#3552 - Beneficiary Principle - Trusts and Equity

Beneficiary Principle

BENEFICIARY PRINCIPLE

• Beneficiary Principle – in every other than charitable trust there must be someone (human) in whose favour court can decree performance, in order for the trust to be valid b/c no trust over which court can’t assume control is valid (Morice v Bishop of Durham)

• Rests on 2 propositions:

  1. a trust which can’t be enforced must fail mostly accepted

  2. only Bs can enforce trusts heavily criticised: Bs aren’t the only people best placed to enforce

BENEFICIARY PRINCIPLE

• Beneficiary Principle – in every other than charitable trust there must be someone (human) in whose favour court can decree performance - no trust over which court can’t assume control is valid (Morice v Bishop of Durham)

1. Fixed Trusts

• Largest beneficiary right is found in bare trust – A holds for B + B’s right is fixed/he has equitable ownership (Baker v Archer Shee)

• Adult beneficiary of full age & sound mind, and entitled to the whole of beneficial interest can direct trustees to transfer property to him & put an end to the trust (also applies to cases of 2 or more beneficiaries, even if entitled in succession, but must be unanimous in their decision) (Saunders v Vautier) allows beneficiaries to collapse the trust but not to micromanage it (Re Brockbank)

• In a bare trust, beneficiary entitled to the “trust income” has a claim to the income arising from trust assets & is taxed as though he was the absolute owner of property (Baker v Archer Shee – US citizen’s husband in UK; Commissioners of Stamp Duties v Livingston)

2. Discretionary Trusts

• Traditionally, if trustee in DT failed to exercise their discretion, money was divided equally b/w the objects (IRC v Broadway Cottages) objects had no joint ownership of trust property (Gartside v IRC); b/ftrustees decided in their favour, objects had no “interest” in trust property (Sainsbury v IRC);

• Where DT has large number of objects, as permitted in McPhail v Doulton:

1. Saunders v Vautier – theoretically applicable; practical problems of getting trustees to agree etc. doubtful that the rule can be invoked in practice;

2. If trustees fail to exercise discretion, last resort remedy will be the judicial exercise of discretion;

3. Principle in DT - treat all people put together as though they formed one person, for whose benefit trustees were directed to apply the whole of particular fund (Romer J in Re Smith) rejected by Lord Reid in Gartside v IRC - no group interest in the fund -2 or more persons can’t have a single right unless they hold it jointly/in common – since objects in DT have individual rights, they are in competition w/each other and what trustees give to one is his alone.

NON-CHARITABLE PURPOSE TRUSTS

1. General rule: purpose trusts aren’t normally valid

2. Ways to circumvent

   1. Interpretation as a Beneficial Trust

• The root question is whether:

  1. trustee is under obligation to benefit some personor a group w/the manner of such benefit being secondary = can interpret as trust for Bs

  2. or whether his obligation is to apply the fund for stipulated purpose, irrespective of benefit individuals may derive = purpose trust

• a matter of interpreting the trust deed & words used by settlor in order to find his true intent = courts have occasionally adopted strained interpretations of trusts to avoid treating them as purpose trusts

1. Purpose trust w/ascertainable beneficiaries can be valid since it has beneficiaries to enforce it (Re Bowes – purpose of planting trees, but could have the surplus)

2. RT for benefit of subscribers, death/dumb daughters not intended to become absolute owners of the fund (Re Abbott Fund)

3. Distinguish Re Andrew - surplus of education fund was an absolute gift to the children

4. A gift, although expressed as applicable to certain purposes only, can be construed as having been intended to take effect as absolute gift to beneficiaries w/ref to purposes being a mere expression of motive (Re Osoba – testator intended to make absolute gift, references to maintenance of mother & education of daughter being mere expressions of motive)

• Rule of Construction (Buckley LJ in Re Osoba) – if you make a gift of the whole of capital/income either directly to X or on trust for X & then add expression of purpose, in absence of indication to the contrary, in wording or context, court will treat it as absolute gift to X w/expression of motive/hope as to how it should be used = leaves 3 alternative interpretations e.g. 100K to T to be used for B’s education’

1. a purpose trust whereby T is under obligation to use money to further B’s education = trust is void unless falls within one of exceptions

2. a persons trust for B w/ref to education being treated as settlor’s motive which T & B can ignore = trust is valid & B can use his S&V right

3. a persons trust for B, w/B entitled only to whatever portion of 100 K is required for his education = trust is valid & B can exercise his S&V right to have that portion transferred to him, and could then use it as he sees fit

   1. Anomalous Purpose Trusts

• No principle or policy justifying why they are permitted = accidents of legal history; i.e. allowed b/c courts have allowed them in the past.

