Week 6- Private purpose trusts/ the nature of a beneficiaries interest

Question 1

What is the beneficiary principle as derived from Morice v Bishop of Durham 1804/ 1805?

How does Roxburgh J sufficiently summarise the principle in Re Astor’s?

Answer 1

The beneficiary principle deriving from Morice v Bishop of Durham 1804 states that a trust cannot be valid unless it is for the benefit of identifiable and specific beneficiaries. This is subject to different rules governing fixed and discretionary trusts, but the underlying principle remains the same.
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.

Best expression of the beneficiary principle is as follows:
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.”

Question 2

How does Lord Millett explain the difference between a trust for persons and a non-charitable purpose trust with regard to primary and secondary consequences of the trust?

Answer 2

"It must be a question of construction in every case whether the trust is for the benefit of a class of individuals, the specified manner of their enjoyment … being secondary; or whether the specified mode of enjoyment is the essence of the gift, the indirect benefit to individuals being secondary. If the trust is of the first kind it is a valid trust for the benefit of the specified class who may, if unanimous, terminate the trust and call for the trust property. If the trust is of the second kind … it is an invalid purpose trust."
-In the absence of any conferral of a right to enforce the trust from someone who is not an intended beneficiary, owing to the nature of the trust as a purpose trust as opposed to a trust for a person, the trust could not be valid. The trust mechanism provides for the enforcement of the trust; a purpose or a physical object (as opposed to referring to beneficiaries as objects) cannot sue, whilst a charitable purpose object can sue through the AG or charity commissioners.

Question 3

What is the enforcer principle and how does Hayton suggest it could work to justify the existence of non-charitable purpose trusts?

Answer 3

• “Such tracing process will therefore be available if trustees of a non-charitable purpose trust are regarded as legal and beneficial owners of the trust property, subject to fiduciary and equitable obligations enforceable by the enforcer designated as such in the trust instrument… Sufficient proprietary aspects therefore arise in relation to non-charitable purpose trusts to justify their existence as enforceable trusts where an enforcer is expressly appointed in the English or foreign trust instrument. The basis of the trust is the unilateral transfer of assets by a settlor to a person voluntarily undertaking the office of trustee with the benefits and burdens attaching to such office.39 It should make no difference whether the burdens are enforceable by the beneficiaries or by the Attorney-General or the Charity Commissioners or by the designated enforcer.”
  “Where the settlor is enforcer of his trust for beneficiaries he may be regarded as a sort of protector or guardian of the interests of any beneficiary not yet ascertained and of full capacity. Most offshore, and some English, trust deeds appoint someone to be a protector with power to monitor the conduct of the trustees and to replace them and whose consent may be necessary to certain actions of the trustees.42 It is assumed in offshore cases43 that the protector must have locus standi to the extent necessary to enable him to perform his functions (and, indeed, the Manx appellate court has held that the court does have inherent jurisdiction to appoint a protector with key functions in the life of the trust where such office is vacant and otherwise no appointment could be made)”
  Hayton recognises the possibility of an enforcer principle which allows private purpose trusts to exist without beneficiaries so long as they are administered by a named executor; Penner recognises that caution must be taken with regards to the creation of such trusts:

Question 4

What rejections to the enforce theory are there?

Answer 4

• At law, the enforcer and trustee can agree to misapply trust property for their own benefit, or any benefit over than that dictated by the executor, and as the executor falls out of the picture once the property is transferred, and the courts can not get involved, there is nothing to prevent this. The obligations and the rights reside solely with trustee and enforcer respectively, and being private, no one else can prevent their misapplication.
• No AG equivalent for non-charitable purpose trusts.
• These are not truly purpose trusts, as the equitable interest resides in the enforcer, enforceable against the trustee, rather than to the purpose, administered by the trustee and overseen by the enforcer. As Penner recognises, The result is that the ‘purpose trust with enforcer’ mechanism Hayton describes, while perhaps within the law, does not deliver a true purpose trust, but rather enables the settlor to give his trustee a power to apply property to purposes and a power to another to make him exercise that power.”

