UNIVERSITY OF BRIGHTON
BRIGHTON BUSINESS SCHOOL
Equity and Trusts - LW361- 2013/2014
Suggested Outline Answers
Question One
The question is concerned with the three certainties identified by Lord Langdale in Knight v
Knight as certainty of intention, certainty of subject matter and certainty of objects, all of
which must be fulfilled for a valid express trust.
(a)
This is a discretionary trust and whilst there is certainty of intention and certainty of
subject matter, the issue concerns certainty of objects. The 'is or is not' test
established by McPhail v Doulton should be explained. In Re Baden, the test was
applied to 'relations' and although the judges differed as to the definition of relations,
the trust was held to be valid. However, 'friends' is conceptually uncertain and the
trust would fail unless this group of potential beneficiaries could be severed as
suggested by Sachs J in Re Leek. If the trust fails, the fund would pass to the
residuary beneficiaries.
(b)
This is another discretionary trust and the test above would apply. However, in this
case, the trust is likely to fail for administrative unworkability as the class of potential
beneficiaries is so wide - Re v District Auditor ex parte West Yorkshire Metropolitan
CC and Re Harding. Again the fund would pass to the residuary beneficiaries.
(c)
This disposition to Mark would fail for lack of certainty of subject matter. Keith owns
more than 20 bottles of Chateau Fernier but he has not made it clear which twenty
bottles are to be given to Mark - see Re London Wine, Re Goldcorp. All the bottles
would pass to the residuary beneficiaries.
(d)
This is a fixed gift as the money in the account is to be divided equally, i.e. Keith's
particular chums will receive a fixed amount.
The issue is certainty of objects
because in order to divide the money equally, it will be necessary to have a list of the
beneficiaries - Re Eden. The class of beneficiaries is conceptually uncertain, i.e. what
constitutes a particular chum - it is evident that Keith did not intend all the members
of the golf club to benefit.
(e)
The subject matter of the disposition is uncertain as 'bulk' is not a term of precision
and the gift will fail - Palmer v Simmonds.
(f)
This is a residuary gift. After all the valid dispositions have been distributed, what is
left will pass to Keith's two children, who are the residuary beneficiaries under the
will.
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Question Two
This question concerns the statutory formalities in s53(1)(b) and s53(1)(c) Law of Property
Act 1925. The first requires that a declaration of trust of any interest in land must be
evidenced in writing and signed by the person declaring the trust. Non-compliance
renders the trust unenforceable. The formality does not apply to a declaration of trust of
personal property.
s53(1)(c) LPA requires that a disposition of a subsisting equitable interest be in writing and
signed by the person disposing of the same or by his duly authorised agent. The formality
applies to both equitable interests in land and personal property and non-compliance
renders the disposition void. It can therefore be seen that determining whether a
transaction is a declaration of trust or a disposition of a subsisting equitable interest can
indeed be critical.
As to whether it is controversial, students should discuss and compare the following
transactions. This question requires detailed knowledge of the cases.
Grey v IRC in which the House of Lords held unanimously that Mr Hunter's direction to his
trustees to transfer the interest they held for him under a bare trust to the trusts of his six
grandchildren clearly fell within the meaning of 'disposition' for the purposes of the statute.
The trusts thereby attracted stamp duty which could have been avoided had Mr Hunter
simply declared himself trustee. This case can be compared with the decision in
Vandervell's Trusts (No.2), in which it was held that s53(1)(c) did not apply when a
resulting trust was extinguished and the interest was held on a new trust. Reasons for the
widespread criticism of this decision should be given, for example that the declaration of
the new trust was made not by the settlor, Mr Vandervell, but by his trustees, Vandervell
Trustee Co.
The decision in Grey v IRC may also be compared with the decision in Vandervell v IRC in
which the House of Lords decided that a direction to trustees to transfer the property to
another absolutely was not caught by s53(1)(c).
Where the beneficiary declares a trust of his equitable interest, the question again arises
as to whether he is genuinely declaring and creating a sub-trust or whether in fact he is
simply disposing of his existing equitable interest. In the case of personal property, the
first would be free of any statutory formality but the second would be caught by s53(1)(c).
A number of nineteenth century decisions indicated that if the initial beneficiary had some
sort of function or active duties as trustee, then he was declaring a sub-trust, but if he was
doing no more than creating a bare trust, then he was in fact disposing of his existing
equitable interest. However, following the Court of Appeal case Nelson v Greening &
Sykes (Builders) Ltd. (2008) which did not in fact involve s53(1)(c) Law of Property Act
1925, doubt has been cast on whether the beneficiary who declares himself trustee does
in fact drop out of the picture - for as a matter of law, he does not cease to be a trustee.
