Week 1) Taxonomy of trusts, 3 certainties Flashcards
Briefly, what are the differences between constructive and resulting trusts, charitable and non-charitable, and bare and special trusts?
Constructive trusts are those imposed as a matter of law whilst resulting trusts arise as automatic or presumed resulting trusts.
Charitable trusts are created for charitable purposes and are exempt from taxes, whereas non-charitable trusts are taxable. (if there is a non-charitable purpose trust, it is void unless it falls within the exhaustive list explained in Re Denley). Charitable trusts are administered by the attorney general.
A bare trust, in conjunction with the rule in Saunders v Vautier, means that a trustee simply holds the property on trust until the beneficiary can and demands their Saunders v Vautier rule to be activated. The beneficiary enjoys all the capital, assets and profits. A special trust may see the trustee take on more onerous tasks in his role.
What are powers of appointment, and what are general versus special powers?
Powers of appointments confers a power, rather than an obligation, upon a trustee, to choose to whom and often how to distribute trust property. He is under an obligation so far as he must, from time to time, consider the potential beneficiaries and decide whether to administer the trust property, but there is no obligation that he actually administers the property.
General powers of appointment allow the trustee to appoint anyone in the world as a trustee. Special powers only allow the trustee to appoint anyone else as trustee so long as they fall outside of a specified group of named/ ascertainable people.
What is the beneficiary principle, how did the two cases of Morice v Bishop of Durham deal with it? (1804 Sir William Grant and 1805 Lord Eldon on the appeal)?
How does it relate to the ability of the court to oversee the operation of the trust?
Beneficiary principle is the requirement that all beneficiaries are named/ and or easily ascertainable, or else they will fail for want of object matter. No one to enforce the trust means no beneficiary is ascertainable.
Morice v Bishop of Durham 1804:
Sir William Grant MR: “There can be no trust, over the exercise of which this Court will not assume a control; for an uncontrollable power of disposition would be ownership, and not trust … There must be somebody, in whose favour the court can decree performance.” Only those holding the rights of beneficiaries are entitled to enforce, hence the need to identify who can and cannot enforce a trust. It also illustrates the first of the 3 certainties, certainty of object (along with intention and subject matter).
Morice v Bishop of Durham on appeal in 1805:
Lord Eldon “As it is a maxim, that the execution of a trust must be under the control of the court, it must be of such a nature, that it can be under that control; so that the administration of it can be reviewed by the court … unless the subject and the objects can be ascertained, upon principles, familiar in other cases, it must be decided, that the court can neither reform maladministration, nor direct a due administration.” Illustrates the control of the courts to enforce a trust, and the ability of them to do so rests on the beneficiary principle.
How does Roxburgh J express the beneficiary principle in Re Astor?
Roxburgh J in Re Astor’s: “The typical case of a trust is one in which the legal owner of property is constrained by a court of equity so to deal with it as to give effect to the equitable right of another. These equitable rights have been hammered out in the process of litigation in which a claimant on equitable grounds has successfully asserted rights against a legal owner or other person in control of property. Prima facie, therefore, a trustee would not be expected to be subject to an equitable obligation unless there was somebody who could enforce a correlative equitable right, and the nature and extent of that obligation would be worked out in proceedings for enforcement.”
What is the rule in Saunders and Vautier and what are the facts of the case?
Facts- the testator had left property in East India Company on trust for his great nephew, and his wife and heirs. The terms of the trust dictated that the stocks would accumulate until he was 25, but upon turning 21, he ordered the trustees to transfer ownership to him, as the beneficiary. The great nephew’s father died before the testator, but after the father died as well, his widow brought an order for the payment of the stocks to the great nephew on 25th July 1835.
Significance- whilst the testator wished for the stocks to continue to accumulate until his 25th birthday, the great nephew, Daniel Vautier, was entitled to an earlier transfer of property, against the wishes of the testator. As the beneficiary, his wishes ‘superseded those of the testator’, as the trustee held the property on a bare trust, as his interests are absolute.
Lord Cottenham: “I think that principle has been repeatedly acted upon; and where a legacy is directed to accumulate for a certain period, or where the payment is postponed, 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 the moment he is competent to give a valid discharge.”
-If there is more than one beneficiary, then they must all be adults and under no disability, if they are to capitalise on early discharge of assets/ property.