Question 5

Facts and significance of Re Denley 1969?

Answer 5

Facts- “Trustees for sale of land were directed by the trust deed to maintain land for use as a sports ground “primarily for the benefit of the employees of the company and secondarily for the benefit of such other person or persons (if any) as the trustees may allow to use the same(the second bit being the trust).” The trust deed also provided “If at any time the number of employees subscribing shall be less than 75 per cent of the total number of employees at any given time (subscribing at the rate of 2d. per week per man) or if the said land shall at any time cease to be required or to be used by the said employees as a sports ground or if the company shall go into liquidation then the trustees shall… convey the said land to [a named charity] or as it shall direct.”

Significance- The trust was valid and the gift over was sufficiently precise and certain- money was provided for the purpose of the upkeep of land, but clearly for the benefit of certain people even where the money was not actually held on trust for specific or a class of beneficiaries- this is construed as a trust for persons, even where the money is to be applied by such persons for the upkeep or maintenance of people or property owned by people. 
Goff J formulated his argument on the basis that the employees were recognisable, and it was clearly a trust for their benefit. A non-charitable purpose trust would otherwise have been void.

Question 6

What does Goff J say in Re Denley about why non-charitable purpose trusts are void, and thereby why the trust in Re Denley was not void, in comparison to the trusts in Re Endacott and Re Astor?

Answer 6

“I think there may be a purpose or object trust, the carrying out of which would benefit an individual or individuals, where that benefit is so indirect or intangible or which is otherwise so framed as not to give those persons any locus standi to apply to the court to enforce the trust, in which case the beneficiary principle would, as it seems to me, apply to invalidate the trust, quite apart from any question of uncertainty or perpetuity. Such cases can be considered if and when they arise. The present is not, in my judgment, of that character, and it will be seen that clause 2 (d) of the trust deed expressly states that, subject to any rules and regulations made by the trustees, the employees of the company shall be entitled to the use and enjoyment of the land. Apart from this possible exception, in my judgment the beneficiary principle of In re Astor’s Settlement Trusts. which was approved in In re Endacott, decd. - see particularly by Harman L.J. - is confined to purpose or object trusts which are abstract or impersonal. The objection is not that the trust is for a purpose or object per se, but that there is no beneficiary or cestui que trust.

Question 7

What underlying themes do there appear to be in those non-charitable private purposes trusts which are valid?

Answer 7

Some form of upkeep/ maintenance which is necessary after the death of the testator

Question 8

Which exception does Re Hooper illustrate?

Answer 8

1) Tombs and monuments- Bequests for family burial enclosures are construed as purpose trusts- a gift of money may be bequeathed for the building of a monument, so long as this is done within the period of perpetuity.
Re Hooper 1932 1 ch 38:
Facts- Testator gave money to trustees for upkeeping family graves, and a tablet in a window in a church so far as it was legal to do so.

Significance- Maugham J held that the gift was upheld for 21 years. Clearly no beneficiary here in the normal sense of a trust. “Something has been said with regard to apportionment. To my mind there is no room for a legal apportionment, because it is left to the discretion of the trustees to arrange how much they will out of this income apply during the twenty-one years to the four objects in question. At the end of the twenty-one years any part which is not applied for the upkeep of the tablet and the window in St. Matthias’ Church will, of course, be undisposed of and will fall, unless some other event happens, into residue.”
-Residuary legatees could enforce it via a court order (Pettinger order)

Question 9

Which exception does Re Dean 1889 illustrate?

Answer 9

Re Dean 1889 41 Ch D 552:
Facts- gift of £750 per year for 50 years made to maintain the horses and hounds, so long as they continued to live.

Significance- the trust was upheld, although questioned with regards to the length of the validity of the trust.
North J relied on Mitford v Reynolds. There was no objection to this trust so long as “it is not to last for too long a period”.
This case serves as authority for the proposition that a trust for the upkeep of specific animals are valid for the perpetuity period (note a perpetuity period is the length of a life plus 21 years.