Another controversial decision caught by s53(1)(c) LPA which could be discussed is
Oughtred v IRC. It was not followed in Neville v Wilson.
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Question Three
There may be a temptation to state all the solutions available to a would-be beneficiary.
Common law and statutory solutions are not relevant as the question specifically refers to
Equity.
An incompletely constituted trust should be explained and then the rule in Strong v Bird
discussed with its possible extension from an imperfect gift to an incompletely constituted
trust - Re Wale. The rule should be distinguished from Re Ralli's Will Trusts which is
another relevant decision. Proprietary estoppel should also be mentioned briefly as a
possible solution.
If there was a covenant to settle property between the trustees and the settlor, then the
somewhat technical solution of a trust of a promise could apply - Fletcher v Fletcher. The
associated problems regarding the settlor's intention to create such a trust - Re
Schebsman and whether the solution applies only to specific existing property should be
mentioned.
Finally, the concept of a marriage settlement should be explained together with relevant
cases, e.g. Pullan v Koe and Plumptre's Marriage Settlement.
Question Four
James' legal position can be divided into two. Regarding the holiday home which has
been transferred to him by his father, he could plead the presumption of advancement, i.e.
that the transfer is presumed to be a gift. This presumption applies to transfers from a
husband to a wife, a father to a child and a person in loco parentis to a child. In this
context, the term child could refer to an adult. James, regardless of his age, is the child of
Mark. The presumption of advancement will be abolished when s199 of the Equality Act
2010 comes into force but, for the time being, it remains and its abolition will not be
retrospective.
It is a presumption not a rule and, as such, may be rebutted by evidence to the contrary,
i.e. that the transferor intended to retain the beneficial interest in the holiday home, in
which case, James being the legal owner of the home would hold it on resulting trust for
the transferor, Mark. However, Mark cannot rely on evidence of his tax fraud- Chettiar v
Chettiar. Although the facts state that the Inland Revenue is no longer looking into Mark's
affairs, this does not fall within the Tribe v Tribe situation, where there was only a potential
creditor at the time of the transfer and a debt did not materialise. In that case, the father
was taken to have withdrawn from the illegal transaction and was allowed to adduce
evidence of his motive for the transfer.
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James lent money to Stones Books Ltd for the purpose of paying dividends to the
shareholders of the company. The facts fall within the common pattern of a Quistclose
trust - money is lent for a particular purpose, which no longer becomes possible to fulfil
because of the borrower's insolvency. On failure of that purpose, the beneficial interest in
the money lent is recognised as belonging to the lender under a trust. Barclays Bank v
Quistclose Investments Ltd should be discussed. Whilst the result in Quistclose may be
commercially desirable, the reasoning has provoked much debate which should be
outlined in the answer, e.g. is there a primary and secondary trust, what is the nature of
the trust: express, resulting or constructive or peculiar to itself.
Regarding the transfer of the shares to Susie, this raises the presumption of a resulting
trust. Mark would not have to rely on his illegal motive for making the transfer. It would be
up to Susie to rebut the presumption of a resulting trust and to provide evidence that the
transfer was a gift - Tinsley v Milligan, Silverwood v Silverwood.
Question Five
The Society has only one member, its premises have been destroyed and its raison d'etre
no longer exists so it will be dissolved - GKN Bolts v Nuts.
With respect to the destination of the society's funds, the question states that the club is
non-charitable so there is no question of the funds being applied cy pres. That being the
case, there are two approaches which have been adopted by the court (both first instance)
and these should be discussed - Re West Sussex Constabulary Benevolent Fund, in
which a resulting trust approach was applied regarding those parts of the surplus which
arose from identifiable donations and legacies, whilst those parts of the surplus arising
from members' subscriptions and raffles and entertainments were regarded as having
been given on a contractual basis. As these transferees had received what they
bargained for, the surplus was not returned to them but went as bona vacantia to the
Crown. In Re Bucks Constabulary Fund, a contractual approach was applied, and the
surplus (regardless of its source) was held for the members in accordance with an implied
term in the contract inter se. It is generally thought that the view adopted in Re Bucks is
the most appropriate as it fits in with the modern attitude towards gifts to, and asset
holding by, an unincorporated association. It has been followed in another first instance
case - Horley Town Football Club.
