FORMALITIES

Question 1

S53 LPA

transaction; property / interest; rule; effect of non-compliance

Answer 1

Instruments required to be in writing

S53(1b)

S53(1c)

Transaction

Declaration of Trust

Disposition – getting rid of something

Property / Interest

Any land or any interest

• Limited to land

Equitable interest (in anything) subsisting at the time of the disposition

Rule?

Must be manifested and proved by some person who is able to declare such trust or by his will

• If it is orally declared, it is fine but it must be written down

Must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will

• The disposition only takes effect in writing

Effect of non-compliance?

Unenforceable, not void

Void

Question 2

Declarations of a trust of land

Answer 2

s53(1b) LPA

• Oral declarations of trusts in land are unenforceable unless and until it has been manifested and proved by writing
• Applies to declaration of trusts (the transaction) but only to declarations of trusts of land or any interests therein
• A limitation on the formality rule

Question 3

Rouchefoucauld v Boustead

Answer 3

• D’s estate manager purchased C’s estates in Sri Lanka at auction. C contended that D did so on her behalf. There was no proof in writing of this arrangement, and D pleaded the Statute of Frauds in defence
• HELD: a trust was found in C’s favour
• Equity will not permit a statute to be used as an instrument of fraud

Question 4

Taylor v Taylor

Answer 4

• A dispute between a father and son. A property had been conveyed to them, and was bought and the question was whether trusts had been validly declared given that they themselves had not declared the existence of a trust. The transfer, as provided by the vendor, did record that father and son were to be equal shareholders of the trust. Given that they are not the owners of the property, but have not declared a trust, does that matter?
• HELD: the fact that the future trustees have not themselves created the trust is not a problem

Question 5

Ong v Ping

Answer 5

We need some writing that manifests and proves that a trust has been made

Question 6

Dispositions of equitable interests

Answer 6

s53(1c)

• The wording shows that we are dealing with more sophisticated transactions
• If you are declaring an entirely new trust, 53(1c) does not apply because the equitable interest is created by the trust, it did not create before hand
• Not limited to land

Question 7

Grey v IRC

Answer 7

• Settlor sets up 6 trusts of token amounts in favour of is grandchildren. He then transferred valuable shares to the trustees in question, asking them told on property
• HELD: s53(1c) applies to any situation in which the equitable interest is passing from one person to another
• The oral direction was an attempted disposition of a subsisting equitable interest, and was thus ineffective since it was not in writing, as required by s53(1c)

Question 8

Sub-trusts

Answer 8

• In some instances, it will not be a disposition
  
  • A is holding property on trust for B. B declares themselves a trustee over their own interest in favour of C
• Grange v Wilberforce: “where A was trustee for B, who was trustee for C, A holds in trust for C and must convey as C directed”
  
  • If it is not a meaningful trust for B, we will treat is as a disposition

Question 9

Oughtred v IRC

Answer 9

• “This was an oral agreement for value, and accordingly, on the making thereof, Peter, the vendor, became a constructive trustee of his equitable reversionary interest in the trust funds for the appellant. No writing to achieve that result was necessary, for an agreement of sale and purchase of an equitable interest in personalty (other than chattels real) may be made orally, and s53 has no application to a trust arising by construction of law” per Upjohn J in first instance
• Lord Denning held that it was a conveyance / transfer on sale of property
• Lord Jenkins ruled that a stamp duty is payable on documents only and not transactions
  
  • As s53(1c) had not been complied with, when the son told the trustees to transfer his reversionary interest to his mother, it had no effect. This meant that the value was transferred in the document (not the oral contract) and so was taxable under stamp duty
• Until you have transferred the property (when equity is willing to SE the contract) you become a trustee holding the property

Question 10

Vandervell (No1)

FACTS

Answer 10

• Mr Vandervell wanted to make a gift to the Royal College of Surgeons in a tax efficient way. He wanted to transfer shares in a company he was associated with to the college subject to an option to buy them back over a fixed period. The option to buy back the shares was vested in a trustee company holding it on trust. Previously, the shares which were transferred to the royal college were being held on trust for Mr Vandervell by a bank; V tells the bank to give the shares to the college. The Revenue says that Mr Vandervell has not disposed of his beneficial interest in the shares in question, and they take a formalities point

Question 11

Vandervell (No1)

HELD

Answer 11

• The HoL rejects the formalities argument – the shares were being held on trust for V and he directs the trustees to wind up the trust and convey the property to the RCS who become absolute owners.
• Although the legal estate is vested in the trustees, with V as the beneficial owners, and the aim of the action was for the RCS to become solely entitled to both the legal and equitable interests, s53(1c) does not apply
  
  • “The object of the section … is to prevent hidden oral transactions in equitable interests in fraud of those truly entitled, and making it difficult, if not impossible, for the trustees to ascertain who are in truth his beneficiaries. But when the beneficial owner owns the whole beneficial estate and is in a position to give directions to his bare trustee with regard to the legal as well as the equitable estate there can be no possible ground for invoking the section where the beneficial owner wants to deal with the legal estate as well as the equitable estate”
  • Here, legal estate and equitable estate are moving together, it is not a hidden aural transaction only dealing with the equitable interest (what s53(1c) is designed to deal with)
• Where legal and equitable estate are moving together, even if it technically coming from two different sources, s53(1c) does not apply
• S53(1c) only applies to dispositions of equitable interests subsisting at the time of disposition where you are dealing with the equitable interest independently to the legal estate

Question 12

Akers v Samba

Answer 12

• “There is no ‘disposition’ of an equitable interest … when there is a transfer by the legal owner of the legal estate, which is subject to that equitable interest, to a bona fide purchaser for value without notice of that equitable interest”
• Equity’s darling: you will lose your equitable interest if a bona fide purchaser for value without notice of the interest buys the legal estate of the property
• If you are dealing with the legal estate, s53(1c) has no application
  
  • 53(1c) is concerned with the risk of hidden oral transactions in equitable interests, not where the end of the story is where somebody becomes absolutely entitled and so the trust is at an end

Question 13

Instruments required to be in writing

Answer 13

s53(2) LPA

“This section does not affect the creation or operation of resulting, implied or constructive trusts”

Question 14

Vandervell (No2)

FACTS AND RULING

Answer 14

• FACTS: Mr Vandervell executes a deed formally saying that any interests that he might have are to be held on trust for his children. He was liable for tax up until the children were of age
• HELD: V was not liable to pay tax for this whole period because it engaged a resulting trust (normal rules in 53(1c) do not apply)
• “The exercise of the option and the transfer of the shares to the trustee company necessarily put an end to the resulting trust of the option”
  
  • Once you have exercised an option, you no longer have rights in the property and thus there is no trust of any kind

Question 15

Neville v Wilson

Answer 15

• Unlike in Outred where there were written documents giving effect to the transaction, thus the tax was payable, here it was a pure point of law as to whether writing was needed or the agreement to the liquidation of the company counted as giving rise to a constructive trust
• Because there is no tax context of a written instrument, it is accepted that a constructive trust has arisen and so nothing in the section affects the creation or operation of implied resulting or constructive trusts

Question 16

Disclaimer

Answer 16

• You can disclaim / reject your interest [Re Paradise Motor Co]
  
  • You are not disposing of something you had in the first place

Question 17

Surrender

Answer 17

• You can also give up your interest [IRC v Buchanan]
  
  • A mother wanted to surrender her beneficial interest so that her children instead would become entitled. This was found to be a disposition