#17293 - The Beneficiary Principle - GDL Equity and Trusts

The beneficiary principle

• Morice v Bishop of Durham per Lord Grant, MR.

  • “Every trust must have a definite object. There must be somebody in whose favour the court can decree performance”.

• In a private express trust the beneficiaries have personal interests in the terms being carried out properly. They therefore have the power (or ‘standing’) to take the trustees to court to enforce performance of their obligations.

• A charitable trust does not require ascertainable beneficiaries. The Attorney General has the power to enforce the terms

Equity abhors a vacuum – must be able to identify the owner of a property at all times.

Orthodox position is that private purpose trusts must fail:

• Leahy v AG New South Wales [1959]

  • Gift upon trust for a group of contemplative Carmelite nuns, as a worldwide order no individual could enforce it. Privy council concluded the gift was designed to further the purposes of the nunnery, but as not a charity this trust failed.

• Re Astor’s Settlement Trusts [1952]

  • Trust for advancing the preservation of the independence and integrity of the newspapers. Purpose not charitable, no human beneficiaries therefore void.

• Chichester Diocesan Board v Simpson [1944]

  • Trust for ‘charitable or benevolent objects’ - not considered charitable as no human beneficiaries therefore void.

  • If the purposes are ‘charitable and philanthropic’, they are wholly charitable; but if they are described as ‘charitable or philanthropic’, the trust will not be charitable as the funds could be applied entirely to non-charitable purposes. So will fail.

The Exceptions in Re Endacott [1960]

• There are some purpose trusts, these amount to ‘concessions of the human sentiment’

  • per Harman LJ “there have been decisions at times which are not really to be satisfactorily classified, but are perhaps merely occasions when Homer has nodded…at any rate these cases stand by themselves and ought not to be increased in number, nor indeed followed, except where one is exactly like another.”

• Three conditions for purpose trusts:

  • 1) The trust is for a purpose that has been recognised in the past as valid

  • 2) The trust has been limited in perpetuity

  • 3) There is someone who is willing and able to execute the trust.

• These are trusts of imperfect obligation

1) Recognised purposes

• i) Monuments, tombs and graves

  • Re Hooper [1932] 1000 to provide “so far as they can legally do so and for as long as may be practicable for:

    • A grave, a monument, and upkeep of a vault.

  • Mussett v Bingle [1876] 300 for the erection of a monument and 200 for its maintenance.

    • The first part valid, the second one void as it was not limited for a specific duration – statutorily limits to 99 years.

  • Must not be capricious e.g. McCaig v University of Glasgow (1907)

    • Money left by testator to build a statute of himself and towers in his memory in prominent places.

    • McCaig’s Trustees v Kirk-Session (1915) 11 bronze statutes each costing not less than 1000 to be erected in Scotland in the memory of the members of his family. Stuck out.

  • NB in Endacott a trust for a memorial was deemed not to fall within the exception of monuments.

• ii) The Upkeep of Individual animals

  • Re Dean (1889)

    • Fund for maintenance of horses and hounds for 50 years if any of them shall live so long - Valid trust

  • Pettingall v Pettingall (1842)

    • 50 was left to be used to maintain a black mare after the testator’s death - Valid trust

  • Note – gifts for individual animals cannot be charitable, hence they can only take effect as a purpose trust.

• iii) The Saying of Private masses

  • Re Hetherington [1989]

    • Masses in public are charitable, in private – cannot be charitable, but may take effect as a valid purpose trust

  • Bourne v Keane [1919] AC 815

    • Upheld private masses as a valid trust

• iv) Fox hunting (not likely since 2004)

  • Re Thompson [1934]

    • Now probably would not be followed due to the Fox Hunting Act 2004

2) Limited in Perpetuity

• Rule against inalienability

• Undesirable from a public policy perspective for trust to last forever – e.g. scarce commodity like land.

  • In a private express trust, under the rule in Saunders v Vautier (1841) a beneficiary of a bare trust who is sui juris can collapse a trust.

• Private express trusts are limited in perpetuity to 125 years (s.18 Perpetuities and Accumulation Act 2009), but this does not apply to trusts of imperfect obligation, therefore the common law period of 21 years applies.

• The court will not imply a perpetuity clause. Three ways of limiting

  • A) Expressly in the trust instrument - Re Compton [1946]

    • Common law limitation is 21 years.

