote a time, the disposition shall be treated, until such time (if any) as it becomes established that the vesting must occur, if at all, after the end of the perpetuity period, as if the disposition were not subject to the rule against perpetuities; and its becoming so established shall not affect the validity of anything previously done in relation to the interest disposed of by way of advancement, application of intermediate income or otherwise. (4) Where this section applies to a disposition and the duration of the perpetuity period is not determined by virtue of s 1 ... of this Act, it shall be determined as follows:

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(a) where any persons falling within sub-s (5) below are individuals in being and ascertainable at the commencement of the perpetuity period the duration of the period shall be determined by reference to their lives ... [unless] ... the number of such persons ... is such as to render it impracticable to ascertain the date of the death of the survivor; (b) where there are no lives ... the period shall be 21 years.

(5) The said persons are as follows: (a) the person by whom the disposition was made; (b) a person to whom or in whose favour the disposition was made, that is to say: (i) in the case of a disposition to a class of persons, any member or potential member of the class; (ii) in the case of an individual disposition to a person taking only on certain conditions being satisfied, any person as to whom some of the conditions are satisfied and the remainder may in time be satisfied; ... (iii) in the case of a special power of appointment exercisable in favour of members of a class, any member or potential member of the class. (c) a person having a child or grandchild within ... para (b) above, or any of whose children or grandchildren, if subsequently born, would by virtue of his or her descent fall within [that paragraph]; (d) any person on the failure or determination of whose prior interest the disposition is limited to take effect.

Note The next section, s 4, reduces contingent ages specified in gifts, and reduces the membership of class gifts, to whatever extent is necessary to save the gift. However, the provisions of s 3 must first be applied before reliance is placed upon the provisions of s 4. In practice, this will mean that s 4 is only applied as a last resort, when the gift would otherwise have no possibility of vesting within the perpetuity period.

Section 4 of the Perpetuities and Accumulations Act 1964 (1) Where a disposition is limited by reference to the attainment by any person or persons of a specified age exceeding 21 years, and it is apparent at the time the disposition is made or becomes apparent at a subsequent time: (a) that the disposition would ... be void for remoteness [under the common law rules]; but (b) that it would not be so void if the specified age had been 21 years, the diposition shall be treated as if, instead of being limited by reference to the age in fact specified, it had been limited by reference to the age nearest to that age which would, if specified instead, have prevented the disposition from being so void. 45 BRIEFCASE on Equity and Trusts

Q Consider s 4(1) of the Act, in what way, when combined with s 3 of the Act, is it more generous than the rule in Andrews v Partington? Section 4 of the Perpetuities and Accumulations Act 1964 (3) Where the inclusion of any person, being potential members of a class or unborn persons who at birth would become members or potential members of the class [would cause the disposition to be void for remoteness] those persons shall thenceforth be deemed for all purposes of the disposition to be excluded from the class, and the said provisions shall thereupon have effect accordingly. (4) Where ... it is apparent at the time the disposition is made or becomes apparent at a subsequent time that ... the inclusion of any persons, being potential members of a class or unborn persons who at birth would become members or potential members of the class, would cause the disposition to be treated as void for remoteness, those persons shall, unless their exclusion would exhaust the class, thenceforth be deemed for all purposes of the disposition to be excluded from the class.

Section 5 of the Perpetuities and Accumulations Act 1964 Where a disposition is limited by reference to the time of the death of the survivor of a person in being at the commencement of the perpetuity period and any spouse of that person, and that time has not arrived at the end of the perpetuity period, the disposition shall be treated for all purposes, where to do so would save it from being void for remoteness, as if it had instead being limited by reference to the time immediately before the end of that period.

5.3 The rule against excessive accumulation of income

5.3.1 General Section 164(1) of the Law of Property Act 1925 No person may ... settle or dispose of any property in such manner that the income thereof shall ... be ... accumulated for any longer period than one of the following, namely: (a) the life of the grantor or settlor; or (b) a term of 21 years from the death of the grantor, settlor or testator; or (c) the duration of the minority or respective minorities of any person or persons living or en ventre sa mere at the death of the grantor, settlor or testator; or (d) the duration of the minority or respective minorities only of any person or persons who under the limitations of the instrument directing the accumulations would, for the time being, if of full age, be entitled to the income directed to be accumulated; 46 Perpetuities and Public Policy Limitations on the Formation of Trusts

(e) the period of 21 years from the date of making the disposition; (f) the duration of the minority or minorities of any person in being at the date of making an inter vivos disposition. In every case where any accumulation is directed otherwise than as aforesaid, the direction shall (save as hereinafter mentioned) be void; and the income of the property directed to be accumulated shall ... go to and be received by the person or persons who would have been entitled thereto if such accumulation had not been directed.

Note Paragraphs (e) and (f) were added by the 1964 Act. They apply therefore only to gifts taking effect after 15 July 1964.

5.3.2 An exception to restrictions on accumulations Section 165 of the Law of Property Act 1925 Where accumulations of surplus income are made during a minority under any statutory power or under the general law [see 14.1], the period for which such accumulations are made is not ... to be taken into account in determining the periods for which accumulations are permitted to be made by [s 164] and accordingly an express trust for accumulation for any other permitted period shall not be deemed to have been invalidated or become invalid, by reason of accumulations also having been made as aforesaid during such minority.

5.4 The rule against inalienability of capital

Note A gift or trust will be void for perpetuity if it has the effect of rendering capital inalienable for a period longer than the perpetuity period. Property is inalienable if it cannot be disposed of. See 6.5 on unincorporated associations.

5.5 The rules against perpetuity and charities Re Tyler (1891) CA A testator gave a fund to the trustees of a certain charity and as a condition of the gift he directed them to keep his family vault at Highgate Cemetery ‘in good repair, and name legible, and to rebuild when it shall require’. If the trustees failed to comply with his request, the monies were directed to pass to another charity. Held the condition for the maintenance and repair of the vault was valid and binding on the first charity. Further, that the gift over to the second

47 BRIEFCASE on Equity and Trusts charity on failure to comply with the condition was good. The rule against perpetuities has no application to a transfer, on a certain event, of property from one charity to another.

5.6 The rules against perpetuity and pensions Air Jamaica Ltd v Charlton (1999) PC At first instance, a pension trust was held to be void under the rule against perpetuities with the result that the moneys passed bona vacantia to the Crown. Held the trust was valid. Lord Millett held that the pension scheme would ordinarily be void for offending the rule against perpetuities, given that there was no applicable statutory exemption to the common law rule, but that a new settlement was created every time a new member joined the scheme. Each new settlement complied with the rules against perpetuities because every new member qualified as a ‘life in being’ in relation to the particular settlement. There would have been a different outcome if the pension had not been a ‘defined benefits scheme’. If the rules of the scheme had allowed contributions by one member to be made available to pay out benefits to other members (who were not lives in being at the date of the settlement), the trust would have failed for perpetuity.

5.7 Public policy

5.7.1 Trusts intended to defraud creditors are void Re Butterworth (1882) CA A trader, B, before embarking upon a new business, made a voluntary settlement (that is, without legal ‘consideration’) for the benefit of his wife and children. His business eventually became insolvent, his liabilities far exceeding his assets. Held, irrespective of whether or not B had been solvent at the date of the settlement, the settlement was void as against the trustee in the liquidation. The settlement had clearly been executed with the intention of putting the settlor’s property out of the reach of his creditors. A person is not entitled to go into a hazardous business, and immediately before doing so settle all his property voluntarily, the object being this: ‘If I succeed in business, I make a fortune for myself. If I fail, I leave my creditors unpaid. They will bear the loss.’ Accordingly, the settlement was void for public policy reasons as an attempt to defraud creditors. Q Why were the trusts in Re Kayford Ltd and Barclays Bank Ltd v Quistclose Ltd (8.2) not void as attempts to defraud creditors?

48 6 Purpose Trusts

6.1 Pure purpose trusts Morice v Bishop of Durham (1804) CA A bequest was made to the Bishop upon trust for ‘such objects of benevolence and liberality as the Bishop of Durham in his own discretion shall most approve’. Held this was not a charitable trust, as it failed the requirement that such a trust be exclusively charitable (see 7.1). The bequest was not a gift to the bishop personally, it was a gift to be held by him on trust for an uncertain and unspecified purpose. Every non-charitable trust must have a definite object: ‘There must be somebody, in whose favour the court can decree performance.’ In the present case, the human object of the trust was uncertain and so the benefit of the trust resulted to the testator’s estate. Re Astor (1952) Non-charitable trusts were declared of substantially all the issued shares of ‘The Observer Limited’ for purposes including the ‘maintenance ... of good understanding .... between nations’ and ‘the preservation of the independence and integrity of newspapers’. Held the trusts were invalid because they were not for the benefit of individuals, but for a number of non-charitable purposes which no one could enforce. The trusts would, in any event, have been void for uncertainty. Re Shaw (1957) George Bernard Shaw left his residuary estate on trust to apply the income therefrom for 21 years for, inter alia, the following purposes: (1) to ascertain the number of persons currently using the 26 letter English alphabet; and (2) to ascertain how much effort could be saved by replacing the 26 letter alphabet with a 40 letter British alphabet proposed by Shaw. Held the trust was not charitable (see Chapter 7). It failed, therefore, as being for the benefit not of an individual but of a mere purpose or object. Harman J noted that ‘an object cannot complain to the court, which therefore cannot control the trust’. A trust, such as the present, which would not have been susceptible to control by the court would not be upheld. He approved Lord Greene in (1948) who had said that ‘in order for a trust to be properly constituted, there must be a beneficiary’. This has come to be known as the ‘beneficiary principle’.

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6.2 Anomalous purpose trusts

Note The following class of cases are anomalous, and will not be added to (Re Endacott (1960) (3.2.2)). They will be valid, despite the absence of any ascertainable human beneficiary. They are sometimes classified as ‘trusts of imperfect obligation’; this is because the trusts are valid even though there is nobody in a position to ‘actively enforce’ the trust obligations against the trustees.

6.2.1 The erection or maintenance of tombs or monuments Re Hooper (1932) A testator made a bequest and declared that the income therefrom should be used for the care and upkeep of certain graves, a vault, certain monuments, a tablet and a window. Held the upkeep of the tablet and window was valid as a charitable purpose. The trust for the upkeep of the graves, vault and monument in the churchyard would take effect as a trust of imperfect obligation and income could be applied for this purpose for 21 years.

6.2.2 The maintenance of specific animals Re Dean (1889) A testator set up a will trust for the maintenance of his horses and hounds for a period of 50 years. He declared that the trustees should not be bound to render any account of expenditure. Held the trust was valid. It was not a perpetuity and would take effect as a trust of imperfect obligation.

6.2.3 Fox-hunting Re Thompson (1934) A legacy was bequeathed to a friend of the testator to be applied by him as he should in his absolute discretion think fit towards the promotion and furtherance of fox-hunting. Held this was a valid trust of imperfect obligation.

6.3 A device for avoiding the rule against pure purpose trusts

Note Re Tyler (1891) illustrates how a private purpose trust might be enforced by indirect means (see 5.5).

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6.4 Purpose trusts with indirect human beneficiaries Re Bowes (1896) A bequest was left on trust to expend the same in planting trees on certain settled estates. It so happened that the tenant for life and the tenant in tail in remainder were between them able to bring to an end the settlement of the estates. Held the tenant for life and the tenant in tail in remainder were absolutely entitled to the bequest. North J held that ‘there clearly is a valid trust to lay out money for the benefit of the persons entitled to the estate’ and, accordingly, the expressed purpose of planting trees could be dismissed as being a mere motive for making the gift. Compare Re Andrew’s Trust (3.2.1) and Re Osoba (1.2.4). Contrast with Re Abbott (3.2.1). Leahy v AG for New South Wales (1959) PC A testator left a freehold property ‘upon trust for such order of nuns of the Catholic Church or the Christian Brothers as my executors and trustees shall select’. The residue of the estate was directed to be applied to build a new convent or to update existing buildings. Held the gift of residue was saved by a statute of New South Wales. However, applying the beneficiary principle, the principal gift was invalid. Their Lordships held that the gift was not intended to benefit the individual nuns or Christian Brothers, but had been intended to further the purposes of their orders, and because the orders were perpetual, the gift must fail. (Due to the closed nature of some of the orders, the gift could not be charitable, see 7.2.11.) Re Denley’s Trust Deed (1969) Land was settled on trustees for use as a sports ground ‘primarily’ for the benefit of the employees of a company, and ‘secondarily’ for the benefit of such other persons (if any) as the trustees may allow to use the same. The gift was limited to take effect within 21 years of the death of certain named persons. Held, because of the private nexus between the potential beneficiaries of the trust and a particular company, the trust was not sufficiently ‘public’ to be charitable (see 7.2.9). Prima facie, then, it would be void as a non- charitable purpose trust. However, where the trust, though expressed to be for a purpose, is directly or indirectly for the benefit of an individual or individuals, it falls outside the mischief of the beneficiary principle. The rule against enforcing non-charitable purpose trusts should be confined to those which are abstract or impersonal. In the present case, there were clearly indirect human beneficiaries and the trust would therefore be valid. Goff J was satisfied that, in contrast with the case of a pure purpose trust, there were persons here who would bring the matter to court if the trustees

51 BRIEFCASE on Equity and Trusts failed to meet their obligations. (Note: being for present and future indirect beneficiaries the trust would have failed the rules against perpetuity had it not been for the express limitation to the perpetuity period.) Re Lipinski (1976) The testator, L, left one-half of his residuary estate to the trustees of an association for Jewish Youth. The gift was expressly made in memory of his late wife to be used ‘solely’ in the work of constructing new buildings for the association. The trust was not charitable because it produced insufficient benefit to the general public. The question was whether it was void as a pure purpose trust, being ‘solely’ for the erection of buildings. Held the trust was valid for any one of three reasons. First, applying Re Denley’s Trust Deed, because there were indirect human beneficiaries; secondly, because, applying Re Recher’s Will Trust (6.5.2), the gift should be construed as an outright gift to the members of the association, subject to the rules of the association; or thirdly, applying Re Turkington (1937), because the members of the association were both the trustees and the beneficiaries and thus able to vest the capital in themselves according to the rule in Saunders v Vautier (9.1.1). Note None of the reasons given for the decision in Re Lipinski is particularly convincing. First, Re Denley’s is readily distinguishable. In Re Denley’s, the beneficiary principle had been avoided partly by treating the reference to building a sports ground as a mere motive for setting up the trust (applying Re Bowes, see above). In other words, the purpose was ancillary to the ultimate human benefit. In Re Lipinski, the trust was set up in memory of the testator’s wife and ‘solely’ for the purpose of building. It is hard to dismiss such an imperative statement of purpose as an ancillary motive, the expressed purpose appears to be in terms fundamental to the existence of the trust. Oliver J reasoned that the direction to build was not fundamental to the testator’s intentions, but had been his attempt to second-guess the current needs, whatever they might be, of the ultimate human beneficiaries. Secondly, to apply Re Recher’s assumes that an absolute gift has been made to the present members of the association, but in the present case the benefiting members are Jewish ‘youth’, the majority of whom would be precluded by their infancy from taking as an absolute gift that part of the residuary estate which comprised land. Thirdly, the infancy of the beneficiaries means that the rule in Saunders v Vautier, and therefore the reasoning in Re Turkington, is inapplicable.

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6.5 Gifts to unincorporated non-profit associations

Note Speaking in very general terms, the law readily legislates for incorporated associations (for example, limited liability companies) and profit-oriented unincorporated associations (that is, partnerships), but it struggles to understand the essential nature of unincorporated associations which do not exist primarily with a view to making financial profit (for example, clubs and associations). If a gift is made to a club, only very rarely will a sensible construction allow it to be divided among the present members in individual shares. How, then, is such a gift to be construed? Is it void as a gift on trust for the impersonal purposes of the club? Or is it valid as a trust for the benefit of indirect beneficiaries? Is it an absolute gift to the present members to be held by them subject to the contractual rules of the club? Is it a gift to the officers of the club to be held by them as agents for the members of the club? We shall consider each possible construction in turn.

6.5.1 Gifts on trust for the purposes of the association or club See Re Denley’s Trust Deed and Re Lipinksi, 6.4.

6.5.2 Absolute gifts to members subject to the rules of the club Re Recher’s Will Trust (1972) R, a testatrix, left a share of her residuary estate to ‘The Anti-Vivisection Society’. Held the gift should not be construed as a gift in trust for the purposes of the society. Rather, the gift should be construed as a legacy to the present members of the society as an accretion to the funds which constituted the subject matter of the contract by which the members had bound themselves inter se. There would be no breach of the rule against inalienability of capital because if all the members agreed, they could decide to wind up the society and divide the net assets amongst themselves beneficially. The only reason the gift failed in the present case was because the society had ceased to exist by the time of R’s death. Re Grant’s Will Trust (1980) G, the testator, had been financial secretary of the Chertsey Constituency Labour Party, which had since become the Chertsey and Walton Constituency Labour Party. The new constituency party was subject to rules laid down by the National Executive Committee of the Labour Party and the national annual party conference. By his will, G devised all his real and personal estate (for the benefit of the Chertsey headquarters of the new constituency party) to the committee in charge of property at the headquarters.

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Held the gift could not take effect as a gift to the current members of the new constituency party subject to their contractual rights and duties inter se because the members were not free, under the rules of their association, to dispose of the property in any way they thought fit. On the contrary, the rules made it plain that the decisions of the members of the local party were subject to the control of the national Labour Party. The gift must therefore fail as infringing the rule against inalienability of capital.

6.5.3 Gift to officers as agents of the members of the association Conservative and Unionist Central Office v Burrell (1982) CA Re Grant’s Will Trust (above) concerned a gift to a local Labour Party association. The present case considered gifts to the central office of the Conservative Party. The central office had been assessed to corporation tax on the ground that it was a ‘company’ within the meaning of s 526(5) of the Income and Corporation Taxes Act 1970. Included within the definition of ‘company’ were unincorporated associations of two or more persons bound together for common purposes (not being business purposes) by mutual undertakings and rules governing the holding and control of property. Appealing against the tax assessment, the central office contended that it was not an unincorporated association within this definition. Held funds held by the central office were not held on behalf of an unincorporated association within the 1970 Act definition. It became necessary to consider, therefore, upon what basis donations were received by the central office. It was held per curiam (for the sake of clarity) that, when a contributor makes a donation to the treasurer, or other officer, of the central office, the officer receives the donation as an agent and subject to a mandate that it be used for the political purposes for which it was given. The , not of trusts, is applicable. Once the donation has been mixed with the general funds under the officer’s control, the mandate becomes irrevocable. In other words, it is then too late for the contributor to reclaim the donation. However, the contributor has a remedy against the officials to restrain or make good a misapplication of the mixed fund except where the contributors donation can be shown, on normal accounting principles, to have been legitimately expended before the misapplication of the mixed fund.

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6.6 Distribution of surplus donations

Note When monies are given for a purpose or to an association what happens if there are surplus funds after the purpose is fulfilled or the association dissolved? The answer depends largely upon the way in which the original gift is construed. If the gift is construed as being a gift ‘in trust’ for a particular purpose, any surplus of the gift will generally be held on resulting trust for the original donor. If it was originally construed as an absolute gift, whether or not subject to the contractual rules of the donee association, any surplus of the gift will generally belong beneficially to the members of the association in existence at the time of its dissolution. It is crucial, therefore, that trusts (which are made with an imperative intention) are distinguished from absolute gifts (which are merely motivated by a particular intention).

Note See Re Bowes (6.4); Re Abbott (3.2.1); Re Andrew’s Trust (3.2.1); Re Osoba (1.2.4).

Cunnack v Edwards (1896) CA A society had been established to raise a fund by members’ subscriptions to provide annuities for the widows of deceased members. The last member died in 1879 and the last widow died in 1892, the society having then a surplus or unexpended fund of £1,250. Held the widows, and not the members, were the beneficiaries of the society’s funds. Accordingly, there would be no resulting trust of the surplus in favour of the estates of the members of the society. As Smith LJ stated, ‘as the member paid his money to the society, so he divested himself of all interest in this money for ever, with this one reservation, that if the member left a widow she was to be provided for during her widowhood’. The fund would pass to the Crown as bona vacantia. Re Gillingham Bus Disaster Fund (1958) CA In 1951, a bus careered into a column of Royal Marine cadets, who were marching along a road in Gillingham, Kent. Twenty four were killed and others were injured. A memorial fund was set up for the purpose of meeting funeral expenses, caring for the disabled, and for such other worthy causes as the trustees may determine. Substantial gifts were made by named donors and money was contributed to the fund anonymously through street collections. The principal question was whether the monies were held on charitable trusts and should be devoted under a cy près scheme to other charitable ends. That having been determined in the

55 BRIEFCASE on Equity and Trusts negative, the question arose whether the surplus should be held on resulting trust for the donors or should pass to the crown as bona vacantia. Held, dismissing the appeal (and confirming Harman J at first instance), the surplus would be held on resulting trust for the donors. Cunnack v Edwards was distinguished as being a case were the funds had been held subject to a contractual arrangement. Harman J was not impressed with the Crown’s argument that the resulting trust solution should be avoided due to the impracticalities of identifying the anonymous donors. His lordship was convinced that the resulting trust solution was appropriate to the named donors and saw no reason to suppose that the anonymous donor had any larger intention than the named donor as to the ultimate destination of their donation. In the event that the anonymous donors might not be found, the surplus should be held in the court’s account, but should not pass as ownerless goods (bona vacantia) to the Crown. Re West Sussex Constabulary’s Benevolent Fund Trusts (1971) The fund existed to provide for widows and orphans of deceased members. When the West Sussex Constabulary amalgamated with other forces in 1968, the question arose as to how the funds should be distributed. Sources of the fund were (1) members subscriptions; (2) receipts from entertainments, raffles and sweepstakes; (3) collecting boxes; and (4) donations and legacies. Held surplus of sources (1), (2) and (3) would pass to the Crown as bona vacantia. Surplus of source (4) would be held on resulting trusts for the donors. Equity would ‘cut the gordian knot’ of accounting difficulties by dividing the surplus in proportion to the sources from which it had arisen. Surplus of source (1) could not be the subject of a resulting trust because the members had received consideration for the payment of their subscriptions in the form of the benefits of membership. Surplus of source (2) could not be the subject of a resulting trust because, first, such payments had been made for consideration; and, secondly, they were not direct donations to the fund, but merely donations of net profits after payment out of prizes, etc. Surplus of source (3) would not be deemed subject to a resulting trust because donors to collecting boxes are presumed to have intended to part with their monies out and out. Re Bucks Constabulary Fund Friendly Society (1979) The Society had been established to make provision for widows and orphans of deceased members of the Bucks Constabulary. In 1968, the Bucks Constabulary was amalgamated with other constabularies to form the Thames Valley Constabulary. The trustee of the society applied to court to determine (1) whether the surplus assets should be distributed among the persons who were members of the society at the date of its dissolution or whether they should pass to the Crown as bona vacantia; and (2) if the

56 Purpose Trusts assets were to be distributed among the members whether they should be distributed in equal shares or pro rata the members’ payment of subscriptions. Members voluntary subscriptions had made up the majority of the fund. Held (1) as there had been members in existence at the time of the dissolution, the surplus would be held upon resulting trusts for those members to the total exclusion of any claim on behalf of the Crown. The Re West Sussex case (see above) was distinguished (rather artificially) on the basis that it involved a simple unincorporated association, whereas the present case involved a friendly society. (2) Claims of members of a friendly society inter se on surplus funds held on trust for their benefit were governed by the contract between them, and where the contract, as here, provided no other method of distribution such funds were prima facie to be distributed in equal shares.

6.7 When is an unincorporated association wound up?

Note In Re GKN Bolts and Nuts Sports and Social Club (1982), it was held (1) that clubs do not automatically dissolve through mere inactivity unless the period of inactivity is such that the only reasonable inference is that the club has ceased to exist; (2) in the present case, the club had ceased to exist, but only by virtue of the positive resolution of the members to sell the club’s sports ground.

Q We usually think of unincorporated associations as an aggregate of human persons, but could it be that the existence of special property (for example, the clubhouse) is of more fundamental importance to the identity of an association than the individuals within it?

57 7 Charitable Trusts

Note There are a number of advantages attaching to a trust which has charitable status. First, it is not subject to the beneficiary principle (see 6.1). This exemption follows logically from the fact that a charitable trust is by definition a trust for public purposes and not a trust for private persons. The Attorney General will bring actions against charity trustees to ensure that they discharge their trust. Secondly, and related to the first point, a charitable trust will not be void for uncertainty of object. Provided that the trust was intended to be applied exclusively for charitable purposes, it will not fail if those purposes are, or become, uncertain (see cy près at 7.5). Thirdly, a charitable trust is usually not subject to the rules against perpetuities (5.1). This is because the public policy considerations which prohibit perpetual gifts and trusts should be no bar to the public benefits which charities bring about. Fourthly, but perhaps most significantly, charitable trusts enjoy a wide range of fiscal exemptions and privileges.

7.1 The exclusivity requirement Salusbury v Denton (1857) A testator left a fund to his widow for life and directed that after her death she should leave a part of the fund to certain charities and the remainder to his relatives. The widow died having failed to make the relevant appointments. Held the wording of the trust permitted a severance of the non- charitable from the charitable objects. In accordance with the maxim ‘equality is equity’, the court applied half the fund towards the charitable purposes and the other half to the testator’s relatives. Chichester Diocesan Fund and Board of Finance (Incorporated) v Simpson (1944) HL The testator, CD, left the residue of his estate on trust ‘for such charitable institution or institutions or other charitable or benevolent object or objects as his executors might in their absolute discretion select’. The residue was distributed amongst several charities. After the distribution, the testator’s statutory next of kin claimed that the residuary gift was not a valid

59 BRIEFCASE on Equity and Trusts charitable bequest because the words ‘charitable or benevolent’ had rendered the gift uncertain. Held, upon a true construction of the clause, the word ‘or’ indicated that ‘benevolent’ was intended to be an alternative to ‘charitable’. Accordingly, the gift was void for uncertainty. (This decision meant, of course, that the statutory next of kin had to try and recover the misapplied property – see Re Diplock (18.2.1).) Note In Re Best (1904), a bequest of residue was made to such ‘charitable and benevolent institutions’ as the trustees shall in their discretion determine. The gift was construed as exclusively charitable and was therefore held to be a valid charitable gift.

Re Coxen (1948) The testator gave the residue of his estate, some £200,000, to the Court of Aldermen of the City of London upon trust to (1) spend £100 towards an annual dinner for the aldermen upon their meeting together upon the business of his trust; (2) pay one guinea to each alderman who attended the whole of a committee meeting in connection with the trust; (3) apply the remainder for the benefit of certain medical charities. On the question whether the trust was valid. Held all the trusts were valid charitable trusts. The provisions in favour of the aldermen personally were made to ensure the better administration of the main charitable trusts. In any event, even if those provisions had not themselves been charitable, the sums involved were so insignificant in comparison to that part of the fund devoted to the medical charities that the provisions for the benefit of the aldermen personally could be seen as merely ancillary to the principal trust and would take effect on that basis. In cases where the non-charitable allocation was so significant as not to be ‘ancillary’, the whole trust must fail, unless the non-charitable part could be precisely quantified in which case only that part would fail. Oxford Group v Inland Revenue Commissioners (1949) CA The Oxford Group, a company limited by guarantee, claimed to be exempt from income tax on the grounds that the group existed in order to further certain charitable purposes. The objects clause of the company’s memorandum of association provided that the company existed to ‘advance the Christian religion’; to ‘maintain ... the Oxford Group Movement in every way’ and to ‘establish and support ... any charitable or benevolent associations’. Held the last provision was not an exclusively charitable trust. The provision relating to the maintenance of the Oxford Group similarly failed, as it permitted the company to engage in non-charitable activities. Accordingly, even though the first provision was in itself charitable the

60 Charitable Trusts whole trust must fail as a charitable trust. The latter provision could not be said to merely ancillary to the former. A religious body could engage in subsidiary non-charitable activities, but a trust which permitted the expenditure of income on such subsidiary activities was not a valid charitable trust. Section 1 of the Charitable Trusts (Validation) Act 1954 A trust provision which could properly be construed as being for exclusively charitable purposes, but which could nevertheless be used for non-charitable purposes, is validated as a charitable trust by this Act. However, the Act only applies to trusts taking effect before 16 December 1952. Note See Re Guild (1992) (7.3).

7.2 The definition of charity

7.2.1 General

Note There is no statutory definition of charity, the definition has developed on a case by case basis, courts taking guidance from the preamble to the Statute of Charitable Uses 1601. Even today, a trust will only be charitable if it falls within the ‘spirit and intendment’ of that statute.

Section 38 of the Charities Act 1960 (4) Any reference in any enactment or document to a charity within the meaning, purview and interpretation of the Charitable Uses Act 1601 or of the preamble to it, shall be construed as a reference to a charity within the meaning which the word bears as a legal term according to the law of England and Wales.

The preamble to the Statute of Charitable Uses 1601 The following represent the nature of charitable uses in 1601: ‘Relief of aged, impotent and poor People ... the maintenance of sick and maimed Soldiers and Mariners, Schools of Learning ... Scholars in Universities ... the Repair of Bridges, Ports, Havens, Causeways, Churches, Sea-Banks and Highways ... the Education and Preferment of Orphans ... Houses of Correction ... Marriages of Poor Maids ... Supportation, Aid and Help of Young Tradesmen, handicraftsmen and Persons decayed ... the Relief or Redemption of Prisoners ...’

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Commissioners for Special Purposes of the Income Tax v Pemsel (1891) HL On the question whether a particular trust was for ‘charitable purposes’ according to the legal and technical meaning of those words. Held per Lord MacNaghten: ‘Charity’ in its legal sense comes under four principal heads: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads. Note Each of Lord MacNaghten’s ‘four heads’ is considered in turn below.

Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation (1968) HL The appellant was a non-profit making company incorporated in order to promote cremation, which service it had carried out in Glasgow for many years. It provided opportunities for religious observance but had not been incorporated on any religious basis. On the question whether it was a charity and entitled to relief from rates. Held the objects of the company were for the benefit of the community and fell within the fourth of Lord MacNaghten’s heads of charity. It was noted, however, that the ‘four heads’ were a classification of convenience and not necessarily a comprehensive set of charitable classes, that Lord MacNaghten’s words should not be given the force of statute and that the law of charity is a continually evolving subject. The fundamental question was whether the objects of a gift fell, in the light of current social needs, within the ‘spirit and intendment’ of the preamble to the Act of 1601.

7.2.2 The first head: relief of the poor Re Gwyon (1930) The testator directed that the residue of his estate should be applied by his executor to establish the ‘Gwyon’s Boys Clothing Foundation’. A foundation to provide ‘knickers’ (a sort of trouser) for boys in a certain district. The boys could replace their old pair for a new pair, provided that the words ‘Gwyon’s Present’ were still legible on the waistband of the old pair. The terms of the gift did not prefer the children of poor parents. Held the gift was not a valid charitable trust for the relief of poverty. None of the conditions of the gift necessarily imported poverty. Re Coulthurst (1951) CA The testator, C, directed that the income from his estate should be applied by his trustees ‘to or for the benefit of such ... of the ... widows and orphaned children of deceased officers and deceased ex-officers’ of a bank ‘as the bank shall in its absolute discretion consider by reason of his, her or their financial circumstances to be most deserving of such assistance ...’.

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Held this was a valid charitable trust intended to benefit the poor, in accordance with the meaning of the preamble to the Act of 1601. The fact that the beneficiaries were chosen by reference to their employment with a particular bank did not defeat the charitable nature of a gift for the relief of poverty. Further, poverty need not mean destitution. It might be paraphrased as ‘going short’, due regard being had to the beneficiaries social status and so on. Re Young (1951) The testator, Y, left his estate to his wife with a direction that she should leave it at her death ‘for the permanent aid of distressed gentlefolk and similar purposes’. Held the court accepted obiter that a trust of this nature was a valid charitable trust for the relief of poverty. Re Scarisbrick (1951) CA The testatrix, S, left one-half of her residuary estate upon ultimate trusts for such of the relations of her son and daughters as the survivor of her son and daughters shall deem to be ‘in needy circumstances’. The judge at first instance held that the trust for relations was not a valid charitable trust because the beneficiaries did not constitute a section of the poor, but merely individual poor persons. Held on appeal. The disposition was a valid charitable trust for the relief of poverty. Gifts or trusts for the relief of poverty were an exception to the rule, which applied to every other form of charitable disposition, that an element of general public benefit must be shown. The true question in a case of this sort was whether the gift was for the relief of poverty amongst a class of persons, in which case it would be valid, or whether it was a gift to individuals motivated by a desire to relieve their poverty, in which case it would not be a valid charitable trust. In the present case, the gift was for a class of poor persons. The fact that the survivor of the sons and daughters had the power to elect beneficiaries did not alter this conclusion, that power having been included merely to avoid disputes. Re Segelman (1995) This case concerned the charitable status of a trust for the ‘poor and needy’ of a class comprising at the time of the hearing a mere 26 people related to the testator, a multi-millionaire. These 26 were for the most part ‘comfortably off’ (although the court accepted that they might need financial assistance to ‘overcome an unforseen crisis’). Held the trust was charitable according to the Re Scarisbrick ‘personal nexus’ exception. Chadwick J held that, although this case very nearly infringed the rule that relief should not be restricted to named individuals, it was saved by the inclusion within the class of after-born issue of the 26 identified beneficiaries. Thereby raising the possibility of quite substantial numbers of additional beneficiaries, who might themselves be poor.

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Re Sander’s Will Trusts (1954) The testator directed his trustees, by a codicil to his will, to ‘apply one equal third part of my residuary trust fund in ... providing dwellings for the working classes and their families resident in the area of Pembroke Dock, Pembrokeshire, Wales, or within a radius of five miles therefrom (with preference to actual dockworkers and their families employed at the said docks)’. On the question whether this direction constituted a valid charitable trust for the relief of poverty. Held it did not. The words ‘working class’ did not indicate a gift to the poor. Dingle v Turner (1972) HL The testator, D, gave his residuary estate to trustees upon trust for his wife for her life and thereafter to place £10,000 with trustees upon trust ‘to apply the income thereof in paying pensions to poor employees of E Dingle & Co Ltd’ who were old or disabled. Held the terms of the will created a valid charitable trust for the relief of poverty, despite the nexus between the beneficiaries and the named company. (The Oppenheim case, see 7.2.10, was distinguished on the basis that the trust there had not been for the relief of poverty.) In the case of trusts for the relief of ‘poverty’, the distinction between a public charitable trust and a private non-charitable trust depended upon whether, on a true construction of the gift, it was for the relief of poverty amongst a particular description of poor people or was merely a gift to particular poor persons (approving Re Scarisbrick, above). Re Cohen (1973) The testatrix gave part of her residuary estate to trustees upon trust to apply the same in their absolute discretion ‘for or towards the maintenance and benefit of any relatives of mine whom my trustees shall consider to be in special need’. Held a valid charitable trust was created for the relief of poverty amongst a class, namely, those relations of the testatrix chosen by the trustees. Re Niyazi’s Will Trusts (1978) The testator provided by his will that his residuary estate should be held by his trustees upon trust to pay the capital and income to a local authority in a needy part of Cyprus ‘on condition that the same shall be used for the purposes only of the construction of or as a contribution towards the cost of the construction of a working men’s hostel’. Held this was a valid charitable trust for the relief of poverty. The judge described the case as ‘desperately near the border-line’, but concluded that only poor persons would be likely to live in a hostel. The word ‘hostel’, he said, was very different from the word ‘dwelling’ as used in Re Sanders’ Will Trusts (see above), the former suggested a poor inhabitant, the latter was

64 Charitable Trusts appropriate to any house. The judge also took into account the depressed nature of the area in which the hostel had been directed to be built. Joseph Rowntree Memorial Trust Housing Association Ltd v Attorney General (1983) The plaintiff was a charitable housing association which desired to build individual dwellings for sale to elderly people on long leases in consideration of a capital payment. On the tenant’s death, the lease would be assigned to the tenant’s spouse or a family member, provided that person was also elderly. Failing such an assignment the lease would revert to the association who would pay to the tenant’s estate 70% of the then current market value of the lease. The Charity Commissioners objected to the scheme on the grounds, inter alia, that it operated by way of contract, benefited private individuals rather than a charitable class and could produce a financial profit for those individuals. Held the scheme was a valid charitable scheme for the relief of the aged notwithstanding the objections of the Charity Commissioners.

7.2.3 The second head: the advancement of education Re Shaw (1957) See 6.1 for the facts and decision in this case. You will recall that Shaw’s trust for research into a new English alphabet failed as a charitable trust for the advancement of education. The judge held that ‘if the object be merely the increase of knowledge, that is not in itself a charitable object unless it be combined with teaching or education’. Having failed as a valid trust for charitable purposes, the trust was necessarily void as a trust for private purposes. Re Hopkins (1965) The testatrix, H, left a third of her residuary estate to the Francis Bacon Society by her will. The monies were directed to be ‘applied towards finding the Bacon-Shakespeare manuscripts and in the event of the same having been discovered by the date of my death then for the general purposes of the work and propaganda of the society’. The society, which was a registered charity under the Charities Act 1960, existed primarily to study the evidence for Francis Bacon’s authorship of plays commonly ascribed to William Shakespeare. On the question whether the bequest created a valid charitable trust. Held in view of the importance of the research directed to be carried out, the gift would qualify as a charitable one for the advancement of education. For a gift for research to be charitable, it must be combined with teaching or education, albeit the education of the researchers themselves.

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Note In Re Hopkins, the judge held that it did not matter that the charitable purposes might not fall neatly into any one only of the four heads of charity. He considered the possibility that the research might fall within the general head of charities ‘beneficial to the community’, and stressed that ‘benefits’ need not be material and would include intellectual or artistic benefits.

The Incorporated Council of Law Reporting for England and Wales v Attorney General (1971) CA The principal object of the society was ‘the preparation and publication ... at a moderate price, and under gratuitous professional control, of Reports of Judicial Decisions of the Superior and Appellate Courts in England’. These reports were used to draw judicial attention to the current state of the law. The society’s profits were not distributed to its members, but were applied to the further pursuit of its objects. The society applied for registration as a charity under the Charities Act 1960. The Charity Commissioners refused registration. Held the purposes of the council were exclusively charitable. Two of the three judges held that its primary purpose was the advancement of education. ‘The practising lawyer and the judge must both be lifelong students in the field of scholarship for the study of which the Law Reports provide essential material.’ The court also found, unanimously, that the trust would in any event have fallen within the fourth head of charity, that of ‘purposes beneficial to the community’. Barralet v Attorney General (1980) The objects of the South Place Ethical Society were ‘the study and dissemination of ethical principles’ and ‘the cultivation of a rational religious sentiment’. The society contended that their objects were charitable as being for the advancement of religion, for the advancement of education or for other purposes beneficial to the community. On the question whether the society’s purposes were for the advancement of education. Held the whole of the society’s objects were charitable under this head. The advancement of education should be construed widely. The ‘dissemination of ethical principles’ through the society’s lectures, concerts and monthly publication satisfied the need for a public benefit in a charitable educational trust. The ‘cultivation of a rational religious sentiment’ was also for the advancement of education, for a ‘rational’ sentiment could be cultivated only through education. McGovern v Attorney General (1981) The Amnesty International organisation set up a trust to administer those of its purposes which were considered to be charitable. Its aims included

66 Charitable Trusts the release of and humane treatment of prisoners of conscience, research into the observance of human rights and the dissemination of the results of such research. It applied to the Charity Commissioners for registration of the trust as a charity under s 4 of the Charities Act 1960. Registration was refused. Held, on appeal to the High Court, the commissioners’ decision was confirmed, the trust was not a trust for exclusively charitable purposes. The major part of the trust purposes were of a political, and therefore non- charitable, nature (see 7.4). The court did state, however, that had the provisions as to research stood alone they would have been charitable. The subject matter of the research was ‘capable of adding usefully to the store of human knowledge’. The judge noted that human rights has become an accepted academic discipline. He also stated that it should be benignly presumed that the trustees would not implement the research in a political manner.

