Re Denley [1969] 1 Ch 373

KEY POINTS

• A purpose trust is established to fulfil a specific purpose rather than benefit individual beneficiaries. Unlike traditional trusts, which require identifiable beneficiaries, purpose trusts often address non-charitable goals, such as maintaining family properties or memorials. 

• Trusts for non-charitable purposes serve specific needs that do not qualify as charitable. The enforceability of these trusts can be complex due to issues with beneficiary identification, and they must comply with legal standards to ensure they are consistent with public policy.

• A forfeiture clause in a trust allows the creator to stipulate conditions under which a beneficiary may lose their benefits. This clause protects the trust's interests by imposing restrictions on beneficiaries who fail to meet certain criteria or engage in specific behaviors, ensuring that assets are used as intended.

• Section 61 of the Law of Property Act 1925 outlines the requirements for creating and managing property trusts. It clarifies the legal framework for property ownership and trust management, promoting efficiency and reducing disputes by defining the rights and obligations of property owners and beneficiaries.

FACTS

• The trust deed in question contains several clauses outlining the trustees' powers and responsibilities. Under clause 2, the trustees were granted powers to sell land they held.

• Clause 2(c) states that the trustees are to maintain the land as a sports ground, specifically for the benefit of the company's employees. It also allows for secondary use by other individuals whom the trustees may permit.

• Clause 2(d) grants the employees, subject to any regulations made by the trustees, the right to use and enjoy the land.

• Clause 2(j) sets forth conditions under which the trustees must convey the land to the General Hospital Cheltenham or as directed by it. This provision comes into effect if:

1. The number of employees subscribing to the scheme falls below 75% of the total number of employees subscribing at the rate of two pence per week per employee.

2. The land is no longer required or used by the employees as a sports ground.

3. The company enters liquidation.

• The primary legal question arises regarding the validity of clause 2. Specifically, it must be determined whether clause 2 constitutes a valid trust or if it is void due to clause 2(c) being characterized as a non-charitable purpose or object of trust. There is an issue regarding whether the clause makes provision for a class that cannot be ascertained.

JUDGEMENT

• The court ruled that the rule against non-charitable purpose trusts applied only to abstract trusts without identifiable beneficiaries. A trust framed as a purpose was valid if it benefited ascertainable individuals and was not void for uncertainty.

• The court determined that the employees were an ascertainable class. Clause 2(c) was interpreted as a power for the trustees, not a trust, allowing for partial defeasance in favour of employees. Thus, clause 2(c) was valid and not void for uncertainty.

• The court assessed clause 2(j) and concluded that it articulated clear concepts. The terms "employees subscribing" and "ceased to be required or used as a sports ground" were sufficiently definite, validating the entire trust, including the gift over.

• The court treated clause 2(j) as a forfeiture clause, clarifying that the condition regarding "subscribing at the rate of two pence per week per man" applied only to male employees. The provision in the Law of Property Act 1925 regarding gender was deemed inapplicable, and no forfeiture had been incurred.

COMMENTARY

• This case provides a thorough overview of purpose trusts and the complexities surrounding their enforceability, particularly in the context of non-charitable goals. The distinction between traditional trusts and purpose trusts is crucial, as the latter often addresses specific needs that do not qualify as charitable, such as maintaining family properties or memorials. This highlights the need for clear legal frameworks to support such trusts while ensuring compliance with public policy.

• The discussion of the forfeiture clause is particularly relevant, as it emphasizes the importance of safeguarding the trust's intentions. By imposing conditions under which beneficiaries may lose their benefits, these clauses ensure that the trust's assets are utilized appropriately and in alignment with the creator's intentions.

• The facts surrounding the trust deed highlight key elements of the case, including the powers and responsibilities of trustees and the specific clauses governing land use. The legal question regarding the validity of clause 2 and its characterization as a non-charitable purpose trust presents an interesting challenge, particularly concerning the ascertain ability of beneficiaries.

• The court's judgment effectively clarifies that a purpose trust can be valid even when framed as a non-charitable trust, provided it benefits ascertainable individuals. The interpretation of clause 2(c) as a power rather than a trust helps reinforce the validity of the overall structure. The court’s findings regarding clause 2(j) demonstrate the importance of precise language in legal documents and confirm the necessity of clarity in defining the conditions and rights associated with trust provisions. Overall, this case shows the evolving landscape of trust law and the importance of balancing legal rigor with the intention behind trust creation.