Question 10

What anomalous example of exceptions to the rule against non-charitable purpose trusts does Re Thompson illustrate?

Answer 10

“an alumnus of trinity hall, Cambridge, bequeathed a legacy to Lloyd, an old friend, to be applied in such manner as he should think fit towards the promotion and furtherance of fox-hunting, and gave the residuary to Trinity Hall. Lloyd made no claim to any beneficial interest, but desired to carry out the testator’s wishes if he should be permitted to do so. Trinity Hall also was anxious that the trust should be performed; but felt it it’s duty, as a charity, to submit that the trust was void for lack of a beneficiary. There was no problem of perpetuity, and Clauson J held that the purpose was sufficiently certain. He upheld the gift by ordering the money to be paid to Lloyd upon his giving an undertaking to apply for it for these stated objects and gave trinity hall liberty to apply if the money should be used for other purposes.”

Question 11

How was it suggested in Re Thompson that a non-charitable purpose trust be enforced, although what limited circumstances was it confined to on the facts of the particular disposition in that case?

Why might it be simply fallacious?

Answer 11

“The proper way for me to deal with the matter will be, not to make, as it is asked by the summons, a general declaration, but, following the example of Knight Bruce V.-C. in Pettingall v. Pettingall 5 , to order that, upon the defendant Mr. Lloyd giving an undertaking (which I understand he is willing to give) to apply the legacy when received by him towards the object expressed in the testator’s will, the plaintiffs do pay to the defendant Mr. Lloyd the legacy of 1000l.; and that, in case the legacy should be applied by him otherwise than towards the promotion and furthering of fox-hunting, the residuary legatees are to be at liberty to apply.” The residual legatee, who’s interest is determined by the ability and the actions of the original legatee to carry out the obligations as trustee, can be the enforcer of that particular trust, and apply for their entitlement of the residual legacy if the original trustee fails to carry out his obligations.

Trinity College’s ability to ‘enforce the trust’ was based off of negative enforceability- they couldn’t actually enforce the purpose trust at all, just threaten the original trustee with the ability to apply to the courts to have the residual legacy bestowed to them upon the original trustee defaulting on using the funds for the purposes of the trust.

Question 12

Facts and significance of re Astor 1952 regarding the enforceability of trusts without beneficiaries/non-charitable purpose trusts?

Answer 12

Facts- Lifetime settlement expressly limited to a period of lives in being plus 21 years, for trustees to hold a fund upon various non-charitable purposes including “the maintenance of good relations between nations… the preservation of the independence of the newspapers” and other similar purposes in favour of individual newspapers.

Roxburgh J held that the trust was invalid because no one existed to enforce it, and further the objects of the trust were inherently uncertain. Held, (1) a court of equity would not recognise as an equitable obligation, affecting the income of large funds in the hands of trustees, a direction to apply it in furtherance of enunciated non-charitable purposes in a manner which no court or department could control or enforce; therefore, the trusts were void on the ground that they were not trusts for the benefit of individuals; (2) the trusts were also void for uncertainty.
“On the other side is a group of cases relating to horses and dogs, graves and monuments - matters arising under wills and intimately connected with the deceased - in which the courts have found means of escape from these general propositions and also In re Thompson 61 and In re Price 62 which I have endeavoured to explain. In re Price 63 belongs to another field. The rest may, I think, properly be regarded as anomalous and exceptional and in no way destructive of the proposition which traces descent from or through Sir William Grant through Lord Parker to Harman J. Perhaps the late Sir Arthur Underhill was right in suggesting that they may be concessions to human weakness or sentiment (see Law of Trusts, 8th ed., p. 79). They cannot, in my judgment, of themselves (and no other justification has been suggested to me) justify the conclusion that a Court of Equity will recognize as an equitable obligation affecting the income of large funds in the hands of trustees a direction to apply it in furtherance of enumerated non-charitable purposes in a manner which no court or department can control or enforce. I hold that the trusts here in question are void on the first of the grounds submitted by Mr. Jennings and Mr. Buckley.”

Question 13

What were the facts of Re Endacott and what limited exhaustive list would apply henceforth for non-charitable purpose trusts?