7.2.4 Educative value of art Re Delius (1957) The widow of Frederick Delius, the composer, left her residuary estate to trustees upon trust to apply the income therefrom ‘for or towards the advancement ... of the musical works of my late husband under conditions in which the making of profit is not the object to be attained and which might be economically impossible by any concert operatic or other organisation ... by means of the recording upon the gramophone or other instrument for the mechanical reproduction of music of those works ... the publication and issue of a uniform edition of the whole body of the works ... and ... the performance in public of the works’. Held the trusts were valid charitable trusts for the advancement of education. In view of the high quality of Delius’ work, the judge did not consider what he might have decided had the works been of an ‘inadequate composer’, although he mused that ‘perhaps I should have no option but to give effect even to such a trust’. In the present case, the fact that the trust would incidentally enhance the reputation of Delius and incidentally bring pleasure to listeners were not reasons for denying the charitable nature of the trust. Re Pinion (1964) CA The testator, P, left his freehold studio, together with his paintings and some antique furniture, silver, china etc to be offered to the National Trust to be kept together as a collection. The income from the residue of his estate was left to be used for the maintenance of the collection. If the National Trust declined the gift, P’s executors were directed to keep the collection as a museum. In fact evidence was produced to show that the

67 BRIEFCASE on Equity and Trusts collection was of low quality and that P’s own pictures were ‘atrociously bad’, and that the National Trust had turned down the gift. On the question whether this was a valid trust for the advancement of education. Held it was not. Expert evidence was admissible to assist the court in determining the educative value of a trust. In the present case, the experts concluded that the collection had no value as a means of education. Harman LJ took the view that P’s aim had been, not to educate, but to enhance his own reputation and that of his family.

7.2.5 Educative value of sport Re Dupree’s Trusts (1944) At issue was the charitable nature of a gift of £5,000 for the promotion of an annual chess tournament for boys and young men under 21 resident in the City of Portsmouth. The trustees included the chairman of the Portsmouth Education Committee and the headmaster of Portsmouth Grammar School. Held chess is something more than a game; it is an historic institution which encourages foresight, concentration, memory and ingenuity. The trust was therefore a valid charitable trust for the advancement of education, although the judge acknowledged that the case ‘may be a little near the line’ and could put the courts on a ‘slippery slope’. The identities of the trustees assisted the judge in reaching his conclusion in the present case. Inland Revenue Commissioners v McMullen (1980) HL The Football Association created the FA Youth Trust in 1972. The objects of the trust were ‘to organise or provide or assist in the organisation and provision of facilities which will enable and encourage pupils of schools and universities in any part of the United Kingdom to play Association Football or other games or sports and thereby to assist in ensuring that due attention is given to the physical education and development of such pupils as well as to the development and occupation of their minds’. The Charity Commissioners agreed to register the trust as a charity. The Crown appealed against the registration. Held, on the proper construction of the objects of the trust, the word ‘thereby’ showed that the purpose of the trust was not merely to organise the playing of sport, but to promote physical education. Regard being had to the need for a balanced education and the fact that the benefits were limited to students, this was a valid charitable trust for the advancement of education. A majority of their Lordships held that a benign construction should be given to ambiguity in the wording of a purportedly charitable trust. The possibility that the trust might be charitable under the Recreational Charities Act 1958 was left open (see 7.3).

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7.2.6 The third head: the advancement of religion

7.2.7 Churches and churchyards Re Douglas (1905) The testatrix, D, left the whole of her estate to her husband for his life. After his death certain specific legacies and bequests were directed to be made, with the residue to be used for the maintenance of a churchyard. Held this was a valid charitable gift for the advancement of religion, and by analogy to the provision with regard to the repair of churches contained within the preamble to the Act of 1601 (7.2.1). Re King (1923) The testatrix left the residue of her estate to provide for the erection, to the memory of the testatrix and her relations, of a stained-glass window in a parish church. Held this was a valid charitable trust of the whole fund. The surplus after the provision of the window was applied cy près (see 7.5) in the provision of a second window. Note Contrast the last two cases with the case of Re Hooper (6.2.1).

7.2.8 Recognising religion Thornton v Howe (1862) A gift of land was made to assist in the promotion and publication of the ‘sacred writings of the late Joanna Southcote’, whom the then Master of the Rolls described as ‘a foolish ignorant woman’. She had claimed that she was with child by the Holy Spirit and would give birth to a Second Messiah. Held the gift was held to be a charitable gift for the advancement of religion. The court would not make any distinction between one sect and another, provided, as here, that there was nothing in its preachings which would make persons immoral or irreligious. The decision, however, must be read in the context of its consequences. Being a charitable gift of land, the gift failed under the Statute of Mortmain (now repealed) and passed to the donor’s heir. Yeap Cheah Neo v Ong Chen Neo (1875) PC A trust was set up to promote ancestor worship. On the question whether it was a valid charitable trust for the advancement of religion. Held it was not. It failed for two reasons. First, worship of human ancestors did not involve the worship of a deity and could not, therefore, be described as being a religion. Secondly, on the terms of the particular

69 BRIEFCASE on Equity and Trusts trust, there was no assurance that the worship would produce a sufficient public benefit (see Gilmour v Coats (7.2.11)). Re Watson (1973) The testatrix, W, left her estate to H ‘for the continuance of the work of God as it has been maintained by [H] and myself since 1942 by God’s enabling ... in propagating the truth as given in the Holy Bible’. H predeceased the testatrix, but had written a number of religious tracts during his lifetime. His publications were regarded by experts as being unlikely to extend the knowledge of the Christian religion, but quite likely to confirm, in the group who had produced the publications, their own religious opinions. Held the trust was a valid charitable trust for the advancement of religion. Public benefit could be presumed through the publication of the tracts because the court would not prefer one religion to another unless it was shown that its doctrines were adverse to the foundations of all religion and subversive of all morality. Thornton v Howe followed. Barralet v Attorney General (1980) For the facts and result see 7.2.3. On the question whether the objects of an agnostic, although not atheistic, ‘ethical society’ could be said to be for the advancement of religion. Held ‘religion’ is concerned with mankind’s relations with God or gods, whereas ethics is concerned with relations between humans only. Without belief in a supernatural entity faith could not properly be described as religious, no matter how sincerely held. The view held in America that a religion is any belief occupying in the life of the possessor a place parallel to that occupied by belief in God prompted the judge to remark that ‘parallels, by definition, never meet’. The judge suggested, further, that worship of God or gods was essential to religion, and worship in that sense had no place between humans, and, accordingly, no place in a humanist ethical system of belief.

7.2.9 The public benefit requirement

Note We noted above that trusts for the relief of poverty will be charitable even if they are not shown to benefit the general public. In contrast, trusts for the relief of the aged and impotent (7.2.13), for the advancement of education and for the advancement of religion must produce a sufficient public benefit in order to be charitable.

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7.2.10 The public benefit requirement in educational trusts Oppenheim v Tobacco Securities Trust Co Ltd (1951) HL A settlement directed trustees to apply the income from the trust fund ‘in providing for ... the education of children of employees or former employees of the British-American Tobacco Co Ltd ... or any of its subsidiary or allied companies in such manner ... as the acting trustees shall in their absolute discretion ... think fit’. The employees referred to numbered over 110,000. The issue was whether the class of potential beneficiaries constituted a sufficient section of the general public. Held (Lord MacDermott dissenting). Despite the huge number of potential beneficiaries, they were identified by the personal nexus between them and the employer company. Accordingly, the trust did not satisfy the requirement that it produce a benefit to a sufficient section of the community. The words ‘section of the’ community have no special meaning, but they indicate, first, that the possible beneficiaries must not be numerically negligible, and secondly, that they must not be distinguishable from other members of the public by reason of a relationship to a particular individual. Q What would be the result of a case where the description of the occupation and employment is in effect the same? As counsel, in Oppenheim asked, is there a difference between ‘soldiers’ and ‘soldiers of the King’? Would a trust to educate soldiers fail because of their personal nexus to the Crown?

7.2.11 The public benefit requirement in trusts for the advancement of religion

Note See Yeap v Ong (7.2.8).

Gilmour v Coats (1949) HL The sum of £500 was settled upon trust to pay the income therefrom for the purposes of a community of strictly cloistered nuns. The nuns devoted themselves to prayer, meditation, fasting, penance and self-sanctification. They conducted private religious services, but were not engaged in any good works outside of the convent. Held the trust for the purposes of the cloistered community did not satisfy the public benefit requirement. Accordingly, this was not a valid charitable trust for the advancement of religion. The potential for religious edification of others through the example set by the nuns was said to be too vague. Nor did their Lordships accept the argument, made by analogy to educational trusts, that the public benefit requirement had been met

71 BRIEFCASE on Equity and Trusts through the fact that membership of the community was potentially open to any woman in the whole world. (Lord Simonds made the following general observation on the law of charities and the four heads of charity: ‘the law of charity ... has been built up not logically but empirically ... To argue by a method of syllogism or analogy from the category of education to that of religion ignores the historical processes of law’.) Neville Estates Ltd v Madden (1962) NE Ltd claimed specific performance of a contract for the sale of land owned by a synagogue. The trustees of the synagogue claimed that the synagogue existed for charitable purposes and that the consent of the Charity Commissioners would be required before sale could proceed. Held the synagogue’s purposes were charitable. Gilmour v Coats being distinguished on the basis that the members of the synagogue ‘spend their lives in the world, whereas the members of the Carmelite Priory live secluded from the world’. Cross J held that the court was entitled to assume ‘that some benefit accrues to the public from the attendance at places of worship of persons who live in the world and mix with their fellow citizens. As between different religions the law stands neutral, but it assumes that any religion is at least likely to be better than none’. Re Hetherington (1990) The testatrix, H, left a legacy to ‘the Roman Catholic Church Bishop of Westminster for the repose of the souls of my husband and my parents and my sisters and also myself when I die’, and left the residue of her estate ‘to the Roman Catholic Church St Edwards Golders Green for Masses for my soul’. Held the gifts were for charitable purposes. However, to be valid, the gift must be construed as a gift for the purpose of saying masses in public. The celebration of a religious rite in private would not contain the necessary element of public benefit.

7.2.12 The fourth head: other purposes beneficial to the community

Note See Barralet v AG (7.2.3); Joseph Rowntree v AG (7.2.2); Scottish Burial Reform v Glasgow Corp (7.2.1).

Re Grove-Grady (1929) CA The testatrix left her residuary estate to her trustees upon trust to found an institution called ‘The Beaumont Animals Benevolent Society’, provided that all officials of the society should be declared anti-vivisectionists and opponents of all blood sports, including angling. The objects of the society included the acquisition of land ‘for the purpose of providing a refuge or

72 Charitable Trusts refuges for the preservation of all animals birds or other creatures not human ... and so that all such animals birds or other creatures not human shall there be safe from molestation or destruction by man’. Held, at first instance, Romer J (as to whom see, further, Re Moss, below) had held that the gift was a valid charitable trust for purposes beneficial to the community. His decision was reversed by the majority of the Court of Appeal. The present gift lacked the required element of public benefit. It did not seek to diminish the cruel treatment of animal life generally, but only those within the society’s compound. The public does not come into the matter at all. Re Moss (1949) The testatrix, M, made a gift to a Miss H of one-half of the proceeds from the sale of her leasehold house, ‘for her use at her discretion for her work for the welfare of cats and kittens needing care and attention’. The residue of M’s estate was given in the same way. Miss H had for many years taken in stray cats, having them painlessly destroyed if they were badly injured, and finding good homes for the others. M’s next of kin claimed that the gifts were void as being trusts for a private purpose. Held the gifts were valid charitable trusts for purposes beneficial to the community. Romer J stated that the ‘care of and consideration for animals which through old age or sickness or otherwise are unable to care for themselves are manifestations of the finer side of human nature’. Accordingly, gifts made in furtherance of such acts were for the benefit of mankind. Inland Revenue Commissioners v Oldham Training and Enterprise Council (1996) Lightman J considered an appeal by the Crown from a decision by the Special Commissioners that Oldham TEC was a charitable institution. As Oldham TEC was an incorporated body, the judge held that it was necessary to confine consideration of its objects to those stated in the memorandum of association and not to make any further enquiry as to what the TEC actually did. Its stated objects were, inter alia, vocational training, retraining and assistance to the unemployed, the promotion of existing business and the establishment of new business. Held the stated objects of vocational training were charitable under the head of education. Retraining and assistance to the unemployed could be charitable under the first head of improving the standard of life of those ‘going short’, or under the fourth head. Of the ancillary objects to promote existing business and to establish new business, the judge held that the inhabitants of Oldham could be a sufficient section of the community for the fourth head of charity, and that an advisory service for businesses could be of benefit to the community. However, assistance to particular

73 BRIEFCASE on Equity and Trusts established and new business would confer advantages on private individuals and the benefit to the community was too remote for that object to be charitable under the fourth head.

7.2.13 Trusts for the aged or impotent Re Mead’s Trust Deed (1961) Membership of The National Society of Operative Printers and Assistants, a trade union, was confined to persons employed in the printing trade, but not every person engaged in the trade was necessarily a member. The society executed a deed of trust for the provision of a convalescent home for its aged and ill members. No means test was used to select residents of the home. Held the trust was not exclusively for the relief of poverty. Accordingly, it was necessary for the trust to benefit a sufficient section of the community. Residents of the home were restricted to members of the society. Accordingly, the trust could not take effect as a valid charitable trust. Oppenheim (7.2.10) followed.

7.2.14 Trusts for private hospitals Re Resch’s Will Trusts (1969) PC The testator left his residuary estate (then valued around $8 m) to trustees upon trust to pay two-thirds of the income ‘to the Sisters of Charity for a period of 200 years so long as they shall conduct the St Vincent’s Private Hospital’. The hospital did not seek to make a commercial profit, but its charges for treatment, while not necessarily excluding the poor, were not low. On the question whether this was a valid charitable trust. Held it was a valid charitable trust for purposes beneficial to the community. The requisite public benefit had been satisfied because evidence showed that the public needed accommodation and treatment of the type provided by the hospital. A gift for the purposes of a hospital is prima facie a good charitable gift, but the presumption could be rebutted if evidence showed that the hospital was carried on commercially for the benefit of private individuals.

7.3 Recreational trusts

Note See IRC v McMullen and Re Dupree (7.2.5).

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Re Hadden (1932) The testator left the residue of his estate to trustees upon trust to provide ‘places of the working people such as playing fields, parks, gymnasiums or other plans which will give recreation to as many people as possible’ in the cities of Vancouver and Nottingham. Held this was a valid charitable trust within ‘the meaning, purview and interpretation’ of the preamble to the Charitable Uses Act 1601. Inland Revenue Commissioners v Baddeley (1955) HL Land including a mission church, lecture room and store was given to trustees on trust to permit the leaders of the mission to promote thereon ‘the religious, social and physical well-being of persons resident in the county boroughs of West Ham and Leyton ... by the provision of facilities for religious services and instruction and for the social and physical training and recreation of such aforementioned persons who for the time being are in the opinion [of the leaders of the mission] members of or likely to become members of the Methodist Church’. Held the trust was not for the relief of poverty, for ‘relief’ implied the meeting of a need or quasi-necessity, such as the provision of a dwelling. Nor could the trust be charitable as being for a purpose beneficial to the community. The trust did not benefit a sufficient section of the public because the beneficiaries had been selected not only by reference to a particular geographical area, but by the further condition that they share a particular creed. Further, promotion of ‘religious, social and physical well- being’ was too wide a statement of the trust’s objects, and, accordingly, the trust would be void for potentially including non-charitable purposes. Section 1 of the Recreational Charities Act 1958 (1) The provision of facilities for recreation or other leisure-time occupation shall be charitable if the facilities are provided in the interests of social welfare and for the public benefit. (2) The ‘social welfare’ requirement shall not be satisfied unless: (a) the facilities are provided with the object of improving the conditions of life for the persons for whom the facilities are primarily intended; and (b) either: (i) those persons have need of such facilities as aforesaid by reason of their youth, age, infirmity or disablement, poverty or social and economic circumstances; or (ii) the facilities are to be available to the members or female members of the public at large.

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(3) Subject to the said requirement, sub-s (1) of this section applies in particular to the provision of facilities at village halls, community centres and women’s institutes, and to the provision and maintenance of grounds and buildings to be used for purposes of recreation or leisure-time occupation, and extends to the provision of facilities for those purposes by the organising of any activity.

Re Guild (1992) HL The testator, G, left the residue of his estate ‘to the town council of North Berwick for the use in connection with the sports centre in North Berwick or some similar purpose in connection with sport’. The IRC claimed that the transfer of value was liable to capital transfer tax. The executor appealed, claiming that the gift was for charitable purposes and therefore exempt from the tax. Held, on a proper construction of s 1(2)(a) of the Recreational Charities Act 1958, a gift for the provision of recreational facilities could be charitable notwithstanding the fact that the intended beneficiaries were not in a position of social disadvantage and did not suffer from any particular deprivation. Accordingly, the gift in the present case was a charitable one, the facilities having been provided in the interests of social welfare. In construing the second part of the gift, ‘or some similar purpose in connection with sport’, it should be presumed that G had intended those other purposes to share the aspects of social welfare provision and public benefit which had been present in the first part of the gift. Such a benignant construction should be applied to deeds whose wording was ambiguous and susceptible to two constructions, one which would render the trust void, the other which would render it a valid charitable trust.

7.4 Trusts for political purposes

Note In Bowman v Secular Society Ltd (1917), Lord Parker stated that ‘a trust for the attainment of political objects has always been held invalid, not because it is illegal ... but because the court has no means of judging whether a proposed change in the law will or will not be for the public benefit ...’. The prime reason for refusing charitable status to trusts for political purposes is that courts, whose role it is to enforce the law of Parliament, cannot sanction organisations whose role it is to change the law of Parliament.

Q Is this reasoning valid as an objection to charitable status where an organisation is seeking to alter the law of a foreign state? (See McGovern v AG, below.)

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National Anti-Vivisection Society v Inland Revenue Commissioners (1947) HL The society claimed to be exempt from income tax as being ‘a body of persons established for charitable purposes only’. Held the overriding test of charitable status was whether the purposes of the organisation existed for the public benefit. The society failed that test as, on balance, the object of the society was detrimental to the public benefit (Lord Porter dissenting). Further, a prime object of the society was political, namely, to secure the repeal of the Cruelty to Animals Act 1876 and to see it replaced by an enactment absolutely prohibiting vivisection. The court could not award charitable status to a trust for a political purpose. Lord Simonds stated obiter that the concept of what is charitable may change from age to age, and that a trust which was once held to be charitable might one day cease to be so, in which case the trust fund should be applied cy près (7.5). Re Hopkinson (1949) The testator, H, gave his residuary estate to four well known members of the Labour Party ‘as trustees of the educational fund hereinafter mentioned upon trust that they shall stand possessed of the same as an educational fund and shall apply the same ... for the advancement of adult education with particular reference to the following purpose (but in no way limiting their general discretion in applying the fund for adult education), that is to say, the education of men and women of all classes (on the lines of the Labour Party’s memorandum headed ‘A note on Education in the Labour party’, a copy whereof is annexed to this my will and signed by me) to a higher conception of social, political and economic ideas and values and of the personal obligations of duty and service which are necessary for the realisation of an improved and enlightened social civilisation’. The object of the memorandum was to promote the cause of the Labour Party. Held the trust was not charitable. The direction to refer to the memorandum was the dominating purpose of the trust and was not merely intended to guide the administration of the trust. The judge acknowledged that without the reference to the memorandum the trust would have been a valid charitable trust for the advancement of adult education generally. However, he would not allow what he described as ‘political propaganda’ to ‘masquerade’ as education. Re Strakosch (1949) CA A testator directed his trustees, by his will, to apply monies ‘to a fund for any purpose which in their opinion is designed to strengthen the bonds of unity between the Union of South Africa and the mother country, and which incidentally will conduce to the appeasement of racial feeling

77 BRIEFCASE on Equity and Trusts between the Dutch and English speaking sections of the South African community’. Held the expressed purpose of the trust was undoubtedly charitable, but that purpose could be achieved by methods, including the support of political parties, which would not produce charitable benefits in themselves. Note The Court of Appeal of 1949 appears to have ignored entirely the fact that Dutch and English speaking sections of the South African community were the ruling minorities of an apartheid regime!

McGovern v Attorney General (1981) For the facts, see 7.2.3. Held the trust in this case was not a valid charitable trust. A trust for the relief of human suffering was capable of being charitable, but not where a direct and main object of the trust was to secure such relief through attempting to change the laws of a foreign country. Such a trust would be a trust for a political purpose and as such would not be capable of being a valid charitable trust. The judge stated that an English court has ‘no adequate means of judging whether a proposed change in the law of a foreign country will or will not be for the public benefit’ of the foreign community. The judge also pointed out the risk of prejudicing relations between the United Kingdom and foreign states if English courts passed judgment on foreign regimes. The judge did acknowledge, however, that if the main objects of a charitable trust are non-political it will not cease to be charitable if the trustees have the power to use political means to achieve those non-political ends. Q Bearing in mind the last point made above, do you think that Re Strakosch would be decided differently if it fell for consideration today? Re Koeppler (1985) CA The testator, K, came to England from Germany in 1933. After World War II he ran conferences, known collectively (and rather confusingly) as the ‘Wilton Park’ project, for politicians, academics, civil servants, industrialists and journalists. By his will, K left a large part of his estate to ‘Wilton Park’ for ‘as long as Wilton Park remains a British contribution to the formation of an informed international public opinion and to the promotion of greater co-operation in Europe and the West in general ...’. The will provided that, in the event of Wilton Park ceasing to exist, there should be a gift over to a named Oxford college. The Wilton Park conferences were private, unofficial and not intended to follow any party political line. In fact, the law had never acknowledged Wilton Park as an entity, rather it was a sort of movement, or body of thought. Accordingly,

78 Charitable Trusts the gift was bound to fail outright unless it could be shown to be a gift for a charitable purpose. The judge at first instance decided that the gift must fail for vagueness of purpose. The Attorney General appealed. Held, because Wilton Park was not a legal entity, K’s gift must have been intended to be for purposes of one sort or another. Those purposes must be taken to be the purposes of the Wilton Park project, namely for the advancement of education through the provision of conferences. It followed that this was a valid charitable gift for the advancement of education. The persons attending the conferences would benefit themselves and pass on the benefits of their education to the general public. So far as the conferences touched upon political matters they were merely genuine attempts to objectively ascertain and disseminate truth. The trust was entitled to a ‘benignant construction’. In other words, it should be assumed that the trustees would act in accordance with their duties, and would not use the funds to propagate tendentious political opinions.

7.5 Cy près

Note Where a charitable trust cannot be carried out, or is fulfilled leaving a surplus of charitable funds, the doctrine of cy près might enable an application of the funds to charitable purposes as near as possible to the purposes intended by the settlor.

Where money has been successfully dedicated to charity, the next of kin will never be able to assert a claim to it; the cy près doctrine will apply even if the particular charitable purpose is subsequently impossible or impracticable to carry out. However, different considerations apply where there is initial failure of the gift.

7.5.1 Initial failure

Note Where a gift fails from the outset, the cy près doctrine will only save the gift where the donor, in making the gift, had a ‘general’ or ‘paramount’ charitable intent. In other words, did the donor desire a charitable outcome by whatever means, or was the particular means specified essential to the donor’s intention in making the charitable gift. If the donor’s intention is restricted to making a gift for a particular purpose in a particular way, the gift will fail and the subject matter of the gift will result to the donor.

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Re Rymer (1895) R left £5,000 ‘to the rector for the time being of St Thomas’ Seminary for the education of priests in the diocese of Westminster’. At the date of the will, the seminary still existed, but it had ceased to exist at the date of R’s death. On the question whether the £5,000 could be applied cy près. Held the gift lapsed and resulted to R’s residuary estate. Chitty J held that this was a gift for the particular seminary, and not a general gift for the education of the priests in the diocese of Westminster. It was plain from the language used, which referred to the saying of masses and the choice of candidates, that the choice of the seminary was not mere ‘machinery’ for the carrying out of a general charitable intent, but was the very substance of the testator’s gift. Re Faraker (1912) CA F, the testatrix, left £200 to ‘Mrs Bailey’s Charity, Rotherhithe’. The charity, founded in 1756 for the benefit of poor widows of Rotherhithe, had been amalgamated in 1905 with other charities in the area of Rotherhithe. Held the amalgamated charities would be entitled to the legacy. Not by the doctrine of cy près, but because the original charity continued to exist in a slightly modified form. Re Wilson (1913) A testator left money to pay the salary of a school master. He was to teach at a specified school according to a syllabus of the testator’s design. In the event, the school was never built. Held there was an initial failure of the gift, but the doctrine of cy près would not apply to save the gift. The fine details of the testator’s gift were not consistent with a general charitable intent. Note Contrast Re Lysaght (10.3) where, in a case of initial failure of a charitable trust, the court was able to find (perhaps artificially) a general charitable intention by making only a peripheral alteration to the donor’s expressed intentions.

Re Harwood (1936) The testatrix, H, left £200 to the Wisbech Peace Society, Cambridge and £300 to the Peace of Society of Belfast. The former had ceased to exist before the date of H’s death, while the latter had never existed at all. Held the gift to the Wisbech Peace Society failed and would not be applied cy près as H had lacked a general charitable intention in making that gift. As regards the gift of £300, it was held that H had shown a general charitable intention to benefit any society connected with Belfast which existed for the promotion of peace. The gift of £300 was applied cy près.

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Re Finger’s Will Trust (1972) The testatrix, F, left gifts to an unincorporated association, the National Radium Commission, and to an incorporated company, the National Council for Maternity and Child Welfare. Held the gift to the former institution was valid as a trust for general charitable purposes, whereas the gift to the company was prima facie void as being for a particular legal person which had ceased to exist (see Re Harwood). However, Goff J thought the present case to be a special one and distinguished Re Harwood on the basis that here the major part of F’s estate, including the residue, had been specifically devoted to charitable purposes. Accordingly, the gift to the corporations was validated by the operation of the cy près doctrine. Note Section 14 of the Charities Act 1993 provides that monies donated to collecting boxes, raffles, entertainments and so on, may be applied cy près without having to obtain the donor’s consent. As regards other donations, the trustees must advertise and take steps to find the donors and, if they are found, return the donation to them or obtain in writing a waiver of the donor’s claims to the donation.

7.5.2 The impossibility/impracticality requirement

Note Prior to the Charities Act of 1960, the cy près doctrine would only be applied where the charitable objects of the trust were impossible or impracticable to fulfil. The 1960 Act relaxed these limitations on the application of cy près. The law is now to be found in s 13 of the Charities Act 1993.

Section 13 of the Charities Act 1993 (1) Subject to sub-s (2) below, the circumstances in which the original purposes of a charitable gift can be altered to allow the property given or part of it to be applied cy près shall be as follows: (a) where the original purposes, in whole or in part: (i) have been as far as may be fulfilled; or (ii) cannot be carried out, or not according to the directions given and to the 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 applicable for similar purposes can be more effectively used in conjunction, and to that end can suitably, regard being had to the spirit of the gift, be made applicable to common purposes; or

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(d) where the original purposes were laid down by reference to an area which then was but has since ceased to be a unit for some other purpose, or by reference to a class of persons or to an area which has for any reason ceased to be suitable, regard being had to the spirit of the gift, or to be practical 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, to be in law 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. (2) Sub-section (1) above shall not affect the conditions which must be satisfied in order that property given for charitable purposes may be applied cy près except in so far as those conditions require a failure of the original purposes...

82 8 Special Categories of Trust

8.1 Protective trusts

Note The beneficiary of the typical protective trust has a life interest in the trust fund which will determine if ever the income of the fund becomes payable to someone other than the beneficiary. It follows that the most common ‘determining event’ will be the personal bankruptcy of the beneficiary. When the life interest determines, a discretionary trust ‘springs up’ under which the original beneficiary, together with certain members of his or her family, has a hope of being re-appointed as a beneficiary by the trustees of the discretionary trust (s 33 of the Trustee Act 1925). Thus, protective trusts are used to protect beneficiaries from their own folly and from their creditors. Note, however, that, whereas a life interest which is limited to take effect until bankruptcy will be valid, a condition of a protective trust which purports to determine the life interest in the event of the bankruptcy of the life tenant will be void.

Re Balfour’s Settlement (1938) B had a life interest in the income of the settled fund until he should ‘do or suffer something whereby the same or some part thereof would through his act or default or by operation or process of law or otherwise ... become vested in or payable to some other person’. It was provided, further, that in the event of determination a discretionary trust would spring up. The trustees paid capital of the fund to B in breach of their trust, and later impounded income due to B in order to remedy that breach. Held the impounding of the income effected a forfeiture of B’s life interest under the terms of the protective trust. Re Baring’s Settlement Trust (1940) Mrs B had a protected life interest under a family settlement which provided that income should be paid to her ‘until some event should happen whereby the income ... would become ... payable to ... some other person’. A discretionary trust was to arise in the event of determination of the life interest. When Mrs B absconded abroad with the children of the family and ignored a court order to return them to England, Mr B obtained

83 BRIEFCASE on Equity and Trusts a court order against her property. Eventually, Mrs B returned and the question arose whether she had forfeited her life interest. Held she had forfeited her life interest and was left with a mere hope of an interest under the discretionary trust. The court order against her property had deprived her, albeit temporarily, of her interest in the income of the settlement. Gibbon v Mitchell (1990) G had a life interest under a protective trust. On the mistaken advice of his accountants and solicitors, he executed a deed purporting to surrender his life interest in favour of his children. In fact, the surrender amounted to a forfeiture of his life interest under the protective trust. Accordingly, the trust fund became subject to a discretionary trust in favour of certain other beneficiaries. When the true effect of his surrender became apparent, he applied to court to have the deed of surrender set aside. Held the application was granted and the deed of surrender was set aside under the court’s ‘equitable jurisdiction to relieve from the consequences of mistake’. Millet J noted that G should have applied in the first place for a variation of the trusts under the Variation of Trusts Act 1958 (9.2). Q Do protective trusts defraud creditors? (See 5.7.1.)

8.2 Asset-protection trusts

Note It is not infrequent in commercial transactions for party A to incur a debt to party B. In such a case, A will be subject to a personal obligation to re- pay the debt to B. But, if A becomes insolvent before re-paying the debt to B, B will have to ‘join the cue’ of all the creditors with personal claims against A’s assets. If, however, A is a trustee (and not merely a debtor) of assets held by A for the benefit of B, the situation is quite different. In such a case B, as beneficiary of the trust, will have proprietary rights in those assets. B will no longer have to ‘join the queue’ of A’s general creditors. This is because the assets will be treated as never having belonged to A.

Barclays Bank Ltd v Quistclose Investments Ltd (1970) HL RR Ltd declared a dividend in favour of its shareholders, but being already heavily overdrawn at its bank (BB Ltd) RR Ltd could not afford to pay the dividends. QI Ltd made a loan of £210,000 to assist RR Ltd, the loan being made upon condition that the monies would be used to pay the dividends. The cheque from QI Ltd was paid into a new account with BB Ltd and BB Ltd agreed that the monies should be held for the sole purpose of paying

84 Special Categories of Trust the dividends at the due date. However, RR Ltd went into liquidation before the due date for payment of the dividends. BB Ltd claimed that the £210,000 should be used to clear some of RR Ltd’s overdraft. Against this, QI Ltd argued that RR Ltd had held the monies on trust, and now that the trust had failed, the monies should return to QI under a resulting trust. Held, first, the monies were held by RR Ltd on trust for its shareholders, and when that trust failed the monies were held by RR Ltd on resulting trusts for QI Ltd. BB Ltd had notice of that trust and therefore held the monies on trust for QI Ltd. Secondly, the fact that the transaction, had it succeeded, would have given rise to a standard common law debt owed by RR Ltd to QI Ltd did not preclude the co-existence of a trust remedy in equity. Re Kayford Ltd (1975) K Ltd ran a mail order business the customers of which paid either a deposit or the full price in advance. Fearing insolvency, the company was advised to set up a ‘Customers’ Trust Deposit Account’ to hold customers’ monies until their goods were delivered to them. In fact, K Ltd paid customers’ monies into one of its existing, dormant accounts. Only later was the name of the account changed to ‘Customers’ Trust Deposit Account’. Soon afterwards, K Ltd went into voluntary liquidation. The liquidator raised the question whether the monies in the account belonged to the customers or to K Ltd’s other creditors. Held the subject matter and object of the trust being certain, the crucial question was whether a trust had certainly been intended. In the circumstances, the intention to create a trust was manifestly clear. The failure to use the separate account and the word ‘trust’ did not defeat such a finding. Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd (1985) CR Ltd, a cigarette manufacturer, had for many years employed FMT Ltd to advertise its products, for which FMT received an annual fee. The annual fee was paid on a monthly basis. FMT eventually fell into financial difficulties and was unable to meet its own monthly debts to third party agents. Fearing it would lose the custom of CR, FMT set up a special account into which CR would henceforth make its monthly payments and out of which FMT would finance advertising on CR’s behalf. Ultimately, however, FMT went into a creditor’s voluntary liquidation and the special account was frozen. CR was obliged thereafter to pay FMT’s agents directly in order to maintain the advertising campaign. CR brought an action against FMT and its liquidators claiming a declaration that the balance of monies in the special account had been held by FMT on trust to pay for CR’s advertising and, that trust having failed, the monies were now held by FMT on resulting trust for CR.

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Held the monies in the special account had never been held by FMT for its own benefit, but for a specific purpose. Accordingly, the monies were not available to FMT’s general creditors, but were held by the liquidator on trust for CR. Re EVTR (1987) CA EVTR Ltd was in trouble financially and B (who had just won a small fortune on his premium bonds) agreed to assist it. He deposited £60,000 with EVTR’s solicitors and authorised them to release the monies ‘for the sole purpose of buying new equipment’. This they did. However, EVTR went into receivership before the equipment was delivered, the receivers recovering a large part of the monies which had been paid to the equipment suppliers. The trial judge held that the sums recovered should be held as part of the general assets of the company. B appealed. Held, allowing the appeal, B had paid the monies to EVTR for the specific purpose of purchasing equipment. When this purpose failed EVTR held the monies on trust for B. Through merely contracting to purchase the equipment, EVTR had not fulfilled the purpose for which the monies had been provided, the true purpose had been the acquisition of equipment, and that had failed. As Dillon LJ put it, ‘I do not see why the final whistle should be blown at half time’. Re Multi Guarantee Co Ltd (1987) CA MG Ltd was a supplier of insurance for domestic appliances. V Ltd, which owned a chain of retail outlets, collected insurance premiums from customers and paid them to MG. MG kept customer’s premiums in a special account, the IBA account. The monies in that account were later paid into a new account and could only be withdrawn by MG and V’s solicitors acting together. There was no detailed agreement as to when withdrawals could be made. Eventually, it was determined that the monies should be paid to V, but before this could be done, MG went into liquidation. The trial judge dismissed V’s claim that MG had held the monies in the IBA account on trust. V appealed. Held dismissing the appeal. MG had not manifested a sufficient intention to create a trust as no decision had been made regarding the destination of the monies in the account. The monies would, therefore, be held by the liquidator as part of the general assets of MG. Mac-Jordan Construction Ltd v Brookmount Erostin Ltd (1992) CA BE Ltd was a property development company. MJC Ltd was a construction company which had been contracted to carry out certain building works for BE. The contract provided that BE should make interim payments to MJC, but that BE should retain 3% of each interim payment in a retention fund. The contract further provided that BE would hold the retained monies as a trustee for MJC. BE retained the monies (over £100,000) but

86 Special Categories of Trust failed to keep them in a separate fund. BE’s banker’s had taken a floating charge over all BE’s assets, and when BE fell into financial difficulties the bank appointed an administrative receiver under the charge. MJC claimed that the retained monies were held on trust for it, whereas the bank argued that the monies were subject to their charge. Held the retention fund had not in fact been set up, in spite of the contractual requirement that it should be, and therefore there was no fund which could be said to have been fixed with a trust in favour of MJC Ltd.

8.3 Pension fund trusts

Note Trusts are used as a vehicle for pension provision precisely because (as we saw in the previous section) if the trustee fund holder becomes insolvent, the persons beneficially entitled to the fund will still be able to claim their share of the pension fund by asserting their property rights in it. Use of trust machinery also brings with it the added advantage of subjecting the pension fund holder to strict equitable obligations. In Air Jamaica Ltd v Charlton (1999) (5.6) the Privy Council noted that an employee pension fund can ‘in theory’ be established by contract without using the machinery of a trust, but that such a scheme would have to be very simple. The employer would not make any contributions itself, since there would be no one to receive them.

Report of The Pension Law Review Committee (The Goode Report), September 1993, recommendation 103 Pension fund trustees should exercise ‘in relation to all matters affecting the fund, the same degree of care and diligence as an ordinary prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide and to use such additional knowledge and skill as the trustee possesses or ought to possess, by reason of the trustee’s profession, business or calling’. Davis v Richards and Wallington Industries Ltd (1990) A group of companies established a pension scheme for its employees. The companies later fell into financial difficulties and terminated the pension scheme. The surplus in the fund, comprising contributions by employer and employees, amounted to £3 m. One of the questions which arose was whether the surplus fund should be held on trust for the companies or for the employees, or should pass as bona vacantia to the Crown. Held (having considered Re West Sussex (6.6)) the contractual origin of the rights under the pension scheme was relevant to, but not conclusive of, the question whether a resulting trust would apply to the surplus. A resulting trust solution to the question of distribution would only be

87 BRIEFCASE on Equity and Trusts excluded by the court if such a solution is expressly or impliedly excluded by the trust instrument. The fact that the employer had made contributions to the scheme under a contractual obligation did not preclude it from recovering its contribution under a resulting trust. However, the employees would not be able to recover their contributions because, inter alia, each employee had made a different contribution, and a resulting trust could not work to effect a distribution between them. British Coal Corp v British Coal Staff Superannuation Scheme Trustees Ltd (1995) The facts of this case are not of direct relevance here. Held (per curiam) the rule of trust law that a person should not be appointed to be a trustee of a discretionary trust under which they are a potential beneficiary does not apply to pension fund trusts. If an employer has the power to amend a pension fund scheme, that power may be exercised in any way which is calculated to promote the purposes of the scheme, even if the amendment might be of direct or indirect benefit to the employer.

Edge v Pensions Ombudsman (1998) CA The pension fund was in surplus and the trustees therefore decided to alter the rules of the fund so as to reduce the level of employees’ contributions. The plan was to keep existing employees and attract new employees and thereby to ensure the future viability of the pension fund. However, retired employees (pensioners) complained to the Ombudsman that the trustees had breached their trust by preferring the interests of current employees to those of current pensioners. The Ombudsman found for the pensioners. Held, overturning the decision of the Ombudsman, it would make no sense to apply the duty of impartiality where the rules of the fund allowed the trustees a discretionary power to choose between beneficiaries (sometimes called a dispositive discretion, see 12.3) in such a case the trustees are permitted to prefer one class over another provided that in doing so they do not take into account ‘irrelevant, irrational or improper factors’. Note See, further, Mettoy Pension Fund Trusts v Evans (1991) (12.3.3); Wilson v Law Debenture Trust Corp plc (1995) (12.3.5); Cowan v Scargill (1985) (13.7).

88 Part 3 Varying a Trust

9 Variation of Trusts

Note ‘The general rule ... is that the court will give effect, as it requires the trustees themselves to do, to the intentions of a settlor as expressed in the trust instrument, and has not arrogated to itself any overriding power to disregard or re-write the trusts’, per Sir Raymond Evershed MR in Re Downshire’s SE (1953) (see 9.1.2).

9.1 Modes of variation

9.1.1 Variation by adult beneficiaries Saunders v Vautier (1841) A testator bequeathed certain stock on trust to accumulate the dividends until V should attain the age of 25, and then to transfer the stock and accumulated income to V. Having reached the age of 21, V claimed to have the entire fund transferred to him. Held the fund would be transferred as claimed. Where a legacy under a trust is deferred for a period, the legatee, if he has an absolute indefeasible interest in the legacy, is not bound to wait until the expiration of that period, but may require payment upon attaining majority. Note The rule in Saunders v Vautier was applied in Stephenson (Inspector of Taxes) v Barclays Bank Trust Co Ltd (1975). In that case, Walton J stated some ‘elementary principles’ of its application: (1) where persons, being sui juris, between them hold the entirety of the beneficial interest under a trust they can direct the trustees as to how to deal with the trust property; (2) but they cannot thereby override the existing trusts and at the same time keep them in existence; (3) so, for instance, they cannot

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require the current trustees to make particular investments; (4) nor can they deny the trustees’ basic right to be indemnified out of the trust fund for any expenses incurred by them in carrying out the trust.