What is the premise of the intention to create a trust? In the absence of an outright expression of an intention to create a trust, where mighta court infer such an intention?
-The relevant intention to create is judged on a balance of probabilities, usually done by a solicitor who can provide certainty of this intention through the use of technical words. In the absence of this, the courts can focus on a combination of the following; 1) where the settlor intended his wishes to be enforceable by legal sanction, as breach of trust (where a trust is created) will result in legal sanction. The legal intention must be distinguished from a mere moral intention, eg bequeathing property to a family member, intending them to give 25% to court. 2) The specificity of the instructions can also be an indicator as to the intention; in general, more specific instructions can represent a more-clear intention as to how the assets are to be treated.
What are ‘family provision trusts’ as per Paul v Constance 1977? How does overt intention operate in the absence of express words?
How does this case compare to Jones v Lock 1865?
Family provision: where a settlor creates a trust which it seems ought to benefit his family, an intention may be more readily found.
Paul v Constance 1977 1 WLR 527: Facts- a man, having received compensation for an accident, started a bank account in his own name, into which he and his partner also paid small bingo winnings. It was contended whether the account was intended to create a trust for his partner, despite the fact she was not named on the account. There was a lack of evidence regarding whether a trust had been created, even if proved on a balance of probabilities that his wife was to be somewhat involved in the assets. They were not married, and the case was brought upon his death; marriage would have seen her inherit all his wealth otherwise, but other than some proof that he intended her to benefit from the money in the account, no trust had been explicitly made out.
Significance- It is necessary that “words and actions … show a clear intention to dispose of property … so that someone else acquires a beneficial interest.”
The sufficient intention was made out from the fact that Mr Constance repeated “the money is as much yours as it is mine”, and so his partner was entitled to the money in the account.
Jones v Lock 1865 1 Ch App 25- to be compared to Paul v Constance above:
Facts- A man, having received a substantial cheque, had expressed that he was to leave it for the child of his second marriage, expressing his intention by placing the cheque in the babies hand and declaring his intention to provide it for him upon his death; his will only contained provisions for the child of his first marriage. His intention to leave the cheque was explained in unclear terms.
Significance- The requisite intention could not be made out to create a trust, even where it was clear that he meant to provide for his child upon his death. The judge was reluctant in depriving the child of the considerable amount of money but held that the giving of the cheque to the child and declaring his intention to leave it to him was merely symbolic of what he should have executed with his solicitor. It’s likely that the case would proceed following Paul v Constance if held today.
“I think it would be of very dangerous example if loose conversations of this kind, should have the effect of declaration of a trust.”
What are precatory words and how is this illustrated in Re Adams and the Kensington vestry 1884?
Precatory words- words which suggest a settlor’s wishes for how the trustee is to use the property, rather than expressly requiring him to. For example, “in the confidence, in the hope, in the belief” represents no more than a moral expectation rather than legal obligation. The transfer is said to be a gift rather than a trust.
“In Re Adams and the Kensington Vestry (1884) a testator left property to his wife (W) by will “in full confidence that she would do what was right by his children”. It was held that the property passed to W absolutely and no trust had been created, due to precatory words having been used.
- The court interpreted the statement to have added only a moral obligation on the wife to use the money in a way which would benefit the children and not to place her under an obligation to hold that money as trustee for the children”
What are the three ways in which property can be transferred and how does this fit into one of the equity maxims expressed in Milroy v Lord 1862?
Facts- Medley held shares in the bank of Louisiana and intended to transfer these to his niece, Milroy. Medley signed a deed with Lord (from the bank) to hold 50 of these shares on trust for Milroy, giving him powers to receive dividends on the shares, as well as to comply with the formalities of the company. After Medley’s death, Milroy sought to claim ownership of these shares, as they were still in Medley’s name. Lord had in fact failed to sufficiently receive title of the shares because he failed to comply with the regulations of the bank.
Significance- The CA held that the attempted transfer had failed; Milroy was not entitled to ownership of the shares, as Medley failed to transfer ownership to Lord, to hold on trust for Milroy. The court could not rectify an ‘imperfect gift into a perfect trust’, due to a failure on Lord’s part
Turner LJ concurred.” Three ways to give something were (1) legal transfer of title to recipient (2) transfer of title to a trustee for a beneficiary (3) a self-declaration of trust.” None of these were present in this case; it was an ‘imperfect gift’.
