#16177 - Formalities Constitution Of Trusts Incompletedly Constituted Trusts - Trusts and Equity

Table of Contents 1

Introduction 2

Part I – Formal Requirements of Express Trusts 2

I - Inter vivos transactions 2

II – On Death 6

Part II - Completely and Incompletely Constituted Trusts 7

Part III – Summary of Basic principles 18

A = Completely constituted trusts 19

|*Milroy v Lord (1862) De GF & J 264, 45 ER 1185 19

|*Jones v Lock (1865) 1 Ch App 25 20

|*Richards v Delbridge (1874) LR 18 Eq 11 20

|*Re Rose [1952] Ch 499, [1952] 1 All ER 1217; 20

|*T Choithram International v Pagarani [2001] 2 All ER 492 (PC) 21

|*Pennington v Waine [2002] 4 All ER 215; 21

|NOTE Garton [2003] Conv 364 22

|NOTE [2003] Conv 192 24

B = Incompletely Constituted Trusts 25

|Kincaid, “Privity Reform in England” (2000) 116 LQR 43 25

|MacMillan, “A Birthday Present for Lord Denning: The Contracts (Rights of Third Parties) Act 1999” (2000) 63 MLR 721 26

|Elliott, “The Power of Trustees to Enforce Covenants in Favour of Volunteers” (1960) 76 LQR 100 27

|Hornby, “Covenants in Favour of Volunteers” (1962) 78 LQR 228 28

|Lee, “The Public Policy of Re Cook’s Settlement Trusts” (1969) 85 LQR 213 29

|Barton, “Trusts and Covenants” (1975) 91 LQR 236 (response to Lee) 30

|Meagher and Lehane, “Trusts of Voluntary Covenants” (1976) 92 LQR 427 (response to Barton and Lee) 30

|Feltham, “Intention to Create a Trust of a Promise to Settle Property” (1982) 98 LQR 17 32

|Friend, “Trusts of Voluntary Covenants—An Alternative Approach” [1982] Conv 280 32

|Goddard, “Equity, Volunteers and Ducks” [1988] Conv 19 33

|Macnair, “Equity and Volunteers” (1988) 8 Legal Studies 172 34

|CH Tham, ‘The “trustee exception” in Lloyd’s v Harper: loss, liability and “black holes”’ (2016) 132 LQR 148 36

C = Covenants to Settle 37

|*Re Plumptre’s Marriage Settlement [1910] 1 Ch. 609 37

|*Pullan v. Koe [1913] 1 Ch. 9 37

*Davenport v. Bishopp (1843) 2 Y. & C.C.C. 451 37

|*In re Pryce [1917] 1 Ch. 234 38

|*In re Kay’s Settlement [1939] 1 Ch. 329 38

|*In re Cook’s Settlement Trusts [1965] Ch. 90 38

|*Cannon v. Hartley [1949] Ch. 213 39

|*Re Cavendish Browne [1916] W.N. 341 39

|Coulls v. Bagot’s Executor (1967) 119 C.L.R. 460 (High Court of Australia) 39

D = Completely constituted trust of the (contractual) promise, as opposed to the trust property. 40

|*Fletcher v. Fletcher (1844) 4 Hare 67 40

|*Lloyds v. Harper (1880) 16 Ch. D. 290 40

|Don King Production v. Warren [1999] 2 All E.R. 218, 230-237 40

|Burton v. FX Music The Times 8 July 1999 41

|Trident Insurance v. McNiece Brothers (1988) 165 C.L.R. 107 at 120-1, 140, 147-8 41

E = Future Property 42

|*Re Ellenborough [1903] 1 Ch 697 42

|*Williams v CIR [1965] NZLR 395 42

|Norman v. Federal Comm. of Taxation (1963) 109 C.L.R. 141 43

|CONTRAST: Shepherd v. Federal Comm. of Taxation (1965) 113 C.L.R. 384 43

F = Purported trust of or covenant to settle future property followed by vesting of property in the trustees 44

|*Re Brooks [1939] 1 Ch 993; 3 All ER 920 44

|*Re Ralli’s Will Trusts [1964] Ch 288, [1963] 3 All ER 940 44

• Land = signature of both parties (s2 MPA 1989)

• Personalty = no formality requirements

• Equitable interests (in personalty or land) = s53(1)(c) LPA (infra)

1/ Effect:

• If S is legal and beneficial owner = S remains legal owner but equitable interest becomes vested in beneficiaries

• If S is beneficial owner only = creates a sub-trust

  • Effect:

    • (i) where S has active duties to perform or has only declared part of his equitable interest active sub-trust conventional view is that settlor does not drop out.