9.1.2 Variation under s 57 of the Trustee Act 1925 Section 57(1) of the Trustee Act 1925 Where in the management or administration of any property vested in trustees, [any 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 trustees by the trust instrument, if any, or by law, the court may by order confer upon the trustees ... the necessary power for the purpose.

Re Downshire’s SE (1953) CA A variation (or ‘re-moulding’) of the beneficial interests under a trust was sought under the court’s inherent jurisdiction, under s 57 of the Trustee Act 1925 and/or under s 64 of the Settled Land Act 1925. Held neither the court’s inherent jurisdiction nor s 64 was applicable. Section 57 could not be used to sanction the re-moulding of the equitable interests under the trusts, as had been requested, but could only be used to vary the administration of the trust. The reference to property in s 57 meant property vested in the trustees, not the equitable interests which the settlor had created in that property. Anker-Petersen v Anker-Petersen (1991) A beneficiary under his father’s will trust applied to the court for an order extending the trustees’ powers of investment. The application was made under s 57 of the Trustee Act 1925 and, in the alternative, under the Variation of Trusts Act 1958. Held the order was granted. The judge stated that, where the beneficial interests under a trust would remain unaltered by the variation, as here, it was preferable for the variation to be sought under s 57 of the Trustee Act 1925. This was because, by the 1958 Act, trusts were varied on the basis of the consent of individual beneficiaries, and such consent should not be required to authorise that which was in the trustees’ domain, namely the administration of the trust.

9.1.3 Variations under s 53 of the Trustee Act 1925 Section 53 of the Trustee Act 1925 Where an infant is beneficially entitled to any property the court may, with a view to the application of the capital or income thereof for the maintenance, education or benefit of the infant, make an order:

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(a) appointing a person to convey such property; or (b) in the case of stock, or a thing in action, vesting in any person the right to transfer or call for a transfer of such stock, or to receive the dividends or income thereof, or to sue for and recover such thing in action, upon such terms as the court may think fit. Re Meux’s Will Trust (1957) G was the life tenant of a will trust, G’s sons would take in remainder. When his eldest son was still an infant G applied to court for an order varying the trust. The application was made under s 53 of the Trustee Act 1925, requesting that a person be appointed to convey the infant’s interest to G at a fair price. G would then re-settle the sale proceeds on terms similar to those of the original trust, except G would no longer have an interest under the trust and D would have a contingent interest rather than a vested interest. Held the court could approve of the variation under s 53 of the Trustee Act 1925 as an ‘application ... for ... the benefit of the infant’.

9.1.4 Variation under the court’s inherent jurisdiction in cases of salvage and emergency Re Jackson (1882) An infant was absolutely entitled, under certain trusts, to the beneficial interest in real estate held by the trustees. The estate became in urgent need of repair and the trustees applied for a variation in the administration of the trust to meet the repairs. Held the court had an inherent jurisdiction to direct the raising of money to salvage the estate. It would do this by means of a variation in the administration of the trust which would allow the estate to be used as security for a mortgage. Re New (1901) The trustees wished to approve a proposal to reorganise a limited company in which the trust owned shares but they had no power to do so. The beneficiaries could not approve the reorganisation because they were not all sui juris, but the reorganisation would certainly have been to their benefit. The trustees applied to the court for a variation under the court’s inherent jurisdiction. Held the court could approve the variation under its inherent jurisdiction to alter the administration of a trust in cases of emergency, where circumstances had arisen which the settlor of the trust had not foreseen and had not made provision for. Such variations would be approved only where the variation was desirable in the best interests of the beneficiaries. But the court would not sanction every act desired by the trustees and beneficiaries merely because it may appear beneficial to the estate.

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9.1.5 Variation through compromise of disputes Chapman v Chapman (1954) HL A variation was sought to achieve certain tax advantages for infant and unborn beneficiaries. The variation was sought under the court’s inherent jurisdiction to compromise disputes. Held the court could vary a trust under that inherent jurisdiction only in cases of genuine dispute, the jurisdiction could not be used to sanction a bargain made by the beneficiaries inter se. The general view of their Lordships was that a so called ‘variation’ by compromising a dispute was not really a variation at all, because when a genuine dispute is resolved the compromise-solution ought to represent the proper original state of the trusts as the settlor/testator had intended them. As Lord Morton put it, ‘the court’s jurisdiction to sanction a compromise in the true sense, when the beneficial interests are in dispute, is not a jurisdiction to alter these interests, for they are still unascertained’. Lord Cohen disagreed on this point, stating that ‘the very essence of a compromise is that it may give each party something other than that which the will or settlement would, on its true construction, confer on him’. Note Before the decision in Chapman v Chapman, the courts had used their inherent jurisdiction to compromise disputes in order to effect variations of beneficial interests in cases where there had been no genuine dispute (as to the construction of the trust instrument) at all. Chapman v Chapman removed this large jurisdiction and the Variation of Trusts Act 1958 was passed in response.

9.2 Variation under the Variation of Trusts Act 1958 Section 1 of the Variation of Trusts Act 1958 Where property, whether real or personal, is held on trusts arising, whether before or after the passing of this Act, under any will, settlement or other disposition, the court may if it thinks fit by order approve on behalf of: (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; (b) any person (whether ascertained or not) who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons, so however that this paragraph shall not include any person who would be of that description, or a member of that class, as the case may be, if the said date had fallen or the said event had happened at the date of the application to the court; or

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(c) any person unborn; or (d) any person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined, any arrangement (by whomsoever proposed ...) varying or revoking all or any of the trusts, or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts: provided that except by virtue of para (d) of this subsection the court shall not approve an arrangement on behalf of any person unless the carrying out thereof would be for the benefit of that person.

Note ‘The court does not itself amend or vary the trusts of the original settlement. The beneficiaries are not bound because a court has made the variation. Each beneficiary is bound because he has consented to the variation,’ per Lord Reid in IRC v Holmden (1968).

Q Can you see why the 1958 Act is said to operate by analogy to the rule in Saunders v Vautier? Re Druce’s Settlement Trust (1962) The facts of the case are not of central importance here. Held (per curiam), when an application is made to vary the beneficial interests under a trust, the beneficiaries should ordinarily bring the application. The trustees should bring the action only where the application is in the beneficiaries’ best interests and no beneficiary can or will make the application. Re Suffert’s Settlement (1960) An application was made to vary a settlement. Under the original terms of the settlement, the applicant had a life interest in the fund under a protective trusts and her children were to take in remainder upon their attaining 21. If she had no children, she could exercise a general power of appointment over the remainder in favour of persons of her choosing. In default of exercising the power of appointment, the fund would pass to her statutory next of kin. At the date of the application, her statutory next of kin were three adult cousins. One of these cousins had been joined as a respondent to the application and had given his approval to the proposed arrangement to vary the trusts. The applicant was, in fact, a childless spinster aged 61. Held the court made an order approving the variation and gave consent on behalf of persons unborn and unascertained who might have become entitled under the terms of the original settlement. However, the judge stated that the order would not be effective to bind the applicant’s two adult cousins who had not joined in the application. The court could not

93 BRIEFCASE on Equity and Trusts consent to the arrangement on their behalf as they fell within the proviso to s 1(1)(b) of the 1958 Act, and they must give their own consent before the arrangement could be binding upon them. The two cousins came within the proviso to s 1(1)(b) because they would have been the applicant’s ‘next of kin’ (a ‘specified class of persons’) had the applicant died (had ‘the said event ... happened’) at the date of her application to court. Re Moncrieff’s Settlement Trust (1962) An application was made to vary a settlement. Under the original terms of the settlement, the applicant had a life interest in the fund. On her death, the fund was to be held on trust for any of her children that she might appoint under a general power of appointment. In default of such appointment, the fund was to be held on trust for purposes or persons appointed by her will. In default of such appointment, the fund was to be held for her statutory next of kin. The applicant was a widow and her only child was an adopted son; he was joined as the first respondent to the application. Other respondents were four adult cousins of the applicant and the trustees of the settlement. Held approval was given for the arrangement varying the trusts. The court was able to consent on behalf of the adopted son because he was an infant and the variation would be for his benefit (s 1(1)(a) of the Variation of Trusts Act 1958). The court was also able to consent on behalf of the cousins under s 1(1)(b), as they were persons who ‘may’ have become entitled in the future as being the applicant’s ‘next of kin’. Crucially, they would not have been entitled as next of kin had the applicant died at the date of the application to court. Accordingly, the cousins did not fall within the proviso to s 1(1)(b) and their own consent would not be required before approving the proposed arrangement for the variation of the trusts. Knocker v Youle (1986) An application was made to vary a settlement. The applicants were the settlor’s son and daughter. Under the original terms of the settlement, income was directed to be paid to the daughter at 21, for her life. She had a general power to appoint those who would take after her. In default of appointment, the fund would be held on trust for the settlor’s four sisters in equal shares, and for the sisters’ issue upon the death of any of the sisters. At the date of the application to court, the question arose for consideration whether the court could grant its approval to the settlement on behalf of the sisters’ numerous issue. They had not been made respondents to the application. Held the court would not approve the arrangement varying the trusts at this time and the summons was adjourned. The children of the four sisters did not fall within any of the categories of person described in s 1(1) of the

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1958 Act on whose behalf the court could give consent. They must give their own consent to the arrangement. Although their interests were very remote and contingent, they nevertheless had more than a mere expectation that they would acquire an interest under the trusts. As Warner J pointed out, ‘a person who has an actual interest directly conferred on him or her by a settlement, albeit a remote interest, cannot properly be described as one who “may become” entitled to an interest’ (see the wording of s 1(1)(b), above). Goulding v James (1997) CA The testatrix made a will in 1992 whereby she directed that her estate was to be divided into two parts to be given to her daughter, June, and June’s husband, Kenneth. She further provided that their interest was to pass to their son, Marcus, contingent upon his attaining the age of 40 if either June or Kenneth pre-deceased the testatrix. This will was revoked in 1994 and replaced with a new will which created a trust under which June had a life interest in possession of the residuary estate subject to which Marcus was to take absolutely, provided he reached the age of 40. The new will further provided that if Marcus failed to attain the age of 40 or died before June, then Marcus’ children would take the estate absolutely. After the death of the testatrix, June and Marcus applied to court for a variation of the trust contained in the will under s 1(1)(c) of the Variation of Trusts Act 1958. The variation sought was for 45% of the estate to be held for June, 45% for Marcus and the remaining 10% for Marcus’ children. Laddie J, at first instance, declined to approve the arrangement as it was contrary to the testatrix’s wishes. Held, approving the arrangement, the Court of Appeal decided that its only concern should be to ensure that an arrangement under the Act is ‘beneficial’ to those for whom the court’s consent is sought. The purpose of the section was merely to enable a Saunders v Vautier (see 9.1.1) type of arrangement to take place where it would otherwise be precluded because there were beneficiaries who could not give their consent.

9.2.1 Meaning of benefit Re Weston’s Settlement (1968) CA The plaintiff had settled two trusts in favour of his children, but they were subject to certain tax disadvantages. In order to save tax, the plaintiff moved with his children to Jersey and, claiming to be resident and domiciled there, he sought a variation of the trusts which would permit them to be exported to Jersey. This would involve the appointment of Jersey trustees and the transfer of the trust property to them. Held the application would not be allowed. Lord Denning MR stated that ‘the court should not consider merely the financial benefit to the infants or unborn children, but also their educational and social benefit.

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One of these things is to be brought up in this our England, which is still “the envy of less happier lands” ... The avoidance of tax may be lawful, but it is not yet a virtue ... if it really be for the benefit of the children, let it be done. Let them go, taking their money with them, but, if it be not truly for their benefit, the court should not countenance it’. Note Most variations are sought so as to secure tax-planning advantages. Charitable status also brings with it fiscal benefits, but before charitable status is granted a public benefit must nearly always be shown. It might be asked, therefore, whether there is a sufficient benefit to the public in the jurisdiction to vary trusts under the 1958 Act.

Re Tinker’s Settlement (1960) An application was made to vary a settlement. The applicant was the settlor, the respondents were his son and daughter, both of whom were beneficiaries under the settlement. The son would take an absolute interest in half the settled fund upon the settlor’s death, or upon the son attaining 30, whichever first occurred. If the son died before that age, his share would accrue to the daughter. The settlor had applied for the variation because he had not appreciated that, according to the terms of the settlement, if his son pre-deceased him, or failed to attain the age of 30, any children of the son then living would take no interest under the settlement due to the accruer in favour of the sister. Held the judge refused to approve a variation whereby the accruer clause in favour of the sister would be removed. Such a variation would not be for the benefit of the sister’s infant children and unborn issue. The judge was not persuaded by the argument that the proposed variation would yield a substantial non-financial benefit in the form of the family harmony that would flow from bringing the interests of the son’s children in line with those of the daughter’s children. Re Remnant’s Settlement Trust (1970) The testator of a will trusts provided by clauses in his will that any of his grandchildren practising Roman Catholicism at the date of his daughter’s death would thereby forfeit any entitlement to the fund. According to the testator’s definition, persons ‘practice’ Roman Catholicism if, inter alia, they have attended a Roman Catholic Church for worship at least once a year, or if they marry a Roman Catholic. An application was made to vary the trusts in several respects, including the removal of the forfeiture provision. Held the court approved of the proposed arrangement for the variation of the trusts. Although the removal of the forfeiture provision carried the risk that certain family members, who would have taken in the event of forfeiture, might be financially worse off as a result of the variation, the

96 Variation of Trusts variation could still properly be said to be for their benefit in the wider sense of that word, as tending towards familial harmony and freedom of marital choice. The fact that certain of the testator’s expressed wishes had been defeated was said to be a ‘serious but by no means conclusive consideration’. Re T’s Settlement Trust (1964) The applicant had a life interest in half of the trust fund; another quarter was held on trust for the applicant’s daughter upon her attaining 21, and the final quarter was to pass to the daughter upon the applicant’s death. the applicant sought the court’s approval for an arrangement which would vary the trusts by placing the daughter’s interest under protective trusts for her life. The application was made due to the daughter’s allegedly immature and irresponsible attitude towards money. Held the court refused to approve of the proposed arrangement, but approved an alternative proposal under which the vesting of the daughter’s interest would be postponed until she attained 30. She would hold a protected life interest in the meantime.

9.2.2 Variation must benefit every beneficiary Re Cohen’s Settlement Trust (1965) The plaintiff was the only surviving son of the settlor. On the plaintiff’s death, the whole of the trust fund was to be held on trust for the settlor’s grandchildren and their issue. An application was made to vary the trusts by inserting a fixed date in place of the plaintiff’s death as a trigger for the grandchildren’s trusts. It was improbable that the plaintiff would live beyond the fixed date. The variation was sought under s 1 of the 1958 Act and the court’s consent was sought on behalf of the infant beneficiaries (defendants to the application) and on behalf of persons unborn who might become entitled under the trusts. Held the court would approve the arrangement on behalf of the infant beneficiaries, but the court would not give the consent of persons unborn. In the event that the plaintiff might live beyond the fixed date, persons born after that fixed date would have had an interest under the original trusts but would not have an interest under the proposed new trusts. The court could approve of an arrangement varying the trusts only if every person who might become entitled under the trusts might reasonably be expected to benefit from the variation. Therefore, the application to vary the trusts would not be approved in the instant case.

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9.2.3 Risk of detriment Re Holt’s Settlement (1968) The plaintiff, a life tenant under a trust, made an application to vary the trusts under which she held her interest. Under the proposed variation, she would surrender half her income as life tenant, which income would be accumulated for her children. According to the original trusts, her children were to take in remainder upon their attaining 21; under the proposed variation they would have to attain the age of 30 before their interests would vest in possession. Under the proposed scheme, the variation would take place by resettling the income on new trusts with the new terms. The court was asked to approve the arrangement on behalf of persons unborn who might become entitled under the trusts. Held, in deciding whether or not to consent to the proposal on their behalf, the court was entitled to take the sort of risks that an adult beneficiary would have been prepared to take on their own behalf when considering whether to approve the variation. In the present case, the variation would be allowed because the chance of a benefit and the risk of detriment was one which an adult beneficiary in the position of the unborn beneficiary would be prepared to take. Re Cohen’s Settlement Trust (above) was distinguished. In Re Cohen’s Settlement Trust, the variation had been refused because the prospects of the unborn beneficiary would have been hopeless whatever events might have occurred. Re Robinson’s Settlement Trust (1976) An application was made to vary the terms of a settlement. If approved, the new arrangement would carry with it the risk that the beneficiaries might suffer a loss due to certain tax liabilities. Held approval would be given for the proposed variation provided that some of the infant beneficiary’s income entitlement was set aside to purchase insurance cover against the risk of a large capital transfer tax liability.

9.2.4 Variation is permitted, wholly new trusts are not Re Ball’s Trust (1968) An application was made to vary the terms of a settlement. Under the original terms, the settlor had a life interest in the income of the fund, with the power to appoint his two sons (or their families) as beneficiaries in remainder. Neither family was to take more than half of the value of the fund under the power of appointment. Under the terms of the proposed new arrangement, the two sons would be given life interests in half of the fund each, then their children would take in equal shares. Held the new arrangement would be approved as the changes were likely to effect merely the detail of the trust and would not change it in

98 Variation of Trusts substance. The arrangement could properly be described as a ‘variation’. Megarry J stated that, ‘the substratum of the original trust remains. True, the settlor’s life interest disappears; but the remaining trusts are still in essence trusts of half the fund for each of the two named sons and their families’. An arrangement which alters the substratum of a trust may effect changes so extensive that the arrangement will not qualify as a ‘variation’. Q Consider the facts of Re Holt’s Settlement (9.2.3): was that a variation or a resettlement? Is the distinction between variation and resettlement a logical one? Q Having reached the end of our consideration of variation of trusts do you think that the law in this area is primarily designed to ensure fidelity to the settlor’s intentions or pragmatic derogation therefrom?

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10 Filling the Office of Trustee

10.1 General

Note A trust will not fail even if all the trustees die. Nor will a trust fail if, for some other reason, the existing trustees become unfit, unable or unwilling to act. Traditionally, this principle has been expressed in the maxim ‘a trust does not fail for want of a trustee’.

10.2 The appointment of trustees Section 36(1) of the Trustee Act 1925 Where a trustee ... is dead, or remains out of the United Kingdom for more than 12 months, or desires to be discharged from all or any of the trusts or powers reposed in or conferred on him, or refuses or is unfit to act therein, or is incapable of acting therein, or is an infant, then, subject to the restrictions imposed by the Act on the number of trustees: (a) the person or persons nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust; or (b) if there is no such person, or no such person able and willing to act, then the surviving or continuing trustees or trustee for the time being, or the personal representatives of the last surviving or continuing trustee, may, by writing, appoint one or more other persons (whether or not being the persons exercising the power) to be a trustee or trustees in the place of the trustee so deceased remaining out of the United Kingdom, desiring to be discharged, refusing, or being unfit or incapable, or being an infant, as aforesaid.

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10.2.1 By persons nominated in the trust instrument Re Wheeler and De Rochow (1896) A marriage settlement nominated DeR for the purpose of appointing new trustees upon the happening of certain events, which events did not include a trustee becoming unfit to act in the trust. One of the trustees was declared bankrupt and was thus unfit to act as a trustee. DeR purported to appoint a new trustee in place of the bankrupt trustee. Held the appointment should not have been made by DeR, but by the continuing trustees, according to s 10 of the Trustee Act 1893 (now s 36(1) of the Trustee Act 1925. The events upon which a nominated appointer may appoint new trustees will include all the events listed in s 36(1) unless the trust instrument expressly or impliedly provides for a more limited list. Re Power’s Settlement Trusts (1951) CA P was tenant for life under a settlement which nominated him as the person empowered to appoint new trustees in accordance with s 36(1). The three original trustees where still in office when P purported to appoint himself as an additional, fourth trustee. Held the appointment was invalid. Sub-section 36(1) only permits the appointment of new trustees in the event of a vacancy arising, which had not occurred in this case. And s 36(6), which authorises the appointment of additional trustees up to a maximum of four even when no vacancy has arisen, did not permit the nominated appointer to appoint himself. The crucial words ‘whether or not being the persons exercising the power’ which are found in s 36(1) do not appear in s 36(6).

10.2.2 Where the nominated appointer is an infant Re Parsons (1940) A settlement vested the power of appointing new trustees in the settlor during his lifetime and after his death in his son. After the death of the settlor, the original trustee died and it fell to the son to appoint another, the son still being an infant. He purported to appoint his mother as sole trustee to fill the vacancy in the trust. Held the appointment was invalid. Appointments made by infants would not be upheld if shown to have been made imprudently or against the interests of the infant. The appointment of the mother was invalid because she would have no compulsion to account to anybody, and her duty to the trust was bound to clash with her private interests.

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10.2.3 Appointment by the current trustees

Note See s 36(1) of the Trustee Act 1925 (10.2).

10.2.4 Appointment by the personal representatives of the current trustees

Note See s 36(1) of the Trustee Act 1925 (10.2).

10.2.5 Appointment by the court Section 41(1) of the Trustee Act 1925 The court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient difficult or impractical to do so without the assistance of the court, make an order appointing a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee ...

Re May’s Will Trust (1941) The testator appointed three trustees of his will trust. One of the trustees, his widow, happened to have been in Belgium at the date of the German invasion. The other two trustees took out a summons to establish whether they were empowered to appoint new trustees in her place. Held the continuing trustees did not have the power to appoint new trustees, because there was nothing to suggest that the widow was ‘incapable of acting’ within the meaning of s 36(1) (which envisages, for example, mental or bodily incapacity). It would therefore be inexpedient, difficult or impractical to make an appointment without the assistance of the court. The court undertook to appoint a new trustee.

10.2.6 Factors guiding appointments by the court Re Tempest (1866) CA The will of Sir T appointed S and F as trustees of certain real estates. A codicil to the will appointed S, F and Lord C as trustees of certain charitable trusts. S predeceased Sir T Fleming and AT (Sir T’s uncle) were empowered by the will to appoint new trustees of the real estates, but they could not agree upon a replacement trustee. Most of the beneficiaries concurred with AT’s choice but F opposed it on the grounds that the proposed new trustee was connected to a branch of the family with whom Sir T had not been on friendly terms. The surviving trustees of the charitable trusts were, on the other hand, able to agree upon a replacement trustee of those trusts.

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Held the trustee proposed by AT should not be appointed to the trusts. Certain principles were laid down to guide appointments by the court. First, if clear from the trust instrument, the court will have regard to the wishes of the person by whom the trust has been created. Secondly, the court will not appoint a trustee where some of the beneficiaries oppose the appointment, because of the risk that the trustee so appointed might breach his duty to act impartially as between all the beneficiaries. Thirdly, the court will ask itself whether the appointment of the particular person as trustee will impede the execution of the trust. The present case was disposed of on the second point. As regards the third, the judge made it clear that if the current trustees threatened to refuse to co-operate with a proposed new trustee this would not in itself be a ground for refusing to appoint the new trustee, but may be a ground to remove the current trustees from office.

10.2.7 Appointment of trustees by beneficiaries Sections 19 and 20 of the Trusts of Land and Appointment of Trustees Act 1996 Since 1 January 1997, these sections apply where all the beneficiaries under the trust are sui juris and together absolutely entitled, and where there is no person nominated under the trust instrument to appoint new trustees who is able and willing to act (as to which, see Re Wheeler (10.2.1) and s 36(1) (10.2)). Section 19(2)(b) provides that the beneficiaries may, by writing, direct the existing trustees (or, if there are none, the personal representatives of the last surviving trustee), to appoint by writing to be a trustee or trustees such person or persons specified in the direction. (The restriction (see 10.2.8) on the total number of trustees still applies.)

Section 20 is also notable in that it provides that beneficiaries may give to a receiver or attorney of a trustee, incapable of acting by reason of mental disorder, a written direction requiring a person or persons to be appointed in the trustee’s place.

10.2.8 Limits on the number of trustees

Note The maximum number of trustees permitted in private trusts of land is four, whereas for charitable trusts and trusts of pure personalty there is strictly speaking no upper limit to the number of trustees. As we saw above, s 36(1) of the Trustee Act 1925 legislates for the appointment of ‘replacement’ trustees, but where ‘additional’ trustees are appointed

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(beyond the original number of trustees) the maximum number of trustees post-appointment is limited to four (s 36(6) of the Trustee Act 1925).

10.2.9 The public trustee

Note The office of public trustee was established by s 1 of the Public Trustee Act 1906 which provides that ‘the public trustee shall be a corporation sole’. In common with other corporations sole, such as members of the clergy of the Church of England, the sole incumbent is regarded as corporate by virtue of their perpetual, successive nature. The role of the public trustee is to administer trusts (typically private, non-business trusts), no matter how small, for whom no other trustee can be found. Although the the court will take into account the wishes of the settlor when choosing new trustees, the settlor cannot exclude appointment of the public trustee in an appropriate case (Re Duxbury’s Settlement Trusts (1995)).

10.3 Disclaimer of the trust

Note A trustee is not obliged to accept the office of trustee. He or she may disclaim the office. If all the named trustees refuse to act, the trust will generally result to the settlor (Mallot v Wilson (1901)). Sheer inactivity on the part of the trustee may amount to a disclaimer but the merest activity in service of the trust will be taken to be an acceptance of office, after which it will be too late to disclaim. It is recommended that trusts be disclaimed by deed.

Re Lord and Fullerton’s Contract (1896) CA A testator having real and personal property in England and abroad left his residuary estate to trustees upon trust for sale. One of the trustees disclaimed the trusts of the will except as to the property abroad. The remaining trustees sold land of the testator in England. Held the disclaimer had no effect, and the disclaiming trustee was a necessary party to the conveyance. Partial disclaimer of the office of trustee is not permitted. If it were, purchasers of trust property from trustees would be unsure of the trustees’ title to sell. Note Disclaimer can render a trust void ab initio (‘from the start’). In Re Lysaght (1966), the testatrix settled the net residue of her estate on the Royal College of Surgeons as trustee for the charitable purposes of the

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college. The college threatened to disclaim the trusteeship unless certain conditions were removed from the gift. The court removed the conditions, stating that the gift would otherwise fail. The gift was applied cy près (see 7.5).

Q Does the judgment in Re Lysaght conflict with the principle that a trust does not fail for want of a trustee?

10.4 Retirement from the trust

Note Retirement is the decision, made voluntarily, to relinquish the office of trustee. Trustees may retire whenever the trust instrument empowers them to do so, whenever the court consents to a retirement, or by obtaining the consent of all the beneficiaries (provided that the beneficiaries are sui juris). Apart from these instances, the Trustee Act 1925 details two modes of retirement.

10.4.1 Retirement under s 36(1) of the Trustee Act 1925

Note A trustee who desires to be discharged may retire under this section provided that another trustee is appointed in his place. Furthermore, where the only trustee of the trust retires, he must be replaced by two trustees or a trust corporation (s 37 of the Trustee Act 1925 and Adam & Co International Trustees Ltd v Theodore Goddard (A Firm) (2000)).

10.4.2 Retirement under s 39(1) of the Trustee Act 1925

Note This section applies where no new trustee will be appointed in the place of the retiring trustee.

Section 39(1) of the Trustee Act 1925 Where a trustee is desirous of being discharged from the trust, and after his discharge there will be either a trust corporation or at least two individuals to act as trustees to perform the trust, then, if such trustee as aforesaid by deed declares that he is desirous of being discharged from the trust, and if his co- trustees and such other person, if any, as is empowered to appoint trustees, by deed consent to the discharge of the trustee, and to the vesting in the co-trustees alone of the trust property, the trustee desirous of being discharged shall be deemed to have retired from the trust, and shall, by the deed, be discharged therefrom under this Act, without any new trustee being appointed in his place.

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10.4.3 Retirement under s 19 of the Trusts of Land and Appointment of Trustees Act 1996 Section 19(2)(a) of the Act (see, generally, 10.2.7) provides that the beneficiaries of a trust may, by writing, direct a trustee to retire from the trust, whereupon the trustee must retire by deed once his rights have been protected, provided that there must still be two trustees or a trust corporation remaining after his retirement, and provided also that the remaining trustees consent.

10.4.4 Liability of trustees after retirement Head v Gould (1898) This case concerned the marriage settlement of Mr and Mrs H, the settlement being on terms for their successive lives with powers of appointment in favour of any children they might have, which powers were never exercised. In default of appointment, the fund would pass to any children they might have in equal shares upon their attaining the age of 21 or earlier marriage. A post-nuptial settlement was also made, by Mrs H, in similar terms. Mr H died leaving his widow and three children. One of the trustees of the marriage settlement retired and Mrs H appointed Mr C in his place. Mr C and Mr H were now the trustees of the marriage settlement and, some years later, the retiring trustee of the post-nuptial settlement appointed them trustees of that settlement also. Mrs H got into financial difficulties and at her request the trustees discharged certain of her debts out of the trust funds by making a large cash advance. The trustees took securities for the advance, but the securities amounted to unauthorised investments. Further cash advances were made with some regularity until the whole of her entitlement had been advanced to Mrs H. In the event, the trustees handed the trusteeship over to Mrs H’s daughter and to Mr G, a solicitor and family friend. After their appointment, breaches of trust ensued and the interest of an infant beneficiary was lost. Held the retired trustees would not be held liable for the breaches of their successors. Liability will only arise in such a case if the retired trustees are proven to have actually contemplated the breaches of trust which had occurred. It is not sufficient to show, merely, that the retirement facilitated the breach. In the present case, the judge found that the retiring trustees did not believe, and had no reasonable ground for believing, that the trust would be anything but secure in the hands of their successors. Re Boles (1902) One of the trustees of a will trust retired from office by deed and with the consent of the continuing trustees. Twelve years later, the continuing trustees sold land owned by the trust to the trustee who had retired. The question arose whether the sale was valid or should be set aside.

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Held the sale was valid. A trustee may not retire with a view to doing that which would be a breach of trust had he remained a trustee, but if there is no evidence that the particular transaction was contemplated at the time of the retirement, there is nothing preventing the transaction from being carried out later. How much later was not specified, the judge holding, merely, that there must have been ‘no idea’ of a purchase at the date of retirement.

10.5 Removal of trustees Re Lemann’s Trusts (1883) The testator’s widow, one of the trustees of his estate, had become, through age and infirmity, incapable of executing the documentation necessary for the proper discharge of her duties under the trust. Held the court had jurisdiction, under a statutory precursor to s 41 of the Trustee Act 1925 to appoint a new trustee in the widow’s place. Letterstedt v Broers (1884) PC The plaintiff sought the removal of a corporate trustee on the grounds of various acts of ‘misconduct and malversation’ entered into with corrupt motive by the members of the corporation. The members were said to have, inter alia, invested in a particular business with a view to profiting from commissions which they had since received from the business; and which commissions were, in addition, said to have been wrongly inflated. Held the trustee was removed from office. To warrant the removal of the trustees, their acts or omissions must endanger the proper administration of the trust. Courts should exercise their jurisdiction according to the facts of each case with a view to meeting the beneficiaries’ best interests. Lord Blackburn stated that the hostility of beneficiaries to their trustees was not of itself a reason for removing the trustees but was a factor to be taken into account, and that trustees who ‘shew a want of honesty, or a want of capacity to execute their duties, or a want of reasonable fidelity’ would be removed. Re Henderson (1940) The testator’s widow and his niece were the sole beneficiaries of his estate, they were also the only trustees. Due to differences arising between them, the widow stated her intention to retire from the trust, provided that the Public Trustee was appointed in her place. The niece concurred in this course of action. Later, the widow added further conditions to her retirement, namely that the work of the trust be carried out in the Public Trustee’s office and that independent solicitors be appointed. The niece took out a summons under s 41 requesting that the widow be replaced by the Public Trustee. The widow resisted the application.

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Held the widow was removed from office and the Public Trustee appointed in her place. Bennet J acknowledged that the removal of trustees was a delicate matter and that whenever there is some dispute as to some fact alleged against a trustee the court should be reluctant to remove the trustee if they wish to continue in office. In the present case, however, there was no dispute as to the facts alleged. His lordship removed the widow because she had no reasonable grounds for changing her mind regarding the conditions attaching to her retirement. The Public Trustee was appointed because it was expedient to appoint a new trustee and impracticable to do so without the assistance of the court.

109 11 Fulfilling the Role of Trustee

11.1 Upon appointment

Note The new trustee is especially vulnerable, like a cricketer who has just come in to bat. The trustee ought promptly to become familiar with the terms of the trust, in order to identify all the beneficiaries and their respective entitlements. The trustee should also take steps to act on any suspicious circumstances, which may involve bringing a suit against other (perhaps retired) trustees of the trust, although only if there is a reasonable expectation that such action would prove fruitful. The trustee must also ‘get in’ any trust property which is not yet under their control.

Re Brogden (1888) In this case, a trustee failed to ‘get in’ certain monies due to the trust. Indeed, he waited so long before attempting to get the funds in that the trust suffered a loss of £17,250 (no small sum in 1888). Held the trustee had breached his trust by failing to take action to get in the funds. He was obliged to sue for their recovery unless he had reasonable grounds for believing that an action would be fruitless. The burden rested on the trustee to show that such belief was reasonably held. The onus was on the trustee to show that the loss would have occurred despite his breach, and in the present case that defence had not successfully been made out.

11.2 The fiduciary nature of trusteeship

Note A fiduciary relationship is one in which the fiduciary owes to the other party a special duty to act in good faith. The fiduciary aspects of relationships such as employer/employee; director/company; agent/principal are defined by analogy to the relationship of trustee to beneficiary. The trust is the fiduciary relationship par excellence.

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Bristol and West Building Society v Mothew (1997) CA Per Millet LJ: A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977), p 2, ‘he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary’.

11.2.1 Conflict of interest and duty

Note An important aspect of the fiduciary nature of trusteeship is that trustees must not put themselves in a position where there might be a conflict between their self-interest (or duties to others), and their duties to the trust.

Williams v Scott (1900) PC A purchaser of land brought this action against the vendor. The purchaser sought rescission of the contract of sale on the basis that the vendor had acquired his title by purchasing the land off a trust of which the vendor was trustee. Held it would be inequitable to force the purchaser to complete the purchase, the vendor’s title having been obtained through ‘self-dealing’ (see Re Thompson’s Settlement (below)). The result would probably have gone in the vendor-trustee’s favour had he purchased the land from the beneficiaries with their full assent, or if the vendor-trustee had completed a sale of the land to a third party in his capacity as trustee and had later purchased the land off that third party. However, neither of these answers to a complaint of ‘self-dealing’ could be made out on the facts of the present case, the trustee having purchased the land directly off the trust. Sir Ford North stated that the onus in such a case is on the trustee to show that the transaction is a ‘righteous one’. Re Mulholland’s Will Trusts (1949) The testator, M, leased land to a bank together with an option to purchase the freehold. M later appointed the bank and his widow to be the executors and trustees of his estate. Sometime later, the bank exercised its

112 Fulfilling the Role of Trustee option to purchase the freehold by giving notice to that effect. The beneficiaries brought an action seeking to have the conveyance set aside on the grounds that it had been made in breach of the bank’s fiduciary duties. Held the notice exercising the option to purchase the freehold did not create a new contractual relationship between the bank and the trust. The bank’s contract to purchase had in essence arisen before the bank had been placed in its position as trustee. The bank would therefore be permitted to exercise the option. Wright v Morgan (1926) PC A trustee arranged to purchase trust-owned land from the other trustees of a will trust. He later retired from the trust and purchased the land at a price pre-determined by independent valuers. An action was brought by the beneficiaries seeking to set aside the sales and to call the trustee to account for the profits he had made from his position as trustee. Held the sale was set aside. The trustees could not sell trust property to one of their number without a conflict of interest and duty arising. Viscount Dunedin held that whether the trustee had actually paid a fair or unfair price was irrelevant, ‘the criterion ... is not what was done, but what might be done’. Holder v Holder (1968) CA The testator, H, had a younger son, V. V had held a tenancy in one of H’s farms for some years. By H’s will, V was appointed one of the executors of that farm and various other farms. After his father’s death, V purported to renounce his executorship in order to purchase the other farms (in fact, the renunciation was formally ineffective). In due course, the farms were obtained by V at public auction, whereby he contracted to purchase them at a fair price. However, upon failing to complete the purchase deed on time, V’s elder brother, F, pressed the executors to re-sell the farms. They refused to do so. Eventually, the sale of the farms to V was completed and the executors accounted to F for his share of the proceeds. Not being satisfied with this, F brought an action claiming rescission of the sale and a declaration that the farms should be re-sold with vacant possession. The judge held that because V’s purported renunciation of his executorship had been ineffective V fell foul of the rule that a trustee must not purchase trust property off the trust. V appealed. Held, allowing the appeal, V had had only very limited dealings with the trust estate before his purported renunciation of the executorship, accordingly whatever he had learned about the properties he had learned in his capacity as tenant of one of the farms and not as trustee. The court

113 BRIEFCASE on Equity and Trusts held that ‘in the very special circumstances of this case’ there was ‘in fact’ no conflict between the trustee’s duty to the trust and his self-interest. Q Is the decision in this case consistent with the principle in Wright v Morgan, above, that a sale by trustees to themselves must be set aside if there ‘might be’ a conflict of duty and interest? It is generally accepted that the judgment in Holder v Holder should be restricted to the facts of that case. Re Thompson’s Settlement (1986) The settlor, T, declared trusts of the sale proceeds of certain freehold properties which had been conveyed to trustees. At the date of the settlement, the properties were let to a farming corporation of which T was the managing director. Other directors included T’s sons, W and J, who were also trustees of the settlement. After T’s death, a meeting was held between W, J, their solicitor and the auditors of the farming corporation. At that meeting it was agreed that the corporation’s tenancies of the various properties should be assigned to the businesses of W and J respectively, one business being a company, the other a partnership. The corporation was wound up without ever having formally consented to the assignments of the leases, and without having made any formal assignment of them. Some time later, the family adopted a plan to distribute the properties amongst all the family members. In order to do this fairly, it was necessary to make an accurate valuation of each of the properties. The valuations would be dramatically affected by W and J’s leases if they were valid, the unencumbered freehold of the farm being more valuable than a freehold subject to a lease. W and J took out a summons to determine whether the tenancies would be voidable at the instance of a beneficiary even if the assignments had been fair. Held, according to the ‘self-dealing’ rule, a trustee’s purchase of trust property off the trust is voidable ex debito justitiae (out of a debt to justice). Accordingly, such a purchase would be set aside if any beneficiary wished it to be so set aside. It would be no defence to such an action for the trustee to show that the purchase had been fair or even generous to the beneficiaries. Nor would it be a defence, on the facts of the present case, to argue that the leases had never, in fact, been trust property (but had been property of the corporation). Nor could it be argued that the leases had not been taken by W and J personally, but had been taken by the businesses controlled by them. (In spite of the fact that one of those, being a company, was an independent legal person.) The ‘self-dealing’ rule should not be narrowly construed, it is an application of the wider principle that trustees must not put themselves into a position where their duties and self- interests may be in conflict, or where their duties to one may conflict with their duties to another. The principle is applied strictly where a trustee concurs in a transaction which cannot be carried into effect without his

114 Fulfilling the Role of Trustee concurrence and who has a personal interest in or owes a fiduciary duty to another in relation to the same transaction. Note ‘Self-dealing’ (purchases by trustees off the trust) should be contrasted with ‘fair dealing’ (purchases by trustees off adult beneficiaries). The latter transaction will not be set aside if the trustees can prove that they have taken no advantage of their position as trustees.

