#16176 - Purpose Trusts - Trusts and Equity

Equity – Introduction

I. Maxims of Equity

1. Equity is discretionary

   1. Though now governed by principles, they are not set in stone and remedies are awarded at the discretion of the court, emphasizing fairness

   2. Schmidt v Rosewood – beneficiaries of a trust have no right to inspect trust documents but court has discretion to allow them to do so

2. Equity is triggered by unconscionability

3. Those who seek equity must do equity

   1. Equitable remedies won’t be granted if C doesn’t intend to treat D fairly

   2. Chappell v Times – employees denied remedy because they refused to sign an undertaking not to strike in the future

4. Those who come to equity must come with clean hands

   1. Remedies will not be granted to C who has acted improperly

   2. Dering v Earl of Winchelsea – legal impropriety only (not moral); conduct must relate to relief sought

5. Equity treats as done that which ought to be done

   1. If A has a specifically enforceable contractual obligation to transfer property to B, Equity will regard it as transferred

6. Equity protects the weak and vulnerable

7. Equity is cynical

   1. In certain cases Equity will mistrust gifts and hold that donee is holding them on a trust on behalf of donor

8. Equity is imaginative

9. Equity follows the law

   1. Equity recognizes Common Law principles but doesn’t apply them slavishly or always

10. Equity looks to substance rather than form

11. Equity will not assist a volunteer

12. Equity assists the diligent

    1. C may be denied a remedy due to lapse in time

13. Equity is equality

    1. If there are multiple equitable interests, they are treated equally

14. Equity acts in personam

    1. Rights destroyed when bona fide acquirer acquires the property (no rights in rem)

The Beneficiary Principle

I. Principle

Property must be held on trust for identified beneficiaries or objects, or it is void, so that the court has people in whose favor it can decree performance. A trust for purposes will not be valid.

II. Example Cases

• Morice v Bishop of Durham – a trust bequeathing “such objects of benevolence and liberality as the Bishop of Durham in his own discretion shall most approve of” was invalid as there were no ascertainable beneficiaries

  • Sir William Grant: “There must be somebody, in whose favour the Court can decree performance”

III. Exceptions

• Charitable trusts – valid though trust for purposes (does not undermine rationale because Charity Commision and AG enforce them

• Express trusts – though appearing to be trusts for purposes people can benefit indirectly, satisfying the requirement

• Exceptionally non-charitable purpose trusts – old cases that are likely to be followed on facts but unlikely extended

Gardner, An Introduction to the Law of Trusts

I. Trustee’s Duties

Traditionally duties are in personam but increasing recognition of rights in rem attached to the trust property:

1. Trust property cannot be taken on bankruptcy because the duties owed are attached to it, whereas borrower can have the money taken away because duties are in personam.

2. When trust property is transferred from trustees, obligations stay with it and affect other people

   1. Except when trustee is authorized to make the transfer (eg. to pay beneficiary from trust assets)

   2. Bona fide purchaser for value (someone who pays what the property is worth without knowing/reasonably knowing it is trust property)

II. Beneficiaries’ Rights

Beneficiaries’ rights mirror trustee’s duties; interest thesis holds that a beneficiary holds interest in the trust property and trustee must provide, rather than the other way around.

Two (three?) categories of NCP trusts being valid:

1. Re Denley’s Trust Deed – two interpretations:

   1. Trust is for the employees as beneficiaries (where employees could claim sports field’s monetary value and not just use)

   2. Judge opted for view that trust is for purpose of providing employees with a sports field so the NCP trust was still valid because employees were benefited and could enforce the trust

2. Quistclose trusts:

   1. Money transferred with understanding that payee would spend it in a particular way failing which it would return to transferer (trustee is not beneficiary as strings are attached to spending)

3. Graves/monuments, masses, particular animals etc.:

   1. Other jurisdictions introduced statutes holding NCP trusts valid as long as there is someone to enforce them

III. Arguments of Principle

Technically all trusts are “purpose trust” because trusts with beneficiaries are simply purpose trusts to transfer money to them. Distinction on this basis is purely for policy. Policy concerns include 1) rights to enjoy property and 2) property be exposed to market influence (thus owned by someone with liberty to dispose). Thus trusts benefiting certain people (eg. sports field for employees) prevents those benefitted from spending the money as they wish, and those of erecting monuments (benefiting no-one) channels money away from enjoyment altogether.

