#3115 - Intro To Equity - GDL Equity and Trusts

- Development of equity: remedy to harshness of common law.

• petitions: appeals to King, then delegated to Chancellor court of Chancery along common law courts.

• conscience: basis of Chancellor’s decisions, but: unpredictable + uncertain.

• system of equity: 16C/17C on – precedent in Chancery dev. into system.

• developments:

  • 1. new procedues: e.g. subpoena

  • 2. new remedies: e.g. injunction, specific performance, rescission, rectification.

  • 3. new rights: e.g. equity of redemption, rights under trusts.

• trust: equitable invention

  • legal + equitable ownership split: trustee (legal owner) + beneficiaries (equitable/beneficial owner).

• relationship with common law: tension at first.

  • 1615 Earl of Oxford’s Case – James I decided equity should prevail in cases of conflict. principle still in s49(1) Senior Courts Act 1981.

  • 1873-75 Judicature Acts: all courts can apply rules of common law and equity.

- Maxims of equity: statements of broad principles – may apply if no contrary authority.

• 1. equity will not suffer a wrong to be without remedy.

• 2. equity follows the law.

• 3. where the equities are equal, the law prevails.

• 4. where the equities are equal, the first in time prevails.

• 5. he who seeks equity must do equity.

• 6. he who comes to equity must come with clean hands.

• 7. delay defeats equity.

• 8. equality is equity.

• 9. equity looks to the intent rather than the form.

• 10. Equity looks on that as done which ought to be done. (N.B.: only applies where there is an enforceable contract in existence)

• 11. equity imputes an intention to fulfil an obligation.

• 12. equity actsin personam.

• (13. equity will not assist a volunteer.)

• (14. equity will not perfect an imperfect gift.)

• (15. equity will not construe a valid power out of an invalid trust.)

• (16. equity will not permit a statute to be used as an instrument for fraud.)

• (17. equity will not permit a trust to fail for want of a trustee.)

- Trust: method of dividing ownership of property – separates duties + obligations from benefits + rights of enjoyment.

• settlor: person who creates a trust – transfers property to trustee to hold on trust for beneficiary.

• trustee: legal title to property duties + obligations + legal powers of ownership.

  • equity imposes obligations: must carry out terms of trust to benefit beneficiary.

• beneficiary (‘cestui que trust’): equitable/beneficial interest in property right to enjoy + benefit.

- Trust property: trust can exist in relation to any form of property.

• real property – realty: freehold land (action ‘in rem’ possible).

• personal property – personalty: all property other than freehold land.

  • chattels real: leasehold land (personalty for historical reasons, even though action in rem now available to leaseholders).

  • chattels personal: all personal property other than leasehold land.

    • choses in possession: tangible personal property.

    • choses in action: intangible personal property, e.g. shares, debts, insurance, intellectual property (rights can be asserted by action in the courts).

- Trusts distinguished from other concepts: contracts + administration of estates.

• contracts:

  • creation: usually product of agreements between parties – vs. trusts: can arise from settlor’s unilateral decision.

  • parties with rights: usually only enforceable by parties to contract – vs. trusts: beneficiaries always obtain beneficial rights.

  • nature of rights: rights purely personal – vs. trusts: beneficiaries have proprietary rights to trust property (+ can also sue trustee personally for breach of duties).

• administration of estates: property vested in executors to administer in accordance with will or statutory rules for intestacy.

  • rights: will beneficiaries: no enforceable rights during administration – vs. trusts: beneficiary has enforceable rights as soon as trust created.

  • time: administration: usually takes several months – vs. trusts: can last for many years.

- Use of trusts today: has proved flexible + adaptable concept.

• pension schemes: funded by company + employee contributions ‘pot’ for each employee, used to fund lump sum + pension benefits on retirement.

  • tax advantages: employer + employee contributions tax deductible; fund pays no income tax or CGT on investment returns.

  • security: scheme funds separate from company’s own assets.

• investments: e.g. unit trust: investors purchase units/shares in a fund.

• security against insolvency: trusts attached to contract/loan beneficiary will generally take priority over other creditors in insolvency.

  • sale of goods: trust can be used by seller/buyer to retain equitable interest until full payment/goods received.

  • loans for specific purpose: lender imposes trust on loaned sum retains equitable interest unless/until money used for agreed purpose + takes priority if borrower insolvent.

  • shared land: trust arrangements underpin vast majority of land transactions – since 1997: all trusts inc. land are “trusts of land”.

  • clubs and incorporated assocs: cannot hold property in name of club vested in trustees for benefit of club members.

  • charitably trusts: enforced on behalf of public by Attorney General.

  • providing for family: allows for ‘structured gifting’ – settlor can dictate when + how beneficiaries will enjoy the benefit of the property.

    • often nor practical/desirable for minor to hold property in own right: incapacitated, extravagant etc.

    • long-term provision possible: e.g. life interest + remainder interest; can cater for changes in future circumstances; can impose restrictions on use of property.

  • taxation: esp. family trusts can minimize effects of taxation.

    • income tax: putting property in trust can result in lower rate of income tax on investment returns.

    • capital gains tax: rates more favourable in some trust arrangements, esp. discretionary trusts (trustee selects one or more beneficiaries from defined class).

    • inheritance tax: trust capital may not be regarded as part of deceased’s estate for inheritance tax purposes.

- Terminology:

• trust: equitable relationship which subsists when the settlor creates a trust by transferring assets to a trustee to hold on trust for a...