Sargeant and Another v National Westminster Bank plc (1990) CA A testator let a number of farms to his children which they worked as a partnership. He then appointed his children to be executors and trustees under his will. When one of the children died, the surviving children exercised an option to purchase the deceased child’s share of the partnership. Later, they revealed plans to purchase the freehold of one of the farms of which they were tenants, and to sell the other freeholds. The administrators of the estate of the deceased child objected to these plans and argued that the surviving children would be in breach of their trust were they to sell, to themselves, the trust-owned freeholds of which they were trustees and under which they were tenants. The trustees sought a declaration that they would be entitled to sell the freeholds. This declaration was granted. The administrators appealed. Held the trustees were in a position where their interest as tenants might conflict with their duties as trustees but they had not put themselves in that position. The trustees’ rights as tenants pre-dated their duties as trustees and they would therefore be permitted to assert those rights. They must nevertheless endeavour to obtain the best price for the freeholds in order to fulfil their obligations to the trust. Re Drexel Burnham Lambert UK Pension Plan (1995) Trustees who were beneficiaries under a pension fund proposed a scheme to distribute surplus assets of the fund. Held the scheme was approved. Lindsay J recognised that there were many exceptions to the general rule that there must be no possibility of a conflict of interest and duty, and that the trustees in this case had doubtless been selected as persons able to exercise their discretion properly.

11.2.2 The standard of care required of trustees

Note The Trustee Act 2000, which received royal assent on the 23 November 2000 and came into force on the 1 February 2001, puts the trustee’s duty of care on a statutory footing (the relevant provision is set out at the end of this section).

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Speight v Gaunt (1883) HL The testator, S, had been a ‘stuff manufacturer’ at Bradford. In his will, he bequeathed his estate to Messrs G and W upon certain trusts for the benefit of Mrs S and her children. The trustees employed a stockbroker, C, to sell some securities forming part of the estate and to reinvest the proceeds in new securities. C was a broker of high repute. Having placed with the agent the securities to be sold, G made enquiries of C on many occasions as to when the new securities would be handed over to the trust. C gave excuses on these occasions. Eventually, C declared his firm insolvent and was declared personally bankrupt. £15,275 of trust monies were lost. Mrs S brought an action seeking a declaration that G had breached his trust and seeking an order requiring him to account for the lost funds, together with interest at 4%. Held the Vice Chancellor gave judgment for the beneficiaries at first instance. This was overturned by the Court of Appeal. The judgment of the Court of Appeal was later affirmed by the House of Lords. In the Court of Appeal, it was established that a trustee ought to conduct the ‘business of the trust’ in the same manner that an ordinary prudent man of business would conduct their own. Applying that test to the present case, it was held that C had been properly appointed and that the trustee had acted prudently in his attempts to recover the trust property. Jessel MR stated: ‘You are to endeavour as far as possible, having regard to the whole transaction, to avoid making an honest man who is not paid for the performance of an unthankful office liable for the failure of other people from whom he receives no benefit’ (emphasis added). Q What do you think is meant by the ‘business of the trust’? Does the next case provide an answer? Re Whiteley (1886) CA Trustees had invested in a mortgage of a freehold brickfield on the advice of expert valuers, but the valuer’s report had been based on wrong information. The trustees acted on the report in good faith but had not checked its accuracy by means of other inquiries. Held the trustees had failed to act with ordinary prudence and would be liable to account for the losses to the trust together with interest at 4%. Lindley LJ stated that ‘duty of a trustee is not to take such care only as a prudent man would take if he had only himself to consider; the duty rather is to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally obliged to provide. That is the kind of business the ordinary prudent man is supposed to be engaged in’. Note See 8.3 for a standard of care proposed for pension fund trustees.

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Jobson v Palmer (1893) J, who was greatly in debt, conveyed nearly all his property to P to hold on trust for J’s numerous creditors. Certain losses were caused to the ‘trust property’ in the hands of an agent, L, appointed by P to assist him. The question arose whether P should be judged according to the standard of the ordinary prudent man of business, or whether some higher standard should apply because P had been remunerated for performance of the trust. Held trustees’ liability is not increased by virtue only of the fact that they are remunerated. The principle in Speight v Gaunt should be applied to paid trustees despite the fact that the judges in that case had made express reference to the fact that the trustee in that case had been unpaid. Buttle v Saunders (1950) Trustees for sale of certain land had reached an advanced stage of their negotiations for the sale of the land to Party A when Party B made a higher offer. The trustees refused the higher offer, believing themselves to be bound by commercial morality to complete with Party A. Held the trustees had wrongly assumed that they could act like an ordinary beneficial owner of property. The trustees had breached their duty to obtain the best price for the beneficiaries. Re Rosenthal (1972) A testator made a specific devise of a house to his sister, B. The residue of his estate he left to his wife, subject to his trustees first paying off his debts and testamentary expenses. The trustees transferred the house to B who sold it and emigrated to Israel without paying estate duty which was owing on the house. The trustees paid the duty out of the residue of the estate. The wife brought an action against the trustees seeking a declaration that the trustees should not have paid the estate duty out of her interest. The trustees sought to defend their actions by arguing that the estate duty was a ‘testamentary expense’ and could, therefore, be paid out of the residue. Held the estate duty was not a ‘testamentary expense’. The payment out of the residue was, accordingly, a breach of trust. The monies could not be recovered from B and so the question remained, where should the loss fall as between the plaintiff wife and the defendant trustees? It was held that the trustees must be liable even though they had acted in all other respects to the benefit of the estate, and had acted honestly throughout. As between an innocent beneficiary and a trustee in breach, the loss should fall on the trustee. Re Waterman’s Will Trust (1952) Lloyd’s Bank had been appointed trustee by the will trust of the testatrix. The trust included a charging clause which permitted the bank to charge

117 BRIEFCASE on Equity and Trusts remuneration in accordance with its usual terms of business. In due course, the bank deposited all the trust monies with itself, but failed over a number of years to make any investment of the monies. A summons was taken out for directions as to the proper administration of the trust. Held the bank had shown a want of judgment, but it was not open to the court, on the summons in its present form, to find the bank liable for breach of trust. The judge did state, however, that ‘a paid trustee is expected to exercise a higher standard of diligence and knowledge than an unpaid trustee, and that a bank which advertises itself largely in the public press as taking charge of administrations is under a special duty’. Bartlett v Barclays Bank Trust Co Ltd (1980) The settlor, B, had settled 99.8% of the shares in a private company (‘BTL’) on trust for his wife and issue. The trustee of the settlement was a Barclays Bank trust corporation. By 1960, B and his wife had both died and no member of B’s family remained on the board of BTL. Neither did any members of the board regard themselves as representatives of the trust corporation. At various meetings, the chairman of BTL put forward specific property development projects for the board’s consideration, and without consulting the bank, invested heavily in two of the projects. One of these projects (at Guildford) made a substantial profit, but the other (at the Old Bailey, London) made a significant loss. The market value of shares in BTL fell causing a great loss to the trust. The beneficiaries brought an action against the trustee to make good the losses. Held the bank was liable for breach of its trust. It had failed to act as an ordinary prudent person of business would have acted in relation to his own affairs. Moreover, a professional, corporate trustee such as the bank owed an even higher standard of care than that and would be liable to the extent that it failed to exercise the higher standard of care it professed to have. Brightman J did not refer to Jobson v Palmer but tacitly appeared to have accepted counsel’s submission (based on Jobson v Palmer) that the fact of remuneration should not be a conclusive in determining the appropriate standard of care, but might well be a factor against granting the trustee relief (15.3.4) where a breach has been proven. A corporate trustee which is the majority shareholder in a company has a duty to ensure that it is represented on the board of the company and should ensure that it receives an adequate flow of information from the board. The trust company in the present case had failed to do so and had thus been unable to prevent the company’s failed investment in the speculative property developments.

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Section 1(1) of the Trustee Act 2000 Whenever the duty under this sub-section applies to a trustee, he 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 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.

Note According to the notes accompanying the Act, this ‘new precisely defined statutory duty of care’ is applicable to trustees ‘when carrying out their functions under the Act or equivalent functions under the trust instrument’. Schedule 1 to the Act lists the circumstances in which the statutory duty of care will apply. They include the exercise of general investment powers, the exercise of any power to acquire land, the appointment of agents, nominees and custodians and the insurance of trust property. But ‘[t]he duty of care does not apply to powers conferred by a trust instrument if or in so far as it appears from the trust instrument that the duty is not meant to apply’ (see 11.2.3).

11.2.3 Liability limited by the trust instrument Hayim v Citibank NA (1987) PC A testator made two wills, one dealing primarily with his American property, another with property outside of America (this latter was called the ‘Hong Kong’ will). The first defendant was executor and trustee of the American will, the second defendant was executor and trustee of the Hong Kong will. The plaintiffs directed the second defendant to sell a house in Hong Kong, where the testator’s elderly brother and sister were living. The brother and sister were not entitled under either will to remain in the house and a sale of the house would have been for the benefit of the beneficiaries of the American will. Nevertheless, the first defendant directed the second defendant not to sell the house. When the house was eventually sold it had fallen in value, causing a loss to the beneficiaries of the American will. Held on the question whether the second defendant was liable for delaying the sale of the house, there had been no breach of trust, because the second defendant owed no duty to the beneficiaries of the American will. On a proper construction of the trust, the second defendant was actually obliged to act on the instructions of the first defendant. As regards the liability of the first defendant, clause 10 of the American will expressly

119 BRIEFCASE on Equity and Trusts relieve the first defendant of any ‘responsibility or duty’ to the ‘American’ beneficiaries with respect to the house. Bishop v Bonham (1988) CA This case involved a chargee (mortgagee) rather than a trustee so called. However, their Lordships drew a direct analogy between the two situations. The defendant had granted the plaintiff a charge over certain shares as security for a loan granted by the plaintiff. The terms of the charge permitted the plaintiff to sell the shares as he ‘may think fit’ in the event of the defendant defaulting in repayment of the loan. The defendant did in fact default and the plaintiff purported to sell the shares in accordance with the terms of the charge. However, the defendant refused to execute a transfer of the shares, considering the sale to be at an undervalue. The plaintiff brought the matter to court with a view to obtaining specific performance of the charge. Held specific performance was refused. The sale was at an undervalue. Although the plaintiff had been expressly authorised to realise the security as he ‘may think fit’, such a discretion must be read as subject to the implicit limitation that it is to be exercised properly, within the limits of the duty of care imposed by the general law, that is to say, with the exercise of reasonable care to obtain a proper price. Armitage v Nurse (1997) CA A clause in a trust instrument purported to excuse the trustees from all liability apart from that which arose from their own actual fraud. Held the clause was effective to exclude liability no matter how indolent, imprudent, lacking in diligence, negligent or wilful the trustees may have been, so long as they had not acted dishonestly. The clause was not void for repugnancy nor contrary to public policy. In the instant case, the beneficiaries did not allege dishonesty, therefore the trustees were not liable for any breach of trust. Millet LJ accepted that there was an irreducable core of obligations owed by trustees to beneficiaries and enforceable by them, but his Lordship did not accept that those core obligations include duties of skill and care, prudence and diligence. A change in the law might be appropriate, but should be left to Parliament.

Walker v Stones (2000) CA In this case the meaning of ‘dishonesty’ in Armitage v Nurse was at issue. The judge at first instance held that the deliberate commission of a breach of trust was dishonest only where the trustee committing that breach acted in the knowledge that it was contrary to the interests of the beneficiary or was recklessly indifferent thereto. A trustee’s conduct in breach of trust

120 Fulfilling the Role of Trustee could not be categorised as dishonest where he acted in a genuine, if misguided, belief that his actions were for the benefit of the beneficiary. Held allowing the appeal an individual could act dishonestly, in the ordinary sense of the word, even where he genuinely believed his actions to be morally justified. Note Although the above cases illustrate that exemption clauses, and clauses limiting the trustee’s duties, standards of care and liability, may not be used to exclude certain basic requirements of good faith which are essential to all trusts, it is nevertheless true that such clauses can be (and frequently are) used by professional trustees to lower (below the Speight v Gaunt standard) the standard of care owed by them. The rather peculiar result follows that professional trustees, who are paid and profess expertise, are frequently subject to a lower standard of care than that which applies to the non-professional trustee, ‘who accepts, probably unpaid and sometimes reluctantly from a sense of family duty, the burdens of trusteeship’, per Harman J, Re Waterman’s Will Trust (11.2.2).

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12.1 Duty to act gratuitously

12.1.1 General Bray v Ford (1896) HL The case involved an action in libel and the appeal was based on the fact that the judge had misdirected the jury in some material aspect of the case. The case is referred to because of an important statement made by Lord Herschell in the course of his speech. Held it is an inflexible rule of equity that a person in a fiduciary position is not entitled to profit from their position in the absence of express provision to the contrary in the trust instrument. The rule was said to be based on the consideration that, ‘human nature being what it is’, there is a danger that a person in a fiduciary position might otherwise be swayed by self-interest rather than duty to the trust. Note The duty to act gratuitously correlates with the rule that trustees must not profit from their trust. In keeping with this duty, non-professional trustees are not entitled to be remunerated for their services, unless the trust instrument or the court authorises to the contrary. There is nothing, however to prevent trustees from recovering reasonable expenses from the trust fund.

12.1.2 Recovery of expenses incurred by trustees Section 31 of the Trustee Act 2000 (1) A trustee is entitled to be reimbursed out of the trust funds for expenses properly incurred when acting on behalf of the trust. (2) This section applies to a trustee who has been authorised under a power conferred by Pt IV or the trust instrument – (a) to exercise functions as an agent of the trustees, or (b) to act as a nominee or custodian, as it applies to any other trustee.

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Hardoon v Belilios (1901) PC H was the registered owner of certain shares in a bank. He held the shares for the benefit of the absolute beneficial owner, B. When the bank went insolvent the liquidator demanded certain payments of H. H paid these ‘calls’ made upon him in his capacity as legal owner of the shares. Held a beneficial owner of property, being sui juris, must indemnify the legal owner of that property against expenses incurred by the legal owner in fulfilling the trust. It need not be shown that the beneficiary requested the incurrence of such expenses if they were a natural incident of the trust. Accordingly, B had to reimburse H for the expenses he had met in meeting the calls.

12.1.3 Remuneration of trustees Section 28 of the Trustee Act 2000 (1) Sub-sections (2) and (3) apply to a trustee if – (a) there is a provision in the trust instrument entitling him to receive payment under payment out of trust funds in respect of services provided by him on behalf of the trust, (b) the trustee is a trust corporation or is acting in a professional capacity, and (c) the application of this section is not inconsistent with the terms of the trust instrument. (2) The trustee is to be treated as entitled under the trust instrument to receive payment in respect of services even if they are services which are capable of being provided by a lay trustee … (4) For the purposes of this Part, a trustee acts in a professional capacity if he acts in the management or administration of trusts.

Section 29 of the Trustee Act 2000 (1) Subject to sub-s (5), a trustee who [is a non-charitable trust corporation] is entitled to receive reasonable remuneration out of the trust funds for any services that the trust corporation provides on behalf of the trust. (2) Subject to sub-s (5), a trustee who – (a) acts in a professional capacity, but (b) is not a trust corporation, a trustee of a charitable trust or a sole trustee, is entitled to receive reasonable remuneration out of the trust funds for any services that he provides on behalf of the trust if each other trustee has agreed in writing that he may be remunerated for the services … (4) A trustee is entitled to remuneration under this section even if the services in question are capable of being provided by a lay trustee. (5) A trustee is not entitled to remuneration under this section if any provision about his entitlement to remuneration has been made –

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(a) by the trust instrument, or (b) by any enactment or any provision of subordinate legislation. (6) This section applies to a trustee who has been authorised … – (a) to exercise functions as an agent of the trustees, or (b) to act as a nominee or custodian, as it applies to any other trustee.

Re Dover Coalfield Extension Ltd (1908) CA D Co owned shares in another company (the Kent company). D Co placed these shares in the name of one of its directors, C. The intention was that C would represent the interests of D Co on the board of K Co. C executed a declaration of trust in favour of D Co to that effect. C was appointed a director of K Co and in due course received remuneration for his services to K Co. D Co sought a declaration that C held those profits on trust for D Co, as the profits had been acquired by virtue of C’s fiduciary position. Held the beneficiary (D Co) would not succeed in seeking an account for profits made by C in his capacity as a director of K Co as the profits had arisen from his appointment to a directorship made by K Co and had not arisen through the use of any property of D Co. Further, D Co would in any event be barred from claiming the profits because C had become a director of K Co at the request of D Co. Williams v Barton (1927) The defendant, B, was a trustee who worked for a firm of stockbrokers. He received commission for any work introduced by him. B therefore recommended to the other trustee of his trust that B’s firm of stockbrokers should act for the trust. In due course, the firm was appointed and B received his commission. Later, the plaintiff, B’s co-trustee, claimed that B should account to the trust for the payment he had received. Held B had received his commission by virtue of his trusteeship. He would therefore be required to account to the trust for the profits he had received. Re Llewellin’s Will Trust (1949) The testator, L, by his will empowered his trustees to appoint themselves as directors of a trust-owned company. Two of them did so and took out a summons to establish whether or not they were accountable to the trust for remuneration received by them in their roles as directors. Held the trustees would be entitled to retain remuneration received in their capacity as directors of the trust-owned company. This was so notwithstanding the rule that a trustee must not profit from their trust, for that rule is subject to the expressed intention of the settlor or testator to allow remuneration. On the proper construction of the terms of the will trust, L had clearly intended to allow his trustees to hold salaried offices as directors.

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Note The court has always had an inherent jurisdiction to award remuneration to trustees upon their appointment to a trust, but does this inherent jurisdiction extend to increasing the remuneration of existing trustees? This was one of the questions considered in the next case.

Re Duke of Norfolk’s Settlement Trust (1981) CA A trust corporation (SETCO) and an individual trustee, the trustees of a settlement set up in 1958, had, throughout the history of the trust, been called upon to devote increasing efforts to its good administration. The increased demands made upon them by the trust had arisen in large part due to the settlement of additional property upon the trust and changes in the tax laws. Accordingly, in 1977, the trustees applied to court for an order under its inherent jurisdiction authorising the trust corporation to claim remuneration at a level higher than that authorised by the trust instrument. Held the court had inherent jurisdiction to authorise such increased remuneration if to do so would be in the interests of the good administration of the trust. It was nevertheless acknowledged that this involved balancing the proper administration of the trust against the fact that the trustee’s office is essentially a gratuitous one. The court should have regard to the nature of the trust, the experience and skill of the particular trustees, the sums that they wished to charge compared with those of other trustees and all surrounding facts. The reason for such an extensive inquiry in determining whether or not remuneration would be in the interest of the good administration of the trust might be that such an inquiry should reveal whether or not the trustees will retire from the trust if they are not properly remunerated. The fact is that the choice facing the court is whether to increase the remuneration of a trustee who is familiar with the trust or to risk losing that trustee and appointing, instead, a new trustee who will probably insist on market rate remuneration in any event. The present case was remitted to the Chancery Division to decide whether, on these principles, remuneration should be awarded in the present case. Foster v Spencer (1995) Trustees of a cricket club applied to be remunerated under the court’s inherent jurisdiction for their past and future services to the club. They also sought the court’s approval for an indemnity out of the trust funds in respect of certain expenses which they had incurred, and for interest thereon. Held the trustees would be remunerated for their past services. There were no funds out of which they could have been paid at the time of their appointment and it had been impossible at that time to ascertain what they were letting themselves in for. Since then, they had provided extensive

126 Duties of Trusteeship service to the trust and to deny them remuneration for those services would be to unjustly enrich the beneficiaries at the trustees’ expense. However, the judge refused to make an award of remuneration for future services as the task remaining to be performed in the execution of the trust did not call for any special expertise on the part of the trustees. The plaintiffs had said that they would be unwilling to continue if not allowed to charge, but the judge was satisfied that other persons existed who might be persuaded to undertake the trust for no remuneration. If the burden proved too onerous in the future, a further application could be made to court. Applying Re Duke of Norfolk’s Settlement Trust, it could not be said that the continued service of the plaintiffs was necessary for the good administration of the trust. On the other claim, expenses were allowed but without interest.

12.1.4 Other illustrations of the duty to act gratuitously Boardman and Another v Phipps (1967) HL B, a solicitor to a trust, attended the AGM of a company in which the trust had a substantial shareholding. Unhappy with the state of the company, B and one of the beneficiaries under the trust (the co-appellant) decided to launch a takeover bid personally for those shares in the company which were not already trust-owned. The inside knowledge of the company which enabled the appellants to make the takeover bid had been obtained at the AGM where they had been acting as proxies for the trustees. B wrote to the beneficiaries outlining his plans to take a personal interest in the company, thus giving them an opportunity to raise any objections they might have to his so doing. No objections having been made, the appellants proceeded with their takeover. In the event, the takeover was highly successful and the value of all the shares in the company greatly increased in value. The trust profited, and so did the appellants. The present action was brought by P, a beneficiary under the trust, for an account of profits made by B in his fiduciary capacity as solicitor to the trust. The trial judge found as a fact that P had not been fully informed by B as to the precise nature of his plans. Held (Viscount Dilhorne and Lord Upjohn dissenting), the appellants had placed themselves in a fiduciary position in relation to the trust and would therefore be accountable for the profits they had made on information obtained by virtue of their fiduciary position. However, they had acted honestly and openly throughout and their actions had yielded profits for the trust. They would accordingly be entitled to generous remuneration as reward for their work and skill. Lord Hodson regarded the information obtained by the appellants as property of the trust and held them liable to account as constructive trustees for profits they had made thereon.

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Lord Cohen, however, felt that information was ‘not property in the strictest sense of that word’. In the event, Lord Cohen held them liable to account because their personal profits had been made, not from property of the trust, but from opportunities gained from their positions of trust, that is, from the fiduciary roles into which they had placed themselves in relation to the trust. Lord Guest’s reasoning was similar to that of Lord Cohen. Viscount Dilhorne, dissenting, stated that in his view the facts of the instant case did not disclose even a possibility of conflict between the personal interests of the appellants and those of the trust. Nor did he think that the information obtained at the AGM could be regarded as being property of the trust. The information was of no value to the trust because the trust had declined to take advantage of it. In the absence of any breach of duty or impropriety on the part of the appellants, his Lordship refused to find them liable to account. Lord Upjohn, dissenting, accepted that the appellants would have to give an account of their personal profits if their personal interests ‘possibly may conflict’ with the interests of the trust. However, he construed those words as meaning ‘a real sensible possibility of conflict’. His Lordship could not find any such possibility on the facts of the present case and accordingly held for the appellants. Note Even where information is the subject of a fiduciary obligation, the confidential nature of the information might not last for ever. In AG v Blake (1998), CA, the Attorney General sought to recover the profits made on the publication of memoirs by a person who had formerly been subject to the Official Secrets Act. The claim failed as the information disclosed in the memoirs was no longer confidential.

O’Sullivan v Management Agency Music Ltd (1985) CA When still an unknown artist, Gilbert O’Sullivan, a composer and performer of pop music, signed management agreements with companies controlled by Mr Mills (M), a music agent. The terms of the agreements were not as favourable to OS as they would have been had he had independent legal advice. OS had naively trusted M and had failed to negotiate the agreements in the usual ‘arm’s length’ way. Nevertheless, the management and marketing prowess of M’s companies brought OS great success and the wealth that accompanies such success. In due course, however, their working relationship deteriorated and ultimately OS brought an action against M and his companies, seeking to have the management contracts declared void on the basis that they had been obtained by undue influence. The trial judge set the contracts aside and ordered that M and his companies should account for profits made on the

128 Duties of Trusteeship music of OS, together with compound interest on those profits. The defendants conceded that there had been undue influence on the part of M, but appealed against the companies’ liability and against the remedies awarded against the companies and against M. Held the companies were subject to the same liability as M because they had been under the de facto control of M. It had therefore been proper to set aside all the contracts. However, in determining the appropriate remedy it was necessary to make allowance for the work done by the companies on behalf of OS. This meant that the companies would be allowed to retain a reasonable profit even though they, through M, had been in a fiduciary position in relation to OS. Further, the defendants would not be required to pay compound interest on their account of profits because some of the monies made by the companies had been used for the benefit of OS. Note As to the meaning of ‘compound interest’, see 15.1.5.

Note The maxim ‘he who comes to equity must do equity’ was argued by counsel in O’Sullivan and appears to have informed their Lordships’ judgment. The same maxim was expressly applied in the next case, a case which does not directly involve trustees’ profits, but which illustrates the enormous potential of the flexible maxim.

Re Berkeley Applegate (Investment Consultants) Ltd (1989) BA Ltd had gone into liquidation and its free assets were not sufficient to cover the expenses and remuneration of the liquidator. Accordingly, the liquidator applied to court for a determination of the question whether his expenses and remuneration might be met out of assets held by the company on trust for its clients. Held the company, and not the liquidator, was trustee of the remaining assets, and the beneficiaries of that trust (the unpaid creditors of the company) were reliant upon the discretion of the court to enforce their equitable interests in the assets legally owned by the company. Accordingly, the liquidator was granted remuneration and expenses out of the trust property because of the rule that ‘he who seeks equity must do equity’. If the liquidator had not administered the liquidation the task would have fallen to a receiver appointed by the court and such a person would have been entitled to claim his fees out of the trust assets. Accordingly, in granting equitable relief to the beneficiaries the court would also insist that the beneficiaries acted equitably towards the liquidator.

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12.1.5 Bribes

Note It was held by the House of Lords in AG for Hong Kong v Reid (1994) that persons in fiduciary positions who receive bribes to betray the interests of the persons to whom they owe fiduciary duties, are deemed by equity to hold the bribe (and any benefits flowing therefrom) on trust for the person who has been betrayed.

Reading v AG (1951) R was a sergeant in the English army stationed in Cairo where he accompanied civilian lorries through security checkpoints in order to assist the transport of contraband goods. He was paid handsomely for his assistance. Held R owed fiduciary obligations to the Crown and therefore had to account for any profits made through a breach of those obligations. Q If, instead, the court had approached the facts of the above case by treating the sergeant’s uniform as property held in trust by him for the Crown, could the case have been analysed as giving rise to a constructive trust, as opposed to a mere duty to account for unauthorised profits? (see Chapter 17 on constructive trusts).

12.2 The duty to provide personal service to the trust

12.2.1 General

Note The traditional rule is delegatus non potest delagatum (a person to whom a role has been delegated may not delegate that role to another). In Pilkington v IRC (1964), HL, Viscount Radcliffe refined this rule by stating that ‘the law is not that trustees cannot delegate: it is that trustees cannot delegate unless they have authority to do so’.

12.2.2 Statutory authority to delegate Section 11 of the Trustee Act 2000 [The trustees of a trust may authorise any person to exercise ‘delegable functions’ as their agent. In non-charitable trusts ‘delegable functions’ do not include (a) any function relating to whether or in what way any assets of the trust should be distributed; (b) any power to decide whether any fees or other payment due to be made out of the trust funds should be made out of income or capital; (c) any power to appoint a person to be a trustee of the trust, or (d) any power conferred by any other enactment or the trust instrument which permits the trustees to delegate any of their functions or to appoint a person to

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act as a nominee or custodian. In charitable trusts ‘delegable functions’ only include (a) any function consisting of carrying out a decision that the trustees have taken; (b) any function relating to the investment of assets subject to the trust (including, in the case of land acquired as an investment, managing the land and creating or disposing of an interest in the land); (c) any function relating to the raising of funds for the trust otherwise than by means of profits of a trade which is an integral part of carrying out the trust’s charitable purpose; (d) any other function prescribed by an order made by the Secretary of State.]

Section 12 of the Trustee Act 2000 [The persons whom the trustees may under s 11 authorise to exercise ‘delegable functions’ include the trustees and their nominees/custodians, but not the beneficiaries.]

Section 14 of the Trustee Act 2000 [The trustees may authorise a person to exercise functions as their agent on such terms as to remuneration and other matters as they may determine, but may not (unless it is reasonably necessary for them to do so) authorise a person (a) to appoint a substitute; (b) on terms restricting the liability of the agent or his substitute to the trustees or any beneficiary; or (c) on terms permitting the agent to act in circumstances capable of giving rise to a conflict of interest.]

Section 15 of the Trustee Act 2000 [The trustees may authorise a person to exercise their asset management functions by an agreement evidenced in writing which includes a term securing the delegate’s compliance with a ‘policy statement’ provided by the trustees. The policy statement must also be evidenced in writing and must give guidance as to how the asset management functions should be exercised in the best interests of the trust. The asset management functions of trustees are their functions relating to (a) the investment of assets subject to the trust (see 13.2); (b) the acquisition of property which is to be subject to the trust; and (c) managing property which is subject to the trust and disposing of, or creating or disposing of an interest in, such property.]

Section 16 of the Trustee Act 2000 [The trustees of a trust may, by an appointment evidenced in writing, (a) appoint a person to act as their nominee in relation to such of the assets of the trust as they determine; and (b) take such steps as are necessary to secure that those assets are vested in a person so appointed.]

Section 17 of the Trustee Act 2000 [The trustees of a trust may, by an appointment evidenced in writing, appoint a person to act as a custodian in relation to such of the assets of the trust as they

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may determine. A person is a custodian in relation to assets if he undertakes the safe custody of the assets or of any documents or records concerning the assets.]

Section 19 of the Trustee Act 2000 [A person may not be appointed as a nominee or custodian unless (a) the person carries on a business which consists of or includes acting as a nominee or custodian; or (b) the person is a body corporate which is controlled by the trustees.]

12.2.3 Delegation to agents and supervision of agents is subject to the general objective standard of care Section 22 of the Trustee Act 2000 (1) While the agent, nominee or custodian continues to act for the trust, the trustees – (a) must keep under review the arrangements under which the agent, nominee or custodian acts and how those arrangements are being put into effect, (b) if circumstances make it appropriate to do so, must consider whether there is a need to exercise any power of intervention that they have, and (c) if they consider that there is a need to exercise such a power, must do so. (2) If the agent has been authorised to exercise asset management functions, the duty under sub-s (1) includes, in particular – (a) a duty to consider whether there is any need to revise or replace the policy statement made for the purposes of s 15, (b) if they consider that there is a need to revise or replace the policy statement, a duty to do so, and (c) a duty to assess whether the policy statement (as it has effect for the time being) is being complied with.

Section 23 Trustee Act 2000 (1) A trustee is not liable for any act or default of the agent, nominee or custodian unless he has failed to comply [with the duty of care (see 11.2.2)] (a) when entering into the arrangements under which the person acts as agent, nominee or custodian, or (b) when carrying out his duties under s 22. (2) If a trustee has agreed a term under which the agent, nominee or custodian is permitted to appoint a substitute, the trustee is not liable for any act or default of the substitute unless he has failed to comply [with the duty of care (see 11.2.2)] (a) when agreeing that term, or (b) when carrying out his duties under s 22 in so far as they relate to the use of the substitute.

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Section 24 of the Trustee Act 2000 A failure by the trustees to act within the limits of the powers conferred by this Part – (a) in authorising a person to exercise a function of theirs as an agent, or (b) in appointing a person to act as a nominee or custodian,

does not invalidate the authorisation or appointment.

Section 26 of the Trustee Act 2000 The powers conferred by this Part are – (a) in addition to powers conferred on trustees otherwise than by this Act, but (b) subject to any restriction or exclusion imposed by the trust instrument or by any enactment or any provision of subordinate legislation.

12.2.4 Care in the choice of agents Fry v Tapson (1884) The trustees in this case had decided to invest in a mortgage of freehold land, such an investment being authorised under the terms of their trust. However, the trustees appointed a London based valuer to value land in Liverpool, and what is more, the valuer was an agent of the proposed mortgagor and thus had a financial interest in inflating the value of the security. The valuer had been recommended by the trustees’ solicitors. In the event, the valuation turned out to have been inflated and the freehold proved to be inadequate security when, in due course, the mortgagor became bankrupt. Held the trustees had not exercised sufficient care in their choice of agent. An agent should always be chosen to act within the agent’s proper sphere of expertise, a London based solicitor should not have been chosen to value a property in Liverpool. Further, the trustees had failed to consider the accuracy of the agent’s valuation, but had accepted it at face value. Although it was not doubted that the trustees had acted honestly, they had failed to act as ordinary prudent persons of business would have acted in a business of their own and they would be liable, accordingly, to account to the beneficiaries for the losses caused through their lack of prudence.

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12.3 The duty to exercise a sound discretion

Note According to orthodoxy, trustees’ discretions are classified as being either ‘dispositive’ or ‘administrative’. Dispositive discretions being those which relate to the disposition of the trust property (the main example is the discretion which characterises discretionary trusts, see 3.5.2), whereas administrative discretions are those which relate to the management of the trust (a major instance being the discretion as to how to invest trust property, see Chapter 13).

12.3.1 Where a dispositive discretion is expressly uncontrollable Gisborne v Gisborne (1877) HL Trustees held a fund upon trust for the maintenance of the testator’s mentally infirm wife. The terms of the trust granted the trustees ‘uncontrollable authority’ as to how the fund should be applied. The care of ‘lunatics’ (the unfortunate label then applied to the mentally ill) normally lay within the powers of the court, and so a decree of the Court of Chancery had recorded the court’s approval of the trustees’ chosen course of action. Held that part of the decree ‘approving’ of the trustees’ course of action should be struck out. The court had no jurisdiction to approve or disapprove of that which was in the ‘uncontrollable’ discretion of the trustees. Where trustees’ discretion is qualified by words which make it ‘uncontrollable’, or by words of similar intent, it is to be without check by any superior tribunal, provided that the discretion was exercised in good faith. (This decision should now be read in conjunction with the rule in Re Hasting’s Bass, 12.3.3)

12.3.2 Where a dispositive discretion is not expressly uncontrollable Re Roper’s Trusts (1879) A fund was settled upon trustees for certain infant beneficiaries. The income of the fund was to be paid by them to the mother of the infants, Fanny Keech. The will trust granted the mother discretion as to how the fund should be distributed amongst the children. The discretion was not expressed to be ‘absolute’ or ‘uncontrollable’. Held, on finding that the mother had not exercised her discretion soundly, the trustees were ordered to pay the income of the fund to the father of the infants to be distributed in his discretion. Q Is this decision partly explicable as arising from paternalism based upon the relatively limited legal autonomy that women had in relation to property before the Married Women’s Property Act 1882?

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12.3.3 The rule in Re Hastings’ Bass

Note The rule in Re Hastings’ Bass (1975), CA, is as follows: where by the terms of a trust trustees are given a discretion as to some matter under which they act in good faith, the court should not interfere with their action notwithstanding that it does not have the intended effect, unless (1) what is in fact achieved was unauthorised by the power conferred upon them, or (2) it is clear they would not have acted in the way they did had they not taken into account matters which they had taken into account and should not have taken into account, or had they not failed to take account of matters which they should have taken into account.

Mettoy Pension Trustees Ltd v Evans (1991) M Ltd, a subsidiary of which used to manufacture the miniature toy cars known as ‘Dinky Toys’, had fallen victim to the recession and gone into liquidation. The pension funds of Mettoy employees were held by a trust corporation subject to rules governing the distribution of any surplus in the event of the company being wound up. The trust corporation had been appointed by the previous trustees and it was those trustees who had laid down the rules governing the distribution of surplus pension funds. In the event there was indeed a surplus in the pension fund at the company’s winding up. However, the power to distribute the surplus was held by the trust corporation in a fiduciary capacity and thus could not be released to the liquidator in order to be exercised by him. The result was that nobody had power to distribute the surplus and it therefore fell to the court to give directions as to the distribution. The question arose whether the appointment of the trust corporation, which had resulted in the confusion, had been a valid exercise of the trustees’ discretion. Held the trustees were not liable. There was no evidence to show that the trustees did not understand the effect of the rules, nor to show that they would have acted differently had they been informed that the rules for distribution had conferred a ‘fiduciary power’ on the trust corporation. In applying the rule in Re Hastings’ Bass, the judge held that three questions arose: (1) What were the trustees under a duty to consider? (2) Did they fail to consider it? (3) If so, what would they have done if they had considered it? The third question was ‘all important’ for it would not be enough to show merely that the trustees knew that what they were doing was in some way unsatisfactory. It must be shown that the trustees would, on the balance of probabilities, have acted differently. Note The rule in Re Hastings’ Bass can be reconciled with cases such as Gisborne v Gisborne (above) because, although the courts will not interfere with

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the outcome of the exercise of a discretion over which they are expressed to have no control, the courts will intervene where, applying the rule in Re Hastings’ Bass, there has been no valid process of discretionary decision making at all.

12.3.4 There must be a conscious exercise of discretion Wilson v Turner (1883) CA Trustees of a marriage settlement had a power to apply the whole or part of the annual income of the trust towards the maintenance (see 14.1) of the child of the marriage as the trustees should in their discretion think fit. The trustees in fact paid the whole of the income of the trust fund to the child’s father without exercising any discretion as to its application for the child’s maintenance. Held as the trustees had not exercised any discretion at all the father must be held liable to repay to the trust the entirety of the income he had received. Re Locker’s Settlement (1977) The trustees of the settlement were empowered to distribute the income of the fund amongst a number of persons, and charitable (and other) institutions. Their discretion in this regard was stated to be ‘absolute and uncontrolled’. Having accumulated all the income which had accrued since the inception of the trust (and having done so in breach of trust, but in accordance with the settlor’s wishes), the trustees took out a summons for directions as to how the income ought to be distributed. Held the court exercised its discretion to permit the trustees to remedy their breach by making a tardy distribution of the trust fund. A tardy distribution by the trustees was said to be closer to what the settlor had intended than a tardy distribution by somebody else at the court’s direction. The court was able to exercise its discretion in this way despite the provision in the settlement granting the trustees an ‘absolute and unfettered’ discretion as to the distribution of the income. The court would not interfere with the exercise by the trustees of their discretion, but would interfere in cases, such as the present, where the trustees had failed to exercise their discretion at all.

12.3.5 Disclosure of reasons for decisions Wilson v Law Debenture Trust Corp plc (1995) W, a former employee of a company, had contributed to the company’s pension scheme. When the company was sold to CMP, another corporation, W became a member of CMP’s pension scheme. The defendant was the trustee of the CMP’s scheme. By the terms of CMP’s

136 Duties of Trusteeship scheme the defendant trustee had a discretion to transfer into the new scheme such part of the assets of the original pension scheme as the trustee determined to be appropriate having taken actuarial advice. In the event, the trustee transferred only a small part of the original pension fund into the new scheme. W issued a summons seeking disclosure of the trustee’s reasons for exercising its discretion in the way it did. Held the summons would be dismissed. Where a discretion is entrusted to a trustee by the trust instrument, the trustee is not required to give reasons for the exercise of the discretion. In the absence of disclosure of evidence that the trustee had acted improperly, whether from an improper motive, or through infringement of the rule in Re Hastings’ Bass, the court would not interfere with the exercise of the trustee’s discretion. Note Trustees have to keep a diary-like record of the administration of the trust for production to new trustees (Tiger v Barclays Bank Ltd (1951) CA). Prima facie, beneficiaries have a right to see documents relating to the trust, because trust documents are, in a sense, the property of the beneficiaries, although it is doubtful that a beneficiary will be entitled to see documents which contain the trustees’ reasons for exercising their discretions (Re Londonderry’s Settlement (1964)). A professional trustee may in certain circumstances raise professional privilege as a defence to a summons for disclosure of trust documents and in order to displace the privilege the beneficiaries must make out a prima facie case of fraud (O’Rourke v Darbishire (1920) HL).

137 13 The Trustees’ Powers and Duties of Investment

13.1 The judicial definition of investment Khoo Tek Keong v Ch’ng Joo Tuan Neoh (1934) PC The terms of a will trust permitted the trustees to invest as they in their absolute discretion thought fit. The sole trustee made certain loans, for some he took security in the form of jewellery, for some he took no security at all. Held the loans made without security could not qualify as ‘investments’ and were made in breach of trust. Lord Russell stated that ‘loans on no security beyond the liability of the borrower to repay ... are not investments’. The secured loans were treated as proper investments in the absence of evidence to show that the security was insufficient. Re Peczenik’s Settlement Trust (1964) The terms of a settlement authorised the trustees to invest the trust funds ‘in any shares stocks property or property holding company as the trustees in their discretion shall consider to be in the best interests of [the beneficiary]’. The question arose on the construction of this clause, whether the trustees were permitted to invest as they thought fit. Held the clause should be given its natural construction. This would permit the trustees to invest in any ‘property’ capable of being treated as an investment. This would include income producing property, but not property which is acquired merely for use and enjoyment. Further, trustees would not be permitted to invest on mere ‘personal’ security. In other words, a loan which is made on no security, apart from the debtors personal promise to repay, is not an investment. Note According to Re Laing (1899), loans on personal security will be permitted if the trust instrument in very clear and precise words expressly authorises investments of that nature.