Equity will not perfect an imperfect gift by employing a different way of transferring property to that intended (and failing).
How was the equity maxim ‘equity will not perfect an imperfect gift’ applied in Richards v Delbridge? Why was the trust invalid?
Facts- Mr Richards employed a member of his family, Edward, in his business. He wished to hand over the business to Edward and evidenced his intention to make this gift by endorsing on the lease of the business premises a short memorandum: “This deed” – that is the deed of leasehold – “and all thereto belonging I give to Edward from this time forth with all the stock in trade.” However, the gift failed because it was imperfect.
Held: There was no express declaration of trust as it was intended as an outright gift; not to be held on trust.
Sir George Jessel MR: “If it is intended to take effect by transfer, the court will not hold the intended transfer to operate as a declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust…..It is true he need not use the words ‘I declare myself a trustee,’ but he must do something which is equivalent to it, and use expressions which have that meaning, for, however anxious the court may be to carry out a man’s intentions, it is not at liberty to construe words otherwise than according to their proper meaning.”
Important in understanding the way in which a trust can be created, with reference to the acceptable types of language which will render a trust valid or not, whilst distinguishing such words from an outright transfer of property, which was present in this case.
Facts and significance of JSC bank v Pugachev 2017 regarding the intention to create a power?
Facts- The court were assessing the trust deeds made by the defendant, which appeared to give him extensive powers, as settlor, a discretionary beneficiary, and protector, allowing him to exercise power selfishly. In doing so, he sought to hide his true ownership of the assets, to prevent them being paid to the claimant bank, who had gone into liquidation and was said to be owed substantial funds from the defendant.
Significance- “However, the true construction of the deeds was that the powers had been conferred on the first defendant to be exercised freely for his own benefit. Considered objectively, they were personal powers, conferred to allow him to act in his own best interests. They were not fiduciary powers and were not constrained by a consideration of the interests of the discretionary beneficiaries as a class. The fundamental reason for reaching that conclusion was the fact that the protector had extensive powers, was the settlor of the trust assets, and was also one of the named discretionary beneficiaries. It was significant that the power of removal of trustees was expressed to be “with or without cause” because that made negative any idea that the power was subject to a limitation of any kind. Arrangements had also been set up so that if the protector was subject to a court order requiring him to do something that he did not want to, he ceased to be protector and his son would stand in his place. That allowed the first defendant’s effective complete control of the trusts to cease to exist the moment he was compelled to do something he did not want to do, such as hand over assets to a creditor.”
What obligations does the certainty of subject matter requirement place upon trustees with regards to the trust property? What must be certain about the subject matter, and how might this vary between the nature of the trust property eg land v money?
Requirement of certainty: allows the trustees ascertain their obligations, and make sure they are capable of performance. Trusts can be invalidated where there is a lack of certainty, deriving from words which are so unspecific so as prevent the trustee from fairly performing payment eg “to pay most of my income to my nicest grandchild”. A court, in attempting to supervise this, equally would be unable to compel payment due to the imprecision of the instructions. In fact, the above example lacks certainty as to both subject matter and object.
Certainty of subject matter:
-Must have a definitive subject matter, some property, to be held on trust. It must be sufficiently identified. Where someone is said to hold property on trust for another, eg a set amount of money, there exists a duty to safeguard the trust property, and separate it from any other property which may be subject to change ownership/ be lost etc. Due to the nature of money in a bank, each £1 is equal to any other £1; conversely, an acre of land out of 100 can vary in value from any other acre of land, and therefore, if not separated and identified, heterogenous assets cannot be placed on trust validly. Obviously, if all of the heterogenous assets are placed on trust then there is no difficulty.
-The courts will hold invalid any terms which do not adequately specific a quantitative measurement of the assets to be held on trust eg most of my land or the bulk of my money. “The residue of my estate”, whilst providing no quantitative value, can be ascertained as the remaining assets which have not been identified as being delegated in a will. So too, a ‘reasonable amount’ is to be considered objectively by the courts, but this is not possible in all cases, as reasonableness can vary by other circumstances.