IV: Is Enforceability Necessary?

Examples of enforceable PTs:

• CPTs enforced by AG and Charity Commission

• Re Denley enforced by individuals benefitted by purpose (but only they can enforce – thus if employees didn’t want sports field and trustees did something else with money, nobody else can enforce)

• “Remaindermen” of anomalous cases: they can enforce but have no incentive (underspending on monument/purpose gives them more)

Non-enforcement:

• If person with right to enforce chooses not to enforce, the choice prevails over settler’s wishes (this upholds interest theory as beneficiary has a choice to exercise his ownership)

• Lack of information, energy, resources etc. often impede enforcement

Arguments against requirement of enforceability:

1. Against facilitative policy: while the requirement is supposed to prevent frustration of settlers by subversion of their intentions (eg. trustees keeping money for self) it simultaneously itself frustrates them by denying validity (abolishing requirement allows trust to exist but at the risk of subversion – both only partially vindicate settler’s wishes)

2. Purpose of enforcement is not to secure trustee’s performance of duties as established by settlor but only to the extent that suits the beneficiary

Arguments for requirement:

1. Availability of enforcement is intrinsic to concept of legal duty (or trustee will have full ownership)

However enforcement is not the only factor that ensures trustees use the property for intended purpose.

• No need to worry about enforceability because trustees are mostly solicitors liable to professional authorities so are “self enforced”

Perpetuity Rule

I. Rule against remoteness of vesting

Property must be vested in individuals within a recognized period of time (the perpetuity period), so as to prevent wealth being locked away indefinitely.

II. Perpetuity Period

• Common Law: Life in being plus 25 years

• Reformed by Perpetuities and Accumulations Act 1964: possible to specify a period not exceeding 80 years

• Reformed by Perpetuities and Accumulations Act 2009: 125 years even if trust specifies a different period

III. Wait-and-See Rule

• Under common law: if at the outset property may not be vested within the perpetuity period it is considered void

• Under the Perpetuities and Accumulation Act 2009: if at any one time it possible that property will not vest during perpetuity period it is not to be treated as void until it is certain that it will not vest.

IV. Duration of Purpose Trusts

• Charitable purpose-trusts: since these are vested in the public there is an interest in them lasting forever so Act does not apply

• Non-charitable purpose-trusts: Act still doesn’t apply but since no public interest these are caught by common law perpetuity rules

Law Commission Report on Perpetuities (1998)

• Rule against perpetuities restricts duration of non-charitable purpose trusts

• These are usually void because no beneficiaries can enforce them, but also objectionable because they can be perpetual

• Rule is one method of keeping these trusts in check, so any consideration of it belongs to the law of non-charitable purpose trusts

• Thus made no recommendation of reform to rule

Non-Charitable Purpose Trusts

I. Testamentary Trusts of Imperfect Obligation

A type of non-charitable purpose trust where trustee is entitled to carry out the purpose of the trust but is not obliged to do so. They must fall into a recognized category and are bound by common law perpetuity rules.

II. Categories

• Trust for a particular animal (trusts for the welfare of animals are charitable)

  • Re Dean – trust to maintain the testator’s horses for fifty years as long as they lived that long was enforced

• Trust to erect and maintain monument and graves

  • Pirbright v Salwey – trust to maintain a grave and decorate it with flowers was valid

  • Re Hooper – trust for care and upkeep of family graves and monuments valid for 21 years

• Trust for the saying of private masses (trusts for public masses are charitable)

• Other cases:

  • Re Endacott – these categories should not be extended (here trust to provide “some useful memorial” was void despite comparison to monuments and graves)

III. Other Methods for Non-Charitable Purposes

• Fiduciary power

• Power attached to gift (donee would not be obliged to use the property for purpose stipulated but if he doesn’t the gift would elapse)

• Mandate (donee can act as agent to apply a gift to a purpose; if he doesn’t then he is in breach of fiduciary duty)

• Appointment of an enforcer

Hayton, Obligation Characteristic of the Trust

I. Requirement of Beneficiary

• Trusts are obligations so there must be a beneficiary to enforce it; settlor drops out of the picture as soon...