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13.2 Trustee Act 2000

13.2.1 The general power of investment Section 3 of the Trustee Act 2000 [A trustee may make any kind of investment that he could make if he were absolutely entitled to the assets of the trust, apart from investments in land other than in loans secured on land (but see, also, 13.2.4).]

Section 6 of the Trustee Act 2000 (1) The general power of investment is – (a) in addition to powers conferred on trustees otherwise than by this Act, but (b) subject to any restriction or exclusion imposed by the trust instrument or by any enactment or any provision of subordinate legislation…

13.2.2 Standard investment criteria Section 4 of the Trustee Act 2000 (1) In exercising any power of investment, whether arising under [the Act] or otherwise, a trustee must have regard to the standard investment criteria. (2) A trustee must from time to time review the investments of the trust and consider whether, having regard to the standard investment criteria, they should be varied. (3) The standard investment criteria, in relation to a trust, are – (a) the suitability to the trust of investments of the same kind as any particular investment proposed to be made or retained and of that particular investment as an investment of that kind, and (b) the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust.

13.2.3 Taking and considering proper advice Section 5 of the Trustee Act 2000 (1) Before exercising any power of investment, whether arising under [the Act] or otherwise, a trustee must (unless the exception applies) obtain and consider proper advice about the way in which, having regard to the standard investment criteria, the power should be exercised. (2) When reviewing the investments of the trust, a trustee must (unless the exception applies) obtain and consider proper advice about whether, having regard to the standard investment criteria, the investments should be varied.

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(3) The exception is that a trustee need not obtain such advice if he reasonably concludes that in all the circumstances it is unnecessary or inappropriate to do so. (4) Proper advice is the advice of a person who is reasonably believed by the trustee to be qualified to give it by his ability in and practical experience of financial and other matters relating to the proposed investment.

13.2.4 Acquisition of land Section 8 of the Trustee Act 2000 (1) A trustee may acquire freehold or leasehold land in the United Kingdom – (a) as an investment, (b) for occupation by a beneficiary, or (c) for any other reason … (3) For the purpose of exercising his functions as a trustee, a trustee who acquires land under this section has all the powers of an absolute owner in relation to the land.

Section 9 of the Trustee Act 2000 The powers conferred by [s 8 of the Trustee Act 2000] are: (a) in addition to powers conferred on trustees otherwise than by this Part, but (b) subject to any restriction or exclusion imposed by the trust instrument or by any enactment or any provision of subordinate legislation.

Note Where the trust instrument provides that the applicable law should be the general law, s 7(3)(a) of the Trustee Act 2000 provides that the trustees will be permitted to exercise the general power of investment contained in s 3 of the Trustee Act 2000, even if the trust instrument was executed before the Act came into force, provided the trust was created after 3 August 1961.

13.3 Investment in mortgages

Note Sections 8 and 9 of the Trustee Act 1925 only affect loans and investments made before the coming into force of the Trustee Act 2000.

Section 8(1) of the Trustee Act 1925 A trustee lending money on the security of property on which he can properly lend shall not be chargeable with breach of trust by reason only of the

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proportion borne by the amount of the loan to the value of the property ... if it appears to the court: (a) that in making the loan [the trustee acted upon the report of a person the trustee believed to be an independent and able surveyor or valuer]; and (b) that the amount of the loan does not exceed two third parts of the value of the property as stated in the report; and (c) that the loan was made under the advice of the surveyor or valuer expressed in the report.

Palmer v Emerson (1911) Trustees invested trust money in a freehold mortgage, a portion of the freehold premises being used for the purposes of a butcher’s business of 40 years standing. No independent valuation was made on behalf of the trustees before making the advance, instead they relied upon a three year old valuation, made for a different purpose, by a local expert. The butcher’s business subsequently failed, and the premises became much depreciated in value and wholly insufficient to pay the trust monies to the beneficiaries. Held, if mortgaged premises and a business carried out thereon are so inseparable that the discontinuance of the business may result in depreciation of the premises, trustees ought not advance more than half the proper value of the premises. However, the trustees in the present case would not be liable for breach of their trust because they had acted reasonably and ought to be excused. The precursor to s 61 of the Trustee Act 1925 was applied (see 15.3.4) because s 8 of the Trustee Act does not impose upon trustees a statutory duty to make a valuation, but is a section relieving trustees of liability in certain circumstances. Section 9(1) of the Trustee Act 1925 Where a trustee improperly advances trust money on a mortgage security which would at the time of the investment be a proper investment in all respects for a smaller sum than is actually advanced thereon, the security shall be deemed an authorised investment for the smaller sum, and the trustee shall only be liable to make good the sum advanced in excess thereof with interest.

13.4 Investment in land other than mortgages and long leases

Note Section 6(4) of the Trusts of Land and Appointment of Trustees Act 1996 provides that, where trustees of land have sold all their land, they may purchase land for investment. This reverses the decision in Re Wakeman (1945) where the court had held that trustees of land (or ‘trustees for sale’

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as they were then called) who had sold all the land subject to the trust could not purchase more land. (The reasoning being that trustees who only held money could not be trustees for sale of land.) However, this power to invest in land is (even after the the 1996 Act) restricted to trustees of land, that is, trustees who are appointed to manage trusts which assist of some land from the outset. Other trustees have no authority to invest in land other than mortgages and leases for a term of 60 years or more, although the trust instrument and the court can authorise much wider powers of investment in land.

13.5 Construction of trust instruments Section 3(1) of the Trustee Investments Act 1961 The powers conferred by ... this Act are in addition to and not in derogation from any power conferred otherwise than by this Act ... (hereinafter referred to as a ‘special power’).

Re Harari’s Settlement Trust (1949) In this case, the trustees took out an originating summons to determine the proper construction to be placed upon an investment clause contained in the settlement of which they were trustees. The clause was in terms which purported to permit the trustees to invest ‘in or upon such investments as to them may seem fit’. Held the clause should not be restrictively construed. The words should be given their ‘natural and proper meaning ... in their context’. Giving the words ‘in or upon such investment as to them may seem fit’ their true construction, it was clear that the trustees had power to invest in any legal investments which they honestly believed to be suitable, even if their chosen investment was not an investment of a type authorised by the ‘trustee range of investments’. (See, also, Bishop v Bonham (11.2.3).)

13.6 Over-cautious investment?

Note The motto of an ordinary prudent person of business, who is driven by the need to make profit, might be that one must ‘speculate to accumulate’. The motto of a trustee, who is driven by the overriding duty to safeguard the trust fund, is quite different, it might be that one must ‘select to protect’. However, where proper caution ends, and over- cautious neglect begins, is not easy to determine.

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Nestle v National Westminster Bank plc (1993) CA A testator died in 1922 leaving a fund worth approximately £54,000 on trust for various descendants. N, the testator’s only granddaughter, became solely and absolutely entitled to the fund in 1986, at which time it was valued at approximately £270,000. N claimed that with proper investment the present value of the fund should have been more than £1 m. Held the bank had misinterpreted the powers of investment granted to it by the terms of the will trust and should have taken legal advice thereon. The bank should also have made regular reviews of the investments under its control. However, the plaintiff had failed to show that the bank’s complacency had amounted to a breach of trust resulting in a loss to the fund. On that basis, N’s appeal was dismissed. Leggatt LJ held that a breach of duty will not be actionable unless it causes loss, and although ‘loss’ could include making a gain less than would have been made by a prudent person of business, N had failed to prove a loss in the present case. Note See, also, Re Waterman’s Will Trust (11.2.2).

13.7 Political and ethical investment Cowan v Scargill (1985) One-half of the management committee of the National Coal Board’s pension fund trusts brought an action against the members of the other half; the former having being appointed by the National Coal Board, the latter by the National Union of Mineworkers (NUM). The committee members appointed by the NUM included Arthur Scargill, president of the union. The committee members were the trustees of pension funds worth approximately £3,000 m, with a responsibility to invest £200 m on an annual basis. Because the planned investment scheme included investments in overseas industries and in oil and gas, the union trustees refused to adopt the scheme. The union trustees justified their actions as being in the beneficiaries’ best interests although they admitted that they had also been motivated by union policy. The National Coal Board trustees brought proceedings to determine whether the refusal of the union trustees had been in breach of trust. Held the purpose of the trust was the provision of financial benefits; it was therefore the duty of the trustees to invest with a view to securing those benefits. The trustees must set their personal views to one side, although they could in rare cases take into account personal views unanimously held by the beneficiaries. In the present case, the union trustees had put their political views before the best financial interests of the beneficiaries. Further, those financial benefits which might have arisen

144 The Trustees’ Powers and Duties of Investment from the boycott of the overseas investments were held to be too vague and remote. They were, accordingly, in breach of trust for refusing to adopt the proposed investment scheme. Harries v Church Commissioners (1992) The Rt Rev Richard Harries, Bishop of Oxford, was one of the Church Commissioners. The Commissioners control and invest large sums of money on behalf of the Church of England, such funds being held under charitable trusts. The Bishop of Oxford, together with certain other Church of England clergy, brought proceedings against the other Commissioners, seeking declarations clarifying the Commissioners’ obligation to invest in a manner compatible with Christian morality. Held the declarations were refused. Charity trustees were required to invest with a view to securing the maximum financial return compatible with ordinary prudence. ‘Christian morality’ covered a range of divergent views which should not be accommodated if to do so would create significant financial prejudice to the funds. However, if some of those views could be accommodated without financial detriment, such an ethical investment policy would be proper. The Vice Chancellor did acknowledge, that in rare cases the objects of the charity will be such that investments of a particular type would conflict with the aims of the charity and should be avoided for that reason. He gave, as one example, the investment of a cancer research charity in shares in tobacco companies. A major objection to granting the declarations in the present case was that the commissioners already followed an ethical investment scheme which excluded 13% of major UK listed companies. The scheme proposed by the Bishop would have excluded a further 24%.

145 14 Maintenance and Advancement

14.1 Maintenance

Note The court has a power to maintain infant beneficiaries under its inherent jurisdiction in cases of salvage and emergency (see 9.1.4, and see Re Jones (14.1.9)), and has a power to maintain infants under s 53 of the Trustee Act 1925 (9.1.3). Powers of maintenance can be expressly incorporated into trust instruments, too. In the absence of an express power, and provided that the trust instrument does not exclude it, the power of maintenance under s 31 of the Trustee Act will apply.

Section 31 of the Trustee Act 1925 (1) Where any property is held by trustees in trust for any person ... then, subject to any prior interests or charges affecting the 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, education or benefit, the whole or such part, if any, of the income of that property as may, in all the circumstances, be reasonable ... (ii) if such person on 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 therein or dies, or until failure of his interest, provided that [in deciding whether or not to maintain an infant] the trustees shall have regard to the age of the infant and his requirements and generally to the circumstances of the case, and in particular to what other income, if any, is applicable for the same purposes ... (2) [During the infancy of the beneficiary the trustees shall accumulate surplus income by investing it and shall also accumulate income from the investments] ... (3) This section applies in the case of a contingent interest only if the limitation or trust carries the intermediate income of the property, but it applies to a future or contingent legacy by the parent of, or a person standing in loco parentis to, the legatee ...

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14.1.1 Gifts carrying the intermediate income

Note See s 31(3), above. ‘Intermediate income’ is income arising on property during the intermediate period between the date when a contingent gift becomes effective (for example, the date of the testator’s death in the case of a will trust) and the date when the gift ultimately vests (that is, the date when the contingency is met). Vested gifts typically carry the intermediate income, as do inter vivos contingent gifts (but see 14.2.6). It is important to remember, when considering the cases in this section, that death is not a contingency, it is a certainty. Note, also, that ‘future’ and ‘deferred’ gifts are the same thing!

14.1.2 Testamentary gifts Section 175(1) of the Law of Property Act 1925 A contingent and future specific devise or bequest of property, whether real or personal, and a contingent residuary devise of freehold land, and a specific or residuary devise of freehold land to trustee upon trust for persons whose interests are contingent ... shall, subject to the statutory provisions relating to accumulations, carry the intermediate income of that property from the death of the testator, except so far as such income, or any part thereof, may be otherwise expressly disposed of.

Note The following testamentary gifts are not directly covered by s 175.

14.1.3 Contingent bequest of residuary personalty Re Adams (1893) The residue of an estate was bequeathed in trust for such of the testator’s sons and daughters as should attain 21 or, in the case of daughters only, marry before 21. Did the children’s interests carry the intermediate income so that the children could be maintained out of the income on their interests? Held maintenance would be permitted out of the income on the residue until the first child acquired a vested interest. North J did state, however, that such income should not be treated as intermediate income arising from the capital in which the infants had an interest. The income was not the infants’ by right, but by default. As undisposed of income it had become part of the residue in which the infants had an interest. Accordingly, the infants had become contingently interested in the income, not because of their undoubted rights in the residuary capital, but because the income found itself in the residue by ‘accident’.

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14.1.4 Deferred residuary bequests of personalty Re Oliver (1947) O, the testator, set up a will trust of his residuary estate under which the trustees were obliged to invest the fund and to pay annuities to his widow, W, and daughters out of the income. If there was any surplus income after payment of the annuities, one-third of the surplus was directed to be added to the residue and held upon the ultimate trusts, the other two- thirds was to be paid directly to W. On the date of W’s death, the residuary estate was, by clause 7 of the will, directed to be divided into two equal parts and held on trust for O’s two daughters (the ‘ultimate trusts’). The question was whether the gifts to the daughters carried the intermediate income. Held a gift expressly limited to take effect on a future date does not carry the intermediate income. The gift in the present case was just such a gift, being a vested gift limited to take effect at a future date, as opposed to an immediate gift on a contingent event. The latter would normally carry the intermediate income (see s 175, 14.1.2). On the special facts of this case, however, the daughters could claim the income by virtue of clause 7. That clause had the effect of ‘capitalising’ the income as part of the ultimate residue (compare the similar reasoning in Re Adams, above).

14.1.5 Deferred devise of residuary realty Re McGeorge (1963) The testator, M, made certain gifts by a trust in his will. Amongst them was a devise of certain agricultural land to his daughter expressly deferred to take effect after the death of his widow. If the daughter pre-deceased M’s widow the daughter’s interest would pass to her children. A summons was taken out to determine, inter alia, whether the gift to the daughter carried the intermediate income, so that she could claim an interest under s 31(1)(ii) of the Trustee Act 1925. Held Cross J affirmed Re Oliver (see above) for cases of personalty, but read s 175 (see above) as probably leading to a different result in cases of realty. The gift could, technically, be said to carry the intermediate income. However, the daughter’s claim still failed. Section 31(1)(ii) had no application, for two reasons. First, because that section only applies to contingent gifts, which the present gift was not (it was a deferred vested gift). Secondly, because the deferral of the gift until the widow’s death meant that the gift did not carry the intermediate income, the deferral amounting to an express contrary intention within s 69(2) (see 14.2.6) which prevented s 31(1) from applying. Further, the gift was vested, but subject to possible defeasance during the widow’s lifetime. Therefore, even if s 31(1) had applied, the income should have been accumulated for the benefit of persons who might become entitled upon a defeasance. The

149 BRIEFCASE on Equity and Trusts court ordered that it should be accumulated for 21 years or until the widow’s death, if earlier.

14.1.6 Deferred-contingent bequests of residuary personalty Re Geering (1962) The income of the testatrix’s residuary realty and personalty was held for her brother for his life, for the provision of an annuity. On his death, the income was directed to be held on trust for certain named persons contingent upon their surviving the testatrix and the annuitant and attaining the age of 21 (or earlier marriage in the case of females). The gift was thus deferred and contingent. In the event, the annuitant lived to a ripe old age and the trustees took out a summons for directions as to how they should distribute income (surplus to the annuity) to the expectant remainder beneficiaries. Held the expectant beneficiaries were entitled to interests which had been deferred until the death of the annuitant (the brother), therefore their interests would, prima facie, not carry the intermediate income. Cross J drew a clear distinction between contingent gifts which are immediate and contingent gifts which are deferred. However, in the present case, the precise words of the will (which established a gift of capital ‘and the income thereof’) had the effect, on a proper construction, of adding the income to the capital. The gift would, therefore, carry the intermediate income. However, s 31(1)(ii) would not permit the expectant beneficiaries to make a claim out of that income. This was because another clause of the will trust had the effect of excluding the effect of s 31(1)(ii) (see 14.2.6). That clause gave the trustees an express power to make payments to the capital beneficiaries out of, inter alia, the income of their contingent shares which would otherwise have been accumulated. Such a provision, the judge held, was quite inconsistent with a general provision (s 31(1)(ii)) that any beneficiary who has attained 21 is entitled as of right to be paid the income of his contingent share.

14.1.7 Deferred contingent devises of residuary realty Q No case has decided the question whether such a gift would carry the intermediate income, do you think it should? Note The wording of s 175 is not clear on this point. In coming to your conclusion, bear in mind the following: (1) deferred vested devises do not carry the income; (2) one aim of the 1925 legislation was as far as possible to bring the law of realty into line with the law of personalty; (as to which, see the case of Re Geering (14.1.6)).

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14.1.8 Contingent or deferred pecuniary legacies Re Raine (1929) Shortly after the 1925 legislation came into force, the question arose as to the proper construction of s 175 of the Law of Property Act 1925. In particular, it was asked whether contingent or deferred pecuniary legacies would carry the intermediate income. The section refers only to ‘bequests’ and ‘devises’. Held the omission of any reference to ‘legacies’ in s 175 was crucial. The pre-1925 law must be treated as still applying to such a gift. According to the pre-1925 law, contingent or deferred pecuniary legacies prima facie did not carry the intermediate income. There were, however, certain established exceptions to this rule. Note For the remainder of this section, it is intended to consider each of the exceptions to the general rule in Re Raine.

14.1.9 The first exception to the general rule

Note See s 31(3) of the Trustee Act 1925 (14.1).

Re Abrahams (1911) The testator bequeathed £15,000 to each son living at his death who should attain the age of 25, and a further £15,000 to each son who should attain 30. Upon a summons to determine whether the legacies carried interest. Held, in as much as the legacies were made contingent upon events having no reference to the infancy of the legatee, the case fell within the general rule that contingent legacies do not carry the intermediate income, and did not fall within the exception to that rule giving to an infant the interest on a legacy from a parent or person in loco parentis (‘in the place of a parent’). The ‘loco parentis’ exception is based on the presumed intention of the testator to make income available to maintain an infant, no such presumption could be made in the present case in the face of the testator’s clear intention to make the legacy contingent upon the legatee reaching mature adulthood. Re Jones (1932) The testator, J, left legacies of £1,850 to each of his infant children upon their attaining the age of 25. J made no provision for the maintenance of the children during their infancy. Held, where a testator, being the parent (or in loco parentis) of an infant, gives a legacy to that infant, contingently on his or her attaining an age other than the age of majority (now 18 – s 1 of the Family Law Reform Act

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1969), and makes no provision for maintenance, it is within the discretion of the court, under its inherent jurisdiction, to order the interest on the legacy to be applied in maintaining the legatee until the legacy vests.

14.1.10 The second exception to the general rule Re Churchill (1909) A testatrix left the residue of her estate to trustees on trust for sale, with directions to pay certain pecuniary legacies out of the proceeds. The legacies were to be paid to various younger relations upon their attaining 21 or, in the case of females, their marriage, if earlier. However, the will trust also gave the trustees the power ‘to apply the whole or any part of the share to which any beneficiary hereunder may be contingently entitled in or towards the advancement in life or otherwise for the benefit of such beneficiary whether male or female and whether under the age of 21 or not’. One of the potential legatees, the great-nephew of the testatrix, applied by a next friend to be maintained out of the income on the legacy during his infancy. Held interest was payable on the legacy and therefore the trustees were able to maintain the infant beneficiary out of that income. The present case came within an established exception to the rule that pecuniary legacies do not carry the intermediate income. That exception applies where the testator has shown an intention that the legatee should be maintained ‘as part of his bounty’. Re West (1913) The testatrix, W, bequeathed a legacy to her grandniece, A, if she should attain the age of 21, but so that the trustees should be free to apply the whole or any part of it in or towards her maintenance and education. W also made provision for the maintenance and education of A out of other funds. A was now 13. Held (distinguishing Re Churchill) that, W having made provision for the maintenance and education of A out of other funds, the legacy only carried the income from the time A reached 21. Note You should recall, also, that the existence of other funds is a factor that the trustees should take into account when considering whether to exercise their discretion to maintain under s 31(1) (14.1).

14.1.11 The third exception to the general rule Re Medlock (1886) A testator bequeathed £750 to trustees upon trust to pay and divide the same among three people contingently upon their surviving him and attaining 21. If none got a vested interest, the fund was to fall into residue.

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Held a definite fund had been segregated by the will from the rest of the estate. In such a case, the legatee will be able to claim the intermediate income produced by the separate fund.

14.1.12 Apportioning the income of a class gift Re Joel’s (1967) In exercise of a power of appointment granted by his father’s will, a son appointed a fund to be held on trust for such of his grandchildren as should be living 21 years from his death, or should by that date have attained 21 or married. If more than one grandchild qualified they were to take in equal shares. The trustees took out a summons to determine inter alia (1) how the income and outgoings should be apportioned on the birth of new grandchildren, and (2) how, on the death of a grandchild before obtaining a vested interest, the investments representing accumulations (under s 31(2) of the Trustee Act) on such grandchild’s contingent share should be allocated. Held, on the first question, if there is a gift to a class contingent upon its members attaining a certain age, the class closes (provisionally) when the first person attains that age. The trustees may then maintain that beneficiary out of the income attributable to their notional share. If a new beneficiary is born later, the class is re-closed, again on a provisional basis, and a fresh allocation of notional shares is made. Income and outgoings of the fund should at all times be apportioned between each beneficiary’s share in accordance with the provisions of the Apportionment Act 1870. The trustees should, therefore, apportion on an equitable basis. On the second question, it was held that, in the event of the death of a grandchild, the accumulations on that grandchild’s share should be added to the general capital of the fund, notwithstanding that a grandchild born subsequently would thereby acquire an interest in capital arising from income which had accrued before he was born. Re Delamere’s Settlement Trust (1984) CA Trustees of a settlement executed a deed of appointment under which the income of the trust was to be held on trust for a number of infant beneficiaries ‘in equal shares absolutely’. On appeal, the beneficiaries contended that they were individually entitled to claim an equal share in the income from the fund. Held the income on the fund was indefeasible. The beneficiaries would not be entitled to shares of the income, together they were absolutely entitled to the ‘whole’ of it.

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14.2 Advancement

Note The power to apply capital for the advancement of a beneficiary may be granted by the express terms of the trust instrument and may replace or modify the statutory power of advancement. If there is no express power the statutory power will apply, provided that there is no express intention to the contrary (see 14.2.6). The statutory power of advancement is found in s 32 of the Trustee Act 1925. As to the general exercise of the discretionary power of advancement, see Re Hastings’ Bass and Mettoy v Evans (12.3.3).

Section 32(1) of the Trustee Act 1925 Trustees may at any time ... apply any capital money subject to a trust, for the advancement or benefit, in such manner as they may, in their absolute discretion, think fit, of any person entitled to the capital of the trust property ... 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 ... 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 out 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.

Note Unlike the statutory power of maintenance, the statutory power of advancement is not restricted to infant beneficiaries.

14.2.1 Advancement and benefit Molyneux v Fletcher (1898) Trustees made a payment to a beneficiary out of her presumptive share in the capital of the trust fund, purporting to make the payment with a view to her ‘advancement in life’. Payments of this sort had been expressly authorised by the terms of the trust, but the particular payment had been made in the full knowledge that the sums paid to the beneficiary would be used to pay a debt owed by the beneficiary’s husband to one of the trustees.

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Held although the trustees had a sole discretion as to how payments should be made for the advancement of the beneficiaries, the payment in the present case had been made in breach of trust because it could not possibly be considered to be a payment which would advance her in life. Re Collard’s Will Trust (1961) Clause 7 of a will trust provided a power of advancement in the following terms: ‘I declare that the statutory power of advancement of capital given to my trustees by s 32 of the Trustee Act 1925, shall apply to the trusts hereof as if incorporated herein save that no such advancement shall be made to or on behalf of any beneficiary for the purpose of acquiring a share or interest in any business.’ The question arose whether the trustees could exercise the power of advancement by conveying a trust owned farm to the beneficiary. The beneficiary was at the time working the farm. The intention behind the proposed conveyance was to avoid the payment of estate duty which would have been payable had the farm passed to the beneficiary on the death of his mother, who was also a beneficiary. Held the trustees would be permitted to convey the farm to the son by way of exercise of the power of advancement. There were two arguments supporting this conclusion. First, the trustees could have advanced the beneficiary by paying capital monies to him, and the beneficiary could then have bought the farm with the capital monies. Therefore, to avoid this circuitous result, the farm would be directly conveyed to the beneficiary. Secondly, clause 7 of the will did not prohibit the conveyance, because the purpose of the conveyance was to give the beneficiary the benefit of a tax advantage, it was not to give the beneficiary a share in a business. Re Clore’s Settlement Trust (1966) The father of a trust beneficiary had established a charitable foundation to which the beneficiary felt morally obliged to contribute. It would have been more tax efficient for the donation to be made through an exercise of a power of advancement in favour of the beneficiary, than for it to be made out of the beneficiary’s private funds. The trustees sought the court’s approval to make a capital payment to the beneficiary for this purpose. Held the payment would be a proper exercise of the power of advancement. The beneficiary was morally bound to make the donation. He would benefit financially from making the donation out of the trust fund rather than from out of his private monies. Hardy v Shaw (1975) Trust owned shares were transferred to trust beneficiaries to enable them to have a controlling interest in the company from which they earned their livelihood. The question was whether such a transfer could properly be described as a payment made under the power of advancement.

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Held the word ‘advancement’ was not to be construed narrowly, as being restricted to a gift establishing a young person in life or, in the case of an older person, a gift for the purpose of meeting some particular need, but as including any gift whereby the donor made some permanent provision for the donee. Accordingly, the transfer of shares to the beneficiaries in the present case was a payment ‘by way of advancement’.

14.2.2 Advancement by resettling capital

Re Wills’ Will Trust (1958) The trustees, in purported exercise of a express power in the will trust, executed a deed appropriating certain investments to the share of residue to which one of the beneficiaries, M, was contingently entitled. M was employed in active military service and there was a real risk that he might not reach the contingent age of 25. The deed of resettlement recited that the investments should be held on certain trusts for M’s twin sons on their attaining 21, and if they failed to attain that age, then on the original trusts applicable as if the deed had never been executed. On a summons to determine, inter alia, whether the deed was a valid exercise of the express power of appointment. Held it was. The simple resettlement was for the benefit of the twins because of the real risk that M might die before attaining the age of 25. Trustees may validly make advancements by way of resettlements if the particular circumstances of the case warrant such a course as being for the benefit of the beneficiaries. Pilkington v IRC (1964) HL A will trust directed trustees to hold the income of the testator’s residuary estate upon protective trusts for his nephew and nieces. Should a nephew or niece die, their share was to be held on trust for such of their relations as the trustees might appoint. In default of appointment the income was to be held for their children at 21. In due course, the trustees wished to exercise the power of advancement for the benefit of the child of one of the nephews, so as to avoid estate duties. They proposed to make the advancement by settling the child’s share in a new settlement under which the child could be maintained out of income until she reached the age of 21; thereafter, she would be absolutely entitled to the income until the age of 30, whereupon she would be entitled absolutely. If she should die before the age of 30, her share was to be held on trust for her children at 21, and in default of that it would pass to the nephew’s other children. The question before the court was whether the trustees could exercise their power of advancement in the proposed manner. Held the advancement would have been permitted, even though the terms of the new settlement would have created the possibility of persons

156 Maintenance and Advancement benefiting under the new settlement who would not have benefited under the terms of the original settlement. The main consideration must be to ensure that the advancement is for the benefit of the primary beneficiary, it did not much matter that new incidental beneficiaries might be created. Viscount Radcliffe stated that ‘advancement or benefit’ means ‘any use of the money which will improve the material situation of the beneficiary. It is important, however, not to confuse the idea of “advancement” with the idea of advancing money out of the beneficiary’s expectant interest. The two things have only a casual connection with each other’. The proposed resettlement was not void as breaching the rule against delegating basic discretions, because the trust instrument expressly permitted such a delegation (see 12.2.1). However, on the particular facts of the present case the advancement could not be permitted as the resettlement would infringe the rule against remoteness of vesting. In considering the rule against remoteness of vesting, the power of advancement was held to be analogous to special powers of appointment, which are effective at the date of the instrument which creates the power. It was a clear possibility that the ultimate beneficiaries under the proposed resettlement would not take a vested interest until more than 21 years after the execution of the instrument of resettlement.

14.2.3 Consent of persons with prior entitlement

Note See s 32(1)(c) of the Trustee Act 1925, 14.1.

Re Beckett’s Settlement (1940) The question was whether the objects of a discretionary trust were persons ‘entitled to any prior life or other interest vested or contingent’ within s 32(1)(c). If they were, they would have to give their consent before an advancement could be exercised in favour of a beneficiary under the settlement. Held the objects of a discretionary trust do not have prior ‘interests’, they have a mere ‘hope’ of benefiting from the trust. In the present case, therefore, their consent was not required before advancing beneficiaries under the settlement. Henley v Wardell (1988) According to s 32(1)(c) of the Trustee Act 1925, before a payment is made to advance a beneficiary under a trust, written consent must be obtained from any person with a prior entitlement under the trust. In the present case the testator had granted his trustees an ‘absolute and uncontrolled discretion’ to advance capital. The question was whether this removed the requirement that consent should be obtained from persons with prior

157 BRIEFCASE on Equity and Trusts interests. The trustees had already exercised the power in the face of objections from a person with a prior entitlement. Held the requirement for consent would still apply, despite the testator’s attempt to enlarge the trustees’ power of advancement. The testator’s enlargement of the trustees’ power should be limited, on the facts of the present case, to enlarging the trustees’ discretion as to the amount to be paid by way of advancement. The judge acknowledged that a discretion which could only be exercised subject to a consent could not be said to be ‘uncontrolled’. Nevertheless, his Lordship held that the single word ‘uncontrolled’ was not enough to bear the weight the trustees had attempted to put on it.

14.2.4 Exhausting the power to make an advancement Re Marquess of Abergavenny’s Estate Trusts (1981) Trustees exercised their discretionary power of advancement in full, paying over to the beneficiary the entirety of one-half of his share in the trust fund. The remainder was invested and greatly increased in value. At a later date, the beneficiary took out a summons for directions as to whether the trustees would be permitted to make further advancements, which, combined with payments already made, would total one-half of the present value of the fund. Held the power had been totally exhausted on its initial exercise. The fact that the value of the remainder of the fund had now increased did not justify a fresh exercise of the power.

14.2.5 The fiduciary nature of the power of advancement Re Pauling’s Settlement Trust (1963) CA A marriage settlement was made in 1910 to provide an income for a wealthy lady who had married a husband of moderate means. Subject to the provision of this income, the fund was to be held for the children, or remoter issue, of the family. Many years later, the husband wished to purchase a house, but the family was not as wealthy as it once had been. Counsel advised that the purchase monies could be obtained by paying capital from the fund to the children under the power of advancement. The children could then resettle the funds on their mother for life and for themselves thereafter. The children had all become adults in recent years. In due course, the trustee (Coutts & Co, a bank) paid over the price of the house to the adult children by way of advancement. However, rather than resettling the property in accordance with counsel’s advice, the purchase monies were used to purchase the house direct, which was conveyed to the father and the mother. The bank knew what was going on, and that the children had not taken independent legal advice. In future years and months, a number of further payments were made by the bank in

158 Maintenance and Advancement purported exercise of the power of advancement, and on many of these occasions the monies were used by the parents for their own purposes. The present action was brought by the four children against the trustee bank, seeking an account of the monies which had been paid over to them, supposedly for their advancement. In its defence, the bank sought to rely upon the consent of the beneficiaries, the Limitation Act, laches and acquiescence and it sought to be relieved from liability under s 61 of the Trustee Act 1925 (see 15.3.4 for the detail of these defences). Held the power of advancement must be exercised only if the exercise will be for the benefit of the beneficiaries in whose favour the power is exercised. This placed a duty on the bank to refuse to exercise its power of advancement if it had notice that, after previous payments by way of advancement, the monies had not been used for the purpose for which the payment had been made. The beneficiaries’ apparent consent would be no defence if the bank ought reasonably to have known that the beneficiaries were acting under the undue influence of their parents. The presumption of undue influence of a parent over a child can continue for a short time beyond the child’s attaining majority. On this basis, the bank was held liable to account to the beneficiaries. However, relief was granted under s 61 (15.3.4) in relation to some of the advancements, but not others. The Limitation Act would not apply because the beneficiaries had future interests which had not yet vested in possession, therefore they did not yet have a cause of action which could be the subject of a time-bar (see 15.2.1). Their interests could not be said to have vested in possession upon the payment over, in breach of trust, of capital monies by way of ‘advancement’. The doctrine of ‘laches’ could not apply because the Limitation Act, though not applicable in the instant case, applied generally to actions of this sort. Acquiescence had not been established on the facts. Finally, it is worth noting that the Court of Appeal emphasised the fiduciary nature of the power of advancement. Namely that, when considering an exercise of the power, the trustees must weigh, against the benefit to the beneficiaries in whose favour the power is exercised, the interests of other beneficiaries entitled under the trust.

14.2.6 The powers contained in ss 31 and 32 of the Trustee Act 1925 are subject to express contrary intention in the trust instrument Section 69(2) of the Trustee Act 1925 The powers conferred by this Act on trustees are in addition to the powers conferred by the instrument, if any, creating the trust, but those powers, unless otherwise stated, apply if and so far only as a contrary intention is not expressed in the trust instrument, if any, creating the trust, and have effect subject to the terms of that instrument.

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Re Ransome’s Will Trust (1957) The testatrix, R, directed her trustees to hold some shares on trust to apply dividends, as the trustees shall deem fit, towards the education of certain great-grandchildren, any surplus income on the shares to be accumulated until the youngest great-grandchild should reach 21. Upon the first great- grandchild reaching 21, the trustees were directed to hold the shares and accumulated income on trust for all living great-grandchildren on that side of the family. In the event that no great-grandchild should actually attain 21, the fund was directed to be held on other trusts. Upon reaching the age of 21, the only great-grandchild claimed to be absolutely entitled to the fund and to the income thereon. Held the great-grandchild was not so entitled. As regards the income on the fund, it was held that s 31(1)(ii) of the Trustee Act 1925 would not apply so as to entitle the great-grandchild to the income. This was because the words of the trust, requiring the accumulation of income, evidenced a contrary intention for the purposes of s 69(2) of the Trustee Act 1925. The fact that the direction to accumulate breached the rule against excessive accumulation (5.3), and was therefore partially invalidated, did not alter the judge’s holding that the direction evidenced an intention contrary to the operation of the power in s 31(1) to apply income. Inland Revenue Commissioners v Bernstein (1961) CA A settlor had directed that the income on his settlement should be accumulated during his lifetime, thereafter to pass, with the capital fund, to his wife and children. The Inland Revenue brought the present action to recover tax which it claimed was chargeable on income which the wife could receive on capital paid to her under the statutory power of advancement. Held, by directing that income should be accumulated, the settlor had made clear his intention that a capital sum should be built up for the future benefit of his wife and children. This intention to provide a capital sum in the future was incompatible with the operation of the statutory power of advancement. It followed that the statutory power must be treated as having been excluded in accordance with s 69(2) of the Trustee Act 1925. In the absence of a power of advancement, the Inland Revenue’s claim must fail.

160 15 Breach of Trust: Defences and Relief

15.1 Trustees’ liability for breaches of trust

15.1.1 General

Note ‘The basic right of a beneficiary is to have the trust duly administered in accordance with the provisions of the trust, if any, and the general law’, per Lord Browne-Wilkinson in Target Holdings v Redfern (1995), see below.

Target Holdings Ltd v Redferns (A Firm) (1995) HL The defendants were a firm of solicitors acting on behalf of a mortgagor (an established client) and a mortgagee on the creation of a mortgage. The defendants held the loan monies on trust for the mortgagee but paid them over to the mortgagor before the mortgage had been completed. This was in breach of trust. The mortgagee sued the firm of solicitors. In their defence, the solicitors argued that they had committed only a technical breach of trust and that the plaintiff had not suffered any loss because the solicitors had acquired the mortgages to which the plaintiffs were entitled. Held, in the Court of Appeal, when the trustees (solicitors) paid away the trust monies to a stranger they came under an immediate duty to reinstate the trust fund, and that an inquiry into whether the breach of trust actually caused loss to the trust fund was unnecessary, the causal connection being obvious. The House of Lords reversed this. A common sense view of causation should be applied, with the full benefit of hindsight. Applying this test, the defendant was not liable, because the plaintiffs would have suffered the same loss even but for the defendant’s breach of trust. Lord Browne-Wilkinson emphasised the difference between actions for compensation, for an account and for specific restitution. If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed. His Lordship also distinguished traditional trusts (for example, ‘to A for life and to B in remainder’) from bare trusts in commercial contexts. But, he noted that when a traditional trust has come to an end it is, on the question of compensation, very similar to a bare trust in a commercial context. 161 BRIEFCASE on Equity and Trusts

Note After Target Holdings v Redferns, it appears that the beneficiary of a bare trust in a commercial context should be compensated more or less by analogy to a common law award of damages. In other words, the beneficiary should be put in the position they would have been in had the breach not occurred. Where the trust is of a more traditional type, however (for example, ‘to trustees on trust for A for life and to B and C in remainder equally’) compensation to individual beneficiaries is more problematic. In such a case, the first duty of the trustees is to fully reinstate the trust fund, even where there is a risk that individual beneficiaries may be over-compensated as a result.

Swindle v Harrison (1997) CA In this case, the solicitors’ firm knew that one of their clients would probably fail to raise certain finances she needed in order to purchase a hotel. The solicitors took advantage of this knowledge by arranging to lend her the money from the partnership account. They made a secret profit on this loan. In the event, the hotel proved to be a financial failure. When the solicitors sought to recover their loan, she brought a counterclaim for compensation for the losses she had suffered through the failure of the hotel. She claimed that she would not have proceeded with the purchase if the solicitors had made full disclosure of all the information they had in relation to the hotel. Held Evans LJ dismissed this claim: ‘Since she would have accepted the loan and completed the purchase, even if full disclosure had been made to her, she would have lost the value of the equity in her home in any event.’ She had failed to prove that her loss had been caused, on any common sense view, by the solicitors’ breach of fiduciary duty. This is one case in which the plaintiff should have elected to seek an account of profits (see 15.6). Note To appreciate the potential inter-relationship between the three remedies of ‘specific restitution’, ‘compensation’ and the ‘account of profits’, consider the following hypothetical scenario: if a trustee of a traditional type trust has misapplied property belonging to the trust he will be immediately liable to make specific restitution to the trust fund by reinstating the asset of which he has deprived it. If that property has been, let us say, destroyed, the trustee will be liable to compensate the trust for the loss of that property. Further, suppose that the trustee had been paid to destroy the property, or had earned income on the property before its destruction, he will be liable to account to the trust for the unauthorised profits that he has made from his position as trustee.

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15.1.2 Specific restitution Re Massingberd’s Settlement (1890) CA The settlement trustees sold authorised investments and reinvested the proceeds in unauthorised mortgages. Held the trustees would be required, if the beneficiaries so requested, to replace the original investments with investments of a similar type, even though the value of such investments had risen since the trustees’ breach, and despite the fact that the trustees had already reinstated the monies which had been misapplied in the unauthorised mortgages. The beneficiaries were entitled to elect to recover either the value of the authorised investment at the date of the writ, or (where possible) to recover the specific asset which had been sold, even where that asset had since risen in value. In the present case, the trustees were required to repurchase the original authorised investment which they had misapplied, even though it was now worth more than it had been worth at the date of misapplication.

15.1.3 Compensation for loss

Note Equitable compensation is in theory not the same as an award of common law damages. However, in Bartlett v Barclays Bank Trust Co Ltd (No 2) (1980) (see 11.2.2), Brightman J observed that: ‘In reality compensation for the loss suffered by the plaintiffs ... [is] ... not readily distinguishable from damages except with the aid of a powerful legal microscope.’