Answer 13

Facts- A gift in a will to a parish council “for the purpose of providing some useful memorial to myself” is not a good charitable gift. A testator gave his residuary estate, worth about GBP 20,000, to a parish council “for the purpose of providing some useful memorial to myself.”

Held, the gift failed and the residue fell to be distributed as on an intestacy

The maintenance of stables and animals
The maintenance of graves/ tombs/ monuments

Both subject to period of perpetuity.

Question 14

What is the argument that non-charitable purpose trusts do not exist at all?

Answer 14

Only those recognised within the narrow exhaustive list explained in Re Endacott are currently considered as valid NCPT- however there is justifiable criticism that they are even purpose trusts at all, in the same way that charitable purpose trusts are (and are valid without beneficiaries as they have the AG to compel performance, and charities often exist for purposes, of which persons are secondly beneficiaries (in a non-legal sense).

Question 15

What is an interpretation of trusts for persons?

Answer 15

• Sometimes a purpose trust will be construed as an outright transfer/ gift in favour of a beneficiary who benefits from the purpose of the trusts, or at least it will be a trust for a person as opposed to a trust for a purpose, with the money bequeathed outright and a purpose provided, but not enforceable. The practical effect of this is as follows; the person intended to benefit from the purpose of the trust, ie the way in which the trust fund is to be spent/ applied, takes the trust fund absolutely, even if they choose not to apply the fund in favour of the intention of the testator. This rule can be rebutted in the case of prospective trustees who are of ‘normal capacity’; people with a disability may not be able to apply their money for their absolute benefit due to external pressures or deceit, so any remaining trust property may be returned to the donors or their residue estate, whereas other people who are capable of applying the trust property fully for their own benefit would be entitled to keep it (or fall to their estate upon their death).

Question 16

Facts and significance of Re Bowes 1896 regarding trusts for persons?

Answer 16

Facts- Testators will included provision that ‘I bequeath to my trustees the sum of £5,000 sterling upon trust to expend the same in planting trees for shelter on the Wemmergill estate.” Whilst possible to plant £5000 worth of trees, the intended beneficiary did not want £5000 worth of trees and applied to take the money outright- the land could be used for more efficient purposes and the money could be better spent elsewhere.

Held- the £5000 was taken to be precatory language and the application to take the money outright was granted. The purpose was not binding upon them, merely guidance as to how the money might be applied.

North J: “Then, the sole question is where this money is to go to. Of course, it is a perfectly good legacy. There is nothing illegal in the matter, and the direction to plant might easily be carried out; but it is not necessarily capable of being performed, because the owner of the estate might say he would not have any trees planted upon it at all. If that were the line he took, and he did not contend for anything more than that, the legacy would fail; but he says he does not refuse to have trees planted upon it; he is content that trees should be planted upon some part of it; but the legacy has not failed. If it were necessary to uphold it, the trees can be planted upon the whole of it until the fund is exhausted. Therefore, there is nothing illegal in the gift itself; but the owners of the estate now say: “It is a very disadvantageous way of spending this money; the money is to be spent for our benefit, and that of no one else; it was not intended for any purpose other than our benefit and that of the estate. That is no reason why it should be thrown away by doing what is not for our benefit, instead of being given to us, who want to have the enjoyment of it.” I think their contention is right. I think the fund is devoted to improving the estate and improving the estate for the benefit of the persons who are absolutely entitled to it.”

Question 17

Facts and significance of Re Abbott 1900 and Re Andrew (two opposite examples of trusts for persons and seemingly unreconcilable)

Answer 17

Re Abbott: Facts- Two sisters, who were deaf and dumb and probably quite elderly, were left without means of support. Friends subscribed to a fund to provide for their maintenance. When in time both ladies died, some money remained in the fund. Again, the question was what was to happen to this money. If the money was treated as put into the fund for the ladies’ absolute benefit, it should go to their estates now that they were dead. Whereas if it was treated as given for their maintenance alone, then that purpose came to an end with their deaths, so the remaining money had to be given back to the donors.