    • (ii) where the trust declared is S’ entire interest under the existing trust and is a bare trust so that there is nothing left for S to do passive sub-trust

      • Conventional view is that the settlor drops out and the legal owner of the head trust becomes a trustee directly for the beneficiaries under the sub-trust (Upjohn J, Grey v IRC), however:

      • However, Nelson v Greening (CoA, Collins LJ): the authorities didn’t bind the Court to hold that in such circumstances the intermediate trustee ceases to be a trustee. When Grey v IRC said that the practical effect would amount to getting rid of the trust of the equitable interest, it was not the same as saying that in law, it does get rid of the intermediate interest.

      • However, Collins LJ also said that Grey was about personalty where the trustees of a head trust may find it more practical to deal directly with beneficiaries of the sub-trust, and is of no application to cases where the trust property is the purchaser’s interest in land created by the existence of an executory contract for sale and purchase.

      • Thus it is arguable that the old Grey rule still applies in the case of a bare or simple intermediate trust of personal property, while land is governed by Nelson v Greening.

  • Formalities:

    • Conventional view:

      • If the settlor drops out = the declaration of trust will be treated as amounting to a disposition of his subsisting equitable interest s53(1)(c) applies.

      • If the settlor does not drop out = s53(1)(c) does not apply.

    • Green’s alternative view: all declarations of sub-trusts must comply with s53(1)(c) irrespective of whether the settlor drops out or not.

2/ Formality requirements:

• Land = writing signed by the person declaring the trust (s53(1)(b) LPA 1925)

  • This is only an evidentiary requirement – non-compliance doesn’t make the trust void, just unenforceable against the trustees (who can perform if they want to)

  • Writing need not be contemporaneous with the declaration of trust (Rochefoucould)

• Personalty = no formality requirements (can be unsigned writing, orally, or by conduct)

• Equitable interest = writing may be required in some cases under s53(1)(c)

  • HL has applied it to personalty, even though s201(1)(x) LPA 1925 defines “equitable interests” as “all the other interests and charges in or over land” unless the context otherwise requires:

    • Grey v IRC¹: Held (HL) that s53(1)(c) applied and that the purported oral disposition was invalid, and the deed was therefore a disposition attracting stamp duty.

  • Not sure if required for land, though reasoning in Grey would seem equally to apply: writing is already required under s53(1)(b) but if s53(1)(c) also applies then the writing is no longer merely evidentiary.

3/ Dispositions of equitable interests inter vivos:

a/ Writing requirement under s53(1)(c):

• Not merely an evidentiary requirement; the disposition must itself be in writing (so no subsequent rectification possible – implicit in Grey v IRC and Oughtred v IRC)

b/ Scope of s53(1)(c) “disposition of an equitable interest or trust”:

• Transfer by legal and beneficial owner of equitable interest to a third party = not covered because the legal owner didn’t have a separate beneficial interest so it was not a transfer of a “subsisting” beneficial interest (Commissioner of Stamp Duties v Livingston)

• Direct assignment or transfer by beneficiary of his equitable interest = covered.

• Direction to trustee (settlor directs trustee to hold the property in trust for a third party) = covered

  • Grey v IRC essentially, if you start with a subsisting equitable interest and at the end of the transaction you no longer have that interest, then there will have been a disposition and s153(1)(c) applies.²

• Contract (specifically enforceable agreement) to assign an equitable interest = not covered

  • Oughtred v IRC³: IRC claimed stamp duty, arguing that the oral agreement could not effect a disposition of P’s reversionary interest because of s53(1)(c), so the interest remained vested in him until (iii). The parties argued that the oral agreement made P a constructive trustee of the reversionary interest in favour of O so the entire beneficial interest had already passed to O, and a constructive trustee is exempt from the writing requirement by s53(2). Held that there was disagreement as to whether s53(2) applied⁴, but even if it did, the transfer was still a conveyance on sale within the Stamp Act.

  • Neville v Wilson (CoA)⁵: Lord Radcliffe’s (dissenting) view in Oughtred was the “unquestionably correct” view – specifically enforceable agreements to assign an interest in property creates an equitable interest in the assignee under a constructive sub-trust, and s53(2) excludes the requirement of writing under s53(1)(c). Essentially, where an equitable interest becomes subject to a constructive sub-trust as a result of the creation of a specifically enforceable⁶ contract of sale, that equitable interest will immediately vest in the purchaser without the need for writing (s53(2)).

  • However, if Lord Radcliffe is right:

    • This would make S53(1)(c) and S53(2) more artificial because if C assigns equitable interest to D then writing is needed; however if C agrees so to assign and agreement is specifically enforceable, then no writing is required because of constructive trust.

    • S53(1)(c) can be avoided in many ways, eg. instead of disposing of the equitable interest, parties can contract of its disposal for value. Then constructive trust will arise.

  • Thompson attempts to reconcile Oughtred and Neville by distinguishing between:

    • Executory contracts (before purchase price paid – vendor retains equitable interest as in Oughtred)

    • Executed contracts (after payment – entire equitable interest passes by constructive trust, because of “Equity regards as done that which...