    • This may be extended by nominating a ‘life in being’ (e.g., ‘for the life of Queen Elizabeth II plus 21 years’)

      • But a life in being must be human (Re Kelly for life of cats and dogs failed)

      • Royal lives are valid (Grender v Dresden)

  • B) Still expressly but by reference to clauses such as ‘so far as the law allows’ - Re Hooper [1932]

    • This is interpreted as the common law 21 years.

  • C) If the court is willing to take a ‘judicial notice’ - Re Haines (1952) the Times 7 Nov.

    • If the length of the trust is certain not to exceed 21 years - typically relates to purpose trusts for the maintenance of animals.

3) There must be someone willing to execute the Trust.

• If the trustee is unwilling to carry out the terms of the trust they cannot be compelled to do so.

  • The courts have never enforced such a trust against a trustee (Re Astor)

  • A trustee can however give his undertaking to a court that they will carry out the trust’s terms (Re Thompson)

• Any individuals who would be entitled to the property if trust fails can prevent misadministration of trust

  • But, they can’t force the trustee to carry the purpose out.

• If there is no one obvious to carry out private purpose trust then the executers or administrators of a will can try and find someone to execute, if they cannot find someone the trust fails.

Re Denley’s Trust Deed [1969] – Sports ground was left to “be maintained and used as and for the purpose of a recreation or sports ground primarily for the benefit of the employees of a company and secondarily for the benefit of such other persons or persons (if any) as the trustees may allow to use the same”.

• Property was required to be subscribed to by the employees, and required 75% subscription otherwise was to revert to the hands of a local hospital.

The trust was upheld as valid by Goff J

• Goff also argued that there was a clear parallel to discretionary trusts.

• ‘People’s’ purposes v abstract purposes

Must meet three conditions

• 1) For the benefit of known or ascertainable individuals

• 2) The purpose benefits the whole class and is not too vague

• 3) The trust complies with the perpetuity rules

Seemingly followed in Re Lipinski [1976]

• Left one half of his residuary estate on trust for a Jewish sports and social club and he stated that the disposition was in memory of his late wife and was to be used by the club in constructing and/or improving new buildings for the use of the club.

• Oliver J upheld this as a valid trust for ascertainable individuals, namely the members of the association

• But in Re Lipinski the association was able to take the money an use it for something else if they voted to do so – more like an absolute gift?

Vinelott J in Re Grant’s Will Trusts suggested that Denley was nothing more than an ordinary discretionary trust for the employees as a class of beneficiaries.

• This view was echoed by Collins J in Re Horley Town Football Club [2006]

Arguments against Re Denley:

• Only one case has expressly followed it (Re North Development)

  • First instance decision (not binding)

• Convoluted reasoning.

• Floodgate argument.

• In the UK we do not like purpose trusts, if this were to be changed then its parliaments role bot judiciary’s role to change.

Purpose as a mere motive - here beneficiary principle is not impinged as the beneficiary still receives the money in the end.

• Re Bowes [1896]– rose garden.

  • Purpose trust converted into normal private express trust for benefit of owners of estate, i.e. mere motive can be ignored.

• Re Andrew’s Trust [1905] – The daughter had been given money for the purpose of education - daughter had finished education. Reamainder stayed with the daughter.

• Re Osoba [1979] – Same facts as above. Apparent purpose is no more than a non-binding motive for makign the gift.

Leftover Funds

• Re Abbot Fund Trust [1900]

  • Fund collected from several contributors for maintenance of two ladies but a surplus remained once both ladies died.

  • This was a clear purpose trust.

  • Partial failure of trust & resulting surplus paid back to contributors

• Re Gillingham Bus Disaster Fund [1969]

  • Appeals were made for money to care for the injured and for 'worthy causes in memory of the killed'. Money was not needed to care for the injured because they were covered by the bus company's insurance.

Power attached to a gift

• Someone wants to ensure purpose is being carried out by giving money to a person in order to ensure that they carry out that purpose.

• Re Tyler [1891]

  • Money given to one charity provided they maintain the tombs, if they did not then the money would go to another charity.

  • Accepted as valid on the rationale that charity A was not required to keep the money: they could keep the money and comply or pass it on.

  • If they passed it on then...