It was held that the latter was the position. The usual rule whereby purpose trusts are read as conferring absolute entitlements was thus displaced, and at the same time it was assumed that at any rate a purpose trust such as this was valid.

Re Andrew : Facts- A fund was set up, and donations made to it, to provide for the education of the children of a deceased clergyman. The children had now reached adulthood, and their formal education was over, but there was still money left. The question was whether the children were absolutely entitled to the money in the fund, so that they should now have the rest of it too; or whether it was strictly for their education, so that the surplus should be returned to the donors.

The usual rule of construction was followed, so the trust on which the donations were made was interpreted as one not for the purpose of the children’s education but for the children as absolutely entitled beneficiaries. The children were therefore entitled to the surplus.
“‘… there are two classes of cases between which the general distinction is sufficiently clear, although the precise line of demarcation is occasionally somewhat difficult to ascertain. If a gross sum be given, or if the whole income of the property be given, and a special purpose be assigned for that gift, this court always regards the gift as absolute, and the purpose merely as the motive of the gift, and therefore holds that the gift takes effect as to the whole sum or the whole income, as the case may be’.”

Question 18

How does Penner attempt to reconcile Re Andrew and Re Abbott?

Answer 18

• A different distinction which Gardner makes relates to the capacity of the objects of the trust- “The effect of the usual rule is that people have full dominion over the money in question, rather than that it is spent on the designated purpose on their behalf. This is attractive in terms both of the rights thesis and of (p. 62) economic utility, as explained above. The attraction holds good, however, only where the people in question are of normal capability. If people of reduced capability are given full dominion over the money, their infirmity may lead to their being exploited. So, it is appropriate that the rule should be disapplied, and the purpose trust allowed to stand, in these circumstances. The decision in Re Trusts of the Abbott Fund32makes good sense in these terms. At first sight, it might seem right to seek the same treatment of trusts for children, such as that in Re Andrew’ s Trust:33 children too lack full capability and so merit the protection of a trust. But children will eventually become fully capable adults (those in that case had done so by the time it came to court), and in the meantime it is safe to hold them absolutely entitled to the

Question 19

Facts and significance of Re Osoba 1979 regarding trusts for persons where there are multiple persons?

Answer 19

Facts- The rule that the court regards as absolute a gift made for a purpose of a whole sum or income, and the purpose as merely the motive of the gift, applies where the gift is to more than one person. T, the testator, by a clause of his will bequeathed to his wife all rents from certain properties “for her maintenance and for the training of my daughter up to university age and for the maintenance of my aged mother.” By cl. 5 he bequeathed and devised the resident to his wife upon the same trusts.

Held, T was by those bequests merely stating his motives for creating the trust; the gift of residue was not limited to a specific use or uses, but was a gift of the whole fund to the wife, the mother and the daughter absolutely, in equal shares
Goff- “The initial question of construction is, then, whether the words in this residuary clause do indicate an intention to make a gift with a superadded expression of purpose, and I start with this, that where there is but one beneficiary and the purpose is that of maintenance or education, that is tantamount to a gift to the beneficiary and the purpose is accordingly disregarded: See, for example, Webb v. Kelly (1839) 9 Sim. 469 , 472, where Shadwell V.-C. said: “I think that a gift for the maintenance and education of the legatee, is an absolute gift;” and Lewes v. Lewes (1848) 16 Sim 266 , 267, where the same Vice-Chancellor said:
“I think that there is no sensible way of dealing with this case, except by taking the words: ‘for the maintenance, clothing and education,’ to be equivalent to: ‘for the benefit of the children’.”

Question 20

What is the general overall position on non-charitable purpose trusts?

