#37 - Trusts Revision Summaries - Trusts and Equity

Creation of Express Trusts

Beneficiary Principle

• For a non-charitable trust to be valid it must have a human beneficiary, lest it be impossible to administer (Morice v Bishop of Durham)

• NB Debate on the nature of the beneficiary’s interest

  • See below

  • Crucial to application of Re Denley’s/Re Lipinski’s/Re Grant’s/Baker v Archer Shee & Archer Shee v Garland

• NB Saunders v Vautier rule, and application to exhaustive discretionary trusts (Re Smith), and non-application in cases of ‘gift-over’

• Distinguish dixed trust, discretionary trust, and mere power. ‘Equally’=FT; A gift-over in default implies that initial distribution is a mere power; mandatory language implies a trust

Three Certainties (Required to create an express trust- Knight v Knight)

a) Certainty of Intention

• S had to express an intent to create a trust by name or set of arrangements equating to trust (Re Schebsman). Precatory words alone intention e.g. request to use property for family harmony (Margulies) nor request that T ‘do what’s right’ (Re Adams & Kingston Vestry), though saying property ‘is as much yours as mine’ does (Paul v Constance)

• Intent to make a gift can’t = intent to create a trust (Jones v Lock).

b) Certainty of Subject Matter

• Mere expectation of future property is insufficient (Re Ellenborough).

• Trust property has to be distinguishable from the general mass (Re London Wine/Re Goldcorp), except for intangibles (Re Harvard Securities/ Hunter v Moss)

• A trust for ‘whatever is left’ i.e. a floating charge is valid (Ottaway v Norman) despite inherent uncertainty as to what will be left. Australian High Court in Birmingham v Renfrew says gifts calculated to defeat the floating trust are invalid: Hard to enforce

c) Certainty of Subject Matter

• Fixed trusts require a complete list test (IRC v Broadway Cottages)

• Discretionary trusts use any given postulant (AGP) test (McPhail v Doulton

  • NB Confusion about content of test, but Lord Wilberforce in McPhail and Stamp LJ in Re Baden (No.2) say court has to be able to say of any potential claimant whether or not he comes within class of beneficiaries.

• For a gift standard of recipients is ‘one person’ test if the gift is of an option to purchase property, so that there’s no need to say who actually gets the property (Re Barlow)

• Examples:

  • ‘my old friends’ satisfies ‘one person’ and AGP tests (Re Barlow, per BW J) but not ‘complete list’ (Re Gulbenkian)- it has a core meaning, despite uncertainties.

  • ‘Relatives’ taken to mean statutory kin, so satisfies complete list (Re Gulbenkian)

  • ‘people who have helped me’ = too vague for AGP (Re Wright’s Trust)

• Outsourcing decision to TP: Re Tuck’s ST- different views of Denning MR and Eveleigh LJ

• Conceptual Uncertainty voids FT and discretionary trusts, whereas evidential uncertainty only voids FTs (per sachs LJ in Re Baden (no.2)

General Uncertainty:

• Administrative unworkability (ex p West Yorkshire MCC)

• Capriciousness i.e. a power so broad that it allows T to distribute contrary to intentions of S (Re Manisty)

Theory- Nature of Equitable Interest

View 1: Equitable obligations enforceable by B, imposed on the legal title-owner (the trustee). B has no proprietary interest in the trust property.

• Only view 1 explains Re Denley’s (as supported in Re Lipinski’s and as interpreted in Re Grant’s WT); floating trust (T owns absolutely during lifetime); non-exhaustive discretionary trust; power of distribution w/ gift-over in default; and charitable trusts (enforceable by AG); fact that under a will a beneficiary doesn’t acquire proprietary rights until all debts are paid and/or Ts transfer title to Bs (Livingstone), though arguably wills regime is just different.

• Enforcement rational given in Morice v Bishop of Durham

• Supports historical origins of trust (personal claims for B only) and facilitative principle

• Interest thesis would require property subject to an equitable interest to be capable of segregation i.e. identifiable. Not always necessary though, as in Hunter v Moss.

• Macfarlane’s variant of this view- a right to a right. Equitable interest is a persistent right based on enforcing the core equitable obligation of trust: That T shouldn’t use trust property in his own interest.

• Rejection of retention model of Chase Manhatten (In Westdeutsche) supports view 1.

View 2 Interest thesis- that trust gives proprietary interest in trust property to B, so that T’s correlative duty is to effectuate that interest

• Lord BW in Westdeutsche and Lord Millett is Twinsectra suggest that wherever T holds legal title as a trustee, B must have a symmetrical proprietary equitable interest (obv wrong- see above examples)

• Some say B’s interest attaches to the property therefore must be proprietary- Wrong: it’s the title of ‘owner’ that is being held on trust and not the thing itself (Swadling- Saunders v Vautier requires T to vest title on B, NOT possession).