Re Bell’s Indenture (1980) The trustees of a traditional type trust misapplied nearly £30,000 of the trust fund with the knowledge and assistance of H, a partner in a firm of solicitors acting for the trustees. Held loss to the trust fund should be assessed at the date of the judgment, not at the date of the writ nor at the date of the breach of trust. Nevertheless, even if it appears in retrospect that, as a result of the breach of trust, the tax liability of the trust has been reduced, the trustee will not be able to claim the benefit of such reduction and will not be entitled to set it off against the amounts due from him to the trust. Note Although compensation should be assessed at the date of the court’s judgment, with the full benefit of hindsight, it should not be reduced by application of common law notions of remoteness of damage or unforeseeability of damage.

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15.1.4 Account for profits

Note See Boardman v Phipps, O’Sullivan v MAM and Guinness v Saunders (12.1.4).

15.1.5 Liability to pay interest Wallersteiner v Moir (1975) CA M, a minority shareholder in a company, sent a circular letter to the other shareholders in which certain allegations were made against W, a director of the company. W sued M for libel. M, in his counterclaim, sought declarations that W had been guilty of fraud, misfeasance and breach of trust. The judge at first instance gave judgment for M, in the absence of any defence from W. The judge also awarded interest on the judgment. W then appealed to the Court of Appeal on the basis that there had been no jurisdiction to award interest. Held the court had an inherent equitable jurisdiction to award interest where a fiduciary had improperly profited from their position. In the present case, the interest rate was fixed at 1% above the minimum bank lending rate. It was further held that the court’s equitable jurisdiction to award interest would extend in the appropriate case to making an award of compound interest. So, for instance, the court might consider an award of compound interest in a case where the trustee had used misapplied trust funds for the purposes of his own business. The aim of an award of compound interest is to ensure that the trustee retains no unauthorised profit from his breach of trust, the award should not be used as a means of punishing the trustee. (See, also, the Westdeutsche case, 16.4.) Note Simple interest is a sum calculated, usually on an annual basis, on the capital monies due from the trustee to the trust. Compound interest is calculated annually by adding to the capital the simple interest which has arisen during the previous year. Compound interest for the following year is calculated on the compound sum of capital and simple interest. The following year accumulated compound interest is added to capital, and the process repeated. It is, essentially, interest on interest.

15.1.6 Election between inconsistent remedies Tang Man Sit (Decd) (Personal Representative) v Capacious Investments Ltd (1996) PC Mr Tang, the owner of land, was party to a joint venture for the building of houses on the land. He agreed to assign some of the houses to the plaintiff after completion of the building works. No assignment was made.

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Instead, Mr Tang let out the houses as homes for the elderly without the plaintiff’s knowledge or approval. The plaintiff’s claim was, on the one hand, for damages for loss of use and occupation and diminution of the value of the property due to wrongful use and occupation and on the other hand, for an account of unauthorised profits and for compensation for breach of trust. Held the two sides of the plaintiff’s claim were mutually exclusive, and the plaintiff would have to elect between the two remedies. Lord Nicholls approved Lord Wilberforce, in Johnson v Agnew (1979), who had held that: ‘Election, though the subject of much learning and refinement, is in the end a doctrine based on simple considerations of common sense and equity.’ Lord Nicholls referred to the ‘classic example’ of alternative, inconsistent remedies: it is where what is claimed is ‘(1) an account of the profits made by the defendant in breach of his fiduciary obligations and (2) damages for the loss suffered by the plaintiff by reason of the same breach. The former is measured by the wrongdoer’s gain, the latter by the injured party’s loss’. The basic rule is that election between remedies must be made before judgment is finally entered against the defendant.

15.2 Defences

15.2.1 Limitation Act 1980 Section 21 of the Limitation Act 1980 (1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action: (a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or (b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee ... (2) ... (3) [Subject to provisions elsewhere in this Act] an action by a beneficiary to recover trust property or in respect of any breach of trust ... shall not be brought after the expiration of six years from the date on which the right of action accrued. For the purposes of this sub-section, the right of action shall not be treated as having accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession ... Section 28(1) of the Limitation Act 1980 ... if on the date when any action accrued for which a period of limitation is prescribed by this Act, the person to whom it accrued was under a disability, the action may be brought at any time before the expiration of six years from the

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date when he ceased to be under a disability or died (whichever first occurred) notwithstanding that the period of limitation has expired.

Section 32(1) of the Limitation Act 1980 ... where in the case of any action for which a period of limitation is prescribed by this Act, either: (a) the action is based upon the fraud of the defendant; or (b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or (c) the action is for relief from the consequences of mistake; the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

Note There are a number of situations where the Act does not apply. These include: (1) where a beneficiary brings an action in relation to a fraudulent breach of trust; (2) where the trustee still holds trust property in breach of trust; (3) where the trust is charitable.

15.2.2 Fraud

Note See s 21(1)(a), 15.2.1.

Thorne v Heard (1895) HL This case did not involve trustees as such, but it concerned the trust like situation where a first mortgagee sells land the subject of the mortgage and holds some of the proceeds for the benefit of a second mortgagee who also had an interest in the land before it was sold. In this case, the trouble began when the first mortgagee employed the services of a solicitor to conduct the sale of the mortgaged land. The solicitor sold the land and accounted to the first mortgagee for their part of the proceeds of sale, however the solicitor failed to account to the second mortgagee for their part of the proceeds. The solicitor dishonestly kept those monies to himself. Normally, the second mortgagee would immediately seek recovery from the first mortgagee, by suit if necessary. In this case, the second mortgagee did not go to court because they did not realise that a cause of action had arisen in their favour against the first mortgagee. The solicitor had craftily kept the cause of action hidden from the second mortgagee by paying off the interest on the second mortgage out of his own money, thus giving the impression that the second mortgage was still subsisting. He was able to do this successfully because he happened also to be the agent of the second mortgagee. The second mortgagee did not discover the fraud until 14

166 Breach of Trust: Defences and Relief years later, only then did it bring an action to recover the monies from the first mortgagee. Held the action was time barred under the Statute of Limitations (a pre- cursor to the Limitation Act 1980). The statute would not be disapplied as it could not be shown that the monies continued to be in the hands of the first trustee, neither could it be shown that the first trustees had been privy to the concealment of the cause of action. The concealment had not been carried out by the defendants, but by a third party, the solicitor.

15.2.3 Where the trustee still holds trust property

Note See s 21(1)(b), 15.2.1.

Wassell v Leggatt (1896) A husband forcibly deprived his wife of certain monies which he knew had been left to her personal use by the terms of a will. Only after her husband’s death were proceedings commenced to recover the monies. Held the husband had constituted himself a trustee of the monies and, accordingly, the Statute of Limitations could not be raised to bar proceedings by his wife against the executors of his estate. Re Howlett (1949) A son was entitled, during his infancy, to the rents and profits arising out of premises which had devolved to him on his mother’s intestacy. However, his father, the administrator of the estate, occupied the premises for his own purposes and had never paid any rent to the son. After his father’s death, the son brought an action against his estate for an account of the unpaid rents. Held many defences were considered. As to the defence that the son’s claim was time barred under the Limitation Act 1939, it was held that the father had continued in his breach of trust by his continuing to hold trust property and, therefore, his estate would not be entitled to raise the time bar as a defence (see, now, s 21(1)(b) of the Limitation Act 1980). An account to the son was ordered out of the father’s estate.

15.2.4 Charitable trusts

Note As to charitable trusts generally, see Chapter 7.

Attorney General v Cocke (1988) The Attorney General brought an action for an account against the trustees of a charitable trust. The defendant trustees sought to show that the Attorney General was time barred from bringing the action.

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Held s 21(3) of the Limitation Act 1980 had no application to a case such as the present. First, because a charitable trust has no beneficiary, as such, capable of bringing an action which could be time barred. Secondly, because the writ had not alleged a breach of trust, nor had it sought to recover property owing to the trust.

15.2.5 Time bars by analogy to the act Thomson v Eastwood (1877) HL An express will trust gave a legacy to a person who in the event never received it. The intended legatee became insolvent, released the legacy and then died. Only at a much later date were proceedings brought to enforce the legacy on behalf of the legatee’s only son. The action sought payment of the legacy, together with interest thereon covering the period of delay in payment. Held the Statute of Limitations would not apply to bar the action for payment of the legacy. The statute had no application to the case of an express trust. Payment of the legacy was ordered. However, interest on the legacy was not paid. The Limitation Act did not apply to an express trust for a legacy, yet where the beneficiary or his representative had allowed a very long time to elapse without attempting to enforce the trust, equity would, when enforcing it, apply, as to interest on the legacy, the principle of the statute. Note Section 36(1) of the Limitation Act 1980 states that the time limits under the Act may be ‘applied by the court by analogy’, to bar equitable relief of a sort which would have been time barred under the Act in comparable legal proceedings.

15.2.6 Laches

Note The doctrine of laches (pronounced ‘lay-cheese’) bars an action by reason of the ‘staleness’ of the claim. This defence can only be resorted to in situations where the Act does not apply either expressly or by analogy. The word laches has its root in the Latin laxus, meaning ‘loose’. Even today we might describe as ‘lax’ a person who acts in a tardy manner.

Re Sharpe (1892) CA The liquidator of an insolvent company brought an action against one of the former directors of the company, seeking to recover monies which had been paid (in the form of interest payments) to the shareholders of the company in the years prior to its insolvency.

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Held the directors were to be treated as being in the position of trustees. Accordingly, the defendant could not raise the Statute of Limitations as a bar to the action. Neither would the action be barred as a ‘stale demand’. Lindley LJ held that ‘a defence based on staleness of demand renders it necessary to consider the time which has elapsed and the balance of justice or injustice in refusing relief’. In the present case, the relevant period of delay in bringing the action was calculated to be around two and a quarter years, which his Lordship did not consider long enough to raise the defence of laches. Frawley v Neill (2000) CA F and N purchased a property in their joint names in 1974. F paid two-thirds of the deposit, and N paid the other third. The balance was provided by a mortgage with the Halifax Building Society. When their cohabitation ended in 1975, N agreed (orally) that she would sell her interest to F. The judge found that this agreement had been finalised and that F had paid the defendant the agreed sum. Arrangements to convey the property into F’s sole name were made but never completed. In 1986, the building society repossessed and sold the house, paying surplus proceeds of sale into a bank account. F claimed that he was entitled to all of this sum, as he had purchased N’s share. Against this, N raised the defence of delay or laches, claiming that F was too late to claim specific performance of the purchase agreement. In spite of this argument, the judge awarded a declaration in favour of F. N appealed. Held (dismissing the appeal) F’s agreement with N had been performed hence F had no need of specific performance. N was a bare trustee of the legal title until it had been extinguished by the building society’s sale. The proceeds of sale belonged beneficially to the claimant after repayment of the mortgage and the mortgagee’s expenses. Delay and laches would not, in any event, have prevented an award of specific performance, as F had acted upon the agreement and N had acquiesced in it. There were no circumstances which would bar the enforcement of his equitable right. Per curiam: according to the modern approach to the doctrine of laches, each case should be decided on its facts applying a broad approach directed to ascertaining whether, in all the circumstances it would be unconscionable for the claimant to sue.

15.2.7 Where a beneficiary instigates, requests or consents to the breach of trust Somerset v Earl Poulett (1894) CA Trustees of a settlement committed an innocent breach of trust when they invested in an under secured mortgage. One of the beneficiaries had consented in writing to investing by way of mortgage, the question

169 BRIEFCASE on Equity and Trusts therefore arose whether the trustees should for that reason be indemnified by the beneficiary for the consequences of their breach. Held, where a beneficiary has instigated, requested or consented to an investment which amounts to a breach of trust, that beneficiary will be liable to indemnify the trustee for any liability to the other beneficiaries arising from that breach. And, as against that beneficiary, the trustees in breach will have an absolute defence to any action or claim arising from the breach. When considering whether a beneficiary had instigated, requested or consented to a breach of trust, it is necessary to show that the beneficiary was sui juris and had full knowledge of what they were consenting to, but it is not necessary to show that they knew that the investment was, in law, a breach of trust. If, however, the beneficiary has instigated, requested or consented to an investment which is not of itself a breach of trust the beneficiary will not be liable if the trustee proceeds to make that investment with a lack of ordinary prudence. In the present case, the beneficiary had consented to an investment within the terms of the trust and the trustees would therefore be liable in full.

15.2.8 Where the beneficiary acquiesces in the breach

Note See Holder v Holder (1968) (11.2.1).

15.3 Relief from liability

15.3.1 Set off

Note The general rule, as laid down by the Lord Chancellor in Dimes v Scott (1828), is that where trustees make a gain for the trust through one transaction they may not set those gains against losses made on another transaction carried out in breach of their trust. In such a case, trustees will be liable to remedy their breach of trust in the usual way and will not be able to claim the benefit of a ‘set off’.

Note But see Bartlett v Barclays Bank Trust Co (11.2.2). In that case, the shares in a trust owned company fell in value due to inadequate supervision of the company by the trustees. The shares had decreased in value due to two speculative property investments undertaken by the company, one of which resulted in a profit, the other of which resulted in a loss. The trustees were permitted to set off the gain made in one investment

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against the loss in the other. This allowance did not infringe the principle in Dimes v Scott, because the two property investments had arisen as a result of a single overall breach of trust.

15.3.2 Contribution Bahin v Hughes (1886) There were two trustees and the management of the trust was left in the hands of one of them. Following a breach of trust resulting in a loss to the fund, the two trustees were sued by the beneficiaries for an account. The ‘passive trustee’ claimed a right of indemnity against the ‘active trustee’. Held the trustees were equally liable to the beneficiaries. The trustee who had been ‘passive’ was liable for breach of trust in failing adequately to supervise and participate in the activities of the ‘active trustee’. Note The ‘passive trustee’ in Bahin v Hughes was not jointly and severally liable for the breach committed by the ‘active trustee’, she was liable for her own, quite distinct, breach of trust. Trustees will, however, be jointly and severally liable for each other’s breaches of trust where they are all parties together in carrying out a joint breach of trust (Bishopsgate Investment Management v Maxwell (No 2) (1994)).

Civil Liability (Contribution) Act 1978 Under this Act, the court may ‘apportion’ liability between trustees who are ‘jointly and severally liable’ for the same breach of trust, according to whatever is ‘just and equitable’.

15.3.3 Indemnity

Note A trustee who is liable to the beneficiaries for breach of trust may claim an indemnity from a co-trustee if that co-trustee: (1) is a solicitor-trustee whose controlling influence over the other trustees resulted in the breach (see Re Partington, below); or (2) committed the breach fraudulently; or (3) exclusively benefited from the breach.

Re Partington (1887) A solicitor-trustee had a controlling influence over his co-trustee, the testator’s widow. The widow made an unauthorised investment in breach of her trust. Held the solicitor-trustee had misled the widow into making the investment. He would therefore have to indemnify the widow against her liability to the trust.

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Note It will not be presumed that a solicitor has a controlling influence (Head v Gould (1898)).

Chillingworth v Chambers (1896) CA The parties to this action were trustees of the same trust. The plaintiff was also entitled to a share as a beneficiary under the trust. Together, the trustees made certain authorised investments which proved to be inadequate. They were declared jointly and severally liable to account for the resultant loss to the trust. Held the whole of the plaintiff’s share as a beneficiary under the trust must be used, to whatever extent was necessary, to remedy the consequences of the breach of trust. The co-trustees of the trustee- beneficiary were said to have a ‘lien’ over the share of the trustee- beneficiary, because the co-trustees had never had a hope of benefiting from the breach, and because the trustee-beneficiary could not be heard to assert a claim to his beneficial share under the trust until such time as he had remedied the breach of trust. Re Towndrow (1911) A trustee who was entitled to a specific legacy under the trust of which he was a trustee misappropriated part of the residue of the trust fund. The residuary beneficiaries brought an action seeking to make good their loss out of the trustee’s legacy, which had since been assigned to a third party. Held the legacy and the residue were held upon entirely separate trusts, therefore the residuary beneficiaries could not take advantage of the principle that a trustee who had caused a loss to his trust could not assert his entitlement to a share in the trust fund. The trustee’s assignees took the legacy free from any equitable charge or lien in favour of the residuary beneficiaries.

15.3.4 Relief under s 61 of the Trustee Act 1925 Section 61 of the Trustee Act 1925 If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust ... but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter which he committed the breach of trust, then the court may relieve him either wholly or partly from personal liability for the same.

Marsden v Regan (1954) CA The defendant, the executrix of a will, committed a devastavit (a misapplication of the deceased’s estate, usually by paying legacies before debts). She had acted, throughout, on the advice of her solicitor and

172 Breach of Trust: Defences and Relief sought to be excused from liability on the basis that she had acted honestly and reasonably and ought fairly to be excused. Held that part of the judgment at first instance, in which the judge held that the defendant should be granted relief from liability, was upheld. The mere fact that she had acted on her solicitor’s advice would not of itself justify relief, but on the facts it had been reasonable for the trustee to follow her solicitor’s advice. The more difficult question was whether she ‘ought fairly’ to be excused. Evidence showed that she had paid off all the deceased’s business creditors apart from the landlord of the premises, without whose premises there would not have been any business at all. The Court of Appeal held that this question was a matter for the judge’s discretion, and there being no evidence that the judge had misdirected himself on that question, their Lordships chose not to disturb the conclusion of the judge at first instance that she should be granted relief. Q Could it be argued that s 61 introduces, by the back door, a tort like test of reasonableness into the determination of trustee liability? You should recall that the usual standard applied to trustees is that of ‘prudence’, not ‘reasonableness’ (see 11.2.2).

15.3.5 Impounding the beneficiary’s interest Section 62(1) of the Trustee Act 1925 Where a trustee commits a breach of trust at the instigation or request or with the consent in writing of a beneficiary, the court may, if it thinks fit ... make such order as to the court seems just, for impounding all or part of the interest of the beneficiary in the trust estate by way of indemnity to the trustee or persons claiming through him.

173 Part 5 Resulting and Constructive Trusts

16 Resulting Trusts

16.1 General

Note The ‘sulting’ in ‘resulting’ shares a common Latin root with the ‘sault’ in ‘somersault’. To ‘re-sult’ means, quite literally, to ‘jump back’. The etymology is highly informative. Take, first, the simple case where B delivers an asset to a stranger, A, in circumstances where A has given nothing in return and B has not specified upon what terms the transfer was made. We cannot tell to whom the asset belongs. Equity is said to ‘abhor’ such a vacuum in beneficial ownership and therefore presumes that the asset, although held by A, has ‘jumped back’ to B under a resulting trust. Take, secondly, the simple case where B delivers an asset to A, to be held on trust by A for a specific purpose. If that trust fails for some reason, perhaps because the purpose has become impossible to perform, who, in equity, will own the asset? Again, equity sees a resulting trust as the solution to the vacuum in beneficial ownership, and treats A as a trustee for B. According to orthodoxy, the first example illustrates a presumed resulting trust and the second illustrates an automatic resulting trust.

16.2 Presumed resulting trusts

16.2.1 The presumption of resulting trust on a voluntary conveyance

Note Where property (other than land) is transferred for no consideration to a person other than the wife or child of the transferor, the transferee is presumed to hold the property on a resulting trust for the transferor. This presumption of a resulting trust is theoretically based upon the presumed intentions of the transferor, but can also be seen as an

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application of the maxim that ‘equity will not assist a volunteer’ (see 4.2). The transferee, having given no consideration, is a mere volunteer. There is some authority for the view that the presumption does not arise in the case of a voluntary conveyance of land (s 60(3) of the Law of Property Act 1925) although this interpretation has been doubted.

Fowkes v Pascoe (1875) CA Mrs B purchased certain stock in the joint names of herself and P, the son of her daughter-in-law. On the same day, she purchased more of the same stock in the joint names of herself and a lady companion. Mrs B’s will left the residue of her estate to the daughter-in-law for life, thereafter for P and his sister equally. Held the presumption of a resulting trust had been rebutted by evidence that a gift had been intended. Mellish LJ could think of no other reason why Mrs B, who already owned £5,000 worth of the stock in her own name, should invest £250 in the joint names of herself and P on the same day as investing £250 in the joint names of herself and her companion. The facts were not consistent with an intention to subject the stock to trust. Re Vinogradoff (1935) Mrs V made a gift of £800 worth of stock into the joint names of herself and LJ, a granddaughter. On the question whether the property belonged to LJ after Mrs V’s death. Held it did not. The presumption of resulting trust applied and so the stock belonged to Mrs V’s estate. Abrahams v Trustee in Bankruptcy of Abrahams (1999) A wife paid £1 each week into a National Lottery syndicate under the name of the husband, from whom she had separated. The syndicate won. Held the right to winnings had the character of a property right, and that this right, though in the husband’s name, was presumed to be the wife’s under a resulting trust because she had contributed the winning £1.

Q How can the presumption of a resulting trust be reconciled with the fact that, in cases like Re Andrew’s Trust (see 3.2.1), a gift will be presumed unless there is sufficient evidence that the donor intended a trust? Note On the presumption of resulting trust, see, further, the Westdeutsche case (16.4).

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16.2.2 The presumption of advancement

Note Where a voluntary conveyance is made to the wife, fiancée or child of the transferor, or where the transferor is in loco parentis (‘like a parent to’) the transferee, there is a presumption that the transferor has made a gift for the advancement of the transferee. This presumption rebuts the presumption of a resulting trust. However, the presumption of advancement can itself be rebutted if there is evidence that the transferor did not in fact intend to make a gift to the volunteer transferee. However, to rebut the presumption of advancement this evidence must be such that the court may take it into account.

Gascoigne v Gascoigne (1918) Mr G purchased a leasehold in the name of his wife, Mrs G, with a view to protecting the lease from his creditors. Mrs G claimed the property as her own on the basis of the presumption of advancement. Mr G brought the present action against her to recover the property. Held Mr G could not rely upon evidence of his own fraud in order to rebut the presumption of advancement. The maxim ex turpi causa non oritur actio (‘no action may be founded upon a wrong’) was applied.

16.2.3 Purchase money resulting trust Lloyds Bank v Rosset (1991) HL Mr R had received a loan to buy a derelict house on the understanding that the house should be in his name alone. Mrs R did a limited amount of work towards the renovation of the house, in particular, she helped with the interior decorations. However, the vast bulk of the work was carried out by contractors employed and paid for by Mr R. Following matrimonial problems, Mr R left home, leaving his wife and children in the premises. The loan which Mr R had taken out was not, in the event, repaid. Consequently, the bank brought proceedings for possession. Mr R raised no defence to that action, but Mrs R did resist. She claimed to have a beneficial interest in the house under a trust. Held, to succeed, Mrs R would have to show that there had been some agreement (arising from express discussions between herself and her husband) that they were to share the property beneficially in equity. In the absence of evidence of such an agreement, a trust would not arise in her favour unless she had made direct contributions to the purchase price or mortgage repayments. Note Lord Bridge, who delivered the leading speech, appeared at times unclear as to whether a constructive trust or a resulting trust would arise in such a case. The better view is that a resulting trust is, analytically, the more appropriate here.

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16.2.4 Illegality and the presumption of resulting trust Tribe v Tribe (1995) A father transferred to his son shares in a company controlled by the father at at time when the company’s creditors were pressing for satisfaction of their debts. The transfer had been effected for a nominal consideration, which meant that if it had been relied upon in the event of the father’s bankruptcy, it would have been illegal as an attempt to defraud the father’s creditors. The question was whether, after the creditors had settled the claim, the father was able to reclaim the shares from his son under a presumed resulting trust. Held the resulting trust did not fail for illegality because it arose from a legal presumption, and the father had not needed to rely upon the illegality in order to assert his claim.

16.3 Automatic resulting trusts

Note For an introduction to the nature of this form of resulting trust, see 16.1.

Vandervell v Inland Revenue Commissioners (1967) HL In 1958, V, the controlling director and shareholder of VP Ltd, decided to give 100,000 shares in VP Ltd to the Royal College of Surgeons to found a chair in pharmacology. The shares were currently held by V’s bank under a bare trust for V. Accordingly, V directed the bank to transfer 100,000 shares to the RCS. It was intended that the RCS should keep the shares for a limited period only, and should relinquish them after receiving £150,000 income on the shares by way of dividends. To ensure that the RCS did not keep the shares forever the RCS, upon receipt of the shares, executed an option in favour of a trustee company set up by V. The terms of the option provided that the RCS must transfer the shares to the trustee company upon receipt of a payment of £5,000 from the trustee company. By 1961, the RCS had received over £150,000 in dividends from the shares and so the trustee company exercised the option to repurchase the shares for £5,000. The present action was brought by the IRC to recover tax from V which had been assessed on the dividends for the period between 1958 and 1961. The question therefore arose whether V had owned the shares during the period in which the dividends were declared. The IRC argued that V, in directing the bank to transfer the shares to the RCS, had tried to dispose of his equitable interest in the shares, but had failed to do so because the disposition had not been made in writing and therefore had failed to satisfy the formality requirement in s 53(1)(c) of the Law of Property Act 1925 (2.2.1).

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Held s 53(1)(c) did not apply to these facts. That section only applied to cases where the equitable interest in property had been disposed of independently of the legal interest in that property. The object of s 53(1)(c) was to prevent hidden oral transactions in equitable interests which might defraud other parties (such as the Inland Revenue). In cases, such as the present, where the equitable owner had directed his bare trustee to deal with the legal and equitable estates simultaneously, s 53(1)(c) had no application. However, the decision in the present case ultimately went in favour of the IRC for other reasons. Three out of the five law lords held that the option had been held by the trustee company upon unspecified trusts. According to the maxim ‘equity abhors a vacuum’, the option could not be permitted to merely ‘remain in the air’, their Lordships therefore held that the benefit of the option must have been held by the trustee company under a resulting trust for V. In failing to specify trusts of the option, V had failed to divest himself of his equitable interest in the option, it followed that he had also failed fully to divest himself of his equitable interest in the shares which were the subject of the option. In the result, therefore, V was liable to pay tax on the dividends declared on the shares. Re Vandervell’s Trusts (No 2) (1974) CA In 1965, V executed a deed transferring to the trustee company all or any right, title or interest which he might have in the option (see Vandervell v IRC, above), to be held by it on trust for V’s children according to the terms of an existing settlement. V died in 1967. His executors brought this action against the trustee company, claiming that V had owned the shares for the period between 1961 and 1965. The IRC was joined to the action and sought to recover tax from V’s estate for the period between 1961 (when the option was exercised) and 1965 (when V executed the deed divesting himself entirely of his equitable interest). The trustee company claimed that the shares should be treated as belonging to the children’s settlement. Held, upon the exercise of the option by the trustee company in 1961, using £5,000 from the fund of the children’s settlement, and in accordance with the company’s intention, and V’s evinced intention, that the shares should be thereafter held for the benefit of the children’s settlement, the trustee company did indeed hold the shares on the trusts of the children’s settlement. Accordingly, the shares did not form part of V’s estate and his estate could not be taxed for the period 1961 to 1965. Lord Denning MR stated that when the option was exercised the ‘gap in the beneficial ownership’ came to an end. The resulting trust under which the shares had previously been held for the benefit of V ceased to exist upon the exercise of the option and the registration of the shares in the name of the trustee company. Following Milroy v Lord (see 4.3.1), V and the trustee company had, after the exercise of the option, ‘done everything which needed to be done to make the settlement of these shares binding upon them’. Lord

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Denning MR stated, further, that even if V had retained an equitable interest in the shares after the exercise of the option he would have been estopped from asserting his entitlement to those shares as against his children. He could not claim to own the shares after having done everything possible to give them away to the trustees of the children’s settlement. Note There are arguably several points of inconsistency between the judgment of Lord Denning MR and the reasoning of the House of Lords in Vandervell v IRC. For example, Lord Denning MR held that, in 1961, V intended to divest himself, and did indeed divest himself, of his equitable interest in the shares, despite the fact that V had not realised, until the decision of the House of Lords in Vandervell v IRC that he had any equitable interest in the shares!

Q Does the distinction between presumed and automatic trusts appear to you to be a logical one to make? In which category would the trusts in the following cases belong? Morice v Bishop of Durham (6.1); Re Gillingham Bus Disaster (6.6); Re Abbott (3.2.1); Re Osoba (1.2.4); Re West Sussex (6.6).

16.4 A new orthodoxy for resulting trusts? Westdeutsche Landesbank Girozentrale v Islington London Borough Council (1996) HL The parties entered a 10 year interest swap agreement based on a notional sum of £25 m. (Under such an agreement, one party pays a fixed rate of interest on the sum, the other party pays a variable rate of interest on the sum). Ancillary to the agreement, the bank paid £2.5 m to the council. The council paid ‘interest’ to the bank under the interest swap agreement. Subsequently, the divisional court of the Queen’s Bench Division held, in another case, that interest swap agreements were ultra vires the authority of councils. The council in the instant case therefore made no further payments under the agreement. The bank brought this action to recover the balance of the £2.5 m, plus interest. The judge, at first instance, awarded judgment to the bank for the principal sum plus compound interest. The Court of Appeal dismissed the council’s appeal. It brought a further appeal against the award of compound interest. Held, in the absence of fraud (or the possibility that a fiduciary may have misapplied property so as to give rise to a personal profit), equity would not award compound interest. The recipient of moneys under a contract subsequently rendered void for mistake or as being ultra vires did not hold those moneys on a resulting trust, and it would be undesirable so

180 Resulting Trusts to develop the law of resulting trusts, since to do so would give the claimant a proprietary interest in the moneys and produce injustice to third parties and commercial uncertainty. The council was not a trustee or other fiduciary of the monies, therefore the proper award was of simple interest only. It was further held by a majority of 3:2 that a claim based on an ultra vires contract for moneys had and received was not based on an implied contract or an equitable proprietary claim, but was a personal action based on total failure of consideration. This common law personal action gave rise to an award of simple interest only. Lord Browne-Wilkinson was of the opinion that a resulting trust solution would be inappropriate for a number of reasons, including: the lack of an identifiable fund and the unfair advantage to the payee in the event of the insolvency of a defendant in the council’s position and, perhaps most significantly, the recipient would become a trustee unknowingly, the trust being established before the mistake is recognised which renders the contract void in the first place. His Lordship’s speech is most notable for the comprehensive taxonomy of resulting trusts which is set out in it. Although his analysis could strictly speaking be regarded as obiter dicta, it will doubtless be treated as binding law by lower courts, coming as it does from our most senior judge of the Chancery Division. Note the following extract from his speech: Under existing law, a resulting trust arises in two sets of circumstances: (a) where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions ... (b) Where A transfers property on express trusts, but the trusts declared do not exhaust the whole of the beneficial interest ... Both types of resulting trust are traditionally regarded as examples of trusts giving effect to the common intention of the parties. A resulting trust is not imposed by law against the intentions of the parties (as a constructive trust) but gives effect to his presumed intention. Later in his speech, his Lordship stated that there will be no trust unless the conscience of the trustee is affected and ‘unless and until the trustee is aware of the factors which give rise to the supposed trust, there is nothing which can affect his conscience’. There is, therefore, no place for cases where the trust property is incompletely disposed of in circumstances which the parties could not have foreseen, and could not have intended (so called ‘automatic resulting trusts’, see 16.3). His Lordship preferred property to pass to the Crown in any case where the donor had clearly intended to part outright with property and that intention had failed in some unforeseen way.

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Incidentally, Lord Browne-Wilkinson accepted that ‘the presumption of resulting trust is rebutted by evidence of any intention inconsistent with such a trust, not only by evidence of an intention to make a gift’ (see 16.2.1). Note Lord Millett has recently breathed new life into the ‘automatic resulting trust’, despite Lord Browne-Wilkinson’s suggestion that it has no place in the orthodox scheme according to which all resulting trusts are presumed to arise according to the settlor’s intentions. In Air Jamaica (see 5.6), Lord Millett stated that: ‘Like a constructive trust, a resulting trust arises by operation of law, though unlike a constructive trust it gives effect to intention. But it arises whether or not the transferor intended to retain a beneficial interest – he almost always does not – since it responds to the absence of any intention on his part to pass a beneficial interest to the recipient. It may arise even when the transferor positively wished to part with the beneficial interest.’

182 17 Constructive Trusts

Note There is an ongoing debate as to whether constructive trusts are created by the courts, or merely recognised by the courts. In other words, do constructive trusts arise by way of remedy, or in the nature of an equitable ‘right’ (see Re Sharpe, 17.2). Another burning question is the nature of the obligations and liabilities of a constructive trustee (see Lonrho plc v Fayed (No 2), 17.2). In particular, when a stranger is held liable ‘as a constructive trustee’, does this give the ‘beneficiary’ of the trust a proprietary right against property held by the stranger, or merely a right against the stranger personally? (See 17.4.)

17.1 Constructive trusts of land Bannister v Bannister (1948) CA D agreed to sell her cottage at an undervalue to her brother-in-law, P, in reliance upon P’s oral assurance that D would be able to live in the cottage rent free for the rest of her life if she so desired. P later attempted to evict D. Held P held the house on constructive trust for himself and for D for her life. (Note that the reasoning might have been different today. Under s 1(1) of the the Contracts (Rights of Third Parties) Act 1999, a person who is not a party to a contract may in his own right enforce a term of the contract if the contract expressly provides that he may, or the term purports to confer a benefit on him.) Protheroe v Protheroe (1968) CA A leasehold was bought in the name of Mr P, Mrs P having contributed the deposit out of her own monies. Mr P paid the purchase expenses and the mortgage instalments on the property. Ten years later, the parties having separated, Mr P paid a lump sum for the freehold of the property. Mrs P claimed an equal share in the freehold. Mr P argued that her interest should be limited to her interest in the leasehold. Held Mrs P was entitled equally to the freehold of the property subject to the prior reimbursement to the husband of his payments under the mortgage and the legal expenses he had incurred in connection therewith. Following the case of Keech v Sandford (1726), Lord Denning held that there

183 BRIEFCASE on Equity and Trusts was a long established rule of equity that a trustee of a lease, who purchases the freehold reversion to that lease, automatically holds the freehold subject to the same trusts as the lease. This trust was a form of constructive trust. Peffer v Rigg (1977) Title to the land was registered. Mr P and Mr R purchased a house as an investment and in order to accommodate a relative. The house was registered in Mr R’s sole name, but it was agreed that he would hold the legal title on trust for himself and Mr P as tenants in common in equal shares. This arrangement was confirmed by an express deed of trust at a later date. On their divorce, Mr R transferred the house to Mrs R for £1, as part of the divorce settlement. Mrs R was, accordingly, registered as sole proprietor. She was fully aware, throughout, of the trust in favour of Mr P. Unfortunately, Mr P had failed to protect his interest on the register and so the question arose whether Mrs R was bound by his interest. Held (inter alia) Mrs R had known that the property she had received was trust property. She would therefore be liable as a constructive trustee, on normal trust principles, to account to the plaintiff for his share of the property. Q A prequisite to the creation of an express trust is proof that the settlor certainly intended to create a trust. How central is the settlor’s intention to resulting and constructive trusts?

17.2 Constructive trusts: rights or remedies? Re Sharpe (A Bankrupt) (1980) Mr S, Mrs S and an elderly aunt, J, lived together in leasehold premises which were held in the name of Mr S. J had contributed the majority of the purchase price of the lease. In providing the money, J had been told that she would be permitted to reside in the premises for so long as she wished. Upon Mr S being declared bankrupt, the trustee in bankruptcy took out a summons for possession of the premises. Held possession was denied. J did not have an interest in the land under a resulting trust because she had given her money by way of loan, not gift. The terms of the loan gave her the contractual right to reside in the premises until the loan had been repaid, but such a right would not bind the trustee in bankruptcy. However, J’s right of occupation did confer on her a right in the property under a constructive trust. Browne-Wilkinson J acknowledged that he had recognised J’s constructive trust interest because ‘to hold otherwise would be a hardship to the plaintiff’. He stopped short, however, of treating ‘constructive trusts’ as a mere remedy

184 Constructive Trusts which the court could impose to address injustice: ‘... it cannot be that the interest in property arises for the first time when the court declares it to exist. The right must have arisen at the time of the transaction in order for the plaintiff to have any right the breach of which can be remedied’. Halifax Building Society v Thomas (1995) CA A mortgagee, after its loan had been fully repaid, claimed the surplus proceeds of sale of the morgagor’s property. The claim was brought on the basis of a constructive trust arising because the mortgage loan had been obtained by fraud. Held the mortgagee’s claim failed because the fraudulent borrower had not been unjustly enriched at the morgagee’s expense. It seems clear from the judgments in this case that, even when English courts eventually recognise a constructive trust on the basis of unjust enrichment, it will only be where the enrichment of the defendant had been at the plaintiff’s expense (so called ‘subtractive unjust enrichment’). Banner Homes Group plc v Luff Developments Ltd (No 1) (2000) CA L agreed in principle with B that they would create a new joint venture company in order to purchase a commercial site. They agreed to take equal shares in the new company. On that understanding, L purchased S Ltd (a new company) for use in the joint venture. Later, L began to have doubts about the proposed joint venture and started looking for a new partner. It did not tell B, fearing that B might put in an independent bid for the commercial site. B continued to act on the footing that the joint venture would proceed, always anticipating that B and L would enter into a formal agreement setting out the terms of the joint venture. S Ltd eventually acquired the site with funds provided by L, and only then did L inform B that the proposed joint venture would not be going ahead. B contended, inter alia, that it was entitled to half the shares in S Ltd under a constructive trust. Held (allowing the appeal) an equity arose because it would have been inequitable to allow L to claim, outright, a site which it had acquired in furtherance of the non-contractual, pre-acquisition understanding that it would be held for the joint benefit of L and B. The court would have held otherwise if L had informed B soon enough to avoid advantage to L and detriment to B. Their Lordships held that in many cases the advantage/detriment would be found, as in this case, in the undertaking of the non-acquiring party (B in this case) not to make an independent bid for the site. Their Lordships did stress, however, that it was not necessary that there should be both an advantage and a detriment, although the two would normally go hand in hand. The advantage to L in the instant case was not merely the knowledge that B would not make an independent bid, but the comfort of knowing that B would support L in acquiring a site

185 BRIEFCASE on Equity and Trusts which L had originally been wary of purchasing at its sole risk. (Pallant v Morgan (1952) applied.)

17.3 The obligations of a constructive trustee Lonrho plc v Fayed (No 2) (1992) The plaintiff, a large shareholder in Co A, had given an undertaking to the Secretary of State for Trade and Industry that it would not acquire more than 30% of the shares in Co A. It therefore sold its shares in Co A to Co B, hoping thereby to be released from its undertaking, so as to enable a future takeover of Co A. However, having received the shares in Co A, Co B went on to acquire more than 50% of the shares in Co A. The plaintiff was subsequently released from its undertaking, but by then it was too late to acquire a majority shareholding in Co A. The plaintiff claimed, inter alia, that Co B held the shares in Co A on trust for the plaintiff because they had been acquired by the fraud of Co B. Held a contract obtained by fraudulent misrepresentation is voidable, not void, even in equity. The representee (the claimant) may elect to avoid it, but until he does so no fiduciary relationship arises and the representor (B Co) cannot be a constructive trustee of the property transferred pursuant to the contract. Even if a constructive trust is established, ‘it is a mistake to suppose that in every situation in which a constructive trust arises the legal owner is necessarily subject to all the fiduciary obligations and disabilities of an express trustee’, per Millet J. In the present case, there was no constructive trust because the plaintiff had demonstrated only that the company might have been acquired by fraud, it had not shown that it would be unconscionable for its interest to be denied. Paragon Finance plc v DB Thakerar & Co (A Firm) (1999) CA The defendant was entitled to pay receipts into his own account, mix them with his own money, use them for his own cash flow, deduct his own commission and account for the balance to the claimant only at the end of the year. Held such a defendant will not be a constructive trustee in the event of failure to account, even if he is in a fiduciary relationship (for example, a solicitor/client) with the person to whom he must account. It is fundamental to the existence of a trust that the trustee is bound to keep the trust property separate from his own and apply it exclusively for the benefit of the beneficiary. Any right on the part of the defendant to mix the money which he received with his own and use it for his own cash flow would be inconsistent with the existence of a trust. So would a liability to account annually, for a trustee is obliged to account to his beneficiary and pay over the trust property on demand.