Answer 20

Overall, there is a general prohibition against private-purpose trusts due to their unenforceability, in the absence of any executor appointed to enforce the obligations of a trustee. There are still a number of exceptions to the beneficiary principle which also exist in purpose trusts (notably charitable trusts) but also the anomalous cases between Re Dean and Re Endacott, which include maintenance and creation of memorials, upkeep of animals, all of which are limited to the period of perpetuity (the life of the testator plus 21 years) to ensure that trust property remains applied consistently with the intentions of the testator but also not offending the general notion of property laws ie property applied to other trust property leaves no one to enforce the obligations of the trustee. Other exceptions include the interpretation of trusts as outright gifts with an accompanying intention as to how the testator would like the trust to be disposed of, even though this is not binding on the parties receiving the gifts, as these are merely precatory words to express an intention rather than a legal obligation

Question 21

What is a recap of the rule in Saunders v Vautier

Answer 21

That a trustee holding trust money on bare trust for a beneficiary can be compelled to transfer the trust property to the beneficiary at their request, even if the terms of the trust says otherwise eg in this case the trustee was supposed to accrue true property until the beneficiary became 25, but B compelled performance aged 21

Question 22

Facts and outcome of Baker v Shee 1927 regarding equitable and beneficial interests and the notion of ownership?

Answer 22

FACTS- A testator, a citizen of the United States, left the residue of his property in trust for his daughter during her life. The trustees, who had full power over the investment of the trust fund, were a company constituted under the law of the State of New York and resident therein. The trust fund consisted of foreign Government securities, foreign stocks and shares, and other foreign property. The trustees paid over such of the sums they received as they considered to be income, after deducting expenses, to the order of the daughter at a bank in New York. No part of the income was remitted to the United Kingdom. The respondent who was the husband of the testator’s daughter and resident in the United Kingdom, was assessed under Case IV. of Sch. D in the full amount of the income of the trust: The husband was liable to income tax notwithstanding the fact that he lived in the UK whilst the beneficiary (his wife) resided in the US and was a citizen therein,

Held, (by Lord Atkinson, Lord Wrenbury, and Lord Carson; Viscount Sumner and Lord Blanesburgh dissenting), that the daughter was specifically entitled under the will in equity during her life to the interest and dividends of the securities, stocks, and shares comprised in the trust fund, and that consequently her husband was assessable under Case IV., r. 1, and Case V., r. 1 , to income tax in respect thereof (except such, if any, as were shown to be “foreign possessions other than stocks, shares and rents”) whether such interest and dividends were remitted to the United Kingdom or not”- on account of the daughter receiving these dividends and the husband living in the UK, he was assessable for tax on these securities.

Question 23

What was Viscount Sumner’s dissent in Baker v Archer Shee concerned with?

Answer 23

Viscount Sumner (dissenting): “The same rule of “income tax law” must, however, be applicable to all these cases. No doubt it is true that an accountant could always more or less simply appropriate certain fractions of each incoming and each outgoing to each object of the trust in a uniform proportion. That, however, is done by making assumptions which may not correspond to the facts, and by computing accordingly. The trustee may in his discretion pay one beneficiary out of the money collected from a security, another out of a payment of rent, and a third out of the profits of a business. He may, on the other hand, if he thinks fit, pay everything received into one account and then draw on that account generally in favour of each beneficiary. In either case it is plain that no specific dividend or interest payment “belongs” in any proper sense of the word to any particular beneficiary. The distribution rests with the trustee, so long as he complies with his duties. A series of accounts could be made out between the trustee and each beneficiary crediting the latter with a fraction of each item of income *854 and debiting him with a fraction of each item of outlay, in such a way that, on aggregating all the separate accounts, the debits and credits would exactly correspond to the trustee’s general account of his trust. Similarly, by appropriation of payments in the trust bank account, the source out of which any given payment was made

Question 24

What does Commissioner of Stamp duties v Livingston1 say about the comparison of beneficiary rights with residuary legatees?

Answer 24

• Comparison of the interests or lack thereof of residuary legatees in comparison to the beneficial interest of a beneficiary in a trust.
• The case established that a residuary legatee holds no beneficial interest in the trust property even though they have the right to enforce the trust and have property transferred to them by the trustee which has been incorrectly disposed of- they hold rights against the trustee, or third parties who take property improperly, even though they may never acquire any interest in the trust property if the residual of the estate amounts to nothing. There is no beneficial enjoyment for the residuary legatee, and no interest of this kind can exist in principle until all creditors and legatees have been paid, because until that point, no residuary exists at all, and thereby no interest can exist.