There is obiter dicta of Walton J in Re Bucks that if one member remained, that member
would not be entitled to the windfall. This was not applied in Hanchett Stamford where
only Mrs Hanchett-Stamford remained on the dissolution of the Performing and Captive
Animals Defence League, Lewison J explaining that to deprive her of the surplus would be
contrary to her human right to peaceful enjoyment of possession. On this basis, Henry
would be entitled to the Society's assets.
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Regarding the fund in favour of the widows - there are three possible options - firstly that
the surplus was held on resulting trust for the subscribers. The case which illustrates this
is Re Abbott. A fund had been collected from identifiable subscribers for the maintenance
and support of two elderly deaf sisters. No arrangement was made regarding any surplus
remaining in the fund on their death and the question arose as to whether the monies had
been given to the old ladies absolutely in which case it would form part of their estate, or
whether it was subject to an obligation requiring that the fund be used for no purpose other
than the maintenance and support of the two sisters, in which case the surplus would be
held on resulting trust for the subscribers.
The second option is that the subscribers intended the fund to be an outright gift in which
case it would pass under the widows' estate. The case which illustrates this is Re
Andrews Trust. The Bishop of Jerusalem had died and a fund was set up to finance the
education of his seven young children. When their education had been completed, there
remained a surplus of monies in the fund and the same question arose as to whether the
monies had been given absolutely or subject to a trust for a particular purpose. The fund
was regarded as an absolute gift. Whilst the decision in these two cases should have
been based on the intention of the subscribers when they made their contribution,
it is widely believed that the court took a pragmatic approach based on the fact that the
beneficiaries in Re Abbott were dead whereas in Re Andrews, they were alive.
The third option that the fund passes as bona vacantia to the Crown would be appropriate
where the subscribers were anonymous, but the facts in the problem case indicate that the
subscribers can be identified.
The most likely of these three options is that the surplus fund will be returned to the
subscribers and pass under their estate if they are all deceased.
Question Six
Equity follows the law and therefore the sole legal owner, Mike, will be presumed to be
entitled to the entire beneficial interest. It would be for Stella to rely on property law to
rebut the presumption and prove that she was entitled to a beneficial interest in the
cottage.
A methodical way of approaching this question would be to consider the various kinds of
trust in turn. Even though Mike may have made oral declarations to the effect that Stella
had a beneficial interest in the cottage, a declaration of an express trust of land must be
evidenced in writing and signed by the settlor under s53(1)(b) LPA 1925, failing which
such a trust would be unenforceable.
As for a resulting trust, this is currently out of favour with regard to claiming a beneficial
interest in the family home - Stack v Dowden (Lord Neuberger dissenting). A party's
rights in the family home under a resulting trust crystallise at the time of purchase and the
presumption of the resulting trust is raised by direct contributions.
£30,000 of the
purchase price may be attributed to Stella through the presumption of advancement (gift
by person in loco parentis), but the beneficial interest under the resulting trust is quantified
arithmetically, taking into account inflation but proportional to the direct contribution to the
purchase price alone.
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In 1991 in Lloyds Bank v Rosset (1990), Lord Bridge took the opportunity to restate the law
and identified two rules under which a beneficial interest under a constructive trust could
arise. This House of Lords decision has not been overruled and therefore should be
explained briefly.
The express common intention constructive trust required some express although informal
understanding or agreement indicating a common intention regarding the beneficial
interest followed by detrimental reliance by the claimant. Relating this to the facts and
relying on the excuse cases (Eves v Eves, Grant v Edwards, Hammond v Mitchell) and
Stella's actions, these two elements can be found albeit the common intention on Mike's
part is something of a fiction.
It seems that the requirement of an express common intention has been tested not
subjectively but objectively in these excuse cases (which interestingly reflects, to an
extent, the method suggested in Jones v Kernott).
The second type of constructive trust identified by Lord Bridge was the inferred common
intention constructive trust, where the conduct of the parties gave rise to an inference to
share the property beneficially. Again detrimental conduct on the part of the claimant is
required although the same conduct can satisfy both elements of this type of constructive
trust.
Despite Lord Bridge's statement that direct contributions to the purchase price
would justify the inference, adding 'it is at least extremely doubtful whether anything less
will do', the law moved on to some extent in that indirect financial contributions, e.g.
financial contributions to other household expenses such as utility bills thus freeing the
legal owner to pay the mortgage gave rise to the inference of a constructive trust in Le Foe
v Le Foe but purely domestic contributions did not - Burns v Burns. These cases should
be applied to Stella's contributions.