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17.4 Strangers as constructive trustees

Note A ‘stranger’ is any person who has not been expressly appointed as a trustee to a trust and is not a beneficiary thereunder. Strangers who frequently have dealings with trusts include solicitors, stockbrokers, bankers, company directors and other agents. Actions against strangers have become very popular, especially in cases where the principal trustee is for some reason (often insolvency) not worth suing.

Note The liability of a stranger who has held, but no longer holds, any property subject to the trust (and who, perhaps, has never held property subject to the trust at all – see 17.4.2), may nevertheless be liability ‘as a constructive trustee’. So, for instance, the stranger will potentially be liable, like an express trustee, to account for trust monies which had at one time been in his hands, and to pay compound interest on those sums. It is important to grasp, however, that in such a case the liability is merely ‘analogous’ to that of a trustee. The beneficiary’s claim against the stranger is merely a claim against the stranger personally. Unlike the claim of a beneficiary against a trustee who still holds trust property, it will not rank ahead of the claims of other personal creditors in the event of the stranger’s insolvency.

17.4.1 Trustees de son tort

Note In Mara v Browne (1896), Smith LJ stated that ‘if one, not being a trustee and not having authority from a trustee, takes upon himself to intermeddle with trust matters or to do acts characteristic of the office of trustee, he may thereby make himself what is called in law a trustee of his own wrong – that is, a trustee de son tort, or, as it is also termed a constructive trustee’.

17.4.2 and knowing assistance

Note Liability for knowing assistance has now been superseded by liability for (see Royal Brunei Airlines v Tan, below).

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Barnes v Addy (1874) A, the sole surviving trustee of a trust wished to appoint B to be sole trustee of one-half of the fund. A solicitor advised against the appointment but nevertheless prepared the deed of appointment according to A’s instruction. B’s children brought the present action against A, and against the solicitor. Held, as the solicitor had no knowledge of, or any reason to suspect, a dishonest design on A’s part, and as he had not received the trust property, the action against him would be dismissed. ‘Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But ... strangers are not to be made constructive trustees merely because they act as the agents of trustees ... 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’ (emphasis added). Selangor United Rubber Estates Ltd v Cradock (1968) The plaintiff company was in liquidation and the present action was in fact brought by the Board of Trade on the company’s behalf. C had persuaded a bank to pay a banker’s draft to him out of a company’s account, supposedly to finance a takeover of that company. C intended to receive monies from the company which would more than repay the draft. The take-over having been completed, the new board of directors issued a cheque in favour of a third party by way of a loan. This third party then endorsed the cheque over to C who was, accordingly, able to repay the original draft at the bank. It was never suggested that the bank had acted dishonestly in assisting C to illegally purchase the company’s shares with the company’s own monies. Held the bank was liable as a constructive trustee based on its knowing assistance in C fraudulent breach of his fiduciary duty. Carl Zeiss Stiftung v Herbert Smith & Co (1969) CA This action was brought against one of the United Kingdom’s largest solicitors’ firms alleging that fees which the firm had received from a West German company comprised property which the West German company held in trust for an East German company. Both of the German companies had been involved in litigation to decide which was entitled to the property.

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Held the solicitors’ firm had actual knowledge of the claim made by the East German company, but knowledge of a claim that a trust existed was not enough to found liability as a constructive trustee on the basis of knowing assistance. United Mizrahi Bank ltd v Doherty (1997) Solicitors acting on behalf of the defendant to an action for breach of trust wished to claim fees from their client, but were concerned that they may thereby be liable for knowing receipt of trust monies. Held (Carl Zeiss Stiftung (see above) considered) it could not be right for solicitors to be looking over their shoulders when acting for a defendant in a suit for breach of trust. However, the learned judge stopped short of sanctioning in advance an act by the defendant solicitors which would allow them to take their own fees out of the monies claimed by the plaintiff. The solicitors would have to take the risk (albeit not very great) that the defendants might lose and the solicitors be found liable for knowing receipt of trust monies applied in breach of trust. Belmont Finance Corp Ltd v Williams Furniture Ltd (1979) CA The plaintiff claimed that the defendant company had knowingly assisted in the misappropriation, by some of Belmont’s directors, of monies belonging to Belmont. The plaintiff sought to fix the defendant with liability as a constructive trustee. Held the action could not succeed with the pleadings in their present form as there had not been a specific allegation that the defendant had been aware of the dishonest nature of the misapplication of the monies. Baden Delvaux and Lecuit v Société Generale (1983) The plaintiffs (Baden and others) were liquidators of various investment funds. They brought this action to recover their clients’ monies which the defendant bank had misapplied by transferring them electronically to a Panamanian bank. The monies had been dissipated after their arrival at the Panamanian bank. Held the defendant was not liable as a constructive trustee on the basis of ‘knowing assistance’ because it did not know at the time of the transfer to Panama that the former directors of the investment fund had been involved in a dishonest and fraudulent design. Peter Gibson J stated that there are four elements to liability for ‘knowing assistance’: (1) existence of a trust (which need not mean a ‘formal’ trust); (2) existence of a dishonest and fraudulent design on the part of the trustee of that trust; (3) the assistance by the stranger in that design; and (4) the knowledge of the stranger. ‘Knowledge’ for this purpose can comprise any one of five different mental states: (i) actual knowledge; (ii) wilfully shutting ones eyes to the obvious; (iii) wilfully and recklessly failing to make such

189 BRIEFCASE on Equity and Trusts inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry. Re Montagu’s Settlement Trust (1987) The 11th Duke of Manchester brought this action against the trustees of a family settlement set up by the 10th Duke, claiming that they had breached their trust in releasing certain trust assets to the 10th Duke, despite knowing that they were subject to the settlement. Action was also brought against the 10th Duke who, on the advice of his solicitor, had sold some of the property. It was sought to show that the 10th Duke was liable as a constructive trustee of the assets. Held the trustees were liable for breach of trust, having transferred the properties to the 10th Duke. However, the 10th Duke was not liable as a constructive trustee because, even if he had known about the trust at some time in the past (which was not shown) there was no evidence to show that he now remembered about it. He could not be liable for ‘knowing’ receipt or assistance if he had genuinely forgotten that which he might once have known. Agip (Africa) Ltd v Jackson and Others (1989) A senior officer of A Ltd innocently signed a payment order which was then forged and used by a fraudulent accountant in the employ of A Ltd. The accountant took the order to a Tunisian bank, who in turn requested a payment from Lloyds Bank plc, in accordance with the terms of the order. Lloyds Bank then made a payment over to the defendants’ account, believing that it would be reimbursed by the recipient’s New York bank. In doing so Lloyds took a delivery risk, as the New York bank had not yet opened for business. By the time the plaintiff had discovered the fraud it was too late to stop the payment; neither could a refund be obtained from the defendants. The defendant claimed that they had acted innocently throughout and that the Tunisian bank, and not the plaintiff, was entitled to bring the action. Held the defendants were not liable for ‘knowing receipt of trust property in breach of trust’ because some of the defendants had never received any of the property at all, and those that had received the property had not received it for their own benefit. However, they would be liable for ‘knowing assistance in a dishonest and fraudulent design’. Millet J stated that ‘the true distinction is between honesty and dishonesty, and not between various levels of knowledge’. Applying this test to the defendants, it was held that their indifference as to the true state of affairs was not honest behaviour. (As to the ‘tracing’ issues raised by this case, see 18.1.) Incidentally, Millet J, speaking obiter, distinguished cases where a person has received for his own benefit trust property transferred to him

190 Constructive Trusts in breach of trust (a proper case of ‘knowing receipt’), from cases where a person, usually an agent, receives trust property lawfully and then proceeds to deal with it in a manner inconsistent with the trust (a case of ‘inconsistent dealing’). In both cases the stranger will be liable to account as a constructive trustee. Lipkin Gorman (A Firm) v Karpnale Ltd (1992) CA Cass, a partner in a firm of solicitors (the plaintiffs), had used monies from the firm’s client account in order to gamble at the ‘Playboy’ casino (run by the first defendant, Karpnale Ltd). In addition to the action brought against the casino, the firm sued the bank, alleging that it had knowingly assisted in Cass’s dishonest and fraudulent design. Held (Nicholls LJ dissenting) the bank’s duty to pay cheques signed in accordance with its mandate had to be performed without negligence and given that there had been no finding of negligence there could not be, on the present facts, a finding of liability as a constructive trustee. Eagle Trust plc v SBC Securities Ltd (1992) The defendant company had underwritten the finance for a take-over bid being undertaken by the plaintiff company. The chief executive of the defendant company had then arranged to sub-underwrite its liability. The present action was brought by the plaintiff to recover monies which the chief executive had fraudulently used to clear personal, and other, debts arising out of the sub-underwriting arrangements. The plaintiff sought to fix the defendant with liability as a constructive trustee on the basis that it should have been aware that the executive would draw on the plaintiff’s monies in order to clear his debts, and that the defendant should at least have made enquiries as to how the executive had managed to pay off his debts. Held in a commercial transaction where the defendant had received, but no longer held, misapplied funds, it had to be shown that the defendant had known that the monies had been misapplied in order to fix them with liability as a constructive trustee on the basis of ‘knowing receipt’ of trust property. ‘Knowledge’ in this context meant actual knowledge or wilfully shutting ones eyes to the obvious or wilfully and recklessly failing to make inquiries such as an honest and reasonable man would make. In short, knowledge, and not merely technical ‘notice’, had to be proven. As Vinelott J pointed out, ‘a man may have actual notice of a fact and yet not know it. He may have been supplied in the course of a conveyancing transaction with a document and so have actual notice of its content, but he may not in fact have read it’. It was stated further, per curiam, that it would not be possible to fix liability for ‘knowing assistance’ in a fraudulent breach of trust unless dishonesty or ‘want of probity’ could be shown on the part of the defendant. On the facts of the present case, there

191 BRIEFCASE on Equity and Trusts was no ground for making the defendant liable as a constructive trustee. The statement of claim was accordingly struck out. Cowan de Groot Properties Ltd v Eagle Trust plc (1992) Certain directors of ET plc sold company owned properties at a gross undervalue to P Ltd, a wholly owned subsidiary of CGP Ltd. Consequently, ET plc refused to complete the sale of one of the properties, and were sued by P Ltd. ET plc counterclaimed that CGP Ltd was liable as a constructive trustee for knowingly assisting in the ET plc’s directors’ fraudulent breach of trust. Held the breach had arisen out of a standard commercial transaction and therefore CGP plc would only be liable if it had actual knowledge of the fraudulent breach of trust, or had wilfully shut its eyes to it, or had wilfully and recklessly failed to make the sort of enquiries that an honest and reasonable person would have made. Its directors would not be required to have made enquiries as to why the properties were being offered at a very low price. The line should be drawn at the point where the price in question was indicative of dishonesty on the part of the directors of the vendor company, regard being had not only to the market value, but also to the terms and mode of sale. On that basis, the defendant was not liable as a constructive trustee. Polly Peck International plc v Nadir (1992) CA The administrators of PPI brought the present action against Nadir, the controlling shareholder of PPI, who, they claimed, had misapplied PPI funds. They also brought further action against the Central Bank of Northern Cyprus, through whose accounts the monies had passed. They sought to fix liability as a constructive trustee on the bank. Held the fact that the Central Bank knew that PPI was exchanging large sums of money into foreign currencies was not enough to put the bank on enquiry as to whether there had been improprieties in the nature of a breach of trust. The bank should have concluded that the monies belonged to Nadir or to the group of companies to which PPI belonged, but there was no basis on which to infer that the bank ought to have known that the monies were specifically PPI monies. The real question was whether the bank should have been ‘suspicious of the propriety of what was being done’. On that basis, the bank was not liable as a constructive trustee for ‘knowing assistance’. Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming (1995) PC An insolvent travel agency owed monies (ticket receipts) to the plaintiff airline, and held those monies on an express trust for the airline. The present action was brought against the principal director/shareholder of the travel agency. The plaintiffs sought to fix the defendant with liability

192 Constructive Trusts as a constructive trustee on the basis of the defendant’s knowing assistance in a dishonest and fraudulent design. The ‘design’ was the use of the airline’s monies by the travel agency for its own business purposes in breach of the trust under which those monies were held. Held the defendant would be liable on the basis of his dishonest assistance in, or procurement of, the breach of trust. Lord Nicholls observed disapprovingly that courts had restrained themselves within the ‘straitjacket’ of Lord Selborne’s dictum in Barnes v Addy (see above), with the result that liability for ‘knowing assistance’ had been confined to cases where the original trustee had been dishonest. His lordship considered the hypothetical case of an innocent trustee who is deceived into breaching his trust by a dishonest stranger and asked whether it could be right for the stranger to escape liability in such a case. His conclusion was that the emphasis should be switched from the state of the trustee’s mind to that of the stranger. Liability should not depend upon the ‘Baden’ categories of knowledge (which his Lordship suggested should be forgotten), but upon whether the stranger had himself been dishonest. His Lordship made it clear that whereas dishonesty is a necessary and sufficient ingredient of accessory liability for breach of trust, ‘“knowingly” is henceforth better avoided as a defining ingredient’. An objective test of dishonesty should be adopted, although his Lordship appeared prepared, in determining ‘dishonesty’ to consider the stranger’s ‘personal attributes ... such as his experience and intelligence, and the reason why he acted as he did’. Brinks Ltd v Abu-Saleh and Others (No 3) (1995) B Ltd were the victims of a massive gold bullion heist in which a principal actor had been one of its own employees. In gross breach of his fiduciary duties to B Ltd, the employee had provided a key and photographs to the robbers. Another man, Mr E, had carried £3 m of the stolen cash to Zurich and in the instant case Brinks claimed that his wife, who had accompanied her husband to Zurich, should be held liable in equity for assisting in the employee’s breach of trust. Held, in order for Mrs E to be liable in equity as an accessory to a breach of trust, it was necessary for her to have given relevant assistance in the knowledge of the existence of the trust or, at least, of the facts which gave rise to the trust. Q In this recent case, Rimer J has attempted, it seems, to re-introduce ‘knowledge’ as a defining ingredient of this head of liability. Was he right to do so, or is it sufficient for ‘knowledge’ to simply be one factor which informs the more important question whether the stranger was dishonest or not?

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HRT Ltd and Others v J Alsford Pension Trustees Ltd and Others (1997) This case concerned a pension fund fraud. Royal Brunei v Tan was followed. However, Lindsay J voiced concern in relation to establishing dishonesty in commercial contexts. Lord Nicholls, in Tan, in attempting to capture ‘the flavour’ of dishonesty, had approved the formulation of Knox J in Cowan de Groot Properties ltd v Eagle Trust plc (1992), who had defined dishonesty as ‘commercially unacceptable conduct in the particular context involved’. Lindsay J, in the instant case, suggested that this formulation could be misunderstood: ‘It may, for example, be in one sense “commercially unacceptable” for a bank to lend money without security or without investigating the title to the security it is offered by its borrower. It may thus be “unacceptable” because too risky, but if the bank chooses to do so because, for example, it genuinely trusts the personal covenant of the borrower or is truly content to rely upon his assertion of his own beneficial title to the security he offers, that may involve conduct which is “commercially unacceptable”, if at all, only in relation to the bank’s own position.’ Heinl v Jyske Bank (Gibraltar) Ltd (1999) CA Between 1989 and 1991 Mr S, in fraudulent breach of his fiduciary duty to the bank, had caused it to pay away the equivalent of some £71.5 million. Most of the transactions pursuant to which the payments were made took the form of loans by the bank to companies which were the creations of Mr S and his associate, Mr M. The basis of the bank’s claims against Mr H was that he, knowing that more than £4.5 million of the bank’s moneys which passed through accounts under his control had been fraudulently extracted by Mr S, assisted in their misapplication. Mr H did not appeal against the judge’s finding that the moneys had come under his control and that he had assisted in Mr S’s by dealing with them in accordance with instructions from Mr S and Mr M and for their benefit. The appeal turned on whether Mr H had done so dishonestly or with the requisite degree of knowledge. His defence was that he had been informed and believed that the moneys were profits made by Mr M from property dealings in Spain. Held to establish a claim in equity to make good a loss against a person as a constructive trustee for dishonestly assisting breaches of fiduciary duty by a bank employee, the standard of proof of dishonesty, although not as high as the criminal standard, had to involve a high level of probability. An objective test of whether the person ought, as a reasonable businessman, to have appreciated that the bank’s funds were being fraudulently procured was not sufficient.

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17.4.3 Should procurement of a breach of trust be a tort?

Note It has long been accepted that procurement of a breach of contract is an actionable tort, a fact to which Lord Nicholls expressly refers in Tan. It might seem surprising, then, that his Lordship did not entertain the possibility of tortious liability for accessories to a breach of trust. The possibility was rejected by the Court of Appeal in the recent case of Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc (1989) because the area was ‘adequately covered’ by Barnes v Addy. Now that Tan has removed the ‘straitjacket’ of Barnes v Addy, could it be time to introduce tortious liability, rather than trust like liability, for accessories to a breach of trust? Put another way, does it not seem odd that strangers can become liable ‘as constructive trustees’, even though they have never held or controlled trust property?

195 Part 6 Tracing and Equitable Remedies

18 Tracing

Note Tracing is not a remedy, it is a technical process of following property through a series of transactions. If A successfully traces his property into the hands of B it may be that A will then be able to assert a right against B and the court might remedy the breach of this right by requiring some or all of the property to be returned to A. This ultimate remedy is known as restitution, and it is frequently the case that restitution is ordered on the basis that B is a constructive trustee of the property.

18.1 Tracing at common law

Note According to the orthodox view, a clear distinction must be drawn between tracing at common law and tracing in equity. After reading this chapter, you may agree with the growing number of academics and judges who believe this distinction to be without principled justification.

18.1.1 Property must be identifiable at every stage Banque Belge pour L’Etranger v Hambrouck (1921) CA H, a cashier, stole monies from his employer, BB. H paid them into a new bank account. He later made certain withdrawals and made payments to S, with whom he was living, S then paid these monies into her own deposit account. She spent the majority of the balance of this account. Only £315 remained in S’s account at the date of the court hearing. Held the bank was entitled to trace its money. The £315 could be identified as the product of, or substitute for, the original money. Agip (Africa) Ltd v Jackson and Others (1989) For the facts, see 17.4.2.

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Held, due to the fact that there had been no mixing of the plaintiff’s funds with funds of another person, the plaintiff would normally have been able to trace at common law. (Tracing at common law fails if the claimant’s monies have at some stage been mixed with the defendant’s monies or the monies of some other party.) However, the plaintiff would not be entitled to trace at common law in the present case because the monies had been transferred ‘telegraphically’ between the banks. Had a physical fund changed hands between the various banks and companies, common law tracing would have been possible because a physical asset, representing the plaintiff’s monies, would have been identifiable at every stage. As Millet J observed, ‘nothing passed between Tunisia and London but a stream of electrons’. Nevertheless, his Lordship held that this would not be an answer to the plaintiff’s (alternative) claim to be able to trace in equity (see below) into any property still being held by the defendants. The fraudulent accountant had owed the plaintiff a fiduciary duty, thus a fundamental prerequisite to tracing in equity had been established. It was further held that the defendants would be personally liable to account as constructive trustees for monies which the plaintiff had been unable to trace. This was because the defendants had knowingly assisted in a misapplication of the plaintiff’s property (see 17.4.2).

18.1.2 Defences to the restitutionary claim based on common law tracing

Note When a claimant attempts to trace at common law into funds or assets held by X, it will be a defence to the ultimate restitutionary remedy for X to show that they have given contractual consideration for the funds or assets, or that they have altered their position in good faith in reliance upon the receipt of the funds or assets.

Lipkin Gorman (A Firm) v Karpnale Ltd (1992) CA For the facts, see 17.4.2. Held the casino was liable under the common law action for money had and received. Further, because it could not show that it had given consideration for the monies it had received (gambling contracts being legally unenforceable), the club had been unjustly enriched and would have to account to the solicitors firm for trust monies received by it. However, the club did not have to pay back all the money which it had received; it was entitled to pay a sum net of winnings which it had paid out. This is because, by paying the winnings, the club had altered its position in good faith.

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18.1.3 Recent consideration of unjust enrichment and the change of position defence South Tyneside Metropolitan Borough Council v Svenska International plc (1995) Shortly after the plaintiff local authority had entered into an interest swap agreement with the defendant bank, it was established (in another case) that participation in such arrangements was outside the powers of local authorities. Accordingly, the bank refused to continue with the commercial arrangement. At the cessation of the arrangement, the bank owed the authority nearly £700,000. The local authority brought the present action to recover money had and received, on the basis of the defendant’s unjust enrichment. The defendant sought to show that it had a defence on the grounds that it had changed its position in good faith due to the receipt of the monies. Held (1) the bank had been unjustly enriched; and (2) on the facts of the present case, the bank could not rely upon the defence of change of position. As to (1), Clarke J stated that there had been unjust enrichment of the bank because it had received money which in equity belonged to the council and which both law and equity said should be repaid to the payer. His Lordship rejected the bank’s argument that it had not been unjustly enriched because it had made a loss on the transaction as a whole or because it had entered into a transaction which proved to be void. As to (2), his Lordship held that the bank could not rely upon this defence because to do so would be to permit the bank to rely, not upon the receipt of money, but upon the validity of a void transaction. Jones and Sons (A Firm) (Trustee of the Property of) v Jones (1996) CA The wife of one of the partners of a bankrupt firm of potato growers placed £11,700 from a joint bank account, held in the name of her husband and another partner, with brokers to invest in potato futures. When she ultimately realised her investment, it was worth £50,760. She placed this sum in a deposit account with ‘Raphaels plc’. The judge at first instance held that she had received the money in a fiduciary capacity and was a constructive trustee. Held (on appeal) the defendant was not a constructive trustee. She had neither legal nor equitable title to the property, but was merely the possessor of it. The plaintiff trustee in bankruptcy had to bring its claim at common law and trace his property into the proceeds of the defendant’s dealings, equity had no role to play. The chose in action constituted by the deposit of the trustee’s money with the brokers belonged to the trustee, it was not a right to the original deposit, but to the current balance of the account with the brokers. The defendant would be unjustly enriched were she able to retain the monies and the huge profits she had made on them.

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Millett LJ held that it would ‘be a mistake to suppose that the common law courts disregarded considerations of conscience’. He also held, crucially, that ‘there is no merit in having distinct and differing rules at law and in equity, given that tracing is neither a right nor a remedy but merely the process by which the plaintiff establishes what has happened to his property. The fact that there are different tracing rules at law and in equity is unfortunate though probably inevitable, but unnecessary differences should not be created where they are not required by the different nature of legal and equitable doctrines and remedies. There is, in my view, even less merit in the present rule which precludes the invocation of the equitable tracing rules to support a common law claim; until that rule is swept away, unnecessary obstacles to the development of a rational and coherent law of restitution will remain’.

18.2 Equitable tracing

Note Successful tracing at common law leads to a mere personal claim against the defendant. In contrast, successful tracing in equity leads to a right in specific property held by the defendant. The distinction becomes of utmost importance in the event of the defendant’s insolvency. The plaintiff with a mere personal claim against the defendant must join the queue of the defendant’s unsecured creditors, whereas the claimant with a proprietary right against the defendant’s funds or assets will rank ahead of the defendant’s general creditors (see 8.2).

18.2.1 Limitations on the right to trace in equity Re Diplock (1948) CA The executors of a will trust had distributed the residuary estate amongst a vast number of charities. However, the House of Lords later established that the original bequest had been invalid (see the Chichester case, 7.1). The plaintiffs brought an action against the executors, which was compromised. They then brought the present actions against a number of the charitable institutions to which monies had been paid by mistake. The beneficiaries had two types of claim: first, a claim in personam which every underpaid legatee has against overpaid beneficiaries or strangers to the estate; secondly, claims in rem, that is, tracing claims in equity. Held the claim in personam could, in principle, succeed against a volunteer such as the charities in the present case, however, the beneficiaries must first bring an action (as they did) against the executors who were responsible for the mistaken payment to the charities. The sums recovered from the executors should be applied rateably to reduce the

200 Tracing liability of the charities. The charities would not have to pay interest on the sums owed to the beneficiaries. The claims in rem (equitable tracing) also succeeded, even though the funds into which tracing had been carried out had been mixed by innocent parties (the charities). However, the charities were under no obligation to give priority to the plaintiffs’ claims. The charities would be entitled to assert their own claims to the mixed funds (comprising their monies and the plaintiffs’ monies) to the extent that it would not be unconscionable to do so. It was stated that equity will not permit a plaintiff to trace into property which has been purchased by the defendant in good faith and without notice of the plaintiff’s rights (see 1.1). Nor will equitable tracing be permitted where it would be inequitable. So, for instance, equitable tracing would not be permitted, in the present case, into property held by those innocent volunteers (charities) which had changed their position in good faith on account of the receipt of the property. Boscawen v Bajwa (1995) CA The registered proprietor of a property charged it to a building society and exchanged contracts for the sale of the property to purchasers who had obtained a mortgage offer from a bank. The bank transferred cash to the purchaser’s solicitors for the sole purpose of completing the purchase. The purchaser’s solicitors transferred the money to the vendor’s solicitors who then paid it on to the building society in repayment of the vendor’s mortgage arrears. The building society duly discharged the charge and forwarded the title deeds of the property to the vendor’s solicitors. However, the sale fell through. Later, the plaintiff, who was a judgment creditor of the vendor, obtained a charging order absolute against the property. The question was whether the plaintiff’s charge had priority to the equitable claim of the bank. Held as the bank’s money could be traced into the payment to the building society and had been used towards the discharge of the latter’s charge, the bank was entitled to a charge on the property by way of subrogation to the rights of the building society to the extent that the money had been used to redeem the charge and in priority to any interest of the plaintiff. Millet LJ rejected the plaintiff’s claim, based upon Re Diplock (see above), that the vendor and the bank had both contributed to the discharge of the building society’s charge, and should therefore be entitled to the property in proportion to their contributions, thus allowing the plaintiff to assert its charge against the vendor’s part. The present case, his Lordship declared, was very different to Re Diplock. In that case, an innocent volunteer had mixed trust monies with its own monies. In the present case, the vendor and his solicitors were not innocent volunteers, although it was true that their actions fell short of dishonesty (because the vendor had relied upon the solicitors, and the solicitors had honestly

201 BRIEFCASE on Equity and Trusts believed that completion was imminent). The vendor must have known that any monies received by his solicitors would represent the balance of the proceeds of sale due on completion. He cannot possibly have believed that he could, at one and the same time, retain possession of the property and use the proceeds of sale. Had he thought of the matter at all, he would have realised that the money was not his to mix with his own and dispose of as he saw fit. This was not wholly innocent behaviour and it followed that the more favourable tracing rules which are available to an innocent volunteer who inadvertently mixes trust money with his own could not be relied upon by the plaintiff in the present case. Note In Banque Financière v Parc (1998), the House of Lords approved Boscawen v Bajwa when confirming that subrogation could be used as a restitutionary remedy, and that it does not depend (unlike contractual subrogation) upon the intention of the parties. The appropriate questions to ask are: (1) was the defendant enriched at the claimant’s expense? And (2) are there policy reasons for denying the restitutionary remedy? If the first question is answered in the affirmative, and the second in the negative, restitution, the remedy, should prima facie be awarded.

Chase Manhattan Bank NA v Israel-British Bank (London) Ltd (1981) The plaintiff bank paid £2 m to the defendant bank by mistake. When the defendant bank obtained a winding up order the plaintiff bank sought to trace in equity to recover the sums that had been paid by mistake. Held the plaintiff had retained an equitable property right in the monies and would be able to trace in equity because that equitable right bound the conscience of the defendant bank. The fund to be traced need not (as was the case in Re Diplock) have been the subject of fiduciary obligations before it got into the wrong hands. It is enough that (as in Sinclair v Brougham (18.2.2)) the payment into wrong hands itself gave rise to a fiduciary relationship. Note It is clear that for equitable tracing to succeed the property which is being traced must at some time have been held by the defendant or his predecessors in a fiduciary (trust-like) relationship.

Note Equitable tracing will not be permitted where the claimant’s property has been dissipated or destroyed (Borden (UK) Ltd v Scottish Timber (1981) CA).

202 Tracing

18.2.2 Tracing into mixed bank accounts, mixed funds and assets bought with mixed funds

Note If a trustee places £10,000 of trust A into a current account which already holds £10,000 of trust B, and later withdraws £10,000 and spends it on a luxury cruise, who can claim the £10,000 left in the account? According to the rule in Clayton’s Case (1816), the first payment into a current account is deemed to correspond to the first payment out of the account. The beneficiaries of trust B will be able to claim the £10,000. Subsequent cases have sought alternatives to the manifest unfairness which flows from a strict application of the rule.

Re Hallett’s Estate (1880) CA A solicitor mixed trust monies with monies in his personal bank account. When the solicitor died, the beneficiaries under the trust sought to trace into the solicitor’s estate. The balance in his personal account was not sufficient to satisfy the beneficiaries and other creditors. Held the beneficiaries were successful with their equitable tracing claim. The general rule is that when a trustee disposes of trust property the beneficiary can take the proceeds of sale, and if the proceeds have been reinvested in new property the beneficiary can take the property or elect to treat the property as security for the amount of trust monies laid out in its purchase. But where, as here, a trustee has mixed trust monies with his own, the beneficiary can no longer elect to take the property, because it no longer represents pure trust monies, but is the exchange product of a mixed fund. The beneficiary can still, however, assert an equitable charge over the property for the value of the trust monies employed in the purchase of the property. Relying on the rule in Clayton’s Case (see above), Mr H’s general creditors attempted to defeat the beneficiaries’ claim to the property bought with the mixed fund by arguing that, because the trust monies had been paid into the mixed account first, they must be deemed to have been withdrawn first from the account. Jessel MR firmly rejected this argument. It is a ‘universal law’, he declared, that a trustee cannot be heard to say, against a beneficiary, that something has been done in breach of trust, when the facts can be read so as to show no breach at all. Accordingly, the trustee (solicitor) must be presumed to have withdrawn his own money first from the account. Sinclair v Brougham (1914) HL A building society was wound up leaving insufficient funds to satisfy the claims of all the customers, creditors and shareholders. Held, applying Re Hallett’s Estate, the assets remaining after the payment of external creditors must be treated as belonging to the depositors and shareholders equally, so that individuals could claim a rateable portion of

203 BRIEFCASE on Equity and Trusts the assets according to the amount they had deposited or invested with the building society. The rule in Clayton’s Case was not applied as it was not likely to achieve ‘substantial justice’. James Roscoe (Bolton) Ltd v Winder (1915) A company sold its business to W and one of the terms of the sale was that W would account to the company for certain sums received by him in satisfaction of the company’s book debts. In fact, when W received the payments which should have been used to clear the company’s debts, he paid them instead into his own private account. He then used the mixed monies from his account for his own private purposes, leaving a total balance, at its lowest, of only a few pounds. At a later date, W paid several hundred pounds into his account. Later still, W was declared bankrupt. The company brought the present action against the trustee in bankruptcy to recover the monies representing their book debts. Held the company could not trace into the final balance of W’s account, but would be restricted to tracing into the balance of the account at its lowest level, when it stood at only a few pounds. This conclusion was reached by extension of the principle established in Re Hallett’s that a trustee must be deemed to use his own monies first, with the result that the plaintiff’s claim must be presumed to be restricted to the lowest intermediate balance of the mixed account. This presumption could have been rebutted if W’s later payments into his account had been expressly ‘ear-marked’ by W as being for the benefit of the company. Barlow Clowes International Ltd (In Liquidation) v Vaughan (1992) CA An investment company went into liquidation leaving insufficient funds to satisfy the claims of all its investors. The judge at first instance held that investors should be able to trace into the funds on a ‘first in, first out’ basis, following the rule in Clayton’s Case. Held on appeal. The ‘first in, first out’ rule was a rule of convenience only and should not be applied in the present case because it would result in injustice and there was a practical alternative method of distribution, namely to allow the investors to claim shares of the fund pari passu (‘in proportion to’) the size of their original investments. Bishopsgate Investment Management Ltd (In Liquidation) v Homan (1995) CA The liquidators of the plaintiff company brought an action to try to establish an equitable tracing claim into the bank account of one of the insolvent Maxwell companies. The plaintiff’s monies had been paid into the bank account, but the account had later become overdrawn. Held the tracing claim must fail. It was not possible to trace through an account which had been overdrawn at the time of the payment into the account, or had gone overdrawn at a later date.

204 Tracing

18.2.3 Tracing into profits made on assets acquired with mixed funds Re Oatway (1903) A trustee mixed trust monies with the monies in his own private account and used the mixed fund to purchase shares as a personal investment. Later, the balance of his personal account was dissipated. The beneficiaries sought to trace into the shares bought with the mixed fund. Held the beneficiaries were permitted to trace in equity into the shares. They were granted a charge over the shares for the full amount owing to the trust (even though the shares were in fact at that time inadequate security for the charge). Re Tilley’s Will Trust (1967) The testator’s widow (who was the executor of the testator’s will trust) mixed the trust monies with her own. After the death of one of the beneficiaries (the testator’s daughter), her administrators brought the present action for an account against the estate of the widow who had also died in recent years. At her death, the widow’s account had been heavily overdrawn. Held tracing could not succeed on the facts, because the widow had paid in the beneficiaries’ monies in reduction of her overdraft. Ungoed Thomas J accepted obiter that if a trustee deliberately uses a mixture of trust money and his own money to buy property in his own name, the beneficiary should be permitted to adopt the purchase ‘and claim a share of any resulting profits’ to the extent to which the property had been bought with trust monies. Foskett v McKeown (2000) HL The issue was whether the claimant could trace into the proceeds of an insurance policy misappropriated funds which had been used to pay part of the insurance premium, and, if so, what they were entitled to recover. M misappropriated money entrusted to him by a number of purchasers for the purchase of land in Portugal. M used some of this money to pay part of the premium on a life insurance policy. However, prior to this, M had by deed divested the beneficial interest in the policy in favour of his three children. M later committed suicide. The claimant, who was one of the prospective purchasers, claimed to be entitled to the proceeds of the policy. Held the parties were entitled to the proceeds of the policy in the proportions in which those proceeds represented their respective contributions. Lord Millett held that: Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary 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

205 BRIEFCASE on Equity and Trusts

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 (whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset … The primary rule in regard to a mixed fund, therefore, is that gains and losses are borne by the contributors rateably. The beneficiary’s right to elect instead to enforce a lien to obtain repayment is an exception to the primary rule, exerciseable where the fund is deficient and the claim is made against the wrongdoer and those claiming through him.

206 19 Equitable Remedies

19.1 The equitable remedy of specific performance

Note Specific performance is an equitable remedy, granted by order of the court, which requires the defendant to do that which he has contracted to do in law. The claimant has no absolute right to the remedy, like all equitable remedies it is awarded in the court’s discretion. So, for instance, if a claimant has substantially breached a term of a contract they will not be awarded specific performance of that contract against the defendant, for ‘he who comes to equity must come with clean hands’. Further, specific performance will not be awarded when the remedy at common law (damages) is adequate. For this reason, a number of specific performance cases relate to land, for all land is unique and damages are presumed not to be an adequate compensation for breach of contract to convey land.

Hutton v Watling (1948) W’s contract to sell a dairy business to H contained the following provision: ‘... in the event of H wishing at any future date to purchase the property in which the business is situated H has the option of purchase at a price not exceeding £450.’ Seven years later, H purported to exercise the option. W resisted on the ground (inter alia) that the option was void for perpetuity (see 5.1). H sought specific performance of the option. Held the jurisdiction to grant specific performance of a contract for the sale of land is founded not on the equitable interest in the land which the contract is regarded as conferring upon the purchaser, but on the simple ground that damages will not be an adequate remedy. In other words, specific performance is merely an equitable mode of enforcing a personal obligation with which the rule against perpetuities has nothing to do. Beswick v Beswick (1968) HL Mr B gave his coal merchant business to his nephew, in consideration of which the nephew agreed to maintain Mr B’s widow after Mr B’s death in the sum of £5 per week. In due course, Mr B died and his widow sought to enforce the nephew’s promise. Held their Lordships granted the equitable remedy of specific performance of the contract in favour of the widow, because the defendant had received the whole benefit of the contract and as a matter of

207 BRIEFCASE on Equity and Trusts conscience the court would ensure that he carried out his promise so as to achieve ‘mutuality’ between the contracting parties. However, the widow could not enforce the contract in her own person, but only in her capacity as Mr B’s personal representative. The doctrine of privity of contract would not permit her to sue in her own right. Lord Reid acknowledged that had the case involved a trust for the benefit of Mrs B, as opposed to a contract for her benefit, she would have been entitled to sue in her own person. However, counsel for Mrs B did not argue that there was a trust, and so their Lordships restricted their deliberations to the contract issue. The fact that the widow was suing in her husband’s place meant that common law damages would have been merely nominal (the husband, being dead, had suffered no real loss) therefore, damages being inadequate, specific performance was ordered. Q Can you see how the enforcement of trusts can be distinguished from specific performance?

19.2 Equitable injunctions

Note The typical equitable injunction is almost, one might say, a court order for specific non-performance. Equitable injunctions typically order the defendant to refrain from doing such and such a thing, although they can be used to require the defendant positively and actively to undo a particular act (for example, to demolish a house which should never have been built). The former, and more usual, type of injunction is said to be ‘prohibitory’, the latter, ‘mandatory’. Injunctions may be perpetual or interlocutory (temporary injunction orders made before the final hearing of the matter). Like all equitable remedies, the injunction acts in personam (see 1.1) and thus will not bind third parties.

Section 37 of the Supreme Court Act 1981 (1) The High Court may by order (whether interlocutory or final) grant an injunction ... in all cases where it appears to the court to be just and convenient to do so. (2) Any such order may be made either unconditionally or on such terms and conditions as the court thinks just. (3) The power of the High Court under sub-s (1) to grant an interlocutory injunction restraining a party to any proceedings from removing from the jurisdiction of the High Court, or otherwise dealing with, assets located within the jurisdiction shall be exerciseable in cases where that party is, as well as in cases where is not, domiciled, resident or present within that jurisdiction.

208 Equitable Remedies

19.2.1 The quia timet injunction

Note The court will order an injunction to restrain a threatened infringement of the claimant’s legal rights, and is especially likely to do so where the defendant has infringed the claimant’s rights in a similar manner in the past. Quia timet means literally ‘because he fears’.

Redland Bricks Ltd v Morris (1970) HL R Ltd had excavated a pit near M’s land, causing M’s land to slip into the pit. The judge at first instance accepted evidence that further slipping was likely to occur and granted a quia timet injunction against R Ltd requiring R Ltd to restore support to M’s land. Held R Ltd appealed successfully against the injunction on the basis that it had not specified what R Ltd was required to do in order to support M’s land. Their Lordships stated certain principles governing the grant of injunctions. In particular, that a mandatory injunction should only be granted where the plaintiff shows a ‘very strong probability upon the facts that grave damage will occur to him in the future ... it is a jurisdiction to be exercised sparingly and with caution but in the proper case unhesitatingly’. Hooper v Rogers (1974) CA R bulldozed a deep track through land supporting H’s farmhouse. The track exposed the land to erosion by the weather and threatened an eventual collapse of H’s farmhouse. H brought an action for a quia timet mandatory injunction to provide support for the farmhouse (in fact, H claimed damages in the place of the injunction in order to effect the repairs himself). Held the mandatory injunction was ordered, there being no evidence that any other step would produce an equitable result. The degree of probability of future injury was not an absolute standard. The aim of the injunction should be to achieve justice between the parties in all the circumstances.

19.2.2 The freezing (formerly Mareva) injunction

Note This form of injunction is designed to prevent a defendant from dissipating assets in order to defeat a judgment of the court. The injunction is effective in personam against any person made a defendant to proceedings in an English court, and is not defeated by the mere fact that the assets subject to the injunction are based outside the jurisdiction of the English court, although the order is usually used to prevent assets from being taken outside the English jurisdiction.