Facts- “Hugh Livingston died in 1948. By his will he left one-third of his residuary estate to his widow, Jocelyn Livingston. She remarried after his death and became Jocelyn Coulson. However, she died intestate in 1950, before the administration of Livingston’s estate had been completed, and before any residue had been ascertained and any final balance payable or attributable to the residuary legatees had been determined. Livingston had been domiciled and resident in New South Wales at the time of his death and his will had been proved there. Coulson had also been domiciled and resident in New South Wales at the time of her death. However, Livingston’s estate included property in Queensland, and the question was whether Queensland succession duty was payable by Coulson’s executors in respect of her share of the Queensland property.

Held- The duty was payable under the relevant legislation only if Coulson had died possessed of a ‘beneficial interest’ in the property, language which was understood by the court to signify an interest akin to the ‘beneficial interest’ which a trust beneficiary has in the trust fund. The Privy Council held that Coulson had not had such an interest. She had only had a personal right against Livingston’s executors which had been ‘capable of being invoked for any purpose connected with the proper administration of his estate”

In Livingston, Viscount Radcliffe held on the strength of these authorities that property received by an executor by virtue of his office comes to him ‘in full ownership, without distinction between legal and equitable interests’, but he holds this property ‘for the purpose of carrying out the functions and duties of administration, not for his own benefit’; hence he holds the property, subject to duties which can be enforced by a residuary legatee:

Question 25

What rights do beneficiaries of a discretionary trust fund have, following Gartside v IRC 1968?

Answer 25

Significance- Held, that the only right of an object of a discretionary trust, of income is to require the trustees to consider from time to time whether or not to apply the whole or some part of the income for his benefit, and this right is not an interest in the whole fund or any part of it within the meaning of section 43 of the Finance Act, 1940.
An “interest in possession” must mean that the person’s interest enables him to claim whatever may be the subject of the interest. A right to require trustees to consider whether they will pay him something does not enable him to claim anything.
Per Lord Wilberforce: As regards the accumulations, there was no “interest in possession” because the whole income was being validly accumulated for the benefit of persons with contingent interests and accordingly section 43 did not attach (post, p. 622B-C)

Question 26

How are beneficiaries in discretionary trusts treated as per Lord Denning?

Answer 26

Lord Denning: “What is the nature of the interest of the objects of a discretionary trust? Is it an “interest in possession” or an “interest in expectancy”? It must be one or other. Faced with this choice, I have no doubt what the answer is. It is not a future interest. It is an interest in possession. Take the common case where the trustees distribute the whole of the income to one of the objects of the discretionary trust. Just as in Attorney-General v. Heywood, 46 the trustees paid to Edmund Peel during his life the whole income of the funds of the settlement; and in Burrell v. Attorney-General 47 the trustees applied nearly the whole of the income (£115,000) in paying the allowance to Harry. Surely when the whole income is paid to one of the discretionary objects, his interest is an “interest in possession.” There is nothing future about it at all. It is actually in hand. And he has the beneficial enjoyment of it. Next, take the case where very little is paid to one of the discretionary objects, as here, when only £786 was paid to the son and £50 to the wife. No valid distinction can be drawn between the case where the whole is paid out and only very little. The interest of everyone who receives something is an interest in possession. Next, take the case where some objects of the discretionary trust receive something, and others receive nothing. It seems a little difficult to say that those who get nothing have an interest in possession. But be that as it may, it is plain that the group of all the discretionary objects, considered as one unit, have an interest in possession: because some of them at least have beneficial enjoyment of it

Question 27

Facts of Shell v Total?

Answer 27

Facts- UKOP and WLPS held fuel pipelines on trust for shell when they exploded, due to the negligence of Total. Shell wished to join its trustees in proceedings against Total, where it was held that Total were liable for the consequential economic loss to the beneficiaries. The defendants suggest that the claimants can claim only for the losses which they have suffered (consequential as opposed to pure) and that they cannot claim for the losses suffered by some other party (ie Shell).