• Nolan suggests that the proprietary interest/ownership is a negative interest i.e. right to exclude others- hence claims against TPs, priority of B over creditors, and fact that B benefits when the trust property increases in value. These are indicative of ownership.

  • Macfarlane says this can be explained by reference to equitable obligation on T not to use trust property for personal benefit.

  • Also if TP damages property, it’s not B who can make a claim against TP, which implies a right less than ownership (The Aliakmon)

Formalities

Transfer of a Beneficiary’s Interest

• An interest in land can only be CREATED or DISPOSED of in signed writing or it’s VOID (53(1)(a) LPA 1925)

• An interest in personalty can only be DISPOSED of in writing or it’s VOID (53(1)(c) LPA)

• Doesn’t affect operation/creation of RT/CT (53(2) LPA)

• Grey v IRC: If one has an equitable interest before and not after, there is a disposition which had to be in writing

• Specifically enforceable oral agreements give rise to a CT and therefore don’t have to be in writing. (Oughtred/Neville v Wilson)

• An oral direction to a bare trustee to give legal and equitable title to a TP doesn’t need writing- Vandervell v IRC (purposive reasoning of Upjohn; Re Rose reasoning of Wilberforce)

• The correction of a failed express trust to displace the RT that filled the equitable vacuum doesn’t need writing because it is a declaration (Re Vandervell (no 2)- v.dodgy- who is declaring the express trust; RT can’t just die away; NB purposive solution and Hayton’s solution also don’t work).

Inter-Vivos declarations of trust

• A DECLARATION OF TRUST OVER LAND can only be ‘MANIFESTED AND PROVED’ in writing (s.53(1)(b)). Lack of writing does NOT affect the validity of the trust; just enforceability

• CTs/RTs aren’t affected by this (s.53(2))

• NB 2 views of cases where a trust is enforced despite lack of writing: Express trust (equity won’t allow a statute to be the instrument of fraud) vs CT/RT view (only s.53(2) explains this)

• Rochefoucauld; Bannister; Banner Homes; Pascoe v Turner; Paragon Finance; Binions v Evans; Eves;

Theory

Inter-Vivos Declarations of Trust

• Swadling’s View: The cases are express trusts, but aren’t caught by s.53(1)(b) because equity won’t allow a statute to be used as an instrument of fraud. This view is taken by Ungoed-Thomas J in Hodgson v Marks, CA of NSW in Allen v Snyder & explicitly by Lindley LJ in Rochefoucauld. Rochefoucauld could only be an express trust because there was a time limit that had passed for claiming non-express trust (though in Paragon Finance Lord Millett says this can be explained on basis that the statute only applied to CTs that were really just civil wrongs leading to ‘liability to account in equity’ and wasn’t intended to apply to real CTs, though nothing in statute suggests this). Problematic:

  • Doesn’t explain cases where no trust agreement is made before acquisition of the property (Banner Homes)

  • Cases where there’s never an intention to create a trust (Binions v Evans)

  • Cases where the right acquired is different to the one S intended to give (in a case of proprietary estoppel e.g. if Pascoe v Turner were decided post Jennings v Rice, whereby money substitute for property can be awarded)

  • Cases where there is no fraud has occurred, e.g. Eves v Eves, where P has merely promised D that D will get an interest in some land. Swadling has argued that detrimental reliance comes within meaning of ‘fraud’- can’t be right: At the time of making the promise, the promisor may genuinely intend to pass title> Macfarlane says better option is to say detrimental reliance is really just the basis for the CT arising here.

• Macfarlane/Chambers/Gardner view: These ‘exceptions’ are really RTs/CTs and therefore come within s.53(2). Intention may be relevant fore whether a CT/RT has arisen, but is NOT the basis for the trust. Supported by Russell LJ in Hodgson v Marks, who supports RT arising on the basis of Chambers’ UE theory; Gissing v Gissing has been interpreted as a CT (in Rosset & Stack judgments); Millett LJ’s explanation of Rochefoucauld in Paragon Fianance. This is constitutionally justifiable & explains cases that 1^st view cannot. Disadvantages:

  • CT & RT though to be too broad as proprietary rights, which creates uncertainty

  • Vague & wide application offends numerous clauses principle

Rationale of s.53(1)(c)

• General functions of formalities: Channelling; evidentiary; warning; publicity (land registration); Informative (Consumer Credit Act); signalling point at which agreement is reached (esp. following drawn-out negotiations).

• Function of s.53(1)(c)?

  • Prevent fraudulent claims to...