209 BRIEFCASE on Equity and Trusts

Mareva Compania Naviera SA v International Bulk Carriers SA (1975) CA MCV owned a ship, the Mareva, which they let to IB on a charter bound for the Far East. IB subsequently sub-chartered the vessel to the president of India on a voyage charter to India. The Indian High Commission paid £174,000 into IB’s London Bank. Out of these monies IB paid two instalments of the fees they owed to MCV, but failed to pay a third instalment which had fallen due. The judge at first instance granted an injunction against IB in favour of MCV, with a view to preventing dissipation of the balance of monies in the London Bank. Held (per Lord Denning MR) the injunction was upheld on the basis that ‘it is only just and right that this court should grant an injunction’. His Lordship stated that if IB should have any grievance about the injunction when they came to hear of it, they would be permitted to apply to court to attempt to have it discharged. Derby & Co Ltd v Weldon and Others (Nos 3 and 4) (1990) CA The plaintiff sought a Mareva injunction against a number of defendants, including a Panamanian company and a Luxembourg company, neither of which appeared to have any assets within the UK. Held the purpose of the Mareva injunction was to prevent frustration of a court order and, although normally confined to assets within the jurisdiction, could be used in relation to foreign assets, subject to the ordinary principles of international law. Because the injunction operated in personam (against the defendant personally), it did not offend against the principle that courts should not make orders to take effect in foreign jurisdictions. Their lordships did suggest, however, that the existence of sufficient assets within the jurisdiction would be an excellent reason for refusing a worldwide injunction. Re BCCI SA (No 9) (1994) The BCCI group of banks collapsed as the result of fraud on the grand scale. A worldwide Mareva injunction was granted to the liquidators against a director and an employee of BCCI with a view to making them personally liable for the losses which (it was alleged) had resulted from their fraud. Held the injunction was granted. Generally, the claimant who is granted a worldwide Mareva injunction must undertake not to engage in vexatious proceedings against the defendant in arbitrary locations throughout the world, but liquidators were in a special position and need not give an undertaking or obtain the court’s consent before initiating proceedings in foreign jurisdictions. However, liquidators would be required to give an undertaking if, as here, it seemed prima facie oppressive that they would be free to initiate foreign proceedings.

210 Equitable Remedies

Lord Chief Justice’s Practice Direction as to the Standard Form Order for a Worldwide Mareva Injunction (1994) ... The terms of this order do not affect or concern anyone outside the jurisdiction of this court until it is declared enforceable or is enforced by a court in the relevant country and then they are to effect him only to the extent that they have been declared enforceable or have been enforced unless such person is: (a) a person to whom this order is addressed or an officer or an agent appointed by power of attorney of such a person; or (b) a person who is subject to the jurisdiction of this court and (i) has been given written notice of this order at his residence or place of business within the jurisdiction of this court and (ii) is able to prevent acts or omissions outside the jurisdiction of this court which constitute or assist in a breach of the terms of this order.

Mercedes-Benz AG v Leiduck (1995) PC M advanced $US20 m to L to facilitate the sale of cars in the Russian Federation by a Monaco incorporated company controlled by L. In breach of the agreement, L then misappropriated the monies and applied them in favour of a Hong Kong incorporated company controlled by him. A Monaco court ordered L to be taken into custody and froze those of L’s assets which were within the Monaco jurisdiction, but could make no order as to the assets in Hong Kong. Consequently, M applied ex parte (‘without joining the “defendant” as a party’) in the relevant Hong Kong court for a worldwide Mareva injunction restraining the defendant from dealing with the Hong Kong assets pending final resolution of the Monaco action. The question was whether the Hong Kong court could grant a Mareva injunction against a foreigner who was out of the Hong Kong jurisdiction, in support of an action underway in a foreign court. The defendant’s arguments amounted to this: that his assets were in Hong Kong, so the Monaco court could not reach them, and that he was in Monaco, so that the Hong Kong court could not reach him. Held, by the majority, whatever its precise status, the Mareva injunction is quite a different kind of injunction from any other, that it was in fact sui generis, and that it could not stand independently of a cause of action within the court’s jurisdiction. Lord Nicholls, dissenting, stated that ‘as the world changes, so must the situations in which the courts may properly exercise their jurisdiction to grant injunctions ... jurisdiction must be principled, but the criterion must be injustice. Injustice is to be viewed in the light of today’s conditions and standards, not those of yesteryear’.

19.2.3 The search (formerly Anton Piller) order Anton Piller KG v Manufacturing Processes Ltd (1976) CA AP Ltd, a German Company, claimed that MP Ltd, its English agent, had been passing on confidential information to certain of AP’s rival German

211 BRIEFCASE on Equity and Trusts companies. AP Ltd applied for an interim injunction to permit, inter alia, entry of MP’s premises to inspect documentation and to remove documentation to the custody of AP’s solicitors. AP undertook to issue a writ forthwith to support the action for breach of confidence and AP was granted its injunction. MP appealed. Held the appeal was allowed. Lord Denning MR held that, in very exceptional circumstances, where the plaintiff has a very strong prima facie case to show that the defendant has caused or will cause very serious damage to the plaintiff, and where there is clear evidence that the defendant possesses vital evidence which might be disposed of so as to defeat justice, the court could by order permit the plaintiff’s representatives to enter the defendant’s premises to inspect and remove such material. The order could in such very exceptional circumstances be made ex parte (that is, without the defendant’s presence at the hearing). The order so made is made, not under the statutory Rules of the Supreme Court, but under the court’s inherent jurisdiction. If such an order is granted the plaintiff must act carefully and with full respect for the defendant’s rights. Columbia Picture Industries Inc v Robinson (1986) CPI sought an Anton Piller order against an alleged ‘video pirate’ (a person who, according to the judge, ‘manufactures and trades in video cassettes which infringe the copyright in cinematographic films’). On one issue, the dispute ultimately came down to the films ‘For Your Eyes Only’ and ‘Star Wars’. The Anton Piller order was sought to authorise entry to the defendant’s house and to premises owned by companies controlled by him. Scott J gave some important guidelines on the application of Anton Piller orders. Held the decision whether an Anton Piller order should be granted required a balance to be struck between the plaintiff’s civil remedies for infringement of its rights and the requirement of justice that the defendant be not deprived of his property without a hearing. Therefore, the order should be limited to the preservation of articles or documents which might otherwise be destroyed or concealed. Thus, the plaintiff’s solicitors should photocopy confiscated documentation and return the originals to their proper owner. If there is some dispute as to the proper ownership of certain items, such as alleged pirate tapes, they should not be retained by the plaintiff or his solicitor, they should be passed, subject to an undertaking that they be produced in court, to the defendant’s solicitor. Where an Anton Piller order has been executed in an excessive and oppressive manner, the court may order aggravated damages against the plaintiff and possibly, since solicitors executing such orders do so as officers of the court, exemplary damages.

212 Glossary

Abbott Fund, Re Two old ladies Abergavenny’s (Marquess of), Re Advancement used up Abrahams, Re 25 year old infant? Abrahams v Trustee in Bankruptcy of Abrahams Lottery result Adams, Re Accidental residue Adams and the Kensington Vestry, Re Confidence in wife Adam & Co Ltd v Theodore Goddard Adam and God: two needed Agip v Jackson Tunisian bank Air Jamaica Ltd v Charlton Perpetual pension Andrews v Partington Close class gift Andrew’s Trust, Re Educate bishop’s children Anker-Petersen v Anker-Petersen 57 variation Astor, Re Observer newspaper Armitage v Nurse Exclusion clause AG v Blake Secret memoirs AG v Cocke No limitation for charity AG for Hong Kong v Reid Bribe

BCCI, Re Worldwide Mareva Baden’s DT, Re (No 1) Discretionary trust test made Baden’s DT, Re (No 2) Discretionary trust test used Baden v Société Generale Knowledge by degrees Bahin v Hughes No sleeping trustees Balfour’s Settlement, Re ‘Bal-forfeiture’ of protection Ball’s Settlement, Re Substratum test Banner Homes v Luff Developments Bent joint venture Bannister v Bannister Undervalued cottage

213 BRIEFCASE on Equity and Trusts

Banque Belge v Hambrouck Thieving cashier Banque Financière v Parc Subrogation remedy Barclays Bank v Quistclose Debt become trust Barings ST, Re Protection lost abroad Barlow Clowes v Vaughan Pari passu preferred Barlow’s WT, Re Painting friends Barnes v Addy Assistant and receipt Barralet v AG Ethical society Bartlett v Barclays Bank Guildford and Old Bailey Bateman’s WT, Re Sealed envelope Beckett’s Settlement, Re Discretion is only hope Bell’s Indenture, Re Toll at judgment day Belmont Finance v Williams Furniture Know no evil Berkeley Applegate, Re Do equity Best, Re Charitable and benevolent Beswick v Beswick Coal black widow Bishop v Bonham Mortgagee thinks fit Bishopsgate Investment v Homan Tracing overdrawn Bishopsgate Investment v Maxwell (No 2) Joint breach Blackwell v Blackwell The half secret five Boardman v Phipps Shrewd solicitor stung Boles and the British Land Company’s Contract, Re Sale after 12 years Borden v Scottish Products Nothing to trace Boscawen v Bajwa Subrogation Bowes, Re No trees please Bowman v Secular Society No political charity Boyes, Re Fully secret letters Bray v Ford Inflexible profits rule Brink’s v Abu-Saleh (No 3) Bullion heist to Zurich Bristol and West v Mothew Fiduciary defined British Coal v British Coal Staff Superannuation Scheme Trustee of own pension Brogden, Re £18,000 in 1888

214 Glossary

Bucks Constabulary Widows and Orphans Fund, Re Police widows and orphans Butterworth, Re Defraud creditors Buttle v Saunders Gazumped

Cannon v Hartley A party in deed Carl Zeiss v Herbert Smith Claim no knowledge Carreras Rothmans v Freeman Mathews Treasure Cigarette advertising Chapman v Chapman Compromise dispute Chase Manhattan Bank v Israel-British Bank Bankers’ expensive mistake Chichester Diocesan Fund v Simpson Charitable or benevolent Chillingworth v Chambers Re lien on trustee-beneficiary Churchill, Re Maintain intention Clayton’s Case First in, first out Clifford’s ST, Re Class in perpetuity Clore’s ST, Re Dad’s charity Cohen, Re Poor relations Cohen’s ST, Re No unborn variation Cole, Re Husband’s furnished flat Collard’s WT, Re Capital circular Columbia Picture v Robinson ‘Star Wars’ pirates Comiskey v Bowring-Hanbury Full confidence in wife Commissioners for Special Purposes of the Income Tax v Pemsel Four heads of charity Conservative and Unionist Central Office v Burrell Tory party club Cook’s ST, Re Rembrandt re-sold Corsellis, Re Hostile fees Coulthurst, Re Bankers’ widows Cowan v Scargill Arthur’s argument Cowan de Groot v Eagle Trust High bird, low price Coxen, Re Aldermen’s dinner Cradock v Piper Solicitor-trustee fees Cunnack v Edwards Widows all dead

215 BRIEFCASE on Equity and Trusts

Dale, Re Mutual will for others D’Angibau, Re Volunteer’s indirect benefit Danish Bacon, Re Pension nomination Davis v Richards and Wallington Surplus to employer Dawson, Re Sixty year old mum Dean, Re The horse and hounds Delamere’s ST, Re Indefeasible decision Delius, Re Composed charity Denley’s TD, Re Employees’ sports club Derby v Weldon (Nos 3 and 4) Panamanian Luxembourg Diggles, Re Desire of daughter Dimes v Scott No set off Dingle v Turner Poor employees Diplock, Re Recover from charity Douglas, Re Churchyard maintenance Dover Coalfield, Re Director’s profit authorised Downshire, Re No remoulding benefit Drexel Burnham Lambert, Re Trustee-beneficiaries approved Druce’s ST, Re Beneficiaries should apply Duke of Norfolk’s ST, Re Court authorised remuneration Dupree’s DT, Re Chess tournament Duxbury’s Settlement Trusts, Re Has to be public trustee

EVTR, Re Premium bond winner Eagle Trust v SBC Need naughty knowledge Edge v Pensions Ombudsman Impartial pension Edwards v Carter Infancy incapacity Endacott, Re Some useful memorial

Faraker, Re Mrs Bailey’s Charity Finger’s WT, Re Charitable purpose or person? Foskett v McKeown Suicidal policy Foster v Spencer That’s cricket Fowkes v Pascoe Paxo stock Frawley v Neill Proceeds without delay

216 Glossary

Fry, Re Treasury consent Fry v Tapson Londoner in Liverpool

GKN Bolts and Nuts Sports and Social Club, Re A wind up Gaite’s WT, Re Illegitimate child, legitimate gift Gascoigne v Gascoigne Improper use of wife Geering, Re Deferred contingent bequest Gibbon v Mitchell Surrender forgiven Gillingham Bus Disaster Fund, Re Cadets killed Gillott’s Settlement, Re Appoint a new husband Gilmour v Coats Cloistered nuns Gisborne v Gisborne Absolute discretion Goodchild v Goodchild Son claims mutual wills Golay’s WT, Re A ‘reasonable’ decision Goldcorp Exchange, Re Bullion customers Goulding v James Benefits of variation Grant’s WT, Re Labour party club Grey v IRC Six settlements Grove-Grady, Re Animal refuge Guild, Re Recreational charity Guinness v Saunders Guinness cost £5.2 m Gulbenkian’s Settlements, Re Individual ascertainability Gwyon, Re Knickers for boys

HRT v Alsford Pension Trustees Pension fraud Hadden, Re Recreation of Vancouver and Nottingham Hallett’s Estate, Re Trustee’s monies used first Halifax Building Society v Thomas Doubtful Thomas Hamilton, Re Precedent not conclusive Hancock v Watson Trust engrafted onto gift Harari’s ST, Re Construction of investment clause Hardoon v Belilios Expenses claim Hardy v Shaw Wide advancement

217 BRIEFCASE on Equity and Trusts

Hargreaves, Re Remote appointment fails Harmer v Armstrong Copyright contract or trust? Harries v Church Commissioners for England Ethical investment Harwood, Re Peace Society of Belfast Hastings’ Bass, Re Three discretionary questions Hay’s ST, Re Powers Hayim v Citibank American lost property Haynes WT, Re Marriage covenant forfeiture Head v Gould Retiring disgracefully Heinl v Jyske Bank (Gibraltar) Ltd ‘Heinl’-y dishonest Henderson, Re Out of retirement Henley v Wardell Will power and consent Hetherington, Re Left for dead Holder v Holder Trustee tenant holds on Holt’s Settlement, Re Unborn risk taker Hooper, Re Vault through window Hooper v Rogers Bulldozing in farm Hopkins’ WT Re Shakespeare’s Bacon Hopkinson, Re Educate Labour Party Howlett, Re Infant to let Hunter v Moss Share and share alike Hutton v Watling Seven year hitch

Incorporated Council of Law Reporting AG Law reports IRC v Baddeley West Ham methodist IRC v Bernstein No advance on accumulation IRC v Broadway Cottages Trust Fixed list IRC v Holmden Bound by consent IRC v McMullen FA youth IRC v Oldham Training and Enterprise Council Trust Oldham business

Jackson, Re Estate of disrepair Jaffa v Taylor Galleries Copy of painting James, Re Strong Bird administration 218 Glossary

Jobson v Palmer Paid for same job Joel’s WT, Re Maintain class Johnson v Agnew Election precedent Jones, Re Maintain up to 25 Jones v Jones Potato futures Jones v Lock Bouncing baby cheque Joseph Rowntree Memorial Trust v AG Old folks’ homes Kay’s Settlement, Re Don’t sue Kayford, Re Mail order Keech v Sandford Trustee of freehold Keen, Re Delivered too early Kershaw v Whelan (No 2) Solicitor fraud laches Khoo Tek Keong v Ch’ng Joo Tuan Neoh Personal jewellery King, Re Stained surplus Kinloch v Secretary of State for India Spoils of war Knight v Knight Two knights, three certainties Knocker v Youle Youle have interest Koeppler’s WT, Re German project

Laing’s Settlement, Re Authorised personal loan Lambe v Eames Illegitimate of Lambe Last, Re Last wish to Crown Leahy v AG for New South Wales Nuns and monks Lemann’s Trusts, Re Court to Lemann’s aid Letterstedt v Broers Hostility in Broers’ war Lipinski’s WT, Re Anglo-Jewish youth Lipkin Gorman v Karpnale Playboy club Llewellin’s WT, Re Trustee directors’ salaries Lloyds Bank v Rosset Lord Bridge’s home loan Locker’s ST, Re Tardy distribution London Wine Co, Re Which bottles? Londonderry’s Settlement, Re Can’t see reason Lonrho v Fayed (No 2) Undertaking to minister Lord and Fullerton’s Contract, Re Partial disclaimer

219 BRIEFCASE on Equity and Trusts

Lucking’s WT, Re No deposit Lysaght, Re Royal College of Surgeons

Mac-Jordan Construction v Brookmount Erostin Property development contract McArdle, Re ’Ard luck sibling McCormick v Grogan No malus animus McGeorge, Re Deferred residuary realty McGovern v AG Amnesty International McPhail v Doulton (Re Baden’s Deed Trusts (No 1)) Discretionary trust test made

Mallot v Wilson Disclaimer after constitution Mara v Browne Trustee de son tort Mareva Compania Naviera v International Bulk Carriers Mareva injunction Marsden v Regan Ought fairly to be excused Massingberd’s Settlement, Re Replace original investments May’s WT, Re War in Belgium Mead’s TD, Re Printers’ union Medlock, Re Maintain separate fund Mercedes-Benz v Leiduck Worldwide Mareva Metall und Rohstoff v Donaldson Lifkin and Jenrette Inc Tort of assisting breach Mettoy v Evans Dinky toys Meux’s WT, Re Infant of 53 Milroy v Lord Declare self or transfer Molyneux v Fletcher Advance debt to trustee Moncrieff’s ST, Re Adopted son Montagu’s ST, Re Duke of Manchester Moore, Re Zambesi tomb Mussoorie Bank v Raynor Act justly Morice v Bishop of Durham Objects of benevolence Moss, Re Cats and kittens Mulholland’s WT, Re Bank sells to itself Multi Guarantee, Re Electrical appliances

220 Glossary

National Anti-Vivisection Society v IRC Can’t change law Nelson v Rye Pop star accounts Nestle v National Westminster Bank Complacent bank Neville Estates v Madden Synagogue Neville v Wilson Trust in wind up New, Re Emergency reorganisation Niyazi’s WT, Re Cypriot hostel

Oatway, Re Charge on shares Oliver, Re Deferred residuary bequest Oppenheim v Tobacco Securities Teach toddlers tobacco O’Rourke v Darbishire Professional privilege Osoba, Re Daughter’s university grade O’Sullivan v Management Agency Gilbert O’Sullivan Ottaway v Norman Housekeeper bungles bungalow Oughtred v IRC Shares stamp duty Oxford Group v Inland Revenue Commissioners Religious bodily functions

Palmer v Emerson Butcher’s mortgage Parsons, Re Infant to appoint Partington, Re Trustee under influence Paragon Finance plc v DB Thakerar & Co (A Firm) No trust if right to mix Paul v Constance She Paul, he Constance Pauling’s ST, Re Advancement by Coutts Pearkes v Moseley Define class Peczenik’s ST, Re No use and enjoyment Peffer v Rigg Register in trust Pilkington v IRC Advancement by resettlement Piller (Anton) v Manufacturing Processes Anton Piller injunction Pinion, Re Atrocious artist Plumtre, Re Voluntary marriage covenant Polly Peck v Nadir (No 2) Cypriot bank

221 BRIEFCASE on Equity and Trusts

Power’s ST, Re Power to fill vacancy Protheroe v Protheroe Freehold from lease Pryce , Re No indirect constitution Pullan v Koe Party to contract

R v District Auditor ex p West Yorkshire Metropolitan County Council Administrative unworkability Rabin v Gerson Irrelevant opinion Raine, Re Income on pecuniary legacies Ralli’s WT, Re I’s husband is two Ransome’s WT, Re Contrary intention Reading v AG Uniform profits Recher’s WT, Re Contract anti-vivisection Redland Bricks v Morris Pit excavation Remnant’s ST, Re Anti-Roman Catholic Resch’s WT, Re Private hospital Richards v Delbridge Endorsement on deed Robinson, Re Insurance Roper’s Trusts, Re Fanny Keech Roscoe (James) Ltd v Winder Lowest intermediate balance Rose, Re Mad March transfer Rosenthal, Re Where loss falls Rowntree (Joseph) Memorial Trust v AG Old folks’ homes Royal Brunei Airlines v Tan Kok Ming Tricky travel agent Rymer, Re St Thomas’ Seminary

Salusbury v Denton Objects severed Sander’s WT, Re Welsh working class Sargeant v National Westminster Bank Trustee tenants’ triumph Saunders v Vautier Majority rules Scarisbrick’s WT, Re Needy relations

222 Glossary

Scottish Burial Reform and Cremation Society v Glasgow Corporation Charity fourth head for dead Segelman, Re Rich man, poor family Selangor United Rubber v Cradock Cheque bounces bank Sen v Headley Dead lock Sharpe, Re Stale demand Sharpe, Re No remedial trust Shaw, Re Forty letter alphabet Simpson v Simpson Mental incapacity Sinclair v Brougham Clayton’s case swept aside Snowden, Re Balance of probabilities Somerset v Earl Poulett Consent to authorised investment South Tyneside Metropolitan Borough Council v Svenska Interest swap enrichment Speight v Gaunt Stuff manufacturer Steele’s WT, Re Exact precedent Stephenson (Inspector of Taxes) v Barclays Bank Saunders v Vautier applied Stewart, Re Strong bonds Strakosch, Re Dutch South Africa Strong v Bird Release of debt Suffert’s Settlement, Re Spinster aged 61 Swain v The Law Society Solicitors indemnity fund Swindle v Harrison Solicitors loan for hotel

T’s ST, Re Immature daughter Tang Man Sit v Capacious Investments Election Target Holdings v Redferns Common sense causation T Choithram International SA v Pagarani TCP deathbed transfer Tempest, Re Court appointment Thompson, Re Fox hunting Thompson’s Settlement, Re Self and fair dealing Thomson v Eastwood Time bar versus express trust

223 BRIEFCASE on Equity and Trusts

Thomson’s Estate, Re Anything remaining Thorne v Heard Tale of two mortgagees Thornton v Howe Joanna Southcote Tiger v Barclays Bank Cat-a-log Tilley’s WT, Re Profit from mix Tinker’s Settlement, Re Settlor tried to tinker Towndrow, Re Trustee legatee glee Tribe v Tribe Father won with son Turkington, Re Trustee club members Tyler, Re Highgate cemetery

United Mizrahi Bank Ltd v Doherty Solicitor takes risk

Vandervell’s Trusts (No 2), Re Option for children Vandervell v IRC Chair in the air Vickery, Re Ignorant missionary Vinogradoff, Re Result of stock gift

Walker v Stones Independent Genuinely dishonest Wallersteiner v Moir A case of interest Wassell v Leggatt Husband deprives wife Waterman’s WT, Re Bank’s special duty Watson, Re Religious tracts West, Re Other funds maintain Westdeutsche Landesbank Girozentrale v Islington LBC No result of interest West Sussex Constabulary’s Widows, Children’s and Benevolent Fund, Re Raffles Weston’s Settlement, Re Sad Jersey Wheeler and De Rochow, Re Replace bankrupt trustee Whiteley, Re Moral obligation Wilkes v Allington Mortgage mortis Williams, Re Will wishes of wife Williams v Barton Commissioned trustee Williams v Scott Rescind purchase off trustee

224 Glossary

Wills’ WT, Re Twin benefits Wilmer’s Trusts, Re Tail short enough Wilson, Re No school today Wilson v Law Debenture Trust Pension without reason Wilson v Turner Thoughtless decision Wright v Morgan What might be done

Yeap Cheah Neo v Ong Chen Neo Ancestor worship Young, Re Distressed gentlefolk

225

Index

A compared with ...... 6 Absolute gifts ...... 25–26 unincorporated associations...... 54 Account of profits ...... 162, 164 Andrews v Accumulation Partington rule ...... 42–43, excessive, 45 rule against ...... 46–47 Animals, income ...... 46–47 maintenance rule against of specific ...... 50 perpetuities ...... 46–47 surplus...... 47 Anomalous Acquiescence ...... 170 purpose trusts...... 50 Anton Piller orders ...... 211–12 Advancement ...... 154–60 See, also, Search orders benefit and...... 154–56 capital, resettling...... 156–57 Appointment consent of persons of trustees ...... 101–05, with prior 111 entitlement ...... 157–58 Apportionment ...... 153 exhausting the Art ...... 67–68 power to Asset protection make an...... 158 trusts ...... 84–87 fiduciary nature of ...... 158–59 Assignment ...... 33 presumption of ...... 177 resulting trusts ...... 177 Automatic resulting trust instruments ...... 159–60 trusts ...... 178–80 Advice, taking ...... 140–41 Aged, trusts for the ...... 74 B Agency Bank accounts ...... 203–04 choice of agents...... 133 Beneficiaries delegation, to...... 132–33 breach of trust ...... 169–70, 173 fiduciary duties...... 6 indirect human ...... 51–52 standard of care ...... 132–33 protective trusts ...... 83–84 supervision of ...... 132–33 purpose trusts ...... 51–52 trustees...... 132–33 variation...... 89–90, 97 trusts, Bona vacantia ...... 10–11, 48 227 BRIEFCASE on Equity and Trusts

Breach of trust C account of profits ...... 162, 164 Capacity ...... 7–8 beneficiaries minors ...... 7–8 acquiescence ...... 170 mental incapacity ...... 7 impounding the Capital, interests of...... 173 advancement of...... 156–57 instigating, Certainty ...... 17–26 requesting or consenting to...... 169–70 absolute gifts charities ...... 167–68 subject to condition compensation ...... 161–63 precedent...... 25–26 constructive trusts ...... 195 class ascertainability...... 23–24 contribution...... 171 gifts...... 19–20 defences ...... 165–66 absolute, subject fraud...... 166–67 to condition indemnities ...... 171–72 precedent ...... 25 interest, liability individual to pay...... 164 ascertainability ...... 24–15 knowing assistance...... 193 intention...... 17–23 knowing receipt ...... 190–91 object ...... 23–26 laches ...... 159, 168–69 precedent ...... 20–21 liability for ...... 161–65, 170–73 subject matter ...... 21–23 procuring...... 195 trusts ...... 19–20 remedies, election Change of position ...... 199–200 between Charitable trusts ...... 59–82 inconsistent ...... 164–65 aged or impotent, restitution ...... 161–63 trusts for ...... 74 set-off ...... 170–71 art, educative time limits ...... 165–66, 168 value of ...... 67–68 tort ...... 195 beneficial to the trustee community, other liability for...... 161–65 purposes ...... 72–74 property, holding ...... 167 breach of tryst ...... 167–68 Bribes ...... 130 churches and churchyards ...... 69 cy près ...... 79–82 definition ...... 61–74 education ...... 65–68, 71

228 Index

exclusivity Compromise ...... 92 requirements...... 59–61 Conditions precedent ...... 25–26 failure, initial ...... 79–81 Conflicts of interest ...... 112–15 foreign country, changing the Constitution of trusts ...... 29–38 law of...... 78 chattels, trust hospitals, trusts property for private ...... 74 constitutes impossibility/ ordinary...... 32–33 impractability choses in action, requirement ...... 81–82 trust property is ...... 33 political contracts, by ...... 34–38 purposes, for...... 76–79 declarations...... 34 poverty ...... 62–65, 70, equitable interests, 74–75 subject of trust purpose trusts...... 49 or gift is ...... 33–34 public benefit ...... 70–72 land ...... 31–32 recreational trusts ...... 74–76 shares ...... 29–31 religion...... 69–72 transfer recognising ...... 69–70 equitable interests, sport...... 68 subject of gift is...... 33–34 Chattels legal title to trustees ...... 29–33 constitution of trusts ...... 32–33 Constructive trusts ...... 183–95 title, to ...... 32–33 breach of trust, transfer of title to ...... 32–33 procuring ...... 195 trustees...... 32–33 knowing assistance...... 187–94 Children knowing receipt ...... 187–94 land ...... 183–84 See Minors remedies ...... 184–86 Churches and rights, or ...... 184–86 churchyards...... 69–72 resulting trusts ...... 177 Class trustees apportionment de son tort...... 187, 188 of gifts of ...... 153 obligations of ...... 186 ascertainability ...... 23–24 strangers, as ...... 187–94 certainty...... 23–24 unjust enrichment...... 185 gifts...... 42–43, 153 Contracts maintenance ...... 153 constitution rule against of trusts ...... 34–38 perpetuities ...... 42–43 trusts ...... 3–4 Compensation ...... 161–63 constitution of...... 34–38

229 BRIEFCASE on Equity and Trusts

Contribution ...... 171 F Cy près ...... 79–82 Fiduciary duties ...... 6, 111–21, 123, 127–30, D 158–59, 202 De son tort trustees ...... 187, 188 Formalities ...... 8–16 Debt, trust express trusts ...... 8 inter vivos trusts...... 9–11 compared to ...... 4 mutual ...... 16 Declarations secret trusts ...... 12–15 of trusts ...... 34 statutory ...... 8 Defences testamentary ...... 11–12 breach of trust ...... 165–66 will trusts...... 11–12 change of position ...... 199–200 Fox-hunting ...... 50 time limits ...... 165–66 Fraud tracing ...... 198–200 breach of tryst ...... 166–67 Definition of equity ...... 1 creditors...... 48–49 Definition of trusts ...... 1–6 resulting trusts ...... 177 Delegation ...... 130–32 rule against Disclaimers ...... 105–06 perpetuities ...... 48–49 secret trusts ...... 15 Donatio mortis causa ...... 27–29 Freezing orders ...... 209–11

E G Education ...... 65–69, 71 Gifts Elderly, trusts for the ...... 74 absolute ...... 5 Emergencies ...... 91, 147 condition precedent, Equity subject to ...... 25–26 definition ...... 1 certainty ...... 19–20, 25–26 injunctions ...... 208–12 class ...... 42–43 remedies ...... 207–12 condition specific precedents...... 25–26 performance ...... 207–08 intention...... 19–20 tracing ...... 200–06 perfecting...... 27–29 volunteers, equity rule against does not exist ...... 29–32, 176 perpetuities ...... 42–43 Ethical investment ...... 144–45 testamentary ...... 148 trusts ...... 5–6 Ex turpi causa rule ...... 177 Exemption clauses ...... 121 Expenses ...... 123–24

230 Index

H Investments Hague Convention advice, taking and on the Law considering Applicable to proper ...... 140–41 Trusts ...... 2–3 cautious, overly...... 143–44 construction of Half secret trusts ...... 14–15 trust instruments ...... 143 Hastings’ Bass rule ...... 135–36 criteria ...... 140 Hospitals ...... 74 ethical...... 144–45 general power ...... 140 I land acquisition of ...... 141 Illegality ...... 178 mortgages and Impotent, long leases, trusts for the ...... 74 other than ...... 142–43 In personam rights ...... 1, 200–01, loans...... 139, 141 209 long leases ...... 142–43 In rem rights ...... 1, 200–01 mortgages ...... 141–42 Income political ...... 144–45 trustees’ powers apportionment ...... 153 and duties ...... 139–45 class gifts ...... 153 excessive accumulation of ...... 46–47 J maintenance, Jurisdiction intermediate ...... 148 settlement ...... 92 rule against specific perpetuities ...... 46–47 performance ...... 207 Indemnity ...... 171–72 variation ...... 91 Individual ascertainability ...... 24–25 K Injunctions ...... 208–11 Knowing assistance ...... 187–94 Intention Knowing receipt ...... 187–94 certainty of ...... 17–23 gifts...... 19–20 L trusts ...... 19–20 Laches ...... 159, 168–69 resulting...... 176 Land Interest ...... 164 acquisition of...... 141 Inter vivos trusts ...... 9–11 constructive trusts ...... 183–84 investment...... 141

231 BRIEFCASE on Equity and Trusts

transfer of title to ...... 31–32 residuary realty title ...... 31–32 deferred trustees...... 31–32 contingent Liability devises ...... 150 breach of trust ...... 161–65, deferred ...... 170–73 devise of...... 149–50 interest ...... 164 salvage ...... 147 limitation of ...... 119–21 testamentary trust instruments, gifts ...... 148 limited by ...... 119–21 Mareva injunctions ...... 209–11 trustees ...... 119–21, 161–65, See, also, Freezing orders 170–73 Mental disabilities retirement, after ...... 107 capacity ...... 7 Limitation periods ...... 165–66, 168 trustees...... 104 Lives in being ...... 39, 41 Minors Loans ...... 139, 141 See, also, Maintenance Long leases ...... 142–43 capacity ...... 7–8 trustees, appointment of...... 102 M variation Maintenance ...... 147–53 of trusts ...... 90–91 apportionment ...... 153 Mixed bank class gifts ...... 153 accounts ...... 203–04 emergencies...... 147 Mixed funds ...... 203–06 exceptions ...... 151–53 Monuments, income ...... 154 gifts carrying maintenance or the intermediate ...... 148 erection of ...... 47–48, 50 pecuniary Mortgages ...... 141–42 legacies Mutual wills ...... 16 contingent ...... 151 deferred...... 151 O residuary Objects, personalty, contingent certainty of ...... 23–26 bequests of...... 148 deferred...... 149 P deferred- Pecuniary legacies ...... 151 contingent Pensions ...... 48, bequests ...... 150 87–88

232 Index

Perpetuities tombs or See Rule against monuments, perpetuities erection or Personal maintenance of...... 50 representatives ...... 103 unincorporated non-profit Personal services ...... 130–32 associations ...... 53–54, 57 Political Q investment...... 144–45 Quia timet Political purposes, injunctions...... 209 trusts for ...... 76–79 Poverty ...... 62–65, 70, R 74–75 Recreational trusts ...... 74–76 Powers, trusts Religion ...... 69–72 compared with ...... 4 Precedent ...... 20–21 Remedies breach of tryst ...... 163–65 Professional compensation ...... 161–63 trustees...... 121, 137 constructive Protective trusts ...... 83–84 trusts ...... 184–86 Public Trustee ...... 105 equitable ...... 207–12 Purchase money inconsistent, resulting trusts ...... 177 election between...... 164–65 Pure purpose injunctions ...... 208–11 search orders ...... 211–12 trusts ...... 49, 50 specific performance ...... 3, 207–08 Purpose trusts ...... 49–57 Removal of trustees ...... 108–09 animals, maintenance Remuneration of specific ...... 50 of trustees ...... 124–27 anomalous...... 50 Residuary avoiding, device personalty ...... 148–50 for rule against Residuary realty ...... 149–50 pure ...... 50 Restitution ...... 161–63, 198 charities ...... 49 Resulting trusts ...... 175–83 fox-hunting ...... 50 indirect human advancement, beneficiaries ...... 51–52 presumption of...... 177 pure ...... 49, 50 automatic...... 178–80 surplus donations, constructive distribution of...... 55–57 trusts ...... 177 fraud ...... 177

233 BRIEFCASE on Equity and Trusts

illegality...... 178 Self-dealing ...... 112, 115 intention ...... 176 Set off ...... 170–71 new Settlement ...... 92 orthodoxy for ...... 180–82 presumed...... 175–78 Shares ...... 29–31 purchase money ...... 177 Specific voluntary performance...... 3, conveyances ...... 175–76 207–08 Retirement Sport ...... 68 of trustees ...... 106–08 Standard of care Rule against agents...... 132–33 perpetuities ...... 39–48 trustees ...... 115–21, accumulation of 132–33 income, rule Subject matter, against excessive ...... 46–47 certainty of ...... 21–23 Andrews v Subrogation ...... 202 Partington rule...... 42–43, 45 Surpluses ...... 47, 55–56, capital, inalienability of ...... 47 87–88 charities ...... 47–48 class gifts ...... 42–43 T common law Tax planning ...... 96 rules ...... 40–42, 43 Testamentary creditors, gifts ...... 148 intention to Testamentary defraud ...... 48–49 lives in being ...... 39, 41 trusts...... 11–12 pensions...... 48 Time limits ...... 165–66, 168 public policy ...... 48–49 Title vesting, rule chattels...... 32–33 against constitution remoteness of ...... 29–46 of trusts ...... 29–33 wait and land ...... 31–32 see principle ...... 44 shares ...... 29–31 transfer of ...... 29–33 S trustees, Salvage ...... 91, 147 transfer to ...... 29–33 Tombs, maintenance Saunders v or erection of ...... 47–48, 50 Vautier rule...... 89–90, 93 Tracing ...... 197–206 Search orders ...... 211–12 bank accounts, Secret trusts ...... 12–15 mixed...... 203–04

234 Index

change of chattels...... 32–33 position conflicts defence ...... 199–200 of interest...... 112–15 common law ...... 197–200 constitution defences ...... 198–200 of trusts ...... 29–33 equitable ...... 200–06 constructive fiduciary trusts ...... 186, 187–94 relationships ...... 202 delegation identifiable at agents every stage, choosing...... 133 property...... 197–98 delegation ...... 132–33 limitations on ...... 200–02 standard of care ...... 132–33 mixed bank statutory accounts...... 203–04 authority ...... 130–32 mixed funds and de son tort ...... 187, 188 assets brought disclaimers...... 105–06 with ...... 203–05 discretion ...... 134–37 subrogation ...... 202 dishonesty ...... 120–21 unjust dispositive enrichment ...... 199–200 discretion...... 134 Transfer duties...... 123–37, chattels...... 32–33 139–45, 186 constitution exemption clauses ...... 121 of trusts ...... 29–33 expenses, land ...... 31–32 recovery of ...... 123 shares ...... 29–31 fiduciary duties...... 111–21, 123, title ...... 29–33 127–30 trustees, to ...... 29–33 gratuitously, Trustees duty to act ...... 123–30 Hastings’ Bass, agents...... 132–33 rule in ...... 135–36 appointment of ...... 101–05 investments ...... 139–45 beneficiaries by...... 104 land ...... 32–33 court, by ...... 103–04 liability ...... 119–21, 161–65 current limitation of trustees, by...... 103 liability by duties, upon ...... 111 trust instrument ...... 119–21 personal mental representatives, by ...... 103 disabilities...... 104 trust instruments, minors ...... 102 persons number of, nominated in ...... 102 limits on ...... 104–05 bribes ...... 130 pensions...... 87–88

235 BRIEFCASE on Equity and Trusts

personal services, U duty to provide...... 130–32 Unincorporated professional ...... 121, 137 associations Public Trustee ...... 105 non-profit...... 53–54 reasons for officers as agents, decisions, gifts to ...... 54 disclosure of ...... 136–37 purpose trusts ...... 53–54 removal ...... 108–09 rules of, gifts to remuneration...... 124–27 members retirement ...... 106–07 subject to ...... 53–54 role of, fulfilling ...... 111–21 winding up ...... 57 self-dealing...... 112, 115 Unjust enrichment ...... 185, 199–200 shares ...... 29–31 standard of care . . . . . 115–21, 132–33 strangers, as...... 187–94 V transfer of title to ...... 29–33 Variation of trusts ...... 89–99 Trusts beneficiaries See, also, Breach of trust, adult, by ...... 89–90 Constructive trusts, every, benefiting...... 97 Resulting trusts benefit, absolute gifts, meaning of ...... 95–97 compared with ...... 5 compromise agency, of disputes ...... 92 compared with ...... 6 detriment...... 98 asset protection ...... 84–87 emergencies...... 91 certainty...... 19–20 jurisdiction, under constitution ...... 29–38 court’s inherent ...... 91 contracts, minors ...... 90–91 compared with ...... 3–4 modes of ...... 89–92 debt, new trusts, wholly ...... 98–99 compared to ...... 4 salvage...... 91 definition ...... 1–6 Saunders v gifts ...... 5–6 Vautier rule...... 89–90, Hague 93 Convention ...... 2–3 tax planning ...... 96 inter vivos ...... 9–11 Vesting powers ...... 4 remoteness of, protective...... 83–84 rule against ...... 39–46 purpose ...... 49–50 rule against testamentary ...... 11–12 perpetuities ...... 39–46 wills ...... 11–12

236 Index

W Winding up of Wait and unincorporated see principle ...... 44 associations ...... 57–82 Wills formalities ...... 11–12, 16 trusts...... 11–12

237