Although the more recent cases of Stack v Dowden and Jones v Kernott were concerned
with cohabitants who were joint legal owners and related to the quantification of their
beneficial interest, the Court of Appeal case of Geary v Rankine confirmed that the
principles stated in those two cases could be applied to sole owner cases - namely that the
parties’ common intention should be deduced objectively from their conduct. Paragraph
69 of Baroness Hale’s judgment in Stack v Dowden provided examples of the sort of
conduct which might be relevant e.g. advice or discussion at the time of the transfer, the
purpose for which the home was acquired, the nature of the parties’ relationship, whether
they had children for whom they both had responsibility to provide a home, how the
purchase was financed, how the parties discharged the outgoing on the property and so
on. These factors, enabling a holistic approach to be adopted, should be related to the
facts in the problem question to secure Stella a beneficial interest in the cottage.
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Question Seven
There are a number of cases which reflect this strict rule, beginning with Keech v Sandford
in 1726. A lessee of the profits of Romford left his estate to a trustee Sandford on trust for
an infant, Keech. The landlord of the lease refused to renew the lease in favour of an
infant, so Sandford, the trustee took it for himself. Keech subsequently successfully sued
the trustee for the profits he made from the lease. The judge held that as the original
trustee, Sandford was the only person in the world who could not take the lease - he could
not exploit this opportunity that arose from his position as trustee.
The rigorous standard imposed on the trustee in Keech v Sandford spread from this
narrow base to include a diverse variety of circumstances where profits might be made,
and to entrap a wide range of fiduciaries, including company directors, partners and
agents and cases should be cited to illustrate this illustrating that the rule has been applied
even when the fiduciary acted in good faith and the principal was not disadvantaged in any
way, Regal (Hastings) Ltd. v Gulliver and Boardman v Phipps.
The precedent was
maintained in the latter case, although its personal effect was mitigated by the House of
Lords approving remuneration on a liberal scale to reward Boardman for his work and skill.
Other jurisdictions have not taken such a strict approach with regard to directors who
pursue an opportunity which has been rejected by the board of directors of the company,
e.g. Peso Silver Mines v Cropper and Queensland Mines v Hudson and English law has
adopted this approach in that directors are able to authorise such conduct by s175 of the
Companies Act 2006 although such authorisation is subject to safeguards.
There is then the question of secret commissions or bribes taken by a fiduciary and the
contrasting decisions in Lister v Stubbs where the fiduciary effectively benefited from the
fruits of his crime and Attorney General for Hong Kong v Reid where somewhat
controversially, Lord Templeman was able to find that the principal had a proprietary
interest in the bribe enabling the principal to trace to property purchased with the bribe so
that the fiduciary should not profit.
Lord Neuberger's criticism of this case in Sinclair
Investments (UK) Ltd v Versailles Trade Finance Ltd should be discussed in relation to the
statement in the question.
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Question Eight
(a)
Trusts for the care of specific animals are unenforceable trusts or trusts of imperfect
obligation. Strictly, although the cases of Pettingall v Pettingall, Re Dean do not
reflect this, such trusts must be confined to the perpetuity period. The statutory
perpetuity period does not apply to these trusts which therefore should not endure for
more than twenty-one years. Courts take judicial notice of the length of an animal's
life - Re Haines and this trust, given that it extends to possible kittens, will exceed the
perpetuity period.
(b)
Charitable trusts must be for a charitable purpose as listed in s3 of the Charities Act
2011, be for the public benefit and exclusively charitable. Whilst this trust is for the
advancement of environmental protection or improvement s3(1)(i) and for the
advancement of animal welfare s3(1)(k), is it for the public benefit?
Any benefit
must be balanced against any detriment or harm - National Anti-vivisection society v
IRC. Would the prevention of the construction of a new road harm the public?
Could such an aim be regarded as political which cannot therefore be regarded as a
charitable purpose. These are the issues which should be considered.
(c)
This question requires consideration of s5 of the Charities Act 2011 which replaces
the Recreational Charities Act 1958. Are the facilities for recreation provided in the
interests of social welfare, i.e. do they improve the conditions of life of the persons for
whom they are intended who have need of such facilities because of their age?
(d)
Whilst this trust falls within two charitable purposes under s3(1)(d) of the Charities
Act - the advancement of health and s3(1)(j) - the relief of those in need by reason of
ill-health, disability etc., the issue is whether it is for the public benefit if there is a
personal nexus between those entitled to the benefit - Oppenheim vTobacco
Securities Trust
Cases regarding a preference for such a class of beneficiaries
should be mentioned, e.g. Re Koettgen's Will Trusts.
(e)
The problem with this gift is that it is not exclusively charitable - Chichester Diocesan
Fund and Board of Finance v Simpson is a relevant case.
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