Re Ellenbrough 1903 facts and significance regarding certainty of subject matter?
Facts- Miss Towry law voluntarily expressed a desire to hand over the estates of her brother and sister in the event of their death; upon her sister’s death, she conveyed the property to the trustees, but failed to do so in the event of her brother’s eventual death. The claimants sought to recover the estate of the brother. Other than her expectation that she would be entitled to the property of her relatives upon their deaths, she had no sufficient interest in the property, and seemingly could not have set up a valid trust due to uncertainty over the subject of the trust, as it had not yet come to fruition that she was owner; only prospectively.
Significance- The court found in favour of Miss Towry; the prospective trustees were volunteers, gave no consideration for the eventual conveyance of trust property resting upon the expectancy of Miss Towry becoming an heiress to her brothers estate.
In answering the question, whether a volunteer can enforce a contract “made by deed to dispose of an expectancy”, the court held reiterated that ‘equity will not aid the volunteer’- if the deed had been made for value then it would have been enforceable, but not here.
“In my judgment the interest of the plaintiff as sole heiress-at-law and next of kin of the late Lord Ellenborough was not effectually assigned to the trustees by the deed, and the trustees cannot call upon her to grant, assign, transfer, or pay over to them his residuary real and personal estate.”
What do Re London wine and Re Goldcorp show about certainty of subject matter?
What does Hunter and Moss do to the rules given in Re London wine and re Goldcorp, and how does Dillon LJ distinguish them, and how does Re Harvard Securities further illustrate this?
The principle of these cases is that a trust is not constituted unless the subject matter is ascertainable; where the subject matter forms part of a larger collection of similar/ identical property, it must be separated so that it can be ascertained when beneficiaries seek to enforce the trust (bare trust) and take the property outright (thereby bringing an end to the trust). This is required so that a proprietary interest can be vested within tangible property.
The rule may be relaxed for a homogenous mass such as shares, as illustrated in Hunter v Moss 1994.
Dillon L.J. held: “We are not concerned in this case with a mere equitable charge over a mixed fund. Just as a person can give by will a specified number of his shares in a certain company, so equally, in my judgment, he can declare himself trustee of 50 of his ordinary shares in MEL and that is effective to give a beneficial proprietary interest to the beneficiary under the trust.”
Re Harvard Securities Holland v Newbury:
Facts- an Australian securities dealer bought both Australian and US shares; the US shares governed by English law and, after July 14th 1986, so were the Australian. Upon becoming liquidated, the companies’ liquidator had to determine whether the customers had any equitable title to the shares, as the shares were not separated upon purchase, and were held under the name of a London bank, potentially on trust to the customers.
Significance- English law, following Hunter v Moss, dictated that the former customers of the defendants had an equitable interest in the US shares, and Australian shares bought after July 14th 1986. There was no subject matter certainty for the other Australian shares, as Australian law had not followed the approach regarding non-tangible property in Hunter v Moss, but the US shares need not be separated and immediately recognisable in the way that the Australian shares should have been.
Re London wine exchange 1986 facts and significance?
Facts- the company ran a scheme allowing customers to bulk buy wine, which would remain in an identifiable warehouse, however it was not separately from other existing stock. The purchaser would own the wine, but it would be housed with the wine company, held on a bare trust by the wine company, or so it was intended. The wine company went bankrupt and their customers intended to retrieve the wine they believed they were entitled to.
Significance- it was held that, due to the lack of separation of the wine, there was no trust created by the LWC for the wine. There was no certainty of subject matter in the 3 cased made out. Each beneficiary could not have been allocated specific cases of wine to be held on trust by LWC. They were no more than unsecured creditors.
-It is therefore required that trust property be segregated from non-trust property for the purposes of certainty.
“Oliver J said as follows.
I appreciate the point taken that the subject matter is a part of a homogeneous mass so that specific identity is of as little as importance as it is, for instance, in the case of money. Nevertheless, as it seems to me, to create a trust it must be possible to ascertain with certainty not only what the interest of the beneficiary is to be but to what property it is to attach. I cannot see how, for instance, a farmer who declares himself to be a trustee of two sheep (without identifying them) can be said to have created a perfect and complete trust… And it would seem to me to be immaterial that at the time he has a flock of sheep out of which he could satisfy the interest.”