Question 28

What reasons were given for the decision in Shell and Total and why is it said to rest on an incorrect understanding of equitable property rights?

Answer 28

Significance- Waller LJ: “143. We must confess to being somewhat influenced as was Neuberger J (in para 16) by what Lord Goff of Chieveley in White v Jones [1995] 2 AC 207, 259–260 called “the impulse to do practical justice”. It should not be legally relevant that the co-owners of the relevant pipelines, for reasons that seemed good to them, decided to vest the legal title to the pipelines in their service companies and enjoy the beneficial ownership rather than the formal legal title. Differing views about the wisdom of the exclusionary rule are widely held but however much one may think that, in general, there should be no duty to mere contracting parties who suffer economic loss as a result of damage to a third party’s property, it would be a triumph of form over substance to deny a remedy to the beneficial owner of that property when the legal owner is a bare trustee for that beneficial owner.”
“147. In the light of those contractual arrangements it is impossible to think that Shell could have possession of the pipelines. The correct analysis must be that it was BPA that had actual possession since it was their employees who controlled the taps or the manifolds at the site and thus controlled access to entry to and egress from the pipeline and storage tanks.
148. Nor can Shell be said to have a right to immediate (or any) possession of the pipelines, because at any one time it might be fuel from another user which was proceeding through the pipelines, pursuant to a contractual arrangement which entitled that other user to the use of the pipelines and bound the remaining users to respect that use. Mr Rabinowitz always put his case on the basis that it was sufficient for Shell to be a co-owner of the pipelines for Shell to have sufficient right of possession. But the fact that its co-owners would also have a right of possession (if it exists) only makes the position more problematic from Shell’s point of view.”

Question 29

What has Turner said about the decision in Shell?

Answer 29

P.G Turner: “Once the court decided that Shell’s pure economic loss should be compensable, several sub-questions remained. Should Shell have an independent right of action? If so, Total would owe duties of care both to the trustee and beneficiaries and Total could be sued, in separate actions, by each of them in their own name. Or should the trustee have the only cause of action but be allowed to recover damages (i) for Total’s infringement of the trustee’s common law rights of possession in the pipes and (ii) for consequential economic loss thereby caused to the beneficiaries? If the trustee should have the only cause of action, would the action properly be brought in the trustee’s or a beneficiary’s name? As the quoted passage indicates, the Court of Appeal did not grapple with these distinctions.

Question 30

What is the possibility of the Albazero extension from contract to trusts in regard to beneficial owners joining proceedings and claiming the loss suffered vicariously by them through their trustees?

Answer 30

“A clear set of answers could have been reached by extending the principles discussed in The Albazero [1977] A.C. 774 (HL), regarding the analogous problem in contract law. Recovery of damages for breach of contract generally requires the innocent party to demonstrate actual loss. Accordingly, losses sustained by beneficiaries’ consequent upon a third party’s breaching a contract with the trustee were once irrecoverable. An ancient exception affirmed in The Albazero allows a trustee to recover damages in contract reflecting the beneficiaries’ loss: e.g. Robertson v. Wait (1853) 8 Ex. 299 (Exch.Ch.). The trustee is accountable to the beneficiaries for any proceeds recovered. Since it is the trustee’s duty to sue, it is generally he who does so. Only if he fails to do so may the beneficiaries sue the third parties. The beneficiaries then exercise the trustee’s legal rights, not their own.
While the court in Shell may have thought it was simply extending these principles, it instead produced a strange hybrid of tort and trust law. For while Total was found to owe a duty of care towards the trust beneficiaries, that action could apparently only be pursued to judgment if the beneficiary joined the legal owner in the proceedings. Statute apart, other duties of care in negligence do not suffer that imperfection. Indeed, if the contractual principles discussed in The Albazero had been faithfully extended into tort, Total would not have owed a duty of care to Shell as a trust beneficiary at all. The trustees simply would have been able to recover for damage which they did not themselves sustain.”