• Anomalous cases stand by themselves & shouldn’t be increased in number nor followed except where one is exactly like the other (Harman J in Re Endacott –settlor’s trust to erect memorial for himself not valid)

1. Valid

• A trust for maintenance of certain animals (Re Dean – horses maintenance)

• A trust for construction/maintenance of graves & monuments for 21 years (Re Hooper – family graves & monuments

• A trust for promotion & furthering of fox hunting (Re Thompson)

• Could say, where there’s no enforcement, there must still be control for it to be valid.

2. Invalid

• Purposes must be defined so that, if trustees surrendered their discretion to court, it could carry them out as declared, and not by selecting only the certain one

• Re Astor – preservation of integrity/independence of newspapers, maintenance of good understanding amongst nations – void as non-charitable purpose trust which no one could enforce + too uncertain

  1. Re Denley

• A purpose trust will be upheld (but not construed as trust for persons) if there’s an ascertainable class of people who would benefit, directly or indirectly, from the property being applied for stipulated purpose, provided the benefit to such people isn’t too indirect or intangible & trust isn’t otherwise too uncertain

• Goff J in Re Denley – beneficiary principle is concerned only w/ensuring that trusts are enforceable, so where there are people interested in furthering the purpose, they can enforce it and thus we have no reason to invalidate these trusts, but can instead give them effect w/out treating them as persons trusts; so a plot of land for purposes of recreation/sports ground for benefit of employees of the company & such persons as trustees allow)

• If Goff is right, then majority of non charitable purpose trusts will now be valid, as long as:

  1. the carrying out of purpose benefits an individual/s in a way which isn’t too remote or indirect (presumably Re Astor would still fail)

  2. it’s possible to ascertain individuals who would be so benefited (Goff applied complete list test but could now argue the test is more relaxed)

• But tendency in later cases has been to deny significance of ReDenley& interpret it in line w/orthodox trusts law

1. In Re Lipinski, Oliver J endorsed Goff’s dictum as authoritative & common sensical but then treated Re Denley as a ReBowes type of case where purpose is disregarded & trust is upheld as a trust for persons

2. In Re Grant’s Will Trusts, Vinelott J held Denley falls altogether outside the category of purpose trusts and is a DT for individuals questionable since distinction b/w discretion as to who benefits from the property & discretion as to how it’s to be enjoyed by those entitled is significant

• Equity fastens on the conscience of the person receiving property transferred for specific purpose only = he won’t be permitted to treat it as his own (Carreras Rothmans – Quitsclose Trust)

  1. Quitsclose(see theory notes)

Unincorporated associations – initially thought to be an exception to the beneficiary principle but orthodox position now is that it’s got nothing to do w/purpose trusts... however, following ReDenley, it may do! Treating it as purpose trusts would explain why members aren’t allowed to use the money given by donor for own benefit but for the purpose of association only + why donor is entitled to expect money will be used for particular purpose but b/c of beneficiary principle (i.e. no B = purpose trust is invalid) this has come to be regarded as legal impossibility

Orthodox position is twofold

1. In order for trust to be valid, there needs to an identifiable B, a beneficial owner of property (Morice v Bishop of Durham)

• If there isn’t and the trust is set up for achievement of abstract purpose, it will be void. T’s conscience can only be policed if there’s someone in favour of whom court can decree performance + court needs to be able to assume duty of enforcement.

• Webb:

1. but there are plenty of resources in the world owned by no one and the law accommodates that possibility, so it’s far from clear why someone must have a beneficial interest in the property

2. B isn’t the only one who could enforce

1. Once you discount the possibility of enforcement by settlor, could use the option of appointing an independent enforcer (Hayton + offshore jurisdictions) who would supervise T +...